Option Investor

Daily Newsletter, Saturday, 11/28/2015

Table of Contents

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

Market Wrap

The Russell 2000 Wins!

by Jim Brown

Click here to email Jim Brown

It was a lackluster week for the Dow and S&P but the Nasdaq scratched out a small gain while the Russell 2000 surged +2.3% for the week. The small cap rally arrived on schedule.

Market Statistics

The S&P struggled to gain less than 1 point for the entire week. Resistance at 2,095 was rock solid and the entire week was a pattern of lower highs. The Dow was worse with a loss of 25 points for the week. Most of that came from Disney on Friday.

All the air was sucked out of the big cap indexes on Friday after Disney (DIS) filed a 10K with the SEC showing ESPN subscribers had declined from 95 million to 92 million. Disney had warned of weakness in the ESPN division back in August. They claimed there was a lack of high profile sporting events like the Olympics that keep subscribers paying the monthly bill. CEO Bob Eiger has promised multiple times this was temporary and subscriber numbers would return with the summer Olympics in Brazil in 2016. Disney shares lost -$3.50 on Friday to knock about 25 points off the Dow.

This is another buying opportunity on old news. Volume was very low on Friday and that allowed the unexpected loss. The 10K was simply a repeat of the August news. Star Wars is coming and estimates are growing to more than $3 billion in revenue from this picture. The Force is with Disney!

There were no economic reports on Friday. However, next week is fully loaded. The ISM Manufacturing Index on Tuesday is expected to post a minor gain to bring it back from the brink of contraction. The headline number last month was 50.1 and only 0.2 from contraction territory.

The ADP Employment on Wednesday will be the first look at the November employment picture. Consensus estimates expect a small gain over the +182,000 jobs in October.

The Fed Beige Book will recap the economic activity in the 12 Fed regions. This is perfect timing since the Fed's rate hike decision is only two weeks away.

Friday's Nonfarm Payroll number is the last major data point ahead of that December 15th FOMC meeting. Unless the bottom fell out of the job market in November the Fed should be on track to hike rates. The weekly jobless claims had been slowing but the prior three weeks showed an increase of about 15,000 claims a week to 275,000. However, the claims last week returned to their pre November pace of 260,000 and near the post recession lows.

Lastly, the ECB will decide on its QE path on Thursday. Mario Draghi has been super dovish recently and constantly repeating his "whatever it takes" phrase. Quite a few analysts believe the ECB will raise their QE purchases from the current 60 billion euros per month in an effort to jumpstart inflation. This puzzles me because more than 30% of the sovereign bonds in Europe are now trading at a negative yield. How does pushing the yields even further into negative territory stimulate consumer spending in Europe?

The OPEC production meeting next Friday is not expected to produce any changes in their quotas but I would not be surprised to see oil prices creep up ahead of the event as speculators cover shorts and increase longs just in case the unexpected does happen.

Janet Yellen will get two chances to prepare investors for the December FOMC meeting. She gives a speech to the Economic Club on Wednesday at 12:25 and testifies before a Senate committee on Thursday morning at 10:AM. The topic for both is her economic outlook. Since the Fed is heading for its first rate hike in nine years just over two weeks from now the odds are good she will be trying to focus investors on that possibility. The data dependent phrase will be used repeatedly but she is going to try to set the market's expectations so there is no post announcement disaster.

Hormel Foods (HRL) announced a 2:1 split for February 9th subject to shareholder approval on January 26th. Shares are in rocket mode and I would not be a buyer here.

For the full split calendar click here.

The dollar continued its surge higher and closed at a 12 year high on the dollar index. This is crushing commodity prices and gold closed at $1,055.90 and a six-year low. Copper and silver have flat lined over the last two weeks with silver at $14 and copper at $2. This appears to be strong support but should the ECB announce more QE and the Fed hikes rates the dollar will surge even more and the precious metals could move to new lows.

I had several readers email me over the last couple of weeks asking if it was time to buy gold. My answer was the same as above. I believe there are new lows ahead. If you are thinking about buying gold for the really long term then you could scale into a position starting now just to avoid having some event spike it back over $1,100 or higher. A showdown with Russia could do that. However, if you just added a little every week you will not have the lowest possible price but very few traders ever do. Picking the exact bottom is a function of luck rather than skill so constantly averaging down assures you of a constantly lower average price.

Personally, I would wait until just before the FOMC meeting. If they fail to hike, the dollar could fall and gold rally. That would be the only "known" event on the calendar that could push gold prices higher.

Ebay said they were selling up to $2 million in gold bullion from their top sellers every day thanks to the low price. On Thursday, they were selling $1,000 bars at the rate of one per minute. Bullion sales were up +27% from October. Ebay has been selling silver coins in their "daily deals" section with 2,500 rolls of 20 one-ounce Silver Eagles sold in just one day last week. They were selling 50 ounces of silver every 60 seconds. This week, they sold lots of 100 1-oz Silver Eagles (5-rolls, 100 ounces) for $1,665 and 1,523 lots were sold. I have bought a significant amount of silver coins from Ebay sellers. Just make sure the seller has a large number of positive feedbacks.

The biotech sector had a good week with the $BTK up +2.7%. After spending all of October at ten-month lows the sector finally found caught a bid and while not straight up it has been getting progressively better. A lot of the second and third tier stocks have been accelerating while big caps like Biogen (BIIB) have been lethargic. The new up and comers are powering the sector.

The Nasdaq and the Russell are benefitting from the biotech rally. The Nasdaq has a lot of the larger names and the Russell is benefitting from the smaller names.

The Shanghai Composite Index fell -5.35% and the worst day since the market crash in August. Two headlines sparked the declines. Chinese industrial profits fell -4.6% in October. This compares to a decline of -2.0% for the first ten months of the year. Economic conditions are worsening.

The second headline came from the Chinese Securities Regulatory Commission (CSRC). The commission launched probes against several brokerages for allegedly breaking regulations. Citic Securities, Founder Securities, Guosen Securities and China Merchants each declined 10% or more. China continues to cut rates but the there are festering problems throughout China and hundreds of probes in progress to crack down on those problems. Unfortunately, each crackdown has slowed business in that specific area as companies and investors withdraw into their shells to avoid attracting attention of overzealous regulators.

Black Friday is over and retailers were not generally excited. There was a definite division over those that felt it was a good day and those that were disappointed. The CEO of Tanger Outlet Malls said shopper traffic was up more than 40% at most locations and Friday was setting records for his 42 outlet malls.

Retail watchers said Kohl's (KSS) and Limited Brands (LB) were doing a brisk business but other stores like Neiman Marcus and Nordstrom (JWN) were not as busy. Toys R Us CEO Dave Brandon said there were lines down the street when the doors were opened at 5:00. That is an annual favorite since families will cut back on clothes but toys will still be bought.

Target said store traffic was "solid" but bragged that online sales on Thanksgiving was the biggest sales ever for any day. The company said it was selling an iPad a second on Thr/Fri. They are giving $80-$100 gift cards with each tablet purchased so consumers were lining up.

Walmart said "tens of millions of customers" shopped online and in the stores. More than 25 million people accessed store maps and digital ads online in preparation for the event. Walmart launched all the door busters at 6:PM Thursday rather than staggering them throughout the day as in prior years. In a press release, Walmart said the shopping season was off to an "exciting" start. In the same release last year they called it an "awesome" start.

Walmart offered its Black Friday specials online starting at 12:01 AM on Friday but the website was down for much of the morning. Consumers said the delays in the response time were so long their sessions timed out. Others said the system cancelled their orders even after they had checked out because the delays meant the inventory numbers were incorrect.

The website for Neiman Marcus was down almost solid for most of Friday with only a few brief glimpses of the home page. That is a killer for online sales because consumers give up and shop elsewhere. Newegg.com, HP.com, Footlocker.com and Jet.com also experienced website outages resulting from heavy traffic.

Macy's (M) said more than 15,000 people were in line outside the flagship Herald Square store at 6:PM on Thursday when the store opened. A Moody's analyst said crowds were heavy at the Best Buy and Target stores he was assigned to visit.

Unfortunately, for retailers 57% of consumers have not even started their holiday shopping according to NPD Group and CivicScience surveys. NPD said only 6% more people shopped this week than the prior week.

In 2014 holiday shoppers spent more than $650 billion in Q4 and $110 billion of that was online. There are signs that the online retailers were seeing larger crowds than the brick and mortar retailers. With many consumers cautious about mingling with the crowds after the Paris attacks, the online retailers were getting more attention.

General Growth Properties and Taubman Centers both said they had increased security significantly, both visible and invisible. The International Council of Shopping Centers spent more than $2 million to develop a training course on how to respond to an act of terrorism. More than 30,000 mall employees have completed the course.

I was in a Costco on Wednesday and it was wall-to-wall people with lines of cars in the parking lot waiting for parking places to open up. I visited the largest Walmart in the Denver area two hours later and it was a ghost town by comparison. There was plenty of parking, plenty of baskets and isles with no customers.

Various analysts are predicting sales growth for the holidays from 2.3% on the low side to +4.4% on the high side depending on the analyst. The trend of opening on Thanksgiving and remaining open 24 hours for the entire weekend seems to be slowing. Fewer stores are finding that advantageous. Most are now seeing the stretching out of the shopping hours as expensive and unprofitable. They are only doing it out of self-defense because competitors are open and they see it as a loss leader.

Analysts pointed out the increasingly promotional atmosphere with discounts from 40% to 70% not out of the ordinary. Simon-Kucher surveyed 1,000 consumers and found that more than 50% cited huge discounts and promotions were a major influence on where they shopped. With Pre-Black Friday deals starting way before Thanksgiving many of the sales had been pulled forward from this weekend and that will reduce the total sales volume for the weekend. It is easier for retailers like Target to advertise heavily for pre-sales 2-3 weeks in advance and not have to compete with the thousands of ads for Black Friday.

Since quite a few retailers have already warned on sales for the holiday season due to slower mall traffic and the requirement for excessive promotions to move merchandise this may turn out to be a good shopping season for consumers but a loser for retailers.

Late Saturday I heard a headline on the radio that Black Friday sales disappointed and overall traffic was down more than 10% as shoppers stayed away from the malls. The real numbers will not be available until early next week but the lack of customer traffic may have translated into more online shopping instead.

The St Louis Fed produced this chart of the state of retail department stores. Sales have been declining since 2000, which just happened to be the start of the online shopping movement. Clearly, the shopping patterns have changed and there is little hope that the percentage of online sales will decline in the future. If anything, they may accelerate if terrorist activity increases.

Retailers have come up with new names for nearly every day of the holiday shopping season. Many retailers started their Black Friday sales well ahead of the actual date. If you are shopping this weekend, you will probably appreciate this cartoon.

Oil prices rebounded to resistance at $43 mid week but lost traction thanks to the rising dollar and rising inventories. Gasoline demand was very strong in November thanks to the low prices. The national average on Friday was $2.05 a gallon. When Putin failed to nuke Turkey over the downing of the plane the risk premium in crude began to fade. While the crisis is not over it has slipped from the headlines.

Crude inventories rose +1.0 million barrels and are now only 2.7 million from a new 80-year high at 490.9 million. U.S. production declined -17,000 bpd to 9.165 mbpd and only 20,000 bpd below the 10 week high set two weeks ago.

The active rig count declined -13 rigs to 744. Oil rigs declined -9 to 555 and now down -1,054 from the peak. Active gas rigs declined -4 to 189 and a 17-year low.

Natural gas in storage rose to 4,009 Bcf and a new historic high. Typically, injections of gas into storage end on November 1st as colder weather prompts higher demand of natural gas for heating and electricity. October was the warmest October on record and November was heading in that direction until the last two weeks.

Propane supplies are also at record levels after a +1.73 million barrel increase to 106.2 million barrels last week. The lack of any cold weather and the high production of propane rich ultra light shale oil is pushing inventories higher. Wholesale prices are still in the 50 cent per gallon range and retail prices in my area are $1.09. Some regions on the East Coast are in the $2.50 range but that is still well below the $3.25 from the same period last year.

Record Levels of Natural Gas in Storage

Record Inventories of Propane in Storage


The markets for last week were easy to analyze. Nothing happened. Other than the opening dip on Tuesday on the downing of the Russian plane the Dow and S&P were almost perfectly flat. The S&P hit its high for the week at 2,095 at the open on Monday and we closed the week at 2,090. The resistance at 2,095 from the prior Friday was rock solid. However, that is not saying much since volume was VERY light. Wednesday totaled 5.1 billion shares and Friday barely squeezed out 2.8 billion. Tuesday was the high day at 6.8 billion and that was due to the sudden drop and rebound on the Russian incident.

We knew in advance the volume would be low but in prior Thanksgiving weeks, there was normally a melt up into the holiday. I believe the worry over a potential terrorist attack on U.S. soil kept investors on the sidelines. With a very heavy economic calendar next week, there will be plenty of headlines to stimulate the market. Whether that stimulation will be positive or negative remains to be seen.

This is going to be a make or break week for the markets. With the pattern of lower highs on the S&P and still 15 points below major resistance, there is the potential for trouble. If the S&P cannot break through that 2,116 level and declining resistance from July it could turn into a disappointing December.

We spent most of the year around 2,100 with minor peaks and valleys every 2-3 weeks. That produced some significant resistance that should not be easy to break. If we rally up to that resistance and then fail again it could produce some investor fatigue where they begin to close positions and go to cash for the end of the year.

We need to find some traction early in the week and rekindle the upward momentum or December may not follow the seasonal trend higher.

The Dow was the leader in lackluster performance with a loss of 25 points for the week. Disney was the culprit on Friday or the Dow would have been flat for the week. Downtrend resistance at 17,900-17,950 is going to be the next challenge. The Dow has had four consecutive days of lower highs. However, we cannot really apply too much importance to it because of the very low volume.

With the earnings cycle over there is little to move the individual Dow stocks other than negative headlines like the one we got from Disney on Friday. A Fed rate hike could lift the banks but that is two weeks away. Some event in the Middle East that puts a risk premium into oil prices could lift Chevron and Exxon but that is a wild card. I am not looking for the Dow to be a leader in any rally. That position will remain with the Nasdaq and Russell. The Dow will be a follower.

The Nasdaq finally broke through the resistance at 5,100 on Wednesday and put two decent days of gains to stretch that breakout to 5,127. The next challenge will be 5,160 and then the high close at 5,218. I expect 5,160 to be tested and a breakthrough there should be good for a new high. These events tend to be self-fulfilling once they get close to the goal.

Apple is still the laggard but hopefully headlines about their product sales over the weekend will lift it out of the doldrums. It is very hard for the Nasdaq to advance when Apple is declining.

Apple could be offset by Amazon and reports of a banner weekend. Amazon is just a few points below a new high and any positive news could produce a breakout.

The Nasdaq 100 big cap index ($NDX) is only about 50 points from a new high. The resistance at 4,688 was tested on Monday and the index held its gains to close at 4,680 on Friday. A new high on the big cap techs would help to drag the Dow higher as well.

The Russell 2000 small cap index is on the verge of a breakout if the buying activity from last week continues. The index closed at 1,202 and 2 points above strong resistance that held it back in early November. A breakout here could run to 1,244 where it is likely to pause for a profit break. The small caps were positive for 7 of the last 8 days since rebounding from support at 1,144. It is due for a rest.

This is a make or break week. If the prior week's rally does not continue, it would signal investor fatigue ahead of year-end and possibly some uncertainty about the Fed's rate hike plans for December 16th. In theory, the market should celebrate a rate hike because the Fed is confident the economy is growing. In both prior Fed statements/minutes the strong language suggesting a December rate hike resulted in market rallies. If investors were positive after those events then they should also be positive about a December hike.

However, as Spock said in Amok Time - 1967, "having something is not so pleasing a thing after all as wanting. It is not logical but often true." We have all experienced this. We think we want something and once we have it the excitement fades quickly and we realize it was just a passing fancy. Once we have a rate hike the market may decide that instead of a one and done it may actually be the start of a series of rate hikes. Instead of one vaccination and done we find out the Fed has an entire series of vaccinations planed for us in the months ahead. While that is not likely it is still a possibility.

I am thrilled at the lack of terrorist events in the U.S. over the weekend and there is a good possibility we could begin the week with a relief rally.

This will definitely be a week where we need to trade what the market gives us rather than what we want to see. There are numerous headlines this week that could stimulate the market in either direction and hopefully that direction is up.

I want to thank everyone once again for supporting the Option Investor family of newsletters. Reward yourself now for 2016 and that will be one less item on your list of New Year's resolutions. Receipts are available for deducting on your taxes.

Do not go through 2016 alone. Take advantage of our 17th annual End of Year Renewal Special today. Don't wait until the last minute.

Annual End of Year Renewal Special

It is that time of year again when we offer the best prices of the year on a package of our top newsletters. If you have been a subscriber for several years you know this is the best price and best deal of the year.

Please follow the link below to see for yourself the EOY subscription special for 2016. You will not be disappointed!

Random Thoughts

Goldman Sachs compiled a list of 19 companies that hedge funds are betting will go down. The Hedge Fund Trend Monitor listed these stocks and their short interest. Dollar values in billions.

Symbol, Value of short positions, Percentage of float, reason for short.

T - $3.8B - 2% - Rising costs from DTV acquisition, subsidy challenges
VZ - $2.1B - 1% - Changing subsidies, demand for more bandwidth
BA - $2.9B - 3% - Cargo traffic a problem, orders moderating
ACE - $2.2B - 6% - Underwriting growing more competitive
CVX - $2.1B - 1% - Continued decline in oil prices, refined products
IBM - $3.2B - 3% - Asian sales declines driven by Chinese boycott
SLB - $3.3B - 3% - Declining prices in service sector
JNJ - $2.9B - 1% - Increased competition, generics
CAT - $3.0B - 7% - China decline, coal decline, mining decline
SYY - $2.0B - 9% - Food deflation
HAL - $2.1B - 6% - Activity levels dropping globally
WMT - $2.1B - 2% - Rising expenses, slowing sales growth
DIS - $6.7B - 4% - Subscriber losses from cable channels
TGT - $2.5B - 5% - Sales rising in limited categories, overall slowing
MON - $2.8B - 6% - Strong dollar slowing overseas sales
XOM - $4.1B - 1% - Weak oil prices, refined product sales
AVGO - $2.8B - 9% - Semiconductor competition
INTC - $3.7B - 2% - Ongoing macroeconomic headwinds, PC sales
ESRX - $3.8B - 7% - Rising drug costs, insurance reimbursements

How long is an average rate hike cycle? Since 1980, the average cycle has lasted 22 months. Based on current Fed projections a new cycle begun in December could last for three years or more before rates return to "normal." However, there is a greater possibility of a recession cutting short any new rate hike scenario since the average time between recessions is about five years. We are now in the sixth year of this recovery.

Can the Fed really hike rates in the current economic environment? The release of the Personal Income and Spending data last week crashed the Atlanta Fed's real time GDPNow forecast to only +1.8% growth in Q4. The GDPNow forecasts have been very close to reality in recent quarters. With the GDP forecast plummeting the Fed might decide that caution is warranted. However, if they do not hike in December after almost guaranteeing it in recent releases, their credibility will be ruined. That assumes they have credibility that is not already worthless.

The Stock Trader's Almanac posted a composite chart of the typical market movement in December. Link All indexes typically surge in the first five trading days before succumbing to weakness mid month as traders take profits and tax losses and position themselves for the coming year. Starting around the 12th trading day the indexes begin to rebound into the Christmas holiday.

OPEC meets late this week to discuss production. Analysts claim there is actually a better chance of the cartel raising the production quota from 30 mbpd to 31 mbpd rather than cutting production. Saudi Arabia is the governing vote and analysts expect them to continue flooding the market with crude throughout 2016. OPEC has been producing over 31 mbpd for a year so changing the quota to 31 will have no impact.

Saudi Arabia has backed off its recent record production but continues to produce over 10 mbpd. Indonesia is returning as an OPEC member, Iraq is increasing production and Iran is expected to up its production by 500,000 bpd in early 2016 and raise that to 1.0 mbpd by July. Keeping the quota at 30 mbpd would just be a face saving measure. In reality, they could be producing 32 mbpd by the middle of 2016. That assumes they have a place to store it.

There are a record number of oil tankers stacked up outside Houston and ClipperData claims some of them do not have a home for their oil. Producers had to put the oil somewhere so they put it on a tanker and sent it to the U.S. in hopes of finding a buyer while the tanker was en route. The U.S. has a near record amount of oil in storage and with more than 40 tankers in a holding pattern outside Houston, there may be a challenge finding someone with onshore storage capacity that is willing to take the oil. The longer the prospective buyers leave those tankers in a holding pattern the cheaper the oil will get. The owners will eventually discount the oil even further to avoid paying the $35,000-$40,000 per day in tanker rent.

The IEA said the prior week that global inventories are at a record 3.0 billion barrels and rising at the rate of 1.6 mbpd. Eventually we will run out of storage. The sharply rising dollar is also weighing on oil prices.


Enter passively and exit aggressively!

Jim Brown

Send Jim an email


"The difference between genius and stupidity is that genius has its limits."

Grassroots Editor 1961


Index Wrap

Marking Time

by Leigh Stevens

Click here to email Leigh Stevens

This past week's high-level, but low-volume, consolidation is nominally bullish but a more normal participation (Volume) period ahead will judge which way next. Low bullish sentiment continues to be a bullish plus.

My charts are updated along with some re-think of support and resistance levels, but my commentary is basically unchanged from last week. How could it not be, as from a technical or chart-indicator perspective, nothing much has changed as price levels have not materially changed.

I make a point to talk about the relative shallowness, a Fibonacci 38%, of the recent pullback from the sharp run up from the late-September bottom. Why? Simply that a pullback of 38% is considered a 'minimal' retracement of a prior upswing. A quick completion of a correction of a minimal percent followed by another rally is generally bullish action.

Suggesting new highs for this move to come as much as anything is that traders are not 'believing' in the rallies much, not yet, as can be seen in my CPRATIO indicator as seen on the SPX or COMP charts.

I'd repeat again here the significance in the Nasdaq 100 (NDX) being within striking distance its all-time HIGH at 4816 (NDX Friday Close: 4680, almost unchanged from 4686 from the prior week). Prior major historical highs are big milestones. A decisive upside penetration of 4800-4825 and, over time, consolidation and 'establishment' of a support floor around 4800 suggests upside potential to 5000;e.g., by the end of March. NDX is slowing down in its RATE of upside momentum so 5000 from current levels would be a major target and major potential resistance.

[My usual chart highlights for resistance levels are red down arrows; my highlights for support areas are the green up arrows.]



The S&P 500 (SPX) chart is mixed to bullish. Bullish in the strength and then renewed strength in the recovery rally dating from the late-September low and its double bottom. A 'mixed' picture is seen in that SPX remains below 2130, the top end of a multimonth trading range.

Near resistance is seen just over 2100. Next assumed resistance is at 2135, the prior multimonth high. Above 2135 there's further upside potential to near 2200. Near support is this week is bumped up to 2060, with anticipated next support coming in around 2020.

I continue to make a point of lackluster bullishness in the face of the upside price bias of recent weeks is seen with my CPRATIO indicator. This aspect of trader sentiment, where rises in bullishness don't match rising stock PRICES of recent weeks has, in a contrary opinion sense, BULLISH implications. The 13-day Relative Strength Index (RSI) fell on the recent correction to a more 'neutral' mid-range reading around 40 and which helped 'set up' the rebound so to speak.


The big cap S&P 100 (OEX) chart resumed its bullish advance as prices rebounded from OEX's up trendline after completion of a 'minimal' downside retracement, but the Index is now drifting sideways just above support implied by its 21-day moving average.

Resistance is seen at 940, extending to the prior 947 high. If a new high is made, there's upside potential to 980 over time. Near support is highlighted at 920-915, with next support at the milestone 900 level. Just as 980 may be a fairly major resistance, 880 looks to be fairly major support.

No change in my view to look for a move to new highs in OEX.


The Dow 30 (INDU) saw a recovery rally and upside turnaround fairly quickly after INDU's 'minimal' 38 percent Fibonacci retracement. The fact that the Dow also has had a relatively 'shallow' correction, before taking off again, is a bullish plus.

Key support is seen in the 17600 area, at the Dow's 200-day moving average, with a next area of buying interest likely if 17500 was seen.

On the 'mixed' side of technical/chart aspects, the sluggish Dow has further to go than the S&P to break out above ITS prior stair-step highs; starting at the 18350 top, then 18200-18137, down to the 18000 area. Keeping bullish upside momentum going near-term would be seen on a move above 18000. Next up would be important targets and potential resistance points at 18200, then the prior all-time high at 18350.


The Nasdaq Composite's (COMP) recent pullback to 4900 resulted to a 'minimal' 38% Fibonacci percent retracement of COMP's prior 600+ point upswing, before buying again took the Index higher. While volume and price momentum have slowed ahead of, and into, the past holiday-shortened trading week, I continue to see potential ahead for a retest of the prior 5163 COMP high, and on to a challenge of its 5232 July top; if 5232 is pierced further upside potential and possible next resistance is to 5300.

Near support is at 5050, extending to the pivotal 5000 level. Next technical support is seen at the recent 4900 low.

Bullishness, in the face of a strong recovery rally and 'minimal' retracement has been low. When this changes to high and prolonged bullishness, I become more wary about how much higher prices can get. See my 'CPRATIO' sentiment indicator at bottom of the COMP chart. A last key CPRATIO low highlighted by the green up arrow was a strong indicator for/of a bottom.


The daily NDX chart is through Friday 11/27; my end of week commentary (on 11/28) is mostly unchanged from last week:

The Nasdaq 100 (NDX) pattern is bullish enough to suggest that the recent renewed rally could test the all-time (March, 2000) peak at 4816. Immediate resistance comes in at 4737 but I see that level being pierced and 4800-4816 being tested as the pivotal resistance.

Near support still seen at 4600, with especially key support that came in around 4500; this dip was important in that it 'showed' support at the low end of the big prior upside price gap. Chart gaps often get 'filled in' later but the LOW end of gaps also often sees support/buying interest coming in there.

I see little to stop the big cap Nasdaq from clearing 4800 for a time but long-term chart resistance is seen around 4875-4900 between now and year-end. On a longer-term, such as out to end-Q1 (March) a move to 5000 is possible.

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

The Nasdaq 100 tracking stock (QQQ) rebounded from the 110 area, support implied by the low end of an upside price gap formed when prices leaped from below 110 to a 112 low the following trading session. A common bullish pattern is a subsequent rebound AFTER a prior upside chart gap is 'filled in'; i.e., prices FULLY back track into the or low end of the price gap, whereupon the index then reverses higher.

Support is highlighted at 112, then at 110 where the most recent rally began, after a scant 38% retracement.

Resistance is seen at the prior 115 high which I think will be re-tested and possibly pierced. Next resistance would then be anticipated in the 117 area.

Daily trade volume has been declining since mid-November whereas the On Balance Volume (OBV) line mostly has been trending higher, which suggests a bullish volume aspect to the bullish chart.


The Russell 2000 Index (RUT) saw a minor upside chart breakout in that the Index Closed above prior highs at 1200. Next resistance is highlighted at 1220, extending to 1240 and prior highs in that area.

Near RUT support is seen at 1180 this week, with next lower technical support anticipated at 1160. A key support then comes again around 1140, which looks solidly bullish after RUT completed a 50% retracement (of its October advance) at that level.


New Option Plays

Biotech Bargains & Industrial Strength

by James Brown

Click here to email James Brown

Editor's Note:

In addition to tonight's new candidate(s), consider these stocks as possible trading ideas and watch list candidates. Some of these stocks may need to see a break past key support or resistance:



Clovis Oncology - CLVS - close: 32.22 change: +3.06

Stop Loss: 27.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.4 million
Entry on November -- at $---.--
Listed on November 28, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: Yes, see below

Company Description

Trade Description:
After a -70% plunge all the bad news might be priced in for this biotech stock.

CLVS is in the healthcare sector. According to the company, "Clovis Oncology is a biopharmaceutical company focused on acquiring, developing and commercializing cancer treatments in the United States, Europe and other international markets. Our product development programs target specific subsets of cancer, and we seek to simultaneously develop, with partners, companion diagnostics that direct our product candidates to the patients most likely to benefit from their use. We believe this approach to personalized medicine - to deliver the right drug to the right patient at the right time - represents the future of cancer therapy."

The company has three product candidates in their pipeline. They are rociletinib, rucaparib, and lucitanib. Right now the market is reacting to news on its rociletinib clinical trials, where the drug is being tested on non-small-cell lung cancer.

Several days ago the company issued an update on their Rociletinib NDA filing. CLVS held their regularly scheduled mid-cycle communication meeting with the U.S. Food and Drug Administration (FDA). The current data on the Rociletinib clinical trials was not good enough. The FDA is asking for more data to prove the treatment's efficacy. This will likely push back the time frame on any approval. Investors were expecting a potential approval in the March-April 2016 time frame.

The delay in Rociletinib approval is a serious setback. Rival biotech firm AstraZeneca just got FDA approval for a competing drug, Tagrisso. By the time Rociletinib is approved (if it's approved), it will face serious competition from an already established treatment.

CLVS is a perfect example of why biotech stocks can be high-risk trades. On November 13, 2015 the stock closed at $99.43. The next trading day, Nov. 16th, shares gapped down at $29.27 and closed near $30. The stock traded down to $24.50 on November 23rd and started to reverse higher. CLVS' stock is now up three days in a row.

The current rally could be a combination of short covering and investors bargain hunting. It has been a full two weeks since the sell-off. If investors were going to sell they probably did so already. We think this rebound has a lot further to go but make no mistake CLVS is still a higher-risk trade. Tonight we are suggesting a trigger to buy calls at $32.55.

Trigger @ $32.55

- Suggested Positions -

Buy the JAN $35 CALL (CLVS160115C35) current ask $3.20
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:

Snap-on Inc. - SNA - close: 171.76 change: +0.87

Stop Loss: 167.40
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 407 thousand
Entry on November -- at $---.--
Listed on November 28, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: Yes, see below

Company Description

Trade Description:
How many car brands can you think of? Every year automobile makers deliver new models designed to be new and improved. Every year cars get more and more complicated. That means more diagnostic and specialty tools to repair them. This trend is driving organic growth for SNA.

SNA is in the industrial goods sector. According to the company, "Snap-on Incorporated is a leading global innovator, manufacturer and marketer of tools, equipment, diagnostics, repair information and systems solutions for professional users performing critical tasks. Products and services include hand and power tools, tool storage, diagnostics software, information and management systems, shop equipment and other solutions for vehicle dealerships and repair centers, as well as for customers in industries, including aviation and aerospace, agriculture, construction, government and military, mining, natural resources, power generation and technical education. Snap-on also derives income from various financing programs to facilitate the sales of its products. Products and services are sold through the company's franchisee, company-direct, distributor and internet channels. Founded in 1920, Snap-on is a $3.3 billion, S&P 500 company headquartered in Kenosha, Wisconsin."

The company has beaten Wall Street earnings estimates the last four quarters in a row. The revenue number has not been as strong. SNA does get a decent chunk of sales outside the U.S. so the strong dollar does have an impact.

SNA's most recent earnings report was October 22nd. They delivered their Q3 results with earnings of $1.98 a share. That was a +12.5% improvement from a year ago and above expectations. Revenues were only up +1.9% to $821.5 million. However, organic sales were up +7.3%. Their full-year 2015 revenues are expected to rise +3.5% but that is expected to jump to 7% in 2016.

Shares of SNA popped on the earnings report in spite of the revenue miss. Investors have been buying the dips since the October low. Now SNA has broken through resistance near $170.00 to close at all-time highs. The point & figure chart is bullish and forecasting at $207 target.

Traders bought the dip on Friday near $170.00. That's exactly what we want to see. Old resistance should be new support. The high on Friday was $171.91. Tonight we are suggesting a trigger to buy calls at $172.25.

Trigger @ $172.25

- Suggested Positions -

Buy the JAN $180 CALL (SNA160115C180) current ask $1.60
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 Drift Sideways On Black Friday

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. market ignored weakness in China on Friday. Stocks also ignored relatively disappointing headlines about consumer traffic and retail spending on Black Friday. The S&P 500 closed virtually unchanged for the session.

DIS hit our stop loss. CMI has been removed.

Current Portfolio:

CALL Play Updates

ABIOMED, Inc. - ABMD - close: 83.49 change: +1.41

Stop Loss: 78.85
Target(s): To Be Determined
Current Option Gain/Loss: -36.8%
Average Daily Volume = 841 thousand
Entry on November 27 at $83.20
Listed on November 24, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: see below

11/28/15: The rally in ABMD picked up speed on Friday. Shares surged at the open and outperformed the market with a +1.7% gain by the close. Our trigger to buy calls was hit at $83.20. I would still consider new positions now at current levels.

Trade Description: November 24, 2015:
2015 has been a roller coaster ride for ABMD investors. Shares are down -26% from their 2015 highs near $110. However, the stock is still up +114% year to date. After its recent drop in October shares could be poised for another surge.

ABMD is in the healthcare sector. According to the company, "Abiomed is a pioneer and global leader in healthcare technology and innovation, with a mission of RECOVERING HEARTS AND SAVING LIVES. Abiomed CEO, Chairman, and President, Michael R. Minogue, has focused the company's efforts on developing ground-breaking technologies designed to assist or replace the life-sustaining pumping function of the failing heart. The Company's portfolio of products and services offer healthcare professionals an array of choices across a broad clinical spectrum. From the world's first total replacement heart to the World's Smallest Heart Pump, 1/100th the size of the heart with rapid and simple insertion, Abiomed is dedicated to finding ways to bring the most advanced and beneficial technology to patients and physicians."

The big rally in August started with its 2016 Q1 earnings report on August 4th. ABMD beat estimates on both the top and bottom line. Revenues were up +50% from a year ago and management raised their 2016 guidance from $285-295 million to $300-310 million. Analysts were only forecasting $292 million. This report kicked off a rally from $80 to $110, which was really impressive considering the fact that healthcare stocks were retreating lower in August. Then the whole market corrected lower in late August.

By mid to late October it looked like the correction in ABMD was over and shares were back in rally mode. Suddenly that changed after the company reported its Q2 earnings on October 29th. Wall Street was expecting a profit of $0.13 a share on revenues of $74.5 million. ABMD beat estimates. Earnings rose +88% from a year ago to $0.17 a share. Revenues soared +47% to $76.3 million. It was ABMD's fifth quarter in a row of earnings coming in above estimates.

ABMD management raised their 2016 revenue guidance from $300-310 million to $305-315 million. Unfortunately Wall Street had already adjusted their expectations to $310 million. ABMD's bullish outlook was not bullish enough. Traders were worried that ABMD's growth might be slowing down too fast. The stock was crushed with a -30% plunge on October 29th. It closed down -28.5% for the day.

This looks like an overreaction. The company's main product, Impella, still has a lot of growth ahead of it. Analyst estimates suggest that ABMD's Impella sales could hit $1 billion by 2020.

After this post-earnings crash, the stock bounced off round-number support at $70.00 but this rebound stalled a few days later. Shares of ABMD have spent most of November consolidating sideways in the $76.00-83.00 range. The good news is that ABMD looks like it could breakout from this trading range. The point & figure chart has already turned bullish again and is forecasting at $90.00 target.

Tonight we are suggesting a trigger to buy calls at $83.20. I do consider this a more aggressive, higher-risk trade. ABMD is a volatile stock. If we can catch it on the next up swing it could be a big winner for option traders. I would use small positions to limit risk.

*small positions to limit risk* - Suggested Positions -

Long JAN $90 CALL (ABMD160115C90) entry $3.80

11/27/15 triggered @ $83.20
Option Format: symbol-year-month-day-call-strike


Alkermes Plc - ALKS - close: 75.60 change: +1.54

Stop Loss: 69.75
Target(s): To Be Determined
Current Option Gain/Loss: -51.0%
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

11/28/15: ALKS also showed relative strength on Friday. The stock rallied just over +2% to set a new closing high. This looks like a bullish breakout past round-number resistance at $75.00.

The intraday high on Friday was $75.95. I would use a rally past $76.00 as a new entry point but you will want to use January or February calls. Our December calls are not performing well.

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: 146.95 change: -0.48

Stop Loss: 145.85
Target(s): To Be Determined
Current Option Gain/Loss: -56.6%
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

11/28/15: Hmm... BA has spent the last few days underperforming its peers in the defense industry. Shares have sunk toward short-term technical support at the 10-dma. We are worried about this relative weakness. Tonight I am adjusting the stop loss to $145.85.

No new positions at this time.

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

11/28/15 new stop @ 145.85
11/20/15 triggered @ $150.25
Option Format: symbol-year-month-day-call-strike


Global Payments Inc. - GPN - close: 72.29 change: -0.15

Stop Loss: 68.40
Target(s): To Be Determined
Current Option Gain/Loss: +26.7%
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

11/28/15: GPN saw a little profit taking on Friday morning but shares bounced near $71.50. I am not suggesting new positions at this time. If the market dips we can look for support near $70.00. 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: 132.77 change: +0.47

Stop Loss: 129.75
Target(s): To Be Determined
Current Option Gain/Loss: -21.1%
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

11/28/15: HII dipped toward Tuesday's low near $131 before rebounding. The last few days have developed a trend of lower highs. I'd like to see HII break this trend before considering new positions.

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: 137.63 change: +0.76

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

11/28/15: LII drifted higher on Friday and ended the session with a +0.55% gain. The stock looks poised to hit new all-time highs soon. I would consider new positions here. However, the $138.50 area is arguably short-term resistance. A rally past $138.60 could be used as an alternative entry point for 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: 77.63 change: +0.35

Stop Loss: 74.95
Target(s): To Be Determined
Current Option Gain/Loss: -40.9%
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

11/28/15: LRCX spent Friday's session inside the $77-78 range. The trend is up but LRCX has struggled to build on its breakouts. Momentum has been a little disappointing.

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


Roper Technologies - ROP - close: 194.83 change: +0.99

Stop Loss: 186.75
Target(s): To Be Determined
Current Option Gain/Loss: +7.3%
Average Daily Volume = 468 thousand
Entry on November 24 at $192.66
Listed on November 23, 2015
Time Frame: Exit PRIOR to earnings in January
New Positions: see below

11/28/15: ROP rallied off its Friday morning lows and added another +0.5%. Shares are poised to breakout past the $195.00 level soon.

More conservative traders may want to raise their stop loss.

Trade Description: November 23, 2015:
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.

- Suggested Positions -

Long FEB $200 CALL (ROP160219C200) entry $4.10

11/24/15 triggered @ $192.66
Option Format: symbol-year-month-day-call-strike


PUT Play Updates

Bunge Limited - BG - close: 67.01 change: -0.76

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

11/28/15: BG displayed relative weakness on Friday with a -1.1% decline. That is a good sign if you are bearish. We'll give BG a little more time to cooperate. 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



The Walt Disney Company - DIS - close: 115.13 change: -3.54

Stop Loss: 115.85
Target(s): To Be Determined
Current Option Gain/Loss: -17.8%
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

11/28/15: Ouch! DIS was a significant underperformer on Friday. The stock gapped open lower at $116.00 and fell to $113.70 intraday. Our stop loss was hit pretty early at $115.85.

Why the big drop? DIS filed their annual 10K sec filing. In this report the company disclosed that their ESPN unit lost three million subscribers in 2015, down to 92 million. Last year they had 95 million subscribers. The year before it was 99 million.

Worries over declining subscribers for their ESPN unit is what sparked the big sell-off back in August. This trend is a clear example of customers "cutting the cord" for cheaper alternatives.

Bigger picture the ESPN business is just one cog in the DIS wheel. Granted it's a big business but eventually investor expectations for ESPN will mellow or DIS will find a way to remedy the slowing profitability.

If the stock market overreacts again I'd keep an eye on DIS for a new entry point. A dip toward support near $110 might be good entry point for bullish positions.

- Suggested Positions -

2016 JAN $120 CALL (DIS160115C120) entry $2.92 exit $2.40 (-17.8%)

11/27/15 stopped out
11/21/15 new stop @ 115.85
11/18/15 triggered @ $117.75
Option Format: symbol-year-month-day-call-strike



Cummins Inc. - CMI - close: 99.74 change: +0.17

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: see below

11/28/15: We have been very patient with CMI but the stock will not cooperate. Shares have been stuck in the $97.50-100.00 zone for over two weeks.

The long-term trend is down but the action over the past several days is starting to look like a short-term bottom. Tonight we are removing CMI as a candidate. Of course this means the stock will collapse as soon as we drop it.

Trade did not open.

11/28/15 removed from the newsletter, suggested entry was $97.30