Option Investor
Newsletter

Daily Newsletter, Monday, 11/30/2015

Table of Contents

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

Market Wrap

Cyber Monday!

by Thomas Hughes

Click here to email Thomas Hughes
Trading was light as the market waits for the results to Cyber Monday, a host of monthly macroeconomic data and a policy decision from the ECB.

Introduction

Trading was light today as the market waits for the results of Cyber Monday. By all accounts it was a strong one but so far there is little hard data. While Cyber Monday is an important, attention may actually be more focused on events scheduled later in the week. It is once again the turn of a new month so there is a full calendar of economic releases including the NFP, several speeches from FOMC members and a policy meeting from the ECB.

Global markets began the week mixed. Asian indices closed mostly lower but losses were limited. The Nikkei led with a decline of -0.69% followed by -0.39% for the Heng Seng, the mainland Shanghai index made a gain near 0.25%. Mainland shares were boosted by the financial sector and possible acceptance of the yuan as a reserve currency which the IMF confirmed later in the day. Weighting for the yuan in the SDR basket is just over 10% compared to 41.7% for the the dollar and over 30% for the euro.

Trading in European markets was positive and light, led by the DAX gain of 0.8%, a new three month high. The gains were made on hopes the ECB will increase and expand its QE efforts at the meeting on Thursday, something the ECB and Mario Draghi have indicated likely to happen.

Market Statistics

The FOMC is not out of the picture this week. First, it announced today it would adopt new emergency lending rules. The rules include no lending to individual companies, penalty rates for emergency loans and no aid for insolvent companies. This means only broad based sector wide assistance and no aid to failing companies, essentially excluding companies like Bear Stearns and AIG from bail-out.

Futures were indicating a positive open all morning. The S&P 500 was indicated to open with gains near 6 points in the earliest trading but this moderated going into the opening bell and after the release of Chicago PMI. Needless to say, PMI was a miss. Trading got off to a positive start, the indices gained a few points right after the open but trading was choppy and the gains did not hold. By 10AM the indices were all in negative territory.

Losses were minimal for most of the day. Early morning through lunch time say the S&P range between 0.00% and -0.025%. By noon the indices were setting new lows, but only just below the morning range, and then held those lows until mid afternoon. Around 2PM a rally took the indices back up to touch break even levels but it did not last. Selling followed and took them back down to the low of the day and lower, where they stayed until the close of the regular session.

Economic Calendar

The Economy

Chicago PMI was released at 9:45AM and came in lighter than expected. Analysts had been expecting a decline but for manufacturing to remain at or slightly above the expansionary 50 level. The actual results were 48.7 and driven largely by a sharp decline in new orders. This is a decline of -7.5 points from last months reading of 56.2 and the 6th month this year of contraction in this index. Employment remains steady and slightly above 50.

Pending Home Sales came out at 10AM and was also weaker than expected at +0.2%. Analysts had been expecting 1.5%. Low inventory and rising prices are to blame. Despite the weak showing this month pending sales, a forward looking indicator, is 3.9% above last year at this time and has been trending higher for 14 months straight. NAR economist Lawrence Yun sees a combination of factors at play; on one side low inventory is driving up prices and hurting demand in some areas while ongoing health in labor is supporting the market overall. He expects sales growth to continue in 2016 but moderate to a pace near 3% unless new supply hits the market.

Moody's Survey Of Business Confidence fell a full point to 33.4 and a new long term low. Mr. Zandi reports that instability in global financial markets and the recent attacks in Paris have taken their toll on sentiment, particularly in the US. The caveat is that this week's reading is affected by a low response rate due to last week's holiday. Concern for current conditions weighs heaviest on the reading while outlook for next year is brighter.


According to FactSet 98% of the S&P has reported earnings for the 3rd quarter with the remaining 2% scattered over the next couple of weeks. Of those reporting 74% have beaten earnings expectations while only 45% have beaten on the revenue side. The blended rate for 3rd quarter earnings growth is now -1.3% with positive growth not expected until the 1st quarter of next year. The energy sector led the decline with growth of -56.8%; ex-energy S&P 500 earnings growth jumps to 5.7%.

Fourth quarter expectations have declined again. All index growth is now estimated at -4.2%, down -0.2% from last week and down more than 6% from earlier in the year. Factoring in the 4% improvement in the blended growth rate that we can expect due to long running averages brings growth up to only -0.2%. Ex-energy 4th quarter growth expectations move up to 1.5%.

Growth is expected to return in the first quarter of 2016 and gain strength throughout the year. First quarter is expected to come in at 2.1% and average 7.8% for the year. Full year expectations have come down further, primarily due to declining expectations in the energy sector. Earnings growth in the energy sector is now barely above 0%, down substantially from earlier projections in excess of +45%.

There is a lot of data to come out this week. Tomorrow is Auto/Truck Sales, ISM Manufacturing. Wednesday is ADP Employmnent in the morning with the Fed Beige Book later that afternoon. Thursday is weekly jobless claims along with the Challenger report on planned lay-offs, Factory Orders and ISM Services. Friday wraps up the week with NFP, Unemployment and hourly earnings. The data will heavily influence the upcoming FOMC decision, the stronger the data the more likely the FOMC is to raise rates. The NFP is expected to come in around 200K, down from last months 271K and consistent with the recovery. Last month's number was freakishly strong so there could be significant revisions to color the headline number as well.

The Oil Index

Oil prices tried to rally today but were not able to hold gains. The OPEC meeting has raised some hope that the cartel will make moves to support prices but there is little sign that will happen. If anything, the members all seem bent on pumping as much as possible even with the Saudi's pledging a willingness to support prices. The meeting could result in changes to policy but until production and supply levels are more in line with demand prices are likely to stay low. WTI gained as much as 3.5% intraday but fell back to break even levels by settlement time.

The Oil Index gained 0.75% in today's session. The index created a small bodied candle sitting on the short term moving average and continues recent the recent sideways trend. The index appears to be hanging between support and resistance at 1,150 and 1,250 with no real indication of direction. The indicators are mixed but largely consistent with a range bound index, underlying direction will be driven by oil prices; oil prices drive earnings in the sector and earnings expectations are poor. If oil falls further, or simply trends near the recent lows, expectations for next years growth could easily turn negative.


The Gold Index

Gold prices rebound from the 6 year low set last week. Gold gained as much as $10, about 0.85%, intraday but closed below $1075. The metal is getting hurt by rising dollar values and is likely to move lower should the ECB act as expected, weakening the euro and strengthening the dollar. There is economic data to consider as well. This week's data is likely to influence FOMC outlook and could help cement rate hike expectations.

The gold miners got a lift from gold prices but remain near recent lows. The Gold Miners ETF GDX gained just over 2% in a move that keeps the ETF near its long term low. The ETF has been trending sideways for nearly a month, while gold prices are hitting 6 year lows, and could be getting ready for another test of support at the $13 level. The indicators have rolled into a bullish crossover but momentum is weak and more consistent with consolidation within a down trend than a reversal or bounce. I remain bearish on gold and the GDX.


In The News, Story Stocks and Earnings

The Dollar Index rose today on ECB and FOMC expectations. The ECB is expected to loosen policy, the FOMC expected to tighten, moves that are both supporting dollar value. Today's move takes the index to a new 8 month high and just shy of the all time high set last March. The indicators are mixed, the index could have reached the top of the range, but there is some underlying strength in the move so a break out is not out of the question.


Target made Cyber Monday headlines, for having its website crash. The website received so much traffic it caused delays for many users and even shut down for about 20 minutes. This is not the first website crash of the season or even the only one today. Nieman Marcus crashed on Black Friday and PayPal had troubles today too, both signs of increase on line traffic and possible trouble for brick and mortar locations. Despite the problems many retailers are reporting that sales have been good the entire weekend and upped the chances for a strong consumer holiday season.

The XRT Retails SPDR lost -2.17% in today's session and fell back below the short term moving average. The indicators are bullish, consistent with the ETF's bounce from support, but weakening in the near term and consistent with a retest of support. First downside target is near $44 with a pull back to long term support near $42 likely if Black Friday/Cyber Monday numbers do not match expectations. The sector has been in rotation the last few months and could continue as investors size up which stores, and which types of retailers, are going to profit in 2016.


FitBit received an upgrade today in the wake of positive sales reports from Target and Best Buy. Both retailers report strong sales of FitBit and other wearable technology. Target says FitBit is one of their most popular items, BestBuy that sales of wearables are double their levels of last year. Mathew McClintock of Barclays upgraded the stock to outperform saying the recent slide was unjustified and that holiday sales would be a meaningful catalyst. Shares of the stock gained more than 5% in the pre-market session and closed the day with a gain of 3.5%.


Shoe Carnival reported before the bell. The discount shoe retailer reported comp store sales of 6% but earnings and revenue slightly below estimates. This wouldn't have been a problem I think except that they also lowered guidance to a range of $1.38 to $1.43, below the previous range and consensus estimate of $1.47. Comp sales are also expected to come in light next year at 3%. Shares of the stock opened higher, touched the short term moving average, and then sold off hard to close with a loss near -3%.


The Indices

The indices fell in today's action but most were able to close the month with gains. While most losses were minimal the Dow Jones Transportation Average posted a more substantial decline, -1.39%. The index has continued its fall from resistance which it began last week and has today crossed beneath the short term moving average. The indicators are pointing lower in the very near term but remain very weak and consistent with sideways range bound trading in the short. The index could continue to fall with downside target near 8,000 and then 7,750 if the first target does not hold.


The S&P 500 made the next largest decline but less than half that posted by the transports, only -0.46%. The broad market created a black bodied candle, but a relatively small one, that fell back toward potential support near 2,080. This support level looks good for now but may be tested in the near term. The indicators remain mixed but consistent with a trend following bounce; stochastic is pointing higher but momentum has yet to confirm. Upside target is the current all time high, first target for support is just below today's closing level near 2,080 and then below that along the short term moving average.


The Dow Jones Industrial Average made the third largest decline in today's session, -0.44%. The blue chips also created a small black bodied candle in a move that may be seeking support. First target for support is near 17,600 and the short term moving average from which the index has recently bounced. The near and long term trends remain bullish, short term trends are range-bound/sideways, so it looks likely the index will bounce from the moving average again with upside targets near 18,000 and 18,250.


The NASDAQ Composite made the smallest decline in today's session, only -0.37%. The tech heavy index created a very small black candle that while not bullish, does not look over bearish either. The indicators are mixed, like with the other indices, but largely consistent with the trend following rally we have seen over the last couple of months. Today's action looks more like a pause in a rally, possibly precursor to a small pull back, but not the start of a major sell-off or correction. First target for support is near 5,050 and the short term moving average.


Over the past three months the market has corrected, bottomed, bounced and rallied. The indices, except for the transports, are trading near their all time highs and above long term trend lines. A test of the highs seems likely but is by no means guaranteed; outlook is positive for next year, no reason to sell off, but nearer term events have the market wary and could cause further consolidation and/or a drop to firmer support levels. Despite the concerns, assuming that no other hurdles appear, outlook for next year is still good. Economic recovery is expected to continue and earnings growth is expected to return. With this in mind I remain a bull and a buyer of dips. In the meantime I am keeping a close eye on my positions and eagerly awaiting this weeks events. My top picks for possible market movers include the Fed's Beige Book, the ECB meeting and the NFP release on Friday. . . and the OPEC meeting, which could have serious impact on oil prices.

If the stars are in proper alignment a vote of confidence from the FOMC, a dose of QE from the ECB and a healthy jobs number could be the spark that starts this years Santa Rally.

Until then, remember the trend!

Thomas Hughes

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New Plays

Potential Short Squeeze Candidate

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: NVDA, ATVI, ROCK, FSLR

Bearish ideas: WFM, MOH, JWN, FTD, URBN




NEW BULLISH Plays

U.S. Silica Holdings - SLCA - close: 21.27 change: +1.04

Stop Loss: 19.20
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on December -- at $---.--
Listed on November 30, 2015
Time Frame: 8 to 12 weeks
(option traders exit prior to January expiration)
Average Daily Volume = 2.2 million
New Positions: Yes, see below

Company Description

Trade Description:
The crash in oil prices to six year lows has crushed the oil and gas industry. It has been especially hard on some of the oil service stocks. SLCA is in that group but the company and the stock is showing signs of a bottom.

SLCA is in the basic materials sector. According to the company, "U.S. Silica Holdings, Inc., a member of the Russell 2000, is a leading producer of commercial silica used in the oil and gas industry, and in a wide range of industrial applications. Over its 115-year history, U.S. Silica has developed core competencies in mining, processing, logistics and materials science that enable it to produce and cost-effectively deliver over 260 products to customers across our end markets. The Company currently operates nine industrial sand production plants and eight oil and gas sand production plants. The Company is headquartered in Frederick, Maryland and also has offices located in Chicago, Illinois, Houston, Texas and Shanghai, China."

What's great about SLCA versus many of its peers is SLCA's diversity. They do sell a lot of fracking sand to the oil and gas industry but they also sell to a wide range of industries. The company also has one of the strongest balance sheets among its peers.

Year over year results have been rough. SLCA last reported earnings on October 27th. Q3 results were a loss of ($0.03) a share. That was a penny worse than expected. Revenues were down -35% to $155.4 million, which was just below the $155.7 million estimate.

It looks like an ugly earnings report and yet shares of SLCA soared more than 20% the next day. The company said their overall tons of sand sold was down -12% from a year ago but up +16% from the second quarter. Furthermore SLCA management said they were selling more sand to the oil and gas business and essentially stealing market share from competitors.

The outlook for crude oil is still muddy but it looks like shares of SLCA have found a bottom. The last few weeks have developed a trend of higher lows. The point & figure chart is still bearish but a rally above $22.00 would generate a new triple-top breakout buy signal. Plus a breakout past resistance could see some serious short covering. The most recent data listed short interest at 37% of the 49.4 million share float.

SLCA is going to present at the Cowen & Co. Energy Conference on December 1st and again at the Wells Fargo Energy Symposium on December 9th. If investors like what they hear these events could be a catalyst to spark the next leg higher.

Currently shares of SLCA appear to have short-term resistance in the $21.40 area. Tonight we are suggesting a trigger to launch bullish positions at $21.55.

Trigger @ $21.55

- Suggested Positions -

Buy SLCA stock @ $21.55

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

Buy the JAN $22.50 CALL (SLCA160115C22.5) current ask $1.65
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

Major Indices Retreat On Monday

by James Brown

Click here to email James Brown

Editor's Note:
The major U.S. indices all retreated lower on Monday. Overall the pullback was muted but the drop in the S&P 500 almost erased its November gain.

LUV and STX both hit our stop losses today.

LUK hit our entry trigger.


Current Portfolio:


BULLISH Play Updates

Eaton Corp. - ETN - close: 58.16 change: +0.06

Stop Loss: 54.75
Target(s): To Be Determined
Current Gain/Loss: +0.2%
Entry on November 25 at $58.05
Listed on November 24, 2015
Time Frame: Exit prior to earnings in February
(option traders exit prior to January expiration)
Average Daily Volume = 3.8 million
New Positions: see below

Comments:
11/30/15: The major market indices posted losses today but ETN managed to close virtually unchanged on the session. If the S&P 500 index opens positive tomorrow, then I would launch new positions in ETN at current levels.

Trade Description: November 24, 2015:
It has been a challenging year for ETN. Yet the action in the stock over the last few months is starting to look like a significant bottom.

ETN is in the industrial goods sector. According to the company, "Eaton is a power management company with 2014 sales of $22.6 billion. Eaton provides energy-efficient solutions that help our customers effectively manage electrical, hydraulic and mechanical power more efficiently, safely and sustainably. Eaton has approximately 99,000 employees and sells products to customers in more than 175 countries."

The company has lowered its guidance multiple times this year. ETN is dealing with weaker demand overseas. The strong U.S. dollar makes this worse. The company is forecasting at -5% hit to revenues due to negative currency headwinds.

ETN's most recent earnings report was October 30th. They missed the bottom line estimate by a penny. Revenues fell -9% to $5.2 billion, also below estimates. The company's CEO commented on their outlook, "As we begin to plan for 2016, it is apparent that markets are likely to remain soft. To deal with such weak markets, we will be expanding our 2016 restructuring program. We had been planning on this second restructuring program, in addition to the $145 million program we announced in the second quarter of 2015, to be on the order of $50 million to $60 million, but in light of current market weakness we are expanding the program to between $90 million and $100 million."

These restructuring efforts are expected to generate almost $330 million in cost savings over the 2015-2016 time frame. The stock rallied on this earnings report and news about its restructuring plans. After plunging from the mid $70s in May to the $50 level this past fall shares seem to have found a bottom.

The market is always looking forward. It appears investors believe the worst may already be behind ETN. That could explain why investors have begun buying the dips. Shares now have a bullish pattern of higher lows and higher highs. The point & figure chart has turned positive and is forecasting at $69.00 target. ETN does have short-term resistance in the $57.80 area. We want to buy a breakout. Use a trigger to launch bullish positions at $58.05.

- Suggested Positions -

Long ETN stock @ $58.05

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

Long JAN $60 CALL (ETN160115C60) entry $0.90

11/25/15 triggered @ $58.05
Option Format: symbol-year-month-day-call-strike


FMC Corp. - FMC - close: 42.97 change: +0.78

Stop Loss: 39.85
Target(s): To Be Determined
Current Gain/Loss: -0.2%
Entry on November 25 at $43.05
Listed on November 18, 2015
Time Frame: 6 to 8 weeks
Average Daily Volume = 1.6 million
New Positions: see below

Comments:
11/30/15: FMC displayed relative strength today with a +1.8% gain. Shares started the day in rally mode and tested its November highs before stalling. A rally above $43.40 could be used as an alternative bullish entry point.

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).

- Suggested Positions -

Long FMC stock @ $43.05

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

Long JAN $45 CALL (FMC160115C45) entry $1.20

11/25/15 triggered @ $43.05
11/24/15 adjust entry trigger from $43.55 to $43.05
Option Format: symbol-year-month-day-call-strike


Microsoft Inc. - MSFT - close: 54.35 change: +0.42

Stop Loss: 52.15
Target(s): To Be Determined
Current Gain/Loss: -0.5%
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:
11/30/15: MSFT displayed some strength today thanks to bullish analyst comments. This morning a Raymond James analyst upgraded MSFT to a "strong buy" and gave it a $62 price target. The analyst is bullish on MSFT's cloud-computing business. Another analyst, with FBR & Co., was also optimistic on MSFT's cloud-computing business. They are bullish on MSFT stock ahead of MSFT's annual shareholder meeting this week on December 2nd.

MSFT rallied toward short-term resistance at $55.00 today. I would use a breakout past $55.00 as a new 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


Paychex, Inc. - PAYX - close: 54.25 change: +0.19

Stop Loss: 52.45
Target(s): To Be Determined
Current Gain/Loss: +2.1%
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:
11/30/15: Monday delivered another quiet session for shares of PAYX. The stock has been consolidating sideways in the $54.00-54.50 zone.

More conservative traders may want to raise their stop loss closer to the 20-dma near $53.25. 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: 55.96 change: +0.03

Stop Loss: 52.75
Target(s): To Be Determined
Current Gain/Loss: +1.5%
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:
11/30/15: TSS managed to ignore the market's weakness on Monday. Shares were content to just hover near their highs around the $56.00 level.

No new positions at this time. More conservative traders might want to move their stop loss closer to the simple 20-dma, currently near $53.80.

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: 30.13 change: -0.05

Stop Loss: 27.90
Target(s): To Be Determined
Current Gain/Loss: + 8.6%
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:
11/30/15: YELP also spent today's session drifting sideways. The stock traded inside a $1.00 range.

No new positions at this time. Investors may want to raise their stop loss closer to the $29.00 level.

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

Bed Bath & Beyond Inc. - BBBY - close: 54.52 change: -0.91

Stop Loss: 56.15
Target(s): To Be Determined
Current Gain/Loss: -4.1%
Entry on November 24 at $52.35
Listed on November 23, 2015
Time Frame: Exit PRIOR to earnings in January
Average Daily Volume = 2.2 million
New Positions: see below

Comments:
11/30/15: Black Friday was the official start to the holiday shopping season. The overall impression from the long weekend was weak consumer traffic and spending in brick and mortar stores while online sales rose. Shares of BBBY fell -1.6%.

No new positions at this time.

Trade Description: November 23, 2015:
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.

- Suggested Positions -

Short BBBY stock @ $52.35

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

Long JAN $50 PUT (BBBY160115P50) entry $1.68

11/24/15 triggered @ $52.35
Option Format: symbol-year-month-day-call-strike


Leucadia National Corp. - LUK - close: 17.68 change: -0.20

Stop Loss: 18.75
Target(s): To Be Determined
Current Gain/Loss: +0.1%
Entry on November 30 at $17.70
Listed on November 28, 2015
Time Frame: 6 to 9 weeks
Average Daily Volume = 2.1 million
New Positions: see below

Comments:
11/30/15: Our new bearish play on LUK is open. The sell-off continued and LUK fell -1.1% to close at new multi-year lows. Our trigger to launch bearish positions was hit at $17.70. I would consider new positions at current levels.

Trade Description: November 28, 2015:
Investors appear to have soured on shares of LUK. The stock is down -20% year to date but it's off -29% from its July 2015 highs. LUK just ended the week at new five-year lows.

LUK is considered part of the financial sector. One of their biggest businesses is their Jefferies Group investment brokerage. Jefferies is only one in a long list of companies that LUK owns. You could argue LUK is more of a holding company or a conglomerate and a very diverse one at that.

Here's a list of some of LUK's businesses:
Berkadia, a full-service mortgage bank
FXCM, an online foreign exchange trading platform (NYSE:FXCM)
HomeFed, a real estate developer (65% owned by LUK)
Foursight Capital, an Auto loan originator and servicer
Leucadia Asset Management, a diversified alternative asset management platform
Folger Hill, a multi-manager discretionary long/short equity hedge fund platform
Topwater Capital, a highly-scalable multi-manager and multi-strategy liquid securities fund
Jefferies, a leading, client-focused global investment banking firm
Jefferies LoanCore, a joint venture between Jefferies and GIC Private Ltd (f.k.a. Government of Singapore Investment Corporation), is a finance company focused on originating and securitizing commercial mortgage loans
National Beef, a beef processing company that processes ~3 million fed cattle per year representing ~12.5% market share
HRG Group, a diversifed holiday company (NYSE: HRG) that operates in four business segments: consumer products - Spectrum Brands (NYSE: SPB, ~58% ownership); insurance - Fidelity & Guaranty Life (NYSE: FGL, ~81% ownership (1)); FrontStreet Re (100% ownership); Energy - Compass Production (~100% ownership); Asset Management (de minimis net book value).
Garcadia, 26 auto dealerships
Vitesse Energy
Juneau Energy
Linkem, a fixed wireless broadband internet provider in Italy
Conwed, a leading manufacturer of extruded, oriented and knitted plastic netting
Idaho Timber
Golden Queen (gold and silver mine)
(more details about LUK company .pdf
The earnings picture for LUK has taken a drastic turn for the worse. Their Q1 report, announced March 17th, showed earnings of $11.7 million versus $112 million a year ago. Q1 revenues were down -34%. LUK delivered similar results with their Q2 earnings, announced August 5th. Earnings per share were $0.11 compared to $1.12 a year ago. Revenues were flat at $2.84 billion. Their most recent earnings report was November 5th, 2015. LUK reported their Q3 results, which was a loss of ($0.47) a share versus a profit of $0.14 a year ago. Revenues plunged -21% to $2.36 billion. You can see why investors might be selling the stock.

Management has been trying to take advantage of their low stock price with an aggressive stock buyback program but it's not making much difference. Technically shares of LUK are in a bear market and showing significant relative weakness.

The point & figure chart is very bearish and forecasting an $11.00 target. The last few days LUK has been trying to hold short-term support near $18.00 but that appears to have failed. Tonight we are suggesting a trigger to launch bearish positions at $17.70.

- Suggested Positions -

Short LUK stock @ $17.70

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

Long MAR $18 PUT (LUK160318P18) entry $1.20

11/30/15 triggered @ $17.70
Option Format: symbol-year-month-day-call-strike


iPath S&P500 VIX Futures ETN - VXX - close: 18.80 change: -0.11

Stop Loss: None, no stop at this time.
Target(s): $16.65
Current Gain/Loss: +13.8%
2nd position Gain/Loss: +35.2%
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:
11/30/15: It is a little surprising to see the VXX post a loss today. Normally market declines tend to produce gains in the volatility-related indices and ETNs.

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 BULLISH PLAYS

Southwest Airlines Co. - LUV - close: 45.88 change: +0.06

Stop Loss: 45.45
Target(s): To Be Determined
Current Gain/Loss: -4.6%
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:
11/30/15: Most airline stocks had a rough day with the XAL index falling -1.59%. LUV managed to outperform its peers and close virtually unchanged on the session. Unfortunately we had turned defensive on this stock over the weekend and upped our stop loss to $45.45. Today LUV dipped to $45.40 before bouncing back. Our LUV trade is closed. However, I would keep it on your radar screen.

- Suggested Positions -

Long LUV stock @ $47.65 exit $45.45 (-4.6%)

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

JAN $50 CALL (LUV160115C50) entry $0.97 exit $0.32 (-67.0%)

11/30/15 stopped out
11/28/15 new stop @ 45.45
11/24/15 U.S. State Department issues travel alert
11/23/15 triggered @ $47.65
Option Format: symbol-year-month-day-call-strike

chart:



CLOSED BEARISH PLAYS

Seagate Technology - STX - close: 35.94 change: +1.32

Stop Loss: 35.55
Target(s): To Be Determined
Current Gain/Loss: +0.8%
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:
11/30/15: Barron's published a bullish article on STX over the weekend. This sparked a rally in the stock this morning. Shares gapped higher at $35.46 and climbed toward technical resistance at its 20-dma before closing with a +3.8% gain. Our stop loss was hit at $35.55.

- Suggested Positions -

Short STX stock @ $35.85 exit $35.55 (+0.8%)

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

JAN $35 PUT (STX160115P35) entry $1.93 exit $1.65 (-14.5%)

11/30/15 stopped out
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

chart: