Editor's Note:

The momentum from last week's rally continued into Monday. Aside from the Dow Industrials big move today the rest of the market saw mild gains.


Current Portfolio:


CALL Play Updates

Alibaba Group - BABA - close: 108.77 change: -1.88

Stop Loss: 107.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 30 million
Entry on December -- at $---.--
Listed on December 20, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Comments:
12/22/14: BABA decided to not participate in the market's rally today. I don't see any specific headlines behind today's relative weakness. Shares tried really hard to rise past the $111.00 level about 9:50 a.m. but just couldn't do it. The stock reversed and erased Friday's gains.

The $108.00 level should be short-term support. If we see BABA close below $108 we might decide to remove it as a candidate. Currently our suggested entry point for bullish positions is at $111.25.

Earlier Comments: December 20, 2014:
The biggest IPO in history happened this year. The company was Chinese e-commerce giant Alibaba. They priced at $68 per share, raising $25 billion in capital, and giving the company a market cap of almost $170 billion. The stock opened its first day at $92.70. Six weeks later it was testing $120 per share.

BABA is considered part of the services sector. They're based in Hangzhou, China but they operate globally. The company runs several businesses including: Taobao Marketplace, an online shopping website; Tmall, a third-party platform for companies to retail online; Juhuasuan, a group-buying service; Alibaba.com is a business-to-business marketplace; 1688.com is a wholesale market; AliExpress is a consumer market. BABA runs multiple advertising services. They also offer cloud-computing services (a rival to Amazon's web services). The company also has AliPay, a payments company, but BABA's CEO said they plan to spin that off. According to IDC, BABA is the biggest online and mobile commerce company on the planet by gross merchandise volume.

Many investors see BABA as a way to play the growing Chinese consumer. BABA outlines the opportunity on their website:

We believe our business benefits from the rising spending power of Chinese consumers. China's real consumption is still a low percentage of GDP compared to other countries, including the United States. We believe that growth in consumption will drive higher levels of online and mobile commerce.

China's online shopping population is relatively underpenetrated. China has the largest Internet population in the world, but less than half of the Chinese Internet users have ever shopped online.

BABA's first earnings report as a public company was November 4th. The company delivered a profit of $0.45 a share, which was in-line with analysts' estimates. Revenues soared +53.7% to $2.74 billion, which was above expectations. Their mobile revenues doubled and their mobile active users surged +139%. BABA's gross merchandise volume rose +49% to $90.5 billion.

The company did not provide any guidance for the fourth quarter but many believe it will be the best quarter in BABA's history. Single's Day occurs on November 11th every year. It is a manufactured sales holiday that rivals Black Friday and Cyber Monday in the U.S. Last year (2013) BABA raked in a record $5.7 billion in sales on Single's Day. This year they blew that away with $9.3 billion in sales in 24 hours on Single's Day. BABA said they took in 278 million orders.

The stock peaked a couple of days later (Nov. 13th) and then corrected from the $120 area down to technical support at its new 50-dma (near $101). That is a correction of about -15%. Since then BABA has been consolidating sideways above its 50-dma. Shares held up very well during the U.S. market's painful sell-off a few days ago (that began Dec. 8th).

Shares of BABA appear to have broken the four-week down trend and traders were buying the dips near $108.00 on Friday. A rise past $112.00 would generate a new buy signal on BABA's point & figure chart. I think BABA is headed toward resistance at $120, possibly higher.

Tonight we are suggesting a trigger to buy calls at $111.25. I'm listing the March calls but that's only because the February's are not available yet (they should be soon). BABA is scheduled to report earnings in early February and we'll likely exit prior to their announcement.

Stock Lock Up Expirations

If you're going to trade BABA you need to be aware of the key lock up expiration dates.

December 19th (Friday) was a small lock up expiration where 8.1 million shares were released and available to be sold. This didn't have much impact since there is already 1.0 billion shares in BABA's float. However, BABA does have two more lock up expiration dates in 2015 that could be significant.

On March 19, 2015 the company will see an additional 429 million shares come available to market. Then on September 21, 2015 there is a huge 1.58 billion share lock up expiration.

Trigger @ $111.25

- Suggested Positions -

Buy the MAR $120 CALL (BABA150320C120)

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


Packaging Corp of America - PKG - close: 79.69 change: +0.24

Stop Loss: 77.85
Target(s): To Be Determined
Current Option Gain/Loss: - 2.5%
Average Daily Volume = 1.0 million
Entry on December 18 at $78.94
Listed on December 17, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
12/22/14: PKG did not really participate in the market's rally today either. Shares did post a gain but PKG spent most of the day consolidating sideways beneath round-number resistance at $80.00.

If shares do see a dip I would watch for short-term support in the $78.00-78.30 area. Tonight we are moving the stop loss up to $77.85.

Earlier Comments: December 17, 2014:
PKG is in the consumer goods sector. The company operates eight paper mills and 100 corrugated products plants and related facilities. Put it all together and PKG makes packaging products around the world.

According to company materials, "PCA is the fourth largest producer of containerboard in the United States, based on production capacity, and the third largest producer of uncoated freesheet in North America. We have approximately 13,600 employees, with operations primarily in the United States and some converting operations in Europe, Mexico and Canada."

It's been a pretty decent year for PKG earnings. Back in February they beat Wall Street estimates and guided higher. They beat estimates again in April and July. Their most recent report was October 20th. Earnings per share were only in-line with estimates at $1.26 but that is a +37% improvement from a year ago and a +8.6% improvement from the prior quarter. Revenues soared a whopping +79% to $1.52 billion, slightly above estimates. Management then raised their Q4 EPS guidance above Wall Street's estimates.

Mark W. Kowlzan, Chief Executive Officer, said, "This was our 8th consecutive quarter of record earnings driven by strong sales volume, record mill productivity, and mill cost reductions. The integration of Boise packaging continues to generate significant synergies, and operational improvements in White Papers have resulted in lower costs and higher margins."

Technically PKG looks bullish. The early 2014 high near $75.00 was resistance but the stock broke through this level in early December. Traders have since bought the dip at this level so $75 is now new support. The stock is near all-time highs. The point & figure chart is forecasting a very long-term target of $121.00.

The December 4th intraday high was $78.50. Tonight I'm suggesting a trigger to buy calls at $78.55. We are listing the April calls. More nimble traders may want to trade the January calls instead but they only have about four weeks left. There are no February or March calls available yet. After option expiration this coming Friday (December 19th) we should see more options listed.

- Suggested Positions -

Long APR $80 CALL (PKG150417C80) entry $4.00

12/22/14 new stop @ $77.85
12/18/14 triggered on gap open at $78.94, trigger was $78.55
Option Format: symbol-year-month-day-call-strike


Skyworks Solutions - SWKS - close: 74.42 change: +1.72

Stop Loss: 71.35
Target(s): To Be Determined
Current Option Gain/Loss: +15.2%
Average Daily Volume = 3.9 million
Entry on December 18 at $73.00
Listed on December 17, 2014
Time Frame: 3 to 6 weeks
New Positions: see below

Comments:
12/22/14: The relative strength in shares of SWKS continues. Shares added +2.3% and closed at a new record. Tonight we are upping our stop loss to $71.35.

Earlier Comments: December 17, 2014:
SWKS is part of the semiconductor industry. The SOX semiconductor index has been a strong performer this year with a +23.5% gain in 2014. Yet SWKS has outshined its peers with a +138% gain year to date.

Who is SWKS? According to the company website, "Skyworks Solutions, Inc. is an innovator of high performance analog semiconductors. Leveraging core technologies, Skyworks supports automotive, broadband, wireless infrastructure, energy management, GPS, industrial, medical, military, wireless networking, smartphone and tablet applications. The Company's portfolio includes amplifiers, attenuators, circulators, demodulators, detectors, diodes, directional couplers, front-end modules, hybrids, infrastructure RF subsystems, isolators, lighting and display solutions, mixers, modulators, optocouplers, optoisolators, phase shifters, PLLs/synthesizers/VCOs, power dividers/combiners, power management devices, receivers, switches and technical ceramics. Headquartered in Woburn, Mass., Skyworks is worldwide with engineering, manufacturing, sales and service facilities throughout Asia, Europe and North America."

SWKS is probably best known for being a component supplier for Apple's iPhones. SWKS is also supplying components to Amazon.com for that company's new Fire Phone.

SWKS soared in mid July following a better than expected earnings report. Wall Street was looking for a profit of 80 cents after SWKS guided higher to 80 cents in June. They still managed to surprise with a bottom line profit of 83 cents a share. Revenues soared almost 35% to $587 million, which was better than the $570 million estimate, up from $535 before SWKS's June guidance. SWKS management also raised their guidance going forward.

The earnings parade continued when SWKS delivered their Q4 report on November 6th. Analysts were expecting a profit of $1.08 per share. SWKS delivered $1.12. The company had already preannounced strong sales and quarterly revenues soared +50% to $718.2 million. Management then raised their guidance again (company's Q1 2015) and SWKS is forecasting earnings above Wall Street's estimates with revenues significant above prior expectations.

Since SWKS' last earnings report the stock has had a number of analysts reaffirm their bullish outlook and a few have upgraded their price targets.

Technically shares of SWKS have been building on a bullish trend of higher lows. However, the stock has been consolidating sideways the last two weeks under short-term resistance in the $71.00-71.25 area. After today's display of relative strength SWKS is setting up for a bullish breakout higher. The point & figure chart is already bullish and forecasting at $102 target.

I will warn investors that SWKS' all-time high going all the way back to February 2000 is the $78.25 area and could prove to be overhead resistance. Tonight we are suggesting a trigger to open bullish trades at $71.55.

- Suggested Positions -

Long FEB $75 CALL (SWKS150220C75) entry $4.08

12/22/14 new stop @ $71.35
12/18/14 triggered on gap open at $73.00, listed trigger was $71.55
Option Format: symbol-year-month-day-call-strike




PUT Play Updates

Arista Networks, Inc. - ANET - close: 65.27 change: -1.26

Stop Loss: 70.25
Target(s): To Be Determined
Current Option Gain/Loss: -12.5%
Average Daily Volume = 534 thousand
Entry on December 22 at $65.90
Listed on December 18, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
12/22/14: The relative weakness in ANET continues. As expected the stock broke down to new relative lows and hit our suggested entry point at $65.90. I would still consider new positions now at current levels.

Earlier Comments: December 18, 2014:
ANET is in the technology sector. The company makes networking applications and cloud technology. According to company marketing materials, "Arista Networks was founded to deliver software-driven cloud networking solutions for large data center and computing environments. Arista's award-winning 10/40/100GbE switches redefine scalability, robustness, and price-performance, with over 3,000 customers and more than three million cloud networking ports deployed worldwide. At the core of Arista's platform is EOS, an advanced network operating system. Arista Networks products are available worldwide through distribution partners, systems integrators and resellers."

Shares of ANET held their IPO in June 2014 with 5.3 million shares priced at $43.00. The first trade was $55.25. The stock has been volatile but almost doubled with highs in the low $90s by September. Unfortunately for the bulls the rally has reversed.

ANET produced bearish double top near $94 in September. The stock did see a sharp pre-earnings rally before they reported results on November 6th. ANET beat estimates by 12 cents and beat the revenue estimate as well. Yet guidance was only in-line with Wall Street's estimates and traders sold the post-earnings pop. That has proved to be a new lower high.

Following its post-earnings reversal lower the company and the stock has been plagued with trouble. The stock has suffered thanks to two different lock ups expiring. November 11th was a lock up that allowed some ANET employees to sell about 50% of their stock. Then December 2nd was the 180-day lock up that allowed insiders to sell their shares (up to 53 million shares).

ANET was struggling with all of this additional supply coming to market. Then the company was hit with a massive lawsuit by networking giant Cisco Systems (CSCO) on December 5th. CSCO is a much larger rival and claims that ANET has violated patent and copyright infringement on several technologies. CSCO might have a case. ANET's CEO, Jayshree Ullal, spent fifteen years working for CSCO in its enterprise business. ANET claims that CSCO is merely trying to use the legal system to slow down a competitor.

It could take a couple of years for the legal battle to be resolved but Wall Street is turning more cautious. Since December 5th a few analysts have been lowering their price targets on ANET. Meanwhile bears are arguing that ANET is still too expensive with a P/E of 60 at current levels.

The U.S. stock market just produced its best two-day rally since 2008 and yet ANET did not participate. Instead shares faded lower. This relative weakness looks like a clear signal that the path of least resistance is lower.

Today's intraday low was $66.00. I'm suggesting a trigger to buy puts at $65.90. The $60.00 level could be round-number, psychological support but I suspect ANET could decline toward the $55 area. I want to reiterate that shares of ANET have been volatile so I'm suggesting smaller positions to limit risk.

*small positions to limit risk*- Suggested Positions -

Long MAR $60 PUT (ANET150320P60) entry $4.80

12/22/14 triggered @ $65.90
Option Format: symbol-year-month-day-call-strike


Citrix Systems, Inc. - CTXS - close: 63.60 change: +0.47

Stop Loss: 65.05
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.9 million
Entry on December -- at $---.--
Listed on December 20, 2014
Time Frame: Exit prior to January option expiration
New Positions: Yes, see below

Comments:
12/22/14: CTXS continues to hover just below technical resistance at its 50-dma and 200-dma. I don't see any changes from the weekend newsletter's new play description below.

Earlier Comments: December 20, 2014:
We recently tried to trade CTXS as a put candidate. Unfortunately the market's massive rally in the last three sessions hit our stop loss. Yet CTXS still looks bearish. The oversold bounce has failed at resistance near its simple 200-dma and its descending 50-dma. Speaking of these moving averages the 50-dma is about to cross under the 200-dma, which is called a "death cross" by technicians.

We want to take another swing at CTXS. Tonight I'm suggesting a trigger to buy puts on CTXS if shares trade at $62.40 or lower. We'll start with a stop loss above Friday's high at $65.05.

Here's my previous play description on CTXS:

The company press release describes CTXS as "a leader in mobile workspaces, providing virtualization, mobility management, networking and cloud services to enable new ways to work better. Citrix solutions power business mobility through secure, personal workspaces that provide people with instant access to apps, desktops, data and communications on any device, over any network and cloud. This year Citrix is celebrating 25 years of innovation, making IT simpler and people more productive. With annual revenue in 2013 of $2.9 billion, Citrix solutions are in use at more than 330,000 organizations and by over 100 million users globally."

It sounds like they are in the right industry. Cloud services, cloud networking, mobile apps and desktops. Those are all hot areas for business investment. Unfortunately the company might be encountering tough competition.

The company's Q2 earnings report back in July beat Wall Street's estimates on both the top and bottom line but management guided lower for Q3. When CTXS reported their Q3 results on October 22nd (after the close) their bottom line profit beat estimates by two cents. Yet their revenue number missed Wall Street's estimate. Once again management issued a bearish outlook. They guided earnings and revenues below Wall Street estimates. You can see how shares gapped down on October 23rd.

The stock bounced from these late October lows likely thanks to the market's super sharp rally. The stock market's big cap indices broke out to new highs but not so for CTXS. Shares failed at resistance and have been struggling for weeks.

Since their October report the stock has been downgraded and initiated with an underweight rating by two firms. The stock also got a big vote of no confidence when the latest 13F filings came out and it was revealed that some big fund managers have closed their positions in CTXS.

The stock's performance has created a bearish sell signal on the point & figure chart with a $49.00 target.

Trigger @ $62.40

- Suggested Positions -

Buy the Jan $60 PUT (CTXS150117P60) current ask $0.50

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