Option Investor
Newsletter

Daily Newsletter, Sunday, 11/15/2015

Table of Contents

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

Leaps Trader Commentary

Stocks Snap Six-Week Surge

by James Brown

Click here to email James Brown

It was a rough week for stocks. A plunge in crude oil crushed energy-related stocks. Meanwhile a flurry of negative headlines sunk names related to retail. The major U.S. indices all posted widespread declines. The S&P 500 snapped a six-week winning streak. The profit taking was so bad that the S&P 500 erased the prior three week's worth of gains. Virtually no sector or industry was spared. The transports fell -2.8% for the week. Banks dropped -3.74%. The SOX semiconductor index fell -4.8%. Commodities continued to sink as well with losses in gold, silver, and oil. The DBA powershares agriculture (commodity) ETF, which tracks 11 different commodities, fell to new all-time lows last week. No inflation here!

Crude Oil Moves

Crude oil was grabbing a lot of attention last week. The commodity plunged -8.5% and closed the week near $40.70 a barrel. The market is watching to see if oil will break down below round-number support at $40. This oil weakness fueled a -5.6% drop in the OIX oil index and a -4.3% decline in the oil service names.

The reason behind oil's weakness is rising inventory and slowing demand. U.S. oil inventories added +4.2 million barrels to 487.0 million. We are quickly approaching the 80-year highs of 490.9 million barrels. The total inventory number is likely to climb. Iraq oil production has surged and they are aggressively fighting for market share against its Middle East neighbors. Iraq has priced their oil more than $5.00 below the benchmark and a flood of it is headed for the U.S. with almost 20 million barrels on its way. Combine that with the backlog of oil tankers lined up to enter Houston and we could see a surge in oil inventories soon. Weather and fog conditions have stalled deliveries. Now there are almost 40 oil tankers lined up and waiting to deliver oil to refineries in Houston.

The IEA made headlines last week with their report suggesting global crude oil inventories are at record highs near 3 billion barrels. According to the IEA, oil inventories are rising +1.6 million barrels a day and would rise even faster when Iran and Iraq boost production early next year. At the same time the IEA warned that demand for oil was slowing down. They are now forecasting demand growth for oil to drop from +1.8 million barrels a day in 2015 to +1.2 mbpd in 2016. Odds are really good oil is going to have a hard time rising with so much supply fighting for demand.

Retail Outlook Sours

It was a terrible week to be in most retail names. Department store giant Macy's (M) reported Q3 earnings above estimates but then guided Q4 below analysts' estimates. The stock crashed on its lowered guidance. Nordstrom (JWN) missed earnings estimates and also guided lower. Their stock plunged as well. Accessories and watch maker Fossil (FOSL) beat the EPS estimate but missed the revenue number. They also lowered guidance below Wall Street expectations and their stock plummeted on the bearish outlook. On Friday morning the monthly U.S. retail sales numbers came in below expectations. The XRT retail ETF lost -8.5% for the week.

Worries about a weak holiday shopping season are rising. Steve Odland, CEO of the Committee of Economic Development, commented on the retail sector on Friday, saying, "you're going to see a bloodbath here. Every retail CEO this morning is looking at this saying, 'OK, it's clearance time,' which means margins are going to get hammered here for the holidays and that's why the whole retail sector is down here this morning." source

The Super Bowl of retail is Black Friday, which is only two weeks away. (soon followed by Cyber Monday).

Economic Data

U.S. business inventories rose +0.3% in September. Analysts were forecasting no change (+0.0%). This buildup in inventories could suggest a slowdown in spending. Inventories at manufacturers were down -0.37% but inventories at retailers were up +0.79%. The total inventory/sales ratio inched higher to 1.38 months. That is the highest reading since June 2009.

The U.S. Producer Price Index (PPI), a gauge on wholesale-level inflation, fell -0.4% in October. There was no revision for September's -0.5% decline. It was the second monthly decline in a row for the headline PPI number. The prior 12 months ending in October has seen the PPI plunge -1.6%, which is the largest decline on record. This lack of inflation (or dare we say deflation) does not support a Fed rate hike.

A few paragraphs above I mentioned the disappointing retail sales figures. The October retail sales number came in at +0.1%. Economists were hoping for +0.3%. Year over year the retail sales numbers are down -1.7%. The prior two months of retail sales were revised lower. Falling prices at the gasoline pump saw fuel sales drop for the fourth month in a row.

The risk of recession in the U.S. is rising. Orders for machinery and transportation equipment are in decline. This normally precedes a recession. If you listen to executives in the industrial sector their businesses are already in a recession (or worse). The impact of a rising U.S. dollar is going to make this worse.

Evidently someone forgot to tell consumers that the economy was slowing down. The preliminary read on the University of Michigan Consumer Sentiment index for November showed a rise from 90.0 in October to 93.1. Analysts suspect that falling gas prices helped boost this sentiment number. The six-month expectations component hit its highest level since June. Investors should note that this poll was taken prior to the market plunge last week and prior to the terror attack in Paris on Friday. These events could impact the next survey on consumer sentiment.

Overseas Economic Data

China helped launch the market's decline last week with disappointing trade numbers out last Monday. Their trade surplus hit 10-year highs as their trade balance rose to $61.64 billion. Imports plunged -18.8% and exports fell -6.9%, which was significantly worse than expected. It was the fourth decline in a row for exports.

China also reported that their retail sales for October rose +11% from a year ago, which was slightly ahead of estimates. Their industrial production rose +5.6% in October, slightly below the prior month's reading. The country said their CPI fell -0.3% in October, down from +0.1% the prior month. China's PPI plunged -5.9% from a year ago.

There was a lot of data out of Europe last week. Unfortunately the news fueled worries about growth and European stocks suffered their worst week in two months. France reported their industrial production for September only rose +0.1%, down from +1.7% in August. Italy's industrial production improved +0.2% in September, down from +1.0% the prior month. The 19-country Eurozone said their industrial production fell -0.3% in September. That followed a -0.4% decline in August.

Italy reported their Q3 GDP growth was +0.2% but that was down from +0.3% in Q2. French GDP rose +0.3% in Q3, which is an improvement from +0.0% the prior quarter. Meanwhile Germany, the largest EU economy, said Q3 GDP rose +0.3% but that was down from +0.4% in Q2. Altogether the Eurozone Q3 GDP was only up +0.3%. That was below estimates and below Q2's +0.4% gain.




Major Indices:

The S&P 500 index lost -3.6% last week. That knocked its 2015 performance to -1.74%. The index is down seven out of the last eight session. The retreat from its early November highs near 2,110 has sliced through several short-term support levels including the 2,060 area, the simple 200-dma, and the 2,040 level. You can see on the daily chart below the pullback stalled right at its 38.2% Fibonacci retracement of its prior six-week rally.

Currently the S&P 500 is hovering just above potential support at the 2,020 level. Normally, after such a sharp decline, I would look for a bounce from current levels. Unfortunately the market is going to react negatively to the terrorist attack in Paris. The European markets will likely plunge at the open on Monday and the U.S. market will follow suit. So the question now is where will investors buy the dip?

The simple 50-dma is at 2,007. I'd ignore the moving average and focus on the 2,000 level. If the S&P 500 breaks down below 2K then watch for potential support in the 1,980-1,960 region.

Daily chart of the S&P 500 index:

The NASDAQ composite plunged -4.26% last week. That slashed its 2015 gains to +4.0%. The breakdown below round-number support at the 5,000 level is disappointing as is the close below technical support at the simple 200-dma. Optimistically the NASDAQ has now filled the gap from October 23rd and could bounce. Sadly the reaction to the attack in Paris will likely spark another knee-jerk move lower on Monday morning. I would watch for potential support in the 4,800-4,850 region.

chart of the NASDAQ Composite index:

The small cap stocks were no exception to the market's widespread decline. The Russell 2000 index ($RUT) fell -4.4%. This puts its 2015 performance at -4.8%. The $RUT has fallen below multiple levels of short-term support and looks poised to test potential support at 1,140. Unfortunately I do not expect it to hold. Stocks will most likely spike lower on Monday morning as investors react to the terrorist attack in Paris. We should probably watch for potential support in the 1,100-to-1,120 region.

chart of the Russell 2000 index



Economic Data & Event Calendar

It's a busy week for economic data and events. The G20 two-day summit began today (Sunday). Japan will release their GDP growth estimate today. Economists are forecasting Japan GDP fell -0.3% in the third quarter. The Bank of Japan holds a two-day meeting, which ends on Wednesday where they will announce their decision on interest rates.

The U.S. will hear from three different federal reserve regions (New York, Philadelphia, and Kansas City). The FOMC minutes will be reviewed for clues on the Fed's next meeting in December.

- Monday, November 16 -
Eurozone CPI
New York Empire State Manufacturing survey

- Tuesday, November 17 -
Consumer Price Index (CPI)
Industrial Production
NAHB Housing Market Index

- Wednesday, November 18 -
Bank of Japan interest rate decision
Housing Starts & Building Permits
FOMC Minutes from the last meeting

- Thursday, November 19 -
Philadelphia Fed manufacturing survey

- Friday, November 20 -
Kansas Fed manufacturing survey

Additional dates to be aware of:

Nov. 26th - Thanksgiving holiday (markets closed)
Nov. 27th - Black Friday, stock market closes early @ 1:00 pm
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:

As we look ahead the market seems worried about slowing growth in the U.S. and lack of growth overseas. There is no inflation growth in the U.S., which will make it very hard for the U.S. Federal Reserve to claim they are raising rates due to data. They might raise rates anyway just to maintain their credibility after a year of promising to hike rates in 2015.

Jeffrey Gundlach, the CEO of DoubleLine Capital, a very influential bond investor and money manager, spoke to investors on a conference call last week. According to Bloomberg, Gundlach is worried about the impact of the Fed raising rates on the dollar and the stock market. Bloomberg published some quotes from Gundlach, "A December interest rate increase would threaten U.S. stock and bond markets while potentially driving up the value of the dollar to the point where it weakens the economy. I have a hard time believing a Fed tightening will help the economy. I think volatility will increase and the economy will weaken." According to Gundlach, the threat of higher rates "will hurt the stock market."

Currently the Federal Reserve is on track to raise rates in December. At the same time Europe is set to lower rates. European Central Bank President Mario Draghi has already hinted, multiple times, that the ECB is ready and willing to do more with their QE program to boost Europe's economy. The markets expect Draghi to move at the ECB's December meeting with some form of additional stimulus or lower rates (some ECB interest rates are already negative). It's an interesting situation for central banks. The last time the U.S. Fed was raising rates while Europe was lowering rates was 1994.

Turkey

Did you know that 20% of Americans' annual turkey consumption happens on Thanksgiving? The country will consumer nearly 49 million turkeys over the Thanksgiving holiday. The bad news is that bird flu has driven up prices turkey prices. Most of the headlines this year over the widespread outbreak of bird flu was focused on chickens and egg production. Unfortunately, turkeys were affected too. Almost eight million turkeys were destroyed due to avian flu. That means tighter supplies are going to drive prices higher.

Market Bias

My market bias remains bullish between now and yearend. I warned readers last weekend that after a six-week rally the U.S. market was due for a pullback. The stock retreat occurred right on cue. Now I would look for the market to bounce. However, first, stocks will most likely see a knee-jerk reaction lower on Monday morning as investors react to the Friday night terrorist attack on Paris. S&P futures are already negative.

The bigger picture is positive. Seasonal trends favor the bulls. Historically the week before Thanksgiving and the week of Thanksgiving have a bullish bias.

~ James





Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The U.S. market retreated last week. The major averages sliced through short-term support levels as the profit taking accelerated into the weekend.

CTXS and UA graduated from our watch list to our active play list.

DHI, DIS, and UA have new stop losses.

Note - some of our positions have been adjusted for the cost of short-term protective puts.

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

Focus On Buy-the-Dip Strategies

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(November 15, 2015)

I warned readers last week that stocks were overbought and due for a pullback. Sadly I was right. The pullback slowly picked up speed all week long. I am still bullish on the market between now and yearend but I suspect this sell-off is not over yet.

No new trades tonight. Last week we saw both CTXS and UA graduate from our watch list to our active play list. This week I am adding Nike (NKE) and Raytheon (RTN) as new watch list candidates with buy-the-dip triggers.



Play Updates

Stocks Suffer Widespread Profit Taking On Friday

by James Brown

Click here to email James Brown

Editor's Note:

Investors should expect some volatility on Monday morning. The terrorist attacks in Paris on Friday night are a tragedy. Events like these generate a lot of uncertainty and traders tend to hit the sell button on instinct. Do not be surprised to see a gap down or spike down on Monday morning.

CTXS and UA have graduated to our active play list.


Closed Plays



None. No closed plays this week.




Play Updates


Adobe System Inc. - ADBE - close: $89.02

Comments:
11/15/15: ADBE weathered the market's drop last week relatively well. Shares only started to slide on Friday with a -2.0% decline for the session. Unfortunately the action last week is potentially bearish. ADBE has formed what could be a small bearish double top just below resistance at $92.00. If this pullback continues I would look for support in the $84-86 region.

No new positions at this time.

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.

- Suggested Positions -
OCT 19, 2015 - entry price on ADBE @ 88.15, option @ 6.80
symbol: ADBE170120C100 2017 JAN $100 call - current bid/ask $6.75/7.00

11/08/15 new stop @ 81.75
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

Current Target: To Be Determined
Current Stop loss: 81.75
Play Entered on: 10/19/15
Originally listed on the Watch List: 10/11/15


The Clorox Co. - CLX - close: $120.74

Comments:
11/15/15: CLX does appear to be correcting lower. Shares saw a big spike higher in early November on its earnings report. Since then CLX has been underperforming with the exception of a brief two-day bounce this past week.

CLX is currently testing short-term support near $120 but I expect this level to break. Watch for support in the $116-118 region.

NOTE: We still have a short-term, November $120 put option. This option expires in five trading days. Tonight I am suggesting we exit this put option on Tuesday, November 17th, at the closing bell, if the option has any value left. Currently the put option has a bid/ask of $0.75/1.00. (You may want to hold on to the put option a little longer. Just remember it expires after Friday, Nov. 20th)

No new positions at this time.

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 @ 6.60*
symbol: CLX170120C125 2017 JAN $125 call - current bid/ask $6.20/7.90

Oct. 30, 2015 - bought the NOV $120 put @ $1.35 (current: $0.75/1.00)

*Adjusted cost for the trade $5.25 + $1.35 = $6.60

11/15/15 plan on exiting the short-term Nov. $120 put on Tuesday, Nov. 17th at the close
11/08/15 new stop @ 113.40
10/30/15 bought the November $120 put at the closing bell
Put cost $1.35
10/25/15 Prepare to buy a short-term November put on Friday, Oct. 30th
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: 113.40
Play Entered on: 09/22/15
Originally listed on the Watch List: 09/08/15


Costco Wholesale - COST - close: 153.67

Comments:
11/15/15: COST spent most of the week quietly churning sideways. That changed on Friday with the market's big drop. COST fell -1.5%. If this pullback in COST continues the stock should find support near $150.00.

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 $10.30/10.80

11/08/15 ne stop @ 146.40
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: 146.40
Play Entered on: 10/06/15
Originally listed on the Watch List: 10/04/15


Salesforce.com - CRM - close: 75.60

Comments:
11/15/15: Shares of CRM were also holding up pretty good until Friday. Suddenly CRM plunged with a -3.4% drop that left shares below $76.00. Broken resistance at $76.00 should have been support.

It could be a volatile week for shares of CRM. The company has earnings coming up on November 18th, after the closing bell. You may want to consider a short-term put option as protection against a disappointing earnings report. We are not going to use any short-term puts for CRM this week.

Our stop loss is unchanged at $71.40. No new positions at this time.

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 $6.35/ 7.40

11/15/15 heads up - CRM has earnings on Nov. 18th
11/08/15 new stop @ 71.40
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

Current Target: To Be Determined
Current Stop loss: 71.40
Play Entered on: 10/14/15
Originally listed on the Watch List: 09/20/15


Citrix Systems - CTXS - close: 77.91

Comments:
11/15/15: CTXS is a brand new watch list candidate that hit our entry trigger last week. The plan was to wait for CTXS to pullback and buy calls on a dip at $78.00. The market's widespread drop on Friday pushed CTXS to a -2.9% decline. Shares sank to $77.23 intraday and closed near $78.00. Our trade was opened.

Normally I would suggest buying calls now at current levels. However, the market will likely spike lower on Monday morning in reaction to the Paris attacks. Odds are good CTXS will dip toward what should be support near $76.00. I would consider buying calls in the $74-76 region.

Please note that I am temporarily adjusting our stop loss down to $71.75.

Trade Description: November 8, 2015:
Shares of CTRX surged to multi-year highs in late October following better than expected earnings results.

CTXS is part of the technology sector. They are considered part of the business software industry. According to the company, "Citrix (CTXS) is leading the transition to software-defining the workplace, uniting virtualization, mobility management, networking and SaaS solutions to enable new ways for businesses and people to work better. Citrix solutions power business mobility through secure, mobile workspaces that provide people with instant access to apps, desktops, data and communications on any device, over any network and cloud. With annual revenue in 2014 of $3.14 billion, Citrix solutions are in use at more than 400,000 organizations and by over 100 million users globally."

The company's earnings results have been generally better than expected but guidance has been mixed. On July 28th CTXS reported its Q2 earnings of $1.00 a share. That was 18 cents better than expected. Revenues were up +1.9% to $797 million, also above estimates. Management lowered their Q3 forecasting while slightly raising their fiscal year 2015 guidance.

Earnings improved significantly in the third quarter. Analysts were expecting a profit of $0.85 a share on revenues of $786 million. CTXS beat both estimates. Earnings surged +34% from a year ago to $1.04 a share. Revenues were up +7% to $813 million. Management then raised their guidance above analysts' estimates. This news fueled a multi-day rally to new highs.

According to Reuters, CTXS is trying to sell itself. Wall Street loves M&A news so investors could be positioning themselves for a potential takeover in CTXS. If being bought doesn't pan out CTXS could start selling assets. There is growing speculation they could spin off their GoTo division.

Technically the trend is higher but the rally stalled last week. The point & figure chart is bullish and forecasting at $90 target. Following their Q3 results CTXS garnered a couple of price target upgrades in the $90-100 zone. Tonight I am suggesting a buy-the-dip trigger to buy calls if CTXS dips to $78.00. Shares should find support in the $76-78 zone.

- Suggested Positions -
NOV 13, 2015 - entry price on CTXS @ 78.00 option @ 6.80
symbol: CTXS170120C90 2017 JAN $90 call - current bid/ask $5.40/ 6.40

11/15/15 adjust stop loss from $73.65 to $71.75
11/13/15 triggered on a dip at $78.00
Option Format: symbol-year-month-day-call-strike

Chart of CTXS:

Current Target: To Be Determined
Current Stop loss: 71.75
Play Entered on: 11/14/15
Originally listed on the Watch List: 11/08/15


DR Horton Inc. - DHI - close: 30.67

Comments:
11/15/15: It was a big week for DHI. The company reported earnings on Tuesday, November 10th. Earnings were $0.64 a share, which was a penny above estimates, and up +33% from a year ago. Revenues were up +27.6% to $3.09 billion, essentially in-line with expectations. DHI said their backlog of orders rose +7.8% to 10,662 homes. The value of their backlog rose +10% to $3.15 billion. Management raised their quarterly dividend +28% to $0.08 a share.

The stock market reaction to DHI's earnings report lifted the stock from $28.77 to $32.00 in two days (+11%). DHI has since started to see some profit taking, down two days in a row.

No new positions at this time.

We will raise the stop loss up to $27.45.

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 $2.80/3.40

11/15/15 new stop @ 27.45
11/10/15 DHI reports earnings
11/01/15 new stop @ 25.90
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: 27.45
Play Entered on: 10/06/15
Originally listed on the Watch List: 09/13/15


The Walt Disney Co. - DIS - close: 114.84

Comments:
11/15/15: DIS is only down 83 cents for the week (less than 1%). That's pretty good when most of the market got hammered last week. Shares do look a little vulnerable. If the market continues to sink I would not be surprised to see DIS drop toward $112 or even the $110 area.

Tonight I am raising our stop loss to $104.65. More conservative investors may want to use a stop closer to the 50-dma (currently $107.65) instead.

No new positions at this time.

NOTE: We still have a short-term November $108 put that expires in five trading days. I expect this option to expire worthless. However, on the very small chance that DIS plunges below $108, don't forget to close this before next weekend. We will exit this November put on Friday, Nov. 20th, at the opening bell if there is any value left.

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 @ 8.09*
symbol: DIS170120C120 2017 JAN $120 call - current bid/ask $10.15/10.50

Nov 4, 2015 - bought DIS151120P108 ($108) put for $1.64

11/15/15 new stop @ 104.65
11/04/15 Purchased the November (20th) $108 put for $1.64
* adjusted the cost of our call position by $1.64
11/01/15 Prepare to buy a short-term November put (expires Nov 20th) on Wednesday, November 4th, to protect our position prior to DIS' earnings
10/25/15 new stop @ 103.45
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

Current Target: To Be Determined
Current Stop loss: 104.65
Play Entered on: 10/14/15
Originally listed on the Watch List: 09/27/15


Facebook, Inc. - FB - close: 103.95

Comments:
11/15/15: FB would have posted another gain for the week were it not for Friday's -3.76% plunge. Traders seemed to be selling their winners on Friday in a panicked effort to lock in gains. The drop on Friday has filled FB's gap from November 5th.

If this dip continues we could see FB drop toward round-number, psychological support at the $100 level.

No new positions at this time.

NOTE: We still have a short-term November $97.50 put that expires in five trading days. I expect this option to expire worthless. However, on the very small chance that FB plunges below $98, don't forget to close this before next weekend. We will exit this November put on Friday, Nov. 20th, at the opening bell if there is any value left.

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 @ 11.10*
symbol: FB170120C100 2017 JAN $100 call - current bid/ask $17.50/17.80

11/08/15 new stop @ 97.25
11/04/15 FB reports strong earnings
11/03/15 Buy the November $97.50 put ($1.85)
* adjust the cost of our call by $1.85
11/01/15 Prepare to buy a short-term November put (expires Nov 20th) on Tuesday, November 3rd, to protect our position prior to FB' earnings
10/25/15 new stop @ 92.00
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: 97.25
Play Entered on: 09/29/15
Originally listed on the Watch List: 09/13/15



The Home Depot, Inc. - HD - close: 120.00

Comments:
11/15/15: Ouch! Shares of HD lost $6.00 for the week. Most of that was on Friday with its -3.0% decline.

HD is another high-flying, big cap stock that traders were locking in profits on Friday. Shares found support right where you could expect, near the $120 level and its 50-dma. Unfortunately I do not expect $120 to hold. Stocks will likely spike lower on Monday morning.

No new positions at this time.

FYI: HD is scheduled to report earnings on November 17th. They announce before the opening bell. Nimble traders may want to consider buying some short-term puts as protection.

Trade Description: October 18, 2015:
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.

- Suggested Positions -
OCT 23, 2015 - entry price on HD @ 125.01, option @ 5.20
symbol: HD170120C140 2017 JAN $140 call - current bid/ask $3.65/3.90

10/25/15 new stop loss @ 113.45
10/23/15 trade begins. HD opens at $125.01
10/22/15 triggered. HD @ $124.36, above our $124.00 trigger
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 113.45
Play Entered on: 10/23/15
Originally listed on the Watch List: 10/18/15


Kellogg Co. - K - close: $66.09

Comments:
11/15/15: Uh-oh! K is not cooperating. Shares are down three weeks in a row. The breakout past resistance at $70.00 looks like a trap. The stock has been hammered with a drop toward support near $66 and its 200-dma near $65.51.

The outlook is not good. Stocks will likely spike lower or gap down on Monday morning as investors react to the terrorist attack in Paris. Our stop loss on K is at $65.75. Odds are we will be stopped out at or near the opening bell on Monday (Nov. 16th).

No new positions at this time.

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.

- Suggested Positions -
OCT 26, 2015 - entry price on K @ 71.76, option @ 4.00
symbol: K170120C75 2017 JAN $75 call - current bid/ask $1.25/2.20

11/15/15 Caution - K will likely hit our stop on Monday morning
11/08/15 new stop @ 65.75
11/03/15 K reports disappointing earnings results thanks to the strong dollar
11/01/15 Expect volatility on Tuesday when K reports earnings
10/26/15 Trade begins. K opens at $71.76
10/23/15 K dips into our suggested entry range, closes @ $71.70
10/22/15 K soars past our entry range (70.25-71.75) with a close at $72.01
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 65.75
Play Entered on: 10/26/15
Originally listed on the Watch List: 10/11/15


Lions Gate Entertainment - LGF - close: $37.84

Comments:
11/15/15: LGF reported earnings last Monday evening. The results were terrible. It was a slow quarter and LGF missed estimates by 30 cents a share. Revenues were down -13.8% to $476.8 million, below expectations. The stock has spiked lower on Monday night, after hours. Yet by Tuesday the stock has reversed higher.

Why the turnaround? LGF had announced that both Discovery Communications (DISCA) and Liberty Global (LBTYA) will purchase a 3.4% stake in LGF (that's about $195 million each). This news fueled a rally and LGF rose three days in a row. Shares would have been up for the week until LGF collapsed on Friday with a -7.8% plunge.

LGF crashed on Friday for two reasons. First, the market was in a widespread decline. Second, LGF announced a secondary offering of 3.4 million shares at $39.02 each. Investors hate getting diluted when a company announces a secondary offering. It didn't seem to matter that this secondary was related to DISCA and LBTYA equity stake in the company.

I would not be surprised to see LGF drop toward support in the $36.00 area. No new positions at this time.

FYI: LGF's The Hunger Games: Mockingjay, Part 2, hits U.S. theaters on November 20th.

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 $2.25/4.20

11/13/15 Shares plunge on news of a secondary offering
11/10/15 LGF rises on news of a partnership with DISCA and LBTYA
11/09/15 LGF reports disappointing earnings
11/08/15 Be prepared for volatility on Tuesday morning
10/25/15 new stop @ 34.45
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: 34.45
Play Entered on: 09/18/15
Originally listed on the Watch List: 09/08/15


Southwest Airlines - LUV - close: $45.89

Comments:
11/15/15: LUV has spent the last couple of weeks churning sideways in the $45.50-47.25 zone. Friday's decline (-1.7%) left shares hovering near support at the bottom of this trading range. If LUV breaks down the nearest support could be $44.00 or it could be the $42.00 level (soon to be bolstered by the 50-dma).

No new positions at this time.

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 $4.00/5.00

11/01/15 new stop @ 39.75
10/25/15 new stop @ 38.75
10/22/15 LUV reports earnings and beats estimates on both the top and bottom line
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

Current Target: To Be Determined
Current Stop loss: 39.75
Play Entered on: 10/13/15
Originally listed on the Watch List: 10/11/15


Orbital ATK, Inc. - OA - close: $80.35

Comments:
11/15/15: The profit taking in OA continued last week. Shares have fallen toward support near $80.00. Unfortunately I suspect OA will pierce this level on Monday morning.

No new positions at this time.

NOTE: Don't forget that we are currently long the November (20th) $75 put. This option expires in five trading days. Odds are this option will expire worthless. On the small chance this put has any value left on Friday, November 20th, we will exit on Friday at the opening bell.

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.

- Suggested Positions -
OCT 23, 2015 - entry price on OA @ 82.00, option @ 6.60*
symbol: OA160520C85 2016 MAY $85 call - current bid/ask $4.10/5.30

*adjusted for cost of Nov. $75 put ($1.10)

Currently long the November $75 put (OA151120P75)

11/01/15 new stop @ 76.40
10/26/15 Cost on the Nov. $75 put was $1.10
10/26/15 Buy the November $75 put at the opening bell
10/25/15 new stop loss @ 72.45
10/23/15 Trade begins. OA opens at $82.00
10/22/15 triggered. OA closes at $81.33, in the $81.00-83.00 entry range.
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

Current Target: To Be Determined
Current Stop loss: 76.40
Play Entered on: 10/23/15
Originally listed on the Watch List: 09/08/15


Pepisco, Inc. - PEP - close: 98.04

Comments:
11/15/15: The pullback in PEP continued last week, which confirms the breakdown below what should have been support at $100. This is disappointing. Odds are growing that we will see shares of PEP drop toward the next level of support in the $95.00-96.00 area.

No new positions at this time. Our stop loss remains at $94.75.

Trade Description: October 18, 2015:
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.

- Suggested Positions -
OCT 23, 2015 - entry price on PEP @ 103.32, option @ 4.00
symbol: PEP170120C110 2017 JAN $110 call - current bid/ask $2.20/2.39

11/08/15 new stop @ 94.75
10/23/15 Trade begins. PEP @ $103.32
10/22/15 Triggered. PEP @ $103.08, above our $101.00 trigger
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 94.75
Play Entered on: 10/23/15
Originally listed on the Watch List: 10/18/15


Royal Caribbean Cruises - RCL - close: 95.50

Comments:
11/15/15: Last week traders seemed to be selling their winners. Shares of RCL fell from resistance near $100 toward support near $95.00. I would not be surprised to see RCL dip toward the next support level near $93.50. If the market really accelerates lower RCL may test the $90 level and its 100-dma. Our stop loss is at $89.00. 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 $6.95/7.25

11/01/15 new stop @ $89.00
10/23/15 RCL delivered better than expected earnings and raised full year 2015 guidance.
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: 89.00
Play Entered on: 09/28/15
Originally listed on the Watch List: 09/20/15


Starbucks Corp. - SBUX - close: 59.74

Comments:
11/15/15: The market's weakness over the last couple of sessions have pulled SBUX down to new three-week lows. Shares are nearing what should be support around the $59.00 area and its 50-dma (currently $59.35). I suspect SBUX will pierce this area. Look for SBUX to overshoot to the downside and trade in the $56-58 zone.

No new positions at this time.

NOTE: We are still long the November (20th) $57.50 put. This option expires in five trading days. Hopefully this option will expire worthless. If there is any value left on this option we will close it on Friday morning (Nov. 20th).

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 @ 3.91*
symbol: SBUX170120C70 2017 JAN $70 call - current bid/ask $3.00/3.15

*adjusted cost for the short-term put (Nov. $57.50)

OCT 28, 2015 -Long SBUX151120P57.5 Nov. $57.50 put @ $0.61

10/29/15 SBUX reported Q4 earnings
10/28/15 buy the Nov. $57.50 put, cost $0.61
10/25/15 prepare to buy short-term puts on Wednesday (Oct. 28th)
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


Tyson Foods, Inc. - TSN - close $43.10

Comments:
11/15/15: Yuck! It has been a rough three days for TSN with a drop from $45.24 to $43.10 (-4.7%). I suspect the U.S. market will spike lower on Monday morning. We could see TSN testing technical support at its 200-dma near $42.00 soon.

No new positions at this time.

FYI: TSN is scheduled to report earnings on November 23rd.

Trade Description: October 25, 2015
TSN's beef business has struggled as a prolonged drought has hurt the cattle business. Yet TSN is seeing strong improvement in their chicken and prepared foods businesses.

TSN is in the consumer goods sector. According to the company, "Tyson Foods, Inc. (TSN), with headquarters in Springdale, Arkansas, is one of the world's largest food companies with leading brands such as Tyson®, Jimmy Dean®, Hillshire Farm ®, Sara Lee®, Ball Park®, Wright®, Aidells® and State Fair®. It's a recognized market leader in chicken, beef and pork as well as prepared foods, including bacon, breakfast sausage, turkey, lunchmeat, hot dogs, pizza crusts and toppings, tortillas and desserts. The company supplies retail and foodservice customers throughout the United States and approximately 130 countries.

Tyson Foods was founded in 1935 by John W. Tyson, whose family has continued to lead the business with his son, Don Tyson, guiding the company for many years and grandson, John H. Tyson, serving as the current chairman of the board of directors. The company currently has approximately 113,000 Team Members employed at more than 400 facilities and offices in the United States and around the world. Through its Core Values, Code of Conduct and Team Member Bill of Rights, Tyson Foods strives to operate with integrity and trust and is committed to creating value for its shareholders, customers and Team Members. The company also strives to be faith-friendly, provide a safe work environment and serve as stewards of the animals, land and environment entrusted to it."

After big gains in 2013 the stock ran out of steam. Shares have been consolidating sideways for more than a year and a half. That's probably because the earnings picture has been cloudy. The company has struggled to meet estimates and management has guided lower in recent quarters. That changed recently in September when TSN raised their 2016 guidance. The company should see +9% earnings growth in 2015 but earnings are expected to grow +21% in 2016.

Technically the bullish breakout in TSN this month is significant. The $44-45 zone has been major resistance for months. The current rally has generated a bullish buy signal on the point & figure chart, which is now forecasting at $63.00 target.

Tonight I am suggesting a little patience. Wait for a pullback in TSN. We are listing a buy-the-dip trigger to launch bullish positions at $45.50.

- Suggested Positions -
OCT 26, 2015 - entry price on TSN @ 45.50, option @ 4.00
symbol: TSN170120C50 2017 JAN $50 call - current bid/ask $2.55/3.20

10/26/15 triggered on a dip at $45.50
10/25/15 added to the watch list
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 41.35
Play Entered on: 10/26/15
Originally listed on the Watch List: 10/25/15


Under Armour - UA - close: $87.43

Comments:
11/15/15: Disappointing earnings and/or guidance from the likes of Macy's (M), Nordstrom's (JWN), and Fossil (FOSL) have crushed the retail stocks. UA is more of a consumer goods company but shares fell in sympathy as investors worry about a poor holiday shopping season.

We had shares of UA on our watch list. The plan was to wait for a dip and buy calls on a decline at $88.50, which is near major support at the bottom of UA's long-term bullish channel. Shares of UA hit our $88.50 trigger on Friday.

Normally I would expect a bounce from current levels and would suggest new positions on Monday. However, the terrorist attack in Paris on Friday will generate volatility. I expect stocks to spike lower at the open. Investors may want to wait for UA to trade above $90.00 before initiating new long-term bullish positions.

Please note that I am adjusting our stop loss to $79.85 in expectation of a spike down on Monday. Hopefully we can raise it next weekend.

Trade Description: November 1, 2015:
UA is in the consumer goods sector. They make shoes and athletic wear. According to the company, "Under Armour (UA), the originator of performance footwear, apparel and equipment, revolutionized how athletes across the world dress. Designed to make all athletes better, the brand's innovative products are sold worldwide to athletes at all levels. The Under Armour Connected Fitness platform powers the world's largest digital health and fitness community through a suite of applications: UA Record, MapMyFitness, Endomondo and MyFitnessPal."

The athletic shoe and athletic apparel business is very competitive. Nike (NKE) has dominated the space for years. UA is about 10% the size of NKE but it's actively fighting for market share and in 2015 UA overtook Adidas as the second biggest athletic wear brand inside the United States. Nike had sales of $27.8 billion in 2014. UA is a fraction of that with 2014 sales of $3.08 billion but they saw growth of +32%.

Management expects UA to see sales grow +20% in 2015. UA has been firing on all cylinders with its earnings results. Most of last year saw the company not only beating Wall Street's estimates but also raising guidance. That trend of raising guidance has continued this year. UA has beaten Wall Street's bottom line and top line estimates every quarter this year. They have also raised estimates every quarter this year.

Athletic apparel and shoe companies have been some of the market's best performers in 2015. Odds are they will continue to shine in the fourth quarter and beyond. Yet right now UA is correcting low. The stock should have support at the bottom of its long-term bullish channel (see chart). We want to be ready to take advantage of this short-term weakness.

UA should find support in the $85.00-88.00 area. Tonight we are suggesting a buy-the-dip trigger at $88.50. We will try and limit our risk with a stop loss at $84.00.

- Suggested Positions -
NOV 13, 2015 - entry price on UA @ 88.50, option @ 11.30
symbol: UA170120C100 2017 JAN $100 call - current bid/ask $10.30/10.80

11/15/15 adjust stop loss to $79.85
11/13/15 triggered on a dip at $88.50
Option Format: symbol-year-month-day-call-strike

Chart

Current Target: To Be Determined
Current Stop loss: 79.85
Play Entered on: 11/13/15
Originally listed on the Watch List: 11/01/15


Visa Inc. - V - close: 78.11

Comments:
11/15/15: V has been weathering the market's pullback very well. Shares only lost 64 cents last week and closed just above technical support at its 20-dma. Sadly I expect a spike lower on Monday morning as investors react to the Paris events on Friday. I suspect V will find support in the $74-76 zone.

No new positions at this time.

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 $7.65/7.90

11/08/15 new stop @ 71.75
11/01/15 new stop @ 69.00
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: 71.75
Play Entered on: 08/24/15
Originally listed on the Watch List: 08/09/15



Watch

Ready To Buy The Pullback

by James Brown

Click here to email James Brown


New Watch List Entries

NKE - NIKE Inc.

RTN - Raytheon Company


Active Watch List Candidates

EA - Electronic Arts

SWHC - Smith & Wesson


Dropped Watch List Entries

CTXS and UA have graduated to our active play list.

AAPL has been removed.



New Watch List Candidates:

Nike, Inc. - NKE - close: 121.86

Company Info

In Greek mythology Nike is the winged goddess of victory. It's an appropriate brand name for the American athletic wear giant. Nike is the 800-pound gorilla in the industry with annual sales of more than $30 billion.

If you're not familiar with the company, "NIKE, Inc., based near Beaverton, Oregon, is the world's leading designer, marketer and distributor of authentic athletic footwear, apparel, equipment and accessories for a wide variety of sports and fitness activities. Wholly-owned NIKE, Inc. subsidiaries include Converse Inc., which designs, markets and distributes athletic lifestyle footwear, apparel and accessories, and Hurley International LLC, which designs, markets and distributes surf and youth lifestyle footwear, apparel and accessories."

The company has consistently delivered on the earnings front. NKE has beaten Wall Street bottom line earnings estimates the last four quarters in a row. The last couple of quarters have seen revenues come in above estimates. A key metric that analysts follow is NKE's future orders, which have also come in above estimates the last couple of earnings reports.

The company's sales are accelerated in spite of a tough environment overseas and the strong dollar. Analyst have been raising their outlook and their price targets. The positive outlook by Nike management doesn't hurt. They recently said they plan to grow sales to $50 billion by 2020.

All this optimism fueled a big rally in NKE. On October 19th NKE hit an all-time high of $133.21 (closing high). At the time shares were up +38.5% year to date. Since then the rally stalled. NKE had been consolidating sideways at its highs and relatively resistant to the market's ups and downs. That changed this past week. Traders finally started taking profits.

This short-term weakness could be an opportunity. NKE will likely fill the gap from September. Prior resistance in the $117-118 zone should be new support. Tonight I am suggesting a buy-the-dip trigger at $117.50. We will try and limit our risk with a stop loss at $109.00.

Buy a dip trigger @ $117.50, initial stop loss @ 109.00

BUY the 2017 JAN $130 call (NKE170120C130) current ask $10.50

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

Chart of NKE:

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


Raytheon Company - RTN - close: 117.25

Company Info

The world seems to be growing more dangerous by the week. The war in Syria, the violent Islamic State (ISIS), and other hot spots around the world continue to fuel geopolitical tensions. If that wasn't enough we also have a belligerent Russia looming over eastern Europe and a China that is rapidly upgrading its military. The terrorist attack in Paris this past weekend drives the point home that governments need to spend more money on intelligence and anti-terror efforts.

Defense stocks is one way to play this growing need for defense systems. RTN is in the industrial goods sector. They are part of the defense/aerospace industry with big businesses in missile defense, electronic warfare, and cybersecurity. According to the company, "Raytheon Company, with 2014 sales of $23 billion and 61,000 employees worldwide, is a technology and innovation leader specializing in defense, civil government and cybersecurity markets throughout the world. With a history of innovation spanning 93 years, Raytheon provides state-of-the-art electronics, mission systems integration and other capabilities in the areas of sensing; effects; and command, control, communications and intelligence systems, as well as cybersecurity and a broad range of mission support services."

The company has beaten Wall Street's earnings estimates the last four quarters in a row. Management has raised their revenue guidance the last three quarters in a row. The U.S. now has a Republican controlled House and Senate, which should be defense-spending friendly. Plus, American defense companies have been developing foreign customers over the last few years to diversify their business should the U.S. see future spending cuts.

Wall Street is bullish on RTN with analysts raising their forecasts and price targets. The recent rally in RTN has produced a buy signal on the point & figure chart, which is forecasting at $136.00 target.

The last three weeks have seen the rally in RTN stall. Shares have been consolidating sideways in the $117-120 zone. I suspect RTN is poised to dip toward prior resistance and what should be support in the $110-112 area. Tonight I am suggesting a buy-the-dip trigger at $111.50.

Buy a dip trigger @ $111.50, initial stop loss @ 105.75

BUY the 2017 Jan $125 call (RTN170120C125) current ask $6.65

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

Chart of RTN:

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


Active Watch List Candidates:



Apple Inc - AAPL - close: 112.34

Comments:
11/15/15: AAPL lost almost $9.00 for the week. Friday saw a -2.9% plunge but the weakness started on Nov. 10th. Credit Suisse cautioned investors on AAPL after their research showed AAPL had cut its orders for iPhone 6 components by up to 10%. That doesn't bode well for future sales.

We have been patient with AAPL. We've tried different entry point strategies. Thus far they haven't worked. Tonight I am removing AAPL as a watch list candidate.

Trade did not open.

11/15/15 removed from the watch list
11/08/15 Adjust the option strike to the 2017 Jan. $140 call
11/08/15 Adjust entry zone = $124.00-126.00
11/01/15 Strategy Update - new entry point strategy
Use a breakout plan. Wait for AAPL to close in the $123.00-125.00 zone
Then buy calls the next morning. No initial stop loss.
Use a 2017 Jan $130 call
10/27/15 AAPL delivers a record quarter on earnings and revenues
Option Format: symbol-year-month-day-call-strike

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


Electronic Arts - EA - close: 69.89

Comments:
11/15/15: EA underperformed the broader market on Friday with a -2.4% drop and a close just below support near $70.00. Odds are good we will see EA hit new multi-week lows this week.

Previously I have been suggesting a buy-the-dip trigger at $68.00, near the long-term trend line of support (higher lows). EA should also have support near $65.00 and its simple 200-dma. Tonight we will adjust the buy-the-dip entry trigger from $68.00 down to $66.50. We will adjust the stop loss to $62.85. We also want to adjust the option strike from the 2017 $80 call to the $75 call.

Trade Description: November 1, 2015:
EA has been one of the S&P 500's best performers this year. Just prior to EA's earnings report last week the stock was up +61% year to date. EA reported better than expected results but shares tanked -5.2% on Friday anyway. We see the pullback as an opportunity.

EA is part of the technology sector. According to the company, "Electronic Arts (EA) is a global leader in digital interactive entertainment. The Company delivers games, content and online services for Internet-connected consoles, personal computers, mobile phones and tablets. EA has more than 300 million registered players around the world.

In fiscal year 2015, EA posted GAAP net revenue of $4.5 billion. Headquartered in Redwood City, California, EA is recognized for a portfolio of critically acclaimed, high-quality blockbuster brands such as The Sims®, Madden NFL, EA SPORTS® FIFA, Battlefield®, Dragon Age® and Plants vs. Zombies®. More information about EA is available at www.ea.com/news."

Looking at EA's earnings results, they tend to beat Wall Street estimates on both the top and bottom line. Their prior to report EA beat estimates but lowered guidance both times. On Thursday night, October 29th, EA reported their Q2 results. Earnings were $0.65 a share. Revenues were down -6.1% to $1.15 billion. These results beat estimates for $0.44 a share on revenues of $1.1 billion.

EA management raised their Q3 earnings and revenue guidance as well as their full year 2016 guidance above analysts' estimates. The company sees a strong launch to their upcoming Star Wars: Battlefront game, which launches on November 17th. EA raised their estimated sales from 9-to-10 million units up to 13 million.

Analysts suggest there is actually more upside since EA tends to provide cautious guidance. One firm raised their price target on EA to $84.00 following EA's earnings report. That happens to coincide with the point & figure chart, which is forecasting an $85 target.

EA's long-term trend line of support should be in the $66-67 area. I suspect EA will drift toward this trend line and then rebound. Tonight I am suggesting a buy-the-dip trigger to buy calls at $68.00.

Buy-the-dip trigger @ $66.50

BUY the 2017 Jan $75 call (EA170120C75)

11/15/15 adjust the option strike from 2017 January $80 call to $75 call
11/15/15 Adjust the entry trigger from $68.00 down to $66.50.
Adjust the stop loss from $64.65 down to $62.85.
Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 11/01/15


Smith & Wesson Holding - SWHC - close: 17.14

Comments:
11/15/15: The stock market's widespread decline last week pressure SWHC lower. Shares are nearing short-term support at $17.00. We are on the sidelines and waiting for a new relative high. Currently the plan is to wait for SWHC to close above $18.40, then buy calls the next morning.

Trade Description: November 8, 2015:
Shares of SWHC have been shooting higher all year long. The stock is showing massive relative strength with a +91% gain year to date. That dwarfs the +8.5% gain in the NASDAQ composite and +1.8% gain in the S&P 500 this year.

SWHC is considered part of the industrial goods sector. According to the company, "Smith & Wesson Holding Corporation (SWHC) is a U.S.-based leader in firearm manufacturing and design, delivering a broad portfolio of quality firearms, related products, and training to the global military, law enforcement, and consumer markets. The company's firearms division brands include Smith & Wesson®, M&P®, and Thompson/Center Arms®. As a leading provider of shooting, reloading, gunsmithing, and gun cleaning supplies, the company's accessories division produces innovative, high-quality products under several brands, including Caldwell® Shooting Supplies, Wheeler® Engineering, Tipton® Gun Cleaning Supplies, Frankford Arsenal® Reloading Tools, Lockdown® Vault Accessories, and Hooyman® Premium Tree Saws. Smith & Wesson facilities are located in Massachusetts, Maine, Connecticut, and Missouri."

The earnings picture for SWHC has been pretty strong. They have beaten Wall Street's earnings estimates the last four quarters in a row. Management has raised guidance three of the last four quarters.

Their most recent earnings report as August 27th. SWHC announced their 2016 Q1 results with earnings of $0.32 a share. That beat estimates of $0.23. Revenues surged +12% to $147.8 million, above expectations. Management raised their Q2 guidance and raised their fiscal year 2016 guidance.

The company benefits from strong retail trends. According to the FBI, gun sales in the U.S. have set a record for the last six months in a row. Now we are moving into the holiday shopping season and this trend should continue for the next two month (at least). Another benefit for SWHC is the current election cycle. Every time one of the democrat candidates says something about increasing gun control laws the sale of guns goes up. The closer we get to the 2016 election the louder these campaign promises about gun control could get.

Technically the trend in SWHC is bullish. The point & figure chart is forecasting at $26.50 target. The stock has been rising inside a big bullish channel (see chart). Rival Ruger (RGR) reported earnings a few days ago and their stock plummeted on a disappointing quarter. Yet shares of SWHC barely budged on the news. Today we see SWHC bouncing from support near the bottom of its bullish channel and its 100-dma. More aggressive investors may want to buy calls now. I am suggesting we wait for SWHC to close above $18.40 and then buy calls the next day.

Breakout trigger: Wait for SWHC to close above $18.40
Then buy calls the next morning with a stop loss at $16.25

BUY the 2017 JAN $20 call (SWHC170120C20)

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

Originally listed on the Watch List: 11/08/15