Option Investor

Daily Newsletter, Saturday, 12/6/2014

Table of Contents

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

Market Wrap

Irrational Exuberance

by Jim Brown

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Eighteen years ago on December 5th Allen Greenspan shook up the equity markets by questioning the value of stocks.

Market Statistics

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On December 5th, 1996 Greenspan gave a televised speech titled "The challenge of central banking in a democratic society." In that speech he posed the following question.

Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?

The Japanese market was open during the speech and it immediately dropped -3% and markets around the world followed suit. Greenspan wrote in his 2008 book that the phrase came to him while he was in the bathtub thinking about his upcoming speech. The phrase was later used as the title of Robert Shiller's March 2000 book "Irrational Exuberance" making several arguments that the equity markets were very overvalued. The Nasdaq market crash occurred within days of the book's release.

Fortunately our markets are not irrationally overvalued today but there was some serious acrophobia on Friday. The closer the Dow got to 18,000 the weaker the breadth became. Eventually enough traders began taking profits and the Dow's ascent ended at 17,991. The profit taking was limited and the Dow, S&P, Nasdaq Composite and Russell 2000 all closed with gains. The Nasdaq 100 ended slightly lower after a downgrade of Google (GOOGL) weighed on the big caps.

The big news of the day was not the Google downgrade. The Nonfarm Payroll report stole all the headlines and deservedly so. The report surprised everyone with +321,000 new jobs created in November. This was significantly higher than the +228,000 analysts expected. In addition the October gains were revised higher from 214,000 to 243,000 and September was revised up from 256,000 to 271,000. This brings the three month average up to 278,000 and the trailing 12 month average to 228,000.

This was a huge number and the market should have cratered on expectations for Fed action sooner rather than later. However, cooler heads prevailed because one month does not make a trend. We have to discount the three-month average because it contains all the temporary hires for the holiday season. The 12-month average at 228,000 is right in line with what everyone expects to see in the future. However, if December and January jobs come in higher than expected then the Fed will not be far behind. We have to get out of Q4 before the numbers have any real validity. The Q4 period has monster seasonal adjustments that can severely distort the headline number if they are wrong.

For instance the separate Household survey only showed a gain of +4,000 jobs. The ADP Employment on Wednesday only showed a gain of +208,000 jobs. We saw three different numbers over the last three days and there is a spread of 317,000 jobs between the high and the low numbers. Which one is correct? We will not know the answer for three months until the final revisions are in but I would bet on the ADP number at +208,000 as the real pace of job growth.

The commonly quoted U3 unemployment rate held at 5.8% with the U6 unemployment rate declining slightly from 11.5% to 11.4%.

More than 69,000 workers dropped out of the labor force and the total unemployed rose by +115,000. The U.S. population rose +187,000. The labor force participation rate was flat at 62.8%.

Involuntary part-time workers declined by -177,000, which is really positive. Those are people who were forced to take part-time because a full time job was not available. Voluntary part-time workers rose by +235,000. Chalk that up to seasonal holiday workers.

Average hourly earnings rose +0.37% and the fastest pace since February. The average workweek rose slightly to 34.6 hours.

If this was an accurate dataset it suggests the U.S. economy is shifting gears to a faster rate of growth. I personally believed the number was distorted by the seasonal adjustments but research suggests otherwise. According to the BLS tables the unadjusted job gains were +471,000. That means the seasonal adjustment only removed -176,000 jobs as seasonal temporary workers. They take the average over the last five years to develop their seasonal adjustments. This suggests the hiring pace, at least for the holiday months, has definitely surged.

The market took the headline number in stride and futures actually went negative for a few minutes before the open but when the bell rang the market gapped higher. Either nobody believed the number or they believe the rest of the world is still in such bad shape the Fed can't possibly raise rates until late in 2015.

This may have actually been a case where good news was actually good news and not a reason to run for cover.

On the flip side Factory Orders for October declined -0.7% after a -0.5% decline in September and a -10.0% decline in August. The internals were not pretty. Nondurable goods orders declined -1.5% and nondefense capital goods ex-aircraft declined -1.6%. Durable goods rose only +0.3%. The only real highlight was a +10.8% spike in defense orders. That was probably the 5,000 Hellfire missiles ordered for Iraq. Defense orders are very volatile because of the dollar amounts and random nature of the orders.

This was not a good report and does not suggest the economy is accelerating. The strong dollar is making it difficult for buyers overseas. This makes U.S. goods cost more and will end up hurting U.S. corporations.

The economic calendar for next week is lackluster. There are several important reports but none of them are market movers. The big event, especially in light of the payroll numbers, is the FOMC meeting the following week. What they have to say about employment in the post meeting statement will be market moving.

After the close on Friday Gentex Corp (GNTX) announced a 2:1 split for January 2nd. Hain Celestial is holding its gains after the prior week's 2:1 split announcement. Both could give us a decent split run. GNTX was already at a new high and it gapped up about $1 to $38.67 in afterhours.

Apple (AAPL) rumors were swirling on Friday of two new iPhone 6 models for 2015. The first is a 4 inch compact mini dubbed the 6C. There are no close competitors and the compact form is a better fit for business men. This is expected in March/April. Apparently there are a lot of iPhone 6 complaints because there is not a smaller version. Many users were not happy about upgrading to the larger format. The iPhone 5 had a 4 inch screen, iPhone 6 a 4.7 inch and 5.5 inch for the Plus. The Chinese website Feng.com quoted suppliers claiming Apple was sourcing parts for the 6C.

The second rumor was an upgrade to the base memory in the iPhone 6 from 16gb to 32gb. This would increase demand for the phone alongside the release of the Apple Watch. More memory would make the phone faster in interfacing with the apps on the Watch.

On Cyber Monday 78% of mobile shopping occurred on Apple devices, down from 84.1% on the same day in 2013. Android's share rose from 15.4% to 21.6%.

UBS is predicting Apple could sell 70.9 million iPhones in Q4 compared to the Wall Street consensus of 64 million. UBS said if Apple does not reach that number it will not be due to a lack of demand but a lack of parts. If Apple is supply constrained UBS expects only 67 million phones sold. The analyst said demand for the 6 plus is accelerating and Apple may be forced to shift production from the regular version to boost the plus version. Demand in China is especially strong. Currently demand is 3-1 for the regular phone over the Plus but the ratio is moving towards the Plus.

UBS raised their target to $125 and Cannacord is targeting $135 but Alex Gauna at JMP Securities has them beat. Alex raised his target to $150 saying investors should buy ahead of the Q4 earnings in January and the China Mobile 4G subscriber update in a couple of weeks. That will tell investors how fast iPhone 6 sales are ramping up in China.

Apple shares traded down last week after Pacific Crest recommended selling Apple because the iPhone 6 expectations were already in the stock. Pacific Crest is expecting sales of only 63 million units because of production shortages. Morgan Stanley also recommending selling Apple shares from a 4% weighting to 3% in their model portfolio.

Apple was also hit by the unusual trading on Monday where 6.7 million shares were sold in one minute at 9:51 am. Later a high frequency trading firm said they saw program trading in 300 stocks that started at 9:50. Alibaba (BABA) also fell sharply (-1.4%) at the same time and the SPY traded 1.5 million shares in the same minute.

Lastly Apple has been in court all week in a $1 billion class action suit over iPod music. When Apple updated the iPod in one of the earlier versions all songs downloaded from other sources quit working because of Apple's new licensing issues as well as technology issues. Steve Jobs said Real Networks hacked the iPod to figure out how to play music that was not uploaded from the iTunes store. Apple fixed the hack and all that third party music quit working. There were 3 plaintiffs and one dropped out. Apple checked the serial numbers on the three iPods in question and found that at least one and possibly all three were bought after the complaint period. If the remaining two plaintiffs can't come up with receipts that are acceptable with the court the 6 year old case could be thrown out.

Whatever the reason for the stock decline I believe it is a buying opportunity. They can't make phones fast enough and it looks like demand will last well into 2015. That will boost earnings over the $7.69 consensus and they may have some new products in the mix that are not currently in the revenue/earnings calculations.

Google (GOOGL) is not having a good month. Shares have declined -$20 for the week with a -14.50 drop on Friday. Bank of America cut Google from buy to neutral and lowered the price target from $600 to $580. Google shares closed at $528. Bank America Merrill Lynch (BAML) cut earnings estimates to $33.81 and below consensus at $35.77. They blamed slowing growth in search at 8-9% in the USA. BAML also said capex could rise +50% and hiring +22%.

BAML also pointed to the increasing regulatory risk. The EU is considering whether to breakup or constrain Google in Europe on antitrust issues.

Bing has captured 18% of market share in search and accelerating. Apple is widely expected to dump Google and move to Bing when the contract agreement with Google ends in the first half of 2015. Apple is widely believed to be moving away from giving any business to their Android competitor. Facebook is also improving its search capabilities and capturing search advertisers that previously ran on Google.

Earlier in the week Google admitted that 56% of the ads it serves are not seen by a human. They were either served too low on a page to be seen or were served up to search robots scanning pages for indexes. Analysts believe "non-viewable ads" will be worthless in 2015. The technology is moving fast enough that advertisers will be able to demand view ability on their advertising purchases. The move towards full disclosure in the ad world could be painful for Google in 2015. Dan Niles at AlphaOne said Google was his number one short idea.

Northrop Grumman (NOC), a current Option Investor play, got a major boost on Friday. Bank America reiterated a neutral rating with a $150 price target. That did not get much play because at the same time Goldman Sachs upgraded the stock to its "conviction buy" list and raised the price target to $165. It came after Northrop announced after the close on Thursday a new $3 billion stock repurchase program. Goldman believes Northrop's position as a major subcontractor on the $1.5 trillion Joint Strike Fighter program will continue to power Northrop's profitability. Earnings are expected to increase from $8.34 this year to $9.48 in 2015. This is up from $7.80 in 2013.

Dow components Goldman Sachs (GS) and Visa (V) were big contributors to the Dow's gains on Friday with a +3.50 spurt by Goldman and +2.21 gain by Visa. That amounted to about 45 points of the Dow's gain. Since July 3rd when the Dow hit 17,000 Visa has added +301 points to the Dow, Goldman +166.9 points, Nike +134.0, Home Depot +113, United Health +109 and 3M +108 points. If Apple had been in the Dow it would have added 166 points. In that same period IBM subtracted -162, Chevron -130, Caterpillar -79, Exxon -56, MCD, UTX and AXP about -25 each. The Dow steering committee has to be careful on which stocks they include in the index because the volatility of the price weighted index can increase sharply if they add a rocket stock to the mix.


The S&P squeezed out another new high at 2,075, one point over Wednesday's high. Considering where we started the week with a dip to 2,050 we really can't complain. I would be perfectly happy with 10-15 point gains per week for the rest of the year.

The VIX spiked to nearly 15 on Monday but fell to 11.82 at Friday's close. This is back at complacency levels indicating buyers are in control and there is no fear of an imminent meltdown. This could last for a couple more weeks as fund managers chase prices into the end of December.

There is a warning on the horizon. The high yield ETF (HYG) has sold off -4% since October. Since 2007 the HYG has sold off -5% in 30 trading days only 10 times. On 9 of those declines the S&P sold off as well with an average drop of -9%. Only once did the S&P post a gain and it was only +0.4%. That is some pretty bad odds but historical repeats are never guaranteed. The HYG still has -1% to fall to equal the prior declines but we should be seeing some weakness in the S&P if it was going to follow the HYG lower and there is no weakness. Let's keep our fingers crossed.

Brett Steenbarger, author of "The Psychology of Trading" plus other books, pointed out on Thursday that the number of stocks making new three-month lows actually outnumbered those making new highs at a time when the market was setting new highs. This broad divergence is historically negative for the weeks that follow. However, I believe you can't just look at numbers in a vacuum. You have to understand why it is happening. I think we are seeing the new lows mostly from the energy sector as a result of the lower oil prices. The low oil prices are actually bullish for future earnings and improving economics. Everybody understands the drop in energy stocks and that is why the markets are still trading at the highs. This is just my theory.

Secondly, Brett pointed out the correlation between stocks and sectors are at the lowest since 2004. Correlation trends tend to rise during market declines and then remain at the highs on the eventual rebounds. As the rebound crests the correlation begins to fade as weak sectors begin to sell off and break away from the crowd. As those sectors peel off from the remaining strong sectors the correlation widens and the market becomes unstable. Brett says we are seeing "massive divergences, thanks to the relative weakness among raw materials (XLB), energy stocks (XLE), regional banks (KRE) and small cap (IJR) and midcap (MDY) stocks."

Trimtabs.com tracks the money flows into ETFs and they claim we are at extremes not seen since just before the 2008 market crash. Inflows into ETFs for the month ending November 26th totaled $42.9 billion and a level not seen since December 2007. That is also five-times the year to date average. Flows at Pre-crash Highs

Obviously we have to look at the fundamentals as well as technicals and we have to take into account the investing calendar. With December the strongest month of the year and economic conditions improving with corporate earnings setting new highs there are good reasons for being bullish for the next several weeks. Once into January we should worry as portfolio managers begin to restructure portfolios for 2015. Profits taken in January can be invested all year before taxes have to be paid.

The S&P is still making new highs thanks to the big cap stocks and finally the financials, which participated last week to offset the energy stocks. If oil were to firm and the energy sector rebound we could have a decent rally but oil is still looking week.

I see resistance at 2,080 and 2,100 and support at 2,065 and 2,050.

The Dow finally closed well above the twin levels of uptrend resistance and should be free to move higher. Those resistance levels should not be support. Again, if Exxon and Chevron were to turn positive at the same time as the financials the Dow could stretch its gains. We are definitely in blue sky territory and definitely overbought. That can continue thanks to the consolidation at the highs the prior week.

Dow 18,000 seems to be the price magnet and there may be a sell the news event when it is hit. The selling that appeared on Friday when the Dow reached 17,990 is a clue as to what may lie ahead. Support is well below at 17,800 and that 18,000 level should be resistance.

The Nasdaq Composite crashed back to support at 4,725 on Monday and then struggled higher the rest of the week to close at 4,780. The gains were steady with the exception of the hiccup on Thursday. The November high close was 4,792.

The problem is the big caps dragging down the index. The Nasdaq 100 ($NDX) lost -26 points for the week because of big cap declines in stocks like Google and Apple while the Composite lost -11 points.

Fortunately the downgrades have probably run their course. With the positive jobs numbers and nothing material on the economic calendar for next week we should see fund managers buy the dips on those big cap declines. The keyword there was "should."

Support on the Nasdaq remains 4,725 and resistance is 4,790 and 4,800.

The Russell 2000 actually gained ground last week but at +9 points it was not much. Just being positive is a help because a negative Russell is a sentiment drag on the rest of the indexes. We need it to climb back over 1,190 and rekindle some animal spirits now that November is over. It is time for fund managers to start adding some small caps in advance of the Santa Claus rally, which is the last 5 days of December and first two days of January.

Support is 1,170, resistance 1,190.

I expect the market to be positive this week. There is only one Fed speaker on tap because they go quiet the week before a FOMC meeting. That means we should escape any comments about interest rate hikes. The economic calendar is weak and that also removes potential trouble spots.

The positive jobs report, even if the numbers are confusing, should provide a positive sentiment boost. Just remember that the market does not need a reason to correct. Sometimes it just happens. However, the next two weeks are historically bullish and a lot of fund managers are still trailing their benchmarks. This means bonuses will be minimal and they only have a couple weeks to redeem themselves.

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Random Thoughts

Sunday is the anniversary of the attack on Pearl Harbor that triggered our entry into World War II. Starting at 7:48 AM the base was attacked by 353 Japanese fighter planes launched from six aircraft carriers. A total of 2,403 Americans were killed, less than in the World Trade Center attack, and 1,178 were wounded. Only 29 Japanese aircraft were shot down. By attacking Pearl Harbor the Japanese would later say they woke the sleeping bear. For the U.S. the war began in December 1941 and ended on September 2nd, 1945.

During those four years the American industrial complex was mobilized to design and build over 1,000 ships, thousands of planes and tanks and munitions of all shapes and sizes and get all of it overseas to the battlefield. There was no OSHA or EPA to retard the process. If the U.S. was attacked today we do not have the capability to build more than 1,000 ships and thousands of tanks and planes in just a couple years. Everything is more complex today and a lot of our materials and components come from overseas. Despite 7 decades of "progress" we don't have the same manufacturing capabilities today as we had back then. Between 50 and 85 million people died in the war. If there is a WW III the number of dead could be significantly higher.

We have spent more money in Iraq and Afghanistan than was spent in WW II and the fighting continues. This is the difference between planning to win a war at all costs and fighting a war waged by politicians and political correctness. We could have wiped out ISIS by now if we wanted to but that does not fit the current political agenda.

On Black Friday the national debt exceeded $18 trillion for the first time. This amounts to $56,369 for every U.S. citizen or $153,729 for each taxpayer. Current tax revenue is about $3.1 trillion and our GDP is about $17.2 trillion. Six years ago the national debt was $10.6 trillion. It is expected to rise by $1.3 trillion a year over the next two years and exceed $20 trillion by the end of 2016 and $25 trillion by 2020.

The national debt is different than the total debt. The national debt is the amount of loans we have outstanding in the form of treasury bonds and notes. The nation has an additional $115.7 trillion in "unfunded liabilities" that are not included in the debt totals. These are payments that will come due for Social Security, Medicare, etc.

The debt clock is ticking and the debt bomb will eventually do more damage to the U.S. than the last world war. Once global investors realize that the U.S. can't ever pay its debt they will demand more interest to counteract the additional risk. What is the magic number? $20 trillion, $25 trillion? There is a number that will trigger the debt bomb and it is not that far into our future.

Once the Fed begins to "normalize" interest rates we could see the problem begin. Currently, because of the low interest rates the interest on our debt is about $450 billion a year. We just sell an extra $450 billion a year in treasuries to pay it. Basically we get another cash advance on our credit card to pay the current bill. Once interest rates begin to rise within 2 years the interest on our debt will rise to $1 trillion a year. Remember, we only take in $3.1 trillion in taxes. This will be the straw that breaks our economic back by accelerating our total debt by as much as $2 trillion a year. Global investors will take note and it will get ugly.

Just to emphasize this fact the U.S. Treasury sold $1.04 trillion in new debt since October 1st, just to raise money to pay the interest and principal on maturing securities. Over the same period the Treasury took in $341.6 billion in revenues.

Treasury Secretary Jack Lew told the Senate Finance Committee the U.S. "rolls over about $100 billion in U.S. bills every week. If U.S. debt holders decided they wanted to be repaid instead of continuing to roll over their investments, we could dissipate our entire cash balance. There is no plan other than continuing to raise the debt limit that permits us to meet all our obligations." You heard it from the man in charge. There is no plan to stop the never ending debt acceleration. Don't forget the Fed owns more than $4 trillion of the debt. The government owes more than $5 trillion to entities like the Social Security Trust Fund where it borrowed the funds on deposit and left the fund with a note instead.

Only $1.54 trillion is in 30-year treasuries. The rest is in short term notes that mature in 2,3,5,7 and 10 years with an average interest rate of 1.807%. The government can't afford to pay the higher interest rates of longer term securities even at the current record low rates. This means the interest on those short term securities can escalate violently if the debt market suddenly turned against the USA. This means the fuse on the debt bomb is very short. Once it is lit the change in conditions can occur very rapidly. It could be one of the fastest economic collapses on record.

While everyone was worrying about the Ferguson and Staten Island events last week China became the biggest economy on the planet. The U.S. dropped into the number 2 position. This is a problem of our own creation. We have the highest corporate taxes in the world and the most regulations that stifle growth and job creation. We have the best minds in the world and the best entrepreneurial spirit but the regulations, negative legal system and high taxes have pushed us into the number 2 position.

The U.S. is under outright cyber attack by numerous state-sponsored agencies and we are doing nothing about it. It was reported last week that Iranian hackers have infiltrated the U.S. critical infrastructure systems, some of which control the country's water, gas and transit networks and airport security networks. The administration is ignoring the attacks and instead giving Iran another 7 month extension on its nuclear program and talking to them about helping fight ISIS in Iraq.

