Option Investor

Daily Newsletter, Wednesday, 12/23/2015

Table of Contents

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

Market Wrap

Ho-Ho-Ho, Merry Christmas

by Keene Little

Click here to email Keene Little
Santa might have been late to the party but he showed up this week with lots of goodies and toys for the bulls. Suddenly it's looking like the bears will be the ones with lumps of coal in their stockings. There is some concern about what happens after Christmas but right now bulls are happy.

Today's Market Stats

By the end of the day last Friday it wasn't looking like the bulls were going to get anything but lumps of coal in their stockings. With the market struggling on Monday it wasn't looking much better but then a late-afternoon rally was followed by a strong rally on Tuesday and another one today. Now it's the bears who look like they've been forced to trade their goodies-filled stockings for the bull's lump of coal.

With this week's rally SPX has made it back into positive territory for the year (+0.3%). It needs to close above 2058.90 to make it a positive year and avoid the dreaded down year for what is typically a positive year (3rd year of a president's 2nd term). This has been a year the bulls have struggled to get the market higher. Of course it's been a struggle for the bears to break it down, which under normal circumstances (without the Fed's and government's involvement), would not have been too difficult. From a fundamental perspective we have a market that is trying to hold up in the face of a struggling global economy that is dragging the U.S. economy down with it.

If the market holds up into the end of the year (lots of helping hands to make that happen), we have to seriously wonder what will happen in January. Many fund managers would probably be happy to see a strong selloff so that they can pick up inventory cheaper and have a good chance at making money with an expected rally in the coming year. At least that's what many seem to believe. I think 2016 will be a strong year for the bears instead of the bulls but obviously neither side can know how the year will go. But considering the many signs of a global economy that's in trouble, it's hard to justify why the stock market should continue to rally.

Today's rally got a good start from an overnight rally in the futures, which has been true each day this week. There's an effort to get the market to rally and it's easier to manipulate the futures market. With a lack of sellers, like yesterday, the buyers were able to slowly move the market higher throughout the day with only minor profit taking along the way. As I'll show on the charts, the indexes have now been pushed up into resistance but with the lighter-than-normal trading volume and the helping hand with the overnight futures, we could see another gap up tomorrow and an attempt to get the indexes to close as high as possible in front of the holiday weekend. But bulls run the risk of profit taking during tomorrow's half-day session as traders might want to get flat in front of a long weekend since there's still worry about potential terrorist activity.

There are a few cycle studies, including Fibonacci time ratios, which point to December 22-25 as a potentially important turn window. These turn windows can't predict which way the market will turn but it's usually a reversal of whatever the market is doing into the turn. With this week's rally it could mean we'll see a reversal back down next week, which is another reason to be cautious about the upside from here, especially since there's a possible nasty bearish pattern that could play out in the coming weeks (I'll get into it with the charts). It's been a good week for the bulls and it could continue through next week's lower-than-usual trading volume, but I'd rather wait until Monday before looking at bullish opportunities. I think protection of positions for over the weekend is the more prudent thing to do here. Having a few short positions is not a bad idea.

Today's economic reports had no effect on the market. Personal income and spending were in line with expectations -- +0.3%. Income was down from +0.4% in October while spending in November was up from 0.0%.

Durable goods orders were flat in November, down from +2.9% in October but better than the expected -0.7%. Ex-transportation orders, the number was -0.1%, a little worse than the expected 0.0% and a drop from +0.5%. It's another sign of a slowing economy, which is reflected in the poor performance of transport stocks.

Michigan sentiment ticked higher in December, likely related to the holidays, with a reading of 92.6 and an improvement from November's 91.8. New home sales were up slightly in November, hitting 490K, but October's sales were revised lower from 495K to 470K and it came in less than the 505K expected so it was actually not that great. Following yesterday's disappointing existing home sales, it's another sign of a slowing economy.

Moving to the charts, I'm continuing to track on the SPX weekly chart the intermediate bullish idea for a rising wedge pattern for the rally off the August low. As depicted in green on the chart, we could see SPX work its way higher into April and up to the 2200 area. In doing so it would also achieve the price projection at 2170, which is where the 2nd leg of the 3-wave move up from 2009 would equal 162% of the 1st leg up. I have a hard time believing this market can hold up that long but it's already held up far longer than I thought it would. Just look at the separation between commodities, which peaked in 2011, and the stock market and you get an idea how long this craziness can continue. So while I respect the upside potential I am concerned about a short-term pattern for the decline from November, which suggests the next leg down is going to be a scary one for bulls. Combining the scary bearish pattern with the December 22-25 turn window has me seriously wondering if we're going to get a downside break next week.

S&P 500, SPX, Weekly chart

The daily chart shows this week's rally has taken SPX up to its downtrend line from December 2-16, currently near today's high at 2064.73. It's also back up to its nest of 20-, 50- and 200-dmas, located at about 2056-2061, as well as its 50-week MA near 2061. That makes for a lot of resistance in this area and while a low-volume environment makes it easier for a big fund to push it over the line, there could be enough concerns by investors to not want to push their luck over this holiday period, considering the terrorist threats. Profit taking during Thursday's half-day session could have resistance holding. But if the buying can continue through next week there is the potential for a rally up to the 2120 area by year-end, which is where it would again run into its broken uptrend line from October 2011 - October 2014.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2090
- bearish below 1993

The 60-min chart below shows one other short-term bullish possibility -- we could see a rally up to a price projection near 2089 where the bounce off December 14th low would have two equal legs for an a-b-c bounce correction before heading lower. If SPX can hold above 2065 I'd look for 2089, potentially higher, but the first thing the bulls need to accomplish is getting SPX to close above 2065 for the week.

S&P 500, SPX, 60-min chart

The S&P 500 (OEX) is very similar to SPX but this index's options tend to be used more by "smart" money traders and there was an interesting article in MarketWatch.com yesterday that showed the chart below. This looks at the Put/Call ratio and identifies those times when puts outnumbered calls by 2-to-1 (red horizontal dotted line). This is typically a sign of excessive bearishness and a reason to be a contrarian and look to fade the traders (do the opposite). But notice how the high P/C ratios tended to precede tops in the stock market, not bottoms as you'd expect to see from a contrarian perspective. The reason is smart money sees what's happening and starts betting on a top and they're more often right than wrong. The alarming signal here is that the P/C ratio has recently topped 3-to-1 and is the first time EVER in doing so. This is either an incredibly strong warning signal for bulls to get out of the way or else a lot of smart traders have suddenly gone stupid.

S&P 100, OEX, Weekly chart, 1999-present, chart courtesy marketwatch.com

The DOW looks like SPX in that it too has rallied up to its nest of 20-, 50- and 200-dmas and also closed slightly above them at about 17540-17580. The bulls would like to see something better than the 1-day rally above the moving averages on December 16th, which was followed by two strong days of selling. At the moment we have a 3-day rally, the same as the 3-day rally into the December 16th high. A close above 17580 on Thursday would be more bullish and it would suggest we might see a rally to at least its downtrend line from May-November, near 17860, and perhaps back up to its broken uptrend line from October 2011 - October 2014, near 18K next week. But like SPX, the series of lower highs could lead to a strong breakdown next week and upside potential is again dwarfed by downside risk.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 17,950
- bearish below 17,050

NDX has also rallied up to its 20- and 50-dma's, near 4630 and 4618, resp. (its 200-dma is still below), closing between them today. This week's rally in the techs has been primarily from overnight rallies in the futures, creating gaps to the upside each of the last three days, but the techs have been acting weaker than the blue chips, which is somewhat defensive for the market. If the buying can get at least a little stronger I see the potential for a move up to a price projection at 4820 by early January. But downside risk becomes much greater if it too breaks below Monday's low near 4513.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4740
- bearish below 4513

The RUT has bounced back up to price-level S/R near 1152 and is a little shy of its 20-dma, near 1158, and its 50-dma, near 1164. Looking back a little further at its pattern, it's possible a 3-wave pullback from its November 6th high completed with the impulsive December 2-16 decline. That pattern suggests the RUT is just getting started in a new rally leg, one which will take it above its December 2nd high at 1205. A rally above 1168 would open the door to that potential. But the bearish interpretation of the pattern is that the December 2-16 decline is a 1st wave and the 3-wave bounce off the December 16th low is a correction to the decline. Two equal legs up for an a-b-c bounce correction points to 1163 and that remains short-term bullish potential. But the minimum requirement for the bounce has been met and it could turn back down at any time. A failure to close above 1152 on Thursday would be a potentially bearish setup in front of next week.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1168
- bearish below 1120

I think the most surprising thing to happen after the FOMC announced the rate increase is that bonds have done nothing. The Fed is threatening to raise rates at least a full point in 2016 (4 x .25%) and that should be sending bond prices lower (yields higher). But following the FOMC announcement bond prices actually rallied, which of course dropped yields and it's as if the bond market was blowing a big raspberry at the Fed, as if saying "we don't believe you'll be able to raise rates any further and in fact raising this time was likely a mistake." Using TLT (20+ year Treasury Bond ETF), price rallied and then pulled back this week, as the stock market rallied, and is now essentially at the same place as it was pre-FOMC.

The message from the bond market is certainly not clear at the moment, considering it has chopped sideways in a tightening range all year. The sideways triangle in which TLT has been trading this year fits as a bullish continuation pattern following the 2014 rally and while I show a little more pullback to complete the pattern, it would become bullish sooner if it breaks above it December 11th high at 124.10. But the bullish pattern would be negated with a drop below the November 9th low at 118.

20+ Year Treasury ETF, TLT, Daily chart

Following the FOMC rate hike last week we were supposed to get a strong rally in the U.S. dollar. Apparently dollar bulls failed to get the memo. After a brief short-covering rally the day after the FOMC announcement the dollar has pulled back and is trading near where it was before the announcement. Its weakness further supports the idea we'll get another pullback to the bottom of the trading range it's been since the March high. A more bullish possibility calls for a minor new high followed by a pullback and then onto new highs in the coming year (light green dashed line). While I am bullish the dollar longer term I think we'll see a larger consolidation pattern before it starts the next rally leg.

U.S. Dollar contract, DX, Weekly chart

Gold too has not moved much since the FOMC announcement. It did sell off the day after the FOMC announcement but then rallied right back up. A pullback yesterday and today is expected to be followed by a continuation of the bounce off its December 3rd low. How high the bounce might get is the big question and since I believe we'll see lower prices for gold, I think we'll get just a bounce correction into January and then start back down. Upside targets are 1118 and then 1142 and assuming we'll get a higher bounce I'll then be able to update the price targets to watch for.

Gold continuous contract, GC, Weekly chart

Oil looks like it might finally be ready for a rally and today's +4.8% rally gave it a nice boost. It is now testing the top of a bullish descending wedge that developed for the decline following the October 9th high. At the same level is its 20-dma, now near 38. It could pull back a little before heading higher and assuming it will head higher, the next question is what kind of rally to expect. A larger descending wedge for the decline following the June high calls for another leg down following a choppy bounce up to the top of it, perhaps around 41 by the end of January (light red dashed line on the daily chart below). The more bullish potential is for a stronger rally that will break above the key level for the bulls at 43.50 and it's a rally that could then take oil back up to stronger resistance near 60.

Oil continuous contract, CL, Daily chart

A chart that Tom McClellan shared with me is shown below -- it's a longer-term monthly chart starting back in 1892 and as you can see, the current decline has brought it down to price-level S/R near 35, shown by the red line on the chart below. It's hard to believe $35 was considered an extreme high for 25 years prior to the rally in 2004. It's a good place to expect at least a bounce, especially with the setup on the shorter-term pattern on the daily chart above. But keep in mind that there's more downside potential for oil if it's to drop back down to the bottom of its up-channel in the coming year. It's currently near 22.80 and in another year it will only have made it up another dollar to about 23.80.

Oil monthly chart, 1892-present, chart courtesy mcoscillator.com

Another chart from McClellan is shown below -- this time oil is priced in gold and as you can see, it's back down to support seen multiple times since about 1900. These longer-term patterns, combined with the shorter-term pattern, suggests now is not the time to be pressing bets to the downside for oil.

Oil priced in gold, Monthly chart, 1892-present, chart courtesy mcoscillator.com

Economic reports


Bulls finally got their Santa Claus rally (better late than never) but they'll need to do better if they want to avoid yet another lower high in the series of them since this month. This week's low volume and lack of selling, with strong assistance from overnight rallies in the futures, helped lift the indexes back up. But they've now run into resistance and it's going to be important how the indexes close tomorrow. With very light volume it's hard to judge a move but at least a close above today's closing prices would keep things potentially bullish for next week.

From a time perspective, it's not a good time to complacently expect the market to continue higher. We're now inside an important turn window, December 22-25, which includes a full moon on December 25th. Some astrologer friends tell me December 25th is also a very important "change" date. These are things that make me sit up and pay attention. We're rallying into the turn window (or was Monday's low a decline into the window, hitting it early?) and that has me on alert to the possibility that the market will reverse hard down next week. The bearish pattern, with the series of lower highs, suggests a strong decline to follow and all it needs is a catalyst to start the snowball rolling downhill.

As mentioned before, I see upside potential dwarfed by downside risk, especially considering the price pattern and the turn window. At least be safely positioned into next week and if the rally can continue we'll look for the additional upside targets. But getting into a few put positions, for either speculation or hedging, is not a bad idea here.

Also not a bad idea is to make sure you've re-upped for another year of OIN.

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!

To our many subscribers, thank you for your support and we obviously could not do what we do if we did not have loyal readers like you. I wish you the happiest Christmas holiday and good times with friends and family. Stay safe, be careful on the roads and most of all remember that we trade for a living (or to supplement our income and/or build a retirement nest egg) but we should not be living to trade. Enjoy the good times and if you're struggling, keep moving until you're not. Have a great weekend 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

Stocks Surge Toward Christmas Holiday

by James Brown

Click here to email James Brown

Editor's Note:

No new trades tonight.

Tomorrow is Christmas Eve. The U.S. stock market will close early (1:00 pm ET). Volume will be very, very light as most traders are off on holiday. Sometimes super low volume can produce volatile market moves. The good news is that history suggests stocks will rally between now and yearend.

According to the research team with the Stock Trader's Almanac, the Santa Claus rally normally starts tomorrow and runs through the first day or two of the new year. The three trading days after Christmas are some of the most bullish days of the year for stocks.

Please note there will be no newsletter tomorrow night (Christmas Eve). We will return with our normal newsletter this weekend.

Merry Christmas and Happy Holidays!

In Play Updates and Reviews

The Santa Rally Starts Early

by James Brown

Click here to email James Brown

Editor's Note:

Normally the Santa Claus rally doesn't start until tomorrow (Christmas Eve) but this year it may have started early. The U.S. market is up three days in a row. The major indices are already up +2.5% for the week.

Today's move was led by a big oversold bounce in crude oil. This fueled gains of more than +4% across most of the energy stocks.

Current Portfolio:

CALL Play Updates

AmerisourceBergen Corp. - ABC - close: 103.94 change: +0.78

Stop Loss: 99.85
Target(s): To Be Determined
Current Option Gain/Loss: - 9.7%
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

12/23/15: Another up day for the stock market helped push ABC through resistance near $103.50. The stock closed up +0.75% on the session and ended the day at new three-month highs. Today's performance is good news for the bulls and should bode well for next week.

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: 155.87 change: +1.50

Stop Loss: 150.85
Target(s): To Be Determined
Current Option Gain/Loss: -16.7%
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

12/23/15: BDX enjoyed a +0.97% gain on Wednesday. The stock is approaching its all-time closing high set last week near $155.90.

More conservative traders may want to move their stop loss closer to yesterday's intraday low (152.31).

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: 33.86 change: +0.22

Stop Loss: 30.75
Target(s): To Be Determined
Current Option Gain/Loss: -31.0%
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

12/23/15: Biotech stocks helped lead the market higher today (behind energy). The IBB biotech ETF gained +1.8%. CLVS underperformed and only rose +0.65% on the session. The stock remains under short-term resistance near $34.00 (and then additional resistance 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: 79.53 change: +0.17

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

12/23/15: CRL continued to bounce with shares up three days in a row. Unfortunately today's rally stalled under last week's high. We are still on the sidelines waiting for a breakout. 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: 93.85 change: +0.31

Stop Loss: 89.85
Target(s): To Be Determined
Current Option Gain/Loss: -22.8%
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

12/23/15: DPS eked out another gain. The stock had trouble trying to breakout past last week's high (and all-time high) near $94.20.

More conservative traders might want to move their stop closer to technical support at the simple 20-dma (currently near $91.75).

No new positions at this time.

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: 118.16 change: +1.92

Stop Loss: 114.45
Target(s): To Be Determined
Current Option Gain/Loss: -75.5%
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

12/23/15: NFLX traded inside a $3.00 range and managed to close up +1.65%, outperforming the major indices. Traders could buy this bounce or wait for a little bit more follow through and look for NFLX to trade above today's high ($118.56) before initiating positions. Just remember, this is an aggressive, higher-risk trade.

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

Northrop Grumman - NOC - close: 190.00 change: +0.63

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

12/23/15: NOC continued to inch higher on Wednesday. It wasn't enough to breakout past its recent highs. I do not see any changes from last night's new play description. We are suggesting a trigger to buy calls at $191.25.

Trade Description: December 22, 2015:
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)

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

Ryanair Holdings - RYAAY - close: 86.73 change: +0.48

Stop Loss: 79.90
Target(s): To Be Determined
Current Option Gain/Loss: -19.4%
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

12/23/15: Today's big bounce in crude oil probably put the brakes on any airline rally. The XAL airline index managed a +0.5% gain anyway. RYAAY dipped to round-number support at $85.00 before bouncing back to another closing high.

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: 101.84 change: +1.05

Stop Loss: 97.40
Target(s): To Be Determined
Current Option Gain/Loss: -13.2%
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

12/23/15: SPB surged to new four-month highs with a rally to $102.52 intraday. Shares pared their gains by the close and settled with a +1.0% advance on the session.

Readers may want to start adjusting their stop loss higher. No new positions at this time.

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.