Option Investor

Daily Newsletter, Monday, 3/23/2015

Table of Contents

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

Market Wrap

Waiting Waiting Waiting

by Thomas Hughes

Click here to email Thomas Hughes
Trading was quiet as the market sits back to wait for more data.


The market was rather quiet today. There was not much in the way of news to grab attention and not much in the way of market movement either, until the last ten minutes of the day. The major indices tread water within tight ranges for most of the day until then, then they sank to the day's low and below last weeks closing prices.

The international markets were just as mixed. Asian indices reached new 15 year highs in the wake of the Fed driven rally of last week. European indices fell as Greece once again meets with Germany over the state of its finances while a round of elections throughout the region have leftists, ultra-right-wingers and socialists back in the spotlight.

Market Statistics

Early indications had the indices opening mildly lower but futures trading gained some strength before the open. There were no economic releases or major earnings reports before the bell so the pre-market session had little to drive it. When the market opened the indices moved slightly higher until hitting the intraday high around 10:45. From that point forward the indices moved sideways ranging between break even and the early high until late afternoon. Then, just before the closing bell, a quick round of selling sent the indices to the lows of the day and into negative territory. The sell-off was a bit of a surprise as there was no obvious reason for it.

Economic Calendar

The Economy

Moody's Survey Of Business Confidence surged 2.3 points to hit a new all time high. This is following new highs set earlier this year and a little wavering in sentiment during the winter months. According to Mark Zandi, Moody's Chief Economist, there have been noticeable improvements around the globe contributing to this week's high level. In his summary he says...

“Business confidence has never been stronger in the history of the survey. Sentiment is strong in the U.S., but it has also improved in recent weeks across the rest of the globe. Businesses are especially upbeat about investment and hiring. Demand for office space is also robust. And pricing is strong, despite heightened deflation concerns in much of the developed world”

Existing home sales was released at 10AM with little impact on the market. Sales rose by 1.2% in February to an annualized rate of 4.88 million. This is a good sign and slightly above consensus which estimated a rate between 470-490 million. On a year over year basis sales are trending 4.7% higher than last year at this time and have been trending higher for the past 5 months. Low inventory levels are leading to a surge in prices that may hinder buying until more homes come on the market and/or new homes can be built. Lawrence Yun, NAR chief economist, says …

"although February sales showed modest improvement, there’s been some stagnation in the market in recent months...Insufficient supply appears to be hampering prospective buyers in several areas of the country and is hiking prices to near unsuitable levels,”

Inventories of new homes rose by 1.6% in January but are a half percent below last years levels. According to last week's report from the NAHB we can assume increased builder activity over the next few months and into the end of the year. There are only 5 more releases due this week aside from the weekly jobless claims. These include New Home Sales, CPI, Michigan Sentiment, Durable Goods and the 3rd estimate for 4th quarter GDP. The GDP number is likely to get a lot of press time but I think it will not be as important as other data indicating the state of the current quarter. Next week is the first week of April, no fooling, which means another round of monthly auto sales, ISM, construction spending, jobs data and unemployment.

According to data from FactSet Q4 2014 earnings growth stands at 3.7%. Looking forward to the first quarter of 2015 there is still expected to be earnings decline, -4.8% at this time. This is down from the +4% projected at the beginning of the year. If this happens it will be the first quarter of decline since Q3 2012. The decline is being lead by the energy sector as expected. Out of the 500 S&P companies 83 have issued negative guidance for the quarter.

Looking at the sector breakdown it still looks like the market, ex-energy, is going to be OK. Current projections have the 9 sector blended rate at just over +1.0% and if history repeats itself we can expect that to go up by at least 2 or 3% before the season is finished. So far 10 companies have reported and of those 9 have beaten on earnings and 5 have beaten on sales so for now that assumption looks sound. The official start is still a few weeks away however, Alcoa is scheduled for April 8th.

The Oil Index

Oil prices held steady just above $46.50 in what may have been the least volatile day of energy trading in many many weeks. This was a little surprising in light of two new developments out of Saudi Arabia. First, in response to last weeks call from within for OPEC to support prices the Saudi oil minister said OPEC would not do such a thing. Second, the latest reports have Saudi oil production near record levels which should add further pressure to prices.

The Oil Index traded down today, losing over 1%. The index opened above the short term 30 day moving average but was not able to hold the level. Today's move resulted in a net loss and created a black candle but was able set a new two week high in the process. The indicators are now both bullish, MACD making the zero line crossover today, so it looks like it could keep drifting higher. However, there is resistance in the range between 1,350 and 1,400 and two previous areas of support/resistance. It looks like the index is bouncing higher in line with the long term trend, how high it gets is yet to be seen.

The Gold Index

Gold gained about a quarter percent today extending its Fed driven rally. Regardless of the reason, weakening dollar or long term outlook, this rally confirms support at $1150 and could take the metal up to $1200 or higher before meeting resistance. This move may be tied to the dollar so keeping an eye on the Dollar Index isn't a bad idea. If it(the Dollar Index) meets support and/or is able to bounce back then the gold rally could falter.

The gold miners ETF GDX moved higher as well, gaining nearly 2% in today's action. The miners are moving higher in-line with their underlying commodity and look like they are going higher. Today the ETF moved above the short term moving average and is accompanied by bullish indicators. The weak signal that had been shaping up over the past week has gotten stronger; MACD has made a zero line crossover to confirm the bullish crossover already seen on the stochastic. My current target is at or above my resistance line at $20.50 provided it can close the gap created at the beginning of the month.

In The News, Story Stocks and Earnings

The Dollar Index continued to slide from the peak hit last weak just ahead of the FOMC meeting. The index lost -0.90% and moved down to rest on the 30 day moving average. The indicators are bearish and gaining strength which is pointing to lower prices but until the moving average is broken it is support. Looking at two of the biggest components of the index, the Euro and the Yen, it appears as if they are both strengthening within their respective ranges and have some room left to run. If so the Dollar Index could easily break support and move down to test my next target for support just below $95.

The retail sector was hot again today, the Reatail Spyder XRT making a new high. Within the sector names like Target, TJ Maxx and Kohls were making new highs as well. Today's price action is confirmed by the indicators which are both bullish and on the rise. Neither are very high in their ranges so it looks as if it could continue to move higher into the near term.

Lululemon is scheduled to report earnings later this week. The athletic fashion company is expected to earn $0.73 per share, nearly double the previous quarter. Today the apparel maker announced a huge sale with the tweet “wemadetoomuch” and caused a flurry of concern the company is floundering. Analysts are now speculating the company is going to report weak first quarter results, which for them will include the 2014 Christmas holiday season, and weak 2015 guidance. Shares of the stock fell more than 5% on the news but regained much of the loss before the close of trading.

ConAgra Foods is another name scheduled to report later in the week. The national supplier of meat and value added products is expected to earn $0.53 per share, slightly below the $0.61 earned in the previous quarter. Today the stock gained just over a half percent in a move that lifted share price above the short term moving average only to have it halted by a long term resistance level.

The Indices

The indices didn't do very much today, even with the late day sell-off. They tread water just above break even for most of the day and even at the close were only mildly in negative territory, except for one. Today's move was led by the Dow Jones Transportation Index which carried the extra burden of profit warnings from the rail sector. Kansas City Southern warned that first quarter and full year earnings were going to be impacted by weak revenues related to energy. What I read said that overall earnings growth would slow, not end, due to these problems. The announcement sent Kansas City Southern down by roughly -8% and the rest of rail carriers, and the DJT, came down with it.

Today's drop cost the transports nearly -2% and left it sitting at the low of the day. The move has taken the index back below the short term moving average and to the mid-point of the 5 month trading range. The indicators are mixed with bias to the upside; MACD is making a small bullish peak but is receding from the peak, stochastic %K is moving lower while %D is moving higher. This could be indicating a short pause or setting us up for a bullish signal in line with the underlying trend but until that move develops this index looks range bound.

The next biggest decliner today was the NASDAQ Composite with a loss of -0.31%. The tech heavy index lost just over 15 points but is still sitting above the 5,000 mark. This level may prove to be support now that it has moved above it again but that is not certain. The indicators continue to move higher despite today's drop and suggest that the index will move higher as well; MACD has now crossed the zero line and is in confirmation of stochastic and higher prices. There could be some weakness over the next few days but the trend remains up so any shown would be potential entry points in my opinion. The only resistance is the current high and then the all time high at 5,048.

The S&P 500 made the third largest decline of the day, -0.17%. The broad market fell just over 3.5 points after moving to within as many points of the all time high. Today's action created a small bodied candle that looks like one more in a series of small candles that have preceded the past four up-days. The indicators are also bullish and in support of this analysis however, the tiny size of the MACD peak, %K flattening in the upper signal zone and resistance just above the current level are reason to be cautious of any bullish moves until the index can break to new highs. The trend is up, the movement is up and the indicators are pointing higher so I think a test of resistance is very likely in the least.

The Dow Jones Industrial Average made the smallest decline today, only -0.06%, after reaching the highest peak, near +0.6%. The blue chips came within 90 points of the all-time high but fell under the pressure of late afternoon selling. Today's move and that of the last two weeks has been very similar to the S&P 500; both have been ratcheting higher with strong up days followed by short down days. The Dow, however, looks more like an index that could be running out of steam, at least in the near term, as the rallies have been noticeably shorter each time. This may be nothing but with resistance just above the current level caution is warranted. The indicators are bullish so a test of the high looks likely but they aren't very strong so beyond that is yet to be seen. A pull back from this level, if it were to come, would find support along the 18,000 level and the short term moving average only a few points below that.

The indices are trending higher but the move is not definitive. The indicators are weak, technical resistance is just above current levels and there is some important data on the horizon which could keep the rally in check simply because it is prudent to wait and see. This week's data might be a market mover but I don't think so, not with the jobs bundle and other monthly reports due out next week so I don't think we'll see a break out until then, if at all.

Adding to the haze clouding my crystal ball is earnings season. Yes I know we just wrapped one up but the next one starts “officially” in less than 3 weeks. I remain bullish. So long as the data shows improvements, 1st quarter earnings aren't any worse than expected and outlook for the rest of the year remains upbeat I think the market will stay that way too. Sell-offs, pull-backs and corrections remain buying opportunities.

Until then, remember the trend!

Thomas Hughes

New Option Plays

Underperforming Its Peers

by James Brown

Click here to email James Brown


Alkermes plc - ALKS - close: 65.22 change: -1.98

Stop Loss: 69.05
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.26 million
Entry on March -- at $---.--
Listed on March 23, 2015
Time Frame: exit PRIOR to May option expiration
New Positions: Yes, see below

Company Description

Why We Like It:
Biotech stocks have been some of the market's best performers, especially off the October 2014 lows. The group may have gotten ahead of itself with significant gains in recent weeks. The last couple of days the biotech ETFs are flashing what might signal a potential top. Meanwhile one stock that has been underperforming its peers is ALKS.

You might not be familiar with ALKS. The company is part of the healthcare sector. According to their marketing materials, "Alkermes plc is a fully integrated, global biopharmaceutical company developing innovative medicines for the treatment of central nervous system (CNS) diseases. The company has a diversified commercial product portfolio and a substantial clinical pipeline of product candidates for chronic diseases that include schizophrenia, depression, addiction and multiple sclerosis. Headquartered in Dublin, Ireland, Alkermes plc has an R&D center in Waltham, Massachusetts; a research and manufacturing facility in Athlone, Ireland; and manufacturing facilities in Gainesville, Georgia and Wilmington, Ohio."

The company's most recent earnings report was February 24th. They beat expectations on both the top and bottom line. Unfortunate for shareholders management lowered their 2015 revenue guidance. Since its report shares have broken down. The stock has seen a couple of analyst downgrades (or lowered price targets). The point & figure chart has turned bearish and is currently forecasting at $54.00 target.

You can see the gap down on the earnings news. ALKS struggled to rebound and when it did traders immediately sold the stock at resistance. Now it's on the verge of breaking down bellow support near $65.00. The $60.00 level is potential support but there is a chance shares drop toward their 200-dma closer to $55. Tonight we are suggesting a trigger to buy puts at $64.90.

I want to remind readers that biotech stocks can be volatile. We should consider this a more aggressive, higher-risk trade.

Trigger @ $64.90

- Suggested Positions -

Buy the MAY $60 PUT (ALKS150515P60) current ask $2.30
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 more than $1.00 past our suggested entry point.

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

Daily Chart:

In Play Updates and Reviews

Stocks Fade Lower On Monday

by James Brown

Click here to email James Brown

Editor's Note:

Last week we saw U.S. dollar weakness equal strength in equities. Today's weakness in the dollar failed to boost domestic equities. Overall declines were pretty mild for stocks. Commodities continued to bounce on the dollar's decline.

Our plan was to exit the BG trade this morning. DECK hit our stop loss. TIF hit our entry point and then reversed to hit our stop loss.

Current Portfolio:

CALL Play Updates

Aetna Inc. - AET - close: 109.26 change: +0.63

Stop Loss: 107.45
Target(s): To Be Determined
Current Option Gain/Loss: +245.6%
Average Daily Volume = 2.2 million
Entry on March 04 at $101.15
Listed on March 02, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

03/23/15: AET spent the morning in rally mode but shares ran out of steam at round-number resistance near $110.00 (which is what we suspected might happen).

More conservative traders may want to take some money off the table right here. 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: 73.11 change: -0.70

Stop Loss: 71.65
Target(s): To Be Determined
Current Option Gain/Loss: +15.8%
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

03/23/15: Our call option ticked higher today in spite of CAVM's -0.9% pullback. Technically today's decline is actually a bearish engulfing candlestick reversal pattern. I would expect a dip toward $71.75-72.00. If shares don't bounce near $72 then CAVM will hit our stop loss.

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: +0.00

Stop Loss: 149.85
Target(s): To Be Determined
Current Option Gain/Loss: -41.8%
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

03/23/15: CBRL produced a small spike lower at the open but shares bounced at $153.40 (near its 10-dma). The stock closed unchanged on the session. Readers may want to see a rally past today's intraday high ($156.29) before initiating new positions.

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: 67.66 change: -0.03

Stop Loss: 66.45
Target(s): To Be Determined
Current Option Gain/Loss: -13.3%
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

03/23/15: CRM did not see a lot of follow through on Friday's bearish reversal pattern. That's the good news. We are going to turn even more defensive and raise our stop loss up to $66.45. Personally, I would be tempted to leave the stop below $66.00, which looks like 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

03/23/15 new stop @ 66.45
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: 109.95 change: +0.18

Stop Loss: 106.75
Target(s): To Be Determined
Current Option Gain/Loss: -23.5%
Average Daily Volume = 417 thousand
Entry on March 23 at $110.96
Listed on March 19, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

03/23/15: Shares of LII were upgraded this morning. The stock reacted by gapping open higher at $110.96. That was above our suggested entry point at $110.25 so our trade opened this morning. If you missed it then LII gave you a better entry point with a dip back toward $110.

Tonight, after studying the intraday chart, readers might want to wait for a rally past $110.65 before initiating new positions.

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.

- Suggested Positions -

Long JUN $115 CALL (LII150619C115) entry $2.55

03/23/15 triggered on gap open at $110.96, suggested entry was $110.25
Option Format: symbol-year-month-day-call-strike

Mallinckrodt - MNK - close: 130.55 change: -1.92

Stop Loss: 128.65
Target(s): To Be Determined
Current Option Gain/Loss: +29.3%
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

03/23/15: Some of the healthcare and biotech names hit some profit taking today. MNK shot lower at the open but stabilized near the $130.00 area. I'm not suggesting 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: 162.72 change: +0.10

Stop Loss: 158.45
Target(s): To Be Determined
Current Option Gain/Loss: -26.7%
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

03/23/15: NOC is still quietly consolidating sideways. Shares have been churning inside the $162.00-164.00 zone the last few days. Depending on your style you could look to buy a dip near $160.00 or wait for a breakout past $164.00 as a new entry point.

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: 104.89 change: -3.14

Stop Loss: 104.45
Target(s): To Be Determined
Current Option Gain/Loss: +531.4%
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

03/23/15: NXPI experienced its worst one-day drop in weeks with a -2.9% decline toward short-term support near $105.00. If this weakness continues tomorrow we could see NXPI hit our stop at $104.45.

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: 81.84 change: +0.41

Stop Loss: 79.65
Target(s): To Be Determined
Current Option Gain/Loss: +46.7%
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

03/23/15: Shares of UA garnered more bullish analyst comments today plus a new $90 price target. That helped keep the rally going and UA is up six days in a row.

UA looks 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

Currently we do not have any active put trades.


Bunge Limited - BG - close: 81.04 change: +0.85

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

03/23/15: BG was not cooperating so we announced in the prior newsletter to exit this trade on Monday morning. BG was kind enough to gap down at $79.76 before rising to a new two-week high.

- Suggested Positions -

APR $80 PUT (BG150417P80) entry $2.49 exit $1.25 (-49.8%)

03/23/15 planned exit this morning
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: 72.14 change: +0.08

Stop Loss: 73.05
Target(s): To Be Determined
Current Option Gain/Loss: -64.6%
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

03/23/15: DECK spent the first half of Monday in rally mode. Shares traded above the 20-dma and broke its short-term bearish trend of lower highs. The stock hit our stop loss at $73.05 on its way toward $74.00. It's interesting that DECK gave back nearly all of its gains and today's session actually looks bearish but we have been stopped out.

- Suggested Positions -

APR $70 PUT (DECK150417P70) entry $2.40 exit $0.85 (-64.6%)

03/23/15 stopped out
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


Tiffany & Co. - TIF - close: 87.74 change: +4.81

Stop Loss: 85.25
Target(s): To Be Determined
Current Option Gain/Loss: -31.6%
Average Daily Volume = 1.5 million
Entry on March 23 at $82.65
Listed on March 21, 2015
Time Frame: Exit PRIOR to May option expiration
New Positions: see below

03/23/15: Two Wall Street analyst firms downgraded their price targets on TIF today. However, investors chose to ignore these moves. Instead traders focused on Bank of America and its analyst who reiterated their "buy" rating on TIF and their $105 price target.

Shares of TIF soared on this positive endorsement and surged +5.8% before stalling at its 50-dma. Why the stock had to dip to a new low and hit our trigger at $82.65 first, before the rebound, is a great question. Sadly our trade was triggered early this morning and we were quickly stopped out at $85.25.

- Suggested Positions -

MAY $80 PUT (TIF150515P80) entry $1.55 exit $1.06 (-31.6%)

03/23/15 stopped out at $85.25
03/23/15 triggered @ 82.65 early this morning
Option Format: symbol-year-month-day-call-strike