Option Investor

Daily Newsletter, Tuesday, 12/22/2015

Table of Contents

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

Market Wrap

Seller Holiday

by Jim Brown

Click here to email Jim Brown

Sellers left early for the holidays but a few fund managers apparently stuck around to catch up on their window dressing for year-end. Volume was light but nobody is complaining about the gains.

Market Statistics

The markets moved higher at the open and never really looked back. There were some pauses but the gains were constant and measured. It was not a big short covering rally although there were more than likely some shorts that were covering given the bearish sentiment from last week.

There is a saying, "Never short a dull market." There is another saying far less well known, "Never hold shorts over a holiday." When U.S. markets are closed, many of the global markets are open. That is a recipe for a major surprise when the U.S. markets reopen. Given the current terror threat environment I would be surprised if we did not see some selling before Thursday's early close to protect against some event over the Christmas holidays.

The Dow peaked at 17,451 at 3:PM and a gain of just over 200 points. However, at about 3:PM a news story broke about a potential terrorist event in NYC. The Dow dropped about 75 points very quickly but the story was quickly put down. The NY police department sent an email to everyone on the force warning that this was a high stress threat period over the next few days. The email warned everyone to be on high alert. It did not mention any specific threat. One news source picked that up and misreported it according to the latest account. The NYPD also said there were no known threats or events. That shows you how nervous the market is today.

The economic reports were mixed but not enough to cause any market weakness. Existing home sales declined to 4.76 million from 5.36 million annually. That was a -10.5% decline from October. With record setting warm temperatures all across the country you would have expected home sales to be strong. Realtors blamed new regulations that are lengthening closing times and causing it to be harder to buy a home. Sales were down in all four regions.

Single-family home sales declined -12.1% from October while condo and co-op sales increased +1.7% from 600,000 to 610,000. Current inventory totaled 1.81 million homes for sale. That was also down -3.2% from October as some people take their homes off the market in the winter months. The seasonally adjusted home price rose +0.3% to $224,700.

The last revision of the Q3 GDP declined slightly from 2.1% to 1.98%. With Q1 at 0.64%, Q2 at 3.92% and Q3 at 1.98% that makes the year to date GDP 2.18%. We are not exactly setting the world on fire but Q3 was slightly higher than some estimates for the revision. We will not get the first Q4 estimate until January 29th.

Consumption was the biggest plus for the GDP adding +2.04 points but down from +2.4% in Q2. Fixed investment added +0.6% while inventories were a -0.71% drag along with exports at -0.26%. Government activities added +0.32%. Corporate profits declined -1.6% after a +3.5% gain in Q2.

The Q4 GDPNow real time update from the Atlanta Fed will not be updated again until tomorrow. It is currently showing +1.9% for Q4.

The Richmond fed Manufacturing Survey for December rebounded back into positive territory after three months in negative territory. New orders rebounded from -6 to +8 and the biggest gain in five months. Backorders jumped from -16 to zero and also the highest level in five months.

It is hard to get excited about the Richmond manufacturing survey since the chart looks more like an EKG than any kind of positive trend.

The Richmond services survey rose from -1 to zero. That compares to an 18 on the headline number in October. With warm weather and the holiday season in full swing, I would have expected significant improvement. This is not a good sign for January.

The calendar for the rest of the week is lumped into Wednesday but nothing on the list should move the market. There will be nobody at their trading desks to hear the news.

This was a very light day for stock news so this is going to be a short commentary tonight. Google (GOOGL) and Ford (F) are in talks to form a partnership to develop autonomous car technology. This would use the technology from Google and the manufacturing capabilities of Ford. Reportedly, the two sides have been talking for months. If Google is successful in recruiting Ford as a partner the path to an actual production vehicle could be shortened considerably.

Google prototypes have logged more than 1.3 million miles of autonomous driving. An official announcement could be made at the Consumer Electronics Show in early January. Ford's former CEO, Alan Mulally, is a director at Google. In September, Google named John Krafcik as CEO of the self-driving car project. He worked for Ford for 14 years in a number of management positions.

Ford shares spiked +3% on the news and GOOGL shares rose less than 1%.

Steelcase (SCS) rusted out today after reporting earnings that disappointed. Shares fell -23% on earnings of 30 cents compared to estimates for 33 cents. Revenue of $787.6 million also missed estimates for $812.9 million. The company guided for current quarter earnings of 20-24 cents compared to expectations for 26 cents. Revenue forecast of $720-$745 million also missed consensus estimates for $771.9 million.

Caterpillar (CAT) rallied +5% despite news the company was ordered to pay $73.6 million for stealing trade secrets from Miller UK. The two-month trial concluded that Caterpillar copied a coupler that enabled excavator operators to change scoops or other attachments without leaving their vehicles. Miller was supplying these to Caterpillar after designing them in 1998. CAT "developed" their own version in 2008 and ended the arrangement with Miller forcing the company to lay off 75% of its workforce and close an office in Georgia and another in Japan. Miller is asking for attorney's fees and other costs that could raise the total to $100 million.

CAT appeared to find a bottom at $65 over the last two weeks and today's rebound closed at $68.50. I still would not buy it because the low commodity prices and slowing Chinese economy means machine sales are going to be slow in the coming months. On Sunday, Caterpillar said global machine sales were down -11% in November, with world resource industry sales down -28% and construction industry sales down -7%. This does not sound like a buy to me.

Baxalta Inc (BXLT) shares rallied +4.5% on news that it may accept an updated bid of $30 billion from Shire PLC (SHPG). Shire is now offering 40% of the purchase price in cash to go along with the $45 offer. BXLT was trading at $37.50 before the news broke.

Church & Dwight (CHD), makers of Arm and Hammer products, will join the S&P-500 after the close next Monday. The company will replace Altera (ALTR), which is being acquired by Intel (INTC). Shares spiked about 3% to $87.50 in afterhours.

After the bell Nike (NKE) posted earnings of 90 cents that rose +22% and beat estimates for 86 cents. Revenue of $7.7 billion rose +4% but missed estimates for $7.8 billion because of currency issues. Revenue in China rose +24% while North America sales rose +9%. Futures orders, a measure of future sales, rose +20% on a constant currency basis. North American futures were up +14%, China +31% and Western Europe +17%. Futures orders will be delivered between the end of December and April 30th. In the year ago quarter futures orders were up +11%.

For the current quarter, Nike expects revenue growth in the high single-digit to low double-digit rate. On a constant currency basis, growth would be in the mid-teens percentages. Analysts were expecting 8.2%. With the 2016 Summer Olympics to fuel sales in 2016 Jefferies raised the price target to $150. Nike will probably beat that target. I would be a buyer of Nike on any weakness in January. Shares rallied to $134.50 in afterhours.

Under Armour (UA), Finish Line (FINL) and Foot Locker (FL) shares rose in afterhours after the Nike earnings.

Micron (MU) reported earnings of 24 cents compared to estimates for 23 cents. Revenue of $3.35 billion declined -26.7% and missed estimates for $3.46 billion. A 13% decline in DRAM selling prices held back the revenue numbers. The average selling price for Micron products declined -7%. Gross margins of 25% were 2% lower than in the comparison quarter. The company guided for the current quarter for earnings in the range of 5-12 cents and analysts were expecting 23 cents. Revenue forecast for $2.9-$3.2 billion also missed the consensus estimate for $3.47 billion. Continued weakness in PC sales remain a challenge for the sector. Shares fell to $13.75 in afterhours.

Crude prices traded up slightly at $36.41 as the February contract became the front month contract. The removal of the oil export ban last week has already benefitted U.S. oil companies. The price of WTI closed a penny higher than Brent and the first close at parity since the recession. American WTI will be in demand but we will not see any actual exports for several months. There are a lot of details that have to be handled before a tanker takes on a load and heads for Europe. The spread between WTI and Brent has been as high as $5 in recent years.

After the bell API said oil inventories fell -3.6 million barrels in the week ended on Friday. However, inventories at Cushing Oklahoma, the delivery point for WTI futures rose +1.5 million to a new high. The API release caused a 25-cent jump in WTI from the $36.14 close. The real inventory report is the EIA report due out in the morning. Crude normally trades higher on Tuesdays as shorts cover before the EIA report.


Volume was very light at 6.3 billion shares but we will be lucky to finish over 5 billion on Wednesday. The trading week is over for all practical purposes. There will be some more window dressing and some speculation positions hoping for a January rally but the volume may not be enough to push the markets higher.

Today was mostly shorts covering before they leave for the weekend and fund managers trying to add some winners to their portfolios in hopes of distracting from the worst returns since 1998.

Advancers were 5:2 over decliners and up volume was 3:1 over declining. It was a nice gain because the sellers apparently ran out of stock or they already left for the holidays. With the 12.4 billion shares traded on Friday and 8 billion or more every day last week there were plenty of traders running for the exits with their hair on fire. It is possible that anyone who wanted out before year-end has already made their exit.

The S&P smacked into resistance at 2,040 once again and that is where it closed. That suggests the Wednesday open could be a challenge. S&P futures are down -5 as I type this. If by chance the S&P does get through the resistance at 2,040, 2,075 and 2,095 there is still very strong downtrend resistance at 2100-2105. I think we should be happy just to retest 2,075 and not actually expect a breakthrough. Support is going to be Monday's lows at 2,005.

The stocks pushing the Dow lower last week are the ones lifting it this week with the exception of Exxon and Chevron, which were neutral. Goldman Sachs was the poster child for the biggest loser last week and was third from the top today. Caterpillar was the surprise with two different negative news items and still posting a gain. IBM is also confounding expectations after eight months of declines. It appears the Dogs of the Dow buyers are out in force. That is the strategy that buys the ten worst Dow stocks of this year in hopes they rebound in the coming year. In theory, Dow stocks do not cut their dividends after a bad year and that is the cushion for the next year. Between 1992 and 2011 the Dogs of the Dow strategy returned an average of 10.8% annually and outperformed the S&P with a 9.6% gain. The strategy has been back tested as far back as 1920.

The dog buyers will need to find some friends if they expect to lift the Dow back over 17,800 and downtrend resistance at 17,850. The Dow chart is showing a negative pattern regardless of the seasonal bullishness for this week and next.

The Nasdaq Composite posted a decent gain of +32 points but barely finished over 5,000, which is now psychological resistance with 5,008 just ahead. The high last Wednesday was 5,088 and that becomes a critical level in the days ahead. Another failure at a lower high would be very negative at this point. Support from Monday at 4,935 is the level to watch on the downside.

Apple had another negative day but it was fractional. The biotech sector was also fractionally negative and both those factors held the Nasdaq back.

The Russell 2000 small caps posted a +10 point gain but the index is still just a few points above Friday's lows at 1,120. The small caps are definitely not living up to their seasonal outperformance record. This is going to be a challenge for the big caps if the Russell continues to lag. Real resistance is 60 points above the close so it will be practically impossible for the Russell to breakout to the upside.

I am thrilled to see the markets post back-to-back gains but if you remember, they did that last week too before imploding. The seasonal trend is a bullish bias until December 28th then fade into the last two trading days of the year. I would be cautious about adding a lot of positions. Volume is going to be weak and the markets have definitely been volatile. Moving into and out of year-end could be rocky. January has been down the last two years but it was up strongly the three prior years. Which will it be this time?

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Enter passively, exit aggressively!

Jim Brown

Send Jim an email


New Option Plays

"Safety and Steadiness"

by James Brown

Click here to email James Brown


Northrop Grumman - NOC - close: 189.37 change: +0.36

Stop Loss: 186.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.2 million
Entry on December -- at $---.--
Listed on December 22, 2015
Time Frame: Exit PRIOR to earnings in late January
New Positions: Yes, see below

Company Description

Trade Description:
A few years ago, back in 2011, politicians in Washington created massive defense spending and entitlement cuts in their sequestration budget cut threats. It was supposed to be a goad to provoke their peers and rivals to getting a budget deal done. It didn't work. The sequestration cuts were put into place in 2013 but instead of crushing the defense industry stocks the group has thrived.

NOC is in the industrial goods sector. According to the company, "Northrop Grumman is a leading global security company providing innovative systems, products and solutions in unmanned systems, cyber, C4ISR, and logistics and modernization to government and commercial customers worldwide." They focus on four business sectors: aerospace systems, electronic systems, information systems, and technical services.

One reason the major defense names have done so well was their focus on gaining new clients overseas. If the U.S. was going to cut back on spending (more like cut back on the pace of spending) then military contractors focused on generating new business with allies overseas and it worked.

NOC has beaten Wall Street's earnings estimates the last four quarters in a row. They've delivered better than expected revenue numbers three of the last four quarters. Plus, NOC management has raised guidance three of the last four quarters. As of their most recent earnings report on October 28th, NOC's backlog was about $36 billion.

NOC has been in a heated battle with rivals Boeing (BA) and Lockheed Martin (LMT) over one of the biggest defense contracts of all time. That is the Air Force's new Long Range Strike Bomber contract. Aerospace giants Boeing and Lockheed had teamed up together to win this deal. Some were calling it a David-versus-Goliath story. NOC was the underdog and surprisingly the U.S. government gave the contract, worth a potential $80 billion, to NOC in late October this year. BA and LMT have since chosen to protest this decision so the ultimate decision has yet to be finalized but it's a bullish development for NOC investors.

The LRSB contract has two parts. The engineering and manufacturing and development portion of the contract is worth more than $21 billion. Once it's finally developed the planes are supposed to cost the government $564 million apiece. Altogether the defense department could spend up to $80 billion on the program.

Another bullish tailwind for defense contractors like NOC is the ongoing global battle with radical Islamic terrorists and ISIS. The U.S. will likely boost its defense spending as it turns up the heat on this threat. Meanwhile after the terrorist attacks in Paris, analysts believe that NATO could generate an additional $100 billion in defense spending as they beef up their military might.

JPMorgan recently upgraded shares of NOC from "neutral" to "overweight" and gave the stock a $212 price target. They like NOC and believe it is a place of "safety and steadiness" in a volatile market.

The stock has shown significant relative strength this year with a +28% gain in 2015. The last few weeks have seen NOC consolidate sideways beneath resistance at $190 but with a bullish trend of higher lows as investors keep buying the dips. The stock looks ready to break out. Tonight we are suggesting a trigger to buy calls at $191.25.

Trigger @ $191.25

- Suggested Positions -

Buy the FEB $195 CALL (NOC160219C195) 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

Market Rebound Continues

by James Brown

Click here to email James Brown

Editor's Note:

Stocks continued to bounce for a second day in a row. The fact that oil didn't hit new lows helped. Plus there was some benign economic data out this morning. Bullish season trends might be taking effect.

SPB hit our entry trigger.

Current Portfolio:

CALL Play Updates

AmerisourceBergen Corp. - ABC - close: 103.16 change: +0.27

Stop Loss: 99.85
Target(s): To Be Determined
Current Option Gain/Loss: -17.7%
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

12/22/15: ABC continued to push higher on Tuesday. The rally did stall at last week's intraday high near $103.50 . ABC looks poised to breakout past this level.

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

Becton, Dickinson and Company - BDX - close: 154.37 change: +0.78

Stop Loss: 150.85
Target(s): To Be Determined
Current Option Gain/Loss: -38.8%
Average Daily Volume = 1.0 million
Entry on December 17 at $156.35
Listed on December 16, 2015
Time Frame: Exit PRIOR to earnings in February
New Positions: see below

12/22/15: Yesterday BDX dipped to its 20-dma before bouncing back into positive territory for the session. Today BDX dipped to its 30-dma near $152 before rebounding back into the green (+0.5% today). The multi-week trend of higher lows is still in place.

No new positions at this time.

Trade Description: December 16, 2015:
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.

- Suggested Positions -

Long MAR $160 CALL (BDX160318C160) entry $3.84

12/17/15 triggered @ $156.35
Option Format: symbol-year-month-day-call-strike

Clovis Oncology - CLVS - close: 33.64 change: +0.19

Stop Loss: 30.75
Target(s): To Be Determined
Current Option Gain/Loss: -34.5%
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

12/22/15: CLVS managed to outperform its peers in the biotech industry today with a +0.5% gain. The stock remains under short-term resistance near $34.00 (and then again at $36.00).

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

Charles River Labs. Intl. - CRL - close: 79.36 change: +0.71

Stop Loss: 77.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 426 thousand
Entry on December -- at $---.--
Listed on December 17, 2015
Time Frame: Exit PRIOR to earnings in February
New Positions: Yes, see below

12/22/15: CRL retested technical support at its 10-dma again this morning. Traders bought the dip and shares rallied to a +0.9% gain, outperforming the major indices. I'd be tempted to buy this bounce but officially we are waiting for a new high. Our suggested entry point is $80.40.

Trade Description: December 17, 2015:
Non-insurance healthcare stocks have been showing relative strength. CRL is up nearly +33% from its early October low. It's also up +24.7% for the year when the S&P 500 is now down -0.8% for 2015.

According to the company, "Charles River provides essential products and services to help pharmaceutical and biotechnology companies, government agencies and leading academic institutions around the globe accelerate their research and drug development efforts. Our dedicated employees are focused on providing clients with exactly what they need to improve and expedite the discovery, early-stage development and safe manufacture of new therapies for the patients who need them."

The earnings picture has been improving. CRL reported Q2 results on July 30th. They missed estimates by a penny but management raised their 2015 guidance above Wall Street estimates.

Their performance improved in the third quarter. CRL announced their Q3 results on November 4th. Analysts were expecting $0.94 a share on revenues of $340 million. CRL beat on both counts. Earnings were $1.03 a share, a +16% improvement from a year ago. Revenues were up +6.7% to $349.5 million. If you back out negative foreign currency headwinds then CRL's Q3 revenues were up +12.2%. Management raised their full-year guidance above analysts' estimates again.

You can see on the daily chart how shares of CRL rallied on its Q3 report and optimistic outlook. Since then investors have been buying the dips near support. This week the stock has broken out to new eight-month highs. Shares are flirting with a bullish breakout past round-number resistance at $80.00. Tonight we are suggesting a trigger to buy calls at $80.40 with an initial stop loss at $77.75. More nimble traders may want to wait for a possible dip and buy calls in the $78.00-78.50 region instead. Officially our entry trigger is $80.40.

Trigger @ $80.40

- Suggested Positions -

Buy the FEB $85 CALL (CRL160219C85)

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

Dr Pepper Snapple Group - DPS - close: 93.54 change: +1.36

Stop Loss: 89.85
Target(s): To Be Determined
Current Option Gain/Loss: -26.2%
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

12/22/15: DPS displayed relative strength on Tuesday with a +1.47% rally. The stock is bouncing off its bullish trend of higher lows.

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

Netflix, Inc. - NFLX - close: 116.24 change: -0.39

Stop Loss: 114.45
Target(s): To Be Determined
Current Option Gain/Loss: -78.7%
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

12/22/15: NFLX closed relatively flat, only down -0.33% on the session. However, the intraday weakness gave us a scare. The stock slipped toward its mid-December lows near support at $115.00. The intraday low was $114.86. Our stop is at $114.45. Technically a bounce from here could be a new entry point but I would want to see NFLX trade above $118.25 before considering new positions.

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

Ryanair Holdings - RYAAY - close: 86.25 change: +0.15

Stop Loss: 79.90
Target(s): To Be Determined
Current Option Gain/Loss: -27.4%
Average Daily Volume = 406 thousand
Entry on December 21 at $85.77
Listed on December 19, 2015
Time Frame: Exit PRIOR to earnings in February
New Positions: see below

12/22/15: RYAAY slipped to $85.31 late this morning but managed to bounce back and close up +0.17% on the session. This is a new all-time closing high for RYAAY.

More conservative investors may want to start raising their stop loss.

Trade Description: December 19, 2015:
Airline stocks as a group have had a rough year in 2015. The XAL airline index is down -15% year to date and looks poised to accelerate lower. RYAAY is an exception. The stock is up +16% in 2015 and is about to break out to new highs.

The company benefits from several factors. RYAAY is based in Ireland and right now Ireland is the strongest growing economy in the Eurozone. Meanwhile the European Central Bank has embarked on a huge quantitative easing program that should boost the broader economy. If that wasn't enough we have crude oil down to six-year lows and likely headed lower. Jet fuel is a major expense for the airlines to the drop in oil prices is a huge tailwind for profits.

If you're not familiar with RYAAY they are in the services sector. According to the company, "Ryanair is Europe's favorite airline, operating more than 1,800 daily flights from 76 bases, connecting 200 destinations in 31 countries on a fleet of over 300 Boeing 737 aircraft. Ryanair has orders for a further 380 new Boeing 737 aircraft, which will enable Ryanair to lower fares and grow traffic from 105 million this year to 180 million p.a. in FY24. Ryanair has a team of more than 10,000 highly skilled aviation professionals delivering Europe's No.1 on-time performance, and has an industry leading 30-year safety record."

Back in September RYAAY raised their full-year earnings guidance by +25%. The stock reacted with a surge to new highs. The company's October traffic grew +15% from a year ago with their load factor, the percentage of seats sold, up +5% to 94%. The strong trend continued in November with RYAAY announcing traffic was up +21% from a year ago. Again their load factor was up 5% to 93%.

Earlier this month the International Air Transport Association (IATA) issued a press release on industry profits for 2015 and 2016. The IATA raised their estimate on airline industry profits in 2015 from $29.3 billion to $33 billion with a net profit margin of 4.6%. They expect that to improve in 2016 with a forecast for industry profits of $36.3 billion on a net profit margin of 5.1%. Most of this is driven by rising passenger travel in spite of the recent terrorist attack in Paris.

Technically shares of RYAAY have been outperforming both its rivals in the airline industry and the broader market. The stock is up three weeks in a row. It's also poised to breakout from its $76.00-85.00 trading range. A rally above $86.00 will produce a new buy signal on the point & figure chart. Tonight we are suggesting a trigger to buy calls at $85.65.

- Suggested Positions -

Long MAR $90 CALL (RYAAY160318C90) entry $3.10

12/21/15 triggered on gap open at $85.77, trigger was $85.65
Option Format: symbol-year-month-day-call-strike

Spectrum Brands Holdings - SPB - close: 100.79 change: +0.66

Stop Loss: 97.40
Target(s): To Be Determined
Current Option Gain/Loss: -14.7%
Average Daily Volume = 257 thousand
Entry on December 22 at $100.57
Listed on December 21, 2015
Time Frame: Exit PRIOR to earnings in February
New Positions: see below

12/22/15: Our new bullish trade on SPB is off to a decent start. Shares slipped to $99.14 intraday. Fortunately traders bought the dip and SPB rallied to a +0.65% gain on the session and a new four-month high. Our trigger to buy calls was $100.55 but the trade opened on an intraday gap higher at $100.57. I would still consider new positions at current levels.

Trade Description: December 21, 2015:
Shares of SPB are on track for their fourth year of gains. The stock is currently up +4.6% year to date versus the S&P 500, which is down -1.8%. More importantly SPB is breaking out from a four-month consolidation.

SPB is in the consumer goods sector. According to the company, "Spectrum Brands Holdings, a member of the Russell 2000 Index, is a global consumer products company offering an expanding portfolio of leading brands providing superior value to consumers and customers every day. The Company is a leading supplier of consumer batteries, residential locksets, residential builders' hardware, plumbing, shaving and grooming products, personal care products, small household appliances, specialty pet supplies, lawn and garden and home pest control products, personal insect repellents, and auto care products. Helping to meet the needs of consumers worldwide, our Company offers a broad portfolio of market-leading, well-known and widely trusted brands including Rayovac®, VARTA®, Kwikset®, Weiser®, Baldwin®, National Hardware®, Pfister®, Remington®, George Foreman®, Russell Hobbs®, Black+Decker®, Farberware®, Tetra®, Marineland®, Nature's Miracle®, Dingo®, 8-in-1®, FURminator®, IAMS®, Eukanuba®, Digesteeze®, Healthy-Hide®, Littermaid®, Spectracide®, Cutter®, Repel®, Hot Shot®, Black Flag®, Liquid Fence®, Armor All®, STP® and A/C PRO®. Spectrum Brands' products are sold by the world's top 25 retailers and are available in more than one million stores in approximately 160 countries. Based in Middleton, Wisconsin, Spectrum Brands Holdings generated net sales of approximately $4.43 billion in fiscal 2014."

SPB has struggled to meet analysts estimates recently, likely due to the impact of the strong U.S. dollar on its foreign sales. They reported their Q3 results on August fifth and missed the EPS by a penny while revenues were up +10.5% to $1.25 billion, just ahead of expectations. Fast-forward three months and SPB reported its Q4 results on November 19th. Earnings of $1.13 a share missed estimates by three cents. Revenues were up +11.0% to $1.31 billion but that came in below estimates.

SPB management pointed out that Q4 2015 saw gross profits rise +13.6% from a year ago while gross margins improved from 34.9% to 35.7%. Management also forecasted 2016 sales in the high-single digit range (compared to mid-single digits for 2015). According to SPB's earnings press release they believe 2016 will be their 7th consecutive year of record performance, including free cash flow rising into the $505-515 million range, up from $454 million in 2015.

The stock rallied sharply on this earnings report. In mid December shares broke through resistance following an analyst upgrade. The stock has now rallied through technical resistance at all of its key moving averages. It has also broken through resistance in the $96-98 region. The point & figure chart is bullish and forecasting at $120 target. Today's intraday high was $100.21. We are suggesting a trigger to buy calls at $100.55.

- Suggested Positions -

Long APR $105 CALL (SPB160415C105) entry $3.40

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

PUT Play Updates

Currently we do not have any active put trades.