Option Investor
Newsletter

Daily Newsletter, Wednesday, 3/25/2015

Table of Contents

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

Market Wrap

Strong Selling

by Keene Little

Click here to email Keene Little
Today saw strong selling across the board, which hit most sectors except the energy and commodity sectors. The selling was steady all day, indicating distribution of stock by the funds and some technical damage was done to the charts. But the bulls could pull another rabbit out of the hat if they rally the market starting in the morning.

Wednesday's Market Stats

This week's decline has been strong but when you look at the past three weeks you can see we're just playing follow the bouncing ball. I've highlighted a couple of the indexes we typically follow to show the recent volatility. Look at NDX as an example -- down nearly 144 points for the week ending March 13th, followed by up nearly 144 points last week and now down 129 points so far this week. If you don't like the market's direction, just wait a week.

Week's Market Stats

This morning's economic reports showed a continuation of the deterioration of our economy but that didn't matter to the equity futures market, which actually rallied on the pre-market news and created a little gap up for the cash market at the opening bell. But then the sellers hit and they were merciless to the bulls. There were two brief periods of consolidation, one in the morning and the other in the afternoon, but the selling was steady and the volume was strong. It looked like a clear distribution day and the selling did some technical damage to the charts. The bulls have an opportunity to get themselves back on their feet but they'll need to get started immediately Thursday morning.

The Durable Goods Orders report this morning showed a decline of -1.4% (-0.4% excluding transportation), which was worse than the +0.4% (+0.3%) expected and much worse than January's upwardly revised +2.8% (0.0%). Just about every report we've seen for the past month or two has shown us a steady decline in economic output and even though the market has believed this is a good thing, because it keeps the Fed accommodative by not raising rates by a measly 0.125%. How long the Fed can jawbone the market higher (or at least not to sell off) is the big question but perhaps today started to answer that question.

The other report this morning was Crude Inventories and it showed an increase of 8.17M barrels in the past week, which was less than the 9.62M barrels added the previous week. Whether or not that had anything to do with the rally in crude, which was up +3%, the energy sector and commodities in general were some of the few things in the green today.

Chicago's Fed President Charles Evans gave a speech early this morning in London and he continued the FOMC's dovish stance. He believes the costs of raising rates too soon outweigh the risks of raising them too late and therefore believes the Fed needs to wait until 2016 before thinking about raising rates. That was a bullish message for the market but it was ignored. Are we starting to see cracks in the foundation with the selling of good news? Perhaps it's the market starting to get worried that we have a Fed that is trapped -- they've now painted themselves into a corner and they're going to get paint on their feet and ruin all the "good" work they've done no matter which way they go. They're trapped and it's only a matter of time before the majority in the market start to understand that.

There wasn't much else in the news today so I'll jump into a review of the charts, starting off with the SPX weekly chart. It shows price has more or less traded sideways since the strong rally off the October 2014 low. The first time it climbed above 2065 was on November 21, 2014 and that level has been crossed multiple times since then, including today's decline. SPX has worked its way marginally higher over the past four months but it hasn't been able to make much progress. There is a possible rising wedge off the October low, the bottom of which is the uptrend line from October- February, currently near 2068. A drop below the March 11th low near 2040 would indicate the top is probably already in place but in the meantime there is still the potential for another rally leg into April with an upside target at 2140-2150.

S&P 500, SPX, Weekly chart

SPX dropped below its 50-dma, near 2068 (today's low was 2061), and price-level support near 2065. It stopped on its uptrend line from October-February, near 2061, so any continued selling Thursday would mean a break of multiple levels of support. A 1-day minor break today is no big deal but a close below 2060 tomorrow would be a bigger deal and something the bulls would have to be worried about. The next level of support is the 200-dma, near 2010, but until that happens we still need to watch for the possibility of another rally leg to complete its large rising wedge pattern from last October. These patterns are full of choppy price action with lots of whipsaws, which is certainly something we've seen. The tops of the rising wedge patterns are near 2140 (the trend line along the highs from December-February) and 2150 (the trend line along the highs from July-December, 2014), hence the upside target zone for a final rally leg. But this requires the bulls to step back in tomorrow and flush the bears back out again.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2114
- bearish below 2060

The 60-min chart below shows the break of the uptrend line from October-February, which was also broken marginally at the March 11-13 lows. Another opportunity for the dipsters here but they can't waste any time doing it. If today's decline, especially the push lower into the close, was designed to flush some weak longs and suck in shorts, to help provide buying power for the next rally, it should start with a gap up tomorrow morning. That would create a mad scramble by both sides to do some buying, something the HFTs love to trade. As noted on the chart, two equal legs up for the rally off the March 11th low points to 2136.39, which crosses the trend line across the highs from December-February on April 2nd. This pattern supports the idea that we could see an effort to make a new high by end-of-month/quarter. But the bearish pattern suggests the selloff from last Friday is impulsive, which means a change in trend to the downside. That calls for a bounce correction but one that should be shorted for what would be an even stronger decline in a 3rd of a 3rd wave down. First we need to see a bounce and then second we'll need to see if it sets up a nice 3-wave bounce with at least a 50% retracement. That would be the opportunity to try the short side, keeping in mind the upside potential.

S&P 500, SPX, 60-min chart

One of the key points to make about the rally off the mid-March low is that it's different from previous rallies. Traders have come to expect v-bottom reversals and then get long and hang on. But instead of a constant bid under the market since that low, as we saw off previous lows, we've had some significant pullbacks along the way, especially the past two days. From March 12th to the high on Monday we had an alternating sequence of red and white candles, which is different from the rallies off the October, December and February lows. This is a change in character to the market that deserves attention. And now with the stronger selloff since Monday, which follows a lower high against the March 2nd high, there is the potential for a more significant decline to follow. The key level to the downside for the DOW is 17620 (the March 12th low) but for now, holding above the uptrend line from October-February, near 17677 tomorrow morning, keeps the potential alive for another rally leg into April.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 18,100
- bearish below 17,620

Hurting the tech indexes today were the SOX, down -4.6%, and the biotechs, which have been getting clobbered this week. BTK is down nearly 9% this week and down -4.3% just today. The high-flying index has seen a lot of profit taking this week, which is another example of risk-off. But it should be noted that the BTK index (and the IBB ETF) left no bearish divergence on either their weekly or daily charts at last Friday's highs. That could mean there will be at least a retest of those highs before potentially putting in a longer-term high. For now it's just a warning to bears.

As for the tech indexes, today's decline for NDX and the Nasdaq is just pure ugly if you're a bull. That's a nasty-looking red candle and the series of red candles following Friday's gap up and smallish doji candle last Friday makes it look like an exhaustion gap up on Friday. And the significant bearish divergence at last Friday's high, which leaves a double top in place, certainly favors the bears. But all is not lost for the bulls yet, especially with the 50-dma, near 4322, not yet tested. Its uptrend line from October-February is currently a little lower, near 4310, so a stronger signal of a breakdown would be a drop below 4310, especially on a closing basis. For now the uptrend is still intact so bears need to respect that, but clearly the bulls need to step back in if they want to keep control of the tape.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4479
- bearish below 4310

Talk about an ugly red candle! The RUT saw some serious profit taking today and experienced the strongest down day since last October's low. That's what you call long covering after so many kept chasing this index higher but pulling their stops up as they went. The index gave back everything it had gained since March 12th and dropped back below its March 2nd high at 1243. The RUT was one of only a few indexes that was able to climb above its March 2nd high but it has now quickly joined the others in giving up the bulk of the rally off the March lows. But as with the others, there is still a chance for the bulls to step back in and pull a reversal on the bulls. As long as it stays above its uptrend line from February 2nd, currently nearing 1215 and its 50-dma at the same level, there remains the potential for another rally leg to another new high. The upside target, if a new rally leg gets going, is near 1288 where it would again back-test its broken uptrend line from March 2009 - October 2011, as well as the top of its up-channel from January, with both lines crossing that projection on April 2nd (the same date projection mentioned for the SPX 60-min chart).

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1266
- bearish below 1206

Treasury bonds also sold off some today so money wasn't rotating out of stocks into bonds. Today's selloff in the stock market looks to have been just profit taking (at least for now) and moving into cash. We'll have to see if that pattern changes in the next few days. Looking at the longer-term chart of the 30-year yield (TYX), the bounce off the January 30th low followed by the decline from March 6th leaves us with a 3-wave bounce and that suggests just a correction to the longer-term decline and lower lows to come. We could see a higher corrective bounce but so far I'm not seeing enough evidence to suggest a longer-term low is in place. Yesterday TYX dropped back below 2.5% yesterday, a price-level S/R line, and today it bounced back up to it. If that holds as resistance we'll likely see rates head lower, which would keep my prediction of sub-2% intact before seeing a longer-term bottom.

30-year Yield, TYX, Weekly chart

Speaking of bonds, I was a little surprised to see HYG (High Yield Corp bond fund, otherwise known as junk bonds) had not sold off that much (-0.26%). If today's selling in the stock market was a risk-off kind of move I would have thought investors would be reducing risk in this fund. It's worth watching over the next few days since it could be another piece of the puzzle telling us today's stock market selloff might not have been as bearish as it first appears.

If we look to the VIX for some clues, it was warning us that a reversal could be coming. The VIX had dropped down to its uptrend line from July-December 2014 last Friday and this past Monday and not surprisingly it bounced off that support line. The higher highs since last July, while SPX continued to make new price highs, have been indicating a bearish non-confirmation that's still waiting for resolution. The VIX is now back up near its 200-dma, at 14.94 (today's high was 14.75) so it could be ready for a pullback (while the stock market bounces). But VIX could be ready for a stronger "rally" off support.

Volatility Index, VIX, Daily chart

Another warning came from the VIX futures, VXX, which had poked through the bottom of its Bollinger Band this week and today's reversal back inside the band is generally a good "buy" signal here. As can be seen with the matching red circles on the SPX line (blue), these reversals off the Bollinger Band pierce have led to strong declines in the recent past (off the September and December 2014 highs). We'll soon find out if the pattern will repeat.

VXX vs. SPX, Daily chart

The banks had a bad day today as well and BKX dropped nearly -1.7%. The weekly chart below shows the red candle for this week that has already retraced the previous 5 weeks of trading. Falling away from the uptrend line from October 2013 - May 2014 (gray line) and its broken uptrend line from March 2009 - October 2011 clearly looks bearish. The back-test of the broken uptrend line from 2009, followed by this week's kiss goodbye is a classic sell signal and it tells me to look for bounces to short. I'll continue to respect the upside potential for a run up to the top of its expanding triangle, which is currently near 75.40, but I consider that a lower-odds probability (and we play a game of probabilities). Look for support at its 50-week MA, at 71.01, which is close to its 50-day MA AT 71.09. Slightly higher is its 200-dma at71.36 and only 13 cents below today's low.

KBW Bank index, BKX, Weekly chart

The TRAN started to lead to the downside on Monday and was a warning sign for the bulls to pay attention to. Last Friday's high was yet another lower high in a string of them since its November 28th high. While the DOW kept pushing higher the TRAN was not confirming the new highs and that has been leaving a Dow Theory bearish non-confirmation. But its price remains inside a potentially bullish descending triangle (flat bottom, declining tops) and this pattern follows the strong rally from October into November. It's a bullish continuation pattern and until it is negated with a breakdown, which means below 8580 (and stay below), we have to respect the potential for a rally out of this pattern. A rally above last Friday's high at 9176 is needed to prove the bullish pattern is correct but a drop below 8580 would also be a break below its 200-dma, currently near 8647, and its uptrend line from November 2012 - October 2014, also now near 8580. That's a must-defend level for the bulls.

Transportation Index, TRAN, Daily chart

For the U.S. dollar I was looking for the rally to finish just north of 99 but it instead rallied up to a high of a high around 99.50 but it made a little higher with a brief throw-over above the top of a steep parallel up-channel for the 3rd wave. I’m now expecting a multi-month 4th wave consolidation, which should stay above the top of a shallow parallel up-channel from 2008-2011, which is currently near 93.50. Below that level would have me wondering if something more bearish is happening for the dollar but if it does consolidate in a choppy pattern we could see commodities and metals forced to trade on their own for a while longer.

U.S. Dollar contract, DX, Weekly chart

Gold's decline from January 22nd looks like an impulsive 5-wave move and that keeps the dominant downtrend intact. It also means a bounce off last week's low could make it a little higher before heading back down, perhaps up to its 50-dma, near 1220, or its 200-dma, near 1239, or its 50-week MA near 1246. Currently it's battling its downtrend line from October 2012 - July 2014, which was tested with today's high at 1199.30. This downtrend line was broken in mid-January, getting gold bulls all excited, but it turned out to be a head-fake break after dropping back below the line in mid-February. For the time being I continue to view bounces in gold as shorting opportunities.

Gold continuous contract, GC, Weekly chart

When it looked like oil was going to find support last week at a Fib target zone near 42, especially with the bullish divergence against the January lows, I thought it was a good setup for a strong rally that will see oil challenge price-level S/R near 58.50. So far there's no change to that expectation although it will first need to get through resistance at its downtrend line from September-November 2014, currently near 50.10. We might see a pullback from that level before continuing higher.

Oil continuous contract, CL, Daily chart

It will be a quiet day for economic reports tomorrow so the market will be on its own, responding only to global news. Friday's GDP 3rd estimate and Michigan Sentiment could move the market but at the moment it's not looking like any big changes are expected for either one.

Economic reports and Summary

Today's selloff was clearly bearish and there's no good way to sugar coat it for the bulls. It's an impulsive decline off Monday's high and that's a strong signal of a trend change back to the downside. The decline from Monday can be counted as a completed 5-wave move and that sets up a bounce correction for Thursday. If there's no bounce and important support lines break then that's when we'll be hearing the fat lady singing the blues for the bulls. But for now the bulls have a chance to hold support if they come back in and do some buying in the morning. The higher-odds probability is that a bounce into Friday/Monday, assuming we'll get one, will set up a stronger decline to follow, especially with the bearish wave count setting up for a very strong 3rd of a 3rd wave down.

But before getting too bearish here, I've seen plenty of sharp pullbacks that looked like the start of something bigger to the downside that suddenly gets reversed and starts the next short-covering rally. That remains a possibility with important uptrend lines holding. Now we wait to see if they'll in fact hold.

Good luck and I'll be back with you next Wednesday.

Keene H. Little, CMT

In the end everything works out and if it doesn't work out, it is not the end. Old Indian Saying


New Plays

Traders Selling Their Winners

by James Brown

Click here to email James Brown

Editor's Note:

2015's Q1 is nearing an end and traders were rushing to lock in potential gains, especially in high-flyers like the biotech industry. Biotech stocks have been huge performers over the last couple of years. They were already up more than +20% in 2015 but now they could be reversing. The IBB ishares NASDAQ biotech ETF was down -4.1% today and marked its third down day in a row after Friday's blow-off top.

According to Bob Pisani, on CNBC, there was no one specific catalyst behind today's market decline. Worries about the strong U.S. dollar and its impact on corporate earnings has been a constant undercurrent for the market. Investors are also concerned that Q1 earnings could see the first decline in corporate profits in six years.

It didn't help that this morning's durable goods order missed expectations. Economists were expecting a gain in the durable orders but the government reported a decline.

We are not adding any new trades tonight. Volume has been low all week. Monday and Tuesday were the 2nd and 3rd slowest volume days of the year. Even with today's sharp decline volume was not that strong. This might suggest the selling isn't over yet. A big down day on huge volume can sometimes indicate a short-term bottom is in place.




In Play Updates and Reviews

Stocks Down Across The Board

by James Brown

Click here to email James Brown

Editor's Note:
The sell-off started in Europe and accelerated in U.S. equity markets. The S&P 500 posted its third decline in a row. Biotech stocks were notable losers but semiconductor and transportation stocks were also laggards.

BBY, EXPD, and WFC hit our stop loss. OCUL hit our trigger this morning and then reversed to hit our stop.


Current Portfolio:


BULLISH Play Updates

BroadSoft, Inc. - BSFT - close: 33.62 change: -0.82

Stop Loss: 33.45
Target(s): To Be Determined
Current Option Gain/Loss: -4.5%
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:
03/25/15: Our BSFT trade might be in trouble. Technology stocks had a rough day. The NASDAQ was down -2.3%. BSFT followed it lower with a -2.3% decline. Today's drop in BSFT is a breakdown below $34.00 and its simple 10-dma. If there is any follow through lower tomorrow we will see BSFT hit our stop at $33.45.

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

03/25/15 BSFT looks like it could hit our stop tomorrow
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


Prestige Brands Holdings - PBH - close: 41.67 change: -0.06

Stop Loss: 40.35
Target(s): To Be Determined
Current Option Gain/Loss: -1.6%
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:
03/25/15: PBH is still holding up pretty well. Shares were only down five cents yesterday and down six cents today. The stock seemed to find support at the 10-dma today.

I'm not suggesting new positions at this time.

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: 47.07 change: -2.08

Stop Loss: 46.85
Target(s): To Be Determined
Current Option Gain/Loss: -0.9%
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:
03/25/15: The broad-based market sell-off fueled a -4.2% plunge in THRM. The stock has erased the last four days worth of gains and looks poised to test its 20-dma near $47.00 tomorrow. If shares don't bounce at $47.00 then we'll see it hit our stop at $46.85.

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: 20.34 change: +0.10

Stop Loss: 19.20
Target(s): To Be Determined
Current Option Gain/Loss: -2.3%
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:
03/25/15: STLD closed on its lows for the day but shares still eked out a gain. That's because the stock gapped open higher at the open. This is the second failure under $21.00 in as many days. I'm not suggesting new positions at this time.

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




BEARISH Play Updates

Albermarle Corp. - ALB - close: 51.18 change: -0.82

Stop Loss: 53.45
Target(s): To Be Determined
Current Option Gain/Loss: +3.9%
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:
03/25/15: The market's weakness was good news for ALB bears. The stock failed under its 10-dma again and dropped to new relative lows. 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: 19.70 change: +0.78

Stop Loss: 20.55
Target(s): To Be Determined
Current Option Gain/Loss: -8.2%
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:
03/25/15: A +3% bounce in the price of oil helped fuel some gains in the energy sector. HOS continued yesterday's bounce with a +4.1% gain today. The stock is nearing resistance at $20.00. I am not suggesting new positions at this time.

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

Best Buy Co. Inc. - BBY - close: 39.42 change: -1.43

Stop Loss: 39.85
Target(s): To Be Determined
Current Option Gain/Loss: -1.0%
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:
03/25/15: The stock market's big sell-off today pushed BBY below support at $40.00. Shares hit our stop at $39.85. BBY might have support near $38.00, which is where a trend line of higher lows and its 50-dma appear to converge.

- Suggested Positions -

Long BBY stock @ $40.25 exit $39.85 (-1.0%)

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

MAY $40 CALL (BBY150515C40) entry $1.99 exit $1.70 (-14.6%)

03/25/15 stopped out
03/17/15 new stop 39.85
03/06/15 triggered @ $40.25
Option Format: symbol-year-month-day-call-strike

chart:


Expeditors Intl. of Washington - EXPD - close: 48.17 chg: -1.16

Stop Loss: 48.45
Target(s): To Be Determined
Current Option Gain/Loss: -0.2%
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:
03/25/15: Transportation stocks were underperformers today. EXPD was no exception. Shares lost -2.3% and hit our stop loss at $48.45.

- Suggested Positions -

Long EXPD stock @ $48.55 exit $48.45 (-0.2%)

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

May $50 CALL (EXPD150515C50) entry $1.06 exit $0.83 (-21.7%)

03/25/15 stopped out
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

chart:


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

Stop Loss: 41.25
Target(s): To Be Determined
Current Option Gain/Loss: -6.7%
Entry on March 25 at $44.19
Listed on March 24, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 134 thousand
New Positions: see below

Comments:
03/25/15: Ouch! Insert your best curse word here: _____! Biotech were hammered lower today. The IBB biotech ETF plunged more than -4%. OCUL followed it lower. Unfortunately both OCUL and the major biotech ETFs produced a small spike higher at the opening bell. OCUL's spike was a little bit stronger than the rest of the industry. Shares of OCUL actually gapped open higher at $44.19. Since our entry trigger was $44.15 the gap higher opened our play. The sell-off in biotech stocks pushed OCUL lower enough to hit our stop loss. I warned readers that this was a higher-risk, more aggressive trade.

- Suggested Positions - *small positions to limit risk*

Long OCUL stock @ $44.19 exit $41.25 (-6.7%)

03/25/15 stopped out @ 41.25
03/25/15 triggered on gap open at $44.19, suggested entry was $44.15

chart:


Wells Fargo & Co - WFC - close: 54.54 change: -0.81

Stop Loss: 54.85
Target(s): To Be Determined
Current Option Gain/Loss: -2.3%
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:
03/25/15: The Financial ETF kept pace with the decline in the S&P 500 index. Both lost about -1.45%. WFC shadowed them both. Today's decline hit our stop loss a $54.85.

- Suggested Positions -

Long WFC stock @ $56.15 exit $54.85 (-2.3%)

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

MAY $55 CALL (WFC150515C55) entry $2.20 exit $1.45 (-34.1%)

03/25/15 stopped out
03/21/15 new stop @ 54.85
03/18/15 triggered @ 56.15
Option Format: symbol-year-month-day-call-strike

chart: