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Newsletter

Daily Newsletter, Saturday, 3/26/2016

Table of Contents

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

Market Wrap

Consecutive String Broken

by Jim Brown

Click here to email Jim Brown

After five consecutive weekly gains the major indexes posted losses for the week. They were very minor and the Thursday rebound could setup another gain next week.

Market Statistics

Friday Statistics

The S&P dipped nearly to support at 2,020 on Thursday before rebounding +13 points to close with a minor loss. The Thursday low was -34 points from the Tuesday high at 2,056. Is that enough of a decline to neutralize the overbought conditions? Back on March 10th, the S&P completed a similar dip of -37 points before rebounding for the next seven days.


Over that same period, ending on March 10th the Dow declined -244 points compared to -249 points last week. Is that good enough to relieve the overbought conditions?

Typically a multi-week 13% rally on the S&P results in a 3-5% decline for profit taking. Last week the S&P almost reached a -2% decline from the high.


In theory, this week should be bullish as funds window dress for the end of the quarter. With multiple weeks of market gains, they will want to pad their portfolios with winners to suggest they were along for the ride.

In economic news, there was only one report that mattered on Friday. The final revision for the Q4 GDP rose slightly from 1.0% to 1.39% growth. Consumer spending, residential investment and government spending contributed to growth while inventories, exports and nonresidential fixed investment spending were a drag on the totals. Corporate profits declined -7.8% after a -1.6% decline in Q3. This was the largest drop in profits since Q1 2011. Estimates for Q1-2016 are even worse. The boost from consumer spending came from recreational services suggesting consumers were finally spending that money they are saving on gasoline.

Personal consumption expenditures (PCE) inflation rose only +0.3% in Q4 compared to +1.3% in Q3.

The Atlanta Fed real time GDPNow forecast for Q1 is dropping like a rock. The forecast fell from +1.9% to +1.4% on Thursday after the durable goods report declined -2.8% for February. The forecast for real equipment investment declined from +0.9% to -1.4%. Monday's drop in existing home sales also pushed the forecast lower. The next update will be on Monday after Personal Income report. With corporate earnings expected to decline -8.7% according to FactSet in the Thursday update this will also weigh on the final Q1 GDP report.



There are a lot of events on the calendar for next week but the highlights will be the March employment reports. The ADP report on Wednesday is expecting a decline of about -24,000 to a gain of +190,000. The Nonfarm Payrolls on Friday are expected to show a decline of -42,000 from the February level at 242,000 jobs to 200,000 for March. Any numbers over 175,000 would be seen as further strong job growth even if they are mostly part time as in the February report.

March is a tough month for payroll estimates. Since 2008, March has missed estimates in 7 of 8 years by an average of 53,000 jobs according to Bloomberg. Since 2000, March has missed estimates 67% of the time by an average of 69,000 jobs. In March 2015, the miss was 119,000 below estimates.

Closing the week will be the national ISM Manufacturing Index, which is expected to rise slightly from 49.5 to 49.9 but remain in contraction territory. I would not be surprised to see it return to expansion territory with a number over 50 because of improvements in the regional surveys.


Since the market was closed on Friday, there was very little stock news. Accenture was a big mover on Thursday after reporting earnings of $1.34 that rose +24%. That beat estimates for $1.18. They booked more than $9.5 billion in new orders in the quarter. Encouraged by strong sales they raised full year guidance to as much as 9% in revenue growth and $6.00 per share in earnings. That was up from prior guidance of $5.17. Shares rallied 6% in a slow market.


Buffalo Wild Wings (BWLD) gained $2.35 after Goldman Sachs added the company to its conviction buy list citing a compelling valuation. Goldman has a $187 price target and said "near term risk-reward is favorable as perceived risks related to the top-line and/or wing prices are priced in and/or overstated." In other words, the rise in wing prices from the bird flu last summer is already priced in and current wing prices are declining. Shares closed at $145.


PVH Corp (PVH) reported earnings of $1.52 and beat estimates for $1.45. That also exceeded the company's own forecast for $1.37-$1.47. The strong dollar knocked nearly 14% off earnings. On a constant currency basis, earnings would have been $1.88 and that was a real surprise. Revenue rose +2.1% to $2.112 billion and beat estimates for $2.073 billion. On a constant currency basis, revenue would have risen 7% and well over estimates.

They just signed a new partnership deal with G-III Apparel (GIII) and I would be a buyer on any decent dip.


KB Homes (KBH) reported earnings of 14 cents that rose +68% and beat estimates for 11 cents. Revenue rose +17% to $678.4 million also beating estimates for $633 million. Home deliveries rose +23% to 1,953 homes and the average selling price rose +5% to $344,400. Order backlogs rose +29% to $1.43 billion and homes in the backlog rose +22% to 4,285. The CEO was bullish on the conference call saying the builder had good momentum going into the summer selling season.


Raytheon (RTN) raised its annual dividend +9.3% from $2.68 to $2.93. The 73.25 cent quarterly dividend will be paid May 12th to holders on April 6th. Shares failed to move on the news.

Washington said it cancelled a Lockheed mine-hunting system after the Navy said the system was unreliable, prone to dropping communications and missed mines it was supposed to find. The system had been in development for 17 years but Lockheed had only delivered 10 of them. Lockheed (LMT) dropped -1.4% on the news.

Hedge fund Starboard Value has launched an all out attack on Yahoo. The company is trying to replace Yahoo's entire board with nine directors of its own choosing. Starboard CEO Jeffrey Smith sent a letter to Yahoo shareholders saying the company's management and board "have repeatedly failed shareholders." Starboard accused Yahoo of "lackadaisically engaging with potential bidders." Over the years since Starboard was spun off from Ramius in 2011 the $3 billion hedge fund has waged 46 proxy fights and gained 66 board seats according to FactSet.

Many of the activist fights end without board seats when the companies agreed to many of their demands to keep from losing control. In the case of Yahoo about the only demand is to get busy and sell the core business. Yahoo CEO Marissa Myer became CEO after Dan Loeb's Third Point waged a proxy fight in 2012 that gave him two seats on the board and forced that CEO change. Today, starboard wants Marissa out as well saying she has had plenty of time to make changes but the only change has been the decline in asset value.

Microsoft has met with possible bidders for Yahoo and is interested in providing funds under the right conditions. Microsoft would like to have a future relationship with Yahoo in order to retain their partnership in search. Those potential bidders were Verizon, AT&T, Bain Capital Partners, KKR and TPG Capital.


FactSet is predicting an 8.7% decline in Q1 earnings and the fourth consecutive quarterly decline since Q3-2009. Revenue is expected to decline -1.1% compared to expectations for 2.6% growth at the beginning of the quarter. To date 93 S&P companies (78% of those giving guidance) have warned on earnings and 26 have issued positive guidance.

The next two weeks are earnings warnings weeks. It is the end of the quarter and those hoping for a big end of quarter sales surge will have to face the facts and spit out a warning if those sales did not close. With expectations already so low, it is likely we will not see a big surge in warnings. With consumer spending improving in March there is always the possibility companies could beat the already low expectations.

Gasoline prices are rising ahead of the summer driving season because crude prices continue to defy gravity. WTI traded up to $41.90 on Wednesday on misunderstood headlines about a production freeze by OPEC suppliers. Saudi Arabia said they would participate in a freeze even if Iran did not. This has absolutely zero impact on current and future production but was simply another headline to support prices.

Crude inventories continued to build with a 9.4 million barrel rise to 532.5 million barrels and a new record high. This deflated the price balloon slightly with crude slipping back to $38.33 intraday on Thursday. That depressed the equity market at the open. Analysts believe oil in storage will reach 550 million barrels and will weigh on prices long term until it is sold. That oil costs the owners rent every day it remains in storage so the total cost of ownership goes up every day. The recent rise in prices should slow the rise in inventories. Speculators and refiners will not be so eager to store oil at $40 as they were at $30. Imports reached a three-month high at 8.38 mbpd while U.S. production dropped -30,000 bpd to 9.038 mbpd and the lowest level since November 2014. That is -572,000 bpd below the peak of 9.61 mbpd in June 2015.


Active rigs declined -12 last week to 464 and a 67-year low. Oil rigs declined -15 to 372 and gas rigs rose +3 to 92. Canadian rigs declined -14 to 55 and now -65 rigs below year ago levels.


Markets

We expected Thursday to follow the historical trend to close positive before the Easter weekend. I actually expected a little more in the way of gains but the sharp drop in oil prices hammered the open and the Dow was down triple digits. The rebound in oil prices was instrumental is supporting the market gains. If reality ever returns to the oil market, the equity market could be in for some tough sledding.

As I outlined at the start of this commentary the S&P has now duplicated the same dip we saw at the March 10th low. Whether that is enough to ease the overbought pressures or not is unclear. If fund managers do turn to window dressing to mark up their portfolios for quarter end, it will happen on Monday/Tuesday. The latter portion of the week is a tossup. The first three days of the quarter are normally bullish and that starts on Friday. The Nonfarm Payrolls should not be a challenge unless they come in really hot as in 250,000 or more jobs.

Last week no less than four Fed heads implied there could be a rate hike as early as April. Yellen went out of her way to push expectations well into the future and these four bozos went out of their way to pull those expectations back. You have to wonder what conversations are held in those hallowed halls of the Federal Reserve. Can Janet be heard yelling up and down those halls every time one of the rogue Fed heads goes on TV with some pompous prognostication of rampant inflation and the need for immediate rate hikes?

As long as the jobs numbers are tame, the expectations for hikes will probably be ignored by the market. Otherwise we could have a rocky few days.

The S&P rebounded from support at 2,020 but is still facing initial resistance at 2,050. That resistance becomes stronger starting at 2,075.

We have had a flurry of analysts out with forecasts for market declines in recent weeks. Mohamed El-Erian warned on Thursday the market could swing dramatically and overshoot with a 10% drop from a range bound market. He said we have had two 10% declines in 2016 and regardless of which way the market goes he expects a wider range in the coming months.

He said while central bank stimulus and buybacks can push rising markets higher, falling markets can "amplify" the effects of weakening fundamentals. He warned the market has not yet priced in the emergence of anti-establishment republican front-runner Donald Trump. He believes that will add significant uncertainty from the political side.

The February-March period is the heaviest time of the year for stock buybacks. More than 35% of purchases take place in that period. The average monthly buyback for the year is about $140 billion or $1.68 trillion for the year. Thirty-five percent of that is nearly $600 billion and that money is spent in the Feb-Mar period. Over the next five months, about 25% of the annual buyback funds are spent. That equates to $420 billion or roughly $84 billion a month. That is significantly less than the nearly $300 billion a month in February and March. Since 2010, the market has risen on average in Feb/Mar helped a lot by those buybacks. From April through August the market has averaged a decline. Companies also have a black out period for buybacks ahead of earnings so that means we cannot expect any further uplift from buybacks in the coming weeks.

Q1 earnings are normally stronger than Q2 so there is a little less excitement in the Q2 earnings cycle. With earnings expected to decline -8.7% for Q2 it would be tough to get excited about those results.

For these reasons, I am bearish on the market after the next couple of weeks. I believe it is entirely possible we will see another surge higher but that rally will fail as the Dow and S&P reach that strong resistance. We may not go straight down but volatility should increase and the overall trend will decline into the summer months. I could be completely wrong and we surge to new highs but my conviction is to the downside by summer. Bank of America is now predicting S&P 2000 for the end of 2016 with significant volatility between now and the end of December.


The Dow has the same overhead resistance problem. Once it reaches 17,750, it should become very difficult to move higher. Everyone that was trapped at that level in early January when the market crashed to 15,450 is going to want to close their positions and thank their lucky stars they were able to recover those losses. This is the same thing that happened from Nov-Dec when the market stalled at that level after rebounding from the August crash. Since hitting that resistance over the next couple weeks will be just before the Sell in May cycle there will be some urgency on their minds as those resistance levels are hit.



The Nasdaq is no different except that it has not rebounded as high as the Dow and S&P. The Nasdaq failed at the 61.8% retracement level and has not reached downtrend resistance or the horizontal resistance at 4,926. The wreck in the biotech sector has kept the Nasdaq rebound under check. So far the Nasdaq has made a lower high off of a lower low to the negative pattern is reinforcing. The Dow and S&P made nearly identical lows that gave the appearance of a double bottom. The Nasdaq did not.



The Biotech Index is trading in a narrow range between 2800-3000 and a breakout would be bullish but a break down is more likely given the political situation. A return to 2,600 and rebound could produce a double bottom but it would need to be a firm bottom over several days rather than a one-day wonder.


The Russell 2000 has been moving in lock step with the biotech sector. A break below 2,800 on the $BTK would equate to a break below 1,065 on the Russell. The oil volatility over the last two days has also provided some instability to the Russell. There is significant resistance at 1110-1120 and then again at 1,161.


Readers sometimes say I am not clear in my summations. That is because the market is never clear in its intentions. The best-laid plans can always go astray. I am slightly bullish for the next week or maybe two. However, I am bearish for the latter half of April and all of May. That could change based on the market action next week. Nothing is ever cast in concrete. We need to do the best we can in analyzing the situation, make plans that follow that analysis and then be ready to change those plans if the market does not cooperate.

If market analysis was fool proof we would all own islands and private jets. Since analysis is never guaranteed we scratch out a living one position at a time. The object of the game is to win more than you lose. If anyone ever tells you they never lose they are lying. A successful trader wins about 65% of the time. As long as your losers are smaller than your winners you will be successful.


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Random Thoughts


Over the last five days, volume in put options has lagged call option volume by 23.63%. That means investors are making more bullish bets than bearish. However, put volume is still close to the highest in the last two years so investors are still either concerned or expecting a decline.

The McClellan Oscillator Ratio ($NYMO) for the NYSE has rolled over and is heading lower. Note the levels in January and February when the market was correcting. The bullishness rebounded to 105.77 on the MO the prior week and that is the highest level since January 2009 and the second highest level since 1998. That is the farthest I could look back on StockCharts.com.


The corresponding NYSE McClellan Summation Index is nearly off the chart with a reading of 1,000. This is extreme oscillation and suggests we are going to roll over in the weeks ahead. The Summation Index measures advancing and declining volume on the NYSE. Over the last month, there has been about 5.83% more declining volume than advancing volume and this covered the period where the markets were up for five consecutive weeks.


Disney just hit $1 billion in the international box office for 2016 thanks to Star Wars and Zootopia. This is the earliest ever for Disney. Zootopia hit $415.9 million in its international release and Star Wars took in $447 million internationally as the two largest grossing movies this year. Zootopia is now the second largest movie ever in Russia, behind only Avatar, with $26.5 million. It has taken in $184.7 million in China and second only to the Avengers: Age of Ultron. Globally Zootopia has grossed $633 million and Star Wars has grossed $2.06 billion.


While the bulls gained some converts the investor sentiment survey did not change materially. Bullish sentiment rose +3.8% and bearish declined -3.1%. The survey closes on Wednesday so the end of week decline was not factored in.



Fortune Magazine just published its list of the world's 50 greatest leaders. Jeff Bezos was number 1 and his third year on the list. Apple's Tim Cook, Pope Francis, Paul Ryan, Angela Merkel, Stephen Curry, Ruth Bader Ginsburg, Melinda Gates and Bono were on the list. Absent from the list were President Obama and Donald Trump. 50 Greatest Leaders


Batman vs Superman? Really? My son asked me if I wanted to go see it this weekend and I turned him down. I cannot get past the absurdity of the contest. The man of steel against a flesh and blood human. Hey, batboy, here I am. Take your best shot. Take your 100 best shots but when you are done, I am sending you to the moon. I am sure the writers have come up with some clever way of making the match more realistic but it is still absurd. The movie only has a 30% rating on Rotten Tomatoes but it reportedly took in $27.7 million on Thursday night's open. It is expected to total $170 million for the weekend. Globally they expect $300 million. Apparently, the twin super heroes can still draw a crowd and for that reason alone they will both survive the battle. We cannot have either one of the golden geese killed off or the money would stop flowing.


 

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

 

"If you torture the data long enough, it will confess to anything."

Darrell Huff (How to Lie With Statistics, 1954)


 


Index Wrap

Quiet Week

by Keene Little

Click here to email Keene Little
It was a relatively quiet low-volume holiday-shortened week and while the bears were rewarded with a small pullback they gave much of it back on Thursday. Both sides were able to claim some small victory as both sides continue to battle it out near some strong resistance levels.

Week's Indexes


Review of Major Stock Indexes

As can be seen in the table above, the week finished in the red for most of the indexes but the loss was minimal compared to the previous weeks' gains. Not reflected above are the volume numbers, which were low this past week, and a low-volume consolidation supports the bulls. The price pattern supports the idea we'll see another leg up in the coming week but we also need to be aware of how overbought and overloved this market is, which makes it riskier to bet on the up side.

Last week's high was achieved at a time when bullish sentiment also reached an extreme again. As shown on the CNN Greed & Fear index, it hit a high above 78 earlier in the week, a level that has been a strong warning to bulls in the past, and then it dropped sharply back below 78 into the end of the week, which shows us the bulls quickly lost interest. When you get too many bulls the market becomes vulnerable because most everyone who feels bullish is already in the market and that leaves the market without additional buyers. Oftentimes tops are formed for no other reason than that. But this index is only a warning sign and not a timing indicator for when to look for a reversal. For that we need to see what price is doing.

This past week's economic reports were mixed and provided few clues for bulls or bears to argue about. Other than the Belgium bombing it was also quiet overseas. Add in a shortened holiday week and it's not surprising to see a small weekly candlestick on the charts. But considering it was a holiday week, which is typically bullish, it was only a rally off Thursday morning's low that helped keep the week from looking more bearish. The bulls need to see the buyers continue on Monday otherwise Thursday's low-volume rally could get quickly reversed.


A Look At the Charts


S&P 500, SPX, Weekly chart

Last Tuesday's high saw the SPX up against its downtrend line from November-December 2015 and not surprisingly it then pulled back from there. After the strong run back up from February it wasn't surprising to see some profit taking at a visible resistance level (the Dow ran up to its downtrend line from May-November 2015 at the same time). Thursday morning's low saw SPX back below its 50-week MA, near 2032, but the bounce off that low got SPX back 2032 to achieve a weekly close above the 50-wma. I could argue the need for one more leg up, possibly up to the December high at 2104, but with an overbought and overloved market that would be a risky bet. But a rally above Tuesday's high near 2057 would have me looking for at least a test of the November 29th high at 2081 and then maybe the December 2nd high at 2104. For the short term, regardless of the bigger pattern (bullish or bearish), it looks like a good setup for at least a deeper pullback and hence a reason for bulls to get defensive again.


S&P 500, SPX, Daily chart

The pullback to Thursday morning's low at 2022 was not low enough to test the 200-dma, near 2017, so that's a possible support level if it gets tested on Monday. The next support levels to watch are its 20-dma, which will be near 2010 on Monday, and then its broken downtrend line from December, near 2007. Note the break of its uptrend line from February on Wednesday and it's possible we'll see a bounce back up to the broken trend line in the coming days. The line will be near 2068 by the end of the day Monday so if that level is reached we'll see if it will result in a back-test and bearish kiss goodbye.

Key Levels for SPX:
-- bullish above 2057
-- bearish below 2022


S&P 100, OEX, Daily chart

On Monday OEX had rallied slightly above its downtrend line from November-December 2015 but it was not able to hold above it by the end of the week. Thursday's rally brought it back up to the line, near 905, so it basically held on a weekly closing basis. But on the daily chart it's looking like a failed breakout attempt. In addition to testing its downtrend line from November-December, it also achieved a price projection near 909 where an a-b-c bounce pattern off the January 20th low had the c-wave achieving 162% of the a-wave. The bulls would be in more trouble, even if it's to be just a deeper pullback, if OEX drops below price-level S/R and its 200-dma, both at 895, and then its 20-dma, which is rising and will be near 893 on Monday.

Key Levels for OEX:
-- bullish above 913
-- bearish below 895


Dow Industrials, INDU, Daily chart

The Dow's daily chart below shows what looks like a perfect tag of its downtrend line from May-November 2015 (it actually stopped about 13 points short of the line). On Wednesday it dropped back down to its uptrend line from February but then broke below the line on Thursday. The rally off Thursday morning's low stopped slightly short of the broken uptrend line, leaving the possibility for a back-test to be followed by a bearish kiss goodbye. What looks bullish is the hammer candlestick for Thursday, which indicates a failure by the bears to sustain a selloff and now all the bulls need is some follow-through buying on Monday. But again, trusting an upside breakout could result in a bull trap.

Key Levels for INDU:
-- bullish above 17,670
-- bearish below 17,140


Nasdaq-100, NDX, Daily chart

The previous week's rally for NDX, into the March 16th high, had stalled at its 200-dma. Then on Monday and Tuesday it managed to close above that MA and its 62% retracement of the December-February decline, both near 4415, which had it looking like a bullish breakout. But Wednesday's selloff left a failed breakout attempt and then Thursday morning's decline broke its uptrend line from February. The rally into Thursday afternoon's high stopped at the broken uptrend line and that left us with a potential setup for a bearish kiss goodbye on Monday. If it continues to pull back further, keep an eye on a possible support level near 4356, which is its March 4th high and it's also the level where the 20-dma will reach on Monday or Tuesday. A drop below 4356 would confirm the price pattern that's looking for at least a larger pullback.

Key Levels for NDX:
-- bullish above 4451
-- bearish below 4356


Nasdaq Composite, COMPQ, Daily chart

Like the NDX, on Wednesday the Nasdaq broke its uptrend line from February but it was weaker than NDX by not being able to make it back up to its broken uptrend line on Thursday. If the buyers step back in on Monday we could see a drive up to its 200-dma, near 4866, to also accomplish a back-test of its broken uptrend line, but at the moment it's hard to argue the bull's case. As with the other indexes, this past week's high left a bearish divergence on MACD against the highs at the beginning of the month (that's not true for RSI, which leaves a question mark as far as bearish divergence or not).

Key Levels for COMPQ:
-- bullish above 4836
-- bearish below 4607


Russell-2000, RUT, Daily chart

The RUT tried hard to get through resistance near 1100, which is its H&S neckline (uptrend line from October 2014 - September 2015), and it was able to marginally break above it on March 18th but it was unable to hold it. Wednesday's sharp breakdown left a bearish divergence against its March 7th high and while it held price-level S/R near 1080 on a weekly closing basis it's looking vulnerable to a stronger pullback and potentially something more bearish. The bulls need a break above 1105, in which case I'd look for a rally to its downtrend line from June-December 2015 and its 200-dma, both currently near 1142-1144.

Key Levels for RUT:
-- bullish above 1105
-- bearish below 1040


SPDR S&P 500 Trust, SPY, Daily chart

On the SPY chart below you can see the low daily volume for the past week. Considering price pulled back on low volume one could easily argue that's bullish. Because it was a holiday-shortened week following opex week it could also be argued there just wasn't much interest in trading. MFI pulled back with price but it's essentially holding at the 70 level (69.10 close on Thursday) and that leaves the potential for another push higher to then leave a bearish divergence at a new price high. If SPY does pull back a little further keep an eye on the midline of the BB, which is the 20-dma and currently near 201. Below that would be more bearish. It has pulled back from 205, which is tough resistance at a previous chop zone, back in December, and it's entering a higher VAP above that level, all of which creates a resistance buffer.


Powershares QQQ Trust, QQQ, Daily chart

On the QQQ chart you can see the same low volume for last week and Williams %R has turned back down below -10. The last time it dropped below -10 was into the March 8th low but then a test of the 20-dma on March 10th led to another rally leg and up to the top of its BB. We could see the same thing happen again and see QQQ up to about 109 before finishing its rally. Below its 20-dma, at 106, would point to a drop to the bottom of its BB, nearing 103.


Summary

It was a relatively quiet week and while the indexes pulled back from potentially strong resistance they did it on low volume. That could be bullish with just a small pullback correction that will be followed by another push higher. The price pattern for the pullback is just a 3-wave move for a possible a-b-c pullback. That also supports the idea we'll get another leg up. It's reason enough for bears to be cautious.

In a corrective pattern an a-b-c pullback could simply be part of a larger pullback pattern so I would not hang my hat on the idea for a new rally leg. We were seeing plenty of signs of waning momentum to the upside as the indexes smacked into strong resistance levels (trend lines, Fibs, moving averages) and that made betting on the short side a better play last week. If we get a new high I'd still look at it as another shorting opportunity since the market is overbought and we have a slew of indicators that tell us the bulls are pressing their luck here.

As of Thursday's close it was a bit of a coin toss as to which way Monday will go so we'll need to see what happens on Monday. While I like the setup for at least a larger pullback, especially since the more bearish pattern calls for a very strong decline in the coming months, I'm also staying aware of the potential for another push higher before starting a deeper pullback. I think downside risk is larger than upside potential here and that's what has me looking to play the short side since this is a game of probabilities that we play. Right now the probability is for at least a larger pullback, even if we first get another minor new high.

Trade safe, have a good week and good luck with your trading. I'll be back with you next weekend.

Keene H. Little, CMT

Technicians look ahead. Fundamentalists look backward. The true language of the market is technical. - Joe Granville


New Option Plays

Thank You Letitia James

by Jim Brown

Click here to email Jim Brown

Editors Note:

The New York public advocate, Letitia James created an excellent buying opportunity in a stock that normally refuses to go down. James sent a letter to the SEC demanding they investigate Sturm Ruger (RGR) because their guns are used in crimes. She did the same thing to Smith & Wesson back on December 15th. Seriously? Guns are used in crimes? Who does not know that?

James believes investors in these companies could suffer "reputational risk" if people find out they own shares of SWHC or RGR. She also urged Toronto Dominion Bank (TD) to stop financing the firearms manufacturer. She threatened the bank with the possible loss of "millions of dollars in contracts" from New York City if they continue to finance gun manufacturers. I wonder if she is going to attack auto manufacturers next for people injured in accidents?

Thank you Letitia for the entry point.


NEW DIRECTIONAL CALL PLAYS


SWHC - Smith & Wesson -
Company Description

Smith & Wesson was founded in 1852 and manufacturers firearms in the U.S. and internationally under many different brands but primarily Smith & Wesson.

Gun sales are booming. Sportsman's Warehouse said gun sales rose +34% in Q4 alone. With every terrorist attack or mass shooting more consumers rush out to buy guns for self defense. With the potential for additional attacks in the U.S. this trend is not going to slow. However, sales are cyclical. They surge after attacks like San Bernardino or after speeches by politicians about gun control. President Obama has been the best gun salesman we have ever had. Every push by the administration to get more laws passed results in millions of new gun sales.

In their Q4 earnings where there was a surge in gun sales after San Bernardino, the company reported earnings of 59 cents that beat estimates for 41 cents. Revenue rose +61% to $210.8 million and easily beat estimates for $182.3 million. The company guided significantly higher for the current quarter to revenue of $210-$215 million compared to estimates for $196 million. Earnings are expected to be 51-53 cents. That is a 13.7% increase in revenue and 20% increase in earnings. For the full year they guided to earnings for $1.68-$1.70 and analysts were expecting $1.42. This was also higher than the company's prior forecasts for $1.36-$1.41 from January.

The company said inventories were depleted because of the high demand and they were focused on increasing production rates to keep up with demand.

Earnings are June 16th.

Shares rocketed higher after the earnings in early March and they were already up strongly since December. I hesitated to buy the top since it was making new highs every week. The hatchet job by James has given us a buying opportunity.

I am recommending a June call because it expires after earnings and should retain some expectation premium when we exit before earnings. Buying a May option would be subject to accelerated premium decay.

Buy June $28 call, currently $1.70, no initial stop loss.


NEW DIRECTIONAL PUT PLAYS


No New Bearish Plays




In Play Updates and Reviews

Stop Clearing Day

by Jim Brown

Click here to email Jim Brown

Editors Note:

I hate these days where the market opens down triple digits, triggers all the stop losses and then rebounds back into positive territory. The only thing we can do to avoid being stopped out is to remove the stop losses and that guarantees he drop will continue for hundreds of points.

We have to live with a few stopped plays from time to time and just deal with those when they happen. We were stopped out of Emerson and Polaris and I am planning on reloading those plays next week if the market is positive.

We were also stopped out of Nordstrom and Kroger. If Kroger rebounds back above that minor resistance we saw last week I may reload that position as well.

The market rebounded into the close as expected as shorts covered ahead of the weekend. Crude prices also rebounded and that lifted the energy sector. The biotechs came back from an early morning drop to close positive and that also lifted the market.

Next week is quarter end and with five weeks of gains I would expect portfolio managers to try and window dress their portfolios and that means an up day on Monday if there are no overseas headlines to spoil the plan.

The S&P declined nearly to support at 2,020 before rebounding +13 points to close fractionally negative for the day.



Current Portfolio




Current Position Changes


ADSK - Autodesk

New trigger at $58.05
The long call position remains unopened until ADSK trades at the new trigger of $58.05.


EMR - Emerson Electric

The long call position was stopped out at $53.85 for a $1.35 gain.


PII - Polaris Industries

The long call position was stopped out at $95.85 for a $.98 gain.


JWN - Nordstrom

The long call position was stopped out at $55.85 for an 84 cent loss.


KR - Kroger

The long call position was stopped out at $37.15 for an 85 cent loss.


Profit Targets

Check the graphic above for any profit stops in green. We need to always be prepared for a profit exit at resistance.


Stop Loss Updates

Check the graphic above for any new stop losses in bright yellow. We need to always be prepared for an unexpected decline.



BULLISH Play Updates


ADSK - Autodesk -
Company Description

Comments:

ADSK pulled back again at the open but rebounded strongly to close in positive territory. I am changing the entry trigger to $58.05. That is not a big drop but should give us a cheaper option price.

The long call position remains unopened until ADSK trades at $58.05.

Original Trade Description: March 22nd.

Autodesk operates as a design software and services company worldwide. Their software is used to design buildings, design equipment, machines, products, etc. The software is licensed directly and through a network of resellers. Autodesk goes beyond 3D imaging and allows 3D printing of the design using the Moldflow process in the software.

Autodesk is the premier software of this type in the market today. There are competitors but Autodesk is the largest by far. Competitors are Adobe, Ansys Inc and Dassault Systems. Mattel announced in February it was introducing 3D toy printing at home with the "Thingmaker" in cooperation with Autodesk.

In February the company said it was going to lay off 10% of its workforce or about 925 jobs as it transitioned to the cloud.

Shares collapsed with the market in January but began to rebound in February after the cloud announcement. The company said revenue will increase long term because the cloud model is subscription based. In Q4 they added 190,000 subscribers to the cloud product.

They reported adjusted Q4 earnings of 21 cents compared to estimates for 10 cents. Revenue of $648 million beat estimates for $636 million. They guided for a loss of 12-17 cents for Q1 on revenue of $500-$520 million because of their restructuring process. They are taking an $85 million charge for the layoffs. As part of the movement to the cloud they are going to end sales of their software suite that was previously sold direct by Autodesk and by resellers. That willdepress revenue in the short term but increase it significantly in the long term.

By the end of 2017 they are going to terminate all the existing "perpetual licenses" and force current users into the cloud model. Apparently "perpetual" means different things to different people.

Autodesk had been under fire from two activist shareholders and they resolved that last week when they added three directors to the board. Sachem Head and Eminence Capital agreed to certain standstill and voting provisions to get the board seats. Joining the board are Scott Ferguson from Sachem, Rick Hill, chairman at Tessera Technologies and Jeff Clark, CEO at Kodak.

Shares rallied on the news of the new board members are appear ready to break over current resistance at $58 to retest the December highs at $65.

With a ADSK trade at $58.05

Buy May $60 call, currently $2.85, initial stop loss $54.25.


AKAM - Akamai Technologies - Company Description

Comments:

Minor drop, still clinging to $55.

Original Trade Description: February 26th.

Akamai Technologies provides cloud services for delivering, optimizing and securing online content for business applications on the internet. They are best known for their download delivery solutions for games, videos and audio files.

One of the things Akamai is famous for is archiving web content in centralized data centers geographically located to reduce the time and bandwidth needed to view those files. If you have a website that is visited by millions of viewers, Akamai can continuously monitor that website for changes and then replicate those changes in multiple locations so that viewers near those locations experience fast load times. For instance, a company in Kansas may have a high volume website viewed by people around the world. Akamai can replicate that website in cloud data centers in Los Angeles, New York, Miami, Dallas, London, etc, so a viewer close to one of those locations can get an immediate response time rather than having to pull the content from Kansas where bandwidth and server limitations could slow the response. If you have a million viewers a day all hitting the Kansas server from all over the world the lag time is going to be terrible.

Akamai also offers security solutions for web-hosted content thereby reducing infrastructure costs and increasing productivity.

Akamai reported Q4 earnings of 72 cents that easily beat estimates for 62 cents. Revenue of $579 million also beat estimates for $567 million. They announced a $1 billion buyback of 12.5% of their outstanding shares. CEO Thom Leighton said he was purchasing $10 million personally. The company guided to Q1 earnings of 61-64 cents and analysts were expecting 62 cents. Revenue is expected to rise +8%.

Performance and security revenues rose +16.4% to $286 million as demand for the cloud security products increased. Service and support revenues rose +17.8% to $46 million. Cash flow from operations was $218 million or 38% of revenue. Cash at the end of the quarter was $1.5 billion.

Akamai shares rallied 17% after the earnings on February 10th and reversed a four-month decline. Share barely consolidated after the spike and are continuing higher. Shares inched over resistance at $54.85 on Friday and could be poised to make a new leg higher.

Earnings are April 26th.

I am recommending an entry if AKAM traded at $55.75 and just over the Friday high of $55.55. Shares appear to be consolidating that post earnings run and the intraday ranges have been shrinking, which suggests the buyers are gaining ground.

Position 3/2/16 after an AKAM trade at $55.75

Long April $57.50 call @ $1.63, See portfolio graphic for stop loss.


AOS - AO Smith - Company Description

Comments:

AOS ended the day with a gain after a drop at the open. Good relative strength. No news.

Target $77.65 for an exit.

Original Trade Description: February 18th.

A.O. Smith manufacturers water heaters and boilers for distribution around the world. They also sell water treatment systems that are in high demand in emerging market economies.

They reported earnings last week of 90 cents that beat estimates for 85 cents. Revenue rose +2% to $639.4 million but missed estimates because of weakness in the housing sector in the USA. North American sales declined -3.9% to $413.7 million.

However, operating earnings rose +37.2% to $92.2 million because of higher pricing, higher overall demand and lower steel costs. Overall segment revenue of $1.7 billion rose +5%. This was due to higher commercial demand for boilers.

Sales in the rest of the world rose +14% to $232 million. That was powered by a 15% increase inwater heater demand, water treatment and air purification products in China. That is definitely a country that needs water treatment and air purification.

Very few companies are successful in selling to China but AO Smith is one of them.

The company bought back 329,000 shares in Q4 leaving 2.59 million to buy under the current buyback program. The company had $324 million in cash at the end of the quarter.

They guided for 2016 to earnings of $3.40-$3.55, which would be a 10% growth rate in earnings. They kept the 15% growth rate target for China in 2016.

Earnings are April 29th.

The stock bottomed on the January 19th market crash and had been moving steadily higher. The market took it lower again to retest that bottom on February 9th. Resistance is currently $70 followed by $79 from the December highs. I am recommending we enter a long call position with a trade at $70.45.

Position 2/23/16 with an AOS trade at $70.45

Long April $75 call @ $1.88. See portfolio graphic for stop loss.


CRM - SalesForce.com - Company Description

Comments:

Nice rebound to gain 66 cents on no news.

Original Trade Description: March 14th.

Salesforce.com provides enterprise cloud computing solutions, with a focus on customer relationship management to various businesses and industries worldwide. They provide an entire menu of applications tailored to various industries with an emphasis on sales force automation and customer resource management.

The last six analysts ratings changes have been upgrades with four new analysts initiating coverage with a buy. Salesforce is growing quickly with revenues growing 24% in 2015 to $6.67 billion. Subscription and support revenues rose to $6.21 billion and accounted for 93% of all revenue. These fees continue from quarter to quarter and should continue growing.

Morgan Stanley said customer demand for applications software was expected to remain quite strong and Salesforce.com was positioned to make the most of this development.

The Salesforce.com CEO said sales efforts to enterprise customers were becoming more time consuming because of the greater complexity of the large enterprises but once sold they became very profitable long term assets. Once a large enterprise invests in Salesforce.com and trains its thousands of employees there is a huge inertia factor that prevents them from leaving. That subscription revenue becomes repeatable for a long time.

These longer sales and implementation cycle means that Salesforce.com has a lot of delayed revenue that it will recognize in future quarters in addition to the current revenue for those quarters. This is the equivalent of a snowball rolling down hill. Future revenue is growing even though it is not readily apparent. In Q4, the company reported deferred revenue of $4.29 billion and its unbilled deferred revenue was $7.1 billion.

For Q4 Salesforce reported earnings of 19 cents that matched estimates but revenue of $1.81 billion beat estimates for $1.79 billion. The company guided higher for 2016 and shares rose 8% on the news.

The next earnings are May 18th.

Shares moved sideways from the earnings spike for three weeks and are just now starting to move higher. Given a positive market, I think they will retest the highs in the weeks ahead.

I am recommending the May $75.00 call even though it is a little farther away from the money and slightly more expensive than the April $72.50 call. With only 32 days left in the April cycle we are reaching the point where premium decay will accelerate. If we hit a soft patch in the market the April premiums may not have time to recover. The May premium will cover the earnings on May 18th so when we exit before earnings there will still be some expectation built into the premium.

Position 3/14/16

Long May $75 call @ $2.75. See portfolio graphic for stop loss.


DLPH - Delphi Automotive - Company Description

Comments:

Rebounded $1.50 off the lows to lose only 17 cents.

Original Trade Description: March 5th.

Delphi manufacturers vehicles components and provides electrical and electronic, powertrain and safety technology solutions to the automotive and commercial vehicle markets worldwide. Whether you are buying a new car or repairing an old one the odds are very good you are using Delphi parts.

Vehicle sales in February were 17.54 million units on an annualized basis. As we move farther into spring and summer those numbers are going to rise sharply. Cheap gas means consumers are going to buy more new cars and upgrade their rides to the SUV category when possible.

Delphi reported earnings of $1.39 and beat consensus estimates for $1.37. Revenue of $3.88 billion rose +11% and also beat estimates for $3.79 billion. The company guided for full year earnings of $5.80-$6.10 and revenue of $16.6 to $17.0 billion.

Shares rallied after earnings and broke through resistance at $68 last week to close at $71.53. The next significant resistance is $77.25. Earnings are April 28th.

I am recommending we buy the May $75 calls at $2.40 so there will still be some earnings expectation premium in them when we exit before earnings. April options expire on the 15th so premiums will deflate significantly before we ever get to the earnings event. I am recommending an entry point at $72.50 and just over Friday's high. If the market does take profits early in the week we can lower the strike price and entry target depending on what happens to Delphi shares.

Position 3/17/16 with a DLPH trade at $72.50

Long May $75 call @ $2.50. See portfolio graphic for stop loss.


EMR - Emerson Electric - Company Description

Comments:

Dropped to $53.84 at the open to stop us out by a penny at $53.85. We exited with a gain of $1.35 on the option.

Original Trade Description: March 3rd.

While you may not have heard about Emerson Electric they have 110,800 employees and are involved in many different aspects of the economy. They design and manufacture products and deliver services to industrial, commercial and consumer markets worldwide. They specialize in process management valves, meters, switches, regulators and digital plant applications.

A major segment is providing infrastructure, power, uninterruptible power systems, thermal management equipment and integrated solutions for large datacenters and cloud computing installations. They handle climate control, heating and cooling, electrical control monitoring and management.

They reported earnings for Q4 of 56 cents that beat estimates for 51 cents. Revenue of $4.713 billion beat estimates for $4.642 billion. However, revenue was down -16% because of the recession in the energy sector. The CEO said, "Lower oil prices continued to apply downward pressure on oil and gas spending, particularly upstream projects, as well as power generating alternators used in upstream applications."

Shares declined sharply but began to rebound almost immediately. The company plans to spin off its network power business later this year, which will downsize revenue by about $8 billion. They are restructuring to lower costs until the energy sector recovers and are selling noncore assets to reduce complexity. Investors liked the plans that were presented.

The company also declared a 47.5 cent quarterly dividend which produced a 4% yield at the time it was announced.

Their next earnings are May 3rd.

Emerson has resistance at $50.50 and it broke through that level on Thrusday. The next material resistance would be well above in the $60 range with a speedbump at $52.50. I am recommending we buy the June $52.50 call and plan to exit well before earnings. By purchasing the June call it will still have earnings expectations in the premium when we exit before earnings.

Emerson is somewhat of a slow mover so the options are cheap thereby limiting our risk.

Position 3/4/16

Stopped 3/24/16: Long June $52.50 call, entry $1.60, exit $$2.95, +1.35 gain.


JWN - Nordstrom - Company Description

Comments:

We were stopped out on the opening drop at $55.85 to lose 84 cents on the position.

Original Trade Description: March 17th.

Nordstrom is a fashion specialty retailer offering apparel, shoes, cosmetics and accessories for men, women and children in the U.S. and Canada. They have a growing online presence as well as the Nordstrom Rack discount stores. They have a private label credit card through Nordstrom FSB, a federal savings bank and two Nordstrom Visa car offerings. As of February they operated 323 stores in 39 states in addition to Canada and Puerto Rico. The company was founded in 1901.

This is a really strange bullish recommendation since 61% of analysts (19 out of 31) have a hold rating and three have a sell rating as of February 22nd. So far in March two new analysts have initiated coverage with a sell rating. The consensus price target is $52.75 and shares closed today at $58.22.

Apparently investors are ignoring the analysts ratings because they think they have it wrong. With all of those negative ratings there are probably a lot of shorts that are cussing as each day goes by with another gain.

The analysts with buy ratings claim Nordstrom's mix of brick and mortar stores and online websites as well as their chain of discount and clearance stores will power the earnings higher in the months to come. Cowen & Company said "Going forward, we believe leveraging Nordstrom's unique multi-channel approach should benefit the top-line given that multi-channel customers spend three-to-four times more than other customers." Stifel wrote, "We do believe that Nordstrom is a market share gainer in what will likely prove to be a contracting market for apparel sales. With its best-in-class omnichannel experience, outstanding customer service and compelling merchandise assortments, both broad and deep, we believe Nordstrom can be a winner despite the more challenging environment.

In late February the company reported earnings of $1.17 and revenue of $4.19 billion that missed estimates for $1.22 and revenue of $4.22 billion. However, revenue did increase 5.2% and same store sales rose +1%. They guided for full year 2016 for revenue to rose 3.5% to 5.5% and earnings in the range of $3.10 to $3.35. Analysts were expecting $3.37. Nordstrom said the weak sales were the result of acquisition expenses, the strong dollar deterring tourist sales and the weak holiday season.

Shares fell to $46 on the news. However, that was the bottom and shares have only been down four days since those earnings. The close today at $58.22 was above strong resistance at $57.75. Since then they have declared a quarterly dividend of 37 cents payable on March 22nd to holders on March 7th.

Earnings May 12th.

I am recommending this as a breakout play with today's close over resistance at $57.75 and the next material resistance at $67. However, just to be cautious I am putting an entry trigger on the play at $58.75. I have been burned several times lately by one day wonders that spike slightly over resistance only to fall back again for a week or two.

Position 3/18/16 with a JWN trade at $58.75

Stopped 3/24/16: Long July $62.50 call @ $1.83, exit .99, -.84 loss.


KR - Kroger - Company Description

Comments:

Big drop at the open on market weakness to $37.10 to stop us out by a nickel at $37.15 and a loss of 85 cents. I am planning on reloading the position if the market is positive next week.

Original Trade Description: March 11th.

Kroger is a retail grocery chain with $108 billion in sales in 2014. In Q3, 2015 their same store sales comps rose +5.4% without factoring in gasoline. They have recently been adding service stations to their offerings. They operate 2,774 supermarkets, 148 with in store clinics, 786 convenience stores, 1,330 fuel centers and 326 Fred Meyer jewelry stores in the USA. In all they have more than 161.3 million square feet of operated retail space. They have 37 food-processing plants, 27 dairies, 6 bakeries and 36 distribution centers.

While most people know them as a grocery store they are much more. They operate those grocery stores under many name brands, more than two dozen, as a result of the acquisition of regional chains. They also operate multi-department stores like a small Walmart or Target.

They have more than 422,000 employees and operate in 34 states. They filled 175 million prescriptions in 2014 worth over $9 billion. Kroger earned $3.223 billion in profits in 2014.

Where Kroger is kicking butt is their new organic product lines. They are significantly cheaper than Whole Foods Markets (WFM), Fresh Market (TFM) and Sprouts Farmers Markets (SFM). They are able to compete with Walmart on organics and private label brands because they own their own food processing and distribution centers. They have dozens of store brands than encompass nearly every isle in the stores from frozen pizzas, vegetables, fruit, toilet paper, snack chips and salsa to a complete customer deli in their larger stores. Their private label organic produce covers 60% of their produce department. Their Simple Truth Organic brand is now the largest natural food brand in the USA.

While Kroger has been outperforming the other grocery and fresh food stores their shares took a hit in early January when a division president, Lynn Gust, president of the Fred Meyer division retired after 45 years. He started out as a package clerk in 1970 and rose up through the ranks to be named president and then led the division to more than $10 billion in annual sales.

At the same time Credit Suisse lowered their rating on Kroger because of deflation risks. The deflation risk means prices for products are going to continue lower. However, I view that as a positive. Kroger's costs are going down but the price of their products do not have to go down in lock step. This is a profit opportunity for Kroger. The analyst also said fuel prices will eventually rise and that will take money out of consumer's pockets. Since that will happen across the board to all grocery stores it makes sense to own the one that is making money on gasoline with their 786 convenience stores regardless of the prices.

Shares declined from $43 in early January to $36 on the Feb-11th crash. This is long-term support and shares were very oversold. In a previous play we bought the dip in February and rode the stock back up to $40.35 and exited before earnings in early March.

In the March earnings Kroger reported earnings of 57 cents compared to estimates for 54 cents. Revenue rose +4% to $26.2 billion and narrowly missed estimates for $26.3 billion. Sales excluding fuel rose +7%. Same store sales rose +3.9% but that was less than the 4.0-4.5% they had predicted in January. Kroger said shifting the Super Bowl into February hurt sales for the quarter ended January 31st. Warmer weather and fewer snow storms also hurt because people stock up on food ahead of storms but shop as normal in regular weather.

The retailer said they expect earnings to rise 6-11% in 2016 to $2.19-$2.28 per share. Same store sales are expected to rise 2.5-3.5%. This is lower than 2015 because of lower inflation.

Investors were not happy with the earnings because most never look at the details and only read the one sentence headline to make their decisions. Shares declined from $40.50 to $36.50 to give us another entry point at support.

I believe Kroger will make a new high this time. Earnings are well out in the distance on June 16th and that will allow us to buy a longer dated option and give it time to mature. Kroger is a slow mover so we need time for it to grow. With support at $36 dating back to the August crash it should be a relatively safe position.

Position 3/14/16:

Stopped 3/24/16: Long July $40 call @ $1.55, exit .70, -.85 cents.


N - NetSuite - Company Description

Comments:

Perfectly executed rebound off support at $64.50. Big gain in a weak market. No news.

Target $68.85 for an exit.

Original Trade Description: February 19th.

NetSuite provides cloud based financials/enterprise resource planning (ERP) and omnichannel commerce suites in the U.S. and internationally. They also offer customer relationship management (CRM) and professional services automation (PSA). NetSuite OneWorld manages various companies or legal entities across multiple countries with different currencies, taxation rules and reporting requirements.

NetSuite reported adjusted earnings on January 28th of 5 cents compared to expectations for 4 cents. Revenue of $206.2 million rose +33% and beat estimates for $205 million. They reported several new accounts including Snapchat, American Express Global Business Travel and Lucky Brand to name a few. They added 616 new customers in the quarter and replaced SAP in 17 accounts. Recurring revenues rose +30% and now make up 80% of revenue. Nonrecurring revenue of $41.7 million rose +34%. They ended the quarter with $379 million in cash.

Revenue for 2016 is expected to rise 28-31% with earnings growing 80% to 100% to a range of 40-45 cents.

NetSuite was upgraded by Canaccord Genuity from hold to buy after earnings.

Not many companies are growing annual revenue by 30% and earnings by 100%. This is NOT Tableau software but it was punished for Tableau's weakness.

Earnings are April 21st.

Position 2/22/16 with a trade at $56.50

Long April $60 call @ $2.40, see portfolio graphic for stop loss


NTAP - NetApp - Company Description

Comments:

Drop right to support and then rebound to close down -4 cents on no news.

Original Trade Description: March 11th.

NetApp provides software, systems and services to manage and store computer data worldwide. They provide data protection and data management for virtualized, shares infrastructures, cloud computing and business applications. Their hot product is a storage area network (SAN) that is all flash memory and not spinning disk drives. This delivers super high performance without the mechanical delays and hardware problems associated with disk drives.

JP Morgan is going to host a moderated "Tech Talk" at 10:AM ET on Tuesday regarding the new SolidFire all-flash array architecture. NetApp acquired SolidFire for $870 million in cash in December in order to increase penetration into the high speed storage market. SolidFire was named the "All-Flash Systems Product of the Year" by Storage Magazine in late February.

NetApp reported Q4 earnings of 70 cents that beat estimates by 2 cents. However, that was down slightly from the year ago quarter. They announced a restructuring program to reduce costs as they focus development on the new SolidFire products. NetApp said they were cutting about 1,500 of their 12,810 employees. They guided for current quarter earnings of 55-66 cents that was below estimates for 72 cents. They expect to take some significant charges on their restructuring effort.

Shares crashed on the earnigns news to $21 but the press has been kind to NetApp and share have rebounded to $27 over the last four weeks. I expect shares to continue to rise to initial resistance at $31 and possibly a new high at $35. The momentum is increasing on the NTAP rebound.

Earnings May 25th.

Position 3/14/16:

Long May $28 call @ 99 cents, no initial stop loss.


OA - Orbital ATK - Company Description

Comments:

Excellent relative strength. OA never traded in negatie territory and rose steadily all day.

Original Trade Description: March 19th.

Orbital ATK was created in 2015 by the merger of Orbital Sciences and Alliant Techsystems. The company develops and produces aerospace, defense and aviation related products for the U.S. Government, allied nations, prime contractors and other customers in the U.S. and internationally.

The currently have a contract to convert the four segment Space Shuttle Solid Rocket Booster into a five segment booster for the new Space Launch System that will carry astronauts back into space. They are working on a new rocket booster to replace the boosters the U.S. is currently buying from Russia. They also develop satellites for commercial, scientific and security applications. They also produce the Cygnus spacecraft that delivers cargo to the International Space Station and returns with completed experiments.

The Defense Systems Group provides tactical missiles, defense electronics and medium to large caliber ammunition, fuzed warheads, etc. The Flight Systems Group produces the Pegasus, Minotaur and Antares launch vehicles.

One of their newest projects is the Mission Extension Vehicle or "space tug." When an existing satellite develops a problem and engineers believe it can be repaired, the space tug would go get the satellite and push it towards the International Space Station where it can be repaired and the tug would then push it back into orbit where it belongs. Since these satellites cost from hundreds of millions to billions of dollars each, having the capability to repair them would save a lot of money.

Sometimes the satellite has simply been active for so long that its orbit has degraded. The space tug would attach itself to the satellite and then lift it back into an orbit that would give the old satellite several more years of useful life. Then the tug would disconnect and repeat the process with a different satellite. The tug could also push dead satellites into a descending orbit where they will burn up reentering the atmosphere. That would essentially remove the trash from what is becoming an increasingly crowded orbital space. The first space tug is expected to have enough fuel to keep it active for up to 15 years. They plan to launch 5 by 2020 and with dozens of very expensive communication satellites running low on fuel every year, it will be a very profitable venture. Clients are already entering into discussions on how the tug can help their satellites.

These are just some of the hundreds of thing Orbital ATK has in the works. They were also named a subcontractor on Northrop's new $120 billion B-21 stealth bomber program.

In early March Orbital reported earnings of $1.45 that beat estimates for $1.09. Revenue of $1.137 billion beat estimates for $1.11 billion. Order backlogs were over $13.5 billion. They guided for the full year to earnings of $5.25-$5.50. Shares crashed from $87 to $74 the next day after they filed a statement with the SEC saying the financial statements covering the Q2-Q3 in 2015 were not accurate due to an accounting error that occurred when the two companies merged. It was a non-cash error covering long-term contracts that were accounted for using different accounting methods in each company. There was no material impact from the restatement but shares always crash when an "accounting error" is disclosed.

After two weeks, shares began to rise again one the smoke cleared. Shares hit resistance at $82.60 on Friday and pulled back only slightly. I am recommending we buy a breakout over that resistance with a target at $90.

Earnings May 30th.

Position 3/21/16 with an AO trade at $82.80

Long May $85 call @ $2.80, initial stop loss $76.15.


PII - Polaris Industries - Company Description

Comments:

Big decline at the open to $94.34 to knock us out of the position with a 98 cent gain. The -$3.50 drop on Wednesday was the killer and eliminated about $2 of profit. Shares rebounded strongly and I am considering reloading the position if the market is positive next week.

Original Trade Description: February 25th.

Polaris makes off road vehicles, snowmobiles and motorcycles. They compete with Arctic Cat and have 8,100 employees. They are about four times larger than ACAT. They had some earnings issues from the lack of snow but their motorcycle business helped smooth out the rough spots. The company reduced guidance in December and shares declined from $96 to $68 by late January.

In Q4 sales declined -20% because of the lack of snow but also because of the oil recession. They sell a lot of off road equipment to oil field workers and they are not buying today. When oil field workers are employed they make a lot of money with starting wages in the $70-$80K range when times are good so there is a lot of extra cash floating around. Retail sales in oil regions were down -10% in Q4.

However, despite the lack of snow and a rough Q4 the company still managed to increase sales for 2015. That is impressive when snowmobile sales declined -25%. We have had some significant snowstorms in 2016 so that snowmobile inventory is probably shrinking in Q1.

Motorcycle sales rose +43% in Q4 so there is a bright side to warm weather and no snow. Sales in that division were up +74% for the full year.

Polaris is the number one off road vehicle manufacturer in the U.S. and are expecting a better 2016 with most of the growth in the second half.

Earnings are April 26th.

Shares are about to break over resistance at $89, market permitting. I am recommending the April $95 calls currently $2.00 on a breakout.

Position 2/26/16 with a PII trade at $89.50

Stopped: 3/24/16: Long April $95 call @ $2.15, exit $3.13, +.98 gain.


PKG - Packaging Corporation of America - Company Description

Comments:

Minor decline with the market at the open and nice rebound. No news.

Target $64.25 for an exit.

Original Trade Description: March 7th.

PKG manufactures and sells containerboard and corrugated packaging products in the US, Europe, Mexico and Canada. They produce shipping boxes, display packaging and protective packaging. They also produce packages for meat, fresh fruit, processed food, beverages and other industrial and consumer products. They also produce papers for the office environment and for specialty printing. They are the fourth largest producer of containerboard and corrugated packaging in the USA.

They reported earnings of $1.08 that beat estimates for $1.03. However, revenue of $1.39 billion missed estimates for $1.42 billion because of the strong dollar. For the full year profit was $4.47 to give them a current PE of 12.

The company announced an additional $200 million stock buyback program at the end of February. They bought back 1.7 million shares in the last 5 months of 2015 and 1.9 million shares YTD in 2016. The company said its "substantial operating cash flow" gave it an "excellent opportunity" to continue buying back its stock and return value to shareholders.

They also announced a 55-cent quarterly dividend payable April 15th to holders on March 15th which equates to a 4% yield.

Next earnings are April 25th.

After reporting earnings the shares rebounded from a sector downgrade on IP in January. PKG has rebounded from $45 to $54 and could continue higher to as much as $65 before hitting significant resistance.

With recent economic reports suggesting the economy is improving slightly this might be the right time to speculate in companies that will profit from a summer recovery.

Shares dipped slightly on Thursday after hitting as 6-week high on Wednesday. This gives us an opportunity to buy a close to the money option relatively cheaply. There is no entry trigger.

Position 3/11/16:

Long April $55 call @ $2.20, no initial stop loss.


QSR - Restaurant Brands Inc - Company Description

Comments:

Back to support on no news. Purely market driven.

Original Trade Description: March 7th.

QSR is the new name for the Burger King and Tim Hortons brands. Both have been serving customers for more than 50 years. QSR currently operates more than 19,000 restaurants in 100 countries with more than $23 billion in sales. The name change and rebranding came a year ago when Burger King bought the Tim Hortons chain.

QSR has been flying under the radar for the last year with all the news about McDonalds all day breakfast and Starbucks expanded menu. They reported earnings of 35 cents that beat estimates of 31 cents.

Same store sales rose +5.6% at Tim Hortons and 5.4% at Burger King.

Burger King sales are accelerating because of a flood of new menu items. They have Chicken Fries, which are fries dipped in fried chicken batter and fried. They have Jalapeno Chicken Fries. On February 23rd they introduced the Whopper Hot Dog. This is a foot long hotdog flame grilled and served with whatever you want on them.

Burger King received tons of free press when the new hot dog was delivered. Some food aficionados are calling the hot dog a "culinary calamity." Others called is a "disgusting disgrace" but customers are waiting in line to order them.

Franchisees claim the demand has been "overwhelming" and while only a couple weeks old they are selling over 100 a day and rising rapidly as more customers realize they are available. Americans eat more than 20 billion hotdogs a year.

Earnings are May 27th.

QSR shares are currently $37.85 and a breakout over resistance at $37.65 is in progress. I am recommending we buy the April $39 call, currently $1.10, and plan on exiting at $41 if that higher level of resistance slows the rally.

Position 3/9/16 with a QSR trade at $38.15

Long April $39 call @ $1.15. See portfolio graphic for stop loss.



BEARISH Play Updates (Alpha by Symbol)


SHAK - Shake Shack - Company Description

Comments:

Minor rebound on weekend short covering at the close.

Original Trade Description: March 21st.

Shake Shack owns, operates and licenses Shake Shack restaurants in the U.S. and internationally. The currently operate more than 50 domestic stores and 30 international stores. The stock started off with a bang because the majority of their stores in early 2015 were in the Northeast and traders and investors were familiar with the brand. Shares rocketed to a market cap of about $2 billion despite only having about 50 stores at the time.

After topping out at $97 in May of 2015 shares have fallen to just over $30. The bloom is off the rose and the brand has become just another hamburger stand with plenty of competition from stores like Five Guys, an improved McDonalds, an aggressive Burger King, Jack in the Box with its Qdoba Mexican unit, Good Times, Wendy's, etc.

The reported earnings in early March and shares dropped -17% even though they beat earnings and revenue estimates. The problem came from guidance. They forecast same store sales for all of 2016 of 2.5% to 3.0% growth compared to 13.3% growth in 2015. Analysts have lost the love for the SHAK. There are ten analysts that follow the stock. Only one has a buy rating, 7 have hold ratings and 2 have sell ratings. The consensus price target has declined to about $35, which is where it is trading now.

Even worse eight insiders combined to sell more than $30 million in shares last week with officers and directors dumping a lot of their shares. With a PE of -52 the stock is not growing its fundamentals.

Earnings May 12th.

Position 3/22/16 with SHAK trade at $33.80

Long the May $32.50 put @ $2.60, initial stop loss $36.75.


SPY - S&P 500 ETF - ETF Description

Comments:

Big rebound from the drop to $201.74 at the open. No reason to panic. We are going to add to this position on a rebound to $207.

I am recommending we add to this position when/if the SPY trades up to $207 and again at $210.

Original Trade Description: March 16th.

All good things must come to an end. The market appears poised to rally and produce a new leg higher. However, there is serious resistance starting at 2,075 on the S&P and continuing through 2,100. The odds are very slim that a rally will make it through that resistance ahead of the earnings cycle and assuming earnings for Q1 are as bad as the guidance we have been getting then it is even more likely the market rolls over into the "Sell in May" cycle.

Nobody can accurately pick turning points in the market on a routine basis. There are far too many things that can push and pull the indexes but at critical resistance levels we can normally anticipate at least a little reaction to those levels.

The S&P has strong resistance beginning at 2,078, which equates to $208 on the SPY. That resistance runs from 2,078 to 2,105 or roughly $211 on the SPY. I am proposing we buy puts on the SPY starting at $207 with a stop loss at $213.

The S&P may never hit those levels or it could hit them next week. The close after the Fed decision was 2,027, which means it would still have to rally 50 points to hit our initial entry point. Once it reaches that level it will have rebounded for +268 points and would be extremely overbought when it reached that 2,078 level. That makes it even more likely it will fail when it gets there.

I am going to recommend the June $200 puts. They should cost about $4 when the SPY reaches the $207 level. I want to use June because we may not reach that resistance for a couple weeks, if at all, and once we do hit that level I want to be able to profit from any sell in May decline.

This position could go for several weeks without being triggered and there is a good chance we will not get to play it with numerous analysts calling for a failure at 2,040 and 2,050 along the way. There are analysts calling for a retest of the 1,900 level this summer with some projecting significantly lower levels. If you look hard enough you can probably find someone projecting targets a couple hundred points higher or lower than the ones discussed.

Morgan Stanley's Adam Parker slashed his price target for the S&P from 2,175 to 2,050 yesterday. Most of the major banks are in the 2,050 to 2,100 range so the expectations for a major rally from here are pretty slim.

Position 3/23/16 with SPY trade at $204.11

Long June $200 put @ $4.77, initial stop loss $213.

If the market continues higher add to that position at $207 and again at $210.




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