Option Investor
Newsletter

Daily Newsletter, Tuesday, 3/24/2015

Table of Contents

  1. Market Wrap
  2. New Plays
  3. In Play Updates and Reviews

Market Wrap

Right on Schedule

by Jim Brown

Click here to email Jim Brown

The week after March quadruple expiration is normally negative and it appears the weakness arrived on schedule. There is no specific headline driving the decline this week but the economic news did provide some negative bias. Volume was light but it did pickup as the day progressed.

Market Statistics

There was no urgency in the selling and it appeared to be continued settlements from option expiration. However, this is the period in March where fund managers take profits from Q1 and restructure their portfolios and cash reserves for the summer doldrums ahead.

The morning economics started off good with the Consumer Price Index actually rising for a change. The headline number for February rose +0.2% compared to a -0.7% decline in January. This was the first increase since October. The core CPI also rose +0.2% after a +0.2% gain in the prior month. The Fed should have been thrilled with these numbers but one month does not make a trend.

The rebound in energy prices in February was responsible for most of the gains. The energy CPI declined -9.7% in January and rebounded +1.0% in February. I am sure everyone remembers the brief flirtation with $2 gasoline in January that quickly rebounded to nearly $2.50 in February. Gasoline prices never go down as fast as they go up. Fuel oil prices rose +1.9% in February after a -9.9% decline in January. Be glad heating season is about over.

The core CPI rose +0.2% mostly because of a rise in rents, which rose +0.3%. Prices for cars and trucks also rose by +1.0% ahead of the spring selling season.


New home sales for February rose +7.8% to an annualized rate of 539,000 from 481,000 in January. This is the third consecutive monthly gain despite the severe winter weather. Since February 2014 new home sales have increased +24.8%. Sales in the Northeast rose from 17,000 to 43,000 and the South rose from 287,000 to 316,000. However, sales in the Midwest declined from 62,000 to 54,000 and in the West from 134,000 to 126,000. That was a -12.9% decline in the Midwest but a +153% rise in the Northeast. Apparently everyone in the Northeast that was snowed in for January got cabin fever and went house shopping in February. The supply of homes on the market fell from 5.1 months to 4.7 months and the lowest inventory since June 2013.


The bad news for the day came from the Richmond Fed Manufacturing Survey for March. The headline number fell from zero to -8 and well below the cycle high at 20 in October. This is the lowest level of activity since July 2013 when the headline number fell to -11.

All the major components declined except for employment. The inventory to order gap is plunging especially hard to -38. Both the order components are deeply into negative territory. The sharp decline in new orders and the rapid processing of the order backlogs suggests the April numbers are going to be even worse.

The strong dollar is making it very tough for U.S. companies to export overseas and the lack of new orders bear out this fact.

The headline number on the corresponding services survey declined from 18 to 12.

Manufacturing Components


The economic calendar for Wednesday has nothing that should move the markets. The Durable Goods report is normally ignored by traders. The early morning speech by Chicago Fed President Charles Evans could have the most influence. Evans is one of the doves on the FOMC and wants to see unemployment below 5% before raising rates. He will probably try to counter the hawkish comments by James Bullard and Richard Fisher.


Early Tuesday St Louis Fed President James Bullard warned that investors are at risk for an interest rate surprise unless market expectations are revised to correspond with the outlook of policy makers. He said market expectations were currently different than the Fed's stated rate path. He said if expectations are not corrected and the Fed follows through with its rate hike plans the market could react violently. Bullard said the "taper tantrum" came from a misalignment of market expectations and the market was setting up for another tantrum when the Fed announces its first rate hike, which could come as early as June. Bullard's comments could have been a cloud over the market in the morning.

Another cloud hovering over the market was the Chinese Purchasing Managers Index, which came in at 49.2. This is an eleven month low and well below the consensus estimates of 50.5. China's stated growth goal is a 7% GDP in 2015 but even high ranking officials claim it will be tough to hit that number. The real time forecasts are now showing a number in the range of 6.5% growth and a 14 year low. The PMI is just one more data point in those declining GDP estimates. With China's economy sliding it means the government is likely to devalue the currency again with a new stimulus program and that will make it harder for U.S. companies to export their goods to China.

George Soros made headlines claiming that Greece is in a lose-lose position with only a 50:50 chance of staying in the eurozone. He also warned that Greece could "go down the drain" because of current fiscal problems with no obvious way out.

News from the U.K. was also weighing on European markets as Prime Minister David Cameron said he would not accept a third term. Cameron is well liked and by saying he would not accept a third term before he has even won a second term caused consternation in the U.K. on how the May elections might turn out. He basically said, don't vote for me, vote for my team. Unfortunately a team without a leader is not a winning proposition.

In stock news Sonus Networks (SONS) declined -34% after the company slashed guidance and said it was looking for ways to cut costs amid shrinking revenue. For the current quarter the company is now projecting a loss of 29-34 cents and well below its prior guidance for a profit of 3 cents. Analyst consensus estimates were also for 3 cents. The company guided for revenue of $47-$50 million compared to the prior forecast of $74 million and analyst estimates for $71 million. Revenue growth has declined in the last four quarters.

Sonus said it no longer expects to receive certain orders this quarter that had previously been expected. Sonus is finding it tough to compete with Cisco (CSCO), Juniper (JNPR) and Brocade Communications (BRCD) in packet-based networking. Sonus had a reverse 1:5 split back in January to inflate its stock price. Unfortunately it may need another one soon.


The largest producer in the Bakken, Whiting Petroleum (WLL) put itself up for sale a couple weeks ago after ballooning its debt to more than $6 billion with the acquisition of Kodiak Oil & Gas in 2014. With oil prices cut in half those debt payments are choking Whiting. After news broke they were for sale the shareholders rose up in anger because the share price had declined from more than $90 to less than $30 over the last year. Why sell at the bottom when the potential for a premium is very small?

Whiting then revised its statements saying it was going to sell some non-core assets like pipelines, gathering systems and processing plants. The bids were supposed to close by last Friday. There was no news and investors began to get nervous.

Monday afternoon the news broke that Whiting was going to sell up to 40 million shares in a public offering in order to pay down the debt. They were also going to sell $1.75 billion in new convertible senior debt due in 2020 and 2023. Shares were crushed at the open today. Maybe I am dense but if you are going to sell shares to pay down debt then why are they selling another $1.75 billion in new debt. It seems counter intuitive. I am sure they are paying off short term debt and selling long term to postpone the pain until oil prices rebound. The total of the two offerings could generate up to $3 billion and Whiting has more than $6 billion in existing debt.


Things are getting tougher in the oil patch. American Eagle Energy, located in Colorado, missed the first payment this month on $175 million in bonds it sold in August 2014. The company has now asked creditors to enter into confidential debt-restructuring talks. The company struck fear into debt holders by mentioning a potential bankruptcy as an option in the restructuring. When the company missed the $9.8 million interest payment it immediately hired restructuring advisers.


Quicksilver Resources (KWKAQ) gave up the fight and filed for Chapter 11 bankruptcy on March 17th after intentionally skipping a $13.6 million interest payment on February 17th. Quicksilver shares have declined -98% over the last year. They are cutting 10% of their workforce while they plan for asset sales. Plans before bankruptcy failed to produce any buyers and the company said it hopes the bankruptcy will allow the company greater flexibility in future asset sales and restructuring. Quicksilver has more than $1 billion in debt. Pipeline owners with tens of millions in unpaid fees for transporting Quicksilver production said they were planning on being "active participants" in the bankruptcy. Quicksilver has more than one million acres under lease and more than 4,000 wells producing 242 million cubic feet of gas per day.


BPZ Resources (BPZRQ) also filed bankruptcy after failing to pay $62 million in interest and principal in early March on $229 million in debt. BPZ has 1.9 million acres under lease both on and offshore Peru.


In February Cal Dive International (CDVIQ), an offshore well services company, also filed bankruptcy after the oil crash terminated a lot of offshore activity. Contract delays by Pemex and cancellations by other companies forced the company to seek protection. The company is now up for sale either in parts or as a going concern.


These problems in the oil patch are going to continue as long as oil remains under $50. Many E&P companies leveraged themselves up as they raced to increase production. As long as oil was selling for $100 they could make a $20-$30 profit and life was good. Once oil fell to $50 there was no profit and that made paying those interest payments very difficult. There will be more companies in the headlines over the next several months as they either seek court protection or are acquired by those with cash on hand. By some calculations there is more than $800 billion in high yield debt in the oil patch and we have just scratched the surface with these bankruptcies.

Since Facebook (FB) announced the person to person payments last week it has been a series of new highs every day. Shares have rallied nearly 10% in the last six days. The renewed interest in Facebook has brought all the analysts out of hiding to praise the company and its future prospects. The company is getting ready to host its two-day developer conference, which starts tomorrow. This is how Facebook dispenses news to developers about new features and we will get the information second hand.

JMP Securities raised their price target to $97. Piper Jaffray upped their target to $92 from $84. Brean Securities reiterated their buy rating for multiple reasons including advertising growth, continued user expansion and the successful monetization of Instagram and WhatsApp. Facebook is reportedly in talks with publishers about posting content directly on the network. Reportedly the company is in talks with the New York Times, BuzzFeed, Huffington Post, National Geographic and others about posting their content directly into the Facebook network. Chief Product Officer, Chris Cox, said, "Reading news on a smartphone is still a very bad experience most of the time. We want to try and make that a better experience for publishers."


Twitter (TWTR) shares rallied +6% after the company struck a deal with Foursquare to allow users to include their location in tweets. Instead of saying "Dallas" the tweet would say something like "Diamond Shamrock Building, Dallas." Foursquare collects billions of user-generated check-ins and can therefore narrow down the GPS coordinates very precisely. The company has more than 65 million places catalogued and more than 85,000 developers using Foursquare data. With Twitter working with Foursquare there is always the potential for an acquisition although I think Foursquare would fit better in the Facebook portfolio. The company is valued at less than $1 billion so pocket change for Facebook.


Sonic Corp (SONC) reported adjusted earnings of 13 cents compared to estimates for 12 cents. Revenue of $126.2 million also beat estimates for $124.3 million. While that earnings beat may seem lackluster the earnings more than doubled the GAAP earnings from the year ago quarter. Even on an adjusted basis that was an 86% increase in earnings. Same store sales rose +11.5% and margins rose by +110 points. They repurchased $75 million in stock and $93 million year to date. That is 5% of their outstanding shares. They have repurchased 23% of their outstanding shares since 2012. They plan to add another 34-44 stores in 2015 and 900 stores are converting to a higher royalty rate this year. They guided for mid single digit same store sales gains for the rest of 2015 but they always guide low.


Markets

It started out as a really boring day until the selling started to pick up speed just after lunch. The Dow, S&P and Nasdaq all opened in the green but it only lasted about two hours before the buyers disappeared. It was not that there was an over abundance of sellers but there just were not enough buyers.

The only indexes ending in the green were the S&P Small Cap 600 ($SML) and the Russell Microcap Index ($RUMIC). The Russell 2000 small caps only lost -1 point so there was no material selling in any of the small cap indexes.

The Dollar Index rose only slightly after an early morning dip and the recent downtrend appears to be slowing. It was extremely overbought and the dovish Fed comments have worked to weaken it against the other global currencies.


The decline in the dollar has strengthened commodities like gold and oil but this should be only temporary. QE from the ECB will eventually further weaken the euro and lift the dollar again.



The S&P gave back -13 points to close at 2091 after coming to a dead stop at 2114 on Monday. The Dow and S&P both found solid resistance on Monday and could not crack it. The failure to even dent it caused a sudden drop as the close on Monday and that continued today.

Initial support on the S&P should be in the 2086 range and the low from the 19th. That would be followed by 2065 and 2040.

Historically the S&P gives back about -1.6% in the week after March expiration. If we count that from the 2114 resistance halt on Monday that -1.6% decline would take us back to 2080. Obviously that -1.6% is an average of the drops over the last 17 times it has occurred. Some were more, some were less. The most logical place for this decline to end is around 2065. That is just enough to satisfy the dip buyers that stocks are a bargain again. With the 100-day average at 2055 that would be a backstop to that 2065 level.

The two day drop did create a lower high compared to the February highs. That now becomes stronger resistance at 2114.


For the Dow the two day decline brings back into focus the support of the 100-day average at 17,750. If we get another day of decent selling that should become the unofficial target.

The Dow barely closed down triple digits at -104 compared to the recent flurry of 250-300 point days. If today was just the calm before the storm then we could have another big decline in our future. The trading has been too calm the last two days and that suggests there is another shoe about to drop.

Another interesting tidbit is that most energy stocks were down today when oil prices were up slightly. Is that telling us that investors expect the oil rebound to fail? I suspect the answer is yes. Chevron was the biggest loser on the Dow and Exxon faired only slightly better.

Monday's resistance on the Dow was 18,200 and it was rock solid. Support is now 17,950 followed by 17,750 and 17,650.



The Nasdaq Composite gave back -16 points to close back below 5000 once again. The Nasdaq 100 ($NDX) looks suspiciously like a double top formation with the 4480 level the top. The high in February was 4483.

Support at 4420 then 4350.


The Nasdaq Composite is still well ahead of the other big cap indexes with several support levels before it would break the current uptrend. The key level to watch here is 4850 and the low from earlier in March.



The Dow Transports fell especially hard over the last two days and that is negative for market sentiment. The index has now made its third lower high since November and with oil prices off their lows the implied support of low fuel prices may be fading. If the transports break below the 8600 level it would be very negative for the broader market.


The S&P Small Cap 600 only gained 15 cents but it was another new high for the small caps. As long as the S&P-600 and Russell-2000 can hold their gains the big cap indexes should not decline too far. If the small caps start slipping then the broader market losses could accelerate.


I am neutral on the market for Wednesday. However, the sharp decline at the close on both days this week suggests fund managers are in fact closing positions. This was expected and this week has a historical bias for losing ground.

I just don't see any big negatives for the market but then the market does not need an excuse to correct. When all the internals line up the bottom falls out and there does not have to be an excuse or a headline to trigger the decline.

I would keep your stops tight for the rest of the week and don't be too eager to buy the dips.

Enter passively, exit aggressively!

Jim Brown

Send Jim an email

 

 


New Plays

Ignoring Market Weakness

by James Brown

Click here to email James Brown


NEW BULLISH Plays

Ocular Therapeutix - OCUL - close: 43.27 change: +0.93

Stop Loss: 41.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on March -- at $---.--
Listed on March 24, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 134 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
Investors seem to be in love with biotech stocks. One biotech that has definitely captured traders attention is OCUL. The company became public in July 2014 with five million shares at $13.00. Today there are 21 million shares outstanding and about 7.8 million in the float.

If you're not familiar with OCUL the company describes itself as, "Ocular Therapeutix, Inc. is a biopharmaceutical company focused on the development and commercialization of innovative therapies for diseases and conditions of the eye using its proprietary hydrogel platform technology. Ocular Therapeutix's lead product candidates are in Phase 3 clinical development for post-surgical ocular inflammation and pain, and Phase 2 clinical development for glaucoma, allergic conjunctivitis, and inflammatory dry eye disease. The Company is also evaluating sustained-release injectable anti-VEGF drug depots for back-of-the-eye diseases. Ocular Therapeutix's first product, ReSure® Sealant, is FDA-approved to seal corneal incisions following cataract surgery."

It would appear that the excitement driving OCUL's stock higher (from $13 to $43 in the last five months) is the company's OTX-DP product. They recently announced positive topline Phase 3a clinical trial data on their sustained release dexamethasone (OTX-DP) for the treatment of ocular inflammation and pain after cataract surgery.

In the company's most recent earnings report management laid out the milestones they plan to achieve this year. They include:

- Completion of the Phase 3b clinical trial of OTX-DP for the treatment of ocular inflammation and pain following cataract surgery, with topline results expected by the end March. This is the second of two Phase 3 clinical trials of OTX-DP for this indication

- Submission of a New Drug Application (NDA) for OTX-DP for the treatment of post-surgical ocular inflammation and pain anticipated in the second quarter of 2015.

- Advancement of feasibility work on the sustained delivery of anti-VEGF drugs in a hydrogel depot for the treatment of back-of-the-eye diseases, including wet age-related macular degeneration, expected in the first half of 2015.

- Completion of enrollment in the Phase 2b clinical trial evaluating OTX-TP for the treatment of glaucoma and ocular hypertension, with data expected in the fourth quarter of 2015.

- Initiation of Phase 3 clinical trials of OTX-DP for the treatment of allergic conjunctivitis expected in the middle of 2015.

- Completion of a Phase 2 exploratory clinical trial of OTX-DP for the treatment of inflammatory dry eye disease, with data expected in the fourth quarter of 2015

If OCUL fails to meet these milestones it could spark some serious selling in the stock. In the mean time the path of least resistance is higher. In the last 30 days the stock has seen two analyst firms raise their price target on OCUL into the $49-50 range.

Regular readers know that we consider biotech stocks to be higher-risk, more aggressive trades. The wrong headline can send a biotech stock crashing. Stop losses do not always work as intended. OCUL is a very small biotech company with a very small float and low volume. It definitely qualifies as higher-risk. We want to limit our risk by using small positions.

Technically OCUL has a bullish trend of higher lows. Shares look like they're about to break out from a two-week consolidation. The $44.00 mark is short-term resistance. We're suggesting a trigger to buy the stock at $44.15. (OCUL does not currently have options).

- Suggested Positions - *small positions to limit risk*

Buy OCUL stock @ $44.15

Daily Chart:



In Play Updates and Reviews

Uncertainty Leads Market Lower

by James Brown

Click here to email James Brown

Editor's Note:
Investors appear uncertain about what to do next. The Federal Reserve delivered dovish comments last week. The focus now seems to be on the U.S. dollar and where it's headed.

Earnings season is still a couple of weeks away. We are in a bit of a vacuum of information and that has left stocks without a catalyst to move.

There are only five trading days left in the first quarter. Will stocks see any window dressing by fund managers?


Current Portfolio:


BULLISH Play Updates

Best Buy Co. Inc. - BBY - close: 40.85 change: -0.01

Stop Loss: 39.85
Target(s): To Be Determined
Current Option Gain/Loss: +1.5%
Entry on March 06 at $40.25
Listed on March 04, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 6.2 million
New Positions: see below

Comments:
03/24/15: It was a weak session for stocks and BBY held up better than most by closing virtually unchanged on the day. It still looks like shares might test round-number support at the $40.00 mark soon.

Trade Description: March 4, 2015:
BBY has got a bullish recipe brewing. The company has rising sales, rising earnings, rising dividends, and rising stock buybacks. The company launched a massive turnaround effort when they changed management in 2012. According to Fortune, BBY has "turned around its U.S. operations., shed assets abroad and trimmed expenses to help lift profitability."

If you're not familiar with BBY the company describes itself as "one of the world's largest consumer electronics retailers, offering expert service and unbeatable prices to the consumers who visit its websites and stores more than 1.5 billion times each year. In the United States, more than 70 percent of Americans are within 15 minutes of a Best Buy store. Additionally, the company operates businesses in Canada and Mexico. Altogether, Best Buy employs more than 125,000 people and earns annual revenues of more than $40 billion."

This week BBY has been making headlines thanks to its better than expected Q4 earnings results, which came out on March 3rd. Wall Street was expecting a profit of $1.35 a share on revenues of $14.33 billion. BBY said earnings hit $1.48 a share. That's a +23% increase from a year ago. Their unadjusted earnings were up +75% from a year ago. Q4 revenues were up +1.3% to $14.21 billion. BBY's U.S. same-store sales were up +2.8%. International was down -4% but their online sales surged +9.7%. Their U.S. same-store sales results are noteworthy because it's the second consecutive quarter of same-store sales growth for the first time in five years.

BBY's CEO and President Hubert Joly commented on his company's results saying,

"In the fourth quarter, our teams delivered positive comparable sales, improved profitability and continued progress in our Renew Blue transformation. This resulted in a 1.3% increase in revenue to $14.2 billion and a 23% increase in non-GAAP diluted EPS to $1.48 versus $1.20 last year, primarily driven by growth in the Domestic segment. A compelling merchandise assortment and strong multi-channel execution drove these better-than-expected results as we capitalized on the product cycles in large screen televisions and mobile phones. These two categories were the primary drivers of our year-over-year revenue growth, and more than offset weakness in the tablet category which was impacted by material industry declines."
Joly did warn that in fiscal 2016 BBY will "be facing industry and economic pressures on our business related to deflationary pricing and weak industry demand in certain product categories." However, investors didn't care. They didn't care about the revenue miss or the negative foreign currency headwinds. Everything was overshadowed by BBY's very shareholder friendly capital return initiatives.

The company said they are raising their normal dividend by +21% to 23 cents a share effectively immediately. They are also going to pay a special, one-time dividend of $0.51 a share. Plus they are re-starting their stock buyback program. Previously BBY had a $5 billion stock repurchase program but that halted it back in 2012 to work on their turnaround strategy. Management announced they plan to spend $1 billion on stock buybacks over the next three years.

Multiple analysts firms raised their price target on BBY following the company's earnings results and dividend news. Most of the new targets were in the $45-50 range.

Currently shares of BBY are trading just below key round-number resistance at the $40.00 mark. A breakout here could spark some short covering. The most recent data listed short interest a 10% of the 304 million share float. Tonight we're suggesting a trigger to launch bullish positions at $40.25.

- Suggested Positions -

Long BBY stock @ $40.25

- (or for more adventurous traders, try this option) -

Long MAY $40 CALL (BBY150515C40) entry $1.99

03/17/15 new stop 39.85
03/06/15 triggered @ $40.25
Option Format: symbol-year-month-day-call-strike


BroadSoft, Inc. - BSFT - close: 34.44 change: -0.78

Stop Loss: 33.45
Target(s): To Be Determined
Current Option Gain/Loss: -2.2%
Entry on March 20 at $35.20
Listed on March 17, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 286 thousand
New Positions: see below

Comments:
03/24/15: BSFT dipped toward short-term support near $34.00 and its 10-dma. Shares started to bounce but the rebound was cut short by the closing bell.

If both BSFT and the NASDAQ are positive tomorrow then I would consider new positions here.

Trade Description: March 18, 2015:
BSFT is in the technology sector. The stock is outperforming the broader market this year and it's up significantly from its 2014 lows.

According to the company, "BroadSoft is the leading provider of software and services that enable mobile, fixed-line and cable service providers to offer Unified Communications over their Internet Protocol networks. The Company's core communications platform enables the delivery of a range of enterprise and consumer calling, messaging and collaboration communication services, including private branch exchanges, video calling, text messaging and converged mobile and fixed-line services."

BSFT has delivered a stomach churning performance since its IPO back in 2010. You can review its performance on the long-term chart below. The stock got off to a slow start but then sprinted from about $9.00 in late 2010 to $55.00 less than six months later. Unfortunately, since the early 2011 peak shares have been nothing but a roller coaster ride of ups and downs (we're talking really, really ugly downs).

It would appear that the tone has changed for BSFT. The company has beaten Wall Street's earnings and revenue estimates the last three quarters in a row. The big rally in early November 2014 was a reaction to its earnings beat with revenues up +27% from a year ago. The prior quarter revenues grew +19%.

The stock rallied big again on February 25th with BSFT reporting Q4 earnings of $0.64 a share, beating estimates by seven cents. Revenues surged +26.5% to $65.8 million. Management offered earnings guidance that was relatively in-line with consensus estimates. However, their revenue guidance was above expectations for both the first quarter and fiscal year 2015. Don't let the in-line earnings guidance fool you. Wall Street is expecting +78% earnings growth this year. The rally off its 2014 lows has produced a long-term target of $51.00 on the point & figure chart.

BSFT has been showing relative strength the last couple of weeks. Tonight we are suggesting a trigger to launch small bullish positions at $35.15. I suggest small positions because shares don't have a lot of volume and history would suggest the stock is prone to wild bouts of volatility.

*small positions to limit risk* - Suggested Positions -

Long BSFT stock @ $35.20

- (or for more adventurous traders, try this option) -

Long MAY $35 CALL (BSFT150515C35) entry $2.78

03/21/15 new stop @ 33.45
03/20/15 triggered at $35.20, suggested entry was $35.15
Option Format: symbol-year-month-day-call-strike


Expeditors Intl. of Washington - EXPD - close: 49.32 chg: +0.16

Stop Loss: 48.45
Target(s): To Be Determined
Current Option Gain/Loss: +1.6%
Entry on March 13 at $48.55
Listed on March 12, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.3 million
New Positions: see below

Comments:
03/24/15: Traders quickly bought the dip in EXPD this morning. Unfortunately the market's weakness probably kept EXPD's gains to a minimum. Should the market continue to sink there is a good chance we'll see EXPD test its 10-dma or 20-dma. The 20-dma is currently $48.38 while our stop is at $48.45.

Trade Description: March 12, 2015:
EXPD is showing relative strength. The stock is up +8% in 2015 versus an S&P 500 that is virtually flat. Meanwhile the Dow Jones Transportation Average is down -1.4%.

EXPD is part of the services sector. According to the company, "Expeditors is a global logistics company headquartered in Seattle, Washington. The company employs trained professionals in 186 full-service offices and numerous satellite locations located on six continents linked into a seamless worldwide network through an integrated information management system. Services include the consolidation or forwarding of air and ocean freight, customs brokerage, vendor consolidation, cargo insurance, domestic time-definite transportation services, purchase order management, warehousing and distribution and customized logistics solutions."

The first half of 2014 was forgettable. EXPD delivered mediocre results with earnings a penny above or below estimates and revenues in-line with expectations. Business improved in the second half of last year. EXPD beat earnings estimates by four cents in the third quarter and by two cents in the fourth quarter. Revenues were up almost +11% in Q3 2014 and up +8.8% in the fourth quarter. Both were above Wall Street estimates.

Bradley Powell, Senior Vice President and CFO commented on the fourth quarter, "During the 2014 fourth quarter we saw strong year-over-year increases in both air and ocean freight volumes. Despite the 10 basis point reduction in overall net revenue margin, airfreight and ocean freight net revenues both managed double digit increases, up 10% and 11%, respectively, as overall net revenue increased 9%."

The stock shot higher on its Q4 results. Shares have been relatively resistant to any profit taking during the market's recent pullback. Traders bought the dip exactly where they should have - at prior resistance. Today's bounce looks like a bullish entry point. The stock's rally in 2015 has helped produce a buy signal on the point & figure chart that is forecasting at $66.00 target. Tonight I am suggesting a trigger to open bullish positions at $48.55.

- Suggested Positions -

Long EXPD stock @ $48.55

- (or for more adventurous traders, try this option) -

Long May $50 CALL (EXPD150515C50) entry $1.06

03/21/15 new stop @ 48.45
03/17/15 new stop @ 47.45
03/13/15 triggered @ 48.55
Option Format: symbol-year-month-day-call-strike


Prestige Brands Holdings - PBH - close: 41.73 change: -0.05

Stop Loss: 40.35
Target(s): To Be Determined
Current Option Gain/Loss: -1.5%
Entry on March 20 at $42.35
Listed on March 19, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 342 thousand
New Positions: see below

Comments:
03/24/15: PBH spent most of the day churning sideways inside a 50-cent range. Shares managed to close almost unchanged on the session. Readers may want to wait and see if PBH bounces near $41.00 before launching new positions.

Trade Description: March 19, 2015:
Shares of PBH are outperforming the broader market. The relative strength has lifted the stock to new all-time highs and a +20% gain in 2015.

PBH is part of the services sector. According to the company, PBH "markets and distributes brand name over-the-counter and household cleaning products throughout the U.S. and Canada, and in certain international markets. Core brands include Monistat® women's health products, Nix® lice treatment, Chloraseptic® sore throat treatments, Clear Eyes® eye care products, Compound W® wart treatments, The Doctor's® NightGuard® dental protector, the Little Remedies® and PediaCare® lines of pediatric over-the-counter products, Efferdent® denture care products, Luden's® throat drops, Dramamine® motion sickness treatment, BC® and Goody's® pain relievers, Beano® gas prevention, Debrox® earwax remover, and Gaviscon® antacid in Canada."

The company's most recent earnings report was noteworthy. Analysts were expecting a profit f $0.40 a share on revenues of $190.2 million. PBH delivered $0.48 a share, which is a +60% improvement from a year ago. Revenues were up +36.4% to $197.6 million, another beat. PBH's OTC products saw +37.2% sales growth in North America and +107.8% growth internationally.

Matthew M. Mannelly, President and CEO of PBH commented on his company's performance, "In light of our excellent year to date and third quarter results, we are updating our previously provided outlook for fiscal year 2015. We are tightening our expected adjusted EPS range from $1.75 to $1.85 per share to $1.82 to $1.85 per share, and anticipate revenue growth at the high end of our previously provided outlook of 15-18%. The update is driven by anticipated organic growth in the legacy business during the fourth quarter."

Wall Street analysts are forecasting 2015 Q1 (PBH's Q4) results to see +29% EPS growth and +30% revenue growth.

It's also worth noting that PBH is a potential buyout target. They have been targeted before. Back in 2012 Genomma Lab offered $834 million in cash but PBH rejected the offer, calling it too low.

The better than expected earnings in early February launched PBH above major resistance in the $37.00 area. Shares spent four weeks digesting those gains and now they're back in rally mode. The point & figure chart is bullish and forecasting at $54.00 target. Tonight we are suggesting a trigger to launch bullish positions at $42.35.

- Suggested Positions -

Long PBH stock @ $42.35

- (or for more adventurous traders, try this option) -

Long JUL $45 CALL (PBH150717C45) entry $1.55

03/21/15 new stop @ 40.35
03/20/15 triggered @ 42.35
Option Format: symbol-year-month-day-call-strike


Gentherm Inc. - THRM - close: 49.15 change: +0.73

Stop Loss: 46.85
Target(s): To Be Determined
Current Option Gain/Loss: +3.5%
Entry on March 06 at $47.48
Listed on March 05, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 456 thousand
New Positions: see below

Comments:
03/24/15: The rally in THRM continues. Traders bought the dip near $48.00 this morning and the stock rallied to a new (almost) six-month high.

Trade Description: March 5, 2015:
I remember the first time I bought a car with heated seats. I vowed to never own another automobile without them. Considering how cold the last couple of winters have been I'm sure a lot of consumers feel the same way. One company that makes the technology behind heated seats and other products is Gentherm.

THRM is in the consumer goods sector. According to the company's marketing material, "Gentherm (THRM) is a global developer and marketer of innovative thermal management technologies for a broad range of heating and cooling and temperature control applications. Automotive products include actively heated and cooled seat systems and cup holders, heated and ventilated seat systems, thermal storage bins, heated automotive interior systems (including heated seats, steering wheels, armrests and other components), cable systems and other electronic devices. The Company's advanced technology team is developing more efficient materials for thermoelectric and systems for waste heat recovery and electrical power generation for the automotive market that may have far-reaching applications for consumer products as well as industrial and technology markets. Gentherm has more than 9,000 employees in facilities in the U.S., Germany, Mexico, China, Canada, Japan, England, Korea, Malta, Hungary and the Ukraine."

THRM has been consistently beating Wall Street's on both the top and bottom line the last four quarters in a row. The exception was their Q4 revenue number. They raised guidance twice last year. Their most recent report was 2014 Q4 earnings announced on February 24th. Earnings were $0.56 a share on revenues of $205.2 million. That beat estimates of $0.48. Revenues were just a hair under estimates of $207 million. Management said their "adjusted EBITDA for the 2014 fourth quarter was $35.7 million, up $10.0 million or 39 percent, compared with Adjusted EBITDA of $25.6 million for the 2013 fourth."

THRM's 2014 gross margins grew to 29.8 percent versus 26.4 percent in 2013. Last year saw THRM's revenues rise +23% over the prior year. Their net income more than doubled. Management expects 2015 to see revenues grow +10-15% above 2014 levels.

Last month saw shares of THRM breakthrough technical resistance at its simple 200-dma. It has also rallied past price resistance near the $44.00 level. Traders just bought the dip at its 10-dma and now THRM looks poised to make a run towards its 2014 highs near $52.00. Tonight we're suggesting a trigger to open bullish positions at $47.30.

- Suggested Positions -

Long THRM stock @ $47.48

- (or for more adventurous traders, try this option) -

Long Jun $50 CALL (THRM150619C50) entry $2.98

03/21/15 new stop @ 46.85
03/06/15 triggered on gap higher at $47.48, trigger was $47.30
Option Format: symbol-year-month-day-call-strike


Steel Dynamics Inc. - STLD - close: 20.24 change: -0.16

Stop Loss: 19.20
Target(s): To Be Determined
Current Option Gain/Loss: -2.7%
Entry on March 24 at $20.81
Listed on March 21, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 3.6 million
New Positions: see below

Comments:
03/24/15: Our new trade on STLD is open. The stock gapped open higher at $20.81 and almost made it to $21.00 before reversing lower. I don't see any specific news behind the surge this morning. The gap higher opened this trade since it was above our entry trigger at $20.75.

The plunged back below the 200-dma is a bit disappointing. I would wait for a new rise past $20.75 before launching new positions.

Trade Description: March 21, 2015:
The bad news in the steel industry might be priced in and some are forecasting another turnaround in the second half of 2015. STLD looks like a bullish candidate as shares are outperforming its peers: U.S. Steel (X), Nucor (NUE), and AK Steel (AKS).

STLD is in the basic materials sector. The company describes itself as "Steel Dynamics, Inc. is one of the largest domestic steel producers and metals recyclers in the United States based on estimated annual steelmaking and metals recycling capability, with annual sales of $8.8 billion in 2014, over 7,700 employees, and manufacturing facilities primarily located throughout the United States (including six steel mills, eight steel coating facilities, two iron production facilities, over 90 metals recycling locations and six steel fabrication plants)."

This past week had a lot of bad news for the steel industry. Three companies issued bearish earnings guidance. STLD, NUE, and AKS all lowered their forecasts. CNBC suggested this industry is on the front lines of the currency war. All three companies blamed a surge in steel imports for hurting results. The rising U.S. dollar makes foreign products cheaper and steel imports into the U.S. rose +38% in 2014. Combine that with a glut of steel from domestic producers and both sales and margins have been hammered lower. The price of rolled steel is already down -20% in 2015. Many analysts are forecasting another tough year for the industry.

On March 18th, 2014, STLD lowered its Q1 guidance into the $0.12-0.16 range compared to Wall Street's estimate of $0.23. This also compares to $0.17 a year ago and $0.40 in the fourth quarter. However, the stock rallied. In addition to its lowered guidance the company offered a positive outlook for the second half of 2015.

Here's an excerpt from the company's press release on March 18th:

"During the first quarter of 2015, two important industry developments occurred:

− Domestic steel product pricing declined to levels that are now globally competitive, which the company believes will result in reduced steel import levels beginning in the second quarter 2015. Despite continued solid domestic steel consumption, product pricing decreased meaningfully due to delayed customer orders caused by the volatility in scrap prices and inventory buildup related to excessive fourth quarter 2014 steel imports. The company believes the surplus inventory can be right-sized in the April and May 2015 timeframe, which coupled with continued demand, should result in increased domestic steel mill utilization.

− Ferrous scrap pricing declined between 25% and 30% during February, which the company believes will benefit metal margin. Ferrous scrap pricing disconnected from iron ore pricing during 2014, as iron ore prices declined dramatically, while scrap prices remained relatively unchanged. Historically these commodities are highly correlated; therefore, a sharp decline in scrap prices was not unexpected.

The company believes these events, coupled with continued strength in domestic steel consumption from the automotive, manufacturing and construction sectors, should support a stronger second quarter, and second half 2015, based on the expectation of reduced domestic steel import levels, reduced raw material costs, and increased orders as customer inventory levels decline. Historically, the construction industry has been the largest single domestic steel consuming sector. The construction market grew during 2014, improving meaningfully from the lows experienced in 2009 and 2010. Despite the first quarter of each year being historically weaker for the construction industry due to seasonality, the company's fabrication operations are expected to achieve solid first quarter 2015 financial results. These results could approach those achieved in the third quarter 2014, which is traditionally the strongest construction quarter of a calendar year. The company believes this is evidence of the continued growth in non-residential construction.

Shares of STLD surged on this outlook and shares are now hovering just below technical resistance at its 200-dma. A breakout here could signal the next leg higher. Currently the point & figure chart is still bearish but a move above $21.00 would generate a new buy signal. Tonight we are suggesting a trigger to open bullish positions at $20.75.

FYI: The stock will begin trading ex-dividend on March 27th. The quarterly cash dividend should be $0.1375 a share.

- Suggested Positions -

Long STLD stock @ $20.81

- (or for more adventurous traders, try this option) -

Long MAY $20 CALL (STLD150515C20) entry $1.80

03/24/15 triggered on gap higher at $20.81, trigger was $20.75
Option Format: symbol-year-month-day-call-strike


Wells Fargo & Co - WFC - close: 55.35 change: -0.43

Stop Loss: 54.85
Target(s): To Be Determined
Current Option Gain/Loss: -1.4%
Entry on March 18 at $56.15
Listed on March 17, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 15.8 million
New Positions: see below

Comments:
03/24/15: Stocks delivered widespread declines but financial stocks underperformed the major indices. WFC looks like it could test $55.00 soon. I'm not suggesting new positions at this time.

Trade Description: March 17, 2015:
Banks had a rough start to the year but one stock leading the pack is WFC. Shares of WFC are up about +2% in 2015 versus a virtually flat financial sector.

According to the company, "Wells Fargo & Company (WFC) is a nationwide, diversified, community-based financial services company with $1.7 trillion in assets. Founded in 1852 and headquartered in San Francisco, Wells Fargo provides banking, insurance, investments, mortgage, and consumer and commercial finance through more than 8,700 locations, 12,500 ATMs, and the internet (wellsfargo.com), and has offices in 36 countries to support customers who conduct business in the global economy. With approximately 265,000 team members, Wells Fargo serves one in three households in the United States. Wells Fargo & Company was ranked No. 29 on Fortune’s 2014 rankings of America’s largest corporations."

WFC is very shareholder friendly. Back in 2014 the company said they wanted to pay out 55% to 75% of their net income to shareholders, which was a +34% jump from the prior year. This year WFC's CFO John Shrewsberry said they would like to distribute 50% to 70% of net income through dividends and stock buy backs. The amount of money they can pay in dividends is regulated by the Federal Reserve but WFC has raised their dividend six times in the last five years.

The Fed's annual bank stress test is a big deal and this was just completed a week ago. WFC passed the Fed's very severe stress test. The bank has asked permission to raise their dividend +7% to $0.375 a share (up from $0.35). WFC's consistent dividend might be a reason the stock is one of Warren Buffet's biggest holdings in Berkshire Hathaway.

Some have suggested that WFC could be a way to play the improving U.S. economy and consumer spending. That is because WFC is the biggest residential lender and largest auto lender in America.

The stock's rally has produced a buy signal on the point & figure chart that is forecasting a long-term target of $74.00. Currently the stock is hovering just below resistance at the $56.00 level. We are suggesting a trigger to open bullish positions at $56.15.

- Suggested Positions -

Long WFC stock @ $56.15

- (or for more adventurous traders, try this option) -

Long MAY $55 CALL (WFC150515C55) entry $2.20

03/21/15 new stop @ 54.85
03/18/15 triggered @ 56.15
Option Format: symbol-year-month-day-call-strike




BEARISH Play Updates

Albermarle Corp. - ALB - close: 52.00 change: +0.09

Stop Loss: 53.45
Target(s): To Be Determined
Current Option Gain/Loss: +2.3%
Entry on March 12 at $53.25
Listed on March 11, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.7 million
New Positions: see below

Comments:
03/24/15: ALB quietly consolidated sideways on either side of the $52.00 level. I am not suggesting new positions at this time.

Trade Description: March 11, 2015:
There's a bear market in this specialty chemical stock. The company has a history of paying a dividend and they just raised their dividend for the 21st year in a row. Unfortunately, that's not drawing much investor attention. High-dividend stocks could become less attractive with the Federal Reserve poised to raise interest rates.

Officially the company describes itself as, "Albemarle Corporation, headquartered in Baton Rouge, Louisiana, is a premier specialty chemicals company with leading positions in attractive end markets around the world. With a broad customer reach and diverse end markets, Albemarle develops, manufactures and markets technologically advanced and high value added products, including lithium and lithium compounds, bromine and derivatives, catalysts and surface treatment chemistries used in a wide range of applications including consumer electronics, flame retardants, metal processing, plastics, contemporary and alternative transportation vehicles, refining, pharmaceuticals, agriculture, construction and custom chemistry services."

They are in the final stages of its acquisition of Rockwood Holdings. They announced the $6 billion deal last July and it's expected to close in the first quarter of 2015. Bulls will argue this deal is positive for ALB due to the expected demand for lithium batteries. Rockwood has one of the of the biggest lithium producing operations in North America. On a short-term basis we're not seeing any impact in the stock.

ALB most recent earnings report was January 28th. Wall Street was expecting ALB's Q4 results to be $1.02 a share on revenues of $637 million. The company disappointed with a profit of $0.99 as revenues dropped -6.4% to $598.5 million. Management offered lackluster guidance. Multiple analyst firms have downgraded the stock and started lowering their earnings estimates.

You can see the huge sell-off on the earnings report in late January. During the market's big rally in February ALB slowly climbed back to where it was trading just before the earnings announcement. Now ALB is rolling over again. This conforms to the stock's larger bearish trend (seen on the weekly chart). The point & figure chart is forecasting at $45.00 target.

Tonight I'm suggesting a trigger to open bearish positions at $53.25.

- Suggested Positions -

Short ALB stock @ $53.25

- (or for more adventurous traders, try this option) -

Long JUN $50 PUT (ALB150619P50) entry $1.75

03/19/15 new stop @ 53.45
03/17/15 new stop @ 54.65
03/12/15 triggered @ $53.25
Option Format: symbol-year-month-day-call-strike


Hornbeck Offshore Services, Inc. - HOS - close: 18.92 change: +0.31

Stop Loss: 20.55
Target(s): To Be Determined
Current Option Gain/Loss: -4.0%
Entry on March 24 at $18.20
Listed on March 21, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 851 thousand
New Positions: see below

Comments:
03/24/15: HOS continued to sink just as we expected and the stock hit our suggested entry point at $18.20. Shares dipped to $17.91 intraday. Unfortunately the stock rebounded and managed to outperform the market with a +1.6% gain at the closing bell.

I am suggesting traders wait for a new decline under $18.20 or $18.00 before initiating new bearish positions.

Trade Description: March 23, 2015:
The price of crude oil and its crash over the last several months has been a major story for the financial media. Energy stocks have naturally followed the price of oil lower. One company getting crushed by the oil's fall and its impact on the industry is oil services company HOS.

HOS describes itself as "Hornbeck Offshore Services, Inc. is a leading provider of technologically advanced, new generation offshore support vessels primarily in the Gulf of Mexico and Latin America. Hornbeck Offshore currently owns a fleet of 65 vessels primarily serving the energy industry and has eight additional high-spec Upstream vessels under construction for delivery through 2016."

Earnings have taken a dramatic turn for the worse. Last year HOS' Q2 earnings were $0.85 a share. That was 36 cents above estimates with revenues up +24% from a year ago. Their Q3 numbers saw business fade. Earnings were $0.72 a share, which was only one cent above estimates. Q3 revenues did rise +25% but they came in below analysts' estimates. The slowdown really took hold in the fourth quarter. HOS reported earnings of $0.51, which missed estimates by 8 cents. Revenues only rose +10% and again missed expectations.

The problem is low oil prices. The U.S. oil industry has been shutting down oil and gas rigs. Many locations need oil above $60, $70 or even $80 a barrel to make the operation profitable. With oil in the $40 range companies are just shutting down rigs. The number of active rigs has fallen 15 weeks in a row and down -45% from its September 2014 high. Offshore rigs, which really impacts HOS, saw 11 rigs closed down leaving a total of 37. That's a -23% decline in a week.

Wall Street has taken note of falling rig count and analysts have been lowering their earnings expectations for HOS. Traders have noticed as well and the most recent data listed short interest at 16% of the very small 20.4 million share float. That does pose a risk since an unexpected rise could spark a potential short squeeze.

Technically the path of least resistance in shares of HOS has been lower for the last several months. Investors continue to sell the rallies. The bearish trend of lower highs is about to push the stock below key support in the $18.50-19.00 zone. Tonight we're suggesting a trigger to launch bearish positions at $18.20. You may want to use options to limit your risk.

- Suggested Positions -

Short HOS stock @ $18.20

- (or for more adventurous traders, try this option) -

Long JUN $17 PUT (HOS150619P17) entry $1.50

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



CLOSED BULLISH PLAYS

Cabela's Inc. - CAB - close: 57.26 change: -1.04

Stop Loss: 56.65
Target(s): To Be Determined
Current Option Gain/Loss: -1.2%
Entry on March 13 at $57.35
Listed on March 09, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.0 million
New Positions: see below

Comments:
03/24/15: Ouch! CAB underperformed the market with a -1.78% decline. Shares pierced technical support at the 10-dma and hit our stop loss at $56.65.

- Suggested Positions -

Long CAB stock @ $57.35 exit $56.65 (-1.2%)

- (or for more adventurous traders, try this option) -

JUN $60 CALL (CAB150619C60) entry $2.70 exit $1.80 (-33.3%)

03/24/15 stopped out
03/21/15 new stop @ 56.65
03/13/15 triggered @ 57.35
Option Format: symbol-year-month-day-call-strike

chart:


Golar LNG Ltd - GLNG - close: 34.14 change: -0.74

Stop Loss: 33.85
Target(s): To Be Determined
Current Option Gain/Loss: -4.0%
Entry on March 17 at $35.25
Listed on March 16, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.3 million
New Positions: see below

Comments:
03/24/15: Last night we raised our stop loss to try and reduce our risk on GLNG. Today's widespread market decline helped push GLNG lower and the stock tagged our new stop.

I would keep GLNG on your radar screen. A dip and bounce near the 50-dma (currently near $32.00) might be an alternative entry point for bullish positions. Or you could wait for a new relative high above $36.40.

*small positions to limit risk* - Suggested Positions -

Long GLNG stock @ $35.25 exit $33.85 (-4.0%)

- (or for more adventurous traders, try this option) -

JUN $40 CALL (GLNG150619C40) entry $2.40 exit $1.40 (-41.7%)

03/24/15 stopped out
03/23/15 new stop @ 33.85
03/17/15 new stop @ 32.85
03/17/15 triggered @ 35.25
Option Format: symbol-year-month-day-call-strike

chart:


CLOSED BEARISH PLAYS

3D Systems Corp. - DDD - close: 28.19 change: +0.23

Stop Loss: 28.35
Target(s): To Be Determined
Current Option Gain/Loss: -4.5%
Entry on March 16 at $26.90
Listed on March 10, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 3.0 million
New Positions: see below

Comments:
03/24/15: Our plan was to exit this DDD trade at the opening bell. Shares gapped open higher at $28.11 and settled with a +0.8% gain, outperforming the broader market.

*small positions to limit risk* - Suggested Positions -

Short DDD stock @ $26.90 exit $28.11 (-4.5%)

- (or for more adventurous traders, try this option) -

MAY $25 PUT (DDD150515P25) entry $1.56 exit $0.93 (-40.4%)

03/24/15 planned exit
03/23/15 prepare to exit tomorrow morning
03/17/15 new stop @ 28.35
03/16/15 triggered @ $26.90
Option Format: symbol-year-month-day-call-strike

chart: