Option Investor
Newsletter

Daily Newsletter, Wednesday, 11/18/2015

Table of Contents

  1. Market Wrap
  2. New Plays
  3. In Play Updates and Reviews

Market Wrap

Another Bullish Opex Week

by Keene Little

Click here to email Keene Little
The rubber band was pulled back into a low on Monday morning and then buy programs were unleashed, which sparked short covering and the result has been another bullish opex week. It's a pattern that has worked repeatedly, which is a strong money maker for the big institutions that participate in this game.

Today's Market Stats

There hasn't been any particular news or earnings that sparked this rally so it's been more or less just another few buy programs that ignited short covering in order to get another bullish opex week. Selling puts has been a very big money maker for the big institutions and I'm sure more than a few buy a boat load of call options just before the rally gets started. Buying cheap front-week/month calls, especially with an 60-point SPX rally as we've seen off Monday's low, can return a very handsome profit. It's a game that earns these institutions a lot of money more often than not.

Jamming the market higher during opex is also the reason why there's often a hangover the following Monday as the firms let go of the inventory and/or futures that they purchased for the sole purpose of pushing the indexes higher. We often see a lack of market internal strength, as we're seeing in this rally compared to previous strong rallies, because it's an effort to push the indexes higher, not necessarily all the other stocks. In fact the relative weakness in the RUT is an example of this. The advance-decline volume and a-d line often is lagging.

For example, if you look at a chart of the McClellan Summation index ($NYSI on stockcharts.com) you'll see it peaked at the November 3rd high and it's been in decline since then. It hasn't turned up this week and that tells us the indexes are rallying but the majority of stocks are not. That's a sign of weakness in a bull market rally and further evidence that this week's rally is more from the games these institutions play than real fundamental buying. It tells buyers to beware of what they're doing. It doesn't stop the rally from continuing but it does warn us that it's a weak rally despite how strong it appears from a price standpoint. Price is of course the final arbiter but the takeaway this week is that it's likely a manipulated rally instead of the real thing.

This morning's economic reports were largely ignored (again, it's opex week) but housing starts were weaker than expected, coming in at 1060K, which is 11% below October's 1191K, which was revised lower from 1206K. Building permits ticked higher, from 1105K to 1150K, so that's a good sign but it's hard to know how many permits will turn into building. The housing market has been relatively strong, despite consumers cutting back on their spending, but it's looking like housing might be taking a breather since the decline is more than would be expected from a seasonality perspective.

The stock market rally is into the headwinds of expectations for a Fed rate hike in December, although it's possible the market is expecting the rate hike to mean the economy is improving. There's now a lot of data, both industrial as well as retail, that says we're likely on the verge of the next recession (did you see the news that Japan is back into a recession?), if it hasn't already started, but the market is apparently ignoring the data and listening to economists' projections.

When it comes to rate projections, 88% of economists are now predicting the Fed will raise rates in December. You know my opinion of economists' predictions and I've often said that when they are in synch with a prediction it's usually a sure bet to go against them. We'll see how it goes in December. BTW, they were nearly unanimous as well in the past with about 80% predicting the Fed would raise rates in March, June and September. So the market is apparently pricing in a rate increase but why that's a good thing for the market is what's questionable. It would strengthen the dollar and that will hurt earnings for companies exposed to overseas markets. But alas I'm trying to use logic with the market and that's always an exercise in frustration.

But what happens if the Fed is forced to hold rates where they are? That would be a lot of egg on the faces of the Fed and economists so maybe they'll raise by 0.1% just to say they're doing something. Or they might stand pat and keep rates where they are but continue to talk tough about how they're really going to raise rates early in 2016. However, I think whatever they do will backfire on the market and any rally in anticipation of a rate increase could be a setup for disappointment.

Another bafflement is why the market is rallying in the face of deteriorating earnings now, as well as the downgrading we're seeing for future earnings. S&P has lowered their 2015 earnings estimates, which are now below earnings for 2013 and 2014. A year-over year drop in earnings should be of great concern since it has happened only three times since 1988 -- in 1990, 2001, and 2008. You'll recall 2001 and 2008 were not good years to be a bull. This data is almost a 100% guarantee that we will be in a recession in 2016. Meanwhile the stock market continues to whistle past the graveyard (I don't see no ghosts).

I'll start off tonight's chart review with the DOW, the most-watched index in the world. It's one of the better sentiment indicators and worth watching for that reason if no other. The weekly chart below shows last week's minor break of support at the trend line along the highs from 2000-2007 (the top of the big megaphone pattern I've shown before, which suggests a big move back down over the next two years once the market tops out). This week's bounce is a strong recovery and has so far retraced more than 78.6% of last week's decline, at 17679, with today's high at 17752, which suggests we'll see a new high above the November 3rd high near 17540. There is price-level S/R near 17700 and then its downtrend line from May-July near 17685, both of which were exceeded today. And it closed above its 50-dma at 17594, all of which is bullish. The bullish pattern calls for a new high above its May high at 18351, with a price projection at 18510 as the target price. That's where the 5th wave of the move up from August would equal the 1st wave.

Dow Industrials, INDU, Weekly chart

The daily chart shows the close above its May-July downtrend line, near 17685, as well as its 20- and 200-dmas, which clearly made it a bullish day. The bullish pattern calls for the rally to continue into the end of the month to the upside target at 18510, which will be modified if and when the rally continues and the short-term projection can be updated. The bearish pattern calls for a resumption of the decline that started off the November 3rd high. Because the price pattern for both last week's decline and this week's rally is not clear (impulsive vs. corrective), I can't be sure which way this is going to go next, hence follow a break of one of the key levels at either the November 3rd high or Monday's low -- whichever one breaks first is the direction the market should go. Especially this week (opex), it's possible we'll see some whippy moves but no clear direction.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 17,978
- bearish below 17,210

As shown on the 60-min chart, the DOW also made it up to its downtrend line from November 3rd, near where it closed today at 17735. It could certainly back down from here, which made holding a long position a little risky at the close. Of course a favorite tactic with this market is to park an index at resistance (or support) and then use overnight futures to gap over S/R to get both sides chasing the move. If the rally continues Thursday morning keep an eye on 17840 since a 3-wave move up from Monday, with two equal legs up at that level, could result in a reversal back down. By this measure it would look even more bullish above 17840.

Dow Industrials, INDU, 60-min chart

SPX is looking the same as the DOW as it too has rallied back up to resistance. It has price-level S/R near 2075 and its 20-dma near 2076 (near 2079 tomorrow). Today it closed the gap down on November 12th, at 2075, and oftentimes traders look for that as their avenue of escape after being trapped by the gap down and selloff. That's why they are often resistance. But if the buying continues then the next level of resistance will be its broken uptrend line from October 2011 - October 2014, near 2093. Assuming the market is ready for a pullback (unless it's in a blow-off move to a top of significance), it's not clear yet whether we should look for just a pullback before heading higher or instead look for a rollover into a stronger decline. As with the DOW and the other indexes, the key levels to break are the November 3rd highs or Monday's lows in order to give us a better sense of direction from here.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2117
- bearish below 2019

NDX has rallied back up to its broken uptrend line from 2012-2013-2014, near 4640, and closed slightly above it. It has been oscillating about this trend line since breaking below it in August. It is also closed back above its broken 20-dma, near 4637 today, so it was a bullish day for NDX as well. Now the bulls need to keep it going so as to avoid a bull trap here.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4738
- bearish below 4486

Of the four major indexes I cover here, the RUT looks the most bearish, which goes back to the price pattern since the August low. I don't see anything bullish about it and while it could certainly continue higher with the other indexes and make at least a minor new high above its November 6th high, it's not an index that yells at me to get long. Instead I look at resistance levels to short and right now it's back-testing its broken 20-dma near 1172. But again, there's no clear short-term direction and I'd wait until a break of either its November 6th high near 1200 or Monday's low near 1140 before taking a position (other than day trading).

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1200
- bearish below 1140

It's no different with the granddaddy of the indexes, the Wilshire 5000. It closed above resistance near 21600 (price-level and 20-dma), at 21638, and has at least a little more upside potential to 21730-21760. That's where it would achieve two equal legs up from Monday and back-test its 200-dma. But if we're into the 5th wave of the move up from August then the upside projection for it is near 22300, which is where it would also back-test its broken uptrend line from December 2014 - February-July 2015. Like the other indexes, it's unclear which direction it will go and until it can get above 21760 I'd remain cautious about the upside (and obviously bears need to be cautious as every dip continues to get bought).

Wilshire 5000 index, W5000, Daily chart

Key Levels for W5000:
- bullish above 22000
- bearish below 21000

Unfortunately, the bond market is not providing any clearer short-term guidance at the moment. Like the stock market, I see the potential for another leg up for TNX (10-year yield) to complete a 5-wave move up from October 2nd. The 5th wave would equal the 1st wave at 2.475% if it continues higher from here (off Monday's low). But its bounce off Monday's low is not nearly as bullish as it appears for the stock indexes and it's not hard for me to argue it has already seen the high for the bounce, at 2.377% on November 9th. It was a good test of its downtrend line from June 2007 - December 2013.

10-year Yield, TNX, Daily chart

I thought the setup into the high for BKX on November 6th was a good one for a strong decline to follow. The decline into Monday's low broke its uptrend line from October 2nd and it broke back below the uptrend line from October 2011 - January 2015, its 200-dma and 20-dma and these multiple breaks had it looking bearish. But thanks to some help during opex week, this week's rally has had it recovering all those previous breaks except its uptrend line from October 2nd. In fact today's high is a back-test of its broken uptrend line and because of the previous setup into the November 6th high I think this is a good setup for a reversal back down. You can see RSI is also back-testing its broken uptrend line from the low in August. Obviously I'm fighting a bullish opex week and the other indexes that look potentially more bullish. But going with just BKX I don't feel so bullish here. If anything, the back-test is a good setup for the bears since you can use a tight stop.

KBW Bank index, BKX, Daily chart

Another index that supports a move at least a little higher is the TRAN, but it's also currently in a bearish continuation pattern that can only be negated with a sustained rally above its September and October highs near 8321. While the DOW has rallied strong off its August low, especially off the September 29th low, the TRAN has been a laggard and therefore a bearish non-confirmation so far. The pattern that it has formed since the August low is an ascending triangle, which in the position following its March-August decline is a bearish continuation pattern. I see upside potential to the top of the triangle, near 8321, but it doesn't have to get there and if it now drops below Monday's low near 7921 it would trigger the next sell signal. The next leg down, assuming we'll get it, will be much stronger than the March-August decline.

Transportation Index, TRAN, Daily chart

For most of this year I was thinking we'd see more or less a choppy pullback in a descending wedge kind of pattern but the stronger rally in the past two weeks put the kibosh on that pattern. Instead, now it looks like we'll get a test of the March high at 100.78 before dropping back down (I continue to believe the dollar is not ready to rally stronger than that yet). There's a price projection at 100.88 where the 2nd leg of the rally from August would be 162% of the 1st leg. That coincides nicely with the March high and it's another reason why I don't think the dollar will make it higher than that. The leg up from October 15th is into its 5th wave and it could complete at any time and therefore I see the upside for the dollar as riskier than the downside. Another drop down to, or likely below, the August low at 92.52, should be the next move. If true, it suggests the Fed will not be raising rates in December (I think the current rally is in anticipation of the Fed raising rates).

