Option Investor

Daily Newsletter, Tuesday, 11/24/2015

Table of Contents

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

Market Wrap

Another Lackluster Day

by Jim Brown

Click here to email Jim Brown

The major indexes came back from early losses to end the day only fractionally higher after events in Turkey overshadowed the positive GDP revision.

Market Statistics

Turkey shot down a Russian bomber in Turkish territory after warning it ten times to leave Turkish airspace. The warning was heard and recorded by other coalition forces. Two crewmen ejected and Russia sent a rescue helicopter to pick them up. The helicopter was destroyed by Syrian rebels and the pilot was killed. Syrian rebels also reported shooting at the Russian pilots as they floated to earth under their parachutes. At least one was killed.

Later Russia announced it had activated the Russian missile cruiser Moskva off the coast of Syria with orders to destroy any target that may pose a danger. Russian military contacts with Turkey were suspended. All future air operations against ground forces in Syria would be accompanied by Russian fighter jets.

Turkey called for an "extraordinary meeting" of NATO for Tuesday evening to discuss the shoot down and possible consequences. There are unconfirmed reports that Putin has ordered shooting down Turkish planes on the border and that Syria is going to start shooting at U.S. planes in Syrian airspace. Previously there was an unwritten agreement that Syria would not shoot at U.S. planes because they were attacking ISIS, which is also an enemy of Assad. I repeat, this is unconfirmed.

The events in Turkey caused a -17 point opening drop in the S&P to 2,070. By 11:AM traders begin buying the dip and the index rebounded to close up +2.55 at 2,089. The Dow dropped -112 points to 17,683 before rebounding to gain +19 at the close.

On the economic front, the GDP for Q3 was revised up from +1.49% growth to +2.08%. This was down from the +3.92% reading for Q2. Consumer spending at +2.05% and fixed investment at +0.54% provided the lift while inventories at -0.59% and exports at -0.22% provided the drag. Government spending added +0.29%. Corporate profits declined -3.19%.

The inventory lift was upgraded from a drag of -1.44% in the initial report. Inventory accumulation slowed dramatically late in the quarter as weak economics begin to weigh on sentiment.

This upgrade to GDP gives the Fed some cover for a December rate hike. They really do not pay a lot of attention to GDP with the emphasis on inflation and employment instead.

The Richmond Fed Manufacturing Survey for November declined from -1.0 to -3.0 and the third month in contraction territory. All the major components declined with backorders at -16 and the fourth month in decline. New orders fell back into contraction at -6. Employment was the only major component not in negative territory and it was zero.

This was not a good report and it shows manufacturing in the Richmond area is at its weakest point since 2012.

Manufacturing Components

Even worse, the Richmond Services number fell from 18 in October to -1 in November. That is a huge drop and only 1 of the seven retail components was positive. The retail wage index declined from 37 to 35.

However, hiring fell from -1 to -12, revenue from +20 to -12, inventories from +15 to -18, customer traffic from +36 to -3, big ticket sales from -3 to -25 and demand outlook fell from 10 to -21. Clearly, there was a huge shift in the services sector in November and that is a month when retail should have been accelerating rather than crashing.

Consumer Confidence for November declined from 99.1 to 90.4 and the second monthly decline. The high was 102.6 in September. This is the lowest level since September 2014 at 89. Consumers are becoming more pessimistic about economic conditions and I am sure the market drop in Sept/Oct was also a factor in dimming expectations.

The present conditions component declined from 114.6 to 108.1 and the expectations component declined -10 points from 88.7 to 78.6. Those that felt jobs were plentiful declined from 22.7% to 19.9%. Income expectations also declined. However, potential auto buyers increased from 9.8% to 12.4%. The new model year probably helped stimulate some buying interest. Potential homebuyers declined from 6.2% to 5.6% but appliance buyers increased from 47.4% to 51.5%.

Sinking confidence levels typically means consumers will tighten their wallets. That is a problem for retailers heading into the holiday shopping season.

There are a lot of numbers due out on Wednesday but none should be market moving. The oil inventories may turn out to be the most important if the inventory build jumps significantly, as I expect it will over the next couple of weeks. That could depress crude prices and the energy sector. The price of oil has had an unnatural impact on equities over the last couple of months.

The earnings calendar was lackluster today with Dollar Tree (DLTR) leading the pack of early morning reporters. The company reported earnings of 49 cents that missed earnings for 54 cents. However, revenue more than doubled to $4.95 billion and beat estimates for $4.84 billion. Shares rocketed higher despite the miss. The company said the earnings miss was related to its $8.5 billion acquisition of Dollar General. Same store sales rose +2.1%.

The company guided to full year earnings of $2.32 to $2.51 per share and well below estimates for $2.74. Revenue guidance rose to $15.5 billion and in line with analyst estimates.

I personally did not see the reason for the big jump in the stock price since they missed on earnings and guided lower on full year earnings.

Who knew Spam was such a hot commodity? Hormel Foods (HRL) reported earnings of 74 cents that beat estimates for 68 cents. Revenue of $2.4 billion missed estimates for $2.54 billion. However, the company raised guidance for the full year to earnings of $2.85 to $2.95 and analysts were expecting $2.83. Hormel also produces Dinty Moore stew, Hormel chili and owns organic meat producer Applegate. In what seems like a clever sales ploy from the maker of Spam, Applegate makes deli meats, hot dogs, bacon and sausage that do not contain antibiotics, hormones or artificial ingredients. Imagine an organic hotdog. Really?

Hormel has a chart that anyone would love and shares rose +3% today.

Tiffany (TIF) reported earnings of 70 cents compared to estimates for 75 cents. The company also warned that EPS would decline 5-10% this year and more than the prior forecast for "as much as 5%." Revenue declined -2.2% to $938.2 million and missing estimates for $971.3 million. The company said the impact of the strong dollar in the Americas reduced revenue by -6% while comparable sales rose +6% in Europe. Analysts were expecting +8.5% and +6% respectively. The company said tourism sales were lower because of the dollar's impact. Shares rose +3.6% on the report despite the earnings miss and lower guidance.

Signet Jewelers (SIG) also reported earnings of 33 cents compared to estimates for 39 cents. Shares of SIG declined -7.5% in early trading but rebounded to -4%.

Footwear retailer DSW Inc (DSW) reported earnings of 44 cents compared to lowered estimates for 44 cents after they warned in early November. Revenue of $665.5 million matched estimates. The company expects full year earnings of $1.40-$1.50 per share, down from prior estimates before the warning of $1.80-$1.90. Same store sales fell -3.9% compared to a rise of +2.6% in the year ago quarter. Shares rallied slightly despite the poor performance.

After the bell Hewlett Packard (HPQ) reported combined earnings as of October 31st. The split occurred on November 1st so the next earnings will be as individual companies. The company reported earnings of 93 cents that missed earnings of 97 cents. Revenue of $25.7 billion missed estimates for $26.36 billion. Revenue rose only +2% as a result of the strong dollar. In constant currency, sales would have risen +9% to roughly $27.3 billion, which would have beaten estimates. HPQ shares declined -7% in afterhours trading. HPE shares rose +40 cents.

The earnings cycle ends on Wednesday when Deere (DE) reports. There will be some stragglers in the days ahead but the majority of earnings are over.

The downing of the Russian plane caused oil prices to spike over $43 and lifted energy stocks. That is really what lifted the indexes into positive territory. Dow components Exxon and Chevron were the top gainers in the Dow producing about 20 Dow points and the Dow closed up only +19.

With Turkey giving Putin a bloody nose there is an even greater chance he will react aggressively and that could ratchet up geopolitical tensions. The increased bombing of oil pipelines, facilities and tanker trucks has made headlines and that is keeping a bid under crude. We have yet to see ISIS complete a successful attack on Saudi Arabian oil facilities and with the coalition striking ISIS oil operations we could easily see ISIS retaliate by striking back at Iraqi or Saudi facilities.

That $43 level is now resistance and without any new Syrian headlines on Wednesday, we could see prices begin to fade. We will also get the EIA inventory report on Wednesday that could show a big build in inventories.

The API inventory report after the close showed a 2.6 million barrel rise in inventories and a +1.9 million barrel rise in inventories at Cushing. The available storage at Cushing is about 70 million barrels and there are roughly 59 million barrels in storage after the API report. Cushing needs to keep about 10% of storage empty to facilitate the blending operations and maintain flexibility. Once Cushing rises to the point where they can no longer accept oil the price of WTI will decline sharply. Cushing is the delivery point for crude futures. The EIA numbers out in the morning are considered more accurate than the API numbers.


The markets opened lower on the Russian news and then rebounded back to the flat line. However, volume was a little heavier at 6.9 billion shares compared to Monday's 6.1 billion. The big opening drop on the S&P probably took out a lot of stop losses and closed those positions. Those hoping for a December rally bought the dip.

However, today's trading produced another lower high and a lower low on the S&P. That would normally suggest the rally is over but we have to take into account the calendar and the headlines. This week is a very low volume week and it will be even lower on Wednesday and Friday. The geopolitical headlines are keeping cautious traders on the sidelines and the rebound back to a small gain was actually a positive signal.

The overnight session could be dangerous tonight. If Putin exercises his Napoleon complex, he is only 5 foot 7, and takes aggressive action in Syria then all bets are off for the rest of the week. He hates to be seen as weak and I suspect there is a headline heading our way in the days ahead. He is not a leader that talks tough and fails to follow through.

Resistance is about 2,097 and initial support is 2,080 despite the headline drop to 2,070 intraday. Real resistance remains 2,016 and 2,132.

The Dow was lifted by the rebound in oil prices and calmer heads in the Middle East could remove that lift very easily. The last two days the Dow has topped out at 17,860 intraday and faded into the close. Today's close was 17,814. The Dow has the same lower high formation but it is not pronounced. I would like to think it is holding at the highs rather than failing at the highs but we do not have the answer yet.

We cannot make any rational projections from the charts in this low volume, low volatility market. We need to get past Thanksgiving and return to normal trading.

Resistance is 17,900 and support 17,700.

The Nasdaq is stuck at 5,100. It has closed between 5,102 and 5,104 for the last three days. The opening dip to 5,050 was quickly bought but it took all day to finally creep back to that solid resistance level.

I view this as positive because it refuses to decline. A material move over 5,100 could produce some short covering and push the Nasdaq closer to stronger resistance at 5,160.

The Nasdaq is currently our best hope for leading the indexes higher. As long as the big cap tech stocks continue to outperform the broader market could follow the Nasdaq higher.

However, the Russell 2000 is coming off the bench as a substitute hitter. The Russell rallied +8 today compared to only +0.33 for the Nasdaq. I said the big cap tech stocks were our best hope for leading the indexes higher but the Russell has suddenly caught fire and could eclipse the performance of the big caps. I am definitely not opposed to having two indexes competing for the lead.

The Russell has resistance at 1,194 and again at 1,200. Support is today's low at 1,173.

