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Daily Newsletter, Saturday, 3/14/2015

Table of Contents

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

Market Wrap

Withdrawal Anxiety

by Jim Brown

Click here to email Jim Brown

Investors appear to be going through with withdrawal pains ahead of the FOMC announcement next Wednesday. This is premature and unwarranted since there is very little chance the Fed is going to make a material change before June and probably September. The Fed can't withdraw stimulus by raising rates with the dollar surging nearly 1% per day. That would send the dollar into hyper drive and S&P earnings into the cellar.

Market Statistics

The building angst over the soaring dollar is finally translating into the equity market. With 45% of the S&P getting 50% of their earnings from overseas the dollar strength is going to be a major drag on Q1/Q2 earnings. Investors ignored this for the last several months but the daily decline in earnings estimates and the daily rise in the dollar has finally hit critical mass. The idiot light on investor dashboards is blinking red and warning of an impending crisis.

Market volatility has returned with back to back days of alternating three digit moves on the Dow and the 100-day average on the S&P acting like last ditch support. With 2.5 days left before the FOMC statement there was very little short covering ahead of the weekend.

Oil prices collapsed under the pressure of the dollar, rising inventories and a new U.S. production record. Falling oil prices helped drag equities lower and the $40 level for Crude could be hit next week.

Economic news did not help. The Producer Price Index (PPI) fell -0.5% for February after a -0.8% drop in the prior month. This is the fourth consecutive monthly decline. Expectations were for a +0.5% increase. For once it was not energy prices dragging down the index. Energy prices were unchanged thanks to that rebound in oil prices in February. It was a -1.6% decline in food prices that pushed the index lower. This comes after a -1.1% decline in January. How did this happen? Food prices almost never decline. You can thank the rising dollar pushing the prices of all commodities lower and slowing exports.

Core PPI, excluding food and energy, fell -0.5%. The headline PPI is now -0.7% lower than year ago levels and when compared to the +1.0% YoY in December it shows how fast prices are falling.

Not only is inflation nonexistent the risks of deflation have increased in recent months. There is almost zero chance the Fed is going to hike rates in the near future given the strong dollar and deflation risks.

Consumer Sentiment for March declined -4 points from 95.4 to 91.2 and the second monthly decline from the 11-year high of 98.1 in January. This was the biggest miss of expectations since February 2006. The present conditions component declined from 106.9 to 103.0 and its lowest level since November and the expectations component declined from 88.0 to 83.7. More than 30% of respondents said their income had fallen in the past year. Those respondents that thought they were better off declined from 47% to 41%. Another 59% said business conditions were unfavorable. Some 47% said their incomes would probably not keep pace with rising prices. That is up from 40% in January when gasoline prices were rapidly declining. Average gasoline prices nationwide rose from a low of $2.06 in late January, early February to $2.44 last week. A +38 cent increase in gasoline prices is likely responsible for the majority of the decline in sentiment.


The calendar is relatively light for next week with the exception of the FOMC announcement on Wednesday afternoon. Second in importance would be the Philly Fed Manufacturing Survey on Thursday. This is seen as the most important manufacturing survey of the month and has a direct correlation to the monthly ISM report two weeks later.


Stock news was really light on Friday because we are in that slack period between the end of Q4 earnings and the beginning of Q1 earnings just over three weeks from now. Next week will begin the earnings warning cycle although Intel preannounced on Thursday. Others will follow.

Intel regained 13 cents of Thursday's $2 loss but there is probably more weakness ahead. Intel cut its expected Q1 revenue forecast by -$1 billion to $12.8 billion plus or minus $500 million. Analysts were expecting $13.7 billion. The chipmaker said small and medium sized businesses did not upgrade PCs to move from Windows XP to Windows 7/8 as everyone expected. Companies are taking the "if it is not broken, don't fix it" attitude.

Intel said PC component suppliers were cutting inventories below typical levels because of a serious slowdown in the upgrade cycle. BlueFin Research Partners said Q1 PC shipments could decline 8-9% to 75-76 million units.

IDC changed their forecast for PC shipments to decline -4.9% for all of 2015 instead of 3.3% in their last update. The company said PC sellers bought more computers in Q4 than anticipated in order to gain from the Microsoft subsidies that were cut back for 2015. The company said PC sales are not expected to increase until Microsoft releases Windows 10 later this year and only if consumers like the new software. Microsoft has had two bad launches of Windows 8 and 8.1 when consumers shied away because of the new interface.


Berkshire Hathaway (BRK.B) announced that HJ Heinz had cut 7,400 jobs over the last 20 months as Buffett and his partner at 3G Capital worked to return Heinz to profitability. Heinz had 31,900 employees on April 28th 2013 when Berkshire and 3G took the company private. Berkshire gets $720 million annually from its preferred stake in Heinz while 3G managers actually run the operation. The layoffs and plant closures have saved more than $330 million a year. Heinz posted a profit of $657 million in 2014 and only $18 million in 2013 so the restructuring is paying off.

On Thursday Berkshire announced it had closed the acquisition of the Van Tuyl Group, the largest privately held dealership group in the United States. The deal was announced in October. The company was renamed Berkshire Hathaway Automotive and is headquartered in Dallas. Under the Van Tuyl Group model local entrepreneurs manage the dealerships and have minority stakes in the business. Every managing partner has elected to stay with Berkshire and remain an equity partner. Given the unlimited resources of Berkshire it would be stupid to leave and strike out on their own again.


Despite Intel's problems other chip makers are doing well. NXP Semiconductors spiked to another new high on Friday after Needham initiated coverage with a strong buy rating. The Needham analyst put a $144.67 target on the stock and it closed with a +6.2% gain to $104.67. The analyst said the recently announced merger with Freescale (FSL) transforms the company into a "powerhouse in the semiconductor industry." NXP announced on March 1st they were going to acquire Freescale for $12 billion in cash and stock. The combined company will be the world's largest automotive semiconductor provider and the largest general purpose microcontroller supplier. NXP technology is used in keyless entry systems, car entertainment consoles, audio amplifiers, modems, smartphones, smart cards, lighting, and wireless infrastructure gear. Apple uses NXP chips in the iPhone 6 to power Apple Pay. NXPI was recommended in as an Option Investor play on February 12th at $84.


Repligen (RGEN) reported a Q4 loss of 1 cent on a 49% increase in revenue to $16.4 million and a 25 cent profit for the year. For the full year they guided to revenue in the range of $72-$75 million compared to a 27% increase in revenue to $63.5 million in 2014. The company develops consumable bioprocessing products for the use in production of monoclonial antibodies and other biologic drugs. Apparently investors liked the results with the stock spiking +17% on Friday.


Anacor Pharma (ANAC) rallied +15% after reporting a loss of 21 cents for Q4. Analysts had expected a loss of 59 cents so this was a huge earnings beat. Revenue was $9.6 million compared to full year revenue of $20.7 million. This represented a significant ramp in sales in Q4. Shares have rallied +50% in 2015 and doubled in the last 12 months.


A similar stock, Cempra (CEMP) has quadrupled since September. The company reported a 46 cent loss for Q4 and in line with estimates and revenue of $2.5 million that missed estimates of $3.5 million. No earnings, very little revenue and they just completed a secondary offering of 6 million shares. So why is the stock in rally mode? Apparently they have several promising drugs in the pipeline. They are creating new antibiotic drugs to treat multiple bacterial diseases like pneumonia and various types of infections. With the current inventory of antibiotics losing their potency and effectiveness against common diseases and the onslaught of hospital incubated superbugs we need some a new generation of antibiotics.


There was also good news outside the biotech sector. Software and services provider Ebix Inc (EBIX) rallied +15% on earnings of 45 cents that beat estimates for 39 cents. Revenue was $60.6 million. Shares of EBIX are up +50% year to date.


Oil prices declined to $44.75 intraday and closing in on the January low of $43.58. Inventories rose 4.5 million barrels to another 8- year high at 448.9 million. Cushing storage rose to 51.5 million and just under the record of 51.9 million barrels. Active rigs declined another -67 to 1,125 and -806 below the September high of 1,931. Oil rigs declined -56 to 866 and -46% below the 1,609 high on October 10th. Baker Hughes is targeting a 50% decline as normal in a bear market so another -60 rigs if they are right. At the pace they are dropping I expect to be well below 800 active oil rigs. Active gas rigs declined another -11 to 257 and a new 18 year low.

Offshore rigs declined -3 to 48 and a multi-month low.

The conversation level over shrinking storage is reaching a crescendo. However, numerous energy analysts have come out over the last week saying there is 25-35% storage still available. The additional capacity is in the Houston area and in some tanks around the U.S. shale fields. That is like a driver looking for a 5 gallon gas can in Denver and having the service station attendant saying, "On the computer we have a dozen in Dallas." If the storage is not where you need it then you still have a problem. With the futures delivery point at Cushing Oklahoma rapidly filling up the pipelines into Cushing will have to be turned off if/when capacity is reached. That means wells will have to shut down if the oil in the pipelines is not moving.

We could be 3-4 weeks away from a critical point for crude pricing. Refineries will come out of their maintenance cycle in early April and begin to produce summer blend gasoline ahead of the Memorial Day weekend that kicks off the summer driving season. Until then we should continue to see inventories build. However, imports did decline about 600,000 bpd last week to 6.79 mbpd. Refiners may also be feeling the storage crunch and will have to cut back on imports in the weeks ahead.

Analysts are expecting the January low of $43.58 to be tested and most believe we will see $40 before March is over. If Cushing does halt or curtail the inflow of oil we could see the prices decline in a hurry.



The rising dollar continues to pressure oil and other commodities. The dollar index closed at 100.18 on Friday. That represents a 26.6% gain since May. This is almost unprecedented.



Gold and silver prices are also being slammed by the dollar. Gold declined to $1,150 and a 3-month low. Silver has fallen back to January 2010 levels at $15.50 and the 2011 spike to $50 has been completely erased. The drop in silver has been due to the dollar but in silver's case it also represents a decline in the global economy. Like copper, silver is used in electronics manufacturing and demand has declined as fewer large devices are sold and more phones and tablets with less silver and copper. About 25% of the silver mined today is noneconomic. That means they are losing money on every ounce they sell but they have to keep the mines running at a minimum level to maintain operational capability.

Silver stockpiles are shrinking as the current mine production is less than demand. Eventually prices will rise in spite of the soaring dollar but until the global economy recovers I expect copper and silver to remain weak.




Markets

It was a volatile week in the markets but the damage was muted. Despite two days out of the last six with -300 point Dow declines the Dow only gave up -197 for the week or -0.6%. That was the best performance of any large cap index. The Russell 2000 actually gained +1.2% for the week and that is the bright spot this weekend. Obviously the large cap indexes are suffering from dollar pressures where the impact of the dollar on the small caps is minimal.

For instance Hewlett Packard said they could lose $1.5 billion in 2015 because of the dollar and it has only strengthened since that warning. They could be up to a $2 billion loss before the quarter is over. Most small caps don't even generate $2 billion in annual revenue. The difference in scale is the key. The earnings capacity of the small caps is not being harmed while the big caps are losing billions.

For instance IBM gets 55% of its revenue overseas. Pfizer 66%, Wynn Resorts 72%, Applied Materials 78% and Phillip Morris 99%. Even with active hedging programs a 26% increase in the dollar over the last 9 months is a dramatic difference. Companies earning money in euros, yuan or yen have seen their purchasing power drop considerably when products have to be purchased in dollars. In the case of companies like Hewlett Packard they can sell their products in foreign currencies after marking them up but then they have to convert those currencies back to dollars to bring the money home.

In theory we could just ignore the large cap stocks and concentrate only on small caps. Unfortunately the large caps control the major indexes and that is what represents the market. If someone asks you at dinner what the market did today you more than likely would not say the Russell 2000 gained 4 points. They would look at you like you said aliens visited the NYSE today. The market is represented to the public by the changes in the Dow, S&P and Nasdaq.

The S&P gave back -18 points for the week or -.86%. Given the big intraday swings I feel fortunate it was only -18 points. The index bounced off the 100-day average at 2044 for the last four days without a breakdown. So far that support is holding and the 150-day at 2019 is untested. If you only look at the chart of the S&P it would appear that test of 2019 could come next week. However, if you look at the rebound in the Russell it suggests the S&P could rally into the FOMC meeting on expectations for no change in the post meeting statement.

When the S&P rallied on Thursday it came to a dead stop at 2065 which was resistance in January. With the three-day dip to 2040 and solid stop at 2065 that gives us our breakout targets for next week. A move outside either of those levels should give us market direction. I would not be surprised to see the 150-day average at 2019 to be tested.

Support 2019, 2040, resistance 2065, 2080.


At the low on Friday the Dow was down -265 points at 11:30. That makes the -145 at the close appear relatively tame. The Dow inexplicably rebounded off the 100-day average at 17,655 for the last three days. The Dow rarely honors any moving average but apparently somebody was watching last week and decided that was a decent place to put buy orders. Since very few people actually buy a Dow ETF that means somebody was buying Dow stocks. If we delve into this a little closer the answer appears. It was the three financial stocks, GS, AXP and JPM, that held up the Dow and kept it from falling under the 100-day. It was not that they powered the index higher but they did react positively to the banking stress test capital expenditure news and that kept the Dow from declining. United Health, Du Pont, Disney, Travelers and Verizon also contributed. They offset the obvious losers of Exxon, Chevron, GE, Visa and IBM.

When the Dow rebounded on Thursday's short squeeze it came to an abrupt halt at 17,900 and resistance from January. This gives us our trading range for next week from 17,640 to 17,900. A move outside that range gives us market direction.



The Nasdaq lost -55 points or -1.1%. A funny thing happened on the Nasdaq. The decline came to a dead stop at old uptrend resistance at 4850. The index held up remarkably well and I think it could follow the Russell 2000 higher if the small caps continue their rebound next week. The Nasdaq chart is still in much better shape than the Dow and S&P and could be poised to return to the highs if the Fed makes no changes.

Apple quit going down and that was a major factor in the Nasdaq minimizing its losses. The other big caps were still bleeding points as you can see in the table below but Apple is the 800 pound gorilla and the post Apple Watch "sell the news" event knocked off $5 early in the week but remained flat the last three days.

Resistance 4900, 5000. Support 4850, 4730.



The Russell 2000 rebounded to close within 6 points of a new high on Thursday. Friday's early decline was almost erased with only a -4 point loss to end -10 points from a new high. This is very bullish given the Dow and S&P losses on Friday. Per my comments above the lack of dollar impact on the small caps could make them the favorite of the investing class over the coming weeks. That does not mean they will soar while the rest of the indexes collapse but all things being equal if the big cap indexes are at least neutral the Russell could break out again. That could trigger buying in the bigger indexes.

Watch the Russell 200 closely next week. If the Fed does nothing the Russell could be the leading index. However, they would be hurt significantly by a change in Fed policy because they have a lot of debt and higher rates will hurt. Obviously nothing will change in the near future but a change in Fed policy will make investors more cautious well ahead of any rate hike.

Resistance 1242, support 1220, 1205.


There are some high profile earnings next week that could poison investor sentiment if they miss too badly. Adobe and Oracle report on Tuesday. FedEx reports on Wednesday and Nike on Thursday. Closing out the week Darden, KB Homes and Tiffany report on Friday.

Morgan Stanley economist, Ellen Zentner, said the Fed will not raise rates until March 2016. She pointed out that for every 1% gain in the dollar it is the equivalent of a 14 basis point hike in rates because of the negative impact on the U.S. economy. The dollar is up +26.6% since May. That is the equivalent of a 3.72% hike in interest rates. While the Fed wants to raise rates the rapidly falling inflation and potential deflation risks simply point to the "data dependent" Fed being forced to wait on the sidelines. Zentner said even if the Fed does remove the word patient from the statement they are still not going to raise rates in 2015. They may remove the word just to create some volatility in the bond market and that will force real rates slightly higher without the Fed actually making a move. If they remove the word the equity market could have a tightening tantrum and the Fed has to consider that as well.

The Bloomberg ECO Surprise Index measures the number of economic data beats and misses in the USA economic forecasts. The index has fallen to its lowest level since 2009 when we were in the middle of the Great Recession. Forecasts have been missed by the largest majority in the last six years. The only major report to beat has been the payrolls. Everything else has been routinely missing the estimates and the market has been ignoring it. Citigroup has their own chart of economic misses by country. The U.S. is at the bottom of the list on that index as well.

Both charts from Bloomberg.



The Atlanta Fed's real time GDPNow forecast fell from +1.2% growth for Q1 to only +0.6% growth after the retail sales report on March 12th. How could the FOMC raise rates in these conditions?


We are less than 2 months away from the 3rd longest streak of gains without a 10% correction. The last correction was in 2011. If the S&P did crater again next week all the way down to 2,000 that would still be only a garden variety -5% dip like we have seen many times before in this bull market. It is not the end of the world. The S&P could easily retest that 2,000 level soon.


The rebound by the Russell gives me hope for next week but the market will remain headline driven ahead of the FOMC announcement on Wednesday. What happens after that event is entirely up to the Fed.

I expected a market decline after option expiration and the last two weeks may have been just a testing phase ahead of that event. With earnings declining, GDP revisions sinking, China weakening, oil prices potentially testing $40, retail sales and consumer confidence falling and Greece threatening to exit the EU again, it would not take much of a push by the Fed to crash the market. Hopefully they understand the box they are in.

Random Thoughts

On March 16th, 2004 the post Fed statement had the following sentences. (Hat tip to Art Cashin)

The Committee perceives the upside and downside risks to the attainment of sustainable growth for the next few quarters to be roughly equal. The probability of an unwelcome fall in inflation has diminished in recent months and now appears almost equal to that of a rise in inflation. With inflation quite low and resource use slack, the Committee believes that it can be patient in removing its policy accommodation.

In the May 4th, 2004 statement the Fed said:

The FOMC decided today to keep its target for the federal funds rate at 1%.

The Committee perceives the upside and downside risks to the attainment of sustainable growth for the next few quarters are roughly equal. Similarly, the risks to the goal of price stability have moved into balance. At this juncture, with inflation low and resource use slack, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured.

In the June 30th, 2004 statement the fed said:

The FOMC decided today to raise its target for the federal funds rate by 25 basis points to 1.25%.

Apparently the Fed reuses its prior language a lot and conditions could be shaping up for a repeat of that 2004 scenario. However, economic conditions are significantly worse than in 2004 and that should keep these statements from being repeated.


The Greek government announced it was going to use cash belonging to pension funds and other public entities for its own use. The amendment submitted in parliament said "Cash reserves of pension funds and other public entities kept in the Bank of Greece deposit accounts can be fully invested in Greek sovereign notes. Pension funds and public entities will be able to claim damages from Greek state in case of overdue repayment or partial repayment. The finance minister said pension funds are not required to transfer their reserves to the Bank of Greece. At least not yet.

The Greek Finance Minister Yanis Varoufakis said last week, "Greece is the most bankrupt country in the world and European leaders knew all along that Athens would never repay its debts." Greek Prime Minister Tsipras said, "Greece can't pretend its debt burden is sustainable." Apparently the house of cards is about to crumble.


Macau's economy declined -17.2% in Q4 after mainland China cracked down on travelers to Macau and gamblers quit spending money. President Xi Jinping's anti-graft campaign prompted high rollers to avoid the gambling city during the Lunar New Year holiday leading to the city's worst monthly decline in revenues in February. Tighter visa procedures and a ban on smoking also kept gamblers away. Most of China smokes.

Full year 2015 estimates now project an 8% decline in gross gaming revenue after a -2.6% decline in 2014. Fine dining restaurants, luxury retail malls and high end hotels are nearly vacant due to a lack of high rollers. Per capita spending by Chinese tourists declined -32.8% in Q4.

Do you think all those casino owners are rethinking spending billions of dollars to open monster casinos in a communist country?


The S&P celebrated its six-year anniversary of a bull market this month. It is up over 200% during that period. Unfortunately this is the third strongest six-year gain since 1907. The other two times were in 1929 and 1999 and neither ended well. Both resulted in major market crashes.

Business Insider Chart


Very Important

I have written about this several times in the past but it does not hurt to repeat it. The U.S. dollar is a global reserve currency. Nearly every commodity in the world is priced in dollars. If Ireland wants to buy oil from Kuwait they have to pay for it in dollars. This means they have to convert their local currency into dollars to make the purchase.

With the dollar soaring this causes significant economic pain around the world because they are forced to use dollars as their trading currency. This also forces countries to stockpile dollars for future use and this cheapens their currency. It is a vicious cycle that every country in the world would like to do away with. When that eventually happens it will be a death knell for the USA.

That came one step closer to fruition last week. The United Kingdom announced they would be applying to join the Chinese led Asian Infrastructure Investment Bank (AIIB) as a founding member. This is China's answer to getting rid of the dollar as a trading currency.

They will soon begin operation of the Chinese International Payment System (CHIPS) and will provide a way for banks to transfer funds to one another without using the U.S. banking system or the dollar.

China also was responsible for the formation of the BRICS development bank called the New Development Bank (NDB) as well as the AIIB. Once these banks begin full operation along with the CHIPS payment system it will end the dominance of the U.S. dollar as a trading currency and shortly thereafter as a reserve currency. Countries will need far less dollars on hand to transact business on a daily basis.

The founding NDB members include Brazil, Russia, India, China, and South Africa. The Founding AIIB members are China, India, Indonesia, Kazakhstan, Mongolia, New Zealand and Britain. The Middle Eastern oil producing countries are expected to join to remove dependence on dollars to pay for oil. Today getting dollars for crude is a win-win because that is the strongest currency. Once these other banks and payment systems are in full swing the dollar is going to crash and OPEC members will want payment in other currencies.

The U.S. has brought this on itself. Banking regulators are attacking banks around the globe and levying fines and penalties in the billions of dollars because those banks did business with countries the U.S. does not like. For instance the U.S. government fined BNP Paribas $9 billion for doing business with "evil" countries like Cuba. How can we impose such a big fine on foreign banks? Because everyone has to deal with the U.S. banking system to process payments in dollars. The government is currently working on new fines on six more banks of $1 billion or more each. Name one other government that has fined a bank in another country for doing business the government did not like.

Also, the U.S. debt is rocketing higher, currently at $18 trillion and headed for $25 trillion just after 2020. Add to that our unfunded liabilities between $45 and $75 trillion, nobody really knows for sure, and we are like Greece. There is no way the U.S. can ever repay our existing debt. Once interest rates normalize at 4% our annual debt service will go up from $300 billion to $1 trillion a year. That is only a couple years away.

The world governments see the writing on the wall and they want to have another banking system in place before the U.S. system crumbles and it will crumble. I am not exaggerating here. Do your own research.

It will not be long before the other "western" nations join up with the AIIB, NDB and CHIPS and the strong dollar will be history. I am not talking months but in the coming years and the eventual crisis will make the 2009 financial crisis look like a walk in the park.


The Debt Ceiling debate returns next week. The temporary reprieve on the $18 trillion debt ceiling expires and congress will have to deal with it in some form. Whenever this has happened in the recent past there has been numerous headlines and market volatility. With a new crop of republicans in office there is bound to be some grandstanding even if it is just temporary. President Obama is not likely to compromise since it is in his favor to have the republicans self destruct over the debt fight. There is not likely to be a Obama-GOP compromise and that means there will be some ugly headlines before the GOP caves in and extends the ceiling. This is just one more reason why other nations want to be freed from using the dollar for their trading. The uncertainty is a headache for them because they really don't understand American politics.


The longest refinery strike in 35 years may be over soon. Unions have worked out a four-year deal that still needs to be ratified and would put 30,000 members back to work. Local chapters may still need to work out minor details but the strike could be coming to an end over the next couple of weeks. This means more oil will be refined and gasoline prices will begin to decline again. Twelve refineries and 20% of U.S. refining capacity has been hit by the strike. Only one refinery was forced to shut down but the others suffered lower throughput as maintenance issues slowly reduced production. The major companies affected include Exxon, BP, Valero and Chevron.


This is a quadruple witching option expiration week. This happens four times a year and historically these produce bullish weeks for the Dow and S&P about 2 out of 3 times. Since 1983 the Nasdaq has posted 19 advances and 13 declines in the March week. However, the week after quadruple witching, especially in March, is typically negative.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

In the episode titled Amok Time Spock has to battle another for the girl that was pledged to be his wife. After winning the contest he gave the girl who had betrayed him to the other suitor named Stonn. "She is yours. After a time, you may find that having is not so pleasing a thing, after all, as wanting. It is not logical, but it is often true."



Leonard Nimoy

 

 


Index Wrap

Next: Looking For a Bottom Not Free Fall

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

The S&P/Dow have retraced a bit over 50% of last advances, Nas Composite just 38% and Nas 100 exactly 50%; the Russell, per my posts of strength to come, is back above its 21-day average. Not succumbing to 'Fed dread' and looking for a next tradable bottom.

In forecasting the S&P 500 Volatility Index (VIX), I'm discovering that the VIX options can be, well, very VOLATILE! I don't myself go in much for very short-term trading (e.g., 2-3 day price swings) and use of the hourly VIX chart coming up shows the fits and starts in the recent rebound in S&P volatility.

Bullish trader sentiment continues to fall as does momentum indicators like the Relative Strength Index or RSI. However, in terms of how much of a percentage retracement I was anticipating given the current long-term up trend, recent lows are suggesting that the major indexes, especially the Nasdaq, could be at or near a bottom.

Also, in terms of 'resisting' recent weakness in stocks in general, the smaller cap Russell 2000 (RUT),like the broad Nasdaq Composite, has only retraced a 'minimal' (Fibonacci) 38 percent of its last run up and is back above its 21-day moving average. A bullish pattern for any of the major indexes when one crosses back above its 21-day average and sustains a move above this key trading average.

The S&P 500 Volatility Index (VIX):

VIX traded 315,000 contracts at week's end, just off a bit from the pace of last Friday. The Index closed the week at 16, up from 15.2 in the prior week. This, after VIX made a minor intraday double bottom low at 13 in late-February/early-March as seen on the hourly chart that follows the daily.

The daily chart seen first suggests a rising VIX trend off its recent bottom, with 17 as pivotal near resistance. If 17 is pierced, look for next resistance in the 18.5 area. I've been saying upside potential in VIX is to the 19 area or higher. Any sustained dip back below 15 is not encouraging for continued upside however.

The VIX DAILY chart:

The VIX HOURLY chart:

One reason to display the extended hourly VIX chart is to remind of the frequent choppy intraday movement in the VIX volatility index both on the way up and way down.

The strong continued advance in VIX into mid-week, as seen visually in the upside gap into Wednesday, was followed by a sharp break into Thursday on a downside hourly price gap as seen next on the hourly VIX chart.

VIX support is highlighted at 15 near-term, extending to 14, with resistance suggested in the 17 area, then at 18.

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX) DAILY CHART:

The S&P 500 (SPX) chart is near-term bearish but the pattern of: 1.) multiple bottoms in the same area after retracing a bit over 50% of its last advance; 2.) hitting an oversold RSI extreme; and 3.) continuing falling bullishness together suggest that SPX may be at or near a bottom.

Support is highlighted at 2040, then in the 2027-2034 price zone, representing the Fibonacci 61.8 to 66 percent retracements. The 2020 area is the lowest downside target I have currently. A new down leg and bearish influence is suggested on an SPX Close below this level and especially for two days running.

Upside SPX resistance is suggested at (red down arrow) in the 2080 area, extending to the 21-day moving average, currently intersecting in the 2092 area. Resistance we could say is 2092 extending to 2100. A sustained move above 2100 would suggest renewed upside momentum.

S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX) chart is also bearish on a short to possibly intermediate-term basis but I a bottom may be near given the same three (3) factors noted above for the S&P 500.

In a still long-term bull market trend, OEX reaching an oversold low in the 13-day Relative Strength Index (RSI) after multiple intraday lows in the same area and after a retracement of between 50 and 60 percent of the prior advance, makes for a set of factors suggesting a bottom could at or near at hand.

Near support is seen in at 896-895 and next in the low-890 area. 885 is my 'lowest' downside expectation for any further slide.

Upside resistance is at 910, extending up to the area of the 21-day moving average currently intersecting at 920. 920 is a pivotal level for OEX to regain and hold above.

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

Dow 30 (INDU) Average has the same pattern as the SPX and OEX in terms of retracements and a bottom pattern that is compelling; enough for me to suggest a bottom may be near in INDU.

A near support for the Dow is suggested at recent lows in the 17635 area and next in the 17550-17510 price zone. While I lean bullish, INDU could dip briefly to this lower zone but I doubt we'd see the Dow Closing below 17400 any time soon.

Near resistance is suggested at 17900, with next resistance in the area of the 21-day moving average and currently intersecting at 18030. The chart resumes a bullish pattern with sustained trade above the 21-day.



NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:

The Nasdaq Composite (COMP) has seen a short-term correction but within its intermediate to long-term uptrend. A minimal Fibonacci 38% retracement has been seen but the longer that COMP holds at or above 4850, the more the likelihood that the Index will retest resistance. A dip to 4800 can't be ruled out, which is next key support.

Resistance is suggested currently in the 4930 to 4950 area, then at the milestone 5000 level, which was the key stopper recently. An eventual advance above 5000 is likely a matter of when, not if.

COMP, unlike the S&P did not reach a 'fully' oversold RSI extreme, but COMP has only rarely done so in its lengthily advance. Another indicator with a bullish cast is suggested by the decline in bullish sentiment over the past week.

Fed dread is loose in the land again. It doesn't matter how many years our central bank has had interest rates at ZERO, but a half-percent rise in rates is the END of the economic recovery! Give me a break but the high-speed traders say thank-you Market for whippy price action!!

NASDAQ 100 (NDX); DAILY CHART:

The big cap Nas 100 (NDX) has, in action similar to the S&P giving back a bit more than half of its last rise only with NDX retracing to date an EVEN 50 percent of its last rise and a making for a fairly normal (percent) correction within an overall bullish trend.

Assuming NDX weakness continues or accelerates below near support suggested at 4290-4287, the Index could dip toward the 4250-4241 area with 4240-4232 my lowest intraday downside target envisioned currently.

Near NDX resistance is at 4350, extending to the 4400-4407 area.

Note the recent decline coming off a period with the Nasdaq 100 Volatility Index (VXN) was at a low 14 reading for a time. I don't try to forecast Index declines based on low volatility but we shouldn't be surprised either at counter-trend pullbacks coming when the trend is smoothly up and some complacency (less 'fear'?) regarding much risk of a serious correction. Well, the popular image is of the VIX/VXN and the like as a fear index when it pops!

The NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:

The QQQ traders/investors seem to have 'woken' up to fear and loathing of a possible bear loose in the land so Friday brought a volume spike with trade very active as the Q's dipped below 105. I suppose this last dip to new lows for the recent decline was a partial trigger to heavier volume; that and the inability for QQQ to climb back above 106. The declining On Balance Volume (OBV) line ahead of Friday was a tip off of for falling prices and more downside however.

Further risk of a sustained move lower is relatively low in my estimation. Time will tell and the ability of this ETF to hold in support at 104.6, extending to 104. Next lower support is highlighted in the 103.4 area. I don't envision sizable further downside ahead but a QQQ Close below 103 would be more of a bearish development than I'm suggesting currently.

Resistance is seen at 106, then 107-107.2.

RUSSELL 2000 (RUT); DAILY CHART:

The Russell 2000 (RUT) has put in a possible 'island bottom' with the gaps lower, then higher, leaving that the two isolated days you can see that have lows near 1200.

Near support is suggested at 1220 but I marked near support at 1209; next support, implied at the 50% retracement level, is highlighted in the 1198 area. Friday's Close back above the 21-day moving average was a bullish development; assuming it continues or just that support is found on dips to the 1220 area which is potential support suggested at the high end of the aforementioned gap area.

Overhead resistance is at 1240-1243. Assuming a break out to new highs, which I also consider a matter of when not if, I project a next target and potential resistance in the 1260 area.


GOOD TRADING SUCCESS!




New Option Plays

No Weakness Here

by James Brown

Click here to email James Brown

Editor's Note:

In addition to tonight's new candidate(s), consider these stocks as possible trading ideas and watch list candidates. Some of these stocks may need to see a break past key support or resistance:

Bearish ideas: GRMN, SSYS, VIAB,

Bullish ideas: HAIN, WBA, CI, HUM


NEW DIRECTIONAL CALL PLAYS

Mallinckrodt - MNK - close: 124.12 change: +0.79

Stop Loss: 119.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.3 million
Entry on March -- at $---.--
Listed on March 14, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
The relative strength in healthcare stocks continues. Healthcare and biotech stocks were big performers last year and that outperformance appears to be continuing into 2015. One stock that is really outperforming its peers is MNK. Shares delivered a +89% gain in 2014 and they're already up +25% in 2015.

MNK describes itself as "Mallinckrodt is a global specialty biopharmaceutical and medical imaging business that develops, manufactures, markets and distributes specialty pharmaceutical products and medical imaging agents. Areas of focus include therapeutic drugs for autoimmune and rare disease specialty areas like neurology, rheumatology, nephrology and pulmonology along with analgesics and central nervous system drugs for prescribing by office- and hospital-based physicians. The company's core strengths include the acquisition and management of highly regulated raw materials; deep regulatory expertise; and specialized chemistry, formulation and manufacturing capabilities. The company's Specialty Brands segment includes branded medicines such as OFIRMEV and Acthar; its Specialty Generics segment includes specialty generic drugs, active pharmaceutical ingredients and external manufacturing; and the Global Medical Imaging segment includes contrast media and nuclear imaging agents. Mallinckrodt has approximately 5,500 employees worldwide and a commercial presence in roughly 65 countries. The company's fiscal 2014 revenue totaled $2.54 billion."

MNK's global medical imaging business has fallen from about one third of the company's sales to about a quarter as the specialty pharmaceuticals business continues to grow. One reason for the growth is MNK's acquisition strategy. Last year they purchased Cadence Pharmaceuticals for $1.3 billion, which added Ofirmev to MNK's stable of therapies. MNK also spent $5.6 billion to acquire Questcor Pharmaceuticals. This added Questcor's Acthar gel to MNK's drug business.

MNK has been really delivering on the earnings front. Last August they reported their Q3 2014 numbers with revenues up +14.6% and earnings of $1.20, which was $0.35 above expectations. Management also raised their 2014 guidance. In October 2014 they raised their 2015 guidance. Then in November MNK announced their Q4 2014 results with revenues up +44.8%, above expectations, and earnings of $1.68 per share, which was $0.27 higher than estimated.

The revenue and earnings parade continued when MNK reported their Q1 2015 numbers on February 3rd. The company's profit more than doubled with earnings up +109% to $1.84 per share. That beat Wall Street's estimate by 26 cents. Revenues accelerated as well with +60% improvement to $866.3 million. However, this time analysts had ratcheted up their estimates to $885 million. MNK said their gross profit margin improved to 50.6% from 47.3% a year ago. MNK is currently forecasting 2015 numbers of $6.70-7.20 a share on revenues in the $3.65-3.75 billion range.

Mark Trudeau, Chief Executive Officer and President of Mallinckrodt, commented on their recent results,

"Mallinckrodt is off to a good start in fiscal 2015 driven by strong performance across all of our businesses. We achieved meaningful top- and bottom-line growth particularly in the Specialty Brands and Specialty Generics segments, increasing the proportion of total company net sales from specialty pharmaceuticals to over 75% in the quarter. The strategies we have pursued have gone far toward transforming us into a leading specialty biopharmaceutical company, and we are highly focused on maintaining momentum and expanding our portfolio to provide durable, sustained growth."
Investors appear to believe in MNK's growth story. The stock has a steady trend of higher lows and higher highs. MNK popped on March 5th thanks to M&A news. Wall Street seems to approve. Normally shares of the acquired company go up and the acquirer go down but investors bought MNK too. MNK is spending $2.3 billion to buy privately held Ikaria. This company makes INOmax, which is an inhaled nitric oxide used to treat babies with respiratory issues. The acquisition will boost MNK's earnings by 25 cents a share in 2015.

Following the acquisition news multiple analysts have raised their price targets on MNK. The nearly all the new targets are about $140 a share. Today MNK is sitting just below what looks like round-number, psychological resistance at the $125.00 mark. We are suggesting a trigger to buy calls at $125.15.

I'd rather buy May or June options but they're not available yet. We'll use the Julys.

Trigger @ $125.15

- Suggested Positions -

Buy the JUL $130 CALL (MNK150717C130) current ask $7.10

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

Daily Chart:



In Play Updates and Reviews

Stocks Queasy Over Currency Moves

by James Brown

Click here to email James Brown

Editor's Note:

The sell-off in the euro accelerated on Friday and that launched the U.S. dollar to new 12-year highs. This pressured crude oil down to $45 a barrel. Investors seemed nervous ahead of the weekend and the major indices ended Friday in the red.


Current Portfolio:


CALL Play Updates

Aetna Inc. - AET - close: 104.09 change: +1.97

Stop Loss: 98.85
Target(s): To Be Determined
Current Option Gain/Loss: +54.4%
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:
03/14/15: The last couple of days have been great for AET bulls. Shares have surged from round-number support at $100 to close at new highs. I wouldn't chase it here.

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

chart:


Cavium, Inc. - CAVM - close: 70.10 change: +0.53

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:
03/14/15: CAVM managed to shrug off the market's weakness on Friday. Shares bounced from their midday lows to close up +0.7%. This stock looks like it's breaking out from the prior two-week consolidation. I am repeating my suggestion to look for a rise past $70.50 as a new bullish entry point.

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

chart:


E.I.du Pont de Nemours and Company - DD - close: 80.50 change: +0.10

Stop Loss: 74.95
Target(s): To Be Determined
Current Option Gain/Loss: +26.4%
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:
03/14/15: DD spiked down at the open on Friday but the weakness didn't last long. Shares quickly recovered and ended Friday at a new high. Shares are now up six weeks in a row.

DD has rejected Nelson Peltz's request for four seats on DD's board of directors, which had no ill effect on the stock price.

DD is nearing its all-time high near $84.40 it set back in May 1998.

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

chart:


NXP Semiconductors - NXPI - close: 104.67 change: +6.09

Stop Loss: 96.25
Target(s): To Be Determined
Current Option Gain/Loss: +527.1%
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:
03/14/15: NXPI was one of the market's big winners on Friday with a +6.1% sprint to new highs. The rally was a reaction to two analysts at Needham & Co. giving NXPI shares a "strong buy" rating and a $140 target. They believe the merger with Freescale Semiconductor (FSL) will make NXPI a true powerhouse in the industry with significant "earnings power".

Shares gapped open higher and broke through round-number resistance at $100.00, which should be new support.

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

03/13/15 NXPI soars on a "strong buy" rating and $140 price target
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

chart:


Under Armour, Inc. - UA - close: 76.05 change: -0.64

Stop Loss: 74.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.1 million
Entry on March -- at $---.--
Listed on March 12, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Comments:
03/14/15: UA spiked to a new one-week high on Friday morning but the rally didn't last. I do not see any changes from Thursday night's new play description. Our suggested entry point is $77.60.

Trade Description: March 12, 2015:
The NPD Group reports that Americans spent $323 billion on apparel, footwear, and related accessories last year. That's only a +1% improvement from the prior year but all of the growth was due to athletic footwear and apparel. There is a new trend in fashion and it's called "athleisure". Marshal Cohen, chief industry analyst at the NPD Group, said, "This is no longer a trend - it is now a lifestyle that is too comfortable, for consumers of all ages, for it to go away anytime soon."

UA is in the consumer goods sector. They make shoes and athletic wear. According to the company, "Under Armour (UA), the originator of performance footwear, apparel and equipment, revolutionized how athletes across the world dress. Designed to make all athletes better, the brand's innovative products are sold worldwide to athletes at all levels. The Under Armour Connected Fitnessâ„¢ platform powers the world's largest digital health and fitness community through a suite of applications: UA Record, MapMyFitness, Endomondo and MyFitnessPal."

The athletic shoe and athletic apparel business is very competitive. Nike (NKE) has dominated the space for years. UA is about 10% the size of NKE but it is actively fighting for market share and recently overtook Adidas as the second biggest athletic wear brand inside the United States. Nike had sales of $27.8 billion in 2014. UA is a fraction of that with 2014 sales of $3.08 billion but they saw growth of +32%.

UA isn't stopping with just apparel and footwear. They recently spent $710 million to buy the MapMyFitness, MyFitnessPal, and Endomondo apps. This has boosted UA's digital consumer audience to 130 million. UA management believes that more and more we will see technology and software move from our smartphone into a merger between apps and clothing.

UA has been firing on all cylinders with its earnings results. Most of last year saw the company not only beating Wall Street's estimates but also raising guidance. UA's most recent earnings report was February 4th. The company reported a profit of $0.40 a share with revenues climbing +31% to $895 million, which was above estimates for $849 million. UA's CEO Kevin Plank, in a recent interview, said his company will grow at 20%-plus in 2015. The company's current estimates are $3.76 billion in sales for the year.

You might notice that shares of UA held up pretty well during the market's recent sell-off. Shares only dipped toward support in the $74-75 area. During today's market rebound shares of UA outperformed with a +2.7% gain. More aggressive traders could buy calls now. I am suggesting a trigger to buy calls at $77.60.

Trigger @ $77.60

- Suggested Positions -

Buy the JUL $80 CALL (UA150717C80)

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

chart:




PUT Play Updates

Bunge Limited - BG - close: 79.41 change: -0.25

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

Comments:
03/14/15: BG tried to rally on Friday morning. It actually tried twice and both times it failed near round-number resistance at $80.00. There was no follow through lower. Our plan has not changed. Use a trigger at $78.45.

Trade Description: March 11, 2015:
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)

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

chart:


Deckers Outdoor - DECK - close: 70.69 change: -1.37

Stop Loss: 75.25
Target(s): To Be Determined
Current Option Gain/Loss: -12.5%
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:
03/14/15: The breakdown in DECK continued on Friday with a -1.9% decline. Shares did bounce at potential round-number support near the $70.00 mark. We can watch broken short-term support at $72.00 to be new resistance.

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

chart:


GoPro, Inc. - GPRO - close: 40.13 change: +0.43

Stop Loss: 44.05
Target(s): To Be Determined
Current Option Gain/Loss: -30.4%
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:
03/14/15: The oversold bounce in GPRO continued on Friday. Shares managed to outperform the broader market with a +1.0% gain. More importantly shares closed above potential resistance at the $40.00 mark. That is a concern. If this bounce continues the next resistance levels appear to be $42.00 and $44.00.

I am not suggesting new positions. More conservative traders may want to lower their stop loss.

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

chart:


Michael Kors - KORS - close: 64.74 change: -0.68

Stop Loss: 70.65
Target(s): To Be Determined
Current Option Gain/Loss: +42.9%
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:
03/14/15: Good news! Shares of KORS tested overhead resistance near $66.00 and its 10-dma and reversed lower. This move looks like a new bearish entry point to buy puts. More conservative traders may want to lower their stop loss.

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

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

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

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

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

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

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

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

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

- Suggested Positions -

Long May $65 PUT (KORS150515P65) entry $2.10

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

chart: