Option Investor

Daily Newsletter, Wednesday, 2/18/2015

Table of Contents

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

Market Wrap

Hurry Up and Wait

by Keene Little

Click here to email Keene Little
Anyone who has served in the military knows how to hurry up and wait, which is what the market has done. We had a strong rally last week in anticipation of a resolution to both the Greek and Ukraine issues, which have yet to be resolved and now we're waiting for something to happen this week.

Wednesday's Market Stats

The market's anticipatory rally last week was in expectation (hope) there would be a resolution to the Greek debt issue and the confrontation that's building between Russian and its western neighbors. The Greek tragedy has not yet been resolved, although there's now hope that the can will be successfully kicked six months down the road, and hard fighting continues in Ukraine. While our Nobel peace prize-winning president decides how much to arm the Kiev government (who the U.S. helped to install), other European nations, namely Germany and France, are trying to defuse the situation. Perhaps the stock market is not worried about a wider war breaking out because of the European efforts. The end result has been a strong rally into this week and now we're sitting here marking time while we wait for whatever it was we rallied for.

There hasn't been much else in the news, earnings or economic reports to move the market and consequently both sides are not quite sure what will happen next. Today's economic reports didn't even cause a ripple in the market, primarily because it was breathlessly waiting for this afternoon's FOMC minutes (a non-event also). This morning we received the Housing Starts and Permits numbers for January, both of which dropped marginally from December. As you can see in the chart below, the housing "recovery" since 2009 has only managed to retrace a little less than 38% of its 2006-2009 decline. Following a 5-wave move down we've had a correction to the decline, which will be followed by another leg down before the housing bear is captured and released somewhere (Russia?).

Housing Starts and Permits, January 1999 - January 2015, chart courtesy briefing.com

Before the bell we also received the PPI numbers. As Jim mentioned yesterday, in his discussion about the NY Empire Manufacturing Survey, the prices received component experienced a sharp decline to 3.4 from 12.6 in January, which indicates reduced pricing pressure for manufactured goods. Today's PPI numbers show a similar decline in the prices for goods vs. flat prices for services and this was primarily due to the significant drop in energy-related prices. PPI saw a decline of -0.8% in January vs. -0.2% in December while the core PPI, which excludes food and energy, was relatively flat but still down -0.1% and up only slightly from December's -0.3%. The charts below show the significant drop in Goods vs. Services in the past month.

Producer Price Index, PPI, January 2012-January 2015

With the PPI numbers down there's certainly less worry on the Fed's part about problems with inflation and in fact it's quite the opposite. In order to qualify for service with the Fed you must first submit to a genetic reprogramming that makes you deathly afraid of deflation. You must admit that you'd kill your mother if that was what it required to prevent the country suffering through another bout of deflation. The Fed is hell bent on creating inflation and the only reason they haven't succeeded yet is because we're in a deflationary cycle.

Relating inflation/deflation to a credit cycle we have been in a credit contraction cycle since 2000 (at least for consumers and businesses but the same thing can't be said yet for the government) and it hasn't run its course yet. The central banks around the world have been working hard to create inflation and yet the chart above shows they have not been successful. This, by the way, is one reason why gold has struggled, much to the dismay of gold bulls who believe the global QE efforts should be sparking a massive inflation problem and higher gold prices (it will but not yet).

While on the subject of inflation, I recently read an article by Martin Pring, which can be read here: What Happened to the Secular Bear Market?, in which he discusses why the Bear is likely not done with us yet. In the article Pring discusses the labor market, debt-to-GDP, valuations and several other factors that investors need to consider when deciding how bullish you want to be right now. More importantly, investor's need to decide where their stops belong.

Pring's conclusion to his article gives you a sense of what he's thinking:

"The secular bear case has reached a critical juncture in that inflation-adjusted equity prices have moved back to their 2000 peak. Previous highs and lows often serve as important resistance points, which means that the secular bear case is about to be tested. Valuation/sentiment measures are currently at bullish extremes more typically associated with a secular high than low. Since they failed to move to the levels of extreme pessimism associated with previous secular lows, these indicators represent a missing piece of evidence in the secular bull case. Moreover, several indicators that have consistently identified primary trend turning points in the past are flagging danger and that means that our next Stock Barometer sell signal is likely to be a prescient one. We are paying close attention but until then, enjoy the ride but definitely buckle up tighter than usual!"

Pring's discussion about inflation-adjusted stock prices reminded me of the work I've done keeping track of the long-term parallel up-channel since the 1929 high and 1932 low. I've shown that chart in the past and used it to explain one of the reasons why I think SPX will see 550-600 before the bear is dead. Pring used a similar chart to show the inflation-adjusted prices for SPX since 1900, which is the bottom line in the chart below (the chart is hard to read because it's been squeezed to fit so I added larger-text dates at the bottom).

Inflation-Adjusted S&P Composite, chart courtesy Martin Pring

As Pring pointed out with the above chart, the horizontal dotted lines off the peaks of previous bull markets then become S/R when retested (in inflation-adjusted prices). This can be seen in the 1950s and 1960's following the 1929 peak and then in the 1980s and 1990s following the 1966 peak. Now here we are testing the 2000 peak (again, in inflation-adjusted prices). Actually it's not quite there yet -- a dollar in 2000 is currently equal to 72.2 cents and that makes yesterday's 2101 high for SPX equal to 1517.68. The March 2000 high near 1553 in inflation-adjusted dollars would be about 2150 today, about another 50 points (2.4%).

The other economic data today, which included Industrial Production and Capacity Utilization, were also disappointments, coming in less than had been expected. We've had plenty of signs the economy is slowing and that earnings expectations for companies are declining. So why is the stock market rallying? Because all of that bad economic news means the central banks will continue to create new money, with much (most?) of it making its way into the stock market.

The reason the market was flat for most of today was because it was waiting for the FOMC minutes and there remains hope that all these signs of economic trouble will keep the Fed's finger off the "Raise Rates" button. The minutes gave no hint about raising rates and that was met with a muted but positive response from the market. With weak economic numbers (despite what the Fed calls them) and "disinflation" problems, it will be a while before the Fed feels the need to raise rates. In fact they're probably very concerned about the recent spike in Treasury yields (which is yet another example of how the market determines rates, not the Fed).

I'll start off tonight's chart review with NDX since it shows one of the clearer breakout patterns on its daily chart. The weekly chart shows upside potential to the top of a parallel up-channel, currently near 4580, that has contained price since November 2012. That's another 190 points (+4.3%) higher so the bulls still have a reason to hang on for more. But there's also reason for caution by those who are long and hoping for more. Even though NDX has made a new high above its late-November high, it's within the "retest" zone and it's another test of the projection near 4354, shown on the chart, which is where the rally from November 2008 has two equal legs up (for a large A-B-C bounce correction to the 2000-2008 decline). You can also see the significant bearish divergence at the current high vs the November high, which is what I would expect to see accompany the final 5th wave of the pattern.

Nasdaq-100, NDX, Weekly chart

Not shown on the weekly chart above is a projection for the 5th wave of the move up from November 2012. It would be 62% of the 1st wave at 4440, which is a projection that I would like to see as a minimum (and is only 50 points higher). The 5th wave would equal the 1st wave near 4654, which crosses the top of the parallel up-channel about a month from now. Keep those numbers in mind if the rally continues.

The daily chart below shows the descending triangle off the late-November high and the clear breakout last Wednesday. It never even came back for a back-test to let wannabe bulls aboard, which has had both sides chasing the move higher. The vertical blue lines show the price objective out of the triangle pattern, which is near 4525. A trend line along the highs from March-November 2014 is slightly lower than the top of the parallel up-channel noted on the weekly chart and is currently near 4550. NDX stays bullish above the top of its triangle, near 4275,

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- Stay bullish above 4270
- bearish below 4270

Referencing the trend line along the highs from July-December 2014, SPX doesn't have quite as much upside potential as NDX. As can be seen on its daily chart below, the line is currently only about 25 points (+1.2%), near 2125. I had mentioned earlier, with the inflation-adjusted price discussion, the March 2000 high would be tested with a price near 2150, which gives us a 25-point window for a possible important top to the market.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- stay bullish above 2070
- bearish below 2070

It could be the market is simply resting before continuing higher but at the moment the rally is looking like it's running out of steam. An uptrend line from February 2nd was broken today, although admittedly it isn't much of a break when price simply runs sideways through it. Bulls beware though. In the meantime I see at least the potential for the market to work its way higher to the 2130 area next week. A drop below 2072 would be below the 1st wave in the rally from February 2nd and that would violate the EW rule that states a 4th wave correction cannot overlap the end of the 1st wave. An overlap would leave a 3-wave move up from February 2nd and that in turn could mean we're in a large corrective pullback pattern from December, which would mean a possible sharp decline to below the December 16th low near 1972. Bullish above 1972, bearish below.

S&P 500, SPX, 60-min chart

Ideally the rally from February 2nd will finish with a clean 5-wave move and maybe even up against trendline resistance, maybe even something like what I've depicted on the DOW's daily chart below. A 5-wave move would do a nice job completing what could be the final 5th wave of its rally and it should show bearish divergence against its December high, which so far it is. A 5-wave move would also be a good setup for a reversal to play, regardless of the longer-term wave count. At the moment it's a little risky for bulls as the DOW struggles at its December 26th high at 1810, with yesterday's high at 18052. Double top with bearish divergence? The bulls need to step back in before the bears become braver.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- stay bullish above 17,950
- bearish below 17,685

There's another trend line that the DOW is fighting right now, which is shown on its weekly chart below. The daily chart above is using the arithmetic price scale and you can see the uptrend line from October 2011 - November 2012 (bold green) is well below the current price (it's where the October decline found support). But when that line is viewed with the log price scale (arguably the better way to look at longer-term trend lines), it's currently where the DOW is struggling. This shows the potential for a back-test here and any selling that follows from here would leave a bearish kiss goodbye.

Dow Industrials, INDU, Weekly chart

The RUT has joined the other indexes (other than the DOW) at new all-time highs and out of its sideways triangle pattern there is an upside price objective near 1275 (+3.8%), shown with the bold blue lines on its daily chart below. A clean 5-wave move up to that level would be a good setup for a reversal but at the moment I'm a little leery about the possibility for a head-fake breakout here. Back below 1217 would be trouble for the bulls but it stays bullish above that level. As with the other indexes, a drop below its February 10th low, near 1190, would be bearish since it could lead to a quick drop below the December 16th low near 1134.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- stay bullish above 1217
- bearish below 1190

The small caps index like the RUT is a good "sentiment" index since it tells us how bullish investors are feeling. Many tech stocks fit in the same category and right now AAPL is a good sentiment stock. Practically everyone is looking for higher prices for AAPL and each time analysts get like this I usually see a reason for at least a temporary high, which has been proven to be true many times in the past. And we're there again with AAPL. As can be seen on its weekly chart below, keep an eye on 131.78 if it's reached in the next week or so. That's the level where the 5th wave in the rally from April 2013 would equal the 1st wave. It doesn't have to get there or stop there but it is a level of interest if reached and the longer-term wave count says that could be a longer-term top for AAPL. At 128.97 it's also about to test the 162% extension of its previous decline (September 2012 - April 2013), a level where reversals commonly occur. With a high so far at 128.88 I'm watching closely to see if it finds a top in the 128.97-131.78 area.

Apple Inc., AAPL, Weekly chart

Bond yields have been on a tear since their lows on January 30th (a day before the stock market its current rally). Rising yields of course means selling in the bond market. But yields look ready for at least a pullback after completing a 5-wave move, which had TNX (10-year) testing its downtrend line from September-December 2014. Today's strong decline in yields (rally in bond prices) looks like the start of the pullback/decline and considering it led the stock market rally by a day it's possible the stock market will follow yields lower from here (a rally in bond prices could result from money rotating back out of stocks into bonds). I don't think we've seen THE low for bond yields yet but the shorter-term pattern is not clear enough for me to predict lower yields from here or not until we see a larger 3-wave bounce off the January 30th low.

10-year Yield, TNX, Daily chart

Earlier I had mentioned housing starts and showed a chart to point out the recovery is only a little less than 38% of its decline. Looking at the home builders index I see the recovery as only marginally better. The 38% retracement of its 2005-2008 decline is near 508 and the high for the home builders index is currently near 579, made yesterday. It could be a case where the stocks of the home builders is doing better than actual housing starts (another case of stock prices perhaps inflated more than is warranted, thanks to all the central bank money). But at the moment I see a potential top in the making for the index, as shown on its weekly chart below. It has made it up to the top of two parallel up-channels, one longer-term one for the bounce off its November 2008 low and the other a shorter-term one for the rally off August 2013 low. The tops of these two channels cross here near 575 and only slightly below the projection near 584 for two equal legs up from August 2013. The pieces are in place for a top and it could be a significant one since another leg down in the bear market (to below the November 2008 low at 130) is what should be the next major move in the coming years.

DJ Home Construction index, DJUSHB, Weekly chart

There's been no change in my outlook for the U.S. dollar. The pullback from the January 26th high continues to look choppy and corrective and is pointing to another push higher, in which case the projections to 97.35 could play out. That expectation could be in trouble if the dollar drops back below the top of its parallel up-channel from 2008-2011, currently near 93.25.

U.S. Dollar contract, DX, Weekly chart

No change to the big picture for gold either. There is the potential for another leg up for a larger 3-wave bounce off its November 7th low (it's currently a smaller 3-wave bounce), in which case we could see gold rally up to 1375 for two equal legs up. But a drop below price-level support near 1180 would be a stronger sell signal and point to lower prices from here.

Gold continuous contract, GC, Weekly chart

Oil's bounce off the January 29th low stalled following its February 3rd high and it could be building energy for another leg up, which should happen in the next day or two if it's going to happen. In that case we could see a rally up to 58-60 but at the moment I'm not seeing anything more bullish than that. I continue to believe oil will bounce/consolidate near its low for several months before heading lower.

Oil continuous contract, CL, Weekly chart

Tomorrow's economic reports (not that the market cares) includes unemployment claims, the Philly Fed index and the LEI (Leading Economic Indicators). A continuation of signs of economic slowing are expected. There will be no major economic reports on Friday.

Economic reports and Summary

The bond market pulled a reversal today with a fairly strong decline in yields (buying in bonds) and that could be a warning shot across the bow for bulls to pay attention to. The stock market rally off the February 2nd low was led by the bond market's reversal the day before on January 30th. The buying in bonds could pull money out of the stock market, which is why we're tending to see the stock market and bond yields trade more in synch than not.

The pattern for the stock market supports higher prices and as long as the February 6th highs are not violated in a pullback I'd look for higher prices (but keep a close eye on the bond market). Below the February 6th highs would be trouble for the bulls but the bears would not be in better shape until the indexes drop below the February 9th lows. It might be a continuation of a choppy whippy market from there but at the very least I would not want to be long if those lows are taken out.

Continue to keep in mind that we have a headline-driven market at the moment and while there's additional upside potential for the indexes, the downside risk is greater than upside potential. This market is propped up on hope, a commodity that can be (and usually is) quickly snuffed out.

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

Relative Strength In Healthcare

by James Brown

Click here to email James Brown


Humana Inc. - HUM - close: 155.40 change: +0.54

Stop Loss: 149.50
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.1 million
Entry on February -- at $---.--
Listed on February 17, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
The big healthcare names have been showing relative strength. HUM is one of the biggest health care plan providers in the U.S. What makes the healthcare names so attractive is the government's Affordable Care Act (a.k.a. Obamacare). This new program has generated millions of new customers. It should. Currently the law states that if you don't have healthcare insurance you have to play a penalty. It was 1% of your income last year. This year the penalty rises to 2% of your income.

The ACA just completed its latest enrollment period and over 11 million people signed up, which was above expectations. This is a bullish tailwind for the industry as a whole and fuels investor optimism that business will continue to improve for the big health care providers.

HUM describes itself as "Humana Inc., headquartered in Louisville, Ky., is a leading health and well-being company focused on making it easy for people to achieve their best health with clinical excellence through coordinated care. The company’s strategy integrates care delivery, the member experience, and clinical and consumer insights to encourage engagement, behavior change, proactive clinical outreach and wellness for the millions of people we serve across the country."

Earnings were definitely mixed last year. Q3 results announced last November were a miss on the bottom line while revenues were up +18% for the quarter. HUM lowered their full year 2014 guidance at that time. Their most recent earnings report (Q4) was announced on February 4th. Earnings were $1.09 a share, a +36% improvement from a year ago. Yet they still missed Wall Street estimates by six cents. Revenues rose +21% to $12.33 billion but that missed estimates as well. HUM is reporting definite improvement and it feels like Wall Street analysts have just been too optimistic.

Shares of HUM are not seeing any sell-off based on the earnings miss. Management reaffirmed their prior guidance of $8.50-9.00 per share for 2015 compared to consensus estimates of $8.86. Another positive for HUM stock is a massive $2 billion buy back program the company announced last September. The expiration for this repurchase program is December 31st, 2016. However, it is worth noting they may not spend it all. They had barely spent 20% of their last stock buy back program before announcing the newest one.

Investors don't seem to care about HUM's earnings miss. The expectation is that the ACA will continue to generate a steady supply of new business for the industry. Thus investors have been buying the dips in HUM. The stock has a bullish trend of higher lows and higher highs. Today the stock is breaking out past resistance near $155.00. The point & figure chart is bullish with a long-term target of $173.00. Tonight we are suggesting a trigger to buy calls at $155.75.

Trigger @ $155.75

- Suggested Positions -

Buy the MAY $160 CALL (HUM150515C160) current ask $6.10

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

Daily Chart:

In Play Updates and Reviews

Stocks Acted Tired Today

by James Brown

Click here to email James Brown

Editor's Note:

After a multi-day rally, the U.S. market's major indices acted a little tired today. Dovish Fed minutes and growing expectation for Greece to ask for a loan extension should have been bullish. Instead stocks spent a good portion of the day in negative territory before paring their losses by the close.

THO and NKE have been removed as candidates. These trades did not open.

WSM and CMI have been stopped out.

Current Portfolio:

CALL Play Updates

Hanesbrand Inc. - HBI - close: 118.94 change: +0.98

Stop Loss: 114.85
Target(s): To Be Determined
Current Option Gain/Loss: +65.1%
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

02/18/15: HBI bounced following yesterday's dip. Shares are poised to test potential round-number resistance at $120.00 soon.

Don't forget that we want to exit prior to HBI's 4-for-1 split on March 4th.

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

02/17/15 new stop @ 114.85
02/12/15 new stop @ 112.40
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: 104.62 change: +0.62

Stop Loss: 101.65
Target(s): To Be Determined
Current Option Gain/Loss: +9.7%
Average Daily Volume = 3.0 million
Entry on February 12 at $103.05
Listed on February 10, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

02/18/15: HON also recovered from yesterday's decline. Shares outperformed the major indices with a +0.59% gain and new highs. The next hurdle for the bulls is potential round-number resistance at $105.00.

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

- Suggested Positions -

Long JUN $105 CALL (HON150619F105) entry $3.10

02/17/15 new stop @ 101.65
02/12/15 triggered @ 103.05
Option Format: symbol-year-month-day-call-strike

iShares Russell 2000 ETF - IWM - close: 122.04 change: +0.13

Stop Loss: 119.65
Target(s): To Be Determined
Current Option Gain/Loss: -1.2%
Average Daily Volume = 41 million
Entry on February 13 at $121.55
Listed on February 12, 2015
Time Frame: 10 to 12 weeks
New Positions: see below

02/18/15: Traders bought the dip in the IWM this morning. This ETF bounced back toward yesterday's highs near $122. I would still consider new positions at this time.

Earlier Comments: February 12, 2015:
The IWM is the iShares exchange traded fund (ETF) on the small cap Russell 2000 index. The market rally in 2014 was mostly a large-cap affair. The S&P 500 index delivered a +11% gain and the small caps lagged behind with a +3.6% gain for 2014. That could change this year.

Small caps tend to see bigger moves, both up and down, than their larger-cap rivals. Right now the small caps are poised to breakout higher.

Many people look to the small cap index as a sentiment indicator for the broader market. The small cap Russell index has (about) 2,000 stocks. Compared to 500 in the S&P large cap index and only 30 stocks in the Dow Industrials.

Small cap companies in the Russell 2000 tend to be more U.S. focused so they're not encumbered by the strong dollar as much as the large cap global companies can be.

Right now the IWM is on the verge of breaking out past its all-time highs set in December (in the $121.40 area). Tonight we are suggesting a trigger to buy calls if the IWM can trade at $121.55.

We are not setting a target tonight but I will note that the IWM's point & figure chart is forecasting a long-term target of $154.00.

- Suggested Positions -

Long MAY $125 CALL (IWM150515C125) entry $2.50

02/17/15 new stop @ 119.65
02/13/15 triggered @ 121.55
Option Format: symbol-year-month-day-call-strike

ServiceNow, Inc. - NOW - close: 77.48 change: +0.60

Stop Loss: 73.90
Target(s): To Be Determined
Current Option Gain/Loss: +4.3%
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

02/18/15: This stock spiked lower at the open but NOW looks strong with a +0.78% gain versus the market's minor gains today. I wouldn't chase it here.

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

02/17/15 new stop @ 73.90
02/12/15 new stop @ 71.90
02/05/15 triggered @ 75.15
Option Format: symbol-year-month-day-call-strike

NXP Semiconductors - NXPI - close: 85.36 change: +1.64

Stop Loss: 80.35
Target(s): To Be Determined
Current Option Gain/Loss: -2.5%
Average Daily Volume = 3.7 million
Entry on February 12 at $84.15
Listed on February 11, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

02/18/15: Semiconductor stocks as a group churned sideways today. NXPI outperformed its peers with a +1.9% gain. I was hoping we'd see a dip near $82 as our next entry point but today's rally following a two-day dip might be our next entry point.

Earlier Comments: February 11, 2015:
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.

- Suggested Positions -

Long Apr $90 CALL (NXPI150417C90) entry $2.36

02/17/15 new stop @ 80.35
02/12/15 triggered @ 84.15
Option Format: symbol-year-month-day-call-strike

Starbucks Corp. - SBUX - close: 93.00 change: +0.97

Stop Loss: 87.85
Target(s): To Be Determined
Current Option Gain/Loss: +65.0%
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

02/18/15: SBUX continues to roll out the announcements this week. Yesterday it was the new subscription to their roastery. Today Bloomberg ran an article on SBUX's new breakfast sandwich - a double-smoked bacon, cheddar, & egg sandwich on a croissant bund. This is part of SBUX's plan to drive sales growth by adding more food items. The stock responded with a +1.0% gain to new highs.

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

02/12/15 new stop @ 87.85
02/10/15 triggered @ 90.25
Option Format: symbol-year-month-day-call-strike

Synaptics Inc. - SYNA - close: 80.07 change: +0.62

Stop Loss: 75.90
Target(s): To Be Determined
Current Option Gain/Loss: -7.6%
Average Daily Volume = 1.0 million
Entry on February 18 at $80.25
Listed on February 17, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

02/18/15: Our brand new trade on SYNA is now open. Shares pushed past resistance at $80.00 and hit our suggested entry point at $80.25. Unfortunately shares pared their gains by the closing bell. The stock did manage to outperform the major indices with a +0.7% gain.

I would wait for a new rally past $80.25 or even today's intraday high at $80.50 before initiating new positions.

Earlier Comments: February 17, 2015:
Technology stocks have taken a leadership role in the market this year. One tech stock that is showing relative strength is SYNA with a gain of +14.6% year to date. The company is a leading developer in the human interface solutions industry. Many consider the company a dominant force in the touch, display ICs and finger print sensing.

According to SYNA's marketing material, "Synaptics is the pioneer and leader of the human interface revolution, bringing innovative and intuitive user experiences to intelligent devices. Synaptics' broad portfolio of touch, display, and biometrics products is built on the company's rich R&D and supply chain capabilities. With solutions designed for mobile, PC and automotive industries, Synaptics combines ease of use, functionality and aesthetics to enable products that help make our digital lives more productive, secure and enjoyable."

SYNA had a roll in Apple Inc's (AAPL) iPhone 6 success. SYNA recently bought Renesas, the company that makes the LCD drivers for AAPL's iPhone 6 and 6+. Thus the tens of millions of iPhone 6s sold is a win for SYNA. We can see the impact in SYNA's earnings. The fourth quarter was HUGE for iPhone 6 sales.

In early December SYNA raised their revenue guidance for the fourth quarter (their 2015 Q2) from $415-450 million to $440-460 million. When SYNA reported earnings in late January they beat these raised expectations. Wall Street was looking for Q4 results of $1.22 a share on revenues of $449 million. SYNA delivered $1.46 a share with revenues soaring +125% to $463.7 million.

If that wasn't good enough SYNA management then raised their Q1 (their Q3) revenue estimates to $450-490 million compared to analysts' estimates of $422 million. Several analyst firms upgraded their price target on SYNA follow these results.

Traders should be aware that SYNA's relationship with AAPL might be in danger. A story surfaced on February 6th that AAPL was looking for other suppliers to fill LCD drivers to reduce their dependence on SYNA (and their Renesas business) as the only provider. Rumor has that rivals Himax, Novatek, and Parade Technologies are all vying for Apple's business.

Thus far shares of SYNA are not seeing much reaction to this rumor. Traders have been consistently buying the dips at SYNA's rising 10-dma. Now the stock is poised to breakout past resistance at the $80.00 level. The point & figure chart is bullish and forecasting a long-term target of $117.00. Tonight we are suggesting a trigger to buy calls at $80.25.

- Suggested Positions -

Long JUN $85 CALL (SYNA150619C85) entry $5.95

02/18/15 triggered @ $80.25
Option Format: symbol-year-month-day-call-strike

UnitedHealth Group - UNH - close: 109.77 change: +0.01

Stop Loss: 106.85
Target(s): To Be Determined
Current Option Gain/Loss: -0.8%
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

02/18/15: Traders bought the dip in UNH near its 10-dma again this morning. Yet shares can't seem to build up any upward momentum. The stock remains stuck under resistance at $110.00.

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

02/17/15 new stop @ 106.85
02/04/15 triggered @ 108.25
Option Format: symbol-year-month-day-call-strike

Valeant Pharmaceuticals - VRX - close: 168.42 change: -0.21

Stop Loss: 162.45
Target(s): To Be Determined
Current Option Gain/Loss: +4.2%
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

02/18/15: VRX traded lower this morning. Fortunately traders bought the dip near yesterday's intraday low in the $166.60 area. VRX pared its loss to virtually unchanged by the closing bell.

I want to remind readers that we have less than one week to go. VRX has earnings coming up on Feb. 24th.

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

02/17/15 new stop @ 162.45
02/12/15 new stop $159.45
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

Zimmer Holdings - ZMH - close: 120.30 change: -0.09

Stop Loss: 117.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.0 million
Entry on February -- at $---.--
Listed on February 14, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

02/18/15: ZMH hovered near its highs but did not breakout. We are waiting for shares to trade at $120.75 or higher, which could happen tomorrow if the market rallies.

Earlier Comments: February 14, 2015:
A large chunk of the developed world is old and getting older. The demographics in the United States, Europe and Japan show an aging population. Even China is seeing a rise in its older citizens. This means big business for the orthopedic market, especially for products like hip and knee replacements. ZMH is poised to become the number one player in hip and knee medical devices with its current merger plans to Biomet.

ZMH is part of the healthcare sector. The company describes itself as "Founded in 1927, and headquartered in Warsaw, Indiana, Zimmer designs, develops, manufactures and markets orthopedic reconstructive, spinal and trauma devices, dental implants, and related surgical products. Zimmer has operations in more than 25 countries around the world and sells products in more than 100 countries. Zimmer's 2014 sales were approximately $4.7 billion. Zimmer is supported by the efforts of more than 9,000 employees worldwide."

Looking at last year's earnings ZMH's performance was mixed but they seemed to be improving. The company beat expectations in both the third and fourth quarter. ZMH reported its Q4 results on January 29th. Earnings per share hit $1.71, which was one cent above estimates. Revenues were down -1.4% to $1.22 billion. That missed estimates of $1.24 billion. Part of that miss was due to currency fluctuations. One the plus side ZMH did say gross margins improved 188 basis points to 74.4% in the fourth quarter.

ZMH management also raised their Q1 guidance. Wall Street was expecting 2015 Q1 earnings of $1.52 a share. ZMH just guided to $1.58-1.60 a share. Following its Q4 report and new and improved guidance several analyst firms have either upgraded or raised their outlook on ZMH. Many of the new price targets are in the $130-150 range. FYI: the point & figure chart is forecasting a long-term target of $169.00.

Right now the focus for ZMH is its merger with Biomet, a private company in the orthopedic space. Biomet was going to go public again last year but in April 2014 they agreed to a merger deal with ZMH. Shares of ZMH soared on the news. The deal is valued at $13.35 billion. It's the fifth largest medical device merger in the last ten years.

This merger is important to ZMH because competition is heating up in the $45 billion orthopedic market. The cost savings of the merger are expected to save $135 million the first year and hit $270 million by the third year. The deal is also accretive to ZMH. Biomet saw strong sales last quarter in its spine and bone-healing business.

The combined company will have about 40% of the hip replacement market and about 33% of the knee implant market. That puts them at the top of the list for these two niches. Overall the post-merger ZMH will be second in the orthopedic market behind Johnson & Johnson (JNJ).

It's important to note that this deal has not yet been approved by regulators. The European Union antitrust committee just announced they will render a decision by May 26th. ZMH believes the deal will be approved in the first quarter of 2015.

Technically shares of ZMH have a long-term bullish trend of higher lows and higher highs. The stock just had a mini-correction with a pullback from $120 to $111 in January. Shares have since recovered. Now ZMH is breaking out past short-term resistance near $118 and is headed for its all-time highs set last month in the $120.70 area. We are suggesting a trigger to buy calls at $120.75.

Trigger @ $120.75

- Suggested Positions -

Buy the JUN $125 CALL (ZMH150619C125)

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

PUT Play Updates

Currently we do not have any active put trades.


Thor Industries - THO - close: 59.72 change: -0.11

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: see below

02/18/15: We keep waiting for THO to breakout past resistance and it just doesn't happen. Traders bought the dip again this morning but THO remains below resistance at $60.00. If we had more time I might be more patient but THO is going to report earnings in mid March and we do not want to hold over the announcement.

Tonight we are removing THO as an active candidate.
(Murphy's Law will likely see THO breakout big tomorrow).

Trade did not open.

02/18/15 removed from the newsletter, suggested entry was $60.25


Williams-Sonoma Inc. - WSM - close: 80.10 change: -1.60

Stop Loss: 79.85
Target(s): To Be Determined
Current Option Gain/Loss: -3.1%
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

02/18/15: Ouch! WSM underperformed the market today with a -1.95% decline thanks to an analyst downgrading shares to a "neutral" this morning. The stock reacted to the downgrade by gapping open lower at $79.85, which just happens to be our new entry point.

Our play is closed but WSM still has potential. I'd keep this stock on your watch list.

*start with small positions* - Suggested Positions -

MAR $80 CALL (WSM150320C80) entry $3.20 exit $3.10 (-3.1%)

02/18/15 stopped out on gap down ($79.85) thanks to a downgrade
02/17/15 new stop @ 79.85
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



Cummins Inc. - CMI - close: 140.18 change: +1.20

Stop Loss: 140.25
Target(s): To Be Determined
Current Option Gain/Loss: -72.1%
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

02/18/15: The bounce in CMI continued on Wednesday. Shares surged off the opening gap down and CMI was trading above $141.00 before 11:00 a.m. Our stop was hit at $140.25 along the way.

- Suggested Positions -

MAR $130 PUT (CMI150320P130) entry $2.65 exit $0.74 (-72.1%)

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


Nike, Inc. - NKE - close: 93.62 change: +1.76

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: see below

02/18/15: We are removing NKE as a bearish candidate. The plan was to wait for shares to break down under $90.00. After weeks of underperforming the broader market it looked like NKE was going to break down. Today's display of relative strength might be signaling the down trend is over.

Trade did not open.

02/18/15 removed from the newsletter, suggested entry was $89.90