Option Investor
Newsletter

Daily Newsletter, Sunday, 4/19/2015

Table of Contents

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

Leaps Trader Commentary

Greece Returns To The Spotlight

by James Brown

Click here to email James Brown

A mixture of bad news coalesced on Friday into a widespread stock market sell-off. Money managers were feeling out of the information loop when the global Bloomberg terminal network went down between Thursday and Friday's sessions. Worries over a Greek exit from the Eurozone seem to be growing and that sparked a sharp drop in European markets. Meanwhile afterhours markets in China produced a knee-jerk reaction lower to new regulations on margin and short selling. Disappointing corporate earnings, as big cap companies blamed the strong dollar, did not improve investor sentiment.

The U.S. stock market's drop on Friday erased its gains for the week. The selling was preceded by a -1.1% decline in the Japanese NIKKEI. The German DAX index fell -2.58% on Friday while the Euro STOXX 50 plunged -3.4%. As investors looked for safety the rally in government bonds continued. The yield on the U.S. ten-year note has fallen from 1.95% a week ago to 1.86%. The German ten-year note saw its yield drop from 0.16% a week ago to an all-time record low of 0.07% on Friday.

One exception to the market's weakness was oil. Crude oil has seen its rally accelerate with a +11.5% gain last week. This is the fourth weekly gain in a row. The weekly Baker Hughes rig count continues to drop. Last week saw another 34 rigs shut down. That's the 19th week in a row active rigs have dropped in the U.S. We're down to 954 combined oil and gas rigs from the October 2014 high of 1,609 rigs. Baker Hughes said historically a downturn like this ends when the number of active rigs drops -40% to -60% and currently we're down -55%, which would suggest we're getting close to a bottom. However, a Morgan Stanley analysts noted that a pullback in active rigs normally takes about 25 weeks to play out and that would suggest we still have six weeks to go. Morgan Stanley is estimating it could take another three months.

Economic Data

The economic data was mostly negative last week. The New York Empire State regional fed manufacturing survey dropped to -1.2 when economists were expecting a reading of 7. The Philadelphia Fed Business Outlook survey went the opposite direction and improved from 5.0 in March to 7.5 in April. The U.S. industrial production numbers fell -0.6% in March from a +0.1% gain in February.

Housing data was bleak. Housing starts in March only rose +2% to 926,000 when analysts were expecting a +15.9% rise. This followed a -15% drop in February. Building permits declined -5.7%. We'll get more on residential real estate sales this week.

U.S. retail sales data rose +0.9%. This was below expectations for +1.1%. Consumer sentiment in April improved from 93.0 to 95.9, which was better than estimated.

The Consumer Price Index (CPI) delivered its second monthly gain in a row with a +0.2% reading. The core CPI, which excludes food and energy, was up +0.2% and the third monthly gain in a row. Year over year the CPI is up +1.8% and nearing the Fed's +2.0% target. The main reason behind the CPI's rise was a rebound in gasoline prices. The energy component surged +3.9% in March.

This has some market pundits speculating on the possibilities of a Fed rate hike in June. However, the current consensus on Wall Street is the Fed's next hike will not happen until September or October this year.

Overseas Economic Data

Japan reported that their Industrial Production data from February fell -3.1% for the month following a -3.4% drop in January. Their capacity utilization dropped -3.2%. Meanwhile in China there seems to be a big divergence between their economy and their stock market. Economists were expecting Chinese exports to rise +12% but the latest report showed a -15% drop. The government reported last week that their Q1 GDP was +7.0%. That met expectations but was down from Q4's +7.3%. At 7.0% their economy is at a multi-year low.

There is widespread doubt over the accuracy of some Chinese economic reports, which is why many believe the Chinese economy is actually worse than what the government is publishing. Analysts have turned to following power consumption in China as an ancillary gauge on the country's growth. The most recent data showed power consumption in China fell -2.2% from a year ago and marks the second decline in a row.

In spite of this economic slowdown the stock markets in China are surging. Both the Shanghai composite and the Hong Kong Hang Seng index recently hit multi-year highs. The Shanghai composite is up almost +100% in the last 12 months. The Hang Seng just tested the 28,000 level for the first time since 2007. Both markets could see a sell-off on Monday.

After the closing bell in China on Friday their stock market regulators announced new rules limiting investors ability to use margin. At the same time they also increased the number of stocks that could be shorted. Margin use in China has exploded so it's not a surprise that regulators would try and cool the current market mania. Long-term the fact that they're allowing more stocks to be shorted is a good thing. Yet short-term (like Monday morning) there could be a knee-jerk reaction lower. Futures for the Chinese market turned lower after this announcement.

Looking across the Atlantic ocean the economic data was mixed and generally overshadowed by the situation with Greece. The Eurozone's Industrial Production for February improved +1.1%. That was better than expected. Their consumer price index (CPI) saw inflation rise +1.1% in March. This is welcome news since the region has been struggling with deflation. Right now the real focus is Greece.

Greece

The epic game of brinkmanship between Greece and Europe (mostly Germany) is quickly coming to a head. Two weeks ago Greece made a $490 million debt payment to the IMF on April 9th. Now they need to come up with another payment of $763 million to pay the IMF in early May. A few days ago the Financial Times ran a story about Greece asking the International Monetary Fund if they could delay their upcoming payment. The IMF said no. Greek officials deny any such request was made. The story still generated a new round of worry about Greece's ability to honor its debts.

The story above reinforced concerns that Greece is essentially out of cash. There was another news story out late last week that said Greece will have to scrape together all its remaining money to pay its government wages and pensions at the end of April, which would amount to about $2.1 billion. The official Greek news agencies deny the situation is that dire (what else would they say?).

If that wasn't bad enough Standard & Poor's downgraded the country again. This time Greece has been cut from "B-" to "CCC+" with a negative outlook. This action helped drive Greek bonds to their worst week in months. The yield on a 10-year Greek bond is now 12.9% and the 2-year bond has a yield of 26.8%. If you recall, normally sovereign 10-year yields above 7% is the red-line warning to investors of an potential default.

Euro-area finance ministers are going to have another meeting to argue over Greece this coming April 24th in Latvia. No one expects any serious deal to get done by then. There is speculation brewing that Europe is going to relax some of the reforms they requested from Greece to qualify for another round of bailout money.

Officially the EU does not want Greece to leave. Joining the Eurozone was supposed to be a one-way ticket with no going back. If Greece leaves then it opens up the possibility of over countries leaving the euro. Unfortunately, Greece will never be able to pay back the hundreds of billions of euros worth of debt they have accumulated (currently about 303 billion euros). In spite of the official stance one has to wonder, now that the European Central Bank (ECB) has started its QE program to stimulate their economy, and after years of preparing for a potential exit, is Europe finally ready for Greece to leave? Are they prepared for the short-term shock and ready to look beyond a Grexit?

Bloomberg recently ran an article on some of the potential scenarios facing Europe and Greece. Here's an excerpt on what the author's believe is the worst case scenario:

"Greece separates from the euro area in a messy default, amid demonstrations, deepening misery for most and the government blaming everything on the Germans.

No help is provided to support a new currency and to keep servicing bonds and IMF debt. That triggers cross-default clauses to all creditors. The government and banks collapse, meaning that years will be needed before a new structure emerges.

Greece's economy plunges into a second depression. The blow from the biggest default in the history of capitalism drives Europe back into a recession and heaps pressure on vulnerable euro countries such as Italy.

Bad blood leads to Greece's departure from the European Union. The idea that the euro is irreversible is thrown into question, rattling global markets. The economic implosion paves the way for extremists, from either the left or the far right, to take power. Those who can, flee the country.

The tumult casts doubt on Greek membership in NATO. A new - - and unstable -- government turns to Russia for support, providing a Mediterranean outpost for Vladimir Putin." (Link to the Bloomberg article.)

It has been often speculated that if Greece were to leave the Eurozone it would occur over a weekend. This is just another reason why stocks were weak on Friday. The next few Friday's could be challenging for investors. Influential investor Dennis Gartman believes that Greece could make the decision to leave within the next two or three week(ends).

Greece's $763 million payment to the IMF is due on May 12th. According to the New York Times, Greece has an even larger burden of €11 billion in payment to the ECB in June and July this year. CNN Money is quoting a different figure of €3.5 billion in July and another €3.2 billion in August. It doesn't matter if the total is 6.7 billion or 11 billion euros the odds of Greece making these payments to the ECB without help or some sort of restructuring seem very small.




Major Indices:

Momentum indicators for the big cap S&P 500 index are rolling over. Friday's big drop took a lot of wind out of its sails. For the week the S&P 500 lost -0.99% and is now only up +1.0% for the year.

I cautioned readers last week that the March highs near 2,115 could be resistance. Well the S&P 500 failed twice near 2,112 this past week. Should this pullback continue I'd watch for potential support near 2,050 or the simple 200-dma nearing 2,025.

chart of the S&P 500 index:

The NASDAQ spent most of the week hovering on either side of the 5,000 level. Friday's drop of -1.5% sent the index back toward its rising 50-dma. It also reduced its 2015 gains to +4.1%. What should worry traders is the technical pattern the NASDAQ is forming. The pullback on Friday looks like the right shoulder to a bearish head-and-shoulders pattern. The neckline (support) is in the 4,850 area. If this is an H&S pattern then a breakdown under 4,850 would forecast a drop toward 4,650.

chart of the NASDAQ Composite index:

The small cap Russell 2000 index was hitting new all-time highs prior to the market's selloff on Friday. The index found support at its trend line of higher lows. Should this trend line break then 1,220 and 1,200 are potential support areas. Last week's -1.0% drop reduced the $RUT's 2015 gains to +3.9%.

chart of the Russell 2000 index



Economic Data & Event Calendar

The week ahead is relatively quiet for economic data. We'll see new and existing home sales. Friday will bring the latest durable goods orders. Yet all of these will be overshadowed by the deluge of corporate earnings. Almost 25% of the S&P 500 companies will report this week. Some of the high-profile companies reporting include: AMZN, BA, EBAY, GOOG, KO, IBM, MCD, MSFT, SBUX, YHOO and YUM.

Economic and Event Calendar

- Monday, April 20 -
Chicago Fed national activity index

- Tuesday, April 21 -
(nothing significant)

- Wednesday, April 22 -
HSBC China manufacturing PMI
Existing Home Sales

- Thursday, April 23 -
Eurozone PMI data
New Home Sales

- Friday, April 24 -
Durable Goods Orders

Additional Events to be aware of:

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

Looking Ahead:

The Atlanta Fed has updated their Q1 GDP outlook again. They currently expect U.S. Q1 GDP growth to be +0.2%. The economists at the IMF must think this weakness is temporary. Currently the IMF is still expecting +3.0% growth for the U.S. in 2015, which would be the best year since 2005.

Meanwhile market analysts are starting to speculation on a potential correction in stocks. Mark Tepper, CEO of Strategic Wealth Partners, offered an interesting outlook. According to Tepper, "Current market and economic conditions have created the perfect storm for a 10% market correction. We are looking at really stretched valuations right now with the forward PE of 17+ a red flag." Also, "We have deteriorating earnings, fading economic momentum, the strong dollar and looming interest rate hikes. I do think a pullback is very much in the cards."

Tepper might be right. The U.S. market is way overdue for a correction (defined by a -10% pullback from the market's highs). At the moment the current bull market in U.S. stocks is six years old. Furthermore we have gone about 1,300 days without a -10% correction. We got really, really close last year with a -9.8% pullback in October 2014.

Upward momentum has definitely stalled. The S&P 500 is up less than +0.7% in the last 75 trading days. We've gone 80 days without a 2% (one-day) move. According to Jeff Hirsh, with the Stock Trader's Almanac, the long-term average for the market is a -10% correction every 514 days. Mr. Hirsh did point out that the market can keep going. The longest the S&P 500 has ever gone without a correction was 2,553 days in the 1990s.

Overall I don't see a lot of changes from my comments last week. I warned readers that this would likely be a very volatile earnings season. Everyone already knew the strong dollar would hurt big cap earnings. The fact that corporations are warning the dollar could hurt results for the rest of the year shouldn't be that surprising. The real wildcard here could be Greece.

Greece has been a thorn in the market's side for years but that hasn't stopped the U.S. market from a six-year run (Thanks QE!). The European markets were hitting all-time highs earlier this month. The big banks and the financial system has had plenty of time to prepare for a Greek default. Odds are really good that the market will see a sharp knee-jerk reaction lower if (or should we say when) Greece defaults and/or announces it is leaving the Eurozone. The bigger risk is how the global market chooses to interpret what happens next? A Greek exit could pave the way for countries like Spain and Italy to leave the Eurozone and that would generate significant volatility in the markets.

~ James







Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

Stocks reversed sharply lower on Friday and momentum indicators are rolling over.

LMT and NOW have been stopped out.

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

One-Two Punch

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(April 19, 2015)

Every weekend I look at hundreds, sometimes thousands, of stocks in a search for potential candidates. Occasionally nothing looks worthy of a trade, especially a longer-term LEAPS trade.

Jim Cramer likes to say there's always a bull market somewhere. Normally that's true. Sometimes everything looks ugly. That's where we appear to be today.

In a situation where the market looks vulnerable to more selling I like to search for stocks that might be a buy on weakness. A correction to support could be a great opportunity. Yet tonight nothing looks appealing.

The good news for traders is how the stock market is always changing. A week from now the market will have digested over one hundred and twenty five earnings reports from the S&P 500 components. All that earnings news will definitely generate some movement.

I'm not adding any new trades tonight. The next couple of weeks could be volatile for the market. The combination of earnings and the situation with Greece might be a one-two punch that sends stocks lower.

I would not be in a rush to launch new positions.

Below is an updated radar screen.

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:

AMBA, ABBV, SKX, JCI, HAIN, HBI, JBHT, SBUX, UN, DIS, FCX, THC,



Play Updates

Buckle Your Seatbelt!

by James Brown

Click here to email James Brown

Editor's Note:

Double check your stop loss placement. The next couple of weeks could be rocky for the market.


Closed Plays


LMT and NOW have been stopped out.



Play Updates


Apple Inc. - AAPL - close: 124.75

Comments:
04/19/15: AAPL spent most of the week quietly consolidating sideways near technical support at its rising 50-dma. News that AAPL shares were given a new price target of $145.00 by Argus did not help move the stock last week. Unfortunately AAPL's quiet consolidation broke down with Friday's market-wide selloff.

Investors have a choice to make. Do you hold over AAPL's earnings report on Monday, April 27th or not. If you don't want to risk the chance that AAPL gaps down and plunges on a disappointing report or guidance then I suggest investors exit now to lock in a potential gain.

On a short-term basis I would not be surprised to see AAPL correct lower toward the $120 area. Currently our stop loss is at $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 $13.55/13.65

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: 71.90

Comments:
04/19/15: AKAM managed a gain for the week thanks to a rally on Thursday. The rest of the week shares essentially churned sideways. The $72.00 level continues to be trouble for the stock. On the plus side AKAM is still building a bullish trend of higher lows.

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 $3.65/3.85

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: $42.40

Comments:
04/19/15: Last week shares of COH were upgraded and given a $50 price target. The stock has managed to rally to new four-week highs. Unfortunately COH started to see some profit taking on Thursday and then lost another -1.4% on Friday's market sell-off.

COH should find support at its 50-dma near $41.50. If that level fails then the $40.00 level should be support. Our stop loss is at $39.65.

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 $2.60/2.75

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: 29.39

Comments:
04/19/15: Ouch! It was a rough week for EWG investors. This ETF fell -3.79% for the week and closed below its 50-dma. The last two days have seen the pullback accelerate as worries over Greece intensified.

If Greece leaves the Eurozone and/or defaults on its debt and gets kicked out of the euro it will generate a lot of volatility in the European markets. The risk on our EWG trade is rising. Greece has a $760 million debt payment to the IMF on May 12th and two more payments worth more than three billion euros each to the ECB later this summer.

Between now and May 12th could be a really dangerous time for this EWG trade. This is assume that Greece works out some sort of deal with Europe for additional bailout funds before its big payments to the ECB.

I would assume that if Greece does leave the euro that this trade gets stopped out.

Meanwhile the EWG should find technical support in the $30.00 region but I am not suggesting new positions at this time.

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 $1.30/1.45

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: 14.85

Comments:
04/19/15: Our EWI trade will also be hostage to headlines from Greece. If Greece leaves the Eurozone then it will immediately generate speculation that Italy might leave as well. Italy has a huge debt load and it would be a lot easier to pay it using an Italian currency than the euro.

Shares of the EWI held up reasonably well last week until the market-wide selloff on Friday. If the 50-dma doesn't hold as support we can look for additional support near $14.50. However, I am not suggesting new positions at the moment. As discussed in the EWG update above this one it next few weeks could be volatile for Europe.

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 $1.40/1.70

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

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: 80.77

Comments:
04/19/15: FB only lost about $1.25 for the week and all of that was thanks to Friday's -$1.54 drop. Shares are testing support near $80.00 and its 50-dma. I would be tempted to buy calls here. However, FB has earnings coming up on April 22nd (this Wednesday). I would wait to see how the market reacts to FB's earnings report on Thursday morning before considering new positions.

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 $4.70/4.80

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: 27.56

Comments:
04/19/15: The building permit and housing start data last week was a disappointment. However, the homebuilder confidence survey has rebounded and currently at a new high for 2015. Builders are growing more confident about how the housing market will play out this year. We will see more data with the new home sales and existing home sales released this week.

Technically shares of the ITB bounced near short-term support in the $27.30 area on Friday following a two-day decline. If the market sell-off gets worse the ITZB could drop toward stronger support in the $26.00-26.50 zone. I am not suggesting new positions at this time.

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 $1.15/1.55

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


Lowe's Companies - LOW - close: 72.55

Comments:
04/19/15: Last week shares of LOW were upgraded by Piper Jaffray from neutral to overweight and given an $88.00 price target. The analyst believes LOW will benefit from multiple "tailwinds". One such tailwind was a recent poll that showed more than half of consumers plan on spending more in 2015 on household remodeling than the prior year. Unfortunately this bullish outlook didn't do much for LOW's stock.

Shares of LOW have been fading lower the last few days. Last week the stock broke down under technical support at its simple 50-dma. Currently LOW is sitting on the bottom edge of its $72.50-76.00 trading range. Investors should buckle their seat belts now because LOW will likely test the $70.00 level soon. Currently our stop loss is at $69.00. If you're worried LOW will see a bigger correction then I suggest you exit now.

No new positions at this time.

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 $2.38/2.48

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: 52.12

Comments:
04/19/15: LVLT is another candidate we should buckle our seat belts on. The stock is down three out of the last four weeks. Shares look like they're headed for what should be significant support at the $50.00 level. Currently our stop loss is at $49.45. I warned readers last week that LVLT looked vulnerable and was likely headed lower.

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 $2.15/2.70

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


Toyota Motor Corp. - TM - close: 138.43

Comments:
04/19/15: TM spent most of last week churning sideways just above technical support at its 50-dma. Shares did post a weekly loss of about $1.20. Last week the U.S. dollar retreated and the Japanese yen rallied. If this trend continues it could weigh on shares of TM.

I am repeating my recent comments. More conservative investors may want to consider taking profits now.

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 $12.75/13.65

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: 44.81

Comments:
04/19/15: The market's sharp decline on Friday fueled a -2.8% plunge in TXT. Prior to that the stock had been quietly consolidating sideways near $46.00. The stock should find support in the $42-44 zone although I'm not suggesting new positions at this time. TXT has earnings coming up on April 28th.

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 $2.05/2.36

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: 85.14

Comments:
04/19/15: Shares of UA displayed relative strength with a rally to new highs last week. The stock got a boost thanks to multiple analyst firms raising their price targets on UA. These are new all-time high. I want to remind readers that UA could easily see some profit taking no matter what they say in their earnings report.

The company is scheduled to report earnings this coming Tuesday morning (April 21st). I'd look for shares to find support near $80.00.

More conservative traders will want to seriously consider taking profits now before Monday's closing bell to lock in gains.

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 $9.10/9.60

04/19/15 Investors will want to seriously consider taking profits now before UA reports earnings on Tuesday morning
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




CLOSED Plays


Lockheed Martin - LMT - close: 194.82

Comments:
04/19/15: LMT has been underperforming the market the last couple of weeks. Shares were already looking vulnerable before the market's big drop on Friday. The stock pierced support and hit our stop loss at $194.00 on Friday.

- Suggested Positions -
FEB 20, 2015 - entry price on LMT @ 200.86, option @ 6.40
symbol: LMT160115C220 2016 JAN $220 call - exit $2.55 (-60.1%)

04/17/15 stopped out
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

Chart

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


ServiceNow, Inc. - NOW - close: 73.29

Comments:
04/19/15: Ouch! I cautioned readers in last week's market commentary that reaction to earnings for individual companies could be drastic.

NOW had been a strong performer for us. The stock closed at a new all-time high on Thursday at $82.84. The company reported earnings on Thursday night and beat estimates by two cents. Its Q1 revenues soared +52% from a year ago. Unfortunately management lowered their Q2 guidance below Wall Street estimates.

The combination of NOW's lowered guidance and a sharp down day for the broader market has produced an overreaction in NOW's share price. The stock gapped open lower at $74.75 and plunged to $70.32 before paring its losses. Our stop was at $74.00.

I'm still longer-term bullish on NOW and would keep this stock on your radar screen. Let's give it some time to let the post-earnings dust settle.

- Suggested Positions -
FEB 13, 2015 - entry price on NOW @ 76.25, option @ 10.00
symbol: NOW160115C80 2016 JAN $80 call - exit $4.40 (-56%)

04/17/15 stopped out at $74.00
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

Chart

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



Watch

Looking For Safety

by James Brown

Click here to email James Brown


New Watch List Entries

A - Agilent Technologies


Active Watch List Candidates

ASH - Ashland Inc.

IR - Ingersoll-Rand

NKE - Nike Inc.

TOL - Toll Brothers, Inc.


Dropped Watch List Entries

MA and TJX have been removed.



New Watch List Candidates:

Agilent Technologies - A - close: 42.98

Company Info

When the stock market turns volatile investors start looking for safety. Some turn to bonds. Others look for safe-haven plays in the equity. Often healthcare names are seen as potential safe havens. Demand for goods and commodities will rise and fall. Yet there seems to be an ever growing need for healthcare especially with an aging population in the U.S., Japan, and Europe.

A is in the healthcare sector. According to the company, "Agilent Technologies Inc. (NYSE: A), a global leader in life sciences, diagnostics, and applied chemical markets, is the premier laboratory partner for a better world. Agilent works with customers in more than 100 countries, providing instruments, software, services, and consumables for the entire laboratory workflow. Agilent generated revenues of $4.0 billion in fiscal 2014. The company employs about 12,000 people worldwide."

The earnings outlook for A is not what you would call exciting but sometimes slow and steady wins the race. The most recent earnings report was in-line with Wall Street estimates. The company did warn that currency headwinds would impact its results in 2015 at this point FOREX issues have become an environmental hazard that everyone has to deal with.

Shares of A have rallied since their mid-February earnings report. Today the stock is on the verge of breaking out from a huge consolidation over the last 18 months or so. The key level to watch is $44.00. The point & figure chart has already turned bullish with a spread triple-top breakout buy signal that is forecasting at $53.00 target.

Tonight I am suggesting we wait for A to close above $44.00 and then buy calls the next morning with a stop loss at $41.75.

Breakout trigger: Wait for shares of A to close above $44.00
Then buy calls the next day with a stop at $41.75

BUY the 2016 $45 call (A160115C45) current ask $2.95

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

Chart of A:

Originally listed on the Watch List: 04/19/15


Active Watch List Candidates:



Ashland, Inc. - ASH - close: 126.06

Comments:
04/19/15: Shares of ASH retreated from resistance near $130 last week. If this weakness continues we'll likely remove ASH as a candidate. Currently we want to see the stock closed above $130.75 as our entry trigger.

Keep in mind that ASH has earnings coming up on April 29th. More conservative investors may want to avoid launch positions, regardless of our entry trigger, until we see how the market reacts to ASH's results.

Trade Description: April 12, 2015:
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)

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

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


Ingersoll-Rand - IR - close: 67.34

Comments:
04/19/15: IR came really close to meeting our entry point requirement. The stock had started to breakout from its recent sideways consolidation. Shares closed at $69.19 on April 15th. Unfortunately the stock reversed the next day and then Friday's session pushed IR even lower.

This week could be critical as IR reports earnings on April 23rd, before the opening bell. I would not launch positions until after we see how the market interprets IR's results. Wait for a close above $69.25.

Trade Description: April 12, 2015:
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)

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

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


MasterCard Inc. - MA - close: 86.93

Comments:
04/19/15: I'm cutting MA loose. The stock had been consolidating sideways in the $88-90 zone but Friday's decline is a breakdown below short-term support. The next support level looks like $85.00.

We will remove MA as a watch list candidate tonight but I would keep it on your radar screen. The company reports earnings on April 29th. Let's wait for the post-earnings dust to settle and then look at MA again.

Trade did not open.

04/19/15 removed from the newsletter, suggested trigger was a close above $90.75
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: 98.55

Comments:
04/19/15: NKE has been stuck in this $98-102 trading range. Technically you could argue that Friday's drop is a breakdown of its pennant-shaped consolidation pattern. Odds are growing that we could see NKE drop toward the $95.00 area. At the moment our suggested entry point is a close above $102.00. More nimble traders may want to consider an alternative entry. If NKE dips to $95.00 then I'd be tempted to buy a bounce with a relatively tight stop loss.

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: 65.25

Comments:
04/19/15: Look out below. The correction in shares of TJX is starting to turn ugly. The stock is down three weeks in a row and it really accelerated last week. TJX has broken its bullish trend of higher lows.

I am removing TJX as a watch list candidate. Interested traders may want to keep it on their radar and look for TJX to find support near $62.00 as a potential entry point.

Trade did not open.

04/19/15 removed from the watch list, suggested entry was a close above $71.00
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: 38.35

Comments:
04/19/15: The homebuilder confidence survey rose to new 2015 highs. Yet the homebuilding stocks struggled. Investors ignored the survey and focused on the disappointing housing starts and building permit data instead. TOL retreated from resistance near $40.00 to short-term support near $38.00.

This week we'll get more real estate data with the latest new home sales and existing sales data.

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