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Newsletter

Daily Newsletter, Monday, 1/11/2016

Table of Contents

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

Leaps Trader Commentary

Worst Yearly Start Ever!

by James Brown

Click here to email James Brown

The first week of 2016 was a record-breaker and not in a good way. Markets were slammed right from the start thanks to disappointing economic data out of China and rising tensions in the Middle East. Unfortunately the negative headlines didn't quit. China was also devaluing their currency. North Korea made headlines when they claimed to have successfully detonated a hydrogen nuclear bomb. Friday's headline of better than expected jobs numbers in the U.S. was not enough to stop the stock market slide. By Friday's closing bell the S&P 500 index and the Dow Jones Industrial Average had both delivered their worst five-day start to a year on record!

We will talk about news out of China in a bit. The North Korea news was a surprise. Normal nuclear warheads are bad enough but hydrogen bombs are several hundred times more powerful. The initial headline helped rattle an already shaky market. The "experts" were quick to doubt if N. Korea had actually achieved a hydrogen bomb since the earthquake it generated was more in-line with a typical nuclear explosion. Why should we care? World leaders see Kim Jong-un, the 33-year old leader of North Korea, as unknown wildcard. Would he be crazy enough to actually attack another country with nukes? No one really knows.

Meanwhile one of the factors that launched stocks into last week's plunge was a surge in tensions in the Middle East. Last weekend Saudi Arabia executed several prisoners. One of them was a prominent Shitte cleric. Saudi is mostly Sunni muslim. Their arch rival is Iran, which is mostly Shiite. Protestors in Iran stormed the Saudi embassy in Tehran (capital of Iran). In response Saudi Arabia cut diplomatic ties with Iran. Many worry that this is an early step toward a potential military conflict between the two regional powers.

After a week of bearish headlines and volatile trading in the Chinese markets all ten S&P sectors posted losses for the week. Energy stocks fell -6.8% while materials were the worst with a -7.8% weekly decline. Utility stocks fared the best with a -0.4% loss. All of the major U.S. stock market indices were down -6% or more for the week. European stock markets and the Hong Kong market produced their worst weekly performance in more than four years. The Japanese NIKKEI index fell five days in a row. Merrill Lynch said investors pulled $8.8 billion out of the U.S. market last week. Money looking for safety made its way into U.S. bonds, which saw inflows of +$3.3 billion.

All together the S&P 500 index lost more than $1 trillion in market cap in the last five trading days. The NASDAQ composite erased all of its gains for 2015. The global equity markets erased $2.3 trillion in value just last week.

Crude Oil Declines

The tensions between Iran and Saudi Arabia failed to boost oil prices. Crude oil plunged to new multi-year lows with the commodity falling five days in a row. WTI crude oil plunged -10% for the week to close at $32.88 a barrel. There is some speculation that a growing conflict between Saudi and Iran could see both countries actually pump more oil. Saudi wants to punish its rival with lower prices and Iran could be forced to sell more to make up the difference.

The weekly rig count from Baker Hughes should have been bullish for oil. Active rigs fell by another 34 to 664. Rigs in the U.S. have plunged -1,267 from the peak last year. At the same time, U.S. production has not slipped that much (yet). The United States is actually running out of storage. When that happens it will put even more pressure on crude oil. That is not good news for the stock market since oil declines have been pressuring the market lower for weeks.

Chart of active rigs

Economic Data

The calendar rolled over into a new month and that means lots of economic data. The U.S. ISM index, a gauge on manufacturing activity, continues to sink. The December reading for the ISM dropped from 48.6 to 48.2. This is the sixth monthly decline in a row. Numbers under 50.0 suggest economic contraction. The ISM hasn't been this low since 2009. Meanwhile the ISM services (non-manufacturing) index dipped from 55.9 in November to 55.3 in December, which was below estimates but still in positive territory.

Construction spending in the U.S. fell -0.4% in November. Not only is this worse than expected but marks the first time it has declined in over a year. The monthly PMI manufacturing index slipped from 52.8 to 51.2. Factory orders fell -0.2% in November. Another disappointing was the -5% drop in the seasonally adjusted annual pace of car sales, which came in at 17.3 million. On the plus side the monthly ADP Employment Change Report improved from +217,000 in November to +257,000 in December, which was better than anticipated.

Monthly Nonfarm Payrolls (jobs) Report

The monthly nonfarm payroll (jobs) report is normally a market mover. Economists were expecting a drop from +211,000 in November to +200,000 in December. The BLS numbers showed a surge to +292,000 jobs in December. The November reading was revised higher from +211K to +252K. The October jobs report was revised higher from +298K to +307K. Overall it was a blow out report and should have been bullish for the market.

Unfortunately the better than expected jobs data had a temporary effect on stocks. Analysts began digging into the details and found that wage growth had stalled (+0.0%). The unemployment rate was unchanged at 5%, a seven-year low. The broader U6 unemployment rate, which measures those without jobs and those who are underemployed was unchanged at 9.9%. Another fly in the ointment was the rise of people with multiple jobs. If you have two or three part time jobs because you can't find full time work then each part time job is counted in the monthly report. The bad news is that 64% of all job gains since May 2015 have been due to people getting extra part time jobs.

Overseas Economic Data

China was a major factor in the market's sell-off. Last weekend they reported their official manufacturing PMI for December only improved from 49.6 to 49.7. Numbers below 50.0 represent economic contraction. At the same time the Caixin manufacturing PMI for December dipped from 48.6 to 48.2. This news sparked a -7% plunge in the Chinese market on Monday and stocks were eventually halted before the close due to circuit breakers.

The services number look a little better. The official PMI services index improved from 53.6 to 54.4. Unfortunately the Caixin PMI services index declined from 51.2 to 50.2. Analysts tend to look at the official numbers with skepticism so the Caixin numbers tend to have more weight. The markets were also not happy with the Chinese government devaluing their currency to new five-year lows against the dollar.

The Chinese government exerts a lot of control over their stock market, especially since their market panic last summer. They were planning to remove a ban on insider selling on Friday. This may have helped fuel another big sell-off on Thursday. The selling was so bad on Thursday that the Chinese market was halted in the first 30 minutes of trading when the index fell -5%. This sparked a 15-minute trading halt due to circuit breakers. When the market reopened stocks plunged another -2% until trading was halted for the rest of the day. Their entire Thursday session lasted about 45 minutes.

After Thursday's decline the Chinese government said they would not remove the insider trading selling ban. They also announced they would remove the circuit breakers starting this week. After a -15% plunge by Thursday's session the market bounced on Friday. It was the most volatile week of trading in the Chinese market history and the Shanghai index ended the week down -9.9%.

The European markets did not react well to the volatility in China or the weakness in the U.S. and the region suffered its worst weekly loss in more than four years. Meanwhile economic data out of Europe was mixed. The Eurozone manufacturing PMI for December inched higher from 53.1 to 53.2. Their services PMI for December also improved with a move from 53.9 to 54.2. Numbers above 50.0 suggest growth. The Eurozone's CPI for December was up +0.2% and their core-CPI was up +0.9%. This is positive since Europe is trying to fight off deflation. Too bad their PPI, wholesale inflation, fell -0.2% in December. The PPI is down -3.2% from a year ago.

Eurozone unemployment inched higher from 10.5% to 10.6% in December. That was actually better than expected. November retail sales for the region slipped -0.3% for the month and only rose +1.4% from a year ago. That's not very impressive considering the holiday shopping season.




Major Indices:

The S&P 500 index plunged -6.0% last week. This surpassed the -5.3% loss from the first week of 2008 and marked the worst start to the year in history. The big cap index is down -7.5% in the last seven trading days (from its December 29th peak). Coincidentally it's down -7.3% from when the Federal Reserve raise rates in mid December. Thus far the historical trend of market declines when the Fed starts raising rates is still 100% accurate. We will have to see where the S&P 500 stands another couple of months from now.

Kensho is a global analytics firm. They noted that the S&P 500 index has fallen -5% (or more) in a five-day period only 26 times in the last decade. According to their research the next five days is positive 65% of the time with an average gain of +1.3%. In this scenario Kensho also notes that the best performing stocks tend to be commodity-related, material stocks, or consumer discretionary.

Technically the short-term trend is down (obviously!) and the S&P 500 has sliced through a handful of potential support levels. If stocks do not bounce on Monday then the next support levels to watch are 1,900 and the 2015 lows. The 1,900 mark could be round-number, psychological support. However, odds are good we could see the S&P 500 ignore 1,900 and target the 1,867-1,871 area, near the August and September 2015 lows.

FYI: The S&P 500 is down -8.8% from its November highs. A drop below 1,898 would put the index is correction territory (-10% from its highs).

Daily chart of the S&P 500 index:

Weekly chart of the S&P 500 index:

The NASDAQ composite was crushed last week. The index fell -7.26%, which erased all of its 2015 gains (+5.7%). The NASDAQ is now in correction territory, down more than -10% from its highs. The 4,500-4,600 area should offer support but it's not something I would bet on. The index is obviously oversold, now down -464 points or -9% from its December 29th high just seven trading days ago. When it does bounce we can expect the rebound to be pretty sharp.

chart of the NASDAQ Composite index:

Weekly chart of the NASDAQ Composite index:

Normally small caps see strong gains in both December and January. If you haven't noticed this has not been a normal year. Small caps underperformed in December 2015 and the Russell 2000 index is already down -7.9% in 2016. The index has been in free fall from its December 29th high of 1,160 and is now down -9.8% in the last seven sessions. The breakdown below its September-October low near 1,080 certainly looks ominous.

Another worrisome development is the $RUT's close below its 200-week moving average (no shown below), which hasn't happened since 2011. Optimistically the $RUT closed just above potential support near 1,040, which was the low back in 2014. If the $RUT doesn't bounce near 1,040 then the next stop could be the 1,000 area. Obviously moves this extreme are not very common and the $RUT will bounce eventually. Keep in mind when it does bounce that it is just a bounce and the overall trend is down.

chart of the Russell 2000 index

Weekly chart of the Russell 2000 index



Economic Data & Event Calendar

Most of the economic reports this week come out on Friday. Odds are they will be overshadowed by the commencement of Q4 earnings season. Alcoa (AA) begins earnings season on Monday and we will see a few high-profile names report before the week is out (Citigroup, JPMorgan Chase, Wells Fargo, and Intel to name a few).

We will hear from several central bank officials this week. Multiple Federal Reserve members and European Central Bank members will be speaking at various events throughout the week. You never know what they might say that could influence the markets. The same holds true for Obama's last state of the union address on Tuesday and the next republican presidential debate on Thursday.

FYI: Monday, January 18th the U.S. markets are closed.

- Monday, January 11 -
Japan market is closed
Q4 Earnings season begins

- Tuesday, January 12 -
Bank of France policy meeting
U.S. President Obama delivers State of the Union address

- Wednesday, January 13 -
Federal Reserve Beige Book Report

- Thursday, January 14 -
Bank of England interest rate decision
European Central Bank minutes from December 2-3rd meeting

- Friday, January 15 -
U.S. Retail Sales data
Producer Price Index (PPI)
New York Empire State manufacturing data
Industrial Production data
University of Michigan Consumer Sentiment survey
U.S. business inventory data

Additional dates to be aware of:

Jan 18th - Martin Luther king, Jr. Day (markets closed)
Jan 27th - FOMC policy update
Feb 15th - Presidents Day (markets closed)
Mar 16th - FOMC meeting, updated forecasts
Mar 16th - Fed Chairman Yellen's press conference
Mar 25th - Good Friday (markets closed)

Looking Ahead:

There was a lot of bearish commentary last week as stocks plunged to new relative lows. Worries over a slowing global economy are mounting. The World Bank reduced their 2016 global growth forecast to +2.9% a few days ago. That is down from +3.3% several months ago. They still expect improvement over last year with their 2015 forecast at +2.4%.

Slowing growth has crushed demand for commodities and shipping. The CRB commodity index fell to new 42-year lows last week. Oil's decline certainly doesn't help. Meanwhile the Baltic Dry Index for shipping rates just set another all-time low. Supply of ships stronger than demand and prices to ship dry goods continues to sink.

Chart of the Baltic Dry Index ($BDI)

Worries over a slowing economy are also hitting forecasts for the United States. The recent parade of disappointing economy data drove the Atlanta Federal Reserve's GDPNow forecast to new lows. Their GDPNow Q4 growth forecast has fallen from +1.0% earlier in the week to +0.8% by Friday.

Chart of the Atlanta Fed's GDPNow forecast

Every week we look at hundreds of charts. Some weekends I look at 1,200 to 1,500 stock charts. Right now the broader market looks very ugly. I am surprised the major indices aren't lower. The research team at Bespoke Investment also noted how the broader market is already in a bear market.

A recent Bloomberg article discussed how the average stock is already down -24% from its highs. A bear market is classified as a -20% drop from the highs. The average small cap stock is down -27.6%. Mid cap stocks are off -23.6%. Large cap stocks, on average, are down -19.9%. So why are the major indices holding up better than average? That's because a handful of large cap names have managed to prop them up. This was a running concern throughout the last half of 2015. You can read more about it here.

Bespoke Chart on Bear Market

Last week's market plunge emboldened the bears and sent fear shooting through the hearts of bulls. We are hearing more and more analysts warning investors to avoid the stock market. Last week Bank of America's Chief Investment Strategist Michael Hartnett told clients they should stay in cash until one of three things occur. His team's advice was to wait for one of the following conditions to be met before moving back into stocks:

* China and U.S. PMI both rise back above the 50.0 mark.

* Two-way risk emerges in CNY and oil inducing value buyers of [high-yield] and [emerging market] debt.

* A spike in volatility and/or an asset price reset induces Fed to pause

Bank of America joins other firms Citigroup, UBS, and RBC Capital Markets who are warning clients to avoid stocks. You can read the Bloomberg article here.

Q4 Earnings Season Estimates

One of the biggest events of the month will be Q4 earnings season. The outlook isn't pretty. Q3 2015 saw S&P 500 earnings decline about -1.8% while revenues fell -4.0%. The biggest weight on earnings was the energy sector, which was slammed by weak oil prices. Just over three months ago analysts were forecasting +1.1% earnings growth in Q4 2015. Today they have adjusted their expectations down to -4.2% earnings growth (another forecast sees a decline of -5.5% earnings growth). Q4 revenue growth is also expected to be negative. We haven't seen back-to-back quarterly earnings declines since 2009.

Disappointing corporate earnings results and bearish guidance could be the next catalyst to drive stocks lower in 2016. On the other hand, expectations might be too low and results could come in bad but better than expected then we might see stocks rally instead. Q4 earnings results and guidance will be a major driver for stocks over the next few weeks.

Seasonal Trends

Hopefully we have learned by now that seasonal trends are not guarantees. The good news is that this goes both ways. Right now market pundits are freaking out because of all the seasonal bearish signals. The Santa Claus Rally did not show up. The first five days of January are seen as an early warning indicator for the month of January. After last week's first five days of the year the signal is very bearish. Another signal was the Dow Industrials breaking down under their December lows.

All of these events are bearish by themselves. Together we have a trifecta of bearish signals. Let me reiterate they are not guarantees of a bearish market ahead. According to the Wall Street Journal, when the Dow Industrials or the S&P 500 index was down in the first five days of the year there was only a 50% chance of the market being down for the year. It is too soon to panic about the market based on last week's performance, no matter how ugly it was. That doesn't mean I'm not cautious. The short-term trend is obviously down. I would focus on the tone of Q4 earnings results and guidance over the next three weeks as a sentiment signal for the stock market.

Be patient and wait for your entry point.

~ James

"The one fact pertaining to all conditions is that they will change." ~ Charles Dow, 1900




Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

Last week's brutal stock market sell-off was rough on bullish investors. Technicians like to view the first five trading days of January as an early warning signal for the month. Traditionally January's performance has a decent chance at forecasting the yearly direction. Right now the outlook is rather dim.

TRV and UPS both graduated from our watch list to our play list.

ALK, CLX, COST, CRM, DHI, EA, FB, HD, UPS, and V were all stopped out in last week's carnage on Wall Street.

OA, RHT, and SWHC 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

Markets Unravel On Uncertainty

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(January 10, 2016)

Stocks took a beating last week. It was a global sell-off. Asia, Europe, and the U.S. equity markets were all hammered. It turned out to be the worst start to the year in history for the S&P 500.

Momentum is clearly bearish but history would suggest the S&P 500 typically bounces after a five-day, -5% sell-off (it was down -6%). Lately the normal historical trends have not played out well for bullish investors. This is a knife I would not try to catch.

Investors could be super cautious the next couple of weeks as they wait to hear the tone of Q4 earnings results. Will corporations provide a bullish outlook for 2016 or a bearish one? Will companies be able to beat Wall Street's already lowered earnings expectations or will they miss because conditions were worse than expected last quarter?

There is a lot of uncertainty in the market and Wall Street's initial reaction to uncertainty is always sell first.

No new trades tonight. I am adding HD, PPC, and STZ as new watch list candidates.



Play Updates

Stocks Crushed On Global Growth Concerns

by James Brown

Click here to email James Brown

Editor's Note:

Disappointing economic data in China and the United States fueled major worries about the global economy. Volatile trading overseas and some profit taking in last year's winners exacerbated the market's turmoil.

Investors were definitely selling their winners. Many of last year's best performers were hit hard last week. The theory is money managers sell their biggest winners from last year and they don't have to worry about taxes on their capital gains until next year. All of the negative headlines last week added a sense of urgency to lock in profits.

Add up all the factors pressuring stocks and we had a perfect storm. We lost nearly half of the stocks in our active portfolio.

TRV and UPS both graduated from our watch list to active plays but UPS was stopped out before the week was over.


Closed Plays


ALK, CLX, COST, CRM, DHI, EA, FB, HD, UPS, and V



Play Updates


Adobe System Inc. - ADBE - close: $87.85

Comments:
01/10/16: The market's collapse shaved off more than $6.00 from ADBE's stock price. Shares had ended the year near all-time highs. Today ADBE has broken down under multiple layers of short-term support and is off more than -8% from its high. The $86-87 zone should be support. If ADBE falls any further it will hit our stop loss at $85.75.

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 $5.85/6.05

12/11/15 shares garner several upgrades
12/10/15 ADBE reports Q4 earnings above estimates
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


Kimberly-Clark - KMB - close: 125.23

Comments:
01/10/16: Excluding Friday's profit taking (-1.28%) shares of KMB were almost flat for the week. Traders bought the dip on Monday near its 20-dma. The stock rallied back to resistance near $130.00 midweek. Finally the market's overall weakness weighed on KMB. The stock is testing short-term support near $125.00 now. If this market sell-off continues I would expect KMB to dip toward strong support near $122.50 and its 50-dma. Currently our stop is at $119.40. More conservative investors may want to raise their stop loss.

No new positions at this time.

FYI: KMB has earnings coming up on January 25th.

Trade Description: December 6, 2015:
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.

- Suggested Positions -
DEC 16, 2015 - entry price on KMB @ 124.75, option @ 7.50
symbol: KMB170120C130 2017 JAN $130 call - current bid/ask $6.70/7.50

12/27/15 new stop @ 119.40
12/16/15 Trade begins. KMB opens at $124.75
12/15/15 Triggered with KMB @ $124.44, above our $123.00 trigger
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 119.40
Play Entered on: 12/16/15
Originally listed on the Watch List: 12/06/15


Microsoft Corp. - MSFT - close: 52.33

Comments:
01/10/16: MSFT garnered bullish comments from multiple analysts last week. Yet that did not stop shares from following the market lower. The stock is hovering near the $52.00 level. If shares fall any further we will likely be stopped out at $51.95.

No new positions at this time.

FYI: MSFT has earnings coming up on January 28th.

Trade Description: December 6, 2015:
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.

- Suggested Positions -
DEC 08, 2015 - entry price on MSFT @ 55.05, option @ 3.20
symbol: MSFT170120C60 2017 JAN $60 call - current bid/ask $2.19/2.43

12/08/15 triggered @ 55.05
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 51.95
Play Entered on: 12/08/15
Originally listed on the Watch List: 12/06/15


Northrop Grumman - NOC - close: 186.07

Comments:
01/10/16: The S&P 500 index lost -6% for the week. NOC only fell -1.5%. Shares were trading at new two-month highs on Tuesday and Wednesday. The market's acceleration lower late in the week has pulled NOC back toward support near $185.00. Currently our stop loss is at $184.35.

No new positions at this time.

Trade Description: December 27, 2015:
Defense stocks have come a long way from the sequestration fears from a few years ago. Back in 2011, politicians in Washington created massive defense spending and entitlement cuts in their sequestration budget cut threats. It was supposed to be a goad to provoke their peers and rivals to getting a budget deal done. It didn't work. The sequestration cuts were put into place in 2013 but instead of crushing the defense industry stocks the group has thrived.

NOC is in the industrial goods sector. According to the company, "Northrop Grumman is a leading global security company providing innovative systems, products and solutions in unmanned systems, cyber, C4ISR, and logistics and modernization to government and commercial customers worldwide." They focus on four business sectors: aerospace systems, electronic systems, information systems, and technical services.

One reason the major defense names have done so well was their focus on gaining new clients overseas. If the U.S. was going to cut back on spending (more like cut back on the pace of spending) then military contractors focused on generating new business with allies overseas and it worked.

NOC has beaten Wall Street's earnings estimates the last four quarters in a row. They've delivered better than expected revenue numbers three of the last four quarters. Plus, NOC management has raised guidance three of the last four quarters. As of their most recent earnings report on October 28th, NOC's backlog was about $36 billion.

NOC has been in a heated battle with rivals Boeing (BA) and Lockheed Martin (LMT) over one of the biggest defense contracts of all time. That is the Air Force's new Long Range Strike Bomber contract. Aerospace giants Boeing and Lockheed had teamed up together to win this deal. Some were calling it a David-versus-Goliath story. NOC was the underdog and surprisingly the U.S. government gave the contract, worth a potential $80 billion, to NOC in late October this year. BA and LMT have since chosen to protest this decision so the ultimate decision has yet to be finalized but it's a bullish development for NOC investors.

The LRSB contract has two parts. The engineering and manufacturing and development portion of the contract is worth more than $21 billion. Once it's finally developed the planes are supposed to cost the government $564 million apiece. Altogether the defense department could spend up to $80 billion on the program.

Another bullish tailwind for defense contractors like NOC is the ongoing global battle with radical Islamic terrorists and ISIS. The U.S. will likely boost its defense spending as it turns up the heat on this threat. Meanwhile after the terrorist attacks in Paris, analysts believe that NATO could generate an additional $100 billion in defense spending as they beef up their military might.

JPMorgan recently upgraded shares of NOC from "neutral" to "overweight" and gave the stock a $212 price target. They like NOC and believe it is a place of "safety and steadiness" in a volatile market.

The stock has shown significant relative strength this year with a +28% gain in 2015. The last few weeks have seen NOC consolidate sideways beneath resistance at $190 but with a bullish trend of higher lows as investors keep buying the dips. The stock looks ready to break out. Tonight we are suggesting investors wait for NOC to close in the $191.00-193.00 zone and use that as a bullish entry point to buy calls.

- Suggested Positions -
DEC 30, 2015 - entry price on NOC @ 191.40, option @ 6.30
symbol: NOC170120C220 2017 JAN $220 call - current bid/ask $4.80/5.60

12/30/15 Trade begins. NOC opens at $191.40
12/29/15 NOC closed at $191.48, inside our $191.00-193.00 entry range
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 184.35
Play Entered on: 12/30/15
Originally listed on the Watch List: 12/27/15


Orbital ATK, Inc. - OA - close: $89.04

Comments:
01/10/16: Many of the defense names were showing relative strength early on last week. Shares of OA rallied to new all-time highs and tagged the $95.00 area. The market's selling pressure on Thursday and Friday erased these gains and OA ended the week with a 30-cent loss - not bad considering the broader market's plunge.

I am turning more defensive since we only have May 2016 calls. Tonight we will adjust our stop loss up to $84.75. More conservative investors might want to move their stop closer to the simple 50-dma instead.

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 $8.50/10.30

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

01/10/16 new stop @ 84.75
01/03/16 new stop @ 82.75
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: 84.75
Play Entered on: 10/23/15
Originally listed on the Watch List: 09/08/15


Pepisco, Inc. - PEP - close: 97.21

Comments:
01/10/16: PEP broke down under the $100 level again but shares managed to survive the week. The stock faded lower toward support near $97 and its 200-dma (96.85).

PEP is sitting on the bottom of its six-week trading range. No new positions at this time.

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 $1.94/2.12

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: 91.78

Comments:
01/10/16: Ouch! RCL just erased about three weeks' worth of gains with last week's -9% plunge. Shares had ended 2015 at all-time highs. Now the stock is near correction territory (-10% from its highs). The $90-91 zone is support but I am not suggesting new positions.

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

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

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

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

- Suggested Positions -
SEP 28, 2015 - entry price on RCL @ 90.00, option @ 6.30
symbol: RCL170120C110 2017 JAN $110 call - current bid/ask $5.30/5.55

01/10/16 RCL was crushed last week with a -9% drop in profit taking
12/13/15 RCL endured the market's decline relatively well
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


Red Hat, Inc. - RHT - close: 79.15

Comments:
01/10/16: The broader market weakness pushed RHT below its 50-dma and back below the $80 level. Fortunately the larger up trend remains intact for now. RHT's simple 200-dma should be technical support (currently at 77.23). I am adjusting our stop loss to $76.90, which would give RHT room to test its 200-dma and bounce if necessary.

No new positions at this time.

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.

- Suggested Positions -
DEC 30, 2015 - entry price on RHT @ 83.56, option @ 5.00
symbol: RHT170120C100 2017 JAN $100 call - current bid/ask $3.10/4.10

01/10/16 adjust stop loss to $76.90
12/30/15 Trade begins. RHT opens at $83.56
12/29/15 Triggered. RHT closed at $83.53, inside our $83.00-84.00 entry range
12/17/15 RHT reports better than expected earnings
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 76.90
Play Entered on: 12/30/15
Originally listed on the Watch List: 11/29/15


Starbucks Corp. - SBUX - close: 56.63

Comments:
01/10/16: SBUX lost more than -5% for the week with a drop toward technical support at its 200-dma. Shares held up pretty well on Friday. The market lost about -1% while SBUX was virtually unchanged on Friday.

More aggressive investors may want to consider buying calls on a bounce from current levels. However, you might want to wait until after we see the market's reaction to SBUX's Q4 earnings report. SBUX is scheduled to report earnings on January 21st.

No new positions at this time.

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 $1.75/1.81

*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: 22.63

Comments:
01/10/16: Last weekend I mentioned that President Obama was coming back from its Christmas vacation and was fired up about initiating more gun control laws. High-profile news stories about gun control normally fuels sales of firearms in the U.S. Thus SWHC already had a tailwind on Monday morning and the stock added +5.8% on Monday.

Then on Monday, after the closing bell, SWHC raised their Q3 and 2016 guidance significantly above Wall Street expectations. Shares of SWHC surged on this bullish outlook and the stock gapped higher on Tuesday morning. SWHC hit $26.54 before paring its gains. Shares settled with a +11% gain on Tuesday, pushing its 2016 gain to +17.5%. Sadly, the market's collapse this week sparked some serious profit taking and SWCH reversed lower the last three days in a row. This pared its gains last week to about +3%.

Tonight I am raising our stop loss to $20.90. More conservative investors may want to adjust their stop closer to $22.00 instead or just take some money off the table now.

No new positions at this time.

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 $5.20/6.50

01/10/16 new stop @ 20.90
12/13/15 new stop @ 19.75
12/08/15 SWHC beats earnings estimates and raised guidance
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: 20.90
Play Entered on: 11/25/15
Originally listed on the Watch List: 11/08/15


The Travelers Companies, Inc. - TRV - close: 105.99

Comments:
01/10/16: Last weekend we added TRV to our watch list. The plan was to buy calls on a dip. If I had know the market was going to crash I would have been more aggressive with our entry trigger.

The plan was to buy calls on a dip at $110.50. TRV met that condition on Monday morning. Shares followed the market lower the rest of the week and TRV filled the gap from October with a drop toward $106 by Friday. The 200-dma near $105.40 should offer additional support. I would be tempted to buy calls again once we see TRV close above the $108.00 level.

FYI: Don't forget that TRV has earnings coming up on January 21st.

Trade Description: January 3, 2016:
TRV was founded over 150 years ago. It looks pretty good for its age. Shares gained +6.6% in 2015 versus the S&P 500's -0.7% decline. Furthermore TRV is only about -2.5% from its all-time highs set in November.

TRV is in the financial sector. They are in the insurance business. The company runs three divisions: business and international insurance makes up the biggest chunk of revenues (almost 60%), personal insurance (think automobile and home insurance) makes up nearly one third of sales, while bond and specialty insurance make up the rest. According to the company, "The Travelers Companies, Inc. is a leading provider of property casualty insurance for auto, home and business. A component of the Dow Jones Industrial Average, Travelers has approximately 30,000 employees and generated revenues of approximately $27 billion in 2014."

TRV has beaten Wall Street's earnings estimates the last four quarters in a row. They have beaten revenues estimates the last two quarters. Earlier in 2015 they raised their dividend and their stock buy back program.

One of the biggest stories last year was the U.S. Federal Reserve's conundrum to raise or not raise interest rates. The Fed finally raised rates in December 2015 and is poised to continue raising rates throughout 2016. Normally investors think of banks as being beneficiaries of rising rates but insurance companies win as well.

Brett Owens wrote an article for Forbes.com discussing the impact of rising rates for insurance companies. Owens said, "Insurance companies are constantly investing the premiums they collect in, among other things, government and corporate bonds, and yields on those bonds rise with the federal funds rate. Those higher yields fatten insurers' net interest margins, or the difference between investment returns and claims paid out to policyholders, resulting in higher profits."

Last week the latest AAII investor sentiment survey showed a surge in neutral sentiment. Investors are cautious heading into 2016. That could drive money into safe-haven trades like big, liquid, dividend-paying insurance companies and TRV certainly fits the bill.

Shares have been consolidating sideways in the $110-116 zone the last couple of months. Right now the stock is right in the middle of this range. The $110 level is support and if the market continues to sink we want to take advantage of the weakness. Tonight I am suggesting a buy-the-dip trigger to buy calls on TRV when shares hit $110.50. We'll try and limit our risk with a stop loss at $104.65. More conservative investors will want to consider a much tighter stop loss.

FYI: TRV does have earnings coming up on January 21st. They report before the opening bell. More conservative investors may want to wait until after we see TRV's earnings results before initiating positions.

- Suggested Positions -
JAN 04, 2016 - entry price on TRV @ 110.50, option @ 5.20
symbol: TRV170120C120 2017 JAN $120 call - current bid/ask $2.80/3.70

01/04/16 triggered on buy-the-dip entry at $110.50
Option Format: symbol-year-month-day-call-strike

Chart of TRV:

Current Target: To Be Determined
Current Stop loss: 104.65
Play Entered on: 01/04/16
Originally listed on the Watch List: 01/03/16


Tyson Foods, Inc. - TSN - close $52.30

Comments:
01/10/16: I am surprised that TSN did not see more profit taking. Shares have shown significant strength in the last several weeks. Last week the market fell -6% (or more). TSN only lost -1.9%. Traders bought the dip on Tuesday near $51.00 and TSN has been hovering in the $52.00 area. Prior support at its 10 and 20-dma now look like overhead resistance. If I had to guess we could see TSN dip toward the $50.00 area but last week's market decline would have been a good excuse to sell TSN so maybe not.

Currently our stop is at $49.45. More conservative investors may want to raise their stop again or just take some money off the table.

No new positions at this time.

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 $6.80/7.70

12/21/15 Exit half of call position. Option bid $7.00 (+75%)
12/20/15 Plan on selling half of our call position on Monday, Dec. 21st to lock in a partial gain
12/13/15 new stop @ 49.45
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: 49.45
Play Entered on: 10/26/15
Originally listed on the Watch List: 10/25/15


CLOSED Plays


Alaska Air Group - ALK - close: 70.38

Comments:
01/10/16: ALK shares crashed last week but it wasn't alone. The XAL airline index plunged -10.3% for the week. ALK underperformed its peers with a $10.00 drop or -12.5%. Shares broke down through multiple layers of support and hit our stop loss at $74.75 on Thursday.

- Suggested Positions -
DEC 09, 2015 - entry price on ALK @ 83.50, option @ 9.20
symbol: ALK170120C90 2017 JAN $90 call - exit $4.50 (-51.1%)

01/07/16 stopped @ 74.75
12/09/15 triggered on a dip at $83.50
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

Chart

Current Target: To Be Determined
Current Stop loss: 74.75
Play Entered on: 12/09/15
Originally listed on the Watch List: 11/22/15


The Clorox Co. - CLX - close: $126.83

Comments:
01/10/16: Believe it or not but CLX lost less than 1% for the week. Shares spent most of their time churning sideways in the $125-128 zone. Unfortunately the volatility on Monday morning was too much. Shares pierced support near $125.00 and its 50-dma. Our stop loss was hit at $123.85.

- Suggested Positions -
SEP 22, 2015 - entry price on CLX @ 113.65, option @ 6.60*
symbol: CLX170120C125 2017 JAN $125 call - exit $7.60 (+15.2%)

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

01/04/16 stopped out
12/27/15 new stop @ 123.85
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

Chart

Current Target: To Be Determined
Current Stop loss: 123.85
Play Entered on: 09/22/15
Originally listed on the Watch List: 09/08/15


Costco Wholesale - COST - close: 152.11

Comments:
01/10/16: COST was holding above support near $157.50 until Thursday. Thursday's plunge broke COST's trend but we did not get stopped out until Friday. Shares accelerated lower with a -1.75% decline that pushed COST below its November low and its 100-dma.

- Suggested Positions -
OCT 06, 2015 - entry price on COST @ 148.15, option @ 8.70
symbol: COST170120C160 2017 JAN $160 call - exit $9.40 (+8.0%)

01/08/16 stopped @ 153.00
12/09/15 COST reported earnings that missed estimates.
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

Chart

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: 73.23

Comments:
01/10/16: The stock market accelerated lower on Thursday and Friday. This pushed CRM to new relative lows. Our stop loss at $73.75 was hit on Thursday. Shares ended the week precariously near technical support at its 200-dma. I would keep CRM on your watch list. A bounce from round-number support near $70 could be another bullish entry point.

- Suggested Positions -
OCT 14, 2015 - entry price on CRM @ 76.29 option @ 8.20
symbol: CRM170120C85 2017 JAN $85 call - exit $5.20 (-36.6%)

01/07/16 stopped out
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

Chart

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: 27.32

Comments:
01/10/16: Ouch! Last week's action in DHI was just brutal. Homebuilding stocks in general were pummeled. The DJUSHB home construction index lost -12% for the week. DHI was probably a bigger target for selling since the stock was not that far from its 52-week highs. A downgrade on Friday didn't help us.

DHI lost -14.7% for the week and hit our stop loss at $28.35 on Friday.

- Suggested Positions -
OCT 06, 2015 - entry price on DHI @ 31.15, option @ 3.70
symbol: DHI170120C35 2017 JAN $35 call - exit $1.43 (-61.4%)

01/08/16 stopped out
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

Chart

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


Electronic Arts - EA - close: 63.13

Comments:
01/10/16: Shares of EA started breaking down below key support early in the week. Our stop loss at $64.65 was hit on Wednesday. The long-term trend appears broken.

- Suggested Positions -
NOV 17, 2015 - entry price on EA @ 65.08, option @ 6.85
symbol: EA170120C75 2017 JAN $75 call - exit $5.20 (-24.1%)

01/06/16 stopped out
12/27/15 new stop @ 64.65
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

Chart

Current Target: To Be Determined
Current Stop loss: 64.65
Play Entered on: 11/17/15
Originally listed on the Watch List: 11/01/15


Facebook, Inc. - FB - close: 97.33

Comments:
01/10/16: Investors were definitely selling their winners last week. FB had been one of the market's best performers in 2015 with a +34% gain last year. Last week traders were cashing in. FB's stock lost -7% and broke down under key support near $100. Our stop loss was hit at $99.00 on Thursday.

- Suggested Positions -
SEP 29, 2015 - entry price on FB @ 86.50, option @ 11.10*
symbol: FB170120C100 2017 JAN $100 call - exit $14.15 (+27.5%)

01/07/16 stopped out
12/27/15 new stop @ 99.00
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

Chart

Current Target: To Be Determined
Current Stop loss: 99.00
Play Entered on: 09/29/15
Originally listed on the Watch List: 09/13/15


The Home Depot, Inc. - HD - close: 123.90

Comments:
01/10/16: HD is another victim of the market's collapse last week. Shares plunged more than $8.00 and broke down under several layers of support. Our stop loss was hit on Friday at $124.65. Thankfully we had already taken some money off the table back in November 2015.

- Suggested Positions -
OCT 23, 2015 - entry price on HD @ 125.01, option @ 5.20
symbol: HD170120C140 2017 JAN $140 call - exit $5.05 (-2.9%)

01/08/16 stopped out @ 124.65
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

Chart

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


United Parcel Service - UPS - close: 91.39

Comments:
01/10/16: UPS was a watch list candidate. We have been expecting shares to dip toward long-term support in the $94.00 region. Sure enough, with the market crashing, we did see UPS drop to $94.00. Our trigger to buy calls on a dip at $94.50 was hit on Monday. It looked like UPS might hold support at $94.00 with Tuesday's bounce and then investors buying the stock at support near $94 again on Wednesday. Unfortunately the market's sell-off accelerated on Thursday and Friday and UPS hit our stop loss at $91.45 on Friday.

- Suggested Positions -
JAN 04, 2016 - entry price on UPS @ 94.50, option @ 5.25
symbol: UPS170120C100 2017 JAN $100 call - exit $3.65 (-30.5%)

01/08/16 stopped out at $91.45
01/04/16 triggered at $94.50 (buy-the-dip trigger)
12/13/15 Entry Point Strategy Update = adjust to a buy-the-dip strategy. Use buy-the-dip trigger at $94.50. Move the option strike to the 2017 January $100 call. Move the stop loss down to $91.45.
Option Format: symbol-year-month-day-call-strike

Chart

Current Target: To Be Determined
Current Stop loss: 91.45
Play Entered on: 01/04/16
Originally listed on the Watch List: 11/29/15


Visa Inc. - V - close: 72.88

Comments:
01/10/16: The financial sector stocks had a rough time last week. Shares of Visa broke through multiple layers of support. The stock hit our stop loss at $74.40 on Thursday. The long-term bullish story for Visa has not changed. I would keep this stock on your watch list for a dip toward major support at $70.00.

- Suggested Positions -
AUG 24, 2015 - entry price on V @ 64.16, option @ 2.76
symbol: V170120C80 2017 JAN $80 call - exit $5.40 (+95.7%)

01/07/16 stopped out
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

Chart

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

Home Improvement, Protein, and Alcohol

by James Brown

Click here to email James Brown


New Watch List Entries

HD - Home Depot Inc.

PPC - Pilgrim's Price

STZ - Constellation Brands


Active Watch List Candidates

DAL - Delta Air Lines

EQR - Equity Residential

GE - General Electric


Dropped Watch List Entries

TRV and UPS both graduated to our active play list.



New Watch List Candidates:

The Home Depot - HD - close: 123.90

Company Info

We just had Home Depot (HD) as a bullish play but last week's market crash sent HD plunging through support. This is an overreaction. Investors were taking profits on HD because shares had done so well in 2015 (a +25% gain). Friday's drop hit our stop loss on HD. If this weakness continues we want to take advantage of it and launch new positions.

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 four quarters in a row. Management has also raised their guidance the last four quarters in a row.

Currently shares of HD are correcting lower. The stock should find significant support near $120 and its 200-dma (currently $118.50). Tonight I am suggesting a buy-the-dip trigger to buy calls at $120.25.

Buy-the-dip Trigger @ $120.25 (initial stop @ 117.45

BUY the 2017 Jan $135 call (HD170120C135)

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

Chart of HD:

Originally listed on the Watch List: 01/10/16


Pilgrim's Pride Corp - PPC - close: 22.91

Company Info

PPC is an aggressive, technical trade. Shares had a terrible 2015 but it looks like all the bad news is priced in.

PPC is in the consumer goods sector. According to the company, "For over six decades, Pilgrim's has produced healthy, high-quality food products that go into some of the world's finest recipes. Working with approximately over 4,000 family farms throughout the U.S. and Mexico, we are dedicated to providing these wholesome, high-quality products at a great value. As the second-largest chicken producer in the world Pilgrim's has the capacity to process more than 34 million birds per week for a total of more than over 7 billion pounds of live chicken annually. With corporate headquarters located in Greeley, Colorado, we have operations in 12 U.S. states as well as in Mexico and Puerto Rico. We are committed to the 35,000 plus team members who work with us to provide products to foodservice, retail and frozen entree customers. The company's primary distribution is through retailers, foodservice distributors and restaurants as well as through the export of chicken products to customers all over the world. Pilgrim's Pride is a part of the JBS USA family. JBS S.A., the world's largest protein company, owns 75.5% of our outstanding common stock."

PPC's most recent earnings report was October 28th. The company delivered their Q3 results and missed estimates. Wall Street was expecting a profit of $0.69 a share on revenues of $2.17 billion. PPC missed both estimates with earnings of $0.58 a share. Revenues fell -6.9% to $2.11 billion.

The industry as a whole has been suffering from the widespread avian flu last year that forced business owners to destroy millions of birds. PPC is also facing serious competition from a handful of competitors. Management is actively seeking ways to reduce their costs and make their business more competitive and their financial results more stable.

It looks like investors might believe the worst is behind it for PPC. Their Q3 earnings came out on October 28th and the stock plunged to new two-year lows on October 29th. That proved to be the low for the year. Investors have since been buying the dips. It is important to note that there is still a large camp of traders who are bearish on PPC. The most recent data listed short interest at 56% of the 59.0 million share float. That much bearishness can work against them. If PPC continues to rally the stock could see a short squeeze.

The intermediate trend is up and the point & figure chart is bullish with a $33 target. PPC managed to ignore the market's sell-off on Thursday and Friday last week. The stock actually broke through resistance on Friday. Tonight I am suggesting small bullish positions if PPC can trade at $23.55. This is an intraday trigger. We will start with a stop loss at $20.65.

Breakout trigger: $23.55 (intraday trigger) small positions to limit risk.

BUY the 2017 Jan $25 call (PPC170120C25) current ask $3.00

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

Chart of PPC:

Originally listed on the Watch List: 01/10/16


Constellation Brands - STZ - close: 147.00

Company Info

New Year's was just a few days ago and many people were thinking hard about their new year's resolutions. For most folks it's a desire to be healthier. Instead of working hard for six-pack abs you may want to just stop by the store for a six pack of whatever STZ is selling. This company appears to be running at full speed and the stock shows it.

STZ is in the consumer goods sector. According to the company, "Constellation Brands is a leading international producer and marketer of beer, wine and spirits with operations in the U.S., Canada, Mexico, New Zealand and Italy. In 2014, Constellation was one of the top performing stocks in the S&P 500 Consumer Staples Index. Constellation is the number three beer company in the U.S. with high-end, iconic imported brands including Corona Extra, Corona Light, Modelo Especial, Negra Modelo and Pacifico. Constellation is also the world's leader in premium wine, selling great brands that people love including Robert Mondavi, Clos du Bois, Kim Crawford, Rex Goliath, Mark West, Franciscan Estate, Ruffino and Jackson-Triggs. The company's premium spirits brands include SVEDKA Vodka and Black Velvet Canadian Whisky... Based in Victor, N.Y., the company believes that industry leadership involves a commitment to brand-building, our trade partners, the environment, our investors and to consumers around the world who choose our products when celebrating big moments or enjoying quiet ones. Founded in 1945, Constellation has grown to become a significant player in the beverage alcohol industry with more than 100 brands in its portfolio, sales in approximately 100 countries, about 40 facilities and approximately 7,700 talented employees."

STZ has been killing it on the earnings front. They have beaten earnings the last three quarters in a row. Management has raised their guidance the last three quarters in a row. Their most recent earnings report was last week on January 7th. Analysts were expecting a profit of $1.30 a share on revenues of $1.62 billion. STZ beat estimates with a profit of $1.42 a shares. Revenues were up +6.4% to $1.64 billion. Strong beer sales has helped fuel double-digit shipment increases. The company announced they were building another brewery and raised their guidance again.

This bullish outlook sparked a couple of new price target upgrades ($174 and $185). The stock soared to new highs and broke through key resistance near the $145.00 level. The market's current decline, should it continue, will likely pull STZ back toward $145.00, which should be new support. Tonight I am suggesting a trigger to buy calls on a dip at $145.00. We'll start with a stop loss at $139.45. More conservative investors may want to wait and see if STZ dips closer to the $140-142 area as an alternative entry point.

Buy-the-dip Trigger @ $145.00 (initial stop @ 139.45

BUY the 2017 Jan $165 call (STZ170120C165) current ask $8.80

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

Chart of STZ:

Weekly Chart of STZ:

Originally listed on the Watch List: 01/10/16



Active Watch List Candidates:


Delta Air Lines - DAL - close: 46.61

Comments:
01/10/16: Airline stocks were hit pretty hard last week. The XAL airline index lost -10% and plunged toward its August 2015 lows. DAL fell -8% but did not breakdown below its late November lows nor did it breakdown below its 200-dma. I am optimistic that when the market turns around DAL will outperform.

At the moment our suggested entry point is waiting for a close above $53.00. However, I am open to adjusting our entry trigger lower if DAL stops declining this week. Let's see how shares perform and then re-evaluate our entry strategy.

Trade Description: December 27, 2015:
The XAL airline index is down -13% for 2015. One air line stock outperforming many of its peers is Delta (DAL), which is up +6% year to date and poised to rally into 2016.

DAL is part of the services sector. According to the company, "Delta Air Lines serves more than 170 million customers each year. Delta was named to FORTUNE magazine's top 50 World's Most Admired Companies in addition to being named the most admired airline for the fourth time in five years. Additionally, Delta has ranked No.1 in the Business Travel News Annual Airline survey for four consecutive years, a first for any airline. With an industry-leading global network, Delta and the Delta Connection carriers offer service to 327 destinations in 57 countries on six continents. Headquartered in Atlanta, Delta employs nearly 80,000 employees worldwide and operates a mainline fleet of more than 800 aircraft."

One of the biggest stories of 2015 was the drop in oil prices. This has been a major tailwind for airline profits as fuel is a huge expense for the industry. Yet instead of soaring on oil's weakness the airline stocks have struggled because investors were worried the industry would overbuild capacity, which would create too much supply and bring down air fares. Overall the industry has managed to keep capacity relatively in check. The last several weeks have seen some lowered guidance for PRASM from several airlines. PRASM is an industry metric for Passenger Revenue per Available Seat Mile. DAL was not immune and lowered its Q4 PRASM several weeks ago. Fortunately the outlook has improved following the company's investor day on December 17th.

A few of the highlights from their investor day include +36% earnings growth forecasted for 2015. They previously guided Q4 PRASM down -2.5% to -4.5%. Now they have adjusted that to -2%. Capacity growth is expected to be relatively flat in 2016. Management said that fuel prices are down about 35% from a year ago. They are forecasting about $3 billion in fuel savings next year. 2016 earnings should grow about +24%.

Following this investor day presentation a couple of analysts raised their price targets. One new target is $62 while another is $68. Currently the point & figure chart is bullish and forecasting at $65 target.

The stock has been showing relative strength, especially against many of its peers. Today DAL is trading near all-time highs and is poised to breakout. Tonight we are suggesting a trigger to buy calls. Wait for DAL to close above $53.00 then buy calls the next morning.

FYI: DAL will likely report earnings in mid to late January

Breakout trigger: Wait for DAL to close above $53.00
Then buy calls the next morning with a stop at $47.75

BUY the 2017 Jan $60 call (DAL170120C60)

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

Originally listed on the Watch List: 12/27/15


Equity Residential - EQR - close: 78.82

Comments:
01/10/16: EQR was holding relatively well until Friday's drop (-2.0%) pushed shares below their 50-dma. Shares are still not that far away from all-time highs. I don't see any changes from last weekend's new watch list candidate description.

Trade Description: January 3, 2016:
The S&P 500 just delivered its worst yearly performance since 2008 with a -0.7% decline for 2015. EQR outperformed the broader market with a +13.5% gain last year. More importantly shares look poised to breakout and hit new highs in 2016.

EQR is part of the financial sector. According to the company, "Equity Residential is an S&P 500 company focused on the acquisition, development and management of high quality apartment properties in top U.S. growth markets. Equity Residential owns or has investments in 393 properties consisting of 109,540 apartment units."

Traditional wisdom says that you don't want to own big dividend paying REITs in a rising rate environment. REIT.com published an article challenging this very idea. In the article, titled "Misconceptions about REITs and Interest Rates", the author says, "Asset prices [REITs] often decline as the immediate response to a rise in interest rates because higher interest rates reduce the present value of future cash flows, including bond coupons and stock dividends. If future cash flows are not expected to rise, then increasing interest rates would have a clear negative impact on asset values, including the share prices of stock exchange-listed Equity REITs." They go on to discuss how rising interest rates due to stronger economic growth is good. A growing economy usually means more business spending, hiring new employees, more consumer spending. This leads to better occupancy rates for REITs and rental growth and overall better business fundamentals. You can read more about it here .

Barron's also published an article suggesting REITs are not an automatic sell if rates are rising. You can read it here .

The Federal Reserve did raise rates in December for the first time in almost a decade. It's widely anticipated that they will raise rates three or four more times in 2016. Yet shares of EQR ended 2015 near all-time highs. The threat of rising rates does not seem to scare away REIT investors.

The company's most recent earnings report was October 26th. They beat estimates on both the top and bottom line and raised guidance. Research firm CoreLogic is also bullish on rental demand. They recently published their outlook for 2016 and believe that this year should see about 1.25 million new households formed. Most of them will want to rent even though rents are high with vacancies near 30-year lows.

Technically EQR has been showing strength. Last week the point & figure chart produced a new triple-top breakout buy signal that is forecasting at $107 price target. EQR does have major resistance near $83.00. That's why a breakout past this level would be very bullish. Tonight I am suggesting investors wait for EQR to close above $83.00 and then buy calls the next day with a stop loss at $76.45.

Please note that readers may want to limit their position size to reduce risk. Last August (2015) the stock market experienced a sharp correction lower. The stock market plunged on August 24th. Shares of EQR experienced their own private little flash crash with the stock trading in a $20 range. There is no way to predict if and when something like that might occur again.

*Small positions to limit risk*

Breakout trigger: Wait for EQR to close above $83.00
Then buy calls the next morning with a stop loss at $76.45

BUY the 2017 Jan. $90 call (EQR170120C90)

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

Originally listed on the Watch List: 01/03/16


General Electric - GE - close: 28.45

Comments:
01/10/16: GE looked like it might avoid the worst of the market's sell-off last week with traders buying the dips near $30 on Monday and Wednesday. Then suddenly shares collapsed. As the market accelerated lower on Thursday and Friday so did GE. I am suggesting investor view this short-term dive as an opportunity. The $28.00 level was resistance for a long-term and today it should be strong support. Tonight I am adding a second entry trigger (see below) to buy calls on a dip at $28.00 with a stop loss at $25.85. We will use the 2017 January $30 calls for this entry point.

FYI: GE has earnings coming up on January 22nd.

Trade Description: December 20, 2015:
Tonight we are going old school with our new watch list candidate. GE has been slowly drifting higher since the 2009 market lows. Most of 2014 and 2015 the stock was stuck churning sideways. The situation changed in early October this year after a big activist investor got more involved. It's making a difference. The S&P 500 is down -2.6% year to date. Yet GE is up +20% in 2015 and should continue to outperform in 2016.

GE is in the industrial goods sector. According to the company, "GE is the world's Digital Industrial Company, transforming industry with software-defined machines and solutions that are connected, responsive and predictive. GE is organized around a global exchange of knowledge, the 'GE Store,' through which each business shares and accesses the same technology, markets, structure and intellect. Each invention further fuels innovation and application across our industrial sectors. With people, services, technology and scale, GE delivers better outcomes for customers by speaking the language of industry. www.ge.com"

One of the biggest changes at GE has been the company's long-term transformation to get rid of its financial assets that have been an albatross around its neck for so long. Management is focusing on the company's roots, which is industrial products and innovation.

The company recently held their annual meeting with analysts. The year ahead brings a lot of challenges. The global market is still struggling. The U.S. economy is limping along at +2% growth. Plus the strong dollar hurts sales outside the U.S. In spite of these headwinds GE's CEO Jeffery Immelt is bullish on 2016.

Management is forecasting 2016 earnings to rise +15% on revenue growth of +2% to +4%. That is impressive for such a massive company like GE who does so much business overseas. They also foresee paying investors $8 billion in dividends and spending $18 billion on stock buybacks in 2016. GE provided a long-term 2018 earnings forecast of more than $2.00 per share compared to $1.30-1.20 a share in 2015. They expect to return $55 billion to shareholders in dividends and buybacks between now and 2018. That sort of investor-friendly action could help GE weather any market volatility in 2016.

The stock has been showing relative strength the last few months. The stock held up pretty last week too during the market's volatile moves. GE tagged multi-year highs on Wednesday. The point & figure chart is bearish and forecasting a long-term target at $53.00.

The action in GE's stock over the last few weeks is either a new top or it's a new base. We are betting it is the latter. Tonight I am suggesting investors wait for GE to close above $31.35 and then buy calls the next morning.

Trigger #1: Wait for a close above $31.55
Then buy calls the next morning with a stop at $29.40

BUY the 2017 Jan $35 call (GE170120C35)

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Trigger #2 Buy-the-dip @ $28.00 (intraday trigger) start with a stop at $25.85

BUY the 2017 Jan $30 call (GE170120C30)

01/10/16 Add a secondary entry trigger -- buy the 2017 Jan. $30 call if GE trades down to $28.00 (start with a stop loss at $25.85)
01/03/16: Adjust entry trigger from a close above $31.35 to $31.55
Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 12/20/15