Option Investor
Newsletter

Daily Newsletter, Sunday, 6/7/2015

Table of Contents

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

Leaps Trader Commentary

Digesting OPEC, Jobs, and Greek Moves

by James Brown

Click here to email James Brown

The U.S. stock market delivered an uneven performance last week. Investors seemed to be growing more anxious as we approached Friday, June 5th. The combination of a bid debt payment for Greece, a semiannual OPEC meeting, and the May jobs report in the U.S. was a lot to digest on Friday. Throughout the week most of the focus was on Greece as the country gets closer and closer to a potential default. Big moves in the bond market both in the U.S. and in Europe were also making headlines. The German bund market had its worst week since 1998.

Big caps were underperformers. Both the S&P 500 and the NASDAQ composite posted their second weekly loss in a row. It's worth noting the drop in the NASDAQ was very small. Buyers seemed to focus on the small caps and the Russell 2000 actually gained +1.1% for the week. Some of the groups displaying relative strength were transports (+2.5%) and banking stocks (+2.75%) while semiconductor stocks suffered widespread profit taking. The SOX index lost -2.5%.

The U.S. dollar posted a loss for the week, ending a two-week bounce, but that didn't stop weakness in commodities. Gold fell -1.7%. Silver dropped -4.2%. WTI crude oil posted a -2.3% decline for the week. Another big loser was the U.S. bond market, which plunged to new 2015 lows. The yield on the 10-year bond broke through its long-term down trend and hit levels not seen since October, ending the week at 2.4%.

Chart of the iShares U.S. Bond ETF (TLT)

Chart of the U.S. 10-year Bond Yield

Cyber security stocks were in focus after news hit of a massive data breach in the U.S. government. Hackers were able to steal information on about four million people in government databases. What's alarming is that the hackers appeared to be targeting people who had applied for security clearance. American authorities say all the clues point to China as the perpetrator behind the cyber attack. Analysts were speculating that China was looking for dirt on government employees so they could blackmail them into being spies. China responded to these allegations saying these claims are irresponsible and asks the U.S. to trust it more.

OPEC meeting

Another big story on Friday was the semiannual meeting for the Organization of the Petroleum Exporting Countries. Heading into Friday's meeting in Vienna no one was expecting the cartel to cut production and there was speculation they may even raise production. OPEC announced they would leave their official production quota of 30 million barrels per day unchanged. The funny thing is that OPEC's actual output has been above that 30 mbpd for the last 12 months in a row. They produced 31.58 mbpd in May. Both Iran and Iraq are expected to see a surge of production in the next month or two.

OPEC has essentially given up on trying to control the price of oil. Instead they want to control market share. They're willing to pump more at lower prices so it's not profitable for their rivals to compete with them. This is bad news for certain areas of the U.S. fracking industry, where the cost to produce oil might be in the $70 per barrel region. OPEC's pump at any cost approach is also terrible news for some of their struggling members who need high oil prices to pay for their government budgets. The next OPEC meeting is December 4th.

Economic Data

Most of the economic headlines last week were overshadowed by the Greek showdown in Europe. The U.S. did see an improvement in their ISM manufacturing index, which rose from 51.5 in April to 52.8 in May. Numbers above 50.0 suggest growth. Construction spending from March was revised higher from -0.6% to +0.5% while April's reading surged to +2.2%. It was the largest one-month increase since May 2012.

On Thursday Christine Lagarde, the Director for the International Monetary Fund, made headlines when she urged the U.S. to delay their next rate hike into 2016. The IMF downgraded their outlook on the U.S. economy from +3.1% growth to +2.5% growth in 2015. The IMF lowered their worldwide forecast from +3.8% to +3.1%. They're concerned that the Q1 slowdown may not be over. The IMF noted the sharp rise in the dollar and suggested the dollar might be overvalued. Raising rates would only send the dollar higher. The IMF is concerned that if the U.S. Federal Reserve raises rates too soon it will slowdown the U.S. economy which in turn will slowdown the global economy.

The very next day the nonfarm payroll report for May showed +280,000 new jobs in the U.S. That was significantly above estimates for +225,000. The March jobs number was revised up from +85,000 to +119,000. May's +280K number was the biggest monthly gain since December.

The unemployment rate rose from 5.4% to 5.5% as almost 400,000 people rejoined the workforce. The labor force participation rate inched higher from 62.8% to 62.9%, a four-month high. That leaves almost 93 million Americans not in the workforce.

One of the most notable pieces of the May jobs data was the rise in average hourly earnings, which jumped +0.3% in May. That pushed the year over year growth to +2.3%. The three-month average is up to an annual pace of +2.9%. The average hourly earnings growth has hit its strongest pace in the last five years.

According to Deutsche Bank economist Torsten Sløk, "This should put upward pressure on the entire yield curve and the dollar going forward. For equities it is positive because higher wages means higher household income, which means more demand in the economy and ultimately higher topline growth for corporate America. This is what we have been waiting for since 2009. In other words, the virtuous cycle has begun."

The Federal Reserve wants to see job growth and wage growth and May's report provided both. That's why so many suddenly believe the Fed may indeed raise rates this year. However, Jon Hilsenrath, considered by many one of the best analyst on fed moves, suggest that May's nonfarm payroll report will not trigger a June rate hike by the Federal Reserve. In Jon's blog post (here) he discusses how the Fed remains data dependent and would likely to see a string of positive reports before pulling the trigger.

Greece

It should be no surprise that Greece was one of the main stories for the market last week. Greece was supposed to make a €300 million debt payment to the IMF on Friday, which was the first of four Friday payments to the IMF this month. In a surprise move Greece announced it was not making this payment on Friday but instead asked the IMF to allow it to bundle all of its June payments into one lump sum at the end of the month. This means Greece will need to come up with €1.6 billion by month end.

It's the first time in five years that Greece has postponed a debt payment on its bailout plan from the Troika. It's also the first time since the 1980s that a country has deferred its IMF payments. The last time was the African nation of Zambia The move sparked new selling pressure across the European stock markets, which all ended lower on Friday.

Greek Prime Minister Alexis Tsipras has been negotiating with German Chancellor Merkel, French President Hollande, and the rest of the Troika (IMF, ECB, Eurozone) all week. The two sides have not been able to make any progress. Tsipras says he will not accept any further austerity or cut pensions, which is exactly what its creditors want him to do in addition to raise taxes.

The situation is tense. Greece doesn't have the money to make its IMF payments for June and it definitely does not have the money to make its larger payments to the ECB later this summer. The country needs to come to a new agreement with its creditors, which would allow it access to the next tranche of bailout funds. Without a deal Greece will default. A default opens the door to an exit from the Eurozone. Unfortunately 74% of Greeks polled do not want to leave the Eurozone. Almost half of Greek citizens are unhappy with how the left-wing Syriza party is handling negotiations. Odds are growing that Greece could face snap elections again.

Tim Edwards, the senior director of index investment strategy at Standard Poor's Dow Jones Indices, shared an interesting perspective on the situation. Tim suggests that odds are significantly higher now that Greece will default "precisely because it is now bearable." Five years ago Europe was unprepared for such an event. Today the region has had years to shore up their financial system so that a Greek default does not capsize their entire system. The GDP of Greece is less than 1.5% of the Eurozone's. If Greece were to leave it would have a negligible and temporary impact on the wider economy. You can read more on Tim's thoughts here.

Hypothetically, if Greece does default on July 1st this year. They will probably fall into some sort of grace period, which could extend this agony for another month or two. We could be looking at September before any potential Greek exit from the Eurozone.

Overseas Economic Data

There were a number of economic headlines overseas. The Bank of England left their interest rate unchanged at 0.5% and left their QE program unchanged. The European Central Bank left their interest rate policy unchanged. France said their unemployment rate ticked down from 10.4% to 10.3%. Germany's unemployment rate was better than expected and essentially unchanged at 6.4%. Germany reported their April factory orders were up +1.4% for the month and their manufacturing PMI for May was 51.1. The German Bundesbank upgraded their 2015 GDP forecast on Germany from +1.0% to +1.7% and raised their 2016 outlook from +1.6% to +1.8%. The Eurozone reported their manufacturing PMI for May was almost unchanged at 52.2 while their services PMI improved from 53.3 to 53.8. Numbers above 50.0 suggest growth. Unemployment in the Eurozone ticked down from 11.2% to 11.1%.

India's HSBC Markit manufacturing PMI data for May improved from 51.3 to 52.6. China's HSBC manufacturing PMI for May inched up from 49.1 to 49.2 while their official manufacturing PMI reading rose from 50.1 to 50.2. These tepid PMI readings fueled investors expectations for more stimulus from the Chinese government. The Chinese Shanghai index soared to new seven-year highs. The Chinese market is now trading with a P/E of 50 versus the S&P 500's P/E of 20.




Major Indices:

The S&P 500 index lost -0.69% for the week. This reduced its 2015 gains to +1.65%. The big cap index is back below its simple 50-dma and poised to either bounce or breakdown below the 100-dma. If that occurs I suspect we'll see the index fall toward technical support at the 200-dma, near price support around 2,040 (see chart).

Five-Day chart of the S&P 500 index:

chart of the S&P 500 index:

The NASDAQ composite is actually holding up reasonably well. It fell -0.03% for the week and is still up +6.6% for the year. This index is only about 40 points away from a new multi-year closing high. A close above resistance near the 5,100 level could definitely spark some short covering.

Should the market pullback continue then the NASDAQ may have support near the 5,000 and 4,900 levels.

chart of the NASDAQ Composite index:

One of the most encouraging charts among the major indices is the small cap Russell 2000 index. The $RUT rallied +1.1% for the week and has extended its 2015 gains to +4.6%. The trend of higher lows is bullish. This index still has some overhead resistance in the 1,280 area.

chart of the Russell 2000 index



Economic Data & Event Calendar

The week ahead looks pretty sparse as far as economic reports go. I suspect that the financial media will focus on the Greece situation and the next FOMC meeting, which is June 17th. Whether or not Greece defaults and when the Fed might raise rates next are the two big stories this summer (likely this year).

Believe it or not but Q2 earnings season is only one month away. Alcoa (AA) kicks it off on July 8th.

- Monday, June 8 -
(nothing significant)

- Tuesday, June 9 -
Wholesale Inventories
Japan's GDP estimate

- Wednesday, June 10 -
(nothing significant)

- Thursday, June 11 -
U.S. retail sales for May
Import/Export prices
Business Inventory data

- Friday, June 12 -
Producer Price Index (PPI)
University of Michigan Consumer Sentiment

Additional Events to be aware of:

June 17th: FOMC interest rate decision
June 17th: Fed Chairman Yellen's press conference
July 3rd: U.S. market closed for Independence Day

Looking Ahead:

The Federal Reserve is probably feeling a lot more confident about the U.S. economy following the May jobs report. They want to see a growing economy, especially after a negative Q1 GDP estimate. The good news is that after months and months of disappointing economic numbers we are seeing some improvement. Pending home sales are strong. Auto and truck sales are surging. The job market looks decent. We even have wage growth. These are all signals to the Fed that the U.S. economy is doing okay. The only missing piece seems to be consumer spending. Consumers are spending on cars and they're buying homes (thanks to low interest rates) but they are not spending much anywhere else.

Prior to Friday's jobs report the sentiment among financial pundits was starting to see some momentum for no interest rate hikes this year. After Friday's report odds of a rate hike in September are now above 50%, according to fed fund futures. Of course the Federal Reserve has promised to be data dependent so they want to see multiple months of consistent growth before raising rates. This would suggest no hike at the June meeting but a potential hike in September.

The last several weeks (maybe months) we have seen stocks sell off on any good economic news because it was seen as fuel for the Fed to raise rates. Friday's higher than expected jobs number was a big dose of data that supports raising rates. Yet stocks did not see any significant sell off. That may be a good sign. If investors can adjust their way of thinking then maybe we can get away from this good news is bad news environment. If traders can start to accept that an improving economy is better than the Fed's record-low easy money policy then raising rates will not be a bad thing.

The reason the market focuses so much on the Fed and their interest rate policy is because it affects so much in the economy and the financial system. When the Fed does raise rates the dollar should rise and bond yields should rise. In very simple terms, if the dollar rises too fast or if bond yields rise too fast there is a worry it could spark a broader market sell-off.

I am still optimistic that the path of least resistance for the U.S. market is higher. However, the biggest threat is uncertainty surrounding the Greece situation. If Greece defaults and/or leaves the Eurozone it's not going to have a huge impact on the U.S. economy. However, it could still generate a lot of waves in the financial markets. The second half of June could be critical for negotiations between Greece and its creditors in Europe. That could mean more volatility for equity markets as we approach the end of the second quarter.

~ James


"The one fact pertaining to all conditions is that they will change."
- Charles Dow, 1900


Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

The U.S. market's performance last week was muddled. Big caps struggled while the small caps outperformed. The bond market plunged driving yields to new 2015 highs.

The AMBA trade was closed on Monday, June 1st.

We want to exit our ASH trade immediately on Monday, June 8th.

I have updated stop losses on DATA, GILD, LVLT, NKE, SBUX, and TXT.

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

Transfixed With The Fed's Next Move

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(June 07, 2015)

The U.S. stock market produced a schizophrenic performance last week. Weakness in the big cap indices was offset by strength in the small caps.

There was a lot of news to digest on Friday. The market remains transfixed on the topic of when the Federal Reserve will raise rates. Meanwhile traders are trying to ignore the end game brinkmanship between Greece and Europe but every headline is still seems to make waves in the equity and bond markets.

I am not adding any new trades tonight. Last week we saw FEYE graduate from our watch list to our play list. This week I am adding COF and STZ to the watch list.

Below is an updated list of stocks on my radar.

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:

FDX, LGF, SWKS, CRR, DXJ, HBI, UA, UHS



Play Updates

Big Cap Stocks Fade Lower

by James Brown

Click here to email James Brown

Editor's Note:

FEYE has graduated from our watch list to the active play list.

We want to exit our ASH trade on Monday, June 8th.


Closed Plays


Our plan was to exit the AMBA trade on Monday morning (June 1st).



Play Updates


Apple Inc. - AAPL - close: 128.65

Comments:
06/07/15: Big cap stocks underperformed the rest of the market last week. As the biggest of the big caps it's no surprise to see AAPL trending lower. Shares remain inside this very wide $120-135 trading range. Most of the analyst chatter I heard this past week is still bullish on AAPL.

The week ahead could have some positive headlines as the annual AAPL worldwide developers conference (WWDC) begins on June 8th.

I am not suggesting new positions in AAPL 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 $14.65/14.70

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


Adobe Systems - ADBE - close: 78.86

Comments:
06/07/15: ADBE also followed the big cap indices lower last week. Fortunately losses were pretty mild, only about 20 cents.

Odds are growing that we will see ADBE drop toward what should be support in the $77.00-77.50 area. We could wait for this dip and launch new positions there.

Trade Description: May 3, 2015:
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.

- Suggested Positions -
MAY 15, 2015 - entry price on ADBE @ 80.00, option @ 4.60
symbol: ADBE160115C85 2016 JAN $85 call - current bid/ask $3.70/3.90

05/15/15 trade begins. ADBE opens at $80.00
05/14/15 triggered. ADBE closed @ $79.43, above our trigger of $77.75
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 71.85
Play Entered on: 05/15/15
Originally listed on the Watch List: 05/03/15


Akamai Technology - AKAM - close: 75.24

Comments:
06/07/15: The pullback in shares of AKAM continued. The stock is down three weeks in a row and shares tagged technical support at its simple 50-dma on Friday. I cautioned readers last weekend that AKAM was likely headed for the $73-74 region before bouncing and that is still a good bet.

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 $4.30/4.50

05/17/15 new stop @ 71.75
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: 71.75
Play Entered on: 03/25/15
Originally listed on the Watch List: 03/08/15


Anthem Inc. - ANTM - close: 162.82

Comments:
06/07/15: Warning! The big healthcare names had been outpacing the market. That changed with some profit taking last week. ANTM fell from $169.00 on Monday to an intraday low of $159.65 on Friday. Fortunately shares bounce near the $160 area, which should be round-number support. Unfortunately, last week's move has created a bearish engulfing candlestick reversal pattern on the weekly chart.

More conservative investors may want to raise their stop loss. I am not suggesting new positions at this time.

Trade Description: May 10, 2015:
The Affordable Care Act (a.k.a. Obamacare) was first feared by healthcare companies. Now they have embraced it. Obamacare has definitely been good for ANTM with waves of new enrollees.

ANTM, previously known as Wellpoint, is in the healthcare sector. According to the company, "Anthem is working to transform health care with trusted and caring solutions. Our health plan companies deliver quality products and services that give their members access to the care they need. With nearly 71 million people served by its affiliated companies, including more than 38 million enrolled in its family of health plans, Anthem is one of the nation’s leading health benefits companies."

ANTM has raised its guidance the last four quarters in a row! Their most recent earnings report was April 29th. ANTM delivered their 2015 Q1 results of $3.14 per share. That was 45 cents above estimates. Revenues came in below expectations but traders didn't care because ANTM raised their guidance above Wall Street's estimate.

Now analysts are starting to raise their price targets on the stock. Shares have broken out of a multi-week consolidation pattern. ANTM is poised to rally through resistance near $160.00 and hit new all-time highs.

Tonight I am suggesting we wait for ANTM to close above $161.00 and then buy calls the next morning with a stop loss at $152.00.

- Suggested Positions -
MAY 18, 2015 - entry price on ANTM @ 162.00, option @ 7.95
symbol: ANTM160115C170 2016 JAN $170 call - current bid/ask $7.85/8.70

06/07/15 Caution: ANTM has generated a potential bearish reversal pattern on its weekly chart
05/24/15 new stop loss @ 154.75
05/18/15 trade begins. ANTM opens at $162.00
05/15/15 Trade is triggered. ANTM closes above our $161.00 trigger
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 154.75
Play Entered on: 05/18/15
Originally listed on the Watch List: 05/10/15


Ashland, Inc. - ASH - close: 126.25

Comments:
06/07/15: Bullish analyst comments on ASH last week failed to help the stock price. Shares have been struggling under resistance in the $129.00 area. The stock has been underperforming since its big spike lower in early May (when we were triggered). ASH now looks poised to breakdown under support near $125.00.

I am throwing in the towel on this trade. We want to exit immediately on Monday morning.

- Suggested Positions -
MAY 12, 2015 - entry price on ASH @ 127.49, option @ 4.00
symbol: ASH160115C140 2016 JAN $140 call - current bid/ask $2.80/3.00

06/07/15 Prepare to exit on Monday (June 8th)
05/12/15 Trade begins. ASH gaps lower at $127.49
05/11/15 Triggered. ASH closed at $131.52, above our trigger of 131.25
05/10/15 Adjust entry trigger to a close above $131.25 (was 130.75)
04/26/15 Do not open positions if ASH gaps open above $132.50
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 124.75
Play Entered on: 05/12/15
Originally listed on the Watch List: 04/12/15


Tableau Software - DATA - close: 115.60

Comments:
06/07/15: DATA ended the week on an up note. Shares outperformed on Friday with a +1.8% gain and a new closing high. I would not chase it here. Tonight we will move our stop loss to $104.85. More conservative investors may want to use a stop loss closer to $110.00 instead.

