Option Investor

Daily Newsletter, Monday, 12/14/2015

Table of Contents

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

Market Wrap


by Thomas Hughes

Click here to email Thomas Hughes
The December FOMC meeting is at hand; Will they raise rates or not . . . and will the market be happy about it?


Anticipation for Wednesday's FOMC meeting and wild swings in oil prices drove today's session. The indices, like oil, experienced some large swings as traders position for a possible rate hike on Wednesday and options expiration on Friday.

The global markets saw some indecision but did not have an overly large impact on our market. In Asia, Japanese and Hong Kong markets were down in the range of -1% while the mainland Shanghai index rose more than 2.5% in a day of trading that saw intraday losses greater than -5%. European indices began the day with gains but the plunge in oil sparked a sell-off that carried down by roughly -2% by days end.

Market Statistics

Futures trading indicated a sharply higher open, greater than 1%, during the earliest part of the electronic session. This did not last long as oil prices fell hard throughout the morning and pulled the trade back down to break even levels. Break even held until the opening bell at which time a half hour of churning back and forth across the 0% line was followed by a short sell-off. Lows were hit shortly after 11:30AM with losses near -0.8% for the broad market.

Going into the noon hour bulls began to regain control and sent the indices up to test their earlier high, just above last week's closing price. The highs did not hold and the market drift back to the flat line. Afternoon trading was nothing but chop and churn around break even with a late day rally which took the broad market to the highs of the day just before the close of the session.

Economic Calendar

The Economy

No economic data today. Tomorrow look out for Long Term Tic Flows, CPI, Empire Manufacturing and the NAHB Housing Market Index. Wednesday is Building Permits, Housing Starts, Industrial Production, Crude Inventory and the FOMC meeting. Thursday Initial Claims, Philly Fed and Leading Indicators and Natural Gas round out the week, there are no reports on Friday.

The event most important to the market is the FOMC meeting on Wednesday. They are largely expected to raise rates for the first time since the financial crisis and likely spark some market movement. Along with policy, indications of future increases will be very important.

Moody's Survey Of Business Confidence bounced back from a long term low this week. The index gained 0.8% to hit 33.8, snapping a three month slide that began over the summer when China's financial turmoil hit a crescendo. Despite slipping from it's high, the index is still strong relative to historical data with positive forward outlook.

According to Factset the expected rate of earnings growth for the S&P 500 in the 4th quarter is -4.4%. This is down -0.1% from last week and extends a 3 month slide in expectation. If earnings come in negative it will be the first three quarter period of negative growth since 2009. To date, 83 companies have given negative guidance, above average and possibly setting us up for another season of better than expected earnings. So far 3 companies have reported for the 4th quarter; 2 beat on earnings and 2 beat on revenue so we're off to a decent start so far. 10 more report this week.

I've started some new tables. I'm going to track earnings growth outlook and the blended rate of earnings growth for each upcoming quarter and the coming year for the S&P 500. I've been expecting us to come out of a trough in earnings growth and I think this will help pinpoint it.

2016 expectations remain positive although they have been falling. First quarter earnings growth is now projected at 1.7%, down -0.3% from last week and well off the 4.9% predicted at the beginning of October. Full year expectations are for growth of 7.9%, down -0.2% from last week but up 0.1% from the low set two weeks ago. It is possible that growth expectations for next year have bottomed but I think it is a little early to make that call.

The Oil Index

Oil prices played a big role in today's market action. WTI fell hard in early trading, losing close to -3%, only to bounce back and gain 2% by settlement time. Today's lows hit a near 11 year low so today's move may have been simple profit taking. The supply/demand situation has not fundamentally changed so any rally remains suspect at this point.

The Oil Index hit a new low today as well, and bounced back to regain the losses. Today's candle has a small body and long shadows so shows some indecision but the near term trend remains down. The indicators are both pointing lower with first target for support near 1,025. Oil prices may have hit bottom but they are still at bottom, dragging on earnings outlook and dragging this index back to test support. S&P 500 energy sector earnings growth expectations have fallen for the fourth quarter and full year 2016. Fourth quarter 2015 fell to -65.4 from -60.1%. Full year 2016 growth has fallen to -1.6% from just below 1% last week.

The Gold Index

Gold prices are calling for a rate hike, falling just over -1.0% in today's session. With this in mind the possibility of a snap-back rally in gold becomes a growing possibility. Any negative surprise from the FOMC, even only meeting expectations, could easily spark knee-jerk reaction and short covering in the near term. Longer term, fundamentals remain skewed toward dollar strength; the FOMC is at the beginning of a tightening cycle, the ECB and BOJ are still easing. Support target is near $1,050 with possible resistance near $1,085.

The gold miners fell in tandem with the underlying metal. The Gold Miners ETF GDX lost more than -5%, perhaps succumbing to the idea that even gold prices snap back they will remain low for a while. Today's candle is long and black, the largest move in about 6 weeks and broke below the short term moving average. This, along with the indicators, suggest it will return to test support near $13 if not move below, depending of course on the FOMC and the dollar. Support is possibly very strong along this level, it is the all time low and has been tested 6 times in 5 months.

In The News, Story Stocks and Earnings

Not much in terms of earnings reports today but one interesting name popped up, Quanex. Quanex is a small cap building products company making pre-fab engineered building products ranging from windows and doors to wood and vinyl products and coated aluminum sheeting. The company beat earnings expectations and expanded guidance on growth of business and acquisitions. Current quarter EPS of $0.29 beat consensus estimates by $0.03 and last years comparable results of $0.08. Full year 2016 guidance of $1 billion beats estimates by $0.08 billion. Shares of the stock jumped more than 1% in the pre-market, surged 8% in the open session and then fell back to break even by the close.

I thought Quanex was interesting as a possible insight into the home builders and home building sector in general. The SPDR Home Builders ETF fell more than -1.25% to set a new 2.5 month low. The ETF has been under pressure all year and now trading near the bottom of the 12 month range. The indicators are bearish and pointing lower so a test of support looks very likely. First target is near $33.50 with $33 next target on a break through. Support is likely to be fairly strong even though the housing sector isn't exactly booming. Construction spending has been expanding all year, driven by tight supply, and is expected to continue in 2016. Looking out to next year the construction segment is expected to see growth of 7% and could beat this if labor and housing trends continue to show improvement.

Boeing announced, after the bell, an increase to the buy back and a hike to the dividend. The buy back increases the ongoing repurchase plan by $2 billion. Buying activity has been suspended but is expected to resume in January. The dividend increase is 20% and brings quarterly distribution to $1.09 per share.

The VIX has begun to spike but may have already topped out. Today's action saw a rise in volatility that quickly faded, creating a large black candle with long upper shadow indicative of resistance at the $25 level. The indicators are on the rise but very weak compared to past peaks so this spike doesn't appear to be too strong and consistent with resistance. If the Fed doesn't scare the market on Wednesday this could signal the start of a rally.

The Indices

Today the indices touched potential support levels, ahead of the Fed, and bounced back. Action was mostly what I would call churn but resulted in candles with long lower shadows for most of the indices. Although most closed with gains one, this year's laggard, did not. The Dow Jones Transportation Average closed with a loss of -0.47% and now trading and set a new long term low. The good news is that the long lower shadow indicates support at this level with a close above the previous low, the bad news is that indicators are both pointing lower so support could be tested further. If support fails next target is near 7,250.

The largest gainer in today's session was the Dow Jones Industrial Average. The blue chips posted an increase of 0.60% after moving down to test support at 17,250. The indicators remain bearish so further testing of support could happen, they are weak so current support levels appear strong. A bounce would find potential resistance at 17,500 while a break through support could take the index down to 16,750 and the long term up trend line.

The S&P 500 made the next largest gain in today's session, just shy of 0.5%, after shedding nearly -1% and testing support at 2,000. The indicators are still moving lower so an additional test of support could come but they are also divergent from the new low and consistent with support. The long term trend is up and this move appears to be confirming support along those levels.

The NASDAQ Composite made the smallest gain in today's session, only 0.38%. The tech heavy index also moved down to test support, found it, and created a candle with long lower shadow. Support appear to be along the 4,900 level with a chance for it to be tested again. The indicators are pointing lower, consistent with lower prices, but weak when compared to past prices so also consistent with support at these levels.

Today's action looks promising for us bulls but in the end is more churning market wind up as we prepare for the FOMC meeting announcement on Wednesday. I expect a rate hike this week and at least a hint of when to expect the next one. How the market reacts is anybodies guess but I think it is discounted by now. I remain bullish and looking to buy on the dips, cautious of the Fed, and looking for signs of increasing earnings expectations for the 4th quarter of 2015 and all of 2016.

Until then, remember the trend!

Thomas Hughes

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New Option Plays

If At First You Don't Succeed

by James Brown

Click here to email James Brown


Netflix, Inc. - NFLX - close: 120.67 change: +1.76

Stop Loss: 114.45
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 20.4 million
Entry on December -- at $---.--
Listed on December 14, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: Yes, see below

Company Description

Trade Description:
If at first you don't succeed, try, try again.

Last week's surge in market volatility shook us out of our bullish NFLX trade. Today we want to try again.

Here is an updated play description:
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.

I want to remind readers that NFLX has proven over and over that it is a very volatile stock. This can make it difficult to trade. I am suggesting small positions to limit risk.

Today saw shares of NFLX spike down toward its previous highs (prior resistance) and now new support in the $115.00 area. The stock bounced and shares rebounded back into positive territory. Technically this rebound looks like a short-term bottom. We are suggesting a trigger to buy calls at $122.05. We will start with a stop loss just below today's low.

Trigger @ $122.05

- Suggested Positions -

Buy the JAN $130 CALL (NFLX160115C130) current ask $3.70
option price is a current quote and not a suggested entry price.

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

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

Daily Chart:

In Play Updates and Reviews

Stocks Rebound From Monday's Lows

by James Brown

Click here to email James Brown

Editor's Note:

The stock market continued to sink this morning. Eventually traders bought the dip. Most of the market produced an oversold bounce by the closing bell. Unfortunately transports and small caps continue to underperform.

Current Portfolio:

CALL Play Updates

AmerisourceBergen Corp. - ABC - close: 102.53 change: +0.45

Stop Loss: 99.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.2 million
Entry on December -- at $---.--
Listed on December 12, 2015
Time Frame: Exit PRIOR to earnings in late January
New Positions: Yes, see below

12/14/15: Traders bought the dip in ABC this morning. The stock bounced with a +0.44% gain but it wasn't enough to hit our trigger. If this rebound continues to tomorrow we could see ABC hit our suggested entry point at $102.85.

Trade Description: December 12, 2015:
Stocks had a rough week but ABC has been showing relative strength. Shares of ABC are now up three out of the last four weeks and up six sessions in a row. Considering how ugly the stock market was last week, ABC looks pretty attractive.

ABC is in the services sector. According to the company, "AmerisourceBergen is one of the largest global pharmaceutical sourcing and distribution services companies, helping both healthcare providers and pharmaceutical and biotech manufacturers improve patient access to products and enhance patient care. With services ranging from drug distribution and niche premium logistics to reimbursement and pharmaceutical consulting services, AmerisourceBergen delivers innovative programs and solutions across the pharmaceutical supply channel in human and animal health. With over $135 billion in annual revenue, AmerisourceBergen is headquartered in Valley Forge, PA, and employs approximately 18,000 people. AmerisourceBergen is ranked #16 on the Fortune 500 list."

The company reported their 2015 Q3 results on July 23rd. They beat Wall Street estimates on both the top and bottom line. Revenues were up +12.8%. Management forecasted full-year 2015 income growth in the 20-to-22% range.

Fast-forward to late October and ABC reported another strong quarter. The company announced their 2015 Q4 results on Oct. 29th. Wall Street was expecting a profit of $1.18 a share on revenues of $34.5 billion. ABC beat estimates again with a profit of $1.21 a share. Revenues were up +12.3% to $35.47 billion. Management raised their 2016 earnings and revenue guidance above analysts' estimates. They're now forecasting 2016 revenue growth of +8% to +10%.

Last month ABC raised their dividend by 17% to $0.34 a share. Normally raising the dividend is a sign of confidence by management. Meanwhile Citigroup analyst Robert Buckland recently listed ABC as one of his top 28 value stocks in the U.S. market (for 2016).

Technically shares bottomed in October after a three-month plunge from resistance in the $115 area. Now ABC has a bullish trend of higher lows. The last few days have seen ABC produce a technical breakout past round-number resistance at $100 and technical resistance at its 100-dma. The point & figure chart is bullish and forecasting at $122 target. Tonight we are suggesting at trigger to launch bullish positions at $102.85.

Trigger @ $102.85

- Suggested Positions -

Buy the FEB $105 CALL (ABC160219C105)

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

Clovis Oncology - CLVS - close: 31.15 change: -0.80

Stop Loss: 30.75
Target(s): To Be Determined
Current Option Gain/Loss: -46.6%
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

12/14/15: Biotech stocks underperformed the big cap indices today. CLVS really underperformed with another -2.5% decline.

More conservative traders may want to abandon ship and exit early tomorrow morning. Tonight we are moving the stop loss up to $30.75.

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

12/14/15 new stop @ 30.75
12/05/15 new stop @ 29.65
12/01/15 triggered @ $32.55
Option Format: symbol-year-month-day-call-strike

Domino's Pizza, Inc. - DPZ - close: 109.38 change: +0.74

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

12/14/15: DPZ displayed some relative strength on Monday with a +0.68% gain. Shares look poised to breakout past the $110.00 level soon.

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: 124.30 change: +1.09

Stop Loss: 119.85
Target(s): To Be Determined
Current Option Gain/Loss: -25.0%
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

12/14/15: EXPE recovered nearly half of Friday's decline. Shares rallied up to $126.00 before paring their Monday gains. I am suggesting readers wait for a new relative high before initiating new bullish 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

SPDR S&P 500 ETF - SPY - close: 202.90 change: +1.02

Stop Loss: 201.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 137 million
Entry on December -- at $---.--
Listed on December 12, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: Yes, see below

12/14/15: The SPY dipped to round-number, psychological support at the $200.00 mark before bouncing back. The ETF added +0.5% on the session. More aggressive investors may want to buy calls now. We are suggesting an entry trigger to buy calls at $203.25.

Trade Description: December 12, 2015:
There is a good chance stocks could bounce this week.

Mid-December tends to see a pullback due to tax-loss selling ahead of yearend. This past week was probably the height of tax-loss selling. The only problem was the normal weakness was exacerbated by the sell-off in crude oil, which crushed the energy sector. The rest of the market followed it lower. Wild fluctuations among the major currencies didn't help. Plus, we have the FOMC meeting this week and there seems to be a lot of confusion and uneasiness about the Fed likely raising rates for the first time in almost a decade.

Now crude oil is extremely oversold and due for a bounce. Stocks look short-term oversold as well. The S&P 500 just suffered its worst week since the August 2015 market correction lower. The S&P 500 should have support in the 2,000 area and a bounce could spark a yearend rally. The next three weeks is normally very bullish for stocks, according to historical trends.

We want to be ready if stocks do bounce. Tonight we are suggesting a bullish trade on the S&P 500 index. The easiest way to play that is the SPY. Wait for a bounce. We will use a trigger at $203.25 as our entry point. We'll try and limit our risk with a tight stop loss at $201.25. More aggressive traders might want to consider a stop loss below the $200 mark.

Trigger @ $203.25

- Suggested Positions -

Buy the JAN $205 CALL (SPY160115C205)

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

PUT Play Updates

American Express Company - AXP - close: 68.83 change: -0.03

Stop Loss: 69.75
Target(s): To Be Determined
Current Option Gain/Loss: +24.0%
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

12/14/15: AXP fell to new 52-weeks lows and traded below $68.00 before paring its losses. Shares rallied back to virtually unchanged on Monday but that still underperform the big cap indices.

Tonight we are taking a more defensive posture and moving the stop loss down to $69.75. I am suggesting more aggressive traders keep their stop loss above $70.00 (maybe $70.15 or $70.35, which would be above the simple 10-dma).

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

12/14/15 new stop @ 69.75
12/12/15 new stop @ 70.75
12/08/15 triggered @ $69.75
Option Format: symbol-year-month-day-call-strike

Bunge Limited - BG - close: 61.81 change: -1.15

Stop Loss: 64.65
Target(s): To Be Determined
Current Option Gain/Loss: +52.2%
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

12/14/15: BG's attempt at a bounce failed below the $63.50 level. Shares reversed into a -1.8% decline.

No new positions at this time. More conservative investors may want to move their stop closer to the $63.50 level.

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

12/12/15 new stop @ 64.65
12/05/15 new stop @ 67.05
12/03/15 triggered @ $64.85
Option Format: symbol-year-month-day-call-strike

F5 Networks - FFIV - close: 96.31 change: -1.25

Stop Loss: 102.55
Target(s): To Be Determined
Current Option Gain/Loss: +27.1%
Average Daily Volume = 1.1 million
Entry on December 11 at $98.36
Listed on December 10, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: see below

12/14/15: FFIV continues to underperform. Shares lost -1.2% on Monday.

Tomorrow morning could be interesting. After the closing bell the company announced that the Chairman of the Board would take over as President and CEO after the current CEO Manuel Rivelo immediately resigned "over matters regarding personal conduct." The company stressed that his resignation had nothing to do with company performance.

FFIV might spike lower on this news the CEO has abruptly left.

Trade Description: December 10, 2015:
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.

- Suggested Positions -

Long JAN $95 PUT (FFIV160115P95) entry $2.10

12/11/15 triggered on gap down at $98.36, suggested entry was $98.75
Option Format: symbol-year-month-day-call-strike

W.W. Grainger, Inc. - GWW - close: 194.13 change: +3.30

Stop Loss: 195.75
Target(s): To Be Determined
Current Option Gain/Loss: -21.4%
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

12/14/15: We cautioned readers in the previous newsletter that GWW might bounce from round-number support at $190. Right on cue shares rebounded with a rally back toward the $195.00 level, which appears to be short-term resistance.

No new positions at this time.

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

12/12/15 new stop @ 195.75
12/10/15 triggered @ $192.25
Option Format: symbol-year-month-day-call-strike