Option Investor
Newsletter

Daily Newsletter, Monday, 3/2/2015

Table of Contents

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

Market Wrap

NASDAQ 5000

by Thomas Hughes

Click here to email Thomas Hughes
The market reached another milestone, the NASDAQ Composite crossed 5,000.

Introduction

The bulls rallied as soon as the opening bell sounded and carried the NASDAQ Composite across the 5,000 mark for the first time in 15 years. While not the all-time high, today is a new 15 year high for the index and one of only 8 days in which it has even traded above this level. The other indices also rallied and reached new highs of their own. Today's move was foreshadowed and aided by central bank activity in China. The Peoples Bank of China lowered their key interest rate in an effort to stimulate growth and stimulated equity buying as well.

Market Statistics

The indices were indicated up from the earliest part of the pre-market session. Futures trading remained positive but near flat up and into the opening bell. There was quite a bit of news, data and such before the open of equities trading but none of it was market moving on an individual basis.

The market moved higher as soon as the bell sounded. The early move carried the indices to a peak by 10:30AM, when the NASDAQ first crossed 5,000. Afterward the index, and the market, pulled back from the high to regroup, and then tested the high again about 2 hours later. This second attempt was also repelled but Late afternoon trading and a third attempt at a new all time high on the NASDAQ sent the entire market higher.

Economic Calendar

The Economy

Personal income and spending figures were released at 8:30AM. The headline increase of personal income of 0.3% was roughly in line with expectations and holding steady from the previous month's unrevised figure. This is a good sign for labor markets; wages are on the rise, if slowly, and not so quickly as to cause concern. On a down note spending declined by -0.2% but at the core level, ex gasoline, it rose by 0.1%. Looking back at 2014, incomes rose an average 4% for the year. ISM manufacturing data was released at 10AM. The ISM PMI came in at 52.9%, a decline of -0.6% from the previous month and in-line with expectations. This is the lowest level since January of last year and the fourth month of decline since hitting its historic high last fall. Within the report new orders, production and employment all declined but remain expansionary above 50. Inventories are also above 50 but on the rise. On a sector by sector basis 12 of the 18 tracked sectors are showing growth. The price index remains very low at 35, indicating continued decline of input prices in the sector.


Construction spending fell in January by -1.1%. This is counter to expectations of a gain of 0.3% and well below the 0.4% gain in December. The drop was led by a decline in residential building, compounded by declines in business and government building. Despite the decline spending is 1.8% higher than this same month last year.

Moody's Survey of Business Confidence remains near record highs. The index fell by a tenth this week to 40.0, the fourth week of readings at or above 40 and just below the 12 year high. The statement released by Moody's and Mark Zandi is also positive. He says that “U.S. businesses remain as optimistic as they have been in the more than 12 years of the business confidence survey. They are upbeat about sales, hiring and investment. . . An astounding more than half of the responses to the business survey are positive, while less than one-tenth are negative.”


This is a huge week for data. There are over 2 dozen reports this week including housing, manufacturing and labor. Tuesday is auto and truck sales. Wednesday is the Fed's Beige Book for March, ISM Services and ADP employment data, Thursday is jobless claims, Challenger Job Cuts, Unit Labor Costs and Factory Orders. Friday wraps it up with the all important Non Farms Payroll data. Keeping it all in perspective will be important. Some of the data is rear looking but not much, only the unit labor costs/productivity numbers are from the fourth quarter. The rest is for either January or February. I will be looking for improvements, or at least stability, from the January to February period and positive forward outlook.

The Oil Index

Oil prices were a little crazy today and may be indicating a disassociation from the fundamentals. WTI and Brent had both been up in early trading, during the Asian and early part of the European sessions, until news that Libyan production was coming back on-line. At that time both benchmarks plummeted with Brent falling more than 4.5%. WTI however, did not fall quite that much and even rebounded from its low to trade higher by 3.5%. However, by the end of the day price fell back to break even and settled near $49.50. Oil prices remain volatile but relatively stable trading around the $50 level.

The Oil Index was not so undecided in its direction today. The index fell over -1.75% and broke the short term 30 day moving average. It also pierced support and the lower boundary of the February trading range but did not close below it. The index is moving lower, from the top of a longer term trading range, with bearish indicators and could be headed lower. Near term support around 1,350 is likely to be tested with a break below looking very possible. If a break does occur the index may move down to test support at the bottom of the three month trading range near 1,250.


The Gold Index

Gold prices fell about $6 today, after trading up by a similar amount. The news from China spurred some buying in early trading but soon speculation over the Fed and interest rates curbed appetite. Price for the metal remains above $1,200 but looks as if it may retest support at that level at least. The data is going to have a big effect on gold prices this week so more volatility should be expected. Positive data should, I think, support gold prices as it will lead to the Fed raising rates sooner rather than later.

The GDX gold miner ETF fell as well, losing close to -3%. The ETF fell below the short term moving average but is still above my support line at $20.50. The indicators are bearish but in line with support at this level so I am expecting it to hold for now. This support level is coincident with $1,200 on the gold charts and may be tied to gold holding that level. A break below $20.50, $1200 for gold, could take the index down to the long term low near $17.50. With all the data on tap I think we may know by the end of the week if it will hold or not.


In The News, Story Stocks and Earnings

Most of the S&P 500 has already reported but that does not mean there are no reports left, S&P or otherwise. There are still 15 S&P companies left to report this round, and close to 500 reports from small and mid-cap names scheduled for this week. According to Factset 76% of the S&P 500 companies have reported earnings above the mean average and 59% have reported revenue above the mean estimate. This is above the 1.7% estimated at the beginning of the quarter and 0.2% above last weeks blended average. The average earnings are rising due to earnings beats in multiple sectors, primarily in energy. Despite the energy sector beating on earnings it remains the leader in terms of overall earnings declines. Looking forward projections for earnings decline in the first and second quarter of 2015 are beginning to level off. The forward P/E has flattened over the last 2-3 weeks and could begin to move higher.


Lots of business news in the headlines as well today, and a noticeable lack of geopolitics. Mergers & acquisitions was one topic of note. Hewlett-Packard is buying Aruba Neworks in a move that would make them a leader in mobile enterprise solutions. The deal is worth nearly $3 billion and did little to move either stock. In other merger news NXP Semi and Freescale Semi announced a union that would create a company worth over $30 billion. NXP will be paying about $36.50 per share for shares of Freescale, roughly equal to last weeks closing price. Shares of NXP Semi (NXPI) jumped more than 17% on the news.


Costco announced a deal with Visa to provide card services to its customers. The deal is long term in nature and set to begin in April of next year. Costco did not move on the news but shares of Visa jumped 2.5% to hit a new high. Mastercard also announced a new deal, that it was going to be accepted in Cuba. Shares of its stock also climbed, gaining a little over 2%.


Today's biggest loser was Lumber Liquidators. Apparently, although I didn't see it, there was a scathing report on 60 Minutes showing how the company was using hazardous chemicals in its flooring material, counter to California laws and labeling on the packages. Shares of the stock fell more than 25% to a new 12 month low this morning. The company of course says it had no idea and that it was challenging the results of the tests performed on the show.


The Indices

Despite the numerous data points scheduled for this week and the prospect of earnings decline in the S&P 500 the market rallied. The bulls stepped right out of the gate and moved steadily higher throughout the day. Today's action was led of course by the NASDAQ, which crossed and closed above 5,000 with a move of 0.9%. The tech heavy index, but no longer tech dominant, crossed 5,000 and set a new high as well. The index is moving higher in line with the long term trend with bullish indicators but there are reasons to be cautious. For one, the indicators continue to show weakness as the index moves higher. Momentum is not picking up, it is winding down, and stochastic is still showing the bearish crossover. Another reason to be cautious is the wave of data scheduled to be released this week.


The next biggest gainer of the day was the Dow Jones Transportation Average. The transports gained 0.87% in today's session and is the only one of the major indices to not make a new high. The index moved up from the short term moving average, confirming near term support, but is still short of the current all time high. The indicators are bullish but very, very weak and leading me to think that the February rally could be coming to an end. Stochastic is about to fall out of the upper signal zone and MACD is about to make a zero line cross over, hints of reversal but not confirmed signs. Resistance is the current all time high near 9,250 and is likely to be tested but a break out is yet to be determined.


The Dow Jones Industrial Average is third in today's line-up with a gain of 0.86%. The blue chips made a nice white candle that extended the February rally and set a new all time high. The move is in-line with the underlying trend and supported by the indicators but is at risk of correction. The indicators are bullish but persist in showing weakness. The MACD is winding down toward zero and stochastic is still showing the bearish crossover that formed with last weeks test of support. The index could continue to drift higher but without a stronger showing of the indicators I remain cautious.


The S&P 500 set a new high as well, barely. The broad market moved up to set a new intra-day high but could not reach to a new all time high. The indicators are bullish, in line with the trend and the move to new highs, but remain weak. However, unlike the other indices, MACD and stochastic are both showing early signs of rolling over and could lead to a new wave of buying. If this move continues and the indicators do roll over into a stronger signal then a more pronounced rally cold follow with targets near 2,200.


The bulls are eager for new highs and couldn't quite wait for the data to be released in order to reach them. This may be a good sign, or it may be setting the market up for a fall. If the data is good, or good enough to support trends and lift expectations for future earnings then moving to new highs is OK. If the data spooks the market or give it reason to think earnings are going to suffer then the move may be bad. The trouble for us today is making a decision to trade or not based on that move. The long term trends are up and so far there has been little sign of it ending. There is some sign of a winter slump but nothing like last years January slow down so I am not expecting anything overly shocking. I remain bullish and eagerly awaiting the data and whatever indication of direction the market will give.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Buying The Dip In Healthcare

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Aetna Inc. - AET - close: 100.50 change: +0.95

Stop Loss: 98.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.2 million
Entry on March -- at $---.--
Listed on March 02, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Healthcare stocks have been extremely strong performers from the market's mid October 2014 lows. Investors have continued to buy the dips and that's especially true in shares of AET. This stock has been outperforming the market in 2015 and currently up +12.0% for the year.

Who is AET? According to the company, "Aetna is one of the nation's leading diversified health care benefits companies, serving an estimated 46 million people with information and resources to help them make better informed decisions about their health care. Aetna offers a broad range of traditional, voluntary and consumer-directed health insurance products and related services, including medical, pharmacy, dental, behavioral health, group life and disability plans, and medical management capabilities, Medicaid health care management services, workers' compensation administrative services and health information technology products and services. Aetna's customers include employer groups, individuals, college students, part-time and hourly workers, health plans, health care providers, governmental units, government-sponsored plans, labor groups and expatriates."

Investors have been bullish on big healthcare names because of the Affordable Care Act (a.k.a. Obamacare). Initially this industry was resistant to the deal. Obamacare did get off to a rocky start. Yet now a couple of years after its launch most of the wrinkles have been ironed out. Obamacare has generated millions of new health insurance customers for the industry.

Earnings have been strong. AET's most recent earnings report was February 3rd. The company delivered a Q4 profit of $1.22 a share. That was in-line with estimates. Revenues were up +12.5% to $14.77 billion, which was above expectations. More importantly AET raised their 2015 guidance from $6.90 a share to $7.00. That's actually below Wall Street's estimate but it's moving the right direction. Multiple analysts raised their price target on AET following the Q4 report. Meanwhile the point & figure chart is bullish and forecasting at $119 target.

The healthcare providers got another boost last week on February 23rd after the government issued new proposals to raise the rate they pay insurers for Medicare/Medicaid. Shares of AET have not seen that much profit taking from its February high and traders are already buying the dip.

We want to jump on board if this rally continues. Tonight we're suggesting a trigger to buy calls at $101.15. We'll try and limit our risk with an initial stop loss at $98.85.

Trigger @ $101.15

- Suggested Positions -

Buy the Apr $105 CALL (AET150417C105) current ask $1.24

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

Daily Chart:



In Play Updates and Reviews

NXPI Soars On M&A News

by James Brown

Click here to email James Brown

Editor's Note:

Shares of NXP Semiconductor (NXPI) soared +17.2% on news it was buying Freescale Semiconductor (FSL). Our call option values erupted higher on the rally.

Our plan today was to exit HBI, LLL, and NOW at the opening bell. Shares of SYNA hit our stop loss.


Current Portfolio:


CALL Play Updates

Cavium, Inc. - CAVM - close: 71.73 change: +3.24

Stop Loss: 64.95
Target(s): To Be Determined
Current Option Gain/Loss: +23.7%
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:
03/02/15: Shares of CAVM took advantage of the market's bullish tone today and sprinted higher. Shares broke through potential resistance near $70 and outperformed the major indices with a +4.7% gain.

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


Criteo SA - CRTO - close: 45.69 change: +0.33

Stop Loss: 42.85
Target(s): To Be Determined
Current Option Gain/Loss: -10.4%
Average Daily Volume = 507 thousand
Entry on March 02 at $45.85
Listed on February 28, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
03/02/15: European stock markets closed relatively flat today. The rally in CRTO was a little bit subdued but shares still gained +0.7%. The stock hit our suggested entry point at $45.85. We would still consider bullish positions at current levels.

Earlier Comments: February 28, 2015:
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.

- Suggested Positions -

Long Apr $45 CALL (CRTO150417C45) entry $3.35

03/02/15 triggered @ $45.85
Option Format: symbol-year-month-day-call-strike


iShares Russell 2000 ETF - IWM - close: 123.47 change: +0.89

Stop Loss: 121.65
Target(s): To Be Determined
Current Option Gain/Loss: -3.6%
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:
03/02/15: The IWM rebounded off short-term support at its 10-dma. The ETF closed at a new all-time high. Sadly our May call is just not appreciating very fast.

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


Lear Corp. - LEA - close: 111.48 change: +2.81

Stop Loss: 107.75
Target(s): To Be Determined
Current Option Gain/Loss: -4.0%
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:
03/02/15: We were starting to worry about LEA's performance. Thankfully shares rebounded in a big way with a +2.58% gain and a new all-time closing high. I'd probably hesitate to launch positions here. Let's see if shares can test $110 and bounce.

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


Mallinckrodt - MNK - close: 118.82 change: +2.10

Stop Loss: 114.85
Target(s): To Be Determined
Current Option Gain/Loss: -17.4%
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:
03/02/15: MNK recovered a good chunk of Friday's losses. However, today's session remained inside Friday's trading range. This suggest investor indecision. I am still suggesting caution. No new positions at this time.

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


NXP Semiconductors - NXPI - close: 99.56 change: +14.67

Stop Loss: 94.85
Target(s): To Be Determined
Current Option Gain/Loss: +349.2%
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:
03/02/15: Traditionally when a merger is announcing the acquiring company's stock goes down and the company being acquired stock goes up. That dynamic has changed the last few months with Wall Street applauding most M&A deals with both stocks rising on the announcement.

Today Wall Street was cheering news that NXPI is buying smaller rival Freescale Semiconductor (FSL) for about $12 billion. Shares of FSL surged +11.7%. Yet shares of NXPI soared +17.2%.

The combined company will be the biggest manufacturer for automotive semiconductor products and the largest general purpose microcontroller manufacturer. NXPI's CEO Rick Clemmer said, "The merger creates a true industry powerhouse."

The stock's rally stalled right below potential round-number resistance at the $100.00 mark. More conservative traders will want to seriously consider an immediate exit right now to lock in potential gains. We are going to keep the play open but we'll move the stop loss to $94.85.

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

03/02/15 new stop @ 94.85, NXPI soars after announcing acquisition of FSL
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: 94.23 change: +0.74

Stop Loss: 92.85
Target(s): To Be Determined
Current Option Gain/Loss: +73.8%
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:
03/02/15: SBUX briefly traded below its 10-dma this morning before rebounding. I don't see any changes from my weekend comments.

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


Zimmer Holdings - ZMH - close: 121.39 change: +1.00

Stop Loss: 117.75
Target(s): To Be Determined
Current Option Gain/Loss: +2.3%
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:
03/02/15: ZMH bounced toward the top of its $120-122 trading range. Traders can choose to buy this bounce or wait for a breakout past $122.00.

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




PUT Play Updates

Michael Kors - KORS - close: 67.95 change: +0.54

Stop Loss: 70.65
Target(s): To Be Determined
Current Option Gain/Loss: -9.5%
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:
03/02/15: The market's widespread rally helped KORS bounce as well. Shares managed a +0.8% gain. I'd watch for a failed rally below $70 as a new entry point for bearish positions.

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



CLOSED BULLISH PLAYS

Hanesbrand Inc. - HBI - close: 128.80 change: +1.26

Stop Loss: 124.45
Target(s): To Be Determined
Current Option Gain/Loss: +276.9%
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:
03/02/15: HBI gapped open higher about 40 cents and shares briefly tagged a new high. HBI spent the rest of the day consolidating sideways. Our plan was to exit positions at the opening bell.

HBI is scheduled to split 4-for-1 on Wednesday, March 4th. We do not want to hold over the split.

- Suggested Positions -

MAR $115 CALL (HBI150320C115) entry $3.21 exit $12.10 (+276.9%)

03/02/15 planned exit, at the open
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:


L-3 Communications - LLL - close: 131.26 change: +1.83

Stop Loss: 126.20
Target(s): To Be Determined
Current Option Gain/Loss: -45.5%
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:
03/02/15: LLL was not looking that healthy with Friday's close below what should have been support at $130.00. We decided to exit this trade in the weekend newsletter. LLL opened at $129.32 today and then completely erased Friday's loss.

Our play is closed but I would keep LLL and other defense-related names on your watch list.

- Suggested Positions -

APR $135 CALL (LLL150417C135) entry $2.20 exit $1.20 (-45.5%)

03/02/15 planned exit
02/27/15 prepare to exit on Monday morning
02/20/15 triggered @ 131.50
Option Format: symbol-year-month-day-call-strike

chart:


ServiceNow, Inc. - NOW - close: 76.44 change: +0.18

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:
03/02/15: There is still no explanation for Friday's selloff in NOW. The weakness continued this morning. Most of the market spiked higher at the open. NOW spiked lower and dipped toward round-number support at $75.00 before rebounding.

After Friday's unexpected drop we decided to exit this trade at the opening bell today.

- Suggested Positions -

MAY $80 CALL (NOW150515C80) entry $3.93 exit $3.10 (-21.1%)

03/02/15 planned exit
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:


Synaptics Inc. - SYNA - close: 81.84 change: -4.11

Stop Loss: 81.85
Target(s): To Be Determined
Current Option Gain/Loss: +2.5%
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:
03/02/15: Ouch! It was a rough day for SYNA bulls. The stock collapsed with a -4.78% plunge that erased all of last week's gains. Our stop loss was hit at $81.85.

Evidently the sell-off was sparked by new product announcements from rivals. A Sterne Agee analyst believes that Qualcomm's (QCOM) announcement of a competing product in the fingerprint biometric technology space sparked the profit taking in SYNA.

The combination of SYNA being at resistance and the competition news drove the profit taking.

- Suggested Positions -

JUN $85 CALL (SYNA150619C85) entry $5.95 exit $6.10 (+2.5%)

03/02/15 stopped out
02/26/15 new stop @ 81.85
02/18/15 triggered @ $80.25
Option Format: symbol-year-month-day-call-strike

chart: