Option Investor

Daily Newsletter, Tuesday, 4/14/2015

Table of Contents

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

Market Wrap

Market Weak on Earnings Fears

by Jim Brown

Click here to email Jim Brown

Mixed results from JPM and WFC and worries over Intel's report after the close caused mixed results in the major indexes. The Dow gained but the Nasdaq declined as the S&P tech sector lost -1.76% for the day.

Market Statistics

The market started off with mixed headwinds with JP Morgan (JPM) beating estimates on earnings but retail sales for March coming in lower than expected. Wells Fargo also broke a streak of 18 quarters of positive earnings growth to leave investors with a dose of negative sentiment.

March retail sales rose +0.9% after declining -0.6% in February. This was only slightly less than the consensus for a +1.0% gain. After three months of declines you would have thought investors would be happy with any gain but treasuries soared on the weakness and yields on the ten-year fell back to 1.85% intraday.

The reason for the frustration was 0.5% came from auto sales. Motor vehicles and parts rebounded +2.7% after a -2.1% decline in February. Electronics and appliances declined -0.5%, food and beverages -0.5% and gasoline stations -0.6%. Building materials rose +2.1%, furniture +1.4% and clothing +1.2%. Overall I thought it was a decent report. However, on a year over year basis March sales were only up +1.3% and the weakest growth since October 2009.

The Fed got some good news with the March Producer Price Index rising +0.2% after four months of declines totaling -1.8%. However, much of the March gain was the rise in fuel prices with a +7.2% spike in gasoline prices. Food prices declined -0.8% and in line with declines over the prior two months. It would appear that commodity deflation may be easing with rising oil prices the main driver. However, food commodities are still declining. The Fed may be somewhat encouraged by this report but the positives were very minor.

The NFIB Small Business Survey declined again in March from 98.0 to 95.2. The recent high was 100.4 in December and the March reading was the lowest since June. All 10 sub components declined. Job openings declined. Credit conditions worsened. Earnings trends, sales trends and expansion plans all declined. Those expecting the economy to improve declined from a net of -1% to -7%. Those planning on raising prices declined from 19% to 15% and those planning on raising compensation declined from 17% in December to 13% in March.

Analysts were quick to blame severe winter weather but this is a nationwide survey not simply the Northeast. They also blamed the West Coast port strike but there was no data to support that claim. While we may not be at the point where recession fears come back into play there is a definite lack of growth drivers in the U.S. economy.

Business Inventories for February rose +0.3% and slightly ahead of expectations for a +0.2% rise compared to -0.02% decline in January. Business sales were unchanged after falling -2.3% in January. This was not a bullish report.

The Atlanta Fed GDPNow forecast ticked down slightly to +0.2% growth after the Retail Sales and Business Inventories reports. Consumption growth declined from 2.1% to 1.9% and the Q1 inventory investment increased slightly from -$5 billion to -$2 billion. That means inventory trends improved slightly but are still negative. As you can see in the chart from the Atlanta Fed the blue chip forecasts for Q1 GDP are dropping rapidly but are still well above the Fed's forecast.

The economic calendar for Wednesday is headlined by the Fed Beige Book and the economic conditions in each of the Fed regions. Typically they try to say something positive about each region but the "modest" growth adjective from last month may have worsened in several regions. I am sure there will be some mention of weather as a cause for weakness but more of an excuse than a real cause.

The NAHB Housing Markets Index is expected to increase slightly as April is the start of the spring buying season. Industrial production is expected to have declined even further and this will weigh on GDP estimates.

The most important report for the rest of the week is the Philly Fed Manufacturing Survey on Thursday. We need to see an improvement in that report or analysts will really start slashing their economic forecasts.

This was the first real day of earnings season with JP Morgan (JPM) leading the parade with earnings before the open. Income rose +11% to $1.45 compared to estimates for $1.39. Revenue was in line at $24.1 billion. Trading revenue was $5.67 billion up from $5.20 billion. Credit card revenue rose from $10.5 billion to $10.7 billion. Chase originated $24.7 billion in mortgages, up from $17 billion in Q1-2014. Legal expenses were $687 million for the quarter.

CEO Jamie Dimon complains constantly about excessive government regulation but the bank still earned $5.9 billion for the quarter. While Dimon is correct about some of the excessive regulation he has skillfully managed to maneuver through the labyrinth of regulations to build a profit machine.

Shares rallied $1 on the news.

Wells Fargo (WFC) reported earnings of $1.04 compared to $1.05 in the year ago quarter. Revenue rose from $20.6 billion to $21.3 billion. Analysts were expecting 98 cents and $21.3 billion.

Net profit of $5.8 billion was down -2% from the year ago quarter and marked the first year on year decline since 2008. The community banking division saw profits drop -5% to $3.7 billion as banking fees declined due to competition. Credit loss reserves rose another $617 million this quarter to total $13 billion. Wells Fargo saw staffing costs rise +6% as they elected to pay more for quality employees. WFC shares declined -40 cents in regular trading.

Dow component Johnson & Johnson (JNJ) reported earnings of $1.56 or $4.32 billion, compared to estimates for $1.54. This was down from the $1.64 it earned in the same quarter in 2014. Global drug sales rose +3% despite a -7.2% hit from the strong dollar. The company said continued dollar strength could knock -42 cents off full year earnings. JNJ gets half its revenue from overseas. U.S. drug sales jumped +17% on demand for new drugs for cancer, blood clots and diabetes.

The company lowered full year estimates from $6.12-$6.27 to $6.04-$6.19. JNJ had previously adjusted forecasts for the 42 cents in currency translation. The company earned $5.97 in 2014. Shares of JNJ declined only fractionally.

After the close Intel (INTC) reported earnings of 41 cents that was in line with analyst estimates. Revenue of $12.8 billion missed estimates of $12.9 billion by a small amount. Intel guided for Q2 for revenue of $12.7 to $13.7 billion and below the analyst estimates for $13.5 billion. Intel said sales from PC processors and chips for smartphones, tablets and mobile devices, declined -8% to $7.4 billion. Intel said, "We see no growth environment for PCs long term, but server growth, expansion in mobility and growth in the Internet of Things will drive revenues higher." The company forecasted full year revenue of $55.87 billion with the consensus at $55.65 billion.

Intel provided chips for 46 million tablets in 2014 but they had to provide manufacturers a subsidy to get them to use Intel chips. Intel is hoping Windows 10 will finally provide a PC upgrade path from older Windows operating systems.

Shares of Intel rose about 95 cents in afterhours.

CSX (CSX) reported earnings of 45 cents or $442 million that beat estimates by a penny. That was an improvement from $398 million and 40 cents in the year ago quarter. Revenue was flat at $3.03 billion and freight volumes only increased +1% for the quarter. The majority of the profit gains came from a -39% decline in fuel costs to $270 million. The company authorized a $2 billion stock buyback program and a dividend increase from 16 to 18 cents. Shares rallied +$1.18 to $34.16 in afterhours. The profit beat was a relief after Norfolk Southern (NSC) warned after the close on Monday.

Norfolk Southern (NSC) shares fell -4% on Tuesday after they warned Monday after the close. The railroad now expects to earn $1 per share and analysts were expecting $1.28. Revenue is expected to decline -5% to $2.6 billion. The railroad said weak coal shipments were to blame as coal exports declined. China imports a lot of coal but with their economy falling sharply the amount of coal imports has declined. Most of that now comes from Australia because of cheaper shipping.

Norfolk is also suffering from declining shipments related to the energy sector. Lower volumes of frac sand and well pipe are also reducing the number of shipments. Not to be left out of the crowd the railroad also blamed the winter weather for delays.

Companies on the earnings calendar for Wednesday include Bank America and US Bank plus tech giant Google and NetFlix.

Shares of Alcatel-Lucent (ALU) rallied +13% after news broke that Nokia (NOK) was in late stage talks to buy the company. This would be the combination of the 3rd and 4th largest wireless equipment makers. It is sure to cause regulatory problems. Alcatel has a market cap of about $14 billion. Alcatel is a major supplier to AT&T and Verizon and that would give Nokia an expanded opportunity in the USA. ALU has about 52,000 employees worldwide. Nokia has about 62,000. Nokia shares declined about 34 cents.


The broader market rallied today thanks to JPM/WFC earnings that were not a disaster and the rise in the majority of energy stocks after crude prices rallied to four-month high at resistance just under $54. There was no specific news to power the rise in crude but we are approaching the peak refining months from May through July. Investors are expecting a slowdown in inventory gains and even a decline in inventories once May arrives. This should lift oil prices through the high demand summer driving season.

The S&P Oil Exploration ETF is approaching resistance at $54 and any change in the velocity of inventory gains is likely to produce a breakout. Energy names are severely oversold although quite a few have already seen plenty of investors buy the dip.

The Dow and S&P posted minor gains while the Nasdaq struggled in vain to recover morning losses. The S&P tech sector declined -1.76% but there were no really big losers. Apple declined after it announced the acquisition of camera technology firm LinX for $20 million. The camera maker for mobile devices will quickly see its technology migrate into Apple products. Bernstein also published a research note pointing out five reasons why Apple may be exploring its options on manufacturing a car. Bernstein pointed out that China's auto manufacturing capacity would rise to 26 million vehicles a year in 2016 and Apple could easily contract with a Chinese manufacturer to produce an electric car. Apple has declined -$2 from Monday's high at $128.50. Maybe investors don't want Apple to pour billions into an electric car.

The S&P touched the 2100 level on Friday and Monday but failed at the 2107 high to dip back to 2092 today. After about two-hours of weakness at the open the dip was bought and the index closed at 2096. The 2100 level is still resistance followed by 2110 and 2117. Support is now 2090, 2075 and 2050. The S&P may struggle with that 2100-2110 range, which is downtrend resistance from the February high. With the economy weak and S&P earnings expected to decline as much as -5.9% it may be hard for investors to avoid the urge to use the "Sell in May and go away" strategy. The buying in treasuries this morning suggests there may be some rotation in progress.

The Dow was helped by Chevron, Exxon and Goldman Sachs. Obviously the oil companies were up on the +3% rise in crude prices and Goldman Sachs was up on the positive results from JPM and WFC. Goldman reports on Thursday. As the largest component in the Dow and positive earnings surprise could power the Dow higher.

The Dow continues to struggle with the resistance at 18,100 and downtrend resistance from the February highs. Today did not give us a reason to pick a direction. This was a confusing mess as some stocks rose and some declined and there was no overriding theme.

For instance there were far more big gainers on the Nasdaq than big losers but the breadth of the rank and file stocks was negative. On the Dow, were it not for Exxon, Chevron, Goldman and JP Morgan the Dow would have closed in negative territory. You can't say it was a bullish day when only four stocks kept the Dow in positive territory and well off its +99 intraday high.

Resistance on the Dow is 18,100 and 18,200 with support at 17,900 and 17,850.

The Nasdaq Composite touched 5024 on Monday and declined to 4952 today. That is a pretty big spread with no specific news to power the tech stocks lower. With the Nasdaq leading the charge higher in the prior week this could have been simple profit taking. That psychological resistance at 5000 is strong and we have the makings of a head and shoulders pattern if the index does not blast higher over the next several days. Remember, the market does not need a reason to correct. Sometimes things happen for a reason and sometimes it is just the herd moving in the same direction.

Resistance remains 5000 and 5026 and support is 4950 and 4850.

The Russell is also struggling after spiking to a new intraday high on Monday. The selling began at 11:30 on Monday and continued until 10:30 today. The morning dip was bought but the rebound was lackluster and sellers returned around 12:30 and the index drifted lower for the rest of the day. However, a closing decline of only 0.23 points is hardly a material sell off. We need to watch the index for direction for the rest of the week.

Like the Russell the NYSE Composite is struggling at resistance in an attempt to make a new high. The NYSE has closed right below the 11,110 level for the last three days with the historic high closing resistance at 11,122 on February 24th. This broad market index could be an even better market indicator if it were to suddenly breakout OR breakdown.

Goldman Sachs was widely quoted this morning with a market call on overpriced stocks. Goldman said it was time to sell those "overpriced" stocks in the current market. Analyst David Kostin sees the S&P-500 closing at 2100 at year end. That is only +5 points from the market's close today.

Stocks Goldman recommended shorting include:


Overpriced stocks Goldman recommended selling to take profits.


Stocks Goldman thought had the most upside:


Link to Goldman tables with price targets.

With Goldman suggesting quite a few stocks in addition to those above are also overpriced it put a cloud over the market. Whether that cloud will lift on Wednesday is of course unknown. The S&P has a current forward PE of 18 and that is fairly valued for almost every institutional investor. When stocks like Under Armour (UA) are selling at a PE of 85 it requires a perfect world for the gains to continue.

I would remain cautious about holding too many long positions this week. On Friday it appeared the market was headed for new highs and Monday's intraday spikes on the NYSE and Russell did make those new highs but the selling was immediate. This suggests investors are nervous about the coming earnings cycle and additional gains could be a challenge.

Enter passively, exit aggressively!

Jim Brown

Send Jim an email



New Plays

Lowered Guidance

by James Brown

Click here to email James Brown


Artic Cat Inc. - ACAT - close: 35.17 change: -0.51

Stop Loss: 37.55
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on April -- at $---.--
Listed on April 14, 2015
Time Frame: 3 to 4 weeks, Exit PRIOR to earnings in mid May
Average Daily Volume = 183 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
Consumer spending in the U.S. and abroad remains unimpressive and that doesn't bode well for high-ticket items like snowmobiles and ATVs.

ACAT is in the consumer goods sector. According to the company, "The Arctic Cat brand is among the most widely recognized and respected in the recreational vehicle industry. The company designs, engineers, manufactures and markets all-terrain vehicles (ATVs), side-by-sides and snowmobiles, in addition to related parts, garments and accessories under the Arctic Cat® and Motorfist® brand names. Arctic Cat Inc.’s world headquarters is located in Minneapolis, Minnesota."

The company lowered guidance back in October after reporting better than expected Q2 results. They did it again in January. ACAT announced their Q3 results on January 28th. EPS was 20 cents better than expected at $0.68 a share. Yet revenues plunged -14.2% to $193.7 million, which was below estimates.

Management then lowered their fiscal year 2015 guidance to $1.24-1.32 a share compared to analysts' estimates of $1.97. ACT expects revenues in the $705-715 million versus Wall Street's estimate of $748 million.

Wunderlich Securities analyst Rommel Dionisio issued a report on ACAT in February. Dionisio said, "Though retail sales momentum for snowmobiles appears to have picked up in recent weeks, according to our proprietary dealer channel checks, Arctic Cat still appears to be seeing modest market share deterioration this winter to Polaris." He has a "hold" on the stock with a $29.00 price target.

ACAT is also dealing with a problem of too much ATV inventory at its dealers. They will take a $7 million charge to help move inventories.

Technically shares look weak. The post-earnings rally peaked in February and the stock has seen a flat to down trend of lower highs. Now the weakness seems to be accelerating with shares down -1.4% and closing below technical support at the simple 200-dma. Tonight we're suggesting at trigger to launch bearish positions at $34.95. Plan on exiting prior to ACAT's earnings report in mid May (no date yet).

Trigger @ $34.95

- Suggested Positions -

Short ACAT stock @ $34.95

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

Buy the MAY $35 PUT (ACAT150515P35) current ask $1.90
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:

Weekly Chart:

In Play Updates and Reviews

Tuesday's Lackluster Session

by James Brown

Click here to email James Brown

Editor's Note:
The Monday afternoon weakness carried over into Tuesday morning. Fortunately traders were in a buy-the-dip mood. Overall it was a very mixed day. Most stocks pared their losses but not all made it back into positive territory.

ALLE hit our stop loss.

Current Portfolio:

BULLISH Play Updates

CDW Corp. - CDW - close: 38.03 change: -0.44

Stop Loss: 36.40
Target(s): To Be Determined
Current Option Gain/Loss: -1.6%
Entry on April 13 at $38.65
Listed on April 09, 2015
Time Frame: Exit PRIOR to earnings in mid May
Average Daily Volume = 1.0 million
New Positions: see below

04/14/15: CDW had a rough morning. The stock finally bounced around $37.75 and managed to pare its losses to -1.1% by the closing bell. I am reiterating yesterday's suggestion to wait for a rally past $38.65 before initiating new positions.

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.

- Suggested Positions -

Long CDW stock @ $38.65

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

Long MAY $40 CALL (CDW150515C40) entry $0.90

04/13/15 triggered @ 38.65
Option Format: symbol-year-month-day-call-strike

Cognex Corp. - CGNX - close: 51.19 change: -0.42

Stop Loss: 49.45
Target(s): To Be Determined
Current Option Gain/Loss: -0.3%
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

04/14/15: CGNX briefly traded below its simple 10-dma before trimming its losses. The stock did underperform the broader market with a -0.8% decline. I'd still keep an eye on the $50.00 mark as round-number support. No new positions at this time.

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: 51.20 change: -0.77

Stop Loss: 49.75
Target(s): To Be Determined
Current Option Gain/Loss: -2.2%
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

04/14/15: IMKTA displayed relative weakness again as it slowly chips away at the big rally on April 8th. Shares look poised to test round-number support at $50.00 soon. Considering today's drop I am not suggesting new positions at this time.

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

J.C.Penney Co. - JCP - close: 9.15 change: -0.25

Stop Loss: 8.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on April -- at $---.--
Listed on April 13, 2015
Time Frame: Exit PRIOR to earnings in mid May
Average Daily Volume = 14.2 million
New Positions: Yes, see below

04/14/15: JCP was making headlines and shares were relatively volatile with an intraday swing of almost 50 cents. The early morning rally failed at $9.50 and the stock plunged toward $9.00 and its 10-dma before bouncing.

The story today is that a "senior official" inside JCP accidentally emailed their same-store sales data to a Wall Street analyst. This data was not intended for release. Regulations forbid selective disclosure so the company published their Q1 same-store sales data early for everyone to see.

The good news is that JCP's Q1 comparable store sales appear to be up +6% thanks to the Easter holiday. The company said that Q1 comps would likely settle in the +3.5% to +4.5% range. It's a little bit surprising to see JCP's stock underperform with a -2.65% decline today after disclosing strong sales for the quarter.

Currently we are on the sidelines. Our suggested entry point is $9.51.

Trade Description: April 13, 2015:
It's been two years since retail guru Ron Johnson almost killed department store giant JCP. It was April 2013 when the board finally ousted their new CEO and asked the previous CEO to return. It's been a long, slow turnaround but analysts are turning optimistic.

If you're not familiar with the company, "J. C. Penney Company, Inc. (JCP), one of the nation's largest apparel and home furnishing retailers, is dedicated to fitting the diversity of America with unparalleled style, quality and value. Across approximately 1,060 stores and at jcpenney.com, customers will discover a broad assortment of national, private and exclusive brands to fit all shapes, sizes, colors and wallets."

JCP's most recent earnings report was February 26th. The company reported Q4 earnings of $0.00. That was worse than expected but revenues were up +2.9% to $3.89 billion, just a hair above expectations. Q4 comparable store sales were above estimates at +4.4%.

Since this earnings report a couple of analysts have turned bullish on the stock. JPM recently raised their price target from $8 to $10. An analyst with Piper Jaffray made waves when they raised their price target from $13 to $14. Wall Street is hopeful that now spring is here the weather will not hamper consumer spending. These price target upgrades have helped spark some short covering.

Technically JCP has broken through resistance near its 200-dma, the $8.50 area and its February high. The most recent data listed short interest at 33% of the 291.7 million share float. That's plenty of fuel for another short squeeze higher.

Tonight we are suggesting a trigger to launch bullish positions at $9.51. We'll plan on exiting prior to JCP's earnings in mid May (no date set yet).

Trigger @ $9.51

- Suggested Positions -

Buy JCP stock @ $9.51

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

Buy the MAY $9 CALL (JCP150515C9)

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

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

Prestige Brands Holdings - PBH - close: 44.65 change: +0.00

Stop Loss: 40.35
Target(s): To Be Determined
Current Option Gain/Loss: +5.4%
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

04/14/15: PBH bounced off short-term support near $44.00 and its 10-dma. More conservative traders may want to raise their stop loss (maybe near $42 or the 20-dma near $42.85).

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

Steel Dynamics Inc. - STLD - close: 21.01 change: +0.47

Stop Loss: 19.20
Target(s): To Be Determined
Current Option Gain/Loss: +0.9%
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

04/14/15: It looks like our patience with STLD might pay off. Shares outperformed the broader market with a +2.2% gain. Today's move is also a breakout above its 200-dma.

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: 28.89 change: -1.03

Stop Loss: 27.45
Target(s): To Be Determined
Current Option Gain/Loss: -4.2%
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

04/14/15: It looks like traders were in the mood for some profit taking today with VIPS down -3.4%. If shares don't bounce off the 20-dma ($28.63) we can watch for potential support at $28.00. No new positions at this time.

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: 18.87 change: -0.69

Stop Loss: 18.45
Target(s): To Be Determined
Current Option Gain/Loss: -0.7%
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

04/14/15: Worries about growing competition prompted one analyst to downgrade shares of WWWW to "sector perform". The combination of a downgrade and a weak market this morning fueled a sharp decline in the stock. WWWW was down -5.2% at its worst levels of the session and closed with a -3.5% loss.

I am not suggesting 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

04/11/15 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: 51.88 change: -0.01

Stop Loss: 56.15
Target(s): To Be Determined
Current Option Gain/Loss: +2.0%
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

04/14/15: The early morning bounce in STRA faded and shares closed virtually unchanged. I don't see any changes from my prior comments. The stock is down eight days in a row. Shares could be due for an oversold bounce. 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

Navistar Intl. Corp. - NAV - close: 27.96 change: +0.22

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

04/14/15: NAV found support near $27.50 for the third day in a row. If shares can build on today's rebound we might drop it. Currently we're on the sidelines with a suggested entry point for bearish positions at $27.40.

Trade Description: April 11, 2015:
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)

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

Olympic Steel Inc. - ZEUS - close: 11.59 change: +0.04

Stop Loss: 13.55
Target(s): To Be Determined
Current Option Gain/Loss: +6.9%
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

04/14/15: I warned readers yesterday that ZEUS was oversold and due for a bounce. This morning the stock spiked higher toward $12.00. Fortunately gains faded and shares closed almost unchanged.

I don't see any changes from my recent comments. No 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


Allegion Plc. - ALLE - close: 59.97 change: -0.31

Stop Loss: 59.75
Target(s): To Be Determined
Current Option Gain/Loss: -3.8%
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

04/14/15: The profit taking in ALLE continued and shares broke down under the $60.00 level. Our stop was hit at $59.75.

- Suggested Positions -

Long ALLE stock @ $62.10 exit $59.75 (-3.8%)

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

MAY $65 CALL (ALLE150515C65) entry $1.00 exit $0.20 (-80.0%)

04/14/15 stopped out @ 59.75
04/06/15 triggered @ 62.10
Option Format: symbol-year-month-day-call-strike