Option Investor

Daily Newsletter, Thursday, 2/19/2015

Table of Contents

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

Market Wrap

Oil And Greece...Again

by Thomas Hughes

Click here to email Thomas Hughes
The market teetered on the verge of selling off as near term factors cloud longer term views.


A number of factors fought for attention today. First up were headlines from Europe that the EU, Germany and Greece have not come to an agreement. Germany flat out rejected the plea for additional lenience keeping this issue firmly on the front burner and not unexpected. European indices at first fell on the news but later shrugged it off, many of them returning to positive trading before their close. The Greece news of course had an impact on our markets as did another massive swing in oil and some mixed earnings reports. The price for WTI was down as much as 6% in early trading and is likely to remain volatile. Earnings were mixed but reports from Priceline and T-Mobile helped to support the market.

Market Statistics

Economic data was another focus this morning. Initial claims were better than expected and added some support to early futures trading. Later in the day Philly Fed and Leading Indicators added a little more. The SPX moved down to test the previous all-time high within the first 30 minutes and then bounced off of that level after the 10AM release of Philly Fed and Leading Indicators. The bulls were able to push the market higher from there and recaptured most if not all of the early losses. The markets drifted during the afternoon but maintained a tight range with most indices trading within a quarter point of yesterday's closing price.

Economic Calendar

The Economy

Lots of data today, especially since we're in the wake of the FOMC minutes. The minutes themselves were not too unexpected except I think they may be a little too dovish in their outlook. Initial claims fell more than expected to 283,000 from an unrevised 304,000 last month. The four week moving average also fell, for the fourth week in a row, and is now just above its 15 year low. On an not adjusted basis claims fell by 13.9%, almost double the expected 7.5% decline. On a state by state basis NY, TX, CA and PA led with a net increase near 11,000 new claims.

Texas made no comment on where the jobs were lost but Pennsylvania reported most were lost in construction and manufacturing. The two biggest states reporting declines in claims were Georgia and Tennessee with a combined total of only -2,063. This weeks drop in claims makes it look like job losses and turnover are beginning to decline again after holding semi-steady in the 4th quarter of last year.

Continuing claims rose by 58,000 to 2.425 million. This puts the number of continuing claims back above 2.4 million but is still relatively steady for the first part of this year. Claims are trending near the long term lows and at levels indicative of a strong labor market. The four week moving average of continuing claims fell however, for the fourth week, and is itself very close to crossing under 2.4 million.

Total claims fell, shedding -31,699 to come in at 2.854 million. This is down from last week and from the high set at the end of last year but still holding above the long term low. The recent pick up in total claims is a concern but possibly explained by the increase in participation rate and if so a net positive so long as job creation remains strong. Last year at this time there were over 3.5 million total claims and less participation so we've made some progress somewhere.

Leading indicators and Philly Fed Survey of Manufacturing were both released at 10AM. Leading indicators for January rose by 0.2%, slightly below consensus of 0.3% and below the 0.4% set the previous month. This is still positive but now the second month of decline. This decline indicates a slowing of growth, or more likely a lull in growth if the forward looking surveys are to be believed, but not an end. The Coincident and Lagging Indicators both rose as well, by 0.2% and 0.3% respectively, and indicate momentum is still present in the economy.

Philly Fed came in at 5.2 for February, down from 6.3 in January and a 12 month low. This reading is also below expectations for a slight rise to 7.0. While weaker than expected and well off the high set last November this number is still expansionary and internals reveal some positives for the future. For one, the employment component rose by 6 points and is in positive territory. Additional signs include a rise in inventory and significant increases to shipments and unfilled orders. Shipments rose by 15 points, unfilled orders rose 16 and both are now positive as well. The forward looking future activity index is where the most weakness was felt. It is still well above 0 but fell more than 21 points from 50.9 to 29.7. Despite the sharp drop future expectations remains positive and strong for the next 6 months.

There is no other data this week. Next week is moderately full with the bulk of data falling on Thursday and Friday. Early in the week are existing home sales and consumer confidence, later in the week look for CPI, Durable Goods, Chicago PMI, Michigan Sentiment, Pending Home Sales and the 2nd estimate for 4th quarter GDP.

The Oil Index

Oil prices fell hard today, dropping more than 6% at one point to trade below $49.50. Today's cause was rising inventories as reported by the EIA. WTI supplies rose by 7.7 million barrels, more than expected, and is a sign that production and consumption levels have not stabilized. Today's low was hit just after 9:30AM at which time prices began to rise. By the end of the day WTI had reached levels above $51 where it remained until settlement.

The oil sector was hit hard by the drop and led the broader market lower. The Oil Index gapped lower at the open and traded down from there until it was clear that oil prices had bottomed for the day. At that point the index found support, just above the short term 30 day moving average, and moved up to close the gap. Prices regained most of today's drop but remain below my resistance line at the 1395 level. This resistance is coincident with the top of the three month trading range, a range confirmed by the indicators. MACD is bullish but clearly making a Head&Shoulders pattern in tandem with prices braking above and then falling below resistance, stochastic making a bearish crossover and overbought. Based on this it looks like the Oil Index could remain range bound in the near term. Current support is near 1350 and the short term moving average with targets near 1300 and1250 should the moving average fail to hold.

The Gold Index

Gold prices rose today after hitting a 6 week low yesterday. The FOMC minutes have only added to confusion over when interest rates would rise, and along with news from the EU have combined to cause some volatility in the currency world that is affecting gold prices. The metal is now bouncing from possible support at the $1200 level but has not confirmed. Further testing of $1200 is possible in the least and if broken could take gold down to $1190 or lower very quickly.

The Gold Index fell today despite the 1% gain in gold. The index was hit by earnings that have revealed the impact of low realized prices. Many of the producers have reported an increase of production, but revenues and earnings that are in line or below those from previous comparable quarters. Today the index lost close to 2.5% in a fall from the short term moving average. This is just one day after the index bounced from support, support consistent with the top of the trading range broken in the first weeks of this year. The indicators are bearish so I expect to see this level testd again. If it is broken the next target is near the bottom of the aforementioned range near $17.50.

In The News, Story Stocks and Earnings

Wal-Mart made big news today when it released earnings. The company reported a nice beat on EPS, with revenues slightly lower than expected. Company EPS was $1.61 versus an expected $1.53 with the largest rise in US comp store sales seen in years. The strength led the company to raise the dividend by a penny and to enact some radical, for this company at least, new cap-ex. New spending will go to new wages and affect at least 40% of employees. This might have been OK if not for the weak forward guidance. The news, primarily the low guidance, sent shares lower by -1.60% in the pre-market and extended that to -2.6% after the opening bell. Since Wal-Mart's plan is to raise wages to $10 per hour I wonder how many of these dollars are going to make it back to the company in the form of sales and services? Wal-Mart employees are consumers too and they work in a centralized location of consumer goods and services. It only makes sense to think a significant portion of any raises will go directly back to the store in the form of revenue.

GoldCorp released earnings this morning, alongside a number of other miners. The company reported earnings that at first glance are weak, and they are weak, but also reveal the chance for significant gains in the future. The company reported EPS of $0.07, a few pennies shy of consensus, on revenue that was also a little light of expectations, both number below last year's comparable quarter. What I see as the positive is that production rose nearly 16%. This may not seem positive since what it really does is reveal the impact of the decline in gold prices. However, since production is also expected to rise by 20% in the next year, and there is a reasonable expectation for prices to remain firm at or near current prices I see a significant chance for earnings increases in coming quarters. The stock fell more than 6% on the news, dropping below the short term moving average and a Fibonacci Retracement at $22.50. The indicators are bearish and gaining strength so could take it down to $20 or lower.

Priceline reported before the opening bell and is one that delivered on all levels. The company reported a top and bottom line beat with expected growth into the current year. First quarter guidance is a little below expectations but the $3 billion stock buyback helped to relieve the sting. Shares of the stock jumped more than 8.5% in the pre-market session and are now trading above $1200 for the first time in nearly 4 months.

T-Mobile also reported some surprisingly good numbers. The mobile phone company reported a record year of growth which includes 2.1 million new users in the 4th quarter. The company also reported that revenues grew by 19.4% for the quarter and that they captured 80% of all new post-paid sign-ups. The stock surged in the pre-market, gapped up at the open and then traded lower from there. Today's move leaves the stock 3% higher than yesterday's close but created a large bearish candle.

The Indices

The market seemed indecisive today. Most of the indices were weighed down by worries but the NASDAQ Composite was immune. The tech heavy index was able to make another gain and come a few points closer to 5,000. The index moved 0.37% higher in today's session and created a small bodied green candle. This is the 8th day of positive trading and upward movement since bouncing from the short term moving average early last week. The indicators are in line with this move but not looking strong. MACD has made a peak and stochastic is high in it's range with near term %K moving down. Neither are indication of imminent reversal but are signs of caution. Price action is bullish and moving in line with long term trends so I'm bullish but see this as a time to raise stops on current positions rather than enter new ones.

The transports made the next best run at new highs today but was not able to close in the green. The Dow Jones Transportation Index fell by -0.04% after spending most of the day trading in positive territory. Today's action created an alarming candle as it is a doji and beneath resistance. The indicators are bullish but in positions that are hinting at resistance and the top of a range. MACD momentum is bullish and steady, but very weak, and could easily reverse from here. Stochastic is moving higher in the near term and could be on the verge of showing strength by crossing over the upper signal line but could also easily reverse from here and confirm resistance. Resistance is the current all-time high and top of the four month trading range near 9,250. Now that I've said all that I want to point out that this index is also in mid-bounce, in line with the underlying trend, with bullish indicators so I am bullish, but very very cautious.

The SPX is next up with a loss of -0.10%. The broad market created a spinning top, the third of three, above the previous all time high. Today the index was able to move into the green and set a new all-time-intra-day high but was not able to hold it. The indicators are bullish but like with the other indices give reason for caution. Other reasons for caution are that the index is sitting just off the all time high, at the highs of the year and at a 3 week high, all ahead of options expiration, which is tomorrow. If the previous all-time high does not hold as support next target is 2063 and the top of the January range. If the market manages to consolidate at this level and follow through with another rally it could carry us another 100 points higher.

The Dow Jones Industrial Average brings up the rear today. The blue chips lost nearly a quarter percent, -0.24, and may be leading the market in a decline the other charts are only hinting at. This index has now declined two days in a row and is testing support just below the current all time high. The indicators are bullish but like the rest are suggestive of resistance, if not possible reversal, and could lead to a further test of support or even a pull-back. Either event would likely be another entry opportunity but until then caution is due. If today's pullback becomes more than just a consolidation it could take the index down to the short term moving average near 17,750 or lower.

Today's action was tepid at best. The market shrank back from all time highs on weak oil, international news and a mish mash of earnings. Weak oil is bad in the near term but good in the long term, Greek news is more like a soap opera than anything else, not to make too light of the situation, and earnings are like always, some are doing well and some are not. What still concerns me is the growing expectation for earnings decline in the 1st and 2nd quarters of this year. Declining earnings are never good but this expectation is based on the drop in oil and the oil sector, not unexpected, so I think so long as earnings X-oil are OK the market will be OK. In the meantime the indices are poised in a way that makes me think they could rally, but also that gives me reason to be worried. I'm bullish, but cautious and waiting for a stronger signal because I don't think we got it today.

Until then, remember the trend!

Thomas Hughes

New Option Plays

Relative Strength In Defense

by James Brown

Click here to email James Brown


L-3 Communications - LLL - close: 131.18 change: +1.60

Stop Loss: 126.20
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 925 thousand
Entry on February -- at $---.--
Listed on February 19, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Last year the S&P 500 index gained about +11%. Shares of LLL managed to outperform the big cap index with a +18% gain in 2014. That's in spite of the rocky earnings performance in recent quarters.

LLL describes itself as "Headquartered in New York City, L-3 employs approximately 48,000 people worldwide and is a prime contractor in aerospace systems and national security solutions. L-3 is also a leading provider of a broad range of communication and electronic systems and products used on military and commercial platforms. The company reported 2013 (revised) sales of $12.6 billion." They operate four business segments: aerospace systems, electronic systems, communication systems, and national security solutions.

In May 2014 the company reported mediocre earnings but raised their 2014 guidance. Results changed with their July 31st report. They missed the bottom line by 5 cents while revenues beat expectations. Yet LLL management lowered their guidance. The stock collapsed. You can see the big spike down as a result. After a choppy third quarter performance LLL reported earnings on October 30th. They barely beat the bottom line estimate by a penny while revenues missed. Management lowered guidance again but shares rallied in spite of the news.

Since that October report shares of LLL have been churning higher with a bullish trend of higher lows and higher highs. Their Q4 earnings results seem came in relatively healthy. Earnings were in-line with expectations at $2.27 a share. Revenues were down -0.8% from a year ago but their $3.21 billion in sales did come in above expectations. Slower sales to the U.S. were partially offset by rising sales to international clients. This is a significant trend in the defense industry as contractors try to replace sales they're losing with the U.S. government with international sales. Management offered cautious guidance for 2015 with earnings estimates in the $7.35-7.65 range, which is essentially in-line with Wall Street. However, LLL is forecasting revenues of $11.75-11.95 billion, which is above analysts' expectations.

The last several weeks have seen some bullish headlines for LLL. In early December the company announced an additional $1.5 billion stock buyback program through June 30, 2017. On February 10th LLL raised their quarterly dividend from $0.60 to $0.65.

Earlier this morning Bloomberg ran an article discussing the potential for M&A in the defense space. The U.S. defense budget peaked in 2010 and has been shrinking ever since. As more contractors fight for the same dollars it could spark some mergers. The Bloomberg article suggested that LLL could make some acquisitions and also suggested that LLL is a potential target from its larger rivals. Lately Wall Street loves all the M&A headlines with stocks soaring on these stories.

Another story this month is how the U.S. government is opening the door for more international sales of military drones to its allies. This is a opportunity for LLL. They make the satellite communication equipment necessary for the drones. LLL also makes the training simulators to operate drones.

Technically shares have been consolidating sideways under resistance at $130.00 for more than two weeks. Today's display of relative strength is also a bullish breakout past resistance. The point & figure chart is already bullish and forecasting a long-term target of $174.00. Tonight I am suggesting a trigger to buy calls at $131.50.

Trigger @ $131.50

- Suggested Positions -

Buy the APR $135 CALL (LLL150417C135) current ask $2.05

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

Daily Chart:

In Play Updates and Reviews

Stocks Churn Sideways

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. market churned sideways as investors digested news that Germany had rejected Greece's request for a loan extension. Another decline in crude oil was also making headlines thanks to rising inventories.

We want to exit our VRX trade tomorrow at the closing bell.

Current Portfolio:

CALL Play Updates

Hanesbrand Inc. - HBI - close: 117.96 change: -0.98

Stop Loss: 114.85
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

02/19/15: Investors can't make up their mind with HBI. Yesterday it was up 98 cents. Today shares lost 98 cents. The nearest support looks like the 10-dma near $117 or the $116.00 level. I am not suggesting new positions at this time.

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: 104.70 change: +0.08

Stop Loss: 101.65
Target(s): To Be Determined
Current Option Gain/Loss: +8.1%
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

02/19/15: HON reaffirmed its 2015 guidance this morning. This news didn't do much for the stock. Shares opened weak but traders bought the dip near $104.00. The stock closed eventually unchanged and remains just below 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

Humana Inc. - HUM - close: 153.28 change: -2.12

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

02/19/15: HUM underperformed the market today with a -1.3% decline. The nearest support is about $152.00 but $150 is probably stronger support. Currently we are on the sidelines. Our suggested entry point to buy calls is at $155.75.

Earlier Comments: February 17, 2015:
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)

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

iShares Russell 2000 ETF - IWM - close: 122.05 change: +0.01

Stop Loss: 119.65
Target(s): To Be Determined
Current Option Gain/Loss: -1.6%
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

02/19/15: The small cap IWM spent the day drifting sideways near the $122 level. Shares closed almost unchanged. If the market dips the nearest support is probably $120.00.

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: 78.16 change: +0.68

Stop Loss: 73.90
Target(s): To Be Determined
Current Option Gain/Loss: +12.0%
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

02/19/15: NOW displayed relative strength today. Shares tagged new record highs near $79.00 before paring its gains. I'm not suggesting new positions at this time.

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: 85.67 change: +0.31

Stop Loss: 80.35
Target(s): To Be Determined
Current Option Gain/Loss: -6.8%
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

02/19/15: This morning NXPI announced they were forming a joint venture with private equity firm JianGuang Asset Management to start a semiconductor business in China. The headlines didn't seem to do much for NXPI stock this morning. Shares did manage to bounce off its morning low.

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: 93.17 change: +0.17

Stop Loss: 87.85
Target(s): To Be Determined
Current Option Gain/Loss: +68.0%
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

02/19/15: Another day, another new high for SBUX. Shares almost hit $94 this morning. This stock is starting to look short-term overbought. I wouldn't be surprised to see a dip. The $90.00 and $92.00 levels are short-term support.

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: 80.96 change: +0.89

Stop Loss: 75.90
Target(s): To Be Determined
Current Option Gain/Loss: -0.8%
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

02/19/15: The rally continues for SYNA. Shares outperformed the major indices with a +1.1% gain. I don't see any changes from my recent comments.

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: 110.03 change: +0.26

Stop Loss: 106.85
Target(s): To Be Determined
Current Option Gain/Loss: +1.2%
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

02/19/15: UNH is still consolidating sideways near resistance at $110.00. On the plus side shares are building a bullish trend of higher lows that should produce a breakout higher. Today's intraday high was $110.36. I'd be tempted to buy calls again on a rally past $110.50 (although, if you do, I'd probably buy options with more time). Traders may want to raise their stop loss.

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: 169.13 change: +0.71

Stop Loss: 164.90
Target(s): To Be Determined
Current Option Gain/Loss: +2.1%
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

02/19/15: VRX appears to be coiling for a breakout past resistance at $170.00. Unfortunately, shares might be stuck drifting sideways until the company reports earnings. VRX is scheduled to report next Tuesday, before the opening bell.

We do not want to hold over the announcement. Therefore we want to exit this trade tomorrow (Friday) at the closing bell. Tonight I'll adjust the stop loss to $164.90.

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

02/19/15 new stop @ 164.90, prepare to exit this trade tomorrow at the closing bell.
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: 120.20 change: -0.10

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

02/19/15: ZMH is hovering at its highs. Today's session looked a lot like yesterday's with ZMH churning sideways in a $1.00 range. Our suggested entry point is $120.75.

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.