Option Investor

Daily Newsletter, Wednesday, 5/6/2015

Table of Contents

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

Market Wrap

Choppy and Whippy Reversals Continue

by Keene Little

Click here to email Keene Little
The choppy trading range that we've been in continues and traders on both sides continue to get whipped out of their trades. Directional trades have been failing left and right but we might finally be at a point where a long trade could work (as long as significant downside risk is kept in mind).

Wednesday's Market Stats

Equity futures were pointing to a positive open this morning and the indexes gapped up. The DOW jumped up +92 to 18020 in the first minute and then spent the next 40 minutes getting hammered down nearly 240 points to 17781 (-147). A mid-morning bounce recovered 128 of those points and it almost made it back into the green. But before 11:00 the sellers returned and hammered the DOW back down 176 points to 17733 (down nearly 200) before the buyers shoved the sellers aside and recovered 113 of those points, finishing down -86. We've been seeing daily reversals of this magnitude but this was in just one day.

I'm not sure what drove the selling out of the gate this morning but it wasn't the economic reports, which were not great but they were out before the bell and the futures barely moved. I think it's just an example of how quickly the market can move in what is becoming more of an illiquid market as more and more traders head for the sidelines (it's been a tough market for most). We've been seeing initial morning moves in the market, as either buy or sell orders hit, and it could be some big firms just playing with the market (drive it in one direction quickly for some quick trading profits and then step aside). The fact that the market sold off some more after the morning bounce had it looking more bearish but I'm not yet convinced the bears are in the driver's seat yet.

As for this morning's economic reports, they were employment related and they weren't supportive of an improving economy. Unfortunately the numbers are confirming other signs of a slowdown in the economy, this despite years of Fed efforts to goose the market, I mean economy.

The ADP Employment report showed +169K new jobs but that was less than the +189K the market expected and slightly less than the downwardly revised +175K in March (revised down from +189K). But it wasn't far enough away from estimates to affect traders.

The preliminary Productivity report showed a decline of -1.9% for Q1, which was a slight improvement from the -2.1% for Q4, 2014 but roughly in line with expectations. It's the first time since the 1st and 2nd quarters in 2006 that we've had back-to-back declines. Compounding the problem of declining productivity are the large jumps in Unit Labor Costs -- up +5.0% for Q1, which follows a +4.2% in Q4. Declining productivity with an increase in labor costs is a double whammy for companies and it will affect their bottom lines (the 'E' in the P/E ratio gets smaller and the P/E therefore climbs higher, making it more difficult to argue the market is fairly valued).

Crude inventories dropped -3.9M barrels, the first drop in a long time, and this spiked the price of crude in the morning. But from a morning high at 62.58 it lost nearly $2 by the end of the day, signaling the report was likely already priced in and it became a sell-the-news event. As I'll cover with its chart later, this spike on news and then reversal gives us a good reversal pattern and oil should start to pull back from here.

For the past several weeks I've been short-term bullish the stock market and I've been expecting to see an important market top sometime in mid-May (maybe as late as the end of May). The big sideways consolidation since late February supports this but I remain wary of the fact that so many important tops in the past have been put in this way -- they consolidate in what looks like a bullish continuation pattern and then suddenly the market breaks down instead. A failed pattern tends to fail hard and that's one of the reasons why I've been saying upside potential is dwarfed by downside risk. I think the indexes (not sure about the RUT) will make new highs but betting on that is very risky at this point. Just be sure you know where you're exit point is and don't trust limit orders for your stops. You know, the usual warnings that go along with "don't eat yellow snow and don't spit into the wind."

As you'll see on my charts, I continue to show expectations for a little more rally (maybe just a high bounce for the RUT) but every day I look for chart signs that it might not happen. There are plenty of other warning signs that tell me upside is risky. A chart recently shared by Tom McClellan shows the spread between bullish and bearish sentiment, as measured by Investors Intelligence. As can be seen on his chart, there's good correlation between wide bull-bear spreads (above 40, which indicates many more bulls than bears) and market highs. Especially important is when the spread hits the top and bottom of the Bollinger Band around the 50-dma of this measure, as it's doing now. It can go higher (wider spread), as it did in February, but this is dangerous territory to be a bull.

Investors Intelligence Bulls-Bears, chart courtesy Tom McClellan

Another warning sign comes from China. China has become a big player in the global market and how it handles any future economic/currency crisis will definitely have an impact on the rest of us. We've heard about the froth in their stock market, especially with the number of new retail trading accounts that are opening. This is very reminiscent of all the day traders opening trading accounts in the latter 1990s as our stock market roared higher. The chart below is a graphic view of the number of new brokerage accounts that have been opened this year, the significant majority of which are retail accounts by people who have never traded before but hear of all the money their friends are making.

New Chinese brokerage account, chart courtesy stansberryresearch.com

That's a parabolic climb if I ever saw one. What could possibly go wrong as more than 3 million new accounts are opened each week? It's a faster rate of new account creations than the last stock market bubble in 2007. As I've mentioned before, the strong rally in the SSEC (China's stock market) in the past year+ fits well as the c-wave of a large a-b-c move up from 2009 and it looks ripe for a sharp drop back down into another bear market decline. All those new traders and all their new long positions will first get caught in a downdraft and then when they start panicking and bailing en masse it's not going to be a pretty sight. It's also going to produce a lot of angry Chinese. It's anyone's guess when the music will stop but parabolic rallies, which it now has (and new account creation as well), never end well.

I'm going to start tonight's chart review with a weekly chart of the Wilshire 5000 index. It's not that we trade this index but it's a good one to see what THE market is doing and help guide us forward. The big multi-year pattern is a 3-wave move up from 2009, which I look at as a large 3-wave a-b-c "bounce" correction in the secular bear market that started in 2000 (and the secular bear needs one more big leg down to finish the cycle). As noted on its chart, the c-wave would be 162% of the a-wave near 23540. It doesn't have to get there, or stop there, but it's been a good target price.

Wilshire 5000 index, W5000, Weekly chart

Based on the shorter-term move for the final 5th wave, which is the leg up from last October, I think a good upside target is a little below 23K. This is where it would run into the trend line along the highs since last July. The c-wave, which is the leg up from October 2011, started off with a series of 1st and 2nd waves to the upside, which has been followed by a series of 4th and 5th waves since December 2013. The long-term bearish divergence, noted on the chart with MACD and RSI, suggests the wave count is correct and should now be very close to completion, if not already complete. A drop below the February 2nd low near 20900 would signify the top is likely already in place.

The W5000 has a very similar setup as the others (even if short-term patterns are different, as they are between the techs, small caps and blue chips) and as can more easily be seen on its daily chart below, it's currently holding above support at its uptrend line from March 2009 - October 2011. It was nearly tested with today's low at 21843. It would have two equal legs down from April 27th at 21808 and that makes it important for the bulls to defend 21800 from breaking. Following a 3-wave pullback from April 27th we have a bullish setup at its uptrend line and now we wait to see if the buyers will step back in. Upside potential is to the top of its rising wedge pattern, which is the trend line along the highs from last July-November-December, near 22730 by mid-month.

Wilshire 5000 index, W5000, Daily chart

SPX was looking a little more bearish today than W5000 because it broke below its uptrend line from March 2009 - October 2009, but it closed on the line, currently near 2080. A rally on Thursday would leave today's intraday break as just another head-fake break of support that we see so many times in this market (which is why I suggest using closing prices for stops -- it's riskier but I've saved many plays by waiting to see if an intraday break of support/resistance is going to hold into the close). Today's candlestick is a long-legged doji which can be a reversal candlestick if it's followed by a positive day on Thursday. The short-term pattern has been a real challenge to figure out, as both sides get slapped about the heads and shoulders, but the best fit is for one more leg up to complete a 5-wave ending diagonal (rising wedge) from the March 11th low. Back up to the top of the wedge (the trend line along the highs from March 23 - April 27) by mid-month should see SPX reach up to about 2135. Higher than that would open the door to 2160-2185 into the end of the month.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2135
- bearish below 2045

Today's decline had SPX slightly exceeding a downside price projection at 2072.62, which is where an a-b-c pullback from April 27th has two equal legs down. It was an intraday break of that level, as well as its 2009-2011 uptrend line, but the recovery in the final hour sets it up for bullish follow through. We now wait to see if the buyers will show up Thursday morning.

S&P 500, SPX, 60-min chart

Similar to SPX, the DOW has a 3-wave pullback from April 27th and two equal legs down is at 17733.10. Today's low was 17733.12 (what's 2 cents among friends) and it was a very good setup for a reversal and an upside reversal now looks good for tomorrow. Today's low fits well as the completion of the big sideways (very choppy and whippy) consolidation since March 2nd and now we should get one more rally leg to a new high. I show a rally up to a price projection at 18554, which crosses a trend line across the highs from December 26 - March 2 later this month. An important turn window, centered on May 13th, looks doable if something lights a fire under the bulls (and scares the shorts). It's pretty much do or die time for the bulls here.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 18,289
- bearish below 17,585

NDX also held its uptrend line from 2009-2011 today (with only a minor intraday break), currently near 4370. The bullish setup is for a rally up to the 4600 area by mid-month and it's now waiting for buyers. The late-afternoon rally should have been the start if we're to see another rally leg. I wonder though if we'll get another quick drop in the morning to shake out a few more bulls and suck in some bears before doing a hard reversal. Not that we've seen anything like that happen before in this market...

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4511
- bearish below 4284

The RUT has clearly been the weak sister since April 27th and has broken all kinds of support, including its uptrend line from October 2014 - February 2015 and its 50-dma, both last week. But today's strength in the face of weakness in the other indexes was telling bears not to get aggressive on the short side. It only dropped marginally into the red and was looking anxious to get a rally started. The decline from April 27th looks like a completed 5-wave move and is therefore a setup for at least a bounce. If the April 27th high was THE high for the RUT we should get a high bounce, perhaps back up to price-level support near 1248, before turning back down. That could coincide with new highs for the other indexes and leave a bearish non-confirmation. It's just a guess at the moment about that possibility.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1262
- bearish below 1206

Bonds have been selling off strong over the past two weeks, which has yields climbing, and the 30-year yield (TYX) climbed above its March 6th high at 2.87%, as well as its 200-dma at the same level, yesterday and added to its rally today. The rally off the March 25th low has turned many traders bearish the bonds. But I'm not so sure that's wise yet. At the moment TYX is testing its downtrend line from December 2013 and only slightly higher, at 3.089% is where the bounce off the January low would have two equal legs for an a-b-c bounce correction to its longer-term decline. Above 3.09% would be more bullish (bearish for bond prices) but at the moment it could be just a trap. I continue to see the potential for the 30-year yield to drop to 2% by the end of this year. What could spark a big bond rally? Perhaps a crashing stock market.

30-year Yield, TYX, Weekly chart

As can be seen on the BKX weekly chart below, the banking index has been holding up well since pulling back and back-testing its 50-week MA at the end of March. Yesterday it tagged, again, the top of its expanding triangle (a bearish topping pattern), which is the trend line running along the highs since March 2014 (and notice the continuing bearish divergence since then). At the same location this week is a broken uptrend line from October 2013 - May 2014 (gray), which was back-tested in March and now again this week. Also at the same level is its broken uptrend line from March 2009 - October 2011 (green) so we've got three trend lines that the bulls are trying to battle through, so far unsuccessfully. This week's candle, so far, is a shooting star at resistance and that's a warning for bulls but we'll have to see how it finishes the week.

KBW Bank index, BKX, Weekly chart

How many times does it take the TRAN to hammer on support until it breaks? I'm sure more than a few bears are wondering the same thing. At the moment it's 8 times and counting and the latest test is showing bullish divergence. It looks like a bullish continuation pattern and it looks like it should rally out of this. But I also know looks can be deceiving and a firm break below support near 8580 could lead to a strong decline, in which case I'd get even more defensive with any long positions you currently have.

Transportation Index, TRAN, Daily chart

Since the March high for the dollar, which was the completion of a 5-wave move up from May 2014, I've been looking for a multi-month pullback/consolidation before proceeding higher. So far the wave pattern supports that view and at the moment it looks like it should be completing a 3-wave pullback. Today it dropped down to the bottom of a parallel down-channel (bull flag) and achieved two equal legs down at 94.25 (today's low was 93.96). In the 5-wave move down from April 13th, for the c-wave, the 5th wave would equal the 1st wave near 93 so there's a little more downside potential based on this. Not shown on the daily chart is the top of a longer-term shallow up-channel from 2008, which the dollar broke above in January. The top of this channel is currently near 93.50 and should act as support if tested. For these reasons I think the dollar would be more bearish below 93 but remains short-term bullish above that level (looking for a bounce before pulling back and/or running sideways for another few months.

U.S. Dollar contract, DX, Daily chart

I see the potential for gold to make a higher bounce before turning back down and if the gold buyers can keep the rally going from here it could make it up to a price projection at 1251.30 for two equal legs up for the bounce off its March 17th low. That would setup a larger a-b-c bounce correction to the January-March decline before heading lower but there remains the potential for gold to simply head lower from here. Continue to keep an eye on silver which is acting weaker than gold.

Gold continuous contract, GC, Daily chart

Oil might have finished its c-wave of an a-b-c bounce off its January low. Today's candle is a shooting start (actually a little more bearish gravestone doji) after poking through the top of a rising wedge pattern for the c-wave (the leg up from March 18th). For now I'm calling the 3-wave bounce off the January low as wave-A of what will become a larger multi-month corrective pattern before oil heads lower later this year. At the moment it's a setup for a reversal back down but proof of that starts with a drop back below 56.

Oil continuous contract, CL, Daily chart

Tomorrow's economic reports include the unemployment claims in the morning and Consumer Credit in the afternoon, neither of which are market movers. Friday will be the big day for more employment data, including the NFP report, so expect some volatility Friday morning.

Economic reports and Summary


The long choppy whippy sideways consolidation that we've been in should be coming to an end if we're to get another rally leg. It could be a choppy climb to minor new highs so that and the downside risk suggests traders should exercise great caution on the long side. But because of the bullish setup I think it's too early to be thinking aggressively about the short side. It won't take much more of a drop to turn things more bearish but at the moment we've got a setup for the buyers to take advantage of. They just need to do it quickly and they need to see follow through to today's final-hour buying. At most, if playing the long side, I would expect only a quick drop back down Thursday morning and then a reversal to catch both sides leaning the wrong way.

I continue to like the setup for one more push higher into mid-May (possibly as late as end of month), although I'm not sure the RUT will participate in making a new high. There's an important turn window (based on previous high-low cycles and Fib time ratios) on May 13th so for now that's our target date. There's a new moon on the 18th and these have correlated well with previous market highs. This has been a very difficult market to trade and that might continue for at least another week or two and downside risk swamps upside potential. It's a good time to protect your capital and only nibble if you feel the need to trade.

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

Industrial Goods & Retailers

by James Brown

Click here to email James Brown


Snap-on Inc. - SNA - close: 152.95 change: +1.58

Stop Loss: 149.40
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 346 thousand
Entry on May -- at $---.--
Listed on May 06, 2015
Time Frame: exit PRIOR to June option expiration
New Positions: Yes, see below

Company Description

Why We Like It:
Steady earnings growth, a consistent dividend, and a positive outlook are three things investors like to see. SNA delivers on all three counts. The company is in the industrial goods sector.

According to the company, "Snap-on Incorporated is a leading global innovator, manufacturer and marketer of tools, equipment, diagnostics, repair information and systems solutions for professional users performing critical tasks. Products and services include hand and power tools, tool storage, diagnostics software, information and management systems, shop equipment and other solutions for vehicle dealerships and repair centers, as well as for customers in industries, including aviation and aerospace, agriculture, construction, government and military, mining, natural resources, power generation and technical education. Snap-on also derives income from various financing programs to facilitate the sales of its products. Products and services are sold through the company’s franchisee, company-direct, distributor and internet channels. Founded in 1920, Snap-on is a $3.3 billion, S&P 500 company headquartered in Kenosha, Wisconsin."

SNA has been consistently beating analysts expectations. Prior to their Q1 report the company was delivering results above estimates on both the top and bottom line. That changed with the April 23rd announcement of its Q1 results. Earnings rose +15.4% from a year ago to $1.87 per share. This was above Wall Street estimates and the eight consecutive quarter in a row that SNA has beaten analysts' expectations. Unfortunately, revenues only rose +5.1% to $827.8 million and that missed estimates of $834.4 million.

The market's didn't seem to care. Shares of SNA rallied anyway in spite of the earnings miss. Management said their Q1 2015 saw strong organic growth in sales of +9.9%. One analyst raised their price target on SNA to $180 per share. The point & figure chart is even more optimistic and forecasting at $191 target.

SNA has also announced another dividend. Here's a quick excerpt from the company press release, SNA has declared a "quarterly common stock dividend of $0.53 per share payable June 10, 2015 to shareholders of record on May 20, 2015. Snap-on has paid consecutive quarterly cash dividends, without interruption or reduction, since 1939."

Technically shares of SNA look bullish with a strong pattern of higher lows. It's currently poised to breakthrough short-term resistance near $153.25 soon. We are suggesting at rigger to buy calls at $153.50.

Trigger @ $153.50

- Suggested Positions -

Buy the JUN $155 CALL (SNA150619C155) current ask $2.40
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:


Bed Bath & Beyond Inc. - BBBY - close: 70.49 change: -0.57

Stop Loss: 72.20
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.3 million
Entry on May -- at $---.--
Listed on May 06, 2015
Time Frame: exit PRIOR to June option expiration
New Positions: Yes, see below

Company Description

Why We Like It:
We are bringing BBBY back as a put candidate. Here is our recent trade description with a new entry trigger:

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. The point & figure chart is bearish and forecasting at $64.00 target. Shares recently bounced near support at $70.00 and its simple 200-dma but that bounced has failed at its trend of lower highs. Now BBBY is threatening to break key support at $70.00 again. We want to be ready when it does. Tonight I am suggesting at trigger to buy puts at $69.70. We'll try and limit our risk with a stop loss at $72.20.

Trigger @ $69.70

- Suggested Positions -

Buy the JUN $70 PUT (BBBY150619P70) current ask $1.73
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

Concerns Over Jobs And Valuations Weigh On Stocks

by James Brown

Click here to email James Brown

Editor's Note:

A disappointing ADP employment report today refreshed fears over a poor April jobs number this coming Friday. Plus Federal Reserve Chairman Janet Yellen poured cold water on the market with her comments that valuations are generally too high.

OCR hit our entry trigger.

Current Portfolio:

CALL Play Updates

Apogee Enterprises - APOG - close: 53.45 change: +0.12

Stop Loss: 51.75
Target(s): To Be Determined
Current Option Gain/Loss: -25.5%
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

05/06/15: APOG delivered a quiet session on Wednesday. Shares churned in a 90-cent range. I don't see any changes from my recent comments.

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

Caterpillar Inc. - CAT - close: 86.99 change: -0.01

Stop Loss: 83.85
Target(s): To Be Determined
Current Option Gain/Loss: -19.0%
Average Daily Volume = 6.2 million
Entry on May 05 at $88.10
Listed on May 02, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

05/06/15: Shares of CAT didn't move much either. The stock bounced near its rising 10-dma but failed near $88.00. Traders may want to wait for a new relative high above $88.22 before buying calls.

Trade Description: May 2, 2015:
Have shares of CAT found a bottom? It's starting to look that way. CAT is still down -21% from its 2014 highs but it's up +12% from its Q1 lows with a steady trend of higher lows as traders buy the dips.

CAT is in the industrial goods sector. According to the company, "For 90 years, Caterpillar Inc. has been making sustainable progress possible and driving positive change on every continent. Customers turn to Caterpillar to help them develop infrastructure, energy and natural resource assets. With 2014 sales and revenues of $55.184 billion, Caterpillar is the world's leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. The company principally operates through its three product segments - Construction Industries, Resource Industries and Energy & Transportation - and also provides financing and related services through its Financial Products segment."

Earnings results and guidance has been a moving target for CAT. The combination of a slowing global economy, volatile currency fluctuations, and weakness in commodities have generated big swings in their business. In July 2014 CAT lowered guidance. Three months later they raised guidance. The next quarter they lowered guidance. Today the company has raised guidance again.

CAT's most recent earnings report was April 23rd. They announced a Q1 profit of $1.72 a share. That was +16% higher than a year ago and almost +40% above Wall Street estimates. Revenues fell -4% from a year ago but sales of $12.7 billion were still above analysts' expectations.

CAT's Q1 results were all about North America, which saw gains almost across the board. Overall construction sales for CAT in North America were up +9% from a year ago. Unfortunately, this was overshadowed by declines everywhere else. Asia, Europe, Latin America - just about every other region CAT does business saw double-digit sales declines. Yet it appears that investors seem to be willing to look past this weakness.

CAT's CEO commented on their 2015 outlook, "We had a solid first quarter, which led to raising the profit outlook for 2015. However, we continue to face headwinds and uncertainty in 2015, and our outlook for the year reflects that. We expect sales and profit in each of the remaining three quarters of 2015 to be lower than the first quarter. We expect sales for oil applications to decline starting in the second quarter, and from a profit perspective, the first quarter included the gain on the sale of our remaining interest in the logistics business and that won't repeat. The first quarter is usually the most seasonally favorable of the year for costs, and we don't expect the rest of the year to be as favorable."

Most of the major oil and gas companies have reduced their capex spending plans for 2015 and this should be negative for CAT. The stock's reaction is suggesting all the bad news is already priced in.

CAT's management raised their 2015 guidance and adjusted their estimate from $4.65 to $4.75, excluding their restructuring costs they raised their estimate from $4.75 to $5.00. Wall Street's estimate was $4.75 per share. CAT reaffirmed their sales estimate for $50 billion this year.

A couple of analysts with Stifel are bullish on CAT. They believe the combination of the company's big stock buy back program (about $10 billion), a strong dividend (more than 3%), and a healthy North American construction market will buoy CAT's stock while investors wait for a turnaround in commodities.

Technically the stock has been showing relative strength the last few weeks. The point & figure chart has turned bullish and is currently forecasting a long-term target of $108.00. Today CAT is hovering below potential resistance near $88.00. We are suggesting a trigger to buy calls at $88.10.

- Suggested Positions -

Long JUL $90 CALL (CAT150717C90) entry $2.00

05/05/15 triggered @ 88.10
Option Format: symbol-year-month-day-call-strike

The Greenbrier Cos. - GBX - close: 63.20 change: -0.56

Stop Loss: 61.65
Target(s): To Be Determined
Current Option Gain/Loss: +64.3%
Average Daily Volume = 683 thousand
Entry on May 01 at $59.05
Listed on April 30, 2015
Time Frame: Exit PRIOR to June option expiration
New Positions: see below

05/06/15: GBX spent another day churning sideways in the $62-64 zone. The $64.00 level has been resistance the last three days in a row.

Tonight we're moving the stop loss up to $61.65. I am not suggesting new positions at this time.

Trade Description: April 30, 2015:
Currently shares of GBX are up +7.3% in 2015. That's after a -$10.00 drop from its April highs. I'm surprised shares aren't doing better as the earnings picture continues to improve. The recent pullback looks like an opportunity for bullish investors.

GBX is in the services sector. They manufacture and service railroad cars. According to the company, "Greenbrier, (www.gbrx.com), headquartered in Lake Oswego, Oregon, is a leading supplier of transportation equipment and services to the railroad industry. Greenbrier builds new railroad freight cars in our 4 manufacturing facilities in the U.S. and Mexico and marine barges at our U.S. manufacturing facility. Greenbrier also sells reconditioned wheel sets and provides wheel services at 9 locations throughout the U.S. We recondition, manufacture and sell railcar parts at 4 U.S. sites. Greenbrier is a 50/50 joint venture partner with Watco Companies, LLC in GBW Railcar Services, LLC, which repairs and refurbishes freight cars at 34 locations across North America, including 14 tank car repair and maintenance facilities certified by the Association of American Railroads. Greenbrier builds new railroad freight cars and refurbishes freight cars for the European market through our operations in Poland. Greenbrier owns approximately 8,300 railcars, and performs management services for approximately 241,000 railcars."

Looking at the last few quarterly reports from GBX the company tends to beat Wall Street's earnings estimates. Their Q4 2014 report, last October, was an exception. Yet GBX has still raised their guidance the last four earnings reports in a row. Their backlog of business is booming!

GBX's most recent report was April 7th. The company delivered their 2015 Q2 results with a profit of $1.57 per share. That was 37 cents better than analysts expected. Revenues were up +27% to $630 million, also above estimates. GBX said their aggregate gross margin improved from 17.8% to 19.9%. Their new railcar deliveries improved from 4,000 units in the prior quarter to 5,200 units. Their new railcar backlog is up to 46,000 units, valued at $4.78 billion.

GBX's Chairman and CEO William Furman commented on his company's results, "Our record results this quarter, including margin expansion and earnings growth, reflect the soundness of our diversified and integrated business model, improved business execution and greater scale. Our aggregate gross margin in the second quarter grew to 19.9%, nearly twice last year's level; at the same time we continue to execute on ramping up production on new manufacturing lines."

Furman also commented on their order growth, saying, "Our diverse new railcar backlog of 46,000 units represents the sixth consecutive quarter where the quantity and value of our backlog has increased. It is now more than triple the size of just one year ago, with production on certain production lines stretching into 2019. Nearly 80% of our year-to-date orders for 24,200 railcars are non-energy related, including orders for double stack intermodal cars, grain hopper cars, automotive carrying cars, non-energy related tank cars, boxcars, and mill gondola cars for scrap steel. These orders, along with others in our backlog, include multi-year orders for various car types, a positive indication that our customers believe, as do we, that end-user demand for new railcars will remain solid for the foreseeable future. The regulatory picture for tank cars transporting hazardous materials should be clarified no later than May. We expect Greenbrier's Tank Car of the Future will be the new standard, and that additional new car and retrofit orders will occur regardless of oil prices."

Furman pointed out that most of their new orders are for non-energy related cars. That's because the energy (i.e. oil production) business in the U.S. has been depressed given last year's slide in crude oil. Energy companies have been cutting back on spending. On the plus side, when the energy sector rebounds, it will be a bonus for GBX. The U.S. government is working on new requirements for oil-tanker railcars. When the government regulations on oil-tanker safety is finalized GBX will see a surge in orders for new tanker cars over the next few years.

GBX managed raised their guidance again. They now expected 2015 earnings in the $5.65-5.95 range versus Wall Street's estimate around $5.42. GBX also raised their sales guidance into the $2.6-2.7 billion zone versus analysts' estimates of $2.62 billion.

We don't see any catalyst for the recent pullback in GBX shares. It looks like a correction toward the stock's bullish trend of higher lows. If shares bounce it could fuel some short covering. The most recent data listed short interest at 33% of the small 22.3 million share float.

I will issue one caveat. The broader Dow Jones Transportation Average looks weak. While the story on GBX is bullish that doesn't mean shares will be able to resist a broader sell-off among the transport stocks. Traders may want to start with small positions considering the recent weakness in the transportation average.

Tonight we are suggesting a trigger to buy calls on GBX at $59.05. More conservative traders may want to wait for a breakout past the simple 200-dma (near $60.00) as an alternative entry point.

- Suggested Positions -

Long JUN $60 CALL (GBX150619C60) entry $2.90

05/06/15 new stop @ 61.65
05/01/15 triggered @ 59.05
05/01/15 U.S. DOT announces new rules on railroad tanker cars
Option Format: symbol-year-month-day-call-strike

Global Payments Inc. - GPN - close: 101.29 change: +0.22

Stop Loss: 98.25
Target(s): To Be Determined
Current Option Gain/Loss: +3.5%
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

05/06/15: Wednesday produced more of the same from GPN. The stock bounced but shares remain inside the $100-102 zone. I am suggesting traders wait for a rally past $102.50 before considering new positions.

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

Northern Trust Corp. - NTRS - close: 74.23 change: -0.33

Stop Loss: 71.75
Target(s): To Be Determined
Current Option Gain/Loss: -23.3%
Average Daily Volume = 1.1 million
Entry on May 05 at $75.05
Listed on May 04, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

05/06/15: NTRS dipped to short-term support at its 10-dma and bounced. Shares pared their loss to -0.4%. I'm still suggesting readers wait for a new rally past $75.00 as our next entry point but more aggressive traders could jump in early if both NTRS and the market are positive tomorrow morning.

Trade Description: May 4, 2015:
NTRS has been around for 125 years. The company looks pretty good for its age. Shares are outperforming the broader market and its peers. Currently NTRS is up +10% in 2015 versus a -0.6% decline in the financial sector.

According to the company, "Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of wealth management, asset servicing, asset management and banking to corporations, institutions, affluent families and individuals. Founded in Chicago in 1889, Northern Trust has offices in the United States in 19 states and Washington, D.C., and 20 international locations in Canada, Europe, the Middle East and the Asia-Pacific region. As of March 31, 2015, Northern Trust had assets under custody of US$6.1 trillion, and assets under management of US$960.1 billion. For 125 years, Northern Trust has earned distinction as an industry leader for exceptional service, financial expertise, integrity and innovation."

The last couple of earnings reports have been healthy. Their Q4 report in January came in better than expected on both the top and bottom line. NTRS' most recent report was its 2015 Q1 results on April 21st. Wall Street was looking for a profit of $0.87 a share on revenues of $1.12 billion. NTRS said their earnings rose +25% from a year ago to $0.94 and revenues were up +9.0% to $1.13 billion.

NTRS' Chairman and CEO Frederick Waddell commented on his company's performance, "We are pleased with our financial performance in the first quarter of 2015, which reflects continued growth in our business serving personal and institutional clients. Trust, investment and other servicing fees, which represent two-thirds of our revenue, increased 7% compared to last year. New business and higher equity markets contributed to growth in assets under custody and under management of 6% and 5%, respectively. Total revenue grew 9% and we maintained a disciplined focus on expenses, which increased 3%, producing meaningful operating leverage. As a result, our pre-tax profit margin improved to 31.2% in the first quarter and our return on equity was within our target range of 10-15%. We also look forward to returning capital to our stockholders in the year ahead as the Federal Reserve did not object to the proposed capital actions in our 2015 Capital Plan. Our Capital Plan and proposed capital distributions demonstrate the strength of Northern Trust's focused business model, financial position and commitment to stockholders."

Shares of NTRS popped to new multi-year highs on its Q1 report. Instead of giving back its gains the stock has been able to consolidate at these highs. Shares displayed relative strength again with today's +1.1% gain. Today's move is also a bullish breakout past resistance near $74.00. The point & figure chart is bullish and forecasting a long-term target of $86.00. Tonight we're suggesting a trigger to buy calls at $75.05.

- Suggested Positions -

Long JUL $75 CALL (NTRS150717C75) entry $2.15

05/05/15 triggered @ 75.05
Option Format: symbol-year-month-day-call-strike

Omincare Inc. - OCR - close: 90.47 change: +0.35

Stop Loss: 86.95
Target(s): To Be Determined
Current Option Gain/Loss: -10.1%
Average Daily Volume = 921 thousand
Entry on May 06 at $90.35
Listed on May 05, 2015
Time Frame: Exit prior to June option expiration
New Positions: see below

05/06/15: Our brand new play on OCR is open. The rally continues with shares outperforming the broader market on Wednesday. OCR hit our suggested entry point at $90.35. I would still consider new positions now at current levels but more conservative traders may want to see a new high above $90.81 before initiating positions.

Trade Description: May 5, 2015:
Wall Street loves mergers and acquisitions. OCR has put itself up for sale.

OCR is in the healthcare sector. According to the company, "Omnicare, Inc., a Fortune 500 company based in Cincinnati, Ohio, provides comprehensive pharmaceutical services to patients and providers across the United States. As the market-leader in professional pharmacy, related consulting and data management services for skilled nursing, assisted living and other chronic care institutions, Omnicare leverages its unparalleled clinical insight into the geriatric market along with some of the industry's most innovative technological capabilities to the benefit of its long-term care customers. Omnicare also provides specialty pharmacy and key commercialization services for the bio-pharmaceutical industry through its Specialty Care Group."

Most of OCR's sales are in the long-term care group. This business essentially helps nursing homes with their resident's medications and dispensed more than 110 million prescriptions last year.

The company has been a consistent earnings producer. OCR has beaten Wall Street's estimates on both the top and bottom line the last four quarters in a row. Their most recent report was April 29th. OCR announced its 2015 Q1 results with earnings up +12% from a year ago at $1.02 per share. Revenues were up +5.7% to $1.66 billion. The company is forecasting 2015 earnings in the $4.08-4.16 per share range with sales in the $6.50-6.70 billion zone.

Currently the spark behind OCR's surge to new highs is M&A speculation. Around April 21st it was disclosed that OCR was exploring a sale of the company. Potential bidders include Cardinal Health (CAH), CVS, Express Scripts (ESRX), McKesson (MCK), and Walgreens Boots Alliance (WBA). Initial bids are expected in May. One analyst has estimated the company could go for $101.00 per share. It's important to note that there is no guarantee OCR will reach a deal and none of the potential bidders are talking to reporters.

Technically shares of OCR have been showing relative strength. At the moment OCR is on the verge of breaking out past resistance near $90-91. Tonight we're suggesting a trigger to buy calls at $90.35. More conservative traders may want to use a trigger closer to $91.00. The stock has been volatile since it was discovered the company is for sale. Investors may want to use small positions to limit risk.

- Suggested Positions -

Long JUN $95 CALL (OCR150619C95) entry $2.28

05/06/15 triggered @ 90.35
Option Format: symbol-year-month-day-call-strike

Splunk, Inc. - SPLK - close: 66.06 change: +0.33

Stop Loss: 63.85
Target(s): To Be Determined
Current Option Gain/Loss: -9.7%
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

05/06/15: I'm still worried about our SPLK trade. Shares dipped to a new one-week low before rebounding. SPLK did make it back into positive territory. Unfortunately shares are developing a short-term trend of lower highs.

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

04/30/15 new stop @ 63.85
04/23/15 triggered @ 66.25
Option Format: symbol-year-month-day-call-strike

PUT Play Updates

Currently we do not have any active put trades.