Option Investor

Daily Newsletter, Thursday, 3/12/2015

Table of Contents

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

Market Wrap

The Banks Bounce Back

by Thomas Hughes

Click here to email Thomas Hughes
The banking sector led the market higher on a raft of dividend increases and share repurchase programs.


The market bounced back today, led by the banking sector. The results of the stress tests and approval of capital plans has revealed strength and liquidity in the sector, produced a wave of cash returned to shareholders and sparked a rally.

The news, which came after hours on Wednesday, helped to lift global markets. Asian indices powered higher, moving up by over 1% on average with a surprise rate cut from the Bank Of Korea helping to lift spirits. European markets were not quite so enthusiastic. The DAX and others held the new all time highs set yesterday but did not move higher. US futures were up from the start. Early indications had the SPX up by roughly 0.5% and that level held into the open.

Market Statistics

There was a fair amount of economic data released this morning. The news was a mix of good and bad, pointing to economic growth but growth so strong we should expect a rate hike too soon. The market took it all in stride with barely a ripple in prices. After the opening bell the indices quickly moved higher, led by the Dow Jones Industrial Average.

Today's move was broad, all 10 S&P sectors moved higher with some isolated weakness in the technology and energy sectors. The early highs were hit before noon and then, after an hour or two of quiet sideways action a late day rally took the market to new highs. By 2:30 the Dow was up by nearly 1.5%, trailed by the NASDAQ's 0.85%. Buying persisted throughout the afternoon, leaving the indices at or near their highs at the close of trading.

Economic Calendar

The Economy

Today's round of data starts with a surprise drop in initial claims. Claims fell -36,000 from an upward revision of 5,000 to 289,000. This is 7 times the expected drop of -5,000. The 4 week moving average also fell, by -3,750, and is now at 302,250. On a not adjusted basis claims fell by -12.2% versus the -1.2% predicted by the seasonal factors. The drop is a good sign after the recent rise in claims but it is obvious that volatility persists. Claims are now back below 300K and remain low relative to the long term trend. New York, California and Tennessee led with increases totaling over 30,000. New York stands out with an increase of over 21,000 new claims. Massachusetts and Michigan led the decliners with a net decline just over -5,000. There is no mention of oil by any of the states who commented in the statement.

Continuing claims also declined but only by -5,000. This is from an upward revision of 2,000, in line with expectations and puts the number of continuing claims just above 2.4 million. This number remains stable near 2.4 million and has not been affected by volatility in the initial claims figures. This suggests that although there is a lot of activity in job turnover, those who file for the first week are finding a job pretty quickly. The four week moving average gained 12,750 but is also trending steadily around 2.4 million.

The total number of claims climbed by over 84,000 to 2.891 million in the week ending February 21st. This is a modest rise from the previous weeks figure but stable relative to the past 6 weeks. This figure may begin to decline soon because lags initial claims by two weeks, which makes this weeks data the same time period that initial claims were spiking. Since then claims have fallen. All together this weeks jobs data is positive, including the JOLTs report and the KC Fed Index of Labor Market Conditions. The LMCI, released yesterday, reveals rising activity and strong momentum.

Retail sales provided a mixed bag of numbers. Retail sales declined by -0.6% in February versus an expected gain near 0.1%. This follows an not-revised -0.8% in January. Ex-auto the number doesn't get much better, rising only to -0.1%. The good news is that the decline does not reverse gains made on a year-over-year and trailing 3 month basis. Sales for February are up from last year by 1.7%, and the past three months are up 2.9% from the comparable period last year. Also, although total sales are down, on-line sales saw an increase, possibly boosted by winter weather.

Import/Export prices were also released at 8:30AM. Import prices were up 0.4% in February, -0.3% ex-energy. Export prices fell by -0.1%, but rose by 0.2% ex-agriculture.

Business inventories were released at 10AM. Inventories remained unchanged from January, in line with expectations. Sales declined by -2%.

The Oil Index

Oil prices fell again today, losing more than -1.25%. WTI is extending the decline below $50 and is approaching a one month low. Supplies are still on the rise with no sign of increased demand. A break below $47.00 could take WTI down to the three month low near $45.

The Oil Index started out with a gain today, climbing about a half percent, before falling towards the end of the day. The index looks set to test support along the long term trend line and may be setting up for a bigger move. The indicators are still bearish but have peaked, in line with an anticipated trend line bounce. There is no real signal yet but we may get one over the next few days or weeks. In the very near term support is along the long term trend line, near 1,250, with resistance just above near 1,300. If oil falls to its long term low the Oil index could make a strong test of support with a chance of breaking through.

The Gold Index

Gold prices held steady around $1150 today as the dollar retreated from its recent high. Today's move took gold as high as $1165 and was the first sign of buyers along this level. Gold prices will continue to be affected by dollar value over the next week, up to and until the FOMC meeting, and could drift along this level. Now that all of the currently expected central bank moves have come to pass there is a good chance that the dollar could peak out or enter a consolidation range. The only real chance of change to fundamentals that I see on the horizon is a very wee possibility the Fed will change the wording of their statement next week. In any event, $1150 was an active level for buyers and a possible target for a gold bottom before and it remains one now. If it does not hold gold could make a move down to $1130 or lower.

The gold miners ETF GDX lost over 1.25% today as investor focus wavers between near term gold prices and long term outlook. With gold prices back near the long term low there is little hope for real earnings growth in the sector. However, rising production levels may offset the decline in sale price, assuming that the miners even choose to sell their product at these low levels.

The ETF is now near it's long term low with MACD momentum convergent with the current move. The index is likely to retest support along the long term low but stochastic suggests it will hold. The longer term weekly charts also suggest the index is approaching support and if confirmed could result in the second bottom of a long term double bottom reversal. Support is along my line near $16.50.

In The News, Story Stocks and Earnings

To say the banks were in the news today is an understatement. The approval of capital plans, the massive wave of dividend increases and the billions in stock buy backs was the focus for many of today's market participants. Just about every major bank rallied on the news with at least one notable name, Bank Of America, falling. Bank of America needs to refile their plan so is not yet able to return cash to shareholders and not as yet participating in the rally. The Banking Index moved higher today, gaining more than 3%. The index has reached a new 2 month closing high and has broken above resistance. The indicators are still bearish but could be rolling over into a bullish signal. Current target is near $75 with a chance for higher prices.

Lumber Liquidators is still in the news. The company held an investor conference today and the CEO is scheduled to speak tomorrow. He and the company stand by their claims the tests used by 60 Minutes don't match California code and that the story is not correct. The stock was able to move higher today, gaining nearly 12%, but is still well below the level it was trading before the story was made public.

Shake Shack, one of this years more eagerly anticipated IPO's, disapointed investors with poor earnings and weak guidance. The company posted a loss more than double the expectations and gave cautious forward outlook for growth. Shares of the stock fell hard in the after hours session yesterday and in the pre-market session today. It opened much lower today but was able to regain the loss and more. Buyers stepped in and drove prices up to set a new closing high on twice average volume.

Teen retailer Aeropostale reported earnings after the bell. The company reported a surprise profit of $0.01 versus the expected loss of -$0.03 but the stock sank on weak guidance. Current expectations call for a loss near -$0.30 in the current quarter but company execs guided a range near double that. The stock had been sitting on support all day but fell beneath it in after hours trading.

The Indices

The indices posted some impressive gains today and the move is a good sign for the bulls. The caveat is that the indices are also below significant resistances that could keep the rally from progressing much further. Today's move was led by the Dow Jones Industrial Average which gained 1.47% and closed near the highest level of the day. The blue chip index made a strong move higher and created a long bodied white candle. This could be the start of a move to test the all time highs but faces multiple lines of resistance. These include the short term moving average and my resistance line at 18,000. T indicators are mixed; they are bearish but also showing signs that yesterday's low, about 3.5% off the all-time high, could be the bottom of the correction. If so it may be retested before a further rally ensues.

The S&P 500 made the biggest move today climbing 1.25%. The broad market made a long white candle and broke above one line of resistance. This line is the top of the January range and leaves the index on positive ground for the year. This is a bullish sign but there is still more resistance, primarily in the form of the short term 30 day moving average and then above that between 2,100 and the all time high. The indicators are bearish, but like on the Dow, beginning to roll over and consistent with the early stages of a trend following signal. It could move higher to test resistance tomorrow, if not it could retest yesterday's low or lower.

The Dow Jones Transportation Average is third in today's line-up with a gain of 1.24%. The trasnports also made a long bodied white candle and was able to move above the 30 day moving average. Despite being range bound for the past 4 ½ months this index actually looks the most bullish of the lot. Today's action moved price above a near term resistance level, leaving only the top of the range, which is the current all time high, as resistance. At the same time the indicators are slightly more bullish as well, MACD is retreating from its bearish peak and stochastic is making a weak bullish crossover. Unless something unexpected happens overnight or over the weekend this one could hit the top of the range in the next 2-3 trading days.

The NASDAQ Composite brings up the rear with a gain of 0.84%. The tech heavy index only made an average size candle but like the transports, looks a lot more bullish than the blue chips or the broader market. This index has also moved above the short term moving average and appears to be making a trend following bounce from long term support. The indicators are still weak but in the early stages of rolling over into a bullish signal. Resistance is just above today's closing price, inside the gap formed on Tuesdays move lower, and then just above that at the all time high. The index may not move to a new high but it looks like it will test resistance at least.

The indices bounced today and look like they are moving higher. The only caveat is that there is resistance in place that may keep them from breaking out to new highs. It is no coincidence that once again the market is in this position ahead of an FOMC meeting so don't be surprised to find them testing resistance up to and until the statement is released. At that time who knows what will happen? There is no telling what the FOMC is going to say in their statement and every little nuance will be heavily debated for signs of a June rate hike, or a September rate hike, or some other plan that could move the market.

Until then, remember the trend!

Thomas Hughes

New Option Plays

Athleisure Is Here To Stay

by James Brown

Click here to email James Brown


Under Armour, Inc. - UA - close: 76.69 change: +2.08

Stop Loss: 74.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.1 million
Entry on March -- at $---.--
Listed on March 12, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
The NPD Group reports that Americans spent $323 billion on apparel, footwear, and related accessories last year. That's only a +1% improvement from the prior year but all of the growth was due to athletic footwear and apparel. There is a new trend in fashion and it's called "athleisure". Marshal Cohen, chief industry analyst at the NPD Group, said, "This is no longer a trend - it is now a lifestyle that is too comfortable, for consumers of all ages, for it to go away anytime soon."

UA is in the consumer goods sector. They make shoes and athletic wear. According to the company, "Under Armour (UA), the originator of performance footwear, apparel and equipment, revolutionized how athletes across the world dress. Designed to make all athletes better, the brand's innovative products are sold worldwide to athletes at all levels. The Under Armour Connected Fitnessâ„¢ platform powers the world's largest digital health and fitness community through a suite of applications: UA Record, MapMyFitness, Endomondo and MyFitnessPal."

The athletic shoe and athletic apparel business is very competitive. Nike (NKE) has dominated the space for years. UA is about 10% the size of NKE but it is actively fighting for market share and recently overtook Adidas as the second biggest athletic wear brand inside the United States. Nike had sales of $27.8 billion in 2014. UA is a fraction of that with 2014 sales of $3.08 billion but they saw growth of +32%.

UA isn't stopping with just apparel and footwear. They recently spent $710 million to buy the MapMyFitness, MyFitnessPal, and Endomondo apps. This has boosted UA's digital consumer audience to 130 million. UA management believes that more and more we will see technology and software move from our smartphone into a merger between apps and clothing.

UA has been firing on all cylinders with its earnings results. Most of last year saw the company not only beating Wall Street's estimates but also raising guidance. UA's most recent earnings report was February 4th. The company reported a profit of $0.40 a share with revenues climbing +31% to $895 million, which was above estimates for $849 million. UA's CEO Kevin Plank, in a recent interview, said his company will grow at 20%-plus in 2015. The company's current estimates are $3.76 billion in sales for the year.

You might notice that shares of UA held up pretty well during the market's recent sell-off. Shares only dipped toward support in the $74-75 area. During today's market rebound shares of UA outperformed with a +2.7% gain. More aggressive traders could buy calls now. I am suggesting a trigger to buy calls at $77.60.

Trigger @ $77.60

- Suggested Positions -

Buy the JUL $80 CALL (UA150717C80) current ask $3.80

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

Daily Chart:

Weekly Chart:

In Play Updates and Reviews

Stocks Bounce On Fed Delay Hopes

by James Brown

Click here to email James Brown

Editor's Note:

Recently the stock market has been sinking on fears the Federal Reserve will raise rates sooner than expected (this June). Today the sentiment changed and suddenly the "market" felt that maybe the Fed will delay its first hike in years.

The combination of a surging U.S. dollar, no inflation in the U.S., what appears to be a slowdown in the economy during the first quarter, and probably most importantly some details on Europe's QE program, were all potential factors that might delay the Fed's next hike. The environment and structure of the ECB's QE program might make it a lot more powerful than previously expected.

Current Portfolio:

CALL Play Updates

Aetna Inc. - AET - close: 102.12 change: +2.08

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

03/12/15: This morning shares of AET received a new $115 price target. That news and the combination of the market's big bounce helped lift AET to a +2.0% gain. Shares are poised to hit new highs tomorrow.

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: 69.57 change: +0.60

Stop Loss: 67.65
Target(s): To Be Determined
Current Option Gain/Loss: -10.5%
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

03/12/15: CAVM has been stuck in a short-term, two-week trend of lower highs and lower lows. This sort of narrow pullback might be a bull-flag consolidation pattern. Hopefully CAVM will breakout of it soon. I cautioned readers that CAVM looked headed for support near $68.00 and shares dipped to $67.87 today before bouncing back.

Investors may want to see a rally past $70.50 (which would break the short-term down trend) before launching new bullish 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

E.I.du Pont de Nemours and Company - DD - close: 80.40 change: +1.11

Stop Loss: 74.95
Target(s): To Be Determined
Current Option Gain/Loss: +20.7%
Average Daily Volume = 3.9 million
Entry on March 11 at $79.05
Listed on March 10, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

03/12/15: The battle between DD and activist investor Nelson Peltz continued today. Peltz said he would be willing to accept three board seats (two plus himself) instead of his previous plan for four seats on DD's board. Peltz was on CNBC today restating his concerns that DD has an excess $2.5 to $4 billion in corporate overhead and they need to break up the company. However, he was willing to keep the company together if management can show the board how they're going to make enough improvements.

Investors obviously thing something positive is going to happen here and shares rallied to new multi-year highs. DD is nearing its all-time high near $84.40 it set back in May 1998.

Trade Description: March 10, 2015:
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.

- Suggested Positions -

Long JUL $80 CALL (DD150717C80) entry $2.61

03/11/15 triggered @ $79.05
Option Format: symbol-year-month-day-call-strike

NXP Semiconductors - NXPI - close: 97.95 change: +0.40

Stop Loss: 96.25
Target(s): To Be Determined
Current Option Gain/Loss: +251.7%
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

03/12/15: NXPI saw a little bit or profit taking this morning. However, traders jumped in to buy the dip at its rising 10-dma. The stock bounced to close up +0.6%. The intraday low was $96.53. Our stop loss is at $96.25.

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

Bunge Limited - BG - close: 79.66 change: +0.80

Stop Loss: 81.05
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.0 million
Entry on March -- at $---.--
Listed on March 11, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

03/12/15: BG bounced near yesterday's low in the $78.70 area. The stock rallied back toward prior support and what should be new round-number resistance at $80.00. I don't see any changes from last night's new play description. Currently our suggested entry point to buy puts is at $78.45.

Trade Description: March 11, 2015:
It only takes one earnings report to alter a stock's trajectory if the news is big enough. For BG it was the company's Q4 report announced in February.

BG is in the consumer goods sector. According to the company, "Bunge Limited (www.bunge.com, NYSE: BG) is a leading global agribusiness and food company operating in over 40 countries with approximately 35,000 employees. Bunge buys, sells, stores and transports oilseeds and grains to serve customers worldwide; processes oilseeds to make protein meal for animal feed and edible oil products for commercial customers and consumers; produces sugar and ethanol from sugarcane; mills wheat, corn and rice to make ingredients used by food companies; and sells fertilizer in South America. Founded in 1818, the company is headquartered in White Plains, New York."

The middle of 2014 the outlook for BG was a lot more enthusiastic. BG's Q2 earnings report (on July 31st) was better than expected and the company beat estimates on both the top and bottom line. Unfortunately the next two quarters were tough. BG's Q3 results were released on October and the company's profit of $1.31 a share was 59 cents worse than expected. Revenues were down -7.0% from a year ago.

That slowdown in earnings and revenues accelerated in the fourth quarter. BG reported its Q4 results on February 12th. Wall Street was expecting a profit of $2.52 a share on revenues of $16.5 billion. BG delivered $1.20 a share with revenues down -15% to $13.9 billion. That's a HUGE miss on both the top and bottom line.

The Wall Street Journal summed up the quarter this way, "upheavals in the commodity trading firm's oilseed businesses outweighed benefits from bumper U.S. corn and soybean crops." BG suffered terrible margins on their soybean crushing business in China and saw a slowdown in Europe. Their main agribusiness division reported net sales fell -20%.

Naturally investors reacted negatively. The stock plunged to support near $80.00. The initial oversold bounce stalled near $83.00. Now, about four weeks later, shares of BG are breaking down below key support at $80.00. The next support level appears to be the $73.50 area. The point & figure chart is forecasting at $67.00 target.

Tonight we are suggesting a trigger to buy puts at $78.45.

Trigger @ $78.45

- Suggested Positions -

Buy the APR $80 PUT (BG150417P80)

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

Deckers Outdoor - DECK - close: 72.06 change: +0.06

Stop Loss: 75.25
Target(s): To Be Determined
Current Option Gain/Loss: -29.2%
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

03/12/15: DECK did not participate in the market's bounce today. Shares did close in the green but the stock was virtually unchanged on the session. Traders may want to wait for a new drop under $71.80 before initiating new positions.

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: 39.70 change: +1.53

Stop Loss: 44.05
Target(s): To Be Determined
Current Option Gain/Loss: -17.4%
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

03/12/15: GPRO produced a pretty good oversold bounce today. The market's widespread rebound may have sparked some short covering. GPRO surged +4.0% but remains below what should be round-number resistance at $40.00. More conservative traders may want to lower their stop loss.

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: 65.42 change: +0.20

Stop Loss: 70.65
Target(s): To Be Determined
Current Option Gain/Loss: +28.6%
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

03/12/15: KORS shot lower at the opening bell. Some one is still in a buy-the-dip mood here and KORS rallied back to positive territory by the closing bell. I'm still watching the $66.00 level as short-term overhead resistance. More conservative traders may want to lower their stop loss.

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