Option Investor

Daily Newsletter, Saturday, 4/18/2015

Table of Contents

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

Market Wrap

Uncertainty Returns

by Jim Brown

Click here to email Jim Brown

Sudden worries over earnings, Greece, China and a outage on the Bloomberg terminal system before the open caused the Dow to decline -357 intraday before rebounding only slightly to -279 at the close and barely positive for the year at +0.02%. Weak earnings and a warning from Dow component American Express on the strong dollar impact caused the financial sector to plunge and take the Dow with it.

Market Statistics

It was an ugly morning as negativity was flowing from every direction. American Express (AXP) warned that the strong dollar had hurt their earnings significantly and the impact could last for all of 2015. The company said earnings would be flat to down for the rest of the year. Earnings rose +6% to $1.48 that beat estimates of $1.37. However, total revenues declined -12% to $7.95 billion and well under the analyst estimate for $8.21 billion.

Shares of AXP declined -$3.59 to knock -27 points off the Dow.

Also dragging the Dow lower was shares of Goldman Sachs (GS) after Keefe Bruyette downgraded the firm from buy to hold. The broker said Goldman's gains from trading activity were unsustainable and the stock had already priced in the most optimistic outlook. They placed a $210 year end target on GS after the stock spiked to $203 on Thursday. Shares closed at $197 today with the -$2.86 drop knocking -22 points off the Dow.

Dow component Travelers (TRV) was downgraded from buy to hold by Barclay's on a weakened outlook for property and casualty insurers. "Commercial P&C pricing has turned negative, which means margins are likely to compress." Also, "Therefore, expect the P&C reinsurance industry as a whole to witness tough comps with commercial line and reinsurance EPS being flat to down during 2015 and 2016." Credit Suisse just initiated coverage with a hold rating. Travelers shares lost -$3.27 to knock -25 points off the Dow.

The biggest drag on the Dow came from 3M (MMM) with a -$4.18 loss or -32 Dow points. Investors were hearing warnings about losses from the dollar from almost everyone that reported earnings in the last two days and elected to exit MMM ahead of their earnings next week. 3M is highly exposed to the strong dollar with its overseas sales. I suspect we will continue to see anyone with European exposure to be hammered ahead of earnings in the coming weeks.

Other problems weighing on the markets included market changes by Chinese regulators. After China's market closed on Friday regulators put some new limits on buying stocks on margin and also relaxed the rules on short selling. China will now allow fund managers to lend stocks for short selling and expanded the number of stocks investors can short in order to increase the supply to the market. This will allow greater numbers of investors to have short positions. This is an effort by Chinese regulators to slow the ascent of the market.

Chinese investors have been borrowing record amounts of money to buy stocks on margin. Regulators warned investors that use margin to be cautious after seven weeks of gains pushed the markets to seven-year highs. Irrational exuberance is in full bloom in China after the government opened greater access to the markets several months ago. This suggests the Chinese markets will plunge at the open on Monday. H-shares futures declined more than 5% in afterhours trading.

Another market challenge was the rising potential for Greece to exit the Eurozone. Greece has run out of money and the bills are coming due. The new government is refusing to implement the required reforms to get the next tranche of aid from the Troika.

There were rumors in the market that the ECB and/or banking authorities told European banks to get rid of any sovereign Greek debt they were still holding. This could be a preliminary step ahead of a Greek exit from the eurozone. Yields on the Greek ten-year bond immediately spiked to more than 13%.

The outage in the Bloomberg Terminal network was so severe it caused the postponement of a U.K. bond offering. The Bloomberg network provides messaging, security data, analytics and news to more than 300,000 professional market participants worldwide. Many traders and investors rely on its messaging service for their main communications and to execute trades between each other. Without the terminals professional investors were left in the dark and overseas market volume was adversely impacted.

Couple all those factors above along with some high profile earnings misses and you have a reason for a market decline. Mark Tepper, CEO of Strategic Wealth Partners, agreed and said "Current market and economic conditions have created the perfect storm for a 10% market correction. We are looking at really stretched valuations right now with the forward PE of 17+ a red flag." Also, "We have deteriorating earnings, fading economic momentum, the strong dollar and looming interest rate hikes. I do think a pullback is very much in the cards."

On the economic front the Consumer Price Index had some Fed friendly news that could be negative for the market. The headline CPI rose +0.2% for the second consecutive monthly gain. The Core CPI, which does not include food and energy, also rose +0.2% and the third consecutive gain at that rate. On a year over year basis the core rate is up +1.8% and Fed Vice Chair Stanley Fischer said inflation was moving very close to the Fed target rate of +2.0%. Suddenly those rate hikes don't seem that far off if our period of disinflation has finally passed.

With oil prices rising the cost of goods everywhere is rising. Consumers are finally starting to spend their extra cash from the low fuel prices and spring has brought renewed consumer confidence. The energy CPI rose +1.1% in March.

While inflation is moving in the right direction it is still moving at a snail's pace and while the Fed would probably like to raise rates in June but they will probably wait until at least September to see if the weak economics improve. Still, the CPI did kindle some rate hike fears on Friday even though Fed heads were talking down the chances.

Atlanta Fed President Dennis Lockhart said "a move in June is not my preference, although, I don't take June off the table. I would prefer a later liftoff date. I would like to see confirming evidence" that the economy is rebounding. The stronger the evidence, the more orderly the subsequent path of policy would be."

Boston fed President Eric Rosengren said "incoming data would need to improve to fully satisfy the committee's two conditions for starting to raise rates."

Cleveland Fed President Loretta Mester said that while she expects this economic weakness to be transitory, she is looking for the evidence. "I want to see whether the data is going to be consistent with my forecast. We are going to get a lot of data between now and June."

New York Fed President William Dudley said he sees "strong arguments for being a little on the late side."

Consumer Sentiment for April rose from 93.0 to 95.9 and easily beat estimates for a rise to 94.0. The present conditions component rose from 105.0 to 108.2 and the expectations component rose from 85.3 to 88.0. Both numbers returned to the same levels seen in February suggesting the drop in March was an anomaly. The headline number was the second highest reading since 2007 with January's 98.1 the highest. Falling food prices in March probably helped to improve sentiment.

The calendar for next week is lackluster with home sales the primary interest. The two Fed surveys are not normally market movers. The worry over the FOMC meeting the following week should begin to appear by Wednesday. With most of the Fed heads now in caution mode nobody expects the meeting to produce anything but a clone of the March meeting statement.

We had a new split announced last week with PPG and a 2:1 for June. PPG is a $225 stock with no trend after a $50 gain back in Q4. It has been trading sideways in a range in 2015. PPG is not a widely followed stock so I would not expect a split run.

After the big gains in Netflix for the week I am leaning even more towards the announcement of a 10:1 split after shareholders approve the new shares on June 9th. That would give them about a $60 share price based on Friday's close at $571.

General Electric (GE) reported earnings on Friday of 31 cents compared to estimates for 30 cents. However, revenue declined -12.5% to $29.3 billion and well below estimates for $34.2 billion. GE blamed the strong dollar for part of the decline. Revenue in its oil and gas segment declined -8%. Health care revenue declined -3% to $4 billion and aviation revenue declined -2% to $5.67 billion. GE suffered a major loss on Friday when Emirates Airlines awarded Rolls-Royce a $9.2 billion contract to build engines for 50 Airbus A380 super-jumbo jets. GE and their partner United Technologies' Pratt & Whitney lost the bid. GE shares declined fractionally on the earnings news.

Honeywell (HON) reported earnings of $1.41 compared to estimates for $1.39. However, revenue declined -5% to $9.213 billion and well under estimates for $9.569 billion. Revenues were strongly impacted by the strong dollar. Aerospace revenue fell -6% to $3.607 billion. Automation and control systems revenue dropped -3.0% to $3.264 billion. Performance materials revenue fell -5% to $2.342 billion. Honeywell lowered guidance for the full year from revenue of $40.5-$41.1 billion to $39.0-$39.6 billion. However, it raised the low end of earnings guidance from $5.95-$6.15 to $6.00-$6.15 per share. Free cash flow is expected to be in the range of $4.25 billion.

Seagate Technology (STX) reported earnings of $1.08 that was in line with estimates. Revenue of $3.33 billion fell short of estimates for $3.45 billion. The disk drive maker said performance was weakened by slow PC growth and a slow economy in Europe as well as the strong dollar. The company warned that revenue in the current quarter would be down -1.5% to about $3.25 billion and below consensus of $3.4 billion. Seagate did approve a 54 cent dividend payable May 15th to holders on May 1st. Shares rose +2.6% after the report. This was a clear case of bad news already priced in and better news appeared.

Oil field service company Schlumberger (SLB) reported earnings Thursday evening that fell -12% to $1.06 but beating estimates of 89 cents. Revenue fell -9.3% to $10.25 billion and missing estimates for $10.42 billion. In January SLB said it was cutting 9,000 workers as a result of the oil crash. On Thursday the company said it was cutting 11,000 more. Schlumberger said a recovery in land drilling would be "pushed out in time." Also, "We anticipate that a recovery in activity will fall well short of reaching previous levels, hence extending the period of pricing weakness." The earnings beat and the job cut announcement lifted SLB shares on Friday in a bad market.

Nearly 25% of the S&P reports earnings next week. So far 53% of companies reporting have missed their estimates. That is not very encouraging since the early reporters are the big caps and they typically have more earnings strength.

Next week we have some big names including IBM, YHOO, YUM, BA, EBAY, KO, MCD, AMZN, GOOG, MSFT and SBUX to name a few.

The active rig count for the week ending on Friday declined -34 rigs to 954. Oil rigs declined -26 to 734 or a -54.4% decline from the high of 1,609. Active gas rigs declined -8 to 217 and a new 18-year low. Offshore rigs were unchanged at 33, but down -19 from the January high. If we lose another 89 rigs we will be at a 10 year low.

Crude oil rallied over $56 with an 11.5% gain for the week. The next challenge is the resistance at $57.50 and a move over $60 would probably slow the decline in active rigs as producers begin to speculate on a continued rise in prices. There are so many things that could go wrong with a continued crude rally but accelerating refinery utilization to 92.3% last week helped to reduce the inventory build. Refiners consumed an average of 16.21 mbpd of oil last week and the most since 2014.

The week we get the first decline in the inventory level we should get a corresponding rise in crude prices. That could happen over the next couple weeks as refiners begin to flood the distribution system with summer blend gasoline.


Friday was option expiration but I don't think that had anything to do with the decline. Option related volatility typically occurs in the week prior to expiration although there can be volatility on expiration Friday.

Friday's decline had many reasons but the one I have not mentioned yet was simply a failure at resistance. The S&P had strong resistance at 2110 and it failed at that level on Wednesday and Thursday. That failure telegraphed weakness to traders and when the headlines appeared the drop was dramatic.

I warned in my Tuesday commentary, "I would remain cautious for the rest of the week...The markets have lost momentum and without a catalyst the path of least resistance is lower."

The percentage of S&P stocks trading over their 50-day average fell to 44.4% and close to a two month low. The rally to 2110 was on the back of only a few stocks and when those were knocked for a loss the entire market fell sharply.

The market should not be at new highs when 53% of earnings to date have missed their estimates and the economic reports since early February have been weakening. We are due for some PE contraction to bring stock prices back in line with earnings.

The midcap and small cap stocks have been leading the charge higher over the last several weeks because of their lack of exposure to the dollar. The chart below is the advance/decline line on the S&P Midcap-400. The midcaps broke out to new highs in March and tested those highs again on Wednesday. However, the breadth was already shrinking. Note the A/D line fell below its uptrend line from January.

The breakdown in the mid caps and small caps was another negative for the S&P-500. It was lagging those other indexes higher and when they collapsed the S&P-500 was doomed. The S&P is losing momentum after two-years of steady upward gains. The 50-week moving average has only been touched three times in two years. We are due for a retest of the 50 that should take us back to the 1985 level.

The convergence of resistance at 2110 was too much to overcome in a headline heavy environment. Initial support remains at 2075 and 2050. The intraday low on Friday was 2072. Resistance is 2110 and 2117.

The Dow had a similar problem with resistance at 18,100. For 4 of the last 5 days the Dow tried to break through that 18,100 level and actually closed at 18,112 on Wednesday. Unfortunately it could not hold its gains when Dow components began posting weak earnings. The index declined to the middle of its recent range and tried to hold at the 17,850 support level but eventually fell through in the afternoon to test 17,750 before short covering at the close lifted it back over 17,800.

All 30 Dow components were in the red but 14 lost less than $1. The lack of a material rebound on the Dow or S&P after an early morning decline of such magnitude is an omen for Monday. With China likely to see its markets decline significantly the weakness could rub off on the rest of the global markets.

With the 17,850 support level broken the next target is 17,600. Resistance remains 18,100 and 18,200.

The Nasdaq was hampered by the decline in Apple with 10% of the Nasdaq loss due to the drop in Apple shares. However, Google, Priceline, Amazon, Biogen and Regeneron added to the -75 point decline. The Nasdaq Composite closed in the middle of its recent range with 4850 still the critical support level. The psychological 5000 level is still resistance and was tested on 3 of the last 5 days. There were two closes over that level at 5007 and 5011 before the Friday crash.

The Nasdaq 100 ($NDX) failed to return to its highs with the resistance at 4475 untouched. The lower high on the Nasdaq big cap index is just one more symptom of a weakening market. The decline to 4350 is still well over the critical support at 4300 but still in the danger zone.

The Russell 2000 declined -1.65% on Friday after setting a new closing high of 1275 on Wednesday. Friday's close at 1251 was right on uptrend support so we have not broken any critical support levels. I think we are seeing some profit taking in the small caps after the first week of big cap earnings turned out so lousy. Investors are probably afraid of what they will see in the week ahead.

So far, no harm, no foul and we have two decent support levels at 1230 and 1208 before the small caps turn ugly.

You never know when a Friday flush will turn into a Monday rally. Typically a sharp Friday decline that finishes close to the lows will be followed by a volatile Monday. Following those two days of declines there is a strong possibility of a turnaround Tuesday. However, it is hard to project this on a historical basis because of the various factors that unite to cause severely negative Fridays. Typically it is a combination of headlines that create imminent uncertainty and traders just don't want to go long into a weekend that could lead to a gap down on Monday.

The change in the Chinese market regulations is actually a good thing long term but with the Chinese futures down -5% after the close on Friday it is a pretty good bet the irrational exuberance bubble is going to lose some air on Monday. While Monday may not be the start of a correction in the Chinese markets I believe we will see one in the weeks ahead. As long as it occurs gradually it would not be a problem for the U.S. markets. Everyone knows the China market spike can't last but investors always want to see things happen in moderation over time rather than over the span of several days.

The Chinese market does not directly impact the U.S. market but a sudden sentiment change can cause instability in the global markets just because investors and portfolio managers are worry warts. They tend to sell first and ask questions later when something dramatic happens quickly.

The bigger problem is Greece. There is a growing belief that Greece is going to default on its debts and leave the Eurozone and it could happen very soon. On Saturday ECB head Mario Draghi seemed to imply that a Greek default was imminent and said "funds were sufficient to cope should Athens default on its debts," but warned that Europe would be entering "uncharted waters" that made the outcome of a default uncertain. Draghi spoke in Washington at the IMF spring meeting saying, "The short-term danger of contagion (from a Greek exit) is difficult to assess, but we have enough buffers in place. Even though they were designed for different circumstances, they are sufficient. But we are entering uncharted waters."

Greece is being obstinate in refusing to agree to the list of demands from the Troika (IMF, ECB, EU) in order to qualify for more bailout funds. Greece refuses to implement any further austerity measures and seems to feel that a Greek exit will do more harm to the eurozone than to Greece. The new administration is playing a game of chicken with the Troika and betting they won't let Greece exit. At the IMF meeting Draghi supported an earlier call to "slim down" the list of Troika demands since it appears Greece is not going to agree to the full list of demands anyway. US Treasury Secretary Jacob Lew warned at the IMF meeting that a Greek default would create an "immediate hardship" for Greece and damage the world economy. EU finance ministers will meet again in Latvia next week but they are resigned to the fact that an agreement is unlikely.

This suggests the Greek debt default and potential exit from the Eurozone could occur in the next couple of weeks and this is a prime example of market uncertainty. Nobody really knows what will happen to the Eurozone but there will be serious ripples. Greece owes somewhere in the range of 300 billion euros. Most of that is to the ECB and EU and that means loans from each of the central banks of the Eurozone countries that formed the bailout will be worthless. Greece has a payment of one billion euros due to the IMF in early May. They asked the IMF informally if they could delay that payment and the IMF said no.

A Greek default and exit will not hurt the U.S. but it creates a monster surge in uncertainty and that creates volatility in the markets. This pending uncertainty was a factor in Friday's market decline and that was just on the potential for a Greek default. I would expect more volatility as the headlines fly but it should be brief once it occurs. That is a dip that should be bought, assuming there is nothing else weighing on the markets at the time.

A Greek exit will probably occur over a weekend so many traders did not want to be long at the close on Friday.

I would continue to be cautious about holding too many positions until some of the volatility passes. Keep your stop losses in place and watch for the market to pick a direction.

Random Thoughts

Economists are rapidly moving their time frame for the first Fed rate hike farther into the future. In March 38 economists were expecting a hike in June or July. In the April survey by Bloomberg that number declined to only 10 with 44 economists now expecting a hike in September of October. That is 71% of the economists surveyed. The chart below is from Bloomberg.

Sell in April and go away? Hulbert's Financial Digest has tracked the two biggest proponents of the "sell in May and go away" strategy. Both the Almanac Investor, which came up with the strategy decades ago, and Sy Harding's Street Smart Report, have come up with modifications to the strategy that produce greater returns. The Almanac Investor has recommended an early sell in April based on the MACD indicator on the S&P. Sy Harding is also using the MACD with a slight technical twist.

Since 2002 the Almanac Investor strategy has generated annual returns of 8.0%. Sy Harding has generated annual returns of 9.2%. The tracking was done by Hulbert's Financial Digest. By utilizing the MACD indicator for a sell signal in April you avoid getting caught in the downdraft at the first of May when institutional investors using the sell in May strategy move to cash. In order to get a MACD sell signal you need a positive trend that suddenly turns negative. Based on the chart below we could get that late April sell signal in the next couple days if the decline continues.

About 300 paratroopers from the 173rd Airborne Brigade arrived in Ukraine on April 15th to begin a six-month training program with the Ukrainian National Guard forces. The training, known a "Fearless Guardian" will train three battalions of Ukrainian troops. Source article

Also last week Putin warned Russia will now target "nonnuclear powers where missile-defense installations are being installed" as objects of priority response. The Russian Defense Minister said "a drive by the U.S. to bring its allies and Kiev closer to the west was a threat to Moscow and had forced it to react." Link

Most current GDP forecast by the Atlanta Fed is +0.1% for Q1.

Global debt has increased by $35 trillion since the financial crisis. Dr. Lacy Hunt EVP of Hoisington Management said, "That is a net negative, debt is an increase in current consumption in exchange for future spending and we are not going to solve this problem by taking on more and more debt." As any family knows when you run up big balances on your credit cards it reduces your future spendable income by the amount of the debt payments. Hunt said, "This process is far from over and rates will move irregularly lower and remain depressed for several years." He pointed to the negative rates in Europe as a result of QE by the ECB and its expected continuation for at least a year. Casey Research Article

The current bull market is 2,184 days old and has gained +213.1%. That is above average in duration and magnitude. There have been 11 bull markets and 10 bear markets since 1949. The prior 10 bull markets lasted an average of 1,770 calendar days and produced gains of +161.4%. Inside those 11 bull markets were 22 corrections from 10% to 19.9% for an average of two corrections per bull market.

With the current bull market almost four years old and the fourth longest on record it is understandable that investors would be getting a little worried with the S&P trading near a forward PE of 18 but with earnings declining. The S&P has now gone 1,292 days without a correction. The long term average between corrections is 514 days. We are due. Data from JeffHirsch. Almanac Trader

The S&P is up only +0.69% over the last 75 trading days. It has been 80 days since there was a 2% move. That is the second longest streak since the financial crisis. Calm before the storm?

It has been over 250 days since U.S. forces began airstrikes on ISIS. U.S. planes have conducted 2,893 missions that have hit 5,314 targets at roughly the cost of $8.5 million per day or $2.5 billion so far. No U.S. airman has lost his life in combat. Unfortunately ISIS continues to take more land and capture more facilities.

While many of those sorties were drones there are some new complications causing trouble. Shia militants figured out a way to hack into the video feed being transmitted from the drones and back to the operators thousands of miles away. Using a $26 piece of Russian hacker software commonly sold to steal satellite TV signals, the insurgents were able to watch the same live video footage as the drone operators.

By watching what the drones were watching they were able to warn the targets that drones were searching for them. This was a tactical advantage and told them what kinds of targets the Americans were searching for and how to better conceal their activities on the ground.

Former Treasury Secretary Larry Summers penned a column last week claiming "This past month may be remembered as the moment the United States lost its role as the underwriter of the global economic system." This is a continuation of my running commentary on the future decline of the dollar as a global currency. Mohamed El-Erian wrote a similar article late last month warning of the pending decline in the U.S. dollar.

Read Summers article HERE.

Read El-Erian's article HERE.

Information on China's Asian Infrastructure Bank HERE

Conspiracy theorists this one is for you. In just the last couple weeks several high profile events occurred that were not reported by the major news sources.

First, the New York Fed decided to move a lot of its operations to Chicago on concerns that a natural disaster or other "eventuality" could shut down its market operations as it approaches an interest rate hike, and has added staff and bulked up its satellite office in Chicago. Reuters Article Some market technicians have transferred to Chicago and others were hired at that location. Officials now believe the Chicago staffers can now handle all the market operations that are done daily out of the New York Fed, which is the Fed's main conduit to Wall Street.

In all of recorded history there has never been a natural disaster in New York City that would have been bad enough to totally shut down the operations of the New York Fed.

A lot of government operations and personnel as well as private corporations are moving away from the Washington DC and New York areas. If terrorists ever get a nuclear weapon those are the top two most likely targets.

Second, The North American Aerospace Command (NORAD) is moving back into Cheyenne Mountain in Colorado. The prior home for NORAD is a bunker built 2,000 feet into the granite base of Cheyenne Mountain and is able to withstand a direct hit by a 30 megaton nuclear blast. It was decommissioned 10 years ago because the Russians were no longer considered a threat. NORAD was moved to Peterson Air Force Base in Colorado Springs.

Now NORAD is moving back into the mountain and installing all kinds of high tech communications that would be impervious to an electromagnetic pulse or EMP. When operating the bunker is home to more than 1,100 personnel and is able to operate underground for months on its supply of food and water. Officials say the shift back into Cheyenne Mountain is to safeguard the military's command and control communications from EMP attack. The military announced a $700 million contract with Raytheon to oversee the work.

If the U.S. military is suddenly worried about EMP attack again you have to wonder who they are afraid of. Russia has certainly become more aggressive and Putin hardly lets a week go by that he does not mention Russia's nuclear arsenal. China is also building out its military capacity at more than twice the rate of the prior decade. Within a couple years they will have more ships and submarines than the U.S. Navy. They have created two new intercontinental ballistic missiles that can carry nuclear weapons. As part of their military training over the last 20 years one possible scenario in their manuals has been a preemptive nuclear EMP attack on the USA. One high altitude nuclear detonation approximately 340 miles high could wipe out every electronic device and electric grid in Canada, the USA and northern Mexico.

If Iran gets a nuclear weapon they will be a huge threat. While they don't currently have ICBMs they are working on that technology. What they have tested is short range missiles that can be launched from cargo containers at sea. Russia built the Club-K containerized launch systems and demonstrated their effectiveness. Not to be out done North Korea built the No-dong-B intermediate range missile that can be launched from a container and Iran is thought to have these in inventory. Iran successfully launched a Scud-B missile from a container on a container ship in 2006. Advertising video of Russian cruise missile system in a container.

A major worry by U.S. military planners is that one of these innocent looking containers could be placed on a normal container ship and the nuclear missile launched as the ship nears our shores. Iran has tested missiles in an EMP configuration. That means they launched them into a vertical ascent mode and set them to explode at the top of their trajectory. There is no other reason to explode a test missile a couple hundred miles up unless you were practicing for an EMP attack.

Obviously North Korea would also be an EMP threat since they are farther along in missile technology than Iran, they have tested mobile launch platforms and they have nuclear weapons.

Third, the Dept of Homeland Security is now accepting bids for 62 million rounds of .223 ammo used by AR-15s and M16s. The solicitation said the bullets will be used for training purposes by the U.S. Customs and Border Protection agents. That is a huge amount of ammo to be used for training by those two agencies. Do you think maybe they are expecting some visitors from across the border?

Lastly the U.S. is conducting a joint military and Interagency (IA) Unconventional Warfare exercise throughout Texas, New Mexico, Arizona, California, Nevada, Utah and Colorado called Jade Helm (Google it) from July 15th through September 15th. Note that several of those states are border states and the other three are "pipeline" states for illegal's entering from Mexico.

Part of the press release: Multiple branches of the US military, including Green Berets, Navy Seals, and the 82nd Airborne Division, will participate in the 8-week long exercise, which may result in "increased aircraft in the area at night." Troops will be tasked with honing advanced skills in "large areas of undeveloped land with low population densities," and will work alongside "civilians to gain their trust and an understanding of the issues." The exercise, in which some participants will be "wearing civilian clothes and driving civilian vehicles," lists Texas and Utah as "hostile" territory.

All of these events may be just coincidental but it sure seems like the government is rapidly escalating our combat readiness inside the U.S. and maybe they know something we don't know.


Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"Women will forgive anything. Otherwise, the race would have died out long ago. Women and cats will do as they please, and men and dogs should relax and get used to the idea."

Robert A. Heinlein



Index Wrap

They 'Slide' Faster Than They 'Glide'!

by Leigh Stevens

Click here to email Leigh Stevens

Houston we have a problem: the reliable Market uptrend of prior years has run out of gas in recent months. Many feel forced to trade for smaller objectives and this isn't to everyone's liking!

I'm a longer-term bull based on the long-term uptrend pattern in the major indexes. But, the short to medium term can be a killer as rallies fall apart on news that didn't seem to phase Market participants in the months leading into highs in late-November or even into late-February. The last sizable sell off in the S&P 500 into mid-October was short-lived after falling to the lower (support) end of SPX's weekly uptrend channel; also then reaching an oversold extreme. A weekly chart is coming up that includes an 8-week Relative Strength Index indicator.

A problem for the bulls from a technical/chart and indicator perspective is that there's a price/RSI divergence as prices trend one way and the RSI trends another; i.e., for approximately 20 weeks SPX has been trending sideways but accompanied by DECLINING relative strength suggested by a falling RSI.

A price/indicator divergence, with prices going one way and the RSI another OR in the OPPOSITE direction, has usually 'signaled' EITHER an inability to either (1) mount a sustained next up leg OR (2) has preceded a sharp pullback. Outcomes for BOTH divergent patterns are highlighted on my weekly SPX chart.

One thing about the divergent price/RSI pattern in SPX seen above is that it's hard to forecast WHEN the current lateral move will end. The sideways trend will look to be over if there's a sustained rally above 2100. Another outcome: there's a substantial pullback such as (again) to the low end of the uptrend channel (e.g., to the 1950 area) followed by a strong rebound.

A related outcome of trend resolution might be a fall to below the 2050 line of support to whatever level, followed by an upside reversal and strong buying. Whether SPX re-tested trendline support or not, upside reversal patterns have more credence if there's also an 'oversold' extreme seen with the RSI.

The S&P 500 Volatility Index (VIX):

The VIX Index got down into its typical 13-12 zone where downside reversals often occur in SPX. I thought VIX might again hit 12 again but VIX did see daily Closes twice at 12.5 followed by at least one steep decline so far. Intraday on Friday, VIX reached an upper extreme at 15 before settling just below 14.

I noted last week that: "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 has preceded at least this last pop in VIX.

It's worth repeating again from last week that if you were "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 as to whether volatility continues to pick up!



The S&P 500 (SPX) is mixed in its pattern. The Index remains in a longer-term uptrend but on an intermediate-term basis SPX is in a holding pattern or in a trading range; e.g., between 2040 and 2120 at least since early-February.

My moving average envelope 'bands', currently set at 2.5% above and below the daily 21-day moving average, suggest a type of potential 'trading range' also. Trade at the upper and lower lines suggests price levels at which the S&P could be 'overbought' and 'oversold' respectively.

I was leery of what would happen on another run toward SPX's prior high(s). The rally looked 'ok' until it wasn't! I don't favor bullish strategies and staying in on multiple approaches to prior highs when the Market is so skittish. You can tell when a bull move has run its course, which is when bearish news knocks stocks for a loop. In a technically strong advance the Market 'climbs a wall of worry' so to speak; not so, these days when 'worry' brings fear and loathing of stocks.

Near support looks like 1280, with pivotal support beginning at 2060, extending to 2040. Technical resistance is highlighted at 2100, extending to 2120. The 3-top formation looks a bit like a 'Head & Shoulder's top' pattern. A little irregular but the 'H&S' type top pattern is hinted at. The Close below the 21-day moving average was bearish assuming SPX continues to trade below this key trading average going forward.

Bullish sentiment peaked in early-April and has been trending lower since. If this indicator (CPRATIO) gets 'oversold', or at or under the highlighted oversold extreme AND if the RSI also fell to an oversold reading, I'd be looking to price action for signs of a possible upside reversal.


The S&P 100 (OEX) is mixed in its pattern like the broader S&P 500. See that commentary above. The firmest conclusion I can hold currently is that OEX looks to be bound in a trading range between 825-832 on the upside and 897-893 on the downside. I remain longer-term bullish.

Resistance is highlighted this week at 920, extending to 925. Above 925 we'd be looking at a possible retest of the cluster of OEX highs around 932.

Near support is highlighted at 905, extending to 900-895. I previously liked the 'risk to reward' of adopting bullish strategies on dips to the 895 area and also thought upside potential was to 925. OEX got to two intraday price peaks most recently just under 924.

No further suggestions of another bullish trade adoption. In terms of being long OEX calls for example, I don't like the way that rallies fall apart severely. Like last week, I'm less convinced of a new high scenario as in a decisive upside penetration of prior highs.


My doubt last week on the Dow (INDU) Average related to it being "uncertain as to whether INDU is (locked) in a trading range or capable of a decisive move to new highs." I thought that INDU could retest 18200 resistance which it got close to at 18170 at its recent intraday peak before taking a Friday plunge.

I've tightened up the trading 'bands' (moving average envelopes) I use to 2% (from 3 percent) above and below the 'centered' 21-day moving average. You can think of these upper and lower envelope lines as potential or anticipated upside and downside price parameters going forward. They give an idea for the price points at which the Dow would be 'overbought' or 'oversold'.

Bullish potential is seen due to favorable chart patterns (OR due to potential further recovery rallies from possible bottoms) in: AAPL, CAT, CSCO, DIS, GS, JPM, MMM, MSFT, NKE, PFE, TRV, UNH, and V. Besides these 13, oil stocks CVX and XOM may see some further upside in recovery bounces. This list may not lead INDU much higher but may prevent a big further decline.

Support begins in the 17800 area (not highlighted) with fairly major support in the 17650 to 17580 zone. Overhead INDU resistance is highlighted at 17900, extending to 18100.

I'm watching from the sidelines as INDU may continue to move within a relatively narrow 18200 to 17600 trading range but even that much seems uncertain in this nervous market.


The Nasdaq Composite (COMP) remains within a bullish long-term uptrend price channel but intermediate-term has traced out a bearish potential double top; 'double tops' are said to be 'confirmed' only if/when a prior downswing low is pierced which in COMP is in the 4850 area.

I wrote last week that "COMP looks headed to a retest of important technical resistance in the 5000 to 5040 area." For sure, as the Index got up to 5024 intraday and Closing peak of 5011, before the sharp Friday sell off.

I've noted support at 4900, extending to 4850. It's important at least for holding its prior price range that the Composite not see back to back Closes below 4850, which would turn the chart bearish and/or suggest a possible test of next support at 4800-4780. Pivotal resistance is at 5000, extending to 5020-5040.

Bullish trader sentiment has fallen significantly since I wrote last week that bullishness "seems a bit 'overdone' given the possible difficulty of piercing milestone resistance at 5000-5050." I also wrote that "I don't see major upside potential for COMP ahead..." and still my view unless a sustained advance developed that took the Index above 5000, in which case there might be eventual further potential to the 5100-5125 area.


The big cap Nas 100 (NDX) reversed shy of its prior double top in the 4460-4465 area which continues a bearish chart. NDX is different in this from broad Nasdaq Composite which just formed a double top given its most RECENT high and subsequent retreat.

I've highlighted potential resistance at 4400, extending to 4450. Technical/chart support is seen at the low end of NDX's prior trading range at 4280; support then extends to 4250. Fairly major support then begins in the 4200 area.

I wrote last time that "Volatility as measured by VXN is at a low level around 14 where the Index has made tops in the past. Just saying!" Still sayin, as the Nasdaq 100 VXN volatility index has rebounded a bit from its base support at 14.

NDX has a similar appearance to a Head & Shoulder's top formation. Not the classic exact H&S 'classic' pattern with the middle top distinctly above the two highs on either side. But the Index has traced out a similar 3-top type pattern. I can definitely assess NDX's chart as mixed to bearish. No trade suggestion here, especially without a decisive upside OR downside breakout of NDX's relatively narrow recent price range.


The Nasdaq 100 tracking stock (QQQ) is bearish in its pattern of successively lower upswing highs, allowing a down trendline to be drawn; one suggesting trendline resistance currently intersecting at 108.2. More immediate overhead resistance is at 107.

Near support is highlighted at 105, extending to the line of prior lows at 104.3.

As I often have noted, a sizable sharp decline such as we've just seen will usually also result in a sizable jump in daily trading volume. You can mostly trust that many bulls have turned to bears if there's HEAVY volume in QQQ. Bearish volume 'confirmation' to bearish price action is seen in the turn down in the On Balance Volume (OBV) line.

No trade suggestions. If you shorted the stock at the rally reversal at QQQ's bearish down trendline, look for a possible retest of support at the low end of the multiweek price range.


The Russell 2000 (RUT) previously appeared to have the strongest uptrend going of the major indices but a falling tide LOWERS all boats! RUT on the Friday sell off found at least temporary support/buying interest in the 1250 area, at the low (support) end of its daily chart uptrend price channel. Next lower support is highlighted (green up arrow) at 1240. Major support begins at 1200.

I've noted resistance at the beginning of the Thursday/Friday downside chart gap at 1265. Overhead downside price 'gaps' tend to act as resistance. Resistance extends to 1270-1278. Major resistance begins in the 1300 area. I've had a next longer-range upside target to around 1350-1360 in the Russell.

I wrote last time to "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 it turned out, from the 1275 Close when RUT rose into its overbought zone, the fall so far has been around 25 points. The decline might stop IF of course the Index can mount a convincing rally from trendline support. Stay tuned on that! No suggestions on a possible trade.

RUT could hold its trendline but I'd rather look at bullish trade strategies IF the Index again gets 'oversold', which may be overly conservative. The last time RUT got down to its 'oversold' RSI zone was back in mid-January, but a sustained upside run began from there. I don't 'need' to trade often, only 'well'. I most favor getting in at overbought/oversold 'extremes'.


New Option Plays

Beating Estimates & Raising Guidance

by James Brown

Click here to email James Brown


Global Payments Inc. - GPN - close: 99.75 change: +0.04

Stop Loss: 98.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 589 thousand
Entry on April -- at $---.--
Listed on April 18, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
GPN is in the services sector. They provide money transfers and electronic payment solutions.

According to the company website, "Global Payments Inc. (GPN) is a leading worldwide provider of payment technology services that delivers innovative solutions driven by customer needs globally. Our partnerships, technologies and employee expertise enable us to provide a broad range of products and services that allow our customers to accept all payment types across a variety of distribution channels in many markets around the world. Headquartered in Atlanta, Georgia with more than 4,300 employees worldwide, Global Payments is a Fortune 1000 Company with merchants and partners in 29 countries throughout North America, Europe, the Asia-Pacific region and Brazil."

The company has been consistently delivering strong earnings growth. GPN has beaten Wall Street's expectations and guided higher the last three quarters in a row. Their most recent report was April 8th when GPN delivered their 2015 Q3 results. Earnings were up +18.7% to $1.14 a share. Revenues were up +8% to $665 million. Growth was driven by strong performances in the U.S. and their Asia-Pacific operations.

Management raised their forecast again. They see 2015 earnings in the $4.77-4.84 range, which would be +8% to +10% growth. They're forecasting 2015 revenues in the $2.75-2.80 billion range or +16% to +18% growth.

GPN management is also shareholder friendly and has been significantly boosting their stock buy back program. They recently announced an accelerated share repurchase program up to $100 million.

The stock has rallied on the strong earnings results and buyback news. Today GPN is hovering near all-time highs around psychological resistance at the $100 level. It was impressive that GPN did not participate in the market's widespread sell-off on Friday. We want to be ready to hop on board if GPN can rally past resistance at $100.

Tonight we're suggesting a trigger to buy calls at $101.05.

Trigger @ $101.05

- Suggested Positions -

Buy the AUG $105 CALL (GPN150821C105) current ask $2.85
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

Stocks End On A Sour Note

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. market ended the week on a sour note thanks to a handful of issues. Worries over Greece sparked big declines in European stock markets. Disappointing earnings results in the U.S. are not helping investor sentiment.

Our bearish play on JACK is open.

AMBA has been stopped out.

PANW has a new entry point strategy.

We want to exit the NKE and CAR trades on Monday morning.

Current Portfolio:

CALL Play Updates

Cardinal Health, Inc. - CAH - close: 89.55 change: -0.11

Stop Loss: 87.75
Target(s): To Be Determined
Current Option Gain/Loss: -44.1%
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

04/18/15: CAH held up pretty well on Friday's market decline. Shares dipped to their simple 50-dma and bounced. This pared its loss to just -0.1% versus the S&P 500's -1.1% decline.

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


Ctrip.com - CTRP - close: 63.20 change: -0.44

Stop Loss: 61.30
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.9 million
Entry on April -- at $---.--
Listed on April 14, 2015
Time Frame: 3 to 5 weeks, Exit PRIOR to earnings in May
New Positions: Yes, see below

04/18/15: Shares of CTRP gapped down on Friday morning. Traders bought the dip near $62.00 and shares trimmed their loss to -0.69%. Currently we are still on the sidelines waiting for a breakout past $65.00.

Our suggested entry point to buy calls is at $65.15.

Trade Description: April 14, 2015;
The Chinese economy grew +7.4% last year. Today estimates are suggesting +7.0% for 2015, the slowest pace in 24 years. One area that is outperforming the broader economy is travel. Travel is expected to grow twice as fast. Leading the way is CTRP, China's largest online travel provider.

CTRP is part of the services sector. According to the company, "Ctrip.com International, Ltd. is a leading travel service provider of accommodation reservation, transportation ticketing, packaged tours, and corporate travel management in China. It is the largest online consolidator of accommodations and transportation tickets in China in terms of transaction volume. Ctrip aggregates comprehensive travel related information and offers its services through an advanced transaction and service platform consisting of its mobile apps, Internet websites and centralized, toll-free, 24-hour customer service center. Ctrip enables business and leisure travelers to make informed and cost-effective bookings. It also helps customers book vacation packages and guided tours. In addition, through its corporate travel management services, Ctrip helps corporate clients effectively manage their travel requirements. Since its inception in 1999, Ctrip has experienced substantial growth and become one of the best-known travel brands in China."

The company's most recent earnings report sparked quite a reaction. CTRP reported its Q4 and fiscal year 2014 results on March 19th. Analysts were expecting a loss of $0.09 a share on revenues of $306.29 million. CTRP delivered a loss of $0.11. Investors ignored the miss thanks to revenues rising +33% to $308.37 million.

James Liang, Chairman of the Board and Chief Executive Officer of Ctrip, commented on his company's results saying, "In the fourth quarter of 2014, our main business lines demonstrated strong momentum. Accommodation reservation and transportation ticketing services reached 53% and 102% year-over-year volume growth respectively. Total GMV of packaged tour business reached RMB13 billion in 2014. Our new initiatives have propelled the expansion in our market share. Cumulative mobile app downloads reached nearly 600 million by the end of the year, growing over 70% from the previous quarter. Over 70% of transactions were made through mobile platforms during the Chinese New Year holiday. 2015 could be another exciting year. We will continue to focus on technology, service quality and efficiency, product comprehensiveness and price competitiveness, to create greater value for our customers, our partners, our employees and ultimately, our investors."

What really caught the market's attention was CTRP's guidance. The company expects Q1 revenues to surge +40% to +50%. That would be the highest growth rate since 2010 and above Wall Street's estimates for +30%. Mr. Liang said that CTRP owns about 5% of the travel market in China. Longer-term he believes CTRP could have about 20% of the market but it will be a much bigger market with travel expected to grow +500%.

Shares of CTRP gapped open higher from $46.00 to $55.00 and hit $60 a few days after its earnings report. Today shares are consolidating sideways below resistance near $65.00. Traders just bought the dip at its rising 10-dma this morning.

We want to hop on board if CTRP breaks through $65.00. Tonight we're listing an entry point to buy calls at $65.15.

Trigger @ $65.15

- Suggested Positions -

Buy the MAY $65 CALL (CTRP150515C65)

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


G-III Apparel Group, Ltd. - GIII - close: 116.07 change: -2.56

Stop Loss: 113.85
Target(s): To Be Determined
Current Option Gain/Loss: -43.1%
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

04/18/15: Thursday was a new record high close for GIII. I'm not surprised shares saw some profit taking on Friday with the market's broad-based sell-off. The stock fell -2.1%. If this dip continues we can look for support near $115.00. Nimble traders could buy calls on a bounce near $115 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

04/13/15 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: 124.43 change: -2.05

Stop Loss: 122.85
Target(s): To Be Determined
Current Option Gain/Loss: -10.3%
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

04/18/15: Stocks were hammered lower on Friday and the small caps were no exception. The IWM gapped down thanks to weakness in overseas markets. Shares fell to $123.82 before bouncing. It closed with a -1.6% decline. The trend of higher lows is still intact for the moment.

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: 98.55 change: -1.35

Stop Loss: 97.85
Target(s): To Be Determined
Current Option Gain/Loss: -63.6%
Average Daily Volume = 3.6 million
Entry on March 30 at $101.23
Listed on March 26, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

04/18/15: NKE's drop on Friday looks ominous. Shares did not break previous support near $98.00. However, this does look like a bearish breakdown from its neutral, pennant-shaped consolidation. That's not good.

We are suggesting an immediate exit on Monday morning.

- Suggested Positions -

Long MAY $100 CALL (NKE150515C100) entry $3.35

04/18/15 prepare to exit on Monday morning
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: 142.50 change: -4.29

Stop Loss: 137.45
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

04/18/15: We are adjusting our entry strategy on PANW. The stock market's big drop on Friday pushed PANW to a -2.9% decline. Shares are headed toward what should be support near $140.00 and technical support at its simple 50-dma near $141.00.

We want to take advantage of this weakness and buy calls on a dip. Tonight we're moving our entry trigger from $150.55 to buy a dip at $141.45. We'll adjust the stop loss from $144.25 down to $137.45. I'm moving the option strike to the June $150 calls.

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 @ $141.45

- Suggested Positions -

Buy the JUN $150 CALL (PANW150619C150)

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.

04/18/15 Strategy Update: Change the entry trigger from $150.55 to buy a dip at $141.45. change the stop loss to $137.45. change the option strike from June $155 call to the June $150 call
Option Format: symbol-year-month-day-call-strike


PUT Play Updates

Big Lots Inc. - BIG - close: 45.95 change: -0.75

Stop Loss: 50.05
Target(s): To Be Determined
Current Option Gain/Loss: +13.2%
Average Daily Volume = 1.1 million
Entry on April 14 at $46.85
Listed on April 13, 2015
Time Frame: Exit PRIOR to May option expiration
New Positions: see below

04/18/15: BIG continues to sink with a -1.6% decline on Friday. The stock is nearing potential technical support at its 200-dma. More conservative traders may want to start lowering their stop loss.

Trade Description: April 13, 2015:
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.

- Suggested Positions -

Long MAY $47.50 PUT (BIG150515P4750) entry $1.90

04/14/15 triggered @ $46.85
Option Format: symbol-year-month-day-call-strike


Avis Budget Group, Inc. - CAR - close: 55.79 change: -0.25

Stop Loss: 56.55
Target(s): To Be Determined
Current Option Gain/Loss: -10.3%
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

04/18/15: Shares of CAR only lost 25 cents on Friday. The stock looks poised to breakout past resistance near $56.00. We are going to play cautiously here and suggest an immediate exit on Monday morning.

- Suggested Positions -

Long MAY $55 PUT (CAR150515P55) entry $1.95

04/18/15 prepare to exit on Monday morning
04/16/15 new stop @ 56.55
04/07/15 triggered @ 55.85
Option Format: symbol-year-month-day-call-strike


Jack in the Box, Inc. - JACK - close: 91.87 change: -0.60

Stop Loss: 95.05
Target(s): To Be Determined
Current Option Gain/Loss: -21.7%
Average Daily Volume = 564 thousand
Entry on April 17 at $91.88
Listed on April 16, 2015
Time Frame: 2 to 4 weeks, exit PRIOR to earnings in mid May
New Positions: see below

04/18/15: Shares of JACK gapped open lower at $91.88 on Friday. That immediately triggered our play since our suggested entry was $91.90. The stock bounced off its Friday morning lows but the intraday rally reversed. I would still consider new positions now.

FYI: Big restaurant chains Chipotle (CMG) and YUM! Brands (YUM) both report earnings on April 21st. Their results could influence JACK.

Trade Description: April 16, 2015:
It's a burger-eat-burger world out there in the fast-food business. Jack in the Box is small fries compared to its larger rivals like McDonalds (36,258 locations) and Wendy's (6,515 locations). Let's not forget heavy weights like Taco Bell, Burger King, Subway, Dairy Queen, and a handful of pizza chains. JACK only has about 2,200 restaurants but it also has a secret weapon and that is the Qdoba Mexican Grill restaurant with about 600 locations. Chipotle Mexican Grill has almost 1,800 locations.

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

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

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

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

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

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

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

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

Everything I just wrote about JACK is bullish. The company is growing. They're profitable and seem to be stealing market share from its rivals. Yet right now the market doesn't care. Shares of JACK have been underperforming the major indices since they peaked on March 25th at round-number resistance near the $100.00 level. There was a technical bounce off its 50-dma several days ago but that has faded.

Traders seem to be selling the rallies in JACK now. Today's display of relative weakness (-0.6%) also left JACK below technical support at its 50-dma for the first time since August 2014.

I'm longer-term bullish on JACK. Bloomberg just published an article this week on how consumer spending at restaurants and bars was more than spending on groceries for the first time ever in March 2015. The data suggests that younger, millennial consumers are more willing to spend on eating out. There is a bug in this data. The Commerce Department is not counting companies like Wal-mart, Target, or Costco as grocery stores even though they all have significant grocery businesses.

On a short-term basis JACK looks weak. The point & figure chart just turned bearish this month. We are suggesting a trigger to buy puts at $91.90.

- Suggested Positions -

Long MAY $90 PUT (JACK150515P90) entry $3.00

04/17/15 triggered on gap down at $91.88, trigger was $91.90
Option Format: symbol-year-month-day-call-strike


Orbital ATK, Inc. - OA - close: 72.96 change: -1.25

Stop Loss: 76.55
Target(s): To Be Determined
Current Option Gain/Loss: +6.2%
Average Daily Volume = n/a
Entry on April 16 at $74.25
Listed on April 15, 2015
Time Frame: 3 to 4 weeks, exit PRIOR to earnings in mid May
New Positions: see below

04/18/15: The profit taking in OA continues with another -1.68% decline on Friday. I don't see any changes from my prior comments although I probably would not launch positions at current levels. Shares are down five days in a row.

Trade Description: April 15, 2015:
On a long-term basis many of the defense and aerospace companies have been juggernauts with huge gains over the last couple of years. That's in spite of lower U.S. military budgets. Yet on a short-term basis the group is underperforming.

OA is part of the industrial goods sector. The company is a merger between Orbital Sciences and ATK. ATK spun off its small firearms business into a new company called Vista Outdoor. According to OA, "Orbital ATK is a global leader in aerospace and defense technologies. The company designs, builds and delivers space, defense and aviation systems for customers around the world, both as a prime contractor and merchant supplier. Its main products include launch vehicles and related propulsion systems; missile products, subsystems and defense electronics; precision weapons, armament systems and ammunition; satellites and associated space components and services; and advanced aerospace structures. Headquartered in Dulles, Virginia, Orbital ATK employs more than 12,000 people in 20 states across the United States and in several international locations."

I am longer-term bullish on the defense and aerospace stocks. Yet shorter-term they are clearly underperforming the major indices. The S&P 500 and the Dow Industrials are both nearing their all-time highs. The NASDAQ is trading near its 15-year highs and the small cap Russell 2000 just hit a new record high today. Yet the major defense-related names have been trending lower the last couple of weeks.

Technically OA has been developing a trend of lower highs. Today the stock just broke down under key, round-number support at $75.00. If this pullback continues we could see OA drop toward the $69-70 zone.

Tonight we're suggesting a trigger to buy puts at $74.25. We'll try and limit our risk with an initial stop loss at $76.55. Earnings are coming up in mid May. There is no official date set. We will plan on exiting prior to their earnings announcement.

- Suggested Positions -

Long MAY $75 PUT (OA150515P75) entry $3.20

04/16/15 triggered @ 74.25
Option Format: symbol-year-month-day-call-strike



Ambarella, Inc. - AMBA - close: 72.84 change: -1.76

Stop Loss: 72.45
Target(s): To Be Determined
Current Option Gain/Loss: -60.0%
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

04/18/15: The stock market's widespread sell-off on Friday pushed AMBA to a -2.3% decline and below its 20-dma. Shares hit our stop loss at $72.45 before bouncing off the $72 level.

- Suggested Positions -

MAY $80 CALL (AMBA150515C80) entry $2.50 exit $1.00 (-60.0%)

04/17/15 stopped out @ 72.45
04/10/15 triggered @ 76.15
Option Format: symbol-year-month-day-call-strike