Option Investor

Daily Newsletter, Tuesday, 6/2/2015

Table of Contents

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

Market Wrap

Let's Skip Summer

by Jim Brown

Click here to email Jim Brown

The markets are going nowhere. Volume is still declining, earnings are eroding, economic growth is flat and everyone is waiting on a correction. If that correction does not come soon this is going to be a very boring summer.

Market Statistics

The U.S. markets are following the overseas markets and the negativity caused a -115 point decline in the Dow at the open. The dip buyers showed up instantly but volume dried up as the Dow approached resistance at 18,100.

The Dow has returned to the bottom of its formation and any further decline is going to start pushing more investors to the sidelines. There is still plenty of support in the 17,600-17,800 range but once that uptrend breaks we could see the selling increase.

The economics this morning were mixed as usual. The Factory Orders for April declined -0.4% compared to a 2.2% rise in March and expectations for zero for April. Orders for defense capital goods fell -11.3%. Nondefense capital goods excluding aircraft fell from +1.6% to -0.3%. Durable goods orders declined from 5.1% to -1.0%. Backorders slipped to -0.1% for the fourth month in contraction out of the last five months.

The NY ISM rose slightly from 681.7 to 683.7. However, the current conditions component declined from 58.1 to 54.0 and the six-month expectations component fell sharply from 73.4 to 61.8. The employment component declined from 60.0 to 57.3. Revenues also fell sharply from 68.8 to 55.6

The severity of the declines in the components suggests business conditions are starting to fade in New York. This report is not widely watched so it really did not move the market.

The report that did move the market was auto sales for May. Sales rose to an annualized 17.79 million units and the strongest pace since the cash for clunkers program in May 2005. Spring always brings out the car buyers but lower fuel prices are helping fuel the enthusiasm this year.

The average age of currently owned cars is 11.4 years according to an IHS Automotive study based on Polk Co. registration data. The rising age of the fleet is expected to reach 11.7 years by 2019. The average trade-in is 6.5 years old. There are currently about 257 million cars in the USA.

As the fleet ages it causes the upgrade cycle we are seeing today. People are seeing $100-$150 in gasoline savings per month and they have not been spending it in the retail stores. Apparently they are upgrading their cars and iPhones.

The strong dollar is hurting sales abroad but the U.S. market is surging as a result of new models and higher gas mileage ratings.

The positive auto sales data caused treasuries to sell off and yields to rise. The yield on the ten-year treasury spiked +3.37% to close at 2.266% for the second day of strong gains. The rising yields weighed on equities.

The dollar fell sharply with a -1.5% drop after spending a week at the 97.50 level on the Dollar Index. The weak factory orders report pushed the expectations for a rate hike farther into the future. On Monday the Fed's preferred inflation indicator, the PCE, showed no inflation with a trailing 7 month rate of -0.1% and a 12-month rate of only +0.1%. With inflation this low the Fed's rate hike plans just keep slipping away.

The Greek deadline playing out in Europe also weighed on the U.S. markets. Reports of offers, deals and ultimatums created headlines for the last two days. Late today the EU Finance Ministers reportedly agreed on a last ditch ultimatum for Greece but the odds are good Greece will not agree. Time is growing short for Greece with 1.5 billion euros of payments to the IMF due over the next three weeks. If Greece does not agree to the EU deal there is 7 billion euros of bailout funds that will expire at the end of June.

Because of the impending payment dates and deadlines the odds of something happening over the next week or two are very good. The market should breathe a sigh of relief if that happens even though a deal would have no direct impact on the equity markets.

The report schedule picks up again tomorrow. The ADP report is expected to show a gain of +192,500 private jobs. Another forecast miss would send investors scurrying for cover ahead of the nonfarm payrolls on Friday. Nicholas Colas from Convergex, is predicting a range of 140k-160k on the nonfarm payrolls because of all the weak employment components in the regional reports and the jump in weekly jobless claims. He also predicts the Fed is going to hike rates in 2015 regardless of the economy just so they can get the process started and end all the speculation.

If the payrolls come in around his expected range that will push any rate hike even farther out. Various Fed heads have said they would like to see payrolls at 200,000 or more for "several months" before they can hike rates.

The Fed Beige Book is also out Wednesday afternoon and while the information is important it will have a bullish bias because it is produced by the Fed. The report rarely has a bearish outlook.

Stock news was pretty muted today as well. There were a few earnings but nothing exciting. PVH Corp, the old Phillips Van Heusen, posted earnings of $1.50 that easily beat estimates for $1.38. Without the impact of the strong dollar earnings would have risen +20% to $1.77 per share. Revenues declined -4.3% to $1.879 billion but that still beat estimates slightly. The Calvin Klein brand saw revenue rise +5% on a constant currency basis. The Tommy Hilfiger segment rose +1% on a constant currency basis. Heritage Brands revenues increased +5.1% with a +14% spike in Van Heusen comps.

The company raised guidance for the full year for a 3% rise in revenue. Earnings expectations rose from $6.75-$6.90 to $6.85-$6.95. That includes a -$1.25 per share impact from currency headwinds. Earnings are expected to rise 11-14% over 2014, up from the prior forecast for a 10-12% rise. The CEO said free cash flow was allowing them to pay down debt and they were open to further acquisitions. Shares rallied +7%.

Dollar General (DG) reported earnings of 84 cents compared to estimates for 82 cents. Same store sales rose +3.7% but missed estimates for 4.1%. The company said sales were expected to rise 8-9% for the full year with earnings in the range of $3.85-$3.95. Shares rallied +3%.

Calavo Growers (CVGW) reported earnings of 49 cents compared to estimates for 48 cents. Revenue was $221.6 million. The company said double-digit avocado volume growth was accelerating. Mexican avocado operations were "hitting on all cylinders" with pricing and availability trending favorably. Demand is increasing and shipments will ramp up in Q3. Shares rose +8% on the news.

G-III Apparel (GIII) reported earnings of 15 cents beating estimates by 8 cents. Revenues rose +18% to $433 million compared to consensus of $405.8 million. They guided for Q2 at 15-20 cents EPS and the consensus was 19 cents. They did raise full year estimates for 2016 from $2.52-$2.63 to $2.66-$2.76 compared to analyst estimates at $2.63. Shares rallied +3.3%.

After the close chip maker Ambarella (AMBA) reported earnings of 71 cents that beat estimates by 13 cents. Revenues rose +73.6% to $71 million, which also beat consensus of $67.1 million. Gross margin was 64.8%. Ambarella produces the chips in the GoPro cameras as well as several other brands and applications. Shares were flat in afterhours.

Walt Disney (DIS) unveiled a new line of "wearable" toys to get kids off the couch and interacting with other kids. The new line is called "Playmation" and was created in partnership with Hasbro. The first products will be Iron Man gloves and Hulk fists. Kids can interact with other toys in the line or follow narrated stories called "missions" that they can download. The new toys will start at $120 and work with Bluetooth. Multiple kids can join together to carry out the missions or plan their own games. Disney said the toys are expected to bring in about $500 million a year to start and when more characters and games are added that will increase to more than $1 billion a year. Link to news release and video

Crude oil rallied +2% in the regular session to $61.31 ahead of Wednesday's inventory report. Inventories are expected to have declined by another 2.0 million barrels. There may also be some short covering in the market ahead of the OPEC meeting on Friday. While nobody expects any change in production there is always that risk.


Dip buyers rescued the market once again with the opening dip to -115 on the Dow. The drop stopped at 17,925 and only a handful of points above the 100-day average at 17,919. This has been support for the last two months.

The S&P touched the 50-day at 2099 and the rebound was immediate despite not being a material support point in recent months. The 100-day average is the real target at 2082.

The S&P has a clear pattern of lower highs since the historic high back on May 21st at 2130. The index is only down -21 points from that high close but the weakness appears to be growing. The long tails on today's candle shows how undecided traders really are. There was a big dip, big rebound but the index closed right in the middle. In theory that suggests buyers and sellers are about equal. However, the solid trend of lower highs suggests the sellers are going to win.

The Dow resistance at 18,100 has been solid and today's intraday dip was a four-week low. If we have any weakness in the payroll reports the odds are good we are going to test support at the 17,800 level.

On the bright side the Nasdaq is refusing to give up any ground. The Nasdaq Composite has tested resistance at 5100 almost every day for the last two weeks. Where the Dow looks poised to move lower the Nasdaq looks poised for a breakout.

Every dip is quickly bought but there are plenty of sellers at 5097. Apparently they are content to wait right under that 5100 level but eventually they are going to run out of stock OR they will decide not to wait and dump it all at once on some negative headline. The Nasdaq is holding its gains so well I suggested to James to add a QQQ long on Wednesday just in case we do get a breakout on a strong payroll report.

Support at 5050 has also been strong with back to back declines to that level over the last two days. Both times the dip was bought instantly.

The Nasdaq is well above the 100-day average that is threatening to be tested on the Dow/S&P.

The Russell 2000 is also holding its gains although a little farther away from the recent highs. The resistance at 1260 was tested again today as was initial support at 1240. To illustrate the tie between the buyers and sellers the index closed at 1251 and right in the middle of that range.

Just to emphasize that the small caps are doing ok the Russell Microcap ($RUMIC) closed at a six-week high today and over resistance from the last two weeks. If fund managers are buying microcaps they are not really scared of a June decline. This is one way to boost your beta going into the June window dressing for the first half of the year.

Over the last three months the Dow has traded in the smallest range in 60 years. Volume continues to decline (5.8 billion shares today) as we head into summer and it is a tug of war between the remaining buyers and sellers.

While the Dow and S&P are showing weakness the Nasdaq and Russell are not. The Dow Transports even posted a gain for the last two days.

The markets are coiling with a tremendous amount of cash on the sidelines. Eventually a direction will appear and the move could be explosive. However, there is no expiration date on this sideways consolidation. We will know it is over only when the break out/down appears.

One analyst was laying out his reasons today on why the market could remain lackluster for months. April had record stock buybacks to power it higher. May had record M&A deals to add to gains. Recent IPOs have been mixed with several losing ground almost immediately. NYSE margin debt is at a record high. Everyone that wants to be long is already long on margin. He said there was no catalyst ahead to really power a market move higher.

Everything he said is true and you have read it in these pages in various forms. However, bull markets climb a wall of worry and the adage "don't short a dull market" immediately comes to mind.

While nobody can accurately predict market direction we can predict movement. The odds of a strong directional move increase with every day where nothing happens. The market has not seen a 5% decline in 2015 or a 10% decline in over three years. That is no guarantee one is about to hit but we all know it will eventually arrive. What we also know is that dip buyers are alive and well as evidenced by the last several intraday dips. Once those buyers disappear our troubles will begin.

These are the kind of markets that tend to produce short squeezes. Sellers become convinced that a dip is coming and they load up on shorts at every lower high. Eventually some headline appears and it is off to the races as they rush to cover. Let's hope that is soon.

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

Lowered Guidance & Falling Margins

by James Brown

Click here to email James Brown


Cerner Corp. - CERN - close: 67.14 change: -0.67

Stop Loss: 69.05
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.7 million
Entry on June -- at $---.--
Listed on June 02, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Trade Description:
CERN was having a pretty good year. Then the stock started to top out in March and April. Suddenly shares crashed lower in May due to disappointing guidance.

CERN is in the technology sector. According to the company, "Cerner's health information technologies connect people, information and systems at more than 18,000 facilities worldwide. Recognized for innovation, Cerner solutions assist clinicians in making care decisions and enable organizations to manage the health of populations. The company also offers an integrated clinical and financial system to help health care organizations manage revenue, as well as a wide range of services to support clients' clinical, financial and operational needs. Cerner's mission is to contribute to the systemic improvement of health care delivery and the health of communities."

CERN reported its Q1 earnings on May 7th. Just looking at the numbers it appeared to be a pretty good quarter. Earnings were up +22% from a year ago to $0.45 per share. That was only in-line with analysts' expectations. Revenues rose what look like a healthy +27% from a year ago to $996 million. Unfortunately that missed analysts' estimates for $1,084 million.

CERN's management said, "Revenue was below guidance provided by the Company due to a combination of lower than expected revenue from the recently closed acquisition of Siemens Health Services (Health Services) and lower revenue in our existing business." Earlier this year, in February, Cerner Corporation acquired substantially all of the assets, and assumed certain liabilities, of the Siemens Health Services business from Siemens AG.

CERN said their gross margins fell -40 basis points in the first quarter. They expect margins to slide another 100 to 150 basis points by yearend. Management provided Q2 and 2015 guidance that was below Wall Street estimates. This sparked the sell-off. The company is in a highly competitive industry and could definitely see more pricing pressures.

Technically the stock's oversold bounce didn't make it very far. Shares have been consolidating sideways in the $67-69 range for the last three weeks. The point & figure chart is bearish and forecasting at $59.00 target. Currently the stock looks poised to breakdown from this trading range. There is a chance it bounces at its simple 200-dma but we suspect it would be a temporary bounce. Tonight we are suggesting a trigger to buy puts at $66.75.

Trigger @ $66.75

- Suggested Positions -

Buy the SEP $65 PUT (CERN150918P65) current ask $2.25
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

Stocks Churn Sideways, End Lower

by James Brown

Click here to email James Brown

Editor's Note:

The market had a lot to digest today. Euro strength send the dollar lower and that boosted commodities. Auto sales in the U.S. surged to ten-year highs. Lack of clear progress on Greece continues to plague the market.

Our plan was to exit the ROP trade today.

Current Portfolio:

CALL Play Updates

Anthem, Inc. - ANTM - close: 164.14 change: -3.93

Stop Loss: 161.85
Target(s): To Be Determined
Current Option Gain/Loss: +19.3%
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

06/02/15: Healthcare stocks were underperformers today. ANTM led the pack with a -2.3% decline. The only news on the company was a story that ANTM is offering a free college degree to eligible employees. I doubt that was the catalyst behind today's sell-off.

The close below $165.00, which should have been support, is a warning signal. I would not launch new positions in ANTM 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

05/30/15 new stop @ 161.85
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

Cognizant Technology - CTSH - close: 65.60 change: +0.20

Stop Loss: 63.45
Target(s): To Be Determined
Current Option Gain/Loss: -5.7%
Average Daily Volume = 3.6 million
Entry on June 02 at $65.65
Listed on May 28, 2015
Time Frame: Exit PRIOR to July option expiration
New Positions: see below

06/02/15: Our CTSH trade is finally open. Shares continued to push higher and rallied past resistance near its May highs. Our trigger to buy calls was hit at $65.65.

The relative strength today is encouraging. I would consider new positions at current levels although you may want to wait and make sure the broader market indices are positive before initiating positions.

Trade Description: May 28, 2015:
Shares of CTSH are pushing toward new all-time highs as the company continues to deliver better than expected earnings and revenue numbers. The company is in the technology sector. They provide business and technology services.

According to the company, "Cognizant (CTSH) is a leading provider of information technology, consulting, and business process outsourcing services, dedicated to helping the world's leading companies build stronger businesses. Headquartered in Teaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep industry and business process expertise, and a global, collaborative workforce that embodies the future of work. With over 100 development and delivery centers worldwide and approximately 217,700 employees as of March 31, 2015, Cognizant is a member of the NASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among the top performing and fastest growing companies in the world."

CTSH popped to new highs back in February after reporting their Q4 results, which beat estimates on both the top and bottom line. Revenues were up +16%. Management raised their Q1 and 2015 estimates.

The stock rallied again when they reported their 2015 Q1 results on May 4th. Earnings rose +14.5% to $0.71 per share, which was a penny above estimates. Revenues soared +23.5% to $2.99 billion, above estimates.

Management raised their 2015 earnings and revenue guidance. They expect earnings growth of +9% and revenues to rise +19% above 2014 levels. Multiple analyst firms raised their price target on CTSH stock into the $70-76 range. Coincidentally the point & figure chart for CTSH is bullish and forecasting at $76.00 target.

At the moment CTSH is hovering just below resistance in the $65.50 area. We are suggesting a trigger to buy calls at $65.65.

- Suggested Positions -

Long JUL $65 CALL (CTSH150717C65) entry $2.28

06/02/15 triggered @ $65.65
Option Format: symbol-year-month-day-call-strike

Tableau Software, Inc. - DATA - close: 112.90 change: -0.00

Stop Loss: 109.85
Target(s): To Be Determined
Current Option Gain/Loss: -31.9%
Average Daily Volume = 1.0 million
Entry on May 28 at $115.25
Listed on May 27, 2015
Time Frame: Exit prior to July option expiration
New Positions: see below

06/02/15: DATA is a great example of how narrow the market's recent trading has been. Shares of DATA have closed within a 33-cent range for the last four days I a row. Today the stock closed unchanged on the session.

I am not suggesting new positions at this time.

Trade Description: May 27, 2015:
The market for analyzing big business data is growing fast. DATA is leading the charge. According to the company, "Tableau Software (NYSE: DATA) helps people see and understand data. Tableau helps anyone quickly analyze, visualize and share information. More than 26,000 customer accounts get rapid results with Tableau in the office and on-the-go. And tens of thousands of people use Tableau Public to share data in their blogs and websites."

The last few earnings reports have been very impressive. DATA released their Q3 results on November 5, 2014. Results were 12 cents above estimates with revenues up +71% to $104.5 million, also above estimates.

Their Q4 results came out in early February. Analysts were expecting a profit of $0.11 a share on revenues of $122.58 million. DATA delivered $0.42 a share with revenues up +75% to $142.9 million. In the fourth quarter they added 2,600 new customers. They closed 304 transactions worth more than $100,000, a +70% improvement from a year ago.

Christian Chabot, Chief Executive Officer of Tableau. "In 2014, we experienced the strongest demand we've seen in our history, as the move to agile analytics grows faster than ever."

DATA reported their 2015 Q1 results on May 7th. Analysts were looking for a loss of $0.03 per share on revenues of $115.29 million. The company blew away these numbers with a profit of $0.08 per share (11 cents above estimates). The pattern of big revenue growth continued with Q1 revenues up +74.4% to $130.1 million. They added 2,600 new customers putting their total above 29,000. The number of deals above $100,000 hit 249 in the first quarter.

Management provided bullish guidance with estimates for Q2 revenues in the $135-140 million range. That's above Wall Street's estimate of $130.9 million. They also upped their fiscal year 2015 earnings picture and see $600-615 million, which is better than analysts' estimates of $587 million.

Shares of DATA surged on its results and optimistic guidance. Since then traders have been buying the dips pretty quickly. Today's display of relative strength (+1.99%) is also a new all-time closing high for DATA. It's also worth noting that DATA has been talked about as a potential takeover target.

The $115.00 level looks like short-term resistance. We will use a trigger at $115.25 as our entry point to buy calls.

- Suggested Positions -

Long JUL $120 CALL (DATA150717C120) entry $3.82

05/28/15 triggered @ $115.25
Option Format: symbol-year-month-day-call-strike

Electronic Arts - EA - close: 62.98 change: +0.09

Stop Loss: 59.85
Target(s): To Be Determined
Current Option Gain/Loss: -16.9%
Average Daily Volume = 3.5 million
Entry on May 27 at $63.65
Listed on May 18, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

06/02/15: Shares of EA are not moving much either. The stock bounced off its morning lows but closed virtually unchanged on the session.

I am not suggesting new positions at this time.

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.

- Suggested Positions -

Long SEP $70 CALL (EA150918C70) entry $1.66

05/27/15 triggered @ 63.65
Option Format: symbol-year-month-day-call-strike

FactSet Research - FDS - close: 166.44 change: -0.30

Stop Loss: 163.85
Target(s): To Be Determined
Current Option Gain/Loss: +28.9%
Average Daily Volume = 302 thousand
Entry on May 13 at $162.25
Listed on May 11, 2015
Time Frame: Exit PRIOR to earnings on June 16th.
New Positions: see below

06/02/15: Tuesday was a relatively quiet session for FDS too. Traders bought the dip near $165 this morning but the stock failed to rally past the $167.00 level, which looks like short-term resistance.

Our time frame on this trade has narrowed. The company just announced that they will report earnings on June 16th (a Tuesday). We will plan to exit prior to their announcement.

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

PUT Play Updates

Kohl's Corp. - KSS - close: 65.73 change: +1.06

Stop Loss: 66.55
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 3.3 million
Entry on June -- at $---.--
Listed on June 01, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

06/02/15: I looked at a lot of charts today and most of the retail-related stocks were higher. Yet I didn't see the reason behind the move. KSS gapped open higher at $65.00 and outperformed the market with a +1.6% gain on the session. Of course it's worth noting that KSS has still not broken the short-term bearish trend of lower highs yet.

Our plan is unchanged. We want to buy puts when KSS trades at $63.90. If the bounce continues we'll probably drop KSS as a candidate.

Trade Description: June 1, 2015:
Most of the big retail names have been disappointing on the sales front. Macy's (M) most recent earnings report saw the company miss analysts' expectations on both the top and bottom line and Macy's lowered their guidance.

J.C. Panney Co (JCP) beat estimates but their same-store sales disappointed and traders sold the stock. Retail titan Wal-Mart (WMT) missed estimates on both the top and bottom line and issued soft guidance. Kohl's (KSS) is suffering from similar results.

Wall Street is somewhat surprised by the retailer's lackluster results. The U.S. consumer is benefitting from significantly lower gas prices from a year ago. We have one of the healthiest job markets in years. Yet consumers are not spending. The U.S. Commerce department said April retail sales were flat (+0%) after a +1.1% rise in March. Today (June 1st), the Commerce Department reported that consumer spending was flat in April. According to Marketwatch.com, the pace of consumer spending has fallen to the lowest level in several years. After another harsh winter many were expecting pent up demand by consumers to produce a surge in spending when the weather warmed up. Thus far consumers are keeping their wallets closed.

KSS is in the services sector. According to the company, "Kohl's (KSS) is a leading specialty department store with 1,164 stores in 49 states. With a commitment to inspiring and empowering families to lead fulfilled lives, the company offers amazing national and exclusive brands, incredible savings and inspiring shopping experiences in-store, online at Kohls.com and via mobile devices."

The first quarter of 2015 was pretty good for KSS' stock. Shares rallied big on its Q4 results announced in early February. Earnings were better than expected. Revenues were just a little bit above expectations. Management raised their fiscal year 2016 guidance and raised their dividend.

Then KSS' upward momentum stalled in April. The stock started to reverse lower. Shares got crushed on May 14th with its biggest ever one-day drop that shaved off $2 billion in market cap. The drop was a reaction to KSS' Q1 results. Earnings were up +5% from a year ago and beat estimates. Yet revenues missed with $4.12 billion in sales versus analysts' estimates of $4.19 billion. Another warning signal was KSS' Q1 comparable store sales were up +1.4% versus expectations for +2.5%.

The disappointing news sparked some analyst downgrades and lower price targets. The point & figure chart is bearish and forecasting at $55.00 target. Technically shares of KSS look weak. The oversold bounce lasted about three days and KSS rolled over again with a steady pattern of lower highs.

Today KSS is poised to breakdown below its trend of higher lows and technical support at its simple 200-dma. We are suggesting a trigger to buy puts at $63.90. I will point out that prior resistance near $62.00 could be support but momentum clearly favors the bears here. We suspect shares could fall into the $56-60 zone.

Trigger @ $63.90

- Suggested Positions -

Buy the OCT $60 PUT (KSS151016P60)

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

Norfolk Southern Corp. - NSC - close: 92.70 change: -0.06

Stop Loss: 95.65
Target(s): To Be Determined
Current Option Gain/Loss: +13.2%
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

06/02/15: Transportation stocks were trying to bounce today. The IYT transportation ETF rallied up to its simple 10-dma before paring its gains. Shares of NSC almost hit $94.00 before rolling over and closing back in negative territory.

No new positions at this time.

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

05/30/15 new stop @ 95.65
05/26/15 triggered @ $94.85
Option Format: symbol-year-month-day-call-strike

SPX Corp. - SPW - close: 74.73 change: +0.42

Stop Loss: 76.55
Target(s): To Be Determined
Current Option Gain/Loss: -41.9%
Average Daily Volume = 500 thousand
Entry on May 28 at $73.45
Listed on May 26, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

06/02/15: The early morning rally in SPW made it up to resistance in the $75.50-76.00 area before rolling over. Shares still managed to outperform the market with a +0.5% gain. More conservative traders may want to move their stop loss closer to $76.00.

I am not suggesting new positions at this time.

Trade Description: May 26, 2015:
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.

- Suggested Positions -

Long JUL $70 PUT (SPW150717P70) entry $1.55

05/28/15 triggered @ $73.45
Option Format: symbol-year-month-day-call-strike

Zillow Group - Z - close: 92.98 change: +1.07

Stop Loss: 95.25
Target(s): To Be Determined
Current Option Gain/Loss: -36.5%
Average Daily Volume = 2.0 million
Entry on June 01 at $89.85
Listed on May 30, 2015
Time Frame: exit prior to July expiration
New Positions: see below

06/02/15: The bounce continues for shares of Z and that's a warning signal for bearish traders. The stock made it up to short-term technical resistance at its 10-dma before pausing. Z still has a bearish trend of lower highs but the stock is clearly now cooperating for us.

No new positions at this time.

Trade Description: May 30, 2015:
The National Association of Realtors just announced on May 28th that pending home sales surged to nine-year highs in April. The U.S. real estate market is booming and yet shares of Z are down -31% from their 2015 closing highs. What's wrong with this picture?

Zillow is considered part of the financial sector. They are a free online service for consumers that provides home values, listings, and mortgages. According to the company, "Zillow Group (Nasdaq:Z) houses a portfolio of the largest real estate and home-related brands on mobile and Web. The company's brands focus on all stages of the home lifecycle: renting, buying, selling, financing and home improvement. Zillow Group is committed to empowering consumers with unparalleled data, inspiration and knowledge around homes, and connecting them with the right local professionals to help. The Zillow Group portfolio of consumer brands includes real estate and rental marketplaces Zillow(R), Trulia(R), StreetEasy(R) and HotPads(R). In addition, Zillow Group works with tens of thousands of real estate agents, lenders and rental professionals, helping maximize business opportunities and connect to millions of consumers. The company operates a number of business brands for real estate, rental and mortgage professionals, including Postlets(R), Mortech(R), Diverse Solutions(R), Market Leader(R) and Retsly(TM). The company is headquartered in Seattle."

The last year has been a rocky one for Zillow investors. The stock rallied from $130 to $160 in about three days back in July 2014 when the company announced a $2.5 billion stock for stock deal to buy its rival Trulia. By January 2015 the stock was bouncing along the $93.00 area.

Shares of Z did spike in February 2015 when they finally announced the completion of the merger. Shares surged more than 15% in one day on the news it had closed the acquisition. Zillow changed their name to Zillow Group. The combined company accounts for about 60% of the online real estate advertising market. It's the biggest U.S. real estate and home-related branding company on the Internet and mobile.

After the February spike higher shares of Zillow did nothing but fall. This culminated into a huge spike down on April 14th. The company issued an earnings warning. Z's management said that 2015 would be a "transition year", which on Wall Street means our quarterly results will stink. The company cut their 2015 revenue estimate down to $690 million. At the time Wall Street analysts were estimating $722-753 million in revenues. Z slashed their EBITDA estimate to $80 million when analysts were expecting $141 million. Zillow blamed the length review process by the FTC over potential anti-trust issues. Z's management was expecting a three-month review. It took nine months. No worries though, Z's management says that 2016 and 2017 will be awesome.

Z's most recent earnings report was May 12th. It was the first report with the combined company's results. Z posted a loss of $1.19 per share versus a 16-cent loss a year ago. Backing out their restructuring costs and stock option expenses their adjusted earnings was a profit of $0.05 per shares. That was 17 cents better than analysts were expecting. Revenues soared +92% to $127.3 million. Yet that wasn't good enough. Wall Street had been forecasting revenues in the $135-141 million range.

Shares of Z popped on its earnings news but they have done nothing but sink since then. Now the stock is poised to breakdown below round-number support at $90.00. The point & figure chart is bearish and forecasting an $86.00 target (which could get worse as Z continues to sink).

Bears point out that Zillow's valuation is very rich at more than 60 times forward earnings. The company also faces competition from the likes of Move.com and Realtor.com, both run by News Corp. My only concern is that there are a lot of bears shooting against this stock. The most recent data listed short interest at 37% of the 46.3 million share float. That's why Z can see huge one-day spikes as shorts panic. Yet overall they have been correct with Z underperforming the market.

Tonight I am suggesting a trigger to launch small bearish positions at $89.85. Odds are pretty good we could see Z retest its lows in the $80-81 area.

- Suggested Positions -

Long JUL $85 PUT (Z150717P85) entry $2.60

06/01/15 triggered @ $89.85
Option Format: symbol-year-month-day-call-strike


Roper Technologies - ROP - close: 175.73 change: +0.82

Stop Loss: 173.25
Target(s): To Be Determined
Current Option Gain/Loss: -39.6%
Average Daily Volume = 441 thousand
Entry on May 27 at $177.75
Listed on May 20, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

06/02/15: We decided to exit our ROP trade in last night's newsletter. The stock opened lower at $174.58 and then bounced from $174.00 to almost $177 before paring its gains.

- Suggested Positions -

AUG $180 CALL (ROP150821C180) entry $4.80 exit $2.90 (-39.6%)

06/02/15 planned exit
06/01/15 prepare to exit tomorrow morning
05/27/15 triggered @ $177.75
Option Format: symbol-year-month-day-call-strike