Option Investor

Daily Newsletter, Tuesday, 12/1/2015

Table of Contents

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

Market Wrap

Economics Ignored

by Jim Brown

Click here to email Jim Brown

Investors were shocked when the ISM Manufacturing number was the lowest since 2009 and the markets recoiled at the number. However, buyers intent on profiting from a normally bullish December bought the dip.

Market Statistics

The markets started off with a bang with the Dow up +172 but reality returned very quickly and he index dropped back to +50 on disappointing economic news. Dip buyers appeared and the indexes began to creep back towards the highs to end where the morning started with a +168 point gain.

The Fed is facing an uphill battle in their quest for a rate hike two weeks from now. The ISM Manufacturing for November fell into contraction territory at 48.6 and the lowest level since 2009. That was down from 50.1 in October and the recent high of 53.5 in June. The last time the Fed hiked rates with the ISM in contraction was 1981 when Reagan was president. The last three rate hike cycles occurred with the ISM over 55 and expanding. If they are truly data dependent, they should be running from a rate hike rather than towards the first hike in nine years.

All of the major components declined with new orders also falling into contraction for the first time. Most of the other components have been in contraction under 50 for several months. The sharp decline in inventories is bad news for Q4 GDP, which will take a sharp hit from an inventory drop.

Analysts were quick to blame the strong dollar, again. The second reason given was weak global demand and the Fed cannot do anything about that. If they do raise rates, the dollar will go higher and that will further slow demand for anything made in America.

The real time GDPNow forecast from the Atlanta Fed is plunging on the recent string of negative economic reports. The GDPNow is the most accurate forecast of the GDP in the market today. After the ISM report this morning, the forecast declined from +1.8% growth to +1.4%. If the Fed is truly data dependent the GDPNow is not the kind of data they want to see ahead of their December meeting.

On the positive side vehicle sales soared to an annualized rate of 18.19 million in November. That compares to 17.2 million in November 2014. This is being called "peak autos" because analysts do not believe sales can increase above this level in the current economy. GM sales rose +1.5%, Ford +0.4%, Fiat Chrysler +3% and Toyota +12.4%. Volkswagen sales fell -24.4% because of the scandal over emissions and the "stop sale" order from regulators. Volkswagen cannot sell any of the cars covered by the EPA probe. Light trucks and SUVs rose from 10.2 million to 10.4 million with autos declining from 8.0 million to 7.8 million. Thank the low gas prices for the increase in truck and SUV sales.

Construction spending for October rose +1.0% after a +0.6% increase in September. Public spending rose +1.4% with private spending up +0.8%. Residential spending rose +1.6% with nonresidential spending at +0.6%. Total spending for October was $1.107 trillion on an annualized rate. Private construction was $802 billion with residential construction at $399 billion. Public construction rose +1.4% to $305 billion. This report was ignored.

The calendar for tomorrow is headlined by the ADP Employment, which will give us a clue for what to expect from the Nonfarm Payrolls on Friday. A strongly positive ADP with a number over 175,000 would suggest a Goldilocks report on Friday around 200,000. The Nonfarm Payrolls will be the last major data point watched by the Fed before they meet on the 15th.

The Fed Beige Book on Wednesday is also important but since the report is produced by the Fed, they already know what it contains. This is an update for investors.

Janet Yellen will speak at the Economics Club on her economic outlook. That should be a directive on her plans for rates. After the ISM she may want to loosen expectations somewhat.

Facebook CEO, Mark Zuckerberg and wife Priscilla announced the birth of their daughter Max. They also announced they planned to give 99% of their Facebook shares to the Chan Zuckerberg Initiative. Chan was Priscilla's last name prior to marriage. The organization will initially focus on personalized education and curing disease. Zuckerberg plans on keeping his majority voting position in Facebook for the "foreseeable future." According to an SEC filing he will donate no more than $1 billion a year over the next three years.

He currently has about $45 billion in Facebook shares. He owns 4 million Class A shares and 419 million Class B shares. The Class B shares are not traded and are worth about $45 billion. The Class A shares were worth $428 million at Tuesday's close. The Class B shares have 10 votes per share compared to 1 vote for Class A shares. Mark controls 57% of the voting rights so he controls the company direction.

Gilead sciences (GILD) saw its shares decline slightly after a Senate committee released the results of an 18-month investigation into drug pricing. The committee said Gilead knew it would put the life saving treatment out of the reach of many people by pricing it at $1,000 a pill. The 144-page report referenced the Hep-C drugs Sovaldi and Harvoni. They reviewed more than 20,000 pages of documentation. An internal Gilead report showed that 24% of insurers would restrict patient access at $75,000 per patient and that would rise to 47% if priced at $90,000. The same presentation said patient-advocacy groups and doctors would be critical of a price over $80,000.

Gilead released a prepared statement saying it disagreed with the committee's conclusions and the company "responsibly and thoughtfully priced" the two drugs. It should be noted that the drugs CURE Hep-C in 98% of the patients that take it. Without the drug, patients are looking at liver transplants and/or death. Gilead said the high price was necessary to provide funds for research and development of new life saving drugs.

Barclays raised the target price on Amazon (AMZN) to $850 after Amazon said the sales of its electronic gadgets more than tripled over the same weekend in 2014. The Fire tablet at $49 was the top-selling product. Sales of the tablet tripled and sales of the Fire TV set-top box rose +600%. Amazon said it has sold millions of Fire tablets and is building millions more to keep up with demand. Amazon claimed the Fire TV device is the number one streaming media player across all retailers. The Amazon Echo was the top selling product costing more than $100. Amazon said "hundreds of thousands" of Kindle E-Readers were sold over the weekend.

Amazon was clearly the retail winner over the weekend with analysts mostly negative on Black Friday sales in the brick and mortar sector.

TerraForm Power (TERP) rallied +33% from a 52-week low after Oppenheimer upgraded the stock to outperform and raised the price target to $10. However, the bigger reason for the move came from David Tepper's Appaloosa Management hedge fund. Tepper complained the move by TerraForm into higher-risk projects was not serving the interests of shareholders. TERP has agreed to buy 523 MW of projects ($922 million) thrown off from the SunEdison (SUNE) acquisition of Vivint Solar (VSLR). The Vivint projects are higher risk than the utility scale assets TERP normally buys. The company also cancelled a deal to buy $3.45 billion in renewable energy assets in Brazil that is was going to acquire from SunEdison. Investors believe the opposition from Tepper could be the push needed to get TERP to cancel the rest of the SunEdison projects. Shares of TERP have been crushed since the deals were announced several months ago.

Powell Industries (POWL) warned after the close it expected full year 2016 earnings to be in the range of $0.65-$1.05 on revenue of $530-$560 million. Analysts were expecting $1.75 and $578 million. Shares fell about 15% in afterhours to $30.

Guidewire Software (GWRE) guided for current quarter earnings of 13-16 cents per share and $94.5-$98.5 million. Analysts were expecting 14 cents and $95.6 million. They also raised guidance for 2016 from 54-63 cents to 57-66 cents on revenue of $410 million. Analysts were expecting 61 cents and $411 million. Shares rose +5% in afterhours to $63.20.

Johnson Controls (JCI) guided for 2016 earnings to $3.70-$3.90 on revenue of $38.6 million. Analysts were expecting $3.82 and $37.39 million. Shares popped at the open but immediately faded to close down 50 cents.

PNM Resources (PNM) shares broke over resistance after the company guided to full year earnings of $1.56-$1.61. Consensus estimates were $1.59 so I really do not see what pushed the stock higher unless investors were worried about an earnings miss.

Cepheid (CPHD) guided for a Q4 loss of 17-19 cents and analysts were expecting a loss of 18 cents. Revenue of $146-$150 million was in line with estimates for $147.4 million. They guided for 2016 revenue in the range of $618-$635 million and estimates were for $619 million so that was an upgrade. Shares lost $2 on the news but recovered more than half before the close.

TD Ameritrade (AMTD) said it was transferring its listing from the NYSE to the Nasdaq effective on Dec 14th. The symbol will remain the same.

The dollar lost some luster after the ISM report and declined from its highs. This allowed silver and gold to trade slightly higher. The Chinese Yuan was accepted by the IMF on Monday to be added to the "Special Drawing Rights" or SDR basket. The addition will take effect next October. The yuan will have an approximately 10.92% weighting. The dollar has a 41.73% weighting, euro 30.93%, yen 8.33% and pound sterling 8.09%. All of those weightings were reduced to accommodate the addition of the yuan and the new weightings will become effective in October.

The SDRs act like a currency reserve asset. There are currently $204.1 billion of SDRs. Countries can buy or sell SDRs and use them as reserve collateral for transacting business. The addition of the yuan will weaken the dollar somewhat when the new weighting takes effect in October.

Treasury yields also collapsed on the ISM numbers. The yield on the ten-year declined -2.84% to 2.15% and a four-week low. The treasury market is showing reduced chances for a rate hike.

Crude prices were mostly unchanged thanks to the drop in the dollar and the OPEC meeting this Friday. Traders are probably waiting for the Wednesday inventories and will then change their holdings ahead of the OPEC decision. In a survey of dealers and traders in the energy sector 100% expected no cut in OPEC production.


The S&P surge late in the afternoon pushed the index above critical resistance from 2,095 to 2,100. The close at 2,102 was just enough to clear that barrier but stronger resistance remains at 2,116. The markets are normally down on the last day of November for mark to market gyrations but are then positive for the next five days. I hope today's bullish start to December continues to follow those seasonal norms.

The 2,116 resistance was rock solid in early November and late July. December is normally bullish and I do expect that level to be tested. If we do succeed in breaking through I would expect a new high on the S&P before December is over. It may only be a brief trade over 2,128 but I think it will happen. Depending on when/if it happens it could be a trigger for shorts to pile in ahead of an expected January decline.

The Dow surge to 17,895 at the open followed by a drop back to 17,719 only to surge again at the close to 17,885 was remarkable. The shorts got a perfect entry point at downtrend resistance at the open and attempted to capitalize on it. Unfortunately, for them it did not work and that forced a minor short squeeze at the close.

However, if you look at the chart, the Dow stopped exactly at downtrend resistance and just below the resistance highs from early November at 17,964 and 17,977. The next 100 points on the Dow could be difficult but the normal seasonal bullishness could prevail. There is very little stock news and nothing to depress the Dow 30 stocks unless it is a stock specific event that has yet to appear.

Caterpillar was weak after the Chinese PMI came in at a multiyear low suggesting there will not be a surge of orders from China in the near future. Apple just continues to be weak on worries the Q4 sales cycle will disappoint. Apple is expected to sell 76 million iPhones in Q4. News that the watch counters in Apple stores were deserted over the Black Friday weekend were a drag on the stock.

If the Dow makes it over 18,000 the next resistance is 18,100 and then 18,165. If the Dow makes it over 18,000 I would expect it to make a new high because once it gets this close it normally becomes a self fulfilling event. That does not mean it will breakout and sprint for another 1,000 points. It just means we could see a higher print before the end of December.

The Nasdaq Composite closed at 5,156 and right at resistance at 5,160. As I mentioned for the other indexes a move over that high resistance produces a sure bet that we will see a new high over the historic 5,218 close. Once the indexes get this close they normally seal the deal.

Support is now 5,100 and prior resistance.

The Nasdaq 100 ($NDX) closed only ONE point below the historic high close at 4,717 on November 4th. The historic intraday high is 4,737. I believe both will be broken in the days ahead for the same reasons I mentioned earlier. However, the Nasdaq 100 has the potential to move several points higher because of the FANG stocks and the Biotechs. The large cap tech stocks will be favored by the window dressers going into the end of December.

The Russell 2000 stalled at resistance at 1,200 but has closed twice over that level in the last three days. The small caps should continue to be favored for most of December. A higher close on Wednesday could produce some short covering and price chasing as funds struggle to produce gains before the end of December.

I want to remind everyone that the first 5-7 days in December are normally bullish. The next 5-7 days are normally weak as investors restructure their portfolios by taking profits and making their tax loss sales. About the 15th of the month the market normally turns bullish again with the Russell the usual outperformer followed by the big cap techs.

So far this week has gone according to the seasonal norms but two days does not make a trend. We need to plan for the seasonal rally but be prepared for the mid month weakness. I would consider that a short-term buying opportunity.

I want to thank everyone once again for supporting the Option Investor family of newsletters. Reward yourself now for 2016 and that will be one less item on your list of New Year's resolutions. Receipts are available for deducting on your taxes.

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Jim Brown

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New Plays

A Target For Activist Investors

by James Brown

Click here to email James Brown


Autodesk, Inc. - ADSK - close: 64.72 change: +1.25

Stop Loss: 61.75
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on December -- at $---.--
Listed on December 01, 2015
Time Frame: Exit
Average Daily Volume = 3.5 million
New Positions: Yes, see below

Company Description

Trade Description:
It has been a bumpy ride for ADSK investors this year. The company is in the middle of a transition from selling perpetual software licenses to selling subscriptions. It's a move that mirrors larger rival Adobe Systems's (ADBE) transition to a subscription model.

If you're not familiar with ADSK they are in the technology sector. According to the company, "Autodesk, Inc., is a leader in 3D design, engineering and entertainment software. Since its introduction of AutoCAD software in 1982, Autodesk continues to develop the broadest portfolio of 3D software for global markets. Customers across the manufacturing, architecture, building, construction, and media and entertainment industries-including the last 19 Academy Award winners for Best Visual Effects-use Autodesk software to design, visualize, and simulate their ideas before they're ever built or created. From blockbuster visual effects and buildings that create their own energy, to electric cars and the batteries that power them, the work of our 3D software customers is everywhere you look."

Year to date the stock is up +7.7%. Yet ADSK is up +53% from its October 2015 low. What's driving the rally? It's certainly not revenue growth. The company tends to beat Wall Street's bottom line earnings estimates but revenues have been soft. The company has lowered their guidance multiple times this year.

Their most recent earnings report was November 19th. ADSK reported Q3 results of $0.14 a share. That beat expectations. Revenues fell -2.9% to $600 million. Management lowered their Q4 guidance. Yet they raised their 2016 outlook for the first time in several months. The improved 2016 outlook certainly helped. There was a brief sell-off in the stock (Nov. 20th) but ADSK quickly recovered.

One of the main reasons ADSK has performed so well lately is the market's hope that two major activists investors will do something to unlock more value. Eminence Capital owns a 5.8% stake in ADSK. Sachem Head Capital recently disclosed at 5.7% stake. The two activist funds have teamed up together (a combined stake of 11.5%). Expectations that these activists will drive change in ADSK has fueled a significant rally.

Today shares of ADSK have rallied toward major resistance at the $65.00 level. A breakout here would reaffirm that the bullish trend is still intact. The point & figure chart is bullish and forecasting a long-term target at $103. We want to hop on board if ADSK can break through the $65.00 level. Tonight we are suggesting a trigger to launch positions at $65.25. The stock can be somewhat volatile so I am suggesting small positions to limit risk.

Trigger @ $65.25 *small positions to limit risk*

- Suggested Positions -

Buy ADSK stock @ $65.25

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

Buy the JAN $67.5 CALL (ADSK160115C67.5) current ask $1.43
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

Stocks Surge Into December

by James Brown

Click here to email James Brown

Editor's Note:
December is historically one of the best performing months for both big cap and small cap stocks. This year it is off to a great start with a widespread rally.

SLCA hit our entry trigger today.

Current Portfolio:

BULLISH Play Updates

Eaton Corp. - ETN - close: 58.45 change: +0.29

Stop Loss: 56.55
Target(s): To Be Determined
Current Gain/Loss: +0.7%
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

12/01/15: ETN continues to march higher. Shares only gained +0.49% today. That underperformed the broader market's +1.0% rally but ETN is now up five days in a row.

Tonight we are moving the stop loss up to $56.55.

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

12/01/15 new stop @ 56.55
11/25/15 triggered @ $58.05
Option Format: symbol-year-month-day-call-strike

FMC Corp. - FMC - close: 41.97 change: -1.00

Stop Loss: 39.85
Target(s): To Be Determined
Current Gain/Loss: -2.5%
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

12/01/15: Uh-oh! I am suggesting caution on our FMC trade. Today's performance is bearish. The early morning rally attempt failed. FMC underperformed the market with a -2.3% decline. I couldn't find any specific news to account for today's relative weakness. Shares did find support at the 20-dma (again). However, today's action is a potential bearish reversal pattern but it needs to see confirmation.

No new positions at this time.

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

Microsoft Inc. - MSFT - close: 55.22 change: +0.87

Stop Loss: 53.20
Target(s): To Be Determined
Current Gain/Loss: +1.1%
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

12/01/15: MSFT continues to show relative strength this week. The stock added +1.6% and closed at another 15-year high. The last time MSFT traded above $55 was back in early 2000. Today's breakout past $55.00 can be used as a new bullish entry point.

Tonight we are raising the stop loss to $53.20.

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

12/01/15 new stop @ $53.20
11/04/15 triggered @ $54.60
Option Format: symbol-year-month-day-call-strike

Paychex, Inc. - PAYX - close: 54.15 change: -0.10

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

12/01/15: PAYX rallied to a new multi-year high this morning. Sadly the rally didn't last and PAYX reversed lower. Shares traded below short-term support near $54.00 before paring its losses on the session.

More conservative traders may want to raise their stop loss closer to the 20-dma near $53.35. 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

U.S. Silica Holdings - SLCA - close: 21.93 change: +0.66

Stop Loss: 19.20
Target(s): To Be Determined
Current Gain/Loss: +1.8%
Entry on December 01 at $21.55
Listed on November 30, 2015
Time Frame: 8 to 12 weeks
(option traders exit prior to January expiration)
Average Daily Volume = 2.2 million
New Positions: see below

12/01/15: Our brand new bullish trade on SLCA is off to a good start. The stock hit our entry trigger at $21.55 this morning and then dipped back toward $20.80. Fortunately investors bought the dip and SLCA rebounded to a +3.1% gain on the session.

This looks like a bullish breakout past resistance. I would still consider new positions at current levels.

Trade Description: November 30, 2015:
The crash in oil prices to six year lows has crushed the oil and gas industry. It has been especially hard on some of the oil service stocks. SLCA is in that group but the company and the stock is showing signs of a bottom.

SLCA is in the basic materials sector. According to the company, "U.S. Silica Holdings, Inc., a member of the Russell 2000, is a leading producer of commercial silica used in the oil and gas industry, and in a wide range of industrial applications. Over its 115-year history, U.S. Silica has developed core competencies in mining, processing, logistics and materials science that enable it to produce and cost-effectively deliver over 260 products to customers across our end markets. The Company currently operates nine industrial sand production plants and eight oil and gas sand production plants. The Company is headquartered in Frederick, Maryland and also has offices located in Chicago, Illinois, Houston, Texas and Shanghai, China."

What's great about SLCA versus many of its peers is SLCA's diversity. They do sell a lot of fracking sand to the oil and gas industry but they also sell to a wide range of industries. The company also has one of the strongest balance sheets among its peers.

Year over year results have been rough. SLCA last reported earnings on October 27th. Q3 results were a loss of ($0.03) a share. That was a penny worse than expected. Revenues were down -35% to $155.4 million, which was just below the $155.7 million estimate.

It looks like an ugly earnings report and yet shares of SLCA soared more than 20% the next day. The company said their overall tons of sand sold was down -12% from a year ago but up +16% from the second quarter. Furthermore SLCA management said they were selling more sand to the oil and gas business and essentially stealing market share from competitors.

The outlook for crude oil is still muddy but it looks like shares of SLCA have found a bottom. The last few weeks have developed a trend of higher lows. The point & figure chart is still bearish but a rally above $22.00 would generate a new triple-top breakout buy signal. Plus a breakout past resistance could see some serious short covering. The most recent data listed short interest at 37% of the 49.4 million share float.

SLCA is going to present at the Cowen & Co. Energy Conference on December 1st and again at the Wells Fargo Energy Symposium on December 9th. If investors like what they hear these events could be a catalyst to spark the next leg higher.

Currently shares of SLCA appear to have short-term resistance in the $21.40 area. Tonight we are suggesting a trigger to launch bullish positions at $21.55.

- Suggested Positions -

Long SLCA stock @ $21.55

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

Long JAN $22.50 CALL (SLCA160115C22.5) current ask $1.65

12/01/15 triggered @ $21.55
Option Format: symbol-year-month-day-call-strike

Total System Services, Inc. - TSS - close: 56.37 change: +0.41

Stop Loss: 54.85
Target(s): To Be Determined
Current Gain/Loss: +2.2%
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

12/01/15: Another day, another gain for TSS. Shares added +0.7% today. The stock is up nine out of the last ten trading sessions. Prior resistance near $55.00 should offer some support. Tonight we are adjusting the stop loss up to $54.85.

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

12/01/15 new stop @ 54.85
11/20/15 triggered @ $55.15
Option Format: symbol-year-month-day-call-strike

Yelp Inc. - YELP - close: 30.31 change: +0.18

Stop Loss: 27.90
Target(s): To Be Determined
Current Gain/Loss: + 9.2%
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

12/01/15: YELP added +0.59% today but shares seem stuck in a sideways consolidation. The stock has been churning in the $29.50-30.50 region for almost a week and a half. After big gains in November a little sideways consolidation is healthy and the lack of profit taking is encouraging. However, 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: 53.88 change: -0.64

Stop Loss: 56.15
Target(s): To Be Determined
Current Gain/Loss: -2.9%
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

12/01/15: The pullback in BBBY continued on Tuesday. Shares did not participate in the market's broad-based rally. Instead shares fell -1.1%.

No new positions at this time.

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

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

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

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

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

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

- Suggested Positions -

Short BBBY stock @ $52.35

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

Long JAN $50 PUT (BBBY160115P50) entry $1.68

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

Leucadia National Corp. - LUK - close: 17.74 change: +0.06

Stop Loss: 18.75
Target(s): To Be Determined
Current Gain/Loss: -0.2%
Entry on November 30 at $17.70
Listed on November 28, 2015
Time Frame: 6 to 9 weeks
Average Daily Volume = 2.1 million
New Positions: see below

12/01/15: Bullish comments from an Oppenheimer analyst this morning sparked a bounce in shares of LUK. The rally failed near the $18.00 level and shares trimmed their gains to just +0.3%. We are still bearish although traders may want to see a new relative low (under $17.67) before initiating positions.

Trade Description: November 28, 2015:
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.

- Suggested Positions -

Short LUK stock @ $17.70

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

Long MAR $18 PUT (LUK160318P18) entry $1.20

11/30/15 triggered @ $17.70
Option Format: symbol-year-month-day-call-strike

iPath S&P500 VIX Futures ETN - VXX - close: 17.98 change: -0.82

Stop Loss: None, no stop at this time.
Target(s): $16.65
Current Gain/Loss: +17.6%
2nd position Gain/Loss: +38.0%
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

12/01/15: The stock market's widespread rally today crushed the VXX with a -4.3% decline.

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