Option Investor
Newsletter

Daily Newsletter, Sunday, 4/26/2015

Table of Contents

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

Leaps Trader Commentary

Revenge Of The Big Caps

by James Brown

Click here to email James Brown

Last week was revenge of the big cap stocks. Previously the market was worried that the strong dollar would seriously hurt Q1 results for big cap companies who do a lot of business overseas. It has been a common thread throughout this earnings season. Yet that hasn't stopped a bunch of high-profile big cap names surging on their earnings results and driving the market higher. The fuel behind Friday's rally was mostly thanks to Amazon.com (AMZN +14.1%), Starbucks (SBUX +4.8%), Google (GOOGL +2.9%), and Microsoft (MSFT +10.4%). These stocks boosted the NASDAQ composite to a new all-time closing high and a +3.25% gain for the week.

The Dow Industrials added +1.4% last week. The S&P 500 rose +1.75% while the Russell 2000 gained +1.25%. Not everything was in rally mode. The semiconductor index is lagging with the SOX index down -0.3% for the week. Banks are not participating with the banking index only up +0.12%. Friday saw the biotech stocks fail to participate in the widespread rally as well.

Investors were digesting a number of headlines last week. We started the week on a strong note thanks to news out of China that its central bank had eased monetary policy to try and boost their economy again. Another unsuccessful Eurogroup meeting about Greece on Friday failed to derail the market's up trend. Stocks continue to ignore the generally disappointing economic data since weak growth means central banks will remain more accommodating.

Economic Data

Sales data from the U.S. real estate market was mixed. Existing home sales for March rose +6.1% to an annualized pace of 5.19 million units. Yet the Department of Housing and Urban Development said new home sales for March plunged -11.4% to 481,000. February's number was revised higher from 539K to 543K, which is essentially a seven-year high. Honestly, I find it hard to put much stock in these numbers when the margin of error is +/- 20%.

The durable goods orders saw a headline number surge +4.0% in March versus a -1.4% drop in February. Economists were only expecting a +0.6% gain. Unfortunately, almost the entire gain was due to a +112.8% surge in demand for defense-related aircraft orders. Total orders for aircraft was up +43.8% after a -30% drop in February. If you exclude the volatile transportation figure then the core durable goods orders actually fell -0.5% compared to estimate for a +0.3% gain in the core rate.

Another disappointment was the pace of business investment spending, which fell for the seventh month in a row in March. We also saw the Atlanta Federal Reserve downgrade their Q1 GDP forecast yet again with a reduction from +0.2% down to +0.1% growth.

Overseas Economic Data

Asian markets remain strong. The Chinese Shanghai Composite and Hong Kong Hang Seng indices are both near seven-year highs. The Japanese NIKKEI crossed the 20,000 mark for the first time in 15 years. The Chinese economy is slowing and the government is trying to stimulate it. Last weekend the People's Bank of China lowered the reserve requirement ratio for banks from 19.5% down to 18.5%. This 100-basis point move is the biggest cut since November 2008. It's also the second reduction in the last two months. They need to do something. The most recent manufacturing PMI data for China came in worse than expected with a drop from 49.6 in March to 49.2 in April. This is a one-year low and numbers below 50.0 suggest economic contraction. Japan's PMI number also came in below expectations and fell from 50.3 in March to 49.7 in April. You may recall that the Bank of Japan is in the middle of a massive QE program that makes the U.S. one look tiny by comparison.

PMI data out of Europe was also worse than expected. The Eurozone Flash manufacturing PMI for April fell from 52.2 to 51.9. Their services PMI dipped from 54.2 to 53.7. Germany's flash manufacturing PMI data for April slipped from 52.8 to 51.9. Yet Germany's latest sentiment survey, the Ifo Business Climate index, rose from 107.9 to 108.6, which was better than expected. Deflation remains an issue. Germany PPI data for March was down -1.7% versus a year ago. Spain's PPI was down -1.2% year over year. On the plus side analysts are expecting big improvement in European corporate Q1 earnings thanks to the weak euro.

Greece

The Greece situation is not getting any better. The Eurogroup meeting on Friday did not yield any results. The other EU finance ministers are getting frustrated with Greece's stalling tactics. Greece keeps asking for more rescue money and Europe has finally said enough is enough. They're not willing to lend Greece any more bailout funds until Greece agrees to new, stricter reforms. Greece refuses any new austerity and in the press Greek leaders have threatened to leave the Eurozone before accepting new reforms. This past week there was a new wrinkle in this situation. The idea of Greece defaulting on its debt but not leaving the Eurozone. How or if that is a possibility remains to be seen.

The next several weeks could be explosive for the European markets. The next Eurogroup meeting to discuss the Greek situation is May 11th. The very next day (May 12th) Greece has a €750 million payment to the International Monetary Fund. There is also a rumor that Greece does not have the money to pay government salaries and pensions this week, which would be about €2 billion. Greece also has several billion euros worth of payments due in June and July this summer. Odds of a Greek default are definitely rising and yields on Greek 10-year bonds are 12.7%.




Major Indices:

The S&P 500 is up three days in a row and flirting with all-time highs. It's amazing the difference a week can make since the prior Friday stocks looks troubled with a deep sell-off across the major indices. Last week's rally has pushed the S&P 500's 2015 gain to +2.8%.

The 2,120 level is resistance. Beyond that we can speculate on potential resistance at 2,140 and 2,160. The short-term trend line of higher lows would suggest support is around 2,080.

chart of the S&P 500 index:

Weekly chart of the S&P 500 index

The NASDAQ composite was the big winner last week thanks to huge moves in some of its largest components. On Thursday the NASDAQ set a new record with a close at 5,056, which was above the prior closing high of 5,048 set on March 10th, 2000. Now traders will be looking for the NASDAQ to rally past its intraday high of 5,132.52 (also March 10th, 2000). Friday's high was 5,100. Year to date the NASDAQ is up +7.0%.

There have been plenty of comparisons between the NASDAQ at 5,000 today versus 5,000 back in the year 2000. Fifteen years ago 65% of the NASDAQ's market cap was technology stocks and there were over 4,800 companies in the NASDAQ composite. Today technology stocks only account for 43% of the NASDAQ's capitalization while the number of companies is down to around 2,500.

New highs in the NASDAQ is exciting but technically it could be facing some challenges. Last week saw some pretty big gains in many of the NASDAQ's big cap stocks. This has lifted the index toward a multi-month trend line of resistance (shown on the daily chart). The odds that last week's big winners will see some profit taking this week are pretty darn high, which means the NASDAQ will likely retreat from this resistance. On the plus side, broken resistance at 5,000 could be new support.

chart of the NASDAQ Composite index:

Intraday chart of the NASDAQ Composite index:

The small cap Russell 2000 index lagged behind its large cap peers. It did manage a gain for the week and is only a few points away from another record high. Thus far the $RUT has managed to maintain its bullish trend of higher lows. A breakdown below this trend line (on the daily chart) could be a warning signal. Potential support levels are 1,240 and 1,220. The $RUT's 2015 gain is now up to +5.0%.

chart of the Russell 2000 index



Economic Data & Event Calendar

The pace of economic data picks up this week. We'll get a couple of regional fed surveys plus two consumer sentiment survey. The big reports for the week will be the first estimate on U.S. Q1 GDP growth and the FOMC policy update. Both come out on Wednesday, which could make for a volatile session.

No one expects the Fed to move rates at this meeting so the focus will be their commentary. The market will dissect the Fed's statement word by word looking for any clue on when they will hike rates next. If the Fed suggests they could hike rates in June then stocks could decline since most analysts expect the Fed to wait until September-October before their first rate hike.

- Monday, April 27 -
Texas manufacturing outlook

- Tuesday, April 28 -
Richmond Fed survey
Consumer Confidence survey
Case-Shiller 20-city home price index

- Wednesday, April 29 -
Pending home sales data
U.S Q1 GDP estimate
FOMC policy update

- Thursday, April 30 -
Chicago PMI data
Personal Income & Spending
Employment Cost Index

- Friday, May 01 -
ISM index for April
University of Michigan consumer sentiment survey
Auto & truck sales

Additional Events to be aware of:

May 7th - Election in the United Kingdom

Looking Ahead:

We are in the midst of Q1 earnings season. Thus far investors have been relatively forgiving when it comes to the U.S. dollar negatively impacting results. Currently 67% of the S&P 500 companies that have reported earnings have beaten estimates on the bottom line. Only 52% have beaten the street's revenue estimates. As we get deeper into earnings season the earnings quality is expected to decline but at the same time the impact of the dollar should have less of an impact.

Josh Brown, with the ReformedBroker.com, shared some interesting data last week. Looking at S&P 500 data over the last 50 plus years there have been 48 times when the index produced a -5% pullback. I was surprised that number was not a lot higher. Only 17 of the 48 pullbacks went on to a -10% decline. Only 9 of the 48 corrections did the S&P 500 continue falling and drop -20% or worse. Josh is suggesting that when the market provides a -5% correction it is normally a buying opportunity. It's true that 20% of the time it's the start of a bear market but that means 80% of the time it is a false alarm. If you don't feel like chasing stocks at new highs you could wait for the next -5% correction.

Overall it would appear the path of least resistance is higher. Investors are choosing to interpret disappointing economic data as evidence the Fed will remain on the sidelines and that central banks around the world will remain accommodative. I suspect the big wildcard will be Greece. The next six weeks or so could be a major turning point for Greece and the Eurozone. If Greece defaults and/or leaves the euro it will most likely generate a lot of volatility in Europe and to a lesser extent here in the U.S.

~ James







Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

Thus far we have been able to weather the volatile earnings season relatively unscathed. This week could be more challenging. Several companies in our portfolio will report their quarterly results in the next few days.

TM and UA have new stop losses.

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

Looking Past The Dollar

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(April 26, 2015)

Earnings season can always produce surprises. The last several weeks saw the market grow more and more concerned about an earnings slowdown during the first quarter. There was a lot of worry about how the strong dollar would hurt big cap results.

The dollar is an issue. Just about everyone is seeing a negative impact due to currency headwinds. However, investors seem to be looking past this handicap.

I previously suggested that Q1 earnings expectations were so low that there was a decent chance results might actually come in better than expected. For the most part, that seems to be the case, but we are only two weeks into the Q1 earnings season.

The S&P 500 is on the verge of a new high. The NASDAQ just hit a new all-time closing high. The small cap Russell 2000 index is only a few points away from another record. It's hard to be bearish and yet investor sentiment is still somewhat sour. Any talk of a bubble in stocks is premature. Bubbles happen when everyone is bullish. More than 45% of investors polled are actually neutral on the market. Only 31.5% are bullish.

I'm not adding any new candidates tonight. However, I have added three new candidates to our watch list ( DATA, JCI, and SBUX). All three have a good chance of being triggered this week.

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:

GILD, V, SCTY, DSW, DVA, CAH, ABC, MCK, ODFL, FCX, JBL, TPX, ESRX,

Nearly all of these companies on my radar screen have earnings coming up in the next week.



Play Updates

Another Wave Of Earnings Just Ahead

by James Brown

Click here to email James Brown

Editor's Note:

This will be a big week for earnings among our active candidates. Expect stocks to be volatile as the market reacts to Q1 results and guidance.


Closed Plays



None. No closed plays this week.




Play Updates


Apple Inc. - AAPL - close: 124.75

Comments:
04/26/15: High profile big cap names displayed relative strength last week and boosted the major indices toward new highs. AAPL managed to gain more than five points.

The company's Apple watch finally hit the market on April 24th. Naturally that drew another round of headlines. There was a new estimate that AAPL could ship more than 20 million smartwatches this year. That's significantly above most analysts' estimates for the Apple watch this year.

The focus this week will be earnings. Wall Street has pretty big expectations for AAPL's Q1 report, which comes out on Monday, after the closing bell (April 27th).

Wall Street expects AAPL earnings in the $2.15-2.18 range.

Analysts estimates are for revenues to rise +22.5% to $55.9 billion. AAPL has only guided to $53.5 billion. That's a significant difference.

The street expects iPhone sales of 55 million in the first quarter. That's up 25% from a year ago but down from 74 million during the prior holiday Q4. Iphone revenues should be +40% to $36.6 billion. Ipad sales are expected to be down -10% to 15 million units. Their Mac computer sales are expected to be up +11%. Analysts estimates for smartwatch sales is around five million units.

LEAPStrader investors have a decision to make. Do you hold on to your call options or do you exit now, before Monday's closing bell, to lock in gains? We're going to keep this play open but expect significant volatility (up or down) on Tuesday morning as the market reacts to AAPL's results and their guidance.

No new positions at this time.

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 $16.75/16.85

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: 75.74

Comments:
04/26/15: The rally in big cap technology stocks helped lift AKAM to new multi-year highs. Shares broke out past its March peak and added about $4.00 for the week.

AKAM is scheduled to report earnings this week on Tuesday, April 28th, after the closing bell. With the stock at new highs I would expect shares to see some profit taking after their earnings report.

I am not suggesting new positions at this time.

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 $5.20/5.35

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:
04/26/15: COH shares delivered a bumpy ride thanks to some new analyst opinions. COH was downgraded to a "sell" on Tuesday and the stock dropped below its 50-dma. Yet there was no follow through lower. The next morning COH was given a "market perform" rating by a different firm.

The stock will likely churn sideways until Tuesday. COH will report earnings on Tuesday morning, April 28th, before the opening bell. You can bet that Tuesday will be a volatile session for the stock.

No new positions at this time.

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: 29.79

Comments:
04/26/15: The epic game of brinkmanship between Greece and Europe is getting more intense. Finance ministers met on Friday and there is a growing sense of frustration with Greece's government.

I am reiterating my cautious comments from last week:

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.

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 $1.55/1.65

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: 15.18

Comments:
04/26/15: The EWI managed a decent bounce from the week. Shares managed to recover all of the prior week's declines. The bullish trend of higher lows is still intact.

This EWI trade suffers the same risk that the EWG trade does. If Greece ends up leaving the Eurozone or defaults on its debt it will generate significant market volatility in Europe. I would expect EWI to hit our stop if we do see a Greek exit.

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 $1.60/1.85

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: 81.53

Comments:
04/26/15: FB grabbed a ton of headlines with its earnings report on Wednesday night. Wall Street was expecting a profit of $0.40 a share on revenues of $3.56 billion. FB delivered $0.42 with revenues up +41% to $3.54 billion.

The company's daily active users grew +17% to 936 million people. Their monthly active users rose +13% to 1.44 billion. If you back out the currency headwinds FB's revenues would have been up +49%.

The currency headwinds are expected to continue in Q2. Analysts also frowned on FB's rising expenses. Total expenses last quarter were up +83% from a year ago. However, at the end of the day, most of Wall Street applauded FB's growth. There was a wave of price target upgrades from $94 to $105 per share. Most of the new price targets for FB are around the $100.00 mark.

Technically you could argue that FB's reversal on Thursday has created a potential bearish double top. More conservative traders may want to raise their stop loss. Currently our stop is at $74.75. If FB closes below $80.00 it could be another warning signal for bullish investors.

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 $4.00/4.10

04/23/15 Q1 earnings report
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: 26.98

Comments:
04/26/15: Shares of ITB lost more than 50 cents for the week with the two-day drop on Wednesday and Thursday. It's somewhat surprising to see this weakness. Homebuilders PHM, NVR, and DHI all reported strong improvement in demand for new homes. The news was mixed. DHI said orders were up +30% but they also lowered their gross margin forecast.

Traders started buying the dip near its 100-dma and near support at its March lows. I am concerned that the ITB is now down three weeks in a row. More conservative investors may want to raise their stop loss. 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 $0.75/1.10

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: 73.16

Comments:
04/26/15: LOW managed a small gain for the week. Yet the short-term trend of lower highs is still in place. I don't see any changes from last week's comments. LOW is likely headed for support near $70.00. 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 $2.48/2.56

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

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



Level 3 Communications - LVLT - close: 54.67

Comments:
04/26/15: It was a good week for LVLT bulls. Shares bounced with gains in four out of the last five sessions. I suspect LVLT will churn sideways until they report earnings this week on Wednesday, April 29th, before the opening bell.

I am not suggesting new positions at this time.

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

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

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

- Suggested Positions -
MAR 04, 2015 - entry price on LVLT @ 54.71, option @ 3.90
symbol:LVLT160115C60 2016 JAN $60 call - current bid/ask $3.10/3.50

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: 141.21

Comments:
04/26/15: The NASDAQ was not the only index to breakout past its 2000 highs. The Japanese NIKKEI index managed to close above the 20,000 mark for the first time in 15 years. The last time was April 2000. Japanese stocks shrugged off another weekly gain in the yen.

Shares of TM snapped a four-week decline thanks to a gap higher last Tuesday. TM spent the rest of the week consolidating sideways.

Please note our new stop loss at $136.40. I am not suggesting new positions at this time.

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

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

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

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

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

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

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

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

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

- Suggested Positions -
DEC 02, 2014 - entry price on TM @ 126.56, option @ 8.75
symbol: TM160115C130 2016 JAN $130 call - current bid/ask $14.60/15.30

04/26/15 new stop @ 136.40
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: 136.40
Play Entered on: 12/02/14

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


Textron Inc. - TXT - close: 44.21

Comments:
04/26/15: Hmm... TXT displayed relative weakness last week with a 60-cent decline and a breakdown below its 50-dma. Investors might be cautious ahead of earnings. TXT is scheduled to report earnings on Tuesday, April 28th, before the opening bell. We can expect shares to be volatile that morning. I am not suggesting new positions at this time.

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 $1.66/1.98

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: 82.56

Comments:
04/26/15: Shares of UA sprinted higher into its earnings report. I warned readers last weekend that UA would most likely see some profit taking after they report earnings no matter what their results were.

UA's Q1 earnings were in-line with estimates at $0.05 a share. Revenues were up more than 25% to $804.9 million, just above estimates. Management raised their guidance but it is still below Wall Street estimates. UA is now forecasting 2015 revenues to grow +23% to $3.78 billion.

The stock has treated more than $5.00 from its April 20th high. I would watch for UA to find support near $80.00. Tonight we'll raise the stop loss to $78.85.

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 $7.00/7.50

04/26/15 new stop @ 78.85
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: 78.85
Play Entered on: 02/24/15
Originally listed on the Watch List: 02/22/15




Watch

Big Data, Auto Parts, & Coffee

by James Brown

Click here to email James Brown


New Watch List Entries

DATA - Tableau Software

JCI - Johnson Controls Inc.

SBUX - Starbucks Corp.


Active Watch List Candidates

A - Agilent Technologies

ASH - Ashland Inc.

IR - Ingersoll-Rand

NKE - Nike Inc.


Dropped Watch List Entries

TOL has been removed.



New Watch List Candidates:

Tableau Software - DATA - close: 102.40

Company Info

The market for analyzing big business data is growing fast. DATA is leading the charge. According to the company, "Tableau Software (NYSE: DATA) helps people see and understand data. Tableau helps anyone quickly analyze, visualize and share information. More than 26,000 customer accounts get rapid results with Tableau in the office and on-the-go. And tens of thousands of people use Tableau Public to share data in their blogs and websites."

The last couple of earnings reports have been very impressive. DATA released their Q3 results on November 5, 2014. Results were 12 cents above estimates with revenues up +71% to $104.5 million, also above estimates.

Their Q4 results came out in early February. Analysts were expecting a profit of $0.11 a share on revenues of $122.58 million. DATA delivered $0.42 a share with revenues up +75% to $142.9 million. In the fourth quarter they added 2,600 new customers. They closed 304 transactions worth more than $100,000, a +70% improvement from a year ago.

Christian Chabot, Chief Executive Officer of Tableau. "In 2014, we experienced the strongest demand we've seen in our history, as the move to agile analytics grows faster than ever."

Management offered earnings guidance that was in-line with Wall Street estimates but they see revenues coming in above expectations.

Wall Street is bullish and the last couple of weeks have seen new price targets at $115 and $127. The point & figure chart is forecasting at $117.00 target.

DATA has been talked about as a potential take over target and that might be why their options are so expensive. DATA's next earnings report is coming up on May 7th. More conservative traders may want to sit this one out until we see how the market reacts to DATA's Q1 results.

I am labeling this a more aggressive play because shares can be volatile with multi-point single-day moves.

Tonight we want to buy calls on a dip at $100.00.

Buy-a-dip trigger at $100.00
Start with a stop loss at $93.75

BUY the 2016 Jan $110 call (DATA160115C110) current ask $12.60

Remember, this is a higher-risk trade. Consider small positions to limit risk.
Option Format: symbol-year-month-day-call-strike

Chart of DATA:

Originally listed on the Watch List: 04/26/15


Johnson Controls Inc. - JCI - close: 52.48

Company Info

Shares of JCI hit all-time highs last week. The company is in the consumer goods sector. They are the largest auto parts supplier in the U.S. According to the company, "Johnson Controls is a global diversified technology and industrial leader serving customers in more than 150 countries. Our 170,000 employees create quality products, services and solutions to optimize energy and operational efficiencies of buildings; lead-acid automotive batteries and advanced batteries for hybrid and electric vehicles; and interior systems for automobiles."

JCI just reported earnings on April 23rd. The company delivered $0.73 a share, which was a +20% improvement from a year ago. Depending on who you polled that was either one cent above or below Wall Street estimates. Revenues dropped -2.8% to $9.2 billion, which was significantly below estimates. Currency headwinds were a major issue.

Management offered cautious guidance for the current quarter with an earnings forecasting of 90-92 cents a share. Analysts are expecting 92 cents. JCI's full-year guidance expects earnings growth in the +10% to +15% range.

Alex Molinaroli, JCI's Chairman and CEO, commented on his company's quarter, "I am very pleased with our second quarter results. Our businesses showed increased underlying growth and delivered higher margins that we believe are sustainable. We saw broad-based order growth in Building Efficiency, continuing a trend that we began to see at the end of the first quarter. Despite foreign currency headwinds, profitability increased across the business segments. This is, in part, a result of the early benefits from the Johnson Controls Operating System which is improving our manufacturing and procurement efficiencies. We expect those benefits to increase in value and broaden in scope over the next several years as we continue to invest in these areas."

Technically shares have been consolidating under major resistance in the $52.00 area for months. The current rally is a major breakout to new highs. The point & figure chart is optimistic with a $69.00 target.

The high on Thursday was $53.40. I am suggesting we wait for JCI to close above $53.50 and then buy calls the next morning with a stop loss at $49.65.

Breakout trigger: Wait for a close above $53.50
Then buy calls the next morning with a stop at $49.65

BUY the 2016 Jan $55 call (JCI160115C55) current ask $2.90

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

Chart of JCI:

Originally listed on the Watch List: 04/26/15


Starbucks Corp. - SBUX - close: 51.84

Company Info

SBUX shares are soaring to new all-time highs.

The world seems to have an insatiable appetite for coffee. Starbucks is more than happy to help fill that need. The first Starbucks opened in Seattle back in 1971. Today they are a global brand with locations in 66 countries. SBUX operates more than 21,000 retail stores with more than 300,000 workers.

A few years ago Business Insider published some facts on SBUX. The average SBUX customer stops by six times a month. The really loyal, top 20% of customers, come in 16 times a month. There are nearly 90,000 potential drink combinations at your local Starbucks. The company spends more money on healthcare for its employees than it does on coffee beans.

The company's earnings results were only mediocre most of 2014 year. You can see the results in SBUX's long-term chart below. After incredible gains in 2013 SBUX has essentially consolidated sideways in 2014. The good news is that looks the consolidation is over.

Five-Year Plan

Late last year SBUX announced their five-year plan to increase profitability. Here's an excerpt from a company press release:

"The seismic shift in consumer behavior underway presents tremendous opportunity for businesses the world over that are prepared and positioned to seize it," Schultz said (Howard Schultz is the Founder, Chairman, President, and CEO of Starbucks). "Over the next five years, Starbucks will continue to lean into this new era by innovating in transformational ways across coffee, tea and retail, elevating our customer and partner experiences, continuing to extend our leadership position in digital and mobile technologies, and unlocking new markets, channels and formats around the world. Investing in our coffee, our people and the communities we serve will remain at our core as we continue to redefine the role and responsibility of a public company in today's disruptive global consumer, economic and retail environments."

"Starbucks business, operations and growth trajectory around the world have never been stronger, and we are more confident than ever in our ability to continue to drive significant growth and meet our long term financial targets," said Troy Alstead, Starbucks chief operating officer. "We have more customers visiting more stores more frequently, both in the U.S. and around the world, than at any time in our history. And we expect both the number of customers visiting our stores and the amount they spend with us to accelerate in the years ahead. With a robust pipeline of mobile commerce innovations that will drive transactions and unprecedented speed of service, Starbucks is ushering in a new era of customer convenience. We believe the runway of opportunity for Starbucks inside and outside of our stores is both vast and unmatched by any other retailer on the planet."

The company believes they can grow revenues from $16 billion in FY2014 to almost $30 billion by FY2019. To do that they will expand deeper into regions like China, Japan, India, and Brazil. SBUX expects to nearly double its stores in China to over 3,000 locations in the next five years

They're also working hard on their mobile ordering technology to speed up the experience so customers don't have to wait in line so long at their busiest locations. This will also include a delivery service.

Part of the five-year plan is a new marketing campaign called Starbucks Evening experience. The company wants to be the "third place" between home and work. After 4:00 p.m. they will start offering alcohol, mainly wine and beer, in addition to new tapas-like smaller plates.

The company recently launched its first ever Starbucks Reserve Roastery and Tasting Room in Seattle, near their iconic first retail store. The new roastery is supposed to be the ultimate coffee lovers experience. CEO Schultz said they will eventually open up about 100 of these Starbucks Reserve locations.

SBUX is having a pretty good 2015 so far with the stock up +26%, outperforming the broader market. A lot of this gain was thanks to a post-earnings pops. SBUX reported its Q1 2015 results on January 22nd. Adjusted earnings, backing out one-time charges, were $0.80 a share. That's in-line with estimates. Revenues were up +13.3% to $4.8 billion, also in-line with estimates. It was a very strong holiday period for SBUX thanks in part to astonishing gift card sales. The amount of money loaded onto SBUX gift cards during the holidays surged +17% to a record $1.6 billion. One out of every seven Americans received a SBUX gift card. The company also saw significant growth overseas with its China and Asia-Pacific business soaring +85% to sales of $495 million. Their mobile transactions have reached seven million transactions a week. Investors applauded the news anyway and sent SBUX soaring to new all-time highs the next day.

That whole scenario just happened again on Friday with the company delivering exceptional growth. SBUX reported its Q2 (2015) on April 23rd. Earnings of $0.33 a share were in-line with estimates. Revenues were up +17.8% to $4.56 billion, slightly above expectations. It was their strongest growth in four years. Customers are responding well to new drink options and an updated food menu. They're also developing new delivery options, mobile pay options, and alcoholic drinks available at select locations.

Worldwide same-store sales grew +7%. This was significantly above estimates. It also marked the 21st consecutive quarter where SBUX's comparable store sales were +5% or more.

The company issued mixed guidance. The stronger dollar is having an impact. They see fiscal 2015 results in the $1.55-1.57 range. That compares to Wall Street estimates for $1.57 per share. However, the company's revenue estimates are more optimistic. They're forecasting +16-18% sales growth into the $19.1-19.4 billion zone compares to analysts' estimates of $19.1 billion.

The stock market applauded SBUX's results and shares popped to new highs. We do not want to chase it. Shares will likely fill the gap from Friday morning. Tonight I am suggesting a buy-the-dip trigger at $50.00. More nimble traders may want to consider a trigger closer to $49.70 instead.

Buy-a-dip trigger at $50.00
Start with a stop loss at $47.25

BUY the 2016 Jan $55 call (SBUX160115C55) current ask $2.24

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

Chart of SBUX:

Originally listed on the Watch List: 04/26/15


Active Watch List Candidates:



Agilent Technologies - A - close: 42.49

Comments:
04/26/15: Hmm... shares of A underperformed the market last week. The stock is down two weeks in the row. The pullback has been pretty minor but if shares do not show some improvement soon we might drop it.

Trade Description: April 19, 2015:
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)

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

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


Ashland, Inc. - ASH - close: 128.03

Comments:
04/26/15: ASH did not see any follow through on the prior week's decline. Shares managed a $2.00 bounce for the week. I expect ASH to churn sideways until the company reports earnings on April 29th (this week).

Currently our suggested entry point is a close above $130.75. However, tonight I am putting an entry point condition on this trade. We do not want to open positions if ASH gaps open higher above $132.50. If that occurs we'll re-evaluate this set up next weekend.

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)

04/26/15 Do not open positions if ASH gaps open above $132.50
Option Format: symbol-year-month-day-call-strike

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


Ingersoll-Rand - IR - close: 68.63

Comments:
04/26/15: IR reported earnings on April 23rd. Results were $0.38 a share, which was six cents better than expected. Revenues were above expectations at $2.89 billion. The company lowered its Q2 guidance below Wall Street estimates but they reaffirmed their full year guidance for 4% to 5% sales growth. J

I was surprised to see IR rally on its earnings results considering its disappointing Q2 guidance. The stock is hovering just below resistance near $69.00. Tonight I am adjusting our entry point strategy. We want to see IR close above $70.25 (instead of $69.25) as our entry point requirement.

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.

Breakout trigger: Wait for a close above $70.25
Then buy calls the next morning with a stop at $64.75.

BUY the 2016 Jan $75 call (IR160115C75)

04/26/15 Adjust the entry point trigger to a close above $70.25 (from $69.25)
Option Format: symbol-year-month-day-call-strike

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


Nike, Inc. - NKE - close: 100.95

Comments:
04/26/15: NKE looks like it might finally be read to breakout from its $98-102 trading range. If the broader market rally continues this week I would not be surprised to see NKE meet our entry requirement.

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


Toll Brothers - TOL - close: 36.80

Comments:
04/26/15: Several homebuilders have noted that demand for home is rising. Unfortunately this good news was overshadowed by disappointing earnings results from multiple builders. The group sold off last week and TOL plunged from $40 to $36.

Tonight I am removing TOL as a watch list candidate.

Trade did not open.

04/26/15 removed from the watch list, suggested entry was a close above $40.50

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