Option Investor

Daily Newsletter, Wednesday, 4/8/2015

Table of Contents

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

Market Wrap

Sellers Not Welcome

by Keene Little

Click here to email Keene Little
The day was spent chopping up and down, as it has been doing for days/weeks/months, and it's either consolidating in front of another rally leg or it's getting ready for a solid decline. For now though, any attempt to sell the market is met with a couple more buy programs to shut the sellers down.

Wednesday's Market Stats

Following yesterday afternoon's selloff equity futures chopped sideways/up during the overnight session and we were looking to open marginally positive. "Someone" wanted that marginally-up opening to turn into something more positive and big buy programs hit the market at the open, jamming the indexes back up and retracing yesterday's afternoon decline. But there were no takers following the buy programs and the sellers smacked the market back down. From there the rest of the day was spent chopping up and down, including after this afternoon's FOMC minutes. The message from the market today is that sellers are not welcome to our party but more buyers are needed to follow up on the buy programs.

There were no strong economic reports to move the market and it was essentially quiet in the global markets, which left our market floundering for most of the day. A few quick buy and sell programs without any follow through in either direction left each side hanging and it was apparent the market was waiting to get through the FOMC minutes before making any bets. Unfortunately for traders, there was only a little whipsaw price action following the minutes and then more sideways chop

The minutes provided very little new information and that's what this afternoon's session reflected. Fed officials acknowledged the weak economics for the year so far and the risks from overseas weakness. But they agreed there were enough signs of strength (really?) to start laying the groundwork for raising rates later this year. The minutes left the door open to a rate hike in June and of course that's what the market doesn't want to hear. Several officials wanted to be on record about their expectations for better economic data in the months ahead and that it will warrant a rate increase sooner rather than later.

The first thing to remember is that these well-educated economists can't forecast worth stinky pooh. They consistently get forecasts wrong so I'm not sure why the market pays so much attention to them. They are always wrong, 100% of the time. They're far worse than the weather forecasters. Nevertheless, most of them agreed the economy had improved enough to allow the Fed to shift gears and start forward into a rate-hiking mode. All I can say is they must be looking at different economic indicators than I'm looking at.

What most market participants are starting to realize is how impotent the Fed is but they're still willing to give them the benefit of the doubt. The problem for the Fed is that they're trapped and other than jawboning the market into believing rates could increase this year, there's very little likelihood that they will. The consequences of a rate increase, as small as it would be at the start, would be too difficult for debt-burdened governments, especially the Federal government. Just a 1% increase in rates on Treasuries would cost the government close to $200B annually. If rates were near the historical average of 5% we (the taxpayers) would have to come up with nearly a trillion dollars every year just to pay the interest. How are we going to be able to do that?

Of course the Federal Reserve can, and will, simply create more money to pay the higher debt interest. But one has to wonder how long that can continue. We all know what happens when you borrow money (and creating new money is essentially borrowing it from the future) to pay your interest on existing loans. You better get more income coming in or start talking to a bankruptcy lawyer. We're already starting to hear plans from other countries (many European and Canada too) how they'll take money from savers as an emergency measure to protect the financial system and pay the government's debt.

The U.S. will likely be right behind them in deciding to do the same thing. The government could instantly take all 401k retirement accounts and convert the money into Treasury IOUs. It used to be only tinfoil-hat wearers that talked of such conspiracy idea but they're becoming more popular ideas and we've already seen how well it worked in Greece (for the government, not the peoples' savings). There's a reason why so many have been looking to invest in more stable countries (New Zealand, Singapore, even Panama and others) and convert cash to other assets (farm land, precious metals, etc.).

So the Fed is trapped in this debt spiral and raising rates would only exacerbate the problem. They can jawbone all they want but the reality is the market is in control and the only way rates will be raised is when the bond market says "enough!" When risk becomes too high for the measly return it will demand higher rates and that's when the Fed will be forced to follow. It's the way it's always been -- the Fed is a follower in rates, not a leader. Interesting times we are currently going through.

As for the stock market, I'll start off with a look at SPX since it continues to be one of the better proxies for the broader market (it and the Wilshire 5000 index typically look very similar.

SPX has been holding its uptrend line from March 2009 - October 2011 after only briefly breaking it last October (but closed on the line for the weekly closing price). The line is currently near 2052 (log price scale) so as long as it holds, especially on a weekly closing basis, the bulls remain in charge. Traders have clearly respected this trend line and therefore it's very important for the bulls to defend. I show the potential for another rally leg into May (there's an important time cycle that completes May 13th and currently fits well with the idea for one more rally to finish a rising wedge pattern off last October's low). But the bears could have a trick up their sleeve and surprise the market with a strong move down, especially if it drops below 2045. You can see subtle evidence of a rounding top since last November-December and the bearish divergence warns bulls not to get too comfortable here.

S&P 500, SPX, Weekly chart

There are two ways to interpret the price action since the February 25th high, one of course being bullish and the other bearish. The bullish pattern is a sideways triangle as a bullish continuation pattern, which is shown on the daily chart below. This is shown more clearly on the 60-min chart further below and what I'm expecting for the bullish scenario (green path) is one more leg down inside the triangle to finish it. A drop back down to the 2052 area would be a good setup to try the long side since the stop on the play can be kept relatively close at 2045. The bullish interpretation of the rising wedge pattern off last October's low calls for one more leg up and the upside target would be 2160-2170 by mid-May.

S&P 500, SPX, Daily chart

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

The bearish interpretation of the pattern since February 25th (red path) is that it's not a sideways triangle that's playing out but is instead a 1-2, 1-2 wave count to the downside. The next leg down would be a 3rd of the 3rd wave and that calls for a very strong decline to follow the current bounce. This is why stops on a long play can't be much below 2045 -- there won't be a second chance to get out if that level breaks.

From a short-term perspective, shown on the 60-min chart below, it's not clear whether or not we're going to get one more minor new high before starting a pullback/decline or simply start back down on Thursday and into Friday. A push higher to about 2097, where the 5th wave of the move up from April 1st would equal the 1st wave, is possible Thursday morning but it's equally possible we'll see a drop back down from here. Assuming we'll see a drop back down to the bottom of the sideways triangle, the bullish interpretation suggests getting long there for the start of the next major rally leg. This interpretation is supported by the fact that opex weeks tend to be bullish. On the flip side, when opex is not bullish it tends to be very bearish and a 3rd of a 3rd wave decline would certainly be viewed as very bearish, in which case I would expect to see the December-January lows, near 1988, tested before the end next week. Because price action has been so choppy it's hard to get a bead on this thing and therefore the key levels are wider than I like -- bullish above 2100, bearish below 2045.

S&P 500, SPX, 60-min chart

The DOW has the same pattern as SPX except its triangle off its March 2nd high can be viewed as more of a descending triangle (flat bottom, lower highs) and like SPX it too would look more complete with another leg down to the bottom of the triangle, near 17600, before setting up the next rally leg into May. The upside target for its rally would be near 18500. But the bearish pattern is still a good possibility and it calls for the start of a strong decline from here (or slightly higher) and instead of a new high into mid-May we could see a test of price-level support near 16500 by then. The potential following the month-long consolidation is for a big move (about 1000 DOW points) and the only question, still, is what direction it will be. I'm still waiting for the snow to settle down before I can tell what my crystal ball is telling me (6 more weeks of winter?).

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 18,206
- bearish below 17,579

NDX has been fighting to hold onto its uptrend line from October-February, as well as trying to get back above its 20-dma, both near 4364, and today it close above both. So that keeps the bulls in control for now and it's possible we'll see a new rally leg continue from here. But it's possible the bounce off the sharp drop down into the March 26th low is going to be just an a-b-c correction to the decline and then continue lower. Two equal legs up from March 26th points to 4387.29 so a rally above that level would be more bullish but in the meantime stay aware of the possibility this could be followed by the start of a more serious decline. If the triangle patterns for the DOW and SPX are correct, NDX has a similar triangle but more of a bullish descending wedge, which again would look best with one more drop back down to complete it. Only if it gets below the wedge, near 4270, and stays below it would we have better proof the bearish pattern is the correct one. Above 4436 (78.6% retracement of its March 20-26 decline) would confirm the new rally is underway.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4436
- bearish below 4260

The RUT has been acting a little weaker than the other indexes in the past few days although today it was relatively stronger again. As for its price pattern, it's been in a different one than the others and it's not clear yet whether it will continue to lead to the upside (if there's to be more upside) or instead lead to the downside. There's a possible rising wedge pattern for its rally from October, like the others, and we could see a rally to 1280 next week, if not 1300. But with the bounce off the March 26th low not yet having taken out its March 24th high there is the potential for a stronger decline to kick in at any time. I'd be a worried bull if the RUT drops below its April 1st low at 1239.60 and I'd turn bearish below the March 26th low near 1225. Cautiously bullish until then.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1268
- bearish below 1225

One of the reasons I suggest caution for bulls right here is because of the short-term rising wedge pattern for the bounce off the March 26th low. It fits as either a bounce correction to the March 23-26 decline or as the final 5th wave of its longer-term rally. In either case, if the rising wedge is the correct interpretation (and the bearish divergence suggests it is) then we'll see a fast retracement of it. That would mean back down to the March 26th low at 1225 in only a couple of days. That would not necessarily be a bull killer until it gets below 1220 because a sharp drop back down could be a c-wave of an a-b-c pullback from March 23rd and two equal legs down would be above 1220. But I wanted to show the 60-min chart to point out the potentially bearish setup for Thursday-Friday.

Russell-2000, RUT, 60-min chart

With the potential for the RUT to either top out sooner than the other indexes or lead to the downside, it fits with what I'm seeing when I look at a chart of the RUT's relative strength (RS) to SPX. The weekly chart below shows the RS "price" pushed above the top of the Bollinger Band and has been pushing it higher over the past month. That's usually a good sign of an exhaustion move and a return to at least the midline (20-week MA in this case) can be expected. For the RUT that would mean either a reluctance to move much higher with the other indexes or a stronger decline in a broader market decline. As our canary stock it's going to be important to watch the RUT carefully over the next week.

Relative Strength of RUT vs. SPX, Weekly chart

The TRAN is skating on thin ice here and it needs to rally now or else it's going to attract the bears. Last Thursday it broke below its 200-dma and then on Monday it broke its uptrend line from November 2012 - October 2014 and the bottom of its consolidation pattern that it's been in since December. Today's bounce brought it back up to its 200-dma for what is so far just a back-test. Further selling and a break below Monday's low at 8527 would leave a bearish kiss goodbye and confirmed breaks of multiple layers of support. That would attract bears like bees to honey. At the moment, from a bullish perspective, Monday's low was a throw-under to complete the consolidation pattern (the typical head-fake break at the end of the pattern) and now we should see a new rally leg kick into gear.

Transportation Index, TRAN, Daily chart

When the U.S. dollar turned down from its March 16th high I thought it was a good setup for the start of a larger multi-month pullback/consolidation. But the sideways triangle that it has formed since the high has me now wondering if we've still got another new high before it will be ready for the multi-month correction. It's holding inside its up-channel for the rally from last year so it stays bullish until it breaks down from there, which would also be a break of its 50-dma near 96.50. That would be the first bearish heads up for the dollar and then below its March 18th low at 94.76 would tell us it's in the larger pullback correction. Interestingly, the dollar has the same setup as the stock market and if the dollar rallies into a mid-May high we could see it up around 105 by then. That would certainly put some pressure on commodities and U.S. international companies (since exports would become more expensive). Notice how MACD on the dollar's daily chart has dropped back down to the zero line, which essentially "resets" it and a turn back up would be a buy signal.

U.S. Dollar contract, DX, Daily chart

Once gold completed a 5-wave move down from January 22 - March 17 I've been looking for a bounce correction to that decline. As shown on the daily chart below, the bounce has so far retraced 50% of the decline, at 1224.70(Monday's high was 1224.50) and it's a 3-wave move. That leaves us with a setup for the start of the next leg down. It's possible we'll see gold bounce a little higher, maybe up to its 200-dma near 1235, but there's a good possibility the bounce correction has now completed. It's not hard to see the H&S continuation pattern that has developed since last November's low and the downside price objective for the pattern points to 975. In past updates where I've been using the weekly chart I've been showing an expected move down to the 1000 area where it would test price-level S/R from 2008-2009 so the H&S pattern, if it completes, supports that kind of move.

Gold continuous contract, GC, Daily chart

Oil dropped more than -6% today before recovering some this afternoon. The drop was blamed on the larger-than-expected buildup in inventories, nearly +11M barrels vs. expectations of +3.3M and a significant jump over the prior week's +4.8M barrels. The inventory buildup is the largest since 2001 and the inventory level is the highest it's been in 80 years. This is increasing the level of concern about what will happen to the price if and when full storage capacity is reached by Memorial Day, which is only two months away. The storage figure does not include oil that is being stored in tankers off the coast or in transit from Alaska. Currently oil is being pumped at its fastest rate in the past 30 years in the U.S. and the hope is that additional refinery capacity will soon be able to draw down some of the crude inventories.

Exacerbating the oil glut problem was the announcement by Saudi Arabia that they increased production in March and they're not expecting to reduce production. It's a well-known secret that Saudi Arabia is trying to shut down the shale producers, especially since they feel the U.S. has reneged on its promise to support the House of Saud. Saudi Arabia feels the current administration is more interested in other countries, such as Iran (Saudi Arabia's arch enemy) than living up to its promise to help protect Saudi Arabia. Interesting geopolitical games being played and oil production is just one piece of the puzzle.

As for oil's price pattern, I continue to track the idea for a rising wedge pattern for the bounce off the March 18th low. If we see a sideways consolidation for a few days it would point to another leg up to test price-level S/R near 58.50 before dropping back down in a larger consolidation pattern. We could get more of a standard a-b-c bounce (red dashed line) following a back-test of its broken downtrend line from last September, currently near 47.60, but the bottom line is traders need to be careful about a choppy price pattern for months to come (selling options above and below 60 and 40, resp., might be the better way to play oil for a while.

Oil continuous contract, CL, Daily chart

Today was a quiet day for economic reports as will be the rest of the week. The market is on its own to react to whatever news comes from overseas.

Economic reports and Summary

The long choppy consolidation that we've been in since late February (actually since November) may soon come to an end. The problem is that there's still no high-odds play right here -- it could literally go either way. The likelihood is that we're looking at a big move coming within the next week, which could trend into a mid-May turn window. For the DOW we could be looking for a 1000-point decline from here or a 1000-point rally from the bottom of its recent consolidation (assuming it first drops down to the bottom of it near 17600).

If we get a new high on Thursday, such as SPX 2097/DOW 18050, it should be followed by a pullback that will either correct the rally from April 1st or drop back down to the bottom of the consolidation patterns. So a new high would be a good setup for a short play since we'll get either a pullback or the start of much more significant decline. If instead the market drops from here and the indexes make it down to the bottom of the recent consolidation patterns then we'd have an opportunity to test the long side for a strong rally into May. For either trade I'd keep stops relatively tight since there might not be much of an opportunity for a 2nd exit.

Tomorrow is the Thursday prior to opex week, which typically sees a head-fake move followed by a trending move into opex. With all the choppy whipsaw moves we're seeing in the market, that will be just one more reason to trade carefully and use good risk management.

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

Poised For A Pre-Split Rally

by James Brown

Click here to email James Brown


G-III Apparel Group, Ltd. - GIII - close: 116.38 change: +1.41

Stop Loss: 111.95
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 207 thousand
Entry on April -- at $---.--
Listed on April 08, 2015
Time Frame: Exit PRIOR to the 2:1 split on May 4th
New Positions: Yes, see below

Company Description

Why We Like It:
GIII has been showing relative strength and could deliver a strong pre-stock split rally. The company is in the consumer goods sector. They make apparel.

The company describes itself as, "G-III is a leading manufacturer and distributor of outerwear, dresses, sportswear, swimwear, women's suits, women’s performance wear, footwear, luggage, women's handbags, small leather goods and cold weather accessories under licensed brands, owned brands and private label brands. G-III sells swimwear, resort wear, and related accessories under our own Vilebrequin brand. G-III also sells outerwear, dresses, and performance wear under our own Andrew Marc and Marc New York brands, and has licensed these brands to select third parties in certain product categories.

G-III has fashion licenses under the Calvin Klein, Kenneth Cole, Cole Haan, Guess?, Tommy Hilfiger, Jones New York, Jessica Simpson, Vince Camuto, Ivanka Trump, Ellen Tracy, Kensie, Levi's and Dockers brands. Through our team sports business, we have licenses with the National Football League, National Basketball Association, Major League Baseball, National Hockey League, Touch by Alyssa Milano and more than 100 U.S. colleges and universities. Our other owned brands include Bass, G.H. Bass, G-III Sports by Carl Banks, Eliza J, Black Rivet and Jessica Howard. G-III also operates retail stores under the Wilsons Leather, Bass, G.H. Bass & Co., Vilebrequin and Calvin Klein Performance names."

Looking at GIII's earnings performance last year the company has beaten Wall Street's bottom line earnings estimates four quarters in a row and usually by a wide margin. GIII also beat analysts' revenue estimates three out of the last four quarters. When GIII reported its Q3 results back in December they raised guidance above Wall Street expectations.

Their most recent report was their Q4 results on March 24th. Earnings were up +58% from a year ago to $0.98 a share. That was 15 cents above estimates. For their fiscal year 2015, which ended on January 31st, GIII said adjusted earnings were up +21% while revenues were up +23% from a year ago.

In their earnings press release Morris Goldfarb, G-III's Chairman, Chief Executive Officer and President, said, "Fiscal 2015 was another strong year of sales and profit growth for G-III. We drove strong performances across our portfolio of businesses, solidified our market position, and successfully executed across a range of strategic initiatives, including the integration and repositioning of the G.H. Bass business we acquired in the fourth quarter of last year. We are pleased to have achieved another record year for both net sales and net income per share."

The stock did see a little profit taking when management offered conservative guidance but traders bought the dip a couple of days later. Now the stock is hitting new all-time highs.

Yesterday morning, April 7th, GIII announced a 2-for-1 stock split. The shareholder record date is April 20th. GIII should begin trading post-split on Monday, May 4th. Shares look like they could produce a strong pre-split run up. We want to hop on board for the next three weeks and exit prior to the split date. Tonight we're suggesting a trigger to buy calls at $116.65.

Trigger @ $116.65

- Suggested Positions -

Buy the MAY $120 CALL (GIII150515C120) 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:

In Play Updates and Reviews

A Choppy Session For Stocks

by James Brown

Click here to email James Brown

Editor's Note:

Equities couldn't make up their mind what direction they wanted to go with several direction changes today. The markets digested the FOMC minutes and a -5% drop in crude oil. Meanwhile the U.S. dollar bounced off its morning lows.

CPA was stopped out.
KORS has been removed.
Our IYT trade has been opened.

Current Portfolio:

CALL Play Updates

Cardinal Health, Inc. - CAH - close: 90.19 change: +0.25

Stop Loss: 87.75
Target(s): To Be Determined
Current Option Gain/Loss: -21.3%
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

04/08/15: CAH spent the day consolidating sideways near the $90.00 level. Shares did bounce off their 20-dma at its lows.

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: 125.47 change: +1.07

Stop Loss: 122.85
Target(s): To Be Determined
Current Option Gain/Loss: +35.1%
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

04/08/15: The NASDAQ and small cap Russell 2000 led the market higher. The IWM delivered a +0.8% gain and looks poised to challenge its March highs.

No new positions at this time.

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

04/07/15 new stop @ 122.85
04/04/15 new stop @ 121.65
03/27/15 triggered @ 123.05
Option Format: symbol-year-month-day-call-strike

Lennox International - LII - close: 112.16 change: +0.77

Stop Loss: 110.25
Target(s): To Be Determined
Current Option Gain/Loss: -5.9%
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

04/08/15: LII briefly traded under its 10-dma but each time traders bought the dip. Shares ended the session with +0.69% gain.

No 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

04/07/15 new stop @ 110.25
03/23/15 triggered on gap open at $110.96, suggested entry was $110.25
Option Format: symbol-year-month-day-call-strike

Nike, Inc. - NKE - close: 100.84 change: +1.23

Stop Loss: 97.40
Target(s): To Be Determined
Current Option Gain/Loss: -17.6%
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

04/08/15: NKE displayed relative strength with a +1.2% gain. Shares finally look ready to escape the $100 area. Today's intraday high was $100.97. I would consider new positions on a move above $101.15.

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

PTC Therapeutics, Inc. - PTCT - close: 69.50 change: +3.34

Stop Loss: 62.75
Target(s): To Be Determined
Current Option Gain/Loss: +11.4%
Average Daily Volume = 551 thousand
Entry on April 06 at $65.25
Listed on April 04, 2015
Time Frame: Exit prior to earnings in May
New Positions: see below

04/08/15: Biotech stocks outperformed the market today. Shares of PTCT surged +5.0% and closed just below round-number resistance at $70.00 and its simple 30-dma. Tonight we'll move the stop loss to $62.75.

Trade Description: April 4, 2015:
Healthcare stocks have been market leaders but biotechs have sprinted past their healthcare brethren. PTCT saw big gains off its 2014 lows and has continued to outperform in 2015, even after its recent correction.

Here's a brief description of PTCT, "PTC is a global biopharmaceutical company focused on the discovery, development and commercialization of orally administered, proprietary small molecule drugs targeting an area of RNA biology we refer to as post-transcriptional control. Post-transcriptional control processes are the regulatory events that occur in cells during and after a messenger RNA is copied from DNA through the transcription process. PTC has received conditional marketing authorization in the European Economic Area for Translarna for the treatment of nonsense mutation Duchenne muscular dystrophy in ambulatory patients aged five years and older.

PTC's internally discovered pipeline addresses multiple therapeutic areas, including rare disorders, oncology and infectious diseases. PTC has discovered all of its compounds currently under development using its proprietary technologies. PTC plans to continue to develop these compounds both on its own and through selective collaboration arrangements with leading pharmaceutical and biotechnology companies."

You can view PTCT's pipeline data on the company's website.

Most of the excitement for PTCT appears to be focused on its Ataluren drug. It's a treatment for Duchenne muscular dystrophy caused by nonsense mutations. The drug is already approved on a conditional basis in Europe. Right now PTCT is performing a Phase III study. Results are expected in the fourth quarter of 2015. This could be a HUGE event for the company and the stock. Success will likely send the stock soaring while disappointing results could crush shares.

A few weeks ago the stock was rocketing higher thanks to takeover speculation. Analysts were painting a takeover target on PTCT and speculating that Biomarin Pharmaceuticals, Shire, or Vertex Pharmaceuticals might be suitors. It is still just speculation at this point. It would be a big gamble to buy PTCT now before its Phase III study was complete but if you are a potential acquirer then the price will go up if the study is a success.

The Street.com published an interesting note on PTCT's CEO Stu Peltz selling all of his stock in the company (about 47,000 shares). If he believes in the future of PTCT's pipeline, why would he sell? If he believes his company could be acquired by a rival, why would he sell? The other side of the coin is that executives with a lot of stock should diversify their wealth. He does still have stock options but selling his current stake could be seen as a big negative.

Technically PTCT has already seen a -20% correction from its March highs. On the plus side the action over the last two weeks looks like a bullish double bottom. Today the point & figure chart is bearish but a move above $65.00 would generate a new buy signal. The most recent data listed short interest at 14% of the very small 25.5 million share float so PTCT could see some short covering on a breakout.

The long-term trend is bullish and short-term PTCT looks ready to bounce. I want to warn readers that this is a higher-risk, more aggressive trade. We always consider biotech stocks to be higher-risk. The news about the CEO selling his stock generates doubt about the company's short-term future. Cautious traders may want to sit this one out. We're suggesting a trigger to launch small positions at $65.25.

*small positions* - Suggested Positions -

Long MAY $70 CALL (PTCT150515C70) entry $4.40

04/08/15 new stop @ 62.75
04/06/15 triggered @ 65.25
Option Format: symbol-year-month-day-call-strike

PUT Play Updates

Alkermes plc - ALKS - close: 63.20 change: +2.48

Stop Loss: 64.15
Target(s): To Be Determined
Current Option Gain/Loss: -7.0%
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

04/08/15: Strength in drug maker stocks fueled a big bounce in ALKS as shares soared +4.0%. The nearest resistance is the $64.00 level so we'll leave our stop at $64.15. More conservative traders may want to consider an early exit or a stop closer to $63.50.

I am not suggesting new positions.

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

Avis Budget Group, Inc. - CAR - close: 55.70 change: +0.16

Stop Loss: 60.05
Target(s): To Be Determined
Current Option Gain/Loss: +0.0%
Average Daily Volume = 1.7 million
Entry on April 07 at $55.85
Listed on April 06, 2015
Time Frame: exit PRIOR to May option expiration
New Positions: see below

04/08/15: The first four hours of trading saw CAR fading lower. Shares hit $53.84 at its lows. A big afternoon bounce erased its losses for the session. I am not suggesting new positions at this time.

Trade Description: April 6, 2015:
Investors sentiment for CAR seems to have soured. The company operates in a competitive, low-margin industry.

According to the company, "Avis Budget Group, Inc. (CAR) is a leading global provider of vehicle rental services, both through its Avis and Budget brands, which have more than 10,000 rental locations in approximately 175 countries around the world, and through its Zipcar brand, which is the world's leading car sharing network, with more than 900,000 members. Avis Budget Group operates most of its car rental offices in North America, Europe and Australia directly, and operates primarily through licensees in other parts of the world. Avis Budget Group has approximately 30,000 employees and is headquartered in Parsippany, N.J."

Another challenge is the broader transportation industry. Many market analysts view the transportation industries as a barometer of the wider economy. Fuel prices are significantly lower than they were a year ago. This is a net positive for the transports. This effect seems to be priced in. Now the weight of a slowing U.S. economy appears to be dragging the transportation average lower. Today saw the Dow Jones Transportation Average breakdown below key support at the 8,600 level.

Looking at CAR, the company's last three earnings reports have been mixed. They managed to beat Wall Street's earnings estimates on the bottom line three quarters in a row. Revenues are slowing down. Q2 revenues came in above estimates. Q3 revenues were up +6% but were just a hair below estimates. Q4 revenues were up +2% and missed estimates. Part of the problem is currency headwinds. The surging dollar has damaged their revenue growth. CAR's guidance when they reported Q4 earnings in February forecasted 2015 revenues below analysts' estimates.

Meanwhile traders have been selling the rallies. The late December rally failed near $68.00, marking a lower high from its 2014 peak. The rally failed again a few days later. The post-earnings spike in February produced another lower high. Now we see the oversold bounce from support near $56.00 has already rolled over. The point & figure chart is bearish and forecasting at $45.00 target.

Tonight we are suggesting a trigger to buy puts at $55.85. We will plan on exiting prior to May option expiration or CAR's earnings report in May (whichever comes first).

- Suggested Positions -

Long MAY $55 PUT (CAR150515P55) entry $1.95

04/07/15 triggered @ 55.85
Option Format: symbol-year-month-day-call-strike

iShares Transportation Average - IYT - close: 155.29 change: +1.15

Stop Loss: 156.25
Target(s): To Be Determined
Current Option Gain/Loss: -30.2%
Average Daily Volume = 458 thousand
Entry on April 08 at $154.41
Listed on April 07, 2015
Time Frame: exit prior to May option expiration
New Positions: see below

04/08/15: Crude oil plunged -5.19% after the weekly oil inventory report showed another big build in inventories. This weakness in oil helped fuel a bounce in the transports. The IYT opened at $154.41 and ended with a +0.74% gain. Our stop loss is at $156.25.

I am not suggesting new positions at this time. Wait for a new drop below $154.00.

Trade Description: April 7, 2015:
Weakness in the transportation stocks could be the canary in the coalmine warning of future stock market bearishness.

The IYT is an ETF that mimics the Dow Jones Transportation Average. The IYT's top ten holdings are: FDX, UNP, NSC, KSU, UPS, R, JBHT, CHRW, KEX, and ALK. Put them altogether and the IYT reflects trading in the railroads, trucking, and airlines.

Many analysts look to the transportation average as a key indicator because transport companies are a barometer of the economy. These companies are moving goods around the country and around the world. If these companies are seeing trouble then it could suggest the broader economy is slowing down.

Considering the weeks and weeks of disappointing economic data in the U.S. it should not surprise us to see the IYT underperforming the rest of the market. The first quarter of 2015 has definitely slowed down. Q3 2014 saw U.S. GDP growth near 5%. Q4 2014 was about +2%. Current estimates on Q1 2015 GDP growth are nearing 0%.

The impact of crude oil's drop from its 2014 highs has already been factored in. Now investors have to consider what happens if oil has bottomed? Oil has been consolidating sideways the last couple of months and it's already up +18% from its March lows.

This year we've already seen some transportation companies lower 2015 guidance. Railroad giant Kansas City Southern (KSU) lowered guidance. Fedex (FDX) also lowered its 2015 guidance. This year we have seen truck tonnage and rail carloads falling.

The DJUSAR airline index has produced a bearish double top pattern and just broke down under support this week. The DJUSTK trucking index has also created a bearish double top and is testing technical support at its 200-dma. The DJUSRR railroad index looks the weakest with a breakdown below its long-term up trend.

Technically the IYT looks like it's in serious trouble with the bearish breakdown below support in the $154-155 area and below its simple 200-dma. The point & figure chart is bearish and forecasting at $142.00 target.

Today shares of FedEx (FDX) surged on news it's planning to buy TNT Express, a European rival, for $4.8 billion. We think this is a one-day pop for both FDX and the IYT. Thus today's failed rally in the IYT near its 200-dma looks like an entry point to buy puts. Tonight we are suggesting traders buy puts at the opening bell tomorrow with an initial stop loss at $156.25.

- Suggested Positions -

Long MAY $150 PUT (IYT150515P150) entry $2.15

04/08/15 trade begins. IYT opens at $154.41
Option Format: symbol-year-month-day-call-strike


Copa Holdings - CPA - close: 104.14 change: +2.41

Stop Loss: 103.05
Target(s): To Be Determined
Current Option Gain/Loss: -68.1%
Average Daily Volume = 624 thousand
Entry on April 02 at $97.75
Listed on April 01, 2015
Time Frame: Exit prior to earnings in May
New Positions: see below

04/08/15: The bounce in CPA continued with a +2.3% gain. Much of that gain was in this morning's gap open higher at $103.46, which is above our stop loss at $103.05. Our trade was immediately stopped out.

- Suggested Positions -

MAY $95 PUT (CPA150515P95) entry $3.60 exit $1.15 (-68.1%)

04/08/15 stopped out on gap open higher
04/07/15 Caution - more conservative traders may want to exit now
04/06/15 Warning! CPA has created a potential bullish reversal pattern
04/02/15 triggered @ 97.75
Option Format: symbol-year-month-day-call-strike


Michael Kors - KORS - close: 64.88 change: +0.50

Stop Loss: 65.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 3.5 million
Entry on April -- at $---.--
Listed on April 04, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

04/08/15: KORS does not want to cooperate. Shares are up three days in a row. That doesn't mean I would buy it. The $64-66 area looks like potential resistance. Plus KORS has technical resistance at its 50-dma and then again at its trend line of lower highs.

Our trade has not opened yet and given the bounce we are choosing to remove KORS as a candidate. I would keep KORS on your radar screen. A failed rally near the 50-dma or a new low under $63.00 could be potential bearish entry points.

Trade did not open.

04/08/15 removed from the newsletter, suggested trigger was $62.90