Editor's Note:

I looked at a hundreds and hundreds of stocks this weekend. The market looks pretty ugly. Tonight we are only adding one new watch list candidate. As I said in the market wrap, investors may want to wait for the dust to settle from last week's volatility before considering any new long-term bullish positions. That could mean waiting until January before initiating any new trades.


New Watch List Entries

GE - General Electric


Active Watch List Candidates

RHT - Red Hat, Inc

UPS - United Parcel Service


Dropped Watch List Entries

KMB has graduated to our active play list. BA has been removed.



New Watch List Candidates:

General Electric - GE - close: 30.28

Company Info

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.

FYI: GE is scheduled to report Q4 earnings on January 22nd.

Breakout trigger: Wait for a close above $31.35
Then buy calls the next morning with a stop at $29.40

BUY the 2017 Jan $35 call (GE170120C35) current ask $0.80

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

Chart of GE:

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



Active Watch List Candidates:


The Boeing Company - BA - close: 139.58

Comments:
12/20/15: Ouch! The last couple of days have been brutal for BA. The combination of the market's two-day slide and an analyst downgrade for BA left the stock at new two-month lows. The rally failed at resistance on Thursday and shares crashed through support on Friday.

I am removing BA as a watch list candidate.

Trade did not open.

12/20/15 removed from the watch list, suggested entry was a close in the $150.00-152.00 range

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


Red Hat, Inc. - RHT - close: 81.40

Comments:
12/20/15: The market was plunging on Friday but RHT bucked the trend with a +3.2% gain. Shares were up +6.5% on Friday morning following the company's earnings report. Both earnings and revenues came in better than expected. Sales were up +15% from a year ago. EPS guidance was in-line while RHT's Q4 revenue guidance was above expectations. Several analysts either reiterated their bullish rating on the stock or upgraded RHT on Friday.

We will give RHT another week to meet our entry point conditions. The plan is to wait for RHT to close inside the $83.00-84.00 zone and then buy calls the next morning. The high on Friday was $83.99. More conservative investors might want to wait for a close above $84.00 instead.

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)

12/17/15 RHT reports better than expected earnings
Option Format: symbol-year-month-day-call-strike

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


United Parcel Service - UPS - close: 98.00

Comments:
12/20/15: It was a very volatile week for shares of UPS. The stock plunged to $96 on Monday and traded up toward $102.50 by Thursday morning. I don't see any changes from last week's strategy update. Currently we are waiting for a dip toward major support in the $94.00 area. Our suggested entry point is an intraday dip to $94.50.

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