Option Investor

Daily Newsletter, Saturday, 3/21/2015

Table of Contents

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

Market Wrap

Dollar Drop Powers Markets

by Jim Brown

Click here to email Jim Brown

A drop of more than 2% in the dollar for the week, a $4 rebound in crude oil and the dovish comments by the Fed all combined to produce a relief rally, which was led by the small caps. The Russell 2000 and the S&P-600 Small Cap indexes both closed well into new high territory.

Market Statistics

The Dollar Index closed at 100.18 last Friday and declined more than -2% to close at 97.93 this Friday. The decline in the dollar was due to the dovish comments by the Fed that pushed expectations for the first rate hike farther into the future. The declining dollar took pressure off crude oil and despite a monster inventory build of 9.5 million barrels the black gold rallied from a low of $42.03 on Wednesday to close just under $46 on Friday. Numerous analysts were calling a bottom on oil prices.

While I would welcome a bottom in crude oil I believe this is more of a reaction to the falling dollar and short covering in the futures as the April contract expired. Inventories are still building at an enormous rate and refiners have not yet concluded their spring maintenance and started producing gasoline for summer driving. We still have a few more weeks before crude demand increases and they start chipping away at the record inventory levels. There is still the danger of running out of storage space for new production.

However, Brent crude did not make a new low with $52.50 showing solid support and well over the $50 lows from January. This is encouraging for the oil bulls.

There were no economic events of note on Friday. However, the calendar for next week is full with the last revision of the GDP on Friday as the most important. There are quite a few estimates for something less than +2% growth. For Q1 there are forecasts down in the +0.5% growth range because of the severe weather. That first release will not be out until the end of April.

Since the FOMC stressed again that they want to see more job growth it will put more pressure on the ADP/Nonfarm numbers the following week.

This is a calm week for earnings as well and we will probably see more warnings next week than earnings since we are in the warning season. The earnings cycle does not officially start until Alcoa reports on April 8th.

Starbucks was the only new stock split that is worth trading. The 2:1 split is only 2 weeks away and the company closed at a new high on Thursday. Friday saw a little profit taking but given that Starbucks is a crowd favorite we could see a split run, market permitting.

The Fed removed the word patient but Yellen bent over backwards to convince analysts and investors alike that there would be no rate hikes until the economic data improved. Specifically mentioned were jobs, wage growth and inflation but what was not mentioned is the key. The statement reduced the Fed's outlook for economic growth and reduced the Fed's projections for future interest rates. Given the downgrades to the outlook we should not be looking for the Fed to suddenly reverse itself and hike in June.

The consensus for the first hike is in the August/September timeframe but that would still require several months of positive data to lift the Fed's projections before a rate hike could be tolerated. The bottom line is that the Fed will continue to support the market by reinvesting all the proceeds from treasuries and MBS that mature and that will keep real interest rates low. The March FOMC statement and press conference is the gift that keeps on giving.

In the Deutsche Bank projection chart below taken from the actual Fed forecasts you can see how the Fed's projections are declining. The lower blue line on the right is the new projections for growth from last week and heading for 2% in 2017. They can't raise rates in this environment despite what they would like to do.

The Greek bailout story completed another chapter after the EU finance ministers ended an early Friday meeting saying they had reached a breakthrough agreement to unlock much needed funds for Greece. The meeting lasted two days and involved heated discussions before reaching what they said was an agreement. The headlines were triggered all around the world that Greece would get 7 billion euros in aid and markets celebrated. About 12 hours later the agreement was in disarray and the finance ministers were again confused about what everyone had agreed to do.

The center of contention is a 7.2 billion euro rescue payment from the Troika and the conditions Greece must complete before the funds are released. Also unknown is how the ministers are going to verify that Greece has actually complied with the terms. More than once the country has said it took action and completed demands only to find out months later that nothing was ever done and it was just a smoke screen to get money released.

One of the keys is a list of reform demands that the EU gave Greece on December 10th. From that list Greece can complete the ones it wants and replace others will new reforms Greece is willing to add to the list. However, the new list must be approved by the ministers and then be verifies once enacted.

One of the problems is that the new Greek Prime Minister refuses to acknowledge the list. The former PM Antonis Samaras and finance minister Hardouvelis sent a letter to Merkel promising to implement a set of those reforms. Tsipras said last week, "Forget the commitment of the former government. There are no austerity measures. There is no letter of Hardouvelis." Tsipras said "I asked the finance ministers do you expect me to go through this evaluation and implement measures that Mr Samaras was not able to implement? The answer was no." Tspiras used that letter of harsh reforms to ridicule Samaras and win the election by promising they would never be done. Troika inspectors have now been prevented from accessing accounting data and bank records because Tspiras claims it would be a violation of Greek sovereignty.

The EU is stuck between a rock and a hard place. They don't want to give Greece any more money but they have already invested 240 billion euros. If they let Greece fail they will never get any of it back. If they keep the IV drip of cash flowing, even at a reduced rate, they may have a slim chance of some return in the future and not be faced with the disaster a Greek exit from the eurozone would cause.

The market rebound on the Greek headlines is over and the news out next week could be even more negative. The U.S. markets don't really seem to care if Greece stays in the eurozone or leaves but our markets will follow the direction of the European markets unless they are given a reason to do otherwise.

In stock news Biogen Idec (BIIB) soared 10% to $476 and a new high on news a new Alzheimer's drug was more effective than expected in early stage testing. The drug was so successful the company is going to skip the phase II testing and go to final stage testing needed to gain approval. The testing of 166 patients in an early trial reduced plaque buildup in the brain and slowed cognitive decline. Shares rallied $42 on the news.

Prothena (PRTA) shares spiked +32% to $39 on news of an early stage success on a drug to treat Parkinson's disease. The PRX002 drug showed to be safe, without serious side effects and it reduced levels of a protein that builds up in the brain and is associated with the disease. The company has a deal with Roche and could get as much as $600 million in milestone payments as well as a portion of future profits and royalties. Prothena has received $45 million to date on this drug.

Clearly the biotech sector is on fire and odds are good the gains in individual stocks will continue. We are currently experiencing a surge in new drugs that will tackle some of the worst diseases that debilitate those people that contract them. We are living in a period where many of these diseases could be cured or at least lessened. The biotech sector is up +23% year to date. Everyone keeps hoping for a pullback as a buying opportunity and it will come eventually.

Nike shares (NKE) rallied +4% after reporting earnings of 89 cents compared to estimates for 84 cents. Revenue of $7.5 billion missed estimates of $7.60 billion but future orders soared. Orders for delivery from March through July rose +15% compared to estimates for an 11.6% gain. Orders from China rose +11% beating estimates for 9.9%. Orders in the U.S. rose +6% to $3.25 billion for the quarter. Sales in Western Europe rose +10%. Without the impact of the dollar the sales would have risen +21%. The CFO said the impact of the dollar was increasing and would be a continued drag. The company did suffer from the West Coast port dispute. Their shoes are held up on containers yet to be unloaded and that detracted from U.S. sales. Nike said it will take a "few quarters" to get the inventory flow back to normal.

Tiffany (TIF) reported earnings of $1.51 that beat estimates by a penny. Revenue of $1.285 billion missed estimates of $1.311 billion due to weakness in the Americas and Japan. The strong dollar decreased overall sales by -3%. Sales in Europe actually rose by 9%. The guidance was weak. Management said they anticipate minimum earnings growth for 2015 and a decline of -30% in earnings in Q1 followed by a modest decline in Q2. Business is expected to pickup in Q3/Q4. Net sales in Q1 are expected to decline -10%. Shares fell -4% on the news.

KB Home (KBH) reported earnings of 8 cents compared to estimates for 2 cents. Revenue rose +29% to $580 million and beat estimates for $474 million. Gross margins rose +2.6% to 17.7%. The company delivered 1,593 homes in the quarter. The average selling price rose +8% to $329,500. The company guided for sequentially higher revenues in each of the remaining quarters for 2015. Shares rose +8%.

Darden Restaurants (DRI) rallied +3% after reporting adjusted earnings of 99 cents compared to estimates for 84 cents. However, revenue fell -23% to $1.73 billion and just over estimates for $1.72 billion. Darden sold Red Lobster back in July and that accounted for the drop in revenue. Olive Garden sales rose +3% for the quarter to $957 million and they added nine new stores. Longhorn Steakhouse sales rose +11.3% to $404 million and they added 25 new stores. The Specialty Restaurants division saw sales rise +14.7% to $367 million and they added 16 new stores. Darden now has 1,528 stores in total.

Shares of Facebook continued to soar after they announced the person to person payments on Tuesday. Shares hit a historic high of $84.60 intraday on Friday. Analysts were beginning to raise their guidance based on expectations for rising ad sales and whatever toll fee they are planning on charging for the payment function.

Crude oil inventories rose +9.5 million barrels to 458.5 million and an 80 year high. Inventories have increased +76.1 million barrels over the last 10 weeks alone. Inventories at the futures delivery point of Cushing Oklahoma rose +2.9 million barrels to 54.4 million and a record high. Cushing has about 71 million barrels of storage and typically they have cut off inflows when they reached 80% of capacity to maintain operational capability. Since the last record high on January 11th 2013 at 51.9 million barrels several million barrels of additional storage capacity have been added. However, 80% of capacity today would be 56.8 million barrels and just 2.4 million over current levels. Depending on the time of year they could accept a little more oil and this is the right time. Refineries will shift into overdrive in mid to late April and inventories should begin to decline fairly rapidly. While we are approaching a storage capacity problem it may not be for 2-3 more weeks.

U.S. production surged again last week to 9.419 mbpd and a 38 year high. Despite a decline of about 862 active rigs or about a -45% drop, production is still surging as previously drilled wells are put into production.

The active rig count declined -56 rigs last week to 1,069. Oil rigs declined -41 to 825 and gas rigs declined -15 to 242 and a new 18 year low. Offshore rigs plunged a whopping -11 to 37 or -23% in only one week.

In 2009 the rig count low was 866 and we have declined from 1,931 to 1,069 since September. Most companies say they will continue reducing rigs through July so more pain to come for the drilling sector.

This was a quadruple witching option and futures expiration and volume soared from an average of 6.6 billion shares for the first four days of the week to 9.76 billion on Friday. Advancing volume was 7:2 over declining volume. Advancing stocks were 5:2 over decliners. S&P-500 volume was 7:1 advancing over declining and advancing stocks were 7:1 over decliners at 397 to 61. There were 62 new 52-week highs and 1 new low. For the entire market there were 653 new highs and the most since December 23rd with 93 new lows.


It was a small cap week! The S&P SmallCap 600 ($SML) broke out to a new high and there were no doubts. Volume was more than double on Friday. That is no surprise since volume typically doubles with every quadruple witching expiration. The small caps are where it is at with little or no exposure to the strong dollar.

The Russell 2000 also broke out to a new high and did it in a serious manner. Since the 1206 low on March 11th the Russell has rallied +60 points or +5% in only seven days. Investors are moving money from big caps with dollar exposure to small caps that depend on the U.S. economy rather than Europe and Asia. This is a clear breakout and support should now be in the 1240-1250 range and above the prior highs. This is bullish for the broader market but you have to wonder if the small caps have run too far too fast and are due for a short term pullback.

Despite the bullishness in the small caps the S&P and Dow have not been able to return to the February highs. The rotation of money out of the large caps has been a drag on the indexes but the S&P still managed to turn in a respectable +5% gain since the lows on the 13th. The S&P and Dow had declined further than the small caps so they had a bigger deficit to overcome to return to new highs.

The S&P closed at 2108 and has decent resistance at the historic high close at 2117. On the support side there is light support at 2085 and 2065 with the 2040 level the strongest. The 100-day average at 2053 and the 150-day at 2025 should also slow any selling.

The Dow closed at 18,131 with the historic high at 18,288. At the rate we are adding triple digit days that is just one good short squeeze away. The range for the week was only 500 points from 17,700 to 18,200 but the Dow moved nearly 1,600 points within that range. The triple digit moves in alternating directions made it very hard for investors to enter decent positions but day traders probably made a good living.

Apple is now a Dow component and AT&T is not. Visa is only one-fourth its share price from the prior week and Goldman Sachs is now the biggest influence on the Dow with its $193 stock price. A $1 move in any stock now represents about 6.75 Dow points. Apple's decline on Friday removed about -10 Dow points. Apple shares imploded at the close to give back -$2 on very heavy volume in the last few minutes. Apple shares traded 8.7 million shares in the last 10 minutes compared to 68 million for the entire day.

The Dow respected the 100-day average on the March decline and again on the sudden dip on March 18th. I would not expect that to continue but at least it will be a speed bump on the next decline.

Resistance is 18,288 and the old high and support is 17,950.

The Nasdaq exploded over the 5000 mark at the open and despite some initial selling pressure it never fell back below the 5020 level. The February high was 5008.10 so Friday's close was a new 15 year high. We have to close over 5048.62 for a new historic high close and over 5132 for a new intraday high.

The drop in Apple knocked about 7 points off the Nasdaq at the close. Quite a few biotech stocks also lost ground and that pressured the index but Biogen's $38 point gain offset a lot of the losses on the smaller stocks.

In theory the 5000 level should now be support and a drop under 4980 would be a critical level. That was support all day on Thursday and it was a battle. There should still be support there so any failure could trigger a stronger decline.

Initial resistance should be 5040, 5050.

In theory with the market at the highs the internals should be stronger. However, the percentage of S&P stocks currently over their 50-day average is only 70%. This is below the February highs at 77.4% and the November highs at 88.8%. The internals are not confirming the recent rally.

The percentage of stocks currently over their 200-day average is only 73% and as you can see in the chart there has been a steady deterioration since July 2014. This suggests the rally has been led by only a few stocks and either the laggards are going to revive shortly or more likely the number of laggards will increase and drag the indexes lower.

The percentage of S&P stocks with a bullish point and figure chart has declined to 71.8% and well under the prior highs at 85% and 90%. Note that the percentage declined last week rather than rose.

The commodity sector is still trading at its lows. There is no inflation in sight because commodity prices have been driven to multi-year lows. The CRB is down -33% from the July highs, mostly because of the drop in crude prices and the rise in the dollar but also from lack of global demand.

The bottom line for me is that I think the small cap rally can only take us so high. The big cap indexes are nearing significant resistance and all the positive headlines may be behind us. The Fed meeting is in the rearview mirror. Earnings are not going to be pretty with current estimates for a -3% decline in Q1. The economic indicators have been declining for nearly two months and the number of declines and estimate misses are the worst since the summer of 2009.

The Bloomberg ECO U.S. Surprise Index now at the lowest since 2009.

Bloomberg chart (Original Link)

Markets can rally despite negative forces but eventually fundamentals will matter. With the ECB QE just starting, the bond rates for European countries are going to continue falling and dragging the euro lower. That will push the dollar higher and force earnings lower. When this will suddenly matter to the market is unknown but I would be cautious over the next several weeks. This week is the end of the quarter and fund managers will probably be restructuring portfolios to reduce exposure before the normal summer doldrums and investors are going to be taking cash out of the market to pay the tax man.

Random Thoughts

In keeping with the comments above Bank of American Merrill Lynch posted this chart showing that the global earnings revisions are now declining in the fastest pace since the Lehman disaster and to the lowest level since 2011. On a year over year basis forward earnings estimates (red) are now down -6.7%.

China is preparing to loan Venezuela another $10 billion on top of the $50 billion they already owe and have a near zero chance of repayment. About $5 billion will be loaned this month for "various projects" and the other $5 billion in June. That second tranche is expected to be used to hire Chinese firms to boost production in Venezuelan oil fields and that oil will probably make its way to China as part of a loan repayment. Venezuela has been "selling" oil to China in lieu of debt repayments. With Venezuela circling the drain the $5 billion loan will rescue the current Maduro administration for a few more months. I would not be surprised to see a Chinese flag on Venezuela in the years to come. The newly devalued Venezuelan currency is on the verge of becoming worthless and this loan may be the last lifeline for the Maduro regime.

Retired Dallas Fed President Richard Fisher said on Friday, "What worries me is how totally lazy investors have gotten, totally dependent on the Federal Reserve and I find this to be a precarious situation. Are we vulnerable in my personal opinion to a significant equity market correction? I believe we are. I could see a correction taking place of substantial magnitude." The market ignored the comment but it will continue to bounce around in cyberspace until the market trips up then it will be replayed over and over.

After the Wednesday FOMC announcement and Yellen press conference the futures are now predicting there will be no rate hike until at least December. The futures indicating the likelihood of a hike in September declined from 55% to 39%. The futures are also suggesting the likelihood of a hike in June at almost zero at 11% probability. The fed funds futures are now projecting an interest rate at the end of 2015 of 0.625% compared to the 1.125% forecast at the beginning of 2015. The implied yield on the December 2015 Fed funds futures contract declined to 0.42% and the yield on the December 2016 contract declined -0.21 points to 1.15%.

The Atlanta Fed GDPNow real GDP forecast for Q1 has fallen to only +0.3% growth. That is down from +2.3% back in early February. The rate of decline is nothing short of spectacular. The top ten private forecasters are still targeting a consensus of about +2.4% for Q1. That is a significant break with the reality of the Fed's real time calculator. There is no chance of a rate hike in the near future.

Despite the Fed's implied support of the market with continued zero interest and the reinvestment of all the funds from matured securities the market is not bullet proof. If the economy continues to weaken the stock market will pay attention and the Fed could actually be forced to implement a QE4 if the decline became severe. Currently with rates at zero the Fed has no dry powder in the case of further weakness and their only option would be further QE. That is a really scary thought.

Noted bear, Peter Schiff, CEO of Euro Pacific Capital, said the word "patient" was always a straw man and the fed has been bluffing the entire time. They have to pretend they are close to raising rates in order to keep some volatility in the rates and prevent them from declining even further. Some countries in Europe now have negative rates and Yellen does not want that to happen in the USA. Therefore they have to keep up the charade that rate hikes could come at any time even though economics continue to weaken. A large portion of the new jobs each month are part time because people need to eat. People with college degrees are flipping hamburgers because there are no full time jobs available.

Ray Dalio, founder of the $165 billion hedge fund group Bridgewater Associates, said in a note to clients the Fed is risking a 1937 style market slump when it finally raises rates. Christine Lagarde, head of the IMF, warned on Tuesday that US rate increases could trigger instability in emerging markets, leading to a re-run of the Fed-induced "taper tantrum" of 2013.

Dalio said, "If one agrees that either a) we are near the end of the developed country central bankers' ability to be effective in stimulating money and credit growth or b) the dollar is the world's reserve currency and that the world needs easier rather than tighter money policies, then one would hope that the Fed will be very cautious about tightening." For this reason our funds are avoiding concentrated investments at this time.

China finally admitted they lowered their growth targets for 2015 to 7% GDP but they also admitted it would be "tough to reach these levels." Bloomberg's Michael McDonough posted the chart below showing that the Chinese economy, even with all the bogus numbers in the system, is nowhere near 7% GDP. This is important because China is the second largest economy in the world.

Bloomberg Chart (Original Link)

The P5+1 talks with Iran over their nuclear program came to an abrupt halt last week after Iran suddenly demanded that all sanctions be lifted immediately or there would be no deal. The Iranian negotiator said this was a deal breaker and it was not negotiable.

Under the current P5+1 proposal the sanctions would be lifted after Iran complied with all the conditions in the proposal and the IAEA certified their compliance. Since they were caught violating the interim deal just last week and the odds are about 100% that they would violate any new deal that means the sanctions would never be lifted. The western nations believe even in a best case scenario where Iran cooperated fully it could take as much as two years for complete verification of compliance and the sanctions to be lifted.

Western negotiators are kidding themselves if they believe they can do a deal with Iran and that Iran will not cheat. They have always cheated on every deal they ever signed and they are not likely to change that pattern when they are this close to a nuclear weapon.

Former CIA Director, General David Petraeus, said last week that Iran was a much bigger threat to the Middle East and the U.S. than ISIS.

Over the last 25 years the last week of March has been negative 17 times with an average S&P decline of -1.6%. Beware the week after March quadruple option expiration.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"The problem with socialism is that you eventually run out of other people's money."

Margaret Thatcher



Index Wrap

From a Turnaround to Some New Highs

by Leigh Stevens

Click here to email Leigh Stevens

After a 50% retracement in the strong Nas 100 Index, I looked at it as a 'gift' of saying, hey we got cheap again or at least less expensive!

All else is contained in my individual index commentaries and in a Trader's Corner article coming out tomorrow (Sunday, 3/22).

The S&P 500 Volatility Index (VIX):

A suggest trade in VIX calls worked on a short-term basis but if held are back to near or below purchase value. VIX, as it's name should forever tell us is VOLATILE.

The Index has dipped back to into what has been typically a 'support' in VIX at 12-13. I'm a buyer of VIX calls near and at 12 and a seller at 16-17.

The VIX DAILY chart:



The S&P 500 is bullish in its pattern and given the strong rebound momentum here should carry SPX to new highs for the current move. 2120 is assumed resistance but with a sustained move above 2120, we could see SPX advance to a next resistance at 2150-2160.

Support is highlighted at 2080, then at 2060. Anything near 2080 looks like a buy and 2150-2160 a sell.

SPX saw a strong rally after a number of lows forming in the same area over a 3-day period. In a 'normal' correction in a bull market, a 50% retracement and three days of the buying interest in the same area suggest a potential upside reversal and a favorable risk to reward on a bullish strategy.

Related bullish turnaround signs were seen with the oversold RSI reading and build up of bearishness as seen at the points of the green up arrows on those two technical indicators.


The S&P 100 (OEX) is bullish in its pattern after the strong recovery rally after OEX retraced between 50 and not quite 60 percent of its prior advance. Needed for the intermediate trend being up is for OEX to trade now at or mostly above its 21-day moving average. Stay tuned.

Resistance is in the area of the prior highs of course, in the 930-932 area. Next major resistance then comes in around 945.

Near support is 910, extending to 900, which should offer fairly major support at this juncture.


The Dow 30 (INDU) Average has regained its bullish near-term trend but is overall mixed. Bullish events included the reversal at the 50 percent retracement level and the strong follow through buying that carried the Dow quick to back above 18000.

Bearish uncertainty is in what happens at the prior high, another dip or, if pierced, the potential start of a further up leg.

It appears that the prior highs will be exceeded given the thrust to this close. 18000 should offer support on pullbacks. Next pivotal support comes in at 17800.

Technical resistance is suggested at the prior Dow intraday highs in the 18245-18288 zone. Assuming a decisive upside penetration above 18288-18300, a next advance could carry to the 18500 area which would begin fairly major resistance.


The Nasdaq Composite (COMP) is bullish in its pattern as the Index decisively pierced pivotal chart resistance at 5000. Prior to that, an initial bullish stance was called for in the Composite given the strong rebound after a 'minimal' 38% fibonacci retracement of COMP's prior advance. A strong uptrend in a stock or an index often won't see a corrective pullback come along that is MORE than a third or so (38%) of its prior advance.

Related influences for a trend reversal included a type of 'oversold' condition shown by my 'CPRATIO' indicator seen below; the dip into bullish territory is seeing a dip in that line caused by a pick up in put volumes. When bearishness leans to far in this long-term bull market, it's a good 'contrary' indicator! Easy to forget in panic attacks of where we are; i.e., in a long-term bull market. 'It's a bull market dummy' could be my morning mantra.

COMP support can be looked for in the area of the 21-day moving average currently at 4950; next lower support at 4900 is pivotal support. Closes below 4900, certainly below 4850 would be bearish on an intermediate term basis.

Resistance is highlighted at 5050, with next projected resistance starting at 5080, with an 'easy' uphill slide to 5100. I don't see higher near-term but longer-term chart resistance shows up around 5175-5200 currently.


The big cap Nas 100 (NDX) strongly reversed to the upside after retracing a half of its prior run up. I thought NDX 'cheap' at that point, at a 50 percent retracement. If I can buy more stock at the midpoint of the last up leg, that's a good price generally in a strong long-term trend like the one the US Market is in.

After its a sharp rebound from the 4300 area, NDX next leaped above key resistance at the prior 4400 'breakdown' point and seemed about to lunge to the prior top. Perhaps irrational exuberance at play 'created' an upside chart gap without corresponding follow through yet. Not surprising to see a consolidation here. Pullbacks to the 4400 area look to be a buy, rallies to near 4550 a sell.

Support is highlighted at 4400, with next lower support, 4350. Technical resistance is first assumed at the prior 4484 NDX intraday high, extending to 4500. Pivotal next resistance at 4550 looks to be a 'stretch' for the Index to get to near-term as it looks like some backing and filling are coming up but mostly above 4400.


QQQ rebounded strongly once the stock retraced half its prior advance. In a bull trend, generally buying pullbacks of about half to a bit more are good business trading wise.

The sharp turn to the upside quickly put QQQ back above its 21-day moving average, highlighting the shift to upside momentum again. Support is seen in the 108 area, with next chart support at 107, extending to 106. Buying pullbacks to the 108 area is suggested by the chart. Bullish, but a little ahead of itself, witness the fall off Friday on profit taking.

Key QQQ resistance is at the prior high in the 109 area. Above 109-109.4, a pivotal next resistance is projected at 111.

A bullish On Balance Volume line (strongly up) concur with the strong advance that the Nasdaq big cap index was in when it blasted above 108 resistance.


The Russell 2000 (RUT) I noted last week (3/14) "put in a possible 'island bottom' with the gaps lower, then higher, leaving that the two isolated days you can see that have lows near 1200." YES, a strong advance has followed after said bottom and RUT's rebound carried further/faster beyond even my bullish expectations. Last week I was projecting resistance at 1260, now surpassed.

RUT's strong advance above its prior high and then to above 1260 resistance suggests a next target to the 1275 area; fairly major resistance/selling interest expected next to be found at 1295-1300.

Support is highlighted at 1240 near the 21-day moving average; pivotal next lower support is anticipated around 1220. Buy in this area if you can.


New Option Plays

Global Economic Uncertainties

by James Brown

Click here to email James Brown


Tiffany & Co. - TIF - close: 82.93 change: -3.44

Stop Loss: 85.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.5 million
Entry on March -- at $---.--
Listed on March 21, 2015
Time Frame: Exit PRIOR to May option expiration
New Positions: Yes, see below

Company Description

Why We Like It:
The soaring U.S. dollar has turned into major headwinds for this luxury retailer. Half of TIF's revenues are outside the United States. Meanwhile 25% of its sales inside the U.S. come from tourists. The dollar's rally to multi-year highs has crushed both. The dollar's rise makes TIF's products more expensive in both scenarios. Their flagship store on Fifth avenue depends on tourists for 40% of their sales.

This company has been around for almost 180 years. The founder, Charles Lewis Tiffany, opened the first store in downtown Manhattan back in 1837. According to the company, "Tiffany & Co. is a holding company that operates through its subsidiary companies (the"Company"). The Company's principal subsidiary, Tiffany and Company, is a jeweler and specialty retailer, whose merchandise offerings include an extensive selection of jewelry (92% of net sales in fiscal 2013), as well as timepieces, sterling silverware, china, crystal, stationery, fragrances and accessories. Through Tiffany and Company and other subsidiaries,the Company is engaged in product design, manufacturing and retailing activities. Today, more than 290 TIFFANY & CO. stores serve customers around the world."

Shares of TIF have come a long way from their bear-market lows below $17.00 a share back in 2009. In November 2014 the stock hit all-time highs near $110.00 following its Q3 earnings report. It was something of a surprise to see the rally considering TIF's earnings and revenues both missed Wall Street estimates. However, gross margins improved and the company was expecting a strong holiday season.

Unfortunately for shareholders holiday sales were not that strong. Shares of TIF collapsed on January 12th, 2015 when management lowered their 2015 guidance significantly below analysts' estimates. At the time TIF lowered their 2015 guidance from $4.20-4.30 a share down to $4.15-4.20 compared to Wall Street's estimate of $4.35.

TIF just reported their Q4 results on Friday, March 20th, before the opening bell. Earnings improved from $1.47 a year ago to $1.51, which was in-line with the market's lowered estimate. Revenues declined -1.0% to $1.28 billion versus analysts' estimates of $1.3 billion. It was the first time in five years that revenues declined. The weakness was led by -1% drop in sales for the Americas region with comparable sales down -2%. While the Japan region reported sales down -13% and comparable sales falling -18%.

TIF's management warned that they expect the strong U.S. dollar to impact sales for the rest of the year. They're forecasting sales to drop -10% in the first quarter with earnings down -30% to $0.68 a share versus analysts' estimates of $0.91. They expect the decline to continue in the second quarter but at a more "modest" pace. They are painting a rosy picture for double-digit profit increases in the second half of this year but that might just be wishful thinking.

Management has adjusted their fiscal 2016 earnings to be $4.20 per share compared to Wall Street's $4.44. That's zero earnings growth from last year's $4.20 per (diluted) share.

TIF's President Frederic Cumenal commented on his company's results, "By now it should be clear that Tiffany is facing challenges from global economic uncertainties, especially from the effect of a strong U.S. dollar on the translation of foreign-denominated sales into dollars and on foreign tourist spending in the U.S. As a result, we have adopted a cautious approach in our planning for the coming year."

Technically shares are in a new bear market and just closed at new 52-week lows. The point & figure chart is bearish and forecasting at $75.00 target. Tonight we are suggesting at trigger to buy puts at $82.65.

Trigger @ $82.65

- Suggested Positions -

Buy the MAY $80 PUT (TIF150515P80) current ask $1.68
option price is a current quote and not a suggested entry price.

Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open, up or down, more than $1.00 from our suggested entry point.

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

Daily Chart:

Weekly Chart:

In Play Updates and Reviews

Stocks Snap Three-Week Decline

by James Brown

Click here to email James Brown

Editor's Note:

The S&P 500 has ended a three-week drop with big bounce last week. It has been a bumpy road higher. The market has been alternating between big up days followed by a down day. We haven't seen two up days in a row since February.

The S&P 500 is nearing potential resistance at its recent peak near 2,120. Tonight we are raising several stop losses just in case the market reverses lower.

Current Portfolio:

CALL Play Updates

Aetna Inc. - AET - close: 108.63 change: +0.32

Stop Loss: 107.45
Target(s): To Be Determined
Current Option Gain/Loss: +227.2%
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

03/21/15: Another day, another new high for shares of AET. The stock is up sharply in the last week and a half. Actually AET is up seven weeks in a row. The $110 level could be resistance.

More conservative traders may want to take some money off the table right here. We are going to keep the play open but raise the stop loss to $107.45.

I am not suggesting new positions at this time.

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

03/21/15 new stop @ 107.45
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: 73.81 change: +1.33

Stop Loss: 71.65
Target(s): To Be Determined
Current Option Gain/Loss: +13.2%
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

03/21/15: The rally has resumed in shares of CAVM. Actually it never stopped it just slowed down a bit in mid-March. Shares are actually up six weeks in a row. Last week shares were given an $80 price target but an analyst. CAVM has broken out from the $68-72 trading range.

Tonight we are moving the stop loss up to $71.65.

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

03/21/15 new stop @ 71.65
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: 155.21 change: +0.37

Stop Loss: 149.85
Target(s): To Be Determined
Current Option Gain/Loss: -44.7%
Average Daily Volume = 320 thousand
Entry on March 20 at $156.57
Listed on March 17, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

03/21/15: Ouch! Our CBRL trade is open but the gap higher on Friday morning hurt us. Shares of CBRL gapped open at $156.57 and then spiked toward $160.00 before paring its gains. The jump at the opening bell appears to be a reaction to earnings form rival Darden (DRI). Before the opening bell DRI reported stronger than expected earnings results and raised their guidance. If DRI's results are a reflection of industry-wide strength then this is bullish for CBRL too.

Sadly, the big gap higher on Friday morning also pushed our call option to gap higher (a lot) and now we are saddled with an extremely high entry price. If you're looking for a new entry point I'd wait for a rally past $156.00, which appeared to be resistance midday on Friday.

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.

- Suggested Positions -

Long JUN $160 CALL (CBRL150619C160) entry $7.05

03/20/15 triggered on gap open at $156.57, suggested entry was $155.55
Option Format: symbol-year-month-day-call-strike


Salesforce.com, Inc. - CRM - close: 67.69 change: -1.19

Stop Loss: 65.45
Target(s): To Be Determined
Current Option Gain/Loss: -7.7%
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

03/21/15: We need to be careful with our CRM trade. I have been warning readers that the $69-70 zone could be resistance and we should expect a pullback. Friday saw CRM spiked toward $70.00 and reverse lower. Unfortunately Friday's move has generated a bearish engulfing candlestick reversal pattern. Now these patterns need to see confirmation but it's still a warning signal.

We are going to try and reduce our risk by raising the stop loss to $65.45. The $66.00 level should offer some short-term support. No new positions at this time.

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

03/21/15 new stop @ 65.45
03/20/15 CRM reversed at $70.00 resistance and generated a bearish engulfing candlestick reversal pattern.
03/17/15 triggered @ 66.75
Option Format: symbol-year-month-day-call-strike


Lennox International - LII - close: 109.77 change: +0.31

Stop Loss: 106.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 417 thousand
Entry on March -- at $---.--
Listed on March 19, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

03/21/15: The rally in shares of LII continued on Friday but shares struggled to breakout past resistance at $110.00. Our suggested entry point to buy calls is at $110.25.

Trade Description: March 19, 2015:
LII has been in business for over one hundred years. Lennox Intl. is part of the industrial goods sector. They offer residential cooling and heating products as well as commercial cooling and heating equipment. They are considered a global leader in the heating, air conditioning, and refrigeration markets. The residential business generates just over half of their annual sales.

The last couple of quarters have seen steady growth for LII. You can see the big gap higher in the stock price back in October 2014. That was a reaction to its Q3 earnings results. Their most recent report was February 2nd, 2015 where LII delivered its Q4 results.

Analysts were expecting a profit of $0.99 a share on revenues of $790 million. LII reported earnings per shares grew +32% to $1.02. Revenues were up +8.4% to $812.8 million, led by +13% sales growth in their residential segment.

Chairman and CEO Todd Bluedorn commented on his company's results,

"2014 was a year of strong growth and record profitability for Lennox International, led by 10% revenue growth at constant currency and 31% profit growth in our Residential business. In the fourth quarter, the company's momentum continued, with revenue up 10% at constant currency and total segment profit up 24%. Growth in the quarter continued to be led by Residential, with revenue up 14% at constant currency and profit up 57% from the prior-year quarter. In Commercial, revenue rose 8% at constant currency. Commercial profit was essentially flat with the prior-year quarter on headwinds from customer mix, foreign exchange, and investments related to our entrance in the VRF market. In Refrigeration, revenue was up 8% at constant currency. As expected, Refrigeration profit was down from the prior-year quarter by 45% due to the repeal of the carbon tax in Australia, North America product mix, and a negative impact from foreign exchange. We continue to expect Refrigeration revenue, margin and profit to be up in 2015 on continued growth in North America and improvement in Australia in the second half of the year. For the company overall in 2015, we expect another strong year of growth and record profitability, with strong cash generation for investments to drive growth as well as to return cash to shareholders."
Last year LII earnings rose more than +20% to $4.23 a share. They are forecasting $5.20-5.60 per shares in 2015 (+22.9% to +32.3%) versus Wall Street estimates of $5.42 per share.

Shares have been a steady performer the last few months with a bullish trend of higher lows and higher highs. The point & figure chart is bullish with a $140 target. Today shares of LII are hovering just below round-number resistance at $110. We are suggesting a trigger to buy calls at $110.25.

Trigger @ $110.25

- Suggested Positions -

Buy the JUN $115 CALL (LII150619C115)

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


Mallinckrodt - MNK - close: 132.47 change: +1.26

Stop Loss: 128.65
Target(s): To Be Determined
Current Option Gain/Loss: +54.7%
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

03/21/15: It was a big week for MNK thanks to Monday's and Tuesday's gains. MNK is now up three weeks in a row and up nine out of the last eleven weeks.

Shares have spent the last three days consolidating sideways in the $130.00-133.50 range. As long as it holds above $130 we should be okay. Tonight we're adjusting the stop loss to $128.65. 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

03/21/15 new stop @ 128.65
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


Northrop Grumman Corp. - NOC - close: 162.62 change: +0.10

Stop Loss: 158.45
Target(s): To Be Determined
Current Option Gain/Loss: -24.4%
Average Daily Volume = 1.4 million
Entry on March 19 at $163.50
Listed on March 18, 2015
Time Frame: Exit prior to May option expiration
New Positions: see below

03/21/15: Deutsche Bank raised their price target on four defense stocks on Friday. One of them was NOC. DB raised their target from $175 to $179. Unfortunately the news really didn't do much for shares of NOC. The stock's upward momentum has been lackluster the last couple of days. Odds are good that if NOC breaks below $162.00 it will retest the $160 level and the bottom of its bullish channel.

Trade Description: March 18, 2015:
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.

- Suggested Positions -

Long MAY $170 CALL (NOC150515C170) entry $2.25

03/19/15 triggered @ 163.50
Option Format: symbol-year-month-day-call-strike


NXP Semiconductors - NXPI - close: 108.03 change: +2.71

Stop Loss: 104.45
Target(s): To Be Determined
Current Option Gain/Loss: +662.7%
Average Daily Volume = 3.7 million
Entry on February 12 at $84.15
Listed on February 11, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

03/21/15: NXPI's ability to defy gravity continues to impress. Shares levitated up another +2.5% on Friday. Shares are definitely overbought here but that doesn't mean it can't go higher.

More conservative traders may want to take some money off the table. We're going to let the play run and just move the stop loss up to $104.45. Of course that means a big chunk of our option value would vanish if NXPI fell low enough to hit our stop.

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

03/21/15 new stop @ 104.45
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: 81.43 change: +0.42

Stop Loss: 79.65
Target(s): To Be Determined
Current Option Gain/Loss: +44.3%
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

03/21/15: UA was a great performer last week. Shares are up five days in a row. Friday's better than expected earnings out Thursday night helped push UA to new highs on Friday morning. UA does look a little bit short-term overbought here. I would expect a dip.

Hopefully the $80.00 level will hold as new support. If not then UA will likely hit our new stop loss at $79.65. I am not suggesting new positions.

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

03/21/15 new stop @ 79.65
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: 80.19 change: +1.16

Stop Loss: 81.05
Target(s): To Be Determined
Current Option Gain/Loss: -49.8%
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

03/21/15: We are throwing in the towel on our BG trade. The stock is not performing as expected. Shares have not seen any follow through lower after breaking down below support near $80.00. Instead BG has spent the last several days consolidating sideways into what might be a new short-term bottom.

We are suggesting an immediate exit on Monday morning.

- Suggested Positions -

Long APR $80 PUT (BG150417P80) entry $2.49

03/21/15 prepare to exit on Monday morning
03/18/15 triggered @ 78.45
Option Format: symbol-year-month-day-call-strike


Deckers Outdoor - DECK - close: 72.06 change: +0.17

Stop Loss: 73.05
Target(s): To Be Determined
Current Option Gain/Loss: -50.0%
Average Daily Volume = 922 thousand
Entry on March 10 at $71.46
Listed on March 09, 2015
Time Frame: Exit prior to April option expiration
New Positions: see below

03/21/15: After falling four weeks in a row DECK bounced off the $70.00 level to post a weekly gain. The overall trend still looks bearish. However, if this oversold bounce continues on Monday we could see DECK hit our stop at $73.05.

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