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Newsletter

Daily Newsletter, Wednesday, 4/22/2015

Table of Contents

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

Market Wrap

Bulls Hammering at Resistance

by Keene Little

Click here to email Keene Little
Selloffs are being met with buy programs and the indexes are knocking on the door to new highs but resistance is still holding at the moment. However, a good gap up could easily take care of resistance, something this market is very good at (with an overnight rally in the futures). Whether or not that happens here should provide further clues for the coming week.

Wednesday's Market Stats

Equity futures had spiked down shortly after 3:00 AM and ES dropped a little more than 18 points from a high at 2098.50 (+7.50) to a low at 2080.25 (-10.75) by 6:00 AM. That was then followed by a rescue and futures were pushed back into positive territory before the open. The small gap up was immediately sold into and the indexes dropped to new lows for the week but another couple of buy programs took care of the shorts and sent the bears scurrying.

It only took 30 minutes for the DOW to rally 120 points off its morning low, which was then followed by another smaller pullback before rallying some more into the close. We're getting only inside days (trading inside a previous day's range) since last Friday's big drop so there's clearly some indecision here. But there's also clearly an effort being made to hold the market up and they could be close to accomplishing a breakout, especially if it starts off bullishly on Thursday.

This morning was quiet in regards to economic reports, which consisted of some home data, including existing home sales. The numbers were a little better than expected, with existing sales for March at 5.19M, which was an improvement over February's 4.89M. Tomorrow we'll get new home sales, which should give us a better idea how the home builders will do. But for some reason the home builders index (DJUSHB) sold off hard today, down about -3% at today's low, and that's a firm break of its 20-dma and now 50-dma. It had been trying to hold these MAs but the index is giving us a heads up that not all is well in the housing market (as well as declining lumber prices).

A slowdown in the housing market would be just another sign for the bulls to ignore (the proverbial wall of worry) and if the indexes can push just a little higher it could ignite some short covering as stops on short positions start getting hit. I'm sure that's what the purpose of last night's save in the futures was all about and then again this morning -- "they" (government/Fed-sponsored big banks) know that if they can get the indexes to start breaking resistance they'll then be able to ignite another rally leg. As I'll describe below, corporations are also large net buyers of stock right now and they've been greatly helping the current rally. But it's also reminiscent of what we saw into the 2007 high so it's not necessarily a good thing (short term yes, long term no).

For now all we can do is follow the charts and shut out all the noise around us (CNBC and other "news" sources and opinions, except for those of us at OIN of course, wink). I do have to admit though that the charts are currently not all that helpful since we've been in a 2-month chop zone. A sideways consolidation in a bull market is most often a bullish continuation pattern and that's the way I'm leaning. But we've seen many sideways choppy topping patterns in this market and instead of rallying out of the top of the pattern it suddenly breaks down instead (a failed pattern tends to fail hard as it catches too many traders leaning the wrong way). This makes it imperative to wait for a breakout or breakdown before acknowledging what the new direction is (and of course being careful about a head-fake break).

Kicking off a review of the charts, the SPX weekly chart shows price has worked its way over to its uptrend line from March 2009 - October 2011 (purple line), which was tested on April 1st and held. The rally off that low is what could lead us to new highs if resistance at the top of its little sideways triangle, which was tested again today, breaks. A sideways triangle fits well as the 4th wave in the move up from last October and triangle patterns typically lead to the final move of the trend (up in this case). Assuming it will break to the upside it would fit well as the final 5th wave of its rally to give us a high for the year (probably the high for years).

S&P 500, SPX, Weekly chart

The daily chart shows a closer view of the sideways triangle off the February 25th high, the top of which is currently near 2108. SPX pushed marginally above it today (the high was near 2110) but then closed on the line, which leaves both sides guessing whether or not resistance will hold. This has been resolved many times in the past with a gap up the next morning so we'll soon find out if the handlers can arrange that for the bulls. If we do get a breakout that's then followed by a back-test (similar to what it did when it broke out of the descending wedge back in early February) it would give us a very good buying opportunity. But a breakout that's then followed by a drop back below the top of the triangle would be a failed breakout attempt and put SPX on a sell signal (stop at the false breakout high). Upside potential is 2160-2180 by mid-May (an important cycle turn date is May 13th).

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2112
- bearish below 2045

What can't be ruled out yet is another drop down inside the trading range and if it drops down to its uptrend line from March 2009 - October 2011 we could see 2067 before it sets up the next rally. It takes a drop below 2050 to negate the bullish pattern. The most important thing to keep in mind here is that these triangle patterns tend to whip traders around like little rag dolls. It's why even right here there is no assurance which way this market will head next and it's why I've been urging caution until we get a confirmed breakout/down.

S&P 500, SPX, 60-min chart

The DOW has formed more of a parallel down-channel off its March 2nd high, which fits well as a bull flag pattern. Ideally, like the triangle pattern for SPX, it needs one more leg down inside the pattern to complete it, which would then be a good setup to get long. Going long here, at/near resistance, is usually not a good idea. As of today's close it was a coin toss for tomorrow and I'm waiting to see if the DOW can break out from here or if instead the bears will take another swipe at the bulls. If the DOW loses support at its uptrend line from October-February, near 18010, and its 50-dma at 17971 it could usher in stronger selling. Its 20-dma is currently near 17904.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 18,289
- bearish below 17,410

Watching what has happened to GE's stock over the past week reminded me of something I recently read about cash holdings of U.S. companies. It's looking like we're seeing a repeat of what happened into the 2007 stock market high. Corporate cash holdings have reached a historical high, which is great for companies and their bank accounts, but what it says is they don't have anything better to do with their cash than hold onto it. Instead of investing it in their businesses (capital improvement programs, buying competitors, etc.) and finding more productive ways to invest their cash, they have been buying back their own stock and offering higher dividends (or just sitting on higher piles of cash). The below chart shows the continuation of cash hoarding (you can see the little "dip" in 2007-2009).

The chart below shows the S&P buybacks (dark green bars, in $B) and how the current level is nearly back up to where it was in 2007. The smaller light green bars are domestic equity flows into mutual funds and ETFs. From this it's clearly evident that companies are much bigger buyers of stocks than those investing in mutual funds and ETFs. If you want to know why the stock market keeps heading higher, in spite of a slowdown in the economy and worsening corporate earnings, this is certainly one explanation.

The fact that the companies are buying back so much of their stock, and the underlying support this creates for the stock market, hides the fact that the stock market is once again rising against a deterioration of the underlying fundamentals. Instead of putting their money into productive uses, for which they can derive future benefits (earnings), these companies are simply buying back shares so that it shows improved earnings today (this of course helps companies reward their executive management teams for doing such a splendid job with their businesses). Company management is really no better than your average retail trader -- corporations buy most of their own stock back at market highs and they sell the most stock at market lows.

The problem for both the companies and the stock market is that all this buying covers up a significant problem -- the deterioration in current earnings is being masked by share buybacks. When the companies decide to rein in their stock purchases it will reduce the support that the stock market has been experiencing. Recognition of a slowing economy would then take its toll on the stock market as well. A repeat of what happened in 2007-2009 looks to be a logical conclusion.

General Electric (GE) was in the news last week after it announced it was going to sell its capital lending business and other "non-core" businesses and then they'll use some of their cash reserves to buy back more of their shares and offer higher dividends. They plan on repatriating some of their earnings in foreign countries and they're willing to pay $4B in taxes to do so. That's great for helping the government pay its bills (albeit only a tiny drop in an ocean of debt in which the U.S. government is swimming) but what does it say about GE's lack of investment opportunities? Rather than invest the money in revenue-generating operations they'd rather fork over $4B to the IRS. They'd rather hand the money out to their investors (and themselves) than invest it in more productive ventures.

The initial reaction to GE's announcement was a large spike in their share price, from April 8th's closing price at 25.01 (the day before the announcement) to a high of 28.68 (+14.7%) the day after the announcement. The stock started to rally strong the day of the announcement on the 9th (they announced after the bell on the 9th) but it looked like "someone" got wind of the announcement and started the rally early. I'm sure there was no inside trading though because that would be illegal. But following the spike up on the 10th GE has pulled back and it leaves me wondering if the spike on good news might have been the completion of its rally.

I've found over the years that GE tends to trade very well technically. It reacts to trend lines, price levels, Fibs, trading patterns, etc. and at the moment we have two opposing setups and the resolution here will tell us what will likely happen longer term. And as GE goes, the rest of the market could follow right behind it.

The weekly chart below shows GE's spike last week stopped right at its downtrend line from 2000-2007 -- this is a very important longer-term trend line so whether or not GE can get above it, near 28.65, will tell us which side is in control. At the moment it's resistance until proven otherwise. At the same level is the mid-line of its up-channel from October 2011 so it's double resistance. The 62% retracement of its 2007-2009 decline is at 28.24 so make that triple resistance, all of which makes it look like it's going to be tough for the bulls to break through.

General Electric Co., GE, Weekly chart

The bulls in GE are not to be discounted yet. Notice last week's breakout from a bull flag pattern that GE was in since the December 2013 high. That's a bullish break (and on volume) and so far the pullback from last week's high has found support at the top of the flag, near 26.55 (yesterday's low). A drop back into the flag would leave a failed breakout attempt (head fake) and give us a sell signal, especially if it drops back below its 50-week MA at 25.82. The bulls need to negate this potential with a breakout above 28.70 and then hold above (I see the potential for another new high, perhaps 29.40, to complete a 5-wave move up from January, but then a reversal back down so I'll be watching for that possibility). In the next week or so we could have some further clues about GE and therefore the broader market.

The Nasdaq is getting closer to challenging its all-time at 5132.52 on March 10, 2000. The closing high on that day was 5048.62 and today's closing high was 5035.17 (after making an intraday high at 5040.65) -- only 13 more points for a new all-time closing high and the bulls can taste it (they've been tasting it since first climbing back above 5000 on March 2nd). As with the blue chips, it's possible we'll see one more drop down to the bottom of the sideways consolidation, or at least down to the uptrend line from January where it would meet its 20- and 50-dma's near 4950 next week. Notice the hanging man doji for today at the trend line along the highs from January 2004 - October 2007. It's decision time for the bulls here -- the bullish pattern calls for a continuation higher but they need to keep the rally going from here. Upside potential is the all-time high at 5132 and then 5150 where it would hit two intersecting trend lines from previous highs, one from April 2010 - March 2014 and the other from last November. Those lines cross at the end of this month and it would make for an interesting setup for a longer-term top.

Nasdaq Composite index, COMPQ, Daily chart

Key Levels for COMPQ:
- bullish above 5042
- bearish below 4912

For a while the RUT was helping the bulls with their mojo but lately it's been holding back some of that mojo. Following its April 15th high I've been wondering if it will instead switch sides and start leading the bears back down the hill. The April 15th high was a small throw-over above the top of a rising wedge pattern for the rally off the March 26th low and it fit well as an important top. Of the different indexes at the moment, this is the one that has me thinking the rally might not have much of a chance of making it much higher. But in reality, like the others, the RUT is simply inside a choppy trading range and this makes it very difficult to make predictions for the next big move. Above its April 15th high near 1279 would clearly be more bullish whereas a drop below its uptrend line from October 2014 - February 2015, near 1248, and its 50-dma, near 1243, would be more bearish. A drop below the March 26th low is needed by the bears to confirm an important high is already in place.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1279
- bearish below 1225

The VIX is typically a mirror image of SPX and since March 2nd it's been chopping up and down opposite to what SPX has been doing. The VIX appears to be forming a bullish descending wedge pattern off its February 2nd high and has a little more downside potential to the bottom of the wedge, currently near 12.05. It would test the December 5th low at 11.53. The VIX has been holding its uptrend line from Sept-Dec 2014 so it's possible it will get another bounce if SPX pulls back from resistance. If SPX does break out into a stronger rally it will be interesting to see if the VIX only makes it down to the bottom of its wedge and continues with a bullish divergence, which would be an additional warning to bulls not to get complacent about new highs.

Volatility index, VIX, Daily chart

The 30-year Treasury yield (TYX) looks like it could soon be heading lower. At least that's what the current bear flag pattern is pointing to. Following its March 6-25 decline it's been in a choppy bounce pattern and today's high tagged the top of the little parallel up-channel for the bounce (the bear flag). If it rallies much above the top of the flag, near today's high at 2.662%, it could be the start of a more bullish move (bearish for bond prices) but I'd first want to see it climb above its downtrend line from September 2014 - March 2015, near 2.74%, which is also where its broken uptrend line from July 2012 - October 2014 is located. But if TYX starts back down from here I'll be looking for at least a test of its January low near 2.23%.

30-year Yield, TYX, Daily chart

The TRAN continues to hold support at the bottom of its trading range since last November, near 8580, which was last tested on April 14th. It has managed to get back above its 20-dma, at 8708, and is now close to testing its broken 50-dma, near 8900 (today's high was 8878). It would be good for the bulls to see a rally above 8900 and hold above. The risk at the moment is that the TRAN has accomplished a 3-wave bounce off its April 6th low with two equal legs up at 8868 (it closed at 8863). If we have just an a-b-c bounce correction off the April 6th low it could start back down from here and another break below support at 8580 would very likely be followed by stronger selling. That would be fair warning to bulls that this index is paying attention to underlying fundamentals about our deteriorating economy. It wouldn't prevent the DOW from making yet another new high without the TRAN but it would clearly be a strong warning not to trust the new high.

Transportation Index, TRAN, Daily chart

The U.S. dollar's bounce off its March 18th low might have completed at the April 13th high and now we'll get another leg down as part of what will become a larger pullback correction from its March 13th high. Two equal legs down would give us a preliminary downside target at 94.25 but a further drop to its 200-dma, perhaps near 90.50 in early May. However, there's still a bullish wave count that's looking for one more rally before starting a larger pullback and the dollar remains bullish as long as it holds its 50-dma, currently 97.24, as well as the bottom of its up-channel from last year, which it's trying to hold right here at 98.23.

U.S. Dollar contract, DX, Daily chart

Gold has been consolidating since late-March and it has formed a sideways triangle in the process. This can be viewed as a bullish continuation pattern but the gold bulls need to defend price here otherwise any further decline will leave a failed pattern. If it does rally out of the pattern we'd have an upside projection at 1263 for two equal legs up from March 17th but if it starts to break down from here then we'll very likely see gold drop toward 1000.

Gold continuous contract, GC, Daily chart

I show the gold chart every week but I also keep an eye on silver because it has been the one that has helped me stay bearish gold even when gold is looking bullish. That hasn't changed yet, although silver has the potential to rally for another leg up off its March 11th low. What's looking more bearish for silver at the moment is the fact that it has not formed a sideways consolidation like gold has done. It has dropped back down and while I see the potential for a small bounce before heading lower, it's looking like silver could break down before gold, giving gold traders a heads up. The neckline for the H&S continuation pattern is currently near 15.37 so a break of that would be a bearish warning sign for the metals.

Silver continuous contract, SI, Daily chart

Crude inventory builds have been a little volatile recently, climbing +10.9M barrels for the week ending April, +1.3M barrels for the week ending April 11 and then +5.3M barrels last week. The initial reaction in crude was a spike up this morning (obviously as a reaction to the jump in inventories not being as high as feared) but then the price worked its way back down during the day and finished in the red. Since last Thursday's high oil has been trading in a small sideways range, which is what I was expecting to see for a 4th wave correction in its move up from March 18th. This should lead to another leg up for the 5th wave to complete the c-wave of an a-b-c bounce off its January 13th low. An upside projection for the 5th wave will be to about 61.50 by the end of the month if it can get through price-level resistance near 58.50. That would get oil up to the top of its rising wedge pattern for the c-wave and upon completion of that move we'd very likely see oil start heading back down as part of a larger multi-month consolidation pattern.

Oil continuous contract, CL, Daily chart

Tomorrow's economic reports include unemployment claims and new-home sales. They will not likely move the market since it has been more concerned about what central banks are doing around the world. That will continue to dominate this market for a while.

Economic reports and Summary

Conclusion

The choppy trading range that we've been in for the past two months could continue for at least a little longer if the market pulls back from resistance here. So far the sideways consolidation fits as a bullish continuation pattern and it's for the bulls to lose. That would take a drop below the March 26th lows (watch the TRAN as a leading indicator in this regard) but in the meantime a pullback to the lower region of the trading range would be a buying opportunity. It's possible the rally will simply continue from here since resistance is close and it won't take much to break through, especially for SPX since a rally above 2112 (only 2 points above today's high) would signal the consolidation is likely finished. Unless of course a breakout is followed by a collapse back down -- a pullback would need to hold above 2108 to stay bullish.

These choppy consolidation patterns drive both sides crazy with the lack of follow through to even large moves. This could continue a little longer so a continuation inside the trading range should be reason enough to back away until we get a break one way or the other. Day trading only. Assuming we'll get an upside breakout, once it's confirmed there should be a good trading opportunity on a pullback so wait for the right setup or let the bus leave without you and wait for another one. That's the nice thing about trading the market -- they always send another bus, hoping to entice you to climb aboard. Just don't get taken for a ride.

Good luck and I'll be back with you next Wednesday.

Keene H. Little, CMT

In the end everything works out and if it doesn't work out, it is not the end. Old Indian Saying


New Option Plays

Earnings Momentum

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Splunk, Inc. - SPLK - close: 65.92 change: +1.69

Stop Loss: 62.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.9 million
Entry on April -- at $---.--
Listed on April 22, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Big data and cyber security are buzzwords in the information technology industry. One firm appears to have found its niche providing solutions for both of them.

SPLK is in the technology sector. They are considered part of the application software industry. According to the company, "Splunk Inc. (SPLK) provides the leading software platform for real-time Operational Intelligence. Splunk® software and cloud services enable organizations to search, monitor, analyze and visualize machine-generated big data coming from websites, applications, servers, networks, sensors and mobile devices. More than 9,000 enterprises, government agencies, universities and service providers in more than 100 countries use Splunk software to deepen business and customer understanding, mitigate cybersecurity risk, prevent fraud, improve service performance and reduce cost. Splunk products include Splunk® Enterprise, Splunk Cloud™, Hunk®, Splunk Light™, Splunk MINT and premium Splunk Apps."

The company is seeing significant earnings momentum. Their FY2015 Q2 report in August beat analysts' estimates on both the top and bottom line. Revenues were up +51.7% from the year ago period. Management raised their guidance. They did it again with their Q3 results in November with a beat on both the top and bottom line with revenues rising +47.6% and SPLK raised their guidance.

The company's most recent report was February 26th, 2015. SPLK delivered their fiscal year 2015 Q4 results. Analysts were looking for earnings of $0.04 a share on revenues of $136.98 million. SPLK delivered $0.09 a share. Revenues soared +47.5% to $147.4 million. For the whole year (FY2015) SPLK's revenues were up +49%.

SPLK CEO and Chairman, Godfrey Sullivan, commented on their performance, saying, "We are proud to welcome more than 600 new customers to the Splunk family, which now includes over 9,000 customers around the world. We finished FY15 with strong performance across the board and posted our best quarter yet for both Splunk Cloud and the Splunk App for Enterprise Security. Our investments in cloud and solutions are helping to drive global customer adoption."

SPLK management raised guidance again for FY2016 Q1 and for the full year. They now forecast revenues above Wall Street estimates. SPLK expects 2016 sales to hit $600 million, which is a +33% improvement from 2015.

Wall Street is very bullish on the stock. Shares have seen a parade of upgrades and raised price targets. Here's a brief list of price targets: Deutsche Bank $80, JMP Securities $81, Citigroup $81, Wedbush $82, Morgan Stanley $84, Credit Suisse $85, Canaccord $86, and FBR Capital with a $90 price target on SPLK shares. The point & figure chart is only forecasting at $76 target but it could grow.

Technically SPLK has been consolidating sideways in the $60-65 zone the last couple of weeks. Today shares displayed relative strength with a +2.6% gain and a breakout past resistance near $65.00. I'm suggesting a trigger to launch bullish positions at $66.25. The levels to watch are potential overhead resistance at $70 and $75.

Trigger @ $66.25

- Suggested Positions -

Buy the AUG $70 CALL (SPLK150821C70) current ask $4.60
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:

Weekly Chart:



In Play Updates and Reviews

Stocks Shrug Off Greek Worries (Again)

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. market slipped lower this morning thanks to worries about Greece. Stocks managed to rebound on generally better than expected earnings results. The path of least resistance seems like it's higher.

We closed CAH this morning. IWM hit our new stop loss.


Current Portfolio:


CALL Play Updates

Advance Auto Parts - AAP - close: 151.51 change: -0.89

Stop Loss: 147.75
Target(s): To Be Determined
Current Option Gain/Loss: -26.3%
Average Daily Volume = 891 thousand
Entry on April 21 at $154.00
Listed on April 20, 2015
Time Frame: Exit PRIOR to earnings on May 21st
New Positions: see below

Comments:
04/22/15: AAP continued to sink this morning but found support at $150.50. More aggressive traders could use a rally past $152.00 as a potential entry point. I'm suggesting readers wait for a new rise past $154.00 instead.

Trade Description: April 20, 2015:
According to Sterne Agee analysts Ali Faghri and Michael Ward the combination of cheap gasoline and mother nature have created a bullish environment for auto part retailers.

Gasoline is off its early 2015 lows but it's still trading near four year lows. Today a gallon of gas is more than $1.00 less than the prior three years. Cheaper gas means more miles driven. The number of miles driven by Americans has risen 11 months in a row. The most recent data has hit levels not seen since 2007. Higher miles driven means more demand for replacement parts, maintenance, and repair work. That means more business for companies like AAP.

Meanwhile the weather has been a boon for auto parts makers. The harsh winter tends to reduce traffic but it's harder on vehicles and roads. The snow, gravel, and in some areas of the country road salt, increase wear and tear on your car. The freezing temperatures and precipitation generate more pot holes and road hazards, which also increase wear on your car. Now that we're into spring and the weather is improving we should see miles driven rise even further.

One company that should benefit is AAP. They're in the services sector with a chain of auto parts stores. According to the company, "Headquartered in Roanoke, Va., Advance Auto Parts, Inc., the largest automotive aftermarket parts provider in North America, serves both the professional installer and do-it-yourself customers. As of January 3, 2015 Advance operated 5,261 stores and 111 Worldpac branches and served approximately 1,325 independently-owned Carquest branded stores in the United States, Puerto Rico, the U.S. Virgin Islands and Canada. Advance employs approximately 73,000 Team Members."

It is worth pointing out that AAP's most recent earnings report was a disappointment. They reported Q4 earnings on February 12th. Earnings were up +104% to $1.37 per share. Revenues soared +48% to $2.09 billion. Yet in spite of these huge improvements AAP still missed analysts' expectations. It was the first earnings miss in more than two years. If that wasn't bad enough management then lowered their earnings and revenue guidance for 2015. Not surprisingly the stock was crushed the next day.

RBC Capital Markets analyst Scot Ciccarelli is still bullish on the stock. He noted that AAP's big acquisition of General Parts International last year has delivered cost synergies above expectations. Scot believes AAP offers "the best appreciation potential in the automotive aftermarket retail space."

Not everyone agrees. Daryl Boehringer, with Cleveland Research, believes that AAP is having trouble with its General Parts merger. According to Boehringer, he is, "more cautious on the near-term performance of the company as disruptions associated with the integration of GPI (entering the 'heavy-lifting' stage) appear to be having a fairly meaningful negative impact on the business... the large size and scope of the GPI integration will likely cause disruptions to AAP's business that make an upside earnings scenario less achievable."

If price is truth then the long-term trend favors the bulls. Shares of AAP did see a correction from $163 down to $143 but bounced off technical support at its rising 200-dma (and long-term trend line). Today shares are breaking through resistance at the 50-dma and look poised to keep climbing.

We believe this rebound will continue. However, we want to see a rally past the simple 100-dma, currently at $153.80. Tonight we're suggesting a trigger to buy calls at $154.00.

- Suggested Positions -

Long JUN $160 CALL (AAP150619C160) entry $3.80

04/21/15 triggered @ $154.00
Option Format: symbol-year-month-day-call-strike


Analog Devices, Inc. - ADI - close: 64.49 change: +0.12

Stop Loss: 62.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.0 million
Entry on April -- at $---.--
Listed on April 21, 2015
Time Frame: Exit PRIOR to earnings in late May
New Positions: Yes, see below

Comments:
04/22/15: ADI recovered from its morning dip and closed up +0.18% but that underperformed the NASDAQ's gain. Shares are still poised to breakout past $65.00 soon. There is no change from last night's new play description.

Trade Description: April 21, 2015:
ADI looks like a strong relative strength trade. The SOX semiconductor index is up +3.0% year to date. The NASDAQ composite is up +5.8%. Yet shares of ADI have surged +15.9% to hit new 14-year highs.

The company's products convert analog signals into digital information. These signal processing integrated circuits are used in just about everything from industrial equipment, automobiles, consumer equipment, and communication products.

According to the company, "Innovation, performance, and excellence are the cultural pillars on which Analog Devices has built one of the longest standing, highest growth companies within the technology sector. Acknowledged industry-wide as the world leader in data conversion and signal conditioning technology, Analog Devices serves over 100,000 customers, representing virtually all types of electronic equipment. Analog Devices is headquartered in Norwood, Massachusetts, with design and manufacturing facilities throughout the world."

Looking at ADI's earnings performance last year they tended to be relatively flat or slightly above analysts' estimates. Business seemed to be improving last quarter. ADI reported their Q1 results on February 17, 2015. Wall Street was expecting $0.61 a share on revenues of $760.5 million. ADI beat the estimates with a profit of $0.63 a share, a +18.8% improvement from a year ago. Revenues grew +23% to $772 million.

Management raised their dividend by 8% to $0.40 a share. They also raised their Q2 guidance above Wall Street expectations. Following this February earnings report the stock received a parade of price target upgrades. Wall Street now expects ADI earnings to rise from $1.98 a share in 2014 to $2.92 a share in 2015. According to Thomson Reuters estimates for 2016 are $3.23 a share (+11%) on revenues of $3.5 billion (+6%).

The stock surged to new highs again on March 30th. This was a reaction to a big upgrade from Barclays' analyst Blayne Curtis. Curtis said, "We believe Analog Devices has secured a win with a high accuracy converter to drive 3D touch in upcoming (Apple) iPhones and iPads." This design win will mean big business for ADI. It will also allow Apple introduce their new 3D/Force Tough technology. This allows users to do different tasks based on how much pressure they apply to their touch screen. Curtis also raised his price target on ADI from $55 to $70.

Technically shares of ADI are consolidating below resistance near $65.00 with a bullish pattern of higher lows. The point & figure chart is already bullish and forecasting a long-term target of $81.00. If ADI can breakout past $65.00 we want to jump on board. Tonight we're suggesting a trigger to buy calls at $65.25.

Trigger @ $65.25

- Suggested Positions -

Buy the JUN $65 CALL (ADI150619C65)

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


Ctrip.com - CTRP - close: 66.14 change: +0.98

Stop Loss: 61.30
Target(s): To Be Determined
Current Option Gain/Loss: +6.4%
Average Daily Volume = 2.9 million
Entry on April 21 at $65.15
Listed on April 14, 2015
Time Frame: 3 to 5 weeks, Exit PRIOR to earnings in May
New Positions: see below

Comments:
04/22/15: The rally continues for CTRP with shares outperforming the U.S. market again thanks to a +1.5% Gain. I am not suggesting new positions at current levels.

Trade Description: April 14, 2015;
The Chinese economy grew +7.4% last year. Today estimates are suggesting +7.0% for 2015, the slowest pace in 24 years. One area that is outperforming the broader economy is travel. Travel is expected to grow twice as fast. Leading the way is CTRP, China's largest online travel provider.

CTRP is part of the services sector. According to the company, "Ctrip.com International, Ltd. is a leading travel service provider of accommodation reservation, transportation ticketing, packaged tours, and corporate travel management in China. It is the largest online consolidator of accommodations and transportation tickets in China in terms of transaction volume. Ctrip aggregates comprehensive travel related information and offers its services through an advanced transaction and service platform consisting of its mobile apps, Internet websites and centralized, toll-free, 24-hour customer service center. Ctrip enables business and leisure travelers to make informed and cost-effective bookings. It also helps customers book vacation packages and guided tours. In addition, through its corporate travel management services, Ctrip helps corporate clients effectively manage their travel requirements. Since its inception in 1999, Ctrip has experienced substantial growth and become one of the best-known travel brands in China."

The company's most recent earnings report sparked quite a reaction. CTRP reported its Q4 and fiscal year 2014 results on March 19th. Analysts were expecting a loss of $0.09 a share on revenues of $306.29 million. CTRP delivered a loss of $0.11. Investors ignored the miss thanks to revenues rising +33% to $308.37 million.

James Liang, Chairman of the Board and Chief Executive Officer of Ctrip, commented on his company's results saying, "In the fourth quarter of 2014, our main business lines demonstrated strong momentum. Accommodation reservation and transportation ticketing services reached 53% and 102% year-over-year volume growth respectively. Total GMV of packaged tour business reached RMB13 billion in 2014. Our new initiatives have propelled the expansion in our market share. Cumulative mobile app downloads reached nearly 600 million by the end of the year, growing over 70% from the previous quarter. Over 70% of transactions were made through mobile platforms during the Chinese New Year holiday. 2015 could be another exciting year. We will continue to focus on technology, service quality and efficiency, product comprehensiveness and price competitiveness, to create greater value for our customers, our partners, our employees and ultimately, our investors."

What really caught the market's attention was CTRP's guidance. The company expects Q1 revenues to surge +40% to +50%. That would be the highest growth rate since 2010 and above Wall Street's estimates for +30%. Mr. Liang said that CTRP owns about 5% of the travel market in China. Longer-term he believes CTRP could have about 20% of the market but it will be a much bigger market with travel expected to grow +500%.

Shares of CTRP gapped open higher from $46.00 to $55.00 and hit $60 a few days after its earnings report. Today shares are consolidating sideways below resistance near $65.00. Traders just bought the dip at its rising 10-dma this morning.

We want to hop on board if CTRP breaks through $65.00. Tonight we're listing an entry point to buy calls at $65.15.

- Suggested Positions -

Long MAY $65 CALL (CTRP150515C65) entry $3.29

04/21/15 triggered @ 65.15
Option Format: symbol-year-month-day-call-strike


G-III Apparel Group, Ltd. - GIII - close: 116.32 change: -1.15

Stop Loss: 114.75
Target(s): To Be Determined
Current Option Gain/Loss: -48.3%
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:
04/22/15: I'm worried about GIII. Shares underperformed today with a -0.97% decline. If shares breakdown under short-term support near $115.00 it could signal a drop toward $110.00.

Tonight we'll move the stop loss up to $114.75.

I'm not suggesting new positions at current levels. We want to exit prior to the stock split on May 4th.

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

04/22/15 new stop @ 114.75
04/13/15 new stop @ 113.85
04/09/15 triggered @ 116.77, on a midday gap higher
Suggested entry was $116.65
Option Format: symbol-year-month-day-call-strike


Global Payments Inc. - GPN - close: 101.87 change: +0.24

Stop Loss: 98.25
Target(s): To Be Determined
Current Option Gain/Loss: +12.3%
Average Daily Volume = 589 thousand
Entry on April 21 at $101.05
Listed on April 18, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
04/22/15: GPN kept the rally going with a +0.2% gain, which means another closing high. It was a little bit of a volatile morning for GPN. Investors might want to look for a dip in the $100-101 zone as a new entry point.

Trade Description: April 18, 2015:
GPN is in the services sector. They provide money transfers and electronic payment solutions.

According to the company website, "Global Payments Inc. (GPN) is a leading worldwide provider of payment technology services that delivers innovative solutions driven by customer needs globally. Our partnerships, technologies and employee expertise enable us to provide a broad range of products and services that allow our customers to accept all payment types across a variety of distribution channels in many markets around the world. Headquartered in Atlanta, Georgia with more than 4,300 employees worldwide, Global Payments is a Fortune 1000 Company with merchants and partners in 29 countries throughout North America, Europe, the Asia-Pacific region and Brazil."

The company has been consistently delivering strong earnings growth. GPN has beaten Wall Street's expectations and guided higher the last three quarters in a row. Their most recent report was April 8th when GPN delivered their 2015 Q3 results. Earnings were up +18.7% to $1.14 a share. Revenues were up +8% to $665 million. Growth was driven by strong performances in the U.S. and their Asia-Pacific operations.

Management raised their forecast again. They see 2015 earnings in the $4.77-4.84 range, which would be +8% to +10% growth. They're forecasting 2015 revenues in the $2.75-2.80 billion range or +16% to +18% growth.

GPN management is also shareholder friendly and has been significantly boosting their stock buy back program. They recently announced an accelerated share repurchase program up to $100 million.

The stock has rallied on the strong earnings results and buyback news. Today GPN is hovering near all-time highs around psychological resistance at the $100 level. It was impressive that GPN did not participate in the market's widespread sell-off on Friday. We want to be ready to hop on board if GPN can rally past resistance at $100.

Tonight we're suggesting a trigger to buy calls at $101.05.

- Suggested Positions -

Long AUG $105 CALL (GPN150821C105) entry $2.85

04/21/15 triggered @ 101.05
Option Format: symbol-year-month-day-call-strike




PUT Play Updates

Big Lots Inc. - BIG - close: 47.15 change: +0.11

Stop Loss: 50.05
Target(s): To Be Determined
Current Option Gain/Loss: -31.6%
Average Daily Volume = 1.1 million
Entry on April 14 at $46.85
Listed on April 13, 2015
Time Frame: Exit PRIOR to May option expiration
New Positions: see below

Comments:
04/22/15: BIG is still trying to bounce and managed a +0.2% gain. The stock looks like it could challenge the $48.00 area or its 50-dma soon.

No new positions at this time.

Trade Description: April 13, 2015:
Momentum for this retail name is clearly rolling over. According to the company's latest press release, "Big Lots Inc. (BIG) is a unique, non-traditional discount retailer operating 1,460 Big Lots stores in 48 states with product assortments in the merchandise categories of Food, Consumables, Furniture & Home Decor, Seasonal, Soft Home, Hard Home, and Electronics & Accessories. Our vision is to be recognized for providing an outstanding shopping experience for our customers, valuing and developing our associates, and creating growth for our shareholders."

The company's earnings results have been mixed. The huge sell-off on December 5th was a reaction to its Q3 earnings. BIG lost $0.06 per share, which was worse than expected and revenues were essentially flat. The fourth quarter was significantly better with BIG delivering a profit of $1.76 per share compared to estimates of $1.75. Revenues were up +1.4% and were in-line with estimates of $1.59 billion. Comparable store sales were up to +2.9% in the fourth quarter.

Unfortunately, management guided lower for Q1 and the rest of their fiscal 2016. Their forecast of $2.75-2.90 in earnings is below Wall Street's $2.96 estimate. Comparable store sales are going to be in the low single digits. The company tried to soften the bad news by raising their dividend and adding to their stock buyback program.

The post-earnings rally didn't last. Shares of BIG have rolled over and now the path of least resistance is lower. The $46.00 level, along with the simple 200-dma, is potential support but we are expecting this weakness in BIG to accelerate. Tonight we are listing a trigger to buy puts at $46.85 with an initial stop loss at $50.05.

- Suggested Positions -

Long MAY $47.50 PUT (BIG150515P4750) entry $1.90

04/14/15 triggered @ $46.85
Option Format: symbol-year-month-day-call-strike


Jack in the Box, Inc. - JACK - close: 91.32 change: -0.27

Stop Loss: 95.05
Target(s): To Be Determined
Current Option Gain/Loss: -15.0%
Average Daily Volume = 564 thousand
Entry on April 17 at $91.88
Listed on April 16, 2015
Time Frame: 2 to 4 weeks, exit PRIOR to earnings in mid May
New Positions: see below

Comments:
04/22/15: The relative weakness in JACK continues. Shares dipped to $90.29 before paring its losses. The $90.00 level and the mid-February highs near $88.50 are both potential support.

No new positions at this time.

Trade Description: April 16, 2015:
It's a burger-eat-burger world out there in the fast-food business. Jack in the Box is small fries compared to its larger rivals like McDonalds (36,258 locations) and Wendy's (6,515 locations). Let's not forget heavy weights like Taco Bell, Burger King, Subway, Dairy Queen, and a handful of pizza chains. JACK only has about 2,200 restaurants but it also has a secret weapon and that is the Qdoba Mexican Grill restaurant with about 600 locations. Chipotle Mexican Grill has almost 1,800 locations.

Some of that intense competition being felt by McDonalds and Chipotle Mexican Grill is coming from Jack in the Box and its Qdoba brand, which is growing sharply. A majority of their Qdoba franchisees own multiple stores with 10, 20 even 40 stores common. Enterprising business owners don't open additional stores if the original stores are not working. To have so many owners with high numbers of stores suggests the franchise is consistently profitable.

To be profitable they need solid customer traffic, good food and decent margins. Shares of JACK have been one of the best performers on the S&P over the last couple of years because the company has been posting solid earnings and growth.

With analysts cutting earnings estimates for McDonalds and Chipotle because of competition in the sector it makes sense to look at what has happened at JACK. Over the last quarter and the last year not a single analyst has lowered their earnings estimates for JACK. According to Zacks there has been a noticeable trend of raising estimates. JACK is expected to grow +16% to +20% this year and in 2016. JACK has beaten earnings by an average of 6% over the last four quarters.

Because of the drop in gasoline prices consumers have more money in their pocket. Some of that money is going to end up in the cash registers at these fast food outlets. Customers are also trending towards healthier foods and away from the mass produced burgers and fries at McDonalds. Did you know there are 19 ingredients in McDonalds fries? Surely you didn't think they were just potatoes and grease? Restaurants like JACK and Chipotle are capitalizing on the healthy food craze. JACK store sales rose an average of 5.7% over the last three quarters but Qdoba sales rose +13% for the year and +7.7% in Q4. Zacks rates JACK as a strong buy.

The company plans to open 15 new Jack in the Box stores in 2015. They're also cashing in on Qdoba's success and planning to open 50 to 60 new Qdoba locations. That compares to just 12 new Jacks and 38 new Qdobas in 2014.

It's also worth noting that JACK has an active share buyback program and they reduced the share count by 10% over the last four quarters. Earnings growth rose +20% in Q3 after three years of consecutive earnings growth of more than 30%.

JACK's most recent earnings report was February 17th, when they reported their 2015 Q1 results. Analysts were expecting a profit of $0.87 a share on revenues of $461.2 million. JACK delivered earnings of $0.93 a share. That's a +24% improvement from a year ago. Revenues were up +4.1% to $468.6 million, above estimates. Their operating margins improved 1% to 19.3%.

Management expects same-store sales at Jack in the Box to surge from +0.9% a year ago to +5% to +7% in Q2. Qdoba same-store sales are forecasted to be in the +7% to +9% range. The company raised full-year 2015 guidance to $2.85-2.97 a share compared to Wall Street estimates of $2.84.

Everything I just wrote about JACK is bullish. The company is growing. They're profitable and seem to be stealing market share from its rivals. Yet right now the market doesn't care. Shares of JACK have been underperforming the major indices since they peaked on March 25th at round-number resistance near the $100.00 level. There was a technical bounce off its 50-dma several days ago but that has faded.

Traders seem to be selling the rallies in JACK now. Today's display of relative weakness (-0.6%) also left JACK below technical support at its 50-dma for the first time since August 2014.

I'm longer-term bullish on JACK. Bloomberg just published an article this week on how consumer spending at restaurants and bars was more than spending on groceries for the first time ever in March 2015. The data suggests that younger, millennial consumers are more willing to spend on eating out. There is a bug in this data. The Commerce Department is not counting companies like Wal-mart, Target, or Costco as grocery stores even though they all have significant grocery businesses.

On a short-term basis JACK looks weak. The point & figure chart just turned bearish this month. We are suggesting a trigger to buy puts at $91.90.

- Suggested Positions -

Long MAY $90 PUT (JACK150515P90) entry $3.00

04/17/15 triggered on gap down at $91.88, trigger was $91.90
Option Format: symbol-year-month-day-call-strike


Orbital ATK, Inc. - OA - close: 74.50 change: +0.12

Stop Loss: 76.55
Target(s): To Be Determined
Current Option Gain/Loss: -23.4%
Average Daily Volume = n/a
Entry on April 16 at $74.25
Listed on April 15, 2015
Time Frame: 3 to 4 weeks, exit PRIOR to earnings in mid May
New Positions: see below

Comments:
04/22/15: Traders bought the dip on OA this morning and the stock managed to close in positive territory. Odds are growing we're going to see OA challenge resistance near $75.00 and potentially the $76.00 level.

No new positions at this time.

Trade Description: April 15, 2015:
On a long-term basis many of the defense and aerospace companies have been juggernauts with huge gains over the last couple of years. That's in spite of lower U.S. military budgets. Yet on a short-term basis the group is underperforming.

OA is part of the industrial goods sector. The company is a merger between Orbital Sciences and ATK. ATK spun off its small firearms business into a new company called Vista Outdoor. According to OA, "Orbital ATK is a global leader in aerospace and defense technologies. The company designs, builds and delivers space, defense and aviation systems for customers around the world, both as a prime contractor and merchant supplier. Its main products include launch vehicles and related propulsion systems; missile products, subsystems and defense electronics; precision weapons, armament systems and ammunition; satellites and associated space components and services; and advanced aerospace structures. Headquartered in Dulles, Virginia, Orbital ATK employs more than 12,000 people in 20 states across the United States and in several international locations."

I am longer-term bullish on the defense and aerospace stocks. Yet shorter-term they are clearly underperforming the major indices. The S&P 500 and the Dow Industrials are both nearing their all-time highs. The NASDAQ is trading near its 15-year highs and the small cap Russell 2000 just hit a new record high today. Yet the major defense-related names have been trending lower the last couple of weeks.

Technically OA has been developing a trend of lower highs. Today the stock just broke down under key, round-number support at $75.00. If this pullback continues we could see OA drop toward the $69-70 zone.

Tonight we're suggesting a trigger to buy puts at $74.25. We'll try and limit our risk with an initial stop loss at $76.55. Earnings are coming up in mid May. There is no official date set. We will plan on exiting prior to their earnings announcement.

- Suggested Positions -

Long MAY $75 PUT (OA150515P75) entry $3.20

04/16/15 triggered @ 74.25
Option Format: symbol-year-month-day-call-strike



CLOSED BULLISH PLAYS

Cardinal Health, Inc. - CAH - close: 91.50 change: +1.15

Stop Loss: 87.75
Target(s): To Be Determined
Current Option Gain/Loss: -35.3%
Average Daily Volume = 1.7 million
Entry on March 30 at $90.55
Listed on March 28, 2015
Time Frame: Exit PRIOR to earnings on April 30th
New Positions: see below

Comments:
04/22/15: Last night we decide to cut CAH lose and exit this trade early. Naturally shares choose to surge the next day and outperform the market with a +1.2% gain. CAH is on the verge of breaking through resistance near $91.50. Such a breakout would be bullish but I would not hold over the earnings report on April 30th.

Our plan was to exit this morning.

- Suggested Positions -

MAY $90 CALL (CAH150515C90) entry $2.86 exit $1.85 (-35.3%)

04/22/15 planned exit
04/21/15 prepare to exit tomorrow morning
03/30/15 triggered @ 90.55
Option Format: symbol-year-month-day-call-strike

chart:


iShares Russell 2000 ETF - IWM - close: 125.71 change: +0.19

Stop Loss: 124.85
Target(s): To Be Determined
Current Option Gain/Loss: -7.2%
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:
04/22/15: The stock market's widespread dip this morning was enough to stop out our IWM trade. The ETF fell to $124.47 and we had move our stop to $124.85 last night. It's worth noting that the bullish trend of higher lows is still in place.

- Suggested Positions -

MAY $125 CALL (IWM150515C125) entry $1.94 exit $1.80 (-7.2%)

04/22/15 stopped out
04/21/15 new stop @ 124.85
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

chart: