Option Investor
Newsletter

Daily Newsletter, Monday, 6/1/2015

Table of Contents

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

Market Wrap

The Bulls Hold Their Ground

by Thomas Hughes

Click here to email Thomas Hughes
The bulls were able to hold their ground as the market gears up for another big week of news.

Introduction

Market wobble persists but the bulls were able to hold their ground today. There was quite a bit of international news to impact trading, and a fair amount of domestic news, as well as anticipation for a full week of potentially market moving events.

Starting at the beginning, indices in China and Japan extended Friday gains on Chinese PMI. The country's official manufacturing PMI rose to 50.2 from 50.1, showing a very mild expansion in the economy. Balancing this was a slight decline in the services sector PMI but it remains expansionary. The news helped to support indices in Europe while Eurozone PMI and Greece worries weighed them down.

Market Statistics

Futures were trading in the red at the start of the early electronic session. This changed dramatically around 8AM when rumors a Greek deal was at hand began to hit the market but nothing every materialized. Regardless, futures moved into the green and held those levels in to the open.

Today's trading churned within a fairly tight range. The market opened with a slight gain and moved higher in the first 15 minutes but the rally was short lived. By 10AM the indices had retreated to break-even and begun a bounce that failed to recapture the early high. Another test of support found its bottom at 10:15AM, at which time a slow and steady advance took the market back to test the early high. A new intra-day highs was set in early afternoon, but once again near term resistance kicked in to cap gains. Late afternoon trading was much like the morning, sideways drift, with most indices closing near the middle of their respective ranges.

Economic Calendar

The Economy

There was quite a bit of data released today, much more than we usually get on a Monday, and as a whole has economists revising their Q1 and Q2 GDP estimates to the upside. First up is new auto-loan data released by Experian. According to them auto loans reached a record high in the first quarter of this year. The average size of a loan grew to $28,711 with a 67 month term (5 year, 7 months).

Personal Income, released before the open, rose slightly more than expected, 0.4%, from last month's not revised figures. Spending remained unchanged from last month, but the previous month was revised up by 0.1% to 0.5%. This months data is consistent with recent trends in which spending rises one month, income the next, both slowly and in tandem with improving labor markets. On a core basis PCE declined by -0.1%. Within the report wages and salaries increased at a rate nearly double the preceding month.

The ISM PMI was released at 10AM. It showed growth in manufacturing ahead of expectations for this month and expanding from the previous. The current reading is 52.8 versus the expected 52 and last month's 51.5. All but two components of the index rose this month, led by new orders and employment. The prices paid component is the only one below the expansionary 50 level but showed a significant increase of 9 points to 49. Inventory of raw materials, which had been in contraction, is now above 50 at 51.5. Production and exports are the only two segments to show decline but are both still firmly above 50.

Construction Spending was the real gem in today's round of economic releases. It rose by 2.2%, well above expectations and the largest monthly increase since May 2012. Analysts had predicted a rise of only 0.7% from the previous month's decline of -0.6%. On a year over year basis spending is up 4.4% from May 2014 and the first four months of 2015 are up 4.1% versus the first four of 2014. This, along with other home sales data, is further sign the housing market rebound predicted for this summer has begun.

Moody's Survey Of Business Confidence continues to show high levels of positive sentiment. The index rose by a full point from last weeks figure and remains near the record high. According to Moody's Economist Mark Zandi global businesses are “supremely confident”, led by those in the US. He reports that more than 50% of US firms are hiring and expectations for the future are improving.


According to data from FactSet 494 S&P 500 companies have reported earnings for the 1st quarter of 2015. Of those 71% have beaten the mean estimate for earnings growth, 45% have beaten the estimate for revenue growth. 9 of the 10 S&P sectors have higher growth rates now than first predicted due to the amount and number of upside surprises.

The current blended rate for earnings growth in the 1st quarter is 0.7%, more than 5% above the -4.7% predicted at the start of the season. This represents an increase in the blended well above the 4% average we have seen on a quarter to quarter basis over the past 4 years. Stripping out the energy sector the rate for S&P 500 earnings growth is 6.3%, ahead of my own predictions in the range of 4-5%.

Looking to the next quarter, earnings growth expectations have deteriorated despite significant increases in EPS projections for the energy sector. FactSet is project a decline of -4.4% but I am not going to bet on that. Based on the averages, and performance in the 1st quarter, I would expect to see this moderate to something closer to 0% with a chance it will go positive. Stripping energy out of this projection puts 2nd quarter growth in the range of +2-6%. Looking out to the end of the year and next year we can still expect full year 2015 earnings growth in the range 1.5%, and 2016 growth in the range of 12%.

This going to be a big week for data. It's the first week of the month yet again which means monthly macro economic data such as ADP, Challenger, Jobless Claims, Unemployment, Auto Sales, ISM services index and labor costs. In addition to this there is also the Fed's Beige Book and a policy meeting of the ECB scheduled for Wednesday. The ECB is not expected to make any changes but it is likely we will hear something about their recently announced intentions to buy bonds over the summer.

The Oil Index

Oil prices were volatile today as global fears mesh with supply/demand fundamentals and economic data. WTI traded choppy between $59.50 and $60.50, closing with a slight loss near $60.20. Brent had a more pronounced decline, losing a little more than -1%. Fighting continues to be widespread throughout the middle east as the Iranian nuclear deal deadline draws closer. Coalition forces are fighting in Falujah as well in Yemen. At the same time global production remains high and at/near record levels. A weekend report put OPEC production at 31.22 million BPD, a 2.5 year high and above the 30 million BPD target currently set by the bloc. OPEC is meeting later this week and is not expected to cut production.

The Oil Index drifted lower again today. The index remains below 1,350 with bearish indicators but signs the near term bearish movement is losing steam persist. Bearish momentum is divergent from the near term low and in decline and stochastic is overbought and showing a bullish crossover. This combination could lead to further downside with a target along the long term trend line near 1,300. This combination, along with the underlying long term up trend, are also consistent with the early stages of a trend following bounce but not yet a tradable signal.

The index could remain range bound between support along the trend line and the 1400-1450 region until we get past the next round of earnings. Oil prices will affect nearer term direction but earnings I think will be the longer term driver. The energy sector is expected to post another huge decline for the 2nd quarter of 2015, in the range of -60%, but after that outlook improves with full year growth close to 45% in 2016.


The Gold Index

Gold prices were volatile as well. Prices spiked in early trading on data and the dollar only to fall later in the day. The initial reaction was to the income/spending data which put rate hike targets further out, the follow up reaction was to construction spending and ISM which brings rate hike targets closer to the present day. Regardless of when the rate hikes come, consensus targets are in the September-December range with some talk that June or July is still on the table. In any event gold prices surged more than $15 to cross above $1200 only to fall back to $1189. Today's action shows some resistance at the $1200 level, but also the presence of buyers/support below $1190 in the range.

The gold miners ETF GDX opened strong on the back of the early surge in gold prices. Then it sold off, closing with a loss near -0.50%. Today's action began at the short term 30 day moving average and moved down to my rising support line. The index is testing support, driven by the drop in gold prices we saw last week, and could continue to do so. In the near term the indicators are bearish, pointing further testing of support. Over the short to long term they are still consistent with that support, currently around $19.50 after 3 months of trading up along the trend line. If the trend line is broken the ETF could go as low as $17.50 but would be dependent on a similar drop below support in gold prices. This week could be a real exiting one for gold traders, what with all the data, the Beige Book, dollar value and the ECB.


In The News, Story Stocks and Earnings

Coca Cola (KO), not to be confused with Coca Cola Bottling Company (COKE), received an major upgrade this morning. The international beverage retailer is “prime for a turnaround” after years of lack luster results according to BMO Capital. The company sees as much as 20% upside based on case volumes, sales trends and cost savings measures. The stock responded by opening strong, and then selling off to close slightly below the short term moving average. The stock has been languishing near the bottom of its 12 month range and doesn't look ready to pop just yet.


Shares of Coca Cola Bottling Company popped, either on the KO upgrade or the idea that what's good for the goose is good for the gander. Regardless the reason the stock, which has been trending higher all year, jumped more than 9% in today's action. Share prices are now at an all time high with strong indicators.


Apparel and footwear retailer PVH announced earnings after the bell. The own of brands such as Calvin Klein beat on both the top and bottom lines, raised guidance and announced a $500 million share buy back. Revenues were only slightly ahead of estimates but earnings of $1.50 are nearly 9% better than predicted. Shares of the stock gained more than 3% on the news.


Guess, maker of jeans and other consumer apparel items, is scheduled to report tomorrow after the bell. The company is expected to report a loss of -$0.05, well below the $0.63 reported in the last quarter, and reaffirm full year expectations. Today the stock traded in a tight range just above $17.50 and created a candle suggestive of a very quiet market. The stock has been drifting lower over the past three months, since popping just after the last earnings report, and is set to make a move similar to the one in PVH, providing earnings/outlook is good.


The Indices

Market churn continues to drag the markets sideways. Today's action had most of the major indices moving up, if only marginally, from support levels reached during Friday's sell-off. For the most part today's action was light and held within narrow ranges, most indices closed with a gain of a quarter percent or less, except for the Dow Jones Transportation Average.

The transports more than quadrupled the gains made by the other averages. Today's action formed a long white candle with a gain of 1.14% and created a bullish engulfing pattern. The move is accompanied by indicators that aren't quite bullish but are consistent with a bounce from support. This bounce looks as though it may have some strength, at least enough to test resistance near 8,500. This could be an important move for the index, if it does not move back above the long term trend line, or at least support/resistance at 8,500, a deeper correction may ensue.


The NASDAQ Composite gained only 0.25% but was the next largest move of the day. Today's action, despite the gain, created a black candle with doji like qualities; it has a small body and long lower shadow created by a test of support. Price is still above the 5,000 level and the short term moving average but the indicators have rolled over so further testing is likely if not a break through. A break below 5,000 could lead the index lower, with a possible target near 4,800.


The S&P 500 closed with a gain of 0.21%. Today's action bounced off of support but failed to cross above the long term up trend line. The indicators continue to roll over and are now forming bearish crossovers. This could lead to deeper testing of support but does not yet constitute reversal. At this point the trend is still up so any dips are potential entry points for longer term positions.


The Dow Jones Industrial Average made the smallest gain in today's action, 0.14%. The blue chips moved up from support at 18,000 only to find resistance along the short term moving average. The index is now being squeezed between long term support and near term resistance with indicators consistent with a test of support. Both MACD and stochastic are moving lower following a bearish crossover and indicating further testing of support if not an actual break below it. Over the longer term the indicators are still consistent with support along 18,000 and the long term trend is up so any test or dip below this level is a buying opportunity in my view. That being said a dip below 18,000 could take the index all the way down to the long term trend line, about -4% below today's closing price, so I won't be too hasty on my entry.


The long term trend is up on all the indices. At the same time near term indications are bearish. Looking to what moves the market, earnings and economics, I see it like this. The long term economic and earnings trends are up and they are supporting the market. In the short term expectations for the coming earnings season are poor, not to mention numerous global events with market moving potential. It's likely that earnings won't be as bad as feared but it's very possible the expectation could lead the market lower until we start to get proof, unless the data is so good it trumps 2nd quarter earnings expectations.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Consumer Spending Is M.I.A.

by James Brown

Click here to email James Brown


NEW DIRECTIONAL PUT PLAYS

Kohl's Corp. - KSS - close: 64.67 change: -0.82

Stop Loss: 66.55
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 3.3 million
Entry on June -- at $---.--
Listed on June 01, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Trade Description:
Most of the big retail names have been disappointing on the sales front. Macy's (M) most recent earnings report saw the company miss analysts' expectations on both the top and bottom line and Macy's lowered their guidance.

J.C. Panney Co (JCP) beat estimates but their same-store sales disappointed and traders sold the stock. Retail titan Wal-Mart (WMT) missed estimates on both the top and bottom line and issued soft guidance. Kohl's (KSS) is suffering from similar results.

Wall Street is somewhat surprised by the retailer's lackluster results. The U.S. consumer is benefitting from significantly lower gas prices from a year ago. We have one of the healthiest job markets in years. Yet consumers are not spending. The U.S. Commerce department said April retail sales were flat (+0%) after a +1.1% rise in March. Today (June 1st), the Commerce Department reported that consumer spending was flat in April. According to Marketwatch.com, the pace of consumer spending has fallen to the lowest level in several years. After another harsh winter many were expecting pent up demand by consumers to produce a surge in spending when the weather warmed up. Thus far consumers are keeping their wallets closed.

KSS is in the services sector. According to the company, "Kohl's (KSS) is a leading specialty department store with 1,164 stores in 49 states. With a commitment to inspiring and empowering families to lead fulfilled lives, the company offers amazing national and exclusive brands, incredible savings and inspiring shopping experiences in-store, online at Kohls.com and via mobile devices."

The first quarter of 2015 was pretty good for KSS' stock. Shares rallied big on its Q4 results announced in early February. Earnings were better than expected. Revenues were just a little bit above expectations. Management raised their fiscal year 2016 guidance and raised their dividend.

Then KSS' upward momentum stalled in April. The stock started to reverse lower. Shares got crushed on May 14th with its biggest ever one-day drop that shaved off $2 billion in market cap. The drop was a reaction to KSS' Q1 results. Earnings were up +5% from a year ago and beat estimates. Yet revenues missed with $4.12 billion in sales versus analysts' estimates of $4.19 billion. Another warning signal was KSS' Q1 comparable store sales were up +1.4% versus expectations for +2.5%.

The disappointing news sparked some analyst downgrades and lower price targets. The point & figure chart is bearish and forecasting at $55.00 target. Technically shares of KSS look weak. The oversold bounce lasted about three days and KSS rolled over again with a steady pattern of lower highs.

Today KSS is poised to breakdown below its trend of higher lows and technical support at its simple 200-dma. We are suggesting a trigger to buy puts at $63.90. I will point out that prior resistance near $62.00 could be support but momentum clearly favors the bears here. We suspect shares could fall into the $56-60 zone.

Trigger @ $63.90

- Suggested Positions -

Buy the OCT $60 PUT (KSS151016P60) current ask $2.15
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

Stocks Were Indecisive On Monday

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. markets produced a choppy morning on Monday. Investors were digesting better than expected U.S. economic news and M&A headlines. Yet the situation in Greece failed to see any improvement over the weekend.

The big caps saw an early afternoon rally but gains faded into the closing bell.

It was our plan to exit the ETN, NTRS, and SNA trades this morning. FFIV hit our stop loss.


Current Portfolio:


CALL Play Updates

Anthem, Inc. - ANTM - close: 168.07 change: +0.22

Stop Loss: 161.85
Target(s): To Be Determined
Current Option Gain/Loss: +60.2%
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:
06/01/15: ANTM managed to maintain its gains from Friday. Shares essentially drifted sideways. Most of the market was talking about any potential Humana (HUM) deal.

I would not launch new positions in ANTM at this time.

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

05/30/15 new stop @ 161.85
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


Cognizant Technology - CTSH - close: 65.40 change: +0.68

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

Comments:
06/01/15: CTSH displayed some relative strength today with a +1.0% gain. The stock is poised to breakout past resistance soon. CTSH could hit our suggested entry point at $65.65 tomorrow.

Trade Description: May 28, 2015:
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)

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


Tableau Software, Inc. - DATA - close: 112.90 change: -0.31

Stop Loss: 109.85
Target(s): To Be Determined
Current Option Gain/Loss: -31.9%
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:
06/01/15: DATA bounced off its Monday morning lows but failed to close in positive territory. Today's -0.27% decline is a show of relative weakness.

I am still suggesting that readers wait for DATA to rally above $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: 62.89 change: +0.14

Stop Loss: 59.85
Target(s): To Be Determined
Current Option Gain/Loss: -17.5%
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:
06/01/15: Traders bought the dip in EA near its rising 20-dma this morning. The stock managed to keep pace with the S&P 500 and added +0.2%. I would prefer to see a rally past short-term resistance near $63.50 before initiating new positions.

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


FactSet Research - FDS - close: 166.74 change: +1.57

Stop Loss: 163.85
Target(s): To Be Determined
Current Option Gain/Loss: +31.6%
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:
06/01/15: FDS is looking healthier after today's show of strength with a +0.95% gain. Let's hope FDS can keep the upward momentum going. The company will likely report earnings in the next two or three weeks. We plan to exit prior to their earnings announcement (no official earnings date set).

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


Roper Technologies - ROP - close: 174.91 change: -0.05

Stop Loss: 173.25
Target(s): To Be Determined
Current Option Gain/Loss: -29.2%
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:
06/01/15: ROP only lost five cents today but that underperformed the broader market's relatively widespread rally. ROP dipped to $173.46 intraday and almost hit our stop loss.

Consider ROP's relative weakness over the last couple of sessions we have decided to close this trade. Plan on exiting tomorrow morning.

- Suggested Positions -

Long AUG $180 CALL (ROP150821C180) entry $4.80

06/01/15 prepare to exit tomorrow morning
05/27/15 triggered @ $177.75
Option Format: symbol-year-month-day-call-strike




PUT Play Updates

Norfolk Southern Corp. - NSC - close: 92.76 change: +0.76

Stop Loss: 95.65
Target(s): To Be Determined
Current Option Gain/Loss: +13.2%
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:
06/01/15: The transportation stocks bounced on Monday. NSC managed a +0.8% gain. Shares were oversold and due for a bounce so this isn't a surprise. Look for resistance near $95.00 and its 10-dma.

No new positions at this time.

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

05/30/15 new stop @ 95.65
05/26/15 triggered @ $94.85
Option Format: symbol-year-month-day-call-strike


SPX Corp. - SPW - close: 74.31 change: +0.00

Stop Loss: 76.55
Target(s): To Be Determined
Current Option Gain/Loss: -32.3%
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:
06/01/15: SPW is still going nowhere fast. The bounce attempt today failed near resistance at $75.00. The stock closed unchanged on the session. Considering the widespread market gains then today's move is a small victory for the bears.

I am suggesting traders wait for a new drop under $73.50 or even Thursday's low of $73.36 before initiating 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


Zillow Group - Z - close: 91.91 change: +0.52

Stop Loss: 95.25
Target(s): To Be Determined
Current Option Gain/Loss: -25.0%
Average Daily Volume = 2.0 million
Entry on June 01 at $89.85
Listed on May 30, 2015
Time Frame: exit prior to July expiration
New Positions: see below

Comments:
06/01/15: Shares of Z continued to sink as expected. The stock broke down under round-number support at $90.00 and hit our suggested entry point at $89.85. Unfortunately a few minutes later the stock reversed higher. Shares bounced back and actually outperformed the major U.S. indices with a +0.5% gain. If Z sees any follow through on this bounce then the 10-dma near $93.85 is our next level of resistance to watch.

I am not suggesting new bearish positions with Z above $90.00.

Trade Description: May 30, 2015:
The National Association of Realtors just announced on May 28th that pending home sales surged to nine-year highs in April. The U.S. real estate market is booming and yet shares of Z are down -31% from their 2015 closing highs. What's wrong with this picture?

Zillow is considered part of the financial sector. They are a free online service for consumers that provides home values, listings, and mortgages. According to the company, "Zillow Group (Nasdaq:Z) houses a portfolio of the largest real estate and home-related brands on mobile and Web. The company's brands focus on all stages of the home lifecycle: renting, buying, selling, financing and home improvement. Zillow Group is committed to empowering consumers with unparalleled data, inspiration and knowledge around homes, and connecting them with the right local professionals to help. The Zillow Group portfolio of consumer brands includes real estate and rental marketplaces Zillow(R), Trulia(R), StreetEasy(R) and HotPads(R). In addition, Zillow Group works with tens of thousands of real estate agents, lenders and rental professionals, helping maximize business opportunities and connect to millions of consumers. The company operates a number of business brands for real estate, rental and mortgage professionals, including Postlets(R), Mortech(R), Diverse Solutions(R), Market Leader(R) and Retsly(TM). The company is headquartered in Seattle."

The last year has been a rocky one for Zillow investors. The stock rallied from $130 to $160 in about three days back in July 2014 when the company announced a $2.5 billion stock for stock deal to buy its rival Trulia. By January 2015 the stock was bouncing along the $93.00 area.

Shares of Z did spike in February 2015 when they finally announced the completion of the merger. Shares surged more than 15% in one day on the news it had closed the acquisition. Zillow changed their name to Zillow Group. The combined company accounts for about 60% of the online real estate advertising market. It's the biggest U.S. real estate and home-related branding company on the Internet and mobile.

After the February spike higher shares of Zillow did nothing but fall. This culminated into a huge spike down on April 14th. The company issued an earnings warning. Z's management said that 2015 would be a "transition year", which on Wall Street means our quarterly results will stink. The company cut their 2015 revenue estimate down to $690 million. At the time Wall Street analysts were estimating $722-753 million in revenues. Z slashed their EBITDA estimate to $80 million when analysts were expecting $141 million. Zillow blamed the length review process by the FTC over potential anti-trust issues. Z's management was expecting a three-month review. It took nine months. No worries though, Z's management says that 2016 and 2017 will be awesome.

Z's most recent earnings report was May 12th. It was the first report with the combined company's results. Z posted a loss of $1.19 per share versus a 16-cent loss a year ago. Backing out their restructuring costs and stock option expenses their adjusted earnings was a profit of $0.05 per shares. That was 17 cents better than analysts were expecting. Revenues soared +92% to $127.3 million. Yet that wasn't good enough. Wall Street had been forecasting revenues in the $135-141 million range.

Shares of Z popped on its earnings news but they have done nothing but sink since then. Now the stock is poised to breakdown below round-number support at $90.00. The point & figure chart is bearish and forecasting an $86.00 target (which could get worse as Z continues to sink).

Bears point out that Zillow's valuation is very rich at more than 60 times forward earnings. The company also faces competition from the likes of Move.com and Realtor.com, both run by News Corp. My only concern is that there are a lot of bears shooting against this stock. The most recent data listed short interest at 37% of the 46.3 million share float. That's why Z can see huge one-day spikes as shorts panic. Yet overall they have been correct with Z underperforming the market.

Tonight I am suggesting a trigger to launch small bearish positions at $89.85. Odds are pretty good we could see Z retest its lows in the $80-81 area.

- Suggested Positions -

Long JUL $85 PUT (Z150717P85) entry $2.60

06/01/15 triggered @ $89.85
Option Format: symbol-year-month-day-call-strike



CLOSED BULLISH PLAYS

Eaton Corp. - ETN - close: 71.58 change: -0.01

Stop Loss: 70.65
Target(s): To Be Determined
Current Option Gain/Loss: -50.0%
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:
06/01/15: ETN closed virtually unchanged on the session. Our plan was to exit this trade on Monday morning. ETN opened at $71.79.

- Suggested Positions -

JUL $75 CALL (ETN150717C75) entry $1.10 exit $0.55 (-50.0%)

06/01/15 planned exit
05/30/15 prepare to exit on Monday morning
05/26/15 new stop @ 70.65
05/13/15 triggered @ 72.75
Option Format: symbol-year-month-day-call-strike

chart:


F5 Networks - FFIV - close: 125.11 change: -0.58

Stop Loss: 123.85
Target(s): To Be Determined
Current Option Gain/Loss: -51.1%
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:
06/01/15: It was a disappointing session for FFIV investors. This morning Citigroup downgraded the stock from a "buy" to a "neutral" over growth concerns and lowered their price target to $132. Shares of FFIV gapped open lower at $124.40 and dipped to $123.54 before paring its losses. Our stop was hit at $123.85.

- Suggested Positions -

JUL $130 CALL (FFIV150717C130) entry $3.25 exit $1.59 (-51.1%)

06/01/15 stopped out
05/26/15 new stop @ 123.85
05/08/15 triggered @ 125.15
Option Format: symbol-year-month-day-call-strike

chart:


Northern Trust Corp. - NTRS - close: 74.25 change: -0.30

Stop Loss: 73.85
Target(s): To Be Determined
Current Option Gain/Loss: -39.5%
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:
06/01/15: We were unhappy with NTRS' performance last week. Our plan was to exit this trade on Monday morning. NTRS opened at $74.79.

- Suggested Positions -

JUL $75 CALL (NTRS150717C75) entry $2.15 exit $1.30 (-39.5%)

06/01/15 planned exit
05/30/15 prepare to exit on Monday morning
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

chart:


Snap-on Inc. - SNA - close: 155.08 change: -0.32

Stop Loss: 153.85
Target(s): To Be Determined
Current Option Gain/Loss: -27.5%
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:
06/01/15: SNA's intraday bounce near $154.00 rolled over this afternoon. Shares look poised to hit new relative lows. We had decided in the weekend newsletter to exit this trade on Monday morning.

- Suggested Positions -

JUN $155 CALL (SNA150619C155) entry $2.55 exit $1.85 (-27.5%)

06/01/15 planned exit
05/30/15 prepare to exit immediately
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

chart: