Option Investor
Newsletter

Daily Newsletter, Wednesday, 4/8/2015

Table of Contents

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

Market Wrap

Sellers Not Welcome

by Keene Little

Click here to email Keene Little
The day was spent chopping up and down, as it has been doing for days/weeks/months, and it's either consolidating in front of another rally leg or it's getting ready for a solid decline. For now though, any attempt to sell the market is met with a couple more buy programs to shut the sellers down.

Wednesday's Market Stats

Following yesterday afternoon's selloff equity futures chopped sideways/up during the overnight session and we were looking to open marginally positive. "Someone" wanted that marginally-up opening to turn into something more positive and big buy programs hit the market at the open, jamming the indexes back up and retracing yesterday's afternoon decline. But there were no takers following the buy programs and the sellers smacked the market back down. From there the rest of the day was spent chopping up and down, including after this afternoon's FOMC minutes. The message from the market today is that sellers are not welcome to our party but more buyers are needed to follow up on the buy programs.

There were no strong economic reports to move the market and it was essentially quiet in the global markets, which left our market floundering for most of the day. A few quick buy and sell programs without any follow through in either direction left each side hanging and it was apparent the market was waiting to get through the FOMC minutes before making any bets. Unfortunately for traders, there was only a little whipsaw price action following the minutes and then more sideways chop

The minutes provided very little new information and that's what this afternoon's session reflected. Fed officials acknowledged the weak economics for the year so far and the risks from overseas weakness. But they agreed there were enough signs of strength (really?) to start laying the groundwork for raising rates later this year. The minutes left the door open to a rate hike in June and of course that's what the market doesn't want to hear. Several officials wanted to be on record about their expectations for better economic data in the months ahead and that it will warrant a rate increase sooner rather than later.

The first thing to remember is that these well-educated economists can't forecast worth stinky pooh. They consistently get forecasts wrong so I'm not sure why the market pays so much attention to them. They are always wrong, 100% of the time. They're far worse than the weather forecasters. Nevertheless, most of them agreed the economy had improved enough to allow the Fed to shift gears and start forward into a rate-hiking mode. All I can say is they must be looking at different economic indicators than I'm looking at.

What most market participants are starting to realize is how impotent the Fed is but they're still willing to give them the benefit of the doubt. The problem for the Fed is that they're trapped and other than jawboning the market into believing rates could increase this year, there's very little likelihood that they will. The consequences of a rate increase, as small as it would be at the start, would be too difficult for debt-burdened governments, especially the Federal government. Just a 1% increase in rates on Treasuries would cost the government close to $200B annually. If rates were near the historical average of 5% we (the taxpayers) would have to come up with nearly a trillion dollars every year just to pay the interest. How are we going to be able to do that?

Of course the Federal Reserve can, and will, simply create more money to pay the higher debt interest. But one has to wonder how long that can continue. We all know what happens when you borrow money (and creating new money is essentially borrowing it from the future) to pay your interest on existing loans. You better get more income coming in or start talking to a bankruptcy lawyer. We're already starting to hear plans from other countries (many European and Canada too) how they'll take money from savers as an emergency measure to protect the financial system and pay the government's debt.

The U.S. will likely be right behind them in deciding to do the same thing. The government could instantly take all 401k retirement accounts and convert the money into Treasury IOUs. It used to be only tinfoil-hat wearers that talked of such conspiracy idea but they're becoming more popular ideas and we've already seen how well it worked in Greece (for the government, not the peoples' savings). There's a reason why so many have been looking to invest in more stable countries (New Zealand, Singapore, even Panama and others) and convert cash to other assets (farm land, precious metals, etc.).

So the Fed is trapped in this debt spiral and raising rates would only exacerbate the problem. They can jawbone all they want but the reality is the market is in control and the only way rates will be raised is when the bond market says "enough!" When risk becomes too high for the measly return it will demand higher rates and that's when the Fed will be forced to follow. It's the way it's always been -- the Fed is a follower in rates, not a leader. Interesting times we are currently going through.

As for the stock market, I'll start off with a look at SPX since it continues to be one of the better proxies for the broader market (it and the Wilshire 5000 index typically look very similar.

SPX has been holding its uptrend line from March 2009 - October 2011 after only briefly breaking it last October (but closed on the line for the weekly closing price). The line is currently near 2052 (log price scale) so as long as it holds, especially on a weekly closing basis, the bulls remain in charge. Traders have clearly respected this trend line and therefore it's very important for the bulls to defend. I show the potential for another rally leg into May (there's an important time cycle that completes May 13th and currently fits well with the idea for one more rally to finish a rising wedge pattern off last October's low). But the bears could have a trick up their sleeve and surprise the market with a strong move down, especially if it drops below 2045. You can see subtle evidence of a rounding top since last November-December and the bearish divergence warns bulls not to get too comfortable here.

S&P 500, SPX, Weekly chart

There are two ways to interpret the price action since the February 25th high, one of course being bullish and the other bearish. The bullish pattern is a sideways triangle as a bullish continuation pattern, which is shown on the daily chart below. This is shown more clearly on the 60-min chart further below and what I'm expecting for the bullish scenario (green path) is one more leg down inside the triangle to finish it. A drop back down to the 2052 area would be a good setup to try the long side since the stop on the play can be kept relatively close at 2045. The bullish interpretation of the rising wedge pattern off last October's low calls for one more leg up and the upside target would be 2160-2170 by mid-May.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2115
- bearish below 2045

The bearish interpretation of the pattern since February 25th (red path) is that it's not a sideways triangle that's playing out but is instead a 1-2, 1-2 wave count to the downside. The next leg down would be a 3rd of the 3rd wave and that calls for a very strong decline to follow the current bounce. This is why stops on a long play can't be much below 2045 -- there won't be a second chance to get out if that level breaks.

From a short-term perspective, shown on the 60-min chart below, it's not clear whether or not we're going to get one more minor new high before starting a pullback/decline or simply start back down on Thursday and into Friday. A push higher to about 2097, where the 5th wave of the move up from April 1st would equal the 1st wave, is possible Thursday morning but it's equally possible we'll see a drop back down from here. Assuming we'll see a drop back down to the bottom of the sideways triangle, the bullish interpretation suggests getting long there for the start of the next major rally leg. This interpretation is supported by the fact that opex weeks tend to be bullish. On the flip side, when opex is not bullish it tends to be very bearish and a 3rd of a 3rd wave decline would certainly be viewed as very bearish, in which case I would expect to see the December-January lows, near 1988, tested before the end next week. Because price action has been so choppy it's hard to get a bead on this thing and therefore the key levels are wider than I like -- bullish above 2100, bearish below 2045.

S&P 500, SPX, 60-min chart

The DOW has the same pattern as SPX except its triangle off its March 2nd high can be viewed as more of a descending triangle (flat bottom, lower highs) and like SPX it too would look more complete with another leg down to the bottom of the triangle, near 17600, before setting up the next rally leg into May. The upside target for its rally would be near 18500. But the bearish pattern is still a good possibility and it calls for the start of a strong decline from here (or slightly higher) and instead of a new high into mid-May we could see a test of price-level support near 16500 by then. The potential following the month-long consolidation is for a big move (about 1000 DOW points) and the only question, still, is what direction it will be. I'm still waiting for the snow to settle down before I can tell what my crystal ball is telling me (6 more weeks of winter?).

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 18,206
- bearish below 17,579

NDX has been fighting to hold onto its uptrend line from October-February, as well as trying to get back above its 20-dma, both near 4364, and today it close above both. So that keeps the bulls in control for now and it's possible we'll see a new rally leg continue from here. But it's possible the bounce off the sharp drop down into the March 26th low is going to be just an a-b-c correction to the decline and then continue lower. Two equal legs up from March 26th points to 4387.29 so a rally above that level would be more bullish but in the meantime stay aware of the possibility this could be followed by the start of a more serious decline. If the triangle patterns for the DOW and SPX are correct, NDX has a similar triangle but more of a bullish descending wedge, which again would look best with one more drop back down to complete it. Only if it gets below the wedge, near 4270, and stays below it would we have better proof the bearish pattern is the correct one. Above 4436 (78.6% retracement of its March 20-26 decline) would confirm the new rally is underway.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4436
- bearish below 4260

The RUT has been acting a little weaker than the other indexes in the past few days although today it was relatively stronger again. As for its price pattern, it's been in a different one than the others and it's not clear yet whether it will continue to lead to the upside (if there's to be more upside) or instead lead to the downside. There's a possible rising wedge pattern for its rally from October, like the others, and we could see a rally to 1280 next week, if not 1300. But with the bounce off the March 26th low not yet having taken out its March 24th high there is the potential for a stronger decline to kick in at any time. I'd be a worried bull if the RUT drops below its April 1st low at 1239.60 and I'd turn bearish below the March 26th low near 1225. Cautiously bullish until then.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1268
- bearish below 1225

One of the reasons I suggest caution for bulls right here is because of the short-term rising wedge pattern for the bounce off the March 26th low. It fits as either a bounce correction to the March 23-26 decline or as the final 5th wave of its longer-term rally. In either case, if the rising wedge is the correct interpretation (and the bearish divergence suggests it is) then we'll see a fast retracement of it. That would mean back down to the March 26th low at 1225 in only a couple of days. That would not necessarily be a bull killer until it gets below 1220 because a sharp drop back down could be a c-wave of an a-b-c pullback from March 23rd and two equal legs down would be above 1220. But I wanted to show the 60-min chart to point out the potentially bearish setup for Thursday-Friday.

Russell-2000, RUT, 60-min chart

With the potential for the RUT to either top out sooner than the other indexes or lead to the downside, it fits with what I'm seeing when I look at a chart of the RUT's relative strength (RS) to SPX. The weekly chart below shows the RS "price" pushed above the top of the Bollinger Band and has been pushing it higher over the past month. That's usually a good sign of an exhaustion move and a return to at least the midline (20-week MA in this case) can be expected. For the RUT that would mean either a reluctance to move much higher with the other indexes or a stronger decline in a broader market decline. As our canary stock it's going to be important to watch the RUT carefully over the next week.

Relative Strength of RUT vs. SPX, Weekly chart

The TRAN is skating on thin ice here and it needs to rally now or else it's going to attract the bears. Last Thursday it broke below its 200-dma and then on Monday it broke its uptrend line from November 2012 - October 2014 and the bottom of its consolidation pattern that it's been in since December. Today's bounce brought it back up to its 200-dma for what is so far just a back-test. Further selling and a break below Monday's low at 8527 would leave a bearish kiss goodbye and confirmed breaks of multiple layers of support. That would attract bears like bees to honey. At the moment, from a bullish perspective, Monday's low was a throw-under to complete the consolidation pattern (the typical head-fake break at the end of the pattern) and now we should see a new rally leg kick into gear.

Transportation Index, TRAN, Daily chart

When the U.S. dollar turned down from its March 16th high I thought it was a good setup for the start of a larger multi-month pullback/consolidation. But the sideways triangle that it has formed since the high has me now wondering if we've still got another new high before it will be ready for the multi-month correction. It's holding inside its up-channel for the rally from last year so it stays bullish until it breaks down from there, which would also be a break of its 50-dma near 96.50. That would be the first bearish heads up for the dollar and then below its March 18th low at 94.76 would tell us it's in the larger pullback correction. Interestingly, the dollar has the same setup as the stock market and if the dollar rallies into a mid-May high we could see it up around 105 by then. That would certainly put some pressure on commodities and U.S. international companies (since exports would become more expensive). Notice how MACD on the dollar's daily chart has dropped back down to the zero line, which essentially "resets" it and a turn back up would be a buy signal.

U.S. Dollar contract, DX, Daily chart

Once gold completed a 5-wave move down from January 22 - March 17 I've been looking for a bounce correction to that decline. As shown on the daily chart below, the bounce has so far retraced 50% of the decline, at 1224.70(Monday's high was 1224.50) and it's a 3-wave move. That leaves us with a setup for the start of the next leg down. It's possible we'll see gold bounce a little higher, maybe up to its 200-dma near 1235, but there's a good possibility the bounce correction has now completed. It's not hard to see the H&S continuation pattern that has developed since last November's low and the downside price objective for the pattern points to 975. In past updates where I've been using the weekly chart I've been showing an expected move down to the 1000 area where it would test price-level S/R from 2008-2009 so the H&S pattern, if it completes, supports that kind of move.

Gold continuous contract, GC, Daily chart

Oil dropped more than -6% today before recovering some this afternoon. The drop was blamed on the larger-than-expected buildup in inventories, nearly +11M barrels vs. expectations of +3.3M and a significant jump over the prior week's +4.8M barrels. The inventory buildup is the largest since 2001 and the inventory level is the highest it's been in 80 years. This is increasing the level of concern about what will happen to the price if and when full storage capacity is reached by Memorial Day, which is only two months away. The storage figure does not include oil that is being stored in tankers off the coast or in transit from Alaska. Currently oil is being pumped at its fastest rate in the past 30 years in the U.S. and the hope is that additional refinery capacity will soon be able to draw down some of the crude inventories.

Exacerbating the oil glut problem was the announcement by Saudi Arabia that they increased production in March and they're not expecting to reduce production. It's a well-known secret that Saudi Arabia is trying to shut down the shale producers, especially since they feel the U.S. has reneged on its promise to support the House of Saud. Saudi Arabia feels the current administration is more interested in other countries, such as Iran (Saudi Arabia's arch enemy) than living up to its promise to help protect Saudi Arabia. Interesting geopolitical games being played and oil production is just one piece of the puzzle.

As for oil's price pattern, I continue to track the idea for a rising wedge pattern for the bounce off the March 18th low. If we see a sideways consolidation for a few days it would point to another leg up to test price-level S/R near 58.50 before dropping back down in a larger consolidation pattern. We could get more of a standard a-b-c bounce (red dashed line) following a back-test of its broken downtrend line from last September, currently near 47.60, but the bottom line is traders need to be careful about a choppy price pattern for months to come (selling options above and below 60 and 40, resp., might be the better way to play oil for a while.

Oil continuous contract, CL, Daily chart

Today was a quiet day for economic reports as will be the rest of the week. The market is on its own to react to whatever news comes from overseas.

Economic reports and Summary

The long choppy consolidation that we've been in since late February (actually since November) may soon come to an end. The problem is that there's still no high-odds play right here -- it could literally go either way. The likelihood is that we're looking at a big move coming within the next week, which could trend into a mid-May turn window. For the DOW we could be looking for a 1000-point decline from here or a 1000-point rally from the bottom of its recent consolidation (assuming it first drops down to the bottom of it near 17600).

If we get a new high on Thursday, such as SPX 2097/DOW 18050, it should be followed by a pullback that will either correct the rally from April 1st or drop back down to the bottom of the consolidation patterns. So a new high would be a good setup for a short play since we'll get either a pullback or the start of much more significant decline. If instead the market drops from here and the indexes make it down to the bottom of the recent consolidation patterns then we'd have an opportunity to test the long side for a strong rally into May. For either trade I'd keep stops relatively tight since there might not be much of an opportunity for a 2nd exit.

Tomorrow is the Thursday prior to opex week, which typically sees a head-fake move followed by a trending move into opex. With all the choppy whipsaw moves we're seeing in the market, that will be just one more reason to trade carefully and use good risk management.

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

Helping Machines To See

by James Brown

Click here to email James Brown


NEW BULLISH Plays

Cognex Corp. - CGNX - close: 51.10 change: +0.25

Stop Loss: 49.45
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on April -- at $---.--
Listed on April 08, 2015
Time Frame: Exit PRIOR to earnings in May
Average Daily Volume = 515 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
Shares of CGNX are trading at all-time highs and with good reason. The company has been consistently beating analysts' earnings estimates and guiding higher.

CGNX is in the technology sector. According to the company's marketing materials, "Cognex Corporation designs, develops, manufactures and markets a range of products that incorporate sophisticated machine vision technology that gives them the ability to 'see.' Cognex products include barcode readers, machine vision sensors and machine vision systems that are used in factories, warehouses and distribution centers around the world to guide, gauge, inspect, identify and assure the quality of items during the manufacturing and distribution process. Cognex is the world's leader in the machine vision industry, having shipped more than 1 million vision-based products, representing over $4 billion in cumulative revenue, since the company's founding in 1981. Headquartered in Natick, Massachusetts, USA, Cognex has regional offices and distributors located throughout the Americas, Europe and Asia."

Research is forecasting the machine vision industry to grow more than +12% a year for the next six years. By 2020 the market for this business could be more than $9 billion. CGNX appears to be leading the pack. Looking at the last three quarters they have beaten earnings estimates. Revenues have consistently been in the double-digit growth range. The company has raised their guidance twice. In their last quarter gross margins hit 75%. The biggest customer is Apple (AAPL).

In CGNX's earnings report Dr. Robert Shillman, Chairman of Cognex commented on their results saying, "2014 was a fabulous year for Cognex! We reported the highest annual revenue, net income and earnings per share in our 34-year history. In addition, operating margin expanded to 30% driven by the substantial leverage in our business model. That level is a dramatic increase over the 24% reported for 2013 and was achieved despite the significant investments that we made in sales and engineering during the year."

CGNX guided Q1 above Wall Street estimates. They expect strong revenue growth year-on-year and gross margins in the mid 70% range.

Technically shares of CGNX just recently broke out above round-number resistance at $50.00. The point & figure chart is very bullish and forecasting a long-term target at $79.00. Traders quickly bought the dip today. Tonight I am suggesting a trigger to open bullish positions at $51.35.

Trigger @ $51.35

- Suggested Positions -

Buy CGNX stock @ (trigger)

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

Buy the MAY $50 CALL (CGNX150515C50) current ask $3.10
option price is a current quote and not a suggested entry price.

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

Daily Chart:



In Play Updates and Reviews

Biotechs Spring To Life

by James Brown

Click here to email James Brown

Editor's Note:
Biotech stocks were some of the market's best performers today. This fueled gains in the NASDAQ composite and the small cap Russell 2000 index. Meanwhile investors were adjusting to a bounce in the U.S. dollar and a reversal lower in crude oil.

ZEUS hit our bearish trigger.


Current Portfolio:


BULLISH Play Updates

Allegion Plc. - ALLE - close: 61.69 change: +0.12

Stop Loss: 59.75
Target(s): To Be Determined
Current Option Gain/Loss: -0.7%
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:
04/08/15: ALLE is still quietly consolidating sideways albeit with a slightly bullish trend of higher lows.

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: 53.90 change: +3.12

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:
04/08/15: Wow! The last couple of days in IMKTA have been pretty volatile. Shares completely erased yesterday's losses with a big +6.1% bounce. This is a new high.

I'm not suggesting new positions at the moment.

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: 43.90 change: +0.32

Stop Loss: 40.35
Target(s): To Be Determined
Current Option Gain/Loss: +3.7%
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:
04/08/15: It doesn't look like much but PBH managed to outperform the S&P 500 with a +0.73% gain. The path of least resistance is higher but I would not launch 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


Providence Service Corp. - PRSC - close: 51.26 change: -0.15

Stop Loss: 49.85
Target(s): To Be Determined
Current Option Gain/Loss: -2.4%
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:
04/08/15: Hmm... we may want to consider an early exit here. PRSC underperformed the market with a -0.29% decline. If the market is weak tomorrow I would expect PRSC to dip toward the $50.00 mark. 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: 20.42 change: +0.10

Stop Loss: 19.20
Target(s): To Be Determined
Current Option Gain/Loss: -1.9%
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:
04/08/15: STLD is still struggling with technical resistance at its simple 200-dma. On the plus side traders did buy the dip near the $20.00 level.

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: 29.66 change: +1.14

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:
04/08/15: Chinese stocks displayed strength today. The Shanghai index posted a +0.84% gain to close near multi-year highs. Yet the Hong Kong Hang Seng index soared +3.8% after being closed for a three-day holiday. The Hang Seng ended the session at seven-year highs. This strength translated into big moves for Chinese ADRs traded here in the United States.

VIPS soared +3.99% and briefly traded above resistance at $30.00 but the intraday high was only $30.10. Our suggested entry point is $30.15.

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: 19.54 change: +0.50

Stop Loss: 18.45
Target(s): To Be Determined
Current Option Gain/Loss: +2.8%
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:
04/08/15: It was a good day for WWWW bulls. The stock bounced off the $19.00 level and rallied towards technical resistance at its simple 200-dma (currently near $19.68). Shares outperformed the market with a +2.6% gain.

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: 52.58 change: -0.39

Stop Loss: 56.15
Target(s): To Be Determined
Current Option Gain/Loss: +0.7%
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:
04/08/15: STRA continues to sink and hit new relative lows. Shares underperformed the broader market with a -0.73% decline. 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


Olympic Steel Inc. - ZEUS - close: 12.33 change: -0.35

Stop Loss: 13.55
Target(s): To Be Determined
Current Option Gain/Loss: +1.0%
Entry on April 08 at $12.45
Listed on April 07, 2015
Time Frame: 3 to 4 weeks
Average Daily Volume = 56 thousand
New Positions: see below

Comments:
04/08/15: Our new bearish play on ZEUS is off to a good start. Shares continued to sink and underperformed the market with a -2.76% decline. Our trigger to launch positions was hit at $12.45. I want to remind readers that this is a higher-risk, more aggressive trade.

Trade Description: April 7, 2015:
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.

*small positions to limit risk* - Suggested Positions -

Short ZEUS stock @ $12.45

04/08/15 triggered @ $12.45