Our risk for the rest of the week is geopolitical and terror related. Negative headlines from the Middle East could definitely derail any market gains. A terror event in the U.S. would be even worse and bring back 9/11 style fears. With three million people planning on lining the streets of New York on Thursday for the Macy's parade that is a target rich environment for any ISIS cell ready to end their existence taking innocent lives. I pray nothing happens but the risk is extreme.

Enter passively, exit aggressively!

Jim Brown

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New Plays

Looks Like A Bottom For This Industrial Stock

by James Brown

Click here to email James Brown


Eaton Corp. - ETN - close: 57.69 change: +0.47

Stop Loss: 54.75
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on November -- at $---.--
Listed on November 24, 2015
Time Frame: Exit prior to earnings in February
(option traders exit prior to January expiration)
Average Daily Volume = 3.8 million
New Positions: Yes, see below

Company Description

Trade Description:
It has been a challenging year for ETN. Yet the action in the stock over the last few months is starting to look like a significant bottom.

ETN is in the industrial goods sector. According to the company, "Eaton is a power management company with 2014 sales of $22.6 billion. Eaton provides energy-efficient solutions that help our customers effectively manage electrical, hydraulic and mechanical power more efficiently, safely and sustainably. Eaton has approximately 99,000 employees and sells products to customers in more than 175 countries."

The company has lowered its guidance multiple times this year. ETN is dealing with weaker demand overseas. The strong U.S. dollar makes this worse. The company is forecasting at -5% hit to revenues due to negative currency headwinds.

ETN's most recent earnings report was October 30th. They missed the bottom line estimate by a penny. Revenues fell -9% to $5.2 billion, also below estimates. The company's CEO commented on their outlook, "As we begin to plan for 2016, it is apparent that markets are likely to remain soft. To deal with such weak markets, we will be expanding our 2016 restructuring program. We had been planning on this second restructuring program, in addition to the $145 million program we announced in the second quarter of 2015, to be on the order of $50 million to $60 million, but in light of current market weakness we are expanding the program to between $90 million and $100 million."

These restructuring efforts are expected to generate almost $330 million in cost savings over the 2015-2016 time frame. The stock rallied on this earnings report and news about its restructuring plans. After plunging from the mid $70s in May to the $50 level this past fall shares seem to have found a bottom.

The market is always looking forward. It appears investors believe the worst may already be behind ETN. That could explain why investors have begun buying the dips. Shares now have a bullish pattern of higher lows and higher highs. The point & figure chart has turned positive and is forecasting at $69.00 target. ETN does have short-term resistance in the $57.80 area. We want to buy a breakout. Use a trigger to launch bullish positions at $58.05.

Trigger @ $58.05

- Suggested Positions -

Buy ETN stock @ $58.05

- (or for more adventurous traders, try this option) -

Buy the JAN $60 CALL (ETN160115C60) current ask $0.85
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

Markets Shrug Off Geopolitical Tensions

by James Brown

Click here to email James Brown

Editor's Note:
News that Turkey had shot down a Russian warplane this morning sparked some selling pressure. Investors bought the dip again and the major indices were back in the green by the closing bell.

BBBY hit our entry trigger.

We have a new trigger on FMC.

Current Portfolio:

BULLISH Play Updates

FMC Corp. - FMC - close: 42.65 change: +0.75

Stop Loss: 39.85
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on November -- at $---.--
Listed on November 18, 2015
Time Frame: 6 to 8 weeks
Average Daily Volume = 1.6 million
New Positions: Yes, see below

11/24/15: Good news! Traders bought the dip near FMC's rising 10-dma. Shares displayed relative strength with a +1.7% gain. I see this move as a new entry point. Today's intraday high was $42.82. Tonight we will adjust our suggested entry trigger to $43.05.

Trade Description: November 18, 2015:
Shares of FMC have been struggling for a couple of years. The stock peaked near $83.00 in early 2014. Since then FMC traded at a low near $32.60 in late September this year. FMC's performance over the last couple of months looks like the stock has bottomed.

FMC is in the basic materials sector. According to the company, "For more than a century, FMC Corporation has served the global agricultural, industrial and consumer markets with innovative solutions, applications and quality products. FMC acquired Cheminova in April of 2015. Pro forma revenue totaled approximately $4.5 billion in 2014. FMC employs approximately 6,600 people throughout the world and operates its businesses in three segments: FMC Agricultural Solutions, FMC Health and Nutrition and FMC Lithium."

The earnings picture has been disappointing over the last several months. The company reported its Q1 results on May 5th and missed on both the top and bottom line. Management lowered their guidance. FMC's Q2 results were not much better with the company missing analysts' estimates on both the top and bottom line again.

On October 12th FMC warned that Q3 earnings would take a hit due to currency weakness in Brazil. Here's an excerpt from the company's press release, "FMC Corporation (FMC) today announced that, due to the recent rapid devaluation of the Brazilian real, the company is reducing third-quarter and full-year outlook for its Agricultural Solutions segment... A rapid devaluation of the Brazilian real, which depreciated over 50 percent versus the U.S. dollar in the past 12 months, and over 25 percent versus the U.S. dollar during the third quarter alone, has created significant headwinds that will continue to impact Agricultural Solutions segment earnings in the second half of 2015."

Shares of FMC plunged on this news from $37.50 to $35.00 but investors bought the dip. Earnings came out on October 28th. After warning in mid October their final results were above expectations. Q3 earnings fell from 72 cents a year ago to 42 cents but that beat the 38-cent estimate. Revenues were up +1.4% to $830.7 million, which was also above estimates. FMC rallied on this report.

Investors bought the recent dip (last week) and since then FMC has been showing relative strength. The rally has produced a triple-top breakout buy signal on FMC's point & figure chart, which now projects a $57.00 target. The relative strength continued today with a +2.6% gain and a breakout past short-term resistance at $43.00 and its 100-dma.

It's starting to look like all the bad news has been priced in and investors are betting on a turnaround in the company. The stock's recent rallies have been fueled with strong volume, which is normally a good sign. Tonight we are suggesting a trigger to launch bullish positions at $43.55. (Note: FMC is up five days in a row. Patient investors may want to wait for a dip before initiating new positions instead of our trigger at $43.55).

Trigger @ $43.05

- Suggested Positions -

Buy FMC stock @ $43.05

- (or for more adventurous traders, try this option) -

Buy the JAN $45 CALL (FMC160115C45)

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.

11/24/15 adjust entry trigger from $43.55 to $43.05
Option Format: symbol-year-month-day-call-strike

Southwest Airlines Co. - LUV - close: 46.23 change: -1.24

Stop Loss: 44.65
Target(s): To Be Determined
Current Gain/Loss: -3.0%
Entry on November 23 at $47.65
Listed on November 21, 2015
Time Frame: 6 to 9 weeks
Average Daily Volume = 7.3 million
New Positions: see below

11/24/15: Airline stocks suffered today as Wall Street reacted to the U.S. government's worldwide travel alert. This is the busy, holiday travel season. The State Department issued a travel alert for Americans saying "there is a continuing threat" from terrorists (mainly ISIS). The U.S. is not suggesting that Americans avoid travel but to stay vigilant, especially in crowded public places and public transportation. ISIS has threatened to hit the United States and Europe again in the coming weeks. This new travel alert is for the next 90 days.

Most consumers traveling this holiday season has probably already purchased their airplane tickets. So this new alert may not have an immediate impact on the airlines. Airline stocks spiked lower this morning but traders bought the dip again. LUV pared its loss to -2.6% by the closing bell.

I do not want to belittle the obvious but if terrorists do manage to bring down an American airliner this group of stocks could see significant selling pressure.

No new positions at this time.

Trade Description: November 21, 2015:
Airline stocks have struggled this year with the XAL airline index down more than -10% year to date. LUV is an exception. The stock is up +11.8% in 2015 and just closed at an all-time high.

LUV is part of the services sector. According to the company, "In its 45th year of service, Dallas-based Southwest Airlines (LUV) continues to differentiate itself from other air carriers with exemplary Customer Service delivered by more than 47,000 Employees to more than 100 million Customers annually. Southwest operates more than 3,600 flights a day, serving 95 destinations across the United States and six additional countries. Southwest service to Belize City, Belize, begins Oct. 15, 2015. Subject to foreign government approval, service to Liberia, Costa Rica, begins Nov. 1, 2015.

Based on the U.S. Department of Transportation's most recent data, Southwest Airlines is the nation's largest carrier in terms of originating domestic passengers boarded. The Company operates the largest fleet of Boeing aircraft in the world, the majority of which are equipped with satellite-based WiFi providing gate-to-gate connectivity while over the United States. That connectivity enables Customers to use their personal devices to access streaming music provided by Apple Music or to view video on-demand movies and television shows, as well as nearly 20 channels of free, live TV compliments of our valued Partners. Southwest is the only major U.S. airline to offer bags fly free® to everyone (first and second checked pieces of luggage, size and weight limits apply, some airlines may allow free checked bags on select routes or for qualified circumstances), and there are no change fees, though fare differences might apply."

As I mentioned earlier 2015 has been a relatively challenging year for most airline stocks. Investors have been worried that airlines would add too much capacity and thus put pressure on fares. Fares have begun to drop recently but that is more of a reflection in lower fuel prices for airlines thanks to low oil prices.

The third quarter was relatively strong for the industry. Several companies have guided higher. 2015 has not been a great year for airline stocks but it could be a record year for the industry in terms of profits. Domestic airlines are seeing strong free cash flow and they're buying back a lot of stock.

After the spring-summer slump shares of LUV appear to have bottomed. Both the industry and Wall Street are looking ahead to the busy holiday travel season. September was a good month for LUV. The company reported revenue passenger miles were up +11.4% last month. A couple of weeks ago LUV reported that its October traffic rose +10.8% to 10.0 billion revenue passenger miles. This past week LUV announced their 157th consecutive quarterly dividend. The current dividend is $0.075 (7 1/2 cents) per share payable on January 7th to shareholders of record on December 10th.

I want to point out that shares of LUV have held up well considering the increase in terrorist events. ISIS claims they were behind the bomb that brought down a Russian jet liner in Egypt on October 31st. Then the attacks in Paris several days ago have renewed fears that we could see a new wave of terrorism. Most of LUV's business is domestic but they do travel to six other countries. If terrorists manage to bring down an American-owned and operated plane it could shock the industry and stocks like LUV would likely see a knee-jerk reaction lower. Obviously we do not expect this to happen but it is a risk.

A key factor to watch is oil prices. Weakness in crude oil is bullish for airlines since it means lower fuel costs. Oil has been flirting with a breakdown below $40.00 a barrel for days. Supplies and inventories are expected to rise over the next several weeks and months and that should push oil prices lower. This would be a bullish tailwind for airlines.

Currently LUV looks pretty solid. Shares spent a couple of weeks digesting its gains from October. Now the stock is in the process of breaking out past resistance in the $47.00-47.50 area. Friday's session is a new all-time closing high. The point & figure chart is bullish and forecasting at $67 target. Tonight we are suggesting a trigger to launch bullish positions at $47.65.

- Suggested Positions -

Long LUV stock @ $47.65

- (or for more adventurous traders, try this option) -

Long JAN $50 CALL (LUV160115C50) entry $0.97

11/24/15 U.S. State Department issues travel alert
11/23/15 triggered @ $47.65
Option Format: symbol-year-month-day-call-strike

Microsoft Inc. - MSFT - close: 54.25 change: +0.06

Stop Loss: 52.15
Target(s): To Be Determined
Current Gain/Loss: -0.6%
Entry on November 04 at $54.60
Listed on November 03, 2015
Time Frame: 6 to 8 weeks.
Average Daily Volume = 35.4 million
New Positions: see below

11/24/15: MSFT is slowly building a bullish trend of higher lows. Traders bought the dip near $53.60 today and shares rallied back into positive territory by the close.

No new positions at the moment.

Trade Description: November 3, 2015:
MSFT is more than just a software company. MSFT is in the technology sector. It is considered part of the business software industry. According to the company, "Microsoft is the leading platform and productivity company for the mobile-first, cloud-first world, and its mission is to empower every person and every organization on the planet to achieve more."

The company is run under three segments. They have their productivity and business processes segment. This includes commercial office software, personal office software, and more. One of their fastest growing segments is MSFT's Intelligent Cloud business, which includes their server software and enterprise services. Then they have their "More Personal Computing" segment. This includes their Windows operating software, MSN display advertising, Windows phones, smartphones, tablets, PC accessories, Internet search, and their Xbox platform.

The stock has been dead money for almost a year. MSFT peaked near round-number resistance at $50.00 back in November 2014. Shares channeled sideways between support at $40 and resistance at $50 for months. That changed last month.

MSFT reported its 2016 Q1 results on October 22nd. Analysts were expecting a profit of $0.59 a share on revenues of $21.04 billion. MSFT beat both estimates with a profit of $0.67 a share. Revenues came in at $21.66 billion. Their Intelligent Cloud segment saw sales rise +8% but it was actually +14% on a constant currency basis.

Shares of MSFT soared the next day with a surge to 15-year highs. The big rally is based on investors' belief that MSFT and its relatively new management is successfully transitioning away from declining PC sales and moving quickly towards the cloud (and mobile).

Normally I would hesitate to buy a stock like MSFT after a big gap higher. Too often stocks tend to fill the gap. However, shares of MSFT have been able to levitate sideways in the $52.50-54.50 zone as traders keep buying the dips. Odds are growing we could see MSFT rally toward its all-time highs near $60.00 a share from December 1999. The big gain in October produced a buy signal on the point & figure chart, which is now forecasting a long-term target of $82.00. Tonight we are suggesting a trigger to launch bullish positions at $54.60.

- Suggested Positions -

Long MSFT stock @ $54.60

- (or for more adventurous traders, try this option) -

Long 2016 JAN $55 CALL (MSFT160115C55) entry $1.54

11/04/15 triggered @ $54.60
Option Format: symbol-year-month-day-call-strike

Paychex, Inc. - PAYX - close: 54.18 change: -0.13

Stop Loss: 52.45
Target(s): To Be Determined
Current Gain/Loss: +1.9%
Entry on November 11 at $53.15
Listed on November 09, 2015
Time Frame: Exit PRIOR to earnings in mid December
Average Daily Volume = 2.3 million
New Positions: see below

11/24/15: That's not a typo. PAYX is down 13 cents for the second day in a row. Shares actually spiked down to their 10-dma near $53.50 this morning and then bounced back to almost unchanged on the session.

No new positions at this time.

Trade Description: November 9, 2015:
Last week the Bureau of Labor Statistics announced that the nonfarm payroll (jobs) report for October showed a gain of +271,000. That was way above expectations. The separate household survey showed a gain of +320,000 jobs. This pushed the unemployment rate down to 5.0%, the lowest reading since early 2008. Many believe that the U.S. has now reached full employment. Do you know what that means? It means more Americans working. That means more paychecks to be delivered and more HR services to be handled.

PAYX is in the services sector. According to the company, "Paychex, Inc. (PAYX) is a leading provider of integrated human capital management solutions for payroll, HR, retirement, and insurance services. By combining its innovative software-as-a-service technology and mobility platform with dedicated, personal service, Paychex empowers small- and medium-sized business owners to focus on the growth and management of their business. Backed by more than 40 years of industry expertise, Paychex serves approximately 590,000 payroll clients across 100 locations and pays one out of every 15 American private sector employees."

PAYX earnings have been slowly and consistently creeping higher. Revenues have been rising about 8% the last couple of quarters. This company's most recent earnings report was September 30th. They beat estimates on both the top and bottom line, which helped fuel another rally in the stock.

PAYX management has been very consistent about paying a dividend. PAYX now sports a dividend yield of 3.7%. That could draw more and more income investors looking for a safe company to buy.

A recent article on Forbes.com, by Brett Owens, noted that "demand for payroll outsourcing (60% of Paychex's latest quarterly revenue) will grow at a 3.9% compound annual rate between 2013 and 2018. HR outsourcing (40% of revenue) is on a stronger tear, with a projected 12.3% yearly gain in the same period" (source)

We like PAYX's relative strength. Shares are up +14.2% year to date. That compares to a +1.0% gain in the S&P 500 and a +7.6% rally in the NASDAQ. The NASDAQ composite is up +18% from its August low but PAYX is up +26.7%. The rally in PAYX has produced a buy signal on the point & figure chart, which is also forecasting a long-term target at $72.00.

On Friday PAYX found short-term support near $53.00. Tonight we are suggesting a trigger to launch bullish positions at $53.15.

- Suggested Positions -

Long PAYX stock @ $53.15

- (or for more adventurous traders, try this option) -

Long JAN $55 CALL (PAYX160115C55) entry $0.80

11/11/15 triggered @ $53.15
Option Format: symbol-year-month-day-call-strike

Total System Services, Inc. - TSS - close: 55.35 change: -0.37

Stop Loss: 52.75
Target(s): To Be Determined
Current Gain/Loss: +0.4%
Entry on November 21 at $55.15
Listed on November 19, 2015
Time Frame: 6 to 9 weeks
Average Daily Volume = 1.4 million
New Positions: see below

11/24/15: TSS briefly traded below what should have been short-term support at the $55.00 level. Shares hit $54.88 before paring its loss on the session. I would be tempted to buy this bounce but investors may want to wait and make sure both TSS and the major market indices are positive on the session before launching new positions.

Trade Description: November 19, 2015:
TSS must be doing something right. Earnings and revenues have grown every quarter for the last four quarters. The stock has shown significant relative strength with TSS up +60% year to date.

TSS is part of the financial sector. According to the company, "As one of the world's largest payment solutions and services companies, TSYS® believes payments should revolve around people, not the other way around. Since we got our start in the payments space more than 30 years ago, we have evolved from a supporting role servicing several hundred bank card issuers and bank acquirers to directly touching hundreds of thousands of merchants and millions of consumers.

TSYS is a global, publicly traded company with operations in more than 80 countries, including many of the world's most high-growth emerging markets. We provide electronic payment services to financial institutions and companies around the globe with a broad range of issuing and acquiring payment technologies, including consumer, credit, debit, healthcare, loyalty, prepaid, chip and mobile payments."

As I mentioned earlier the earnings picture has been very healthy. TSS has beaten Wall Street's earnings and revenue estimate the last four quarters in a row. Earlier in the year they announced a 20 million share stock buyback. Plus management has raised guidance the last two quarters in a row.

TSS' most recent earnings report was October 27th. Wall Street was expecting a profit of $0.59 a share on revenues of $668 million. TSS announced that earnings were up +40% from a year ago to $0.78 a share. Revenues were up +15% to $708 million. The company management said, "we are raising our guidance range for revenues before reimbursables to 12-13%, up from the previous range of 10-12%, and our adjusted earnings per share (EPS) guidance range to 24-26%, up from the previous range of 15-17%."

You can see how the stock surged the next day on its strong results and bullish outlook. Since then shares of TSS have been consolidating sideways but it looks like that consolidation is almost over. Shares have rallied back toward round-number resistance at $55.00. Currently the point & figure chart is bullish and forecasting at $65.00 target. Tonight we are suggesting a trigger to launch bullish positions at $55.15.

- Suggested Positions -

Long TSS stock @ $55.15

- (or for more adventurous traders, try this option) -

Long FEB $55 CALL (TSS160219C55) entry $2.60

11/20/15 triggered @ $55.15
Option Format: symbol-year-month-day-call-strike

Yelp Inc. - YELP - close: 30.01 change: +0.15

Stop Loss: 27.90
Target(s): To Be Determined
Current Gain/Loss: + 8.1%
Entry on November 18 at $27.75
Listed on November 17, 2015
Time Frame: 6 to 8 weeks
Average Daily Volume = 3.5 million
New Positions: see below

11/24/15: YELP experienced some volatility this morning with a swing from $29.45 to $30.63 but shares spent most of the day churning sideways on either side of $30.00.

No new positions at this time.

Trade Description: November 17, 2015:
It has been a rough ride for YELP investors. The stock is down -50% year to date and off -72% from its all-time highs set in 2014. Yet the action lately is starting to look like all the bad news is priced in.

YELP is considered part of the technology sector. According to the company, "Yelp Inc. (http://www.yelp.com) connects people with great local businesses. Yelp was founded in San Francisco in July 2004. Since then, Yelp communities have taken hold in major metros across 31 countries. Approximately 83 million unique visitors visited Yelp via their mobile device1, including approximately 18 million unique devices accessing the Yelp app2, and approximately 79 million unique visitors visited Yelp via a desktop computer3 on a monthly average basis during the second quarter of 2015. By the end of the same quarter, Yelpers had written approximately 83 million rich, local reviews, making Yelp the leading local guide for real word-of-mouth on everything from boutiques and mechanics to restaurants and dentists."

The earnings picture has struggled this year. YELP's Q1 and Q2 reports both missed analysts' estimates. YELP also guided lower each time. Then there was news in July that YELP had given up on trying to sell itself because they couldn't find a buyer.

The revenue picture improved in the third quarter. YELP reported its Q3 results on October 28th. Earnings of $0.03 a share missed estimates of $0.06. Yet revenues were up +40% to $143.6 million, which was better than expected. Management then raised their 2015 guidance.

On November 13th shares of YELP received a big upgrade from RBC Capital Markets who raised their outlook to "outperform" and upped their price target from $34 to $42. Meanwhile recent news that InterActiveCorp (IACI) had offered to buy Angie's List (ANGI) might restart the M&A speculation on YELP since ANGI and YELP are in similar businesses.

Technically shares of YELP definitely appear to have formed a bottom over the last three months. The rally from its October lows has generated a buy signal on the point & figure chart that is forecasting a long-term target of $37.00. Right now YELP is flirting with a breakout past its early August peak. A breakout could spark some short covering. The most recent data listed short interest at 22% of the 60.8 million share float.

We are listing YELP as an aggressive, higher-risk bullish trade. The stock can be volatile so readers may want to limit their position size. Tonight we are suggesting a trigger to launch positions at $27.75.

*small positions to limit risk*- Suggested Positions -

Long YELP stock @ $27.75

- (or for more adventurous traders, try this option) -

Long 2016 JAN $30 CALL (YELP160115C30) entry $1.47

11/21/15 new stop @ 27.90
11/18/15 triggered @ $27.75
Option Format: symbol-year-month-day-call-strike

BEARISH Play Updates

Bed Bath & Beyond Inc. - BBBY - close: 54.13 change: +1.24

Stop Loss: 56.15
Target(s): To Be Determined
Current Gain/Loss: -3.4%
Entry on November 24 at $52.35
Listed on November 23, 2015
Time Frame: Exit PRIOR to earnings in January
Average Daily Volume = 2.2 million
New Positions: see below

11/24/15: Ouch! BBBY is not cooperating. The stock spiked down to a new multi-year low this morning. Shares tagged our entry trigger at $52.35. The sell-off didn't last long and BBBY quickly reversed higher. The rally continued almost all day with BBBY outperforming the market with a +2.3% gain. If that wasn't bad enough today's move has generated a bullish engulfing candlestick reversal pattern. These patterns need to see confirmation. Currently our stop loss is at $56.15. More conservative traders may want to use a lower stop. No new positions at this time.

Trade Description: November 23, 2015:
Retail stocks have had a rough time this year. Wall Street has been concerned about consumer spending. Plus there is the constant pressure from online rivals chipping away at margins and traffic from brick and mortar stores. The XRT retail ETF is down -7.1% year to date but it's off -12.4% from its 2015 highs. BBBY has underperformed its peers. This stock is down -30% year to date and down -33% from its 2015 highs. Tonight the bear market in BBBY looks ready to accelerate lower.

BBBY is in the services sector. According to the company, "Founded in 1971, Bed Bath & Beyond Inc. and subsidiaries (the 'Company') is a retailer selling a wide assortment of domestics merchandise and home furnishings which operates under the names Bed Bath & Beyond, Christmas Tree Shops, Christmas Tree Shops andThat! or andThat!, Harmon or Harmon Face Values, buybuy BABY and World Market, Cost Plus World Market or Cost Plus. Customers can purchase products from the Company either in-store, online or through a mobile device. The Company has the developing ability to have customer purchases picked up in-store or shipped direct to the customer from the Company's distribution facilities, stores or vendors. In addition, the Company operates Of a Kind, an e-commerce website that features specially commissioned, limited edition items from emerging fashion and home designers. The Company also operates Linen Holdings, a provider of a variety of textile products, amenities and other goods to institutional customers in the hospitality, cruise line, healthcare and other industries. Additionally, the Company is a partner in a joint venture which operates retail stores in Mexico under the name Bed Bath & Beyond."

The earnings outlook has been challenging for BBBY. In April 2015 they reported their Q4 results. Earnings were inline but revenues missed estimates and management guided lower for Q1. Jump to June and BBBY reported earnings that missed estimates (even after guiding lower). Revenues were only up +3% and management guided lower again.

The company reported their Q2 results on September 24th. Earnings were up +3.4% from a year ago to $1.21 a share. That was in-line with Wall Street's lowered expectations. Revenues only rose +1.7% and missed estimates. Comparable store sales fell from +2.2% in Q1 to +0.7% in Q2. Management offered another soft outlook for current quarter. BBBY tried to soften the bad news by announcing an additional $2.5 billion stock buyback to follow their current buyback program, which had dwindled to $305 million.

Technically it looked like BBBY had broken out past its multi-month bearish trend in early November. Shares had rallied above some key resistance trend lines and above resistance at the 50-dma and the $60.00 level. Unfortunately for bullish investors this proved to be a trap. A few days later BBBY broke down again. Shares plunged to new multi-year lows. The point & figure chart is now forecasting at $45.00 target.

Multiple analysts have suggested that consumer spending this holiday season will disappoint. It looks like BBBY traders are not sticking around to find out if Wall Street's sour outlook is correct or not. We think BBBY's bearish momentum continues. The stock currently has short-term support near $52.50. We are suggesting a trigger to launch bearish positions at $52.35.

- Suggested Positions -

Short BBBY stock @ $52.35

- (or for more adventurous traders, try this option) -

Long JAN $50 PUT (BBBY160115P50) entry $1.68

11/24/15 triggered @ $52.35
Option Format: symbol-year-month-day-call-strike

Seagate Technology - STX - close: 34.27 change: -0.43

Stop Loss: 35.55
Target(s): To Be Determined
Current Gain/Loss: +4.4%
Entry on November 11 at $35.85
Listed on November 10, 2015
Time Frame: 6 to 8 weeks
Average Daily Volume = 4.9 million
New Positions: see below

11/24/15: STX displayed relative weakness today. Shares spent most of the session bouncing along the $34.00 level and eventually settled with a -1.2% loss.

Traders could use a new drop below $33.75 as another bearish entry point.

Trade Description: November 10, 2015:
A slowdown in PC sales is killing STX's performance. Share are significantly underperforming the broader market. The company's stock is down -45% year to date.

STX is part of the technology sector. According to the company, "Seagate creates space for the human experience by innovating how data is stored, shared and used." That doesn't tell us much. Visiting their website you can learn that "Seagate is the global leader in data storage solutions, developing amazing products that enable people and businesses around the world to create, share and preserve their most critical memories and business data." Essentially STX makes hard drives and data storage for both personal and business use. This includes desktop storage, laptop storage, backup solutions, data recovery, cloud computing storage, and a lot more.

Unfortunately for investors the earnings picture has been disappointing. STX management issued an earnings warning on October 15th as they reduced their guidance for Q1 earnings and revenues. You can see the drop in their stock price on the 15th.

STX reported their 2016 Q1 earnings on October 30th. Net income fell -63.6% from a year ago. Earnings came in at $0.54 a share, which was three cents below estimates. Revenues plunged -22.7% to $2.92 billion, which matches the levels they warned about two weeks prior. STX said their gross margins contracted from 28.1% to 24.2%.

Management knew the quarter was going to be bad so they tried to soften the bad news by announcing a +17% jump in their dividend just prior to their earnings announcement. The news didn't seem to help. Their 2016 Q2 guidance did not help either as management lowered their revenue forecast below analysts' estimates. Wall Street has been reducing their ratings and their price target on the stock in reaction to the company's lowered forecast.

I could see dividend investors looking a STX as a potential buy. The plunge in the stock price has driven the dividend yield up to 6.9%. Yet who wants to buy a stock for their dividend and watch your capital evaporate?

Technically STX is in a bear market. Shares displayed relative weakness today with a -4.5% decline and a drop to new multi-year lows. The point & figure chart is already bearish and forecasting at $26.00 target. If STX trades below $36.00 it will produce a new triple-bottom breakdown sell signal on its P&F chart. Tonight we are suggesting a trigger to launch bearish positions at $35.85.

- Suggested Positions -

Short STX stock @ $35.85

- (or for more adventurous traders, try this option) -

Long JAN $35 PUT (STX160115P35) entry $1.93

11/17/15 new stop @ 35.55
11/14/15 new stop @ 36.25
11/11/15 new stop @ 37.25
11/11/15 triggered @ $35.85
Option Format: symbol-year-month-day-call-strike

iPath S&P500 VIX Futures ETN - VXX - close: 19.03 change: +0.13

Stop Loss: None, no stop at this time.
Target(s): $16.65
Current Gain/Loss: +12.8%
2nd position Gain/Loss: +34.4%
Entry on August 25 at $21.82
2nd position: September 2nd at $29.01
Listed on August 24, 2015
Time Frame: to be determined
Average Daily Volume = 50 million
New Positions: see below

11/24/15: The stock market's spike lower this morning gave the VIX a boost but the VXX underperformed.

Currently our exit target is $16.65. More conservative traders might want to consider an exit in the $18.00 region.

No new positions at this time.

Trade Description: August 24, 2015
The U.S. stock market's sell-off in the last three days has been extreme. Most of the major indices have collapsed into correction territory (-10% from their highs). The volatile moves in the market have investors panicking for protection. This drives up demand for put options and this fuels a rally in the CBOE volatility index (the VIX).

You can see on this long-term weekly chart that the VIX spiked up to levels not seen since the 2008 bear market during the financial crisis. Moves like this do not happen very often. The VIX rarely stays this high very long.

(see VIX chart from the August 24th play description)

How do we trade the VIX? One way is the VXX, which is an ETN but trades like a stock.

Here is an explanation from the product website:

The iPath® S&P 500 VIX Short-Term Futures® ETNs (the "ETNs") are designed to provide exposure to the S&P 500 VIX Short-Term FuturesTM Index Total Return (the "Index"). The ETNs are riskier than ordinary unsecured debt securities and have no principal protection. The ETNs are unsecured debt obligations of the issuer, Barclays Bank PLC, and are not, either directly or indirectly, an obligation of or guaranteed by any third party. Any payment to be made on the ETNs, including any payment at maturity or upon redemption, depends on the ability of Barclays Bank PLC to satisfy its obligations as they come due. An investment in the ETNs involves significant risks, including possible loss of principal and may not be suitable for all investors.

The Index is designed to provide access to equity market volatility through CBOE Volatility Index® (the "VIX Index") futures. The Index offers exposure to a daily rolling long position in the first and second month VIX futures contracts and reflects market participants' views of the future direction of the VIX index at the time of expiration of the VIX futures contracts comprising the Index. Owning the ETNs is not the same as owning interests in the index components included in the Index or a security directly linked to the performance of the Index.

I encourage readers to check out a long-term chart of the VXX. This thing has been a consistent loser. One market pundit said the VXX is where money goes to die - if you're buying it. We do not want to buy it. We want to short it. Shorting rallies seems to be a winning strategy on the VXX with a constant trend of lower highs.

Today the VXX spiked up to four-month highs near $28.00 before fading. We are suggesting bearish positions at the opening bell tomorrow. The market volatility is probably not done yet so we are not listing a stop loss yet. Our time frame is two or three weeks (or less).

- Suggested Positions -

Short the VXX @ $21.82

Sept. 2nd - 2nd position (Double Down On The September 1st Spike)

Short the VXX @ $29.01

11/07/15 adjust exit target to $16.65
11/02/15 adjust exit target to $16.50
10/19/15 add an exit target at $16.25
10/15/15 planned exit for the October puts
10/14/15 if you own the options, prepare to exit tomorrow at the close
09/02/15 2nd position begins. VXX gapped down at $29.01
09/01/15 Double down on this trade with the VXX's spike to 6-month highs
08/25/15 trade begins. VXX gaps down at $21.82
Option Format: symbol-year-month-day-call-strike