Option Investor
Newsletter

Daily Newsletter, Monday, 4/13/2015

Table of Contents

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

Market Wrap

A Boost Or A Brick Ceiling

by Thomas Hughes

Click here to email Thomas Hughes
The market faces a tough week of earnings and economic data that could provide a lift for the market, or a brick ceiling.

Introduction

This may be a make or break week for the equity market. We are facing a long list of macro-economic reports as well as a host of telling earnings reports. Depending on which way the wind blows the market could get a boost, or hit a ceiling it can't get past. The week has started off a little lack-luster but the real action won't start until tomorrow.

Asian and European indices were all flirting with new highs today though most closed flat or slightly in the red. Our own indices were indicated marginally lower in the early pre-market session and this held into the opening bell. Once trading began in earnest things were a little different, the indices opened flat to mildly positive. Morning trading maintained a very narrow range with none of the indices moving higher than 0.5% or so.

Market Statistics

There was only one economic report today other than Moody's weekly Survey Of Business Confidence Later this week we can expect reads on inflation, housing, industrial production, consumer sentiment and the future. On the earnings front there were only 8 reports today, none with enough consequence to grab the markets attention. Later this week there are about another 100 reports due, primarily from the banking sector but including a few from the transportation, consumer products, semiconductor and industrial sectors.

During the lunch hour the indices began to retreat. By noon most if not all had at least dipped into the red if not taken the plunge below. From that point forward trading was much like it was in the morning, only reversed. The indices traded in a tight range just below break even with most of them posting less than a -0.5% loss on the day.

Economic Calendar

The Economy

Moody's Survey of Business Confidence remains at record highs. The index reading this week is 44, the second week it has been at this level. In his summary Moody's Economist Mark Zandi remains upbeat on the state of the US economy, adding in that sentiment from international businesses is on the rise. He says …

“Global business sentiment remains near record highs. U.S. businesses are very upbeat, but confidence has improved in recent weeks across the world. The recent slowing in U.S. economic growth is not evident in the survey results. Sales are robust, as is investment and hiring. Credit is widely available, and pricing is sturdy, despite heightened deflation concerns in much of the developed world. “


Treasury Budget figures were released today at 2PM. The expectation was for a widening of deficit to -$44 billion from last months -36.9 billion. The actual was much worse than expected, -$52.9 billion, and may have contributed to today's losses.

Tomorrow look out for retail sales figures from the US Census Bureau along with PPI and business inventories. Wednesday is the Fed's Beige Book as well as long term TIC flows, Empire Manufacturing, Industrial Production, Capacity Utilization and the NAHB housing market index. On Thursday is weekly jobless claims, housing starts, housing permits and the Philly Fed Survey. Friday caps the week with CPI, Michigan Sentiment and the Leading Indicators, a gauge of last months read on how good this month should be.

The data could cause some volatility this week, particularly in the dollar and dollar based commodities. On a piece by piece basis I will not be too worried about any negative surprise unless the sum total changes the economic outlook. I'd like to see firmness if not strength in the manufacturing data, low jobless claims, a sign of the expected spring uptick in the housing sector and at a rise in the LDI.


Factset reported a decline in the expected blended rate for S&P 500 earnings this weekend. The new rate is now -4.8%, down -0.2% from last week, due to declining expectations in the oil patch. So far, 24 S&P companies have reported earnings with 83% beating on earnings growth and 50% beating the blended rate for revenue growth. The expected rate, ex-energy sector, remained steady this week at 1.1%. Chevron and Conoco Phillips are the two biggest contributors to earnings declines expectations so will be of extra importance when they report later this month.

The thing to keep in mind is that over the past four years the S&P has beaten both earnings and revenues expectations by an average of 3.1%. If the four year average is applied to today's expectations there is a strong chance that earnings growth will only decline by -1.7%, and if you take out oil it rises earnings growth to +4.2%. Add in the expected return to growth that is expected in the broad market later this year and the earnings picture brightens a little more. Outlook for 2015 remains just over 2.2% for this calendar year, with a jump to 12.4% for calendar year 2016 on an expected increase in net margins.

The Oil Index

Oil prices were a little choppy today but held above last week's prices. WTI traded above $52 with an early spike to $53 that brought out some profit takers. Brent was equally choppy but held above $58. Other than that there were little in the way of headlines in the energy sector today except for isolated areas of violence.

The Oil Index itself lost nearly -1.25% in today's session and could be confirming resistance. The index made a slight pop in the pre-opening session that caused it to open just above 1,400 and the top of the four month trading range. The indicators are both making a peak and supportive of a possible top. The long term trend is up but the index is more than 7.5% above the trend line at this time, facing a tough earnings season and uncertain oil prices so I think there's a good chance it could remain range bound until earnings are released. BP is scheduled for April 28th, Conoco Phillips and Exxon are scheduled for April 30th, Chevron May 1st .


The Gold Index

Gold prices held steady around $1200 today as the dollar wrestled with the 100 level. The dollar got a little lift in early trading but the DXY appears to be striking resistance. FOMC speak and rate hike speculation are driving the dollar but I think it may remain range bound until a hike actually occurs. If so gold prices could easily see a rise from the $1200 level. Also on tap this week is economic data which is likely to drive Fed speculation, dollar and gold values including both CPI and PPI. I'm in the camp that inflation is only around the corner and will lead, if it isn't already, to long term support for gold prices.

The Dollar Index is showing wicked divergence from both MACD and stochastic while it is testing resistance. The chart does not inspire a lot of confidence but the buy signal remains; MACD and stochastic are both point up. Resistance is just above 100 and could be strong. Economic data will point to either June or September for a rate hike, two scenarios I think priced in by now. Not to mention the fact that both the euro and yen are also both at or very near their respective support/resistance levels and indicative potential reversal.


The Gold Miners ETF GDX lost about -1.0% today but was able to hold above the short term moving average. The ETF is moving higher on a bounce that is looking more and more like it could be the 2nd bottom in a long term double bottom formation. The indicators are currently bullish and showing a weak buy signal with only gold prices and earnings standing in the way. The miners don't really report as a group but will start trickling in next week and into the next. Based on last quarters report the sector has a few things going for it right now. Production levels are on the rise, this quarters average selling price is likely to be higher than it was last time, and low oil prices; all things that will aid the bottom line.


In The News, Story Stocks and Earnings

Earnings. This week its the banks in focus although there are importance reports from Johnson&Johnson, United Health Care and CSX Corporation. The financial sector kicks off tomorrow with Wells Fargo and JPMorgan, both before the bell so expect action in the pre-opening session. The banks are expected to produce earnings growth of 8.2% and if the earnings trends hold true could be as high as11.3% Regardless of what kind of earnings growth they produce now, it will the future expectations, expectations driven by higher interest rates, that will be more important. Of course, a round of bad earnings will not be good.

Today the XLF Financial Services Spyder gained a little over a half percent on an intraday basis and fired a buy signal. The ETF is in a general uptrend, if weak, and is now showing a stochastic cross confirmed by a MACD and moving average crossover. The ETF looks likely to move higher, provided earnings are in line with expectations, with a target between $24.50 and $24.75. If earnings roll out as expected, with positive future outlook, then the sector could move higher. Support on a pull back looks possible around $24 and then $23.50 if it doesn't hold up. Something else to consider is that a the expected uptick in the housing sector will also be a boon to the banks so the economic data may play a big role in whether this sector is able to break above resistance.


Johnson & Johnson also reports tomorrow. The consumer products and health care conglomerate is expected to report before the bell. Analysts are expecting earnings to be flat from last year, around $1.54 ex-items. Important factors to take note of will be impact from strong dollar in overseas markets, an impending increase in competition as generic versions of at least one of its major drugs enter the market and possibilities for merger/acquisitions. Today the stock lost over -1.5% and fell below the short term moving average.


CSX Corporation is also scheduled to report tomorrow and if today's pre-announcement from Norfolk Southern is an indication of the sector then it may a little worse than expected. The rail carrier is expected to report $0.45, slightly below the last quarters $0.49 per share. The decline is largely due to the decline in oil prices and more specifically a decline in shipments from producers. However, I seem to remember hearing several interviews with company CEO's last summer where they, the CEO's of companies with things to ship other than oil, were having a hard time getting their goods to market because the rails were loaded with oil.... my point is that it is possible there is plenty for the rails to carry besides oil. And, if I'm not mistaken, most trains run on diesel which is a lot cheaper than it was last year adding another factor that could help the company beat expectations. Today the stock lost just over -1%, falling from the short term moving average, to create a small doji right at the $35 support line that has been in play since last October.


United Health Group is another important name to watch this week. The hmo and Dow component is expected to report earnings of $1.32, down from the previous quarters $1.54. Regardless of the decline in earnings, and a recent downgrade in the amount Americans are expected to spend on health care, the company has received a couple of notable upgrades in the past few days. Today the stock moved higher, gaining on last week's closing prices, but created a black candle. The stock is approaching the all time high and appears to have some resistance at this level. The indicators are mildly bullish and could lead to a test of the all-time high before earnings are reported on Thursday.


The Indices

The bulls tried to charge out of the gates this Monday morning but earnings fears weighed them down. There is a lot of dread in the market right now and may be presenting us with additional buying opportunities. Today's drop was led by the Dow Jones Transportation Average. The transports lost -0.70% in a move that tested resistance at the 30 day moving average and failed to break it. Today the index created a candle with a long upper shadow, a black body and a close below Friday's open. At face value this is looking a little on the scary side but taken in light of the indicators and the possibilities that lay before us this earnings season may only be temporary. Stochastic is showing a bullish crossover in confirmation of the bottom of the 6 month trading range and MACD is at the zero line now. Together they appear to be forming a buy signal in line with the underlying long term trend with the caveat that important earnings are being released tomorrow. Not only is CSX reporting, so is JBHunt. A surprise pre-announcement warning from Norfolk Southern after the close of trading does not, however, shed positive light on my rail carrier theory.


The S&P 500 made the next biggest loss, about -0.46%. Today's action reached a new three week high before resistance sent it shooting lower. Despite the drop the broad market did not fall below support and is still well above the short term moving average. The indicators are still bullish and in line with a trend following entry but a slight decline in MACD is revealing the markets trepidation ahead of earnings. The index is currently sitting on the support of a previous all-time high with next support about 25 points below that along the short term moving average and the long term trend line. Resistance is the current all time high.


The Dow Jones Industrial Average comes in third today with a loss of -0.45%. The blue chips struggled for most of the day with support at the December all-time high but eventually fell through. It's drop was then halted by the short term moving average. The indicators remain bullish following the strong signal which formed last week. Both stochastic and MACD are on the rise so it looks like the index may be able to make another run at a new all time high.


The NASDAQ Composite made the smallest loss of the day, came the closest to reaching the current 15 year high and appears set to move higher. The index created a small bodied candle with small upper wick today but looks more like a spinning top than anything else. The indicators remain bullish following the strong signal fired off last week so the high looks likely to be tested. If not, or if resistance is enough to repel the bulls support is along the short term moving average and then below that near 4,800 and the long term trend line.


The indices still look like they want to move higher but resistance remains. I think it will remain at least until and if this quarter's earnings trend is set. If things are as bad or worse than feared then we could see a ceiling put in the market that could last until the earnings outlook begins to pick back. If they are better than expected, as I think they will be, then perhaps the market will be able to set a new high. In either event it will be the forward outlook, and the economic data, that drive direction.

Until then, remember the trend!

Thomas Hughes


New Plays

Growing Optimistic

by James Brown

Click here to email James Brown


NEW BULLISH Plays

J.C.Penney Co. - JCP - close: 9.40 change: +0.18

Stop Loss: 8.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on April -- at $---.--
Listed on April 13, 2015
Time Frame: Exit PRIOR to earnings in mid May
Average Daily Volume = 14.2 million
New Positions: Yes, see below

Company Description

Why We Like It:
It's been two years since retail guru Ron Johnson almost killed department store giant JCP. It was April 2013 when the board finally ousted their new CEO and asked the previous CEO to return. It's been a long, slow turnaround but analysts are turning optimistic.

If you're not familiar with the company, "J. C. Penney Company, Inc. (JCP), one of the nation's largest apparel and home furnishing retailers, is dedicated to fitting the diversity of America with unparalleled style, quality and value. Across approximately 1,060 stores and at jcpenney.com, customers will discover a broad assortment of national, private and exclusive brands to fit all shapes, sizes, colors and wallets."

JCP's most recent earnings report was February 26th. The company reported Q4 earnings of $0.00. That was worse than expected but revenues were up +2.9% to $3.89 billion, just a hair above expectations. Q4 comparable store sales were above estimates at +4.4%.

Since this earnings report a couple of analysts have turned bullish on the stock. JPM recently raised their price target from $8 to $10. An analyst with Piper Jaffray made waves when they raised their price target from $13 to $14. Wall Street is hopeful that now spring is here the weather will not hamper consumer spending. These price target upgrades have helped spark some short covering.

Technically JCP has broken through resistance near its 200-dma, the $8.50 area and its February high. The most recent data listed short interest at 33% of the 291.7 million share float. That's plenty of fuel for another short squeeze higher.

Tonight we are suggesting a trigger to launch bullish positions at $9.51. We'll plan on exiting prior to JCP's earnings in mid May (no date set yet).

Trigger @ $9.51

- Suggested Positions -

Buy JCP stock @ $9.51

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

Buy the MAY $9 CALL (JCP150515C9) current ask $0.78
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

Stocks Snap 3-Day Win Streak

by James Brown

Click here to email James Brown

Editor's Note:
Equities encountered some profit taking after a three-day rally. Traders could be taking some money off the table before a wave of Q1 earnings results are announced this week.

CDW hit our entry trigger.
We closed the PRSC trade this morning.


Current Portfolio:


BULLISH Play Updates

Allegion Plc. - ALLE - close: 60.28 change: -0.96

Stop Loss: 59.75
Target(s): To Be Determined
Current Option Gain/Loss: -2.9%
Entry on April 06 at $62.10
Listed on March 30, 2015
Time Frame: Exit prior to earnings on April 30th
Average Daily Volume = 674 thousand
New Positions: see below

Comments:
04/13/15: I cautioned readers in the previous newsletter that ALLE was underperforming. Shares dropped -1.5% today and look poised to hit what should be support at $60.00 tomorrow morning. If $60 doesn't hold our stop is at $59.75.

No new positions at this time.

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


CDW Corp. - CDW - close: 38.47 change: +0.05

Stop Loss: 36.40
Target(s): To Be Determined
Current Option Gain/Loss: -0.5%
Entry on April 13 at $38.65
Listed on April 09, 2015
Time Frame: Exit PRIOR to earnings in mid May
Average Daily Volume = 1.0 million
New Positions: see below

Comments:
04/13/15: Our new play on CDW is now open. Shares traded to a new high with the market's early morning rally. Our trigger to open bullish positions was hit at $38.65. Unfortunately, like most of the market, CDW's gains faded by the closing bell. I'd wait for a new rally past $38.65 before initiating new positions.

Trade Description: April 9, 2015:
Traders have been consistently buying the dips in information technology stock CDW. Now the stock is poised to breakout to new highs.

The company offers a broad range of hardware, software and integrated IT solutions to its clients. These include mobility, security, cloud computing, virtualization, data center optimization, and more.

Their website describes the company as "CDW is a leading provider of integrated information technology solutions in the U.S. and Canada. We help our 250,000 small, medium and large business, government, education and healthcare customers by delivering critical solutions to their increasingly complex IT needs. A Fortune 500 company, CDW was founded in 1984 and employs more than 7,200 coworkers. In 2014, the company generated net sales of more than $12.0 billion."

Earnings last year were healthy. CDW has consistently beaten Wall Street's earnings and revenue estimates for the last four quarters in a row. Revenues have been showing double-digit growth for the last year. Their most recent report was February 10th when CDW delivered its Q4 results. Analysts were expecting a profit of $0.53 a share on revenues of $2.95 billion. CDW reported $0.59 a share with revenues up +12.4% to $3.05 billion.

Analysts seem optimistic on CDW. Barclays has listed CDW as one of its top picks and noted that the company has very little exposure to Europe or Asia so the strong dollar shouldn't hurt it that bad. Another analyst, with RBC Capital Markets, believes that any softness in the consumer market will be overshadowed by strength in the enterprise market.

Technically the bullish trend of higher lows in CDW has been coiling more tightly. Now, with the stock up four days in a row, CDW is on the verge of breaking through resistance in the $38.00-38.50 area. Tonight we are suggesting a trigger to launch bullish positions at $38.65.

- Suggested Positions -

Long CDW stock @ $38.65

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

Long MAY $40 CALL (CDW150515C40) entry $0.90

04/13/15 triggered @ 38.65
Option Format: symbol-year-month-day-call-strike


Cognex Corp. - CGNX - close: 51.46 change: +0.14

Stop Loss: 49.45
Target(s): To Be Determined
Current Option Gain/Loss: +0.5%
Entry on April 09 at $51.35
Listed on April 08, 2015
Time Frame: Exit PRIOR to earnings in May
Average Daily Volume = 515 thousand
New Positions: see below

Comments:
04/13/15: CGNX almost hit $52.50 by lunchtime. Gains faded but CGNX still managed to close in positive territory, unlike most of the broader market. The big intraday pullback is worrisome. No new positions at this time.

CAUTION: I am urging caution if you're trading the options. The option spreads have widened significantly. You may want to consider limit orders (you'll risk not being filled) instead of market orders.

Trade Description: April 8, 2015:
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.

- Suggested Positions -

Long CGNX stock @ $51.35

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

Long MAY $50 CALL (CGNX150515C50) entry $5.20

04/09/15 triggered @ 51.35
Option Format: symbol-year-month-day-call-strike


Ingles Market, Inc. - IMKTA - close: 51.97 change: -0.26

Stop Loss: 49.75
Target(s): To Be Determined
Current Option Gain/Loss: -0.7%
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:
04/13/15: Most of the market rallied at the opening bell today. IMKTA was moving the opposite direction. Traders did buy the dip near round-number support at $50.00 and IMKTA pared its losses.

I'd be tempted to use today's intraday bounce as a new entry point.

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: 44.65 change: +0.35

Stop Loss: 40.35
Target(s): To Be Determined
Current Option Gain/Loss: +5.4%
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:
04/13/15: PBH displayed relative strength with a +0.79% gain. This is a new closing high for the stock but $45.00 remains short-term resistance.

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


Steel Dynamics Inc. - STLD - close: 20.53 change: -0.08

Stop Loss: 19.20
Target(s): To Be Determined
Current Option Gain/Loss: -1.3%
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:
04/13/15: STLD spent Monday trading between short-term support at its 10-dma and resistance at its 200-dma.

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: 29.92 change: -0.08

Stop Loss: 27.45
Target(s): To Be Determined
Current Option Gain/Loss: -0.8%
Entry on April 09 at $30.15
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: see below

Comments:
04/13/15: The early morning rally didn't last and VIPS dipped back below the $30.00 mark. The sharp intraday reversal lower is a concern. No new positions at this time.

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.

- Suggested Positions -

Long VIPS stock @ $30.15

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

Long MAY $30 CALL (VIPS150515C30) entry $1.94

04/09/15 triggered @ $30.15
Option Format: symbol-year-month-day-call-strike


Web.com Group, Inc. - WWWW - close: 19.56 change: +0.27

Stop Loss: 18.45
Target(s): To Be Determined
Current Option Gain/Loss: +2.9%
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:
04/13/15: WWWW bounced off its 10-dma this morning and managed to outperform the major indices with a +1.39% gain today. Lack of follow through on Friday's potential bearish reversal pattern is good news but I would not start 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

04/11/15 Caution: WWWW just produced a potential candlestick reversal pattern.
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: 51.89 change: -0.24

Stop Loss: 56.15
Target(s): To Be Determined
Current Option Gain/Loss: +2.0%
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:
04/13/15: STRA kept pace with the market's decline and lost another -0.4%. Shares are arguably short-term oversold with the stock down seven days in a row and down nine out of the last ten sessions. We should not be surprised if STRA sees a bit of an oversold bounce. I'm not suggesting new positions at this time.

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


Navistar Intl. Corp. - NAV - close: 27.74 change: +0.02

Stop Loss: 30.05
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on April -- at $---.--
Listed on April 11, 2015
Time Frame: Exit PRIOR to earnings in June
Average Daily Volume = 940 thousand
New Positions: Yes, see below

Comments:
04/13/15: It was a quiet day for NAV with shares churning sideways inside a narrow range. I don't see any changes from the new play description below. Our suggested entry point is $27.40.

Trade Description: April 11, 2015:
Right now the automobile industry looks pretty healthy. U.S. auto sales in 2014 hit 16.5 million units. That was a +6% improvement over 2013. The most recent data showed March auto sales hitting a seasonally adjusted annual rate of 17.1 million, above estimates for 16.9 million. Unfortunately, this healthy pace of auto sales is not translating well for NAV since they make large trucks and busses.

NAV is in the consumer goods sector. According to the company, "Navistar International Corporation (NAV) is a holding company whose subsidiaries and affiliates produce International brand commercial and military trucks, proprietary diesel engines, and IC Bus brand school and commercial buses. An affiliate also provides truck and diesel engine service parts. Another affiliate offers financing services."

To be fair NAV did see significant improvement last quarter with stronger demand for some of its trucks and school busses but it was not enough to overcome a string of quarterly losses. NAV has been consistently losing money.

The big gap down in the stock price in December was a reaction to the company's Q4 report. Analysts were expecting a profit of $0.10 a share. NAV delivered a loss of $0.88. NAV's most recent report was March 3rd. The company reported a loss of $0.52 a share. This was a huge improvement over the year ago quarterly loss of $3.05 a share. The 52-cent loss number was well above analysts' expectations. Yet revenues came in at $2.42 billion when Wall Street was expecting $2.61 billion.

A couple of weeks later, on March 18th, Nicole DeBlase, an analyst with Morgan Stanley, downgraded shares of NAV to "underweight" and cut their price target to $20.00. According to DeBlase, "Based on our detailed scenario analyses, we conclude that 2016-17e consensus bakes in bullish market share regain and aggressive incremental cost cuts; we are uncomfortable with this given a lack of market share traction and execution issues to date."

Coincidentally the point & figure chart for NAV is bearish and forecasting a $20.00 target. There are a lot of bears already in this name. The most recent data listed short interest at 33% of the 48.5 million share float. The short interest does increase our risk. NAV has long been rumored to be a takeover target. Should there be another convincing story that someone might buy NAV it could spark some short covering.

Right now NAV is underperforming the broader market. It's breaking down under support near $28.00 and is about to breakdown under its February low near $27.50. We are suggesting a trigger to launch small bearish positions at $27.40.

Trigger @ $27.40 *small positions to limit risk*

- Suggested Positions -

Short NAV stock @ $27.40

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

Buy the JUL $25 PUT (NAV150717P25)

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


Olympic Steel Inc. - ZEUS - close: 11.55 change: -0.21

Stop Loss: 13.55
Target(s): To Be Determined
Current Option Gain/Loss: +7.2%
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:
04/13/15: Another day, another decline for ZEUS. We should probably expect a bounce soon with this stock down six days in a row. No new positions at this time.

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



CLOSED BULLISH PLAYS

Providence Service Corp. - PRSC - close: 50.78 change: -0.20

Stop Loss: 49.85
Target(s): To Be Determined
Current Option Gain/Loss: -2.9%
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:
04/13/15: We have been unhappy with PRSC's performance. In our previous newsletter we decided to close this trade at the opening bell. PRSC opened at $50.98.

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

Long PRSC stock @ $52.50 exit $50.98 (-2.9%)

04/13/15 planned exit this morning
04/11/15 prepare to exit on Monday morning
03/27/15 triggered @ 52.50

chart: