Book 108% Option Gains and Buy a New Bank Stock

Markets closed the trading week broadly flat, with the Dow Jones rising 0.28%, the S&P 500 up 0.08% and the NASDAQ climbing 0.29%. The MCSI Emerging Markets Index ended the week down a hairsbreadth by 0.18%.

Big gainers in your Bull Market Alert portfolio included ULTA Salon, Cosmetics & Fragrance, Inc. (ULTA), which rose 7.66%; Alaska Air (ALK), which gained 6.46%; and Luxoft Holding Inc. (LXFT), which added 3.31%.

ULTA Salon, Cosmetics & Fragrance, Inc. (ULTA), Alaska Air (ALK), Luxoft Holding Inc. (LXFT) and Manhattan Associates, Inc. (MANH) each also hit a new 52-week high.

You were stopped out of NetEase, Inc. (NTES) with a 15% gain.

ULTA Salon, Cosmetics & Fragrance, Inc. (ULTA) soared 12.8% on Friday after reporting better-than-expected earnings. With the stock up 17.04%, raise your stop to $180.90 to lock in a 15% gain in the stock.

With your December $160 call option (ULTA151218C00160000) up 108.34%, sell all of your remaining option to lock in these triple-digit percentage gains. Recall that you had already sold one half of your options on Nov. 2 for a 60.46% gain.

Raise your stop in Luxoft (LXFT) to $77.20 to lock in at least a 10% gain in the stock.

This week’s Bull Market Alert recommendation is Signature Bank (SBNY).

Here’s why I expect this small banking stock to rise in the weeks ahead.

First, it is widely expected that the Fed will boost interest rates next week. And interest rate hikes are good for banks. That’s because higher rates tend to boost bank profits by increasing the spread between interest received on loans and other assets versus the lower interest paid to depositors. Signature Bank’s stock price should increase amid the rising tide of bank stocks.

Second, Signature Bank has remarkably strong fundamentals. By many measures, it just might be the single best bank in the United States. Signature generates more revenue per operating expense than every other bank, more revenue per employee than every other bank, has lower overhead costs than every other bank and has zero level 3 liabilities. Further, it has an extremely high earnings margin and has managed risk “perfectly,” according to analysts.

Sure enough, in late October, Signature reported a better-than-expected 23% gain in profit to $1.88 a share.

Third, the stock pulled back slightly in the past week and is now due for a technical bounce. So it’s a good time to enter the stock.

So buy Signature Bank (SBNY) at market today and place your stop at $137.50. If you want to play the options, I recommend the short-term January $155 calls (SBNY160115C00155000), which last traded at $6.20 and expire on Jan. 15.

Portfolio Update

ULTA Salon, Cosmetics & Fragrance, Inc. (ULTA) rose 7.66% last week and touched a new lifetime high last Friday after reporting better-than-expected third-quarter earnings. ULTA’s Q3 earnings per share (EPS) hit $1.11 vs. an analysts’ consensus estimate of $1.05. Revenue came in at $910.7 million vs. an estimate of $880 million. ULTA jumped above its 50-day moving average (MA) to become a BUY. Raise your stop to $180.90 to lock in a gain of 15% on your original buy price.

Alaska Air (ALK) gained 6.46% and also hit a new lifetime high. Cowen and Company raised its price target for ALK last week from $90 to $97 and reiterated its “Outperform” rating. Alaska Air also reported a 13% traffic increase in November, as well as a 13.7% increase in capacity, year over year. ALK is a BUY.

Luxoft Holding Inc. (LXFT) added 3.31% and joined the group of positions in your portfolio hitting new 52-week highs. Zacks Research has its proprietary “Growth Style” score set at its highest rating of “Outperform” for LXFT. This score includes factors such as strength in the balance sheet, income statement and cash flow statement. Zacks’ simplified rating system awards LXFT with its highest ranking, “1,” which translates to a “Strong Buy.” LXFT is a BUY. Raise your stop to $77.20 to lock in at least a 10% gain in the stock.

Manhattan Associates, Inc. (MANH) gained 1.24% to become your fourth position to hit a new 52-week high over the past week. Short interest, a measure of traders’ willingness to bet money that a stock price will fall, is another metric to consider when looking at a stock’s technicals and fundamentals. MANH’s short interest has recently dropped 4.8%, or 136,251 shares, moving from 2,843,894 shares-short on Oct. 30 to 2,707,643 on Nov. 13. This puts the short interest figure at a low 3.8%. MANH is a BUY.

Direxion Daily Small Cap Bull 3X Shares (TNA) fell 5.17% for its first week in the portfolio. Not only might TNA benefit from the “Santa Claus Rally” that I explained in my recommendation last week, but the “January Effect” also may push TNA higher in the coming weeks. History shows this tailwind starting in late December. Last week’s dip makes for a good point to accumulate shares, and TNA currently ranks as a BUY.

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