NEW DIRECTIONAL CALL PLAYS

Apple Inc. - AAPL - close: 113.99 change: +1.98

Stop Loss: 109.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 56 million
Entry on December -- at $---.--
Listed on December 27, 2014
Time Frame: 4 to 6 weeks, exit ahead of Q4 earnings
New Positions: Yes, see below

Company Description

Why We Like It:
There are a lot of Apple fan boys and girls out there, especially on Wall Street. The stock has been a big performer this year with a +42.2% gain in 2014. This has pushed AAPL to new highs and the stock is now the biggest of the big cap names with a valuation of almost $670 billion.

The company is involved in multiple industries from hardware, software, and media but it's best known for its consumer electronics. The iPod helped perpetuate the digital music revolution. The iPhone, according to AAPL, is the best smartphone in the world. The iPad helped bring the tablet PC to the mass market. The company makes waves in every industry they touch with a very distinctive brand (iOS, iWork, iLife, iMessage, iCloud, iTunes, etc.) and they've done an amazing job at building an Apple-branded ecosystem. Now they're getting into the electronic payments business with Apple Pay.

The company's latest earnings report was super strong. AAPL reported its Q4 (calendar Q3) results on October 20th. Wall Street was expecting a profit of $1.31 a share on revenues of $39.84 billion. The company delivered a profit f $1.42 a share with revenues up +12.4% to $42.12 billion. The EPS number was a +20% improvement from a year ago. Gross margins were up +1% from a year ago to 38%. International sales were 60% of the company's revenues.

AAPL's iPhone sales exceeded estimates at 39.27 million in the quarter and up nearly 16% from a year ago. The only soft spot in their ecosystem seems to be iPad sales, which have declined several quarters in a row. The company hopes to rejuvenate its tablet sales with a refresh of the iPad models. More importantly AAPL management raised their Q1 (calendar Q4) guidance as they expect revenues in the $63.5-66.5 billion in the quarter. Recent news would suggest that AAPL might deliver an incredible 50 million iPhone 6s in 2014. That's not counting their new iPhone 6+.

It looks like bearish investors are giving up on AAPL seeing a correction. There was a new report out Christmas week saying short positions in AAPL had collapsed 31% to 53.7 million shares. AAPL currently has a float of 5.86 billion shares.

Right now all the focus is on AAPL's iPhone sales. They're expected to be huge. If they miss estimates the stock could see a significant sell-off. That's why we do not want to hold over the earnings report expected in late January.

The three-week pullback from the late November (Black Friday) highs has provided a new entry point for bullish investors. AAPL did see its rebound pause for a few days but traders bought the dip on Friday and AAPL displayed relative strength with a +1.7% gain and a breakout above its 20-dma and 30-dma.

Tonight we are suggesting a trigger to buy calls if AAPL trades at $115.25. We are not setting an exit target tonight but I will point out that the point & figure chart is forecasting a long-term target of $165.00. I anticipate an exit for us in the $120-125 area given our time frame.

Trigger @ 115.25

- Suggested Positions -

Buy the FEB $120 CALL (AAPL150220C120) current ask $2.70

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

Daily Chart:




NEW DIRECTIONAL PUT PLAYS

Dover Corp. - DOV - close: 73.83 change: -0.37

Stop Loss: 75.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.7 million
Entry on December -- at $---.--
Listed on December 27, 2014
Time Frame: 4 to 8 weeks, exit ahead of Q1 earnings
New Positions: Yes, see below

Company Description

Why We Like It:
DOV is part of the industrial goods sector. They make an array of equipment and parts for multiple industries. According to the company, "Dover is a diversified global manufacturer with annual revenues of $8 billion. We deliver innovative equipment and components, specialty systems and support services through four major operating segments: Energy, Engineered Systems, Fluids, and Refrigeration & Food Equipment. Dover combines global scale with operational agility to lead the markets we serve."

Unfortunately for DOV investors the company's earnings picture has soured. Back in October they reported their Q3 results that beat Wall Street estimates on both the top and bottom line. Yet management issued relatively bearish guidance. It would appear that the outlook is worse than previously thought. On December 8th DOV issued an earnings warning and lowered their 2014 guidance. They're blaming restructuring costs and downsizing expenses.

The very next day (Dec. 9th) an analyst at Deutsche Bank downgraded DOV to a "sell" and lowered their price target from $83 to $65. Deutsche Bank's concern is DOV's exposure to the U.S. oil and gas industry. More than 33% of DOV's profits come from sales to the U.S. oil and energy sector. Given the plunge in crude oil prices this year (to five-year lows) the United States is already seeing a slowdown in oil rig use. A lot of the shale oil is expensive to drill and oil needs to be above $75 to be truly profitable. Right now oil is closer to $55 a barrel. That's going to significantly encumber capital spending for the oil industry and DOV could suffer as a result.

Technically shares of DOV broke their long-term up trend in 2014. Shares have developed a bearish trend of lower highs and lower lows. It looks like the most recent oversold bounce has just started to stall. We want to catch the next wave lower. Tonight I'm suggesting a trigger to buy puts at $73.40.

Trigger @ $73.40

- Suggested Positions -

Buy the MAR $70 PUT (DOV150320P70) current ask $2.20

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

Daily Chart:

Weekly Chart: