Option Investor

Daily Newsletter, Saturday, 3/12/2016

Table of Contents

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

Market Wrap

Market up Four Consecutive Weeks

by Jim Brown

Click here to email Jim Brown

Over the last four weeks the Dow has gained 1,239 points, S&P +157, Nasdaq +410 and Russell 2000 +116. It has been a good four weeks considering the volatility over that same period.

Market Statistics

Friday Statistics

Friday capped off a volatile week in the markets with the S&P spiking +32 points to close at 2,022 and exactly at another level of strong resistance. After a week of fighting the resistance at 1,999 Friday's gains were explosive as shorts covered on the breakout.

Obviously, the next question is what will happen on Monday. Will that 2,020 level prompt another week of choppy trading or will we blast through that level to test resistance at 2,078. I am betting we make it though the 2,020 level but you will have to read the rest of the commentary to find out why.

The market roared back from Mario Draghi's sell the news comment that he did not expect any further rate cuts. Draghi definitely over delivered with his changes to ECB policy and once investors realized the market acted inappropriately they bought the dip and the rest is history.

However, next week we three more chances for irrational behavior. The Bank of Japan will announce its rate decision on Tuesday. The FOMC will announce its rate decision on Wednesday and the Bank of England will announce their decision on Thursday. Janet Yellen will host a press conference at 2:30 on Wednesday and she will try to avoid a sell the news comment similar to Draghi's. After watching the Dow crash -309 points after he spoke on Thursday I would bet she will be watching her words very carefully.

Friday was nearly devoid of any economic reports with only the Import and Export Prices for February. Import prices fell only -0.3% in February after a -1.0% drop in January. Analysts were predicting a -0.7% decline. Helping to produce a stronger number was petroleum prices, which fell only -4% in February after a -14.3% decline in January. The recent rise in oil prices has analysts revising their inflation numbers based on higher than expected crude prices.

February was the first time since July 2014 that capital goods prices did not decline. They were unchanged so don't breakout celebratory champagne just yet.

We definitely have a full calendar for next week and plenty of headline risk. Other than the various central bank events, the Philly Fed Manufacturing Survey on Thursday is the most important. The report has been in contraction for the last six months and it is expected to stretch to seven with a reading of -3.1. The Philly Fed Survey is a proxy for the national ISM report that comes out in the first week of the month. If the Philly report remains in contraction, the ISM is likely to remain in contraction as well.

The next most important is the Retail Sales for February that comes out on Tuesday. Sales are expected to be flat after three months of minimal gains of +0.2%. The warm weather and rising dollar in February are expected to have had a detrimental impact on sales.

In stock news Ulta Salon Cosmetics (ULTA) was the best performer with a 17% spike of +$28. Ulta posted earnings of $1.69 that easily beat estimates for $1.54. Revenue of $1.27 billion also beat estimates for $1.24 billion. Revenue rose +21%, earnings +25% and same store sales +13%. Digital sales rose +44%. The company guided to earnings of $1.25 to $1.30 for the current quarter and analysts were expecting $1.22. Same store sales are expected to rise 9% to 11%. They plan to open 100 new stores in 2016 after opening 100 in 2015. They currently operate 874 stores. The company is doing everything right as evidenced by their PE of 41. That is too high for most analysts to recommend and I would expect some cautious ratings comments in the next couple of weeks.

Fiber optic subsystems and component company Finisar Corp (FNSR) reported earnings of 25 cents compared to estimates for 22 cents. Revenue of $309 million matched estimates. The company guided to revenue of $317 million and earnings of 25 cents for the current quarter. Analysts were expecting $314.7 million and 21 cents. The company said it was seeing a lot of growth in China.

Chevron (CVX) closed out the week with a minor gain of 64 cents but that came after $6 of gains in the prior four days. Goldman Sachs upgraded Chevron from a sell to neutral after the company held an analyst meeting and said keeping the dividend safe through 2017 was a top priority. Credit Suisse raised the price target from $86 to $94 after Chevron cut their capex from $26.6 billion in 2016 to a range of $17-$22 billion in 2017 and 2018. They are shipping their first load of LNG from the $54 billion Gorgon project in Australia with two more trains to come online in 2017. The Chevron CEO said total production would increase in 2016 and 2017 despite the decline in capex spending.

Bojangles (BOJA) was getting a lot of coverage after shares jumped +23% after reporting earnings of 22 cents that beat estimates for 19 cents. Revenue of $128.8 million also beat estimates. Same store sales only rose +0.6% but that was better an analysts expected. It was the 23rd consecutive quarter of sales growth. The company guided to full year earnings of 86-90 cents with its operated store base to increase by 8% with same store sales in the low single digits. Bojangles had been heavily shorted and was down 50% since its IPO.

El Pollo Loco (LOCO) saw the opposite reaction after posting earnings of 15 cents that beat estimates for 13 cents. Revenue of $86.3 million missed estimates for $88.1 million. Same store sales rose +1.8%. They guided to full year earnings of 70-74 cents and analysts were expecting 74 cents on revenue of $395.6 million. They plan on opening 18-22 new company stores in 2016 and 10-15 franchised stores. Shares declined -8% on the weak guidance.

Zumiez (ZUMZ) reported earnings of 53 cents that beat estimates of 49 cents and revenue of $242.43 million that beat estimates for $241.1 million. However, same store sales fell -8.6% for the 11th consecutive month of declining sales. The company guided to a loss of 7-11 cents in the current quarter with same store sales expected to decline 5% to 7%. Analysts were expecting a loss of 1 cent. Shares fell -13%.

Kyle Bass, who started the Coalition for Affordable Drugs, has challenged a drug patent from biotech company Acorda. On Friday the US Patent and Trademark Office announced it was instituting an "inter party review" over the patents surrounding the drug Ampyra. The CEO of Acorda said the company had extensive clinical development programs resulting in new and important discoveries relating to using the drug to treat MS. The patents in question expire in 2025 and 2027. Bass has used his wealth and power to attack multiple companies under the guise of trying to make drugs cheaper. He shorts the stocks and then challenges the patents. He wins regardless of the outcome. I have no objection to somebody challenging a patent but there should be a financial penalty paid to the patent holder if you lose. The patent holders are being forced to pay tens of millions of dollars in court costs to defend what is legally theirs.

Crude prices continued to rise with a 65-cent gain on Friday to $38.49 but that level is turning into significant resistance. Even if that breaks the $40 level is going to be serious psychological resistance for traders. Once a 4 handle appears on the price there is going to be a flood of sellers. With long contracts on WTI futures at record levels and only five trading days before contract expiration there is a very good chance of a decline in the days ahead.

The proposed March 20th meeting in Moscow for OPEC and non OPEC producers is rapidly evaporating. With Iran claiming they are not going to honor a freeze and all the other countries saying everyone must agree or there will not be a deal, the agreement is falling apart. The Russian energy minister said a firm date has not been set and "could be from March 20th to April 1st" if everyone agrees. Officials from multiple countries said there was no reason to have the meeting if Iran did not agree to a freeze.

Reportedly, Iran has been offered an output cap at 2.93 mbpd but Iran wants a cap of 4.0 mbpd, their pre sanctions production number. Iran is currently producing about 2.6 mbpd. So, if everyone agreed to a production freeze and Iran got the 4.0 mbpd cap, actual oil production could rise another 1.4 mbpd assuming everyone else was frozen at their current levels. That is going to be really hard to sell to the rest of OPEC.

Multiple producers have warned that holding a meeting before everyone agreed meant the meeting could fail and the negative press from that event could send oil prices significantly lower.

In reality, any agreement that involves Iran having a higher cap is worthless. It is just a publicity stunt to try and lift oil prices higher. Any agreement will actually allow production to increase by a significant amount. Eventually uninformed investors will finally understand and oil prices will decline.

We are rapidly approaching the end of the inventory build season in early April and refiners will ramp up production of gasoline and diesel for the summer driving season and inventories will fall. That should have a positive impact on crude prices but we are still several weeks away.

Goldman Sachs reiterated their view that crude prices could fall sharply in the coming weeks because of record inventory levels offsetting production declines.

Active rigs declined -8 to a 67-year low of 480. Records were started in 1949 and the lowest level of active rigs was 488 in April 1999. The U.S. only produced 5.5 mbpd in 1999. Active oil rigs declined -6 to 386 and active gas rigs declined -3 to 94.

Anadarko (APC) announced last week they were going to operate only FIVE rigs in 2016, down from an already reduced level of 25 at the end of 2015. There are only 33 active rigs in the Bakken today. That is down from 207 a year ago. Continental Resources (CLR), one of the largest producers in the Bakken, has halted fracking on any new wells. They have cut their active rigs down to 4 but they are not going to complete any new wells they drill. Continental is cutting capex spending for 2016 by 65% to $920 million and expects to cut production by 10%. Multiply this across all the shale producers and production is going to drop significantly by the end of 2016. Crude prices should rise to $50 by the end of December. Saudi Arabia is not going to allow any agreement where prices rise too soon and a shale sector revival.


I am not going to trash talk last week's rally despite the three days of uncertainty in the middle. Any week that ends with a gain of +206 points for the week is ok with me even if all those points came with the +218 point gain on Friday. It does make it fairly difficult to pick plays given the wild triple digit swings.

Friday's close on the S&P at 2,022 was the high close for 2016. We are still -21 points down for the year with the 12/31 close at 2,043. I am betting if the BOJ/BOE/FOMC do not do something stupid we will close over that 2,043 level by next Friday.

I have an ace up my sleeve. That ace is the pre Fed rally that occurs in the 36 hours prior to the Fed announcement. Historically we see a decent gain on Tuesday and sometimes on Wednesday morning. If the Fed or more specifically Janet Yellen avoids the temptation to say something tricky on Wednesday then we could go higher. The CME FedWatchTool is showing a 96.1% chance of the Fed funds rate remaining 50 basis points after the March meeting. That means almost zero chance of a rate hike.

The wild card is of course how the Fed phrases the outlook for future hikes. With the chance of a recession fading, a strong jobs report even if they are only part time jobs and the market heading back to its highs, the Fed is going to want to stick a pin in this euphoria balloon and bring everyone back to reality. However, with the ECB, PBOC and BOJ still cutting rates it is going to be a tough task to tightrope walk future guidance in a way that does not tank the market.

There is a significant confluence of resistance at 2020-2022 with downtrend resistance, horizontal resistance and the 200-day average. That means it is target for every short seller with any cash left. It also means that a break through that level will cause some significant short covering.

I would expect some profit taking on Monday depending on what happens in the Asian markets on Sunday night. I would expect any potential dip to be bought and that 2,020 resistance to fail on Tuesday as the S&P pushes higher ahead of the Fed.

That is my roadmap and we will check in on that forecast on Tuesday evening. I know there are a lot of traders betting that 2,020 level is going to hold and predicting a return to 1,950 or even lower.

The Dow benefitted from the rebound in financials, healthcare, mining and energy stocks to punch through the same 200-day moving average that is currently threatening the S&P. However, downtrend resistance is a little higher at 17,300. On the positive side the prior resistance around 17,000-17,017 should now be support. The MACD and RSI are growing more oversold as each day passes but they have room to run.

The Nasdaq also closed at a two-month high at 4,748 but it may still be in the grasp of the 50% retracement at 4,700. The Nasdaq benefitted from a major +3% short squeeze in the biotech sector on Friday. That sector has not been able to mount any kind of consecutive gains in months. The index is well below its retracement levels and struggling just to get back to 3,000. I do not think the BTK rebound is going to stick but I hope I am wrong.

The BTK declined -41.8% from its high of 4,431 in July to the low of 2,575 on February 9th. It has rebounded +13.4% from that low but it has a long way to go and the sector remains under pressure from politicians and people like Kyle Bass. Some analysts claim it will not be investable until after the elections and maybe long after depending on who wins.

As long as the BTK remains stuck in the mud the Nasdaq is going to have a tough time moving higher.

The Russell 2000 was again the percentage leader on Friday thanks to biotechs and energy stocks. The +2.21% gain was second only to the Dow Transports at +2.32%. The Russell is back in the retracement brackets but will remain at the mercy of oil and biotechs. With oil prices due to crack at any time, the Russell could be an anchor next week.

Next week depends on two events. The first is obviously the Fed and the hope they do not mess things up trying to be cute with their guidance for future rate hikes. The second is oil prices. With crude threatening to fail at resistance at $38.50 with even stronger resistance at $40, a breakdown in WTI ahead of the futures expiration could grease the skids for a market decline. Whether the typical pre Fed rally can offset a drop in oil prices remains to be seen.

Should oil prices inexplicably rise over $40 we could have a major market blowout when coupled with the pre Fed rally. While I am not predicting that, it is always a possibility.

I do expect the market to try and move higher. Whether it is successful depends on a lot of factors with the Fed the pivotal event.

Clocks spring forward Sunday morning with the arrival of Daylight Savings Time.

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Random Thoughts

Amazon (AMZN) said it signed a deal to lease 20 Boeing 767 widebody freighter aircraft to ensure capacity to fulfill its promise of one and two-day deliveries in the USA. The rapid growth of its Prime subscription service with free two-day shipping is prompting Amazon to bulk up its delivery capability. Handing those packages off to UPS at the warehouse with two-day requirements is expensive. However, if Amazon can deliver those packages to UPS at the closest major UPS/FDX hub city the cost is a lot more reasonable.

If Amazon can fill these planes with prime packages every day and deliver them overnight to the major UPS/FDX hubs then regular ground shipping can get them delivered in two days.

Amazon tested the concept by utilizing planes owned by Air Transport Services Group (ATSG) over the last several months. Apparently, it worked well enough to commit to leasing 20 of the giant freighters for 5-7 years. They will begin operations on April 1st. Amazon also has the right to buy up to 19.9% of ATSG stock over the next five years at $9.73 per share. That stock closed at $14.32 on Friday.

Private equity firm Apollo Global Management is reportedly nearing a deal to acquire Fresh Market (TFM) for $1.3 billion. That would be about a 30% premium over the company's market cap at the close on Friday. The cash offer is $28.50 a share with the Friday close at $23. If you have access to a time machine, you could go back to February 11th when it was under $18 just prior to announcing Kroger had expressed interest in the chain. Sources claim Kroger lost out in the bidding in the auction that followed.

Bearish sentiment is dropping fast with a -4.9% decline for the week ended on Wednesday. Bullish sentiment rose +5.3% and those timid sheep in the neutral camp barely budged with a -0.5% decline.

Comedian Jerry Seinfeld picked the wrong time to sell expensive cars. Seinfeld auctioned off 18 of his cars on Friday for a total of $22.2 million. While that sound like a lot the pre auction estimate was $28-$32 million. The expected star of the show was the 1973 917/30 Porsche Can-Am Spyder that was expected to sell between $5 to $7 million. Instead, it was a fight to lift the bidding to the final price of $3 million. Seinfeld bought the car in 2012 for $4.4 million. Even millionaires sometimes take a hit when their ego gets in the way of reality and they just have to own something special.

Overall, six cars sold above estimates and seven cars set new price records for their models. A 1974 911 Carrera 3.0 IROC RSR sold for $2.3 million and a new record. A 1955 550 Spyder sold for $5.3 million. His VW Beetle sold for $120,000 and a new record. Seinfeld goes home with $20 million in his pocket after commissions and a lot more space in his garage.

Barbie celebrated her 57th birthday last week and she does not look a day over 16. It was not a fun party because sales are dropping fast despite all the new models. Annual sales are the lowest in 12 years at roughly $900 million after peaking in 1997 at $1.8 billion. In the 1990s girls ages 3 to 11 had to own at least one Barbie and most had several. Today girls in the upper end of that age bracket want an iPhone.


Enter passively and exit aggressively!

Jim Brown

Send Jim an email


"Make yourselves sheep and the wolves will eat you."

Benjamin Franklin Nov 1, 1773


Index Wrap

Friday's Rally Saves the Week

by Keene Little

Click here to email Keene Little
The stock market consolidated Monday through Wednesday while it waited for the ECB decision, which was followed by a volatile two days into the end of the week. Friday's rally saved the week, making it the 4th positive week following the February 11th low. The indexes are now pressing up against strong resistance and showing overbought conditions as we head into opex.

Week's Indexes

Review of Major Stock Indexes

Following the highs on Friday, March 4th, the market rallied slightly higher on Monday but then chopped sideways/down through Wednesday as it waited to see what the ECB's decision would be on Thursday (morning for the U.S.). The ECB blessed the market with more than it expected but that prompted a selloff instead of an expected rally.

The bears jumped in short and drove the indexes down Thursday morning, but as we've seen happen so many times before, a decline on Thursday prior to opex is often a head-fake move that leads to a rally into opex. Many large funds sell puts and buy calls in front of opex and look for an opex rally to collect their monthly income. Friday's gap up added insult to injury for the bears who had thought Thursday's selloff was the start to a stronger reversal back down and the resulting short covering into Friday pushed the indexes up to their highs for the week.

The indexes have rallied up to some strong resistance levels, as I'll review on the charts, and trading volume has been in decline as the rally has progressed. These are not rally stoppers but the straight-up rally from the February low is another too-far, too-fast kind of rally that looks more like a bear market rally than something more bullish. That could change but at the moment what we're trying to figure out is what this rally means in the larger picture. It determines whether we short the rally or buy the dip. I'll give you my opinion but obviously it should be one of many that you evaluate for your own trading decisions.

A Look At the Charts

Dow Industrials, INDU, Weekly chart

Friday's rally for the Dow got price above price-level S/R at 17140, which is the level that was sharply broken in January. Closing above this line for the week is bullish and now we wait to see if it will have trouble with its 50-week MA, near 17290. If the bulls can power above that level there's not much resistance on the weekly chart until the downtrend line from May-December 2015, near 17675. But a failure to hold above price-level S/R at 17140 this coming week, on a weekly closing basis, would leave a failed recovery attempt.

Dow Industrials, INDU, Daily chart

While the Dow hasn't quite reached its 50-week MA yet, it did climb above its 200-dma, at 17153, on Friday. It rallied back up to its broken uptrend line from February 11th, which could result in a back-test and bearish kiss goodbye if it turns back down from it. But if the bulls can keep the buying going on Monday the next level of resistance is its downtrend line from December, near 17325. Not shown on the daily chart, there are two price projections for the 3-wave bounce off the February 11th low at 17175 and 17211, both of which were achieved on Friday. For this reason a turn back down on Monday would be the first sign of a reversal. But the rally would not be considered complete until prices drop below Thursday's lows (Dow 16821).

Key Levels for INDU:
-- bullish above 17,300
-- bearish below 16,500

S&P 500, SPX, Daily chart

The weekly close for SPX was above its 200-dma and downtrend line from December, both near 2020. It was looking like SPX would close at that level on Friday but a final little push into the close made it to 2022. The bulls now need to prevent a selloff on Monday since that would look like a failed attempt to break through resistance. As for the next upside target, the 78.6% retracement of the December-February decline (a common retracement level in the past several years) is at 2041.

Key Levels for SPX:
-- bullish above 2042
-- bearish below 1969

S&P 100, OEX, Daily chart

OEX closed about a point above its 200-dma and price-level S/R, both near 895. Like SPX, it was a final push into Friday's close, which was likely just short covering that accomplished a close marginally above resistance. Holding onto Friday's gain on Monday is what the bulls are going to need and if they can do that then the next level of resistance is a downtrend line from December, near 903, and a downtrend line from November, near 910. Above 910 would likely be clear sailing to new all-time highs.

Key Levels for OEX:
-- bullish above 910
-- bearish below 874

Nasdaq-100, NDX, Daily chart

The bullish thing I see on the NDX chart below is Thursday's pullback to support at its uptrend line from March 2009 - August 2015, which it had recovered back above at the end of February. The successful back-test on Thursday has it looking like it should be able to make it up to at least its 200-dma and 62% retracement of its December-February decline, both near 4420. It would be more bullish above 4420 but it would turn bearish if it drops below Thursday's low at 4232.

Key Levels for NDX:
-- bullish above 4420
-- bearish below 4220

Nasdaq Composite, COMPQ, Daily chart

The Nasdaq pulled back on Thursday almost to its crossing 20- and 50-dmas, near 4580, with its low at 4608 and it has now rallied back up near its broken uptrend line from February 11th. Two price projections for its 3-wave bounce off the February low point to 4762-4764 as an area of interest -- if it rallies up to that level and rolls over it could indicate a top is being made. Otherwise there's rally potential to resistance at the 62% retracement of its December-February decline, at 4807, its 200-dma, near 4880, and then price-level S/R at 4920.

Key Levels for COMPQ:
-- bullish above 4920
-- bearish below 4607

Russell-2000, RUT, Daily chart

After leading the market strongly back up from the February low the RUT was the laggard this week and it was one of the few indexes not to make a new high on Friday for the week. Monday's high near 1095 came very close to testing its broken H&S neckline at 1100. Friday's rally did have it back-testing its broken uptrend line from February so it's possible that's all there will be for the rally but if it pushes higher on Monday keep an eye on resistance near 1100, or slightly higher near 1105 where it would retrace 62% of is December-February decline. Above that level it would have very little in the way of a rally to its 200-dma and downtrend line from June-December 2015, both near 1151.

Key Levels for RUT:
-- bullish above 1105
-- bearish below 1040

SPDR S&P 500 Trust, SPY, Daily chart

As can be seen on the SPY chart below, it looks bullish with price pressing up against the top of its BB with only a relatively small pullback this week (not even back to the midline of its BB, which is the 20-dma). The top of the BB is now at 204.26, which is upside potential by this measure. While MFI has reached overbought (at/above 70) there's room for it to become more overbought. The VAP starts to build above 204.25, which is an area of resistance but at the moment the lighter VAP offers minimal resistance. This chart shows very little to be concerned about if you're a bull but not a whole lot of upside potential and more downside risk, especially being overbought with declining volume.

Powershares QQQ Trust, QQQ, Daily chart

The QQQ chart below shows it did not quite make it up to the top of its BB the week before this past week and it then pulled back to its 20-dma on Thursday. That's been followed by another rally up toward the top of its BB, which has curled over and is currently at 107.78. Williams %R had turned down earlier in the week but then jumped back up with Friday's rally and is now again in overbought. What the bulls need to do is keep the rally going and not let MFI turn back down and create a bearish divergence with a lower oscillator high. And like SPY, the bulls could use a little more volume in the rallies instead of the declines.


The market wasn't quite sure what to make of the ECB's decision on Thursday but liked it better on Friday. The trouble is these central bank decisions are having less and less of a positive effect on the markets (they're lasting for shorter periods of time) and that makes Friday's rally suspect. This is especially true when you factor in Draghi's statement that there might not be much more they'll be able to do, primarily because the German central bank is already balking and could put its foot down on any further attempt at more QE. There are reports that Draghi was able to do more than was expected only because he promised the Bundesbank there would be no further attempt to increase QE.

We have an overbought market with declining volume and that's reason enough to be careful about the long side. We're heading into opex week, a typically bullish week and therefore it's also a risky time to be thinking short just because the market is overbought. We all know it can stay overbought far longer than we think possible. As long as last Thursday's lows hold it keeps the market potentially bullish but it would look better for the bulls if Monday rallies since Friday's closing prices were essentially at resistance and short covering into the close might have left the market vulnerable to a downside reversal on Monday.

Expectations for a bullish opex week typically has many of the large trading houses selling puts and buying calls in front of opex week, looking for their payday next week. This could result in a stronger decline if the rally does not continue (buying back puts and selling calls are both bearish trades). We could have some volatility ahead of us in the coming week so trade carefully.

Trade safe, have a good week and good luck with your trading. I'll be back with you next weekend.

Keene H. Little, CMT

Technicians look ahead. Fundamentalists look backward. The true language of the market is technical. - Joe Granville

New Option Plays

Double Your Fun

by Jim Brown

Click here to email Jim Brown

Editors Note:

Every weekend I scan my prescreened list of about 850 stocks and look at every single chart. Fortunately, with Qcharts that only takes about two hours. I develop a list of about 100 stocks that could be potential plays and then refine the list further by looking at earnings dates, news headlines, option prices and spreads. A few get eliminated because their option prices are too expensive like PANW or the spreads are too wide. If the bid is $2.25 and the ask $3.75 there is no way we are going to play that stock. I remove that stock from the larger screen so I will not look at it again in the future. Some market makers are just ridiculous in how they determine a market.

For the stocks that are left I go through the news articles for the last month looking for abnormalities, opportunities and items that other investors may be overlooking.

At the end of the process I normally end up with about 10 stocks that fit all the right criteria and I select the plays from that list. Unfortunately, I cannot predict market reactions to things like a Mario Draghi comment that knocks -300 points off the market intraday or a analyst downgrade that knocks 10% of a stock in one day. The downgrade does not even have to be on a stock in the portfolio but one in the same sector. An example would be Tableau Software (DATA) on February 4th that cut that stock in half and the rest of the stocks in the sector by 25% or more.

I am explaining this today because I received an email last week saying "I am a new subscriber and a lot of your positions were stopped out in January and February. Is this normal?" I replied respectfully that most experienced investors understand that stocks will be volatile when they go into a correction like they did in January and again in February. Positions will be stopped out in volatile markets.

I do not just scan a few headlines and pick a few symbols to use as plays. Each recommendation is as carefully reviewed as possible with the best expectations for a successful play. Unfortunately, I cannot make the market cooperate on a consistent basis and "stuff" will happen. I welcome any comments readers would like to make and I am always open to suggestions on how to improve the newsletter.

Click here to email Jim

As a bonus for reading my explanation I am going to list the "runners up" to the plays I chose for this weekend. These are not official recommendations and will not be followed in the newsletter. However, if you are looking for additional positions I would start here.

Symbol, Earnings, Strike, Premium

URI - 4/27 - Apr $62.50 - $2.00
HCA - 4/28 - Apr $75.00 - $2.45
BEN - 4/28 - Apr $40.00 - $0.65
CRM - 5/18 - Apr $72.50 - $2.38
SWK - 4/28 - Apr $100.0 - $2.75
GNRC - 5/17 - Apr $35.00 - $1.85
MDSO - 5/11 - Apr $40.00 - $0.65
SLAB - 5/04 - Apr $45.00 - $2.25
ADSK - 5/26 - Apr $57.50 - $2.21
BABA - 5/05 - Apr $75.00 - $2.50
CPRT - 5/26 - Apr $40.00 - $1.30
GIMO - 4/21 - Apr $30.00 - $1.55
SPLK - 5/26 - Apr $50.00 - $2.00
ENDP - 5/09 - Apr $40.00 - $1.55 Put


KR - Kroger - Company Description

Kroger is a retail grocery chain with $108 billion in sales in 2014. In Q3, 2015 their same store sales comps rose +5.4% without factoring in gasoline. They have recently been adding service stations to their offerings. They operate 2,774 supermarkets, 148 with in store clinics, 786 convenience stores, 1,330 fuel centers and 326 Fred Meyer jewelry stores in the USA. In all they have more than 161.3 million square feet of operated retail space. They have 37 food-processing plants, 27 dairies, 6 bakeries and 36 distribution centers.

While most people know them as a grocery store they are much more. They operate those grocery stores under many name brands, more than two dozen, as a result of the acquisition of regional chains. They also operate multi-department stores like a small Walmart or Target.

They have more than 422,000 employees and operate in 34 states. They filled 175 million prescriptions in 2014 worth over $9 billion. Kroger earned $3.223 billion in profits in 2014.

Where Kroger is kicking butt is their new organic product lines. They are significantly cheaper than Whole Foods Markets (WFM), Fresh Market (TFM) and Sprouts Farmers Markets (SFM). They are able to compete with Walmart on organics and private label brands because they own their own food processing and distribution centers. They have dozens of store brands than encompass nearly every isle in the stores from frozen pizzas, vegetables, fruit, toilet paper, snack chips and salsa to a complete customer deli in their larger stores. Their private label organic produce covers 60% of their produce department. Their Simple Truth Organic brand is now the largest natural food brand in the USA.

While Kroger has been outperforming the other grocery and fresh food stores their shares took a hit in early January when a division president, Lynn Gust, president of the Fred Meyer division retired after 45 years. He started out as a package clerk in 1970 and rose up through the ranks to be named president and then led the division to more than $10 billion in annual sales.

At the same time Credit Suisse lowered their rating on Kroger because of deflation risks. The deflation risk means prices for products are going to continue lower. However, I view that as a positive. Kroger's costs are going down but the price of their products do not have to go down in lock step. This is a profit opportunity for Kroger. The analyst also said fuel prices will eventually rise and that will take money out of consumer's pockets. Since that will happen across the board to all grocery stores it makes sense to own the one that is making money on gasoline with their 786 convenience stores regardless of the prices.

Shares declined from $43 in early January to $36 on the Feb-11th crash. This is long-term support and shares were very oversold. In a previous play we bought the dip in February and rode the stock back up to $40.35 and exited before earnings in early March.

In the March earnings Kroger reported earnings of 57 cents compared to estimates for 54 cents. Revenue rose +4% to $26.2 billion and narrowly missed estimates for $26.3 billion. Sales excluding fuel rose +7%. Same store sales rose +3.9% but that was less than the 4.0-4.5% they had predicted in January. Kroger said shifting the Super Bowl into February hurt sales for the quarter ended January 31st. Warmer weather and fewer snow storms also hurt because people stock up on food ahead of storms but shop as normal in regular weather.

The retailer said they expect earnings to rise 6-11% in 2016 to $2.19-$2.28 per share. Same store sales are expected to rise 2.5-3.5%. This is lower than 2015 because of lower inflation.

Investors were not happy with the earnings because most never look at the details and only read the one sentence headline to make their decisions. Shares declined from $40.50 to $36.50 to give us another entry point at support.

I believe Kroger will make a new high this time. Earnings are well out in the distance on June 16th and that will allow us to buy a longer dated option and give it time to mature. Kroger is a slow mover so we need time for it to grow. With support at $36 dating back to the August crash it should be a relatively safe position.

Buy July $40 call, currently $1.55, no initial stop loss

NTAP - NetApp - Company Description

NetApp provides software, systems and services to manage and store computer data worldwide. They provide data protection and data management for virtualized, shares infrastructures, cloud computing and business applications. Their hot product is a storage area network (SAN) that is all flash memory and not spinning disk drives. This delivers super high performance without the mechanical delays and hardware problems associated with disk drives.

JP Morgan is going to host a moderated "Tech Talk" at 10:AM ET on Tuesday regarding the new SolidFire all-flash array architecture. NetApp acquired SolidFire for $870 million in cash in December in order to increase penetration into the high speed storage market. SolidFire was named the "All-Flash Systems Product of the Year" by Storage Magazine in late February.

NetApp reported Q4 earnings of 70 cents that beat estimates by 2 cents. However, that was down slightly from the year ago quarter. They announced a restructuring program to reduce costs as they focus development on the new SolidFire products. NetApp said they were cutting about 1,500 of their 12,810 employees. They guided for current quarter earnings of 55-66 cents that was below estimates for 72 cents. They expect to take some significant charges on their restructuring effort.

Shares crashed on the earnigns news to $21 but the press has been kind to NetApp and share have rebounded to $27 over the last four weeks. I expect shares to continue to rise to initial resistance at $31 and possibly a new high at $35. The momentum is increasing on the NTAP rebound.

Earnings May 25th.

Buy May $28 call, currently 99 cents, no initial stop loss.


No New Bearish Plays

In Play Updates and Reviews

Poised for What?

by Jim Brown

Click here to email Jim Brown

Editors Note:

We are either poised for a breakout ahead of the FOMC meeting or we are poised for a resistance failure at 2,020 and some more volatility ahead.

I believe we are poised for another move higher. The big rebound from Thursday's lows and the follow on gains on Friday took us right to 2,020 and strong resistance. However, we have broken though three levels of hard resistance over the last two weeks to get this far. Eventually one will hold and we will have some decent profit taking. That is a fact of life.

However, market sentiment has changed. Dips are being bought instead of rallies sold. Historically the 36 hours before a FOMC announcement are positive for the market. That does not mean we will just blast off on Monday to a new level. After four weeks of gains we could see some profit taking on Monday and then a rebound on Tuesday. Let's hope the historical trend continues. Declining oil prices or an Asian meltdown on Sunday night would lead to that profit taking.

Current Portfolio

Current Position Changes

DLPH - Delphi Automotive

This position remains unopened until DLPH trades at $72.50.

PKG - Packaging Corporation of America

This position was entered at the open at $54.26.

Profit Targets

Check the graphic above for any profit stops in green. We need to always be prepared for a profit exit at resistance.

Stop Loss Updates

Check the graphic above for any new stop losses in bright yellow. We need to always be prepared for an unexpected decline.

BULLISH Play Updates

AKAM - Akamai Technologies -
Company Description


After a week of consolidation, we finally saw a decent gain with a rebound back over resistance. No news.

Original Trade Description: February 26th.

Akamai Technologies provides cloud services for delivering, optimizing and securing online content for business applications on the internet. They are best known for their download delivery solutions for games, videos and audio files.

One of the things Akamai is famous for is archiving web content in centralized data centers geographically located to reduce the time and bandwidth needed to view those files. If you have a website that is visited by millions of viewers, Akamai can continuously monitor that website for changes and then replicate those changes in multiple locations so that viewers near those locations experience fast load times. For instance, a company in Kansas may have a high volume website viewed by people around the world. Akamai can replicate that website in cloud data centers in Los Angeles, New York, Miami, Dallas, London, etc, so a viewer close to one of those locations can get an immediate response time rather than having to pull the content from Kansas where bandwidth and server limitations could slow the response. If you have a million viewers a day all hitting the Kansas server from all over the world the lag time is going to be terrible.

Akamai also offers security solutions for web-hosted content thereby reducing infrastructure costs and increasing productivity.

Akamai reported Q4 earnings of 72 cents that easily beat estimates for 62 cents. Revenue of $579 million also beat estimates for $567 million. They announced a $1 billion buyback of 12.5% of their outstanding shares. CEO Thom Leighton said he was purchasing $10 million personally. The company guided to Q1 earnings of 61-64 cents and analysts were expecting 62 cents. Revenue is expected to rise +8%.

Performance and security revenues rose +16.4% to $286 million as demand for the cloud security products increased. Service and support revenues rose +17.8% to $46 million. Cash flow from operations was $218 million or 38% of revenue. Cash at the end of the quarter was $1.5 billion.

Akamai shares rallied 17% after the earnings on February 10th and reversed a four-month decline. Share barely consolidated after the spike and are continuing higher. Shares inched over resistance at $54.85 on Friday and could be poised to make a new leg higher.

Earnings are April 26th.

I am recommending an entry if AKAM traded at $55.75 and just over the Friday high of $55.55. Shares appear to be consolidating that post earnings run and the intraday ranges have been shrinking, which suggests the buyers are gaining ground.

Position 3/2/16 after an AKAM trade at $55.75

Long April $57.50 call @ $1.63, See portfolio graphic for stop loss.

AON - AON Plc - Company Description


Nice gain of nearly $2 on a breakout over resistance. No news.

Original Trade Description: March 9th.

AON offers risk management services, insurance and reinsurance brokerage, human resource consulting and outsourcing services globally with operations in more than 120 countries.

Q4 earnings of $2.09 were up +34%. Revenues of $3.28 billion narrowly missed estimates for $3.33 billion due to the impact of the strong dollar. The dollar reduced earnings by 10 cents. They repurchased 4.2 million shares for $400 million. For the ful lyear free cash flow increased 10% to a record $1.7 billion.

The CEO said in the earnings release "In a year of substantial earnings volatility driven by macroeconomic factors and industry headwinds, investments in our industry leading platform contributed to our strongest rate of organic growth in Risk Solutions since 2007."

Earnings April 29th.

I have wanted to add AON as a position since their post earnings spike in early February but the stock just kept climbing. The last three days provided some consolidation and allowed the call premiums to shrink. I believe AON will continue higher out of this consolidation period to test resistance at $102.50, which would be my exit target.

I want to see a trade at $99.50 to insure we do not enter a new play just as the market rolls over. That is closer to the preferred strike price so the option is going to cost a little more than the price listed below.

Position 3/10/16 with an AON trade at $99.50

Long April $100 call @ $1.70, initial stop loss $97.75

AOS - AO Smith - Company Description


Big spike at the open but faded back into congestion. I raised the stop again just in case the weakness continues.

Target $77.65 for an exit.

Original Trade Description: February 18th.

A.O. Smith manufacturers water heaters and boilers for distribution around the world. They also sell water treatment systems that are in high demand in emerging market economies.

They reported earnings last week of 90 cents that beat estimates for 85 cents. Revenue rose +2% to $639.4 million but missed estimates because of weakness in the housing sector in the USA. North American sales declined -3.9% to $413.7 million.

However, operating earnings rose +37.2% to $92.2 million because of higher pricing, higher overall demand and lower steel costs. Overall segment revenue of $1.7 billion rose +5%. This was due to higher commercial demand for boilers.

Sales in the rest of the world rose +14% to $232 million. That was powered by a 15% increase inwater heater demand, water treatment and air purification products in China. That is definitely a country that needs water treatment and air purification.

Very few companies are successful in selling to China but AO Smith is one of them.

The company bought back 329,000 shares in Q4 leaving 2.59 million to buy under the current buyback program. The company had $324 million in cash at the end of the quarter.

They guided for 2016 to earnings of $3.40-$3.55, which would be a 10% growth rate in earnings. They kept the 15% growth rate target for China in 2016.

Earnings are April 29th.

The stock bottomed on the January 19th market crash and had been moving steadily higher. The market took it lower again to retest that bottom on February 9th. Resistance is currently $70 followed by $79 from the December highs. I am recommending we enter a long call position with a trade at $70.45.

Position 2/23/16 with an AOS trade at $70.45

Long April $75 call @ $1.88. See portfolio graphic for stop loss.

CAB - Cabellas - Company Description


Cabelas still fighting resistance at $48.75 but at least managed a minor gain. No change in position.

Original Trade Description: February 17th.

Cabelas is a specialty retailer and direct marketer of hunting, fishing, campiny and related outdoor merchandise. They operate more than 77 retail stores and a large e-commerce website along with direct mail catalogs. They also have a very profitable financial services segment offering a Cabelas Club Visa credit card.

The company has expanded profitability by moving most of its merchandise to its private label brand. Instead of being North Face, Coleman, Redwing, etc, everything is manufactured and sold using the Cabelas label.

Cabelas reported Q4 adjusted earnings of $1.26 that beat estimates for $1.22 per share. Revenue of $1.41 billion also beat estimates for $1.36 billion. Full year revenue was $4 billion and earnings of $2.67.

Merchandise sales rose +10.1% and retail store revenues rose +14.3%. same store sales comps rose only 4.9% because of the unusually warm weather that depressed the sale of cold weather clothing. Financial services revenue rose +15.7% with a 21.3% increase in interest collected. The number of active Visa accounts rose +14.4%.

The company guided for revenues to rise at a high single digit rate with earnings per share to grow in low double digits.

Cabelas shares from a low of $39 in the February dip to close at $48.40 today. I know that is a 25% jump in three weeks but I believe there is more to come. Shares are facing resistance at $48.75 but a breakout there could return to the March 2015 highs around $58. I recommend we position ourselves for the potential breakout.

Earnings are May 21st.

Position 3/3/16 after a CAB trade at $49.05

Long April $50 call, entry $2.07, see portfolio graphic for stop loss.

DLPH - Delphi Automotive - Company Description


Nice $2 gain after a week of declines. Now we need to bust through that resistance at $72. The auto market was upgraded today. No news.

The position remains unopened until DLPH trades at $72.50.

Original Trade Description: March 5th.

Delphi manufacturers vehicles components and provides electrical and electronic, powertrain and safety technology solutions to the automotive and commercial vehicle markets worldwide. Whether you are buying a new car or repairing an old one the odds are very good you are using Delphi parts.

Vehicle sales in February were 17.54 million units on an annualized basis. As we move farther into spring and summer those numbers are going to rise sharply. Cheap gas means consumers are going to buy more new cars and upgrade their rides to the SUV category when possible.

Delphi reported earnings of $1.39 and beat consensus estimates for $1.37. Revenue of $3.88 billion rose +11% and also beat estimates for $3.79 billion. The company guided for full year earnings of $5.80-$6.10 and revenue of $16.6 to $17.0 billion.

Shares rallied after earnings and broke through resistance at $68 last week to close at $71.53. The next significant resistance is $77.25. Earnings are April 28th.

I am recommending we buy the May $75 calls at $2.40 so there will still be some earnings expectation premium in them when we exit before earnings. April options expire on the 15th so premiums will deflate significantly before we ever get to the earnings event. I am recommending an entry point at $72.50 and just over Friday's high. If the market does take profits early in the week we can lower the strike price and entry target depending on what happens to Delphi shares.

With a DLPH trade at $72.50

Buy May $75 call, currently $2.40, initial stop loss $65.85.

EA - Electronic Arts - Company Description


Still holding at support. Resistance at $65. No news.

Target $70.35 for an exit.

Original Trade Description: February 29th.

Electronic Arts develops, markets and distributes game software for online games, game consoles, internet connected devices, PCs, mobile phones and tablets worldwide.

Some of their major game brands are Madden NFL, The Sims, Battlefield, Dragon Age and Plants vs Zombies. In Q4 the company sold more than 13 million copies of Star Wars: Battlefront. That quantity was three months ahead of what they anticipated.

Piper Jaffray said last week that the current generation of game consoles has a long way to go to catch up with the prior generation. They view that as a positive for EA.

The current console cycle is in its third year and Piper said the uptake rate has been 40% to 50% faster than in prior cycles. However, only about 40% as many Xbox One and PS4 consoles have been shipped as the prior generation of Xbox 360 and PS3s. Sales of the older models reached 162 million units and the current generation has only sold about 60 million. Considering the newer versions have many more features the analyst believes the trade up rate will continue to grow for several years. At the end of 2015 EA had 8,400 employees.

The analyst also believes the shift towards digital delivery will also drive margins higher. Piper has an $87 price target on EA.

At the end of January EA reported earnings that beat estimates but revenue of $1.8 billion narrowly missed estimates for $1.81 billion. They raised their full year guidance to $4.52 billion and $3.04 per share. Analysts were expecting $3.10 and $4.56 billion. EA has a history of issuing very conservative guidance. They also said because they sold so many of the star Wars game in Q4 that sales estimates for Q1 were lower. Shares crashed on the news from $71 to $53. Shares rebounded quickly from that crash and closed at $64 on Monday.

Last week EA announced the sale of $600 million in notes and a $500 million stock buyback program that will be completed by the end of May. Rarely do companies announce buyback programs with only a 90-day window. This should continue to lift the shares in the weeks ahead.

EA will present at the Morgan Stanley Media conference at 6:25 PM ET on Tuesday.

I believe EA shares will recapture that $70 level if the market cooperates. I am recommending a short term April $67.50 call, currently $1.62. If the current rebound fades we will not have much at risk.

I am using an entry trigger just in case the afternoon fade today was the start of something bigger. The entry point will be $65.45 and just over the intraday high at $65.25.

Earnings may 5th.

With EA trade at $65.45

Buy April $67.50 call, currently $1.62, no initial stop loss.

EMR - Emerson Electric - Company Description


Positive day after three days of declines. Next target is resistance at $52.35.

Original Trade Description: March 3rd.

While you may not have heard about Emerson Electric they have 110,800 employees and are involved in many different aspects of the economy. They design and manufacture products and deliver services to industrial, commercial and consumer markets worldwide. They specialize in process management valves, meters, switches, regulators and digital plant applications.

A major segment is providing infrastructure, power, uninterruptible power systems, thermal management equipment and integrated solutions for large datacenters and cloud computing installations. They handle climate control, heating and cooling, electrical control monitoring and management.

They reported earnings for Q4 of 56 cents that beat estimates for 51 cents. Revenue of $4.713 billion beat estimates for $4.642 billion. However, revenue was down -16% because of the recession in the energy sector. The CEO said, "Lower oil prices continued to apply downward pressure on oil and gas spending, particularly upstream projects, as well as power generating alternators used in upstream applications."

Shares declined sharply but began to rebound almost immediately. The company plans to spin off its network power business later this year, which will downsize revenue by about $8 billion. They are restructuring to lower costs until the energy sector recovers and are selling noncore assets to reduce complexity. Investors liked the plans that were presented.

The company also declared a 47.5 cent quarterly dividend which produced a 4% yield at the time it was announced.

Their next earnings are May 3rd.

Emerson has resistance at $50.50 and it broke through that level on Thrusday. The next material resistance would be well above in the $60 range with a speedbump at $52.50. I am recommending we buy the June $52.50 call and plan to exit well before earnings. By purchasing the June call it will still have earnings expectations in the premium when we exit before earnings.

Emerson is somewhat of a slow mover so the options are cheap thereby limiting our risk.

Position 3/4/16

Long June $52.50 call, entry $1.60, see portfolio graphic for stop loss.

HPQ - Hewlett Packard - Company Description


Nice gain to close at a new 2 month high. The exit target is $12 and that could happen early next week. I considered raising it but there is significant resistance at $12.40. I think we are better off taking our chips off the table when we hit $12.

Original Trade Description: January 25th

Back in October Hewlett Packard spun off its enterprise server business into Hewlett Packard Enterprise (HPE) and the old Hewlett Packard that sells PCs and printers remained (HPQ). The problem with this spinoff is that the enterprise company is where the profits are. The PC business has been declining for years and that is why HP split the two entities.

Since the spinoff at $14.75 in October the HPQ shares have been in decline. They closed at a new low on Monday. I see no reason where HPQ should rally in the near future. PC sales are still expected to decline in 2016 only at a slower pace. There is nothing to produce excitement in the PC company.

In theory we could probably just buy a cheap put and sit on it but HPQ has earnings on February 24th. I expect those earnings to be disappointing. However, you never know if they will pull a rabbit out of the hat and announce something that powers the stock higher. This is why I am recommending a strangle rather than just a straight put play.

HPQ shares closed at $9.49 on Monday and halfway between the $9 put and $10 call. I am recommending the April strangle so we can benefit from the long-term trend if HPQ continues to decline. If earnings disappoint we could see HPQ at $5 by then.

Earnings are February 24th.

Position 1/26/16:

Long April $9 put @ 41 cents, no stop loss.
Long April $10 call @ 50 cents, no stop loss.

JNJ - Johnson & Johnson - Company Description


New 15-month high intraday at $107.99. No news.

I am recommending an exit target at $108.75.

Original Trade Description: February 24th

JNJ is broadly diversified with more than 250 subsidiaries. If you need a Band-Aid, mouthwash, cold capsule, cancer drug or artificial joint, they make it. They spent about $10 billion on research in 2015. Seven of the 15 new drugs they brought to market since 2009 have annual sales in excess of $1 billion.

They have increased their dividend for 53 consecutive years. The yield today is about 3%. They have a rare AAA credit rating and produce more than $11 billion in free cash flow annually. At the end of 2015 they had $38.5 billion in cash.

JNJ is recession resistant because their products are not bought on a whim. If you need a Band-Aid you buy it. If you have arthritis, you buy Motrin. If you have acid indigestion you take Pepcid. If you are sick you get a prescription for their drugs. This makes them relatively safe in times of economic weakness. With worries over a potential recession in the near future this has powered their shares to a 52-week high.

I do not need to explain JNJ to everyone because we have grown up with their brands. The company was founded in 1886 and is older than anyone reading this newsletter.

The close on Wednesday at $104.94 is right at resistance and a breakthrough here should retest the historic highs at $109 where a breakout to a new high is entirely possible. They have based at the $100 level for the last two years with the exception of the flash crash last August.

Earnings are April 12th.

Position 2/25/16:

Long May $110 call @ $1.30, see portfolio graphic for stop loss.

KORS - Michael Kors - Company Description


New 9 month high in a bull market. No news.

Target $59.85 for an exit.

Original Trade Description: February 22nd

Michael Kors designs, markets and distributes branded women's apparel and accessories and men's apparel. They operate more than 350 stores in the USA and 200 stores internationally. They also license their brands.

Kors shares crashed from $100 in early 2014 to $35 at the end of January on declining sales in the expensive categories that impacted all the major retailers. Inventory levels rose and margins dropped. Kors went from being the premier brand to just another high priced name.

Fast forward to Q4 earnings and everything changed. The company reported a solid holiday quarter when everyone else was just getting by. Kors reported a 6.3% increase in revenue to $1.6 billion that beat estimates for $1.4 billion. Earnings rose to $1.59 and also beat estimates for $1.46. Same store sales rose +2%. Sales overseas boomed +14% with Japan leading with a 68% rise. U.S. same store sales declined -0.9% but that was significantly better than the -8.5% drop in the prior quarter.

Kors heard what customers wanted and shifted to fill that demand. Kors introduced a new line of smaller leather handbags that cost less and customers snapped them up in volume. The company said they were selling so good they were going to raise prices and increase margin. The trend is away from the larger bags that made Kors famous but they adapted and sales are rising again.

Kors also suffered from the strong dollar and weak currencies overseas but overcame the headwinds to easily beat on earnings.

Shares spiked $12 on the news from $40 to $52. After trading sideways for the last three weeks the shares have broken out to a new 52-week high at $55 and appear to be headed for $60 or higher. Investors remember Kors as the leading fashion merchandiser and they believe the company is back on top again.

I want to take that ride to $60 and then see what happens when we reach that level.

Earnings are May 26th.

Position 2/23/16 with a KORS trade at $55.25

Long May $57.50 call @ $2.48, see portfolio graphic for stop loss.

Target $59.85 for an exit.

N - NetSuite - Company Description


Nice gain to close near the nigh for the day. We need to get over resistance at $64.50 to generate some short covering. No news.

Target $68.85 for an exit.

Original Trade Description: February 19th.

NetSuite provides cloud based financials/enterprise resource planning (ERP) and omnichannel commerce suites in the U.S. and internationally. They also offer customer relationship management (CRM) and professional services automation (PSA). NetSuite OneWorld manages various companies or legal entities across multiple countries with different currencies, taxation rules and reporting requirements.

NetSuite reported adjusted earnings on January 28th of 5 cents compared to expectations for 4 cents. Revenue of $206.2 million rose +33% and beat estimates for $205 million. They reported several new accounts including Snapchat, American Express Global Business Travel and Lucky Brand to name a few. They added 616 new customers in the quarter and replaced SAP in 17 accounts. Recurring revenues rose +30% and now make up 80% of revenue. Nonrecurring revenue of $41.7 million rose +34%. They ended the quarter with $379 million in cash.

Revenue for 2016 is expected to rise 28-31% with earnings growing 80% to 100% to a range of 40-45 cents.

NetSuite was upgraded by Canaccord Genuity from hold to buy after earnings.

Not many companies are growing annual revenue by 30% and earnings by 100%. This is NOT Tableau software but it was punished for Tableau's weakness.

Earnings are April 21st.

Position 2/22/16 with a trade at $56.50

Long April $60 call @ $2.40, see portfolio graphic for stop loss

PII - Polaris Industries - Company Description


Nice gain to a new 3 month high. I changed the exit target to $105.85 to get under some minor resistance at $106.35.

Target $105.85 for an exit.

Original Trade Description: February 25th.

Polaris makes off road vehicles, snowmobiles and motorcycles. They compete with Arctic Cat and have 8,100 employees. They are about four times larger than ACAT. They had some earnings issues from the lack of snow but their motorcycle business helped smooth out the rough spots. The company reduced guidance in December and shares declined from $96 to $68 by late January.

In Q4 sales declined -20% because of the lack of snow but also because of the oil recession. They sell a lot of off road equipment to oil field workers and they are not buying today. When oil field workers are employed they make a lot of money with starting wages in the $70-$80K range when times are good so there is a lot of extra cash floating around. Retail sales in oil regions were down -10% in Q4.

However, despite the lack of snow and a rough Q4 the company still managed to increase sales for 2015. That is impressive when snowmobile sales declined -25%. We have had some significant snowstorms in 2016 so that snowmobile inventory is probably shrinking in Q1.

Motorcycle sales rose +43% in Q4 so there is a bright side to warm weather and no snow. Sales in that division were up +74% for the full year.

Polaris is the number one off road vehicle manufacturer in the U.S. and are expecting a better 2016 with most of the growth in the second half.

Earnings are April 26th.

Shares are about to break over resistance at $89, market permitting. I am recommending the April $95 calls currently $2.00 on a breakout.

Position 2/26/16 with a PII trade at $89.50

Long April $95 call @ $2.15, see portfolio graphic for stop loss.

PKG - Packaging Corporation of America - Company Description


Nice gain. PKG rebounded from the Thursday dip to spike over resistance at $55. If we can move convincingly over that level we could get some additional short covering.

Original Trade Description: March 7th.

PKG manufactures and sells containerboard and corrugated packaging products in the US, Europe, Mexico and Canada. They produce shipping boxes, display packaging and protective packaging. They also produce packages for meat, fresh fruit, processed food, beverages and other industrial and consumer products. They also produce papers for the office environment and for specialty printing. They are the fourth largest producer of containerboard and corrugated packaging in the USA.

They reported earnings of $1.08 that beat estimates for $1.03. However, revenue of $1.39 billion missed estimates for $1.42 billion because of the strong dollar. For the full year profit was $4.47 to give them a current PE of 12.

The company announced an additional $200 million stock buyback program at the end of February. They bought back 1.7 million shares in the last 5 months of 2015 and 1.9 million shares YTD in 2016. The company said its "substantial operating cash flow" gave it an "excellent opportunity" to continue buying back its stock and return value to shareholders.

They also announced a 55-cent quarterly dividend payable April 15th to holders on March 15th which equates to a 4% yield.

Next earnings are April 25th.

After reporting earnings the shares rebounded from a sector downgrade on IP in January. PKG has rebounded from $45 to $54 and could continue higher to as much as $65 before hitting significant resistance.

With recent economic reports suggesting the economy is improving slightly this might be the right time to speculate in companies that will profit from a summer recovery.

Shares dipped slightly on Thursday after hitting as 6-week high on Wednesday. This gives us an opportunity to buy a close to the money option relatively cheaply. There is no entry trigger.

Position 3/11/16:

Long April $55 call @ $2.20, no initial stop loss.

QSR - Restaurant Brands Inc - Company Description


Nice recovery from Thursday's weakness with a close at a 4 month high. No news.

The company is presenting at the BAML Consumer and Retail conference on March 15th a 2:40 PM ET.

Original Trade Description: March 7th.

QSR is the new name for the Burger King and Tim Hortons brands. Both have been serving customers for more than 50 years. QSR currently operates more than 19,000 restaurants in 100 countries with more than $23 billion in sales. The name change and rebranding came a year ago when Burger King bought the Tim Hortons chain.

QSR has been flying under the radar for the last year with all the news about McDonalds all day breakfast and Starbucks expanded menu. They reported earnings of 35 cents that beat estimates of 31 cents.

Same store sales rose +5.6% at Tim Hortons and 5.4% at Burger King.

Burger King sales are accelerating because of a flood of new menu items. They have Chicken Fries, which are fries dipped in fried chicken batter and fried. They have Jalapeno Chicken Fries. On February 23rd they introduced the Whopper Hot Dog. This is a foot long hotdog flame grilled and served with whatever you want on them.

Burger King received tons of free press when the new hot dog was delivered. Some food aficionados are calling the hot dog a "culinary calamity." Others called is a "disgusting disgrace" but customers are waiting in line to order them.

Franchisees claim the demand has been "overwhelming" and while only a couple weeks old they are selling over 100 a day and rising rapidly as more customers realize they are available. Americans eat more than 20 billion hotdogs a year.

Earnings are May 27th.

QSR shares are currently $37.85 and a breakout over resistance at $37.65 is in progress. I am recommending we buy the April $39 call, currently $1.10, and plan on exiting at $41 if that higher level of resistance slows the rally.

With a QSR trade at $38.15

Buy April $39 call, currently $1.10, no initial stop loss.

BEARISH Play Updates (Alpha by Symbol)

VXX - iPath S&P 500 VIX Futures ETN - ETF Description


Finally a bullish day with no volatility to push the VXX to 20.90 at the close. It is going to be a race to reach our exit target at 20 before our options expire next week.

Because we are running out of time on the March put, I have an exit target at $20. That should give us a small gain. The volatility rebound in mid February sidetracked the original play and we need to take a gain if one is offered.

Original Trade Description: January 16th

At the risk of stating the obvious, the last two weeks in stocks have been brutal. Investors have taken a risk-off attitude and sold just about everything. The small cap Russell 2000 index is already down -11% in the first ten trading days of 2016. The NASDAQ composite is off -10%. The S&P 500 has declined -8%.

The New Year has suffered a parade of negative headlines from disappointing economic data both in the U.S. and China. China devaluating its currency. N. Korea claiming to have hydrogen bombs (several times worse than normal nukes). Crude oil crashing into multi-year lows. Plus falling sentiment for corporate earnings, which are expected to be negative two quarters in a row.

No one wanted to be long over the three-day weekend, which helped drive stocks even lower on Friday. The S&P 500 dipped to 15-month lows before paring its losses on Friday. The fact that Friday was also options expiration just added to the volatility.

Stocks normally do not move that fast in a straight line for very long. Markets a very oversold and way overdue for a bounce. The rebound could show up this week. One way to play it is the volatility indices. The VXX follows the iPath S&P 500 VIX Short-Term Futures Index. When investors panic volatility spikes but these are almost always short-term events. You can see on the long-term weekly chart below these spikes always fade.

Tonight we are suggesting put options on the VXX to capture the decline as volatility fades again and it will sooner or later. We are betting on sooner. We want to buy the March $23 puts at the opening bell on Tuesday.

Position 1/19/16:
Long March $23 Put @ $2.41, no stop loss

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