Option Investor
Newsletter

Daily Newsletter, Monday, 3/9/2015

Table of Contents

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

Market Wrap

Monday Rebound

by Thomas Hughes

Click here to email Thomas Hughes
The market rebound from Friday's sell-off.

Introduction

The market rebound from Friday's sell-off but I'm not convinced the correction is over. The strong NFP report has helped to cushion the fall but I think that we have not yet seen the end of it. Earnings season is just about over so there are few catalysts until the next round of monthly data, earnings outlook is negative and we have an FOMC meeting on the horizon. All reasons for the market to pause.

Market Statistics

The first day of daylight saving time began in the red. International markets were quiet and largely influenced by Friday's sell-off. Asian indices closed mostly lower while those in Europe were able to shake off early blah's and rise to break even by the close of their trading day. Our market were indicated higher from the start. Futures were indicating the market would open a few points above Friday's close and it did. There was no economic data today and very little news with a real effect on market direction.

A few company specific news events moved individual stocks with the most attention paid to Apple. The long awaited, eagerly anticipated and heavily speculated Apple “Spring Forward” event was this afternoon and came to pass with the usual amount of hoopla. After the opening bell the market moved higher throughout the day but was not able to regain the losses suffered on Friday.

Economic Calendar

The Economy

This week Moody's Survey Of Business Confidence declined by nearly 2 points to 38.2. This is the fifth week of decline and matches the lowest levels of the year. Despite the decline the index remains near the all-time high, set 5 weeks ago, and indicates positive forward outlook among global businesses. In his summary Mark Zandi remains upbeat but the exuberance in his earlier reports is lacking. He says;

“Business sentiment remains upbeat, although it weakened a bit in early March. Confidence is especially strong in the U.S. It is weakest in South America. U.S. businesses are feeling good about sales, hiring and investment. Pricing is holding up well despite heightened deflation concerns in much of the developed world. The survey results are consistent with an economy that is expanding well above its potential.”


According to data from FactSet, 496 S&P 500 companies have reported earnings so far this season. Of those, 75% have beaten the mean estimate for earnings and 58% have beaten on sales. The blended growth rate stands at 3.7%, up 2% from expectations at the start of the quarter. This is in line with recent trends but not strong or exciting. Within the index seven of the ten sectors have beaten expectations while three have not, led by earnings declines in the energy sector. So far 82 companies have issued negative guidance for the current quarter, again led by energy. Four of the seven sub-sectors showed declines but surprisingly, two have reported double digit earnings growth. These are equipment services and refining & marketing.

Looking at the ten year chart of S&P 500 compared to forward P/E it is obvious that valuation has far exceeded expected earnings for this index. The question is whether or not valuation is leading expected earnings or the other way around. In the near term P/E may lead the index lower until earnings expectations begin to rise. I still think that earnings ex-energy are going to be more important to watch over the next quarter than overall earnings due to the expected weakness in energy. Stripping out the energy sector for the current reporting period would elevate the blended rate to 6.8%. Considering the expected boost to the consumer and the economy due to low gasoline, and economic tail winds, it is possible for earnings growth in the S&P 500 ex-energy.


There isn't very much data due out this week. Tomorrow is JOLTs, look for high levels of job openings and strong levels on the quits rate. Later in the week look out for wholesale and business inventories for January, February retail sales, PPI and Michigan Sentiment. As a heads up the next FOMC is meeting is next week and will likely overshadow any other single piece of data until then.

The Oil Index

West Texas Intermediate persists in trading around $50. Today's action began with prices slightly below $50 and then later lifted to just over $50 on news from Cushing. The latest report shows storage levels had risen less than expected. Prices remain volatile but less so each day as prices appear to be stabilizing around $50, supply and demand balance remains cloudy. Supply levels are still rising although OPEC says there will be a shortfall soon, the US rig count is falling and fighting in the Middle East is threatening production in Libya, Iraq and other locations.

The Oil Index traded to the upside although momentum remains bearish. The index gained about a half percent in today's session, rising from the low set Friday, but still well below resistance. The indicators are bearish and in line with the move downward with targets near my support lines. Target for support is the long term trend line, near 1,250. The indicators, while bearish in the near term and pointing to a test of support, are also consistent with the longer term uptrend and a possible continuation of that trend. Because of this I will be looking for a bounce at that level. Resistance is now at 1,350 and the short term moving average. Oil prices will of course keep this index moving in day-to-day action.


The Gold Index

Gold fell hard on Friday. The NFP data, which was stronger even than I thought it would be, has spooked the market into thinking the FOMC will raise interest rates sooner than expected. What I find interesting is that the rising chances of FOMC interest rate hikes was at least part of why gold prices rallied in January so why are these same speculations causing prices to fall now? It may be due to rising dollar values but the dollar has been rising for months.

The gold miners continued the sell off begun Friday, the sector ETF GDX losing 3.5% and falling below my rising support line. The ETF is moving lower in tandem with gold prices and will likely test support near the long term low in the least. The indicators are bearish and gaining strength in the near term, convergent with the current move and pointing to lower prices. Next target is near $16.50 provided there is no rebound in gold prices.


In The News, Story Stocks and Earnings

Apple of course was the biggest name in stock news today. The worlds largest company revealed a full line up of new gadgets, including the watch. Along with it the company also announced a new iTV with lower price as well as an exclusive deal with HBO. Now HBO shows will be available over the iTV where before they were only available through cable or satellite. They also launched a new, slimmer Macbook and gave an update on the Pay service. Now there are over 2,500 banks on board with the program, and over 700K merchants. The watch looks cool and for $349 is likely to sell out pretty quick. Shares of Apple traded higher up and into the event, which started around 1PM, until the watch was unveiled. At that time shares fell, but remained above break even for the day. Apple is trading below $130 which may become resistance.


GM announced a $5 billion share buy back today, a move that helped to send the stock up by over 3%. The announcement was met with mixed approval as some see it as a negative. Moody's Investor Service said the buy back was a credit negative although they held their rating steady. The statement given mentions that it would “delay any potential consideration for an upgrade”, which sounds to me like GM was in the running for an upgrade. Shares are now trading just below $38 and the 12 month high with weak indicators. A drop from here would find some support along $37 and just below near the short term moving average. A break above $38 would be bullish and could take it as high as $40 before hitting the next significant resistance.


McDonald's announced further declines in comp store sales. My New Year resolution to stop eating french fries is having its affect. Global comps fell -1.7%, more than double the expected -0.8%. Losses were led by the Asia/Pacific region but there was weakness in other major regions as well. US comp sales declined with a 4 handle, due in part to increased competition in the burger space. Europe posted a surprising gain of +0.7% which, along with emerging markets, helped to keep global sales from being much worse. Shares of McDonald's rallied on the news, I presume because investors expect quicker action from management now that sales declines are worsening, and gained nearly 1%.


Urban Outfitters reported earnings after the bell. The hip teen retailer was expected to earn in the range of $0.57 per share and beat estimates, due largely to share repurchasing over the last quarter. Revenue declined significantly but an increase in earnings per share was reported due to a decline in the number of shares outstaning. The stock traded in a tight range just under resistance all day but surged in the after hours market by 2.5%.


The Indices

The indices traded positive all day but were not able to hold the highs. Today's action was more of an upward drift than anything else and resulted in small bodied candles on most of the charts. Today's action was led by the Dow Jones Industrial Average. The blue chips gained 0.71% at the close, after trading as high as 0.91% during the day, but did not close above 18,000. The index moved above 18,000 at one point but was not able hold the level. The index is just above the short term moving average but below resistance so needs to quickly regain 18,000 or risk deeper correction. The indicators are bearish but not yet showing strength so the moving average could hold; MACD is only just peaking on the bear side, very weak, and stochastic is just now falling out of the upper signal zone. If the index continues to fall my target is near 17,250, about 4.5% lower.


The S&P 500 is next up with a gain of 0.39%. The broad market is in a slightly different position than the blue chips, it is above support and below the moving average. In this case the moving average could pressure the index another 30 points lower, which the index has done every time it has crossed under the EMA for the last 12 months at least. The indicators are bearish and gaining strength, although still rather weak, and suggest further downside is possible. This could lead to a testing of support in the 2,050 to 2,060 region, coincident with the top of the January trading range. If support does not hold the index could move down as far as 1,990, about 4% below the current level.


The NASDAQ Composite still looks like an index that is trending higher, much different than the first two. This index gained 0.31% today, trading above the short term moving average and just off of a 15 year high. The problem is that the 15 year high is a significant are of resistance be it round-number resistance or any other kind you can think of and could be expected to produce some form of pull-back or correction, even if the trend is up. The indicators are bearish and in line with this peak suggesting a move down to the moving average is at hand. If the EMA doesn't hold there are other areas of potentially strong support at 4,800 and 4,700, about 250 points or 5% below the current level.


The Dow Jones Transportation Average brings up the rear today with a gain of 0.23%. The transports made the smallest move but look most determined to move lower. The index is trapped within a trading range dating back to the first of November and does not look like it is going to break out of it this week. The index is moving lower, near the middle of the range, below the moving average, with bearish indicators and no real expectation of bullish catalysts this week. The indicators are weak and consistent with a range having support just below 8,750 and resistance above 9,250.


The indices look like they are set up for a correction, or at least a pull back, of around 5%. There isn't really a reason for it that I can think of, other than natural market cycles and the disparity between valuation and forward P/E. This disparity could result in values coming down, or forward expectations coming up but I think it more likely that valuation will fall before expectations are raised. How deep of a correction, if one does come, is yet to be determined.

What I want to suggest is that what might actually be happening is a sector rotation. Aggregate earnings expectations are shifting due to low oil prices and are could be causing a shift in portfolio positions around the world. The good news is that we are largely expected to return to growth by the third quarter at the latest, which may help the indices to hold their long term trend lines and support levels rather than began a protracted sell-off.

Even now 7 of the 10 S&P 500 sectors still growing and with the added benefit of low oil prices and economic tailwinds could begin to grow faster than expected. It is quite possible that investors are merely shifting out of the weaker stocks as revealed by this seasons earnings reports, and into the stronger companies that have shown the benefit of low gas prices and are expected to grow. The way that analysts change their minds I would not be surprised to see expectations begin to rise in the next couple of months.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Sales Are Slowing Down

by James Brown

Click here to email James Brown


NEW DIRECTIONAL PUT PLAYS

Deckers Outdoor - DECK - close: 72.08 change: -1.14

Stop Loss: 75.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 922 thousand
Entry on March -- at $---.--
Listed on March 09, 2015
Time Frame: Exit prior to April option expiration
New Positions: Yes, see below

Company Description

Why We Like It:
Consumers can be a fickle lot. When one brand falls out of favor the drop off in sales can be earth shaking for the manufacturer. One company that appears to be seeing some trouble is DECK.

According to the company's marketing material, "Deckers Brands is a global leader in designing, marketing and distributing innovative footwear, apparel and accessories developed for both everyday casual lifestyle use and high performance activities. The company's portfolio of brands includes UGG®, I HEART UGG®, Teva®, Sanuk®, Ahnu® and HOKA ONE ONE®. Deckers Brands products are sold in more than 50 countries and territories through select department and specialty stores, 138 Company-owned and operated retail stores, and select online stores, including Company-owned websites. Deckers Brands has a 40-year history of building niche footwear brands into lifestyle market leaders attracting millions of loyal consumers globally."

DECK started seeing trouble last year. Back in July they reported earnings that beat expectations but management lowered guidance. They did it again in October with DECK delivering results above estimates but lowering guidance. Their most recent report was January 29th where DECK delivered their December quarter. Earnings were up +11% from a year ago to $4.50 a share. That actually missed Wall Street's estimate. Revenues rose +6.6% to $784.7 million. This too missed analysts' expectations of $812.5 million.

If that wasn't bad enough the company lowered their Q4 and 2015 guidance. They downgraded their 2015 revenue growth from +15% down to +13.5% largely due to slowing sales of their UGG brand. That's definitely a warning signal since UGG accounts for more than 80% of DECK's sales.

The stock crashed -19.5% the next day on its disappointing earnings results and lowered guidance. The following two weeks saw an oversold bounce but that bounce is over. Shares are starting to breakdown again. A Morgan Stanley analyst was not enthusiastic on DECK and said they don't see any catalyst between now and the next holiday shopping season to drive the stock higher.

DECK was definitely showing relative weakness today and broke below short-term support near $72.50. Tonight I'm suggesting a trigger to buy puts at $71.65.

Trigger @ $71.65

- Suggested Positions -

Buy the APR $70 PUT (DECK150417P70) current ask $2.00

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Bull Market Anniversary

by James Brown

Click here to email James Brown

Editor's Note:

Monday, March 9th is the sixth year anniversary from the bear market bottom in 2009. Equities delivered a relatively widespread bounce after Friday's sell-off.

DWRE and GPRO hit our entry points.


Current Portfolio:


CALL Play Updates

Aetna Inc. - AET - close: 101.53 change: +0.86

Stop Loss: 98.85
Target(s): To Be Determined
Current Option Gain/Loss: -16.2%
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:
03/09/15: AET didn't see any follow through on Friday's weakness. Shares bounced and managed a +0.85% gain. Traders can use today's move as a new bullish entry point.

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


Akamai Technologies - AKAM - close: 69.60 change: -0.36

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

Comments:
03/09/15: AKAM did not participate in the market's bounce on Monday. That's a potential warning signal. We are still on the sidelines. Our suggested entry point is $72.25.

Trade Description: March 4, 2015:
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)

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


Cavium, Inc. - CAVM - close: 69.91 change: +0.19

Stop Loss: 67.65
Target(s): To Be Determined
Current Option Gain/Loss: -5.3%
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:
03/09/15: CAVM briefly traded below Friday's low but the selling didn't last very long. The stock rebounded. Shares did receive a new price target of $81 this morning. Unfortunately CAVM didn't really react that much to the news. Today's performance is actually a little disappointing. Readers may want to wait for a rally past $70.75 before considering new positions.

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

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

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

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

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

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

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

- Suggested Positions -

Long JUN $75 CALL (CAVM150619C75) entry $3.80

03/07/15 new stop @ 67.65
02/27/15 triggered @ $68.75
Option Format: symbol-year-month-day-call-strike


Demandware, Inc. - DWRE - close: 65.43 change: -1.62

Stop Loss: 63.65
Target(s): To Be Determined
Current Option Gain/Loss: -30.6%
Average Daily Volume = 440 thousand
Entry on March 09 at $67.35
Listed on March 07, 2015
Time Frame: Exit prior to April option expiration
New Positions: see below

Comments:
03/09/15: Monday was a disappointing session if you're bullish on DWRE. The stock underperformed the broader market with a -2.4% decline. There was no specific news behind today's relative weakness. To really twist the knife shares of DWRE actually hit new relative highs this morning and tagged our entry trigger at $67.35 before reversing lower.

I'm not suggesting new positions at this time.

Trade Description: March 7, 2015:
Cloud computing remains a growth area for the technology sector and DWRE continues to see significant growth.

DWRE is in the technology sector. They're considered part of the software industry. According to the company, "Demandware, the category defining leader of enterprise cloud commerce solutions, empowers the world's leading retailers to continuously innovate in our complex, consumer-driven world. Demandware's open cloud platform provides unique benefits including seamless innovation, the LINK ecosystem of integrated best-of-breed partners, and community insight to optimize customer experiences. These advantages enable Demandware customers to lead their markets and grow faster."

This stock saw huge gains in 2013. Unfortunately the momentum vanished in 2014. Last year was very rocky for the share price in spite of consistent earnings results from the company. Three out of the last four quarters have seen DWRE beat Wall Street estimates on both the top and bottom line. The company's revenues in 2014 grew +52%. Their customer base grew +31%. Average revenue per customer was up +12%. Their backlog of unbilled subscription revenue soared +37% to $461 million (actually +42% if you account for currency fluctuations).

Their most recent results came out February 19th and DWRE missed the EPS estimate by one cent. Yet that didn't stop shares from surging higher the next day (February 20th). Now the point & figure chart is bullish and forecasting a target at $79.00.

Technically the rally in DWRE over the last weeks has produced a huge bullish breakout on the weekly chart. Now shares have broken through price resistance near $65.00 and could see some short covering. The most recent data listed short interest at 19% of the small 32.4 million-share float. The stock displayed relative strength on Friday with a +2.9% gain while the rest of the market was sinking. We are suggesting a trigger at $67.35.

- Suggested Positions -

Long APR $70 CALL (DWRE150417C70) entry $2.88

03/09/15 triggered @ 67.35
Option Format: symbol-year-month-day-call-strike


MasterCard Inc. - MA - close: 91.12 change: +0.33

Stop Loss: 89.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 5.0 million
Entry on March -- at $---.--
Listed on March 05, 2015
Time Frame: Exit prior to April option expiration
New Positions: Yes, see below

Comments:
03/09/15: MA dipped toward the bottom of its $90-93 trading range before bouncing. If $90 fails then we'll likely remove MA as a candidate. Currently our suggested entry point is $93.15.

Trade Description: March 5, 2015:
Do you have a credit card? How about a debit card? Odds are you do. About 70% of Americans have a credit card and many have more than one. Inside the United States there are over 500 million credit cards between American Express, MA, and Visa. There's more than 1.12 billion globally (not counting the U.S.). There's also another 572 million MA or Visa debit cards in the U.S. (MasterCard has more than 144 million). Not counting America there are more than 1.2 billion debit cards around the world.

Now what if you could charge a small percentage for consumers using their plastic every time they make a purchase? That's MA's business model. As of 2013 their market share of global transactions (credit or debit) was about 27%. They are the second biggest credit and debit card company behind Visa (V). According to the company, "MasterCard (MA), www.mastercard.com, is a technology company in the global payments industry. We operate the world's fastest payments processing network, connecting consumers, financial institutions, merchants, governments and businesses in more than 210 countries and territories. MasterCard's products and solutions make everyday commerce activities – such as shopping, traveling, running a business and managing finances – easier, more secure and more efficient for everyone."

MA has been delivering steady growth. They reported their Q3 results on October 30th with earnings up +19% from a year ago to $0.87 a share. That beat estimates. Revenues were up +12.8% to $2.5 billion, also above expectations. The bullish trend continued when MA reported its 2014 Q4 results on January 30th. Earnings per share soared +32% from a year ago to $0.69 and revenues grew +13.6% to $2.42 billion. Both metrics were above Wall Street expectations.

The company did warn that the surge in the U.S. dollar was impacting results but they still see strong single-digit revenue growth for 2015. They reaffirmed +20% earnings growth.

Meanwhile one of MA's biggest rivals, American Express (AXP), is not having a good year. AXP lost its exclusive deal with Costco (COST) last month. This deal generated 20% of AXP's loans and about 10% of their annual card growth. AXP is also losing its partnership with JetBlue (JBLU). AXP's losses will likely be MA's and Visa's gain.

This week MA announced it had signed a 10-year deal with Citigroup. Not only is Citigroup one of the biggest banks on the planet they are the largest credit card issuer in the world. The press release states "Citi will begin aligning the company's consumer proprietary credit and debit portfolios to the MasterCard network in 2015." One analyst has already opined that the deal should provide a "decent tailwind for EPS growth" (for MA). Speaking of opinions, a couple of analysts at Nomura believe that MA is cheap at current valuations and could be seen as safe haven investment given their steady earnings growth.

Technically shares of MA broke out past resistance at $90.00 during the market's widespread rally in February. The stock has already retested $90.00 as new support. Odds are good MA is poised to make a run towards the $100 level. Currently the point & figure chart is bullish and forecasting a long-term target at $118.00.

Today MA sits just below last week's high of $93.00. We are suggesting a trigger to buy calls at $93.15.

Trigger @ $93.15

- Suggested Positions -

Buy the Apr $95 CALL (MA150417C95)

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


NXP Semiconductors - NXPI - close: 98.72 change: +0.24

Stop Loss: 96.25
Target(s): To Be Determined
Current Option Gain/Loss: +311.0%
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:
03/09/15: NXPI delivered a very quiet session on Monday with the stock drifting sideways in a narrow range.

I'm not suggesting new positions at this time.

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

GoPro, Inc. - GPRO - close: 37.95 change: -2.18

Stop Loss: 44.05
Target(s): To Be Determined
Current Option Gain/Loss: +21.7%
Average Daily Volume = 8.0 million
Entry on March 09 at $39.40
Listed on March 07, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
03/09/15: Right on cue shares of GPRO broke down below support near $40.00 and plunged to new multi-month lows. Shares underperformed the market with a -5.4% decline. Our entry trigger to buy puts was hit at $39.40.

Trade Description: March 7, 2015:
Sometimes the old saying "what goes up must come down" definitely rings true in the stock market. Shares of GPRO produced a rocket ride higher last year. The stock held its IPO in June 2014. They priced at $24.00 a share and opened at $28.65. By September 30th shares of GPRO had closed at $93.70. The stock never made it to $100 but it got close. GPRO peaked in early October and it's been downhill ever since.

If you're not familiar with GPRO they are in the consumer goods sector. The company makes photography equipment. They're best known for their outdoor, waterproof, action-cameras that take high-definition video. GPRO also sales mounts, accessories, and software for their cameras. Late last year GoPro cameras were the Christmas gift to give or get. The company sold 2.4 million units in the fourth quarter. That's about 1,000 cameras an hour.

GPRO's most recent earnings report February 5th. They reported Q4 earnings of $0.99 a share. That is 29 cents better than expected. Revenues soared +75% to $633.9 million, significantly above estimates. Gross margins rose from 42% to 48%. Unfortunately for shareholders the stock dropped on its earnings report thanks to soft guidance.

Everyone was expecting GPRO to blow away the Q4 numbers. It was their first holiday season as a public company and GPRO said they were not hindered by lack of capital or employees like they were in previous years. Investors were not happy to hear GPRO's Q1 guidance in the $0.15-0.17 range. Wall Street estimates were for $0.17.

Plus the company might be having an identity crisis. They keep saying they're going to be a media company. It's true that GPRO's youtube channel has seen incredible growth. However, it's not driving revenues. Even Google, who owns Youtube, is having a hard time making a profit with the video-sharing website. Optimists will say that GPRO's youtube channel helps drive brand awareness and loyalty. They might be right. Until GPRO finds away to monetize their "media" they're just a hardware company. Of course the are a hardware company that has seen incredible growth with the number of cameras sold surging from about 400,000 in 2010 to 5.2 million in 2014.

If GPRO's weaker than expected Q1 earnings guidance wasn't enough to sour the market's mood for the stock then a high-level executive resignation may have been the tipping point. When GPRO reported its Q4 results they also announced that Nina Richardson, their Chief Operating Officer, was resigning effective February 27th. Naturally investors wondered what does Richardson know that the rest of us don't.

GPRO shares have also been hampered by a big stock lock up expiration. On February 17th another 76 million shares came available. Surprisingly the stock actually bounced on the lock up. There were probably too many shorts all expecting a big drop and when it didn't materialize there was a rush to cover. You'll notice on the chart that the bounce failed at its trend of lower highs.

Another concern for GPRO has been the FAA's new limitations on drones. Right now they're just proposals and not yet law. However, it's worth noting that many people buy GPRO cameras to put on their drones for aerial photography. GPRO has even hinted they will make action-camera ready drones soon. If the FAA rules are too strict it could damage consumer sales of drones, which would be a lessen demand for GPRO-like cameras.

Right now the FAA issue is a dark cloud on the horizon. The bigger issue impacting GPRO shares is competition. China's biggest smartphone maker, Xiaomi, is getting into the action camera business. They are making outdoor, waterproof cameras with equipment from Ambarella (AMBA). Ambarella is the same company that GPRO uses for its semiconductor technology that captures and processes video.

GPRO, as a hardware company, is vulnerable to competitors with cheaper products. Xiaomi's new cameras are about half the cost of GPRO's similar models. The GoPro Hero is about $130 while Xiaomi's YiCamera will cost you $64. Currently Xiaomi does not have any products that compete with GPRO's flagship products but that's probably just a matter of time. If you're a consumer would you rather pay $150 for a Xiaomi camera with AMBA chips in it or $400 for a high-end GPRO with AMBA chips in it? This is going to be a serious challenge for GPRO's growth in Asia, especially China.

GPRO optimists will argue that the company has already beaten all of its competitors thus far (including Garmin, Panasonic, Sony, etc.). If competition from Xiaomi doesn't scare the bulls, how about Apple Inc.? Apple (AAPL) recently won a patent fight for its own outdoor digital camera design. This new design is supposed to have a better battery life than GPRO's and have less wind resistance. Currently AAPL is not a competitor but if they do decide to jump in it would be bad news for GPRO.

With all this potentially negative news it's not surprising to see a high amount of short interest. The most recent data listed short interest at 19.2 million shares versus a float of 47.7 million (about 40% of the float). However, these numbers may not reflect the new 76 million shares available from the recent lock up.

Technically shares of GPRO are in a bear market with a bearish trend of lower highs and lower lows. Today the stock is hovering just above round-number support at $40.00. The point & figure chart is bearish and forecasting at $30.00 target. The intraday low last week was $39.58. We are suggesting a trigger to buy puts at $39.40.

- Suggested Positions -

Long APR $38 PUT (GPRO150417P38) entry $2.30

03/09/15 triggered @ $39.40
Option Format: symbol-year-month-day-call-strike


Michael Kors - KORS - close: 64.33 change: -1.65

Stop Loss: 70.65
Target(s): To Be Determined
Current Option Gain/Loss: +52.4%
Average Daily Volume = 3.9 million
Entry on February 26 at $67.90
Listed on February 25, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
03/09/15: Shares of KORS had their price target reduced from $76 to $72 and shares plunged -2.5%. Today's decline broke support at $65.00 and marks a new 18-month low for the stock.

I am not suggesting new positions at this time.

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