Option Investor

Daily Newsletter, Saturday, 3/7/2015

Table of Contents

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

Market Wrap

Jobs Tank Market on Fed Rate Worries

by Jim Brown

Click here to email Jim Brown

A much stronger than expected payroll report caused traders to believe a rate hike in June was almost guaranteed. The Fed may be forced to rethink their "data dependent" guidance or be forced to raise rates sooner rather than later.

Market Statistics

After a month of weak economic data the analyst community had pretty much written off the chance of a June rate hike and moved the consensus forecast to September or even into 2016. Surprise, surprise! The sudden appearance of strong jobs data upset the applecart and now the forecasts are racing back to June. This will make the Fed post meeting statement on the 18th extremely critical for the market.

The Nonfarm Payroll report for February showed a gain of +295,000 jobs compared to the consensus estimate for +240,000. There were a large number of recent estimates for numbers under 200,000 and as low as 150,000 because of the severe winter weather and the massive layoffs in the energy sector. For the number to come in at 295,000 given those factors it means March could be much higher once the weather improves. January was revised lower from 257,000 to 239,000.

We are looking at a significant improvement in employment trends. The average for the last four months is +319,000 and typically there is a dip in Jan/Feb that did not happen this year. This suggests March could be really strong.

The unemployment rate fell to 8.7 million or 5.5%. The real unemployment rate that includes those who have exhausted their benefits and dropped off the roles and those forced to take a part time job because full time was not available declined from 11.3.0% to 11.0% after adjusting for seasonal factors. The number of persons employed part time for economic reasons was 6.6 million.

The average hourly wage barely budged with a +0.1% gain and the average work week remained flat at 34.6 hours for the fifth month. Private employment registered almost the entire job gain at +288,000 with government employment rising only +7,000. The services sector exploded higher with 266,000 jobs compared to the manufacturing sector adding only 29,000 jobs.

Leisure and hospitality added +66,000 jobs, which are mostly part time. Education and healthcare added +54,000, professional and business services added +51,000. Construction additions fell from 49,000 in January to 29,000 in February.

Energy/Mining jobs declined -8,000 but it is likely mining gains offset the declines in energy. Challenger, Gray and Christmas said there have been 39,621 layoffs in the energy sector so far in 2015 with 16,339 in February. Those are the jobs that are specific to the energy sector and does not include the related jobs in areas like housing, restaurants and other service businesses that cater to the oil field workers.

The strong jobs report runs contrary to the economic conditions. JP Morgan (JPM) just revised its GDP forecast for Q1 from +2.5% to 2.0% growth with the comment that revision risks continue to be skewed to the downside. Just like last year the analysts are slashing their forecasts for Q1 because of the continued severe weather that is closing stores and businesses and has cancelled more than 50,000 airline flights in February. Last week I shared a chart showing the Atlanta Fed is now predicting only +1.2% growth.

The market cratered on Friday because traders suddenly expected the Fed to fast forward their rate hikes. If the Q1 GDP is in the 1% range or even lower there will be no rate hikes. The problem is that the real GDP forecasts are not as widely known and most traders are still thinking 2.5% to 3.0% because that is where they were a couple months ago when the Q4 GDP revisions were in progress. The first Q4 reading was +2.64% and the second reading +2.19% and most of that was because of Obamacare spending and rising healthcare costs.

Also, the last reading on the CPI declined -0.7% in January after a -0.3% decline in both November and December. Year over year inflation was -0.2% but that was due to a -20% decline in energy over the same period. There is no inflation and certainly nothing near the +2.0% Fed target. Yellen expects the energy factors causing inflation to decline to ease over the next 12 months but definitely not by June.

The dollar spiked +1.38% on Friday alone on expectations for a rate hike. We have seen how destructive this is for earnings for U.S. companies and an actual rate hike would spike it even further. With S&P earnings expected to decline in Q1 and Q2 our U.S. companies don't need the currency headwinds that a June rate hike would bring.

New orders for U.S. factory goods declined -0.2% in January after a -3.5% decline in December. Excluding transportation orders the number declined -1.8%. Economists were expecting a +0.2% gain. This is the sixth consecutive month of declines and the rising dollar was blamed. Yellen does not need to accelerate this trend by pushing the dollar higher.

The ECB is launching its 60 billion euros of QE starting on Monday and extending to September 2016 or longer. This is going to push the interest rates in Europe to even lower lows and push the euro currency to a new 10-year low. A plunging euro and soaring dollar will make it even more difficult for the Fed to raise rates even by a minor amount.

While I understand the knee jerk reaction to the strong jobs numbers I believe cooler heads will prevail in the days to come. A strong jobs number is just ONE factor out of dozens that the Fed considers when making rate decisions. We know the Fed wants to normalize rates but their commentary suggests it will happen over a 2-3 year period with early hikes maybe only an eighth of a point rather than the normal quarter of a point. I believe the instant concern over future rate hikes has been greatly exaggerated.

The economic calendar for next week is rather light. There are several reports of note but none of them are normally market movers. The real problem will be the FOMC meeting the following week. There will be a lot of hand wringing and digital ink spilled over the potential for the Fed to remove the word "patient" from the post meeting announcement and thereby unofficially project June as the first potential rate hike. As long as the word patient remains in the release the Fed has said it would be "at least two meetings" before a rate hike would occur.

The actual sentence states, "Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy." If that sentence disappears the market is going to be really upset. At the same time if the sentence remains there should be some other "comfort" language to soothe nervous investors. They will have to address the jobs data in relation to their "data dependent" guidance.

The one thing we can be absolutely sure of is that the Fed will telegraph its rate moves well in advance. Until that happens all this uncertainty in the market is just a tempest in a teapot.

This time last week it appeared the Nasdaq was on track to be making new highs on Tuesday to correspond with the 15 year anniversary of the all time high in 2000. It does not look like that is going to happen after Friday's crash but it did close only 73 points from Nasdaq 5,000 so it is technically possible for a rebound to a new 15 year high to happen. Technically possible is a long way from likely.

Monday is the six-year anniversary of the recession low at 1,265. Don't you wish you had backed up the truck and loaded up with Nasdaq stocks six years ago?

The Dow declined -278 points on the same day it was announced that Apple (AAPL) would replace AT&T (T) in the index at the close of business on March 18th. That just happens to be the day that Visa (V) the heaviest weighted stock in the Dow is splitting 4:1. That will lower Visa's weighting in the index to 2.5%.

AT&T was initially added to the Dow on Oct 4th, 1916 so this is the end of an era for that stock. Bette Midler tweeted: "Apple is replacing AT&T in the Dow. They tried to call AT&T for comment but the call kept getting dropped."

The Dow Industrial Average was first calculated on May 26th, 1896. Let's hope that the Dow's consumption of Apple does not follow the same scenario from the Garden of Eden.

Apple set the stage for being included in the Dow when it split 7:1 last year. With Apple shares at $126.59 at the close it will only carry a 4% weighting when it enters the Dow. The index is price weighted so higher prices stocks have a higher weighting. Apple has a market cap ($737 billion) that is more than twice the next largest stock in the index, which is Exxon at $359 billion.

After Visa splits the top weighted stocks will be as follows based on Friday's prices.

7.0% Goldman Sachs (GS) $187
6.2% 3M (MMM) $164
6.0% IBM (IBM) $158
5.7% Boeing (BA) $153
4.7% Apple (AAPL) $127

This will also change the weighting by sector. The addition of Apple will not push technology to the top but it will be close.

20.28% Industrials - MMM, BA, UTX, CAT, GE
17.11% Technology - IBM, AAPL, MSFT, INTC, CSCO, V
16.25% Financials - GS, TRV, AXP, JPM
15.43% Consumer Discretionary - HD, DIS, MCD, NKE
11.42% Health Care - UNH, JNJ, MRK, PFE
 7.76% Consumer staples - PG, WMT, KO
 7.06% Energy - XOM, CVX
 2.89% Materials - DD
 1.80% Telecom - VZ

Today a $1 move in any Dow component adds about 6.5 Dow points. The 4:1 split on Visa will reduce that number but the replacement of AT&T by Apple will compensate for Visa's decline and change the factor to 6.75 Dow points per $1 increase in any stock. If Apple had been in the Dow on January 16th its +27 point sprint to $133 would have added +175 Dow points.

Recently the addition of a tech stock to the Dow has been the kiss of death. Microsoft (MSFT) and Intel (INTC) were both added in November 1999 and they have been a drag on the Dow instead of a lift. Microsoft has declined -43% since inclusion and Intel has declined -52%. Cisco was added in 2009 and has declined -16%.

There is a fallacy in the market that the addition of a stock to the Dow means it will spike as index funds are forced to buy the stock. In theory that is correct since the Dow does have some tracking ETFs but overall the impact is minimal. Historically when a stock is added to the Dow it tends to gain about 3% over the next month. The problem is that the amount of dollars indexed to the Dow is trivial compared to the more than $7 trillion indexed to the S&P-500. If you want your stock to move higher get it added to the S&P.

You would also think that stocks removed from the Dow would decline as the attention was removed from their symbol. That is also not true. Since 1929 stocks removed from the Dow have typically posted gains in the year following their removal.

In stock news Lululemon (LULU) was downgraded to sell by Goldman Sachs. The bank said competition was increasing for athletic-leisure wear. Nike, Under Armour and Athleta.com were some of those named. The bank also said their Canadian sales had stalled and strong dollar issues were becoming a problem. Goldman is expecting a 500 basis point hit to EBIT margins.

Foot Locker (FL) reported earnings of $1.00 that beat estimates of 91 cents. That was a +22% increase in earnings and a +22% gain in the prior quarter as well. Revenue increased +6.7% to $1.911 billion. They have posted double digit earnings gains in all but one of the past 17 quarters. Foot Locker controls 45% of the basketball shoe market. Shares rallied +4% on a bad day in the market.

Life Time Fitness (LTM) shares rose +15% on Friday after news broke that it was in advanced talks with KSL Capital and another unnamed private equity firm on taking the company private. The bidding is expected to end next week. The company operates 113 fitness centers and is considering converting its land holdings into a REIT to enhance value. Revenue rose +7% in 2014 to $1.29 billion.

Medical device maker Cooper Companies (COO) reported earnings of $1.75 and beat estimates by 22 cents but missed on revenues. They raised earnings guidance for 2015 but lowered revenue guidance. Earnings for 2015 are now expected to be in the range of $7.40-$7.70. Shares rose +9%.

The active rig count in the U.S. declined -75 to 1,192. Oil rigs declined by -64 to 922 and gas rigs fell -12 to 268 and another 18 year low. Total rigs have declined -687 (-35.6%) from the 1,931 high in September. U.S. production spiked +39,000 bpd last week to 9.324 mbpd and the highest level since 1972. U.S. crude inventories rose +10.3 million barrels to 444.4 million and a new 80 year high. Several analysts are now expecting existing storage capacity to run out by the end of March. This is why oil prices refuse to move over $50. There is still a shoe waiting to drop until inventory levels peak and begin to decline. Memorial Day is the beginning of high demand season in the USA. Refineries are in maintenance mode now and will be converting to summer blend gasoline in the coming weeks.


The markets experienced normal profit taking midweek but sentiment changed completely on Friday. The Dow was down over -300 points just before the close and there was very little short covering ahead of the weekend. The common excuse was that investors were running scared after the strong jobs report. However, there were quite a few question marks suggesting there was something else afoot.

Volume rose only about one billion shares over the 6.3 billion run rate for the first three days of the week. There were some sub-indexes being rebalanced at the close and some of that volume was related to the rebalance. That means the -300 point Dow drop occurred on very little increase in volume.

Art Cashin remarked just before the close that there was $1 billion in market on close orders to sell but the market was not crashing like it should have in the last 15 minutes if that was really the case. The low actually came at 3:40 and the Dow rebounded +30 points into the close despite the supposed order imbalance.

There were suspicions from several traders/analysts that the Friday decline was due to high frequency traders capitalizing on the rate headlines. Momentum was achieved early and it lasted all day. HFT volume is normally low but steady and tends to extend market trends. Others speculated that fund managers were lightening their exposure to stocks ahead of the Fed but the lack of volume disputed that theory.

There are two Fed heads speaking on Monday. I think it is the last day they can actually make public comments before the quiet period ahead of the FOMC meeting. If those Fed speakers want to put they market at ease this is their last chance. Unfortunately Mester does not speak until 2:25 and Richard Fisher is at 7:30. Neither will be much help for Monday's market.

We went the entire month of February where bad economic news appeared to be good news for the market. Suddenly on Friday the situation reversed and good news became bad news. I expected a market decline after option expiration. We were overextended and due for a short term pullback. Up until the jobs numbers on Friday morning everything was going according to plan. They say the best laid battle plans last only until the first shot is fired. Friday was the first shot. If it was an accidental discharge then we could get the all clear on Monday. If it was the equivalent of the revolutionary shot heard around the world then our troubles are just beginning.

I may be suffering from bias syndrome (BS) and I am looking for reasons to discount the selling. Friday just did not add up for me.

Whether we believe the reasons for the decline or not we have to respect it. Far too many people have gone broke from betting on what they thought should be happening instead of what is really happening.

The S&P broke below critical support at 2,085 and closed at 2,070. Next level support is 2,065 followed by 2,050 and then a long drop to 2,015 and 1,985. The key for Monday will be the open. If the S&P drops sharply to 2,065 or even 2,050 and firms I would expect the dip buyers to appear. Bullish sentiment did not disappear just because prosperity may be breaking out.

Of course traders don't need an external reason to sell. The psychologically important Nasdaq 5,000 level could have simply been a signal to take profits. Many analysts and high profile traders were running around saying the market was very overvalued even though the forward PE on the S&P is only 16.5. There is an old saying. If enough people say you are drunk you should sit down. Maybe if enough people say it is overvalued the market actually becomes overvalued for a short time. Everything is a matter of perception.

I said on Tuesday I would remain bullish unless the S&P broke below 2,085. We closed at 2,070 so now what? I think we should watch the market for clues.

I think we have to watch the market action and trade in the direction of the trend. While I would like to see a dip to 2,050 or 2,065 and a V bottom rebound I have found that what I would like rarely matters to the market. If we get that additional drop I would be buying the dip.

March 9th is the six-year anniversary of the 666 bottom on the S&P in 2009.

All 30 Dow components were negative on Friday and the Dow closed at a new three-week low. Support at 17915 failed with a close at 17856. Next support is 17775 and 17700. Fifteen of the Dow components are in a downtrend and a handful are trading sideways with only about 5 attempting to preserve their gains and move higher. Normally only 5-6 of the components actually do the heavy lifting and the rest are evenly divided between those that simply remain positive and those that are weak because of their own issues. The Dow internals today appear to suggest further weakness but that could be erased in a heartbeat on a news headline. Those stocks in a downtrend would see an initial short squeeze and help lift the average on the first day.

If we do get an additional decline I would probably be a dip buyer at the 17700 level. Resistance is 18100-18150.

The entry of Apple into the Dow at the close on the 18th will add some volatility in my opinion. Apple shares are almost never dormant. They are constantly moving up and down and not always in a trend.

Nasdaq 5000 turned into the market top everyone was fearing. The close at 5008 on Monday was the high for the week and we closed -81 points lower on Friday at 4927. It is notable that 55 of those points were lost on Friday and only 26 on the prior three days. Friday's flush appeared to be a combination of stop loss selling and program trading.

If you look at the short term chart the index consolidated in a range both before and after the Monday spike and the pattern failed to the downside. In retrospect this appears to have been a distribution pattern. The obvious target on a continued dip would be 4900. Any movement below that level and we move into a correction bias rather than a short term dip.

There was no common thread in Friday's selling. It was not a sudden drop in semiconductors or biotechs or Internet stocks, etc. It was broad based and no specific sector was the cause. This suggests there was a lot of ETF selling rather than specific stocks.

Resistance is 4990 and 5000. Support just over 4900.

Back in the day, Dow 10,000 was a big deal and hundreds of Dow 10K hats were handed out on the floor of the NYSE. Nasdaq 5000 hats were never popular because you only get to wear them one day per decade.

The Russell 2000 actually held up rather well until Friday. The small caps were holding their own until the bottom fell out. With several levels of near term support I think it would take some concentrated selling to push the index back under 1190.

The Dow Transports finally returned to resistance at 9200 but were immediately rejected and they have been in a confirmed downtrend since February 25th. The transports are not confirming any further Dow gains and are actually projecting further Dow losses. Support is now 8600 and the low from February 2nd. This decline bears watching as a sentiment indicator for the Dow.

To summarize the Friday decline was out of character for the recent market. I believe there was a program trading component and I am sure there were a lot of stop losses hit. When the market goes up for several weeks without a material dip it is susceptible to a sudden downdraft because of trailing stop losses used by traders to protect profits.

I am not really buying the "oh heck, the Fed is going to raise rates, run for the hills" scenario. Who in their right mind did not know that the Fed is eventually going to raise rates and June has been a common target in the press for months.

Market dips occur on headlines but that does not mean the world is coming to an end. Until this decline is confirmed with continued losses we should look at it as temporary. If Monday continues the downtrend then trade in the direction of the trend.

Daylight savings time is Sunday. Spring forward at 2:AM on Sunday.

Random Thoughts

In September 2007 he spacecraft Dawn was launched from Earth and over the last 8 years it has traveled more than 3 billion miles to reach a couple of dwarf planets called Vesta and Ceres. The ship is powered by a revolutionary ION drive that relies on electrically charged ions to push the ship through space and enabled it to reach the speed of 10 kilometers per second. Dawn arrived at Ceres last week and this picture snapped from 29,000 miles away shows two unexplained bright dots that are "unique in the Solar system" according to NASA.

Dawn will eventually find out what those dots represent but for now the entire scientific community is excited beyond words to find something that is so far unexplained. Some scientists theorize it is ice reflecting sunlight or steam from internal geysers or a mineral deposit left by a small meteor impacting inside the existing crater. X-Files theories abound including a spaceship from some other solar system, an alien mining colony, a giant solar array setup by extraterrestrials, etc. Dawn is still establishing orbit and is on the dark side of Ceres now and will not be able to send back additional photos until early April. Eventually Dawn will orbit as close as 230 miles so any object in the crater will be clearly visible. Now we wait.

The Baltic Dry Index is still holding at multi-year lows indicating there is still no demand for commodities of almost any flavor. China lowered their growth outlook last week from 7.5% to 7.0% and it could possibly be even lower by the end of 2015. Europe is bordering on recession/depression. The Middle East is in budget lockdown mode because of the drop in oil prices. We will know the global economy is improving when shipping rates begin to rise and not until then.

The strong dollar is pressuring commodities and making some unprofitable to mine at today's prices. More than 20% of today's mined copper is unprofitable today. A global copper surplus of more than 500,000 tons is expected in 2015 and the first time since 2009. Mine output is expected to rise +4.3% and demand only +1.1%. Copper is used in almost every manufactured product from plumbing to cars and computers to solar panels and smartphones. Miners are being forced to produce more in order to generate the same income from lower prices and that just adds to the glut.

Bloomberg reported that 304 U.S. companies now have more than $2.1 trillion in cash parked overseas waiting for a tax holiday to bring it home and put it to work. The amount of cash overseas rose +8% in 2014. Microsoft, Apple and Google each boosted their overseas profits by more than 20% in 2014.

Alan Greenspan is still stirring up trouble as he turned 89 on Thursday. Greenspan said Fed QE lowering the real rate of interest "has been responsible for the rise in P/E multiples... and when rates normalize, that will reverse," adding that "we can't argue that we are extremely overvalued in the marketplace." Also, he pointed out that "the annual rate of increase in entitlement payments is 9% per year and that the people that receive it believe it is their money and they have a right to it." Eventually this will end badly because the 9% per year increase is unsustainable.

Apple will launch its new Apple Watch this week and the features are being leaked out everywhere. Every time somebody finds a fact they rush to the web to post it. Here is the most comprehensive list so far. Apple Watch

There was a troubling factoid making the rounds last week. Margin debt on the NYSE has suddenly taken a turn downward and that suggests investors are worried about the future. Since the peak in February 2014 at $466 billion the debt has fallen to $455 billion in January 2015. That may not sound like a big decline but $11 billion in margin could buy up to $25 billion in stocks depending on various factors. In March 2009 total margin debt was only $182 billion.

Chart from Mark Hulbert

Lord Rothschild warned investors last week the geopolitical situation is the most dangerous since WWII. His comments below.

Our policy has been clearly expressed over the years. Simply put, it is to deliver long-term capital growth while preserving shareholders' capital; the realization of this policy comes at a time of heightened risk, complexity and uncertainty. The economic and geopolitical environment therefore becomes increasingly difficult to predict.

The world economy grew at a disappointing and uneven rate in 2014 after six years of monetary stimulus and extraordinarily low interest rates.

Stock market valuations however, are near an all-time high with equities benefiting from quantitative easing.

Not surprisingly, the value of paper money has been debased as countries have sought to compete and generate growth by lowering the value of their currencies – the Euro and the Yen depreciated by over 12% against the US Dollar during the course of the year and Sterling by 5.9%.

In addition to this difficult economic background, we are confronted by a geopolitical situation perhaps as dangerous as any we have faced since World War II: chaos and extremism in the Middle East, Russian aggression and expansion, and a weakened Europe threatened by horrendous unemployment, in no small measure caused by a failure to tackle structural reforms in many of the countries which form part of the European Union.

Notably, equities are not well supported by current valuations, while monetary policy is limited by high debt levels and interest rates that are already close to zero...exposing equities to a potentially sharp correction.

In July 2014 the dollar began a spike that would add +21% to the dollar index. At the same time crude oil began to decline sharply from the $107 level. Since oil is priced in dollars a stronger dollar means it takes fewer dollars to buy a barrel of oil. As much as $28 in oil's decline was related to the rising dollar strength.

Think Amazon is just a great place to shop for items that will be delivered to your door in 2 days for free? Think again. Amazon now sells hotel rooms just like Expedia and Priceline. The service is just getting started but knowing Jeff Bezos he will undercut everyone until there is no profit left and the buyer will get a cheaper stay. Amazon understands e-commerce and user experience and they are very good at building consumer loyalty. Look for a big advertising splash in the near future.

The Stock Trader's Almanac pointed out that the fourth longest bull market in history turns six-years old next week. The bull market narrowly avoided an abrupt end in October 2011 when the S&P declined -19.4% but avoided the 20% threshold necessary to signal the start of a new bear market. So far the Dow has gained +179.3%, S&P +213% and Nasdaq +294.8% since the march 2009 lows. As bull markets go this has been spectacular.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"I am not Spock. However, if given the chance to pay any character I would play Spock. I respect and admire him."

Leonard Nimoy


Index Wrap

Accelerating Downside Momentum

by Leigh Stevens

Click here to email Leigh Stevens

The S&P indices and the Dow fell below key supports implied by their 21-day moving averages. Can the Nasdaq be far behind!

I wrote last week in my Index wrap that: "An overall Market correction appears underway. A further dip ONLY back to prior highs (prior resistance), with this area acting as support, suggests a relatively minor correction."

NOTE: I basically projected a down March in my recent monthly technical review (Trader's Corner, 2/28/15) as, in terms of the S&P 500, a 'maximum' upside projection for a March high was just to 2136, at the upper resistance end of the monthly chart uptrend price channel. Click the above link to see my Trader's Corner monthly chart analysis.

Unlike the S&P (SPX and OEX) and the Dow 30 (INDU), the relatively stronger Nasdaq Composite (COMP) and big cap Nas 100 (NDX) have NOT violated technical/chart 'support' implied by prior highs at 4820 in COMP and the 4350 area in NDX. These divergent patterns would suggest areas that the Nasdaq indices might find support. If so, look for potential upside reversals at the same juncture in SPX, OEX and INDU. Key support in SPX may develop around 2050, the low-900 area in OEX and around 17665 in INDU.

Further specifics on support and resistance levels are noted with my individual stock index charts further on, after my VIX comments. As usual, I view major stock indexes with sustained trade BELOW the 21-day moving average as showing downside momentum and sustained trade ABOVE the 21-day average as showing bullish upside momentum. Sometimes of course there is whippy price action above and below this key 'centered' moving average, which suggests a sideways or lateral trend.

Bullish/bearish sentiment levels as expressed by my CBOE ratio of daily equities call option volume relative to daily equities put options volume (CPRATIO) is mostly 'neutral'; i.e., suggesting a moderately bullish outlook but not a bearish one. My CPRATIO indicator is seen with my SPX and COMP daily charts.

The S&P 500 Volatility Index (VIX):

VIX traded 358,000 contracts on Friday, 3/6/15, up from 223,000 a week prior and second only to the S&P 500 options; i.e., the S&P 500 weeklys (SPXW) options expiring Fridays at 609,000 contracts and the S&P 500 (SPX) end-of-month options (1,250,000).

I wrote last week regarding the S&P volatility index that: "13 is a next pivotal level for support or, conversely, piercing 13 suggests downside potential to 12." AND ..."Call purchases or short puts look favorable in the 13 to 12 zone."

The VIX HOURLY chart:

There was a brief opportunity to buy VIX calls/sell puts at my target level of 13. VIX made a double bottom low at 13 as can be seen on the extended hourly chart below. I view upside potential as being to the 17 area, possibly higher such as 18-19.

VIX support is highlighted at 14 near-term, extending to 13, with resistance suggested at 16, next to the 17 area.

The daily chart seen next suggests a pattern of a potential bottom in place and upside possibilities back to the 17-18 zone or a bit higher, to the 19 area. A move in the VIX to below 14 for more than a day would suggest a less bullish picture.

The VIX DAILY chart:



The S&P 500 (SPX) has turned short-term bearish given the decisive downside penetration below its 21-day moving average, with the weekly Friday Close also below support suggested by the prior top in the 2088-2092 area. A sustained rebound back above 2100 resistance is needed to suggest that SPX has regained upside momentum. Implied resistance extends to the 2120 area of SPX's prior peak.

Near support comes in at 2060, extending to 2040. 2050 represents a half or 50% retracement of SPX's prior run up. Major support begins in the 2020 area.

If the Index fell again to an oversold (low) extreme in the RSI, a supporting 'indicator' case is made to be alert to an upside reversal.

Trader sentiment remains moderately bullish but the trend toward greater caution or bearishness is seen in the declining line of my CPRATIO indicator. If the over-concern or preoccupation about possible Fed tightening continues, an 'extreme' in bearishness would be put me on alert to look for the contrary result of an upside reversal.


The S&P 100 (OEX) chart has turned short-term bearish like the broad S&P 500. See my above SPX comments on this pattern. OEX of course also pierced its 21-day moving average and support implied by prior highs over 920.

Near resistance is suggested at 920 and the recent 'breakdown' point; resistance then extends to the 930 area. Near support is highlighted (green up arrows) at 910, then in the low-900 area which would also represent a 50% retracement of OEX's prior advance and a place to look for a possible bottom.

A 'fully' oversold (low) reading in the 13-day Relative Strength Index (RSI) is something to watch for as this pattern is correlated with bottoming action.


I wrote last week that: "The Dow 30 (INDU) Average is faltering some after INDU's move to new highs. Pivotal support is suggested by the prior resistance or the recent upside 'breakout' point, at 18100. If 18100 is pierced on the downside look for initial support at 17900, and then next at highlighted support (green up arrow) at 17800."

Friday saw the Dow end up quite near the aforementioned 17800 support I previously forecast. I have 'next' support highlighted (green up arrow) at 17500, which is a next expected pivotal technical support; however, near support below 17800 should also be noted at 17700.

Last week I saw enough Dow stocks with further rally potential to "rate the likelihood of INDU holding above 18100 as reasonably good." How about 'reasonably' BAD! I can never account enough for FED DREAD when there's too much 'good' news on the employment front or otherwise suggesting better than expected economic growth!!


The Nasdaq Composite (COMP) has faltered in its strong uptrend but not to the degree of the S&P and Dow. Still, the decline to below support around 4950 is enough to suggest an alert to any daily Close below the 21-day moving average. A sustained decline to BELOW this key 'centered' moving average highlighted on all my index charts would tip COMP momentum lower.

I did note last week that "COMP continues in a strong uptrend but that uptrend has traced out a quite steep rate of gain and suggests a trend steepness susceptible to a corrective pullback." You would think that a steep advance would be bullish but too much of anything can end up being a 'bearish trigger'; e.g., also suggested by 'too much' employment growth!

Resistance is most definitely seen at 5000 which I've been saying; and, well, even by the talking heads on the business media. Next resistance above 5000 is projected at 5080 currently, rising to 5100.

The RSI is trending lower, as is bullish sentiment. I think we should 'believe' the downward slopes involved and not be surprised if even the tech-heavy Nasdaq might not dip further ahead.


The big cap Nas 100 (NDX) saw the same tripped up bullish momentum as the broad Composite and turned the NDX chart similarly bearish. The Index ended the week quite near its 21-day moving average currently intersecting just under 4400, at 4387. Next support under 4387-4400 comes in at 4350-4347.

Overhead resistance is at 4450, extending to 4463, on up to 4500.

NDX, like the other major stock indices has an eventual tendency to find a 'reason' for a corrective pullback AFTER hitting overbought readings in the 13-day Relative Strength Index (RSI). Moreover, the tendency for sell offs has frequently been the case after a period of LOW volatility (around 14) that is seen in the VXN Nasdaq 100 volatility index line at the bottom of the NDX daily chart.

I anticipate a possible re-test of support below the 4347-4327 zone, with the Index perhaps reaching 4305-4320. However, bearish aspects are 'triggered' so to speak only with a move below the 21-day moving average. Support at the average might still hold up. Stay tuned!


The QQQ chart has the same pattern as the underlying Nas 100; only the price levels are different. The QQQ 'breakdown' point came on the fall below key near support at 108. Chart support/buying interest is seen next at 106, assuming the 21-day moving average gives way in the 107 area. Below 106 projected next support is highlighted at 104.

Overhead resistance is notated (red down arrows) at 108.9 and next in the 110 area.

The On Balance Volume (OBV) was trending lower with the sideways move in the 108-108.9 zone and was a tip off to a sell off to come. I'd rate the chance of further downside as more than 50-50 as I assume that the possible support at 107-106 may give way.

104.4 as a 'reference', if seen, represents a 50% retracement (and also a possible support) relative to the February-March advance.


The Russell 2000 (RUT) has turned short-term bearish as prices fell below technical support in the 1220 area. RUT is fairly predictable in its tendency for corrective pullbacks AFTER reaching overbought extremes as measured by the 13-day Relative Strength Index (RSI).

The longer-term chart weekly chart picture (not shown) for RUT remains bullish as long as support/buying interest develops in the 1200 area or above. Upside potential longer-term is to 1350 in my estimation.

If the Russell experienced a 50% retracement of its most recent advance, RUT could dip to support highlighted in the 1200 area. Support is highlighted (green up arrows) at 1200, extending to 1190.

A move back above the 21-day moving average and for more than a single day is needed to suggest renewed upside momentum. Near resistance is suggested at the 21-day average at 1223 currently. Next resistance is seen in the 1240 area.


New Option Plays

Cloud Computing & Consumer Goods

by James Brown

Click here to email James Brown


Demandware, Inc. - DWRE - close: 67.05 change: +1.95

Stop Loss: 63.65
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 440 thousand
Entry on March -- at $---.--
Listed on March 07, 2015
Time Frame: Exit prior to April option expiration
New Positions: Yes, see below

Company Description

Why We Like It:
Cloud computing remains a growth area for the technology sector and DWRE continues to see significant growth.

DWRE is in the technology sector. They're considered part of the software industry. According to the company, "Demandware, the category defining leader of enterprise cloud commerce solutions, empowers the world's leading retailers to continuously innovate in our complex, consumer-driven world. Demandware's open cloud platform provides unique benefits including seamless innovation, the LINK ecosystem of integrated best-of-breed partners, and community insight to optimize customer experiences. These advantages enable Demandware customers to lead their markets and grow faster."

This stock saw huge gains in 2013. Unfortunately the momentum vanished in 2014. Last year was very rocky for the share price in spite of consistent earnings results from the company. Three out of the last four quarters have seen DWRE beat Wall Street estimates on both the top and bottom line. The company's revenues in 2014 grew +52%. Their customer base grew +31%. Average revenue per customer was up +12%. Their backlog of unbilled subscription revenue soared +37% to $461 million (actually +42% if you account for currency fluctuations).

Their most recent results came out February 19th and DWRE missed the EPS estimate by one cent. Yet that didn't stop shares from surging higher the next day (February 20th). Now the point & figure chart is bullish and forecasting a target at $79.00.

Technically the rally in DWRE over the last weeks has produced a huge bullish breakout on the weekly chart. Now shares have broken through price resistance near $65.00 and could see some short covering. The most recent data listed short interest at 19% of the small 32.4 million-share float. The stock displayed relative strength on Friday with a +2.9% gain while the rest of the market was sinking. We are suggesting a trigger at $67.35.

Trigger @ $67.35

- Suggested Positions -

Buy the APR $70 CALL (DWRE150417C70) current ask $2.65

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

Daily Chart:

Weekly Chart:


GoPro, Inc. - GPRO - close: 40.13 change: -0.95

Stop Loss: 44.05
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 8.0 million
Entry on March -- at $---.--
Listed on March 07, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Sometimes the old saying "what goes up must come down" definitely rings true in the stock market. Shares of GPRO produced a rocket ride higher last year. The stock held its IPO in June 2014. They priced at $24.00 a share and opened at $28.65. By September 30th shares of GPRO had closed at $93.70. The stock never made it to $100 but it got close. GPRO peaked in early October and it's been downhill ever since.

If you're not familiar with GPRO they are in the consumer goods sector. The company makes photography equipment. They're best known for their outdoor, waterproof, action-cameras that take high-definition video. GPRO also sales mounts, accessories, and software for their cameras. Late last year GoPro cameras were the Christmas gift to give or get. The company sold 2.4 million units in the fourth quarter. That's about 1,000 cameras an hour.

GPRO's most recent earnings report February 5th. They reported Q4 earnings of $0.99 a share. That is 29 cents better than expected. Revenues soared +75% to $633.9 million, significantly above estimates. Gross margins rose from 42% to 48%. Unfortunately for shareholders the stock dropped on its earnings report thanks to soft guidance.

Everyone was expecting GPRO to blow away the Q4 numbers. It was their first holiday season as a public company and GPRO said they were not hindered by lack of capital or employees like they were in previous years. Investors were not happy to hear GPRO's Q1 guidance in the $0.15-0.17 range. Wall Street estimates were for $0.17.

Plus the company might be having an identity crisis. They keep saying they're going to be a media company. It's true that GPRO's youtube channel has seen incredible growth. However, it's not driving revenues. Even Google, who owns Youtube, is having a hard time making a profit with the video-sharing website. Optimists will say that GPRO's youtube channel helps drive brand awareness and loyalty. They might be right. Until GPRO finds away to monetize their "media" they're just a hardware company. Of course the are a hardware company that has seen incredible growth with the number of cameras sold surging from about 400,000 in 2010 to 5.2 million in 2014.

If GPRO's weaker than expected Q1 earnings guidance wasn't enough to sour the market's mood for the stock then a high-level executive resignation may have been the tipping point. When GPRO reported its Q4 results they also announced that Nina Richardson, their Chief Operating Officer, was resigning effective February 27th. Naturally investors wondered what does Richardson know that the rest of us don't.

GPRO shares have also been hampered by a big stock lock up expiration. On February 17th another 76 million shares came available. Surprisingly the stock actually bounced on the lock up. There were probably too many shorts all expecting a big drop and when it didn't materialize there was a rush to cover. You'll notice on the chart that the bounce failed at its trend of lower highs.

Another concern for GPRO has been the FAA's new limitations on drones. Right now they're just proposals and not yet law. However, it's worth noting that many people buy GPRO cameras to put on their drones for aerial photography. GPRO has even hinted they will make action-camera ready drones soon. If the FAA rules are too strict it could damage consumer sales of drones, which would be a lessen demand for GPRO-like cameras.

Right now the FAA issue is a dark cloud on the horizon. The bigger issue impacting GPRO shares is competition. China's biggest smartphone maker, Xiaomi, is getting into the action camera business. They are making outdoor, waterproof cameras with equipment from Ambarella (AMBA). Ambarella is the same company that GPRO uses for its semiconductor technology that captures and processes video.

GPRO, as a hardware company, is vulnerable to competitors with cheaper products. Xiaomi's new cameras are about half the cost of GPRO's similar models. The GoPro Hero is about $130 while Xiaomi's YiCamera will cost you $64. Currently Xiaomi does not have any products that compete with GPRO's flagship products but that's probably just a matter of time. If you're a consumer would you rather pay $150 for a Xiaomi camera with AMBA chips in it or $400 for a high-end GPRO with AMBA chips in it? This is going to be a serious challenge for GPRO's growth in Asia, especially China.

GPRO optimists will argue that the company has already beaten all of its competitors thus far (including Garmin, Panasonic, Sony, etc.). If competition from Xiaomi doesn't scare the bulls, how about Apple Inc.? Apple (AAPL) recently won a patent fight for its own outdoor digital camera design. This new design is supposed to have a better battery life than GPRO's and have less wind resistance. Currently AAPL is not a competitor but if they do decide to jump in it would be bad news for GPRO.

With all this potentially negative news it's not surprising to see a high amount of short interest. The most recent data listed short interest at 19.2 million shares versus a float of 47.7 million (about 40% of the float). However, these numbers may not reflect the new 76 million shares available from the recent lock up.

Technically shares of GPRO are in a bear market with a bearish trend of lower highs and lower lows. Today the stock is hovering just above round-number support at $40.00. The point & figure chart is bearish and forecasting at $30.00 target. The intraday low last week was $39.58. We are suggesting a trigger to buy puts at $39.40.

Trigger @ $39.40

- Suggested Positions -

Buy the APR $38 PUT (GPRO150417P38) current ask $1.90

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

Daily Chart:

Weekly Chart:

In Play Updates and Reviews

Stocks Retreat On Rate Fears

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. market endured a widespread decline on Friday. The better than expected nonfarm payroll (jobs) number fueled fears that the Federal Reserve will raise rates sooner than expected.

Just about everything was weak on Friday. Investors were selling everything - stocks, bonds, and precious metals all showed weakness.

We have removed ALK as a candidate. LEA hit our stop loss.

Current Portfolio:

CALL Play Updates

Aetna Inc. - AET - close: 100.67 change: -1.42

Stop Loss: 98.85
Target(s): To Be Determined
Current Option Gain/Loss: -23.5%
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

03/07/15: AET retreated from all-time highs with a dip to what should be round-number support at the $100.00 level. If this level fails there is a small chance AET will bounce at $99.00 but more likely shares will hit our stop at $98.85. Considering the market's weakness I'd wait for a bounce above $101.25 before initiating new bullish positions.

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: 69.96 change: -1.13

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

03/07/15: AKAM lost almost -1.6% during the market's sell-off on Friday. If shares close below the March 4th low ($69.28) we'll likely remove AKAM as a candidate. Should the market and AKAM continue to sink I would watch the $65.00 level, which should be major support. Currently we are waiting for a breakout higher. Our suggested entry point is $72.25.

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


Cavium, Inc. - CAVM - close: 69.72 change: -0.60

Stop Loss: 67.65
Target(s): To Be Determined
Current Option Gain/Loss: -7.9%
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

03/07/15: CAVM spent most of the week consolidating from Monday's surge to new highs. Friday's drop did see shares breakdown under $70.00 but traders bought the dip near its rising 10-dma. CAVM is now up four weeks in a row. We are going to try and reduce our risk by moving the stop loss up to $67.65.

I'm not suggesting new positions at this time.

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

03/07/15 new stop @ 67.65
02/27/15 triggered @ $68.75
Option Format: symbol-year-month-day-call-strike


MasterCard Inc. - MA - close: 90.79 change: -2.02

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

03/07/15: MA was not immune to the market's broad-based sell-off on Friday. Shares were at record highs and gave up -2.1%. The $90.00 area should be short-term support. If $90 fails then we'll likely remove MA as a candidate. Currently our suggested entry point is $93.15.

Trade Description: March 5, 2015:
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)

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


NXP Semiconductors - NXPI - close: 98.48 change: -0.19

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

03/07/15: The relative strength in shares of NXPI is impressive. The market's widespread sell-off on Friday would have been a great excuse to lock in profits on NXPI. Yet shares held up very well only posted a minor decline. It may have helped that one analyst firm upped their price target from $95 to $120 on Friday morning.

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: 65.98 change: -1.16

Stop Loss: 70.65
Target(s): To Be Determined
Current Option Gain/Loss: +23.8%
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

03/07/15: KORS did not see any follow through on Thursday's intraday bounce. Shares took their cue from the market's sell-off and KORS dropped -1.7%. The next hurdle for the bears is January support near the $65.00 level.

I am not suggesting new positions at this time.

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



Alaska Air Group - ALK - close: 63.73 change: -0.91

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: see below

03/07/15: ALK followed the market lower. Shares have dipped toward technical support at their simple 50-dma. This moving average has been support in the past. I would be tempted to buy calls here. However, the XAL airline index appears to be breaking down. It's also worth noting that the XAL might be forming a bearish head-and-shoulders pattern. Given the industry weakness we are choosing to remove ALK as a candidate. However, I'd keep airlines on your radar screen. If crude oil breaks down to new lows it should be bullish for the airline stocks.

Trade did not open.

03/07/15 removed from the newsletter, suggested entry was $66.35


Lear Corp. - LEA - close: 107.89 change: -1.66

Stop Loss: 107.75
Target(s): To Be Determined
Current Option Gain/Loss: -38.1%
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

03/07/15: The stock market's widespread sell-off helped push LEA to new two-week lows. Shares hit our stop at $107.75. If this weakness continues I'd watch the $100.00 area, which should be significant support.

- Suggested Positions -

JUN $115 CALL (LEA150619C115) entry $3.75 exit $2.32 (-38.1%)

03/06/15 stopped out
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