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Daily Newsletter, Saturday, 4/18/2015

Table of Contents

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

Market Wrap

Uncertainty Returns

by Jim Brown

Click here to email Jim Brown

Sudden worries over earnings, Greece, China and a outage on the Bloomberg terminal system before the open caused the Dow to decline -357 intraday before rebounding only slightly to -279 at the close and barely positive for the year at +0.02%. Weak earnings and a warning from Dow component American Express on the strong dollar impact caused the financial sector to plunge and take the Dow with it.

Market Statistics

It was an ugly morning as negativity was flowing from every direction. American Express (AXP) warned that the strong dollar had hurt their earnings significantly and the impact could last for all of 2015. The company said earnings would be flat to down for the rest of the year. Earnings rose +6% to $1.48 that beat estimates of $1.37. However, total revenues declined -12% to $7.95 billion and well under the analyst estimate for $8.21 billion.

Shares of AXP declined -$3.59 to knock -27 points off the Dow.


Also dragging the Dow lower was shares of Goldman Sachs (GS) after Keefe Bruyette downgraded the firm from buy to hold. The broker said Goldman's gains from trading activity were unsustainable and the stock had already priced in the most optimistic outlook. They placed a $210 year end target on GS after the stock spiked to $203 on Thursday. Shares closed at $197 today with the -$2.86 drop knocking -22 points off the Dow.


Dow component Travelers (TRV) was downgraded from buy to hold by Barclay's on a weakened outlook for property and casualty insurers. "Commercial P&C pricing has turned negative, which means margins are likely to compress." Also, "Therefore, expect the P&C reinsurance industry as a whole to witness tough comps with commercial line and reinsurance EPS being flat to down during 2015 and 2016." Credit Suisse just initiated coverage with a hold rating. Travelers shares lost -$3.27 to knock -25 points off the Dow.


The biggest drag on the Dow came from 3M (MMM) with a -$4.18 loss or -32 Dow points. Investors were hearing warnings about losses from the dollar from almost everyone that reported earnings in the last two days and elected to exit MMM ahead of their earnings next week. 3M is highly exposed to the strong dollar with its overseas sales. I suspect we will continue to see anyone with European exposure to be hammered ahead of earnings in the coming weeks.


Other problems weighing on the markets included market changes by Chinese regulators. After China's market closed on Friday regulators put some new limits on buying stocks on margin and also relaxed the rules on short selling. China will now allow fund managers to lend stocks for short selling and expanded the number of stocks investors can short in order to increase the supply to the market. This will allow greater numbers of investors to have short positions. This is an effort by Chinese regulators to slow the ascent of the market.

Chinese investors have been borrowing record amounts of money to buy stocks on margin. Regulators warned investors that use margin to be cautious after seven weeks of gains pushed the markets to seven-year highs. Irrational exuberance is in full bloom in China after the government opened greater access to the markets several months ago. This suggests the Chinese markets will plunge at the open on Monday. H-shares futures declined more than 5% in afterhours trading.



Another market challenge was the rising potential for Greece to exit the Eurozone. Greece has run out of money and the bills are coming due. The new government is refusing to implement the required reforms to get the next tranche of aid from the Troika.

There were rumors in the market that the ECB and/or banking authorities told European banks to get rid of any sovereign Greek debt they were still holding. This could be a preliminary step ahead of a Greek exit from the eurozone. Yields on the Greek ten-year bond immediately spiked to more than 13%.

The outage in the Bloomberg Terminal network was so severe it caused the postponement of a U.K. bond offering. The Bloomberg network provides messaging, security data, analytics and news to more than 300,000 professional market participants worldwide. Many traders and investors rely on its messaging service for their main communications and to execute trades between each other. Without the terminals professional investors were left in the dark and overseas market volume was adversely impacted.

Couple all those factors above along with some high profile earnings misses and you have a reason for a market decline. Mark Tepper, CEO of Strategic Wealth Partners, agreed and said "Current market and economic conditions have created the perfect storm for a 10% market correction. We are looking at really stretched valuations right now with the forward PE of 17+ a red flag." Also, "We have deteriorating earnings, fading economic momentum, the strong dollar and looming interest rate hikes. I do think a pullback is very much in the cards."

On the economic front the Consumer Price Index had some Fed friendly news that could be negative for the market. The headline CPI rose +0.2% for the second consecutive monthly gain. The Core CPI, which does not include food and energy, also rose +0.2% and the third consecutive gain at that rate. On a year over year basis the core rate is up +1.8% and Fed Vice Chair Stanley Fischer said inflation was moving very close to the Fed target rate of +2.0%. Suddenly those rate hikes don't seem that far off if our period of disinflation has finally passed.

With oil prices rising the cost of goods everywhere is rising. Consumers are finally starting to spend their extra cash from the low fuel prices and spring has brought renewed consumer confidence. The energy CPI rose +1.1% in March.

While inflation is moving in the right direction it is still moving at a snail's pace and while the Fed would probably like to raise rates in June but they will probably wait until at least September to see if the weak economics improve. Still, the CPI did kindle some rate hike fears on Friday even though Fed heads were talking down the chances.

Atlanta Fed President Dennis Lockhart said "a move in June is not my preference, although, I don't take June off the table. I would prefer a later liftoff date. I would like to see confirming evidence" that the economy is rebounding. The stronger the evidence, the more orderly the subsequent path of policy would be."

Boston fed President Eric Rosengren said "incoming data would need to improve to fully satisfy the committee's two conditions for starting to raise rates."

Cleveland Fed President Loretta Mester said that while she expects this economic weakness to be transitory, she is looking for the evidence. "I want to see whether the data is going to be consistent with my forecast. We are going to get a lot of data between now and June."

New York Fed President William Dudley said he sees "strong arguments for being a little on the late side."

Consumer Sentiment for April rose from 93.0 to 95.9 and easily beat estimates for a rise to 94.0. The present conditions component rose from 105.0 to 108.2 and the expectations component rose from 85.3 to 88.0. Both numbers returned to the same levels seen in February suggesting the drop in March was an anomaly. The headline number was the second highest reading since 2007 with January's 98.1 the highest. Falling food prices in March probably helped to improve sentiment.


The calendar for next week is lackluster with home sales the primary interest. The two Fed surveys are not normally market movers. The worry over the FOMC meeting the following week should begin to appear by Wednesday. With most of the Fed heads now in caution mode nobody expects the meeting to produce anything but a clone of the March meeting statement.


We had a new split announced last week with PPG and a 2:1 for June. PPG is a $225 stock with no trend after a $50 gain back in Q4. It has been trading sideways in a range in 2015. PPG is not a widely followed stock so I would not expect a split run.


After the big gains in Netflix for the week I am leaning even more towards the announcement of a 10:1 split after shareholders approve the new shares on June 9th. That would give them about a $60 share price based on Friday's close at $571.


General Electric (GE) reported earnings on Friday of 31 cents compared to estimates for 30 cents. However, revenue declined -12.5% to $29.3 billion and well below estimates for $34.2 billion. GE blamed the strong dollar for part of the decline. Revenue in its oil and gas segment declined -8%. Health care revenue declined -3% to $4 billion and aviation revenue declined -2% to $5.67 billion. GE suffered a major loss on Friday when Emirates Airlines awarded Rolls-Royce a $9.2 billion contract to build engines for 50 Airbus A380 super-jumbo jets. GE and their partner United Technologies' Pratt & Whitney lost the bid. GE shares declined fractionally on the earnings news.


Honeywell (HON) reported earnings of $1.41 compared to estimates for $1.39. However, revenue declined -5% to $9.213 billion and well under estimates for $9.569 billion. Revenues were strongly impacted by the strong dollar. Aerospace revenue fell -6% to $3.607 billion. Automation and control systems revenue dropped -3.0% to $3.264 billion. Performance materials revenue fell -5% to $2.342 billion. Honeywell lowered guidance for the full year from revenue of $40.5-$41.1 billion to $39.0-$39.6 billion. However, it raised the low end of earnings guidance from $5.95-$6.15 to $6.00-$6.15 per share. Free cash flow is expected to be in the range of $4.25 billion.


Seagate Technology (STX) reported earnings of $1.08 that was in line with estimates. Revenue of $3.33 billion fell short of estimates for $3.45 billion. The disk drive maker said performance was weakened by slow PC growth and a slow economy in Europe as well as the strong dollar. The company warned that revenue in the current quarter would be down -1.5% to about $3.25 billion and below consensus of $3.4 billion. Seagate did approve a 54 cent dividend payable May 15th to holders on May 1st. Shares rose +2.6% after the report. This was a clear case of bad news already priced in and better news appeared.


Oil field service company Schlumberger (SLB) reported earnings Thursday evening that fell -12% to $1.06 but beating estimates of 89 cents. Revenue fell -9.3% to $10.25 billion and missing estimates for $10.42 billion. In January SLB said it was cutting 9,000 workers as a result of the oil crash. On Thursday the company said it was cutting 11,000 more. Schlumberger said a recovery in land drilling would be "pushed out in time." Also, "We anticipate that a recovery in activity will fall well short of reaching previous levels, hence extending the period of pricing weakness." The earnings beat and the job cut announcement lifted SLB shares on Friday in a bad market.


Nearly 25% of the S&P reports earnings next week. So far 53% of companies reporting have missed their estimates. That is not very encouraging since the early reporters are the big caps and they typically have more earnings strength.

Next week we have some big names including IBM, YHOO, YUM, BA, EBAY, KO, MCD, AMZN, GOOG, MSFT and SBUX to name a few.


The active rig count for the week ending on Friday declined -34 rigs to 954. Oil rigs declined -26 to 734 or a -54.4% decline from the high of 1,609. Active gas rigs declined -8 to 217 and a new 18-year low. Offshore rigs were unchanged at 33, but down -19 from the January high. If we lose another 89 rigs we will be at a 10 year low.


Crude oil rallied over $56 with an 11.5% gain for the week. The next challenge is the resistance at $57.50 and a move over $60 would probably slow the decline in active rigs as producers begin to speculate on a continued rise in prices. There are so many things that could go wrong with a continued crude rally but accelerating refinery utilization to 92.3% last week helped to reduce the inventory build. Refiners consumed an average of 16.21 mbpd of oil last week and the most since 2014.

The week we get the first decline in the inventory level we should get a corresponding rise in crude prices. That could happen over the next couple weeks as refiners begin to flood the distribution system with summer blend gasoline.


Markets

Friday was option expiration but I don't think that had anything to do with the decline. Option related volatility typically occurs in the week prior to expiration although there can be volatility on expiration Friday.

Friday's decline had many reasons but the one I have not mentioned yet was simply a failure at resistance. The S&P had strong resistance at 2110 and it failed at that level on Wednesday and Thursday. That failure telegraphed weakness to traders and when the headlines appeared the drop was dramatic.

I warned in my Tuesday commentary, "I would remain cautious for the rest of the week...The markets have lost momentum and without a catalyst the path of least resistance is lower."

The percentage of S&P stocks trading over their 50-day average fell to 44.4% and close to a two month low. The rally to 2110 was on the back of only a few stocks and when those were knocked for a loss the entire market fell sharply.

The market should not be at new highs when 53% of earnings to date have missed their estimates and the economic reports since early February have been weakening. We are due for some PE contraction to bring stock prices back in line with earnings.


The midcap and small cap stocks have been leading the charge higher over the last several weeks because of their lack of exposure to the dollar. The chart below is the advance/decline line on the S&P Midcap-400. The midcaps broke out to new highs in March and tested those highs again on Wednesday. However, the breadth was already shrinking. Note the A/D line fell below its uptrend line from January.



The breakdown in the mid caps and small caps was another negative for the S&P-500. It was lagging those other indexes higher and when they collapsed the S&P-500 was doomed. The S&P is losing momentum after two-years of steady upward gains. The 50-week moving average has only been touched three times in two years. We are due for a retest of the 50 that should take us back to the 1985 level.


The convergence of resistance at 2110 was too much to overcome in a headline heavy environment. Initial support remains at 2075 and 2050. The intraday low on Friday was 2072. Resistance is 2110 and 2117.


The Dow had a similar problem with resistance at 18,100. For 4 of the last 5 days the Dow tried to break through that 18,100 level and actually closed at 18,112 on Wednesday. Unfortunately it could not hold its gains when Dow components began posting weak earnings. The index declined to the middle of its recent range and tried to hold at the 17,850 support level but eventually fell through in the afternoon to test 17,750 before short covering at the close lifted it back over 17,800.

All 30 Dow components were in the red but 14 lost less than $1. The lack of a material rebound on the Dow or S&P after an early morning decline of such magnitude is an omen for Monday. With China likely to see its markets decline significantly the weakness could rub off on the rest of the global markets.

With the 17,850 support level broken the next target is 17,600. Resistance remains 18,100 and 18,200.



The Nasdaq was hampered by the decline in Apple with 10% of the Nasdaq loss due to the drop in Apple shares. However, Google, Priceline, Amazon, Biogen and Regeneron added to the -75 point decline. The Nasdaq Composite closed in the middle of its recent range with 4850 still the critical support level. The psychological 5000 level is still resistance and was tested on 3 of the last 5 days. There were two closes over that level at 5007 and 5011 before the Friday crash.

The Nasdaq 100 ($NDX) failed to return to its highs with the resistance at 4475 untouched. The lower high on the Nasdaq big cap index is just one more symptom of a weakening market. The decline to 4350 is still well over the critical support at 4300 but still in the danger zone.




The Russell 2000 declined -1.65% on Friday after setting a new closing high of 1275 on Wednesday. Friday's close at 1251 was right on uptrend support so we have not broken any critical support levels. I think we are seeing some profit taking in the small caps after the first week of big cap earnings turned out so lousy. Investors are probably afraid of what they will see in the week ahead.

So far, no harm, no foul and we have two decent support levels at 1230 and 1208 before the small caps turn ugly.


You never know when a Friday flush will turn into a Monday rally. Typically a sharp Friday decline that finishes close to the lows will be followed by a volatile Monday. Following those two days of declines there is a strong possibility of a turnaround Tuesday. However, it is hard to project this on a historical basis because of the various factors that unite to cause severely negative Fridays. Typically it is a combination of headlines that create imminent uncertainty and traders just don't want to go long into a weekend that could lead to a gap down on Monday.

The change in the Chinese market regulations is actually a good thing long term but with the Chinese futures down -5% after the close on Friday it is a pretty good bet the irrational exuberance bubble is going to lose some air on Monday. While Monday may not be the start of a correction in the Chinese markets I believe we will see one in the weeks ahead. As long as it occurs gradually it would not be a problem for the U.S. markets. Everyone knows the China market spike can't last but investors always want to see things happen in moderation over time rather than over the span of several days.

The Chinese market does not directly impact the U.S. market but a sudden sentiment change can cause instability in the global markets just because investors and portfolio managers are worry warts. They tend to sell first and ask questions later when something dramatic happens quickly.

The bigger problem is Greece. There is a growing belief that Greece is going to default on its debts and leave the Eurozone and it could happen very soon. On Saturday ECB head Mario Draghi seemed to imply that a Greek default was imminent and said "funds were sufficient to cope should Athens default on its debts," but warned that Europe would be entering "uncharted waters" that made the outcome of a default uncertain. Draghi spoke in Washington at the IMF spring meeting saying, "The short-term danger of contagion (from a Greek exit) is difficult to assess, but we have enough buffers in place. Even though they were designed for different circumstances, they are sufficient. But we are entering uncharted waters."

Greece is being obstinate in refusing to agree to the list of demands from the Troika (IMF, ECB, EU) in order to qualify for more bailout funds. Greece refuses to implement any further austerity measures and seems to feel that a Greek exit will do more harm to the eurozone than to Greece. The new administration is playing a game of chicken with the Troika and betting they won't let Greece exit. At the IMF meeting Draghi supported an earlier call to "slim down" the list of Troika demands since it appears Greece is not going to agree to the full list of demands anyway. US Treasury Secretary Jacob Lew warned at the IMF meeting that a Greek default would create an "immediate hardship" for Greece and damage the world economy. EU finance ministers will meet again in Latvia next week but they are resigned to the fact that an agreement is unlikely.

This suggests the Greek debt default and potential exit from the Eurozone could occur in the next couple of weeks and this is a prime example of market uncertainty. Nobody really knows what will happen to the Eurozone but there will be serious ripples. Greece owes somewhere in the range of 300 billion euros. Most of that is to the ECB and EU and that means loans from each of the central banks of the Eurozone countries that formed the bailout will be worthless. Greece has a payment of one billion euros due to the IMF in early May. They asked the IMF informally if they could delay that payment and the IMF said no.

A Greek default and exit will not hurt the U.S. but it creates a monster surge in uncertainty and that creates volatility in the markets. This pending uncertainty was a factor in Friday's market decline and that was just on the potential for a Greek default. I would expect more volatility as the headlines fly but it should be brief once it occurs. That is a dip that should be bought, assuming there is nothing else weighing on the markets at the time.

A Greek exit will probably occur over a weekend so many traders did not want to be long at the close on Friday.

I would continue to be cautious about holding too many positions until some of the volatility passes. Keep your stop losses in place and watch for the market to pick a direction.

Random Thoughts

Economists are rapidly moving their time frame for the first Fed rate hike farther into the future. In March 38 economists were expecting a hike in June or July. In the April survey by Bloomberg that number declined to only 10 with 44 economists now expecting a hike in September of October. That is 71% of the economists surveyed. The chart below is from Bloomberg.



Sell in April and go away? Hulbert's Financial Digest has tracked the two biggest proponents of the "sell in May and go away" strategy. Both the Almanac Investor, which came up with the strategy decades ago, and Sy Harding's Street Smart Report, have come up with modifications to the strategy that produce greater returns. The Almanac Investor has recommended an early sell in April based on the MACD indicator on the S&P. Sy Harding is also using the MACD with a slight technical twist.

Since 2002 the Almanac Investor strategy has generated annual returns of 8.0%. Sy Harding has generated annual returns of 9.2%. The tracking was done by Hulbert's Financial Digest. By utilizing the MACD indicator for a sell signal in April you avoid getting caught in the downdraft at the first of May when institutional investors using the sell in May strategy move to cash. In order to get a MACD sell signal you need a positive trend that suddenly turns negative. Based on the chart below we could get that late April sell signal in the next couple days if the decline continues.



About 300 paratroopers from the 173rd Airborne Brigade arrived in Ukraine on April 15th to begin a six-month training program with the Ukrainian National Guard forces. The training, known a "Fearless Guardian" will train three battalions of Ukrainian troops. Source article

Also last week Putin warned Russia will now target "nonnuclear powers where missile-defense installations are being installed" as objects of priority response. The Russian Defense Minister said "a drive by the U.S. to bring its allies and Kiev closer to the west was a threat to Moscow and had forced it to react." Link


Most current GDP forecast by the Atlanta Fed is +0.1% for Q1.



Global debt has increased by $35 trillion since the financial crisis. Dr. Lacy Hunt EVP of Hoisington Management said, "That is a net negative, debt is an increase in current consumption in exchange for future spending and we are not going to solve this problem by taking on more and more debt." As any family knows when you run up big balances on your credit cards it reduces your future spendable income by the amount of the debt payments. Hunt said, "This process is far from over and rates will move irregularly lower and remain depressed for several years." He pointed to the negative rates in Europe as a result of QE by the ECB and its expected continuation for at least a year. Casey Research Article


The current bull market is 2,184 days old and has gained +213.1%. That is above average in duration and magnitude. There have been 11 bull markets and 10 bear markets since 1949. The prior 10 bull markets lasted an average of 1,770 calendar days and produced gains of +161.4%. Inside those 11 bull markets were 22 corrections from 10% to 19.9% for an average of two corrections per bull market.

With the current bull market almost four years old and the fourth longest on record it is understandable that investors would be getting a little worried with the S&P trading near a forward PE of 18 but with earnings declining. The S&P has now gone 1,292 days without a correction. The long term average between corrections is 514 days. We are due. Data from JeffHirsch. Almanac Trader

The S&P is up only +0.69% over the last 75 trading days. It has been 80 days since there was a 2% move. That is the second longest streak since the financial crisis. Calm before the storm?


It has been over 250 days since U.S. forces began airstrikes on ISIS. U.S. planes have conducted 2,893 missions that have hit 5,314 targets at roughly the cost of $8.5 million per day or $2.5 billion so far. No U.S. airman has lost his life in combat. Unfortunately ISIS continues to take more land and capture more facilities.

While many of those sorties were drones there are some new complications causing trouble. Shia militants figured out a way to hack into the video feed being transmitted from the drones and back to the operators thousands of miles away. Using a $26 piece of Russian hacker software commonly sold to steal satellite TV signals, the insurgents were able to watch the same live video footage as the drone operators.

By watching what the drones were watching they were able to warn the targets that drones were searching for them. This was a tactical advantage and told them what kinds of targets the Americans were searching for and how to better conceal their activities on the ground.


Former Treasury Secretary Larry Summers penned a column last week claiming "This past month may be remembered as the moment the United States lost its role as the underwriter of the global economic system." This is a continuation of my running commentary on the future decline of the dollar as a global currency. Mohamed El-Erian wrote a similar article late last month warning of the pending decline in the U.S. dollar.

Read Summers article HERE.

Read El-Erian's article HERE.

Information on China's Asian Infrastructure Bank HERE


Conspiracy theorists this one is for you. In just the last couple weeks several high profile events occurred that were not reported by the major news sources.

First, the New York Fed decided to move a lot of its operations to Chicago on concerns that a natural disaster or other "eventuality" could shut down its market operations as it approaches an interest rate hike, and has added staff and bulked up its satellite office in Chicago. Reuters Article Some market technicians have transferred to Chicago and others were hired at that location. Officials now believe the Chicago staffers can now handle all the market operations that are done daily out of the New York Fed, which is the Fed's main conduit to Wall Street.

In all of recorded history there has never been a natural disaster in New York City that would have been bad enough to totally shut down the operations of the New York Fed.

A lot of government operations and personnel as well as private corporations are moving away from the Washington DC and New York areas. If terrorists ever get a nuclear weapon those are the top two most likely targets.

Second, The North American Aerospace Command (NORAD) is moving back into Cheyenne Mountain in Colorado. The prior home for NORAD is a bunker built 2,000 feet into the granite base of Cheyenne Mountain and is able to withstand a direct hit by a 30 megaton nuclear blast. It was decommissioned 10 years ago because the Russians were no longer considered a threat. NORAD was moved to Peterson Air Force Base in Colorado Springs.

Now NORAD is moving back into the mountain and installing all kinds of high tech communications that would be impervious to an electromagnetic pulse or EMP. When operating the bunker is home to more than 1,100 personnel and is able to operate underground for months on its supply of food and water. Officials say the shift back into Cheyenne Mountain is to safeguard the military's command and control communications from EMP attack. The military announced a $700 million contract with Raytheon to oversee the work.

If the U.S. military is suddenly worried about EMP attack again you have to wonder who they are afraid of. Russia has certainly become more aggressive and Putin hardly lets a week go by that he does not mention Russia's nuclear arsenal. China is also building out its military capacity at more than twice the rate of the prior decade. Within a couple years they will have more ships and submarines than the U.S. Navy. They have created two new intercontinental ballistic missiles that can carry nuclear weapons. As part of their military training over the last 20 years one possible scenario in their manuals has been a preemptive nuclear EMP attack on the USA. One high altitude nuclear detonation approximately 340 miles high could wipe out every electronic device and electric grid in Canada, the USA and northern Mexico.

If Iran gets a nuclear weapon they will be a huge threat. While they don't currently have ICBMs they are working on that technology. What they have tested is short range missiles that can be launched from cargo containers at sea. Russia built the Club-K containerized launch systems and demonstrated their effectiveness. Not to be out done North Korea built the No-dong-B intermediate range missile that can be launched from a container and Iran is thought to have these in inventory. Iran successfully launched a Scud-B missile from a container on a container ship in 2006. Advertising video of Russian cruise missile system in a container.

A major worry by U.S. military planners is that one of these innocent looking containers could be placed on a normal container ship and the nuclear missile launched as the ship nears our shores. Iran has tested missiles in an EMP configuration. That means they launched them into a vertical ascent mode and set them to explode at the top of their trajectory. There is no other reason to explode a test missile a couple hundred miles up unless you were practicing for an EMP attack.

Obviously North Korea would also be an EMP threat since they are farther along in missile technology than Iran, they have tested mobile launch platforms and they have nuclear weapons.

Third, the Dept of Homeland Security is now accepting bids for 62 million rounds of .223 ammo used by AR-15s and M16s. The solicitation said the bullets will be used for training purposes by the U.S. Customs and Border Protection agents. That is a huge amount of ammo to be used for training by those two agencies. Do you think maybe they are expecting some visitors from across the border?

Lastly the U.S. is conducting a joint military and Interagency (IA) Unconventional Warfare exercise throughout Texas, New Mexico, Arizona, California, Nevada, Utah and Colorado called Jade Helm (Google it) from July 15th through September 15th. Note that several of those states are border states and the other three are "pipeline" states for illegal's entering from Mexico.

Part of the press release: Multiple branches of the US military, including Green Berets, Navy Seals, and the 82nd Airborne Division, will participate in the 8-week long exercise, which may result in "increased aircraft in the area at night." Troops will be tasked with honing advanced skills in "large areas of undeveloped land with low population densities," and will work alongside "civilians to gain their trust and an understanding of the issues." The exercise, in which some participants will be "wearing civilian clothes and driving civilian vehicles," lists Texas and Utah as "hostile" territory.

All of these events may be just coincidental but it sure seems like the government is rapidly escalating our combat readiness inside the U.S. and maybe they know something we don't know.


 

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"Women will forgive anything. Otherwise, the race would have died out long ago. Women and cats will do as they please, and men and dogs should relax and get used to the idea."

Robert A. Heinlein

 

 


New Plays

Outlook Outshining Concerns

by James Brown

Click here to email James Brown


NEW BULLISH Plays

Daqo New Energy Corp. - DQ - close: 31.09 change: +0.49

Stop Loss: 28.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on April -- at $---.--
Listed on April 18, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 127 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
Solar energy stocks can be volatile. The market is constantly reacting to the swirling waters of politics, international trade, tariffs, and subsidies. Currently it looks like solar stocks are on the rebound after a rough second half in 2014.

DQ is in the technology sector. According to the company, "Daqo New Energy Corp. (DQ) is a leading polysilicon manufacturer based in China. Daqo New Energy primarily manufactures and sells high-quality polysilicon to photovoltaic product manufacturers. It also manufactures and sells photovoltaic wafers."

They provide more detail on their website. DQ says, "We utilize the chemical vapor deposition process, or the 'modified Siemens process,' to produce polysilicon, and have fully implemented the closed loop system to produce high-quality polysilicon cost-effectively. We manufacture and sell high-quality polysilicon to photovoltaic product manufacturers, who further process our polysilicon into ingots, wafers, cells and modules for solar power solutions. Currently our annual capacity for polysilicon is 6,150 MT. We plan to further increase the capacity to 12,150 MT."

Plus, "We also plan to upgrade our off-gas treatment process from traditional Hydrogenation technology to Hydrochlorination technology. Based on our ultra pure polysilicon, we have expanded into downstream wafer business. Our current wafer manufacturing annual capacity is 72 million pieces. Most of our wafer product is high efficiency wafer which represents approximately 4.3 watts per piece."

The company's most recent earnings report was April 10th. DQ reported their 2014 Q4 and full year results. Last quarter the company earned a profit of $3.6 million but that's down from $5.9 million a year ago. Revenues were better than expected at $49.5 million versus the $46.1 million estimate. Gross margins improved from 31.7% to 32.1%.

Their full year 2014 results saw revenues improve +67.5%. Polysilicon shipments were up +40.6% versus 2013. Gross profit hit $43.3 million compared to a loss of $26.1 million in 2013.

A few of the details in their Q4 2014 results did spark some concern. DQ saw an increase in selling, general, and administrative expenses. The cost to produce their polysilicon rose +1.4%. The average selling price for polysilicon fell from $21.50/kg from Q3 to $20.47 in Q4. At the same time DQ's shipments were down -3.8%. To boil it down, analysts are concerned about oversupply and overcapacity issues. At the moment investors appear to be ignoring those concerns thanks to DQ's optimistic outlook.

In their latest earnings report the company provided an optimistic industry forecast. DQ management said, "Global solar PV installations in 2014 totaled approximately 45.0 GW, which represents a 23.2% increase compared to 36.5 GW in 2013. Currently most analyst reports forecast that global solar PV installations in 2015 will be in the range of 52~55 GW, which represents a growth of 16%~22% compared to 2014. In 2014, annual solar PV installations in China were reported to amount to 10.6 GW. In March 2015, Chinese National Energy Administration released the 2015 target for solar PV installations of 17.8GW, which is 19% higher than the initial target of 15GW, and represents an increase of almost 70% from 10.6 GW in 2014. Although some additional polysilicon supply may enter the market mainly in the second half of 2015, we believe the supply and demand of polysilicon will remain in balance, on the premise that the global markets, including the China market, will grow as expected."

This positive outlook has helped push shares of DQ to new four-month highs and above significant resistance at $30.00 and its simple 200-dma. The point & figure chart has turned positive and currently forecasting a long-term target at $48.00.

I want to remind readers that solar stocks can be volatile and DQ especially since it has a very, very small float of only 5.37 million shares. Therefore I'm suggesting very small bullish positions if DQ can trade at $31.55. We'll try and limit our risk with an initial stop loss at $28.75.

Trigger @ $31.55 *small positions to limit risk*

- Suggested Positions -

Buy DQ stock @ $31.55

Daily Chart:



In Play Updates and Reviews

Europe Leads The U.S. Lower

by James Brown

Click here to email James Brown

Editor's Note:
A sharp drop across European markets helped spark some profit taking in the U.S. stock market. Disappointing earnings results didn't help the situation.

TSRA hit our bearish trigger on Friday.

Prepare to exit WWWW on Monday morning.


Current Portfolio:


BULLISH Play Updates

CDW Corp. - CDW - close: 37.83 change: -0.36

Stop Loss: 36.40
Target(s): To Be Determined
Current Option Gain/Loss: -2.1%
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:
04/18/15: CDW dipped to its 20-dma and tried to bounce but didn't get very far. Shares ended Friday with a -0.9% decline. I am suggesting investors wait for a rally past $38.65 before considering new bullish 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

chart:


Cognex Corp. - CGNX - close: 50.08 change: -1.22

Stop Loss: 49.45
Target(s): To Be Determined
Current Option Gain/Loss: -2.5%
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:
04/18/15: The market's sharp decline on Friday pushed CGNX to a -2.3% loss. The stock hit $49.77 at is worst levels before settling on round-number support at the $50.00 mark.

Looking at the intraday chart you can see short-term resistance near $50.50. I'd wait for a new rally above $50.50 before considering new bullish positions.

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

chart:


Prestige Brands Holdings - PBH - close: 43.82 change: -0.68

Stop Loss: 42.85
Target(s): To Be Determined
Current Option Gain/Loss: +3.5%
Entry on March 20 at $42.35
Listed on March 19, 2015
Time Frame: Exit PRIOR to earnings on May 14th
Average Daily Volume = 342 thousand
New Positions: see below

Comments:
04/18/15: Hmm.... profit taking knocked -1.5% off PBH's share price. The close below technical support at its 10-dma is short-term bearish. I'd watch the 20-dma for its next support level (about $43.30). Tonight we're raising the stop loss to $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

04/18/15 new stop @ 42.85
03/21/15 new stop @ 40.35
03/20/15 triggered @ 42.35
Option Format: symbol-year-month-day-call-strike

chart:


Sierra Wireless - SWIR - close: 37.35 change: -1.72

Stop Loss: 36.45
Target(s): To Be Determined
Current Option Gain/Loss: -3.1%
Entry on April 16 at $38.55
Listed on April 15, 2015
Time Frame: Exit PRIOR to earnings on May 7th
Average Daily Volume = 712 thousand
New Positions: see below

Comments:
04/18/15: Ouch! SWIR really underperformed on Friday. Shares erased Thursday's gain with a -4.4% loss on Friday. The 10-dma might offer some support near $36.70. I'd wait to see if SWIR can bounce from its 10-dma before considering new bullish positions.

Trade Description: April 15, 2015:
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.

- Suggested Positions -

Long SWIR stock @ $38.55

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

Long MAY $40 CALL (SWIR150515C40) entry $1.55

04/16/15 triggered @ 38.55
Option Format: symbol-year-month-day-call-strike

chart:


Vipshop Holdings - VIPS - close: 28.90 change: -0.26

Stop Loss: 27.85
Target(s): To Be Determined
Current Option Gain/Loss: -4.1%
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:
04/18/15: I'm starting to worry about our VIPS trade. The stock closed below its 20-dma for the first time in about four weeks. VIPS also delivered its first weekly decline in seven weeks. The $28.00 level looks like it could offer some short-term support but I wouldn't bet on it.

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

04/16/15 new stop @ 27.85
04/09/15 triggered @ $30.15
Option Format: symbol-year-month-day-call-strike

chart:


Web.com Group, Inc. - WWWW - close: 18.66 change: -0.50

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: Exit PRIOR to earnings near the end of April
Average Daily Volume = 533 thousand
New Positions: see below

Comments:
04/18/15: It looks like WWWW is losing the battle with technical resistance at its descending 200-dma. Shares underperformed the market on Friday with a -2.6% declie.

We are suggesting an immediate exit on Monday morning.

- Suggested Positions -

Long WWWW stock @ $19.00

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

Long MAY $20 CALL (WWWW150515C20) entry $1.30

04/18/15 Prepare to exit on Monday morning
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

chart:




BEARISH Play Updates

Strayer Education, Inc. - STRA - close: 52.38 change: -0.41

Stop Loss: 56.15
Target(s): To Be Determined
Current Option Gain/Loss: +1.1%
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:
04/18/15: STRA fell back toward short-term support near $52.00 on Friday. I don't see any changes from my recent comments.

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

chart:


Tessera Technologies Inc. - TSRA - close: 38.13 change: +0.31

Stop Loss: 40.15
Target(s): To Be Determined
Current Option Gain/Loss: -2.0%
Entry on April 17 at $37.40
Listed on April 16, 2015
Time Frame: Exit PRIOR to earnings on May 5th
Average Daily Volume = 585 thousand
New Positions: see below

Comments:
04/18/15: Our new play on TSRA is open. Shares hit new relative lows on Friday before bouncing back into positive territory. Our trigger to launch bearish positions was hit at $37.40.

I am surprised by TSRA's relative strength on Friday considering the SOX semiconductor index lost -1.4%. I would keep an eye on the $39.00 level, which should be immediate overhead resistance. A failure near $39.00 could be used as a new bearish entry point.

Trade Description: April 16, 2015:
After months of gains and generally bullish news shares of TSRA appear to be correcting lower.

The company is considered part of the semiconductor industry. According to the company, "Tessera Technologies, Inc., including its Invensas and FotoNation subsidiaries, generates revenue from licensing our technologies and intellectual property to customers and others who implement it for use in areas such as mobile computing and communications, memory and data storage, and 3DIC technologies, among others. Our technologies include semiconductor packaging and interconnect solutions, and products and solutions for mobile and computational imaging, including our FaceToolsTM, FacePowerTM, FotoSavvyTM, DigitalApertureTM, face beautification, red-eye removal, High Dynamic Range, autofocus, panorama, and image stabilization intellectual property."

Their earnings report in late October 2014 was better than expected and TSRA raised guidance. They raised guidance again in January. Their earnings news in February helped push the stock to new 52-week highs. Unfortunately momentum appears to have reversed. The semiconductor space has been hit with downgrades and earnings warnings.

Now shares of TSRA has broken below multiple layers of support. The point & figure chart has generated a new triple-bottom breakdown sell signal with a $33.00 target. Today shares of TSRA sit on technical support at the 100-dam. A breakdown from here could portend a drop toward $34 or even $32.00 (near the 200-dma).

Tonight we are suggesting a trigger to launch bearish positions at $37.40. This is going to be a short-term trade. We will plan on exiting prior to earnings on May 5th.

- Suggested Positions -

Short TSRA stock @ $37.40

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

Long MAY $37 PUT (TSRA150515P37) entry $1.55

04/17/15 triggered @ 37.40
Option Format: symbol-year-month-day-call-strike

chart:


Olympic Steel Inc. - ZEUS - close: 11.36 change: -0.21

Stop Loss: 13.55
Target(s): To Be Determined
Current Option Gain/Loss: +8.8%
Entry on April 08 at $12.45
Listed on April 07, 2015
Time Frame: Exit PRIOR to earnings on May 1st
Average Daily Volume = 56 thousand
New Positions: see below

Comments:
04/18/15: The weakness in ZEUS continues with shares down another -1.8% on Friday. Nimble traders may want to consider an exit when ZEUS nears the trend line of lower lows I put on the chart below. Actually we all might want to exit if ZEUS near $10.00, which could be round-number, psychological support.

Keep in mind we want to exit prior to earnings on May 1st.

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

chart:



CLOSED BULLISH PLAYS

Steel Dynamics Inc. - STLD - close: 20.44 change: -0.48

Stop Loss: 19.95
Target(s): To Be Determined
Current Option Gain/Loss: -1.8%
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:
04/18/15: It was a rough day for STLD. Actually the last couple of sessions the stock has been weak. Friday saw STLD gap open lower and plunged to $20.20 before trying to bounce. Our plan was to exit positions on Friday at the closing bell to avoid holding over the earnings report on April 20th.

- Suggested Positions -

Long STLD stock @ $20.81 exit $20.44 (-1.8%)

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

MAY $20 CALL (STLD150515C20) entry $1.80 exit $0.95 (-47.2%)

04/17/15 planned exit at the close
04/16/15 new stop @ 19.95, prepare to exit tomorrow at the closing bell
03/24/15 triggered on gap higher at $20.81, trigger was $20.75
Option Format: symbol-year-month-day-call-strike

chart: