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Daily Newsletter, Wednesday, 3/4/2015

Table of Contents

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

Market Wrap

Seesaw Market Continues

by Keene Little

Click here to email Keene Little
Up and down, down and up -- the past 12 trading days has left the market where it was in mid-February and the choppy price could continue for at least another day (to get through Friday's NFP report). But the market looks like it's setting up for a big move.

Wednesday's Market Stats

Traders have been whipped around for the past two trading weeks and it hasn't stopped this week. SPX finished today a point off where it was on February 13th and the question here is whether the price consolidation is a bullish continuation pattern or is instead a topping pattern. As always, an argument can be made for either case as to what the market will do in the coming week. The bigger question is what kind of pullback/decline will follow the current rally (even if the rally will extend another week or so).

The market has been reacting to what the Fed thinks, or at least to what the market thinks the Fed thinks. And then of course what the market thought the Fed said vs. what they think can lead to confusion about what was actually said vs. what was inferred and that can then lead to all kinds of erroneous conclusions about what the Fed is going to do next, which then gets traders looking for a train from one direction while they get slammed from the one they didn't see coming from the other direction. Confused? Welcome to the club.

The list of economic misses is significant, with each one showing a continuing sign of economic slowing. Yet when you look at the stock market you would think the economy is humming along nicely. After all that's what the Fed believes so it must be true. Of course you know the real way to tell if the Fed or politicians are lying to us -- it's when their lips are moving. To say the stock market is totally and completely disconnected from the economy and reality is a gross understatement. The only takeaway from this situation is to recognize that the disconnect cannot and will not stay that way and when they start to reconnect it will be either the economy improving (not happening) or the stock market will decline. And the reconnect usually happens very quickly once the mood of the market changes. What that trigger will be is anyone's guess and the bears know better than anyone that it's taking a really long time.

As for the latest economic reports, the ADP Employment Change for February was a little less than expected, coming in a 212K vs. 220K and a drop from the upwardly revised 250K (from 213K) for January. There's wasn't enough of a change to suggest how Friday's NFP report will look, which is expected to show a gain of 240K following January's 257K.

The ISM Non-Manufacturing (Services) number for February ticked up to 56.9 from 56.7 in January, which is the 61st straight month of growth (above 50). There tends to be very little volatility in this index and therefore very few surprises. Hence the market tends to ignore it.

The Fed's Beige Book was released this afternoon and the statements about the economy were general positive. What's interesting is that the Fed stated the economy was growing at a moderate pace with steady manufacturing and employment gains. I guess they have different metrics than most of the rest of us follow. But regardless, as mentioned above, the market has been ignoring all the signs of slowing in the economy, as can be seen on the list of reports below and which ones were below expectations (most) and which ones exceeded expectations (a few).

February U.S. Economic Results, table courtesy Bloomberg via zerohedge.com

Monday was a positive day for the market, which many have come to expect since it was the first trading day of the month. But interestingly, that pattern is actually not holding any more. Betting on the long side just because it's the first day of the month hasn't worked in a while. Rob Hanna, from QuantifiableEdges.com, showed two interesting charts to highlight the change in behavior of the 1st trading day of the month. It has been generally accepted that the reason for first-day bullishness is because of new investment money (paycheck distributions, retirement accounts, etc.) being put to work. A trading technique had been developed around it where you buy the close of the last trading day of the month and you sell at the close of the first trading of the new month. This was a very winning strategy, as can be seen on Hanna's chart below.

SPX results for 1st trading day of month, 2000-2010, chart courtesy QuantifiableEdges.com

First thing to point out here is that the period covered above is 2000-2010 and the blue line shows a net gain of 419.81 points trading just the first day of the month. But if you were out of the market on the 1st trading day and in on all the other trading days (red line) you would have suffered a loss of 631.42 points. That's a 1050-point spread between the two! It's no wonder this idea of bullish first days became so well known. And this was during a period where the market experienced some significant declines

But look what has happened in the period 2011 through February 2015, shown on the chart below. The blue line at the bottom shows a loss of 18.66 points over the past 4 years if you had traded this same strategy. And this was during the time of a raging bull market -- being invested all the other days except the first trading day of the month netted you 871.76 points, a spread of about 900 points against the idea of a bullish first trading day. It's a perfect example of once something is known about the market it stops working, and it's also why many historical patterns, such as those in Trader's Almanac, are not necessarily reliable.

SPX results for 1st trading day of month, 2010-February 2015, chart courtesy QuantifiableEdges.com

Now the big question is what this might mean during the next bear market. If the 1st day of the month has struggled during one of the strongest bull markets we've seen, what will it do during a bear market? There is of course no way to know but at least the takeaway here is that you should not enter the new month feeling bullish based a pattern that is clearly no longer working (even if it did work this past Monday).

I'll start tonight's chart review with a weekly chart of THE market, the Wilshire 5000 index, which has been warning bulls that to expect much more of a rally might not be the best bet. There's always the possibility for more rally (this market has proven that over and over again) but when up against a trend line while overbought and overloved (high bullish sentiment) it's generally best to take at least a cautionary approach to the long side. Bears have been required to be extremely cautious but the W5000 is telling us the bears might have the better trade here.

Following a series of 1st and 2nd waves in the rally off the October 2011 low the wave count has been "unwinding" with a series of 4th and 5th waves since the July 2014 high. The trend line along the highs since last July is where the rally stopped last week. One of the things to look for with 5th waves is negative divergence and that's what we see with the higher price highs but lower MACD and RSI highs. This helps confirm the wave count and the rally from February 2nd should be the final 5th wave to complete the rally from October 2011 (which in turn completes a large A-B-C correction off the March 2009 low). The final 5th wave would be 62% of the first 1st wave at 22383, which is shown on the chart. The February 25th high missed that projection by 14 points with a high at 22369. There's still more upside potential to the trend line along the highs since April 2012, near 23700, so a break above last week's high should be taken seriously by the bears.

Wilshire 5000 index, W5000, Weekly chart

The daily chart of the W5000 shows the rollover from the trend line along the highs since last July. It bounced off its 20-dma this morning, near 22061 today, which shows traders are still buying dips to support. Only time will tell us whether or not buying the dips is still the right way to go or if instead we've had a trend change and selling the bounces is the way to go. To keep it relatively simple here, I think it would be bullish above last week's high at 22369 and bearish below 22000.

Wilshire 5000 index, W5000, Daily chart

Key Levels for W5000:
- bullish above 22370
- bearish below 22000

One chart I've shown before is the W5000 compared to new 52-week highs and the number of advancing stocks minus declining stocks. The middle chart shows the decline in the number of new 52-week highs since the peak in October 2014. The 10-dma of the advance-decline smoothes out the daily wild swings and shows a coinciding decline with the number of new 52-week highs. The rally since last October has been on the backs of fewer and fewer stocks and this is another sign of the endgame. Bull markets see this kind of deterioration at the end, not at the beginning of the next major bull leg, which many pundits are calling for. This could turn around but at the moment it's another warning sign.

W5000 vs. New 52-week Highs and Advancing-Declining Issues, daily chart

The daily chart for SPX looks very similar to W5000 and the two track each other very closely, which adds confidence to using SPX as a good proxy for the stock market. Its trend line along the highs from July-December 2014, like that for the W5000, has not been reached yet and I've been keeping it on my radar as far as upside potential. That trend line, which is very close to the longer-term trend line along the highs since April 2010, is currently near 2134. SPX also bounced off its 20-dma today and many traders will use that MA to help define the intermediate-term trend. It will be near price-level support at 2093 (its December 29th high) and therefore the bulls would be in more trouble with a close below that level (for more than a day). It stays bullish above 2093.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- stay bullish above 2093
- bearish below 2064

The short-term pattern since last week's high is not clear enough yet to help determine the next move from here. Based on a 5-wave move up from February 2nd, labeled in red, I could make the argument that the rolling top appearance over the past two weeks, the bearish divergence and the break below price-level support at 2102 all support the idea that an important top is already in place. But I could also argue the idea that today's low was the completion of the 4th wave in the rally from February 2nd and we still need a 5th wave, which is shown in green. A price projection shown at 2144 is where the 5th wave would equal 62% of the 1st wave (which would be expected since the green 3rd wave is shorter than the 1st wave. A rally up to that level would also coincide with a test of its trend line along the highs from last July-December. Better confirmation for the bears would be a drop below the 1st wave high (February 6) near 2072.

S&P 500, SPX, 60-min chart

Like SPX, the DOW has more upside potential if it's to make it up to its trend line along the highs from December 2013 - December 2014, near 18390 by the end of the week. Above 18100 the DOW stays bullish but below 18K would turn it more bearish since it would be a break of trend line, price-level and 20-dma support.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- stay bullish above 18,100
- bearish below 18,000

The DOW's 30-min chart below is being used to show how the market could be at an important juncture right here. From a bullish perspective, the pullback from Monday is an a-b-c correction and it will be followed by another rally. But this rally needs to get started immediately Thursday morning or else it could turn uglier for bulls. The bearish wave count for the move down from Monday is a 1-2, 1-2 setup and that calls for a 3rd of a 3rd wave down, something that would likely drop the DOW to the 17800 area on Thursday and then stair-step lower from there into Friday (to then set up a bounce correction next week). This bearish 1-2, 1-2 potential exists for all of the major indexes. Note the close below its December 26th high at 18103 -- it's only by 6 points but it should make bulls a little nervous here. If the market immediately drops Thursday morning we could see some strong selling kick in, otherwise the bears need to give the bullish potential some respect, especially if the bounce continues immediately out of the gate and makes it back above Tuesday afternoon's high, which would leave a confirmed a-b-c pullback (so bullish above 18215).

Dow Industrials, INDU, 30-min chart

As with the other indexes, the NDX shows some more upside potential if it's going to make it up to its trend line along the highs from March-November 2014, near 4590 by the end of the week. As I've shown on its daily chart below, there's a price projection based on the width of its previous descending triangle (December-January) at 4520. But the bulls better get back to buying soon otherwise a rollover from here could leave a completed 5th wave at Monday's high near 4484.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- stay bullish above 4420
- bearish below 4270

Like the W5000, the RUT has rolled over after a minor poke above its trend line along the highs from last September-December. The daily oscillators have turned down and it's looking a little more bearish than bullish here. But the bottom of a small parallel up-channel for the part of the rally following the first leg up from February 2nd is aligned with the 20-dma, near 1222 today. It would therefore be more bearish below that level but it stays bullish above it. There's upside potential to its broken uptrend line form March 2009 - October 2011, near 1270 next week, or maybe only up to the top of its little parallel up-channel, near 1254 by Friday. But for the bullish potential to hold we're going to have to see some stronger buying kick in and soon.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- stay bullish above 1222
- bearish below 1214

I've been keeping an eye on HYG, the High Yield (Junk) bond fund, to watch for clues when it's signaling possible danger for the bulls. This fund is of course a very good risk-on/risk-off indicator and right now it's telling me traders are about to take risk off. The 3-wave bounce off the December 16th low created a rising wedge for the c-wave and price poked above the top of the wedge last week but then failed to hold. It's a classic finish to these rising wedge patterns and the drop below the wedge on Monday, with a further selloff yesterday and today, tells me the A-B-C bounce off the December low has completed. It should now head back down and drop below the December low and I strongly suspect the stock market won't be far behind. This is a good canary index for the stock market and while it doesn't prevent the stock market from still making a new high, it does mean it should not be trusted if HYG is not participating.

High Yield Bond ETF, HYG, Daily chart

Last week the TRAN almost made it above its downtrend line from November 28th, poking slightly above it but then dropping back down. It's holding support at its 50-dma, tested today at 8970, and a shorter-term downtrend line from December 31st, near today's low at 8963. That trend line will be near 8940 by the end of the week and as long as the TRAN can stay above that line it stays potentially bullish for another run higher with the broader market (if the broader market is able to do the same). Bullish above last week's high at 9215 and bearish below 8940.

Transportation Index, TRAN, Daily chart

Last Thursday the U.S. dollar finally busted out of its sideways triangle and it's now looking very good for the final leg (5th wave) to complete the rally from May 2014. Once it completes we should see a multi-month pullback/consolidation before heading higher (bullish case). There is the potential that this rally will complete a larger corrective pattern off its 2008 low and start another bearish decline that will take the dollar below the 2008 low at 71.05. At the moment that's not my preferred wave count but at a minimum we should expect some kind of correction of the rally from last May. The 97.28-97.35 target zone continues to look good for the dollar, with the possibility that it will stretch higher to the 99.20 projection for the 5th wave. Dollar bulls (and any trades around the dollar) should now be moving into a defensive position and a good stop level would be the apex of the sideways triangle (near 94.50) or more conservatively wait for a break below its up-channel, the bottom of which is currently near 92.45.

U.S. Dollar contract, DX, Daily chart

Gold has been struggling to get another bounce started and it might not be able to do it, in which case we should see a drop below its November low at 1130 and on down toward the 1000 level. But there's still the potential for a higher a-b-c bounce off the November low and if it can start the next leg up from here we have an upside projection at 1307 for two equal legs up from November. The first sign of trouble for gold bulls would be another drop below price-level support near 1180.

Gold continuous contract, GC, Weekly chart

Oil was a little volatile today after dropping this morning (following a report of a huge inventory build) but after slightly breaking its 50-dma at 50.04 it took off to the upside. A sharp rally up to 52 keeps alive the potential for another leg up to create a larger 3-wave bounce off its January low. Two equal legs up points to 58.47, which is right at price-level S/R. If reached, which could take another week or two if the choppy price action continues, I think it would be a good setup for a reversal back down since I continue to believe oil will be consolidating for months before heading lower.

Oil continuous contract, CL, Daily chart

Tomorrow's economic reports will not likely be market moving. The Factory Orders at 10:00 AM could have an impact, especially if it shows more slowing than the -0.1% that's expected but this market has been ignoring deteriorating economics for a long time. This will eventually catch up with the market but not until the fallacy of depending on the Fed is exposed. I mean really, what can the Fed do at this point? They're trapped and soon the market will fully realize it. Friday's NFP report will be the big report for the week, which is expected to show some more slowing but that's OK, it will keep the Fed's finger off the raise-rates button.

Economic reports and Summary

Friday, March 6, is the 6-year anniversary of the current bull market, a streak that is thanks mostly to central bank policies and the massive distortions in asset prices that their interference has created. Many are calling for another year, at least, for the bull market but even if we do get that I seriously doubt it will continue to rally much, if any, from here. At a minimum I think we should be looking for a multi-month pullback and March has been an important turn month in the past. Just since the March 2000 high we've had a March 2001 low, March 2002 high, March 2003 low, March 2004 high, March 2005 high, skip 2006, March 2007 pullback low, March 2008 low, March 2009 low, skip 2010, March 2011 pullback low, March 2012 high, skip 2013 and 2014, and now we're sitting at a high in March 2015. It can always go higher but with the kind of reputation March has for reversing trends I'm not so sure I'd want to fight it.

When you consider how weak this rally has become over the past several months and how bullish the sentiment is and the fact that margin debt is at record highs, I think the market is ripe for more than just a pullback. The EW count also provides a reason to believe we're going to get more than just a pullback. It's a matter of identifying the top, whether here or a little higher, but in any case I think upside potential is dwarfed by downside risk and I think your trade/investment positions would do well to heed the warning that the market's technical indicators are showing us right now. Even the canary index, the HYG, is telling bulls to pull their stops up tight now since the downside could get a little rough.

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

Keene H. Little, CMT

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


New Option Plays

Consistent Sales Growth

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Akamai Technologies - AKAM - close: 71.05 change: +1.19

Stop Loss: 68.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.5 million
Entry on March -- at $---.--
Listed on March 04, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
February was the U.S. market's best monthly performance in years. One stock outpacing the broader market was AKAM. Shares rallied +18% in February and that's after the minor pullback from its late February highs.

The company is part of the technology sector. They provide cloud services for delivering content across the Internet. Customers include 47% of the Global 500 companies.

AKAM describes itself as "the global leader in Content Delivery Network (CDN) services, Akamai makes the Internet fast, reliable and secure for its customers. The company's advanced web performance, mobile performance, cloud security and media delivery solutions are revolutionizing how businesses optimize consumer, enterprise and entertainment experiences for any device, anywhere."

Last year was a strong one for earnings and revenue growth. AKAM beat Wall Street estimates on both the top and bottom line the past four quarters in a row. They raised guidance twice. AKAM's average revenue growth last year was +24.5%. Their most recent report was on February 10th where AKAM delivered a profit and revenue number above expectations. Several analyst firms raised their price target on AKAM following its Q4 results.

Management hosted an investor day in late February. They expect sales growth to be in the high teens for 2015. They forecasting sales to hit $5 billion by 2020 compared to about $2 billion in 2014. AKAM reported that their cyber security business is surging with +191% growth last year.

This week AKAM disclosed in their 10-K filing that they were conducting an internal probe into their sales practices in a foreign country. They didn't say which country. This is a potential risk if the U.S. government decides to do their own investigation but the stock didn't really react that much to the news.

It is worth noting that there has been some speculation that AKAM is a buyout target. One analyst suggested that Amazon.com (AMZN) could be a suitor.

After big gains in February shares of AKAM have been consolidating sideways in the $69-72 zone. The point and figure chart is bullish and forecasting a long-term target at $100. We want to buy a breakout. I'm suggesting a trigger at $72.25.

Trigger @ $72.25

- Suggested Positions -

Buy the Apr $75 CALL (AKAM150417C75) current ask $0.87

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Stocks See Overdue Pullback

by James Brown

Click here to email James Brown

Editor's Note:

After surging to new highs stocks were due for a little profit taking. The market produced widespread losses for the second day in a row. Disappointing data from the ADP report offset a generally positive tone in the Fed's Beige Book today.

AET hit our entry trigger today.

Our plan was to exit ZMH this morning. IWM and SBUX hit our stop loss.


Current Portfolio:


CALL Play Updates

Aetna Inc. - AET - close: 101.75 change: +1.96

Stop Loss: 98.85
Target(s): To Be Determined
Current Option Gain/Loss: +8.1%
Average Daily Volume = 2.2 million
Entry on March 04 at $101.15
Listed on March 02, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
03/04/15: Initial weakness in the healthcare names faded. There may have been some concern regarding headlines that the U.S. Supreme Court heard arguments today regarding a case that could kill Obamacare. Those concerns evidently faded. The court is not expected to render a decision until June.

Shares of AET surged to a new closing high. In doing so the stock hit our suggested entry point at $101.15.

Trade Description: March 2, 2015:
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.

- Suggested Positions -

Long Apr $105 CALL (AET150417C105) entry $1.36

03/04/15 triggered @ 101.15
Option Format: symbol-year-month-day-call-strike


Alaska Air Group - ALK - close: 65.77 change: -0.39

Stop Loss: 62.95
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.5 million
Entry on March -- at $---.--
Listed on March 03, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Comments:
03/04/15: ALK reported its February data. Traffic was up +7.9% with capacity up +9.4% in February versus a year ago. Revenue passengers jumped +9.6%. The stock didn't react much to the news and continues to consolidate sideways just below short-term resistance at $66.00. Our suggested entry point to buy calls is $66.35.

Trade Description: March 3, 2015:
The collapse in the price of crude oil has been a huge windfall for the airline industry. As a result airline stocks have soared from the market's October 2014 lows. That's because air fares remain near 11-year highs while fuel prices have dropped to five-year lows, boosting profit margins. Today analysts are expecting jet fuel to average less than $2.00 a gallon in Q1 2015. According to the U.S. Transportation Department jet fuel dipped this low back in December and before that it hasn't been this low since 2009.

ALK is a regional airline. The company is more than 80 years old and currently has a fleet of more than 180 planes. According to the company, "Alaska Airlines, a subsidiary of Alaska Air Group (ALK), together with its partner regional airlines, serves more than 100 cities through an expansive network in Alaska, the Lower 48, Hawaii, Canada and Mexico. Alaska Airlines ranked 'Highest in Customer Satisfaction Among Traditional Carriers' in the J.D. Power North American Airline Satisfaction Study for seven consecutive years from 2008 to 2014. Alaska Airlines' Mileage Plan also ranked highest in the J.D. Power 2014 Airline Loyalty/Rewards Program Satisfaction Report."

ALK has shown consistent earnings growth and beat Wall Street's EPS estimate the last four quarters in a row. Their most recent earnings report was January 22nd. ALK reported Q4 earnings of $0.94 a share. That's a +70% increase from a year ago thanks to a -32% drop in fuel prices. Management has also cut non-fuel expenses. Meanwhile ALK's traffic, measured in revenue passenger miles, was up +9.5%. ALK's full-year 2014 results saw passenger revenues rise +7%. They reported a record income of $571 million (+49%). They also saw a record full-year adjusted pretax margin of 17.2% versus 12.4% in 2013.

The company has decided to return a lot of that money back to shareholders and boosted their quarterly cash dividend by +60% to $0.20 a share. After such positive results several analysts raised their price target on ALK's stock (into the $71-85 range).

Crude oil prices remain a hot topic on Wall Street. Oil will likely see another drop to new lows thanks to vanishing storage in the U.S. Currently oil inventories are at 80-year highs. There is a growing chance that we could actually run out of storage. You know what happens where there is too much supply - prices normally fall.

Airline stocks got ahead of themselves back in January and most of the group experienced a pullback last month. It looks like the correction is over. Traders are back to buying the dips in ALK. Technically shares have found support at the rising 50-dma. The breakout past $65.00 this week looks bullish. A move above $67.00 would generate a new P&F buy signal. Tonight we are suggesting a trigger to buy ALK calls at $66.35.

Trigger @ $66.35

- Suggested Positions -

Buy the APR $70 CALL (ALK150417C70)

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


Cavium, Inc. - CAVM - close: 70.83 change: -0.04

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:
03/04/15: Wednesday turned out to be a quiet session for CAVM. The stock spent it consolidating sideways just above the $70.00 mark. I don't see any changes from my recent comments. More conservative traders may want to start raising their stop loss.

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: 43.70 change: -0.89

Stop Loss: 42.85
Target(s): To Be Determined
Current Option Gain/Loss: -43.3%
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:
03/04/15: A bullish day for European markets did not help shares of CRTO. The profit taking continued and shares underperformed with a -2% decline. This is the first close below its 10-dma in several days. Odds are growing that we could see CRTO hit our stop loss at $42.85 soon. I am not suggesting new positions at this time.

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


Lear Corp. - LEA - close: 109.30 change: -1.47

Stop Loss: 107.75
Target(s): To Be Determined
Current Option Gain/Loss: -24.0%
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:
03/04/15: LEA followed the market lower today. Actually shares underperformed with a -1.3% decline. For the moment LEA still has a bullish trend of higher lows but the stock is in jeopardy of breaking it. I am not suggesting new positions at this time.

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


NXP Semiconductors - NXPI - close: 99.47 change: +0.74

Stop Loss: 96.25
Target(s): To Be Determined
Current Option Gain/Loss: +340.7%
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:
03/04/15: The first 20 minutes of trading saw some profit taking in NXPI. It didn't take long and traders were buying the dip. The stock managed to outperform the major indices with a +0.74% gain. NXPI is poised to break through the $100 mark. We are raising the stop loss up to $96.25.

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

03/04/15 new stop @ 96.25
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




PUT Play Updates

Michael Kors - KORS - close: 67.14 change: -1.20

Stop Loss: 70.65
Target(s): To Be Determined
Current Option Gain/Loss: +0.0%
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:
03/04/15: The initial spike higher in KORS failed just below the $69.00 mark. The stock reversed and underperformed the market with a -1.75% decline. This looks like a new bearish entry point to buy puts.

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

iShares Russell 2000 ETF - IWM - close: 122.36 change: -0.38

Stop Loss: 121.65
Target(s): To Be Determined
Current Option Gain/Loss: -26.0%
Average Daily Volume = 41 million
Entry on February 13 at $121.55
Listed on February 12, 2015
Time Frame: 10 to 12 weeks
New Positions: see below

Comments:
03/04/15: The U.S. market declined for the second day in a row. The IWM hit our recently adjusted stop loss at $121.65. If this market dip continues the nearest support is probably the $118-120 area.

- Suggested Positions -

MAY $125 CALL (IWM150515C125) entry $2.50 exit $1.85 (-26.0%)

03/04/15 stopped out
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:


Starbucks Corp. - SBUX - close: 93.06 change: -0.94

Stop Loss: 92.85
Target(s): To Be Determined
Current Option Gain/Loss: +21.4%
Average Daily Volume = 5.1 million
Entry on February 10 at $90.25
Listed on February 05, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
03/04/15: Shares of SBUX were long overdue for some profit taking. Traders seemed to be in a rush to take profits with a plunge in the first 15 minutes of the session. Shares dipped to $92.00 before paring its loss to -1%. Our stop loss was hit at $92.85.

- Suggested Positions -

Apr $95 CALL (SBUX150417C95) entry $1.03 exit $1.25 (+21.4%)

03/04/15 stopped out
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:


Zimmer Holdings - ZMH - close: 118.76 change: -0.29

Stop Loss: 117.75
Target(s): To Be Determined
Current Option Gain/Loss: -13.6%
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:
03/04/15: After yesterday's breakdown below support we decided to close this play at the opening bell today. The stock opened lower at $119.15. Shares dipped to their 40-dma before paring their losses.

- Suggested Positions -

JUN $125 CALL (ZMH150619C125) entry $4.40 exit $3.80 (-13.6%)

03/04/15 planned exit
03/03/15 prepare to exit tomorrow morning
02/20/15 triggered @ 120.75
Option Format: symbol-year-month-day-call-strike

chart: