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Daily Newsletter, Wednesday, 2/25/2015

Table of Contents

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

Market Wrap

Market Ekes Out Minor New Highs

by Keene Little

Click here to email Keene Little
The market has been able to eke out new highs each day to keep the buyers interested but some afternoon selling, which some blame on selling in AAPL, put a minor crimp in the bull's plans. Just a warning shot?

Wednesday's Market Stats

Janet Yellen gave another speech to Congress today but said nothing new and did not retract anything she said yesterday. So the market treated it as a non-news event, which was part of a quiet news day overall and the result was some minor buying in the market (bonds, stocks and some commodities) but the stock market saw very low-volume trading. The rally produced new highs for the indexes but some sell programs hit at 14:00, some of it being blamed on selling AAPL, and the indexes lost some ground (the RUT and DOW held in the green, thanks to an end-of-day push back up).

Isn't it interesting that the stock market is one of the few places people love to buy at top prices. The higher the market goes the more investors want to buy and they'll borrow money to do it. Of course it's like an auction where the excitement grows as the price is auctioned higher. But some will say the emotions during an auction can lead to bad purchases that are later regretted.

But there are two things conspiring against those who want to continue buying the market at the top -- bullish sentiment and margin debt. The Investors Intelligence (II) bull-bear sentiment was released today and the ratio of bulls to bears has now tied the highest previous reading in the last 28 years. The bearish percentage is now below 15%, which follows the 50% reading in October 2011. With each rally off a sharp pullback more and more investors have been shedding their bear fur and growing horns and they're willing to pay top dollar with the expectation that they'll be able to sell even higher. The bullish sentiment is once again at a dangerous (for bulls) extreme.

And not only are more and more investors wanting to pay top dollar, without fear, they're doing it on record amounts of margin. Doug Short, at dshort.com, has some great charts showing margin levels vs. the stock market, two of which I've copied below. The first one below shows the NYSE Margin Debt vs. the S&P 500 since 1995. The red line is margin debt and you can see how it peaked higher in 2007 and 2014. Stock market peaks tend to follow peaks in margin debt.

NYSE Margin Debt vs. SPX, 1995-2014, chart courtesy Doug Short

What's important in the chart above is that margin debt peaks shortly before the stock market peaks, which indicates investors start to get nervous before the final stock prices peak. This results in higher stock prices that are not supported by as many people (this can also be seen in the falling number of new 52-week highs, advancing-declining stocks and several other market internals). The market simply runs out of buyers and the sellers soon become stronger than the buyers. Often a top is put in place for no other reason than that, which then gets the pundits wondering why the market is selling off even on good news.

Another way to look at this NYSE margin debt issue is with a measure of positive and negative credit balances in investors' accounts. Doug Short's chart below inverts the S&P 500 to show the correlation between large negative credit balances and stock market peaks (troughs when viewed inverted). As you can see on the chart, the negative credit balance far exceeds what we had in 2007 and has exceeded what we had during the dot.com period where everyone was a day trader on margin. One can only imagine what the coming "correction" will look like.

NYSE Investor Credit Balance vs. S&P 500, chart courtesy Doug Short

Other than the chart patterns, which I'll get into next, it's information like that presented above that keeps me on the cautious side of this market and playing contrarian. I think we'll soon see a major stock market top that will reward the bears after forcing them into hibernation for the past six years (the bull market will celebrate its 6-year anniversary on March 6th).

I want to take another look at the Nasdaq, starting off with its weekly chart, because it's presenting us a very interesting picture here. It also happens to be one of the better sentiment indexes at the moment because it's so close to the 5000 level that it struggled with in 2000 and not far from its all-time high at 5152, which investors are obviously hoping to exceed (break out your party hats if it happens).

There are two trend lines that the Naz has now run into -- one is along the highs from January 2004 - October 2007 and the other from April 2010. This latter trend line has been repeatedly tested since March 2014 and is obviously an important trend line to traders. The longer-term trend line makes it that much tougher resistance. There's a price projection near 4924 where the c-wave of a large A-B-C bounce pattern off the November 2008 low is 162% of the a-wave, which was achieved on February 29th. The 5th wave of wave-C, which is the rally from October 2011, would equal the 1st wave near 5035. Along with the millennial level at 5000, this is the reason I've been saying an upside target zone for the Naz is 4924-5035 and the high so far is 4984. I've also been thinking 5000 won't get hit because profit taking could overwhelm the buyers before it's reached, which is what this afternoon might have started.

Nasdaq Composite index, COMPQ, Weekly chart

The significance of the wave count, if it's correct, is that following the completion of the large A-B-C bounce off the November 2008 low it will mark the completion of the cyclical bull market and start us down in the final leg of the secular bear (bottoming 2016-2018). The daily chart below shows a closer view of the two trend lines along the highs. From a pattern perspective, the sideways triangle that formed off the November 28th high is very common for a 4th wave that leads to the final 5th wave. So the EW pattern fits very well with an expected completion to the rally and here is as good a place as any I've seen in quite a while.

