Option Investor
Newsletter

Daily Newsletter, Monday, 5/4/2015

Table of Contents

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

Market Wrap

The Bulls Are Still Trying

by Thomas Hughes

Click here to email Thomas Hughes
The bulls are trying to move the market higher while we wait on more economic data.

Introduction

The bulls were out today, if not in force. The markets moved higher with many of the indices trying to set new highs but volumes were muted, perhaps due to the economic storm scheduled for this week. This is the first full week of May so we are expecting a long list of macro-economic releases later this week including but not limited to the NFP report. Today there was only one major release, Factory Orders, and it was better than expected.

The early pre-opening session was dominated by news from Asia and Europe. A mixed set of PMI readings sent indices higher in both regions, if for different reasons. In China the final reading for HSBC's PMI fell to 48.9. This is down from the flash and official government readings which were both just above 50. This is the second month of weak readings for the country and spurred speculation of increased QE, sending stocks higher. In Germany PMI rose to 52, slightly ahead of expectations, aiding outlook and hopes of rebound, also sending stocks higher.

Market Statistics

Futures trading was positive in early electronic trading. The indices were indicated only marginally higher but this held throughout the morning. The indices moved higher when the opening bell sounded and the bulls took charge from there, driving them up by roughly a half percent. They hit resistance just after 10AM, the SPX at the all time high, and then drifted sideways until the close. Action was light today and could have been influenced by holiday's in Japan and England, another big week of earnings reports as well as the upcoming labor data due out later this week.

Economic Calendar

The Economy

Only one economic release today although there are about 2 dozen scheduled for the week. Today we received factory orders which rose by a slightly better than expected 2.1%. The bad news is that last month was revised down to -0.1% from 0.2%. Ex-auto's orders remained unchanged from last month, but there was a significant downward revision to last month as well. Depending on how you look at it the glass is either half-full or half-empty; there is weakness in the trailing numbers but the current number shows orders rebounding into the spring season.

According to Moody's Survey Of Business Confidence business sentiment slipped a bit this week but remains near the all-time high. The index fell by 0.9 to 44.6 from last weeks high of 45.5. According to Mark Zandi, Moody's chief economist,

“Confidence is especially strong in the U.S., where hiring and investment spending are robust. Credit is also freely flowing. Pricing is sturdy, despite heightened deflation concerns in much of the world, and sales are healthy”

I like the part where he says "hiring and investment spending are robust".


According to FactSet the blended rate for earnings growth in S&P 500 companies is now -0.4%. This is more than 4% better than the -4.8% predicted as the season was getting underway. So far 360 companies have reported earnings with 71% reporting better than expected earnings (average) and 46% reporting better than expected revenue (below average). At the current rate of pace the blended rate is very likely to be above 0% as early as next week, reversing expectations for overall earnings decline in the first quarter. Ex-energy, earnings growth is also much better than expected, 3.1%. This is 2% ahead of expectations at the beginning of the reporting season.

Analysts still expect to see earnings decline in the 2nd quarter but I think this view may change in the coming weeks due to economic trends and expanding margins. Full year growth is still sub 2% but expands to 12.5% in 2016.

Economic reports due out later this week include trade balance, ISM, wholesale inventories and a host of labor data. ADP is on Wednesday morning, Challenger and jobless claims on Thursday and then NFP and unemployment on Friday. Also on tap are unit labor costs, average workweek, participation rate and hourly earnings. There may be bad one-off numbers in individual reports but I expect to see signs of stable labor markets and maybe even a hint of wage/earnings inflation.

The Oil Index

Oil closed with a slight loss today after initially trading higher. WTI closed just below $59 after briefly surging to above $59.50 during the morning hours. The drop occurred shortly after news the Saudis were going to halt their air attacks of Yemen based rebels and alleviating, if only for a short time, some of the fear premium built into the market. There are also more signs that storage levels have stabilized at the Cushing facility but there is still no sign of demand picking up. Also, since Exxon reported increased production in the first quarter I don't really see the fracking slow-down having as much impact as some analysts say so supply could remain high even if storage levels top out.

The Oil index traded near the recent high but is still showing signs of falling from resistance. The index has been trying to move above 1,435 for almost 3 weeks and has failed every time. The indicators have peaked during that time and have now turned bearish. The index looks like it will move lower from here, with a first target near 1,400 and the short term moving average.


The Gold Index

Gold prices climbed nearly 1.25% in today's session as buyers once again step in around the $1180 support zone. Today's move was also supported by slightly weaker dollar value. The metal continues to be influenced in the near term by currency fluctuations and economic data with the longer term outlook based on the FOMC rate hike time line.

The gold miners ETF GDX gained today as well, adding about a half percent. The index is near $20.50 and still struggling with resistance. Today's price action created a small gap to the upside, opening the day's trade above resistance, but was not able to hold the high. The candle is a weak spinning top type so not a strong signal in terms of potential reversal. The index may test support along the short term moving average but I am still bullish longer term. Support, which looks strong at this time, is rising in line with the Nov/Dec 2014 and March 2105 troughs and appears to be pushing price up against resistance. A break above $20.50 would be very bullish in my opinion and could take the index to $22.50 or higher in the near to short term. The indicators are weak but bullish and consistent with a rising market.


In The News, Story Stocks and Earnings

Sysco, not Cisco, reported earnings slightly below estimates. The nations would-be largest food distributor reported adjusted earnings of $0.40, one cent below consensus. According to the release sales were up by 4.2% but profits only rose by 3.1% due to increased “food inflation”. Food costs for the company increased 3.7%, mainly in the meat and poultry category. My first though after reading that was to wonder if this is the first signs of the impact of bird flu in the mid-west. In any event the stock lost over -1% in the pre-opening session, traded back up to resistance during the day and then sold off to set a new low. Today's price action occurred below and tested the resistance level set two years ago when the proposed purchase of US Foods was announced; that deal was nixed by regulators but being fought by Sysco.


The bird-flu problem, mostly in the egg laying population of hens, brings to mind Cal-Maine. Cal-Maine is one of if not the single largest producer/shipper of shell eggs in the country. The company reported a near 18% in quarterly profits just a few days ago and doesn't appear to be hurting from the epidemic just yet. The company's CEO says that they are seeing strong demand across all segments of their business despite record high levels of hens in the national flock. The stock gained 12.5% on the news to reach a 7 month high but fell today, losing nearly 3%. Price appears to have hit resistance and may retreat back to the short term moving average.


Texas Roadhouse reported after the bell and satisfied its buyers. The company reported a 23% increase in EPS on the back of an 8.9% increase in comp store sales that blew away the analysts estimates. The company also reported the opening of 3 new stores which will positively affect earnings moving forward. The one negative was a decline in net margin, due to rising commodity (beef) costs, but this was offset by the increase in traffic. The stock, which had been trading lower during the open session, gained more than 5% in the after hours session.


Anadarko Petroleum reported after the bell and did not beat expectations. The exploration and production company reported a net loss much wider than expected on revenues well below forecast. The results are a big disappointment in light of the company reaching record sales volume for the quarter. One positive is that the company was able to lower costs which will help it return to profitability later in the year. The company also raised production guidance for the full year, another plus in terms of potential profitability. The stock had been trading lower in the open session and fell further in after-hours trading. The stock appears to be making a near term double top confirmed by bearish crossovers in both indicators. First down side target is the short term 30 day moving average with additional targets near $85 and $80 if the EMA doesn't hold. Resistance is just above today's closing price near $95.


The Indices

The bulls were out today. They weren't strong but they were steady and held their ground. The indices moved higher from the start and were able to hold positive ground all day. The indices all held fairly tight ranges and closed within hundredths of a percent of each other. The biggest move was the SPX which rose 0.29%. The broad market moved up to test resistance at the all-time high but was not able to move higher. The move began above the top of my triangle/pennant pattern which may provide support into the coming days. The indicators are weak and mixed but still consistent with support along the long term trend line so I would look for buying opportunities with any declines.


The next largest move was in the Dow Jones Industrial Average. The blue chips made a gain of 0.26% and are also testing resistance although on this index resistance is slightly below the current all time high. The indicators are weak and have turned bearish but at this time are consistent with support. Support is just below the current level, near 18,000 and confirmed by the short term moving average.


The NASDAQ Composite gained 0.23% in today's session to create a very tiny doji candle caught between rising support and the resistance of the previous all-time high. It is not surprising that the previous all-time high is affecting price action but I think by now any resistance there is purely psychological. The index has been trending higher, confirmed by the moving average, and is setting up for a possible trend following signal. The indicators have recently turned bearish but are, at this time, consistent with a near term bearish swing during a longer term up trend and not suggestive of imminent reversal.


The Dow Jones Transportation Average brings up the rear. The transports rose only 0.16% and created a possible shooting star doji with upper shadow crossing the short term moving average. This signal looks bearish but may only be near term in nature based on other factors. The index is trading along the bottom of a long term trading range with indicators confirming support along that level, 8,500. The index has been consolidating within this range long enough to return to trend with the long term trend line adding support just below the bottom of the trading range. The indicators are showing some near term weakness but confirm support so appear to be in a bearish swing rather than full reversal. The index could continue to move sideways within this range, 8500-9250, and/or test support again until a clear direction in earnings growth is established.


The market has digested the FOMC meeting without a hiccup, has gotten over its fear of earnings decline and is now re-focusing on the data. So far data trends are positive and leading the market higher. There are a lot of possible market moving releases scheduled for the week but the NFP remains top on the list. Regardless of what that number is it will be the bigger picture that matters. So long as labor remains steady and the consumer continues to heal I think the bull market will continue.

Until the data is released the market could continue to trend sideways, either testing resistance or bumping along support. Of course, there is still earnings to consider. Most of the important names have reported already but there are still quite a few left and this is a big week for reports. There are 88 S&P 500 companies reporting this week so there is a chance for positive surprises to lift the market to a new high even before the data is released.

Until then, remember the trend!

Thomas Hughes


New Plays

Best Quarterly Profit In Eight Years

by James Brown

Click here to email James Brown


NEW BULLISH Plays

Citigroup Inc. - C - close: 54.17 change: +0.41

Stop Loss: 52.20
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on May -- at $---.--
Listed on May 04, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 19.2 million
New Positions: Yes, see below

Company Description

Why We Like It:
When it comes to blue chips you don't get much bluer than Citigroup. This company is massive. The bank has almost $2 trillion in assets. Citigroup generated $45 billion in free cash flow in the last 12 months. That's about $15 per share in free cash flow.

Yet the banks have been underperformers in recent years. The Lehman Brothers bankruptcy that helped fueled the financial crisis was almost seven years ago. Shares of Citigroup are still down 90% from their 2007 levels.

Bulls can argue that shares of C are inexpensive. Current book value for the company is about $67 a share. Tangible book value is around $57 per share. Unfortunately the stock has been languishing in the $46-56 range for almost two years.

Just in case you're not familiar with Citigroup, here's a company description. According to their website, "Citi, the leading global bank, has approximately 200 million customer accounts and does business in more than 160 countries and jurisdictions. Citi provides consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, transaction services, and wealth management.

Citi currently operates, for management reporting purposes, via two primary business segments: Citicorp, representing Citi's core growth franchises and Citi Holdings which contains businesses and assets that are not core to Citi's future. Citicorp includes the Global Consumer Banking (GCB) business and the Institutional Clients Group (ICG) and is focused on providing best-in-class products and services to customers and leveraging Citi's unparalleled global network, including many of the world's emerging economies."

The last couple of years have been considered transition years for the company. 2015 could be its breakout year. C just reported its Q1 2015 results on April 16th and it was their best quarterly profit in eight years. Their profit soared +21%. Wall Street was expecting earnings of $1.40 per share on revenues of $19.8 billion. Citigroup delivered $1.52 per share with revenues down -2.3% to $19.74 billion.

A lot of its improvement was thanks to a focus on cost cutting. They managed to reduce expenses by 10% from the prior year. At the same time the M&A market is improving. 2014 was a good year for mergers and acquisitions. 2015 is shaping up even stronger. C reported a +70% surge in M&A fees.

Citigroup's CEO Michael Corbat commented on his company's quarterly performance, "While some businesses faced revenue headwinds, we had a strong quarter overall, particularly in executing against our top strategic priorities. We grew loans and deposits in our core businesses and gained wallet share among our target clients. We tightly managed our expenses, helping to achieve positive operating leverage in Citicorp and we are on track to hit our financial targets for the year."

Technically the stock looks bullish as it builds on a positive trend of higher lows. Shares are in the process of breaking through resistance in the $54.00 area. Tonight we are suggesting a trigger to launch bullish positions at $54.65.

Trigger @ $54.65

- Suggested Positions -

Buy C stock @ $54.65

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

Buy the JUL $55 CALL (C150717C55) current ask $1.50
option price is a current quote and not a suggested entry price.

Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.

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

Daily Chart:



In Play Updates and Reviews

The Bounce Continues

by James Brown

Click here to email James Brown

Editor's Note:
Friday's bounce continued into Monday's session. The path of least resistance seems to be higher. Widespread gains overseas certainly didn't hurt equities today.

Our plan was to exit the TSRA trade at the close tonight.


Current Portfolio:


BULLISH Play Updates

CDW Corp. - CDW - close: 38.82 change: +0.15

Stop Loss: 37.85
Target(s): To Be Determined
Current Gain/Loss: +0.4%
Entry on April 13 at $38.65
Listed on April 09, 2015
Time Frame: Exit PRIOR to earnings on May 7th
Average Daily Volume = 1.0 million
New Positions: see below

Comments:
05/04/15: CDW managed to build on Friday's bounce with a +0.38% gain today. Unfortunately we are running out of time. I am suggesting we plan on exiting Wednesday to avoid holding over CDW's earnings report on Thursday, May 7th.

Tonight we'll boost the stop loss up to $37.85.

No new positions at this time.

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

05/04/15 new stop @ 37.85
05/02/15 plan on exiting prior to earnings on May 7th
04/29/15 new stop @ 37.40
04/13/15 triggered @ 38.65
Option Format: symbol-year-month-day-call-strike


Canadian Solar Inc. - CSIQ - close: 36.44 change: +0.18

Stop Loss: 35.40
Target(s): To Be Determined
Current Gain/Loss: -1.6%
Entry on April 28 at $37.05
Listed on April 23, 2015
Time Frame: Exit prior to earnings on May 7th
Average Daily Volume = 2.7 million
New Positions: see below

Comments:
05/04/15: The early morning gains in CSIQ faded but traders bought the dip midday in the $36.20 area.

I am suggesting we exit this trade on Wednesday to avoid holding over CSIQ's earnings report on Thursday morning, May 7th. Tonight we'll move the stop loss up to $35.40.

No new positions at this time.

Trade Description: April 23, 2015:
The boom and bust trends in the solar energy industry have been severe. A few years ago there was a supply glut and prices on solar panels plunged by 2/3rds. Investors were fleeing the solar stocks and shares of CSIQ sank toward $2.00 a share. It's a different story today.

China has a HUGE air pollution problem. The country wants to move away from coal-fired energy. That's why China plans to build out 100 gigawatts of solar energy by 2020. India is in a similar bind. They also plan to build out 100 gigawatts of solar energy by 2022. These two countries alone will account for more solar energy production in the next several years than all previous years combined.

China recently announced they had completed 5.04GW of solar capacity in the first quarter of 2015. That puts the country on schedule to meet their 2015 goal of 17.8GW in new solar production.

One company that should benefit from this global build out of solar energy is CSIQ. They are in the technology sector and considered part of the semiconductor industry. According to the company, "Founded in 2001 in Ontario, Canada, Canadian Solar is one of the world's largest and foremost solar power companies. As a leading manufacturer of solar photovoltaic modules and provider of solar energy solutions, Canadian Solar has an industry leading and geographically diversified pipeline of utility-scale solar power projects as well as a track record of successful solar deployment boasting over 9 GW of premium quality modules installed in over 70 countries during the past decade. Canadian Solar is committed to providing high-quality solar products and solar energy solutions to customers around the world."

Their most recent earnings report was March 5th. CSIQ reported Q4 results of $1.28 per share. That missed analysts' estimates. However, revenues soared +84% to $956.2 million, which was above expectations. CSIQ full-year 2014 results saw a record $239 million in earnings with revenues hitting $2.96 billion. They shipped 3.1 gigawatts worth of solar panels. This year CSIQ expects to ship 4.3GW of panels, a +39% improvement.

CSIQ raised their 2015 Q1 guidance above Wall Street estimates, which helps explain the spike in the stock price. Currently the company's full-year guidance is still below street estimates. In spite of this divergence between forecast and analysts' estimates Wall Street is still bullish. All ten of the analysts who cover the stock have a buy rating on CSIQ. The average 12-month price target is near $46.00. The point & figure chart is more optimistic and currently forecasting a long-term target of $66.50.

Technically shares of CSIQ have been building on a bullish trend of higher lows. They're also appear to be breaking out past resistance in the $36.00 area. Further gains could spark some short covering. The most recent data listed short interest at almost 10% of the 41.2 million share float. Tonight I am suggesting a trigger to open bullish positions at $37.05. This will likely be a two or three week trade. CSIQ will report earnings in mid May and we'll plan on exiting prior to the announcement.

- Suggested Positions -

Long CSIQ stock @ $37.05

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

Long MAY $37 CALL (CSIQ150515C37) entry $2.05

05/04/15 new stop @ 35.40
05/02/15 plan on exiting prior to earnings on May 7th
04/28/15 triggered @ 37.05
Option Format: symbol-year-month-day-call-strike


IMAX Corp. - IMAX - close: 37.95 change: +0.06

Stop Loss: 36.35
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on May -- at $---.--
Listed on May 02, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 617 thousand
New Positions: Yes, see below

Comments:
05/04/15: IMAX announced that the Avengers: Age of Ultron movie that came out over the weekend produced their highest-ever weekend at the global box office with sales of $25.2 million at IMAX theaters. Counting non-IMAX theaters the Avengers movie raked in $191.3 million in sales for Marvel and Disney. That was actually a little less than expected but pundits speculate that the Mayweather vs. Pacquiao boxing match on Saturday may have temporarily hurt sales.

Shares of IMAX are still coiling for a bullish breakout higher. Our suggested entry point is $38.25.

Trade Description: May 2, 2015:
It's only May 2nd but the summer movie blockbuster party has already started with the "Avengers: Age of Ultron" hitting theaters this weekend. Ultron just delivered the second biggest opening day with $84.4 million in U.S. sales. That's just below the last Harry Potter movie, which brought in $91 million on its first day.

This Avengers 2 movie has already raked in $425 million overseas and is poised to do more than $200 million this weekend. Estimates suggest it could hit $600 million in the U.S. This movie is produced by Marvel Studios, a division of Disney (DIS), but it also means big business for IMAX. The Ultron movie delivered the biggest opening night sales for any IMAX film ever.

IMAX is part of the services sector. They're considered part of the entertainment industry. According to the company, "IMAX, an innovator in entertainment technology, combines proprietary software, architecture and equipment to create experiences that take you beyond the edge of your seat to a world you've never imagined. Top filmmakers and studios are utilizing IMAX theatres to connect with audiences in extraordinary ways, and, as such, IMAX's network is among the most important and successful theatrical distribution platforms for major event films around the globe. IMAX is headquartered in New York, Toronto and Los Angeles, with offices in London, Tokyo, Shanghai and Beijing. As of March 31, 2015, there were 943 IMAX theatres (820 commercial multiplexes, 18 commercial destinations and 105 institutions) in 63 countries."

Today there is a battle for consumer's viewing habits. People consume their content on all sorts of devices from their smartphones, tablets, laptops, desktops, and their big screen TVs at home. Netflix and other streaming services have changed viewer habits and expectations. When consumers choose to go to the movies they want something different. According to IMAX's CEO that's why IMAX tickets are doing so well. It's an experience that can't be replicated at home.

The company had a lot of momentum going into 2015 thanks to huge hits like "American Sniper". IMAX has managed to beat Wall Street's earnings and revenue estimates for the last four quarters in a row. Their most recent earnings report was April 30th. Income surged +50% from a year ago. Analysts were expecting $0.05 a share. IMAX delivered $0.07. Revenues rose +29% to $62.2 million, significantly above estimates for $55.4 million.

IMAX CEO Richard Gelfond commented on their results, "This is a very exciting time for IMAX. Our continued progress in expanding our theatre network globally, along with our strong film performance during the first quarter, resulted in robust financial results with almost 30% revenue growth and over 50% adjusted earnings growth compared to the same period last year. With record results from Furious 7 in April and a great start to the Avenger's sequel internationally, the momentum has continued into the second quarter."

2015 is expected to be a huge year. The "Fast & Furious 7" film kept the momentum going. IMAX will also benefit from high-profile movies like "Avengers: Age of Ultron", the new James Bond movie, another Mission Impossible film, and the next episode of Star War (#7) this December.

IMAX is rolling out new laser systems and they've signed long-term film deals with Disney and Warner Brothers. IMAX is currently growing at about 120 theaters a year. They're doing well in China. The Chinese movie box office is expected to eclipse the U.S. market by 2020.

Shares of IMAX look bullish with the stock trading at all-time highs. Currently the stock us hovering just below short-term resistance at $38.00. A breakout here could fuel some short covering. The most recent data listed short interest at 20% of the 58.6 million share float. We are suggesting a trigger to launch bullish positions at $38.25.

Trigger @ $38.25

- Suggested Positions -

Buy IMAX stock @ $38.25

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

Buy the SEP $40 CALL (IMAX150918C40)

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


Nucor Corp. - NUE - close: 49.22 change: +0.22

Stop Loss: 47.85
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on April -- at $---.--
Listed on April 28, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.5 million
New Positions: Yes, see below

Comments:
05/04/15: NUE outpaced the market with a +0.44% gain on Monday. Yet the stock seems to be struggling with technical resistance at its 150-dma. If shares don't show more improvement soon we may drop it. Our suggested entry point is $50.50.

Trade Description: April 28, 2015:
NUE's management is expecting steel prices to stabilize by the end of the year and that has provide hope for investors. The industry is still struggling with a "flood" of imports.

NUE is in the basic materials sector. According to the company, "Nucor and its affiliates are manufacturers of steel products, with operating facilities primarily in the U.S. and Canada. Products produced include: carbon and alloy steel -- in bars, beams, sheet and plate; steel piling; steel joists and joist girders; steel deck; fabricated concrete reinforcing steel; cold finished steel; steel fasteners; metal building systems; steel grating and expanded metal; and wire and wire mesh. Nucor, through The David J. Joseph Company, also brokers ferrous and nonferrous metals, pig iron and HBI/DRI; supplies ferro-alloys; and processes ferrous and nonferrous scrap. Nucor is North America's largest recycler."

Their 2015 Q1 results were hurt by a -5% drop in average selling price of steel. Wall Street was expecting earnings of $0.14 a share on revenues of $4.66 billion. NUE delivered $0.21, which was a -39% drop from a year ago, but significantly above its mid-March guidance in the $0.10-0.15 range. Revenues were down -14% to $4.4 billion.

NUE management commented on its quarter, "This lower performance is primarily due to lower selling prices and margins resulting from the exceptionally high level of steel imports flooding the domestic market. It is estimated that imports accounted for 33% of the finished steel market in the first quarter of 2015. Import levels in February and March were lower than the peak in January, but remain at the exceptionally high levels experienced during most of 2014. We anticipate selling prices to remain under pressure as the flood of imports continues in the second quarter of 2015. Global overcapacity built by foreign, state-owned enterprises continues to be a significant risk factor to our business."

The stock actually rallied on its earnings report thanks to somewhat optimistic guidance. The company said the automotive market remains strong. They continue to see improving demand in the nonresidential construction markets. NUE did note that the energy market is still troubled. The drop in crude oil and the decline in active rigs has cut demand for tubular goods products (drilling equipment), which has caused a glut of inventory in the sector.

NUE shared the following outlook, "Earnings in the second quarter of 2015 are expected to be somewhat improved from the first quarter of 2015. Although margins in the steel mills segment are expected to improve, they will remain under pressure during the second quarter of 2015 as selling prices have not yet fully stabilized and imports remain at exceptionally high levels. This pricing pressure is expected to mitigate the benefits of lower average raw materials costs in the second quarter. We expect much better performance in the downstream products segment in the second quarter of 2015. The performance of the raw materials segment is expected to decrease in the second quarter of 2015 due to a planned one month outage at our DRI facility in Trinidad. We anticipate an operating loss similar to the first quarter of 2015 at Nucor Steel Louisiana, which, due to the extended length of the time the facility was not operating, will work through higher cost iron ore inventory that was purchased in 2014. Performance in the second half of 2015 is expected to further improve on the strength of continuing improvement in nonresidential construction and its impact on our downstream products businesses and steel mills. Additionally, steel pricing is expected to stabilize and rebound as service center destocking runs its course."

It would appear that the market has priced in the industry's trouble with imports. Now investors are looking ahead toward improvement later this year. The stock has been consolidating sideways in the $46-49 range for several weeks. Shares rallied on its earnings report and now it's on the verge of breaking out from its trading range. The $50.00 level is round-number resistance plus it's strengthened by technical resistance with the simple 200-dma. A breakout past this area would be very bullish. Tonight we're suggesting a trigger to launch bullish positions at $50.50.

Trigger @ $50.50

- Suggested Positions -

Buy NUE stock @ $50.50

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

Buy the JUL $50 CALL (NUE150717C50)

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




BEARISH Play Updates

OvaScience, Inc. - OVAS - close: 25.40 change: +0.08

Stop Loss: 29.45
Target(s): To Be Determined
Current Gain/Loss: + 8.1%
Entry on April 28 at $27.65
Listed on April 27, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 725 thousand
New Positions: see below

Comments:
05/04/15: Early morning gains in OVAS pushed the stock up to $26.76 (+5.5%) but the rally faded. That's good news if you're bearish. I am not suggesting new positions. More conservative traders may want to lower their stop loss.

Trade Description: April 27, 2015:
A report published by Allied Market Research suggested the global in-vitro fertilization (IVF) market was about $9 billion in 2012. Demand is expected to grow the market to more than $21 billion by 2020. OVAS believes their AUGMENT treatment is a huge step in boosting a woman's ability to get pregnant.

Here's a brief description of the company, "OvaScience (OVAS) is a global fertility company dedicated to improving treatment options for women around the world. OvaScience is discovering, developing and commercializing new fertility treatments because we believe women deserve more options. Each OvaScience treatment is based on the Company’s proprietary technology platform that leverages the breakthrough discovery of egg precursor (EggPCSM) cells – immature egg cells found inside the protective ovarian lining. The AUGMENTSM treatment, a fertility option specifically designed to improve egg health, is available in certain IVF clinics in select international regions outside of the United States. OvaScience is developing the OvaPrimeSM treatment, which could increase a woman's egg reserve, and the OvaTureSM treatment, a potential next-generation IVF treatment that could help a woman produce healthy, young, fertilizable eggs without hormone injections."

Excitement over the company's prospects helped drive the stock from less than $10 in August 2014 to an all-time high of $55 in late March 2015. Unfortunately, the stock has reversed lower as the market tries to decipher the data on OVAS' progress. The FDA has prevented OVAS' treatment in the U.S. Critics complain that OVAS has not published any animal studies. There is concern that the procedure might endanger the child. Thus far the handful of tests done outside the U.S. look more like experiments than clinical trials.

Investors have decided to shoot first and ask questions later. That explains the sudden and sharp reversal lower in OVAS' stock. It's not just traders who have turned cautious. Zacks noted that multiple analysts have reduced their estimates on the company.

Technically OVAS is in a bear market with a -47% drop from its closing high. The point & figure chart is bearish with a long-term target at $7.00. The oversold bounce in early April failed and now OVAS is about to breakdown below technical support at its 200-dma. The next stop could be $20.00 if OVAS does close below support near $28.00.

Tonight we are suggesting a trigger to launch small bearish positions at $27.65. We want to limit our position size because this is a high-risk, more aggressive trade. Biotech stocks are normally risky since we never know when the next headline might send the stock soaring or crashing. Traders may want to use options to limit their risk.

- Suggested Positions -

Short OVAS stock @ $27.65

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

Long JUN $25 PUT (OVAS150619P25) entry $2.95

04/29/15 new stop @ 29.45
04/28/15 triggered @ 27.65
Option Format: symbol-year-month-day-call-strike



CLOSED BEARISH PLAYS

Tessera Technologies Inc. - TSRA - close: 37.44 change: +0.36

Stop Loss: 38.05
Target(s): To Be Determined
Current Gain/Loss: -0.1%
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:
05/04/15: Our TSRA trade has expired. The plan was to exit positions today at the closing bell to avoid holding over TSRA's earnings tomorrow. Shares managed to outperform the broader market with a +0.97% gain today.

- Suggested Positions -

Short TSRA stock @ $37.40 exit $37.44 (-0.1%)

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

MAY $37 PUT (TSRA150515P37) entry $1.55 exit $0.75 (-51.6%)

05/04/15 planned exit
05/02/15 new stop @ 38.05
05/02/15 prepare to exit on Monday at the closing bell
04/29/15 new stop @ 38.45
04/17/15 triggered @ 37.40
Option Format: symbol-year-month-day-call-strike

chart: