Option Investor

Daily Newsletter, Monday, 11/2/2015

Table of Contents

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

Market Wrap

November Starts With A Bang

by Thomas Hughes

Click here to email Thomas Hughes
The new month opened up with a bang, the major indices gained over 1% on earnings and economic data.


November opened up on a positive note. The indices gained across the board, supported by earnings, M&A activity and economic data. There were at least a a half dozen reported buy-outs or mergers this morning, over 125 earnings reports throughout the day and two key pieces of economic data that were both better than expected.

Market Statistics

International markets were mixed in today's trade. Asian indices were largely lower, driven by weak China manufacturing data. Official Chinese PMI came in at 49.8, unchanged from last month and weaker than the expected 50.0. Another, non-official private gauge of ISM came in at 48.3, also weaker than expected but stronger than last months 47.2. The Nikkei led with losses greater than -2% followed by similar losses in both the mainland Chinese and Hong Kong indices. European markets were not affected by the weak Chinese data, or were able to shrug it off in any event, with most of the indices posting gains. The DAX led with an increase near 0.80%.

Futures trading here at home was flat to positive for most of the morning. News did not have a noticeable impact before the bell, except in specific names such as Dyax, Conagra, Visa and Coty which all announced purchases or mergers. The SPX opened with a gain of only a few points, consistent with futures trading, and then proceeded to steadily rise for the next hour and half.

The market hit resistance just after 11AM but it was not enough to reverse today's gains. After an hour or so of consolidation the market moved back up to test the early high and broke through to make a new intraday high. From that point on the bulls were firmly in control and kept price moving higher into the late afternoon and the close of today's session.

Economic Calendar

The Economy

No economic data was released before the opening bell. ISM and Construction Spending were both released at 10AM. ISM came in at 50.1, the lowest level of the year, but also a little better than expected. Consensus estimate was 50.0 with some estimates showing expected contraction. Withing the report the employment index fell more than expected, to 47.6, and is showing contraction. On a positive note the new orders component rose more than expected to 52.9. Production also increased to 52.9% although shipments showed a slowing of expansion. Only 7 of the 18 manufacturing sectors showed growth.

Construction Spending was also better than expected. The amount of money spent on new construction rose by 0.6%, 0.1% ahead of expectations. Last months figure was unrevised at 0.7%. Residential construction spending rose by 1.8%. Total construction spending is now up 14.1% over this same time last year with residential spending up 17.2%.

Moody's Survey Of Business Confidence continues to contract. The index reading dropped a full point from last week to hit 35.3. In his commentary, Mark Zandi says that despite the recent hit to confidence the index remains strong compared to historical levels. The biggest drag on confidence is expectations for next year followed by a downturn in hiring. This is now the 9th week of steady decline and a new 12 month low.

Earnings season continues to roll on. According to Factset 340 of the 500 S&P companies have reported with another 105 on the schedule for this week. Of those that have reported 76% have beaten on EPS and 47% have beaten on revenue. The blended rate for earnings growth is now -2.2%. This is an improvement from last week's blended rate of -3.9% and the 5.2% projected at the start of the reporting season. Based on the four year averages, and performance among index companies this quarter, we can expect this to rise another 1% at least bringing the season rate to the range of -1%.

So far this season the energy and healthcare sectors have provided the largest upside surprises. Looking at the health sector. It is beating earnings growth expectations by 13.2%, more than double the 6.2% expected at the beginning of the season. Earnings declines in the energy sector are not as bad as feared. As of this weekend declines of -60% are up 4.2% from expectations. The sector is expected to post large declines next quarter as well, estimates have been falling and now stand at -66%.

On an Ex-energy basis S&P 500 earnings growth is 5% this quarter and 3.1% next quarter. Looking out to next quarter the all-index projection is -2.7%, a decline of -0.7% from last week. Fourth quarter growth expectations have been falling over the past month but at current levels are still in range to turn positive should the trend for earnings to rise about 4% between the start and end of the season hold through into next quarter. The first quarter of next year is project to see growth of 3% with full year estimates at 8.6%. Full year 2016 estimates have fallen again but remain positive in each quarter of the year.

This week will be busy, there are close to 1000 scheduled earnings reports along with the monthly round of macro-economic data. Of the data, Friday's NFP and unemployment may be the most heavily watched but all will play their part in coloring how the numbers are interpreted and their affect on the FOMC rate hike time line.

The Oil Index

Oil prices remain choppy and under pressure. Today' WTI lost about 1% on an intra-day basis, tried to rally, failed to hold it fell back to the days lows. Hurting prices today was China's manufacturing data as well as news that Russia's production was hitting record levels and news Iran is planning to raise production by 500,000 bpd in the near future. Offsetting the bearish news is last week's rig count which showed declines in all types of drilling and oil producing rigs. Despite the drop in rigs however, global production remains high, storage levels are near records and demand growth outlook if weak leaving me with little reason to expect prices to strengthen in the near future.

The Oil Index gained more than 2.15% in today's session. The index is supported not so much by oil prices, or even expectations of increased earnings next year, but I think more on the fact that earnings declines are not quite as bad as feared and the energy companies are making more moves to cut costs. Today's action carried the index up for the fourth day since bouncing off support last week. The indicators are mixed but consistent in showing a near term upswing in momentum. The index could keep rising in the near term, despite lower oil prices, but resistance is just above the current level near 1,230. A break above this level could be bullish, if supported by bullish oil prices, but I would not be surprised to see a whipsaw/false-break at this point. Support is near the short term moving average near 1,150.

The Gold Index

Gold prices fell to a one month low on renewed fear of the Fed rate hike. The FOMC statement has firmly placed a December hike on the table which has strengthened the dollar and, along with low inflation targets, has taken the bid right out of the gold market. Today the metal fell a little over -0.6% to trade just below $1135. This week's data may add momentum to gold's fall, there is a lot of data due out, any strength could be seen as leading the FOMC to raise rates.

The gold miners ETF GDX opened at a new one month low but rose throughout the day. The ETF gained a little over 1% on an intra-day basis, closing with a gain of 0.4%, in a sign of possible support but failed to regain the short term moving average. Despite the gains the indicators are pointing lower with momentum on the rise so the down turn is likely not over. Resistance is at the short term moving average near $15.25 with downside targets near $13.00.

In The News, Story Stocks and Earnings

Lots of new today, earnings and otherwise. Topping the list in the early hours was earnings reported by Visa. The credit and payment processing firm reported rising revenue and earnings but failed to meet expectations. Revenue increased to $3.23 billion with adjusted earnings per share of $0.62. This is up nearly 50% from last year's $0.43 but fell one cent shy of consensus. Along with the report are plans for Visa to buy Visa Europe in a deal worth more than $24 billion. Shares of the stock fell about -3% on the news but found support at the short term 30 day moving average.

ConAgra announced the sale of it's private label operations to Treehouse Foods. The sale is worth $2.7 billion and is expected to boost sales for Treehouse Foods by $7 billion. Conagra is going to focus on it's name brand operations such as Chef Boyardee and Slim Jim. This is the second major move by ConAgra to restructure, the first being a major reduction in workforce and restructuring of operations. The company is shedding over 1,500 jobs aside from those which are included in the sale to Treehouse Foods. Shares of Treehouse fell more than -5% on the news while ConAgra gained nearly 3%, on an intraday basis at least. The stock posted a strong open and the moved higher only to peak out within the first half hour of trading and lose most of the early gains.

Today is the day that HPQ finally split. The two new companies, Hewlett Packard Enterprise Company and Hewlett Packard Inc. The move has been long in coming and resulted in 10's of thousands of job cuts but has left the two companies better positioned, theoretically, to perform well into the future. Shares of both companies were scooped up in today's led by HPQ, HP Inc., with a gain of 14% from the post split pricing.

AIG reported after the bell and produced a huge flop. The company was expected to reported $1.02 per share but actual results were close to 50% that figure. The company cited lower income on hedge fund investments and assets marked to fair value through earnings as well as restructuring charges incurred during the quarter. On top of this the company announced it would be incurring another $0.5 billion in restructuring charges moving forward in its attempt to become a leaner operation and to "rationalize" its business. Shares of the stock had been trading higher during the open session but reversed those gains, falling nearly -1% in after hours trading.

The Indices

The indices were indicated to open higher and they did. They just weren't indicated to open strongly higher. Today's rally was stealth; it came out of nowhere, almost, supported by positive earnings surprises and anticipation of ongoing economic growth in the US. Action today was led by the Dow Jones Transportation Average. The transports gained more than 1.5% in a move falling just short of potential resistance at 8,260. The move confirms support along the short term moving average but comes with mixed indicators so caution is due. A move to test resistance could result in A move above resistance would be bullish and could take the index up to next target near 8,500.

The NASDAQ Composite made the second largest gain in today's session, just over 1.40%. The tech heavy index made a long bodied white candle, moving up from support, and created a new 2 month high. The indicators remain bullish and consistent with new highs although there is some sign the rally is weakening. Next target is the current all time high and the bottom of the previously broken long term up trend line. A move to this level could find significant resistance and is a prime target for profit taking, it would be a 20% move from the September lows.

The S&P 500 is next up in today's session. The broad market gained about 1.20%, created a long white candle and set a new two month high. The index is riding a wave of strong upward momentum that looks likely to take it up to test the all time high at least. There are signs the rally is slowly losing momentum so caution is due as it approaches the all time high but until then there are no significant resistance targets. A break above resistance to set a new all time high could very well be the trigger profit takers are looking for so tight stops are a must.

The Dow Jones Industrial Average is today's laggard gaining only 0.94%. The blue chips created a medium sized white candle and set a new three month high with the 18,000 level less than a stones throw away. The indicators remain bullish although they too are showing signs of slowing momentum so it looks likely that 18,000 will be hit. This level is consistent with the underside of the long term trend line, broken two moths ago, and could provide significant resistance so caution is due here as well. A break above the trend line could take the index up to test the all time high.

The rally is rolling on with many of the indices set to test their all time highs as early as this week. The market is being supported by better than expected earnings and expectations for earnings and economic growth into the end of the year. The caveat is that economic growth has slowed and earnings outlook for next quarter and next year is declining from peaks seen in late summer. My long term outlook and stance remains bullish but I see a chance for resistance and consolidation at the all time highs, if not an actual pull back to support levels, so near term I am very cautious. If a dip does develop I will be looking to re-enter.

Until then, remember the trend!

Thomas Hughes

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New Option Plays

Ready For Launch

by James Brown

Click here to email James Brown


The Boeing Company - BA - close: 148.40 change: +0.33

Stop Loss: 144.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 3.8 million
Entry on November -- at $---.--
Listed on November 02, 2015
Time Frame: Exit PRIOR to earnings
New Positions: Yes, see below

Company Description

Trade Description:
Defense stock investors have had a frustrating year with the group peaking in March 2015 and sliding lower the next six months. Fortunately the defense industry appears to have reversed higher. BA is leading the charge.

BA is in the industrial goods sector. According to the company, "Boeing is the world's largest aerospace company and leading manufacturer of commercial jetliners and defense, space and security systems. A top U.S. exporter, the company supports airlines and U.S. and allied government customers in 150 countries. Boeing products and tailored services include commercial and military aircraft, satellites, weapons, electronic and defense systems, launch systems, advanced information and communication systems, and performance-based logistics and training."

The company has delivered strong earnings results the last three quarters. Their most recent report was October 22nd. Wall Street was expecting BA's Q3 numbers to be $2.20 per share on revenues of $24.78 billion. The company beat expectations on both fronts. Earnings rose +18% from a year ago to $2.52 a share. Revenues were up +9% to $25.85 billion. Their free cash flow surged from $317 million a year ago to $2.3 billion. Their backlog is huge at $485 billion and nearly 5,700 commercial airplanes.

If that wasn't good enough BA's management raised their guidance. The company upped their fiscal year 2015 earnings guidance from $7.70-7.90 to $7.95-8.15. They also raised their revenue estimate from $94.5-96.5 billion to $95.0-97.0 billion. This compares to Wall Street estimates at $8.08 per share on revenues of $95.4 billion.

BA's president and Chief Executive Officer Dennis Muilenburg commented on his company's performance:

"By continuing to profitably deliver on our large and diverse backlog, we are driving strong growth in revenue, earnings and cash flow. Solid operating performance across our commercial and defense businesses during the quarter also supported our continued investment in innovation and our people, and our commitment to return cash to shareholders.

Three quarters of solid results and confidence in our continued operating performance enabled us to raise our revenue, earnings per share and operating cash flow guidance for the year. Looking ahead, our teams remain focused on improving productivity and quality and delivering improved capabilities to meet our customers' expectations."

Shares of BA bottomed in August with the market's sharp correction lower. Traders bought the dip in late September near $127.50. Since then BA's stock has surged toward $150. We see a breakout past round-number resistance at $150.00 as a potential entry point. If BA breaks out it could rally toward its 2015 high near $159.00. The point & figure chart is bullish and forecasting at $165 target. Coincidentally the average analyst price target is also $165.

Tonight we are suggesting a trigger to buy calls at $150.25.

Trigger @ $150.25

- Suggested Positions -

Buy the 2016 JAN $155 CALL (BA160115C155) current ask $2.02
option price is a current quote and not a suggested entry price.

Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.

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

Daily Chart:

Weekly Chart:

In Play Updates and Reviews

Locking In Potential Gains In Disney

by James Brown

Click here to email James Brown

Editor's Note:

Stocks resumed their up trend with a widespread rally on the first trading day of November.

We closed the DIS and STZ trades this morning.

Tomorrow we want to exit the CBRL and JWN trades at the opening bell.

Current Portfolio:

CALL Play Updates

Costco Wholesale - COST - close: 159.15 change: +1.03

Stop Loss: 152.90
Target(s): To Be Determined
Current Option Gain/Loss: -4.4%
Average Daily Volume = 1.9 million
Entry on October 30 at $158.85
Listed on October 29, 2015
Time Frame: Exit PRIOR to earnings in mid December
New Positions: see below

11/02/15: Traders are still in a buy-the-dip mood with COST. The stock slipped to $157.65 and then rebounded. This is another new high for the stock. We can use this move as a new entry point or readers could wait for a rally past $160.00, which is conceivably round-number resistance.

Trade Description: October 29, 2015:
We are bringing COST back to the Option Investor newsletter. Shares have been doing well since they bottomed in August this year. We were in COST last week and were unexpectedly stopped out on this Monday's gap down.

If you're not familiar with COST they are in the services sector. The company runs a membership warehouse business that competes with the likes of Sam's Club (a division of Wal-Mart). According to the company, "Costco currently operates 686 warehouses, including 480 in the United States and Puerto Rico, 89 in Canada, 36 in Mexico, 27 in the United Kingdom, 23 in Japan, 12 in Korea, 11 in Taiwan, seven in Australia and one in Spain. The Company plans to open up to an additional 16 new warehouses (including one relocation to a larger and better-located facility) prior to the end of its fiscal year on August 30, 2015. Costco also operates electronic commerce web sites in the U.S., Canada, the United Kingdom and Mexico."

Revenue growth has been lackluster this year. COST has managed to beat Wall Street estimates on the bottom line but the revenue number has been soft. Their most recent quarterly report was announced on September 29th. Earnings were up +10% from a year ago to $1.73 a share. That beat estimates. Yet COST said their Q4 revenues were virtually flat (+0.7%) to $35.78 billion. That missed expectations. Comparable store sales were up +2% in the U.S. but down -10% in Canada.

A lot of COST's revenue troubles have come from lower oil, which has pushed gas prices lower. The big drop in gas prices cuts their revenue growth. Plus the stronger dollar hurts their foreign sales. The company continues to expand its presence in the U.S. and overseas. Management plans to launch 12 new warehouses this quarter. Overall COST plans to build 32 new stores in the next 12 months, including its first store in France.

Wall Street is generally bullish on COST. Out of the twenty analysts that cover the stock 12 of them have a "strong buy" rating. COST has seen its price target upgraded twice this month. The most recent upgrade was this week with a $180 target. The point & figure chart is very bullish and forecasting a long-term target of $239.00.

The last few days have seen COST consolidating gains with a sideways move in the $155.00-158.50 area. The intraday high was set last week at $158.80. Tonight we are suggesting a trigger to buy calls at $158.85. We will plan on exiting prior to COST's earnings report in December.

- Suggested Positions -

Long DEC $165 CALL (COST151218C165) entry $1.36

10/30/15 triggered @ $158.85
Option Format: symbol-year-month-day-call-strike

Salesforce.com, Inc. - CRM - close: 79.20 change: +1.49

Stop Loss: 75.75
Target(s): To Be Determined
Current Option Gain/Loss: +34.4%
Average Daily Volume = 3.6 million
Entry on October 12 at $76.25
Listed on October 07, 2015
Time Frame: Exit PRIOR to earnings on November 18th
New Positions: see below

11/02/15: Shares of CRM displayed relative strength on Monday with a +1.9% gain. The stock almost tagged round-number resistance at the $80.00 level.

We only have a couple of weeks left on this trade. Nimble traders may want to consider a breakout past $80.00 as an entry point.

Trade Description: October 7, 2015:
Cloud computing and software giant CRM has been churning sideways for almost seven months. In spite of this lack of upward movement CRM is still outperforming the broader market. The NASDAQ composite is up +1.2% year to date. CRM is up +26%. The good news is that CRM looks poised to breakout past major resistance and begin its next leg higher.

CRM is part of the technology sector. According to the company, "Salesforce is the world's #1 CRM company. Our industry-leading Customer Success Platform has become the world's leading enterprise cloud ecosystem. Industries and companies of all sizes can connect to their customers in a whole new way using the latest innovations in cloud, social, mobile and data science technologies with the Customer Success Platform."

CRM's revenues have been consistently growing in the mid +20% range the last few quarters. Their Q4 revenues were up +26%. Q1 revenues were +23%. The company's most recent quarter was announced August 20th. Analysts were expecting Q2 results of $0.17 a share on revenues of $1.6 billion. CRM beat both estimates with a profit of $0.19 as revenues grew +23.5% to $1.63 billion. Management raised their Q3 and full year 2016 revenue guidance.

Technically the stock is in a long-term up trend and the point & figure chart is forecasting an $85.00 target. The $75.00-76.00 area is major resistance with CRM failing in this region multiple times. The recent rally has boosted CRM back to this level and the stock looks poised to breakout soon.

(Side note - CRM did hit an intraday high of $78.46 on April 29th thanks to M&A rumors. The company is still considered a potential acquisition target by larger rivals.)

We like CRM's relative strength and consistently strong earnings and revenue growth. A breakout here could spark a run that lasts until the company's earnings report in November. Tonight we are suggesting a trigger to buy calls if CRM trades at $76.25 (or higher).

- Suggested Positions -

Long DEC $80 CALL (CRM151218C80) entry $3.05

10/31/15 new stop @ 75.75
10/17/15 new stop @ 74.75
10/12/15 triggered @ $76.25
Option Format: symbol-year-month-day-call-strike

The Home Depot, Inc. - HD - close: 124.41 change: +0.77

Stop Loss: 121.75
Target(s): To Be Determined
Current Option Gain/Loss: +40.6%
Average Daily Volume = 5.3 million
Entry on October 08 at $120.25
Listed on October 05, 2015
Time Frame: Exit PRIOR to earnings on November 17th
New Positions: see below

11/02/15: HD lagged behind the market's rally today. Shares only gained +0.6% versus the +1.1% rise in the S&P 500. Today still looks bullish with HD back above its 10-dma. The stock looks ready to accelerate the rally a gain after a four-day pullback.

We plan on exiting prior to HD's earnings report on Nov. 17th. Nimble traders could use a rally past $124.80 or $125.00 as an alternative entry point for short-term trades.

Trade Description: October 5, 2015:
Home Depot's stock has outperformed the broader market in spite of the fact shares have been stuck in a trading range for the last seven months. That could be about to change.

The big surge in the U.S. housing market this year has been a bullish tailwind for HD's business. The home remodeling and repair industry and consumer spending in this category is expected to hit levels not seen since before the "Great Recession" in 2008-2009. HD is poised to reap the benefits.

HD is in the services sector. According to the company, "The Home Depot is the world's largest home improvement specialty retailer, with 2,270 retail stores in all 50 states, the District of Columbia, Puerto Rico, U.S. Virgin Islands, Guam, 10 Canadian provinces and Mexico. In fiscal 2014, The Home Depot had sales of $83.2 billion and earnings of $6.3 billion. The Company employs more than 370,000 associates. The Home Depot's stock is traded on the New York Stock Exchange (HD) and is included in the Dow Jones industrial average and Standard & Poor's 500 index."

HD has been showing steady earnings and revenue growth. The company has beaten Wall Street estimates on both the top and bottom line the last three quarters in a row. Management has also raised their guidance the last three quarters in a row.

Their most recent report was August 18th. HD announced its Q2 earnings were up +14% from a year ago to $1.71 per share. Revenues were up +4.3% to $24.83 billion. Comparable store sales came in better than expected with a +4.2% improvement.

Wall Street analysts seem bullish with firms like Deutsche Bank and UBS recently raising their price targets on HD. Currently the point & figure chart is bearish but a rally past $120.00 would generate a brand new buy signal.

Earlier I mentioned that HD has been stuck in a long trading range or consolidation for most of 2015. With the exception of a few days, shares of HD have been churning sideways in the $110-120 range. Today HD looks poised to breakout from this channel. The $120.00 level is round-number resistance. Tonight we are suggesting a trigger to buy calls at $120.25. Plan on exiting prior to HD's earnings report in mid November.

- Suggested Positions -

Long NOV $125 CALL (HD151120C125) entry $1.43

10/22/15 new stop @ 121.75
10/10/15 new stop @ 117.45
10/08/15 triggered @ $120.25
Option Format: symbol-year-month-day-call-strike

iShares Russell 2000 ETF - IWM - close: 117.74 change: +2.40

Stop Loss: 113.35
Target(s): To Be Determined
Current Option Gain/Loss: +13.8%
Average Daily Volume = 36 million
Entry on October 28 at $116.55
Listed on October 24, 2015
Time Frame: 6 to 8 weeks
New Positions: see below

11/02/15: The U.S. market was in rally mode today. All the major indices posted gains. The small cap IWM displayed relative strength with a +2.0% surge to new multi-week highs.

Trade Description: October 24, 2015:
If you haven't noticed the market is in rally mode. Worries over the Fed raising rates in 2015 are fading while the rest of the world is trying to add stimulus to their economies. Concerns over a terrible Q3 earnings season are also fading. Yes, earnings results have been bad but the bar was set low enough that companies are beating estimates. Now the U.S. market is surging.

One area of the market has lagged behind and that is the small cap stocks. The NASDAQ composite ended the week with a +6.3% gain for 2015. The S&P 500 edged back into positive territory with a +0.8% gain for the year. Yet the small cap Russell 2000 index is still down -3.2%. It's time for the small caps to play catch up with the rest of the market.

A couple of issues have driven this divergence. Right now big caps are outperforming because mutual fund and hedge fund managers are probably window dressing their portfolios for the end of their fiscal year (October 31st). Another factor has been weakness in the biotech stocks. Biotechs reversed sharply in the last three months and they have struggled to keep up with the market's rebound. Currently there are a lot of small biotech companies in the small cap index. Biotechs now account for about 7% of the Russell 2000 index. This group has definitely lagged the rest of the market over the last three weeks.

The good news is that the IWM small cap ETF, which tracks the Russell 2000 index, looks poised to breakout higher. It has been coiling below resistance in the $116 area the last several days. When it finally breaks higher it can move pretty quick.

Tonight we are suggesting a trigger to buy calls at $116.55. If triggered we will start with a stop loss at $113.35. This is a multi-week trade.

- Suggested Positions -

Long 2016 JAN $120 CALL (IWM160115C120) entry $1.89

10/28/15 triggered @ $116.55
Option Format: symbol-year-month-day-call-strike

Lear Corp. - LEA - close: 126.34 change: +1.28

Stop Loss: 117.80
Target(s): To Be Determined
Current Option Gain/Loss: +29.7%
Average Daily Volume = 951 thousand
Entry on October 28 at $123.65
Listed on October 27, 2015
Time Frame: Exit PRIOR to December option expiration
New Positions: see below

11/02/15: LEA kept the rally going today with a +1.0% gain and another all-time closing high. Readers may want to raise their stop loss. The 10-dma should offer some support (currently $121.80). Meanwhile the intraday chart would suggest short-term support at $123.00.

Trade Description: October 27, 2015:
Shares of LEA experienced a correction this summer but the stock has come charging back. Year to day LEA is up +25% against the S&P 500, which is virtually flat with a +0.3% gain. The relative strength has been very evident in the last couple of months. The S&P 500 is up +10.6% from its August-correction lows. LEA is up +36% off its August intraday lows.

LEA is in the consumer goods sector. They are part of the auto parts industry. According to the company, "The Lear Corporation is a Fortune 500 company with world-class products designed, engineered and manufactured by a diverse team of talented employees. As a leading supplier of automotive seating and electrical, Lear serves its customers with global capabilities while maintaining individual commitment. With headquarters in Southfield, Michigan, Lear maintains 235 locations in 35 countries around the globe and employs approximately 135,000 employees. Lear is traded under the symbol [LEA] on the New York Stock Exchange."

The strong dollar has created negative currency headwinds for LEA but the company continues to beat on the bottom line. Their Q2 results, announced on July 24th, were better than expected with earnings of $2.82 per share. That was 34 cents above estimates. Management raised their full-year 2015 guidance.

The trend of better than expected earnings continued in the third quarter. LEA just announced their Q3 results a few days ago on October 23rd. Analysts were expecting a profit of $2.37 a share on revenues of $4.41 billion. LEA delivered a profit of $2.56 a share. That is a +33% jump from a year ago. Revenues were only up +2.3% to $4.33 billion. That missed expectations. However, if you discount negative currency headwinds, sales were up +11%. LEA management raised their 2015 outlook again.

These results were good enough to generate some bullish analyst comments on LEA and a new price target at $138.00. Coincidentally the point & figure chart is bullish and forecasting at $138 target. The current rally in LEA has produced a bullish breakout past major resistance in the $118.00 region, which should now become new support. More aggressive traders may want to buy calls now. We are suggesting a trigger to buy calls at $123.65, which would be a new all-time high. .

- Suggested Positions -

Long DEC $125 CALL (LEA151218C125) entry $3.70

10/28/15 triggered @ $123.65
Option Format: symbol-year-month-day-call-strike

Lam Research Corp. - LRCX - close: 76.60 change: +0.01

Stop Loss: 72.25
Target(s): To Be Determined
Current Option Gain/Loss: -6.1%
Average Daily Volume = 2.5 million
Entry on October 30 at $76.25
Listed on October 28, 2015
Time Frame: 6 to 8 weeks
New Positions: see below

11/02/15: LRCX underperformed the market today. Shares dipped back toward prior resistance near $76.00 but this time found support. LRCX eventually bounced back toward unchanged on the session.

Trade Description: October 28, 2015:
Wall Street loves mergers and this month LRCX has jumped into the 2015 buying spree. Semiconductor stocks had a rough summer with the SOX semiconductor index plunging from early June through late August. Fortunately the group appears to have bottomed. LRCX's recent earnings news and acquisition announcement has accelerated the stock's rebound.

LRCX is part of the technology sector. According to the company, "Lam Research Corp. (LRCX) is a trusted global supplier of innovative wafer fabrication equipment and services to the semiconductor industry. Lam's broad portfolio of market-leading deposition, etch, and clean solutions helps customers achieve success on the wafer by enabling device features that are 1,000 times smaller than a grain of sand, resulting in smaller, faster, more powerful, and more power-efficient chips. Through collaboration, continuous innovation, and delivering on commitments, Lam is transforming atomic-scale engineering and enabling its customers to shape the future of technology. Based in Fremont, Calif., Lam Research is a Nasdaq-100 Index and S&P 500 company whose common stock trades on the Nasdaq Global Select MarketSM under the symbol LRCX."

LRCX's most recent earnings report was October 21st. Analysts were expecting a profit of $1.72 per share on revenues of $1.6 billion. LRCX delivered earnings of $1.82 a share. Revenues were up +38.8% from a year ago to $1.6 billion. Management then raised their Q2 earnings guidance to $1.32-1.52 a share, which is significant above analysts' estimates.

The news didn't stop there. LRCX also announced they were buying KLA-Tencor (KLAC) for $10.6 billion. This new combined company will have $8.7 billion in revenues.

Here are a few highlights from the LRCX-KLAC merger deal:

Creates Premier Semiconductor Capital Equipment Company: Strengthened platform for continued outperformance, combining Lam's best-in-class capabilities in deposition, etch, and clean with KLA-Tencor's leadership in inspection and metrology

Accelerates Innovation: Increased opportunity and capability to address customers' escalating technical and economic challenges Broadens Market Relevance: Comprehensive and complementary presence across market segments provides diversity, scale and value creating innovation opportunities

Significant Cost and Revenue Synergies: Approximately $250 million in expected annual on-going pre-tax cost synergies within 18-24 months of closing the transaction, and $600 million in annual revenue synergies by 2020 Accretive Transaction: Increased non-GAAP EPS and free cash flow per share during the first 12 months post-closing

Strong Cash Flow: Complementary memory and logic customer base, operational strength, and meaningful installed base revenues strengthen cash generation capability Anstice concluded, "We have tremendous respect for the company KLA-Tencor employees have built over nearly 40 years - their culture, technology, and operating practices. I have no doubt that our combined values, focus on the customer, and complementary technologies will create a trusted leader in our industry, capable of creating significant opportunity for profitable growth and in turn delivering tremendous value to all of our stakeholders. This is the right time for the right combination in our industry." You can read more details about the merger here.

The combination of the earnings beat, raised guidance, and the merger news launched LRCX stock higher. Traders have been consistently buying the dips since then. Now shares of LRCX are poised to break through technical resistance at its 200-dma soon. Shares have been upgraded with a new price target of $85.00. Meanwhile the point & figure chart is bullish and forecasting at long-term target of $107.00.

LRCX looks like it could run towards the 2015 highs in the $84-85 region. Today's intraday high was $76.19. We are suggesting a trigger to buy calls at $76.25.

- Suggested Positions -

Long JAN $80 CALL (LRCX160115C80) entry $3.30

10/30/15 triggered @ $76.25
Option Format: symbol-year-month-day-call-strike

Pepsico, Inc. - PEP - close: 101.40 change: -0.79

Stop Loss: 99.40
Target(s): To Be Determined
Current Option Gain/Loss: + 6.8%
Average Daily Volume = 5.0 million
Entry on October 22 at $101.00
Listed on October 19, 2015
Time Frame: Exit prior to expiration in January
New Positions: see below

11/02/15: We have been suggesting a dip near the $101 area as a new entry point and PEP provided that dip today. However, shares underperformed the market with a -0.77% decline. Today's relative weakness feels troubling with the rest of the market in rally mode. I do not see any specific news to account for today's decline. Investors may want to hesitate before initiating new bullish positions in PEP. Let's see how it performs tomorrow.

Trade Description: October 19, 2015:
Soda sales remain the biggest chunk of non-alcoholic drinks. Unfortunately for big soda makers like PEP and KO trends are changing. Consumers are become more health conscious. Sugary soda drink sales have fallen ten years in a row. The good news is that more and more consumers are reaching for bottled water and other drinks perceived to be healthier than traditional colas. Bottled water sales are on pace to surpass soda as the beverage of choice for U.S. consumers soon. (FYI: PEP's bottled water brand is Aquafina)

PEP is a consumer goods giant with a global presence. According to the company, "PepsiCo products are enjoyed by consumers one billion times a day in more than 200 countries and territories around the world. PepsiCo generated more than $66 billion in net revenue in 2014, driven by a complementary food and beverage portfolio that includes Frito-Lay, Gatorade, Pepsi-Cola, Quaker and Tropicana. PepsiCo's product portfolio includes a wide range of enjoyable foods and beverages, including 22 brands that generate more than $1 billion each in estimated annual retail sales."

The stock has been stuck consolidating sideways in the $90-100 trading range for almost a year. It looks like that consolidation may be nearing its end.

Earnings have been better than expected. I looked at the last three quarters. PEP has managed to beat Wall Street's estimates on both the top and the bottom line. Revenues have declined year over year but that is due to negative foreign currency exchange rates that is shaving off about -10% from earnings and revenues. The company says their gross margins and operating margins continue to improve.

PEP's Q3 results showed a +7.4% jump in organic revenues. On a constant currency basis their operating profit was up +12%. Earnings were up +14% from a year ago and their core gross margins surged 120 basis points. They have raised their full year 2015 core constant currency EPS guidance twice this year. Thus far PEP has saved $1 billion in productivity savings and returned $9 billion to shareholders in 2015.

The U.S. market is up the last three weeks in a row but it's relatively flat for the year. Investors are confused with all the different global cross currents, exchange fluctuations, central bank moves, and more. Fund managers are probably tempted to park cash in a huge, liquid big cap like PEP and get paid 2.8% a year with dividends. Why not? PEP is still growing with solid single-digit growth.

Technically PEP looks poised to breakout past major resistance in the $100 area. The point & figure chart is already bullish and forecasting at $120.00 target. Tonight we are listing a trigger to buy calls at $101.00.

- Suggested Positions -

Long 2016 JAN $100 CALL (PEP160115C100) entry $2.81

11/02/15 PEP underperforms the broader market (Monday)
10/31/15 new stop @ 99.40
10/22/15 triggered @ $101.00
Option Format: symbol-year-month-day-call-strike

Signet Jewelers Limited - SIG - close: 149.17 change: -1.77

Stop Loss: 144.15
Target(s): To Be Determined
Current Option Gain/Loss: -23.3%
Average Daily Volume = 889 thousand
Entry on October 29 at $150.75
Listed on October 26, 2015
Time Frame: Exit PRIOR to earnings on November 24th
New Positions: see below

11/02/15: SIG also underperformed the broader market today. The stock dipped to short-term technical support at the rising 10-dma and the bounced. SIG managed to pare its loss to -1.1% by the close.

More conservative traders may want to start inching up their stop loss.

Trade Description: October 26, 2015:
The holiday shopping season is almost here. A lot of retailers launch their holiday sales push in the first week of November. Soon investors are going to be looking for a Santa Claus rally. SIG looks like a tempting candidate since it has a history of outperforming the S&P 500 during the fourth quarter.

SIG is in the services sector. According to the company, "Signet Jewelers Limited is the world's largest retailer of diamond jewelry. Signet operates approximately 3,600 stores primarily under the name brands of Kay Jewelers, Zales, Jared The Galleria Of Jewelry, H.Samuel, Ernest Jones, Peoples and Piercing Pagoda. Further information on Signet is available at www.signetjewelers.com. See also www.kay.com, www.zales.com, www.jared.com, www.hsamuel.co.uk, www.ernestjones.co.uk, www.peoplesjewellers.com and www.pagoda.com."

Kay, Zales, and Jared are the first, third, and fourth biggest brand names in the jewelry business. In spite of having such a dominant position SIG only has about 8% of the $74 billion U.S. jewelry market. That leaves plenty of room to grow.

The company is integrating its recent acquisition of Zales. The results have boosted sales. Their 2016 Q1 and Q2 results (announced in May and August) came in better than expected. Same-store sales have been healthy at more than +4%. They are also seeing strong growth in their online sales.

Wall Street seems positive on SIG. A Nomura analyst recently labeled SIG as one of their best multi-year growth stories in retail. The stock has been showing relative strength too. SIG is up +12% in 2015 versus an S&P 500 that is virtually flat for the year.

Technically shares have a bullish trend of higher lows and higher highs. The point & figure chart is bullish with a quadruple top breakout buy signal and a $187 price target. On a short-term basis SIG has resistance in the $150.00 area. The recent high was $150.65. Tonight we are suggesting a trigger to buy calls at $150.75.

- Suggested Positions -

Long DEC $155 CALL (SIG151218C155) entry $4.30

10/29/15 triggered @ $150.75, upgraded by Goldman Sachs
Option Format: symbol-year-month-day-call-strike

PUT Play Updates

Cracker Barrel Old Country - CBRL - close: 140.77 change: +3.31

Stop Loss: 142.75
Target(s): To Be Determined
Current Option Gain/Loss: -46.9%
Average Daily Volume = 395 thousand
Entry on October 22 at $136.90
Listed on October 21, 2015
Time Frame: Exit PRIOR to earnings on Nov. 24th
New Positions: see below

11/02/15: Ouch! When the market bounced today CBRL reversed sharply higher and outperformed with a +2.4% gain.

The overall trend for CBRL is bearish but the bulls are not giving up. We are throwing in the towel and suggest an immediate exit tomorrow morning to cut our losses. More aggressive traders may want to keep the trade alive but if you do I suggest a stop above the 10-dma or above the 200-dma.

- Suggested Positions -

Long DEC $130 PUT (CBRL151218P130) entry $3.20

11/02/15 prepare to exit tomorrow morning
10/31/15 new stop @ 142.75
10/22/15 triggered @ $136.90
Option Format: symbol-year-month-day-call-strike

Canadian Pacific Railway - CP - close: 140.06 change: -0.44

Stop Loss: 146.25
Target(s): To Be Determined
Current Option Gain/Loss: -14.6%
Average Daily Volume = 1.0 million
Entry on November 02 at $139.75
Listed on October 31, 2015
Time Frame: Exit PRIOR to earnings in January
New Positions: see below

11/02/15: Our brand new trade on CP is open. Shares fell to new four-week lows and hit our trigger at $139.75. Unfortunately CP managed to pare its losses, thanks to the market's widespread rally. If shares bounce tomorrow I'd look for possible resistance in the $142.50 area.

Trade Description: October 31, 2015:
Transportation stocks have been significant underperformers this year in spite of lower fuel costs. The Dow Jones Transportation Average peaked in late 2014-early 2015 and has fallen -11% year to date. Railroad stocks have fared even worse. The DJUSRR railroad index is down -26% for the year. Shares of CP are down -27% this year and look poised to extend their losses.

CP is in the services sector. According to the company, "Canadian Pacific is a transcontinental railway in Canada and the United States with direct links to eight major ports, including Vancouver and Montreal, providing North American customers a competitive rail service with access to key markets in every corner of the globe. CP is growing with its customers, offering a suite of freight transportation services, logistics solutions and supply chain expertise."

One of the challenges for the railroad companies has been falling coal demand. The White House has been pressure the coal industry. Meanwhile falling natural gas prices have made it a more attractive alternative to coal. One estimate suggest coal demand in the U.S. could fall by 100 million st this year and 2016 will be even lower. A lot of that coal gets moved by train but falling demand means less carloads to transport.

Another challenge for the railroad industry has been falling capex spending from the energy companies across North America. Depressed oil prices make it less profitable to invest in new wells and that means less demand to move that equipment and fracking supplies by rail. Wall Street analysts have been reducing their earnings estimates on the railroad companies and cutting their price targets.

A U.S. economy stuck near 2% growth doesn't help either. GDP growth fell from +3.9% in Q2 to +1.5% in Q3. Last week the latest durable goods orders (from September) were another disappointment and suggest the economy is slowing.

The stock market's plunge in August pushed shares of CP from $160 to $130. The stock almost made it back to $160 by early October but the rebound has reversed. Disappointing earnings news in the transportation industry this past week sparked another sell-off. Now the trading in CP over the last two months looks like a bear-flag consolidation pattern (see chart). The point & figure chart has turned bearish and is currently forecasting a $128 target but it could get worse. Tonight we are suggesting a trigger to buy puts at $139.75.

- Suggested Positions -

Long 2016 JAN $130 PUT (CP160115P130) entry $4.10

11/02/15 triggered @ $139.75
Option Format: symbol-year-month-day-call-strike

Darden Restaurants - DRI - close: 62.66 change: +0.77

Stop Loss: 63.65
Target(s): To Be Determined
Current Option Gain/Loss: -2.3%
Average Daily Volume = 1.7 million
Entry on October 21 at $63.40
Listed on October 20, 2015
Time Frame: Exit PRIOR to earnings in December
New Positions: see below

11/02/15: DRI was not immune to the market's widespread rally today. Shares gained +1.2%.

No new positions at this time.

Trade Description: October 20, 2015:
Consumer spending has been disappointing and some of the restaurant names are suffering for it. DRI has actually raised guidance two quarters in a row but investors are ignoring this news and seem to be focusing on the larger macro trends for the industry.

DRI is in the services sector. According to the company, "Darden Restaurants, Inc., (DRI) owns and operates more than 1,500 restaurants that generate $6.8 billion in annual sales. Headquartered in Orlando, Florida, and employing 150,000 people, Darden is recognized for a culture that rewards caring for and responding to people. Our restaurant brands - Olive Garden, LongHorn Steakhouse, Bahama Breeze, Seasons 52, The Capital Grille, Eddie V's and Yard House - reflect the rich diversity of those who dine with us. Our brands are built on deep insights into what our guests want."

DRI reported their Q4 report on June 23rd. They beat Wall Street's EPS estimate and raised their 2016 guidance. Shares popped on the news and the stock continued to rally into late summer. Unfortunately shares produced a bearish double-top pattern in the July-August time frame. DRI began to correct lower.

The company reported its 2016 Q1 results on September 22nd. Earnings of $0.68 per share beat estimates by 10 cents. Revenues were up +5.7% to $1.69 billion, which was above estimates. Same-store sales were up +3.4% for the quarter. Management raised their 2016 earnings guidance again. This looked like a pretty good report. Yet three days later investors sold the rally.

Nationwide the pace of consumer spending has been lower than expected. A few days ago an industry research firm said U.S. restaurant sales were up +1.5% in Q3 but that was slower than Q2's +1.8% growth. A higher tab helped offset slower traffic numbers. The outlook for traffic is worrisome. This firm expects restaurant traffic numbers to be stagnant. This is inline with another research note that expects foot traffic at retailers to fall -8% this holiday season.

The market used to think that consumers would take the money they saved from lower gasoline prices and spend it elsewhere. That doesn't seem to be happening. Now the restaurant industry is facing tough comparisons to last year's relatively healthy Q4 numbers.

Technically DRI is now in a bearish trend of lower highs and lower lows. Shares have broken down below their 200-dma. The oversold bounce just failed at resistance near $66.00. The point & figure chart is bearish and forecasting at $55.00 target. Tonight we are suggesting a trigger to buy puts if DRI trades down to $63.40. This is a multi-week trade. We will plan on exiting prior to earnings in December.

- Suggested Positions -

Long 2016 JAN $60 PUT (DRI160115P60) entry $2.15

10/31/15 new stop @ 63.65
10/21/15 triggered @ $63.40
Option Format: symbol-year-month-day-call-strike

Nordstrom Inc. - JWN - close: 65.20 change: -0.01

Stop Loss: 66.25
Target(s): To Be Determined
Current Option Gain/Loss: +73.5%
Average Daily Volume = 1.4 million
Entry on October 15 at $66.40
Listed on October 14, 2015
Time Frame: Exit PRIOR to earnings on November 12
New Positions: see below

11/02/15: JWN is having a hard time building on its bearish momentum. The stock plunged to a new 2015 low this morning but managed to bounce back by the closing bell to end nearly unchanged on the day.

The action over the last week is starting to look like a potential bottom in JWN. Tonight we are suggesting an immediate exit tomorrow morning to lock in potential gains.

- Suggested Positions -

Long NOV $65.15* PUT (JWN151120P65.15) entry $1.13

11/02/15 prepare to exit tomorrow morning at the opening bell
10/29/15 new stop @ 66.25
10/15/15 triggered @ $66.40
*NOTE: The odd option strike is due to JWN's special cash dividend of $4.85 per share. The ex-distribution date was Wednesday, October 7, 2015. The option market adjusted all the prior option strikes down -4.85.

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


The Walt Disney Company - DIS - close: 115.04 change: +1.30

Stop Loss: 111.85
Target(s): To Be Determined
Current Option Gain/Loss: +252.4%
Average Daily Volume = 9.9 million
Entry on October 12 at $106.50
Listed on October 10, 2015
Time Frame: Exit PRIOR to earnings on November 5th
New Positions: see below

11/02/15: DIS has earnings on November 5th. Our plan was to exit positions this morning at the opening bell to lock in potential gains. Fortunately for us DIS shares gapped open higher at $114.49 and the rallied back toward short-term resistance near $115.00.

- Suggested Positions -

NOV $110 CALL (DIS151120C110) entry $1.66 exit $5.85 (+252.4%)

11/02/15 planned exit
10/31/15 prepare to exit on Monday morning
10/29/15 new stop @ 111.85
10/24/15 Less than two weeks to go on this trade
10/22/15 new stop @ 109.25
Investors may want to take some money off the table with our option up +200%
10/17/15 new stop @ 104.40
10/15/15 new stop @ 101.85
10/12/15 triggered @ $106.50
Option Format: symbol-year-month-day-call-strike


Constellation Brands Inc. - STZ - close: 135.08 change: +0.28

Stop Loss: 133.20
Target(s): To Be Determined
Current Option Gain/Loss: -52.0%
Average Daily Volume = 1.29 million
Entry on October 23 at $138.38
Listed on October 22, 2015
Time Frame: Exit PRIOR to earnings in early January
New Positions: see below

11/02/15: STZ has not performed well the last several days. After last week's display of relative weakness we decided to exit. The plan was to close positions this morning.

- Suggested Positions -

2016 JAN $145 CALL (STZ160115C145) entry $2.50 exit $1.20 (-52.0%)

11/02/15 planned exit
10/31/15 prepare to exit on Monday morning
10/23/15 triggered on gap open at $138.38, entry trigger was $138.25
Option Format: symbol-year-month-day-call-strike