Option Investor

Daily Newsletter, Saturday, 11/28/2015

Table of Contents

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

Market Wrap

The Russell 2000 Wins!

by Jim Brown

Click here to email Jim Brown

It was a lackluster week for the Dow and S&P but the Nasdaq scratched out a small gain while the Russell 2000 surged +2.3% for the week. The small cap rally arrived on schedule.

Market Statistics

The S&P struggled to gain less than 1 point for the entire week. Resistance at 2,095 was rock solid and the entire week was a pattern of lower highs. The Dow was worse with a loss of 25 points for the week. Most of that came from Disney on Friday.

All the air was sucked out of the big cap indexes on Friday after Disney (DIS) filed a 10K with the SEC showing ESPN subscribers had declined from 95 million to 92 million. Disney had warned of weakness in the ESPN division back in August. They claimed there was a lack of high profile sporting events like the Olympics that keep subscribers paying the monthly bill. CEO Bob Eiger has promised multiple times this was temporary and subscriber numbers would return with the summer Olympics in Brazil in 2016. Disney shares lost -$3.50 on Friday to knock about 25 points off the Dow.

This is another buying opportunity on old news. Volume was very low on Friday and that allowed the unexpected loss. The 10K was simply a repeat of the August news. Star Wars is coming and estimates are growing to more than $3 billion in revenue from this picture. The Force is with Disney!

There were no economic reports on Friday. However, next week is fully loaded. The ISM Manufacturing Index on Tuesday is expected to post a minor gain to bring it back from the brink of contraction. The headline number last month was 50.1 and only 0.2 from contraction territory.

The ADP Employment on Wednesday will be the first look at the November employment picture. Consensus estimates expect a small gain over the +182,000 jobs in October.

The Fed Beige Book will recap the economic activity in the 12 Fed regions. This is perfect timing since the Fed's rate hike decision is only two weeks away.

Friday's Nonfarm Payroll number is the last major data point ahead of that December 15th FOMC meeting. Unless the bottom fell out of the job market in November the Fed should be on track to hike rates. The weekly jobless claims had been slowing but the prior three weeks showed an increase of about 15,000 claims a week to 275,000. However, the claims last week returned to their pre November pace of 260,000 and near the post recession lows.

Lastly, the ECB will decide on its QE path on Thursday. Mario Draghi has been super dovish recently and constantly repeating his "whatever it takes" phrase. Quite a few analysts believe the ECB will raise their QE purchases from the current 60 billion euros per month in an effort to jumpstart inflation. This puzzles me because more than 30% of the sovereign bonds in Europe are now trading at a negative yield. How does pushing the yields even further into negative territory stimulate consumer spending in Europe?

The OPEC production meeting next Friday is not expected to produce any changes in their quotas but I would not be surprised to see oil prices creep up ahead of the event as speculators cover shorts and increase longs just in case the unexpected does happen.

Janet Yellen will get two chances to prepare investors for the December FOMC meeting. She gives a speech to the Economic Club on Wednesday at 12:25 and testifies before a Senate committee on Thursday morning at 10:AM. The topic for both is her economic outlook. Since the Fed is heading for its first rate hike in nine years just over two weeks from now the odds are good she will be trying to focus investors on that possibility. The data dependent phrase will be used repeatedly but she is going to try to set the market's expectations so there is no post announcement disaster.

Hormel Foods (HRL) announced a 2:1 split for February 9th subject to shareholder approval on January 26th. Shares are in rocket mode and I would not be a buyer here.

For the full split calendar click here.

The dollar continued its surge higher and closed at a 12 year high on the dollar index. This is crushing commodity prices and gold closed at $1,055.90 and a six-year low. Copper and silver have flat lined over the last two weeks with silver at $14 and copper at $2. This appears to be strong support but should the ECB announce more QE and the Fed hikes rates the dollar will surge even more and the precious metals could move to new lows.

I had several readers email me over the last couple of weeks asking if it was time to buy gold. My answer was the same as above. I believe there are new lows ahead. If you are thinking about buying gold for the really long term then you could scale into a position starting now just to avoid having some event spike it back over $1,100 or higher. A showdown with Russia could do that. However, if you just added a little every week you will not have the lowest possible price but very few traders ever do. Picking the exact bottom is a function of luck rather than skill so constantly averaging down assures you of a constantly lower average price.

Personally, I would wait until just before the FOMC meeting. If they fail to hike, the dollar could fall and gold rally. That would be the only "known" event on the calendar that could push gold prices higher.

Ebay said they were selling up to $2 million in gold bullion from their top sellers every day thanks to the low price. On Thursday, they were selling $1,000 bars at the rate of one per minute. Bullion sales were up +27% from October. Ebay has been selling silver coins in their "daily deals" section with 2,500 rolls of 20 one-ounce Silver Eagles sold in just one day last week. They were selling 50 ounces of silver every 60 seconds. This week, they sold lots of 100 1-oz Silver Eagles (5-rolls, 100 ounces) for $1,665 and 1,523 lots were sold. I have bought a significant amount of silver coins from Ebay sellers. Just make sure the seller has a large number of positive feedbacks.

The biotech sector had a good week with the $BTK up +2.7%. After spending all of October at ten-month lows the sector finally found caught a bid and while not straight up it has been getting progressively better. A lot of the second and third tier stocks have been accelerating while big caps like Biogen (BIIB) have been lethargic. The new up and comers are powering the sector.

The Nasdaq and the Russell are benefitting from the biotech rally. The Nasdaq has a lot of the larger names and the Russell is benefitting from the smaller names.

The Shanghai Composite Index fell -5.35% and the worst day since the market crash in August. Two headlines sparked the declines. Chinese industrial profits fell -4.6% in October. This compares to a decline of -2.0% for the first ten months of the year. Economic conditions are worsening.

The second headline came from the Chinese Securities Regulatory Commission (CSRC). The commission launched probes against several brokerages for allegedly breaking regulations. Citic Securities, Founder Securities, Guosen Securities and China Merchants each declined 10% or more. China continues to cut rates but the there are festering problems throughout China and hundreds of probes in progress to crack down on those problems. Unfortunately, each crackdown has slowed business in that specific area as companies and investors withdraw into their shells to avoid attracting attention of overzealous regulators.

Black Friday is over and retailers were not generally excited. There was a definite division over those that felt it was a good day and those that were disappointed. The CEO of Tanger Outlet Malls said shopper traffic was up more than 40% at most locations and Friday was setting records for his 42 outlet malls.

Retail watchers said Kohl's (KSS) and Limited Brands (LB) were doing a brisk business but other stores like Neiman Marcus and Nordstrom (JWN) were not as busy. Toys R Us CEO Dave Brandon said there were lines down the street when the doors were opened at 5:00. That is an annual favorite since families will cut back on clothes but toys will still be bought.

Target said store traffic was "solid" but bragged that online sales on Thanksgiving was the biggest sales ever for any day. The company said it was selling an iPad a second on Thr/Fri. They are giving $80-$100 gift cards with each tablet purchased so consumers were lining up.

Walmart said "tens of millions of customers" shopped online and in the stores. More than 25 million people accessed store maps and digital ads online in preparation for the event. Walmart launched all the door busters at 6:PM Thursday rather than staggering them throughout the day as in prior years. In a press release, Walmart said the shopping season was off to an "exciting" start. In the same release last year they called it an "awesome" start.

Walmart offered its Black Friday specials online starting at 12:01 AM on Friday but the website was down for much of the morning. Consumers said the delays in the response time were so long their sessions timed out. Others said the system cancelled their orders even after they had checked out because the delays meant the inventory numbers were incorrect.

The website for Neiman Marcus was down almost solid for most of Friday with only a few brief glimpses of the home page. That is a killer for online sales because consumers give up and shop elsewhere. Newegg.com, HP.com, Footlocker.com and Jet.com also experienced website outages resulting from heavy traffic.

Macy's (M) said more than 15,000 people were in line outside the flagship Herald Square store at 6:PM on Thursday when the store opened. A Moody's analyst said crowds were heavy at the Best Buy and Target stores he was assigned to visit.

Unfortunately, for retailers 57% of consumers have not even started their holiday shopping according to NPD Group and CivicScience surveys. NPD said only 6% more people shopped this week than the prior week.

In 2014 holiday shoppers spent more than $650 billion in Q4 and $110 billion of that was online. There are signs that the online retailers were seeing larger crowds than the brick and mortar retailers. With many consumers cautious about mingling with the crowds after the Paris attacks, the online retailers were getting more attention.

General Growth Properties and Taubman Centers both said they had increased security significantly, both visible and invisible. The International Council of Shopping Centers spent more than $2 million to develop a training course on how to respond to an act of terrorism. More than 30,000 mall employees have completed the course.

I was in a Costco on Wednesday and it was wall-to-wall people with lines of cars in the parking lot waiting for parking places to open up. I visited the largest Walmart in the Denver area two hours later and it was a ghost town by comparison. There was plenty of parking, plenty of baskets and isles with no customers.

Various analysts are predicting sales growth for the holidays from 2.3% on the low side to +4.4% on the high side depending on the analyst. The trend of opening on Thanksgiving and remaining open 24 hours for the entire weekend seems to be slowing. Fewer stores are finding that advantageous. Most are now seeing the stretching out of the shopping hours as expensive and unprofitable. They are only doing it out of self-defense because competitors are open and they see it as a loss leader.

Analysts pointed out the increasingly promotional atmosphere with discounts from 40% to 70% not out of the ordinary. Simon-Kucher surveyed 1,000 consumers and found that more than 50% cited huge discounts and promotions were a major influence on where they shopped. With Pre-Black Friday deals starting way before Thanksgiving many of the sales had been pulled forward from this weekend and that will reduce the total sales volume for the weekend. It is easier for retailers like Target to advertise heavily for pre-sales 2-3 weeks in advance and not have to compete with the thousands of ads for Black Friday.

Since quite a few retailers have already warned on sales for the holiday season due to slower mall traffic and the requirement for excessive promotions to move merchandise this may turn out to be a good shopping season for consumers but a loser for retailers.

Late Saturday I heard a headline on the radio that Black Friday sales disappointed and overall traffic was down more than 10% as shoppers stayed away from the malls. The real numbers will not be available until early next week but the lack of customer traffic may have translated into more online shopping instead.

The St Louis Fed produced this chart of the state of retail department stores. Sales have been declining since 2000, which just happened to be the start of the online shopping movement. Clearly, the shopping patterns have changed and there is little hope that the percentage of online sales will decline in the future. If anything, they may accelerate if terrorist activity increases.

Retailers have come up with new names for nearly every day of the holiday shopping season. Many retailers started their Black Friday sales well ahead of the actual date. If you are shopping this weekend, you will probably appreciate this cartoon.

Oil prices rebounded to resistance at $43 mid week but lost traction thanks to the rising dollar and rising inventories. Gasoline demand was very strong in November thanks to the low prices. The national average on Friday was $2.05 a gallon. When Putin failed to nuke Turkey over the downing of the plane the risk premium in crude began to fade. While the crisis is not over it has slipped from the headlines.

Crude inventories rose +1.0 million barrels and are now only 2.7 million from a new 80-year high at 490.9 million. U.S. production declined -17,000 bpd to 9.165 mbpd and only 20,000 bpd below the 10 week high set two weeks ago.

The active rig count declined -13 rigs to 744. Oil rigs declined -9 to 555 and now down -1,054 from the peak. Active gas rigs declined -4 to 189 and a 17-year low.

Natural gas in storage rose to 4,009 Bcf and a new historic high. Typically, injections of gas into storage end on November 1st as colder weather prompts higher demand of natural gas for heating and electricity. October was the warmest October on record and November was heading in that direction until the last two weeks.

Propane supplies are also at record levels after a +1.73 million barrel increase to 106.2 million barrels last week. The lack of any cold weather and the high production of propane rich ultra light shale oil is pushing inventories higher. Wholesale prices are still in the 50 cent per gallon range and retail prices in my area are $1.09. Some regions on the East Coast are in the $2.50 range but that is still well below the $3.25 from the same period last year.

Record Levels of Natural Gas in Storage

Record Inventories of Propane in Storage


The markets for last week were easy to analyze. Nothing happened. Other than the opening dip on Tuesday on the downing of the Russian plane the Dow and S&P were almost perfectly flat. The S&P hit its high for the week at 2,095 at the open on Monday and we closed the week at 2,090. The resistance at 2,095 from the prior Friday was rock solid. However, that is not saying much since volume was VERY light. Wednesday totaled 5.1 billion shares and Friday barely squeezed out 2.8 billion. Tuesday was the high day at 6.8 billion and that was due to the sudden drop and rebound on the Russian incident.

We knew in advance the volume would be low but in prior Thanksgiving weeks, there was normally a melt up into the holiday. I believe the worry over a potential terrorist attack on U.S. soil kept investors on the sidelines. With a very heavy economic calendar next week, there will be plenty of headlines to stimulate the market. Whether that stimulation will be positive or negative remains to be seen.

This is going to be a make or break week for the markets. With the pattern of lower highs on the S&P and still 15 points below major resistance, there is the potential for trouble. If the S&P cannot break through that 2,116 level and declining resistance from July it could turn into a disappointing December.

We spent most of the year around 2,100 with minor peaks and valleys every 2-3 weeks. That produced some significant resistance that should not be easy to break. If we rally up to that resistance and then fail again it could produce some investor fatigue where they begin to close positions and go to cash for the end of the year.

We need to find some traction early in the week and rekindle the upward momentum or December may not follow the seasonal trend higher.

The Dow was the leader in lackluster performance with a loss of 25 points for the week. Disney was the culprit on Friday or the Dow would have been flat for the week. Downtrend resistance at 17,900-17,950 is going to be the next challenge. The Dow has had four consecutive days of lower highs. However, we cannot really apply too much importance to it because of the very low volume.

With the earnings cycle over there is little to move the individual Dow stocks other than negative headlines like the one we got from Disney on Friday. A Fed rate hike could lift the banks but that is two weeks away. Some event in the Middle East that puts a risk premium into oil prices could lift Chevron and Exxon but that is a wild card. I am not looking for the Dow to be a leader in any rally. That position will remain with the Nasdaq and Russell. The Dow will be a follower.

The Nasdaq finally broke through the resistance at 5,100 on Wednesday and put two decent days of gains to stretch that breakout to 5,127. The next challenge will be 5,160 and then the high close at 5,218. I expect 5,160 to be tested and a breakthrough there should be good for a new high. These events tend to be self-fulfilling once they get close to the goal.

Apple is still the laggard but hopefully headlines about their product sales over the weekend will lift it out of the doldrums. It is very hard for the Nasdaq to advance when Apple is declining.

Apple could be offset by Amazon and reports of a banner weekend. Amazon is just a few points below a new high and any positive news could produce a breakout.

The Nasdaq 100 big cap index ($NDX) is only about 50 points from a new high. The resistance at 4,688 was tested on Monday and the index held its gains to close at 4,680 on Friday. A new high on the big cap techs would help to drag the Dow higher as well.

The Russell 2000 small cap index is on the verge of a breakout if the buying activity from last week continues. The index closed at 1,202 and 2 points above strong resistance that held it back in early November. A breakout here could run to 1,244 where it is likely to pause for a profit break. The small caps were positive for 7 of the last 8 days since rebounding from support at 1,144. It is due for a rest.

This is a make or break week. If the prior week's rally does not continue, it would signal investor fatigue ahead of year-end and possibly some uncertainty about the Fed's rate hike plans for December 16th. In theory, the market should celebrate a rate hike because the Fed is confident the economy is growing. In both prior Fed statements/minutes the strong language suggesting a December rate hike resulted in market rallies. If investors were positive after those events then they should also be positive about a December hike.

However, as Spock said in Amok Time - 1967, "having something is not so pleasing a thing after all as wanting. It is not logical but often true." We have all experienced this. We think we want something and once we have it the excitement fades quickly and we realize it was just a passing fancy. Once we have a rate hike the market may decide that instead of a one and done it may actually be the start of a series of rate hikes. Instead of one vaccination and done we find out the Fed has an entire series of vaccinations planed for us in the months ahead. While that is not likely it is still a possibility.

I am thrilled at the lack of terrorist events in the U.S. over the weekend and there is a good possibility we could begin the week with a relief rally.

This will definitely be a week where we need to trade what the market gives us rather than what we want to see. There are numerous headlines this week that could stimulate the market in either direction and hopefully that direction is up.

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Random Thoughts

Goldman Sachs compiled a list of 19 companies that hedge funds are betting will go down. The Hedge Fund Trend Monitor listed these stocks and their short interest. Dollar values in billions.

Symbol, Value of short positions, Percentage of float, reason for short.

T - $3.8B - 2% - Rising costs from DTV acquisition, subsidy challenges
VZ - $2.1B - 1% - Changing subsidies, demand for more bandwidth
BA - $2.9B - 3% - Cargo traffic a problem, orders moderating
ACE - $2.2B - 6% - Underwriting growing more competitive
CVX - $2.1B - 1% - Continued decline in oil prices, refined products
IBM - $3.2B - 3% - Asian sales declines driven by Chinese boycott
SLB - $3.3B - 3% - Declining prices in service sector
JNJ - $2.9B - 1% - Increased competition, generics
CAT - $3.0B - 7% - China decline, coal decline, mining decline
SYY - $2.0B - 9% - Food deflation
HAL - $2.1B - 6% - Activity levels dropping globally
WMT - $2.1B - 2% - Rising expenses, slowing sales growth
DIS - $6.7B - 4% - Subscriber losses from cable channels
TGT - $2.5B - 5% - Sales rising in limited categories, overall slowing
MON - $2.8B - 6% - Strong dollar slowing overseas sales
XOM - $4.1B - 1% - Weak oil prices, refined product sales
AVGO - $2.8B - 9% - Semiconductor competition
INTC - $3.7B - 2% - Ongoing macroeconomic headwinds, PC sales
ESRX - $3.8B - 7% - Rising drug costs, insurance reimbursements

How long is an average rate hike cycle? Since 1980, the average cycle has lasted 22 months. Based on current Fed projections a new cycle begun in December could last for three years or more before rates return to "normal." However, there is a greater possibility of a recession cutting short any new rate hike scenario since the average time between recessions is about five years. We are now in the sixth year of this recovery.

Can the Fed really hike rates in the current economic environment? The release of the Personal Income and Spending data last week crashed the Atlanta Fed's real time GDPNow forecast to only +1.8% growth in Q4. The GDPNow forecasts have been very close to reality in recent quarters. With the GDP forecast plummeting the Fed might decide that caution is warranted. However, if they do not hike in December after almost guaranteeing it in recent releases, their credibility will be ruined. That assumes they have credibility that is not already worthless.

The Stock Trader's Almanac posted a composite chart of the typical market movement in December. Link All indexes typically surge in the first five trading days before succumbing to weakness mid month as traders take profits and tax losses and position themselves for the coming year. Starting around the 12th trading day the indexes begin to rebound into the Christmas holiday.

OPEC meets late this week to discuss production. Analysts claim there is actually a better chance of the cartel raising the production quota from 30 mbpd to 31 mbpd rather than cutting production. Saudi Arabia is the governing vote and analysts expect them to continue flooding the market with crude throughout 2016. OPEC has been producing over 31 mbpd for a year so changing the quota to 31 will have no impact.

Saudi Arabia has backed off its recent record production but continues to produce over 10 mbpd. Indonesia is returning as an OPEC member, Iraq is increasing production and Iran is expected to up its production by 500,000 bpd in early 2016 and raise that to 1.0 mbpd by July. Keeping the quota at 30 mbpd would just be a face saving measure. In reality, they could be producing 32 mbpd by the middle of 2016. That assumes they have a place to store it.

There are a record number of oil tankers stacked up outside Houston and ClipperData claims some of them do not have a home for their oil. Producers had to put the oil somewhere so they put it on a tanker and sent it to the U.S. in hopes of finding a buyer while the tanker was en route. The U.S. has a near record amount of oil in storage and with more than 40 tankers in a holding pattern outside Houston, there may be a challenge finding someone with onshore storage capacity that is willing to take the oil. The longer the prospective buyers leave those tankers in a holding pattern the cheaper the oil will get. The owners will eventually discount the oil even further to avoid paying the $35,000-$40,000 per day in tanker rent.

The IEA said the prior week that global inventories are at a record 3.0 billion barrels and rising at the rate of 1.6 mbpd. Eventually we will run out of storage. The sharply rising dollar is also weighing on oil prices.


Enter passively and exit aggressively!

Jim Brown

Send Jim an email


"The difference between genius and stupidity is that genius has its limits."

Grassroots Editor 1961


New Plays

A Crumbling Conglomerate

by James Brown

Click here to email James Brown


Leucadia National Corp. - LUK - close: 17.88 change: -0.07

Stop Loss: 18.75
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on November -- at $---.--
Listed on November 28, 2015
Time Frame: 6 to 9 weeks
Average Daily Volume = 2.1 million
New Positions: Yes, see below

Company Description

Trade Description:
Investors appear to have soured on shares of LUK. The stock is down -20% year to date but it's off -29% from its July 2015 highs. LUK just ended the week at new five-year lows.

LUK is considered part of the financial sector. One of their biggest businesses is their Jefferies Group investment brokerage. Jefferies is only one in a long list of companies that LUK owns. You could argue LUK is more of a holding company or a conglomerate and a very diverse one at that.

Here's a list of some of LUK's businesses:
Berkadia, a full-service mortgage bank
FXCM, an online foreign exchange trading platform (NYSE:FXCM)
HomeFed, a real estate developer (65% owned by LUK)
Foursight Capital, an Auto loan originator and servicer
Leucadia Asset Management, a diversified alternative asset management platform
Folger Hill, a multi-manager discretionary long/short equity hedge fund platform
Topwater Capital, a highly-scalable multi-manager and multi-strategy liquid securities fund
Jefferies, a leading, client-focused global investment banking firm
Jefferies LoanCore, a joint venture between Jefferies and GIC Private Ltd (f.k.a. Government of Singapore Investment Corporation), is a finance company focused on originating and securitizing commercial mortgage loans
National Beef, a beef processing company that processes ~3 million fed cattle per year representing ~12.5% market share
HRG Group, a diversifed holiday company (NYSE: HRG) that operates in four business segments: consumer products - Spectrum Brands (NYSE: SPB, ~58% ownership); insurance - Fidelity & Guaranty Life (NYSE: FGL, ~81% ownership (1)); FrontStreet Re (100% ownership); Energy - Compass Production (~100% ownership); Asset Management (de minimis net book value).
Garcadia, 26 auto dealerships
Vitesse Energy
Juneau Energy
Linkem, a fixed wireless broadband internet provider in Italy
Conwed, a leading manufacturer of extruded, oriented and knitted plastic netting
Idaho Timber
Golden Queen (gold and silver mine)
(more details about LUK company .pdf)
The earnings picture for LUK has taken a drastic turn for the worse. Their Q1 report, announced March 17th, showed earnings of $11.7 million versus $112 million a year ago. Q1 revenues were down -34%. LUK delivered similar results with their Q2 earnings, announced August 5th. Earnings per share were $0.11 compared to $1.12 a year ago. Revenues were flat at $2.84 billion. Their most recent earnings report was November 5th, 2015. LUK reported their Q3 results, which was a loss of ($0.47) a share versus a profit of $0.14 a year ago. Revenues plunged -21% to $2.36 billion. You can see why investors might be selling the stock.

Management has been trying to take advantage of their low stock price with an aggressive stock buyback program but it's not making much difference. Technically shares of LUK are in a bear market and showing significant relative weakness.

The point & figure chart is very bearish and forecasting an $11.00 target. The last few days LUK has been trying to hold short-term support near $18.00 but that appears to have failed. Tonight we are suggesting a trigger to launch bearish positions at $17.70.

Trigger @ $17.70

- Suggested Positions -

Short LUK stock @ $17.70

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

Buy the MAR $18 PUT (LUK160318P18) current ask $1.15
option price is a current quote and not a suggested entry price.

Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.

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

Daily Chart:

Weekly Chart:

In Play Updates and Reviews

Wall Street Not Impressed With Black Friday

by James Brown

Click here to email James Brown

Editor's Note:
Initial reports suggested retailers saw less traffic and less consumer spending on Black Friday, the official start to the holiday shopping season. The stock market ignored this story. The S&P 500 closed virtually flat on the session.

Current Portfolio:

BULLISH Play Updates

Eaton Corp. - ETN - close: 58.10 change: +0.15

Stop Loss: 54.75
Target(s): To Be Determined
Current Gain/Loss: +0.1%
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

11/28/15: Traders bought the dip again on Friday and ETN bounced back to close up +0.25%. That was enough to mark a new three-month closing high. I would consider new positions here although readers might want to wait for ETN to trade above $58.20 before initiating new positions. The last couple of days have seen ETN shares fail below this level.

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: 42.19 change: -0.54

Stop Loss: 39.85
Target(s): To Be Determined
Current Gain/Loss: -2.0%
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

11/28/15: FMC's performance on Friday was disappointing. The early rally attempt failed. Shares dropped back toward short-term technical support at its rising 10-dma. FMC underperformed the broader market with a -1.2% decline. I am suggesting investors wait for a new rise above $43.10 before considering new bullish 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: 45.82 change: -0.06

Stop Loss: 45.45
Target(s): To Be Determined
Current Gain/Loss: -3.8%
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

11/28/15: LUV appeared to be in a post-Thanksgiving food coma on Friday. The stock traded sideways and settled virtually unchanged on the session. Airlines have struggled the last few days since the U.S. government issued their worldwide travel alert for Americans. There has not been a lot of follow through on LUV's decline. However, we are choosing a more defensive posture. Tonight we are moving the stop loss up to $45.45.

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

11/28/15 new stop @ 45.45
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: 53.93 change: +0.24

Stop Loss: 52.15
Target(s): To Be Determined
Current Gain/Loss: -1.2%
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

11/28/15: Friday was a very quiet day for the stock market and MSFT followed suit. Shares trade inside a 30-cent window. MSFT has seen its sideways consolidation narrow. This would suggest a breakout, one way or the other, sooner rather than later.

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: 54.06 change: -0.34

Stop Loss: 52.45
Target(s): To Be Determined
Current Gain/Loss: +1.7%
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

11/28/15: PAYX spent most of Friday's shortened session bouncing along the $54.00 level. If this dip continues I'd like for short-term support in the $53.00-53.50 zone.

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: 55.93 change: +0.30

Stop Loss: 52.75
Target(s): To Be Determined
Current Gain/Loss: +1.4%
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

11/28/15: TSS ended the week on an up note. Shares gained +0.5%. The stock looks poised to breakout past resistance at the $56.00 level soon.

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: 30.18 change: -0.33

Stop Loss: 27.90
Target(s): To Be Determined
Current Gain/Loss: + 8.8%
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

11/28/15: YELP encountered some profit taking on Friday. The stock spiked lower at the open with a drop from $30.60 to $29.60. Fortunately traders bought the dip and YELP pared its loss to -1.0% by the close.

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: 55.43 change: +0.30

Stop Loss: 56.15
Target(s): To Be Determined
Current Gain/Loss: -5.9%
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

11/28/15: Wall Street's first impressions from consumer traffic and spending on Black Friday was weak. Most retail stocks struggled to make progress on Friday. BBBY was an exception with shares gaining +0.5%. The oversold bounce has lifted BBBY three days in a row. Shares are hovering just below resistance in the $55.60-56.00 area.

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: 34.62 change: +0.05

Stop Loss: 35.55
Target(s): To Be Determined
Current Gain/Loss: +3.4%
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

11/28/15: STX spent Friday's session drifting sideways inside a 60-cent range. I don't see any changes from my recent comments. 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: 18.91 change: +0.17

Stop Loss: None, no stop at this time.
Target(s): $16.65
Current Gain/Loss: +13.3%
2nd position Gain/Loss: +34.8%
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

11/28/15: The VXX was little changed on Friday. If the S&P 500's rally picks up speed again we should see the VXX drop back toward its recent lows.

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