Option Investor

Daily Newsletter, Wednesday, 4/1/2015

Table of Contents

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

Market Wrap

Bulls On the Ropes but Still Fighting

by Keene Little

Click here to email Keene Little
Wednesday traded like Tuesday, starting with a selloff in the opening minutes followed by a sideways consolidation. Support levels are holding but the bears are pounding on them like a bear pounding on a dumpster to get it open, and both sides are nervously watching to see what tomorrow will bring.

Wednesday's Market Stats

Equity futures tanked last evening but I couldn't find any solid news stories to explain why. I guess other traders couldn't either and after SPX futures hit a low of 2033.50 for a loss of -26.25 they climbed back up and got 1 point in the green by 6:00 AM. From there futures struggled, especially after the pre-market ADP report, but by the open it was looking like there was an intention to rally the market. Until the opening bell rang that is -- big sell programs hit at the open and SPX gave up 20 points in the first 30 minutes of trading. From there we spent the rest of the day off the lows but basically trading sideways and that left both sides wondering what tomorrow will bring.

The ADP report was released before the bell and it came in as a slight disappointment. Expectations were for +225K, which would have been an increase from February's upwardly revised 214K (from 212K), but the actual number was only +189K. This is of course a bad news/good news kind of number because it means the NFP number, to be released on Friday (which is a market holiday), could be disappointing as well (the expected number is 250K, down from February's 295K). Lower-than-expected numbers are of course a bad sign for the economy but a good sign for keeping the Fed away from the Raise Rates button. Or so the thinking goes.

After the opening bell we then got the ISM index report, which continues to show a slowing economy with the reported number of 51.5, a point below expectations and a drop from February's 52.9. Construction spending in February dropped -0.1% but that was "3 times" better than the expected -0.3% (see how a headline could give you a completely different take on the number?). It was a significant improvement over January's -1.7%.

There's been no change to the steady drumbeat of declining economic numbers and this has most everyone keeping their fingers crossed that the Fed will be forced to stay on the sidelines (trapped as they are) and not talk about raising rates. To me that's called desperation but after such a long-running bull market there's not much else for the bulls to hang their hats on, especially with the deterioration of the economy and corporate earnings (much of which has not yet been acknowledged by the stock market). I suspect much of the volatility we've seen in the market over the past several months is the big bull/bear argument over fundamentals and what it means for stock prices.

While arguments over funnymentals are always interesting, I haven't seen much evidence the market really cares about them. If it did there's no way we'd still be flirting with all-time highs for the stock indexes. But hope is a wonderful thing and most market participants remain very hopeful that something will drive the markets higher and every little clue about another central bank pumping more money into the financial markets provides just enough stimulus to drive the market higher (much of it from short covering from scared bears, and who can blame them).

While I consider myself a very hopeful person with a lot of optimism about our future, hope is a dangerous thing in the stock market. I'm sure I'm not the only one that has been caught a time or two staring at the monitor hoping the market will reverse direction before the close so that it stops the pain from a trade I should have stopped out of long before that point. Hope is far more dangerous than a stop but at the moment that's all that's driving the market higher (or holding it up at the moment). It could still work for another month or so (there's a very interesting turn cycle that's due in mid-May) and bears need to respect its power but bulls also need to understand the slope of hope. That's seen in a bear market where frenzied buying (a lot of short covering as well) follows good news and the hope for a strong reversal. But it doesn't last and new lows keep coming, interspersed with volatile and short-lived buying spikes.

It's possible the market is at a tipping point and we could be close to starting down in a more significant way. In order to avoid this it's very important for the bulls to get back in the game and stop the decline here. They still have an opportunity to slap the bears silly and the next couple of days should tell us whether or not they can do it.

The DOW's weekly chart below shows price trying to hold its uptrend line from October-February, currently near 17725 (17760 using log price scale) but it closed slightly below the line today. It will be important to see how it closes the week and as it stands now there is still a bullish potential for another leg up this month, depicted in green. The upside potential is to the 18500 area, which is where the trend line along the highs from May 2011 - December 2013 intersects the shorter-term trend line along the highs from December-March in mid-May (that would be a good setup to sell in May and go away). But a drop below 17500 would have the pattern looking more bearish, which would open the door for a decline to the 16500 area by mid-May.

Dow Industrials, INDU, Weekly chart

A closer view of this bull/bear battle can be seen on the daily chart below. This morning's decline broke below the uptrend line from October-February but looks it recovered by the afternoon and that keeps the upside potential in play. The choppy price action that we've been in is making projections very difficult but a sharp break below 17500 would turn the pattern more impulsive to the downside.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 18,010
- bearish below 17,500

The 60-min chart below shows a break of a recent pattern that we've been seeing since the March 12th low. The rallies were spikes to the upside (highlighted in green) but they were then followed by spikes back down (but not full retracements). It was the first sign of a change in character for the market since previous rallies off v-bottom reversals were relentless, not letting bulls in or bears out with "normal" pullbacks. Now the pullbacks were stronger and steeper and that was a warning sign that the bounce off the March 12th low was "different." The sharp rally on Monday, according to this new pattern, called for a sharp spike back down, which we got on Tuesday. But now the pullback looks more bearish and that supports the bearish wave count, which is a series of 1st and 2nd waves to the downside. This calls for a very sharp and strong selloff in the coming weeks, one that will not let bears in or bulls out (without a loss). But at the moment there is still hope for the bulls if the bears are unable to capitalize on the bearish setup.

Dow Industrials, INDU, 60-min chart

There's another index that could be a warning sign for us -- the Shanghai Composite index (SSEC). Following its 2007-2008 sharp decline it has been essentially in a sideways consolidation (shallow up-channel as shown below). I'm looking at the 3-wave bounce off the 2008 low as an a-b-c and this week's rally has the leg up from June 2013 achieving equality with the 1st leg up in 2009, as noted on the chart. That gives us a setup for possible reversal, which would be confirmed following the completion of a 5-wave move up for wave-c from June 2013. As labeled on the chart, we do have a 5-wave move and therefore the rally can be considered complete at any time, although it would not be hard for me to argue for a week-long consolidation followed by at least a minor new high, especially since there's a little room left to reach the top of its parallel up-channel from 2008.

Shanghai Stock Exchange Composite index, SSEC, Weekly chart

The SSEC has been ripping to the upside recently, despite evidence their economy is also slowing down, because they too have put their faith in the central bank. The People's Bank of China keeps promising their support and the people are literally buying into it. Interestingly, just as it appears the SSEC a-b-c bounce correction could be completing, new trading accounts in China are exploding. Bloomberg has reported that two thirds of these new accounts are by people who have a below high school education. There's frenzied buying as their market spikes up. What could possibly go wrong... (similar to 1999-2000 in the U.S. when everyone quit their jobs to become day traders). There's a lot of bullish expectation by market analysts and I strongly suspect they're becoming very bullish at exactly the wrong time, and I think that goes for the U.S. market as well.

SSEC and New Trading Accounts, chart courtesy Bloomberg

SPX has the same pattern as the DOW and could also go either way here. This morning's decline tested the short-term uptrend line from the March 12-26 lows, as well as its uptrend line form 2009-2011, both of which intersect tomorrow near 2048 (today's low). As long as that level holds as support the bears have nothing to crow (growl) about since the bullish pattern suggests a rally to new highs in the coming weeks (up to 2155 or 2175 in April or May, resp. The first sign of bullishness would be a rally above Monday's high near 2089 and it would be confirmed bullish above the March 23rd high near 2115. But the bulls need to keep in mind the bearish pattern, which calls for a drop lower tomorrow and then at most another bounce to another lower high early next week. From there it would be hard down and very little opportunity for the bulls to get out without a loss.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2115
- bearish below 2045

