New Watch List Entries

NKE - NIKE Inc.

RTN - Raytheon Company


Active Watch List Candidates

EA - Electronic Arts

SWHC - Smith & Wesson


Dropped Watch List Entries

CTXS and UA have graduated to our active play list.

AAPL has been removed.



New Watch List Candidates:

Nike, Inc. - NKE - close: 121.86

Company Info

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

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

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

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

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

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

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

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

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

Chart of NKE:

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


Raytheon Company - RTN - close: 117.25

Company Info

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

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

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

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

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

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

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

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

Chart of RTN:

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


Active Watch List Candidates:



Apple Inc - AAPL - close: 112.34

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

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

Trade did not open.

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

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


Electronic Arts - EA - close: 69.89

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

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

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

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

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

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

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

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

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

Buy-the-dip trigger @ $66.50

BUY the 2017 Jan $75 call (EA170120C75)

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

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


Smith & Wesson Holding - SWHC - close: 17.14

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

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

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

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

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

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

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

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

BUY the 2017 JAN $20 call (SWHC170120C20)

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

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