Option Investor

Daily Newsletter, Saturday, 4/11/2015

Table of Contents

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

Market Wrap

GE Shocks the Market

by Jim Brown

Click here to email Jim Brown

General Electric unveiled a sweeping restructuring program and a plan to return up to $90 billion in cash to shareholders. That put GE on the top of the leader board for Dow components and helped jumpstart the market on Friday morning.

Market Statistics

GE finally pulled the plug on GE Capital and is selling the bulk of the divisions assets. About $26.5 billion in real estate assets were sold with Blackstone and Wells Fargo buying the bulk of that for $23 billion. Shares of GE soared 11% as Wall Street investors applauded the deal. GE Capital has been a drag on GE earnings for a very long time. Shedding GE Capital allows GE to turn its full attention back to manufacturing where it has been very profitable. GE said it authorized a $50 billion share buyback program and will return $90 billion to investors in the form of dividends and buybacks by 2018. They are planning on selling $165 billion in assets.

GE was founded by Thomas Edison in 1876. The company recently sold NBC Universal in 2011 and has been moving out of the appliance business. GE spun off its private label credit card business, Synchrony Financial in 2014. GE is also going to sell the majority of its commercial lending business and the leasing division and the rest of its consumer lending businesses. The only major financing operations it will keep are the ability to finance products GE manufacturers like aircraft engines, locomotives, etc.

The $50 billion stock buyback plan ties with Apple for the largest ever share repurchase program. Microsoft bought back $150 billion from July 2004 through 2007 but it was announced in stages with three $40 billion programs and one for $30 billion. GE has 10.7 billion shares outstanding.

GE shares rallied +11% to close at $28 but already analysts are talking about it returning to its all time highs of $60. After years of no material growth GE shares could be returning to "Widows and Orphans" status where anyone can buy and hold and be assured a safe return.

Somebody entered an option position on February 27th that is too good to be true. They bought 127,000 of the January 2017 $30 LEAPS at 80 cents or roughly $10.16 million dollars. Those LEAPS closed at $1.62 on Friday but I am sure they will be a lot higher before January 2017.

It was a good thing GE made some headlines on Friday because the economic calendar was very slim. The Import & Export Prices report showed import prices declined -0.3% in March after a minor +0.2% rise in February. Prices have declined in 8 of the last 9 months. The factor pushing prices higher was of course oil and oil products. This report was ignored.

The calendar for next week has a lot of reports but only two are normally market movers. The Fed Beige Book on Wednesday "should" continue to show modest growth in each of the Fed regions but given the number of times the weather excuse has been used over the last month there is the potential for a weakening of the adjectives used to describe the growth.

The Philly Fed Manufacturing Survey on Thursday is the preview of the next series of regional manufacturing reports. This is also seen as a proxy for the next ISM Manufacturing report on May 1st. The estimates for the Philly Fed which are encouraging since the headline number has fallen for the last four months from 40.2 in November to 5.0 in March. If it really does rebound to 8.6 as forecast then the worst may be over and it really was just the weather causing problems.

Netflix (NFLX) announced on Friday what could be a massive stock split. In a proxy statement filed late Friday Netflix proposed increasing the number of authorized shares from 170 million to FIVE BILLION. If shareholders approve the increase on June 9th the company will announce a stock split at a ratio "to be determined" following the meeting.

Immediately analysts were questioning what they were going to do with the monster number of shares. Are they planning on making a huge acquisition? Are they planning on doing a secondary offering to raise additional cash for acquisitions or production of additional content? Netflix said it had no plans for acquisitions or equity offerings. However, the company said the authorized shares will provide "greater flexibility" for all of those uses as well as executive compensation and other corporate purposes. Netflix said 5 billion was similar to the number of outstanding shares at other major technology companies. Netflix has only split its stock once and it was 2:1 in February 2004. With the share price at $454 it could easily do 4:1 or even 9:1 to bring the price down to $50 and in range of investors with limited budgets.

G-III Apparel announced a 2:1 split for May 4th and the stock is moving slowly higher. The company only has 22.5 million shares outstanding with 116,000 trading on Friday. It needs to do something to generate some additional interest and volume.

Brookfield Asset Management (BAM) announced a 3:2 split on Wednesday and moved to a new high. Brookfield has 631 million shares outstanding but the daily volume of 344,000 is not very heavy. A 3:2 split rarely generates a split run but never say never.

The big news for next week will be the acceleration into the earnings cycle. This is the week for the financials to report. JP Morgan and Wells Fargo lead the sector on Tuesday followed by Bank America, US Bank and Schwab on Wednesday. Goldman Sachs, American Express and Citigroup report on Thursday.

Some tech titans also report with Intel on Tuesday with Google, Netflix and SanDisk on Wednesday.

There is a lot of worry over this earnings cycle. The range of earnings estimates are from about -1.9% to as much as a -5% decline in earnings as a result of the strong dollar and severe winter weather. That compared to estimates for +5% growth at the start of Q1. Everyone is going to be using the dollar as a kitchen sink excuse and guiding lower for Q2, which is already projected to be down -2%. We may be approaching a point where the estimates are too bearish and we have the potential for some upside surprises. The bar is so low a snake would cross it. Typically when this happens the bearish expectations never come to pass.

The energy sector is going to be the biggest drag with estimates in the -59% to -62% range. If you take out energy the earnings growth for the rest of the S&P rises to about +4%. That is a lot better than the scorched earth estimates BUT only about 50% of the S&P derive a majority of their earnings from overseas and therefore are fighting the dollar impact.

The challenge is in knowing in advance which companies are really exposed to the dollar and which one only have minimal exposure. Johnson & Johnson reports on Tuesday and they have a very high exposure so expect some earnings pressure there.

This is the kickoff week for Q2 earnings and it will set the tone for the rest of the cycle. Hopefully the financial companies will not announce a new round of liabilities due to some new government witch hunt. Some of the shares of financial stocks are rising, GS and JPM as examples, so hopefully there will be some good news.

In stock news Caterpillar (CAT) rallied +2.4% after it said it was creating a big data division to capitalize on the growing importance of data analytics. Caterpillar as a cloud company? Who would have ever thought yellow bulldozers would make into the clouds. However, this is not new. GE and Komatsu are partnering to provide big data analysis for mining projects. Caterpillar said it is planning on transforming the mountains of incoming data on fleets of machines or even just an engine to provide data for the owners that will help them maintain and better manage their fleets.

The term "cloud computing" and using the "big data" buzz word is almost guaranteed to lift your stock. That is unless you are Alibaba (BABA). The company said it was launching an automotive unit and a "smart living" division that will combine its cloud computing, big data and hardware operations. The company is counting on its big data analysis and cloud computing abilities to boost its online sales in more specialized categories. They also plan to include car marketing services built around Alibaba's big data analysis. The news did not help their stock with a -2% decline. BABA shares just can't seem to hold any gains. With the lockup expiring on 1.2 billion shares on September 20th it appears nobody is buying even for a short term bounce. The bloom is definitely off this rose.

Apple (AAPL) had a good day on Friday. The shares did not move much but Friday was the first day of sales for the Apple Watch. The Watch sold out in about half an hour and delivery dates are now being quoted for a June or July ship date depending on the model. However, despite selling out quickly the lead time for the backordered watches did not get longer as the day progressed. If there had been strong demand the orders placed later in the day should have been quoted farther into the future. The watch went on sale at 3:AM Eastern time. By 6:AM the lead times were quoted as 4-6 weeks. At 7:30 it was still 4-6 weeks and at noon it was still 4-6 weeks with some styles quoted in early July.

Analysts said there was very limited inventory because of all the different versions, colors, bands, etc. This was not like an iPhone where there are 4 models and Apple can produce tens of millions in advance because they know they will eventually sell. With dozens of combinations of styles, colors and material they did not know which would be the big sellers and which were duds. By making only a few of each style they knew they could quickly manufacturer the models that were selling and not have excess inventory of the unpopular versions. Their limited inventory sold out fast and the lack of extended lead times suggests they can manufacture them to order very quickly.

Analysts don't believe Apple will rush to quote sales figures for the opening weekend. Why advertise you only sold one million watches when you only had one million to sell. People are expecting huge sales numbers and Apple would not want to disappoint.

One other factor is the "managed shortage." By saying they sold out in 30 minutes it creates artificial demand because everyone hearing the news suddenly assumes there were tens of millions of buyers. If Apple can maintain a shortage because of high demand then it makes for good headlines as long as you don't disclose how many you actually sold. The black link 42 mm watch has the longest lead time so that one could be hard to get in the near future.

There are roughly 450 million iPhones in circulation. The cult of iPhone tends to buy whatever new thing Apple produces. If only 1% of iPhone users bought a watch that is 4.5 million. If 10% bought a watch it would be 45 million. At $399 and up for the watch that is a huge amount of revenue for Apple even at the lower numbers. For most people they probably need to visit an Apple store and actually see a demo of the watch to convince them to buy. Just looking at a 30 second clip on TV or reading the features may not be enough to cause them to buy. Charging your watch every night is a new concept and buyers probably want to be able to see, feel and play with one before they buy. Apple will refund your money in full if you return the watch within 14 days.

If you really want an Apple Watch you can buy it on Ebay. Within hours of the watch going on sale, hundreds showed up on Ebay for a premium of as much as 40%. You could also rent one for a week from Lumoid, a San Francisco based startup. You can rent the Sport edition for $45 for a week or the stainless steel version for $55 a week. There are already 3,000 people on Lumiod's waiting list. Unfortunately you can't rent the $10,000 18-karat gold watch.

Symantec (SYMC) rallied 5.6% after the Wall Street Journal said the company was looking to sell its Veritas unit and it may be worth more than $8 billion. Symantec bought Veritas in 2005. Now it wants to spin off the data storage business to focus on anti-hacking services and other security technology. Symantec is reportedly talking to private equity firms and other industry participants.

Oil hit a new high for the year on Tuesday but that was before inventories rose +10.9 million barrels on Wednesday. That was the biggest weekly gain in 14 years. Oil in inventory rose to 482 million barrels and an 80 year high. While we are moving closer to the high demand driving season the demand is just now starting to creep up slowly.

Refiners took in 15.93 mbpd last week and operated at 90.1% of capacity. However, imports rose from 7.53 mbpd to 8.22 mbpd and that contributed most of the inventory gain. Refiners are still buying cheap oil because they know that prices will rise in the summer and they can refine their cheap oil in inventory and sell the refined products at much higher prices.

Active rigs declined -40 to 988 with oil rigs declining -42 to 760 and gas rigs rising +3 to 225. Offshore rigs gained +2 to 33. Active rigs are now down -48.8% from their September high at 1,931. Oil rigs have declined from 1,609 to 760 or a -52.7% drop. The pace of the rig decline in the prior two weeks was 20 per week. Analysts had started to suspect that maybe we had reached the bottom of the decline. The acceleration this week just reinforced the fact that the decline is not over. Rig counts have now fallen for 18 consecutive weeks.

Crude prices continue to hold over $50 despite news that Saudi Arabia produced a record of 10.3 mbpd in March. OPEC production in March was 31.5 mbpd, an increase of 1.2 mbpd from February and 2.0 mbpd over March 2014. The OPEC quota is only 30.0 mbpd but OPEC producers are no longer obeying their quotas. Analysts believe Saudi Arabia is trying to capture as much market share as possible before Iran is given a green light to begin selling oil again. Once that happens there will be a price war between the Persian Gulf suppliers. Saudi Arabia indicated it could produce more if there were buyers. Saudi has claimed maximum production capability of 12.5 mbpd since the recession.

U.S. crude inventories have risen 99.9 million barrels over the last 13 weeks. In the chart below the blue line is the current inventory. The gray shaded area is the average inventory range over the last five years. Clearly we are swimming in crude.


The S&P actually closed over 2100 for the first time since March 23rd. It has been a rocky road up from the 2045 low on March 26th but any gain is still a gain. Just getting over 2100 is a psychological victory but the real resistance is still ahead. The next battle is downtrend resistance at 2110 from the March highs and the lower high on March 20th. Next in line would be the historic closing high at 2117.

If the earnings from the financial sector turn out to be bad news it could be really tough for the S&P to break through those resistance levels. However, if the banks surprise to the upside it could build a fire under the market because expectations are very low.

The internals have been improving. The percentage of Nasdaq stocks over their 50-day average has risen to 64.2% and a three week high. The percentage of S&P stocks over their 50-day average is 65.6% but not nearly as positive as the Nasdaq, which is closing in on the 5000 level.

Tough test ahead with resistance at 2110 and 2117. Support is now 2075 and 2050.

The Dow hit downtrend resistance at the close at 18,050 with horizontal resistance at 18,100. With multiple Dow components reporting earnings next week the index should be volatile. The financial companies will be the biggest risk. JP Morgan and Goldman Sachs both report and Goldman is now the largest weighting in the Dow. Intel and Johnson & Johnson both report as well. Intel's low stock price would require a major move in Intel shares to dramatically impact the price weighted Dow.

The next material resistance is 18,100 followed by 18,200. Support is well back at 17,850 and then 17,600.

The Nasdaq was relatively strong last week with the Composite gaining +2.23% and the Nasdaq 100 adding +2.46%. Those were the largest gains of any of the major indexes. The Composite index closed at 4996 and just under the psychologically important 5000 mark. The closing high back on March 20th was 5026.42 making that the next target if it makes it through the 5000 level.

Despite the gains by the Nasdaq 100 it is still the weaker of the two indexes because the Nasdaq big caps do have exposure to the strong dollar. Support on the NDX is still 4300 and it has been rock solid. Resistance is 4475 and it has held twice before. If Intel and/or Google have a bad earnings report it could prevent the big caps from maintaining their momentum and the 4475 level could become insurmountable ahead of the summer doldrums. Conversely if those companies post good results it could trigger a short squeeze that powers the NDX to new highs.

The small cap Russell 2000 only gained 0.7% last week but it did manage to return to within 2 points of its historic high close of 1266.37. The Russell had a tough week with multiple intraday selling spurts but they were all bought and the index closed at the high for the week. I suspect this was profit taking as the index neared its highs and the big caps suddenly showed some renewed strength. We need for the small caps to break out to a new high to reenergize the market. We are lacking a decent catalyst to increase the upward momentum and I am concerned the big cap earnings next week could be a challenge. Having the Russell breakout would go a long way towards overcoming some less than stellar big cap results.

The FedEx news it was buying TNT in Europe helped to lift the transports but after four days of gains it is probably time for FDX to rest and the transports as well. The support at 8600 was just barely broken before FDX rescued the index from a collapse. However, if oil prices continue to rise then the transports should weaken again.

The NYSE Composite Index is only 10 points from a new historic high over 11,122 and this is a big deal. The NYSE index is heavily populated by small financials and energy stocks. If the NYSE can manage a breakout and hold its gains it would suggest the other indexes will follow. This is a very bullish setup.

While there are plenty of chances for disaster next week the steady creep higher by the Russell and the NYSE plus the sudden sprint by the NDX suggests the bulls are gaining confidence. If the NYSE and Russell can breakout to new highs it would be very bullish for the market and investors could be enticed to overlook some of the earnings misses. This is going to be a critical week for market direction and it is starting out with some bullish possibilities.

Random Thoughts

It was a good week to be Lloyd Blankfein. He is the CEO of Goldman Sachs and the board awarded him $24 million in compensation for 2014. That was a 4.3% increase. Blankfein receives $2 million in annual salary plus a cash bonus ($7.33 million) and $7.33 million in stock awards and $7.33 million in performance-based restricted stock awards. The $24 million works out to a daily income of about $92,307 for the 260 work days of 2014. That would make you want to get out of bed in the morning with a spring in your step!

The Washington Times, citing a U.S. Army analysis, reported that Iran has stepped up production of "suicide drones" specifically to target U.S. Navy vessels in the Persian Gulf and the Gulf of Aden. The Iranian military has been testing them against ship targets near the Strait of Hormuz. The drones are inexpensive, hard to see and shoot down because of their size and can be used in a swarm against Navy ships. They can also be used to limit takeoffs and landings of aircraft from naval ships. Filling the sky with a few of these in the traffic pattern could cause havoc for U.S. carriers in the Persian Gulf. They are also sharing this technology with Hamas and Hezbollah for use against Israel. What do you think they would do with a nuclear weapon?

Germany has decided to order 100 additional Leopard 2 tanks to ensure its "troops are ready for action in response to concerns over recent Russian assertiveness." I guess assertiveness is a politically correct word to use in place of aggression. This will increase Germany's tank force by 45% to 325. When the cold war ended in the 1980s Germany had 3,500 tanks. NATO has given Europe new goals on flexibility and rapid reaction time that requires all the NATO countries bordering Russia upgrade their forces. Nobody wants to be the next annexation target for Putin.

Deutsche Bank said every portfolio manager in the world should look at this chart every day. The blue line is the forecast for ECB rate hikes, currently December 2019. The red line is the Federal Reserve, currently March 2016. The implied gap between the two central banks has never been wider. Europe is expecting ECB-QE in some form to last 2-3 years. This means the euro currency is going to decline a lot further.

Because of the QE by the ECB, Japan and stimulus from 21 other central banks there is a global bull market in progress. The MSCI All Country World Index (ACWI) broke out to a new high last week. With no end in sight for global stimulus there is no reason this should not continue. Every country is trying to cheapen their currency to make their products more attractive to the rest of the world. When one country does it they can be subject to sanctions by the world body. When 23 countries do it a currency war is born. Welcome to the war!

Stocks in the Hang Seng Index rallied 7.9% last week and now up +16% YTD. The Japanese Nikkei topped 20,000 for the first time in 15 years. The Stoxx Europe 600 hit highs not seen since 2000 and up +21% since the ECB began buying bonds. Fourteen out of 47 national equity benchmarks have hit record highs in 2015.

As further evidence of the insanity in the global financial markets Switzerland sold ten-year bonds with a negative yield. Buyers are actually paying Switzerland to hold their money for ten years.

Even worse Mexico sold 100-year bonds denominated in euros at a yield of 4.2%. Yes, 100-year bonds in euros, not pesos. Mexican pesos can be devalued but the value of the euro is out of Mexico's control and therefore a safer investment. That is of course if you don't think Mexico will implode with a civil war over the next 100-years. There is another obvious question about the euro. With Greece probably going to leave the eurozone soon and several other countries likely to follow will the euro currency itself even be around for the next 100 years?

This is also a risk for Mexico. If the eurozone gets its problems worked out and the economy rebounds and the ECB halts QE and raises interest rates in 2020 to combat an economic boom then Mexico could be in trouble. In 2001 a euro bought 7.7 pesos. Today a euro buys 16.1 pesos. That is a drop of more than 50%. That would require Mexico to spend twice as many pesos to buy back their euro denominated debt. The odds are good that Mexico's economic future is far worse than Europe and the peso will decline even further. This could end up being a very bad deal for Mexico.

In the FOMC minutes last week several participants noted that the strength in the dollar was likely to restrain U.S. economic growth for "a time." That is code for we don't know how long this will last OR we can't say what we actually believe. The dollar will remain strong as long as the euro is falling and with the ECB in unlimited QE mode that could easily be a very long time. That means rate hikes are moving farther into the future.

Participants also noted lackluster spending and tepid wage growth and both are reasons the first rate hike may be later than expected.

The Fed is becoming more worried that the economy may be entering a soft patch and there was significant confusion in the minutes about the Fed's future direction. Cue a new discussion on "data dependent" rate hikes.

Venezuelan inflation rose +69% through December. The projection for 2015 is +200% according to Bank of America. The country's GDP is expected to decline -4%. The 50% drop in oil prices was a crushing blow to a country that was already in trouble as a result of the worst government in the civilized world. The bolivar has declined -74% to 257 to the dollar. The central bank is responsible for publishing the monthly inflation numbers and has not published any reports in 2015. The bank began omitting certain categories in 2014 in order to make inflation seem lower. If they included those categories in 2015 the official inflation rate could reach 250%. In order to combat the loss of revenue from oil sales the government has limited imports of consumer products in order to maintain its limited currency reserves. The lack of available consumer goods has pushed the prices of what is available to levels that nobody can afford.

The country is ripe for a revolution. Millions of hungry citizens will eventually become unmanageable and the government will fall. There is no recovery from the current economic problems until the government changes.

A Bloomberg Intelligence analyst just traveled across China and came back with terrifying reports on the state of China's economy. He saw idle cranes, empty construction sites and half finished abandoned buildings in several cities. His conversations with business executives reinforced the "gloomy" outlook. China recently lowered its GDP growth target to 7% for 2015 but officials said it would be tough to achieve. Unofficially the expectations are more in the 6.5% range and that includes all the "optimistic" bookkeeping that is used to justify the government numbers. Bloomberg Link

The tax filing deadline is April 15th but 67% of taxpayers have already filed their return. The average refund as of April 3rd was $2,815. IRS has received 99.1 million returns and paid out 77.2 million refunds, totaling $217.35 billion. A lot of that money will find its way into the stock market. Another large chunk will go to pay down credit card bills and the rest will end up in retail spending as families use the unexpected bonanza to buy a new TV or as a down payment on a car.

There is no Iranian deal. The Iranian supreme leader, Khamenei, has denied everything on the fact sheet released by the Obama administration as a lie. He said there would be no changes in the nuclear processing, sanctions would have to be lifted on day one or there would never be a deal and Iran was going to continue on its nuclear research (read as: weapons research) regardless of any claimed deal.

One former negotiator related his history with the Iranian negotiators several years ago. He said they would agree on something on one day and when they met again the next day the Iranians would claim they never agreed to it. To combat this problem the western side had all the discussions written down in Farsi. When they agreed on something at the end of the day they would read it back in Farsi and ask the Iranian negotiator if this was correct. When he said it was they had him sign it. The next day the Iranians claimed they never agreed to those claims. When they produced the papers with his signature, he claimed he never signed it and the signature was a forgery. The former western diplomat said negotiating with Iran was a waste of time. While the West was trying to get a deal the Iranians were only trying to stall for time so their research could continue. The current president of Iran, Hassan Rouhani, was a former nuclear negotiator for Iran. He has bragged many times that he was able to delay the negotiations for five years while the Iranian nuclear program grew rapidly.

I would bet there will be no deal by June 30th. If there is a deal it will not be honored. Under Sharia Law it is not a sin to lie and deceive in order to promote the spread of Islam. Iran makes full use of this exemption.

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Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"What investors say they'll do and what they'll actually do are two different things. Everyone is a long-term investor when the market's going up, but we find out who really means it when the market falls."

Todd Wenning



Index Wrap

Support Holds Again, What About Higher Highs?

by Leigh Stevens

Click here to email Leigh Stevens

Index support areas have held repeatedly but rallies have yet to make new highs. With earnings season upon us are breakouts ahead? My crystal ball is cloudy on this answer. The Market could of course get 'locked' into a trading range again; OR, higher rally highs could develop with the most recent rally. Buying interest at prior support seemed solid. That we have seen.

I wrote LAST WEEK that: "Friday's reported drop in job creation might be construed as a longer-term bullish plus in that the Fed may hold off on raising rates." Exactamundo!

The recent rally 'looks' like it could continue but so did the rally before that one. Traders collectively have turned recently bullish in their outlook, although trading sentiment has also had wide swings between bullish and bearish.

Longer-term weekly and monthly charts show bullish uptrend price channels. Resistance implied by upper channel lines don't intersect until around 2170 in the S&P 500 (SPX), 18600 in the Dow 30 (INDU), the 5200 area in the Nasdaq Composite, 4525 in the big cap Nas 100 (NDX) and not until 1350-1360 in the Russell 2000 (RUT).

I'm taking a wait and see attitude on near-term outcomes. This market needs to get less 'whippy' for me to feel confident wading in. Rallies develop then fall apart. Buying calls at support for short-term traders have garnered 50 points in SPX here and there. There have been price swings of this magnitude on the downside too but there's not as much of a repeated prior line of resistance to work off from. Well, SPX did come close to making an exact double top at the last run toward 2120 when it hit 2115.

I'm not one to stay glued to the screen everyday to try to eke out profits on these smaller price swings. Well, to me they seem 'small' but it's relative of course. But, it's not like buying the last SPX dip to under 2000 and exiting over 2100. I'll prognosticate further on with each index as to possible outcomes.

The S&P 500 Volatility Index (VIX):

The VIX Index is trending lower as it's fallen to below 13 and could be headed for the 12 area if the recent price trend continues steady.

There's some tendency for VIX to rebound when the Index falls into its 'oversold' zone in terms of the 13-day Relative Strength Index (RSI), which is seen in the chart.

If convinced of another top ahead, buying VIX calls is one way to 'hedge' stock exposure or to speculate, especially if VIX again hits or comes close to 12. Stay tuned!



Here we go again as the S&P 500 (SPX) looks to be making another run to the area of its prior highs. The week began with a strong move to above the 21-day moving average, with the average then offering support on intraday pullbacks. The weekly Close was then above 2100; so far, so good for the bulls.

Now it's all about what happens if there's another stall at prior highs OR a next up leg that carries to above 2115-2120 when we can see the extent of buying at new highs.

Resistance is highlighted at 2120; next resistance is then projected for the 2150 area. I noted above in my initial 'bottom line' comments that longer-term resistance in SPX looks to come into play around 2170 currently. Near support begins at 2080, extending to 2073; next lower technical support is seen in the 2050 area.

Bullish sentiment, as measured by my CPRATIO indicator jumped at the beginning of the trading week just ended. But bullish conviction among traders isn't yet mostly nonchalant when bearish news breaks.


The S&P 100 (OEX) is mixed in its pattern. We can most firmly say that OEX is finding good buying support in the 896-893 area and selling interest as OEX gets toward 930.

Resistance is highlighted at 925, extending to 932. Next resistance is projected at 940. Longer-term weekly charts (not shown) suggest potential resistance coming in around 950.

The 13-day Relative Strength Index isn't showing an 'overbought' extreme currently, so there's room on the upside so to speak before we'd see an RSI 'warning' sign of risk of a peak.

Near support is highlighted at 905, then at 895. I liked the risk to reward of adopting bullish strategies on dips to the 895 area. A next move to retest the last high near 925 seems quite possible. There's also potential for a retest and possible piercing of the prior 932 high. I'm less convinced of a new high scenario.


The Dow 30 (INDU) Average is also mixed in its pattern in that its uncertain as to whether INDU is in a trading range or capable of a decisive move to new highs. INDU's current pattern suggests potential for the Average to retest resistance at 18200, with resistance extending to the prior early-March intraday peak of 18288.

I didn't highlight on my chart below a next resistance projection of around 18500. Longer-term weekly charts (not shown) suggest 18600 as potential resistance coming in at the upper end of INDU's current broad uptrend price channel.

Support is seen in the 17870 area, then at 17700. A retest of resistance ahead looks to have the edge over a retest of support.

Last week I was suggesting that: "Bullish longer-range uptrends remain mostly intact (only) in: AAPL, DIS, GS, HD, JPM, MMM, NKE, PFE, TRV, UNH, and V." I would add this week to the prior bullish potential list possible minor to moderate upside ahead in: BA, DD, CAT, GE (already happened!), IBM, JNJ, MCD, and MSFT. This expands the list of stocks with possible further upside potential to perhaps 18 of the 30 stocks.

Tallying bullish chart patterns suggests potential for further gains and a mildly, not wildly, bullish outlook.


The Nasdaq Composite (COMP) has a mixed chart but COMP looks headed to a retest of important technical resistance in the 5000 to 5040 area. A sustained move above 5000-5040 is needed to suggest potential to the 5100-5130 area. Longer range resistance on weekly charts (not shown here) comes in at 5215 so the daily and weekly charts line up so to speak.

Support levels are highlighted at 4900, then at 4865.

Bullish sentiment seems a bit 'overdone' given the possible difficulty of piercing milestone resistance at 5000-5050. I don't see major upside potential for COMP ahead; if the Index can achieve a decisive upside penetration of 5000-5040, perhaps there's move ahead that reaches the 5100-5125 area.


The big cap Nas 100 (NDX) is mixed but the most recent rally, like the one that preceded it, looks capable of re-testing prior highs and possibly busting out above those highs. 'Capable' is the operative word as it's hard to say whether there's a move to a new high afoot. We don't see many 'triple tops' in the indexes but stay tuned on that!

I put foot in mouth last week when I suggested that: "Lows in the 4289-4280 area have been seen 3 times now but this implied line of support may not hold up on a re-test of it." Well, buyers did come in yet again at the prior lows! Prior support levels are important in technical analysis but the MORE times those levels are re-tested, skepticism about how much buying will keep showing up there also comes in.

Resistance is suggested at 4450, then at the prior intraday peak at 4483. I didn't highlight a potential next resistance above the prior top but it looks like NDX has potential (in a new up leg) to 4550, which is also longer-range weekly chart resistance over the coming two week period. Support is highlighted at 4350, extending to the 4300 area. I envision more potential in the coming week for a re-test of prior NDX highs than a retest of 4350 support coming up.

Volatility as measured by VXN is at a low level around 14 where the Index has made tops in the past. Just saying!


The Nas 100 ETF (QQQ) is mixed like the underlying Nas 100 index pattern in that the current rally is the third attempt to re-test the prior top and possibly break out to out to new highs. The third time may be the 'charm' here and it is true that for whatever reason TRIPLE tops are less common than double tops.

Assuming QQQ pierces near resistance at 108, then makes it to the 109-109.4 area of its prior top, I'd bet on it to keep going, at least a little. Either a rally ahead here tops 109 by a little or short-covering and new buying kicks in for a more prolonged advance. A sizable further up leg could take the Q's to the 111 area.

Near support is now bumped up to 106, with next lower chart support coming in at 105.

This recent rally has been accompanied by QQQ's 'typical' low volume on upswings, so unlike breakout moves in individual stocks such as just seen with GE this past week. Well, that was big news for the company but the volume to price pattern is different in the NDX tracking stock. You can mostly trust bulls have turned to bears if there's HEAVY volume in QQQ. What I do look for as a volume 'confirmation' is the On Balance Volume (OBV) line heading UP; you can see the OBV line above the daily volume 'bars'.


The Russell 2000 (RUT) remains bullish in its chart pattern as it continued to find technical support on pullbacks to its up trendline. I thought (last week) that resistance at 1260 would be tough to overcome but it's really a retest of the prior intraday high at 1268 that's the focus now. Assuming a new high/upside 'breakout', next resistance looks like 1280, extending to 1286.

RUT has the most bullish longer-term chart in that upside resistance projections are well above current levels, which is not the case in the other major indexes. Resistance looks to come in around 1300 on weekly charts (not shown), but a next longer-range target is closer to 1350-1360. Technical/chart support is seen at 1250, extending to 1240.

I would keep an eye on the 13-day Relative Strength Index/RSI in that RUT has a tendency for pullbacks of 20-30 points (or more) when the RSI hits overbought levels as suggested on the RSI bottom portion of the daily chart.


New Option Plays

Revenue Growth Is Soaring

by James Brown

Click here to email James Brown


Palo Alto Networks, Inc. - PANW - close: 147.97 change: +1.92

Stop Loss: 144.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.3 million
Entry on April -- at $---.--
Listed on April 09, 2015
Time Frame: Exit PRIOR to earnings in late May
New Positions: Yes, see below

Company Description

Why We Like It:
The world we live in is quickly turning into a digital one. That makes cyber threats and the security to stop them a huge business. Just this past week there were headlines that Russian hackers had invaded the White House and accessed sensitive data.

There is a nearly constant stream of headlines about big name American companies being hacked. Some of the recent ones include Anthem, Home Depot, JPMorgan Chase, and Target. Even the National Oceanic and Atmospheric Administration satellite system has been hacked (allegedly by Chinese hackers). More and more we're seeing sophisticated attacks from unfriendly governments (e.g. Russia, Iran, China, and North Korea).

PANW is cashing in on the growing need for online security. According to the company, "Palo Alto Networks is leading a new era in cybersecurity by protecting thousands of enterprise, government, and service provider networks from cyber threats. Unlike fragmented legacy products, our security platform safely enables business operations and delivers protection based on what matters most in today's dynamic computing environments: applications, users, and content."

Earnings have been skyrocketing. The company has been beating Wall Street's estimates on both the top and bottom line. PANW has also been consistently guiding higher, above analysts' estimates. The last three quarters have seen revenue growth above +50% each.

Their latest report was March 2nd. Analysts were expecting $0.17 a share on revenues of $203.99 million. PANW delivered $0.19 with revenues up +54% to $217.7 million. Management guided the current quarter to $0.19-0.20 a share with revenues of $219-223 million. Wall Street was only expecting $0.19 on revenues of $214 million.

PANW recently held their analyst day on March 30th and the general consensus was pretty optimistic. One firm said PANW's growth opportunities are red hot. PANW also released a new subscription service - the AutoFocus cyber threat intelligence service. PANW's senior VP of product management, Lee Klarich, commented on their new product saying, "The Palo Alto Networks AutoFocus threat intelligence service enables security teams to significantly close the gap on the time it takes to identify and prevent advanced, targeted cyber attacks. By putting cyber threats in a context that speaks specifically to their network and industry, using the largest data set aggregated across customers and industries, we are helping customers around the world take a more strategic approach to securing their organizations."

Technically the long-term trend is higher. Yet shares of PANW have been consolidating sideways in the $135-150.00 zone for the last six weeks. That consolidation is narrowing with shares up sharply this past week. The stock looks poised to breakout past resistance near $150 soon. Wall Street's median price target is currently $165.00. I suspect it could go a lot higher over the next twelve months.

We want to be ready if PANW does break through round-number, psychological resistance at the $150.00 level. Tonight we are suggesting a trigger to buy calls at $150.55.

Trigger @ $150.55

- Suggested Positions -

Buy the JUN $155 CALL (PANW150619C155) current ask $6.20
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

Buybacks & Digital Watches

by James Brown

Click here to email James Brown

Editor's Note:

On Friday the stock market seemed enamored with news of a massive $50 billion stock buyback announcement by General Electric (GE). Plus there was the opportunity to finally see the Apple watch in person but if you want to buy one you have to buy it online and wait about six weeks for delivery.

LII and IYT were both stopped out on Friday.

AMBA hit our bullish entry point.

Current Portfolio:

CALL Play Updates

Ambarella, Inc. - AMBA - close: 75.80 change: +0.59

Stop Loss: 72.45
Target(s): To Be Determined
Current Option Gain/Loss: -14.0%
Average Daily Volume = 2.0 million
Entry on April 10 at $76.15
Listed on April 09, 2015
Time Frame: Exit prior to May option expiration
New Positions: see below

04/11/15: Our brand new call trade on AMBA is open. Shares rallied toward its recent highs before paring gains ahead of the weekend. Our suggested entry point to buy calls was hit at $76.15. I would still consider new positions now. As an alternative you could try and buy calls on a dip near short-term support at the 10-dma (currently 74.05) or on a rally above $76.50.

Trade Description: April 9, 2015:
If you're looking for relative strength then AMBA has it in spades. Year to date the stock is already up +48%. AMBA is in the technology sector. They're considered part of the semiconductor and semiconductor equipment makers. The company was founded in 2004 and went public in October 2012 at $6.00 a share. That price was significantly below where AMBA was expected to price in the $9-11 range. Investor sentiment has definitely changed since then.

The company has grown from making broadcast-class encoders to making consumer and sports cameras, security cameras, and now automotive cameras. Their high-definition chips are being integrated into security IP cameras and wearable cameras. AMBA is also capturing part of a new market - cameras on consumer-level remote control drones.

The last two plus years have seen a strong performance in AMBA with the stock up more than +600% from its IPO price. AMBA has GoPro, Inc. (GPRO) to thank for part of that rally. GPRO came to market in June 2014 and the stock has been in rally mode since mid August with a rally in GPRO from less than $40 to $90 a share. I mention GPRO because AMBA happens to make the HD camera sensors in many of GPRO's action camera products. GPRO's IPO drew a lot of attention to AMBA. Now GPRO's rally has collapsed while AMBA has continued to climb.

Part of GPRO's trouble is competition from a large Chinese rival - Xiaomi. GPRO is currently seen as best of breed in the action camera market but it may not hold that spot forever. Xiaomi is selling similar cameras at a significant discount to GPRO and both cameras use AMBA's technology. Both camera makers have different models. GPRO's top of the line still has better components than Xiaomi's - at least for now. The real winner is AMBA since they supply to both companies. Multiple analysts have commented on AMBA's relationship with Xiaomi and believe it will bear significant fruit in the future.

AMBA has been killing it on the earnings front. They have beaten Wall Street's earnings and revenue estimates for the last five quarters in a row. Their most recent report was their Q4 results on March 3rd. Analysts were expecting a profit of $0.49 a share on revenues of $59.3 million. AMBA delivered $0.68 a share with revenues soaring +61% to $64.7 million.

Shorts are getting killed. As the rally continues AMBA could see more short covering. The most recent data listed short interest at 27.7% of the small 29.2 million share float. Meanwhile the point & figure chart is very bullish and forecasting a long-term AMBA target at $106.00.

The last few days have seen shares of AMBA consolidate sideways between short-term support at its 10-dma and resistance near $75.00. Tonight we are suggesting a trigger to buy calls on AMBA at $76.15.

NOTE: GPRO, one of AMBA's biggest customers, reports earnings near the end of April. GPRO's results could significantly influence trading in AMBA's stock.

- Suggested Positions -

Long MAY $80 CALL (AMBA150515C80) entry $2.50

04/10/15 triggered @ 76.15
Option Format: symbol-year-month-day-call-strike


Cardinal Health, Inc. - CAH - close: 90.52 change: +0.63

Stop Loss: 87.75
Target(s): To Be Determined
Current Option Gain/Loss: -12.6%
Average Daily Volume = 1.7 million
Entry on March 30 at $90.55
Listed on March 28, 2015
Time Frame: Exit PRIOR to earnings on April 30th
New Positions: see below

04/11/15: CAH is looking a bit healthier today. Friday's +0.7% gain managed to outpace the major indices. Yet CAH is still inside the short-term trading range around the $89.50-90.50 area. The $91.50 level is additional resistance overhead.

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


G-III Apparel Group, Ltd. - GIII - close: 117.49 change: -0.15

Stop Loss: 111.95
Target(s): To Be Determined
Current Option Gain/Loss: -15.5%
Average Daily Volume = 207 thousand
Entry on April 09 at $116.77
Listed on April 08, 2015
Time Frame: Exit PRIOR to the 2:1 split on May 4th
New Positions: Yes, see below

04/11/15: GIII found support near $116.00 on Friday. Shares managed to pare its losses and closed almost unchanged for the session. I would still consider new bullish positions at this time. Just remember our time frame. We want to exit prior to the stock split on May 4th.

Trade Description: April 8, 2015:
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.

- Suggested Positions -

Long MAY $120 CALL (GIII150515C120) entry $2.90

04/09/15 triggered @ 116.77, on a midday gap higher
Suggested entry was $116.65
Option Format: symbol-year-month-day-call-strike


iShares Russell 2000 ETF - IWM - close: 125.62 change: +0.60

Stop Loss: 122.85
Target(s): To Be Determined
Current Option Gain/Loss: +32.0%
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

04/11/15: The small cap IWM ETF slowly chewed its way higher this past week. Shares are nearing potential resistance at its all-time highs set last month in the $126.00-126.30 area.

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


Nike, Inc. - NKE - close: 99.97 change: -0.75

Stop Loss: 97.40
Target(s): To Be Determined
Current Option Gain/Loss: -35.5%
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

04/11/15: I don't see any news that would explain why NKE has been lagging the market this past week. Shares seem to be stuck oscillating sideways on either side of the $100 mark. NKE hasn't seen a close above $101.00 in about two weeks. Investors may want to use that as a requirement before considering 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


PTC Therapeutics, Inc. - PTCT - close: 71.66 change: -0.11

Stop Loss: 64.75
Target(s): To Be Determined
Current Option Gain/Loss: +40.9%
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

04/11/15: After Thursday's volatile trading shares of PTCT turned in a relatively quiet Friday. Traders bought the dip near $70.00 on Friday morning. Tonight I'm raising the stop loss to $64.75. More conservative traders may want to raise their stop even higher. I am not suggesting new positions at this time.

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

04/11/15 new stop @ 64.75
04/09/15 DB raised their target from $75 to $115
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: 63.52 change: +0.96

Stop Loss: 64.15
Target(s): To Be Determined
Current Option Gain/Loss: -9.3%
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

04/11/15: ALKS displayed relative strength on Friday with a +1.5% gain. It was also the second day in a row that the rally failed near resistance at $64.00 and its simple 20-dma. If this level breaks then ALKS should hit our stop loss at $64.15.

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: 55.00 change: +0.14

Stop Loss: 60.05
Target(s): To Be Determined
Current Option Gain/Loss: +17.9%
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

04/11/15: Shares of CAR underperformed the market all week. Shares failed to participate in the widespread rally on Friday. I'd keep a close eye on the $56.00 level, which as prior support should be new resistance. Nimble traders could use another failed rally near $56.00 as an alternative entry point for bearish positions.

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



Lennox International - LII - close: 111.20 change: -0.20

Stop Loss: 110.25
Target(s): To Be Determined
Current Option Gain/Loss: -27.5%
Average Daily Volume = 417 thousand
Entry on March 23 at $110.96
Listed on March 19, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

04/11/15: Upward momentum in LII seemed to stall a little bit this past week. The stock hit a new record on Monday and spent the rest of the week churning sideways. LII encountered some profit taking on Friday that pierced potential support at $110 and its 20-dma. Our stop was hit at $110.25.

- Suggested Positions -

JUN $115 CALL (LII150619C115) entry $2.55 exit $1.85 (-27.5%)

04/10/15 stopped out
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



iShares Transportation Average - IYT - close: 157.11 change: +1.10

Stop Loss: 156.25
Target(s): To Be Determined
Current Option Gain/Loss: -51.2%
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

04/11/15: Our bearish bet on the transports did not pan out. Another weekly gain in crude oil should have helped our bearish bias. However, a widespread market rally had this trade swimming against the current. Our biggest problem was FedEx (FDX). FDX is the biggest component and FDX has continued to rally since announcing its proposed merger with an European rival.

Our stop loss on the IYT was $156.25 but shares gapped open higher at $156.43 on Friday morning.

- Suggested Positions -

MAY $150 PUT (IYT150515P150) entry $2.15 exit $1.05 (-51.2%)

04/10/15 stopped out on gap open at $156.43
04/08/15 trade begins. IYT opens at $154.41
Option Format: symbol-year-month-day-call-strike