Option Investor

Daily Newsletter, Wednesday, 6/3/2015

Table of Contents

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

Market Wrap

Groundhog Day

by Keene Little

Click here to email Keene Little
Groundhog Day was a very funny movie with Bill Murray. Groundhog day with the stock market is hardly funny and it's driving both sides crazy as stops are run and then the market reverses. Neither side can get any traction and traders need to continue exercising patience while we wait for direction.

Wednesday's Market Stats

The market was looking at a positive start this morning as equity futures rallied in the pre-market session. But the release of the ADP employment report at 8:30 caused some selling and futures were back to flat at the open. Buy programs then hit and indexes quickly made highs that broke above recent congestion highs and it was looking like the start of the next rally leg. Unfortunately for the bulls the sellers then came in and drove the indexes back down and it looked like we were going to stay inside the recent trading range. A little bounce in the afternoon continues to leave both sides guessing what the next big move will be.

The ADP employment report came in at 201K vs. expectations for 200K and an improvement from the 165K in April. The initial reaction in the futures was one of disappointment since it doesn't prevent the Fed from continuing on its rate-increase path. But the reversal at the open was either just a helping hand or it was with a belief that the number was not good enough to help the Fed's cause. Hitting the expected number for ADP it helps with expectations that Friday's NFP report will also come in near the expected 225K. But in reality we can't know how the market will react to any number since a strong number could be bad and a weak number could be good (to keep the Fed in accommodation mode). One of these days the market will care about what the number means for the economy and therefore the market.

The ISM Services number came out at 10:00 and that created a jolt higher in the market. The number dropped from 57.8 in April to 55.7 in May, which was weaker than the expected minor drop to 57.1. Once again, a weaker-than-expected number was considered good for the stock market because it helps the Fed's cause. What's really strange is how little the Fed can do at this point and yet the market seems to believe it can. It's probably because market participants have so little to hang their hat on as far as a reason for the market to rally so they desperately cling to the belief that the Fed can still help. Disappointment waits right around the corner...

The ECB's Mario Draghi offered support for the markets today by not mentioning anything about pulling back on their ambitious QE program, even if the European economy improves unexpectedly over the next 15 months. That's further evidence, in my opinion, that they're mostly interested in providing liquidity for the markets, including money for bailing out countries, rather than providing help for the economies. He didn't talk about Greece and any bailout plans (or threats) and the market was relieve by that as well (staying hopeful anyway).

The Fed's Beige Book at 14:00 caused a minor bullish response but the information was nothing new. The Fed expects minor improvements in the economy for the rest of the year. That of course means an economic contraction since the Fed can't get any economic forecast correct. Unfortunately for our economy, the signs of economic slowing are not showing any signs of abating and it probably won't be long before the market is unable to hide behind the Fed's assurances to the contrary.

As always, we defer to the charts to tell us what the market is thinking and which direction appears to have the least resistance. Unfortunately it would appear the market is very confused and has been for a long time. The 3+ months that the market has been chopping sideways doesn't look like it's going to break soon. As traders we just want a direction (unless you just like to sell credit spreads, in which case you're loving this choppy sideways market) and swing and position traders are getting very antsy about being able to trade something. Their request is simply -- just move! But the market is requiring a great deal of patience while waiting for the move. As traders we find patience a hard virtue to follow. In fact, as a fellow trader said to me, "Whoever said 'Patience is a virtue' just never experienced instant gratification." How true.

I'll start tonight's chart review with the weekly chart of the NYSE Composite index (NYA) to give us a little broader market review. It's a good representative of the market and is looks very similar to the other big indexes (W5000, SPX and DOW). As I'll show later, the techs are looking a little stronger and suggest the indexes could push a little higher. For NYA it looked like a good setup for an important high on May 21st but since that high it's unclear whether or not we've had a trend reversal (same with all the other indexes). The weekly chart shows a rising wedge pattern for the "rally" since last October. I use "rally" in quotes because the only thing it's been able to do is consolidate near its July and September 2014 highs near 11,100 and the bearish divergence, along with the rising wedge pattern, says don't trust the upside from here. But the market continues to get a helping hand from central bankers and government intervention so it remains bullish until it's not, and that means the bears need a breakdown below the 50-week MA near 10,900 to turn the table on the bulls.

NYSE Composite index, NYA, Weekly chart

The NYA daily chart focuses on the rising wedge pattern for the 5th wave (the leg up from the October 2014) of the rally from October 2011. A rising wedge (ending diagonal) is a typical pattern for the final 5th wave of a rally that has gone too far (as both sides start to duke it out for control, resulting in a market that chops its way marginally higher with slowing momentum (bearish divergence. As you can see on the weekly chart above and the daily chart below, that's exactly what we've been getting. The loss of momentum since last November's high helps confirm the bearish ending diagonal. It's just a matter of when it will actually break down. I see the potential for another push higher but these rising wedge patterns typically breakdown about 2/3 of the way to the apex, so about here.

NYSE Composite index, NYA, Daily chart

The choppiness of the price action this year has made it more difficult to "define" the shape of the rising wedge patterns, as evidenced by the multiple trend lines around NYA and SPX below. The leg up from March looks like the final 5th of the 5th wave and its May 20th high fit well as the completion of its rally. But as with the NYA, it's not at all clear whether the pullback from that high is part of a larger 3-wave move up from the May 6th low or just a choppy start to what will become a stronger decline. At the moment, price-level S/R near 2121 is holding as resistance (tested again today) and the 50-dma, near 2100, is holding as support (tested yesterday). A break of one of those levels should lead to at least a short-term tradeable move. The first upside target would be near 2145 while the downside target could be the 200-dma near 2045.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2145
- bearish below 2099

This morning's rally broke the short-term downtrend line from May 21st and even though this afternoon's pullback dropped back below the line it was able to close on the line near 2114. Another leg up, especially if it gets above 2121 would have me looking for a rally to the 2140 area (and then maybe higher). Today's close was also on its uptrend line from May 6-26, which is one more reason why the bulls need to rally the market right away on Thursday, which is what the setup is for them. If the bears thwart their setup and SPX drops below 2099 it's likely we would see strong selling from there.

S&P 500, SPX, 60-min chart

With this morning's rally the DOW was able to test the top of its previous sideways triangle with today's high at 18168. This is the triangle it had broken out of on May 14th but then dropped back inside on May 26th. Since then it's been consolidating between its uptrend line from February 2 - May 6 (tested on Tuesday) and the top of the sideways triangle. The bottom of the sideways triangle, which is the uptrend line from April 1 - May 6, is currently near 17875, a break of which would tell us the bears are in control. At the moment it could go either way and there are few clues as to which way it will be (other than the fact that it's bullish if only because it's not breaking down).

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 18,190
- bearish below 17,875

The rising wedge (ending diagonal) that I've been watching on the NDX chart is for the leg up from May 6th. It fits well as the 5th wave of the move up from February, which is the 5th wave of the move up from November 2012. So when this final 5th of the 5th wave completes we should then start a more serious decline. But for now, until the bears can break NDX below 4440 (where it would break its 50-dma and uptrend line from March 2009 - June 2013), there's further upside potential to the top of its small rising wedge, near 4585, if not up to the top of its larger rising wedge, near 4625.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4630
- bearish below 4440

The RUT's pattern supports the bulls with its stronger performance today. It broke its short-term downtrend line from April 27th and didn't even drop back down for a back-test. I'm depicting a rising wedge for its final 5th wave but at the moment that's just a guess based more on the other indexes. It's possible it will simply blast higher but we have a market that's difficult to trust since so many moves see little follow through and instead get reversed. But at least for now the RUT stays bullish above Monday's low at 1238 and it would turn bearish below 1233.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1276
- bearish below 1233

Bonds have made a huge move this week. TNX (10-year yield) has had a nearly 30% rally, from 1.845% on May 29th to today's high at 2.388% and it might not be finished yet. The rally from January 30th would have two equal legs up, to potentially complete an a-b-c bounce off that low, at 2.451%. Also near that level is its broken uptrend line from July 2012 - May 2013, so it might be setting up for a back-test of that trend line with an a-b-c bounce correction. The strong rally could be nothing more than a little bit of panicking by bond holders as they worry about inflation from the central bank policies. But I don't believe inflation is the problem and when worries over deflation return we should see another drop in yields. But we'll need to see more evidence in the price pattern, such as a corrective pullback in yields before heading higher again, to tell us whether or not we might have a longer-term bottom in place for yields.

10-year Yield, TNX, Weekly chart

The big rally in yields this week has helped the banks rally (with a higher yield spread they make more money) and BKX is back up against the top of its expanding triangle that I've been showing on its weekly chart. At the same time it's back up to its broken uptrend line from March 2009 - October 2011. We could see a breakout from here but at the moment, with it up against resistance, it's not a good time to initiate a new long play. If anything I'd have my stop pulled up tight, as in no lower than Monday's low at 75.

KBW Bank index, BKX, Weekly chart

For the TRAN there's a price range from about 8515 (July 22nd high) to about 8583 (the three lows last December, January and February) that had been acting as support until it was broken last week. This week's rally has brought it back up to this price-level S/R and now we wait to see if it's a back-test, to be followed by a bearish kiss goodbye, or the start of a stronger bounce/rally. Closing above 8583 would be bullish, especially since it would be above its 20-dma, which was tested with today's high near 8554 (but closed at 8510). It deserves close attention here since it's a sign of our economy.

Transportation Index, TRAN, Daily chart

There won't be much to add in the weeks ahead about the U.S. dollar if it just consolidates between its March high at 100.78 and May low at 93.15, as I'm currently expecting. What we can expect is choppy whippy price action in the dollar, which is what we have so far. Trading in the dollar could be hazardous to your health in the meantime.

U.S. Dollar contract, DX, Weekly chart

Gold has been holding price-level support near its June 2013 low, near 1180, since it climbed above that level on March 20th. Today's low at 1179.10 was just another test and I believe that support level will break but it's not clear yet when it will break. We could see volatility in gold for the next month before dropping sharply lower as depicted on its chart.

Gold continuous contract, GC, Daily chart

Oil spiked up this morning on the inventory report showing a drawdown but it didn't hold and it quickly dropped back down and into negative territory. That's a good signal that there could be a deeper pullback in the coming weeks. As with the dollar, we could see oil consolidate for the next few months before picking a direction. Short term I see the potential for at least a little higher for oil, perhaps up to its 200-dma, near 65, or maybe its 50-week MA, near 70, before turning back down. But at the moment it's a good setup for a stronger pullback and that's what I'm waiting to see if it happens.

Oil continuous contract, CL, Weekly chart

Tomorrow's economic reports will not be market movers but Friday's NFP report should cause at least a ripple. Maybe even a ripple with some follow through. After today's ADP report came in line with expectations there might not be much of a surprise with Friday's report. But anything less than 200K, vs. expectations for 225K, could set up a disappointing reaction. Of course if job growth doesn't show up that could be a good thing (keeps the Fed's finger off the raise-rates button). The market is still mostly concerned about central bank accommodation.

Economic reports and Summary


We continue to get signs of an economic contraction. The slowdown in retail sales, even among the well-do-do, is a sure sign the economy is slowing. Our economy is driven by consumer spending and the consumer is doing less consuming. The TRAN, even with this week's bounce, has been an economic canary that has fallen off its perch. The high altitude that the indexes have achieved has sucked the oxygen out of the poor canary and while the broader indexes have not followed the TRAN, I believe they will. But at the moment there are still many who believe accommodation by the Fed will continue to support the market. And who can argue with their logic? It has been working for years and Wall Street has been diverging from Main Street for a long time. Just keep in mind that trusting what mainstream economists tell us is not a good idea since they've been consistently wrong in their projections.

Unfortunately for the majority of people who invest in the stock market, and for people generally, the out-of-balance situation today is worse than it was in 2007. Stock valuations are higher today than they were in 2007. Banks are more vulnerable (they're larger and more highly leveraged) and the stock market is more disconnected from fundamental realities than they were in 2007. There's a good chance the coming breakdown is going to be worse than the 2007-2009 market crash and in fact the long-term EW (Elliott Wave) pattern suggests that's exactly what we should expect (the big expanding triangle since 2000). Today the U6 unemployment rate is already twice what it was back in 2007. The median net worth is down -40% from where it was prior to the last collapse. Individual and public debt levels are at record highs (as is trading margin debt) and the combination of all these facts makes the coming collapse likely to be even worse than last time.

So while the market continues to be propped up with expectations of further liquidity accommodations by central banks, it's unfortunately simply delaying the inevitable. In fact there's strong evidence that liquidity in the market has been drying up, which makes it more vulnerable to downside disconnect. Those in charge are simply hoping a collapse doesn't happen on their watch. But the further the disconnect continues and the higher the stock market goes (or the longer it's held up as the economy deteriorates) the harder the fall will be. Allowing the market to take its medicine years ago would have prevented a situation where no amount of medicine is going to help the disease. In fact the Fed has essentially run out of medicine.

If you're anywhere near retirement I cannot stress strongly enough that you must get out of equities that you're simply holding as an investment. There will of course always be good individual stocks to own but generally speaking a receding tide will lower all boats. There is no safe diversification program since the coming collapse will be a global event, especially in emerging markets. I think bonds will be safe through this year (assuming the recent selloff is soon reversed) but then when deflation really takes hold it's going to be cash and only cash that you'll want to be in.

In the meantime, we as traders should be able to take advantage of the coming "correction." Even if it's just a few put plays while your capital is in cash you'll make money in a decline. I worry about others who don't know how to protect what they've got or how to safely short the market (even if it's in inverse ETFs). But we traders will have an opportunity to make a boatload of money far faster than playing the long side over the past few years. Just don't brag to your friends that you made a killing in the market crash when he/she lost half of their money (wink). But seriously, if you're in good shape after the crash you'll be one of the few with capital to start buying and lift the market back up. It will be a generational buying opportunity that I'm looking forward to. But before that opportunity there's going to be some pain for most people and businesses. Keep those stops tight on long positions.

One last thing, if you're a day trader who catches small moves and then looks for another quick entry/exit you might be able to make money with the small moves we've been getting in the market. If you're a swing or position trader you're likely to be a frustrated group of traders. Selling options have their own unique risks (what doesn't?) but in a range-bound market like we've been in, selling credit spreads has been a good way to chip away at the market and make a little money each week (with the weekly options). But if you're an active day trader I thought you'd appreciate the common descriptions of what you do:

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

Keene H. Little, CMT

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

New Option Plays

Capture The Market's Next Breakout

by James Brown

Click here to email James Brown

Editor's Note:

In addition to tonight's new candidate(s), consider these stocks as possible trading ideas and watch list candidates. Some of these stocks may need to see a break past key support or resistance:



PowerShares QQQ ETF - QQQ - close: 110.40 change: +0.33

Stop Loss: 109.40
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 27.4 million
Entry on June -- at $---.--
Listed on June 03, 2015
Time Frame: Exit PRIOR to July expiration
New Positions: Yes, see below

Company Description

Trade Description:
June does not have a great history for market performance. Stocks tend to move lower. Fortunately that is not a rule set in concrete. The sell in May trade did not show up this year. There's no guarantee that June is going to be a down month either.

As a matter of fact, the path of least resistance remains higher. The NASDAQ 100 index has been consolidating near its recent highs and looks poised to breakout. One way to play it is the QQQ ETF.

The QQQ is one of the largest and most liquid exchange traded funds. This particular ETF tracks the NASDAQ-100 index, which includes 100 of the largest non-financial stocks on the NASDAQ (lots of technology stocks). AAPL, MSFT, AMZN, GOOG, GOOGL, FB, GILD, INTC, CMCSA, CSCO and AMGN are its top holdings. You can see a list of the top twenty five holdings here.

If the market does breakout higher the QQQs could lead the charge. We want to be ready. The April 27th intraday high was $111.16. Tonight we are suggesting a trigger to buy calls at $111.25. We'll try and limit our risk with a relatively tight stop loss at $109.40. This is a short-term trade. We want to be out before the normal July option expiration.

Trigger @ $111.25

- Suggested Positions -

Buy the JUL $112 CALL (QQQ150717C112) current ask $1.20
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

Bond Market At New 2015 Lows

by James Brown

Click here to email James Brown

Editor's Note:

The U.S. bond market fell to new 2015 lows, which sent yields on the 10-year note soaring (now at 2.36%). Meanwhile expectations for a potential deal for Greece helped buoy equity markets even as Greece threatened they may miss Friday's debt payment.

Current Portfolio:

CALL Play Updates

Anthem, Inc. - ANTM - close: 163.76 change: -0.38

Stop Loss: 161.85
Target(s): To Be Determined
Current Option Gain/Loss: +4.5%
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

06/03/15: The profit taking continued in ANTM for another day. Fortunately traders bought the dip near support around $162.00 and its rising 20-dma. If the market cooperates we should see ANTM rebound back above prior resistance near $165.00 soon.

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: 65.70 change: +0.10

Stop Loss: 63.45
Target(s): To Be Determined
Current Option Gain/Loss: -3.5%
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

06/03/15: It was a relatively quiet day for CTSH. Traders bought the dip midday and the stock bounced back into the green for a new closing high.

I would consider new positions at current levels.

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: 114.87 change: +1.97

Stop Loss: 109.85
Target(s): To Be Determined
Current Option Gain/Loss: -18.8%
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

06/03/15: It is encouraging to see DATA on the move again. After sliding sideways the last few days the stock woke up today. Shares outperformed the market with a +1.74% gain. The rally did struggle near its recent highs just below $116.00.

A breakout past $116.00 could be used as an alternative entry point.

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: 63.37 change: +0.40

Stop Loss: 59.85
Target(s): To Be Determined
Current Option Gain/Loss: -12.7%
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

06/03/15: EA managed to outperform the big cap indices today. We might see the stock at new multi-year highs by the weekend if the market cooperates.

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: 166.80 change: +0.36

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

06/03/15: FDS was off to a strong start this morning. Unfortunately the rally failed at its May highs near $169.00. FDS gave back nearly all of its gains.

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: 65.34 change: -0.39

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

06/03/15: KSS did not see any follow through on yesterday's bounce. The stock saw a brief spike above $66.00 this morning but gains faded and KSS underperformed the market with a -0.6% decline. The short-term trend of lower highs is still intact.

We want to buy puts when KSS trades at $63.90.

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: 92.50 change: -0.20

Stop Loss: 95.65
Target(s): To Be Determined
Current Option Gain/Loss: +17.0%
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

06/03/15: The Dow Jones Transportation Average has produced a sharp three-day rally of more than 200 points (about +2.4%). It is encouraging to see that NSC is not participating. Shares are just consolidating sideways in the $92-94 zone and they underperformed their peers today.

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: 75.21 change: +0.48

Stop Loss: 76.55
Target(s): To Be Determined
Current Option Gain/Loss: -48.4%
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

06/03/15: SPW is still trying to bounce and managed to outperform the S&P 500 with a +0.6% gain today. Yet the rally is struggling with overhead resistance in the $76.00 area. 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: 90.75 change: -2.23

Stop Loss: 95.25
Target(s): To Be Determined
Current Option Gain/Loss: -21.2%
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

06/03/15: It looks like the oversold bounce in Z might already be over. Shares erased yesterday's gain with a -2.39% decline today. The bounce has reversed at its simple 10-dma. Monday's low was $89.64. Traders could use a drop below this point as a new bearish entry point.

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