Option Investor
Newsletter

Daily Newsletter, Sunday, 4/12/2015

Table of Contents

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

Leaps Trader Commentary

Stocks Rally Into Earnings Season

by James Brown

Click here to email James Brown

The March nonfarm payroll report on Friday, April 3rd, was a complete disaster. Job growth was tens of thousands below estimates and less than half of February's report. Yet the disappointing data failed to send stocks lower. Quite the opposite. Investors continue to believe that bad news is good news because it will keep the fed on the sidelines and postpone their imminent rate hike.

Investors bought the dip on Monday morning and stocks produced a widespread rally last week. The S&P 500 is up five out of the last six trading days. Technology stocks are back to leading the market higher. The semiconductor index rallied +2.8% for the week. Biotechs surged almost +4%. Merger and acquisition news tends to generate bullish sentiment in the market. Last week there were two big deals announced. FedEx (FDX) said they will spent $4.8 billion to buy a smaller European rival, TNT Express. Oil and energy giant Royal Dutch Shell will spend almost $70 billion to buy BG Group.

Stock buybacks tend to be positive for equities as well. One of the main stories on Friday was General Electric's (GE) announcement of a $50 billion stock buyback. That rivals the $50 billion stock buyback announcement from Apple Inc. (AAPL) about two years ago. AAPL's buyback is expected to be completed this year. GE's news was part of a major restructuring plan. They plan on selling up to $165 billion worth of assets. This will help pay for the $50 billion buyback and another $40 billion worth of dividends between now and 2018.

The U.S. dollar is up five days in a row but this failed to stop the rally in crude oil. Oil rallied +4.4% last week and is up three weeks in a row. This is somewhat surprising as oil inventories inside the United States continue to build. The American Petroleum Institute reported that inventories grew by 10.9 million barrels last week. That was the biggest one-week surge in inventories in 14 years. That pushed current levels to a new 80-year record (about 482 million barrels).

In the chart below the blue line is our current level of crude oil inventory. The shaded gray area is the five-year average range.

EIA Chart of the U.S. oil inventory

Oil production continues to surge even though active rigs in the U.S. fell for the 18th week in a row. The Baker Hughes rig count saw active rigs drop by 40 last week to 988. This number is now down -48.8% from its September 2014 high of 1,931.

The U.S. isn't the only one producing record oil. OPEC's official quota for the cartel is no more than 30.0 million barrels per day. In March OPEC produced 31.5 mbpd. That's up +1.2 mbpd from the prior month and up +2.0 mbpd from March 2014. Saudi Arabia generated a record-settling 10.3 mbpd last Month. The Saudi's claim they can produce more than 12 mbpd if they wanted to.

There was another big story in oil last week. One oil exploration company in the United Kingdom claims that their onshore site in southern England has tapped a reservoir with 100 billion barrels of oil in it. That's an astonishing amount and would be more than double the amount of oil that Britain has pumped from the huge North Sea oil fields over the last 40 years (source: CNNmoney). Of course it is important to note that most of the time drillers can't access all the oil. Typically only 3% to 15% may be recoverable.

Economic Data

It was a relatively quiet week for U.S. economic data. The ISM non-manufacturing (services) index slipped from 56.9 in February to 56.5 in March. Numbers above 50.0 suggest growth. The wholesale inventory data for January 2015 was revised from +0.3% to +0.4% and February's number was reported at +0.3%.

The weekly initial jobless claims number bounced from 267,000 two weeks ago to 281,000 last week. Yet the four-week moving average has fallen to 282,250, which is the lowest level since mid 2000 (15 years). The latest job opening number hit a 14-year high at 5.13 million job listings.

Investors were keen to read the latest FOMC minutes from the last meeting. Analysts want to find any clue to help them predict when the Fed might raise rates. Unfortunately the minutes released on Wednesday showed a very divided committee. Some members argued that the Fed should raise rates in June while others remain worried that the economy is still not strong enough to endure a rate hike. The group of fed governors are worried about lack of improvement in consumer spending and wage growth. They also noted how the dollar's strength might limit economic growth.

Central Banks

There were several central bank meetings last week. The Bank of England, Bank of Korea, Bank of Japan, Reserve Bank of Australia, and the Reserve Bank of India all met independently. All of them left their interest rates unchanged.

Overseas Economic Data

Inflation, or rather deflation, remains a serious concern in Europe. The Eurozone Producer Price Index (PPI) gauge on wholesale inflation rose +0.5% in February but it was down -2.8% from a year ago. Eurozone retail sales slipped -0.2% for the month but were up +3.0% from a year ago. Meanwhile in you can't make this up category the country of Switzerland sold ten-year bonds with a negative yield. A few European countries have had negative yields for a while but this was a new bond offering and investors were willing to buy these bonds even though Switzerland is going to charge them to hold their money.

Looking East the country of Japan said their Machine Tool Orders data rose +14.6% from a year ago. China said their Consumer Price Index (CPI) for March was down -0.5% from the prior month but up +1.4% from a year ago. Their wholesale PPI was down -4.6% from a year ago. Bloomberg ran an article last week where one of their analyst had just toured the country and what they saw was worrisome. In their opinion Chinese economic activity was very slow. They saw a country filled with idle cranes and empty construction sites with half-finished, abandoned buildings. Comments from Chinese Premier Li Keqiang last week didn't help. Li said, "At this time, the national economy is running smoothly, but downward pressure continues to grow." That might be an understatement with Chinese growth at 24-year lows.




Major Indices:

The big cap S&P 500 index managed a +1.7% gain last week. The index broke through short-term resistance near 2,090 and closed above the 2,100 mark for the first time in three weeks. The 2,090 level is hopefully new support. Now the index is approaching overhead resistance at its February and March highs near 2,115 and 2,120 Year to date the S&P 500 is up +2.1%.

chart of the S&P 500 index:

Thanks to a concentration of semiconductor and biotech stocks the NASDAQ delivered a strong week. The composite index rallied +2.2% and is once again challenging the 5,000 level. The 5,000 mark is round-number, psychological resistance. You can also see the NASDAQ has a trend line of higher highs that has been resistance in the past. We can probably expect support/resistance at every 50-point interval (4950, 5000, 5050, etc.) Year to date the NASDAQ is up +5.5%.

chart of the NASDAQ Composite index:

The small cap Russell 2000 index ($RUT) continues to push higher but momentum slowed a bit last week. The trend of higher lows is bullish. Currently the $RUT is approaching its all-time high (and new resistance) near 1,268 set last month. A breakout here would be bullish for the wider market. We can watch for short-term support near 1,240. Year to date the $RUT is up +5.0%.

chart of the Russell 2000 index



Economic Data & Event Calendar

There are a number of economic reports being released this week. The PPI and CPI will provide a look at inflation in the U.S. We'll get two regional Fed surveys from New York and Philadelphia. The Fed will also release their monthly Beige book data. Yet all of this will likely be overshadowed by the first full week of Q1 earnings announcements.

Economic and Event Calendar

- Monday, April 13 -
The first full week of Q1 earnings season begins.

- Tuesday, April 14 -
U.S. Retail Sales for March
Producer Price Index (PPI)

- Wednesday, April 15 -
New York Empire State manufacturing survey
Industrial Production
Federal Reserve Beige Book

- Thursday, April 16 -
Housing Starts & Building Permits
Philadelphia Fed survey

- Friday, April 17 -
Consumer Price Index (CPI)
University of Michigan Consumer Sentiment survey

Additional Events to be aware of:

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

Looking Ahead:

Earnings, earnings, and more earnings will be the main story this week. Three months ago Wall Street was expecting 2015 Q1 earnings growth of +5%. Today estimates are anywhere from -1.9% to -5% versus a year ago. Thomson Reuters is forecasting S&P 500 earnings to fall -2.9% in Q1. FactSet is projecting a -4.7% in Q1, a -2.1% decline in Q2 but a +1.6% rise in Q3 2015.

Everyone already knows that the sharp rise in the U.S. dollar has hurt sales and margins for big multi-nationals. About 50% of revenues for the S&P 500 companies are outside the United States. We can expect everyone to blame the dollar for their poor performance. There might be a silver lining here. Expectations are so low that corporate results might actually surprise to the upside - as in they will not be as bad as feared. This could actually fuel stock market gains.

I'm warning readers now that this could be a volatile earnings season. Odds are good we are going to see some spectacular earnings misses. The reaction in the individual stocks could be drastic. Wall Street will be focused on corporate guidance and what business executives have to say about the rest of 2015.

These week there are dozens of companies reporting. Here is a brief list of some of the bigger companies reporting this week:

Financials: JPM, WFC, BAC, SCHW, USB, C, GS, AXP,
Technology: INTC, GOOGL, SNDK, CY, STX,
Transports: CSX, JBHT, DAL,
Industrials: HON, GE,
Healthcare: JNJ, UNH,

T.I.N.A.

It is widely believed that the Federal Reserve's QE program and easy money policies helped fuel six years worth of stock market gains in the U.S. The Fed has stopped their QE program but Japan and Europe have picked up the QE baton. Japan's central bank is in the middle of a massive QE program in their effort to shock the country out of deflation. Europe's central bank just launched their QE program in March this year and it's expected to last until September 2016 (or longer). There are actually 23 central banks focused on easy money policies to stimulate their economies and cheapen their currencies. This is fueling widespread market gains.

T.I.N.A. stands for There Is No Alternative and suggests that stocks are the only investment that people can choose because interest rates are so low. Yields on a U.S. ten-year bond are at 1.95%. A Japanese 10-year note yields 0.33% while a German 10-year bond has a yield of 0.16%. The yields in Switzerland are negative. If you're an investor, would you rather buy bonds or would you rather buy stocks, especially with most of the world's central bank trying to lift asset prices and boost their economies?

Lack of alternatives is driving stock prices higher around the world. The Japanese NIKKEI index rallied past the 20,000 mark for the first time in 15 years this past week. The Chinese markets are surging. Hong Kong's main index and the main Shanghai index both rallied to new seven-year highs last week. The Shanghai index is up about 90% in the last year.

European stocks are in rally mode. Britain's FTSE 100 index, the German DAX, and the Euro STOXX 600 index all hit all-time highs this past week. The MSCI All Country World Index (ACWI) has also broken out to a new all-time high. Bloomberg reports that the value of global equities has surpassed $70 trillion.

Weekly Chart of the MSCI All Country World Index

The week ahead also has another big event for Americans and that's tax day. April 15th is the tax filing deadline. Believe it or not but 2/3rds of Americans have already filed their taxes. The average tax refund so far has been more than $2,800. This could be bullish for the U.S. economy. A lot of folks will spend their refund on bills and debts. However, a good chunk of it could make its way into the stock market or fuel more consumer spending.

Right now the market's trend is higher. I'm somewhat optimistic that earnings expectations are so bad that we could actually see stocks rally if corporate results manage to come in bad but still better than expected.

~ James







Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The U.S. market delivered widespread gains last week. Now it's time to see how investors will react to Q1 earnings season.

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

Tonight I've updated stop losses on AAPL, TXT, and UA.

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

Market Interpretations

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(April 12, 2015)

No new trades tonight. Last week our new watch list candidate EWI, the ETF on Italy, graduated to our active play list.

Tonight I'm adding ASH and IR as new candidates. I would also keep a close eye on shares of Walgreens (WBA), which rallied on its recent earnings report. A pullback toward support in WBA might be a new entry point.

The next few weeks are going to be flooded with Q1 earnings results. Corporations will be blaming the strong U.S. dollar for poor Q1 results. I am suggesting investors wait to see how the market chooses to interpret this excuse and how bad earnings really are before committing a lot of new capital to longer-term LEAPS positions.

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:

STZ, HP, A, PFE, SBUX, EWJ, JBHT, CSX,



Play Updates

Stocks Deliver Another Widespread Gain

by James Brown

Click here to email James Brown

Editor's Note:

EWI 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: 127.10

Comments:
04/12/15: AAPL posted a minor gain for the week. Shares spent most of their time consolidating sideways and bouncing along support near $125.00 and its rising 50-dma.

The big event for AAPL was Friday's release of the Apple Watch. Depending on who you listen to AAPL sold out of its new digital watch in 30 minutes to six hours. You could walk into an Apple store to view a watch but you could only buy them online. Delivery is four to six weeks.

Wall Street estimates have been pretty varied on how many digital watches AAPL will sell this year. I've seen estimates for four million units and as high as 12 million. There seems to be a common theme among many reviews of the watch. It's considered a great device but it's not a "must have" at least not yet. A lot of people have suggested that Apple's 2nd or 3rd iteration of the watch will likely be a huge winner like the iPhone.

There are about 450 million iPhones in circulation. If just 1% of iPhone users buy the watch that's 4.5 million units, which seems like an easy sell considering the number of rabid Apple fans out there.

Technically shares of AAPL look poised to rally from this six-week consolidation. I would be tempted to launch bullish positions on a close above $128.00. However, earnings are coming up on April 27th and the stock could be very volatile following its results.

Tonight I'm raising the stop loss to $118.00.

Trade Description: 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 $15.00/15.10

04/12/15 new stop @ 118.00
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: 118.00
Play Entered on: 12/09/14
Originally listed on the Watch List: 11/02/14


Akamai Technology - AKAM - close: 71.45

Comments:
04/12/15: This past week a Deutsche Bank analyst issued cautious comments on AKAM suggesting the company faces near-term currency headwinds. The average S&P 500 company generates about 50% of their revenues outside the U.S. AKAM only generates 27% outside the U.S. Worries about the strong dollar's impact on sales and margins will be a common theme this earnings season.

Shares of AKAM still managed a gain for the week but seems to be struggling with resistance near $72.00. I am not suggesting new positions at this time.

FYI: AKAM has earnings coming up on April 28th, after the closing bell.

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 $3.80/4.00

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: $43.03

Comments:
04/12/15: Shares of COH saw their rally accelerate last week. The stock is up six out of the last trading days. The next hurdle for the bulls is the early March high near $44.00.

No new positions at this time.

FYI: COH is due to report earnings on April 28th, before the opening bell.

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 $2.80/2.90

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: 30.55

Comments:
04/12/15: The German market continues to rally. Friday's bounce in the EWG erased most of its midweek pullback. I would use this bounce as a new entry point to launch bullish positions in the EWG.

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 $1.95/2.05

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


iShares MSCI Italy Capped ETF - EWI - close: 15.09

Comments:
04/12/15: EWI is a new watch list candidate that has graduated to our active play list. We were waiting for shares to breakout past resistance near $15.00 and its 200-dma. The plan was to wait for EWI to close above $15.25 and then buy calls.

This ETF closed at $15.29 on April 6th. Our trade opened the next morning. Since then EWI has dipped back toward what should be support at $15.00 and its 200-dma. I would use this pullback as a new entry point.

Trade Description: April 5, 2015:
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.

- Suggested Positions -
APR 07, 2015 - entry price on EWI @ 15.31, option @ 2.35
symbol: EWI170120C15 2017 JAN $15 call - current bid/ask $1.70/1.90

04/07/15 trade begins. EWI opens at $15.31
04/06/15 EWI closed @ 15.29, above our trigger of $15.25
Option Format: symbol-year-month-day-call-strike

Chart

Current Target: To Be Determined
Current Stop loss: 13.95
Play Entered on: 04/07/15
Originally listed on the Watch List: 04/05/15


Facebook, Inc. - FB - close: 82.04

Comments:
04/12/15: FB managed a gain for the week in spite of its lack of movement over the last four sessions. I don't see any specific news to explain FB's relative weakness these last few sessions. Investors may want to wait for a new close above $83.50 or a dip near the $80.00 mark as alternative entry points (based on your trading style).

FYI: FB will report earnings on April 22nd, after the closing bell.

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 $4.95/5.10

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

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: 28.20

Comments:
04/12/15: The ITB underperformed the broader market last week. Shares essentially churned sideways near $28.00 but you can definitely see a very short-term bearish trend of lower highs. I would hesitate to launch new positions at the moment. The 50-dma should be short-term support.

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 $1.35/1.60

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: 200.40

Comments:
04/12/15: LMT did manage a gain for the week but shares have spent the last few days churning sideways inside the $200-202 zone. I am not suggesting new positions at this time.

LMT will report earnings on April 21st, before the opening bell.

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 $4.40/5.10

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: 74.90

Comments:
04/12/15: LOW is essentially unchanged for the week. Shares did bounce off their rising 50-dma. A close above the March highs near $76.25 would reaffirm the bullish up trend. I'd wait for that to occur before considering new bullish positions.

FYI: LOW is scheduled to report earnings on May 20th.

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 $3.35/3.45

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: 53.68

Comments:
04/12/15: I am urging caution on our LVLT trade. Momentum has faded lower over the last three weeks. If shares breakdown under support near $53.00 this stock is probably headed for what should be stronger support at $50.00. Our stop loss is currently at $49.45. More conservative investors may want to avoid that decline and either exit positions now or move their stop loss closer to $53.00.

I am not suggesting new positions at this time.

FYI: LVLT will report earnings on April 29th, before the opening bell.

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 $2.80/3.40

04/12/15 Caution! LVLT looks weak. A breakdown under $53.00 probably portends a drop to support at $50.00
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: 82.34

Comments:
04/12/15: Bulls have retaken control in shares of NOW. The stock has continues its bounce from support near $75.00. The stock rallied +8% last week and broke out past resistance in the $80.00 area. These are new all-time highs.

I want to warn readers that NOW is scheduled to report earnings on April 16th, Thursday, after the closing bell. With the stock already at record highs investors may end up selling the news no matter what NOW reports. Expect shares to be volatile on Friday morning (April 17th).

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 $10.60/11.30

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: 139.65

Comments:
04/12/15: The Japanese stock market rallied for the second week in a row. The NIKKEI 225 stock index briefly traded above the 20,000 level for the first time in 15 years on Friday. The strange thing is that shares of TM are not participating in the rally at home in Japan or here in the U.S., at least they didn't this past week.

TM's stock has been consolidating sideways on either side of the $140 level. They're also near a bullish trend line of higher lows going back several months. Shares did receive a downgrade from a "buy" to a "neutral" but TM didn't react much to the news.

More conservative investors may want to consider taking profits now considering TM's relative weakness last week.

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 $12.55/14.60

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: 46.12

Comments:
04/12/15: TXT delivered big gains last Monday. The combination of a widespread market rally and an analyst upgrade boosted TXT to new highs. Barclays raised their price target on TXT to $55.00. The stock spent the rest of the week digesting its Monday gains.

I would be tempted to buy calls here. However, earnings are coming up on April 28th. Investors may want to wait and see how the market reacts to TXT's results.

Tonight we'll raise the stop loss to $41.85.

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 $2.46/2.81

04/12/15 new stop @ 41.85
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: 41.85
Play Entered on: 02/25/15
Originally listed on the Watch List: 02/15/15


Under Armour, Inc. - UA - close: 83.75

Comments:
04/12/15: UA displayed relative strength last week with a +5.4% rally and a breakout to new highs. Shares are outperforming their rival NKE too. I would not chase UA here. Earnings are coming up on April 21st. UA could see some profit taking following its quarterly results.

Tonight we'll raise the stop loss to $76.45, just below the 50-dma.

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 $8.40/8.90

04/12/15 new stop @ 76.45
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: 76.45
Play Entered on: 02/24/15
Originally listed on the Watch List: 02/22/15




Watch

Chemicals & Industrials

by James Brown

Click here to email James Brown


New Watch List Entries

ASH - Ashland Inc.

IR - Ingersoll-Rand


Active Watch List Candidates

MA - MasterCard Inc.

NKE - Nike Inc.

TJX - The TJX Companies, Inc.

TOL - Toll Brothers, Inc.


Dropped Watch List Entries

EWI has graduated to our active play list.

CVS has been removed.



New Watch List Candidates:

Ashland, Inc. - ASH - close: 129.50

Company Info

ASH is in the basic materials sector. The XLB materials ETF is up +2.3% this year. Shares of ASH are outperforming their peers with a +8% gain in 2015.

According to the company, "Ashland Inc. (ASH) is a global leader in providing specialty chemical solutions to customers in a wide range of consumer and industrial markets, including architectural coatings, automotive, construction, energy, food and beverage, personal care and pharmaceutical. Through our three commercial units - Ashland Specialty Ingredients, Ashland Performance Materials and Valvoline - we use good chemistry to make great things happen for customers in more than 100 countries."

Looking at the last couple of earnings reports ASH has been beating estimates on the bottom line. Their most recent report was January 26th where ASH reported a profit of $1.46 per share on revenues of $1.39 billion. Earnings beat estimates by four cents while revenues were down -2.9% from a year ago thanks to foreign currency headwinds (i.e. impact of the strong dollar). Management said that last quarter their strongest growth was in many of the company's higher-margin products.

Technically shares have been building on a bullish trend of higher lows. The point & figure chart is very bullish and forecasting a long-term target of $200 a share.

The all-time high was set on March 2nd, 2015 at $130.66. Tonight I am suggesting we wait for ASH to close above $130.75 and then buy calls the next morning with a stop loss at $124.75.

FYI: More conservative investors may want to wait until after ASH reports earnings on April 29th before considering new bullish positions.

Breakout trigger: Wait for a close above $130.75
Then buy calls the next morning with a stop at $124.75.

BUY the 2016 Jan $140 call (ASH160115C140) current ask $5.30

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

Chart of ASH:

Originally listed on the Watch List: 04/12/15


Ingersoll-Rand - IR - close: 68.59

Company Info

Shares of IR are on the verge of new all-time highs. The company is in the industrial goods sector. According to the company website, "Ingersoll Rand is a global diversified firm providing products, services and solutions to enhance the quality and comfort of air in homes and buildings, transport and protect food and perishables, secure homes and commercial properties, and increase industrial productivity and efficiency. Driven by a 100-year-old tradition of technological innovation, we enable our customers to create progress and a positive impact in their world."

Looking at their recent earnings reports IR has actually lowered guidance the last two quarters in a row. Yet investors are buying the stock anyway. IR's most recent report was January 30th. Earnings grew +34% from a year ago to $0.82 a share. That was 11 cents above estimates. Revenues would have been up +7% but foreign currency issues reduced that to +4.6%, which was still above estimates.

IR management lowered their 2015 guidance into the $3.66-3.81 per share range but that still equates to +10% to +14% annual growth. They expect 2015 revenues to rise +4.5%.

The market did not react to news that activist investor Nelson Peltz was selling some of his stake in IR recently. Last month he sold about 2.3 million shares of IR. This reduces his stake to about 12.27 million or 4.6% of IR's outstanding shares.

Technically shares of IR have been consolidating sideways in the $66-69 range for about six weeks. They look poised for a bullish breakout higher. The point & figure chart is already bullish and forecasting an $86.00 target.

Tonight I am suggesting we wait for IR to close above $69.25 and then buy calls the next morning with a stop loss at $64.75.

FYI: More conservative investors may want to wait until after IR reports earnings on April 23rd before considering new bullish positions.

Breakout trigger: Wait for a close above $69.25
Then buy calls the next morning with a stop at $64.75.

BUY the 2016 Jan $75 call (IR160115C75) current ask $2.50

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

Chart of IR:

Originally listed on the Watch List: 04/12/15


Active Watch List Candidates:



CVS Health - CVS - close: 102.54

Comments:
04/12/15: Shares of CVS have spent the last six weeks consolidating sideways. On the plus side it has avoided some of the market's volatility. On the downside upward momentum has completely stalled.

Our trade has not opened yet. Tonight we are removing CVS as a candidate. You may want to keep it on your radar screen for a close above resistance near $105.00. I would prefer to watch CVS' rival Walgreens (WBA), which is showing a lot more strength.

Trade did not open.

04/12/15 removed from the watch list, suggested trigger was a close in the $105-106 zone.

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


MasterCard Inc. - MA - close: 88.57

Comments:
04/12/15: Shares of MA look like they may have found a bottom. Currently they're consolidating just below resistance near $90.00. Tonight I am adjusting our entry point. Instead of waiting for a close above $93.15 we will move the trigger down to a close above $90.75. We'll move the stop loss to $84.85. We will not change the option strike.

FYI: MA is scheduled to report earnings on April 29th.

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 $90.75
Then buy calls the next morning with a stop at $84.85

BUY the 2016 Jan $100 call (MA160115C100)

04/12/15 Strategy update: adjust the trigger to a close above $90.75 and the stop loss to $84.85 (from a close above $93.15 and a stop at $86.40)
Option Format: symbol-year-month-day-call-strike

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


Nike, Inc. - NKE - close: 99.97

Comments:
04/12/15: Shares of NKE have been struggling with the $100 area. You could argue the stock is inside a $98-102 trading range. Tonight I am adjusting our entry point strategy. We want to see a close above $102.00, then buy calls the next day. We'll move the stop loss to $95.75.

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 $102.00
Then buy calls the next morning with a stop loss at 95.75

BUY the 2016 Jan $110 call (NKE160115C110)

04/12/15 Strategy update: adjust the trigger to a close above $102.00 and the stop loss to $95.75 (from a close above $101.00 and a stop at $94.45)
Option Format: symbol-year-month-day-call-strike

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


The TJX Companies, Inc. - TJX - close: 68.53

Comments:
04/12/15: TJX delivered a disappointing performance last week. Shares look like they're headed for technical support near the rising 100-dma. If the stock doesn't bounce there we'll remove it from the watch list.

Currently we do not want to open positions until TJX closed above $71.00.

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


Toll Brothers - TOL - close: 39.68

Comments:
04/12/15: TOL spent last week consolidating sideways just below resistance at the $40.00 level. The stock did manage an intraday rally above $40.00 on Monday but we want to see a close above $40.50 as our entry trigger.

Trade Description: April 5, 2015:
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)

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

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