Nasdaq Composite index, COMPQ, Daily chart

Key Levels for COMPQ:
- Stay bullish above 4900
- bearish below 4719

The final 5th wave is the rally from February 2nd and it's shown more closely with the 60-min chart below. It formed a rising wedge shape, which is an ending pattern and has the bearish divergence supporting the pattern interpretation. We don't have a clean break of the pattern since it kind of dribbled out of it yesterday and then tried to rally back up to the bottom of the wedge today but couldn't make it. There's still upside potential for a back-test of the bottom of the rising wedge, which could get price up to the 5035 projection by Friday (end of month) but this afternoon's quick little selloff might have been the warning shot that bulls need to heed.

Nasdaq Composite index, COMPQ, 60-min chart

As I had mentioned earlier, AAPL was blamed for this afternoon's little selloff. I'm not sure what prompted the selling in AAPL but it could have been nothing more than profit taking. Selling needs to be blamed on something so why not take a bite out of AAPL? Interestingly, option activity in AAPL yesterday and today has been much higher than normal so perhaps someone knew something or started something.

An interesting factoid about AAPL is that it would now qualify as the 14th largest country in the G-20. The table below lists the countries by market size and AAPL would slip in front of South Africa, Mexico, Italy, Indonesia, Saudi Arabia, Turkey and Argentina. Not bad AAPL. And many are predicting AAPL will become the first trillion-dollar market cap company. The only problem with that prediction is that those kinds of predictions often mark the top for the stock.

G-20 Economies Stock Market Caps, data from Stock Market Caps by Country

Along with the trillion dollar market cap prediction for AAPL, possibly killing the stock's rally, the chart says AAPL bulls might want to get defensive here. Suggesting a short on AAPL would be viewed as insanity, which is why it work nicely but it's a little too early to tell. What I like about the reversal setup, like the Nazdaq, is that it met some price projections and hit the top of its rising wedge pattern for the rally off the April 2013 low. A 162% extension of its previous decline (September 2012 - April 2013) is at 128.97 and the 5th wave of its rally from April 2013 equals the 1st wave at 131.78, both of which have now been achieved. So, is all the option activity and afternoon selling telling us something that the chart pointed to? Only time will tell.

Apple Inc., AAPL, Weekly chart

For SPX I've been watching the trend line along its highs from last July-December, which is currently near 2132. I've had that as an upside target for a while and it remains a good target if the buyers can keep the rally going this week. But to hold out for that little bit, considering the downside risk, is simply not a good trade in my book. And when you're holding a long position I think it's important to question each day whether it's a trade you would enter today and if not then suck your stop up close.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- stay bullish above 2085
- bearish below 2064

As with most of the indexes, SPX has formed a rising wedge pattern for its rally off the February 2nd low. An uptrend line from February 2nd through the February 20th pullback low was broken this afternoon but another uptrend line from February 9-20 held, as can be seen on the 30-min chart below. It's not hard for me to argue the February 9-20 uptrend line is the more important one and there the bulls want to defend this afternoon's low. There's still the upside potential to the upper trend lines (the trend line along the highs from July-December and the trend line along the highs from February 6-17), which cross near 2133 tomorrow. In my opinion, bulls are pushing their luck here.

S&P 500, SPX, 30-min chart

Like SPX, the DOW has a little more upside potential before running into its trend line along the highs from December 2013 - December 2014, which is currently near 18350. As long as a pullback can hold above price-level support near 18100 there remains the upside potential. The bears need to see a break below last Friday's low at 17878 in order to have better confirmation that a top is in place.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- stay bullish above 18,100
- bearish below 17,878

The RUT is getting squeezed in a rising wedge as it approaches its trend line along the highs from September-December 2014 (seeing a common theme here?), which is currently near 1239, as is the top of its rising wedge. Above 1240 would be more bullish (if it can hold above), in which case we could see a rally up to its broken uptrend line from March 2009 - October 2011 for a 3rd test following the back-tests in November and December. That could see the RUT up near 1265 by next week.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- stay bullish above 1218
- bearish below 1214

A closer view of the rising wedge pattern can be seen on the 30-min chart below. This afternoon's selloff was a break below the bottom of the wedge and the jam back up at the end of the day looks like a back-test (so far). That made it a good setup for a short at the close, with the anticipation of a bearish kiss goodbye first thing in the morning. But if the buyers hold on here, watch to see how the RUT does around the 1239-1240 area.

Russell-2000, RUT, 30-min chart

The home builders index (DJUSHB) was one of the weaker indexes today, down -1%, and this follows a good day yesterday following Toll Brothers (TOL) strong earnings report. Last week I showed a chart of housing starts and building permits to point out the corrective bounce pattern off the 2009 low that has retraced a little less than 38% of the 2006-2009 decline. I also showed a weekly chart of DJUSHB to point out why I thought the index could be topping, especially now that it achieved the upside price projection (583.76) with yesterday's rally. Yesterday's spike up on the TOL news would be a typical way for a rally to end (on news).

The daily chart below shows the 583.76 price projection as well as the top of its parallel up-channel for the rally from August 2013, near 578. Not shown on the daily chart is the top of the parallel up-channel for the bounce off the November 2008 low, which is also near 578. Yesterday's rally had the index poking above the trend line along the highs from November-January but today it dropped back below the line which creates a sell signal following a failed breakout attempt. This is a setup for a reversal to the downside and we'll only know in hindsight whether or not it will work for the bears. It continues to look like a good possibility for a very important long-term top.

DJ Home Construction index, DJUSHB, Daily chart

Another indication of trouble for the home construction market (and by extension, the economy) is the price of lumber. If the expectation is that fewer homes will be built, the traders in lumber contracts are going to see a drop in future demand and trade the price accordingly. The weekly chart of lumber prices below shows this week's break of the uptrend line from March 2009, which is obviously an important trend line. Some have speculated that the drop in price has to do with the slowdown in the shipping ports, which has caused a buildup in the supply of lumber, which in turn drives the price down. That's very possible but if the wave count on the chart is correct then the decline should start to accelerate lower in a 3rd of a 3rd wave down in the decline from March 2013.

Lumber continuous contract, LB, Weekly chart

For weeks I've been showing the dollar's weekly chart to point out the pattern and price projections that overlap at 97.33 and 97.35, not much higher than its January 26th high at 95.85 (the price projections are based on the wave pattern for the 3rd wave in the rally from 2011 and for the 5th wave in the rally from 2014). Since the January 26th high it has been consolidating in a sideways triangle, which fits well as the 4th wave in the leg up from October 2014. That leg is the 5th wave of the rally from May 2014 so I've been looking for the 5th of the 5th wave to complete the rally before it starts a larger pullback correction. Since a sideways triangle often leads to the final move of the trend (up in this case) the little sideways triangle since January 26th is a good setup for the final 5th wave.

The daily chart of the dollar shows the little sideways triangle and if it starts the 5th wave rally from here I have a price projection at 97.28, where it would equal 62% of the 1st wave (in the move up from October 2014). Nice correlation with the other two projections at 97.33 and 97.35. There's higher potential but for now the upside target zone is 97.28-97.35.

U.S. Dollar contract, DX, Daily chart

Along with the dollar consolidating in a relatively tight trading range, the metals haven't moved much either, although they've continued to drop slightly lower while the dollar has gone sideways. If the dollar does get one more pop higher it could drive the metals even lower but I'm seeing an ending pattern for the decline in gold from its January 22nd high and it looks like it's setting up for at least a bounce. What's not clear at the moment is whether we should expect another rally leg similar to the November-January rally or just a bounce before continuing lower. That won't become clearer until the bounce gets underway. As for as upside potential for another rally leg, two equal legs up from the November low points to 1367.40, which is shown on the chart. That would be good for another back-test of its broken uptrend line from 2001-2005 where it crosses the projection at the end of April. But the risk for gold is still lower prices.

Gold continuous contract, GC, Weekly chart

So far oil is doing what I suspected it would do following its January low. The larger pattern for its decline from September 2013 calls for a multi-month consolidation before heading lower and a 4th wave correction will likely be a lot of choppy price action that could stay under price-level S/R near 58.50. It broke this support level last December, did a quick back-test of it and then sold off into the January low. If the bounce gets another leg up, as depicted on the daily chart below, two equal legs up would see oil rally to 58.47, which is "coincidentally" the same as the price-level resistance. That could finish the first leg (wave-A) of a larger consolidation pattern but first we need to see if oil can continue the rally that started off this morning's spike low.

Oil continuous contract, CL, Daily chart

Tomorrow's important economic reports include CPI data and Durable Goods orders. The CPI is expected to show a continuing decline (Oh no, Mr. Bill, it's that dreaded deflation, oh noooo....(Mr. Bill) and the durable goods number is expected to continue to be negative. But not to worry, both mean the Fed will stay in full accommodation mode and help prop the market up so enjoy the bad economy, hold your nose and just buy stock on as much margin you can get your hands on. PLEASE DON'T DO THAT! I am of course saying that with tongue firmly implanted in my cheek since it seems the worse the economic news gets and the more the projected corporate earnings are ratcheted down the more investors want to buy. This will not end well for them.

Economic reports and Summary

Conclusion

I see at least a little more upside potential for the market but at this point I don't believe the risk/reward favors the bulls -- I see downside risk that swamps upside potential. SPX 2132, Nasdaq 5035, DOW 18350 and RUT 1240 -- those are the upside targets that I'm watching to see if they can be achieved. Higher than that and we could be in a much stronger move (blow-off top?) but the risk as I see it is that a stronger move down could start at any time. This afternoon's little selloff might have been the start of it, in which case we should see the market immediately decline Thursday morning. If there's no immediate decline then look for those upside targets. If you can watch the market during the day it could be a good trade on the long side. But if you're holding trades overnight here I think you might be asking for trouble.

Good luck and I'll be back with you next Wednesday.

Keene H. Little, CMT

In the end everything works out and if it doesn't work out, it is not the end. Old Indian Saying


New Option Plays

Losing Its Luster

by James Brown

Click here to email James Brown


NEW DIRECTIONAL PUT PLAYS

Michael Kors - KORS - close: 68.56 change: +0.17

Stop Loss: 70.65
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 3.9 million
Entry on February -- at $---.--
Listed on February 25, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Luxury retail brand names like KORS and Coach (COH) have seen their stocks get crushed over the last several months. Shares of KORS were big performers for the bulls the first two plus years from its late 2011 IPO. Unfortunately the stock peaked in 2014. Investors worried about over exposure and slowing growth.

According to the company, "Michael Kors is a world-renowned, award-winning designer of luxury accessories and ready-to-wear. His namesake company, established in 1981, currently produces a range of products through his Michael Kors and MICHAEL Michael Kors labels, including accessories, footwear, watches, jewelry, men’s and women’s ready-to-wear and a full line of fragrance products."

Make no mistake, KORS is still growing. Last August they reported a strong earnings report that beat on both the top and bottom line. While management guided lower short-term they raised guidance for 2015. A few months later when KORS reports earnings in November 2014 they beat estimates again with revenues soaring +42% and KORS announced a $1 billion stock buyback program. However, their outlook on 2015 had tarnished a bit and they lowered comparable store sales growth from the high teens to mid teens.

KORS most recent earnings report was February 5th. Earnings per share grew +32%. Their results of $1.48 per share beat estimates by 15 cents. Revenues grew +30.9% to $1.26 billion but that actually missed Wall Street estimates thanks to foreign currency issues.

What troubles investors is the slowdown in KORS' growth. Globally their comparable store sales grew +8.6%. Most companies would probably be excited for that number. Yet analysts were expecting +12.6%. The slowdown appeared to accelerate in North America. Same-store sales plunged from +24% growth to +6.8%. KORS is also facing margin pressure with both gross margin and its operating profit sliding.

KORS management will tell you that the company is doing great and just reported its 35th quarter in a row of same-store sales growth. However, the number crunchers on Wall Street will point out that it was the first time in five years that same-store sales growth did not rise by double-digit percentages.

A big concern among analysts is that KORS could be losing its appeal because it's growing so fast. Last year they added 114 new stores and ended 2014 with 509 retail locations. They're starting to become too common. KORS is losing its cachet.

Management also lowered their guidance for Q4 (current quarter) to $0.89-0.92 a share versus estimates of $0.94. They also see revenues below expectations.

This concern over slowing growth has produced a bear market in the stock. KORS is definitely not participating in the market's rally. Tonight we are suggesting a trigger to open bearish positions at $67.90.

Trigger @ $67.90

- Suggested Positions -

Buy the May $65 PUT (KORS150515P65) current ask $2.00

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Markets Consolidate Sideways

by James Brown

Click here to email James Brown

Editor's Note:

Fed Chairman Yellen continued her dovish testimony today. Meanwhile crude oil managed an intraday bounce from four-week lows. Yet traders were content to sit on the sidelines.

The U.S. market didn't really move much so it's tough to put any significant behind today's performance.


Current Portfolio:


CALL Play Updates

Hanesbrand Inc. - HBI - close: 125.08 change: +2.75

Stop Loss: 123.85
Target(s): To Be Determined
Current Option Gain/Loss: +196.0%
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:
02/25/15: Investors applauded last night's news that HBI was acquiring Knights Apparel. Shares spiked up to $127.02 intraday and outperformed the market with a +2.2% gain on the session.

Tonight we are raising the stop loss to $123.85.

FYI: HBI's 4-for-1 split is 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

02/25/15 new stop @ 123.85
02/24/15 new stop @ 118.45
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: 104.39 change: +0.09

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:
02/25/15: HON is still consolidating sideways in the $104-105 range. The lack of progress would be concerning if the broader market wasn't also drifting sideways.

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


Humana Inc. - HUM - close: 165.37 change: +0.93

Stop Loss: 162.85
Target(s): To Be Determined
Current Option Gain/Loss: +57.8%
Average Daily Volume = 1.1 million
Entry on February 20 at $155.75
Listed on February 17, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
02/25/15: Shares of HUM continued to drift higher and displayed relative strength with a +0.5% gain while the market closed flat. Tonight we are raising the stop loss to $162.85. I am not suggesting new positions at this time.

Earlier Comments: February 17, 2015:
The big healthcare names have been showing relative strength. HUM is one of the biggest health care plan providers in the U.S. What makes the healthcare names so attractive is the government's Affordable Care Act (a.k.a. Obamacare). This new program has generated millions of new customers. It should. Currently the law states that if you don't have healthcare insurance you have to play a penalty. It was 1% of your income last year. This year the penalty rises to 2% of your income.

The ACA just completed its latest enrollment period and over 11 million people signed up, which was above expectations. This is a bullish tailwind for the industry as a whole and fuels investor optimism that business will continue to improve for the big health care providers.

HUM describes itself as "Humana Inc., headquartered in Louisville, Ky., is a leading health and well-being company focused on making it easy for people to achieve their best health with clinical excellence through coordinated care. The company’s strategy integrates care delivery, the member experience, and clinical and consumer insights to encourage engagement, behavior change, proactive clinical outreach and wellness for the millions of people we serve across the country."

Earnings were definitely mixed last year. Q3 results announced last November were a miss on the bottom line while revenues were up +18% for the quarter. HUM lowered their full year 2014 guidance at that time. Their most recent earnings report (Q4) was announced on February 4th. Earnings were $1.09 a share, a +36% improvement from a year ago. Yet they still missed Wall Street estimates by six cents. Revenues rose +21% to $12.33 billion but that missed estimates as well. HUM is reporting definite improvement and it feels like Wall Street analysts have just been too optimistic.

Shares of HUM are not seeing any sell-off based on the earnings miss. Management reaffirmed their prior guidance of $8.50-9.00 per share for 2015 compared to consensus estimates of $8.86. Another positive for HUM stock is a massive $2 billion buyback program the company announced last September. The expiration for this repurchase program is December 31st, 2016. However, it is worth noting they may not spend it all. They had barely spent 20% of their last stock buyback program before announcing the newest one.

Investors don't seem to care about HUM's earnings miss. The expectation is that the ACA will continue to generate a steady supply of new business for the industry. Thus investors have been buying the dips in HUM. The stock has a bullish trend of higher lows and higher highs. Today the stock is breaking out past resistance near $155.00. The point & figure chart is bullish with a long-term target of $173.00. Tonight we are suggesting a trigger to buy calls at $155.75.

- Suggested Positions -

Long MAY $160 CALL (HUM150515C160) entry $6.40

02/25/15 new stop @ 162.85
02/24/15 new stop @ 158.25
02/23/15 new stop @ 152.45
02/20/15 triggered @ 155.75
Option Format: symbol-year-month-day-call-strike


Illinois Tool Works - ITW - close: 99.76 change: +0.28

Stop Loss: 97.65
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.8 million
Entry on February -- at $---.--
Listed on February 24, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Comments:
02/25/15: ITW is coiling for a bullish breakout past the $100 level. Nothing has changed from last night's new play description. Our suggested entry point is $100.25.

Earlier Comments: February 24, 2015:
ITW is in the industrial goods sector. The company employs almost 50,000 people and operates in 57 countries.

According to the company, "ITW is a Fortune 200 global diversified industrial manufacturer of value added consumables and specialty equipment with related service businesses. The Company focuses on solid growth, improving profitability and strong returns across its worldwide platforms and divisions. These divisions serve customers and markets around the globe, with a significant presence in developed as well as emerging markets. ITW's revenues totaled $14.5 billion in 2014."

ITW has several different business segments. These are: automotive (18% of total revenues, test & measurement and electronics (15%), food equipment (15%), polymers & fluids (13%), welding (13%), construction products (12%), and specialty products (14%). Management has managed to boost ITW's profits by selling off its slower-performing assets.

ITW turned in +29% earnings growth for all of 2014. Their most recent earnings report was January 27th. ITW saw Q4 earnings rise +28% to $1.18 a share, which was five cents above estimates. Revenues slipped -1.4% to $3.5 billion. Their profit margin improved 190 basis points to 19.6%. Organic sales growth was up +2.3%.

The company is guiding 2015 earnings in the $5.15-5.35 range (about +12%). They see revenues in the $14.19-14.35 billion zone. That's a -2% decline from 2014 due to foreign currency headwinds. They're aiming to boost their operating margin to 23% by 2017.

Investors didn't care that ITW's guidance was a little soft. The stock has been in rally mode ever since their Q4 report in late January. The last several days have seen shares of ITW break through resistance at $98.00. Today the stock is trading at all-time highs. The point & figure chart is bullish and forecasting at $116.00 target. We like ITW's relative strength and want to buy calls if shares can break through round-number resistance at $100.00. Tonight we are suggesting a trigger to buy calls at $100.25.

Trigger @ $100.25

- Suggested Positions -

Buy the Jun $105 CALL (ITW150619C105)

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


iShares Russell 2000 ETF - IWM - close: 122.80 change: +0.14

Stop Loss: 119.65
Target(s): To Be Determined
Current Option Gain/Loss: -10.4%
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:
02/25/15: The NASDAQ's decline today snapped a ten-day winning streak. Somehow the IWM continued to rally and is now up nine days in a row. Upward momentum definitely seems to be slowing down.

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


Lear Corp. - LEA - close: 110.45 change: +0.33

Stop Loss: 106.75
Target(s): To Be Determined
Current Option Gain/Loss: -12.0%
Average Daily Volume = 771 thousand
Entry on February 24 at $110.65
Listed on February 23, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
02/25/15: LEA is bouncing along support near $110.00. Traders bought the dip at this level twice today. With the market moving sideways today it's tough to put any real significance behind today's moves.

Earlier Comments: February 23, 2015:
Last year was a great one for the auto industry. According to Autodata we saw 16.5 million new cars and light trucks sold in the U.S. in 2014. That's almost one million more than 2013. The momentum continues.

Vehicle sales rose +11% in December 2014. That surged to +14% in January 2015 (from a year ago). Ford said their January sales were up +15% and General Motors reported +18% increase. Globally IHS Automotive is forecasting more than 88 million vehicles sold in 2015.

That means a lot of car seats need to be manufactured. LEA is in the consumer goods sector. They make auto parts. According to the company, "Lear Corporation (LEA) is one of the world's leading suppliers of automotive seating and electrical distribution systems. Lear serves every major automaker in the world, and Lear content can be found on more than 300 vehicle nameplates. Lear's world-class products are designed, engineered and manufactured by a diverse team of approximately 132,000 employees located in 34 countries. Lear currently ranks #177 on the Fortune 500. Lear's headquarters are in Southfield, Michigan."

Last year the company consistently beat Wall Street's earnings estimates. Their most recent earnings report (2014 Q4) was announced on January 30th. Net income soared from $72.8 million to $261.8 million (+259%). LEA's adjusted earnings per share rose +47% to $2.27. That was 19 cents above expectations. Revenues rose +6.9% to $4.55 billion, which also beat estimates. The boost was driven by a +10% surge in the sale of car seats.

Currently LEA expects 17.4 million automobiles will be manufactured in North America this year. That's a gain of about +3% from 2014. LEA does a lot of business in China and they estimate 22.9 million cars will be built in China. IHS automotive is estimating 25.2 million cars will be made in China in 2015. Considering the current pace of car sales, LEA is guiding 2015 revenues in the $18.5-19.0 billion range. That compares to current Wall Street estimates in the $18.65-18.99 zone.

Another factor driving the stock higher is an activist investor that suggested LEA split up to unlock shareholder value. This story hit on February 3rd and sent shares of LEA soaring. LEA management said they're always willing to listen to shareholders. LEA responded with a reminder that "Since 2011, Lear has returned more than $2.1 billion to shareholders in the form of share repurchases and dividends. Since 2010, Lear has achieved a total shareholder return of 203%, which is approximately double the return for the S&P 500 over the same time period. In 2014, Lear's total shareholder return of 22% outperformed the S&P 500's return of 14%. Building sustainable shareholder value is a foremost priority for Lear."

Two weeks later LEA followed that up with an announcement they were bumping their stock buyback program up to $1 billion. At the end of 2014 their stock repurchase program was down to $339 million. The Board of Directors also raised their quarterly cash dividend +25% from $0.20 to $0.25 a share.

Technically shares of LEA have been consolidating sideways for almost three weeks. That changed today. The stock has broken through resistance at the $110 level. Tonight we are suggesting a trigger to buy calls at $110.65.

- Suggested Positions -

Long JUN $115 CALL (LEA150619C115) entry $3.75

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


L-3 Communications - LLL - close: 131.08 change: -1.36

Stop Loss: 126.20
Target(s): To Be Determined
Current Option Gain/Loss: -29.5%
Average Daily Volume = 925 thousand
Entry on February 20 at $131.50
Listed on February 19, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
02/25/15: LLL is still churning sideways in the $130-133 zone. If you're looking for an entry point then consider waiting for another bounce from $130.

Earlier Comments: February 19, 2015:
Last year the S&P 500 index gained about +11%. Shares of LLL managed to outperform the big cap index with a +18% gain in 2014. That's in spite of the rocky earnings performance in recent quarters.

LLL describes itself as "Headquartered in New York City, L-3 employs approximately 48,000 people worldwide and is a prime contractor in aerospace systems and national security solutions. L-3 is also a leading provider of a broad range of communication and electronic systems and products used on military and commercial platforms. The company reported 2013 (revised) sales of $12.6 billion." They operate four business segments: aerospace systems, electronic systems, communication systems, and national security solutions.

In May 2014 the company reported mediocre earnings but raised their 2014 guidance. Results changed with their July 31st report. They missed the bottom line by 5 cents while revenues beat expectations. Yet LLL management lowered their guidance. The stock collapsed. You can see the big spike down as a result. After a choppy third quarter performance LLL reported earnings on October 30th. They barely beat the bottom line estimate by a penny while revenues missed. Management lowered guidance again but shares rallied in spite of the news.

Since that October report shares of LLL have been churning higher with a bullish trend of higher lows and higher highs. Their Q4 earnings results seem came in relatively healthy. Earnings were in-line with expectations at $2.27 a share. Revenues were down -0.8% from a year ago but their $3.21 billion in sales did come in above expectations. Slower sales to the U.S. were partially offset by rising sales to international clients. This is a significant trend in the defense industry as contractors try to replace sales they're losing with the U.S. government with international sales. Management offered cautious guidance for 2015 with earnings estimates in the $7.35-7.65 range, which is essentially in-line with Wall Street. However, LLL is forecasting revenues of $11.75-11.95 billion, which is above analysts' expectations.

The last several weeks have seen some bullish headlines for LLL. In early December the company announced an additional $1.5 billion stock buyback program through June 30, 2017. On February 10th LLL raised their quarterly dividend from $0.60 to $0.65.

Earlier this morning Bloomberg ran an article discussing the potential for M&A in the defense space. The U.S. defense budget peaked in 2010 and has been shrinking ever since. As more contractors fight for the same dollars it could spark some mergers. The Bloomberg article suggested that LLL could make some acquisitions and also suggested that LLL is a potential target from its larger rivals. Lately Wall Street loves all the M&A headlines with stocks soaring on these stories.

Another story this month is how the U.S. government is opening the door for more international sales of military drones to its allies. This is a opportunity for LLL. They make the satellite communication equipment necessary for the drones. LLL also makes the training simulators to operate drones.

Technically shares have been consolidating sideways under resistance at $130.00 for more than two weeks. Today's display of relative strength is also a bullish breakout past resistance. The point & figure chart is already bullish and forecasting a long-term target of $174.00. Tonight I am suggesting a trigger to buy calls at $131.50.

- Suggested Positions -

Long APR $135 CALL (LLL150417C135) entry $2.20

02/20/15 triggered @ 131.50
Option Format: symbol-year-month-day-call-strike


Mallinckrodt - MNK - close: 116.15 change: -1.67

Stop Loss: 113.95
Target(s): To Be Determined
Current Option Gain/Loss: -34.8%
Average Daily Volume = 1.4 million
Entry on February 23 at $118.75
Listed on February 21, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
02/25/15: Biotech stocks bounced after yesterday's dip but unfortunately MNK did not participate. Shares lost another -1.4%. The stock is now testing short-term support at its 10-dma and might test the $115.00 level soon. I'd wait for a bounce before considering new positions.

Earlier Comments: February 21, 2015:
Healthcare and biotech stocks were big performers last year and that outperformance appears to be continuing into 2015. One stock that is really outperforming its peers is MNK. Shares delivered a +89% gain in 2014 and they're already up +18% in 2015.

MNK describes itself as "Mallinckrodt is a global specialty biopharmaceutical and medical imaging business that develops, manufactures, markets and distributes specialty pharmaceutical products and medical imaging agents. Areas of focus include therapeutic drugs for autoimmune and rare disease specialty areas like neurology, rheumatology, nephrology and pulmonology along with analgesics and central nervous system drugs for prescribing by office- and hospital-based physicians. The company's core strengths include the acquisition and management of highly regulated raw materials; deep regulatory expertise; and specialized chemistry, formulation and manufacturing capabilities. The company's Specialty Brands segment includes branded medicines such as OFIRMEV and Acthar; its Specialty Generics segment includes specialty generic drugs, active pharmaceutical ingredients and external manufacturing; and the Global Medical Imaging segment includes contrast media and nuclear imaging agents. Mallinckrodt has approximately 5,500 employees worldwide and a commercial presence in roughly 65 countries. The company's fiscal 2014 revenue totaled $2.54 billion."

MNK's global medical imaging business has fallen from about one third of the company's sales to about a quarter as the specialty pharmaceuticals business continues to grow. One reason for the growth is MNK's acquisition strategy. Last year they purchased Cadence Pharmaceuticals for $1.3 billion, which added Ofirmev to MNK's stable of therapies. MNK also spent $5.6 billion to acquire Questcor Pharmaceuticals. This added Questcor's Acthar gel to MNK's drug business.

MNK has been really delivering on the earnings front. Last August they reported their Q3 2014 numbers with revenues up +14.6% and earnings of $1.20, which was $0.35 above expectations. Management also raised their 2014 guidance. In October 2014 they raised their 2015 guidance. Then in November MNK announced their Q4 2014 results with revenues up +44.8%, above expectations, and earnings of $1.68 per share, which was $0.27 higher than estimated.

The revenue and earnings parade continued when MNK reported their Q1 2015 numbers on February 3rd. The company's profit more than doubled with earnings up +109% to $1.84 per share. That beat Wall Street's estimate by 26 cents. Revenues accelerated as well with +60% improvement to $866.3 million. However, this time analysts had ratcheted up their estimates to $885 million. MNK said their gross profit margin improved to 50.6% from 47.3% a year ago. MNK is currently forecasting 2015 numbers of $6.70-7.20 a share on revenues in the $3.65-3.75 billion range.

Mark Trudeau, Chief Executive Officer and President of Mallinckrodt, commented on their recent results,

"Mallinckrodt is off to a good start in fiscal 2015 driven by strong performance across all of our businesses. We achieved meaningful top- and bottom-line growth particularly in the Specialty Brands and Specialty Generics segments, increasing the proportion of total company net sales from specialty pharmaceuticals to over 75% in the quarter. The strategies we have pursued have gone far toward transforming us into a leading specialty biopharmaceutical company, and we are highly focused on maintaining momentum and expanding our portfolio to provide durable, sustained growth."
Investors appear to believe in MNK's growth story. The stock has a steady trend of higher lows and higher highs. Shares are currently hovering at all-time highs in the $115-118 range. We are suggesting a trigger to buy calls at $118.15.

- Suggested Positions -

Long APR $120 CALL (MNK150417C120) entry $4.60

02/23/15 triggered on gap open at $118.75, trigger was $118.15
Option Format: symbol-year-month-day-call-strike


ServiceNow, Inc. - NOW - close: 79.03 change: +0.28

Stop Loss: 73.90
Target(s): To Be Determined
Current Option Gain/Loss: +17.0%
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:
02/25/15: Shares of NOW are also consolidating sideways. The last few sessions have seen NOW drifting in the $78.00-79.50 range.

I'm not suggesting new positions at this time.

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: 84.90 change: -1.02

Stop Loss: 83.25
Target(s): To Be Determined
Current Option Gain/Loss: -30.1%
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:
02/25/15: Nothing new to report here. NXPI is consolidating sideways below the $86.00 level. I'd wait for a rally past the February 13th high of $86.50 before considering new positions.

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

02/21/15 new stop @ 83.25
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: 94.26 change: +0.81

Stop Loss: 89.40
Target(s): To Be Determined
Current Option Gain/Loss: +89.3%
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:
02/25/15: SBUX continues to show relative strength and added another +0.8%. Today's rally also lifted SBUX above short-term resistance at the $94.00 level.

I'm still worried SUBX looks overbought here. Readers may want to start taking some money off the table.

I am not suggesting new positions at this time.

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

02/21/15 new stop @ 89.40
02/12/15 new stop @ 87.85
02/10/15 triggered @ 90.25
Option Format: symbol-year-month-day-call-strike


Synaptics Inc. - SYNA - close: 83.58 change: -0.09

Stop Loss: 75.90
Target(s): To Be Determined
Current Option Gain/Loss: +14.3%
Average Daily Volume = 1.0 million
Entry on February 18 at $80.25
Listed on February 17, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
02/25/15: I blame the NASDAQ. The NASDAQ's decline broke a 10-day winning streak. SYNA followed suit and today's very minor dip snapped its 10-day streak.

I would expect a dip soon. Broken resistance in the $79.50-80.00 area should be support. I am not suggesting new positions at this time.

Earlier Comments: February 17, 2015:
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.

- Suggested Positions -

Long JUN $85 CALL (SYNA150619C85) entry $5.95

02/18/15 triggered @ $80.25
Option Format: symbol-year-month-day-call-strike


UnitedHealth Group - UNH - close: 114.05 change: -1.38

Stop Loss: 113.45
Target(s): To Be Determined
Current Option Gain/Loss: +85.0%
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:
02/25/15: UNH investors are not quite as enthusiastic as HUM investors. Shares of HUM keep rising after Monday's rally. While UNH is beginning to fade. The profit taking amounted to -1.1% today. If this dip continues tomorrow we could see UNH hit our stop at $113.45.

I am not suggesting new 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

02/24/15 new stop @ 113.45
02/23/15 new stop @ 111.85
02/21/15 new stop @ 107.75
02/17/15 new stop @ 106.85
02/04/15 triggered @ 108.25
Option Format: symbol-year-month-day-call-strike


Zimmer Holdings - ZMH - close: 120.52 change: -1.24

Stop Loss: 117.75
Target(s): To Be Determined
Current Option Gain/Loss: -4.5%
Average Daily Volume = 1.0 million
Entry on February 20 at $120.75
Listed on February 14, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
02/25/15: ZMH also encountered some profit taking and shares lost about -1%. The nearest support should be $120.00 and its simple 10-dma. You may want to wait and watch for a bounce before considering new positions.

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.

- Suggested Positions -

Long JUN $125 CALL (ZMH150619C125) entry $4.40

02/20/15 triggered @ 120.75
Option Format: symbol-year-month-day-call-strike




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