Option Investor
Newsletter

Daily Newsletter, Tuesday, 4/7/2015

Table of Contents

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

Market Wrap

Troubling Signs

by Jim Brown

Click here to email Jim Brown

The decline today was led by the Russell 2000, S&P Small Cap 600 and the S&P Midcap 400. These indexes rolled over around 12:30 and selling increased as the day progressed. For weeks we have been warning that the small caps were the strongest indexes because of no dollar exposure and when they weakened there could be trouble ahead.

Market Statistics

It was not that the dollar suddenly turned around and began falling and making small caps became less desirable. The dollar index rallied +1.2% today to rebound from prior support at 96.25 and the 50-day average. The ECB said it was able to buy all of its 60 billion euro QE target for March. This pushed the euro currency lower and lifted the dollar.

I suspect this is more signs of a tired market rather than a specific headline pushing stocks lower. Stocks have been chopping around at these levels for the last four months as represented by the Dow. When momentum fades the average investors begins wondering if the next move is going to be lower and they take action to protect their portfolios.



The weak jobs report is probably still weighing on the market. The bad news was good news if you want the rate hikes to be pushed farther out into the future but it was still bad news. The Atlanta Fed real time GDPNow forecast is still for only +0.1% GDP growth in Q1. While everyone wants to blame the weather the weak jobs numbers in a month that was not really impacted by weather suggests the economy may be slowing. This is a challenge for portfolio managers.


The Job Openings and Labor Turnover Survey (JOLTS) released today showed job openings rose +3.5% for February. However, we already knew that since the February jobs report showed a gain of +264,000 jobs, but revised down from +295,000 last Friday. That was still a good month.

The JOLTS survey showed that job openings rose from 4.965 million to 5.133 million in February. However, hiring declined for the second month from 4.994 million to 4.916 million. December hiring was much higher at 5.239 million.

If you have been paying attention to the monthly payroll numbers you know that this JOLTS data is a lagging indicator. The market ignored the news.

Outstanding consumer credit in February rose from $10.8 billion to $15.5 billion. Revolving credit declined sharply with a -$3.9 billion drop and the second consecutive monthly decline. Now you know where those gasoline savings are going. Tax refunds are also used to pay down that credit card debt. The nonrevolving segment soared from $11.8 to $19.2 billion thanks to the largest rate of auto sales since the recession.

The biggest report of the week will be tomorrow with the FOMC minutes. These minutes will be crucial since this was the meeting where they removed the word "patient" from the statement. Clues will be sought on the odds for a June rate hike.

The rest of the week is pretty dull as for as economics are concerned. With earnings due to start next week we need to be more worried about any additional earnings warnings for this cycle.


FedEx (FDX) started off with a bang when it announced it was spending $4.8 billion to buy Dutch rival TNT Express (TNTEY). TNT operates in Europe and 70% of its shipments are ground based. This will allow FedEx to better compete with UPS in Europe. The deal works out to $8.75 per TNT share or a 33% premium to Monday's closing price. FDX shares also rallied on the news.

Two years ago UPS tried to buy TNT but had to back out due to objections by European regulators. The FedEx CEO said there would be significant synergies in the transaction and allow them to consolidate duplicate operations.



Axalta Coating (AXTA) shares rallied +10% to $31.11 on news that Warren Buffett increased his stake in the company by acquiring 20 million shares from Carlyle for $28 each. This increases Buffett's stake in Axalta to 9% or $560 million. Axalta is a 145-year old seller of coatings for cars, SUVs and commercial vehicles. Buffett has been aggressively adding to his automobile portfolio and this fits right into the mix. In October Buffett bought nationwide dealership chain Van Tuyl for an undisclosed amount. Van Tuyl has $9 billion a year in vehicle sales making it Buffett's 9th largest subsidiary. He also owns Lubrizol, an automotive lubricant, which he acquired for $9 billion in 2011.

Carlyle bought Axalta from DuPont in 2013 for $4.9 billion and then took the company public by selling 50 million shares for $19.50 each. Buffett's increased position size suggests we could see him buy the entire company if the earnings performance continues. Axalta has a $6.5 billion market cap and Buffett now owns just under 10%. I would buy this stock on any material dip. You can bet Buffett will be adding to his position at the same time.


AthenaHealth (ATHN) declined -5% to $116 after hedge fund manager David Einhorn reiterated his sell rating on the company. Einhorn has a significant short position on the company. He recommended shorting ATHN at the Sohn Investment Conference nearly a year ago. He said it was one of a basket of bubble stocks he was shorting. Shares have been relatively flat since the short call last May.


Twitter (TWTR) shares jumped on rumors of a possible takeover play in the near future. Google (GOOGL) was the rumored acquirer. Google is getting killed in the social networking field after Google Plus flopped. Analysts claim Google Circles is dead. There was a rumor that Twitter has hired advisers to rebuff a takeover bid from two companies. Twitter options were very active on Tuesday with more than 250,000 contracts trading. Call options beat puts 3:1.

Dan Niles from AlphaOne also made news saying he had bought Twitter shares after being short for a long time. He said the new search contract with Google plus the new Periscope feature would aid in bringing more people into the twittersphere.

Apple (AAPL) could also be a potential acquirer and Twitter's $33 billion market cap would not be a problem since it has $178 billion in cash. Apple does not have a real social media product. There were even some rumors Facebook (FB) might be interested in order to round out its product line. Twitter users are a different segment of the population than Facebook users so the company could fill a niche that it doesn't currently have.

Twitter acquisition rumors come around about once a quarter but this time there is a little more strength behind the rumors. Who knows, maybe Twitter is about to get some new management the hard way.


Shire Plc (SHPG) said it had reached an agreement with the FDA on a clear regulatory path for SHP465. This is an investigational oral stimulant medication being evaluated as a potential treatment for ADHD in adults. Shire has agreed to do a short term study in pediatric patients with ADHD ages 6-17. Shire plans to market the drug for adults but the FDA requested the additional pediatric data to better understand the benefits in the event the drug is approved for this segment as well. Shire has patent protection for its multiple ADHD drug franchise that extends to 2029. SHP465 is expected to be available to the market in 2017.


Starbucks (SBUX) announced it was going to give eligible employees a full ride four year scholarship. The catch is that they have to work a minimum of 20 hours a week and take the online program from Arizona State University. The company has set aside $250 million and will reimburse the tuition for the full four years. In the current program they only reimburse the last two years of tuition while freshmen and sophomores could only get a partial reimbursement.

Out of the 144,000 employees only 2,000 are enrolled in the current program. Starbucks believes it can attract a better class of worker and encourage existing workers to get a degree by expanding the program to cover all four years. Tuition costs will be reimbursed at the end of each semester. The company wants to help 25,000 employees graduate by 2025. ASU offers 49 undergraduate programs for the program and there is no requirement to continue working for Starbucks after graduating.


Energy company Royal Dutch Shell (RDS.A) said it wa sin talks to buy BG Group (BRGYY) for roughly $68 billion. BG Group is heavily involved in natural gas and LNG. This deal would give Shell access to significant oil and gas reserves as well as existing production and LNG assets around the world. Shell would gain a large position in the deepwater reserves offshore Brazil and the unconventional gas in Australia. BG is one of the world's largest producers and traders of LNG and when combined with Shell the entity will dominate LNG on a global scale. BG recently completed a $20 billion LNG project in Australia. BG Group shares gained +6% on the news. This makes me wonder if all the news is accurate since BG Group only has a market cap of $46 billion. A $20 premium would be a monster premium and worth more than a 5% spike. No deal has been done but I would have expected a bigger gain. After checking again the first news broke at 4:30 PM so the spike may come tomorrow.


Railcar manufacturer Greenbrier (GBX) reported earnings of $1.57 compared to estimates for $1.23. Revenue rose +23% to $630.1 million but missed estimates of $637 million. I suspect nobody will care about the revenue miss. The company now expects to earn $5.65-$5.95 for the full year, up from $5.20-$5.50. They expect to deliver 21,500 railcars in 2015 with a gross margin of 19.9%. They delivered 5,200 in Q1, up from 4,000 in the November quarter. Shares spiked +6% on the news but faded to a +3% gain as market selling accelerated near the close.


Crude oil rallied +3% in regular trading to close at $53.86 and the highest close of the year. Bullish sentiment for crude is increasing as we move closer to the Memorial Day kickoff for the summer driving season. Even though inventories are still increasing the crack spread is also increasing and that means enormous profits for refiners. Refining margins in March rose to $28.09 a barrel and the most since March 2013. This is a huge profit and it means refiners will be racing to refine that oil they have stockpiled at very low prices. As oil prices rise their profits will increase because they have full tanks that they bought over the last several months at prices in the mid to low $40s.

Historically refiners increase their consumption of crude by an average of 1.1 million barrels per day from April through July. I would expect it to be even higher this year as the race to capitalize on this profit opportunity. Ironically shares in the major refiners are plunging because retail investors don't realize how profitable this scenario really is.


Markets

While nobody knows why the market was weak this afternoon there is a trend that nobody is talking about. Bearish puts on the S&P-500 outnumber calls by the most since October 2008. Obviously market sentiment is far from bullish. There could be several reasons for this. The sharp decline in the economic numbers over the last two months has worried portfolio managers so they are protecting their positions with puts rather than sell the stocks. Economic data is missing forecasts by the most in six years. The ISM Manufacturing Index declined to 51.5 in March and the fifth consecutive decline. This is the longest streak of declines since 2008.

Secondly, traders may be speculating on the sell in May cycle that will hit in a couple weeks. Third, with earnings expected to be so negative speculators are loading up on puts to profit from any decline. Lastly, the lack of forward motion for the last four months may have convinced many investors that the next major move is going to be lower. If you remember the quarter end numbers the Dow and S&P were flat for Q1 and the Nasdaq and Russell 2000 only gained about +3.5% YTD. Momentum has died. Dan Niles said today he expects a 10-20% correction this summer.

Analysts are speculating this week that the market is listless because companies are in their quiet period before earnings and can't buy back stock until after they report. Stock buybacks have been a major factor in market movement over the last year because they shrink the float. Companies are returning cash to shareholders through monster buyback programs. As an example Qualcomm (QCOM) recently announced a $15 billion buyback.

