Option Investor
Newsletter

Daily Newsletter, Sunday, 5/3/2015

Table of Contents

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

Leaps Trader Commentary

Small Caps Lead The Market Lower

by James Brown

Click here to email James Brown

Investors are probably happy that April is over since stocks could not decide what direction they wanted to trade. Markets suffered alternating up weeks and down weeks as traders digested wave after wave of earnings news. Last Tuesday (April 28th) was interesting as the market reacted to news that Iran had seized a U.S. cargo ship in the Strait of Hormuz. Initial reports were incorrect. The ship, Maersk Tigris, has a flag from the Marshall Islands*, which is a U.S. protectorate. The U.S. is legally bound to protect the Marshall Islands but based on last week's actions it appears the U.S. is not so eager to protect their ships. As of Friday the ship and crew were still being held captive by Iran. It is worth noting that the U.S. navy is now escorting American ships through the strait.

Last Wednesday's FOMC announcement was a non-event. The Fed made a few changes to their statement and eliminated any calendar references as to when they might raise rates. They did reiterate their current stance to stay on the sidelines until the committee is confident that U.S. inflation will hit their 2.0% target. A couple of days later another Fed governor said they could raise rates at any time.

Overall it was a rough week for stocks. The U.S. market faded lower and then saw its decline accelerate on Thursday. Then suddenly the market rebounded sharply higher on Friday. Friday was noteworthy since several foreign markets were closed for May Day or International Worker's Day (May 1st). By the closing bell on Friday all the major U.S. indices were still in the red for the week. The Dow Jones Industrials did the best with only a -0.3% weekly loss. The S&P 500 fell -0.4%. The NASDAQ lost -1.7%. The small caps underperformed with the Russell 2000 index down -3.1% for the week.

Banking stocks and semiconductor stocks were showing some relative strength with both indices up +1.6%. This was overshadowed by a big sell-off in biotech stocks. Even with the big bounce on Friday the biotech index still lost more than -5% for the week. Oil service stocks were big winners thanks in part to a rally in crude oil. The oil service index rallied +5% last week.

Crude oil gained +3.5% for the week and soared +20% for the month. This was due to multiple factors. First and foremost was a sell-off in the U.S. dollar. The dollar did bounce on Friday, which snapped an eight-day losing streak, but the dollar is down a whopping -3.5% for the month of April. Last month's decline in the dollar ended a nine-month winning streak. A weaker dollar makes commodities more expensive (it takes more dollars to buy them).

Chart of the U.S. dollar ETF

Another issue is the growing expectation that oil has found a bottom. U.S. oil inventories are still growing (new record highs) but the pace of growth is slowing. The same can be said for active rigs. We're still seeing declines for the number of active rigs (down a record 21 weeks in a row) but analysts seem to think we're nearing a bottom. The weekly rig count showed 27 more rigs shut down so now we're down -53% from the recent peak. That leaves just 905 active rigs in the U.S.

Economic Data

The trend of mixed U.S. economic data continues. After falling two months in a row the Chicago PMI data improved with a rise from 46.3 in March to 52.3 in April. The ISM manufacturing index was unchanged at 51.5 in April. This is near a two-year low. Numbers below 50.0 suggest contraction for both reports.

The Conference Board's Consumer Confidence index fell from 101.4 to 95.2. The University of Michigan's Consumer Sentiment survey's final April reading was unchanged at 95.9 versus a 93.0 reading in March.

The biggest report for the week was the advance estimate on U.S. 2015 Q1 GDP growth. Most analysts estimates were in the +1.0% range. The Atlanta Federal Reserve was estimating +0.1%. The official headline number came in at +0.2%, which is a huge drop from the +2.2% growth in the fourth quarter of 2014. There is always a chance the +0.2% reading is revised lower with the next estimate. With growth this strong it's not surprising to see the Fed on the sidelines.

Overseas Economic Data

It was a quiet week for economic data overseas. Thankfully we didn't hear a lot of news on the Greece situation. That will likely change this coming week as Greece near its next debt payment on May 12th.

Looking at last week we saw China report their official manufacturing PMI was unchanged at 50.1. Japan's manufacturing PMI for April was 49.9, which is improving from 49.7. Numbers below 50.0 indicate economic contraction. Japan unfortunately saw their retail sales numbers fall -9.7% in March.




Major Indices:

The big cap S&P 500 tagged a new all-time high on Monday morning (April 27th) but that proved to be the high for the week. Thursday's loss saw the S&P 500 breakdown under its 50-dma but the index delivered a big bounce on Friday. This index is only nine points away from a new all-time closing high.

The level to watch is resistance around 2,120. A strong close above 2,120 could rejuvenate the rally. On a short-term basis I'd watch for support near 2,080 and 2,040. The simple 200-dma might offer some support near 2,025. Year to date the S&P 500 is up +2.4%.

chart of the S&P 500 index:

I cautioned readers last week that the NASDAQ was facing resistance at its trend line of higher highs. The index failed at this level and produced a four-day decline. If the current bounce fails we can watch for potential support near 4,900 and 4,800. Currently the NASDAQ is up +5.7% for the year.

chart of the NASDAQ Composite index:

It was an ugly week for the small cap Russell 2000 index. Not only did it underperform the other major indices but the $RUT broke down under multiple layers of support including the 1,240 level, its 50-dma, and its trend line of higher lows. The $RUT tested support near 1,220 and its 100-dma on Thursday's drop.

Now the 1,240 to 1,280 area is overhead resistance. If this pullback continues the most likely support levels are 1,200 and its 200-dma near 1,180. Year to date the $RUT's gain has fallen to +1.9%.

chart of the Russell 2000 index



Economic Data & Event Calendar

The Q1 earnings season is still going. This will continue to generate a lot of news and fuel volatility for individual stocks. Fortunately, about 80% of the S&P 500 companies have already reported. This week the majority of reports will be from small cap companies. More than 500 companies will announce earnings this week.

On the economic front we'll get the usual parade of data at the beginning of the month. The big report to watch will be the nonfarm payrolls on Friday morning. Last month's (the March number) was a disaster at 126,000. Currently economists are hoping for 245,000 new jobs in April and the unemployment rate is expected to fall -0.1% to 5.4%.

- Monday, May 04 -
Factory Orders

- Tuesday, May 05 -
ISM Services (non-manufacturing)
China HSBC Services PMI

- Wednesday, May 06 -
ADP Employment Change Report

- Thursday, April 07 -
Elections in the United Kingdom

- Friday, May 08 -
Nonfarm payrolls (jobs) report
Unemployment rate
Wholesale inventory data

Looking Ahead:

Seasonally the stock market tends to struggle to make any progress in May. We've all heard the "sell in May and go away" phrase. That's because research shows the worst six months of the year for stocks starts in May. Just because historically the next six months tend to underperform doesn't mean stocks can't rally. The team and Stocks Trader's Almanac did notice that the S&P 500 index averages a +0.2% gain in pre-election year Mays. That's not very inspiring.

The bigger worry is probably the slowing U.S. economy. Analysts are still blaming the cold winter weather on the Q1's +0.2% GDP growth. That seems a little naïve. Consensus estimates for the second quarter are still at +3.3%. Yet the Atlanta Fed, which pretty much nailed the first quarter number, is only forecasting +0.8% GDP growth in the second quarter. That's a pretty big divergence. If the jobs number this coming Friday is another big miss then stocks might see sharp correction lower.

We also have to worry about Greece again. The company has a big debt payment to the International Monetary Fund (IMF) coming up on May 12th. They have two more big payments to the European Central Bank later this summer. Without some sort of breakthrough in negotiations there is virtually no way that Greece will be able to make all of these payments (total is close to eight billion euros for all three). Here's the funny thing, Three of the top four credit ratings agencies would not declare a default if Greece missed one of these payments. That's because they consider the IMF and ECB to be non-standard creditors. You can read the Reuters article here.

Last week's market-wide decline sparked some bearish calls. In the midst of the sell-off influential trader Dennis Gartman said he expects a -5% to -8% correction. He was suggesting the market will see a short two or three week correction and then recover.

The longer-term trend on the major U.S. indices is still higher. The last three or four weeks have felt more volatile, thanks to earnings season generating some pretty big moves for individual stocks. My biggest concern is the weakness in the Russell 2000 ($RUT). Last week's sell-off in the $RUT just erased the prior six-weeks of trading. If the $RUT closes below 1,200 or its 200-dma near 1,180 it could be a warning signal for the broader market.

The Greek issue is another wildcard. I would hesitate to launch a bunch of new positions over the next week or two. The market could get jittery as we near the May 12th deadline for Greece.

~ James


*Marshall Islands - This is a small country in the Pacific Ocean. It's about 70 square miles of very small islands with a population around 60,000 people. It's not a surprise that the Pentagon's legal team has decided the U.S. has no obligation to rescue the recently captured ship from Iran. That's because most ships flying a Marshall Islands' flag are not actually from the Marshall Islands. Foreign companies register their ship with the Marshall Islands because the country doesn't charge taxes on revenues from these registered ships.





Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

It was a rough week for stocks. The market experienced widespread declines followed by a relief rally on Friday.

The Q1 earnings parade continues. The bulk of big caps earnings is over but the market will continue to digest earnings news for the next few weeks.

DATA and SBUX have graduated from our watch list to our active play list.

COH, LOW, and UA hit our stop loss last week.

AKAM, EWI, and TXT 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

A Successful Week For The Watch List

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(May 03, 2015)

April was a frustrating month for investors. The major indices did tag new highs. Yet there was no follow through higher.

Fortunately the longer-term trend for the U.S. market is still higher. The Fed is still on the sidelines.

Last week our watch list was successful with both DATA and SBUX graduating from the watch list to active trades.

We are not adding any new trades tonight. However, I am adding ADBE, AMBA, GILD, and MA to the watch list.

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:

SNA, LXK, ATI, SCTY, AIG, WDC, UA, WFC,

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



Play Updates

Painful Post-Earnings Profit Taking

by James Brown

Click here to email James Brown

Editor's Note:

We had two watch list candidates, DATA and SBUX, meet our entry point requirements last week.


Closed Plays


COH, LOW, and UA hit our stop loss last week.



Play Updates


Apple Inc. - AAPL - close: 128.95

Comments:
05/03/15: The normal flood of stories about AAPL was worse last week. The company reported earnings on April 27th. Wall Street was looking for a profit of $2.16 per share on revenues of $56 billion. AAPL crushed these numbers with earnings of $2.33. Revenues were up +24.4% to $58 billion. Gross margins improved from 39.3% to 49.8%.

AAPL gets most of its sales from its iPhone product. They sold 61.2 million iphones last quarter. That's up from 43.7 million the prior year and above the 57 million estimate. Their iPad sales continue to disappoint and came in below expectations at 12.6 million units. Their Mac computer sales were above estimates. Management said they would increase their stock buyback program from $90 billion to $140 billion. They also raised their dividend from $0.47 to $0.52 a share.

A couple of days later there was a story that AAPL's new smart watch might have a defect with its taptic engine. This is the piece of machinery in the watch that produces the sensation of being tapped on the wrist. Then there were stories about how the smart watch's heart monitor functions may not work if you have tattoos on your wrist.

The story investors should be worried about showed up in their 10-Q filing. The Financial Times noted that AAPL said it could face "material" financial penalties if the European Commission's investigation of AAPL's relationship with Ireland goes against them. According to U.S. financial law, a material event is defined as five percent of a company's average pre-tax earnings for the past three years. In AAPL's 10-Q the company said, "If the European Commission were to conclude against Ireland, it could require Ireland to recover from the company past taxes covering a period of up to 10 years reflective of the disallowed state aid, and such amount could be material." You can view the story here.

The morning after AAPL's earnings report the stock gapped open to hit a new all-time high and then immediately dropped. Shares fell three days in a row with a fall from $134.50 to $124.60. Thankfully AAPL produced a little oversold bounce on Friday (+3.0%).

The stock's recent reversal is potentially a bearish double top. I am not suggesting new positions. Investors may want to take profits now or raise their stop loss. 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 $15.85/16.10

04/27/15 AAPL crushes earnings estimates (again)
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: 74.66

Comments:
05/03/15: It was a volatile week for AKAM. The stock was hitting new highs prior to its earnings report on April 28th. Analysts were looking for a profit of $0.61 a share on revenues of $525.8 million. AKAM's results were in-line with estimates. Revenues were up +16% last quarter. A couple of analysts upgraded the stock following its results. However, shares still experienced some profit taking. Fortunately, AKAM found support near its prior highs.

Tonight I am raising the stop loss to $69.00. More conservative investors may want to consider a stop closer to the 50-dma, currently near $72 instead.

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 $4.45/4.65

05/02/15 new stop @ 69.00
03/25/15 Triggered at $71.50
03/22/15 Strategy update: Move the buy-the-dip trigger to $71.50, move the stop loss to $67.90, adjust the option to the 2016 Jan. $80.00 call
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 69.00
Play Entered on: 03/25/15
Originally listed on the Watch List: 03/08/15


Tableau Software - DATA - close: 97.77

Comments:
05/03/15: The stock market's widespread decline last week played in our favor. Last weekend we added DATA to our watch list with a buy-the-dip trigger at $100.00. Shares hit our suggested entry point on Monday. The stock has continued to pullback but traders bought the dip on Friday near its 50-dma and trend of higher lows.

This week could see more volatility as DATA reports earnings on May 7th, after the closing bell. That makes Friday morning, May 8th, a potentially volatile day with both DATA's earnings and the April jobs report.

More conservative investors may want to wait and see how the market reacts to DATA's results before initiating new positions.

Trade Description: April 26, 2015:
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.

- Suggested Positions -
APR 27, 2015 - entry price on DATA @ 100.00, option @ 12.10
symbol: DATA160115C110 2016 JAN $110 call - current bid/ask $9.00/9.90

04/27/15 triggered @ $100.00
Remember, this is a higher-risk trade. Consider small positions to limit risk.
Option Format: symbol-year-month-day-call-strike

Chart

Current Target: To Be Determined
Current Stop loss: 93.75
Play Entered on: 04/27/15
Originally listed on the Watch List: 04/26/15


iShares MSCI Germany - EWG - close: 30.00

Comments:
05/03/15: It was a choppy week for stocks in Europe yet the EWG managed to eke out another gain.

I am reiterating my cautious comments from April:

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 assumes that Greece works out some sort of deal with Europe for additional bailout funds before its big payments to the ECB.

We should 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 $1.45/1.70

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: 15.50

Comments:
05/03/15: The threat of Greece leaving the Eurozone has not stopped money from flowing into European ETFs. The EWI delivered a better performance than its EWG rival. Germany has the stronger economy but this Italian ETF is outperforming and hitting new six-month highs.

Tonight we will raise the stop loss to $14.40.

FYI: 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 $1.75/2.05

05/03/15 new stop @ 14.40
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: 14.40
Play Entered on: 04/07/15
Originally listed on the Watch List: 04/05/15


Facebook, Inc. - FB - close: 78.99

Comments:
05/03/15: Yuck! The action in FB has been disappointing. Since its earnings report on April 22nd the path of least resistance has been lower. I was expecting the $80.00 level to hold as support but now it looks like FB could be headed for its simple 200-dma near $77.00.

The long-term trend is still higher but I am suggesting caution here. More conservative investors may want to raise their stop loss. Currently our stop is at $74.75. I am not suggesting new positions at this time.

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 $3.15/3.25

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: 26.32

Comments:
05/03/15: The ITB has been a big disappointment as well. This ETF is down four weeks in a row. It hasn't seen a move like that since last summer.

Home prices are on the rise and pending home sales surged +13.4% last month. Yet the profit taking in the ITB continues. Most of the components in the ITB have all seen a -10% correction or more in the last month so hopefully the worst is over.

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 $0.55/0.85

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

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



Level 3 Communications - LVLT - close: 55.71

Comments:
05/03/15: LVLT rallied to multi-year highs on better than expected earning and bullish guidance. The company reported on April 29th. Q1 earnings were up +20% to $0.35 a share, which was above estimate. Revenues were up +2.5% to $.05 billion.

LVLT's CFO updated their 2015 outlook, saying, "We now expect full year 2015 Adjusted EBITDA growth of 14 to 17 percent, compared to our previous outlook of 12 to 16 percent. In addition, we expect to generate Free Cash Flow of $600 to $650 million for the full year 2015. This compares to our prior outlook of $550 to $600 million."

A couple of Wall Street analysts thought results were good enough to upgrade their price targets on LVLT.

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 $3.20/3.60

04/29/15 Better than expected earnings
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


Starbucks Corp. - SBUX - close: 50.29

Comments:
05/03/15: SBUX, like our DATA trade, was a new watch list candidate we added last weekend. The plan for SBUX was to buy calls on a dip at $50.00. Shares hit our entry point on April 28th. Shares tagged the $50.00 level again on April 30th with the market's accelerated drop. I would consider new positions now with Friday's bounce.

Trade Description: April 26, 2015:
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.

- Suggested Positions -
APR 28, 2015 - entry price on SBUX @ 50.00, option @ 1.59
symbol:SBUX160115C55 2016 JAN $55 call - current bid/ask $1.65/1.70

04/28/15 triggered @ 50.00
Option Format: symbol-year-month-day-call-strike

Chart

Current Target: SBUX @ TBD
Current Stop loss: 47.25
Play Entered on: 04/28/15
Originally listed on the Watch List: 04/26/15


Toyota Motor Corp. - TM - close: 139.96

Comments:
05/03/15: On Friday TM reported its U.S. car sales for April 2015. The company sold 203,329 vehicles, which is a +1.8% increase from a year ago. According to the company, "light truck sales have carried the auto industry to its best start in 15 years." Plus, "The demand for crossover SUVs is off the charts and both the RAV4 and Highlander set April records." Meanwhile Lexus sales were up +11.7% from a year ago.

The company broke out some of its best performers: Corolla sales +10%, light trucks +8%, RAV4 +22%, 4Runner +18%, Tacoma +12.9%, Tundra +4.5%, Lexus luxury utility vehicles +23.5%, and GX sales +19%.

Meanwhile the stock has dipped to technical support at its rising 50-dma. 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 $13.75/14.50

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: 44.41

Comments:
05/03/15: TXT's Q1 earnings results were not very inspiring. Both earnings and revenues came in below expectations. Wall Street was looking for $0.48 a share on revenues of $3.19 billion. TXT reported $0.46 a share with revenues up +7.9% to $3.07 billion. Management reaffirmed their 2015 guidance for $2.30-2.50 per share.

It was surprising to see TXT's stock hold up so well given this disappointing quarter. Shares spiked down to $43.00 on Tuesday but quickly bounced. I am suggesting caution. We will raise our stop loss to $42.40. I am not suggesting new positions.

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

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

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

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

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

- Suggested Positions -
FEB 25, 2015 - entry price on TXT @ 45.30, option @ 3.00
symbol: TXT160115C50 2016 JAN $50 call - current bid/ask $1.54/1.85

05/03/15 new stop @ 42.40
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: 42.40
Play Entered on: 02/25/15
Originally listed on the Watch List: 02/15/15




CLOSED Plays


Coach, Inc. - COH - close: $37.87

Comments:
05/03/15: Our COH trade did not survive earnings season. COH is off -11% for the week. I warned readers that Tuesday could be volatile as the market reacted to COH's quarterly results.

Wall Street was expecting a profit of $0.35 a share on revenues of $949 million. COH reported $0.36 a share. Revenues were down -15.5% to $929 million. North American comparable store sales plunged -23%. Shares gapped down on Tuesday morning at $39.52. That immediately stopped us out (our stop was $39.65).

- Suggested Positions -
MAR 24, 2015 - entry price on COH @ 42.00, option @ 2.80
symbol: COH160115C45 2016 JAN $45 call - exit $1.30 (-53.5%)

04/28/15 stopped out on gap down at $39.52, stop was $39.65
03/24/15 Trade begins. COH opens at $42.00
03/23/15 COH closed @ $42.01, above our trigger of $42.00
Option Format: symbol-year-month-day-call-strike

Chart

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


Lowe's Companies - LOW - close: 68.00

Comments:
05/03/15: Shares of LOW accelerated lower last week. I have been warning readers that the stock would likely fall toward round-number support near $70.00. The stock market's widespread selloff last week was too much for LOW. The stock pierced support at $70.00 and hit our stop loss at $69.00 on Thursday.

- Suggested Positions -
FEB 06, 2015 - entry price on LOW @ 71.53, option @ 3.45
symbol: LOW160115C80 2016 JAN $80 call - exit $1.40 (-59.4%)

04/30/15 stopped out
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

Chart

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


Under Armour, Inc. - UA - close: 77.96

Comments:
05/03/15: UA has been hammered lower during these last two weeks. The stock sprinted higher into its earnings report. Since the report shares have done nothing but fall. Now UA is off almost $10.00 from its pre-earnings high (a -11% pullback).

UA hit our stop loss last week at $78.85. I'm still long-term bullish on UA but I would wait to see if this correction pulls the stock down toward its 200-dma near $70 before considering new positions.

- Suggested Positions -
FEB 24, 2015 - entry price on UA @ 75.87, option @ 5.60
symbol: UA160115C85 2016 JAN $85 call - exit $5.40 (-3.5%)

04/29/15 stopped out
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

Chart

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

Refreshing The Watch List

by James Brown

Click here to email James Brown



New Watch List Entries

ADBE - Adobe Systems

AMBA - Ambarella Inc.

GILD - Gilead Sciences

MA - MasterCard Inc.


Active Watch List Candidates

A - Agilent Technologies

ASH - Ashland Inc.

IR - Ingersoll-Rand

JCI - Johnson Controls Inc.

NKE - Nike Inc.


Dropped Watch List Entries

DATA and SBUX have graduated to our active play list.



New Watch List Candidates:

Adobe Systems - ADBE - close: 76.43

Company Info

ADBE is in the technology sector. According to the company's website, "Adobe is changing the world through digital experiences. Content built and optimized with Adobe products is everywhere you look — from websites, video games, and smartphones to televisions, tablets, and beyond. Adobe® Creative Cloud® software offers the most innovative tools for creating digital media, while Adobe Marketing Cloud delivers groundbreaking solutions for data-driven marketing. Our leadership in these two emerging categories, Digital Media and Digital Marketing, provides our customers with a real competitive advantage, positioning Adobe for continued growth well into the future. As one of the largest software companies in the world, Adobe achieved revenue of more than US$4 billion in 2013."

The company's most recent earnings report was March 17th. Results were $0.44 a share, which was five cents better than expected. Revenues were up +10.9% to $1.11 billion, also above expectations. The company continues to see success with their subscription model and added 517,000 new creative cloud subscriptions, a +28% improvement from a year ago.

Technically the stock is in a long-term up trend. Shares just spent the last few weeks consolidating sideways and looks ready for the next move higher. A rise past $78.00 would generate a new buy signal on the point & figure chart.

I am suggesting we wait for ADBE to close above $77.75 and then buy calls the next morning with a stop loss at $71.85. More conservative investors may want to wait for ADBE to close over short-term resistance at $80.00 as an alternative entry point for bullish positions.

Breakout trigger: Wait for a close above $77.75,
Then buy calls the next morning with a stop at $71.85.

BUY the 2016 Jan $85 call (ADBE160115C85)

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

Chart of ADBE:

Originally listed on the Watch List: 05/03/15


Ambarella, Inc. - AMBA - close: 76.05

Company Info

If you're looking for relative strength then AMBA has it in spades. Year to date the stock is already up +50%. AMBA is in the technology sector. They're considered part of the semiconductor and semiconductor equipment makers. The company was founded in 2004 and went public in October 2012 at $6.00 a share. That price was significantly below where AMBA was expected to price in the $9-11 range. Investor sentiment has definitely changed since then.

The company has grown from making broadcast-class encoders to making consumer and sports cameras, security cameras, and now automotive cameras. Their high-definition chips are being integrated into security IP cameras and wearable cameras. AMBA is also capturing part of a new market - cameras on consumer-level remote control drones.

The last two plus years have seen a strong performance in AMBA with the stock up more than +600% from its IPO price. AMBA has GoPro, Inc. (GPRO) to thank for part of that rally. GPRO came to market in June 2014 and the stock has been in rally mode since mid August with a rally in GPRO from less than $40 to $90 a share. I mention GPRO because AMBA happens to make the HD camera sensors in many of GPRO's action camera products. GPRO's IPO drew a lot of attention to AMBA. Now GPRO's rally has collapsed while AMBA has continued to climb.

Part of GPRO's trouble is competition from a large Chinese rival - Xiaomi. GPRO is currently seen as best of breed in the action camera market but it may not hold that spot forever. Xiaomi is selling similar cameras at a significant discount to GPRO and both cameras use AMBA's technology. Both camera makers have different models. GPRO's top of the line still has better components than Xiaomi's - at least for now. The real winner is AMBA since they supply to both companies. Multiple analysts have commented on AMBA's relationship with Xiaomi and believe it will bear significant fruit in the future.

AMBA has been killing it on the earnings front. They have beaten Wall Street's earnings and revenue estimates for the last five quarters in a row. Their most recent report was their Q4 results on March 3rd. Analysts were expecting a profit of $0.49 a share on revenues of $59.3 million. AMBA delivered $0.68 a share with revenues soaring +61% to $64.7 million.

AMBA's next earnings report is not until June 2nd. However, GPRO's recent earnings could be an early look at AMBA's business. GPRO just reported its Q1 results on April 28th. Earnings were better than expected and revenues soared +54% to $363 million. GPRO beat Wall Street estimates on both the top and bottom line. GPRO's management raised their 2015 Q2 guidance significantly above analysts' estimates. That's bullish news for AMBA. Shares of AMBA rallied on GPRO's results.

Currently AMBA is sitting just below resistance in the $76-77 area. I am suggesting we wait for AMBA to close above $77.50 and then buy calls the next morning with an initial stop loss at $69.00. More aggressive traders may want to use an intraday trigger instead since AMBA could breakout and surge higher. I am putting a limit on this trade. We do not want to open positions if AMBA spikes above $81.00. Essentially our entry window to launch bullish positions is the $77.50-81.00 zone.

Breakout trigger: Wait for a close above $77.50,
Then buy calls the next morning with a stop at $69.00.

BUY the 2016 Jan $90 call (AMBA160115C90)

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

Chart of AMBA:

Originally listed on the Watch List: 05/03/15


Gilead Sciences - GILD - close: 105.01

Company Info

GILD seems to be everyone's favorite biotech stock. I only hear bullish opinions about the future of the company, and for good reason. They have some pretty amazing treatments with products for HIV/AIDS, liver diseases, oncology, cardiovascular, respiratory, and more. GILD has essentially revolutionized how we treat major diseases like HIV and Hepatitis C.

According to the company website, "Gilead Sciences, Inc. is a research-based biopharmaceutical company that discovers, develops and commercializes innovative medicines in areas of unmet medical need. We strive to transform and simplify care for people with life-threatening illnesses around the world. Gilead's portfolio of products and pipeline of investigational drugs includes treatments for HIV/AIDS, liver diseases, cancer and inflammation, and serious respiratory and cardiovascular conditions."

Last year (2014) everyone has been raving over GILD's hepatitis C treatment called Sovaldi. Hepatitis C is a form of viral hepatitis that causes chronic inflammation of the liver. About 185 million people currently suffer with hepatitis C. Previously the most common treatment for hepatitis C had serious side effects and was less than 50% successful. GILD changed that with their Sovaldi drug that not only treats the symptoms but actually cures the patient. The company has drawn some negative publicity over the cost since GILD charges $84,000 for a 12-week course of Sovaldi in the United States. The fact that 80% to 90% of patients who take Sovaldi are cured is a major milestone.

The Financial Times noted that before Sovaldi the impact of hepatitis C in the U.S. took a heavy toll on the healthcare system. The disease can lead to liver failure and cancer, both of which cost significantly more than Sovaldi's $84,000 price target. Hepatitis C is the leading cause for liver transplants in the U.S., which can cost a minimum of $145,000. One consulting firm estimated that the annual cost of hepatitis C to the U.S. healthcare system was going to surge from $30 billion to $85 billion in the next twenty years. Sovaldi has the potential to change. that.

The company is a cash machine. Their Q2 2014 revenues soared +136%. Q3 revenues were up +117%. Q4 2014 sales were +134%. They also announced a $15 billion stock buyback program.

GILD's most recent earnings report was their 2015 Q1 announcement on April 30th. Wall Street was expecting a profit of $2.32 per share on revenues of $6.89 billion. GILD delivered $2.94 per share with revenues rising +51.9% to $7.59 billion. Management then raised their 2015 sales forecast from $26-27 billion to $28-29 billion.

Technically shares of GILD have been consolidating sideways under a trend of lower highs for months. The last half of April appears to have produced a bullish breakout but GILD still has resistance in the $106 area. Tonight I am suggesting we wait for GILD to close above $106.50 and then buy calls the next morning.

Breakout trigger: Wait for a close above $106.50
Then buy calls the next morning with a stop at $99.00.

BUY the 2016 Jan $115 call (GILD160115C115)

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

Chart of GILD:

Originally listed on the Watch List: 05/03/15


MasterCard Inc. - MA - close: 91.25

Company Info

We are adding MA back to the watch list. Here's our recent watch list play description from April:

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

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

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

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

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

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

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

Shares of MA look like a potential trade again. The company recently reported earnings on April 29th. The beat estimates on the bottom line with a profit of $0.89 per share. Revenues were only up +2.7% to $2.23 billion, which was below expectations. Part of the challenge were currency headwinds.

Wall Street seems to think that MA will do well in spite of the tough business environment. The spike higher on April 22nd was news that the country of China was going to open up their market to foreign companies. Previously companies like MA and Visa could only do business in China by partnering with a domestic firm (China UnionPay). Now the Chinese government is opening up the bank card-clearing market to foreigners. This is huge. The Chinese market for this business was $6.8 trillion in transactions last year. Now MA gets a chance to compete for its share of this business.

Shares of MA still have resistance near $93.00. We want to see MA close above $93.25 and then buy calls the next morning with a stop loss at $88.00.

Breakout trigger: Wait for a close above $93.25
Then buy calls the next morning with a stop at $88.00.

BUY the 2016 Jan $95 call (MA160115C95)

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

Chart of MA:

Originally listed on the Watch List: 05/03/15


Active Watch List Candidates:



Agilent Technologies - A - close: 41.83

Comments:
05/03/15: Shares of A have continued to retreat from its April highs. The stock is now down three weeks in a row. We are removing A as a watch list candidate. We might revisit it again if shares can rally back toward its highs. The $43.50-44.00 area looks like significant resistance.

Trade did not open.

05/03/15 removed from the watch list, suggested entry was a close above $44.00

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


Ashland, Inc. - ASH - close: 128.60

Comments:
05/03/15: ASH reported earnings on April 29th. Revenues beat estimates by 30 cents with a profit of $2.03 per share. Revenues were down -12.6% to $1.35 billion, which was below estimates. Management announced at $1 billion stock buyback program.

The stock spiked to a new high on this news but the rally didn't last as Thursday was a rough day for the broader market. I am suggesting we give ASH another week. If we don't see improvement then we'll remove it as a candidate.

Currently our suggested entry point is a close above $130.75.

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.

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: 66.85

Comments:
05/03/15: The stock market's widespread decline last week pushed IR toward the bottom of its $66-69 trading range. Let's see how IR performs this week. If shares do not show improvement then we'll drop it as a watch list candidate.

Currently our suggested entry point is a close above $70.25.

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.

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


Johnson Controls Inc. - JCI - close: 51.10

Comments:
05/03/15: The post-earnings profit taking in JCI produced a five-day sell-off. Shares finally bounced on Friday after the stock tested its three-month trend line of higher lows.

Aggressive traders could buy calls on this bounce and limit their risk with a tight stop loss just below $50.00. I am suggesting the rest of us (non-aggressive investors) wait for JCI to close above $53.50 before considering new positions.

Trade Description: April 26, 2015:
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)

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

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


Nike, Inc. - NKE - close: 100.78

Comments:
05/03/15: NKE spent the entire month of April consolidating sideways in the $98-102 range. I'm not ready to give up on the stock just yet. The long-term trend is still bullish.

We want to wait for NKE to close above $102.00 and then buy calls the next morning. Tonight I am adjusting our stop loss to $97.45.

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 97.45

BUY the 2016 Jan $110 call (NKE160115C110)

05/03/15 move the stop loss from 95.75 to 97.45
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