Option Investor
Newsletter

Daily Newsletter, Tuesday, 4/7/2015

Table of Contents

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

Market Wrap

Troubling Signs

by Jim Brown

Click here to email Jim Brown

The decline today was led by the Russell 2000, S&P Small Cap 600 and the S&P Midcap 400. These indexes rolled over around 12:30 and selling increased as the day progressed. For weeks we have been warning that the small caps were the strongest indexes because of no dollar exposure and when they weakened there could be trouble ahead.

Market Statistics

It was not that the dollar suddenly turned around and began falling and making small caps became less desirable. The dollar index rallied +1.2% today to rebound from prior support at 96.25 and the 50-day average. The ECB said it was able to buy all of its 60 billion euro QE target for March. This pushed the euro currency lower and lifted the dollar.

I suspect this is more signs of a tired market rather than a specific headline pushing stocks lower. Stocks have been chopping around at these levels for the last four months as represented by the Dow. When momentum fades the average investors begins wondering if the next move is going to be lower and they take action to protect their portfolios.



The weak jobs report is probably still weighing on the market. The bad news was good news if you want the rate hikes to be pushed farther out into the future but it was still bad news. The Atlanta Fed real time GDPNow forecast is still for only +0.1% GDP growth in Q1. While everyone wants to blame the weather the weak jobs numbers in a month that was not really impacted by weather suggests the economy may be slowing. This is a challenge for portfolio managers.


The Job Openings and Labor Turnover Survey (JOLTS) released today showed job openings rose +3.5% for February. However, we already knew that since the February jobs report showed a gain of +264,000 jobs, but revised down from +295,000 last Friday. That was still a good month.

The JOLTS survey showed that job openings rose from 4.965 million to 5.133 million in February. However, hiring declined for the second month from 4.994 million to 4.916 million. December hiring was much higher at 5.239 million.

If you have been paying attention to the monthly payroll numbers you know that this JOLTS data is a lagging indicator. The market ignored the news.

Outstanding consumer credit in February rose from $10.8 billion to $15.5 billion. Revolving credit declined sharply with a -$3.9 billion drop and the second consecutive monthly decline. Now you know where those gasoline savings are going. Tax refunds are also used to pay down that credit card debt. The nonrevolving segment soared from $11.8 to $19.2 billion thanks to the largest rate of auto sales since the recession.

The biggest report of the week will be tomorrow with the FOMC minutes. These minutes will be crucial since this was the meeting where they removed the word "patient" from the statement. Clues will be sought on the odds for a June rate hike.

The rest of the week is pretty dull as for as economics are concerned. With earnings due to start next week we need to be more worried about any additional earnings warnings for this cycle.


FedEx (FDX) started off with a bang when it announced it was spending $4.8 billion to buy Dutch rival TNT Express (TNTEY). TNT operates in Europe and 70% of its shipments are ground based. This will allow FedEx to better compete with UPS in Europe. The deal works out to $8.75 per TNT share or a 33% premium to Monday's closing price. FDX shares also rallied on the news.

Two years ago UPS tried to buy TNT but had to back out due to objections by European regulators. The FedEx CEO said there would be significant synergies in the transaction and allow them to consolidate duplicate operations.



Axalta Coating (AXTA) shares rallied +10% to $31.11 on news that Warren Buffett increased his stake in the company by acquiring 20 million shares from Carlyle for $28 each. This increases Buffett's stake in Axalta to 9% or $560 million. Axalta is a 145-year old seller of coatings for cars, SUVs and commercial vehicles. Buffett has been aggressively adding to his automobile portfolio and this fits right into the mix. In October Buffett bought nationwide dealership chain Van Tuyl for an undisclosed amount. Van Tuyl has $9 billion a year in vehicle sales making it Buffett's 9th largest subsidiary. He also owns Lubrizol, an automotive lubricant, which he acquired for $9 billion in 2011.

Carlyle bought Axalta from DuPont in 2013 for $4.9 billion and then took the company public by selling 50 million shares for $19.50 each. Buffett's increased position size suggests we could see him buy the entire company if the earnings performance continues. Axalta has a $6.5 billion market cap and Buffett now owns just under 10%. I would buy this stock on any material dip. You can bet Buffett will be adding to his position at the same time.


AthenaHealth (ATHN) declined -5% to $116 after hedge fund manager David Einhorn reiterated his sell rating on the company. Einhorn has a significant short position on the company. He recommended shorting ATHN at the Sohn Investment Conference nearly a year ago. He said it was one of a basket of bubble stocks he was shorting. Shares have been relatively flat since the short call last May.


Twitter (TWTR) shares jumped on rumors of a possible takeover play in the near future. Google (GOOGL) was the rumored acquirer. Google is getting killed in the social networking field after Google Plus flopped. Analysts claim Google Circles is dead. There was a rumor that Twitter has hired advisers to rebuff a takeover bid from two companies. Twitter options were very active on Tuesday with more than 250,000 contracts trading. Call options beat puts 3:1.

Dan Niles from AlphaOne also made news saying he had bought Twitter shares after being short for a long time. He said the new search contract with Google plus the new Periscope feature would aid in bringing more people into the twittersphere.

Apple (AAPL) could also be a potential acquirer and Twitter's $33 billion market cap would not be a problem since it has $178 billion in cash. Apple does not have a real social media product. There were even some rumors Facebook (FB) might be interested in order to round out its product line. Twitter users are a different segment of the population than Facebook users so the company could fill a niche that it doesn't currently have.

Twitter acquisition rumors come around about once a quarter but this time there is a little more strength behind the rumors. Who knows, maybe Twitter is about to get some new management the hard way.


Shire Plc (SHPG) said it had reached an agreement with the FDA on a clear regulatory path for SHP465. This is an investigational oral stimulant medication being evaluated as a potential treatment for ADHD in adults. Shire has agreed to do a short term study in pediatric patients with ADHD ages 6-17. Shire plans to market the drug for adults but the FDA requested the additional pediatric data to better understand the benefits in the event the drug is approved for this segment as well. Shire has patent protection for its multiple ADHD drug franchise that extends to 2029. SHP465 is expected to be available to the market in 2017.


Starbucks (SBUX) announced it was going to give eligible employees a full ride four year scholarship. The catch is that they have to work a minimum of 20 hours a week and take the online program from Arizona State University. The company has set aside $250 million and will reimburse the tuition for the full four years. In the current program they only reimburse the last two years of tuition while freshmen and sophomores could only get a partial reimbursement.

Out of the 144,000 employees only 2,000 are enrolled in the current program. Starbucks believes it can attract a better class of worker and encourage existing workers to get a degree by expanding the program to cover all four years. Tuition costs will be reimbursed at the end of each semester. The company wants to help 25,000 employees graduate by 2025. ASU offers 49 undergraduate programs for the program and there is no requirement to continue working for Starbucks after graduating.


Energy company Royal Dutch Shell (RDS.A) said it wa sin talks to buy BG Group (BRGYY) for roughly $68 billion. BG Group is heavily involved in natural gas and LNG. This deal would give Shell access to significant oil and gas reserves as well as existing production and LNG assets around the world. Shell would gain a large position in the deepwater reserves offshore Brazil and the unconventional gas in Australia. BG is one of the world's largest producers and traders of LNG and when combined with Shell the entity will dominate LNG on a global scale. BG recently completed a $20 billion LNG project in Australia. BG Group shares gained +6% on the news. This makes me wonder if all the news is accurate since BG Group only has a market cap of $46 billion. A $20 premium would be a monster premium and worth more than a 5% spike. No deal has been done but I would have expected a bigger gain. After checking again the first news broke at 4:30 PM so the spike may come tomorrow.


Railcar manufacturer Greenbrier (GBX) reported earnings of $1.57 compared to estimates for $1.23. Revenue rose +23% to $630.1 million but missed estimates of $637 million. I suspect nobody will care about the revenue miss. The company now expects to earn $5.65-$5.95 for the full year, up from $5.20-$5.50. They expect to deliver 21,500 railcars in 2015 with a gross margin of 19.9%. They delivered 5,200 in Q1, up from 4,000 in the November quarter. Shares spiked +6% on the news but faded to a +3% gain as market selling accelerated near the close.


Crude oil rallied +3% in regular trading to close at $53.86 and the highest close of the year. Bullish sentiment for crude is increasing as we move closer to the Memorial Day kickoff for the summer driving season. Even though inventories are still increasing the crack spread is also increasing and that means enormous profits for refiners. Refining margins in March rose to $28.09 a barrel and the most since March 2013. This is a huge profit and it means refiners will be racing to refine that oil they have stockpiled at very low prices. As oil prices rise their profits will increase because they have full tanks that they bought over the last several months at prices in the mid to low $40s.

Historically refiners increase their consumption of crude by an average of 1.1 million barrels per day from April through July. I would expect it to be even higher this year as the race to capitalize on this profit opportunity. Ironically shares in the major refiners are plunging because retail investors don't realize how profitable this scenario really is.


Markets

While nobody knows why the market was weak this afternoon there is a trend that nobody is talking about. Bearish puts on the S&P-500 outnumber calls by the most since October 2008. Obviously market sentiment is far from bullish. There could be several reasons for this. The sharp decline in the economic numbers over the last two months has worried portfolio managers so they are protecting their positions with puts rather than sell the stocks. Economic data is missing forecasts by the most in six years. The ISM Manufacturing Index declined to 51.5 in March and the fifth consecutive decline. This is the longest streak of declines since 2008.

Secondly, traders may be speculating on the sell in May cycle that will hit in a couple weeks. Third, with earnings expected to be so negative speculators are loading up on puts to profit from any decline. Lastly, the lack of forward motion for the last four months may have convinced many investors that the next major move is going to be lower. If you remember the quarter end numbers the Dow and S&P were flat for Q1 and the Nasdaq and Russell 2000 only gained about +3.5% YTD. Momentum has died. Dan Niles said today he expects a 10-20% correction this summer.

Analysts are speculating this week that the market is listless because companies are in their quiet period before earnings and can't buy back stock until after they report. Stock buybacks have been a major factor in market movement over the last year because they shrink the float. Companies are returning cash to shareholders through monster buyback programs. As an example Qualcomm (QCOM) recently announced a $15 billion buyback.

We have also seen a record $500 billion in new corporate bonds issued in Q1. That is the most ever and some of that cash will be used to buy back stock but not until after earnings. It will also be used for mergers and acquisitions but that is a longer process.

Market volume was very weak today at only 5.6 billion shares. Volume on the S&P-500 ETF (SPY) was only 81 million shares compared to the normal 115 million on average. There are no catalysts to drive the market higher and recently the only major up moves we have seen have been short squeezes. The shorts are very active but so far they have been relatively unsuccessful.

The S&P has been stuck in a tight range for the last two weeks between 2050 and 2090. Today was no exception with the high at 2089.91. That is about as close as you can get to 2090 without touching it. The 100-day average has risen to 2060 and that was just about where the index rebounded on Monday's market drop at the open. So far the 150-day average now at 2030 has not been touched since January.


The Dow only lost -5 points for the day but closed -108 points off its intraday high. That is not a good sign. Apple was the biggest loser again along with American Express (AXP) after being downgraded to a sell at Oppenheimer. Decent gains in Boeing and the oil stocks were holding the index to a minor loss.

Despite the negative close the Dow is still at the upper end of its range over the last several days. The support at 17,620 is still intact but the index feels heavy. That probably means it will confound the charts and move higher but the resistance at 18,000 is still strong. The high today was 17,983 so close but not quite enough. Sellers were waiting.

The key levels are going to be 17,620 and 18,000 and everything in the middle is just noise.



The Dow Transports posted a gain on Tuesday thanks to FedEx. With oil prices rising and economic declining I seriously doubt the gain will last. The transports are clinging to the critical support at 8600 and once that breaks it could be a long drop. This is key because the movement in the transports rubs off on the Dow. Any material decline here could drag the Dow lower.


On the Nasdaq the resistance at 4950 was rock solid with the high for the day at 4948.88. Fortunately the support at 4850 is equally as strong. The tech stocks are still suffering from the same ailment as the Dow. The big caps are going to have terrible earnings because of the strength in the dollar.

To take a phrase from Star Wars, "Move along, nothing to see here."



Despite the Russell 2000 leading the decline today it is still the strongest index. The moment that is no longer the case we should be moving to the sidelines. Whether today was just fund manager profit taking from the rebound since January of the leading edge of something bigger we will not know until tomorrow. However, Russell futures are slightly negative tonight while the Dow, Nasdaq and S&P futures are slightly positive. Is that a clue for tomorrow?


I would remain cautious for the rest of the week. While we might get an afternoon bounce out of the FOMC minutes on Wednesday there is an equal chance they could send us lower. The markets have lost momentum and without a catalyst the path of least resistance is lower.

Analyst comments on earnings are improving. While S&P earnings are expected to decline -3% for Q1 the majority of that is a -63% decline in energy. If you take out energy we actually get +4% growth. If that metric gets repeated enough it could boost sentiment and attract some buyers. I know that is a big IF but it is all we have to hope for today.

Enter passively, exit aggressively!

Jim Brown

Send Jim an email

 

 


New Plays

Bearish Momentum

by James Brown

Click here to email James Brown


NEW BEARISH Plays

Olympic Steel Inc. - ZEUS - close: 12.68 change: -0.74

Stop Loss: 13.55
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on April -- at $---.--
Listed on April 07, 2015
Time Frame: 3 to 4 weeks
Average Daily Volume = 56 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
We are adding ZEUS to the newsletter as a momentum trade. You could also consider it a hedge against our STLD trade, which hasn't really panned out as expected.

If you're not familiar with ZEUS, here's a brief description: "Founded in 1954, Olympic Steel is a leading U.S. metals service center focused on the direct sale and distribution of large volumes of processed carbon, coated and stainless flat-rolled sheet, coil and plate steel and aluminum products. The Company's CTI subsidiary is a leading distributor of steel tubing, bar, pipe, valves and fittings, and fabricates pressure parts for the electric utility industry. Headquartered in Cleveland, Ohio, Olympic Steel operates from 35 facilities in North America."

The steel industry has been really struggling with a flood of cheaper imports. We saw three major steel companies, STLD, NUE, and AKS, all lower guidance in March. The biggest complaint was a surge in imports, which has continued into 2015. The good news is that imports are slowing down because the glut of supply has driven prices lower. The bad news is that steel prices have been crushed.

Shares of ZEUS have been in a bear market for about a year. The earnings picture has not helped with ZEUS missing Wall Street's bottom line earnings estimates the last four quarters in a row.

Steel companies are hoping for the price of steel to find a bottom in the May-June time period. A couple of the companies listed above have suggested that the second half of 2015 will be better. That might just be wishful thinking. The economic slowdown in the first quarter of 2015 doesn't bode well for basic material companies.

Meanwhile the path of least resistance for ZEUS is lower. The point & figure chart is bearish and forecasting at $10.00 target. Today we saw ZEUS breakdown under support near $13.00 on double its average volume.

I consider this a higher-risk, more aggressive trade because ZEUS is not very liquid. The daily volume is exceptionally low. Plus, the options are not tradable because the spreads are too wide. I'm suggesting small bearish positions if ZEUS trades at $12.45 or lower. We're not setting a target tonight but I'd aim for the $10.00 area.

Trigger @ $12.45 *small positions to limit risk*

- Suggested Positions -

Short ZEUS stock @ $12.45

Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $0.50 past our suggested entry point.

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Widespread Afternoon Weakness

by James Brown

Click here to email James Brown

Editor's Note:
The major U.S. indices all produced a widespread decline this afternoon. Another rally in crude oil helped energy stocks buck the trend.

STRA hit our bearish entry point.


Current Portfolio:


BULLISH Play Updates

Allegion Plc. - ALLE - close: 61.57 change: -0.08

Stop Loss: 59.75
Target(s): To Be Determined
Current Option Gain/Loss: -0.9%
Entry on April 06 at $62.10
Listed on March 30, 2015
Time Frame: Exit prior to earnings (late April - early May)
Average Daily Volume = 674 thousand
New Positions: see below

Comments:
04/07/15: Tuesday proved to be a quiet day for ALLE with shares trading inside a 50-cent range. I am suggesting a rally to $62.20 as our next entry point.

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.

- Suggested Positions -

Long ALLE stock @ $62.10

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

Long MAY $65 CALL (ALLE150515C65) entry $1.00

04/06/15 triggered @ 62.10
Option Format: symbol-year-month-day-call-strike


Ingles Market, Inc. - IMKTA - close: 50.78 change: -2.32

Stop Loss: 49.75
Target(s): To Be Determined
Current Option Gain/Loss: -3.0%
Entry on April 06 at $52.35
Listed on April 04, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 159 thousand
New Positions: see below

Comments:
04/07/15: Ouch! IMKTA was hit with some profit taking today. The stock fell -4.3% and erased the last two days worth of gains. Shares should find support near $50.00. If not we'll see IMKTA hit our stop at $49.75. Nimble traders could buy a bounce from the $50.00 level.

Trade Description: April 4, 2015:
Fifty years of sales growth. If you don't live in the South Eastern U.S. you may not be familiar with IMKTA. The company is in the services sector. They're part of the grocery store industry. Last year (2014) was the company's 50th consecutive year of sales growth.

Here is how the company describes itself: "Ingles Markets, Incorporated is a leading supermarket chain with operations in six southeastern states. Headquartered in Asheville, North Carolina, the Company operates 202 supermarkets. In conjunction with its supermarket operations, the Company operates neighborhood shopping centers, most of which contain an Ingles supermarket. The Company also owns a fluid dairy facility that supplies Company supermarkets and unaffiliated customers."

IMKTA reported their Q4 2014 results on December 8th. Quarterly revenues were up +1.7% but earnings per shares soared +16%. Revenues for the whole year hit $3.84 billion. Earnings for all of last year grew +15%.

The streak of earnings growth continued in the first quarter of 2015. IMKTA reported results on February 6th. Revenues were up +1.8%, above estimates. Earnings per share exploded with a +75% improvement over a year ago. Comparable sales were up +2.3% with their average transaction up +3.1%. Analysts are forecasting +20% earnings growth in 2015.

Technically the stock looks bullish and trading at all-time highs. The $50.00 area was round-number resistance but now that IMKTA has broken out the $50 mark should be new support. The point & figure chart is very bullish and forecasting a long-term target of $99.00.

I am concerned that IMKTA does not trade a lot of volume. It's average volume is only 159,000 shares a day. The big drop in January came out of nowhere and snapped a run of seven up weeks in a row. Tonight we are suggesting a trigger to open bullish positions at $52.35. Keep positions small to limit risk.

*small positions* - Suggested Positions -

Long IMKTA stock @ $52.35

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

Long AUG $55 CALL (IMKTA150821C55) entry $3.50

04/06/15 triggered @ 52.35
Option Format: symbol-year-month-day-call-strike


Prestige Brands Holdings - PBH - close: 43.58 change: -0.01

Stop Loss: 40.35
Target(s): To Be Determined
Current Option Gain/Loss: +2.9%
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:
04/07/15: PBH briefly traded to a new high but quickly reversed. Shares eventually closed virtually unchanged on the session. I would not be surprised to see PBH retest its 10-dma near $42.75. Look for a dip there before considering 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


Providence Service Corp. - PRSC - close: 51.41 change: -1.42

Stop Loss: 49.85
Target(s): To Be Determined
Current Option Gain/Loss: -2.1%
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:
04/07/15: It was an ugly day for PRSC with a -2.6% decline. Furthermore today's move has created a bearish engulfing candlestick reversal pattern. This is definitely a warning signal for traders. I'm not suggesting new positions.

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: 20.32 change: +0.30

Stop Loss: 19.20
Target(s): To Be Determined
Current Option Gain/Loss: -2.4%
Entry on March 24 at $20.81
Listed on March 21, 2015
Time Frame: Exit prior to earnings on April 20th
Average Daily Volume = 3.6 million
New Positions: see below

Comments:
04/07/15: The choppiness in STLD continues but today shares are up +1.47%. The stock failed beneath its simple 200-dma again.

No 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


Vipshop Holdings - VIPS - close: 28.52 change: -0.70

Stop Loss: 27.45
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on April -- at $---.--
Listed on April 01, 2015
Time Frame: 8 to 12 weeks (option traders, exit prior to expiration)
Average Daily Volume = 6.3 million
New Positions: Yes, see below

Comments:
04/07/15: VIPS was down sharply today with a -2.39% decline. The close beneath its simple 10-dma is definitely short-term bearish. If VIPS doesn't show some improvement tomorrow we will likely remove it as a candidate.

Trade Description: April 1, 2015:
The main Chinese stock market has broken out to multi-year highs. This has provided fertile ground for shares of VIPS to grow. The company is an online retailer that specializes in flash sales of female-oriented products.

According to the company, "Vipshop Holdings Limited is China's leading online discount retailer for brands. Vipshop offers high quality and popular branded products to consumers throughout China at a significant discount to retail prices. Since it was founded in August 2008, the Company has rapidly built a sizeable and growing base of customers and brand partners."

Earnings have been strong. Looking at the last four quarterly report VIPS has beaten Wall Street estimates and raised guidance four quarters in a row. We're talking triple-digit growth for earnings and revenues.

VIPS' most recent report was its Q4 results on February 17th. Earnings were 12 cents a share, which was actually two cents below expectations. However, revenues soared +109% to $1.36 billion. Gross margins improved from 24.5% to 24.9%. Active customers grew +114% to 12.2 million (plenty of room to grow).

In their earnings press release Mr. Donghao Yang, chief financial officer of Vipshop, commented, "We are very proud of our fourth quarter financial results, which exceeded our prior expectations. Our progress in mobile, market expansion, along with our long-standing commitment to customers enabled us to further boost both the total net revenue and the net income attributable to our shareholders. During the fourth quarter of 2014, the mobile contribution of our platform reached approximately 66% of our gross merchandise volume. Looking ahead, we are firmly confident that by executing our growth strategies and further investing judiciously in fulfillment, technology and talent, we will be able to further fortify our position as the leading online discount retailer in China and continue delivering a satisfying shopping experience to our growing base of customers."

Management issued bullish guidance again. They see 2015 Q1 revenues in the $1.25-1.30 billion range, which suggest +78% to +85% growth from a year ago. Analysts estimates were at $1.21 billion. You can see how the stock reacted to the news and optimistic guidance.

Chinese stocks got another pop recently when a Chinese official suggested their government might provide even more stimulus. Here's a quote from a recent Bloomberg article, "China has room to act with both interest rates and 'quantitative' measures, People's Bank of China chief Zhou Xiaochuan said in remarks at the Boao Forum for Asia, an annual conference on the southern Chinese island of Hainan. Analysts surveyed by Bloomberg expect the PBOC will lower both benchmark lending rates and banks’ required reserve ratios, adding to cuts made in recent months." Link to the Bloomberg article.

Technically shares of VIPS have broken out past all of its major resistance levels and now it's flirting with a breakout past round-number resistance at $30.00. The point & figure chart is bullish and forecasting at $38.50 target. Tonight we are suggesting a trigger to launch bullish positions at $30.15.

Trigger @ $30.15

- Suggested Positions -

Buy VIPS stock @ (trigger)

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

Buy the MAY $30 CALL (VIPS150515C30)
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


Web.com Group, Inc. - WWWW - close: 19.04 change: -0.17

Stop Loss: 18.45
Target(s): To Be Determined
Current Option Gain/Loss: +0.2%
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:
04/07/15: WWWW's early gains faded. Shares eventually underperformed the market with a -0.88% decline. I'm concerned that if the broader market accelerates lower tomorrow we could see WWWW drop toward $18.50.

No new positions at this time.

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

04/01/15 new stop @ 18.45
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

Strayer Education, Inc. - STRA - close: 52.97 change: -0.86

Stop Loss: 56.15
Target(s): To Be Determined
Current Option Gain/Loss: +0.0%
Entry on April 07 at $52.95
Listed on April 06, 2015
Time Frame: Exit prior STRA's earnings report on May 6th
Average Daily Volume = 124 thousand
New Positions: see below

Comments:
04/07/15: Our new bearish trade on STRA is open. Shares broke down to new relative lows and hit our suggested entry point at $52.95. I would consider new positions at current levels.

Trade Description: April 6, 2015:
The for-profit education stocks have not had a good year. The group is getting crushed. Student enrollments are falling as the labor market improves. Last week we saw the March jobs report was a disaster but the prior 12 months were all above +200,000 jobs a month, the best string of job growth in years. The unemployment rate has fallen to six-year lows. This is reducing the number of potential students for companies like STRA.

STRA was founded back in 1892. According to the company, "Strayer Education, Inc. (Nasdaq: STRA) is an education services holding company that owns Strayer University. Strayer's mission is to make higher education achievable for working adults in today's economy. Strayer University is a proprietary institution of higher learning that offers undergraduate and graduate degree programs in business administration, accounting, information technology, education, health services administration, public administration, and criminal justice to working adult students. Strayer University also offers an executive MBA online and corporate training programs through its Jack Welch Management Institute. The University is committed to providing an education that prepares working adult students for advancement in their careers and professional lives."

Another challenge for the for-profit industry is the U.S. government. Plenty of students are graduating with piles of debt and still can't get a job. Some schools have unusually high dropout rates. The authorities are investigating some schools for predatory enrollment practices. A new challenge is President Obama's proposal to make community college free for everyone, for the first two years. Of course "free" is a relative term since tax payers will be paying for it. No word yet on if or when this proposal gets off the ground but it generates headwinds for the for-profit educators.

STRA has been struggling with falling student enrollments and lower revenue per student. They reported Q4 earnings results on February 6th. STRA's $1.32 per share beat estimates by 14 cents. However, revenues plunged -6.4% to $116.1 million. Their fiscal 2014 earnings were down -7.8% from the prior year. Revenues dropped -11.4% in 2014.

The company is hoping that enrollment trends will turn positive in the first half of 2015 but they don't expect revenues to turn positive until the second half of the year.

Investors are bearish on the stock with short interest at 15% of the very, very small 10.0 million share float. This time the bears are probably right. Technically STRA looks ugly with a clear trend of lower highs and lower lows. You can see the sell-off on its Q4 report in the daily chart. The weakness accelerated in late March. The point & figure chart is bearish and forecasting at $46.00 target.

We are suggesting bearish positions with an entry trigger at $52.95. Investors will want to keep their position size small to limit risk. The small float and the high short interest could make this stock volatile. I suggest the put option, which would limit your risk to the cost of the option.

*small positions to limit risk* - Suggested Positions -

Short STRA stock @ $52.95

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

Long MAY $50 PUT (STRA150515P50) entry $2.25

04/07/15 triggered @ $52.95
Option Format: symbol-year-month-day-call-strike