Option Investor

Daily Newsletter, Monday, 12/28/2015

Table of Contents

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

Market Wrap

Low Volume, Listless Market

by Thomas Hughes

Click here to email Thomas Hughes
Low volume and listless trading marked the first day of the last week of 2015.


Low volume and listless markets marked the start of the final week of 2015: As unbelievable as it is another year is coming to a close. Today's action was driven primarily by oil prices, which fell from their one week high, but was without conviction.

International markets were largely mixed. Japan posted gains, just over 0.5%, but those were offset by losses in China greater than -2%. In Europe indices began the day with gains only to have them erased by the close; the DAX ended the day with a loss -0.5%.

Market Statistics

Our markets were indicated lower right from the start. Early futures trading saw declines greater than -0.5% and this held true for most of the morning. At the bell the indices did indeed begin to move to lower with the first bounce occurring within the first ten minutes of trading. The first bounce did not recover initial losses and eventually set the market up to hit a lower low just after 10AM. Another low was hit just before 11AM but that was the low of the day. From that point on bulls marched the indices higher but not quite enough to regain the earlier losses. The indices closed with losses but small ones, all except for the transports.

Economic Calendar

The Economy

There was no economic data released today and only a few bits to be released this week. Tomorrow the Case-Shiller 20 City Index and Consumer Confidence are on the schedule, Wednesday is Pending Home Sales and Thursday wraps up the week with jobless claims and Chicago PMI. There is no data on Friday, also, Friday is a market holiday for New Years Day. Next week will be a huge week for data, it's the end of the month and the start of a new year which means NFP, unemployment and earnings figures.

Moody's Survey Of Business Confidence rose by 1.4% this week from a recent low to hit 33.9. The index may be stabilizing, according to Mark Zandi, Moody's Chief Economist, but remains well off the highs set earlier this year. Readings of present conditions remain the gloomiest while prospects for the future are more positive. The strongest readings are in business investment and credit availability. Although there is no mention of it, the holiday's may have played a roll in this week's rebound.

According to FactSet the expected rate of earnings decline for the S&P 500 in the 4th quarter is now -4.9%. This is down -0.3% from last week and a continuation of declining growth expectation. Since the start of the quarter 9 sectors have been revised lower with materials in the lead. So far, 17 S&P companies have reported with 12 beating on earnings and 6 beating on revenue. There are no S&P companies scheduled to report this week.

Oil continues to be the biggest drag on earnings growth. The energy sector is expected to see earnings declines greater than 66% and is not expected to see growth again until 2017. Full year 2016 estimates continue to fall, due to declining oil prices, and are now sitting at -8.0%.

FactSet also reports that full year earnings growth for the S&P 500 in 2016 is 7.5%, but I think it may be an error. I crunched the numbers provided and come up with 5.9% for the year, 7.5% is the ex-energy figure. Whether 7.5% or 5.9% full year expectations continue to fall, as do those for the first quarter which have been cut in half over the last week. Alcoa officially kicks off the season two weeks from today although there are quite a few significant reports due out next week.

1st Quarter 2016 Earnings Growth Outlook

The Oil Index

Oil prices weighed on the market today. Several headlines highlighted the ongoing supply/demand imbalance and sent WTI falling close to -3.5%. In no particular order headlines include the Saudi budget deficit, Iran setting high priority status on oil exports, EU demand growth turned negative and weak Japanese data. Together these add up to one thing; continued imbalance in supply and demand. WTI and Brent are now trading at parity, near $36.80.

The Oil Index fell roughly -2% in today's session confirming resistance at 1,120. This level is consitent with a 61.8% retracement level, the short term moving average and previous resistance so could keep the index from moving higher. The indicators are pointing higher so resistance could be tested again, a move likely dependent on oil prices moving back to their resistance levels. If oil falls back to its low this index will likely follow with downside target near 1,050. Outlook for the sector is not good, earnings expectations for next year have turned firmly negative, without a rebound in oil prices this index is likely to remain near its recent lows, if not move lower.

The Gold Index

Gold prices drifted lower, losing about -0.5%, to trade below $1070 but volume was very light. Volume is likely to remain light all week with very little in the way of potential catalysts. In my view outlook for gold remain bearish while FOMC policy diverges from the the ECB and BOJ however, now that the FOMC has made their move, the down trend may have paused. Current resistance appears to be near $1080 with support target near $1050. Economic data and Fedspeak will be the driver of this market over the next few weeks and months as a new round of expectations build. Strong data, absent inflation, could push gold back to its lows.

The gold miners fell today as well. The miners ETF GDX lost a little over -3% to fall below the short term moving average with mixed indicators. While technically bullish in light of the long term down trend in gold they are more consistent with consolidation and range bound trading than anything else. Without a catalyst the ETF is likely to remain range bound with a possible move down to support. Support is at the long term low near $13 with $14.75 the top of a near 2 month range. If gold prices continue to decline as expected this ETF will likely set a new low.

In The News, Story Stocks and Earnings

Disney bounced higher today after hitting support targets last week. The move is driven by success in Star Wars, tempered by fears of slowing demand for ESPN. In terms of Star Wars, the company hit a home run, exceeded expectations and set all kinds of records. And has 5 films (Star Wars and related) slated for release over the next few years. The next movie is not going to be Episode VIII but a spin-off story. So far, Episode VII has taken in over $1 billion in box office sales, the fastest to reach that level, and has not even been launched in China yet. As a side note, this year holiday movie sales in general were record setting as well. Today, Disney climbed 3% but does not yet look ready to reverse losses experienced over the past month.

FedEx had a little trouble delivering packages just before Christmas but not as bad as what we saw a year or two ago. The company chalks it up to “unprecedented” on line sales in the last days before Christmas that helped shipping volume exceed all prior records and expectations. Weather was also a factor but did neither the surge in on line sales or record volumes caused UPS to be late. The news, while a negative for FedEx is a sign the holiday shopping season was a good one for retailers. Shares of FedEx fell nearly a full percent in today's action but remain above the $140 support level with bullish indicators.

MasterCard reported that holiday sales jumped a “solid” 7.9%, on line sales a whopping 20%, over levels seen last year. Last year sales grew at a pace of only 5.5% in the same period. Significant gains were made in the furniture and ladies apparel categories but gains were not limited to those. This news backs up FedEx's report of surging online volumes as well as the idea retailers had a decent season. Shares of MasterCard opened lower, just above the short term 30 day moving average, but recovered most of the loss before the close of trading. The indicators are bullish and pointing to a possible test of resistance near the $101 level.

The retail sector was not in favor despite the seemingly positive news coming out of the sector. Today the Retail Sector SPDR lost nearly a full percent before bouncing back to near break even. The ETF closed with a loss of only -0.25% but remains beneath the short term moving average. The indicators are pointing higher and could lead to a test of resistance along the moving average in the near term. Longer term the ETF appears to be bottoming with support along the $42 level.

The Indices

The indices moved lower in today's session but found support and were able to regain most of the losses. The days leader was the Dow Jones Industrial Average with a loss of -0.73%. The index lost more than -2% on an intraday basis and appears to be confirming support along the 7,500 level. Today's action is accompanied by a a fairly strong bullish signal that may be confirming the 7,500 bottom. Stochastic has made two bullish crossovers in the last three days while the index has been bouncing from support, today MACD confirmed with a crossover of its own. This signal could lead to significant upside but requires a break above resistance, resistance is near 7,750 and the short term moving average.

The S&P 500 made the next largest decline in today's session, -0.22%. The broad market created a small doji candle that tested support at the short term moving average and the 2,050 level, just above the long term trend line. The indicators have rolled into a strong trend following signal, confirmed today by MACD, that may add up to a rally into the end of the year. The caveat is resistance; there are several possible resistance targets above today's closing level, the first being 2,075. A break above this level could take the index to 2,100 with next target near the all time high.

The NASDAQ Composite made the third largest decline in today's session, -0.15%. The tech heavy index tested support at the short term moving average and the long term trend line with today's candle and looks like a trend following bounce could ensue. The indicators are mixed but stochastic is bullish after firing a trend following crossover with MACD on the verge of confirming. Resistance is just above today's close, near 5,050 with support just below along the long term trend line. A break above resistance would have a target near 5,100 with next target near the all time high.

The Dow Jones Industrial Average brings up the rear in today's lineup with a loss of only -0.14%. The blue chips tested support at the short term moving average and were able to hold above it at the close. The indicators are very similar to the other indices if on the weaker side; stochastic is firing a trend following signal with MACD on the cusp of confirming. If confirmed, along with a break above resistance, the index could move up to 18,000 with the all-time high next target above that.

Well, the technical picture is starting to brighten up if there are still hurdles to overcome. Today's action, discounting the fact we're in the middle of the Christmas/New Year's holiday, appears to be confirming long term trends with 2 of the 4 major indices firing strong trend following signals. The caveat, you may have guessed, is that we are still in the middle of the holiday's; trading volume is weak, market action is questionable at best and untrustworthy in the extreme. I remain bullish over the long term and looking for at least another try at new all-time highs so am at least optimistic. The next 2 - 4 weeks could tell the tale. We'll have a massive round of economic data next week along with the start of earnings season.

Until then, remember the trend!

Thomas Hughes

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New Option Plays

1.5 Billion Users Can't Be Wrong

by James Brown

Click here to email James Brown


Facebook, Inc. - FB - close: 105.93 change: +0.91

Stop Loss: 103.40
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 28 million
Entry on December -- at $---.--
Listed on December 28, 2015
Time Frame: Exit PRIOR to earnings in late January
New Positions: Yes, see below

Company Description

Trade Description:
It's time to get social.

Facebook needs no introduction. It is the largest social media platform on the planet. Last quarter the company surpassed 1.5 billion monthly active users. They also set a new milestone this year with one billion people logged into Facebook in a single day.

The company continues to grow. In addition to their Facebook social media powerhouse they also own Facebook Messenger, WhatsApp, and Instagram. Their WhatsApp product is the largest messaging service on the planet with over 900 million monthly active users. Meanwhile FB's photo-sharing Instagram property has more than 300 million active users. The company has been ramping up their advertising efforts to monetize Instagram. FYI: FB also owns Occulus Rift, the virtual reality company, but it's probably a few more years before VR goes mainstream. They do expect a big launch for Occulus in 2016 but it will not move the needle for FB's revenues any time soon.

The company's most recent earnings report was November 4th, 2015. FB announced its Q3 earnings of $0.57 a share, which was five cents above estimates. Revenues soared +40% to $4.5 billion, also better than expected. Their daily active users (DAUs) rose +17% from a year ago to 1.01 billion. Their mobile DAUs rose +27% to 894 million people. Monthly active users (MAU) hit another record at 1.55 billion people, up +14% from a year ago.

Following FB's Q3 results there was a parade of analysts reiterating their buy ratings on the stock. Several raised their price targets (a few of the new price targets are $120, $125, $135, and $140). The stock popped to a new all-time high and tagged $110.65 on this report. Since then shares have been slowly sinking in what looks like a long, sideways consolidation.

Here's the good news for bullish investors. Recent action suggest FB is poised to breakout from this multi-week consolidation. The last few days have seen traders buying the dips near its rising 50-dma. Tonight we are suggesting a slightly more aggressive entry point. The plan is to buy calls if FB trades at $106.25 (or higher). More conservative investors may want to wait for a breakout past short-term resistance at $108.00 instead. We will plan to exit prior to FB's next earnings report in late January.

Trigger @ $106.25

- Suggested Positions -

Buy the FEB $110 CALL (FB160219C110) current ask $3.15
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

Oil's Plunge Weighs On Stocks (Again)

by James Brown

Click here to email James Brown

Editor's Note:

After a +9% bounce last week crude oil fell -3.3% today. This weakness fueled a widespread sell-off across the market this morning. Fortunately traders did buy the dip and equities managed to pare their losses by the close.

NFLX hit our stop loss.

Current Portfolio:

CALL Play Updates

AmerisourceBergen Corp. - ABC - close: 104.19 change: +0.24

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

12/28/15: The market's major indices ended Monday in the red. ABC managed to buck the trend and eke out a +0.2% gain. Readers may want to raise their stop loss again.

No new positions at this time.

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

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

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

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

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

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

- Suggested Positions -

Long FEB $105 CALL (ABC160219C105) entry $3.10

12/26/15 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: 155.37 change: -0.54

Stop Loss: 152.25
Target(s): To Be Determined
Current Option Gain/Loss: -28.4%
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

12/28/15: BDX saw a small spike lower at the open and then spent the rest of the day churning sideways in a narrow range near $155.

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

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

Clovis Oncology - CLVS - close: 33.27 change: -0.87

Stop Loss: 31.95
Target(s): To Be Determined
Current Option Gain/Loss: -43.1%
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

12/28/15: Ouch! CLVS underperformed its peers in the biotech industry. The IBB biotech ETF lost -0.75% today. CLVS fell -2.5% but on a positive note the stock did seem to be recovering in the last half hour of trading today.

No new positions at this time.

Trade Description: November 28, 2015:
After a -70% plunge all the bad news might be priced in for this biotech stock.

CLVS is in the healthcare sector. According to the company, "Clovis Oncology is a biopharmaceutical company focused on acquiring, developing and commercializing cancer treatments in the United States, Europe and other international markets. Our product development programs target specific subsets of cancer, and we seek to simultaneously develop, with partners, companion diagnostics that direct our product candidates to the patients most likely to benefit from their use. We believe this approach to personalized medicine - to deliver the right drug to the right patient at the right time - represents the future of cancer therapy."

The company has three product candidates in their pipeline. They are rociletinib, rucaparib, and lucitanib. Right now the market is reacting to news on its rociletinib clinical trials, where the drug is being tested on non-small-cell lung cancer.

Several days ago the company issued an update on their Rociletinib NDA filing. CLVS held their regularly scheduled mid-cycle communication meeting with the U.S. Food and Drug Administration (FDA). The current data on the Rociletinib clinical trials was not good enough. The FDA is asking for more data to prove the treatment's efficacy. This will likely push back the time frame on any approval. Investors were expecting a potential approval in the March-April 2016 time frame.

The delay in Rociletinib approval is a serious setback. Rival biotech firm AstraZeneca just got FDA approval for a competing drug, Tagrisso. By the time Rociletinib is approved (if it's approved), it will face serious competition from an already established treatment.

CLVS is a perfect example of why biotech stocks can be high-risk trades. On November 13, 2015 the stock closed at $99.43. The next trading day, Nov. 16th, shares gapped down at $29.27 and closed near $30. The stock traded down to $24.50 on November 23rd and started to reverse higher. CLVS' stock is now up three days in a row.

The current rally could be a combination of short covering and investors bargain hunting. It has been a full two weeks since the sell-off. If investors were going to sell they probably did so already. We think this rebound has a lot further to go but make no mistake CLVS is still a higher-risk trade. Tonight we are suggesting a trigger to buy calls at $32.55.

- Suggested Positions -

Long JAN $35 CALL (CLVS160115C35) entry $2.90

12/26/15 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: 79.70 change: -0.38

Stop Loss: 77.75
Target(s): To Be Determined
Current Option Gain/Loss: -29.7%
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

12/28/15: CRL spent Monday's session consolidating sideways inside the $79-80 region. I am still suggesting readers wait for a new rally above $80.44 before initiating 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: 94.33 change: +0.41

Stop Loss: 91.35
Target(s): To Be Determined
Current Option Gain/Loss: -14.4%
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

12/28/15: DPS dipped to $93.44 this morning. Fortunately traders bought the dip and DPS rallied to a +0.4% gain, outperforming the broader market. This is a new all-time closing high for DPS.

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

Northrop Grumman - NOC - close: 189.98 change: -0.13

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

12/28/15: NOC dipped to short-term technical support at its 10-dma and bounced on Monday. Shares closed virtually unchanged on the session.

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

Royal Caribbean Cruises - RCL - close: 100.32 change: +0.40

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

12/28/15: RCL showed some relative strength today. The major indices all closed in the red but RCL added +0.4%. The intraday high was $100.70. Our suggested entry point is $100.85, which could be hit tomorrow.

Trade Description: December 26, 2015:
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)

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: 87.32 change: +0.25

Stop Loss: 84.45
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

12/28/15: RYAAY kept the rally going by posting its sixth gain in a row. Traders bought the dip near $86.50 this morning and shares bounced to another closing high.

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: 102.24 change: +0.23

Stop Loss: 99.85
Target(s): To Be Determined
Current Option Gain/Loss: -16.2%
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

12/28/15: Traders were also in a buy-the-dip mood with SPB. Shares fell toward $101.50 and rebounded to close up +0.22% on the session.

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.


Netflix, Inc. - NFLX - close: 117.11 change: -0.22

Stop Loss: 114.45
Target(s): To Be Determined
Current Option Gain/Loss: -89.3%
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

12/28/15: Our aggressive, higher-risk trade on NFLX has been stopped out. Shares started Monday's session with renewed weakness. The stock pierced support near $115.00 and its 50-dma by midday. The stock fell to $113.85 before bouncing back to close almost unchanged on the session. Unfortunately our stop loss was hit at $114.45.

- Suggested Positions -

JAN $130 CALL (NFLX160115C130) entry $3.75 exit $0.40 (-89.3%)

12/28/15 stopped out @ 114.45
12/15/15 triggered @ $122.05
Option Format: symbol-year-month-day-call-strike