Option Investor

Daily Newsletter, Wednesday, 4/29/2015

Table of Contents

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

Market Wrap

FOMC Announcement Leaves Market Floundering

by Keene Little

Click here to email Keene Little
The market lost some ground this week as we headed for the Fed's latest decision on rates and learn how they see the current economy. The FOMC announcement left the market hanging with little information.

Wednesday's Market Stats

Following a volatile Monday and Tuesday, equity futures had sold off some in the early-morning pre-market session but then got hit harder following the GDP report at 8:30 AM, which was a miss. It's pretty clear that the economy is slowing but the market has been basically ignoring the signs in favor of an expectation that the Fed will be forced to stay on the sidelines (no rate increase). This morning's negative reaction to the weaker-than-expected GDP report was followed by a few buy programs at the open but by 9:45 AM there were no takers on the long side and the market sold off again. There was general weakness into a midday low and even though there was a bounce into the FOMC announcement at 14:00, the entire day was spent in the red. There was the usual volatility post-FOMC but prices stabilized and finished close to where they were prior to the FOMC announcement.

The advance estimate for GDP came in at +0.2% for Q1 vs. expectations for +1.0%, which is down significantly from 2.2% for Q4 and it was the weakest reading in a year. Blame for the slowdown was placed on the usual culprits -- the weather, the strong dollar and for good measure the West Coast port strikes got some of the blame. The government report did not cite the shutdown of local kids' lemonade stands by local authorities (for having no business license) but I'm sure that was also a factor (said tongue-in-cheek).

Consumer spending increased +1.9% in Q1 but that's a slowdown from +4.4% in Q4 2014, even after factoring in the reduction in gas and home heating oil prices. This factor was also cited by the Fed this afternoon as one of the reasons why they're concerned about the economy, although they call the slowdown "transitory." They love that word when they have to explain bad economic news. Factoring in the lower prices, nominal consumption actually declined $2B in Q1, which was the first decline since Q2 2009 (and Q2 2009 was the first positive quarter for the stock market following the March 2009 low).

The other economic report this morning included Pending Home Sales at 10:00 AM. It was largely ignored since the +1.1% for March was in line with expectations although it was down from 3.1% in February. Interestingly, the home builder stocks continued their selloff from the April 6th high, as I'll show later, and this continues to be a warning sign about housing in general.

Crude inventories were released at 10:00 AM, which increased marginally (+1.910M barrels) and that gave oil a boost this morning. It was one of the few things in the green today.

Other than that there was little to move the market today. The morning decline in the stock market was probably more about worry about the Fed than anything in particular. And once we got through the FOMC announcement there wasn't much of a change in the prices into the end of the day. The Fed has left us hanging by removing forward guidance from their statement. Their next meeting, in June, will be the next opportunity for the Fed to review more data to see if and when a rate increase will soon be justified. Don't hold your breath.

The Fed has maintained that their policy decisions are data dependent and basically told the market that they're removing any reference to the calendar for what and when their next move might be. They instead said, "The committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2% objective over the medium term."

What the Fed really said is that they're scared silly that the deflation monster is coming and they're out of ammunition. And rather than offer any guidance about when they're thinking of raising rates, they instead are now simply saying they'll review the data at each future meeting and make decisions based on the new data. In the meantime, don't call us, we'll call you when there's something important to report. The bond market is now projecting December as the earliest we'll see a rate increase. Those who believe we're in a deflationary cycle that can't be stopped by the Fed also believe the Fed will be forced to start QE4, QE5 ... QE to infinity and beyond long before rates will be raised. They'll have no choice but to keep doing the same thing in hopes they can keep things elevated on their watch.

All of this uncertainty has left the market rudderless since the end of February. The economy is weakening but the Fed remains supportive. The short-term moves in the stock market have left both sides feeling a little whipsawed as the market continues its directionless consolidation. It's getting old but I suspect the market is going to soon pick a direction. As for what direction that will be, I'm waiting for the snow to settle in my crystal ball before I'll have a better clue.

I'll start off tonight's chart review with another top-down look at SPX. While I've been short-term bullish, with the expectation for another rally leg into May, it's not something I think is a slam-dunk kind of trade. In fact I consider the upside potential to be dwarfed by downside risk. But for swing traders there might be one more move higher in the next couple of weeks. I see the potential for a quick drop down to the 2060-2075 area before rallying but the short-term pattern is not clear enough to make a confident projection.

The SPX monthly chart below shows the big bad bearish rising wedge for the rally from 2009. It's hard to pick out the smaller wave movements on a monthly chart but I'm looking for only one more leg up to complete the final 5th wave of wave-C of the A-B-C move up from March 2009. The c-wave would equal 162% of the a-wave at 2213.50, which I consider the highest potential for another rally leg, especially since it crosses the top of its rising wedge pattern next month. Once the A-B-C rally from 2009 finishes, which could happen at any time (even without another rally leg), it could get completely retraced in the next bear market decline. Rising (and descending) wedges tend to be completely retraced much more quickly than it takes to build them.

S&P 500, SPX, Monthly chart

Many Elliotticians believe the big (a)-(b)-(c) correction off the 2000 high into the 2009 low completed the bear market correction but I think the 2009-2015 rally is wave-(d) in a larger expanding triangle correction pattern off the 2000 high. I don't believe the secular bear ended in 2009 and the only reason the rally has become so stretched to the upside is because of the massive liquidity injections of free money from central banks around the world. The net result is a bigger bubble than we had at either the 2000 or 2007 high and the reaction to the downside could make the 2000-2002 and 2007-2009 declines look like child's play.

Instead of a new bull market starting off the 2009 low the 3-wave start of the rally off the 2009 low into the May 2011 high (my wave-A) suggests we have a very large corrective move up from 2009 instead of a more bullish 1-2-3. And if I'm correct, anyone who believes in buy-and-hold is going to get crushed in the next decline. Part of the reason for a very large decline would likely be a result of the market realizing once and for all that their Emperor (the Fed) wears no clothes.

The weekly chart below is the one I've been using for the weekly updates and you can see more clearly how the bottom of the rising wedge, which is the uptrend line from 2009-2011, has been supporting the sideways consolidation off the February high. It looks like it's trying to break out of the consolidation but so far it's been a weak attempt. There's a trend line along the highs since last December-February, currently near 2150, and that would be the first, maybe final, target for a rally from here.

S&P 500, SPX, Weekly chart

Not shown on the weekly chart above, but is shown on the daily chart below, is another trend line along the highs from July-December 2014, which will be near 2180 by mid-May. This trend line and the one along the highs from December-February gives us a target zone of roughly 2150-2180, with an outside chance it will rally up to the 2213 projection mentioned on the monthly chart above. If we get another rally leg I expect to be able to narrow the upside target range once it gets closer. The bulls are not in trouble until price drops below 2045, which would signify the top is likely already in place.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2126
- bearish below 2045

The intraday pattern leaves me scratching my head as I wonder who's in control. Movement in both directions remains choppy and corrective and that leaves the short-term (next few days) direction unclear. There's a parallel up-channel for the move up from the end of March, the bottom of which is currently near 2090. Two equal legs down from Monday morning's high points to 2085 so that gives us a downside target zone for a deeper pullback that would still remain bullish. Below 2085 would suggest a drop down to the uptrend line from 2009-2011 (2073) or the bottom of its triangle pattern off the February high, near 2060. There are plenty of support levels to make the bear's job more difficult but if the bulls can get SPX above Monday's high at 2123 we should see it work its way higher into an important turn window in mid-May (there will also be a new moon on May 18th and this market has often topped on new moons).

S&P 500, SPX, 60-min chart

The DOW has been weaker than SPX since it hasn't been able to make new highs since February (except for the very brief high on Monday morning that made it above its April 16th high). It has been trapped below the downtrend line from February but mostly supported by its 20- and 50-dma's, which are currently crossing near 17980 (today's low was 17953 but it closed at 18035). It's barely holding onto its uptrend line from October-February, currently near 18100. The 2-week consolidation appears more bullish than bearish but only marginally so. All of the choppy moves still leaves its next direction somewhat of a guess but at the moment, gun to my head, I'd choose the long side (and then quickly buy some puts for downside protection when the gun-holder wasn't looking). Upside potential is first to the trend line along the highs from December-March, near 18500 in early May, and perhaps up to the trend line along the highs from December 2013 - December 2014, near 18700 in mid-May. The bulls would be in at least short-term trouble below the April 22nd low at 17887.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 18,289
- bearish below 17,887

Last Friday the tech indexes got a big boost, thanks to some big jumps in a few stocks like AMZN (+16%). That had NDX popping up out of its sideways consolidation that followed its March 2nd high (bull flag pattern). Its rally peaked on Monday morning and it has since pulled back to the top of its bull flag, near 4466, and if today's back-test of the top of the channel is followed by a rally on Thursday we'd have a buy signal. In that case I would expect to see a rally at least up to the trend line along the highs from November-March, near 4597 next week. There's higher potential, such as up to the trend line along the highs from March-November 2014, near 4760 by mid-May, but I'd want to first see how it does near 4600. A drop below its April 17th low at 4333 would tell us the high is already in place.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4466
- bearish below 4333

As mentioned above, AMZN had quite the rally last Friday and it gapped up and rallied about 62 points (16%) to put in a quick high that morning. It's been all downhill since that high but it was good for the techs. But look where AMZN stopped -- with a high at 452.65 it achieved its 450 price objective out of the descending triangle that ran from January 2014 to January 2015 (width of the triangle projected from the breakout level). It also came very close to back-testing its broken uptrend line from June 2010 - December 2011. It's a very interesting setup for a final high for AMZN, although I do see the potential for one more ride up to a minor new high to complete the leg up from March.

Amazon, AMZN, Weekly chart

The RUT is threatening to break down and if it does it's going to be a bearish warning for the rest of the stock market. At the moment, with Tuesday morning's low, it has achieved a 3-wave correction off the April 15th high and did so at its 50-dma, where it essentially closed today. The short-term pattern is looking more bearish than the others, which suggests it's going to break down rather than start another rally leg, but Thursday should provide more clues in that regard. The bulls need to so some buying right here, right now.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1276
- bearish below 1242

Bonds sold off strongly today, presumably on the disappointing GDP report and weaker dollar. It's looking like TLT (20+ year Treasury ETF) could soon test its uptrend line from December 2013, currently near 123.84 (today's low was 125.28). Its 200-dma is currently 123.40 so that's also within striking range. A drop below its March 6th low, near 123, would likely mean a trip down to a price projection at 117.23, which is where it would have two equal legs down from its January 30th high. I continue to believe we have not yet seen THE high for bond prices (lows for yields) but at the moment it's looking like we might get at least a little more selling in bonds before starting another rally. Selling in the bond market is generally supportive for the stock market but that wasn't true for today.

20+ Year Treasury ETF, TLT, Weekly chart

The transports have been relatively weak for a long time -- since the November high for the TRAN it has made a series of lower highs. But it keeps finding support at its December low at 8580 and it has created a descending triangle in the process. This is typically a bullish continuation pattern following a rally (October-November) but it keeps struggling to get a rally going. Following its April 6th low it got a 3-wave bounce (corrective pattern) and is now dropping back down toward 8580 support. It is again threatening to break its uptrend line from November 2012 - October 2014 (near 8780, it closed below it again) as well as its 200-dma, now near 8713 (today's close was 8701). Another drop below 8580 might not recover this time and it would leave a failed bullish pattern in its wake. Failed patterns tend to fail hard so keep an eye on this index for some clues. It now needs to get above 9125 to turn the pattern back to bullish.

Transportation Index, TRAN, Daily chart

I had mentioned earlier that the home builders sold off some more today, presumably on the pending home sales report. The decline from the high on April 6th looks impulsive, which suggests the trend is now down. From a wave count perspective there is a way to consider it as a bullish setup following a 3-wave correction off the February 25th high but at the moment it's looking more bearish than bullish. On April 23rd, following the new-home sales report, it broke its uptrend line from October-January and then dropped below price-level support near 553 (which had held the pullback in mid-March), which includes its May 2013 high. A bounce back up to resistance on Monday has been followed by more selling and we could see the index drop down to its 200-dma, near 516 before it will be ready for a bigger bounce into May.

DJ U.S. Home Construction index, DJUSHB, Daily chart

Following this morning's GDP report there was a selloff in the U.S. dollar as traders become more convinced that the Fed will not be thinking of raising rates anytime soon. The pullback from the dollar's high on March 13th is so far a 3-wave pullback and two equal legs down points to 94.25. With today's low at 94.75 it's now close to achieving that level and we could see a bounce back up from there. The top of a previous parallel up-channel from 2008-2011 (blue line on the weekly chart below) is near 93.50 so that's another potential support level. If the dollar drops below 93.50 we could see a drop down to the 90 area. It's still early in the pullback pattern to determine the longer-term pattern but at the moment I'm expecting the dollar to consolidate for much of this year before heading higher next year.

U.S. Dollar contract, DX, Weekly chart

Gold had a nice rally Monday and Tuesday and now has it looking like we could get another leg up for its bounce off the March 17th low. Two equal legs up would take gold up to 1257, which is what I'm showing on its daily chart below. It's possible gold will instead chop sideways in a larger bearish consolidation pattern but in either case I don't believe gold has put in its bear-market low yet.

Gold continuous contract, GC, Daily chart

How silver does from here should provide more clues for gold. Notice how silver has bounced back up to its broken uptrend line from November-January and stalled. A turn back down from here would leave a bearish kiss goodbye and the selling could become accelerated, especially if it breaks below its uptrend line from November-March, near 15.35, which could be the neckline of a H&S continuation pattern. An upside break through its downtrend lines from January-March, near 16.86, and from November 2012 - July 2014, near 17, would help keep the bulls in control.

Silver continuous contract, SI, Daily chart

Oil got a bump back up this morning on the crude inventory report that showed a slower build than we've seen in the past. Traders are hoping to catch a ride higher on hopes that we'll soon see a report that shows an inventory draw rather than a build. It continues to push up against price-level resistance near 58.50 (it closed at 58.55 today) and if it can break through this time there is upside potential to at least 62.50 where it would run into the top of a rising wedge pattern for the leg up from March 18th. This leg continues to fit well as the c-wave of an a-b-c bounce off its January low and once complete we should see a larger pullback/consolidation in what I think will be a multi-month consolidation for oil before it drops lower (essentially the opposite of what I'm expecting to see for the dollar). A drop below its April 21st low at 55.01 would be a good indication the leg up from March 18th completed.

Oil continuous contract, CL, Daily chart

Tomorrow's economic reports include unemployment claims and more importantly, personal spending and PCE prices. A continued slowing in consumer spending (contracting economy) and a drop in PCE prices (deflationary) would likely worry the market even more. Shortly after the opening bell we'll get the Chicago PMI, which is expected to be right at the border of expansion/contraction (50).

Economic reports and Summary


In reality we still have a market that is trapped in a sideways trading range since the end of February. The choppy whipsaw moves have shaken the trees on both sides of the fence, shaking loose the stops of both the bulls and bears. This could continue for a little longer, especially if we get a drop this week. I remain intermediate-term bullish for higher prices into mid-May but short term (the next few days) could literally go either way. I would be careful about getting bearish too early but by the same token I'd be very careful about the long side.

The longer-term pattern remains bullish and the sideways consolidation continues to point to higher prices, especially with longer-term uptrend lines still holding. Banks got a nice boost today and that's bullish for the market. But the TRAN is threatening to break down and that would be a bearish warning sign. Part of the problem at the moment is that it appears money is sloshing around from sector to sector and in the meantime the major indexes have been marking time. We've seen several important highs get put in place with this kind of sideways consolidation, which turns out to be topping patterns instead. That's a possibility here and just one more reason to be careful and manage your stops with discipline. While I like the potential for a rally into mid-May, the downside risk means light trading -- smaller than usual trade size and/or tighter stops.

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

Keene H. Little, CMT

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

New Option Plays

Looking Past The Slowdown

by James Brown

Click here to email James Brown


Schlumberger Ltd. - SLB - close: 94.28 change: +1.62

Stop Loss: 91.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 8.75 million
Entry on April -- at $---.--
Listed on April 29, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
It is finally time to buy energy stocks? It's starting to look that way. Crude oil prices were crushed with a -60% drop from June 2014 to January 2015. This has done significant damage to the oil industry in the U.S. and around the world. Companies have been trying to slash costs and shut down rigs. Yet crude oil production, especially in the U.S., has continued to climb.

U.S. oil inventories just rose for a record-breaking 16 weeks in a row. The good news is that the +1.9 million barrel build in inventory was less than expected. Inventories are at record highs and significantly above the five-year average. At the same time the number of active rigs has been plummeting.

Active rigs have dropped for a record 20 weeks in a row. The current total of active oil and gas rigs in the U.S. is 932. This is the lowest level since 2010. The number of active rigs peaked at 1,609 in October 2014 and this has been the fastest decline in history. We're quickly approaching the 2009 low of 866 active rigs.

Why do I bring up oil inventories and active rigs in the U.S.? Because eventually the trend on these two numbers will reverse. Sooner or later the oil inventory build will end and the number of active rigs will bottom. If trading in the oil service stocks is any indication then the market is banking on sooner instead of later.

The price of crude oil has already seen a +25% bounce off its March lows. We're starting to hear speculation that the action in crude over the last three months might be a bottom. There is also growing speculation that the decline in active rigs will reach a bottom in Q2 2015.

The stock market is always looking forward. It appears investors are looking past the current tough spot for oil producers and oil service companies. SLB is the world's largest oilfield services company.

According to the company, "Schlumberger is the world's leading supplier of technology, integrated project management and information solutions to customers working in the oil and gas industry worldwide. Employing approximately 115,000 people representing over 140 nationalities and working in more than 85 countries, Schlumberger provides the industry's widest range of products and services from exploration through production. Schlumberger Limited has principal offices in Paris, Houston, London and The Hague, and reported revenues of $48.58 billion in 2014."

There was a lot of focus on SLB's most recent earnings report. SLB delivered its Q1 results on April 16th. Wall Street was expecting earnings of $0.91 a share on revenues of $10.35 billion. SLB delivered $1.06 a share with revenues down -8.8% to $10.25 billion. The difference from Q4 to Q1 is dramatic. SLB saw a -19% drop in revenues from Q4 and a -29% drop in earnings.

SLB's Chairman and CEO Paal Kibsgaard commented on his company's Q1 results, "Schlumberger first-quarter revenue decreased 19% sequentially driven by the severe decline in North American land activity and associated pricing pressure. International operations were impacted by reduced customer spend in addition to seasonal effects in the Northern Hemisphere and the fall in value of the Russian ruble and the Venezuelan bolivar. Three-quarters of the overall sequential decline was due to lower activity and pricing, while the remainder was the result of currency effects and non-recurring year-end sales."

Kibsgaard continued, saying, "Despite the severity of the sequential revenue decline, we have been able to minimize its impact on our margins through prompt and proactive cost management as well as through acceleration of our transformation program across product lines and GeoMarkets. These actions have successfully improved financial performance compared to previous industry cycles... In spite of the detailed preparations we made in the fourth quarter, the abruptness of the fall in activity, particularly in North America, required us to take additional actions during the quarter. These included the difficult decision to make a further reduction in our workforce of 11,000 employees, leading to a total reduction of about 15% compared to the peak of the third quarter of 2014."

Kibsgaard provided his outlook on their business, "In this environment, we remain confident in our ability to grow market share, deliver superior performance in earnings per share compared to industry peers, and reduce working capital and capex intensity. Our favorable international leverage, our technological differentiation in North America, the acceleration of our transformation program and our unmatched execution capabilities continue to provide the foundations for our financial and technical outperformance."

Wall Street analysts were very optimistic on SLB. They applauded the company's fast response to cutting cost and reducing their workforce so quickly to changing market conditions. Analysts believe that SLB will be able to maintain strong margins compared to their peer group and that earnings will likely come in better than most expect. Analysts have also commented on how SLB is essentially the best in class for this industry and will take market share from weaker competitors. Several firms upgraded their price targets on SLB following the Q1 report and the new targets are: $100, $105, $107, and $110. The point & figure chart is more optimistic and is currently forecasting a rally to $122.00.

Shares of SLB spiked higher following its Q1 report but the rally failed at its simple 200-dma. Since then the stock has been consolidating sideways and building up steam for a bullish breakout higher. It looks like that breakout has started with today's display of relative strength (+1.7%) and a close above technical resistance at its 200-dma. The intraday high on April 17th was $94.89. We are suggesting a trigger to buy calls at $95.25.

Trigger @ $95.25

- Suggested Positions -

Buy the AUG $100 CALL (SLB150821C100) current ask $2.27
option price is a current quote and not a suggested entry price.

Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.

Option Format: symbol-year-month-day-call-strike

Daily Chart:

Weekly Chart:

In Play Updates and Reviews

Traders Nervous With A Weak Europe & Weak GDP

by James Brown

Click here to email James Brown

Editor's Note:

Heavy selling across the major European markets put investors in a cautious mood on Wednesday. A weak Q1 GDP number, significantly below economists' estimates, did not help. The FOMC statement out this afternoon reaffirmed the Fed's data-dependent stance.

The SPY trade set up has been removed.

Current Portfolio:

CALL Play Updates

Apogee Enterprises - APOG - close: 53.14 change: -0.22

Stop Loss: 51.75
Target(s): To Be Determined
Current Option Gain/Loss: -20.0%
Average Daily Volume = 223 thousand
Entry on April 27 at $53.85
Listed on April 25, 2015
Time Frame: Exit PRIOR to earnings in June
New Positions: see below

04/29/15: APOG spent another session consolidating sideways while the major indices slipped lower. The $52.00 area looks like short-term support. I am not suggesting new positions at this time.

Trade Description: April 25, 2015:
The U.S. economy has been limping along with slow growth. During the first quarter earnings season we have heard how the strong dollar has hurt big cap companies' sales and margins. That's one reason why money has been flowing into small cap, domestic companies, which are less impacted by the dollar. Investors are always looking for strong growth as well.

APOG fits the bill. The company is in the industrial goods sector. They are part of the building materials industry. According to the company, "Apogee Enterprises, Inc. (www.apog.com), headquartered in Minneapolis, is a leader in technologies involving the design and development of value-added glass products, services and systems for the architectural and picture framing industries."

Looking at the last four quarters (fiscal year 2015) bottom line results have been mixed. Yet revenues have been consistently showing double-digit growth. Q1 revenues were up +17.6%. Q2 revenues were +30%. Q3 revenues rose +22.6%. The company's most recent earnings report was April 8th. APOG delivered 2015 Q4 results of $0.47 a share, which was +74% higher than a year ago and above analysts' estimates. Q4 revenues were up +15% and above expectations. Margins improved 240 basis points to 8%.

The company said their architectural glass segment's revenues rose +22%. Architectural service revenues were flat. Architectural framing systems rose +22%. Large-scale optical technologies segment reported revenues up +18% last quarter. APOG ended the fourth quarter with a backlog of $491 million, up +49% from a year ago. Their fiscal 2015 results saw revenues up +21% and adjusted EPS up +58%.

Joseph Puishys, APOG's CEO, commented on their results, saying,

"Apogee's growth engine continued in the fourth quarter as we again grew revenues in the double digits and income more than 50 percent. Performance across the company was strong, with double-digit earnings and revenue growth in three of four segments... We built our backlog significantly during the year, giving us momentum moving into fiscal 2016. We expect fiscal 2016 will continue our trend of double-digit top-line growth and very strong bottom-line growth."
APOG provided relatively optimistic guidance for fiscal year 2016. They see revenues rising +10% to +15% and expect to see sales cross the $1 billion mark soon.

The stock shot higher following its Q4 report in April. The last couple of weeks have seen shares consolidate a bit but traders have started to buy the pullback. We think the rally continues. Tonight we're suggesting a trigger to buy calls at $53.85. We'll try and limit our risk with an initial stop loss at $51.75.

- Suggested Positions -

Long AUG $55 CALL (APOG150821C55) entry $2.75

04/27/15 triggered @ 53.85
Option Format: symbol-year-month-day-call-strike

Global Payments Inc. - GPN - close: 101.90 change: +0.92

Stop Loss: 98.25
Target(s): To Be Determined
Current Option Gain/Loss: +5.3%
Average Daily Volume = 589 thousand
Entry on April 21 at $101.05
Listed on April 18, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

04/29/15: Traders bought the dip near support in the $100.00 area again and this time GPN rebounded to a +0.9% gain. The stock is trading near the top of its $100-102 trading range. A rally past $102.45 would be a new all-time high.

Trade Description: April 18, 2015:
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.

- Suggested Positions -

Long AUG $105 CALL (GPN150821C105) entry $2.85

04/21/15 triggered @ 101.05
Option Format: symbol-year-month-day-call-strike

Splunk, Inc. - SPLK - close: 67.92 change: +1.29

Stop Loss: 62.85
Target(s): To Be Determined
Current Option Gain/Loss: +14.5%
Average Daily Volume = 1.9 million
Entry on April 23 at $66.25
Listed on April 22, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

04/29/15: Our SPLK play looks healthier after today's display of relative strength and +1.9% gain. Traders bought the dip near $66.00 this morning. The big reaction to earnings from CRM may have rubbed off on SPLK.

I'm not suggesting new positions at the moment.

Trade Description: April 22, 2015:
Big data and cyber security are buzzwords in the information technology industry. One firm appears to have found its niche providing solutions for both of them.

SPLK is in the technology sector. They are considered part of the application software industry. According to the company, "Splunk Inc. (SPLK) provides the leading software platform for real-time Operational Intelligence. Splunk® software and cloud services enable organizations to search, monitor, analyze and visualize machine-generated big data coming from websites, applications, servers, networks, sensors and mobile devices. More than 9,000 enterprises, government agencies, universities and service providers in more than 100 countries use Splunk software to deepen business and customer understanding, mitigate cybersecurity risk, prevent fraud, improve service performance and reduce cost. Splunk products include Splunk® Enterprise, Splunk Cloud™, Hunk®, Splunk Light™, Splunk MINT and premium Splunk Apps."

The company is seeing significant earnings momentum. Their FY2015 Q2 report in August beat analysts' estimates on both the top and bottom line. Revenues were up +51.7% from the year ago period. Management raised their guidance. They did it again with their Q3 results in November with a beat on both the top and bottom line with revenues rising +47.6% and SPLK raised their guidance.

The company's most recent report was February 26th, 2015. SPLK delivered their fiscal year 2015 Q4 results. Analysts were looking for earnings of $0.04 a share on revenues of $136.98 million. SPLK delivered $0.09 a share. Revenues soared +47.5% to $147.4 million. For the whole year (FY2015) SPLK's revenues were up +49%.

SPLK CEO and Chairman, Godfrey Sullivan, commented on their performance, saying, "We are proud to welcome more than 600 new customers to the Splunk family, which now includes over 9,000 customers around the world. We finished FY15 with strong performance across the board and posted our best quarter yet for both Splunk Cloud and the Splunk App for Enterprise Security. Our investments in cloud and solutions are helping to drive global customer adoption."

SPLK management raised guidance again for FY2016 Q1 and for the full year. They now forecast revenues above Wall Street estimates. SPLK expects 2016 sales to hit $600 million, which is a +33% improvement from 2015.

Wall Street is very bullish on the stock. Shares have seen a parade of upgrades and raised price targets. Here's a brief list of price targets: Deutsche Bank $80, JMP Securities $81, Citigroup $81, Wedbush $82, Morgan Stanley $84, Credit Suisse $85, Canaccord $86, and FBR Capital with a $90 price target on SPLK shares. The point & figure chart is only forecasting at $76 target but it could grow.

Technically SPLK has been consolidating sideways in the $60-65 zone the last couple of weeks. Today shares displayed relative strength with a +2.6% gain and a breakout past resistance near $65.00. I'm suggesting a trigger to launch bullish positions at $66.25. The levels to watch are potential overhead resistance at $70 and $75.

- Suggested Positions -

Long AUG $70 CALL (SPLK150821C70) entry $4.54
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.

04/23/15 triggered @ 66.25
Option Format: symbol-year-month-day-call-strike

PUT Play Updates

Bed Bath & Beyond Inc. - BBBY - close: 70.97 change: -0.22

Stop Loss: 72.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.4 million
Entry on April -- at $---.--
Listed on April 27, 2015
Time Frame: Exit PRIOR to June option expiration
New Positions: Yes, see below

04/29/15: BBBY was moving the right direction this morning. Unfortunately shares found support near $70.00 midday and pared its losses. It's not a complete surprise to see a little bit of a bounce near round-number support at $70.00 and that's why our trigger is at $69.75.

Trade Description: April 27, 2015:
Retailers like BBBY suffered a number of challenges last quarter. Naturally the strong U.S. dollar hurt their international sales. Their U.S. operations were hurt by the West Coast port slowdown. Management also blamed bad weather in February for a significant slowdown.

If you're not familiar with BBBY they are in the services sector. According to the company, "Bed Bath & Beyond Inc. and subsidiaries (the "Company") is a retailer selling a wide assortment of domestics merchandise and home furnishings which operates under the names Bed Bath & Beyond, Christmas Tree Shops, Christmas Tree Shops andThat! or andThat!, Harmon or Harmon Face Values, buybuy BABY and World Market, Cost Plus World Market or Cost Plus. Customers can purchase products from the Company either in store, online or through a mobile device.

The Company has the developing ability to have customer purchases picked up in store or shipped direct to the customer from the Company's distribution facilities, stores or vendors. The Company also operates Linen Holdings, a provider of a variety of textile products, amenities and other goods to institutional customers in the hospitality, cruise line, food service, healthcare and other industries. Additionally, the Company is a partner in a joint venture which operates retail stores in Mexico under the name Bed Bath & Beyond. Shares of Bed Bath & Beyond Inc. are traded on NASDAQ under the symbol 'BBBY' and are included in the Standard and Poor's 500 and Global 1200 Indices and the NASDAQ-100 Index. The Company is counted among the Fortune 500 and the Forbes 2000.

The Company operates websites at bedbathandbeyond.com, worldmarket.com, buybuybaby.com, christmastreeshops.com, and harmondiscount.com. As of February 28, 2015, the Company had a total of 1,513 stores, including 1,019 Bed Bath & Beyond stores in all 50 states, the District of Columbia, Puerto Rico and Canada, 270 stores under the names of World Market, Cost Plus World Market or Cost Plus, 96 buybuy BABY stores, including its first in Canada, 78 stores under the names Christmas Tree Shops, Christmas Tree Shops andThat! or andThat!, and 50 stores under the names Harmon or Harmon Face Values."

BBBY's 2015 Q3 results were reported in January this year. Earnings were in-line with estimates. Revenues only saw low single-digit growth and came in slightly below analysts' estimates. This trend continued with their Q4 results BBBY delivered on April 8th.

Earnings of $1.80 a share were in-line with estimates. Revenue growth improved a little bit to +4.2% but still came in below Wall Street estimates at $3.34 billion. Q4 comparable store sales were up +3.7% but management is forecasting comps to fall into the +2-3% range for fiscal 2016. Another challenge for BBBY is margins, which are getting squeezed. Margins fell -77 basis points in Q4 following a similar decline in Q3. BBBY also lowered their Q1 2016 guidance to $0.90-0.95 a share versus analysts' estimates of $1.01.

In their Q4 earnings report BBBY said they spent $947 million buying back approximately 11.8 million shares of the company's stock. This is part of a $2 billion stock buyback program. A Bank of America analyst noted that without BBBY's stock buyback the company would not have seen any earnings growth. As of February 28, 2015, BBBY's remaining balance on its repurchase program was about $884 million.

Technically the stock has broken down. The path of least resistance is lower. Last week BBBY tried to produce an oversold bounce but it didn't get very far. The point & figure chart is bearish and forecasting at $64 target. More aggressive traders may want to buy puts now. I'd prefer to see a drop below possible support at $70.00 and its simple 200-dma. Therefore we are suggesting a trigger to buy puts at $69.75.

Trigger @ $69.75

- Suggested Positions -

Buy the JUN $70 PUT (BBBY150619P70)

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

Big Lots Inc. - BIG - close: 45.33 change: -1.37

Stop Loss: 46.55
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

04/29/15: The sell-off in BIG picked up steam today. Shares fell -2.9% and broke down below support at $46.00 and its 200-dma. We are moving our stop loss down to $46.55.

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

04/29/15 new stop @ 46.55
04/28/15 new stop @ 48.05
04/23/15 new stop @ 49.05
04/14/15 triggered @ $46.85
Option Format: symbol-year-month-day-call-strike

Orbital ATK, Inc. - OA - close: 73.67 change: -0.20

Stop Loss: 74.45
Target(s): To Be Determined
Current Option Gain/Loss: -17.2%
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

04/29/15: OA traded down to $72.90 intraday. The stock's afternoon bounce managed to recoup nearly all of its losses. We're growing more cautious on this trade and moving the stop loss down to $74.45.

No new positions at this time.

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

04/29/15 new stop @ 74.45
04/27/15 new stop @ 75.25
04/16/15 triggered @ 74.25
Option Format: symbol-year-month-day-call-strike

PVH Corp. - PVH - close: 102.89 change: -0.35

Stop Loss: 105.25
Target(s): To Be Determined
Current Option Gain/Loss: -11.8%
Average Daily Volume = 1.2 million
Entry on April 29 at $102.65
Listed on April 28, 2015
Time Frame: Exit PRIOR to June option expiration
New Positions: see below

04/29/15: Our new bearish play on PVH is open. Shares continue to sink as expected. PVH hit our suggested entry point at $102.65. I would still consider new bearish positions now at current levels. More conservative traders may want to wait for a drop under $102.00 instead.

Trade Description: April 28, 2015:
Investors have been relatively forgiving when it comes to corporations blaming the strong dollar on poor results. They were not so forgiving with PVH after the company significantly reduced their guidance.

PVH is in the consumer goods sector. According to the company, "PVH Corp., one of the world's largest apparel companies, owns and markets the iconic Calvin Klein and Tommy Hilfiger brands worldwide. It is the world's largest shirt and neckwear company and markets a variety of goods under its own brands, Van Heusen, Calvin Klein, Tommy Hilfiger, IZOD, ARROW, Warner's and Olga, and its licensed brands, including Speedo, Geoffrey Beene, Kenneth Cole New York, Kenneth Cole Reaction, MICHAEL Michael Kors, Sean John, Chaps, Donald J. Trump Signature Collection, DKNY, Ike Behar and John Varvatos."

PVH's earnings history has been mixed. They have managed to beat estimates the last four quarters in a row. Yet in three out of the last four quarters they have guided lower.

Their most recent report was March 25th. Analysts were expecting Q4 results of $1.73 a share on revenues of $2.1 billion. PVH delivered $1.76 but revenues were only up +0.8% to $2.07 billion. If you back out the currency headwinds then revenues would have been about +5%.

Management said it has been a highly challenging market environment and noted the strong dollar was a significant headwind. The company lowered their guidance on both the Q1 2016 and for their fiscal year 2016. PVH expects Q1 earnings in the $1.35-1.40 range versus Wall Street's consensus at $1.52. For the whole year PVH is forecasting $6.75-6.90 in earnings per share compared to analysts' estimates at $7.38.

The stock's oversold bounce from its March lows has failed at resistance. We just saw the most recent oversold bounce, on April 23rd, quickly fail at short-term resistance. Longer-term shares appear to have topped out as well. Tonight we are suggesting a trigger to buy puts at $102.65. More conservative traders may want to wait for a decline below $102.00 as an alternative entry point to buy puts.

- Suggested Positions -

Long JUN $100 PUT (PVH150619P100) entry $3.40

04/29/15 triggered @ 102.65
Option Format: symbol-year-month-day-call-strike


SPDR S&P 500 ETF - SPY - close: 211.44 change: +0.67

Stop Loss: 206.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 128 million
Entry on April -- at $---.--
Listed on April 23, 2015
Time Frame: Exit PRIOR to June option expiration
New Positions: see below

04/29/15: It's been four trading days since we added SPY as a potential candidate. The big cap ETF has struggled with resistance at $212.00. We are going to remove it as a candidate tonight as the trade is not open. However, I would keep the SPY on your watch list. A close above $212.25 would be a potential bullish entry point.

Trade did not open.

04/29/15 removed from the newsletter, suggested entry was a close above $212.25.