Option Investor

Daily Newsletter, Wednesday, 12/16/2015

Table of Contents

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

Market Wrap

FOMC +0.25% Rate Decision Gives the Market A Lift

by Keene Little

Click here to email Keene Little
Following the strong selloff into Monday's low the market has been rallying in anticipation that the Fed would acknowledge the strength in the economy as supportive of a rate increase. Those buyers were rewarded with more buying following the rate decision. Today's Market Stats

The market went on hold today after getting a pop up at the open (same as it did yesterday) and clearly it was on hold while waiting for the Fed to bless us with its decision on rates. The decision was unanimous (always worrisome when economists are 100% in agreement) to raise rates a 1/4 point to a range of 0.25% to 0.50%, ending a 7-year period of ZIRP. The market wasn't quite sure how to react initially but when the sellers didn't hit the market it took off to the upside (probably with a little help from its "friends").

This morning's economic reports were of course largely ignored and the only reason we had a rally into the FOMC announcement was because of another overnight rally in the futures (funny how they do that) that gave the market a pop up in the morning and then it went flat (like on Tuesday). The rally into the announcement could have been followed by a buy the rumor, sell the news reaction and it almost happened. But the sellers were overpowered by some buy programs and the indexes closed near today's highs.

We've seen plenty of times when a post-FOMC reaction is reversed the following day so it's likely we'll see at least a pullback Thursday morning but it's for the bulls to lose at this point. The rally off Monday's low looks strong enough to continue higher this month. What exactly the pattern is, and therefore how high the market could go is still a big question but as always I have a few thoughts about that.

As for the Fed's decision, the Fed said an improving economy (cough) was ready to handle a rate hike. They pointed to "solid" consumer spending (I wonder why retailers are complaining they're not the recipients of that spending), an improving housing market and more fixed investments by businesses. Based on the government's measure of the unemployment rate, the Fed also believes the healthier labor market is a good sign of economic strength. As Janet Yellen said at this afternoon's press conference, "The first thing that Americans should realize is that the Fed's decision today reflects our confidence in the U.S. economy. Yikes! That statement should scare us all (wink).

The Fed tried to reassure the market that pace of interest-rate hikes would be "gradual" and that additional hikes would be slower in 2017-2018 than they had previously predicted. But the dot plot for 2016 rate hikes continues to show the plan to raise rates 0.25% each quarter. But in the press conference it was clear that Yellen was trying to jawbone the market higher with assurances that while today's rate increase is not going to be a one-and-done, it will be followed by greater caution and of course will be data dependent. The Fed plans to hold its huge reserve ($4.5T) of Treasuries and MBS (mortgage-backed securities) on its books and continue to roll them over.

Not discussed, of course, is what's happening in the junk bond market. The 7-year period of ZIRP encouraged people and businesses to borrow much more than they might otherwise have. The energy field is the poster child of junk bonds at the moment and with energy prices hitting lows below the 2009 lows, the ability to pay back these loans is becoming less with each passing day. Bankruptcies are up and junk bond prices are down (increasing the spread between junk and Treasuries, which is exactly what we saw happen into the 2007 high).

Businesses have collectively borrowed trillions as a way to buy back stocks (helps increase the value of shares, which in turn helps management with their stock options) and pay for M&A activity, which has now exceeded the value seen at the 2007 high with more borrowed money than back then. Student loans are through the roof and students are having a hard time getting good-paying jobs to be able to pay back the loans.

Auto loans are now the new sub-prime slime, exceeding the value of sub-prime mortgage loans being made in 2006-2007. Auto loans are being made to people with poor or no credit rating and the average age of a loan on a USED car is more than six years. What do you think the chances are that many of these loans will go into default? More junk bonds. But never fear, the Fed will be able to buy ABS's (auto-backed securities) in the future with more printed money. Banks have been more than eager to make these loans when the cost of capital has been so cheap. Throw in some leverage on a 15 to 20-point spread between the cost of the money and how much they can lend it out and presto, big earnings for the banks. Package them up and then sell as investment grade bonds. More than $100B of these loans are out there.

Depending on the Fed to save us has become less reliable over time but there's still a lot of hope out there. Ultimately I believe the market will lose complete faith in the Fed and today's rate increase could end up with the same result as when they did the same thing back in the 1930s. In hindsight we could easily see this as bad timing at a market peak. I found an interesting piece from Simon Black at sovereignman.com relative to the Fed's control of the nation's purse strings:

It's ultimately a complete farce. Our entire financial system is based on awarding total control of our money to a tiny, unelected committee of bureaucrats.

They have the power to conjure trillions of dollars, euros, yen, pounds, renminbi, etc. out of thin air that are backed by absolutely nothing other than a thin veneer of confidence.

Civilizations have been experimenting with this model for thousands of years. And every single time it has failed.

Future historians will certainly wonder why we chose a financial system based on a model with such a long history of failure, and why we gave control of our savings and economic activity to unelected bureaucrats who are consistently wrong.

When you step back and look at the big picture, this system is totally mad. And full of risk.

Governments are insolvent. Central banks are nearly insolvent. Banking systems are extremely illiquid. National pension funds are insolvent.

And their solution is to keep borrowing and printing more money.

And this is the system the financial markets are placing their trust in. Trust but verify and be sure you watch for signs of cracking so that you're not caught with the crowd. The bearish charts for junk bonds point to a wide crack in the market's foundation and it deserves close attention over the coming weeks.

Moving onto the charts, we unfortunately have a large difference between indexes and that means caution by both sides is warranted until the bigger picture clears up. Because of the choppy price action with overlapping highs and lows, with a few whipsaws thrown in for good measure, it remains possible we'll see the market whip around for the rest of the month and end up not going anywhere. Traders would get chopped to pieces in this kind of environment (even selling option spreads could be difficult because of some of the wild price swings).

Tonight I'm going to show an example of the large differences between indexes, using the Nasdaq and Wilshire 5000, both of which support higher prices but they have significantly different projections. Each also supports the idea that the market could break down from here so continuation of the current rally is by no means a sure thing.

Starting with the Nasdaq, its weekly chart below shows the wave count for the leg up from October 2011, which is the c-wave of an A-B-C rally from 2009, and the 5-wave move for it. The 4th wave completed at the August low and we've been in the 5th wave since that low. It's been struggling near its July high near 5232, which was a test of its March 2000 high at 5132 (within 2%). This pattern says THE bull market will be finished once the leg up from August completes.

Nasdaq Composite index, COMPQ, Weekly chart

The Nasdaq's daily chart below shows a bullish wave count (green labeling) for the 5th wave up from August, shown on the weekly chart. It too needs to be a 5-wave move and the question at the moment is whether the December high was the completion of the 5th of the 5th wave or if instead the final little 5th wave started from Monday's low, which is currently the way I'm leaning and why I've labeled Monday's low as wave-(iv). In the move up from August, the 5th wave would equal the 1st wave at 5416 but could stop at the 62% projection at 5208. The lower projection would be essentially a retest of the November and December highs with just a minor new high (0.6% higher for a triple top).

Nasdaq Composite index, COMPQ, Daily chart

Key Levels for COMPQ:
- bullish above 5133
- bearish below 4871

The reason the 5-wave count in the rally from August works for the Nasdaq is because the 4th wave (Monday's low) did not overlap the 1st wave (the August 28th high), which would be a violation of one of the important rules for EW (Elliott Wave). If it had overlapped then we can't be looking for a 5th wave up and that's where things get confusing for the market. The DOW agrees with the Nasdaq potential here, as does SPX but it did overlap by pennies so I need to forgive that small transgression by SPX to keep it with the same bullish wave count shown above. But the Wilshire 5000 index has a big overlap, as shown on its daily chart below. Normally the Wilshire 5000 index and SPX are in lock step but this time there is enough of a difference for me to question the wave count.

Wilshire 5000 index, W5000, Daily chart

Key Levels for W5000:
- bullish above 21,874
- bearish below 20,600

I show the same bullish (green) wave count on the W5000 daily chart above as the one for the Nasdaq but noted two problems: the first is green wave-(ii) dropped below the start of wave-(i), which is the August low, and therefore it's an EW rule violation; and second, green wave-(iv), which was Monday's low, dropped below the end of wave-(i), the August 28th high, which is another rule violation. That makes the bearish wave count (bold red) a stronger possibility, which says the November 3rd high finished the bounce correction to the May-September decline rally and now it will be all downhill from here.

Today's bounce had the W5000 close to resistance at its 20- and 50-dma's, coming together near 21470, and then there's price-level S/R near 21600, followed by the 200-dma near 21700 and then its downtrend line from July, near 21840. In other words, the bulls have a lot of work to do and the bounce could fail at another lower high and lead to a very strong decline. The rally off Monday's low is certainly looking bullish so the upside potential needs to be respected but the downside risk is significant (crash potential following a series of 1st and 2nd waves to the downside). From a bearish perspective, the W5000 could be doing a back-test of its broken 20- and 50-dma's, which could lead to a bearish kiss goodbye and decline from here.

If the price pattern is bullish, the question is what it could be if not an impulsive 5-wave move up from August, like that shown on the Nasdaq chart. There is one bullish wave count that accounts for the overlap and multiple 3-wave moves up and down and it's the reason I'm taking the time to lay it out (since the bears won't believe it). We could be in a large ending diagonal 5th wave for the move up from August and the move up to the November high is only the 1st wave of the ending diagonal 5th wave. A typical ending diagonal would look something like that drawn on the W5000 weekly chart below.

Wilshire 5000 index, W5000, Weekly chart

The reason the bears will have a lot of trouble believing in this possibility is because it suggests the market will work its way higher into the April timeframe (sell in May and go away?). It would be a choppy move higher and likely frustrate both sides with a lack of follow through (unless you're willing to let the market pull back in large moves without spiking you out of your long positions). Considering the slowing global economy and the very significant debt problems (reflected in the decline of junk bond prices) I personally have a very difficult time believing the market can hold up for another 4-5 months but I present this chart pattern to at least make us aware of the possibility. As I said before, I consider the downside risk as very significant, especially if this week's bounce attempt is reversed and Monday's lows are taken out, but bears need to see the potential so as not to get complacent about how long it could take the market to top out.

The other indexes fit this bullish ending diagonal 5th wave idea, which is a reason I'm seriously considering the possibility (otherwise I wouldn't bother showing it), so we'll just have to watch some key levels from here to use as clues about which pattern is the higher-probability one.

SPX has a bullish pattern like the one for Nasdaq, even though one needs to ignore the 26-cent overlap between Monday's low and its August 28th high. The 5th wave in the move up from August would equal the 1st wave near 2120, which would essentially be a retest of its November and December highs as well as a back-test of its broken uptrend line from October 2011 - October 2014.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2068
- bearish below 1993

The SPX weekly chart shows the same ending diagonal 5th wave idea presented on the W5000 weekly chart. The upside projection is based on a typical time/price relationship between the waves and for SPX it points to almost 2200 by April. There's lots of overhead resistance for SPX to get through, which could result in a choppy climb higher and that's something I would expect to see with this pattern. Just continue to keep in mind that the bearish pattern following the November high is very bearish and therefore any breakdown below Monday's low near 1993 could lead to accelerated selling.

S&P 500, SPX, Weekly chart

The DOW has the same bullish pattern shown on the Nasdaq's daily chart. The move up from August can be considered a 5-wave move, with the 5th wave in progress from Monday's low. It would equal the 1st wave at 18438, which would be a test of its May high at 18351 for a big double top finish to its rally. If the 5th wave is to achieve only 62% of the 1st wave it will stop near 17941, which would be a test of its November and December highs for a smaller-timeframe triple top. The lower projection would also be another back-test of its broken uptrend line from October 2011 - October 2014. The bulls will need to see the DOW above 17950 before they can breathe a little easier, especially considering the more bullish potential with the ending diagonal idea discussed with the W5000 weekly chart above.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 17,950
- bearish below 17,138

The RUT has been the black sheep of the family, with a price pattern that doesn't look like any of the others. It's been weaker since August and that won't change if the bears are not yet out of the picture. But if we're going to see a Santa Claus rally we'll likely see the RUT start to make up some ground and get back into the race for MAYBE a new high. I can see the potential for the other indexes to make new highs but leave the RUT wanting for one. It's approaching price-level S/R near 1152 and then above that it will run into its 20- and 50-dma's near 1168. Above that level I'd feel better about upside potential but if it's the first to break below Monday's low near 1108 I'd be out of long positions in a hurry.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1168
- bearish below 1108

Bonds have not been giving us any better clues about direction than the stock market. Since the highs at the end of last January and the lows in June, bond prices have been chopping sideways in a narrowing range. Surprisingly, we did not see much movement in the bond market today. TLT (20+ year Treasury bond fund) finished with a long-legged doji today, which depicts a day of indecision. As can be seen on the TLT weekly chart below, price is getting pinched between the downtrend line from January and the uptrend line from June, now near 123.40 and 119.40, resp. Today it closed near the middle of its tightening range, at 121.18, after first rallying post-FOMC and then dropping right back down this afternoon. A drop below 118 would suggest a decline to its uptrend line from February 2011 - December 2013, near 110, maybe even down to its December 2013 low near 101. But the larger pattern continues to suggest we have not yet seen the final high for TLT before the bond bull finishes. A rally up to the 140-143 area in the first half of 2016 is what I'm thinking we'll see, maybe a little higher if it's into the 2nd half of 2016.

20+ Year Treasury ETF, TLT, Weekly chart

Banks will not waste any time increasing their loan rates to customers -- Wells Fargo waited 12 minutes to raise its prime rate from 3.50% to 3.75%, effective Thursday. As for increasing the savings rate for the poor (literally) savers hurt by the Fed's policies? Go pound sand was apparently the bank's answer. There's no announced change from their 0.06% rate on savings accounts. Needless to say, the banks liked the rate decision and BKX shot higher this afternoon (after the usual cha-cha-cha following the announcement), adding to the strong rally off Monday's low. But BKX is not out of the woods yet and could still get mauled by the bears. Notice on its daily chart that it has rallied back up to its broken uptrend line from October 2011 - January 2015 and this could result in just a back-test followed by a bearish kiss goodbye. Needless to say, the bulls need to keep up their buying.

KBW Bank index, BKX, Daily chart

The TRAN looks more bearish than bullish. The decline from November 20th is impulsive and fits well as the 1st wave of the next large decline. That calls for just a bounce correction before heading lower in a stronger decline. It's possible the leg down from November 20th is the 5th wave of the decline from March, which could now lead to a stronger bounce and at least back up to the November 20th high. So I see further bounce potential but I'll be watching it for evidence that it will be just a quick bounce and then back down.

Transportation Index, TRAN, Daily chart

Following the U.S. dollar's up-down-up reaction post-FOMC it finished with a marginal (+0.10%), which was a little surprising since the dollar had pulled back prior to this week and the expectation had been for a dollar rally following a rate increase. Unless the dollar is above to rally above its December 3rd high at 100.60 I'll continue to expect it to chop sideways into next year before heading higher.

U.S. Dollar contract, DX, Weekly chart

Gold has been having trouble getting a bounce off its December 3rd low but I continue to like the setup for a higher bounce, which would be helped if the dollar pulls back some more. Commodities in general look like they could be ready to turn back up (a pattern looks to be finishing now with price targets met) and that would help the metals as well. I'll continue to look for lower gold prices but the setup remains good for a bounce correction.

Gold continuous contract, GC, Weekly chart

Oil also looks like it's getting ready for a bounce after hitting the bottom of what looks like a descending wedge pattern. We should see another up-down sequence to finish it, in which case I would expect to see oil down to around $30 by April. But there's also the potential for a stronger rally out of the wedge and above $60 by April so I see a good setup for a long play on oil and then see how it looks if and when it reaches the top of the descending wedge (downtrend line from June), which is currently near 44. If it chops its way up to the top of the wedge then we'd have a good idea that it will drop down for one more new low before setting up a better long trade.

Oil continuous contract, CL, Weekly chart

This morning's economic reports included some encouraging numbers about the housing market -- housing starts in November were up by 1173K, which was more than expected. Building permits took a nice jump up from October's 1161K to 1289K and more than expected. But Industrial Production declined by -0.6%, which was worse than expected and a drop from October's -0.4%, which was a downward revision from -0.2%. Capacity utilization also dropped from 77.5% to 77.0%. So the signs of a slowing economy continue, which of course raises the question why the Fed would raise rates now but a logical Fed is just another oxymoron.

Tomorrow's reports include unemployment claims, the Philly Fed index and Leading Indicators. It's not likely they'll cause much of a reaction.

Economic reports


The stock market, as compared to the bond and currency markets, got the bigger (positive) reaction to today's FOMC rate decision, which is a little odd since it was a rate increase and the Fed still didn't clear up expectations about what to expect in 2016. The uncertainty should have bothered the market more and maybe it yet will. Today's rally could have had a "helping hand." The bond market's muted reaction, as well as in the currencies, which are acknowledged as the "smarter" markets, tells us they still don't trust the Fed's intentions. That's a warning sign for traders in the stock market.

I wouldn't be at all surprised by a pullback on Thursday, which is typical following a post-FOMC afternoon rally, and that would provide some clues about what to expect next. With a few of the indexes having bounced up to potentially strong resistance we might have had a news-related bounce high put in place and now down we go. An impulsive decline and break below Monday's lows would be very bearish and I would not go bottom picking if that happens. But considering an important time cycle turn window around December 22-24 I'm looking for a Santa Claus rally into that timeframe before thinking more aggressively about the short side.

And lastly, the idea of large ending diagonal (rising wedge) playing out into next April, as discussed with the Wilshire 5000 and SPX charts, needs to carefully considered. The market indexes could chop their way higher to new all-time highs over the next few months and those wishing to get into longer-dated put options could find them turning to dust over time so I would suggest nothing longer term here. Trade short term and play the swings carefully. Once the larger pattern becomes clearer we'll then be able to set up longer-term position trades. Until then, swing both ways and keep your trades tight and short term.

And if you are still sitting on the fence about renewing your subscription, just do it. You'll have several good trade setups with OIN and they'll more than pay for your subscription. It's a great deal so take advantage of it.

Annual End of Year Subscription Special

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

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

Good luck in the coming week and I'll be back with you next Wednesday.

Keene H. Little, CMT

In the end everything works out and if it doesn't work out, it is not the end. Old Indian Saying

New Option Plays

Relative Strength In Healthcare

by James Brown

Click here to email James Brown


Becton, Dickinson and Company - BDX - close: 155.89 change: +2.60

Stop Loss: 150.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.0 million
Entry on December -- at $---.--
Listed on December 16, 2015
Time Frame: Exit PRIOR to earnings in February
New Positions: Yes, see below

Company Description

Trade Description:
The stock market's big bounce this week has lifted the S&P 500 index back into positive territory for the year (currently up +0.7%). Healthcare stocks have outperformed with the XLV healthcare ETF up +6% year to date. BDX has doubled that with a +12% gain this year.

BDX is part of the healthcare sector. They are in the medical instruments and supply industry. According to the company, "BD is a leading medical technology company that partners with customers and stakeholders to address many of the world's most pressing and evolving health needs. Our innovative solutions are focused on improving medication management and patient safety; supporting infection prevention practices; equipping surgical and interventional procedures; improving drug delivery; aiding anesthesiology and respiratory care; advancing cellular research and applications; enhancing the diagnosis of infectious diseases and cancers; and supporting the management of diabetes. We are more than 45,000 associates in 50 countries who strive to fulfill our purpose of 'Helping all people live healthy lives' by advancing the quality, accessibility, safety and affordability of healthcare around the world. In 2015, BD welcomed CareFusion and its products into the BD family of solutions."

Their acquisition of CareFusion was a big deal. According to JP Morgan, they believe that BDX's purchase of CareFusion should transform the company into one that will "comfortably hit double-digit EPS growth over the next three to four years." The last couple of quarterly earnings report are definitely seeing the impact of the acquisition.

BDX's Q3 report, announced in early August, saw the company beat EPS estimates. Revenues were up +44.6% from a year ago. They raised 2015 guidance above Wall Street estimates into the $7.08-7.12 range. BDX also guided revenue growth in the +21-21.5% range.

The strong results continued in their fourth quarter. BDX announced its Q4 on November 4th. Analysts were looking for a profit of $1.90 a share on revenues of $3.03 billion. BDX beat both estimates. Earnings were $1.94 a share. Revenues were up +38.9% to $3.06 billion. Management guided for 2016 with earnings estimates in the $8.37-8.44 a share range. That's about +18% earnings growth over 2015. They expect revenues to grow +23-23.5% for the year.

The stock soared on its earnings report. BDX then spent the next few weeks consolidating gains. Now it looks like the bullish trend has resumed. The point & figure chart is very bullish and forecasting a long-term target at $209.00. Shares have been building on a bullish pattern of higher lows. Today's rally pushed BDX above resistance at $155.00. We see the breakout as an entry point. Tonight we are suggesting a trigger to buy calls at $156.35. Plan on exiting prior to earnings in February.

Trigger @ $156.35

- Suggested Positions -

Buy the MAR $160 CALL (BDX160318C160) current ask $3.90
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

Fed Finally Moves, Stocks Surge

by James Brown

Click here to email James Brown

Editor's Note:

The Federal Reserve raised rates for the first time since 2006. The market cheered the Fed's optimistic outlook on the U.S. economy with another widespread rally.

DPS hit our entry trigger. DPZ has been removed.

Current Portfolio:

CALL Play Updates

AmerisourceBergen Corp. - ABC - close: 101.59 change: -0.10

Stop Loss: 99.85
Target(s): To Be Determined
Current Option Gain/Loss: -25.8%
Average Daily Volume = 2.2 million
Entry on December 15 at $103.02
Listed on December 12, 2015
Time Frame: Exit PRIOR to earnings in late January
New Positions: see below

12/16/15: It was another disappointing session for ABC. Shares underperformed the broader market two days in a row. Today saw ABC dip toward technical support at its 10-dma. Shares hit $100.44 before bouncing.

Tonight we are moving our stop loss up to $99.85. No new positions at this time.

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.

- Suggested Positions -

Long FEB $105 CALL (ABC160219C105) entry $3.10

12/16/15 new stop @ 99.85
12/15/15 Caution - ABC has produced a bearish engulfing candlestick reversal pattern
12/15/15 triggered on gap higher at $103.02, trigger was $102.85
Option Format: symbol-year-month-day-call-strike

Clovis Oncology - CLVS - close: 32.53 change: -0.89

Stop Loss: 30.75
Target(s): To Be Determined
Current Option Gain/Loss: -29.3%
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

12/16/15: The IBB biotech etf continued to rally. Unfortunately CLVS did not participate. Shares retreated -2.6% after yesterday's +7.2% surge.

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

Dr Pepper Snapple Group - DPS - close: 94.08 change: +0.75

Stop Loss: 89.85
Target(s): To Be Determined
Current Option Gain/Loss: -6.0%
Average Daily Volume = 1.2 million
Entry on December 16 at $94.05
Listed on December 15, 2015
Time Frame: Exit PRIOR to earnings in February
New Positions: see below

12/16/15: Our new trade on DPS is open. Shares continued to rally and hit new highs with today's +0.8% gain. Our trigger to buy calls was hit at $94.05. I'd still consider new positions at current levels.

Trade Description: December 15, 2015:
Huge beverage companies like Coca-Cola (KO) and Pepsi (PEP) used to be considered safe haven trades because consumers would continue to buy soft drinks no matter what the economy was doing. Things have changed. Now more and more consumers are avoiding high-calorie cola drinks. These companies have been forced to expand into non-cola product lines. KO and PEP are also suffering from the impact of the strong dollar, which makes their products more expensive overseas. Year to date KO is up +2% and PEP is up +5%. Smaller rival DPS is up +30% this year.

DPS is in the consumer goods sector. According to the company, "Dr Pepper Snapple Group is a leading producer of flavored beverages in North America and the Caribbean. Our success is fueled by more than 50 brands that are synonymous with refreshment, fun and flavor. We have 6 of the top 10 non-cola soft drinks, and 13 of our 14 leading brands are No. 1 or No. 2 in their flavor categories. In addition to our flagship Dr Pepper and Snapple brands, our portfolio includes 7UP, A&W, Canada Dry, Clamato, Crush, Hawaiian Punch, Mott's, Mr & Mrs T mixers, Penafiel, Rose's, Schweppes, Squirt and Sunkist soda."

One reason DPS is outperforming its peers is the company's focus on the U.S. Almost 90% of DPS' revenues are from the United States, which means the strong dollar doesn't really affect it very much. It doesn't hurt that business has been steadily growing. DPS has beaten Wall Street earnings estimates the last three quarters in a row. Their most recent earnings report was October 22nd. DPS announced their Q3 results with earnings of $1.08 a share. That was five cents above expectations. Revenues rose +3% to $1.63 billion, also above estimates. Management then raised their full year guidance above analysts' estimates.

The market reacted to its strong Q3 report and bullish guidance by launching DPS shares to new all-time highs. There was some normal post-earnings profit taking but investors have started consistently buying the dips in DPS' stock. Now shares are breaking out to new all-time highs again. Meanwhile Wall Street analysts have been raising their earnings estimates on the company, which is normally bullish.

Technically the stock is showing significant relative strength this year. The point & figure chart is bullish and forecasting at $124.00 target. Traders just bought the dip at round-number support near $90.00. DPS could benefit from some window dressing before the quarter ends on December 31st. If the Fed raises rates the dollar should rally. Investors looking to avoid the impact of the dollar might also see DPS as a buy. Today's intraday high was $93.84. I'm suggesting a trigger to buy calls at $94.05.

- Suggested Positions -

Long FEB $95 CALL (DPS160219C95) entry $2.98

12/16/15 triggered @ $94.05
Option Format: symbol-year-month-day-call-strike

Expedia Inc. - EXPE - close: 131.16 change: +0.92

Stop Loss: 127.85
Target(s): To Be Determined
Current Option Gain/Loss: +50.0%
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

12/16/15: EXPE managed to tag new four-week highs but shares found short-term resistance in the $133 area.

No new positions at this time.

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

12/15/15 new stop @ 127.85
12/09/15 triggered @ $126.75
Option Format: symbol-year-month-day-call-strike

Netflix, Inc. - NFLX - close: 122.64 change: +4.04

Stop Loss: 114.45
Target(s): To Be Determined
Current Option Gain/Loss: - 8.0%
Average Daily Volume = 20.4 million
Entry on December 15 at $122.05
Listed on December 14, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: see below

12/16/15: NFLX is looking healthier after erasing yesterday's losses. Readers might want to wait for some follow through on today's rally before initiating positions. A rise above yesterday's high ($123.30) or above its 10-dma ($123.80) could be alternative entry points.

Trade Description: December 14, 2015:
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.

- Suggested Positions -

Long JAN $130 CALL (NFLX160115C130) entry $3.75

12/15/15 triggered @ $122.05
Option Format: symbol-year-month-day-call-strike

PUT Play Updates

Bunge Limited - BG - close: 63.17 change: +0.59

Stop Loss: 64.65
Target(s): To Be Determined
Current Option Gain/Loss: +15.2%
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

12/16/15: BG was not immune to the market's rally today but shares underperformed the major indices. The stock remains below short-term resistance at its descending 10-dma. More conservative traders may want to lower their stop loss closer to the $63.65 area.

No new positions at this time.

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: 100.50 change: +0.75

Stop Loss: 100.85
Target(s): To Be Determined
Current Option Gain/Loss: -44.8%
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

12/16/15: I am surprised we were not stopped out of FFIV today. The market's big rally this afternoon would be been a good excuse for bulls to buy the stock. Instead FFIV just churned sideways beneath short-term resistance in the $100.50-100.60 region. Our stop loss is currently at $100.85. No new positions at this time.

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

12/15/15 new stop @ 100.85
12/15/15 FFIV bounced on news of its CEO change
12/11/15 triggered on gap down at $98.36, suggested entry was $98.75
Option Format: symbol-year-month-day-call-strike


Domino's Pizza, Inc. - DPZ - close: 109.22 change: -0.71

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: see below

12/16/15: DPZ has had plenty of opportunity to rally but just can't seem to do it. Shares spiked up toward short-term resistance near $111 and failed today. The stock underperformed the broader market with a -0.6% decline. We are removing DPZ as a candidate.

Trade did not open.

12/16/15 removed from the newsletter, suggested entry was $111.25