New Watch List Entries


None, no new watch list candidates



Active Watch List Candidates

BA - The Boeing Company

KMB - Kimberly Clark

RHT - Red Hat, Inc

UPS - United Parcel Service


Dropped Watch List Entries

ALK and MSFT have graduated to our active play list.

HEDJ and RTN have been removed.



New Watch List Candidates:

No new watch list candidates tonight.

Please see tonight's new play section for an explanation.

NOTE: I have adjusted the entry point strategy on UPS.


Active Watch List Candidates:


The Boeing Company - BA - close: 144.62

Comments:
12/13/15: The stock market's sharp decline left BA sitting on technical support at its converging 50-dma and 200-dma near $144-145 on Friday. The bullish story for BA hasn't changed. We just need to be patient.

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

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

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

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

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

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

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

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

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

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

BUY the 2017 JAN $170 call (BA170120C170)

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

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


WisdomTree Europe Hedged ETF - HEDJ - close: 57.00

Comments:
12/13/15: We are removing HEDJ as a watch list candidate. The ETF is not performing. European stocks fell to two-month lows as the Euro rose to six-week highs. If the Fed raises rates this month the dollar should rally even further, pushing the Euro lower, and making European exports more affordable. There are probably still some doubts about the ECB's commitment to do whatever it takes to stimulate the economy.

Tonight we are removing HEDJ as a candidate. You may want to keep it on your radar screen. The $53.00 area looks like significant support. A dip near $53.00 (or bounce from $53) could be a bullish entry point.

Trade did not open.

12/13/15 removed from the newsletter, suggested entry was a close above $63.00

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


Kimberly-Clark - KMB - close: 119.20

Comments:
12/13/15: KMB dipped to technical support at its 50-dma. Shares are in the middle of their $117-123 trading range. There is no change from last week's play description.

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.

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

BUY the 2017 Jan $130 call (KMB170120C130)

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

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


Red Hat, Inc. - RHT - close: 78.58

Comments:
12/13/15: RHT followed the market lower. The stock closed under its 50-dma on Friday. If shares do not see a rebound this week we will likely remove it as a candidate.

RHT is scheduled to report earnings on Thursday, December 17th. Expect the stock to be volatile on Friday morning as investors react to the earnings news. Our suggested entry point is a close inside the $83.00-84.00 zone.

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

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

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

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

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

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

BUY the 2017 Jan $100 call (RHT170120C100)

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

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


Raytheon Company - RTN - close: 126.20

Comments:
12/13/15: RTN displayed relative strength and posted a gain for the week. Yet I do not want to chase it near all-time highs, not with the market this volatile. More aggressive investors might want to consider bullish positions on a close above $128.00. Tonight I am removing RTN as a candidate. I'll keep it on our radar screen for a couple of weeks.

Trade did not open.

12/13/15 removed from the newsletter
11/29/15 Entry Strategy Update: Use a buy-the-dip entry at $121.00 with a stop loss at $116.65. Use the 2017 Jan. $130 call
11/22/15 RTN has rallied too fast. We are temporarily removing our entry trigger for RTN. We'll come back in a week and re-evaluate how (or if) we want to trade RTN.
Option Format: symbol-year-month-day-call-strike

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


United Parcel Service - UPS - close: 97.46

Comments:
12/13/15: Transportation stocks were underperformers last week. UPS was definitely leading the charge lower with a -5.6% plunge. A story surfaced on Friday that delivery companies like UPS are not keeping up with surging demand. Consumers are getting more comfortable with online shopping and this is generating a lot more deliveries. Fundamentally this is bullish for UPS but the company spends a lot through the holidays to keep up with the seasonal crush of business. Two years ago the delivery industry suffered a disastrous overload and lots of Christmas presents were not delivered on time. Investors may have panicked a little on Friday with UPS' breakdown below support near $100.

Tonight I am changing our entry point strategy. UPS has major support in the $94.00 area. We will adjust this to a buy-the-dip strategy. If this sell-off continues then we'll use it to our advantage. Use a trigger to buy calls at $94.50. We'll adjust the option to the 2017 January $100 call. Move the stop loss down to $91.45.

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

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

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

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

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

Buy-the-dip @ $94.50, use a stop at $91.45

BUY the 2017 Jan $100 call (UPS170120C100)

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

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