Option Investor

Daily Newsletter, Tuesday, 3/24/2015

Table of Contents

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

Market Wrap

Right on Schedule

by Jim Brown

Click here to email Jim Brown

The week after March quadruple expiration is normally negative and it appears the weakness arrived on schedule. There is no specific headline driving the decline this week but the economic news did provide some negative bias. Volume was light but it did pickup as the day progressed.

Market Statistics

There was no urgency in the selling and it appeared to be continued settlements from option expiration. However, this is the period in March where fund managers take profits from Q1 and restructure their portfolios and cash reserves for the summer doldrums ahead.

The morning economics started off good with the Consumer Price Index actually rising for a change. The headline number for February rose +0.2% compared to a -0.7% decline in January. This was the first increase since October. The core CPI also rose +0.2% after a +0.2% gain in the prior month. The Fed should have been thrilled with these numbers but one month does not make a trend.

The rebound in energy prices in February was responsible for most of the gains. The energy CPI declined -9.7% in January and rebounded +1.0% in February. I am sure everyone remembers the brief flirtation with $2 gasoline in January that quickly rebounded to nearly $2.50 in February. Gasoline prices never go down as fast as they go up. Fuel oil prices rose +1.9% in February after a -9.9% decline in January. Be glad heating season is about over.

The core CPI rose +0.2% mostly because of a rise in rents, which rose +0.3%. Prices for cars and trucks also rose by +1.0% ahead of the spring selling season.

New home sales for February rose +7.8% to an annualized rate of 539,000 from 481,000 in January. This is the third consecutive monthly gain despite the severe winter weather. Since February 2014 new home sales have increased +24.8%. Sales in the Northeast rose from 17,000 to 43,000 and the South rose from 287,000 to 316,000. However, sales in the Midwest declined from 62,000 to 54,000 and in the West from 134,000 to 126,000. That was a -12.9% decline in the Midwest but a +153% rise in the Northeast. Apparently everyone in the Northeast that was snowed in for January got cabin fever and went house shopping in February. The supply of homes on the market fell from 5.1 months to 4.7 months and the lowest inventory since June 2013.

The bad news for the day came from the Richmond Fed Manufacturing Survey for March. The headline number fell from zero to -8 and well below the cycle high at 20 in October. This is the lowest level of activity since July 2013 when the headline number fell to -11.

All the major components declined except for employment. The inventory to order gap is plunging especially hard to -38. Both the order components are deeply into negative territory. The sharp decline in new orders and the rapid processing of the order backlogs suggests the April numbers are going to be even worse.

The strong dollar is making it very tough for U.S. companies to export overseas and the lack of new orders bear out this fact.

The headline number on the corresponding services survey declined from 18 to 12.

Manufacturing Components

The economic calendar for Wednesday has nothing that should move the markets. The Durable Goods report is normally ignored by traders. The early morning speech by Chicago Fed President Charles Evans could have the most influence. Evans is one of the doves on the FOMC and wants to see unemployment below 5% before raising rates. He will probably try to counter the hawkish comments by James Bullard and Richard Fisher.

Early Tuesday St Louis Fed President James Bullard warned that investors are at risk for an interest rate surprise unless market expectations are revised to correspond with the outlook of policy makers. He said market expectations were currently different than the Fed's stated rate path. He said if expectations are not corrected and the Fed follows through with its rate hike plans the market could react violently. Bullard said the "taper tantrum" came from a misalignment of market expectations and the market was setting up for another tantrum when the Fed announces its first rate hike, which could come as early as June. Bullard's comments could have been a cloud over the market in the morning.

Another cloud hovering over the market was the Chinese Purchasing Managers Index, which came in at 49.2. This is an eleven month low and well below the consensus estimates of 50.5. China's stated growth goal is a 7% GDP in 2015 but even high ranking officials claim it will be tough to hit that number. The real time forecasts are now showing a number in the range of 6.5% growth and a 14 year low. The PMI is just one more data point in those declining GDP estimates. With China's economy sliding it means the government is likely to devalue the currency again with a new stimulus program and that will make it harder for U.S. companies to export their goods to China.

George Soros made headlines claiming that Greece is in a lose-lose position with only a 50:50 chance of staying in the eurozone. He also warned that Greece could "go down the drain" because of current fiscal problems with no obvious way out.

News from the U.K. was also weighing on European markets as Prime Minister David Cameron said he would not accept a third term. Cameron is well liked and by saying he would not accept a third term before he has even won a second term caused consternation in the U.K. on how the May elections might turn out. He basically said, don't vote for me, vote for my team. Unfortunately a team without a leader is not a winning proposition.

In stock news Sonus Networks (SONS) declined -34% after the company slashed guidance and said it was looking for ways to cut costs amid shrinking revenue. For the current quarter the company is now projecting a loss of 29-34 cents and well below its prior guidance for a profit of 3 cents. Analyst consensus estimates were also for 3 cents. The company guided for revenue of $47-$50 million compared to the prior forecast of $74 million and analyst estimates for $71 million. Revenue growth has declined in the last four quarters.

Sonus said it no longer expects to receive certain orders this quarter that had previously been expected. Sonus is finding it tough to compete with Cisco (CSCO), Juniper (JNPR) and Brocade Communications (BRCD) in packet-based networking. Sonus had a reverse 1:5 split back in January to inflate its stock price. Unfortunately it may need another one soon.

The largest producer in the Bakken, Whiting Petroleum (WLL) put itself up for sale a couple weeks ago after ballooning its debt to more than $6 billion with the acquisition of Kodiak Oil & Gas in 2014. With oil prices cut in half those debt payments are choking Whiting. After news broke they were for sale the shareholders rose up in anger because the share price had declined from more than $90 to less than $30 over the last year. Why sell at the bottom when the potential for a premium is very small?

Whiting then revised its statements saying it was going to sell some non-core assets like pipelines, gathering systems and processing plants. The bids were supposed to close by last Friday. There was no news and investors began to get nervous.

Monday afternoon the news broke that Whiting was going to sell up to 40 million shares in a public offering in order to pay down the debt. They were also going to sell $1.75 billion in new convertible senior debt due in 2020 and 2023. Shares were crushed at the open today. Maybe I am dense but if you are going to sell shares to pay down debt then why are they selling another $1.75 billion in new debt. It seems counter intuitive. I am sure they are paying off short term debt and selling long term to postpone the pain until oil prices rebound. The total of the two offerings could generate up to $3 billion and Whiting has more than $6 billion in existing debt.

Things are getting tougher in the oil patch. American Eagle Energy, located in Colorado, missed the first payment this month on $175 million in bonds it sold in August 2014. The company has now asked creditors to enter into confidential debt-restructuring talks. The company struck fear into debt holders by mentioning a potential bankruptcy as an option in the restructuring. When the company missed the $9.8 million interest payment it immediately hired restructuring advisers.

Quicksilver Resources (KWKAQ) gave up the fight and filed for Chapter 11 bankruptcy on March 17th after intentionally skipping a $13.6 million interest payment on February 17th. Quicksilver shares have declined -98% over the last year. They are cutting 10% of their workforce while they plan for asset sales. Plans before bankruptcy failed to produce any buyers and the company said it hopes the bankruptcy will allow the company greater flexibility in future asset sales and restructuring. Quicksilver has more than $1 billion in debt. Pipeline owners with tens of millions in unpaid fees for transporting Quicksilver production said they were planning on being "active participants" in the bankruptcy. Quicksilver has more than one million acres under lease and more than 4,000 wells producing 242 million cubic feet of gas per day.

BPZ Resources (BPZRQ) also filed bankruptcy after failing to pay $62 million in interest and principal in early March on $229 million in debt. BPZ has 1.9 million acres under lease both on and offshore Peru.

In February Cal Dive International (CDVIQ), an offshore well services company, also filed bankruptcy after the oil crash terminated a lot of offshore activity. Contract delays by Pemex and cancellations by other companies forced the company to seek protection. The company is now up for sale either in parts or as a going concern.

These problems in the oil patch are going to continue as long as oil remains under $50. Many E&P companies leveraged themselves up as they raced to increase production. As long as oil was selling for $100 they could make a $20-$30 profit and life was good. Once oil fell to $50 there was no profit and that made paying those interest payments very difficult. There will be more companies in the headlines over the next several months as they either seek court protection or are acquired by those with cash on hand. By some calculations there is more than $800 billion in high yield debt in the oil patch and we have just scratched the surface with these bankruptcies.

Since Facebook (FB) announced the person to person payments last week it has been a series of new highs every day. Shares have rallied nearly 10% in the last six days. The renewed interest in Facebook has brought all the analysts out of hiding to praise the company and its future prospects. The company is getting ready to host its two-day developer conference, which starts tomorrow. This is how Facebook dispenses news to developers about new features and we will get the information second hand.

JMP Securities raised their price target to $97. Piper Jaffray upped their target to $92 from $84. Brean Securities reiterated their buy rating for multiple reasons including advertising growth, continued user expansion and the successful monetization of Instagram and WhatsApp. Facebook is reportedly in talks with publishers about posting content directly on the network. Reportedly the company is in talks with the New York Times, BuzzFeed, Huffington Post, National Geographic and others about posting their content directly into the Facebook network. Chief Product Officer, Chris Cox, said, "Reading news on a smartphone is still a very bad experience most of the time. We want to try and make that a better experience for publishers."

Twitter (TWTR) shares rallied +6% after the company struck a deal with Foursquare to allow users to include their location in tweets. Instead of saying "Dallas" the tweet would say something like "Diamond Shamrock Building, Dallas." Foursquare collects billions of user-generated check-ins and can therefore narrow down the GPS coordinates very precisely. The company has more than 65 million places catalogued and more than 85,000 developers using Foursquare data. With Twitter working with Foursquare there is always the potential for an acquisition although I think Foursquare would fit better in the Facebook portfolio. The company is valued at less than $1 billion so pocket change for Facebook.

Sonic Corp (SONC) reported adjusted earnings of 13 cents compared to estimates for 12 cents. Revenue of $126.2 million also beat estimates for $124.3 million. While that earnings beat may seem lackluster the earnings more than doubled the GAAP earnings from the year ago quarter. Even on an adjusted basis that was an 86% increase in earnings. Same store sales rose +11.5% and margins rose by +110 points. They repurchased $75 million in stock and $93 million year to date. That is 5% of their outstanding shares. They have repurchased 23% of their outstanding shares since 2012. They plan to add another 34-44 stores in 2015 and 900 stores are converting to a higher royalty rate this year. They guided for mid single digit same store sales gains for the rest of 2015 but they always guide low.


It started out as a really boring day until the selling started to pick up speed just after lunch. The Dow, S&P and Nasdaq all opened in the green but it only lasted about two hours before the buyers disappeared. It was not that there was an over abundance of sellers but there just were not enough buyers.

The only indexes ending in the green were the S&P Small Cap 600 ($SML) and the Russell Microcap Index ($RUMIC). The Russell 2000 small caps only lost -1 point so there was no material selling in any of the small cap indexes.

The Dollar Index rose only slightly after an early morning dip and the recent downtrend appears to be slowing. It was extremely overbought and the dovish Fed comments have worked to weaken it against the other global currencies.

The decline in the dollar has strengthened commodities like gold and oil but this should be only temporary. QE from the ECB will eventually further weaken the euro and lift the dollar again.

The S&P gave back -13 points to close at 2091 after coming to a dead stop at 2114 on Monday. The Dow and S&P both found solid resistance on Monday and could not crack it. The failure to even dent it caused a sudden drop as the close on Monday and that continued today.

Initial support on the S&P should be in the 2086 range and the low from the 19th. That would be followed by 2065 and 2040.

Historically the S&P gives back about -1.6% in the week after March expiration. If we count that from the 2114 resistance halt on Monday that -1.6% decline would take us back to 2080. Obviously that -1.6% is an average of the drops over the last 17 times it has occurred. Some were more, some were less. The most logical place for this decline to end is around 2065. That is just enough to satisfy the dip buyers that stocks are a bargain again. With the 100-day average at 2055 that would be a backstop to that 2065 level.

The two day drop did create a lower high compared to the February highs. That now becomes stronger resistance at 2114.

For the Dow the two day decline brings back into focus the support of the 100-day average at 17,750. If we get another day of decent selling that should become the unofficial target.

The Dow barely closed down triple digits at -104 compared to the recent flurry of 250-300 point days. If today was just the calm before the storm then we could have another big decline in our future. The trading has been too calm the last two days and that suggests there is another shoe about to drop.

Another interesting tidbit is that most energy stocks were down today when oil prices were up slightly. Is that telling us that investors expect the oil rebound to fail? I suspect the answer is yes. Chevron was the biggest loser on the Dow and Exxon faired only slightly better.

Monday's resistance on the Dow was 18,200 and it was rock solid. Support is now 17,950 followed by 17,750 and 17,650.

The Nasdaq Composite gave back -16 points to close back below 5000 once again. The Nasdaq 100 ($NDX) looks suspiciously like a double top formation with the 4480 level the top. The high in February was 4483.

Support at 4420 then 4350.

The Nasdaq Composite is still well ahead of the other big cap indexes with several support levels before it would break the current uptrend. The key level to watch here is 4850 and the low from earlier in March.

The Dow Transports fell especially hard over the last two days and that is negative for market sentiment. The index has now made its third lower high since November and with oil prices off their lows the implied support of low fuel prices may be fading. If the transports break below the 8600 level it would be very negative for the broader market.

The S&P Small Cap 600 only gained 15 cents but it was another new high for the small caps. As long as the S&P-600 and Russell-2000 can hold their gains the big cap indexes should not decline too far. If the small caps start slipping then the broader market losses could accelerate.

I am neutral on the market for Wednesday. However, the sharp decline at the close on both days this week suggests fund managers are in fact closing positions. This was expected and this week has a historical bias for losing ground.

I just don't see any big negatives for the market but then the market does not need an excuse to correct. When all the internals line up the bottom falls out and there does not have to be an excuse or a headline to trigger the decline.

I would keep your stops tight for the rest of the week and don't be too eager to buy the dips.

Enter passively, exit aggressively!

Jim Brown

Send Jim an email



New Option Plays

A Recipe For Growth

by James Brown

Click here to email James Brown


Jack in the Box, Inc. - JACK - close: 99.14 change: +0.61

Stop Loss: 95.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 616 thousand
Entry on March -- at $---.--
Listed on March 24, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
It's a burger-eat-burger world out there in the fast-food business. Jack in the Box is small fries compared to its larger rivals like McDonalds (36,258 locations) and Wendy's (6,515 locations). Let's not forget heavy weights like Taco Bell, Burger King, Subway, Dairy Queen, and a handful of pizza chains. JACK only has about 2,200 restaurants but it also has a secret weapon and that is the Qdoba Mexican Grill restaurant with about 600 locations. Chipotle Mexican Grill has almost 1,800 locations.

Some of that intense competition being felt by McDonalds and Chipotle Mexican Grill is coming from Jack in the Box and its Qdoba brand, which is growing sharply. A majority of their Qdoba franchisees own multiple stores with 10, 20 even 40 stores common. Enterprising business owners don't open additional stores if the original stores are not working. To have so many owners with high numbers of stores suggests the franchise is consistently profitable.

To be profitable they need solid customer traffic, good food and decent margins. Shares of JACK have been one of the best performers on the S&P over the last year because the company has been posting solid earnings and growth.

With analysts cutting earnings estimates for McDonalds and Chipotle because of competition in the sector it makes sense to look at what has happened at JACK. Over the last quarter and the last year not a single analyst has lowered their earnings estimates for JACK. According to Zacks there has been a noticeable trend of raising estimates. JACK is expected to grow +16% to +20% this year and in 2016. JACK has beaten earnings by an average of 6% over the last four quarters.

Because of the drop in gasoline prices consumers have more money in their pocket. Some of that money is going to end up in the cash registers at these fast food outlets. Customers are also trending towards healthier foods and away from the mass produced burgers and fries at McDonalds. Did you know there are 19 ingredients in McDonalds fries? Surely you didn't think they were just potatoes and grease? Restaurants like JACK and Chipotle are capitalizing on the healthy food craze. JACK store sales rose an average of 5.7% over the last three quarters but Qdoba sales rose +13% for the year and +7.7% in Q4. Zacks rates JACK as a strong buy.

The company plans to open 15 new Jack in the Box stores in 2015. They're also cashing in on Qdoba's success and planning to open 50 to 60 new Qdoba locations. That compares to just 12 new Jacks and 38 new Qdobas in 2014.

It's also worth noting that JACK has an active share buyback program and they reduced the share count by 10% over the last four quarters. Earnings growth rose +20% in Q3 after three years of consecutive earnings growth of more than 30%.

JACK's most recent earnings report was February 17th, when they reported their 2015 Q1 results. Analysts were expecting a profit of $0.87 a share on revenues of $461.2 million. JACK delivered earnings of $0.93 a share. That's a +24% improvement from a year ago. Revenues were up +4.1% to $468.6 million, above estimates. Their operating margins improved 1% to 19.3%.

Management expects same-store sales at Jack in the Box to surge from +0.9% a year ago to +5% to +7% in Q2. Qdoba same-store sales are forecasted to be in the +7% to +9% range. The company raised full-year 2015 guidance to $2.85-2.97 a share compared to Wall Street estimates of $2.84.

Shares of JACK surged on the earnings news and bullish guidance. Since the report that has been almost no profit taking. Now, after more than four weeks of consolidation, the stock looks poised to breakout past major, psychological resistance at the $100.00 mark. Tonight we're suggesting a trigger to buy calls at $100.25.

Trigger @ $100.25

- Suggested Positions -

Buy the JUN $105 CALL (JACK150619C105) current ask $2.70
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:

Weekly Chart:

In Play Updates and Reviews

Closing NXPI After A Big Run

by James Brown

Click here to email James Brown

Editor's Note:

Shares of NXPI have seen a tremendous run over the last few weeks. Today the stock hit our stop loss, closing our bullish trade. NXPI wasn't the only stock fading lower. Stocks experienced a widespread pullback on Tuesday.

Current Portfolio:

CALL Play Updates

Aetna Inc. - AET - close: 108.74 change: -0.52

Stop Loss: 107.45
Target(s): To Be Determined
Current Option Gain/Loss: +216.2%
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

03/24/15: Stocks continued to sink and AET faded from resistance near $110. Shares fell -0.47% versus the -0.6% drop in the S&P 500. There is no change from my recent comments.

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: 72.23 change: -0.88

Stop Loss: 71.65
Target(s): To Be Determined
Current Option Gain/Loss: +7.9%
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

03/24/15: CAVM slipped -1.2% and is near what should be short-term support in the $71.00-72.00 region. We have our stop set pretty high at $71.65. Traders can use a bounce from $72.00 as a new entry point.

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: 155.64 change: +0.43

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

03/24/15: Traders bought the dip at CBRL's 10-dma this morning and shares bounced to a +0.27% gain. Unfortunately CBRL just can't seem to build on any of its recent rally attempts. It will make a new relative high and fade lower. I'm turning more cautious on this trade.

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: 67.37 change: -0.29

Stop Loss: 66.45
Target(s): To Be Determined
Current Option Gain/Loss: -17.9%
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

03/24/15: CRM drifted lower the entire day. If this trend continues tomorrow we could see CRM hit our new stop at $66.45. 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: 109.96 change: +0.01

Stop Loss: 106.75
Target(s): To Be Determined
Current Option Gain/Loss: -21.6%
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

03/24/15: LII closed virtually unchanged on Tuesday, which is actually a show of strength considering the market's widespread decline today. The intraday rally failed near yesterday's highs. I'm suggesting traders wait for a breakout past $111.00 before considering new positions. Or as an alternative, nimble traders could buy dips near $technical support at the 20-dma, which is nearing $108.00.

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: 129.68 change: -0.87

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

03/24/15: Our MNK trade could be in trouble. The stock looks like it is breaking down from the $130-134 zone. If this pullback continues tomorrow odds are good we'll see MNK hit our stop at $128.65. 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: 162.09 change: -0.63

Stop Loss: 158.45
Target(s): To Be Determined
Current Option Gain/Loss: -35.6%
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

03/24/15: Traders bought the dip in NOC near its converging 10-dma and 50-dma around $161.20. There is still good chance that NOC tests the $160.00 level is the broader market continues to sink.

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

Under Armour, Inc. - UA - close: 81.50 change: -0.34

Stop Loss: 79.65
Target(s): To Be Determined
Current Option Gain/Loss: +41.8%
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

03/24/15: UA experienced another day of minor profit taking. Previously I cautioned readers to expect a dip. If the market continues to sink we might see UA test the $80.00 level, which could be round-number support. 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

Alkermes plc - ALKS - close: 66.28 change: +1.06

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

03/24/15: ALKS managed a bit of an oversold bounce from support near $65.00. However, the overall pattern has not changed. We're expecting a breaking. Our suggested entry point for bearish positions is $64.90.

Trade Description: March 23, 2015:
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)

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


NXP Semiconductors - NXPI - close: 104.04 change: -0.85

Stop Loss: 104.45
Target(s): To Be Determined
Current Option Gain/Loss: +521.2%
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

03/24/15: Another widespread market sell-off pushed NXPI lower. Shares fell toward short-term technical support at the 10-dma. The stock also hit our stop loss pretty early in the session at $104.45.

Right now NXPI is in the running for our best play of 2015.

- Suggested Positions -

Apr $90 CALL (NXPI150417C90) entry $2.36 exit $14.66 (+521.2%)

03/24/15 stopped @ 104.45
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