Option Investor

Daily Newsletter, Thursday, 3/5/2015

Table of Contents

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

Market Wrap

Market Holds Steady

by Thomas Hughes

Click here to email Thomas Hughes
The market held steady as traders focus on tomorrow's NFP and unemployment data.


There was quite a lot of news to move the market today but it held steady. Starting things off in Asia, markets there were mixed after a surprise GDP revision from China. The worlds third largest economy lowered its 2015 growth target to 7%, down from 7.4% in 2014. The news is not good but only seemed to affect Chinese indices. The Shang Hai and Heng Seng indices lost about 1% each while those in Japan and elsewhere in the region were able to post gains.

The news did not spook European markets either, their focus being on the ECB and Mario Draghi. The ECB held their rate policy meeting this week and decided to hold rates steady. They also announced a few more details of the bond purchasing plan set to begin on Monday. In his statements Draghi got bullish and predicted stronger growth for the EU than previously expected for 2015. European indices gained about 1% on average.

Market Statistics

Our indices were indicated to open higher from the earliest of the electronic sessions. Futures held steady throughout the morning, just above break even levels, with a little weakening after today's employment data was released; jobless claims jumped more than expected but not so much as to alter recent trends and lay-offs remain high. Other news affecting early trading includes positive comp store sales data from the retail sector and positive earnings from Costco. While there are few companies left which report comp store sales on a monthly basis those that did were generally better than expected, led by Costco which reported better than expected earnings as well.

The market opened higher as expected. After the opening the bell the indices moved down to test support at yesterdays closing levels and bounced from there. The bounce carried them to the early high, about a quarter percent higher, where they tread water for the next hour. Just before 11AM sellers stepped in and drove the indices back down to the morning low. Support held and another bounce ensued, taking the market back to the top of what became the daily range. After lunch the morning lows were retested, and broken, but buyers once again stepped in to bring prices back above break even. They held steady for the remainder of the day.

Economic Calendar

The Economy

Today was a big day of economic data today. Starting things off is the Challenger Gray&Christmas report on planned lay-offs. In February, planned lay-offs declined slightly to 50,579, a drop of 5% and just off of the high set last month. The large number of planned lay-offs for February is attributed primarily to retail losses, which are in line with last year's figure, and to low oil prices which added 16,339 job losses for the past month alone. On a year-to-date basis job losses in 2015 are trending 19% higher than 2014, due largely to oil. Oil alone accounts for 38% of this years job losses, totaling just over 39,000 for this year, followed by restructuring. Based on estimates I have read this is about half of the expected losses to be expected from the oil sector, not counting any peripheral losses that may occur. These are largely expected, and looking at the data ex-oil impact, job losses are relatively low.

Challenger Gray & Christmas

Initial claims for unemployment jumped this week, versus an expected drop. Claims jumped by 7,000 to 320,000 from last weeks not revised figure, versus an expected decline of about 20,000. The four week moving average rose and is now above 300,000. This weeks rise in claims is not great but still within recent trends and the four week moving average is still hovering around 300,000. The gain may be reflecting the high number of lay-offs reported by Challenger and not a big concern providing initial claims do not rise further. There has been a lot of volatility in the initial claims data lately so they could easily dip next week. Over the long term they are still trending at low levels and in-line the of rising employment.

On an not adjusted basis claims rose by just over 10%, slightly more than the 8% predicted by seasonal factors. Massachusetts, Kentucky and Illinois led with gains of 3,807, 2,916 and 2,777 respectively, followed by Pennsylvania. No mention of oil was given as a reason for increases of job losses by any of these states. Pennsylvania says that trucking, warehousing and construction were to blame, partly due to the weather.

Continuing claims for unemployment also rose this week, gaining 17,000 to reach 2.421 million. This is from an upward revision of 3,000. The four week moving average climbed 3,750 to 2.403 million and is now above the 2.4 million level. The gain this week is marginal, this figure is holding steady right around 2.4 million as it has for the last 2-3 months. This statistic is seen as a less volatile indication of labor trends and it looks to me to be settling down around the long-term-low-level of 2.4 million. Over the next couple of weeks we'll need to watch the initial claims for further gains, and to see if the relatively high level of initial claims spills over into the longer term and less volatile continuing claims.

The total number of American filing for unemployment fell by -59,912 to 2.806 million. This is a slight decline from last week, the 5th week of relatively stable numbers and the 7th week of retreat from the peak set in early January. Claims are elevated from the low set last fall but still trending near that low and at levels consistent with the long term labor trends. On a year over year basis total claims are more than 18% lower than last year at this time.

Revisions to Q4 productivity and labor costs were also released at 8:30AM. Productivity was revised lower to -2.2% from the previous estimate of -1.8%. While revised lower, it was not revised as low as expected and reflects an increase in the number of hours worked. The decline in productivity is due to an imbalance in the amount of output, which increased 2.6%, and the number of hours worked, which rose by 4.9%.

unit labor cost also increased in revision to +4.1%. This quite a bit more than the previous estimate of 2.7%, the expected revision to 2.9% and the previous quarters 2.6%. The reason for the rise in costs is due to an increase in wages of 1.9% and hours worked, offset by the drop in productivity. My take is that labor is improving as evidenced by increases in hours worked and wages, and that capacity is expanding to point of increased excess. Because of this we may see a decline in capacity utilization in the next release.

Factory orders data was released at 10AM. Orders fell by -0.2% versus an expected gain of 0.1%. This is on top of a downward revision to the previous month and the 6th month of decline. X-Transportation the number is worse, -1.8%. Shipments, unfilled orders and inventory all declined as well with weather a leading cause. It seems like the weather effect is in effect, although still nothing to compare with last year.

Tomorrow the big economic event will be the NFP number. Current estimates are in the 240K range but I think it may be a little low. There is volatility in initial claims but steadiness in the longer-term continuing and total claims belies any weakness that volatility may indicate. At the same time high levels of lay-offs are being matched by high levels of job openings, unfilled positions and a decent ADP number. Not only was the ADP OK, it is still indicating underlying momentum though positive revisions.

The Oil Index

Oil prices tried to rally again but failed. The price of WTI hung just over $51 for most of the day with a spike up to $51.50 early in the morning. However, by late afternoon sellers overpowered buyers and sent prices back down below yesterday's close. Competing GDP expectations may have been a cause of today's turnaround; on one hand China says it's growth is slowing, on the other Mario Draghi says EU growth is picking up, in between we have rising stockpiles, tepid demand and spreading ISIS conflicts throughout the Middle East. I think it needless to say that we should expect volatility in oil to continue, with an eye on $48 as near term support.

The Oil Index also traded lower today. The index traded in a very tight range, just beneath the 38.8% Fibonacci Retracement. This level could act as resistance now and the indicators are bearish so a drop is very possible. A move below the low set yesterday would be further bearish in my view. A drop below here could take it down to next support along the the long term up trend line near 1,250.

The Gold Index

Gold traded in a tight range during a choppy session. Prices held steady around $1,200 for most of the day but like oil, spiked higher mid-day and then fell sharply in the late afternoon. At that time gold fell below $1,200 bit and was not able to regain that level before before the end of the day. Gold prices continue to hold around $1,200 while the market tries to decide when the Fed will begin to move. The jobs number could help sway the market one way or the other but I still think any dip below this level will find buyers. A drop below $1,200 would find support between $1,175 and $1,190. a price region that saw a lot of bullish activity towards the end of last year.

The Gold Miners ETF GDX gained in today's action but traded down from the opening price. The ETF opened with a small gap and moved up to test resistance, then retreated to set a new two month low. The ETF is now below my support line at $20.50 and in danger of moving lower. If gold prices don't maintain support around $1,200 the possibility will grow. A move below $20 could take it down as far as $17.50. The indicators are bearish but beginning to show stronger signs of support at the current level so I'm not too sure of a break just yet. MACD is showing a nice divergence from prices as they set the new low and the stochastic is setting up into what could become a strong trend following signal.... assuming a bottom was set during during the Nov/Dec time period.

In The News, Story Stocks and Earnings

I haven't touched base on the dollar in a while but today is a good day to do it. The Dollar Index has been in consolidation for the last two months, basically since the ECB announced they would do QE bond purchases, and today's announcements helped send it shooting to a new high. The Dollar Index, which is euro heavy, continued its move above resistance with a gain of nearly 0.5%. Mario Draghi's dovish comments are likely to send the USD/EUR pair lower and this index higher in the near to short term as well. This is great for dollar bulls but will no doubt have an adverse affect on companies who have already be reporting the negative effects of currency conversion.

Costco reported earnings before the bell and beat street estimates on the top and bottom lines. The discount club retailer reported EPS of $1.35, a 29% increase over the comparable quarter last year. This is driven by an increase in traffic, sales and reduction in costs. Comparable store sales were strong, up in the high single digits for the US and the international segments of business, and expected to remain so. This is good news and helped by the recent switch to Citigroup and Visa sponsored credit cards,a move which should help to reduce cost even more. Today's news was well received and sent the stock up by 3% to approach the all time high set last month.

Bank stress test results were released after the closing bell and all 31 cleared their capital requirements. The Banking Index traded choppy today, first moving lower to test support along the short term 30 day moving average and then bouncing higher. By the end of the day price action had returned to near break even where it held into the close. The index is trading near the top of the 12 month trading range and does not look like it is about to break out but this news could lead to some buying and/or short covering tomorrow. The indicators are very weak bu could easily reverse if the bulls decide to buy into the banks who “passed” their tests.

Grocer chain Kroger reported earnings today and may have revealed one place where the consumer is spending money saved from low gas price. The chain reported earnings of $1.04, $0.23 (28%) above last year at this time. The gains are driven by higher sales, traffic and improved margins due to lower fuel costs. Company execs expect to see these trends continue into the current year and have raised guidance. The new target is full year EPS in the range of $3.80-$3.90 per share, a full ten cents above the previous guidance. Shares jumped more than 6% in today's action to reach another new all time high.

The Indices

Today's action was a little mixed, but largely to the upside. Trading ranges were very tight and lead me to think that the market is waiting for tomorrow's data before committing to one direction over the other. Most of the indices were able close in the green but not the Dow Jones Transportation Index. The transportation average was able to poke its head above break even but spent most of the day underwater and closed with a loss of -0.15%. Today's action was light and tested support along the short term moving average. The indicators are bearish and point to lower prices in the near term but I would not bet on that until after the NFP is released. Each time support was tested today buyers stepped in. A move below the moving average could keep the index range bound into the near to short term, with a downside target near 8,600. A bounce from this level would be in line with the long term trend and likely take it to test the all time high.

The S&P 500 made the smallest gain of the day, only 0.12%. This is after moving as high as 0.25% above yesterday's close and as low as -0.25%, creating a small spinning top floating just above support, support at the previous all-time high. Today's action is indicative, I think, of a wait-and-see attitude that could be focused on the NFP release. The indicators are moving lower, in line with this weeks move down to support, but not strong and still consistent with a naturally occurring pull-back to support. If support should break down the index could find support at the short term moving average and then below that near 2,050. If support holds upside targets remain near 2,200 or higher.

The Dow Jones Industrial Average made the next biggest gain, just over 0.21%. The blue chip index is situated similarly to the SPX in that it too is sitting just above the support of previous all-time highs and has created a small spinning top with today's action. The indicators are bearish, in line with the pull back to support, and could be indicating further testing of support along 18,000. If this breaks the short term moving average is just below and may provide additional support.

The NASDAQ Composite is today's leader in terms of percent gain. The tech heavy index climbed 0.32% in today's session but still created a spinning top, perhaps the most indecisive one of the lot as it is also a doji. The index is not sitting at support like the others so with the indicators the way they are looks especially vulnerable to sell-off. A pull back from here could take the index down to the 30 day moving average, about 130 points below today's closing price.

The market is waiting for the NFP number like it always does. Regardless of what the rest of the economic tells us, this one number is the what the market likes to pin its hopes too. I think it will be strong but even if it is not the trends are still positive and one month of data does not break a trend. Employment is improving and everybody (almost) is benefiting from low oil prices. This combination should add up to a nice surge in growth at some time in the foreseeable future if I am not totally off base. There could be a correction sparked by tomorrow's release but if so will likely be another buying opportunity for long term investors.

Until then, remember the trend!

Thomas Hughes

New Option Plays

Do You Own A Credit Card?

by James Brown

Click here to email James Brown


MasterCard Inc. - MA - close: 92.81 change: +1.10

Stop Loss: 89.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 5.0 million
Entry on March -- at $---.--
Listed on March 05, 2015
Time Frame: Exit prior to April option expiration
New Positions: Yes, see below

Company Description

Why We Like It:
Do you have a credit card? How about a debit card? Odds are you do. About 70% of Americans have a credit card and many have more than one. Inside the United States there are over 500 million credit cards between American Express, MA, and Visa. There's more than 1.12 billion globally (not counting the U.S.). There's also another 572 million MA or Visa debit cards in the U.S. (MasterCard has more than 144 million). Not counting America there are more than 1.2 billion debit cards around the world.

Now what if you could charge a small percentage for consumers using their plastic every time they make a purchase? That's MA's business model. As of 2013 their market share of global transactions (credit or debit) was about 27%. They are the second biggest credit and debit card company behind Visa (V). According to the company, "MasterCard (MA), www.mastercard.com, is a technology company in the global payments industry. We operate the world's fastest payments processing network, connecting consumers, financial institutions, merchants, governments and businesses in more than 210 countries and territories. MasterCard's products and solutions make everyday commerce activities – such as shopping, traveling, running a business and managing finances – easier, more secure and more efficient for everyone."

MA has been delivering steady growth. They reported their Q3 results on October 30th with earnings up +19% from a year ago to $0.87 a share. That beat estimates. Revenues were up +12.8% to $2.5 billion, also above expectations. The bullish trend continued when MA reported its 2014 Q4 results on January 30th. Earnings per share soared +32% from a year ago to $0.69 and revenues grew +13.6% to $2.42 billion. Both metrics were above Wall Street expectations.

The company did warn that the surge in the U.S. dollar was impacting results but they still see strong single-digit revenue growth for 2015. They reaffirmed +20% earnings growth.

Meanwhile one of MA's biggest rivals, American Express (AXP), is not having a good year. AXP lost its exclusive deal with Costco (COST) last month. This deal generated 20% of AXP's loans and about 10% of their annual card growth. AXP is also losing its partnership with JetBlue (JBLU). AXP's losses will likely be MA's and Visa's gain.

This week MA announced it had signed a 10-year deal with Citigroup. Not only is Citigroup one of the biggest banks on the planet they are the largest credit card issuer in the world. The press release states "Citi will begin aligning the company's consumer proprietary credit and debit portfolios to the MasterCard network in 2015." One analyst has already opined that the deal should provide a "decent tailwind for EPS growth" (for MA). Speaking of opinions, a couple of analysts at Nomura believe that MA is cheap at current valuations and could be seen as safe haven investment given their steady earnings growth.

Technically shares of MA broke out past resistance at $90.00 during the market's widespread rally in February. The stock has already retested $90.00 as new support. Odds are good MA is poised to make a run towards the $100 level. Currently the point & figure chart is bullish and forecasting a long-term target at $118.00.

Today MA sits just below last week's high of $93.00. We are suggesting a trigger to buy calls at $93.15.

Trigger @ $93.15

- Suggested Positions -

Buy the Apr $95 CALL (MA150417C95) current ask $1.50

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

Daily Chart:

Weekly Chart:

In Play Updates and Reviews

Treading Water Ahead Of Jobs Report

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. market treaded water ahead of tomorrow's jobs report. Meanwhile the ECB meeting and the ECB President's press conference didn't do much for equities. The central bank starts their QE program next week.

CRTO hit our stop loss.

Current Portfolio:

CALL Play Updates

Aetna Inc. - AET - close: 102.09 change: +0.34

Stop Loss: 98.85
Target(s): To Be Determined
Current Option Gain/Loss: +6.6%
Average Daily Volume = 2.2 million
Entry on March 04 at $101.15
Listed on March 02, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

03/05/15: AET continued to rally and posted another record high. The stock is on track for its fifth weekly gain in a row. As long as the market doesn't crash on the jobs number tomorrow I would consider new positions at current levels.

Trade Description: March 2, 2015:
Healthcare stocks have been extremely strong performers from the market's mid October 2014 lows. Investors have continued to buy the dips and that's especially true in shares of AET. This stock has been outperforming the market in 2015 and currently up +12.0% for the year.

Who is AET? According to the company, "Aetna is one of the nation's leading diversified health care benefits companies, serving an estimated 46 million people with information and resources to help them make better informed decisions about their health care. Aetna offers a broad range of traditional, voluntary and consumer-directed health insurance products and related services, including medical, pharmacy, dental, behavioral health, group life and disability plans, and medical management capabilities, Medicaid health care management services, workers' compensation administrative services and health information technology products and services. Aetna's customers include employer groups, individuals, college students, part-time and hourly workers, health plans, health care providers, governmental units, government-sponsored plans, labor groups and expatriates."

Investors have been bullish on big healthcare names because of the Affordable Care Act (a.k.a. Obamacare). Initially this industry was resistant to the deal. Obamacare did get off to a rocky start. Yet now a couple of years after its launch most of the wrinkles have been ironed out. Obamacare has generated millions of new health insurance customers for the industry.

Earnings have been strong. AET's most recent earnings report was February 3rd. The company delivered a Q4 profit of $1.22 a share. That was in-line with estimates. Revenues were up +12.5% to $14.77 billion, which was above expectations. More importantly AET raised their 2015 guidance from $6.90 a share to $7.00. That's actually below Wall Street's estimate but it's moving the right direction. Multiple analysts raised their price target on AET following the Q4 report. Meanwhile the point & figure chart is bullish and forecasting at $119 target.

The healthcare providers got another boost last week on February 23rd after the government issued new proposals to raise the rate they pay insurers for Medicare/Medicaid. Shares of AET have not seen that much profit taking from its February high and traders are already buying the dip.

We want to jump on board if this rally continues. Tonight we're suggesting a trigger to buy calls at $101.15. We'll try and limit our risk with an initial stop loss at $98.85.

- Suggested Positions -

Long Apr $105 CALL (AET150417C105) entry $1.36

03/04/15 triggered @ 101.15
Option Format: symbol-year-month-day-call-strike

Akamai Technologies - AKAM - close: 71.09 change: +0.04

Stop Loss: 68.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.5 million
Entry on March -- at $---.--
Listed on March 04, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

03/05/15: AKAM quietly consolidated sideways in a 95-cent range. Shares closed virtually unchanged on the session. We are waiting for a breakout past $72.00.

Trade Description: March 4, 2015:
February was the U.S. market's best monthly performance in years. One stock outpacing the broader market was AKAM. Shares rallied +18% in February and that's after the minor pullback from its late February highs.

The company is part of the technology sector. They provide cloud services for delivering content across the Internet. Customers include 47% of the Global 500 companies.

AKAM describes itself as "the global leader in Content Delivery Network (CDN) services, Akamai makes the Internet fast, reliable and secure for its customers. The company's advanced web performance, mobile performance, cloud security and media delivery solutions are revolutionizing how businesses optimize consumer, enterprise and entertainment experiences for any device, anywhere."

Last year was a strong one for earnings and revenue growth. AKAM beat Wall Street estimates on both the top and bottom line the past four quarters in a row. They raised guidance twice. AKAM's average revenue growth last year was +24.5%. Their most recent report was on February 10th where AKAM delivered a profit and revenue number above expectations. Several analyst firms raised their price target on AKAM following its Q4 results.

Management hosted an investor day in late February. They expect sales growth to be in the high teens for 2015. They forecasting sales to hit $5 billion by 2020 compared to about $2 billion in 2014. AKAM reported that their cyber security business is surging with +191% growth last year.

This week AKAM disclosed in their 10-K filing that they were conducting an internal probe into their sales practices in a foreign country. They didn't say which country. This is a potential risk if the U.S. government decides to do their own investigation but the stock didn't really react that much to the news.

It is worth noting that there has been some speculation that AKAM is a buyout target. One analyst suggested that Amazon.com (AMZN) could be a suitor.

After big gains in February shares of AKAM have been consolidating sideways in the $69-72 zone. The point and figure chart is bullish and forecasting a long-term target at $100. We want to buy a breakout. I'm suggesting a trigger at $72.25.

Trigger @ $72.25

- Suggested Positions -

Buy the Apr $75 CALL (AKAM150417C75)

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

Alaska Air Group - ALK - close: 64.64 change: -1.13

Stop Loss: 62.95
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.5 million
Entry on March -- at $---.--
Listed on March 03, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

03/05/15: Crude oil prices declined again on Thursday but that failed to lift the airline stocks, which turned lower. ALK underperformed its peers with a -1.7% decline on no news. Shares of ALK are nearing what should be technical support at the rising 50-dma.

Our suggested entry point to buy calls is $66.35.

Trade Description: March 3, 2015:
The collapse in the price of crude oil has been a huge windfall for the airline industry. As a result airline stocks have soared from the market's October 2014 lows. That's because air fares remain near 11-year highs while fuel prices have dropped to five-year lows, boosting profit margins. Today analysts are expecting jet fuel to average less than $2.00 a gallon in Q1 2015. According to the U.S. Transportation Department jet fuel dipped this low back in December and before that it hasn't been this low since 2009.

ALK is a regional airline. The company is more than 80 years old and currently has a fleet of more than 180 planes. According to the company, "Alaska Airlines, a subsidiary of Alaska Air Group (ALK), together with its partner regional airlines, serves more than 100 cities through an expansive network in Alaska, the Lower 48, Hawaii, Canada and Mexico. Alaska Airlines ranked 'Highest in Customer Satisfaction Among Traditional Carriers' in the J.D. Power North American Airline Satisfaction Study for seven consecutive years from 2008 to 2014. Alaska Airlines' Mileage Plan also ranked highest in the J.D. Power 2014 Airline Loyalty/Rewards Program Satisfaction Report."

ALK has shown consistent earnings growth and beat Wall Street's EPS estimate the last four quarters in a row. Their most recent earnings report was January 22nd. ALK reported Q4 earnings of $0.94 a share. That's a +70% increase from a year ago thanks to a -32% drop in fuel prices. Management has also cut non-fuel expenses. Meanwhile ALK's traffic, measured in revenue passenger miles, was up +9.5%. ALK's full-year 2014 results saw passenger revenues rise +7%. They reported a record income of $571 million (+49%). They also saw a record full-year adjusted pretax margin of 17.2% versus 12.4% in 2013.

The company has decided to return a lot of that money back to shareholders and boosted their quarterly cash dividend by +60% to $0.20 a share. After such positive results several analysts raised their price target on ALK's stock (into the $71-85 range).

Crude oil prices remain a hot topic on Wall Street. Oil will likely see another drop to new lows thanks to vanishing storage in the U.S. Currently oil inventories are at 80-year highs. There is a growing chance that we could actually run out of storage. You know what happens where there is too much supply - prices normally fall.

Airline stocks got ahead of themselves back in January and most of the group experienced a pullback last month. It looks like the correction is over. Traders are back to buying the dips in ALK. Technically shares have found support at the rising 50-dma. The breakout past $65.00 this week looks bullish. A move above $67.00 would generate a new P&F buy signal. Tonight we are suggesting a trigger to buy ALK calls at $66.35.

Trigger @ $66.35

- Suggested Positions -

Buy the APR $70 CALL (ALK150417C70)

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

Cavium, Inc. - CAVM - close: 70.32 change: -0.51

Stop Loss: 64.95
Target(s): To Be Determined
Current Option Gain/Loss: +2.6%
Average Daily Volume = 737 thousand
Entry on February 27 at $68.75
Listed on February 26, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

03/05/15: CAVM is still consolidating sideways near support/resistance at the $70.00 level. If the $70.00 level fails to hold the next support should be $68.00 or the 10-dma near $69.00.

Earlier Comments: February 26, 2015:
Semiconductor stocks have been showing relative strength this year. The SOX semiconductor index is already up +4.3%. CAVM is outperforming its peers with a +10.6% gain.

If you're not familiar with CAVM, Investors.com described the company as "a specialty niche designer of network security processors 14 years ago" that has grown into "a mainstream player challenging the likes of Intel, Broadcom, and Freescale Semiconductor."

The company describes itself as "Cavium is a leading provider of highly integrated semiconductor products that enable intelligent processing in enterprise, data center, cloud and wired and wireless service provider applications. Cavium offers a broad portfolio of integrated, software-compatible processors ranging in performance from 100 Mbps to 100 Gbps that enable secure, intelligent functionality in enterprise, data-center, broadband/consumer and access and service provider equipment. Cavium's processors are supported by ecosystem partners that provide operating systems, tool support, reference designs and other services. Cavium's principal office is in San Jose, CA with design team locations in California, Massachusetts, India and China."

The last four quarterly earnings reports have been better than expected. CAVM has consistently beat analysts' estimates on both the top and bottom line. Revenue growth has slowly accelerated from +19.7% in Q1 2014, +22.2% in Q2, +23.6% in Q3, and +25% in Q4 2014.

CAVM's CEO Syed Ali is optimistic on 2015 saying, "This will be the single biggest year of new product introductions in our history."

Meanwhile analyst Christopher Rolland, with FBR Capital Markets, commented on the company, saying, "innovative design team, solid pipeline of new products and ability to increasingly tap into a fast-growing hyperscale customer base should provide a solid backdrop of growth for the next few years."

Wall Street expects CAVM revenue growth of +20% in 2015 and earnings growth of +26%. The point & figure chart is very bullish and forecasting a long-term target of $96.00. Technically shares spent the last few days consolidating sideways but today's display of relative strength is a bullish breakout. We are suggesting a trigger to buy calls at $68.75. (FYI: April and May options are not available yet so we chose June)

- Suggested Positions -

Long JUN $75 CALL (CAVM150619C75) entry $3.80

02/27/15 triggered @ $68.75
Option Format: symbol-year-month-day-call-strike

Lear Corp. - LEA - close: 109.55 change: +0.25

Stop Loss: 107.75
Target(s): To Be Determined
Current Option Gain/Loss: -22.7%
Average Daily Volume = 771 thousand
Entry on February 24 at $110.65
Listed on February 23, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

03/05/15: Shares of LEA appeared to sleepwalk through Thursday's session. The stock drifted sideways inside a narrow range. I am not suggesting new positions at this time.

Earlier Comments: February 23, 2015:
Last year was a great one for the auto industry. According to Autodata we saw 16.5 million new cars and light trucks sold in the U.S. in 2014. That's almost one million more than 2013. The momentum continues.

Vehicle sales rose +11% in December 2014. That surged to +14% in January 2015 (from a year ago). Ford said their January sales were up +15% and General Motors reported +18% increase. Globally IHS Automotive is forecasting more than 88 million vehicles sold in 2015.

That means a lot of car seats need to be manufactured. LEA is in the consumer goods sector. They make auto parts. According to the company, "Lear Corporation (LEA) is one of the world's leading suppliers of automotive seating and electrical distribution systems. Lear serves every major automaker in the world, and Lear content can be found on more than 300 vehicle nameplates. Lear's world-class products are designed, engineered and manufactured by a diverse team of approximately 132,000 employees located in 34 countries. Lear currently ranks #177 on the Fortune 500. Lear's headquarters are in Southfield, Michigan."

Last year the company consistently beat Wall Street's earnings estimates. Their most recent earnings report (2014 Q4) was announced on January 30th. Net income soared from $72.8 million to $261.8 million (+259%). LEA's adjusted earnings per share rose +47% to $2.27. That was 19 cents above expectations. Revenues rose +6.9% to $4.55 billion, which also beat estimates. The boost was driven by a +10% surge in the sale of car seats.

Currently LEA expects 17.4 million automobiles will be manufactured in North America this year. That's a gain of about +3% from 2014. LEA does a lot of business in China and they estimate 22.9 million cars will be built in China. IHS automotive is estimating 25.2 million cars will be made in China in 2015. Considering the current pace of car sales, LEA is guiding 2015 revenues in the $18.5-19.0 billion range. That compares to current Wall Street estimates in the $18.65-18.99 zone.

Another factor driving the stock higher is an activist investor that suggested LEA split up to unlock shareholder value. This story hit on February 3rd and sent shares of LEA soaring. LEA management said they're always willing to listen to shareholders. LEA responded with a reminder that "Since 2011, Lear has returned more than $2.1 billion to shareholders in the form of share repurchases and dividends. Since 2010, Lear has achieved a total shareholder return of 203%, which is approximately double the return for the S&P 500 over the same time period. In 2014, Lear's total shareholder return of 22% outperformed the S&P 500's return of 14%. Building sustainable shareholder value is a foremost priority for Lear."

Two weeks later LEA followed that up with an announcement they were bumping their stock buyback program up to $1 billion. At the end of 2014 their stock repurchase program was down to $339 million. The Board of Directors also raised their quarterly cash dividend +25% from $0.20 to $0.25 a share.

Technically shares of LEA have been consolidating sideways for almost three weeks. That changed today. The stock has broken through resistance at the $110 level. Tonight we are suggesting a trigger to buy calls at $110.65.

- Suggested Positions -

Long JUN $115 CALL (LEA150619C115) entry $3.75

02/28/15 new stop @ 107.75
02/26/15 caution: today's decline could signal a failed breakout (potential bearish reversal) pattern.
Option Format: symbol-year-month-day-call-strike

NXP Semiconductors - NXPI - close: 99.47 change: +0.74

Stop Loss: 96.25
Target(s): To Be Determined
Current Option Gain/Loss: +302.5%
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

03/05/15: NXPI briefly traded above round-number resistance at $100.00 this morning. The rally didn't last but profit taking was mild with an 80-cent decline.

I'm not suggesting new positions at this time.

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

03/04/15 new stop @ 96.25
03/02/15 new stop @ 94.85, NXPI soars after announcing acquisition of FSL
02/21/15 new stop @ 83.25
02/17/15 new stop @ 80.35
02/12/15 triggered @ 84.15
Option Format: symbol-year-month-day-call-strike

PUT Play Updates

Michael Kors - KORS - close: 67.14 change: -0.00

Stop Loss: 70.65
Target(s): To Be Determined
Current Option Gain/Loss: +0.0%
Average Daily Volume = 3.9 million
Entry on February 26 at $67.90
Listed on February 25, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

03/05/15: KORS spiked down toward $66.00 this morning. However, someone was in a dip-buying mood and KORS rebounded to close unchanged on the session. If KORS' recent trend is any guide then we could see the stock bounce back toward the $68.00-68.50 zone soon.

Earlier Comments: February 25, 2015:
Luxury retail brand names like KORS and Coach (COH) have seen their stocks get crushed over the last several months. Shares of KORS were big performers for the bulls the first two plus years from its late 2011 IPO. Unfortunately the stock peaked in 2014. Investors worried about over exposure and slowing growth.

According to the company, "Michael Kors is a world-renowned, award-winning designer of luxury accessories and ready-to-wear. His namesake company, established in 1981, currently produces a range of products through his Michael Kors and MICHAEL Michael Kors labels, including accessories, footwear, watches, jewelry, men’s and women’s ready-to-wear and a full line of fragrance products."

Make no mistake, KORS is still growing. Last August they reported a strong earnings report that beat on both the top and bottom line. While management guided lower short-term they raised guidance for 2015. A few months later when KORS reports earnings in November 2014 they beat estimates again with revenues soaring +42% and KORS announced a $1 billion stock buyback program. However, their outlook on 2015 had tarnished a bit and they lowered comparable store sales growth from the high teens to mid teens.

KORS most recent earnings report was February 5th. Earnings per share grew +32%. Their results of $1.48 per share beat estimates by 15 cents. Revenues grew +30.9% to $1.26 billion but that actually missed Wall Street estimates thanks to foreign currency issues.

What troubles investors is the slowdown in KORS' growth. Globally their comparable store sales grew +8.6%. Most companies would probably be excited for that number. Yet analysts were expecting +12.6%. The slowdown appeared to accelerate in North America. Same-store sales plunged from +24% growth to +6.8%. KORS is also facing margin pressure with both gross margin and its operating profit sliding.

KORS management will tell you that the company is doing great and just reported its 35th quarter in a row of same-store sales growth. However, the number crunchers on Wall Street will point out that it was the first time in five years that same-store sales growth did not rise by double-digit percentages.

A big concern among analysts is that KORS could be losing its appeal because it's growing so fast. Last year they added 114 new stores and ended 2014 with 509 retail locations. They're starting to become too common. KORS is losing its cachet.

Management also lowered their guidance for Q4 (current quarter) to $0.89-0.92 a share versus estimates of $0.94. They also see revenues below expectations.

This concern over slowing growth has produced a bear market in the stock. KORS is definitely not participating in the market's rally. Tonight we are suggesting a trigger to open bearish positions at $67.90.

- Suggested Positions -

Long May $65 PUT (KORS150515P65) entry $2.10

02/26/15 triggered @ $67.90
Option Format: symbol-year-month-day-call-strike


Criteo SA - CRTO - close: 43.67 change: -0.03

Stop Loss: 42.85
Target(s): To Be Determined
Current Option Gain/Loss: -55.5%
Average Daily Volume = 507 thousand
Entry on March 02 at $45.85
Listed on February 28, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

03/05/15: CRTO seems to have a great growth story but that hasn't mattered this week. Shares are down three days in a row (granted today was virtually unchanged). The last two days the European market has posted gains but that hasn't helped CRTO either.

Shares dipped to their 20-dma near $42.60 this morning before paring their losses. Our stop loss was hit at $42.85.

I'd keep CRTO on your watch list. The $40-41 zone should be significant support and a pullback in this area could be a new bullish entry point.

- Suggested Positions -

Apr $45 CALL (CRTO150417C45) entry $3.35 exit $1.49 (-55.5%)

03/05/15 stopped out @ 42.85
03/02/15 triggered @ $45.85
Option Format: symbol-year-month-day-call-strike