Option Investor
Newsletter

Daily Newsletter, Tuesday, 2/17/2015

Table of Contents

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

Market Wrap

All Greece All the Time

by Jim Brown

Click here to email Jim Brown

The market seems to be hanging on every word coming out of the negotiations over the Greek bailout program. Every headline causes immediate but minor moves in the indexes. The biggest hit came from the Monday battle between Germany and Greece that caused a temporary but abrupt end to talks. Cooler heads prevailed today and the markets recovered.

Market Statistics

The headline battle on Monday caused the S&P futures to drop more than -10 points in overnight trading. The Dow opened lower by about -60 points but recovered throughout the day as the Greek talks progressed. News in mid afternoon that Greece may ask for an extension of the bailout temporarily lifted the markets but once the headline was confirmed it was not an extension of the bailout but only of the existing loan program. The markets gave back their gains and there was $1.4 billion in market on close orders at 3:45. The dip buyers prevailed and the indexes managed to post some minor gains with the S&P adding only +3 but still making a new high.

The market appears to be on hold because of the Greek crisis and the FOMC minutes on Wednesday. Nobody knows what to really expect from a negative decision on Greece and they are afraid the FOMC minutes could also indicate a larger possibility for a rate hike.

The economic reports did not help bullish sentiment. The NY Empire Manufacturing Survey headline number declined from 10.0 in January to 7.8 for February. The new orders component declined from 6.1 to 1.2 and just barely over contraction territory. The unfilled orders component improved slightly from -8.4 to -6.7 but it has been in contraction territory now for over a year.

The prices paid component rose from 12.6 to 14.6 indicating higher costs but the prices received component declined from 12.6 to 3.4 indicating they are getting less for their higher cost goods. On the positive side the capital expenditure plans rose from 14.7 to 32.6 suggesting business believe this is a good time to expand. That is a key sentiment indicator since businesses would not expand if they thought conditions were going to weaken.


The NAHB Housing Market Index for February declined slightly from 57 to 55 after a high of 58 in November. The buyer traffic component declined from 44 to 39 but that could be a result of the onslaught of harsh winter weather. That was the lowest level since July 2014. To rebut that idea the Northeast where the weather was the worst saw the conditions improve from 43 to 48 and its first gain in three months. It was the Midwest that dragged the index lower with a drop from 59 to 49. The West remains the strongest region with conditions falling only slightly from 65 to 64. The South was flat at 56.

Builder sentiment remains fairly strong and low mortgage rates should help the spring buying season that began on President's Day. However, mortgage rates jumped an eighth of a point today alone and so far in February we have seen the biggest monthly rate bounce in six years and the month is only half over.


Internet E-Commerce sales for Q4 rose from $77.8 in Q3 to $79.6 billion. That is a relatively mild +2.3% increase from Q3 but a whopping +14.6% increase from Q4-2013. Sales in Q3 rose +3.6% so the pace of increase slowed in the holiday quarter. E-Commerce sales have been rising steadily to 6.7% of all retail sales compared to 6.6% in Q3. Internet sales have risen for 24 consecutive quarters and without a U.S. recession analysts expect them to continue rising.

The calendar for Wednesday is highlighted by the FOMC minutes and a possible reason why the market action today was muted. While nobody really expects any bad news from the minutes the worry over rate hike language is a cloud over the market.

This drives me crazy. Historically, despite the Fed telegraphing the move months in advance the market tends to decline about -6% on the first rate hike. In the months and hikes that follow the market tends to rise because business conditions are improving enough for the hikes to take place. This means for the next several months the market will remain nervous about the timing of the first hike, which is now expected to be June.

The Philly Fed Manufacturing Survey on Thursday is an important report but it is not expected to really move the market unless if misses the estimate by a wide margin.

Yellen's testimony next Tuesday is the real hurdle but at least the Greek issue should be resolved by then.


GoPro (GPRO) soared +12% today as the lockup expired on 76 million shares. This effectively doubles the amount of shares available to trade. The key here is that more than 50% of the float on GoPro was sold short in expectations for a flood of insider selling when the lockup expired. There was a surge in volume from the average of 7.9 million shares to 15.7 million today. The price spike suggests that was probably a lot of shorts trying to cover. Analysts are relatively undecided on the stock with 5 buy ratings and 10 with hold ratings according to FactSet.


Shares of Vipshop Holdings (VIPS) surged +15% after reporting earnings of 12 cents compared to estimates of 14 cents. The earnings miss failed to hurt the stock thanks to a sharp uptick in sales. Revenue rose +109% to $1.36 billion and that easily beat estimates of $1.23 billion. The number of active users rose +114% to 12.2 million. The company guided for revenue in the range of $1.25-$1.30 billion with analyst estimates at $1.21 billion. The guidance upgrade was responsible for the big stock gains.


Waste Management (WM) wins the price for the most volatility. On Friday WM gapped down from $52.70 to $50.70 on a downgrade from buy to hold by Stifel. Today the stock rallied +5% to $54 on earnings of 67 cents compared to estimates for 61 cents. Revenue of $3.44 billion was slightly below estimates for $3.5 billion due to a divestment of Wheelabrator Technologies. However, the board approved a $1 billon buyback program to be completed in 2015. The trash hauler guided for earnings in the $2.48-$2.51 range and analysts were expecting $2.48. Just yesterday the CEO said the drop in oil prices was making recycling unprofitable.


Fossil (FOSL) reported earnings of $2.69 but that missed estimates of $3.07. Revenue of $1.07 billion also missed estimates of $1.12 billion. Currency headwinds reduced sales by $32.5 million. Even worse the company is expecting a sales decline in Q1 of 5.5% to 7.5% with some of that due to the strong dollar. They guided to a "best case" for the full year of a +1% increase in revenue with a worst case a -3% decline. Investors were not happy. Shares fell -14% to $85 in afterhours trading.


Jack in the Box (JACK) parent of Qdoba Mexican Grill, reported a 24% increase in earnings to 93 cents compared to estimates for 87 cents. Revenue of $468.6 million beat estimates of $460.3 million. The company guided for full year earnings in the range of $2.85-$2.97 and analysts were expecting $2.84. Same store sales at Jack in the Box stores rose +3.9% and Qdoba sales rose +12.9%. They guided for 4% growth in 2015 with 8.5% sales growth at Qdoba. I hate this because JACK shares spiked to $91.20 after the report and I was hoping for a dip to the 30-day average at $84.50 for an entry point.


Rackspace (RAX) reported earnings of 26 cents that beat estimates of 19 cents but revenue was light at $472.4 million. The company warned for the current quarter saying revenue would be in the range of $477-$484 million and analysts were expecting $492.6 million. Amazon Web Services is killing the datacenter service business and RAX is in the crosshairs. The company also said the strong dollar was a headwind since 32% of their customers were non-U.S. clients. Shares fell -$2.50 in afterhours.


The earnings calendar is shrinking and after this week there will be only a few left to report. The highlight on Wednesday is oil driller EOG and Solar City. Thursday is the last big day with Priceline and Walmart the highlights. The Q4 cycle is nearing the end and traders will have to look elsewhere next week for trade ideas.


Celsus Therapeutics (CLTX) shares fell -81% on news their lead drug failed a mid-stage study. The company said it would stop developing the experimental drug to fight inflation for ulcerative colitis and psoriasis. Turn out the lights, the party is over.


A rebound in crude prices helped lift the market off its lows. The dip to $50.81 early this morning depressed the energy stocks and the recovery surge to a high of $54.15 lifted those same stocks off the bottom and relieved the pressure on the indexes.

There is an analyst war on the price of oil. Goldman said the recent decline in active rigs will not slow down U.S. production growth, which hit a 35 year high last week at 9.223 mbpd. Active oil rigs have declined about -35% to 1,056 but Baker Hughes expects a decline of 40% to 60%. Goldman is expecting an oil price in the lower $30s.

Morgan Stanley believes the supply glut that caused the crash is quickly coming under control. "We are seeing tentative signs that oil markets are starting to rebalance later this year." Analyst Martin Rats said, "Make no mistake there is still overproduction, but the estimated amount of overproduction is getting smaller and that is a positive development." Morgan Stanley upgraded Oil Services and Exploration and Production stocks to "attractive."

Analyst and economist Gary Shilling believes the price is going down to $10-$20 per barrel. He said U.S. production is expected to rise +300,000 bpd in 2015 because it is the inefficient rigs and low return fields that are being idled. Rigs drilling in the strong production areas are still going full speed ahead. In addition the recent Iraq deal with the Kurds will allow another 550,000 bpd of Iraq oil to enter the market.

However, offsetting Shilling's dire forecast is the drop in production in Libya to almost zero due to the heavy fighting. Also, the IEA said it was seeing some declines in activity in the Middle East as a result of the drop in oil prices. All of these factors will influence future prices.

My worry is that when available storage capacity fills up the 1.3 mbpd of excess production today will have nowhere to go. That is when the prices will implode. If demand for cheap oil can increase quickly and oil production in conflict areas around the world decline we may not see that over capacity event. Right now I am not holding my breath.


Mortgage rates are exploding higher because treasury yields are also surging. Two weeks ago we saw a 1.65% yield on the ten-year treasury. That yield has surged to 2.145% over just the last ten trading days. It rose +6.1% (12 bps) today alone. We may finally be seeing the "great rotation" everyone has been predicting for the last two years. If the Fed is really going to begin hiking rates then bonds are no longer a safe haven. If you owned the ten-year treasury two weeks ago you were a happy camper but the rebound in yields has been very painful. The bond market may be moving from TINA status (there is no alternative) to junk status as investors rotate out of bonds and into stocks at new highs. As I have said many times in the past nothing pulls investors off the sidelines faster than new market highs.


Markets

The markets hit new highs again today with the exception of the Dow, which closed -6 points under a new high. That is close enough to count. The markets appear to be pricing in a compromise deal on Greece and avoiding the worst case scenario of Greece leaving the eurozone. Reportedly Greece is going to ask for an extension of its loan but not an extension of the bailout, which has severe austerity measures attached. Good luck with that. That is the equivalent of saying "I am not going to sign your contract, just give me the money." However, the results of not reaching a compromise are so severe on both sides that the market is pricing in a solution. What really happens if there is no compromise is unknown.

The S&P rallied +3 points to strong psychological resistance at 2,100 and came to a dead stop. Personally I am glad the touch of that level did not act like an electric fence and repel the index to lower levels. Fortunately we closed right on 2,100 with no real evidence of selling and that is a positive for tomorrow. If sellers were waiting at that level their volume was so small that it did not matter. Tomorrow may be another matter after they have had the night to think about it.

Clearly the bulls are in control and the dip buyers are alive and well. The early morning dip was bought even though the morning headlines were dire. While the S&P is at new high levels the rebound from the February lows at 1,980 is getting a little overbought. A +120 point gain in ten trading days is not extreme but any further gains will increase the likelihood of some profit taking. If you look at the short term chart of the S&P the gains have been rather mild from day to day so traders have been able to rotate in and out of positions without any significant increase in volatility. Slow moves like these could last for weeks. Markets can always stay overbought longer than analysts expect.


On the daily chart the prior resistance at 2,075 should now be support on any profit taking. The next real resistance is in the 2,125 range. Despite closing right on 2,100 that level is still in play as decent resistance because it is the lowest end of year target by Barclays and Goldman Sachs. This provides the psychological resistance at that level.



The Dow closed only 6 points below the prior high at 18,053.71. In theory it would only take a hiccup by any Dow component to push it over that level but there are some underperforming components that are holding it back. Walmart reports earnings on Thursday and most analysts are not expecting a good report. One stock can actually weigh on the Dow enough to matter as we saw with American Express last week.

Just closing over 18,053 will not seal the deal. There were three intraday highs over 18,070 with the highest at 18,103 in December. The Dow needs to close over that 18,103 mark and then tack on additional gains in the days that follow in order to confirm a breakout. It will not be smooth sledding because of some longer term uptrend resistance.

Support remains 17,800 and resistance 18,053 and 18,103.



The Nasdaq continued its winning ways but only managed to add another +5 points. That put it right at 4,900 and moving ever closer to that historic high close of 5,132 in March of 2000. Apple closed at a new high at $127.82 with a 75 cent gain. A challenge this week could be Priceline when it reports on Thursday.

The Nasdaq is becoming more over extended than the S&P because of its +315 point gain since the February 2nd lows at 4,580. The index has gone vertical thanks to the semiconductor and biotech sectors.

Support remains 4,800 and resistance 4,925.



The Russell tacked on another +2 points to come to a dead stop at resistance at 1,225. I am still encouraged since the rise in the small caps points to fund manager support. They do not appear to be worried about Greece or the FOMC minutes if they continue to nibble away at the small caps. The Nasdaq is still the market leader but the Russell could steal the baton at any time.


The fly in the soup is the Dow Transports. They are still not confirming the gains on the Industrials although they are trying to creep higher from the 9,000 level. I understand why the transports are lagging with oil prices rising but Dow theory needs the transports to confirm a Dow breakout with a new high of their own.


I remain positive on the market but I would rather buy a dip than a breakout. That gives me some cushion if the breakout fails. There is some concern that the Dow could "double top" here but as long as the other indexes are outperforming that should not happen.

Late today the wire services reported that ISIS burned alive 45 people in the western Iraq town of al-Baghdadi. That is only 5 miles from the Ain al-Asad air base where 400 U.S. military personnel are training Iraqi soldiers. This is the equivalent of taunting the American forces and America in general. The markets did not even blink when the news broke.

Enter passively, exit aggressively!

Jim Brown

Send Jim an email

 

 


New Option Plays

Touch Displays & Finger Print Sensors

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Synaptics Inc. - SYNA - close: 79.45 change: +0.54

Stop Loss: 75.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.0 million
Entry on February -- at $---.--
Listed on February 17, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Technology stocks have taken a leadership role in the market this year. One tech stock that is showing relative strength is SYNA with a gain of +14.6% year to date. The company is a leading developer in the human interface solutions industry. Many consider the company a dominant force in the touch, display ICs and finger print sensing.

According to SYNA's marketing material, "Synaptics is the pioneer and leader of the human interface revolution, bringing innovative and intuitive user experiences to intelligent devices. Synaptics' broad portfolio of touch, display, and biometrics products is built on the company's rich R&D and supply chain capabilities. With solutions designed for mobile, PC and automotive industries, Synaptics combines ease of use, functionality and aesthetics to enable products that help make our digital lives more productive, secure and enjoyable."

SYNA had a roll in Apple Inc's (AAPL) iPhone 6 success. SYNA recently bought Renesas, the company that makes the LCD drivers for AAPL's iPhone 6 and 6+. Thus the tens of millions of iPhone 6s sold is a win for SYNA. We can see the impact in SYNA's earnings. The fourth quarter was HUGE for iPhone 6 sales.

In early December SYNA raised their revenue guidance for the fourth quarter (their 2015 Q2) from $415-450 million to $440-460 million. When SYNA reported earnings in late January they beat these raised expectations. Wall Street was looking for Q4 results of $1.22 a share on revenues of $449 million. SYNA delivered $1.46 a share with revenues soaring +125% to $463.7 million.

If that wasn't good enough SYNA management then raised their Q1 (their Q3) revenue estimates to $450-490 million compared to analysts' estimates of $422 million. Several analyst firms upgraded their price target on SYNA follow these results.

Traders should be aware that SYNA's relationship with AAPL might be in danger. A story surfaced on February 6th that AAPL was looking for other suppliers to fill LCD drivers to reduce their dependence on SYNA (and their Renesas business) as the only provider. Rumor has that rivals Himax, Novatek, and Parade Technologies are all vying for Apple's business.

Thus far shares of SYNA are not seeing much reaction to this rumor. Traders have been consistently buying the dips at SYNA's rising 10-dma. Now the stock is poised to breakout past resistance at the $80.00 level. The point & figure chart is bullish and forecasting a long-term target of $117.00. Tonight we are suggesting a trigger to buy calls at $80.25.

Trigger @ $80.25

- Suggested Positions -

Buy the JUN $85 CALL (SYNA150691C85) current ask $5.80

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Updating Our Stop Losses

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. market continued to push higher in spite of some negative headlines today. Hopes that a deal with Greece will get done before the end of February deadline fueled market optimism. Tonight we have updated several stop losses.


Current Portfolio:


CALL Play Updates

Hanesbrand Inc. - HBI - close: 117.96 change: -1.16

Stop Loss: 114.85
Target(s): To Be Determined
Current Option Gain/Loss: +46.4%
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:
02/17/15: The broader market managed to post some gains but HBI hit some profit taking. Shares slipped -0.97% toward its 5-dma. If this dips continues it wouldn't surprise me to see HBI decline toward the $115-116 area. Tonight we are raising the stop loss to $114.85.

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

02/17/15 new stop @ 114.85
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


Honeywell Intl. - HON - close: 104.00 change: -0.38

Stop Loss: 101.65
Target(s): To Be Determined
Current Option Gain/Loss: +3.2%
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:
02/17/15: HON saw its rally pause. Shares consolidating sideways. The stock eventually settled with a minor decline, giving back about half of Friday's rally. Tonight we are going to try and reduce our risk by moving the stop loss up to $101.65.

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

02/17/15 new stop @ 101.65
02/12/15 triggered @ 103.05
Option Format: symbol-year-month-day-call-strike


iShares Russell 2000 ETF - IWM - close: 121.91 change: +0.38

Stop Loss: 119.65
Target(s): To Be Determined
Current Option Gain/Loss: -2.4%
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:
02/17/15: The small cap ETF continued to push higher and closed at another record. Investors are assuming that Greece and Europe will workout some sort of deal. If they don't then stocks could be in for an ugly correction lower.

Tonight we are moving the stop loss up to $119.65.

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

02/17/15 new stop @ 119.65
02/13/15 triggered @ 121.55
Option Format: symbol-year-month-day-call-strike


ServiceNow, Inc. - NOW - close: 76.88 change: -0.67

Stop Loss: 73.90
Target(s): To Be Determined
Current Option Gain/Loss: -0.8%
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:
02/17/15: NOW suffered some profit taking right at the opening bell. Shares dipped to $75.46 before bouncing. While NOW pared its losses it didn't quite make it back into positive territory.

Tonight we are upping the stop loss to $73.90.

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

02/17/15 new stop @ 73.90
02/12/15 new stop @ 71.90
02/05/15 triggered @ 75.15
Option Format: symbol-year-month-day-call-strike


NXP Semiconductors - NXPI - close: 83.72 change: -1.07

Stop Loss: 80.35
Target(s): To Be Determined
Current Option Gain/Loss: -19.5%
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:
02/17/15: Hmm... that's two days in a row now that we have seen NXPI underperforming the broader market. If this pullback continues NXPI might test prior resistance and what should be support in the $82.00 region. I would wait for that dip or a bounce near $82 before considering new positions.

Tonight we are raising the stop loss to $80.35. More aggressive traders will want to keep their stop below $80.00 instead.

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

02/17/15 new stop @ 80.35
02/12/15 triggered @ 84.15
Option Format: symbol-year-month-day-call-strike


Starbucks Corp. - SBUX - close: 92.03 change: +0.45

Stop Loss: 87.85
Target(s): To Be Determined
Current Option Gain/Loss: +29.1%
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:
02/17/15: SBUX continues to build on its cachet as a premium brand of coffee. Today the company announced that consumers can sign up for a monthly subscription to receive fresh roasted coffee from its Starbucks' Reserve Roastery and Tasting Room in Seattle, Washington. The subscription provides one 8.8 ounce bag of coffee per month for the elevated price of $24. You can buy a 12-month subscription for $288. That's significantly more than what you pay for an 8.8 oz. bag of Starbucks' premium reserve roast ($13-18 a bag). Meanwhile a one-pound bag (16 oz.) of the company's standard Pike Place blend is about $12.

The stock slowly drifted higher and while it did post a gain today SBUX is struggling with short-term resistance at the $92.00 level.

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


Thor Industries - THO - close: 59.83 change: +0.64

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:
02/17/15: THO displayed some relative strength today. Shares bounced from short-term support near $59 and rallied toward resistance at $60.00. The stock looks poised to breakout tomorrow. Our suggested entry point is $60.25. Please note I am suggesting small positions to limit our risk. Plus our time frame may be less than three weeks. THO is expected to report earnings in the first half of March and we plan to exit prior to the announcement.

If THO does not breakout tomorrow we might remove it as a candidate.

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 *small positions*

- Suggested Positions -

Buy the MAR $60 CALL (THO150320C60)

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


UnitedHealth Group - UNH - close: 109.76 change: +0.32

Stop Loss: 106.85
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:
02/17/15: UNH bounced off short-term technical support at its simple 10-dma this morning. Yet shares are still having trouble getting past resistance in the $110.00 area.

Tonight we are raising the stop loss up to $106.85.

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

02/17/15 new stop @ 106.85
02/04/15 triggered @ 108.25
Option Format: symbol-year-month-day-call-strike


Valeant Pharmaceuticals - VRX - close: 168.63 change: +1.63

Stop Loss: 162.45
Target(s): To Be Determined
Current Option Gain/Loss: +16.7%
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:
02/17/15: VRX rallied toward last week's high but was unable to breakout past the $170.00 level, which is potential round-number resistance. I want to remind readers that we have less than one week to go. VRX has earnings coming up on Feb. 24th.

Tonight we are adjusting the stop loss up to $162.45.

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

02/17/15 new stop @ 162.45
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


Williams-Sonoma Inc. - WSM - close: 81.70 change: -0.41

Stop Loss: 79.85
Target(s): To Be Determined
Current Option Gain/Loss: +21.9%
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:
02/17/15: WSM saw some selling this morning but traders were buying the dip by lunchtime. The stock pared its losses to -0.49%. Shares look poised to breakout past short-term resistance near $82.00 tomorrow. I would still consider new positions now or you could wait for a new rally to $82.15 as an entry point.

Tonight we are moving the stop loss to $79.85.

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

02/17/15 new stop @ 79.85
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


Zimmer Holdings - ZMH - close: 120.39 change: +1.06

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

Comments:
02/17/15: ZMH continued to rally as we expected. Yet shares failed to hit a new high. Our suggested entry point to buy calls is at $120.75.

Earlier Comments: February 14, 2015:
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)

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




PUT Play Updates

Cummins Inc. - CMI - close: 138.98 change: -0.06

Stop Loss: 140.25
Target(s): To Be Determined
Current Option Gain/Loss: -66.0%
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:
02/17/15: CMI did not see any follow through on last week's oversold bounce. Instead shares just drifted sideways. A reversal lower from 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


Nike, Inc. - NKE - close: 91.86 change: -0.18

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:
02/17/15: NKE continues to underperform the broader market. The intraday rally failed under the $93.00 level and the trend of lower highs remains intact.

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