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Daily Newsletter, Saturday, 5/2/2015

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

Market Wrap

Sell in May or Stay and Play?

by Jim Brown

Click here to email Jim Brown

The last day of April was ugly as winners were sold but the first day of May was positive as month end retirement contributions hit the market. Historically the first two weeks of May are negative as the sell in May crowd leave the market. That is followed by a positive uptick as bullish investors buy the dip. After these two weeks of volatility the market settles down ahead of the summer doldrums.

Market Statistics

Investors ignored some ugly earnings news on Friday as biotechs rebounded from their second worse sell off since the Great Recession. In just five days the Nasdaq Biotech ETF (IBB) declined more than -9%. On Friday it rebounded +3.1%. Earnings from Gilead Sciences (GILD) helped break the cycle of negativity created by the failure in a trial by Celadon (CLDN) leading to an 80% drop in those shares and poisoning sentiment for the sector.

The market may have rebounded on Friday but all the major indexes were well below their highs. The Russell 2000 rebounded only .6% after falling -5% over the prior four days. That is hardly a strong rebound and bullish conviction was severely lacking. Experienced traders know the historical trend.

Some of the hesitancy may have been from the economic reports. The ISM Manufacturing report for April was flat at 51.5 and almost a two-year low after declining -6 points since November. Fifteen of eighteen U.S .manufacturing industries expanded in April. Apparel and computers were two of the industries that declined. Holding the index back was a drop in the employment component to contraction territory at 48.3 and the lowest level since 2009. That was the fourth consecutive monthly decline. Inventories also declined into contraction territory at 49.5 down from 51.5. Backorders were flat at 49.5, customer inventories declined to 44.0 and prices paid rose slightly from 39.0 to 40.5. Any number under 50 represents contraction.

On the positive side new orders rebounded to a four month high at 53.5, up from 51.8. Analysts blamed the manufacturing weakness on the weather, port disruptions, the strong dollar and a sharp decline in energy investments.


March construction spending declined -0.6% compared to Moody's estimates for a rise of +0.8%. Private construction fell -0.3% while public construction declined -1.5%. Highway construction fell -2.4% and school construction fell -2.2%. This is going to further weigh on Q1 GDP numbers. Total spending was $967 billion and +2% over March 2014 levels.

Consumer Sentiment for April was flat with the preliminary report at 95.9. This was a +2.9 point improvement over March but only a three-month high. Sentiment in January was 98.1. The present conditions component rose from 105 to 107 and the expectations component rose from 85.3 to 88.8.


Auto sales declined from the 17.1 million annualized rate in March to 16.5 million in April. However, consumers were buying higher dollar cars. The average price for a Ford F-150 pickup rose +$3,200 from a year ago to a record price of $42,600. The average term for a new car loan in April also rose to a record at 67.8 months with 80-84 months loans becoming more common. If the dealer can lower the monthly payments the consumer is likely to spend an extra $5,000 to $10,000 more than they had planned.

Audi posted an 11.9% sales gain with Lexus sales rising +11.7% thanks to sales of their SUV. Ford posted a sales increase of about 5.4% while Fiat Chrysler, GM and Nissan averaged about 6% growth.

The calendar for next week is dominated by labor reports. The ADP Employment on Wednesday is expected to show a gain of +205,000 private jobs. The Nonfarm Payrolls on Friday are expected to show gains of +220,000 jobs. However, there are a lot of lower estimates after the 126,000 new jobs in March.

There were no material weather events in April and the jobless claims last week at 262,000 was the lowest in 15 years. The ISM Manufacturing report for April showed that employment contracted and layoffs are still occurring in the energy sector. This suggests there could still be a low number surprise on the Nonfarm numbers.


The results of the Fed meeting caused a +10.3% rise in the yield on the ten-year treasury to 2.117%. The removal of all the calendar references in the post meeting statement means every meeting in the future starting with the June meeting could produce a rate hike. In theory this should force some money out of treasuries and back into equities but the timing is not ideal. With the summer doldrums still a couple months away it suggests investors could be worried about putting money into equities at the current level. Summer rallies do occur but investors would be a lot more confident if a correction of some sort, even just -5% occurred first. Some analysts believe yields will decline after this temporary headline spike but others are targeting 2.35-2.40% as the next threshold. That would be a lot of pain for holders of treasuries.


The split calendar is starting to expand with new announcements by Marathon Petroleum and Patrick Industries. I do not expect a split run by either company. The most promising company will be Netflix once they announce he split ratio on June 9th after the shareholder meeting.


It was another ugly day for social media stocks. Linkedin (LNKD) posted earnings of 57 cents that were in line with estimates and revenue that rose +35% to $638 million and beat estimates. However, Q2 guidance of 28 cents and revenue of $672.5 million was well below estimates for 74 cents and $717.5 million. The stock was knocked for a -27% decline intraday but rebounded slightly to lose "only" 18.6%.

This came after Twitter (TWTR) lost -24% after earnings and Yelp (YELP) lost -22%. Facebook was the only real survivor with a -4% decline.



Brinks (BCO) reported adjusted earnings of 41 cents on revenue of $776.1 million. The company raised full year guidance to $1.55 to $1.75 per share. The stock exploded higher with a +14% gain.


Expedia (EXPE) posted an adjusted loss of -3 cents compared to expectations for a 9 cent profit. However, revenue rose +14% to $1.37 billion. Bookings at hotels rose +32%. Overall bookings rose +19% but would have been +25% except for currency translation issues related to the dollar. Shares gained +8% on the news.


Gilead Sciences (GILD) posted earnings that rose +100% from $1.44 to $2.89 and well above estimates for $2.78. Revenues rose from $5 billion to $7.6 billion. Antiviral product sales for the quarter rose +55% to $7 billion. Hep-C treatment Harvoni had revenues of $3.6 billion, up 70% from Q4. The company raised guidance from $26-$27 billion to $28-$29 billion for the full year. That is what I call a real guidance raise. The company announced its first quarterly dividend of 43 cents payable June 29th to holders on June 16th. They also repurchased $3 billion in shares in Q1. Shares rallied 4.5% on the news.


Abaxis (ABAX) reported adjusted earnings of 17 cents compared to estimates for 27 cents. Revenue of $52 million also missed estimates for $56.7 million. Shares hit an air pocket and dropped -13% on the news.


Athenahealth (ATHN) lost another 7% today after falling the same amount on Thursday. The company reported adjusted earnings of 24 cents that beat estimates of 13 cents. Revenue rose 27% to $206.4 million. They reiterated full year guidance for $1.10-$1.20 and revenue of $905-$925 million. Analysts were expecting $1.16 and $919.8 million. Shares fell ahead of the Ira Sohn conference that kicks off on Monday. David Einhorn spotlighted ATHN in a major presentation as a monster short last year saying the company was only worth a fraction of its current share price. He said it was part of a basket of bubble stocks. When asked last week he said he was still short and analysts are expecting him to double down on his efforts to get the hedge fund crowd to join him.


Email marketing firm Constant Contact (CTCT) fell -21% after posting earnings of 22 cents and revenue of $90.4 million compared to estimates for 19 cents and $91.1 million. The real problem came in the guidance. The company cut its full year outlook to $1.29-$1.38 and $371-$377 million and their prior forecast was $1.38 and $388 million. They also lowered guidance for Q2 below analyst estimates. The company said it "failed to execute on its plans."


YUM Brands (YUM) shares rallied +7% after Dan Loeb's Third Point disclosed a "significant stake" of more than $1 billion in the company. Loeb said the company has "turned the page on recent trouble in its Chinese business." Loeb disclosed the position in a letter suggesting the company offer more "handheld chicken sandwiches" and the potential for the company to spin off its China business. About 6,700 of the company's 41,500 stores are in China but the country accounted for 52% of the company's revenue in 2014. Growth in the U.S. has slowed as consumers transition to healthier and more natural fast food choices.


Shares of Altera (ALTR) rallied +10% on news the standstill agreement Intel signed with Altera expires on June 1st. The expiration of the agreement would allow Intel to make a hostile offer for the company directly to shareholders. Altera rejected a $54 per share offer in April after both companies had been negotiating for two months. Altera makes communications chips and Intel is looking to expand into new markets. Altera missed on earnings estimates by a penny and by $35 million on revenue estimates for $470 million.


Berkshire Hathaway (BRK.A) posted earnings that rose +9.8% to $3,143 per share, up from $2,861 in the year ago quarter. Adjusted operating results rose +20% to $4.24 billion or $2,583 per share. Analysts were expecting $2,373 per share. Revenue rose +7% to $48.64 billion. Warren Buffett will celebrate his 50 year anniversary at the firm when the shareholders show up in Omaha on Saturday for the annual meeting or what Buffett calls "Woodstock for Capitalists." Berkshire now owns 80 companies and more than $115 billion in stock.

Burlington Northern Santa Fe recovered from a poor 2014 and posted a 44% increase in profit of $1.05 billion. The railroad is recovering as a result of $6 billion in capital improvements that are still in progress. Berkshire said its Geico subsidiary saw profits decline -55% because it paid out more to cover claims. They plan on increasing insurance rates to offset the higher claims.

Several Berkshire businesses struggled with currency issues with General Re losing money from underwriting because of higher claims and currency losses. Berkshire ended the quarter with $62.71 billion in cash and Buffett still looking for another acquisition or two.


The coming week is the last major week of the Q1 earnings cycle. The majority of blue chips have already reported so the easily recognizable symbols are disappearing. This is small cap week with close to 600 companies reporting and a large percentage of them are small cap stocks.

The highlights for the week are in yellow with Dow component Disney reporting on Tuesday. Green Mountain and Tesla report on Wednesday and Alibaba, Priceline and Monster Beverage on Thursday.

Tesla and Alibaba are probably the crowd favorites for the week. Tesla announced its new battery products on Thursday and shares failed to recapture the Monday high at $238. Alibaba had trouble with its last earnings and shares fell -$10 the day after.


I have wanted to short BABA for several weeks but the potential for a turnaround on earnings kept me out of it. If they spike on earnings that will be my entry point. If they crash I will be kicking myself for weeks.

Alibaba modified its job listing for applicants that know how to praise the "code monkeys," wake them up and organize meetings. "Physical characteristics similar to adult film star Sara Aoi may help the applicant succeed" the job post said. Sara is a popular Japanese porn actress. They took the ad down after being criticized for being sexist. Alibaba said it was only a humorous marketing attempt to attract talent. The company is still running the ad for a programmer cheerleader but the reference to Aoi has been removed and it now emphasizes that both men and women can apply.


Tesla announced its new battery products that Elon Musk said would bring in billions in revenue in the "near term." The home battery version is called the Powerwall. Multiple units can be stacked side to side up to 90-Kwh if you need more power. The base version is for 10-kilowatt hours and will let you run minimum appliances in your home for a "few days" in case of an outage. The battery module weighs 220 pounds and is just 7.1 inches deep. The cost for the battery is $3,500. Unfortunately that does not include the cost of installation or the inverter. Solar City is already taking orders at $5,000, which includes installation, for a nine year lease. To buy the same system outright it costs $7,140. Installations will begin in October.


The second product was the Powerpack, which consists of 100-kilowatt-hour blocks that can e clustered to meet any project size. Costs for the Powerpack were not disclosed. There is already a waiting list. An unnamed utility company has approached Tesla to build a 250-megawatt-hour installation. That is 2,500 Powerpack towers. Other non-utility customers include Amazon, Walmart and Target.

Industrial sized Powerpack configuration.

Crude oil was the biggest gainer for the month with a +20% jump. Inventory levels are still rising but at a slower pace. Active rigs are still declining but also at a slower pace. With refiners shifting into high gear for the summer driving season speculators are looking for inventory levels to decline and production to slow.

Active rigs fell -27 last week to 905 and a -53% decline from their recent highs of 1,931. Oil rigs declined -24 to 679, a -58% drop from their 1,609 high. Gas rigs declined -3 to 222 and only five rigs above the 18-year low from two weeks ago.

The EIA is now projecting a 57,000 barrel per day decline in production for May and it should only get worse from there. The current estimates are for a decline in production from the 9.422 million barrel peak in March to less than 9.0 million barrels per day at the end of 2015. That is a huge decline and it spells pain for the producers. However, the estimate for crude prices at the end of December is $70 for WTI and $80 for Brent. That would be music to their ears because it means longer dated futures contracts for 2016 and 2017 would be much higher and give producers the opportunity to hedge their future production for a profit and raise some short term cash.



Markets

The +183 point Dow rebound on Friday brought the index back to only a -56 point loss for the week. That is hardly something worth bragging about. The market rebound was probably due to between $4-$8 billion in rebalancing at the close of April and funds putting that money back to work in May. When actively managed funds see a large gain in stocks that throws their allocations out of balance they rebalance at month end. If the fund is supposed to be 70% vs 30% stocks over bonds and a rally throws that out of balance they sell some winners at the end of the month and rebalance the portfolio. If you look at any 100 charts this weekend you will probably see the winners being sold on Thursday and the losers being bought on Friday. The influx of month end retirement cash also lifts the indexes the first couple days of the month.

However, we are now in the sell in May cycle and the next couple weeks are traditionally negative. That does not mean we are headed into a correction only that they should be more sellers than buyers over the next couple of weeks. Option expiration comes early this May, only two weeks from now. That will also add a little volatility at the end of next week.

The S&P dipped to 2077 on Thursday and just slightly above the 2072 low from the 17th. I realize it would be grasping at straws to claim that as a higher low and suggest the market was going higher. That higher low trend does exist (pink line) but it could be erased in a single day by another decline like we had on Thursday. The earnings cycle is drawing to a close with most of the big names already reported. That removes a lot of catalysts for movement and a lot of those have been to the downside for Q1.

We need to just trade what the market gives us over the next two weeks and not get hung up worrying over which direction it is going. At Friday's close the S&P was only 10 points from the historic high.


The Dow was helped to its +183 point gain by several unlikely supporters. Apple had been declining since its earnings on Monday and rebounded +3.80 on Friday on short covering and hopes that the taptic engine problem would not be a major deal. Even the news that wrist tattoos would interfere with some watch functions did not hold the stock down. The "TattooGate" problem was acknowledged by Apple saying, "Permanent or temporary changes to your skin, such as some tattoos, can also impact heart rate sensor performance. The ink, pattern, and saturation of some tattoos can block light from the sensor, making it difficult to get reliable readings." Also, the watch was repeatedly locking up because the sensors thought the watch was not sitting correctly on the wrist.

Home Depot (HD) had also been declining for the last several weeks and closed at a two-month low on Thursday. The stock rebounded +2.4% on Friday. United Health (UNH) closed at a two-week low on Thursday after topping out after a six-month rally.

The Dow has struggled with resistance at 18,100 since early March but the range has been narrowing. That suggests the dip buyers are moving up their buy orders but the downside to this theory is the volume. Downside volume has far exceeded upside volume. For instance total market volume on Thursday was 8.3 billion shares compared to the 6.3 billion for Friday. For the four day ended on Tuesday the volume averages only 6.3 billion shares. There does not seem to be any conviction on the upside despite the shrinking range from 17,800 to 18,100.

With only one Dow component reporting earnings next week there are few catalysts. The payroll numbers are the only major economic headlines and strong numbers means we are closer to a rate hike.



Resistance is solid at 18,100 despite numerous intraday spikes above that level. When not driven by some specific headline the lows have been over 17,900 so the real range is very tight.


The Nasdaq benefitted the most from the biotech rebound. The number of strong biotech gains crowded Apple off the point gainer list. The severity of the losers was also minimal compared to the big gainers. Friday was a good day for the Nasdaq and the index rebounded to just over 5000 again. Thursday was a break of uptrend resistance but we are back over at Friday's close.

It will be interesting to see if the biotechs can sustain their gains. The sector had been hot and was pulled down by more than -9% since Monday so short interest was high. Going into summer we might see that investors are a little less confident about buying these stocks at the highs.

Even if the Nasdaq chart breaks down again next week there is solid support just above 4850. That level has held multiple times. If the index moves further over 5000 it faces resistance at 5020, 5070 and 5125.



The small cap Russell 2000 is the real train wreck for the week. The Russell finally broke below short term support at 1250 and 1230. The index lost -3.1% for the week even after the +8 point gain on Friday. That is roughly a -40 point decline. However, the drop ended exactly on the 100-day average at 1216. The 200-day has been strong support since December.

Whether that will hold on the next test is of course unknown. We know it will eventually fail whether next week or next month. It is only a matter of time. The next support level is 1208 and then it is a long drop to 1150.

I would like to think that the 100-day test will begin a rebound back to the highs but summer is not normally kind to small cap stocks. What the test did do is give us a line in the sand for a trade signal. If the Russell drops below the 100-day that would be a solid signal to either be flat or short.


I would continue to be cautious on holding too many long positions until the market picks a direction. The next couple weeks could be volatile as he sell in May crowd exits the market. The major headlines next week are payroll related with Wednesday's ADP giving us a heads up on what Friday's employment report might look like.

In this case a strong payroll number on Friday might be bad news for the market and investors will begin pricing in a rate hike in June. This is all psychological since a quarter point above zero is still basically zero. Once investors have their rate hike tantrum the markets should rally as long as the economics improve as the Fed expects. That would be a change in the current direction so there is still plenty of uncertainty.

Don't be in a rush to trade. There is always another day as long as you have capital in your account.

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Random Thoughts

The Yale School of Management has a Buy the Dip Index. They survey individual and institutional investors and ask them about their confidence levels regarding buying the next dip. The individual investors (red line) hit a two year high last week while institutional investors were far less confident. This suggests dips will continue to be bought. However, this can also be seen as a contrary indicator. If so many individuals are bullish should we expect a correction soon?

About the only thing this proves is that institutional investors are more concerned about the market's future and are probably under invested. If the indexes did rebound and breakout to new highs we could see some institutions throwing money at the market to prevent it from running away from them.



The Q1 GDP came in at +0.25% growth for Q1. The consensus estimates had declined from +3.0% at the beginning of the quarter to +1.4% just before the GDP release. Analysts and economists missed it by a mile and the Atlanta Fed real time GDP Now forecast tool nailed it with a +0.2% forecast as of April 24th.


April 24th GDPNow Forecast

So how are the economists doing for Q2? The consensus forecast is +3.2% growth with the high estimates for +4.2% and the low estimates for +2.6%. However, the Atlanta Fed GDP Now forecast is now for a paltry +0.8% growth after the initial economic reports showed continued weakness. There appears to be a lot of hopium in the analyst community and they refuse to believe the economy is not growing.


Chain store retail sales were growing at a +5.4% rate at the end of November. At the end of February that had dropped to +0.8% growth despite a monster drop in gasoline prices and extra cash in every consumer's pocket.

Wholesale trade has declined -$101 billion over the last four months. During the financial crisis it took 7 months for that same decline. That means the economy has slowed faster over the last several months than in 2008-2009.

Over the last 7 months new manufacturing orders have declined 6 times. Only one month was positive and that was January. That never happened before not even during the financial crisis.

The Fed claims this is transitory weakness and they are ready to raise rates instantly when a green shoot appears. Enquiring minds want to know when this transitory period is going to end. Source for above facts


Britain has informed the U.N. Security Council of two instances of Iran attempting to acquire nuclear components through two blacklisted front companies. They also described an "active Iranian nuclear procurement network." The sanction violations and the existence of the procurement network proves that nobody should expect Iran to be honest in regard to any agreement it signs on June 30th.

The panel also noted reports of Iranian weapons shipments to Syria, Lebanon, Iraq and Yemen as well as Hezbollah and Hamas in violation of a U.N. embargo. Iran ignores the sanctions and embargos and does whatever it wants in an effort to spread terrorism and its influence in the Middle East. Just wait until they start spreading nuclear weapons to its friends. Source

Vice President Joe Biden told the Washington Institute for Near East Policy on Thursday:

Iran would have enough enriched uranium within three months to be able to make up to eight nuclear weapons if negotiations with the international community blow up, Vice President Joe Biden said late Thursday, noting that "the path has already been paved" for that outcome.

"Let’s get something straight so we don’t kid each other," Biden said. "They already have paved a path to a bomb's worth of material. Iran could get there now if they walked away in two to three months without a deal."

Biden now accepts the Israeli estimate of 90 days to a nuclear device, and says that is why we have to make a deal now, with the same entities who Biden tacitly admits has been lying the whole time. Basically, we agree to whatever Iran wants us to agree to and then hope they don't lie to us again like they have been doing for the last 20 years.

Albert Einstein said "the definition of insanity is to keep doing the same thing over and over and expecting a different result."


The U.S. Navy has been accompanying ships through the Strait of Hormuz since Iran seized the Maersk Tigris last Monday. The ships are American flagged and they are taking this precaution because of the Iranian aggression. While Navy ships are not following along a couple hundred yards behind they are standing by the strait with assets in the air monitoring Iranian activity. The Navy has five patrol craft, four destroyers, one cruiser and one minesweeper in addition to the carrier USS Theodore Roosevelt in the Persian Gulf and Arabian Sea. Four Iranian patrol boats tailed the U.S. flagged cargo ship Maersk Kensington for 20 min but veered away as U.S. helicopters approached.


Investors are still neutral on the market according to the AAII Investor Sentiment Survey. For the first time in more than 26 years the majority of investors that are neutral on the market has been over 45% for three consecutive weeks. In fact the number of neutral investors rose last week with both bulls and bears switching their outlooks. There is a huge amount of chatter in the press about an impending correction and overvalued markets. Apparently that is wearing off on investors.



Does "sell in May" really work? Jeff Hirsch created the "Best Six Months Switching Strategy" in 1986. According to Hirsch, a hypothetical $10,000 investment in the DJIA compounded to $816,984 for November-April in 64 years compared to $221 loss for May-October. The same hypothetical $10,000 investment in the S&P 500 compounded to $607,883 for November-April in 65 years compared to a gain of just $8,090 for May-October.

He also cautions that it is not infallible on single years and those results are over a very long time. For instance from 1985-1997 May was the best month of the year every single year for 13 years with an average of a +3.3% gain on the S&P. From 1965-1984 May was down 15 out of 20 years. May has been down 3 of the last 5 years. Since 1997 it has only risen 7 times but three of those years were up more than 4%. Hirsch also cautions that since 1950 pre-election year Mays rank as the 10th worst month on the Dow and S&P. This is a pre-election year May. Source


Cleveland Fed President Loretta Mester told reporters on Friday, "All meetings are on the table" for the first rate hike in nine years. SF Fed President John Williams echoed the data dependent language saying, "Really positive data trends, improvement in the labor market, signs that improve the confidence in the expectation that inflation will move back to 2 percent, I mean, I can imagine those -- that constellation of data coming in," he said. "Whether before June, or meetings right after that, too, but it would require the data to be good."

The Fed clearly wants to announce the first rate hike so it can return to a normalization of policy. A quarter point hike will not affect the economy but it will give the Fed credibility and market rates will begin to gravitate higher in anticipation even if the next hike does not come for six months.


Have you considered being a fighter? Floyd Mayweather will take home $120 million and Manny Pacquiao will pocket $80 million on Saturday night. That is their minimums and they will make more than that based on the pay-per-view sales. The 17,000 tickets to the live event sold out in 60 seconds and they are being resold for more than $10,000 each. However, that is a misleading statistic. About 16,500 were given directly to sponsors, promoters, casino high rollers and the fighters themselves for friends and family. That left only 500 for retail buyers.

Mayweather is undefeated but he has spent time in jail twice for assaulting women. He has been accused of assault seven times by five different women. Pacquiao has had two prior losses.


Noted bear, Marc Faber, author of the Gloom, Boom and Doom Report, warned last week that the market could drop 30-40% in the near future. He said it won't be just a 10% correction but a 30-40% minimum. He said the market was overvalued as a result of the Fed's super loose monetary policy for the last six years. "All assets are grossly overvalued." However, he is not yet short because he does not know how much higher the market might run before the crash comes. He said the market could "go up and up and then one day it will go down, big time." Fortunately Faber has been calling for a significant market correction for several years. Eventually he will be right if he lives long enough.


Need a penthouse? Demi More is selling her $75 million 7,000 square foot triplex on Central Park West. She said she is spending most of her time in "my other homes" and I rarely visit this apartment and it is "too magnificent not to be lived in full time." The monthly maintenance fee is $21,186. She and Bruce Willis bought it in 1990, the year "Ghost" came out. Source with pictures


 

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"Investors have become infatuated with calling the next correction, crash or market top because so many lost money during the last crisis. The next time the market tops out it will seem so easy to have predicted it after the fact. Unfortunately, calling a top is not as easy as it looks in the rearview mirror. '

Ben Carlson

 

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Index Wrap

Trading Range Doldrums With a Possible End

by Leigh Stevens

Click here to email Leigh Stevens
THE BOTTOM LINE:

When volatility is low and a price range pretty well fixed, butterfly spreads have been attractive and are more than insects in my garden with condor strategies not just trips to spot magnificent birds soaring around my coastal climes.

The Russell 2000 (RUT), which was soaring has come back to my lower moving average envelope 'support' and got oversold. If I viewed it in isolation, I'd say it's a buy.

The S&P 500 (SPX) needs to achieve a decisive upside penetration of 2120-2125 and it keeps playing with that level. Right now it's 'showing' a double top but it seems buoyant on dips to the 2080 area so stay tuned.

The Nasdaq 100 (NDX) has trendline support at 4400 and looks capable of a move to new highs around 4600 but it's a dangerous game too.

The Dow 30 (INDU) has an interesting pattern, which in wave terms (not usually my discussion topic) looks like a 'symmetrical' triangle; i.e., descending and ascending trendlines that converge ahead. I've done a '5' count on the legs of this pattern. And, if I ignore the fact that more of the 30 stocks are in bearish patterns than bullish ones, I'd say the next 'leg' could be a breakout to the upside.

A MIXED MARKET but with some interesting but divergent Index patterns. Stay tuned for change which IS a constant. More detailed, specific Index commentaries are further on.

The S&P 500 Volatility Index (VIX):

I know, when the Dow is up 200 points, then down 200 (more or less) the next day it seems like a volatile wild market out there but it ain't necessarily so relative to the VIX.

VIX can't seen to get much above 14 and tends to settle down near 12. When the Index gets 'oversold' it rallies a bit but nothing sustained, so not much excitement in terms of trading the options. Mostly a hedgers market currently for fund managers.

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX) DAILY CHART:

The S&P 500 (SPX) needs to achieve a decisive upside penetration of 2120-2125 to break out of a trading range that its has been in for 24 weeks as I note in my initial 'bottom line' commentary above. SPX keeps playing with that level. Right now it's 'showing' a double top but the Index has been buoyant with good buying interest on dips to the 2080 area so stay tuned.

A decisive and sustained downside move to below 2080 would be bearish and suggest a retest of next support in the 2065-2060 area and possible more major support at 2040.

Key resistance is at the double top that formed in the 2120 area. The pattern could almost be a 'triple' top but I the two tops in the 2120 area are most well defined. Next higher resistance is suggested by the extension of the previously broken up trendline which intersects currently around 2145.

The RSI and my call/put sentiment indicator are mixed. We could construe these indicators as 'neutral' and suggesting potential for a move in either direction. OR, a continued SIDEWAYS or lateral price trend ahead.

S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX) is mixed to bullish in its pattern. A 'mixed' pattern in the sense that the dominant chart pattern showing here is a bearish double top. That said there hasn't been much of a downside retreat from the recent top which is what we'd usually expect from this formation.

Moreover, support/buying interest continues to show up at the 21-day moving average; which, from a trading perspective is an important measure of either support or resistance in all the major stock indexes. I'm watching where OEX goes next relative to the 21-day moving average, for directional clues as to the next price swing.

Support is seen in the 915 area, extending to 910. Fairly major support then is suggested around 900.

Pivotal resistance is at 930-932, and next resistance then is projected at 940, extending to 944.

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

The Dow 30 (INDU) has an interesting chart pattern from a wave perspective and which is not usually a common discussion topic with me. But INDU looks to have traced out a 'symmetrical' triangle formed by descending and ascending trendlines that converge ahead. I've note a '5' count on the 'legs' (dominant up and downswings) of this pattern. If I then also ignore the fact that more of the 30 INDU stocks are in bearish patterns than bullish ones, I'd say the next price swing or leg could be a breakout to the upside.

Note: The aforementioned 'symmetrical triangle' formation I've referred to with the numbered 'legs' is a pattern I'll discuss in a Trader's Corner article in the week ahead.

This week I won't tally the individual 30 Dow stocks as to whether they are in a dominant bullish, bearish or neutral (sideways) trend. This type of 'bottoms up' analysis is often fruitful but not always. Especially when the INDU chart pattern is quite mixed like it is currently.

Support is highlighted at the up trendline at 17870, extending to 17800 even and technical resistance at the down trendline intersecting around 18100-18110 currently, with resistance extending to 18280-18300.



NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:

Now that the Nasdaq Composite (COMP) retreated to and rebounded from a point 'defining' an emerging up trendline and quickly rebounded back above its 21-day moving average, the pattern of higher upswing highs and higher downswing lows remains BULLISH.

Trendline support comes in at 4930, with support extending to 4900. I don't expect it but a Close below 4850, not reversed (back to the upside) the next days would be bearish.

Resistance (red down arrow) is highlighted at 5050, then at 5100, extending to 5150 on up to 5185. Worth noting also is that 5132 is the prior all-time intraday high for COMP dating back to March 2000.

NASDAQ 100 (NDX); DAILY CHART:

Given the same pattern as the broad Nasdaq Composite, the big cap Nas 100 (NDX) remains bullish especially given NDX finding support on its last dip to the 4400 area; which also makes a 3rd point in an up trendline. The same pattern as COMP of higher rally highs and higher downswing lows is bullish in NDX.

I don't think that the Nas 100 has huge upside potential beyond the highs already seen, with potential corrective action coming in after a next upswing which the index seems embarked on. Resistance is seen in the 4550 to 4600 price zone. Fairly major resistance suggested by the very long-term monthly chart (not shown here) looks to begin at 4600.

Support is highlighted at 4400, then at 4350. Fairly major support starts at 4300.

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

The Nasdaq 100 tracking stock (QQQ) shows the bullish pattern of the underlying NDX, which mirrors the broad Composite (COMP). Another upswing to re-test resistance in the 111 area is possible with an advance to 112 a possibility. At 112, QQQ would be fairly 'extended' on the upside as suggested by my upper moving average envelope line. Stay tuned on that!

Near support is highlighted in the 108 area, extending to 107.

Daily trading volume was increasing on the most recent downswing which may mean that panic selling may have run its course. The On Balance Volume (OBV) line has turned up, which suggests that buying may resurface and a rebound continue.

RUSSELL 2000 (RUT); DAILY CHART:

The Russell 2000 (RUT), which was soaring before at least until it made a minor double top then broke below support in the 1260 area and the 21-day moving average and kept on going.

RUT has come down to my lower moving average envelope 'support' and got oversold in the process per the 13-day Relative Strength Index (RSI). If I viewed the Russell in isolation so to speak and didn't try to extrapolate to the rest of the major indices, I'd say it's the most compelling buy.

Support is highlighted in the 1220 area, extending to 1200. Pivotal resistance is back at the bullish 'breakdown' point in the 1260 area with next resistance in the area of the prior intraday top at 1278.


GOOD TRADING SUCCESS!




New Option Plays

Is All The Bad News Priced In?

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Caterpillar Inc. - CAT - close: 87.37 change: +0.49

Stop Loss: 83.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 6.2 million
Entry on May -- at $---.--
Listed on May 02, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Have shares of CAT found a bottom? It's starting to look that way. CAT is still down -21% from its 2014 highs but it's up +12% from its Q1 lows with a steady trend of higher lows as traders buy the dips.

CAT is in the industrial goods sector. According to the company, "For 90 years, Caterpillar Inc. has been making sustainable progress possible and driving positive change on every continent. Customers turn to Caterpillar to help them develop infrastructure, energy and natural resource assets. With 2014 sales and revenues of $55.184 billion, Caterpillar is the world's leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. The company principally operates through its three product segments - Construction Industries, Resource Industries and Energy & Transportation - and also provides financing and related services through its Financial Products segment."

Earnings results and guidance has been a moving target for CAT. The combination of a slowing global economy, volatile currency fluctuations, and weakness in commodities have generated big swings in their business. In July 2014 CAT lowered guidance. Three months later they raised guidance. The next quarter they lowered guidance. Today the company has raised guidance again.

CAT's most recent earnings report was April 23rd. They announced a Q1 profit of $1.72 a share. That was +16% higher than a year ago and almost +40% above Wall Street estimates. Revenues fell -4% from a year ago but sales of $12.7 billion were still above analysts' expectations.

CAT's Q1 results were all about North America, which saw gains almost across the board. Overall construction sales for CAT in North America were up +9% from a year ago. Unfortunately, this was overshadowed by declines everywhere else. Asia, Europe, Latin America - just about every other region CAT does business saw double-digit sales declines. Yet it appears that investors seem to be willing to look past this weakness.

CAT's CEO commented on their 2015 outlook, "We had a solid first quarter, which led to raising the profit outlook for 2015. However, we continue to face headwinds and uncertainty in 2015, and our outlook for the year reflects that. We expect sales and profit in each of the remaining three quarters of 2015 to be lower than the first quarter. We expect sales for oil applications to decline starting in the second quarter, and from a profit perspective, the first quarter included the gain on the sale of our remaining interest in the logistics business and that won't repeat. The first quarter is usually the most seasonally favorable of the year for costs, and we don't expect the rest of the year to be as favorable."

Most of the major oil and gas companies have reduced their capex spending plans for 2015 and this should be negative for CAT. The stock's reaction is suggesting all the bad news is already priced in.

CAT's management raised their 2015 guidance and adjusted their estimate from $4.65 to $4.75, excluding their restructuring costs they raised their estimate from $4.75 to $5.00. Wall Street's estimate was $4.75 per share. CAT reaffirmed their sales estimate for $50 billion this year.

A couple of analysts with Stifel are bullish on CAT. They believe the combination of the company's big stock buy back program (about $10 billion), a strong dividend (more than 3%), and a healthy North American construction market will buoy CAT's stock while investors wait for a turnaround in commodities.

Technically the stock has been showing relative strength the last few weeks. The point & figure chart has turned bullish and is currently forecasting a long-term target of $108.00. Today CAT is hovering below potential resistance near $88.00. We are suggesting a trigger to buy calls at $88.10.

Trigger @ $88.10

- Suggested Positions -

Buy the JUL $90 CALL (CAT150717C90) current ask $1.85
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 Bounce After Rough Week

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. market managed a rebound on Friday after relatively widespread declines most of the week. Beaten down biotechs helped lead the bounce. Meanwhile AAPL shares snapped a three-day sell-off.

OA hit our stop loss. We have removed BBBY as a candidate.


Current Portfolio:


CALL Play Updates

Apogee Enterprises - APOG - close: 54.42 change: +1.80

Stop Loss: 51.75
Target(s): To Be Determined
Current Option Gain/Loss: -3.6%
Average Daily Volume = 223 thousand
Entry on April 27 at $53.85
Listed on April 25, 2015
Time Frame: Exit PRIOR to earnings in June
New Positions: see below

Comments:
05/02/15: Shares of APOG surged on Friday. The market's widespread rally gave APOG room to run and shares sprinted higher with a +3.4% gain. The stock is poised for a breakout past resistance near $55.00 soon.

I would wait for a rally past $55.00 before considering new bullish positions.

Trade Description: April 25, 2015:
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.

- Suggested Positions -

Long AUG $55 CALL (APOG150821C55) entry $2.75

04/27/15 triggered @ 53.85
Option Format: symbol-year-month-day-call-strike

chart:


The Greenbrier Cos. - GBX - close: 62.33 change: +4.64

Stop Loss: 54.85
Target(s): To Be Determined
Current Option Gain/Loss: +50.0%
Average Daily Volume = 683 thousand
Entry on May 01 at $59.05
Listed on April 30, 2015
Time Frame: Exit PRIOR to June option expiration
New Positions: see below

Comments:
05/02/15: Our new play on GBX is off to a strong start. The stock gapped open higher at $58.50 and then raced to a +8.0% gain, slicing through resistance levels. Our trigger to buy calls was hit early on Friday at $59.05.

The big move appears to be a reaction to the Department of Transportation finally releasing the new rules on transportation of flammable liquids by rail. You can read the DOT's release on their webpage (here).

The biggest impact for GBX appears to be the new standards on tank cars. Here's an excerpt:

Enhanced Standards for New and Existing Tank Cars for use in an HHFT—New tank cars constructed after October 1, 2015, are required to meet the new DOT Specification 117 design or performance criteria. The prescribed car has a 9/16 inch tank shell, 11 gauge jacket, 1/2 inch full-height head shield, thermal protection, and improved pressure relief valves and bottom outlet valves. Existing tank cars must be retrofitted with the same key components based on a prescriptive, risk-based retrofit schedule (see table). As a result of the aggressive, risk-based approach, the final rule will require replacing the entire fleet of DOT-111 tank cars for Packing Group I, which covers most crude shipped by rail, within three years and all non-jacketed CPC-1232s, in the same service, within approximately five years.

GBX responded to the government's new rules with their own statement here. Here's an except:

Greenbrier asserts that a rapid replacement and retrofit phase-out timeline is completely feasible. A report prepared for Greenbrier by Cambridge Systematics (the 'Cambridge report') indicates retrofit capacity will range from at least 8,400 to 19,600 cars per year in steady state, and that the unjacketed DOT-111s and unjacketed CPC-1232s in crude oil service could be retrofitted in 3.7 years, while similar cars in ethanol service could be retrofitted in an additional 2.3 years.

In addition to examining tank car retrofit capacity, the Cambridge report goes on to note that in 2015 manufacturing capacity for new tank cars is at an all-time high of over 40,000 units. With manufacturing capacity at these levels, the Cambridge report observes that the entire tank car fleet that is currently operating without advanced safety features could be replaced in less than five years with new cars that meet current standards for safety.

The U.S. and Canadian government's decision to boost safety standards on tanker cars is going to be a big tailwind for GBX's business for the next few years.

Trade Description: April 30, 2015:
Currently shares of GBX are up +7.3% in 2015. That's after a -$10.00 drop from its April highs. I'm surprised shares aren't doing better as the earnings picture continues to improve. The recent pullback looks like an opportunity for bullish investors.

GBX is in the services sector. They manufacture and service railroad cars. According to the company, "Greenbrier, (www.gbrx.com), headquartered in Lake Oswego, Oregon, is a leading supplier of transportation equipment and services to the railroad industry. Greenbrier builds new railroad freight cars in our 4 manufacturing facilities in the U.S. and Mexico and marine barges at our U.S. manufacturing facility. Greenbrier also sells reconditioned wheel sets and provides wheel services at 9 locations throughout the U.S. We recondition, manufacture and sell railcar parts at 4 U.S. sites. Greenbrier is a 50/50 joint venture partner with Watco Companies, LLC in GBW Railcar Services, LLC, which repairs and refurbishes freight cars at 34 locations across North America, including 14 tank car repair and maintenance facilities certified by the Association of American Railroads. Greenbrier builds new railroad freight cars and refurbishes freight cars for the European market through our operations in Poland. Greenbrier owns approximately 8,300 railcars, and performs management services for approximately 241,000 railcars."

Looking at the last few quarterly reports from GBX the company tends to beat Wall Street's earnings estimates. Their Q4 2014 report, last October, was an exception. Yet GBX has still raised their guidance the last four earnings reports in a row. Their backlog of business is booming!

GBX's most recent report was April 7th. The company delivered their 2015 Q2 results with a profit of $1.57 per share. That was 37 cents better than analysts expected. Revenues were up +27% to $630 million, also above estimates. GBX said their aggregate gross margin improved from 17.8% to 19.9%. Their new railcar deliveries improved from 4,000 units in the prior quarter to 5,200 units. Their new railcar backlog is up to 46,000 units, valued at $4.78 billion.

GBX's Chairman and CEO William Furman commented on his company's results, "Our record results this quarter, including margin expansion and earnings growth, reflect the soundness of our diversified and integrated business model, improved business execution and greater scale. Our aggregate gross margin in the second quarter grew to 19.9%, nearly twice last year's level; at the same time we continue to execute on ramping up production on new manufacturing lines."

Furman also commented on their order growth, saying, "Our diverse new railcar backlog of 46,000 units represents the sixth consecutive quarter where the quantity and value of our backlog has increased. It is now more than triple the size of just one year ago, with production on certain production lines stretching into 2019. Nearly 80% of our year-to-date orders for 24,200 railcars are non-energy related, including orders for double stack intermodal cars, grain hopper cars, automotive carrying cars, non-energy related tank cars, boxcars, and mill gondola cars for scrap steel. These orders, along with others in our backlog, include multi-year orders for various car types, a positive indication that our customers believe, as do we, that end-user demand for new railcars will remain solid for the foreseeable future. The regulatory picture for tank cars transporting hazardous materials should be clarified no later than May. We expect Greenbrier's Tank Car of the Future will be the new standard, and that additional new car and retrofit orders will occur regardless of oil prices."

Furman pointed out that most of their new orders are for non-energy related cars. That's because the energy (i.e. oil production) business in the U.S. has been depressed given last year's slide in crude oil. Energy companies have been cutting back on spending. On the plus side, when the energy sector rebounds, it will be a bonus for GBX. The U.S. government is working on new requirements for oil-tanker railcars. When the government regulations on oil-tanker safety is finalized GBX will see a surge in orders for new tanker cars over the next few years.

GBX managed raised their guidance again. They now expected 2015 earnings in the $5.65-5.95 range versus Wall Street's estimate around $5.42. GBX also raised their sales guidance into the $2.6-2.7 billion zone versus analysts' estimates of $2.62 billion.

We don't see any catalyst for the recent pullback in GBX shares. It looks like a correction toward the stock's bullish trend of higher lows. If shares bounce it could fuel some short covering. The most recent data listed short interest at 33% of the small 22.3 million share float.

I will issue one caveat. The broader Dow Jones Transportation Average looks weak. While the story on GBX is bullish that doesn't mean shares will be able to resist a broader sell-off among the transport stocks. Traders may want to start with small positions considering the recent weakness in the transportation average.

Tonight we are suggesting a trigger to buy calls on GBX at $59.05. More conservative traders may want to wait for a breakout past the simple 200-dma (near $60.00) as an alternative entry point.

- Suggested Positions -

Long JUN $60 CALL (GBX150619C60) entry $2.90

05/01/15 triggered @ 59.05
05/01/15 U.S. DOT announces new rules on railroad tanker cars
Option Format: symbol-year-month-day-call-strike

chart:


Global Payments Inc. - GPN - close: 101.07 change: +0.79

Stop Loss: 98.25
Target(s): To Be Determined
Current Option Gain/Loss: +1.8%
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:
05/02/15: GPN continued to churn sideways inside the $100-102 range on Friday. If shares don't breakout of this range soon we may want to exit early. I am suggesting traders wait for a rally past $102.50 before considering new positions.

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:


Schlumberger Ltd. - SLB - close: 93.00 change: -1.61

Stop Loss: 91.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 8.75 million
Entry on April -- at $---.--
Listed on April 29, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Comments:
05/02/15: SLB did not participate in the market's big rally on Friday. Shares underperformed with a -1.7% plunge back toward short-term support at its rising 10-dma. I don't see any specific news behind the move. The OIH oil services ETF was virtually unchanged on the session. Meanwhile the broader XLE energy ETF posted a minor gain on Friday. This appears to be an SLB-specific weakness. If this weakness continues we might drop this stock as a candidate. Currently we are on the sidelines with a suggested entry point to buy calls at $95.25.

Trade Description: April 29, 2015:
It is finally time to buy energy stocks? It's starting to look that way. Crude oil prices were crushed with a -60% drop from June 2014 to January 2015. This has done significant damage to the oil industry in the U.S. and around the world. Companies have been trying to slash costs and shut down rigs. Yet crude oil production, especially in the U.S., has continued to climb.

U.S. oil inventories just rose for a record-breaking 16 weeks in a row. The good news is that the +1.9 million barrel build in inventory was less than expected. Inventories are at record highs and significantly above the five-year average. At the same time the number of active rigs has been plummeting.

Active rigs have dropped for a record 20 weeks in a row. The current total of active oil and gas rigs in the U.S. is 932. This is the lowest level since 2010. The number of active rigs peaked at 1,609 in October 2014 and this has been the fastest decline in history. We're quickly approaching the 2009 low of 866 active rigs.

Why do I bring up oil inventories and active rigs in the U.S.? Because eventually the trend on these two numbers will reverse. Sooner or later the oil inventory build will end and the number of active rigs will bottom. If trading in the oil service stocks is any indication then the market is banking on sooner instead of later.

The price of crude oil has already seen a +25% bounce off its March lows. We're starting to hear speculation that the action in crude over the last three months might be a bottom. There is also growing speculation that the decline in active rigs will reach a bottom in Q2 2015.

The stock market is always looking forward. It appears investors are looking past the current tough spot for oil producers and oil service companies. SLB is the world's largest oilfield services company.

According to the company, "Schlumberger is the world's leading supplier of technology, integrated project management and information solutions to customers working in the oil and gas industry worldwide. Employing approximately 115,000 people representing over 140 nationalities and working in more than 85 countries, Schlumberger provides the industry's widest range of products and services from exploration through production. Schlumberger Limited has principal offices in Paris, Houston, London and The Hague, and reported revenues of $48.58 billion in 2014."

There was a lot of focus on SLB's most recent earnings report. SLB delivered its Q1 results on April 16th. Wall Street was expecting earnings of $0.91 a share on revenues of $10.35 billion. SLB delivered $1.06 a share with revenues down -8.8% to $10.25 billion. The difference from Q4 to Q1 is dramatic. SLB saw a -19% drop in revenues from Q4 and a -29% drop in earnings.

SLB's Chairman and CEO Paal Kibsgaard commented on his company's Q1 results, "Schlumberger first-quarter revenue decreased 19% sequentially driven by the severe decline in North American land activity and associated pricing pressure. International operations were impacted by reduced customer spend in addition to seasonal effects in the Northern Hemisphere and the fall in value of the Russian ruble and the Venezuelan bolivar. Three-quarters of the overall sequential decline was due to lower activity and pricing, while the remainder was the result of currency effects and non-recurring year-end sales."

Kibsgaard continued, saying, "Despite the severity of the sequential revenue decline, we have been able to minimize its impact on our margins through prompt and proactive cost management as well as through acceleration of our transformation program across product lines and GeoMarkets. These actions have successfully improved financial performance compared to previous industry cycles... In spite of the detailed preparations we made in the fourth quarter, the abruptness of the fall in activity, particularly in North America, required us to take additional actions during the quarter. These included the difficult decision to make a further reduction in our workforce of 11,000 employees, leading to a total reduction of about 15% compared to the peak of the third quarter of 2014."

Kibsgaard provided his outlook on their business, "In this environment, we remain confident in our ability to grow market share, deliver superior performance in earnings per share compared to industry peers, and reduce working capital and capex intensity. Our favorable international leverage, our technological differentiation in North America, the acceleration of our transformation program and our unmatched execution capabilities continue to provide the foundations for our financial and technical outperformance."

Wall Street analysts were very optimistic on SLB. They applauded the company's fast response to cutting cost and reducing their workforce so quickly to changing market conditions. Analysts believe that SLB will be able to maintain strong margins compared to their peer group and that earnings will likely come in better than most expect. Analysts have also commented on how SLB is essentially the best in class for this industry and will take market share from weaker competitors. Several firms upgraded their price targets on SLB following the Q1 report and the new targets are: $100, $105, $107, and $110. The point & figure chart is more optimistic and is currently forecasting a rally to $122.00.

Shares of SLB spiked higher following its Q1 report but the rally failed at its simple 200-dma. Since then the stock has been consolidating sideways and building up steam for a bullish breakout higher. It looks like that breakout has started with today's display of relative strength (+1.7%) and a close above technical resistance at its 200-dma. The intraday high on April 17th was $94.89. We are suggesting a trigger to buy calls at $95.25.

Trigger @ $95.25

- Suggested Positions -

Buy the AUG $100 CALL (SLB150821C100)

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:


Splunk, Inc. - SPLK - close: 66.71 change: +0.37

Stop Loss: 63.85
Target(s): To Be Determined
Current Option Gain/Loss: +1.3%
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:
05/02/15: Hmm... SPLK added +0.5% on Friday. The NASDAQ added +1.29%. The relative weakness might be a warning signal. Shares of SPLK appear to be consolidating sideways in a pattern of lower highs and higher lows.

I'm not suggesting new positions at the moment.

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

04/30/15 new stop @ 63.85
04/23/15 triggered @ 66.25
Option Format: symbol-year-month-day-call-strike

chart:




PUT Play Updates

Big Lots Inc. - BIG - close: 46.13 change: +0.56

Stop Loss: 46.55
Target(s): To Be Determined
Current Option Gain/Loss: -13.2%
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:
05/02/15: Broken support at $46.00 should have been new resistance for BIG. I blame the widespread rally on Friday for the stock's ability to close above this level. The intraday high was $46.53. That was only two cents away from our stop loss at $46.55. If this bounce continues on Monday we'll be stopped out.

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

04/29/15 new stop @ 46.55
04/28/15 new stop @ 48.05
04/23/15 new stop @ 49.05
04/14/15 triggered @ $46.85
Option Format: symbol-year-month-day-call-strike

chart:


PVH Corp. - PVH - close: 103.89 change: +0.54

Stop Loss: 105.25
Target(s): To Be Determined
Current Option Gain/Loss: -20.6%
Average Daily Volume = 1.2 million
Entry on April 29 at $102.65
Listed on April 28, 2015
Time Frame: Exit PRIOR to June option expiration
New Positions: see below

Comments:
05/02/15: PVH was not immune to the market's rally on Friday but shares only rose +0.5% versus the S&P 500's +1.0% gain. The $105.00 level should be short-term resistance. Nimble traders could watch for a failed rally near $105 as a potential entry point. Otherwise readers may want to wait for a new low under $102.00 as our next entry point.

Trade Description: April 28, 2015:
Investors have been relatively forgiving when it comes to corporations blaming the strong dollar on poor results. They were not so forgiving with PVH after the company significantly reduced their guidance.

PVH is in the consumer goods sector. According to the company, "PVH Corp., one of the world's largest apparel companies, owns and markets the iconic Calvin Klein and Tommy Hilfiger brands worldwide. It is the world's largest shirt and neckwear company and markets a variety of goods under its own brands, Van Heusen, Calvin Klein, Tommy Hilfiger, IZOD, ARROW, Warner's and Olga, and its licensed brands, including Speedo, Geoffrey Beene, Kenneth Cole New York, Kenneth Cole Reaction, MICHAEL Michael Kors, Sean John, Chaps, Donald J. Trump Signature Collection, DKNY, Ike Behar and John Varvatos."

PVH's earnings history has been mixed. They have managed to beat estimates the last four quarters in a row. Yet in three out of the last four quarters they have guided lower.

Their most recent report was March 25th. Analysts were expecting Q4 results of $1.73 a share on revenues of $2.1 billion. PVH delivered $1.76 but revenues were only up +0.8% to $2.07 billion. If you back out the currency headwinds then revenues would have been about +5%.

Management said it has been a highly challenging market environment and noted the strong dollar was a significant headwind. The company lowered their guidance on both the Q1 2016 and for their fiscal year 2016. PVH expects Q1 earnings in the $1.35-1.40 range versus Wall Street's consensus at $1.52. For the whole year PVH is forecasting $6.75-6.90 in earnings per share compared to analysts' estimates at $7.38.

The stock's oversold bounce from its March lows has failed at resistance. We just saw the most recent oversold bounce, on April 23rd, quickly fail at short-term resistance. Longer-term shares appear to have topped out as well. Tonight we are suggesting a trigger to buy puts at $102.65. More conservative traders may want to wait for a decline below $102.00 as an alternative entry point to buy puts.

- Suggested Positions -

Long JUN $100 PUT (PVH150619P100) entry $3.40

04/29/15 triggered @ 102.65
Option Format: symbol-year-month-day-call-strike

chart:


CLOSED BEARISH PLAYS

Bed Bath & Beyond Inc. - BBBY - close: 71.41 change: +0.95

Stop Loss: 72.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.4 million
Entry on April -- at $---.--
Listed on April 27, 2015
Time Frame: Exit PRIOR to June option expiration
New Positions: see below

Comments:
05/02/15: BBBY is not cooperating. Shares held support near $70.00 last week and have started to bounce. It's possible this rebound fails at short-term resistance near $71.00. We are choosing to remove BBBY as our play has not opened yet. You may want to keep it on your radar screen for a breakdown below support at $70.00 as a bearish entry point.

Trade did not open.

05/02/15 removed from the newsletter, suggested entry was $69.75

chart:


Orbital ATK, Inc. - OA - close: 74.10 change: +0.94

Stop Loss: 74.45
Target(s): To Be Determined
Current Option Gain/Loss: -34.4%
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:
05/02/15: Our bearish play on OA is a victim of the market's big rally on Friday. Shares managed to rise past resistance near $74.00 on Friday afternoon and hit our stop at $74.45.

- Suggested Positions -

MAY $75 PUT (OA150515P75) entry $3.20 exit $2.10 (-34.4%)

05/01/15 stopped out
04/29/15 new stop @ 74.45
04/27/15 new stop @ 75.25
04/16/15 triggered @ 74.25
Option Format: symbol-year-month-day-call-strike

chart: