Option Investor

Daily Newsletter, Saturday, 5/9/2015

Table of Contents

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

Market Wrap

Goldilocks Lives!

by Jim Brown

Click here to email Jim Brown

The payroll report on Friday surprised quite a few people with a number that was Goldilocks perfect. Not too hot and not too cold. The futures exploded higher and a major short squeeze was born. Unfortunately there was no follow through.

Market Statistics

All the market gains came in the first 10 minutes of trading and there was no follow through with additional buying as the day progressed. Volume died about 10:AM and all the indexes came to a dead stop at resistance.

The economy added +223,000 jobs in April according to the Nonfarm Payroll report. The consensus estimate was for a gain of +220,000 but I don't know where they got those estimates. The consensus for traders was a lot lower in the 165,000-185,000 range. The ADP Employment on Wednesday only showed a gain of +169,000 and that is what the market was expecting for the Nonfarm report. The ADP consensus was for a gain of +200,000 jobs.

The revisions were critical as well. The already low estimate for the March payrolls at +126,000 was cut again to a gain of only +85,000. The February number was revised only slightly lower by -2,000 to +266,000. That brings the three month average to +191,000. That is a decent trend but still too low for the Fed to hike rates. More than one Fed head has said they would like to see jobs over 200,000 for "several months" before they raise rates.

The combination of the decent April report plus the decline in the 3 month average put the numbers right in the middle of the Goldilocks zone. With the majority of investors expecting a much lower number after the ADP miss on Wednesday a monster short squeeze was born. Over the last ten years covering more than 120 ADP reports they have only missed the estimates that bad a total of six times.

The total unemployment rate fell to a post recession low of 10.8% and the government managed unemployment rate declined to -5.443%. The labor force grew by +166,000 and the labor force participation rate rose +0.1% to 62.8%. Household employment, separate from the Nonfarm survey, rose +192,000, up from +34,000 in March.

Those unemployed for less than five-weeks rose +241,000 to 2.7 million. Those employed part time because they can't find a full time job was 6.6 million and flat with March.

Professional and business services added +62,000 jobs, services added +16,000, computer systems design and related services +9,000, business support services +7,000 and management consulting +6,000 jobs. Health employment rose +45,000 and construction +45,000 but nonresidential construction employment fell -8,000. Transportation and warehousing added +15,000. Mining and energy employment declined another -15,000 bringing the total year to date to -49,000 jobs. Manufacturing only added +1,000 jobs, which suggests the strong dollar is still impacting that sector.

Average hourly earnings rose only +0.1% and March was revised down from +0.28% to +0.2%.

The labor market rebounded somewhat but the layoffs in the energy sector and the decline in manufacturing employment continued to be a drag. If May employment is well above 200,000 like the February number at 266,000 then there will be a risk of a rate hike in June. Rumors are circulating that the Fed may hike an eighth of a point just to get the process started. That amount would have no impact on the economy and could be easily digested by the market depending on what language accompanied it.

The best comment I heard on Friday came from Larry McDonald, managing director at Societe Generale. He wanted a number well over 300,000 jobs. He said we should not be excited by an economy that is averaging +191,000 jobs after zero interest rates for six years, $4 trillion in QE and $20 trillion and rising in global stimulus. He said when the financial crisis began in 2008 we had 23 million full time jobs in America. Today there are only 21 million. Over that same period the population has grown more than 20 million. In April full time jobs declined by -252,000, the most in nearly a year, while part time jobs rose by +437,000, the most since last June. There is something seriously wrong with that scenario and we should not be celebrating a Goldilocks number.

On the positive side the weekly Jobless Claims have declined to post crisis lows at 265,000 for the last two weeks. Numbers under 270,000 have not been seen in more than 15 years. This suggests the payroll numbers for May could be strong if this trend continues.

The other economic report on Friday was the Wholesale Trade inventories for March. Inventories rose only +0.1% compared to +0.3% in February with nondurable goods inventories declining -0.4%. Sales fell -0.2% compared to -0.6 in February. Nondurable sales declined -1.5%. Petroleum inventories declined -5.1% due mostly to the drop in oil prices, and farm products declined -7%.

Prior month numbers were also revised lower. This is happening in multiple reports suggesting the economy is not as healthy as previously believed. The decline in the Wholesale Trade report knocked the real time GDP estimates for Q1 down to a contraction of -0.5% compared to the -0.3% earlier in the week. The estimate for Q2 GPD growth was +0.8% but that was before the Wholesale Trade report. The GDPNow page won't be updated until next week. It would not take much in the way of weak economics in the days ahead to push Q2 into the contraction column as well. That would really upset the Fed's rate hike plans.

The economic calendar for next week is fairly uneventful. The retail sales for April is probably the highlight followed by the Producer Price Index. The retail sales will tell us if the consumer has begun to part with their gasoline savings. Now that gasoline prices are back up to $2.65 and rising the consumer is going to be even more constrained on their spending over the summer months.

The split calendar is starting to expand. Insys Therapeutics and IDEXX Labs both announced a 2:1 split. EMC Insurance, not EMC Corp, announced a 3:2 split. I expect even more companies will be announcing in the weeks ahead. It is a financial engineering move that can give companies with a high stock price some headlines in the market and make their stocks more attractive to the individual investor. There are so many stocks today with huge triple digit prices that it could provide a surge in splits. When Netflix announces their split ratio in June, which is probably going to be huge like 5:1 or even 10:1, it could trigger several other companies to announce splits.

The continued weak economics are keeping the projections for future interest rates very low. The market forecast for Fed funds rates is only 1.0% at the end of 2016 and 1.5% at the end of 2017. Anyone with any experience in the Fed rate hike cycle understands that this is ridiculously low and the market is going to react negatively as those forecasts are corrected. About the only way the Fed can force the market to correct its forecast is to actually hike rates. The Fed has been so dovish for the last six years that nobody believes they are actually going to hike anytime soon. Eventually there will be the equivalent of a taper tantrum when the harsh light of reality begins to dawn.

You've got mail! AOL, remember them? The company reported earnings of 34 cents compared to estimates for 32 cents. Revenue rose +7% to $625 million and well over estimates of $594 million. Global advertising revenue rose +12%. An 11% decline in subscribers was offset by a 7% increase in pricing. AOL Platform revenue rose +21% as a result of the sale of premium formats and increased video usage across the various platforms. Shares spiked +10% on the news.

WhiteWave Foods (WWAV) reported earnings of 24 cents that beat estimates of 22 cents. Revenue of $911.1 million was slightly under estimates of $913 million but investors did not seem to mind. The company raised its forecast excluding China to 23-25 cents compared to analyst expectations for 25 cents. They raised full year estimates from $1.08-$1.12 to $1.10-$1.14. Analysts were expecting $1.11. WhiteWave has a portfolio of organic brands including Silk nondairy products, Land-O-Lakes, Earthbound Farms salads, International Delight and Horizon dairy products.

Ebix Inc (EBIX) reported earnings of 51 cents that rose +28%. Revenue rose +24% to $63.8 million. Gross margins were 32%. I could not find any analyst estimates but investors liked the results and powered the shares to a +13% gain. Ebix provides software and e-commerce solutions to the insurance industry.

Tableau Software (DATA) reported earnings of 8 cents that easily beat estimates for a loss of -2 cents. Revenue of $130.1 million also topped estimates for $115.1 million. Tableau provides data analytics software that helps employees analyze data without the need for costly IT projects to create customized reports. The company's closest rival is Qlik Technologies (QLIK) with Microsoft and Salesforce.com well behind them in this field.

Bluebird Bio (BLUE) reported earnings on Wednesday that missed estimates by 14 cents. However, enrollment in multiple drug trials and progressions on the drug front powered the company to a $24 gain on Thr/Fri. Other companies are wishing they could miss on earnings and soar to new highs. This one is due for some profit taking.

Outerwall (OUTR), known for their Redbox video kiosks, blew away estimates of $1.67 with earnings of $2.87 thanks to a price hike on DVD rentals. Revenue of $608.8 million surpassed estimates for $594 million. The company raised full year estimates to a range of $7.49 to $8.49 and revenue from $2.29-$2.42 billion. The company closed 1,720 underperforming Redbox kiosks in Q1 and plans to close 1,000 to 1,900 more in the near future. Currently they have 41,960 kiosks with average revenue per rental of $3, up +42 cents from the year ago period.

Universal Display (OLED) reported earnings of 3 cents on revenue of $31.2 million and reaffirmed their guidance for the current quarter. That was good enough for a 10% spike to a new high. The company makes LED lights.

Stamps.com (STMP) reported earnings of 72 cents that beat estimates by 12 cents. Revenue of $44.1 million rose +32%. Paid subscribers reached a record high. They raised full year guidance by 5 cents to a range of $2.55-$2.95 and revenue estimates by $5 million to $165-$185 million.

Other major gainers on Friday were:

CF - CF Industries +11%
SYT - Syngenta +11%
MMI - Marcus & Millichap +16%
NLS - Nautilus +5.5%
AZO - Autozone +9%
IMPV - Imperva +9%
PUMA - Puma Bio +9%
AGIO - Agios Pharma +10%

Broadridge Financial (BR) guided for full year earnings with a midpoint of $2.47. Analysts were expecting $2.51. Shares declined -6%.

Trex Company (TREX) reported earnigns of 55 cents that beat estimates for 52 cents. Revenue also beat. Trex guided for Q2 revenues of $136 million and analysts were expecting $139.1 million. Shares still rallied +4% on the news.

Horizon Pharma (HZNP) reported earnings of 21 cents that beat estimates by 2 cents. Revenue of $113.1 million also beat estimates for $105.2 million. They raised full year revenue guidance to a range of $590-$610 million, up from $450-$475 million. Analysts were expecting $545 million. You would think those metrics would produce a spike in the shares but they also reported an 86% hike in operating expenses. Shares fell 6% on the news.

The earnings calendar for next week is pretty bare with only six headliners as the earnings season comes to a close. GoDaddy on Tuesday, Cisco and Jack in the Box on Wednesday will be the crowd favorites.

This is also retail week with Kohl's, Nordstrom, Dillards and JC Penny on Thursday.

Crude oil surged to the high for the year at $62.50 on Wednesday and then pulled back to use prior resistance at $58 as support. The sharp drop on Thursday caused heavy losses in the energy equities. You would have thought oil had crashed back to $50.

After 16 consecutive weeks of inventory gains the string was broken with a -3.9 million barrel decline in Wednesday's inventory report. This powered the surge higher but profit takers were ready to strike. Refinery utilization rose from 91.3% to 93.0% and the highest level of the year as we near the start of driving season.

Late Friday Baker Hughes reported a decline in active rigs of -11 and the smallest number since the week of December 5th. As you can see in the highlighted Rig Change line the pace of the declines is slowing. Last week's total active rigs of 894 is -961 rigs off the high and a -58.6% decline. We are only 28 rigs above the financial crisis lows at 866.


If the market does not pick a direction pretty soon I am going to start looking for a high bridge to jump from. These alternating 2-3 day periods of triple digit gains and losses since early December are making it very difficult to determine market direction and pick stocks. After two days of strong declines to a new five-week low the Dow and S&P recovered all those losses and returned to the highs in only about 10 minutes of trading on Friday morning. Investors can't profit from that kind of movement and it has been constant for more weeks than I care to remember.

The Dow, S&P and Nasdaq all returned to stop at or near major resistance. Since there was no follow through after the first 15 minutes of trading on Friday the obvious deduction would be that the market should decline on Monday. It was clearly a short squeeze because of negative expectations for the payroll report. However, the market exists to make the most fools possible out of any particular situation.

You can look at the S&P as a pending breakout or a pending breakdown depending on your market bias. The S&P closed at 2016 and less than 2 points from a new historic high. How can you be bearish with that fact? To start with it has traded in that range six days out of the last ten. The S&P could be slowly wearing away at that overhead resistance and a breakout could be imminent. However, the only really positive data point we have seen in the last month has been the payroll report. The market does not run on jobs alone.

Also a positive is the better than expected earnings. More than 68% of the S&P have now beaten on earnings but only 52% beat on revenue. Earnings for the quarter are now expected to grow by +2% compared to estimates for -3% at the beginning of the cycle. Bulls will point to that as a reason why the market should move higher.

The S&P is at its record high despite outflows from U.S. equity funds of -$35.8 billion and the biggest monthly move since October 2008 according to TrimTabs.com. Merrill Lynch said investors have withdrawn $99 billion year to date. Last week was the largest weekly withdrawal at -$17.2 billion. The market will have a tough time moving higher if the outflows continue.

Volume on up days continues to be anemic. Monday's gain came on the lowest volume of the week at 5.7 billion shares and Friday's monster short squeeze came on the second lowest volume of the week at 6.5 billion shares. The three declining days in the middle of the week came on a daily average of 7.1 billion shares.

They say a bull market climbs a wall of worry. This one is doing that on declining volume, negative fund flows and weak economics while Janet Yellen is warning the market is overvalued. This is a clear case of "don't fight the Feds." Yes, Feds is plural. With the ECB just getting started with its QE program, Japan throwing mountains of cash at the equity market and China ready to add to its $1.1 trillion in stimulus, the market is awash in liquidity. That is the only answer to why the market continues to ignore the headlines and power ahead. The volatility is increasing because investors are nervous. They don't want to miss out on the gains but they can see the signs pointing to an eventual correction. That means this is scared money ready to jump out at the first sign of trouble.

On the positive side new highs attract money from the sidelines faster than flies to a picnic. Every time the market flirts with a new high the buyers come running only to see the rally fizzle as institutions sell into the spikes. When is this going to end?

Eventually the S&P is either going to breakout or breakdown and every day that passes means we are one day closer to that event. The number of analysts calling for a correction increases every day but as I have pointed out before that tends to be a contrarian indicator. If everyone is expecting a crash the opposite normally happens.

So what do we do this week? The S&P has the perfect setup for trading. If it breaks through the 2120 level on decent volume I would jump on for the ride. If it opens down on Monday I would wait patiently to see if support at 2070-2080 fails or another buy the dip rebound begins. The 100-day average currently at 2071 has been decent support since February. If that average breaks it would be a sell signal that could see the S&P decline to the 2000 level.

This is May. Be patient and wait for the market to pick a direction.

The Dow punched through resistance at 18,100 but came to a dead stop at 18,200. The historic high close at 18,288 is still about 100 points away. In theory the Dow "should" fail at this 18,200 level since there was no follow through after the open on Friday. As Einstein is quoted as saying, "In theory, theory and practice are the same. In practice, they are not."

All 30 Dow stocks were positive on Friday. That rarely happens because there is always a headline or two to drag a couple of stocks lower. Gains can be deceiving. Quite a few of the Dow stocks had small candles with big wicks indicating the opening spike and then a quick decline back to the opening level. Note the Friday candle on the Walmart chart. Would you rush out and buy Walmart because of this chart? Probably not. Based on this chart would you expect a continued rally on Monday?

Boeing was the leader on the Dow and it was clearly short covering after several weeks of declines. Boeing also said on Thursday that Kuwait is about to place a $3 billion order for 28 additional F/A-18 fighter jets that will keep the assembly line open for at least 2 more years past the expected 2017 closure. The spike was obvious short covering after two weeks of declines. Would you buy Boeing from this chart?

The Dow has been at the 18,200 level five other times over the last two months and each time the resistance held. Is this time different? If so, why? What has changed? Nobody today knows if resistance will hold on the sixth attempt. Friday's close was +460 points above Wednesday's lows. That alone suggests the index is stretched and profits could be taken on Monday that puts the Dow back into the congestion from the last month. The 100-day average has been the key level to watch over the last five weeks. So far the Dow has not closed below it.

We don't talk about the Dow Jones Composite Index ($DJA) much but the chart is worth mentioning this weekend. The DJA retested support for all of 2015 at just above 6250 on Wednesday. This support level has been tested many times and has held each time. However, there is a strong pattern of lower highs that suggest the long term view is negative. That could change at any time but we need to pay attention when a broader index of about 3,250 stocks is giving a signal.

Likewise the NYSE Composite ($NYA) is informational when trying to determine market direction. In this case the NYSE rebounded to resistance at 11,200 and came to the same dead stop as the other indexes. However, the NYSE is in an uptrend with the historic high close of 11,203 only 6 points above Friday's close. The NYSE is telling us the exact opposite of the Dow Jones Composite.

The Nasdaq rebounded to stop dead on resistance at 5002 and there was no follow through after the opening candle that halted at 5005. This is the textbook definition of a short squeeze. The index could power higher as long as the biotechs cooperate but most of them were simply rebounding from short squeezes of their own. The sector had been devastated over the last two weeks and there were a few brave souls holding short positions. Looking at the gainers list below do you expect most of those stocks to continue higher? STMP, BLUE and OUTR were all earnings events that won't be replicated on Monday.

I would continue to be cautious on the Nasdaq until it can move convincingly over 5000 with some decent volume. Support is now 4900 and 4850.

The Russell 2000 has the most convincing short squeeze candle of the bunch. It is almost invisible with the open at 1234.82 and the close at 1234.78. Yes, 4 cents difference and clearly no follow through from the opening spike. The Russell chart could go either way but the candlestick on Friday suggests possible weakness in the coming days.

As Johnny Carson used to say, "We have come to a fork in the road." The earnings cycle is ending, rates are rising, economics are weak, the dollar is strong, $99 billion has left U.S. equity funds in 2015 and volume is low suggesting a lack of conviction. Investors hear every day how we are due for a correction and the market is overvalued. However, money leaving the treasury market has to go somewhere. We are into the sell in May period and last week's volatility may have had something to do with that trend. Historically the first two weeks are volatile so that suggests next week may be volatile as well.

Investors at the fork in the road will have to decide if they want to take the path that buys equities and hopes for a summer rally despite the weak fundamentals or will the take the path towards a more conservative summer and wait until some more green shoots form.

The problem with waiting is that once it is apparent the earnings and economy are recovering it will be too late. The market is an extremely efficient discounting mechanism and is normally optimistic even in the face of economic weakness. With the S&P, NYSE Composite and possibly the Dow threatening to breakout that may mean that investors have overdosed on the Fed's "moderate growth" Kool-Aid and they are investing for the future.

I suggest we take the path of caution. There is no need to rush into the market like our money is going to self destruct if we don't buy something. With the summer doldrums ahead anything is possibly. We will lose nothing by waiting a few days to make our next trading decision and let the market pick a direction first.

If you like the market commentary you have been receiving and you are on a free trial then now is the time to subscribe. Don't wait until you miss a newsletter to decide you want to take the plunge.

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Random Thoughts

Japanese debt rose to a new record at 1,053,357,200,000,000 yen. The interest on this debt if 2.275%. The vast majority of it is owned by Japanese citizens. The odds of Japan paying it back are near zero. The only way they will be able to pay it back is if they inflate it away with rampant inflation that makes the yen even cheaper and pushes the citizen investors into financial ruin. Japan remains a bug in search of a windshield.

Investor sentiment took an interesting turn last week. The percentage of traders neutral on the market remained over 45% for the fourth consecutive week and a new 26 year record. However, the bullish sentiment took a dive, down -3.8%, and bearish sentiment rose sharply by +4.9% suggesting sentiment is turning against the market.

If Yellen hikes rates this year she will break a trend that has been in place since 1948. Since that year the Fed has raised rates 118 times and the nominal GDP averaged 8.6% when those hikes started. Only in Q3-1958 and Q3-1982 did the Fed hike rates when GDP growth was under 4.5%.

Since Harry Truman was in the White House, nominal GDP was 4.5% or greater and over 5.5% 112 times when rates were hiked.

Since 2010 nominal GDP growth has averaged 3.9% and is now falling. Analysts believe if the Fed hikes rates soon they may come to regret it. Even Minneapolis Fed President Narayana Kocherlakota is calling a rate hike in 2015 "inappropriate."

Morgan Stanley is warning of a "triple taper tantrum" in 2016. Morgan Stanley said the Fed, ECB and Bank of Japan might all taper their super-loose monetary policies next year if growth and inflation across all three regions picks up. The broker warned that all three entities were at different stages of post-crisis management BUT conditions have changed considerably since the first of the year. In early January deflation was the big worry with oil prices and commodity prices plunging. Those have all reversed and signs of inflation are starting to appear. If all three entities began removing monetary stimulus the global markets could not react well. Triple Taper Tantrum

The bond market is giving investors a bad case of nerves. In the past 15 years a rise in yields of this size and speed has only happened twice before. That was in 1999 and late 2011. HSBC said the spike in yields was a classic pain trade. "Negative rates in the eurozone forced money up the local rate curves and down the credit spectrum while encouraging a flow into higher yielding regions like the USA." History of Bond Market Corrections.

The Social Security Administration (SSA) projects that its trust funds will be depleted by 2033. However, new studies from Harvard and Dartmouth researchers found that the SSA has been overstating the financial health of the trust funds since 2000. Trust funds are expected to grow until 2019 and costs will exceed income beginning in 2020. Social Security Shortfall

Nuclear weapons in a week? Saudi Arabia said "We prefer a region without nuclear weapons. But if Iran does it, nothing can prevent us from doing it too, not even the international community," according to Abdullah al Askar, a member and former chairman of the foreign affairs committee of Saudi's advisory legislature. "Our leaders will never allow Iran to have a nuclear weapon while we don't. If Iran declares a nuclear weapon, we can't afford to wait for 30 years or more for our own - we should be able to declare ours within a week." Saudi Arabia Considering Nuclear Weapons

The U.S. military has ordered security at bases around the USA to the highest level in 4 years. The threat level was raised to threat level Bravo and 2 levels below maximum. The security at recruiting stations, National Guard posts and military bases and camps in the continental US, Alaska, and U.S. territories will be heightened. A U.S. official speaking on condition of anonymity said the government had some specific information that people might be inspired by the attack in Garland. The last time security was raised at bases all across the U.S. was Sept 11, 2011.

An ISIS account on the web claims they have 71 trained fighters in the U.S. across 15 states and that 23 of them are preparing attacks. A FBI official said on Saturday that they were tracking thousands of people sympathetic to ISIS but the vast majority would never take violent action. It is that minority group that could cause a lot of trouble. Pentagon Raises Base Security

North Korea announced it had carried out a successful test of a submarine launched ballistic missile. Kim Jong Un praised the test as a "miraculous achievement." "This missile is a time bomb which will go off on the backs of our hostile enemies at any time." The launch of the missile is a clear violation of multiple UN Security Council resolutions. Military officials warned that nuclear armed submarine launched ballistic missiles would be difficult to defend against. North Korea has been working on nuclear weapons and missile launch systems for more than two decades despite being the most sanctioned country on the planet. North Korean Missile Test

Last week Chinese experts said North Korea may already have 20 nuclear warheads and enough fissile material to double that number by next year and have up to 100 by 2020. North Korean Nuclear Weapons


Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"I love how he [Warren Buffett] criticizes hedge funds, yet he had the first hedge fund. He criticizes activists, yet he was the first activist. He criticizes financial services companies, yet he loves to invest in them. He thinks that we should all pay taxes, yet he avoids them himself."

Dan Loeb


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Index Wrap

Trading Range Doldrums Appears to be Ending

by Leigh Stevens

Click here to email Leigh Stevens

Last week I was speculating on an upside breakout ahead and focused on the lagging Dow 30 (INDU) as having (counter-intuitively) a bullish pattern to suggest it! I noted that: "The Dow 30 (INDU) has an interesting pattern, which in wave terms (not usually my discussion topic) looks like a 'symmetrical' triangle; i.e., descending and ascending trendlines that converge if projected out into the future. I've done a '5' count on the legs (price swings) of this pattern. If I ignore the fact that more of the 30 stocks are in bearish patterns than bullish ones, I'd say the next 'leg' could be a breakout to the upside."

I referenced a daily chart of the aforementioned INDU triangle pattern, noted as potentially bullish, with the end of 5 price swings, suggesting I'd explain the 'interesting' (and somewhat unusual) chart pattern in a subsequent Trader's Corner later in the week. I penned this Thursday ahead of the strong Friday upside INDU move that followed. As I'm such a (somewhat) 'pure' technician I wasn't even thinking of the employment report that was coming on Friday that could have moved the Market and Dow strongly one way or another. But, as I hold, Index price action alone tends to FORECAST future trend direction.

Here's the chart and is about the same as I showed in my Thursday (5/7) Friday Trader's Corner EXCEPT of course for the last 'bar' seen below in my first chart; i.e., Friday's OHLC (Open, High, Low, Close).

If you didn't (avidly or otherwise) peruse the aforementioned article I invite you to click on the above LINK for an explanation of what's involved in a triangle pattern and an explanation of why the long-standing (24-25 weeks) trading range looked like it might be ending.

Ending with a move that would pierce long-standing upper (resistance) end of the multiweek trading range that continues the dominant bullish trend. STAY TUNED ON THAT! as we wait to see if decisive new highs in the S&P and Nasdaq indices are NEXT. And, of course, the Dow hasn't made a new intraday or Closing high yet either. But, a bullish upside 'breakout' is suggested in INDU as I lay out, so I anticipate new highs in the major indexes to follow. Stay tuned on that!

The S&P 500 Volatility Index (VIX):

VIX popped this past week, but it was a short-lived bout of volatility, which isn't unusual, especially if the dominant uptrend is resuming. A smooth trend, up or down, doesn't usually come with all that much volatility.

VIX can't seen to get much above 14 for any extended period, then tends to settle back down near 13-12.5 as seen recently. When the Index gets 'oversold' according to the RSI, the Market has sometimes seen another round of volatility. VIX finds a 'reason' to rally a bit but that advance isn't sustained.

Nothing doing here that suggests a trade. VIX options continue to be mostly a hedge for fund managers as 'insurance' if stocks were to take a sharp, especially unexpected, dive.



The S&P 500 (SPX) has again rallied to just under its well-defined line of resistance at 2120. As I noted last week SPX has also been showing good buying interest on dips to the 2080 area and that was seen again this past week.

I anticipate a move, an upside breakout, above 2120. Next resistance is then suggested in the 2140 area, extending next to around 2160. A Close below 2080, not reversed the next day, would be a bearish fly in the ointment to my bullish stance.

I had more to say in my recent (5/7) Trader's Corner on the implications of a broad trading range that becomes as narrow as seen currently, from approximately 2080 to 2120. A 'rectangle' formation like this is assumed to have good potential for a next move higher which resumes the prior dominate trend.

The RSI and my call/put sentiment indicator patterns have been more or less 'neutral' in their patterns. There was a noticeable pick up in bullish trader sentiment with Friday's employment report, but my CPRATIO indicator isn't at an extreme either. It might get that way if there's a strong move above the prior range as short-covering buying and new buying would likely be strong after such a lengthily sideways trend.


Last time I was seeing the S&P 100 (OEX) as "mixed to bullish in its pattern. A 'mixed' pattern in the sense that the dominant chart pattern showing here is a bearish double top. That said there hasn't been much of a downside retreat from the recent top which is what we'd usually expect from this formation."

The past week's dip below the 21-day moving average was short-term bearish but key support held again in the 915-910 area. And, OEX is back above its 21-day average and knocking at the door of its line of prior resistance. The longer a sideways move like this goes on within a long-term uptrend, the stronger the chance for a strong upswing once resistance is finally pierced.

Support continues to be seen in the 915 area, extending to 910. No change from last week there. Fairly major support still seen at 900, but I doubt we'll see OEX down there any time soon.

Pivotal resistance continued to be at 932, and next resistance then is AGAIN projected at 940. Fairly major resistance is anticipate at 950-955.


As I noted above in my initial 'bottom line' commentary the Dow 30 (INDU) had through last week traced out a bullish 'symmetrical triangle' formation as highlighted in my daily Dow chart seen next. Please also check out the LINK to my Thursday Trader's Corner article also seen above for more background info on triangle formations. Such patterns don't occur often but they are predictive as to an expected outcome. I was struggling some with how a substantial and sustained advance was going to occur, which I was thinking was going to come in the S&P 500 WITHOUT the Dow participating.

I kept looking at the Dow's chart pattern until a light bulb went off so to speak with an 'ah ha' recognition of a well-known wave pattern: an initial strong upswing ('thrust'), followed by 5 subsequent back and forth price swings ('legs') where each subsequent move was less than the distance covered in the prior price swing. See my INDU chart below.

For a change I stopped tallying the individual 30 Dow stocks as to whether they there were more in a dominant bullish or bearish pattern. This type of 'bottoms up' analysis is often fruitful but not always.

Technical/chart support (sorry, not marked on my daily Dow chart) is at 18000, extending to 17950. Next lower support comes in at 17800, extending to 17750.

INDU resistance is at 18200, extending to 18275-18300. Next resistance then is projected for the 18400 area and extends to 18450. A monthly long-range target for INDU before resistance comes into play is to the 19000 region. Dow 20000 anyone!?


After another retreat in the Nasdaq Composite (COMP) to its up trendline, the subsequent rebound again carried to above COMP's 21-day moving average. A next bullish challenge is seen in the Index mounting a sustained advance above this key trading average.

Support, suggested at the intersection of COMP's up trendline, is at 4920, with next support highlighted in the 4850 area.

Resistance is highlighted at 5040-5045, then again at the pivotal 5100 level. Assuming there's an eventual sustained move above 5100, a target/resistance is at the prior all-time intraday COMP peak (March 2000) at 5132; next resistance is then projected in the 5200 area at my upper moving average line.


The big cap Nas 100 (NDX) chart remains bullish as NDX rebounded from trendline support in the 4350 area and Closed above its 21-day moving average which turns its near-term trend back up. Next lower support comes in at 4300.

NDX resistance is again suggested at 4500, extending to 4550. Whether NDX has potential to pierce its prior recent intraday peak at 4562 and beyond involves some long-term chart guesswork for me; on potential upside before NDX hits the top (resistance) end of its long-term uptrend price channel. On my most recent month-end (Trader's Corner) April technical review I noted possible resistance at 4500.

Projecting long-term technical 'resistance' for NDX is open to different interpretations depending on how you draw an upper trend channel line: NDX's monthly upper trend channel line might come in around 4800. Hey, they used to think age of the universe was 15-20 billion years; now it's been 'defined' at 13.7 billion!

Back down on earth the NDX daily chart looks bullish, especially if NDX can maintain levels above or mostly above 4450-4465. A decisive downside penetration of 4350 would be short-term bearish but fairly long-term support begins in the 4300 area so the potential downside doesn't look huge currently.


The Nasdaq 100 tracking stock (QQQ) shows again this week the same bullish pattern as the underlying NDX in the Q's rebound from 106 support and Close above its 21-day average.

A further rally to re-test 110, then 111, chart resistance could take QQQ to a new high above 111, as to 112 or a bit higher.

Near support is seen at 108, then 107, extending to 106. A move to below 108 would not be maintained current upside momentum as I currently anticipate chart support in the area of the recent Thursday-Friday upside price gap.

QQQ's On Balance Volume (OBV) line has again turned higher, which is a bullish plus.


The Russell 2000 (RUT) isn't 'leading' the other indices higher like it was for awhile but RUT did hold support in the 1220 area on the recent decline, which is also the area of my lower moving average envelope line implying one type of 'oversold'. A low oversold (13-day) Relative Strength Index (RSI) also occurred before the recent rebound.

Last week I noted that: "If I viewed the Russell in isolation and didn't try to extrapolate to the rest of the major indices, I'd say it's a fairly compelling buy." I didn't add, on a risk to reward basis, but that's what was somewhat 'compelling' in buying into a sell off like this provided an exit point in the 1200 area.

Support is highlighted in the 1220 area, extending to 1210. Pivotal resistance is seen at 1250 currently, extending to 1260. Longer-term resistance is seen in the area of the prior top at 1275-1278.


New Option Plays

Looking Past Currency Headwinds

by James Brown

Click here to email James Brown


Eaton Corp. - ETN - close: 72.10 change: +0.85

Stop Loss: 69.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.6 million
Entry on May -- at $---.--
Listed on May 09, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
ETN is in the industrial goods sector. The company makes products for a wide variety of industries including: aerospace, electrical equipment, filtration systems, hydraulics, plastic extrusion, industrial clutches and brakes, and vehicles.

According to the company, "Eaton is a power management company with 2014 sales of $22.6 billion. Eaton provides energy-efficient solutions that help our customers effectively manage electrical, hydraulic and mechanical power more efficiently, safely and sustainably. Eaton has approximately 102,000 employees and sells products to customers in more than 175 countries."

When the market ignores negative earnings news it could be a signal that all the bad news is priced in to a stock and the path of least resistance is higher. That appears to be the case for ETN.

In July 2014 the stock was crushed after the company reported earnings that were only in-line with estimates and the management lowered their 2014 Q3 guidance. Three months later ETN reported its Q3 results that missed expectations on both the top and bottom line. What did the stock do? It rallied.

Fast forward another few months and in early February ETN reported better than expected earnings but revenues were just a hair below estimates. Management lowered their 2015 Q1 estimates due to currency headwinds. They were expecting a -4% impact do to the strong dollar in 2015. What did the stock do on this negative forecast? It rallied.

Several days ago ETN reported its Q1 results on April 29th. Earnings were 3 cents better than expected even as revenues fell -5% to $5.22 billion. This was a result of +1% organic growth offset by -6% decline due to currency translation.

The company's management readjusted their forecast and now expect a -5% impact due to currency headwinds for 2015. With this adjustment they lowered their Q2 and 2015 guidance. Since this earnings report the stock has rallied. Last week shares were upgraded by J.P.Morgan from neutral to overweight who adjusted their ETN price target from $70 to $84. The point & figure chart is even more optimistic and forecasting an $89 target.

If investors are going to be this forgiving then we think there might be an opportunity here. The recent rally in ETN has pushed shares toward resistance near its February highs around $72.50(ish). We are suggesting a trigger to buy calls at $72.75.

Trigger @ $72.75

- Suggested Positions -

Buy the JUL $75 CALL (ETN150717C75) current ask $1.00
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

Goldilocks Jobs Number Fuels Rally

by James Brown

Click here to email James Brown

Editor's Note:

A not too hot, not too cold jobs number fueled widespread gains in the U.S. stock market on Friday. Large cap stocks led the rally. Bonds rallied as well.

FFIV hit our bullish entry trigger.

Current Portfolio:

CALL Play Updates

Apogee Enterprises - APOG - close: 53.70 change: -0.10

Stop Loss: 51.75
Target(s): To Be Determined
Current Option Gain/Loss: -23.6%
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

05/09/15: APOG is starting to wear down our patience. Shares underperformed the broader market on Friday with a -0.18% decline. Furthermore APOG ended the week with a loss, which ended a two-week string of gains. However, it's worth noting that APOG is still inside its $52-55 trading range.

A close above $55.25 could jump start the next leg higher. 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: 87.31 change: +0.88

Stop Loss: 83.85
Target(s): To Be Determined
Current Option Gain/Loss: -21.5%
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

05/09/15: Both the Dow Industrials Average and shares of CAT gapped open higher on Friday morning in reaction to the jobs report. The rally didn't see much progress after that. Shares of CAT just churned sideways under resistance near $88.00.

I am suggesting investors wait for a rise past $88.30 before considering new bullish positions.

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


F5 Networks - FFIV - close: 126.05 change: +1.62

Stop Loss: 121.40
Target(s): To Be Determined
Current Option Gain/Loss: +4.6%
Average Daily Volume = 1.2 million
Entry on May 08 at $125.15
Listed on May 07, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

05/09/15: Our new bullish play on FFIV is off to a strong start. Shares opened at $125.00 and rallied to a +1.3% gain. Our trigger to buy calls was hit at $125.15 pretty early on Friday.

Trade Description: May 7, 2015:
It has become a hostile world for corporations and their biggest weakness is online security. It feels like every day we hear about another company getting hacked. In recent years there have been a number of high-profile hacking attacks like Target (TGT), Home Depot (HD), and Sony (SNE). Fortunately for FFIV all of this plays to their strength as more corporations seek to beef up their cyber security.

According to company marketing, "F5 provides solutions for an application world. F5 helps organizations seamlessly scale cloud, data center, and software defined networking (SDN) deployments to successfully deliver applications to anyone, anywhere, at any time. F5 solutions broaden the reach of IT through an open, extensible framework and a rich partner ecosystem of leading technology and data center orchestration vendors. This approach lets customers pursue the infrastructure model that best fits their needs over time. The world's largest businesses, service providers, government entities, and consumer brands rely on F5 to stay ahead of cloud, security, and mobility trends."

After strong earnings and sales growth in 2014 the company hiccupped in Q1 2015 (which was the last quarter of 2014). FFIV beat estimates on the bottom line but management guided lower for Q2. You can see how the market reacted to this news with the big gap down in mid January.

Their most recent earnings report was April 22nd. FFIV reported their 2015 Q2 results of $1.59 per share. That was nine cents better than expected. Revenues were up +12.4% to $472.1 million, just above estimates. Wall Street's biggest concerns following these results are the impact of currency headwinds (thanks to the strong dollar) and FFIV's falling revenue growth. They're still growing but momentum seems to be slowing a bit.

The stock rallied on its earnings news and burst through major resistance near $120 and several key moving averages. The last couple of weeks have looked like a consolidation period where FFIV digested its post-earnings pop. Now FFIV is poised for the next leg higher. The point & figure chart is very bullish and forecasting a long-term target of $193.00. Tonight we're suggesting a trigger to buy calls at $125.15.

- Suggested Positions -

Long JUL $130 CALL (FFIV150717C130) entry $3.25

05/08/15 triggered @ 125.15
Option Format: symbol-year-month-day-call-strike


Global Payments Inc. - GPN - close: 101.88 change: +0.52

Stop Loss: 98.25
Target(s): To Be Determined
Current Option Gain/Loss: +1.8%
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

05/09/15: I am starting to worry about our GPN trade. If shares can't breakout past resistance with Friday's widespread market rally then what will it take?

GPN has resistance in the $102.00-102.50 zone. Shares tagged $102.57 on Friday morning and then spent the rest of the day hugging the $102.00 level.

I am not suggesting new positions at this time.

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: 75.25 change: +0.61

Stop Loss: 71.75
Target(s): To Be Determined
Current Option Gain/Loss: -4.7%
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

05/09/15: NTRS provided another entry point on Friday. Shares gapped open higher at $75.00 and then climbed to a +0.8% gain. This is a new multi-year high for the stock.

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: 90.34 change: +0.20

Stop Loss: 86.95
Target(s): To Be Determined
Current Option Gain/Loss: -29.8%
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

05/09/15: OCR ended the week with a gain. The stock is up three weeks in a row. Yet Friday's performance was a little bit disappointing. Shares have been struggling with short-term resistance near $91.50 the last couple of days. On the plus side Friday's move should negate Thursday's bearish reversal pattern.

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


Snap-on Inc. - SNA - close: 155.48 change: +1.63

Stop Loss: 149.40
Target(s): To Be Determined
Current Option Gain/Loss: +17.6%
Average Daily Volume = 346 thousand
Entry on May 07 at $153.50
Listed on May 06, 2015
Time Frame: exit PRIOR to June option expiration
New Positions: see below

05/09/15: SNA kept the rally going on Friday with a +1.0% gain. This is a new all-time high for the stock. I would not be surprised to see shares of SNA fill Friday's gap with a dip back toward $154.00 before moving higher.

Trade Description: May 6, 2015:
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.

- Suggested Positions -

Long JUN $155 CALL (SNA150619C155) entry $2.55

05/07/15 triggered @ 153.50
Option Format: symbol-year-month-day-call-strike


Splunk, Inc. - SPLK - close: 68.56 change: +1.97

Stop Loss: 63.85
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: Exit PRIOR to earnings on May 28th
New Positions: see below

05/09/15: Good news! It looks like SPLK has broken out from its recent consolidation. Shares were up almost +5% on Friday but SPLK eventually pared its gains to +2.95%.

I would not chase it at the moment, especially after Friday's pop. We need to adjust our time frame for this trade. SPLK is now expected to report earnings on May 28th. We do not want to hold over the announcement.

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

05/09/15 adjust time frame, plan on exiting prior to earnings on May 28th
04/30/15 new stop @ 63.85
04/23/15 triggered @ 66.25
Option Format: symbol-year-month-day-call-strike


PUT Play Updates

Bed Bath & Beyond Inc. - BBBY - close: 71.44 change: +0.84

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

05/09/15: The stock market's widespread rally on Friday lifted BBBY again. Shares were poised to break support near $70.00 and then popped back toward resistance near $72.00 and its 20-dma.

Aside from the initial spike higher BBBY spent most of Friday's session drifting lower. At the moment I don't see any changes from my prior comments. Our suggested entry point for bearish positions is $69.70.

Trade Description: May 6, 2015:
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)

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