Option Investor

Daily Newsletter, Wednesday, 2/11/2015

Table of Contents

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

Market Wrap

Headline Driven

by Keene Little

Click here to email Keene Little
With central bank money holding up the stock markets investors have long ago abandoned fundamental reasons for buying. Now the market is headline driven and the market is holding up in hopes there will be a successful effort to kick the can further down the road for Greece.

Wednesday's Market Stats

The market's volatility over the past three months has continued and the indexes are threatening to break out of bullish continuation patterns. But so far the breakout attempts have been on low volume and relatively weak market breadth, which gives pause to the idea that the bullish continuation patterns will work for the bulls. And if they don't work then the bears are going to pounce.

Part of the reason for the market's choppy behavior recently has to do with the news coming out of Europe, especially relative to Greece and its debt issue as well as what's happening in Ukraine and the beating of chests between the U.S. and Russia. The market doesn't like uncertainty and it makes it hard for the market to rally when there's real fear about what could happen to the EU if the dominoes start to fall, starting with Greece (which could lead the way for Portugal, Spain, Italy and others).

If Greece defaults on its loans, is forced out of the EU and then improves its economy by itself it will only embolden other countries to do the same. Nationalism is already coming to the fore as immigration issues, terrorist activities and labor protection prompts some to declare the need for border checks to be reinstituted. It's a slippery slope back to pre-EU days and that would only further push Europe, especially Germany (which is dependent on the rest of the EU to take their products), into a depression. The U.S. and the rest of the world would not be immune to significant trouble in Europe.

The big thing supporting the stock markets is all of the money coming out of central banks. Even without the Fed at the moment (they'll be back), there's now $60B/month of monetary stimulus coming from Japan and theoretically about $50B/month coming from Europe, which means about $110B of new money coming into the global financial markets every month. Much of that money is flowing into global stock markets, the U.S. included, and it's likely one reason why the stock markets have not been cratering on all of the worrisome news coming out of Europe recently. To say this new money is creating an extreme imbalance in the financial markets would be a gross understatement but for now it's certainly enough to keep the bears away.

The stock indexes have had a very volatile period since last November while prices have gone essentially nowhere. Today's closing price for SPX, at 2068, is where it was last Thanksgiving (the latter part of November). It's been a good trading environment if you were able to catch some of the swings but buy-and-holders have been marking time, with a couple of good scares thrown in there just to make things exciting.

What's still not clear, after nearly three months of this choppy whipsaw market, is whether or not we should expect higher highs. If yes then we should see them this month. If no then we should see prices below the 3-month trading range before the end of this month. The market is currently at the mercy of headline news and appears to be holding up under the assumption that the issues with Greece will be solved in a way to at least kick the can a little further down the road so that the Syriza party officials can tell the Greek people what a great job they're doing and the EU ministers can delay any resolution as to how Greece will pay back its debt. Each side has a strong desire to keep themselves in power and will do and say anything to make that happen.

In the meantime the market is having a tougher time justifying the higher stock prices when it comes to fundamental analysis. The chart below shows the expected earnings per share and sales growth for the coming year and as you can see, those expectations have been in decline since last September (interestingly, that's when the NYSE topped). The current projection is for zero sales growth and the EPS estimate is about a third of where it was in September (about 4% vs. more than 12%). And yet the DOW and SPX and others continue to hold near their highs and might even press higher this month. This is what the money from the central banks has done and this is why I say the disconnect between stock prices and reality will likely collapse quickly when (not if) it happens. The yield-chasing money managers simply continue to push prices higher regardless of value but as with all bubbles, this one too is simply looking for a pin to prick it.

Earnings per share and sales growth consensus for 2015, chart courtesy businessinsider.com

Another sign of the slowdown in the global economy (and we're all inextricably linked) is the continuing decline in the Baltic Dry Index (BDI), which has declined sharply since last November and is now below where it was at the end of 2008 and at the beginning of 2012. There's simply not as much product, especially commodities, that are shipping around the world. It's why we've seen such a large decline in commodity prices since the peak in prices in 2011. There's no good reason for stock prices to be as high as they are except for the fact that hot money (newly created from central banks) continues to chase prices higher. It's a game of musical chairs and everyone's hoping to grab a chair when the music stops.

But those are things to worry about if you're long the market and hope to see the writing on the wall before the bottom falls out. The scary thing is how many money managers are waiting for the same thing and I fear (for those who will get trapped in long positions) that when the music stops and money managers pull their money out of the market there will be no one on the other side of the trade to buy the stock from them. This is what creates the flash-crash scenario and we've had brief tastes of it in the past. But still, most people think the Fed will save them and they continue to buy without regard for downside risk. We could find out soon how well that works out for them.

Moving to the charts, as confusing as this market currently is, we still have the best chance of seeing where prices might turn or get confirmation when a new trend might start (at the present the trend is a choppy sideways move). The weekly chart is bullish if only because price is still above the uptrend line from March 2009 - October 2011, which was tested last week. This argues for another rally up to the trend line along the highs from April 2010 - May 2011, currently near 2143. But I also see the potential for a bear flag pattern for all of the choppy price action we've seen since mid-December and price is currently at the top of the flag. The bulls need to keep the rally going from here otherwise we might see another leg down to at least the 1970 area. The bulls are in control and the bears need to respect the upside potential but the bears would take back control if SPX drops below the February 2nd low near 1981.

S&P 500, SPX, Weekly chart

My daily chart is full of trend lines as I try to find where price will head next. When it gets choppy and whippy as it's been I find trend lines are often successful in identifying where and when price will reverse. It might not be a lasting reversal but it's often good for a day trade (or short swing trade). Instead of a bear flag pattern that I drew on the weekly chart, I've been watching an expanding triangle on the daily chart and SPX is currently banging its head at the top of the triangle (this is a bearish pattern). At the same time SPX is also back-testing its broken uptrend line from October through the January 6th low. You can see how price has reacted around these uptrend lines from October through the successive lows.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2080
- bearish below 1972

The bearish setup is for another leg down at least equal to the December 29 - Jan 6 decline, which targets 1972 from here, and potentially down to the 1900 area in what could turn into a stronger reversal of the rally. The bullish pattern, also drawn on the daily chart, is a bullish descending wedge following the December high, and the breakout on February 5th was followed by a back-test and bullish kiss goodbye with this week's rally. It says we should rally up to at least the 2125 area (trend line across the highs from July-December 2014. It's an important inflection point and the news about Greece could be the catalyst for the next big move.

The 60-min chart below shows multiple patterns. "Pick one, any one" is what I feel like telling the market here. Just pick one and let's get the next move started. This jerking around inside a wild trading range is getting old so let's get a new trend started. Watch for the possibility of only a head-fake break above 2080 but a rally above that level that can hold above it would be bullish and I'd look for 2125 minimum. Below 2401 would be bearish with a bearish warning below today's low at 2058.

S&P 500, SPX, 60-min chart

The DOW's daily chart below shows a bull flag for its consolidation pattern following the December high. I could easily add the expanding triangle, similar to the one for SPX, so this is just one possibility. The breakout last week from the bull flag pattern was followed by a bullish back-test on Monday (along with its 50-dma) and that keeps it on a buy signal until negated with a drop below Monday's low at 17685, which would be better confirmed with a break back inside the flag pattern, which would indicate a failed breakout attempt, and below the 20-dma, currently at 17576.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 17,950
- bearish below 17,575

NDX finally made it up to the top of its descending triangle pattern yesterday and today's rally had it breaking out the top. That's bullish and if it can now hold above the top of the triangle (downtrend line from November-December), near 4281, it will stay bullish. But a drop back below 4280 would leave a failed breakout attempt and that would get the sellers all over it. Pooh Bear would see it as a honey pot and he'd be jumping in with both feet. Better confirmation for the bulls would be a rally above the December high at 4323 and for the bears it would be a decline below Monday's low at 4206.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4323
- bearish below 4206

SOX and BKX are two good indexes to keep an eye on when trying to guess the direction of the market. If they're in synch it's generally good to follow their lead. When they're not in synch it's usually a time of consolidation for the market (choppy whippy moves), like today. One of the biggest semiconductor stocks to watch is Intel (INTC) since it's typically a good barometer for the broader market. While the broader market got a strong rally last week, the same thing cannot be said for INTC and that's a bearish warning sign (or at least be careful about trusting the rally).

Last week INTC consolidated the previous week's loss, which was a big one (-9.4%). As can be seen on its monthly chart below, the rally into the December 2014 high had it poking above the top of a long-term parallel channel, which slopes slightly down from 2002. This channel is a very large consolidation before an expected 2nd leg down to complete a larger A-B-C pullback from 2000. INTC had also rallied up to its trend line along the highs from April 2010 - May 2012, with a slight poke above it in December. The brief throw-over above the line was followed by a selloff into the end of January and the drop back into the channel created a sell signal. On a longer-term basis, by this pattern, INTC is now on a sell signal that can only be negated with a rally above its December high at 37.90.

Intel Corp, INTC, Monthly chart

Moving in closer, the weekly chart of INTC below shows it's currently finding support at its uptrend line from February 2014, near 33, which is also the location of its 200-dma. If the bulls can't hold 33 we'll know INTC is in trouble but at the moment it would not be hard for me to argue for one more minor new high, just above 38, to complete a 3-drives-to-a-high topping pattern. That would be pure speculation from here but bears need to respect the possibility. You can see the significant bearish divergence at the December high vs. the prior highs in July and September 2014.

Intel Corp, INTC, Weekly chart

Last Thursday the RUT broke its downtrend line from December and this week it dropped back down to the line, currently near 1189, which so far is holding on the back-test. The bulls would like to see a bullish kiss goodbye and new highs, in which case we could be looking for a rally for the rest of this month, with the potential for the RUT to make it up to its broken uptrend line from March 2009 - October 2011, which will be near 1260 by the end of the month. That would be the 3rd back-test, following the ones in November and late December, which would create a 3-drives-to-a-high topping pattern. That's a setup we'll worry about if and when the RUT makes it up to there. But if last week's breakout attempt fails to hold and the RUT drops back below 1180 it will leave a bearish failure and the result would likely be strong selling to follow.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1217
- bearish below 1180

Recently I've been showing the TLT (20+ year Treasury ETF) weekly chart to point out how it had rallied up to potentially strong resistance at its trend line along the highs from December 2008 - July 2012, as well as its trend line along the highs from February-October 2014. It popped above the latter at the end of January and almost tagged the longer-term trend line but then fell back below both when it gapped down on February 3rd, creating a sell signal. This morning TLT dropped down to its 50-dma, near 129.10, and the short-term bullish divergence on its intraday charts suggested support at the 50-dma would likely hold, which it did. At the moment it's looking like we can expect at least a bounce correction to the decline from January 30th.

20+ Year Treasury ETF, TLT, Daily chart

I see the potential for TLT to rally to a minor new high, perhaps up to about 139.30 (depicted in green) to complete a 5-wave move up from September 2014 but this requires the current pullback to stay above the October 2014 high at 127.68. With today's low at 128.96 there's not much wiggle room left, which makes support at its 50-dma that much more important here. A drop below 127 would be more bearish and confirm an important high is in place for bonds.

The banks have been relatively weak compared to many of the other indexes and has underperformed SPX since September 2014. As can be seen on the BKX weekly chart below, it has essentially gone nowhere since the beginning of 2014 and in the process has created a bearish expanding triangle topping pattern. This can be viewed as the left half of what could develop into a diamond top. Last week BKX got a strong bounce but so far it's only good enough for a back-test of its broken uptrend line from March 2009 - October 2011, which was broken in January. This is a bearish setup and if BKX starts heading lower it would be a warning sign to not trust any rally in the broader market (follow the money).

KBW Bank index, BKX, Weekly chart

Very little has changed in the past week for the U.S. dollar. The pullback from its high on January 26th is a 3-wave pullback correction that found support at the top of its parallel up-channel from 2008-2011 and another leg up to the 97.35 area continues to look like the higher-odds scenario. The dollar would be in trouble below the February 3rd low at 93.38.

U.S. Dollar contract, DX, Weekly chart

Gold's high on January 22nd stopped a little short of its broken uptrend line from 2001-2005 (bold green line on the weekly chart below) and has since dropped back down, leaving a back-test and bearish kiss goodbye. It is now back down to its broken downtrend line from October 2012 - July 2014, near 1221, so now we'll see if the bulls can chase the gold bears away. In addition to support at its broken downtrend line the pullback from January has two equal legs down at 1217.80, which was achieved with today's low at 1216.50. It could be good for a bounce here but I think the larger bearish pattern continues to hold sway and another new low for gold is expected in the coming months. Gold needs to get above 1350 before I would turn bullish the shiny metal.

Gold continuous contract, GC, Weekly chart

So far the price action following the low in January for oil has been corrective and it's doing what I thought it might -- it looks like it's in the early stages of what should turn into a multi-month consolidation before heading lower later this year. Until and unless oil can climb back above price-level S/R near 58 I would not turn bullish on oil, especially since there's still the risk for oil to drop down to its January 2009 low at 33.20. Other than some short-term trades I don't see a good trading environment for oil here.

Oil continuous contract, CL, Weekly chart

Tomorrow's economic reports include unemployment claims and retail sales data before the open. The retail sales data could move the market but frankly I don't think the market cares one wit about economic data. It's driven by one thing only now -- how much cash is coming into the markets courtesy of the central banks. The only affect that economic reports have is based on what the market thinks about how it will affect the thinking of the Fed in regards to raising rates. My hope at this point is that Rand Paul generates enough support to audit the Fed and start the process of dismantling the central bank. There would be short-term hell to pay in the markets but once equilibrium is reestablished, through the free market system, we'd all be much better off and we'd stop the insane transfer of wealth for Mom and Pop saver to Wall Street bankers. It's probably a pipe dream but I have to remain hopeful that it will eventually happen.

Economic reports and Summary

The stock market has been stuck in the mud for almost 3 months but the wheels have been spinning fast and splattering lots of mud over both parties trying to help get it unstuck. There's a huge battle going on between the bulls and the bears as the bulls argue there's too much money coming into the markets (courtesy of the central banks) to ignore. It needs to get put to work and that will drive stock prices higher. Funnymentals be damned, full speed ahead.

The bears talk about the huge disconnect between stock prices and reality -- the global economy is heading for the toilet, central banks are creating a bubble and this is going to end in tears for the bulls. And guess what, both sides are correct and that's why the battle continues as each side remains somewhat convinced in their argument but not enough to overpower the other side.

The indexes are on the verge of breaking out and it needs just one good day to convince the bears to back off and let this thing ride. A new rally could be good for at least another +5% for the market and new all-time highs this month. Other than a quick pop up and then immediate strong decline, buying a breakout from here could be a good swing trade. But carrying overnight, with the inherent huge downside risk, would be very risky in my opinion.

If the current breakout attempts fail to hold and the indexes drop below Monday's lows I think traders would have a good swing trade on the short side for prices to drop at least marginally below the January lows. It could get much more bearish than that but for now I think that's a good downside target. Traders who are playing short term are the ones who are doing better than the ones swinging for the fences. Home run time will come but not yet.

For those who like numbers, here's an interesting one to think about -- 2094.78, which is about a point above the December 2013 high for SPX. Taking the March 2009 low at 666.79 and multiplying it by pi (3.14159...) gives us 2094.78. The fact that the December 2013 high for all intents and purposes achieved that level could be purely coincidental, or maybe not.

Good luck and I'll be back with you next Wednesday.

Keene H. Little, CMT

In the end everything works out and if it doesn't work out, it is not the end. Old Indian Saying

New Option Plays

Hiding In Apple's Shadow

by James Brown

Click here to email James Brown


NXP Semiconductors - NXPI - close: 83.86 change: +1.90

Stop Loss: 77.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 3.7 million
Entry on February -- at $---.--
Listed on February 11, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
According to Apple Inc. CEO Tim Cook 2015 will be the year of Apple Pay. That's good news for NXPI. Apple launched its Apple Pay mobile payment system last September. In just the last four months it has taken off. About 8% of retailers already support it and estimates suggest that 38% of retailers will support Apple Pay by year end.

Tim Cook discussed the growth of Apple Pay in his company's recent conference call. Every $3 spent using mobile payments with Visa, Mastercard, and American Express, about $2 of that is used through Apple Pay. Panera Bread said that 80% of its mobile payment usage is through Apple Pay. Whole Foods noted that customers using mobile payments surged +400% once Apple Pay started.

All of this is good news for NXPI because they make the key chips necessary for Apple Pay to work.

The company describes itself as "NXP Semiconductors N.V. (NXPI) creates solutions that enable secure connections for a smarter world. Building on its expertise in High Performance Mixed Signal electronics, NXP is driving innovation in the automotive, identification and mobile industries, and in application areas including wireless infrastructure, lighting, healthcare, industrial, consumer tech and computing. NXP has operations in more than 25 countries, and posted revenue of $4.82 billion in 2013."

Earnings have been good. NXPI managed to beat Wall Street's estimates on both the top and bottom line the last five quarters in a row. Back in July NXPI raised their guidance. Influential hedge fund manager David Tepper, who runs Appaloosa Management, launched a new position in NXPI back in the third quarter of 2014. In early December shares of NXPI were upgraded with a $100 price target by Oppenheimer.

NXPI's most recent earnings report as February 5th. Revenues surged +18.9%. Management delivered bullish earnings guidance for the first quarter. Since this report at least four analyst firms have raised their price targets on NXPI (most of them into the mid $90s).

Today NXPI just hit all-time highs. The stock had been consolidating sideways in at $75-82.50 trading range. This breakout looks like an entry point. I'm suggesting a trigger at $84.15 to buy calls.

Trigger @ $84.15

- Suggested Positions -

Buy the Apr $90 CALL (NXPI150417C90) current ask $2.30

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

Daily Chart:

In Play Updates and Reviews

Hostage To Greece Headlines

by James Brown

Click here to email James Brown

Editor's Note:

The stock market chopped sideways as investors waited on any news out of the EU finance minister summit and talks with Greece. Another decline in crude oil didn't seem to have much impact today.

Greece is facing some key deadlines in the next couple of weeks. It's negotiations with its creditors in Europe will remain front page news. There is some speculation that the country might get a six-month extension that gives everyone more time to discuss strategy on how to deal with the issue.

We want to exit our STZ and ZBRA trades tomorrow at the closing bell.

Current Portfolio:

CALL Play Updates

Hanesbrand Inc. - HBI - close: 117.29 change: +0.51

Stop Loss: 109.90
Target(s): To Be Determined
Current Option Gain/Loss: +40.2%
Average Daily Volume = 800 thousand
Entry on February 03 at $114.14
Listed on February 29, 2015
Time Frame: Exit PRIOR to HBI's stock split on March 4th
New Positions: see below

02/11/15: HBI kept the rally alive with another gain. Shares are now up six out of the last seven sessions. I don't see any changes from my recent comments. More conservative traders may want to start raising their stop loss.

Earlier Comments: February 2, 2015
How many stocks can you name that are up +400% in the last three years? HBI is in the consumer goods sector. They make apparel under a variety of brand names. Shares of HBI have been a big performer the last few years, outperforming the broader market.

According to the company, "HanesBrands, based in Winston-Salem, N.C., is a socially responsible leading marketer of everyday basic apparel under some of the world's strongest apparel brands in the Americas, Asia and Europe, including Hanes, Champion, Playtex, DIM, Bali, Maidenform, Flexees, JMS/Just My Size, Wonderbra, Nur Die, Lovable and Gear for Sports. The company sells T-shirts, bras, panties, shapewear, men's underwear, children's underwear, socks, hosiery, and activewear produced in the company’s low-cost global supply chain."

A good reason shares have been rising so consistently has been HBI's bullish guidance. Last year the company raised its earnings guidance three quarters in a row. Their most recent earnings report was January 29th (last week). HBI's Q4 results were $1.46 a share with revenues surging +20% to $1.55 billion. The bottom line number was two cents above estimates while revenues met estimates.

HBI said that 2014 was its second consecutive year of record results. Net sales rose +15% while its profit grew +28% and adjusted EPS soared +45%. Hanes Chairman and CEO Richard A. Noll commented on their results saying,

"We had another outstanding year in 2014, generating significant shareholder value and again achieving record results for sales, operating profit and EPS. We are in the midst of a multiyear period of strong growth supported by our powerful company-owned global supply chain, Innovate-to-Elevate product platforms, and acquisitions. Our guidance for 2015 translates into another year of double-digit EPS growth and what would be another record year for sales, profit and EPS, despite the challenges of currency exchange rates."

HBI's new guidance sees 2015 revenues in the $5.77-5.82 billion range. That's +9% growth but a little bit below Wall Street's estimates. HBI is forecasting earnings in the $6.30-6.50 range, which equals about +11% to +15% growth.

Management also raised its cash dividend +33% to $0.40 a share. On top of that they issued a 4-for-1 stock split. The split is coming up soon. HBI will start trading split adjusted on March 4th, 2015. We think HBI could see an old-fashioned split run.

Tonight we are listing a trigger to buy calls at $114.10. We'll start this trade with a stop at $109.90. Plan on exiting before the March 4th stock split date.

- Suggested Positions -

Long MAR $115 CALL (HBI150320C115) entry $3.21

02/03/15 triggered @ 114.14 on an intraday gap higher. Suggested entry was $114.10
Option Format: symbol-year-month-day-call-strike

Honeywell Intl. - HON - close: 102.43 change: -0.01

Stop Loss: 99.65
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 3.0 million
Entry on February -- at $---.--
Listed on February 10, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

02/11/15: Shares of HON quietly consolidated sideways along the $102 level today. There is no change from last night's new play description. Our suggested entry point is $103.05.

Earlier Comments: February 10, 2015
HON is in the industrial goods sector. Shares have managed to outperform its peers. The Dow Jones Industrial Average is up +0.26% this year. The XLI industrial ETF is -0.3% for 2015. Yet HON is up +2.5% so far. That's not bad and it's not counting the stock's 2% dividend yield.

According to the company, "Honeywell (www.honeywell.com) is a Fortune 100 diversified technology and manufacturing leader, serving customers worldwide with aerospace products and services; control technologies for buildings, homes, and industry; turbochargers; and performance materials."

Earnings have been somewhat mediocre. Back in December HON lowered expectations for their fourth quarter results. When they finally reported Q4 results in January they managed to beat estimates by one cent with a profit of $1.43 a share, which is a +15% improvement from the year ago period. Revenues dropped -1.2% year over year at $10.27 billion but that still beat Wall Street's revenue estimate of $10.17 billion. HON's Q4 results were hurt by a -6% slowdown in their aerospace business but management is bullish that this segment will see strong growth going forward.

HON's Chairman and CEO Dave Cote commented on his company's results,

"In the fourth quarter, Honeywell delivered 4% organic sales growth and achieved 15% earnings per share growth (excluding the pension mark-to-market adjustment), exceeding the high end of our guidance range and capping off another year of terrific performance in 2014... Strong execution in our businesses and continued momentum across the portfolio throughout the year helped us to deliver on our aggressive 2014 sales, margin, and EPS targets. We achieved significant margin expansion in 2014 with benefits from our key process and productivity initiatives, and increased organic growth
Discussing their 2015 outlook the company said, "We remain cautious in our planning with regard to the global economy, but are confident that our balanced portfolio mix of short- and long-cycle businesses is well-positioned to deliver on our 2015 commitments that include higher organic sales, continued margin expansion, and double-digit earnings growth."

In an interview with Bloomberg, Mr. Cote sounded optimistic. He said, "For the first time in five years, I'm actually a little more bullish on where the global economy is going than economic forecasters are." Discussing the impact of crude oil on the economy, he said, "impact of lower oil prices is causing this major redistribution from oil-producing to oil-using economies, and those oil-using economies are quite large."

The market seemed unfazed by the company's cautious outlook. The stock actually rallied on its report. HON's recent strength has pushed shares to new all-time highs. The point & figure chart is already bullish and forecasting at $135.00 target. The P&F chart is also on the verge of a new triple-top breakout buy signal. Tonight we are suggesting a trigger to buy calls at $103.05

Trigger @ $103.05

- Suggested Positions -

Buy the JUN $105 CALL (HON150619F105)

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

ServiceNow, Inc. - NOW - close: 73.88 change: +0.56

Stop Loss: 69.85
Target(s): To Be Determined
Current Option Gain/Loss: -23.7%
Average Daily Volume = 1.1 million
Entry on February 05 at $75.15
Listed on February 04, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

02/11/15: NOW displayed some relative strength today with a +0.76% gain. Although if you look at the intraday chart NOW was definitely having trouble with the $74.00 level. I would wait for a breakout past resistance near $75.00 before considering new positions.

Earlier Comments: February 4, 2015:
Tonight we are looking at a company that saw its sales grow more than 60% last year. They're forecasting more than 40% growth in 2015. That company is cloud-based services ServiceNow.

NOW describes itself as "ServiceNow is changing the way people work. With a service-orientation toward the activities, tasks and processes that make up day-to-day work life, we help the modern enterprise operate faster and be more scalable than ever before. Customers use our service model to define, structure and automate the flow of work, removing dependencies on email and spreadsheets to transform the delivery and management of services for the enterprise. ServiceNow provides service management for every department in the enterprise including IT, human resources, facilities, field service and more. We deliver a 'lights-out, light-speed' experience through our enterprise cloud – built to manage everything as a service."

This company has been consistently guiding their earnings forecast higher. They've done it at least the last four earnings reports in a row. Their most recent earnings report was January 28th. NOW reported their Q4 results of $0.03 a share compared to a loss of 2 cents a year ago. Analysts were expecting a profit of 2 cents a share. Q4 revenues soared +58% to $198 million, which was above expectations.

Some of the highlights from their fourth quarter include billings up +62% year over year and up +34% quarter over quarter. Deferred revenues were up +20% for the quarter. NOW added 211 net new customers, bumping their total to 2,725. Their customer renewal rate was 97%.

NOW said their 2014 revenues soared +61% compared to 2013. Their backlog at the end of 2014 hit $1.4 billion. That's a +57% jump from a year ago. NOW's President and CEO Frank Slootman said, "We finished 2014 with strong metrics across the board, maintaining consistently high year-over-year growth rates. In addition to a growing list of new customers that now includes more than 25% of the Global 2000, we continue to see existing customers expand their relationship with us, resulting in the highest quarterly upsell rate since our IPO." NOW's CFO Michael Scarpelli said, "Within the Global 2000, annualized contract value per customer has increased 40% year-over-year. These expanding contracts have helped us grow our combined backlog and deferred revenue 57% year-over-year."

NOW offered bullish guidance. They expected Q1 revenues to grow +50% in the $207-212 million range compared to Wall Street's estimates of $202.4 million. NOW's 2015 guidance is forecasting revenue growth in the +41% to +47% range in the $960-1,000 million zone versus analysts' estimates of $948 million.

These strong numbers and the consistent growth makes them a popular candidate among Wall Street analysts. After NOW's most recent earnings report several analyst firms raised their price target on NOW's stock.

Technically shares have just recently broken out through major resistance near $70.00. The point & figure chart is bullish and forecasting a long-term target of $97.00. The last few days have seen shares consolidating sideways in the $70-75 range. Tonight we are suggesting a trigger to buy calls at $75.15.

- Suggested Positions -

Long MAY $80 CALL (NOW150515C80) entry $3.93

02/05/15 triggered @ 75.15
Option Format: symbol-year-month-day-call-strike

Starbucks Corp. - SBUX - close: 90.79 change: -0.39

Stop Loss: 85.80
Target(s): To Be Determined
Current Option Gain/Loss: +12.6%
Average Daily Volume = 5.1 million
Entry on February 10 at $90.25
Listed on February 05, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

02/11/15: SBUX did see some profit taking after yesterday's big rally. Broken resistance at $90.00 should be new short-term support. Nimble traders can look for a dip or a bounce near $90 as our next entry point.

Earlier Comments: February 5, 2015:
The world seems to have an insatiable appetite for coffee. Starbucks is more than happy to help fill that need. The first Starbucks opened in Seattle back in 1971. Today they are a global brand with locations in 66 countries. SBUX operates more than 21,000 retail stores with more than 300,000 workers.

A few years ago Business Insider published some facts on SBUX. The average SBUX customer stops by six times a month. The really loyal, top 20% of customers, come in 16 times a month. There are nearly 90,000 potential drink combinations at your local Starbucks. The company spends more money on healthcare for its employees than it does on coffee beans.

The company's earnings results were only mediocre most of 2014 year. You can see the results in SBUX's long-term chart below. After incredible gains in 2013 SBUX has essentially consolidated sideways in 2014. The good news is that looks the consolidation is over.

Five-Year Plan

Late last year SBUX announced their five-year plan to increase profitability. Here's an excerpt from a company press release:

"The seismic shift in consumer behavior underway presents tremendous opportunity for businesses the world over that are prepared and positioned to seize it," Schultz said (Howard Schultz is the Founder, Chairman, President, and CEO of Starbucks). "Over the next five years, Starbucks will continue to lean into this new era by innovating in transformational ways across coffee, tea and retail, elevating our customer and partner experiences, continuing to extend our leadership position in digital and mobile technologies, and unlocking new markets, channels and formats around the world. Investing in our coffee, our people and the communities we serve will remain at our core as we continue to redefine the role and responsibility of a public company in today's disruptive global consumer, economic and retail environments."

"Starbucks business, operations and growth trajectory around the world have never been stronger, and we are more confident than ever in our ability to continue to drive significant growth and meet our long term financial targets," said Troy Alstead, Starbucks chief operating officer. "We have more customers visiting more stores more frequently, both in the U.S. and around the world, than at any time in our history. And we expect both the number of customers visiting our stores and the amount they spend with us to accelerate in the years ahead. With a robust pipeline of mobile commerce innovations that will drive transactions and unprecedented speed of service, Starbucks is ushering in a new era of customer convenience. We believe the runway of opportunity for Starbucks inside and outside of our stores is both vast and unmatched by any other retailer on the planet."

The company believes they can grow revenues from $16 billion in FY2014 to almost $30 billion by FY2019. To do that they will expand deeper into regions like China, Japan, India, and Brazil. SBUX expects to nearly double its stores in China to over 3,000 locations in the next five years

They're also working hard on their mobile ordering technology to speed up the experience so customers don't have to wait in line so long at their busiest locations. This will also include a delivery service.

Part of the five-year plan is a new marketing campaign called Starbucks Evening experience. The company wants to be the "third place" between home and work. After 4:00 p.m. they will start offering alcohol, mainly wine and beer, in addition to new tapas-like smaller plates.

The company recently launched its first ever Starbucks Reserve Roastery and Tasting Room in Seattle, near their iconic first retail store. The new roastery is supposed to be the ultimate coffee lovers experience. CEO Schultz said they will eventually open up about 100 of these Starbucks Reserve locations.

SBUX is having a pretty good 2015 so far with the stock up +8.1%, outperforming the broader market. A lot of this gain was thanks to a post-earnings pop. SBUX reported its Q1 2015 results on January 22nd. Adjusted earnings, backing out one-time charges, were $0.80 a share. That's in-line with estimates. Revenues were up +13.3% to $4.8 billion, also in-line with estimates. Investors applauded the news anyway and sent SBUX soaring to new all-time highs the next day.

SBUX said their worldwide comparable store sales rose +5% while traffic only rose +2%. It was the 20th consecutive period that same-store sales were up +5% or more. It was a very strong holiday period for SBUX thanks in part to astonishing gift card sales. The amount of money loaded onto SBUX gift cards during the holidays surged +17% to a record $1.6 billion. One out of every seven Americans received a SBUX gift card. The company also saw significant growth overseas with its China and Asia-Pacific business soaring +85% to sales of $495 million. Their mobile transactions have reached seven million transactions a week.

SBUX's guidance was pretty lackluster but Wall Street didn't care. The company actually guided down for the Q2 2015 (current quarter) as they expect earnings in the $0.64-0.65 range. Analysts' were expecting $0.68 a share. SBUX also provided 2015 guidance of $3.09-3.13 versus Wall Street's estimate of $3.12. The company is still projecting 2015 sales growth of 16% to 18% as they see sales ramping up in the second half of 2015. They also updated their outlook on China as they plan to add 3,400 stores by 2019.

Investor sentiment on SBUX is bullish. Shares have not seen barely any profit taking following its post-earnings pop. Now, after two weeks of digesting gains, the stock is pushing higher and poised to breakout past resistance at $90.00. The point & figure chart is bullish and forecasting at $104.00 target.

Tonight we are suggesting a trigger to buy calls at $90.25 with an initial stop loss at $85.80.

- Suggested Positions -

Long Apr $95 CALL (SBUX150417C95) entry $1.03

02/10/15 triggered @ 90.25
Option Format: symbol-year-month-day-call-strike

Constellation Brands - STZ - close: 113.53 change: +0.13

Stop Loss: 111.45
Target(s): To Be Determined
Current Option Gain/Loss: +16.7%
Average Daily Volume = 1.25 million
Entry on January 15 at $109.36
Listed on January 14, 2015
Time Frame: Exit prior to February expiration
New Positions: see below

02/11/15: STZ dipped to short-term support near $112.00 before bouncing again. Tonight I am suggesting we exit this trade tomorrow (Thursday, Feb. 12th) at the closing bell. Our February options expire in just over a week. We will bump the stop loss up to $111.45.

Earlier Comments: January 15, 2015:
Today the big players in the beer industry like Anheuser-Busch InBev (BUD) and Molson Coors (TAP) are losing market share to smaller craft beer brewers. Yet STZ actually seeing momentum in its beer portfolio.

STZ is part of the consumer goods sector. According to the company's website, "Constellation Brands, Inc. is a leading wine, beer and spirits company with a broad portfolio of premium brands. Constellation is the world leader in premium wine, the leading multi-category beverage alcohol company in the U.S. and the number three beer company in the U.S. Headquartered in Victor, New York, Constellation Brands is an S&P 500 Index and Fortune 1000® company with more than 100 brands in our portfolio, sales in approximately 100 countries and operations in approximately 40 facilities."

Last year the stock was a strong performer. The S&P 500 rallied about +11% in 2014 while STZ surged +39%. Investors have been consistently buying dips. The relative strength from last year has carried into 2015.

The company recently reported earnings on January 8th. Wall Street was expecting a profit of $1.14 per share on revenues of $1.51 billion. STZ said their earnings rose +11.8% to $1.23 a share. Revenues were up +7% to $1.54 billion, beating estimates on both counts. Management then raised their 2015 guidance from $4.10-to-$4.25 to $4.25-to-$4.35. That compares to Wall Street's 2015 estimate of $4.24.

STZ's CEO Rob Sands commented on their latest results saying, "We achieved outstanding results for the third quarter driven by the exceptional ongoing momentum for our beer business." Their beer sales rose +16% and gained market share.

The stock has seen multiple upgrades in January and currently trading at all-time highs. Today traders bought the dip near $105.00. The stock looks poised to breakout past short-term resistance at $108.50. The point & figure chart is bullish and forecasting a long-term target of $127.00.

We are suggesting a trigger to buy calls at $108.65. We'll start this trade with a stop at $104.85.

- Suggested Positions -

Long FEB $110 CALL (STZ150220C110) entry $2.47

02/11/15 prepare to exit tomorrow at the closing bell
New stop @ $111.45
02/07/15 Our February options have two weeks left
01/31/15 new stop @ 108.40
01/15/15 triggered on gap open at $109.36, trigger was $108.65
Option Format: symbol-year-month-day-call-strike

Thor Industries - THO - close: 59.19 change: +0.10

Stop Loss: 57.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 352 thousand
Entry on February -- at $---.--
Listed on February 07, 2015
Time Frame: Exit PRIOR to earnings in March (no date yet)
New Positions: Yes, see below

02/11/15: Today looked a lot like yesterday for THO. Shares quietly churned sideways inside a narrow range. Right now our plan is to buy calls if THO trades at $60.25 or higher.

Earlier Comments: February 7, 2015:
Thor was making headlines this week. The small country of Iceland has started building a temple to the Norse god and other deities, which will be the first such building in the last 1,000 years. However, tonight we are not talking about Norse deities and instead looking at Thor Industries, one of the largest manufacturers of RVs in the world.

THO is part of the consumer goods sector. They were founded back in 1980 by Wade Thompson and Peter Orthwein when they bought Airstream. Today the company makes a large number of recreational vehicles under several brand names that fall into two segments: towable RVs and motorized RVs.

There are more than 76 million baby boomers in the U.S. and they started hitting retirement age in 2011 at the rate of 10,000 a day. With many boomers looking for an active retirement the demand for RVs is likely to remain strong.

USA Today recently ran an article discussing how the RV industry has rebounded sharply following the Great Recession. The industry was expecting +8% growth in 2014 and RV makers just saw their best October in almost 40 years. One piece of the puzzle that could be boosting demand is gasoline prices at three-year lows. That makes these massive gas guzzlers (RVs) a lot more attractive.

THO recently announced an acquisition where they purchased towable recreational maker Cruiser RV and luxury fifth wheel RV maker DRV. This strengthens THO's towable product line, an area that was already seeing significant growth.

THO's most recent earnings report was back on December 1st, 2014. The company disappointed on the bottom line with earnings of $0.73 a share. That missed Wall Street estimates by 8 cents. However, revenues soared +15% to $922 million, which surpassed estimates. THO blamed a tight labor market in Indiana for the margin pressure. The company did offer a bullish update on its backlog. The company's motorized backlog dipped 18% but its towable backlog surged +56% (this is before their recent acquisition).

The stock did see a post-earnings sell-off in early December but THO has recovered. After churning sideways the last several weeks the stock has broken out to new multi-month highs. The point & figure chart is bullish and forecasting at $77 target.

Tonight we are suggesting a trigger to buy calls at $60.25. I'm suggesting the March calls since THO will likely report earnings in March and we do not want to hold over the announcement. We'll update our time frame when THO confirms its earnings date.

Trigger @ $60.25

- Suggested Positions -

Buy the MAR $60 CALL (THO150320C60)

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

UnitedHealth Group - UNH - close: 109.85 change: +0.88

Stop Loss: 104.85
Target(s): To Be Determined
Current Option Gain/Loss: +16.7%
Average Daily Volume = 4.2 million
Entry on February 04 at $108.25
Listed on February 03, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

02/11/15: Big healthcare names were showing relative strength today. UNH rebounded off its intraday low near $108.40 and now looks poised to breakout past resistance near $110.00. I'm suggesting a rise past $110.15 as a new entry point for bullish positions.

Earlier Comments: February 3, 2015
Healthcare stocks have been consistent winners for investors over the last couple of years. Just check out a long-term chart of the IHF or XLV healthcare ETFs. Helping the group lead that charge is UNH, one of the biggest names in healthcare. The company's various businesses serve more than 85 million people around the world. The company is ranked No. 14 on the Fortune 500 list.

UNH has two different business segments. They have their UnitedHealthcare business and their Optum business. UnitedHealthcare provides health benefit products and services. Their Optum business is a health management services company.

The Affordable Care Act (ACA, or Obamacare) had a rough start but now the system is clearly seen as a huge benefit for the health insurance companies. According to Bloomberg the ACA has added millions of new customers to the healthcare industry. UNH recently joined the public exchanges and added more than 400,000 new individuals. UNH did say they are paying significantly more fees and taxes due to the ACA but thus far their increase in customers and better operating efficiency in 2014 have kept the costs manageable.

The results are showing up in the company's earnings growth. In July 2014 the company beat estimates and raised their guidance. In October 2014 they beat estimates and raised their guidance. In early December UNH reaffirmed their 2014 guidance and offered a 2015 forecast that was in-line with Wall Street estimates.

Their most recent earnings report was January 21st. The results were slightly ahead of expectations with profits up +10% from a year ago to $1.55 per share with revenues rising +7.4% to $33.43 billion. That was enough to surpass estimates of $1.50 a share on revenues of $33.15 billion.

UNH's CEO Stephen Hemsley commented on their business saying, "We enter 2015 with a positive outlook and rising business momentum. Steady innovation and year by year advances in the quality, breadth and value of our services to employers, government sponsors, consumers and care providers are creating opportunities for revenue and earnings growth in traditional and new markets."

Management offered 2015 guidance that was in-line with prior estimates. They expect earnings to grow about +7.4% in the $6.00-6.25 range. Revenues are expected to rise +8.0% in the $140.5-to-141.5 billion range.

The stock exploded higher on its better than expected Q4 numbers. Since the post-earnings rally peaked the stock has seen a nice correction. Traders just bought the dip yesterday near support at $105.00. We want to hop on board this healthcare train and buy the rebound. There appears to be short-term resistance near $108.00. Tonight we're suggesting a trigger to buy calls at $108.25.

- Suggested Positions -

Long MAR $110 CALL (UNH150320C110) entry $2.46

02/04/15 triggered @ 108.25
Option Format: symbol-year-month-day-call-strike

Valeant Pharmaceuticals - VRX - close: 164.34 change: +0.21

Stop Loss: 155.85
Target(s): To Be Determined
Current Option Gain/Loss: -8.3%
Average Daily Volume = 2.5 million
Entry on January 26 at $160.55
Listed on January 24, 2015
Time Frame: Exit PRIOR to earnings on February 24th
New Positions: see below

02/11/15: VRX did not see any profit taking on yesterday's rally, which is good news. This stock looks like it's coiling for a bullish breakout past the $165.00 level soon.

More conservative traders may want to raise their stop again. I am not suggesting new positions at this time.

Earlier Comments: January 24, 2015:
Healthcare stocks have been some of the market's best performers in 2015. VRX is helping lead the group higher with a +11.5% gain already.

The company's website says, "Valeant Pharmaceuticals International, Inc. is a multinational specialty pharmaceutical company that develops and markets prescription and non-prescription pharmaceutical products that make a meaningful difference in patients' lives. The company's growth strategy is to acquire, develop and commercialize new products through strategic partnerships, and strategically expand its pipeline by adding new compounds or products through product or company acquisitions. Headquartered in Laval, Quebec, Valeant has approximately 17,000 employees worldwide and is listed on both the New York Stock and Toronto Stock Exchanges under the symbol VRX."

VRX made a lot of headlines last year with its attempted hostile takeover of Allergan (AGN). Eventually VRX lost out to a rival. AGN agreed to a takeout by Actavis (ACT) for $219 a share, which was more than VRX wanted to pay.

Meanwhile VRX has been doing just fine on the earnings front. The company is developing a trend of beating analyst estimates. Plus they guided higher in April 2014, in September and with their last earnings report on October 20th. In November VRX's Board of Directors announced at $2 billion stock buyback program.

This year VRX has already raised guidance again. They see Q4 results above Wall Street estimates. They also raised their guidance for FY2015 into the $10.10-10.40 range compared to consensus estimates near $10.01.

The stock has been surging with a rally to new all-time highs. The point & figure chart is bullish and forecasting at $180.00 target.

Currently VRX sits just below round-number resistance at $160.00. We are suggesting a trigger to buy calls on a breakout at $160.55.

- Suggested Positions -

Long MAR $170 CALL (VRX150320C170) entry $4.80

02/03/15 News that VRX is interesting in buying SLXP
01/26/15 triggered @ 160.55
Option Format: symbol-year-month-day-call-strike

Williams-Sonoma Inc. - WSM - close: 80.57 change: -0.05

Stop Loss: 77.85
Target(s): To Be Determined
Current Option Gain/Loss: +6.2%
Average Daily Volume = 990 thousand
Entry on February 03 at $79.35
Listed on January 29, 2015
Time Frame: Exit PRIOR to earnings in March
New Positions: see below

02/11/15: The $81.00-81.75 area has been resistance for WSM the last three weeks. I would focus on the $81.00-81.20 zone. Today's intraday high was $81.20. A close above $81.20 can be used as a new bullish entry point.

Earlier Comments: January 29, 2015:
Normally when a company lowers their earnings guidance Wall Street tends to punish the stock price. WSM has lowered guidance several times but that didn't stop shares for outperforming the market with a +29% gain in 2014.

The company describes itself as "Williams-Sonoma, Inc. is a specialty retailer of high-quality products for the home. These products, representing eight distinct merchandise strategies – Williams-Sonoma, Pottery Barn, Pottery Barn Kids, West Elm, PBteen, Williams-Sonoma Home, Rejuvenation, and Mark and Graham – are marketed through e-commerce websites, direct mail catalogs and 603 stores. Williams-Sonoma, Inc. currently operates in the United States, Canada, Australia and the United Kingdom, offers international shipping to customers worldwide, and has unaffiliated franchisees that operate stores in the Middle East and the Philippines."

They have an enviable position of mostly selling to high-end customers who make more than $150,000 a year. Unlike many retailers, WSM has an extremely healthy online presence. Their e-commerce business generated half of all sales, which certainly gives their margins a boost compared to rivals.

WSM seems to have perfected the beat estimates and guide lower game to management Wall Street's earnings expectations. Looking at the last four earnings reports in a row WSM has beaten estimates three out of the last four reports on both the top and bottom line. Every time management has guided lower for the next quarter. This strategy has definitely generated some volatility in the stock price. A quick look at WSM's daily chart and you'll see a lot of big gaps up and down as investors react to news. Yet the overall trend has been higher. Today WSM sits at all-time highs.

Shares have been showing relative strength in 2015 with a +5.4% gain thus far. The point & figure chart is bullish and forecasting a long-term target at $105.00. Tonight I am suggesting a trigger to buy calls at $81.15. Please note that I am suggesting small positions to start. WSM is flirting with and apparently breaking out past a long-term trend line that you can see on the monthly chart below.

*start with small positions* - Suggested Positions -

Long MAR $80 CALL (WSM150320C80) entry $3.20

02/04/15 new stop @ 77.85
02/03/15 triggered on gap higher at $79.35, new trigger was $79.15
02/02/15 Strategy Update: Move the entry trigger from $81.15 to $79.15. Adjust the stop loss to $75.90. Adjust the option strike from March $85 call to March $80 call.
Option Format: symbol-year-month-day-call-strike

Zebra Technology - ZBRA - close: 88.27 change: +0.18

Stop Loss: 86.75
Target(s): To Be Determined
Current Option Gain/Loss: +67.6%
Average Daily Volume = 494 thousand
Entry on January 12 at $80.85
Listed on January 10, 2015
Time Frame: Exit prior to February option expiration
New Positions: see below

02/11/15: ZBRA has spent the last couple of days consolidating sideways on either side of $88.00. Our February options expire a week from Friday. To avoid any more option decay we are suggesting readers exit this trade tomorrow (Feb. 12th) at the closing bell. We will raise the stop loss to $86.75 to protect us between now and our exit.

Earlier Comments: January 10, 2015:
ZBRA is considered part of the industrial goods sector but they sound more like a technology company. The company website describes them as "Zebra Technologies is a global leader in enterprise asset intelligence, designing and marketing specialty printers, mobile computing, data capture, radio frequency identification products and real-time locating systems. Incorporated in 1969, the company has over 7,000 employees worldwide and provides visibility into valued assets, transactions and people."

Their goods are used by 90% of the Fortune 500 companies. They have almost no debt. Last year they spent almost $3.5 billion buying Motorola Solutions (symbol was MSI). ZBRA's CEO believes that the MSI acquisition will help them capitalize on three big trends: mobility, the Internet of things, and cloud computing.

In February 2014 ZBRA raised their earnings guidance. They did it again two months later in April. Their most recent earnings report was above expectations. ZBRA announced record revenues with sales up +19% in Middle East and Africa, +16% in North America, +11% in Latin America, and +9% in Asia Pacific.

Technically the stock has been stair-stepping higher with a bullish trend of higher lows and higher highs. This past week ZBRA displayed relative strength and broke out to new multi-month highs. The point & figure chart is bullish with a $92.00 target.

Tonight we are suggesting a trigger to buy calls at $80.85. We will plan on exiting positions before ZBRA reports earnings in mid February.

- Suggested Positions -

Long FEB $85 CALL (ZBRA150220C85) entry $1.70

02/11/15 new stop @ 86.75, prepare to exit tomorrow at the close
02/10/15 plan on exiting positions this Thursday (Feb 12th)
02/04/15 new stop @ 83.85
01/28/15 new stop @ 81.35
01/12/15 triggered @ 80.85
Option Format: symbol-year-month-day-call-strike

PUT Play Updates

Cummins Inc. - CMI - close: 135.12 change: +0.16

Stop Loss: 140.25
Target(s): To Be Determined
Current Option Gain/Loss: -17.0%
Average Daily Volume = 2.9 million
Entry on February 09 at $134.90
Listed on February 07, 2015
Time Frame: 6 to 8 weeks
New Positions: see below

02/11/15: CMI didn't see a lot of movement today. The stock churned sideways in a $1.20 range. Lack of follow through on CMI's recent sell-off has turned me short-term cautious. I would hesitate to launch new positions at the moment.

Earlier Comments: February 7, 2015:
Thus far 2015 has not been a great year for shares of CMI. The stock is down -4.2% while the broader market is flirting with a minor gain for the year. CMI is in the industrial goods sector.

The company describes itself as "Cummins Inc., a global power leader, is a corporation of complementary business units that design, manufacture, distribute and service diesel and natural gas engines and related technologies, including fuel systems, controls, air handling, filtration, emission solutions and electrical power generation systems. Headquartered in Columbus, Indiana, (USA) Cummins currently employs approximately 54,600 people worldwide and serves customers in approximately 190 countries and territories through a network of approximately 600 company-owned and independent distributor locations and approximately 7,200 dealer locations. Cummins earned $1.65 billion on sales of $19.2 billion in 2014."

CMI's earnings report in late October (Q3) was strong as they beat estimates on both the top and bottom line. Management also offered bullish guidance. Unfortunately conditions have deteriorated in the last three months. CMI is a good example of why we like to avoid holding over a company's earnings report. Their most recent earnings report was February 5th. They beat estimates and delivered record numbers but the stock dropped thanks to lowered guidance.

You have to give credit to analyst firm First Global who downgraded CMI in late January on worries that weak emerging markets would hurt CMI's business. They were correct. Over half of CMI's sales come from outside the U.S. Weak demand overseas (thanks to the global slowdown) and a significantly stronger dollar hurt CMI's results and more importantly their guidance.

CMI's Q4 profit surged +32% from a year ago to $2.56 a share. That's five cents above estimates. Revenues rose +11% from a year ago to $5.1 billion, also above estimates. Their full year revenues hit a record $19.2 billion, thanks in large part to +20% sales growth in North America. Unfortunately most of the world is seeing an economic decline. CMI management lowered their forecast. Previously the company was projecting 2015 sales in the $20-23 billion range. They just lowered their forecast $19.6-20.0 billion in sales for 2015.

This bearish sales forecast send the stock lower. Investors ignored the company's pledge to return 50% of its operating cash flow back to shareholders in 2015. A couple of Wall Street analysts have already lowered their price targets on CMI's stock following the company's guidance.

Technically CMI's stock has broken down from a multi-week consolidation. The recent weakness has generated a new sell signal on the point and figure chart that is forecasting at $122 target. Shares sit just above potential round-number support at $135.00. Tonight we are suggesting a trigger to buy puts at $134.90.

- Suggested Positions -

Long MAR $130 PUT (CMI150320P130) entry $2.65

02/09/15 triggered @ 134.90
Option Format: symbol-year-month-day-call-strike

Nike, Inc. - NKE - close: 91.31 change: -1.44

Stop Loss: 93.15
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 3.5 million
Entry on February -- at $---.--
Listed on February 09, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

02/11/15: NKE did not see any follow through on yesterday's bounce. The stock essentially erased yesterday's gains with today's relative weakness. We are still waiting for a breakdown. Our suggested trigger is $89.90.

Earlier Comments: February 9, 2015:
Nike is a giant in the footwear and athletic apparel business. They have approximately one third of the global athletic shoe market, selling more than 120 million shoes a year. NKE's recent highs near $100 back in 2014 marked a nearly +400% gain from its 2009 lows near $20 a share.

The company describe itself as "NIKE, Inc., based near Beaverton, Oregon, is the world's leading designer, marketer and distributor of authentic athletic footwear, apparel, equipment and accessories for a wide variety of sports and fitness activities. Wholly owned NIKE, Inc. subsidiaries include Converse Inc., which designs, markets and distributes athletic lifestyle footwear, apparel and accessories, and Hurley International LLC, which designs, markets and distributes surf and youth lifestyle footwear, apparel and accessories."

Just about everyone seems bullish on NKE. Apparel sales have been slow last year but the fastest growth was in athletic apparel. That's because there is a new fashion trend, called Athleisure. Consumers are wearing more athletic clothing and footwear even if they're not that active.

NKE's most recent earnings report was December 18th. It was a great report. NKE delivered earnings growth of +25% with $0.74 a share. Revenues were up +14.8% to $7.38 billion. Both top and bottom line results were above expectations. Gross margins improved +120 basis points to 45.1%. These numbers look great.

Unfortunately the stock is selling off. NKE had previously guided gross margin improvement in the 120-150 basis point range. The market was also disappointed in NKE's future order data. Future orders only grew at +7% or +11% if you exclude currency changes. That's below expectations. It's also below the prior quarter's +14% growth. At 11% NKE's future orders are growing at their slowest pace in a year.

Investors have reacted by consistently selling the rallies in NKE. You can see the trend of lower highs and now a trend of lower lows. This weakness has led NKE to a -4.5% decline in 2015. The point & figure chart has turned bearish with a quadruple bottom breakdown sell signal.

Odds are growing that we will see NKE drop toward its long-term trend line of higher lows (shown on the weekly chart). Tonight we are suggesting a trigger to buy puts at $89.90. More aggressive traders may want to consider jumping in early below today's low at $90.69.

Trigger @ $89.90

- Suggested Positions -

Buy the MAR $90 PUT (NKE150320P90)

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