Option Investor

Daily Newsletter, Sunday, 3/22/2015

Table of Contents

  1. Leaps Trader Commentary
  2. Portfolio
  3. New Plays
  4. Play Updates
  5. Watch

Leaps Trader Commentary

Stocks Applaud The Fed's Patience

by James Brown

Click here to email James Brown

Worries about what the Federal Reserve might say about raising rates fueled a three-week decline in the big cap indices. This fear were overblown. The Fed did remove the word patient from their statement but offered a very dovish outlook. The dollar reversed sharply lower in response to the Fed's statement and the Fed Chairman Yellen's comments. This currency weakness fueled big gains across the markets for equities and commodities.

The bounce in stocks was very widespread. The S&P 500 snapped a three-week losing streak. Meanwhile the small cap Russell 2000 hit new record highs. Stocks in housing, transportation, and in the semiconductor indices all delivered big gains. Yet biotech remains the best performer. The biotech industry was up +4% last week and it's currently up +23% year to date.

The U.S. dollar's big drop, something I've been warning investors about, sparked widespread gains for commodities. Gold rose +2.2% for the week. Silver was up +7.2%. Crude oil surged to a +3% gain on the week after falling to new six-year lows before the Fed's statement was released. This fueled a rally across the energy sector with the oil index up +4.3% and oil service stocks up +3.2%.

Chart of the U.S. dollar index

The U.S. dollar index, which measures the strength of the dollar against a basket of six major currencies, had rallied to 12-year highs a week ago. I cautioned readers that the pace of the rally was unsustainable. The Fed's statement sparked a very sharp, one-day drop on Wednesday afternoon. Some market commentators were calling it a mini flash-crash in the dollar. Wednesday's decline was the biggest, one-day drop in six years.

It was not a surprise to see crude oil bounce on dollar weakness but the move is probably temporary. The European Central Bank (ECB) has only just begun its QE program. The euro currency will continue to sink and that will lift the dollar again. Meanwhile the U.S. continues to see huge increases in crude oil inventories. Last week saw inventories rise another +9.5 million barrels. Current oil inventories in the U.S. are at another 80-year high at 458.5 million barrels. This number is up more than 76 million barrels in just the last ten weeks.

Weekly Chart of WTI crude oil

Chart of the WTI crude oil

Right now a lot of oil refineries are doing maintenance before switching to the summer blend of gasoline. Plus, Americans tend to do more driving in the summer time. Demand for oil will rise in the next couple of months. However, there is still a risk that the U.S. could run out of storage before that happens.

Last week saw the number of active oil and gas rigs fall for the 15th week in a row. Baker Hughes said the active rig count dropped another -56 rigs to 1,069. Oil rigs were down -41 and natural gas rigs dropped -15. The number of active rigs has fallen -44% from 1,931 in September to 1,069 today. We could be headed toward the 2009 lows near 866 active rigs. Here's the crazy thing. U.S. oil production actually hit a new 38-year high last week at 9.419 million barrels a day. That's because there is a delay between shutting down a rig and oil production declines.

Dennis Gartman, the Commodities King, believes that oil is going a lot lower. On CNBC this past week he said it would not surprise him to see crude oil drop to $15 a barrel. That's pretty extreme. There are plenty of analysts that believe we'll see crude oil in the $30s. The good news is that lower oil prices are going to bring lower gasoline prices with them.

You may recall that as oil was plunging in the fourth quarter last year we saw the price of gasoline decline for a record-setting 123 days in a row. Gas hit a national average low of $2.05 a gallon in January. A few areas actually saw gasoline below $1.60 a gallon. The price of gas then bounced 40 days in a row. Today the national average is $2.42. If crude oil continues to sink we could see gasoline back near the $2.00 area. Unfortunately, this will probably be another short-term boon for the economy. Eventually the impact of shutting down all of those drilling rigs will cut oil production and prices will bounce.

Economic Data

Economic data in the United States continues to disappoint. Industrial production from January was revised lower from +0.2% to -0.3% and February's reading was only +0.1%. The New York Empire State Manufacturing Survey dipped from 7.8 in February to 6.9 in March. The Philly Fed business outlook survey slipped from 5.2 in February to 5.0 in March.

The NAHB Housing Market index, a sentiment survey of homebuilders, declined from 55 to 53 when analysts were expecting a gain. The February housing starts plunged -17% to an annual pace of 897,000. Most blamed the record-breaking snowfall on the East Coast for the decline but that's not completely true. Other areas of the country not affected by the weather also saw a slowdown.

Fed Meeting

The big event for the week was the Federal Reserve's open market committee (FOMC) meeting. The two-day meeting ended on Wednesday. The stock market has been agonizing for days over if the Fed would remove the word "patient" from their statement. The Fed did choose to remove the word patient but they went out of their way to state that just because we're not patient doesn't mean we're impatient - essentially we are in no rush to raise rates.

Technically the Fed can raise rates at any time but the committee also said they want to be "reasonably confident" that inflation would hit the 2% mark before raising rates. That's not going to happen any time soon. The Fed actually lowered their inflation forecast from +1.0%-1.6% down to +0.6%-0.8%. The Fed also revised their 2015 GDP forecast from +2.6%-3.0% down to +2.3%-2.7%.

The fed funds futures rate measures the odds of a rate hike in the future. After last week's statement and Fed Chairman Janet Yellen's dovish comments in her press conference the expectation for a rate hike have plunged. Estimates for a hike in June are in the 0%-11% range. Expectations for a hike in September dropped from 55% to 39%. Now many believe that the Fed will not hike rates at all this year.

Overseas Economic Data

Economic data in Asia was mixed. Japan said their Tankan Index data for March improved from 11 to 16. They also saw their All Industries Activity index rise +1.9% for the month. Meanwhile the Bank of Japan Governor Kuroda spoke like a true politician - out of both sides of his mouth. The BoJ lowered their inflation forecast last week toward zero percent but Kuroda claims he still expects Japan's CPI to hit their 2.0% target in 2015.

China continues to see economic data slowdown. The latest look at real estate saw home prices decline for the tenth month in a row with another -5% decline. That didn't stop the rally in Chinese stocks. The Shanghai index soared more than 7% last week to hit new seven-year highs. That's because investors are speculating that the government will launch new stimulus measures to boost the economy. The Chinese government recently confessed their economy will decline from 2014's +7.5% growth rate. Chinese Premier Li Keqiang said that current 2015 estimates of +7% might be too optimistic.

The rally in European stocks continued as well. Britain's FTSE 100 index hit a new record high and traded above the 7,000 mark for the first time. Meanwhile the German DAX index rebounded from its midweek lows and is close to challenging its all-time highs set just over a week ago.

Greece remains a perpetual thorn in Europe's side with constant bickering about what the country will and won't do. Europe has been tempting Greece with another 7.2 billion euro rescue payment to avoid a liquidity crisis in the country. Unfortunately they can't agree on the reforms necessary to qualify for this next load of cash. Greece has a history of promising reforms and then not following through. The EU finance ministers just concluded another two-day meeting on Friday. Little was accomplish but the Eurogroup claims Greece will produce a new reform plan in the next few days.

Major Indices:

March has been a volatile month for the big cap stocks. The S&P 500 has not been able to manage back-to-back gains since February. The back and forth is a sign of investor fear and indecisiveness. Thanks to the Fed's dovish stand on rates the market did see widespread gains. The S&P 500 rallied +2.6% last week and that left the index up +2.39% year to date.

The recent record highs from late February are now overhead resistance in the 2,120 area. The nearest looks like 2,080, 2,060, and 2,040.

chart of the S&P 500 index:

(March) chart of the S&P 500 index:

The NASDAQ delivered a +3.1% rally for the week. More importantly the NASDAQ composite has broken through round-number resistance at the 5,000 level. These are new 15-year highs. You could argue the NASDAQ is short-term overbought but the path of least resistance seems to be higher.

Ideally the 5K mark would be new short-term support. I'd look for potential support 4,950 and 4,900. Year to date the NASDAQ is up +6.1%, thanks to big gains in the biotech industry.

Keep a close eye on the multi-month trend line of higher highs that has been resistance in the past.

chart of the NASDAQ Composite index:

Thus far small caps have been big winners in 2015. The Russell 2000 index surged +2.78% to hit new all-time highs last week. The breakout past resistance in the 1,240 area is good news and this level should be new support. It's hard to say what will be resistance now with the $RUT in blue sky territory. Year to date the RUT is up +5.1%.

chart of the Russell 2000 index

Economic Data & Event Calendar

The week ahead is pretty quiet for economic data. It's also void of any big events. The FOMC meeting is over. The Q1 earnings season doesn't start until April 8th with Alcoa (AA)'s earnings report.

We will see another estimate on Q4 GDP but that's in the rearview mirror. Today investors are worried about Q1 GDP growth.

Economic and Event Calendar

- Monday, March 23 -
Existing Home Sales
HSBC China PMI data

- Tuesday, March 24 -
Consumer Price Index (CPI)
New Home Sales

- Wednesday, March 25 -
Durable Goods Orders

- Thursday, March 26 -
Japan's CPI data

- Friday, March 27 -
U.S. Q4 GDP estimate (third estimate)
University of Michigan Consumer Sentiment survey

Additional Events to be aware of:

April 29th - FOMC policy update
May 7th - Election in the United Kingdom

Looking Ahead:

I just mentioned GDP growth. This past week we saw the Federal Reserve revise their 2015 GDP forecast from +2.6%-3.0% down to +2.3%-2.7%. That could be too optimistic. Two weeks ago the Atlanta Fed downgraded their Q1 GDP estimate from +1.2% to +0.6%. This past week they downgraded their forecast again and now expect only +0.3%. We have also seen a parade of disappointing economic data in the U.S. over the last several weeks. The odds of the Fed raising rates any time soon is probably zero.

Investors should worry about slowing U.S. economic growth and slowing earnings growth, not rate hikes. The U.S. dollar did see a pullback last week but the trend is higher. This will continue to put pressure on big multi-national companies. Meanwhile the small cap index is at new highs because most small caps are domestically focused and thus the rising dollar has less of an impact on their corporate earnings. We are less than three weeks away from the Q1 earnings season. That means the next couple of weeks is earnings-warning season as companies confess they're going to miss estimates before it's too late.

Ray Dalio is an incredible investor. He founded Bridgewater Associates, which is the biggest hedge fund in the world with $165 billion under management. Dalio just warned his clients that the Federal Reserve has created a risk that the stock market could see a 1937-style decline when they eventually raise interest rates. In his note to clients Dalio cautioned, "If one agrees that either a) we are near the end of the developed country central bankers' ability to be effective in stimulating money and credit growth or b) the dollar is the world's reserve currency and that the world needs easier rather than tighter money policies, then one would hope that the Fed will be very cautious about tightening." For this reason our funds are avoiding concentrated investments at this time. That means the smartest guy among the smart money traders is turning cautious due to potential volatility surrounding central bank moves.

Please note I'm not bearish on the stock market. I am merely noting some of the potential pitfalls that could plague the market. On a short-term basis stocks could be poised for some profit taking. April 15th is the tax deadline for Americans. It's not uncommon for investors to sell some stocks to pay their tax bill, especially with the U.S. market at or new their highs. On top of that we're also nearing the last few days of the third quarter. Stocks might see some window dressing before the quarter ends, which could squeeze stocks higher. At the same time, funds could be selling some stocks to handle investor redemptions (to pay the tax man).

Big picture - the market's trend is still higher. The NASDAQ and the Russell 2000 might be due for a little rest. I'd like to see the transportation average breakout to new highs after four months of consolidating sideways. If the S&P 500 does close above 2,120 then it could definitely feed into any quarter-end window dressing.

~ James


Portfolio Update

by James Brown

Click here to email James Brown

Current Portfolio

Portfolio Comments:

We want to lock in potential gains on some of our high-flying healthcare stocks. Many of these have soared to all-time highs and are starting to look very overbought.

Please note that we want to exit our AET, ANTM, HUM, and CHL trades on Monday morning, March 23rd.

We have new stop losses on CSCO, LMT, NOW, SBUX, TM, and UA

Disclaimer: At any given time the author may have positions in any or all of any companies mentioned in the Leaps Newsletter.

--Position Summary Table--
Table lists Directional CALL or PUT/LEAPS only.
Insurance puts, if applicable, are not shown.

Red symbol/name represents a play or option position exited or closed this week.

New Plays

European Stocks Are Rising

by James Brown

Click here to email James Brown

- New Trades -

iShares MSCI Germany - EWG - close: 30.26

03/22/15: EWG is a watch list candidate that just graduated to an active trade. The plan was to wait for shares of this ETF to close above $30.00 and then buy calls the next day. EWG met that requirement with Friday's close at $30.26.

European stocks have been climbing. The British FTSE rallied past the 7,000 mark for the first time in history last week. Meanwhile the German DAX index is bouncing back toward its record highs set earlier in March. The European Central Bank has just begun its QE program that could power gains for equities well into 2016.

This EWG trade will open on Monday morning.

I want to remind readers that this is ETF is not hedged against weakness in the euro. The trend is up but its performance will lag the major European markets. You could look at hedged European ETFs but many of them have very low volume and do not have options (especially LEAPS). If you're curious check out these symbols: HEWG, DBGR, DXGE. Be sure to do your homework.

Earlier Comments: February 22, 2015:
The EWG is an exchange traded fund (ETF) that mimics the MSCI Germany index. This includes small, mid, and large-cap companies.

The U.S. market has enjoyed several years worth of QE programs that helped fuel market gains. Now that the U.S. QE program is over Europe is about to start on their own QE program. The European Central Bank (ECB) will start its quantitative program in March this year. The central bank will purchase about €60 billion a month through September 2016 but they've already announced that they will extend this deadline if they need to.

This is significant. After years of promising to do something about the Eurozone economy and fight the threat of deflation the ECB is finally acting. They might be too late to fend off deflation but investors seem to have hope that Europe can turn things around.

Germany should be a prime beneficiary of this program. The ECB's QE will continue to pressure the euro lower and that makes Germany's exports more competitive. Investors are have already starting betting on an improvement in the Germany market with a significant bounce in the EWG.

Today the EWG has broken through technical resistance at its simple 200-dma. Now it's about to challenge resistance near the $30.00 mark. Tonight I am suggesting investors wait for the EWG to close above $30.00 and then buy calls the next morning with a stop loss at $26.85.

FYI: If you want a broader European ETF I did consider the VGK but about half of its holdings are British and Swiss companies and may not see the same benefit from a weaker euro.

Breakout trigger: Wait for EWG to close above $30.00
Then buy calls the next morning with a stop at $26.85 .

BUY the 2016 Jan $30 call (EWG160115c30) current ask $1.95

03/23/15 Trade begins at the opening bell
03/20/15 EWG closed @ $30.26, above our suggested entry: a close above $30.00
Option Format: symbol-year-month-day-call-strike


Originally listed on the Watch List: 02/22/15

Play Updates

Big Healthcare Stocks Are Soaring

by James Brown

Click here to email James Brown

Editor's Note:

Several of our bullish candidates in the healthcare sector have been soaring. Tonight I am suggesting an immediate exit for the AET, ANTM, and HUM trades. We also want to close our CHL trade on Monday morning.

I've also updated several stop losses: CSCO, LMT, NOW, SBUX, TM and UA.

Closed Plays

None. No closed plays this week.

Play Updates

Apple Inc. - AAPL - close: 125.90

03/22/15: The first two days of AAPL as a component of the Dow Jones Industrial Average have been negative (Thursday & Friday). In spite of the dip shares still managed a gain for the week. I'm warning readers now that AAPL could still be headed for the $120-122 area.

I am not suggesting new positions at this time but a convincing bounce from $120 could be used as a potential entry point (if you launch new positions, consider a higher option strike).

Earlier Comments: November 2, 2014:
Love it or hate it AAPL always has Wall Street's attention. It has a cult-like following. The company's success has turned AAPL's stock into the biggest big cap in the U.S. markets with a current valuation of more than $633 billion.

The company is involved in multiple industries from hardware, software, and media but it's best known for its consumer electronics. The iPod helped perpetuate the digital music revolution. The iPhone, according to AAPL, is the best smartphone in the world. The iPad helped bring the tablet PC to the mass market. The company makes waves in every industry they touch with a very distinctive brand (iOS, iWork, iLife, iMessage, iCloud, iTunes, etc.) and they've done an amazing job at building an Apple-branded ecosystem. Now they're getting into the electronic payments business with Apple Pay.

The company's latest earnings report was super strong. AAPL reported its Q4 (calendar Q3) results on October 20th. Wall Street was expecting a profit of $1.31 a share on revenues of $39.84 billion. The company delivered a profit f $1.42 a share with revenues up +12.4% to $42.12 billion. The EPS number was a +20% improvement from a year ago. Gross margins were up +1% from a year ago to 38%. International sales were 60% of the company's revenues.

AAPL's iPhone sales exceeded estimates at 39.27 million in the quarter and up nearly 16% from a year ago. The only soft spot in their ecosystem seems to be iPad sales, which have declined several quarters in a row. The company hopes to rejuvenate its tablet sales with a refresh of the iPad models. More importantly AAPL management raised their Q1 (calendar Q4) guidance as they expect revenues in the $63.5-66.5 billion in the quarter. Recent news would suggest that AAPL might deliver an incredible 50 million iPhone 6s in 2014. That's not counting their new iPhone 6+.

The better than expected results and bullish guidance sent the stock to new highs. The rally has created a quadruple top breakout buy signal on its point & figure chart that is currently forecasting at $133 target. Yet we do not want to chase AAPL here. The stock is up $12 from its October low. We do want to be ready if shares see a pullback.

Tonight I am suggesting a buy-the-dip trigger to buy calls at $103.50 with a stop loss at $98.90. (We amended the buy-the-dip trigger to $111.00 on Nov. 30th).

- Suggested Positions -
DEC 09, 2014 - entry price on AAPL @ 110.19, option @ 9.55
symbol: AAPL160115C120 2016 JAN $120 call - current bid/ask $14.40/15.40

03/01/15 Caution: AAPL could be poised for a pullback. Consider taking profits now and then re-enter this trade later.
02/22/15 new stop @ 114.00
02/15/15 new stop @ 109.50
12/09/14 triggered on gap down at $110.19, trigger was $111.00
11/30/14 raise the buy-the-dip entry trigger to $111.00
11/16/14 raise the buy-the-dip entry trigger to $108.00
Adjust the strike price to the 2016 Jan $120 call.
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 114.00
Play Entered on: 12/09/14
Originally listed on the Watch List: 11/02/14

Aetna Inc. - AET - close: 108.63

03/22/15: The rally in the big healthcare stocks has been really impressive. AET accelerated higher last week. Shares are up seven weeks in a row.

Tonight I am suggesting an immediate exit to lock in potential gains. More aggressive traders may want to let the trade ride (don't close it) and just raise your stop loss. There is definitely a good chance that AET continues to rally another day or two. I could see it tagging $110.00 but I'd rather lock in a potential gain now.

- Suggested Positions -
JAN 22, 2015 - entry price on AET @ 95.52, option @ 6.05
symbol: AET160115C100 2016 JAN $100 call - current bid/ask $13.55/14.20

03/22/15 prepare to exit on Monday morning
03/15/15 new stop @ 97.45
02/22/15 new stop @ 91.40
02/15/15 new stop @ 88.50
01/22/15 Trade begins. AET gaps open higher at $95.52
01/21/15 AET closes at $94.74, above our trigger of $93.00.
01/18/15 Move the trigger to a close above $93.00 with a stop at $84.90 and use the 2016 January $100 call.
12/28/14 adjust the buy-the-dip trigger to $86.00 and raise the stop loss to $83.45
12/14/14 adjust the buy-the-dip trigger from $86.00 to $84.25. Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 97.45
Play Entered on: 01/22/15
Originally listed on the Watch List: 12/07/14

Anthem, Inc. - ANTM - close: 158.38

03/22/15: ANTM is another big healthcare name that has been soaring. Shares rallied more than $15.00 from their March 11th lows. The action on Friday, with the intraday spike above $160.00, looks like a potential top.

Tonight I am suggesting an immediate exit on Monday morning to lock in potential gains. We can re-evaluate new positions if ANTM corrects lower. Obviously more aggressive traders could keep the trade going but I suggest you significantly raise your stop loss.

- Suggested Positions -
JAN 16, 2015 - entry price on ANTM @ 133.75, option @ 11.40
symbol: ANTM160115C140 2016 JAN $140 call - current bid/ask $22.40/25.05

03/22/15 prepare to exit on Monday morning
03/15/15 new stop @ 139.00
03/01/15 new stop @ 134.65
02/22/15 new stop @ 132.40
02/15/15 new stop @ 129.50
01/25/15 new stop loss @ 126.75
01/16/15 Trade begins. ANTM opens at $133.75
01/15/15 triggered. ANTM closed at $134.09, above our trigger of $132.00
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 139.00
Play Entered on: 01/16/15
Originally listed on the Watch List: 01/11/15

China Mobile Limited - CHL - close: $63.72

03/22/15: CHL was looking pretty good midweek. Unfortunately shares have reversed sharply lower in the last two session. The stock closed unchanged for the week.

CHL reported earnings on Friday morning that were disappointing. Both revenues and earnings declined from a year ago. It was the sixth quarter in a row that CHL's earnings declined. The company blamed rising costs for the disappointing results. Management also offered a rather lackluster guidance.

Tonight I am suggesting an immediate exit on Monday morning.

- Suggested Positions -
NOV 11, 2014 - entry price on CHL @ 61.39, option @ 2.80
symbol: CHL160115C70 2016 JAN $70 call - current bid/ask $2.30/2.55

03/22/15 prepare to exit on Monday morning
03/01/15 new stop @ 62.75
02/15/15 new stop @ 61.75
01/25/15 new stop at $59.50
12/28/14 Caution! CHL is struggling with resistance near $60.
12/14/14 adjust stop loss down to $55.95
11/11/14 trade begins. CHL gaps down at $61.39
11/10/14 CHL closes at $62.68, above our trigger of $62.65
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined (likely the $75-85 range)
Current Stop loss: 62.75
Play Entered on: 11/11/14
Originally listed on the Watch List: 11/09/14

Cisco Systems - CSCO - close: 28.44

03/22/15: CSCO snapped a three-week decline with a bounce last week. Tonight I am turning more defensive on CSCO. We will raise the stop loss to $26.85. More conservative investors might want to move their stop closer to $27.50 instead.

I am not suggesting new positions at this time.

Earlier Comments: December 21, 2014:
It seems that 2014 delivered a resurgence for old guard, big cap, technology names. CSCO is one of them and the stock has shined this year with a +23.8% gain versus the +14% gain in the NASDAQ Composite.

The company continues to struggle with strong earnings growth and management has been cautious with their guidance. It seems that investors don't care. The stock is sporting a 2.8% dividend yield. That's not bad when the 10-year U.S. bond has a yield near 2.1%.

Analysts are starting to speculate that 2015 could be a good year for earnings since 2014 was so tough (that makes for easier comparisons). The recent strength in shares of CSCO have produced a buy signal on the point & figure chart that's forecasting at $43 price target. The stock has garnered a number of bullish analyst calls since their earnings report in mid November.

The $26.00 level was key resistance for CSCO. Normally broken resistance turns into new support and the stock found support there during the market's recent pullback. Right now CSCO is poised to breakout past $28.00. Tonight I am suggesting we wait for CSCO to close above $28.15 and then buy calls the next morning with a stop loss at $25.75.

- Suggested Positions -
DEC 23, 2014 - entry price on CSCO @ 28.22, option @ 1.40
symbol: CSCO160115C30 2016 JAN $30 call - current bid/ask $1.32/1.35

03/22/15 new stop @ 26.85
03/08/15 Shares appear to be correcting lower. Look for potential support in the $27.50-28.00 area.
02/11/15 CSCO reports better than expected earnings and revenues, raises dividend
12/23/14 Our trade begins. CSCO opens at $28.22
12/22/14 CSCO closed at $28.22, above our trigger of $28.15
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: 26.85
Play Entered on: 12/23/14
Originally listed on the Watch List: 12/21/14

Fedex Corp. - FDX - close: 172.04

03/22/15: FDX reported earnings on March 18th. Wall Street was expecting a profit of $1.88 a share on revenues of $11.8 billion. FDX delivered $2.01 a share but revenues only rose +4% to $11.7 billion. Operating margins were up, likely due to lower fuel costs. FDX management narrowed their 2015 guidance from $8.50-9.00 to $8.80-8.95.

The stock gapped down on the earnings news but FDX has now broken down below support at $170.00, at least not yet. A couple of analysts raised their price targets on FDX following the earnings results but this news failed to really move the stock.

I'm concerned for our FDX trade. More conservative investors may want to abandon ship. Shares are not performing as expected. I am not suggesting new positions at this time.

Earlier Comments: January 18, 2015:
FDX is part of the services sector. They're one of the largest air delivery and freight delivery service providers in the world. They have 62,000 vehicles and 370 service centers around the globe.

The stock was a strong performer last year with a +20% gain, outpacing the major market indices. Recently a few Wall Street analysts have turned increasingly bullish on FDX. The global economy might be slowing but the U.S. continues to see economic improvement. At the same time gasoline prices have crashed and this is a favorable environment for shipping companies where fuel is a major expensive.

It's a new year and both UPS and FDX have raised their prices by 5%. FDX has also started charging customers with their new dimensional pricing strategy. That means the size of the package in addition to the weight determines the price to ship it. This is specifically targeting online shippers who have shipping small light weight items in big bulky boxes. The industry is calling this new system dim weight pricing and it should boost revenues for FDX.

Shares of FDX found support near $170 multiple times this January. Friday's breakout past several moving averages looks bullish. The stock has also broken the six-week trend of lower highs. However, instead of chasing FDX here, after a $10 rally, I am suggesting we buy calls on a dip.

Tonight I'm suggesting a buy-the-dip trigger at $175.00 with a stop loss at $168.00.

- Suggested Positions -
JAN 27, 2015 - entry price on FDX @ 175.00, option @ 6.90
symbol: FDX160115C200 2016 JAN $200 call - current bid/ask $3.45/3.75

03/22/15 FDX is not really performing and more conservative investors might want to hit the eject button
03/18/15 EPS was above estimates at $2.01/share but revenues came in light.
03/15/15 Earnings are coming up on March 18th.
03/08/15 FDX looks headed for what should be short-term support near $170.00
01/27/15 FDX hits our buy-the-dip trigger at $175.00
Option Format: symbol-year-month-day-call-strike

Current Target: FDX @ TBD
Current Stop loss: 168.00
Play Entered on: 01/27/15
Originally listed on the Watch List: 01/18/15

Humana Inc. - HUM - close: 182.79

03/22/15: As Jim Cramer might say, it's time to ring the register. Shares of HUM are soaring. The stock is moving a lot faster than expected. Last week HUM rallied +9.7% and is up more than $20 in less than two weeks.

HUM is short-term overbought here. I am suggesting an immediate exit on Monday morning to lock in potential gains.

- Suggested Positions -
OCT 22, 2014 - entry price on HUM @ 133.75, option @ 13.25*
symbol: HUM160115C140 2016 JAN $140 call - current bid/ask $43.20/47.10

03/22/15 prepare to exit immediately on Monday morning
03/15/15 new stop @ 154.00
03/08/15 Investors may want to take some money off the table here
03/01/15 new stop @ 149.00
02/22/15 new stop @ 142.00
02/04/15 HUM reports earnings and misses estimates by six cents
01/18/15 new stop @ 137.40
12/07/14 new stop @ 134.00
11/09/14 new stop @ 124.00
10/22/14 trade begins. HUM opens at $133.75
*option entry price is an estimate since the option did not trade at the time our play was opened.
10/21/14 triggered. HUM closed @ 133.27, above our suggested entry above $130.25
Option Format: symbol-year-month-day-call-strike

Current Target: HUM @ TBD
Current Stop loss: 154.00
Play Entered on: 10/22/14
Originally listed on the Watch List: 10/19/14

iShares US Home Construction ETF - ITB - close: 27.82

03/22/15: Our ITB trade is looking a lot healthier thanks to last week's bounce. The NAHB homebuilder index, a survey of homebuilder confidence, slipped a couple of points but this didn't negatively impact the ITB. Shares of this ETF appear to have formed a bullish double bottom in the $26.50 area. Today the ITB is challenging resistance at its February highs near $28.20.

Earlier Comments: January 11, 2015:
The ITB is an exchange traded fund that mimics the Dow Jones U.S. Select Home Construction Index. The top 12 holdings are DHI, LEN, PHM, TOL, NVR, HD, TPH, LOW, RYL, SHW, KBH and MTH.

This index has been stuck in a trading range for years. That looks like it's about to change. Have you looked at a chart of the 10-year bond yield lately? Bond yields are going lower. That's going to pressure mortgage rates lower and that's bullish for home sales. This past week saw 30-year mortgage rates dip below 3.6%. That's a 19-month low.

If that wasn't enough of a tailwind President Obama wants to help. On January 7th the White House announced plans to reduce the government mortgage insurance premiums in an effort to boost home ownership. Another positive for the homebuilders is the U.S. Federal Reserve. We just had two fed governors come out last week saying they think the Fed should hold off on raising rates. The longer the Fed waits to start raising rates the better it will be for homebuilders.

Currently the ITB appears to be breaking out past major resistance and closed at multi-year highs. I'd like to see a little bit more follow through. Tonight I'm suggesting we wait for the ITB to close above $27.00 and then buy calls the next morning with a stop loss at $23.95.

- Suggested Positions -
FEB 11, 2015 - entry price on ITB @ 27.09, option @ 1.70
symbol: ITB160115C30 2016 JAN $30 call - current bid/ask $0.85/1.85

03/01/15 new stop @ $25.45
02/11/15 trade begins. ITB opens at $27.09
02/10/15 ITB closes at $27.10, above our trigger at $27.00
Option Format: symbol-year-month-day-call-strike

Current Target: ITB @ TBD
Current Stop loss: 25.45
Play Entered on: 02/11/15
Originally listed on the Watch List: 01/11/15

Lockheed Martin - LMT - close: 203.77

03/22/15: Defense-stocks followed the market higher last week. LMT looks a lot better back above the $200 mark. Last week I was suggesting a close above $201.00 as a new entry point and we got it.

Please note our new stop loss at $194.00

I do want to offer one warning for investors. The U.S. Air Force is expected to make a big decision in spring or summer this year. That decision is who will make America's next-generation bomber. The program is called the Long Range Strike-Bomber (LRS-B) and will be worth tens of billions of dollars to the winning contractor. This is a major fight between rival defense contractors like Lockheed Martin (LMT), Boeing (BA) and Northrop Grumman (NOC). The companies that do not win this program could see their stocks decline on the news. Comments:
03/15/15: LMT spent the week hovering between support at its 50-dma near $196 and resistance near $200. Shares did lose 55 cents for the week and that marks the third weekly loss in a row (just like the S&P 500). At this point I would wait for a close above $201.00 before considering new bullish positions. Or as an alternative, nimble traders could buy dips near the 100-dma, near 192.00.

Earlier Comments: January 18, 2015:
Defense stocks have delivered exceptional gains for investors in spite of the dreaded sequestration budget cuts from Budget Control Act of 2011. Granted the cuts have been delayed and adjusted many times but it still put a crimp in U.S. government defense spending. In response many of America's biggest defense contractors have focused on building up their international business instead of relying on the U.S.

LMT is one such defense contractor. According to a company press release, " Headquartered in Bethesda, Maryland, Lockheed Martin is a global security and aerospace company that employs approximately 113,000 people worldwide and is principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services. The Corporation's net sales for 2013 were $45.4 billion."

Right now one of their biggest projects is the massive F-35 Joint Strike Fighter system. It's the most expensive weapons system the U.S. has ever built with an estimated cost of over $1 trillion over its 50-year lifespan.

If you haven't noticed the world seems to be getting more dangerous. The U.S. is facing a growing military rivalry with China, a belligerent and dangerous Russia, and war in the Middle East with ISIS. This sort of environment will likely keep investors focused on defense stocks.

Looking at LMT's earnings results they have beaten Wall Street's estimates for the last four reports in a row. They raised their guidance in two of the last four earnings reports. The rally in the stock has created a buy signal on the point & figure chart with a $240 target. Currently shares are consolidating sideways and appear to be building up steam for a breakout past round-number resistance at $200. I suspect that LMT's earnings on January 27th might be the catalyst needed to push shares higher.

Tonight I am suggesting we wait for LMT to close above $201.00 and then buy calls the next morning with a stop loss at $189.00.

- Suggested Positions -
FEB 20, 2015 - entry price on LMT @ 200.86, option @ 6.40
symbol: LMT160115C220 2016 JAN $220 call - current bid/ask $5.40/6.00

03/22/15 new stop @ 194.00
02/20/15 trade begins. LMT opens at $200.86
02/19/15 triggered. LMT closed at $201.75, above our trigger of $201.
Option Format: symbol-year-month-day-call-strike

Current Target: LMT @ TBD
Current Stop loss: 194.00
Play Entered on: 02/20/15
Originally listed on the Watch List: 01/18/15

Lowe's Companies - LOW - close: 75.23

03/22/15: LOW managed another weekly gain. Shares are up six out of the last seven weeks. The stock briefly pierced short-term support near $73.00 on Wednesday before quickly bouncing back. Today the stock is poised to breakout to new highs. That could happen on Monday because Friday, after the closing bell, LOW announced a big addition to their stock buyback program.

According to LOW's press release, the company "authorized a new repurchase program of $5 billion of the company's common stock. This new repurchase program has no expiration date and adds to the previous program's balance, which was $2.4 billion as of January 30, 2015."

I am suggesting a close in the $76.00-77.00 zone as a new entry point for bullish positions.

Earlier Comments: January 25, 2015:
LOW is the second biggest player in the home improvement retail business. Their main rival is Home Depot. LOW currently has more than 1,800 stores across the United States, Canada, and Mexico.

The stock has been a great performer the last couple of years, significantly outperforming the broader market. Their most recent earnings report was November 19th and results were one cent above expectations with a profit of $0.59 a share. Revenues also beat expectations with +5.6% growth to $13.68 billion. Same-store sales were up +5.1%.

Management issued bullish guidance for 2015 and raised their earnings estimate above Wall Street's forecast. LOW also raised their revenue guidance above analysts' estimates. The company expects revenues to grow +4.5% to 5% in 2015 with same-store sales growth in the +3.5% to 4% range.

The stock is often influenced by trading and news out of the homebuilders. This year there have been a couple of bombs in the homebuilding industry with both KBH and LEN warning on potential margin pressures in 2015. Shares of LOW, a retailer, shrugged off this headlines.

The U.S. economy grew +4.9% in the third quarter last year and is expected to grow about +3% in 2015. The slow and steady improvement in the U.S. economy is a tailwind for LOW. Another bonus is low gas prices. While we have not seen a lot of evidence that consumers are spending their savings at the pump eventually that money, amounting to hundreds of dollars a year for the average driver, will be spent. Americans love to spend money on their homes, which is bullish for LOW.

We are quickly approaching the spring residential real estate selling season. That means consumers will be spending money on fixing up their homes to go on the market. Those people who buy a home will spend money on their new purchase.

Technically LOW's stock has been consolidating sideways between support near $65 and resistance near $70 the last few weeks. The point & figure chart has already produced a new triple-top breakout buy signal with a $75 target (that could grow). Tonight I am suggesting we wait for LOW to close above $70.75 and then buy calls the next morning with a stop loss at $64.90.

- Suggested Positions -
FEB 06, 2015 - entry price on LOW @ 71.53, option @ 3.45
symbol: LOW160115C80 2016 JAN $80 call - current bid/ask $3.80/4.00

03/15/15 new stop @ 69.00
03/01/15 new stop @ 67.00
02/25/15 LOW reports earnings. Results beat expectations, Management raises guidance above Wall Street estimates
02/06/15 trade begins. LOW opens at $71.53
02/05/15 LOW closed at $71.47, above our trigger of $70.75
Option Format: symbol-year-month-day-call-strike

Current Target: LOW @ TBD
Current Stop loss: 69.00
Play Entered on: 02/06/15
Originally listed on the Watch List: 01/25/15

Level 3 Communications - LVLT - close: 55.40

03/22/15: LVLT rallied just about $1.00 for the week. Shares look poised to challenge their March high near $56.00 soon. Last week I suggested a close above $55.15 as a new entry point and we got it.

Earlier Comments: December 28, 2014:
LVLT is a communication services company. Their marketing material describes LVLT as "Level 3 Communications, Inc. is a Fortune 500 company that provides local, national and global communications services to enterprise, government and carrier customers. Level 3's comprehensive portfolio of secure, managed solutions includes fiber and infrastructure solutions; IP-based voice and data communications; wide-area Ethernet services; video and content distribution; data center and cloud-based solutions. Level 3 serves customers in more than 500 markets in over 60 countries over a global services platform anchored by owned fiber networks on three continents and connected by extensive undersea facilities."

They just recently completed a merger with TW Telecom. Earnings have been improving. LVLT has beaten Wall Street's earnings estimates the last three quarters in a row. Technically shares have been outperforming the broader market. The NASDAQ composite is up +15% in 2014 while LVLT is up +50%. The point & figure chart is bullish and forecasting a long-term target at $75.00.

Currently shares of LVLT are hovering just below key resistance at the $50.00 mark. I am suggesting we wait for LVLT to close above $50.50 and then buy calls the next morning with a stop loss at $45.45.

- Suggested Positions -
MAR 04, 2015 - entry price on LVLT @ 54.71, option @ 3.90
symbol:LVLT160115C60 2016 JAN $60 call - current bid/ask $3.60/4.10

03/04/15 trade begins. LVLT opens at $54.71
03/03/15 Triggered. LVLT closed at $54.90, above our trigger of $54.50
02/22/15 Strategy update: Wait for LVLT to close above $54.50, then buy calls the next morning with a new stop at $49.45. Adjust the option strike to 2016 Jan $60 call
02/08/15 Adjust entry point strategy: Buy calls on a dip at $50.75 with a stop loss at $46.25. Option Format: symbol-year-month-day-call-strike

Current Target: LVLT @ TBD
Current Stop loss: 49.45
Play Entered on: 03/04/15
Originally listed on the Watch List: 12/28/14

ServiceNow, Inc. - NOW - close: 79.38

03/22/15: Hmm... the rally in NOW continued as expected. Unfortunately at the moment NOW appears to be struggling at its late February high. A reversal here will start to look like a possible bearish double top pattern. I would hesitate to launch new positions. We will raise the stop loss up to $71.85

Earlier Comments: February 8, 2015:
Shares of NOW are trading at all-time highs thanks to significant earnings growth. The company expects to see growth of more than +40% in 2015.

NOW describes itself as "ServiceNow is changing the way people work. With a service-orientation toward the activities, tasks and processes that make up day-to-day work life, we help the modern enterprise operate faster and be more scalable than ever before. Customers use our service model to define, structure and automate the flow of work, removing dependencies on email and spreadsheets to transform the delivery and management of services for the enterprise. ServiceNow provides service management for every department in the enterprise including IT, human resources, facilities, field service and more. We deliver a 'lights-out, light-speed' experience through our enterprise cloud – built to manage everything as a service."

This company has been consistently guiding their earnings forecast higher. They've done it at least the last four earnings reports in a row. Their most recent earnings report was January 28th. NOW reported their Q4 results of $0.03 a share compared to a loss of 2 cents a year ago. Analysts were expecting a profit of 2 cents a share. Q4 revenues soared +58% to $198 million, which was above expectations.

Some of the highlights from their fourth quarter include billings up +62% year over year and up +34% quarter over quarter. Deferred revenues were up +20% for the quarter. NOW added 211 net new customers, bumping their total to 2,725. Their customer renewal rate was 97%.

NOW said their 2014 revenues soared +61% compared to 2013. Their backlog at the end of 2014 hit $1.4 billion. That's a +57% jump from a year ago. NOW's President and CEO Frank Slootman said, "We finished 2014 with strong metrics across the board, maintaining consistently high year-over-year growth rates. In addition to a growing list of new customers that now includes more than 25% of the Global 2000, we continue to see existing customers expand their relationship with us, resulting in the highest quarterly upsell rate since our IPO." NOW's CFO Michael Scarpelli said, "Within the Global 2000, annualized contract value per customer has increased 40% year-over-year. These expanding contracts have helped us grow our combined backlog and deferred revenue 57% year-over-year."

NOW offered bullish guidance. They expected Q1 revenues to grow +50% in the $207-212 million range compared to Wall Street's estimates of $202.4 million. NOW's 2015 guidance is forecasting revenue growth in the +41% to +47% range in the $960-1,000 million zone versus analysts' estimates of $948 million.

These strong numbers and the consistent growth makes them a popular candidate among Wall Street analysts. After NOW's most recent earnings report several analyst firms raised their price target on NOW's stock.

Technically shares have just recently broken out through major resistance near $70.00. The point & figure chart is bullish and forecasting a long-term target of $97.00. The last few days have seen shares consolidating sideways in the $70-75 range. Tonight I am suggesting investors wait for NOW to close above $75.50 and then buy calls the next morning with a stop loss at $68.90. More nimble traders could wait and cross your fingers for a dip near support at $70.00 as an alternative entry point.

- Suggested Positions -
FEB 13, 2015 - entry price on NOW @ 76.25, option @ 10.00
symbol: NOW160115C80 2016 JAN $80 call - current bid/ask $ 9.20/10.40

03/22/15 new stop @ 71.85
03/01/15 Warning! NOW has produced a bearish reversal and is probably headed for the $70.00 region.
02/13/15 trade begins. NOW opens @ $76.25
02/12/15 NOW closed at $75.95, above our $75.50 trigger
Option Format: symbol-year-month-day-call-strike

Current Target: NOW @ TBD
Current Stop loss: 71.85
Play Entered on: 02/13/15
Originally listed on the Watch List: 02/08/15

Starbucks - SBUX - close: 97.46

03/22/15: It was a busy week for SBUX. The company held their annual shareholder meeting on March 18th. Management announced a 2-for-1 stock split that sent the stock higher. It is the first stock split since October 2005. Shares will begin trading post-split on April 9th, 2015.

SBUX also announced a #RaceTogether campaign to try and raise awareness about racism in America. The initiative was ridiculed from multiple directions and this weekend SBUX announced they would discontinue their suggestion for baristas to write #Race Together on coffee cups.

The stock split news could drive SBUX shares higher. However, the $100 level could be major, round-number, psychological resistance. Tonight I am suggesting an exit target at $99.75 (on an intraday basis). We will also raise the stop loss to $94.40.

Earlier Comments: December 7, 2014:
I listed SBUX as on my radar screen a couple of weeks ago in the new plays section. The rally has continued and shares have broken through major resistance at their 2013 highs.

The company is in the services sector. They're considered part of the specialty eateries industry. The first Starbucks opened in Seattle back in 1971. Today they are a global brand with locations in 66 countries. SBUX operates more than 21,000 retail stores with more than 300,000 workers.

Earnings have only been so-so this year. You can see the results in SBUX's long-term chart below. After incredible gains in 2013 SBUX has essentially consolidated sideways in 2014. The good news is that looks like it's about to change.

The company recently announced a five-year plan to boost its profits and market share. They're going to be expanding deeper into China, Japan, India, and Brazil. SBUX expects to nearly double its stores in China to over 3,000 locations in the next five years. They're also working hard on their mobile ordering technology to speed up the experience so customers don't have to wait in line so long at their busiest locations. SBUX also plans to significantly increase its food revenues.

The company is also building on its Starbucks Evening experience where they will offer alcohol (mainly wine). SBUX was also making headlines on Friday when they launched their first Starbucks Reserve Roastery and Tasting Room in Seattle. The new roastery is supposed to be the ultimate coffee lovers experience.

Analysts came away from SBUX's recent investor day pretty bullish. One firm expects SBUX's stock to double in the next four years. I certainly think SBUX will be higher a year from now. The point & figure chart is bullish and forecasting at $105 target.

SBUX is currently up five weeks in a row. Tonight I am suggesting a buy-the-dip trigger to buy calls at $82.00. More patient investors may want to consider buying a dip closer to $80.00 instead.

- Suggested Positions -
DEC 15, 2014 - entry price on SBUX @ 82.00, option @ 4.30
symbol:SBUX160115C90 2016 JAN $90 call - current bid/ask $11.60/11.80

03/22/15 Set exit target at $99.75, raise the stop to $94.40
03/18/15 SBUX announced 2:1 split for April 9th
03/01/15 new stop @ 88.45
03/01/15 Consider exiting early now to lock in potential gains
02/22/15 new stop @ 87.40
01/25/15 new stop loss @ 79.65
01/23/15 SBUX soars on strong earnings results
12/15/14 triggered at $82.00
Option Format: symbol-year-month-day-call-strike

Current Target: SBUX @ 99.75
Current Stop loss: 94.40
Play Entered on: 12/15/14
Originally listed on the Watch List: 12/07/14

Toyota Motor Corp. - TM - close: 143.09

03/22/15: Shares of TM delivered a bullish performance with shares soaring +5% last week. These are new all-time highs. The stock does look short-term overbought here. I would expect a dip. Tonight I'm raising the stop loss to $133.45. More conservative investors may want to consider a much higher stop loss.

I am not suggesting new positions at this time.

Earlier Comments: November 30, 2014:
TM is considered part of the consumer goods sector. The company is a major automotive manufacturer. Headquartered in Japan, TM was founded back in the 1930s. The company now has sales around the globe.

The company led the industry in greener cars with their Prius model of electric-gasoline hybrids. Now they're leading the industry again with a hydrogen fuel cell vehicle. TM unveiled the Mirai, which means "future" in Japanese, as is the first zero-emission vehicle for consumers. The vehicle will go from 0 to 60 MPH in 9 seconds. It has a range of 400-430 miles. The only emission is water vapor.

The Mirai will not be a big seller to start. TM only expects to sell a few hundred units next year. The challenge is the infrastructure so consumers can refuel the hydrogen fuelcell. It will take a few years to really catch on but they're going to get help from various government agencies. The state of California is one example. California hopes to have 1.5 million zero-emission cars on the road by 2025.

I'm not suggesting bullish positions on TM for the Mirai. Hydrogen fuelcell vehicles are not even a drop in the bucket for the global auto market. What should capture investor attentions is the combination of TM's strong sales combined with a central bank stimulus efforts.

TM has already seen strong sales this year. They reported their first half results on November 5th. TM beat estimates and raised their revenue guidance. Falling gas prices boosted sales of SUVs. TM is also seeing sharp growth in China. This past October TM saw their sales in China soar +27% from a year ago. That is on top of a +26% increase in September and a +9% jump in August. New estimates suggest TM is poised to outsell most of its rivals in the U.S. in November too, including big competitors like General Motors, Ford, and Nissan.

TM's secret weapon could be the currency devaluation by the Bank of Japan. The Japanese government is desperate to jump start their economy and avoid deflation. They have launched a massive QE program that is crushing the value of their currency. The yen ended the week at multi-year lows. This is an advantage for a company like TM who exports a lot of their product.

I do have to mention the risk of recall headlines. It seems that the big automakers are being super careful after seeing the Ford fiasco in the last couple of years. Now companies are recalling vehicles all the time. Right now the entire industry is dealing with a defective Takata airbag recall. The top ten automakers all use Takata airbags so it's something that will affect everyone. There is always the risk of another company-specific recall that could hurt TM.

Technically shares of TM have been showing strength and outperforming many of its peers. Shares have actually broken out past resistance near its 2014 July and early November highs. I would be tempted to buy calls now. However, I'd like to see a little more follow through. Tonight I am suggesting we wait for TM to close above $124.00 and then buy calls the next day.

I will warn investors that the prior highs near $135 and $138 could be potential resistance but the point & figure chart is very bullish and forecasting a long-term target of $160.00.

- Suggested Positions -
DEC 02, 2014 - entry price on TM @ 126.56, option @ 8.75
symbol: TM160115C130 2016 JAN $130 call - current bid/ask $15.50/16.20

03/22/15 new stop @ 133.45
03/15/15 new stop @ 129.00
03/03/15 U.S. sales +13.3% in February
02/22/15 new stop @ 127.25
02/15/15 new stop @ 124.50
02/04/15 TM delivers better than expected earnings results and raises guidance
12/07/14 new stop @ $119.00
12/02/14 trade begins. TM opens at $126.56
12/01/14 trade is triggered. TM closes at $124.94, above our 124.00 trigger
Option Format: symbol-year-month-day-call-strike

Current Target: TM @ TBD
Current Stop loss: 133.45
Play Entered on: 12/02/14

Originally listed on the Watch List: 11/30/14

Textron Inc. - TXT - close: 44.99

03/22/15: TXT has rebounded from its mid-March lows. Shares are once again challenging resistance in the $45.00-45.50 zone. I would wait for a close above $45.50 before considering new bullish positions.

Earlier Comments: February 15, 2015:
TXT is in the industrial goods sector. They deal mostly in the aerospace industry. According to the company, "Textron Inc. is a multi-industry company that leverages its global network of aircraft, defense, industrial and finance businesses to provide customers with innovative solutions and services. Textron is known around the world for its powerful brands such as Bell Helicopter, Cessna, Beechcraft, Hawker, Jacobsen, Kautex, Lycoming, E-Z-GO, Greenlee, and Textron Systems."

The earnings picture last year was mixed. Better than expected results and bullish guidance helped power a big rally last October. Their most recent earnings report was January 28th. TXT's earnings of $0.76 a share were up +26% from a year ago but 1 cent worse than Wall Street estimates. Revenues were up +16.8% to $4.1 billion, also below estimates.

It's interesting how TXT missed Wall Street's earnings estimates on both the top and bottom line and management lowered their guidance for all of 2015. Yet the stock did not sell off. Normally an earnings miss or weak guidance would spark significant selling. Instead investors just calmly bought the dip and now TXT is breaking out to new multi-year highs.

If bad news like that can't shake the stock lower then the path of least resistance is definitely higher. The last couple of months look like a significant consolidation pattern and now TXT has produced a bullish breakout past resistance in the $44.00-44.50 zone. The point & figure chart is bullish and forecasting a long-term target at $67.00.

Tonight I am suggesting small bullish positions if TXT can close above $45.10. Wait for shares to close above this level and then buy calls the next morning.

- Suggested Positions -
FEB 25, 2015 - entry price on TXT @ 45.30, option @ 3.00
symbol: TXT160115C50 2016 JAN $50 call - current bid/ask $2.13/2.47

02/25/15 trade begins. TXT opens at $45.30
02/24/15 TXT closed @ $45.33, above our trigger of $45.10
Option Format: symbol-year-month-day-call-strike

Current Target: TXT @ TBD
Current Stop loss: 39.90
Play Entered on: 02/25/15
Originally listed on the Watch List: 02/15/15

Under Armour, Inc. - UA - close: 81.43

03/22/15: UA also delivered big gains last week with the stock rising +7% in the last five session. Larger rival Nike (NKE) reported earnings on Thursday night. NKE's results were mixed but both stocks rallied on Friday morning.

UA is short-term overbought here and I would expect a pullback. Broken resistance near $77.00 should be new support. Tonight I am raising our stop loss to $72.45. More conservative investors may want to consider a higher stop.

Earlier Comments: February 22, 2015:
We have had UA on our radar screen for a long time. Now we're finally seeing an entry point. UA is in the consumer goods sector. They make shoes and athletic wear. According to the company, "Under Armour (UA), the originator of performance footwear, apparel and equipment, revolutionized how athletes across the world dress. Designed to make all athletes better, the brand's innovative products are sold worldwide to athletes at all levels. The Under Armour Connected Fitnessâ„¢ platform powers the world's largest digital health and fitness community through a suite of applications: UA Record, MapMyFitness, Endomondo and MyFitnessPal."

The athletic shoe and athletic apparel business is very competitive. Nike (NKE) has dominated the space for years. UA is about 10% the size of NKE but it's actively fighting for market share and recently overtook Adidas as the second biggest athletic wear brand inside the United States. Nike had sales of $27.8 billion in 2014. UA is a fraction of that with 2014 sales of $3.08 billion but they saw growth of +32%.

UA has been firing on all cylinders with its earnings results. Most of last year saw the company not only beating Wall Street's estimates but also raising guidance. UA's most recent earnings report was February 4th. The company reported a profit of $0.40 a share with revenues climbing +31% to $895 million, which was above estimates for $849 million. UA's CEO Kevin Plank, in a recent interview, said his company will grow at 20%-plus in 2015. The company's current estimates are $3.76 billion in sales for the year.

Technically shares of UA have recently broken through resistance in the $73.00 area. Now after consolidating sideways the last couple of weeks the stock ended at all-time closing highs. The point & figure chart is bullish and forecasting at $101.00 target.

Wait for UA to close above $75.75 and then buy calls the next morning with a stop loss at $68.25.

- Suggested Positions -
FEB 24, 2015 - entry price on UA @ 75.87, option @ 5.60
symbol: UA160115C85 2016 JAN $85 call - current bid/ask $7.40/7.80

03/22/15 new stop @ 72.45
02/24/15 Trade begins. UA opened at $75.87
02/23/15 UA closed at $75.87, above our trigger at $75.75
Option Format: symbol-year-month-day-call-strike

Current Target: UA @ TBD
Current Stop loss: 72.45
Play Entered on: 02/24/15
Originally listed on the Watch List: 02/22/15


Drug Stores, Social Networks, & Credit Cards

by James Brown

Click here to email James Brown

New Watch List Entries

CVS - CVS Health

FB - Facebook

MA - MasterCard Inc.

Active Watch List Candidates

AKAM - Akamai Technologies

COH - Coach Inc.

EXPD - Expeditors Intl.

Dropped Watch List Entries

EWG has been moved to our new play section.

We have removed AMBA, SWKS, and WBA from the watch list.

New Watch List Candidates:

CVS Health - CVS - close: 103.86

Company Info

We just removed WBA as a watch list candidate but we are replacing it with CVS. Both companies are in the drug store business. Both stocks have been showing significant strength the past couple of years. Fortunately for us CVS stock hasn't sprinted away from us like WBA.

The company describes itself as "CVS Health (CVS) is a pharmacy innovation company helping people on their path to better health. Through our 7,800 retail pharmacies, more than 900 walk-in medical clinics, a leading pharmacy benefits manager with nearly 65 million plan members, and expanding specialty pharmacy services, we enable people, businesses and communities to manage health in more affordable, effective ways. This unique integrated model increases access to quality care, delivers better health outcomes and lowers overall health care costsj."

The most recent earnings report was 2014 Q4 numbers on February 10th. CVS' earnings were in-line with estimates. Revenues were up +12.9% to $37.0 billion, which beat estimates for $36.0 billion. Their pharmacy services revenues were up +21.7%.

Full year 2014 earnings were up +13.5% to $4.49 a share. Management guided 2015 earnings in the $5.05-5.19 range (+12% to +15.5%), which is in-line with estimates. Following the earnings report a couple of analysts upgraded their price targets into the $114-115 range. The point & figure chart is very bullish with a long-term target of $141.00.

Currently shares of CVS are hovering just below resistance at the $105.00 level. Tonight I am suggesting we wait for shares of CVS to close inside the $105.00-106.00 zone and buy calls the next day with a stop loss at $99.85.

Breakout trigger: Wait for CVS to close in the $105.00-106.00 zone
Buy calls the next morning with a stop at $99.85.

BUY the 2016 Jan $110 call (CVS160115C110) current ask $3.95

Option Format: symbol-year-month-day-call-strike

Chart of CVS:

Originally listed on the Watch List: 03/22/15

Facebook, Inc. - FB - close: 83.80

Company Info

Facebook probably needs no introduction. It's the largest social media platform on the planet. As of December 31st, 2014 the company reported 1.19 billion monthly active users and 890 million daily active users. If FB were a country that probably puts them as the third most populous country on the planet (behind India and China).

This past week the company announced a new mobile payment service through FB's messenger app. The new service will compete with similar programs through PayPal, Apple Pay, and Google Wallet.

The announcement combined with a broad market rally helped fuel a +7% gain in FB's stock last week. FB's market cap has risen past $230 billion making it the tenth largest company in the S&P 500.

Growth has been phenomenal. According to IBD, FB's Q4 earnings were up +69% form a year ago. Revenues were up +49%. Wall Street is expecting FB's profit to rise +12% in 2015 and +32% in 2016.

Technically shares of FB have broken out from a very significant consolidation pattern. The point & figure chart is bullish and forecasting at $96.00 target. I think it will go higher. After a five-day run we do not want to chase it here. I'm suggesting a buy-the-dip entry trigger at $82.00 with a stop loss at $74.75.

Buy the dip trigger at $82.00 with a stop at $74.75

BUY the 2016 Jan $90 call (FB160115C90) current ask $5.80

Option Format: symbol-year-month-day-call-strike

Chart of FB:

Originally listed on the Watch List: 03/22/15

MasterCard Inc. - MA - close: 89.82

Company Info

Do you have a credit card? How about a debit card? Odds are you do. About 70% of Americans have a credit card and many have more than one. Inside the United States there are over 500 million credit cards between American Express, MA, and Visa. There's more than 1.12 billion globally (not counting the U.S.). There's also another 572 million MA or Visa debit cards in the U.S. (MasterCard has more than 144 million). Not counting America there are more than 1.2 billion debit cards around the world.

Now what if you could charge a small percentage for consumers using their plastic every time they make a purchase? That's MA's business model. As of 2013 their market share of global transactions (credit or debit) was about 27%. They are the second biggest credit and debit card company behind Visa (V). According to the company, "MasterCard (MA), www.mastercard.com, is a technology company in the global payments industry. We operate the world's fastest payments processing network, connecting consumers, financial institutions, merchants, governments and businesses in more than 210 countries and territories. MasterCard's products and solutions make everyday commerce activities – such as shopping, traveling, running a business and managing finances – easier, more secure and more efficient for everyone."

MA has been delivering steady growth. They reported their Q3 results on October 30th with earnings up +19% from a year ago to $0.87 a share. That beat estimates. Revenues were up +12.8% to $2.5 billion, also above expectations. The bullish trend continued when MA reported its 2014 Q4 results on January 30th. Earnings per share soared +32% from a year ago to $0.69 and revenues grew +13.6% to $2.42 billion. Both metrics were above Wall Street expectations.

The company did warn that the surge in the U.S. dollar was impacting results but they still see strong single-digit revenue growth for 2015. They reaffirmed +20% earnings growth.

Meanwhile one of MA's biggest rivals, American Express (AXP), is not having a good year. AXP lost its exclusive deal with Costco (COST) last month. This deal generated 20% of AXP's loans and about 10% of their annual card growth. AXP is also losing its partnership with JetBlue (JBLU). AXP's losses will likely be MA's and Visa's gain.

Recently MA announced it had signed a 10-year deal with Citigroup. Not only is Citigroup one of the biggest banks on the planet they are the largest credit card issuer in the world. The press release states "Citi will begin aligning the company's consumer proprietary credit and debit portfolios to the MasterCard network in 2015." One analyst has already opined that the deal should provide a "decent tailwind for EPS growth" (for MA). Speaking of opinions, a couple of analysts at Nomura believe that MA is cheap at current valuations and could be seen as safe haven investment given their steady earnings growth.

“Despite a mixed global economy, we delivered solid results for the quarter and for the full year in 2014,” said Ajay Banga, president and CEO, MasterCard. “This year is off to a good start with several new wins, as well as renewals of some important customer agreements, with more in the pipeline. Looking ahead, we will continue to be at the forefront of our industry by driving payment innovation with solutions such as MasterPass, and by increasing electronic payments usage globally as demonstrated by our significant expanded acceptance footprint across Africa.”

Technically shares of MA have started to bounce after a 50% correction of its February rally. The rising 50-dma also provides technical support. The point & figure chart is bullish and currently forecasting at $118.00 target. Aggressive investors might want to consider launching bullish positions on a close above Friday's high of $90.36. I am suggesting we wait for MA to close at a new high above $93.15. Then buy calls the next morning with a stop loss at $86.40.

Breakout trigger: Wait for a close above $93.15
Then buy calls the next morning with a stop at $86.40

BUY the 2016 Jan $100 call (MA160115C100) current ask $3.35

Option Format: symbol-year-month-day-call-strike

Chart of MA:

Originally listed on the Watch List: 03/22/15

Active Watch List Candidates:

Akamai Technology - AKAM - close: 72.87

03/22/15: Instead of correcting lower shares of AKAM broke out to new highs. The recent sideways consolidation looks like a potential bull-flag pattern.

Tonight I am adjusting our entry point. Move the buy-the-dip trigger to $71.50. We'll adjust the stop loss to $67.90. We will also adjust the option strike to the $80 calls.

Earlier Comments: March 8, 2015:
If you surf the Internet then you're probably seeing content delivered by AKAM's technology. They help customers speed up online content and have a fast-growing security business.

The company is part of the technology sector. They provide cloud services for delivering content across the Internet. Customers include 47% of the Global 500 companies.

AKAM describes itself as "the global leader in Content Delivery Network (CDN) services, Akamai makes the Internet fast, reliable and secure for its customers. The company's advanced web performance, mobile performance, cloud security and media delivery solutions are revolutionizing how businesses optimize consumer, enterprise and entertainment experiences for any device, anywhere."

Last year was a strong one for earnings and revenue growth. AKAM beat Wall Street estimates on both the top and bottom line the past four quarters in a row. They raised guidance twice. AKAM's average revenue growth last year was +24.5%. Their most recent report was on February 10th where AKAM delivered a profit and revenue number above expectations. Several analyst firms raised their price target on AKAM following its Q4 results.

Management hosted an investor day in late February. They expect sales growth to be in the high teens for 2015. They forecasting sales to hit $5 billion by 2020 compared to about $2 billion in 2014. AKAM reported that their cyber security business is surging with +191% growth last year.

This week AKAM disclosed in their 10-K filing that they were conducting an internal probe into their sales practices in a foreign country. They didn't say which country. This is a potential risk if the U.S. government decides to do their own investigation but the stock didn't really react that much to the news.

It is worth noting that there has been some speculation that AKAM is a buyout target. One analyst suggested that Amazon.com (AMZN) could be a suitor.

After a big rally in February the upward momentum in AKAM has stalled. Shares look like they could see a correction lower. If that occurs then prior resistance near $65.00 should be significant support. We want to be ready to take advantage of the weakness.

Tonight I'm suggesting a buy-the-dip trigger to buy calls if AKAM dips to $65.25. We'll start this trade with a stop at $59.75.

Buy-the-dip trigger @ $71.50
Start with a stop at $67.90

BUY the 2016 Jan $80 call (AKAM160115C80)

03/22/15 Strategy update: Move the buy-the-dip trigger to $71.50, move the stop loss to $67.90, adjust the option to the 2016 Jan. $80.00 call
Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 03/08/15

Ambarella, Inc. AMBA - close: 72.39

03/22/15: I hate to do it but I am removing AMBA from the watch list. Shares are just moving too fast. The stock is up five weeks in a row with a rally from $50 to $72.

I like the story behind AMBA but it needs to see a pullback before we want to consider bullish positions.

We definitely want to keep AMBA on our watch list. I'm crossing my fingers for a correction into the $60-65 zone.

Trade did not open.

03/22/15 removed from the watch list

Originally listed on the Watch List: 03/08/15

Coach, Inc. - COH - close: $41.58

03/22/15: Shares of COH posted a gain for the week but the stock's performance lagged behind the broader market. A disappointing earnings report from luxury retailer Tiffany (TIF) did not seem to hurt COH on Friday. I don't see any changes from my prior comments.

Earlier Comments: March 15, 2015:
COH has experienced a rough couple of years. Shares were trading near $80 back in 2012 and they bottomed out in the $33-34 region last year. The big drop was thanks to multiple factors. Investors expectations were pretty high after years of incredible growth. Then COH started to struggle. They had luxury items had started to lose their appeal. Suddenly everyone had a Coach bag so it was no longer a coveted item. Today the company is trying to turn things around.

The company is still suffering from lost market share and falling sales. Their comparable store sales are terrible. Yet after months of bearish reports it looks like all the bad news might be factored in. Wall Street analysts are starting to upgrade the stock because they see the Coach brand finally stabilizing.

Technically shares just started to bounce from support near $40.00. I am suggesting we launch small bullish positions if COH can close above $42.00. However, please note that I consider this a more aggressive, higher-risk trade. We'll try and keep a relatively tight stop loss on this trade.

Breakout trigger: Wait for a close above $42.00
Then buy calls the next day with a stop at $39.65.

BUY the 2016 Jan $45 call (COH160115C45)

Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 03/15/15

Expeditors Intl. - EXPD - close: 49.27

03/22/15: EXPD is still slowly drifting higher. Shares ended the week at new multi-year highs. I'm not giving up yet on a buy-the-dip trigger at $46.25. However, if shares don't cooperate this week we'll re-evaluate our entry strategy.

Earlier Comments: March 15, 2015:
EXPD is showing relative strength. The stock is up +8% in 2015 versus an S&P 500 that is virtually flat (-0.3%). Meanwhile the Dow Jones Transportation Average is down -2%.

EXPD is part of the services sector. According to the company, "Expeditors is a global logistics company headquartered in Seattle, Washington. The company employs trained professionals in 186 full-service offices and numerous satellite locations located on six continents linked into a seamless worldwide network through an integrated information management system. Services include the consolidation or forwarding of air and ocean freight, customs brokerage, vendor consolidation, cargo insurance, domestic time-definite transportation services, purchase order management, warehousing and distribution and customized logistics solutions."

The first half of 2014 was forgettable. EXPD delivered mediocre results with earnings a penny above or below estimates and revenues in-line with expectations. Business improved in the second half of last year. EXPD beat earnings estimates by four cents in the third quarter and by two cents in the fourth quarter. Revenues were up almost +11% in Q3 2014 and up +8.8% in the fourth quarter. Both were above Wall Street estimates.

Bradley Powell, Senior Vice President and CFO commented on the fourth quarter, "During the 2014 fourth quarter we saw strong year-over-year increases in both air and ocean freight volumes. Despite the 10 basis point reduction in overall net revenue margin, airfreight and ocean freight net revenues both managed double digit increases, up 10% and 11%, respectively, as overall net revenue increased 9%."

EXPD has been relatively resistant to any profit taking during the market's decline in March. I'm partially tempted to buy calls here at current levels. However, I'm not convinced the market sell-off is over. Therefore I'd rather use the market's weakness to our advantage. Broken resistance near $46.00 should be support for EXPD. We'll list a buy-the-dip entry point at $46.25 with a stop loss at $43.75.

Buy-the-dip: Buy calls if EXPD dips to $46.25

BUY the 2016 Jan $50 call (EXPD160115C50)

Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 03/15/15

Skyworks Solutions - SWKS - close: 102.05

03/22/15: I am afraid we missed the entry point in SWKS. We were hoping to buy calls on a dip. Unfortunately shares of SWKS sprinted higher. The stock is up six weeks in a row. Shares have rallied from $77.20 to $102.00 in less than two months. This is unsustainable.

I hate to do it but we are removing SWKS from the watch list. We still like the story behind the stock but we'll have to wait for a correction. SWKS is definitely a name to keep on our radar screen.

Trade did not open.

03/22/15 removed from the watch list
03/08/15 adjust the trigger from $83.00 to $85.00
03/08/15 adjust the option strike from the 2016 $90 to the January $100 calls
Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 03/01/15

Walgreens Boots Alliance - WBA - close: $88.23

03/22/15: WBA is another stock that is just moving too far too fast. Shares rallied about $5.00 last week. The breakout past resistance at $84.00 is short-term bullish but we don't want to chase it.

I am removing WBA from our watch list but we definitely want to keep WBA on our radar screen. A correction back into the $80-84 zone might be a bullish entry point for longer-term traders.

Trade did not open.

03/22/15 removed from the watch list, suggested entry was a dip to $80.00

Originally listed on the Watch List: 02/22/15