Option Investor

Daily Newsletter, Wednesday, 4/1/2015

Table of Contents

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

Market Wrap

Bulls On the Ropes but Still Fighting

by Keene Little

Click here to email Keene Little
Wednesday traded like Tuesday, starting with a selloff in the opening minutes followed by a sideways consolidation. Support levels are holding but the bears are pounding on them like a bear pounding on a dumpster to get it open, and both sides are nervously watching to see what tomorrow will bring.

Wednesday's Market Stats

Equity futures tanked last evening but I couldn't find any solid news stories to explain why. I guess other traders couldn't either and after SPX futures hit a low of 2033.50 for a loss of -26.25 they climbed back up and got 1 point in the green by 6:00 AM. From there futures struggled, especially after the pre-market ADP report, but by the open it was looking like there was an intention to rally the market. Until the opening bell rang that is -- big sell programs hit at the open and SPX gave up 20 points in the first 30 minutes of trading. From there we spent the rest of the day off the lows but basically trading sideways and that left both sides wondering what tomorrow will bring.

The ADP report was released before the bell and it came in as a slight disappointment. Expectations were for +225K, which would have been an increase from February's upwardly revised 214K (from 212K), but the actual number was only +189K. This is of course a bad news/good news kind of number because it means the NFP number, to be released on Friday (which is a market holiday), could be disappointing as well (the expected number is 250K, down from February's 295K). Lower-than-expected numbers are of course a bad sign for the economy but a good sign for keeping the Fed away from the Raise Rates button. Or so the thinking goes.

After the opening bell we then got the ISM index report, which continues to show a slowing economy with the reported number of 51.5, a point below expectations and a drop from February's 52.9. Construction spending in February dropped -0.1% but that was "3 times" better than the expected -0.3% (see how a headline could give you a completely different take on the number?). It was a significant improvement over January's -1.7%.

There's been no change to the steady drumbeat of declining economic numbers and this has most everyone keeping their fingers crossed that the Fed will be forced to stay on the sidelines (trapped as they are) and not talk about raising rates. To me that's called desperation but after such a long-running bull market there's not much else for the bulls to hang their hats on, especially with the deterioration of the economy and corporate earnings (much of which has not yet been acknowledged by the stock market). I suspect much of the volatility we've seen in the market over the past several months is the big bull/bear argument over fundamentals and what it means for stock prices.

While arguments over funnymentals are always interesting, I haven't seen much evidence the market really cares about them. If it did there's no way we'd still be flirting with all-time highs for the stock indexes. But hope is a wonderful thing and most market participants remain very hopeful that something will drive the markets higher and every little clue about another central bank pumping more money into the financial markets provides just enough stimulus to drive the market higher (much of it from short covering from scared bears, and who can blame them).

While I consider myself a very hopeful person with a lot of optimism about our future, hope is a dangerous thing in the stock market. I'm sure I'm not the only one that has been caught a time or two staring at the monitor hoping the market will reverse direction before the close so that it stops the pain from a trade I should have stopped out of long before that point. Hope is far more dangerous than a stop but at the moment that's all that's driving the market higher (or holding it up at the moment). It could still work for another month or so (there's a very interesting turn cycle that's due in mid-May) and bears need to respect its power but bulls also need to understand the slope of hope. That's seen in a bear market where frenzied buying (a lot of short covering as well) follows good news and the hope for a strong reversal. But it doesn't last and new lows keep coming, interspersed with volatile and short-lived buying spikes.

It's possible the market is at a tipping point and we could be close to starting down in a more significant way. In order to avoid this it's very important for the bulls to get back in the game and stop the decline here. They still have an opportunity to slap the bears silly and the next couple of days should tell us whether or not they can do it.

The DOW's weekly chart below shows price trying to hold its uptrend line from October-February, currently near 17725 (17760 using log price scale) but it closed slightly below the line today. It will be important to see how it closes the week and as it stands now there is still a bullish potential for another leg up this month, depicted in green. The upside potential is to the 18500 area, which is where the trend line along the highs from May 2011 - December 2013 intersects the shorter-term trend line along the highs from December-March in mid-May (that would be a good setup to sell in May and go away). But a drop below 17500 would have the pattern looking more bearish, which would open the door for a decline to the 16500 area by mid-May.

Dow Industrials, INDU, Weekly chart

A closer view of this bull/bear battle can be seen on the daily chart below. This morning's decline broke below the uptrend line from October-February but looks it recovered by the afternoon and that keeps the upside potential in play. The choppy price action that we've been in is making projections very difficult but a sharp break below 17500 would turn the pattern more impulsive to the downside.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 18,010
- bearish below 17,500

The 60-min chart below shows a break of a recent pattern that we've been seeing since the March 12th low. The rallies were spikes to the upside (highlighted in green) but they were then followed by spikes back down (but not full retracements). It was the first sign of a change in character for the market since previous rallies off v-bottom reversals were relentless, not letting bulls in or bears out with "normal" pullbacks. Now the pullbacks were stronger and steeper and that was a warning sign that the bounce off the March 12th low was "different." The sharp rally on Monday, according to this new pattern, called for a sharp spike back down, which we got on Tuesday. But now the pullback looks more bearish and that supports the bearish wave count, which is a series of 1st and 2nd waves to the downside. This calls for a very sharp and strong selloff in the coming weeks, one that will not let bears in or bulls out (without a loss). But at the moment there is still hope for the bulls if the bears are unable to capitalize on the bearish setup.

Dow Industrials, INDU, 60-min chart

There's another index that could be a warning sign for us -- the Shanghai Composite index (SSEC). Following its 2007-2008 sharp decline it has been essentially in a sideways consolidation (shallow up-channel as shown below). I'm looking at the 3-wave bounce off the 2008 low as an a-b-c and this week's rally has the leg up from June 2013 achieving equality with the 1st leg up in 2009, as noted on the chart. That gives us a setup for possible reversal, which would be confirmed following the completion of a 5-wave move up for wave-c from June 2013. As labeled on the chart, we do have a 5-wave move and therefore the rally can be considered complete at any time, although it would not be hard for me to argue for a week-long consolidation followed by at least a minor new high, especially since there's a little room left to reach the top of its parallel up-channel from 2008.

Shanghai Stock Exchange Composite index, SSEC, Weekly chart

The SSEC has been ripping to the upside recently, despite evidence their economy is also slowing down, because they too have put their faith in the central bank. The People's Bank of China keeps promising their support and the people are literally buying into it. Interestingly, just as it appears the SSEC a-b-c bounce correction could be completing, new trading accounts in China are exploding. Bloomberg has reported that two thirds of these new accounts are by people who have a below high school education. There's frenzied buying as their market spikes up. What could possibly go wrong... (similar to 1999-2000 in the U.S. when everyone quit their jobs to become day traders). There's a lot of bullish expectation by market analysts and I strongly suspect they're becoming very bullish at exactly the wrong time, and I think that goes for the U.S. market as well.

SSEC and New Trading Accounts, chart courtesy Bloomberg

SPX has the same pattern as the DOW and could also go either way here. This morning's decline tested the short-term uptrend line from the March 12-26 lows, as well as its uptrend line form 2009-2011, both of which intersect tomorrow near 2048 (today's low). As long as that level holds as support the bears have nothing to crow (growl) about since the bullish pattern suggests a rally to new highs in the coming weeks (up to 2155 or 2175 in April or May, resp. The first sign of bullishness would be a rally above Monday's high near 2089 and it would be confirmed bullish above the March 23rd high near 2115. But the bulls need to keep in mind the bearish pattern, which calls for a drop lower tomorrow and then at most another bounce to another lower high early next week. From there it would be hard down and very little opportunity for the bulls to get out without a loss.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2115
- bearish below 2045

On March 26th NDX broke its uptrend line from October-February but recovered the next day. Yesterday it closed on the line and today it broke it, currently near 4343. As long as it stays below that trend line it remains bearish and we could see the 4000 area later this month. But as with the others, there is still upside potential, especially if it's able to climb back above Monday's high near 4384.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4436
- bearish below 4280

The RUT continues to be the stronger index and that's a positive sign for the bulls. Whereas the other indexes are testing last week's lows the RUT retraced only a little more than 50% of its rally into Monday's high. And the pullback looks corrective, which makes it look like it's going to head higher. In fact if I were doing a market analysis based only on the RUT I'd be strongly suggesting get long for another rally this month. We could see the RUT rally up to trend lines near 1290-1300 in the next week or two.

The RUT tested its 20-dma this morning, at 1241, and then almost made it back into the green by the close (there was stronger buying interest in the RUT than the others at the end of the day). But it's going to be important for the bulls to keep the buying going Thursday since it rallied back up to the trend line along the highs from last September-December, near 1252. It popped back above this on Monday, closed on it on Tuesday and closed on it again today. It could be a back-test and any selling tomorrow would look like a bearish kiss goodbye. I think the RUT could be a good canary index for us.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1260
- bearish below 1225

Speaking of canaries, I like to keep an eye on a few key "barometer" stocks and AAPL is one of them. At the moment it's not helping us but it should be close to breaking one way or the other. Back in late-February I had been looking for the completion of AAPL's rally and it looked like a nice little throw-over finish when it popped above its trend line along the highs from December 2013 - November 2014 on February 23rd and then rolled over, leaving a head-fake break. But since the low on March 12th it has formed a sideways triangle and it can be interpreted both ways -- either as a bullish continuation pattern that will lead to a final push higher (possibly up to 140), or as a bearish continuation pattern that will be followed by another leg down at least equal to the February 24 - March 12 decline. Two equal legs down from its February 24th high points to 117.27, which crosses the uptrend line from April 2014 - January 2015 next Thursday. Whichever way AAPL breaks out of this little triangle should be a good indicator for what the broader market will likely do next. A downside break would be below 122.60 and an upside break would be above 126.40.

Apple Inc., AAPL, Daily chart

The TRAN is currently holding onto support but it can't tolerate much more selling. On March 26th it poked below its 200-dma but recovered to close slightly above it. Today it broke it again and again closed slightly above it, near 8664 tomorrow. This morning's low at 8621 was also a test of its uptrend line from November 2012 - October 2014. Only slightly lower, near 8580, is price support from its previous lows since December. That's a lot of support broken if the TRAN drops below 8580 so the bulls need to do their thing here (buy the dip).

Transportation Index, TRAN, Daily chart

While I liked the March 13th high for the U.S. dollar to be a multi-month high I haven't seen convincing evidence yet in the decline since then to suggest that high at 100.78 is going to stand for a while. It's a bit like the stock market at the moment and I could easily argue both ways. That tells me any trades (on the dollar or the stock market) should be cautious (in size and stops) until we see what happens from here. The March high had no bearish divergence and therefore it would be somewhat normal for at least a retest with bearish divergence. But the next bearish clue would be a break below its 50-dma, currently near 96.25, which would also be a break of its up-channel. Until then the trend is clearly up and needs to be respected. Maybe getting the euro to parity (it got as low as 1.0472 on March 13th and is currently 1.0775) is the goal for now.

U.S. Dollar contract, DX, Daily chart

Gold's decline from January looks impulsive and following the March 17th low I thought it was a good setup for a bounce correction before continuing lower, which is still the way I'm leaning. We might see gold make it up to the 1250 area (I've got a target zone at roughly 1226-1256, which includes the 200-dma near 1237 and 50-week MA near 1245). But the minimum bounce expectation has been met and therefore a continuation lower from here is possible. Until I see evidence to the contrary I'll continue to look for a low near 1000 later this year (at least I hope we'll see that level so I can back up the truck and fill it with gold).

Gold continuous contract, GC, Daily chart

Following oil's 3-wave pullback from February 17 - March 18 I've been looking for another leg up for the bounce off the January low. The price projection at 58.13 continues to look good, especially since it correlates nicely with price-level S/R at that level. For now I show a rising wedge pattern for the c-wave of the a-b-c bounce off the January low but that's just speculation for now. It means we could see a choppy rise higher, frustrating both side of the trading aisle. I continue to see oil consolidating between 40-60 for a few more months before heading lower.

Oil continuous contract, CL, Daily chart

Thursday's economic reports include the unemployment claims data and Factory Orders, neither of which will likely be market movers. If factory orders come in different than expectations will that be a good thing or bad thing for the market? Your guess is as good as mine. Friday's reports are important but the first time the market will be able to react to them is Sunday night in the futures and then Monday's cash open. Should be interesting.

Economic reports and Summary

Other than the RUT, which continues to show relative strength, the market looks to be on the verge of a breakdown. It can't tolerate much more selling from here without doing more technical damage to the charts. I see the potential for a new low, such as SPX 2045, and then a stronger bounce into early next week before the bottom falls out. That's the bearish pattern. The bullish pattern argues for more sideways consolidation before heading back up or heading back up from here. Monday's highs are important for the bears to defend since above those highs would be a strong statement from the bulls that they're done messing around with the annoying bears.

Short below SPX 2040 and long above 2090 -- that's a wide spread but it's what the market has given us. In between could be lots of chop and whipsaw. Keep an eye on the RUT, TRAN and AAPL for clues in the meantime.

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

Keene H. Little, CMT

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

New Plays

Beating Estimates & Raising Guidance

by James Brown

Click here to email James Brown


Vipshop Holdings - VIPS - close: 29.31 change: -0.13

Stop Loss: 27.45
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on April -- at $---.--
Listed on April 01, 2015
Time Frame: 8 to 12 weeks (option traders, exit prior to expiration)
Average Daily Volume = 6.3 million
New Positions: Yes, see below

Company Description

Why We Like It:
The main Chinese stock market has broken out to multi-year highs. This has provided fertile ground for shares of VIPS to grow. The company is an online retailer that specializes in flash sales of female-oriented products.

According to the company, "Vipshop Holdings Limited is China's leading online discount retailer for brands. Vipshop offers high quality and popular branded products to consumers throughout China at a significant discount to retail prices. Since it was founded in August 2008, the Company has rapidly built a sizeable and growing base of customers and brand partners."

Earnings have been strong. Looking at the last four quarterly report VIPS has beaten Wall Street estimates and raised guidance four quarters in a row. We're talking triple-digit growth for earnings and revenues.

VIPS' most recent report was its Q4 results on February 17th. Earnings were 12 cents a share, which was actually two cents below expectations. However, revenues soared +109% to $1.36 billion. Gross margins improved from 24.5% to 24.9%. Active customers grew +114% to 12.2 million (plenty of room to grow).

In their earnings press release Mr. Donghao Yang, chief financial officer of Vipshop, commented, "We are very proud of our fourth quarter financial results, which exceeded our prior expectations. Our progress in mobile, market expansion, along with our long-standing commitment to customers enabled us to further boost both the total net revenue and the net income attributable to our shareholders. During the fourth quarter of 2014, the mobile contribution of our platform reached approximately 66% of our gross merchandise volume. Looking ahead, we are firmly confident that by executing our growth strategies and further investing judiciously in fulfillment, technology and talent, we will be able to further fortify our position as the leading online discount retailer in China and continue delivering a satisfying shopping experience to our growing base of customers."

Management issued bullish guidance again. They see 2015 Q1 revenues in the $1.25-1.30 billion range, which suggest +78% to +85% growth from a year ago. Analysts estimates were at $1.21 billion. You can see how the stock reacted to the news and optimistic guidance.

Chinese stocks got another pop recently when a Chinese official suggested their government might provide even more stimulus. Here's a quote from a recent Bloomberg article, "China has room to act with both interest rates and 'quantitative' measures, People's Bank of China chief Zhou Xiaochuan said in remarks at the Boao Forum for Asia, an annual conference on the southern Chinese island of Hainan. Analysts surveyed by Bloomberg expect the PBOC will lower both benchmark lending rates and banks’ required reserve ratios, adding to cuts made in recent months." Link to the Bloomberg article.

Technically shares of VIPS have broken out past all of its major resistance levels and now it's flirting with a breakout past round-number resistance at $30.00. The point & figure chart is bullish and forecasting at $38.50 target. Tonight we are suggesting a trigger to launch bullish positions at $30.15.

Trigger @ $30.15

- Suggested Positions -

Buy VIPS stock @ (trigger)

- (or for more adventurous traders, try this option) -

Buy the MAY $30 CALL (VIPS150515C30) current ask $1.70
option price is a current quote and not a suggested entry price.

Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.

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

Daily Chart:

Intraday Chart:

In Play Updates and Reviews

Another Day Of Widespread Declines

by James Brown

Click here to email James Brown

Editor's Note:
The U.S. market delivered another session of widespread declines. Investors ignored gains in foreign markets and chose to focus on disappointing U.S. economic data.

Current Portfolio:

BULLISH Play Updates

Allegion Plc. - ALLE - close: 61.08 change: -0.09

Stop Loss: 59.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on March -- at $---.--
Listed on March 30, 2015
Time Frame: Exit prior to earnings (late April - early May)
Average Daily Volume = 674 thousand
New Positions: Yes, see below

04/01/15: ALLE spent today hovering near short-term technical support at its simple 10-dma. There is no change from my prior comments. We are suggesting a trigger to launch bullish positions at $62.10.

Trade Description: March 30, 2015:
It feels like the world is growing more dangerous. It was only a few weeks ago that the world was shocked by the terrorist shootings in Paris. It should be no surprise that demand for more security at our homes and places of work is growing.

ALLE provides security solutions. According to the company, "Allegion (ALLE) creates peace of mind by pioneering safety and security. As a $2 billion provider of security solutions for homes and businesses, Allegion employs more than 8,000 people and sells products in more than 120 countries across the world. Allegion has more than 25 global brands, including strategic brands CISA®, Interflex®,LCN®, Schlage® and Von Duprin®."

After a slow start last year ALLE's earnings have improved over the last couple of quarters. Their Q3 report last October showed earnings and revenues coming in above expectations.

They did it again with their Q4 earnings report, released on February 18th. Earnings rose +26.7% to $0.76 a share. Wall Street was only looking for $0.68. Revenues were up +5.5% to $573.5 million, above estimates.

ALLE management provided 2015 guidance. They expect revenues to rise +3% to +4% over last year. However, when you factor in currency headwinds and adjustments for their Venezuelan business, revenues could actually decline -3% to -4%. ALLE is forecasting earnings to grow +12% to +17% in 2015.

Investors took ALLE's cautious guidance in stride. There was a one-day pullback and investors quickly jumped in to buy the dip. A month later ALLE's stock was breaking out past resistance at the $60.00 level. Today ALLE has retested $60.00 as new support and just closed at new record highs. The point & figure chart is very bullish and forecasting a long-term target at $81.00. Tonight we're suggesting a trigger to launch bullish positions at $62.10. We will plan on exiting prior to earnings in very late April or early May.

Trigger @ $62.10

- Suggested Positions -

Buy ALLE stock @ (trigger)

- (or for more adventurous traders, try this option) -

Buy the MAY $65 CALL (ALLE150515C65)

Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.

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

Prestige Brands Holdings - PBH - close: 43.70 change: +0.81

Stop Loss: 40.35
Target(s): To Be Determined
Current Option Gain/Loss: +3.2%
Entry on March 20 at $42.35
Listed on March 19, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 342 thousand
New Positions: see below

04/01/15: Wednesday turned out to be another volatile session for shares of PBH. The stock followed the broader market lower this morning. Investors jumped in to buy the dip at its 10-dma and the stock rallied to a new high with a +1.88% gain on the session.

Trade Description: March 19, 2015:
Shares of PBH are outperforming the broader market. The relative strength has lifted the stock to new all-time highs and a +20% gain in 2015.

PBH is part of the services sector. According to the company, PBH "markets and distributes brand name over-the-counter and household cleaning products throughout the U.S. and Canada, and in certain international markets. Core brands include Monistat® women's health products, Nix® lice treatment, Chloraseptic® sore throat treatments, Clear Eyes® eye care products, Compound W® wart treatments, The Doctor's® NightGuard® dental protector, the Little Remedies® and PediaCare® lines of pediatric over-the-counter products, Efferdent® denture care products, Luden's® throat drops, Dramamine® motion sickness treatment, BC® and Goody's® pain relievers, Beano® gas prevention, Debrox® earwax remover, and Gaviscon® antacid in Canada."

The company's most recent earnings report was noteworthy. Analysts were expecting a profit f $0.40 a share on revenues of $190.2 million. PBH delivered $0.48 a share, which is a +60% improvement from a year ago. Revenues were up +36.4% to $197.6 million, another beat. PBH's OTC products saw +37.2% sales growth in North America and +107.8% growth internationally.

Matthew M. Mannelly, President and CEO of PBH commented on his company's performance, "In light of our excellent year to date and third quarter results, we are updating our previously provided outlook for fiscal year 2015. We are tightening our expected adjusted EPS range from $1.75 to $1.85 per share to $1.82 to $1.85 per share, and anticipate revenue growth at the high end of our previously provided outlook of 15-18%. The update is driven by anticipated organic growth in the legacy business during the fourth quarter."

Wall Street analysts are forecasting 2015 Q1 (PBH's Q4) results to see +29% EPS growth and +30% revenue growth.

It's also worth noting that PBH is a potential buyout target. They have been targeted before. Back in 2012 Genomma Lab offered $834 million in cash but PBH rejected the offer, calling it too low.

The better than expected earnings in early February launched PBH above major resistance in the $37.00 area. Shares spent four weeks digesting those gains and now they're back in rally mode. The point & figure chart is bullish and forecasting at $54.00 target. Tonight we are suggesting a trigger to launch bullish positions at $42.35.

- Suggested Positions -

Long PBH stock @ $42.35

- (or for more adventurous traders, try this option) -

Long JUL $45 CALL (PBH150717C45) entry $1.55

03/21/15 new stop @ 40.35
03/20/15 triggered @ 42.35
Option Format: symbol-year-month-day-call-strike

Providence Service Corp. - PRSC - close: 52.16 change: -0.96

Stop Loss: 49.85
Target(s): To Be Determined
Current Option Gain/Loss: -0.6%
Entry on March 27 at $52.50
Listed on March 26, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 136 thousand
New Positions: see below

04/01/15: PRSC also delivered a volatile session. The stock spiked higher at the open and almost hit $56.00 a share before falling back to earth. Shares underperformed the market with a -1.8% loss that erased a good chunk of yesterday's rally. No new positions at this time.

Trade Description: March 26, 2015:
PRSC is a small cap momentum stock. Shares are outperforming the broader market with a +40% gain in 2015. The stock has done a pretty good job ignoring the market's recent weakness.

PRSC is in the healthcare sector. According to their marketing materials, "Providence is a Tucson, Arizona-based company that provides and manages government sponsored human services, innovative global employment services, in-home health assessment and care management services, and non-emergency transportation services."

"Providence is unique in that it provides and manages its human services primarily in the client's own home or in community based settings, rather than in hospitals or treatment facilities and provides its non-emergency transportation services clients through local transportation providers rather than an owned fleet of vehicles. The Company provides a range of services through its direct entities to approximately 57,400 and 232,000 human services and workforce development services clients, respectively, with approximately 20.7 million individuals eligible to receive the Company's non-emergency transportation services. Its workforce development services include nearly 180 delivery sites spanning 10 countries and its health assessments are performed by over 700 nurse practitioners in 33 states."

The company is not afraid of acquisitions. In the last year they have purchased Matrix Medical Network and Ingeus.

PRSC's most recent quarterly report was March 16th. Analysts were expecting Q4 earnings of $0.29 a share on revenues of $416 million. PRSC delivered $0.45 a share, which is up +87.5% from a year ago. Q4 revenues were up +63.8% to $453.6 million, significantly above estimates. If you exclude the recent acquisitions PRSC's Q4 revenues were up +21.4%. The company's full-year 2014 sales hit $1.5 billion, up +32% from the prior year.

The stock rallied on this better than expected earnings report. The $48-50 area was significant resistance and PRSC has broken out above this zone. As previously mentioned the stock has been able to resist the market's recent sell-off. The point & figure chart is bullish and forecasting a long-term target of $68.00.

Tonight PRSC looks like it's about to break out from its recent consolidation in the $50-52 area. Last week's highs are around $52.30. We are suggesting a trigger to open small bullish positions at $52.50. I'm suggesting small positions because PRSC does not trade a lot of volume and we want to limit our risk.

*use small positions to limit risk* - Suggested Positions -

Long PRSC stock @ $52.50

03/27/15 triggered @ 52.50

Steel Dynamics Inc. - STLD - close: 19.78 change: -0.32

Stop Loss: 19.20
Target(s): To Be Determined
Current Option Gain/Loss: -4.9%
Entry on March 24 at $20.81
Listed on March 21, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 3.6 million
New Positions: see below

04/01/15: Shares of STLD were downgraded to a "neutral" this morning. The stock fell toward its recent lows before bouncing at $19.50. If the broader market continues to sink tomorrow I would not be surprised to see STLD hit our stop at $19.20.

No new positions at this time.

Trade Description: March 21, 2015:
The bad news in the steel industry might be priced in and some are forecasting another turnaround in the second half of 2015. STLD looks like a bullish candidate as shares are outperforming its peers: U.S. Steel (X), Nucor (NUE), and AK Steel (AKS).

STLD is in the basic materials sector. The company describes itself as "Steel Dynamics, Inc. is one of the largest domestic steel producers and metals recyclers in the United States based on estimated annual steelmaking and metals recycling capability, with annual sales of $8.8 billion in 2014, over 7,700 employees, and manufacturing facilities primarily located throughout the United States (including six steel mills, eight steel coating facilities, two iron production facilities, over 90 metals recycling locations and six steel fabrication plants)."

This past week had a lot of bad news for the steel industry. Three companies issued bearish earnings guidance. STLD, NUE, and AKS all lowered their forecasts. CNBC suggested this industry is on the front lines of the currency war. All three companies blamed a surge in steel imports for hurting results. The rising U.S. dollar makes foreign products cheaper and steel imports into the U.S. rose +38% in 2014. Combine that with a glut of steel from domestic producers and both sales and margins have been hammered lower. The price of rolled steel is already down -20% in 2015. Many analysts are forecasting another tough year for the industry.

On March 18th, 2014, STLD lowered its Q1 guidance into the $0.12-0.16 range compared to Wall Street's estimate of $0.23. This also compares to $0.17 a year ago and $0.40 in the fourth quarter. However, the stock rallied. In addition to its lowered guidance the company offered a positive outlook for the second half of 2015.

Here's an excerpt from the company's press release on March 18th:

"During the first quarter of 2015, two important industry developments occurred:

− Domestic steel product pricing declined to levels that are now globally competitive, which the company believes will result in reduced steel import levels beginning in the second quarter 2015. Despite continued solid domestic steel consumption, product pricing decreased meaningfully due to delayed customer orders caused by the volatility in scrap prices and inventory buildup related to excessive fourth quarter 2014 steel imports. The company believes the surplus inventory can be right-sized in the April and May 2015 timeframe, which coupled with continued demand, should result in increased domestic steel mill utilization.

− Ferrous scrap pricing declined between 25% and 30% during February, which the company believes will benefit metal margin. Ferrous scrap pricing disconnected from iron ore pricing during 2014, as iron ore prices declined dramatically, while scrap prices remained relatively unchanged. Historically these commodities are highly correlated; therefore, a sharp decline in scrap prices was not unexpected.

The company believes these events, coupled with continued strength in domestic steel consumption from the automotive, manufacturing and construction sectors, should support a stronger second quarter, and second half 2015, based on the expectation of reduced domestic steel import levels, reduced raw material costs, and increased orders as customer inventory levels decline. Historically, the construction industry has been the largest single domestic steel consuming sector. The construction market grew during 2014, improving meaningfully from the lows experienced in 2009 and 2010. Despite the first quarter of each year being historically weaker for the construction industry due to seasonality, the company's fabrication operations are expected to achieve solid first quarter 2015 financial results. These results could approach those achieved in the third quarter 2014, which is traditionally the strongest construction quarter of a calendar year. The company believes this is evidence of the continued growth in non-residential construction.

Shares of STLD surged on this outlook and shares are now hovering just below technical resistance at its 200-dma. A breakout here could signal the next leg higher. Currently the point & figure chart is still bearish but a move above $21.00 would generate a new buy signal. Tonight we are suggesting a trigger to open bullish positions at $20.75.

FYI: The stock will begin trading ex-dividend on March 27th. The quarterly cash dividend should be $0.1375 a share.

- Suggested Positions -

Long STLD stock @ $20.81

- (or for more adventurous traders, try this option) -

Long MAY $20 CALL (STLD150515C20) entry $1.80

03/24/15 triggered on gap higher at $20.81, trigger was $20.75
Option Format: symbol-year-month-day-call-strike

Web.com Group, Inc. - WWWW - close: 19.47 change: +0.52

Stop Loss: 18.45
Target(s): To Be Determined
Current Option Gain/Loss: +2.5%
Entry on March 30 at $19.00
Listed on March 28, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 533 thousand
New Positions: see below

04/01/15: GoDaddy's IPO may have influenced trading in WWWW today. GoDaddy (symbol: GDDY) launched today with a 23 million share initial public offering at $20.00 a share. The stock opened at $26.15 and eventually closed at $26.15 for a 30.75% gain on the day.

Meanwhile shares of WWWW managed to outperform the broader market and rally +2.74% to close at new three-month highs. WWWW is nearing what could be resistance at $20.00 and its simple 200-dma (also near $20.00). Tonight we are raising our stop loss on WWWW to $18.45.

Trade Description: March 28, 2015:
WWWW is a small cap technology company. After a -60% correction from its 2014 highs it looks like the worst might be behind it.

If you're not familiar with WWW here's a brief description, "Web.com Group, Inc. (WWWW) provides a full range of Internet services to small businesses to help them compete and succeed online. Web.com is owner of several global domain registrars and further meets the needs of small businesses anywhere along their lifecycle with affordable, subscription-based solutions including website design and management, search engine optimization, online marketing campaigns, local sales leads, social media, mobile products, eCommerce solutions and call center services."

On the daily chart you can see the big gap down in November 2014. That was a reaction to the company's lowered guidance. The stock appears to have produced a bullish double bottom with its lows in November and January.

Shares surged in mid February with is Q4 earnings results. WWWW beat analysts' estimates on both the top and bottom line. Revenues for the full year were up +14%.

February was also noteworthy for WWWW agreeing to give an activist investor fund two seats on the Board of Directors. Okumus Fund Management is now the largest shareholder in WWWW with almost 15% of its outstanding shares.

Shares of WWWW have been building on a new bullish trend of higher lows and managed to ignore most of the market's sell-off this past week. The point & figure chart is bullish and forecasting a target of $23.00.

If WWWW continues higher it could spark some short covering with the most recent data listing short interest at more than 10% of the 36.5 million share float.

Tonight we are suggesting a trigger to open bullish positions at $18.95 with an initial stop loss at $17.85. I would start with small positions. The $20.00 level and the 200-dma (also nearing $20) could both be overhead resistance.

- Suggested Positions -

Long WWWW stock @ $19.00

- (or for more adventurous traders, try this option) -

Long MAY $20 CALL (WWWW150515C20) entry $1.30

04/01/15 new stop @ 18.45
03/30/15 triggered on gap open at $19.00, suggested entry was $18.95
Option Format: symbol-year-month-day-call-strike

BEARISH Play Updates

Hornbeck Offshore Services, Inc. - HOS - close: 18.99 change: +0.18

Stop Loss: 20.55
Target(s): To Be Determined
Current Option Gain/Loss: -4.3%
Entry on March 24 at $18.20
Listed on March 21, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 851 thousand
New Positions: see below

04/01/15: The midday rally attempt in HOS failed under $19.70 and shares saw their gain fade to 18 cents. There is no change from my recent comments. I would prefer to see a new relative low, under $17.90, before considering new bearish positions.

Trade Description: March 23, 2015:
The price of crude oil and its crash over the last several months has been a major story for the financial media. Energy stocks have naturally followed the price of oil lower. One company getting crushed by the oil's fall and its impact on the industry is oil services company HOS.

HOS describes itself as "Hornbeck Offshore Services, Inc. is a leading provider of technologically advanced, new generation offshore support vessels primarily in the Gulf of Mexico and Latin America. Hornbeck Offshore currently owns a fleet of 65 vessels primarily serving the energy industry and has eight additional high-spec Upstream vessels under construction for delivery through 2016."

Earnings have taken a dramatic turn for the worse. Last year HOS' Q2 earnings were $0.85 a share. That was 36 cents above estimates with revenues up +24% from a year ago. Their Q3 numbers saw business fade. Earnings were $0.72 a share, which was only one cent above estimates. Q3 revenues did rise +25% but they came in below analysts' estimates. The slowdown really took hold in the fourth quarter. HOS reported earnings of $0.51, which missed estimates by 8 cents. Revenues only rose +10% and again missed expectations.

The problem is low oil prices. The U.S. oil industry has been shutting down oil and gas rigs. Many locations need oil above $60, $70 or even $80 a barrel to make the operation profitable. With oil in the $40 range companies are just shutting down rigs. The number of active rigs has fallen 15 weeks in a row and down -45% from its September 2014 high. Offshore rigs, which really impacts HOS, saw 11 rigs closed down leaving a total of 37. That's a -23% decline in a week.

Wall Street has taken note of falling rig count and analysts have been lowering their earnings expectations for HOS. Traders have noticed as well and the most recent data listed short interest at 16% of the very small 20.4 million share float. That does pose a risk since an unexpected rise could spark a potential short squeeze.

Technically the path of least resistance in shares of HOS has been lower for the last several months. Investors continue to sell the rallies. The bearish trend of lower highs is about to push the stock below key support in the $18.50-19.00 zone. Tonight we're suggesting a trigger to launch bearish positions at $18.20. You may want to use options to limit your risk.

- Suggested Positions -

Short HOS stock @ $18.20

- (or for more adventurous traders, try this option) -

Long JUN $17 PUT (HOS150619P17) entry $1.50

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