Option Investor

Daily Newsletter, Tuesday, 5/26/2015

Table of Contents

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

Market Wrap

Sudden Reversal

by Jim Brown

Click here to email Jim Brown

The markets rolled over hard and some analysts blamed economic reports for being stronger than expected. In theory this put the Fed back in the headlines. However, the futures were already down well before the reports so they were probably just a convenient excuse for low information investors.

Market Statistics

Fed vice chair Stanley Fischer spoke on Monday and basically said the Fed is going to raise rates. You can expect some "spillover" in the global markets and the Fed is not the central bank for the world. That means the Fed is not going to delay raising rates just because some emerging market economies may decline when they do. The spillover means equity and treasury markets are going to react negatively. Lastly, anyone that does not already know the Fed is going to raise rates has not been paying attention.

Fischer did change his comments slightly from prior speeches. His terminology changed from "the Fed is going to raise rates this year" to "the Fed is going to raise rates based on the data." While that could be seen as a softening of his view Janet Yellen said last week the Fed is going to raise rates this year but she did add the data dependent qualifier.

The market sold off late Friday afternoon. Fischer spoke on Monday. The S&P futures were down -4.50 at 8:PM on Monday. The economic reports came out this morning and a minor rebound in the futures was erased. I guess you could blame both events equally.

The first economic report of the morning was the Durable Goods for April. The headline number declined -0.5% and that was just slightly below consensus of -0.4%. That was still much worse than the +5.1% rise in February that was driven by civilian aircraft orders. The internals were better. Excluding transportation, orders rose +0.5%. Nondefense capital goods ex-aircraft rose +1.0%. Shipments of nondefense capital goods rose +1.6%.

Total backorders were flat at zero and excluding transportation goods down -0.2%. Nondefense capital goods backorders rose +1.6%. Transportation orders fell -2.5% and are now -5.8% below year ago levels with the majority of that decline in civilian aircraft orders.

Calling the durable goods orders positive would be a stretch but analysts were happy that it was not worse. What does that say for us when a "less bad" report generates good feelings?

New home sales for April rose +6.8% to an annualized rate of 517,000 up from 484,000 in March. Analysts were claiming consumers came out of hibernation once the snow melted and they bought homes. Sales in the Midwest rose +36.8% and South +5.8%. Sales in the Northeast declined -5.6% and the West fell -2.3%. Home prices rose +5.3% to an average of $296,500.

I don't understand why analysts were so excited about the April rebound to 517K and talking about the end of winter rebound. February, right in the middle of the severe winter weather saw a sales pace of 538,000. April failed to return to the February levels.

I have my own theory on this. I believe February sales were lifted by consumers applying their yearend bonuses as down payments. They got a big chunk of money and they had it earmarked for a new home. The spike in April could be for the same reason only the money came from tax refunds to help with the down payment. There was probably a better weather factor in April as well. I just don't see a one month bounce in new home sales as being a green shoot showing the economy is rebounding. Let it continue for several months and then I will be convinced.

The Richmond Fed Manufacturing Survey for May rose from -3.0 to +1.0. While it was the first number above zero in four months we can hardly call it a robust rebound. New orders improved from -6 to +2 for the first reading in positive territory in four months. Backorders declined even further into contraction from -8 to -10. That was the seventh consecutive month in contraction.

The employment component declined from +7 to +3 while the average workweek component rose from +4 to +6.

About all we can say for the report is that it was positive and just barely positive. After four months in the tank a reading of +1 is hardly cheerleader material.

The separate services survey rose from 2 to 13 and a three month high. The employment index rose from 9 to 11 and the six-month outlook rose from 18 to 20. Clearly the services sector is rebounding now that warmer weather is here. Services typically see more activity in the spring and summer months when outdoor activities are being held. In the winter months services decline because the activities are limited to indoors.

In the chart below you can see the highly random nature of the Richmond manufacturing survey. There is no trend either up or down and nothing to get excited about on a single month's improvement.

The Texas Manufacturing Outlook Survey for May declined from -16.0 to -20.8 and the fifth consecutive month in contraction. This was also the lowest level since the financial crisis. The production component declined from -4.7 to -13.5. New orders declined slightly from -14.0 to -14.1. Backorders improved slightly from -15.1 to -10.6 but that is still the sixth month in contraction. The average workweek fell from -5.0 to -11.6 and employment declined from +1.8 to -8.2.

There was nothing positive about the Texas report. The continued decline is directly related to the decline in the energy sector so despite the seriously negative numbers there is a qualification. It is not the entire manufacturing sector but simply everything related to energy. It is still bad news for employment in Texas.

Consumer confidence for May improved slightly from the initial reading with a rise from 95.2 to 95.4. Analysts were just glad it did not fall back into the 94s from the prior month. The present conditions component rose from 105.1 to 108.1 and the expectations component declined from 87.1 to 86.9. This revision was ignored.

Personally I don't believe the markets declined on worries over the Fed. The economic reports were too weak to give the Fed any reason to accelerate their rate hike decision. The market decline was more likely due to the weak data rather than the sudden appearance of economic green shoots. The data was mediocre at best.

Contradicting that view was the spike in the dollar to five week highs. Why the dollar spiked so strongly on bad data is a mystery. However, there are a growing number of geopolitical issues that could be giving it a boost. A deal in Greece seems to be slipping away and Greece can't pay the IMF the 16 billion euros due in June. A default is imminent.

Britain is about to vote on leaving the eurozone. While the impact of that vote is unclear it would be a monumental change in the EU.

President Obama and NATO appear to be stepping up warnings over Russia's activities and sabers are starting to rattle.

Yields on the ten-year closed at a two-week low at 2.137% indicating treasuries are being bought. Investor don't buy bonds on good economic news so this is a market tell that suggests those cheerleaders claiming the economic numbers were better than expected should read the reports again.

There is nothing material on the economic calendar for Wednesday. The pending home sales on Thursday should be positive since new home sales rebounded. The big event is on Friday with the GDP revision. The current consensus is for a -0.9% contraction compared to the initial estimate with a +0.25% gain. The Q2 GDPNow forecast from the Atlanta Fed rose one tenth of a point to +0.8% growth. That is hardly an excuse for the Fed to raise rates in the near future.

If the Q1 revision comes in a -0.9% as expected and the Q2 closes at todays +0.8% growth then the first half of the year would have contracted -0.1%. If that ends up being the case then the Fed will be well into 2016 before they hike rates. This makes Friday's revision a critical number.

Stock news was pretty muted today with the Charter (CHTR), Time Warner Cable (TWC) deal the main topic of conversation. Charter agreed to pay $195.71 or roughly $55 billion for Time Warner. The price rose after a last minute attempt to steal TWC by French billionaire Patrick Drahi and Altice SA.

Another Charter acquisition, Bright House Networks, which it is acquiring for $10.4 billion, will be merged into the combined entity.

Previously Charter's $132.50 bid in 2014 was rejected as a "low ball offer" and Comcast jumped in with a higher offer. The regulators would not approve the Comcast/Time Warner deal and that gave Charter a second chance. Including the assumed debt the Time Warner deal is valued at roughly $78.7 billion. Charter will nearly quadruple the number of its subscribers to 17 million. That compares to Comcast at 22 million.

Time Warner shareholders will have two options. They can accept $100 in cash and 0.5409 Charter shares or they can accept $115 in cash and 0.4562 in Charter shares. The deal is expected to close in the fourth quarter and the FCC is not expected to protest. There is a $2 billion breakup fee. Liberty Broadband Corp, headed by John Malone will buy $5 billion in new Charter shares to help fund the deal.

Altice could benefit from acquiring any customers and assets that regulators will require Charter/Time Warner to offload in order to get the deal done. Drahi said he plans to increase his U.S. footprint by acquiring a lot of the smaller operators. Altice has said it is aiming to generate 50% of its revenue from the USA.

The Shack was whacked. Shake Shack (SHAK) was knocked for a -8% loss thanks to the weak market and serious profit taking after a huge run. Late last week there was chatter that a single Shake Shack restaurant was worth about $50 million because of the volume of business and the cult following. Shares rocketed higher but saner minds returned on Tuesday to take profits.

Party City (PRTY) reached the point after its IPO where brokers can finally put ratings on the stock. It was a feeding frenzy. Bank of America and Deutsche Bank initiated with a buy rating. JP Morgan and Morgan Stanley initiated with an overweight rating. Credit Suisse started with an outperform. The party pooper was Goldman Sachs with a neutral rating.

Morgan Stanley said it was time to buy and they put on a $25 target. They expect significant upside in earnings as it adds to its manufacturing base. Party City is adding to its self produced items to lower costs. Goldman disagreed. Goldman said all the positive factors are already priced into the stock and it is already trading at a higher multiple than its peers.

Shares declined slightly on the news.

Workday (WDAY) reported a loss of 2 cents compared to estimates for a -8 cent loss and a -13 cent loss in the year ago quarter. Revenues rose +57% to $251 million. Analysts were expecting $245 million. The company guided to Q2 revenue of $270-$274 million and analysts were expecting $272.3 million. Shares declined $5 in afterhours.

TiVo (TIVO) reported earnings of 8 cents that beat estimates by a penny. Revenue rose +7.2% to $114.7 million and well over estimates for $81.5 million. Subscribers rose +27% to 5.8 million. The company also said it was going to acquire Poland based Cubiware. The acquisition will allow Tivo to expand into 25 countries. Cubiware provides software for pay-TV operators with customers in Latin America, Europe, the Middle East and Asia. Shares of TIVO spiked in afterhours trading to overcome the -2.5% decline in the regular session.

Apple (AAPL) is said to be considering a 200 billion yen bond offering in Japan. It would be the largest yen-denominated bond issued by a foreign company since a Citigroup sale in 2007. The value of a 200 billion yen offering is about $1.62 billion. Apple is currently shopping about $7 billion in bond offerings to see where they can get the best rates. Apple announced with earnings they were planning a $140 billion stock buyback program, up from $90 billion, through March of 2017. Apple can't bring its cash back from overseas without paying a major tax bill. They can borrow money overseas at ridiculously low rates.

Multiple feature leaks have made the news on the next version of iOS9 and two new iPhones that are expected to be announced in July according to multiple leaks from suppliers. One new feature will be "force touch" where the phone will be able to determine the amount of force in the touch and do different things depending on the amount of force. Apple and Samsung are both rumored to be moving forward the release of their next models.

Apple shares declined -$3 to knock about 23 points off the Dow. Technicians are worried the stock could form a top at the $133 closing high from February. The April closing high was $132.65 and Friday's close was $132.57. The say the third time is the charm but in this case does that mean a breakout or a real failure?

First Solar (FSLR) shares fell -7% after RBC Capital Markets cut the stock from sector perform to underperform. They cut the price target from $54 to $34. The analyst said they see flat earnings for 2015-2016 despite the company's guidance for 19% growth in 2015 and 2.5% growth in 2016. RBC expects the company to earn $1.37 compared to consensus estimates for $3.48 and company guidance for a range of $3.50 to $5.00. If RBC is right and actual earnings are less than half what the company is forecasting this would be a major blow for First Solar.

Crude oil dropped -$1.43 to $58 after Iraq said it planned to increase oil shipments by 26% or +800,000 bpd to 3.75 million bpd starting in June. The increase alone is more than Qatar produces. There is some debate on Iraq's ability to actually accomplish this feat. Some claim Iraq's export capacity is capped at 3.1 mbpd and they can't physically ship 3.75 mbpd even if they have it. This could be a stunt ahead of the June 5th OPEC production meeting in order to upgrade their status and give them a bigger seat at the table. In OPEC your standing is directly proportional to your production capability.

If Iraq is able to upgrade its export capability by 800,000 bpd it would be a real blow to crude prices. That would be far in excess of what the U.S. could see in production declines over the next year if drilling did not resume.


Tuesday's decline was a real shocker for some investors that only believe the market will move higher. In reality we are due for at least a minimal dip to give fund managers something to buy before the first half of the year ends in June. With the largest cash allocations since the financial crisis they should be thrilled to see a significant decline.

Today's decline may have been scary on the surface but a -200 point drop on the Dow after two weeks of gains is no big deal. If you remember back a few weeks we were having 200 point moves on the Dow on a frequent basis.

I have written multiple times about the lack of conviction at the highs and the low volume. We did see the volume pick up today to 6.27 billion shares but that is just over the 5.6 billion average for the last couple of weeks. This was not a market crash. It was just profit taking on mediocre volume. There was no conviction on the downside just like there was none on the upside. This was a blip on the radar.

However, real market declines sometimes start with a low volume hiccup. It causes people to rethink their positions and additional selling appears in the days that follow.

In theory the worst case should be a 3-5% dip with the best case a rebound from the 100-day average at 2080 or even higher. We closed at 2104 today.

The S&P struggled at its new high of 2130 for all five days last week with volume shrinking as the week progressed. Today was a reaction to the lack of a breakout. If we fail at resistance long enough the urge to sell begins to infect the bulls. After a day or two of declines they become more energized with all the "bargains" and a rebound appears. Let's hope that is the case this time around.

The Dow began its decline a couple days earlier but did not gain speed until today's dump. The close below 18,100 is slightly troubling but the real downside targets are the 100-day at 17,897 and recent support at 17,800. A dip to either area would not be troubling. A further dip to 18,600 would definitely increase the hysteria but unless that level failed it is just post earnings profit taking. We have been to the 17,800 level four times since early April and the world did not end.

Tech traders may have been whining and clenching their teeth in panic but the -56 point drop in the Nasdaq was barely a blip. Note in the chart that the drop did not even reach the 5000 level and support at 5008 was not even tested. This was a head fake and not a very good one.

Until support around 5000 fails and we start testing the 100-day at 4890 there is nothing to be worried about. The worst case is that we drop back to the levels from early May.

The small cap Russell 2000 is a carbon copy of the other indexes with the same -1% decline. If the Russell had lost significantly more than the other indexes then I would have been worried. A 1% drop is only one-third of the gains since the May 6th lows at 1211.

We did have a serious failure at resistance at 1260 but nothing any worse than the Dow and S&P. The small caps are not telling us anything other than what we see elsewhere.

The Dow Transports ($TRAN) were the biggest losers with a -1.55% drop. The 50-day is crossing over the 200-day in what is called the death cross. (not shown) The picture could not be any worse for the transports chart and we could easily see a retest of 8000 or even lower.

The biggest worry of the broader market is that the transports finally begin to drag the Dow Industrials lower. This deserves careful watching in the days ahead.

Last Tuesday I suggested keeping some cash on hand in case a buying opportunity appeared. This may be it. While I would not rush into the market to add longs at the open on Wednesday I would look for a bottoming process in the days ahead. Any visible sign of a bottom forming could be very fast. If those fund managers begin to throw that excess cash at the dip we could see a sharp rebound. You know the shorts have loaded up on this drop and any sudden rebound could prompt a serious short squeeze.

I remain cautiously long until proven wrong. Translated that means maintain a few long positions but retain some cash and keep your stop losses in place.

Enter passively, exit aggressively!

Jim Brown

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New Option Plays

Guiding Lower Again

by James Brown

Click here to email James Brown


SPX Corp. - SPW - close: 74.26 change: -2.15

Stop Loss: 76.55
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 500 thousand
Entry on May -- at $---.--
Listed on May 26, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
The business environment for SPW seems to be getting tougher. Their revenue growth has slowed down and now turned negative. Naturally shares of SPW have been under pressure.

SPW is in the industrial goods sector. According to the company, "Based in Charlotte, North Carolina, SPX Corporation (NYSE: SPW) is a global multi-industry manufacturing leader with approximately $5 billion in annual revenue, operations in more than 35 countries and over 14,000 employees. The company's highly-specialized, engineered products and technologies are concentrated in Flow Technology and energy infrastructure. Many of SPX's innovative solutions are playing a role in helping to meet rising global demand for electricity and processed foods and beverages, particularly in emerging markets. The company's key products include food processing systems for the food and beverage industry, critical pumps and valves used in oil & gas processing, power transformers used by utility companies, and heat transfer technology for power plants."

SPW's 2014 Q3 revenues only grew +1.1%. Their 2014 Q4 earnings report showed revenues falling -3.9% and management lowered guidance for fiscal year 2015. They forecasting revenues falling into the $4.48-4.67 billion range, which was below Wall Street's $4.8 billion estimate.

The disappointing performance continued into the first quarter of 2015. SPW reported earnings on April 29th. They missed estimates by three cents. The revenue decline accelerated with revenues down -12.1% from a year ago, and significantly below estimates. Management lowered their 2015 guidance again. They now forecast 2015 revenues in the $4.25-4.44 billion versus Wall Street's adjusted estimate of $4.5 billion.

Traders have been selling the bounces and SPW has a bearish trend of lower highs. Today's display of relative weakness (-2.8%) was significant because it's a breakdown under support at $75.00. I would be tempted to buy puts now but tonight we are listing a trigger to buy puts at $73.45.

FYI: In October 2014 SPW announced a spin-off of its flow business into a new independent company. In their press release SPW said the Future Flow Company will consist of SPX's current Flow segment and its hydraulic technologies business. It is expected to have annual revenue of approximately $3 billion. SPW just recently filed their Form 10 Registration Statement and said the new company's name will be SPX FLOW. The spin-off is expected to be complete in Q3 2015.

Trigger @ $73.45

- Suggested Positions -

Buy the JUL $70 PUT (SPW150717P70) current ask $1.45
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

Dollar's Rise And Fed Fears Sink Stocks

by James Brown

Click here to email James Brown

Editor's Note:

Market pundits were blaming the rising dollar and fears of a fed rate hike on today's widespread market decline. It was a rare session in that the U.S. saw multiple better than expected economic data points. This better than expected data was seen as fuel for the fed to raise rates.

EEFT hit our stop loss. NSC hit our entry trigger.

We have updated several stop losses tonight.

Current Portfolio:

CALL Play Updates

Adobe Systems - ADBE - close: 79.37 change: -0.68

Stop Loss: 77.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.2 million
Entry on May -- at $---.--
Listed on May 21, 2015
Time Frame: 3 to 4 weeks, exit PRIOR to earnings in mid June
New Positions: Yes, see below

05/26/15: ADBE followed the broader market lower on Tuesday. Shares did find some short-term support near $79 and its simple 10-dma. We are on the sidelines waiting for a new relative high. Our suggested entry point to buy calls is $80.85.

Trade Description: May 21, 2015:
ADBE appears to have successfully completed its transition from a traditional pay up front software sales model to a subscription based pay-as-you-go model for its industry leading creative software.

ADBE is in the technology sector. They are part of the software industry. According to the company, "Adobe is changing the world through digital experiences. Content built and optimized with Adobe products is everywhere you look — from websites, video games, and smartphones to televisions, tablets, and beyond. Adobe® Creative Cloud® software offers the most innovative tools for creating digital media, while Adobe Marketing Cloud delivers groundbreaking solutions for data-driven marketing. Our leadership in these two emerging categories, Digital Media and Digital Marketing, provides our customers with a real competitive advantage, positioning Adobe for continued growth well into the future. As one of the largest software companies in the world, Adobe achieved revenue of more than US$4 billion in 2013."

The company's most recent earnings report was March 17th. ADBE said its Q1 earnings soared +46% to $0.44 a share . It was ADBE's best quarterly earnings growth in four years. Analysts were expecting a profit of $0.39. Revenues rose +10.9% to $1.11 billion, which was above ADBE's estimate of $1.05-1.10 billion. Wall Street was forecasting $1.08 billion.

ADBE said a record 70 percent of their Q1 revenues came from recurring sources, compared to 52 percent in Q1 fiscal 2014. They added 517 thousand customers to their creative cloud subscriptions. That is up +28% from a year ago. Unfortunately this missed expectations. Analysts were hoping for +573K.

ADBE's guidance was a little bit soft. The combination of the new subscription miss and the lackluster guidance sparked some profit taking. Fortunately for shareholders the sell-off didn't last long. Investors have been buying the dips and ADBE's long-term up trend remains in place.

It would appear that any post-earnings bearishness has vanished. JP Morgan recently started coverage on ADBE with an "overweight" and a $91 target. ADBE's point & figure chart is bullish and forecasting at $92. Technically shares of ADBE have rallied to resistance near $80.00 and its 2015 highs. After consolidating below $80 the last few days the stock finally broke out today. The intraday high today was $80.74. We're suggesting a trigger to buy calls at $80.85.

Trigger @ $80.85

- Suggested Positions -

Buy the JUL $85 CALL (ADBE150717C85)

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

Anthem, Inc. - ANTM - close: 162.34 change: -1.85

Stop Loss: 159.85
Target(s): To Be Determined
Current Option Gain/Loss: -3.4%
Average Daily Volume = 1.8 million
Entry on May 18 at $162.00
Listed on May 16, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

05/26/15: ANTM was not immune to the market's profit taking today. Shares fell -1.1% and look like they might break down from the recent $162-165 trading range. If $162 fails the next support level could be $160.00. Tonight we are raising the stop loss to $159.85. No new positions at this time.

Trade Description: May 16, 2015:
One in nine Americans is covered through one of Anthem's affiliated medical plans. The company is only getting bigger. Previously known as Wellpoint (WLP) they officially changed their name to Anthem (ANTM) in December 2014.

Initially both Wall Street and the healthcare industry were worried about Obamacare. Yet the Affordable Care Act has been a strong tailwind for many of the large healthcare insurers adding millions of new customers. Now that the major players have ironed out a lot of the wrinkles any negative impact from the ACA seems to be fading.

If you're not familiar with ANTM they are in the healthcare sector. According to the company, "Anthem is working to transform health care with trusted and caring solutions. Our health plan companies deliver quality products and services that give their members access to the care they need. With nearly 71 million people served by its affiliated companies, including more than 38 million enrolled in its family of health plans, Anthem is one of the nation’s leading health benefits companies."

Looking ANTM's earnings over the past year the company's results have been a little hit or miss. Yet one thing they have consistently done is raise guidance. Since the stock market is always looking forward this bullish outlook from ANTM has helped drive the stock to new all-time highs.

Their most recent earnings report was April 29th. ANTM reported their 2015 Q1 results. Wall Street was looking for $2.69 per share on revenues of $19.28 billion. The company delivered $3.14 per share, which is a +29.8% improvement from a year ago. Revenues were up +6.8% to $18.85 billion (a miss). Management raised their guidance above analysts' estimates for the fourth quarter in a row.

The company has an active stock buyback program. In the first quarter they spent $774 million buying back 5.7 million shares. As of March 31st, 2015 they still had about $4.9 billion left on their board-approved share repurchase program.

Technically the stock has been churning sideways in the $150-160 zone for the last several weeks. ANTM threatened to breakdown under support near its 50-dma and the $150 level in late April but managed to reverse course and now it's breaking out past resistance in the $160 area. Tonight we are suggesting a trigger to buy calls at $161.65.

- Suggested Positions -

Long SEP $170 CALL (ANTM150918C170) entry $4.40

05/26/15 new stop @ 159.85
05/18/15 triggered on gap open at $162.00, trigger was $161.65
Option Format: symbol-year-month-day-call-strike

Caterpillar Inc. - CAT - close: 87.84 change: -0.79

Stop Loss: 86.45
Target(s): To Be Determined
Current Option Gain/Loss: -35.0%
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

05/26/15: Shares of CAT gapped open lower at $88.13 and spent most of the day churning sideways just below the $88.00 level. Short-term technical momentum indicators are starting to roll over. They are a warning signal for traders.

No new positions at this time.

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

05/19/15 new stop @ 86.45
05/12/15 new stop @ 85.75
05/05/15 triggered @ 88.10
Option Format: symbol-year-month-day-call-strike

Electronic Arts - EA - close: 62.53 change: -0.04

Stop Loss: 59.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 3.5 million
Entry on May -- at $---.--
Listed on May 18, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

05/26/15: Shares of EA held up well today. The stock spent Tuesday's session consolidating sideways and closed virtually unchanged.

We are waiting for a new relative high. Our suggested entry point to buy calls is $63.65.

Trade Description: May 18, 2015:
Video game stocks are hitting high scores this year. The two biggest players in this industry are ATVI and EA. Shares of ATVI are at all-time highs while EA is nearing a new 10-year high.

EA is considered part of the technology sector. According to the company, "Electronic Arts ( EA ) is a global leader in digital interactive entertainment. The Company delivers games, content and online services for Internet-connected consoles, personal computers, mobile phones and tablets. EA has more than 300 million registered players around the world. In fiscal year 2015, EA posted GAAP net revenue of $4.5 billion. Headquartered in Redwood City, California, EA is recognized for a portfolio of critically acclaimed, high-quality blockbuster brands such as The Sims, Madden NFL, EA SPORTS FIFA, Battlefield, Dragon Age and Plants vs. Zombies."

Shares of EA popped above major resistance near the $60.00 level earlier this month after reporting better than expected Q4 2015 results. Wall Street was looking for EA to deliver a profit of $0.26 a share on revenues of $852.9 million. EA announced a profit of $0.39 a share. Revenues were down -2.0% from a year ago but came in at $896 million, well above estimates.

Their full year results were impressive. EA's net revenues were up almost $1 billion to $4.5 billion. The company's net income soared from $8 million in 2014 to $875 million in 2015. Shares of EA have benefitted from the company's turnaround. The stock is up more than +100% in the last 12 months.

EA's guidance was mixed. They issued bearish guidance for their Q1 2016 (current quarter) and see EPS about flat ($0.00) when Wall Street was expecting $0.19 per share. EA is forecasting Q1 revenues significantly below expectations. However, they raised their fiscal year 2016 profit estimate to $2.75 per share when analysts were only expecting $2.63.

Last quarter EA spent $95 million buying back 1.8 million shares of their stock. When they reported earnings on May 5th they also announced a new $1 billion stock buyback program that expires on May 31, 2017.

EA management sounds pretty optimistic. Here's an excerpt from their earnings press release:

With a clear focus on putting our players first, FY15 was an exceptional year for Electronic Arts. We introduced award-winning games, delivered enduring entertainment in our live services, and forged deeper relationships with a growing global audience across consoles, mobile devices and PC, said Chief Executive Officer Andrew Wilson. EA continues to sharpen our focus and speed, and in the year ahead we will engage more players on more platforms with new experiences like Star Wars Battlefront, FIFA 16, Minions Paradise and more.

Two years ago, we discussed a three-year plan to double non-GAAP operating margins to 20%, said Chief Financial Officer Blake Jorgensen. Today, Im happy to announce that we exceeded our goal a full year ahead of schedule. Looking forward, we anticipate continued earnings growth driven by our strong portfolio, investment in new IP, the market shift to digital, and on-going cost discipline.

Wall Street's analyst community seems bullish on EA as well. Several firms reiterated their bullish ratings and raised price targets.

Shares of EA have been building on a bullish trend of higher lows. The current rally has produced a buy signal on the point & figure chart that is forecasting a long-term target of $110.00. On a short-term basis EA seems to be coiling for a breakout past resistance near $63.50. Tonight we're suggesting a trigger to buy calls at $63.65.

Trigger @ $63.65

- Suggested Positions -

Buy the SEP $70 CALL (EA150918C70)

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

Eaton Corp. - ETN - close: 72.01 change: -1.08

Stop Loss: 70.65
Target(s): To Be Determined
Current Option Gain/Loss: -31.8%
Average Daily Volume = 2.6 million
Entry on May 13 at $72.75
Listed on May 09, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

05/26/15: The big decline in the Dow Jones Industrial Average (-190 points) weighed heavily on the industrial stocks. ETN fell -1.4% but managed to bounce off its rising 20-dma this afternoon.

Tonight we are moving the stop loss up to $70.65. I am not suggesting new positions at this time.

Trade Description: May 9, 2015:
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.

- Suggested Positions -

Long JUL $75 CALL (ETN150717C75) entry $1.10

05/26/15 new stop @ 70.65
05/13/15 triggered @ 72.75
Option Format: symbol-year-month-day-call-strike

FactSet Research - FDS - close: 164.95 change: -1.64

Stop Loss: 163.85
Target(s): To Be Determined
Current Option Gain/Loss: +5.3%
Average Daily Volume = 302 thousand
Entry on May 13 at $162.25
Listed on May 11, 2015
Time Frame: Exit PRIOR to FDS earnings in late June or plan on exiting prior to JUNE option expiration on June 19th
New Positions: see below

05/26/15: The market's decline pushed FDS to a -0.98% loss and shares closed beneath its 10-dma. I warned readers to expect a dip toward the $165.00 area. If this pullback continues we could see FDS hit our stop at $163.85 tomorrow.

I am not suggesting new positions at this time.

Trade Description: May 11, 2015:
FDS has provided data, analytics and research to the Wall Street crowd for more than 35 years. Today their software provides a host of services for investment managers, hedge funds, bankers, wealth managers, private equity, buy-side traders, sell-side traders, and more.

FDS is considered part of the technology sector. According to the company, "FactSet, a leading provider of financial information and analytics, helps the world's best investment professionals outperform. More than 50,000 users stay ahead of global market trends, access extensive company and industry intelligence, and monitor performance with FactSet's desktop analytics, mobile applications, and comprehensive data feeds."

The company has been delivering pretty consistent sales growth around +9% every quarter. They raised guidance back in December with their Q1 report. FDS' most recent earnings report was March 17th. The company announced their Q2 results of $1.39 per share, which was up +13.9% from a year ago. Unfortunately that missed analysts' estimates by two cents. Revenues grew +9.2% and kept the trend alive of FDS delivering revenues just above expectations.

The company has an active stock buyback program. Management boosted their repurchase program back in December by $300 million. At the time that meant their buyback program was almost $339 million. Keep in mind that FDS only has 41.7 million shares outstanding.

Following FDS' March 17th Q2 report the company raised their guidance for Q3. They now estimate earnings will grow +12.8% into the $1.40-1.42 per share range. This is above Wall Street estimates. Shares of FDS rallied on this report but they've spent the last several weeks consolidating sideways on either side of $160.00. The good news is that FDS is building a bullish trend of higher lows. Today the stock is poised to breakout past resistance and hit new record highs. We are suggesting a trigger to buy calls at $162.25.

- Suggested Positions -

Long JUN $165 CALL (FDS150619C165) entry $3.80

05/19/15 new stop @ 163.85
05/13/15 triggered @ 162.25
Option Format: symbol-year-month-day-call-strike

F5 Networks - FFIV - close: 126.08 change: -0.69

Stop Loss: 123.85
Target(s): To Be Determined
Current Option Gain/Loss: -22.8%
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

05/26/15: FFIV fell more than $2.00 pretty quickly this morning. Shares pierced round-number support at $125.00 but quickly bounced. FFIV managed to pared its loss to -0.5%. I cautioned readers in my weekend update that a dip to $125.00 would not be a surprise.

Tonight we are moving the stop loss to $123.85. No new positions at this time.

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

05/26/15 new stop @ 123.85
05/08/15 triggered @ 125.15
Option Format: symbol-year-month-day-call-strike

Northern Trust Corp. - NTRS - close: 74.79 change: -0.77

Stop Loss: 73.85
Target(s): To Be Determined
Current Option Gain/Loss: -27.9%
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

05/26/15: Traders and analysts that you might hear on TV or in the financial media talk about loving the financials but the group did not show any relative strength today. The XLF fell -1.4% versus the -1.0% drop in the S&P 500. There was no dip buying in the broader financial sector. Shares of NTRS lost -1.0% and is now down three days in a row.

Tonight we are moving the stop loss to $73.85. I'm not suggesting new positions at this time.

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

05/26/15 new stop @ 73.85
05/12/15 new stop @ 73.45
05/05/15 triggered @ 75.05
Option Format: symbol-year-month-day-call-strike

Roper Technologies - ROP - close: 175.71 change: -1.44

Stop Loss: 173.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 441 thousand
Entry on May -- at $---.--
Listed on May 20, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

05/26/15: ROP retreated back toward round-number support at $175.00 before starting to trim its losses today. We are waiting for a new high. The plan is buy calls when ROP trades at $177.75.

Trade Description: May 20, 2015:
2015 is shaping up to be a record-setting year for ROP with profits on track for a new high. Investors have pushed the stock to new highs as well. ROP is up +12.8% year to date versus a +3.3% gain in the S&P 500.

ROP is in the industrial goods sector. The company just recently changed their name from Roper Industries to Roper Technologies.

According to the company, "Roper Technologies is a diversified technology company and is a constituent of the S&P 500, Fortune 1000, and the Russell 1000 indices. Roper provides engineered products and solutions for global niche markets, including software information networks, medical, water, energy, and transportation."

Their most recent earnings report was April 27th. ROP reported its 2015 Q1 results. Earnings per share rose 5% from a year ago to $1.55. Analysts were expecting $1.52. Revenues were up +3.7% to $865 million. That actually missed estimates of $873 million but the market didn't seem to care. ROP said their adjusted gross margin hit a new high, rising 140 basis points to 60.0%.

Management did lower their Q2 guidance but they raised their full year 2015 guidance. Again, traders seemed to look past the short-term lowered guidance in favor of the long view. ROP is forecasting 2015 earnings in the $6.75-6.95 range, up from $6.40 per share in 2014.

Barclays reiterated their overweight rating on the stock and raised their price target to $193.00. The point & figure chart is even more optimistic and currently forecasting at $209.00 target.

Shares of ROP hit new highs last week and have managed to hover there in the $175.00 region. The stock looks poised to push higher and we want to buy calls if ROP can trade at $177.75.

Trigger @ $177.75

- Suggested Positions -

Buy the AUG $180 CALL (ROP150821C180)

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

Snap-on Inc. - SNA - close: 155.82 change: -1.57

Stop Loss: 153.85
Target(s): To Be Determined
Current Option Gain/Loss: +7.8%
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

05/26/15: Ouch! SNA only lost -0.99% with today's market-wide decline. Yet our June $155 call value was hammered lower. Shares of SNA look poised to test round-number support at $155.00.

Tonight we are moving the stop loss up to $153.85. No new positions at this time.

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

05/26/15 new stop @ 153.85
05/14/15 new stop @ 152.25
05/07/15 triggered @ 153.50
Option Format: symbol-year-month-day-call-strike

PUT Play Updates

Norfolk Southern Corp. - NSC - close: 94.57 change: -0.96

Stop Loss: 100.25
Target(s): To Be Determined
Current Option Gain/Loss: -3.8%
Average Daily Volume = 2.2 million
Entry on May 26 at $94.85
Listed on May 23, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

05/26/15: Our new put play on NSC is open. The transportation stocks continued to drop and NSC slipped another -1.0%. Our trigger to buy puts was hit at $94.85. I'd still consider new positions at current levels.

Trade Description: May 23, 2015:
The combination of weak fuel prices, lower global demand for fuel, and rising exports from other countries has been hurting U.S. coal exports. The U.S. Energy Information Administration expects U.S. coal exports to fall throughout 2015 before leveling off in 2016. Less exports means less coal that needs to be moved by railroad.

NSC is in the services sector. They're a major player in the railroad industry. According to the company, "Norfolk Southern Corporation (NSC) is one of the nation's premier transportation companies. Its Norfolk Southern Railway Company subsidiary operates approximately 20,000 route miles in 22 states and the District of Columbia, serves every major container port in the eastern United States, and provides efficient connections to other rail carriers. Norfolk Southern operates the most extensive intermodal network in the East and is a major transporter of coal, automotive, and industrial products."

Falling coal shipments is not the only problem for the railroads. Crude oil's decline from last year's highs and the massive slowdown in the amount of fracking in the U.S. has also hurt the railroad business. Less drilling means fewer rail cars of oil pipe and drilling equipment to be shipped. Less fracking means less fracking sand and other proppants to be shipped. Less drilling also means less oil produced and thus less oil to be transported by rails.

It's not just NSC that's suffering. In March 2015 railroad company Kansas City Southern (KSU) dramatically reduced their guidance. Two months later (about May 14th) KSU actually revoked its guidance altogether. Management sees no visibility due to so much uncertainty surrounding the energy market. KSU's energy-related business is down -50% from a year ago and carloads are down -38% in Q2 2015. Their utility coal shipments are down -68%.

Another company, Union Pacific (UNP), painted a similar picture of lower shipments and falling demand. The industry is facing difficult year over year comparisons. They have seen 11 weeks of negative rail volume. Industry wide coal shipments are down -15% from a year ago (UNP's was down -25%). Shipments of crude oil are down. Shipments of agriculture products are down.

It could be months before the oil industry in the U.S. recovers. Coal isn't expected to recover this year. That doesn't paint a very rosy picture for the railroads.

On April 13, 2015 NSC issued an earnings warning. They guided their Q1 results to $1.00 per share on revenues of $2.6 billion. That's a -15% drop in earnings from a year ago. Wall Street was expecting $1.29 per share on revenues of $2.68 billion. Shares of NSC crashed on this news and then rebounded but the bounce failed at technical resistance and shares have accelerated lower. NSC has broke down under major support near the $100 level.

Technical traders could argue that NSC has created a giant head-and-shoulders pattern (with two right shoulders) over the last nine months. This H&S pattern would suggest a downside target in the $80-85 region. Tonight we are suggesting a trigger to buy puts at $94.85. We will start this trade with a stop loss at $100.25. More conservative traders may want to use a stop around $98.30 as an alternative.

- Suggested Positions -

Long SEP $90 PUT (NSC150918P90) entry $2.65

05/26/15 triggered @ $94.85
Option Format: symbol-year-month-day-call-strike


Euronet Worldwide - EEFT - close: 59.83 change: -0.34

Stop Loss: 59.75
Target(s): To Be Determined
Current Option Gain/Loss: -52.0%
Average Daily Volume = 335 thousand
Entry on May 21 at $62.25
Listed on May 20, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

05/26/15: Our EEFT has been a disappointment from the start. We were triggered last Thursday on an intraday spike above resistance. EEFT reversed lower and is now down three days in a row. From Thursday's peak to today's low EEFT has fallen about -5%. The stock broke down under $60.00 today and hit our stop loss at $59.75.

- Suggested Positions -

AUG $65 CALL (EEFT150821C65) entry $2.50 exit $1.20 (-52.0%)

05/26/15 stopped out
05/21/15 triggered @ 62.25
Option Format: symbol-year-month-day-call-strike