Option Investor
Newsletter

Daily Newsletter, Saturday, 2/28/2015

Table of Contents

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

Market Wrap

Do Fundamentals Finally Matter?

by Jim Brown

Click here to email Jim Brown

After a week of economic misses, lowered guidance and downward revisions to earnings estimates the markets began to give back some of their record gains. Does this mean that investors are suddenly deciding that fundamentals matter or did the market just pause to consolidate?

Market Statistics

The Dow gave back -81 points on Friday and the Nasdaq -24 with the S&P losing -6 and closing at 2,104. After trading at new highs most of the week it was only natural for the indexes to suffer from profit taking on a Friday afternoon. The declines were minimal and given the ugly economic data I think the losses could have been a lot worse. Friday was also a rebalance of the Morgan Stanley indexes at the close and that could have also created some volatility.

The ISM Chicago or Chicago PMI as it was called in the past declined from December's 59.4 to 45.8 in January. This was a five year low. Analysts were expecting 58 based on a Bloomberg survey. The new orders, production and employment components all posted double digit declines. Analysts blamed the sharp downturn on the weather and the port delays on the west coast which prevented Chicago manufacturers from receiving parts. There is no way to accurately determine how much of that impact was real versus imagined. Access to the internals details are subscription only for a high fee.


The Q4 GDP was revised down from +2.64% growth to +2.19% and that was down from +4.97% in Q3. The revisions were led by inventories and exports. The contribution from inventories declined from +0.8% to +0.1%. Net exports reduced growth by -1.2%, which was more than the -1.0% in the prior estimate. Consumer spending was the strongest category with a rise from +2.2% to +2.8%.

The personal consumption expenditures (PCE) showed deflation of -0.4% in Q4 compared to +1.3% inflation in Q3. The Fed will not be glad to see that number. Real disposable income rose from +2.4% in Q3 to +3.8% in Q4.

Analysts were expecting a decline with some expecting under 2.0% so the market damage from the GDP was minimal.


The final revision of the Consumer Sentiment for February rose slightly to 95.4 from the initial reading at 93.6. This is still a relatively small decline from the 11-year high at 98.1 in January but it was the biggest point decline in 16 months. The present conditions component declined from 109.3 to 106.9 and the expectations component declined from 91.0 to 88.0. The revised report was ignored.


The Pending Home Sales Index for January rose +1.7% to 104.2 to erase December's -1.5% decline but it was far short of the expectations for a +3.4% rise. This is the fifth consecutive miss on forecasts. Analysts were quick to blame the weather because I guess it never snowed in January before. The Northeast posted a gain of +0.1% after a -3.6% decline in December. It was the Midwest with a -0.7% decline that weighed on the index. The South rose +3.2% and West +2.2%.

Next week is a big week for economic reports. The ADP and Nonfarm payrolls will be the most watched with the two ISM also providing key details on the current state of the economy. The Fed Beige Book on Wednesday could be a challenge with the regional manufacturing reports trending lower it could be reflected in the Book. This would be a serious hiccup for the street because the general consensus is that the economy is chugging right along at a 2.5-3.0% growth rate.

There are multiple factors that could have impacted economics over the last month. The weather was certainly a concern followed by the rapid slowdown of activity in the energy sector and the port slowdown. This could have impacted multiple Fed regions and the book should give us the details. The key will be how the market reacts to it since all those factors are already common knowledge.

The ADP payrolls are expected to be flat with last month at +210,000 jobs. The Nonfarm payrolls are also expected to be nearly flat with only a 7,000 job decline to +250,000. I worry that all the factors I mentioned above may have put a crimp in hiring for February. That is especially true for the Northeast where the winter weather was especially severe. Unless you were hiring for snow shoveling positions there was probably not much activity.


Two new splits were announced last week with South Jersey Industries and Magna Intl. Neither is expected to produce a split run like we are seeing in HBI and Visa.


Fed Vice Chair Stanley Fischer was interviewed late Friday and he said it was about time for the Fed to raise rates and he expected it to happen in June or September. Other than that he repeated the party line about data dependence and at least two meetings with no change as long as the word patient was in the statement. The market took a dive about the time of the Fischer interview so his blunt answers may have been a minor concern.

It has been 9 years since the Fed has announced a rate hike.

The Fed wants to raise rates but before they can do that they want to see GDP growth, earnings growth, job growth and inflation growth. The economy is just not cooperating.

For the month of February 38 economic reports missed estimates and came in weaker than expected and only six reports came in better than expected.

The FDIC created some news when it prematurely announced that the Doral Bank in Puerto Rico had failed and the assets had been sold to Banco Popular de Puerto Rico. The news was released at 3:03 PM and normally the announcements are made after the close of business, which in Puerto Rico is 6:PM. The FDIC sent another email claiming the release had been sent in error. An appeals court determined this week that Doral was not owed a $229 million tax refund by Puerto Rico's Treasury, overturning a verdict favoring the bank. Earlier in the week a former Doral executive was arrested for allegedly defrauding the bank of $2.3 million in a procurement scheme. It was not a good week for Doral.

Doral Bank had $5.9 billion in total assets and $4.1 billion in total deposits. Banco Popular will buy $3.25 billion of Doral's assets. The FDIC said Doral's 26 branches would remain open for normal business under new names starting on Saturday. Banco Popular would operate 8 of them and three other banks acquired the rest. Shares of parent company Doral Financial (DRL) declined -46% into the close. Shares of Banco Popular (BPOP) rose on the news.



In stock news Monster Worldwide (MNST) shares rallied +13% after reporting earnings of 72 cents compared to estimates for 59 cents. Revenue of $605.6 million also beat estimates of $585 million. The company is expanding its distribution partnership with Coca-Cola and that allowed them to expand sales in both domestic and international markets in Q4. They launching new drinks and they look unstoppable.

The company said the deal with Coke was still set to close in Q2. Under that deal Coke will buy the non-energy drink brands from Monster for $2.15 billion in cash. Coke will transfer its own energy drinks to Monster. Monster will also get to use Coke's international distribution infrastructure. Some analysts believe Coke will eventually end up buying Monster.


JC Penny (JCP) shares declined -7% after reporting zero earnings when analysts expected 11 cents. Revenue of $3.89 billion did beat estimates of $3.68 billion. Shares had been trading over $9 at a five month high in expectations that the company was succeeding in their comeback from the Ron Johnson disaster. He tried to remake Penny's and failed badly with shares trading as low as $5 and investors worrying they would file bankruptcy. Shares declined sharply at the open to $7.88 and rebounded to nearly $9 intraday. When the markets began to roll over the rebound faded.

Penny's is making good strides. Same store sales rose +4.4% but the company only projected 3-5% for 2015 and down from their last projection. The operating income of $63 million was not much but it ended a streak of 13 straight quarterly losses. However, after raising $3 billion in 2013 the company said free cash flow in 2015 would be flat. While that is better than burning cash it is not very encouraging.


Weight Watchers (WTW) no longer needs to go on a diet after shares lost -35% with very weak guidance and earnings miss. The company reported adjusted earnings of 7 cents compared to estimates for 8 cents. The company guided for full year earnings in the range of 40-70 cents and analysts were expecting $1.43. The -35% decline was the largest single day drop in 13 years. This was on top of a -78% decline over the last three years. Since America is the most obese nation the WTW guidance is not because people don't need to lose weight. They are simply not doing it with Weight Watchers.


Tetra Technologies (TTI) reported earnings of 9 cents compared to estimates for 8 cents. Revenue of $315.9 million missed estimates for $321 million. Shares jumped +20% after the company said sales in its fluids division rose 24% in Q4.


Horizon Pharma (HZNP) reported earnings of 27 cents that beat estimates by a nickel. Full year revenue spiked +300% to $297 million and a profit of 95 cents compared to a loss of 58 cents in 2013. They raised revenue guidance for 2015 by $25 million to $475 million. The +8% jump in the shares closed at a new high.


Nimble Storage (NMBL) lost -8% after beating earnings but guiding below consensus. The company posted a loss of 13 cents that beat estimates by a penny. However, they guided to a loss of 13 cents in the current quarter and that was below analyst estimates. The company said it was reaching an inflection point as enterprises of all sizes are starting to justify the risk of moving away from long standing vendor relationships. In theory that means Nimble should seen improving profits but they are not promising that today.


Key earnings for next week include Costco, Palo Alto networks, Staples, Abercrombie & Fitch, Caesars and Ctrip.com. The number of big name companies are disappearing fast as the small caps take over the end of the earnings cycle.


How do you play a stock that has 320 million shares outstanding but has 2 billion shares coming out of lockup in the coming months? Alibaba (BABA) currently has 320 million shares available to trade with an average volume of 14.9 million per day. On March 18th another 429 million shares come out of lockup and are available to trade. Shares are already only a couple dollars off their historic low but the stock is not declining as you would expect with another 429 million shares about to drop on the market. I looked at multiple option strategies but the potential for a big move has inflated the premiums.

While I don't expect a monster drop on the 18th there may be weakness. Since every BABA shareholder knows the share expiration is coming they should have already sold or protected themselves with options. I know the market always assumes there will be heavy selling when these lockups expire but that rarely happens because the event is so well telegraphed. This suggests we should look for some bullish trades but the expiration cloud is still clouding my judgment.

To make matters worse on September 20th the lockup will expire on another 1.2 billion shares. With the shares available to trade more than doubling on March 18th you would think that the lead up to the September event could be really ugly. The better trade may be to wait for BABA to bounce and then buy long term puts after the option premium fades. With Jack Ma cutting bonuses and complaining about revenue I don't see a flurry of earnings surprises in the near future.


Crude oil lost $1.58 for the week despite a counter trend short squeeze to $51.28 on Wednesday. There was no reason for the spike since oil inventories rose +8.4 million barrels to 434.1 million and another 80 year high. There was a rumor that the OPEC president was thinking about calling an emergency meeting "in several weeks" if prices did not stabilize. U.S. production rose slightly to 9.285 mbpd and another post 1972 high.

I have written about the coming lack of storage capacity several times in recent weeks. There is a limit to how much oil can be stored. On Friday an analyst at Bank of America noted that storage was becoming critical and could run out by the end of March. When that happens it will be a bidding war to sell for any price to anyone with available storage.

Normal buying patterns are already in disarray. For instance, Mexico is shipping oil to South Korea and Japan for the first time in more than 20 years. Typically those countries buy from Middle Eastern producers like Saudi Arabia. Mexico is so desperate to sell its oil that it severely discounted it in order to get it sold. Mexico is selling its oil for the lowest price in nearly 20 years. Mexico has oil to sell because the U.S. is producing almost 4.2 million barrels per day more now than we produced in 2008. In January 2008 the U.S. only produced 5,028 mbpd compared to the 9.285 mbpd we are producing now. This has significantly disrupted the import patterns. For the week of June 25th, 2004 we imported 10,591 mbpd and that has declined to an average of about 7.2 mbpd for February. That means roughly 3.4 mbpd that we used to import is now competing for market share somewhere else in the world.

Oil prices should not have risen on Wednesday's inventory data. I believe traders were so short that even a little headline caused a knee jerk reaction and a short squeeze. On Friday when the rig data came in with fewer rig declines than expected the price dipped to $48.50 but then a flurry of buying hit as traders took profits ahead of the weekend.

Active rigs declined -43 to 1,267, now down -664 rigs from the 1,931 high in September. Oil rigs declined -33 to 986 and gas rigs declined -9 to 280 and a new 18 year low.

If you are paying attention we have lost -664 rigs since September but oil production set a new 43 year high last week. Oil production will eventually decline but it could be another 3-6 months because wells already drilled still need to be completed and connected to the pipelines.

While I believe we are setting up for another decline in oil prices we are seeing very stubborn support at $49. Since consumption rises in early May as refiners begin pushing summer gasoline blends into the system the price of crude also rises. The $64 question is whether consumption will begin before storage capacity runs out. Stay tuned.



Markets

I don't think we should take Friday's decline too seriously. The rebalancing of the Morgan Stanley indexes, fear of holding gains over the weekend and normal month end profit taking were probably the reasons for the weakness. The markets made new highs and the Nasdaq moved to within 11 points of 5,000. It was still a good week.

When you consider the overextended nature of the indexes we are due for a rest. If the Dow had closed over 18,206.58 it would have had the biggest one-month point gain in history. It traded over that level to 18,213 intraday but ended up giving back -81 points to close at 18,134 for a +970 point gain for the month. We can't complain about an 81 point loss.

The S&P struggled the last two days because Apple was struggling. The stock closed -$5 off its highs for the week. That is not a big loss but it was enough to drag down the S&P and Nasdaq. The 2,120 level proved to be short-term resistance for the S&P 500. Thus far the big cap index is only down nine points from its high. The pullback may not be over yet. Watch for potential support near 2,104 and 2,090.

The Nasdaq has been levitating higher all month with the 5,000 mark acting like a magnet. We almost got there on Thursday with an intraday high of 4,989. Potential support looks like 4,950 and 4,900.

The small cap Russell 2000's dip on Friday snapped a ten-day winning streak. Small caps could definitely see more profit taking. Short-term support is probably the late December highs near 1,220.

My bullish bias hasn't changed. I cautioned readers on Tuesday that we were due for a dip. This dip may not be over yet. On the plus side the first few days of a new month tend to have a positive bias as fund managers put new money to work. We will have to see if investors are still in a buy-the-dip mood.

Enter passively, exit aggressively!

Jim Brown


Index Wrap

Upside Momentum Slows and Slips a Bit

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

Slowing upside momentum and recent overbought readings have led to the Indices moving sideways to a bit lower. How much this is a 'pause' or the start of some retracement of prior gains isn't certain but shouldn't surprise us.

As I noted in my most recent Trader's Corner article (2/26/15), vulnerability to a sideways to downside correction is suggested by nearness to my upper moving average envelope lines, overbought Relative Strength Index (RSI) readings and the level of trader bullishness.

An overall Market correction appears underway. A further dip ONLY back to prior highs (prior resistance), with this area acting as support, suggests a relatively minor correction. Specifics on key support and resistance levels are noted with my individual index charts.

As has been my recent practice, I'll begin with a look and analysis of what has become a favorite options trading vehicle, that of the S&P Volatility Index (VIX).

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

The liquidity of VIX options (e.g., Friday VIX options volume was 223,000) is significant but often unnoticed by individual traders, unlike funds hedging their stock portfolios. Besides good liquidity, VIX often trades very 'technically' with reliable TRENDS and with price swings between key highs and lows. Moreover, overbought/oversold indicators also provide clues as to the probability of VIX trend reversals.

A view by options traders has grown that sharp spikes in options volatility suggests potential opportunities in buying VIX puts or selling VIX calls. Conversely, if you anticipate a substantial increase in volatility, VIX calls can be bought or VIX puts sold. The contract 'multiplier' for valuation of a VIX option is $100.

I am increasing not trying to evaluate the VIX trend as opposite or inverse to the SPX price trend and to trade VIX accordingly, but to view the VIX hourly and daily charts as like any other index chart. Certain VIX highs suggest bearish strategies. Certain recurring VIX lows suggest potential bullish trading strategies.

Very near resistance in VIX is at 14, then 16, extending to the 17 area.

VIX may next be heading to 13 or lower, such as to next 'support' around 12. Call purchases or short puts look favorable in the 13 to 12 zone. An oversold RSI suggests potential for an upside reversal but the RSI can stay in a 'typical' oversold zone for some time; e.g., 3-4 weeks or more.

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

The declining trend in VIX is shown in more detail with the hourly chart below. 13 is a next pivotal level for support or conversely where piercing 13 suggests downside potential to 12. VIX has repeatedly been getting oversold on a short-term basis, as highlighted by the 21-hour Relative Strength Index.

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX) DAILY CHART:

The S&P 500 (SPX) chart suggests slowing upside momentum and most recently SPX slipped below the current up trendline highlighted below. A key test of the current uptrend would be seen on a pullback to a line of prior resistance noted at 2092. A decisive downside penetration of 2092-2090 would be near-term bearish as it would put SPX back into its prior trading range. Next lower support then is suggested at 2075, at the 21-day moving average, with support extending to 2070.

Key support is in 2100-2092 price zone. Trade above the prior peak at 2092 is bullish and keeps the bullish trend intact. Near resistance next comes in at 2120, extending to 2136. 2136-2140 would be my suggested next 'maximum' upside potential without increased risk of a sideways pause or a pullback.

Bullish trading sentiment has tapered off lately which in a contrarian sense is bullish, but a recent 1-day peak in my CPRATIO indicator did precede, and possibly predict, at least a pause in the current advance.

S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX) chart is bullish but the rate of upside gain has slowed. Given that an overbought RSI reading preceded this slowing upside momentum, a retracement of the prior advance can't be ruled out. Pivotal support is suggested at the prior top in the 924 area. Prior resistance, once penetrated, should 'become' subsequent support if a new up leg is going to proceed.

I highlighted a next lower support below 924 in the area of the 21-day moving average at 912-910 but would also suggest 920-916 as possible support between these two points. Near OEX resistance looks like 934, extending to 940.

The big cap S&P 100 got 'overbought' according to its typical upside 'extreme' in the 13-day Relative Strength Index or RSI. I would rate further upside potential about equal to downside risk for a pullback; i.e., further upside, before selling pressure comes in, of 15 points to the 940 area. Conversely, downside risk of a pullback here looks like 15 points, to the 910 area.

Continued trade above the prior peak is bullish, which is a main consideration for OEX in terms of maintaining upside momentum.

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

The Dow 30 (INDU) Average is faltering some after INDU's move to new highs. Pivotal support is suggested by the prior resistance or the recent upside 'breakout' point, at 18100. If 18100 is pierced on the downside look for initial support at 17900, and then next at highlighted support (green up arrow) at 17800.

Support at 17800 is implied by the current 21-day moving average, which tends to more or less 'define' the intermediate trend. One close below this key 'centered' moving average isn't so critical if the next day's Close is back above the average and then trades mostly over the 21-day.

Near resistance is highlighted at 18225 at the up trendline. Next resistance I've calculated at 18400.

Dow stocks EITHER rebounding, in moderate OR in strong uptrends are by my count 16 INDU stocks: BA, CSCO, DD, DIS, GE, HD, JNJ, JPM, MCD, MMM, NKE, PFE, TRV, UNH, UTX and V. Based on my 'bottoms up' assessment of the 30 Dow stocks, I'd rate the likelihood of INDU holding above 18100 as reasonably good.



NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:

The Nasdaq Composite (COMP) continues in a strong uptrend but that uptrend has traced out a quite steep rate of gain and suggests a trend steepness susceptible to a corrective pullback. Potential for a pause or marking time, going sideways, or for a retracement of some of the prior advance such as a third or so giveback is relatively high. I would also note that 5000, just overhead, is a 'milestone' level that if reached could bring in some significant profit taking selling. We may have seen some anticipatory selling on this count already.

Resistance is definitely seen at 5000, then next at 5040, which is my current 'maximum' near-term upside target. COMP support levels are 4950, then highlighted support areas (green up arrows) at 4900, extending to 4850-4835.

COMP is tracking sideways recently after hitting an 'overbought' extreme in terms of the 13-day Relative Strength Index (RSI). Moreover this occurred after bullish trader sentiment climbed to somewhat 'extreme' expectations. Odds of a pullback has grown, but price action hasn't traced out a downside reversal either. Stay tuned!

NASDAQ 100 (NDX); DAILY CHART:

The big cap Nas 100 (NDX) is bullish but prices have gone mostly sideways after NDX reached the 4450 area. Near support is at 4400, then is assumed as lying in the area of the prior NDX high at 4347. Note the upside acceleration above 4350, making 4350-4347 pivotal downside support if a corrective dip develops and carries that far.

It would technically 'healthy' in terms of the longer-term bullish NDX trend to see a pullback to near the 4350 prior (upside) breakout point. An 'overbought' extreme RSI reading with a major index like NDX is not a great harbinger for a continued move ever higher. The Index could be seeing the start of a corrective pullback in the recent sideways churning. Stay tuned.

Near resistance is highlighted at 4462, then in the 4500 area. NDX hit an overbought RSI reading which suggests increased vulnerability of a pause or pullback. The low reading in the VXN, the Nasdaq 100 volatility Index also has some degree of correlation with a bump up in volatility and a possible retracement of some of the prior steep gain.

NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:

The QQQ trend is the same as NDX of course in the pattern. In terms of price levels, key near support is seen in the 108 area. A pivotal lower support comes in around 106.

Upside resistance is close overhead, at 108.9-109. Next resistance comes in at 110. QQQ is getting to the point of WHEN a correction will set in, not IF that will develop.

Volume has been relatively low on the recent advance, not surprising given the sideways trend of the past week. The On Balance Volume (OBV) line was trending higher, but has paused with price action.

A correction is due. My upper moving average envelope line is a strong reminder that QQQ is well above the 'centered' 21-day moving average or well above this center as a kind of mean. Prices like many things tend to come back toward their mean at some point.

RUSSELL 2000 (RUT); DAILY CHART:

The Russell 2000 (RUT) has had a strong advance above its prior high in the 1220 area. My next target of 1240 has been reached. 1252-1260 is a next target zone but RUT recently started to slip under its steep up trendline and may see continued slowing (upside) momentum.

Slowing upside momentum, should it continue, could take the Index back to near 1220 support which was prior resistance. This is a common pattern; a prior top once penetrated, 'becoming' support on a subsequent pullback. Next lower support is highlighted in the area of the 21-day moving average, currently at 1212.

RUT also has a pattern of moderate to more substantial pullbacks AFTER reaching an overbought 'extreme' in terms of the 13-day Relative Strength Index (RSI).

If you are hanging in for the last possible upside when in bullish strategies, ask yourself why. If it was because you only got in when RUT went to new highs for its move, take a profit before it escapes. If you bought 'right' when RUT was establishing repeated support in the 1160 area, take the money and run. End of my story but stay tuned!


GOOD TRADING SUCCESS!




New Option Plays

Sales Are Surging

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Criteo SA - CRTO - close: 45.36 change: +1.02

Stop Loss: 42.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 507 thousand
Entry on February -- at $---.--
Listed on February 28, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Online advertising has evolved over the years. Today we see advertisements on our smartphone, tablet, social media platforms, and our desktop computers. One firm that is reporting surging sales growth in this area is CRTO.

According to the company, "Criteo delivers personalized performance marketing at an extensive scale. Measuring return on post-click sales, Criteo makes ROI transparent and easy to measure. Criteo has over 1,300 employees in 23 offices across the Americas, Europe and Asia-Pacific, serving over 7,000 advertisers worldwide with direct relationships with over 9,000 publishers."

Last year was pretty rocky for shares of CRTO. The stock saw a lot of ups and downs. At the end of the year CRTO shares ended with a +17.6% gain on the year. I'm surprised it wasn't higher.

The company has beaten Wall Street's bottom line earnings estimates three out of the last four quarters. They have reported revenues above expectations four quarters in a row. Plus, CRTO has raised their guidance four quarters in a row. Their sales in 2014 saw sales growth of more than +60%.

CRTO's most recent earnings report was February 18th. They reported Q4 earnings of €0.37 a share, which was €0.13 above expectations. Revenues, excluding traffic acquisition costs (a.k.a. ex-TAC), soared +76% to €96 million. CRTO said their sales in the Americas surged +121% from a year ago (ex-TAC). They also reported a +10% jump in clients to an all-time high of 7,190. Management raised their Q1 revenue guidance up to €96-99 million compared to analysts' estimates of €87.7 million. They also raised their 2015 revenue guidance to €433-440 million versus Wall Street's estimate at €400 million.

Following this Q4 earnings report and bullish guidance the stock has been upgraded by at least two analysts with new price targets at $54 and $65. The point & figure chart is bullish and forecasting a long-term target of $66.00.

Looking at the last several days CRTO's stock has been consolidating just below the $45.00 level. Friday's display of relative strength (+2.3%) appears to be a breakout. Tonight we are suggesting a trigger to buy calls at $45.85.

Trigger @ $45.85

- Suggested Positions -

Buy the Apr $45 CALL (CRTO150417C45) current ask $3.30

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Taking Profits In HBI

by James Brown

Click here to email James Brown

Editor's Note:

Hanesbrands Inc. (HBI) has a four-for-one split coming up this week. Shares have soared from their February lows. We are suggesting investors take profits now.

Tonight we are also suggesting early exits for LLL and NOW.

ITW has been removed. HON hit our stop on Friday.


Current Portfolio:


CALL Play Updates

Cavium, Inc. - CAVM - close: 68.49 change: +0.09

Stop Loss: 64.95
Target(s): To Be Determined
Current Option Gain/Loss: -10.5%
Average Daily Volume = 737 thousand
Entry on February 27 at $68.75
Listed on February 26, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
02/28/15: Most of the market dipped into the red on Friday. CAVM was an exception. Shares managed to keep the rally going and tagged a new high. Shares also hit our suggested entry point at $68.75.

Our trade is open but readers may want to wait for a new rise past $68.85 or $69.00 before initiating new positions.

Earlier Comments: February 26, 2015:
Semiconductor stocks have been showing relative strength this year. The SOX semiconductor index is already up +4.3%. CAVM is outperforming its peers with a +10.6% gain.

If you're not familiar with CAVM, Investors.com described the company as "a specialty niche designer of network security processors 14 years ago" that has grown into "a mainstream player challenging the likes of Intel, Broadcom, and Freescale Semiconductor."

The company describes itself as "Cavium is a leading provider of highly integrated semiconductor products that enable intelligent processing in enterprise, data center, cloud and wired and wireless service provider applications. Cavium offers a broad portfolio of integrated, software-compatible processors ranging in performance from 100 Mbps to 100 Gbps that enable secure, intelligent functionality in enterprise, data-center, broadband/consumer and access and service provider equipment. Cavium's processors are supported by ecosystem partners that provide operating systems, tool support, reference designs and other services. Cavium's principal office is in San Jose, CA with design team locations in California, Massachusetts, India and China."

The last four quarterly earnings reports have been better than expected. CAVM has consistently beat analysts' estimates on both the top and bottom line. Revenue growth has slowly accelerated from +19.7% in Q1 2014, +22.2% in Q2, +23.6% in Q3, and +25% in Q4 2014.

CAVM's CEO Syed Ali is optimistic on 2015 saying, "This will be the single biggest year of new product introductions in our history."

Meanwhile analyst Christopher Rolland, with FBR Capital Markets, commented on the company, saying, "innovative design team, solid pipeline of new products and ability to increasingly tap into a fast-growing hyperscale customer base should provide a solid backdrop of growth for the next few years."

Wall Street expects CAVM revenue growth of +20% in 2015 and earnings growth of +26%. The point & figure chart is very bullish and forecasting a long-term target of $96.00. Technically shares spent the last few days consolidating sideways but today's display of relative strength is a bullish breakout. We are suggesting a trigger to buy calls at $68.75. (FYI: April and May options are not available yet so we chose June)

- Suggested Positions -

Long JUN $75 CALL (CAVM150619C75) entry $3.80

02/27/15 triggered @ $68.75
Option Format: symbol-year-month-day-call-strike

chart:


Hanesbrand Inc. - HBI - close: 127.54 change: -1.37

Stop Loss: 124.45
Target(s): To Be Determined
Current Option Gain/Loss: +258.3%
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:
02/28/15: After sprinting higher the last several sessions shares of HBI ran into some profit taking just ahead of the weekend with a -1% decline.

HBI is scheduled to split 4-for-1 on Wednesday, March 4th. We do not want to hold over the split. Tonight we're suggesting an immediate exit on Monday morning.

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

02/28/15 prepare to exit on Monday morning
02/26/15 new stop @ 124.45 (consider taking some profits now)
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

chart:


iShares Russell 2000 ETF - IWM - close: 122.58 change: -0.67

Stop Loss: 121.65
Target(s): To Be Determined
Current Option Gain/Loss: -8.4%
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:
02/28/15: The NASDAQ composite couldn't do it. Neither could the small cap Russell 2000 index or the IWM etf. All three managed to post a 10-day winning streak and all three cracked on the eleventh day. The profit taking on Friday was pretty mild.

I'm starting to think our stop loss at $121.65 might be a little too tight. You may want to adjust your stop so it's below the late December highs near $121.40 instead. Prior resistance is often new support.

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

02/26/15 new stop @ 121.65
02/17/15 new stop @ 119.65
02/13/15 triggered @ 121.55
Option Format: symbol-year-month-day-call-strike

chart:


Lear Corp. - LEA - close: 108.92 change: -0.11

Stop Loss: 107.75
Target(s): To Be Determined
Current Option Gain/Loss: -30.7%
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:
02/28/15: The profit taking in LEA was not that bad on Friday with shares closing down 11 cents. Unfortunately the action last week as a whole is starting to look like a potential bearish reversal. I am not suggesting new positions. Today's low was $108.04. We will move the stop loss to $107.75.

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

02/28/15 new stop @ 107.75
02/26/15 caution: today's decline could signal a failed breakout (potential bearish reversal) pattern.
Option Format: symbol-year-month-day-call-strike

chart:


L-3 Communications - LLL - close: 129.43 change: -1.32

Stop Loss: 126.20
Target(s): To Be Determined
Current Option Gain/Loss: -43.2%
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:
02/28/15: It was not a good week for defense stock bulls. Most of the group trended lower. While that's not terribly surprising after a big rally from their late January and early February lows the pullback seemed to be accelerating for LLL on Friday. The close below $130.00, which should have been support is definitely short-term bearish.

I am longer-term bullish on LLL but short-term we are choosing to exit. Tonight we're suggesting an immediate exit on Monday morning.

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

02/27/15 prepare to exit on Monday morning
02/20/15 triggered @ 131.50
Option Format: symbol-year-month-day-call-strike

chart:


Mallinckrodt - MNK - close: 116.72 change: -2.89

Stop Loss: 114.85
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:
02/28/15: Biotech stocks in general tend to be more volatile than the rest of the market. This past week saw the volatility for this group jump and it could be portending a potential top.

Meanwhile shares of MNK have been ricocheting between the $115-120 area the last few days. Friday's session saw a -2.4% that almost erased Thursday's bounce. I am not suggesting new positions. More conservative traders may want to exit. We will move the stop loss up to $114.85.

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

02/28/15 new stop @ 114.85
02/23/15 triggered on gap open at $118.75, trigger was $118.15
Option Format: symbol-year-month-day-call-strike

chart:


ServiceNow, Inc. - NOW - close: 76.26 change: -3.27

Stop Loss: 73.90
Target(s): To Be Determined
Current Option Gain/Loss: -21.1%
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:
02/28/15: Ouch! What happened to NOW on Friday? Shares underperformed with a -4.1% plunge. I couldn't find any company news to account for Friday's relative weakness. The one-day drop erased several days worth of gains. The move also looks like a bearish reversal and the nearest support could be $75 or it could be $70.00.

Tonight we are suggesting an immediate exit.

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

02/28/15 exit immediately, NOW's sudden drop doesn't bode well
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

chart:


NXP Semiconductors - NXPI - close: 84.90 change: -0.06

Stop Loss: 83.25
Target(s): To Be Determined
Current Option Gain/Loss: -32.2%
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:
02/28/15: NXPI has been consolidating sideways in the $83.50-86.00 zone for two weeks in a row. I suspect we will see the stock breakout out, one way or the other, this week.

Recently I suggested waiting for a rally past $86.50 before considering new positions. Just to be safe you may want to wait for a close above this level to avoid an intraday spike.

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

chart:


Starbucks Corp. - SBUX - close: 93.49 change: -1.07

Stop Loss: 92.85
Target(s): To Be Determined
Current Option Gain/Loss: +50.5%
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:
02/28/15: SBUX was not immune to the market's widespread weakness on Friday. Shares actually underperformed with a -1.1% decline that settled on short-term technical support at its 10-dma.

After SBUX's three-week surge from $86 to $95 we should not be alarmed with a $1.00 drop. However, I will point out that technically Friday's dip produced a bearish engulfing candlestick reversal pattern.

More conservative traders may want to take some money off the table here. 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

02/26/15 new stop @ 92.85
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

chart:


Synaptics Inc. - SYNA - close: 85.95 change: +0.85

Stop Loss: 81.85
Target(s): To Be Determined
Current Option Gain/Loss: +36.1%
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:
02/28/15: Shares of SYNA have been invincible lately. The stock has rallied almost non-stop from its early February low near $75.00. This is the sixth weekly gain in a row. While we are happy to see the rally realize this won't last forever.

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

02/26/15 new stop @ 81.85
02/18/15 triggered @ $80.25
Option Format: symbol-year-month-day-call-strike

chart:


Zimmer Holdings - ZMH - close: 120.39 change: -0.94

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:
02/28/15: ZMH slipped -0.7% on Friday but shares are still inside the $120-122 trading range. At this point I suggest waiting for another bounce from the $120.00 level 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

chart:




PUT Play Updates

Michael Kors - KORS - close: 67.41 change: -0.48

Stop Loss: 70.65
Target(s): To Be Determined
Current Option Gain/Loss: +2.4%
Average Daily Volume = 3.9 million
Entry on February 26 at $67.90
Listed on February 25, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
02/28/15: The weakness in KORS continued on Friday with shares closing at their lows for the month. I would still consider new put positions at current levels.

Earlier Comments: February 25, 2015:
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.

- Suggested Positions -

Long May $65 PUT (KORS150515P65) entry $2.10

02/26/15 triggered @ $67.90
Option Format: symbol-year-month-day-call-strike

chart:



CLOSED BULLISH PLAYS

Honeywell Intl. - HON - close: 102.78 change: -0.86

Stop Loss: 102.85
Target(s): To Be Determined
Current Option Gain/Loss: -20.3%
Average Daily Volume = 3.0 million
Entry on February 12 at $103.05
Listed on February 10, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
02/28/15: HON experienced some profit taking this past week. The decline snapped a three-week winning streak. Shares broke down under short-term support in the $103.50 area on Friday and hit our stop at $102.85.

- Suggested Positions -

JUN $105 CALL (HON150619F105) entry $3.10 exit $2.47 (-20.3%)

02/27/15 stopped out
02/26/15 new stop @ 102.85
02/17/15 new stop @ 101.65
02/12/15 triggered @ 103.05
Option Format: symbol-year-month-day-call-strike

chart:


Illinois Tool Works - ITW - close: 98.86 change: -0.45

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: see below

Comments:
02/28/15: ITW can't seem to crack the $100 level. We have decided to remove ITW as a candidate. The trade did not open.

I would keep ITW on your watch list. Shares still has potential support in the $98.00 region and again near $95.00 with its simple 50-dma.

Trade did not open.

02/28/15 removed from the newsletter, suggested entry was $100.25

chart: