Option Investor
Newsletter

Daily Newsletter, Thursday, 5/28/2015

Table of Contents

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

Market Wrap

Global Worries Weigh On Markets

by Thomas Hughes

Click here to email Thomas Hughes
Global worries continue to weigh on markets while traders await more data.

Introduction

A host of global worries weighed the market down today. Starting in Asia news that brokerage houses were reducing the availability of margin sent mainland China shares sinking by -6.5%. Other indices in the region were affected but managed to shrug off the news. European indices were hit by the sell-off in China, and also by another downbeat headline about the Greek debt negotiations.

Officials within the European Commission, and other Greek creditors, do not see the same progress as officials from Greece. They say there is still a long way to go, and were surprised by the positive spin put on by the Greek government. The IMF's Lagarde went so far as to say a Grexit was possible. Needless to say the news sent European indices lower

Market Statistics

The international news was not inspiring so futures trading was negative right from the start. The indices were indicated marginally lower, less than a quarter percent, and held this level for most of the early pre-opening session. Today's jobless claims data, as good as it was, was not enough to reverse the tone of trading. The market opened as indicated and moved lower from there. The first bounce occurred at 10AM and set the level from which several attempts to rally were made. The market was never able to recover the day's losses but it was able to move off the lows and close near the top of today's range.

Economic Calendar

The Economy

Initial claims for unemployment rose by 7,000 versus an expected decline of 5,000. Last week's claims were revised up, by 1,000, making this week's gain a total of 8,000. Claims are now 282,000, the third week of increases but still well below 300K. The four week moving average also rose, by 5,000, but is still sitting near the 15 year low. On a not adjusted basis claims gained 3.3% versus an expected gain of only 0.8%. Michigan and Oregon led with increases totaling 2,384. California and South Carolina led with declines totaling -3,235. Claims have been on the rise in recent weeks but not alarmingly so, claims are still trending lower over the long term and consistent with a healthy labor market.


Continuing claims also rose, by 11,000, to hit 2.222 million. Last week's figures were not revised. The four week moving average continued to fall and it a new 15 year low. Continuing claims may be led higher by initial claims in the next few weeks but remains at/near the long term low and consistent with ongoing improvements in labor market conditions.

Total claims reflects labor market improvement as well, falling -68,872 to 2.126 million. This is the 11th week of decline since hitting peak earlier this year, the lowest level since October of last year and 13% lower than last year at this time. T


Pending home sales was released at 10AM, adding further evidence the housing market is bouncing back. Pending sales rose by 3.4%, well ahead of the 1% consensus estimate and the 1.2% gain last month. Last month's figure was revised higher, adding upward momentum as well. This is the fourth month of increasing sales which are now at a 9 year high. This is a measure of signed contracts for existing single family homes so is indicative of rising existing home sales figures for May and June. According to NAR economists demand is strong and homeowners are in control of the market.

On deck tomorrow, the 2nd estimate for 1st quarter GDP. Estimates have declined to a consensus near -1.0%, more than a full percent below the previously released estimate. Also scheduled for tomorrow ar Chicago PMI and Michigan Sentiment.

The Oil Index

Oil prices traded around $57.50 as supply and production weigh on prices. Today's report from the EIA shows that US production rose to 9.5 million barrels last week, a 43 year high. This news is a mild surprise, the rig count has been dropping steadily over the past few months, but nonetheless shows that supply is ample. We already know that Saudi Arabia/OPEC production are at/near record high levels. Prices may slide further, but there is also still plenty of geopolitical issues adding fear to the market as well.

The Oil Index drifted lower, falling about a quarter percent in today's action. The indicators remain bearish and pointing to lower prices but there is also evidence the move may be running out of steam, primarily diverging momentum. Potentially strong support exists along the long term trend line, about 50 points or 3.5% below today's closing price. The index could continue to drift down to support, particularly if oil prices move lower, where I will be looking for signs of bullish activity.


The Gold Index

Gold prices held steady above $1185 today. Prices are sitting on support levels following last week's sharp rise in the dollar. Strong, stronger than expected, CPI strengthened the dollar, providing a near term catalyst for lower gold prices but at the same time it providing catalyst for long term buyers; inflation is rising or on the cusp or rising and rising inflation is bullish for gold. Gold prices may remain volatile and tied to dollar moves with support in the range of $1180-$1185 and resistance near $1225.

The gold miners were able to move higher today, the GDX Gold Miners ETF gaining a little of a half percent. Today's action held a tight range, just below my rising support line. This line has provided support for 3 months, confirmed by indicators on both the weekly and daily charts, and so looks fairly strong. Gold prices will of course play a big role here, if they are not able to hold support levels the GDX will likely not either. I remain bullish longer term and looking for a bounce back above support/trend with upside target near $21.15. If support fails it could move as low as $17.50.


In The News, Story Stocks and Earnings

GoPro CEO made a hero of himself announcing two new product developments during an interview yesterday. He revealed plans to enter the drone space as well as products designed to work with those filming for virtual reality. The new was well received, analysts like the fact the company is trying to diversify itself, and sent the stock up by nearly 7%. Shares have been moving higher since hitting bottom in early March and could continue. Momentum is bullish however weak and stochastic is making a bullish crossover of the upper signal line. Next potential resistance I see is just above $60.


Abercrombie & Fitch continues the parade of retailers earnings reports. Today the company reported a wider than expected loss but better than expected comp store sales that sent shares of the stock flying higher. The increase in comp store sales is seen as a positive development in the company's ongoing strategy to re-position itself in the new era of teen retail. Shares initially traded lower, the report came out well before the opening bell, but sentiment had changed by the time the market opened. The stock gapped up at the bell and then gained more than 13%. Today's move is on high volume and driven in large part by short covering.


The retail sector as a whole has held up fairly well over the past three weeks. The sector has had an onslaught of mixed earnings reports that have left one question unanswered, when is the consumer going to start spending some of the money the labor data suggest is being earned? Today the XRT Retail Spyder gained about a tenth of a percent in a session of light trading. The ETF is trading just under the short term moving average and near the middle of the 30 day range. The indicators are neutral with a bullish bias and indicate support near $97.50. Without any catalyst and no major earnings expected tomorrow a test of support is very possible. The trend is up with positive expectations into the end of the year so any test of support would be a potential entry point.


The S&P China ETF GXC lost 3.25% in today's session. The ETF traded down to a support level near $95 with momentum turning bearish and stochastic making a bearish crossover near the middle of the range. It looks likely that this sector will continue to trade lower and possibly move below $95. Next targets for support near $92.


The Indices

The market moved lower today but remains near long term all time highs. All except the transports which for some reason continue to move lower. While the rest of the market declined by more modest amounts, the Dow Jones Transportation Index lost nearly a full percent, -0.91%. Today's move set another new low, below the long term trend line, and increases the chance of reversal. The index is also back in correction territory with a net loss greater than 10% from its high. The indicators are bearish and point to lower prices but are yet to show much strength. This, along with the lower shadow on today's candle, make the 8,250 level look like a candidate for potential support. The trend line is broken, but the trend is not yet reversed and requires a retest of resistance and rejection at the trend line/bottom of the previous trading range. Until then I am neutral on this index.


The Dow Jones Industrial Average was the next largest decliner with a loss of only -0.20%. The blue chips continue to test support, today at the 30 day moving average, and support is holding. Today's action crossed the moving average, approached the 18,000 mark and bounced back. The indicators are both moving lower but momentum is so weak it does not look like support will fall. If it were to be broken it would help confirm a possible double top forming on the index. Target for this move would be the long term trend line, about 5.5% below the current level.


The NASDAQ Composite made the next largest decline, about -0.17%. The techs were not able to hold the new all time high set yesterday which, depending on how you look at it, is either good or bad. Its natural for a market to periodically pull back from new highs during a rising trend: lack of follow through could mean the new highs are more whipsaw than break out. The indicators are bullish so I am leaning toward the former rather than latter. Support is along the short term moving average and near the previous all time high around 5,050, upside target is near 5,250.


The S&P 500 suffered the smallest loss today, only -0.13%, less than a quarter the loss experienced by the transports. The broad market is also testing support, support which is still looks strong, at least for now. The index is trying to bounce from an area of potentially very strong support, the intersection of two major trend lines, with indicators that help underscore the potential for strength. MACD momentum is bullish, weak but bullish, and stochastic is holding above the upper signal line. Support is along the trend line and the short term moving average in a tight range around the previous all-time high near 2,120.


The market continues to churn and, except for the transports, are looking as if they might maintain their current levels. Causing the churn is a mountain of global fears, lack luster data and FOMC rate hike speculation.

Tomorrow's data has a high potential to add to the churn. The GDP revision is expected to be weak, very weak, but is also very rear looking. The Chicago PMI and Michigan Sentiment are less important in the macro sense but are current and could point to rebound, not to mention the fact that next week is the next round of monthly labor data, auto sales, ISM, construction spending, the Fed's Beige Book and many other reports that could renew belief in ongoing economic expansion.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Business & Technology Services

by James Brown

Click here to email James Brown


NEW DIRECTIONAL CALL PLAYS

Cognizant Technology - CTSH - close: 64.84 change: +0.16

Stop Loss: 63.45
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 3.6 million
Entry on May -- at $---.--
Listed on May 28, 2015
Time Frame: Exit PRIOR to July option expiration
New Positions: Yes, see below

Company Description

Trade Description:
Shares of CTSH are pushing toward new all-time highs as the company continues to deliver better than expected earnings and revenue numbers. The company is in the technology sector. They provide business and technology services.

According to the company, "Cognizant (CTSH) is a leading provider of information technology, consulting, and business process outsourcing services, dedicated to helping the world's leading companies build stronger businesses. Headquartered in Teaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep industry and business process expertise, and a global, collaborative workforce that embodies the future of work. With over 100 development and delivery centers worldwide and approximately 217,700 employees as of March 31, 2015, Cognizant is a member of the NASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among the top performing and fastest growing companies in the world."

CTSH popped to new highs back in February after reporting their Q4 results, which beat estimates on both the top and bottom line. Revenues were up +16%. Management raised their Q1 and 2015 estimates.

The stock rallied again when they reported their 2015 Q1 results on May 4th. Earnings rose +14.5% to $0.71 per share, which was a penny above estimates. Revenues soared +23.5% to $2.99 billion, above estimates.

Management raised their 2015 earnings and revenue guidance. They expect earnings growth of +9% and revenues to rise +19% above 2014 levels. Multiple analyst firms raised their price target on CTSH stock into the $70-76 range. Coincidentally the point & figure chart for CTSH is bullish and forecasting at $76.00 target.

At the moment CTSH is hovering just below resistance in the $65.50 area. We are suggesting a trigger to buy calls at $65.65.

Trigger @ $65.65

- Suggested Positions -

Buy the JUL $65 CALL (CTSH150717C65) current ask $1.90
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

Europe Backtracks Over Potential Greece Deal

by James Brown

Click here to email James Brown

Editor's Note:

Yesterday one of the reasons behind the market rally was enthusiasm over a potential deal for Greece. Today that enthusiasm waned. European officials said there is still no agreement and the two sides still need to bridge the gap between them. Meanwhile Greece seems confident a deal will be done by Sunday.

Most of Europe's major stock markets were down today with the exception of the U.K. Asian markets were sharply lower as well. China's main index plunged -6.5%. The Japanese NIKKEI bucked the trend and posted its tenth gain in a row.

Fortunately the selling pressure in the U.S. market was relatively mild.

CAT hit our stop loss. DATA and SPW hit our entry triggers.


Current Portfolio:


CALL Play Updates

Adobe Systems - ADBE - close: 80.02 change: -0.15

Stop Loss: 77.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.2 million
Entry on May -- at $---.--
Listed on May 21, 2015
Time Frame: 3 to 4 weeks, exit PRIOR to earnings in mid June
New Positions: Yes, see below

Comments:
05/28/15: ADBE followed the market sideways on Thursday. Shares oscillated on either side of the $80.00 level. We are still waiting for a move higher. Our suggested entry point is $80.85.

NOTE: We are running out of time. ADBE has earnings coming up in mid June. We will plan on exiting prior to earnings. If ADBE doesn't rally tomorrow we might remove it.

Trade Description: May 21, 2015:
ADBE appears to have successfully completed its transition from a traditional pay up front software sales model to a subscription based pay-as-you-go model for its industry leading creative software.

ADBE is in the technology sector. They are part of the software industry. According to the company, "Adobe is changing the world through digital experiences. Content built and optimized with Adobe products is everywhere you look — from websites, video games, and smartphones to televisions, tablets, and beyond. Adobe® Creative Cloud® software offers the most innovative tools for creating digital media, while Adobe Marketing Cloud delivers groundbreaking solutions for data-driven marketing. Our leadership in these two emerging categories, Digital Media and Digital Marketing, provides our customers with a real competitive advantage, positioning Adobe for continued growth well into the future. As one of the largest software companies in the world, Adobe achieved revenue of more than US$4 billion in 2013."

The company's most recent earnings report was March 17th. ADBE said its Q1 earnings soared +46% to $0.44 a share . It was ADBE's best quarterly earnings growth in four years. Analysts were expecting a profit of $0.39. Revenues rose +10.9% to $1.11 billion, which was above ADBE's estimate of $1.05-1.10 billion. Wall Street was forecasting $1.08 billion.

ADBE said a record 70 percent of their Q1 revenues came from recurring sources, compared to 52 percent in Q1 fiscal 2014. They added 517 thousand customers to their creative cloud subscriptions. That is up +28% from a year ago. Unfortunately this missed expectations. Analysts were hoping for +573K.

ADBE's guidance was a little bit soft. The combination of the new subscription miss and the lackluster guidance sparked some profit taking. Fortunately for shareholders the sell-off didn't last long. Investors have been buying the dips and ADBE's long-term up trend remains in place.

It would appear that any post-earnings bearishness has vanished. JP Morgan recently started coverage on ADBE with an "overweight" and a $91 target. ADBE's point & figure chart is bullish and forecasting at $92. Technically shares of ADBE have rallied to resistance near $80.00 and its 2015 highs. After consolidating below $80 the last few days the stock finally broke out today. The intraday high today was $80.74. We're suggesting a trigger to buy calls at $80.85.

Trigger @ $80.85

- Suggested Positions -

Buy the JUL $85 CALL (ADBE150717C85)

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


Anthem, Inc. - ANTM - close: 164.22 change: +0.84

Stop Loss: 159.85
Target(s): To Be Determined
Current Option Gain/Loss: -2.3%
Average Daily Volume = 1.8 million
Entry on May 18 at $162.00
Listed on May 16, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
05/28/15: ANTM spent most of the day churning sideways inside a $1.25 range. Late this afternoon ANTM began to show some strength. Shares managed to buck the market's decline and post a +0.5% gain.

Trade Description: May 16, 2015:
One in nine Americans is covered through one of Anthem's affiliated medical plans. The company is only getting bigger. Previously known as Wellpoint (WLP) they officially changed their name to Anthem (ANTM) in December 2014.

Initially both Wall Street and the healthcare industry were worried about Obamacare. Yet the Affordable Care Act has been a strong tailwind for many of the large healthcare insurers adding millions of new customers. Now that the major players have ironed out a lot of the wrinkles any negative impact from the ACA seems to be fading.

If you're not familiar with ANTM they are in the healthcare sector. According to the company, "Anthem is working to transform health care with trusted and caring solutions. Our health plan companies deliver quality products and services that give their members access to the care they need. With nearly 71 million people served by its affiliated companies, including more than 38 million enrolled in its family of health plans, Anthem is one of the nation’s leading health benefits companies."

Looking ANTM's earnings over the past year the company's results have been a little hit or miss. Yet one thing they have consistently done is raise guidance. Since the stock market is always looking forward this bullish outlook from ANTM has helped drive the stock to new all-time highs.

Their most recent earnings report was April 29th. ANTM reported their 2015 Q1 results. Wall Street was looking for $2.69 per share on revenues of $19.28 billion. The company delivered $3.14 per share, which is a +29.8% improvement from a year ago. Revenues were up +6.8% to $18.85 billion (a miss). Management raised their guidance above analysts' estimates for the fourth quarter in a row.

The company has an active stock buyback program. In the first quarter they spent $774 million buying back 5.7 million shares. As of March 31st, 2015 they still had about $4.9 billion left on their board-approved share repurchase program.

Technically the stock has been churning sideways in the $150-160 zone for the last several weeks. ANTM threatened to breakdown under support near its 50-dma and the $150 level in late April but managed to reverse course and now it's breaking out past resistance in the $160 area. Tonight we are suggesting a trigger to buy calls at $161.65.

- Suggested Positions -

Long SEP $170 CALL (ANTM150918C170) entry $4.40

05/26/15 new stop @ 159.85
05/18/15 triggered on gap open at $162.00, trigger was $161.65
Option Format: symbol-year-month-day-call-strike


Tableau Software, Inc. - DATA - close: 113.23 change: -1.63

Stop Loss: 109.85
Target(s): To Be Determined
Current Option Gain/Loss: -22.8%
Average Daily Volume = 1.0 million
Entry on May 28 at $115.25
Listed on May 27, 2015
Time Frame: Exit prior to July option expiration
New Positions: see below

Comments:
05/28/15: DATA rallied high enough this morning to hit our suggested entry point at $115.25. Unfortunately the rally faded thanks to the market's widespread weakness. Traders did start buying the dip around $113.00 and DATA's simple 10-dma.

Our trade was opened this morning but I would hesitate to launch positions here. Consider waiting for a rally past today's high ($115.50) before initiating new positions.

Trade Description: May 27, 2015:
The market for analyzing big business data is growing fast. DATA is leading the charge. According to the company, "Tableau Software (NYSE: DATA) helps people see and understand data. Tableau helps anyone quickly analyze, visualize and share information. More than 26,000 customer accounts get rapid results with Tableau in the office and on-the-go. And tens of thousands of people use Tableau Public to share data in their blogs and websites."

The last few earnings reports have been very impressive. DATA released their Q3 results on November 5, 2014. Results were 12 cents above estimates with revenues up +71% to $104.5 million, also above estimates.

Their Q4 results came out in early February. Analysts were expecting a profit of $0.11 a share on revenues of $122.58 million. DATA delivered $0.42 a share with revenues up +75% to $142.9 million. In the fourth quarter they added 2,600 new customers. They closed 304 transactions worth more than $100,000, a +70% improvement from a year ago.

Christian Chabot, Chief Executive Officer of Tableau. "In 2014, we experienced the strongest demand we've seen in our history, as the move to agile analytics grows faster than ever."

DATA reported their 2015 Q1 results on May 7th. Analysts were looking for a loss of $0.03 per share on revenues of $115.29 million. The company blew away these numbers with a profit of $0.08 per share (11 cents above estimates). The pattern of big revenue growth continued with Q1 revenues up +74.4% to $130.1 million. They added 2,600 new customers putting their total above 29,000. The number of deals above $100,000 hit 249 in the first quarter.

Management provided bullish guidance with estimates for Q2 revenues in the $135-140 million range. That's above Wall Street's estimate of $130.9 million. They also upped their fiscal year 2015 earnings picture and see $600-615 million, which is better than analysts' estimates of $587 million.

Shares of DATA surged on its results and optimistic guidance. Since then traders have been buying the dips pretty quickly. Today's display of relative strength (+1.99%) is also a new all-time closing high for DATA. It's also worth noting that DATA has been talked about as a potential takeover target.

The $115.00 level looks like short-term resistance. We will use a trigger at $115.25 as our entry point to buy calls.

- Suggested Positions -

Long JUL $120 CALL (DATA150717C120) entry $3.82

05/28/15 triggered @ $115.25
Option Format: symbol-year-month-day-call-strike


Electronic Arts - EA - close: 63.27 change: -0.59

Stop Loss: 59.85
Target(s): To Be Determined
Current Option Gain/Loss: -9.0%
Average Daily Volume = 3.5 million
Entry on May 27 at $63.65
Listed on May 18, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
05/28/15: EA briefly tagged new multi-year highs this morning. The rally faded and shares followed the market in a sideways move. If EA continues to dip I would look for potential support at the rising 20-dma near $61.75.

Trade Description: May 18, 2015:
Video game stocks are hitting high scores this year. The two biggest players in this industry are ATVI and EA. Shares of ATVI are at all-time highs while EA is nearing a new 10-year high.

EA is considered part of the technology sector. According to the company, "Electronic Arts ( EA ) is a global leader in digital interactive entertainment. The Company delivers games, content and online services for Internet-connected consoles, personal computers, mobile phones and tablets. EA has more than 300 million registered players around the world. In fiscal year 2015, EA posted GAAP net revenue of $4.5 billion. Headquartered in Redwood City, California, EA is recognized for a portfolio of critically acclaimed, high-quality blockbuster brands such as The Sims, Madden NFL, EA SPORTS FIFA, Battlefield, Dragon Age and Plants vs. Zombies."

Shares of EA popped above major resistance near the $60.00 level earlier this month after reporting better than expected Q4 2015 results. Wall Street was looking for EA to deliver a profit of $0.26 a share on revenues of $852.9 million. EA announced a profit of $0.39 a share. Revenues were down -2.0% from a year ago but came in at $896 million, well above estimates.

Their full year results were impressive. EA's net revenues were up almost $1 billion to $4.5 billion. The company's net income soared from $8 million in 2014 to $875 million in 2015. Shares of EA have benefitted from the company's turnaround. The stock is up more than +100% in the last 12 months.

EA's guidance was mixed. They issued bearish guidance for their Q1 2016 (current quarter) and see EPS about flat ($0.00) when Wall Street was expecting $0.19 per share. EA is forecasting Q1 revenues significantly below expectations. However, they raised their fiscal year 2016 profit estimate to $2.75 per share when analysts were only expecting $2.63.

Last quarter EA spent $95 million buying back 1.8 million shares of their stock. When they reported earnings on May 5th they also announced a new $1 billion stock buyback program that expires on May 31, 2017.

EA management sounds pretty optimistic. Here's an excerpt from their earnings press release:

With a clear focus on putting our players first, FY15 was an exceptional year for Electronic Arts. We introduced award-winning games, delivered enduring entertainment in our live services, and forged deeper relationships with a growing global audience across consoles, mobile devices and PC, said Chief Executive Officer Andrew Wilson. EA continues to sharpen our focus and speed, and in the year ahead we will engage more players on more platforms with new experiences like Star Wars Battlefront, FIFA 16, Minions Paradise and more.

Two years ago, we discussed a three-year plan to double non-GAAP operating margins to 20%, said Chief Financial Officer Blake Jorgensen. Today, Im happy to announce that we exceeded our goal a full year ahead of schedule. Looking forward, we anticipate continued earnings growth driven by our strong portfolio, investment in new IP, the market shift to digital, and on-going cost discipline.

Wall Street's analyst community seems bullish on EA as well. Several firms reiterated their bullish ratings and raised price targets.

Shares of EA have been building on a bullish trend of higher lows. The current rally has produced a buy signal on the point & figure chart that is forecasting a long-term target of $110.00. On a short-term basis EA seems to be coiling for a breakout past resistance near $63.50. Tonight we're suggesting a trigger to buy calls at $63.65.

- Suggested Positions -

Long SEP $70 CALL (EA150918C70) entry $1.66

05/27/15 triggered @ 63.65
Option Format: symbol-year-month-day-call-strike


Eaton Corp. - ETN - close: 72.78 change: -0.20

Stop Loss: 70.65
Target(s): To Be Determined
Current Option Gain/Loss: -18.2%
Average Daily Volume = 2.6 million
Entry on May 13 at $72.75
Listed on May 09, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
05/28/15: ETN bounced off technical support at its 20-dma for the third day in a row. More conservative traders may want to raise their stop loss again. I am not suggesting new positions at this time.

Trade Description: May 9, 2015:
ETN is in the industrial goods sector. The company makes products for a wide variety of industries including: aerospace, electrical equipment, filtration systems, hydraulics, plastic extrusion, industrial clutches and brakes, and vehicles.

According to the company, "Eaton is a power management company with 2014 sales of $22.6 billion. Eaton provides energy-efficient solutions that help our customers effectively manage electrical, hydraulic and mechanical power more efficiently, safely and sustainably. Eaton has approximately 102,000 employees and sells products to customers in more than 175 countries."

When the market ignores negative earnings news it could be a signal that all the bad news is priced in to a stock and the path of least resistance is higher. That appears to be the case for ETN.

In July 2014 the stock was crushed after the company reported earnings that were only in-line with estimates and the management lowered their 2014 Q3 guidance. Three months later ETN reported its Q3 results that missed expectations on both the top and bottom line. What did the stock do? It rallied.

Fast forward another few months and in early February ETN reported better than expected earnings but revenues were just a hair below estimates. Management lowered their 2015 Q1 estimates due to currency headwinds. They were expecting a -4% impact do to the strong dollar in 2015. What did the stock do on this negative forecast? It rallied.

Several days ago ETN reported its Q1 results on April 29th. Earnings were 3 cents better than expected even as revenues fell -5% to $5.22 billion. This was a result of +1% organic growth offset by -6% decline due to currency translation.

The company's management readjusted their forecast and now expect a -5% impact due to currency headwinds for 2015. With this adjustment they lowered their Q2 and 2015 guidance. Since this earnings report the stock has rallied. Last week shares were upgraded by J.P.Morgan from neutral to overweight who adjusted their ETN price target from $70 to $84. The point & figure chart is even more optimistic and forecasting an $89 target.

If investors are going to be this forgiving then we think there might be an opportunity here. The recent rally in ETN has pushed shares toward resistance near its February highs around $72.50(ish). We are suggesting a trigger to buy calls at $72.75.

- Suggested Positions -

Long JUL $75 CALL (ETN150717C75) entry $1.10

05/26/15 new stop @ 70.65
05/13/15 triggered @ 72.75
Option Format: symbol-year-month-day-call-strike


FactSet Research - FDS - close: 165.96 change: -0.76

Stop Loss: 163.85
Target(s): To Be Determined
Current Option Gain/Loss: +23.7%
Average Daily Volume = 302 thousand
Entry on May 13 at $162.25
Listed on May 11, 2015
Time Frame: Exit PRIOR to FDS earnings in late June or plan on exiting prior to JUNE option expiration on June 19th
New Positions: see below

Comments:
05/28/15: It looks like the market's widespread decline today may have short-circuited the bounce in FDS. Shares slowly faded lower throughout the session.

I am not suggesting new positions at this time.

Trade Description: May 11, 2015:
FDS has provided data, analytics and research to the Wall Street crowd for more than 35 years. Today their software provides a host of services for investment managers, hedge funds, bankers, wealth managers, private equity, buy-side traders, sell-side traders, and more.

FDS is considered part of the technology sector. According to the company, "FactSet, a leading provider of financial information and analytics, helps the world's best investment professionals outperform. More than 50,000 users stay ahead of global market trends, access extensive company and industry intelligence, and monitor performance with FactSet's desktop analytics, mobile applications, and comprehensive data feeds."

The company has been delivering pretty consistent sales growth around +9% every quarter. They raised guidance back in December with their Q1 report. FDS' most recent earnings report was March 17th. The company announced their Q2 results of $1.39 per share, which was up +13.9% from a year ago. Unfortunately that missed analysts' estimates by two cents. Revenues grew +9.2% and kept the trend alive of FDS delivering revenues just above expectations.

The company has an active stock buyback program. Management boosted their repurchase program back in December by $300 million. At the time that meant their buyback program was almost $339 million. Keep in mind that FDS only has 41.7 million shares outstanding.

Following FDS' March 17th Q2 report the company raised their guidance for Q3. They now estimate earnings will grow +12.8% into the $1.40-1.42 per share range. This is above Wall Street estimates. Shares of FDS rallied on this report but they've spent the last several weeks consolidating sideways on either side of $160.00. The good news is that FDS is building a bullish trend of higher lows. Today the stock is poised to breakout past resistance and hit new record highs. We are suggesting a trigger to buy calls at $162.25.

- Suggested Positions -

Long JUN $165 CALL (FDS150619C165) entry $3.80

05/19/15 new stop @ 163.85
05/13/15 triggered @ 162.25
Option Format: symbol-year-month-day-call-strike


F5 Networks - FFIV - close: 126.83 change: +0.87

Stop Loss: 123.85
Target(s): To Be Determined
Current Option Gain/Loss: -19.4%
Average Daily Volume = 1.2 million
Entry on May 08 at $125.15
Listed on May 07, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
05/28/15: Good news. FFIV displayed some relative strength today. The stock bounced off its 20-dma and managed to close with a +0.69% gain. The week and a half pullback might be over. If both the NASDAQ composite is positive tomorrow then I'd be tempted to buy calls on FFIV if shares rally past $127.00.

Trade Description: May 7, 2015:
It has become a hostile world for corporations and their biggest weakness is online security. It feels like every day we hear about another company getting hacked. In recent years there have been a number of high-profile hacking attacks like Target (TGT), Home Depot (HD), and Sony (SNE). Fortunately for FFIV all of this plays to their strength as more corporations seek to beef up their cyber security.

According to company marketing, "F5 provides solutions for an application world. F5 helps organizations seamlessly scale cloud, data center, and software defined networking (SDN) deployments to successfully deliver applications to anyone, anywhere, at any time. F5 solutions broaden the reach of IT through an open, extensible framework and a rich partner ecosystem of leading technology and data center orchestration vendors. This approach lets customers pursue the infrastructure model that best fits their needs over time. The world's largest businesses, service providers, government entities, and consumer brands rely on F5 to stay ahead of cloud, security, and mobility trends."

After strong earnings and sales growth in 2014 the company hiccupped in Q1 2015 (which was the last quarter of 2014). FFIV beat estimates on the bottom line but management guided lower for Q2. You can see how the market reacted to this news with the big gap down in mid January.

Their most recent earnings report was April 22nd. FFIV reported their 2015 Q2 results of $1.59 per share. That was nine cents better than expected. Revenues were up +12.4% to $472.1 million, just above estimates. Wall Street's biggest concerns following these results are the impact of currency headwinds (thanks to the strong dollar) and FFIV's falling revenue growth. They're still growing but momentum seems to be slowing a bit.

The stock rallied on its earnings news and burst through major resistance near $120 and several key moving averages. The last couple of weeks have looked like a consolidation period where FFIV digested its post-earnings pop. Now FFIV is poised for the next leg higher. The point & figure chart is very bullish and forecasting a long-term target of $193.00. Tonight we're suggesting a trigger to buy calls at $125.15.

- Suggested Positions -

Long JUL $130 CALL (FFIV150717C130) entry $3.25

05/26/15 new stop @ 123.85
05/08/15 triggered @ 125.15
Option Format: symbol-year-month-day-call-strike


Northern Trust Corp. - NTRS - close: 75.65 change: +0.14

Stop Loss: 73.85
Target(s): To Be Determined
Current Option Gain/Loss: -14.0%
Average Daily Volume = 1.1 million
Entry on May 05 at $75.05
Listed on May 04, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
05/28/15: NTRS ended Thursday's session in positive territory. Shares spent most of the day inside a 50-cent range. On the plus side NTRS looks poised to rally tomorrow.

No new positions at this time.

Trade Description: May 4, 2015:
NTRS has been around for 125 years. The company looks pretty good for its age. Shares are outperforming the broader market and its peers. Currently NTRS is up +10% in 2015 versus a -0.6% decline in the financial sector.

According to the company, "Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of wealth management, asset servicing, asset management and banking to corporations, institutions, affluent families and individuals. Founded in Chicago in 1889, Northern Trust has offices in the United States in 19 states and Washington, D.C., and 20 international locations in Canada, Europe, the Middle East and the Asia-Pacific region. As of March 31, 2015, Northern Trust had assets under custody of US$6.1 trillion, and assets under management of US$960.1 billion. For 125 years, Northern Trust has earned distinction as an industry leader for exceptional service, financial expertise, integrity and innovation."

The last couple of earnings reports have been healthy. Their Q4 report in January came in better than expected on both the top and bottom line. NTRS' most recent report was its 2015 Q1 results on April 21st. Wall Street was looking for a profit of $0.87 a share on revenues of $1.12 billion. NTRS said their earnings rose +25% from a year ago to $0.94 and revenues were up +9.0% to $1.13 billion.

NTRS' Chairman and CEO Frederick Waddell commented on his company's performance, "We are pleased with our financial performance in the first quarter of 2015, which reflects continued growth in our business serving personal and institutional clients. Trust, investment and other servicing fees, which represent two-thirds of our revenue, increased 7% compared to last year. New business and higher equity markets contributed to growth in assets under custody and under management of 6% and 5%, respectively. Total revenue grew 9% and we maintained a disciplined focus on expenses, which increased 3%, producing meaningful operating leverage. As a result, our pre-tax profit margin improved to 31.2% in the first quarter and our return on equity was within our target range of 10-15%. We also look forward to returning capital to our stockholders in the year ahead as the Federal Reserve did not object to the proposed capital actions in our 2015 Capital Plan. Our Capital Plan and proposed capital distributions demonstrate the strength of Northern Trust's focused business model, financial position and commitment to stockholders."

Shares of NTRS popped to new multi-year highs on its Q1 report. Instead of giving back its gains the stock has been able to consolidate at these highs. Shares displayed relative strength again with today's +1.1% gain. Today's move is also a bullish breakout past resistance near $74.00. The point & figure chart is bullish and forecasting a long-term target of $86.00. Tonight we're suggesting a trigger to buy calls at $75.05.

- Suggested Positions -

Long JUL $75 CALL (NTRS150717C75) entry $2.15

05/26/15 new stop @ 73.85
05/12/15 new stop @ 73.45
05/05/15 triggered @ 75.05
Option Format: symbol-year-month-day-call-strike


Roper Technologies - ROP - close: 177.18 change: -0.51

Stop Loss: 173.25
Target(s): To Be Determined
Current Option Gain/Loss: -12.5%
Average Daily Volume = 441 thousand
Entry on May 27 at $177.75
Listed on May 20, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
05/28/15: ROP found short-term support near $176.00 today. The stock started to rebound this afternoon. Readers may want to use a rally past $178.00 as a new entry point for bullish positions.

Trade Description: May 20, 2015:
2015 is shaping up to be a record-setting year for ROP with profits on track for a new high. Investors have pushed the stock to new highs as well. ROP is up +12.8% year to date versus a +3.3% gain in the S&P 500.

ROP is in the industrial goods sector. The company just recently changed their name from Roper Industries to Roper Technologies.

According to the company, "Roper Technologies is a diversified technology company and is a constituent of the S&P 500, Fortune 1000, and the Russell 1000 indices. Roper provides engineered products and solutions for global niche markets, including software information networks, medical, water, energy, and transportation."

Their most recent earnings report was April 27th. ROP reported its 2015 Q1 results. Earnings per share rose 5% from a year ago to $1.55. Analysts were expecting $1.52. Revenues were up +3.7% to $865 million. That actually missed estimates of $873 million but the market didn't seem to care. ROP said their adjusted gross margin hit a new high, rising 140 basis points to 60.0%.

Management did lower their Q2 guidance but they raised their full year 2015 guidance. Again, traders seemed to look past the short-term lowered guidance in favor of the long view. ROP is forecasting 2015 earnings in the $6.75-6.95 range, up from $6.40 per share in 2014.

Barclays reiterated their overweight rating on the stock and raised their price target to $193.00. The point & figure chart is even more optimistic and currently forecasting at $209.00 target.

Shares of ROP hit new highs last week and have managed to hover there in the $175.00 region. The stock looks poised to push higher and we want to buy calls if ROP can trade at $177.75.

- Suggested Positions -

Long AUG $180 CALL (ROP150821C180) entry $4.80

05/27/15 triggered @ $177.75
Option Format: symbol-year-month-day-call-strike


Snap-on Inc. - SNA - close: 156.81 change: -0.70

Stop Loss: 153.85
Target(s): To Be Determined
Current Option Gain/Loss: +25.5%
Average Daily Volume = 346 thousand
Entry on May 07 at $153.50
Listed on May 06, 2015
Time Frame: exit PRIOR to June option expiration
New Positions: see below

Comments:
05/28/15: SNA retreated from the top of its trading range. Shares spiked lower this morning and spent the rest of the day inside a very narrow range. The key levels to watch are support near $155 and resistance near $158.

No new positions at this time.

Trade Description: May 6, 2015:
Steady earnings growth, a consistent dividend, and a positive outlook are three things investors like to see. SNA delivers on all three counts. The company is in the industrial goods sector.

According to the company, "Snap-on Incorporated is a leading global innovator, manufacturer and marketer of tools, equipment, diagnostics, repair information and systems solutions for professional users performing critical tasks. Products and services include hand and power tools, tool storage, diagnostics software, information and management systems, shop equipment and other solutions for vehicle dealerships and repair centers, as well as for customers in industries, including aviation and aerospace, agriculture, construction, government and military, mining, natural resources, power generation and technical education. Snap-on also derives income from various financing programs to facilitate the sales of its products. Products and services are sold through the company’s franchisee, company-direct, distributor and internet channels. Founded in 1920, Snap-on is a $3.3 billion, S&P 500 company headquartered in Kenosha, Wisconsin."

SNA has been consistently beating analysts expectations. Prior to their Q1 report the company was delivering results above estimates on both the top and bottom line. That changed with the April 23rd announcement of its Q1 results. Earnings rose +15.4% from a year ago to $1.87 per share. This was above Wall Street estimates and the eight consecutive quarter in a row that SNA has beaten analysts' expectations. Unfortunately, revenues only rose +5.1% to $827.8 million and that missed estimates of $834.4 million.

The market's didn't seem to care. Shares of SNA rallied anyway in spite of the earnings miss. Management said their Q1 2015 saw strong organic growth in sales of +9.9%. One analyst raised their price target on SNA to $180 per share. The point & figure chart is even more optimistic and forecasting at $191 target.

SNA has also announced another dividend. Here's a quick excerpt from the company press release, SNA has declared a "quarterly common stock dividend of $0.53 per share payable June 10, 2015 to shareholders of record on May 20, 2015. Snap-on has paid consecutive quarterly cash dividends, without interruption or reduction, since 1939."

Technically shares of SNA look bullish with a strong pattern of higher lows. It's currently poised to breakthrough short-term resistance near $153.25 soon. We are suggesting at rigger to buy calls at $153.50.

- Suggested Positions -

Long JUN $155 CALL (SNA150619C155) entry $2.55

05/26/15 new stop @ 153.85
05/14/15 new stop @ 152.25
05/07/15 triggered @ 153.50
Option Format: symbol-year-month-day-call-strike




PUT Play Updates

Norfolk Southern Corp. - NSC - close: 93.71 change: -1.12

Stop Loss: 100.25
Target(s): To Be Determined
Current Option Gain/Loss: +5.7%
Average Daily Volume = 2.2 million
Entry on May 26 at $94.85
Listed on May 23, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
05/28/15: Yesterday's bounce in the transportation average was almost erased with today's reversal lower. The Dow Jones Transportation Average fell -0.9% and tagged a new 2015 low before paring its losses. NSC fared worse with a -1.1% drop to new 52-week lows.

Trade Description: May 23, 2015:
The combination of weak fuel prices, lower global demand for fuel, and rising exports from other countries has been hurting U.S. coal exports. The U.S. Energy Information Administration expects U.S. coal exports to fall throughout 2015 before leveling off in 2016. Less exports means less coal that needs to be moved by railroad.

NSC is in the services sector. They're a major player in the railroad industry. According to the company, "Norfolk Southern Corporation (NSC) is one of the nation's premier transportation companies. Its Norfolk Southern Railway Company subsidiary operates approximately 20,000 route miles in 22 states and the District of Columbia, serves every major container port in the eastern United States, and provides efficient connections to other rail carriers. Norfolk Southern operates the most extensive intermodal network in the East and is a major transporter of coal, automotive, and industrial products."

Falling coal shipments is not the only problem for the railroads. Crude oil's decline from last year's highs and the massive slowdown in the amount of fracking in the U.S. has also hurt the railroad business. Less drilling means fewer rail cars of oil pipe and drilling equipment to be shipped. Less fracking means less fracking sand and other proppants to be shipped. Less drilling also means less oil produced and thus less oil to be transported by rails.

It's not just NSC that's suffering. In March 2015 railroad company Kansas City Southern (KSU) dramatically reduced their guidance. Two months later (about May 14th) KSU actually revoked its guidance altogether. Management sees no visibility due to so much uncertainty surrounding the energy market. KSU's energy-related business is down -50% from a year ago and carloads are down -38% in Q2 2015. Their utility coal shipments are down -68%.

Another company, Union Pacific (UNP), painted a similar picture of lower shipments and falling demand. The industry is facing difficult year over year comparisons. They have seen 11 weeks of negative rail volume. Industry wide coal shipments are down -15% from a year ago (UNP's was down -25%). Shipments of crude oil are down. Shipments of agriculture products are down.

It could be months before the oil industry in the U.S. recovers. Coal isn't expected to recover this year. That doesn't paint a very rosy picture for the railroads.

On April 13, 2015 NSC issued an earnings warning. They guided their Q1 results to $1.00 per share on revenues of $2.6 billion. That's a -15% drop in earnings from a year ago. Wall Street was expecting $1.29 per share on revenues of $2.68 billion. Shares of NSC crashed on this news and then rebounded but the bounce failed at technical resistance and shares have accelerated lower. NSC has broke down under major support near the $100 level.

Technical traders could argue that NSC has created a giant head-and-shoulders pattern (with two right shoulders) over the last nine months. This H&S pattern would suggest a downside target in the $80-85 region. Tonight we are suggesting a trigger to buy puts at $94.85. We will start this trade with a stop loss at $100.25. More conservative traders may want to use a stop around $98.30 as an alternative.

- Suggested Positions -

Long SEP $90 PUT (NSC150918P90) entry $2.65

05/26/15 triggered @ $94.85
Option Format: symbol-year-month-day-call-strike


SPX Corp. - SPW - close: 74.17 change: -0.54

Stop Loss: 76.55
Target(s): To Be Determined
Current Option Gain/Loss: -29.0%
Average Daily Volume = 500 thousand
Entry on May 28 at $73.45
Listed on May 26, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
05/28/15: Shares of SPW dipped to a new 18-month low before paring its losses. The stock hit our suggested entry point to buy puts at $73.45 near its lows today. I would wait for another drop below $73.50 before considering new positions.

Trade Description: May 26, 2015:
The business environment for SPW seems to be getting tougher. Their revenue growth has slowed down and now turned negative. Naturally shares of SPW have been under pressure.

SPW is in the industrial goods sector. According to the company, "Based in Charlotte, North Carolina, SPX Corporation (NYSE: SPW) is a global multi-industry manufacturing leader with approximately $5 billion in annual revenue, operations in more than 35 countries and over 14,000 employees. The company's highly-specialized, engineered products and technologies are concentrated in Flow Technology and energy infrastructure. Many of SPX's innovative solutions are playing a role in helping to meet rising global demand for electricity and processed foods and beverages, particularly in emerging markets. The company's key products include food processing systems for the food and beverage industry, critical pumps and valves used in oil & gas processing, power transformers used by utility companies, and heat transfer technology for power plants."

SPW's 2014 Q3 revenues only grew +1.1%. Their 2014 Q4 earnings report showed revenues falling -3.9% and management lowered guidance for fiscal year 2015. They forecasting revenues falling into the $4.48-4.67 billion range, which was below Wall Street's $4.8 billion estimate.

The disappointing performance continued into the first quarter of 2015. SPW reported earnings on April 29th. They missed estimates by three cents. The revenue decline accelerated with revenues down -12.1% from a year ago, and significantly below estimates. Management lowered their 2015 guidance again. They now forecast 2015 revenues in the $4.25-4.44 billion versus Wall Street's adjusted estimate of $4.5 billion.

Traders have been selling the bounces and SPW has a bearish trend of lower highs. Today's display of relative weakness (-2.8%) was significant because it's a breakdown under support at $75.00. I would be tempted to buy puts now but tonight we are listing a trigger to buy puts at $73.45.

FYI: In October 2014 SPW announced a spin-off of its flow business into a new independent company. In their press release SPW said the Future Flow Company will consist of SPX's current Flow segment and its hydraulic technologies business. It is expected to have annual revenue of approximately $3 billion. SPW just recently filed their Form 10 Registration Statement and said the new company's name will be SPX FLOW. The spin-off is expected to be complete in Q3 2015.

- Suggested Positions -

Long JUL $70 PUT (SPW150717P70) entry $1.55

05/28/15 triggered @ $73.45
Option Format: symbol-year-month-day-call-strike



CLOSED BULLISH PLAYS

Caterpillar Inc. - CAT - close: 86.01 change: -1.91

Stop Loss: 86.45
Target(s): To Be Determined
Current Option Gain/Loss: -59.0%
Average Daily Volume = 6.2 million
Entry on May 05 at $88.10
Listed on May 02, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
05/28/15: Some of the big industrial machinery stocks were down hard today. CAT broke down and fell -2.1%. The stock hit our stop loss at $86.45. The next stop might be potential support near $85.00.

- Suggested Positions -

JUL $90 CALL (CAT150717C90) entry $2.00 exit $0.82 (-59.0%)

05/28/15 stopped out
05/19/15 new stop @ 86.45
05/12/15 new stop @ 85.75
05/05/15 triggered @ 88.10
Option Format: symbol-year-month-day-call-strike

chart: