Option Investor

Daily Newsletter, Monday, 4/6/2015

Table of Contents

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

Market Wrap

Economics Or Earnings

by Thomas Hughes

Click here to email Thomas Hughes
Weak jobs creation in March did not derail the bull market.


Weak jobs creation was the talk of the day and largely to blame for today's weak opening. While it was enough to send the bulls ducking for cover it was not sufficient to keep the bulls at bay. The news was shrugged off for any of a number of reasons including the possibility the FOMC would hold off on raising interest rates, the FOMC minutes due out this week and impending earning season. Whatever the reason the market blasted off the early lows.

Early morning trading was light due to holiday market closures in Europe. Asian indices were mixed but primarily in the green. Our markets were deep in the red and indicated to open more than a half percent below last week's close. When the opening bell sounded the market did indeed move sharply lower but the selling did not last. Within the first two minutes of trading support had been triggered and the bulls were charging higher.

Market Statistics

The market moved higher from that point onward with barely a pause until hitting the day's high near 1:45PM. From then on the indices tread water holding near the early high until about a half hour before the close of trading. At that time the markets began to pull back from the highs, shedding about a third of today's gains. Despite the late day decline the markets were able to move higher and close in the green.

Economic Calendar

The Economy

Only one economic release today, ISM services. This was released at 10AM and added additional relief to the market. The reported headline is 56.5, slightly below expectations of 56.9 and last month's unrevised figure. While mildly below projections the number is still well above the expansionary 50 level and data within the report suggests further expansion is on the way. The employment and new orders components rose, employment by 0.2%.

Moody's Survey of Business Confidence surged to yet another new high in this week's report. The headline figure is 44, up more than 3 points from last week. In the summary Moody's Economist Mark Zandi downplays the new high but reveals positives within the data. According to him...

"Businesses remain upbeat, particularly in the U.S. The recent slowing in U.S. growth is not evident in the survey results. Indeed, hiring intentions posted a record high last week. Businesses also remain optimistic about investment, and demand for office space is strong. Credit is widely available, and pricing is sturdy, despite heightened deflation concerns in much of the developed world"

The Moody's report and the ISM both support continued strength in the labor market, if not in actual job creation. The NFP of last week is a reminder that job creation is an important part of the labor market but not all of it. While jobs creation fell in March so did jobless claims and the level of lay-offs' at the same time wages increased modestly and unemployment remained unchanged, a combination that does not indicate underlying weakness in labor. Based on the aggregate of the data the March NFP is a one-off and not a trend but of course I will be keeping a close watch on this and all the rest of the labor data.

This week is very light on economic data of any kind. There are only a few reports due out including weekly jobless claims, JOLT's, Wholesale Inventories, Import/Export Prices and the FOMC Minutes. The minutes may be this weeks most important single piece of data but the JOLTs and labor picture will also remain in focus.

The Oil Index

The Saudis have been steadfast promoters of the idea OPEC would not support oil prices with production cuts but have seemingly bypassed that sentiment today. They announced a new move to increase the price of oil to its Asian customers by decreasing the discount offered to them. While not a significant change to the supply/demand picture this will no doubt help support oil prices, at least in the near term. The news caused WTI and Brent to surge nearly 6% each. WTI settled today above $52, Brent above $58 with the spread narrowing to near $6.

The Oil Index moved higher along with the underlying commodity. A rise in oil is no doubt a boon to the troubled oil sector which is expected to lead the market with declines in earnings this year. The index gained more than 2.25% in today's session and moved above resistance at 1,350. The indicators are bullish and confirm the move with a target near 1,400. This is the top of the 4 month range and the next area of resistance. The index could remain range bound for the next few weeks up to and until the major oil companies release earnings. Expect them to be bad and look to the guidance for indications of what to expect later in the year. BP and Exxon both report in the last week of this month.

The Gold Index

Gold prices got a big boost from the weak NFP report. The data led to drop in dollar values that have sent gold up above $1200 yet again. The move may be temporary however as dollar weakness is not something expected to last. For one thing, the FOMC is on the path leading to interest rate hikes while the ECB and BOJ are still actively pursuing QE policies. What is important to watch this week is economic data and the FOMC minutes. They will both fuel speculation over the rate hike; if the hike looks closer the dollar could rise back toward the recent high and pressure gold lower. In any event we are looking at $1200 as support and $1225 as potential resistant.

The gold miners got a lift from today's rise in gold prices. The miners ETF GDX gained more than 3.25% in today's action and moved back above the short term 30 day moving average. Today's candle is a spinning top, a sign of indecision, but when taken along with the indicators and longer term analysis of the charts looks more bullish than not.

In the near term both indicators are bullish and moving higher in confirmation of today's gains; stochastic is forming a strong bullish crossover and MACD is on the rise. In the short term today's move is the second bounce of a test of long term support, the first occurring last month. In the slightly longer term these two bounces are the second of two double bottoms in a greater long term double bottom the first occurring Nov/Dec last year.

If this is the actual bottom of the gold sector could lead to significant gains in the coming years. Current target is the top of the 6 month range near $20.50 with $22.50 a possibility if resistance can be broken. The miners begin reporting in 2 weeks with the bulk of reporting due the last week of this month.

In The News, Story Stocks and Earnings

Earnings! Earnings begin again this week with Alcoa on Wednesday. The expectations are not good but the market may be looking past this quarter and into the 2nd quarter and 2nd half already. According to Factset the expected blended growth rate for the S&P 500 is -4.6%, steady from last week.So far 19 S&P companies have reported for the first quarter of 2015; 16 have reported EPS growth above the expected blended rate, 12 have beaten on sales. Five more are expected to report this week, including Alcoa.

Ex-energy the blended rate has crept up marginally from last week to 1.26%. I may be grasping at straws with this look at earnings but I think it relevant when one sector is expected to decline by -64%, and the next biggest loser is expected to decline by only -10%.

Looking out to the next quarter, the full year and next year things are also looking a lot better than the headline expectations for first quarter 2015. We are expected to see some decline next quarter but less than half of what we are expecting this quarter. We are expecting overall earnings growth of 2.4% for the 2015 calendar year and a whopping 12.4% for calendar year 2016. The three biggest drivers for these gains are expanding margins, the consumer and housing.

Alcoa, reports on Wednesday after the bell. The company is expected to report earnings near $0.25, flat from the previous quarter due to a decline in aluminum prices. Sales and outlook are expected to be good. Today the stock gained more than 1.5% in a move up from recently set lows. The indicators are bullish with a target near the short term moving average about 2.5% above today's close.

Herbalife received notice it was under investigation. Company execs received notices from federal agencies requesting information into their practices. The news caused the embattled stock to fall sharply in the pre-market session but it was able to regain the loss and close with a gain of more than 1%.

Tesla Motors reported record first quarter deliveries of its electric cars. The new sent the stock shooting up by more than 6% to a new one month high. This is in advance of an expected announcement/product release due out later this week.

Duke Energy announced a huge new stock buy back program. The program, valued at $1.5 billion, is expected to close by the end of the third quarter. The news sent shares of Duke, which yields over 4%, up by more than a full percent in the pre-market session. This move was extended after the open and carried the stock above the short term moving average and to new 30 day high.

The Indices

Today's move was led by the broad market S&P 500 which gained 0.66%. The index made this gain after a move down to test support in the first minutes of open trading. Support was found between 2,050 and 2,060 and the resulting rally carried the index 30 points from bottom to top. Today's move confirmed support but was capped by resistance near 2,090 and the December all-time high. The market appears to be settling into a range between these levels and could remain there until the earnings picture for the first quarter becomes clearer. The indicators are weak but appear to be winding up in anticipation of larger market movement that is probably earnings related; stochastic is trending in the middle portion of its range while MACD momentum is approaching equilibrium. The market could go either way from here but the trends are up and expectations for the future are positive so I remain bullish.

The Dow Jones Industrial Average matched the S&P 500 with a gain of 0.66%. The blue chip index moved in a large range today, testing support and meeting resistance, in similar fashion as well. The index appears to be forming a base of support near 17,750 but this level could easily break down in the face of weaker than expected earnings and/or outlook. The indicators are consistent with support at this level and still set up for a potential trend following entry but a break above resistance at 18,000 is needed to help confirm. If the market begins to move lower, support at 17,750 is important in the short term and could take the index down to 17,250 if broken.

The NASDAQ Composite made the next biggest gain, 0.62%. The tech heavy index appears to be confirming long term support above 4,800 with today's move and regained the short term moving average. The indicators are still weak but like the broad market and the blue chips are consistent with support within a longer term uptrend. They are also set up for a potential trend following entry. If one develops it could take the index to new highs, the caveat being that technical resistance just above 5,000 will need to be broken.

Moving on to the Dow Jones Transportation Average today's market action wasn't all ice-cream and rainbows; the transports did not participate in today's rally and closed with a loss of -0.45%. Today's action created a doji candle and left it sitting at the bottom of the 6 month trading range and a 6 month low. The indicators are weak and pointing lower but at this time still consistent with support. It is looking like support for the transports is being tested and may be tested further but I will need to see a definitive break below 8566, with confirming market conditions, before getting bearish. A break below support would find the long term trend line within 50 points where next support is likely to be found.

The markets are winding up for a move but what move exactly will come down to earnings and expectations. Earnings are going to be bad, we know this, it's been coming for a while and could lead to a correction. We also know that the expectations for the rest of the year are still OK if not good, which would make any correction that happens now a buying opportunity. What we don't know is just how bad earnings for the first quarter are going to actually be, and we don't know how good the rest of the year is going to be, which leaves a lot of room for speculation and the possibility for a very volatile earnings season. The best thing I can say now is sit back and wait until the picture gets clearer, which may happen on Wednesday with the FOMC Minutes or with Alcoa's report after the bell.

Until then, remember the trend!

Thomas Hughes

New Plays

A Failing Grade

by James Brown

Click here to email James Brown


Strayer Education, Inc. - STRA - close: 53.83 change: -0.67

Stop Loss: 56.15
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on April -- at $---.--
Listed on April 06, 2015
Time Frame: Exit prior STRA's earnings report on May 6th
Average Daily Volume = 124 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
The for-profit education stocks have not had a good year. The group is getting crushed. Student enrollments are falling as the labor market improves. Last week we saw the March jobs report was a disaster but the prior 12 months were all above +200,000 jobs a month, the best string of job growth in years. The unemployment rate has fallen to six-year lows. This is reducing the number of potential students for companies like STRA.

STRA was founded back in 1892. According to the company, "Strayer Education, Inc. (Nasdaq: STRA) is an education services holding company that owns Strayer University. Strayer's mission is to make higher education achievable for working adults in today's economy. Strayer University is a proprietary institution of higher learning that offers undergraduate and graduate degree programs in business administration, accounting, information technology, education, health services administration, public administration, and criminal justice to working adult students. Strayer University also offers an executive MBA online and corporate training programs through its Jack Welch Management Institute. The University is committed to providing an education that prepares working adult students for advancement in their careers and professional lives."

Another challenge for the for-profit industry is the U.S. government. Plenty of students are graduating with piles of debt and still can't get a job. Some schools have unusually high dropout rates. The authorities are investigating some schools for predatory enrollment practices. A new challenge is President Obama's proposal to make community college free for everyone, for the first two years. Of course "free" is a relative term since tax payers will be paying for it. No word yet on if or when this proposal gets off the ground but it generates headwinds for the for-profit educators.

STRA has been struggling with falling student enrollments and lower revenue per student. They reported Q4 earnings results on February 6th. STRA's $1.32 per share beat estimates by 14 cents. However, revenues plunged -6.4% to $116.1 million. Their fiscal 2014 earnings were down -7.8% from the prior year. Revenues dropped -11.4% in 2014.

The company is hoping that enrollment trends will turn positive in the first half of 2015 but they don't expect revenues to turn positive until the second half of the year.

Investors are bearish on the stock with short interest at 15% of the very, very small 10.0 million share float. This time the bears are probably right. Technically STRA looks ugly with a clear trend of lower highs and lower lows. You can see the sell-off on its Q4 report in the daily chart. The weakness accelerated in late March. The point & figure chart is bearish and forecasting at $46.00 target.

We are suggesting bearish positions with an entry trigger at $52.95. Investors will want to keep their position size small to limit risk. The small float and the high short interest could make this stock volatile. I suggest the put option, which would limit your risk to the cost of the option.

Trigger @ $52.95 *small positions to limit risk*

- Suggested Positions -

Short STRA stock @ $52.95

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

Buy the MAY $50 PUT (STRA150515P50) current ask $2.00
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:

In Play Updates and Reviews

Oil Stocks Outperform On Crude's Strength

by James Brown

Click here to email James Brown

Editor's Note:
The U.S. dollar sank on the disappointing March jobs number. This dollar weakness fueled a gain in crude oil. Oil's rally sparked widespread gains in the energy stocks.

ALLE and IMKTA both hit our bullish entry triggers.

Our plan was to exit the HOS trade this morning.

Current Portfolio:

BULLISH Play Updates

Allegion Plc. - ALLE - close: 61.65 change: +0.20

Stop Loss: 59.75
Target(s): To Be Determined
Current Option Gain/Loss: -0.7%
Entry on April 06 at $62.10
Listed on March 30, 2015
Time Frame: Exit prior to earnings (late April - early May)
Average Daily Volume = 674 thousand
New Positions: see below

04/06/15: ALLE rallied past resistance at $62.00 this morning. Shares hit our suggested entry point at $62.10. Unfortunately this strength didn't last and ALLE pared its gains. The intraday high was $62.16. I am suggesting a rally to $62.20 as our next entry point.

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.

- Suggested Positions -

Long ALLE stock @ $62.10

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

Long MAY $65 CALL (ALLE150515C65) entry $1.00

04/06/15 triggered @ 62.10
Option Format: symbol-year-month-day-call-strike

Ingles Market, Inc. - IMKTA - close: 53.26 change: +1.28

Stop Loss: 49.75
Target(s): To Be Determined
Current Option Gain/Loss: +1.7%
Entry on April 06 at $52.35
Listed on April 04, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 159 thousand
New Positions: see below

04/06/15: Our brand new trade on IMKTA is open. Shares continue to show relative strength and added another +2.4% today. Our suggested trigger to launch bullish positions was hit at $52.35. If you're looking for an entry point tonight I'd wait for a dip.

Trade Description: April 4, 2015:
Fifty years of sales growth. If you don't live in the South Eastern U.S. you may not be familiar with IMKTA. The company is in the services sector. They're part of the grocery store industry. Last year (2014) was the company's 50th consecutive year of sales growth.

Here is how the company describes itself: "Ingles Markets, Incorporated is a leading supermarket chain with operations in six southeastern states. Headquartered in Asheville, North Carolina, the Company operates 202 supermarkets. In conjunction with its supermarket operations, the Company operates neighborhood shopping centers, most of which contain an Ingles supermarket. The Company also owns a fluid dairy facility that supplies Company supermarkets and unaffiliated customers."

IMKTA reported their Q4 2014 results on December 8th. Quarterly revenues were up +1.7% but earnings per shares soared +16%. Revenues for the whole year hit $3.84 billion. Earnings for all of last year grew +15%.

The streak of earnings growth continued in the first quarter of 2015. IMKTA reported results on February 6th. Revenues were up +1.8%, above estimates. Earnings per share exploded with a +75% improvement over a year ago. Comparable sales were up +2.3% with their average transaction up +3.1%. Analysts are forecasting +20% earnings growth in 2015.

Technically the stock looks bullish and trading at all-time highs. The $50.00 area was round-number resistance but now that IMKTA has broken out the $50 mark should be new support. The point & figure chart is very bullish and forecasting a long-term target of $99.00.

I am concerned that IMKTA does not trade a lot of volume. It's average volume is only 159,000 shares a day. The big drop in January came out of nowhere and snapped a run of seven up weeks in a row. Tonight we are suggesting a trigger to open bullish positions at $52.35. Keep positions small to limit risk.

*small positions* - Suggested Positions -

Long IMKTA stock @ $52.35

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

Long AUG $55 CALL (IMKTA150821C55) entry $3.50

04/06/15 triggered @ 52.35
Option Format: symbol-year-month-day-call-strike

Prestige Brands Holdings - PBH - close: 43.59 change: +0.02

Stop Loss: 40.35
Target(s): To Be Determined
Current Option Gain/Loss: +2.9%
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

04/06/15: It was a quiet day for shares of PBH. The stock traded sideways inside a 60-cent range.

More conservative traders may want to start raising their stop loss. If you're looking for a new entry point I suggest waiting for a dip.

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: 52.83 change: +0.20

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

04/06/15: PRSC bounced off its simple 10-dma but only managed a +0.38% gain. The NASDAQ produced a +0.6% advance. The path of least resistance seems to be higher but I am not suggesting 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: 20.03 change: -0.40

Stop Loss: 19.20
Target(s): To Be Determined
Current Option Gain/Loss: -3.8%
Entry on March 24 at $20.81
Listed on March 21, 2015
Time Frame: Exit prior to earnings on April 20th
Average Daily Volume = 3.6 million
New Positions: see below

04/06/15: The volatility in STLD continues. After big gains last Thursday the stock reversed today with a -1.98% decline. Shares remain just below technical resistance at its 200-dma (near 20.60) and its recent highs near $21.00.

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

Vipshop Holdings - VIPS - close: 29.22 change: +0.11

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

04/06/15: VIPS managed a small rebound off short-term technical support at its rising 10-dma. I don't see any changes from my recent comments. We are on the sidelines waiting for a breakout past $30.00. Our suggested entry point is $30.15.

Trade Description: April 1, 2015:
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)
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

Web.com Group, Inc. - WWWW - close: 19.21 change: +0.23

Stop Loss: 18.45
Target(s): To Be Determined
Current Option Gain/Loss: +1.1%
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

04/06/15: WWWW also bounced off technical support at its 10-dma. Shares managed to outperform the broader market with a +1.2% gain. I'm still worried about potential resistance at $20.00 and its simple 200-dma, now at $19.83.

No new positions at this time.

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

None. We do not have any active bearish trades.


Hornbeck Offshore Services, Inc. - HOS - close: 20.88 change: +1.53

Stop Loss: 20.55
Target(s): To Be Determined
Current Option Gain/Loss: -7.6%
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

04/06/15: The U.S. dollar dropped on the March jobs number. This dollar weakness fueled a big bounce in crude oil. The oil rally sparked a widespread rally in energy stocks. Shares of HOS gapped open higher at $19.59 and then surged to a +7.9% gain.

Thankfully we had already decided in the weekend newsletter to exit this trade at the opening bell.

- Suggested Positions -

Short HOS stock @ $18.20 exit $19.59 (-7.6%)

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

JUN $17 PUT (HOS150619P17) entry $1.50 exit $0.65 (-56.7%)

04/06/15 planned exit at the open
04/04/15 prepare to exit positions on Monday, April 6th.
Option Format: symbol-year-month-day-call-strike