Option Investor

Daily Newsletter, Saturday, 12/26/2015

Table of Contents

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

Market Wrap

Indexes Flirting with Gains for Year

by Jim Brown

Click here to email Jim Brown

The Dow is still in negative territory for the year at -1.5% but the S&P inched fractionally into the green at +0.1% on Thursday. The Nasdaq is not yet guaranteed a yearly gain but is farther ahead at +6.6%.

Market Statistics

Friday Statistics

Thursday was lackluster as expected on volume of only 2.7 billion shares. Stock news was minimal and all thoughts were on the holiday ahead. The Dow suffered some profit taking as Nike, Exxon and Chevron gave up some gains from the prior sessions.

Economics were also minimal. Jobless Claims came in at 267,000 and only 4,000 below the prior week but still near a 40 year low. This is right in line with the average for the last six weeks.

Natural gas storage for the week ended December 18th declined by -32 Bcf to 3,814 Bcf and slightly less than the -34 Bcf from the prior week. The warm weather is preventing normal usage patterns. Typically, we would have seen declines of about -125 Bcf in each of those weeks. We hit a storage record of 4,009 Bcf four weeks ago. Gas prices traded at a 15-year low on the 17th at $1.68 before rebounding with the short squeeze in crude oil to close at $2.04 on Thursday.

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2015 fell to 1.3 percent on December 23rd, down from 1.9 percent on December 16. After Tuesday's third-quarter GDP revision and Wednesday's personal income and outlays release, both from the U.S. Bureau of Economic Analysis, the nowcast for fourth-quarter real consumer spending growth fell from 2.6 percent to 2.1 percent. The nowcast for real residential investment growth fell from 8.0 percent to 0.9 percent after Tuesday's existing-home sales release from the National Association of Realtors.

The GDPNow forecast by the Atlanta Fed is the most accurate forecast of GDP activity. A drop from +1.9% to +1.3% this deep into the quarter is not a good sign. I am sure the Fed heads on the FOMC all recoiled in horror when the number was released. Note that even the blue chip forecasts are accelerating lower.

As you can imagine the economic calendar for next week is very thin. Only two reports are seen as important and those come on Mon/Tue. The rest of the week is in the "ignore zone" where most traders will be absent from the market and those in the market will be counting the minutes until the market closes. Nobody will be concerned about the economic calendar.

On Wednesday Nike (NKE), Ensign Group (ENSG) and Empire Resorts (NYNY) all split their stock. Nike and Ensign split 2:1. Empire did a reverse split for 5:1 to take their stock from $4.34 to more than $22.

For the full split calendar click here.

There was very little stock news and most of it was puff pieces released by the companies as advertisements. Northrop Grumman (NOC) won a $93 million contract to build a full-scale demonstrator of a new unmanned spy plane that can take off and land on destroyers and frigates. The plane will be a large wing with counter rotating propellers that can land vertically like a helicopter but then transition to horizontal flight in stealth mode.

The drone will give smaller surface ships long distance intelligence, surveillance and reconnaissance capabilities. Northrop has been working on the drone project for several years in a joint program led by the Defense Advanced Research Projects Agency commonly referred to as DARPA. They are responsible for dozens of secret projects that turned into major weapons systems. The variety of current projects that are known, sound like science fiction. For instance, nuclear powered insects that work as surveillance drones. Bullet proof underwear, Pharmed blood, a mass-produced synthetic blood. Exacto bullets that can change course in mid flight, robot pack animals, etc. Current Acknowledged DARPA Projects

Back in late October Northrop beat out Boeing and Lockheed Martin for the new long-range strike bomber contract. Northrop has a lot of experience building bombers and most recently built the B2. The Air Force plans to buy 80-100 of the new bombers and the contract could be worth $80 billion with the first plane expected to enter service in 2025.

Apple (AAPL) asked the court to force Samsung to pay an additional $180 million in the long running patent dispute. The company had already paid Apple $548 million on Dec 14th for infringing on patents and designs in the iPhone. Apple said the extra money is due because Samsung continued to sell some of the models that infringed after the 2012 guilty verdict. Originally, Samsung was ordered to pay $930 million but a U.S. appeals court lowered it by -$382 million saying the phones appearance was not protected by a trademark.

A new rumor from the site MacRumors.com confirms the iPhone 6C will more than likely be announced with the new version of the watch on March 2nd. A presentation from China Mobile hinted at the ship date in early April. The 6C will be a 4-inch iPhone with an aluminum casing like the 5C. There will be 2-3 color combinations and the A9 processor with a 8-megapixel rear-facing camera and 1.2 megapixel front-facing camera.

Apple shares have to get past the January 27th earnings event where iPhone sales for Q4 will be disclosed. This is a make or break quarter for Apple. Rarely a day passes that some analyst is not cutting his sales estimates. The official consensus was 77 million but that is slowly sinking and could be under 70 million by the time earnings are released. Apple shares declined -58 cents on Thursday and are struggling to hold over support at $107.50.

Retailers were bombing the airwaves with ads for their clearance sales this weekend. Last Saturday, called Super Saturday, failed to live up to expectations according to Customer Growth Partners. Super Saturday is normally the biggest sales day of the year and larger than Black Friday. Sales in stores and online rose +4% to $55 billion after a 2.5% gain last year. That put final estimates for overall store and online sales since the November start of the holiday shopping season at 3.1% and below the 3.2% in the prior forecast and 4.1% growth in 2014.

Analysts are hoping last minute sales in the final ten days of the season were increased by low gasoline prices and early gift card redemptions. The National Retail Federation has predicted a +3.7% rise in sales for the season and that is not looking likely at this point.

Market Track said product discounts before Christmas were in the range of 20% to 50% and deeper than in prior years. Advertised post Christmas discounts this weekend were 60-75%. The NRF said store traffic was down sharply due to a large rise in online sales. Forrester Research expects consumers to spend $95.5 billion, a rise of +11%.

FedEx was forced to deliver on Christmas Day and on Saturday in order to process tens of thousands of packages that failed to arrive on time. UPS cut off acceptance of packages from retailers in order to avoid similar problems to last year.

Analytics firm Retailnext, which tracks large chain stores like Best Buy, Walmart and Target said sales dropped -6.7% in the pre-Christmas weekend and store traffic declined -10.4%. However, customers that did visit the stores spent more than in 2014.

Everyone said apparel sales were hurt severely by the lack of cold weather. Record highs were set in 23 states and more than 10,000 individual records were broken for highs in cities and states on Eastern portion of the USA.

Retailers typically see their shares fade after the first few days of January. Best Buy, Walmart and Target all saw gains last week and those gains are likely to erode once we are into 2016.

Amazon (AMZN) captured 39.3% of e-commerce spending from Nov-1st to Dec 6th according to Slice Intelligence. That makes it really tough for brick and mortar retailers.

Chipotle Mexican grill (CMG) closed at a new low last week after news of another E.coli outbreak in four new states. However, only 4 of the 5 new cases had eaten at a Chipotle restaurant. Chipotle has been adamant over the last several days that there is no E.coli in their stores. They claim they have checked, double checked and triple checked their sources and vegetables using the latest methods and nothing has ever been found.

The conspiracy theorists are coming out of the woodwork. E.coli has been reported in Chipotle stores in a dozen states and many of those states are unrelated to the other states in terms of supply chain or suppliers. The last outbreak was a different strain of E.coli according to the CDC and both were "rare" strains. The Norvovirus in the Boston breakout was also "rare" strain and not common in the population.

Also, in all the E.coli outbreaks in a dozen states, not one single employee has ever come down with the illness and they eat there every day and sometimes twice. In prior outbreaks at other chains, the employees got sick as well.

Chipotle is very adamant about not using GMO foods. They have made enemies of Monsanto, Dow and Dupont. All would have the capability to sabotage the food chain for Chipotle suppliers. Chipotle has built their brand on locally sourced, non GMO, organic ingredients and this series of events is killing that model.

What are the odds that two different outbreaks of different strains of a rare E.coli would occur at almost exactly the same time and ONLY impact Chipotle and nobody else? The odds are pretty slim because suppliers sell to more than one company. The suppliers are also in different parts of the country.

I love conspiracy theories and this one is gaining some backers because of the odds against the outbreaks occurring naturally. Corporate sabotage exists and this kind of brand assassination would be very easy to accomplish and it would be relatively inexpensive to do. The damage to Chipotle has been extreme with their market cap cut by more than 35% or -$8 billion.

Chipotle is probably going to announce some startlingly bad numbers when they report earnings on Feb 2nd. Same store sales could decline more than 20%, which is similar to the problems YUM Brands had in China over the last two years. JP Morgan downgraded CMG from overweight to neutral with a $555 price target.

I want to buy CMG but I do not think the damage is over. Investors are going to be fleeing this stock until the earnings and should another outbreak appear the next downdraft could be dramatic because it would give more credence to a brand assassination scheme.

Ambarella (AMBA) was initiated with a buy rating at Craig Hallum with an $80 price target. Shares closed Thursday at $59.

Avago Technologies (AVGO) was upgraded by RBC Capital from outperform to top pick. They raised the price target from $155 to $170. AVGO closed at $146.

BlackBerry (BBRY) was upgraded by RBC Capital to outperform with a $12.55 price target. JP Morgan initiated coverage with a neutral rating and price target of $9. Shares closed at $9 on Thursday.

Best Buy (BBY) was reiterated by Citigroup with a buy rating but they cut the price target from $45 to $38. Shares closed at $30.50.

FedEx (FDX) saw Goldman raise their price target to $182 with a buy rating. This was before the company warned they had thousand of packages that did not get delivered on time. Shares closed at $149.65.

Morgan Stanley upgraded SolarCity (SCTY) to overweight with a price target of $104. That was up from $86. Shares closed at $52 suggesting an upside potential of 80%. However, Deutsche Bank reiterated a buy rating but cut their price target from $80 to $64 so not everyone is on board with the recent rally. Elon Musk bought 307,152 shares in the market on Nov 13th for an average price of $25.35. The timing on that transaction was perfect.

Pep Boys (PBY) said they have amended their agreement with Bridgestone to raise the offer price from $15.50 to $17.00 per share or $947 million. The prior day Pep Boys said Carl Icahn was willing to pay up to $1 billion for the company. Apparently, there were some extenuating circumstances because the board recommended to shareholders to accept the Bridgestone offer and said it no longer considered the Icahn offer to be a "superior proposal." That is what the board had called it just one day earlier. Icahn had offered $16.50 per share.

To date only 44,485 PBY shares had been tendered and Bridgestone extended the deadline to midnight on January 12th. The breakup fee was hiked from $35 million to $39.5 million if Pep Boys breaks the agreement to accept an Icahn offer. Carl cannot lose here. If he buys the company, he merges it with his existing auto parts chain that has four times the revenue as PBY. If he does not buy it then he will get the $17 per share for the 12.12% (6.56 million shares) of PBY he owns at a much lower price.

There was another short squeeze in oil last week. Crude prices touched a new low of $33.98 on Monday and then rallied the next three days. Fuel for the rally came from a decline in inventories on Tuesday evening with the API report and then Wednesday morning with the EIA report. The EIA report showed a decline of -5.9 million barrels. Under informed investors thought this was certainly a sign of things to come. They were wrong.

Refiners are taxed on oil in inventory on December 31st. With millions of barrels in inventory, that tax is millions of dollars. Refiners halt deliveries of crude in late December in order to lower their inventories. Last week crude imports declined -986,000 bpd to 7.33 mbpd. They cut imports by -6.9 million barrels and inventories declined only -5.9 million. The same thing should happen this week and next because the inventories are a lagging number by a week. Inventories should decline. Inventories in the first two weeks of January should move significantly higher as those tankers waiting offshore are moved to the coast to unload.

Nothing else changed. Production rose 3,000 bpd to 9.179 mbpd. Refinery utilization declined from 91.9% to 91.3%. That means they used less oil, not more. Refiner inputs declined -143,000 bpd to 16.47 mbpd. They used less so it would be impossible for inventories to actually decline since U.S. production remained the same. It was all due to the drop in imports because of the taxes due next Thursday.

The active rig count declined another -9 rigs to an even 700. Oil rigs declined -3 and gas rigs declined -6. We are now down -1,231 from the peak last year at 1,931. That is an 18-year low on gas rigs and a 16-year low on oil rigs. Oil rigs are declining but oil production has not declined materially in the last 12 weeks. Oil prices will go lower.


Cue the increasingly tense background music as 2015 comes to a close and the markets are within a mere handful of points of finishing in the green or the red for the year. More than once they have been managed to the point where they close right on the dividing line. In 2011 the S&P closed at 1,257.60 and less than a tenth of a point from the 2010 close. I would not be surprised to see that again this year.

The analyst community is mixed on what to expect for 2016. Some believe we will see a significant correction and some believe we will see double digit gains. Opinions are like noses, everybody has one. The critical breakeven point for the S&P is 2,058.90 and the close for last year. We closed on Thursday at 2,060.99 and about +2 points in the green.

The Dow target is 17,823.07 and we closed on Thursday at 17,552.17 or about -271 points below a positive close for the year.

I would expect market makers and fund managers to try and window dress those averages to create a positive close for 2015. Negative markets are bad for advertising. Even a small gain is positive. Since fund managers are seeing their worst returns since 1998, they have incentive to try and manage the year-end close.

The Nasdaq close for 2014 was 4,736.05. Thursday's close was 5,048.49. It would take a major traumatic event to knock the Nasdaq down -312 points to finish in the red. The Nasdaq should remain positive with its 6.6% gain for the year. The Nasdaq 100 is much better off with a +9.1% gain for the year.

I have written many times about the majority of the market gains in 2015 coming from the top ten stocks in the Nasdaq. The gains did not come from the industrial stocks, energy or retail. The market's gains came from the large cap tech stocks. Window dressing should keep those stock positive for the next several days.

The seasonal trend for next week is bullish early in the week and bearish on the last couple days as traders prepare for early January selling. January is the second worst month of the year over the last ten years. Long term it is a winner but in recent years the trend has been mixed. The average loss for January over the last ten years has been -1% but it has only been negative 5 out of those ten years. However, when it is negative it is significantly negative. The last two years have been negative and the prior three were strongly positive.

The rebound last week was short covering, thanks in part to oil prices, and window dressing. The S&P rebounded to that 2,060 resistance level we have discussed many times in recent months and that is where it stalled. The energy stocks declined on Thursday as traders took profits from the three-day bounce.

You cannot look at the S&P chart and construct a bullish scenario. We have a series of lower highs and a lower low from the prior week. There are multiple levels of overhead resistance culminating in the downtrend resistance at 2,105. It would be a window dressing miracle if we moved over that 2,105 level on miniscule volume next week. That does not mean we will not get there in the weeks ahead. Once into January we have a 50:50 chance of a strong month given the recent history. If we do manage to move over 2,100 and then 2,116 it would trigger significant short covering and price chasing into 2016 and it would be a nice start to the year.

The Dow was supported last week by the Dogs of the Dow strategy. Investors were buying the most beaten down stocks of 2015 in hopes they would outperform in 2016. The coming week could follow the same pattern. However, if oil prices roll over it will drag on Chevron and Exxon and offset any gains in the smaller stocks.

Nike (NKE) split 2:1 on Wednesday and at $63 will have limited impact on the Dow in 2016 after being the top performer in 2015. It is now the tenth lowest priced stock in a price-weighted index. I do expect Nike to recover from its post split depression in January and we do want to own it when that happens.

With the economics worsening, I would not expect the bank stocks to rally next week. That leaves the Dow's progress to bottom fishers and window dressers.

The Dow has the same ugly chart as the S&P with solid downtrend resistance.

The Nasdaq chart is much better looking without the downtrend resistance. There is solid overhead resistance at 5,100 and 5,160 but we were there just three weeks ago and the tech stocks should do well over the next couple of days.

The Nasdaq 100 big caps have resistance at the historic high at 4,737 and only +115 points away from Thursday's close. It is entirely possible that window dressing could push the index back close to that level.

The Russell 2000 is the weakest index with barely any rebound off the lows from last week at 1,120. Since the Russell is supposed to be the strongest index in December, it is not following the plan. The index would need several days of major gains just to put it within striking distance of the strong resistance at 1,200.

The lack of a small cap rally in December could dampen sentiment for the Santa Claus rally. That is the last five days of the year and first two days of the next year. Without the leadership of the Russell that rally could be weak.

On the positive side the Biotech Index is about to reach a three month high. If the biotechs continue to surge over 3,850 they could lead the Nasdaq and Russell higher because biotechs are a major component of both those indexes.

The biotechs gained +3.42% for the week and they are up +11.1% for the year. We could see some significant window dressing in this sector because managers want winners in their portfolio at year-end.

Fundstrat Global Advisors co-founder Tom Lee said there was a 5:1 chance of a double-digit gain in 2016. Lee is looking for a 10-12% rise in the market. He said the markets had to fight the headwinds of the strong dollar, falling oil, declining credit quality and a weak high yield market in 2015. He is impressed that the markets are ending the year flat and sees that as a sign that those problems are now priced into the market.

Oil prices will rise in 2016 but probably not until Q2 and then accelerate later in the year. The credit issues will work themselves out with some defaults but increase conviction on those that do not default.

Lee said the median gain after a flat year is 11%. "We are five times more likely to have a double digit year than another year flat."

Citigroup's U.S. Equity Strategist Tobias Levkovich said the bank's measurements were predicting a 96% probability of an up market in 2016. "We did not start 2015 with the same signals we are seeing for 2016 and that is giving us a lot of comfort."

Bavid Bianco, chief equity strategist at Deutsche Bank said "it is rare for the market to be flat or down two years in a row outside a recession."

Despite the volatility, the analyst community is not backing off their estimates for yearend 2016. Cannacord is the highest at 2,350 followed by RBC Capital at 2,300, Bank America at 2,250, Wells Fargo at 2,245 and Morgan Stanley at 2,175. Just because they put out an estimate does not mean that is where the market is going. I will publish On January 1st the results from the 2015 estimate contest. A survey of multiple strategists by Barron's suggests the equity markets will rise about 10% in 2016. The strategists gave their reasons in an article last week. Full Article

The worst is over for energy earnings. Their horribly bad comps are behind them and now it is simply a matter of waiting for demand to improve and the low prices to take their toll on the high cost producers. There is a 100% chance prices will rise in the years ahead and when that happens equity prices will follow. That sector was about 12% of the S&P-500.

While nobody can accurately predict market direction, the long-term trend is always up with an 8% annual average. Now that the Fed has started hiking rates the uncertainty is gone. Europe and Japan are increasing stimulus in an effort to accelerate their recoveries. After a year of dormancy, it would make sense for investors to bet on equities. With the Fed hiking rates, the bond market should be seeing continuous outflows back into equities. We know treasuries are going to be losers in a rate hike cycle so there is no alternative other than investing in equities or holding cash.

The S&P has not been down two years in a row since 1980-1981. That means it has been 34 years since we had a back-to-back loss and the odds are good 2016 will finish higher. Every dip has been bought. While we may not be back at the highs, we are not that far away. Eventually equities are going to rally and we want to be ready when they do.



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Random Thoughts

If Elon Musk can launch a rocket to the space station and land the booster upright on a pad for later reuse, programming dancing cars and a light show should be child's play. Never the less it is fun to watch.

Merry Model X-mas from Tesla

The S&P has not ended the year in negative territory in a year ending in "5" since 1875. That is a 140-year-old streak. Yes, statistics are a funny thing. If you look long enough and hard enough you can always find something interesting that has zero to do with market fundamentals.

Saudi air defense systems shot down another ballistic missile fired from Yemen that was aimed at oil installations in the southern part of Saudi Arabia. The missile was aimed at the Saudi Aramco oil compound in Jizan. This was the sixth ballistic missile fired toward Saudi oil facilities in the last week. If the Yemen rebels ever successfully hit a Saudi oil facility, we could see oil prices back over $60 within days.

UPS said it would deliver 36 million packages on Tuesday before Christmas. That is double their normal daily volume. The company said it would deliver nearly 630 million packages between Thanksgiving and the end of December. That is a 10.3% increase from 2014.

FedEx said it processed 26 million packages on December 14th, its busiest day ever.

On Wednesday evening, my UPS delivery did not show up until 7:30 at night. I get a lot of deliveries so my UPS driver and I are well acquainted. I asked him how many packages he had left. I climbed into the truck and the answer was about 150 at 7:30. Most importantly, literally 85-90% were from Amazon. I asked him what percentage of his total packages on a daily basis came from Amazon. He guessed at 65% but during the holidays Amazon made up the vast majority.

Here is a thought I had that night. Amazon has a market cap of $311 billion and UPS $68 billion. Amazon has 5 Boeing 767 freighters and is negotiating for 20 more. They are launching "thousands" of new semi trucks to move products between their 60 warehouses and hubs as well as delivering packages to UPS.

What if Amazon bought UPS? Amazon spent $9 billion on shipping expenses in 2014 and that is probably going to be well over $10 billion in 2015. UPS will do $60 billion in revenue in 2015 and more than $3 billion in net income. Amazon is roughly 15% of that revenue. If Amazon bought UPS they could fully control their deliveries and create another $3 billion in profits plus reduce their shipping costs. While Amazon may not want to take on the headache of shipping one billion packages a year, a rather large number of those packages belong to Amazon.

Stranger deals have happened and that would put one more piece of the shipping equation under Amazon control. Just at thought.

Investors took money out of mutual funds last week at the fastest rate in more than two years. Net redemptions hit $28.6 billion for the week ended December 16th according to the Investment Company Institute (ICI). That was the biggest weekly outflow since June 13th. Investors withdrew $11.1 billion from stock funds, $12 billion from bond funds and $5.6 billion from funds with mixed assets. Mutual funds have seen net redemptions every month since July. They saw net inflows in the first six months of 2015.

The bears are loading up for the mother of all put opportunities. Lyons Fund Management tracks the put/call ratios on the S&P-100 ($OEX) because traders in those options are right more often than they are wrong. The threshold level of 2 puts to every call is seen as a market indicator. Between 1999 and 2014 the ratio has only been over 2.0 on 15 days. On Monday, it rose to 3.3. In 1999 and 2007 the extreme readings were accurate predictors of market tops. However, in 2003 and 2014 when the 2.0 level was breached there was no sell off so the indicator is not infallible. The extreme levels we have today are a warning sign according to Lyons. Smart Money is Bearish

Star Wars, the Force Awakens, is set to become the fastest movie to hit $1 billion in sales. Through Christmas Day, the movie had brought in $890.3 million. This weekend is a big weekend for moviegoers now that shopping is over. Jurassic World hit $1 billion in 13 days. Star Wars is expected to surpass $1 billion on Sunday.

Fandango sold the most Star Wars tickets of any outlet. They said the number of people coming back and buying them to see the movie a second time had increased 40% over the last week.


Enter passively and exit aggressively!

Jim Brown

Send Jim an email


"A nation of sheep will breed a government of wolves"

Thomas Jefferson


New Option Plays

Sailing Into The New Year

by James Brown

Click here to email James Brown


Royal Caribbean Cruises - RCL - close: 99.92 change: -0.01

Stop Loss: 95.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.0 million
Entry on December -- at $---.--
Listed on December 26, 2015
Time Frame: Exit PRIOR to earnings in late January
New Positions: Yes, see below

Company Description

Trade Description:
2015 has been a tough year for fund managers. The market's recent bounce has lifted the S&P 500 to a +0.1% gain for the year. One group that is outperforming the big cap index is the consumer discretionary stocks. The XLY consumer discretionary ETF is up +8.7% year to date. Helping lead the charge is RCL, which is up more than +20% thus far in 2015.

RCL is in the services sector. According to the company, "Royal Caribbean Cruises Ltd. is a global cruise vacation company that owns Royal Caribbean International, Celebrity Cruises, Azamara Club Cruises, Pullmantur and CDF Croisieres de France, as well as TUI Cruises through a 50 percent joint venture. Together, these six brands operate a combined total of 44 ships with an additional eight under construction contracts, and two under conditional agreements. They operate diverse itineraries around the world that call on approximately 480 destinations on all seven continents."

A few weeks ago Barclays just upped their outlook on the cruise liners and believes the group is seeing improved strength in pricing. Meanwhile RCL has been cashing in on the growing trend of Chinese tourism. The recent change in ties between the U.S. and Cuba also represents a new opportunity for the cruise lines.

Crude oil's drop to multi-year lows is another tail wind for RCL. Fuel is a big expense for these massive cruise ships with many burning through 140-150 tons of fuel per day. Fortunately, oil (and fuel) is expected to remain relatively low throughout 2016.

Technically RCL has been able to build on its longer-term trend of higher lows and higher highs. The point & figure chart is bullish and forecasting at $118 target. Last week's widespread market rally lifted shares of RCL toward major resistance at $100. A breakout here could spark the next big leg higher. Tonight we are suggesting a trigger to buy calls at $100.85.

Trigger @ $100.85

- Suggested Positions -

Buy the MAR $105 CALL (RCL160318C105) current ask $3.70
option price is a current quote and not a suggested entry price.

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

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

Daily Chart:

Weekly Chart:

In Play Updates and Reviews

'Tis The Season To Raise Stop Losses

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. market was relatively flat on Thursday ahead of the Christmas holiday. Stocks managed to hold on to most of their gains from the prior three-day rally. We are updating several stop losses tonight.

CRL hit our bullish entry trigger on Thursday.

Current Portfolio:

CALL Play Updates

AmerisourceBergen Corp. - ABC - close: 103.95 change: +0.01

Stop Loss: 101.20
Target(s): To Be Determined
Current Option Gain/Loss: - 8.1%
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

12/26/15: The Christmas Eve session was a quiet one for stocks. ABC closed virtually unchanged on Thursday. Keep an eye on the $103.00 and $103.50 levels. As broken resistance these levels should now offer new short-term support. Tonight we are adjusting our stop loss to $101.20.

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

12/26/15 new stop @ 101.20
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: 155.91 change: +0.04

Stop Loss: 152.25
Target(s): To Be Determined
Current Option Gain/Loss: -21.9%
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

12/26/15: BDX did rally on Thursday but gains faded by the close. The stock ended Christmas Eve virtually unchanged for the day.

No new positions at this time. Tonight we are adjusting the stop loss up to $152.25.

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

12/26/15 new stop @ 152.25
12/17/15 triggered @ $156.35
Option Format: symbol-year-month-day-call-strike


Clovis Oncology - CLVS - close: 34.14 change: +0.28

Stop Loss: 31.95
Target(s): To Be Determined
Current Option Gain/Loss: -24.1%
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

12/26/15: Thursday was a bumpy session for CLVS. The morning drop erased the prior two and a half day's worth of gains. Fortunately traders bought the dip near CLVS' rising 20-dma. The stock reversed higher into a +0.8% gain on the session.

Tonight we are adjusting the stop loss up to $31.95. The next major hurdle for the bulls is resistance near $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

12/26/15 new stop @ 31.95
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: 80.08 change: +0.55

Stop Loss: 77.75
Target(s): To Be Determined
Current Option Gain/Loss: -8.1%
Average Daily Volume = 426 thousand
Entry on December 24 at $80.40
Listed on December 17, 2015
Time Frame: Exit PRIOR to earnings in February
New Positions: see below

12/26/15: Our bullish play on CRL is finally open. Traders bought the dip yet again on Thursday this time near its 10-dma. The stock rallied to a new high and hit our suggested entry point at $80.40. At this time I would wait for a rise above Thursday's intraday high of $80.44 to launch new positions.

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.

- Suggested Positions -

Long FEB $85 CALL (CRL160219C85) entry $1.85

12/24/15 triggered @ $80.40
Option Format: symbol-year-month-day-call-strike


Dr Pepper Snapple Group - DPS - close: 93.92 change: +0.07

Stop Loss: 91.35
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

12/26/15: DPS briefly traded at a new all-time high on Thursday. Gains faded by the close and like a lot of stocks on Thursday DPS closed virtually unchanged.

If the market dips DPS should find support near $92.00 and its simple 20-dma. Tonight we are adjusting our stop loss higher to $91.35. 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

12/26/15 new stop @ 91.35
12/16/15 triggered @ $94.05
Option Format: symbol-year-month-day-call-strike


Netflix, Inc. - NFLX - close: 117.33 change: -0.83

Stop Loss: 114.45
Target(s): To Be Determined
Current Option Gain/Loss: -82.4%
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

12/26/15: Uh-oh! NFLX underperformed the market on Thursday with a -0.7% decline. Furthermore shares tried to rally but failed beneath their simple 10-dma. That doesn't bode well. Shares look poised to retest support near $115 again.

No new positions at this time.

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: 190.11 change: +0.11

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

12/26/15: NOC tried to rally again on Thursday. The midday surge failed at short-term resistance near $191.00. The stock faded back toward unchanged on the session.

After the closing bell on Thursday it was disclosed that NOC had won at $93 million contract to build a new unmanned spy plane (drone) designed to take off from smaller navy warships. Winning new contracts is bullish but I doubt this will move the needle for NOC or its stock price on Monday. The company brings in near $24 billion a year in sales.

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: 87.07 change: +0.34

Stop Loss: 84.45
Target(s): To Be Determined
Current Option Gain/Loss: -12.9%
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

12/26/15: RYAAY hit new all-time highs on Thursday and outperformed the U.S. market with a +0.39% gain.

Tonight we are moving our stop loss higher to $84.45.

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

12/26/15 new stop @ 84.45
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: 102.01 change: +0.17

Stop Loss: 99.85
Target(s): To Be Determined
Current Option Gain/Loss: -17.6%
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

12/26/15: SPB extended its gains for the holiday-shortened week. The stock added another +0.16% on Thursday, marking its fourth gain in a row.

Tonight we are moving our stop loss to $99.85. Broken resistance at $100.00 should be new support. 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

12/26/15 new stop @ 99.85
Option Format: symbol-year-month-day-call-strike


PUT Play Updates

Currently we do not have any active put trades.