At the same time China is hacking our satellite networks that affect aviation, shipping and hundreds of other critical uses. A couple days earlier they hacked into the U.S. Postal Service and accessed data on 800,000 employees. A cyber security expert said Chinese are hacking into corporate networks with "reckless abandon" because they are convinced "there are no consequences to getting caught."

China's latest stealth fighter, the J-31, is believed to be entirely based on stolen top secret specifications of the F-35 Joint strike Fighter being built by Lockheed Martin.

Russian hackers have been invading U.S. services networks and security systems for years. The Dept of Homeland Defense said in November that a Russian state-backed effort had compromised "numerous critical components of U.S. industries." In October a Russian state-sponsored cyber attack successfully breached the White House computer network.

Numerous intrusions into the U.S. electrical grid infrastructure have been carried out by state-sponsored teams from Russia and China. One set of Russian code has been found in more than 1,100 grid locations. It would be obscenely naive to believe that neither of these rogue nations were not capable of shutting down our electric grid at will.

The U.S. consumer is saving $630 million a day on lower gasoline prices compared to the $3.31 average high in June. If prices were to stay this low for a year that would amount to a $230 billion windfall and a monster stimulus program for the U.S. economy. On Friday gas prices fell under $2 in Oklahoma and within the next week that should spread to several other coastal states. On Friday the national average was $2.75 and AAA expects it to drop another 10-20 cents by the end of the month. I paid $2.32 with a loyalty card in Denver on Saturday.

At the current price of oil OPEC members could lose $590 billion in revenue. Global producers in total will see a -$1.5 trillion drop in revenue. The U.S., Japan, China and India will benefit the most. Saudi Arabia, Russia, Iraq, Venezuela and Nigeria will suffer the most. The London based Capital Economics said the drop in fuel prices could boost the global GDP by 1% in 2015. Global demand could increase up to 1.0 mbpd over the prior forecast as a result of the lower fuel prices. U.S. gasoline demand has increased +429,000 bpd to 9.43 mbpd or nearly +5% over just the last four weeks as a result of the lower prices. There are already rumors that OPEC will call an emergency meeting for the end of January to again discuss production cuts. At the last meeting 8 countries were for cutting production and 4 countries against a cut. Saudi Arabia, whose vote counts the most, was against a cut.

Cyber Monday was a blowout for some companies. Walmart said it was the "biggest online day in its history." Thanksgiving was the second largest day in their history. Even more interesting they said 70% of traffic to their site came from mobile devices. Walmart was offering same day in store pickup on most items. That means you could order online at the sale price and not have to fight the crowds. Just walk in and pick it up whenever it was convenient. The biggest online sellers were the iPad mini 16gb, PS4 500Gb console, Nintendo 3DS XL handheld, Xbox One Assassins Creed Unity Bundle, LG 49" LED HDTV and LEGO Giant Creative Tower with 1,600 pieces.

The Pied Piper of the ECB again promised more stimulus but failed to deliver. Mario Draghi pledged to assess the need for more stimulus early in 2015 despite sharply lower forecasts for economic activity. This is like saying the house is really burning now but let's wait another week or two before trying to put it out. It may get better by itself.

Jim Cramer of the TheStreet.com was called out by a shareholder last week. J. Carlo Cannell's hedge fund is the second largest shareholder in TheStreet.com (TST) at 9%. He sent a letter to the company complaining that Jim Cramer spent far too much time working for CNBC and not enough time working for TST. "You are simultaneously an employee of CNBC and a director, major shareholder and employee of TST. To which entity do you ascribe your greater allegiance?"

Cannell urged Cramer to resolve the conflict by either pursuing a sale of TheStreet.com or quit CNBC. "Resign from CNBC and align your considerable energy and talents to helping your fellow shareholders crawl back from Hades."

He also suggested Cramer take a pay cut as part of a full-time return to TST complaining that his annual compensation is almost 5% of the company's market value. "Why in the very worst years for TST shareholders must you pay yourself more than $3.5 million per year? When you lie on your deathbed how will you reflect upon your legacy?" He said Cramer has "enjoyed considerable nonpecuniary compensation such as perfumed sedan driver(s) and assorted assistants who spray ionized lavender water on your barren cranium." Company filings show Cramer is guaranteed $2.5 million a year in royalties, $300,000 in licensing as well as stock awards. In 2013 TST lost -$3.8 million, which was better than the $13 million loss in 2012. In 2013 another shareholder, Spear Point LLC, urged the company to put itself up for sale. According to Bloomberg Spear Point no longer has a stake in TST today.

ISIS has just claimed on Twitter that they have a dirty bomb. ISIS stole radioactive material from the Mosul University and they claim they have already weaponized it and have plans to use it. Iraq's UN ambassador said in July that the nuclear material had been stolen and the UN Secretary General warned the substance can be used to create a weapon of mass destruction. If the bomb was used in a city like London it would be terribly disruptive even more so than a regular bomb. With a regular bomb you clean up the wreckage and rebuild. With a major dirty bomb the city may have to close off the area for years while cleanup occurs.

The toilet seat in a supermarket bathroom may be cleaner than a shopping cart handle. A University of Arizona survey swabbed 85 grocery carts and found that nearly 75% contained some type of fecal bacteria. More than 50% contained E. Coli bacteria. Studies have also found that children are at increased risk of salmonella infections if they ride in a grocery cart.

The largest white truffle in the world goes up for auction this weekend. The 4.16 pound truffle should fetch a record price. This one is twice the size of the existing record holder that sold for $417,200 in 2010. White truffles are rare and can only be found three months of the year in Italy. The finder has already been offered more than $1 million from a buyer in China. Not a bad find while he was out training his new dog. Truffle hunters train dogs to sniff out the buried truffles. You know you have too much money when you can pay $1 million for a hunk of fungus.

Sam Eisenstadt, former research director at Value Line, is predicting the S&P will reach 2,300 by the end of May. That is an 11% gain from here. Eisenstadt is known for his accurate predictions. Back in June with the S&P at 1,924 he predicted the S&P would reach 2,100 in early December. With the S&P at 2,079 on Friday he has another winning prediction he can add to his portfolio. He retired in 2009 after 63 years at Value Line but he still follows the market. He has a proprietary model developed over 7 decades of research.

Annual End of Year Renewal Special

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Jim Brown

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"A government which robs Peter to pay Paul can always depend on the support of Paul."

George Bernard Shaw


Index Wrap

Temporary Top or Consolidation for Push Higher?; Take Your Pick!

by Leigh Stevens

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The Market shows some signs of hitting at least temporary overhead resistance. When the Market has a scant rally on 'good' news (job creation) can a correction be far off?

It's hard for me to answer this question but I lean to the 'resistance' idea, as in hitting the top ends of broad weekly chart uptrend price channels.

Bullish 'trader' sentiment shot up on Friday in terms of option call to put volume ratios, but not prices so much, as if stocks were generally perceived by Investor types as fairly valued, at least for now.

The Dow 30 (INDU) is performing better than the S&P as INDU has gone to new highs for the current move. There is potential resistance at 18000. About half (14-15) of the 30 Dow stocks are in strong weekly uptrends still. There used to be a concept of a 'solitary walk of the Dow', where INDU climbed but the rest of the Market lagged. Hard to predict if the Dow is showing the way to higher levels or is going to pause at, or dip from, the 18000 area.

There is also the concept of a 'santa claus rally' into late-December but the second week in this month is perhaps early for that seasonal influence. There may be a dip in prices in the coming week, perhaps extending into the following week, setting the stage for a next upswing into late-December/early-January. Stay tuned on that!

On the bullish side, a decisive and prolonged upside penetration of 18000 in INDU would suggest a possible next up leg in the overall Market. A strong move in the Nasdaq Composite (COMP) above 4800 would also be bullish, as would be a sustained surge above 2085 to 2100 in the S&P 500 (SPX).

Overbought readings continue in all the major indices (except for the Russell 2000) on a daily chart basis, as well as with weekly charts. This isn't a definite prediction of a downside correction ahead, but overbought extremes do suggest greater risk of profit-taking selling or selling on bearish news with the US or the global economy.



The S&P 500 has been in a steady bullish advance but SPX has leveled off over the past two weeks as the Index has been stalling in the 2075 area where I've noted initial resistance. A decisive upside penetration of 2075-2085 is needed to suggest another upswing ahead and challenge of 2100; resistance then extends to 2130.

Odds of pullback are increasing given the leveling off of prices, high bullish sentiment readings on Friday with only a limited rally on the strong jobs report. Overbought readings in the 13-day RSI indicator and mirrored in the 8-week Relative Strength Index (not shown) suggests protecting, or taking profits on, bullish positions.

Immediate overhead resistance, unchanged from last week, is at 2075 with resistance extending to 2085 on up to 2100. I've noted potential next resistance at the 3.5% upper envelope line, now intersecting in the 2130 area.

Near support is highlighted at 2053-2050, with fairly major support coming in if SPX were to fall to the 2000 area.


The big cap S&P 100 (OEX) remains bullish in its longer-term pattern but has leveled off at and just under 920. This may well be a function of an 'overbought' condition as suggested by the 13-day Relative Strength Index. I also note in my initial 'bottom line' comments above that the 8-week RSI has just climbed again into an initial overbought reading for OEX and in all the major indexes (except RUT) although I don't feature any of those weekly charts this week.

Next resistance above 920 in OEX is highlighted at 935, extending to 942, at the upper 'resistance' envelope line currently set at 3.3 percent above the 21-day moving average. Near support comes in at 910, then at 900.

The Dow 30 has pushed higher and those (30) stocks are closer to what may happen in OEX ahead than in the broader S&P 500. It's hard to say what comes next, a renewed surge higher versus a pullback - 20 points down versus 20 points higher. What we can say is that there is increased risk of a pullback based on recent price action and overbought readings.


The Dow 30 Industrial Average (INDU) continues in a bullish pattern. Unlike the two S&P indices, INDU appears to have broken out above ITS resistance (in the 17900 area). Next resistance and perhaps a tougher lid on INDU near term, is at 18000 as pointed out last week given the 18000 area representing potential chart resistance at the top of INDU's long-term price channel.

INDU stocks continue to see strong weekly uptrends in CSCO, DD, DIS, GS, HD, INTC, JPM, MMM, MRK, NKE, PG, TRV, UNH, and V. There are some adjustments to this bullish list from last week, as I calculate 14 the aforementioned Dow stocks, down from 16, as continuing in strongly bullish patterns. (This is my perception and mine alone of the 30 weekly charts involved.)

Half of the Dow stocks capable of further gains are enough to push the Average still higher. It is nevertheless hard in both individual stocks and in the Indices to predict just what might cause an across the board correction. Most of the 14 stocks in strong bull moves had gains last week with below average daily volume. This might be the factor that undermines a new up leg above 18000. Volume is a secondary indicator but stocks are in their strongest positions when gaining on above average volume.

Near technical/chart support is bumped up this week to 17700 with next support seen around 17600, and fairly major support beginning at 17400.

As with all the other major indices, except RUT, overbought readings are seen on both the daily and weekly (not shown) charts, suggesting at least caution in 'chasing' the major indexes higher.


The Nasdaq Composite (COMP) has paused in its previously strong advance as the Index has leveled off at and just below 4800. This can be a temporary (price) consolidation ahead of a new up leg or building at least an interim top. How to know?

We do know that prices are 'due' for a pause in the normal scheme of things with stocks. One way to measure this is by high readings in the various technical 'momentum' indictors. I rely the most on the Relative Strength Index (RSI) and, on both a 2-week and 8-week basis, the major indices are overbought. Given this, it's not surprising to see a leveling off in COMP.

I suggest focus on key resistance at 4800. A decisive and sustained upside move above 4800 suggests the 4900-4930 could be seen next. Conversely, a decisive downside penetration below the 21-day moving average in the 4700 area is bearish. And here I'm talking about two or more consecutive days below this key trading average.

I note in my initial 'bottom line' comments above that both the 13-day AND 8-week RSI readings have climbed again into an initial overbought reading for COMP and for all the major indexes except RUT, suggesting higher risk of a shakeout. With timing not so predictable of WHEN an 'overbought' market will correct much.


The NDX chart is bullish but recent price action suggests a possible interim top. It depends if the Index can climb above 4350 as to whether NDX can resume its prior upside momentum. Such a move above 4350 if sustained and support found on pullbacks to 4350-4325 can lead next to a climb to the 4450 area. Stay tuned!

Key support is found at the 21-day moving average. Break this support in the 4240 area without a quick recovery could lead to a subsequent test of 4200 support or lower. 4100 is the start of fairly major support.

Same deal as last week when I wrote that "NDX is vulnerable to a correction but hasn't had any definite downside reversal type price action yet." Still true but the short-term pattern looks more bearish than bullish currently.

NDX, like the broad Composite (COMP), is 'overbought' on a time frame from 2-weeks to 2-months. Volatility for the Nas 100 as measured by the VXN Index is relatively low. If VXN continues to drop, it tends more toward conditions for a pullback than not.


The QQQ chart is bullish on a longer-term basis but short-term it wouldn't be surprising to see a pullback to near support in the 104 area. Next support is at 102.4-102.

I have previously suggested a counter-trend short in the 105-106 zone. IF short QQQ, I suggest a lowering an exiting stop to 107, from 108.

Resistance is suggested near-term at 106-106.25, then at 107.8, extending to 108-108.6.

On Balance Volume (OBV) is the volume indicator that I track from week to week and OBV has leveled off with prices, which I take as mildly bearish. If there's a downside correction, the next question is whether its shallow or deeper. Shallow is to 104-103.7 currently. A deeper correction is back to major support around 100.


The Russell 2000 (RUT) may have traced out a top in the 1190 area, well shy of its prior top/high/resistance around 1213. A decisive upside penetration of 1190, with support/buying interest found in this same area in subsequent pullbacks to 1190-1180, would be bullish however and lead to a possible retest of the 1213 prior (intraday) high.

Near support is highlighted at 1160 and extends to 1160-1153. Next key chart support is 1140. Fairly major support begins at 1120 and extends to 1110.

I noted last week that declining 'relative strength' (seen with the RSI line trending DOWN) with prices in a SIDEWAYS trend is a mildly bearish divergence. a sideways trend after a prolonged or sharp advance often leads to a declining RSI. This pattern, prices going sideways (or up) versus a momentum indicator like the RSI trending downward on balance, is at least a warning of another dip in RUT. RUT has had a pattern of sharp two-sided price swings.


New Option Plays

Home Improvement

by James Brown

Click here to email James Brown


The Home Depot - HD - close: 99.64 change: +0.69

Stop Loss: 97.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 6.4 million
Entry on December -- at $---.--
Listed on December 06, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Shares of HD ended the week at an all-time closing high, just below the $100 mark. The company had a bit of a rough start to 2014. They missed estimates on both the top and bottom line when they reported back in February and management lowered their forward guidance. They missed estimates again in May. Momentum changed with their August earnings report as HD beat Wall Street's bottom line estimate and raised their 2015 guidance.

HD appears to be benefitting from the growing U.S. economy. Falling unemployment means more people are working. Homebuilders are feeling confidence. The U.S. is seeing strong housing starts. Consumers are remodeling their homes. The do-it-yourself trend remains strong. HD is starting to see growth in the "connected home" concept, which is part of the Internet of Things (IoT) with remote control garage doors, home monitoring, thermostats, and light fixtures.

HD is in the services sector. According to the company website, "The Home Depot is the world's largest home improvement specialty retailer, with 2,269 retail stores in all 50 states, the District of Columbia, Puerto Rico, U.S. Virgin Islands, Guam, 10 Canadian provinces and Mexico. In fiscal 2013, The Home Depot had sales of $78.8 billion and earnings of $5.4 billion. The Company employs more than 300,000 associates."

Investors were keenly focused on the company's latest earnings report, HD's Q3 report, which came out on November 18th. Analysts wanted to know if the massive data breach reported by HD in September would negatively impact sales. It looks like the data breach has been overlooked by most if HD's customers.

Wall Street was looking for Q3 results of $1.14 per share on revenues of $20.47 billion. HD said their earnings per share rose +21% to $1.15 (up from $0.95 a year ago). Revenues improved +5.4% to $20.52 billion. The company said their overall comparable store sales were up +5.2% while inside the U.S. comps were up +5.8%. Online sales surged +40%.

HD gave relatively bullish guidance. They still expect +21% earnings growth in 2015. However, they noted that current guidance does not include any probable losses from the data breach. Last year Target (TGT) was a high-profile company that confessed to a huge data breach where millions of customer credit card data was stolen. This year Home Depot has been another high-profile company targeted by hackers.

HD said approximately 56 million cards may have been compromised. They have since plugged the hole in their cyber security. HD did confess in a recent SEC filing that they are facing 44 civil lawsuits in U.S. and Canada in response to the data breach. In spite of all the bad news investors continue to bid the stock higher.

Since HD's earnings report in November the stock has received several price target upgrades. The point & figure chart is also bullish and forecasting at $110 target.

Friday's November jobs report shows that the U.S. economy could be picking up speed, which would be bullish for HD. It looks like shares are going to breakout past significant round-number, psychological resistance at the $100 level.

Tonight we are suggesting a trigger to buy calls at $100.25.

Interesting factoid: HD's last stock split was a 3-for-2 split back in 1999 in the $90-100 range. I'm not predicting they will announce a new split but you never know.

Trigger @ $100.25

- Suggested Positions -

Buy the FEB $105 CALL (HD150220C105) current ask $1.08

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

Intraday Chart:

Daily Chart:

In Play Updates and Reviews

Upward Momentum Continues

by James Brown

Click here to email James Brown

Editor's Note:

Last Monday's drop in the market proved to be another dip-buying entry point. Stocks have continued to push higher.

We want to exit our UA trade on Monday morning and our COST trade on Monday at the closing bell.

Current Portfolio:

CALL Play Updates

Aetna Inc. - AET - close: 90.62 change: +1.43

Stop Loss: 85.75
Target(s): To Be Determined
Current Option Gain/Loss: +45.5%
Average Daily Volume = 2.45 million
Entry on December 03 at $88.65
Listed on December 02, 2014
Time Frame: Exit PRIOR to January expiration
New Positions: see below

12/06/14: AET displayed some relative strength on Friday with a +1.6% gain. Shares also managed to close above potential round-number resistance at $90.00. The stock is now up six out of the last seven weeks. The nearest support is probably the 10-dma near $88.00. I am not suggesting new positions at this time.

Earlier Comments: December 2, 2014:
AET is in the healthcare sector. According to a recent press release, "Aetna is one of the nation's leading diversified health care benefits companies, serving an estimated 46 million people with information and resources to help them make better informed decisions about their health care. Aetna's customers include employer groups, individuals, college students, part-time and hourly workers, health plans, health care providers, governmental units, government-sponsored plans, labor groups and expatriates."

If you study a one-year chart of AET the stock has definitely seen its ups and downs. That's because the healthcare industry has faced a number of issues. AET's CEO commented on this past year in their latest post-earnings conference call.

Mark T. Bertolini, Aetna chairman, CEO and president, said, "some of the challenges we face this year, including pricing solving for nearly $1 billion in ACA related industry fees and taxes, solving for the largest rate cuts to the Medicare Advantage program in our recent history, navigating a host of new regulatory requirements in our small group and individual businesses, managing through a turbulent launch in public exchanges and controlling pharmacy costs in a year where heavy priced Hepatitis C treatments first became available and treatment guidelines changed in unforeseen ways." (ACA stands for Affordable Care Act, a.k.a. Obamacare).

In spite of all these challenges shares of AET are outperforming the major indices with a +27% gain in 2014 compared to a +11% gain in the S&P 500. AET's strength is due to the company's earnings performance. They have beaten Wall Street's earnings estimates and raised guidance three quarters in a row.

AET's most recent quarterly report was October 28th. Analysts were expecting a profit of $1.58 a share on revenues of $14.7 billion. AET delivered a profit of $1.79 a share. Revenues were up +13% to match estimates. The company said they added 470,000 new medical insurance customers in the third quarter, putting the total at 23.6 million.

Bertolini commented on their results, "Aetna reported solid third-quarter results, including our 10th consecutive quarter of membership growth, record quarterly operating revenues, and continued high single-digit pretax operating margin."

The major healthcare companies are reaping the benefits of Obamacare as more people sign up. Management raised their full year 2014 earnings guidance into the $6.60-6.70 zone versus Wall Street's estimate of $6.57.

Just last month AET raised their quarterly dividend 11% to 25 cents a share and added $1 billion to its stock buyback program, up from $464 million. In the last two months the stock has received multiple price target upgrades into the $95-100 zone. The point & figure chart is bullish with a $112.00 target.

AET's bullish trend of higher lows has just produced a breakout past resistance to new all-time highs. Tonight we are suggesting a trigger to buy calls at $88.65.

- Suggested Positions -

Long 2015 Jan $90 call (AET150117C90) entry $1.76

12/03/14 triggered @ 88.65
Option Format: symbol-year-month-day-call-strike


CR Bard Inc. - BCR - close: 172.37 change: -0.10

Stop Loss: 165.85
Target(s): To Be Determined
Current Option Gain/Loss: +78.7%
Average Daily Volume = 538 thousand
Entry on November 13 at $165.65
Listed on November 12, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

12/06/14: BCR's bullish momentum stalled in just the last couple of days. Shares have encountered new resistance in the $174.00-174.50 area. If BCR sees any pullback the $169-170 level and its 10-dma could offer some short-term support. The stock is up eight out of the last ten weeks. I'm not suggesting new positions at this time.

Earlier Comments: November 12, 2014:
BCR is in the healthcare sector. The company makes medical supplies. According to the company website, "C. R. Bard, Inc. is a leading multinational developer, manufacturer, and marketer of innovative, life-enhancing medical technologies in the product fields of vascular, urology, oncology, and surgical specialty. BARD markets its products and services worldwide to hospitals, individual health care professionals, extended care facilities, and alternate site facilities."

The company has been on a roll with its earnings reports. BCR has beaten Wall Street's estimates on both the top and bottom line the last four quarters in a row. The last couple of quarters have seen some pretty big beats and management has raised guidance.

BCR's most recent earnings report was October 22nd. Wall Street expected a profit of $1.87 a share on revenues of $818.8 million. BCR said earnings rose +28% from a year ago to $2.15 a share. Revenues were up +9% to $830 million. Inside the U.S. net sales were up +13%. Management raised their Q4 EPS guidance above analysts' estimates.

The stock has been struggling to breakout past major resistance near the $150-155 range but the October earnings results launched shares of BCR higher. The last couple of weeks have seen BCR consolidating sideways under resistance near the $165.00 level. We think it's about to break out. The point & figure chart is bullish and forecasting at long-term target of $194.00.

Tonight we are suggesting a trigger to buy calls at $165.60

- Suggested Positions -

Long 2015 Jan $170 call (BCR150117c170) entry $2.63

12/01/14 new stop @ 165.85
11/22/14 new stop @ 163.35
11/13/14 triggered @ 165.65, suggested entry was $165.60
Option Format: symbol-year-month-day-call-strike


Costco Wholesale - COST - close: 143.25 change: +0.23

Stop Loss: 141.25
Target(s): To Be Determined
Current Option Gain/Loss: +383.8%
Average Daily Volume = 1.9 million
Entry on October 30 at $132.25
Listed on October 29, 2014
Time Frame: Exit prior to earnings in December 10th
New Positions: see below

12/06/14: Our normal December call options expire in two weeks. However, COST is scheduled to report earnings on December 10th. The stock is up seven weeks in a row. Odds are pretty good that COST could see some profit taking on its earnings report no matter what the company reports.

We are suggesting an exit on Monday at the closing bell. We'll raise the stop loss to $141.25 just in case COST is weak on Monday.

Earlier Comments: October 29, 2014
COST is part of the services sector. The company runs a discount, membership sales warehouse. The company's latest earnings report said Costco currently operates 664 warehouses, including 469 in the United States and Puerto Rico, 88 in Canada, 33 in Mexico, 26 in the United Kingdom, 20 in Japan, 11 in Korea, 10 in Taiwan, six in Australia and one in Spain.

The company has struggled to hit Wall Street's bottom line estimates for over a year but steady improvement in their same-store sales have helped drive the stock higher. A strong back to school shopping season and higher membership fees fueled a better than expected quarterly report.

COST reported their Q4 numbers on October 8th. After missing estimates for five quarters in a row the company finally beat estimates. Analysts were expecting a profit of $1.52 a share on revenues of $35.3 billion. COST delivered $1.58 a share with revenues up +9.3% to $35.52 billion. The net profit number was up +13% and gross margins improved 15 basis points.

COST also reported that their e-commerce sales continue to grow at a brisk pace and their online sales rose +18% in their fourth quarter. Same-store (comparable store) sales remain a key metric to watch. COST's Q4 same-store sales were up +4% yet if you back out falling gasoline prices and currency effects their comparable store sales were up +6% for the quarter versus +4.5% a year ago. Membership renewal rates remain very strong at 91% in the U.S. and 87% globally. COST plans to open up to eight more locations before the end of the 2014 calendar year.

The company also recently announced their first foray into China. COST has entered the Chinese market with an online store through Alibaba Group's (BABA) Tmall Global platform.

The holiday shopping season is almost upon us with less than 60 days before Christmas. COST is poised to do well since the company caters to the higher-end more affluent customer.

Shares are hovering just below the $132.00 level. Tonight we are suggesting at trigger to buy calls at $132.25. We will plan on exiting positions prior to their December earnings report.

- Suggested Positions -

Long DEC $135 call (COST141220c135) entry $1.54

12/06/14 prepare to exit on Monday at the close
12/06/14 new stop @ 141.25
11/29/14 new stop @ 138.65
11/25/14 Caution: investors may want to take profits now
11/22/14 new stop @ 137.25
11/08/14 new stop @ 134.75
11/01/14 new stop @ 130.75
10/30/14 triggered @ 132.25
Option Format: symbol-year-month-day-call-strike


Deckers Outdoor Corp. - DECK - close: 98.57 change: +1.90

Stop Loss: 93.65
Target(s): To Be Determined
Current Option Gain/Loss: +52.6%
Average Daily Volume = 763 thousand
Entry on November 17 at $92.25
Listed on November 15, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

12/06/14: DECK garnered some bullish analyst comments and a new $108 price target on Friday. This helped shares outperform the market with a +1.9% gain. The stock closed at two-month highs and is poised to challenge its 2014 highs near $99-100 soon.

DECK is up six weeks in a row. I am not suggesting new positions. More conservative traders may want to plan on an exit in the $99.00-100 area.

Earlier Comments: November 15, 2014:
DECK is part of the consumer goods sector. The company owns a number of brands but for many Deckers means UGG. The iconic footwear line was started in 1978 in Southern California. Strength in the UGG line helped power the company's latest quarterly results.

According to the company website, "Deckers Brands is a global leader in designing, marketing and distributing innovative footwear, apparel and accessories developed for both everyday casual lifestyle use and high performance activities. The Company's portfolio of brands includes UGG, I HEART UGG, Teva, Sanuk, TSUBO, Ahnu, MOZO, and HOKA ONE ONE. Deckers Brands products are sold in more than 50 countries and territories through select department and specialty stores, 130 Company-owned and operated retail stores, and select online stores, including Company-owned websites. Deckers Brands has a 40-year history of building niche footwear brands into lifestyle market leaders attracting millions of loyal consumers globally."

The most recent earnings report was October 23rd. Analysts were expecting a profit of $1.03 per share on revenues of $457.2 million. DECK beat estimates with a profit of $1.17 a share. That's a +23.2% increase from the same period a year ago. Revenues soared +24.2% to a record $480.3 million. U.S. sales rose +21.1% and international sales surged +29.2%. E-commerce sales soared +45%.

It was DECK's Q2 and their gross profit rose +34% while gross margins increased 340 basis points to 46.6%. This was above estimates of 45% and above their gross margin a year ago of 43.2%. Management said all brands delivered a strong performance.

The company lowered their Q3 guidance (current quarter) to below Wall Street estimates. They also raised their Q4 and 2015 guidance on both the top and bottom line. DECK expects 2015 to see revenues up +15%, earnings up +15.8%, and gross margins around 49%. Last quarter the S&P 500 saw earnings growth of about +6.9%. DECK is clearly outgrowing the market with +23% growth. The S&P 500 is expected to see +10-11% growth in 2015.

Technically shares are poised for a breakout on both the daily chart and the point & figure chart. Looking at the point & figure chart (not shown), a breakout past $92.00 would generate a new triple-top breakout buy signal. A breakout could also spark some short covering. The most recent data listed short interest at 17% of the small 33.6 million share float.

Tonight we are suggesting a trigger to buy calls at $92.25. Such a move probably signals a run toward resistance near $100.00.

- Suggested Positions -

Long 2015 Jan $95 call (DECK150117c95) entry $3.80

11/29/14 new stop @ 93.65
11/22/14 new stop @ 89.75
11/17/14 triggered $92.25
Option Format: symbol-year-month-day-call-strike


DineEquity, Inc. - DIN - close: 99.28 change: +0.84

Stop Loss: 96.85
Target(s): To Be Determined
Current Option Gain/Loss: +241.7%
Average Daily Volume = 154 thousand
Entry on November 05 at $91.55
Listed on November 04, 2014
Time Frame: Exit PRIOR to December 20th option expiration
New Positions: see below

12/06/14: DIN continues to look strong. This restaurant stock outperformed the broader market on Friday with a +0.85% gain. Shares narrowly missed extending its streak of weekly gains to eight in a row by five cents.

The stock looks poised to breakout past resistance at the $100 level soon. Yet more conservative traders may want to take profits now since our December options expire in two weeks.

I'm not suggesting new positions at the moment.

Earlier Comments: November 4, 2014:
Restaurant stocks were showing relative strength today. Better than expected earnings results from the likes of Red Robin (RRGB) and Bloomin Brands (BLMN) helped buoy the group. Additional stocks in this industry showing relative strength on Tuesday are: BWLD, PNRA, JACK, EAT, SONC, TXRH, KKD, DNKN, CAKE, DRI, and PBP. The one we like tonight is DIN.

According to a company press release, "Based in Glendale, California, DineEquity, Inc., through its subsidiaries, franchises and operates restaurants under the Applebee's Neighborhood Grill & Bar and IHOP brands. With more than 3,600 restaurants combined in 19 countries, over 400 franchisees and approximately 200,000 team members (including franchisee- and company-operated restaurant employees), DineEquity is one of the largest full-service restaurant companies in the world."

The company has seen success with a steady improvement in earnings. DIN has beaten Wall Street's estimates on both the top and bottom line three quarters in a row. Their most recent report was October 28th. Analysts were looking for a profit of $1.05 a share on revenues of $157.2 million. DIN served up $1.14 per share with revenues climbing to $162.85 million.

The company saw domestic system-wide same-store sales up +2.4% at IHOP and +1.7% at Applebee's. Management then raised their sales guidance on both Applebee's and IHOP. DIN also raised its dividend by 17% to $0.875 per share and they boosted their stock buyback program from $40 million to $100 million.

The restaurant industry should be a major beneficiary of the drop in oil prices. Lower gasoline prices at the pump mean consumers have more spending money and will likely burn a lot of that cash eating at restaurants.

Shares broke out to new highs on this earnings report and bullish guidance. Today the stock is at all-time highs. The point & figure chart is bullish and forecasting a long-term target at $118.00.

Tonight we are suggesting a trigger to launch bullish positions at $91.55.

- Suggested Positions -

Long DEC $95 call (DIN141220c95) entry $1.20

12/06/14 only two weeks left on our December options
11/29/14 new stop @ 96.85
11/26/14 new stop @ 94.85, traders may want to take profits here!
11/22/14 new stop @ 93.85
11/19/14 new stop @ 92.75
11/13/14 new stop @ 92.25
11/12/14 new stop @ 91.45
11/08/14 new stop @ 89.65
11/05/14 triggered @ 91.55
Option Format: symbol-year-month-day-call-strike


The Walt Disney Co. - DIS - close: 93.76 change: +0.53

Stop Loss: 88.65
Target(s): To Be Determined
Current Option Gain/Loss: + 9.4%
Average Daily Volume = 6.5 million
Entry on December 01 at $92.63
Listed on November 29, 2014
Time Frame: exit prior to February expiration
New Positions: see below

12/06/14: DIS ended the week at new all-time highs. Shares look ready to breakout past the $94.00 level on Monday. More conservative investors may want to start raising their stop loss.

I'm not suggesting new positions at current levels. A dip near $92.00, which should be support, would be a better entry point.

Earlier Comments: November 29, 2014:
Disney is an American icon. The company is over 90 years old. They have grown into a massive content generating giant. Today DIS runs five business segments. Their media networks include broadcast, cable, radio, publishing, and digital businesses headlined by their Disney/ABC television group and ESPN Inc. DIS' parks and resort business includes Disneyland, Disneyworld, plus theme parks in Tokyo, Paris, Hong Kong, Shanghai, and a cruise line.

The company's products division licenses the company's horde of names, characters, and intellectual property to a wide range of products. They've also jumped into the online world with their Disney Interactive division. Last but not least is the Walt Disney Studios segment. Disney started making movies 90 years ago. Today their studio business includes Disney animation, Pixar Animation, Disneynature, Disney Studios Motion Pictures, Disney music group, Touchstone Pictures, and Marvel Studios.

Their movie business has been a money maker over the years with huge hits like the Pirates of the Caribbean franchise, Tangled, Wreck-it Ralph. Last year they released the animated film "Frozen", which has turned into the largest grossing animated movie of all time. Pixar has a stable of successful movies that have grossed almost $9 billion. DIS is also mining gold in Marvel Entertainment's library of over 8,000 characters of comic book history. Marvel had two big hits this year Captain America: Winter Soldier and Guardians of the Galaxy.

Back in 2012 Disney purchased Lucasfilm and all the Star Wars properties from George Lucas for $4 billion. The company is busy filming the next three episodes of the Star Wars franchise. This weekend DIS released the teaser trailer for episode 7, The Force Awakens. It has been shocking to see just how much hype and buzz this teaser has generated. There are stories and links to this trailer just about everywhere you go on the Internet this weekend. It has reawakened fan interest in the Star Wars story and DIS has a whole year to feed the hype until episode seven's release in December 2015. Analysts are already predicting that "The Force Awakens" will generate $1.2 billion at the global box office.

I expanded on the movie business above because it was Disney's studio segment that really drove earnings last quarter. DIS has been beating Wall Street's estimates on both the top and bottom line four quarters in a row. The most recent earnings report was November 6th (DIS' Q4). Analysts were expecting a profit of $0.88 a share on revenues of $12.37 billion. DIS reported $0.89 a share with revenues rising +7.1% to $12.39 billion. The movie division saw its quarterly revenues soar +18% to $1.8 billion. Altogether the company reported record-breaking revenues for all five businesses in 2014.

The correction in DIS' stock from the September highs to the October lows was painful but shares have come roaring back. Now after consolidating sideways between $88.75 and $92.00 this last month the stock is rested and ready to run. The breakout past resistance at $92.00 looks like an entry point to buy calls.

I suspect the $100.00 level could be round-number, psychological resistance but the point & figure chart is very bullish and forecasting a long-term $119.00 target. Tonight we are suggesting traders buy calls on Monday morning at the opening bell.

- Suggested Positions -

Long 2015 Feb $95 call (DIS150220C95) entry $1.80

12/01/14 trade begins. DIS opens at $92.63
Option Format: symbol-year-month-day-call-strike


FedEx Corp. - FDX - close: 182.03 change: +1.85

Stop Loss: 176.65
Target(s): To Be Determined
Current Option Gain/Loss: +315.1%
Average Daily Volume = 1.5 million
Entry on October 17 at $155.50
Listed on October 15, 2014
Time Frame: Probably exit prior to earnings on Dec. 17th
New Positions: see below

12/06/14: FDX is still delivering gains and extended its current rally to eight up weeks in a row. These are all-time highs.

I am not suggesting new positions. FDX is very short-term overbought and due for a correction but has been for a while. More conservative investors may want to lock in potential gains now.

NOTE: FDX is scheduled to report earnings on December 17th. We will likely exit prior to the report to avoid holding over the announcement.

Earlier Comments: October 15, 2014:
Last year a last minute surge of online shoppers overwhelmed the system and thousands of Christmas presents were delivered late. Part of the problem was terrible weather. The other challenge was the growth in online shopping. Amazon.com (AMZN) blamed UPS for the mass of delayed deliveries last year. You can bet that UPS' rival FDX has taken notice and plans to be ready this year.

Market research firm EMarketer is estimating that retail online shopping will surge +17% in 2014 to $72.4 billion. That might be under estimating the growth, especially this year as many consumers might opt to shop online instead of face the crowds and risk being a target for terrorism or catching Ebola. Granted neither a terrorist event inside the U.S. and a widespread outbreak of Ebola in the states has happened yet but people are already afraid with the daily headlines about the virus.

UPS and FDX hope to be ready. UPS is hiring up to 95,000 seasonal workers and FDX is hiring 50,000 holiday workers this year. That's 10K more than last year for FDX.

In addition to the surge in online shopping FDX should also benefit from the multi-year lows in oil prices. Low oil prices means lower fuel costs, one of FDX's biggest expenses.

It would appear that FDX has fine tuned its earnings machine as well. Their latest earnings report was September 17th. Wall Street was expecting a profit of $1.95 a share on revenues of $11.46 billion. FDX delivered a profit of $2.10 a share with revenues up to $11.7 billion. That's a +24% increase in earnings from a year ago and the second quarter in a row that FDX beat EPS estimates.

FDX chairman, president, and CEO Frederick Smith said, "FedEx Corp. is off to an outstanding start in fiscal 2015, thanks to very strong performance at FedEx Ground, solid volume and revenue increases at FedEx Freight and healthy growth in U.S. domestic volume at FedEx Express." Business has been strong enough that a few weeks ago FDX started raising prices on some services.

Since that September earnings report Wall Street analysts have been raising price targets. Some of the new price targets for FDX stock are $175, $180 and $183 a share.

The recent sell-off in the market and FDX could be an opportunity. FDX has already seen a -10% correction from its intraday high near $165 to today's low near $149. Right now FDX sits just below resistance near $155.

We're suggesting a trigger to buy calls at $155.50.

- Suggested Positions -

Long 2015 Jan $160 call (FDX150117c160) entry $5.30

12/02/14 new stop @ 176.65
11/29/14 new stop @ 174.25
11/17/14 new stop @ 169.85
11/15/14 new stop @ 168.40
11/08/14 new stop @ 165.50
11/01/14 new stop @ 163.45
10/28/14 new stop @ 162.65, traders may want to take profits now!
10/25/14 new stop @ 157.85
10/23/14 new stop @ 155.90
FDX is nearing resistance at $164.00. Traders may want to take profits now.
10/21/14 new stop @ 153.45
10/17/14 triggered @ 155.50
Option Format: symbol-year-month-day-call-strike


The Hain Celestial Group, Inc. - HAIN - close: 115.33 change: +1.26

Stop Loss: 109.85
Target(s): To Be Determined
Current Option Gain/Loss: +94.4%
Average Daily Volume = 615 thousand
Entry on November 26 at $110.25
Listed on November 25, 2014
Time Frame: Plan on exiting PRIOR to the stock split
New Positions: see below

12/06/14: The NASDAQ and S&P 500 posted gains of +0.23% and +0.16%, respectively, on Friday. HAIN outperformed them with a +1.1% gain and a new all-time closing high. This stock might be able to keep the momentum going as traders bid the stock up ahead of its 2-for-1 stock split on December 30th.

The shareholder record date for the split is December 12th and we suggesting investors turning more defensive on the record date with a higher stop loss. We will plan on exiting prior to the split on Dec. 30th.

I am not suggesting new positions at this time.

Earlier Comments: November 25, 2014:
"Our business continues to benefit from strong growth trends in the organic and natural, better-for-you segment of consumer packaged goods."

That quote is from HAIN's CEO after the company reported its latest earnings results in early November. He's right. Consumers are choosing healthier foods and it looks like a major trend change that could benefit HAIN for a long time.

The company website describes HAIN as, "The Hain Celestial Group, headquartered in Lake Success, NY, is a leading natural and organic food and personal care products company in North America and Europe. Hain Celestial participates in almost all natural food categories with well-known brands that include Celestial Seasonings, Terra, Garden of Eatin', Health Valley, WestSoy, Earth's Best, Arrowhead Mills, DeBoles, Hain Pure Foods, FreeBird, Hollywood, Spectrum Naturals, Spectrum Essentials, Walnut Acres Organic, Imagine Foods, Rice Dream, Soy Dream, Rosetto, Ethnic Gourmet, Yves Veggie Cuisine, Linda McCartney, Realeat, Lima, Grains Noirs, Natumi, JASON, Zia Natural Skincare, Avalon Organics, Alba Botanica and Queen Helene."

HAIN's results have definitely confirmed the trend in consumer spending. They have beaten Wall Street's estimates and guided higher in three out of the last four earnings reports.

The Q4 report in late August this year saw revenues up +26% to $583.8 million. Management raised their guidance as they now expect sales growth of +27% to +30% in 2015.

The company reported their 2015 Q1 numbers on November 6th and sales are accelerating. Wall Street was expecting a profit of $0.67 on revenues of $640.27 million. HAIN delivered a profit of $0.68, which is a +31% increase from a year ago. Revenues were up +34.6% to $642.6 million. These are really impressive results when you consider that includes a voluntary recall of their HAIN nut butters back in August.

Commenting on their Q1 results, Irwin Simon, Founder, President, and CEO of the company said, "We are pleased with another strong start to our fiscal year across all of our segments on a worldwide basis with the highest quarterly net sales in the Company's history."

"Our diverse portfolio of brands and products across multiple categories and our customer base across various channels of distribution enabled us to deliver double-digit sales growth even with the impact of the nut-butter recall initiated in August."

Accompanying these results their Board of Directors also approved a 2-for-1 stock split but shareholders needed to approve an increase in the number of shares outstanding first. The company's annual meeting was a few days ago and shareholders did approve the stock split. That headline came out tonight, after the closing bell.

The 2-for-1 stock split will occur in December. The shareholder record date is December 12th, 2014. The ex-dividend date is expected to be December 29th (this is when HAIN will begin trading post-split).

Shares of HAIN have been consolidating sideways beneath resistance at $110 for the last three weeks. The stock displayed relative strength today and looks poised to breakout past this resistance. The 2-for-1 stock split news could be the catalyst it needed. After hours tonight shares are trading around $110.50. We are expecting HAIN to gap open higher tomorrow morning. I'm suggesting a trigger to buy calls on HAIN if shares trade at $110.25 or higher.

We are not setting an exit target tonight but I will point out that the point & figure chart is bullish and forecasting a long-term $131.00 target.

- Suggested Positions -

Long 2015 Jan $115 call (HAIN150117c115) entry $1.80

11/29/14 new stop @ 109.85
11/26/14 triggered @ $110.25
Option Format: symbol-year-month-day-call-strike


Hanesbrands Inc. - HBI - close: 113.17 change: +1.30

Stop Loss: 111.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 786 thousand
Entry on December -- at $---.--
Listed on December 02, 2014
Time Frame: Exit prior to 2015 January option expiration
New Positions: Yes, see below

12/06/14: HBI did not see any follow through on Thursday's decline (which was due to poor earnings results from GIL). Shares of HBI rebounded with a +1.1% gain on Friday but we are still on the sidelines. Our suggested entry point to buy calls is $115.05.

Earlier Comments: December 3, 2014:
HBI is in the consumer goods sector. The company makes clothing. According to the company website, "Our innerwear and activewear apparel brands include Hanes, Champion, Playtex, Bali, Maidenform, Flexees, JMS/Just My Size, barely there, Wonderbra and Gear for Sports. In addition, our international brands include Zorba, Sol y Oro, Rinbros, Track N Field and Ritmo.

We sell bras, panties, shapewear, sheer hosiery, men's underwear, children's underwear, socks, T-shirts and other activewear in the United States, Canada, Mexico and other leading markets in the Americas, Asia and Europe. In the United States, we sell more units of intimate apparel, male underwear, socks, shapewear, hosiery and T-shirts than any other company."

Shares of HBI have been a strong performer for investors thanks to significant earnings growth. The company has beaten Wall Street's bottom line estimate and raised guidance the last four quarters in a row. Investors Business Daily noted that HBI's profits have risen 40% in the last three quarters, which is the best streak of profitability since 2010. HBI's quarterly pretax profit margins are at multi-year highs. Wall Street expects HBI's profits to rise +46% in Q4.

HBI's Chairman and Chief Executive Office, Richard Noll, commented on their most recent earnings report (released October 29th) saying,

"Our business continues to perform very well, particularly in an uncertain consumer environment. We have delivered more earnings in the first three quarters of 2014 than we did all of last year. Our Innovate-to-Elevate strategy, global self-owned supply chain, and acquisitions continue to generate shareholder value and give us confidence in our potential for many years to come."

After breaking out to new highs a few days ago the stock has pulled back to retest prior highs as new support. Today's bounce looks like a new bullish entry point to hop on board the HBI train. Tonight I am suggesting a trigger to buy calls at $115.05.

Trigger @ $115.05

- Suggested Positions -

Buy the 2015 Jan $120 call (HBI150117C120)

12/04 down sharply in reaction to GIL's earning miss and warning
Option Format: symbol-year-month-day-call-strike


Northrop Grumman - NOC - close: 147.69 change: +7.85

Stop Loss: 143.85
Target(s): To Be Determined
Current Option Gain/Loss: +226.7%
Average Daily Volume = 1.0 million
Entry on November 21 at $140.25
Listed on November 20, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

12/06/14: I warned readers on Thursday that shares of NOC would likely trade higher on Friday in reaction to its $3 billion stock buyback announcement. Before the opening bell the stock was added to the "conviction buy list" by Goldman Sachs who also raised their price target on NOC to $165.00.

The stock reacted with a +5.6% surge to new all-time highs. Tonight we are raising our stop loss to $143.85. I am not suggesting new positions.

Earlier Comments: November 20, 2014:
One might have assumed that when Washington politics cut $500 billion from the U.S. defense budget over the 2012-2021 time frame it would have been bearish for defense sector stocks. Yet the group has been an outperformer in the stock market and delivered amazing gains last year. The defense-related juggernauts like NOC continue to perform well in 2014. This stock is currently up +20% in 2014 versus a +10.8% gain in the S&P 500.

According to their company website, "Northrop Grumman is a leading global security company providing innovative systems, products and solutions in unmanned systems, cyber, C4ISR, and logistics and modernization to government and commercial customers worldwide." What does that mean? It means NOC makes bombers, unmanned drones, cyber security solutions, and logistics. If you're curious, C4ISR stands for command, control, communications, computers, intelligence, surveillance, and reconnaissance.

The fact that the world seems to be growing more dangerous, not less dangerous, should be a bullish undercurrent that lifts the defense sector. NOC should benefit because the American public does not have the stomach for another war. That means the U.S. will use more and more unmanned technology like NOC's drones.

The company has been performing well this year and NOC has raised guidance the last four quarters in a row. They reported their Q3 results on October 22nd. It was NOC's eight consecutive quarter in a row of earnings growth. Wall Street was looking for a profit of $2.14 a share on revenues of $5.9 billion. NOC delivered $2.26 a share. That's up +6% from a year ago. Revenues beat estimates at $5.98 billion.

NOC management has been trying to diversify their customer base and international sales are expected to hit 13% of total revenue in 2014 compared to 10% last year. NOC's Q3 saw its total backlog soar +8% to $38.5 billion from the prior quarter.

Once again management has raised their guidance. NOC expects 2014 earnings in the $9.40-9.50 zone compared to prior guidance of $9.15-9.35. Wall Street was estimating $9.35.

Shares of NOC have spent the last three weeks consolidating gains in the $135-140 zone. The point & figure chart remains bullish and is forecasting at $158.00 target. Given the stock's bullish trend of higher lows NOC could see a breakout soon.

Tonight I am suggesting a trigger to buy calls at $140.25.

- Suggested Positions -

Long 2015 Jan $145 call (NOC150117c145) entry $1.50

12/06/14 new stop @ 143.85
12/01/14 NOC has broken short-term support and looks poised to hit our stop loss
11/29/14 new stop @ 138.65
11/21/14 triggered @ 140.25
Option Format: symbol-year-month-day-call-strike


Red Robin Gourmet Burgers - RRGB - close: 71.62 change: -0.14

Stop Loss: 67.35
Target(s): To Be Determined
Current Option Gain/Loss: +15.3%
Average Daily Volume = 214 thousand
Entry on December 02 at $70.55
Listed on December 01, 2014
Time Frame: 4 to 8 weeks
New Positions: see below

12/06/14: RRGB saw its rally pause a tiny bit on Friday. Shares snapped a five-day winning streak with a minor loss. Nimble traders could use a dip in the $70-71 zone as a new bullish entry point.

Earlier Comments: December 1, 2014:
RRGB is part of the services industry. They operate a chain of casual dining restaurants. According to a company press release, "Red Robin Gourmet Burgers, Inc. (www.redrobin.com), a casual dining restaurant chain founded in 1969 that operates through its wholly-owned subsidiary, Red Robin International, Inc., is the Gourmet Burger Authority, famous for serving more than two dozen craveable, high-quality burgers with Bottomless Steak Fries in a fun environment welcoming to guests of all ages. There are more than 500 Red Robin restaurants across the United States and Canada, including those operating under franchise agreements."

After big gains in 2013 the stock has had a rocky year in 2014. They beat earnings back in February but revenues missed the estimate. The stock rallied anyway. In May they reported earnings that beat both the top and bottom line estimates and shares soared. Then in August the stock reported its Q2 numbers that missed Wall Street's estimates by a wide margin. You can see the plunge lower on the daily chart.

It would appear that August may have been a one-quarter anomaly. RRGB reported their latest quarterly results on November 4th. Analysts were expecting a profit of $0.34 a share on revenues of $267.65 million. RRGB delivered earnings of $0.50 a share. That's a +56% increase from a year ago. Revenues missed estimates by a small margin at $267.4 million but that's still a +16% increase. The company said their number of guests were down -2.3% but the average bill was up +3.2%. Management expects comparable sales to rise +3% for fiscal 2014 and they believe RRGB will see operating profit margins of 21.3%. The stock soared on this report.

Casual dining stocks should see a big benefit from lower crude oil prices. Lower oil means lower gasoline prices at the pump. Gas prices have fallen to four-year lows in recent weeks. That means more disposable income for consumers to spend. After the OPEC decision last week we could see depressed oil prices for a long time.

Currently shares of RRGB have been consolidating gains in a sideways pattern under resistance near $70.00 the last couple of weeks. A breakout past $70.00 could spark some short covering. The most recent data listed short interest at 12.7% of the very small 13.8 million share float. Currently the Point & Figure chart is very bullish with a long-term target of $115.00.

The November intraday high was $70.45. Tonight I am suggesting a trigger to buy calls at $70.55.

- Suggested Positions -

Long 2015 Jan $70 call (RRGB150117c70) entry $2.95

12/02/14 triggered @ 70.55
Option Format: symbol-year-month-day-call-strike


The Sherwin-Williams Co. - SHW - close: 246.87 change: -0.84

Stop Loss: 238.25
Target(s): To Be Determined
Current Option Gain/Loss: +178.9%
Average Daily Volume = 526 thousand
Entry on November 05 at $231.00
Listed on November 01, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

12/06/14: SHW is another bullish momentum stock that looks very overbought after posting its eighth weekly gain in a row. Shares are due for a pullback. Investors may want to take profits now. SHW is struggling with round-number, psychological resistance at the $250.00 level. I am not suggesting new positions at this time.

Earlier Comments: November 1, 2014:
It's not very often you see a company about to celebrate its 150th birthday. For SHW that will be the year 2016. The company has been in business since 1866. The Company's core business is the manufacture, distribution and sale of coatings and related products. SHW is headquartered in Cleveland, Ohio. They sell through over 4,100 company-operated stores. Their global group has sales in more than 115 countries. Sherwin-Williams is also a very well known dividend payer and has annually increased dividends since 1979.

The slow and steady economic improvement in the U.S. has been beneficial. The real estate market has also helped SHW. New homes need new paint. The pace of new home sales in the U.S. hit six-year highs last month. While home sales do tend to slow down a bit in the winter months SHW should benefit from lower input costs. Crude oil and natural gas are big components in the paint and coatings industry. The severe drop in oil the last few months is a blessing for SHW.

The company raised their earnings guidance back in July. They issued bullish guidance again in their latest quarterly report. SHW announced earnings on October 28th. Wall Street was expecting a profit of $3.22 per share on revenues of $3.18 billion. SHW said their earnings rose +31.4% to a record-setting $3.35 per share. Revenues were up +10.6% at $3.15 billion, which missed the estimate.

SHW's remodeling business saw growth. The real driver was paint sales. Their paint stores account for the lion's share of sales, which saw revenues up +20%. SHW also purchased 2.0 million shares of their stock last quarter and still have 6.8 million yet to buy in their stock buy back program.

Management was optimistic. SHW's Chairman and CEO MR. Christopher Connor, said,

"We are pleased to report record sales and earnings per share in the third quarter and first nine months of 2014 on the continued positive sales volume and strong operating results of our Paint Stores Group. The Paint Stores Group architectural volume growth was positive across all end market segments. The Comex acquisition continues to perform better than expected in the year. Our Consumer Group improved its operating results through higher volume sales and operating efficiencies. Our Global Finishes Group continues to improve its operating margins through improved operating efficiencies."

Management raised their 2014 EPS guidance above Wall Street's estimates. They also raised their revenue guidance but this was only in-line with consensus. SHW now expects Q4 sales in the +6% to +8% range. They expect earnings to be in the $1.30-1.40 range versus $1.14 in the fourth quarter of 2013.

The stock's relative strength has driven shares to new all-time highs and a +25% gain in 2014. The point & figure chart is bullish and forecasting at long-term target at $286.

Tonight we are suggesting a trigger to buy calls at $231.00.

- Suggested Positions -

Long 2015 Jan $240 call (SHW150117c240) entry $3.37

11/22/14 new stop @ 238.25
11/15/14 new stop @ 234.45
11/13/14 SHW is hitting potential resistance at $240. Traders may want to take profits now.
11/08/14 new stop @ 229.75
11/05/14 triggered @ 231.00
Option Format: symbol-year-month-day-call-strike


Semiconductor ETF - SMH - close: 56.53 change: +0.47

Stop Loss: 53.85
Target(s): To Be Determined
Current Option Gain/Loss: +454.5%
Average Daily Volume = 2.4 million
Entry on October 17 at $47.15
Listed on October 16, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

12/06/14: Semiconductor stocks have been some of the market's best performers as stocks rocketed off the October lows. Now the SMH is up eight weeks in a row. Nearest support is likely the 10-dma near $55.00.

Investors will want to strongly consider taking profits now. I am not suggesting new positions at this time.

Earlier Comments: October 16, 2014:
It looks like the correction in the semiconductor stocks might be done.

The SMH is the Market Vectors Semiconductor Exchange Traded Fund (ETF) that tries to mimic the performance of the Market Vectors Semiconductor 25 index. Semiconductors as a group had been strong performers with the SMH up +73% from its late 2012 lows.

A few weeks ago the industry started to see some profit taking. MCHP issued an earnings warning last week that that sparked the massive plunge in the SMH. The SMH has witnessed a -15% correction from its 2014 closing high to the closing low on Monday this week. Now it has started to bounce. It's possible all the panic selling is over.

Intel (INTC), a much bigger company than MCHP, just reported earnings on October 14th and the results were better than Wall Street expected. More importantly INTC offered slightly bullish guidance.

Bloomberg noted that INTC said its PC-processor business rose +8.9% last quarter. Sales for INTC's chips for notebook computers soared +21%. Even chips for desktop PCs rose +6% in the third quarter.

The strong results from INTC have helped buoy the SMH, which is starting to rebound after testing (and piercing) long-term support on its weekly chart (shown below).

We suspect the worst might be over. However, this could be a volatile trade. There are a lot of semiconductor companies who have yet to report their results.

The SMH saw its rally stall under $47 and near its 200-dma. Tonight we are suggesting a trigger to buy calls at $47.15.

- Suggested Positions -

Long 2015 Jan $50 call (SMH150117c50) entry $1.10

11/29/14 new stop @ 53.85
11/22/14 new stop @ 52.25
11/20/14 new stop @ 51.40
11/12/14 new stop @ 50.85, readers may want to just take profits now!
11/01/14 new stop @ 48.85
10/25/14 new stop @ 47.85
10/21/14 new stop @ 46.35
10/17/14 triggered @ 47.15
Option Format: symbol-year-month-day-call-strike


Under Armour, Inc. - UA - close: 69.43 change: -0.16

Stop Loss: 68.85
Target(s): To Be Determined
Current Option Gain/Loss: -56.3%
Average Daily Volume = 2.6 million
Entry on November 21 at $71.05
Listed on November 19, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

12/06/14: UA has been unable to recover from its December 1st drop. The stock has been underperforming the broader market and struggling with its 10-dma as new overhead resistance.

Longer-term UA has a lot of potential but short-term the relative weakness is a warning signal. Tonight we are suggesting an immediate exit on Monday morning.

- Suggested Positions -

Long 2015 Jan $75 call (UA150117c75) entry $1.60

12/06/14 prepare to exit on Monday morning (Dec. 8th)
11/21/14 trade opened on gap higher at $71.19
Option Format: symbol-year-month-day-call-strike


Zebra Technologies - ZBRA - close: 76.49 change: -0.06

Stop Loss: 74.75
Target(s): To Be Determined
Current Option Gain/Loss: -25.4%
Average Daily Volume = 489 thousand
Entry on December 05 at $76.90
Listed on December 04, 2014
Time Frame: 8 to 12 weeks
New Positions: see below

12/06/14: Our new bullish play on ZBRA opened Friday morning. Shares gapped higher at $76.90. The plan was to buy calls at $76.85. the rally didn't get very far with ZBRA struggling with the $77.25 area.

At this time I would choose to either wait for a dip near $75.00 as our next entry point since we expect $75.00 to offer some support. As an alternative you could wait for a new three-month high breakout past $77.30 as your entry point.

Earlier Comments: December 4th, 2014:
ZBRA is in the industrial goods sector. They specialize in barcode, receipt, kiosk, and RFID printers and supplies. The company's equipment is used by the vast majority of Fortune 500 companies. They recently purchased Motorola Solutions Enterprise business.

Today the company is focusing on the Internet of Things (IoT). ZBRA's CEO, Mr. Anders Gustafsson, said, "Over the last two years, there has been a growing need for organizations to obtain a full picture of their business operations. I believe that with these survey results, it is clear that enterprises in key industries globally are adopting Internet of Things solutions to arm themselves with the real-time data and intelligence to become smarter and more connected. At Zebra, we believe that IoT and visibility solutions can help businesses reach new levels of efficiency and deliver greater value for customers."

ZBRA has zero debt and has been consistently beating Wall Street's earnings estimates. Their latest report was November 4th. Analysts were looking for a profit of $0.87 a share on revenues of $292 million. ZBRA delivered $0.93 a share, which is a +22.9% increase from the same quarter a year ago. Revenues were up +15% to $303.3 million.

The company said its sales rose in all geographic regions and hit a record quarterly revenues. Sales in Asia were up +9%, in Latin America +11%, in North America +16%, and in Middle East and Africa sales were up +19%. ZBRA also reported that its gross margins improved from 48.8% in 2013 to 50.0% in the recent quarter. Gustafsson said, "Favorable business momentum is continuing into the fourth quarter."

The stock has spent almost a month consolidating sideways in the $70-75 zone. The last couple of days have seen a bullish breakout through key resistance. Traders were buying the dip today. If this rally continues we want to hop on board. The point & figure chart is bullish and forecasting a long-term target of $105.00.

Tonight we are suggesting a trigger to buy calls at $76.85.

- Suggested Positions -

Long FEB $80 CALL (ZBRA150220C80) entry $2.95

12/05/14 triggered on gap open at $76.90, suggested entry was $76.85
Option Format: symbol-year-month-day-call-strike


PUT Play Updates

Currently we do not have any active put trades.