Option Investor

Daily Newsletter, Tuesday, 12/29/2015

Table of Contents

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

Market Wrap

Let the Window Dressing Begin

by Jim Brown

Click here to email Jim Brown

The Santa rally got off to a late start but fund managers kicked it into high gear with their window dressing moves. With tax loss selling over, retail investors were also in a buying mood.

Market Statistics

On Monday, the Dow dipped -113 by late morning but recovered to lose only 24 points. That recovery primed the index for a good news short squeeze. After the rebound from Monday's lows, positive markets in China and Europe, a rally in oil and commodities overnight and some decent economic data, buyers were ready to go at the open today. The Dow gapped open nearly 200 points as shorts ran for cover on the bullish headlines.

The Case Shiller S&P Home Price Index for October showed prices rose +5.5% in the top 20 cities in the index. Nationally prices rose +5.17%. This was the fastest growth in more than a year.

Consumer Confidence for December spiked +6.5 points to 96.5, up from the 90.4 previously announced for November. However, the November number was revised higher to 92.6. The present conditions component rose from 110.9 to 115.3. The expectations component rose from 80.4 to 83.9.

In the details, the number of prospective auto buyers declined from 12.7 to 10.5. Homebuyers declined from 6.0 to 5.8 while appliance buyers rose from 49.5 to 51.5. According to analysts, the decline in buying plans was driven by the Fed rate hikes. A 25 basis point hike would have no real impact but it is the idea that the Fed is going to keep hiking rates that is depressing sentiment.

The headline number was helped by the constantly falling gasoline prices and the warm weather. Frigid winter weather typically weighs on consumer confidence. Warm weather and blue skies are uplifting for sentiment.

The trade deficit for November increased slightly from -$58.4 billion in October to -$60.5 billion. Consumer goods imports declined slightly from $181.7 billion to $181.5 billion. However, exports declined from $123.3 billion to $121.0 billion. Blame this on the strong dollar. Once we actually begin to export crude oil next year the deficit should decline.

The Texas Service Sector Outlook Survey for December declined from 3.6 to 3.3. The revenue component increased from 10.3 to 15.2 but the expectations for future activity component declined from 10.9 to 7.9. Employment improved slightly from 10.6 to 12.3 and hours worked improved from 1.5 to 6.6. Overall, it was a decent report but the activity levels have stagnated over the last five months because of further declines in the energy sector in Texas.

Moody's Chart

There are no reports remaining this week that can move the market other than the EIA Oil Inventories on Wednesday morning. Another big drop in inventories could cause oil prices and energy stocks to rise and lift the market. Conversely, a big build in inventory levels could weigh on the market.

The Dow rallied on help from multiple stocks today. DuPont (DD) gained +1.10 after outlining 1,700 job cuts stemming from its coming merger with Dow Chemical (DOW). These job cuts will be in Delaware, where the company has been based for more than 200 years. The workers will be given separation packages, career placement services and retraining allowances. DuPont was forced to make the news public during the holidays because of a December 31st deadline for warning of impending job changes. The State of Delaware has a notice requirement for pending layoffs.

The global restructuring plan is expected to cut costs by $700 million and a 10% cut in the global workforce, which means 5,400 jobs could be cut overall. The cuts will result in a $780 million pre-tax charge to earnings. The specialty products business will be based in Wilmington Delaware. The material science business will be based in Midland Michigan. The headquarters for the agriculture business is still unknown.

Pep Boys (PBY) spiked again as Carl Icahn sweetened his bid even more from $16.50 to $18.50 after Bridgestone raised their bid to $17 on Friday. Bridgestone had originally offered $15 and Pep Boys had agreed to the offer back in late October. Initially Icahn had decided not to bid for Pep Boys but then changed his mind in December. A bidding war followed and Icahn appears to be the winner. After the close today, Bridgestone said it would not counter the last Icahn bid. On Friday Bridgestone and Pep Boys amended their agreement to the new price of $17 and raised the breakup fee from $35 million to $39.5 million.

Qualcomm (QCOM) rallied $1.30 after the company said it signed two big licensing deals with Chinese telecom companies. Tianyu and Haier both signed 3G/4G patent license agreements. Qualcomm has had some problems in the past with patent deals to Chinese companies. Doing business in China that involves giving Chinese companies access to proprietary technology is a basket of snakes. Technology tends to leak away and royalties tend to be understated. Qualcomm has been fighting this problem since early 2014 and the smaller than expected royalty payments caused Qualcomm to disappoint on earnings multiple times. This has pressured QCOM shares to decline from $81 to $50.

Surely, Qualcomm has learned from its past experiences and the two new agreements are iron clad, as much as they can be in China. Qualcomm has a market cap of $76 billion and $21 billion in cash. They are currently in a $10 billion stock buyback program. In May, they raised $10 billion with a debt offering, their only long-term debt, to fund the stock buyback program rather than repatriate the $21 billion in cash from overseas and pay a huge tax bill. They are paying a dividend of $1.92 or 3.87% yield. I would be a buyer of QCOM at this level after those licensing deals.

Honeywell (HON) shares gained $1 after the company said it had completed the $5.1 billion acquisition of meter maker Elster. Elster was a division of British manufacturer Melrose Industries.

Dunkin Donuts (DNKN) and Madison square Garden (MSG) announced a multi-year marketing partnership naming Dunkin products the Baked Goods and Breakfast Sandwich of the New York Knicks, New York Rangers, New York Liberty and Madison Square Garden. Really? They must be hard up for endorsements. However, fans will now be able to enjoy Dunkin products from two locations on the Garden's concourse. The Dunkin brand will also be prominent at all MSG games and events with courtside and in-arena signage, spots on GardenVision along with custom web pages on Knicks.com and NYLiberty.com.

Apple (AAPL) shares rallied for a change after mobile analytics firm Flurry said Apple won the activation war from Dec 18th through Dec 25th with 49.1% of all mobile activations. Samsung was second at 19.8%, Nokia 2.0%, LG 1.7% and Xiaomi 1.5%. This was down from 51.3% in the same period in 2014 but Apple is still way ahead of its rivals. More than 27% of the activations were for the iPhone 6 Plus and 6S Plus. Android saw more than 50% of its activations in the plus sized category.

DigiTimes.com said iPhone shipments in Q4 will be 5% to 10% below original expectations. The news came from Taiwan based supply chain providers. The sources said factory shipments are in line with sales of 72-75 million units, compared to prior estimates for 76-78 million units. Shipments for Q1 have also been lowered to 52-56 million, down from 58-60 million in prior forecasts. That represents a decline of 12% to 15% from year ago levels. iPhone Sales Slowing

Factories in the supply chain have reduced overtime shifts since November and could lengthen the time off for the Lunar New Year holidays. Foxconn Electronics iPhone plant is already talking about plans to possibly extend the holidays.

Apple shares rallied $2 on the activation news and began to fade late in the afternoon when the DigiTimes story was reported. I would be shorting Apple on this bounce. There is likely to be a decent decline into earnings on January 27th.

Whole Foods Market (WFM) agreed to pay $500,000 to end an overcharging probe by New York City. Shares were up slightly earlier in the day but faded into the close. This is a slap on the wrist because $500K is nothing but pocket change to Whole Foods. The company said it agreed to the payment in order to put the problem behind them.

Whole Foods has a lot more to worry about than NYC. The major chains are killing them. Kroger, Safeway, Sprouts, Fresh market and Walmart are all offering fresh organic items at a fraction of Whole Foods prices. They are no longer the king of the organic market and their declining earnings are the proof. I believe the rebound to $35 is a new short opportunity on WFM.

Tesla (TSLA) shares rallied $8 after news broke they were looking to hire thousands over the next few years. Tesla has already grown from 900 in its infancy to more than 14,000 today but to build "millions and millions" of cars as Elon Musk is predicting and it will require a lot more people. They are planning on adding 4,500 in California alone and currently have 1,600 open positions. There is a bidding war in progress in California. Apple has hired more than 60 former Tesla employees and is reportedly offering a 60% salary bump plus $250,000 signing bonuses to Tesla employees. Meanwhile Tesla has hired more than 160 former Apple employees. Elon Musk said he wants to have his self-driving cars on the road before 2020.

Intel (INTC) said it completed the $16.7 billion acquisition of Altera (ALTR). The company said Altera is "a great first acquisition." That immediately put a bid under the rest of the semiconductor sector.

Lattice Semiconductor (LSCC) spiked +8% on the Altera completion. The CEO said Intel will probably use Altera to focus on chips related to the PC market and that could boost Lattice's total addressable communications market by $300-$400 million.

Crude prices rose $1 in regular trading to $37.81 but settled to $37.33 in afterhours after the API inventory report showed an unexpected gain of +2.9 million barrels. This is the normal inventory reduction period in December where refiners let their inventories decline to reduce their property taxes on December 31st. It is unusual for inventories to rise in this period when everyone is expecting a decline. The average decline for December is now only -1.7 million barrels compared to an average decline of -5.5 million. Prices are likely to fall further if the EIA report on Wednesday morning confirms the decline.


The short covering, window dressing and buying for 2016 succeeded in lifting the S&P back over 2,059 and into the green for 2015. The close at 2,078 should give the index enough of a cushion to survive the next two days until the end of the year.

Fund managers desperately want the markets to post a gain for 2015 even if it is just a few points. They need it for their advertising. They do not want investors reading the paper this weekend and seeing headlines about the market closing down for the year for the first time since 2008.

The Dow gained +193 points and put it in range of a positive year-end close at 17,824. That is 104 points above where we closed today and with a little bit of luck and some skillful market manipulation they should be able to push the Dow into the green as well.

The Nasdaq is already well into the green with an +8% gain for the year. Today's rally cemented that positive 2015 close. It would take a nuclear explosion to knock the Nasdaq back -320 points over the next two days to finish in the red.

The Nasdaq 100 is only 28 points away from a new historic closing high at 4,720. If the big cap techs can manage one more day of decent gains, a new high could change the complexion of the entire market.

The biotech index gained +1.6% today and helped power the Nasdaq and the Russell with its gains. The IBB is up +15% over the last three months alone despite a big drop in early December.

The S&P vaulted past resistance at 2,065 and squeaked past resistance at 2,075 by 3 points. The close at 2,078 is still well below major resistance at 2,105 and 2,116 so I seriously doubt we will be seeing a new high over the next two days. I would be thankful just to finish the year over 2,100. Support is now 2,060 and Monday's low at 2,045.

The Dow still has major downtrend resistance at 17,825 and exactly where it needs to be to close the year with a 2-point gain. This should make Thursday's market a nail biter unless we have a blowout of some sort on Wednesday. Historically the last two days of December are negative for big caps but the market has ignored all the seasonal trends this year.

Amazon, Priceline and Google were the big gainers but Apple's $2 gain contributed +8 points to the Nasdaq. The biotechs were the leaders with a capable assist by semiconductor stocks. Tech stocks are typically strong over the next several weeks so assuming there is no immediate crash when the calendar turns over to 2016 we should see a new high on the Nasdaq 100 in the near future. Whether it will stick or not is the real question.

Support on the Nasdaq Composite is 5,000 followed by 4,935. Resistance is firm at 5,160 and 5,231.

The Russell 2000 is doing its imitation of the "The Little Engine that Could" as it struggles against a big deficit from the early December decline. You can almost hear it saying, I think I can, I think I can, as it slowly edges higher.

With resistance at 1,165 and again at 1,200 the odds of a big move are slim. This is seasonally the best time of the year for the small caps but it appears managers are storing their money in the big caps this year in case they have to exit in a hurry in January.

With the goal of closing the markets in the green for the year, I would expect fund managers to continuing buying the stocks that have the most impact on the indexes. They are within reach on the Dow but the last two days of the month are typically negative as aggressive traders try to create short positions ahead of a January decline. Many investors are holding profitable positions and waiting to sell until January in order to delay paying taxes for another year. There is normally a block of traders that try to anticipate that move and jump in front by shorting stocks on the last day of December.

With seasonal trends failing this year we cannot count on that selling and we cannot count against it. If you do not have an urgent desire to own something over the next several days I would recommend waiting until January and see what direction the market takes when the calendar turns over. The first two days are typically bullish as fund managers put end of year retirement contributions to work so it will take more than a couple days for a direction to appear.

The last two January's have been negative but the prior three were strongly bullish. Let's hope the pendulum swings back into the bulls favor this January.



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New Option Plays

New Highs On The Horizon

by James Brown

Click here to email James Brown


Avago Technologies - AVGO - close: 147.94 change: +1.59

Stop Loss: 143.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 3.6 million
Entry on December -- at $---.--
Listed on December 29, 2015
Time Frame: Exit PRIOR to February option expiration
New Positions: Yes, see below

Company Description

Trade Description:
AVGO is probably best known for being a chip supplier to Apple Inc. (AAPL). Shares of AAPL have struggled the last half of 2015 on worries about slowing iPhone sales. This worry has not impacted shares of AVGO.

AVGO is in the technology sector. They're part of the semiconductor industry. According to the company, "Avago Technologies Limited is a leading designer, developer and global supplier of a broad range of analog, digital, mixed signal and optoelectronics components and subsystems with a focus in III-V compound and CMOS based semiconductor design and processing. Avago's extensive product portfolio serves four primary target markets: wireless communications, enterprise storage, wired infrastructure, and industrial & other."

We can't mention AVGO without mentioning their $37 billion acquisition of Broadcom (BRCM). Here's a description of BRCM, "Broadcom Corporation, a FORTUNE 500® company, is a global leader and innovator in semiconductor solutions for wired and wireless communications. Broadcom products seamlessly deliver voice, video, data and multimedia connectivity in the home, office and mobile environments. With one of the industry's broadest portfolio of state-of-the-art system-on-a-chip solutions, Broadcom is changing the world by Connecting everything®."

This acquisition of BRCM was announced in May 2015. The combined company was initially valued at $77 billion. Together they will have annual sales of $15 billion with $6-7 billion in free cash flow. The merger is expected to close on February 1, 2016.

Without BRCM, AVGO has been delivering impressive earnings and revenue growth. Last year AVGO saw earnings surge from $1.16 a share to $4.90. This year Wall Street expects AVGO's earnings to hit $9.68 a share. Revenue growth over the last five years has averaged more than +23% a year.

AVGO's most recent earnings report was December 2nd. The company announced their Q4 results with earnings rising +26% from a year ago to $2.51 a share. That beat estimates by 13 cents. Revenues were up +15% to $1.85 billion. Gross margins improved from 51% in Q3 to 54% in Q4. The stock surged toward resistance near $150 following this better than expected earnings report.

Several days ago RBC Capital Markets upgraded AVGO to one of their top picks. RBC analyst Amit Daryanani shared his opinion on the company, saying, "Our bullish bias is predicated on our belief that AVGO will expand EPS from $9.24 in CY15E to [more than] $16.00 by CY18E driven by multiple levers - BRCM integration, asset divestures, RF ramp-up, cost containment and potential deleveraging ... we estimate [less than 30%] of future EPS growth is predicated on organic revenue dynamics and 70%+ is driven by AVGO's ability to curtail costs, optimize the portfolio, and further deleveraging."

Daryanani raised their AVGO price target from $165 to $170. Currently the point & figure chart is very bullish and forecasting a long-term target of $213. Technically shares of AVGO appear to be consolidating sideways beneath major resistance at the $150.00 level. If the stock breaks out we want to be ready. Tonight we are suggesting a trigger to buy calls at $150.25.

Trigger @ $150.25

- Suggested Positions -

Buy the FEB $155 CALL (AVGO160219C155) current ask $5.00
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

The Santa Rally Resumes

by James Brown

Click here to email James Brown

Editor's Note:

It looks like the Santa Claus rally is back! Traders were worried after yesterday's market-wide decline. Today the FANG stocks helped lead the way. Another oversold bounce in crude oil didn't hurt either.

FANG = Facebook, Amazon, Netflix, and Google.

FB, NOC, and RCL all hit our bullish entry triggers today.

Current Portfolio:

CALL Play Updates

AmerisourceBergen Corp. - ABC - close: 104.77 change: +0.58

Stop Loss: 102.40
Target(s): To Be Determined
Current Option Gain/Loss: - 3.2%
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

12/29/15: ABC continues to creep higher. Shares only added +0.5% versus the S&P 500's +1.0% gain today. ABC is also challenging potential round-number resistance at $105.00 and technical resistance at its 200-dma near $105.65.

Tonight we are moving the stop loss up to $102.40. 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

12/29/15 new stop @ 102.40
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: 156.53 change: +1.16

Stop Loss: 152.25
Target(s): To Be Determined
Current Option Gain/Loss: -19.3%
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

12/29/15: BDX added +0.74% and set a new all-time closing high. The stock seemed to struggle with the $157.00 level most of the day. I would be tempted to buy calls on a rally above today's intraday peak ($156.77).

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: 35.02 change: +1.75

Stop Loss: 32.45
Target(s): To Be Determined
Current Option Gain/Loss: -19.0%
Average Daily Volume = 1.4 million
Entry on December 01 at $32.55
Listed on November 28, 2015
Time Frame: Exit PRIOR to January option expiration
New Positions: see below

12/29/15: Biotech stocks helped lead the market rally on Tuesday. The IBB biotech ETF gained +1.74%. Shares of CLVS outperformed its peers with a +5.25% surge. Today's rally in CLVS does break through short-term resistance at $34.00. The next challenge is resistance at $36.00.

Tonight we are moving the stop loss up to $32.45.

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

12/29/15 new stop @ 32.45
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: 80.50 change: +0.80

Stop Loss: 77.75
Target(s): To Be Determined
Current Option Gain/Loss: -16.2%
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

12/29/15: Tuesday's +1.0% gain in CRL pushed the stock to a new nine-month high. Shares should be able to rally toward its 2015 peak near $85.00. I would use today's breakout as a new bullish entry point to buy calls.

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: 94.99 change: +0.66

Stop Loss: 93.25
Target(s): To Be Determined
Current Option Gain/Loss: - 6.0%
Average Daily Volume = 1.2 million
Entry on December 16 at $94.05
Listed on December 15, 2015
Time Frame: Exit PRIOR to earnings in February
New Positions: see below

12/29/15: DPS gapped higher this morning at $94.60. Shares spent most of the session churning sideways in the $94.80-95.25 zone.

Tonight we are moving our stop loss up to $93.25. 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

12/29/15 new stop @ 93.25
12/26/15 new stop @ 91.35
12/16/15 triggered @ $94.05
Option Format: symbol-year-month-day-call-strike

Facebook, Inc. - FB - close: 107.26 change: +1.33

Stop Loss: 103.40
Target(s): To Be Determined
Current Option Gain/Loss: +10.9%
Average Daily Volume = 28 million
Entry on December 29 at $106.42
Listed on December 28, 2015
Time Frame: Exit PRIOR to earnings in late January
New Positions: see below

12/29/15: Shares of FB rallied right on cue. Our trade was triggered on the gap open this morning at $106.42 (suggested entry was $106.25). FB tested short-term resistance in the $108 area and closed the session with a +1.25% gain.

Trade Description: December 28, 2015:
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.

- Suggested Positions -

Long FEB $110 CALL (FB160219C110) entry $3.20

12/29/15 triggered on gap open at $106.42, suggested entry was $106.25
Option Format: symbol-year-month-day-call-strike

Northrop Grumman - NOC - close: 191.48 change: +1.50

Stop Loss: 186.85
Target(s): To Be Determined
Current Option Gain/Loss: -7.0%
Average Daily Volume = 1.2 million
Entry on December 29 at $191.25
Listed on December 22, 2015
Time Frame: Exit PRIOR to earnings in late January
New Positions: see below

12/29/15: Today's widespread market rally lifted NOC to new two-month highs. Shares also hit our suggested entry point at $191.25. I would consider launching positions at current levels.

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.

- Suggested Positions -

Long FEB $195 CALL (NOC160219C195) entry $4.30

12/29/15: triggered @ $191.25
Option Format: symbol-year-month-day-call-strike

Royal Caribbean Cruises - RCL - close: 102.63 change: +2.31

Stop Loss: 95.85
Target(s): To Be Determined
Current Option Gain/Loss: +12.2%
Average Daily Volume = 2.0 million
Entry on December 29 at $100.85
Listed on December 26, 2015
Time Frame: Exit PRIOR to earnings in late January
New Positions: see below

12/29/15: Our bullish play on RCL is off to a strong start. Shares finally broke out to new highs and hit our entry trigger at $100.85 this morning. The stock outpaced the broader market with a +2.3% gain.

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.

- Suggested Positions -

Long MAR $105 CALL (RCL160318C105) entry $4.10

12/29/15 triggered @ $100.85
Option Format: symbol-year-month-day-call-strike

Ryanair Holdings - RYAAY - close: 87.64 change: +0.32

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

12/29/15: Another day, another gain for RYAAY. The stock is now up seven days in a row. Readers may want to start adjusting their stop loss higher.

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: 102.77 change: +0.53

Stop Loss: 99.85
Target(s): To Be Determined
Current Option Gain/Loss: -23.5%
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

12/29/15: SPB broke through short-term resistance near $102.50 to end the day at new four-month highs. Yet our option is moving the wrong direction. If SPB can keep the momentum going the option should recover quickly.

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.