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Daily Newsletter, Saturday, 4/25/2015

Table of Contents

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

Market Wrap

Seattle Wins!

by Jim Brown

Click here to email Jim Brown

Earnings from Seattle companies including Microsoft, Starbucks and Amazon powered the Nasdaq to a new closing high. Jeff Bezos had a very good day with his net worth rising +$4.8 billion thanks to a $55 spike in his 83.9 million Amazon shares. Bill Gates and Steve Ballmer had gains of more than +$1.2 billion each with a $4.50 rally in Microsoft. Howard Schultz saw a gain of $40 million thanks to the +$2.40 rise in Starbucks shares.

Market Statistics

Apparently the strong dollar excuse has worked like a charm and while the dollar may be kryptonite to earnings and revenue it is no longer a problem for investors. Nearly every big cap report has mentioned the impact of the dollar and revenue misses as a result are common. Investors have now discounted that impact and big cap stocks ended the week in rally mode.

The small caps were not so lucky. There is a clear rotation out of the small caps with the Russell 2000 finishing the day in the red with a -4 point decline. Once it became evident that the big caps were still posting earnings growth despite revenue misses the rotation began. Fund managers are always hesitant to hold small caps over the summer doldrums and the earnings relief gives them an excuse to move back into the safety of large caps.

The big gains came from the big caps in the Nasdaq 100 ($NDX) with a +4.25% gain for the week. With stocks like Amazon, Google, Priceline, and others posting double digit point gains for the week the Nasdaq 100 broke out, way out, to a new closing high at 4,538 with a gain of +185 points for the week. Prior resistance at 4,475 was broken on Friday.


The only material economic report on Friday was the March Durable Goods and the headline number came in with a whopping +4.0% gain compared to a -1.4% drop in February. Estimates were for a gain of only +0.6%. The fly in the soup here is that all of that came from a +30.6% increase in civilian aircraft orders. Ex transportation the new orders fell -0.2% and nondefense capital goods ex aircraft fell -0.5%. Shipments excluding transportation declined -0.3% and unfilled orders were flat at zero.

Core capital goods, which are a key component in the GDP calculation, declined -0.4%. This number has declined every month since August and are now -4.6% below year ago levels. Capital goods orders for defense rose +17% after a +7.7% gain in February.

The weakness in durable goods order other than aircraft caused another drop in the Atlanta Fed's GDPnow forecasts for Q1 to only +0.1% growth. The first estimate by the Bureau of Economic Analysis (BEA) is next Wednesday and the consensus of analyst estimates is for only +1.20% growth. It will be interesting to see how the Fed's forecast and the analyst forecasts square up to the government forecast next week.


The calendar for next week is headlined by the Fed meeting and announcement on Wednesday at 2:PM. While there is no change expected in policy the statement is going to be a real stumbling block for the market if there is any mention of June being a possibility for a rate hike. The analyst community and the market has now moved their forecasts out to September as the most likely start of the rate hike cycle. If a hike did occur in September it would probably be the only one this year with the next one in March of 2016 based on current projections. The market can live with that. If the Fed did the unexpected and hiked in June it would open the possibility for another hike late in the year and the market would react negatively. This makes the mention of June as a possible date in the statement as a major event for the market to overcome.

The GDP on Wednesday is second in importance but there has been so much talk about a zero growth or even a negative print for Q1 that it would have to be severely negative to impact the market. Any growth at all in the initial BEA estimate would be market positive. Just remember it will be revised twice more over the next two months.

The Richmond Fed reports on Tuesday are important but the ISM on Friday supersedes all the regional reports because it is a national number. Analysts are expecting a small gain but after the durable goods number on Friday they may revise that estimate lower.


Exponent (EXPO) announced a 2:1 split but it has to be approved by shareholders on May 28th and then they will announce the actual split date. They need to split because their daily volume is only about 125,000 shares with only 13 million shares outstanding. Shares spiked +$7 on the earnings and split announcement.

G-III splits in a week but it is not showing a split run yet although it had a nice gain on Friday.


The earnings calendar is very busy next week with more than 500 companies reporting. While a lot of the blue chips have already reported there are still a few coming out next week. The biggest will be Apple on Monday. If Apple has the same kind of post earnings move as Amazon, Netflix, etc, then the Dow and Nasdaq could be off to the races on Monday. While I would not bet against it I seriously doubt Apple shares are going to soar. The number of shares outstanding at 5.8 billion after their recent split makes it difficult to post big gains unless something truly extraordinary is announced. As a reference Amazon only has 464 million shares outstanding.


Amazon (AMZN) reported earnings after the bell on Thursday and disclosed for the first time the revenue from its cloud business, Amazon Web Services (AWS). The cloud business generated a 49% increase in revenue to $1.57 billion with an operating profit margin of 17%. Compared to Amazon's normal 2.5% retail margin that is a home run. Jeff Bezos said the cloud business is accelerating as more people take advantage of owning a cloud server for pennies a day. The underlying cost of providing these services is also falling so it is a win-win for Amazon. Amazon has cut cloud prices 48 times since 2006.

Microsoft said its cloud revenue for Q1 spiked +111%. The company does not give out current revenue/profit figures on cloud services but Microsoft is on a run rate for $6.3 billion for the full year on cloud offerings. AWS is four times bigger than Amazon on a pure cloud basis. Microsoft counts some of its software as cloud like the Office 365 product. Microsoft is more of a "software as a service" cloud while Amazon is a "hardware as a service" provider.

Amazon received upgrades from JP Morgan, Raymond James and Janney Montgomery Scott and at least five other analysts boosted their price targets. Cantor Fitzgerald hiked to $460 from $385 and RBC Capital to $500 from $400. The highest estimate I heard was $550 but I missed the name. Amazon reported a 15% increase in revenue to $22.72 billion with a loss of -12 cents per share. Amazon is still spending huge amounts of money building out its infrastructure and as long as it can continue adding $3 billion in revenue per quarter investors are going to let Bezos spend as much as he wants. For the current quarter Amazon forecasts revenue between $20.6-$22.8 billion, up 7% to 18%. Analysts expect $22.1 billion but they always over estimate. Amazon just announced a hotel room reservation system for three major cities in the U.S. with more to follow. I expect them to add to their streaming video offerings in 2015 as well to better compete with NetFlix.

Amazon shares are up more than $150 since January. They posted their best weekly gain (+$70) since 1999.


Microsoft (MSFT) shares surged +10.4% to $48 after they reported earnings of 61 cents compared to estimates of 51 cents. Revenue rose +6% to $21.7 billion and above the estimates for $21.1 billion. Revenue in their Windows franchise declined significantly but their cloud software business lifted their earnings. They also inflated earnings by about 4% as a result of their share buybacks reducing the number of outstanding shares.

The company has hedged about $15 billion in revenue against currency risk. That is a huge amount of money but shows how much the strong dollar has impacted overseas revenues.


Thank you Howard Schultz. The CEO of Starbucks retired and then came back to take charge again when Starbucks was languishing several years ago. Since he came back and cured some of the problems, implemented numerous changes and added products the stock has been on the right path.

The company has gone from a morning only coffee shop to an all day restaurant with baked goods, sandwiches, many varieties of iced teas and cold brewed coffees as well as alcoholic beverages in the evenings. In the first quarter same store sales in the U.S. rose +2.7% thanks to a 2% increase in traffic, which translated into an additional 10 million customer visits. Globally same store sales rose +7% with a 12% increase in Asia. Many of those were coming in to redeem the $1.6 billion that was loaded on gift cards in December.

Overall food sales were up +16% while breakfast sandwiches were up +35%. That was bad news for McDonalds and the Egg McMuffin. Starbucks said that about a third of orders now include a food item and that figure is rising.

Earnings rose +16% to 33 cents, which was in line with estimates and revenue rose +18% to $4.56 billion to beat estimates of $4.53 billion. Shares rallied 5% on the news.


It was not all rainbows and buttercups in the earnings cycle. Biogen (BIIB) reported earnings of $3.82 that missed estimates for $3.92 per share. Revenue of $2.55 billion also missed estimates of $2.66 billion. Shares were up +27% in 2015 but they gave back -7% or -$28 after the earnings miss. BIIB traded 6.1 million shares and more than three times the daily average of 1.76 million.

The company said slowing sales of its oral MS drug Tecfidera and a delay in data for its coming Alzheimer's drug were to blame for the low earnings. The company said it sales of Tecfidera do not improve the revenue growth for the coming quarters may come in at the lower end of company projections. Sales of Tecfidera rose from $506 million to $824.9 million in Q1 but well below projections for $931 million.


Tyco International (TYC) reported earnings of 55 cents that beat estimates for 50 cents. However, revenue declined -2% to $2.43 billion and missed estimates slightly for $2.44 billion. The company blamed the stronger dollar since the majority of its business is done outside the U.S. and they were hit with currency issues. They expect the impact to last throughout 2015. They lowered full year guidance from $2.30-$2.40 to $2.23-$2.27 per share. They also blamed low oil prices since they do a lot of business with energy companies. Shares declined -6% on the news.


Xerox (XRX) reported earnings of 21 cents that declined -20% but still matched estimates but revenue fell -6.3% to $4.47 billion and that missed estimates for $4.56 billion. Currency issues accounted for 5% of that decline. Xerox gets about a third of its revenue from outside the USA. Xerox cut full year guidance from $1.00-$1.06 to $0.95-$101 per share. They also cut margin guidance from a midpoint of 9.5% to 8.75%. Shares declined -9% on the news.


Aaron's Inc (AAN), the rent to own company, posted adjusted earnings of 73 cents that rose +37% and beat estimates of 54 cents. Revenue of $821.8 million blew away estimates for $792.8 million. The company raised guidance from $1.90-$2.10 to $2.01-$2.15 for the full year. They also raised revenue guidance from $3.05-$3.25 billion to $3.1-$3.3 billion. Aaron's rents Hewlett Packard computers, Whirlpool refrigerators and GE washing machines as well as numerous other brands. Business must be good with no dollar risk. Shares rallied +12%.


Comcast (CMCSA) and Time Warner (TWC) cancelled their $45 billion merger because of too many concerns from the FCC. The regulator said "the proposed merger would have proposed an unacceptable risk to competition and innovation, including the ability of online video providers to reach and serve consumers." The merger of the top two cable companies in the U.S. would have put 30% of TV viewers and 55% of broadband subscribers into one company. The FCC said this would have given the company unprecedented power over what Americans watch and download.

I thought it was important that the FCC said it was trying to protect "streaming services" (read NetFlix) from onerous payments for the privilege of connecting to the network. Dish, parent of Sling TV, and NetFlix strenuously opposed the deal. Because the companies new in advance it would be a struggle to get the deal approved there was no breakup fee. Many analysts now believe Charter Communications (CHTR) will quickly resurrect its efforts to acquire Time Warner Cable. That combination would have 15 million video customers and 16.5 million broadband Internet customers. Comcast alone has 22.4 million video customers and 22 million broadband customers.

Time Warner rallied $6.50 on the news and Comcast was fractionally positive. Charter gained +$2.


Mylan (MYL) raised its bid for Perrigo (PRGO) but the company immediately declined it saying the $30 billion offer still undervalued all the Perrigo assets. Some believe Mylan raised the bid for Perrigo in order to either scare away the $40.1 billion Teva (TEVA) bid for Mylan or at least force them to raise it significantly. Teva is the world's largest generic drug company by revenue and wants to become even bigger by acquiring Mylan. A combined Teva/Mylan would be able to raise prices for many generic drugs. Regulators would probably require Teva to sell off significant assets in order to get the deal done.

Teva's offer required Mylan to cancel its bid for Perrigo. Teva is bidding $82 for Mylan. The Mylan bid for Perrigo includes $60 in cash and 2.2 shares of Mylan for each Perrigo share or $222.12 per share. Perrigo says the real value of the offer is $205 because the Teva bid for Mylan drove those shares higher. Analysts believe a Mylan/Perrigo deal could get done but a Teva/Mylan deal would face significant regulatory issues.


Crude oil was flat for the week at $57.22 after an intraday high of $58.41 on Thursday. CEOs at the IHS Cera conference in Houston were pretty much in agreement that prices are going to rise through the summer but there were still some negative opinions suggesting we could drift back down to the $40s. The CEO of Core Labs (CLB) said in constant currency numbers WTI could be $70 by year end and Brent in the $80s. That means if the dollar continues its decline from last week we could see even higher prices. The CEO said he expects better than a 200,000 bpd decline in U.S. production by the end of the year to less than 9.0 million bpd.

Note the opposite chart patterns between the dollar and oil. They react the exact opposite of each other.



Active rigs declined by -22 to 932 for last week but that number is distorted. Oil rigs declined -31 to 703 while active gas rigs rose +8 to 225. That brings the total oil rigs lost to -906 or -56.4% from the high of 1,609. The total active rigs fell to 932 and only 66 above the 2009 low at 866. There is no doubt that oil production is going to decline over the next 12 months. This has been the fastest rig decline in history.


Markets

The Nasdaq 100 was the big winner with a new high but the S&P actually got in on the act as well. The S&P closed at 2117.69 and the old high was 2117.39 made back on March 2nd. Unfortunately the Dow is still lagging behind because of the impact of a couple earnings reports every day or two. The Dow transports are still lagging as well.

The Volatility Index ($VIX) closed at 12.29 and a five month low. Average volume for the week of 5.76 billion shares per day is the lowest of the year for a non holiday week. The weak economic data and weak earnings are keeping people on the sidelines.


Art Cashin was right when he said on Friday, "The fear of losing money has lost more money in the last several years than anything else." You may remember the AAII sentiment chart I showed on Tuesday with the number of investors neutral on the market over 45% for the last two weeks. That has not changed. The AAII numbers for Friday show the neutral investors still in the majority. This lack of interest in the market may seem strange with several of the indexes breaking out to new highs.


Mark Hulbert penned an article last week showing that available cash is shrinking. Funds are invested because they have to be invested. They can't afford for the market to run away from them and let their peers post much higher results.

Despite the apparent lack of interest by the individual investor the new highs are the best way to lure investors back into the market. Some individual investors are not sitting out the rally because margin debt at the NYSE is at record highs at $476 billion. That is up +2.5% month over month. That brings up a question of how can margin debt be at records while market participation is so weak?

There are a large number of baby boomers leaving the market every day. After the financial crisis in 2008-2009 cut their accounts in half and the flash crash in 2010 shocked them again they are pulling their retirement funds out to move to safer investments.

At the same time the number of younger investors entering the market is shrinking. People in their 30s and 40s don't have as much money as they did in the late 1990s. Everything costs significantly more but wages have not gone up at the same pace. Thank goodness we didn't have a real inflation problem over the last six years or it would be even worse.

A large number of the younger generation believes the market is rigged and they are not investing individually. They have a 401k or an IRA and they just make contributions and sit on it.

When you think about it there is a lot of gloom and doom being preached in the financial press and this is having a long term impact on the number of investors entering the market and investing once they get there.

Back to the margin debt. So how can margin debt be at record highs if volume is at the lows for the year and sentiment is so neutral? Apparently those investors actually in the market are leveraged to the maximum. The problem is that leverage works both ways. If we ever have another correction the downdraft could be vicious as margin selling eliminates those over leveraged investors.

I know I got off the track there with my explanation of the current factors but it will be relative in the months ahead. Do you remember the taper tantrum when the Fed was "talking" about tapering QE. Well you can bet there will be a super tantrum when the Fed finally begins to hike rates. Investors that have been around the block before understand this and realize it will be a buying opportunity. Historically once the Fed begins a tightening cycle and the initial market reaction is over the market typically rises for the next 12-18 months. The theory is that the Fed would not hike if the economy was not stable and growing to it is a good time to invest.

Deutsche Bank's Joe LaVorgna counted five episodes since 1994 when the yield on the ten-year moved substantially higher because of a change in expectations on the likely path of Fed policy. "If history is a guide, a backup in Treasury yields could be both swift and violent, with most of the move occurring over a short period of time, generally within two months." He cited five examples where the ten-year yield rose from 140-250 basis points in a very short period. That would be a major upheaval in the current treasury market.

I hesitated to discuss this topic this week but we may be nearing the Great Rotation from bonds back into stocks. The ten-year yield has quit going down but that could change if the Fed kicks the can farther down the road next week. Eventually the Fed will hike rates and yields will begin to rise. There are trillions of dollars in the bond/treasury market that will either be faced with a loss of capital or they will rotate out of bonds and back into equities. In order for this to happen the U.S. economy must find its footing and give the Fed a reason to hike rates. That first rate hike could be the starters gun on the Great Rotation and therefore a significant benefit to equities.

The S&P closed at 2117.69 and a new high but for all practical purposes it stopped at the old high levels. Unlike the Nasdaq where the index spiked significantly higher the S&P barely managed to move higher with only a +4 point gain. While this is not specifically bullish or bearish it does pose the potential for a double top at this level. The stocks that exploded the Nasdaq 100 higher are all in the S&P but the S&P only gained +4 points. That means a lot of other stocks were declining. I think everyone would say that Friday was a bullish day in the markets BUT declining volume was actually higher than advancing volume. The indexes were up because of the major gains by a few individual stocks.

This causes me some worries over next week when there is a Fed meeting on Wednesday. Those big gainers from last week should fade now that the shorts have covered. As an example does anyone actually believe that a $55 gain in Amazon on Friday won't result in some profit taking next week?

I don't want us to fall into Art Cashin's comment where the fear of losing money causes us to miss out on making money but we need to be cautious given the weak internals. If the S&P charges higher next week then disregard everything I said above. The market does a good job of making fools out of the most people possible. We do have one really big plus in our favor. New highs are the greatest investor motivator known to man. Investors on the sidelines can't stand to sit in cash while the market makes new highs day after day. When they market is choppy they can convince themselves that it is better to wait than buy something. When the market is making new highs that rational thinking goes out the window.

Support on the S&P is now 2100-2110 after two weeks of fighting to get through that level. Any dip to 2100 is a buying opportunity. Any material dip below 2100 is a game changer.


The Dow is our caution flag. The index failed to even close over near-term resistance at 18,100 and is well below prior highs at 18,200 and 18,288. Obviously this is because the individual stocks in the Dow are much more of an influence on a thin 30 stock index. Microsoft gained +$4.53 on Friday and that added about 35 points to the Dow. Without Microsoft the Dow would have closed negative. There were only 12 gainers and 18 losers in the Dow on Friday.


The downtrend resistance of lower highs is still intact and a warning that the Nasdaq rally may not last. Beware any decline below 18,000 as a potential signal of growing weakness.


The Nasdaq 100 ($NDX) gained +59 points. Amazon was responsible for 22 points, Microsoft added +32, Google +4.5 and Starbucks +1.6. That should be all I need to say about the potential for the Nasdaq to move higher next week. When ONLY 4 stocks were responsible for +60 Nasdaq 100 points the potential for further gains next week are slim because you know traders are going to take profits in those stocks.

The Nasdaq Composite gained +36 points to close at 5092. Overhead resistance is now 5125 and that dates back to September. Like the NDX I would expect the Composite Index to decline next week.

On Friday there were 1,185 advancers and 1,410 decliners on the Nasdaq Composite. It was only because of the giant gains in a few stocks that the Nasdaq remained in the green.


Support is now 5000 followed by 4950 and resistance is 5125.


The Russell 2000 small caps are struggling. After a month of being favored because of their lack of exposure to the dollar that worry is now off the table. With the summer doldrums ahead the urge to own small caps is fading because of the potential risk. If the market volume declines even further this summer it could fall under 5 billion shares per day. Small cap volume would be even worse and that scares fund managers. If a market event occurs and they want to exit they can get killed trying to exit large positions in a low volume small cap stock.

While I am not ready to write off the Russell just yet a decline below 1250 would be the sell signal. Despite the new high in the prior week the Russell was struggling last week. I expect that to continue.


I would continue to be cautious on long positions. Despite the new highs the market is not healthy. Bank of America posted this chart last week showing the enormous outflows of funds from U.S. equities since February. More than $79 billion has flowed out of U.S. equity funds in the last ten weeks. It is a miracle the market is at new highs and it will be another miracle if it stays there. Note the divergence in fund flows compared to the S&P. This is another reason why trading volume is so low and 45% of investors are neutral.


Citi Private Bank and S&P Capital IQ Investment Policy Committee are both recommending that investors cut their exposure to large-cap U.S. equities. Citi global chief investment strategist, Steven Weiting said the market can no longer bet on a combination of ultra-loose monetary policy coming from the Fed or accelerating economic growth this year. Weiting cited the "consequences of the boom and bust in U.S. energy investment as a factor that is contributing to weakening of U.S. equity outperformance." BlackRock's Russ Koesterich also recommended reducing U.S. equities in favor of less expensive international stocks. "Diversification at this point is critical" Koesterich said in an interview.

S&P Capital IQ said, "Reasons for our reduced optimism toward U.S. equities include a traditionally soft seasonal stretch for stocks, the rich forward 12-month valuation, time since the last correction, and the expectation that interest rates and inflation will creep higher in the coming year."

Random Thoughts

Greece negotiators continue to use the "rope a dope" on the EU finance ministers. Meetings are held and talks last for hours but there is no substance. At the meeting last week many of the finance ministers said they were tired of showing up because nothing was ever going to happen. Greece refuses to enact the required economic changes but they are still asking for more money. The finance ministers continue to say no more money until you enact the changes we require. Greece refuses, the finance ministers refuse and everyone goes home frustrated. Greece is playing out the clock. They know they are in trouble but they feel like it will be worse for Europe than for Greece if they default. Meanwhile the clock is counting down to an eventual Greece default. The finance ministers are now talking about a plan B on what they should do if Greece does default.

In the last week the chance of a default has risen to 40% while the chance of an exit from the eurozone is 30%. Much talk has occurred on the potential for Greece to default and NOT leave the eurozone. Analysts now question why they would leave the eurozone because the ECB is still supporting Greek banks. If they leave the zone they will definitely not get any more money. If they default and remain in the eurozone there is still the possibility of some kind of future deal.

Meanwhile everyone in the rest of the world has lost interest and life goes on.


The Bloomberg Economic Surprise Index, which measures whether economic data is missing or beating forecasts, hit a new low last week. This is the lowest level since the financial crisis and suggests the Fed has a lot more to worry about before raising rates. Bloomberg Link



Over the course of this week we have heard Larry Fink of Blackrock talking about the severe risks of investing in Europe; Bill Gross of Janus saying German bonds are the short trader’s dream; Pimco warning that markets have not addressed the potential of a Fed tightening; the incoming CEO of Allianz, that TWO trillion dollar asset manager, saying, "We see generally meager growth prospects, political dangers and risks of a stock market crash." Even Abby Cohen thinks it is a stock pickers world, not a buy anything and kick back world. And yet, the market didn’t even blink.

Central banks are driving all investment decisions, and what this implies is that they are in this trade so deeply that there is no obvious or practical exit. Maybe they think they can just hold all those QE assets to maturity and never be forced to raise rates. Unfortunately that is not an option. Zerohedge: I am not crazy, I am scared


So far this earnings season 67% of the S&P companies that have reported actually beat on earnings. This is far better than analysts expected going into the earnings cycle. However, only 52% have beaten on revenue numbers. Even the energy sector surprised with a 69% beat rate on earnings but only 35% beat on revenue. The best performing sector has been consumer staples with an 81% beat rate on earnings and 69% beat rate on revenue. The worst performing sector has been the telecom sector with a 50% beat rate on earnings and only 33% on revenue.


Are you a rate hike newbie? The Fed has not hiked rates since June 2004 and quite a few of today's investors have never been through a rate hike cycle. This almost guarantees an overreaction of some sort when the Fed eventually announces a rate hike. This is one reason why Janet Yellen is trying so hard to telegraph the rate hike potential and thoroughly explain that it could take a long time before rates return to any kind of normalcy. She is trying to prevent a market meltdown by telegraphing in advance that the 2nd and 3rd rate hikes could be many months away. I wish her luck with that.

While there will be some volatility around the first rate hike the long term performance suggests it is a buying opportunity. Since WWII the S&P has averaged a +2.4% gain in the six months following the first rate hike. Unfortunately the average gain in the six months prior to a rate hike is 9.5%. So there is volatility but it is not the end of the world.

The problem is that the Fed has never tried to come back from a period this long where rates have been this low and the Fed's balance sheet has been this high at $4.5 trillion. It is up 500% from 2008 levels. Yellen does not plan to start dumping treasuries anytime in the near future but most people forget the Fed is still reinvesting its matured treasuries. When they mature the Fed buys more in order to keep its balance sheet flat. It is a stealth QE that most people have forgotten. Once the Fed quits buying those replacement treasuries the interest rates should tick up quickly.


Apple metrics for their earnings on Monday. This is what analysts are expecting.

Earnings per share $2.15 and net profit of $12.5 billion.

Revenue of $55.9 billion, up +22.5%.

iPhone sales of 55 million, up +25%. Down from 74 million in Q4.

iPhone revenue $36.6 billion, up +40%.

iPad sales of 15 million, down -10%. Revenue $6.1 billion, down -20%.

Mac sales of 5 million, up +11%, revenue of $5.8 billion, up +5%.

Apple Watch sales of 5 million. That is a very optimistic estimate.

Revenue guidance for Q2 of $46.9 billion, up +25%.

Cash on hand of close to $200 billion, up from $178 billion in Q4.


The Nasdaq may have closed at a new high but it is not the same Nasdaq as in 2000. There are 2,578 stocks today compared to 4,715 in 2000. The total value of the Nasdaq stocks today is $8.2 trillion, up +24% from 2000.


Pandemic ahead?

The price of chicken and eggs is going up. More than 8 million birds have been killed as a result of the H5N2 strain of bird flu. Minnesota declared a state of emergency and said 2.6 million birds had died from the flu, been exterminated by regulators or slated to be killed.

While this version of the bird flu is not normally transmitted to humans there is always the possibility of another mutation that could be transmitted and that would be a disaster of pandemic proportions. Minnesota has instructed 87 workers to take antiviral medications as a precaution because of direct contact with infected birds.

With modern poultry farming methods in the U.S. the risk of a pandemic is low. However, in China where they have a more hands on method of farming there is an extreme risk of an eventual pandemic in humans. One scientist explained it this way. Every time the virus comes in contact with another species be it monkey, pig, human, etc, the evolutionary dice are rolled and while the odds of a mutation are in the billions there are billions of birds being raised around the world. It only takes ONE successful roll of the dice to see the virus mutate into pandemic status. This is a really scary thought.


Here is another scary thought. According to the WSJ Chinese experts now believe North Korea has 20 nuclear warheads and enough enriched uranium to double that within a year. Prior U.S. estimates were for 10-16 bombs. Experts also believe North Korea is now able to put a nuclear weapon on their improved KN-08 ICBM, which has a range of 5,600-7,000 miles. That is far enough to put a nuclear bomb over our West Coast but not far enough to reach Chicago, New York or Washington DC.

This is a cautionary tale for the Obama administration as it negotiates with Iran. North Korea is the most sanctioned country on the planet and they negotiated for more than ten years as the world tried to keep them from going nuclear. Obviously that did not work. You can't negotiate with a regime that has no morals and lies about everything. Western nations expect other nations to do what they say they will do. That is not the case with North Korea or Iran. We also learned a couple weeks ago that Iran's new missile can reach almost all of Europe and Northern Africa. Put a bomb on that one and the balance of power just changed dramatically.


 

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"The average man desires to be told specifically which particular stock to buy or sell. He wants to get something for nothing. He does not wish to work."

William LeFevre

 

 


Index Wrap

Upside Breakout Finally, Especially With Nasdaq

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

The Nasdaq Composite (COMP) and big cap Nas 100 (NDX) achieved a decisive upside breakout to new highs. The S&P 500 went to a new weekly Closing high and eked out a new daily chart peak. It would then appear that the broad S&P 500 at least should start to put some space above what still looks like a possible double top if looking only at the DAILY chart.

Meanwhile the big cap S&P 100 (OEX) also went to a new weekly Closing high but, again, if looking only at the OEX daily chart the big cap S&P 100 is yet to pierce prior daily Closing highs. The Russell 2000 (RUT) managed a new weekly high Close.

The Dow 30 (INDU) has made neither a new weekly or daily high so this select group of stocks continues to lag the other major indexes. I don't know how to evaluate prospects for the S&P with a weaker Dow. Calling into question the ability the S&P to continue moving higher are, as noted with my Dow commentary, are 18 Dow stocks, of 30, that are either in downtrends, reversing lower or with stalled rallies; e.g., AXP, BA, CAT, CVX, DD, HD, INTC, JNJ, KO, MCD, MMM, MRK, PG, TRV, UTX, VZ, WMT and XOM. Many Dow stocks have the potential to reverse higher IF the broad S&P 500 sees another up leg. The current picture for Dow stocks is sobering for a bullish case outside Nasdaq.

It's been a tough sell to convince the S&P world, including me on the last downswing, that the low end of the prior trading range would both continue to hold and the LAST rebound perhaps finally lead to an upside breakout of the trading range of the past 20 weeks. The trading range did narrow in some, as the LOW end of SPX's price range went from the 2000 area to 2050. Still, a sideways trend for weeks leads to pretty mixed 'sentiment'.

Sideways trading ranges, what's called in chart speak, a rectangle formation, are usually bullish consolidations since the dominant prior trend (UP) will eventually resume. It's that doubt about 'usually' that can be a killer to the bullish soul!

The S&P 500 Volatility Index (VIX):

While the S&P has been advancing in a third upswing dating from the early-February low, VIX has been going down, down, down. It even looks like VIX might again retreat to 12.

At 12 and on dips to below 12, as I've been saying, I favor buying VIX calls, especially as a hedge against a possible sell off in stocks in the mid-May to late-June period ahead of Q2 earnings reports coming post June.

Until a jump in Q2 earnings is seen from the winter slow down of the first quarter, the Dow especially remains vulnerable to downdrafts like seen into early-Feb, into the second week of March and to a lesser extent the dip into late-March.

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX) DAILY CHART:

The S&P 500 chart is bullish but is following a minor 'line' of resistance higher. If SPX gets overbought in terms of the 13-day RSI, consider exiting calls or some. If I exited on shorter-term considerations; e.g., overbought, overly bullish sentiment, news, etc, I'd also consider buying back in on a pullback, especially when/if the 13-day RSI falls back to a mid-range 'neutral' reading.

I've noted a next potential resistance target at 2125, then at 2140. Looking out, longer-term weekly charts (not shown here) suggest SPX could reach 2200 before significant technical resistance at the upper end of its broad uptrend channel is seen.

Near support is suggested currently at 2100, extending to 2080. Bullish sentiment peaked in early-April and has been trending lower to sideways recently. An influence to keep me bullish is to see new highs without the froth of traders throwing money at calls or with moderate bullish sentiment.

If my CPRATIO gets up into what I label 'overbought' territory and the RSI is at similar high extremes, be wary of over-staying in calls.

S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX) went from 'mixed' when OEX was languishing below 920 to moderately bullish and suggesting potential for the line of prior highs in the 932 area to be exceeded. A stall in the OEX big cap Index in the area of its prior highs would set potential for a double top. The chart would then look bearish. Stay tuned.

Assuming that the prior highs are pierced, I've projected next resistance at 940. Near support is noted in the 920 area, than at 910.

On trading strategy: if I've gotten bullish and into positions at repeated tests of support, in this case in OEX on several dips to 900-896, I don't usually strain my brain to figure out if OEX goes to a new high or not. Instead I'd be more than happy to exit shy of prior highs. Let someone else stay in for what may be the last bit of an upswing. When in options, buy when you have little company, get bearish when others get bullish and stay nimble.

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

Enough of the monster cap stocks of the Dow (INDU) Average are lagging to suggest keep a lid on a sustained upside Dow advance and similar break out to even modest new highs per the S&P.

Calling into question the ability of the S&P to continue moving higher are 18 Dow stocks that are either in downtrends, reversing lower or stalled; e.g., AXP, BA, CAT, CVX, DD, HD, INTC, JNJ, KO, MCD, MMM, MRK, PG, TRV, UTX, VZ, WMT and XOM. I usually tally up the stocks in bullish patterns but the reverse picture here looks telling here.

I've highlighted support in the 17930 area and the 21-day moving average, with next support coming in around 17800.

Near resistance is at 18200, extending to 18280. Any sustained advance above 18200 would be bullish or at least suggest to 18400, perhaps to 18600 longer-term.



NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:

The Nasdaq Composite (COMP) is bullish in its pattern as the Index achieved a decisive upside breakout above 5000 and COMP's prior intraday highs in the 5030-5042 area. I noted last time that a sustained advance that took the COMP above 5000, would then suggest potential to the 5100-5125 area.

I've pegged near resistance in the 5100 area (at the red down arrow), extending to 5150 and resistance implied by my upper moving average 'envelope' line currently intersecting around 5150.

Near support is highlighted (per the green up arrow) at 5000. No surprise there, at this 'milestone' level. Next support is suggested at 4950 and the area of the 21-day moving average.

COMP has advanced into an initial 'overbought' 13-day Relative Strength Index (RSI) reading in that upper (65-73) 'red' zone. Bullish sentiment is moderate to neutral; no bullish 'fever' at hand, which bodes well some further upside. If there's a corrective pullback into the 5040-5000 area, it would likely be a dip that finds good buying interest.

NASDAQ 100 (NDX); DAILY CHART:

The big cap Nas 100 (NDX) is showing an accelerating uptrend as the Index broke out above resistance at the line of prior highs in the 4470 area. There was then a further upside price gap to above 4500. Bullishness in the tech-heavy Nasdaq seems a bit overdone but I wouldn't trade against this strong bullish trend either.

Near resistance is projected at 4550. At or near 4600 resistance I suggest exiting calls with this area being my maximum upside target currently. Near support is at 4450-4470, extending to 4400.

Volatility implied by the VXN Index is as low as it tends to get. Pullbacks tend to come at VXN at and under 14. It's a tendency, not a promise folks but it suggests to bullish traders to not get complacent. There were multiple chances to buy NDX calls with dips below 4300 but maybe limited opportunities to exit NDX between 4550 and 4600, assuming we get there.

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

The Nasdaq 100 tracking stock (QQQ) went from looking like a third lower upswing high and a potential bearish pattern, to a sky shot higher in a substantial breakout move.

Resistance is suggested at 111, then 112. Traders would be wise to take profits in this zone if reached. Near support is highlighted at 109, with next support at in the 108 area.

There were multiple opportunities to buy short-lived dips to below 105. If there was that favorable of an entry or higher I suggest not getting complacent and over-stay. There's limited potential for a move above 112 in my estimation based on longer-term chart analysis. Only the daily chart is shown here, but at 112 QQQ would be a bit over 4% above the 21-day moving average and quite 'extended' by this measure for QQQ.

RUSSELL 2000 (RUT); DAILY CHART:

The Russell 2000 (RUT) chart remains bullish in its pattern and the Index has trended higher, within its uptrend price channel now since early in the year. There is the matter of a new high but RUT's upside advance has stalled. Given the strong move in Nasdaq and even the move to a slight new high in S&P, RUT is lagging. However, stay tuned as the Russell doesn’t have far to go to make a new high for the current advance.

The longer-term weekly RUT chart is bullish (not shown here) and suggest eventual upside potential to perhaps 1350-1360 but not in a straight line by the looks of it. Unlike the other major stock indexes at least, RUT doesn't have an upper channel line suggesting technical/chart resistance just overhead.

Near support comes in at RUT's up trendline, currently intersecting in the 1257-1260 area. Next support is suggested at 1250 and a Close below 1250 lasting longer than a day would be bearish on a near-term basis.


GOOD TRADING SUCCESS!




New Option Plays

Earnings +74% and Backlog +49%

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Apogee Enterprises - APOG - close: 53.48 change: +0.55

Stop Loss: 51.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 223 thousand
Entry on April -- at $---.--
Listed on April 25, 2015
Time Frame: Exit PRIOR to earnings in June
New Positions: Yes, see below

Company Description

Why We Like It:
The U.S. economy has been limping along with slow growth. During the first quarter earnings season we have heard how the strong dollar has hurt big cap companies' sales and margins. That's one reason why money has been flowing into small cap, domestic companies, which are less impacted by the dollar. Investors are always looking for strong growth as well.

APOG fits the bill. The company is in the industrial goods sector. They are part of the building materials industry. According to the company, "Apogee Enterprises, Inc. (www.apog.com), headquartered in Minneapolis, is a leader in technologies involving the design and development of value-added glass products, services and systems for the architectural and picture framing industries."

Looking at the last four quarters (fiscal year 2015) bottom line results have been mixed. Yet revenues have been consistently showing double-digit growth. Q1 revenues were up +17.6%. Q2 revenues were +30%. Q3 revenues rose +22.6%. The company's most recent earnings report was April 8th. APOG delivered 2015 Q4 results of $0.47 a share, which was +74% higher than a year ago and above analysts' estimates. Q4 revenues were up +15% and above expectations. Margins improved 240 basis points to 8%.

The company said their architectural glass segment's revenues rose +22%. Architectural service revenues were flat. Architectural framing systems rose +22%. Large-scale optical technologies segment reported revenues up +18% last quarter. APOG ended the fourth quarter with a backlog of $491 million, up +49% from a year ago. Their fiscal 2015 results saw revenues up +21% and adjusted EPS up +58%.

Joseph Puishys, APOG's CEO, commented on their results, saying,

"Apogee's growth engine continued in the fourth quarter as we again grew revenues in the double digits and income more than 50 percent. Performance across the company was strong, with double-digit earnings and revenue growth in three of four segments... We built our backlog significantly during the year, giving us momentum moving into fiscal 2016. We expect fiscal 2016 will continue our trend of double-digit top-line growth and very strong bottom-line growth."
APOG provided relatively optimistic guidance for fiscal year 2016. They see revenues rising +10% to +15% and expect to see sales cross the $1 billion mark soon.

The stock shot higher following its Q4 report in April. The last couple of weeks have seen shares consolidate a bit but traders have started to buy the pullback. We think the rally continues. Tonight we're suggesting a trigger to buy calls at $53.85. We'll try and limit our risk with an initial stop loss at $51.75.

Trigger @ $53.85

- Suggested Positions -

Buy the AUG $55 CALL (APOG150821C55) current ask $2.60
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:



In Play Updates and Reviews

Big Cap Leaders Lift Indices

by James Brown

Click here to email James Brown

Editor's Note:

A handful of high-profile big cap stocks soared on better than expected earnings news. This lifted the major indices but participation in the rally seems to be narrowing.

ADI has been removed. The trade did not open.
JACK hit our stop loss.


Current Portfolio:


CALL Play Updates

Ctrip.com - CTRP - close: 65.57 change: -0.05

Stop Loss: 64.75
Target(s): To Be Determined
Current Option Gain/Loss: -10.3%
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:
04/24/15: Friday's early morning rally in CTRP stalled. Shares have failed under resistance near $67.50 twice in the last three sessions. That could be a warning signal for bullish traders. We are choosing to raise the stop loss up to $64.75 in an effort to reduce our risk.

No new positions at this time.

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

04/25/15 new stop @ 64.75
04/21/15 triggered @ 65.15
Option Format: symbol-year-month-day-call-strike

chart:


G-III Apparel Group, Ltd. - GIII - close: 118.53 change: +1.90

Stop Loss: 114.75
Target(s): To Be Determined
Current Option Gain/Loss: -29.3%
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:
04/24/15: Shares of GIII came alive on Friday after consolidating sideways most of the week. The stock outperformed the major indices with a +1.6% gain. The rally did stall at resistance near $120.00 for the second time this month.

We only have four days left on this trade. GIII is set to split 2-for-1 on May 1st and we do not want to hold over the split. Plan on exiting before Friday.

I'm not suggesting new positions at current levels.

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

04/25/15 Only four days left on this trade.
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

chart:


Global Payments Inc. - GPN - close: 101.79 change: +0.08

Stop Loss: 98.25
Target(s): To Be Determined
Current Option Gain/Loss: +8.8%
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:
04/24/15: The last couple of days have been relatively quiet for GPN. Shares are hovering near $102.00. Traders did buy the dip near $101.00 on Friday morning. More conservative traders might want to move their stop loss closer to $100.00.

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

chart:


Splunk, Inc. - SPLK - close: 67.88 change: +0.07

Stop Loss: 62.85
Target(s): To Be Determined
Current Option Gain/Loss: +16.7%
Average Daily Volume = 1.9 million
Entry on April 23 at $66.25
Listed on April 22, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
04/24/15: Traders were also in a buy-the-dip mood with SPLK. Shares dipped to $66.57 and bounced back to virtually unchanged on Friday. I'm not suggesting new positions at the moment. More conservative investors may want to consider raising their stop near $64 or $65.

Trade Description: April 22, 2015:
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.

- Suggested Positions -

Long AUG $70 CALL (SPLK150821C70) entry $4.54
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.

04/23/15 triggered @ 66.25
Option Format: symbol-year-month-day-call-strike

chart:


SPDR S&P 500 ETF - SPY - close: 211.65 change: +0.49

Stop Loss: 206.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 128 million
Entry on April -- at $---.--
Listed on April 23, 2015
Time Frame: Exit PRIOR to June option expiration
New Positions: Yes, see below

Comments:
04/24/15: The SPY continued to push higher on Friday. It's now up three days in a row. The ETF failed to breakout past resistance at $212.00. Remember, we want to see the SPY close above $212.25 and then we can buy calls the next morning.

Trade Description: April 23, 2015:
It's hard to argue with a market that refuses to go down. When traders buy every dip it's a signal the market wants to go higher. The S&P 500 midcap ETF (MDY) just closed at an all-time high. The Russell 2000 index ETF (IWM) just closed less than half a point from a new all-time closing high. The NASDAQ composite index just set a new all-time closing high. Meanwhile the S&P 500 ETF (SPY) is on the verge of breaking out to a new all-time high.

I know there are skeptics out there who believe, for whatever reason, that the market should be headed lower. CNBC reporter Bob Pisani shared his thoughts on what the bears or at least the less bullish investors have been saying lately. (You can read Pisani's thoughts at this link.)

You could argue that the S&P 500 has been in a trading range. Currently that's true with the S&P 500 churning between 2,040 and 2,120 the last several weeks. There is the complaint that there has been no volume. That's true as well but the market has been able to rally on less than ideal volume for years. Traders could argue there is no volatility - another truth. Right now it is earnings season and individual stocks are seeing some huge volatility as the market reacts to earnings results. Yet the major indices have not seen any volatility. The S&P 500 has gone more than 80 days without a 2% move.

Bears could argue that valuations on stocks are too high. The P/E ratio can tell you if a stock or market is expensive, cheap, or fairly valued compared to its historical average. On a short-term basis it's a terrible predictor of performance.

According to FactSet the current forward P/E of the S&P 500 is about 17. Over the last five years the valuation has been closer to a P/E of 14. With earnings poised for their first decline since 2012 that P/E will likely go even higher. Therein is part of the problem. Earnings in the energy sector, a significant chunk of the S&P 500, are going to be terrible thanks to oil's decline. This doesn't mean the market can't continue to rally. Stocks can stay expensive for a long time.

Market critics can definitely argue that U.S. and global economic data is unhealthy. There's no denying that. China is growing at its slowest pace in years. Europe has been struggling for years. The economic data in the U.S. has been limping along. Fortunately, we have a Chinese government that recognizes the issue and is actively trying to stimulate its economy. At the same time Europe is doing the same. The European Central Bank just started its QE program last month that will last until September 2016 or longer.

The biggest hammer bears could use on the market is disappointing earnings growth. Estimates suggest that both Q1 and Q2 will show earnings declines. Yet thus far, the pace of earnings, has not been as weak as expected. Of course it's important to note we are still early in the Q1 earnings season. The deeper we go into earnings season the quality of earnings tends to go down. That's what normally happens. This time may be an exception. Big cap earnings are being squeezed by the strong dollar. Small caps see less sales outside the U.S. and thus the strong dollar has a smaller impact on overall sales.

Here's the plan. The ETF for the S&P 500 is the SPY. Currently the SPY is hovering just below resistance at its all-time highs from February and March near 212.00. I want to avoid being triggered on an intraday spike higher that reverses lower. Therefore the strategy for this trade is to wait for the SPY to close above $212.25 then buy calls the next morning.

Trigger @ Wait for a close above $212.25, then buy calls.

- Suggested Positions -

Buy the JUN $215 CALL (SPY150619C215) current ask $2.03
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

chart:




PUT Play Updates

Big Lots Inc. - BIG - close: 47.57 change: -0.16

Stop Loss: 49.05
Target(s): To Be Determined
Current Option Gain/Loss: -47.4%
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:
04/24/15: BIG snapped a four-day winning streak with Friday's -0.33% decline. The $48.00 level and the 50-dma near $48.50 should be overhead resistance. However, I am not suggesting 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

04/23/15 new stop @ 49.05
04/14/15 triggered @ $46.85
Option Format: symbol-year-month-day-call-strike

chart:


Orbital ATK, Inc. - OA - close: 72.91 change: -1.33

Stop Loss: 76.55
Target(s): To Be Determined
Current Option Gain/Loss: -6.3%
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:
04/24/15: Good news! The bounce in OA has rolled over. Shares were unable to make it past resistance near $75.00. The stock displayed relative weakness on Friday with a -1.79% loss and settled on technical support at its 50-dma.

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

chart:



CLOSED BULLISH PLAYS

Analog Devices, Inc. - ADI - close: 62.53 change: -1.06

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: see below

Comments:
04/24/15: The stock market's major indices are hitting or nearing new all-time highs. Unfortunately, ADI has not been able to participate the last couple of sessions. The stock underperformed again on Friday with a -1.6% decline.

Our trade is not open yet. We're choosing to remove ADI as a candidate.

Trade did not open.

04/25/15 removed from the newsletter, suggested entry was $65.25

chart:


CLOSED BEARISH PLAYS

Jack in the Box, Inc. - JACK - close: 93.88 change: -0.44

Stop Loss: 95.05
Target(s): To Be Determined
Current Option Gain/Loss: -58.3%
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:
04/24/15: The NASDAQ composite, an index with more than 2,000 stocks, gapped open higher on Friday morning. That helped create a bid, likely short covering, for a lot of NASDAQ stocks on Friday.

Shares of JACK spiked higher on Friday. The rally failed near technical resistance at its 50-dma and JACK reversed into a -0.4% loss. Unfortunately our stop was hit at $95.05 in the process.

- Suggested Positions -

MAY $90 PUT (JACK150515P90) entry $3.00 exit $1.25 (-58.3%)

04/24/15 stopped out @ 95.05
04/17/15 triggered on gap down at $91.88, trigger was $91.90
Option Format: symbol-year-month-day-call-strike

chart: