Option Investor

Daily Newsletter, Wednesday, 11/25/2015

Table of Contents

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

Market Wrap

A Quiet Holiday Week

by Keene Little

Click here to email Keene Little
A holiday-shortened week tends to be bullish and while this week hasn't exactly been bullish it's at least held onto recent gains, which can be considered bullish. We'll have to get through this week before we'll have a better sense about what this week's consolidation means in the larger pattern.

Today's Market Stats

Happy Thanksgiving! While this is a U.S. holiday that celebrates the fall harvest by the brave (but some would say not too bright) Pilgrims after they landed on our shores in current-day Massachusetts, the Canadians also celebrate their thanksgiving on this day. Even if you do not have a national holiday of thanksgiving, it's a perfect day to sit and reflect on those things you're thankful for. Reflecting on what you're grateful for makes you a happier person for it.

This holiday-shortened week has been very quiet, which was not unexpected, and thanks to the market save Tuesday morning (following the negative reaction to the news about the shot-down Russian jet) the market hasn't been negative this week. It's been a neutral week, except for a more bullish RUT, and the only question now is whether this week's consolidation is a bullish continuation pattern or instead a bearing topping pattern. As I'll show later, even the more bullish RUT actually presented us with a bearish setup by the end of today. But I could easily argue either direction from here and considering Friday's half-day session will likely also be a quiet session, we'll probably need to wait until next week before we get some more clues as to what's next.

There were several economic reports this morning as Thursday's and Friday's reports were brought forward. There was nothing market-moving presented this morning and while there was a brief negative reaction in the pre-market futures, they were lifted back up at the market's open (another sign from the market handlers that there will be no selling allowed this week). Durable goods orders bumped higher than expected (+3.0% vs. +1.5%) but removing the volatile transportation sector left it as expected (+0.5%). Michigan Sentiment came in a bit lower than expected, 91.3 vs. 93.1. A relatively small bump in oil inventories helped crude rally today.

Economic reports

Before getting into my regular charts I wanted to help set the tone of the market vs. what we should be watching for. It's easy to get caught up in the bullishness of the market and if you're feeling bullish you're not alone. The market's rally off the August/September lows has driven bullish sentiment to extreme highs, as can be seen on the Sentix Sentiment chart below (from Sentix.de). Whenever the sentiment level gets above 0.3, especially if it reaches 0.4, it provides a warning that the stock market's rally is overheated and that it's done a good job sucking in bulls near what is likely to be a top in the market (when the rally runs out of buyers it creates a top). It is currently at 0.442, which is the highest reading since the end of 2010. These high sentiment readings don't tell us the market is ready to reverse now but instead simply provide a warning.

Sentix Sentiment, November 20, 2015

Another sign of excessive bullishness can be seen on the Rydex chart below (provided by Tom McClellan). This compares the SPX against the Rydex Nova assets, which is a fund that seeks to achieve 150% of the S&P 500 index. When investors are feeling bullish about the stock market's potential they use this fund to leverage the play. As you can see on the chart, the last two peaks prior to the current one were at the end of 2014, which has been followed by essentially a flat year, and then the peak in May 2015, which was the high of the year. The assets in this fund are now higher than they were at the November 3rd peak in SPX. Since the September low it's been a very fast climb for assets held in the Nova fund, which indicates a strong bullish sentiment and one has to wonder if this is telling us the rally is about to peak.

Rydex Nova Assets, November 20, 2015, chart courtesy mcoscillator.com

Keep in mind that the stock market's holding up near its all-time highs, along with the extreme bullish sentiment, is in the face of a global economic slowdown, which the U.S. will not be immune to. In fact there are many signs our economy has been slowing for at least two quarters and in hindsight we could see the recognition that the recession has already started. Using employment growth is not a good indicator since it generally peaks with the stock market, which typically peaks about six months ahead of a recession and if we use the May highs as the market peak then we are at the 6-month mark.

The Baltic Dry Index is a very good indicator for how much products are in demand since so much is transported by ship. After hitting a high in early 2008 this index dropped sharply to a low in late 2008 and has been unable to recover much of that loss. It is now down about 96% from its 2008 high and it has dropped below its late-2008 low, as can be seen on the chart below. It had bumped up to another lower high in August but since then it lost about 60% of its value. We have a stock market back up near its highs and the BDI dropping 60% and now below the lows seen at the last stock market lows in 2008-2009. Think there might be some kind of disconnect between the stock market and reality? At some point, especially with the discussion above, there will be a market correction and I think it's going to be a lot stronger and violent than most believe.

Baltic Dry index, BDI, Weekly chart courtesy Casey Research

There are a couple of factors affecting the BDI price -- supply and demand (as always). With the high rates back in 2007-2008 many ships were built (the boom times were expected to last). The combination of too many ships and a slowdown in demand has killed the index, which has dropped lower for the past four quarters. Last Friday Forbes reported the global shipping industry still has 30% excess capacity. Not a good time to be a ship owner (unless you own oil tankers). The shipping company Maersk ships about 15% of all manufactured goods worldwide and their CEO recently announced plans to lay off about 17% of its global workforce. He said the global economy is slowing faster than most people think. In the meantime most central banks and the IMF continue to report slowing but still positive growth. I think I'd prefer to place my bets with someone who lives in the real world and not academia.

We see additional evidence of global slowing in things like the price of copper and other commodities prices. Copper is down to lows not seen since May 2009. But copper could still drop lower if it follows the commodity index (DJUBS), which has dropped below not only its 2009 low but also its 2001 low. Big international equipment builders, such as Caterpillar (CAT) have been telling us equipment sales have been slowing drastically (CAT's sales are down 16% from a year ago and have been slowing for the past three years). Europe is rapidly slowing and of course that has the ECB promising to do more of "whatever it takes" and rather than worry about a slowing economy and weaker earnings we have a stock market much more interested in more intravenous drugs from the cabal, I mean central banks. The longer the distortions from central bank activity continue the stronger will be the counter-reaction when it occurs. Ask any drug addict and they'll tell you that coming off drugs is a bitch and now we've got the Fed promising to start squeezing off the drug supply.

The market's love of printed money and the big push into riskier assets in search of higher yields has created a monster known affectionately to us as the stock market, which is close to probing all-time highs instead of lows with commodities. But while the indexes are holding near their all-time highs, a look under the hood tells us a different story. Price is always the final arbiter since that's how we make and lose our money. But while the outside of the car looks all shiny on the used-car lot with a 'For Sale' sign on it, the engine is leaking oil and showing us many other signs of aging. The chart below shows SPX vs. 52-week highs in the middle and then at the bottom is chart of the advancing-declining stocks.

S&P 500 index vs. 52-week highs and Advancing-Declining stocks, Daily chart

Over the past year the number of new 52-week highs has been steadily deteriorating, a sign of lack of participation by stocks in the rally -- more and more stocks are succumbing to selling pressure while SPX is held high (some would say through manipulation through buying of futures and the index itself, including the SPY). Even now as the market pushes back up toward the November 3rd high you can see the lower number of stocks hitting 52-week highs. Likewise, the bottom chart shows the number of advancing-declining stocks has deteriorated since early October. Like sentiment, this is not a timing tool but it does tell you when it's better to be defensive rather than aggressive about the long side. Combined with high bullish sentiment I think we have a very vulnerable market right now but how long that could continue is anyone's guess.

OK, onto the regular charts, starting with the SPX weekly chart. It shows this week's dragonfly doji at resistance, which is its broken uptrend line form October 2011 - October 2014 (dark bold green) and the top of its parallel up-channel for its rally from 2009 (lighter bold green). Those two lines cross this week near 2095 (last week's high, on Friday, was 2097 and this week's high, on Tuesday, was just above 2095. It's too difficult to tell from this week's price action what will follow but a red candle next week would leave a candlestick reversal pattern so that's what the bulls need to avoid. If the bulls can close above 2100 it would open the door for a rally up to the 2170 area in December (the projection for the 2nd leg of the 3-wave move up from 2009, where it would equal 162% of the 1st leg). But a drop below the November 16th low near 2019 would indicate we've seen the top.

S&P 500, SPX, Weekly chart

The daily chart below shows the little candles following the spike up on November 18th and the multiple probes of the broken uptrend line from 2011-2014. That's bearish until proven otherwise with a rally above 2100, but then it would need to get above its downtrend line from July-November, near 2011 and its November 3rd high near 2117. There's plenty of overhead above but little in the way of support, which is one reason why I'm reluctant to bet on the upside but watching carefully before getting aggressive on the short side. Another thing the bulls need to see is RSI breaking back above its broken uptrend line from August since a rollover from here would leave a bearish back-test.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2117
- bearish below 2019

Zooming in closer, the 60-min chart below shows the price action around the broken uptrend line from 2011-2014. As I mentioned earlier, I could easily argue for a move up to test the November 3rd high near 2117 since that's also where a 5th wave for the move up from November 16th would equal the 1st wave. But there's plenty of resistance between here and there and it's not hard to argue we've seen a small rolling topping pattern this week, one which will be followed by a stronger breakdown in the days to come.

S&P 500, SPX, 60-min chart

The DOW presents the same picture as SPX -- it's been bumping up against its broken uptrend line from October 2011 - October 2014, near today's high at 17855, and then only slightly higher is its downtrend line from May-November, near 17920. Following that is its November 3rd high at 17978 so I think the DOW needs to break above 18K to prove the bulls remain in control. But from here it could go either way.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 17,978
- bearish below 17,210

The Nasdaq has again been working on its March 2000 high near 5132 following the last attempt into the November 3rd high. It's showing a lot of weakness on its oscillators as it tries again and while we can never say never about more rally, this is looking a little dangerous for bulls.

Nasdaq Composite index, COMPQ, Daily chart

Key Levels for NDX:
- bullish above 5163
- bearish below 4960

The RUT is the index that has been relatively stronger this week and it's another sign of bullishness as traders run into the seasonally strong small caps. This week's rally has brought it closer to its broken uptrend line from October 2011 - October 2014, currently near 1204 so there's at least a little more upside potential if that's what it wants to tag before at least pulling back. The high so far is 1198.53 and above 1204 it would then meet resistance at 1213-1215, which includes price-level S/R near 1213 (its March and July 2014 highs, which acted as support in July-August before breaking down from there) and its 200-dma, currently near 1214.50. Above that is the trend line along the highs since October 9th, which will be near 1225 at the beginning of December.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1215
- bearish below 1150

I've been watching the RUT carefully this week because it has a clearer wave count at the moment. There's a way for to look at it as a corrective move (red labels) but it's cleaner to look at it as an impulsive move (green labels) and the leg up from Tuesday morning fits well as the 5th wave of the move up from November 16th. Today it achieved equality with the 1st wave at 1198.46 (with the high at 1198.53) and while I see additional upside potential to the 1205 area on Friday, to reach the top of its parallel up-channel from November 16th, today's close left a setup for a reversal back down on Friday instead. As I mentioned earlier, we might not get a good answer until next week but paradoxically, the RUT's relative strength this week now has it looking the most vulnerable to a downside reversal.

Russel-2000, RUT, 30-min chart

It's a little challenging trying to figure out the short-term squiggles in the bond market and while it looks like rates will be heading lower from here, I can't argue against another pop higher. I see upside potential to about 2.44% for the 10-year (TNX) but I'd be surprised to see higher than that. It could be stuck in a sideways trading range that will take us into early 2016 before dropping lower. I'm showing the possibility for a down-up sequence to finish a sideways triangle before dropping lower in 2016 (potentially down to sub-1% before finally bottoming. This pattern suggests the bond market will remain unsure what the Fed wants to do before finally recognizing that another round of QE is coming.

10-year Yield, TNX, Weekly chart

Since last Friday I've liked the setup on the TRAN for a reversal to the downside. Friday morning's rally produced a small throw-over above the top of an ascending triangle that it's been in since the August low and that made a good finish to the a-b-c-d-e wave count inside the triangle. This triangle fits well as a bearish continuation pattern and suggests a decline will follow. So far the decline this week fits the expectations and the only way to negate the sell signal is with a rally above Friday's high at 8358.

Transportation Index, TRAN, Daily chart

The U.S. dollar has continued to work its way higher in anticipation of a rate hike by the Fed and more QE from the ECB. The euro is a heavy weighting in the dollar index and weakening the euro (with more QE) would strengthen the dollar, which has now made it back up near its March/April 2015 highs (100.78 and 100.27, resp., with today's high at 100.23). I have two price projections based on the wave pattern at 100.16 and 100.88 so today's high has it inside my target zone. The weekly chart below shows a modified idea for a sideways consolidation into 2016 before it will be ready for its next rally. It could simply continue higher from here but the daily chart is showing a choppy move higher, which is generally a good indication the move (up) is finishing inside my target zone so that has me looking for a reversal back down. If the dollar does pull back as shown, it would indicate something has changed with the expectation of a rate increase by the Fed. It might coincide with a pullback in Treasury yields.

U.S. Dollar contract, DX, Weekly chart

Gold continues to languish near its July low at 1072, threatening to break support and head lower. But I think it's due for a bounce before heading lower, which is what I'm depicting on its weekly chart below. I haven't seen strong enough evidence yet to tell me I want to start accumulating the shiny metal but I'm hoping that will be in a few months and down around 1000 (maybe 900-ish).

Gold continuous contract, GC, Weekly chart

After achieving two equal legs down from its October 9th high, for an a-b-c pullback correction, it looks like the next leg up could be underway. It's still early and I want to see oil above price-level S/R at 44-45 before feeling a little more bullish. My expectation is for a rally up to about 52 for two equal legs up from August before turning back down in what I believe will be a larger consolidation pattern. Once the consolidation is finished, perhaps by spring 2016, we should then see oil drop further, probably at least down to its January 2009 low near 33. Once this picture changes I'll update my expectations based on those changes. Right now it's a preliminary idea that needs additional price action over the coming months to help solidify.

Oil continuous contract, CL, Daily chart


During a holiday-shortened week, especially with low volume, it's easier for the market to get pushed around (or held still like this week). It makes it hard to use the price action to help discern what the next move will likely be. The major indexes have traded sideways and in a bull market that's usually a bullish consolidation, which suggests another rally leg next week. But we've seen plenty of these sideways consolidations suddenly break down instead (catching too many bulls leaning the wrong way). The RUT has a very interesting setup right here, one which calls for a reversal back down. It might be good for only a pullback correction to its rally from November 16th, but it does suggest caution about the upside.

We have plenty to think about with the market challenging all-time highs while bullish sentiment is at an extreme and market internals are weak. We all know this market can rally a lot further under these conditions and with an end-of-year desire to close the market at/near its highs, there could be just enough manipulation to keep the bears away, even if it doesn't make much headway to the upside. We might see the market go on hold until we get through the nonfarm payrolls report next Friday, which would provide more clues about what the Fed might do later in December. And of course the market could stay on hold until the next FOMC announcement.

The risk is to the downside without a lot of upside potential but we're entering the jolly season and the bulls could still pull a ho-ho-ho on the bears. Trade carefully over the next couple of weeks and in the meantime, enjoy your Thanksgiving day away from the market.

Good luck and I'll be back with you next Wednesday.

Keene H. Little, CMT

In the end everything works out and if it doesn't work out, it is not the end. Old Indian Saying

New Plays

Happy Thanksgiving!

by James Brown

Click here to email James Brown

In Play Updates and Reviews

Strong Enough For New Trades

by James Brown

Click here to email James Brown

Editor's Note:
The market essentially traded sideways on Wednesday. Yet small caps managed to show some relative strength with the Russell 2000 index gaining +0.77%.

ETN and FMC both hit our entry triggers.

Current Portfolio:

BULLISH Play Updates

Eaton Corp. - ETN - close: 57.95 change: +0.26

Stop Loss: 54.75
Target(s): To Be Determined
Current Gain/Loss: -0.2%
Entry on November 25 at $58.05
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: see below

11/25/15: Our brand new bullish trade on ETN is open. Shares continued to push higher and hit our suggested entry point at $58.05. I would wait for another rally above $58.00 before considering new bullish positions.

Trade Description: November 24, 2015:
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.

- Suggested Positions -

Long ETN stock @ $58.05

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

Long JAN $60 CALL (ETN160115C60) entry $0.90

11/25/15 triggered @ $58.05
Option Format: symbol-year-month-day-call-strike

FMC Corp. - FMC - close: 42.73 change: +0.08

Stop Loss: 39.85
Target(s): To Be Determined
Current Gain/Loss: -0.7%
Entry on November 25 at $43.05
Listed on November 18, 2015
Time Frame: 6 to 8 weeks
Average Daily Volume = 1.6 million
New Positions: see below

11/25/15: On Tuesday night we adjusted our entry trigger on FMC. The stock continued to rally on Wednesday and hit our new trigger at $43.05. I would wait for another rise above $43.00 (or above today's high of $43.08) before initiating new positions.

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).

- Suggested Positions -

Long FMC stock @ $43.05

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

Long JAN $45 CALL (FMC160115C45) entry $1.20

11/25/15 triggered @ $43.05
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: 45.88 change: -0.35

Stop Loss: 44.65
Target(s): To Be Determined
Current Gain/Loss: -3.7%
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

11/25/15: Airline stocks continued to underperform on Wednesday. Today and tomorrow are two of the busiest travel days of the year. Investors may have been a little bit nervous that terrorists might try something. Overall the group is holding up reasonably considering the U.S. government's new travel alert.

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: 53.69 change: -0.56

Stop Loss: 52.15
Target(s): To Be Determined
Current Gain/Loss: -1.7%
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

11/25/15: MSFT displayed some relative weakness on Wednesday with a -1.0% decline. Volume was pretty low (21 million versus the normal 36 million). It could have been a lack of buyers because they were mostly on vacation today. I wouldn't be too worried about today's performance.

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: 54.40 change: +0.22

Stop Loss: 52.45
Target(s): To Be Determined
Current Gain/Loss: +2.4%
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

11/25/15: Traders bought the dip midday near $54.00 and PAYX rebounded to a +0.4% gain on the session.

The simple 20-dma near $53.02 should be short-term support. Cautious investors might want to inch their stop closer to this moving average.

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: 55.63 change: +0.28

Stop Loss: 52.75
Target(s): To Be Determined
Current Gain/Loss: +0.9%
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

11/25/15: TSS displayed relative strength today with a +0.5% gain. The stock retested short-term resistance at $56.00 before paring its gains by the close.

More conservative traders might want to move their stop loss closer to the simple 20-dma, currently near $53.60.

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: 30.51 change: +0.50

Stop Loss: 27.90
Target(s): To Be Determined
Current Gain/Loss: + 9.9%
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

11/25/15: YELP was an outperformer on Wednesday. Investors bought the dip this morning near $29.70 and YELP reversed higher. The stock closed with a +1.6% gain. The NASDAQ composite only gained +0.2%.

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: 55.13 change: +1.00

Stop Loss: 56.15
Target(s): To Be Determined
Current Gain/Loss: -5.3%
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

11/25/15: Retail related stocks continued to rally on Wednesday - just ahead of the Black Friday sales event. The market's focus on retailers this week is not surprising given how important Black Friday is and the official start to the holiday shopping season. However, most of the data is bearish. The industry is struggling with higher than normal inventory levels. This would suggest they will be forced to offer huge discounts to clear merchandise off the shelves. That will pressure margins. Many in the group have already warned about how promotional (i.e. competitive) the landscape is this year.

The bounce in BBBY stalled near $55.65 and struggled there for a few hours before starting to fade into the closing bell.

No new positions at this time. Our stop remains at $56.15.

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: 34.57 change: +0.30

Stop Loss: 35.55
Target(s): To Be Determined
Current Gain/Loss: +3.6%
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

11/25/15: STX recovered about two-thirds of yesterday's decline. The stock displayed some relative strength with a +0.8% gain today. The $35.00-35.20 zone remains overhead resistance.

No new positions at this time.

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: 18.74 change: -0.29

Stop Loss: None, no stop at this time.
Target(s): $16.65
Current Gain/Loss: +14.1%
2nd position Gain/Loss: +35.4%
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

11/25/15: The VXX lost -1.5% on Wednesday. It looks poised to drop toward the 18 region if the market can resume its rally.

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