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Newsletter

Daily Newsletter, Wednesday, 12/9/2015

Table of Contents

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

Market Wrap

Whippy Consolidation

by Keene Little

Click here to email Keene Little
The price action since the November 3rd high has hardly been helpful in figuring out which direction this market wants to go. The choppy whippy up and down price action is more indicative of a market that doesn't know which way to go while waiting for the Fed to announce its rate decision next week. That could mean another week of this chop.

Today's Market Stats

There were no significant economic reports this morning to move the market and tomorrow is not much different. So the market is more or less on its own as it watches for overseas events and continues to worry about what the Fed will do next week (the Fed is currently picking the pedals off the daisy flower, with each one accompanied by "we will raise, we won't raise" and as soon as they pick the last pedal they'll let us know their answer).

The whippy price action since the November 3rd high is forming what could end up being a sideways contracting triangle, which fits well as a bullish continuation pattern, presumably waiting for the Fed to bless the next rally. Even if the initial reaction next week to the Fed's announcement is negative, as it was to the ECB's announcement, a continuation of the sideways chop into next week would be bullish. We have some price levels to watch to the downside to know when it turns more bearish but for the moment the nod goes to the bulls and we'll have to see how and when they can break out of the current log jam.

Working against the stock market is the fact that we're getting a continuous stream of data that tells us the economy has been slowing down and will likely continue to slow. Corporate earnings have been declining, pushing P/E ratios higher and companies are starting to cut dividends, all of which begs the question "how can the markets rally to new highs from here when so many signs point to a slowing economy and worsening earnings?" The answer to that question is simple -- the market only cares about what the central banks can do to continue pumping money directly into the veins of the market. But as we saw with the negative reaction to the ECB's "less than whatever it takes" announcement, it's taking a bigger and bigger drug injection to get the same market high.

It will be interesting to see how the market reacts to the Fed's announcement. No rate increase would be good for international businesses (a rate increase would rally the dollar, which would hurt export business) and for borrowers in general. But it would tell us the Fed believes the economy is strong enough to accommodate a rate increase and that would be considered market positive. I personally believe the Fed is completely out of touch with reality and has economic models that are outdated and proven wrong, but it only matters what the market believes. If the Fed holds rates where they are it would be normally bullish for the stock market but that would mean the Fed believes the slowing economy can't handle a rate increase (especially if they become afraid a rate increase now could be the same error made in the 1930s, prompting a worsening of the depression we're heading for). Therefore holding still on rates could prompt selling. As I've said many times in the past, it will be nice when the Fed is shoved aside as inconsequential to the economy and markets and we can get back to trading more reliable technical and fundamental signals. Hey, I can dream it will happen.

Compounding the difficult in figuring out what the Fed will do is trying to decipher many of the government economic reports. To say the reports are massaged with all kinds of formulas, which change based on the whims of whoever's in charge, would be an understatement. Take the most recent NFP report, which showed relatively strong employment gains. David Stockman pointed out in a recent article that the BLS (Bureau of Labor Statistics) has so many adjustments to the numbers they collect that it's hard to know what the true number is. But even going with their numbers, while they've been showing job growth (I think I saw something like 2 million since 2009), the actual number of hours worked is virtually the same as it was in 2007, which is only marginally higher than the number of total hours worked in 2000 (these numbers come directly from their site).

The increase in total hours since 2000 is +0.08%, which is about as close to zero as you can get. It's a rounding error. In other words, the larger number of jobs that have been created are simply dividing up the same number of total hours worked. Companies have had an incentive to hire more temporary workers and provide fewer hours per employee. Part of the reason is more flexibility for the company and part is because they're trying to avoid the requirements of ObamaCare (which is failing miserably).

A quick summary of what's happening to our economy and corporate profits, and a strong reason to remain very cautious about the upside, is summarized below. As I'll get into with the charts, I'm actually looking for another rally leg but while I see upside potential I think it's very important to understand that there's a lot more downside risk than upside potential from here. Caveat emptor could not be more appropriate here. Hat tip to John Williams for the following list of negatives for the market:

1. Global GDP growth has gone negative for the first time since 2009.
2. Corporate earnings growth has turned negative and has fallen for two consecutive quarters (and is expected to fall again in Q4).
3. S&P 500 net profit margins are steeply declining. According to Tony Sagami, "since 1973, there has been only one 60 bps decline in S&P 500 net profit margin that didn't lead to a recession."
[The current decline is 100 basis points]
4. In October, U.S. imports of goods declined by 6.6 percent on a year-over-year basis.
5. In October, U.S. exports of goods declined by 10.4 percent on a year-over-year basis.
6. U.S. manufacturing is contracting at the fastest pace that we have seen since the last recession.
7. Corporate debt defaults have risen to the highest level that we have seen since the last recession.
8. Credit card numbers that were recently released show that holiday sales have gone negative for the first time since the last recession.
9. The velocity of money in the United States has dropped to the lowest level ever recorded.
10. Of the 93 largest stock market indexes in the entire world, 47 of them (slightly more than half) have already plunged at least 10 percent year to date.
Just like in 2008, other global financial markets are imploding ahead of a U.S. collapse.

Referencing item 3 above, the chart below shows the decline in earnings growth since Q3 2014. The decline in earnings has been 4 quarters in a row and will very likely finish even lower for Q4 2015.

S&P 500 Earnings Growth, Q2 2011 - Q3 2015

The stock market, that has continued to whistle past the graveyard despite this negative trend has ignored the fact that 12-month P/E ratio of the S&P 500 has now climbed to almost 23, which is warning flag that the coming years will very likely be another correction. This is especially troubling since increasing P/E valuations generally occur during a period of rising corporate earnings. In this case earnings have been in decline for over a year but P/E valuations have continued to rise, which is a very dangerous condition (for bulls). This is not a timing tool and as I mentioned above, I'm actually looking for a bit more rally from the market, but the higher this thing goes I think the harder and faster it will fall.

And with that let's get to the charts. The SPX weekly chart shows the pullback from trendline resistance that I have pointing out the past several weeks. The broken uptrend line from 2011-2014 and the top of a previously broken parallel up-channel for the rally from 2009 intersected near 2095 at the end of November and the rollover from the back-test of this area is bearish. A drop below price-level S/R at 2020 and the November 16th low near 2019 would be more bearish. But at the moment the larger price pattern supports the potential for at least a choppy rise higher into the end of the month and possibly into January.

S&P 500, SPX, Weekly chart

The choppy price action since the November 3rd high is bullish following the September-November rally. The bears need to prove they're in control, starting with a decline below 2020. The pullback from December 2nd has been a choppy pattern and one thought as I watch this is that we could get a sideways triangle as price trades in a contracting range through next week. That would then set us up for a Santa Claus rally. So stay cautiously bullish here but don't get caught in a flush to the downside.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2110
- bearish below 2020

The 60-min chart below shows how choppy the price action has been since the November 3rd high, which again is a reason to suspect we're inside a triangle formation (triangles tend to be filled with whippy choppy price action). A sideways triangle would be a common pattern for a 4th wave correction in the rally from August, especially since 4th waves tend to be very choppy. A sideways triangle often leads to the final move of the trend (up in this case) and that's another reason it would be a good setup for the bears once the next rally leg completes (assuming we'll get another rally leg). Notice where this afternoon's rally stopped (highlighted in yellow) -- at its broken uptrend line from November 16 - December 3. A back-test followed by a kiss goodbye with a decline Thursday morning would be potentially bearish if not reversed back up right away.

S&P 500, SPX, 60-min chart

The DOW looks the same as SPX, including the rejection at its broken uptrend line from October 2011 last week. The choppy rally/pullback since the November 16th low could lead to a choppy rise into the end of the month, or into January, as part of an ending diagonal to the upside (to complete the 5th wave in the move up from August). Or it could chop sideways into next week before starting the next rally leg. Not until the bears can break the DOW below its November 16th low at 17210 will the bulls be in trouble. It might be a difficult rally to trade on the long side (whippy sharp reversals might spike traders out of their positions) but so far I'm not seeing enough to suck me on the short side.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 17,980
- bearish below 17,210

NDX also has the same pattern as the blue chips and unless the bears break it down below the November 16th low at 4486 I'm looking for a continuation of the rally. Whether it chops its way higher from here or goes sideways for another week and then higher, I could argue for either. As we head into opex next week, which is typically bullish, it's another reason not to turn bearish here.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4740
- bearish below 4486

The RUT has been one of the indexes that is not the same as the blue chips and techs. It's been weaker and has been a reason not to trust the upside. But today's decline had it testing a trend line along the lows from October 14th, as well as a price projection at 1146 for two equal legs down from November 6th (for a possible a-b-c sideways correction). Looking at the intraday pattern I also see a 5-wave move down from December 2nd, which suggests we should be looking for at least a bounce correction before heading lower. A break below 1140 would be more bearish but for the moment, considering the potential for a rally up to the 1215 area by the end of the month (if the rest of the market rallies), I like the setup for a bounce/rally since a stop can be kept close by.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1166
- bearish below 1140

In addition to the weakness in the RUT, it's the TRAN that has been one of the bigger bearish caution flags on the field. Following the nice setup into the November 20th high, with the little throw-over finish to the ascending triangle pattern, it's been a strong decline that retraced the triangle in a hurry, which is the typical move and why I like trading triangles. But now it's looking like it could be setting up at least a bounce correction following what appears to be a 5-wave move down from November 20th. We could see it drop a little lower, maybe even down to its August low at 7452, before setting up a bounce but with today's long-legged doji at price-level S/R near 7650 all it takes now is a positive day on Thursday to give us a buy signal. The bounce pattern, assuming we'll get it, will then provide clues as to whether it will likely be just a bounce correction or instead something more bullish.

Transportation Index, TRAN, Daily chart

Where the U.S. dollar will head after next week's Fed announcement is the big question but for now it's looking like the dollar will head lower. Last week it reached a price target zone near 100.50, with a high at 100.60, and the strong reversal back down this week is a good indication the leg up from October 15th has completed. It's possible we'll see the dollar bounce back up to at least a minor new high (to give us a 5-wave move up from August 24th) but that new high would then likely be followed by another pullback to the current area before heading higher again. Until I see something like that occur over the next several weeks I'm sticking with my expectation for another drop down to the bottom of its trading range near 94 before starting back up again in a large (in time) sideways consolidation before starting another rally to new highs next year.

U.S. Dollar contract, DX, Weekly chart

Following gold's low on December 3rd and the strong spike up to the high the next day we've seen a sharp pullback and choppy price action following that. It leaves the short-term pattern questionable but at the moment I continue to lean long the shiny metal. I don't think it will be any more bullish than just a correction to the decline from October, with an upside target zone near 1142, as shown on its weekly chart below. A break of its downtrend line from 2012, which will be near price-level S/R at 1142 around mid-January, would be a lot more bullish, in which case I'd then start thinking about a stronger rally up to the 1230 area, if not 1285. That potential would become more obvious if we see a strong impulsive move up from here. As long as gold stays above its December 3rd low near 1045 it remains bullish. And if it drops below Monday's low at 1065 it could lead to a test of that 1045 low.

Gold continuous contract, GC, Weekly chart

Oil's decline from October 9th has formed a descending wedge, which fits as an ending diagonal c-wave in an a-b-c decline from last May's high. Oil could drop further to the trend line along the lows from last January, currently near 34.40, or between here and there is a price projection at 35.57, which is where the c-wave of the move down from May would be 62% of the a-wave. But at the moment the ending diagonal can be considered complete at any time and therefore playing the short side is now the riskier play. I depict a rally that will break the downtrend line from June, currently near 44.20, because I think a larger consolidation pattern off the January low calls for another run up to at least the $60 area (if not $70) before dropping lower next year (perhaps timed with the dollar's rally next year). A decline below 34 would turn oil very bearish.

Oil continuous contract, CL, Daily chart

Other than some unemployment data and export/import pricing there will not be much in the way of economic reports tomorrow. Friday we'll get some PPI numbers, retail sales business inventories and then Michigan Sentiment. Unless there are some big unexpected swings in the numbers we probably won't see much of a reaction from the market.

Economic reports

Conclusion

This morning's failed rally has things looking bearish and the choppy bounce off today's low could lead to another leg down in the morning, like we saw following Tuesday's bear flag, which led to a quick move down this morning. But keep in mind another new low could be followed by a quick reversal back up, especially since we're in the period when strong pullbacks in front of opex week have typically led to strong rallies as big buy programs ignite short covering. That is of course not guaranteed -- there are plenty of reasons to suspect we're on the verge of a market breakdown, but the larger pattern continues to support the idea that we are due one more rally leg, one which could take at least some of the indexes to new highs (doubtful for the RUT, TRAN and some others).

If the market breaks down from here it will be a little bit of a surprise. I can certainly see the potential for it to happen and it's a strong reason to be very defensive about being long the market. While I lean long here I remain fully aware of how vulnerable this market is and when it lets go to the downside we're likely going to see a strong decline as many leveraged investors are forced to cover their positions. The way I see it, this market is now more vulnerable to a downside disconnect than where we were in May 2008, just before it let go with a bang to the downside. Keep one foot holding the exit door open if you're long and be ready to bail first. If you're one of many looking to exit you might not like your exit price or how long it takes to get your trade executed. Getting out too soon and into cash, even right here right now, is a strong recommendation. And then play the long side with only a small portion of your capital. But keep that capital safe, maybe a little hedging on the short side and keep your ear to the tracks and listen for that southbound train coming.

And to help you hear that coming train, take advantage of the extra sets of eyeballs watching the market with you with a renewed subscription to OIN and the EOY special for you.

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

Keene H. Little, CMT

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


New Plays

Slumping Sales Shift Shares Lower

by James Brown

Click here to email James Brown


NEW BEARISH Plays

Harley-Davidson, Inc. - HOG - close: 46.14 change: -0.73

Stop Loss: 48.25
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on December -- at $---.--
Listed on December 09, 2015
Time Frame: Exit prior to earnings in January
Average Daily Volume = 3.15 million
New Positions: Yes, see below

Company Description

Trade Description:
HOG was a big winner during the market's rally off the 2009 bear-market low. Shares surged from about $8 in early 2009 to over $74.00 in 2014. Unfortunately that bullish momentum is long gone.

HOG is in the consumer goods sector. According to the company, "Harley-Davidson, Inc. is the parent company of Harley-Davidson Motor Company and Harley-Davidson Financial Services. Since 1903, Harley-Davidson Motor Company has fulfilled dreams of personal freedom with custom, cruiser and touring motorcycles, riding experiences and events and a complete line of Harley-Davidson motorcycle parts, accessories, general merchandise, riding gear and apparel. Harley-Davidson Financial Services provides wholesale and retail financing, insurance, extended service and other protection plans and credit card programs to Harley-Davidson dealers and riders in the U.S., Canada and other select international markets."

The company has seen sales slow down. Their most recent earnings report was October 20th. Q3 earnings growth was flat (+0%) from a year ago at $0.69 a share. That missed estimates by 8 cents. Revenues only rose +0.9% to $1.14 billion, which also missed estimates. The company said their dealer new motorcycle sales were down -1.4% worldwide from a year ago. Their U.S. sales fell -2.5%. Shipments came in below guidance.

Matt Levatich, President and Chief Executive Officer, said, "We expect a heightened competitive environment to continue for the foreseeable future." The company lowered their shipment guidance for 2015. They also lowered their margin guidance. The stock reacted with a big drop on the earnings miss and lowered guidance. Multiple analyst firms downgraded the stock in response to the news.

Technically HOG is in a bear market. Shares have a bearish trend of lower highs and lower lows. HOG spent most of November struggling with resistance at $50.00. The recent weakness has pushed shares to new two-year lows. The next drop could push HOG toward $40 or lower. Tonight we are suggesting a trigger to launch bearish positions at $45.75.

My biggest concern is some analyst deciding that HOG looks "cheap" on valuation. At this point HOG could be a value trap. Cheap stocks can always get cheaper.

Trigger @ $45.75

- Suggested Positions -

Short HOG stock @ $45.75

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

Buy the FEB $45 PUT (HOG160219P45) current ask $2.37
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 Suffer Another Widespread Decline

by James Brown

Click here to email James Brown

Editor's Note:
The U.S. market is struggling with its third decline in a row. Finance reporters noted there were multiple sell programs that hit the market midday that may have exacerbated the decline.


Current Portfolio:


BULLISH Play Updates

Autodesk, Inc. - ADSK - close: 63.25 change: -0.71

Stop Loss: 61.75
Target(s): To Be Determined
Current Gain/Loss: -3.1%
Entry on December 04 at $65.25
Listed on December 01, 2015
Time Frame: 6 to 8 weeks
Average Daily Volume = 3.5 million
New Positions: Yes, see below

Comments:
12/09/15: ADSK sank back toward yesterday's lows near its rising 20-dma. Shares settled with a -1.1% decline. If this dip continues ADSK should find additional support near the $62.00 level.

No new positions at this time.

Trade Description: December 1, 2015:
It has been a bumpy ride for ADSK investors this year. The company is in the middle of a transition from selling perpetual software licenses to selling subscriptions. It's a move that mirrors larger rival Adobe Systems's (ADBE) transition to a subscription model.

If you're not familiar with ADSK they are in the technology sector. According to the company, "Autodesk, Inc., is a leader in 3D design, engineering and entertainment software. Since its introduction of AutoCAD software in 1982, Autodesk continues to develop the broadest portfolio of 3D software for global markets. Customers across the manufacturing, architecture, building, construction, and media and entertainment industries-including the last 19 Academy Award winners for Best Visual Effects-use Autodesk software to design, visualize, and simulate their ideas before they're ever built or created. From blockbuster visual effects and buildings that create their own energy, to electric cars and the batteries that power them, the work of our 3D software customers is everywhere you look."

Year to date the stock is up +7.7%. Yet ADSK is up +53% from its October 2015 low. What's driving the rally? It's certainly not revenue growth. The company tends to beat Wall Street's bottom line earnings estimates but revenues have been soft. The company has lowered their guidance multiple times this year.

Their most recent earnings report was November 19th. ADSK reported Q3 results of $0.14 a share. That beat expectations. Revenues fell -2.9% to $600 million. Management lowered their Q4 guidance. Yet they raised their 2016 outlook for the first time in several months. The improved 2016 outlook certainly helped. There was a brief sell-off in the stock (Nov. 20th) but ADSK quickly recovered.

One of the main reasons ADSK has performed so well lately is the market's hope that two major activists investors will do something to unlock more value. Eminence Capital owns a 5.8% stake in ADSK. Sachem Head Capital recently disclosed at 5.7% stake. The two activist funds have teamed up together (a combined stake of 11.5%). Expectations that these activists will drive change in ADSK has fueled a significant rally.

Today shares of ADSK have rallied toward major resistance at the $65.00 level. A breakout here would reaffirm that the bullish trend is still intact. The point & figure chart is bullish and forecasting a long-term target at $103. We want to hop on board if ADSK can break through the $65.00 level. Tonight we are suggesting a trigger to launch positions at $65.25. The stock can be somewhat volatile so I am suggesting small positions to limit risk.

*small positions to limit risk* - Suggested Positions -

Long ADSK stock @ $65.25

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

Long JAN $67.5 CALL (ADSK160115C67.5) entry $1.54

12/04/15 triggered @ $65.25
Option Format: symbol-year-month-day-call-strike


Activision Blizzard, Inc. - ATVI - close: 38.59 change: -0.77

Stop Loss: 36.40
Target(s): To Be Determined
Current Gain/Loss: +1.2%
Entry on December 04 at $38.15
Listed on December 03, 2015
Time Frame: Exit prior to ATVI earnings in early February
Average Daily Volume = 10.0 million
New Positions: Yes, see below

Comments:
12/09/15: The market produced another widespread decline on Wednesday. ATVI was a target for profit taking after yesterday's surge to new highs. The stock dipped below $38 and its 10-dma before paring its losses. Shares underperformed with a -1.9% decline.

No new positions at this time.

Trade Description: December 3, 2015
The movie industry gets a lot of press but the video game market is much bigger. One of the biggest companies in this arena is ATVI and they're about to get a lot bigger.

ATVI is part of the technology sector. According to the company, "Activision Blizzard, Inc. is the largest and most profitable western interactive entertainment publishing company. It develops and publishes some of the most successful and beloved entertainment franchises in any medium, including Call of Duty, Call of Duty Online, Destiny, Skylanders, World of Warcraft, StarCraft®, Diablo®, and Hearthstone. Headquartered in Santa Monica, California, it maintains operations throughout the United States, Europe, and Asia. Activision Blizzard develops and publishes games on all leading interactive platforms and its games are available in most countries around the world."

Revenues for a video game company like ATVI tend to be lumpy based on new releases throughout the year. The company has managed to beat Wall Street's estimates on the bottom line the last four quarters in a row.

On November 2nd, 2015, ATVI announced they had signed a $5.9 billion deal to buy King Digital Entertainment (symbol: KING). This deal should give ATVI a huge boost in its mobile gaming footprint and could add a significant chunk to earnings in 2016. A Wedbush analyst believes the mobile gaming market is about $24 billion and growing at up to 20% a year for the next five years. They see the KING acquisition as a great fit for ATVI.

Several days later, on November 11th, ATVI announced that their new Call of Duty: Black Ops III game was the biggest entertainment launch of the year with a three-day opening weekend sales above $550 million. That surpassed any other entertainment launch of the year including books, music, or movies (surpassing the movie Jurassic World's massive opening weekend).

Recently a Cowen analyst said videogames are going to be another hot seller this year and they listed ATVI as their top pick in the industry. Multiple analysts have upgraded their stock price on ATVI following the KING acquisition news. Shares of ATVI have shown significant strength this year. The stock is trading at all-time highs and up +86% year to date. The point & figure chart is bullish and forecasting at $49.50 target.

Today's widespread market decline sparked some profit taking in ATVI. The stock found support at its rising 10-dma. If shares bounce from here we want to jump on board. Tonight we are suggesting a trigger to launch bullish positions at $38.15.

- Suggested Positions -

Long ATVI stock @ $38.15

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

Long FEB $40 CALL (ATVI160219C40) entry $1.47

12/04/15 triggered @ $38.15
Option Format: symbol-year-month-day-call-strike


Microsoft Inc. - MSFT - close: 54.98 change: -0.81

Stop Loss: 53.20
Target(s): To Be Determined
Current Gain/Loss: +0.7%
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:
12/09/15: Big cap tech stocks were no safe haven in Wednesday's decline. MSFT fell -1.45%. If this dip continues I'd look for support near the $54.00 level.

No new positions at this time.

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

12/01/15 new stop @ $53.20
11/04/15 triggered @ $54.60
Option Format: symbol-year-month-day-call-strike


Netgear Inc. - NTGR - close: 44.40 change: -0.74

Stop Loss: 43.25
Target(s): To Be Determined
Current Gain/Loss: -2.5%
Entry on December 04 at $45.55
Listed on December 02, 2015
Time Frame: 6 to 8 weeks
Average Daily Volume = 468 thousand
New Positions: see below

Comments:
12/09/15: NTGR is another technology that underperformed the broader market. Shares fell -1.6% and look headed for the $44.00 level.

No new positions at this time.

Trade Description: December 2, 2015:
Shares of NTGR have delivered an impressive reversal in the last couple of months. Analysts believe the company is poised to carve out its niche of the Internet of Things (IoT). Meanwhile new products have helped NTGR's retail business soar.

NTGR is in the technology sector. According to the company, "NETGEAR is a global networking company that delivers innovative products to consumers, businesses and service providers. The Company's products are built on a variety of proven technologies such as wireless, Ethernet and powerline, with a focus on reliability and ease-of-use. The product line consists of wired and wireless devices that enable networking, broadband access and network connectivity. These products are available in multiple configurations to address the needs of the end-users in each geographic region in which the Company's products are sold. NETGEAR products are sold in approximately 39,000 retail locations around the globe, and through approximately 31,000 value-added resellers. The company's headquarters are in San Jose, Calif., with additional offices in approximately 25 countries."

Shares of NTGR are up +57% from their 2015 lows near $28.50. Most of that was thanks to a +40% surge in the month of October. That was due to a strong Q3 earnings report.

Wall Street was expecting Q3 earnings of $0.51 a share on revenues of $322 million. NTGR beat estimates on both counts. Earnings were $0.67 a share. Revenues fell -3.2% but came in at $342 million. Their operating margin surged from 7.1% in Q2 to 10.3% in Q3.

Patrick Lo, Chairman and Chief Executive Officer of NETGEAR, commented, "Our financial results for the third quarter of 2015 exceeded expectations, driven by strength in North America and a robust back-to-school season. Our revenue in Q3 was further augmented by higher than normal demand from our service provider customers. The Retail Business Unit had an all-time record quarter in sales, powered by our fast-growing Arlo and Nighthawk product lines. The success of both product lines continued to drive up average selling prices for NETGEAR retail products, and led to a healthy 24.9% year-over-year increase in revenue for the Retail Business Unit for Q3. We were also pleased with the sequential growth shown by the Commercial Business Unit, which was led by our switching products. With many new products in the pipeline, we see the momentum of our switching products rolling into the coming quarters. Meanwhile, we continued to closely manage the Service Provider Business Unit with a focus on profitability."

Wall Street analysts have been raising estimates since NTGR's Q3 report. The big move in the stock has generated a huge buy signal on the point & figure chart, which is now forecasting a long-term target at $77. The last few weeks have seen NTGR consolidate sideways under the $45.00 area. This is significant since $45.00 (actually $45.31) was the all-time high from July 2011. A breakout past resistance at $45.00 is in progress. Today's intraday high was $45.38. Tonight we are suggesting a trigger to launch bullish positions at $45.55.

- Suggested Positions -

Long NTGR stock @ $45.55

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

Long JAN $45 CALL (NTGR160115C45) entry $1.80

12/04/15 triggered @ $45.55
Option Format: symbol-year-month-day-call-strike


Paychex, Inc. - PAYX - close: 52.99 change: -0.49

Stop Loss: 52.45
Target(s): To Be Determined
Current Gain/Loss: -0.3%
Entry on November 11 at $53.15
Listed on November 09, 2015
Time Frame: Exit PRIOR to earnings on December 22nd
Average Daily Volume = 2.3 million
New Positions: see below

Comments:
12/09/15: I am urging caution on our PAYX trade. Shares tried to rally but failed near short-term resistance near $53.80 for the second time in three days. More conservative investors may want to exit early tomorrow morning.

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


Qorvo, Inc. - QRVO - close: 56.15 change: -1.13

Stop Loss: 55.75
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on December -- at $---.--
Listed on December 05, 2015
Time Frame: Exit prior to earnings in late January
Average Daily Volume = 2.2 million
New Positions: Yes, see below

Comments:
12/09/15: The pullback in QRVO continued. Shares underperformed the major indices with a -1.97% decline. I'd keep an eye on the $54.00 level, which was support a couple of weeks ago. If shares dip to $54.00 and bounce then we may adjust our entry point strategy.

Trade Description: December 5, 2015:
2015 has been a bumpy ride for QRVO investors. Fortunately the stock appears to have found a bottom over the last few months. Right now semiconductors are in rally mode. We could see QRVO break through key resistance soon.

QRVO is in the technology sector. According to the company, "Qorvo is a leading provider of core technologies and RF solutions for mobile, infrastructure and aerospace/defense applications. Qorvo was formed following the merger of RFMD and TriQuint, and has more than 7,000 global employees dedicated to delivering solutions for everything that connects the world. Qorvo has the industry's broadest portfolio of products and core technologies; world-class ISO9001-, ISO 14001- and ISO/TS 16949-certified manufacturing facilities; and is a DoD-accredited 'Trusted Source' (Category 1A) for GaAs, GaN and BAW products and services."

The company has beaten Wall Street's estimates on both the top and bottom line the last three quarters in a row. Their most recent report was November 5th. QRVO announced their Q3 results with earnings of $1.22 a share. That was 11 cents above estimates. Revenues were up +11.6% to $707 million, above the $699 million estimate. The quarter was driven by a +19% jump in their mobile products segment.

QRVO's President and CEO Bob Bruggeworth commented on the quarter, "The Qorvo team delivered a solid September quarter, with quarterly revenue increasing 12% year-over-year, led by strong 19% year-over-year growth in Mobile Products. Design activity during the quarter was particularly robust, as we secured multiple opportunities to expand content in the marquee smartphones launching in calendar 2016 and 2017 and positioned IDP to accelerate growth across its target markets." Steve Buhaly, chief financial officer, said, "In the nine months since Qorvo's formation, revenue has grown 25% from the same period in the prior year while non-GAAP operating income has nearly doubled. We're proud of this performance and are excited about our opportunities in the coming year."

QRVO management raised their Q4 EPS guidance above analysts' estimates but their revenue guidance was below Wall Street expectations. They also announced a one-year $1 billion stock buyback program, which suggest that management believes their stock is too cheap. Shares soared to multi-week highs the next day (Nov. 6th).

Previously there was some concern about Apple's iPhone sales and their impact on QRVO since QRVO is a major component supplier to Apple. Wall Street has been worried that Apple's iPhone sales would slow down, which helped pressure QRVO's stock lower. The company's generally optimistic guidance for Q4 helped soothe these fears. Investors should be aware that QRVO's stock could be sensitive to any news regarding AAPL's iPhone sales.

Technically QRVO's stock is in a new bull market with a rally from its lows near $42. The point & figure chart is bullish and forecasting at $67 target. At the moment QRVO is hovering just below round-number resistance at $60.00. Tonight we are suggesting a trigger to launch bullish positions at $60.25. I will point out that prior support from early 2015 in the $63.00 area is potential resistance but we are expecting a rally toward the $70 area.

Trigger @ $60.25

- Suggested Positions -

Buy QRVO stock @ $60.25

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

Buy the FEB $65 CALL (QRVO160219C65)

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


Starbucks Corp. - SBUX - close: 61.18 change: -0.98

Stop Loss: 58.95
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on December -- at $---.--
Listed on December 08, 2015
Time Frame: Exit prior to earnings in January
Average Daily Volume = 8.8 million
New Positions: Yes, see below

Comments:
12/09/15: The rally attempt in SBUX this morning failed at $62.54. The stock followed the market lower and spent the second half of the session hovering in the $60.80-61.20 zone (churning sideways near its 50-dma).

Our suggested entry point is $61.65.

Trade Description: December 8, 2015:
Do you know someone giving or getting a Starbucks gift card for the holidays this year? Odds are you do (see below). The recent action in SBUX looks like another bullish entry point.

We have traded SBUX more than once this year. Here is an updated play description and entry point on the stock:

The world seems to have an insatiable appetite for coffee. Starbucks is more than happy to help fill that need. The first Starbucks opened in Seattle back in 1971. Today they are a global brand with locations in 66 countries. SBUX operates more than 21,000 retail stores with more than 300,000 workers.

A few years ago Business Insider published some facts on SBUX. The average SBUX customer stops by six times a month. The really loyal, top 20% of customers, come in 16 times a month. There are nearly 90,000 potential drink combinations at your local Starbucks. The company spends more money on healthcare for its employees than it does on coffee beans.

The company's earnings results were only mediocre most of 2014 year. You can see the results in SBUX's long-term chart below. After incredible gains in 2013 SBUX has essentially consolidated sideways in 2014. SBUX broke out of that sideways funk after it reported earnings in January 2015.

Five-Year Plan

In late 2014 SBUX announced their five-year plan to increase profitability. Here's an excerpt from a company press release:

"The seismic shift in consumer behavior underway presents tremendous opportunity for businesses the world over that are prepared and positioned to seize it," Schultz said (Howard Schultz is the Founder, Chairman, President, and CEO of Starbucks). "Over the next five years, Starbucks will continue to lean into this new era by innovating in transformational ways across coffee, tea and retail, elevating our customer and partner experiences, continuing to extend our leadership position in digital and mobile technologies, and unlocking new markets, channels and formats around the world. Investing in our coffee, our people and the communities we serve will remain at our core as we continue to redefine the role and responsibility of a public company in today's disruptive global consumer, economic and retail environments."

"Starbucks business, operations and growth trajectory around the world have never been stronger, and we are more confident than ever in our ability to continue to drive significant growth and meet our long term financial targets," said Troy Alstead, Starbucks chief operating officer. "We have more customers visiting more stores more frequently, both in the U.S. and around the world, than at any time in our history. And we expect both the number of customers visiting our stores and the amount they spend with us to accelerate in the years ahead. With a robust pipeline of mobile commerce innovations that will drive transactions and unprecedented speed of service, Starbucks is ushering in a new era of customer convenience. We believe the runway of opportunity for Starbucks inside and outside of our stores is both vast and unmatched by any other retailer on the planet."

The company believes they can grow revenues from $16 billion in FY2014 to almost $30 billion by FY2019. To do that they will expand deeper into regions like China, Japan, India, and Brazil. SBUX expects to nearly double its stores in China to over 3,000 locations in the next five years

They're also working hard on their mobile ordering technology to speed up the experience so customers don't have to wait in line so long at their busiest locations. This will also include a delivery service.

Part of the five-year plan is a new marketing campaign called Starbucks Evening experience. The company wants to be the "third place" between home and work. After 4:00 p.m. they will start offering alcohol, mainly wine and beer, in addition to new tapas-like smaller plates.

The company recently launched its first ever Starbucks Reserve Roastery and Tasting Room in Seattle, near their iconic first retail store. The new roastery is supposed to be the ultimate coffee lovers experience. CEO Schultz said they will eventually open up about 100 of these Starbucks Reserve locations.

Sales Growth:

SBUX is a big company and yet they continue to deliver strong earnings and revenue growth. Their Q2 2015 results, released in April, saw revenues up +17.8%. Q3 results, announced in July, saw revenues up +17.5%. Their Q4 results were announced on October 29th. Revenues grew +17.5% again. The company has been killing it with strong same-store sales. Q1's global same-store sales were +7%. Q2's same-store sales were also +7%. Q3's rose to +8%. What's impressive is SBUX is able to deliver this sort of sales growth in spite of the strong dollar and its negative foreign currency impact.

SBUX management provided guidance for Q1 2016 with earnings just below analysts' estimates. They still see double-digit revenue growth next year. The company plans to open about 1,800 new locations in fiscal 2016.

SBUX continues to build out their technology improvements. They see millions of orders a week on their mobile transactions platform. Currently they are testing a delivery service in Seattle.

It's also worth mentioning that the holiday season is normally a strong one for SBUX. Last year one in seven Americans received a Starbucks gift card.

We should also note that there is currently an E. Coli scare going around. Chipotle (CMG) is getting hammered on this story. Other companies like Costco and Starbucks have also had issues with E. Coli in a few products recently but thus far the impact has been very limited for SBUX.

Technically SBUX is in an up trend. It is also one of the best performing stocks in the S&P 500 this year with SBUX up +50% year to date. The point & figure chart is forecasting at $68.00 target. The stock peaked in late October and has spent the last few weeks consolidating sideways. The dips below $60 found support near prior resistance and now SBUX has built a potential bullish double bottom pattern. Tonight we are suggesting a trigger to launch bullish positions at $62.65.

Trigger @ $62.65

- Suggested Positions -

Buy SBUX stock @ $62.65

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

Buy the FEB $65 CALL (SBUX160219C65)

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


Total System Services, Inc. - TSS - close: 55.30 change: -0.84

Stop Loss: 54.85
Target(s): To Be Determined
Current Gain/Loss: +0.3%
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:
12/09/15: TSS dipped to technical support at its 20-dma and bounced. The intraday low was $54.90. If there is any follow through lower tomorrow we could get stopped out (at $54.85).

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

12/01/15 new stop @ 54.85
11/20/15 triggered @ $55.15
Option Format: symbol-year-month-day-call-strike


Yelp Inc. - YELP - close: 30.00 change: -0.92

Stop Loss: 28.85
Target(s): To Be Determined
Current Gain/Loss: + 8.1%
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:
12/09/15: YELP also dipped to its 20-dma and tried to bounce. Even after paring its losses on the session shares underperformed the market with a -2.9% decline.

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

12/05/15 new stop @ 28.85
11/21/15 new stop @ 27.90
11/18/15 triggered @ $27.75
Option Format: symbol-year-month-day-call-strike




BEARISH Play Updates

Columbia Sportswear - COLM - close: 45.49 change: -0.43

Stop Loss: 48.05
Target(s): To Be Determined
Current Gain/Loss: -1.7%
Entry on December 08 at $44.75
Listed on December 07, 2015
Time Frame: Exit prior to earnings in February
Option traders exit prior to January expiration
Average Daily Volume = 284 thousand
New Positions: see below

Comments:
12/09/15: COLM traded up to $46.63 before reversing lower. Shares ended the session with a -0.9% decline. I would like to see some follow through lower before considering new bearish positions. Yesterday's low was $44.64. Wait for a drop below $44.60.

Trade Description: December 7, 2015:
The pace of consumer spending has been disappointing this year. Overall retail sales have been slow. Plus the warmer weather has been a major set back for outerwear and winter clothing a lot of retailers are dealing with high levels of unsold inventory.

COLM is in the consumer goods sector. According to the company "Columbia Sportswear Company has assembled a portfolio of brands that connect active people with their passions, making it a leader in the global active lifestyle apparel, footwear, accessories and equipment industry. Founded in 1938 in Portland, Oregon, the company's brands are today sold in approximately 100 countries. In addition to the Columbia® brand, Columbia Sportswear Company also owns the Sorel®, Mountain Hardwear®, prAna®, Montrail® and OutDry® brands."

Bullish COLM investors have got to be frustrated. It's true that a lot of retailers have struggled. Yet COLM has had pretty good results this year. Their Q4 report from 2014, announced in February, was above estimates and management raised guidance. The stock soared on the bullish report and guidance.

Their Q1 results, on April 30th, beat estimates and guidance was in-line. Then on July 30th, COLM reported their Q2 results. Again earnings and revenues beat estimates by a wide margin. Management raised their guidance again. Shares of COLM exploded to new all-time highs and almost hit $75.00. That has proven to be the peak.

Since COLM's report in July the market has begun selling COLM's stock. The up trend reversed with COLM sinking under a bearish pattern of lower highs and lower lows. They reported their Q3 results on October 29th. They beat estimates again and raised their full-year guidance. The stock gapped higher nearly $10 the next day only to reverse lower.

Dick's Sporting Goods (DKS) really shook up the retail industry when they reported their earnings on November 17th. DKS missed Wall Street estimates on both the top and bottom line and DKS guided lower. The company blamed warm fall weather on their disappointing results. DKS also warned that Q4 would likely be very promotional, which would hurt margins. A few days later Bank of America Merrill Lynch downgraded COLM from "buy" to "neutral" over similar worries.

Technically COLM is in a bear market. The point & figure chart is forecasting at $36.00 target. COLM bounced off the $45.00 level in November. That bounce has failed. Now shares are about to breakdown under key support at $45.00. We are suggesting a trigger to launch bearish positions at $44.75.

- Suggested Positions -

Short COLM stock @ $44.75

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

Long JAN $45 PUT (COLM160115P45) entry $2.80

12/08/15 triggered @ $44.75
Option Format: symbol-year-month-day-call-strike


Leucadia National Corp. - LUK - close: 17.32 change: -0.32

Stop Loss: 18.75
Target(s): To Be Determined
Current Gain/Loss: +2.1%
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:
12/09/15: It was a decent day for LUK bears. The stock bounced this morning but the rebound failed near its 10-dma. Shares rolled over into a -1.8% decline. I would be tempted to launch new bearish positions on a drop below $17.25.

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: 19.99 change: +0.76

Stop Loss: None, no stop at this time.
Target(s): $16.65
Current Gain/Loss: + 8.4%
2nd position Gain/Loss: +31.1%
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:
12/09/15: Today's market decline marked the third loss in a row for the S&P 500. Investors appear to be turning more cautious as the volatility index (VIX) rose +11.4%. The VXX added +3.9%.

Currently our exit target is $16.65.

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