We have also seen a record $500 billion in new corporate bonds issued in Q1. That is the most ever and some of that cash will be used to buy back stock but not until after earnings. It will also be used for mergers and acquisitions but that is a longer process.

Market volume was very weak today at only 5.6 billion shares. Volume on the S&P-500 ETF (SPY) was only 81 million shares compared to the normal 115 million on average. There are no catalysts to drive the market higher and recently the only major up moves we have seen have been short squeezes. The shorts are very active but so far they have been relatively unsuccessful.

The S&P has been stuck in a tight range for the last two weeks between 2050 and 2090. Today was no exception with the high at 2089.91. That is about as close as you can get to 2090 without touching it. The 100-day average has risen to 2060 and that was just about where the index rebounded on Monday's market drop at the open. So far the 150-day average now at 2030 has not been touched since January.


The Dow only lost -5 points for the day but closed -108 points off its intraday high. That is not a good sign. Apple was the biggest loser again along with American Express (AXP) after being downgraded to a sell at Oppenheimer. Decent gains in Boeing and the oil stocks were holding the index to a minor loss.

Despite the negative close the Dow is still at the upper end of its range over the last several days. The support at 17,620 is still intact but the index feels heavy. That probably means it will confound the charts and move higher but the resistance at 18,000 is still strong. The high today was 17,983 so close but not quite enough. Sellers were waiting.

The key levels are going to be 17,620 and 18,000 and everything in the middle is just noise.



The Dow Transports posted a gain on Tuesday thanks to FedEx. With oil prices rising and economic declining I seriously doubt the gain will last. The transports are clinging to the critical support at 8600 and once that breaks it could be a long drop. This is key because the movement in the transports rubs off on the Dow. Any material decline here could drag the Dow lower.


On the Nasdaq the resistance at 4950 was rock solid with the high for the day at 4948.88. Fortunately the support at 4850 is equally as strong. The tech stocks are still suffering from the same ailment as the Dow. The big caps are going to have terrible earnings because of the strength in the dollar.

To take a phrase from Star Wars, "Move along, nothing to see here."



Despite the Russell 2000 leading the decline today it is still the strongest index. The moment that is no longer the case we should be moving to the sidelines. Whether today was just fund manager profit taking from the rebound since January of the leading edge of something bigger we will not know until tomorrow. However, Russell futures are slightly negative tonight while the Dow, Nasdaq and S&P futures are slightly positive. Is that a clue for tomorrow?


I would remain cautious for the rest of the week. While we might get an afternoon bounce out of the FOMC minutes on Wednesday there is an equal chance they could send us lower. The markets have lost momentum and without a catalyst the path of least resistance is lower.

Analyst comments on earnings are improving. While S&P earnings are expected to decline -3% for Q1 the majority of that is a -63% decline in energy. If you take out energy we actually get +4% growth. If that metric gets repeated enough it could boost sentiment and attract some buyers. I know that is a big IF but it is all we have to hope for today.

Enter passively, exit aggressively!

Jim Brown

Send Jim an email

 

 


New Option Plays

Canary In The Coalmine

by James Brown

Click here to email James Brown


NEW DIRECTIONAL PUT PLAYS

iShares Transportation Average - IYT - close: 154.14 change: +0.58

Stop Loss: 156.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 458 thousand
Entry on April -- at $---.--
Listed on April 07, 2015
Time Frame: exit prior to May option expiration
New Positions: Yes, see below

Company Description

Why We Like It:
Weakness in the transportation stocks could be the canary in the coalmine warning of future stock market bearishness.

The IYT is an ETF that mimics the Dow Jones Transportation Average. The IYT's top ten holdings are: FDX, UNP, NSC, KSU, UPS, R, JBHT, CHRW, KEX, and ALK. Put them altogether and the IYT reflects trading in the railroads, trucking, and airlines.

Many analysts look to the transportation average as a key indicator because transport companies are a barometer of the economy. These companies are moving goods around the country and around the world. If these companies are seeing trouble then it could suggest the broader economy is slowing down.

Considering the weeks and weeks of disappointing economic data in the U.S. it should not surprise us to see the IYT underperforming the rest of the market. The first quarter of 2015 has definitely slowed down. Q3 2014 saw U.S. GDP growth near 5%. Q4 2014 was about +2%. Current estimates on Q1 2015 GDP growth are nearing 0%.

The impact of crude oil's drop from its 2014 highs has already been factored in. Now investors have to consider what happens if oil has bottomed? Oil has been consolidating sideways the last couple of months and it's already up +18% from its March lows.

This year we've already seen some transportation companies lower 2015 guidance. Railroad giant Kansas City Southern (KSU) lowered guidance. Fedex (FDX) also lowered its 2015 guidance. This year we have seen truck tonnage and rail carloads falling.

The DJUSAR airline index has produced a bearish double top pattern and just broke down under support this week. The DJUSTK trucking index has also created a bearish double top and is testing technical support at its 200-dma. The DJUSRR railroad index looks the weakest with a breakdown below its long-term up trend.

Technically the IYT looks like it's in serious trouble with the bearish breakdown below support in the $154-155 area and below its simple 200-dma. The point & figure chart is bearish and forecasting at $142.00 target.

Today shares of FedEx (FDX) surged on news it's planning to buy TNT Express, a European rival, for $4.8 billion. We think this is a one-day pop for both FDX and the IYT. Thus today's failed rally in the IYT near its 200-dma looks like an entry point to buy puts. Tonight we are suggesting traders buy puts at the opening bell tomorrow with an initial stop loss at $156.25.

*Buy puts at the opening bell*

- Suggested Positions -

Buy the MAY $150 PUT (IYT150515P150) current ask $2.15
option price is a current quote and not a suggested entry price.

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

Daily Chart:



In Play Updates and Reviews

Still Churning Ahead of Earnings Season

by James Brown

Click here to email James Brown

Editor's Note:

Stocks continue to churn sideways with equities giving up their midday gains with a late day sell-off. Investors could be cautious ahead of tomorrow's FOMC minutes. Plus the Q1 earnings season kicks off tomorrow.

CAR hit our entry trigger to buy puts.


Current Portfolio:


CALL Play Updates

Cardinal Health, Inc. - CAH - close: 89.94 change: +0.01

Stop Loss: 87.75
Target(s): To Be Determined
Current Option Gain/Loss: -23.1%
Average Daily Volume = 1.7 million
Entry on March 30 at $90.55
Listed on March 28, 2015
Time Frame: We might exit prior to CAH earnings
(potentially April 30th)
New Positions: see below

Comments:
04/07/15: The stock market's late day decline erased CAH's gains and shares closed virtually unchanged.

I'm not suggesting new positions at this time.

Trade Description: March 28, 2015:
The big healthcare names have shown significant relative strength over the last couple of years. That momentum has carried into 2015 and shares of CAH are outperforming the broader market with a +11% gain year to date.

You might have heard about CAH recently since the company made headlines in early March. Here's a brief description of the company, "Headquartered in Dublin, Ohio, Cardinal Health, Inc. (CAH) is a $91 billion health care services company that improves the cost-effectiveness of health care. As the business behind health care, Cardinal Health helps pharmacies, hospitals, ambulatory surgery centers, clinical laboratories and physician offices focus on patient care while reducing costs, enhancing efficiency and improving quality. Cardinal Health is an essential link in the health care supply chain, providing pharmaceuticals and medical products and services to more than 100,000 locations each day and is also the industry-leading direct-to-home medical supplies distributor. The company is a leading manufacturer of medical and surgical products, including gloves, surgical apparel and fluid management products. In addition, the company operates the nation's largest network of radiopharmacies that dispense products to aid in the early diagnosis and treatment of disease."

Management has been doing a good job with the earnings game. The last three quarters in a row have seen CAH beat Wall Street estimates on both the top and bottom line. Their next report should be the end of April.

On March 2, 2015 CAH made the news with their $2 billion acquisition of Cordis. Here's an except from the company's press release:

Cardinal Health today announced plans to acquire Johnson & Johnson's Cordis business, a leading global manufacturer of cardiology and endovascular devices, for $1.944 billion in cash, or approximately $1.594 billion, net of the present value of tax benefits. The acquisition is expected to be financed with a combination of $1.0 billion in new senior unsecured notes and the remainder with existing cash. The transaction is expected to close in the United States and key non-U.S. countries towards the end of calendar 2015.
CAH is forecasting this acquisition will add more than $0.20 per share to the company's 2017 earnings. They expect synergies to be more than $100 million by the end of fiscal 2018.

CAH's chairman and CEO, George Barrett, commented on the acquisition,

"We are extremely excited about the acquisition of Cordis. This is a significant step forward in our cardiovascular strategy. Cordis brings with it a long and proud legacy of cardiovascular innovation. This move highlights our commitment to address a major pain point in healthcare systems through innovative new approaches to the management of physician preference items. This acquisition follows a sequence of strategic moves for Cardinal Health in the areas of cardiology, wound management and orthopedics. We are well-positioned to help customers standardize around mature medical devices, while bringing them innovative solutions around supply chain management, inventory optimization, and work flow tools and data to support the most effective management of the patient...

With an aging population and the accompanying demand for less invasive medical treatments, health systems around the world are searching for the best way to bring quality care to their patients in the most cost-effective way. The acquisition of Cordis reinforces our strategic position to address this need and strengthens an important growth driver in the Cardinal Health portfolio."

Moody's Investors Service, a credit rating agency, commented on the deal and said it would be credit positive for CAH. Meanwhile a couple of analyst firms upgraded their price targets on CAH following the story with new targets at $105 and $107.

Technically shares of CAH have been trading in a bullish pattern of higher lows and higher highs. Investors just bought the dip at $88.00 near its trend line of support. We want to hop on board and tonight we are suggesting a trigger to buy calls at $90.55.

- Suggested Positions -

Long MAY $90 CALL (CAH150515C90) entry $2.86

03/30/15 triggered @ 90.55
Option Format: symbol-year-month-day-call-strike


iShares Russell 2000 ETF - IWM - close: 124.40 change: -0.80

Stop Loss: 122.85
Target(s): To Be Determined
Current Option Gain/Loss: +8.2%
Average Daily Volume = 32.7 million
Entry on March 27 at $123.05
Listed on March 26, 2015
Time Frame: Exit prior to May option expiration
New Positions: see below

Comments:
04/07/15: The small cap IWM underperformed its big cap peers with a -0.6% decline on Tuesday. We are turning a bit more defensive and raising the stop loss to $122.85. No new positions at this time.

Trade Description: March 26, 2015:
The IWM is the exchange traded fund (ETF) that mimics the small cap Russell 2000 index ($RUT). Last year we saw the Russell 2000 underperform its large cap rivals. The S&P 500 delivered a +11.5% gain in 2014 while the $RUT only rose +3.6%. The situation has changed this year. As of last week's high the $RUT was up +5.3% compared to a +2.3% gain in the S&P 500.

Investors have been drawn to small cap companies because they will endure the impact of a strong dollar better than the large caps. Many of the large cap S&P 500 companies are big multi-national firms. Almost 50% of revenues for S&P 500 components are overseas. Yet only 20% of revenues for Russell 2000 companies are outside the U.S. At the same time the U.S. economy, while growing slowly, is still growing faster than Europe.

Technically the IWM was holding up pretty well until Wednesday's market-wide plunge. Traders bought the dip today near its trend of higher lows. The point & figure chart for the IWM is still bullish and forecasting a long-term target of $154.00. We think stocks could see a bounce soon and the IWM could be a great way to play it. Tonight we are suggesting a trigger to buy calls at $123.05. We'll start this trade with a stop at $119.65.

- Suggested Positions -

Long MAY $125 CALL (IWM150515C125) entry $1.94

04/07/15 new stop @ 122.85
04/04/15 new stop @ 121.65
03/27/15 triggered @ 123.05
Option Format: symbol-year-month-day-call-strike


Lennox International - LII - close: 111.39 change: -0.70

Stop Loss: 110.25
Target(s): To Be Determined
Current Option Gain/Loss: -9.8%
Average Daily Volume = 417 thousand
Entry on March 23 at $110.96
Listed on March 19, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
04/07/15: Today's -0.6% dip in LII just snapped a seven-day winning streak. Shares look headed for what might be short-term support at $111.00. We are raising our stop loss to $110.25.

No new positions at this time.

Trade Description: March 19, 2015:
LII has been in business for over one hundred years. Lennox Intl. is part of the industrial goods sector. They offer residential cooling and heating products as well as commercial cooling and heating equipment. They are considered a global leader in the heating, air conditioning, and refrigeration markets. The residential business generates just over half of their annual sales.

The last couple of quarters have seen steady growth for LII. You can see the big gap higher in the stock price back in October 2014. That was a reaction to its Q3 earnings results. Their most recent report was February 2nd, 2015 where LII delivered its Q4 results.

Analysts were expecting a profit of $0.99 a share on revenues of $790 million. LII reported earnings per shares grew +32% to $1.02. Revenues were up +8.4% to $812.8 million, led by +13% sales growth in their residential segment.

Chairman and CEO Todd Bluedorn commented on his company's results,

"2014 was a year of strong growth and record profitability for Lennox International, led by 10% revenue growth at constant currency and 31% profit growth in our Residential business. In the fourth quarter, the company's momentum continued, with revenue up 10% at constant currency and total segment profit up 24%. Growth in the quarter continued to be led by Residential, with revenue up 14% at constant currency and profit up 57% from the prior-year quarter. In Commercial, revenue rose 8% at constant currency. Commercial profit was essentially flat with the prior-year quarter on headwinds from customer mix, foreign exchange, and investments related to our entrance in the VRF market. In Refrigeration, revenue was up 8% at constant currency. As expected, Refrigeration profit was down from the prior-year quarter by 45% due to the repeal of the carbon tax in Australia, North America product mix, and a negative impact from foreign exchange. We continue to expect Refrigeration revenue, margin and profit to be up in 2015 on continued growth in North America and improvement in Australia in the second half of the year. For the company overall in 2015, we expect another strong year of growth and record profitability, with strong cash generation for investments to drive growth as well as to return cash to shareholders."
Last year LII earnings rose more than +20% to $4.23 a share. They are forecasting $5.20-5.60 per shares in 2015 (+22.9% to +32.3%) versus Wall Street estimates of $5.42 per share.

Shares have been a steady performer the last few months with a bullish trend of higher lows and higher highs. The point & figure chart is bullish with a $140 target. Today shares of LII are hovering just below round-number resistance at $110. We are suggesting a trigger to buy calls at $110.25.

- Suggested Positions -

Long JUN $115 CALL (LII150619C115) entry $2.55

04/07/15 new stop @ 110.25
03/23/15 triggered on gap open at $110.96, suggested entry was $110.25
Option Format: symbol-year-month-day-call-strike


Nike, Inc. - NKE - close: 99.61 change: -0.12

Stop Loss: 97.40
Target(s): To Be Determined
Current Option Gain/Loss: -40.0%
Average Daily Volume = 3.6 million
Entry on March 30 at $101.23
Listed on March 26, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
04/07/15: NKE is still drifting sideways near the $100.00 level. If the market accelerates lower I would expect NKE to slip toward $98.00.

I am not suggesting new positions at this time.

Trade Description: March 26, 2015:
In the athletic footwear and apparel industry Nike is the 800-pound gorilla with annual sales of more than $30 billion. According to the company, "NIKE, Inc., based near Beaverton, Oregon, is the world’s leading designer, marketer and distributor of authentic athletic footwear, apparel, equipment and accessories for a wide variety of sports and fitness activities. Wholly-owned NIKE, Inc. subsidiaries include Converse Inc., which designs, markets and distributes athletic lifestyle footwear, apparel and accessories, and Hurley International LLC, which designs, markets and distributes surf and youth lifestyle footwear, apparel and accessories."

The company's most recent earnings report was March 19th, after the closing bell. NKE reported its Q3 2015 results. Analysts were expecting a profit of $0.84 a share on revenues of $7.62 billion. NKE delivered a profit of +0.89 a share or +16% from a year ago. Revenues were up +7% to $7.46 billion. However, if you back out the currency headwinds, their revenues were up +13%.

The company reported sales growth across every geographical region. Their gross margins improved 140 basis points to 45.9 percent. Management said their online sales are soaring. Nike.com saw its revenues jump +42% last quarter.

The current quarter is NKE's 2015 Q4 (March-July) and the company said orders for Q4 in North America are up +15%, which is above analysts' estimates of +11.6%. Orders from China are up +11%, also above estimates. In the company's earnings release NKE said, "As of the end of the quarter, worldwide futures orders for NIKE Brand athletic footwear and apparel scheduled for delivery from March 2015 through July 2015 were 2 percent higher than orders reported for the same period last year. Excluding currency changes, reported orders would have increased 11 percent."

One big concern is the U.S. dollar. Sales in Europe were up +21% but when you factor in euro weakness and dollar strength that sales growth drops to +10%. The strength in the U.S. dollar is a major headwind but after NKE's Q3 results Wall Street feels that the company is managing the currency impact very well. The company is forecasting low double digit sales growth in the current quarter.

Wall Street applauded the results and shares of NKE gapped open higher on March 20th to hit all-time highs. There was a parade of bullish analyst comments. Several firms raised their price target on NKE. Here's a brief list of new price target: $106, $110, $115, $116.00. The point & figure chart is more optimistic as it is forecasting at $125.00 target.

Shares of NKE have seen some profit taking, which isn't a surprise considering the market's four-day decline. However, now that NKE has filled the gap, traders bought the dip. This could be an entry point. We are suggesting a trigger to buy calls at $100.25.

- Suggested Positions -

Long MAY $100 CALL (NKE150515C100) entry $3.35

03/30/15 triggered on gap open at $101.23, suggested entry was $100.25
Option Format: symbol-year-month-day-call-strike


PTC Therapeutics, Inc. - PTCT - close: 66.15 change: +0.04

Stop Loss: 59.75
Target(s): To Be Determined
Current Option Gain/Loss: -9.1%
Average Daily Volume = 551 thousand
Entry on April 06 at $65.25
Listed on April 04, 2015
Time Frame: Exit prior to earnings in May
New Positions: see below

Comments:
04/07/15: PTCT is still trying to rally. Unfortunately shares found short-term resistance near $68.50 and its 20-dma. PTCT looks like it will retest broke resistance and what should be new support at the $65.00 level tomorrow morning. I'd wait for a bounce before considering new bullish positions.

Trade Description: April 4, 2015:
Healthcare stocks have been market leaders but biotechs have sprinted past their healthcare brethren. PTCT saw big gains off its 2014 lows and has continued to outperform in 2015, even after its recent correction.

Here's a brief description of PTCT, "PTC is a global biopharmaceutical company focused on the discovery, development and commercialization of orally administered, proprietary small molecule drugs targeting an area of RNA biology we refer to as post-transcriptional control. Post-transcriptional control processes are the regulatory events that occur in cells during and after a messenger RNA is copied from DNA through the transcription process. PTC has received conditional marketing authorization in the European Economic Area for Translarna for the treatment of nonsense mutation Duchenne muscular dystrophy in ambulatory patients aged five years and older.

PTC's internally discovered pipeline addresses multiple therapeutic areas, including rare disorders, oncology and infectious diseases. PTC has discovered all of its compounds currently under development using its proprietary technologies. PTC plans to continue to develop these compounds both on its own and through selective collaboration arrangements with leading pharmaceutical and biotechnology companies."

You can view PTCT's pipeline data on the company's website.

Most of the excitement for PTCT appears to be focused on its Ataluren drug. It's a treatment for Duchenne muscular dystrophy caused by nonsense mutations. The drug is already approved on a conditional basis in Europe. Right now PTCT is performing a Phase III study. Results are expected in the fourth quarter of 2015. This could be a HUGE event for the company and the stock. Success will likely send the stock soaring while disappointing results could crush shares.

A few weeks ago the stock was rocketing higher thanks to takeover speculation. Analysts were painting a takeover target on PTCT and speculating that Biomarin Pharmaceuticals, Shire, or Vertex Pharmaceuticals might be suitors. It is still just speculation at this point. It would be a big gamble to buy PTCT now before its Phase III study was complete but if you are a potential acquirer then the price will go up if the study is a success.

The Street.com published an interesting note on PTCT's CEO Stu Peltz selling all of his stock in the company (about 47,000 shares). If he believes in the future of PTCT's pipeline, why would he sell? If he believes his company could be acquired by a rival, why would he sell? The other side of the coin is that executives with a lot of stock should diversify their wealth. He does still have stock options but selling his current stake could be seen as a big negative.

Technically PTCT has already seen a -20% correction from its March highs. On the plus side the action over the last two weeks looks like a bullish double bottom. Today the point & figure chart is bearish but a move above $65.00 would generate a new buy signal. The most recent data listed short interest at 14% of the very small 25.5 million share float so PTCT could see some short covering on a breakout.

The long-term trend is bullish and short-term PTCT looks ready to bounce. I want to warn readers that this is a higher-risk, more aggressive trade. We always consider biotech stocks to be higher-risk. The news about the CEO selling his stock generates doubt about the company's short-term future. Cautious traders may want to sit this one out. We're suggesting a trigger to launch small positions at $65.25.

*small positions* - Suggested Positions -

Long MAY $70 CALL (PTCT150515C70) entry $4.40

04/06/15 triggered @ 65.25
Option Format: symbol-year-month-day-call-strike




PUT Play Updates

Alkermes plc - ALKS - close: 60.72 change: +0.63

Stop Loss: 64.15
Target(s): To Be Determined
Current Option Gain/Loss: +34.9%
Average Daily Volume = 1.26 million
Entry on March 25 at $64.90
Listed on March 23, 2015
Time Frame: exit PRIOR to May option expiration
New Positions: see below

Comments:
04/07/15: ALKS managed another bounce from round-number support at $60.00. Fortunately the rally failed at short-term technical resistance at its 10-dma.

I am not suggesting new positions.

Trade Description: March 23, 2015:
Biotech stocks have been some of the market's best performers, especially off the October 2014 lows. The group may have gotten ahead of itself with significant gains in recent weeks. The last couple of days the biotech ETFs are flashing what might signal a potential top. Meanwhile one stock that has been underperforming its peers is ALKS.

You might not be familiar with ALKS. The company is part of the healthcare sector. According to their marketing materials, "Alkermes plc is a fully integrated, global biopharmaceutical company developing innovative medicines for the treatment of central nervous system (CNS) diseases. The company has a diversified commercial product portfolio and a substantial clinical pipeline of product candidates for chronic diseases that include schizophrenia, depression, addiction and multiple sclerosis. Headquartered in Dublin, Ireland, Alkermes plc has an R&D center in Waltham, Massachusetts; a research and manufacturing facility in Athlone, Ireland; and manufacturing facilities in Gainesville, Georgia and Wilmington, Ohio."

The company's most recent earnings report was February 24th. They beat expectations on both the top and bottom line. Unfortunate for shareholders management lowered their 2015 revenue guidance. Since its report shares have broken down. The stock has seen a couple of analyst downgrades (or lowered price targets). The point & figure chart has turned bearish and is currently forecasting at $54.00 target.

You can see the gap down on the earnings news. ALKS struggled to rebound and when it did traders immediately sold the stock at resistance. Now it's on the verge of breaking down bellow support near $65.00. The $60.00 level is potential support but there is a chance shares drop toward their 200-dma closer to $55. Tonight we are suggesting a trigger to buy puts at $64.90.

I want to remind readers that biotech stocks can be volatile. We should consider this a more aggressive, higher-risk trade.

- Suggested Positions -

Long MAY $60 PUT (ALKS150515P60) entry $2.15

04/01/15 new stop @ 64.15, potential bullish reversal, consider an immediate exit to lock in potential gains now.
03/31/15 new stop @ 65.25
03/28/15 new stop @ 67.65
03/25/15 triggered @ 64.90
Option Format: symbol-year-month-day-call-strike


Avis Budget Group, Inc. - CAR - close: 55.54 change: -1.75

Stop Loss: 60.05
Target(s): To Be Determined
Current Option Gain/Loss: +2.6%
Average Daily Volume = 1.7 million
Entry on April 07 at $55.85
Listed on April 06, 2015
Time Frame: exit PRIOR to May option expiration
New Positions: see below

Comments:
04/07/15: Our new trade on CAR is off to a good start. Shares broke down under support near $56.00 and hit our suggested entry point at $55.85. CAR underperformed the broader market with a -1.75% decline.

Trade Description: April 6, 2015:
Investors sentiment for CAR seems to have soured. The company operates in a competitive, low-margin industry.

According to the company, "Avis Budget Group, Inc. (CAR) is a leading global provider of vehicle rental services, both through its Avis and Budget brands, which have more than 10,000 rental locations in approximately 175 countries around the world, and through its Zipcar brand, which is the world's leading car sharing network, with more than 900,000 members. Avis Budget Group operates most of its car rental offices in North America, Europe and Australia directly, and operates primarily through licensees in other parts of the world. Avis Budget Group has approximately 30,000 employees and is headquartered in Parsippany, N.J."

Another challenge is the broader transportation industry. Many market analysts view the transportation industries as a barometer of the wider economy. Fuel prices are significantly lower than they were a year ago. This is a net positive for the transports. This effect seems to be priced in. Now the weight of a slowing U.S. economy appears to be dragging the transportation average lower. Today saw the Dow Jones Transportation Average breakdown below key support at the 8,600 level.

Looking at CAR, the company's last three earnings reports have been mixed. They managed to beat Wall Street's earnings estimates on the bottom line three quarters in a row. Revenues are slowing down. Q2 revenues came in above estimates. Q3 revenues were up +6% but were just a hair below estimates. Q4 revenues were up +2% and missed estimates. Part of the problem is currency headwinds. The surging dollar has damaged their revenue growth. CAR's guidance when they reported Q4 earnings in February forecasted 2015 revenues below analysts' estimates.

Meanwhile traders have been selling the rallies. The late December rally failed near $68.00, marking a lower high from its 2014 peak. The rally failed again a few days later. The post-earnings spike in February produced another lower high. Now we see the oversold bounce from support near $56.00 has already rolled over. The point & figure chart is bearish and forecasting at $45.00 target.

Tonight we are suggesting a trigger to buy puts at $55.85. We will plan on exiting prior to May option expiration or CAR's earnings report in May (whichever comes first).

- Suggested Positions -

Long MAY $55 PUT (CAR150515P55) entry $1.95

04/07/15 triggered @ 55.85
Option Format: symbol-year-month-day-call-strike


Copa Holdings - CPA - close: 101.73 change: +1.77

Stop Loss: 103.05
Target(s): To Be Determined
Current Option Gain/Loss: -47.2%
Average Daily Volume = 624 thousand
Entry on April 02 at $97.75
Listed on April 01, 2015
Time Frame: Exit prior to earnings in May
New Positions: see below

Comments:
04/07/15: Heads up! CPA is not cooperating. I warned readers yesterday about the bullish reversal pattern. Today's rally should confirm the bullish reversal higher, not to mention the breakout above resistance at $100.00 and CPA's display of relative strength.

The stock's strength is surprising since the rest of the airline stocks are trending lower. I don't see any news to account for this rebound in CPA.

More conservative traders will want to seriously consider an immediate exit. I am not suggesting new positions.

Trade Description: April 1, 2015:
There are plenty of opinions on oil and if the commodity has found a bottom or not. The plunge in oil prices last year was a huge boon for the airlines as jet fuel is a major expense. The impact of low oil prices may already be factored in. It's worth noting that the price of crude oil hit new relative lows in mid March while the XAL airline index formed a new lower high instead.

CPA is a regional airline. Here's a brief description, "Copa Holdings is a leading Latin American provider of passenger and cargo services. The Company, through its operating subsidiaries, provides service to 73 destinations in 30 countries in North, Central and South America and the Caribbean with one of the youngest and most modern fleets in the industry."

CPA has been underperforming its peers in the airline industry for a while. Thus far the XAL airline index is down -4.4% in 2015 and down about -8% from its multi-year highs in January. CPA is down -5.2% for the year but it's down -19% from its 2015 highs and down -40% from its early 2014 highs.

Earnings have been a mixed bag the last couple of quarters. CPA reported its 2014 Q3 results on November 20th. Earnings beat estimates. Yet revenues were down -0.5% and below Wall Street estimates. CPA's Q4 report was February 12th. Earnings plunged from $3.20 a year ago down to $2.83 (-11.5%). Revenues fell -3.9%.

This week Deutsche Bank has downgraded the airlines as a group. Rising capacity and a slowing global economy will hurt business. Traders are bearish on CPA. The most recent data listed short interest at 14% of the small 33.3 million share float.

Technically CPA is bearish with a pattern of lower highs and lower lows. Today the stock broke down below key support at the $100.00 mark. The point & figure chart is bearish and forecasting an $80.00 target. Today's low was $98.03. We are suggesting a trigger to buy puts at $97.75.

- Suggested Positions -

Long MAY $95 PUT (CPA150515P95) entry $3.60

04/07/15 Caution - more conservative traders may want to exit now
04/06/15 Warning! CPA has created a potential bullish reversal pattern
04/02/15 triggered @ 97.75
Option Format: symbol-year-month-day-call-strike


Michael Kors - KORS - close: 64.38 change: +0.88

Stop Loss: 65.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 3.5 million
Entry on April -- at $---.--
Listed on April 04, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Comments:
04/07/15: KORS also displayed relative strength with a +1.38% gain. Looking at the intraday chart we can see that the rebound failed at short-term resistance near $65.00.

I don't see any changes from the weekend newsletter's new play description. Our suggested entry point for bearish positions is $62.90.

Trade Description: April 4, 2015:
Luxury retail brand names like KORS 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.

A Credit Suisse analyst is worried that KORS is depending too much on its promotions and discounts to generate sales. Meanwhile a Piper Jaffray analyst just downgraded KORS on April 1st because they see domestic sales sliding sharply with North America comparable store sales falling from 21% to 6% in the last three quarters.

Technically shares of KORS are in a bear market. They also have a bearish trend of lower highs and lower lows. The point & figure chart is bearish and forecasting at $54.00 target. Thursday's low was $63.21. We are suggesting at trigger to buy puts at $62.90.

Trigger @ $62.90

- Suggested Positions -

Buy the MAY $60 PUT (KORS150515P60)

Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.

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