Option Investor

Daily Newsletter, Monday, 11/23/2015

Table of Contents

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

Market Wrap

Thanksgiving Week Is Here

by Thomas Hughes

Click here to email Thomas Hughes
Trading got off to a quiet start this holiday shortened week. Volume was low and attention is focused on a deluge of economic data slated to begin tomorrow.


The market opened quietly at the beginning of a holiday shortened week. Thanksgiving is here once again which means no trading on Thursday and a shortened day on Friday. It also means lighter than usual trading volumes and whatever economic reports that are on the schedule are crammed into the next two days, a recipe for knee-jerk reactions and potentially wild market swings. Earning are also on tap; the list is light compared to recent weeks but includes 18 S&P 500 companies.

Global trading was light as well. Asian indices closed largely flat; the Nikkei made a gain of 0.10% while the Chinese indices posted losses near -0.5%. European indices also closed flat after a choppy day of trading driven in part by wild swings in oil prices.

Market Statistics

Futures trading indicated a similarly flat to negative open for the US indices. There was little market moving news before the opening bell. Futures trading was relatively flat all morning until some news from Saudi Arabi came out, the cabinet says it is willing to help support the oil market. Needless to say the news caused a spike in oil prices that helped to lift index futures, but only marginally.

The indices opened with small gains, less than a point for the SPX, and made a quick dip to test last week's closing prices within the first 10 minutes of trading. The dip quickly found support which resulted in a small bounce, followed by another dip to support and another bounce. The second bounce was a little stronger and took the indices up to the highs of the day, near .25% for the SPX.

The indices held near their highs for an hour or so before beginning to fall back. By 2PM they had retreated back to the low of the day and lower, hitting bottom and bouncing by 2:45. The bounce was not strong but was able to regain most of the days losses leaving the 3 of the 4 major indices flat on the day.

Economic Calendar

The Economy

Existing Home sales was today's only bit of official economic data. The number of existing homes sold in October fell by -3.4% to 5.36 million, slightly worse than expected. Analysts had been projecting a decline to only 5.45 million. Despite the drop home sales are up year over year by 3.9%. All four major regions saw declines, led by the west, with higher prices and low inventory are cited as problems. Prices are up 5.8% over last year, inventory is down -4.5%. Lawrence Yun, NAR economist, sees labor markets supporting the housing market and sales pace into the end of the year at least.

Moody's Survey of Business Confidence gained 0.3% this week, the first gain in nearly 3 months. Weak global growth and and volatility in financial markets are the two main reasons Mr. Zandi cites as reasons for the decline in sentiment. Within the data current conditions have declined the most while forward outlook remains upbeat. This week's uptick could signal a bottom in declining sentiment but one piece of data doesn't change a trend. Global hurdles to business remain, let's wait and see how this data progresses over the next month and following the upcoming ECB and FOMC meetings.

According to FactSet 481 of the 500 S&P 500 companies have reported earnings so far this season with 13 more scheduled for this week. Of those that have reported the blended rate of earnings growth is now -1.6%. This is a 0.2% increase over last week and pretty close to what the final rate is going to be, barring a major surprise from the remainder of those to report. Energy continues to be the laggard, posting a -56.8% decline in year over year quarterly earnings. Ex-energy the blended rates goes up to 5.2%. Headwinds cited include currency conversions and higher wages. Positive trends include lower fuel costs.

Fourth quarter earnings estimates continue to decline. The expected rate of growth for the whole S&P 500 is now -4%, a decline of -0.35% and a new low. Energy is still expected to lead declines with estimates sitting near -65%. Ex-energy 4th quarter earnings growth should be near 1.6%. Based on the four year average we can expect to see the final rate of growth in the 4th quarter come in about 4% above the expected rate at the beginning of the quarter. This week's downward revision puts the all-index growth rate in position to remain negative even if the final rate does rise as expected. If so, it will be a third quarter of negative earnings growth.

Earnings and revenue growth is still expected to return in the first quarter of 2016 and remain strong through the end of next year. Full year 2016 earnings growth is expected to come in near 8.1%. This is a decline of -0.1% from last week but still strong, especially compared with negative growth expected for this year.

The Oil Index

Oil prices had a wild ride today. In early trading, before 7AM, WTI had been down near -3% on high supply/low demand outlook. Then, around 6:45 or so, a report from the Saudi Press Agency stating the Saudi cabinet's willingness to help the global oil community support prices sent WTI and Brent shooting higher. WTI reversed its losses and then added 3% before falling back to break even by the close of the day's session.

The Saudi news is a positive for the bulls but it is only words; no deals to support prices are in place, they did not cut production. They have indicated a "willingness" to support prices before but have yet to follow through on it. Until then supply is still high, production is still high and demand is tepid which leaves little reason to get bullish on oil; WTI may not break below $40 but there is little to no reason for it to rise significantly either.

The Oil Index opened lower but was able to rise during the day, the pop in oil prices no doubt helping. The index closed with a gain near 0.25% but was not able to cross back above the short term moving average. The indicators remain weak and pointing to lower prices so a bounce from here does not look likely without bullish catalyst. It looks like support is building in a narrow range just below the current level between 1,1150 and 1,170, a level likely to be tested again.

The Gold Index

Gold prices fell in today's session on rising dollar value and FOMC speculation. Spot price for the metal fell nearly -$10 and set a new almost 6 year closing low. Gold prices are now sitting on support with negative outlook. The FOMC is expected to raise rates in December, the ECB is expected to increase its QE in December, moves that could easily cause the Dollar Index to break resistance, move to new all-time highs and pressure gold to new lows. Support is near $1062, only five dollars below today's settlement price.

The Gold Miners ETF GDX fell -0.52% in today's session. The miners ETF is retreating back to long term support following last week's options expiration driven bounce from said support. The indicators are rolling into what could become a bullish signal but with my outlook on gold prices I view any rally derived from such a signal as a selling opportunity. Support is still along the $13 level, $14 and/or the short term moving average is first target for resistance.

In The News, Story Stocks and Earnings

Business and earnings news was largely positive this morning. The biggest headline was Pfizer's purchase of Allergan for $1.6 billion which was announced over the weekend. The move is an effective tax inversion for Pfizer but corporate execs say that is not the reason for the merger. The deal is expected to drive sales and earnings for Pfizer while setting it up for a strategic split some time down the road. The company will be structured under Allergan but carry the name Pfizer PLC. Shares of both companies fell more than -3%.

Tyson Foods reported before the bell, inline with expectations and guiding above estimates. Although EPS was slightly below consensus the food giant reported a record year driven by a 31% increase in fourth quarter operating income. The company has been pushing the integration of recently acquired Hillshire Brands and the moves are paying off. Company execs were able to raise guidance for next year to range above current consensus. The news was well taken and helped to drive the stock up by more than 10% to trade at a new all time high.

Alcoa got a vote of confidence today. Hedge fund Elliot Associates says the stock is dramatically undervalued and took a 6.4% stake in the company. They believe the company's plan to split in two will unlock value substantially above current share value and they want in. Of course, they want to have a talk with the board to discuss other avenues of unlocking value as well. Shares of the stock rose on the news gaining more than 4.25% by the end of the day.

The Dollar Index reached its highest level since March in today's session. The index is creeping up toward the all time high, driven by FOMC and ECB expectations. This move has been strong but has also lost momentum over the past week or two. The indicators are still bullish but both have retreated and showing some weakness as the index gets closer to resistance. Economic data could drive the index up to resistance, near $100.25, an actual rate hike from the FOMC, or even QE from the ECB, could send it higher.

The Indices

Trading volume and market action was very light today. Except for the Dow Jones Transportation Average, which lost nearly a full percent, losses were light. Today's leader was the NASDAQ Composite which lost only -0.05%. The tech heavy index range was much bigger though, nearly a full percent, and created a small doji candle. Today's candle is a sign of indecision but not too alarming in the light of holiday affected trading, low volume often leads to directionless, range bound trading. The indicators remain mixed but continue to roll into what could develop into a strong trend following entry so I remain optimistic. This week could see the index move in either direction due to light holiday volume mixed with a ton of economic data but I remain bullish so a dip to support would be a buying opportunity. First target for support is near 5,000 with the short term moving average below that, and the long term trend line below that.

The S&P 500 made the next largest decline, -0.12%. The broad market created a small bodied candle, not quite a doji, but one with significant upper and lower shadows. This candle also shows indecision and/or a lack of direction in the market and not too surprising given the holiday week. The index appears to be moving higher, today's action a pause in mid-rally, with a target near the all time high. The indicators continue to strengthen although momentum remains bearish so this move could end soon without a catalyst to drive it higher. A shift in momentum to the upside could break resistance and take the index up to 2,150-2,220 in the near term. Strong support is along the long term up trend line near 2,000 with interim targets near 2,070 and 2,050 should a pull back occur.

The Dow Jones Industrial Average made the third largest decline, -0.17%. The blue chips created a small, spinning top type candle in today's action but still looks like it will continue higher. The index is bouncing from the long term trend line with indicators that, while mixed, are rolling into what could become a strong signal. Stochastic is already pointing higher but MACD remains bearish although it is close to crossing the zero line. First target for resistance is 18,000, next target is near the all time high, either of which could keep the index contained in the near term to short term. Long term trends remain bullish so any dips that ensue are buying opportunities in my opinion.

The Dow Jones Transportation Index made the largest decline today, -0.90%. Today's move confirms, again, resistance at the 8,250 level and the top of the 3 month range. The transports have been lagging all year and look like they will continue to do so into next year. Despite the drop the short term moving average and indicators continue to show support in the 8,000 range so downside from here is likely to be minimal at best. Both MACD and stochastic are pointing higher so it is possible that resistance could be tested and broken, if so upside target is near 8,500. Downside target is the short term moving average and then 8,000.

The indices are trying to figure out where they want to go and a low volume week such as this is not likely to help clear the picture. Near term factors such as weak earnings and tepid economic data weigh while longer term factors such as earnings and GDP growth outlook help lift. With earnings expectations the way they are I would not be surprised to see the indices return to longer term strong support levels before the start of next earnings season, with a chance at testing the all time highs or even setting new ones between now and then.

This weeks action could get wild. Its a holiday shortened week, volume is low and there is a lot of economic data to influence outlook and rate hike speculation. This combination could result in knee-jerk market reactions and increased market volatility so I'm already leery of whatever may come. Next week is the first of December, volume should return, we'll get another big round of economic data and possibly the start of a Santa Rally so it may be wise to wait before opening any new positions, bullish or bearish.

Tomorrow there are four economic reports, all of which are fairly important; Consumer Confidence, Case-Shiller 20 City Index and the 2nd estimate for 3rd quarter GDP. GDP is expected to be revised higher from 1.5% to 2%, an important revision but not as important as forward outlook which grows to 3% in the 4th quarter.

Until then, remember the trend!

Thomas Hughes

New Option Plays

No Slowdown Here

by James Brown

Click here to email James Brown


Roper Technologies - ROP - close: 192.28 change: +0.79

Stop Loss: 186.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 468 thousand
Entry on November -- at $---.--
Listed on November 23, 2015
Time Frame: Exit PRIOR to earnings in January
New Positions: Yes, see below

Company Description

Trade Description:
The Dow Jones Industrial Average is virtually flat for the year (-0.2%) while ROP is soaring. The stock is up +23% year to date and up +25% from its September lows. The relative strength does not show any signs of slowing down.

ROP is in the industrial goods sector. According to the company, "Roper is a diversified technology company with annual revenues of $3.2 billion. We provide engineered products and solutions for global niche markets, including software information networks, medical, water, energy, and transportation. Our strong operating capabilities enable us to convert end-market potential into profitable growth and cash flow in order to create value for our investors. Roper is a component of the S&P 500, Fortune 1000 and Russell 1000 Indexes." The company operates four major business segments. These are: industrial technology, energy systems and controls, medical and scientific imaging, and RF technology.

The earnings picture has been somewhat mixed this year. Shares of ROP plunged in July when they reported their Q2 results. Q2 earnings beat estimates but revenues missed. Management also lowered their Q3 guidance.

Low expectations may have helped ROP beat Q3 estimates when their results came out on October 26th. Earnings of $1.61 a share beat analysts' estimates by four cents. Revenues were up +0.1% to $886 million. This was actually below expectations but traders didn't seem to care. Adjusted gross margins improved 130 basis points to 60.7% and ROP management upped the low-end of their earnings guidance. Overall ROP is forecasted to show +5% growth in 2015 and see a +10% jump in 2016 earnings. That was enough for investors as shares of ROP soared past resistance to hit new highs following its Q3 report.

The company has been very active on the acquisition front. Recent acquisitions include law firm software company Aderant. They have also purchased Atlas medical and CliniSys. Thus far ROP has spent $1.7 billion on acquisitions this year.

Technically shares have shown significant relative strength. The rally off its September lows has been especially strong. The point & figure chart is bullish and forecasting a long-term target of $273.00. ROP has broken through multiple layers of resistance in the last few weeks. Most of November the stock consolidated sideways in the $184-190 zone. A few days ago ROP found support at its rising 20-dma and then rallied through round-number resistance at $190.00. ROP looks headed for $200 a share if not higher. Tonight we are suggesting a trigger to buy calls at $192.65.

Trigger @ $192.65

- Suggested Positions -

Buy the FEB $200 CALL (ROP160219C200) current ask $4.00
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:

In Play Updates and Reviews

Stocks Look Winded

by James Brown

Click here to email James Brown

Editor's Note:

The stock market looks winded after sprinting higher last week. The market paused on Monday with the major indices delivering minor losses. Traders started to buy the dip again this afternoon.

Current Portfolio:

CALL Play Updates

Alkermes Plc - ALKS - close: 72.53 change: +0.23

Stop Loss: 69.75
Target(s): To Be Determined
Current Option Gain/Loss: -71.4%
Average Daily Volume = 699 thousand
Entry on November 17 at $75.25
Listed on November 10, 2015
Time Frame: Exit PRIOR to December option expiration
New Positions: see below

11/23/15: It was a relatively quiet day for Wall Street and ALKS spent the session churning sideways in the $72-74 zone. I don't see any changes from my recent comments. ALKS should have support at $70.00 and resistance in the $74-75 zone.

No new positions at this time.

Trade Description: November 10, 2015:
The healthcare and biotech names have started to show life again. Biotechs have definitely shown some relative strength in late October and now this week.

ALKS is in the healthcare sector. According to the company, "Alkermes plc is a fully integrated, global biopharmaceutical company developing innovative medicines for the treatment of central nervous system (CNS) diseases. The company has a diversified commercial product portfolio and a substantial clinical pipeline of product candidates for chronic diseases that include schizophrenia, depression, addiction and multiple sclerosis. Headquartered in Dublin, Ireland, Alkermes plc has an R&D center in Waltham, Massachusetts; a research and manufacturing facility in Athlone, Ireland; and a manufacturing facility in Wilmington, Ohio."

Recent earnings results have generally been better than expected. On July 30th ALKS reported its Q2 results with both earnings and revenues coming in above expectations. Management raised their fiscal 2015 guidance.

ALKS beat analysts' estimates again when they reported their Q3 results on October 29th. The company lost ($0.18) a share but that was better than the estimates for ($0.21). Revenues were down -4.6% to $152.7 million but that was better than expected.

In ALKS' Q3 press release they provided a breakdown of revenues:

Manufacturing and royalty revenues from RISPERDAL CONSTA and INVEGA SUSTENNA/XEPLION were $67.6 million, compared to $68.5 million for the same period in the prior year.

Net sales of VIVITROL were $37.9 million, compared to $25.8 million for the same period in the prior year, representing an increase of approximately 47%.

Manufacturing and royalty revenues from AMPYRA/FAMPYRA 1 were $22.1 million, compared to $16.5 million for the same period in the prior year.

Royalty revenue from BYDUREON was $13.0 million, compared to $10.3 million for the same period in the prior year.

A few weeks ago ALKS announced that the FDA had approved their ARISTADA treatment for schizophrenia. ALKS explained that schizophrenia is a chronic, severe and disabling brain disorder that affects millions of patients in the U.S.

In ALKS' Q3 press release the company also announced they were working toward key milestones for their ALKS 3831 treatment for schizophrenia, their ALKS 8700 treatment for multiple sclerosis, and their ALKS 5461 treatment for major depressive disorder. They expect more data on all three within the next six months.

Technically the stock has soared from the bottom of its major trading range near $55 toward the top of its trading range near $75.00. The current rally has produced a buy signal on the point & figure chart, which is also forecasting a long-term target of $108.00.

The key level to watch is resistance at $75.00. ALKS has been consolidating sideways in the $70-74 zone the last several days but shares are on the verge of a breakout. It would be tempting to buy calls on a rally above today's high ($74.11) but we are suggesting a trigger to buy calls at $75.25, which would be a new multi-year high and above resistance from early 2015.

- Suggested Positions -

Long DEC $80 CALL (ALKS151218C80) entry $2.45

11/17/15 triggered @ $75.25
Option Format: symbol-year-month-day-call-strike

The Boeing Company - BA - close: 148.34 change: -1.06

Stop Loss: 144.75
Target(s): To Be Determined
Current Option Gain/Loss: -37.1%
Average Daily Volume = 3.8 million
Entry on November 20 at $150.25
Listed on November 19, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: see below

11/23/15: BA dipped again on Monday. Shares fell to an intraday low of $147.71. I am suggesting traders wait for BA to trade back above $150.25 before initiating new bullish positions.

Trade Description: November 19, 2015:
Growing demand for airplanes and rising demand for defense spending to crush ISIS generates a couple of strong tailwinds for BA. The company is involved in both defense and a major player in the commercial airline industry.

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."

BA's most recent earnings report was October 21st. Wall Street was expecting a profit of $2.20 a share on revenues of $24.78 billion. BA beat estimates on both fronts. Earnings were $2.52 a share. Revenues were up +8.7% to $25.85 billion. The company raised their guidance on both EPS and revenues. Their backlog is almost 5,700 planes valued at more than $425 billion.

The company sees strong demand for the airplane market. On November 4th BA issued a press release stating, "Boeing forecasts airlines in the Middle East will require 3,180 new airplanes over the next 20 years, valued at an estimated $730 billion. 70 percent of the demand is expected to be driven by rapid fleet expansion in the region." Then on November 16th, "Boeing projects the Latin American commercial aviation market will grow at one of the highest rates in the world over the next 20 years. As a result, Boeing forecasts the region's airlines will need 3,050 new airplanes valued at $350 billion."

A couple of days ago two analysts with Canaccord Genuity issued a note suggesting rising interest rates are bullish for BA. Here's what they had to say, "While it is difficult for us to determine exactly when the U.S. will raise its target federal funds rate, we wanted to review again the impact of rising rates has historically had on Boeing and the commercial aerospace cycle. Historically, rising rates have corresponded with strengthening commercial orders and outperformance by both Boeing stock and the broader Aerospace & Defense sector. For example, over the past three significant tightening cycles, commercial transport orders increased by an average of 7% and 140% in the 12 and 24 month time periods after rates started to increase. Similarly, the total commercial backlog also increased over these same periods by an average of 3% and 43%... Not surprising as well, over the past two tightening cycles, BA stock has outperformed the broader market by an average of 19%-20% annually while rates are rising. We agree that with the more diverse backlog today, the health of U.S. airlines is less impactful for the cycle. However, we believe in the aggregate, rising rates in the U.S. are generally a bullish signal for both Boeing and the A&D sector. Note that since 1991, BA stock has outperformed the S&P in 15 of the 24 years, and is on pace to do so again in 2015." (source)

News in late October that BA and project partner Lockheed Martin (LMT) had lost their bid on the Pentagon's long-range strike bomber project to rival Northrop Grumman (NOC) did not seem to have much impact on BA's share price.

On the subject of defense, the terrible attacks in Paris last week have generated new support for additional defense spending to focus on ISIS/ISIL. BA could see additional defense spending contracts from multiple governments as governments bulk up for more action.

Meanwhile shares of BA have been building on a bullish trend of higher lows since the market's correction in August. The bounce off its trend line of support has lifted BA toward major resistance at $150.00. The point & figure chart is bullish and forecasting at $165.00 target. We want to see a breakout past resistance at $150. Tonight we are suggesting a trigger to buy calls at $150.25.

- Suggested Positions -

Long JAN $155 CALL (BA160115C155) entry $2.21

11/20/15 triggered @ $150.25
Option Format: symbol-year-month-day-call-strike

The Walt Disney Company - DIS - close: 119.42 change: -0.65

Stop Loss: 115.85
Target(s): To Be Determined
Current Option Gain/Loss: +18.2%
Average Daily Volume = 10.6 million
Entry on November 18 at $117.75
Listed on November 12, 2015
Time Frame: Exit PRIOR to 2016 January option expiration
New Positions: see below

11/23/15: I cautioned readers in the weekend newsletter that DIS was challenging resistance at $120.00 and could see a pullback. This morning the stock hit $120.65 but faded back to $119.00 midday.

No new positions at this time.

Trade Description: November 12, 2015:
Star Wars fans are counting down the days until episode seven, The Force Awakens, hits theaters. DIS is poised to reap a galaxy of profits as the company re-launches the Star Wars franchise.

DIS has been a big cap superstar with strong, steady gains off its 2011 lows. That changed in August this year. Shares of DIS plunged into a very sharp and painful correction. The catalyst for the drop was the company's earnings report. Disney reported earnings on August 4th and beat the street with earnings of $1.45 compared to estimates for $1.42. The very next day shares fell -$11.00 to $110. The sell-off accelerated in August thanks to the global market meltdown during that time frame. Since then shares have recovered.

Disney posted $13.1 billion in revenue compared to estimates for $13.2 billion. That minor miss was not the reason for the huge decline in the stock. Disney said revenues in its cable products rose +5% BUT they had seen some pressure from online streaming. Subscription growth to the ESPN cable bundle had slowed, not declined, just slowed.

There are multiple reasons. There were no major sporting events this summer like the World Cup, Olympics, etc. Some consumers are cutting the cord to cable because they are now getting their TV programming from Netflix, Hulu, etc. Cable is expensive compared to the streaming options. The drop off in ESPN growth is not related specifically to Disney. CEO Bob Iger said subscriptions would pick back up in 2016 and expand sharply in 2017 thanks to a flood of sporting events due to come online next year.

Disney has already purchased the rights to nearly every sporting event available in the next five years but the old contracts with the prior rights holders have yet to expire. As those contracts expire and the new Disney contracts begin the content on ESPN will surge.

(sidenote - The advertising environment for television should also improve in 2016 thanks to the U.S. presidential election.)

This slowdown in ESPN growth should be ignored. This is just a small part of the Disney empire and everything else is growing like crazy. Parks and resorts revenue rose +4%. Consumer products revenue rose +6% thanks to Frozen, Avengers and Star Wars merchandise. The only weak spot was interactive gaming, which declined -$58 million to $208 million. Disney expects that to rebound in Q4 as new games are released and holiday shopping begins.

The real key here is the theme parks, cruises and most of all the movie franchises. They have five Star Wars movies in the pipeline and the one opening this December is expected to gross $2.2 billion and provide Disney with more than $1 billion in profits. This is just one of the blockbusters they have scheduled.

The Avengers movie in April was a hit and added greatly to their Q2 earnings. However, that will just be a drop in the bucket compared to the money they are going to make on the Star Wars reboot in December. That is the first of five Star Wars movies on the calendar. Remember, Disney now has Marvel, Pixar and Star Wars (Lucasfilm) all under the same roof. The company has a strong line up of movies in the pipeline and they all feed their massive merchandising machine.

Disney Movie Schedule (partial list)

Dec. 18, 2015 - "Star Wars: Episode VII - The Force Awakens"
2016 - "The Incredibles 2"
2016 - "Frozen" sequel
April 2016 - "Captain America: Civil War"
June 2016 - "Finding Dory"
Dec. 2016 - "Star Wars Anthology: Rogue One"
May 2017 - "Star Wars: Episode VIII"
June 2017 - "Toy Story 4"
Late 2017 - "Thor: Ragnarok"
May 2018 - "Avengers: Infinity War - Part I"
2018 - "Untitled Star Wars Anthology Project"
May 2019 - "Avengers: Infinity War - Part II"
2019 - "Star Wars: Episode IX"

Content is still king and DIS rules. They're going to make a hoard of money off their Star Wars movies but that's just the tip of the iceberg. There will be tons of money made on merchandising from toys, clothing, video games, and just about everything else under the sun they can slap a Star Wars logo on.

The stock's correction from $121 to $90 in August 2015 was abrupt. DIS quickly fell from correction territory to bear-market territory in just a few days. Fortunately DIS produced a pretty good rebound.

Several days ago DIS reported their Q4 earnings on November 5th. Analysts were expecting a profit of $1.14 a share on revenues of $13.52 billion. DIS delivered $1.20 a share. Revenues were up +9% to $13.51 billion. The market is still worried about DIS' ESPN unit but these concerns were overshadowed by excitement over the new Star Wars franchise, which kicks off on December 18. That's just 34 days away. Shares of DIS could see a pre-movie rally as the hype builds up for the movie launch.

Technically shares of DIS are arguably overbought with a surge from $98 to $118 since its late September lows. One reality of the market is that overbought stocks can always get more overbought. The stock did see some volatility on November 4th in reaction to earnings from rival Time Warner. Today shares of DIS displayed some strength. The S&P 500 fell -1.39% yet DIS only dropped -0.26%. Another reason DIS could outperform between now and year end is mutual fund and hedge fund managers trying to boost their performance. It's been a tough year for money managers. Odds are they will be chasing performance in the market. A high-profile, big cap winner like DIS is a prime target for them.

The high this week was $117.58. Tonight we are suggesting a trigger to buy calls at $117.75.

- Suggested Positions -

Long 2016 JAN $120 CALL (DIS160115C120) entry $2.92

11/21/15 new stop @ 115.85
11/18/15 triggered @ $117.75
Option Format: symbol-year-month-day-call-strike

Global Payments Inc. - GPN - close: 72.66 change: +1.40

Stop Loss: 68.40
Target(s): To Be Determined
Current Option Gain/Loss: +33.3%
Average Daily Volume = 718 thousand
Entry on November 17 at $70.25
Listed on November 11, 2015
Time Frame: Exit PRIOR to December options expiration
New Positions: see below

11/23/15: GPN displayed relative strength with a +1.9% gain and another new all-time high. In our previous update we moved our stop loss to $68.40. More conservative traders might want to raise their stop loss again.

Trade Description: November 11, 2015:
Consistently strong earnings growth can do wonders for your stock price. Just ask GPN. Shares are up +72% year to date. That compares to a +0.8% gain in the S&P 500 and a +7% rally in the NASDAQ this year. The rally in GPN started a couple of years ago and shares are up +218% from its $22 lows in 2013.

GPN is in the services sector. According to the company, "Global Payments Inc. (GPN) is a leading worldwide provider of payment technology services that delivers innovative solutions driven by customer needs globally. Our partnerships, technologies and employee expertise enable us to provide a broad range of products and services that allow our customers to accept all payment types across a variety of distribution channels in many markets around the world. Headquartered in Atlanta, Georgia with approximately 4,500 employees worldwide, Global Payments is a Fortune 1000 Company with merchants and partners in 29 countries throughout North America, Europe, the Asia-Pacific region and Brazil."

This company has beaten Wall Street's earnings estimates every quarter this year. Not only that but GPN has raised guidance the last four quarters in a row. GPN has delivered two years of consistent earnings growth and investors have noticed.

Last year (fiscal 2015) the company earned $4.12 a share. That was a +22% improvement from the prior year. This year analysts are expecting GPN's earnings to grow +39%.

GPN's most recent earnings report was October 7th. Earnings surged +37.5% from the prior year. GPN beat on both the top and bottom line. They raised their fiscal 2016 guidance above Wall Street estimates. Plus they announced a 2-for-1 stock split, which took place on November 2nd.

Jeff Sloan, CEO, commented on their quarter, "We are delighted with our outstanding first quarter results, which represent an excellent start to the 2016 fiscal year and a continuation of exceeding our expectations across our markets. This performance builds on the momentum we have generated as we continue to invest in our strategy to expand distribution and create competitive differentiation through technology by delivering innovative solutions globally."

You can see the surge in GPN's stock following its October 7th earnings report. Investors have been buying the dips. Today GPN is challenging round-number resistance at the $70.00 level. Tonight we are suggesting a trigger to buy calls at $70.25.

- Suggested Positions -

Long DEC $70 CALL (GPN151218C70) entry $2.25

11/21/15 new stop @ 68.40
11/17/15 triggered @ $70.25
Option Format: symbol-year-month-day-call-strike

Huntington Ingalls Industries - HII - close: 133.67 change: -0.85

Stop Loss: 129.75
Target(s): To Be Determined
Current Option Gain/Loss: -7.0%
Average Daily Volume = 318 thousand
Entry on November 17 at $132.05
Listed on November 16, 2015
Time Frame: Exit PRIOR to December option expiration
New Positions: see below

11/23/15: HII encountered a little profit taking today. Shares slipped -0.6%. The $130-131 zone should be short-term support.

No new positions at this time.

Trade Description: November 16, 2015:
Defense stocks were in the spot light today. The tragic terrorist attack in Paris on Friday has changed the worldview for many governments. Most major world powers have vowed to intensify their efforts to destroy ISIS. That should mean additional defense spending.

HII is in the industrial goods sector but it's part of the defense industry. According to the company, "Huntington Ingalls Industries is America's largest military shipbuilding company and a provider of engineering, manufacturing and management services to the nuclear energy, oil and gas markets. For more than a century, HII's Newport News and Ingalls shipbuilding divisions in Virginia and Mississippi have built more ships in more ship classes than any other U.S. naval shipbuilder. Headquartered in Newport News, Virginia, HII employs approximately 37,000 people operating both domestically and internationally."

The earnings picture has been mixed for HII. The market was relatively forgiving with the company's most recent earnings report. HII announced its Q3 results on November 5th. Earnings were up +18.5% from a year ago to $1.98 a share. That actually missed Wall Street estimates by three cents. Revenues were up +4.8% to $1.8 billion, which was above expectations. HII said their total operating margin improved from 10.0% to 11.1%. Management also said their backlog grew about $800 million to $23.3 billion.

The stock reacted sharply with a surge to new multi-month highs. Since this earnings report HII has been digesting its gains in a sideways consolidation pattern. Friday's market decline pushed HII to short-term technical support at the 10-dma. Today shares bounced +3.1% to set a new six-month closing high. We think this rally continues. The point & figure chart is bullish and forecasting a long-term target of $179.00.

Tonight we are suggesting a trigger to buy calls at $131.75.

FYI: HII will begin trading ex-dividend on November 24, 2015. The quarterly cash dividend is $0.50.

- Suggested Positions -

Long DEC $135 CALL (HII151218C135) entry $2.83

11/21/15 new stop @ 129.75
11/17/15 triggered on gap higher at $132.05, trigger was $131.75
Option Format: symbol-year-month-day-call-strike

Lennox Intl. Inc. - LII - close: 136.69 change: +0.38

Stop Loss: 132.85
Target(s): To Be Determined
Current Option Gain/Loss: -22.2%
Average Daily Volume = 425 thousand
Entry on November 23 at $137.25
Listed on November 18, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

11/23/15: LII was in rally mode this morning. Shares hit new all-time highs near $138.50 before lunchtime. Our trigger to launch bullish positions was hit at $137.25. Unfortunately LII gave back nearly all of its gains. I would wait for a new rally above $137.25 before initiating bullish positions.

Trade Description: November 18, 2015:
Not many publicly-traded companies can say they have been around for over 100 years. LII started back in 1895. The last four years have been solid for bullish investors in the stock. There was a big pullback in mid 2014 but the stock recovered. Since then LII has been setting a string of new all-time highs.

LII is in the industrial goods sector. According to the company, "Lennox International is a leading provider of climate control solutions for heating, air conditioning and refrigeration markets around the world. We have built our business on a heritage of integrity and innovation dating back to 1895. Our employees are dedicated to providing trusted brands, innovative products, unsurpassed quality, and responsive service." The company operates three key businesses with a residential heating and cooling division, a commercial heating and cooling division, and a refrigeration business.

The earnings picture has been relatively solid as well. LII has beaten Wall Street's earnings and revenues estimates in three of the last four quarterly reports. Their most recent earnings report was October 19th. LII's earnings rose +26% from a year ago to $1.82 per share. That was three cents above estimates. Revenues were up +6.3% to $955 million versus the $940 million estimate. On a constant currency basis revenues were up +11%. Management raised their 2015 revenue forecast.

Todd Bluedorn, LII Chairman and CEO, commented on his company's quarter, "Lennox International realized strong revenue growth at constant currency and significant margin expansion across all three of our businesses in the third quarter. For the company overall, total segment profit set a third-quarter record, and profit margin expanded 140 basis points from the prior-year quarter to a record level of 13.7%. Our Residential business set third-quarter records for revenue, margin and profit as strong business momentum continued. Residential revenue was up 13% at constant currency, and margin expanded 240 basis points to 17.4%. In Commercial, segment profit and margin set new highs on 8% revenue growth at constant currency. North America and Europe both saw high single-digit revenue growth at constant currency. Commercial segment margin expanded 70 basis points to 18.2%. In Refrigeration, revenue was up 8% at constant currency, with double-digit growth in North America and Europe. Refrigeration margin expanded 220 basis points from the prior-year quarter to 10.7%."

It's hard to go wrong with record results and rising margins. The stock surged on this earnings report. Momentum finally stalled near $136-137 in early November. LII has spent the last couple of weeks consolidating gains in a sideways trading pattern. Shares were relatively resistant to the market's mid-November swoon. Now with the market in rally mode LII is on the verge of another breakout higher. Today's high was $136.94. Tonight we are suggesting a trigger to buy calls at $137.25.

- Suggested Positions -

Long MAR $140 CALL (LII160318C140) entry $6.30

11/23/15 triggered @ $137.25
Option Format: symbol-year-month-day-call-strike

Lam Research Corp. - LRCX - close: 76.99 change: -1.39

Stop Loss: 74.95
Target(s): To Be Determined
Current Option Gain/Loss: -30.3%
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

11/23/15: Semiconductor stocks underperformed the broader market on Monday. LRCX followed suit and shares fell -1.7%. The stock closed near its lows for the session, which doesn't bode well for tomorrow morning.

No new 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

11/21/15 new stop @ 74.95
11/12/15 LRCX closes below short-term support at $76.00
11/03/15 new stop @ 73.85
10/30/15 triggered @ $76.25
Option Format: symbol-year-month-day-call-strike

PUT Play Updates

Bunge Limited - BG - close: 68.37 change: +2.85

Stop Loss: 68.05
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.0 million
Entry on November -- at $---.--
Listed on November 21, 2015
Time Frame: Exit PRIOR January option expiration
New Positions: Yes, see below

11/23/15: Something sparked a bounce in BG today. Unfortunately I could not find what the catalyst was for today's display of relative strength. Shares surged +4.3% and erased a good chunk of last week's declines. If this bounce continues tomorrow we might drop BG as a candidate. Currently our suggested entry point to buy puts is at $64.85.

Trade Description: November 21, 2015:
BG's business is facing multiple headwinds and the stock has suffered for it. Shares are underperforming the market in a big way with BG down -17% from their late October high. The stock is down -29% from its 2015 highs.

BG is in the consumer goods sector. According to the company, "Bunge Limited (www.bunge.com) is a leading global agribusiness and food company operating in over 40 countries with approximately 35,000 employees. Bunge buys, sells, stores and transports oilseeds and grains to serve customers worldwide; processes oilseeds to make protein meal for animal feed and edible oil products for commercial customers and consumers; produces sugar and ethanol from sugarcane; mills wheat, corn and rice to make ingredients used by food companies; and sells fertilizer in South America. Founded in 1818, the company is headquartered in White Plains, New York."

One of BG's biggest challenges is the strong dollar. This makes American products, including crops and commodities, more expensive overseas. Thus demand from foreign markets has been soft. Currencies issues have also been trouble with BG's business in Brazil, which has a slow economy and a weak currency. Meanwhile in the U.S. farmers are facing a larger than expected harvest for some crops, which will further push prices down.

These troubles are crushing BG's revenues. The company reported better than expected Q1 earnings back in April but revenues were down -19.7% and significantly below Wall Street estimates. Their Q2 results were worse. Analysts expected a profit of $1.36 a share on revenues of $14.59 billion. BG reported Q2 results of $0.50 a share. Revenues were down -35.8% to $10.78 billion. BG's Q3 numbers were not much better. Earnings were $1.24 a share, which missed estimates by 35 cents. Revenues plunged -21% to $10.79 billion, compared to estimates of $12.5 billion.

Naturally analysts have began downgrading their earnings and revenue numbers for BG, which doesn't inspire any confidence in the stock. The point & figure chart has produced a new sell signal that is forecasting at $53.00 target.

Bulls could argue that BG's stock is short-term oversold and due for a bounce. However, the S&P 500 just delivered its best one-week gain of the year and BG did not participate. Friday's intraday low was $65.32. Tonight we are suggesting a trigger to buy puts at $64.85.

Trigger @ $64.85

- Suggested Positions -

Buy the JAN $65 PUT (BG160115P65)

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

Cummins Inc. - CMI - close: 98.14 change: -0.56

Stop Loss: 101.05
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.0 million
Entry on November -- at $---.--
Listed on November 17, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: Yes, see below

11/23/15: CMI bounced again this morning. The rally was rebuffed near round-number resistance at $100. Shares faded to a -0.5% decline. There is no change from my recent comments. Wait for a new relative low to launch positions. Our suggested entry point to buy puts is at $97.30.

Trade Description: November 17, 2015:
Shares of CMI are in a bear market. The current down trend shows no signs of slowing. The stock is down -32% year to date.

CMI is in the industrial goods sector. According to the company, "Cummins Inc., a global power leader, is a corporation of complementary business units that design, manufacture, distribute and service diesel and natural gas engines and related technologies, including fuel systems, controls, air handling, filtration, emission solutions and electrical power generation systems. Headquartered in Columbus, Indiana, (USA) Cummins currently employs approximately 54,600 people worldwide and serves customers in approximately 190 countries and territories through a network of approximately 600 company-owned and independent distributor locations and approximately 7,200 dealer locations. Cummins earned $1.65 billion on sales of $19.2 billion in 2014."

CMI reported its Q2 results on July 28th. The company beat estimates on both the top and bottom line. Yet the post-earnings rally quickly faded. Shares were already in a down trend and investors used the rally to sell. Unfortunately, the earnings picture has taken a dramatic turn for the worse.

Business conditions deteriorated in the third quarter. Wall Street was expecting CMI to report earnings of $2.59 a share on revenues of $4.92 billion. The company delivered earnings of $2.14 a share. Revenues fell -5.5% to $4.62 billion. Management lowered their 2015 guidance and said they would start laying off up to 2,000 people.

The stock crashed to new multi-year lows the next day (see chart). A bearish note from Morgan Stanley didn't help either. A team of analysts at Morgan Stanley cut their rating on CMI to a "sell" and slashed their price target down to $79. Here is an excerpt from the Morgan Stanley note:

We believe CMI is facing three major headwinds that will drive share price underperformance: 1) The secular growth story within the Components business is dissipating - as developed markets shift regulatory focus from emissions to fuel economy, we expect CMI's Emissions Solutions revenue growth to converge with production; this represents a $0.35 EPS headwind. 2) The NAFTA Engine business is likely to suffer from market share erosion - as per our analysis on pages 4-6, we calculate $0.40-0.60 EPS risk associated with incremental Ford, Freightliner, and PACCAR vertical integration. 3) Consensus forecasts do not yet reflect the full impact of a NAFTA truck industry downturn - based on ACT's outlook, we see $0.40-0.65 EPS risk associated with cyclical decline in the NA truck market. While the negative reaction to today's 3Q miss and 2015e guide-down implies increasing awareness of cyclical risk, our bearish call focuses more on the impediments to secular growth and market share. (source)
A couple of weeks later, on November 10th, CMI held their analyst day. The Board of Directors approved another $1 billion stock buyback program to replace the previous $1 billion buyback they announced in July 2014. This news didn't help the stock. That is probably because CMI warned that they expect 2016 revenues to be -5% below 2015 (or worse).

I will point out that some investors see CMI as a dividend trade. The stock's decline has boosted the dividend yield on CMI's stock to nearly 4%. We should keep in mind that if the Fed starts raising rates it will put pressure on high-dividend names. Speaking of dividends, shares of CMI should begin trading ex-dividend on November 18th or 20th (I saw two different dates). The quarterly dividend is 97.5 cents a share.

The last few days have seen CMI breakdown below round-number, psychological resistance at the $100.00 level. The oversold bounce has failed to lift CMI back above this key level. We think CMI accelerates lower from here. Last Friday's low was $97.41. Tonight we are suggesting a trigger to buy puts at $97.30.

Trigger @ $97.30

- Suggested Positions -

Buy the 2016 JAN $95 PUT (CMI160115P95)

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