New Watch List Entries

RHT - Red Hat, Inc

UPS - United Parcel Service

Active Watch List Candidates

ALK - Alaska Air Group

BA - The Boeing Company

HEDJ - WisdomTree Europe Hedged ETF

RTN - Raytheon Company

Dropped Watch List Entries

SWHC has graduated to our active play list.

New Watch List Candidates:

Red Hat, Inc. - RHT - close: 82.50

Company Info

Consistent earnings and revenue growth have helped power RHT shares to new multi-year highs. The stock has also shown relative strength with a +19% gain in 2015, outperforming the NASDAQ's +8% gain.

RHT is in the technology sector. According to the company, "Red Hat is the world's leading provider of open source software solutions, using a community-powered approach to reliable and high-performing cloud, Linux, middleware, storage and virtualization technologies. Red Hat also offers award-winning support, training, and consulting services. As a connective hub in a global network of enterprises, partners, and open source communities, Red Hat helps create relevant, innovative technologies that liberate resources for growth and prepare customers for the future of IT."

I mentioned that earnings have helped drive RHT's stock higher. The company has beaten Wall Street's estimates on both the top and bottom line the last four quarters in a row. Their most recent earnings report was their Q2 results announced on September 21st.

Analysts were expecting a profit of $0.44 a share on revenues of $494 million. The company delivered earnings growth of +15% with a profit of $0.47 a share. Revenues were up +13% to $504 million. Management raised their Q3 and 2016 guidance above analysts' expectations. RHT does do a lot of business overseas so the strong dollar has had a negative impact. On a constant currency basis their results are even stronger.

Technically shares are in a bullish trend of higher highs and higher lows. The point & figure chart is bullish and forecasting at $109 target. RHT's bounce from its November low has stalled just below short-term resistance near $83.00. Tonight I am suggesting bullish positions if RHT can close in the $83.00-84.50 range.

Breakout trigger: Wait for RHT to close in the $83.00-84.00 range,
Then buy calls the next morning with a stop at $77.35

BUY the 2017 Jan $100 call (RHT170120C100) current ask $5.30

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

Chart of RHT:

Originally listed on the Watch List: 11/29/15

United Parcel Service - UPS - close: 104.18

Company Info

Black Friday has grown from a one-day sales event to a four-day weekend sales bonanza. Nowadays the theme of Black Friday holiday sales starts before Thanksgiving. Unfortunately the initial impressions from retailers this year is that crowds were smaller than expected. That's because more and more consumers are shopping online. One retail research firm is estimating that online sales will grow +8% this year versus the +5.8% we saw in 2014.

One way to play the growth of online shopping is the delivery business. UPS is in the services sector. According to the company, "UPS is a global leader in logistics, offering a broad range of solutions including transporting packages and freight; facilitating international trade, and deploying advanced technology to more efficiently manage the world of business. Headquartered in Atlanta, UPS serves more than 220 countries and territories worldwide."

Smaller rival FedEx (FDX) is forecasting a +12% surge in deliveries this holiday season (to 317 million packages). The U.S. Postal Services is forecasting +11% growth to nearly 600 million packages. UPS, the largest delivery company, is projecting +10% growth this holiday season. They expect to handle more than 630 million packages between Black Friday and New Year's Eve this year.

The combination of low gasoline prices and rising online shopping should be a bullish combination for UPS. I wouldn't be surprised to see online sales surpass the +8% growth estimate. More and more companies are trying to develop their online sales. Plus, following the tragic events in Paris this year, there is a heightened sense of wariness that could keep some consumers out of the malls this year.

The last few weeks have seen shares of UPS consolidating sideways in the $102.00-105.50 zone. We want to buy calls if UPS can breakout from this trading range. Tonight I am suggesting investors buy calls if UPS can close above $105.50.

Breakout trigger: Wait for UPS to close above $105.50
Then buy calls the next morning with a stop at $99.75

BUY the 2017 Jan $115 call (UPS170120C115) current ask $3.15

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

Daily Chart of UPS:

Weekly Chart of UPS:

Originally listed on the Watch List: 11/29/15

Active Watch List Candidates:

Alaska Air Group - ALK - close: 79.76

11/29/15: Airline stocks took a hit after the U.S. State Department issued a worldwide travel alert for Americans. The government did not highlight any specific threat but merely urged caution and urged Americans to exercise vigilance, especially around large crowds and public transportation. Airline stocks briefly sank on worries this alert might hinder sales in the travel industry.

Shares of ALK dipped to short-term support and bounced. I don't see any changes from last week's new watch list candidate description. Our suggested entry point is a close in the $83.00-84.00 zone.

Trade Description: November 22, 2015:
Depressed oil prices have been great for airline industry profits. Yet airline stocks, as a group, have struggled this year. The XAL airline index is down about -10% year to date. ALK is an exception. The stock has shown significant relative strength and is up +37% in 2015.

ALK is part of the services sector. According to the company, "Alaska Airlines, a subsidiary of Alaska Air Group (ALK), together with its partner regional airlines, serves more than 100 cities through an expansive network in the United States, Canada and Mexico. Alaska Airlines ranked 'Highest in Customer Satisfaction Among Traditional Carriers in North America' in the J.D. Power North America Airline Satisfaction Study for eight consecutive years from 2008 to 2015. Alaska Airlines' Mileage Plan also ranked 'Highest in Customer Satisfaction with Airline Loyalty Rewards Programs' in the J.D. Power 2014 and 2015 Airline Loyalty/Rewards Program Satisfaction Report."

ALK has beaten Wall Street's bottom line earnings estimates the last four quarters in a row. Their most recent report was October 22nd. The company raised its outlook. The past 12 months have seen ALK's revenues rise +4.8%. Net income and earnings have both grown more than +50%. Back in August the company announced at $1 billion stock buyback program (current market cap is about $10 billion).

Crude oil is expected to remain cheap and likely get cheaper in 2016. That should provide a strong tailwind for ALK's business. Currently the stock has been consolidating sideways the last few months. Yet the rally this past week has pushed ALK toward major resistance and shares could see a breakout. We want to hop on board if that occurs. Tonight I am suggesting we wait for ALK to close in the $83.00-84.00 zone and then buy calls the next morning with a stop loss at $74.75.

Breakout trigger: Wait for ALK to close in the $83.00-84.00 zone
Then buy calls the next morning

BUY the 2017 JAN $90 call (ALK170120C90)

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

Originally listed on the Watch List: 11/22/15

The Boeing Company - BA - close: 146.95

11/29/15: The rally in defense-related stocks has faded. Shares of BA briefly traded above key resistance near $150 on November 20th. Since then the stock has been drifting lower. BA is nearing what should be short-term support in the $145.00 region.

I do not see any changes from last week's new watch list candidate description. Currently our suggested entry point is a close in the $150-152 zone.

Trade Description: November 22, 2015:
The global economy might be facing a slowdown but longer-term demand for air travel is growing. The combination of demand for commercial aircraft and rising defense budgets around the world is powerful recipe for BA's business.

BA is in the industrial goods sector. According to the company, "Boeing is the world's largest aerospace company and leading manufacturer of commercial jetliners and defense, space and security systems. A top U.S. exporter, the company supports airlines and U.S. and allied government customers in 150 countries. Boeing products and tailored services include commercial and military aircraft, satellites, weapons, electronic and defense systems, launch systems, advanced information and communication systems, and performance-based logistics and training."

BA's most recent earnings report was October 21st. Wall Street was expecting a profit of $2.20 a share on revenues of $24.78 billion. BA beat estimates on both fronts. Earnings were $2.52 a share. Revenues were up +8.7% to $25.85 billion. The company raised their guidance on both EPS and revenues. Their backlog is almost 5,700 planes valued at more than $425 billion.

The company sees strong demand for the airplane market. On November 4th BA issued a press release stating, "Boeing forecasts airlines in the Middle East will require 3,180 new airplanes over the next 20 years, valued at an estimated $730 billion. 70 percent of the demand is expected to be driven by rapid fleet expansion in the region." Then on November 16th, "Boeing projects the Latin American commercial aviation market will grow at one of the highest rates in the world over the next 20 years. As a result, Boeing forecasts the region's airlines will need 3,050 new airplanes valued at $350 billion."

A couple of days ago two analysts with Canaccord Genuity issued a note suggesting rising interest rates are bullish for BA. Here's what they had to say, "While it is difficult for us to determine exactly when the U.S. will raise its target federal funds rate, we wanted to review again the impact of rising rates has historically had on Boeing and the commercial aerospace cycle. Historically, rising rates have corresponded with strengthening commercial orders and outperformance by both Boeing stock and the broader Aerospace & Defense sector. For example, over the past three significant tightening cycles, commercial transport orders increased by an average of 7% and 140% in the 12 and 24 month time periods after rates started to increase. Similarly, the total commercial backlog also increased over these same periods by an average of 3% and 43%... Not surprising as well, over the past two tightening cycles, BA stock has outperformed the broader market by an average of 19%-20% annually while rates are rising. We agree that with the more diverse backlog today, the health of U.S. airlines is less impactful for the cycle. However, we believe in the aggregate, rising rates in the U.S. are generally a bullish signal for both Boeing and the A&D sector. Note that since 1991, BA stock has outperformed the S&P in 15 of the 24 years, and is on pace to do so again in 2015." (source)

News in late October that BA and project partner Lockheed Martin (LMT) had lost their bid on the Pentagon's long-range strike bomber project to rival Northrop Grumman (NOC) did not seem to have much impact on BA's share price.

On the subject of defense, the terrible attacks in Paris last week have generated new support for additional defense spending to focus on ISIS/ISIL. BA could see additional defense spending contracts from multiple governments as governments bulk up for more action.

Meanwhile shares of BA have been building on a bullish trend of higher lows since the market's correction in August. The bounce off its trend line of support has lifted BA toward major resistance at $150.00. We want to see a convincing breakout past resistance at $150. Wait for BA to close inside the $150.00-152.00 zone. Then buy calls the next morning with an initial stop loss at $144.00.

Breakout trigger: Wait for BA to close in the $150.00-152.00 zone
Then buy calls the next morning with a stop at $144.00

BUY the 2017 JAN $170 call (BA170120C170)

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

Originally listed on the Watch List: 11/22/15

WisdomTree Europe Hedged ETF - HEDJ - close: 62.70

11/29/15: The U.S. dollar continued to rally last week. This pressured the euro lower and European stocks crept higher. The HEDJ broke through resistance at its 200-dma and the $62.50 area. If this strength continues we could see this trade opened soon. Right now the plan is to wait for HEDJ to close above $63.00 and then buy calls the next morning.

NOTE: The European Central Bank meets this week and they could boost their QE program. This announcement should come out on Thursday morning. More aggressive investors may want to launch bullish positions in the HEDJ prior to Thursday morning regardless if the ETF has met our entry requirement or not. A bigger and better QE announcement should give European stocks a boost.

Trade Description: November 22, 2015:
The Federal Reserve spent multiple years and multiple QE programs to help prop up the U.S. economy. Many believe these stimulus programs were a rising tide that lifted the major U.S. stock market indices. Now Europe has started their own QE journey. One way to play it is the HEDJ.

This is an ETF that follows the WisdomTree Europe Hedged Equity Index. Here's a brief description from the company, "The WisdomTree Europe Hedged Equity Index is designed to provide exposure to European equities while at the same time neutralizing exposure to fluctuations between the Euro and the U.S. dollar. In this sense, the Index 'hedges' against fluctuations in the relative value of the Euro against the U.S. dollar. The Index is based on dividend paying companies in the WisdomTree International Equity Index that are domiciled in Europe and are traded in Euros, have at least $1 billion market capitalization, and derive at least 50% of their revenue in the latest fiscal year from countries outside of Europe. The component securities are weighted in the Index based on annual cash dividends paid with the following caps: maximum individual position capped at 5%, maximum sector weight capped at 25%, and maximum country weight capped at 25%." (more info)

The European Central Bank has already launched a one trillion euro QE program. Now ECB President Mario Draghi has strongly hinted that the central bank will boost its QE program this coming December. The initial program was due to last until September 2016. Odds are the ECB's stimulus will be extended a lot longer than that.

Bears can argue that Europe's economy is slowing. Why would we want to own European stocks. This is a bet that European markets will react similarly to American markets. U.S. stocks ignored disappointing economic data for years in favor of constant QE from the Fed. Now it's Europe's turn.

My biggest worry is this Syrian refugee crisis and new terrorist threat. Housing, feeding, and taking care of hundreds of thousands of new refugees will not be cheap. It will also cost more to protect Europe's cities and populations from growing terror threats. If the terrorists are successful with several more attacks it could seriously dent the EU economy as people stay indoors and tourism slows down. Today's trade on the HEDJ is an optimistic bet that the terrorists do not win.

Currently the HEDJ has rebounded from its September lows to technical resistance at its simple 200-dma. It's also testing resistance at the ETF's multi-month down trend from its 2015 highs. A breakout here could be very bullish. Tonight I am suggesting we wait for the HEDJ to close above $63.00 and then buy calls the next morning.

Breakout trigger: Wait for HEDJ to close above $63.00
Then buy calls the next morning with a stop at $57.40

BUY the 2017 JAN $70 call (HEDJ170120C70)

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

Originally listed on the Watch List: 11/22/15

Raytheon Company - RTN - close: 126.79

11/29/15: RTN held up reasonably well last week. Traders bought the dip near $125.00 on Tuesday's decline. Shares still look overbought to me. I'd rather not chase it here. Tonight we are adjusting our entry strategy.

Broken resistance at $120.00 should be new support. Tonight we will list a new buy-the-dip entry trigger at $121.00 with a stop loss at $116.65. We are also adjusting the option strike to the 2017 January $130 call.

Trade Description: November 15, 2015:
The world seems to be growing more dangerous by the week. The war in Syria, the violent Islamic State (ISIS), and other hot spots around the world continue to fuel geopolitical tensions. If that wasn't enough we also have a belligerent Russia looming over eastern Europe and a China that is rapidly upgrading its military. The terrorist attack in Paris this past weekend drives the point home that governments need to spend more money on intelligence and anti-terror efforts.

Defense stocks is one way to play this growing need for defense systems. RTN is in the industrial goods sector. They are part of the defense/aerospace industry with big businesses in missile defense, electronic warfare, and cybersecurity. According to the company, "Raytheon Company, with 2014 sales of $23 billion and 61,000 employees worldwide, is a technology and innovation leader specializing in defense, civil government and cybersecurity markets throughout the world. With a history of innovation spanning 93 years, Raytheon provides state-of-the-art electronics, mission systems integration and other capabilities in the areas of sensing; effects; and command, control, communications and intelligence systems, as well as cybersecurity and a broad range of mission support services."

The company has beaten Wall Street's earnings estimates the last four quarters in a row. Management has raised their revenue guidance the last three quarters in a row. The U.S. now has a Republican controlled House and Senate, which should be defense-spending friendly. Plus, American defense companies have been developing foreign customers over the last few years to diversify their business should the U.S. see future spending cuts.

Wall Street is bullish on RTN with analysts raising their forecasts and price targets. The recent rally in RTN has produced a buy signal on the point & figure chart, which is forecasting at $136.00 target.

The last three weeks have seen the rally in RTN stall. Shares have been consolidating sideways in the $117-120 zone. I suspect RTN is poised to dip toward prior resistance and what should be support in the $110-112 area. Tonight I am suggesting a buy-the-dip trigger at $111.50.

Buy a dip trigger @ $121.00 with an initial stop at $116.65

BUY the 2017 Jan $130 call (RTN170120C130)

11/29/15 Entry Strategy Update: Use a buy-the-dip entry at $121.00 with a stop loss at $116.65. Use the 2017 Jan. $130 call
11/22/15 RTN has rallied too fast. We are temporarily removing our entry trigger for RTN. We'll come back in a week and re-evaluate how (or if) we want to trade RTN.
Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 11/15/15