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Newsletter

Daily Newsletter, Wednesday, 3/11/2015

Table of Contents

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

Market Wrap

Big Moves in the U.S. Dollar and Euro

by Keene Little

Click here to email Keene Little
In the continuing currency war, with the ECB now taking a turn at the QE wheel, and an all-out effort by many nations now in a race for the bottom by devaluing their currencies, the U.S. Dollar's strong rally and the Euro's collapse has many wondering what's next. The uncertainty is causing some angst in the U.S. stock market.

Wednesday's Market Stats

The ECB kicked off their promised QE plan and it has created a rally in European stock markets as well as their bond markets. This has the euro crashing (nearing parity with the U.S. dollar) and European bond yields dropping further (into inflation-adjusted negative territory). Money is also flowing into U.S. Treasuries for their higher yields, especially after the recent climb in rates following last Friday's NFP report and worry that the Fed will start raising rates sooner rather than later. To say the central banks have made a mess of the markets would be a gross understatement.

The fact that the Fed would raise rates 1/8 of a point in June vs. September would hardly make a dent in any business plans. It seems such a silly worry by the market. But the real worry is the message behind a rate increase -- it would mean the Fed is done accommodating the markets and that they're on their own. Being used to so much liquidity and a "I've got your back" Fed makes the market very nervous about standing on its own two feet.

The stock market is overvalued by several different metrics (some more overvalued than others but valuing on forward-looking guidance is wrong when forward guidance keeps getting ratcheted down) and it's certainly overloved. High bullish sentiment and record-high use of margin debt in a market that could be losing the support of its major benefactor (the Fed) has many thinking the party is over.

As I've said many times before, it's not so much what the Fed does with money or policies but instead it's how they influence sentiment. As long as they were able to convince investors that the fed is protecting the market it kept investors willing to gamble more and pay top dollar, in hopes there will be another sucker, I mean investor who's willing to pay even more. Now investors are starting to wonder if the Fed is pulling their support and that makes them nervous about paying top dollar. Hence the profit taking.

But all is not lost for the bulls yet. The pullback in March can easily be considered just another bout of profit taking that will create another higher low and be followed by another rally to a new high. As always, I'll cover both possibilities with the charts.

There's not a lot of news going on in the markets right now and I've got a few different charts than usual tonight (I take a closer look at the dollar and euro) so I'm just going to jump right into them. I'll start with the NYSE Composite index to follow up last week's view of the Wilshire 5000 to take a look at the broader market's message.

The NYA weekly chart below shows the struggle it's had since hitting a high just over 11100 in July 2014. It has tested that high 4 times, although a little short of it in November, and left a strong bearish divergence with the March 2nd high. It doesn't look good for the bulls but helping them is the idea that all of the choppy price action since the October 2014 low could be a shallow rising wedge, which would fit as a 5th wave ending diagonal. As labeled in green, this interpretation calls for one more minor new high into April to complete the pattern. This short-term bullish pattern would be negated with a drop below the February 2nd low at 10495.

NYSE Composite index, NYA, Weekly chart

The daily NYA chart below shows a similar bearish pattern that I've been showing for the past few weeks. The sideways triangle off its November 25th high fits as a 4th wave correction and the March 2nd high completed the final 5th wave. The decline so far in March looks impulsive and that suggests it's the 1st wave in what will become a much larger decline. The bearish interpretation calls for a bounce, perhaps following one more minor new low, into next week and that will be a good setup to get short for a stronger decline. The bullish pattern, which is the shallow rising wedge pattern calls for another new high, in which case we could see NYA up around 11200 by the end of the month. It's going to be a little difficult determining which is playing out (assuming we'll get at least a bounce into next week) since the bounce for either scenario will be corrective but a rally back above the downtrend line from November, near 10880 next Monday, would also be a rally back above the 50- and 200-dma's and that would suggest the more bullish pattern is playing out, which would be better confirmed with a rally back above 11000. Below the uptrend line from December, near 10600, would be a bearish heads up and then better bearish confirmation would be a drop below the February 2nd low at 10495.

NYSE Composite index, NYA, Daily chart

The same rising wedge idea for NYA can be seen for SPX and today's decline has SPX testing the bottom of its wedge, which is the uptrend line from October-February (a slight break of it near 2044. Bears should be alert to the possibility for another rally leg to kick into gear at any time and an upside target would be 2140-2150. The bearish pattern would look best with a minor new low, possibly after a relatively small bounce Thursday morning, and then a rally into next week (opex). That would fulfill the head-fake move in front of opex followed by a rally. From a bearish perspective, a rally next week would be a 2nd wave correction in a new decline and it would therefore be an excellent setup to get short. The bounce pattern, assuming we'll get it, will have to be evaluated to see when would be a good time to try shorting it but I would look for a bounce up to the 2080-2090 area. A rally much above 2090 would turn it more bullish.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2093
- bearish below 2020

The 60-min chart shows SPX broke below the bottom of a parallel down-channel for its decline yesterday morning and has not been able to climb back above it since. That's bearish and it's possible it will simply continue lower from here. But the pattern would look better with a small bump back up tomorrow morning and then one more new low to give us a 5-wave move down from March 2nd. That in turn would provide bears with more of a reason to look to short the subsequent bounce, which I show as a wave-(ii) correction into opex week. From there, if the bearish wave count is correct, we'd have a strong decline that exceeds the March decline so far.

S&P 500, SPX, 60-min chart

It's the same picture for the DOW. If it drops a little lower it should find support at its uptrend line from October-February, currently near 17510 and then launch a higher bounce into next week. If we're to get "one more new high" I would expect we'll see the DOW up to the 18400-18500 area by the end of the month. How it plays out over the coming week will help answer the question as to who will be the likely winner.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 18,160
- bearish below 17,480

Unlike the blue chips, NDX made a higher low in February vs. its January low and that creates an alternate bullish possibility. Starting from its January 16th low we could have a 1-2-3 wave count to the March 2nd high, which calls the pullback since then the 4th wave. That calls for another rally for the 5th wave to put in a final high. This is shown in green on its daily chart below and as long as the pullback stays above the January 23rd high at 4292.88 (it can't overlap the green wave-i on the chart) there will remain the potential for a new high. But if the bears stay in control and we see NDX stair-step lower we could see it find support at its 50-dma, near 4286, or its uptrend line from October-February, near 4255 by Friday (where it would also back-test its broken downtrend line from November). This afternoon's low was at the bottom of a parallel up-channel for the rally off the January 16th low. Depending on how this decline finishes, a bounce into next week could set up the next shorting opportunity. What happens by the end of this week should tell us whether the bearish or the bullish path is the more likely one.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4425
- bearish below 4250

A stronger dollar is getting the credit for a relatively stronger RUT. Small caps tend to do better in this environment since they become more competitive (business tends to be domestic and therefore they have less currency risk than big international companies). As for its price pattern, the RUT, like NDX, made a higher low on February 2nd vs. its January 16th low and it has not overlapped its January 28th high at 1201.24. This keeps alive the idea that the pullback from March 2nd is a 4th wave correction that will lead to another new high in a 5th wave, like that shown for NDX. There's also the possibility for a 5th wave in a larger pattern for the rally from last October (labeled in light green on its daily chart below), which would complete a rising wedge pattern. This is similar to the patterns shown for the other indexes. Upside targets for a bullish move would be about 1250 and then about 1280 by the end of the month. Today's relative strength has me wondering if we're getting advance warning of this bullish move. The bears would be in a stronger position if they can the RUT below the uptrend line from October-February, currently near 1196. The short-term pattern suggests a new low tomorrow that finds support at or above the uptrend line, perhaps at the 50-dma near 1203, and then start a higher bounce into next week. The RUT made it back up into its price-level S/R zone at 1213-1217 so a continuation back above 1217 would be more bullish.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1236
- bearish below 1196

The TRAN continues to have me wondering if the market still has "one more new high" in it. The TRAN has not been confirming the DOW's new highs since its November high and that has obviously looked bearish for the market. But the sideways consolidation since November looks like a bullish continuation pattern and I can see the potential for another leg up to at least the 10,000 area to complete an alternate wave count. This supports the idea shown on the other charts, which point out the possibility for another rally leg to complete a 5th wave to one more new high. This bullish possibility is an alternate wave count at the moment but it's something I'll be watching carefully for evidence in any bounce patterns that begin to look stronger than just a correction to this month's decline.

Transportation Index, TRAN, Weekly chart

The U.S. dollar now looks to me like it's in a blow-off top. Out of its sideways triangle in February I expected one more leg up to complete the 5th wave in its rally from May 2014. As is often the case with commodities and currencies, it can sometimes look like a blow-off move that sucks in traders thinking the strong move will continue. Last week I was looking for an upside target at 97.27-97.35 and if it made it through that level, which it quickly did last Friday, the next upside projection is 99.20. This higher projection is where the 5th wave of the rally from May 2014 equals the 1st wave and today that level was achieved (with a high at 99.97). The last time the dollar was this high was nearly 12 years ago in April 2003. The rally could continue higher but I think when the dollar reverses it's going to reverse hard and century-level resistance at 100 could be the place to start it. The first reversal signal would be a drop back below 99 and then stronger confirmation of a top would be a drop below 97.30.

U.S. Dollar contract, DX, Daily chart

One reason why I say the dollar's rally appears to be in a blow-off move is because the rally from February 26th has gone parabolic, as demonstrated with increasing steepness of the uptrend lines on the dollar's 60-min chart below. Parabolic moves always end badly for whoever chases the move higher in its latter stages, which is where I think it is now. This looks like short covering and when it finishes there will be no more buyers left and the move back down is likely to be swift.

U.S. Dollar contract, DX, 60-min chart

The euro has been getting crushed with fears the ECB will completely destroy the value of the currency with their QE program. It's their way of making European products more competitive in the world trade markets and it's all part of the currency wars that are going on right now (started by our Fed). It's a race to the bottom to see who can out-devalue the other. In addition to the destruction of the euro we're seeing European bond yields take a nose dive as free money is used to jack up bond prices. Interestingly, the ECB is now saying they might have to rethink their QE program since it's had such a negative effect on the euro and bond yields. Do you think? What a bunch of numbskulls.

Like the dollar, but inversely, I see the euro's selloff as panic selling at this point. But it's now down to two overlapping price projections that could see the conclusion to its decline. The 5th wave of the decline from May 2014 has extended and the price projection for it (where it will be 162% of the 1st through 3rd waves) is at 1.04976. The 5th wave, which is the leg down from October 2014 (the same as the dollar but inversely) would be 162% of the 1st wave at 1.05158, which gives us nice correlation in the 1.05 area to watch for a possible completion of the decline (no guarantee of that; it's just a level of interest to watch carefully for support).

Euro contract, EC, Daily chart

Now lay the euro's daily chart above over the dollar's daily chart and you can see how they're mirror images of each other. And each is looking ready to complete their own panic moves. The current moves could continue for much longer, in a true blow-off move, but each has gone parabolic and it's a dangerous time to chase the trend.

U.S. Dollar vs. Euro, Daily chart

You can see on the euro's monthly chart below that it is more oversold than it's ever been. It can get more oversold but it just goes to show how strong the selling has been. Today's decline has the euro breaking below the bottom of a parallel down-channel for its decline from 2008, near 1.069. How it finishes for the week will be important since a close below 1.05 would be more bearish. Back above 1.084 would be a good indication the selling is over (but a retest of the low is likely in the future).

Euro contract, EC, Monthly chart

Gold has been hammered in the past two weeks and the strong dollar has been one reason. Fundamentally there aren't a lot of drivers in place yet for a gold rally and while gold bulls were very hopeful the bounce off last November's low would continue, especially with the strong spike up in January, disappointment is setting back in and those who rushed to buy are now dumping. When gold is no longer viewed as the place to be, which should happen at lower prices, then we'll know it's a good time to buy. There are still too many looking to buy each dip and breakout attempt but as I've been saying for a long time, the larger pattern has been calling for lower prices and until I see a better ending pattern to the downside I'll continue to view bounces as head fakes to the upside. For now I'm looking for a drop down to the 1090-1108 area where it could find support at the bottom of a shallow down-channel from 2013 (1108) or at the 50% retracement of its 2001-2011 rally (1090). But chasing gold lower from here looks a bit risky since a 5-wave move down from January could find a tradeable bottom at any time.

Gold continuous contract, GC, Weekly chart

Following the low for oil in January I was expecting to see a multi-month choppy sideways consolidation before heading lower after the summer. I thought then and still think that trading oil would be a fruitless exercise in frustration. In the large pattern for the decline from August 2013 the bearish wave count calls for a 4th wave correction and I call these corrections "feed your broker" times. Most traders get chopped to pieces and the only ones who make money are the brokers (and day traders who are quick to take small profits). Trying to figure out 4th wave patterns is worse than herding wild cats and so far the two months since the January 13th low has been no exception. I think we'll see another leg up from here, one that could test price-level S/R near 58.50, but it's by no means certain. The bulls would be in better shape if they can get oil back above 59 but until then mind the chop.

Oil continuous contract, CL, Weekly chart

In addition to the usual unemployment claims numbers tomorrow morning, we'll get the retail sales numbers (some improvement over January is expected) and export and import prices. None of these should move the market.

Economic reports and Summary

At this point we still don't know if the pullback from March 2nd is a correction to the longer-term rally (4th wave correction) that will lead to another new high (in a 5th wave) or if instead the March decline is the kickoff to a much larger decline to come this year. March has been a reversal month more years than not since 2000 so from a seasonal pattern perspective it should make bulls nervous. But as shown for all the indexes, I could easily argue for another new high this month and maybe March will continue to be a reversal month but not until after a new high before the end of the month. Bears need to respect this potential until there's better evidence the March 2nd highs will stand for a long time.

The kind of evidence the bears need is a high bounce into next week and then a drop below wherever the low for this pullback finishes. That would be solid evidence that THE high is in place. For now, look for a higher bounce to get started, either from here or preferably following a new low Thursday/Friday (head-fake move in front of opex?), and then next week, assuming we'll get the bounce, we can evaluate it for a setup to get short while keeping in mind the upside potential.

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

Crushed On Disappointing Earnings

by James Brown

Click here to email James Brown


NEW DIRECTIONAL PUT PLAYS

Bunge Limited - BG - close: 78.86 change: -0.88

Stop Loss: 81.05
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.0 million
Entry on March -- at $---.--
Listed on March 11, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
It only takes one earnings report to alter a stock's trajectory if the news is big enough. For BG it was the company's Q4 report announced in February.

BG is in the consumer goods sector. According to the company, "Bunge Limited (www.bunge.com, NYSE: BG) is a leading global agribusiness and food company operating in over 40 countries with approximately 35,000 employees. Bunge buys, sells, stores and transports oilseeds and grains to serve customers worldwide; processes oilseeds to make protein meal for animal feed and edible oil products for commercial customers and consumers; produces sugar and ethanol from sugarcane; mills wheat, corn and rice to make ingredients used by food companies; and sells fertilizer in South America. Founded in 1818, the company is headquartered in White Plains, New York."

The middle of 2014 the outlook for BG was a lot more enthusiastic. BG's Q2 earnings report (on July 31st) was better than expected and the company beat estimates on both the top and bottom line. Unfortunately the next two quarters were tough. BG's Q3 results were released on October and the company's profit of $1.31 a share was 59 cents worse than expected. Revenues were down -7.0% from a year ago.

That slowdown in earnings and revenues accelerated in the fourth quarter. BG reported its Q4 results on February 12th. Wall Street was expecting a profit of $2.52 a share on revenues of $16.5 billion. BG delivered $1.20 a share with revenues down -15% to $13.9 billion. That's a HUGE miss on both the top and bottom line.

The Wall Street Journal summed up the quarter this way, "upheavals in the commodity trading firm's oilseed businesses outweighed benefits from bumper U.S. corn and soybean crops." BG suffered terrible margins on their soybean crushing business in China and saw a slowdown in Europe. Their main agribusiness division reported net sales fell -20%.

Naturally investors reacted negatively. The stock plunged to support near $80.00. The initial oversold bounce stalled near $83.00. Now, about four weeks later, shares of BG are breaking down below key support at $80.00. The next support level appears to be the $73.50 area. The point & figure chart is forecasting at $67.00 target.

Tonight we are suggesting a trigger to buy puts at $78.45.

Trigger @ $78.45

- Suggested Positions -

Buy the APR $80 PUT (BG150417P80) current ask $2.55

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Currency Moves Drive Market Concerns

by James Brown

Click here to email James Brown

Editor's Note:

The markets seem transfixed with the U.S. dollar/euro relationship. A plunging euro kept the rally in the dollar going, which hit new 12-year highs. Traders are worried about currency headwinds hurting corporate margins.

The big cap S&P 500 companies get about 45% of their revenues overseas.


Current Portfolio:


CALL Play Updates

Aetna Inc. - AET - close: 100.04 change: -0.12

Stop Loss: 98.85
Target(s): To Be Determined
Current Option Gain/Loss: -42.6%
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:
03/11/15: AET is still clinging to round-number support at the $100 level. This support may not last if the broader market continues to sink. I am not suggesting new positions at this time.

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


Cavium, Inc. - CAVM - close: 68.97 change: -0.81

Stop Loss: 67.65
Target(s): To Be Determined
Current Option Gain/Loss: -15.8%
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:
03/11/15: CAVM's early morning gains faded. Shares eventually underperformed the market with a -1.1% decline. Odds are growing that we'll see CAVM test the $68.00 level soon. Any lower and shares will hit our 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

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


E.I.du Pont de Nemours and Company - DD - close: 79.29 change: +0.52

Stop Loss: 74.95
Target(s): To Be Determined
Current Option Gain/Loss: +1.9%
Average Daily Volume = 3.9 million
Entry on March 11 at $79.05
Listed on March 10, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
03/11/15: DD continues to rally and shares outperformed the market thanks to an upgrade. This morning Jefferies Group raised their price target on DD from $84 to $91. The stock added +0.66% to close at another multi-year high. Our trigger to launch bullish positions was hit at $79.05.

Trade Description: March 10, 2015:
Not many companies have been around for more than 200 years. DD is part of the basic materials sector. They have grown into a giant conglomerate with about $35 billion in annual sales. DD makes products and materials for multiple industries including: agriculture, food & personal care, high-performance materials, industrial biotechnology, people & process safety.

According to the company, "DuPont (DD) has been bringing world-class science and engineering to the global marketplace in the form of innovative products, materials, and services since 1802. The company believes that by collaborating with customers, governments, NGOs, and thought leaders we can help find solutions to such global challenges as providing enough healthy food for people everywhere, decreasing dependence on fossil fuels, and protecting life and the environment."

After seeing DD's latest earnings report you might wonder why the stock is nearing all-time highs. The company reported Q4 results in January. Earnings were in-line with estimates at $0.71 a share. Revenues dropped -4.8% to $7.38 billion, which was significantly below Wall Street's expectation of $7.79 billion.

DD reported sales declines in every business segment and in every geographical region of the world it does business. Nearly 65% of DD's revenues are outside North America so the big rally in the U.S. dollar was a major headwind for the company. DD's guidance was bearish. They lowered their 2015 guidance into the $4.00-4.20 range compared to analysts' estimates at $4.47.

So why are investors so bullish on the stock? Is it because DD is forecasting a minimum savings of $1.3 billion in cost-reduction strategies by 2017? Is it because DD is so shareholder friendly by spending $3.7 billion in 2014 on stock buybacks and dividends? It's possible.

The better bet is that DD's stock has continued to show strength because of a growing fight between management and a major activist shareholder. Trian Fund Management, run by Nelson Peltz, owns a 2.7% stake in DD (that's about $2 billion). Trian started investing in DD a couple of years ago. He has been very critical of management. Peltz claims that DD suffers from $4 billion in excess costs.

Peltz has been trying to get four seats on DD's board but DD has been fighting back. Peltz has been suggesting DD split up the company for months to unlock shareholder value. DD argues that Peltz's plan to split up the company misrepresents the facts and is high risk.

Currently DD is spinning off its lower-margin performance chemical business (The Chemours Co.) but according to Peltz the way DD is performing the spin off is outdated and designed to prevent any potential takeover.

Wall Street analysts seem to be mostly bullish on the stock. Shares of DD have recently seen price target upgrades in the $87-88 range. Technically shares have been showing relative strength. Traders have been buying the dips pretty quickly. Today DD outperformed the broader market and closed at multi-year highs. Tonight we are suggesting a trigger to buy calls at $79.05.

- Suggested Positions -

Long JUL $80 CALL (DD150717C80) entry $2.61

03/11/15 triggered @ $79.05
Option Format: symbol-year-month-day-call-strike


NXP Semiconductors - NXPI - close: 97.95 change: +0.40

Stop Loss: 96.25
Target(s): To Be Determined
Current Option Gain/Loss: +268.6%
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:
03/11/15: NXPI spent Wednesday's session drifting sideways and just happened to close on an upswing.

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

Deckers Outdoor - DECK - close: 72.00 change: -0.25

Stop Loss: 75.25
Target(s): To Be Determined
Current Option Gain/Loss: -27.1%
Average Daily Volume = 922 thousand
Entry on March 10 at $71.46
Listed on March 09, 2015
Time Frame: Exit prior to April option expiration
New Positions: see below

Comments:
03/11/15: DECK's early morning bounce failed under the $73.30 level. Shares reversed to close down -0.34%. Readers can use today's move as a new entry point or wait for a new drop under $71.80.

Trade Description: March 9, 2015:
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 analysts 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.

- Suggested Positions -

Long APR $70 PUT (DECK150417P70) entry $2.40

03/10/15 triggered on gap down at $71.46
Option Format: symbol-year-month-day-call-strike


GoPro, Inc. - GPRO - close: 38.17 change: -0.56

Stop Loss: 44.05
Target(s): To Be Determined
Current Option Gain/Loss: +8.7%
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:
03/11/15: GPRO underperformed the market with a -1.4% decline. Shares spent most of the day churning sideways in the $37.80-38.40 range. I would consider new put positions at current levels or you could wait for a new failed rally.

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: 65.22 change: +0.52

Stop Loss: 70.65
Target(s): To Be Determined
Current Option Gain/Loss: +35.7%
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:
03/11/15: The oversold bounce in KORS continued with a +0.8% gain. Shares might be trying to fill the gap. If that is the case then the $66.00 level should be resistance. Nimble traders can watch for a failed rally near $66.00 as a new entry point for bearish positions.

Earlier Comments: February 25, 2015:
Luxury retail brand names like KORS and Coach (COH) have seen their stocks get crushed over the last several months. Shares of KORS were big performers for the bulls the first two plus years from its late 2011 IPO. Unfortunately the stock peaked in 2014. Investors worried about over exposure and slowing growth.

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

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

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

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

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

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

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

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

- Suggested Positions -

Long May $65 PUT (KORS150515P65) entry $2.10

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