Option Investor

Daily Newsletter, Monday, 3/16/2015

Table of Contents

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

Market Wrap

The Bulls Are Ready

by Thomas Hughes

Click here to email Thomas Hughes
Monday bulls drove the markets higher for the second week in a row as the market gets ready for the FOMC.


Monday trading resulted in a +1% rally for the second week in a row. The markets are gearing up for another FOMC meeting and seem euphoric in the face of a possible change of statement. Today's rally was global, starting in Asia and working its way through Europe and into our markets. Indices in both overseas regions reached new highs; China hit a five year high, Japan closed flat after touching an all time high and Germany closed at an all time high. Our indices did not reach the all time highs but are set to possibly test resistance tomorrow or Wednesday and up to and until the FOMC policy statement is released.

Market Statistics

There was a fair amount of economic data released today. A lot of it was weaker than expected but the gist is that we are still in the winter slump, but expectations for the upcoming spring, summer and 2nd half are positive if not strong. There were also a number of earnings releases but nothing to grab the markets interest. The official “season” is over, there are only 2 S&P companies left to report for the 4th quarter of 2014 and this week will see the first half dozen or so report on the 1st quarter of 2015.

Futures were up right from the start but not overly strong. The pre-opening session was relatively quiet as I think attention is focused on the chance of fundamental change by the FOMC and not on individual data points released today. After the open the bulls moved higher, slowly, until they got their feet under them. Around 9:15 they began a march higher that lasted all day. The indices reached a high around noon that held until 2PM and then reached new highs afterward.

Economic Calendar

The Economy

Empire Manufacturing was reported at 6.9, this is below last month's 7.8 and the expected rise to 8.8. On top of that last month was revised lower to 7.4. Within the report new orders declined -2.4, shipments fell -7.9 and prices paid were down but labor saw “solid increases” in employment levels and hours worked. While down, the number is still positive and shows expansion within the New York area of the Federal Reserve System. The 6th month outlook also remains positive and has rebound from a low set last month.

Industrial Production rose by a tenth in February versus an expected rise of 0.3%. This is below expectations but still positive, and a gain of 0.4% from last month's downward revision. While production rose output declined for the 3rd month in a row, falling -0.2% in February. Capacity utilization also fell in February and is now only 78.9%, 1.2% below the long term average. This isn't a great report but it looks like industry could be getting ready to ramp up production; production is on the rise while at the same time hiring remains strong and capacity utilization is declining, at this point a pick up in utilization would be indicative/symptomatic of a rise in production.

The National Association of Home Builders released their monthly survey of builder sentiment this morning as well. The index fell by 2 to 53, positive but revealing what the association refers to as “supply chain issues”. Shortages of lots and labor, as well as strict underwriting, are hurting current conditions. Within the index current conditions and traffic both fell, to 58 and 37, but the 6 month outlook remained steady at 59. The NAHB also says that it is expecting improvements in the spring and “solid gains” for the year.

Moody's Survey of Business Confidence rebound this week to near record highs. The index gained 1.6 points to hit 39.8. This is a nice surprise in light of last weeks drop and shows that sentiment among businesses who participate remains high. The summary is positive and optimistic about the future but subdued from past weeks. Mr. Zandi, Moody's chief economist, says that -

Business confidence rebounded last week back close to record highs. Confidence is especially strong in the U.S., where businesses are feeling good about sales, hiring and investment. Pricing is holding up well despite heightened deflation concerns in much of the developed world. The survey results are consistent with an economy that is expanding well above its potential.

According to FactSet 498 of the 500 S&P 500 companies have reported for the fourth quarter of 2015 and at least one of the last two is scheduled to report this week. Of those, 75% have beaten the blended average for earnings and 58% have beaten the blended average for revenue. The blended rate for the fourth quarter is going to end up right around 3.7%, above the 1.7% expected at the start of the reporting period and in line with recent trends.

The 1st quarter is not expected to be good; 1st quarter earnings are expected to decline by -4.9%, led by a -63.5% decline in the energy sector. The next largest decline is expected in the utilities sector, -6.3% a tenth of the decline expected for the energy sector, which is why I think that earnings ex-energy will be more important than the overall blended average.

Looking back at the 4th quarter of 2014 the blended rate ex-energy jumps to 7.5%, looking ahead to projections for the 1st quarter of 2015 the blended rate ex-energy jumps from -4.9% to +1.05%. Now think about this; on average, over the past few years, the final S&P 500 blended growth rate has been 3-5% higher than estimated at the beginning of the quarter. This past quarter saw a rise of 2% from the initial estimate, and 3% from the low estimate. With this in mind I think it safe to say that earnings are going to decline, but the overall earnings picture might not be that bad.

Looking beyond 1st quarter earnings to the second half of the year things begin to perk up. The second half is expected to see a return to overall earnings growth and expanding corporate margins.

Tomorrow is light on data, only two releases, housing starts and building permits. These could give indication of rebound in home building but its probably too early for that. Wednesday is FOMC day, the release expected at 2PM. Thursday is the usual jobless claims and the Friday wraps it up with Leading Indicators and the Philly Fed Survey.

The Oil Index

Oil, it fell, again, by more than 2% to a new 6 year low. Whatever you may think about the supply/demand picture there are no buyers for oils right now. Storage remains high and building, supply and production also remains high and so far there is no indication that anybody wants to buy, or even needs to buy. Until this changes oil could continue to move lower and will no doubt influence earnings expectations for the energy sector. It is quite possible that projected earnings decline for the sector and for the broader S&P 500 could move lower before they move higher.

The Oil Index, surprisingly, moved higher today. The index gained nearly a full percent in a move that began at the long term trend line. Today's action confirms support at the trend line following the test of support last Friday. The indicators are still weak but also in the early stages of the trend following signal set up; MACD is retreating from its bearish peak while stochastic is making a weak bullish crossover. This is not a strong signal and if oil prices do not stabilize or rebound could result in a false signal. However, the trend is up and this early signal is in line with that trend so as such will be my signal to start looking deeper into the sector.

The Gold Index

Gold prices held steady today, just above $1150. A swirling combination of economic outlook, FOMC statements, inflation and interest rate speculation has brought gold back to this level after causing it to bounce from this level just a few months ago. Strong dollar is hurting gold value in the near term but the expected FOMC change to statement is a sign inflation is on the horizon. Raising the rates is strong for the dollar, but also indicative of an environment in which inflation needs to be controlled. That expectation is, I think, what caused gold to end it long term down trend in the first place and could cause it to bounce again now. That and an expected increase in physical demand from Asia, aided by a recent cut to the gold tariff in India.

The gold miners ETF GDX gained 0.75% today. Today's action was up but is really just another day of sideways trading, beneath potential resistance and near the long term bottom. This action appears to be a consolidation but whether it is a precursor to a test of the long term low or a bounce from support is yet to be seen. The indicators are retreating from bearish peaks which shows that selling pressure is letting off but those same peaks are convergent with lower prices so a move down to the long term low looks more likely than not. Support target is the long term low, near $16.50, with resistance along my rising trend line near $18.25. A break above resistance could take the index up to the top of the 5 month range near $21. All of this does of course depend on the FOMC and the affect they have on the gold market.

In The News, Story Stocks and Earnings

This is a big central bank week for more than just the United States. The Bank of Japan and the Swiss National Bank are also both meeting but both expected to make no market moving changes. The FOMC on the other hand is expected to make changes and those expectations, along with economic trends, have been driving the dollar higher versus the euro and other currencies as well.

Today the Dollar Index fell from its all time high by -0.75% and created a moderately sized black candle. Today's action is not a full blown Dark Cloud Cover but does appear to be indicating a possible peak. The indicators are strongly bullish but also indicative a peak has been reached; MACD is in retreat from an extreme peak and stochastic is making a bearish crossover. These don't mean there will be reversal but they are a good indication that the rally may be over, at least for a time, and I tend to agree with this assessment. The dollar has been driven to this level on expected QE from the ECB and expectation of a change to the FOMC statement. There is no more additions to QE expected and a change to statement is not a change of policy. Without a change of policy I see no reason for the dollar rally to continue.

Apple will enter the Dow Jones Industrial Average at the end of the week, replacing AT&T. This move will likely spur some serious buying in Apple which in turn could help the index to reach a new high. Today Apple gained close to 1% and moved above the short term moving average. The stock appears to be consolidating just above the previous all time high with indicators rolling into a trend following buy. MACD momentum is retreating from a bearish peak while stochastic is making a weak bullish crossover.

AT&T is being replaced and will remove a drag on the Dow. The telecom giant has been trending in a very choppy range over the past 12 months at least and is now just off the bottom of the range. Today's action carried the stock up by just over 0.9% but leaves it well below the 30 day moving average. This one could be setting up for a test of the 12 month low, near $32.

The Indices

The indices moved higher today, averaging more than 1% and in most cases moving above the 30 day EMA, if not already above it. Today's move was led by the Dow Jones Transportation Average and a 1.69% gain. Today's move created a long white candle and completed a three day continuation pattern that could lead to further upside. The index is moving up from the short term moving average near the middle of the 5 month trading range toward the top of the range at the all time high. The indicators are very weak but about to confirm an bullish trend following signals that could also lead to further upside. Current resistance is the all time high and could be reached before the FOMC meeting on Wednesday.

The S&P 500 made the next largest move today gaining 1.35%. The broad market also created a long white candle and completed a three candle continuation pattern. Today's action carried the index above one resistance line and the short term moving average and looks more bullish because of it. The indicators are weak, but like on the transports, rolling into a trend following buy signal. The MACD is about to make the zero line crossover and stochastic is forming a weak bullish crossover. Resistance is between 2090 and 2100 with next resistance at the all time near 2120. Based on today's action I think it possible resistance is tested in the next two days.

The Dow Jones Industrial Average made the third largest gain today, 1.29%. The blue chips also made a long white candle and crossed above the short term moving average. Today's action has also completed the three day continuation pattern mentioned above and has brought the index to meet possible resistance at 18,000. If the index crosses this level next resistance will be the all time high, about 260 points higher. The indicators are consistent with an early/weak trend following signal that could lead to a test of resistance in the least.

The NASDAQ Composite brings up the rear today with a gain of only 1.19%. The tech heavy index did not form a long white candle but price action is bullish nonetheless. Today's action is a move up from the short term moving average in line with underlying trend. The indicators are similar to the other indices but a little weaker, stochastic is not yet making the bullish crossover but it looks very likely to come. A move up to resistance just above 5,000 is likely with a break above that possible.

Here we go again. We are on the cusp of an FOMC meeting, the indices are recovering from a small correction and the indications are good the rally will continue. The caveat is that this time the risk, if you want to call it that, that the FOMC raises rates will grow and it is unclear exactly what the market is going to do when that happens. Until the market breaks out to new highs there is a chance that the statement could put an end to the rally.

They won't raise the rate this time but there is a very large chance they will change their statements and this means the hike is very very close and could come at any time. According to Janet Yellen the change to statement won't mean the market should expect a rate hike at any specific meeting ie June or September...but that a rate hike could come at any meeting should the data warrant it. In any event, the trends are up, the data is stable and expectations are good; I remain bullish.

Until then, remember the trend!

Thomas Hughes

New Option Plays

Forecasting +21% Growth

by James Brown

Click here to email James Brown


Salesforce.com, Inc. - CRM - close: 66.43 change: +1.83

Stop Loss: 62.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 4.5 million
Entry on March -- at $---.--
Listed on March 16, 2015
Time Frame: Exit prior to May option expiration
New Positions: Yes, see below

Company Description

Why We Like It:
This year could be a good one for shares of CRM. The stock spent most of last year churning sideways in the $50-65 range. CRM managed to end 2014 with a +7.4% gain, which underperformed the major indices. Today CRM is up +12% in 2015 and that's after a correction from its post-earnings highs in February.

Marc Benioff is CRM's CEO and Chairman. After CRM's recent Q4 earnings report Benioff said, "Salesforce reached $5 billion in annual revenue faster than any other enterprise software company and now it's our goal to be the fastest to reach $10 billion."

If you're not familiar with CRM the company describes itself as "Salesforce.com is the world's largest provider of customer relationship management (CRM) software. Our industry-leading CRM platform has become the world's leading enterprise cloud ecosystem. Industries and companies of all sizes can connect to their customers in a whole new way using the latest innovations in mobile, social, and cloud technology to sell, service, market, and succeed like never before. Salesforce has headquarters in San Francisco, with offices in Europe and Asia."

Their most recent earnings report was February 25th, after the closing bell. CRM's Q4 2015 earnings and revenues were both in-line with estimates at $0.14 a share on sales of $1.44 for the fourth quarter. Revenues were up +26% in the fourth quarter and up +32% for the full year. They were up +29% in the fourth quarter if you account for currency headwinds.

Almost 93% of CRM's sales are their subscription software business. In the fourth quarter their subscription software service was up +25% and their professional services subscription was up +41%. Back in fiscal year 2014 CRM signed 100 big deals in the seven-to-eight figure range. This past year the number of big deals surged to 550. Analysts were happy to see CRM's deferred revenues grow, which jumped +32% in the fourth quarter, up from +28% in the third quarter.

Benioff commented on their results, "Salesforce delivered yet another year of exceptional growth, with revenue, deferred revenue and operating cash flow all growing more than 30%, while exceeding our expectations in non-GAAP operating margin improvement."

CRM guided for +21% sales growth in 2016 (up to $6.52 billion). This was just above their prior guidance and in-line with Wall Street estimates. The company now expects their 2016 earnings in the $0.67-0.69 range compared to analysts' estimates of $0.69. Consensus estimates are for $6.5 billion in sales. Wall Street analysts praised CRM's results. There was a parade of price target upgrades. Most of the new price targets are in the $79-80 range.

Shares have filled the gap from its post-earnings pop and investors have stepped in to buy shares at new support (prior resistance). Today's rally looks like an opportunity. We are suggesting a trigger to buy calls at $66.75.

Trigger @ $66.75

- Suggested Positions -

Buy the MAY $70 CALL (CRM150517C70) current ask $1.84

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

Daily Chart:

Weekly Chart:

In Play Updates and Reviews

Dollar's Pause Sparks Widespread Bounce

by James Brown

Click here to email James Brown

Editor's Note:

After big gains last week a pause in the U.S. dollar's rally helped stocks bounce on Monday. The market ignored a new six-year low in crude oil. The small cap Russell 2000 inched higher toward a new record.

We have updated several stop losses tonight.

The MNK trade is now open.

Current Portfolio:

CALL Play Updates

Aetna Inc. - AET - close: 106.07 change: +1.98

Stop Loss: 102.85
Target(s): To Be Determined
Current Option Gain/Loss: +120.6%
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

03/16/15: A bullish market environment helped keep the rally going in AET. The stock is up about $6.00 in just the last three days. Tonight we're raising the stop loss to $102.85. I am not suggesting new positions. Our option has more than doubled in value. Traders might want to take some money off the table.

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

03/16/15 new stop @ 102.85
Our option has more than doubled. Traders might want to take some money off the table here.
03/04/15 triggered @ 101.15
Option Format: symbol-year-month-day-call-strike

Cavium, Inc. - CAVM - close: 71.03 change: +0.93

Stop Loss: 67.65
Target(s): To Be Determined
Current Option Gain/Loss: -2.6%
Average Daily Volume = 737 thousand
Entry on February 27 at $68.75
Listed on February 26, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

03/16/15: Traders jumped in to buy the midday dip near $70.00 in CAVM. This is very encouraging. I am suggesting new positions now. If you're worried about $72.00 being resistance then wait for a breakout to new highs.

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: 77.07 change: -3.43

Stop Loss: 76.85
Target(s): To Be Determined
Current Option Gain/Loss: -31.8%
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

03/16/15: It was a rough day for DD bulls. Shares plunged -4.2% after Bank of America downgraded the stock two notches to "underperform". Plus, DD's management sent a letter to shareholders asking them not to vote for any of the board nominees from activist investor Nelson Peltz.

We are adjusting the stop loss up to $76.85. I am not suggesting new positions.

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

03/16/15 new stop @ 76.85, shares were downgraded today
03/11/15 triggered @ $79.05
Option Format: symbol-year-month-day-call-strike

Mallinckrodt - MNK - close: 126.43 change: +2.31

Stop Loss: 121.85
Target(s): To Be Determined
Current Option Gain/Loss: +0.0%
Average Daily Volume = 1.3 million
Entry on March 16 at $125.29
Listed on March 14, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

03/16/15: Our brand new play on MNK is open. Shares gapped open higher at $125.29, immediately triggering our trade (suggested entry was $125.15). The gap higher was likely due to a couple of upgrades. Morgan Stanley raised their MNK price target from $106 to $127. Barclays upped their price target from $115 to $150.

The stock managed to outperform the broader market with a +1.8% gain. We are adjusting the stop loss up to $121.85.

Trade Description: March 14, 2015:
The relative strength in healthcare stocks continues. Healthcare and biotech stocks were big performers last year and that outperformance appears to be continuing into 2015. One stock that is really outperforming its peers is MNK. Shares delivered a +89% gain in 2014 and they're already up +25% in 2015.

MNK describes itself as "Mallinckrodt is a global specialty biopharmaceutical and medical imaging business that develops, manufactures, markets and distributes specialty pharmaceutical products and medical imaging agents. Areas of focus include therapeutic drugs for autoimmune and rare disease specialty areas like neurology, rheumatology, nephrology and pulmonology along with analgesics and central nervous system drugs for prescribing by office- and hospital-based physicians. The company's core strengths include the acquisition and management of highly regulated raw materials; deep regulatory expertise; and specialized chemistry, formulation and manufacturing capabilities. The company's Specialty Brands segment includes branded medicines such as OFIRMEV and Acthar; its Specialty Generics segment includes specialty generic drugs, active pharmaceutical ingredients and external manufacturing; and the Global Medical Imaging segment includes contrast media and nuclear imaging agents. Mallinckrodt has approximately 5,500 employees worldwide and a commercial presence in roughly 65 countries. The company's fiscal 2014 revenue totaled $2.54 billion."

MNK's global medical imaging business has fallen from about one third of the company's sales to about a quarter as the specialty pharmaceuticals business continues to grow. One reason for the growth is MNK's acquisition strategy. Last year they purchased Cadence Pharmaceuticals for $1.3 billion, which added Ofirmev to MNK's stable of therapies. MNK also spent $5.6 billion to acquire Questcor Pharmaceuticals. This added Questcor's Acthar gel to MNK's drug business.

MNK has been really delivering on the earnings front. Last August they reported their Q3 2014 numbers with revenues up +14.6% and earnings of $1.20, which was $0.35 above expectations. Management also raised their 2014 guidance. In October 2014 they raised their 2015 guidance. Then in November MNK announced their Q4 2014 results with revenues up +44.8%, above expectations, and earnings of $1.68 per share, which was $0.27 higher than estimated.

The revenue and earnings parade continued when MNK reported their Q1 2015 numbers on February 3rd. The company's profit more than doubled with earnings up +109% to $1.84 per share. That beat Wall Street's estimate by 26 cents. Revenues accelerated as well with +60% improvement to $866.3 million. However, this time analysts had ratcheted up their estimates to $885 million. MNK said their gross profit margin improved to 50.6% from 47.3% a year ago. MNK is currently forecasting 2015 numbers of $6.70-7.20 a share on revenues in the $3.65-3.75 billion range.

Mark Trudeau, Chief Executive Officer and President of Mallinckrodt, commented on their recent results,

"Mallinckrodt is off to a good start in fiscal 2015 driven by strong performance across all of our businesses. We achieved meaningful top- and bottom-line growth particularly in the Specialty Brands and Specialty Generics segments, increasing the proportion of total company net sales from specialty pharmaceuticals to over 75% in the quarter. The strategies we have pursued have gone far toward transforming us into a leading specialty biopharmaceutical company, and we are highly focused on maintaining momentum and expanding our portfolio to provide durable, sustained growth."
Investors appear to believe in MNK's growth story. The stock has a steady trend of higher lows and higher highs. MNK popped on March 5th thanks to M&A news. Wall Street seems to approve. Normally shares of the acquired company go up and the acquirer go down but investors bought MNK too. MNK is spending $2.3 billion to buy privately held Ikaria. This company makes INOmax, which is an inhaled nitric oxide used to treat babies with respiratory issues. The acquisition will boost MNK's earnings by 25 cents a share in 2015.

Following the acquisition news multiple analysts have raised their price targets on MNK. The nearly all the new targets are about $140 a share. Today MNK is sitting just below what looks like round-number, psychological resistance at the $125.00 mark. We are suggesting a trigger to buy calls at $125.15.

I'd rather buy May or June options but they're not available yet. We'll use the Julys.

- Suggested Positions -

Long JUL $130 CALL (MNK150717C130) entry $7.50

03/16/15 new stop @ 121.85
03/16/15 triggered on gap open at $125.29, suggested trigger was $125.15
Option Format: symbol-year-month-day-call-strike

NXP Semiconductors - NXPI - close: 104.37 change: -0.30

Stop Loss: 101.65
Target(s): To Be Determined
Current Option Gain/Loss: +505.9%
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

03/16/15: After a $6.00 rally on Friday it is not surprising to see a little profit taking today. NXPI slipped a whole 30 cents. The relative strength is impressive. We are raising the stop loss to $101.65. More conservative investors may want to just take some money off the table now.

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

03/16/15 new stop @ 101.65
03/13/15 NXPI soars on a "strong buy" rating and $140 price target
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

Under Armour, Inc. - UA - close: 77.29 change: +1.24

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

03/16/15: UA delivered a strong session with shares up +1.6% versus the +1.3% gain in the S&P 500. The stock closed near its highs for the day and looks poised to breakout past resistance at its late February highs. Our suggested entry point is $77.60.

Trade Description: March 12, 2015:
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)

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

PUT Play Updates

Bunge Limited - BG - close: 79.53 change: +0.12

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

03/16/15: Shares of BG were virtually unchanged on Monday, which is a win for the bears considering the widespread market rally. The stock spiked higher this morning but struggled with resistance near $80.00. Our plan has not changed. Use a trigger 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: 71.12 change: +0.43

Stop Loss: 73.05
Target(s): To Be Determined
Current Option Gain/Loss: -22.9%
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

03/16/15: Shares of DECK also spiked higher at the open but the rally failed at short-term resistance near $72.00, which is exactly what we want to see. I would consider new bearish positions here at current levels. Tonight we're adjusting the stop loss to $73.05.

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

03/16/15 new stop @ 73.05
03/10/15 triggered on gap down at $71.46
Option Format: symbol-year-month-day-call-strike

GoPro, Inc. - GPRO - close: 39.37 change: -0.76

Stop Loss: 40.85
Target(s): To Be Determined
Current Option Gain/Loss: -23.9%
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

03/16/15: GPRO did not participate in the market's widespread rally today. That's good news if you're bearish on the stock. Shares fell -1.89%. Tonight we're adjusting our stop loss down to $40.85.

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

03/16/15 new stop @ 40.85
03/09/15 triggered @ $39.40
Option Format: symbol-year-month-day-call-strike

Michael Kors - KORS - close: 64.53 change: -0.21

Stop Loss: 66.35
Target(s): To Be Determined
Current Option Gain/Loss: +42.9%
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

03/16/15: KORS failure to participate in the market rally today is also a victory for the bears. Shares drifted sideways and closed in the red. We are moving our stop loss down to $66.35.

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

03/16/15 new stop @ 66.35
02/26/15 triggered @ $67.90
Option Format: symbol-year-month-day-call-strike