U.S. Dollar contract, DX, Daily chart

Gold hasn't started a bounce off support yet but I'm still thinking it will. It's actually broken support at its July low at 1072.30, with last night's low at 1062 but it might hold near its trend line along the lows from December 2013 - November 2014, near 1071. Today's close was at 1070.50. If we get a bounce, as depicted on the weekly chart below, I think it will only be a correction to the leg down from October's high, perhaps up to about 1130, and then continue lower. My downside target for a final low remains unchanged (price-level support near 1000, maybe down to 893 for a 62% retracement of its 2001-2011 rally). It's not showing much of a bullish divergence on the daily chart so it could continue lower but I am alert to the possibility that gold will soon put in a final low near this level. It is at the bottom of a descending wedge pattern since its December 2013 low and the bullish divergences on the weekly chart could be hinting of something more bullish sooner than I anticipate. A rally above its October 2015 high, near 1192, is needed to negate the bearish expectations for lower prices.

Gold continuous contract, GC, Weekly chart

The pattern for the pullback in oil, from its October 9th high, calls for a low at 40.02 for two equal legs down in an a-b-c pullback. Monday's low was 40.06 and today's midday low was 39.91, which was followed by a spike back up to close at 40.88. The $40 level looks like it might be defended but obviously it will be more bearish below that level, in which case I'd expect a full-on test of its August low at 37.75. But if the pullback from October 9th is only part of a larger 3-wave bounce off the August low we should now see a rally take oil up to the $53 area as part of a larger sideways consolidation pattern. I haven't given up on the idea for a larger consolidation into the first half of 2016 before letting go to the downside but that means oil should start a rally from here.

Oil continuous contract, CL, Daily chart

Tomorrow's economic reports will not likely move the markets so they'll be on their own to get manipulated into the end of opex week.

Economic reports and Summary

Conclusion

This opex week has been like so many others before it -- pull the indexes down into the Thursday-Monday leading into opex week and then let the rubber band go with a few good buy programs that ignites short covering. We've seen a straight-up rally follow the low on Monday (except for a relatively minor pullback Tuesday afternoon) and it's looking like the rally could continue at least a little higher on Thursday and maybe into Friday morning to get a high closing price for SPX. They could be going for a 2100 settlement price, which from 2020 Monday morning makes for a very nice weekly gain on call options bought on Monday. But stay cautious because moves can come out of nowhere and can be exaggerated as traders position solely because of their options positions and not because of what they believe for the market. And once a bullish opex week finishes there's often a hangover the following Monday. But for now the bulls are back in control until proven otherwise and the first sign of trouble for the bulls would be a drop below Tuesday afternoon's low since it would then leave a 3-wave bounce correction off Monday's low. Trade carefully, or watch from the sidelines, the rest of this week. There are just enough hints of danger (such as from the banking index as well as some weak market internals vs. the strength of the price move) to suggest bulls cannot afford to get complacent here. On the other hand, bears clearly need to respect the upside potential.

Good luck and I'll be back with you next Wednesday.

Keene H. Little, CMT

In the end everything works out and if it doesn't work out, it is not the end. Old Indian Saying


New Plays

Recovery In Progress

by James Brown

Click here to email James Brown

Editor's Note:

Additional Trading Ideas:

In addition to tonight's new candidate(s), consider these stocks as possible trading ideas and watch list candidates. Some of these may need to see a break past key support or resistance:

Bullish ideas: TSS, CDNS, MAS, ARII, FBHS, JBL, INCR, CBT, WCN




NEW BULLISH Plays

FMC Corp. - FMC - close: 43.03 change: +1.11

Stop Loss: 39.85
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on November -- at $---.--
Listed on November 18, 2015
Time Frame: 6 to 8 weeks
Average Daily Volume = 1.6 million
New Positions: Yes, see below

Company Description

Trade Description:
Shares of FMC have been struggling for a couple of years. The stock peaked near $83.00 in early 2014. Since then FMC traded at a low near $32.60 in late September this year. FMC's performance over the last couple of months looks like the stock has bottomed.

FMC is in the basic materials sector. According to the company, "For more than a century, FMC Corporation has served the global agricultural, industrial and consumer markets with innovative solutions, applications and quality products. FMC acquired Cheminova in April of 2015. Pro forma revenue totaled approximately $4.5 billion in 2014. FMC employs approximately 6,600 people throughout the world and operates its businesses in three segments: FMC Agricultural Solutions, FMC Health and Nutrition and FMC Lithium."

The earnings picture has been disappointing over the last several months. The company reported its Q1 results on May 5th and missed on both the top and bottom line. Management lowered their guidance. FMC's Q2 results were not much better with the company missing analysts' estimates on both the top and bottom line again.

On October 12th FMC warned that Q3 earnings would take a hit due to currency weakness in Brazil. Here's an excerpt from the company's press release, "FMC Corporation (FMC) today announced that, due to the recent rapid devaluation of the Brazilian real, the company is reducing third-quarter and full-year outlook for its Agricultural Solutions segment... A rapid devaluation of the Brazilian real, which depreciated over 50 percent versus the U.S. dollar in the past 12 months, and over 25 percent versus the U.S. dollar during the third quarter alone, has created significant headwinds that will continue to impact Agricultural Solutions segment earnings in the second half of 2015."

Shares of FMC plunged on this news from $37.50 to $35.00 but investors bought the dip. Earnings came out on October 28th. After warning in mid October their final results were above expectations. Q3 earnings fell from 72 cents a year ago to 42 cents but that beat the 38-cent estimate. Revenues were up +1.4% to $830.7 million, which was also above estimates. FMC rallied on this report.

Investors bought the recent dip (last week) and since then FMC has been showing relative strength. The rally has produced a triple-top breakout buy signal on FMC's point & figure chart, which now projects a $57.00 target. The relative strength continued today with a +2.6% gain and a breakout past short-term resistance at $43.00 and its 100-dma.

It's starting to look like all the bad news has been priced in and investors are betting on a turnaround in the company. The stock's recent rallies have been fueled with strong volume, which is normally a good sign. Tonight we are suggesting a trigger to launch bullish positions at $43.55. (Note: FMC is up five days in a row. Patient investors may want to wait for a dip before initiating new positions instead of our trigger at $43.55).

Trigger @ $43.55

- Suggested Positions -

Buy FMC stock @ $43.55

- (or for more adventurous traders, try this option) -

Buy the JAN $45 CALL (FMC160115C45) current ask $1.55
option price is a current quote and not a suggested entry price.

Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

The Market's Bounce Resumes

by James Brown

Click here to email James Brown

Editor's Note:
Stocks were in rally mode almost all day on Wednesday. The FOMC Minutes failed to derail the bulls and stocks closed near their highs for the session.

USCR has been removed. SKX hit our new stop loss.

YELP hit our entry trigger.

We want to exit KMX tomorrow morning.


Current Portfolio:


BULLISH Play Updates

Microsoft Inc. - MSFT - close: 53.85 change: +0.88

Stop Loss: 52.15
Target(s): To Be Determined
Current Gain/Loss: -1.4%
Entry on November 04 at $54.60
Listed on November 03, 2015
Time Frame: 6 to 8 weeks.
Average Daily Volume = 35.4 million
New Positions: see below

Comments:
11/18/15: The market's big rally got some help from MSFT with a +1.66% gain today. Shares are once again poised to breakout past short-term resistance at $54.00. I would use a new rally above $54.25 as a bullish entry point.

Trade Description: November 3, 2015:
MSFT is more than just a software company. MSFT is in the technology sector. It is considered part of the business software industry. According to the company, "Microsoft is the leading platform and productivity company for the mobile-first, cloud-first world, and its mission is to empower every person and every organization on the planet to achieve more."

The company is run under three segments. They have their productivity and business processes segment. This includes commercial office software, personal office software, and more. One of their fastest growing segments is MSFT's Intelligent Cloud business, which includes their server software and enterprise services. Then they have their "More Personal Computing" segment. This includes their Windows operating software, MSN display advertising, Windows phones, smartphones, tablets, PC accessories, Internet search, and their Xbox platform.

The stock has been dead money for almost a year. MSFT peaked near round-number resistance at $50.00 back in November 2014. Shares channeled sideways between support at $40 and resistance at $50 for months. That changed last month.

MSFT reported its 2016 Q1 results on October 22nd. Analysts were expecting a profit of $0.59 a share on revenues of $21.04 billion. MSFT beat both estimates with a profit of $0.67 a share. Revenues came in at $21.66 billion. Their Intelligent Cloud segment saw sales rise +8% but it was actually +14% on a constant currency basis.

Shares of MSFT soared the next day with a surge to 15-year highs. The big rally is based on investors' belief that MSFT and its relatively new management is successfully transitioning away from declining PC sales and moving quickly towards the cloud (and mobile).

Normally I would hesitate to buy a stock like MSFT after a big gap higher. Too often stocks tend to fill the gap. However, shares of MSFT have been able to levitate sideways in the $52.50-54.50 zone as traders keep buying the dips. Odds are growing we could see MSFT rally toward its all-time highs near $60.00 a share from December 1999. The big gain in October produced a buy signal on the point & figure chart, which is now forecasting a long-term target of $82.00. Tonight we are suggesting a trigger to launch bullish positions at $54.60.

- Suggested Positions -

Long MSFT stock @ $54.60

- (or for more adventurous traders, try this option) -

Long 2016 JAN $55 CALL (MSFT160115C55) entry $1.54

11/04/15 triggered @ $54.60
Option Format: symbol-year-month-day-call-strike


Natural Health Trends Corp. - NHTC - close: 42.53 change: -2.94

Stop Loss: New 40.65
Target(s): To Be Determined
Current Gain/Loss: -6.7%
Entry on November 18 at $45.60
Re-Listed on November 17, 2015
Time Frame: 6 to 8 weeks
Average Daily Volume = 379 thousand
New Positions: see below

Comments:
11/18/15: Wow! Talk about not cooperating. We decided to double down and buy NHTC at the opening bell this morning following yesterday's unexpected crash. NHTC has no connect to the DoJ lawsuits against a private supplement maker but shares of NHTC were crushed yesterday. Today NHTC opened at $45.60. It rallied up to $48.00 only to fail there twice. Then shares plunged down to $40.68. Yesterday's low was $40.86.

Tonight we are adjusting our stop loss to $40.65, just below today's low. More aggressive investors may want to keep their stop close $40.00, since that should be round-number support.

No new positions at this time.

Trade Description: November 16, 2015:
If you're looking for relative strength then NHTC could be your stock. It's been a rocky ride so far in 2015 with big swings both up and down. Right now NHTC is on an upswing. Shares have rallied +168% from its August 2015 low near $20.00. The stock is up +369% year to date.

NHTC is in the consumer goods sector. According to the company, "Natural Health Trends Corp. (NHTC) is an international direct-selling and e-commerce company operating through its subsidiaries throughout Asia, North America, and Europe. The Company markets premium quality personal care products under the NHT Global brand."

The company's earnings and revenue growth has been significant. They reported their Q2 results on July 28th. Earnings nearly doubled from $0.49 a year ago to $0.98. Revenues soared almost +104% to $69.7 million. At the time management raised their dividend +33% to $0.04 a share and announced a $15 million stock buyback program.

In the middle of October NHTC pre-announced strong Q3 revenues. They reported their Q3 results on October 27th. Earnings soared from $0.42 a year ago $1.18 a share. Revenues hit a record $80.8 million, up +154% from a year ago. Their number of active members increased +24% to 94,700 from the prior quarter. Management then raised their dividend to $0.05.

NHTC hit new multi-year highs at $55.45 in early November. Since then shares have spent the last two weeks consolidating sideways in the $50-54 zone. The stock weathered last week's market decline pretty well. If shares breakout higher NHTC could see a short squeeze. The most recent data listed short interest at 19% of its very small 7.3 million share float.

Tonight we are suggesting a trigger to launch bullish positions at $54.30. I am suggesting small positions. Shares can be volatile. We should consider this a higher-risk, more aggressive trade.

*small positions to limit risk*

- Suggested Positions -

Long NHTC stock @ $45.60

- (or for more adventurous traders, try this option) -

Long JAN $50 CALL (NHTC160115C50) entry $5.00

11/18/15 new stop @ 40.65
11/18/15 Trade reopened this morning
11/17/15 re-list this trade, launch new positions tomorrow
New stop 39.85, new option = Jan. $50 call
11/17/15 NHTC trade -8.1%, Jan. $60 call trade -44.0%
11/17/15 stopped out @ $49.90 - on DoJ story about another company
11/17/15 Triggered on gap higher @ $54.32
Option Format: symbol-year-month-day-call-strike


Paychex, Inc. - PAYX - close: 53.93 change: +0.60

Stop Loss: 51.25
Target(s): To Be Determined
Current Gain/Loss: +1.5%
Entry on November 11 at $53.15
Listed on November 09, 2015
Time Frame: Exit PRIOR to earnings in mid December
Average Daily Volume = 2.3 million
New Positions: see below

Comments:
11/18/15: PAYX kept the rally going with another +1.1% gain. This is another multi-year high for the stock.

More conservative traders may want to start raising their stop loss.

Trade Description: November 9, 2015:
Last week the Bureau of Labor Statistics announced that the nonfarm payroll (jobs) report for October showed a gain of +271,000. That was way above expectations. The separate household survey showed a gain of +320,000 jobs. This pushed the unemployment rate down to 5.0%, the lowest reading since early 2008. Many believe that the U.S. has now reached full employment. Do you know what that means? It means more Americans working. That means more paychecks to be delivered and more HR services to be handled.

PAYX is in the services sector. According to the company, "Paychex, Inc. (PAYX) is a leading provider of integrated human capital management solutions for payroll, HR, retirement, and insurance services. By combining its innovative software-as-a-service technology and mobility platform with dedicated, personal service, Paychex empowers small- and medium-sized business owners to focus on the growth and management of their business. Backed by more than 40 years of industry expertise, Paychex serves approximately 590,000 payroll clients across 100 locations and pays one out of every 15 American private sector employees."

PAYX earnings have been slowly and consistently creeping higher. Revenues have been rising about 8% the last couple of quarters. This company's most recent earnings report was September 30th. They beat estimates on both the top and bottom line, which helped fuel another rally in the stock.

PAYX management has been very consistent about paying a dividend. PAYX now sports a dividend yield of 3.7%. That could draw more and more income investors looking for a safe company to buy.

A recent article on Forbes.com, by Brett Owens, noted that "demand for payroll outsourcing (60% of Paychex's latest quarterly revenue) will grow at a 3.9% compound annual rate between 2013 and 2018. HR outsourcing (40% of revenue) is on a stronger tear, with a projected 12.3% yearly gain in the same period" (source)

We like PAYX's relative strength. Shares are up +14.2% year to date. That compares to a +1.0% gain in the S&P 500 and a +7.6% rally in the NASDAQ. The NASDAQ composite is up +18% from its August low but PAYX is up +26.7%. The rally in PAYX has produced a buy signal on the point & figure chart, which is also forecasting a long-term target at $72.00.

On Friday PAYX found short-term support near $53.00. Tonight we are suggesting a trigger to launch bullish positions at $53.15.

- Suggested Positions -

Long PAYX stock @ $53.15

- (or for more adventurous traders, try this option) -

Long JAN $55 CALL (PAYX160115C55) entry $0.80

11/11/15 triggered @ $53.15
Option Format: symbol-year-month-day-call-strike


Yelp Inc. - YELP - close: 28.23 change: +0.69

Stop Loss: 24.40
Target(s): To Be Determined
Current Gain/Loss: +1.7%
Entry on November 18 at $27.75
Listed on November 17, 2015
Time Frame: 6 to 8 weeks
Average Daily Volume = 3.5 million
New Positions: see below

Comments:
11/18/15: Our new trade on YELP is off to a good start. Shares displayed relative strength today with a +2.5% gain. The NASDAQ only rose +1.7%. YELP has rallied past resistance near its early August highs. Our trigger to launch bullish positions was hit at $27.75.

Trade Description: November 17, 2015:
It has been a rough ride for YELP investors. The stock is down -50% year to date and off -72% from its all-time highs set in 2014. Yet the action lately is starting to look like all the bad news is priced in.

YELP is considered part of the technology sector. According to the company, "Yelp Inc. (http://www.yelp.com) connects people with great local businesses. Yelp was founded in San Francisco in July 2004. Since then, Yelp communities have taken hold in major metros across 31 countries. Approximately 83 million unique visitors visited Yelp via their mobile device1, including approximately 18 million unique devices accessing the Yelp app2, and approximately 79 million unique visitors visited Yelp via a desktop computer3 on a monthly average basis during the second quarter of 2015. By the end of the same quarter, Yelpers had written approximately 83 million rich, local reviews, making Yelp the leading local guide for real word-of-mouth on everything from boutiques and mechanics to restaurants and dentists."

The earnings picture has struggled this year. YELP's Q1 and Q2 reports both missed analysts' estimates. YELP also guided lower each time. Then there was news in July that YELP had given up on trying to sell itself because they couldn't find a buyer.

The revenue picture improved in the third quarter. YELP reported its Q3 results on October 28th. Earnings of $0.03 a share missed estimates of $0.06. Yet revenues were up +40% to $143.6 million, which was better than expected. Management then raised their 2015 guidance.

On November 13th shares of YELP received a big upgrade from RBC Capital Markets who raised their outlook to "outperform" and upped their price target from $34 to $42. Meanwhile recent news that InterActiveCorp (IACI) had offered to buy Angie's List (ANGI) might restart the M&A speculation on YELP since ANGI and YELP are in similar businesses.

Technically shares of YELP definitely appear to have formed a bottom over the last three months. The rally from its October lows has generated a buy signal on the point & figure chart that is forecasting a long-term target of $37.00. Right now YELP is flirting with a breakout past its early August peak. A breakout could spark some short covering. The most recent data listed short interest at 22% of the 60.8 million share float.

We are listing YELP as an aggressive, higher-risk bullish trade. The stock can be volatile so readers may want to limit their position size. Tonight we are suggesting a trigger to launch positions at $27.75.

*small positions to limit risk*- Suggested Positions -

Long YELP stock @ $27.75

- (or for more adventurous traders, try this option) -

Long 2016 JAN $30 CALL (YELP160115C30) entry $1.47

11/18/15 triggered @ $27.75
Option Format: symbol-year-month-day-call-strike




BEARISH Play Updates

Denny's Corp. - DENN - close: 9.36 change: +0.01

Stop Loss: 9.75
Target(s): To Be Determined
Current Gain/Loss: +5.5%
Entry on November 10 at $9.90
Listed on November 05, 2015
Time Frame: 4 to 8 weeks
Average Daily Volume = 527 thousand
New Positions: see below

Comments:
11/18/15: DENN spiked lower at the open but quickly recovered. Shares spent most of the day churning sideways. It's worth noting that DENN did underperformed the broader market with shares only gaining +0.1%. The NASDAQ rallied +1.7%. The intraday bounce off its low this morning almost looked like a potential short-term bottom. I would not be surprised to see an oversold bounce tomorrow.

No new positions at this time. More conservative traders may want to lower their stop again.

Trade Description: November 5, 2015:
Wall Street seems to have soured on restaurant stocks. The group has been underperforming and this stock is accelerating lower.

DENN is in the services sector. According to the company, "Denny's is the franchisor and operator of one of America's largest franchised full-service restaurant chains, based on the number of restaurants. As of July 1, 2015, Denny's had 1,696 franchised, licensed, and company restaurants around the world with combined sales of $2.7 billion including 108 restaurants in Canada, Costa Rica, Mexico, Honduras, Guam, Curacao, Puerto Rico, Dominican Republic, El Salvador, Chile and New Zealand, and 160 company operated restaurants in the United States."

The stock rallied in early August on its earnings report but that proved to be a bull-trap. The breakout past resistance near $12.00 didn't last. When the market corrected lower in August, shares of DENN plunged toward its 200-dma and the $11.00 level. Shares spent the next eight weeks churning sideways with investors selling the rallies near resistance.

This week DENN reported their Q3 earnings report. The company delivered a profit of $0.11 a share. Revenues were up +5.8% to $123.8 million. These were in-line with estimates. Actually revenues were just slightly above expectations. The company's guidance was in-line with analysts' estimates. Evidently these results were not good enough as shares of DENN plunged on the news.

The stock has broken down below multiple layers of support. Now shares are on the verge of breaking through round-number support at $10.00. If shares to trade below $10.00 it should generate a new sell signal on the point & figure chart. Tonight we are suggesting a trigger to launch bearish positions at $9.90.

- Suggested Positions -

Short DENN stock @ $9.90

- (or for more adventurous traders, try this option) -

Long DEC $10 PUT (DENN151218P10) entry $0.55

11/17/15 new stop @ 9.75
11/14/15 new stop @ 10.25
11/10/15 triggered @ $9.90
Option Format: symbol-year-month-day-call-strike


CarMax Inc. - KMX - close: 56.68 change: +1.06

Stop Loss: 57.25
Target(s): To Be Determined
Current Gain/Loss: -3.5%
Entry on November 13 at $54.75
Listed on November 12, 2015
Time Frame: Exit PRIOR to earnings in mid December
Average Daily Volume = 1.8 million
New Positions: see below

Comments:
11/18/15: We are throwing in the towel on KMX. The breakdown under support near $55.00 is starting to look like a bear-trap move. The oversold bounce is now up three days in a row. The $55-56 zone should have been new resistance. Bears can definitely argue that KMX should find strong resistance at its multi-month trend of lower highs (near its falling 50-dma). However, we do not want to see KMX bounce that high (about $58.25). Therefore tonight we are suggesting an immediate exit tomorrow morning.

- Suggested Positions -

Short KMX stock @ $54.75

- (or for more adventurous traders, try this option) -

Long JAN $52.50 PUT (KMX160115P52.5) entry $2.00

11/18/15 prepare to exit tomorrow morning, KMX is not working for us
11/13/15 triggered @ $54.75
Option Format: symbol-year-month-day-call-strike


Lululemon Athletica - LULU - close: 45.69 change: +1.60

Stop Loss: 46.55
Target(s): To Be Determined
Current Gain/Loss: +3.3%
Entry on November 12 at $47.25
Listed on November 11, 2015
Time Frame: Exit PRIOR to earnings in mid December
Average Daily Volume = 2.9 million
New Positions: see below

Comments:
11/18/15: The stock market's big rally today helped fuel a +3.6% bounce in LULU. Shares are nearing what should be short-term resistance at $46.00.

No new positions at this time.

Trade Description: November 11, 2015:
Disappointing earnings guidance and rising competition have been tough on shares of LULU. It doesn't help that expectations for this holiday season are falling.

LULU is in the consumer goods sector. According to the company, "lululemon athletica inc. (LULU) is a yoga-inspired athletic apparel company with products that create transformational experiences for people to live happy, healthy, fun lives. Setting the bar in technical fabrics and functional designs, lululemon works with yogis and athletes in local communities for continuous research and product feedback."

LULU's most recent earnings report was September 10, 2015. The company beat the bottom line estimate by a penny. Revenues were up +16% from a year ago and came in above estimates. Comps showed strength with a +11% improvement on a constant dollar basis. However, management spoiled the news by drastically lowering their Q3 estimates below Wall Street expectations. The stock was crushed on this outlook.

LULU is facing a few challenges. The biggest challenge is rising competition. The athleisure trend in apparel has been around for a while now but everyone is trying to cash in on it. That includes heavyweights like Under Armour and Nike. Nike plans to almost double its sales in women's apparel by 2020. You can bet they plan on stealing some market share from its smaller rivals like LULU. LULU also has competition from other apparel stores like the Gap (with all of its various labels) and Victoria's Secret. If rising competition wasn't enough LULU has also raised their prices, which could further drive consumers toward lower cost alternatives.

Bigger picture the outlook for holiday spending this year is wilting. In the last couple of weeks multiple analyst firms have released reports that consumers will spend less time in stores (lower traffic). Plus, retail sales growth is expected to fall from last year, especially on apparel.

Technically LULU is in another bear market. The stock is down -32% from its 2015 highs. Shares have a bearish trend of lower highs as investors keep selling the rallies. Now LULU has fallen to short-term support in the $47.40-47.50 area.

My biggest concern is the elevated short interest. The most recent data listed short interest at 27% of the 110 million share float. That many shorts can make this stock volatile as weak hands could panic on any bounce. Of course longer-term the bears are probably right on LULU until the story changes. Readers may want to trade the put options to limit their risk. Tonight we are suggesting a trigger to launch bearish positions at $47.25. Plan on exiting prior to LULU's earnings report in mid December.

- Suggested Positions -

Short LULU stock @ $47.25

- (or for more adventurous traders, try this option) -

Long DEC $45 PUT (LULU151218P45) entry $2.40

11/17/15 new stop @ 46.55
11/14/15 new stop @ 48.25
11/12/15 triggered @ $47.25
Option Format: symbol-year-month-day-call-strike


Seagate Technology - STX - close: 34.38 change: +0.50

Stop Loss: 35.55
Target(s): To Be Determined
Current Gain/Loss: +4.1%
Entry on November 11 at $35.85
Listed on November 10, 2015
Time Frame: 6 to 8 weeks
Average Daily Volume = 4.9 million
New Positions: see below

Comments:
11/18/15: STX was not immune to the market's widespread rally today. Shares ended the session with a +1.4% gain after spending much of the day churning sideways.

Currently our stop is at $35.55. More conservative investors might want to lower their stop closer to $35.00.

No new positions at this time.

Trade Description: November 10, 2015:
A slowdown in PC sales is killing STX's performance. Share are significantly underperforming the broader market. The company's stock is down -45% year to date.

STX is part of the technology sector. According to the company, "Seagate creates space for the human experience by innovating how data is stored, shared and used." That doesn't tell us much. Visiting their website you can learn that "Seagate is the global leader in data storage solutions, developing amazing products that enable people and businesses around the world to create, share and preserve their most critical memories and business data." Essentially STX makes hard drives and data storage for both personal and business use. This includes desktop storage, laptop storage, backup solutions, data recovery, cloud computing storage, and a lot more.

Unfortunately for investors the earnings picture has been disappointing. STX management issued an earnings warning on October 15th as they reduced their guidance for Q1 earnings and revenues. You can see the drop in their stock price on the 15th.

STX reported their 2016 Q1 earnings on October 30th. Net income fell -63.6% from a year ago. Earnings came in at $0.54 a share, which was three cents below estimates. Revenues plunged -22.7% to $2.92 billion, which matches the levels they warned about two weeks prior. STX said their gross margins contracted from 28.1% to 24.2%.

Management knew the quarter was going to be bad so they tried to soften the bad news by announcing a +17% jump in their dividend just prior to their earnings announcement. The news didn't seem to help. Their 2016 Q2 guidance did not help either as management lowered their revenue forecast below analysts' estimates. Wall Street has been reducing their ratings and their price target on the stock in reaction to the company's lowered forecast.

I could see dividend investors looking a STX as a potential buy. The plunge in the stock price has driven the dividend yield up to 6.9%. Yet who wants to buy a stock for their dividend and watch your capital evaporate?

Technically STX is in a bear market. Shares displayed relative weakness today with a -4.5% decline and a drop to new multi-year lows. The point & figure chart is already bearish and forecasting at $26.00 target. If STX trades below $36.00 it will produce a new triple-bottom breakdown sell signal on its P&F chart. Tonight we are suggesting a trigger to launch bearish positions at $35.85.

- Suggested Positions -

Short STX stock @ $35.85

- (or for more adventurous traders, try this option) -

Long JAN $35 PUT (STX160115P35) entry $1.93

11/17/15 new stop @ 35.55
11/14/15 new stop @ 36.25
11/11/15 new stop @ 37.25
11/11/15 triggered @ $35.85
Option Format: symbol-year-month-day-call-strike


iPath S&P500 VIX Futures ETN - VXX - close: 19.45 change: -1.38

Stop Loss: None, no stop at this time.
Target(s): $16.65
Current Gain/Loss: +10.9%
2nd position Gain/Loss: +33.0%
Entry on August 25 at $21.82
2nd position: September 2nd at $29.01
Listed on August 24, 2015
Time Frame: to be determined
Average Daily Volume = 50 million
New Positions: see below

Comments:
11/18/15: It looks like the recent rally in the VIX and VXX is over. The market's current bounce is deflating the volatility-related indices and ETFs (and ETNs).

No new positions at this time.

Trade Description: August 24, 2015
The U.S. stock market's sell-off in the last three days has been extreme. Most of the major indices have collapsed into correction territory (-10% from their highs). The volatile moves in the market have investors panicking for protection. This drives up demand for put options and this fuels a rally in the CBOE volatility index (the VIX).

You can see on this long-term weekly chart that the VIX spiked up to levels not seen since the 2008 bear market during the financial crisis. Moves like this do not happen very often. The VIX rarely stays this high very long.

(see VIX chart from the August 24th play description)

How do we trade the VIX? One way is the VXX, which is an ETN but trades like a stock.

Here is an explanation from the product website:

The iPath® S&P 500 VIX Short-Term Futures® ETNs (the "ETNs") are designed to provide exposure to the S&P 500 VIX Short-Term FuturesTM Index Total Return (the "Index"). The ETNs are riskier than ordinary unsecured debt securities and have no principal protection. The ETNs are unsecured debt obligations of the issuer, Barclays Bank PLC, and are not, either directly or indirectly, an obligation of or guaranteed by any third party. Any payment to be made on the ETNs, including any payment at maturity or upon redemption, depends on the ability of Barclays Bank PLC to satisfy its obligations as they come due. An investment in the ETNs involves significant risks, including possible loss of principal and may not be suitable for all investors.

The Index is designed to provide access to equity market volatility through CBOE Volatility Index® (the "VIX Index") futures. The Index offers exposure to a daily rolling long position in the first and second month VIX futures contracts and reflects market participants' views of the future direction of the VIX index at the time of expiration of the VIX futures contracts comprising the Index. Owning the ETNs is not the same as owning interests in the index components included in the Index or a security directly linked to the performance of the Index.

I encourage readers to check out a long-term chart of the VXX. This thing has been a consistent loser. One market pundit said the VXX is where money goes to die - if you're buying it. We do not want to buy it. We want to short it. Shorting rallies seems to be a winning strategy on the VXX with a constant trend of lower highs.

Today the VXX spiked up to four-month highs near $28.00 before fading. We are suggesting bearish positions at the opening bell tomorrow. The market volatility is probably not done yet so we are not listing a stop loss yet. Our time frame is two or three weeks (or less).

- Suggested Positions -

Short the VXX @ $21.82

Sept. 2nd - 2nd position (Double Down On The September 1st Spike)

Short the VXX @ $29.01

11/07/15 adjust exit target to $16.65
11/02/15 adjust exit target to $16.50
10/19/15 add an exit target at $16.25
10/15/15 planned exit for the October puts
10/14/15 if you own the options, prepare to exit tomorrow at the close
09/02/15 2nd position begins. VXX gapped down at $29.01
09/01/15 Double down on this trade with the VXX's spike to 6-month highs
08/25/15 trade begins. VXX gaps down at $21.82
Option Format: symbol-year-month-day-call-strike



CLOSED BULLISH PLAYS

U.S. Concrete, Inc. - USCR - close: 58.68 change: +1.14

Stop Loss: 55.65
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on November -- at $---.--
Listed on November 14, 2015
Time Frame: 6 to 8 weeks
Average Daily Volume = 220 thousand
New Positions: see below

Comments:
11/18/15: We are temporarily giving up on USCR. Shares did participate in the market's rally today (USCR gained +1.9%). However, this stock remains under resistance near the $60.00-60.50 area. Our trade is not open yet. Tonight we are removing it from the newsletter. We may revisit it again on a close above $60.50.

Trade did not open.

11/18/15 removed from the newsletter, suggested entry was $60.65

chart:



CLOSED BEARISH PLAYS

Skechers U.S.A. Inc. - SKX - close: 27.89 change: +2.57

Stop Loss: 26.35
Target(s): To Be Determined
Current Gain/Loss: +10.4%
Entry on November 05 at $29.40
Listed on November 04, 2015
Time Frame: 6 to 8 weeks
Average Daily Volume = 2.1 million
New Positions: see below

Comments:
11/18/15: Our SKX trade has been stopped out. We were getting suspicious with shares hovering near round-number support near $25.00 the last few days. Last night we adjusted our stop loss down to $26.35. The market's big rally today fueled some short covering and SKX soared +10%, hitting our stop along the way.

- Suggested Positions -

Short SKX @ $29.40 exit $26.35 (+10.4%)

- (or for more adventurous traders, try this option) -

2016 JAN $25 PUT (SKX160115P25) entry $1.00 exit $1.70 (+70.0%)

11/18/15 stopped out
11/17/15 new stop @ 26.35
11/14/15 new stop @ 27.65
11/11/15 new stop @ 29.05
11/05/15 triggered @ $29.40
Option Format: symbol-year-month-day-call-strike

chart: