Option Investor

Daily Newsletter, Wednesday, 3/18/2015

Table of Contents

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

Market Wrap

DOW 400-point Reversal on FOMC Announcement

by Keene Little

Click here to email Keene Little
The market was down for most of the day today prior to the FOMC announcement this afternoon but you wouldn't know that by looking at the closing prices. The DOW finished +227, which was 380 points off the low just prior to the FOMC announcement. The market liked the fact that the Fed is showing patience even though they removed the word "patient" from their language. Saying a rate hike in April is "unlikely" is what the market wanted to hear.

Wednesday's Market Stats

Thanks to the FOMC's decision to not change anything in today's announcement, especially the important word "patient," the stock market saw a relief rally this afternoon that quickly wiped out the day's losses. The DOW jumped +400 points (exactly) while SPX rallied 45 points from low-to-high before both pulled back in the final hour. Bond yields tanked on the announcement, as did the U.S. dollar, and both are providing a very interesting message as we look ahead.

The Fed actually got a little more dovish than the market had expected. I've long held the belief that we'll see QE4 long before we'll see a rise in rates and perhaps the Fed's concern about the health of the economy has more market participants beginning to sense the same thing. Basically the Fed is impotent (nothing's changed) and the market will soon become very disappointed in the Fed's inability to make a difference, QE4 or otherwise, and that will be part of the mood change in the next and final bear market leg down in the coming years. There are no good fundamental reasons for why the stock market is as high as it is but for now the market is still pinning its hopes on the Fed being able to do something.

The Fed repeated its statement that it sees improvement in the labor market (apparently they're one of the few who actually believe the labor department's numbers) but not enough. Between that and the inflation rate stubbornly remaining below its 2% target the Fed is saying they'll continue to watch the data before announcing plans to raise rates. It's hinting that a rate hike is coming; just not in April and that's all the market cares about right now. A June rate hike is a possibility but many market analysts now think the first rate hike won't happen until September at the earliest. It was the Fed's expression of caution about the economy that got the bulls excited this afternoon. "Woohoo, a weak economy, let's rally!"

In a nutshell, here's a brief explanation of today's moves, thanks to the Fed (hat tip to Bob):

- Yellen mentioned dollar strength hurting the economy – Result: Dollar down
- She mentioned economy not as strong – Result: lower interest rates
- Lower interest rates and lower dollar – Result: stocks, commodities and bonds UP!

- Lower US interest rates and lower dollar –> (higher Euro and Yen) –> pressure on the EU and Asian economies –> selloff in EU and Asian stocks -> money flow back to the US –> higher US stocks, bonds and commodities

Now we wait to see if today's moves were more or less a knee-jerk response or something more.

Kicking off tonight's review of the charts will be a look at SPX, which remains one of the better indexes to see what THE market is doing. The RUT has made a new high above its March 2nd high (the first and only to do so), which could be leading the others higher but at the moment I'm not so sure about that happening. It will be important how the rest of this week plays out.

The SPX weekly chart shows price is getting crowded as it gets pinched in multiple rising wedge patterns. There are two wave counts that I consider the highest probabilities and unfortunately it's a coin toss as to which one is the more likely one. As already mentioned, the RUT says follow me to new highs, but the short-term pattern suggests bulls might have used up the rest of their buying power this afternoon. Both wave counts point to lower prices this summer but one is short-term bullish (green) into the end of March/early-April before the market puts in what should be a final high for the year. The more immediately bearish wave count (red) says the high is already in place and we'll see lower prices directly from here.

The uptrend line from March 2009 - October 2011 (bold purple) is currently near 2034 and it's the important trend line for the bulls to defend on a weekly closing basis. You can see a sharp drop below it last October (the tail on the weekly candle) and the minor drop below it at the February 2nd low. A third drop below the line, especially a weekly close below it would be a potentially big deal since it would be a signal that the final high is already in place. Until that happens there is still the potential for another leg up to complete a 5-wave ending diagonal (rising wedge) for the move up from October. The top of the rising wedge is currently near 2132 and then if it can make it up to the trend line along the highs from April 2010 - May 2011 we could see SPX rally up to the 2175 area by early April.

S&P 500, SPX, Weekly chart

In the short-term pattern, the rally off last Friday's low had me thinking we'll get another leg up this afternoon following the pullback from Monday afternoon's high. The pullback into today's FOMC announcement was a good setup for the bulls and the positive reaction could see some follow through tomorrow. But the typical pattern has been for the post-FOMC rally to get reversed the next day and the bearish wave count setup calls for the same thing. If the bounce off last Friday's low is just a correction to the March 2-13 decline then we should not see SPX above today's high at 2107 so a rally above that level would tell us new highs are coming. This afternoon's low near 2061 is an important level for the bulls to defend since a break below that would tell us the bounce finished and the next leg down has begun. It should be a 3rd wave down and that means it would be a stronger decline than the March 2-13 decline.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2107
- bearish below 2061

If the bulls can keep this afternoon's rally going I'll be looking for the 2130 area before starting a consolidation and then higher next week, potentially up to the 2150 area (maybe higher into early April). But as labeled in red on the 60-min chart below, so far the bounce is an a-b-c correction to the decline and that's why this afternoon's low near 2061 is important for the bears to break. That would confirm this week's bounce is a correction and a stronger decline will follow.

S&P 500, SPX, 60-min chart

The DOW has the same possibilities as shown for SPX. As you can see on its daily chart below, it's not hard to imagine a continuing rally up to about 18400 by the end of the month to reach the top of its rising wedge pattern. The first thing the bulls need to do is get the DOW back above price-level S/R near 18100 (today's high was 18097). But from a bearish perspective it has now completed an a-b-c bounce off last Friday's low, at 18100 resistance, and it will now be followed by a strong 3rd wave down. For the bearish wave count we could see 17000 before the end of the month and then lower into early April before setting up a large bounce correction. As with SPX, the bulls need to defend this afternoon's low at 17697.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 18,100
- bearish below 17,697

It's the same pattern for the NDX as the blue chips -- it looks good for the bears to try a short play and use today's high for your stop (small risk on the play). If the bulls can press the rally higher and only allow choppy pullbacks we should then see new highs this month notice where MACD is -- a turn back down from here would have MACD rolling back over from the zero line, which would create a strong sell signal (MACD having been "reset"). The bearish pattern calls this afternoon's high completes a 3-wave bounce off last Friday's low with two equal legs up at 4440.17 (this afternoon's high was 4440.49) and as such it fits as an a-b-c bounce correction to the March 2-13 decline. The expectation for a short play here is a strong decline for a 3rd wave.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4484
- bearish below 4344

The RUT has been out in front of the latest rally since last week's lows, starting with the higher low last Friday. This afternoon's rally had the RUT climbing above the trend line along the highs from last September-December, which had stopped the rally into the March 2nd high (it closed marginally above the line but then dropped back below it the next day). That trend line is currently near 1247 and the bulls want to prevent a similar occurrence as the March 2nd high since it would leave another reversal signal and could mark the top of its rally. But if the bulls can hang on (with nothing more than a choppy pullback) and drive the RUT higher we could then see the broken uptrend line from March 2009 - October 2011 tested, which will be near 1285 by the end of the month. A short-term trend line along recent highs, starting from January 28th, intersects the broken uptrend line from 2009-2011 at the end of the month. A clean 3-wave move up from March 11th, to the 1285 area by the end of the month, would be a good finish to a large rising wedge pattern off the October low. The bears need to negate that potential with a strong impulsive decline from here and a drop below its 20-dma, near 1233 would be a good first step. The RUT is obviously the canary dressed up like a bull at the moment and that's reason enough for bears to be cautious.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1256
- bearish below 1206

There were three things the Fed accomplished today -- they drove the stock market up, bond yields down and the U.S. dollar down. They of course want stock prices higher because it helps the "wealth effect," even though it's been well proven that the only ones benefitting from that are the wealthy. The Fed of course wants to keep bond yields down (hence their reluctance to raise rates) so that the governments, businesses and people can borrow at lower costs. That has been a huge help for debt-strapped governments and it's been a huge boon for businesses who borrow money at very low cost and then buy back stock and other things to increase the stock value so that executives can get higher bonus compensation. Consumers haven't taken advantage of cheaper loans and instead have been working their debt levels down.

The other problem for the Fed has been the strong dollar, which makes it less profitable for businesses to conduct business overseas due to the exchange rate and higher selling prices in the foreign country. This creates a drag on the economy and it's why other countries have been involved in the ongoing currency war -- whoever can drive the value of their currency lower than the others is the one who wins in trade. It's also an effort to create inflation as the deflationary cycle becomes harder to fight off.

With so many other currencies valued against the dollar it has been their devaluing efforts that has helped drive the dollar's value higher and I'm sure there's been some gnashing of teeth at the Fed as to how to stop it. They could implement another QE program (and likely will in the not-too-distant future) but for now that would spook the markets. The next best thing is to jawbone the dollar lower by talking about the need to raise rates soon but not yet. Talk about a soft economy but that you think things are improving enough to warrant a rate increase in the near future. It's a narrow line the Fed is walking but so far they haven't fallen off it (a few well-timed and large buy programs in the stock and bond markets helped).

With this afternoon's strong rally in the bond market it crushed bond yields. The 10-year yield (TNX) dropped -5.2% and back below 2%, dropping from 2.05% to 1.944% before bouncing a little and closing at 1.951%. The "magic" level for the 10-year is 2% so it'll be telling us something over the next week once we see if the reversal off the March 6th high continues or not.

Looking at bond prices, using TLT, I could easily argue for another new high to complete its leg up from December 2013 (and potentially its longer-term 30-year rally). The January 20th high came very close to the trend line along the highs from December 2008 - July 2012 and I can see the potential for another test of that trend line with bearish divergence against the peak left on January 30th. Based on this we could see bonds rally into April/May and see TLT top out around 140. If reached, it might not stop there but it would be a good place to evaluate a possible reversal. If TNX (10-year) heads for 1% and TYX (30-year) heads for 2%, which I've believed for years will happen, then we'll see TLT head higher than 140.

20+ Year Treasury ETF, TLT, Weekly chart

Higher yields actually help the banks since they get to make a larger spread between what they can get from the Fed (virtually 0%) and what they can get for loans. So today's large drop in yields hurts banks and the banking index was one of the few to close in the red. The leg up from January 16th can be considered complete at any time, although I see a little more upside potential to the top of its expanding triangle pattern, as shown on its weekly chart below. But betting on the long side for banks is a risky bet in my book. The longer-term bearish divergence, along with the bearish expanding triangle (a topping pattern) tells us that this could break down hard at any time.

KBW Bank index, BKX, Weekly chart

For some time, since November, the TRAN has not been able to keep up with the DOW and the DOW's new highs in December and February went unmatched by the TRAN. That has created a Dow Theory bearish non-confirmation so it's incumbent upon the bulls to get the TRAN at least above its February 25th high near 9215 (today's high was near 9142). Today's rally for the TRAN was not as strong as the DOW's but it's now close to its February high and might be able to get above it if it can through the downtrend line from November. This trend line stopped the February rally so we'll see if the bulls can do better this time. But because of a possible rising wedge pattern for its final leg up, the top of which is currently near 9250, I think price will have to get above about 9270 before one could declare the TRAN bullish. Back below its 50-dma, near 8940, would be the first indication the bulls lost the battle.

Transportation Index, TRAN, Daily chart

The U.S. dollar's rally from February 26th, which I've been calling the 5th of the 5th wave in the rally from May 2014, had gone parabolic (more easily seen on a 60-min chart with the increasing steepness of uptrend lines) and it was begging for a sharp selloff to start at any time. It just needed an excuse (catalyst) and that was provided by the Fed this afternoon. The dollar had been down more than -5% but then recovered with a spike back up to 97.77 after 16:00. But the damage has been done and I think we've seen the top for the dollar for a while.

The dollar looks like it has now completed a 5-wave move up from May 2014 and that calls for at least a multi-month pullback or consolidation (depending on how the larger pattern is interpreted). I would turn more bearish the dollar if it drops back below the top of its large parallel up-channel from 2008-2011, which it broke above in January and is currently near 93.40. The first level of support is the apex of the previous triangle (the consolidation pattern in February), near 94.50.

U.S. Dollar contract, DX, Daily chart

On March 6th gold had dropped below price-level support near 1180 and it's been struggling since to get back above that level. It got a good bounce today, thanks to expectations that the Fed will continue to back away from accommodation, but it has multiple levels of resistance between 1180 and about 1220. The bearish pattern suggests gold will drop a little lower to the bottom of a shallow down-channel from 2013, near 1105, before bouncing stronger but nothing has changed with my expectation for gold to drop down to the 1000 area before setting up a potentially good buying opportunity.

Gold continuous contract, GC, Weekly chart

I'm always watching silver with gold because I want to see the two in synch to help identify the more likely directions. The pattern for silver is one of the things that has kept me bearish the metals even during the last high bounce for gold. I'm looking forward to the time when I can start building a long-term hold position in both metals but I still see this as too early to start (other than nibbling every now and then when I see a good deal). The first bullish sign for silver would be a rally above 19.61 where it would have two equal legs up from December 1, 2014 and it would break its longer-term downtrend line from April 2011, which is the top of the down-channel it's been in since that high.

Silver continuous contract, SI, Weekly chart

Yesterday oil dropped to a new low and then a little lower this morning (42.03). It then consolidated for most of today until the FOMC announcement when it shot back up (thanks in part to the dollar's decline). The pattern looks good for a stronger bounce in oil so we'll see if this afternoon's rally gets some follow through. This morning's low achieved a 162% projection for the 2nd leg of the pullback from February 17th, at 42.12, and almost achieved the 127% extension of the previous bounce (January 13 - February 17), at 41.47. A bounce off this Fibonacci cluster suggests the pullback from February 17th is part of a larger a-b-c bounce pattern off the January 13th low. The c-wave should be a sharp rally and it typically achieves a 162% projection of the a-wave, which points to 58.13, as shown on the chart. This is pennies away from price-level S/R near 58.50 and makes for a good upside target in the large sideways consolidation that I expect oil to do for the first part of this year.

Oil continuous contract, CL, Daily chart

Thursday's economic reports will include the usual unemployment numbers before the open and then at 10:00 we'll get the Philly Fed and Leading Indicators, neither of which should be a market mover. There have been a string of economic misses (economists are not seeing the slowdown that's in progress) and tomorrow's reports could continue the same streak but so far the market has been much more interested in what central banks are doing. The economy will matter again sometime, and probably soon, but it hasn't yet.

Economic reports and Summary


The Fed managed (perhaps directly) to pull off a successful move in several markets this afternoon. They got a rally in the stock and bond markets and a decline in the dollar. Golf clap for the Fed. Now we'll see if there will be any follow through in each of the markets. For the stock market there are two reasons why I expect a reversal of this afternoon's rally and we should find out quickly whether or not the reversal will happen. First, following the post-FOMC move, which is typically a rally, the following day often sees a reversal of the move. Second, there's a bearish wave count that says this afternoon's rally completed the c-wave of an a-b-c bounce off last Friday's low and will be followed by a resumption of the decline. It should be a 3rd wave (or c-wave) down and that means it should be stronger than the March 2-13 decline. It was reason enough to attempt a short play at today's close (tight stop at a new high).

The bullish case is strongly argued by the RUT, which made a new high above its March 2nd high. Bullish sentiment is high if they're buying the small caps. The absence of the tech indexes joining the RUT is a little bothersome but that could quickly be resolved with a continuation of the rally on Thursday. And a continuation of the rally Thursday morning would strongly argue for new highs for all the indexes. Either way, I suspect we'll have our answer in the first hour of trading.

Good luck and I'll be back with you next Wednesday.

Keene H. Little, CMT

In the end everything works out and if it doesn't work out, it is not the end. Old Indian Saying

New Option Plays

Five Quarters In A Row

by James Brown

Click here to email James Brown


Northrop Grumman Corp. - NOC - close: 162.84 change: +1.68

Stop Loss: 158.45
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.4 million
Entry on March -- at $---.--
Listed on March 18, 2015
Time Frame: Exit prior to May option expiration
New Positions: Yes, see below

Company Description

Why We Like It:
The United States spends more on its defense budget than any other country in the world. The Budget Control Act of 2011 led to the sequestration budget cuts of $1.2 trillion. Half of that spending reduction is taken out of the U.S. defense budget from 2013-2021 (nine years).

Now pretend you are a defense contractor. You might think that having your biggest customer cut their budget would send your revenues and your stock price lower. That has not been the case for the major defense players. While it is true that many defense companies did see slower sales to the U.S. their stocks have delivered significant gains since the sequester.

I should note that part of the defense cuts have been delayed or amended with various short-term deals in Washington but the sequester is poised to return to full power in 2016. Law makers are already trying to find a way around it. Meanwhile, both 2013 and 2014 saw stocks like NOC outperform the broader market averages. That relative strength has continued into 2015, even after the recent correction.

According to their company website, "Northrop Grumman is a leading global security company providing innovative systems, products and solutions in unmanned systems, cyber, C4ISR, and logistics and modernization to government and commercial customers worldwide." What does that mean? It means NOC makes bombers, unmanned drones, cyber security solutions, and logistics. If you're curious, C4ISR stands for command, control, communications, computers, intelligence, surveillance, and reconnaissance.

The fact that the world seems to be growing more dangerous, not less dangerous, should be a bullish undercurrent that lifts the defense sector. NOC should benefit because the American public does not have the stomach for another war. That means the U.S. will use more and more unmanned technology like NOC's drones.

NOC has consistently delivered on the earnings front. Not only has NOC beaten expectations but they have raised their guidance the last five quarters in a row. A key driver has been a push to diversify their customers base so they're not so reliant on the U.S.

The company's Q4 report was released on January 29th. Wall Street was expecting a profit of $2.25 a share on revenues of $5.99 billion. NOC delivered earnings of $2.48 per share, up +17% from a year ago. Revenues slipped -0.8% but came in better than expected at $6.11 billion. Their profit margin improved and their backlog at the end of 2014 was $38.2 billion compared to $37 billion the prior year.

Management raised their 2015 earnings guidance into the $9.20-9.50 range and their revenue guidance up to $23.4-23.8 billion. This is above Wall Street's estimate of $9.12 on revenues of $23.5 billion.

The stock peaked near $172 about four weeks ago. Since then NOC, like most of the defense stocks, have seen a correction. NOC was down -9% from its high as of last Friday's low. Yet the point & figure chart is still bullish and forecasting a long-term target of $210.

We like how NOC has kept the bullish trend of higher lows alive. Now, after consolidating sideways in the $158-162 zone the last few days, the current bounce looks like an potential entry point. Tonight we're suggesting a trigger to buy calls at $163.50.

Caveat: The U.S. Air Force is expected to make a big decision in spring or summer this year. That decision is who will make America's next-generation bomber. The program is called the Long Range Strike-Bomber (LRS-B) and will be worth tens of billions of dollars to the winning contractor. This is a major fight between defense contractors like NOC and rivals Boeing (BA) and Lockheed Martin (LMT). If NOC loses this opportunity it could hurt the stock price.

Trigger @ $163.50

- Suggested Positions -

Buy the MAY $170 CALL (NOC150515C170) current ask $2.10

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

Daily Chart:

In Play Updates and Reviews

Stocks Surge On Fed's Serenade

by James Brown

Click here to email James Brown

Editor's Note:

The Federal Reserve soothed market fears over a rate hike in June. Removing the word "patient" from their statement was countered by dovish comments from Fed Chairman Yellen. Market veteran Art Cashin suggested the market has interpreted the Fed's move today to mean no rate hike this year. The major indices rocketed higher.

KORS hit our stop loss.

Current Portfolio:

CALL Play Updates

Aetna Inc. - AET - close: 107.48 change: +2.08

Stop Loss: 102.85
Target(s): To Be Determined
Current Option Gain/Loss: +175.7%
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

03/18/15: The stock market's big rally this afternoon helped send healthcare stocks to new highs. AET surged to a +1.9% gain. I would not chase it here. More conservative traders may want to start taking 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: 70.74 change: +0.94

Stop Loss: 68.45
Target(s): To Be Determined
Current Option Gain/Loss: -5.3%
Average Daily Volume = 737 thousand
Entry on February 27 at $68.75
Listed on February 26, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

03/18/15: It was a volatile afternoon for CAVM. Shares almost hit our stop loss before rebounding. The stock remains under resistance in the $72.00 region. I am not suggesting new positions at this time.

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

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

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

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

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

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

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

- Suggested Positions -

Long JUN $75 CALL (CAVM150619C75) entry $3.80

03/17/15 new stop @ 68.45
03/07/15 new stop @ 67.65
02/27/15 triggered @ $68.75
Option Format: symbol-year-month-day-call-strike

Cracker Barrel - CBRL - close: 152.89 change: -1.31

Stop Loss: 149.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 320 thousand
Entry on March -- at $---.--
Listed on March 17, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

03/18/15: Hmm... I'm not sure if we should be encouraged that traders bought the dip in CBRL at round-number support near the $150.00 mark or if we should be concerned that CBRL underperformed the market with a -0.8% decline.

Currently we are on the sidelines. Our suggested entry point to buy calls is at $155.55.

Trade Description: March 17, 2015:
Looking at the big picture for retail we have not seen any significant evidence that lower gasoline prices has boosted consumer spending. The one exception might be restaurant sales and CBRL is definitely near the top of the list. It is probably no coincidence that a big number of CBRL's locations are located near the interstate highway (and likely near a gas station).

The company describes itself as "Cracker Barrel Old Country Store, Inc. provides a friendly home-away-from-home in its old country stores and restaurants. Guests are cared for like family while relaxing and enjoying real home-style food and shopping that’s surprisingly unique, genuinely fun and reminiscent of America's country heritage…all at a fair price. The restaurant serves up delicious, home-style country food such as meatloaf and homemade chicken n' dumplins as well as its made-from-scratch biscuits using an old family recipe. The authentic old country retail store is fun to shop and offers unique gifts and self-indulgences. Cracker Barrel Old Country Store, Inc. (CBRL) was established in 1969 in Lebanon, Tenn. and operates 634 company-owned locations in 42 states."

CBRL has beaten Wall Street's earnings estimates the last three quarters in a row. Their most recent report was their Q2 on February 24th. Analysts were looking for a profit of $1.62 a share on revenues of $734 million. CBRL crushed the numbers with a profit of $1.93 a share, which is a +24% improvement from a year ago. Revenues were up +8.2% to $756 million. Management said comparable store restaurant sales were up +7.9%. Their average check was up +3.2%.

CBRL raised their 2015 guidance from $5.95-6.10 to $6.40-6.50. Consensus was only $6.13. They raised their revenue forecast from $2.8 billion to $2.8-2.85 billion. Wall Street was forecasting $2.82 billion. Following CBRL's better than expected results and bullish forecast the stock received a couple of upgrades with price targets in the $165-170 range.

A few days after their earnings report the company announced a $1.00 dividend payable on May 5th to shareholders on record as of April 17th, 2015. The stock's current dividend yield is 2.5%, above the 2.0% yield of the 10-year bond.

The stock exploded higher following its earnings results in February. That's probably thanks to some short covering. The most recent data listed short interest at almost 14% of the very small 18.9 million share float. The stock's big rally also produced a buy signal on the point & figure chart that is now forecasting a long-term target of $220.

Tonight we are suggesting a trigger to buy calls at $155.55.

Trigger @ $155.55

- Suggested Positions -

Buy the JUN $160 CALL (CBRL150619C160)

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

Salesforce.com, Inc. - CRM - close: 68.55 change: +1.00

Stop Loss: 62.75
Target(s): To Be Determined
Current Option Gain/Loss: +24.1%
Average Daily Volume = 4.5 million
Entry on March 17 at $66.75
Listed on March 16, 2015
Time Frame: Exit prior to May option expiration
New Positions: see below

03/18/15: CRM quietly churned sideways until the Fed decision was announced. The stock rallied more than $2.00 before settling with a +1.48% gain. I would not be surprised to see a little profit taking when shares tag resistance near $70.00.

Trade Description: March 16, 2015:
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.

- Suggested Positions -

Long MAY $70 CALL (CRM150515C70) entry $1.95

03/17/15 triggered @ 66.75
Option Format: symbol-year-month-day-call-strike

Mallinckrodt - MNK - close: 132.51 change: +1.25

Stop Loss: 125.25
Target(s): To Be Determined
Current Option Gain/Loss: +50.7%
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

03/18/15: Another day, another new high for MNK. Shares are up $12.50 in just the last five sessions. It might be time for a dip soon. No new positions at this time.

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

03/17/15 new stop @ 125.25
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: 105.36 change: +1.53

Stop Loss: 101.65
Target(s): To Be Determined
Current Option Gain/Loss: +544.1%
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

03/18/15: It was a good day for NXPI bulls. Shares added another +1.4% and closed above round-number resistance at the $105.00 level.

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: 80.03 change: +1.22

Stop Loss: 75.95
Target(s): To Be Determined
Current Option Gain/Loss: +24.7%
Average Daily Volume = 2.1 million
Entry on March 17 at $77.60
Listed on March 12, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

03/18/15: UA's rally continued with the stock up four out of the last five days. Shares stalled right at round-number resistance near the $80.00 level.

UA might be volatile on Friday morning as the stock reacts to earnings from its larger rival Nike (NKE). After the closing bell on Thursday NKE will report earnings and they will likely influence trading in UA.

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.

- Suggested Positions -

Long JUL $80 CALL (UA150717C80) entry $4.09

03/18/15 be prepare for possible volatility on Friday morning as UA reacts to Nike's earnings out Thursday night.
03/17/15 new stop @ 75.95
03/17/15 triggered @ 77.60
Option Format: symbol-year-month-day-call-strike

PUT Play Updates

Bunge Limited - BG - close: 80.06 change: +1.10

Stop Loss: 81.05
Target(s): To Be Determined
Current Option Gain/Loss: -43.8%
Average Daily Volume = 1.0 million
Entry on March 18 at $78.45
Listed on March 11, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

03/18/15: BG was not immune to the market's widespread rally this afternoon. The stock gained +1.39% and closed right on round-number resistance at the $80.00 level. Unfortunately, just before the market rally today, shares of BG slipped low enough to tag our bearish entry point at $78.45.

Our play is open but I am not suggesting new positions at current levels.

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.

- Suggested Positions -

Long APR $80 PUT (BG150417P80) entry $2.49

03/18/15 triggered @ 78.45
Option Format: symbol-year-month-day-call-strike

Deckers Outdoor - DECK - close: 71.69 change: +1.34

Stop Loss: 73.05
Target(s): To Be Determined
Current Option Gain/Loss: -35.4%
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

03/18/15: DECK ended yesterday's session on support at the $70.00 level. The rebound in DECK today started this morning and shares didn't really see much of a post-FOMC meeting move. It just continued the up trend from the first half of the session. It's worth noting that the rebound did stall at prior support and now new resistance in the $72.00 area.

I am not suggesting new positions at this time.

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


Michael Kors - KORS - close: 66.36 change: +1.55

Stop Loss: 66.35
Target(s): To Be Determined
Current Option Gain/Loss: +2.4%
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

03/18/15: Positive comments from Bank of America about KORS' valuation helped shares bounce toward the $65.50 area today. Then shares surged past resistance near $66.00 with the market's post-FOMC meeting rally. Our stop loss was hit at $66.35.

- Suggested Positions -

May $65 PUT (KORS150515P65) entry $2.10 exit $2.15 (+2.4%)

03/18/15 stopped out
03/16/15 new stop @ 66.35
02/26/15 triggered @ $67.90
Option Format: symbol-year-month-day-call-strike