Option Investor
Newsletter

Daily Newsletter, Tuesday, 3/31/2015

Table of Contents

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

Market Wrap

Not a Good Omen

by Jim Brown

Click here to email Jim Brown

The Dow gave back -200 of the +263 points it gained in Monday's monster short squeeze. Giving back that many points on the last day of the quarter when retirement money should be flowing into fund accounts is not a good omen for the days ahead. The morning started out slightly negative but selling accelerated late in the afternoon.

Market Statistics

The S&P and Nasdaq have risen for nine consecutive quarters and but the Dow broke its string after Tuesday's loss pushed it negative by -0.26% for the quarter. The Dow had the most triple digit swings in Q1 since the Q4-2011. The market's momentum has begun to fade with only the Russell 2000 (+3.99%) and the Nasdaq (+3.48%) posting decent Q1 gains.

The graphic below shows the Q1 gains and losses for the major indexes. The biotech sector was the big winner with +16% and crude oil the biggest loser at -11.3% despite a strong rebound in March.


There were no headlines this morning to account for the market decline. However, Monday was purely a short squeeze after comments from a PBoC governor suggested they could launch a new stimulus program in the near future. Also pushing stocks higher was merger Monday. A flurry of acquisitions helped to power stocks higher. United Health (UNH) will acquire pharmacy benefit manager Catamaran (CTRX) in a deal worth $12.78 billion. Drugmaker Teva Pharmaceuticals (TEVA) said it would buy drug maker Auspex (ASPX) for $3.5 billion. Horizon Pharmaceuticals (HZNP) is buying Hyperion Therapeutics (HPTX) for $1.1 billion.

When there was no rebound on Friday after a -414 point Dow decline for the week the outlook for this week was mixed at best. The short squeeze capitalized on the heavily negative outlook from Friday and everyone that went into the weekend short was severely squeezed at the open on Monday.

Today was simply a return to the sentiment from last week. Today should have been positive from quarter end retirement contributions so the lack of positive market suggests we are still going lower.

On the economic front the Intuit Small Business Employment Index showed hiring was flat in March at +0.7%. Businesses with less than 20 employees added 15,000 jobs in March and the same pace as February. However, hours worked declined -0.35% and compensation declined -0.16%. Small businesses normally rely more on walk in foot traffic and severe winter weather could have impacted the totals.

The Case Shiller Home Price index showed that home prices rose +4.6% in January compared to +4.3% in the prior report. This is a lagging report and the market ignored it.

Consumer Confidence for March rose significantly from 96.4 to 101.3. The February decline from January's 103.8 high was almost completely erased. The present conditions component declined from 112.1 to 109.1 but the expectations component rose from 90.0 to 96.0. Auto buyers increased from 11.8% to 12.8% while prospective home buyers declined from 5.6% to 4.5%. Prospective appliance buyers declined from 50.0% to 48.4%. Consumers are not spending their gas savings but using it to pay down credit cards and existing loans.


The economic calendar for the rest of the week is heavily weighted towards employment reports. The estimates for the ADP and Nonfarm payrolls have been fluctuating about 15-20K every couple of days as analysts rethink their positions. The ADP is now expected to show a small gain to +240,000 and the Nonfarm Payrolls are expected to show a decent decline from 295,000 to 248,000. Bear in mind that analysts are all over the map on these estimates because of the weak economic reports for the last month. There is a strong possibility we could get a negative surprise.

The Nonfarm Payroll report is on Friday and the market will be closed for Good Friday. This means investors will not be able to trade on the report until Monday and a three day weekend is a lifetime if you are positioned in the wrong direction. This makes the next two days critical for positioning and you better be very confident of your positions going into Thursday's close. The ADP report on Wednesday will give traders a potential heads up for their trades ahead of Thursday's close.

The ISM Manufacturing on Wednesday will also be important. With economic reports weakening this is the proxy for all of April. If the ISM comes in weak analysts will project that forward into April. The Texas Manufacturing Outlook yesterday fell from -11.2 to -17.4 and Texas is supposed to be an economically strong state. The Kansas Fed Manufacturing Survey a couple days before declined from 1 to -4 in a continuing series of disappointments. Analysts will be looking at the ISM for hope for the future.


This is going to be a short commentary tonight. Our Internet was down all afternoon and did not come back up until 8:30 ET. It is really hard to do research without the Internet. What did we do 20 years ago? We listened to our brokers and watched the nightly news at 6 & 10 and that was all we had. Think how much smarter and better informed investors are today.

In stock news Charter Communications (CHTR) announced the acquisition of Bright House in a $10.4 billion deal. This will give Charter a bigger footprint in California, Florida and Michigan. Charter will pay for the deal with $2 billion in cash and a mix of common and convertible preferred stock.

Bright House has about 2.5 million cable subscribers. Charter lost out on the Time Warner deal last year when Comcast agreed to pay $42.5 billion. However, Charter agreed to take control of 3.9 million Comcast cable-TV customers in order to make the approval process easier for the Comcast deal. That was a heck of a consolation prize! Time Warner has a right of first offer on the Bright House transaction but is not expected to take it since the Comcast acquisition is still in progress.


Priceline (PCLN) was upgraded from hold to buy at Stifel Nicolaus with a price target of $1,400. The analyst said the conditions in Europe were improving and the company had been giving conservative guidance. However, over 70% of foreign bookings have exposure to foreign currencies and Priceline was going to have to manage that headwind. Travel to Europe is increasing thanks to the strong dollar buying more European goods and services and that was seen as a positive for Priceline.


Dyax (DYAX) shares rallied +50% on heavy volume after the company said an early-stage study showed that drug DX-2930 designed to treat hereditary angioedema, a rare swelling of the extremities, was safe to use, achieved all primary goals and reduced attacks. The drug was granted a fast-track designation from the FDA.


Conn's (CONN) declined -6% after the company reported a worse than expected -44% decline in Q4 profits. The company reported earnings of 42 cents compared to 75 cents in the year ago quarter. Revenue increased +18% to $426.8 million. Analysts were expecting 64 cents and revenue of $421 million. The company said it was exploring strategic alternatives including the sale of its loan portfolio and will stop selling electronics and stick to furniture.


Orthofix (OFIX) reported earnings of 17 cents and said it had entered into an option agreement to acquire eNeura. Orthofix has 18 months to exercise the option. Orthofix has agreed to provide a $15 million loan to support SpringTMS in the U.S. and Europe. If the option to purchase eNeura is exercised, Orthofix will pay $65 million to consummate the merger and eNeura will repay the unpaid principle under the loan. Shares rallied 15% on the news.


Sprouts Farmers Market (SFM) rallied +5% after Morgan Stanley named the company to its "Best Ideas" list. MS said now was a "very attractive" time to buy into one of retails best growth stories. Shares had pulled back after the company issued cautious guidance of 20% earnings growth after posting nearly 50% in the prior two years. Morgan said Sprouts had a history of beating expectations.


Crude oil did not help the market today with a -$1.19 decline in regular trading and continued its fall in afterhours with another -40 cents. Multiple analysts are reiterating their call for lower $40s or even sub $40 prices in the weeks ahead. This pressured all the energy stocks and weighed on the Dow and the S&P.


Markets

The S&P declined -18 points to close just above light support at 2065 to eras all byt 6 points of the Monday gains. The index gapped lower at the open and did not even retest the high resistance at 2089 from Monday. The opening print was 2084 and it was all downhill from there. The next level support is now the 100-day at 2060 and the early March lows at 2040. Without a sudden reversal of direction I think that 2040 level is going to be tested.


The two-year chart on the S&P has been trending pretty much straight up. However, over the last three months the upward momentum has slowed and as you can see in the chart below the tops of the candles are moving farther and farther away from the top of the channel. There is a good chance we are going to have a retest of the uptrend support in the 1985-2000 range. The critical question will be whether that 1985 level holds given the weak estimates for earnings for the first three quarters of 2015. The uptrend support is almost identical to the 50-week moving average, which is also a critical support point.


The Dow only had three components that were positive with the heaviest weighted stocks losing the most points. Goldman, Boeing, IBM and Apple were the biggest losers and helped to drag the index significantly lower.

Art Cashin said there was $1.5 billion in stock for sale at the close on the NYSE. That was a lot of fund selling and suggests there was a race to the exits ahead of quarter end and the ADP Employment report before the open on Wednesday.

The Dow made a lower high and the odds are good it is heading for a lower low in the days ahead. Support at 17,620 is likely to be tested and possibly broken. That would then target 17,130 and the support from January.



The Nasdaq appears to be headed for a retest of support at 4850 and that level better hold or the broader market could accelerate lower. The biotechs have been supporting the Nasdaq while chip stocks and solar stocks have been erratic. Tuesday's -46 point drop came mostly in the last few minutes of trading and futures continued lower after the close.



The Small Cap Russell 2000 lost -5 points today but continues to hold the high ground. The index is only 14 points away from a new closing high. An analyst mentioned today that S&P stocks with no exposure to Europe were up +0.5% for the year while those with exposure to Europe were down an average -1.8% for the year. This is even truer for the Russell stocks with the index up +4% for the year. As long as the R2K holds above the 1230 level from last week the broader indexes should not decline too far.


I would remain cautious for the rest of the week after the return of the triple digit volatility. The S&P made another lower high and should it make a lower low in the next couple days it would be very negative. The S&P futures accelerated lower after the close and at one point were down -25 points. Unless there is a miracle recovery the market open on Wednesday is going to be ugly.


There is always the possibility that today's flush was some sort of technical selling or portfolio rebalancing for the end of the quarter. This was the first losing quarter for the Dow after 8 consecutive winning quarters. This could be a warning for the weeks ahead.

Enter passively, exit aggressively!

Jim Brown

Send Jim an email

 

 


New Plays

Searching For A Direction

by James Brown

Click here to email James Brown

Editor's Note:

The stock market really can't seem to make up it's mind. Yesterday was the first time in about a month that the S&P 500 actually managed back-to-back up days. You see how long that rally lasted.

You could argue the S&P 500 is in a neutral consolidation pattern of lower highs and higher lows. Investors might be waiting for Q1 earnings season to start.

Art Cashin, Director of Floor Operations at UBS, noted that April is historically bullish for the market but the first half of April tends to be weak and then stocks make it up with gains in the second half of the month.

Seasonally the next couple of days tend to have a bullish bias but the day after Easter is normally down.

Don't forget that the U.S. stock market is closed on Friday.

Tonight we are not adding any new trades. With the market searching for a direction it is easy to get chewed up in the churn.




In Play Updates and Reviews

S&P 500 Ekes Out Another Quarterly Gain

by James Brown

Click here to email James Brown

Editor's Note:
The S&P 500 index delivered its ninth quarterly gain in a row. It only managed that feat with a nine-point gain for the last three months (that's less than half a percentage point).

The market ended 2015's Q1 on a down note with all the major U.S. indices in the red. The good news is that seasonally the next two days tend to have a bullish bias.

Our plan was to close the ALB trade this morning.


Current Portfolio:


BULLISH Play Updates

Allegion Plc. - ALLE - close: 61.17 change: -0.74

Stop Loss: 59.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on March -- at $---.--
Listed on March 30, 2015
Time Frame: Exit prior to earnings (late April - early May)
Average Daily Volume = 674 thousand
New Positions: Yes, see below

Comments:
03/31/15: The market's widespread decline stole the wind from ALLE's rally. Shares churned sideways in the $61-62 area. We are suggesting a trigger to launch bullish positions at $62.10.

Trade Description: March 30, 2015:
It feels like the world is growing more dangerous. It was only a few weeks ago that the world was shocked by the terrorist shootings in Paris. It should be no surprise that demand for more security at our homes and places of work is growing.

ALLE provides security solutions. According to the company, "Allegion (ALLE) creates peace of mind by pioneering safety and security. As a $2 billion provider of security solutions for homes and businesses, Allegion employs more than 8,000 people and sells products in more than 120 countries across the world. Allegion has more than 25 global brands, including strategic brands CISA®, Interflex®,LCN®, Schlage® and Von Duprin®."

After a slow start last year ALLE's earnings have improved over the last couple of quarters. Their Q3 report last October showed earnings and revenues coming in above expectations.

They did it again with their Q4 earnings report, released on February 18th. Earnings rose +26.7% to $0.76 a share. Wall Street was only looking for $0.68. Revenues were up +5.5% to $573.5 million, above estimates.

ALLE management provided 2015 guidance. They expect revenues to rise +3% to +4% over last year. However, when you factor in currency headwinds and adjustments for their Venezuelan business, revenues could actually decline -3% to -4%. ALLE is forecasting earnings to grow +12% to +17% in 2015.

Investors took ALLE's cautious guidance in stride. There was a one-day pullback and investors quickly jumped in to buy the dip. A month later ALLE's stock was breaking out past resistance at the $60.00 level. Today ALLE has retested $60.00 as new support and just closed at new record highs. The point & figure chart is very bullish and forecasting a long-term target at $81.00. Tonight we're suggesting a trigger to launch bullish positions at $62.10. We will plan on exiting prior to earnings in very late April or early May.

Trigger @ $62.10

- Suggested Positions -

Buy ALLE stock @ (trigger)

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

Buy the MAY $65 CALL (ALLE150515C65)

Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.

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


Prestige Brands Holdings - PBH - close: 42.89 change: +0.01

Stop Loss: 40.35
Target(s): To Be Determined
Current Option Gain/Loss: +1.3%
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:
03/31/15: PBH resisted the market's weakness today but shares struggled to make any progress. The stock closed almost unchanged on the session. Should the market sink further we can look for potential short-term support in the $41-42 area for PBH.

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


Providence Service Corp. - PRSC - close: 53.12 change: +1.78

Stop Loss: 49.85
Target(s): To Be Determined
Current Option Gain/Loss: +1.2%
Entry on March 27 at $52.50
Listed on March 26, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 136 thousand
New Positions: see below

Comments:
03/31/15: Traders bought the dip in PRSC this morning near $50.50 and the stock ricocheted to a new high. Shares broke through short-term resistance in the $52.00 area and closed at new all-time highs. Today's breakout looks like a potential entry point to launch new positions but you may want to wait and see if both PRSC and the NASDAQ are positive tomorrow morning.

Trade Description: March 26, 2015:
PRSC is a small cap momentum stock. Shares are outperforming the broader market with a +40% gain in 2015. The stock has done a pretty good job ignoring the market's recent weakness.

PRSC is in the healthcare sector. According to their marketing materials, "Providence is a Tucson, Arizona-based company that provides and manages government sponsored human services, innovative global employment services, in-home health assessment and care management services, and non-emergency transportation services."

"Providence is unique in that it provides and manages its human services primarily in the client's own home or in community based settings, rather than in hospitals or treatment facilities and provides its non-emergency transportation services clients through local transportation providers rather than an owned fleet of vehicles. The Company provides a range of services through its direct entities to approximately 57,400 and 232,000 human services and workforce development services clients, respectively, with approximately 20.7 million individuals eligible to receive the Company's non-emergency transportation services. Its workforce development services include nearly 180 delivery sites spanning 10 countries and its health assessments are performed by over 700 nurse practitioners in 33 states."

The company is not afraid of acquisitions. In the last year they have purchased Matrix Medical Network and Ingeus.

PRSC's most recent quarterly report was March 16th. Analysts were expecting Q4 earnings of $0.29 a share on revenues of $416 million. PRSC delivered $0.45 a share, which is up +87.5% from a year ago. Q4 revenues were up +63.8% to $453.6 million, significantly above estimates. If you exclude the recent acquisitions PRSC's Q4 revenues were up +21.4%. The company's full-year 2014 sales hit $1.5 billion, up +32% from the prior year.

The stock rallied on this better than expected earnings report. The $48-50 area was significant resistance and PRSC has broken out above this zone. As previously mentioned the stock has been able to resist the market's recent sell-off. The point & figure chart is bullish and forecasting a long-term target of $68.00.

Tonight PRSC looks like it's about to break out from its recent consolidation in the $50-52 area. Last week's highs are around $52.30. We are suggesting a trigger to open small bullish positions at $52.50. I'm suggesting small positions because PRSC does not trade a lot of volume and we want to limit our risk.

*use small positions to limit risk* - Suggested Positions -

Long PRSC stock @ $52.50

03/27/15 triggered @ 52.50


Steel Dynamics Inc. - STLD - close: 20.10 change: -0.12

Stop Loss: 19.20
Target(s): To Be Determined
Current Option Gain/Loss: -3.4%
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:
03/31/15: STLD held up reasonably well on Tuesday. The stock pared its losses with a minor bounce off its morning lows. STLD closed with a -0.59% decline versus the S&P 500's -0.87% loss.

There is no change from my recent comments. No new positions at this time. We want to see STLD close above its 200-dma before considering 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


Web.com Group, Inc. - WWWW - close: 18.95 change: -0.14

Stop Loss: 17.85
Target(s): To Be Determined
Current Option Gain/Loss: -0.3%
Entry on March 30 at $19.00
Listed on March 28, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 533 thousand
New Positions: see below

Comments:
03/31/15: Tuesday's performance looks a lot like Monday's with traders buying the morning dip in WWWW. Shares rallied to a new relative high. Unfortunately today the market's widespread weakness weighed on WWWW and the stock faded lower into the closing bell.

If the market sinks again tomorrow I would not be surprised to see WWWW dip toward what should be short-term support near $18.50 and its 10-dma.

Trade Description: March 28, 2015:
WWWW is a small cap technology company. After a -60% correction from its 2014 highs it looks like the worst might be behind it.

If you're not familiar with WWW here's a brief description, "Web.com Group, Inc. (WWWW) provides a full range of Internet services to small businesses to help them compete and succeed online. Web.com is owner of several global domain registrars and further meets the needs of small businesses anywhere along their lifecycle with affordable, subscription-based solutions including website design and management, search engine optimization, online marketing campaigns, local sales leads, social media, mobile products, eCommerce solutions and call center services."

On the daily chart you can see the big gap down in November 2014. That was a reaction to the company's lowered guidance. The stock appears to have produced a bullish double bottom with its lows in November and January.

Shares surged in mid February with is Q4 earnings results. WWWW beat analysts' estimates on both the top and bottom line. Revenues for the full year were up +14%.

February was also noteworthy for WWWW agreeing to give an activist investor fund two seats on the Board of Directors. Okumus Fund Management is now the largest shareholder in WWWW with almost 15% of its outstanding shares.

Shares of WWWW have been building on a new bullish trend of higher lows and managed to ignore most of the market's sell-off this past week. The point & figure chart is bullish and forecasting a target of $23.00.

If WWWW continues higher it could spark some short covering with the most recent data listing short interest at more than 10% of the 36.5 million share float.

Tonight we are suggesting a trigger to open bullish positions at $18.95 with an initial stop loss at $17.85. I would start with small positions. The $20.00 level and the 200-dma (also nearing $20) could both be overhead resistance.

- Suggested Positions -

Long WWWW stock @ $19.00

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

Long MAY $20 CALL (WWWW150515C20) entry $1.30

03/30/15 triggered on gap open at $19.00, suggested entry was $18.95
Option Format: symbol-year-month-day-call-strike




BEARISH Play Updates

Hornbeck Offshore Services, Inc. - HOS - close: 18.81 change: -1.01

Stop Loss: 20.55
Target(s): To Be Determined
Current Option Gain/Loss: -3.4%
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:
03/31/15: HOS is finally starting to retreat after testing resistance near $20.50 for the last three days in a row. I would prefer to see a new relative low, under $17.90, before considering 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 BEARISH PLAYS

Albermarle Corp. - ALB - close: 52.84 change: +0.41

Stop Loss: 53.45
Target(s): To Be Determined
Current Option Gain/Loss: +1.8%
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:
03/31/15: We decided in last night's newsletter that it was time to exit our ALB trade. The plan was to exit this morning. Fortunately ALB gapped open lower at $52.28. The stock continued to rebound and outperformed the broader market with a +0.78% gain by the closing bell.

- Suggested Positions -

Short ALB stock @ $53.25 exit $52.28 (+1.8%)

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

JUN $50 PUT (ALB150619P50) entry $1.75 exit $1.35 (-22.9%)

03/31/15 planned exit
03/30/15 prepare to exit tomorrow morning
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

chart: