Option Investor

Daily Newsletter, Thursday, 12/10/2015

Table of Contents

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

Market Wrap

Focusing On The Fed

by Thomas Hughes

Click here to email Thomas Hughes
Equity markets bounced back today but remained focused on next week's FOMC meeting.


The equity markets tried to bounce back today but focus remains centered on next week's FOMC meeting. There is an overwhelming expectation we will get a hike. The CME's Fed Watch Tool shows an 85% chance for a 50 basis point increase.

Global markets remain under pressure. Anticipation for next week's FOMC meeting, plunging oil prices and weak data are to blame. Asian indices closed mostly lower, led by the Nikkei's -1.3% decline. European indices were mixed but closed mostly higher after a late day rally in response to strength in our indices. The energy sector was one of today's leaders but the snap back is probably going to be short lived; oil prices fell to hit a new low below $47. Also in the news, three central banks made no changes to policy; the Bank Of Korea, the Bank of England and the Swiss National Bank.

Market Statistics

Futures trading indicated a positive open all morning, driven by anticipated strength in the energy sector. A new report from OPEC says production from non-OPEC nations will contract in 2016 while demand increases. Their report shows 2016 supply shrinking by 380,000 BPD after rising by 1 million BPD in 2015 so I don't really see this as an overly bullish forecast.

The indices opened flat and after a few minutes testing support began to rise. The first rally added roughly 0.5% to them but gains did not last, by 9:50 most indices had fallen back to break even levels. Another test of support ensued, followed by another rally. The second rally of the day had a little more strength and took the indices up by a full percent or more in some cases. The morning peak was reached at 10:44AM at which time the market began a slow descent back to earlier support.

A third rally which began during the lunch hour was the strongest of all. It took the indices to highs in excess of 1% but it to reached a peak that was unsustainable. By 2:45 the indices were once again retreating from a high and headed back down to support levels.

Economic Calendar

The Economy

There was not a lot of data today, only one report other than the weekly jobless claims. Initial claims rose 13,000 to 282,000 from last week's not revised figures. This gain is not surprising, we have entered a period of increased lay-off's due to end of the year restructuring. What we have to watch now is how high and how long the increase lasts, and if there is pass-through to the longer term unemployment figures. Until then, initial claims are off their long term lows but remain low by historic standards and consistent with labor market health.

On a not adjusted basis claims rose by 46.4% versus a gain of 39.5% as predicted by the seasonal factors. Year over year not adjusted claims are down only -1%. This is a mild concern due to this figure running at a rate over -5% most of the year. However, until a noticeable shift in trend occurs this figure is also running near historic low levels and consistent with labor market health. Wisconsin and Ohio had the largest increases in new initial claims, + 4,677 and + 2,212, while California and Texas had the largest declines, -20,308 and -7,225.

Continuing claims rose by 82,000 to hit 2.243 million from last week's not revised figure. The four week moving average of claims rose by 16,500 and at a one month high. This week's rise in claims is likely due to seasonal factors as mentioned before. Despite the rise continuing claims remain near the historic low, where they have been trending for over 8 months, and consistent with labor market health.

Total claims did not rise this week. Total claims fell by -124,632 to hit 1.934. This is a one month low and just off the long term low set two months ago. Year over year total claims are down -10% and consistent with ongoing health and recovery in the labor market.

Import and export fell in November. The headline decline in import prices was -0.4%, the decline in export prices was -0.6%. Import prices were driven by falling fuel prices led by gasoline's 2.5% decline. Ex-energy import prices fell -0.2%. Export price declines occurred in both agricultural and non agricultural products. Ex-agriculture prices fell -06%. We have now had declining prices for over 12 months. Import prices are down -9.4% and export prices are down -6.3%.

Tomorrow be on the look out for PPI, Retail Sales, Business Inventory and Michigan Sentiment. PPI is expected to remain steady from last month with a gain of 0.1%. Business inventories are also expected to rise by about 0.1%. Retail sales are expected to grow by a slightly faster pace of 0.3% and will be closely watched for signs of seasonal strength. Michigan sentiment is expected to remain strong but decline to 91.6 from just over 93.

Next week the biggest economic event will be the FOMC meeting. Exactly one week from today will be the day after the Fed did or didn't raise rates at the December meeting. We've been building up to it for so long it is most likely factored into the market, failing to raise rates may cause a bigger stir than raising them.

The Oil Index

Oil prices continue to remain under pressure. OPEC's view of production and demand for next year did little to alter current conditions. Supply remains high, demand remains low. WTI fell in today's session, losing close to -1% and setting a new low near $36.75. There is reason to believe that supply will tighten, or begin to tighten, in 2016 but as of yet there is not much sign of it. Until then I expect oil prices are likely to remain low or move lower.

The energy sector managed to stage a rally despite falling oil prices. The Oil Index itself gaining more than 1% intraday. However, today's action appears to be a test of resistance within a near term down trend rather than a reversal in prices. The indicators remain weak, pointing lower and convergent with a test of the recently set low if not a lower low. Resistance is the 61.8% retracement level near 1,120. Downside target is the September low near 1,025.

The Gold Index

Gold prices are holding steady near recent lows, today's action was choppy and shed $5 to settle near $1070. The Fed is the focus, and what may happen to the dollar after the meeting. The dollar has been falling since the ECB failed to fulfill market expectations and could continue if the Fed does the same. The risk with gold is that the Fed will not meet or exceed expectations and spark a short covering rally similar to the one started by the ECB two weeks ago.

The Gold Miners ETF GDX gained about 0.75% on an intraday basis but fell into negative territory before the close of trading. Today's candle is sitting on the short term moving average which has been support the past 5 sessions. The ETF appears to want to move higher, perhaps anticipating a rally in gold, but is also still below resistance so a break out is needed to get bullish.

The indicators are bullish but MACD is declining and stochastic is rolling over, forming a crossover in line with the underlying trend, so it looks like resistance could be strong. Resistance is near $15 with support at the short term moving average. A break below the moving average has a target near the long term low near $13. A break above resistance could take the ETF up to $17. I remain bearish on gold but wary of the FOMC and how the market will react to what they do.

In The News, Story Stocks and Earnings

The dollar regained some ground today but remains near the one month low. The ECB caused a rebalancing of expectations and a sharp drop in the Dollar Index but it's policy remains divergent from the FOMC, which has been strengthening the dollar. So long as the ECB is dovish and the Fed is hawkish the dollar should gain ground over the euro. Today's action was bullish but below a previous resistance level so appears to be heading lower in the near term; the indicators are both bearish and convergent with near term weakness. Resistance is near $98.50 and the short term moving average with downside target near $96. The caveat, with the FOMC expected to raise rates next week any dip over the next few days is likely a buying opportunity.

Atlassian Corporation went public today in what may be the last IPO of the year. The company, founded 2002 in Sydney, Australia, sells software and services intended to help collaboration and team based projects. Shares priced above the high end of the forecast range and then opened with a gain near 30% on top of that. Shares sold off from their early high but managed to hold steady near $27 until a late day rally took them back up to a new high. Fist day gains; 32%.

Healthcare is expected to be one of our leaders in terms of earnings growth in the 4th quarter. As a sector it is expected to post earnings growth near 5%. The last two quarters the sector has beaten earnings projections and more than doubled growth expectations. Healthcare was one of the strongest sectors in today's session. The Healthcare Sector SPDR gained over 1.25% but remains in the middle of a one month trading range . Today's action moved the ETF above the 30 day moving average but indicators remain weak. Any upside movement will meet resistance with first target near $73.25

Seritage Growth Properties got a big boost this morning when Warren Buffet disclosed a personal stake in the company. This company is the spin-off of more than 200 top performing Sears and K-Mart stores and operated as a REIT. Mr. Buffet's stake is worth a little more than 8.02% of the company and sparked a 12% surge in share prices.

Adobe Systems reported after the bell and blew away expectations. The company was projected to earn about $0.45 per share but came in at a whopping $0.62. Results are a quarterly record and a 22% gain over last year. Looking forward company guidance is for full year 2016 earnings of $2.70, 9 cents below consensus. Shares of the stock traded down by -0.6% during the open session and then jumped 4% after the news was released. If the after hours gains hold into tomorrow the stock will open at a new all time high.

The Indices

The indices tried three times to rally and three times fell back to support at or just above yesterday's closing prices. Each time the rally moved a little higher and each pull back support was found a little higher but nevertheless the indices did not close near the high of the day. Today's action was led by the Dow Jones Transportation Average which closed with a gain of 0.60%. The index may have led today's gains but it is trading below my first support target and indicated lower. MACD may have peaked but remains strong relative to the current down draft, stochastic is moving lower in both the near and short term, so further downside may be muted. Next target is just below yesterday's candle near 7,500 and the long term low.

The next biggest gainer in today's session was the Dow Jones Industrial Average. The blue chips attempted to move up from support levels but was capped by the short term moving average. Today's candle is smallish with a long upper shadow, indicative of resistance along the moving average. The indicators are bearish and pointing lower but momentum is weak and stochastic is trending in the middle of the range so support range bound trading rather than market reversal. Any further drop ahead of the FOMC meeting has a first support target near 17,225. A break below this level could take it down to 17,000 and the long term up trend line.

The NASDAQ Composite made the third largest gains in today's session, 0.44%. The tech heavy index is trading just above the long term up trend line but failed to break above the short term moving average. Today's action was not strong or overly significant but the indicators remain bearish so near term weakness could persist. Support is likely to be found just below today's candle, along the long term trend line near 5,000.

The S&P 500 made the smallest gains in today's session, only 0.23%. The broad market tried hard to move up off of support levels but was halted at the short term moving average. Today's action appears to be yet another within a recent range and consolidation pattern with the FOMC meeting the most obvious focal point. The indicators remain bearish, if weakly so, so further testing of support could come. If the index moves lower, below 2,050, next target for support is the long term trend line near 2,025. The long term trend remains up so any dip is a potential buying opportunity.

Today's action is more churn. The market is in sector rotation ahead of an important FOMC meeting, and ahead of another round of corporate earnings. This churn may continue into the next few weeks but in my view is only leading to a continuation of the bull market. Long term economic trends are positive as is outlook for corporate earnings, a combination that usually leads to higher prices for equities. Near term fears and concerns may be clouding the view but in the end nothing more than the proverbial wall of worry.

Earnings season poses a bit of a risk. Earnings growth is expected to be negative again, before turning positive in the 1st quarter of 2016, and could cause the market to seek strong support levels before moving higher.

The FOMC meeting poses the biggest risk in the near term and could spark some big moves next week. Don't forget next week is options expiration, a fact that will likely add volatility to the market. I remain bullish and a buyer of dips, cautiously waiting for the FOMC.

Until then, remember the trend!

Thomas Hughes

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New Option Plays

New Lows Ahead

by James Brown

Click here to email James Brown


F5 Networks - FFIV - close: 99.06 change: -1.28

Stop Loss: 102.55
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.1 million
Entry on December -- at $---.--
Listed on December 10, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: Yes, see below

Company Description

Trade Description:
It has been a frustrating year for bullish investors in FFIV. Shares plunged back in January 2015 on lowered guidance. The stock fought its way back to challenge it all-time highs by July-August only to fail and reverse lower again. Thus far FFIV is down -24% year to date and down -26% from its 2015 highs.

FFIV is in the technology sector. According to the company, "F5 provides solutions for an application world. F5 helps organizations seamlessly scale cloud, data center, telecommunications, and software defined networking (SDN) deployments to successfully deliver applications and services to anyone, anywhere, at any time. F5 solutions broaden the reach of IT through an open, extensible framework and a rich partner ecosystem of leading technology and orchestration vendors. This approach lets customers pursue the infrastructure model that best fits their needs over time. The world's largest businesses, service providers, government entities, and consumer brands rely on F5 to stay ahead of cloud, security, and mobility trends."

The bearish trend could accelerate. I mentioned that the company lowered guidance back in January. The stock surged higher in July on a strong quarterly report and bullish guidance. Unfortunately the was not enough momentum to breakout past its prior highs. The stock market corrected lower in August and FFIV plunged sharply during the market's late August decline.

Ever since the peak this past summer FFIV has been in a bearish trend of lower highs and lower lows. Their most recent earnings report was October 28th. FFIV reported their Q4 earnings of $1.84 a share. That beat estimates by 10 cents. Unfortunately revenues were only up +7.7% to $501 million, which missed estimates. Then management lowered their 2016 Q1 earnings and revenue guidance below Wall Street estimates.

The bearish guidance sparked a sell-off. Then on November 12th FFIV held their analyst/investor day. Wall Street was not impressed. Shares plunged the next day (Nov. 13th) on an analyst downgrade. The stock has seen multiple downgrades since their late October earnings report.

There has been an argument that FFIV should use its large cash hoard for an accelerated stock buyback. The company has about $16 per share in cash. It is possible the stock could pop if they announced a big buy back program although lately buyback headlines have not had much of an impact on investor sentiment. There has also been some speculation that FFIV is a takeover target but so far it's just speculation.

Technically the stock is in a bear market. Shares just spent the last few weeks hovering above support near $100. Now shares have broken down below key, round-number, psychological support at the $100 level. The point & figure chart is forecasting at $93 target. FFIV could easily fall toward $90 or lower. Tonight we are suggesting a trigger to buy puts at $98.75.

Trigger @ $98.75

- Suggested Positions -

Buy the JAN $95 PUT (FFIV160115P95) current ask $1.77
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

Relief Rally Snaps 3-Day Drop

by James Brown

Click here to email James Brown

Editor's Note:

The S&P 500 snapped a three-day decline with a bounce. The U.S. market delivered a relatively widespread rebound today. Suddenly investors chose to ignore the weakness in crude oil (which fell to new lows).

GWW hit our entry point. SRCL hit our new stop.

Current Portfolio:

CALL Play Updates

Clovis Oncology - CLVS - close: 32.76 change: +0.05

Stop Loss: 29.65
Target(s): To Be Determined
Current Option Gain/Loss: -17.2%
Average Daily Volume = 1.4 million
Entry on December 01 at $32.55
Listed on November 28, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: see below

12/10/15: Yesterday CLVS outperformed its peers. Today the stock underperformed its peers. CLVS quietly churned sideways and barely eked out a gain.

No new positions at this time.

Trade Description: November 28, 2015:
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.

- Suggested Positions -

Long JAN $35 CALL (CLVS160115C35) entry $2.90

12/05/15 new stop @ 29.65
12/01/15 triggered @ $32.55
Option Format: symbol-year-month-day-call-strike

Salesforce.com, Inc. - CRM - close: 79.38 change: -0.33

Stop Loss: $78.90
Target(s): To Be Determined
Current Option Gain/Loss: -34.3%
Average Daily Volume = 3.8 million
Entry on December 02 at $81.35
Listed on December 01, 2015
Time Frame: Exit PRIOR to February option expiration
New Positions: see below

12/10/15: I'm starting to worry about CRM. Shares have underperformed the market two days in a row. Today CRM fell -0.4% and is on track to post a loss for the week. The intraday low was $79.16 and our stop loss is at $78.90.

No new positions at this time.

Trade Description: December 1, 2015:
Cloud computing stocks continue to capture investor imaginations and their investment dollars. Founded in 1999 and headquartered in San Francisco, Salesforce.com has become a huge player in the cloud computing industry. The stock has shown significant strength with shares up +36% year to date.

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

CRM's revenues have been consistently growing in the mid +20% range the last few quarters. Their Q4 revenues were up +26%. Q1 revenues were +23%. Q2 revenues, announced in August, were a bit better at +23.5% and management raised their Q3 and 2016 guidance.

Their most recent earnings report was announced on November 18th. Q3 earnings beat estimates at $0.21 a share. Revenues grew +23.7% to $1.71 billion, just ahead of estimates. Management continued to provide an optimistic outlook and raised both their 2016 and 2017 guidance above analysts' estimates.

Shares gapped open higher the next day following its Q3 results and improved guidance. Since then the stock has slowly consolidated lower with very little selling pressure. The point & figure chart is bullish and has seen its price target rise from $85 to $98. Meanwhile Wall Street is bullish too. Multiple firms have upgraded their price targets on CRM with recent price targets at $87, $93, and $96.

We like today's bounce and how CRM has broken the very short-term trend of lower highs. Tonight we are suggesting a trigger to buy calls at $81.35. Our time frame is several weeks. CRM reports earnings in February. We are listing the February calls.

- Suggested Positions -

Long FEB $85 CALL (CRM160219C85) entry $2.83

12/05/15 new stop @ 78.90
12/02/15 triggered @ $81.35
Option Format: symbol-year-month-day-call-strike

Domino's Pizza, Inc. - DPZ - close: 109.34 change: +0.24

Stop Loss: 106.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 555 thousand
Entry on December -- at $---.--
Listed on December 07, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: Yes, see below

12/10/15: DPZ is still quietly consolidating sideways in the $108-111 zone.

Our suggested entry point to buy calls is $111.25.

Trade Description: December 7, 2015:
Delivering pizzas is old school business but one company has embraced technology. Domino's Pizza Group sales and marketing director Simon Wallis says: "The Domino's app has been downloaded over 10 million times and 75 per cent of our orders are now online." DPZ is outgrowing a lot of its competition.

DPZ is in the services sector. According to the company, "Founded in 1960, Domino's Pizza is the recognized world leader in pizza delivery, with a significant business in carryout pizza. It ranks among the world's top public restaurant brands with a global enterprise of more than 12,100 stores in over 80 international markets. Domino's had global retail sales of over $8.9 billion in 2014, comprised of more than $4.1 billion in the U.S. and nearly $4.8 billion internationally.

In the third quarter of 2015, Domino's had global retail sales of over $2.1 billion, comprised of over $1.0 billion in the U.S. and over $1.1 billion internationally. Its system is comprised of independent franchise owners who accounted for nearly 97% of Domino's stores as of the third quarter of 2015. Emphasis on technology innovation helped Domino's generate approximately 50% of U.S. sales from digital channels at the end of 2014, and reach an estimated run rate of $4.0 billion annually in global digital sales.

Domino's features an ordering app lineup that covers nearly 95% of the U.S. smartphone market and has recently introduced several innovative ordering platforms, including Ford SYNC®, Samsung Smart TV® and Pebble Watch, as well as Twitter and text message using a pizza emoji. In June 2014, Domino's debuted voice ordering for its iPhone® and Android® apps, a true technology first within traditional and e-commerce retail."

Their most recent earnings report was October 8th. DPS reported their Q3 results with earnings up +6.3% from a year ago to $0.67 a share. That actually missed Wall Street estimates by seven cents. Revenues were up +8.5% to $485 million. Their same-store sales in the United States rose +10.5%. Same-store sales internationally rose +7.7% and marked their 87th consecutive quarter of same-store sales growth. In comparison, DPZ's closest competitor, Pizza Hut, saw their revenues fall -0.8% last quarter to $262 million. Pizza Hut same-store sales were only up +1%.

A few weeks later late, on October 27th, DPZ announced an accelerated share repurchase (ASR) program. Management said they had approved an $800 million stock buyback program and would dedicate $600 million to an accelerated buyback. In their press release, J. Patrick Doyle, Domino's President and Chief Executive Officer, said: "Our business is flourishing. We're proud of the ongoing returns this is driving for both our shareholders and franchisees in the form of share appreciation, regular dividends, open market share repurchases – and store profitability. We were also able to use our balance sheet and strong relationships with lenders to provide an additional opportunity for shareholders through an accelerated share repurchase program." DPZ stock rallied on this announcement.

Technically shares have been stuck under a bearish trend of lower highs since the 2015 peak in July. That changed this week. DPZ has spent the last few days consolidating sideways beneath resistance near the $110 level. The stock displayed relative strength today with a breakout past $110 and its trend line of lower highs. Currently the point & figure chart is bearish but a rally above $112 would generate a new buy signal. Any follow through on today's bullish breakout could spark some short covering. The most recent data listed short interest at 16% of the 51 million-share float. Tonight we are listing a trigger to buy calls at $111.25.

Trigger @ $111.25

- Suggested Positions -

Buy the JAN $115 CALL (DPZ160115C115)

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

Expedia Inc. - EXPE - close: 125.61 change: +0.59

Stop Loss: 119.85
Target(s): To Be Determined
Current Option Gain/Loss: -13.2%
Average Daily Volume = 2.2 million
Entry on December 09 at $126.75
Listed on December 08, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: see below

12/10/15: EXPE managed a +0.4% gain but shares essentially churned sideways inside the $123.00-126.75 region. I am still suggesting readers wait for a new relative high above $126.90 before initiating positions.

Trade Description: December 8, 2015:
Consumer spending has been something of a disappointment this year. Yet travel is one of the few exceptions that continues to see strong consumer spending. Expedia is a major player inside the $1.3 trillion-a-year travel industry.

EXPE is in the services sector. According to the company, "Expedia, Inc. is one of the world's leading travel companies, with an extensive brand portfolio that includes leading online travel brands, such as: Expedia.com®, a leading full service online travel agency with localized sites in 32 countries. Hotels.com®, the hotel specialist that offers Hotels.com® Rewards and Secret Prices through its mobile booking apps and localized websites in more than 65 countries. Hotwire®, a leading discount travel site that offers Hot Rate® Hotels, Hot Rate® Cars and Hot Rate® Airfares, as well as vacation packages. Travelocity®, a pioneer in online travel and a leading online travel agency in the US and Canada. Orbitz Worldwide, a global travel portfolio including Orbitz, ebookers, HotelClub and CheapTickets, brands and business-to-business offerings, including Orbitz Partner Network and Orbitz for Business. Egencia®, a leading corporate travel management company Venere.com, an online hotel reservation specialist in Europe. trivago®, a leading online hotel search with sites in 52 countries worldwide. Wotif Group, a leading portfolio of travel brands operating in the Australia/New Zealand region, including Wotif.com®, Wotif.co.nz, lastminute.com.au®, lastminute.co.nz and travel.com.au®. Expedia Local Expert®, a provider of online and in-market concierge services, activities, experiences and ground transportation in hundreds of destinations worldwide. Classic Vacations®, a top luxury travel specialist. Expedia® CruiseShipCenters®, a provider of exceptional value and expert advice for travelers booking cruises and vacations through its network of 200 retail travel agency franchises across North America. CarRentals.com®, the premier car rental booking company on the web The company delivers consumers value in leisure and business travel, drives incremental demand and direct bookings to travel suppliers, and provides advertisers the opportunity to reach a highly valuable audience of in-market consumers through Expedia® Media Solutions. Expedia also powers bookings for thousands of affiliates, including some of the world's leading airlines, top consumer brands and high traffic websites through Expedia Affiliate Network."

EXPE has been very active at making deals. Earlier this year they completed the acquisition of Orbitz Worldwide, which combined the No. 2 and No. 3 travel-booking companies into a $6.7 billion giant. That still trails behind Priceline's $9.2 billion annual revenues.

About a month ago EXPE announced at $3.9 billion deal to buy HomeAway (AWAY). The deal is expected to close in Q1 2016 and when completed it will make EXPE a serious threat to Airbnb in the alternative accommodation business, where people rent out rooms and homes.

EXPE's most recent earnings report was October 29th. The company announced their Q3 earnings were $2.07 a share, which was 5 cents above estimates. Revenues were up +13.2% to $1.94 billion, just a hair below expectations. Wall Street applauded the results and shares of EXPE surged to new highs (see chart). Following EXPE's Q3 results a few analysts have raised their price target on the stock (new targets include $150 and $180 a share).

A few days before Thanksgiving the U.S. State Department issued a global travel alert warning Americans about the threat of terrorism. The government did not provide any real details and just urged citizens to be more vigilant and cautious, especially around large crowds and public transportation. Airline stocks and EXPE all spiked lower on this headline but there hasn't been any follow through.

Technically shares of EXPE are in an up trend. EXPE is off about 10% from its 2015 highs (late October-early November) but it is up +47% year to date, making it one of the best performing stocks this year. The last few weeks have seen EXPE bouncing along technical support at its rising 100-dma. It looks like this consolidation is about to end and EXPE could be poised for another sprint higher.

The Monday high was $126.50. Tonight we are suggesting a trigger to buy calls at $126.75. We will start with a stop loss below the 100-dma. The $131.00 area has been resistance in the past but we are looking for a rally toward its November highs (near $140).

- Suggested Positions -

Long JAN $130 CALL (EXPE160115C130) entry $3.80

12/09/15 triggered @ $126.75
Option Format: symbol-year-month-day-call-strike

Illinois Tool Works Inc. - ITW - close: 93.29 change: +0.90

Stop Loss: 91.45
Target(s): To Be Determined
Current Option Gain/Loss: -42.9%
Average Daily Volume = 1.7 million
Entry on December 01 at $94.30
Listed on November 30, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: see below

12/10/15: ITW continued to bounce after testing support yesterday. Shares outperformed the broader market with a +0.97% gain. ITW still has short-term resistance in the $94.50-95.00 zone.

No new positions at this time.

Trade Description: November 30, 2015:
The stock market has delivered a pretty good bounce over the last few weeks. The S&P 500 index is up +10% from its late September low. Industrial stocks have fared even better. Shares of ITW are up +14% from their late September low and they look poised to breakout to new five-month highs.

ITW is in the industrial goods sector. According to the company, "ITW is a Fortune 200 global multi-industrial manufacturing leader with revenues totaling $14.5 billion in 2014. The Company's seven industry-leading segments leverage the unique ITW Business Model to drive solid growth with best-in-class margins and returns in markets where highly innovative, customer-focused solutions are required. ITW has nearly 50,000 dedicated colleagues in operations around the world who thrive in the company's unique decentralized and entrepreneurial culture."

ITW has had a rough time this year. The stock peaked at round-number, psychological resistance near $100 in the first quarter of 2015. Then a series of disappointing revenue numbers and overall weakness in the industrial sector weighed on ITW's stock price.

The company tends to beat Wall Street's earnings estimate but they have been missing the revenue estimates. Revenues have declined the last three quarters in a row. Yet the stock found a bottom in the August-September time frame anyway. Now ITW's stock in a bullish trend of higher lows and higher highs.

Their most recent earnings report was October 21st. Q3 earnings were up +9% from a year ago. However, if you back out negative currency headwinds their earnings growth was +18%. ITW said their operating margin was up 180 basis points to a record 22.7%.

The company is restructuring while also facing headwinds with a strong dollar. Yet investors seem to be looking past these struggles. The stock soared following its Q3 earnings report. The rally has carried ITW back above its 200-dma. Now it's poised to breakout past short-term resistance near $94.00. Tonight we are suggesting a trigger to buy calls at $94.25.

FYI: ITW could get a boost this week. The company is holding its annual investor day on December 4th. The three-hour presentation starts at 9:00 a.m. eastern time.

- Suggested Positions -

Long JAN $95 CALL (ITW160115C95) entry $1.75

12/05/15 new stop @ 91.45
12/01/15 triggered on gap open at $94.30, trigger was $94.25
Option Format: symbol-year-month-day-call-strike

Netflix, Inc. - NFLX - close: 122.91 change: -1.29

Stop Loss: 119.85
Target(s): To Be Determined
Current Option Gain/Loss: -59.3%
Average Daily Volume = 20.5 million
Entry on December 07 at $132.55
Listed on December 05, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: see below

12/10/15: NFLX underperformed the market today with a -1.0% decline. Shares churned sideways between round-number resistance at $125 and short-term technical support at its 20-dma.

No new positions at this time.

Trade Description: December 5, 2015:
The relative strength in shares of NFLX could accelerate between now and year end. Tonight we are looking at this stock as a bullish momentum trade.

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

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

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

NFLX is one of the market's best performers this year with a +167% gain year to date. Yet NFLX is not invincible. Doubts have been growing about NFLX's ability to keep growing and its rising costs. Their most recent earnings report is a good example.

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

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

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

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

If missing earnings estimates and lowering guidance wasn't bad enough NFLX also told investors that they plan to raise additional capital next year (2016) to help "fund our continued content investments". That means more debt and could mean more stock (which dilutes shareholders). One of NFLX critics biggest arguments has been the company's rising expenses. Yet in spite of all these challenges NFLX's stock continues to perform. The point & figure chart is bullish and forecasting at $148 target.

In summary, the growth story for NFLX seems a little bruised with their missed subscriber numbers. They continue to spend a ton of money on content and expansion. Investors don't seem to care. The consumer trend of switching from traditional cable to streaming services is not going to reverse and that benefits NFLX.

NFLX is showing significant relative strength this year and remains a momentum name. We are adding NFLX as a bullish candidate. We do consider it a higher-risk, more aggressive trade because shares can be so volatile. Tonight we are suggesting a trigger to buy calls at $132.55. I would use small positions to limit risk.

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

- Suggested Positions -

Long JAN $140 CALL (NFLX160115C140) entry $4.55

12/07/15 triggered @ $132.55
Option Format: symbol-year-month-day-call-strike

PUT Play Updates

American Express Company - AXP - close: 70.11 change: +0.25

Stop Loss: 72.35
Target(s): To Be Determined
Current Option Gain/Loss: -13.0%
Average Daily Volume = 5.8 million
Entry on December 08 at $69.75
Listed on December 03, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: see below

12/10/15: AXP inched back above the $70.00 level. Yet today's rally struggled near yesterday's intraday high. If this bounce continues AXP should find resistance in the $71.50 area.

No new positions at this time.

Trade Description: December 3rd, 2015:
Having one of the best known brands in the world is not enough if business turns south. AXP has been struggling, especially after the high-profile loss of its contract with Costco (COST). You may not remember but earlier this year COST and AXP failed to agree on terms to extend their relationship. COST was one of the few big merchants that only took AXP cards and not rival Visa, MasterCard, or Discover card.

AXP is in the financial sector. According to the company, "American Express is a global services company, providing customers with access to products, insights and experiences that enrich lives and build business success." That doesn't tell us much. The company operates through four segments: U.S. Card Services, International Card Services, Global Commercial Services, and Global Network & Merchant Services. The company claims $159 billion in total assets and over 112 million card customers. Their annual revenues are just over $34 billion with net income of $5.89 billion.

The revenue picture for AXP has been tough. The company has missed Wall Street's revenue estimate the last three quarters in a row. AXP's most recent earnings report was October 21st. They delivered their Q3 earnings of $1.24 a share. That missed estimates by seven cents. Revenues were down -1.3% to $8.19 billion, below analysts' estimates at $8.31 billion. AXP management then lowered their 2015 guidance below Wall Street expectations.

Barclays believes that AXP will continue to suffer from strong dollar headwinds in 2016. A Stifel's analyst believes that the impact of the Costco breakup has not been felt yet. Their exclusivity deal doesn't end until March 31, 2016. The impact may not be priced into AXP stock yet. UBS is also bearish and downgraded AXP to a sell in October. AXP has been forecasting +12-15% EPS growth but UBS is estimating AXP growth at +8%.

Technically the stock is in a bear market. AXP is down -25% from its early January 2015 highs. Shares have a bearish trend of lower highs and lower lows. The point & figure chart is bearish and forecasting at $63.00 target. Today AXP dipped toward round-number support at $70.00. A breakdown below this level could be an entry point. Tonight we are suggesting a trigger to buy puts at $69.75.

- Suggested Positions -

Long JAN $70 PUT (AXP160115P70) entry $2.08

12/08/15 triggered @ $69.75
Option Format: symbol-year-month-day-call-strike

Bunge Limited - BG - close: 63.52 change: +0.07

Stop Loss: 67.05
Target(s): To Be Determined
Current Option Gain/Loss: +17.4%
Average Daily Volume = 1.0 million
Entry on December 03 at $64.85
Listed on November 21, 2015
Time Frame: Exit PRIOR January option expiration
New Positions: see below

12/10/15: It was a quiet session for BG. Shares closed virtually unchanged on the session. Readers may want to wait for a breakdown below $63.00 as our next entry point for bearish positions.

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.

- Suggested Positions -

Long JAN $65 PUT (BG160115P65) entry $2.30

12/05/15 new stop @ 67.05
12/03/15 triggered @ $64.85
Option Format: symbol-year-month-day-call-strike

W.W. Grainger, Inc. - GWW - close: 194.47 change: +1.35

Stop Loss: 201.00
Target(s): To Be Determined
Current Option Gain/Loss: -27.1%
Average Daily Volume = 756 thousand
Entry on December 10 at $192.25
Listed on December 09, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: see below

12/10/15: Our new bearish play on GWW is open but the stock is not cooperating. A very brief spike lower this morning pushed GWW to new multi-year lows. GWW hit our suggested entry point to buy puts at $192.25. Unfortunately the stock immediately bounced. Shares ended the day with a +0.69% gain. GWW should find resistance near $197.00 but I am not suggesting new positions at this time. Wait for a new low.

Trade Description: December 9, 2015:
2015 has not been a very good year for GWW. The stock peaked back in 2013. Shares have suffered a long, slow trend of lower highs. Unfortunately for investors that bearish trend of lower highs has accelerated this year and sparked a trend of lower lows as well.

GWW is in the services sector. According to the company, "W.W. Grainger, Inc., with 2014 sales of $10 billion, is North America's leading broad line supplier of maintenance, repair and operating products, with operations also in Asia, Europe and Latin America." They now offer more than 1.2 million products and the company has grown to more than 700 branches.

GWW's management has lowered their guidance the last four quarters in a row. Their most recent earnings report was October 16th. Their Q3 earnings were $3.03 a share, which missed estimates. Revenues were down -1.1% from a year ago to $2.53 billion, also under expectations.

GWW held their annual investor day on November 12th. At that time the company said October sales were down -1% from a year ago and organic sales were down -2%. They also offered earnings guidance, which was a little bit below Wall Street expectations. They also warned that revenues next year will fall in a range from -1% to +7%. The company said this year has been really tough for the industrial economy and they don't see it improving much in 2016.

Technically the stock has struggled as investors keep selling the rallies. The sell-off this week has pushed GWW toward key support near its November lows. A breakdown here could see the down trend accelerate. The point & figure chart is bearish and forecasting at $165.00 target. Tonight we are suggesting a trigger to buy puts at $192.25.

- Suggested Positions -

Long JAN $185 PUT (GWW160115P185) entry $3.50

12/10/15 triggered @ $192.25
Option Format: symbol-year-month-day-call-strike


Stericycle, Inc. - SRCL - close: 117.58 change: +1.03

Stop Loss: 117.25
Target(s): To Be Determined
Current Option Gain/Loss: - 6.8%
Average Daily Volume = 941 thousand
Entry on December 03 at $118.07
Listed on December 02, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: see below

12/10/15: SRCL continued to bounce and hit our new stop loss at $117.25. Shares eventually found new resistance near $118.00 this afternoon but this rebound may not be over yet.

- Suggested Positions -

JAN $115 PUT (SRCL160115P115) entry $2.20 exit $2.05 (-6.8%)

12/10/15 stopped out
12/09/15 new stop @ 117.25
12/07/15 new stop @ 118.25
12/05/15 new stop @ 120.25
12/03/15 triggered on gap down at $118.07, suggested entry was $118.40
Option Format: symbol-year-month-day-call-strike