Option Investor

Daily Newsletter, Saturday, 11/7/2015

Table of Contents

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

Market Wrap

Six Week High

by Jim Brown

Click here to email Jim Brown

Despite some early weakness on Friday, the major indexes have now posted gains for six consecutive weeks for the first time in 2015. The trend is your friend until it ends.

Market Statistics

The first week of November is typically the best week in the fourth quarter. That did not happen this year with the gains two weeks ago significantly higher. I wrote over the last couple weeks that I expected some softness as the week progressed and that is exactly what we got. There was some buying at the close and that was probably short covering since the market failed to actually roll over.

The S&P dipped -32 points from its 2,116 high on Tuesday to the 2,083 low on Friday. The end of day buying lifted the index back to 2,099 and a +20 point gain for the week.

The key now is what to expect for next week and the rest of November. After six weeks of gains, I expect some profit taking to appear but I do expect us to close the month higher.

The big news on Friday was the blowout on the payroll report for October. The Nonfarm Payrolls showed a gain of +271,000 jobs and well over the consensus estimate for +180,000. The August number was revised up +17,000 from +136,000 to +157,000 and the September number was revised down -5,000 from +142,000 to +137,000 for a net revision of +12,000 jobs. October's big spike raised the three-month average to +187,000 and probably enough for the Fed to hike rates in December if the November payrolls are decent.

The separate Household Survey showed a gain of +320,000 jobs to 149,120,000 workers. The civilian noninstitutional population available to work rose +216,000 to 251,541,000.

Manufacturing only added +27,000 jobs while services added +244,000. Construction added +31,000, retail +43,800, professional and business services +78,000, education and healthcare +57,000 and leisure and hospitality +41,000. Private payroll gains were +268,000. Mining/energy lost -4,000 jobs, transportation and warehousing -2,100 and information technology -1,000.

The unemployment rate fell from 5.1 to 5.0% (7.9 million) and the labor force participation rate was flat at 62.4%. More than +313,000 workers joined the labor force as holiday jobs lured some workers back off the couch. The broader U6 measure of unemployment, which more closely represents reality, declined from 10.0% to 9.8% (15.484 million) and a post recession low.

A bright spot was the decline of -269,000 to 5.8 million in the number of workers employed part time involuntarily because they cannot find a full time job.

The Fed has said they want to see "sustained" employment gains over 200,000 per month. After the drop in August/September they will need to see another decent gain over 200,000 for November to feel comfortable about raising rates in December. Anybody with a pulse understands that October's gains had a lot to do with companies gearing up for the holiday shopping season. The Fed should not raise rates based on temporary holiday hiring but they are so locked in on hiking in 2015 they will probably ignore the obvious and hope the analyst community ignores it as well.

The economic calendar for next week is very light with nothing of real market moving importance. The Retail Sales and Producer Price Index on Friday are probably the most important reports of the week.

There were no stock splits announced last week.

The market was pretty calm on Friday despite the big jobs numbers. The only movers were the earnings reporters from Thursday night. Stamps.com (STMP) was the big winner with a +38% spike after reporting earnings of $1.14 compared to estimates for 89 cents. Revenue of $51.7 million beat estimates for $47.8 million. The company forecast revenue of $198-$208 million and earnings of $3.60-$4.00 for the full year. That was up from prior guidance of $170-$190 million and $3.10-$3.50 on earnings.

Core mailing and shipping revenue was up +36% and EBITDA up +71%. They said they would close the acquisition of Endicia on November 18th. They believe that will boost their "high volume and eCommerce shipping" significantly. Endicia is a subsidiary of Newell Rubbermaid and the purchase price is $215 million.

Monster Beverage (MNST) rallied +13% after the company reported earnings of 84 cents that beat estimates for 81 cents. Revenue of $756 million beat estimates of $740 million. Sales rose +19% and gross margin rose from 53.8% to 61.5%. In the June quarter, Monster and Coke were getting the bugs out of their cross distribution agreement and some retailers ran out of Monster beverages. That was resolved and Q3 saw an explosion of sales in the Coke distribution network. Coke will distribute Monster beverages in 28 countries not currently covered by Monster.

After the guidance and positive comments about future marketing efforts the consensus estimates for future quarters are going to be too low. Monster will begin delivering to China in the first half of 2016 using the Coke distribution network and will launch in Russia by the end of 2015. Monster and McDonalds are currently testing Monster beverages in 20 stores in the US. If the test goes well McDonalds could expand it to other stores or open it to all locations. That would be a huge boost in volume for Monster.

Coke owns 17% of Monster and with sales set to surge there is a good chance they will end up buying the entire company to boost their own sagging sales. I would look to buy Monster shares on any post earnings weakness in the coming month.

Skyworks Solutions (SWKS) reported earnings that were in line with street estimates but then raised guidance significantly. During the current quarter they expect to earn $1.60 and over the $1.57 analysts expected. However, the big guidance came with a forecast of $8 in annual earnings in two years, up from their prior guidance for $7.

Everyone has been worried that lagging iPhone sales in 2016 would hurt their revenue. Apparently, Skyworks is not worried. They are expected to be victorious in their acquisition bid for PMC-Sierra (PMCS) and that will add even more to their future earnings. Shares rallied +7% on the earnings guidance.

Qorvo (QRVO) rallied +23% after reporting earnings of $1.22 compared to estimates for $1.11. The company also approved a $1 billion share buyback or 12% of the outstanding shares. Qorvo is also a chip supplier to Apple and Q4 guidance of $1.25-$1.30 was above analyst expectations for $1.26. The company said the inventory correction was about over and analysts believe it will end in 2015. That is another clue that Apple iPhone sales are good enough to consume all the available chip inventories. The CEO said marquee phones from other vendors launching in 2016 and 2017 would further lift the chip market. QRVO shares rallied +23% on the news.

Berkshire Hathaway lost $2 billion on its investment in IBM or 15% of what it paid for the position. Buffett said he has no intentions of selling the position. I am not crying for Warren Buffett because Berkshire reported a net income of $9.43 billion, up from $4.62 billion in the same quarter in 2014. Adjusted earnings of $2,769 per class A share easily beat analyst estimates for $2,720. Revenue rose +15% to $58.99 billion.

Insurance underwriting profits declined -34% to $414 million. However, profits at the BNSF railroad rose 12% to $1.16 billion. Berkshire made roughly $6.8 billion pre-tax on Kraft Heinz or $4.4 billion after taxes. Berkshire financed the merger and is the largest shareholder at 27%.

Berkshire has $66.26 billion in cash and plans to spend about a third of that on the acquisition of Precision Cast Parts (PCP) which is costing Berkshire about $32 billion. Shares of BRK.B declined about $1 afterhours on Friday.

So far, 444 S&P-500 companies have reported earnings and 74% have beaten estimates. Only 46% have beaten on revenue. The blended earnings estimate for Q3 is for a decline of -2.2% and -3.7% drop in revenue. Fifty-six companies have issued negative earnings guidance for Q4 and only 19 have issued positive guidance. Current Q4 earnings estimates are for a decline of -3.7% and a -3.0% decline in revenue.

Bloomberg Chart Source

In the coming week 17 S&P companies will report and one Dow component, Cisco Systems.

You can tell from the lack of color in the graphic below that we are running out of reporters. Monday and Tuesday the builders report and Thursday is retail day with Macys and JC Penny bookending on Wednesday and Friday. After this week, the volume of earnings will decline significantly and the market will be left to pick a direction based on some other headlines.

Typically, there is a period of post earnings depression. All the excitement is gone and traders move on to other stocks and the high flyers tend to fade. Whether that will happen this year with the indexes so close to historic highs is of course unknown but be aware it is possible. It may even be more likely because of the recent gains and the current resistance levels. I would consider a post earnings fade as a buying opportunity.

Noted short seller Jim Chanos pitched Alibaba (BABA) as a short candidate at the Morgan Stanley conference on Friday. Chanos reportedly said accounting concerns at Alibaba would eventually take them lower.

In September, Barron's said it was time to "get real" on Alibaba and a 50% decline could be looming. Barron's said Alibaba's reported growth rate was "highly implausible." The company claims it is growing at a compounded 55% annual growth rate over the last three years according to Barrons. Chinese research firm JCapital Research said Alibaba's financial reports have "broken free of verifiable reality" and have reached levels that do not agree with "Chinese government figures of overall retail sales, consumer spending or online commerce."

Bronte Capital, an Australian based hedge fund said "Alibaba's gross merchandise volume recently hit $470 billion." That implies the average Alibaba shopper spends "$1,200 a year" according to Barron's calculations. In China, the average household spends $2,650 per person per year. That suggests everyone in China is spending 45% of their total outlay on Alibaba. Barron's also highlighted some transactions that appeared shady if not outright illegal and amounted to moving large sums of money from country to country and removing assets from under the Alibaba umbrella.

I am not trying to make a case for shorting Alibaba. I am just reporting the rising number of intelligent people that have done their homework and found out that maybe 2+2 does not equal 4 in Alibaba's accounting. It will be interesting to watch this develop over the coming months and see if it is just a lot of smoke or if there is a smoke screen.

Chanos also recommended a long position in Alibaba competitor JD.com (JD) in order to hedge against a short position in Alibaba. This company is growing about as fast as Alibaba but without the cloudy organizational structure and questionable accounting.

The strong payroll numbers sent the dollar index soaring for a +1.23% gain in a single day. The dollar has been surging since the Fed mentioned hiking rates at the December meeting and the strong jobs appeared to cement that hike.

This is going to make doing business overseas that much more difficult. With 54% of the S&P missing on revenue estimates because of serious dollar conversion losses it is only getting worse. Once the Fed does begin hiking, the dollar index could easily move over 100.00 and a 12-year high. That will be major pain for international sellers.

Gold has fallen from $1,191 in mid October to 1,088 on Friday with a -1.38% drop on Friday alone. Gold could easily drop under $1,000 by the December Fed meeting if the dollar continues to strengthen. A drop under $1,072 would be a five-year low.

Crude prices declined -1.5% on Friday and -4% for the week. Crude inventories continued to build with a +2.8 million barrel gain. That puts inventory levels only 8.1 million barrels below an 80-year high at 490.9 million. There are still five months left in the inventory build cycle while winter demand is low. There is a really good chance we will see $40 oil again. The soaring dollar is doing as much damage on WTI as the rise in inventory levels.

Active oil rigs declined -6 to 572 and another new decade low. Total rigs declined -4 to 771 and also a ten-year low. Unfortunately, US production rose 48,000 bpd to 9.16 mbpd and a five-week high.

Oil is not the only energy commodity at record highs. Natural gas in storage rose to 3,929 Bcf and that ties with November 2012 as the all time high since records were started in 1993.

Propane stocks have risen to 102.4 million barrels and that is also a new high. You may remember in March of 2014 when propane inventories declined to just 25 million barrels and prices soared to more than $4 a gallon in many areas. Some distributors were rationing their deliveries to make sure every customer had enough to last a couple weeks until new supplies arrived. Wholesale propane today is about 54 cents and we can buy it delivered in Colorado for 95 cents. That is a heck of a lot less than the $3.00 I paid in 2014.

Propane is a byproduct of oil and gas drilling. The surge in drilling over the last two years has created a glut of propane just like every other hydrocarbon.


Resistance won. The major indexes have been in a remarkable rally but that run came to a dead stop on Tuesday as resistance finally held and buyers ran out of conviction. With the October window dressing over and the end of month retirement contributions hitting the market on Monday/Tuesday the latter part of the week saw prices fade. With the earnings cycle nearly over there are far fewer catalysts to prompt market moving spikes.

The market even rallied on Yellen's testimony as she again referenced a potential rate hike in December.

The big question traders should be asking is what happens now? What is going to push us higher next week? There will be some earnings from smaller companies and individual stocks should still gain in anticipation. However, the broader market appears heavy. This is normal after six weeks of gains. We should expect some weakness and then the normal Q4 upside bias should take hold. "Should" is the key word.

Goldman Sachs said nearly 25% of all corporate share buyback activity occurs in the last two months of the year. November is typically the busiest month with 13% of annual repurchase dollars being spent. December ties with May for the third most active month with 10% of the annual budget being spent.

November and December are especially active because companies want to finish their programs before year-end. When the blackout period surrounding earnings ends the programs kick into high gear. With monster buyback programs currently in force this suggests the next two months could have some additional market support in the form of corporate buying.

The S&P bounced off resistance at 2,115 on Tuesday and drifted lower the rest of the week. There was no pronounced selling. It was more a lack of buying rather than an abundance of sellers. However, Friday was the highest volume day of the week at 7.7 billion shares. The average volume for the last four days was 7.385 billion shares and the highest average in weeks. Declining volume was significantly over advancing volume the last three days.

The high volume when the last three days were market negative suggests we are in a distribution phase. The smart money and in this case funds that were heavily invested at the end of October, were calmly trimming their positions. In a distribution phase large investors long the market begin to "trim" positions slowly rather than just pull the trigger and dump large quantities of stock. They know the market will crash if they start placing large sell orders at a market top. Instead, they are trying to slip out the backdoor quietly without anyone noticing.

The S&P has initial support at 2075-2079 followed the rising 200-day average at 2,060. Resistance remains 2,115 and 2,128.

The word of caution comes from the MACD and RSI on the S&P and Dow. Both are suggesting there is a market pause in our near future. I showed this chart last week and the last three days have brought the MACD lines closer to a negative cross. The RSI bounced off 70 and the high for the year.

The Dow did not face any material resistance other than psychological at 18,000. On Tuesday, the index reached 17,977 and then 17,964 on Wednesday. However, support at 17,800 was solid and the index closed the week at 17,911 and within easy striking distance of real resistance at 18,100.

There is only one Dow component reporting earnings next week and that is Cisco on Thursday. The banks may be the Dow leaders next week on expectations for a rate hike. Goldman Sachs (GS) soared +$7 on the strong jobs report and the rate hike implications. JP Morgan (JPM) gained +$2. Disney added +$2.67 after reporting earnings on Thursday evening.

I do not see anything on the horizon to keep the individual Dow stocks moving strongly higher. The rally may turn into a melt up rather than a robust rally but I doubt anyone would complain.

The Nasdaq Composite ran into solid resistance at 5,160 with Tuesday's high at 5,163 and Wednesday's high at 5,162. While this was a solid top, the index also found solid support at 5,100 and rebounded +52 points from Friday's low to close at 5,146.

The tech sector has led this rally since early October. The minor weakness over the last three days suggests tech stocks will also lead us higher in the days to come. Priceline has earnings on Monday and that could be either a pothole or a big assist for the tech index.

The Nasdaq is poised to make a new high as long as it can get over that 5,160 level with some momentum.

The Russell 2000 was the star of the broad market indexes last week with a +3.26% gain. The rally in banks, brokers and biotechs helped propel the index to new resistance at 1,200 and that is exactly where it closed on Friday.

Once the Russell crossed over that 1,165 resistance that held it back for two months it rocketed higher and it should continue to make gains as we head into the January effect period.

Support is back at 1,180 and a move over 1,200 could run to the next major resistance at 1,244.

The S&P-600 small cap index is a little farther ahead technically than the Russell and is now approaching decent resistance at 712 from August.

Despite the weakness in the S&P over the last three days, 71.8% of the S&P stocks have a buy signal according to the Bullish Percent Index. This suggests broad based buying has reversed a lot of negative charts over the last month. That percentage was down to only 22.4% in September.

The percentage of S&P stocks currently over their 50-day average rose to 80.8% on Tuesday and declined about 7% over the last three days. This is still bullish but we are nearing historically high levels.

The commodity sector is dying under the weight of the strong dollar. The CRB Index is at the lows for November and not far from the September lows. This is going to continue to push inflation lower and make it difficult for the Fed to justify a December rate hike. They will claim the impact of commodities on inflation is transitory but it is also deflationary. A little decline is good but a large decline is very dangerous.

The cost to ship those commodities is dropping fast and that suggests a serious lack of demand. While the developed countries are supposed to be recovering thanks to massive stimulus, the demand for raw materials is still falling. This suggests the global economy, led by China, is still weakening.

The Baltic Dry Index is currently at its lowest level for November in the history of the index.

I am still in buy the dip mode because typical historical patterns for the next 6 weeks will probably overcome any worries over a slowdown in Q4 earnings, potential rate hikes, global economics and equity bubbles.

The indexes are within rock throwing distance of new highs with the Nasdaq 100 already there. When the market nears new highs, those highs act like a magnet to pull the indexes closer.

Strong Octobers tend to produce weak Novembers but hopefully those new high magnets will overcome that historical trend.

Important Limited Time Offer - ONLY 48 HOURS LEFT

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Random Thoughts

Tesla's Elon Musk has lost touch with reality. At least that would appear to be the case based on his visions of the future. He said at the Baron Investment Conference on Friday to expect "millions of Teslas and a 500 mile range." Considering Tesla will only produce 52,000 cars this year and his prediction that Tesla will eventually be manufacturing "several million" cars a year, it appears Musk may have lost touch with reality.

He said the cost and the capability of batteries would be the determining factors. An affordable car with a 500-mile range would be a very desirable product. Musk said they could make a 500-mile car today but the cost would be prohibitive. In order to reach his "several million a year" target Musk said Tesla will have to build "many" more manufacturing plants and "many gigafactories" to make the batteries. Musk said the Model 3 is on track to debut in March and will be 20% smaller than the Model S. The S will be similar to a BMW 3 or an Audi A4.

Donald Trump made news last week claiming that President Obama was controlling Janet Yellen and not letting her raise interest rates. That is completely untrue since the Fed is not political in any way. Trump claimed that raising interest rates would sharply hike the amount of interest on the Federal debt. That part is true.

I have written about this many times. A 1% hike in the Fed rate would increase the interest on the national debt by 50% from $400 billion to $600 billion a year. A return to "normal" rates from as recently as 2007 would raise the interest on the debt to $1 trillion a year. The national debt increases by $1.5 billion a day and the interest on the debt goes up by $35 million a day.

South Korean exports declined -15.8% in October. Why do we care? We care because exports from South Korea are shipped all over the world and exports are down -7.5% year to date. Korea has been dubbed the canary in the coalmine for the global economy. Full article with charts

Square Inc, the mobile payments company led by Jack Dorsey, initially targeted a valuation of $6 billion with its recently announced IPO. On Friday, they lowered that to $4.2 billion when they put a price range on their shares of $11 to $13. The IPO will offer 27 million shares of the 323 million that will be outstanding after the IPO. The over allotment of another 4 million shares means Square will actually raise about $400 million. The ticker symbol will be SQ. Revenue in 2014 was $850 million compared to $552 million in 2013. Revenue for the first nine months of 2015 was $893 million with the biggest quarter normally Q4. However, Starbucks has said it will not renew its partnership in 2016 and that accounted for 17% of Square's revenue in 2014.

The AAII Investor Sentiment Survey showed an increase of people moving back into neutral with both bullish and bearish sentiment declining. Apparently, the stall at resistance after six weeks of gains is causing people to reconsider their outlook. AAII Survey

The White House has instructed critical infrastructure officials to prepare for a disaster that could cost more than $2 trillion. This potential disaster is a Coronal Mass Ejection (CME) from the sun. We are hit with small events routinely and several times in recent years we have narrowly missed being hit with major storms that could have fried the electrical grid and taken years for us to recover.

Think of the sun as a spinning top that randomly fires off bolts of plasma in all directions. Fortunately the earth is a moving target. As long as those bolts are pointed away from the earth they are not a problem. Every hundred years or so the direction of the electrical charge and the location of the earth happen to line up and trouble appears.

In most of the major events in the past there was no harm done to the earth because there was no electrical grid and no electronic devices. The last major impact was the Carrington event in 1859. Telegraph systems in North America and Europe were destroyed and operators received electric shocks. Some lines melted from the poles.

A similar sized CME event occurred on July 23rd, 2012 but the direction of the plasma ejection barely missed the earth and there was no damage. NASA did not disclose the information on the near miss until April 28th, 2014. NASA says there is a 12% chance of actually being hit over the next decade.

Lloyds of London calculated that a direct hit similar to the Carrington event would cost the US up to $2.6 trillion and restoring electricity to the US would take years.

12 to 14 Hours Warning

Carrington Event


Enter passively and exit aggressively!

Jim Brown

Send Jim an email


"We the people are the rightful masters of both Congress and the Courts, not to overthrow the Constitution but to overthrow the men who would pervert the Constitution."

Abraham Lincoln


Index Wrap

Bullish Charts 'Precede' Bullish Reports

by Leigh Stevens

Click here to email Leigh Stevens

Bullish charts tend to 'forecast' bullish economic news and the most recent example was the US jobs figures. Spoken like a true 'technically' oriented trader/analyst! That would be me and now the worry warts just have to fret about the Fed rate hike and its impact.

I find it easier and especially more profitable to just have some confidence that the strong rally we were seeing was BECAUSE the economy and earnings prospects were surging again. A relatively low level of trader bullishness almost 'insures' that a rally like the one we're in is for real. When you see my 'sentiment' indicator, my CPRATIO line displayed on the S&P 500 (SPX) and Nasdaq Composite spike into the upper 'overbought' (excess bullishness) areas, look out below at some point.

A correction or corrective period is likely to come. Overbought Relative Strength Index (RSI) readings in the major indexes suggest further big gains may be harder to come by without a sideways move OR pullback. For reasons outlined with the charts moderate bullishness is still warranted. It's just that the major gains already went to the quick-to-see traders who saw a trend change developing, as selling dried up and to those who kept in mind that the dominate/primary trend was/is UP.

The Russell 2000 (RUT) no longer the 'odd man out' after gains made this past week. While some of the other major indices were testing or exceeding prior highs, RUT couldn't regain even half of its prior decline. That changed and RUT looks like it can at least tack on some modest gains, which makes the small cap sector looks more in line with the bullish Nasdaq and S&P indices.



The S&P 500 (SPX) looks to be consolidating recent gains, not giving much ground but not charging higher either which also maintains a bullish chart. A pullback to 2050 wouldn't be surprising (or alarming) but meanwhile SPX is finding support/buying interest on even modest dips, consistent with a bullish recovery move.

The chart pattern suggests eventual highs above the prior double top in the 2130 area. I've noted (down red arrows) near resistances in the 2115-2132 zone; assuming an upside break out above this heavy resistance overhang, a next move could propel to the 2165 area.

Near support clearly looking like 2050-2055, with next support, pivotal at the milestone 2000 level. Last week my 'dream' trade for the bulls was to only buy a dip back toward this area; and NOT likely to be seen. The action currently is on a move to rest the highs. A sideways trend ahead would tend to 'throw-off' an overbought condition, in the same manner as a pullback to the key 2050 area.

Options traders are not showing high bullishness, which is why my sentiment indicator (seen above) hasn't yet hit what I define as overbought-'extreme' bullishness' levels. This is just basic contrarian-trading wisdom, which is practiced more by professional traders than not. This facet makes me more comfortable so to speak in the staying power of the current advance. Sure, backing and filling, pullbacks too, but the dominant or (per Charles Dow) 'primary' trend is up.


The big cap S&P 100 (OEX) hasn't yet managed a Close above its prior Closing high of 945.6 and gone on to surpass OEX's prior intraday peak at 948, highlighted as near resistance. OEX's chart pattern looks like a 'high-level' bullish consolidation before a push to new highs. Above 948, a next projected advance to a next potential resistance is to the 965 area.

Pivotal and probably pretty 'solid' support/buying interest is highlighted at 920 again this week, with next support now looking like 915-912 or in the low-900 area rather than 900 even. The usual gist of an upside reversal pattern like this that's continued to rebound strongly and somewhat 'unexpectedly' is future buyers not getting 'ideal' re-entry levels. Conversely, assume a bearish reversal on a sustained drop below 880.

Over time my OEX assessment is for a move to 1000 and the upper resistance end of its bullish long-term uptrend channel (not shown here).


The Dow 30 (INDU) has regained considerable upside momentum as seen in its bullish breakout (and consolidation) above INDU's highlighted down trendline. The subsequent consolidation above the bearish trendline suggests that what was a resistance, including this trendline, may have 'become' subsequent support per green up arrow support noted at 17760. Next lower support is seen in the 17600 area, at the current 200-day moving average. Fairly major technical support begins in the 17300 area.

I thought this past week might bring a pullback, perhaps even back to the 17400-17300 zone in the Dow such as from a bad jobs number. However, the consolidation above the down trendline suggests higher levels to come and possible if not probable re-tests of prior highs over time. Obviously the Dow is lagging the S&P, which is capitalization weighted - big difference. The 18137 area is a next rally target and a potential resistance, with further resistance anticipated at prior intraday INDU peaks in the 18350 area.

I wrote last week that "INDU is important technically relative to the other major indices in terms of having a well-defined down trendline. A sustained Close above this trendline could set up a potential retest of INDU's two prior highs; i.e., first at 18137, then at 18360." The up move came, stay tuned for what's next!


The Nasdaq Composite (COMP) hasn't broken out to new highs but the recovery rally has been powerful (and a runaway upside 'gap' above 4900-5000), plus COMP tends to follow the lead of the big cap Nasdaq NDX which is most recently now consolidating ABOVE its prior intraday and Closing highs.

So, seemingly only a matter of time, not IF, COMP makes a similar new high above the prior top/resistance at 5232. Next resistance is projected at 5300, following internal trendlines higher in the coming week.

Pivotal support is seen starting at the high end of the aforementioned upside price gap and at the 'milestone' 5000 level. Support extends to 4920-4900.

COMP may throw cold water on some of the bullishness that's out there by either not making a sustained new high or only a short-lived one and then pulling back. Why? Mainly, from the tendency we see for the major indexes to 'throw off' an (at least some) overbought condition. This can come from just hitting or nearing a key prior high and then going sideways. I'm not anticipating big price dips; at most, back toward 5000. The prior upside price gap suggests support from 5000 down to the 4925 area.


The chart is bullish in its pattern. Nasdaq 100 (NDX) upside momentum seen as potentially uncertain last week "absent a decisive upside penetration of the previous top", quickly came true this past week.

I could have also noted the added importance of a sustained move above prior highs and it's still a bit of a question for the coming week; i.e., does NDX continue to trade above 4685-4700. If so, a next NDX move is possible to 4800-4840 before potential resistance/selling pressure comes in.

Support is noted at 4600 but I'm only stating strong likely areas of buying interest. From 4600 strong buying interest should extend to the 4500 area. Don't look for big 'bargains' ahead in NDX!

I'm bullish on NDX long-term but levels above 4800 may be hard to sustain absent more corrective action coming in this month and some more time passing. To put some possible near resistance in perspective, when looking out into April, a milestone 5000 could be seen in the Nas 100.

The NASDAQ 100 Tracking Stock (QQQ); DAILY CHART:

The Nasdaq 100 ETF (QQQ) is bullish but there's some resistance showing up around 115; resistance probably extends to 116 near-term and 118 longer-term.

I wrote last week that trade "above the 114 level is key to saying that the Q's have resumed their prior long-term uptrend." Still looks that way but near-term corrective action can still come in. I've highlighted expected initial support at 113, but would more emphasize pivotal support starting around 112, extending to the 111-110 zone.

On Balance Volume (OBV) continues to trend strongly higher. The Nas 100 index is 'overbought' of course as seen in the NDX Relative Strength Index (see NDX chart above) but this is a 'potential' for QQQ reactions, not WHEN or 'timing' of potential corrective action.


It looks like RUT is catching up some with the otherwise bullish Market. RUT this past week made it through and above resistance implied by a 50% retracement of the Index's late-June to early-October decline; a bullish plus in terms of suggesting further gains and more consistent with the overall Market.

In a 'normal' recovery rally a stock or index will typically only rebound about half of its prior decline before selling pressures tend to mount again. RUT looks more buoyant then that and poised for still further gains. The pivotal 62-66% retracement zone may be tested next. I place emphasis on the ability of an index to 'retrace' GREATER than 2/3rds of its prior decline. Hence my chart note below: "consistent Closes above 1223: bullish".

Above RUT near resistance at 1200, then a tougher 1213-1223 resistance zone, next resistance then looks to begin around 1240. Technical chart/technical support begins at 1180, drops to 1160 and extends to 1140. Closes below 1140: bearish.

The Russell 2000 looks headed higher, not dramatically but this sector is 'cheap' relative to the Nasdaq and S&P indexes.


New Option Plays

Financials Surge On Rate Hike Expectations

by James Brown

Click here to email James Brown


Capital One Financial - COF - close: 81.42 change: +1.87

Stop Loss: 78.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 3.5 million
Entry on November -- at $---.--
Listed on November 07, 2015
Time Frame: 6 to 8 weeks
New Positions: Yes, see below

Company Description

Trade Description:
Most people probably think of Capital One as a credit card company. They are also one of the top ten largest banks, based on deposits. The company is #145 in the Fortune 500. According to COF they have nearly 45 million customer accounts.

COF is part of the financial sector. According to the company, "Capital One Financial Corporation (www.capitalone.com) is a financial holding company whose subsidiaries, which include Capital One, N.A., and Capital One Bank (USA), N.A., had $212.9 billion in deposits and $313.7 billion in total assets as of September 30, 2015. Headquartered in McLean, Virginia, Capital One offers a broad spectrum of financial products and services to consumers, small businesses and commercial clients through a variety of channels. Capital One, N.A. has branches located primarily in New York, New Jersey, Texas, Louisiana, Maryland, Virginia and the District of Columbia."

COF's earnings results have been on something of a roller coaster. That big plunge in the stock price in July was a reaction to disappointing Q2 earnings (announced July 23rd). COF's earnings results were 19 cents worse than expected and revenues came in below expectations.

Shares reversed higher in late October when COF delivered better than expected Q3 results. Analysts were expecting a profit of $1.97 a share on revenues of $5.89 billion. COF beat estimates on both fronts with earnings of $2.10 a share. Revenues were up +4.6% to $5.9 billion. Shares of COF surged on this news and rallied to the $81.50 area, which has been resistance the last two weeks.

COF and most of the financials displayed relative strength on Friday (Nov. 6th) as the market reacted to the October jobs report. The better than expected jobs number almost guarantees the Federal Reserve will raise interest rates in December. This is very significant for the financials.

The Fed hasn't raised interest rates in almost a decade. When they do the banks should see a bump in their profit margin. Bears could argue that the Fed will raise rates so slowly it will take a long time for the banks to see any real impact. That might be true but the markets are always looking ahead and the financial sector should rally into the Fed's interest rate hike cycle.

Another bonus for the banks and credit card companies like COF was the surge in consumer credit. According to the Federal Reserve the U.S. saw consumer credit rise at a seasonally adjusted rate of +7.5% in the third quarter. Yet the numbers that just came out on Friday show that consumer credit surged to a higher than expected +10% annual rate in September.

Technically shares of COF appear to be coiling for a bullish breakout past resistance near $81.50. The point & figure chart is already bullish and forecasting a long-term target of $99.00. Tonight we are suggesting a trigger to buy calls at $82.15.

Trigger @ $82.15

- Suggested Positions -

Buy the 2016 JAN $85 CALL (COF160115C85) current ask $1.14
option price is a current quote and not a suggested entry price.

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

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

Daily Chart:

Weekly Chart:

In Play Updates and Reviews

Stocks Recover From Friday Morning Jolt

by James Brown

Click here to email James Brown

Editor's Note:

The October jobs report was significantly stronger than expected. That means the Fed will likely raise rates in December. Stocks initially sold off but investors bought the dip again.

PEP hit our stop loss.

Current Portfolio:

CALL Play Updates

The Boeing Company - BA - close: 147.94 change: -0.03

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: 6 to 8 weeks.
New Positions: Yes, see below

11/07/15: It comes as no surprise that Boeing is protesting the Pentagon's decision to give Northrop Grumman the long-range strike bomber program. The deal is worth tens of billions of dollars over the next few decades. BA along with its partner on the project, Lockheed Martin, want the U.S. Air Force to re-evaluate their decision.

This bomber-deal protest news came out on Friday and didn't really help shares of BA. The stock has been consolidating sideways in the $146-150 zone for about two weeks now.

Currently we are waiting on a bullish breakout past resistance at $150.00. Our suggested entry point is $150.25.

Trade Description: November 2, 2015:
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)

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


Salesforce.com, Inc. - CRM - close: 79.41 change: +0.70

Stop Loss: 75.75
Target(s): To Be Determined
Current Option Gain/Loss: +31.4%
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

11/07/15: CRM held up well on Friday. The stock dipped toward $78 on Friday morning and then bounced to a +0.88% gain. That was enough to outperform the major indices. Shares appear to be coiling for a bullish breakout past round-number resistance at $80.00 soon.

Keep in mind that we have less than two weeks left on this trade. We are planning to exit prior to CRM's earnings on November 18th.

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: 125.98 change: +0.26

Stop Loss: 121.75
Target(s): To Be Determined
Current Option Gain/Loss: +92.3%
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

11/07/15: HD continues to drift higher. Shares bounced off short-term technical support at its rising 10-dma on Friday morning. The stock managed to end the session at a new all-time closing high.

More conservative traders may want to move their stop loss closer to the simple 20-dma (currently near $123.70).

No new positions at this time. We plan on exiting prior to HD's earnings report on Nov. 17th.

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: 119.22 change: +0.84

Stop Loss: 114.85
Target(s): To Be Determined
Current Option Gain/Loss: +56.1%
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

11/07/15: Small cap stocks were the place to be last week. The big cap S&P 500 only rallied about +1% for the week. The IWM surged +3.3%. We could see the IWM challenge resistance near $120.00 and its 200-dma near $120.80 soon.

No new positions at this time.

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

11/03/15 new stop @ 114.85
10/28/15 triggered @ $116.55
Option Format: symbol-year-month-day-call-strike


Lear Corp. - LEA - close: 123.46 change: +0.08

Stop Loss: 121.45
Target(s): To Be Determined
Current Option Gain/Loss: -23.0%
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

11/07/15: If was a disappointing week if you were bullish on LEA. Shares broke through short-term resistance near $126.00 on Monday only to reverse on Tuesday morning. Shares spent the rest of the week fading lower. After five up weeks in a row, we shouldn't be surprised by a minor pullback.

More conservative traders might want to raise their stop loss. No new positions at this time.

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

11/03/15 new stop @ 121.45
10/28/15 triggered @ $123.65
Option Format: symbol-year-month-day-call-strike


Lam Research Corp. - LRCX - close: 76.90 change: -0.17

Stop Loss: 73.85
Target(s): To Be Determined
Current Option Gain/Loss: -13.6%
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

11/07/15: Traders have been buying the dips in LRCX near short-term support at $76 and its 200-dma (currently near 76.00) almost the entire week.

LRCX hit $77.99 on Thursday. Investors may want to wait for LRCX to rally past $78.00 before considering new bullish positions.

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

11/03/15 new stop @ 73.85
10/30/15 triggered @ $76.25
Option Format: symbol-year-month-day-call-strike


Netflix, Inc. - NFLX - close: 114.06 change: +0.56

Stop Loss: 106.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 19 million
Entry on November -- at $---.--
Listed on November 05, 2015
Time Frame: 6 to 8 weeks
New Positions: Yes, see below

11/07/15: NFLX found support near $112 on Friday morning but the stock didn't make much progress on the rebound, at least not as much progress as expected. Shares did add +0.49%, which actually outperformed the S&P 500 and the NASDAQ composite.

I don't see any changes from the Thursday night new play description. Our suggested entry point for bullish positions on NFLX is $116.15.

Trade Description: November 5, 2015:
Netflix has come a long way from its late 1990s roots as a DVD-rental-by-mail business. Today it is one of the largest online streaming video-on-demand businesses. The company's most recent earnings report was disappointing but failed to derail enthusiasm for the stock.

NFLX is part of the services sector. According to the company, "Netflix is the world's leading Internet television network with over 69 million members in over 60 countries enjoying more than 100 million hours of TV shows and movies per day, including original series, documentaries and feature films. Members can watch as much as they want, anytime, anywhere, on nearly any Internet-connected screen. Members can play, pause and resume watching, all without commercials or commitments."

Traditional media giants have been struggling with a massive change in consumer viewing habits. More and more people are "cutting the cord" with traditional cable television subscription packages. Case in point, Time Warner (TWX) just reported earnings this week and lowered their guidance as they expect more pay-TV subscribers to leave. That's because there are too many online streaming video options that are more competitive than regular cable services. NFLX has been a significant winner as people cut the cord.

NFLX is one of the market's best performers this year with a +132% gain year to date. Yet NFLX is not invincible. Doubts have been growing about NFLX's ability to keep growing and its rising costs. Their most recent earnings report is a good example.

NFLX announced their Q3 earnings results on October 14th. They missed Wall Street estimates on both the top and bottom line. Analysts were expecting a profit of $0.08 a share on revenues of $1.75 billion. NFLX delivered $0.07 a share. Revenues were up +23% to $1.74 billion. It wasn't a big miss but it was a miss. Furthermore NFLX management lowered their Q4 guidance below estimates. They now see Q4 earnings at $0.02 a share compared to estimates at $0.03.

One of the biggest disappointments was domestic subscriber growth. NFLX added 3.62 million subscribers globally. 2.74 million where international subscribers. The rest, 880,000 subs, were U.S. subscribers. That was significantly below analysts' estimates at 1.25 million.

NFLX partially blamed this subscriber miss on the credit card industry, which has been issuing new, more sophisticated credit cards with security chips in them. Essentially subscribers needed to update their billing info with the new card and that didn't happen, which produced more customer "churn". At least that is the story from NFLX. Credit card experts think this story is baloney and just a scapegoat for NFLX's poor growth.

Another challenge facing NFLX is growing competition. Amazon.com tries to dominate every market they are in. Their Amazon.com video streaming service is $99.00 a year (about $8.25/month) but this hasn't stopped NFLX's growth. Hulu has been a competitor in the online streaming video industry for years. They just launched a new ad free subscription service at $11.99 a month. According to Hulu, the customer response has been awesome but they are not releasing any numbers on how many people have signed up. Hulu's advantage over NFLX is being able to watch current season TV on their service. Yet another competitor for NFLX is YouTube. YouTube is launching a paid subscription service called YouTube Red for $9.99 a month. In spite of all the competition NFLX remains the dominant player and they continue to expand both in the U.S. and overseas. (FYI: new subscribers pay $9.99 a month for NFLX)

If missing earnings estimates and lowering guidance wasn't bad enough NFLX also told investors that they plan to raise additional capital next year (2016) to help "fund our continued content investments". That means more debt and could mean more stock (which dilutes shareholders). One of NFLX critics biggest arguments has been the company's rising expenses. Yet in spite of all these challenges NFLX's stock continues to perform.

Investors bought the post-earnings sell-off in the $97 range. Shares are now up three weeks in a row. They have filled the gap from October 15th (post-earnings drop) and kept rising. Now NFLX is on the verge of breaking out past its early October highs (near $115-116). The point & figure chart is bullish and forecasting at $148 target.

In summary, the growth story for NFLX seems a little bruised with their missed subscriber numbers. They continue to spend a ton of money on content and expansion. Yet investors continue to buy the name. The consumer trend of switching from traditional cable to streaming is not going to reverse and that benefits NFLX.

We are adding NFLX as a bullish candidate. We do consider it a higher-risk, more aggressive trader because shares can be so volatile. Tonight we are suggesting a trigger to buy calls at $116.15. I would use small positions to limit risk.

FYI: If you're curious about Netflix and their long-term outlook, check out this page on their website Netflix's View: Internet TV is replacing linear TV .

Trigger @ $116.15 *small positions to limit risk*

- Suggested Positions -

Buy the 2016 JAN $120 CALL (NFLX160115C120)

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


Signet Jewelers Limited - SIG - close: 146.64 change: -1.12

Stop Loss: 144.15
Target(s): To Be Determined
Current Option Gain/Loss: -44.2%
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

11/07/15: Bullish analyst comments for SIG on Friday did not help. Shares underperformed the market with a drop toward $145. SIG hit $144.65 before bouncing and trimming its loss to -0.75%.

SIG's relative weakness last week is a warning signal if you're bullish. No new positions at this time.

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

11/07/15 Caution - SIG is showing some relative weakness
10/29/15 triggered @ $150.75, upgraded by Goldman Sachs
Option Format: symbol-year-month-day-call-strike


United Technologies - UTX - close: 100.80 change: +0.00

Stop Loss: 97.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 3.1 million
Entry on November -- at $---.--
Listed on November 04, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: Yes, see below

11/07/15: UTX spiked lower at the open on Friday. Shares dipped to $99.29, piercing its 10-dma, before bouncing back above the $100 level. UTX managed to close unchanged on the session and looks poised to breakout to new three-month highs on Monday. Our suggested entry point for bullish positions is $101.15.

FYI: The company finalized its sale of its Sikorsky helicopter business to Lockheed Martin on Friday.

Trade Description: November 4, 2015:
It has been a tough year for UTX investors. The stock peaked near $124 a share in February 2015. Shares spent the next seven months in retreat. UTX finally bottomed in the $85-87 range in late September. Now shares appear to have reversed.

UTX is in the industrial goods sector. According to the company, "United Technologies, based in Farmington, Connecticut, provides high-technology systems and services to the building and aerospace industries." The company operates through different segments. They are: UTC Building & Industrial Systems, Pratt & Whitney (aircraft engines), UTC Aerospace Systems, and Sikorsky (helicopters). UTX is selling its Sikorsky unit to Lockheed Martin for $9 billion. The deal should close soon.

One of the biggest challenges for UTX has been an economic slowdown overseas and the strength of the U.S. dollar. The company gets more than 60% of their sales outside the U.S. That makes negative currency headwinds a serious issue.

Their most recent earnings report was October 20th. Analysts were expecting a profit of $1.56 a share on revenues of $14.59 billion. UTX beat the bottom line estimate with $1.67 a share, but that was still a double-digit decline from a year ago. Revenues were down -5.6% to $13.79 billion. Management reaffirmed their fiscal year 2015 guidance of $6.15-6.30 a share and revenues in the $57-58 billion range, which is in-line with Wall Street estimates. That was good enough for the street. The stock rallied.

The big reasons investors are looking past the disappointing earnings and revenue growth has been stock buybacks. Plus the current management has been selling off non-core assets as they try to streamline the company for better growth.

I mentioned earlier that UTX is selling their Sikorsky unit to LMT for $9 billion. UTX is going to use $6 billion of that money in an accelerated stock buyback program because they believe their stock is too cheap. Furthermore, UTX announced they were adding an extra $12 billion to their stock repurchase program. Altogether the company plans to spent $16 billion on stock buybacks through 2017.

Investors seem to like the news with shares up sharply from their Q3 report. The point & figure chart has turned bullish and is forecasting at $112 target. At the moment UTX is hovering near short-term resistance in the $100-101 zone. Tonight we are suggesting a trigger to buy calls at $101.15.

I will point out that UTX's daily chart seems to have resistance about every $5.00 ($105, $110, etc.). Odds are good we could see UTX rally back toward its simple 200-dma (currently near $109).

Trigger @ $101.15

- Suggested Positions -

Buy the 2016 JAN $105 CALL (UTX160115C105)

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.

11/06/15 UTX finalized its sale of the Sikorsky helicopter business to Lockheed Martin today
Option Format: symbol-year-month-day-call-strike


PUT Play Updates

Anthem, Inc. - ANTM - close: 133.98 change: -2.06

Stop Loss: 141.00
Target(s): To Be Determined
Current Option Gain/Loss: -7.1%
Average Daily Volume = 2.2 million
Entry on November 04 at $134.25
Listed on November 03, 2015
Time Frame: 6 to 8 weeks
New Positions: see below

11/07/15: The IHF healthcare ETF struggled to post a gain on Friday but it did eke out a gain. Meanwhile shares of ANTM continued to underperform the market. Shares fell to a new relative low ($132.46) before paring its loss to -1.5% by the closing bell.

Trade Description: November 3, 2015:
The big healthcare stocks used to be unstoppable. The group delivered huge gains in 2013 and 2014. Unfortunately the rally has peaked in 2015 and now the major names are retreating, in spite of increased M&A in the industry.

ANTM is in the healthcare sector. According to the company, "Anthem is working to transform health care with trusted and caring solutions. Our health plan companies deliver quality products and services that give their members access to the care they need. With over 72 million people served by its affiliated companies, including more than 38 million enrolled in its family of health plans, Anthem is one of the nation's leading health benefits companies."

The big story for healthcare has been consolidation. The handful of major insurers are getting bigger as they gobble each other up. Last July ANTM announced they were buying smaller rival Cigna (CI) for $54 billion. ANTM is holding a special shareholder meeting on December 3rd to approve the issuance of more stock to help pay for the merger. The deal is not expected to close until the second half of 2016. When it does CI should add to ANTM's earnings.

Speaking of earnings, ANTM is still growing. They reported their Q3 earnings on October 28th. Wall Street expected a profit of $2.32 a share on revenues of $19.65 billion. ANTM beat both estimates with a profit of $2.73 a share. Revenues were up +7.6% to $19.77 billion.

Investors seemed disappointed with ANTM's rising costs. Their benefit expense ratio rose 110 basis points to 83.6%. Furthermore ANTM raised their fiscal year 2015 guidance to $10.10-10.20 a share but that was seen as anemic. Wall Street estimates were already at $10.22 a share.

The IBD recently noted that all five of the big health insurers saw ObamaCare exchange enrollments fall in the third quarter. The average decline was -8.3%. That could be significant. The Affordable Care Act (ObamaCare) has driven a lot of growth for the big insurers over the last few years. Unfortunately the ACA has been plagued with problems and rising costs.

A couple of weeks ago a Credit Suisse analyst downgraded the healthcare sector over high valuations. The sector has been underperforming. Furthermore analysts earnings revisions have been slowing. Essentially Wall Street thinks growth is slowing for the group. ANTM has seen analysts lowering their price targets on the stock.

Technically the healthcare sector and shares of ANTM peaked this past summer. Currently ANTM is flirting with a breakdown into bear market territory with a -19.8% drop from its June closing high. The point & figure chart is already bearish and forecasting at $122 target. A decline under $134.00 would reaffirm the sell signal. ANTM does have significant support in the $134.50-135.00 zone. We want to be ready when it does break down. Tonight we are suggesting a trigger to buy puts at $134.25.

- Suggested Positions -

Long 2016 JAN $130 PUT (ANTM160115P130) entry $5.60

11/04/15 triggered @ $134.25
Option Format: symbol-year-month-day-call-strike


Canadian Pacific Railway - CP - close: 134.31 change: -1.69

Stop Loss: 138.55
Target(s): To Be Determined
Current Option Gain/Loss: +12.2%
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

11/07/15: The Dow Jones Transportation Average rallied +0.74% on Friday. Unfortunately the railroads did not participate. The $DJUSRR railroad index fell -1.0%. CP slipped -1.24% to close at new eight-week lows.

Tonight we are adjusting our stop loss down to $138.55.

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

11/07/15 new stop @ 138.55
11/03/15 new stop @ 143.75
11/02/15 triggered @ $139.75
Option Format: symbol-year-month-day-call-strike


Darden Restaurants - DRI - close: 61.71 change: -0.07

Stop Loss: 63.65
Target(s): To Be Determined
Current Option Gain/Loss: +11.6%
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

11/07/15: Most of the market ended Friday (and the week) with gains. DRI is still underperforming. Shares dipped to $60.84 on Friday but managed to bounce back to almost close unchanged on the session. The $62-63 region should offer short-term resistance.

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



Pepsico, Inc. - PEP - close: 99.72 change: -0.89

Stop Loss: 99.40
Target(s): To Be Determined
Current Option Gain/Loss: -28.8%
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

11/07/15: PEP has been a disappointment all week long. Shares just slowly drifted lower, day after day. On Friday the stock broke down under round-number, psychological support at the $100 level. PEP hit our stop loss at $99.40 before paring its losses for the day.

- Suggested Positions -

2016 JAN $100 CALL (PEP160115C100) entry $2.81 exit $2.00 (-28.8%)

11/06/15 stopped out
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