I am not suggesting new positions at this time.

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 $17.70/19.00

06/07/15 new stop @ 104.85
05/24/15 new stop @ 102.75
05/17/15 new stop @ 97.40
05/10/15 new stop loss @ 94.75
05/08/15 the stock soars to new highs in reaction to earnings and a couple of upgrades.
05/07/15 DATA delivered better than expected earnings and raises guidance above Wall Street expectations
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

Current Target: To Be Determined
Current Stop loss: 104.85
Play Entered on: 04/27/15
Originally listed on the Watch List: 04/26/15


iShares MSCI Germany - EWG - close: 28.82

Comments:
06/07/15: It has been a volatile week for European stocks. The situation with Greece is quickly running out of time. Last week's attempt at a bounce in the EWG failed near the $30.00 level and shares plunged on Friday with a -1.8% decline.

The next few weeks could be very volatile for Europe. Greece has postponed its current debt payments to the end of June. There is a growing likelihood that the country will default.

Currently our stop loss is at $28.40. If the situation with Greece does not improve soon I expect the EWG to hit that stop. No new positions at this time.

- Prior comments -
We should assume that if Greece does leave the euro or defaults on its debt that this trade gets stopped out due to volatile movement in the European markets.

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 $0.85/1.00

06/07/15 It's not looking good for Greece and European stocks are falling
05/10/15 new stop @ 28.40
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: 28.40
Play Entered on: 03/23/15
Originally listed on the Watch List: 02/22/15


iShares MSCI Italy Capped ETF - EWI - close: 15.32

Comments:
06/07/15: The EWI is holding up better than the EWG but it too is seeing increased volatility thanks to the Greece situation. Friday's big drop left the EWI below technical support at its simple 50-dma. Traders could argue that the action in the EWI over the last four weeks has created a bearish double top pattern near $16.07. More conservative traders may want to abandon ship.

At this point I'm worried this trade could be stopped out unless there is a breakthrough in negotiations in Europe. Technically the EWI looks like it could have short-term support at $15.20, 15.00, and the 200-dma near $14.80. Our stop loss is at $14.70.

No new positions at this time.

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 $1.55/1.90

06/07/15 Caution: The EWI appears to have formed a bearish double top. Conservative investors may want to exit early now!
05/17/15 new stop @ 14.70
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: 14.70
Play Entered on: 04/07/15
Originally listed on the Watch List: 04/05/15


Facebook, Inc. - FB - close: 82.14

Comments:
06/07/15: Most of the big cap stocks struggled last week. Not FB! Shares displayed relative strength and broke out from its short-term bull-flag consolidation pattern. While last week's rally is encouraging I'm still cautious on launching new positions.

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

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

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

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

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

- Suggested Positions -
APR 01, 2015 - entry price on FB @ 81.00, option @ 4.92
symbol: FB160115C90 2016 JAN $90 call - current bid/ask $3.55/3.65

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


FireEye Inc. - FEYE - close: 51.03

Comments:
06/07/15: News that China had allegedly hacked the U.S. government and stole data on four million people launched a rally in cyber security stocks last week. Shares of FEYE surged +9.5% in the last five trading days. J

We had FEYE on our watch list with a plan to buy calls if shares closed in the $47.25-48.50 zone. We were triggered on Monday and our trade opened on Tuesday morning. It certainly didn't hurt that FEYE had two analysts upgrading their price targets on the stock.

Shares do look a little short-term overbought here with FEYE up three weeks in a row and up about $10.00 from its mid-May low (almost +27%). I would not launch new positions at this time. Wait for a pullback.

We are raising the stop loss from $41.85 to $43.85.

Trade Description: May 31, 2015:
The cyber attack on media giant Sony last year was headline news for weeks. It was a major warning bell for corporations around the world to spend more on cyber security. Today it still seems like every week we hear about some high-profile cyber attack. Online criminals and saboteurs are growing more sophisticated and that's fueling corporate demand for high-tech defenses.

The company describes itself as, "FireEye has invented a purpose-built, virtual machine-based security platform that provides real-time threat protection to enterprises and governments worldwide against the next generation of cyber attacks. These highly sophisticated cyber attacks easily circumvent traditional signature-based defenses, such as next-generation firewalls, IPS, anti-virus, and gateways. The FireEye Threat Prevention Platform provides real-time, dynamic threat protection without the use of signatures to protect an organization across the primary threat vectors and across the different stages of an attack life cycle. The core of the FireEye platform is a virtual execution engine, complemented by dynamic threat intelligence, to identify and block cyber attacks in real time. FireEye has over 3,100 customers across 67 countries, including over 200 of the Fortune 500."

The stock was a real high flyer in late 2013 and into 2014. Shares began to fade in early 2014 and then really got crushed when FEYE issued an earnings warning in May 2014. FEYE spent the rest of 2014 consolidating sideways in a very wide $25-40 trading range.

This year FEYE's stock has seen a reversal of fortunes. Suddenly shares are soaring and up more than +45% thanks to better than expected earnings results. FEYE's reported its 2014 Q4 results on February 11th. Earnings improved from a loss of 50 cents a year ago to a loss of 38 cents in the fourth quarter, which was eleven cents better than expected. Revenues soared a whopping +149% to $143 million, which was above expectations.

Management guided 2015 earnings and revenues essentially in-line with consensus. The company is forecasting revenues in the $605-625 million range. FEYE expects a 2015 loss of $1.80 to $1.90 per share. Gross margins are expected to be in the 71-75 percent range.

Analysts have expressed concern with the surge in FEYE's spending but management said they are spending in-line with the company's growth. FEYE CEO Dave DeWalt said FEYE saw its growth double in 2014 and is up tenfold in the last three years.

The trend of improving results continued in the first quarter of 2015. FEYE reported earnings on April 30th. Wall Street was expecting a loss of ($0.51) a share on revenues of $120.5 million. FEYE delivered a loss of ($0.48) per share. Revenues surged +69.5% to $125.4 million. Guidance was in-line with their prior forecast.

The results were good enough that multiple analysts firms have raised their price target on FEYE in the last month. Jim Cramer talks about cyber security stocks on his CNBC show last week. I don't watch Cramer's show but he essentially said that cyber security stocks like FEYE could be great long-term investments. He's probably right. Hacking attacks on corporations have been getting worse every year. They are not going away. It's a constant arms race between hackers versus security specialists. Cyber security is going to be a long-term need for every corporation big or small.

Meanwhile FEYE has seen great success with its cyber security subscription services. This is great for the company since they get recurring revenues and not a one-time sale. Management also believes they have a ton of opportunity overseas. Most of their sales are in the U.S. but cyber security is a global need.

Technically the stock has been showing relative strength the last couple of weeks. FEYE appears to have broken out from its recent pennant-shaped consolidation pattern over the last three months. The point & figure chart is bullish and forecasting at $61 target.

Tonight I am suggesting we wait for FEYE to close above $47.25 and buy calls the next day. Please note I am setting an entry range to prevent buying a big spike. Wait for FEYE to close inside the $47.25-48.50 range. Then buy calls the next morning. Keep in mind that FEYE can be a volatile stock. Traders may want to consider this a slightly more aggressive trade. Consider smaller positions to limit risk.

- Suggested Positions -
JUN 02, 2015 - entry price on FEYE @ 47.40, option @ 3.90
symbol: FEYE160115C55 2016 JAN $55 call - current bid/ask $5.10/5.20

06/07/15 new stop @ 43.85
06/02/15 Trade begins. FEYE opens at $47.40
06/01/15 Triggered. FEYE closed @ $47.26, inside our $47.25-48.50 entry zone.
Option Format: symbol-year-month-day-call-strike

Chart of FEYE:

Current Target: To Be Determined
Current Stop loss: 43.85
Play Entered on: 06/02/15
Originally listed on the Watch List: 05/31/15


Gilead Sciences - GILD - close: 113.96

Comments:
06/07/15: Biotech stocks displayed relative strength last week. The IBB biotech ETF is on the verge of a bullish breakout to new highs. GILD is trying to lead the way. Shares extended their gains to four up weeks in a row. The $115.00 level is short-term resistance. I would not launch positions here. GILD does look a little bit overbought and could be due for a pullback. We will raise our stop loss to $106.50. The $107.50 area looks like potential support.

Trade Description: May 3, 2015:
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.

- Suggested Positions -
MAY 15, 2015 - entry price on GILD @ 109.05, option @ 7.75
symbol: GILD160115C115 2016 JAN $115 call - current bid/ask $8.75/8.95

06/07/15 new stop @ 106.50
05/31/15 new stop @ 104.00
05/15/15 Trade begins. GILD opens at $109.05
05/14/15 Triggered. GILD closed @ 108.74, above our trigger of $106.50
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 106.50
Play Entered on: 05/15/15
Originally listed on the Watch List: 05/03/15


iShares US Home Construction ETF - ITB - close: 26.65

Comments:
06/07/15: The ITB has spent the last several days churning sideways. The EFT broke down from this trading range on Friday morning but investors bought the dip. The ITB is essentially unchanged for the week.

I remain cautious here. No 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 $0.50/0.80

05/31/15 the ITB is not performing well. Investors may want to consider an early exit.
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: 54.78

Comments:
06/07/15: LVLT appears stuck. Shares have been churning sideways inside the $54-57 zone for the last six weeks. Tonight I am raising our stop loss to $52.75.

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 $2.60/2.85

06/07/15 new stop @ 52.75
05/10/15 new stop @ 51.45
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: 52.75
Play Entered on: 03/04/15
Originally listed on the Watch List: 12/28/14


MasterCard Inc. - MA - close: 92.62

Comments:
06/07/15: MA, like so many other big cap stocks, has been stuck churning sideways the last few weeks. On the plus side MA is not that far away from new all-time highs. A breakout could spark the next leg higher (toward $100).

On a short-term basis, if MA breaks down, below $91.50, then I suspect we'll see it fall into the $88-90 zone. I am not suggesting new positions at this time. Currently our stop loss is at $88.00.

Trade Description: May 3, 2015:
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.

- Suggested Positions -
MAY 11, 2015 - entry price on MA @ 93.48, option @ 5.95
symbol: MA160115C95 2016 JAN $95 call - current bid/ask $4.95/5.10

05/11/15 trade begins. MA opens at $93.48
05/08/15 triggered with a close @ $93.51 (above $93.25)
Option Format: symbol-year-month-day-call-strike

Current Target: MA @ TBD
Current Stop loss: 88.00
Play Entered on: 05/11/15
Originally listed on the Watch List: 05/03/15


Nike, Inc. - NKE - close: 102.03

Comments:
06/07/15: NKE spent last week consolidating sideways between support near $101 and its 50-dma and overhead resistance near $103.00. If we see new allegations regarding the FIFA probe it could certainly spark another wave lower in NKE. I am not suggesting new positions at this time.

We will move our stop loss up to $97.85, just below support at $98.00. More conservative investors may want to use a stop closer to $100.00 instead.

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.

- Suggested Positions -
MAY 11, 2015 - entry price on NKE @ 102.42, option @ 4.20
symbol: NKE160115C110 2016 JAN $110 call - current bid/ask $3.40/3.55

06/07/15 new stop @ 97.85
05/31/15 NKE down last week on rumors it might be involved in the FIFA scandal
05/11/15 trade begins. NKE opens at $102.42
05/08/15 Triggered with a close @ $102.44 (above 102.00)
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

Current Target: NKE @ TBD
Current Stop loss: 97.85
Play Entered on: 05/11/15
Originally listed on the Watch List: 03/29/15


Starbucks Corp. - SBUX - close: 52.19

Comments:
06/07/15: The rally continues for SBUX. Shares spent most of the week in a narrow range at all-time highs near $52.00. There was a little bit of volatility on Friday morning but traders bought the dip. Now SBUX is up four weeks in a row.

The simple 50-dma has risen to $49.63. We will raise our stop loss to $49.25.

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 $2.28/2.36

06/07/15 new stop @ 49.25
05/31/15 new stop @ 48.25
04/28/15 triggered @ 50.00
Option Format: symbol-year-month-day-call-strike

Current Target: SBUX @ TBD
Current Stop loss: 49.25
Play Entered on: 04/28/15
Originally listed on the Watch List: 04/26/15


SolarCity Corp. - SCTY - close: 58.25

Comments:
06/07/15: Solar-energy related stocks delivered a mixed performance last week. Unfortunately for SCTY the performance was not so mixed as shares pretty much moved one direction - lower.

I warned readers last week that SCTY could see a dip to the 50-dma. That's what happened. Shares tested the 50-dma on the Thursday with the market's sharp decline. The stock pierced that support on Friday and dipped to $57.55 before paring its losses. Our stop loss is currently at $57.40. This is the moment of truth. SCTY is either going to bounce from this support area near $58.00 or we'll see it hit our stop loss.

No new positions at this time.

Trade Description: May 10, 2015:
SCTY is the largest solar panel installer in the U.S. The company has grown thanks to its business model that leases the solar panel system to homeowners over a twenty year period instead of a large upfront cost in the $20K to $30K range. Meanwhile margins have improved as the price of solar panels plunged -80% in the last few years.

SCTY currently has more than 217,000 customers. They are aiming for one million customers by the middle of 2018. The company's most recent earnings report was May 5th. The company reported a loss of $1.52 per share, which was better than Wall Street's estimate for a loss of $1.60 per share. Revenues were up +6.3% to $67.5 million, which was +17% above analysts' estimates. The company added 28,000 new customers last quarter.

Bears will argue that the company's costs and expenses are soaring. That's true. SCTY has boosted its sales force by almost 90% in the last year. Their sales and marketing expenses grew from about $47 million a year ago to $86.7 million.

The company is forecasting they will install 180 megawatts of solar systems in the second quarter. They're aiming for 920MW to 1,000 MW for all of 2015. They just recently expanded into New Hampshire, which is their 17th state for residential installations. There is talk that SCTY could expand overseas in the next year or two.

One analysts just raised their price target on SCTY to $99.00 per share. The point & figure chart is forecasting at $92.00 target. The last several days have seen shares of SCCTY consolidate sideways in the $58-62 zone. A breakout here could spark the next leg higher. I am suggesting we wait for SCTY to close above $62.50 and then buy calls the next day with a stop loss at $57.40. However, please note that I am putting a condition on this trade. We want to see SCTY close in the $62.50-64.00 range. If SCTY spikes higher and closes above this region then no trade. We'll re-evaluate next weekend.

- Suggested Positions -
MAY 15, 2015 - entry price on SCTY @ 62.62, option @ 5.40
symbol:SCTY160115C70 2016 JAN $70 call - current bid/ask $3.00/3.30

06/07/15 SCTY is testing support near its 50-dma. If shares don't bounce here we'll most likely be stopped out
05/31/15 Caution! SCTY looks weak and poised to breakdown under $60
05/15/15 trade begins. SCTY opens at $62.62
05/14/15 triggered. SCTY closed @ $62.72, above our trigger of $62.50
Option Format: symbol-year-month-day-call-strike

Current Target: SCTY @ TBD
Current Stop loss: 57.40
Play Entered on: 05/15/15
Originally listed on the Watch List: 05/10/15


Textron Inc. - TXT - close: 44.76

Comments:
06/07/15: TXT's performance has mirrored the Dow Jones Industrial Average lately. Both are down three weeks in a row and both are near their trend of higher lows. If TXT doesn't bounce soon it could break the longer-term up trend.

I am not suggesting new positions. Tonight we are moving the stop loss up to $42.90. More conservative traders may want to push their stop closer to $44.00 instead.

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 $1.29/1.60

06/07/15 new stop @ 42.90
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: 42.90
Play Entered on: 02/25/15
Originally listed on the Watch List: 02/15/15




CLOSED Plays


Ambarella, Inc. - AMBA - close: 103.33

Comments:
06/07/15: Wow! AMBA was a huge winner for the bulls last week. The stock soared from $90 to $103 in the last five days. The company reported earnings on June 2nd. Wall Street was expecting a profit of $0.58 per share on revenues of $67 million. AMBA delivered earnings of $0.71 per share with revenues up +73.6% to $71 million. Management raised guidance. This news fueled a surge to new highs.

Last weekend I suggested that AMBA was overbought after a $20 rally from $70 to $90 (+28.5%) in just three weeks. My concern was that AMBA's earnings report would be an excuse to sell the stock no matter what the results were. Based on this concern I suggested we exit this play on Monday, June 1st to lock in potential gains. We were able to close this trade with a +59.4% rise in the option price. However, had we waited, that same option has a bid of $19.60, which would have been a +164.8% gain.

- Suggested Positions -
MAY 18, 2015 - entry price on AMBA @ 79.86, option @ 7.40
symbol: AMBA160115C90 2016 JAN $90 call - exit $11.80 (+59.4%)

06/01/15 planned exit
05/31/15 prepare to exit immediately
05/24/15 new stop @ 73.75
05/18/15 Trade begins. AMBA opens at $79.86
05/15/15 Triggered. AMBA closed at $79.86, above our trigger of $77.50
Option Format: symbol-year-month-day-call-strike

Chart

Current Target: To Be Determined
Current Stop loss: 73.75
Play Entered on: 05/18/15
Originally listed on the Watch List: 05/03/15



Watch

Rising Rates & Alcoholic Beverages

by James Brown

Click here to email James Brown



New Watch List Entries

COF - Capital One Financial

STZ - Constellation Brands


Active Watch List Candidates

ADI - Analog Devices Inc.

ATVI - Activision Blizzard Inc.

DNKN - Dunkin Brands Group


Dropped Watch List Entries

FEYE has graduated to our active play list.



New Watch List Candidates:

Capital One Financial - COF - close: 84.94

Company Info

Interest rates will rise. The Federal Reserve has kept its main interest near zero (0.0%) since December 2008. There has been mountains of speculation on when the fed will finally raise rates. It looks like they could start in September this year. If not this year then definitely next year. Rising rates are going to be bullish for big banks.

COF describes itself as, "Capital One Financial Corporation (www.capitalone.com) is a financial holding company whose subsidiaries, which include Capital One, N.A., and Capital One Bank (USA), N. A., had $205.5 billion in deposits and $308.9 billion in total assets as of December 31, 2014. Headquartered in McLean, Virginia, Capital One offers a broad spectrum of financial products and services to consumers, small businesses and commercial clients through a variety of channels. Capital One, N.A. has branches located primarily in New York, New Jersey, Texas, Louisiana, Maryland, Virginia and the District of Columbia."

COF's most recent earnings report was April 23rd. Earnings were $2.00 per share, which was 13 cents above estimates. Management said they saw strong loan growth. The company has recently raised their dividend and they have a big stock buy back program.

The stock has been stuck under resistance near $85.00 for almost a year. The stock's posture changed when it recovered from its January 2015 lows near $73. Since then COF has been rising in a bullish trend of higher lows and higher highs. Now it's poised to breakout past key resistance at $85.00. The point & figure chart is already bullish and forecasting at $97.00 target.

I am suggesting we look for COF to close in the $86.00-87.00 zone as our entry point. Then buy calls the next morning with a stop loss at $81.75. This is a long-term trade. We're using the 2017 calls.

Breakout trigger: Wait for COF to close inside the $86.00-87.00 zone, then buy calls the next morning with a stop loss at $81.75.

BUY the 2017 Jan $100 call (COF170120C100) current ask $2.82

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

Chart of COF:

Originally listed on the Watch List: 06/07/15


Constellation Brands - STZ - close: 118.87

Company Info

Major beer brands have suffered from the boom in craft beers. Yet STZ's Corona and Modelo have seen significant growth, especially in the U.S. The company's earnings and revenue growth has fueled a rally in the stock that has outpaced the major marker indices.

STZ is in the consumer goods sector. According to the company, "Constellation Brands (NYSE:STZ and STZ.B) is a leading international producer and marketer of beer, wine and spirits with operations in the U.S., Canada, Mexico, New Zealand and Italy. In 2014, Constellation was one of the top performing stocks in the S&P 500 Consumer Staples Index. Constellation is the number three beer company in the U.S. with high-end, iconic imported brands including Corona Extra, Corona Light, Modelo Especial, Negra Modelo and Pacifico. Constellation is also the world`s leader in premium wine, selling great brands that people love including Robert Mondavi, Clos du Bois, Kim Crawford, Rex Goliath, Mark West, Franciscan Estate, Ruffino and Jackson-Triggs. The company`s premium spirits brands include SVEDKA Vodka and Black Velvet Canadian Whisky.

Based in Victor, N.Y., the company believes that industry leadership involves a commitment to brand-building, our trade partners, the environment, our investors and to consumers around the world who choose our products when celebrating big moments or enjoying quiet ones. Founded in 1945, Constellation has grown to become a significant player in the beverage alcohol industry with more than 100 brands in its portfolio, sales in approximately 100 countries, about 40 facilities and approximately 7,200 talented employees."

This past January STZ reported their fiscal year 2015 Q3 results that beat analysts' estimates on both the top and bottom line. Management raised their 2015 guidance. Their Q4 results were announced on April 9th. Earnings were up +37% from a year ago to $1.03 per share. That was 9 cents above estimates. Revenues were up +5% to $1.35 billion. Gross margins improved to 44%.

STZ said they're seeing strong demand for their Mexican beer brands Corona and Modelo. They're gaining market share in both the spirits and wine categories as well.

The company said 2015 sales were up +24% from the prior year to $6.03 billion. STZ's management guided in-line for fiscal 2016 and forecast earnings of $4.70 to $4.90 per share. That compares to 2015's profit of $4.17 per share (essentially +12% to +17.5% earnings growth).

Since their most recent earnings report a couple of analysts have upgraded their price targets for STZ into the $140-142 region.

Technically the stock's pullback this past week actually looks like the second half to a bearish double top pattern. Yet shares have not broken the bullish trend of higher lows just yet. If STZ bounces we could see it hitting new all-time highs soon. The resistance to watch is in the $121.85 region. I am suggesting we wait for STZ to close in the $122.00-123.00 range and then buy calls the next morning with a stop loss at $116.85.

Investors should note that STZ is scheduled to report earnings on July 1st, before the opening bell. More conservative traders may want to hesitate on launching any trades until after we see how the market reacts to this earnings report.

Breakout trigger: Wait for a close in the $122-123 zone
Then buy calls the next day with a stop at $116.85

BUY the 2016 Jan $125 call (STZ160115C125) current ask $6.00

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

Chart of STZ:

Originally listed on the Watch List: 06/07/15


Active Watch List Candidates:



Analog Devices - ADI - close: 67.37

Comments:
06/07/15: After a strong, three-week rally shares of ADI encountered some profit taking. The pullback wasn't enough. We are still waiting for a dip near $65.00.

Trade Description: May 24, 2015:
Shares of ADI are hitting 15-year highs as investors react positively to its most recent earnings report.

ADI is in the technology sector. They are part of the semiconductor industry. According to the company, "Analog Devices (NASDAQ: ADI) is a world leader in the design, manufacture, and marketing of a broad portfolio of high performance analog, mixed-signal, and digital signal processing (DSP) integrated circuits (ICs) used in virtually all types of electronic equipment. Since our inception in 1965, we have focused on solving the engineering challenges associated with signal processing in electronic equipment.

Used by over 100,000 customers worldwide, our signal processing products play a fundamental role in converting, conditioning, and processing real-world phenomena such as temperature, pressure, sound, light, speed, and motion into electrical signals to be used in a wide array of electronic devices. We focus on key strategic markets where our signal processing technology is often a critical differentiator in our customers' products, namely the industrial, automotive, communications, and consumer markets.

We currently produce a wide range of innovative products—including data converters, amplifiers and linear products, radio frequency (RF) ICs, power management products, sensors based on microelectromechanical systems (MEMS) technology and other sensors, and processing products, including DSP and other processors—that are designed to meet the needs of our broad base of customers."

The company's earnings performance has definitely improved in the last few quarters. Last August they reported earnings that were in-line with estimates as revenues rose +7.9%. The next three quarters in a row have seen ADI beat Wall Street estimates on both the top and the bottom line. Revenues were up +20%, +22.9% and +18.2%, respectively.

Their most recent report was May 19th when ADI reported its Q2 results. Earnings were up +23.7% from a year ago to $0.73 a share, which was a penny above estimates. Management's guidance was in-line with Wall Street estimates and the stock rallied.

ADI's President and CEO Vincent Roche commented on his company's quarterly performance, "We had a very successful second quarter driven by the quality of our innovation, the diversity of our business, and our strong execution. Revenue increased to a record $821 million, and our operating model generated strong cash flows and diluted earnings per share growth that was well ahead of revenue growth. Looking ahead, our book to bill ratio was positive in the second quarter and we are seeing stable order rates across all our end markets. As a result, we are planning for sequential growth in the third quarter and for revenue to be in the range of $825 million to $865 million."

Multiple analyst firms raised their price target on ADI following this report. Shares rallied to multi-year highs. We do not want to chase it here. Broken resistance in the $64-65 zone should be new support. Tonight I am suggesting a buy-the-dip trigger to buy calls at $65.10. We will try and limit our risk with a stop loss at $59.85.

Buy-a-dip trigger: $65.10 (intraday trigger, stop 59.85)

BUY the 2016 Jan $70 call (ADI160115C70)

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

Originally listed on the Watch List: 05/24/15


Activision Blizzard, Inc. - ATVI - close: 25.77

Comments:
06/07/15: ATVI displayed some relative strength last week. Shares managed to hit new all-time highs before the big market decline on Thursday. We do not want to chase it here. Our plan is to wait for a pullback with a buy-the-dip trigger at $24.15.

Trade Description: May 24, 2015:
Consumer spend more money on video games than they do at the movie theater. ATVI is the biggest with annual sales of $4.58 billion. Electronic Arts (EA) is hot on its heels with revenues of $4.52 billion a year.

ATVI is home to some of the biggest franchises in video game history. According to the company, "Activision Blizzard, Inc. is the largest and most profitable western interactive entertainment publishing company. It develops and publishes some of the most successful and beloved entertainment franchises in any medium, including Call of Duty , Call of Duty Online, Destiny , Skylanders, World of Warcraft , StarCraft , Diablo, and Hearthstone: Heroes of Warcraft. Headquartered in Santa Monica, California, it maintains operations throughout the United States, Europe, and Asia. Activision Blizzard develops and publishes games on all leading interactive platforms and its games are available in most countries around the world."

Investors have been pretty forgiving when it comes to ATVI's recent earnings reports. On February 5th they beat the bottom line estimate but missed the revenue number. Revenues were down -2.6% from a year ago. ATVI blamed currency headwinds for the revenue miss since half of their sales are outside the U.S. and represent a significant chunk of their profits. Plus, the video game business is prone to lumpy quarters as sales rise and fall on new releases and expansions. Management lowered their Q1 and 2015 guidance.

ATVI just reported its Q1 results on May 6th. Earnings per share fell -15.7% from a year ago to $0.16 but that was actually 9 cents better than expected. Revenues fell again, this time down -8.9%. Management lowered their Q2 guidance but they raised their fiscal 2015 earnings guidance above Wall Street estimates. That was enough to send shares of ATVI higher. A few analysts have commented that ATVI's 2015 guidance is too conservative.

Bobby Kotick, Chief Executive Officer of Activision Blizzard, commented on his company's quarterly results, "...This deepening level of engagement with a widening base of players across our franchises is what drove another successful quarter. We delivered better-than-expected Q1 results, increased our 2015 non-GAAP revenue outlook to $4.425 billion and earnings per share outlook to $1.20. Last quarter, on a non-GAAP basis, we delivered record higher-margin digital revenues of over half a billion dollars a Q1 record on an absolute basis and an all-time high on a percentage basis."

There were a number of headlines about how ATVI's Warcraft MMORPG saw its subscriber numbers fall from 10 million to 7.1 million in the last quarter. Investors don't seem to care. The Warcraft game is a cash cow but it's 11 years old. Investors could be looking forward.

ATVI said their new Destiny sci-fi shooter game and the Blizzard's fantasy card game have more than 50 million registered players (between them) with over $1 billion in sales.

ATVI also has several new titles coming out. They're on the verge of releasing "Heroes of the Storm", which will take on the current category champion "League of Legends" for the MOBA-style video game. More than ten million people have already signed up for the Heroes beta. ATVI has announced the next iteration of their Call of Duty franchise (CoD), which will be "Call of Duty: Black Ops III", which is another major cash-generating franchise. ATVI is also launching a new game called "Overwatch" and they'll release a new version of "Guitar Hero", which had 40 million players at its peak.

Currently shares of ATVI are up three weeks in a row and look a little bit overbought. Broken resistance near $24.00 should be significant support. Tonight I am suggesting a buy-the-dip trigger at $24.25 with a stop loss at $21.85.

Buy-a-dip trigger: $24.15 (intraday trigger, stop 21.85)

BUY the 2016 Jan $25 call (ATVI160115C25)

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

Originally listed on the Watch List: 05/24/15


Dunkin' Brands Group - DNKN - close: 52.47

Comments:
06/07/15: Friday was National Doughnut Day. Every doughnut shop I went to was swamped with customers or closed because they had already sold out of all their doughnuts for the day. Yet this national celebration of the doughnut didn't do much for shares of DNKN. The stock actually created a bearish engulfing candlestick reversal pattern on its weekly chart. If DNKN confirms this pattern we'll drop it. Currently we are waiting for a close above $54.25.

Trade Description: May 31, 2015:
Investors appear to be in the mood for donuts this year. Shares of DNKN are significantly outperforming the broader market with its stock up about +26% year to date versus the S&P 500's +2.3% gain.

The company is in the services sector. According to the company, "Founded in 1950, Dunkin' Donuts is America's favorite all-day, everyday stop for coffee and baked goods. Dunkin' Donuts is a market leader in the hot regular/decaf/flavored coffee, iced coffee, donut, bagel and muffin categories. Dunkin' Donuts has earned the No. 1 ranking for customer loyalty in the coffee category by Brand Keys for nine years running. The company has more than 11,300 restaurants in 37 countries worldwide. Based in Canton, Mass., Dunkin' Donuts is part of the Dunkin' Brands Group, Inc. (DNKN) family of companies."

DNKN also owns the Baskin Robbins franchise, which has more than 7,500 retail locations in almost 50 countries.

The company seems to be undergoing a turnaround in its earnings results. Back in December shares plunged on an earnings warning when management lowered their 2015 guidance. When they reported their Q4 results in February they missed by a penny with revenues in-line (+5.5%). Their donut store comps were +1.4% but their ice cream store comps were +9.3%. Management raised their dividend +15% and announced a $700 million stock buy back program.

Results improved significantly in the first quarter of 2015. Analysts were expecting a profit of $0.35 a share on revenues of $180.7 million. DNKN reported earnings of $0.40 a share, which is a +21% improvement from a year ago. Margins improved 310 basis points to 47.1%. Their revenues rose +8.1% to $185.9 million, above estimates. Their donut store comps improved to +2.7% while their ice cream store comps hit +8.0%. Management raised their 2015 earnings estimates above Wall Street's consensus.

The stock soared to new all-time highs following this earnings report in late April. Since then shares have seen a correction but investors have bought the dip. Analysts have begun to raise their price targets. The point & figure chart is very bullish with a long-term target of $78.00. Currently shares of DNKN are hovering below resistance in the $54.00 area. Tonight I am suggesting we wait for DNKN to close above $54.25 and buy calls the next morning.

Breakout trigger: Wait for a close above $54.25
Then buy calls the next morning with a stop at $49.65

BUY the 2016 Jan $60 call (DNKN160115C60)

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

Originally listed on the Watch List: 05/31/15