New Watch List Entries

ASH - Ashland, Inc.

NOW - ServiceNow Inc.


Active Watch List Candidates

ITB - U.S. Home Construction ETF

LMT - Lockheed Martin

LVLT - Level 3 Communications


Dropped Watch List Entries

LOW graduated to our active play list.

We are removing ESRX and MAR as watch list candidate.



New Watch List Candidates:

Ashland, Inc. - ASH - close: 125.83

Company Info

ASH is in the basic materials sector. They are a chemical company. According to their marketing material, "Ashland Inc. (ASH) is a global leader in providing specialty chemical solutions to customers in a wide range of consumer and industrial markets, including architectural coatings, automotive, construction, energy, food and beverage, personal care and pharmaceutical. Through our three commercial units - Ashland Specialty Ingredients, Ashland Performance Materials and Valvoline - we use good chemistry to make great things happen for customers in more than 100 countries."

ASH is currently restructuring its business into just three operating segments and hopes to achieve annual savings of up to $200 million. The company has also reported strong sales growth for its specialty ingredients business. This may be why investors were so forgiving with the company's latest earnings report.

ASH reported on January 26th. Earnings were $1.46 a share, which was better than the $1.42 estimate. Yet revenues were down -2.9% to $1.39 billion, below expectations. The stock didn't move much on this report. Yet shares were definitely moving this past week. ASH has broken out past resistance in the $122 area and rallied to new all-time highs.

The relative strength is encouraging and the point & figure chart is very bullish with a long-term target of $189.00. I am not suggesting new positions today. We want to wait for a pullback. I'm suggesting a buy-the-dip trigger at $122.25 with a stop loss at $115.45.

Buy-the-dip trigger: $122.25
With a stop loss at $115.45

BUY the 2016 Jan $135 call (ASH160115c135) current ask $7.00

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

Chart of ASH:

Originally listed on the Watch List: 02/08/15


ServiceNow, Inc. - NOW - close: 74.94

Company Info

Shares of NOW are trading at all-time highs thanks to significant earnings growth. The company expects to see growth of more than +40% in 2015.

NOW describes itself as "ServiceNow is changing the way people work. With a service-orientation toward the activities, tasks and processes that make up day-to-day work life, we help the modern enterprise operate faster and be more scalable than ever before. Customers use our service model to define, structure and automate the flow of work, removing dependencies on email and spreadsheets to transform the delivery and management of services for the enterprise. ServiceNow provides service management for every department in the enterprise including IT, human resources, facilities, field service and more. We deliver a 'lights-out, light-speed' experience through our enterprise cloud – built to manage everything as a service."

This company has been consistently guiding their earnings forecast higher. They've done it at least the last four earnings reports in a row. Their most recent earnings report was January 28th. NOW reported their Q4 results of $0.03 a share compared to a loss of 2 cents a year ago. Analysts were expecting a profit of 2 cents a share. Q4 revenues soared +58% to $198 million, which was above expectations.

Some of the highlights from their fourth quarter include billings up +62% year over year and up +34% quarter over quarter. Deferred revenues were up +20% for the quarter. NOW added 211 net new customers, bumping their total to 2,725. Their customer renewal rate was 97%.

NOW said their 2014 revenues soared +61% compared to 2013. Their backlog at the end of 2014 hit $1.4 billion. That's a +57% jump from a year ago. NOW's President and CEO Frank Slootman said, "We finished 2014 with strong metrics across the board, maintaining consistently high year-over-year growth rates. In addition to a growing list of new customers that now includes more than 25% of the Global 2000, we continue to see existing customers expand their relationship with us, resulting in the highest quarterly upsell rate since our IPO." NOW's CFO Michael Scarpelli said, "Within the Global 2000, annualized contract value per customer has increased 40% year-over-year. These expanding contracts have helped us grow our combined backlog and deferred revenue 57% year-over-year."

NOW offered bullish guidance. They expected Q1 revenues to grow +50% in the $207-212 million range compared to Wall Street's estimates of $202.4 million. NOW's 2015 guidance is forecasting revenue growth in the +41% to +47% range in the $960-1,000 million zone versus analysts' estimates of $948 million.

These strong numbers and the consistent growth makes them a popular candidate among Wall Street analysts. After NOW's most recent earnings report several analyst firms raised their price target on NOW's stock.

Technically shares have just recently broken out through major resistance near $70.00. The point & figure chart is bullish and forecasting a long-term target of $97.00. The last few days have seen shares consolidating sideways in the $70-75 range. Tonight I am suggesting investors wait for NOW to close above $75.50 and then buy calls the next morning with a stop loss at $68.90. More nimble traders could wait and cross your fingers for a dip near support at $70.00 as an alternative entry point.

Breakout trigger: Wait for a close above $75.50
Buy calls the next day with a stop at $68.90.

BUY the 2016 Jan $80 call (NOW160115c80) current ask $9.70

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

Chart of NOW:

Originally listed on the Watch List: 02/08/15


Active Watch List Candidates:



Express Scripts - ESRX - close: 81.84

Comments:
02/08/15: ESRX managed a gain for the week but the action is bearish. Shares have been failing at resistance near its 50-dma for the last three days in a row. Our trade has not opened yet. Tonight I am removing ESRX as a candidate.

Trade did not open.

02/08/15 removed from the watch list, suggested entry was a close above $86.75

Originally listed on the Watch List: 01/18/15


iShares US Home Construction ETF - ITB - close: 26.66

Comments:
02/08/15: The ITB displayed significant strength last week with a surge toward its recent highs. Considering the current rally we are going to keep the ITB on our watch list.

Earlier Comments: January 11, 2015:
The ITB is an exchange traded fund that mimics the Dow Jones U.S. Select Home Construction Index. The top 12 holdings are DHI, LEN, PHM, TOL, NVR, HD, TPH, LOW, RYL, SHW, KBH and MTH.

This index has been stuck in a trading range for years. That looks like it's about to change. Have you looked at a chart of the 10-year bond yield lately? Bond yields are going lower. That's going to pressure mortgage rates lower and that's bullish for home sales. This past week saw 30-year mortgage rates dip below 3.6%. That's a 19-month low.

If that wasn't enough of a tailwind President Obama wants to help. On January 7th the White House announced plans to reduce the government mortgage insurance premiums in an effort to boost home ownership. Another positive for the homebuilders is the U.S. Federal Reserve. We just had two fed governors come out last week saying they think the Fed should hold off on raising rates. The longer the Fed waits to start raising rates the better it will be for homebuilders.

Currently the ITB appears to be breaking out past major resistance and closed at multi-year highs. I'd like to see a little bit more follow through. Tonight I'm suggesting we wait for the ITB to close above $27.00 and then buy calls the next morning with a stop loss at $23.95.

Breakout trigger: Wait for the ITB to close above $27.00 and then buy calls the next morning with a stop at $23.95.

BUY the 2016 Jan $30 call (ITB160115c30)

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

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


Lockheed Martin - LMT - close: 195.24

Comments:
02/08/15: LMT is looking healthier than it was a week ago. Traders bought the dip at LMT's rising 100-dma. The stock rebounded and produced a five-day winning streak.

Wait for a close above $201.00.

Earlier Comments: January 18, 2015:
Defense stocks have delivered exceptional gains for investors in spite of the dreaded sequestration budget cuts from Budget Control Act of 2011. Granted the cuts have been delayed and adjusted many times but it still put a crimp in U.S. government defense spending. In response many of America's biggest defense contractors have focused on building up their international business instead of relying on the U.S.

LMT is one such defense contractor. According to a company press release, " Headquartered in Bethesda, Maryland, Lockheed Martin is a global security and aerospace company that employs approximately 113,000 people worldwide and is principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services. The Corporation's net sales for 2013 were $45.4 billion."

Right now one of their biggest projects is the massive F-35 Joint Strike Fighter system. It's the most expensive weapons system the U.S. has ever built with an estimated cost of over $1 trillion over its 50-year lifespan.

If you haven't noticed the world seems to be getting more dangerous. The U.S. is facing a growing military rivalry with China, a belligerent and dangerous Russia, and war in the Middle East with ISIS. This sort of environment will likely keep investors focused on defense stocks.

Looking at LMT's earnings results they have beaten Wall Street's estimates for the last four reports in a row. They raised their guidance in two of the last four earnings reports. The rally in the stock has created a buy signal on the point & figure chart with a $240 target. Currently shares are consolidating sideways and appear to be building up steam for a breakout past round-number resistance at $200. I suspect that LMT's earnings on January 27th might be the catalyst needed to push shares higher.

Tonight I am suggesting we wait for LMT to close above $201.00 and then buy calls the next morning with a stop loss at $189.00.

Breakout trigger: Wait for a close above $201.00
Then buy calls the next morning with a stop at $189.00

BUY the 2016 Jan $220 call (LMT160115c220)

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

Originally listed on the Watch List: 01/18/15


Level 3 Communications - LVLT - close: 52.42

Comments:
02/08/15: LVLT reported earnings last week and spiked higher on its results. Analysts were expecting a profit of $0.29 a share on revenues of $1.96 billion. LVLT delivered $0.35 a share as revenues increase +19.5% to $1.91 billion. The stock reacted with a surge to multi-year highs.

We were expecting a rally but didn't want to buy too big of a spike. Last week I adjusted our entry point strategy to wait until after LVLT reported earnings and only launch positions if shares close in the $50.50-51.50 zone. That has not happened yet.

Tonight I'm adjusting the entry strategy again. Broken resistance near $50.00 should be new support. Let's wait for a dip to support. Buy calls on a dip at $50.75 and we'll move the stop loss to $46.25.

Earlier Comments: December 28, 2014:
LVLT is a communication services company. Their marketing material describes LVLT as "Level 3 Communications, Inc. is a Fortune 500 company that provides local, national and global communications services to enterprise, government and carrier customers. Level 3's comprehensive portfolio of secure, managed solutions includes fiber and infrastructure solutions; IP-based voice and data communications; wide-area Ethernet services; video and content distribution; data center and cloud-based solutions. Level 3 serves customers in more than 500 markets in over 60 countries over a global services platform anchored by owned fiber networks on three continents and connected by extensive undersea facilities."

They just recently completed a merger with TW Telecom. Earnings have been improving. LVLT has beaten Wall Street's earnings estimates the last three quarters in a row. Technically shares have been outperforming the broader market. The NASDAQ composite is up +15% in 2014 while LVLT is up +50%. The point & figure chart is bullish and forecasting a long-term target at $75.00.

Currently shares of LVLT are hovering just below key resistance at the $50.00 mark. I am suggesting we wait for LVLT to close above $50.50 and then buy calls the next morning with a stop loss at $45.45.

Buy calls on a dip at $50.75 with a stop at $46.25

BUY the 2016 Jan $55 call (LVLT160115c55)

02/08/15 Adjust entry point strategy: Buy calls on a dip at $50.75 with a stop loss at $46.25. Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 12/28/14


Marriott Intl. - MAR - close: 74.22

Comments:
02/08/15: I am giving up on our MAR trade. The stock has fallen toward three-month lows. Bulls could argue that MAR is still holding above its 100-dma and the long-term trend of higher lows is still in place. I'm concerned with MAR's performance this past week with a failed rally at resistance and its relative weakness. Tonight we are removing MAR as a candidate.

Trade did not open.

02/08/15 removed from the watch list, suggested entry was a close above $80.25

Originally listed on the Watch List: 01/04/15