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Daily Newsletter, Saturday, 2/14/2015

Table of Contents

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

Market Wrap

Friday the 13th Not a Problem

by Jim Brown

Click here to email Jim Brown

There were no black cats or broken mirrors on Friday but several of the major indexes broke out to new highs. Investors were not walking under ladders but using them to climb the wall of worry to those new heights.

Market Statistics

Hopefulness over a potential resolution in Greece, a possible cease fire in the Ukraine and stronger economic data out of Germany seemed to energize investors and the major indexes crept slowly higher to historic levels. The S&P-400 Midcap, S&P-500, Russell 1000, 2000 and 3000 and the Semiconductor Index closed at historic highs and the Nasdaq Composite and Nasdaq 100 closed at new 15-year highs. The Dow was the laggard after American Express (AXP) lost -$8 over the last two days to knock more than 50 points off the Dow and held the index to only modest gains.

Only one economic report generated any interest on Friday. The Consumer Sentiment headline number for February fell from 98.1 to 93.6 and giving back all of January's gains. The prior month number was an 11-year high and analysts had it expected February to be flat. The decline from expectations of 98.1 to 93.6 was the biggest estimate miss on record. Both components declined. The present conditions component declined from 109.3 to 103.1. The expectations component declined from 91.0 to 87.5.

Respondents were less comfortable with their finances in February than January. This is probably due to the holiday credit card bills coming due. Forty-four percent said finances were better than a year ago, down -4% from January, and 29% said their finances were worse, up +2% from January. Another 29% believed business conditions will improve in 2015 and 50% said the country was headed for good times in 2015, down from 61% in January.

Consumers have noticed that gasoline prices began to rebound at the end of January with a +30 cent spike at the wholesale level since January 27th. After paying a low of $1.57 several weeks ago the listed prices at my local station are now $1.97. Gas prices are still cheap but the panic lows quickly evaporated. Rising gas prices quickly put a crimp in investor sentiment.

Consumers are not spending money. On Thursday we saw the retail sales for January decline -0.8% after a -0.9% decline in December. Consumers are saving their windfall from fuel prices rather than rushing to the malls. Healthcare prices are rising and a lot of people are unsure how this will impact their income tax and worry they might be forced to refund some of the subsidies. More than 80% of Obamacare users receive subsidies. Five of the eleven categories in the retail sales report declined sharply and the others posted only minor gains.


The economic calendar for next week is also light with the exception of the Philly Fed Manufacturing Survey on Thursday. That is the economic highlight of the week and it is expected to rise and that would be the first gain in three months.


The FOMC minutes on Wednesday will be a potential trouble spot because of their bearing on future Fed policy.

The big news event will be the Yellen testimony to congress the following Tuesday. With all the uncertainty about the Fed her testimony in front of the newly constituted congress will be critical. With a republican faction wanting to audit the Fed the questions may be a little more hostile this time around.


No changes to the spilt calendar this week.


Friday was a slow news day with the Greek debacle the main headline. Greece and its creditors are extending talks over the weekend in hopes of reaching a deal before the Monday meeting of EU finance ministers in Brussels. The new prime minister Alexis Tsipras has promised to exit the current bailout program, which he blames for the slide in the Greek economy. He is trying to negotiate a bridge financing deal to make payments while allowing the various parties another 90 days to come up with an acceptable solution. Tsipras wants to raise wages and reinstate government workers but the Troika is against those actions because it would increase the deficit for Greece.

The current head of the EU finance minister meetings is the Dutch finance minister Jeroen Dijsselbloem. He said on Friday, "You can only spend money when you have it. Greece wants a lot but has very little money to cover those desires." If the troika gives in to the Greek demands then other countries would want a new deal on their indebtedness. Spain and Italy would be at the top of the list.

Tsipras campaigned on ending austerity, getting the troika to write down the balances on the Greek debt and to end audits of the Greek books by the troika. He has since cut back on his demands once he found out that actually governing was a lot tougher than talking about governing. The bailout loans made by the troika initially went to cover existing Greek debt and to pay various amounts of past due bills. The Troika audits routinely discovered fraudulent bookkeeping by Greece and every discovery led to more loans. The troika will not want to give up their audits for obvious reasons. For the last two years the majority of the loan payments from the troika actually went to pay interest on the loan balance. Essentially the troika was loaning Greece money to pay the interest on the earlier loans. This increased the loan balances significantly. Now Tsipras wants the banks that profited from those loans and payments to refund those payments so Greece can use the money to pay down the debt rather than make payments on the debt. I seriously doubt this will fly. It would be the equivalent of going to your mortgage company and demanding they refund the last three years of interest so you can use the money to pay principal instead.

Uncertainty over the fate of Greece has caused depositors to withdraw nearly 20 billion euros from Greek banks. Those banks have been supported by 65 billion euros of Emergency Liquidation Assistance (ELA) from the Bank of Greece, subject to approval by the ECB. If Greece can't strike a deal by Monday's meeting the ECB governing council would likely cut off or limit the amount of ELA cash available to the Bank of Greece. The council meets on February 18th. The EU and ECB don't want Greece to leave the eurozone because it would create a precedent that other nations could follow to further fracture the eurozone. They may not have any choice if Tsipras stands his ground and demands structural changes or Greece will exit.

I think the market has already factored in some kind of a deal. The market does not expect the worst but it does expect some kind of compromise. If it becomes clear over the next week that a compromise is not going to happen then the market could suffer. ANY actual compromise that leaves Greece in the eurozone should be market positive.

The other geopolitical headline supporting the market was the peace deal in the Ukraine. In theory France, Germany, Russia and the Ukraine agreed to a cease fire after "epic" 16-hour talks. The cease fire was due to start at midnight on Saturday. That left two days for forces to push for as much ground gains as they could muster. The cease fire line is whatever each side controls as of midnight Saturday. Journalists said the fighting has been fierce as each side tries to gain more ground. The fiercest fighting was for control of Debaltseve in an effort to keep it inside Ukraine control.


The $64 question here is whether or not Putin will respect the ceasefire. He has never respected any of the earlier agreements. Even by gaining control of a large portion of eastern Ukraine with part of Donetsk and Luhansk he has failed to secure a land bridge to Crimea, which would have required control of a portion of Zaporizah and Kherson as well. The Russian Black Sea fleet harbors at the ice free deepwater port of Sevastopol. Without a capturing a contiguous stretch of land from Russia across eastern Ukraine the fleet is cutoff with access either by plane or ferry. It is tough to move tanks and heavy equipment on a ferry across the 5 kilometer wide strait between Russia and Crimea. The odds are very good the ceasefire will not hold and Putin will continue to press for land access.


American Express (AXP) is finding that breaking up may be easy but it is still painful. Friday afternoon Bloomberg reported the company was breaking up with JetBlue (JBLU) and parting ways on their co-branded credit card. This came only one day after AXP said it was breaking up with CostCo (COST) and would no longer provide them with a cobranded card once the current agreement ends in March 2016. Costco accounts represent about 20% of AXP loans and about 8% or $80 billion of its billed business. AXP shares lost -6% on Thursday on the Costco news.

Bloomberg said JetBlue had reached an agreement with Barclays and MasterCard for a future branded card. JetBlue had been partners with American Express since 2005. AXP shares lost another -3% on Friday on the JetBlue news.


Apple (AAPL) rose to another new high at $127.08 on Friday after news broke that the company is working on building an electric car. Several hundred employees are working on creating an electric car in a project code-named "Titan." The early designs are said to resemble a minivan. There is no guarantee they will complete the project but with hundreds of engineers working on the project they are definitely serious. The leak came from the Wall Street Journal. The Financial Times also reported that Apple was hiring automotive experts to work in a secret research lab. They have a long way to go to catch up with Tesla but they have more than enough cash on hand at $178 billion to complete the task.

Apple is rumored to be planning a new product announcement for February 24th. It has not been publicly announced yet but several Apple insiders have confirmed it.


After the close Alibaba (BABA) said it had received a request for information from the SEC related to its dealings with a Chinese regulator. The SEC wants to know about dealings with China's State Administration and Commerce or SAIC regarding the issue of fake products being sold on the company's websites. The SAIC issued a white paper last month saying it had met with Alibaba before the IPO to discuss the problem of fake items sold on its platform. However, SAIC had withheld the report until after the IPO to not affect the public offering in September. The SAIC retracted the report a couple weeks after it was published. BABA shares fell -4.4% when the report was released. Now the SEC wants to know the details behind the investigation and why the SAIC backed off.

Alibaba's Chairman Jack Ma had some bad news for employees this year. Traditionally during the Chinese Lunar New Year the company handed out red envelopes stuffed with cash to employees as bonuses. The New Year is next Thursday and Ma said there will not be any red envelopes this year. He said Alibaba's performance in 2014 was not good enough to warrant handing out bonuses. The company said "Red envelopes are not guarantees. They are a discretionary part of a larger compensation package." Employees will still receive their year-end bonus this month, which is usually equivalent to one month's salary.


SeaDrill (SDRL) shares fell -13% after the company reduced its order backlog by -$1.1 billion due to problems at Petrobras. The top management at Petrobras quit earlier this month in a widening corruption probe. The company said it may take until the end of May to account for the losses. SeaDrill had an order backlog of $20 billion at the end of Q3 and announced contract extensions in November. Day rates for the best rigs have fallen from $650,000 to $400,000 and may fall even further.


Heartland Payment Systems (HPY) reported earnings of 42 cents that missed estimates of 68 cents by a wide margin. Revenue of $604 million also missed estimates of 622 million. However, the company raised its quarterly dividend by 17% to 10 cents. The company also guided lower for 2015 to earnings in the $2.75-$2.85 range on revenue of $775 million. Analysts were looking for $3.00 and $782 million. Shares fell -10% on the news.


Assurant (AIZ) reported adjusted earnings of 87 cents that missed analyst estimates of $1.66. Revenue of $2.62 billion also missed estimates of $2.64 billion. Multiple segments posted lower results and they missed on full year earnings. The guided for 2015 for earnings to be in line with 2014. Some segment premiums were expected to decline in 2015. There was not much in the report that was positive.


Zillow (Z) reported earnings after the close on Friday of 24 cents that missed estimates by a penny. For the full year the company reported a loss of $1.09 on revenue of $326 million. The company said it would close the acquisition of Trulia as early as Tuesday after the FTC closed its investigation on Friday. The original $3.5 billion acquisition, now valued at $1.78 billion gives 0.444 of a Zillow share to Trulia shareholders. The decline in Zillow's share price impacted the value of the deal. The acquisition led to additional costs for Zillow in Q4 and that reduced their earnings. Shares of Zillow rose +$6 in afterhours.


Earnings are winding down pretty fast. The highlights for next week are Jack in the Box on Tuesday, Marriott and EOG on Wednesday, Walmart, Priceline and Nordstrom on Thursday followed by Deere on Friday. The lack of material earnings means the market will focus more on the earnings we do have. While 79% of companies have reported earnings that beat the street the earnings guidance has been especially bad. The ratio of negative to positive guidance is 5.6 to 1 and normal is 2:1.


Security firm, Kaspersky Lab, will publish a report on Monday showing that more than 100 banks in 30 countries have lost more than $300 million to hackers. It will go down as one of the biggest bank robberies ever and was perpetrated by a criminal group that included Russians, Chinese and Europeans. The hackers infiltrated the banks with malicious software that sat dormant for months monitoring bank processes and daily routines. When the software went active based on all the accumulated data hundreds of millions of dollars was transferred from banks in the U.S., Russia, Japan, Switzerland and the Netherlands into dummy accounts setup in other countries. While Kaspersky has evidence of at least $300 million in losses the company believes the actual loss could be triple that amount.

Kaspersky said because of nondisclosure agreements with the banks that called them in to analyze the attacks they can't identify the banks but the White House and the FBI have been briefed on the findings. The amounts transferred were kept under levels that would have triggered additional scrutiny but the largest transfers hit $10 million. The security company said the group "Carbanak cybergang" represented an increase in the sophistication of cyber attacks on financial firms. After gaining access to the bank systems they installed a Remote Access Tool or RAT that could capture videos and screenshots of computer screens and transactions on employee computers. The goal was to be able to mimic valid transactions so the transfers would go unnoticed.

The group setup fake accounts at JP Morgan Chase and the Agricultural Bank of China to receive the transferred funds. Neither bank would comment to the New York Times. When it came time to retrieve the funds the group sent commands to ATMs at numerous locations to dispense all its cash at a preset time when an accomplice would be waiting. In one such instance the accomplice did not appear and the ATM just started spewing cash for anyone nearby to grab. This alerted authorities to the scam. One bank lost $7.3 million through ATM withdrawals alone. Other methods included inflating the digital balance in a random individuals account by thousands of dollars then transferring the money away from the bank into other accounts then returning the digital balance to the original amount over a period of just a few minutes. The user was never the wiser that his account had been used. Link to full story

The increasing incidence of cyber attacks is going to increase the importance of security firms like FireEye (FEYE), Palo Alto Networks (PANW), Symantec (SYMC), CheckPoint (CHKP) and others. These firms will become indispensible to corporations to not only prevent these kinds of attacks but track the intrusions and help identify the culprits when they do occur. These companies are investing heavily in research and technology and should be in your portfolio.


Crude oil only gained 61 cents for the week but it closed at a 6-week high at $52.65. It is pretty much a tie between those analysts that believe oil has bottomed and those that believe we will see lower lows. OPEC helped lift prices last week when they sharply upgraded their expectations for demand. They now expect demand for OPEC oil in 2015 to be 29.21 mbpd an increase of 430,000 bpd from their last forecast. They now expect non-OPEC supply to increase only 850,000 bpd in 2015 and -420,000 bpd less than their prior forecast. OPEC produced 30.15 mbpd in January, down -53,000 bpd from December.

OPEC officials said the sharp decline in capex spending and the rapid decline in active rigs in the U.S. would slow the growth in U.S. production. OPEC now believes U.S. production will be lower by -170,000 bpd. Global demand is expected to grow by 1.17 mbpd in 2016 to 92.32 mbpd.

U.S. crude inventories rose by another 4.9 million barrels to 417.9 million and an 80 year high. Beware the price when refiners and tank farms run out of storage capacity.



Active rigs in the U.S. declined last week by -98 to 1,358. Oil rigs declined -84 to 1,056 and gas rigs fell -14 to 300. That is an 18-year low for gas rigs. Active rigs have now declined -572 or -29.7% since the cycle high of 1,931 in September. This is the fastest decline on record.


Markets

Multiple indexes broke out to new highs on Friday. However, a breakout is not a one day event. The three day rule definitely applies. In this case we don't consider it an actual breakout unless the market remains over the old highs and adds to its gains for at least three days. The S&P only closed about 6 points over its old closing high of 2,090.57 and momentum was sluggish. In cases like these we have to be on watch for a double top to form at this level and for the index to roll over. While I am not expecting that it is always a caution when indexes return to prior highs.

I believe the Dec/Jan volatility was consolidation from the 2014 gains. Despite the number of days where the Dow lost triple digits the maximum declines were only about -4%. While some of them were scary there was no real danger since support always held.

We consolidated for about six weeks with three major attempts to sell off but none could break support. This gave the bulls confidence and now they are pressing the advantage. If the S&P can press on to psychological resistance at 2,100 and actually surpass it then investors should appear in volume and we will start a new leg higher.

The wall of worry is starting to crack. Q4 earnings dropped sharply in the early days of the cycle but have rebounded to +7.5% growth. Job growth appears to be strong and improving. However, earnings are expected to decline -1.9% for Q1 due mostly to the energy sector. Recent economic reports have been declining. Offsetting the economic worries is the hope that Russia will cease hostilities in the Ukraine, Greece will work out a deal and China will enact a new stimulus program. Also, German GDP actually rose in the last report.

While the economic and geopolitical fundamentals are actually in turmoil the Fed just keeps on repeating the party line that the economy is growing and apparently the investing public believes them.

The bulls are climbing the wall of worry and the positive data points are actually accelerating the climb.

Now that we have a tentative breakout it will be up to investors to either confirm it with further gains or quickly take profits now that we have returned to the December levels.

The S&P is facing psychological resistance at 2,100 and the first target level of analysts for the end of 2015. This fact will not be lost on the investing public. Once over that level the next resistance is in the range of 2,125.


The Dow benefitted from rising oil prices with CVX, XOM and CAT leading the gains on Friday. However, it was hardly a charge to new highs. The Dow only gained +46 points and did not reach a new high. American Express knocked off more than 50 Dow points over the last two days and was a weight on the index. There were quite a few names on the losing side of the ledger but all but two were only fractional losses. There was simply no excitement on the Dow stocks. In theory this is because of the negative impact of the strong dollar since all the companies operate internationally.

The Dow closing high in December was 18,053.71. The high on Friday was 18,037 so even the intraday high failed to reach the December levels. The intraday high in December was 18,103 so the Dow needs to add another 100 points to really threaten a breakout.

Support is now 17,800 and resistance those 18,053 and 18,103 levels.

The Dow also has some long term uptrend resistance in the 18,150-18,200 range.



The Nasdaq Composite has broken out. Unlike the wimpy +6 point breakout on the S&P the Nasdaq is in lift off mode. The strong resistance at 4,800 has been strongly broken by a two day ramp to 4,894 at Friday's close. This is a real breakout and shorts are running scared. In the table below there were quite a few big gainers on Friday with only seven stocks losing more than $2 on the Nasdaq. Market breadth was strongly positive with 1,629 advancers to 945 decliners. There were 130 new 52-week highs and the most since the day after Christmas when the index set the last 15-year high.

Apple has broken out with a $7 gain over the last material resistance at $120. This helped power the Nasdaq higher. Google is also at a post November high after a really ugly month. Amazon is at a 52-week high after surprising with strong earnings in late January.

The tech sector is on fire with the Semiconductor Index also in breakout mode. Biotechs have not been leading but the sector indexes are finally showing life again and they could lead the Nasdaq higher next week.

There is uptrend resistance at 4,925 and support is well back at 4,800 and 4,725.

The historic high close was 5,132 in March of 2000.



The Russell 2000 broke over strong resistance at 1,208 and the prior high close of 1,219 to close at 1,223 on Friday. This was another wimpy breakout that needs to be confirmed by several more days of gains. A new high by +4 points is barely a new high. In theory the small caps don't have the strong dollar exposure and should continue to rise as long as the U.S. economy remains in growth mode.

Resistance 1,225, support 1,208 and 1,200.


The Dow Transports did move higher by +1% last week but they are struggling. Oil prices have quit going down and fuel prices are rising. They should continue to be under pressure until the economic reports improve. Slowing economics and rising fuel prices are not a recipe for a transport breakout.


I believe the market is going to try and move higher. While U.S. investors have grown tired of the Greek headlines we still face a danger from that if no agreement is reached. The Ukraine annexation has reached the point where nobody on this side of the pond seems to care so that should have little impact on the U.S. markets. The FOMC minutes on Wednesday should be the next hurdle but without a significant change in tone they should just reinforce what traders already know.

I would watch for further upside confirmation by the S&P and Russell 2000 and without that I would be cautious about buying this rally. Any further gains would be a positive signal for investors so be prepared to climb aboard if the train leaves the station.

Random Thoughts

Winter storm Neptune is bearing down on the Northeast with some of the lowest temperatures in 20 years. The Weather Channel said wind chills in New York could be -30 below on Monday. Apparently the Polar Vortex has returned with a vengeance. Temperatures in Boston could dip below zero for the first time since 1994. The area has up to 5 feet of snow on the ground and more on the way. This is unprecedented in modern times.

Retail sales in January declined -0.8% after a -0.9% decline in December. If the port problems in California continue much longer the declines are going to get a lot worse. If a complete shutdown occurs the results could be catastrophic. Already the impact of the long running port slowdown will impact GDP and cause the loss of thousands of jobs. Without merchandise to sell the stores will lay off workers. Without parts to fuel the manufacturing process many factories will lay off workers. The transportation supply chain is grinding to a halt with goods to be imported into California still locked on more than 35 ships anchored offshore Los Angeles harbor and every port on the coast.

The labor problem is very unrealistic to people who don't live in California. A dock worker earns $147,000 a year, plus $35,000 in employer paid healthcare and an annual pension of $80,000 according to press releases. Add in overtime and the total wages and benefits balloons to more than $250,000 a year. They are negotiating to get a hefty raise above those numbers. Shipping companies announced on Thursday they were partially shutting down the docks for four days in the middle of the dispute. That is basically a lockout where the workers don't get paid. The shipping companies don't want to pay overtime because they claim the dock workers have slowed production to the point that it requires constant overtime to get any ships unloaded. "Slowing down production significantly represents a strike with pay." The vessel trade at West Coast ports represents 3.5% of GDP. A continued slowdown or eventual shutdown would be economic suicide.

Greece could win the debt argument. Greece owes the Troika (EU, ECB, IMF) 315 billion euros. They can't afford to even pay the interest on the debt and will never be able to pay off the actual debt. The Eurozone is the bank and they have two choices. They can play hardball and kick Greece out of the Eurozone and forfeit the entire balance. There would be massive write downs and recapitalizations. It would be a horrendous problem for the eurozone.

The second option is to restructure the debt by writing off a large portion and extending the payment stream for decades into the future so the payment shrinks to the point where Greece can at least make the payments. Basically this is the equivalent of kicking the can way down the road. The banks realize they will never be repaid. However, with a 50 year repayment schedule they can write off the balance slowly over the next several decades so when Greece finally defaults it won't be such a catastrophe.

The Eurozone would survive intact for a few more years and on the surface "face would be saved" and the status quo would continue. Greece wants the ECB to buy Greek bonds with a 5 year maturity, which would give Greece some money to pay the interest on the big debt. Everyone could go back to business as usual and the talks would restart five years from now. The Greek theory is that the ECB is ready to launch QE so launch some towards Greece and the short term problem is solved.

The eurozone has the biggest problem. While Greece was stupid enough to accept the bailout and 315 billion euros of debt the eurozone was even more stupid to lend it to them when they knew they had no chance of paying it back. Obviously the eurozone was the most stupid in this deal and now they are paying for their stupidity.

The indexes are breaking out to a new high so the bull market is alive and well. At least that is the conventional wisdom. However, Credit Suisse just lowered their S&P midyear target for 2015 from 2,250 to 2,100 only 3 points above Friday's close. His end of year target dropped from 2,200 to 2,150. Analyst Andrew Garthwaite said the gains from now until the end of the year to be just 5% and the lowest gains in five years. Previously Garthwaite had been expecting 2,250 at midyear and 2,200 at the end of December.

He said U.S. and global earnings revisions are at 6 and 3 year lows respectively and levels that have been associated with flat markets in the past. He said geopolitical headlines and economics are likely to be a headwind until summer. He still expects gains for the year but well below prior year gains.

UBS analysts Ramin Nakisa and Stephane Deo warned "the calm of the markets is not consistent with near-term risks." They recommend cutting exposure to stocks because of geopolitical and global economic risks. They said the market is "very sanguine" about the potential for a sell off and "We believe it is time to reduce equity exposure."

This comes at the same time that several SEC filings from various hedge funds show they are reducing their exposure to stocks. David Tepper's Appaloosa Management cut exposure to U.S. stocks by 40%. Appaloosa reduced equity exposure by -$2.74 billion to $4 billion by exiting positions in Citigroup, Halliburton, Facebook, Ford, Alibaba, CBS and Apple. The firm also sold almost all its shares in the SPY that tracks the S&P-500.

Technician Tom McClellan said he turned neutral on the market at Thursday's close. He believes the markets are putting in a short term top and are now due for two weeks of choppiness, followed by an upturn at the end of February. However, the lack of the classic signs of a major top makes him believe the market will move higher in March.

Putin won again. The Minsk Summit with Putin, Merkel and Hollande only had one possible outcome. Putin would agree to some concessions in order to avoid being the villain. Had he snubbed Merkel and Hollande he would have lost what little political credibility he has left and guaranteed a new round of tougher sanctions from Europe. Now that the agreement is in the books Putin is seen as the peacemaker for at least the next several days. When the agreement fails and fighting breaks out again he can blame it on Ukraine forces and launch a new wave of attacks to gain more ground.

Think about this. Putin has claimed for months that Russian troops are not in the Ukraine and he has no influence over the conflict. However, he is willing to negotiate terms like troop withdrawals, neutral zones and a halt to artillery fire. Obviously his tattered veil of denial is falling apart. There is almost no chance the Russian/rebel troops will honor the cease fire for more than a few days at most.

The $564.1 million Powerball jackpot was won by three people. One each in North Carolina, Texas and Puerto Rico. The North Carolina winner was a 26 yr old unemployed single mother of four. Since she will receive about $130 million in a cash payment she should not have to ever work again. Odds are good she will not remain single long given the vast army of suitors that will be calling soon. With odds of 1 in 175,000,000 you have a better chance of being killed by a falling asteroid (1 in 700,000) or many times more likely to be killed by lightning (1 in 136,000). Odds of being attacked by a shark are 1 in 12 million, killed in a plane crash 1 in 8,000 or play professional football 1 in 1 million.

The government has decided that cholesterol is no longer bad for you. The nation's top nutrition panel has decided to drop warnings about cholesterol laden food as a health risk. The panel has found that cholesterol in the diet need no longer be considered a "nutrient of concern." This follows multiple studies in recent years that found cholesterol in your diet may not significantly affect the amount of cholesterol in your blood or increase the risk of heart disease. This reverses the panel's warnings for the last 40 years. Oops! How many egg white omelets have you endured over the last 40 years in an effort to eat healthy? Many will be celebrating this news this weekend with some barbecued ribs or a juicy rib-eye steak. I am sticking with my low fat vegan diet because the fat will kill you much faster than the cholesterol.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"It was never my thinking that made the big money for me. It was always my sitting. Got that? My sitting tight!"

Jesse Livermore

 


Index Wrap

S&P Breaks Out Above 2-Month Trading Range; Nasdaq Decisively So

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

The S&P 500 (SPX) broke out above its trading range dating from mid-December; the Nasdaq decisively so. Surprising best longer-term play now looks like Russell 2000 Calls.

My favorite shorter-term trading vehicle has become the S&P 500 Volatility Index (VIX). Volume is massive, with major institutional players due to its tendency to move inversely to the SPX; i.e., VIX calls being a hedge against a falling S&P 500 Index.

Moreover, VIX trades quite 'technically' as VIX tends to move in fairly predictable chart ranges and overbought/oversold extremes tend to be good places to look at reversing directional trades.

VIX traded 526,000 (rounded to nearest 1000) options on Friday, dwarfing all but the S&P 500, with volume at a million. The volume split in VIX was 284,000 calls and 242,000 puts, an interesting split.

In terms of daily trade volume on Friday, the Russell 2000 came in a distant third at 42,000 options changing hands. As to my bullish comments on RUT above, the Index has been out of favor for nearly a year now and over this period to date has traced out a sizable 'base' pattern. Moreover, there's a bullish long-term chart picture seen in a sizable multimonth Head & Shoulder's bottom pattern. I'll take a more detailed look at the Russell chart picture on the Monday stock holiday (President's Day) in my next Trader's Corner article. If I can't trade I might as well write!

And, by the way, Happy Valentine's Day!. And, luckily hearts and flowers days is today (Saturday), not yesterday, Friday the 13th. March will see a subsequent Friday the 13th. I don't know how rare two back to back such Fridays are but it must be uncommon.

The overall Market looks headed higher, is not yet at 'overbought' extremes on a 2-3 week basis (although it's headed that way) and bullish sentiment is gaining but isn't 'extreme'. The big cap S&P 100 (OEX) and the monster cap Dow 30 (INDU) look like they can also break out above their prior highs. More specifics to follow.

The S&P 500 Volatility Index (VIX) DAILY chart:

I generally use a Close-only 'line' VIX daily chart. The intraday fluctuations can be extreme and can be a distraction in terms of VIX analysis on a day to day, week to week basis. At times I may note a particular VIX intraday high on this chart if that intraday high took the Index above resistance. [I'll use a 'standard' Open-High-Low-Close (OHLC) bar chart in my second VIX chart below, which is the Index on an extended hourly basis.]

VIX, a week ago (Friday 1/30/15) got up to an intraday high at 22.18, above anticipated resistance in the 22 area. I've highlighted previously how a VIX reading above 22 is an 'overbought' extreme generally and a place to look to buy VIX puts.

I noted last time that: "I anticipate a gradual VIX decline, probably back to 16 and perhaps falling again to 14 or under." VIX has dipped in the past week to below 16 and looks headed perhaps to the 14 area or lower. I consider VIX readings in the 14 to 12 range to be the 'mean' versus the extreme.

VIX also looks headed to an oversold RSI extreme but in terms of 'timing' entry into call positions, such readings can go on for lengthily periods. We need to see an upside reversal pattern to suggest that VIX is ready to rip again. One way that I evaluate a possible upside chart reversal is by use of an extended hourly chart, which comes up next.

The S&P 500 Volatility Index (VIX) HOURLY chart:

The extended hourly VIX chart seen next provides a closer-in view of the past few weeks' action, with downside turning points (red down arrows) that developed already. I've highlighted potential 'support' with the green up arrows, at 14, then 13.

Note also that on a shorter-term basis, the hourly VIX is into a typical oversold zone in terms of the hourly RSI, length set to '21'; i.e., the indicator uses the past 21 hourly Closes to yield the most recent reading. (I switch to a length setting of '13' on a daily chart basis as seen above.

Bottom line, VIX looks headed lower as it drops below the prior few weeks' lows. 14 begins an historical VIX support range, which is between 14 and down to around 12.

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX) DAILY CHART:

The S&P 500 (SPX) had a prior trading range from December into early February that ran from approximately 1973 to 2093 until this past week when a daily and weekly Close took SPX above the prior late-December top.

The pattern here looks like a bullish chart (upside) breakout but more time is needed to see if SPX will have a sustained advance above 2093-2100. The Index is short-term overbought so a minor sideways to lower pullback could come in the coming holiday shortened week but I envision more upside ahead, such as to the 2130 to 2150 area.

Technical support is highlighted in the 2050 to 2042 area (at the 21-day moving average). Next lower support looks to come in around 2020, with fairly major support near 2000.

Bullish sentiment, as seen with the CPRATIO line at the bottom of the chart, has climbed but isn't at an extreme. I get more concerned about a downside reversal with a prolonged period of high bullishness. We have probably too many Market cross-currents to get most traders and investors throwing money at stocks anytime soon. There's Greece, and Greece and Greece again. Nice place for a holiday. I love the Islands but I digress.

S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX) chart is in a strong move higher and has a high probability to follow the broader S&P 500 to new highs and to also break out ABOVE its prior trading range. Of course, in trading as well as life, another motto is to 'never assume', so we'll see what the coming week brings.

Resistance is assumed at the prior intraday high at 924, and then perhaps at 932, at my upper trading 'band' or properly my upper moving average 'envelope' line set currently at 3.3% above the 'centered' 21-day moving average. OEX resistance then extends to 938-940 in my estimation.

I noted last week that "I'd be happy to take profits on calls in the 920 area, if reached." Reached it was and anyone who bought 'right' (as my Mentor used to say), or on the OEX dip below 880, should be pleased. I never hold on for what I consider the last dollar of potential profit but I get bullish (or bearish) when others might not. Different trading strategies can work for different traders and investors no doubt!

Technical/chart support is highlighted around 910, then at 900, extending to 895. Assuming another shot higher OEX would likely get into the 'overbought' area seen on the 13-day RSI. At that point I'd be quicker to exit calls, depending on subsequent price action, and wait for a possible next dip in order to continue to trade WITH the dominant up trend.

THE DOW 30 INDUSTRIAL AVERAGE (INDU); DAILY CHART:

The Dow 30 (INDU) Average is bullish in its pattern given the recent breakout above 17690-17700 trendline resistance. I wrote last week that Dow "18000 could be reached, then 18100 or a bit higher as a next target." That is still my predictive thought as I see a better than even chance that INDU follows the S&P 500 to new highs; in the case of the Dow, to above 18100. A next resistance than begins around 18230-18240 and extends to 18300.

17800 is now highlighted as near technical support, with 17600 as a next pivotal technical/chart support. An INDU Close below 17600 that was sustained would be a bearish chart development.

Dow stocks that look capable of moving higher include BA, CSCO, CVX (in a recovery oil stock rebound - more so than XOM), DD, DIS, HD, MMM, PFE, TRV, UNH, UTX, V and perhaps WMT (especially if it holds $85).

I've noted 13 Dow stocks that could help sustain a move higher. I'd want to see more of the 30 in upswings to stay bullish on INDU. That it's not 15-17 Dow stocks with strong bullish charts is a reason that the Dow is lagging the broader S&P here.



NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:

The Nasdaq Composite (COMP) is strongly bullish in its pattern with the recent power push above its prior highs in the 4820 area. A next stop could be 4935, then on to a major milestone 5000.

Key near support now is up to 4820-4800, with next support looking like 4720, in the area of the 21-day moving average.

I wrote last week that "I don't see a compelling chart story to suggest a sizable upside move ahead, at least near-term." Opps, that was, how can I say it, WRONG! I thought COMP might STAY within its multimonth trading range but I'm not a bear.

For the most part I don't take on big trades AGAINST a dominant up trend, although a sideways trading range market yields some two-sided opportunities for sure. In terms of taking on bigger positions, a sideways trading range of even many weeks duration has to be viewed as a possible consolidation in a primary trend that is UP, as I keep reminding traders. Bull markets don't die because they go on LONGER than the average/'normal' which this one has; they tend rather to die from our economy falling into recession.

NASDAQ 100 (NDX); DAILY CHART:

NDX has regained strong bullish footing with first its advance to above 4300, then in its decisive upside penetration of the prior intraday peak at 4347.

This week I've highlighted next potential resistance around 4415, then at 4500. Near support is at 4300, at prior resistance, with support then seen in the area of the 21-day moving average, currently intersecting in the 4225 area.

I suggested last week that "4100 was a positive buy and 4300 would be a place to take profits." I'd be happy with that trade but 4500 now looks like a next possible upside objective.

The Nas 100 volatility index, VXN, looks to be headed to the 14 area which is a typical low reading in a strongly trending NDX.

NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:

The QQQ trend went from 'mixed' to resuming its strong bullish pattern with the breakout first above prior near resistance in the 104 area, at its down trendline. This was followed by some bullish upside price gaps as NDX leaped higher. This pattern in turn was accompanied by the Q's usual ho-hum accompanying low volume.

It seems that traders of the stock don't jump in on 'breakout' or accelerated upside moves. I've never understood this pattern exactly. It's the opposite in the futures and individual equities, but never-mind. The volume trend that does matter in a QQQ upswing is seen with On Balance Volume (OBV) by the OBV line trending UP along with price.

I've noted potential resistance at 108 but at and above my upper trading 'band' (3.5% above the 21-day 'centered' moving average) intersecting currently at 107, an advance can be relatively short-lived. Assuming bullish fire continues, 109 is a next target at the current upper end of QQQ's broad weekly chart (not shown) uptrend price channel.

Last but not least, I suggested last week to all you QQQ bulls out there to "Stay long pending what happens at the resistance trendline." Well, not much question that the Q's knifed through that implied resistance!

RUSSELL 2000 (RUT); DAILY CHART:

Last week I noted that the "Russell chart pattern is slightly better (more bullish) than the other indexes after RUT traced out a symmetrical triangle that was followed by the Index's breakout above the upper trendline, suggesting upside potential to 1260 or higher."

There's more than this chart to turn me longer-term bullish, which is the long-term weekly chart (not shown here) which has traced out both a sizable 'base' but also a bullish Head & Shoulder's bottom. I'll feature more about this in a Monday Trader's Corner article as noted in my initial 'bottom line' commentary.

Back to the chart below: the pattern I've highlighted is a bullish 'symmetrical triangle'. The upside penetration of the down sloping (upper) trendline, followed by a pullback to that line which then 'acted as' support, followed by a surge higher suggests more upside to come.

The aforementioned upside breakout implies a next target to the 1260-1270 area over time, but perhaps not in a straight line so to speak. Once the Relative Strength Index (RSI)indicator reaches an overbought extreme, this might be associated with a sideways to lower corrective pullback; for example, RUT reaches 1240 to 1250 and pulls back to 1215, then resumes a further rise.

Resistance is suggested in the 1240 area, with a next possible upside target of 1256. Technical/chart support is seen at 1200, extending to 1190.


GOOD TRADING SUCCESS!




New Option Plays

Cashing In On An Aging Population

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Zimmer Holdings - ZMH - close: 119.33 change: +1.18

Stop Loss: 117.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.0 million
Entry on February -- at $---.--
Listed on February 14, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
A large chunk of the developed world is old and getting older. The demographics in the United States, Europe and Japan show an aging population. Even China is seeing a rise in its older citizens. This means big business for the orthopedic market, especially for products like hip and knee replacements. ZMH is poised to become the number one player in hip and knee medical devices with its current merger plans to Biomet.

ZMH is part of the healthcare sector. The company describes itself as "Founded in 1927, and headquartered in Warsaw, Indiana, Zimmer designs, develops, manufactures and markets orthopedic reconstructive, spinal and trauma devices, dental implants, and related surgical products. Zimmer has operations in more than 25 countries around the world and sells products in more than 100 countries. Zimmer's 2014 sales were approximately $4.7 billion. Zimmer is supported by the efforts of more than 9,000 employees worldwide."

Looking at last year's earnings ZMH's performance was mixed but they seemed to be improving. The company beat expectations in both the third and fourth quarter. ZMH reported its Q4 results on January 29th. Earnings per share hit $1.71, which was one cent above estimates. Revenues were down -1.4% to $1.22 billion. That missed estimates of $1.24 billion. Part of that miss was due to currency fluctuations. One the plus side ZMH did say gross margins improved 188 basis points to 74.4% in the fourth quarter.

ZMH management also raised their Q1 guidance. Wall Street was expecting 2015 Q1 earnings of $1.52 a share. ZMH just guided to $1.58-1.60 a share. Following its Q4 report and new and improved guidance several analyst firms have either upgraded or raised their outlook on ZMH. Many of the new price targets are in the $130-150 range. FYI: the point & figure chart is forecasting a long-term target of $169.00.

Right now the focus for ZMH is its merger with Biomet, a private company in the orthopedic space. Biomet was going to go public again last year but in April 2014 they agreed to a merger deal with ZMH. Shares of ZMH soared on the news. The deal is valued at $13.35 billion. It's the fifth largest medical device merger in the last ten years.

This merger is important to ZMH because competition is heating up in the $45 billion orthopedic market. The cost savings of the merger are expected to save $135 million the first year and hit $270 million by the third year. The deal is also accretive to ZMH. Biomet saw strong sales last quarter in its spine and bone-healing business.

The combined company will have about 40% of the hip replacement market and about 33% of the knee implant market. That puts them at the top of the list for these two niches. Overall the post-merger ZMH will be second in the orthopedic market behind Johnson & Johnson (JNJ).

It's important to note that this deal has not yet been approved by regulators. The European Union antitrust committee just announced they will render a decision by May 26th. ZMH believes the deal will be approved in the first quarter of 2015.

Technically shares of ZMH have a long-term bullish trend of higher lows and higher highs. The stock just had a mini-correction with a pullback from $120 to $111 in January. Shares have since recovered. Now ZMH is breaking out past short-term resistance near $118 and is headed for its all-time highs set last month in the $120.70 area. We are suggesting a trigger to buy calls at $120.75.

Trigger @ $120.75

- Suggested Positions -

Buy the JUN $125 CALL (ZMH150619C125) current ask $3.70

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Stocks Rally Into The Weekend

by James Brown

Click here to email James Brown

Editor's Note:

Optimism was breaking out on Wall Street. A potential cease-fire in Ukraine, hopes for a deal with Greece, and a better than expected GDP number in Europe helped boost the market.


Current Portfolio:


CALL Play Updates

Hanesbrand Inc. - HBI - close: 119.12 change: +1.27

Stop Loss: 112.40
Target(s): To Be Determined
Current Option Gain/Loss: +74.5%
Average Daily Volume = 800 thousand
Entry on February 03 at $114.14
Listed on February 29, 2015
Time Frame: Exit PRIOR to HBI's stock split on March 4th
New Positions: see below

Comments:
02/14/15: HBI ended the week with another gain and new all-time highs. Shares are starting to look a little bit overbought with HBI up several days in a row. The $120 level could be round-number resistance so it wouldn't surprise me to see HBI tag $120 and then pullback. Traders may want to raise their stop loss again.

Don't forget that we want to exit prior to HBI's 4-for-1 split on March 4th.

Earlier Comments: February 2, 2015
How many stocks can you name that are up +400% in the last three years? HBI is in the consumer goods sector. They make apparel under a variety of brand names. Shares of HBI have been a big performer the last few years, outperforming the broader market.

According to the company, "HanesBrands, based in Winston-Salem, N.C., is a socially responsible leading marketer of everyday basic apparel under some of the world's strongest apparel brands in the Americas, Asia and Europe, including Hanes, Champion, Playtex, DIM, Bali, Maidenform, Flexees, JMS/Just My Size, Wonderbra, Nur Die, Lovable and Gear for Sports. The company sells T-shirts, bras, panties, shapewear, men's underwear, children's underwear, socks, hosiery, and activewear produced in the company’s low-cost global supply chain."

A good reason shares have been rising so consistently has been HBI's bullish guidance. Last year the company raised its earnings guidance three quarters in a row. Their most recent earnings report was January 29th (last week). HBI's Q4 results were $1.46 a share with revenues surging +20% to $1.55 billion. The bottom line number was two cents above estimates while revenues met estimates.

HBI said that 2014 was its second consecutive year of record results. Net sales rose +15% while its profit grew +28% and adjusted EPS soared +45%. Hanes Chairman and CEO Richard A. Noll commented on their results saying,

"We had another outstanding year in 2014, generating significant shareholder value and again achieving record results for sales, operating profit and EPS. We are in the midst of a multiyear period of strong growth supported by our powerful company-owned global supply chain, Innovate-to-Elevate product platforms, and acquisitions. Our guidance for 2015 translates into another year of double-digit EPS growth and what would be another record year for sales, profit and EPS, despite the challenges of currency exchange rates."

HBI's new guidance sees 2015 revenues in the $5.77-5.82 billion range. That's +9% growth but a little bit below Wall Street's estimates. HBI is forecasting earnings in the $6.30-6.50 range, which equals about +11% to +15% growth.

Management also raised its cash dividend +33% to $0.40 a share. On top of that they issued a 4-for-1 stock split. The split is coming up soon. HBI will start trading split adjusted on March 4th, 2015. We think HBI could see an old-fashioned split run.

Tonight we are listing a trigger to buy calls at $114.10. We'll start this trade with a stop at $109.90. Plan on exiting before the March 4th stock split date.

- Suggested Positions -

Long MAR $115 CALL (HBI150320C115) entry $3.21

02/12/15 new stop @ 112.40
02/03/15 triggered @ 114.14 on an intraday gap higher. Suggested entry was $114.10
Option Format: symbol-year-month-day-call-strike

chart:


Honeywell Intl. - HON - close: 104.38 change: +0.88

Stop Loss: 99.65
Target(s): To Be Determined
Current Option Gain/Loss: +11.3%
Average Daily Volume = 3.0 million
Entry on February 12 at $103.05
Listed on February 10, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
02/14/15: HON's bullish breakout continued on Friday with the stock up another +0.85%. This is a new record high for the stock. If you don't feel like chasing it here you could wait for a dip near $103, which should be new short-term support.

Earlier Comments: February 10, 2015
HON is in the industrial goods sector. Shares have managed to outperform its peers. The Dow Jones Industrial Average is up +0.26% this year. The XLI industrial ETF is -0.3% for 2015. Yet HON is up +2.5% so far. That's not bad and it's not counting the stock's 2% dividend yield.

According to the company, "Honeywell (www.honeywell.com) is a Fortune 100 diversified technology and manufacturing leader, serving customers worldwide with aerospace products and services; control technologies for buildings, homes, and industry; turbochargers; and performance materials."

Earnings have been somewhat mediocre. Back in December HON lowered expectations for their fourth quarter results. When they finally reported Q4 results in January they managed to beat estimates by one cent with a profit of $1.43 a share, which is a +15% improvement from the year ago period. Revenues dropped -1.2% year over year at $10.27 billion but that still beat Wall Street's revenue estimate of $10.17 billion. HON's Q4 results were hurt by a -6% slowdown in their aerospace business but management is bullish that this segment will see strong growth going forward.

HON's Chairman and CEO Dave Cote commented on his company's results,

"In the fourth quarter, Honeywell delivered 4% organic sales growth and achieved 15% earnings per share growth (excluding the pension mark-to-market adjustment), exceeding the high end of our guidance range and capping off another year of terrific performance in 2014... Strong execution in our businesses and continued momentum across the portfolio throughout the year helped us to deliver on our aggressive 2014 sales, margin, and EPS targets. We achieved significant margin expansion in 2014 with benefits from our key process and productivity initiatives, and increased organic growth
Discussing their 2015 outlook the company said, "We remain cautious in our planning with regard to the global economy, but are confident that our balanced portfolio mix of short- and long-cycle businesses is well-positioned to deliver on our 2015 commitments that include higher organic sales, continued margin expansion, and double-digit earnings growth."

In an interview with Bloomberg, Mr. Cote sounded optimistic. He said, "For the first time in five years, I'm actually a little more bullish on where the global economy is going than economic forecasters are." Discussing the impact of crude oil on the economy, he said, "impact of lower oil prices is causing this major redistribution from oil-producing to oil-using economies, and those oil-using economies are quite large."

The market seemed unfazed by the company's cautious outlook. The stock actually rallied on its report. HON's recent strength has pushed shares to new all-time highs. The point & figure chart is already bullish and forecasting at $135.00 target. The P&F chart is also on the verge of a new triple-top breakout buy signal. Tonight we are suggesting a trigger to buy calls at $103.05

- Suggested Positions -

Long JUN $105 CALL (HON150619F105) entry $3.10

02/12/15 triggered @ 103.05
Option Format: symbol-year-month-day-call-strike

chart:


iShares Russell 2000 ETF - IWM - close: 121.53 change: +0.72

Stop Loss: 116.40
Target(s): To Be Determined
Current Option Gain/Loss: -4.0%
Average Daily Volume = 41 million
Entry on February 13 at $121.55
Listed on February 12, 2015
Time Frame: 10 to 12 weeks
New Positions: see below

Comments:
02/14/15: The market rally continued on Friday. The IWM managed to hit a new all-time high and our suggested entry point at $121.55. I would still consider new positions now or you could wait for a move past Friday's intraday high at $121.69 as an alternative entry.

Earlier Comments: February 12, 2015:
The IWM is the iShares exchange traded fund (ETF) on the small cap Russell 2000 index. The market rally in 2014 was mostly a large-cap affair. The S&P 500 index delivered a +11% gain and the small caps lagged behind with a +3.6% gain for 2014. That could change this year.

Small caps tend to see bigger moves, both up and down, than their larger-cap rivals. Right now the small caps are poised to breakout higher.

Many people look to the small cap index as a sentiment indicator for the broader market. The small cap Russell index has (about) 2,000 stocks. Compared to 500 in the S&P large cap index and only 30 stocks in the Dow Industrials.

Small cap companies in the Russell 2000 tend to be more U.S. focused so they're not encumbered by the strong dollar as much as the large cap global companies can be.

Right now the IWM is on the verge of breaking out past its all-time highs set in December (in the $121.40 area). Tonight we are suggesting a trigger to buy calls if the IWM can trade at $121.55.

We are not setting a target tonight but I will note that the IWM's point & figure chart is forecasting a long-term target of $154.00.

- Suggested Positions -

Long MAY $125 CALL (IWM150515C125) entry $2.50

02/13/15 triggered @ 121.55
Option Format: symbol-year-month-day-call-strike

chart:


ServiceNow, Inc. - NOW - close: 77.55 change: +1.60

Stop Loss: 71.90
Target(s): To Be Determined
Current Option Gain/Loss: +12.0%
Average Daily Volume = 1.1 million
Entry on February 05 at $75.15
Listed on February 04, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
02/14/15: Shares of NOW ended the week on a high note. This stock is up four days in a row and four weeks in a row. I wouldn't chase it here. Broken resistance near $75.00 is hopefully new support now.

Earlier Comments: February 4, 2015:
Tonight we are looking at a company that saw its sales grow more than 60% last year. They're forecasting more than 40% growth in 2015. That company is cloud-based services ServiceNow.

NOW describes itself as "ServiceNow is changing the way people work. With a service-orientation toward the activities, tasks and processes that make up day-to-day work life, we help the modern enterprise operate faster and be more scalable than ever before. Customers use our service model to define, structure and automate the flow of work, removing dependencies on email and spreadsheets to transform the delivery and management of services for the enterprise. ServiceNow provides service management for every department in the enterprise including IT, human resources, facilities, field service and more. We deliver a 'lights-out, light-speed' experience through our enterprise cloud – built to manage everything as a service."

This company has been consistently guiding their earnings forecast higher. They've done it at least the last four earnings reports in a row. Their most recent earnings report was January 28th. NOW reported their Q4 results of $0.03 a share compared to a loss of 2 cents a year ago. Analysts were expecting a profit of 2 cents a share. Q4 revenues soared +58% to $198 million, which was above expectations.

Some of the highlights from their fourth quarter include billings up +62% year over year and up +34% quarter over quarter. Deferred revenues were up +20% for the quarter. NOW added 211 net new customers, bumping their total to 2,725. Their customer renewal rate was 97%.

NOW said their 2014 revenues soared +61% compared to 2013. Their backlog at the end of 2014 hit $1.4 billion. That's a +57% jump from a year ago. NOW's President and CEO Frank Slootman said, "We finished 2014 with strong metrics across the board, maintaining consistently high year-over-year growth rates. In addition to a growing list of new customers that now includes more than 25% of the Global 2000, we continue to see existing customers expand their relationship with us, resulting in the highest quarterly upsell rate since our IPO." NOW's CFO Michael Scarpelli said, "Within the Global 2000, annualized contract value per customer has increased 40% year-over-year. These expanding contracts have helped us grow our combined backlog and deferred revenue 57% year-over-year."

NOW offered bullish guidance. They expected Q1 revenues to grow +50% in the $207-212 million range compared to Wall Street's estimates of $202.4 million. NOW's 2015 guidance is forecasting revenue growth in the +41% to +47% range in the $960-1,000 million zone versus analysts' estimates of $948 million.

These strong numbers and the consistent growth makes them a popular candidate among Wall Street analysts. After NOW's most recent earnings report several analyst firms raised their price target on NOW's stock.

Technically shares have just recently broken out through major resistance near $70.00. The point & figure chart is bullish and forecasting a long-term target of $97.00. The last few days have seen shares consolidating sideways in the $70-75 range. Tonight we are suggesting a trigger to buy calls at $75.15.

- Suggested Positions -

Long MAY $80 CALL (NOW150515C80) entry $3.93

02/12/15 new stop @ 71.90
02/05/15 triggered @ 75.15
Option Format: symbol-year-month-day-call-strike

chart:


NXP Semiconductors - NXPI - close: 84.79 change: -0.60

Stop Loss: 77.25
Target(s): To Be Determined
Current Option Gain/Loss: -6.8%
Average Daily Volume = 3.7 million
Entry on February 12 at $84.15
Listed on February 11, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
02/14/15: This past week saw NXPI push through resistance at its multi-month trend line of higher highs and resistance in the $83.00 area. I would still consider new positions at current levels.

Earlier Comments: February 11, 2015:
According to Apple Inc. CEO Tim Cook 2015 will be the year of Apple Pay. That's good news for NXPI. Apple launched its Apple Pay mobile payment system last September. In just the last four months it has taken off. About 8% of retailers already support it and estimates suggest that 38% of retailers will support Apple Pay by year end.

Tim Cook discussed the growth of Apple Pay in his company's recent conference call. Every $3 spent using mobile payments with Visa, Mastercard, and American Express, about $2 of that is used through Apple Pay. Panera Bread said that 80% of its mobile payment usage is through Apple Pay. Whole Foods noted that customers using mobile payments surged +400% once Apple Pay started.

All of this is good news for NXPI because they make the key chips necessary for Apple Pay to work.

The company describes itself as "NXP Semiconductors N.V. (NXPI) creates solutions that enable secure connections for a smarter world. Building on its expertise in High Performance Mixed Signal electronics, NXP is driving innovation in the automotive, identification and mobile industries, and in application areas including wireless infrastructure, lighting, healthcare, industrial, consumer tech and computing. NXP has operations in more than 25 countries, and posted revenue of $4.82 billion in 2013."

Earnings have been good. NXPI managed to beat Wall Street's estimates on both the top and bottom line the last five quarters in a row. Back in July NXPI raised their guidance. Influential hedge fund manager David Tepper, who runs Appaloosa Management, launched a new position in NXPI back in the third quarter of 2014. In early December shares of NXPI were upgraded with a $100 price target by Oppenheimer.

NXPI's most recent earnings report as February 5th. Revenues surged +18.9%. Management delivered bullish earnings guidance for the first quarter. Since this report at least four analyst firms have raised their price targets on NXPI (most of them into the mid $90s).

Today NXPI just hit all-time highs. The stock had been consolidating sideways in at $75-82.50 trading range. This breakout looks like an entry point. I'm suggesting a trigger at $84.15 to buy calls.

- Suggested Positions -

Long Apr $90 CALL (NXPI150417C90) entry $2.36

02/12/15 triggered @ 84.15
Option Format: symbol-year-month-day-call-strike

chart:


Starbucks Corp. - SBUX - close: 91.58 change: -0.25

Stop Loss: 87.85
Target(s): To Be Determined
Current Option Gain/Loss: +21.4%
Average Daily Volume = 5.1 million
Entry on February 10 at $90.25
Listed on February 05, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
02/14/15: SBUX encountered a little bit of profit taking on Friday. Nimble traders can look for a dip or a bounce near the $90.00 mark as a potential entry point to buy calls.

Earlier Comments: February 5, 2015:
The world seems to have an insatiable appetite for coffee. Starbucks is more than happy to help fill that need. The first Starbucks opened in Seattle back in 1971. Today they are a global brand with locations in 66 countries. SBUX operates more than 21,000 retail stores with more than 300,000 workers.

A few years ago Business Insider published some facts on SBUX. The average SBUX customer stops by six times a month. The really loyal, top 20% of customers, come in 16 times a month. There are nearly 90,000 potential drink combinations at your local Starbucks. The company spends more money on healthcare for its employees than it does on coffee beans.

The company's earnings results were only mediocre most of 2014 year. You can see the results in SBUX's long-term chart below. After incredible gains in 2013 SBUX has essentially consolidated sideways in 2014. The good news is that looks the consolidation is over.

Five-Year Plan

Late last year SBUX announced their five-year plan to increase profitability. Here's an excerpt from a company press release:

"The seismic shift in consumer behavior underway presents tremendous opportunity for businesses the world over that are prepared and positioned to seize it," Schultz said (Howard Schultz is the Founder, Chairman, President, and CEO of Starbucks). "Over the next five years, Starbucks will continue to lean into this new era by innovating in transformational ways across coffee, tea and retail, elevating our customer and partner experiences, continuing to extend our leadership position in digital and mobile technologies, and unlocking new markets, channels and formats around the world. Investing in our coffee, our people and the communities we serve will remain at our core as we continue to redefine the role and responsibility of a public company in today's disruptive global consumer, economic and retail environments."

"Starbucks business, operations and growth trajectory around the world have never been stronger, and we are more confident than ever in our ability to continue to drive significant growth and meet our long term financial targets," said Troy Alstead, Starbucks chief operating officer. "We have more customers visiting more stores more frequently, both in the U.S. and around the world, than at any time in our history. And we expect both the number of customers visiting our stores and the amount they spend with us to accelerate in the years ahead. With a robust pipeline of mobile commerce innovations that will drive transactions and unprecedented speed of service, Starbucks is ushering in a new era of customer convenience. We believe the runway of opportunity for Starbucks inside and outside of our stores is both vast and unmatched by any other retailer on the planet."

The company believes they can grow revenues from $16 billion in FY2014 to almost $30 billion by FY2019. To do that they will expand deeper into regions like China, Japan, India, and Brazil. SBUX expects to nearly double its stores in China to over 3,000 locations in the next five years

They're also working hard on their mobile ordering technology to speed up the experience so customers don't have to wait in line so long at their busiest locations. This will also include a delivery service.

Part of the five-year plan is a new marketing campaign called Starbucks Evening experience. The company wants to be the "third place" between home and work. After 4:00 p.m. they will start offering alcohol, mainly wine and beer, in addition to new tapas-like smaller plates.

The company recently launched its first ever Starbucks Reserve Roastery and Tasting Room in Seattle, near their iconic first retail store. The new roastery is supposed to be the ultimate coffee lovers experience. CEO Schultz said they will eventually open up about 100 of these Starbucks Reserve locations.

SBUX is having a pretty good 2015 so far with the stock up +8.1%, outperforming the broader market. A lot of this gain was thanks to a post-earnings pop. SBUX reported its Q1 2015 results on January 22nd. Adjusted earnings, backing out one-time charges, were $0.80 a share. That's in-line with estimates. Revenues were up +13.3% to $4.8 billion, also in-line with estimates. Investors applauded the news anyway and sent SBUX soaring to new all-time highs the next day.

SBUX said their worldwide comparable store sales rose +5% while traffic only rose +2%. It was the 20th consecutive period that same-store sales were up +5% or more. It was a very strong holiday period for SBUX thanks in part to astonishing gift card sales. The amount of money loaded onto SBUX gift cards during the holidays surged +17% to a record $1.6 billion. One out of every seven Americans received a SBUX gift card. The company also saw significant growth overseas with its China and Asia-Pacific business soaring +85% to sales of $495 million. Their mobile transactions have reached seven million transactions a week.

SBUX's guidance was pretty lackluster but Wall Street didn't care. The company actually guided down for the Q2 2015 (current quarter) as they expect earnings in the $0.64-0.65 range. Analysts' were expecting $0.68 a share. SBUX also provided 2015 guidance of $3.09-3.13 versus Wall Street's estimate of $3.12. The company is still projecting 2015 sales growth of 16% to 18% as they see sales ramping up in the second half of 2015. They also updated their outlook on China as they plan to add 3,400 stores by 2019.

Investor sentiment on SBUX is bullish. Shares have not seen barely any profit taking following its post-earnings pop. Now, after two weeks of digesting gains, the stock is pushing higher and poised to breakout past resistance at $90.00. The point & figure chart is bullish and forecasting at $104.00 target.

Tonight we are suggesting a trigger to buy calls at $90.25 with an initial stop loss at $85.80.

- Suggested Positions -

Long Apr $95 CALL (SBUX150417C95) entry $1.03

02/12/15 new stop @ 87.85
02/10/15 triggered @ 90.25
Option Format: symbol-year-month-day-call-strike

chart:


Thor Industries - THO - close: 59.19 change: -0.44

Stop Loss: 57.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 352 thousand
Entry on February -- at $---.--
Listed on February 07, 2015
Time Frame: Exit PRIOR to earnings in March (no date yet)
New Positions: Yes, see below

Comments:
02/14/15: My enthusiasm for THO is starting to wane. The stock market's major indices were in rally mode last week. Yet THO has been stuck consolidating sideways. Shares did find support at its rising 10-dma, which is encouraging. Yet THO can't seem to breakout past resistance at $60.00. Another challenge is our time frame. We're still expecting THO to report earnings in March but the company hasn't confirmed its announcement date yet.

If you do choose to trade THO I would keep positions small.

Earlier Comments: February 7, 2015:
Thor was making headlines this week. The small country of Iceland has started building a temple to the Norse god and other deities, which will be the first such building in the last 1,000 years. However, tonight we are not talking about Norse deities and instead looking at Thor Industries, one of the largest manufacturers of RVs in the world.

THO is part of the consumer goods sector. They were founded back in 1980 by Wade Thompson and Peter Orthwein when they bought Airstream. Today the company makes a large number of recreational vehicles under several brand names that fall into two segments: towable RVs and motorized RVs.

There are more than 76 million baby boomers in the U.S. and they started hitting retirement age in 2011 at the rate of 10,000 a day. With many boomers looking for an active retirement the demand for RVs is likely to remain strong.

USA Today recently ran an article discussing how the RV industry has rebounded sharply following the Great Recession. The industry was expecting +8% growth in 2014 and RV makers just saw their best October in almost 40 years. One piece of the puzzle that could be boosting demand is gasoline prices at three-year lows. That makes these massive gas guzzlers (RVs) a lot more attractive.

THO recently announced an acquisition where they purchased towable recreational maker Cruiser RV and luxury fifth wheel RV maker DRV. This strengthens THO's towable product line, an area that was already seeing significant growth.

THO's most recent earnings report was back on December 1st, 2014. The company disappointed on the bottom line with earnings of $0.73 a share. That missed Wall Street estimates by 8 cents. However, revenues soared +15% to $922 million, which surpassed estimates. THO blamed a tight labor market in Indiana for the margin pressure. The company did offer a bullish update on its backlog. The company's motorized backlog dipped 18% but its towable backlog surged +56% (this is before their recent acquisition).

The stock did see a post-earnings sell-off in early December but THO has recovered. After churning sideways the last several weeks the stock has broken out to new multi-month highs. The point & figure chart is bullish and forecasting at $77 target.

Tonight we are suggesting a trigger to buy calls at $60.25. I'm suggesting the March calls since THO will likely report earnings in March and we do not want to hold over the announcement. We'll update our time frame when THO confirms its earnings date.

Trigger @ $60.25

- Suggested Positions -

Buy the MAR $60 CALL (THO150320C60)

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

chart:


UnitedHealth Group - UNH - close: 109.44 change: -0.40

Stop Loss: 104.85
Target(s): To Be Determined
Current Option Gain/Loss: -0.4%
Average Daily Volume = 4.2 million
Entry on February 04 at $108.25
Listed on February 03, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
02/14/15: I am suggesting some caution on our UNH trade. This stock has underperformed the broader market the last two trading days. Investors may want to wait for UNH to close above the $110.00 level before considering new bullish positions.

Earlier Comments: February 3, 2015
Healthcare stocks have been consistent winners for investors over the last couple of years. Just check out a long-term chart of the IHF or XLV healthcare ETFs. Helping the group lead that charge is UNH, one of the biggest names in healthcare. The company's various businesses serve more than 85 million people around the world. The company is ranked No. 14 on the Fortune 500 list.

UNH has two different business segments. They have their UnitedHealthcare business and their Optum business. UnitedHealthcare provides health benefit products and services. Their Optum business is a health management services company.

The Affordable Care Act (ACA, or Obamacare) had a rough start but now the system is clearly seen as a huge benefit for the health insurance companies. According to Bloomberg the ACA has added millions of new customers to the healthcare industry. UNH recently joined the public exchanges and added more than 400,000 new individuals. UNH did say they are paying significantly more fees and taxes due to the ACA but thus far their increase in customers and better operating efficiency in 2014 have kept the costs manageable.

The results are showing up in the company's earnings growth. In July 2014 the company beat estimates and raised their guidance. In October 2014 they beat estimates and raised their guidance. In early December UNH reaffirmed their 2014 guidance and offered a 2015 forecast that was in-line with Wall Street estimates.

Their most recent earnings report was January 21st. The results were slightly ahead of expectations with profits up +10% from a year ago to $1.55 per share with revenues rising +7.4% to $33.43 billion. That was enough to surpass estimates of $1.50 a share on revenues of $33.15 billion.

UNH's CEO Stephen Hemsley commented on their business saying, "We enter 2015 with a positive outlook and rising business momentum. Steady innovation and year by year advances in the quality, breadth and value of our services to employers, government sponsors, consumers and care providers are creating opportunities for revenue and earnings growth in traditional and new markets."

Management offered 2015 guidance that was in-line with prior estimates. They expect earnings to grow about +7.4% in the $6.00-6.25 range. Revenues are expected to rise +8.0% in the $140.5-to-141.5 billion range.

The stock exploded higher on its better than expected Q4 numbers. Since the post-earnings rally peaked the stock has seen a nice correction. Traders just bought the dip yesterday near support at $105.00. We want to hop on board this healthcare train and buy the rebound. There appears to be short-term resistance near $108.00. Tonight we're suggesting a trigger to buy calls at $108.25.

- Suggested Positions -

Long MAR $110 CALL (UNH150320C110) entry $2.46

02/04/15 triggered @ 108.25
Option Format: symbol-year-month-day-call-strike

chart:


Valeant Pharmaceuticals - VRX - close: 167.00 change: -0.50

Stop Loss: 159.45
Target(s): To Be Determined
Current Option Gain/Loss: +10.4%
Average Daily Volume = 2.5 million
Entry on January 26 at $160.55
Listed on January 24, 2015
Time Frame: Exit PRIOR to earnings on February 24th
New Positions: see below

Comments:
02/14/15: Enthusiasm for more mergers in the drug and biotech industry has helped push VRX to new highs. This stock is now up seven weeks in a row. There is no change from my recent comments.

I am not suggesting new positions in VRX at this time. We only have ten days left on this trade. We want to exit before VRX reports earnings on February 24th.

Earlier Comments: January 24, 2015:
Healthcare stocks have been some of the market's best performers in 2015. VRX is helping lead the group higher with a +11.5% gain already.

The company's website says, "Valeant Pharmaceuticals International, Inc. is a multinational specialty pharmaceutical company that develops and markets prescription and non-prescription pharmaceutical products that make a meaningful difference in patients' lives. The company's growth strategy is to acquire, develop and commercialize new products through strategic partnerships, and strategically expand its pipeline by adding new compounds or products through product or company acquisitions. Headquartered in Laval, Quebec, Valeant has approximately 17,000 employees worldwide and is listed on both the New York Stock and Toronto Stock Exchanges under the symbol VRX."

VRX made a lot of headlines last year with its attempted hostile takeover of Allergan (AGN). Eventually VRX lost out to a rival. AGN agreed to a takeout by Actavis (ACT) for $219 a share, which was more than VRX wanted to pay.

Meanwhile VRX has been doing just fine on the earnings front. The company is developing a trend of beating analyst estimates. Plus they guided higher in April 2014, in September and with their last earnings report on October 20th. In November VRX's Board of Directors announced at $2 billion stock buyback program.

This year VRX has already raised guidance again. They see Q4 results above Wall Street estimates. They also raised their guidance for FY2015 into the $10.10-10.40 range compared to consensus estimates near $10.01.

The stock has been surging with a rally to new all-time highs. The point & figure chart is bullish and forecasting at $180.00 target.

Currently VRX sits just below round-number resistance at $160.00. We are suggesting a trigger to buy calls on a breakout at $160.55.

- Suggested Positions -

Long MAR $170 CALL (VRX150320C170) entry $4.80

02/12/15 new stop $159.45
02/03/15 News that VRX is interesting in buying SLXP
01/26/15 triggered @ 160.55
Option Format: symbol-year-month-day-call-strike

chart:


Williams-Sonoma Inc. - WSM - close: 82.11 change: +0.73

Stop Loss: 77.85
Target(s): To Be Determined
Current Option Gain/Loss: +25.0%
Average Daily Volume = 990 thousand
Entry on February 03 at $79.35
Listed on January 29, 2015
Time Frame: Exit PRIOR to earnings in March
New Positions: see below

Comments:
02/14/15: WSM also ended the week on a high note. Shares outperformed the major indices with a +0.89% gain and closed at a record high. If both WSM and the S&P 500 open positive on Tuesday I would consider new bullish positions here.

Earlier Comments: January 29, 2015:
Normally when a company lowers their earnings guidance Wall Street tends to punish the stock price. WSM has lowered guidance several times but that didn't stop shares for outperforming the market with a +29% gain in 2014.

The company describes itself as "Williams-Sonoma, Inc. is a specialty retailer of high-quality products for the home. These products, representing eight distinct merchandise strategies – Williams-Sonoma, Pottery Barn, Pottery Barn Kids, West Elm, PBteen, Williams-Sonoma Home, Rejuvenation, and Mark and Graham – are marketed through e-commerce websites, direct mail catalogs and 603 stores. Williams-Sonoma, Inc. currently operates in the United States, Canada, Australia and the United Kingdom, offers international shipping to customers worldwide, and has unaffiliated franchisees that operate stores in the Middle East and the Philippines."

They have an enviable position of mostly selling to high-end customers who make more than $150,000 a year. Unlike many retailers, WSM has an extremely healthy online presence. Their e-commerce business generated half of all sales, which certainly gives their margins a boost compared to rivals.

WSM seems to have perfected the beat estimates and guide lower game to management Wall Street's earnings expectations. Looking at the last four earnings reports in a row WSM has beaten estimates three out of the last four reports on both the top and bottom line. Every time management has guided lower for the next quarter. This strategy has definitely generated some volatility in the stock price. A quick look at WSM's daily chart and you'll see a lot of big gaps up and down as investors react to news. Yet the overall trend has been higher. Today WSM sits at all-time highs.

Shares have been showing relative strength in 2015 with a +5.4% gain thus far. The point & figure chart is bullish and forecasting a long-term target at $105.00. Tonight I am suggesting a trigger to buy calls at $81.15. Please note that I am suggesting small positions to start. WSM is flirting with and apparently breaking out past a long-term trend line that you can see on the monthly chart below.

*start with small positions* - Suggested Positions -

Long MAR $80 CALL (WSM150320C80) entry $3.20

02/04/15 new stop @ 77.85
02/03/15 triggered on gap higher at $79.35, new trigger was $79.15
02/02/15 Strategy Update: Move the entry trigger from $81.15 to $79.15. Adjust the stop loss to $75.90. Adjust the option strike from March $85 call to March $80 call.
Option Format: symbol-year-month-day-call-strike

chart:




PUT Play Updates

Cummins Inc. - CMI - close: 139.04 change: +2.41

Stop Loss: 140.25
Target(s): To Be Determined
Current Option Gain/Loss: -64.2%
Average Daily Volume = 2.9 million
Entry on February 09 at $134.90
Listed on February 07, 2015
Time Frame: 6 to 8 weeks
New Positions: see below

Comments:
02/14/15: The volatility in CMI continues. The stock has whipsawed higher this past week. Shares closed near resistance in the $138-140 area. A reversal here could be used as a new entry point although given the recent swings I would use small positions to limit risk.

Earlier Comments: February 7, 2015:
Thus far 2015 has not been a great year for shares of CMI. The stock is down -4.2% while the broader market is flirting with a minor gain for the year. CMI is in the industrial goods sector.

The company describes itself as "Cummins Inc., a global power leader, is a corporation of complementary business units that design, manufacture, distribute and service diesel and natural gas engines and related technologies, including fuel systems, controls, air handling, filtration, emission solutions and electrical power generation systems. Headquartered in Columbus, Indiana, (USA) Cummins currently employs approximately 54,600 people worldwide and serves customers in approximately 190 countries and territories through a network of approximately 600 company-owned and independent distributor locations and approximately 7,200 dealer locations. Cummins earned $1.65 billion on sales of $19.2 billion in 2014."

CMI's earnings report in late October (Q3) was strong as they beat estimates on both the top and bottom line. Management also offered bullish guidance. Unfortunately conditions have deteriorated in the last three months. CMI is a good example of why we like to avoid holding over a company's earnings report. Their most recent earnings report was February 5th. They beat estimates and delivered record numbers but the stock dropped thanks to lowered guidance.

You have to give credit to analyst firm First Global who downgraded CMI in late January on worries that weak emerging markets would hurt CMI's business. They were correct. Over half of CMI's sales come from outside the U.S. Weak demand overseas (thanks to the global slowdown) and a significantly stronger dollar hurt CMI's results and more importantly their guidance.

CMI's Q4 profit surged +32% from a year ago to $2.56 a share. That's five cents above estimates. Revenues rose +11% from a year ago to $5.1 billion, also above estimates. Their full year revenues hit a record $19.2 billion, thanks in large part to +20% sales growth in North America. Unfortunately most of the world is seeing an economic decline. CMI management lowered their forecast. Previously the company was projecting 2015 sales in the $20-23 billion range. They just lowered their forecast $19.6-20.0 billion in sales for 2015.

This bearish sales forecast send the stock lower. Investors ignored the company's pledge to return 50% of its operating cash flow back to shareholders in 2015. A couple of Wall Street analysts have already lowered their price targets on CMI's stock following the company's guidance.

Technically CMI's stock has broken down from a multi-week consolidation. The recent weakness has generated a new sell signal on the point and figure chart that is forecasting at $122 target. Shares sit just above potential round-number support at $135.00. Tonight we are suggesting a trigger to buy puts at $134.90.

- Suggested Positions -

Long MAR $130 PUT (CMI150320P130) entry $2.65

02/09/15 triggered @ 134.90
Option Format: symbol-year-month-day-call-strike

chart:


Nike, Inc. - NKE - close: 92.04 change: +0.04

Stop Loss: 93.15
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 3.5 million
Entry on February -- at $---.--
Listed on February 09, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Comments:
02/14/15: We are still waiting for NKE to ripen. Shares have been consolidating sideways. However, you can notice how NKE is underperforming the broader market and trading with a bearish trend of lower highs. This pattern should produce a breakdown lower soon. Our suggested trigger is $89.90.

Earlier Comments: February 9, 2015:
Nike is a giant in the footwear and athletic apparel business. They have approximately one third of the global athletic shoe market, selling more than 120 million shoes a year. NKE's recent highs near $100 back in 2014 marked a nearly +400% gain from its 2009 lows near $20 a share.

The company describe itself as "NIKE, Inc., based near Beaverton, Oregon, is the world's leading designer, marketer and distributor of authentic athletic footwear, apparel, equipment and accessories for a wide variety of sports and fitness activities. Wholly owned NIKE, Inc. subsidiaries include Converse Inc., which designs, markets and distributes athletic lifestyle footwear, apparel and accessories, and Hurley International LLC, which designs, markets and distributes surf and youth lifestyle footwear, apparel and accessories."

Just about everyone seems bullish on NKE. Apparel sales have been slow last year but the fastest growth was in athletic apparel. That's because there is a new fashion trend, called Athleisure. Consumers are wearing more athletic clothing and footwear even if they're not that active.

NKE's most recent earnings report was December 18th. It was a great report. NKE delivered earnings growth of +25% with $0.74 a share. Revenues were up +14.8% to $7.38 billion. Both top and bottom line results were above expectations. Gross margins improved +120 basis points to 45.1%. These numbers look great.

Unfortunately the stock is selling off. NKE had previously guided gross margin improvement in the 120-150 basis point range. The market was also disappointed in NKE's future order data. Future orders only grew at +7% or +11% if you exclude currency changes. That's below expectations. It's also below the prior quarter's +14% growth. At 11% NKE's future orders are growing at their slowest pace in a year.

Investors have reacted by consistently selling the rallies in NKE. You can see the trend of lower highs and now a trend of lower lows. This weakness has led NKE to a -4.5% decline in 2015. The point & figure chart has turned bearish with a quadruple bottom breakdown sell signal.

Odds are growing that we will see NKE drop toward its long-term trend line of higher lows (shown on the weekly chart). Tonight we are suggesting a trigger to buy puts at $89.90. More aggressive traders may want to consider jumping in early below today's low at $90.69.

Trigger @ $89.90

- Suggested Positions -

Buy the MAR $90 PUT (NKE150320P90)

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

chart: