Option Investor
Newsletter

Daily Newsletter, Sunday, 10/18/2015

Table of Contents

  1. Leaps Trader Commentary
  2. Portfolio
  3. New Plays
  4. Play Updates
  5. Watch

Leaps Trader Commentary

Investors Bet On More Stimulus

by James Brown

Click here to email James Brown

Disappointing Q3 earnings results were not enough to slow the rally in stocks. Instead new hope for additional central bank stimulus overseas and a growing expectation that the U.S. Federal Reserve is on hold fueled market gains both here and abroad. The S&P 500 index managed a three-week winning streak for the first time in months.

Almost all of the major U.S. indices delivered gains for the week but not all pockets of the market participated. Semiconductor stocks surged +3.6% while transportation stocks dropped -2.1%. Housing stocks lost -1.1%. A -3.8% plunge in crude oil sparked a similar loss in oil service stocks.

Investors continue to watch the price of oil. After trading above $50 a barrel the prior week oil settled near $47.40 a barrel. Inventories of crude oil in the United States rose +7.8 million barrels to 468.6 million. That's only 22 million barrels below the 40-year high set last year. Meanwhile Saudi Arabia is actively pursuing an oil price war with Russia. The Saudis have been selling oil at reduced prices in an effort to gain market share and undercut rivals. While that may not be new news this time Saudi Arabia is targeting markets normally served by Russia.

There has been a lot of apprehension about Q3 earnings results. Last week retail giant Wal-Mart (WMT) surprised the market by significantly lowering their guidance. It looks like giving their hourly employees a raise is going to cut margins (is anyone surprised by that?). Shares of WMT plunged -10% on Wednesday for its biggest one-day loss in decades.

There have been several high-profile earnings misses and yet Q3 earnings estimates have actually improved a little. Previously analysts were expecting a -5.5% decline in S&P 500 earnings. That has changed to -4.6%. Unfortunately Wall Street expects Q3 revenues to fall from -1.3% versus a year ago to -3.2%. We are on track for the third consecutive quarter of revenue declines since the 2008-2009 financial crisis.

Economic Data

The market digested a lot of economic data last week. The regional Fed Empire State New York Manufacturing Survey improved from -14.7 to -11.4 but that was still worse than estimates for -8.0. The Philadelphia Fed Business Outlook survey improved from -6.0 in September to -4.5 in October but that was worse than the expectation for a rise to -2.5.

The inflation picture in the U.S. is not supportive of a fed rate hike. The wholesale level look at inflation, the Producer Price Index (PPI), fell -0.5% in September. Excluding food and energy the core-PPI slipped -0.3%. Analysts were expecting a rise of +0.1%. The Consumer Price Index (CPI) dipped -0.2% in September following a -0.1% drop in August. A big drop in gasoline prices and a dip in food prices helped drive the decline. The core-CPI, which excludes food and energy, rose +0.2%.

The U.S. industrial production data rose from -0.4% in August to -0.2% in September but it was the second month in a row for a negative reading and the third decline in the last four months.

U.S. retail sales disappointing. August' retail sales were revised lower from +0.2% to flat (0.0%). September's came in at +0.1%. Yet the core rate on retail sales actually slipped -0.1%. This is a worrisome statistic since consumer spending accounts for about 70% of the economy.

We did see improvement in the late Consumer Sentiment survey, which rose from 87.2 in September to 92.1 in October. That was better than expected. Both the expectations and present conditions components saw healthy gains.

Overseas Economic Data

One of the biggest drivers for the week was a new hope for further central bank stimulus overseas. The constant parade of disappointing economic data in China, Japan and Europe has investors betting that governments will step in to energize their economies.

Japan reported their Industrial Production numbers for August fell -1.2%, which was worse than expected and followed a -0.5% drop in July. China said their CPI for September rose +0.1% but that was less than expected and below August' 0.5% gain. China's PPI plunged -5.9%.

One of the biggest stories of the week was China's trade balance numbers. Their exports declined -3.7% from a year ago in September. That followed a -5.5% drop in August. The big surprise was imports. Economists were forecasting at -15% drop in imports. China said September's imports actually fell -20.4%. It was their eleventh month in a row for falling imports. Their trade balance ballooned up to $60.3 billion.

China is due to report their Q3 GDP estimate soon and it's widely expected to come in below the 7.0% growth estimate.

Looking toward Europe the region continues to see problems with low inflation numbers. Eurostat said their gauge for EU CPI fell -0.1% in September, marking the first negative read since March. The Eurozone reported Industrial Production for August slipped -0.5%, which followed a +0.8% rise the prior month.

The markets also digested comments from two European Central Bank members who suggested the ECB needs to do more to stimulate the economy.




Major Indices:

The big cap S&P 500 index rallied +0.9% for the week. That trims its 2015 loss to -1.25%. The breakout past resistance at 2,020 is bullish. The rebound off short-term technical support at its rising 10-dma is also encouraging. Unfortunately I cannot issue an "all clear" signal. The S&P 500 has rallied into a heavily congested area with a lot of resistance.

The 2,040 to 2,133 region has several hurdles for the bulls. Right now I would focus on short-term resistance in the 2,040-2,060 range. The simple 200-dma is near 2,060 and the trend line of lower highs is near 2,040.

Daily chart of the S&P 500 index:

Weekly chart of the S&P 500 index:

The action in the NASDAQ composite was very encouraging. The index rallied +1.1% and boosted its year to date gain to +3.2%. More importantly the NASDAQ has rallied past resistance at its 50-dma and past its trend line of lower highs (see the daily chart below).

Now the NASDAQ faces resistance near 4,900 and its simple 200-dma (near 4,920).

chart of the NASDAQ Composite index:

The small cap Russell 2000 index ($RUT) underperformed its big cap peers with a -0.26% decline last week. It's down -3.5% year to date. The bounce off its midweek lows is encouraging but the $RUT has resistance near 1,170. There is also a lot of resistance in the 1,200 and 1,220 area. The simple 200-dma is at 1,216.

chart of the Russell 2000 index



Economic Data & Event Calendar

The pace of economic data slows down this week. That's probably good news since it would likely be ignored for Q3 earnings results. There will be a lot of high-profile companies reporting their earnings in the week ahead.

The market will also be listening for any clues from the Fed. Several Federal Reserve members will be speaking at various engagements including Fed Chairman Yellen who speaks on Tuesday, October 20th.

The week will start off with market reaction to Chinese data. The country will release its monthly industrial production numbers, its retail sales numbers, and its Q3 GDP estimate. There does seem to be a little confusion on when exactly this data will be announced. Looking at multiple sources some say China will provide these reports on Sunday (tonight) while others say Monday.

One of the bigger events for the week will be the ECB meeting. There is a growing expectation that the ECB needs to add more stimulus to help the economy and avoid deflation.

- Monday, October 19 -
Global markets react to Chinese economic data
(Chinese industrial production, retail sales, and Q3 estimate)
NAHB housing market index

- Tuesday, October 20 -
Housing Starts & Building Permits
Fed Chairman Yellen speaks

- Wednesday, October 21 -
...nothing significant...

- Thursday, October 22 -
Chicago area Fed survey
Kansas City area Fed survey
U.S. Existing Home Sales
ECB meeting and interest rate decision
ECB press conference

- Friday, October 23 -
...nothing significant...

Additional dates to be aware of:

Oct. 28th - FOMC meeting
Nov. 3rd-5th - U.S. debt ceiling deadline
Nov. 18th - $14 billion in U.S. social security payments due
Nov. 26th - Thanksgiving holiday (markets closed)
Dec. 16th - FOMC meeting, new forecast Dec. 16th - Fed Chairman Yellen's press conference
Dec. 24th - Christmas Eve (market closes early)
Dec. 25th - Christmas (market closed)

Looking Ahead:

U.S. Debt Ceiling

Looking ahead we are going to hear more about the U.S. debt ceiling deadline. A few days ago U.S. Treasury Secretary Jack Lew warned that the country could run out of cash on November 3rd, which is two days earlier than previously estimated. According to Lew, "at that point, we expect Treasury would be left with less than $30 billion to meet all of the nation's commitments". He went on to say that $30 billion could be "quickly depleted" as the U.S. would depend on daily tax receipts for income. There's a battle ahead in Washington over raising the debt ceiling and it could push some investors to the sideline.

Holiday Sales

If you have been shopping lately then you've probably noticed all the Halloween decorations around your local shops. The holiday season is coming. Thanksgiving is only six weeks away. Christmas is only 67 days away. Many retail stores rely on the fourth-quarter holiday shopping season to bring in up to one-third of their annual sales.

The market will be sensitive to any holiday sales forecasts. Analytics firm RetailNext is forecasting foot traffic to fall -8% this year. They only see a +2.8% rise in sales. The National Retail Federation is a bit more optimistic and they are forecasting a +3.7% improvement in holiday sales but that is a little bit slower than last year.

Q3 GDP forecast

GDP forecast for the third quarter continues to slip. The Atlanta Fed's real time GDP Now forecast has fallen from +1.0% to +0.9%. Wall Street analysts' estimates have fallen from +3.2% in July down to +2.0%.

Investor Sentiment

You might think that the market's three-week rally would turn more investors bullish. However, bullish sentiment sank -3.4% to 34.1% last week. The AAII survey also saw bearish sentiment decline to a three-month low at 27.1%. It looks like traders are skeptical of the rally but they are not convinced enough to actually short it.

I wouldn't fret too much about this sentiment yet. Bull markets tend to climb the "wall of worry". The current set of "worry" has pushed traders to sit on the fence.

FYI: Bullish sentiment has been under the long-term average for 29 weeks in a row. It's been under 40% for a record 33 weeks in a row.

Investor Sentiment Survey (AAII)

Source: AAII

More Confused Than Ever!

One of the reasons investors are turning neutral on the market may be out of confusion. If you have felt confused about the market's performance you are not alone. Credit Suisse said their clients are more confused than ever!

Andrew Garthwaite, from Credit Suisse, has been talking to clients. Essentially everyone is struggling to understand the market.

Over the past few weeks, the Credit Suisse global equity strategist and his team have met with customers in the U.S., Europe, and Asia. The takeaway is that everyone is baffled by the market.

Following meetings with clients in the U.S., Europe and Asia over the past few weeks, we make the following observations: Confusion: Never have we seen so many clients who just do not know what is happening and have cashed up. ...The wall of bearishness was extreme in the US - roughly 80 percent of meetings - but much more balanced outside the U.S. (maybe because markets started to rally in the meantime). Often in the U.S., the question was 'why isn't this a bear market?'.

In Asia, on the other hand, most investors were less concerned about China (though, we have always found the closer you get to China geographically, the less concerned investors are about China).

Sure, the markets have been more volatile lately and nobody can seem to agree on when the Federal Reserve will finally move off of its zero interest rate policy, but there are a number of other reasons investors wanted to move to cash until the future is a bit clearer.

The Bloomberg article continues and outlines a few reasons why investors might be moving to cash. You can read it here.

Seasonal Market Performance

The normal early October weakness did not show up this year. According to the research team at the Stock Trader's Almanac, this October's rally in the S&P 500 has delivered the best performance since 2011. The rally also made it the 8th best start to October for the S&P 500 since 1950.

Now we are entering the second half of the month when stocks normally tend to rebound off their October lows. Except this time we didn't get any new October lows. Instead the market is up three weeks in a row.

Mutual and hedge fund managers have a choice to make. Most funds are underperforming their benchmarks this year. October 31st is the fiscal year end for many of them. They have two weeks left. This is the time they would typically window dress their portfolios to look good when they mail out their statements next month. That would suggest these guys will be buying the dips between now and month end and likely chasing breakouts higher.

~ James





Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

It was another very successful week for our LEAPStrader watch list. We had multiple candidates graduate to active trade status.

ADBE will be joining our active trade list on Monday morning.

CRM, DIS, HSY, and LUV have joined the active play list.

Disclaimer: At any given time the author may have positions in any or all of any companies mentioned in the Leaps Newsletter.

--Position Summary Table--
Table lists Directional CALL or PUT/LEAPS only.
Insurance puts, if applicable, are not shown.

Red symbol/name represents a play or option position exited or closed this week.




New Plays

Quickly Forgiven

by James Brown

Click here to email James Brown


- New Trades -


Adobe System Inc. - ADBE - close: $88.67

Company Info

Comments:
10/18/15: Investors have quickly forgiven ADBE for their weaker than expected guidance. The stock has surged the last couple of days and broken through resistance to close at new all-time highs.

We had ADBE on the watch list. The plan was to wait for shares to close inside the $87.50-89.00 range and then buy calls the next morning. ADBE met that requirement with Friday's close at $88.67. This trade will open on Monday morning.

Trade Description: October 11, 2015:
Back in the old days you used to buy software in a store, bring it home, and install it on to your personal computer. You paid for it. It was your copy to use forever - a perpetual license. Today the business model has changed, especially at ADBE. Nowadays you download the software from the internet to your computer and pay for it on a monthly, subscription basis.

If you're not familiar with ADBE here's a brief company description: "Adobe is changing the world through digital experiences. Content built and optimized with Adobe products is everywhere you look - from websites, video games, and smartphones to televisions, tablets, and beyond. Adobe Creative Cloud software offers the most innovative tools for creating digital media, while Adobe Marketing Cloud delivers groundbreaking solutions for data-driven marketing. Our leadership in these two emerging categories, Digital Media and Digital Marketing, provides our customers with a real competitive advantage, positioning Adobe for continued growth well into the future. As one of the largest software companies in the world, Adobe achieved revenue of more than US$4 billion in 2013."

The company's Q1 earnings report was March 17th. Results were $0.44 a share, which was five cents better than expected. Revenues were up +10.9% to $1.11 billion, also above expectations. The company continues to see success with their subscription model and added 517,000 new creative cloud subscriptions, a +28% improvement from a year ago.

Q2 results came out on June 16th. ADBE beat the bottom line with earnings of $0.48 a share (3 cents above estimates). Revenues were up +8.8% to $1.16 billion, which was in-line with expectations. Management lowered their Q3 and 2015 guidance. This sparked a one-day sell-off that traders quickly used to buy the dip.

The company delivered a similar performance in its fiscal Q3. ADBE reported on September 17th. They beat estimates by four cents. Revenues improved +21% from a year ago to $1.22 billion, slightly ahead of estimates. Yet management lowered their Q4 estimate again. The stock gapped down the next day and then rallied.

This past week ADBE lowered their guidance yet again. This time they adjusted their fiscal 2016 numbers below estimates. What happened? Wall Street defends the stock and shares see a one-day decline. There seems to be a trend of investors buying bad news. It's probably because these are all short-term issues for ADBE and a good chunk of the problem is foreign currency headwinds. ADBE is still forecasting double-digit percentage gains for most of its businesses through 2018. Revenues growth is forecasted to grow +20% while earnings are forecasted to grow +30% over the next few years.

Technically ADBE is still in a long-term up trend in spite of some volatile moves in the last few months. Shares are only a few points away from new all-time highs. The peak is $87.25 set in August this year. Tonight I am suggesting we wait for ADBE to close in the $87.50-89.00 range and buy calls the next morning with a stop loss at $77.85.

Breakout trigger: Wait for a close in the $87.50-89.00 range.
Then buy calls the next morning with a stop loss at $77.85

BUY the 2017 Jan $100 call (ADBE170120C100) current ask $6.55

10/19/15: Trade begins.
10/16/15: Triggered. ADBE @ $88.67, in the $87.50-89.00 entry range
Option Format: symbol-year-month-day-call-strike

Chart of ADBE:

Originally listed on the Watch List: 10/11/15



Play Updates

Bulls Enjoy Another Up Week

by James Brown

Click here to email James Brown

Editor's Note:

Bulls had another good week with a relatively widespread rally.

CRM, DIS, HSY, and LUV have graduated to our active play list.


Closed Plays



None. No closed plays this week.




Play Updates


Ambarella, Inc. - AMBA - close: $56.39

Comments:
10/18/15: The sell-off in both AMBA and GPRO slowed last week. They both posted declines but AMBA spent most of the week consolidating sideways. AMBA lost less than $1.00 for the week.

I am not suggesting new positions. We currently do not have a stop loss on this trade but more conservative investors may want to add one near $53.00.

Trade Description: September 8, 2015:
Shares of AMBA have come a long way from its IPO in October 2012 when the stock priced at $6.00 a share, below expectations. Even now, after a minus $55 drop from its 2015 highs the stock is still up +41% for the year.

AMBA is in the technology sector. They're considered part of the semiconductor and semiconductor equipment makers. The company was founded in 2004 and went public in 2012. That price was significantly below where AMBA was expected to price in the $9-11 range. Investor sentiment has definitely changed since then.

The company has grown from making broadcast-class encoders to making consumer and sports cameras, security cameras, and now automotive cameras. Their high-definition chips are being integrated into security IP cameras and wearable cameras. AMBA is also capturing part of a new market - cameras on consumer-level remote control drones.

The last two plus years have seen a strong performance in AMBA with the stock up more than +600% from its IPO price. AMBA has GoPro, Inc. (GPRO) to thank for part of that rally. When GPRO held its IPO last year (2014) it drew attention to AMBA who makes the chips for the video processing in GPRO's cameras. Shares of GPRO saw a huge decline 2014 highs but shares of AMBA have continued to rally.

Part of GPRO's trouble is competition from a large Chinese rival - Xiaomi. GPRO is currently seen as best of breed in the action camera market but it may not hold that spot forever. Xiaomi is selling similar cameras at a significant discount to GPRO and both cameras use AMBA's technology. Both camera makers have different models. GPRO's top of the line still has better components than Xiaomi's - at least for now. The real winner is AMBA since they supply to both companies. Multiple analysts have commented on AMBA's relationship with Xiaomi and believe it will bear significant fruit in the future.

The company has seen tremendous earnings and revenue growth over the last couple of years. Their most recent earnings report was September 1st, 2015. Revenues were up +79% from a year ago to $84.2 million, which was above expectations. The stock sank because management offered soft guidance. When a high-flying, high-valuation stock like AMBA starts to see revenues slow down their valuations collapse.

After a -42% decline from its highs AMBA is probably still has a rich valuation and that's the biggest complaint about the stock price. Shares will likely maintain a high P/E for a long-time as growth will continue. The pullback is most likely a temporary slowdown.

While we are longer-term bullish on AMBA I suspect the sell-off isn't over yet. We want to take advantage of any volatility.

Momentum stocks like AMBA climb and climb and climb and then suddenly reverse. When momentum stocks reverse lower they often fall farther and further than we might normally expect. Today (Sept. 8th) the broader market delivered a widespread rally with the major indices up +2.5%. Yet AMBA lost ground, losing -0.5%. If shares breakdown under short-term support at $70.00 the next support level is probably $60.00.

Tonight I am listing AMBA as an aggressive, higher-risk trade. We want to use a buy-the-dip trigger at $62.00. Options are expensive because AMBA is so volatile. I suggest small positions to limit risk. We are not listing a stop loss at this time and will and one as the trade progresses.

I am listing the 2016 January calls. I'd like to buy the 2017 Januarys but they are very expensive.

Use small positions to limit risk - AMBA is a volatile stock!

- Suggested Positions -
SEP 24, 2015 - entry price on AMBA @ 61.00, option @ 5.40
symbol: AMBA160115C70 2016 JAN $70 call - current bid/ask $2.65/3.20

10/11/15 worries over GPRO are hurting AMBA. Cautious investors may want to add a stop loss.
09/24/15 triggered @ $61.00
09/13/15 adjust the buy-the-dip trigger to $61.00
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: n/a
Play Entered on: 09/24/15
Originally listed on the Watch List: 09/08/15


The Clorox Co. - CLX - close: $121.92

Comments:
10/18/15: CLX managed another gain. That pushes the current rally to five up weeks in a row. The stock looks short-term overbought here and due for a pullback.

I am not suggesting new positions at this time. CLX is scheduled to report earnings on November 2nd. More conservative investors may want to use a higher stop loss.

Trade Description: September 8, 2015:
Clorox is not just a bleach and cleaners company. They also make food and personal care items. Actually they make a lot more.

CLX is in the consumer goods sector. According to the company, "The Clorox Company is a leading multinational manufacturer and marketer of consumer and professional products with about 7,700 employees worldwide and fiscal year 2014 sales of $5.5 billion. Clorox markets some of the most trusted and recognized consumer brand names, including its namesake bleach and cleaning products; Pine-Sol cleaners; Liquid Plumr clog removers; Poett home care products; Fresh Step cat litter; Glad bags, wraps and containers; Kingsford charcoal; Hidden Valley and KC Masterpiece dressings and sauces; Brita water-filtration products and Burt's Bees natural personal care products. The company also markets brands for professional services, including Clorox Healthcare, HealthLink, Aplicare and Dispatch infection control products for the healthcare industry. More than 80 percent of the company's brands hold the No. 1 or No. 2 market share positions in their categories."

Earnings have been pretty strong when you consider the negative impact of currency fluctuations on a big multi-national like CLX. On February 4th CLX announced its Q2 report and beat Wall Street estimates on both the top and bottom line. Management raised their 2015 guidance and their revenue guidance.

Their Q3 report, on May 1st, was a little bit softer. Earnings of $1.08 per share missed estimates by 2 cents. Revenues were up +2.6% to $1.4 billion but that was above expectations. Management raised their outlook again for their full year 2015 guidance.

Their most recent report was CLX's Q4 results on August 3rd. Earnings of $1.44 per share was seven cents above estimates. Revenues were up +4.0% to $1.56 billion, also better than expected. Management issued soft guidance, below Wall Street estimates, but the stock rallied anyway.

CLX has a strong, long-term up trend. Investors could seek safety in stocks like CLX if the global economy continues to struggle.

The stock market's correction saw CLX plunged back toward technical support near its 200-dma. Now the stock has been consolidating sideways in the $108-112 zone. I'd like to see CLX fill the gap ($112-114) before we launch positions. Therefore the plan is to wait for CLX to close above $114.25 and then buy calls the next morning.

This is a long-term trade. We're using the 2017 calls.

- Suggested Positions -
SEP 22, 2015 - entry price on CLX @ 113.65, option @ 5.25
symbol: CLX170120C125 2017 JAN $125 call - current bid/ask $5.50/7.20

10/18/15 CLX looks short-term overbought and due for a pullback
10/11/15 new stop @ 111.85
09/27/15 new stop loss @ 105.85
09/22/15 Trade begins. CLX opens at $113.65
09/21/15 triggered. CLX closed @ $114.47, trigger was a close above $114.25
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 111.85
Play Entered on: 09/22/15
Originally listed on the Watch List: 09/08/15


Costco Wholesale - COST - close: 152.06

Comments:
10/18/15: After a five-week winning streak COST encountered some profit taking and posted a small loss for the week. The good news is that traders bought the dip near short-term support.

Tonight I am adjusting our stop loss up to $143.50. No new positions at this time.

Trade Description: October 4, 2015:
After five years of solid gains the rally in COST peaked in the $155 area in early 2015. The stock has spent the last several months in a massive consolidation that could be coming to an end.

If you're not familiar with COST they are in the services sector. The company runs a membership warehouse business that competes with the likes of Sam's Club (a division of Wal-Mart). According to the company, "Costco currently operates 686 warehouses, including 480 in the United States and Puerto Rico, 89 in Canada, 36 in Mexico, 27 in the United Kingdom, 23 in Japan, 12 in Korea, 11 in Taiwan, seven in Australia and one in Spain. The Company plans to open up to an additional 16 new warehouses (including one relocation to a larger and better-located facility) prior to the end of its fiscal year on August 30, 2015. Costco also operates electronic commerce web sites in the U.S., Canada, the United Kingdom and Mexico."

Revenue growth has been lackluster this year. COST has managed to beat Wall Street estimates on the bottom line but the revenue number has been soft. Their most recent quarterly report was announced on September 29th. Earnings were up +10% from a year ago to $1.73 a share. That beat estimates. Yet COST said their Q4 revenues were virtually flat (+0.7%) to $35.78 billion. That missed expectations. Comparable store sales were up +2% in the U.S. but down -10% in Canada.

A lot of COST's revenue troubles have come from lower oil, which has pushed gas prices lower. The big drop in gas prices cuts their revenue growth. Plus the stronger dollar hurts their foreign sales. The company continues to expand its presence in the U.S. and overseas. Management plans to launch 12 new warehouses this quarter. Overall COST plans to build 32 new stores in the next 12 months, including its first store in France.

The stock looks poised to breakout past its July, August, and September highs and make a run at its 2015 highs. We suspect COST is going to grab more investor attention as we approach the holiday shopping season. The stock tends to see a rally from September into Black Friday (the day after Thanksgiving).

COST has resistance in the $147.00 area. The August intraday high was $147.59 while the August closing high was $146.89. Tonight I am suggesting we wait for COST to close above $147.60 and buy calls the next morning. More conservative traders may want to wait and make sure COST closes above $148.00 instead since a close above this level would generate a new buy signal on the point & figure chart.

- Suggested Positions -
OCT 06, 2015 - entry price on COST @ 148.15, option @ 8.70
symbol: COST170120C160 2017 JAN $160 call - current bid/ask $8.70/ 9.15

10/18/15 new stop @ 143.50
10/06/15 trade begins. COST @ $148.15
10/05/15 triggered. COST @ $148.07, above trigger @ $147.60
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 143.50
Play Entered on: 10/06/15
Originally listed on the Watch List: 10/04/15


Salesforce.com - CRM - close: 78.77

Comments:
10/18/15: CRM is a watch list candidate that graduated to active play status last week. We had two different entry points. One was to wait for CRM to breakout past resistance and close above $76.25. On October 13th, CRM closed at $76.63. Our trade opened the next day. Since then the stock has continued to rally and ended the week at new all-time highs.

If you missed our entry point I would wait for a dip in the $76-77 area as our next opportunity.

Please note that I am adding a stop loss at $67.65.

Trade Description: September 20, 2015:
If you're looking for a long-term bullish candidate CRM definitely fits. Founded in 1999 and headquartered in San Francisco the company has become a huge player in the cloud computing industry.

CRM is part of the technology sector. According to the company, "Salesforce is the world's #1 CRM company. Our industry-leading Customer Success Platform has become the world's leading enterprise cloud ecosystem. Industries and companies of all sizes can connect to their customers in a whole new way using the latest innovations in cloud, social, mobile and data science technologies with the Customer Success Platform."

CRM's revenues have been consistently growing in the mid +20% range the last few quarters. Their Q4 revenues were up +26%. Q1 revenues were +23%. The company's most recent quarter was announced August 20th. Analysts were expecting Q2 results of $0.17 a share on revenues of $1.6 billion. CRM beat both estimates with a profit of $0.19 as revenues grew +23.5% to $1.63 billion. Management raised their Q3 and full year 2016 revenue guidance.

Technically the stock is in a long-term up trend and the point & figure chart is forecasting an $85.00 target. Considering where we are on the calendar and the fact that the next three weeks tend to be the worst weeks of the year for stocks, I am suggesting a buy-the-dip trigger. Wait for CRM to dip to $65.25 and then buy calls.

- Suggested Positions -
OCT 14, 2015 - entry price on CRM @ 76.29 option @ 8.20
symbol: CRM170120C85 2017 JAN $85 call - current bid/ask $8.10/ 8.90

10/14/15 Trade begins. CRM @ $76.29
10/13/15 Triggered. CRM @ $76.63, above $76.25 trigger
10/11/15 strategy update: move the buy-the-dip trigger to $68.00 and adjust the stop loss to $63.75
If CRM continues to rally, buy calls if the stock closes above $76.25
Option Format: symbol-year-month-day-call-strike

Chart

Current Target: To Be Determined
Current Stop loss: 67.65
Play Entered on: 10/14/15
Originally listed on the Watch List: 09/20/15


DR Horton Inc. - DHI - close: 30.04

Comments:
10/18/15: DHI encountered some profit taking last week. Traders bought the dip at technical support on the stock's rising 100-dma. Shares have since started to bounce. I am still suggesting investors wait for DHI to close above $31.15 before considering new bullish positions.

FYI: DHI is scheduled to report earnings on November 10th.

Trade Description: September 13, 2015:
Believe it or not but homebuilders have been some of the market's better performers this year. The group is up about 15% year to date. DHI has outperformed its peers with a +24% gain in 2015. The stock is poised to breakout past resistance near $32.00 and hit new multi-year highs.

If the Federal Reserve does announce a rate hike on Thursday it could spark a temporary sell-off in the homebuilders. I want to be ready to buy the dip in DHI. The stock should have support in the $27.00-28.00 area. Tonight I am suggesting a buy-the-dip trigger at $28.50 and we'll list a stop loss at $25.75.

- Suggested Positions -
OCT 06, 2015 - entry price on DHI @ 31.15, option @ 3.70
symbol: DHI170120C35 2017 JAN $35 call - current bid/ask $2.10/2.85

10/06/15 Trade begins. DHI @ $31.15
10/05/15 Triggered. DHI @ $31.07, above $30.65 trigger
10/04/15 Add a second trigger - a close above $30.65 as another entry to buy calls
10/04/15 adjust the buy-the-dip trigger from $28.50 to $27.75 and move the stop loss down to $25.45.
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 25.45
Play Entered on: 10/06/15
Originally listed on the Watch List: 09/13/15


The Walt Disney Co. - DIS - close: 108.24

Comments:
10/18/15: DIS is another watch list candidate that graduated to active play status last week. We had two different entry point strategies to launch positions. We wanted to see DIS close above $106.50 and then buy calls the next day. Shares closed at $106.59 on October 13th. Our trade opened the next morning with DIS gapping down at $106.50.

If you missed our entry point I suggest waiting for a dip into the $105-106 area. Tonight I am adding a stop loss at $97.45.

Trade Description: September 27, 2015:
The Force is strong with this one. DIS is poised to reap a galaxy of profits as the company re-launches the Star Wars franchise.

DIS has been a big cap superstar with strong, steady gains off its 2011 lows. That changed in August this year. Shares of DIS plunged into a very sharp and painful correction. The catalyst for the drop was the company's earnings report. Disney reported earnings on August 4th and beat the street with earnings of $1.45 compared to estimates for $1.42. The very next day shares fell -$11.00 to $110. The sell-off accelerated in August thanks to the global market meltdown. Since then shares have recovered.

Disney posted $13.1 billion in revenue compared to estimates for $13.2 billion. That minor miss was not the reason for the huge decline in the stock. Disney said revenues in its cable products rose +5% BUT they had seen some pressure from online streaming. Subscription growth to the ESPN cable bundle had slowed, not declined, just slowed.

There are multiple reasons. There were no major sporting events this summer like the World Cup, Olympics, etc. Some consumers are cutting the cord to cable because they are now getting their TV programming from Netflix, Hulu, etc. Cable is expensive compared to the streaming options. The drop off in ESPN growth is not related specifically to Disney. CEO Bob Iger said subscriptions would pick back up in 2016 and expand sharply in 2017 thanks to a flood of sporting events due to come online next year.

Disney has already purchased the rights to nearly every sporting event available in the next five years but the old contracts with the prior rights holders have yet to expire. As those contracts expire and the new Disney contracts begin the content on ESPN will surge.

(sidenote - The advertising environment for television should also improve in 2016 thanks to the U.S. presidential election.)

This slowdown in ESPN growth should be ignored. This is just a small part of the Disney empire and everything else is growing like crazy. Parks and resorts revenue rose +4%. Consumer products revenue rose +6% thanks to Frozen, Avengers and Star Wars merchandise. The only weak spot was interactive gaming, which declined -$58 million to $208 million. Disney expects that to rebound in Q4 as new games are released and holiday shopping begins.

The real key here is the theme parks, cruises and most of all the movie franchises. They have five Star Wars movies in the pipeline and the one opening this December is expected to gross $2.2 billion and provide Disney with more than $1 billion in profits. This is just one of the blockbusters they have scheduled.

Analysts are claiming Disney shares could add 25% before the end of December because of their strong movie schedule and coming attractions. The Avengers movie in April was a hit and added greatly to their Q2 earnings. However, that will just be a drop in the bucket compared to the money they are going to make on the Star Wars reboot in December. That is the first of five Star Wars movies on the calendar. Remember, Disney now has Marvel, Pixar and Star Wars (Lucasfilm) all under the same roof.

Disney Movie Schedule (partial list)

Dec. 18, 2015 - "Star Wars: Episode VII - The Force Awakens"
2016 - "The Incredibles 2"
2016 - "Frozen" sequel
April 2016 - "Captain America: Civil War"
June 2016 - "Finding Dory"
Dec. 2016 - "Star Wars Anthology: Rogue One"
May 2017 - "Star Wars: Episode VIII"
June 2017 - "Toy Story 4"
Late 2017 - "Thor: Ragnarok"
May 2018 - "Avengers: Infinity War - Part I"
2018 - "Untitled Star Wars Anthology Project"
May 2019 - "Avengers: Infinity War - Part II"
2019 - "Star Wars: Episode IX"

Content is still king and DIS rules. They're going to make a hoard of money off their Star Wars movies but that's just the tip of the iceberg. There will be tons of money made on merchandising from toys, clothing, video games, and just about everything else under the sun they can slap a Star Wars logo on.

The stock's correction from $121 to $90 was abrupt. DIS quickly fell from correction territory to bear-market territory in just a few days. Fortunately DIS produced a pretty good rebound. Yet the oversold bounce stalled under resistance near $105 and its 200-dma.

We have two different entry points. We have a buy-the-dip trigger if stocks crash again. We also have a breakout trigger if DIS pushes through resistance.

- Suggested Positions -
OCT 14, 2015 - entry price on DIS @ 106.50, option @ 6.45
symbol: DIS170120C120 2017 JAN $120 call - current bid/ask $6.30/6.50

10/18/15 new stop loss @ $97.45
10/14/15 Trade begins. DIS opens at $106.50
10/13/15 Triggered. DIS @ $106.59, above the $106.50 trigger
10/11/15 updated the trade description
10/04/15 added a breakout entry trigger
Option Format: symbol-year-month-day-call-strike

Chart

Current Target: To Be Determined
Current Stop loss: 97.45
Play Entered on: 10/14/15
Originally listed on the Watch List: 09/27/15


Facebook, Inc. - FB - close: 97.54

Comments:
10/18/15: FB accelerated higher last week. Bullish analyst comments, a new higher price target, and a fertile market environment allowed shares to soar. The stock broke out past its September peak. Now it's poised to challenge the all-time highs from July.

No new positions at this time. The $99-100 area could be resistance and after a big rebound off its late September lows I would not be surprised to see some profit taking.

FYI: FB is scheduled to report earnings on November 4th.

Trade Description: September 13, 2015:
We are bringing FB back to the LEAPStrader newsletter. Cross your fingers and hope for a big dip!

Facebook probably needs no introduction. It's the largest social media platform on the planet. The company is quickly approaching 1.5 billion monthly active users. A couple of weeks ago they hit a new milestone - one billion people logged into Facebook in a single day.

The company continues to grow. In addition to their Facebook social media powerhouse they also own Facebook Messenger, WhatsApp, and Instagram. Their WhatsApp product is the largest messaging service on the planet with over 900 million monthly active users. Meanwhile FB's photo-sharing Instagram property has more than 300 million active users. The company has been ramping up their advertising efforts to slowly monetize Instagram. FYI: FB also owns Occulus Rift, the virtual reality company, but it's probably a few more years before VR goes mainstream.

Shares of FB have been incredibly volatile over the last few weeks. After surging to all-time highs in July following its earnings report the stock crashed in August. The market's correction lower sparked some extreme moves in FB with a plunge down to $72.00 on August 24th. This past week FB displayed relative strength and has rallied back above its 50-dma. However, I do not want to chase it here.

FB has already demonstrated that it can be volatile when the market sees big moves. If stocks sell-off on the Fed's decision this week we want to be ready to buy it on weakness. I view the $80-85 region as likely support. Tonight I am suggesting a buy-the-dip trigger at $85.00. If triggered we'll start this play with a stop loss at $79.75.

- Suggested Positions -
SEP 29, 2015 - entry price on FB @ 86.50, option @ 9.25
symbol: FB170120C100 2017 JAN $100 call - current bid/ask $13.35/13.50

10/11/15 new stop @ 83.75
09/29/15 Triggered @ $86.50
09/20/15 adjust the buy-the-dip trigger from $85.00 to $86.50
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 83.75
Play Entered on: 09/29/15
Originally listed on the Watch List: 09/13/15


Fidelity National Info. Svcs. - FIS - close: $70.35

Comments:
10/18/15: FIS encountered some profit taking but traders bought the dip in the $69 area. Shares managed to pare their losses by Friday's closing bell. FIS looks poised to rebound higher. I would be tempted to buy calls now but investors might want to see FIS close above $71.00 before initiating new positions.

FYI: FIS is scheduled to report earnings on November 3rd.

Trade Description: September 8, 2015:
We are adding FIS as a relative strength trade. The stock has been marching higher for years. Shares are outpacing the broader market this year with a +9.0% gain year to date.

FIS is in the technology sector. According to the company, "FIS is a global leader in banking and payments technology as well as consulting and outsourcing solutions. With a long history deeply rooted in the financial services sector, FIS serves more than 14,000 institutions in over 130 countries. Headquartered in Jacksonville, Fla., FIS employs more than 42,000 people worldwide and holds leadership positions in payment processing and banking solutions. Providing software, services and outsourcing of the technology that empowers the financial industry, FIS is a Fortune 500 company and is a member of Standard & Poor’s 500 Index."

FIS just recently announced it was acquiring financial software maker SunGard Data Systems for $9.1 billion in cash and stock. SunGard was about to go public and FIS gobbled them up. The combined company will have $9.2 billion in annual revenues and over 55,000 employees.

The big spike higher on FIS' daily chart was the market's reaction to this acquisition news. Shares of FIS filled the gap during the market's correction lower. Now traders are back to buying FIS. The point & figure chart is bullish and forecasting at $92.00 target.

Tonight I am suggesting we wait for FIS to close above $71.00 and then buy calls the next morning. We will start with a stop loss at $64.75.

- Suggested Positions -
OCT 09, 2015 - entry price on FIS @ 71.26, option @ 2.00
symbol: FIS160115C75 2016 JAN $75 call - current bid/ask $0.94/1.25

10/09/15 trade begins. FIS @ $71.26
10/08/15 triggered. FIS @ $71.30, above $71.00 trigger
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 64.75
Play Entered on: 10/09/15
Originally listed on the Watch List: 09/08/15



The Hershey Company - HSY - close: 95.28

Comments:
10/18/15: HSY is another watch list candidate that has graduated to an active play. We wanted to see HSY rally above resistance near $96.00 and above resistance at its 200-dma. The plan was to wait for shares to close above $97.00. That occurred on October 12th at $97.07. Our trade opened the next morning at $96.79. Shares have since retreated back toward prior resistance and what is now new support in the $94.00 area. I would prefer to see HSY close back above its 200-dma (currently $96.40) before initiating new bullish positions.

FYI: HSY is scheduled to report earnings on October 28th.

Trade Description: October 4, 2015:
Not many companies make it past 100 years old. HSY is looking good for being 120 years old. The recent action in the stock suggest HSY has found a bottom.

If you are not familiar with HSY here's a description from the company, "The Hershey Company (HSY), headquartered in Hershey, Pa., is a global confectionery leader known for bringing goodness to the world through its chocolate, sweets, mints and other great-tasting snacks. Hershey has approximately 22,000 employees around the world who work every day to deliver delicious, quality products. The company, which has more than 80 brands around the world that drive over $7.4 billion in annual revenues, includes such iconic brand names as Hershey's, Reese's, Hershey's Kisses, Jolly Rancher and Ice Breakers. Hershey is focused on growing its presence in key international markets while continuing to build its competitive advantage in North America. Additionally, Hershey is poised to expand its portfolio into snacking categories beyond confectionery, finding new ways to bring goodness to people everywhere."

Thus far 2015 has been a bit disappointing. On June 19th the company issued an earnings warning and lowered their 2015 guidance below analysts' estimates. On August 7th they reported earnings. EPS beat expectations but revenues missed. Guidance was in-line with the prior lowered forecast. The stock dropped on both occasions but the sell-off didn't get very far before investors bought the dip in HSY. On the plus side HSY said their gross margins are improving.

HSY has a large, relatively safe domestic business in the U.S. The Q4 should be positive given all the holidays. HSY should see a seasonal uptick in sales. The company is also trying to expand overseas with a focus on China. Their recent acquisition in China has been fraught with troubles but expectations have already been reduced. The Chinese business disappointment has already been priced into HSY's stock price.

Wall Street opinion is mixed. Analysts are forecasting five-year earnings growth of +8% for HSY. JP Morgan seems optimistic since they just upgraded the stock and their price target. The point & figure chart is bullish and forecasting at $104.00 target. I think HSY can go a lot higher.

HSY saw a slow and steady correction from its all-time highs near $110 set in January this year. Shares have been building a base in the $87-94 range for months. Currently HSY appears to have major resistance in the $94-96 area but a breakout would signal the next leg higher. Tonight I am suggesting investors wait for HSY to close above $97.00 and then buy calls the next morning.

- Suggested Positions -
OCT 13, 2015 - entry price on HSY @ 96.79, option @ 3.40
symbol: HSY170120C110 2017 JAN $110 call - current bid/ask $2.30/3.00

10/13/15 Trade begins. HSY opens at $96.79
10/12/15 Triggered. HSY @ $97.07, above our trigger of $97.00
10/08/15 HSY closed @ $97.00, not above $97.00
Option Format: symbol-year-month-day-call-strike

Chart

Current Target: To Be Determined
Current Stop loss: 89.75
Play Entered on: 10/13/15
Originally listed on the Watch List: 10/04/15


Lions Gate Entertainment - LGF - close: $41.00

Comments:
10/18/15: LGF displayed some relative strength on Friday (+1.6%) and appears to have broken out from its week-long sideways consolidation. These are new all-time highs for the stock. If you're looking for an entry point this would qualify.

Shares could rally into the release of its next big blockbuster - The Hunger Games: Mockingjay, Part 2, which hits U.S. theaters on November 4th. The movie will hit the Chinese market on November 20th.

FYI: LGF is scheduled to report earnings on November 9th.

Trade Description: September 8, 2015:
If at first you don't succeed, try, try, try again. We tried trading LGF recently but we were shaken out thanks to the market's late August crash and LGF's spike to 2015 lows. Naturally the stock has recovered and is on the verge of a major breakout past resistance near $39-40.

What follows is an updated version of my original play description:

Have you ever wanted to trade the hype on a particular movie release? We might be able to do just that with LGF.

LGF is in the services sector. According to the company, "Lionsgate is a premier next generation global content leader with a strong and diversified presence in motion picture production and distribution, television programming and syndication, home entertainment, digital distribution, new channel platforms, video games and international distribution and sales. Lionsgate currently has more than 30 television shows on over 20 different networks spanning its primetime production, distribution and syndication businesses, including such critically-acclaimed hits as the multiple Emmy Award-winning Mad Men and Nurse Jackie, the broadcast network series Nashville, the syndication success The Wendy Williams Show, the hit series Orange is the New Black, the critically-acclaimed drama Manhattan and the breakout series The Royals."

What that company description neglects to mention is the Hunger Games franchise. LGF makes the movies for the extremely popular franchise and the fourth and final movie is due to hit the U.S. market in November this year. Shares of LGF will likely rally into November as hype builds for the "Hunger Games: Mockingjay - Part 2" movie.

LGF is also considered a takeover target. Everyone is scrambling for quality TV programming and LGF has the awards to prove it can deliver. Potential suitors include any of the major media companies. There are rumors that LGF could be a target by someone like AAPL who wants to jump into media creation or possibly NFLX, who just lost LGF's content when they failed to renew their contract with EPIX.

I am suggesting we wait for LGF to close in the $40.00-41.00 range. If shares close in this range then buy calls the next morning. No initial stop loss.

- Suggested Positions -
SEP 18, 2015 - entry price on LGF @ 39.61, option @ 4.50
symbol: LGF170120C45 2017 JAN $45 call - current bid/ask $3.60/7.30

10/11/15 Rumors are growing that LGF is poised to buy Starz
09/18/15 Trade begins. LGF opens at $39.61
09/17/15 LGF closed at $40.06, inside our $40-41 entry range
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: n/a
Play Entered on: 09/18/15
Originally listed on the Watch List: 09/08/15


Southwest Airlines - LUV - close: $40.56

Comments:
10/18/15: LUV is our fourth watch list candidate last week to graduate to an active play. The plan was to wait for shares to close above $41.00 and buy calls the next morning. LUV closed at $41.22 on October 12th. Our trade opened the next morning at $40.82.

Shares have since dipped back toward support near $40.00 and its 200-dma. I would be tempted to buy calls here but investors may want to wait for LUV to close above $41.50 before initiating new positions.

Traders should note that LUV is scheduled to report earnings on October 22nd. That is this coming Thursday. LUV's results come out before the opening bell. Shares could be very volatile following its results. Cautious traders may want to buy some short-term puts the day before as a precautionary measure.

Trade Description: October 11, 2015:
Airlines can be a cutthroat business. Yet LUV has managed to be profitable for 42 years in a row.

LUV is part of the services sector. According to the company, "In its 45th year of service, Dallas-based Southwest Airlines (LUV) continues to differentiate itself from other air carriers with exemplary Customer Service delivered by more than 47,000 Employees to more than 100 million Customers annually. Southwest operates more than 3,600 flights a day, serving 95 destinations across the United States and six additional countries. Southwest service to Belize City, Belize, begins Oct. 15, 2015. Subject to foreign government approval, service to Liberia, Costa Rica, begins Nov. 1, 2015.

Based on the U.S. Department of Transportation's most recent data, Southwest Airlines is the nation's largest carrier in terms of originating domestic passengers boarded. The Company operates the largest fleet of Boeing aircraft in the world, the majority of which are equipped with satellite-based WiFi providing gate-to-gate connectivity while over the United States. That connectivity enables Customers to use their personal devices to access streaming music provided by Apple Music or to view video on-demand movies and television shows, as well as nearly 20 channels of free, live TV compliments of our valued Partners. Southwest is the only major U.S. airline to offer bags fly free® to everyone (first and second checked pieces of luggage, size and weight limits apply, some airlines may allow free checked bags on select routes or for qualified circumstances), and there are no change fees, though fare differences might apply."

2015 has been a relatively challenging year for airline stocks. Investors have been worried that airlines would add too much capacity and thus put pressure on fares. Fares have begun to drop recently but that is more of a reflection in lower fuel prices for airlines thanks to low oil prices.

The third quarter was relatively strong for the industry. Several companies have guided higher. 2015 has not been a great year for airline stocks but it could be a record year for the industry in terms of profits. Domestic airlines are seeing strong free cash flow and they're buying back stock.

After the summer slump shares of LUV appear to have bottomed. Both the industry and Wall Street could be looking ahead to the busy holiday travel season. September was a good month for LUV. The company reported revenue passenger miles were up +11.4% last month.

Meanwhile Wall Street is bullish. The average analyst price target is about $50. Goldman Sachs recently said LUV has +34% upside. If shares of LUV can rally past $41.00 it will generate a new triple-top breakout buy signal on the point & figure chart.

Currently shares are challenging resistance near $40.00 and its simple 200-dma (also near $40). The August high was the $40.85 area. Tonight I am suggesting we wait for LUV to close above $41.00 and then buy calls the next morning with a stop loss at $36.85.

- Suggested Positions -
OCT 13, 2015 - entry price on LUV @ 40.82, option @ 2.60
symbol: LUV170120C50 2017 JAN $50 call - current bid/ask $2.00/2.65

10/13/15 Trade begins. LUV opens @ $40.82
10/12/15 Triggered. LUV @ $41.22, above our $41.00 trigger
Option Format: symbol-year-month-day-call-strike

Chart of LUV:

Current Target: To Be Determined
Current Stop loss: 36.85
Play Entered on: 10/13/15
Originally listed on the Watch List: 10/11/15


Royal Caribbean Cruises - RCL - close: 91.82

Comments:
10/18/15: When the market dropped on Wednesday RCL underperformed with a plunge toward $87.00. The stock has recovered most of its decline but the volatility suggest RCL is fragile.

This company reports earnings on October 23rd. That is this coming Friday. The announcement is before the opening bell. Odds are good that RCL could be very volatile that morning.

No new positions at this time.

Trade Description: September 20, 2015:
If you are looking for stocks with relative strength then RCL fits the bill. Shares tagged new all-time highs last week and posted their third weekly gain in four weeks.

RCL is in the services sector. According to the company, "Royal Caribbean Cruises Ltd. is a global cruise vacation company that owns Royal Caribbean International, Celebrity Cruises, Azamara Club Cruises, Pullmantur and CDF Croisieres de France, as well as TUI Cruises through a 50 percent joint venture. Together, these six brands operate a combined total of 44 ships with an additional eight under construction contracts, and two under conditional agreements. They operate diverse itineraries around the world that call on approximately 480 destinations on all seven continents."

Barclays just upped their outlook on the cruise liners and believes the group is seeing improved strength in pricing. Meanwhile RCL has been cashing in on the growing trend of Chinese tourism. The recent change in ties between the U.S. and Cuba also represents a new opportunity for the cruise lines.

Technically RCL looks very bullish and the point & figure chart is forecasting at $121.00 target. Yet I don't want to buy it here. The market looks poised for a pullback. We will use a buy-the-dip trigger at $90.00. More conservative investors may want to hold out for a dip to $88.00 instead.

- Suggested Positions -
SEP 28, 2015 - entry price on RCL @ 90.00, option @ 6.30
symbol: RCL170120C110 2017 JAN $110 call - current bid/ask $5.55/5.85

10/11/15 new stop @ 84.75
09/28/15 triggered @ $90.00
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 84.75
Play Entered on: 09/28/15
Originally listed on the Watch List: 09/20/15


Starbucks Corp. - SBUX - close: 59.93

Comments:
10/18/15: The rally in SBUX stalled a little bit last week. Shares saw a couple days of profit taking before investors jumped back in to buy the dip. SBUX looks poised to hit new highs soon. I would consider new positions at current levels.

FYI: SBUX is scheduled to report earnings on October 29th.

Trade Description: September 20, 2015:
It's time to bring SBUX back to the LEAPStrader newsletter.

Here is an updated trade description on SBUX:

The world seems to have an insatiable appetite for coffee. Starbucks is more than happy to help fill that need. The first Starbucks opened in Seattle back in 1971. Today they are a global brand with locations in 66 countries. SBUX operates more than 21,000 retail stores with more than 300,000 workers.

A few years ago Business Insider published some facts on SBUX. The average SBUX customer stops by six times a month. The really loyal, top 20% of customers, come in 16 times a month. There are nearly 90,000 potential drink combinations at your local Starbucks. The company spends more money on healthcare for its employees than it does on coffee beans.

The company's earnings results were only mediocre most of 2014 year. You can see the results in SBUX's long-term chart below. After incredible gains in 2013 SBUX has essentially consolidated sideways in 2014. SBUX broke out of that sideways funk after it reported earnings in January 2015.

Five-Year Plan

In late 2014 SBUX announced their five-year plan to increase profitability. Here's an excerpt from a company press release:

"The seismic shift in consumer behavior underway presents tremendous opportunity for businesses the world over that are prepared and positioned to seize it," Schultz said (Howard Schultz is the Founder, Chairman, President, and CEO of Starbucks). "Over the next five years, Starbucks will continue to lean into this new era by innovating in transformational ways across coffee, tea and retail, elevating our customer and partner experiences, continuing to extend our leadership position in digital and mobile technologies, and unlocking new markets, channels and formats around the world. Investing in our coffee, our people and the communities we serve will remain at our core as we continue to redefine the role and responsibility of a public company in today's disruptive global consumer, economic and retail environments."

"Starbucks business, operations and growth trajectory around the world have never been stronger, and we are more confident than ever in our ability to continue to drive significant growth and meet our long term financial targets," said Troy Alstead, Starbucks chief operating officer. "We have more customers visiting more stores more frequently, both in the U.S. and around the world, than at any time in our history. And we expect both the number of customers visiting our stores and the amount they spend with us to accelerate in the years ahead. With a robust pipeline of mobile commerce innovations that will drive transactions and unprecedented speed of service, Starbucks is ushering in a new era of customer convenience. We believe the runway of opportunity for Starbucks inside and outside of our stores is both vast and unmatched by any other retailer on the planet."

The company believes they can grow revenues from $16 billion in FY2014 to almost $30 billion by FY2019. To do that they will expand deeper into regions like China, Japan, India, and Brazil. SBUX expects to nearly double its stores in China to over 3,000 locations in the next five years

They're also working hard on their mobile ordering technology to speed up the experience so customers don't have to wait in line so long at their busiest locations. This will also include a delivery service.

Part of the five-year plan is a new marketing campaign called Starbucks Evening experience. The company wants to be the "third place" between home and work. After 4:00 p.m. they will start offering alcohol, mainly wine and beer, in addition to new tapas-like smaller plates.

The company recently launched its first ever Starbucks Reserve Roastery and Tasting Room in Seattle, near their iconic first retail store. The new roastery is supposed to be the ultimate coffee lovers experience. CEO Schultz said they will eventually open up about 100 of these Starbucks Reserve locations.

SBUX continues to serve up strong earnings and revenue growth too. The fourth quarter of 2014 saw a huge jump in SBUX gift cards. One out of every seven Americans received a SBUX gift card. SBUX has been reporting very strong overseas sales growth and consistently healthy same-store sales growth globally.

Shares were very steady performers for much of 2015 and then during the market's correction in late August the stock just collapsed. It was shocking to see SBUX erase six month's worth of gains in just a few days. Of course it bounced back almost as fast. Tonight I want to use SBUX's volatility to our advantage. If the market declines over the next couple of weeks SBUX might be unfairly punished. The $50-52 area should be support. We want to use a buy-the-dip trigger at $52.00.

- Suggested Positions -
OCT 12, 2015 - entry price on SBUX @ 60.35, option @ 3.30
symbol: SBUX170120C70 2017 JAN $70 call - current bid/ask $2.64/2.78

10/12/15 Trade begins. SBUX opens @ $60.35
10/09/15 SBUX closed at $60.07, above our suggested entry of a close above $60.00
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: n/a
Play Entered on: 10/12/15
Originally listed on the Watch List: 09/20/15


Visa Inc. - V - close: 76.00

Comments:
10/18/15: The rally in V continued last week. Shares added another $2.00. Now V is about to challenge resistance at its late July highs near $77.00. I am suggesting caution. A reversal here, near $77, would look like a potential bearish double top pattern.

No new positions.

Our option has more than doubled in value. Investors may want to take some money off the table.

Trade Description: August 9, 2015:
The world is moving closer and closer to a cash-less society. Big payment processing companies like Visa and MasterCard will benefit from this transition.

According to the company, "Visa Inc. (NYSE:V) is a global payments technology company that connects consumers, businesses, financial institutions, and governments in more than 200 countries and territories to fast, secure and reliable electronic payments. We operate one of the world's most advanced processing networks - VisaNet - that is capable of handling more than 56,000 transaction messages a second, with fraud protection for consumers and assured payment for merchants. Visa is not a bank and does not issue cards, extend credit or set rates and fees for consumers. Visa's innovations, however, enable its financial institution customers to offer consumers more choices: pay now with debit, pay ahead of time with prepaid or pay later with credit products."

It's important to note that V does not extend credit to consumers. There's no credit risk for bad loans here. V makes money on transactions. That business is booming.

On July 23rd V report its Q3 results, which were $0.74 per share. That beat estimates by 16 cents. Revenues were also higher than expected at $3.52 billion, up +11.5%. Management offered strong guidance and upped their EPS estimates into the mid teen percentage range. Long-term V is expected to grow earnings at almost 15%.

One of the big stories to come out of V's recent earnings report was news of a merger brewing. Visa is talking to former subsidiary Visa Europe. Estimates suggest the price target could be in the $15-20 billion range. Wall Street is positive on the deal and Visa expects it would add to earnings in fiscal 2017.

Another reason to be bullish on Visa is the fact that China recently opened its market to foreign companies to participate in clearing domestic bank card transactions. Previously only Chinese companies could do this. Now giants like V and MasterCard can compete in a market valued at more than $6.8 trillion. Considering V's expertise in this field we should expect them to grab a healthy chunk of the market.

Shares of V recently surged to new all-time highs and traded above $76 per share. After four up weeks in a row V posted a loss last week. Technically it produced a bearish engulfing candlestick reversal pattern on its weekly chart. If shares do correct lower we want to take advantage of the pullback. Broken support near $70.00 should be support. Tonight we are suggesting a buy-the-dip trigger at $70.50.

- Suggested Positions -
AUG 24, 2015 - entry price on V @ 64.16, option @ 2.76
symbol: V170120C80 2017 JAN $80 call - current bid/ask $6.15/6.40

10/18/15 Our option has more than doubled in value. Investors may want to take some money off the table.
10/11/15 new stop @ 66.75
08/30/15 Remove the stop loss
08/24/15 triggered on gap down at $64.16, suggested entry was a buy-the-dip trigger at $70.50.
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 66.75
Play Entered on: 08/24/15
Originally listed on the Watch List: 08/09/15



Watch

Retail & Consumer Goods

by James Brown

Click here to email James Brown


New Watch List Entries

HD - The Home Depot, Inc.

PEP - Pepsico, Inc.


Active Watch List Candidates

AAPL - Apple Inc.

K - Kellogg Co.

OA - Orbital ATK Inc.


Dropped Watch List Entries

CRM, DIS, HSY, and LUV graduated to our active play list.

ADBE has been moved to the new play section.



New Watch List Candidates:

The Home Depot, Inc. - HD - close: 122.74

Company Info

Home Depot's stock has outperformed the broader market in spite of the fact shares were stuck in a trading range for the last seven months. HD broke through significant resistance at the $120.00 level several days ago.

The big surge in the U.S. housing market this year has been a bullish tailwind for HD's business. The home remodeling and repair industry and consumer spending in this category is expected to hit levels not seen since before the "Great Recession" in 2008-2009. HD is poised to reap the benefits.

If you're not familiar with the company, HD is in the services sector. According to the company, "The Home Depot is the world's largest home improvement specialty retailer, with 2,270 retail stores in all 50 states, the District of Columbia, Puerto Rico, U.S. Virgin Islands, Guam, 10 Canadian provinces and Mexico. In fiscal 2014, The Home Depot had sales of $83.2 billion and earnings of $6.3 billion. The Company employs more than 370,000 associates. The Home Depot's stock is traded on the New York Stock Exchange (HD) and is included in the Dow Jones industrial average and Standard & Poor's 500 index."

HD has been showing steady earnings and revenue growth. The company has beaten Wall Street estimates on both the top and bottom line the last three quarters in a row. Management has also raised their guidance the last three quarters in a row.

Their most recent report was August 18th. HD announced its Q2 earnings were up +14% from a year ago to $1.71 per share. Revenues were up +4.3% to $24.83 billion. Comparable store sales came in better than expected with a +4.2% improvement.

Wall Street analysts seem bullish with firms like Deutsche Bank and UBS recently raising their price targets on HD. The recent breakout past $120 generated a new buy signal on the point & figure chart, which is now forecasting at $143 target.

The all-time high for HD was set in August this year at $123.80. Tonight I am suggesting investors wait for HD to close above $124.00 and then buy calls the next morning.

FYI: HD is scheduled to report earnings on November 17th.

Breakout trigger: Wait for HD to close above $124.00
Then buy calls the next morning (no initial stop loss).

BUY the 2017 Jan $140 call (HD170120C140)

Option Format: symbol-year-month-day-call-strike

Chart of HD:

Originally listed on the Watch List: 10/18/15


Pepisco, Inc. - PEP - close: 99.70

Company Info

PEP is a consumer goods giant with a global presence. According to the company, "PepsiCo products are enjoyed by consumers one billion times a day in more than 200 countries and territories around the world. PepsiCo generated more than $66 billion in net revenue in 2014, driven by a complementary food and beverage portfolio that includes Frito-Lay, Gatorade, Pepsi-Cola, Quaker and Tropicana. PepsiCo's product portfolio includes a wide range of enjoyable foods and beverages, including 22 brands that generate more than $1 billion each in estimated annual retail sales."

The stock has been stuck consolidating sideways in the $90-100 trading range for almost a year. It looks like that consolidation may be nearing its end.

Earnings have been better than expected. I looked at the last three quarters. PEP has managed to beat Wall Street's estimates on both the top and the bottom line. Revenues have declined year over year but that is due to negative foreign currency exchange rates that is shaving off about -10% from earnings and revenues. The company says their gross margins and operating margins continue to improve.

The U.S. market is up the last three weeks in a row but it's relatively flat for the year. Investors are confused with all the different global cross currents, exchange fluctuations, central bank moves, and more. Fund managers are probably tempted to park cash in huge, liquid big cap like PEP and get paid 2.8% a year with dividends. Why not? PEP is still growing with solid single-digit growth.

Technically PEP looks poised to breakout past major resistance in the $100 area. The point & figure chart is already bullish and forecasting at $120.00 target. Tonight I am suggesting we wait for PEP to close above $101.00 and then buy calls the next morning. We will start this trade with a stop loss at $89.90.

Breakout trigger: Wait for PEP to close above $101.00
Then buy calls the next morning (stop @ 89.90).

BUY the 2017 Jan $110 call (PEP170120C110)

Option Format: symbol-year-month-day-call-strike

Chart of PEP:

Originally listed on the Watch List: 10/18/15


Active Watch List Candidates:



Apple Inc - AAPL - close: 112.12

Comments:
10/18/15: AAPL continues to underperform the broader market. Investors are likely sitting on the sidelines waiting for the company's Q3 results. AAPL reports on October 27th. If they disappoint the stock could see a very sharp decline. That's why we are keeping our buy-the-dip entry trigger at $101.00.

Trade Description: September 13, 2015:
Love it or hate it AAPL always has Wall Street's attention. It has a cult-like following. The company's success has turned AAPL's stock into the biggest big cap in the U.S. markets with a current valuation of more than $651 billion.

The company is involved in multiple industries from hardware, software, and media but it's best known for its consumer electronics. The iPod helped perpetuate the digital music revolution. The iPhone, according to AAPL, is the best smartphone in the world. The iPad helped bring the tablet PC to the mass market. The company makes waves in every industry they touch with a very distinctive brand (iOS, iWork, iLife, iMessage, iCloud, iTunes, etc.) and they've done an amazing job at building an Apple-branded ecosystem. Now they're getting into the electronic payments business with Apple Pay.

Earnings growth has been significant as consumer snapped up the iPhone 6 and 6+. The company expects the iPhone to be a major driver as only 20-25% of their user base has upgraded. This past week AAPL held their annual event in September and introduced several upgrades.

AAPL has unveiled new stuff for their smartwatch, they introduced the iPhone 6s and 6s+, they introduced a new, larger iPad that's being called the iPad Pro. The company also introduced a new Apple TV system. They also unveiled a new leasing program for their iPhones.

Normally consumers buy iPhones through their wireless carrier. This past week AAPL announced a deal where consumers could lease their phone from Apple for $32.00 a month and get a free upgrade every year. For the iPhone fanatics it's probably a great deal.

The 2015 holiday shopping season will be here sooner than you expect and AAPL stands to benefit from their parade of new products announced last week. Yet I don't want to buy AAPL at current levels. Odds are good that stocks could sell-off following the FOMC decision this coming Thursday. We want to take advantage of any temporary weakness in shares of AAPL.

Tonight I am listing a buy-the-dip trigger at $101.00. No initial stop loss but investors might want to consider a stop under the August 24th low ($92.00).

We will re-evaluate our entry strategy next weekend after seeing how the market reacted to the Fed meeting.

Buy-the-dip trigger at $101.00
No stop, initially

BUY the 2017 Jan $120 call (AAPL170120C120)

Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 09/13/15


Kellogg Co. - K - close: $69.79

Comments:
10/18/15: Investors bought the dip in K last week near short-term support. The stock is on the verge of breaking out past major resistance near $70.00. Odds are good we will see K meet our entry point requirement soon with a close above $70.25.

FYI: K is scheduled to report earnings on November 3rd.

Trade Description: October 11, 2015:
Shares of this giant consumer goods sector company are poised for a massive breakout higher.

If you are not familiar with K, here's a brief description: "At Kellogg Company (NYSE:K), we are driven to enrich and delight the world through foods and brands that matter. With 2014 sales of approximately $14.6 billion, Kellogg is the world's leading cereal company; second largest producer of cookies and crackers; a leading producer of savory snacks; and a leading North American frozen foods company. Every day, our well-loved brands nourish families so they can flourish and thrive. These brands include Kellogg's®, Keebler®, Special K®, Pringles®, Kellogg's Frosted Flakes®, Pop-Tarts®, Kellogg's Corn Flakes®, Rice Krispies®, Kashi®, Cheez-It®, Eggo®, Coco Pops®, Mini-Wheats®, and many more. To learn more about our responsible business leadership, foods that delight and how we strive to make a difference in our communities around the world."

At first glance you would think K's products are on the wrong side of the growing health food trend in the U.S. You would probably be correct. Consumption of breakfast cereals in the United States has been falling for the last five years. However, K is seeing impressive growth overseas, especially in emerging markets.

The downside to all this growth overseas is foreign currency headwinds. Negative FX trends have crimped K's revenue growth all year long. The company expects bearish foreign currency trends to shave off 9 cents a share in 2016 earnings. Fortunately it appears that investors are looking past the currency trouble.

The stock has been consolidating beneath major resistance at the $70.00 level for months. A breakout could spark the next major leg higher. Dividend investors should be drawn to K for its 2.8% yield. The point & figure chart is bullish and forecasting a long-term $92.00 target.

Tonight I am suggesting investors wait for K to close in the $70.25-71.75 range and buy calls the next morning with a stop loss at $64.75.

FYI: K's earnings are coming up on November 3rd. Cautious investors may want to wait and see how the market reacts to K's results before initiating new positions.

Investors should also note that the spreads on the 2017 calls are relatively wide. We may have to hold this trade several months before the spreads contract.

Breakout trigger: Wait for a close in the $70.25-71.75 range.
Then buy calls the next morning with a stop loss at $64.75

BUY the 2017 Jan $75 call (K170120C75)

Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 10/11/15


Orbital ATK, Inc. - OA - close: $78.00

Comments:
10/18/15: OA has underperformed the market the last couple of days. The good news is that the dip has been very mild. We are still waiting for a breakout to new highs.

Tonight I am adjusting our option strike from the 2016 Februarys to the 2016 May calls.

Currently our suggested entry point is a close in the $81.00-83.00 range.

Trade Description: September 8, 2015:
If you read the news it seems like the world is an increasingly dangerous place to live. Defense companies like OA are seeing their business strengthen.

OA is part of the industrial goods sector. According to the company, "Orbital ATK is a global leader in aerospace and defense technologies. The company designs, builds and delivers space, defense and aviation systems for customers around the world, both as a prime contractor and merchant supplier. Its main products include launch vehicles and related propulsion systems; missile products, subsystems and defense electronics; precision weapons, armament systems and ammunition; satellites and associated space components and services; and advanced aerospace structures. Headquartered in Dulles, Virginia, Orbital ATK employs more than 12,000 people in 18 states across the United States and in several international locations."

Their most recent earnings report was August 6th. OA reported its Q2 results of $1.28 per share. That is +16% improvement from a year ago and 26 cents above estimates. Revenues were up +7% to $1.13 billion, also better than expected.

David W. Thompson, Orbital ATK's President and Chief Executive Officer, commented on his company's results, "Orbital ATK reported excellent second quarter financial results characterized by better-than-expected revenue and very strong earnings. These results benefited from outstanding new orders, as well as continued solid operational execution on our major programs. As a result, we are increasing the company's outlook for sales and earnings this year and expanding our previously-announced capital deployment program as well.

Management raised their full year 2016 earnings to $4.60-4.80 a share and forecasted revenues in the $4.425-4.50 billion range. This is above Wall Street estimates of $4.51 a share on revenues of $4.41 billion.

Argus upgraded the stock and boosted their OA price target to $95.00. A Goldman Sachs analyst also upgraded the stock. Goldman said OA has "multiple unique exposures to drive faster than average 3-year growth."

The sell-off during the market's crash on August 24th was ridiculous. OA plunged from $75 to $56 in the blink of an eye and has since recovered. Moves like that are more than a little unnerving. Investors may want to use small positions to limit risk. The August peak was about $81.00. I am suggesting we wait for OA to close in the $81.00-83.00 range and then buy calls the next morning. No initial stop on this trade.

Technically this isn't a LEAPS trade. OA doesn't have LEAPS. We are choosing the 2016 May calls.

Breakout trigger: Wait for OA to close in the $81.00-83.00 range
Then buy calls.

BUY the 2016 MAY $85 call (OA160520C85)

10/18/15 Adjust the option strike from 2016 Feb. $85 call to the 2016 May $85 call
Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 09/08/15