Option Investor

Daily Newsletter, Monday, 4/13/2015

Table of Contents

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

Market Wrap

A Boost Or A Brick Ceiling

by Thomas Hughes

Click here to email Thomas Hughes
The market faces a tough week of earnings and economic data that could provide a lift for the market, or a brick ceiling.


This may be a make or break week for the equity market. We are facing a long list of macro-economic reports as well as a host of telling earnings reports. Depending on which way the wind blows the market could get a boost, or hit a ceiling it can't get past. The week has started off a little lack-luster but the real action won't start until tomorrow.

Asian and European indices were all flirting with new highs today though most closed flat or slightly in the red. Our own indices were indicated marginally lower in the early pre-market session and this held into the opening bell. Once trading began in earnest things were a little different, the indices opened flat to mildly positive. Morning trading maintained a very narrow range with none of the indices moving higher than 0.5% or so.

Market Statistics

There was only one economic report today other than Moody's weekly Survey Of Business Confidence Later this week we can expect reads on inflation, housing, industrial production, consumer sentiment and the future. On the earnings front there were only 8 reports today, none with enough consequence to grab the markets attention. Later this week there are about another 100 reports due, primarily from the banking sector but including a few from the transportation, consumer products, semiconductor and industrial sectors.

During the lunch hour the indices began to retreat. By noon most if not all had at least dipped into the red if not taken the plunge below. From that point forward trading was much like it was in the morning, only reversed. The indices traded in a tight range just below break even with most of them posting less than a -0.5% loss on the day.

Economic Calendar

The Economy

Moody's Survey of Business Confidence remains at record highs. The index reading this week is 44, the second week it has been at this level. In his summary Moody's Economist Mark Zandi remains upbeat on the state of the US economy, adding in that sentiment from international businesses is on the rise. He says …

“Global business sentiment remains near record highs. U.S. businesses are very upbeat, but confidence has improved in recent weeks across the world. The recent slowing in U.S. economic growth is not evident in the survey results. Sales are robust, as is investment and hiring. Credit is widely available, and pricing is sturdy, despite heightened deflation concerns in much of the developed world. “

Treasury Budget figures were released today at 2PM. The expectation was for a widening of deficit to -$44 billion from last months -36.9 billion. The actual was much worse than expected, -$52.9 billion, and may have contributed to today's losses.

Tomorrow look out for retail sales figures from the US Census Bureau along with PPI and business inventories. Wednesday is the Fed's Beige Book as well as long term TIC flows, Empire Manufacturing, Industrial Production, Capacity Utilization and the NAHB housing market index. On Thursday is weekly jobless claims, housing starts, housing permits and the Philly Fed Survey. Friday caps the week with CPI, Michigan Sentiment and the Leading Indicators, a gauge of last months read on how good this month should be.

The data could cause some volatility this week, particularly in the dollar and dollar based commodities. On a piece by piece basis I will not be too worried about any negative surprise unless the sum total changes the economic outlook. I'd like to see firmness if not strength in the manufacturing data, low jobless claims, a sign of the expected spring uptick in the housing sector and at a rise in the LDI.

Factset reported a decline in the expected blended rate for S&P 500 earnings this weekend. The new rate is now -4.8%, down -0.2% from last week, due to declining expectations in the oil patch. So far, 24 S&P companies have reported earnings with 83% beating on earnings growth and 50% beating the blended rate for revenue growth. The expected rate, ex-energy sector, remained steady this week at 1.1%. Chevron and Conoco Phillips are the two biggest contributors to earnings declines expectations so will be of extra importance when they report later this month.

The thing to keep in mind is that over the past four years the S&P has beaten both earnings and revenues expectations by an average of 3.1%. If the four year average is applied to today's expectations there is a strong chance that earnings growth will only decline by -1.7%, and if you take out oil it rises earnings growth to +4.2%. Add in the expected return to growth that is expected in the broad market later this year and the earnings picture brightens a little more. Outlook for 2015 remains just over 2.2% for this calendar year, with a jump to 12.4% for calendar year 2016 on an expected increase in net margins.

The Oil Index

Oil prices were a little choppy today but held above last week's prices. WTI traded above $52 with an early spike to $53 that brought out some profit takers. Brent was equally choppy but held above $58. Other than that there were little in the way of headlines in the energy sector today except for isolated areas of violence.

The Oil Index itself lost nearly -1.25% in today's session and could be confirming resistance. The index made a slight pop in the pre-opening session that caused it to open just above 1,400 and the top of the four month trading range. The indicators are both making a peak and supportive of a possible top. The long term trend is up but the index is more than 7.5% above the trend line at this time, facing a tough earnings season and uncertain oil prices so I think there's a good chance it could remain range bound until earnings are released. BP is scheduled for April 28th, Conoco Phillips and Exxon are scheduled for April 30th, Chevron May 1st .

The Gold Index

Gold prices held steady around $1200 today as the dollar wrestled with the 100 level. The dollar got a little lift in early trading but the DXY appears to be striking resistance. FOMC speak and rate hike speculation are driving the dollar but I think it may remain range bound until a hike actually occurs. If so gold prices could easily see a rise from the $1200 level. Also on tap this week is economic data which is likely to drive Fed speculation, dollar and gold values including both CPI and PPI. I'm in the camp that inflation is only around the corner and will lead, if it isn't already, to long term support for gold prices.

The Dollar Index is showing wicked divergence from both MACD and stochastic while it is testing resistance. The chart does not inspire a lot of confidence but the buy signal remains; MACD and stochastic are both point up. Resistance is just above 100 and could be strong. Economic data will point to either June or September for a rate hike, two scenarios I think priced in by now. Not to mention the fact that both the euro and yen are also both at or very near their respective support/resistance levels and indicative potential reversal.

The Gold Miners ETF GDX lost about -1.0% today but was able to hold above the short term moving average. The ETF is moving higher on a bounce that is looking more and more like it could be the 2nd bottom in a long term double bottom formation. The indicators are currently bullish and showing a weak buy signal with only gold prices and earnings standing in the way. The miners don't really report as a group but will start trickling in next week and into the next. Based on last quarters report the sector has a few things going for it right now. Production levels are on the rise, this quarters average selling price is likely to be higher than it was last time, and low oil prices; all things that will aid the bottom line.

In The News, Story Stocks and Earnings

Earnings. This week its the banks in focus although there are importance reports from Johnson&Johnson, United Health Care and CSX Corporation. The financial sector kicks off tomorrow with Wells Fargo and JPMorgan, both before the bell so expect action in the pre-opening session. The banks are expected to produce earnings growth of 8.2% and if the earnings trends hold true could be as high as11.3% Regardless of what kind of earnings growth they produce now, it will the future expectations, expectations driven by higher interest rates, that will be more important. Of course, a round of bad earnings will not be good.

Today the XLF Financial Services Spyder gained a little over a half percent on an intraday basis and fired a buy signal. The ETF is in a general uptrend, if weak, and is now showing a stochastic cross confirmed by a MACD and moving average crossover. The ETF looks likely to move higher, provided earnings are in line with expectations, with a target between $24.50 and $24.75. If earnings roll out as expected, with positive future outlook, then the sector could move higher. Support on a pull back looks possible around $24 and then $23.50 if it doesn't hold up. Something else to consider is that a the expected uptick in the housing sector will also be a boon to the banks so the economic data may play a big role in whether this sector is able to break above resistance.

Johnson & Johnson also reports tomorrow. The consumer products and health care conglomerate is expected to report before the bell. Analysts are expecting earnings to be flat from last year, around $1.54 ex-items. Important factors to take note of will be impact from strong dollar in overseas markets, an impending increase in competition as generic versions of at least one of its major drugs enter the market and possibilities for merger/acquisitions. Today the stock lost over -1.5% and fell below the short term moving average.

CSX Corporation is also scheduled to report tomorrow and if today's pre-announcement from Norfolk Southern is an indication of the sector then it may a little worse than expected. The rail carrier is expected to report $0.45, slightly below the last quarters $0.49 per share. The decline is largely due to the decline in oil prices and more specifically a decline in shipments from producers. However, I seem to remember hearing several interviews with company CEO's last summer where they, the CEO's of companies with things to ship other than oil, were having a hard time getting their goods to market because the rails were loaded with oil.... my point is that it is possible there is plenty for the rails to carry besides oil. And, if I'm not mistaken, most trains run on diesel which is a lot cheaper than it was last year adding another factor that could help the company beat expectations. Today the stock lost just over -1%, falling from the short term moving average, to create a small doji right at the $35 support line that has been in play since last October.

United Health Group is another important name to watch this week. The hmo and Dow component is expected to report earnings of $1.32, down from the previous quarters $1.54. Regardless of the decline in earnings, and a recent downgrade in the amount Americans are expected to spend on health care, the company has received a couple of notable upgrades in the past few days. Today the stock moved higher, gaining on last week's closing prices, but created a black candle. The stock is approaching the all time high and appears to have some resistance at this level. The indicators are mildly bullish and could lead to a test of the all-time high before earnings are reported on Thursday.

The Indices

The bulls tried to charge out of the gates this Monday morning but earnings fears weighed them down. There is a lot of dread in the market right now and may be presenting us with additional buying opportunities. Today's drop was led by the Dow Jones Transportation Average. The transports lost -0.70% in a move that tested resistance at the 30 day moving average and failed to break it. Today the index created a candle with a long upper shadow, a black body and a close below Friday's open. At face value this is looking a little on the scary side but taken in light of the indicators and the possibilities that lay before us this earnings season may only be temporary. Stochastic is showing a bullish crossover in confirmation of the bottom of the 6 month trading range and MACD is at the zero line now. Together they appear to be forming a buy signal in line with the underlying long term trend with the caveat that important earnings are being released tomorrow. Not only is CSX reporting, so is JBHunt. A surprise pre-announcement warning from Norfolk Southern after the close of trading does not, however, shed positive light on my rail carrier theory.

The S&P 500 made the next biggest loss, about -0.46%. Today's action reached a new three week high before resistance sent it shooting lower. Despite the drop the broad market did not fall below support and is still well above the short term moving average. The indicators are still bullish and in line with a trend following entry but a slight decline in MACD is revealing the markets trepidation ahead of earnings. The index is currently sitting on the support of a previous all-time high with next support about 25 points below that along the short term moving average and the long term trend line. Resistance is the current all time high.

The Dow Jones Industrial Average comes in third today with a loss of -0.45%. The blue chips struggled for most of the day with support at the December all-time high but eventually fell through. It's drop was then halted by the short term moving average. The indicators remain bullish following the strong signal which formed last week. Both stochastic and MACD are on the rise so it looks like the index may be able to make another run at a new all time high.

The NASDAQ Composite made the smallest loss of the day, came the closest to reaching the current 15 year high and appears set to move higher. The index created a small bodied candle with small upper wick today but looks more like a spinning top than anything else. The indicators remain bullish following the strong signal fired off last week so the high looks likely to be tested. If not, or if resistance is enough to repel the bulls support is along the short term moving average and then below that near 4,800 and the long term trend line.

The indices still look like they want to move higher but resistance remains. I think it will remain at least until and if this quarter's earnings trend is set. If things are as bad or worse than feared then we could see a ceiling put in the market that could last until the earnings outlook begins to pick back. If they are better than expected, as I think they will be, then perhaps the market will be able to set a new high. In either event it will be the forward outlook, and the economic data, that drive direction.

Until then, remember the trend!

Thomas Hughes

New Option Plays

Rolling Over

by James Brown

Click here to email James Brown


Big Lots Inc. - BIG - close: 47.03 change: -0.90

Stop Loss: 50.05
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.1 million
Entry on April -- at $---.--
Listed on April 13, 2015
Time Frame: Exit PRIOR to May option expiration
New Positions: Yes, see below

Company Description

Why We Like It:
Momentum for this retail name is clearly rolling over. According to the company's latest press release, "Big Lots Inc. (BIG) is a unique, non-traditional discount retailer operating 1,460 Big Lots stores in 48 states with product assortments in the merchandise categories of Food, Consumables, Furniture & Home Decor, Seasonal, Soft Home, Hard Home, and Electronics & Accessories. Our vision is to be recognized for providing an outstanding shopping experience for our customers, valuing and developing our associates, and creating growth for our shareholders."

The company's earnings results have been mixed. The huge sell-off on December 5th was a reaction to its Q3 earnings. BIG lost $0.06 per share, which was worse than expected and revenues were essentially flat. The fourth quarter was significantly better with BIG delivering a profit of $1.76 per share compared to estimates of $1.75. Revenues were up +1.4% and were in-line with estimates of $1.59 billion. Comparable store sales were up to +2.9% in the fourth quarter.

Unfortunately, management guided lower for Q1 and the rest of their fiscal 2016. Their forecast of $2.75-2.90 in earnings is below Wall Street's $2.96 estimate. Comparable store sales are going to be in the low single digits. The company tried to soften the bad news by raising their dividend and adding to their stock buyback program.

The post-earnings rally didn't last. Shares of BIG have rolled over and now the path of least resistance is lower. The $46.00 level, along with the simple 200-dma, is potential support but we are expecting this weakness in BIG to accelerate. Tonight we are listing a trigger to buy puts at $46.85 with an initial stop loss at $50.05.

Trigger @ $46.85

- Suggested Positions -

Buy the MAY $47.50 PUT (BIG150515P4750) current ask $1.80
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

Traders Nervous Ahead of Earnings Parade

by James Brown

Click here to email James Brown

Editor's Note:

Without any positive headlines to pump the market higher the major indices deflated a bit on Monday. One analyst suggested today's dip was just "pre-game jitters" before a flood of earnings results are reported this week.

ALKS hit our stop loss.

Current Portfolio:

CALL Play Updates

Ambarella, Inc. - AMBA - close: 75.26 change: -0.54

Stop Loss: 72.45
Target(s): To Be Determined
Current Option Gain/Loss: -26.0%
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

04/13/15: Early morning gains faded. AMBA dipped to $74.80 this afternoon before paring its losses. The $77.00 level has been resistance two days in a row. Traders may want to wait for a rally past $77 before initiating new positions.

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: 89.62 change: -0.90

Stop Loss: 87.75
Target(s): To Be Determined
Current Option Gain/Loss: -28.3%
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

04/13/15: CAH also saw its early morning rally reverse. Shares underperformed the major indices with a -1% loss. If this weakness continues the nearest support looks like $88.00.

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: 118.21 change: +0.72

Stop Loss: 113.85
Target(s): To Be Determined
Current Option Gain/Loss: -6.9%
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

04/13/15: GIII's surge this morning pushed shares briefly above $120.00. The stock pared its gains but still managed a +0.6% advance on the session. Tonight we are moving the stop loss to $113.85.

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

04/13/15 new stop @ 113.85
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: 125.70 change: +0.08

Stop Loss: 122.85
Target(s): To Be Determined
Current Option Gain/Loss: +37.1%
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

04/13/15: The IWM tagged new all-time highs before the rally faded. The $126.30 area remains overhead resistance. There is no change from my recent comments.

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: 99.27 change: -0.70

Stop Loss: 97.85
Target(s): To Be Determined
Current Option Gain/Loss: -51.3%
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

04/13/15: Uh-oh! NKE has closed below its simple 20-dma for the first time in about three weeks. Shares also underperformed the broader market. This doesn't look good. We are raising the stop loss to $97.85. I am not suggesting 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

04/13/15 new stop @ 97.85
03/30/15 triggered on gap open at $101.23, suggested entry was $100.25
Option Format: symbol-year-month-day-call-strike

Palo Alto Networks, Inc. - PANW - close: 145.15 change: -2.82

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 11, 2015
Time Frame: Exit PRIOR to earnings in late May
New Positions: Yes, see below

04/13/15: The market's widespread decline helped drag PANW to a -1.9% loss. Shares do tend to be more volatile than the average technology stock. I don't see any changes from the weekend newsletter's new play description below.

Trade Description: April 11, 2015:
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)

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

PTC Therapeutics, Inc. - PTCT - close: 71.12 change: -0.54

Stop Loss: 64.75
Target(s): To Be Determined
Current Option Gain/Loss: +31.8%
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

04/13/15: The major biotech indices managed small gains today. PTCT wasn't so lucky and followed the rest of the market lower. The $70.00 level should offer some short-term support.

More conservative traders may want to raise their stop again. 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

Avis Budget Group, Inc. - CAR - close: 54.89 change: -0.11

Stop Loss: 60.05
Target(s): To Be Determined
Current Option Gain/Loss: +15.4%
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

04/13/15: The bounce in CAR failed just below resistance near $56.00 this morning. That's good news if you're bearish. More conservative traders may want to start lowering their stop loss.

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


Alkermes plc - ALKS - close: 64.57 change: +1.05

Stop Loss: 64.15
Target(s): To Be Determined
Current Option Gain/Loss: -18.6%
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

04/13/15: The bounce in ALKS continues. Shares hit our stop loss at $64.15 this morning.

- Suggested Positions -

MAY $60 PUT (ALKS150515P60) entry $2.15 exit $1.75 (-18.6%)

04/13/15 stopped out
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