Option Investor
Newsletter

Daily Newsletter, Sunday, 12/6/2015

Table of Contents

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

Leaps Trader Commentary

Mercurial Market Moves

by James Brown

Click here to email James Brown

The stock market is having a hard time picking a direction. Two weeks ago, during the Thanksgiving week, the S&P 500 index was virtually flat with a one-point gain for the week. This past week saw volatility spike sharply with big moves both direction and yet the S&P 500 gained less than two points for the week - again, virtually flat.

Last Monday's ten-point decline in the S&P 500 almost erased the index's gain for the month of November. Normally the first week of December has an upward bias and Tuesday's market rally (December 1st) seemed to confirm the seasonal trend. Unfortunately the very next day was the terrorist attack in San Bernardino, California. The market trended down as details of the horrific act were unveiled in the news on Wednesday afternoon.

European Central Bank

The stock market sell-off intensified on Thursday as traders reacted to the ECB meeting and their announcement of new stimulus measures. ECB President Mario Draghi has been promising "whatever it takes" for the last couple of years. He has been hinting at new stimulus at the ECB's December meeting for weeks.

The markets were unhappy to see that the ECB left their main refinancing interest rate unchanged at 0.05% and left their marginal lending facility rate unchanged at 0.3%. Many were expecting the ECB to raise their monthly QE purchases from the current level of 60 billion euros a month. That was left unchanged as well. What the ECB did change was their deposit facility interest rate, which was adjusted from -0.2% to -0.3%. They also extended the time frame of their QE program an extra six months to March 2017.

This did not communicate a "whatever it takes" attitude to investors and stocks sold off sharply. The next day (Friday) Mario Draghi was speaking at another engagement and used it as a platform to soothe the markets by saying there is "no limit on using ECB tools... quickly and without delay." A moderator at the event on Friday actually asked Draghi if his new comments were aimed at the stock market and offset Thursday's sell-off. Draghi replied, "not really, (slight pause) well of course." The audience laughed and Wall Street rallied. The combination of Draghi's dovish tone and a better than expected jobs report helped fuel the big rally on Friday. We'll talk about the jobs number in a moment.

OPEC Meeting

Another event on Friday was final 2015 meeting of the Organization of the Petroleum Exporting Countries (OPEC). Currently OPEC has a daily quota of 30.0 million barrels of oil a day. Unfortunately, they are notorious cheaters at ignoring their own quotas and the cartel is producing 31.5 million barrels a day. There were some initial reports that OPEC had agreed to raising their daily production quota to 31.5 mmbpd but that was incorrect. Their official statement left quotas unchanged at 30.0 mmbpd.

Most of OPEC is caught in a trap. They depend on their oil exports for government revenue. All of them know that if they significantly cut production that it would help lift oil prices but no one wants to cut production and trust that their cartel members would honor the pledge and also cut. They're stuck in a "prisoner's dilemma" because they can't trust their "allies" to do the right thing. Each country is too dependent on their oil revenues. So instead most of them are pumping as much oil as they can to try and make up for lost revenue with higher volume.

It does not help OPEC that Russia, who is not a member, also needs as much revenue as they can from their oil and gas production. Plus, if oil prices actually went up, then the nimble U.S. oil industry would be able to boost production to take advantage of higher prices. OPEC faces another challenge with Iraq and Libya expected to raise production in 2016. Plus, if the Iran sanctions are lifted, then Iran plans to significantly boost their oil exports.

All of this is forecasting additional oil supply to an already well-supplied market. Crude oil sank -2.4% on Friday to close near round-number support at $40 a barrel. For the week crude oil lost -3.9%. This weighed heavily on oil and energy stocks, which fell -3.4% for the week. Oil service stocks plunged -3.8% for the week.

Economic Data

There was a lot of economic data to digest last week. The Chicago Purchasing Managers index (PMI) dropped from 56.2 in October to 48.7 in November. This foreshadowed a decline in the national ISM manufacturing index on Tuesday, which fell from 50.4 to 48.6. Numbers below 50.0 suggest economic contraction and recession. November's ISM marks the first month in contraction in about three years. Meanwhile the ISM services index came in worse than expected with a drop from 59.1 to 55.9. Services are a larger part of the U.S. economy and the services index has been above 50.0 for almost six years in a row.

The ADP National Employment Report on Wednesday came in better than expected. The October reading was revised from +182,000 to +196,000 private-sector jobs. The November reading was +217K when analysts were expecting a number in the 180-190K range. This portended a strong monthly jobs numbers from the BLS on Friday morning.

Economists were expecting +200,000 new jobs in the monthly nonfarm payroll report. The government revised the October jobs number from +271,000 to +298,000, the highest reading since last December. Meanwhile the November jobs number came in above estimates at +211,000 jobs. The three-month moving average rose to +218K, which is good enough for the Federal Reserve to raise rates later this month. The unemployment rate was unchanged at 5.0%.

Speaking of the Fed, Janet Yellen, the Federal Reserve Chairman, spoke twice last week. Both times she reiterated how the Fed was data dependent but suggested they were on track to raise rates in December. The healthy jobs number virtually guarantees the Fed will raise rates when they meet on December 16th. The funny thing is that most of the "data" is suggesting the U.S. economy is slowing down (see the ISM numbers above). If Yellen does raise rates this month it will be the first time the Fed has raised rates with the manufacturing economy in a recession since 1981.

Overseas Economic Data

There was plenty of economic data overseas as well. The Bank of France downgraded their growth outlook for both 2016 and 2017 and now expects French GDP growth of +1.4% and +1.6%, respectively. Germany said their factory orders for October improved sharply with a jump from -0.7% to +1.8%.

The Eurozone reported their unemployment rate for October improved slightly from 10.8% to 10.7%. Eurozone manufacturing PMI for November was unchanged at 52.8 while their retail PMI fell from 51.3 to 48.5. Services PMI for November inched down from 54.6 to 54.2. Numbers above 50.0 suggest growth.

The Eurozone also reported that inflation at the retail level, the CPI, was up +0.1% in November. Their core-CPI rose +0.9%. Yet inflation at a wholesale level, the PPI, fell -0.3% in October and was down -3.1% year over year. The Eurozone wants to see stronger inflation growth (to avoid deflation).

Looking east we heard that Japan saw a +1.4% jump in their industrial production for October. The country also saw a +1.8% rise in their retail sales for October, which was a significant improvement from September's -0.2%. China's official manufacturing PMI for November slipped from 49.8 to 49.6 while their non-manufacturing PMI inched higher from 53.1 to 53.6. The Caixin manufacturing PMI for November improved slightly from 48.3 to 48.6 and the Caixin services PMI dipped from 52.0 to 51.2. Remember, numbers below 50.0 suggest recession and economic contraction.




Major Indices:

It was a volatile week for the market. The S&P 500 briefly traded above round-number resistance at 2,100 and then reversed lower with a plunge toward technical support at its 50-dma. The huge bounce on Friday saw most of the market rally +2.0% in a single session. This left the S&P 500 with a +0.08% gain for the week (less than 2 points). The index is now up +1.6% for the year.

The S&P 500 now has a declining trend of lower highs but a breakout could signal a run toward its all-time highs near 2,130. Should the bounce fail we can see the technical support at the 50-dma. If that moving average fails the next support level looks like 2,020 or the 2,000 level.

Five Day chart of the S&P 500 index:

Daily chart of the S&P 500 index:

The NASDAQ composite soared nearly 105 points on Friday (+2.0%), which erased most of its Wednesday-Thursday decline. The index managed a +0.29% gain for the week and is now up three weeks in a row. The 5,160-5,170 area remains overhead resistance. A breakout past this level could spark a run toward its all-time highs near 5,232 in July this year. Year to date the index is up +8.5%.

If the NASDAQ fails to see any follow through higher I'm worried a breakdown below the trend of higher lows (see chart) could signal a drop toward 4,900 or lower.

chart of the NASDAQ Composite index:

Small caps had a rough week. The group outperformed the broader market the prior two weeks. Yet last week the Russell 2000 index fell -1.58%. That's after Friday's +1.0% bounce. Year to date the $RUT is down about -1.6%.

I have been warning readers that the 1,200-1,220 zone is overhead resistance. Last week the $RUT's rally failed at 1,205. Fortunately the index still has a bullish trend of higher lows - at least for now. December and January are normally really strong months for the small caps so investors might use this dip as another entry point although Friday's underperformance (+1.0% versus the market's +2.0%) doesn't bode well.

chart of the Russell 2000 index



Economic Data & Event Calendar

The pace of economic data slows down this week. Nothing on the calendar is that market-moving. We only have three and a half weeks left for 2015. The financial media will likely be focused on the Federal Reserve's upcoming meeting on December 15-16th and the pace of interest rate hikes in 2016.

- Monday, December 07 -
Bank of Japan's Governor Haruhiko Kuroda speaks

- Tuesday, December 08 -
China trade data for November
Japan's revised Q3 GDP estimate

- Wednesday, December 09 -
Wholesale inventory data

- Thursday, December 10 -
Bank of England interest rate decision
Swiss National Bank rate decision and quarterly update
Import/Export prices

- Friday, December 11 -
Producer Price Index (PPI)
U.S. Retail Sales for November
Business Inventory data from October
University of Michigan Consumer Sentiment
U.S. Congressional deadline to pass a spending bill

Additional dates to be aware of:

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:

It was a volatile week for the stock market. The good news is that Friday's bounce reaffirms the bullish trend of higher lows starting from the market's August-September correction. The bad news is that last week's volatility suggests investors remain nervous.

The S&P 500 is relatively flat for the year, only up +1.6% in 2015. Most fund managers have underperformed their benchmarks. Veteran investors would argue that is normal to see funds underperform the broader market but this year has been especially tough. That could mean there will be a big chase for performance between now and yearend. Winning stocks should keep climbing while losers get sold for tax loss purposes.

Overall my market bias is still bullish. History says stocks normally go up in December and there is still no serious alternative to the stock market. Precious metals are in a down trend and trading near multi-year lows. Meanwhile the yield on the ten-year bond is hovering around 2.2%. Investors seem to be interpreting the Fed's (likely) decision to raise rates in December as a vote of confidence in the U.S. economy.

~ James





Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

Believe it or not but it was generally a pretty good week for the LEAPStrader play list. The market's midweek plunge was a little nerve-wracking but stocks rebounded in dramatic fashion on Friday.

LUV, OA, TSN, and V 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

Higher By Yearend

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(December 6, 2015)

No new trades tonight. The market has gone from asleep at the wheel with no volatility (two weeks ago) to very volatile (last week). The overall trend remains bullish but the volatility suggests investors are nervous. I suspect the up trend will reassert itself and we'll see stocks higher between now and yearend.

Tonight I am adding KMB and MSFT as new watch list candidates. I've also adjusted the entry point strategy on ALK , a watch list candidate that could be triggered soon.



Play Updates

Weathering The Storm

by James Brown

Click here to email James Brown

Editor's Note:

Please note that ADBE, COST, and SWHC all report earnings this week. These stocks could be volatile as investors react to the news.


Closed Plays


We sold half of our HD position on Monday (Nov. 30th) to lock in a potential profit.



Play Updates


Adobe System Inc. - ADBE - close: $92.58

Comments:
12/06/15: ADBE has spent most of the last two weeks churning sideways beneath resistance in the $92.50-93.00 zone. Thursday's market sell-off pushed the stock below round-number support at $90.00 but ADBE soared back on Friday with a +2.9% gain and a new closing high.

ADBE looks ready to breakout higher. However, I wouldn't be surprised to see shares churn sideways a little bit longer. The company is scheduled to report earnings this week on December 10th. Results come out after the closing bell.

More conservative investors may want to consider a short-term put to protect your bullish positions. We are choosing not to use any short-term puts at this time.

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 $7.60/7.85

11/29/15 new stop @ 85.75
11/22/15 new stop @ 84.75
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: 85.75
Play Entered on: 10/19/15
Originally listed on the Watch List: 10/11/15


The Clorox Co. - CLX - close: $128.78

Comments:
12/06/15: CLX is showing relative strength. The last couple of weeks have seen shares bounce off short-term technical support at the rising 10-dma. CLX held up well during the market's Wednesday-Thursday sell-off. When stocks bounced on Friday shares soared +2.1% to a new all-time high.

More conservative investors might want to raise their stop again. 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 $8.90/11.00

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

11/29/15 new stop @ 118.85
11/22/15 new stop @ 116.40
11/17/15 planned exit for the short-term put (virtually $0.00)
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: 118.85
Play Entered on: 09/22/15
Originally listed on the Watch List: 09/08/15


Costco Wholesale - COST - close: 166.80

Comments:
12/06/15: Shares of COST held up reasonably well last week. The stock continued to consolidate sideways in the $160-164 zone. COST garnered some bullish analyst comments last week with new upgrades and new prices targets (one target at $180 and another at $200).

COST ended the week at a new all-time high. While the breakout looks bullish I am not suggesting new positions. Shares of COST could face some profit taking this week. The company is scheduled to report earnings on Tuesday, December 8th. The results come out after the closing bell. With COST at new highs it could see profit taking no matter what the company's results are.

More conservative investors will want to seriously consider taking some money off the table before their earnings announcement. Or you might want to consider a short-term put to protect your bullish positions instead.

I am not suggesting 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 $17.10/17.50

11/22/15 new stop @ 153.00
11/08/15 new 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: 153.00
Play Entered on: 10/06/15
Originally listed on the Watch List: 10/04/15


Salesforce.com - CRM - close: 82.14

Comments:
12/06/15: CRM is another big cap that weathered the market's pullback last week very well. When the market rebounded on Friday shares of CRM soared +2.7% to set a new all-time closing high.

More conservative investors may want to raise their stop loss. 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 $9.00/ 9.85

11/22/15 new stop @ 73.75
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: 73.75
Play Entered on: 10/14/15
Originally listed on the Watch List: 09/20/15


DR Horton Inc. - DHI - close: 32.99

Comments:
12/06/15: DHI displayed significant strength on Friday with a +4.2% bounce that almost completely erased its midweek pullback. The stock continues to outperform most of its peers in the homebuilding industry as well. Currently DHI is on the verge of breaking out past resistance near $33.00 and setting new multi-year highs.

More conservative investors may want to raise their stop loss again. No new positions at this time.

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 $3.45/3.75

11/29/15 new stop @ 28.35
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: 28.35
Play Entered on: 10/06/15
Originally listed on the Watch List: 09/13/15


The Walt Disney Co. - DIS - close: 114.24

Comments:
12/06/15: DIS continued to see some profit taking last week. Shares dipped toward their early November lows and their 50-dma before bouncing on Friday. Bearish traders could argue that DIS has formed a bearish double top with the peak in August and now in November. I suspect the two-week pullback is just profit taking and a mini-correction after a stellar run up from its September lows.

Last week DIS raised their semiannual dividend from 66 cents a share to 71 cents. Normally raising the dividend is a sign of confidence by management. We are only two weeks away from the new Star Wars movie and the hype will likely keep DIS stock in bullish trend.

No new positions at this time.

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 $ 9.20/ 9.40

11/22/15 new stop loss @ 109.75
11/21/15 short-term put has expired ($0.00)
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: 109.75
Play Entered on: 10/14/15
Originally listed on the Watch List: 09/27/15


Electronic Arts - EA - close: 70.38

Comments:
12/06/15: It was a volatile week for most of the stock market. Shares of EA just continued to churn sideways in the $66-70 zone. EA did show some relative strength on Friday with a +4.7% rally. The close above $70.00 and its 50-dma is also short-term bullish. I would be tempted to launch new bullish positions if EA can close above $71.00.

More conservative investors might want to raise their stop loss closer to the simple 200-dma currently near $65.65.

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.

- Suggested Positions -
NOV 17, 2015 - entry price on EA @ 65.08, option @ 6.85
symbol: EA170120C75 2017 JAN $75 call - current bid/ask $ 8.30/8.90

11/17/15 triggered on gap down at $65.08
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

Current Target: To Be Determined
Current Stop loss: 62.85
Play Entered on: 11/17/15
Originally listed on the Watch List: 11/01/15


Facebook, Inc. - FB - close: 106.18

Comments:
12/06/15: Shares of FB endured the market's volatility last week by churning sideways in the $103-108 zone. Friday's gain (+1.7%) helped FB eke out a gain for the week. The stock garnered additional bullish analyst comments and a new $125 price target but this didn't seem to help much.

No new positions at this time.

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 $18.55/18.70

11/21/15 short-term put has expired
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: 134.53

Comments:
12/06/15: HD plunged about $3.00 on Thursday's market decline but the big bounce on Friday (+$3.60) erased the loss. HD currently looks poised to breakout past resistance in the $135.00 region.

Last weekend we adjusted our exit plan and suggested we sell half of our HD calls on Monday, November 30th, to lock in a potential gain. HD opened on Monday at $135.20. The bid on our call was $8.85, up +70%.

No new positions at this time.

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 $9.00/9.25

11/30/15 sell half of our HD calls (exit $8.85, +70.1%)
11/29/15 plan on exiting HALF of HD calls on Monday morning (Nov. 30th)
11/29/15 new stop loss @ 124.65
11/22/15 new stop loss @ 118.45
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: 124.65
Play Entered on: 10/23/15
Originally listed on the Watch List: 10/18/15


Southwest Airlines - LUV - close: $49.41

Comments:
12/06/15: It was a good week for LUV investors. The stock has rallied four out of the last five sessions. LUV displayed significant relative strength on Friday with a +4.4% gain and a rally to new multi-year highs. Plunging oil prices likely gave the airline stocks a boost.

Tonight we are raising our stop loss to $43.85.

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 $5.30/6.10

12/06/15 new stop @ 43.85
11/22/15 new stop @ 41.85
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: 43.85
Play Entered on: 10/13/15
Originally listed on the Watch List: 10/11/15


Orbital ATK, Inc. - OA - close: $86.58

Comments:
12/06/15: OA managed to ignore the market's volatility until Thursday. Shares fell more than $2.00 on Thursday. Fortunately investors bought the dip on Friday morning and OA surged $2.69 or 3.2% to erase its loss for the week.

Tonight I am raising the stop loss to $79.45. No new positions at this time.

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 $6.80/7.70

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

12/06/15 new stop @ 79.45
11/21/15 short-term put has expired ($0.00)
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: 79.45
Play Entered on: 10/23/15
Originally listed on the Watch List: 09/08/15


Pepisco, Inc. - PEP - close: 101.06

Comments:
12/06/15: The market's midweek decline last week pushed PEP toward its 50-dma. Friday's bounce (+1.9%) erased its loss for the week. PEP is now up three weeks in a row. I would be tempted to buy calls again if PEP can close above $102.50 but more conservative investors may want to wait for a new high above its October peak (about $103.50).

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 $2.81/3.00

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: 94.27

Comments:
12/06/15: RCL's +3.0% bounce on Friday pushed it to a weekly gain. Shares have now snapped a three-week losing streak. While the rebound on Friday is encouraging I am suggesting caution. Friday's move is an inside-day, stuck inside Thursday's big trading range, and this suggests indecision by traders.

RCL currently has short-term resistance near $96.00. If you're looking for a new entry point I'd wait for a close above $96.00.

FYI: Keep an eye on crude oil. Fuel is a big expense for these massive cruise liners. Further weakness in oil should be a tailwind for RCL.

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 $6.05/6.25

11/22/15 Caution - RCL did not perform well last week
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: 61.75

Comments:
12/06/15: The last couple of sessions have been volatile for SBUX. Thursday's drop saw SBUX fall below its mid November low. Fortunately the market's big bounce fueled a big rebound in SBUX. The stock showed relative strength on Friday with a +3.69% gain.

No new positions at this time. Let's see if SBUX can build on Friday's bounce.

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 $3.35/3.45

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

11/22/15 new stop loss @ 54.95
11/21/15 short-term November put has expired
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: 54.95
Play Entered on: 10/12/15
Originally listed on the Watch List: 09/20/15


Smith & Wesson Holding - SWHC - close: 18.99

Comments:
12/06/15: SWHC virtually ignored the market's midweek plunge last week. Shares just consolidated sideways along short-term support near $18.20. Friday's market rally lifted SWHC toward resistance at $19.00. The stock is poised for a breakout. However, SWHC might trade sideways the next couple of sessions. The company is scheduled to report earnings on Tuesday, December 8th. Wednesday morning could be volatile as investors react to their results and management's guidance. More conservative investors might want to use a stop loss closer to support near $17.00.

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.

- Suggested Positions -
NOV 25, 2015 - entry price on SWHC @ 18.70, option @ 2.90
symbol: SWHC170120C20 2017 JAN $20 call - current bid/ask $2.60/2.85

11/25/15 trade begins. SWHC opens at $18.70
11/24/15 triggered. SWHC closed @ $18.65, above our $18.40 trigger
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 16.25
Play Entered on: 11/25/15
Originally listed on the Watch List: 11/08/15


Tyson Foods, Inc. - TSN - close $52.04

Comments:
12/06/15: TSN is still showing relative strength. Last week the stock looked overbought, extended, and due for a pullback. Now TSN is up another $2.00 and looking even more extended.

Readers will want to seriously consider taking some money off the table after such a big two-week rally. Tonight we are raising our stop loss to $45.75.

No new positions at this time. Investors should expect a pullback any day now.

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 $6.40/7.10

12/06/15 new stop @ 45.75, readers may want to take some money off the table. Our option is already up +60%.
11/29/15 new stop loss @ 44.75
11/23/15 TSN reports earnings. The stock rallies
11/22/15 TSN could be volatile following its earnings report
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: 45.75
Play Entered on: 10/26/15
Originally listed on the Watch List: 10/25/15


Under Armour - UA - close: $87.31

Comments:
12/06/15: Bearish analyst comments on UA sparked another sell-off last Monday. Shares churned sideways on Tuesday and Wednesday before plunging to new three-month lows on the market's big drop Thursday. UA managed to pare its loss for the week with a +3.75% bounce on Friday. Unfortunately UA still has an intermediate bearish trend of lower highs and lower lows.

Currently our stop loss is at $79.85, just under its August low and round-number support at $80.00. More conservative investors may want to raise their stop closer to last week's low instead (about $83.00).

No new positions at this time.

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 $ 8.90/ 9.50

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

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: 80.40

Comments:
12/06/15: Visa shares held up reasonably well last week. The stock dropped toward $78.00 before bouncing back on Friday (+2.69%). Visa looks poised to rally toward its recent highs and likely breakout.

Tonight I am raising our stop loss up to $74.40. 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 $8.35/8.60

12/06/15 new stop @ 74.40
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: 74.40
Play Entered on: 08/24/15
Originally listed on the Watch List: 08/09/15



Watch

Big Cap Strength

by James Brown

Click here to email James Brown


New Watch List Entries

KMB - Kimberly Clark

MSFT - Microsoft Corp.


Active Watch List Candidates

ALK - Alaska Air Group

BA - The Boeing Company

HEDJ - WisdomTree Europe Hedged ETF

RHT - Red Hat, Inc

RTN - Raytheon Company

UPS - United Parcel Service


Dropped Watch List Entries

None.



New Watch List Candidates:

Kimberly-Clark - KMB - close: 121.30

Company Info

There are not many public companies that have been around as long as KMB. The company has a history going back more than 140 years. It looks like investors are still bullish on it with KMB trading near all-time highs.

KMB is in the consumer goods sector. According to the company, "Kimberly-Clark (KMB) and its well-known global brands are an indispensable part of life for people in more than 175 countries. Every day, nearly a quarter of the world's population trust K-C's brands and the solutions they provide to enhance their health, hygiene and well-being. With brands such as Kleenex, Scott, Huggies, Pull-Ups, Kotex and Depend, Kimberly-Clark holds No. 1 or No. 2 share positions in 80 countries."

The company has beaten Wall Street's earnings estimates the last three quarters in a row. A stronger labor market in the U.S. combined with lower gasoline prices should be a tailwind for consumer spending in the globe's biggest economy. Meanwhile KMB is pursuing high-growth opportunities in emerging markets.

Technically the stock has been trading sideways in the $117.00-123.00 zone the last seven weeks. The recent bounce near the bottom of its trading range might suggest a bullish breakout soon. The point & figure chart is bullish and forecasting at $163 target. Tonight I am suggesting investors wait for KMB to close above $123.00 and then buy calls the next morning with an initial stop loss at $116.95.

Breakout trigger: Wait for KMB to close above $123.00
Then buy calls the next morning with an initial stop loss at $116.95.

BUY the 2017 Jan $130 call (KMB170120C130) current ask $4.70

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

Chart of KMB:

Originally listed on the Watch List: 12/06/15


Microsoft Corp. - MSFT - close: 55.91

Company Info

MSFT is one of the biggest stocks in the U.S. market and shares just surged to new 15-year highs.

MSFT is more than just a software company. They are part of the technology sector. It is considered part of the business software industry. According to the company, "Microsoft is the leading platform and productivity company for the mobile-first, cloud-first world, and its mission is to empower every person and every organization on the planet to achieve more."

The company is run under three segments. They have their productivity and business processes segment. This includes commercial office software, personal office software, and more. One of their fastest growing segments is MSFT's Intelligent Cloud business, which includes their server software and enterprise services. Then they have their "More Personal Computing" segment. This includes their Windows operating software, MSN display advertising, Windows phones, smartphones, tablets, PC accessories, Internet search, and their Xbox platform.

The stock has been dead money for almost a year. MSFT peaked near round-number resistance at $50.00 back in November 2014. Shares channeled sideways between support at $40 and resistance at $50 for months. That changed in October.

MSFT reported its 2016 Q1 results on October 22nd. Analysts were expecting a profit of $0.59 a share on revenues of $21.04 billion. MSFT beat both estimates with a profit of $0.67 a share. Revenues came in at $21.66 billion. Their Intelligent Cloud segment saw sales rise +8% but it was actually +14% on a constant currency basis.

Shares of MSFT soared the next day with a surge to multi-year highs. The big rally is based on investors' belief that MSFT and its relatively new management is successfully transitioning away from declining PC sales and moving quickly towards the cloud (and mobile).

The stock has been relatively resistant to any serious profit taking. Last week's midweek market decline only pushed MSFT toward short-term support at its 10-dma near $54.00. The stock displayed relative strength on Friday with a +3.1% gain. Investors may want to jump in and buy calls now. I am crossing my fingers and hoping for a little pullback. Tonight I'm suggesting a buy-the-dip trigger at $55.05.

Trigger: buy-a-dip at $55.05 with a stop at $51.95

BUY the 2017 Jan $60 call (MSFT170120C60) current ask $3.40

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

Chart of MSFT:

Originally listed on the Watch List: 12/06/15


Active Watch List Candidates:



Alaska Air Group - ALK - close: 84.91

Comments:
12/06/15: Some of the airline stocks showed significant strength on Friday. ALK was one of them. The combination of weak oil prices and bullish analyst comments on Friday fueled a +5.4% surge in ALK. The stock vaulted right past our $83.00-84.00 entry point range. That means this trade is not open yet.

Tonight we are adjusting our entry point strategy. Instead of waiting for ALK to close in the $83.00-84.00 zone we are adjusting this to a buy-the-dip strategy. Broken resistance near $83.00 should be new support. Tonight I am listing a buy-the-dip trigger at $83.50.

Trade Description: November 22, 2015:
Depressed oil prices have been great for airline industry profits. Yet airline stocks, as a group, have struggled this year. The XAL airline index is down about -10% year to date. ALK is an exception. The stock has shown significant relative strength and is up +37% in 2015.

ALK is part of the services sector. According to the company, "Alaska Airlines, a subsidiary of Alaska Air Group (ALK), together with its partner regional airlines, serves more than 100 cities through an expansive network in the United States, Canada and Mexico. Alaska Airlines ranked 'Highest in Customer Satisfaction Among Traditional Carriers in North America' in the J.D. Power North America Airline Satisfaction Study for eight consecutive years from 2008 to 2015. Alaska Airlines' Mileage Plan also ranked 'Highest in Customer Satisfaction with Airline Loyalty Rewards Programs' in the J.D. Power 2014 and 2015 Airline Loyalty/Rewards Program Satisfaction Report."

ALK has beaten Wall Street's bottom line earnings estimates the last four quarters in a row. Their most recent report was October 22nd. The company raised its outlook. The past 12 months have seen ALK's revenues rise +4.8%. Net income and earnings have both grown more than +50%. Back in August the company announced at $1 billion stock buyback program (current market cap is about $10 billion).

Crude oil is expected to remain cheap and likely get cheaper in 2016. That should provide a strong tailwind for ALK's business. Currently the stock has been consolidating sideways the last few months. Yet the rally this past week has pushed ALK toward major resistance and shares could see a breakout. We want to hop on board if that occurs. Tonight I am suggesting we wait for ALK to close in the $83.00-84.00 zone and then buy calls the next morning with a stop loss at $74.75.

Breakout trigger: Buy calls on an intraday dip to $83.50

BUY the 2017 JAN $90 call (ALK170120C90)

12/06/15 new entry trigger. ALK rushed past our suggested entry (a close in the $83.00-84.00 zone). Tonight we are listing a new entry - an intraday dip to $83.50
Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 11/22/15


The Boeing Company - BA - close: 148.50

Comments:
12/06/15: BA is looking healthier. Shares bounced near their 200-dma on Thursday. The stock is poised to challenge resistance near $150 soon. Congress will likely authorize new spending bills to boost defense spending. The U.S. military's current campaign against ISIS has begun to deplete their armory of bombs and missiles. New defense spending should boost BA and the rest of the defense-related stocks.

Currently our suggested entry point is a close in the $150-152 zone.

Trade Description: November 22, 2015:
The global economy might be facing a slowdown but longer-term demand for air travel is growing. The combination of demand for commercial aircraft and rising defense budgets around the world is powerful recipe for BA's business.

BA is in the industrial goods sector. According to the company, "Boeing is the world's largest aerospace company and leading manufacturer of commercial jetliners and defense, space and security systems. A top U.S. exporter, the company supports airlines and U.S. and allied government customers in 150 countries. Boeing products and tailored services include commercial and military aircraft, satellites, weapons, electronic and defense systems, launch systems, advanced information and communication systems, and performance-based logistics and training."

BA's most recent earnings report was October 21st. Wall Street was expecting a profit of $2.20 a share on revenues of $24.78 billion. BA beat estimates on both fronts. Earnings were $2.52 a share. Revenues were up +8.7% to $25.85 billion. The company raised their guidance on both EPS and revenues. Their backlog is almost 5,700 planes valued at more than $425 billion.

The company sees strong demand for the airplane market. On November 4th BA issued a press release stating, "Boeing forecasts airlines in the Middle East will require 3,180 new airplanes over the next 20 years, valued at an estimated $730 billion. 70 percent of the demand is expected to be driven by rapid fleet expansion in the region." Then on November 16th, "Boeing projects the Latin American commercial aviation market will grow at one of the highest rates in the world over the next 20 years. As a result, Boeing forecasts the region's airlines will need 3,050 new airplanes valued at $350 billion."

A couple of days ago two analysts with Canaccord Genuity issued a note suggesting rising interest rates are bullish for BA. Here's what they had to say, "While it is difficult for us to determine exactly when the U.S. will raise its target federal funds rate, we wanted to review again the impact of rising rates has historically had on Boeing and the commercial aerospace cycle. Historically, rising rates have corresponded with strengthening commercial orders and outperformance by both Boeing stock and the broader Aerospace & Defense sector. For example, over the past three significant tightening cycles, commercial transport orders increased by an average of 7% and 140% in the 12 and 24 month time periods after rates started to increase. Similarly, the total commercial backlog also increased over these same periods by an average of 3% and 43%... Not surprising as well, over the past two tightening cycles, BA stock has outperformed the broader market by an average of 19%-20% annually while rates are rising. We agree that with the more diverse backlog today, the health of U.S. airlines is less impactful for the cycle. However, we believe in the aggregate, rising rates in the U.S. are generally a bullish signal for both Boeing and the A&D sector. Note that since 1991, BA stock has outperformed the S&P in 15 of the 24 years, and is on pace to do so again in 2015." (source)

News in late October that BA and project partner Lockheed Martin (LMT) had lost their bid on the Pentagon's long-range strike bomber project to rival Northrop Grumman (NOC) did not seem to have much impact on BA's share price.

On the subject of defense, the terrible attacks in Paris last week have generated new support for additional defense spending to focus on ISIS/ISIL. BA could see additional defense spending contracts from multiple governments as governments bulk up for more action.

Meanwhile shares of BA have been building on a bullish trend of higher lows since the market's correction in August. The bounce off its trend line of support has lifted BA toward major resistance at $150.00. We want to see a convincing breakout past resistance at $150. Wait for BA to close inside the $150.00-152.00 zone. Then buy calls the next morning with an initial stop loss at $144.00.

Breakout trigger: Wait for BA to close in the $150.00-152.00 zone
Then buy calls the next morning with a stop at $144.00

BUY the 2017 JAN $170 call (BA170120C170)

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

Originally listed on the Watch List: 11/22/15


WisdomTree Europe Hedged ETF - HEDJ - close: 60.49

Comments:
12/06/15: European stocks plunged on Thursday after the ECB disappointed investors with their new and improved QE plans. The HEDJ plunged toward its 50-dma. New comments from ECB President Draghi on Friday helped soothe fears that the central bank was not doing enough. This ETF managed a +2.0% bounce on Friday.

There is no change in our entry strategy. Wait for a close above $63.00.

Trade Description: November 22, 2015:
The Federal Reserve spent multiple years and multiple QE programs to help prop up the U.S. economy. Many believe these stimulus programs were a rising tide that lifted the major U.S. stock market indices. Now Europe has started their own QE journey. One way to play it is the HEDJ.

This is an ETF that follows the WisdomTree Europe Hedged Equity Index. Here's a brief description from the company, "The WisdomTree Europe Hedged Equity Index is designed to provide exposure to European equities while at the same time neutralizing exposure to fluctuations between the Euro and the U.S. dollar. In this sense, the Index 'hedges' against fluctuations in the relative value of the Euro against the U.S. dollar. The Index is based on dividend paying companies in the WisdomTree International Equity Index that are domiciled in Europe and are traded in Euros, have at least $1 billion market capitalization, and derive at least 50% of their revenue in the latest fiscal year from countries outside of Europe. The component securities are weighted in the Index based on annual cash dividends paid with the following caps: maximum individual position capped at 5%, maximum sector weight capped at 25%, and maximum country weight capped at 25%." (more info)

The European Central Bank has already launched a one trillion euro QE program. Now ECB President Mario Draghi has strongly hinted that the central bank will boost its QE program this coming December. The initial program was due to last until September 2016. Odds are the ECB's stimulus will be extended a lot longer than that.

Bears can argue that Europe's economy is slowing. Why would we want to own European stocks. This is a bet that European markets will react similarly to American markets. U.S. stocks ignored disappointing economic data for years in favor of constant QE from the Fed. Now it's Europe's turn.

My biggest worry is this Syrian refugee crisis and new terrorist threat. Housing, feeding, and taking care of hundreds of thousands of new refugees will not be cheap. It will also cost more to protect Europe's cities and populations from growing terror threats. If the terrorists are successful with several more attacks it could seriously dent the EU economy as people stay indoors and tourism slows down. Today's trade on the HEDJ is an optimistic bet that the terrorists do not win.

Currently the HEDJ has rebounded from its September lows to technical resistance at its simple 200-dma. It's also testing resistance at the ETF's multi-month down trend from its 2015 highs. A breakout here could be very bullish. Tonight I am suggesting we wait for the HEDJ to close above $63.00 and then buy calls the next morning.

Breakout trigger: Wait for HEDJ to close above $63.00
Then buy calls the next morning with a stop at $57.40

BUY the 2017 JAN $70 call (HEDJ170120C70)

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

Originally listed on the Watch List: 11/22/15


Red Hat, Inc. - RHT - close: 81.89

Comments:
12/06/15: Shares of RHT dipped toward round-number support at $80.00 and bounced. I do not see any changes from last week's new candidate description. Our suggested entry point is a close inside the $83.00-84.00 zone.

FYI: RHT has earnings coming up on December 17th. More conservative investors might want to wait until after we see the market's reaction to RHT's earnings before launching new positions.

Trade Description: November 29, 2015:
Consistent earnings and revenue growth have helped power RHT shares to new multi-year highs. The stock has also shown relative strength with a +19% gain in 2015, outperforming the NASDAQ's +8% gain.

RHT is in the technology sector. According to the company, "Red Hat is the world's leading provider of open source software solutions, using a community-powered approach to reliable and high-performing cloud, Linux, middleware, storage and virtualization technologies. Red Hat also offers award-winning support, training, and consulting services. As a connective hub in a global network of enterprises, partners, and open source communities, Red Hat helps create relevant, innovative technologies that liberate resources for growth and prepare customers for the future of IT."

I mentioned that earnings have helped drive RHT's stock higher. The company has beaten Wall Street's estimates on both the top and bottom line the last four quarters in a row. Their most recent earnings report was their Q2 results announced on September 21st.

Analysts were expecting a profit of $0.44 a share on revenues of $494 million. The company delivered earnings growth of +15% with a profit of $0.47 a share. Revenues were up +13% to $504 million. Management raised their Q3 and 2016 guidance above analysts' expectations. RHT does do a lot of business overseas so the strong dollar has had a negative impact. On a constant currency basis their results are even stronger.

Technically shares are in a bullish trend of higher highs and higher lows. The point & figure chart is bullish and forecasting at $109 target. RHT's bounce from its November low has stalled just below short-term resistance near $83.00. Tonight I am suggesting bullish positions if RHT can close in the $83.00-84.50 range.

Breakout trigger: Wait for RHT to close in the $83.00-84.00 range,
Then buy calls the next morning with a stop at $77.35

BUY the 2017 Jan $100 call (RHT170120C100)

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

Originally listed on the Watch List: 11/29/15


Raytheon Company - RTN - close: 124.29

Comments:
12/06/15: RTN dipped to short-term technical support at its 20-dma before starting to bounce on Friday. I am not giving up on our buy-the-dip strategy at $121.00.

Trade Description: November 15, 2015:
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 @ $121.00 with an initial stop at $116.65

BUY the 2017 Jan $130 call (RTN170120C130)

11/29/15 Entry Strategy Update: Use a buy-the-dip entry at $121.00 with a stop loss at $116.65. Use the 2017 Jan. $130 call
11/22/15 RTN has rallied too fast. We are temporarily removing our entry trigger for RTN. We'll come back in a week and re-evaluate how (or if) we want to trade RTN.
Option Format: symbol-year-month-day-call-strike

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


United Parcel Service - UPS - close: 103.26

Comments:
12/06/15: Transportation stocks displayed relative weakness last week. Fortunately shares of UPS found support near $102 again. Currently we are waiting for a breakout past resistance. Our suggested entry point a close above $105.50.

Trade Description: November 29, 2015:
Black Friday has grown from a one-day sales event to a four-day weekend sales bonanza. Nowadays the theme of Black Friday holiday sales starts before Thanksgiving. Unfortunately the initial impressions from retailers this year is that crowds were smaller than expected. That's because more and more consumers are shopping online. One retail research firm is estimating that online sales will grow +8% this year versus the +5.8% we saw in 2014.

One way to play the growth of online shopping is the delivery business. UPS is in the services sector. According to the company, "UPS is a global leader in logistics, offering a broad range of solutions including transporting packages and freight; facilitating international trade, and deploying advanced technology to more efficiently manage the world of business. Headquartered in Atlanta, UPS serves more than 220 countries and territories worldwide."

Smaller rival FedEx (FDX) is forecasting a +12% surge in deliveries this holiday season (to 317 million packages). The U.S. Postal Services is forecasting +11% growth to nearly 600 million packages. UPS, the largest delivery company, is projecting +10% growth this holiday season. They expect to handle more than 630 million packages between Black Friday and New Year's Eve this year.

The combination of low gasoline prices and rising online shopping should be a bullish combination for UPS. I wouldn't be surprised to see online sales surpass the +8% growth estimate. More and more companies are trying to develop their online sales. Plus, following the tragic events in Paris this year, there is a heightened sense of wariness that could keep some consumers out of the malls this year.

The last few weeks have seen shares of UPS consolidating sideways in the $102.00-105.50 zone. We want to buy calls if UPS can breakout from this trading range. Tonight I am suggesting investors buy calls if UPS can close above $105.50.

Breakout trigger: Wait for UPS to close above $105.50
Then buy calls the next morning with a stop at $99.75

BUY the 2017 Jan $115 call (UPS170120C115)

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

Originally listed on the Watch List: 11/29/15