Option Investor

Daily Newsletter, Saturday, 4/11/2015

Table of Contents

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

Market Wrap

GE Shocks the Market

by Jim Brown

Click here to email Jim Brown

General Electric unveiled a sweeping restructuring program and a plan to return up to $90 billion in cash to shareholders. That put GE on the top of the leader board for Dow components and helped jumpstart the market on Friday morning.

Market Statistics

GE finally pulled the plug on GE Capital and is selling the bulk of the divisions assets. About $26.5 billion in real estate assets were sold with Blackstone and Wells Fargo buying the bulk of that for $23 billion. Shares of GE soared 11% as Wall Street investors applauded the deal. GE Capital has been a drag on GE earnings for a very long time. Shedding GE Capital allows GE to turn its full attention back to manufacturing where it has been very profitable. GE said it authorized a $50 billion share buyback program and will return $90 billion to investors in the form of dividends and buybacks by 2018. They are planning on selling $165 billion in assets.

GE was founded by Thomas Edison in 1876. The company recently sold NBC Universal in 2011 and has been moving out of the appliance business. GE spun off its private label credit card business, Synchrony Financial in 2014. GE is also going to sell the majority of its commercial lending business and the leasing division and the rest of its consumer lending businesses. The only major financing operations it will keep are the ability to finance products GE manufacturers like aircraft engines, locomotives, etc.

The $50 billion stock buyback plan ties with Apple for the largest ever share repurchase program. Microsoft bought back $150 billion from July 2004 through 2007 but it was announced in stages with three $40 billion programs and one for $30 billion. GE has 10.7 billion shares outstanding.

GE shares rallied +11% to close at $28 but already analysts are talking about it returning to its all time highs of $60. After years of no material growth GE shares could be returning to "Widows and Orphans" status where anyone can buy and hold and be assured a safe return.

Somebody entered an option position on February 27th that is too good to be true. They bought 127,000 of the January 2017 $30 LEAPS at 80 cents or roughly $10.16 million dollars. Those LEAPS closed at $1.62 on Friday but I am sure they will be a lot higher before January 2017.

It was a good thing GE made some headlines on Friday because the economic calendar was very slim. The Import & Export Prices report showed import prices declined -0.3% in March after a minor +0.2% rise in February. Prices have declined in 8 of the last 9 months. The factor pushing prices higher was of course oil and oil products. This report was ignored.

The calendar for next week has a lot of reports but only two are normally market movers. The Fed Beige Book on Wednesday "should" continue to show modest growth in each of the Fed regions but given the number of times the weather excuse has been used over the last month there is the potential for a weakening of the adjectives used to describe the growth.

The Philly Fed Manufacturing Survey on Thursday is the preview of the next series of regional manufacturing reports. This is also seen as a proxy for the next ISM Manufacturing report on May 1st. The estimates for the Philly Fed which are encouraging since the headline number has fallen for the last four months from 40.2 in November to 5.0 in March. If it really does rebound to 8.6 as forecast then the worst may be over and it really was just the weather causing problems.

Netflix (NFLX) announced on Friday what could be a massive stock split. In a proxy statement filed late Friday Netflix proposed increasing the number of authorized shares from 170 million to FIVE BILLION. If shareholders approve the increase on June 9th the company will announce a stock split at a ratio "to be determined" following the meeting.

Immediately analysts were questioning what they were going to do with the monster number of shares. Are they planning on making a huge acquisition? Are they planning on doing a secondary offering to raise additional cash for acquisitions or production of additional content? Netflix said it had no plans for acquisitions or equity offerings. However, the company said the authorized shares will provide "greater flexibility" for all of those uses as well as executive compensation and other corporate purposes. Netflix said 5 billion was similar to the number of outstanding shares at other major technology companies. Netflix has only split its stock once and it was 2:1 in February 2004. With the share price at $454 it could easily do 4:1 or even 9:1 to bring the price down to $50 and in range of investors with limited budgets.

G-III Apparel announced a 2:1 split for May 4th and the stock is moving slowly higher. The company only has 22.5 million shares outstanding with 116,000 trading on Friday. It needs to do something to generate some additional interest and volume.

Brookfield Asset Management (BAM) announced a 3:2 split on Wednesday and moved to a new high. Brookfield has 631 million shares outstanding but the daily volume of 344,000 is not very heavy. A 3:2 split rarely generates a split run but never say never.

The big news for next week will be the acceleration into the earnings cycle. This is the week for the financials to report. JP Morgan and Wells Fargo lead the sector on Tuesday followed by Bank America, US Bank and Schwab on Wednesday. Goldman Sachs, American Express and Citigroup report on Thursday.

Some tech titans also report with Intel on Tuesday with Google, Netflix and SanDisk on Wednesday.

There is a lot of worry over this earnings cycle. The range of earnings estimates are from about -1.9% to as much as a -5% decline in earnings as a result of the strong dollar and severe winter weather. That compared to estimates for +5% growth at the start of Q1. Everyone is going to be using the dollar as a kitchen sink excuse and guiding lower for Q2, which is already projected to be down -2%. We may be approaching a point where the estimates are too bearish and we have the potential for some upside surprises. The bar is so low a snake would cross it. Typically when this happens the bearish expectations never come to pass.

The energy sector is going to be the biggest drag with estimates in the -59% to -62% range. If you take out energy the earnings growth for the rest of the S&P rises to about +4%. That is a lot better than the scorched earth estimates BUT only about 50% of the S&P derive a majority of their earnings from overseas and therefore are fighting the dollar impact.

The challenge is in knowing in advance which companies are really exposed to the dollar and which one only have minimal exposure. Johnson & Johnson reports on Tuesday and they have a very high exposure so expect some earnings pressure there.

This is the kickoff week for Q2 earnings and it will set the tone for the rest of the cycle. Hopefully the financial companies will not announce a new round of liabilities due to some new government witch hunt. Some of the shares of financial stocks are rising, GS and JPM as examples, so hopefully there will be some good news.

In stock news Caterpillar (CAT) rallied +2.4% after it said it was creating a big data division to capitalize on the growing importance of data analytics. Caterpillar as a cloud company? Who would have ever thought yellow bulldozers would make into the clouds. However, this is not new. GE and Komatsu are partnering to provide big data analysis for mining projects. Caterpillar said it is planning on transforming the mountains of incoming data on fleets of machines or even just an engine to provide data for the owners that will help them maintain and better manage their fleets.

The term "cloud computing" and using the "big data" buzz word is almost guaranteed to lift your stock. That is unless you are Alibaba (BABA). The company said it was launching an automotive unit and a "smart living" division that will combine its cloud computing, big data and hardware operations. The company is counting on its big data analysis and cloud computing abilities to boost its online sales in more specialized categories. They also plan to include car marketing services built around Alibaba's big data analysis. The news did not help their stock with a -2% decline. BABA shares just can't seem to hold any gains. With the lockup expiring on 1.2 billion shares on September 20th it appears nobody is buying even for a short term bounce. The bloom is definitely off this rose.

Apple (AAPL) had a good day on Friday. The shares did not move much but Friday was the first day of sales for the Apple Watch. The Watch sold out in about half an hour and delivery dates are now being quoted for a June or July ship date depending on the model. However, despite selling out quickly the lead time for the backordered watches did not get longer as the day progressed. If there had been strong demand the orders placed later in the day should have been quoted farther into the future. The watch went on sale at 3:AM Eastern time. By 6:AM the lead times were quoted as 4-6 weeks. At 7:30 it was still 4-6 weeks and at noon it was still 4-6 weeks with some styles quoted in early July.

Analysts said there was very limited inventory because of all the different versions, colors, bands, etc. This was not like an iPhone where there are 4 models and Apple can produce tens of millions in advance because they know they will eventually sell. With dozens of combinations of styles, colors and material they did not know which would be the big sellers and which were duds. By making only a few of each style they knew they could quickly manufacturer the models that were selling and not have excess inventory of the unpopular versions. Their limited inventory sold out fast and the lack of extended lead times suggests they can manufacture them to order very quickly.

Analysts don't believe Apple will rush to quote sales figures for the opening weekend. Why advertise you only sold one million watches when you only had one million to sell. People are expecting huge sales numbers and Apple would not want to disappoint.

One other factor is the "managed shortage." By saying they sold out in 30 minutes it creates artificial demand because everyone hearing the news suddenly assumes there were tens of millions of buyers. If Apple can maintain a shortage because of high demand then it makes for good headlines as long as you don't disclose how many you actually sold. The black link 42 mm watch has the longest lead time so that one could be hard to get in the near future.

There are roughly 450 million iPhones in circulation. The cult of iPhone tends to buy whatever new thing Apple produces. If only 1% of iPhone users bought a watch that is 4.5 million. If 10% bought a watch it would be 45 million. At $399 and up for the watch that is a huge amount of revenue for Apple even at the lower numbers. For most people they probably need to visit an Apple store and actually see a demo of the watch to convince them to buy. Just looking at a 30 second clip on TV or reading the features may not be enough to cause them to buy. Charging your watch every night is a new concept and buyers probably want to be able to see, feel and play with one before they buy. Apple will refund your money in full if you return the watch within 14 days.

If you really want an Apple Watch you can buy it on Ebay. Within hours of the watch going on sale, hundreds showed up on Ebay for a premium of as much as 40%. You could also rent one for a week from Lumoid, a San Francisco based startup. You can rent the Sport edition for $45 for a week or the stainless steel version for $55 a week. There are already 3,000 people on Lumiod's waiting list. Unfortunately you can't rent the $10,000 18-karat gold watch.

Symantec (SYMC) rallied 5.6% after the Wall Street Journal said the company was looking to sell its Veritas unit and it may be worth more than $8 billion. Symantec bought Veritas in 2005. Now it wants to spin off the data storage business to focus on anti-hacking services and other security technology. Symantec is reportedly talking to private equity firms and other industry participants.

Oil hit a new high for the year on Tuesday but that was before inventories rose +10.9 million barrels on Wednesday. That was the biggest weekly gain in 14 years. Oil in inventory rose to 482 million barrels and an 80 year high. While we are moving closer to the high demand driving season the demand is just now starting to creep up slowly.

Refiners took in 15.93 mbpd last week and operated at 90.1% of capacity. However, imports rose from 7.53 mbpd to 8.22 mbpd and that contributed most of the inventory gain. Refiners are still buying cheap oil because they know that prices will rise in the summer and they can refine their cheap oil in inventory and sell the refined products at much higher prices.

Active rigs declined -40 to 988 with oil rigs declining -42 to 760 and gas rigs rising +3 to 225. Offshore rigs gained +2 to 33. Active rigs are now down -48.8% from their September high at 1,931. Oil rigs have declined from 1,609 to 760 or a -52.7% drop. The pace of the rig decline in the prior two weeks was 20 per week. Analysts had started to suspect that maybe we had reached the bottom of the decline. The acceleration this week just reinforced the fact that the decline is not over. Rig counts have now fallen for 18 consecutive weeks.

Crude prices continue to hold over $50 despite news that Saudi Arabia produced a record of 10.3 mbpd in March. OPEC production in March was 31.5 mbpd, an increase of 1.2 mbpd from February and 2.0 mbpd over March 2014. The OPEC quota is only 30.0 mbpd but OPEC producers are no longer obeying their quotas. Analysts believe Saudi Arabia is trying to capture as much market share as possible before Iran is given a green light to begin selling oil again. Once that happens there will be a price war between the Persian Gulf suppliers. Saudi Arabia indicated it could produce more if there were buyers. Saudi has claimed maximum production capability of 12.5 mbpd since the recession.

U.S. crude inventories have risen 99.9 million barrels over the last 13 weeks. In the chart below the blue line is the current inventory. The gray shaded area is the average inventory range over the last five years. Clearly we are swimming in crude.


The S&P actually closed over 2100 for the first time since March 23rd. It has been a rocky road up from the 2045 low on March 26th but any gain is still a gain. Just getting over 2100 is a psychological victory but the real resistance is still ahead. The next battle is downtrend resistance at 2110 from the March highs and the lower high on March 20th. Next in line would be the historic closing high at 2117.

If the earnings from the financial sector turn out to be bad news it could be really tough for the S&P to break through those resistance levels. However, if the banks surprise to the upside it could build a fire under the market because expectations are very low.

The internals have been improving. The percentage of Nasdaq stocks over their 50-day average has risen to 64.2% and a three week high. The percentage of S&P stocks over their 50-day average is 65.6% but not nearly as positive as the Nasdaq, which is closing in on the 5000 level.

Tough test ahead with resistance at 2110 and 2117. Support is now 2075 and 2050.

The Dow hit downtrend resistance at the close at 18,050 with horizontal resistance at 18,100. With multiple Dow components reporting earnings next week the index should be volatile. The financial companies will be the biggest risk. JP Morgan and Goldman Sachs both report and Goldman is now the largest weighting in the Dow. Intel and Johnson & Johnson both report as well. Intel's low stock price would require a major move in Intel shares to dramatically impact the price weighted Dow.

The next material resistance is 18,100 followed by 18,200. Support is well back at 17,850 and then 17,600.

The Nasdaq was relatively strong last week with the Composite gaining +2.23% and the Nasdaq 100 adding +2.46%. Those were the largest gains of any of the major indexes. The Composite index closed at 4996 and just under the psychologically important 5000 mark. The closing high back on March 20th was 5026.42 making that the next target if it makes it through the 5000 level.

Despite the gains by the Nasdaq 100 it is still the weaker of the two indexes because the Nasdaq big caps do have exposure to the strong dollar. Support on the NDX is still 4300 and it has been rock solid. Resistance is 4475 and it has held twice before. If Intel and/or Google have a bad earnings report it could prevent the big caps from maintaining their momentum and the 4475 level could become insurmountable ahead of the summer doldrums. Conversely if those companies post good results it could trigger a short squeeze that powers the NDX to new highs.

The small cap Russell 2000 only gained 0.7% last week but it did manage to return to within 2 points of its historic high close of 1266.37. The Russell had a tough week with multiple intraday selling spurts but they were all bought and the index closed at the high for the week. I suspect this was profit taking as the index neared its highs and the big caps suddenly showed some renewed strength. We need for the small caps to break out to a new high to reenergize the market. We are lacking a decent catalyst to increase the upward momentum and I am concerned the big cap earnings next week could be a challenge. Having the Russell breakout would go a long way towards overcoming some less than stellar big cap results.

The FedEx news it was buying TNT in Europe helped to lift the transports but after four days of gains it is probably time for FDX to rest and the transports as well. The support at 8600 was just barely broken before FDX rescued the index from a collapse. However, if oil prices continue to rise then the transports should weaken again.

The NYSE Composite Index is only 10 points from a new historic high over 11,122 and this is a big deal. The NYSE index is heavily populated by small financials and energy stocks. If the NYSE can manage a breakout and hold its gains it would suggest the other indexes will follow. This is a very bullish setup.

While there are plenty of chances for disaster next week the steady creep higher by the Russell and the NYSE plus the sudden sprint by the NDX suggests the bulls are gaining confidence. If the NYSE and Russell can breakout to new highs it would be very bullish for the market and investors could be enticed to overlook some of the earnings misses. This is going to be a critical week for market direction and it is starting out with some bullish possibilities.

Random Thoughts

It was a good week to be Lloyd Blankfein. He is the CEO of Goldman Sachs and the board awarded him $24 million in compensation for 2014. That was a 4.3% increase. Blankfein receives $2 million in annual salary plus a cash bonus ($7.33 million) and $7.33 million in stock awards and $7.33 million in performance-based restricted stock awards. The $24 million works out to a daily income of about $92,307 for the 260 work days of 2014. That would make you want to get out of bed in the morning with a spring in your step!

The Washington Times, citing a U.S. Army analysis, reported that Iran has stepped up production of "suicide drones" specifically to target U.S. Navy vessels in the Persian Gulf and the Gulf of Aden. The Iranian military has been testing them against ship targets near the Strait of Hormuz. The drones are inexpensive, hard to see and shoot down because of their size and can be used in a swarm against Navy ships. They can also be used to limit takeoffs and landings of aircraft from naval ships. Filling the sky with a few of these in the traffic pattern could cause havoc for U.S. carriers in the Persian Gulf. They are also sharing this technology with Hamas and Hezbollah for use against Israel. What do you think they would do with a nuclear weapon?

Germany has decided to order 100 additional Leopard 2 tanks to ensure its "troops are ready for action in response to concerns over recent Russian assertiveness." I guess assertiveness is a politically correct word to use in place of aggression. This will increase Germany's tank force by 45% to 325. When the cold war ended in the 1980s Germany had 3,500 tanks. NATO has given Europe new goals on flexibility and rapid reaction time that requires all the NATO countries bordering Russia upgrade their forces. Nobody wants to be the next annexation target for Putin.

Deutsche Bank said every portfolio manager in the world should look at this chart every day. The blue line is the forecast for ECB rate hikes, currently December 2019. The red line is the Federal Reserve, currently March 2016. The implied gap between the two central banks has never been wider. Europe is expecting ECB-QE in some form to last 2-3 years. This means the euro currency is going to decline a lot further.

Because of the QE by the ECB, Japan and stimulus from 21 other central banks there is a global bull market in progress. The MSCI All Country World Index (ACWI) broke out to a new high last week. With no end in sight for global stimulus there is no reason this should not continue. Every country is trying to cheapen their currency to make their products more attractive to the rest of the world. When one country does it they can be subject to sanctions by the world body. When 23 countries do it a currency war is born. Welcome to the war!

Stocks in the Hang Seng Index rallied 7.9% last week and now up +16% YTD. The Japanese Nikkei topped 20,000 for the first time in 15 years. The Stoxx Europe 600 hit highs not seen since 2000 and up +21% since the ECB began buying bonds. Fourteen out of 47 national equity benchmarks have hit record highs in 2015.

As further evidence of the insanity in the global financial markets Switzerland sold ten-year bonds with a negative yield. Buyers are actually paying Switzerland to hold their money for ten years.

Even worse Mexico sold 100-year bonds denominated in euros at a yield of 4.2%. Yes, 100-year bonds in euros, not pesos. Mexican pesos can be devalued but the value of the euro is out of Mexico's control and therefore a safer investment. That is of course if you don't think Mexico will implode with a civil war over the next 100-years. There is another obvious question about the euro. With Greece probably going to leave the eurozone soon and several other countries likely to follow will the euro currency itself even be around for the next 100 years?

This is also a risk for Mexico. If the eurozone gets its problems worked out and the economy rebounds and the ECB halts QE and raises interest rates in 2020 to combat an economic boom then Mexico could be in trouble. In 2001 a euro bought 7.7 pesos. Today a euro buys 16.1 pesos. That is a drop of more than 50%. That would require Mexico to spend twice as many pesos to buy back their euro denominated debt. The odds are good that Mexico's economic future is far worse than Europe and the peso will decline even further. This could end up being a very bad deal for Mexico.

In the FOMC minutes last week several participants noted that the strength in the dollar was likely to restrain U.S. economic growth for "a time." That is code for we don't know how long this will last OR we can't say what we actually believe. The dollar will remain strong as long as the euro is falling and with the ECB in unlimited QE mode that could easily be a very long time. That means rate hikes are moving farther into the future.

Participants also noted lackluster spending and tepid wage growth and both are reasons the first rate hike may be later than expected.

The Fed is becoming more worried that the economy may be entering a soft patch and there was significant confusion in the minutes about the Fed's future direction. Cue a new discussion on "data dependent" rate hikes.

Venezuelan inflation rose +69% through December. The projection for 2015 is +200% according to Bank of America. The country's GDP is expected to decline -4%. The 50% drop in oil prices was a crushing blow to a country that was already in trouble as a result of the worst government in the civilized world. The bolivar has declined -74% to 257 to the dollar. The central bank is responsible for publishing the monthly inflation numbers and has not published any reports in 2015. The bank began omitting certain categories in 2014 in order to make inflation seem lower. If they included those categories in 2015 the official inflation rate could reach 250%. In order to combat the loss of revenue from oil sales the government has limited imports of consumer products in order to maintain its limited currency reserves. The lack of available consumer goods has pushed the prices of what is available to levels that nobody can afford.

The country is ripe for a revolution. Millions of hungry citizens will eventually become unmanageable and the government will fall. There is no recovery from the current economic problems until the government changes.

A Bloomberg Intelligence analyst just traveled across China and came back with terrifying reports on the state of China's economy. He saw idle cranes, empty construction sites and half finished abandoned buildings in several cities. His conversations with business executives reinforced the "gloomy" outlook. China recently lowered its GDP growth target to 7% for 2015 but officials said it would be tough to achieve. Unofficially the expectations are more in the 6.5% range and that includes all the "optimistic" bookkeeping that is used to justify the government numbers. Bloomberg Link

The tax filing deadline is April 15th but 67% of taxpayers have already filed their return. The average refund as of April 3rd was $2,815. IRS has received 99.1 million returns and paid out 77.2 million refunds, totaling $217.35 billion. A lot of that money will find its way into the stock market. Another large chunk will go to pay down credit card bills and the rest will end up in retail spending as families use the unexpected bonanza to buy a new TV or as a down payment on a car.

There is no Iranian deal. The Iranian supreme leader, Khamenei, has denied everything on the fact sheet released by the Obama administration as a lie. He said there would be no changes in the nuclear processing, sanctions would have to be lifted on day one or there would never be a deal and Iran was going to continue on its nuclear research (read as: weapons research) regardless of any claimed deal.

One former negotiator related his history with the Iranian negotiators several years ago. He said they would agree on something on one day and when they met again the next day the Iranians would claim they never agreed to it. To combat this problem the western side had all the discussions written down in Farsi. When they agreed on something at the end of the day they would read it back in Farsi and ask the Iranian negotiator if this was correct. When he said it was they had him sign it. The next day the Iranians claimed they never agreed to those claims. When they produced the papers with his signature, he claimed he never signed it and the signature was a forgery. The former western diplomat said negotiating with Iran was a waste of time. While the West was trying to get a deal the Iranians were only trying to stall for time so their research could continue. The current president of Iran, Hassan Rouhani, was a former nuclear negotiator for Iran. He has bragged many times that he was able to delay the negotiations for five years while the Iranian nuclear program grew rapidly.

I would bet there will be no deal by June 30th. If there is a deal it will not be honored. Under Sharia Law it is not a sin to lie and deceive in order to promote the spread of Islam. Iran makes full use of this exemption.

Like bacon but can't eat pork? Try Schmacon. It is made from beef. If we can cure Hepatitis C then somebody can make bacon from beef. It won the Food and Beverage Innovation award in 2014. It is real and here is the story. Schmacon


Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"What investors say they'll do and what they'll actually do are two different things. Everyone is a long-term investor when the market's going up, but we find out who really means it when the market falls."

Todd Wenning



New Plays

New 52-week Lows

by James Brown

Click here to email James Brown


Navistar Intl. Corp. - NAV - close: 27.72 change: -0.56

Stop Loss: 30.05
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on April -- at $---.--
Listed on April 11, 2015
Time Frame: Exit PRIOR to earnings in June
Average Daily Volume = 940 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
Right now the automobile industry looks pretty healthy. U.S. auto sales in 2014 hit 16.5 million units. That was a +6% improvement over 2013. The most recent data showed March auto sales hitting a seasonally adjusted annual rate of 17.1 million, above estimates for 16.9 million. Unfortunately, this healthy pace of auto sales is not translating well for NAV since they make large trucks and busses.

NAV is in the consumer goods sector. According to the company, "Navistar International Corporation (NAV) is a holding company whose subsidiaries and affiliates produce International brand commercial and military trucks, proprietary diesel engines, and IC Bus brand school and commercial buses. An affiliate also provides truck and diesel engine service parts. Another affiliate offers financing services."

To be fair NAV did see significant improvement last quarter with stronger demand for some of its trucks and school busses but it was not enough to overcome a string of quarterly losses. NAV has been consistently losing money.

The big gap down in the stock price in December was a reaction to the company's Q4 report. Analysts were expecting a profit of $0.10 a share. NAV delivered a loss of $0.88. NAV's most recent report was March 3rd. The company reported a loss of $0.52 a share. This was a huge improvement over the year ago quarterly loss of $3.05 a share. The 52-cent loss number was well above analysts' expectations. Yet revenues came in at $2.42 billion when Wall Street was expecting $2.61 billion.

A couple of weeks later, on March 18th, Nicole DeBlase, an analyst with Morgan Stanley, downgraded shares of NAV to "underweight" and cut their price target to $20.00. According to DeBlase, "Based on our detailed scenario analyses, we conclude that 2016-17e consensus bakes in bullish market share regain and aggressive incremental cost cuts; we are uncomfortable with this given a lack of market share traction and execution issues to date."

Coincidentally the point & figure chart for NAV is bearish and forecasting a $20.00 target. There are a lot of bears already in this name. The most recent data listed short interest at 33% of the 48.5 million share float. The short interest does increase our risk. NAV has long been rumored to be a takeover target. Should there be another convincing story that someone might buy NAV it could spark some short covering.

Right now NAV is underperforming the broader market. It's breaking down under support near $28.00 and is about to breakdown under its February low near $27.50. We are suggesting a trigger to launch small bearish positions at $27.40.

Trigger @ $27.40 *small positions to limit risk*

- Suggested Positions -

Short NAV stock @ $27.40

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

Buy the JUL $25 PUT (NAV150717P25) current ask $1.35
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:

Long-term Chart:

In Play Updates and Reviews

Friday Delivers Widespread Gains

by James Brown

Click here to email James Brown

Editor's Note:
Friday delivered another round of widespread gains for the U.S. market. The S&P 500 is back above the 2,100 level and the NASDAQ is about to rally past 5,000 again. Meanwhile the small cap Russell 2000 is only a few points away from a new record high.

Current Portfolio:

BULLISH Play Updates

Allegion Plc. - ALLE - close: 61.24 change: -0.20

Stop Loss: 59.75
Target(s): To Be Determined
Current Option Gain/Loss: -1.4%
Entry on April 06 at $62.10
Listed on March 30, 2015
Time Frame: Exit prior to earnings on April 30th
Average Daily Volume = 674 thousand
New Positions: see below

04/11/15: Should we start to worry about ALLE? The S&P 500 is up three days in a row while ALLE is down the last couple of sessions. ALLE might bounce off its 20-dma but I'd look for support at $60.00. Meanwhile the $62.00 level remains overhead resistance.

No new positions at this time.

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


CDW Corp. - CDW - close: 38.42 change: +0.05

Stop Loss: 36.40
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on April -- at $---.--
Listed on April 09, 2015
Time Frame: Exit PRIOR to earnings in mid May
Average Daily Volume = 1.0 million
New Positions: Yes, see below

04/11/15: Shares of CDW experienced a little volatility in the first 90 minutes of trading on Friday. Fortunately traders did buy the dip and shares rallied back to close essentially unchanged. The stock is poised to breakout past resistance near $38.50 soon. Our suggested entry point is $38.65.

Trade Description: April 9, 2015:
Traders have been consistently buying the dips in information technology stock CDW. Now the stock is poised to breakout to new highs.

The company offers a broad range of hardware, software and integrated IT solutions to its clients. These include mobility, security, cloud computing, virtualization, data center optimization, and more.

Their website describes the company as "CDW is a leading provider of integrated information technology solutions in the U.S. and Canada. We help our 250,000 small, medium and large business, government, education and healthcare customers by delivering critical solutions to their increasingly complex IT needs. A Fortune 500 company, CDW was founded in 1984 and employs more than 7,200 coworkers. In 2014, the company generated net sales of more than $12.0 billion."

Earnings last year were healthy. CDW has consistently beaten Wall Street's earnings and revenue estimates for the last four quarters in a row. Revenues have been showing double-digit growth for the last year. Their most recent report was February 10th when CDW delivered its Q4 results. Analysts were expecting a profit of $0.53 a share on revenues of $2.95 billion. CDW reported $0.59 a share with revenues up +12.4% to $3.05 billion.

Analysts seem optimistic on CDW. Barclays has listed CDW as one of its top picks and noted that the company has very little exposure to Europe or Asia so the strong dollar shouldn't hurt it that bad. Another analyst, with RBC Capital Markets, believes that any softness in the consumer market will be overshadowed by strength in the enterprise market.

Technically the bullish trend of higher lows in CDW has been coiling more tightly. Now, with the stock up four days in a row, CDW is on the verge of breaking through resistance in the $38.00-38.50 area. Tonight we are suggesting a trigger to launch bullish positions at $38.65.

Trigger @ $38.65

- Suggested Positions -

Buy CDW stock @ $38.65

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

Buy the MAY $40 CALL (CDW150515C40) current ask $0.75
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


Cognex Corp. - CGNX - close: 51.46 change: +0.14

Stop Loss: 49.45
Target(s): To Be Determined
Current Option Gain/Loss: +0.2%
Entry on April 09 at $51.35
Listed on April 08, 2015
Time Frame: Exit PRIOR to earnings in May
Average Daily Volume = 515 thousand
New Positions: see below

04/11/15: CGNX turned in a relatively quiet session on Friday. The stock is up three days in a row and up five out of the last six sessions. Readers may want to consider an alternative entry point at $51.80 before initiating new positions.

CAUTION: I am urging caution if you're trading the options. The option spreads have widened significantly. You may want to consider limit orders (you'll risk not being filled) instead of market orders.

Trade Description: April 8, 2015:
Shares of CGNX are trading at all-time highs and with good reason. The company has been consistently beating analysts' earnings estimates and guiding higher.

CGNX is in the technology sector. According to the company's marketing materials, "Cognex Corporation designs, develops, manufactures and markets a range of products that incorporate sophisticated machine vision technology that gives them the ability to 'see.' Cognex products include barcode readers, machine vision sensors and machine vision systems that are used in factories, warehouses and distribution centers around the world to guide, gauge, inspect, identify and assure the quality of items during the manufacturing and distribution process. Cognex is the world's leader in the machine vision industry, having shipped more than 1 million vision-based products, representing over $4 billion in cumulative revenue, since the company's founding in 1981. Headquartered in Natick, Massachusetts, USA, Cognex has regional offices and distributors located throughout the Americas, Europe and Asia."

Research is forecasting the machine vision industry to grow more than +12% a year for the next six years. By 2020 the market for this business could be more than $9 billion. CGNX appears to be leading the pack. Looking at the last three quarters they have beaten earnings estimates. Revenues have consistently been in the double-digit growth range. The company has raised their guidance twice. In their last quarter gross margins hit 75%. The biggest customer is Apple (AAPL).

In CGNX's earnings report Dr. Robert Shillman, Chairman of Cognex commented on their results saying, "2014 was a fabulous year for Cognex! We reported the highest annual revenue, net income and earnings per share in our 34-year history. In addition, operating margin expanded to 30% driven by the substantial leverage in our business model. That level is a dramatic increase over the 24% reported for 2013 and was achieved despite the significant investments that we made in sales and engineering during the year."

CGNX guided Q1 above Wall Street estimates. They expect strong revenue growth year-on-year and gross margins in the mid 70% range.

Technically shares of CGNX just recently broke out above round-number resistance at $50.00. The point & figure chart is very bullish and forecasting a long-term target at $79.00. Traders quickly bought the dip today. Tonight I am suggesting a trigger to open bullish positions at $51.35.

- Suggested Positions -

Long CGNX stock @ $51.35

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

Long MAY $50 CALL (CGNX150515C50) entry $5.20

04/09/15 triggered @ 51.35
Option Format: symbol-year-month-day-call-strike


Ingles Market, Inc. - IMKTA - close: 52.23 change: -1.43

Stop Loss: 49.75
Target(s): To Be Determined
Current Option Gain/Loss: -0.2%
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

04/11/15: It has been a volatile week for shares of IMKTA. There was no special reason for the stock's relative weakness on Friday. Nimble traders could use a dip near $50.00 as a new entry point although I'd rather see shares bounce off their 10-dma near $51.40 instead.

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: 44.30 change: +0.31

Stop Loss: 40.35
Target(s): To Be Determined
Current Option Gain/Loss: +4.6%
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

04/11/15: PBH is still slowly levitating higher. Friday's +0.7% gain outperformed the major indices and left PBH at an all-time closing high. Shares are up four out of the last five weeks. More conservative traders may want to raise their stop loss.

I would not launch new positions at this time.

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: 50.98 change: -0.19

Stop Loss: 49.85
Target(s): To Be Determined
Current Option Gain/Loss: -2.9%
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

04/11/15: Shares of PRSC have been underperforming the broader market the last few days. Tonight we've decided to throw in the towel. I'm suggesting an immediate exit on Monday morning.

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

Long PRSC stock @ $52.50

04/11/15 prepare to exit on Monday morning
03/27/15 triggered @ 52.50


Steel Dynamics Inc. - STLD - close: 20.61 change: -0.09

Stop Loss: 19.20
Target(s): To Be Determined
Current Option Gain/Loss: -1.0%
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

04/11/15: STLD is still struggling to rally past its 200-dma. On the plus side shares did post a gain for the week. The late March highs near $21.00 are additional overhead resistance.

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: 30.00 change: +0.23

Stop Loss: 27.45
Target(s): To Be Determined
Current Option Gain/Loss: -0.5%
Entry on April 09 at $30.15
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: see below

04/11/15: Chinese stocks have been showing relative strength lately. Friday's +0.77% rally in VIPS outperformed the major U.S. indices. The stock closed right on round-number resistance at $30.00. This also happens to be a new record closing high.

I would wait for a new relative high above Thursday's intraday peak of $30.17 before initiating new positions.

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.

- Suggested Positions -

Long VIPS stock @ $30.15

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

Long MAY $30 CALL (VIPS150515C30) entry $1.94

04/09/15 triggered @ $30.15
Option Format: symbol-year-month-day-call-strike


Web.com Group, Inc. - WWWW - close: 19.29 change: -0.35

Stop Loss: 18.45
Target(s): To Be Determined
Current Option Gain/Loss: +1.5%
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

04/11/15: WWWW delivered a disappointing performance on Friday. Shares underperformed with a -1.78% decline. Yet in spite of the weakness shares still posted a gain for the week. WWWW is actually up five weeks in a row.

Technically the action on Friday has created a bearish engulfing candlestick reversal pattern but it needs to see confirmation. More conservative traders may want to raise their stop loss now.

I am not suggesting new positions.

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

04/11/15 Caution: WWWW just produced a potential candlestick reversal pattern.
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

Strayer Education, Inc. - STRA - close: 52.13 change: -0.03

Stop Loss: 56.15
Target(s): To Be Determined
Current Option Gain/Loss: +1.5%
Entry on April 07 at $52.95
Listed on April 06, 2015
Time Frame: Exit prior STRA's earnings report on May 6th
Average Daily Volume = 124 thousand
New Positions: see below

04/11/15: STRA has been a good bearish candidate so far. Shares have ignored the market's relatively widespread rally this past week. Instead STRA has fallen to new multi-month lows. I'm not suggesting new positions at this time.

Trade Description: April 6, 2015:
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.

*small positions to limit risk* - Suggested Positions -

Short STRA stock @ $52.95

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

Long MAY $50 PUT (STRA150515P50) entry $2.25

04/07/15 triggered @ $52.95
Option Format: symbol-year-month-day-call-strike


Olympic Steel Inc. - ZEUS - close: 11.76 change: -0.19

Stop Loss: 13.55
Target(s): To Be Determined
Current Option Gain/Loss: +5.5%
Entry on April 08 at $12.45
Listed on April 07, 2015
Time Frame: 3 to 4 weeks
Average Daily Volume = 56 thousand
New Positions: see below

04/11/15: Our bearish play in ZEUS is also off to a great start. Shares broke support near $13.00 and saw its bear market declines accelerate lower. The stock is arguably short-term oversold here. I am not suggesting new positions at this time.

I want to remind readers that this is a higher-risk, more aggressive trade.

Trade Description: April 7, 2015:
We are adding ZEUS to the newsletter as a momentum trade. You could also consider it a hedge against our STLD trade, which hasn't really panned out as expected.

If you're not familiar with ZEUS, here's a brief description: "Founded in 1954, Olympic Steel is a leading U.S. metals service center focused on the direct sale and distribution of large volumes of processed carbon, coated and stainless flat-rolled sheet, coil and plate steel and aluminum products. The Company's CTI subsidiary is a leading distributor of steel tubing, bar, pipe, valves and fittings, and fabricates pressure parts for the electric utility industry. Headquartered in Cleveland, Ohio, Olympic Steel operates from 35 facilities in North America."

The steel industry has been really struggling with a flood of cheaper imports. We saw three major steel companies, STLD, NUE, and AKS, all lower guidance in March. The biggest complaint was a surge in imports, which has continued into 2015. The good news is that imports are slowing down because the glut of supply has driven prices lower. The bad news is that steel prices have been crushed.

Shares of ZEUS have been in a bear market for about a year. The earnings picture has not helped with ZEUS missing Wall Street's bottom line earnings estimates the last four quarters in a row.

Steel companies are hoping for the price of steel to find a bottom in the May-June time period. A couple of the companies listed above have suggested that the second half of 2015 will be better. That might just be wishful thinking. The economic slowdown in the first quarter of 2015 doesn't bode well for basic material companies.

Meanwhile the path of least resistance for ZEUS is lower. The point & figure chart is bearish and forecasting at $10.00 target. Today we saw ZEUS breakdown under support near $13.00 on double its average volume.

I consider this a higher-risk, more aggressive trade because ZEUS is not very liquid. The daily volume is exceptionally low. Plus, the options are not tradable because the spreads are too wide. I'm suggesting small bearish positions if ZEUS trades at $12.45 or lower. We're not setting a target tonight but I'd aim for the $10.00 area.

*small positions to limit risk* - Suggested Positions -

Short ZEUS stock @ $12.45

04/08/15 triggered @ $12.45