New Watch List Entries

ADBE - Adobe Systems Inc.

K - Kellogg Co.

LUV - Southwest Airlines


Active Watch List Candidates

AAPL - Apple Inc.

CRM - Salesforce.com

DIS - Walt Disney Co.

HSY - The Hershey Company

OA - Orbital ATK Inc.


Dropped Watch List Entries

COST, DHI, and FIS graduated to our active play list.

SBUX has been moved to the new play section.



New Watch List Candidates:

Adobe System Inc. - ADBE - close: $83.82

Company Info

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

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

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

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

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

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

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

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

BUY the 2017 Jan $100 call (ADBE170120C100)

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

Chart of ADBE:

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


Kellogg Co. - K - close: $69.44

Company Info

Shares of this giant consumer goods sector company are poised for a massive breakout higher.

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

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

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

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

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

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

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

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

BUY the 2017 Jan $75 call (K170120C75)

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

Chart of K:

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


Southwest Airlines - LUV - close: $39.94

Company Info

Airlines can be a cutthroat business. Yet LUV has managed to be profitable for 42 years in a row.

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

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

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

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

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

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

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

Breakout trigger: Wait for LUV to close above $41.00,
then buy calls the next morning with a stop loss at $36.85

BUY the 2017 Jan $50 call (LUV170120C50)

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

Chart of LUV:

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


Active Watch List Candidates:



Apple Inc - AAPL - close: 112.12

Comments:
10/11/15: AAPL delivered a +1.5% gain last week but that actually underperformed the market, which raced past it. Investors could be in a wait and see mood as they sit on the sidelines ahead of AAPL's Q3 report. The company should report on October 27th.

Considering AAPL's underperformance last week we will keep our buy-the-dip trigger at $101.00 for now.

More aggressive investors may want to consider a breakout entry strategy if AAPL can close above resistance near $117.00 or above its simple 200-dma currently at $121.35.

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

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

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

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

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

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

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

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

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

BUY the 2017 Jan $120 call (AAPL170120C120)

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

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


Salesforce.com - CRM - close: 75.25

Comments:
10/11/15: CRM delivered its fifth weekly gain in a row. Yet shares are still struggling to breakout past resistance at $76.00.

Currently we have two different entry strategies. If stocks retreat we have a buy-the-dip trigger on CRM at $65.25 except I am adjusting that up to $68.00. If CRM continues to rally then we want to buy calls if shares can close above $76.25.

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

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

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

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

Buy-the-dip trigger: $68.00, initial stop loss $63.75

BUY the 2017 Jan $75 call (CRM170120C75)

- or -

Breakout trigger: Wait for CRM to close above $76.25
Then buy calls the next morning (no stop)

BUY the 2017 Jan $85 call (CRM170120C85)

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

Originally listed on the Watch List: 09/20/15


The Walt Disney Co. - DIS - close: 105.59

Comments:
10/11/15: DIS' participation in the market rally last week lifted shares above resistance at $105.00 and its 50-dma. DIS has yet to breakout past its simple 200-dma (near $106.20).

We do have a deep, buy-the-dip trigger of stocks sell-off hard again. That seems unlikely at the moment. I would focus on our secondary, breakout trigger. If DIS closes above $106.50 we want to buy calls the next morning.

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

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

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

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

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

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

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

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

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

Disney Movie Schedule (partial list)

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

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

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

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

Wait for DIS to close above $106.50,
Then buy calls the next morning, No stop loss (initially)

BUY the 2017 Jan $120 call (DIS170120C120)

- or -

Buy-the-dip trigger: $91.50
No stop loss (initially)

BUY the 2017 Jan $100 call (DIS170120C100)

10/11/15 updated the trade description
10/04/15 added a breakout entry trigger
Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 09/27/15


The Hershey Company - HSY - close: 96.56

Comments:
10/11/15: We had a close call with HSY a couple of days ago. Last weekend we added HSY as a watch list candidate. Our plan is to wait for HSY to close above $97.00 and then buy calls the next morning. On Thursday, October 8th, HSY closed above technical resistance at its simple 200-dma. It also closed exactly at $97.00, not above $97.00. You're probably fine if you bought calls on Friday. However, we are sticking to the plan and waiting for HSY to close above $97.00. More conservative investors might want to wait for HSY to close above Friday's high of $97.40 before initiating positions.

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

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

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

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

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

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

Wait for HSY to close above $97.00,
then buy calls the next morning (stop loss at $89.75)

BUY the 2017 Jan $110 call (HSY170120C110)

10/08/15 HSY closed @ $97.00, not above $97.00
Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 10/04/15


Orbital ATK, Inc. - OA - close: $78.78

Comments:
10/11/15: Our patience with OA just might pay off. The stock has produced a very strong bounce off its 200-dma (tagged in late September). Now shares are showing relative strength and look poised to challenge their highs from August.

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

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

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

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

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

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

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

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

Technically this isn't a LEAPS trade. OA doesn't have LEAPS. We are choosing the 2016 February calls (you may want to consider May 2016s).

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

BUY the 2016 Feb. $85 call (OA160219C85)

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

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