Option Investor
Newsletter

Daily Newsletter, Thursday, 4/9/2015

Table of Contents

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

Market Wrap

The World Rallies

by Thomas Hughes

Click here to email Thomas Hughes
Global market reach new highs, we may be next.

Introduction

A host of news and developments helped propel the Asian and European markets to new highs while leaving our markets struggling within recent trading ranges. US traders,it seems, are still trying to figure out what to expect from the FOMC, the economy and earnings. Depending on who you listen to, which day of the week it is and the most recent FOMC related headline the market is either on the road to expansion or the cusp of “earnings recession”.

Looking back at just the last ten days alone expectations concerning the FOMC interest rate hikes have gone from a June target, to a September target, to a possible 2016 target and back to June; all because of one weak month of NFP and spurred by comments from several Fed governors indicating both patience and not patience at the same time.

Market Statistics

News impacting early trading includes earnings, Greece, the Bank Of England and economic data, both domestic and foreign. Greece made its loan payment deadline and has staved off near-term default fears. The long term is still in question; an exit from the EU is still an outlier possibility and real reform is yet to be seen. In England the BOE held rates steady, as expected. On the economic front this week's unemployment claims rose less than expected, remain low and are in support of a healthy labor market.

In terms of earnings expectations the outlook for the 1st quarter is still negative. There is still talk of another quarter, or two, of earnings declines yet earnings releases so far this season suggest we may in for more of the same; better than expected with areas of isolated weakness. Futures trading indicatied a flat to lower opening for most of the pre-market session. Individual news bits such as the employment data and earnings reports helped to lift the trade but none were able to sustain the movement. The indices were able to open flat and move higher in the first minutes following the opening bell but like in the early session, were not able to hold the gains. The indices dipped into negative territory by 10AM and proceeded to hover around break-even for the next hour or so.

The afternoon session was a little different. The market tread water just above break even levels for most of the afternoon and then shortly after 2:30 the indices started to catch a bid and began to move higher. A new intraday high was set just after 3:00 and then another around 3:30. From there the market held near those levels into the close of the day.

Economic Calendar

The Economy

Today's unemployment claims figures are still supportive of healthy labor conditions, as were the JOLTs and KC Fed LMCI released earlier this week. On the unemployment front initial claims gained 14,000, less than expected, and reached 281,000. This is on top of a -1,000 revision to last week. The four week moving average fell by -3,000 to 282,500, a 15 year low. On a not adjusted basis claims rose by 5.5% versus the expected 0.2% predicted by the seasonal factors. Oregon posted the biggest increase in claims, +1.044, Pennsylvania the biggest decrease, -2,338. Texas also posted a decrease in claims. Despite the rise in claims initial claims remains near the long term low and at levels suggesting a drop in overall unemployment and decreased labor turnover.


Continuing claims fell -23,000, better than expected, to 2.304 million. This is also a new 15 year low. The previous week was revised up by 2,000 but the 4 week moving average was still able to post a decline. The four week moving average is at a new 14 year high and suggesting that there are plenty of jobs for those who find themselves out of work for a week.

The total number of claims for unemployment also fell, by -141,794. This is not a new 15 year low but it is a new 13 week low and approaching levels not seen since last Nov/Dec. This number is also supportive of a healthy and improving labor market, and with the rest of the data suggests to me there could be significant revisions in both the NFP and unemployment data for March. One thing to consider though is the fact that Easter week is earlier this year than last and may be influencing the March employment claims data.


Just to touch base on the JOLTs figures it is showed job openings was “little changed” in February at +3.5%. The quits rate was also “little changed” at +1.9% indicating a strengthening of confidence among labor market participants.

The Kansas City Federal Reserve Index of Labor Market Conditions, a composite of 24 top labor indicators, is also in support of an improving labor market. Momentum declined in March, not unexpected given the time of year and other factors, but remains near all time highs while conditions continued to improve. The labor market conditions index rose from -0.330 to -0.262, a continuation of the 5 year trend and current labor market recovery. Over the past 6 months the biggest contributor to improving conditions is the increase in hourly earnings. At the current rate of improvement the index could reach the zero line over the summer, an event that can be associated with economic boom.


Wholesale inventories and sales data was released at 10AM. The news is both better and worse than expected, but only marginally so in either direction. Wholesale inventories rose by 0.3% versus an expected 0.2%, wholesale sales fell by -0.2% versus an expected flat reading.

The Oil Index

Oil prices got a lift today despite the massive build in US stockpiles reported yesterday. Today's news includes renewed fear the Iran nuclear deal was falling apart and strong economic data from Germany. On the Iranian front the deal has reached a sticking point on sanctions, which Iran demands be lifted immediately upon signing of any nuclear deal. In Germany strong auto sales helped to lift spirits and put the Iran deal in better perspective.

Both WTI and Brent rose in today's trading, gaining 2.26% and 3.60% respectively. WTI Is now trading above $51.50 and there is new talk of a bottom. I am leery of oil prices at these levels. There seems to be a premium building into the market that is not substantiated by storage levels, Saudi production levels and demand outlook.

The Oil Index got a lift from today's rise in oil prices. The index gained about 1.5% and was one of today's market leaders. Today's move extends the trend line bounce which began last month and is approaching possible resistance at the top of the 4 month trading range near 1,400. The indicators are bullish, in-line with the bounce and suggest that the index will at least test resistance; MACD is on the rise and stochastic is forming a relatively strong bullish crossover, one that is occurring while %D is crossing the upper signal line. This could indicate strength and a possible break to new 4 month highs but could also be indicating over-bought conditions and the top of the range. The index looks bullish but caution is due until it breaks above 1,400, if it can. As mentioned on Monday, the major oil producers report at the end of the month which, along with forward guidance, could produce a catalyst strong enough to move the sector.


The Gold Index

Gold prices fell below $1200 today as dollar values firmed. The FOMC minutes keep the “early” rate hike on the table thereby strengthening the dollar and depressing gold values. On the flip-side, by keeping the early hike on the table the FOMC is also indicating underlying strength in the economy, enough strength to keep them on track for rate hikes and the economy on track for inflationary pressures to build. Dollar strength may continue to pressure gold lower, which is still above $1190 support zone, but long term inflationary outlook will bring the buyers back in. A break below $1190 could take it as far as $1150. Until then it appears as if gold is trying to stabilize around $1200 while the Dollar Index consolidates between $97.50 and $100.

The gold miners fell in tandem with today's drop in the underlying metal. The GDX Gold Miners ETF lost more than -1.25% in today's session and is testing my rising support line near $18.80. This line connects the peaks of the two peaks of the double bottom reversal I described on Monday, the two peaks that in themselves are each a double bottom. Each of these peaks is progressively higher, suggestive of support and confirmed by the indicators.

In the near term the indicators are weak and are pointing to further testing of support, testing which could go on up to and until the miners report earnings later on this month. The rising support line could be broken, taking the index down to $17.50, but will likely be another buying opportunity for investors. Earnings among the miners are likely to show growth from the last quarter simply because gold prices were on average higher this quarter than last.


In The News, Story Stocks and Earnings

There was quite a lot of business news today. M&A activity is still robust and earnings are starting to roll in. On the M&A front LinkedIn is reported to be buying Lynda.com. Lynda.com is an on-line educational service geared toward helping professionals realize their potentials. The deal is worth roughly $1.5 billion and could be a good move for LinkedIn, if they can capitalize on it. The news moved the stock up by 1.25% but failed to cross above the short term moving average.


Shares of Bed Bath & Beyond fell in the pre-opening session after reporting a mixed quarter. Earnings per share rose to $1.80 from $1.60, partially on an increase in revenue but mostly because of share repurchases over the course of the past year. This might have been enough to hold share prices up but guidance for the current quarter is below estimates. Shares of BBBY fell by roughly 3% in the after-hours market and then doubled that loss during today's session.


The Walgreens Boots Alliance reported before the opening bell and gave the market what it wanted, signs the merger was working. The company reported earnings and revenue above expectations and sent the stock shooting higher. Forward guidance is a little weak but the company also announced another $500 million in cost savings through a closure of stores that helped sweeten the bitter pill. Shares of the stock soared nearly 5% higher and closed near the top of the day's range.


PriceSmart reported after the bell. The discount retail change was expected to report quarterly earnings of $1.00 with full year guidance of $3.95. The company reported an 11.6% increase in net sales but failed to meet earnings expectations. The company blamed a massive devaluation of the Columbian peso for a $0.16 impairment that would have brought earnings in line with expectations. Shares of the stock fell sharply on the news.


The Indices

The indices began to simmer today as earnings season unfolds. So far the earnings picture is not as bad as feared, certainly not the -4.6% predicted by FactSet. Of course we still have a lot more earnings to come, and in particular the energy sector, so this could change. In any event today's reports are showing that the first quarter was not as bad as expected, that there is some growth in the marketplace and that the future growth may not be out of the question either.

Today's gains were led by the NASDAQ Composite. The tech heavy index gained 0.48% and is approaching its long term high just above 5,000. Today's move is a continuation of a bounce from support and the long term trend line begun earlier this week. It is accompanied by promising indicators, I say promising because once again the indicators are rolling into a potentially strong trend following signal but it has not yet been confirmed. Stochastic is making a bullish crossover but MACD has not yet made its crossover and resistance still needs to be broken. It looks like resistance is going to be tested with an upside target near 5,040 but beyond that will come down to the earnings.


The Dow Jones Transportation Average made the next biggest gains today, 0.46%. The transports are bouncing up from the bottom of the 6 month trading range and remain range bound. The indicators are rolling over in confirmation of that range but are yet to gain strength. The index is facing several potential resistance level between the current level and the top of the range near 9,250 but the first two that jump out at me are 8,750 and then the short term moving average near 8,825. These levels could be tested over the next few days with support on a pullback found near 8,575.


The S&P 500 made the next largest move, 0.44%. The broad market moved up from the long term trend line and the short term moving average but was not able to move past the 2,090 resistance line. This index, despite being capped by resistance in today's session, is looking the most bullish of the three because the indicators are both confirming the move. Stochastic is making a strong trend following signal and MACD is confirming with a zero-line crossover. This combination is pointing to a test of the all-time high at least and a possible continuation of the long term trend.


The Dow Jones Industrial Average made the smallest gain in today's session, only 0.31%. The blue chips moved up from the short term moving average and look like they may move higher. The indicators are in support of the move with only the resistance of 18,000 standing in the way. Stochastic is making a bullish crossover but only a moderate one, neither weak or strong, while MACD has made its crossover so a test of resistance is likely if not probable. Support is just below the current level in the form of the short term moving average and then below that in a range around 17,500.


The FOMC is confusing the market with patient/impatient double speak but at heart there is no sign of underlying market weakness. Whether they raise rates or not the economy is growing and policy is expected to remain accommodating into the foreseeable future. In my opinion they either need to make the first rate hike or stop talking about it.

On the earnings front expectations are cloudy at best and could lead to a round of positive surprises. Expectations and guidance are set very low, a situation that has led to such surprises in recent quarters. However, even with positive surprise earnings are rear looking. It will be the guidance that leads the market.

The indices are winding up for a move and it very well could be earnings driven. Now that the season has started the next thing to watch is the financial sector. The big banks begin to report earnings early next week and are expected to show some impressive growth in the face of this quarters low expectations. If they deliver, and there are no surprises elsewhere in the market, we very well could see the indices retest the all-time highs if not set new ones.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Camera Ready

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Ambarella, Inc. - AMBA - close: 75.21 change: +0.83

Stop Loss: 72.45
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.0 million
Entry on April -- at $---.--
Listed on April 09, 2015
Time Frame: Exit prior to May option expiration
New Positions: Yes, see below

Company Description

Why We Like It:
If you're looking for relative strength then AMBA has it in spades. Year to date the stock is already up +48%. AMBA is in the technology sector. They're considered part of the semiconductor and semiconductor equipment makers. The company was founded in 2004 and went public in October 2012 at $6.00 a share. That price was significantly below where AMBA was expected to price in the $9-11 range. Investor sentiment has definitely changed since then.

The company has grown from making broadcast-class encoders to making consumer and sports cameras, security cameras, and now automotive cameras. Their high-definition chips are being integrated into security IP cameras and wearable cameras. AMBA is also capturing part of a new market - cameras on consumer-level remote control drones.

The last two plus years have seen a strong performance in AMBA with the stock up more than +600% from its IPO price. AMBA has GoPro, Inc. (GPRO) to thank for part of that rally. GPRO came to market in June 2014 and the stock has been in rally mode since mid August with a rally in GPRO from less than $40 to $90 a share. I mention GPRO because AMBA happens to make the HD camera sensors in many of GPRO's action camera products. GPRO's IPO drew a lot of attention to AMBA. Now GPRO's rally has collapsed while AMBA has continued to climb.

Part of GPRO's trouble is competition from a large Chinese rival - Xiaomi. GPRO is currently seen as best of breed in the action camera market but it may not hold that spot forever. Xiaomi is selling similar cameras at a significant discount to GPRO and both cameras use AMBA's technology. Both camera makers have different models. GPRO's top of the line still has better components than Xiaomi's - at least for now. The real winner is AMBA since they supply to both companies. Multiple analysts have commented on AMBA's relationship with Xiaomi and believe it will bear significant fruit in the future.

AMBA has been killing it on the earnings front. They have beaten Wall Street's earnings and revenue estimates for the last five quarters in a row. Their most recent report was their Q4 results on March 3rd. Analysts were expecting a profit of $0.49 a share on revenues of $59.3 million. AMBA delivered $0.68 a share with revenues soaring +61% to $64.7 million.

Shorts are getting killed. As the rally continues AMBA could see more short covering. The most recent data listed short interest at 27.7% of the small 29.2 million share float. Meanwhile the point & figure chart is very bullish and forecasting a long-term AMBA target at $106.00.

The last few days have seen shares of AMBA consolidate sideways between short-term support at its 10-dma and resistance near $75.00. Tonight we are suggesting a trigger to buy calls on AMBA at $76.15.

NOTE: GPRO, one of AMBA's biggest customers, reports earnings near the end of April. GPRO's results could significantly influence trading in AMBA's stock.

Trigger @ $76.15

- Suggested Positions -

Buy the MAY $80 CALL (AMBA150515C80) current ask $2.20
option price is a current quote and not a suggested entry price.

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

Daily Chart:



In Play Updates and Reviews

New Two-Week Highs

by James Brown

Click here to email James Brown

Editor's Note:

The S&P 500 index managed to shake off its morning weakness and reversed higher midday. The rally gained steamed late this afternoon and the big cap index closed at new two-week highs.

GIII hit our bullish entry point.


Current Portfolio:


CALL Play Updates

Cardinal Health, Inc. - CAH - close: 89.89 change: -0.30

Stop Loss: 87.75
Target(s): To Be Determined
Current Option Gain/Loss: -26.6%
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:
04/09/15: It might be time to worry about our CAH trade. Shares did not participate in the market's relatively widespread rally today.

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


G-III Apparel Group, Ltd. - GIII - close: 117.64 change: +1.26

Stop Loss: 111.95
Target(s): To Be Determined
Current Option Gain/Loss: -3.4%
Average Daily Volume = 207 thousand
Entry on April 09 at $116.77
Listed on April 08, 2015
Time Frame: Exit PRIOR to the 2:1 split on May 4th
New Positions: Yes, see below

Comments:
04/09/15: Our new call play on GIII is off to a strong start. We wanted to buy calls at $116.65 but GIII produced an intraday gap higher so our trade opened at $116.77.

Trade Description: April 8, 2015:
GIII has been showing relative strength and could deliver a strong pre-stock split rally. The company is in the consumer goods sector. They make apparel.

The company describes itself as, "G-III is a leading manufacturer and distributor of outerwear, dresses, sportswear, swimwear, women's suits, women’s performance wear, footwear, luggage, women's handbags, small leather goods and cold weather accessories under licensed brands, owned brands and private label brands. G-III sells swimwear, resort wear, and related accessories under our own Vilebrequin brand. G-III also sells outerwear, dresses, and performance wear under our own Andrew Marc and Marc New York brands, and has licensed these brands to select third parties in certain product categories.

G-III has fashion licenses under the Calvin Klein, Kenneth Cole, Cole Haan, Guess?, Tommy Hilfiger, Jones New York, Jessica Simpson, Vince Camuto, Ivanka Trump, Ellen Tracy, Kensie, Levi's and Dockers brands. Through our team sports business, we have licenses with the National Football League, National Basketball Association, Major League Baseball, National Hockey League, Touch by Alyssa Milano and more than 100 U.S. colleges and universities. Our other owned brands include Bass, G.H. Bass, G-III Sports by Carl Banks, Eliza J, Black Rivet and Jessica Howard. G-III also operates retail stores under the Wilsons Leather, Bass, G.H. Bass & Co., Vilebrequin and Calvin Klein Performance names."

Looking at GIII's earnings performance last year the company has beaten Wall Street's bottom line earnings estimates four quarters in a row and usually by a wide margin. GIII also beat analysts' revenue estimates three out of the last four quarters. When GIII reported its Q3 results back in December they raised guidance above Wall Street expectations.

Their most recent report was their Q4 results on March 24th. Earnings were up +58% from a year ago to $0.98 a share. That was 15 cents above estimates. For their fiscal year 2015, which ended on January 31st, GIII said adjusted earnings were up +21% while revenues were up +23% from a year ago.

In their earnings press release Morris Goldfarb, G-III's Chairman, Chief Executive Officer and President, said, "Fiscal 2015 was another strong year of sales and profit growth for G-III. We drove strong performances across our portfolio of businesses, solidified our market position, and successfully executed across a range of strategic initiatives, including the integration and repositioning of the G.H. Bass business we acquired in the fourth quarter of last year. We are pleased to have achieved another record year for both net sales and net income per share."

The stock did see a little profit taking when management offered conservative guidance but traders bought the dip a couple of days later. Now the stock is hitting new all-time highs.

Yesterday morning, April 7th, GIII announced a 2-for-1 stock split. The shareholder record date is April 20th. GIII should begin trading post-split on Monday, May 4th. Shares look like they could produce a strong pre-split run up. We want to hop on board for the next three weeks and exit prior to the split date. Tonight we're suggesting a trigger to buy calls at $116.65.

- Suggested Positions -

Long MAY $120 CALL (GIII150515C120) entry $2.90

04/09/15 triggered @ 116.77, on a midday gap higher
Suggested entry was $116.65
Option Format: symbol-year-month-day-call-strike


iShares Russell 2000 ETF - IWM - close: 125.02 change: -0.45

Stop Loss: 122.85
Target(s): To Be Determined
Current Option Gain/Loss: +21.6%
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:
04/09/15: Hmm.... after recently leading the market higher suddenly the small cap IWM underperformed its large cap peers. The Russell 2000 was the only major U.S. index to close in the red today.

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: 111.40 change: -0.76

Stop Loss: 110.25
Target(s): To Be Determined
Current Option Gain/Loss: -15.7%
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:
04/09/15: LII also underperformed the market today. Shares essentially erased yesterday's gains. The stock should find short-term support near $110.00 and its 20-dma. Currently our stop is at $110.25. More aggressive traders may want to move their stop below the $110.00 mark.

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: 100.72 change: -0.12

Stop Loss: 97.40
Target(s): To Be Determined
Current Option Gain/Loss: -21.5%
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:
04/09/15: NKE seems to be struggling to escape the gravitational pull of the $100 level. Shares made it to $101.69 before reversing lower today. Meanwhile NKE's smaller rival UA is soaring with UA up five days in a row and hitting new record highs.

Considering NKE's lagging performance I would hesitate to launch positions tomorrow.

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: 71.77 change: +2.28

Stop Loss: 62.75
Target(s): To Be Determined
Current Option Gain/Loss: +43.2%
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:
04/09/15: It was a volatile day for shares of PTCT. Before the opening bell Deutsche Bank raised their price target on PTCT from $75.00 to $115.00. The stock gapped open higher at $72.95 and spiked to $78.72. The rally didn't last long. PTCT fell all the way back to $68.88, which more than filled this morning's gap. Fortunately traders bought the dip and PTCT ended the session with a +3.2% gain.

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

04/09/15 DB raised their target from $75 to $115
04/08/15 new stop @ 62.75
04/06/15 triggered @ 65.25
Option Format: symbol-year-month-day-call-strike




PUT Play Updates

Alkermes plc - ALKS - close: 62.56 change: -0.64

Stop Loss: 64.15
Target(s): To Be Determined
Current Option Gain/Loss: -4.7%
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:
04/09/15: Shares of ALKS started the session on an up note. The rally stalled just below resistance at $64.00 and its 20-dma. The stock eventually underperformed the market with a -1.0% decline.

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: 54.87 change: -0.84

Stop Loss: 60.05
Target(s): To Be Determined
Current Option Gain/Loss: +20.5%
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:
04/09/15: CAR tagged new relative lows before paring its losses today. The stock still lost -1.5% versus the market's generally widespread rally. Nimble traders could use another failed rally near $56.00 as an alternative entry point for bearish positions.

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


iShares Transportation Average - IYT - close: 156.01 change: +0.72

Stop Loss: 156.25
Target(s): To Be Determined
Current Option Gain/Loss: -39.5%
Average Daily Volume = 458 thousand
Entry on April 08 at $154.41
Listed on April 07, 2015
Time Frame: exit prior to May option expiration
New Positions: see below

Comments:
04/09/15: Transportation stocks have suddenly caught a bid. A couple of days ago the big rally in FDX was the reason behind the IYT's bounce. FDX continued to rally today and this helped boost the IYT.

Technically today's close above its simple 200-dma is arguably bullish. The intraday high on the IYT was $156.21 and our stop is at $156.25. Should this ETF see any follow through higher tomorrow we'll likely be stopped out.

Trade Description: April 7, 2015:
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.

- Suggested Positions -

Long MAY $150 PUT (IYT150515P150) entry $2.15

04/08/15 trade begins. IYT opens at $154.41
Option Format: symbol-year-month-day-call-strike