Option Investor
Newsletter

Daily Newsletter, Monday, 11/23/2015

Table of Contents

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

Market Wrap

Thanksgiving Week Is Here

by Thomas Hughes

Click here to email Thomas Hughes
Trading got off to a quiet start this holiday shortened week. Volume was low and attention is focused on a deluge of economic data slated to begin tomorrow.

Introduction

The market opened quietly at the beginning of a holiday shortened week. Thanksgiving is here once again which means no trading on Thursday and a shortened day on Friday. It also means lighter than usual trading volumes and whatever economic reports that are on the schedule are crammed into the next two days, a recipe for knee-jerk reactions and potentially wild market swings. Earning are also on tap; the list is light compared to recent weeks but includes 18 S&P 500 companies.

Global trading was light as well. Asian indices closed largely flat; the Nikkei made a gain of 0.10% while the Chinese indices posted losses near -0.5%. European indices also closed flat after a choppy day of trading driven in part by wild swings in oil prices.

Market Statistics

Futures trading indicated a similarly flat to negative open for the US indices. There was little market moving news before the opening bell. Futures trading was relatively flat all morning until some news from Saudi Arabi came out, the cabinet says it is willing to help support the oil market. Needless to say the news caused a spike in oil prices that helped to lift index futures, but only marginally.

The indices opened with small gains, less than a point for the SPX, and made a quick dip to test last week's closing prices within the first 10 minutes of trading. The dip quickly found support which resulted in a small bounce, followed by another dip to support and another bounce. The second bounce was a little stronger and took the indices up to the highs of the day, near .25% for the SPX.

The indices held near their highs for an hour or so before beginning to fall back. By 2PM they had retreated back to the low of the day and lower, hitting bottom and bouncing by 2:45. The bounce was not strong but was able to regain most of the days losses leaving the 3 of the 4 major indices flat on the day.

Economic Calendar

The Economy

Existing Home sales was today's only bit of official economic data. The number of existing homes sold in October fell by -3.4% to 5.36 million, slightly worse than expected. Analysts had been projecting a decline to only 5.45 million. Despite the drop home sales are up year over year by 3.9%. All four major regions saw declines, led by the west, with higher prices and low inventory are cited as problems. Prices are up 5.8% over last year, inventory is down -4.5%. Lawrence Yun, NAR economist, sees labor markets supporting the housing market and sales pace into the end of the year at least.

Moody's Survey of Business Confidence gained 0.3% this week, the first gain in nearly 3 months. Weak global growth and and volatility in financial markets are the two main reasons Mr. Zandi cites as reasons for the decline in sentiment. Within the data current conditions have declined the most while forward outlook remains upbeat. This week's uptick could signal a bottom in declining sentiment but one piece of data doesn't change a trend. Global hurdles to business remain, let's wait and see how this data progresses over the next month and following the upcoming ECB and FOMC meetings.


According to FactSet 481 of the 500 S&P 500 companies have reported earnings so far this season with 13 more scheduled for this week. Of those that have reported the blended rate of earnings growth is now -1.6%. This is a 0.2% increase over last week and pretty close to what the final rate is going to be, barring a major surprise from the remainder of those to report. Energy continues to be the laggard, posting a -56.8% decline in year over year quarterly earnings. Ex-energy the blended rates goes up to 5.2%. Headwinds cited include currency conversions and higher wages. Positive trends include lower fuel costs.

Fourth quarter earnings estimates continue to decline. The expected rate of growth for the whole S&P 500 is now -4%, a decline of -0.35% and a new low. Energy is still expected to lead declines with estimates sitting near -65%. Ex-energy 4th quarter earnings growth should be near 1.6%. Based on the four year average we can expect to see the final rate of growth in the 4th quarter come in about 4% above the expected rate at the beginning of the quarter. This week's downward revision puts the all-index growth rate in position to remain negative even if the final rate does rise as expected. If so, it will be a third quarter of negative earnings growth.

Earnings and revenue growth is still expected to return in the first quarter of 2016 and remain strong through the end of next year. Full year 2016 earnings growth is expected to come in near 8.1%. This is a decline of -0.1% from last week but still strong, especially compared with negative growth expected for this year.

The Oil Index

Oil prices had a wild ride today. In early trading, before 7AM, WTI had been down near -3% on high supply/low demand outlook. Then, around 6:45 or so, a report from the Saudi Press Agency stating the Saudi cabinet's willingness to help the global oil community support prices sent WTI and Brent shooting higher. WTI reversed its losses and then added 3% before falling back to break even by the close of the day's session.

The Saudi news is a positive for the bulls but it is only words; no deals to support prices are in place, they did not cut production. They have indicated a "willingness" to support prices before but have yet to follow through on it. Until then supply is still high, production is still high and demand is tepid which leaves little reason to get bullish on oil; WTI may not break below $40 but there is little to no reason for it to rise significantly either.

The Oil Index opened lower but was able to rise during the day, the pop in oil prices no doubt helping. The index closed with a gain near 0.25% but was not able to cross back above the short term moving average. The indicators remain weak and pointing to lower prices so a bounce from here does not look likely without bullish catalyst. It looks like support is building in a narrow range just below the current level between 1,1150 and 1,170, a level likely to be tested again.


The Gold Index

Gold prices fell in today's session on rising dollar value and FOMC speculation. Spot price for the metal fell nearly -$10 and set a new almost 6 year closing low. Gold prices are now sitting on support with negative outlook. The FOMC is expected to raise rates in December, the ECB is expected to increase its QE in December, moves that could easily cause the Dollar Index to break resistance, move to new all-time highs and pressure gold to new lows. Support is near $1062, only five dollars below today's settlement price.

The Gold Miners ETF GDX fell -0.52% in today's session. The miners ETF is retreating back to long term support following last week's options expiration driven bounce from said support. The indicators are rolling into what could become a bullish signal but with my outlook on gold prices I view any rally derived from such a signal as a selling opportunity. Support is still along the $13 level, $14 and/or the short term moving average is first target for resistance.


In The News, Story Stocks and Earnings

Business and earnings news was largely positive this morning. The biggest headline was Pfizer's purchase of Allergan for $1.6 billion which was announced over the weekend. The move is an effective tax inversion for Pfizer but corporate execs say that is not the reason for the merger. The deal is expected to drive sales and earnings for Pfizer while setting it up for a strategic split some time down the road. The company will be structured under Allergan but carry the name Pfizer PLC. Shares of both companies fell more than -3%.


Tyson Foods reported before the bell, inline with expectations and guiding above estimates. Although EPS was slightly below consensus the food giant reported a record year driven by a 31% increase in fourth quarter operating income. The company has been pushing the integration of recently acquired Hillshire Brands and the moves are paying off. Company execs were able to raise guidance for next year to range above current consensus. The news was well taken and helped to drive the stock up by more than 10% to trade at a new all time high.


Alcoa got a vote of confidence today. Hedge fund Elliot Associates says the stock is dramatically undervalued and took a 6.4% stake in the company. They believe the company's plan to split in two will unlock value substantially above current share value and they want in. Of course, they want to have a talk with the board to discuss other avenues of unlocking value as well. Shares of the stock rose on the news gaining more than 4.25% by the end of the day.


The Dollar Index reached its highest level since March in today's session. The index is creeping up toward the all time high, driven by FOMC and ECB expectations. This move has been strong but has also lost momentum over the past week or two. The indicators are still bullish but both have retreated and showing some weakness as the index gets closer to resistance. Economic data could drive the index up to resistance, near $100.25, an actual rate hike from the FOMC, or even QE from the ECB, could send it higher.


The Indices

Trading volume and market action was very light today. Except for the Dow Jones Transportation Average, which lost nearly a full percent, losses were light. Today's leader was the NASDAQ Composite which lost only -0.05%. The tech heavy index range was much bigger though, nearly a full percent, and created a small doji candle. Today's candle is a sign of indecision but not too alarming in the light of holiday affected trading, low volume often leads to directionless, range bound trading. The indicators remain mixed but continue to roll into what could develop into a strong trend following entry so I remain optimistic. This week could see the index move in either direction due to light holiday volume mixed with a ton of economic data but I remain bullish so a dip to support would be a buying opportunity. First target for support is near 5,000 with the short term moving average below that, and the long term trend line below that.


The S&P 500 made the next largest decline, -0.12%. The broad market created a small bodied candle, not quite a doji, but one with significant upper and lower shadows. This candle also shows indecision and/or a lack of direction in the market and not too surprising given the holiday week. The index appears to be moving higher, today's action a pause in mid-rally, with a target near the all time high. The indicators continue to strengthen although momentum remains bearish so this move could end soon without a catalyst to drive it higher. A shift in momentum to the upside could break resistance and take the index up to 2,150-2,220 in the near term. Strong support is along the long term up trend line near 2,000 with interim targets near 2,070 and 2,050 should a pull back occur.


The Dow Jones Industrial Average made the third largest decline, -0.17%. The blue chips created a small, spinning top type candle in today's action but still looks like it will continue higher. The index is bouncing from the long term trend line with indicators that, while mixed, are rolling into what could become a strong signal. Stochastic is already pointing higher but MACD remains bearish although it is close to crossing the zero line. First target for resistance is 18,000, next target is near the all time high, either of which could keep the index contained in the near term to short term. Long term trends remain bullish so any dips that ensue are buying opportunities in my opinion.


The Dow Jones Transportation Index made the largest decline today, -0.90%. Today's move confirms, again, resistance at the 8,250 level and the top of the 3 month range. The transports have been lagging all year and look like they will continue to do so into next year. Despite the drop the short term moving average and indicators continue to show support in the 8,000 range so downside from here is likely to be minimal at best. Both MACD and stochastic are pointing higher so it is possible that resistance could be tested and broken, if so upside target is near 8,500. Downside target is the short term moving average and then 8,000.


The indices are trying to figure out where they want to go and a low volume week such as this is not likely to help clear the picture. Near term factors such as weak earnings and tepid economic data weigh while longer term factors such as earnings and GDP growth outlook help lift. With earnings expectations the way they are I would not be surprised to see the indices return to longer term strong support levels before the start of next earnings season, with a chance at testing the all time highs or even setting new ones between now and then.

This weeks action could get wild. Its a holiday shortened week, volume is low and there is a lot of economic data to influence outlook and rate hike speculation. This combination could result in knee-jerk market reactions and increased market volatility so I'm already leery of whatever may come. Next week is the first of December, volume should return, we'll get another big round of economic data and possibly the start of a Santa Rally so it may be wise to wait before opening any new positions, bullish or bearish.

Tomorrow there are four economic reports, all of which are fairly important; Consumer Confidence, Case-Shiller 20 City Index and the 2nd estimate for 3rd quarter GDP. GDP is expected to be revised higher from 1.5% to 2%, an important revision but not as important as forward outlook which grows to 3% in the 4th quarter.

Until then, remember the trend!

Thomas Hughes


New Plays

The Outlook For This Retailer Has Soured

by James Brown

Click here to email James Brown


NEW BEARISH Plays

Bed Bath & Beyond Inc. - BBBY - close: 52.89 change: -0.73

Stop Loss: 56.15
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on November -- at $---.--
Listed on November 23, 2015
Time Frame: Exit PRIOR to earnings in January
Average Daily Volume = 2.2 million
New Positions: Yes, see below

Company Description

Trade Description:
Retail stocks have had a rough time this year. Wall Street has been concerned about consumer spending. Plus there is the constant pressure from online rivals chipping away at margins and traffic from brick and mortar stores. The XRT retail ETF is down -7.1% year to date but it's off -12.4% from its 2015 highs. BBBY has underperformed its peers. This stock is down -30% year to date and down -33% from its 2015 highs. Tonight the bear market in BBBY looks ready to accelerate lower.

BBBY is in the services sector. According to the company, "Founded in 1971, Bed Bath & Beyond Inc. and subsidiaries (the 'Company') is a retailer selling a wide assortment of domestics merchandise and home furnishings which operates under the names Bed Bath & Beyond, Christmas Tree Shops, Christmas Tree Shops andThat! or andThat!, Harmon or Harmon Face Values, buybuy BABY and World Market, Cost Plus World Market or Cost Plus. Customers can purchase products from the Company either in-store, online or through a mobile device. The Company has the developing ability to have customer purchases picked up in-store or shipped direct to the customer from the Company's distribution facilities, stores or vendors. In addition, the Company operates Of a Kind, an e-commerce website that features specially commissioned, limited edition items from emerging fashion and home designers. The Company also operates Linen Holdings, a provider of a variety of textile products, amenities and other goods to institutional customers in the hospitality, cruise line, healthcare and other industries. Additionally, the Company is a partner in a joint venture which operates retail stores in Mexico under the name Bed Bath & Beyond."

The earnings outlook has been challenging for BBBY. In April 2015 they reported their Q4 results. Earnings were inline but revenues missed estimates and management guided lower for Q1. Jump to June and BBBY reported earnings that missed estimates (even after guiding lower). Revenues were only up +3% and management guided lower again.

The company reported their Q2 results on September 24th. Earnings were up +3.4% from a year ago to $1.21 a share. That was in-line with Wall Street's lowered expectations. Revenues only rose +1.7% and missed estimates. Comparable store sales fell from +2.2% in Q1 to +0.7% in Q2. Management offered another soft outlook for current quarter. BBBY tried to soften the bad news by announcing an additional $2.5 billion stock buyback to follow their current buyback program, which had dwindled to $305 million.

Technically it looked like BBBY had broken out past its multi-month bearish trend in early November. Shares had rallied above some key resistance trend lines and above resistance at the 50-dma and the $60.00 level. Unfortunately for bullish investors this proved to be a trap. A few days later BBBY broke down again. Shares plunged to new multi-year lows. The point & figure chart is now forecasting at $45.00 target.

Multiple analysts have suggested that consumer spending this holiday season will disappoint. It looks like BBBY traders are not sticking around to find out if Wall Street's sour outlook is correct or not. We think BBBY's bearish momentum continues. The stock currently has short-term support near $52.50. We are suggesting a trigger to launch bearish positions at $52.35.

Trigger @ $52.35

- Suggested Positions -

Short BBBY stock @ $52.35

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

Buy the JAN $50 PUT (BBBY160115P50) current ask $1.51
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

Stocks Fade Following Last Week's Surge

by James Brown

Click here to email James Brown

Editor's Note:
The market looked a little tired today after last week's broad-based rally. The major U.S. indices posted minor declines on Monday.

DENN hit our stop loss. LUV hit our entry trigger.


Current Portfolio:


BULLISH Play Updates

FMC Corp. - FMC - close: 41.90 change: -0.01

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

Comments:
11/23/15: FMC closed virtually unchanged on Monday. We are still waiting on a new relative high. We may reconsider a lower entry if FMC finds support near $40.00 or its 20-dma.

Trade Description: November 18, 2015:
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)

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


Southwest Airlines Co. - LUV - close: 47.47 change: +0.15

Stop Loss: 44.65
Target(s): To Be Determined
Current Gain/Loss: -0.4%
Entry on November 23 at $47.65
Listed on November 21, 2015
Time Frame: 6 to 9 weeks
Average Daily Volume = 7.3 million
New Positions: see below

Comments:
11/23/15: The rally in LUV continued on Monday and the stock hit new all-time highs. It also hit our suggested entry point at $47.65. I would consider new positions at current levels although more conservative traders might want to see a new high first (above $47.76).

Trade Description: November 21, 2015:
Airline stocks have struggled this year with the XAL airline index down more than -10% year to date. LUV is an exception. The stock is up +11.8% in 2015 and just closed at an all-time high.

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."

As I mentioned earlier 2015 has been a relatively challenging year for most 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 a lot of stock.

After the spring-summer slump shares of LUV appear to have bottomed. Both the industry and Wall Street are 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. A couple of weeks ago LUV reported that its October traffic rose +10.8% to 10.0 billion revenue passenger miles. This past week LUV announced their 157th consecutive quarterly dividend. The current dividend is $0.075 (7 1/2 cents) per share payable on January 7th to shareholders of record on December 10th.

I want to point out that shares of LUV have held up well considering the increase in terrorist events. ISIS claims they were behind the bomb that brought down a Russian jet liner in Egypt on October 31st. Then the attacks in Paris several days ago have renewed fears that we could see a new wave of terrorism. Most of LUV's business is domestic but they do travel to six other countries. If terrorists manage to bring down an American-owned and operated plane it could shock the industry and stocks like LUV would likely see a knee-jerk reaction lower. Obviously we do not expect this to happen but it is a risk.

A key factor to watch is oil prices. Weakness in crude oil is bullish for airlines since it means lower fuel costs. Oil has been flirting with a breakdown below $40.00 a barrel for days. Supplies and inventories are expected to rise over the next several weeks and months and that should push oil prices lower. This would be a bullish tailwind for airlines.

Currently LUV looks pretty solid. Shares spent a couple of weeks digesting its gains from October. Now the stock is in the process of breaking out past resistance in the $47.00-47.50 area. Friday's session is a new all-time closing high. The point & figure chart is bullish and forecasting at $67 target. Tonight we are suggesting a trigger to launch bullish positions at $47.65.

- Suggested Positions -

Long LUV stock @ $47.65

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

Long JAN $50 CALL (LUV160115C50) entry $0.97

11/23/15 triggered @ $47.65
Option Format: symbol-year-month-day-call-strike


Microsoft Inc. - MSFT - close: 54.19 change: +0.00

Stop Loss: 52.15
Target(s): To Be Determined
Current Gain/Loss: -0.8%
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:
11/23/15: MSFT garnered some bullish analyst comments and a higher price target today. Yet the news failed to do much for the stock as MSFT closed unchanged on the session.

No new positions at the moment.

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


Paychex, Inc. - PAYX - close: 54.31 change: -0.13

Stop Loss: 52.45
Target(s): To Be Determined
Current Gain/Loss: +2.2%
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:
11/23/15: PAYX dipped to $54.00 and bounced. Shares managed to pare their loss on the session to -0.2%. Shares do look a little short-term overbought here. No new positions at this time.

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


Total System Services, Inc. - TSS - close: 55.72 change: +0.63

Stop Loss: 52.75
Target(s): To Be Determined
Current Gain/Loss: +1.0%
Entry on November 21 at $55.15
Listed on November 19, 2015
Time Frame: 6 to 9 weeks
Average Daily Volume = 1.4 million
New Positions: see below

Comments:
11/23/15: TSS continues to show relative strength. The stock added +1.1% following Friday's bullish breakout to new highs. More conservative traders may want to raise their stop loss.

No new positions at this time.

Trade Description: November 19, 2015:
TSS must be doing something right. Earnings and revenues have grown every quarter for the last four quarters. The stock has shown significant relative strength with TSS up +60% year to date.

TSS is part of the financial sector. According to the company, "As one of the world's largest payment solutions and services companies, TSYS® believes payments should revolve around people, not the other way around. Since we got our start in the payments space more than 30 years ago, we have evolved from a supporting role servicing several hundred bank card issuers and bank acquirers to directly touching hundreds of thousands of merchants and millions of consumers.

TSYS is a global, publicly traded company with operations in more than 80 countries, including many of the world's most high-growth emerging markets. We provide electronic payment services to financial institutions and companies around the globe with a broad range of issuing and acquiring payment technologies, including consumer, credit, debit, healthcare, loyalty, prepaid, chip and mobile payments."

As I mentioned earlier the earnings picture has been very healthy. TSS has beaten Wall Street's earnings and revenue estimate the last four quarters in a row. Earlier in the year they announced a 20 million share stock buyback. Plus management has raised guidance the last two quarters in a row.

TSS' most recent earnings report was October 27th. Wall Street was expecting a profit of $0.59 a share on revenues of $668 million. TSS announced that earnings were up +40% from a year ago to $0.78 a share. Revenues were up +15% to $708 million. The company management said, "we are raising our guidance range for revenues before reimbursables to 12-13%, up from the previous range of 10-12%, and our adjusted earnings per share (EPS) guidance range to 24-26%, up from the previous range of 15-17%."

You can see how the stock surged the next day on its strong results and bullish outlook. Since then shares of TSS have been consolidating sideways but it looks like that consolidation is almost over. Shares have rallied back toward round-number resistance at $55.00. Currently the point & figure chart is bullish and forecasting at $65.00 target. Tonight we are suggesting a trigger to launch bullish positions at $55.15.

- Suggested Positions -

Long TSS stock @ $55.15

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

Long FEB $55 CALL (TSS160219C55) entry $2.60

11/20/15 triggered @ $55.15
Option Format: symbol-year-month-day-call-strike


Yelp Inc. - YELP - close: 29.86 change: -1.35

Stop Loss: 27.90
Target(s): To Be Determined
Current Gain/Loss: + 7.6%
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:
11/23/15: After huge gains on Friday it was not surprising to see some profit taking today. YELP gapped down at $30.58 and sank to $29.15 before paring its losses on the session (-4.3%).

No new positions at this time.

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

11/21/15 new stop @ 27.90
11/18/15 triggered @ $27.75
Option Format: symbol-year-month-day-call-strike




BEARISH Play Updates

Seagate Technology - STX - close: 34.70 change: +0.29

Stop Loss: 35.55
Target(s): To Be Determined
Current Gain/Loss: +3.2%
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:
11/23/15: Uh-oh! STX is not cooperating. Shares rallied midmorning and managed to trade above round-number resistance at $35.00. The rally failed near $35.20, which is the second time in three sessions that STX has failed at this level. Today's gain (+0.8%) did leave STX above technical resistance at its 10-dma.

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: 18.90 change: -0.53

Stop Loss: None, no stop at this time.
Target(s): $16.65
Current Gain/Loss: +13.4%
2nd position Gain/Loss: +34.9%
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:
11/23/15: A mid-afternoon decline in stocks fueled a bounce in the volatility index (VIX). The VXX did not participate as it fell -2.7% on the session.

Currently our exit target is $16.65. More conservative traders might want to consider an exit in the $18.00 region.

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 BEARISH PLAYS

Denny's Corp. - DENN - close: 9.71 change: +0.06

Stop Loss: 9.75
Target(s): To Be Determined
Current Gain/Loss: +1.5%
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:
11/23/15: DENN gapped down this morning but traders bought the dip again. The stock managed to trade to $9.77 intraday. Our stop loss was hit at $9.75.

- Suggested Positions -

Short DENN stock @ $9.90 exit $9.75 (+1.5%)

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

DEC $10 PUT (DENN151218P10) entry $0.55 exit $0.40 (-27.3%)

11/23/15 stopped out
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

chart: