Option Investor
Newsletter

Daily Newsletter, Wednesday, 4/15/2015

Table of Contents

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

Market Wrap

Back To the Top of the Trading Range

by Keene Little

Click here to email Keene Little
The indexes have made it back up near the highs of the 2-month trading range (the RUT has done better) and it's now decision time for the market. Only slightly higher would confirm all indexes should rally higher into May but the bears have one shot to make it work here (even if only back to the bottom of the trading range).

Wednesday's Market Stats

After European markets opened our equity futures rallied in the early-morning hours and we were looking for a gap up to start the trading day. Adding to that, in what has become a familiar pattern lately, the market was hit with some buy programs at the open and the market snapped higher in the first few minutes. These buy programs are then typically followed by a reversal back down or a flat market since there's been little follow through to the buy programs. That happened again this morning but following a midday pullback the buyers came back and pushed the indexes a little higher in the afternoon. Some profit taking in the final hour knocked the indexes back down some and it could be argued the market is now ready for a larger pullback, unless of course the bulls have something else in mind.

The market rallied despite the continuing stream of bad economic news (or perhaps I should be saying "because" of the bad economic news). This morning's reports showed the Empire Manufacturing index came in at -1.2 vs. the expected 5.0. The March reading was 6.9 and there's no other way to read this number as another indication of a slowing economy and I'm surprised we're not hearing more talk about a recession (we're likely already in one but it won't be recognized until in hindsight).

Industrial production also came in worse than expected -- for March it was -0.6% vs. expectations for -0.4%. The number was slightly positive, at +0.1%, for February. Capacity utilization also dropped to 78.4% from February's 79.0% (revised up from 78.9%). All signs continue to point to an economic slowdown and possible recession but the stock market cares about only one thing -- will the Fed raise rates 1/8 or 1/4 point in June or will it be later. Pretty silly reason to rally in spite of slowing earnings and a slowing economy but as long as money is being manufactured out of thin air it apparently doesn't matter if real manufacturing is in decline. Welcome to bubbleland in search of a pin.

The Fed's Beige Book was released this afternoon but the market didn't pay any attention to it. The little selloff in the final hour could be blamed on it but in fact there was hardly any reaction at 14:00 when it was released. The economists have been wrong in their forecasts (so what else is new) and the fact that they have failed to predict the current slowdown is what prompts many to blame it on the weather, even though studies have shown weather to have very little influence, especially when the first three months of this year experienced a milder winter than last year (well, except for Boston, wink). "Weather" was mentioned 71 times, according to Bloomberg, as the reason for the underperformance of the economy.

Other negative factors included the strong dollar and the decline in oil prices. Helping the economy was residential real estate, which showed some slow improvement (except for housing starts due to that nasty "weather"). The auto industry saw some strength in the Midwest but not in the Boston, Philly, Richmond and Dallas regions because of the "weather," but don't you think that's a stretch for Dallas to use that excuse? There's been some strength in the retail sector, which is attributed to people having a little more money in their pockets after cheaper gas. The labor market has been stable if not showing modest improvement with pockets of upward wage and price pressures and if this becomes stronger it could actually be negative for the market since it would embolden the Fed to raise rates. I think there's a snowball's chance in hell they'll raise rates before 2017 but if the market thinks they'll raise rates it could put downward pressure on stock prices.

OK, on to the stock market. This week SPX has added about 4 points so far to last week's but as you can see on its weekly chart it remains inside its 2-month trading range between 2040 and 2120. The sideways consolidation looks like a bullish continuation pattern as price works its way over to the uptrend line from March 2009 - October 2011, currently near 2060. We could see one more pullback before proceeding higher and as long as it stays above 2040 it continues to look good for a rally up to the 2175 area by mid-May.

S&P 500, SPX, Weekly chart

My best guess for what's playing out since the February 25th high is a bullish sideways triangle and it would look best with one more leg down to complete the pattern (triangles typically consist of a 5-wave move, labeled a-b-c-d-e, which I show with the green labels). Bulls need to be aware of the potential for another whipsaw move that could shake them out of their positions even if the intermediate pattern remains bullish (into mid-May). The bearish possibility is for the start of a 3rd wave decline following the 3-wave move up from March 12th so keep that in mind when evaluating where you want your stop in order to protect profits in long positions. If we do get a pullback/decline it will be the form of it that will tell us whether to expect further upside (if it pulls back in a corrective pattern) or instead a strong move down (if it starts down with a stronger impulsive pattern). A rally above the February 25th high near 2120 would negate the bearish wave count and confirm new highs are coming, even if we'll first see a stronger pullback before rallying higher.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2120
- bearish below 2045

The 60-min chart shows a fractal pattern between the March 12-23 rally and the one from April 1st. It's one reason why I think we'll see another leg down inside the sideways triangle. The March 12-23 rally is a 7-wave move, which is a corrective move (double zigzag w-x-y) and now the rally from April 1st is the same pattern. Triangle patterns consist of only corrective moves up and down (overlapping highs and lows within the move) and so far that's what we have. This market could surprise to the upside but right now I think the higher-odds probability is for another leg down before starting the rally to a new high into May.

S&P 500, SPX, 60-min chart

At the beginning I mentioned the market is at a fork in the road and as Yogi Berra would tell us, we need to take it. It's decision time and if the indexes head higher from here (above SPX 2120) it would immediately turn the market more bullish but the short-term bearish setup is for a reversal back down. If it does head back down it would leave us guessing whether it will start a more significant decline or just pull back before heading higher. Until I see bearish evidence that tells me otherwise, I think the bullish sideways triangle is the governing pattern at the moment. But the NYSE tells me to be cautious about my bullish expectation, as discussed below.

I mentioned triangle patterns typically have 5 waves to complete the pattern and rising/descending wedges are essentially triangles that have the same 5-wave moves inside them. The NYSE chart below shows a possible rising wedge for the move up from last October (similar to the other indexes) and it now has the requisite 5-wave move. Today's high was a slight throw-over above the top of the rising wedge, which is the trend line along the highs from November-February, and the drop back below the line, near 11188, at the close can be considered the completion of the move and that puts it on a sell signal. What many traders are watching is the horizontal line off the highs from last July and September, just above 11000. This can be interpreted as an inverse H&S continuation pattern (with BIG upside potential). Today's break above that line has many thinking "breakout!" We now wait to see if it will be a head-fake breakout or in fact something more bullish.

NYSE Composite index, NYA, Daily chart

From a bearish perspective, the significance of the rising wedge pattern is that it could be retraced quickly, which means a trip back down to the December low at 10360 (and the 2007 high at 10387) and it could happen in less than a month. A drop below the March 26th low near 10815 would be a bearish heads up and this pattern calls into question the bullish sideways triangle setup shown on the SPX charts. At the moment it's simply another reason why bulls should protect their long positions, especially if that neckline near 11100 doesn't hold on a back-test. If there's another drop back down toward the March 26th lows we'll have an opportunity to evaluate it to help determine if something more bearish can be expected.

A chart I've shown in the past looks at price highs, in this case for NYA, vs. how much support it's getting. As you can see with the declining highs on the 10-day moving averages of new 52-week highs and advance-decline line since last November, the new price highs are occurring on the backs of fewer stocks participating in the rally. This is Not a good sign for the bulls. As we know, this condition can extend much longer than we think possible but consider it a bearish warning sign. If it breaks down we could see the air come out of this balloon very quickly.

NYA vs. 52-week highs and Advancing-Declining Issues, Daily chart

The DOW has the same setup as SPX -- it would look best with a pullback within its slightly down-sloping sideways triangle off its March 2nd high, the bottom of which will be near 17500 early next week. It left a small throw-over above its downtrend line from March 2-23 and then closed on it. If it can continue above today's high at 18160 it could lead to a rally at least up to the trend line along the highs from December-March, which will be near 18450 next week. But if we get the pullback, as depicted on its chart, it would be a good setup for a better long play (assuming the bearish warning from the NYA chart can be held off a little longer).

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 18,289
- bearish below 17,450

The Nasdaq continues to put pressure on the 5000 level, closing marginally above it today after not being able to hold it on Monday. In addition to the psychologically important level, it's battling its trend line along the highs from January 2004 - October 2007. The Naz will be more bullish above its March 20th high at 5042 but unless it can negate the bearish divergence on its chart it's going to be hard to trust new highs from here. A pullback to its 50-dma and uptrend line from January-March, both near 4914, would be a better setup for a long play. With resistance right here I think it actually makes for a better short play setup.

Nasdaq Composite index, COMPQ, Daily chart

Key Levels for NDX:
- bullish above 5042
- bearish below 4900

The RUT powered higher again today, leading the other indexes to the upside. But I'm thinking further upside for the RUT could be a challenge. Within a rising wedge pattern off the January lows it has now formed a smaller rising wedge for the leg up from March 26th, which internally can be considered complete at any time, including right here following the small throw-over above the top of the small wedge. If it pulls back and uses the uptrend line from January as support it would be a setup for another rally leg but at the moment, like the other indexes, the short-term pattern is looking ready for at least a larger pullback.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1258
- bearish below 1220

Treasuries are looking like they should be ready for another rally leg soon, which would mean another leg down for yields. As shown on the TYX (30-year) chart below, it's likely almost finished with a bear flag pattern that should lead to another leg down at least equal to the March 6-25 decline. That would also be a test of the January 30th low at 2.226 and a rally in bonds could be a result of rotation out of stocks and into bonds.

30-year Yield, TYX, Daily chart

Last week I mentioned the TRAN was skating on thin ice and with the warmer weather the ice is getting thinner. It did bounce off support after leaving a small throw-under finish on April 6th and last week's rally had it following through on the buy signal from that throw-under and recovery back above 8580. But it has not been able to get back above its 20-dma, which was tested again today at 8780. This follows another test of 8580 support with yesterday's low at 8585. Keeping testing that thin ice and it's going to break! Needless to say, the TRAN needs some buyers to step in and do it now.

Transportation Index, TRAN, Daily chart

Last Thursday the U.S. dollar broke out of its sideways triangle consolidation pattern off its March 13th high, as well as climbing back above its 20-dma. It has now pulled back to its 20-dma, at 98.27, and could back-test the apex of its triangle where it crosses the bottom of its up-channel for its rally from October, near 97.65. As long as it doesn't drop below that level there should be a continuation of the dollar's rally and potentially up to about 105 by mid-May where it should then be ready for a larger pullback correction.

U.S. Dollar contract, DX, Daily chart

Gold is currently doing battle between its 20-dma, which are about to cross near 1197. Closing above that level keeps it short-term bullish and we could see another leg up for a test of its 200-dma near 1232. While a rally above that level would start to look more bullish, instead of just a bounce correction as it currently appears, the larger bearish pattern still suggests another leg down once the bounce off the March 17th low completes.

Gold continuous contract, GC, Daily chart

Today's strong rally in oil (+5%) was partly a result of the low crude inventory build number this morning (+1.3M barrels vs. last week's +10.9M barrels) but it might have been good enough to complete its bounce off its March 18th low. It could be in a different pattern than the rising wedge that I've got depicted on its daily chart below but at the moment it's looking vulnerable to a reversal back down. I've been anticipating a rally up to resistance at 58.13-58.50 but a turn back down from here would leave a little throw-over above the top of its rising wedge and put it on a sell signal. It takes a rally above 59 to turn oil more bullish.

Oil continuous contract, CL, Daily chart

Tomorrow's economic reports include the unemployment claims numbers and Housing Starts and Building Permits before the opening bell. After the bell we'll get the Philly Fed, which is expected to be flat from March but the way these economic reports go we'll see if it holds up or joins the others in disappointing the economists.

Economic reports and Summary

Conclusion

Opex week tends to be bullish and so far the bulls haven't been disappointed. But further gains this week could be difficult if the reversal setups on multiple indexes play out. We might see the market at least hold up, if not rally, into the end of the week but the short-term bearish patterns suggest we could start a stronger pullback/decline in the coming week. The intermediate bullish patterns, such as for SPX, suggests a pullback in the next week or two before starting the next rally leg that should take us to new highs (2150-2175) in mid-May, which is when we'll face a major turn window.

The risk for bulls, if the market does start back down, is that some of the more bearish patterns, such as for the NYA, suggest we could be putting in an important top here. Instead of a pullback and then onto new highs in May we could be looking at the start of a much more serious decline. Protection of long positions seems a prudent idea here and then if we get a deeper pullback we can evaluate it for evidence that it will likely be just a pullback or instead something more bearish. If you're itching to get short, this is actually a good place to try it since the March highs, such as SPX 2120 provide a relatively tight stop. If today's high was the completion of the rally then a tighter stop is today's high.

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

Billions And Billions Connected

by James Brown

Click here to email James Brown


NEW BULLISH Plays

Sierra Wireless - SWIR - close: 37.93 change: +1.45

Stop Loss: 36.45
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on April -- at $---.--
Listed on April 14, 2015
Time Frame: Exit PRIOR to earnings on May 7th
Average Daily Volume = 712 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
The Internet of Things (IoT) is going to be huge. Depending on who is making the forecast the size of just how huge it can become is staggering. Last year (2013) there were an estimated 300 million embedded connected devices in the IoT. IDC is estimating that could reach 15 billion connected devices by 2015. Cisco Systems (CSCO) is forecasting 25 billion devices connected to the Internet of Things by 2015 and 50 billion by 2020. Intel is forecasting up to 200 billion connected devices by 2020.

The backbone of the IoT is M2M communication. That's machine-to-machine communication. SWIR is the market leader with 34% of the market for cellular M2M embedded module market.

According to the company, "Sierra Wireless is building the Internet of Things with intelligent wireless solutions that empower organizations to innovate in the connected world. Over the past 20 years, Sierra Wireless has built a proven track record of developing innovative products and solutions for its customers. We offer the most comprehensive portfolio of wireless machine-to-machine (M2M) devices including 2G, 3G, and 4G embedded modules and gateways that are seamlessly integrated with our secure cloud and connectivity services. OEMs and enterprises worldwide trust our innovative solutions to get their connected products and services to market faster. Our devices are operating on more than 80 networks globally and we have shipped more than 100 million M2M devices worldwide."

Earnings have been improving. Back in July they reported their Q2 results that beat Wall Street's estimates on both the top and bottom line and management guided higher. SWIR announced their Q3 results on November 5th. Even after guiding higher the prior quarter they still beat estimates. SWIR raised their guidance again for the fourth quarter of 2014.

The string of earnings beats continued when SWIR reported its Q4 earnings on February 5th. The company delivered better than expected results on both the top and bottom line. Revenues were up +25.7%. Unfortunately management lowered their Q1 guidance below analysts' estimates. The stock dropped quickly on this new forecast.

The weeks since its February earnings report have been a bit rocky for SWIR. On the plus side the stock appears to have found a new bottom with support in the $32.00 area. After some profit taking yesterday traders bought the dip at technical support near its 10-dma and 50-dma this morning. If this bounce continues SWIR could see some short covering. The most recent data listed short interest a 14% of the relatively small 30.9 million share float.

We are suggesting a trigger to launch bullish positions at $38.55. We'll try and limit our risk with an initial stop loss at $36.45. Please note that this will be a short-term trade. SWIR has earnings coming up on May 7th. We'll plan on exiting prior to their announcement.

Trigger @ $38.55

- Suggested Positions -

Buy SWIR stock @ $38.55

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

Buy the MAY $40 CALL (SWIR150515C40) current ask $1.45
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:

Weekly Chart:



In Play Updates and Reviews

Russell At New Highs, NASDAQ At 5,000 Again

by James Brown

Click here to email James Brown

Editor's Note:
Bulls were in control today. Another rally in crude oil fueled widespread gains for energy stocks. There appeared to be some short covering in many beaten down names.

The small cap Russell 2000 closed at a new high. The NASDAQ closed above the 5,000 mark again.

We have removed JCP, ACAT, and NAV as candidates.


Current Portfolio:


BULLISH Play Updates

CDW Corp. - CDW - close: 38.46 change: +0.43

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:
04/15/15: CDW reversed yesterday's losses after bouncing off its 20-dma this morning. I would still wait for a 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: 51.40 change: +0.21

Stop Loss: 49.45
Target(s): To Be Determined
Current Option Gain/Loss: +0.1%
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:
04/15/15: CGNX quietly spent today's session consolidating sideways. The $52.00 area is short-term overhead resistance while $50.00 looks like support.

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: 50.48 change: -0.72

Stop Loss: 49.75
Target(s): To Be Determined
Current Option Gain/Loss: -3.6%
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:
04/15/15: Shares of IMKTA look a little broken. They underperformed the market again with a -1.4% decline. This is their fifth decline in a row.

This is a critical moment with IMKTA about to test support at $50.00. More conservative traders may want to abandon ship early and just exit now. I'm not suggesting new positions.

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

04/15/15 IMKTA is not cooperating. Traders may want to exit early now before the stock breaks below $50.00
04/06/15 triggered @ 52.35
Option Format: symbol-year-month-day-call-strike


Prestige Brands Holdings - PBH - close: 44.69 change: +0.04

Stop Loss: 40.35
Target(s): To Be Determined
Current Option Gain/Loss: +5.5%
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:
04/15/15: PBH delivered a lackluster session with shares drifting sideways. The stock is on track for its third weekly gain in a row.

More conservative traders may want to raise their stop loss (maybe near $42 or the 20-dma near $42.85). 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: 21.24 change: +0.24

Stop Loss: 19.20
Target(s): To Be Determined
Current Option Gain/Loss: +2.0%
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:
04/15/15: It was another good day for STLD bulls. The stock outperformed the market with a +1.1% gain. Furthermore shares have broken through resistance at the $21.00 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: 29.36 change: +0.47

Stop Loss: 27.45
Target(s): To Be Determined
Current Option Gain/Loss: -2.6%
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:
04/15/15: VIPS recovered about half of yesterday's decline. Unfortunately, today's session looks like an "inside day" with trading inside yesterday's range. This suggests trader indecision.

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: 19.34 change: +0.47

Stop Loss: 18.45
Target(s): To Be Determined
Current Option Gain/Loss: +1.8%
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:
04/15/15: WWWW did not see any follow through on yesterday's downgrade-induced decline. Instead shares bounced and outperformed with a +2.49% gain. My only concern is that the rebound stalled right on technical resistance at its simple 200-dma.

I am not suggesting 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: 53.08 change: +1.20

Stop Loss: 56.15
Target(s): To Be Determined
Current Option Gain/Loss: -0.2%
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:
04/15/15: I have been warning readers this week that STRA was short-term oversold and due for a bounce. The stock managed a +2.3% gain today and closed near its 10-dma. If this bounce continues the nearest resistance is potentially the $54.00 level or the $55.00 level.

More conservative traders may want to lower their stop loss. 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


Olympic Steel Inc. - ZEUS - close: 12.03 change: +0.44

Stop Loss: 13.55
Target(s): To Be Determined
Current Option Gain/Loss: +3.4%
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:
04/15/15: Shares of ZEUS also delivered an oversold bounce after days of losses. The stock added +3.79% by the closing bell. The 10-dma near $12.45 is potential resistance. Above that resistance would be the $13.00 level.

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

J.C.Penney Co. - JCP - close: 8.93 change: -0.22

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: see below

Comments:
04/15/15: JCP continues to sink after yesterday's reversal. The stock underperformed the market with a -2.4% decline. Our trade is not open yet. Considering JCP's relative weakness we're removing it as a candidate.

Trade did not open.

04/15/15 removed from the newsletter, suggested entry was $9.51

chart:



CLOSED BEARISH PLAYS

Artic Cat Inc. - ACAT - close: 37.48 change: +2.31

Stop Loss: 37.55
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on April -- at $---.--
Listed on April 14, 2015
Time Frame: 3 to 4 weeks, Exit PRIOR to earnings in mid May
Average Daily Volume = 183 thousand
New Positions: see below

Comments:
04/15/15: Shorts got squeezed in ACAT this morning. I don't see any specific catalyst behind today's rally. The stock was up more than +10% at its best levels of the session. Yesterday's breakdown below the 200-dma suddenly looks like a bear trap.

Our trade has not opened yet. We're removing ACAT as an active candidate.

Trade did not open.

04/15/15 removed from the newsletter, suggested entry trigger was $34.95

chart:


Navistar Intl. Corp. - NAV - close: 29.51 change: +1.55

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: see below

Comments:
04/15/15: NAV exploded higher on Wednesday and rallied through resistance with a +5.5% gain. Again, I don't see any specific news behind today's rally. Once NAV broke through short-term resistance at $28.00 it appears to have sparked some short covering.

Our trade has not opened. We are removing NAV as a candidate.

Trade did not ope.

04/15/15 Removed from the newsletter, suggested entry was $27.40

chart: