Option Investor
Newsletter

Daily Newsletter, Sunday, 4/5/2015

Table of Contents

  1. Leaps Trader Commentary
  2. Portfolio
  3. New Plays
  4. Play Updates
  5. Watch

Leaps Trader Commentary

S&P 500 Ends Q1 With A Gain - Barely

by James Brown

Click here to email James Brown

It was a disappointing week for stock market bulls. Monday's big gains on March 30th didn't last and stocks faded lower ahead of a three-day Easter weekend. Comments from a Chinese banker sparked the rally on Monday but there was no follow through. Economic data continues to arrive mixed. Traders were cautious ahead of Friday's jobs report with the market closed.

The big cap S&P 500 index eked out a minor gain while the small cap Russell 2000 continues to show relative strength. Transportation stocks and biotech stocks were some of the market's worst performers. Meanwhile housing stocks displayed relative strength. The dollar pared its midweek rally and crude oil surged +2.3% for the week to close at $49.55 a barrel. Gold is at $1,202 an ounce. The ten-year yield settled at 1.84%.

Economic Data

The market was faced with a both good and bad economic data points last week. The Conference Board's consumer confidence survey improved from 98.8 in February to 101.3 in March. Pending home sales soared +3.1% when economists were only expecting +0.3%. It was the best month since June 2013. The Case-Shiller 20-city home price index rose +4.5% versus a year ago.

Consumer spending in general has been soft but consumers are still buying cars. The seasonally adjusted annual rate for car sales in the U.S. hit 17.15 million in March. That's up from 16.23 million in February. Analysts were only expecting 16.9 million. This is the best March reading since the year 2000. The average price rose for the ninth month in a row to $32,201.

The Chicago PMI improved from 45.8 in February to 46.3 in March. Unfortunately it's the second month in a row in negative territory (below 50.0). The good news ends there.

The national ISM manufacturing index dropped from 52.9 in February to 51.5 in March. Estimates were for 52.5. This is the slowest pace of economic growth since mid 2013. The regional Dallas Fed manufacturing index dropped from -11.2 to -17.4 in March. Consumer spending did improve from -0.2% in February to +0.1% in March but analysts were looking for +0.2%. The monthly ADP Employment report showed +189,000 new jobs when analysts were looking for +225K.

Jobs Report

Speaking of jobs, the March nonfarm payroll report was a disaster. Economists were estimating +248,000 new jobs last month. The range was from +179K to +300K. The government's report came in at +126,000. This was less than half of February's job growth of a downwardly revised +264,000.

The prior two months were revised lower -70,000. This was way below estimates and suggests the U.S. economy slowed significantly last month. March's reading of 126K job snapped a 12-month streak of gains above 200,000. It was the longest such streak since 1994. March's job report is also the lowest reading since December 2013.

Josh Brown, with The Reformed Broker, commented on the jobs report and Wall Street's attempt to forecast it. According to Mr. Brown, "In a workforce of 100,000,000 people, pinpointing how many got or lost a job inside of a single 30-day period is like attempting to count the stars in the galaxy. Add in all the birth/death/seasonal adjusting that goes on behind closed doors and it becomes like counting the stars with a blindfold on."

The monthly data did show the unemployment rate dipped to 5.5%, a new six and a half year low. We also saw the labor force participation rate slip to a new 36-year low at 62.7%.

Overseas Economic Data

Japan said their industrial production for February dropped -3.4% after a +3.7% gain the prior month. China reported its manufacturing PMI improved from 49.9 to 50.1. It's the first positive reading (above 50.0) in three months. The HSBC Chinese manufacturing PMI improved from 49.2 to 49.6.

China was behind the big market rally on Monday. Traders were reacting to comments from Zhou Xiaochuan, a governor in the People's Bank of China, who said China has more "room to act" with its monetary policy and other measures to stimulate the economy. You know the market loves any form of QE so equities rallied on this story. You can read the Bloomberg article here.

The Eurozone said their manufacturing PMI improved from 51.9 to 52.2 thanks in large part to Germany's manufacturing PMI rising from 52.4 to 52.8. The Eurozone also reported its CPI for March dropped -0.1% year over year while its core-CPI rose +0.6%. The Eurozone unemployment rate ticked lower with an improvement from 11.4% to 11.3%. Meanwhile the Eurozone Business and Consumer Survey for March rose to multi-year highs with an improvement from 102.3 to 103.9, above expectations.

Greece

Greece seems to be inching closer and closer to a default and/or leaving the Eurozone. The new Greek government claimed it could run out of money by April 9th. The country has a 460 million euro debt payment to the IMF due on April 9th. Greek leaders are asking for additional bailout funds or they may miss the payment. Greek and European finance ministers have been arguing over terms for the next tranche bail out money up to 7.2 billion euros but Europe doesn't want to release the cash until Greece shows them how they will enact the new reforms. Greek Prime Minister Alexis Tsipras is supposed to visit Russia on April 8th. He'll probably ask Russian leaders for aid. There has been speculation that Russia might help Greece if they can turn Greece into an ally and use the country as a Mediterranean naval base. You can bet that Greece will be making headlines again as we near the April 9th deadline.




Major Indices:

The S&P 500 barely managed a gain for the week. It also eked out a nine-point gain for the first quarter. That marks the ninth consecutive quarterly gain. Upward momentum has clearly stalled. Stocks might be stuck churning sideways until Q1 earnings season begins.

On a short-term basis the 2,040 level looks like support. Below that the simple 200-dma near 2,013 and the 2,000 mark could be additional support. A -5% correction from its all-time highs set six-weeks ago would be about 2,000. Below that the January and December lows are possible support.

chart of the S&P 500 index:

The NASDAQ composite ended the holiday-shortened week with a loss. The bounce on Monday failed at its 10 and 20-dma. Now the index looks like it's headed for what should be support near the 4,800 level. Unfortunately a move that low would break the trend line of higher lows (see chart). If it really gets ugly then a breakdown under 4,800 might signal a drop toward 4,600 and its simple 200-dma.

chart of the NASDAQ Composite index:

The small cap Russell 2000 index continues to hold up the best. The $RUT added +1.2% last week and is still above its trend line of higher lows. It's less than 15 points away from new all-time highs. Investors probably feel more comfortable owning small caps because they normally have less exposure to currency issues. The strong dollar doesn't hurt the small caps as much as it impact the large cap companies who do more business overseas.

chart of the Russell 2000 index



Economic Data & Event Calendar

After last week's parade of data the pace of economic reports slows down. The only report of note might be the FOMC minutes on Wednesday. Alcoa (AA) kicks off the Q1 earnings season on April 8th (after the close) but the wave of earnings reports doesn't really hit until the following week.

Economic and Event Calendar

- Monday, April 06 -
ISM services

- Tuesday, April 07 -
Eurozone PPI data

- Wednesday, April 08 -
Eurozone retail sales
FOMC minutes
Alcoa (AA) kicks off Q1 earnings season

- Thursday, April 09 -
Wholesale inventory data

- Friday, April 10 -
(nothing significant)

Additional Events to be aware of:

April 29th - FOMC policy update
May 7th - Election in the United Kingdom

Looking Ahead:

Before we look ahead I'll briefly comment on the Iran nuclear deal last week. The negotiations between Iran and the P5+1 nations (U.N. security council plus Germany) were rushing to get done by March 30th. I will use the term "get done" very loosely. The marathon talks ended with what President Obama called an "historic" deal with Iran. Unfortunately this "deal" is nothing more than a framework of ideas that the U.S. bullied its allies into accepting with nothing in stone.

The only thing this "deal" achieved was to give Iran another three months with a new deadline of June 30th to hash out the details. The current "deal" is supposed to delay Iran's ability to "breakout". This so called "breakout time" is how long it would take for Iran to assemble a nuclear bomb. The U.S. wants at least a year. Iran wants less than that. Iran has never followed through on any previous deal. Why would they commit to a new deal now when they're so close to achieving their goal - a nuclear bomb. What's really scary is that if Iran gets nukes then Saudi Arabia, their archrival, will want nukes. It will spark a nuclear arms race in the Middle East. That's not a very comforting thought.

Back home in the U.S. investors will soon be focused on Q1 earnings. We already know, with a deluge of disappointing economic data, that the U.S. economy slowed down in the first quarter. The Atlanta Federal Reserve has been downgrading their Q1 GDP estimates on an almost weekly basis. Now they're estimating +0% growth in the first quarter when eight weeks ago they were forecasting +1.9% growth. That certainly doesn't bode well for corporate earnings.

FactSet reports that 85 of the S&P 500 companies have already issued negative earnings guidance. Only 16 have issued positive guidance. If that 16 number stands it would be the lowest number since Q1 2006. The current number of 85 announcing negative guidance is above the five-year average. Currently analysts are expecting S&P 500 earnings growth to be -3% thanks to a -63% drop in earnings from the energy sector. Here's the good news. Everyone already knows that Q1 earnings are going to stink. Expectations are low. That means there is a chance that earnings could come in better than expected. Maybe I should say better than feared.

Looking at our immediate future Monday morning could be rough. The lower than expected jobs number on Friday morning sparked a sharp sell-off in the S&P futures. I would not be surprised to see stocks gap open lower on Monday morning. On the plus side the jobs report also pushed out expectations for the Fed's next rate hike. The fed fund futures rate saw odds of a hike in June drop to 11% and odds of a hike in September drop to 35%. How can the Fed raise rates when the economy appears to be slowing and job growth is suddenly in doubt?

The week in front of us could be another volatile one.

~ James







Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The major U.S. indices ended the week relatively flat. Monday's big gains faded. Investors were cautious ahead of the nonfarm payroll report with the market closed for Good Friday.

FB has graduated from our watch list to our active play list.

Disclaimer: At any given time the author may have positions in any or all of any companies mentioned in the Leaps Newsletter.

--Position Summary Table--
Table lists Directional CALL or PUT/LEAPS only.
Insurance puts, if applicable, are not shown.

Red symbol/name represents a play or option position exited or closed this week.




New Plays

Monday Could Be Volatile

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(April 05, 2015)

No new trades tonight. Last week our new watch list candidate Facebook (FB) graduated from our watch list to the active play list.

Tonight I have added EWI and TOL as new watch list candidates.

Small caps continue to outperform as investors try to avoid the negative impact of the strong dollar. Meanwhile the Dow Jones Transportation Average appears like it could break down below major support soon. That could be a bearish signal for the broader market.

Monday morning could be volatile as traders try to react to the worse than expected March jobs number that hit Friday morning while the market was closed.

Radar Screen:
Here is a list of stocks on my radar screen. These have potential to be LEAPS trades down the road if the right entry point presents itself. In no particular order:

EL, BUD, IR, CXO, WBA, FDS, CBI, WU

Investors may also want to check out the auto-part makers. These stocks (DLPH, LEA, BWA) look bullish. I'd like to trade them but none of them have LEAPS available.



Play Updates

Homebuilders Showing Relative Strength

by James Brown

Click here to email James Brown

Editor's Note:

FB has graduated from our watch list to our active play list below.


Closed Plays



None. No closed plays this week.




Play Updates


Apple Inc. - AAPL - close: 125.32

Comments:
04/05/15: The broader market struggled last week but AAPL managed a $2.00 gain. On March 31st the stock garnered a new price target at $142 a share. Technically AAPL is still consolidating sideways in a multi-week trend of lower highs and higher lows. If the stock can close above its six-week trend of lower highs it should signal the next leg higher (look for a close above $126.50).

Earlier Comments: November 2, 2014:
Love it or hate it AAPL always has Wall Street's attention. It has a cult-like following. The company's success has turned AAPL's stock into the biggest big cap in the U.S. markets with a current valuation of more than $633 billion.

The company is involved in multiple industries from hardware, software, and media but it's best known for its consumer electronics. The iPod helped perpetuate the digital music revolution. The iPhone, according to AAPL, is the best smartphone in the world. The iPad helped bring the tablet PC to the mass market. The company makes waves in every industry they touch with a very distinctive brand (iOS, iWork, iLife, iMessage, iCloud, iTunes, etc.) and they've done an amazing job at building an Apple-branded ecosystem. Now they're getting into the electronic payments business with Apple Pay.

The company's latest earnings report was super strong. AAPL reported its Q4 (calendar Q3) results on October 20th. Wall Street was expecting a profit of $1.31 a share on revenues of $39.84 billion. The company delivered a profit f $1.42 a share with revenues up +12.4% to $42.12 billion. The EPS number was a +20% improvement from a year ago. Gross margins were up +1% from a year ago to 38%. International sales were 60% of the company's revenues.

AAPL's iPhone sales exceeded estimates at 39.27 million in the quarter and up nearly 16% from a year ago. The only soft spot in their ecosystem seems to be iPad sales, which have declined several quarters in a row. The company hopes to rejuvenate its tablet sales with a refresh of the iPad models. More importantly AAPL management raised their Q1 (calendar Q4) guidance as they expect revenues in the $63.5-66.5 billion in the quarter. Recent news would suggest that AAPL might deliver an incredible 50 million iPhone 6s in 2014. That's not counting their new iPhone 6+.

The better than expected results and bullish guidance sent the stock to new highs. The rally has created a quadruple top breakout buy signal on its point & figure chart that is currently forecasting at $133 target. Yet we do not want to chase AAPL here. The stock is up $12 from its October low. We do want to be ready if shares see a pullback.

Tonight I am suggesting a buy-the-dip trigger to buy calls at $103.50 with a stop loss at $98.90. (We amended the buy-the-dip trigger to $111.00 on Nov. 30th).

- Suggested Positions -
DEC 09, 2014 - entry price on AAPL @ 110.19, option @ 9.55
symbol: AAPL160115C120 2016 JAN $120 call - current bid/ask $14.10/14.20

03/01/15 Caution: AAPL could be poised for a pullback. Consider taking profits now and then re-enter this trade later.
02/22/15 new stop @ 114.00
02/15/15 new stop @ 109.50
12/09/14 triggered on gap down at $110.19, trigger was $111.00
11/30/14 raise the buy-the-dip entry trigger to $111.00
11/16/14 raise the buy-the-dip entry trigger to $108.00
Adjust the strike price to the 2016 Jan $120 call.
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 114.00
Play Entered on: 12/09/14
Originally listed on the Watch List: 11/02/14


Akamai Technology - AKAM - close: 70.84

Comments:
04/05/15: AKAM, like the big cap U.S. indices, posted a lower high last week. I would hesitate to launch new positions. AKAM should find support in the $68-70 area.

Earlier Comments: March 8, 2015:
If you surf the Internet then you're probably seeing content delivered by AKAM's technology. They help customers speed up online content and have a fast-growing security business.

The company is part of the technology sector. They provide cloud services for delivering content across the Internet. Customers include 47% of the Global 500 companies.

AKAM describes itself as "the global leader in Content Delivery Network (CDN) services, Akamai makes the Internet fast, reliable and secure for its customers. The company's advanced web performance, mobile performance, cloud security and media delivery solutions are revolutionizing how businesses optimize consumer, enterprise and entertainment experiences for any device, anywhere."

Last year was a strong one for earnings and revenue growth. AKAM beat Wall Street estimates on both the top and bottom line the past four quarters in a row. They raised guidance twice. AKAM's average revenue growth last year was +24.5%. Their most recent report was on February 10th where AKAM delivered a profit and revenue number above expectations. Several analyst firms raised their price target on AKAM following its Q4 results.

Management hosted an investor day in late February. They expect sales growth to be in the high teens for 2015. They forecasting sales to hit $5 billion by 2020 compared to about $2 billion in 2014. AKAM reported that their cyber security business is surging with +191% growth last year.

This week AKAM disclosed in their 10-K filing that they were conducting an internal probe into their sales practices in a foreign country. They didn't say which country. This is a potential risk if the U.S. government decides to do their own investigation but the stock didn't really react that much to the news.

It is worth noting that there has been some speculation that AKAM is a buyout target. One analyst suggested that Amazon.com (AMZN) could be a suitor.

After a big rally in February the upward momentum in AKAM has stalled. Shares look like they could see a correction lower. If that occurs then prior resistance near $65.00 should be significant support. We want to be ready to take advantage of the weakness.

Tonight I'm suggesting a buy-the-dip trigger to buy calls if AKAM dips to $65.25. We'll start this trade with a stop at $59.75.

- Suggested Positions -
MAR 25, 2015 - entry price on AKAM @ 71.50, option @ 4.15
symbol: AKAM160115C80 2016 JAN $80 call - current bid/ask $3.90/4.00

03/25/15 Triggered at $71.50
03/22/15 Strategy update: Move the buy-the-dip trigger to $71.50, move the stop loss to $67.90, adjust the option to the 2016 Jan. $80.00 call
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 67.90
Play Entered on: 03/25/15
Originally listed on the Watch List: 03/08/15


Coach, Inc. - COH - close: $41.86

Comments:
04/05/15: COH didn't make a lot of progress last week but investors still seem to be buying the dips. COH is definitely performing better than its rival KORS, which is hitting new relative lows.

Tonight I'm tweaking my suggestion from last week. I'd wait for a close above $42.25 before considering new bullish positions.

Earlier Comments: March 15, 2015:
COH has experienced a rough couple of years. Shares were trading near $80 back in 2012 and they bottomed out in the $33-34 region last year. The big drop was thanks to multiple factors. Investors expectations were pretty high after years of incredible growth. Then COH started to struggle. They had luxury items had started to lose their appeal. Suddenly everyone had a Coach bag so it was no longer a coveted item. Today the company is trying to turn things around.

The company is still suffering from lost market share and falling sales. Their comparable store sales are terrible. Yet after months of bearish reports it looks like all the bad news might be factored in. Wall Street analysts are starting to upgrade the stock because they see the Coach brand finally stabilizing.

Technically shares just started to bounce from support near $40.00. I am suggesting we launch small bullish positions if COH can close above $42.00. However, please note that I consider this a more aggressive, higher-risk trade. We'll try and keep a relatively tight stop loss on this trade.

- Suggested Positions -
MAR 24, 2015 - entry price on COH @ 42.00, option @ 2.80
symbol: COH160115C45 2016 JAN $45 call - current bid/ask $2.50/2.65

03/24/15 Trade begins. COH opens at $42.00
03/23/15 COH closed @ $42.01, above our trigger of $42.00
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 39.65
Play Entered on: 03/24/15
Originally listed on the Watch List: 03/15/15


iShares MSCI Germany - EWG - close: 30.33

Comments:
04/05/15: The EWG spent the week consolidating sideways albeit with a bullish trend of higher lows. This ETF looks poised to breakout past $30.50 soon. Investors could use a close above $30.50 as a new entry point to launch positions.

FYI: I want to remind readers that this is ETF is not hedged against weakness in the euro. The trend is up but its performance will lag the major European markets. You could look at hedged European ETFs but many of them have very low volume and do not have options (especially LEAPS). If you're curious check out these symbols: HEWG, DBGR, DXGE. Be sure to do your homework.

Earlier Comments: February 22, 2015:
The EWG is an exchange traded fund (ETF) that mimics the MSCI Germany index. This includes small, mid, and large-cap companies.

The U.S. market has enjoyed several years worth of QE programs that helped fuel market gains. Now that the U.S. QE program is over Europe is about to start on their own QE program. The European Central Bank (ECB) will start its quantitative program in March this year. The central bank will purchase about €60 billion a month through September 2016 but they've already announced that they will extend this deadline if they need to.

This is significant. After years of promising to do something about the Eurozone economy and fight the threat of deflation the ECB is finally acting. They might be too late to fend off deflation but investors seem to have hope that Europe can turn things around.

Germany should be a prime beneficiary of this program. The ECB's QE will continue to pressure the euro lower and that makes Germany's exports more competitive. Investors are have already starting betting on an improvement in the Germany market with a significant bounce in the EWG.

Today the EWG has broken through technical resistance at its simple 200-dma. Now it's about to challenge resistance near the $30.00 mark. Tonight I am suggesting investors wait for the EWG to close above $30.00 and then buy calls the next morning with a stop loss at $26.85.

FYI: If you want a broader European ETF I did consider the VGK but about half of its holdings are British and Swiss companies and may not see the same benefit from a weaker euro.

- Suggested Positions -
MAR 23, 2015 - entry price on EWG @ 30.24, option @ 1.95
symbol: EWG160115C30 2016 JAN $30 call - current bid/ask $1.80/2.00

03/23/15 Trade begins. EWG opens at $30.24
03/20/15 EWG closed @ $30.26, above our suggested entry: a close above $30.00
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 26.85
Play Entered on: 03/23/15
Originally listed on the Watch List: 02/22/15


Facebook, Inc. - FB - close: 81.55

Comments:
04/05/15: FB has spent the last week and a half retreating from all-time highs tagged on March 24th. We were expecting a pullback and lowered our buy-the-dip entry trigger to $81.00 in last week's watch list. FB hit our entry point on April 1st.

I'm not convinced the pullback is over. Investors may want to wait for a dip closer to $80.00 and use that as an alternative entry to buy calls.

Earlier Comments: March 22, 2015:
Facebook probably needs no introduction. It's the largest social media platform on the planet. As of December 31st, 2014 the company reported 1.19 billion monthly active users and 890 million daily active users. If FB were a country that probably puts them as the third most populous country on the planet (behind India and China).

This past week the company announced a new mobile payment service through FB's messenger app. The new service will compete with similar programs through PayPal, Apple Pay, and Google Wallet.

The announcement combined with a broad market rally helped fuel a +7% gain in FB's stock last week. FB's market cap has risen past $230 billion making it the tenth largest company in the S&P 500.

Growth has been phenomenal. According to IBD, FB's Q4 earnings were up +69% form a year ago. Revenues were up +49%. Wall Street is expecting FB's profit to rise +12% in 2015 and +32% in 2016.

Technically shares of FB have broken out from a very significant consolidation pattern. The point & figure chart is bullish and forecasting at $96.00 target. I think it will go higher. After a five-day run we do not want to chase it here. I'm suggesting a buy-the-dip entry trigger at $82.00 with a stop loss at $74.75.

- Suggested Positions -
APR 01, 2015 - entry price on FB @ 81.00, option @ 4.92
symbol: FB160115C90 2016 JAN $90 call - current bid/ask $5.05/5.20

04/01/15 triggered @ 81.00
03/29/15 move the buy-the-dip trigger from $82.00 down to $81.00
Option Format: symbol-year-month-day-call-strike

Chart

Current Target: To Be Determined
Current Stop loss: 74.75
Play Entered on: 04/01/15
Originally listed on the Watch List: 03/22/15


iShares US Home Construction ETF - ITB - close: 28.61

Comments:
04/05/15: The ITB shrugged off a week February housing starts number. The easy excuse was to blame it on the weather. Investors seem optimistic on the residential real estate market as we move into spring and the summer selling season. While the rest of the market struggled last week the ITB has broken out to new 52-week highs. This can be used as a new bullish entry point to buy calls.

Earlier Comments: January 11, 2015:
The ITB is an exchange traded fund that mimics the Dow Jones U.S. Select Home Construction Index. The top 12 holdings are DHI, LEN, PHM, TOL, NVR, HD, TPH, LOW, RYL, SHW, KBH and MTH.

This index has been stuck in a trading range for years. That looks like it's about to change. Have you looked at a chart of the 10-year bond yield lately? Bond yields are going lower. That's going to pressure mortgage rates lower and that's bullish for home sales. This past week saw 30-year mortgage rates dip below 3.6%. That's a 19-month low.

If that wasn't enough of a tailwind President Obama wants to help. On January 7th the White House announced plans to reduce the government mortgage insurance premiums in an effort to boost home ownership. Another positive for the homebuilders is the U.S. Federal Reserve. We just had two fed governors come out last week saying they think the Fed should hold off on raising rates. The longer the Fed waits to start raising rates the better it will be for homebuilders.

Currently the ITB appears to be breaking out past major resistance and closed at multi-year highs. I'd like to see a little bit more follow through. Tonight I'm suggesting we wait for the ITB to close above $27.00 and then buy calls the next morning with a stop loss at $23.95.

- Suggested Positions -
FEB 11, 2015 - entry price on ITB @ 27.09, option @ 1.70
symbol: ITB160115C30 2016 JAN $30 call - current bid/ask $1.40/1.85

03/01/15 new stop @ $25.45
02/11/15 trade begins. ITB opens at $27.09
02/10/15 ITB closes at $27.10, above our trigger at $27.00
Option Format: symbol-year-month-day-call-strike

Current Target: ITB @ TBD
Current Stop loss: 25.45
Play Entered on: 02/11/15
Originally listed on the Watch List: 01/11/15


Lockheed Martin - LMT - close: 198.72

Comments:
04/05/15: It was not a good week for LMT bulls. The stock erased nearly all of its recent rebound. Shares are currently hovering near the 50-dma. If this level breaks then LMT will likely test the $195.00 level.

I am not suggesting new positions at this time.

FYI: I do want to offer one warning for investors. The U.S. Air Force is expected to make a big decision in spring or summer this year. That decision is who will make America's next-generation bomber. The program is called the Long Range Strike-Bomber (LRS-B) and will be worth tens of billions of dollars to the winning contractor. This is a major fight between rival defense contractors like Lockheed Martin (LMT), Boeing (BA) and Northrop Grumman (NOC). The companies that do not win this program could see their stocks decline on the news.

Earlier Comments: January 18, 2015:
Defense stocks have delivered exceptional gains for investors in spite of the dreaded sequestration budget cuts from Budget Control Act of 2011. Granted the cuts have been delayed and adjusted many times but it still put a crimp in U.S. government defense spending. In response many of America's biggest defense contractors have focused on building up their international business instead of relying on the U.S.

LMT is one such defense contractor. According to a company press release, " Headquartered in Bethesda, Maryland, Lockheed Martin is a global security and aerospace company that employs approximately 113,000 people worldwide and is principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services. The Corporation's net sales for 2013 were $45.4 billion."

Right now one of their biggest projects is the massive F-35 Joint Strike Fighter system. It's the most expensive weapons system the U.S. has ever built with an estimated cost of over $1 trillion over its 50-year lifespan.

If you haven't noticed the world seems to be getting more dangerous. The U.S. is facing a growing military rivalry with China, a belligerent and dangerous Russia, and war in the Middle East with ISIS. This sort of environment will likely keep investors focused on defense stocks.

Looking at LMT's earnings results they have beaten Wall Street's estimates for the last four reports in a row. They raised their guidance in two of the last four earnings reports. The rally in the stock has created a buy signal on the point & figure chart with a $240 target. Currently shares are consolidating sideways and appear to be building up steam for a breakout past round-number resistance at $200. I suspect that LMT's earnings on January 27th might be the catalyst needed to push shares higher.

Tonight I am suggesting we wait for LMT to close above $201.00 and then buy calls the next morning with a stop loss at $189.00.

- Suggested Positions -
FEB 20, 2015 - entry price on LMT @ 200.86, option @ 6.40
symbol: LMT160115C220 2016 JAN $220 call - current bid/ask $4.30/4.90

03/22/15 new stop @ 194.00
02/20/15 trade begins. LMT opens at $200.86
02/19/15 triggered. LMT closed at $201.75, above our trigger of $201.
Option Format: symbol-year-month-day-call-strike

Current Target: LMT @ TBD
Current Stop loss: 194.00
Play Entered on: 02/20/15
Originally listed on the Watch List: 01/18/15


Lowe's Companies - LOW - close: 74.84

Comments:
04/05/15: LOW managed a gain following the prior week's decline. However, shares are struggling to rally past resistance near the $75.00 level. I would wait for a close above $76.00 before considering new bullish positions.

Earlier Comments: January 25, 2015:
LOW is the second biggest player in the home improvement retail business. Their main rival is Home Depot. LOW currently has more than 1,800 stores across the United States, Canada, and Mexico.

The stock has been a great performer the last couple of years, significantly outperforming the broader market. Their most recent earnings report was November 19th and results were one cent above expectations with a profit of $0.59 a share. Revenues also beat expectations with +5.6% growth to $13.68 billion. Same-store sales were up +5.1%.

Management issued bullish guidance for 2015 and raised their earnings estimate above Wall Street's forecast. LOW also raised their revenue guidance above analysts' estimates. The company expects revenues to grow +4.5% to 5% in 2015 with same-store sales growth in the +3.5% to 4% range.

The stock is often influenced by trading and news out of the homebuilders. This year there have been a couple of bombs in the homebuilding industry with both KBH and LEN warning on potential margin pressures in 2015. Shares of LOW, a retailer, shrugged off this headlines.

The U.S. economy grew +4.9% in the third quarter last year and is expected to grow about +3% in 2015. The slow and steady improvement in the U.S. economy is a tailwind for LOW. Another bonus is low gas prices. While we have not seen a lot of evidence that consumers are spending their savings at the pump eventually that money, amounting to hundreds of dollars a year for the average driver, will be spent. Americans love to spend money on their homes, which is bullish for LOW.

We are quickly approaching the spring residential real estate selling season. That means consumers will be spending money on fixing up their homes to go on the market. Those people who buy a home will spend money on their new purchase.

Technically LOW's stock has been consolidating sideways between support near $65 and resistance near $70 the last few weeks. The point & figure chart has already produced a new triple-top breakout buy signal with a $75 target (that could grow). Tonight I am suggesting we wait for LOW to close above $70.75 and then buy calls the next morning with a stop loss at $64.90.

- Suggested Positions -
FEB 06, 2015 - entry price on LOW @ 71.53, option @ 3.45
symbol: LOW160115C80 2016 JAN $80 call - current bid/ask $3.55/3.75

03/15/15 new stop @ 69.00
03/01/15 new stop @ 67.00
02/25/15 LOW reports earnings. Results beat expectations, Management raises guidance above Wall Street estimates
02/06/15 trade begins. LOW opens at $71.53
02/05/15 LOW closed at $71.47, above our trigger of $70.75
Option Format: symbol-year-month-day-call-strike

Current Target: LOW @ TBD
Current Stop loss: 69.00
Play Entered on: 02/06/15
Originally listed on the Watch List: 01/25/15



Level 3 Communications - LVLT - close: 54.23

Comments:
04/05/15: LVLT bounced off its 50-dma last week. Shares remain stuck in a $53-56 trading range. I am not suggesting new positions at this time.

Earlier Comments: December 28, 2014:
LVLT is a communication services company. Their marketing material describes LVLT as "Level 3 Communications, Inc. is a Fortune 500 company that provides local, national and global communications services to enterprise, government and carrier customers. Level 3's comprehensive portfolio of secure, managed solutions includes fiber and infrastructure solutions; IP-based voice and data communications; wide-area Ethernet services; video and content distribution; data center and cloud-based solutions. Level 3 serves customers in more than 500 markets in over 60 countries over a global services platform anchored by owned fiber networks on three continents and connected by extensive undersea facilities."

They just recently completed a merger with TW Telecom. Earnings have been improving. LVLT has beaten Wall Street's earnings estimates the last three quarters in a row. Technically shares have been outperforming the broader market. The NASDAQ composite is up +15% in 2014 while LVLT is up +50%. The point & figure chart is bullish and forecasting a long-term target at $75.00.

Currently shares of LVLT are hovering just below key resistance at the $50.00 mark. I am suggesting we wait for LVLT to close above $50.50 and then buy calls the next morning with a stop loss at $45.45.

- Suggested Positions -
MAR 04, 2015 - entry price on LVLT @ 54.71, option @ 3.90
symbol:LVLT160115C60 2016 JAN $60 call - current bid/ask $3.10/3.60

03/04/15 trade begins. LVLT opens at $54.71
03/03/15 Triggered. LVLT closed at $54.90, above our trigger of $54.50
02/22/15 Strategy update: Wait for LVLT to close above $54.50, then buy calls the next morning with a new stop at $49.45. Adjust the option strike to 2016 Jan $60 call
02/08/15 Adjust entry point strategy: Buy calls on a dip at $50.75 with a stop loss at $46.25. Option Format: symbol-year-month-day-call-strike

Current Target: LVLT @ TBD
Current Stop loss: 49.45
Play Entered on: 03/04/15
Originally listed on the Watch List: 12/28/14


ServiceNow, Inc. - NOW - close: 76.12

Comments:
04/05/15: The volatility in shares of NOW continued last week. The stock has seen some big swings over the last several weeks. Last week NOW faded from resistance near $80 to support near $75 and its 50-dma. If there is any follow through lower NOW will hit our stop at $74.00. I am not suggesting new positions.

FYI: NOW is scheduled to report earnings on April 16th.

Earlier Comments: February 8, 2015:
Shares of NOW are trading at all-time highs thanks to significant earnings growth. The company expects to see growth of more than +40% in 2015.

NOW describes itself as "ServiceNow is changing the way people work. With a service-orientation toward the activities, tasks and processes that make up day-to-day work life, we help the modern enterprise operate faster and be more scalable than ever before. Customers use our service model to define, structure and automate the flow of work, removing dependencies on email and spreadsheets to transform the delivery and management of services for the enterprise. ServiceNow provides service management for every department in the enterprise including IT, human resources, facilities, field service and more. We deliver a 'lights-out, light-speed' experience through our enterprise cloud – built to manage everything as a service."

This company has been consistently guiding their earnings forecast higher. They've done it at least the last four earnings reports in a row. Their most recent earnings report was January 28th. NOW reported their Q4 results of $0.03 a share compared to a loss of 2 cents a year ago. Analysts were expecting a profit of 2 cents a share. Q4 revenues soared +58% to $198 million, which was above expectations.

Some of the highlights from their fourth quarter include billings up +62% year over year and up +34% quarter over quarter. Deferred revenues were up +20% for the quarter. NOW added 211 net new customers, bumping their total to 2,725. Their customer renewal rate was 97%.

NOW said their 2014 revenues soared +61% compared to 2013. Their backlog at the end of 2014 hit $1.4 billion. That's a +57% jump from a year ago. NOW's President and CEO Frank Slootman said, "We finished 2014 with strong metrics across the board, maintaining consistently high year-over-year growth rates. In addition to a growing list of new customers that now includes more than 25% of the Global 2000, we continue to see existing customers expand their relationship with us, resulting in the highest quarterly upsell rate since our IPO." NOW's CFO Michael Scarpelli said, "Within the Global 2000, annualized contract value per customer has increased 40% year-over-year. These expanding contracts have helped us grow our combined backlog and deferred revenue 57% year-over-year."

NOW offered bullish guidance. They expected Q1 revenues to grow +50% in the $207-212 million range compared to Wall Street's estimates of $202.4 million. NOW's 2015 guidance is forecasting revenue growth in the +41% to +47% range in the $960-1,000 million zone versus analysts' estimates of $948 million.

These strong numbers and the consistent growth makes them a popular candidate among Wall Street analysts. After NOW's most recent earnings report several analyst firms raised their price target on NOW's stock.

Technically shares have just recently broken out through major resistance near $70.00. The point & figure chart is bullish and forecasting a long-term target of $97.00. The last few days have seen shares consolidating sideways in the $70-75 range. Tonight I am suggesting investors wait for NOW to close above $75.50 and then buy calls the next morning with a stop loss at $68.90. More nimble traders could wait and cross your fingers for a dip near support at $70.00 as an alternative entry point.

- Suggested Positions -
FEB 13, 2015 - entry price on NOW @ 76.25, option @ 10.00
symbol: NOW160115C80 2016 JAN $80 call - current bid/ask $ 6.80/ 8.00

03/29/15 new stop @ 74.00
03/22/15 new stop @ 71.85
03/01/15 Warning! NOW has produced a bearish reversal and is probably headed for the $70.00 region.
02/13/15 trade begins. NOW opens @ $76.25
02/12/15 NOW closed at $75.95, above our $75.50 trigger
Option Format: symbol-year-month-day-call-strike

Current Target: NOW @ TBD
Current Stop loss: 74.00
Play Entered on: 02/13/15
Originally listed on the Watch List: 02/08/15


Toyota Motor Corp. - TM - close: 140.02

Comments:
04/05/15: The annual pace of automobile sales in the United States hit 17.1 million in March. That's up from 16.2 in February. The last time vehicle sales were this strong was November 2014. Toyota might be stealing market shares from its American rivals. Both Ford (F) and General Motors (GM) reported sales declines while TM said their March U.S. sales rose +4.9%.

Technically the stock retreated from all-time highs but traders bought the dip near its multi-month trend line of higher lows.

I am not suggesting new positions at this time.

Earlier Comments: November 30, 2014:
TM is considered part of the consumer goods sector. The company is a major automotive manufacturer. Headquartered in Japan, TM was founded back in the 1930s. The company now has sales around the globe.

The company led the industry in greener cars with their Prius model of electric-gasoline hybrids. Now they're leading the industry again with a hydrogen fuel cell vehicle. TM unveiled the Mirai, which means "future" in Japanese, as is the first zero-emission vehicle for consumers. The vehicle will go from 0 to 60 MPH in 9 seconds. It has a range of 400-430 miles. The only emission is water vapor.

The Mirai will not be a big seller to start. TM only expects to sell a few hundred units next year. The challenge is the infrastructure so consumers can refuel the hydrogen fuelcell. It will take a few years to really catch on but they're going to get help from various government agencies. The state of California is one example. California hopes to have 1.5 million zero-emission cars on the road by 2025.

I'm not suggesting bullish positions on TM for the Mirai. Hydrogen fuelcell vehicles are not even a drop in the bucket for the global auto market. What should capture investor attentions is the combination of TM's strong sales combined with a central bank stimulus efforts.

TM has already seen strong sales this year. They reported their first half results on November 5th. TM beat estimates and raised their revenue guidance. Falling gas prices boosted sales of SUVs. TM is also seeing sharp growth in China. This past October TM saw their sales in China soar +27% from a year ago. That is on top of a +26% increase in September and a +9% jump in August. New estimates suggest TM is poised to outsell most of its rivals in the U.S. in November too, including big competitors like General Motors, Ford, and Nissan.

TM's secret weapon could be the currency devaluation by the Bank of Japan. The Japanese government is desperate to jump start their economy and avoid deflation. They have launched a massive QE program that is crushing the value of their currency. The yen ended the week at multi-year lows. This is an advantage for a company like TM who exports a lot of their product.

I do have to mention the risk of recall headlines. It seems that the big automakers are being super careful after seeing the Ford fiasco in the last couple of years. Now companies are recalling vehicles all the time. Right now the entire industry is dealing with a defective Takata airbag recall. The top ten automakers all use Takata airbags so it's something that will affect everyone. There is always the risk of another company-specific recall that could hurt TM.

Technically shares of TM have been showing strength and outperforming many of its peers. Shares have actually broken out past resistance near its 2014 July and early November highs. I would be tempted to buy calls now. However, I'd like to see a little more follow through. Tonight I am suggesting we wait for TM to close above $124.00 and then buy calls the next day.

I will warn investors that the prior highs near $135 and $138 could be potential resistance but the point & figure chart is very bullish and forecasting a long-term target of $160.00.

- Suggested Positions -
DEC 02, 2014 - entry price on TM @ 126.56, option @ 8.75
symbol: TM160115C130 2016 JAN $130 call - current bid/ask $14.15/15.20

03/22/15 new stop @ 133.45
03/15/15 new stop @ 129.00
03/03/15 U.S. sales +13.3% in February
02/22/15 new stop @ 127.25
02/15/15 new stop @ 124.50
02/04/15 TM delivers better than expected earnings results and raises guidance
12/07/14 new stop @ $119.00
12/02/14 trade begins. TM opens at $126.56
12/01/14 trade is triggered. TM closes at $124.94, above our 124.00 trigger
Option Format: symbol-year-month-day-call-strike

Current Target: TM @ TBD
Current Stop loss: 133.45
Play Entered on: 12/02/14

Originally listed on the Watch List: 11/30/14


Textron Inc. - TXT - close: 44.94

Comments:
04/05/15: TXT has bounced back toward resistance in the $45.00-45.50 zone. I would wait for a close above $45.50 before considering new bullish positions.

Earlier Comments: February 15, 2015:
TXT is in the industrial goods sector. They deal mostly in the aerospace industry. According to the company, "Textron Inc. is a multi-industry company that leverages its global network of aircraft, defense, industrial and finance businesses to provide customers with innovative solutions and services. Textron is known around the world for its powerful brands such as Bell Helicopter, Cessna, Beechcraft, Hawker, Jacobsen, Kautex, Lycoming, E-Z-GO, Greenlee, and Textron Systems."

The earnings picture last year was mixed. Better than expected results and bullish guidance helped power a big rally last October. Their most recent earnings report was January 28th. TXT's earnings of $0.76 a share were up +26% from a year ago but 1 cent worse than Wall Street estimates. Revenues were up +16.8% to $4.1 billion, also below estimates.

It's interesting how TXT missed Wall Street's earnings estimates on both the top and bottom line and management lowered their guidance for all of 2015. Yet the stock did not sell off. Normally an earnings miss or weak guidance would spark significant selling. Instead investors just calmly bought the dip and now TXT is breaking out to new multi-year highs.

If bad news like that can't shake the stock lower then the path of least resistance is definitely higher. The last couple of months look like a significant consolidation pattern and now TXT has produced a bullish breakout past resistance in the $44.00-44.50 zone. The point & figure chart is bullish and forecasting a long-term target at $67.00.

Tonight I am suggesting small bullish positions if TXT can close above $45.10. Wait for shares to close above this level and then buy calls the next morning.

- Suggested Positions -
FEB 25, 2015 - entry price on TXT @ 45.30, option @ 3.00
symbol: TXT160115C50 2016 JAN $50 call - current bid/ask $2.08/2.42

02/25/15 trade begins. TXT opens at $45.30
02/24/15 TXT closed @ $45.33, above our trigger of $45.10
Option Format: symbol-year-month-day-call-strike

Current Target: TXT @ TBD
Current Stop loss: 39.90
Play Entered on: 02/25/15
Originally listed on the Watch List: 02/15/15


Under Armour, Inc. - UA - close: 79.41

Comments:
04/05/15: UA bounce near short-term support at $78 and its 20-dma but the pullback may not be over yet. I'm turning short-term cautious on UA. We might see shares dip near $75.00 if the market continues to sink.

Longer-term we're still very bullish. This past week Business Insider published an article on Friday detailing four reasons why Nike should be able to dominate its market. Briefly the four reasons are:

1. Young shoppers are more focused on health and wellness.

2. More competition is leading to better products.

3. People like being comfortable.

4. Athletic apparel is going international.

These same four reasons also apply to UA and the company is expanding internationally and growing its market share in the U.S.

FYI: UA is scheduled to report earnings on April 21st.

Earlier Comments: February 22, 2015:
We have had UA on our radar screen for a long time. Now we're finally seeing an entry point. UA is in the consumer goods sector. They make shoes and athletic wear. According to the company, "Under Armour (UA), the originator of performance footwear, apparel and equipment, revolutionized how athletes across the world dress. Designed to make all athletes better, the brand's innovative products are sold worldwide to athletes at all levels. The Under Armour Connected Fitnessâ„¢ platform powers the world's largest digital health and fitness community through a suite of applications: UA Record, MapMyFitness, Endomondo and MyFitnessPal."

The athletic shoe and athletic apparel business is very competitive. Nike (NKE) has dominated the space for years. UA is about 10% the size of NKE but it's actively fighting for market share and recently overtook Adidas as the second biggest athletic wear brand inside the United States. Nike had sales of $27.8 billion in 2014. UA is a fraction of that with 2014 sales of $3.08 billion but they saw growth of +32%.

UA has been firing on all cylinders with its earnings results. Most of last year saw the company not only beating Wall Street's estimates but also raising guidance. UA's most recent earnings report was February 4th. The company reported a profit of $0.40 a share with revenues climbing +31% to $895 million, which was above estimates for $849 million. UA's CEO Kevin Plank, in a recent interview, said his company will grow at 20%-plus in 2015. The company's current estimates are $3.76 billion in sales for the year.

Technically shares of UA have recently broken through resistance in the $73.00 area. Now after consolidating sideways the last couple of weeks the stock ended at all-time closing highs. The point & figure chart is bullish and forecasting at $101.00 target.

Wait for UA to close above $75.75 and then buy calls the next morning with a stop loss at $68.25.

- Suggested Positions -
FEB 24, 2015 - entry price on UA @ 75.87, option @ 5.60
symbol: UA160115C85 2016 JAN $85 call - current bid/ask $6.20/6.60

03/22/15 new stop @ 72.45
02/24/15 Trade begins. UA opened at $75.87
02/23/15 UA closed at $75.87, above our trigger at $75.75
Option Format: symbol-year-month-day-call-strike

Current Target: UA @ TBD
Current Stop loss: 72.45
Play Entered on: 02/24/15
Originally listed on the Watch List: 02/22/15




Watch

European Improvement & A Recovery in Housing

by James Brown

Click here to email James Brown


New Watch List Entries

EWI - Italy ETF

TOL - Toll Brothers, Inc.


Active Watch List Candidates

CVS - CVS Health

MA - MasterCard Inc.

NKE - Nike Inc.

TJX - The TJX Companies, Inc.


Dropped Watch List Entries

FB has graduated to our active play list.



New Watch List Candidates:

iShares MSCI Italy Capped ETF - EWI - close: 15.10

Company Info

Italy could be on the brink of an economic turnaround. The Wall Street Journal recently reported that Italy could escape from its chronic economic fatigue. The country's economic growth has been slowing down for years with growth falling from +2% in the 1980s to +1.4% in the 1990s to just +0.6% in the 2000s. The country has averaged -0.5% growth since 2010.

The situation appears to be changing. Markit's manufacturing PMI data for March hit 53.3, an 11-month high. Numbers above 50.0 suggest growth. UniCredit is forecasting Italian GDP growth of +0.2% in Q1 2015, which would snap the country out of its three-year recession.

The Organization for Economic Cooperation and Development (OECD) has upgraded their forecast on Italy for 2015 and 2016. They now see growth of +0.6% in 2015 and +1.3% in 2016.

The combination of lower oil prices and a weaker euro to boost exports should boost European economic growth. Plus, the European Central Bank (ECB) just launched a 60 billion euro QE program in March 2015 that will last at least through September 2016 or longer if they don't hit their 2% inflation target.

Investors know that QE helped fuel a multi-year rally in the U.S. stock market and they are expecting a similar reaction in the European stock markets.

The EWI could be a way to play it. This is an ETF that mimics the MSCI Italy 25/50 index. Underlying stocks are traded on the Milan stock exchange. It's one of the most liquid ETFs focused on Italy.

Technically the EWI appears to have formed an inverse (bullish version) of a head-and-shoulders pattern. It's also on the verge of breaking out past its simple 200-dma. Tonight I am suggesting investors wait for the EWI to close above $15.25 and then buy calls the next morning.

Warning: The biggest risk is probably a Greek exit from the Eurozone. Negative headlines that suggest the Greek might exit could generate a lot of volatility in the EWI.

Breakout trigger: Wait for the EWI to close above $15.25
Then buy calls the next morning with a stop at $13.95.

BUY the 2017 Jan $15 call (EWI170120C15) current ask $1.75

Option Format: symbol-year-month-day-call-strike

Daily Chart of EWI:

Weekly Chart of EWI:

Originally listed on the Watch List: 04/05/15


Toll Brothers - TOL - close: 39.90

Company Info

The residential real estate market appears to be in recovery mode. Tonight I'm suggesting TOL as a way to play the industry.

Here's a brief description of the company: "Toll Brothers, Inc., A FORTUNE 1000 Company, is the nation's leading builder of luxury homes. The Company began business in 1967 and became a public company in 1986. Its common stock is listed on the New York Stock Exchange under the symbol "TOL." The Company serves move-up, empty-nester, active-adult, and second-home buyers and operates in 19 states: Arizona, California, Colorado, Connecticut, Delaware, Florida, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New York, North Carolina, Pennsylvania, Texas, Virginia, and Washington, as well as in the District of Columbia.

Toll Brothers builds an array of luxury residential single-family detached, attached home, master planned resort-style golf, and urban low-, mid-, and high-rise communities, principally on land it develops and improves. The Company operates its own architectural, engineering, mortgage, title, land development and land sale, golf course development and management, home security, and landscape subsidiaries. The Company also operates its own lumber distribution, house component assembly, and manufacturing operations. The Company purchases distressed loan and real estate asset portfolios through its wholly owned subsidiary, Gibraltar Capital and Asset Management. The Company acquires and develops commercial and apartment properties through Toll Commercial and Toll Apartment Living, and the affiliated Toll Brothers Realty Trust, and develops urban low-, mid-, and high-rise for-sale condominiums through Toll Brothers City Living."

Earnings reports from the homebuilders have been bullish. KB Home (KBH) recently reported earnings that were above estimates on both the top and bottom line. KBH management said they see stronger margins and accelerated revenue growth in 2015.

Lennar (LEN)'s most recent earnings report beat Wall Street estimates on both the top and bottom line. They believe we are in the early stages of a housing recovery.

TOL's most recent earnings report was February 24th. Analysts were expecting a profit of $0.29 a share on revenues of $771.8 million. Management reported earnings of $0.44 a share and revenues soared +32.6% to $853.5 million.

TOL delivered 5,397 homes in 2014 at an average price of $725,000. Today they are forecasting 5,200 to 6,000 homes in fiscal year 2015 at an average price of $725,000 to $760,000.

Sales data also supports an improvement in the housing sector. A couple of weeks ago the New Home sales numbers for February 2015 hit a seasonally adjusted rate of 539,000. That's the fastest pace in seven years. The January number was revised higher from 481K to 500K. We haven't seen new home sales above 500K for two months in a row since 2008.

Shares of TOL have rallied to major resistance at $40.00. A breakout here would be very bullish. The point & figure chart is already bullish and forecasting at $47.00 target. I am suggesting investors wait for TOL to close above $40.50 and then buy calls the next morning with a stop loss at $37.85.

Readers might want to check out the other big homebuilding stocks as they also look bullish (LEN, RYL, PHM, MHO, DHI, BZH, and KBH).

Breakout trigger: Wait for TOL to close above $40.50
Then buy calls the next morning with a stop at $37.85

BUY the 2016 Jan $45 call (TOL160115C45) current ask $1.70

Option Format: symbol-year-month-day-call-strike

Chart of TOL:

Originally listed on the Watch List: 04/05/15


Active Watch List Candidates:



CVS Health - CVS - close: 102.71

Comments:
04/05/15: CVS eked out a gain for the week but I’m worried the stock is rolling over. CVS looks like it could dip to $100.00 soon. If it breaks $100 then it's likely headed for the $92 area.

Currently we are on the sidelines waiting for a close in the $105-106 zone.

Earlier Comments: March 22, 2015:
We just removed WBA as a watch list candidate but we are replacing it with CVS. Both companies are in the drug store business. Both stocks have been showing significant strength the past couple of years. Fortunately for us CVS stock hasn't sprinted away from us like WBA.

The company describes itself as "CVS Health (CVS) is a pharmacy innovation company helping people on their path to better health. Through our 7,800 retail pharmacies, more than 900 walk-in medical clinics, a leading pharmacy benefits manager with nearly 65 million plan members, and expanding specialty pharmacy services, we enable people, businesses and communities to manage health in more affordable, effective ways. This unique integrated model increases access to quality care, delivers better health outcomes and lowers overall health care costsj."

The most recent earnings report was 2014 Q4 numbers on February 10th. CVS' earnings were in-line with estimates. Revenues were up +12.9% to $37.0 billion, which beat estimates for $36.0 billion. Their pharmacy services revenues were up +21.7%.

Full year 2014 earnings were up +13.5% to $4.49 a share. Management guided 2015 earnings in the $5.05-5.19 range (+12% to +15.5%), which is in-line with estimates. Following the earnings report a couple of analysts upgraded their price targets into the $114-115 range. The point & figure chart is very bullish with a long-term target of $141.00.

Currently shares of CVS are hovering just below resistance at the $105.00 level. Tonight I am suggesting we wait for shares of CVS to close inside the $105.00-106.00 zone and buy calls the next day with a stop loss at $99.85.

Breakout trigger: Wait for CVS to close in the $105.00-106.00 zone
Buy calls the next morning with a stop at $99.85.

BUY the 2016 Jan $110 call (CVS160115C110)

Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 03/22/15


MasterCard Inc. - MA - close: 87.03

Comments:
04/05/15: MA is only down 22 cents for the week but the action looks bearish. MA has been failing below short-term resistance at the 10-dma. If shares don't see some improvement this week then we'll likely remove it as a watch list candidate. I don't see any changes from my recent comments.

Earlier Comments: March 22, 2015:
Do you have a credit card? How about a debit card? Odds are you do. About 70% of Americans have a credit card and many have more than one. Inside the United States there are over 500 million credit cards between American Express, MA, and Visa. There's more than 1.12 billion globally (not counting the U.S.). There's also another 572 million MA or Visa debit cards in the U.S. (MasterCard has more than 144 million). Not counting America there are more than 1.2 billion debit cards around the world.

Now what if you could charge a small percentage for consumers using their plastic every time they make a purchase? That's MA's business model. As of 2013 their market share of global transactions (credit or debit) was about 27%. They are the second biggest credit and debit card company behind Visa (V). According to the company, "MasterCard (MA), www.mastercard.com, is a technology company in the global payments industry. We operate the world's fastest payments processing network, connecting consumers, financial institutions, merchants, governments and businesses in more than 210 countries and territories. MasterCard's products and solutions make everyday commerce activities – such as shopping, traveling, running a business and managing finances – easier, more secure and more efficient for everyone."

MA has been delivering steady growth. They reported their Q3 results on October 30th with earnings up +19% from a year ago to $0.87 a share. That beat estimates. Revenues were up +12.8% to $2.5 billion, also above expectations. The bullish trend continued when MA reported its 2014 Q4 results on January 30th. Earnings per share soared +32% from a year ago to $0.69 and revenues grew +13.6% to $2.42 billion. Both metrics were above Wall Street expectations.

The company did warn that the surge in the U.S. dollar was impacting results but they still see strong single-digit revenue growth for 2015. They reaffirmed +20% earnings growth.

Meanwhile one of MA's biggest rivals, American Express (AXP), is not having a good year. AXP lost its exclusive deal with Costco (COST) last month. This deal generated 20% of AXP's loans and about 10% of their annual card growth. AXP is also losing its partnership with JetBlue (JBLU). AXP's losses will likely be MA's and Visa's gain.

Recently MA announced it had signed a 10-year deal with Citigroup. Not only is Citigroup one of the biggest banks on the planet they are the largest credit card issuer in the world. The press release states "Citi will begin aligning the company's consumer proprietary credit and debit portfolios to the MasterCard network in 2015." One analyst has already opined that the deal should provide a "decent tailwind for EPS growth" (for MA). Speaking of opinions, a couple of analysts at Nomura believe that MA is cheap at current valuations and could be seen as safe haven investment given their steady earnings growth.

“Despite a mixed global economy, we delivered solid results for the quarter and for the full year in 2014,” said Ajay Banga, president and CEO, MasterCard. “This year is off to a good start with several new wins, as well as renewals of some important customer agreements, with more in the pipeline. Looking ahead, we will continue to be at the forefront of our industry by driving payment innovation with solutions such as MasterPass, and by increasing electronic payments usage globally as demonstrated by our significant expanded acceptance footprint across Africa.”

Technically shares of MA have started to bounce after a 50% correction of its February rally. The rising 50-dma also provides technical support. The point & figure chart is bullish and currently forecasting at $118.00 target. Aggressive investors might want to consider launching bullish positions on a close above Friday's high of $90.36. I am suggesting we wait for MA to close at a new high above $93.15. Then buy calls the next morning with a stop loss at $86.40.

Breakout trigger: Wait for a close above $93.15
Then buy calls the next morning with a stop at $86.40

BUY the 2016 Jan $100 call (MA160115C100)

Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 03/22/15


Nike, Inc. - NKE - close: 99.66

Comments:
04/05/15: NKE is still digesting its mid-March gains. Last week shares received a new price target ($115) and a bullish write up on Business Insider. Unfortunately the stock has been stuck churning sideways on either side of resistance at $100.00.

There is no change from last week's new watch list addition.

Earlier Comments: March 29, 2015:
In Greek mythology Nike is the winged goddess of victory. It's an appropriate brand name for the American athletic wear giant. Nike is the 800-pound gorilla in the industry with annual sales of more than $30 billion.

If you're not familiar with the company, "NIKE, Inc., based near Beaverton, Oregon, is the world’s leading designer, marketer and distributor of authentic athletic footwear, apparel, equipment and accessories for a wide variety of sports and fitness activities. Wholly-owned NIKE, Inc. subsidiaries include Converse Inc., which designs, markets and distributes athletic lifestyle footwear, apparel and accessories, and Hurley International LLC, which designs, markets and distributes surf and youth lifestyle footwear, apparel and accessories."

The company's most recent earnings report was March 19th, after the closing bell. NKE reported its Q3 2015 results. Analysts were expecting a profit of $0.84 a share on revenues of $7.62 billion. NKE delivered a profit of +0.89 a share or +16% from a year ago. Revenues were up +7% to $7.46 billion. However, if you back out the currency headwinds, their revenues were up +13%.

The company reported sales growth across every geographical region. Their gross margins improved 140 basis points to 45.9 percent. Management said their online sales are soaring. Nike.com saw its revenues jump +42% last quarter.

The current quarter is NKE's 2015 Q4 (March-July) and the company said orders for Q4 in North America are up +15%, which is above analysts' estimates of +11.6%. Orders from China are up +11%, also above estimates. In the company's earnings release NKE said, "As of the end of the quarter, worldwide futures orders for NIKE Brand athletic footwear and apparel scheduled for delivery from March 2015 through July 2015 were 2 percent higher than orders reported for the same period last year. Excluding currency changes, reported orders would have increased 11 percent."

One big concern is the U.S. dollar. Sales in Europe were up +21% but when you factor in euro weakness and dollar strength that sales growth drops to +10%. The strength in the U.S. dollar is a major headwind but after NKE's Q3 results Wall Street feels that the company is managing the currency impact very well. The company is forecasting low double digit sales growth in the current quarter.

Wall Street applauded the results and shares of NKE gapped open higher on March 20th to hit all-time highs. There was a parade of bullish analyst comments. Several firms raised their price target on NKE. Here's a brief list of new price target: $106, $110, $115, $116.00. The point & figure chart is more optimistic as it is forecasting at $125.00 target.

Shares of NKE have seen some profit taking, which isn't a surprise considering the market's recent decline. However, now that NKE has filled the gap, traders jumped in to buy the dip. The stock looks poised to breakout past round-number resistance at $100.00 (again). Tonight I am suggesting investors wait for NIKE to close above $101.00 and then buy calls the next morning with a stop loss at $94.45.

Breakout trigger: Wait for a close above $101.00
Then buy calls the next morning with a stop loss at 94.45

BUY the 2016 Jan $110 call (NKE160115C110)

Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 03/29/15


The TJX Companies, Inc. - TJX - close: 69.32

Comments:
04/05/15: TJX came really close to meeting our entry point requirements but shares retreated from Monday's bullish breakout. The stock's rally failed at $71.00 twice in a row. Tonight we're adjusting our entry trigger from a close above $70.50 to a close above $71.00 as our new entry point.

Earlier Comments: March 29, 2015:
Investors should take notice when a company lowers guidance but the market doesn't care. Normally when a company lowers their earnings forecast their stock gets clobbered. That hasn't been the case for TJX.

The company describes itself as, "The TJX Companies, Inc. is the leading off-price retailer of apparel and home fashions in the U.S. and worldwide. As of January 31, 2015, the end of the Company’s fiscal year, the Company operated a total of 3,395 stores in six countries, the United States, Canada, the United Kingdom, Ireland, Germany, and Poland, and three e-commerce sites. These include 1,119 T.J. Maxx, 975 Marshalls, 487 HomeGoods and 6 Sierra Trading Post stores, as well as tjmaxx.com and sierratradingpost.com, in the United States; 234 Winners, 96 HomeSense, and 38 Marshalls stores in Canada; and 407 T.K. Maxx and 33 HomeSense stores, as well as tkmaxx.com, in Europe."

Management is increasingly shareholder friendly. They just recently announced a +20% increase to their dividend (now $0.21 a share). TJX also announced they plan to spend $1.8 to $1.9 billion buying back their stock in fiscal year 2016 (ends January 30, 2016). That's about $100 to $200 million more than last year's stock buyback program.

Of course the real question is earnings. TJX reported their Q3 results on November 18th. Earnings were in-line with estimates at $0.85 a share while revenues were up +5.5% to $7.37 billion. Comparable stores sales came in at the high-end of guidance at +2.0%. Unfortunately management guided lower due to currency headwinds. The market didn't care about this lowered guidance and soon TJX stock was at new highs.

The company reported their 2015 Q4 results on February 25th. Earnings were up +15% from a year ago to $0.93. That beat estimates by three cents. Revenues were up +6.3% to $8.3 billion, above estimates. Comparable store sales surged +4%, well above expectations. Their margins improved from 12.0% to 12.4%.

Carol Meyrowitz, Chief Executive Officer of The TJX Companies, Inc., stated, "We are very pleased to end 2014 with excellent results in the fourth quarter! Our EPS growth of 15% and comp increase of 4% significantly exceeded our expectations. We are particularly pleased our comps were almost entirely driven by customer traffic, as consumers responded to our exciting merchandise assortments, amazing values and effective marketing. Merchandise margins were also very strong. We are also very pleased with our full year 2014 performance. Our adjusted earnings per share growth of 12% over last year's 15% increase marks our sixth consecutive year of double-digit EPS increases."

She went on to say, "Like other major international retailers, our 2015 plans also reflect an expected negative impact from foreign currency exchange rates. Our underlying business remains very strong and we are reiterating our 10% to 13% long-term annual EPS growth model. We see tremendous U.S. and international potential for our Company. We are excited to be entering our seventh country, Austria, this spring, and to announce our plans to expand into our eighth country, The Netherlands, later this year. We are growing TJX as a global, value retailer and are well on our way to becoming a $40 billion company and beyond!"

TJX management lowered their 2016 Q1 and full year guidance with expectations for currency headwinds at 5%. They also announced they were raising their minimum wage for workers in the U.S. to $9.00 an hour. This matches a move by larger rival Wal-mart who announced a wage hike. Investors seem unconcerned with the lowered earnings guidance. Traders bought the initial dip and now TJX is trading near new highs.

Technically the stock has been consolidating just below major resistance at $70.00 for weeks. Today it is poised for a bullish breakout. The point & figure chart displays a quadruple top breakout buy signal with an $89.00 target. I am suggesting we wait for TJX to close above $70.50 and buy calls the next morning with a stop loss at $66.25.

Breakout trigger: Wait for a close above $71.00
Then buy calls the next morning with a stop loss at 66.25

BUY the 2016 Jan $75 call (TJX160115C75)

04/05/15 adjust trigger from a close above $70.50 to a close above $71.00
Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 03/29/15