Option Investor

Daily Newsletter, Tuesday, 3/10/2015

Table of Contents

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

Market Wrap

Dollar Strength, Rate Worries, Negative Market

by Jim Brown

Click here to email Jim Brown

The dollar shot up another +1.2% to a new 12 year high and oil prices dipped to nearly $48. Bearish forecasts for earnings and oil prices along with the outlook for rates sent equities lower with financials leading the way.

Market Statistics

The Dow collapsed with a -332 point drop and the S&P gave back -35 points to close well below obvious support levels. Monday's +133 point rebound turned into a dead cat bounce and sellers came back on heavy volume. Crude oil closed the regular session at $48.29 after multiple analysts lowered their forecasts suggesting Brent crude could trade down to $45. That would suggest WTI could trade under $40. This weighed heavily on equities with the emphasis on the energy sector.

Financials traded sharply lower ahead of the Fed's ruling on their capital programs on Wednesday. Citigroup lost -3.2% with Bank of America (BAC), Wells Fargo (WFC) and JP Morgan (JPM) losing about -2.5% each.

The dollar gained another +1.18% to 98.75 on the Dollar Index. This is going to crush the earnings from the 50% of the S&P that receive a lot of their revenue from overseas. This is forcing analysts to further cut their earnings estimates on a weekly basis. Investors are now pricing in a decline in earnings for Q1 and Q2.

The economic news for today was not negative and that is a change from the recent trend. The Wholesale Trade report for January showed a +0.3% gain in inventories compared to zero growth in December. However, sales were significantly negative. Sales of durable goods declined -1.4% and nondurable goods declined -4.6%. That is the sixth consecutive monthly decline for the nondurable goods. This forced the inventory to sales ratio up from 1.22% to 1.27%. This suggests the rise in inventories was not because wholesalers were bullish but because of slowing sales.

The Intuit Small Business Employment Index showed hiring rose +0.7% in February. That equates to a gain of +15,000 jobs compared to +30,000 in December and +20,000 in January. Compensation declined -0.05% and hours worked declined -0.09%. Overall February was relatively weak for small business conditions. Revenues have been declining since October and that continued in February.

The NFIB Small Business Economic Trends showed optimism rose from 97.9% to 98.0% and a barely noticeable change. Those companies with plans to increase employment declined from 14% to 12%. Capex plans were flat at 26% and expectations for increasing sales were flat at 16%. Those with current job openings did rise from 26% to 29%. Earnings trends remained flat at -19% meaning more businesses felt negative than positive. The report was ignored.

The Job Openings and Labor Turnover Survey (JOLTS) showed job openings rose +3.4% and the same pace for the last four months. The number of job openings did rise to 5 million and a 14 year high. Hiring declined slightly from 5.2 million to 5.0 million. Separations also declined from 4.9 million to 4.82 million. The quit rate rose +2% and layoffs declined -4.7% from year ago levels.

The most important economic release on the calendar for Wednesday is oil inventories. However, the Fed will release its approvals for capital spending by the big banks and it is possible the Fed could curtail some of those plans. The Comprehensive Capital Analysis and Review (CCAR) tests the 31 largest banks on their plans to return capital to shareholders with dividends and buybacks. The recent stress test assumed the unemployment rate rising to 10%, stocks entering a bear market and a 25% decline in housing prices. The banks have been closing down some operations and selling others in order to reduce risk and raise cash. That does not guarantee the Fed will let them give money back to shareholders but it is a start. Last year Citigroup passed the stress test but the Fed would not approve their capital allocation strategy saying they were still too exposed to losses in "material parts of its global operations."

The capital approvals should all pass this time around since the banks knew from last year what the Fed was looking at and where their ratios needed to be. Any bank that is curtailed by the Fed this year will see its shares decline.

The FOMC meeting next week is becoming more important as each day passes. Monday evening outgoing Fed President Richard Fisher, a noted hawk on rate policy, said in a speech the Fed needed to hike rates immediately at a moderate pace because waiting longer could force the Fed to hike rates faster once they started and cause another recession. He favored not waiting for wage growth to pickup saying it will eventually rise with inflation.

The Fisher speech caused another spike in the dollar and the collapse in the European markets. Some European indexes were down over -2% as the euro fell to $1.07 and the dollar rocketed +1.2% higher. Deutsche Bank predicted the euro would fall to parity with the dollar by the end of 2015, drop to 90 cents in 2015 and 85 cents in 2016 as a result of ECB QE and rising rates in the USA. This is going to cause severe earnings distress for multinational companies that represent more than 50% of the S&P.

In stock news Apple (AAPL) shares declined -$3 intraday to knock about 15 points off the Nasdaq 100 ($NDX). The company formerly announced the watch on Monday and a new smaller and lighter MacBook laptop. They also announced HBO Now for $14.95 a month on Apple TV and dropped the price of the TV to $69 to better compete with Amazon at $29. Apple bragged that every major car brand is adding Apple's CarPlay. This is an in car system for listening to music, getting directions and making calls from your iPhone.

Today was the Apple shareholder meeting and Tim Cook was all smiles. Apple sold more than 200 million iPhones in 2014 and produced more than $200 billion in revenue. They returned $57 billion to shareholders through dividends and buybacks. He promised the watch would change the way people use the Internet and that is a very risky call. He was very bullish on the partnership with IBM and expected their applications to boost sales of iPads. In talking about weak iPad sales he said there were "other things in the pipeline" that would boost sales. He was why Apple did not buy Tesla and accelerate their plans to create an electric car. Cook ignored the real question by saying they had no relationship with Tesla but "we would love for them to use" CarPlay.

Apple shares tend to decline to the 100-day average, now $114.50, every few months. I view this as the level to enter new positions. Shares rallied +$28 in Jan/Feb and today's close at $124 is about $10 over the optimum entry level.

Barnes & Noble (BKS) shares declined -10% after reporting earnings of 93 cents compared to estimates for $1.41. The company is working on spinning off its college bookstore business from the retail stores and the Nook e-reader. The breakup is expected to be completed by August. This would leave BKS with the struggling retail business that is being killed by Amazon and other online retail sites, and the money-losing Nook division. The company is also adding toys and gifts in the retail stores to try and market to a wider audience. Same store sales rose +1.7% and revenue of $1.96 billion beat estimates for $1.9 billion. Last June the company gave up on selling its own e-reader hardware and partnered with Samsung to provide the device. The company said losses in the Nook division decreased -53% from the prior quarter. They are still losing money, just losing it slower.

Personally I don't understand why the stock is worth even $22. The PE is a -112 and Amazon is beating them badly. Apparently I don't understand the outlook and the potential for turning them from a book seller into a gift and toy store.

Urban Outfitters (URBN) was the biggest gainer in the S&P with a +11.5% spike after earnings. The company posted earnings of 60 cents compared to estimates of 57 cents. A +12% increase in revenue to a record $1.1 billion only met estimates. Wedbush Securities and Credit Suisse reiterated their neutral ratings and Brean Capital reiterated their buy rating. While analysts were not excited about the earnings but shares soared on the outlook that the turnaround was accelerating. There are 22.3 million shares remaining on the existing stock buyback and that should supply support.

Qualcomm (QCOM) announced on Monday it was going to buyback $15 billion in shares with at least $10 billion over the next 12 months. This replaces the existing program that had $2 billion remaining. The company also raised its dividend by +14% to 48 cents. Qualcomm is sitting on $32 billion in cash. Qualcomm is the major communications chip supplier for Apple and Android phones.

Orbital ATK (OA) continues to ris ein the face of a negative market with a +4% gain today. Orbital Sciences and ATK merged in early February to form Orbital ATK. In the process they spun off Vista Outdoor (VSTO), an outdoor sporting goods supplier, and became a pure play aerospace manufacturer. Barclays upgraded it from neutral to buy today after Orbital signed a $120 million deal with the Army for a fuse for precision guidance munitions. On Wednesday they will test fire the new SLS boosters in Promontory Utah. These boosters will be used for the next moon mission and the eventual manned flight to Mars. Orbital ATK shares are being bought on increasing volume now that they are a pure play aerospace company.

Lumber Liquidators (LL) rebounded +6% after Blackrock increased their investment in the company and well known short seller Citron Research said the selloff was way overdone. Blackrock increased its stake from 4% to 10.1%. Short interest is roughly 34% and the rebound suggests some shorts were caught off guard.

Acadia Pharmaceuticals (ACAD) rallied +18% to $46 after the company cancelled two investor meetings and sparking speculation that a deal to buy the drug maker could be in the works. Acadia is working on drugs for the nervous system including Parkinsons. The cancelled events were Monday and Tuesday and hosted by Cowen & Co and Roth Capital partners. Acadia has a partnership with Allergan. Company spokesman did not answer calls asking for comments.

Just before the close an investor bought 200,000 contracts of the January $94/$102 put spread on the FXE paying nearly $2 or roughly $39 million in premium. This is a bet that the euro (FXE) will decline another 11% by January 2016. While I believe that is a pretty safe bet I would not bet $39 million on the outcome. January is a long way off and anything can happen. Whoever placed this bet has some serious conviction. If the FXE moves close to that lower $94 strike the investor can make $120 million.

Crude prices continue to be under pressure by the rise in the dollar. There is a battle in progress here with the $49 level the battleground. Storage is filling up at an accelerated pace and refiners are in the middle of their annual maintenance cycle and crude refining volumes are dropping. Refinery utilization is down to 86%. It is a race now to get the refineries turned back on before storage becomes critical.

The EIA lowered its price forecast for 2015 from $55.02 to $52.15 before rebounding to average $71 in 2016. They raised the production expectations from 9.3 mbpd in 2015 to 9.6 mbpd in 2016. I should note that production last week was a 35 year high at 9.324 mbpd and already over the EIA forecast.

Just yesterday Goldman Sachs said its $40 forecast for WTI may be too low because the oil market is "surprisingly healthy." The bank said weather disruptions, the failure of global inventories to increase and stronger than expected demand could keep oil above that level for the next two quarters. Sandstorms disrupted Iraqi exports, Libya closed down 11 fields because of violence, cold weather in the U.S. and a drought in Brazil bolstered consumption, according to Goldman.

A senior Saudi Aramco executive said the industry could cancel more than $1 trillion in projects if oil prices do not rebound soon. Capex around the world is being slashed and many companies have now cut spending forecasts more than once.

So far this has not boosted the price of oil. Analysts said inventories in the U.S. could rise as much as 8 million barrels this week and continue adding to the storage pressures. One analyst was quoted today predicting Brent prices could fall to $45, which would suggest WTI could trade under $40. The trouble with price predictions is that everyone has one and very few will be right. However, WTI's failure to move over $50 for over a month is telling me the next move may be lower. Support at $49 has been rock solid but eventually investor patience will expire.


There is nothing positive to say about today's decline. The S&P dropped -35 points to close at 2045 with the 100-day average at 2040. However, the 100-day has not been reliable support in prior declined. Recently the 150-day average has been more predictable and that is 2016 today. If we did move that low I would expect the 2000 level to be tested as it was four times in December and January. This is clearly the support target on any continued decline.

The pace of the decline was extreme at the open after the futures turned sharply negative at 4:AM after the European markets turned negative. The S&P dropped -28 points in the first hour of trading and then dipped again as two other sell programs hit at 11:30 and 1:30. In the last 10 minutes of trading another sell program hit to produce a $3 billion imbalance in market on close orders to the sell side. This closed the markets on the lows of the day.

About 85% of the volume was negative despite decliners running only about 3:1 over advancers. The high beta stocks were being crushed while the average security was down only slightly.

Support on the S&P is 2040, 2016, 2000. Resistance 2082, 2100.

The Dow lost -230 points in the first hours and after a minor rebound at 11:00 it fell victim to the same sell programs as the S&P to close on the lows at 17,677. All uptrend support has failed and the Dow may have minimal support at the 100-day average at 17,609. The Dow did react to that average on 3 of the last 4 declines. I would not bet the farm on a rebound from that level. The severity of the breakdown over the last week suggests we are going lower with the obvious target the 200-day at 17,251. The big names on the Dow were crushed with Visa losing -$6, Goldman -$5 and MMM -$4. Those are the highest weighted stocks in the Dow and their declines cemented the Dow's loss.

Typically when the Dow falls into "cascade" mode it does not rebound abruptly. There will be a day of indecision at the bottom and then a rebound. The alternative is an intraday V bottom with a rebound.

However, futures are strongly positive tonight and suggest somebody is buying the dip.

The Nasdaq is stronger on a relative basis than the Dow and S&P and strength in a couple of sectors can sometimes overcome a broad market decline. That did not happen today. The Nasdaq gapped down -67 points in the first hours and closed down -82 for the day. Apple was responsible for about -15 of those points on the Nasdaq 100. Add in big declines in Google, Amazon and Netflix and the index had no hope of recovery.

The Nasdaq has light support at 4850 before falling into a congestion range with the 100-day at 4711. That is a huge spread of 139 points. The key for the Nasdaq will be the fight at 4850. If it loses that ground at the open it could have another ugly day.

Resistance is 4950, support 4850.

Today is the 15th anniversary of the March 2009 historic high close at 5048 and intraday high at 5132.

The Russell 2000 gave back -15 points to close right on support at 1208. That is where the opening gap stopped and that level held all day. This is the only encouraging point I can make about the markets. The small caps crashed with the market at the open but drew a line at 1208 and would not cross it. This may not be bullish but it is a positive sign.

Volume was NOT heavy despite the monster decline. Total volume was just over 7 billion shares and less than we saw on Friday's decline at 7.4 billion. At the end of the day declining volume was 6:1 over advancing volume with decliners 5501 to 1508 advancers. Typically it takes an 8:1 to 10:1 declining volume day to produce a washout and suggest a rebound the next day. We did not get that today.

S&P futures are up +5 points at 9:PM and that would suggest a strong open but there is a lot of darkness before morning. If overseas markets follow us lower those futures can evaporate in a heartbeat.

I have no bias for Wednesday. The bank capes approvals could be a help if all the banks are approved or a hindrance if several are prevented from implementing their capex plans.

When the S&P broke below 2065-2070 that turned the outlook bearish for me. However, whenever we get a big flush I always expect the dip buyers to appear. Whether or not they want to venture into these waters is unknown. Multiple -300 point declines (Fri/Tue) tend to blunt investor sentiment and sometimes declines beget more declines. I would want to see the S&P climb back above 2060 on decent volume before I would turn bullish on the markets this week.

Enter passively, exit aggressively!

Jim Brown

Send Jim an email



New Option Plays

Activist Investor Target

by James Brown

Click here to email James Brown


E.I.du Pont de Nemours and Company - DD - close: 78.77 change: +0.20

Stop Loss: 74.95
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 3.9 million
Entry on March -- at $---.--
Listed on March 10, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
Not many companies have been around for more than 200 years. DD is part of the basic materials sector. They have grown into a giant conglomerate with about $35 billion in annual sales. DD makes products and materials for multiple industries including: agriculture, food & personal care, high-performance materials, industrial biotechnology, people & process safety.

According to the company, "DuPont (DD) has been bringing world-class science and engineering to the global marketplace in the form of innovative products, materials, and services since 1802. The company believes that by collaborating with customers, governments, NGOs, and thought leaders we can help find solutions to such global challenges as providing enough healthy food for people everywhere, decreasing dependence on fossil fuels, and protecting life and the environment."

After seeing DD's latest earnings report you might wonder why the stock is nearing all-time highs. The company reported Q4 results in January. Earnings were in-line with estimates at $0.71 a share. Revenues dropped -4.8% to $7.38 billion, which was significantly below Wall Street's expectation of $7.79 billion.

DD reported sales declines in every business segment and in every geographical region of the world it does business. Nearly 65% of DD's revenues are outside North America so the big rally in the U.S. dollar was a major headwind for the company. DD's guidance was bearish. They lowered their 2015 guidance into the $4.00-4.20 range compared to analysts' estimates at $4.47.

So why are investors so bullish on the stock? Is it because DD is forecasting a minimum savings of $1.3 billion in cost-reduction strategies by 2017? Is it because DD is so shareholder friendly by spending $3.7 billion in 2014 on stock buybacks and dividends? It's possible.

The better bet is that DD's stock has continued to show strength because of a growing fight between management and a major activist shareholder. Trian Fund Management, run by Nelson Peltz, owns a 2.7% stake in DD (that's about $2 billion). Trian started investing in DD a couple of years ago. He has been very critical of management. Peltz claims that DD suffers from $4 billion in excess costs.

Peltz has been trying to get four seats on DD's board but DD has been fighting back. Peltz has been suggesting DD split up the company for months to unlock shareholder value. DD argues that Peltz's plan to split up the company misrepresents the facts and is high risk.

Currently DD is spinning off its lower-margin performance chemical business (The Chemours Co.) but according to Peltz the way DD is performing the spin off is outdated and designed to prevent any potential takeover.

Wall Street analysts seem to be mostly bullish on the stock. Shares of DD have recently seen price target upgrades in the $87-88 range. Technically shares have been showing relative strength. Traders have been buying the dips pretty quickly. Today DD outperformed the broader market and closed at multi-year highs. Tonight we are suggesting a trigger to buy calls at $79.05.

Trigger @ $79.05

- Suggested Positions -

Buy the JUL $80 CALL (DD150717C80) current ask $2.52

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

Daily Chart:

In Play Updates and Reviews

Stocks Erase 2015 Gains

by James Brown

Click here to email James Brown

Editor's Note:

The S&P 500 has turned negative for the year thanks to a widespread sell-off. Worries persist about the rising U.S. dollar, which hit 12-year highs thanks to a falling euro.

AKAM and MA have been removed as candidates. DWRE hit our stop loss.

Current Portfolio:

CALL Play Updates

Aetna Inc. - AET - close: 100.16 change: -1.37

Stop Loss: 98.85
Target(s): To Be Determined
Current Option Gain/Loss: -33.8%
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

03/10/15: AET erased yesterday's bounce thanks to the market's widespread sell-off on Tuesday. Shares did spent most of the day hovering just above round-number support at $100.00, which is encouraging. However, if the market continues to sink tomorrow I wouldn't be surprised to see AET hit our stop.

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

Cavium, Inc. - CAVM - close: 69.78 change: -0.13

Stop Loss: 67.65
Target(s): To Be Determined
Current Option Gain/Loss: -5.3%
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

03/10/15: CAVM briefly dipped to a new one-week low at $68.52 before bouncing back. Shares almost closed unchanged on the session in spite of the market's broad-based decline. I'm still suggesting that readers wait for a rally past $70.75 before considering new positions.

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

NXP Semiconductors - NXPI - close: 97.55 change: -1.17

Stop Loss: 96.25
Target(s): To Be Determined
Current Option Gain/Loss: +268.6%
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

03/10/15: NXPI is still holding up reasonably well. Shares did lose -1.1% today but it could have been a lot worse. However, if this market sell-off continues we could see NXPI hit our stop loss at $96.25 tomorrow.

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

Deckers Outdoor - DECK - close: 72.25 change: +0.17

Stop Loss: 75.25
Target(s): To Be Determined
Current Option Gain/Loss: -25.0%
Average Daily Volume = 922 thousand
Entry on March 10 at $71.46
Listed on March 09, 2015
Time Frame: Exit prior to April option expiration
New Positions: see below

03/10/15: Our new play on DECK is open. Shares gapped open lower at $71.46, which immediately triggered our put play. DECK managed to buck the market's down trend today possibly thanks to an upgrade to a "buy".

We don't see any changes from last night's new play description. I'd use a new drop under $71.80 as another bearish entry point.

Trade Description: March 9, 2015:
Consumers can be a fickle lot. When one brand falls out of favor the drop off in sales can be earth shaking for the manufacturer. One company that appears to be seeing some trouble is DECK.

According to the company's marketing material, "Deckers Brands is a global leader in designing, marketing and distributing innovative footwear, apparel and accessories developed for both everyday casual lifestyle use and high performance activities. The company's portfolio of brands includes UGG®, I HEART UGG®, Teva®, Sanuk®, Ahnu® and HOKA ONE ONE®. Deckers Brands products are sold in more than 50 countries and territories through select department and specialty stores, 138 Company-owned and operated retail stores, and select online stores, including Company-owned websites. Deckers Brands has a 40-year history of building niche footwear brands into lifestyle market leaders attracting millions of loyal consumers globally."

DECK started seeing trouble last year. Back in July they reported earnings that beat expectations but management lowered guidance. They did it again in October with DECK delivering results above estimates but lowering guidance. Their most recent report was January 29th where DECK delivered their December quarter. Earnings were up +11% from a year ago to $4.50 a share. That actually missed Wall Street's estimate. Revenues rose +6.6% to $784.7 million. This too missed analysts' expectations of $812.5 million.

If that wasn't bad enough the company lowered their Q4 and 2015 guidance. They downgraded their 2015 revenue growth from +15% down to +13.5% largely due to slowing sales of their UGG brand. That's definitely a warning signal since UGG accounts for more than 80% of DECK's sales.

The stock crashed -19.5% the next day on its disappointing earnings results and lowered guidance. The following two weeks saw an oversold bounce but that bounce is over. Shares are starting to breakdown again. A Morgan Stanley analysts was not enthusiastic on DECK and said they don't see any catalyst between now and the next holiday shopping season to drive the stock higher.

DECK was definitely showing relative weakness today and broke below short-term support near $72.50. Tonight I'm suggesting a trigger to buy puts at $71.65.

- Suggested Positions -

Long APR $70 PUT (DECK150417P70) entry $2.40

03/10/15 triggered on gap down at $71.46
Option Format: symbol-year-month-day-call-strike

GoPro, Inc. - GPRO - close: 38.73 change: +0.78

Stop Loss: 44.05
Target(s): To Be Determined
Current Option Gain/Loss: +2.2%
Average Daily Volume = 8.0 million
Entry on March 09 at $39.40
Listed on March 07, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

03/10/15: GPRO spiked to a new low this morning ($37.13) and bounced. Broken support at $40.00 should be new resistance. Plus GPRO has a bearish trend of lower highs. I'd still consider new put positions at current levels or you could wait for a new failed rally.

Trade Description: March 7, 2015:
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.

- Suggested Positions -

Long APR $38 PUT (GPRO150417P38) entry $2.30

03/09/15 triggered @ $39.40
Option Format: symbol-year-month-day-call-strike

Michael Kors - KORS - close: 64.70 change: +0.37

Stop Loss: 70.65
Target(s): To Be Determined
Current Option Gain/Loss: +47.6%
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

03/10/15: After a big decline yesterday shares of KORS managed a bit of an oversold bounce with today's +0.5% gain. Investors may want to start lowering their stop loss.

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


Akamai Technologies - AKAM - close: 69.60 change: -0.36

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: see below

03/10/15: AKAM continues to retreat further from resistance near $72.00. Our trade has not opened yet. Tonight we are removing it as a candidate. I'd keep AKAM on your radar screen. Broken resistance near $65.00 should be significant support. A dip near $65 could be a bullish entry point.

Trade did not open.

03/10/15 Removed from the newsletter, suggested entry was $72.25


Demandware, Inc. - DWRE - close: 62.99 change: -2.44

Stop Loss: 63.65
Target(s): To Be Determined
Current Option Gain/Loss: -56.6%
Average Daily Volume = 440 thousand
Entry on March 09 at $67.35
Listed on March 07, 2015
Time Frame: Exit prior to April option expiration
New Positions: see below

03/10/15: The stock market's big sell-off on Tuesday took DWRE down with it. Shares lost another -3.7% on top of yesterday's reversal lower. Our stop loss was hit at $63.65. The next level of support could be $60.00.

- Suggested Positions -

APR $70 CALL (DWRE150417C70) entry $2.88 exit $1.25 (-56.6%)

03/10/15 stopped out @ 63.65
03/09/15 triggered @ 67.35
Option Format: symbol-year-month-day-call-strike


MasterCard Inc. - MA - close: 88.84 change: -2.28

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: see below

03/10/15: Financial stocks had a rough day and MA followed the group lower. Shares gapped open lower and dropped -2.5% by the closing bell. MA closed on its low of the session, which is bearish for tomorrow.

Our trade has not opened yet. We're removing MA as a candidate. Personally I would watch the $85-86 area as potential support.

Trade did not open.

03/10/15 Removed from the newsletter, suggested entry was $93.15