On March 26th NDX broke its uptrend line from October-February but recovered the next day. Yesterday it closed on the line and today it broke it, currently near 4343. As long as it stays below that trend line it remains bearish and we could see the 4000 area later this month. But as with the others, there is still upside potential, especially if it's able to climb back above Monday's high near 4384.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4436
- bearish below 4280

The RUT continues to be the stronger index and that's a positive sign for the bulls. Whereas the other indexes are testing last week's lows the RUT retraced only a little more than 50% of its rally into Monday's high. And the pullback looks corrective, which makes it look like it's going to head higher. In fact if I were doing a market analysis based only on the RUT I'd be strongly suggesting get long for another rally this month. We could see the RUT rally up to trend lines near 1290-1300 in the next week or two.

The RUT tested its 20-dma this morning, at 1241, and then almost made it back into the green by the close (there was stronger buying interest in the RUT than the others at the end of the day). But it's going to be important for the bulls to keep the buying going Thursday since it rallied back up to the trend line along the highs from last September-December, near 1252. It popped back above this on Monday, closed on it on Tuesday and closed on it again today. It could be a back-test and any selling tomorrow would look like a bearish kiss goodbye. I think the RUT could be a good canary index for us.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1260
- bearish below 1225

Speaking of canaries, I like to keep an eye on a few key "barometer" stocks and AAPL is one of them. At the moment it's not helping us but it should be close to breaking one way or the other. Back in late-February I had been looking for the completion of AAPL's rally and it looked like a nice little throw-over finish when it popped above its trend line along the highs from December 2013 - November 2014 on February 23rd and then rolled over, leaving a head-fake break. But since the low on March 12th it has formed a sideways triangle and it can be interpreted both ways -- either as a bullish continuation pattern that will lead to a final push higher (possibly up to 140), or as a bearish continuation pattern that will be followed by another leg down at least equal to the February 24 - March 12 decline. Two equal legs down from its February 24th high points to 117.27, which crosses the uptrend line from April 2014 - January 2015 next Thursday. Whichever way AAPL breaks out of this little triangle should be a good indicator for what the broader market will likely do next. A downside break would be below 122.60 and an upside break would be above 126.40.

Apple Inc., AAPL, Daily chart

The TRAN is currently holding onto support but it can't tolerate much more selling. On March 26th it poked below its 200-dma but recovered to close slightly above it. Today it broke it again and again closed slightly above it, near 8664 tomorrow. This morning's low at 8621 was also a test of its uptrend line from November 2012 - October 2014. Only slightly lower, near 8580, is price support from its previous lows since December. That's a lot of support broken if the TRAN drops below 8580 so the bulls need to do their thing here (buy the dip).

Transportation Index, TRAN, Daily chart

While I liked the March 13th high for the U.S. dollar to be a multi-month high I haven't seen convincing evidence yet in the decline since then to suggest that high at 100.78 is going to stand for a while. It's a bit like the stock market at the moment and I could easily argue both ways. That tells me any trades (on the dollar or the stock market) should be cautious (in size and stops) until we see what happens from here. The March high had no bearish divergence and therefore it would be somewhat normal for at least a retest with bearish divergence. But the next bearish clue would be a break below its 50-dma, currently near 96.25, which would also be a break of its up-channel. Until then the trend is clearly up and needs to be respected. Maybe getting the euro to parity (it got as low as 1.0472 on March 13th and is currently 1.0775) is the goal for now.

U.S. Dollar contract, DX, Daily chart

Gold's decline from January looks impulsive and following the March 17th low I thought it was a good setup for a bounce correction before continuing lower, which is still the way I'm leaning. We might see gold make it up to the 1250 area (I've got a target zone at roughly 1226-1256, which includes the 200-dma near 1237 and 50-week MA near 1245). But the minimum bounce expectation has been met and therefore a continuation lower from here is possible. Until I see evidence to the contrary I'll continue to look for a low near 1000 later this year (at least I hope we'll see that level so I can back up the truck and fill it with gold).

Gold continuous contract, GC, Daily chart

Following oil's 3-wave pullback from February 17 - March 18 I've been looking for another leg up for the bounce off the January low. The price projection at 58.13 continues to look good, especially since it correlates nicely with price-level S/R at that level. For now I show a rising wedge pattern for the c-wave of the a-b-c bounce off the January low but that's just speculation for now. It means we could see a choppy rise higher, frustrating both side of the trading aisle. I continue to see oil consolidating between 40-60 for a few more months before heading lower.

Oil continuous contract, CL, Daily chart

Thursday's economic reports include the unemployment claims data and Factory Orders, neither of which will likely be market movers. If factory orders come in different than expectations will that be a good thing or bad thing for the market? Your guess is as good as mine. Friday's reports are important but the first time the market will be able to react to them is Sunday night in the futures and then Monday's cash open. Should be interesting.

Economic reports and Summary

Other than the RUT, which continues to show relative strength, the market looks to be on the verge of a breakdown. It can't tolerate much more selling from here without doing more technical damage to the charts. I see the potential for a new low, such as SPX 2045, and then a stronger bounce into early next week before the bottom falls out. That's the bearish pattern. The bullish pattern argues for more sideways consolidation before heading back up or heading back up from here. Monday's highs are important for the bears to defend since above those highs would be a strong statement from the bulls that they're done messing around with the annoying bears.

Short below SPX 2040 and long above 2090 -- that's a wide spread but it's what the market has given us. In between could be lots of chop and whipsaw. Keep an eye on the RUT, TRAN and AAPL for clues in the meantime.

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

Keene H. Little, CMT

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

New Option Plays

Losing Altitude

by James Brown

Click here to email James Brown


Copa Holdings - CPA - close: 98.25 change: -2.72

Stop Loss: 103.05
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 624 thousand
Entry on April -- at $---.--
Listed on April 1, 2015
Time Frame: Exit prior to earnings in May
New Positions: Yes, see below

Company Description

Why We Like It:
There are plenty of opinions on oil and if the commodity has found a bottom or not. The plunge in oil prices last year was a huge boon for the airlines as jet fuel is a major expense. The impact of low oil prices may already be factored in. It's worth noting that the price of crude oil hit new relative lows in mid March while the XAL airline index formed a new lower high instead.

CPA is a regional airline. Here's a brief description, "Copa Holdings is a leading Latin American provider of passenger and cargo services. The Company, through its operating subsidiaries, provides service to 73 destinations in 30 countries in North, Central and South America and the Caribbean with one of the youngest and most modern fleets in the industry."

CPA has been underperforming its peers in the airline industry for a while. Thus far the XAL airline index is down -4.4% in 2015 and down about -8% from its multi-year highs in January. CPA is down -5.2% for the year but it's down -19% from its 2015 highs and down -40% from its early 2014 highs.

Earnings have been a mixed bag the last couple of quarters. CPA reported its 2014 Q3 results on November 20th. Earnings beat estimates. Yet revenues were down -0.5% and below Wall Street estimates. CPA's Q4 report was February 12th. Earnings plunged from $3.20 a year ago down to $2.83 (-11.5%). Revenues fell -3.9%.

This week Deutsche Bank has downgraded the airlines as a group. Rising capacity and a slowing global economy will hurt business. Traders are bearish on CPA. The most recent data listed short interest at 14% of the small 33.3 million share float.

Technically CPA is bearish with a pattern of lower highs and lower lows. Today the stock broke down below key support at the $100.00 mark. The point & figure chart is bearish and forecasting an $80.00 target. Today's low was $98.03. We are suggesting a trigger to buy puts at $97.75.

Trigger @ $97.75

- Suggested Positions -

Buy the MAY $95 PUT (CPA150515P95) current ask $3.60
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

Stocks Erase Recent Bounce

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. stock market ignored a rally in European and Chinese stock markets. Instead equities continued lower and have essentially erased the recent two-day bounce. A weak ADP Employment report, out this morning, was not very encouraging.

Current Portfolio:

CALL Play Updates

Cardinal Health, Inc. - CAH - close: 88.85 change: -1.42

Stop Loss: 87.75
Target(s): To Be Determined
Current Option Gain/Loss: -35.3%
Average Daily Volume = 1.7 million
Entry on March 30 at $90.55
Listed on March 28, 2015
Time Frame: We might exit prior to CAH earnings
(potentially April 30th)
New Positions: see below

04/01/15: The market's decline today weighed heavily on CAH with shares plunging at the open. The stock found support near last week's lows around the $88.00 area. If shares don't hold this level we could see CAH hit our stop at $87.75 soon. I'm not suggesting new positions at this time.

Trade Description: March 28, 2015:
The big healthcare names have shown significant relative strength over the last couple of years. That momentum has carried into 2015 and shares of CAH are outperforming the broader market with a +11% gain year to date.

You might have heard about CAH recently since the company made headlines in early March. Here's a brief description of the company, "Headquartered in Dublin, Ohio, Cardinal Health, Inc. (CAH) is a $91 billion health care services company that improves the cost-effectiveness of health care. As the business behind health care, Cardinal Health helps pharmacies, hospitals, ambulatory surgery centers, clinical laboratories and physician offices focus on patient care while reducing costs, enhancing efficiency and improving quality. Cardinal Health is an essential link in the health care supply chain, providing pharmaceuticals and medical products and services to more than 100,000 locations each day and is also the industry-leading direct-to-home medical supplies distributor. The company is a leading manufacturer of medical and surgical products, including gloves, surgical apparel and fluid management products. In addition, the company operates the nation's largest network of radiopharmacies that dispense products to aid in the early diagnosis and treatment of disease."

Management has been doing a good job with the earnings game. The last three quarters in a row have seen CAH beat Wall Street estimates on both the top and bottom line. Their next report should be the end of April.

On March 2, 2015 CAH made the news with their $2 billion acquisition of Cordis. Here's an except from the company's press release:

Cardinal Health today announced plans to acquire Johnson & Johnson's Cordis business, a leading global manufacturer of cardiology and endovascular devices, for $1.944 billion in cash, or approximately $1.594 billion, net of the present value of tax benefits. The acquisition is expected to be financed with a combination of $1.0 billion in new senior unsecured notes and the remainder with existing cash. The transaction is expected to close in the United States and key non-U.S. countries towards the end of calendar 2015.
CAH is forecasting this acquisition will add more than $0.20 per share to the company's 2017 earnings. They expect synergies to be more than $100 million by the end of fiscal 2018.

CAH's chairman and CEO, George Barrett, commented on the acquisition,

"We are extremely excited about the acquisition of Cordis. This is a significant step forward in our cardiovascular strategy. Cordis brings with it a long and proud legacy of cardiovascular innovation. This move highlights our commitment to address a major pain point in healthcare systems through innovative new approaches to the management of physician preference items. This acquisition follows a sequence of strategic moves for Cardinal Health in the areas of cardiology, wound management and orthopedics. We are well-positioned to help customers standardize around mature medical devices, while bringing them innovative solutions around supply chain management, inventory optimization, and work flow tools and data to support the most effective management of the patient...

With an aging population and the accompanying demand for less invasive medical treatments, health systems around the world are searching for the best way to bring quality care to their patients in the most cost-effective way. The acquisition of Cordis reinforces our strategic position to address this need and strengthens an important growth driver in the Cardinal Health portfolio."

Moody's Investors Service, a credit rating agency, commented on the deal and said it would be credit positive for CAH. Meanwhile a couple of analyst firms upgraded their price targets on CAH following the story with new targets at $105 and $107.

Technically shares of CAH have been trading in a bullish pattern of higher lows and higher highs. Investors just bought the dip at $88.00 near its trend line of support. We want to hop on board and tonight we are suggesting a trigger to buy calls at $90.55.

- Suggested Positions -

Long MAY $90 CALL (CAH150515C90) entry $2.86

03/30/15 triggered @ 90.55
Option Format: symbol-year-month-day-call-strike

iShares Russell 2000 ETF - IWM - close: 124.42 change: +0.05

Stop Loss: 119.65
Target(s): To Be Determined
Current Option Gain/Loss: +26.8%
Average Daily Volume = 32.7 million
Entry on March 27 at $123.05
Listed on March 26, 2015
Time Frame: Exit prior to May option expiration
New Positions: see below

04/01/15: Traders are still buying dips in the small cap ETF. Prior support/resistance near $123.00 acted as support this morning. The IWM looks poised to lead the market's rebound tomorrow morning.

Trade Description: March 26, 2015:
The IWM is the exchange traded fund (ETF) that mimics the small cap Russell 2000 index ($RUT). Last year we saw the Russell 2000 underperform its large cap rivals. The S&P 500 delivered a +11.5% gain in 2014 while the $RUT only rose +3.6%. The situation has changed this year. As of last week's high the $RUT was up +5.3% compared to a +2.3% gain in the S&P 500.

Investors have been drawn to small cap companies because they will endure the impact of a strong dollar better than the large caps. Many of the large cap S&P 500 companies are big multi-national firms. Almost 50% of revenues for S&P 500 components are overseas. Yet only 20% of revenues for Russell 2000 companies are outside the U.S. At the same time the U.S. economy, while growing slowly, is still growing faster than Europe.

Technically the IWM was holding up pretty well until Wednesday's market-wide plunge. Traders bought the dip today near its trend of higher lows. The point & figure chart for the IWM is still bullish and forecasting a long-term target of $154.00. We think stocks could see a bounce soon and the IWM could be a great way to play it. Tonight we are suggesting a trigger to buy calls at $123.05. We'll start this trade with a stop at $119.65.

- Suggested Positions -

Long MAY $125 CALL (IWM150515C125) entry $1.94

03/27/15 triggered @ 123.05
Option Format: symbol-year-month-day-call-strike

Jack in the Box, Inc. - JACK - close: 95.31 change: -0.61

Stop Loss: 94.45
Target(s): To Be Determined
Current Option Gain/Loss: -27.9%
Average Daily Volume = 616 thousand
Entry on March 27 at $96.25
Listed on March 24, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

04/01/15: JACK looks like it could breakdown under key support soon. Tonight we are raising our stop loss to $94.45.

I am not suggesting new positions at this time.

Trade Description: March 24, 2015:
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.

- Suggested Positions -

Long JUN $100 CALL (JACK150619C100) entry $3.40

04/01/15 new stop @ 94.45
03/27/15 triggered @ 96.25
03/26/15 strategy update: Move the entry trigger from $100.25 to $96.25, move the stop loss from $95.75 to $93.85
We will adjust the option strike to the 2015 June $100 call
Option Format: symbol-year-month-day-call-strike

Lennox International - LII - close: 111.94 change: +0.25

Stop Loss: 106.75
Target(s): To Be Determined
Current Option Gain/Loss: -2.0%
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

04/01/15: LII is still outperforming the major indices. Traders jumped in to buy the dip this morning and the stock managed a minor gain by the closing bell. While the trend is up I am not suggesting new positions at this time.

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

Monster Beverage - MNST - close: 136.65 change: -1.75

Stop Loss: 136.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.0 million
Entry on March -- at $---.--
Listed on March 30, 2015
Time Frame: Exit prior to earnings in May
New Positions: Yes, see below

04/01/15: Another down day for the stock market produced more profit taking in MNST. Shares found support near the bottom of its trading range in the $134-135 area. Aggressive traders may want to buy calls now and use a stop just below $134.00. We are going to keep our suggested entry point at $141.50 for now.

Trade Description: March 30, 2015:
A recent report by Beverage Digest noted that the sale of carbonated beverages (a.k.a. sodas) has fallen for the tenth year in a row. Consumer spending on traditional soft drinks has plunged to the lowest pace since 1986. One area of the beverage market that is bucking this trend is energy drinks and alternative drinks. Euromonitor said that the energy drink market has soared from $3.8 billion in 1999 to $27.5 billion in 2014. The divergence between traditional sodas and energy drinks is significant. Beverage Marketing Corp. said the sale of energy drinks in the U.S. rose +6.3% in the first six months of 2014 while normal drink sales declined -1%.

One company benefiting from this divergence is MNST. If you're not familiar with the company here's a brief description: "Based in Corona, California, Monster Beverage Corporation is a holding company and conducts no operating business except through its consolidated subsidiaries. The Company's subsidiaries market and distribute energy drinks and alternative beverages including Monster Energy(R) energy drinks, Monster Energy Extra Strength Nitrous Technology(R) energy drinks, Java Monster(R) non-carbonated coffee + energy drinks, M3(R) Monster Energy(R) Super Concentrate energy drinks, Monster Rehab(R) non-carbonated energy drinks with electrolytes, Muscle Monster(R) Energy Shakes, Ubermonster(R) energy drinks, and Peace Tea(R) iced teas, as well as Hansen's(R) natural sodas, apple juice and juice blends, multi-vitamin juices, Junior Juice(R) beverages, Blue Sky(R) beverages, Hubert's(R) Lemonades and PRE(R) Probiotic drinks."

The long-term up trend in MNST's stock accelerated last year. That's because back in August 2014 MNST announced a partnership deal with beverage titan Coca-Cola (KO). MNST's management commented on the deal in their latest earnings report. Here's an excerpt:

In August 2014, Monster Beverage and The Coca-Cola Company entered into definitive agreements for a long-term strategic partnership to accelerate growth for both companies in the global energy drink category. Under the agreements, The Coca-Cola Company will acquire an approximate 16.7 percent ownership interest in Monster (post issuance) and will transfer ownership of its worldwide energy business to Monster, which, in turn, will transfer its non-energy business to The Coca-Cola Company. Monster and The Coca-Cola Company will amend their current distribution coordination agreements to expand distribution with Coca-Cola bottlers into additional territories. Upon closing, The Coca-Cola Company will become Monster's preferred distribution partner globally, and Monster will become The Coca-Cola Company's exclusive energy play. The transaction, which is subject to customary closing conditions, is expected to close in the second quarter of 2015.
This deal with KO is a game changer and will significantly boost MNST's ability to enter international markets. There is a growing camp of speculation that believes KO may end up buying MNST outright to capture the leading player in the energy drink industry to offset declines in KO's traditional soda market.

Meanwhile MNST continues to deliver on the earnings front. The company averaged +42% earnings growth last year. MNST has the highest sales growth in the nonalcoholic beverage industry (+8% to +12%) versus the industry's -2%.

MNST's most recent report was their 2014 Q4 results on February 26th. Earnings soared +63% to $0.72 a share. Analysts were only expecting $0.58. Revenues were up +12% to $605.5 million, which was also above expectations. Their full-year 2014 gross margins improved from 52.2% to 54.4%. Wall Street is forecasting MNST to see earnings grow +21% in 2015.

The stock shot higher on its earnings report in February. Shares have been consolidating sideways the last five weeks. MNST held up pretty well during the market's recent decline. We think the stock could be forming a short-term bottom in the $134-141 range. The March 24th high was $141.28. Tonight we're suggesting a trigger to buy calls at $141.50.

Trigger @ $141.50

- Suggested Positions -

Buy the MAY $145 CALL (MNST150515C145)

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

Nike, Inc. - NKE - close: 99.55 change: -0.78

Stop Loss: 97.40
Target(s): To Be Determined
Current Option Gain/Loss: -33.4%
Average Daily Volume = 3.6 million
Entry on March 30 at $101.23
Listed on March 26, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

04/01/15: NKE has continued to garner bullish analyst comments but that didn't stop shares from following the major indices lower this morning. The $98.00 area is short-term support and NKE bounced at $98.34 this morning. Considering the market's weakness I would wait for NKE to rally above $100.25 before launching new positions.

Trade Description: March 26, 2015:
In the athletic footwear and apparel industry Nike is the 800-pound gorilla with annual sales of more than $30 billion. According to the company, "NIKE, Inc., based near Beaverton, Oregon, is the world’s leading designer, marketer and distributor of authentic athletic footwear, apparel, equipment and accessories for a wide variety of sports and fitness activities. Wholly-owned NIKE, Inc. subsidiaries include Converse Inc., which designs, markets and distributes athletic lifestyle footwear, apparel and accessories, and Hurley International LLC, which designs, markets and distributes surf and youth lifestyle footwear, apparel and accessories."

The company's most recent earnings report was March 19th, after the closing bell. NKE reported its Q3 2015 results. Analysts were expecting a profit of $0.84 a share on revenues of $7.62 billion. NKE delivered a profit of +0.89 a share or +16% from a year ago. Revenues were up +7% to $7.46 billion. However, if you back out the currency headwinds, their revenues were up +13%.

The company reported sales growth across every geographical region. Their gross margins improved 140 basis points to 45.9 percent. Management said their online sales are soaring. Nike.com saw its revenues jump +42% last quarter.

The current quarter is NKE's 2015 Q4 (March-July) and the company said orders for Q4 in North America are up +15%, which is above analysts' estimates of +11.6%. Orders from China are up +11%, also above estimates. In the company's earnings release NKE said, "As of the end of the quarter, worldwide futures orders for NIKE Brand athletic footwear and apparel scheduled for delivery from March 2015 through July 2015 were 2 percent higher than orders reported for the same period last year. Excluding currency changes, reported orders would have increased 11 percent."

One big concern is the U.S. dollar. Sales in Europe were up +21% but when you factor in euro weakness and dollar strength that sales growth drops to +10%. The strength in the U.S. dollar is a major headwind but after NKE's Q3 results Wall Street feels that the company is managing the currency impact very well. The company is forecasting low double digit sales growth in the current quarter.

Wall Street applauded the results and shares of NKE gapped open higher on March 20th to hit all-time highs. There was a parade of bullish analyst comments. Several firms raised their price target on NKE. Here's a brief list of new price target: $106, $110, $115, $116.00. The point & figure chart is more optimistic as it is forecasting at $125.00 target.

Shares of NKE have seen some profit taking, which isn't a surprise considering the market's four-day decline. However, now that NKE has filled the gap, traders bought the dip. This could be an entry point. We are suggesting a trigger to buy calls at $100.25.

- Suggested Positions -

Long MAY $100 CALL (NKE150515C100) entry $3.35

03/30/15 triggered on gap open at $101.23, suggested entry was $100.25
Option Format: symbol-year-month-day-call-strike

PUT Play Updates

Alkermes plc - ALKS - close: 60.94 change: -0.03

Stop Loss: 64.15
Target(s): To Be Determined
Current Option Gain/Loss: +53.5%
Average Daily Volume = 1.26 million
Entry on March 25 at $64.90
Listed on March 23, 2015
Time Frame: exit PRIOR to May option expiration
New Positions: see below

04/01/15: I am urging caution on our ALKS trade. The stock fell to new three-month lows and pierced round-number support at $60.00 this morning. ALKS then spent the rest of the day rebounding to close almost unchanged on the session.

Today's move looks like a potential bullish reversal. More conservative traders will want to seriously consider an immediate exit to lock in potential gains.

I am not suggesting new positions. We're moving the stop loss down to $64.15.

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.

- Suggested Positions -

Long MAY $60 PUT (ALKS150515P60) entry $2.15

04/01/15 new stop @ 64.15, potential bullish reversal, consider an immediate exit to lock in potential gains now.
03/31/15 new stop @ 65.25
03/28/15 new stop @ 67.65
03/25/15 triggered @ 64.90
Option Format: symbol-year-month-day-call-strike