Option Investor

Daily Newsletter, Monday, 4/20/2015

Table of Contents

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

Market Wrap

What Sell-Off?

by Thomas Hughes

Click here to email Thomas Hughes
Earnings and a surprise move from the PBOC lifted the market and erased Friday losses.


The Peoples Bank Of China provided a nice lift for the markets today by lowering their capital requirements by 1%. This is the largest move made by the bank since the depths of the 2008 financial crisis but not enough to lift Chinese stocks. Both the Hang Seng and Shang Hai indices fell more than -1.5% while the rest of the world rallied. European indices climbed on the new led by the German DAX 1.6% gain. Futures trading here at home was also positive and led to a strong day of trading. The S&P and Dow were both indicated to open higher by at least a half percent the entire morning and did not fail to deliver once the opening bell sounded.

Market Statistics

Other news impacting early trading included earnings, several announced stock buybacks, increases in dividends and the NABE Survey of Business Conditions. Earnings continue to come in better than expected, led by the financials, while the NABE survey shows that outlook for the rest of the year remains strong. There was no economic data released today other than Moody's Survey Of Business Confidence which remains near the all-time high.

The market opened as strong as indicated. The SPX, Dow and NASDAQ Composite were all up by a half percent or more in the first 5 minutes, approaching 1% within the first half hour and over 1% higher within the first two hours of trading. The market remained strong all day, trading near the days highs until the closing bell. Today's gains just about erased all of Friday's losses, leaving them just below their current long term and all-time highs.

Economic Calendar

The Economy

The National Association of Business Economists released the results of their quarterly Business Conditions Survey. Their headline “NABE Survey Shows Outlook Remains Strong Despite Weak First Quarter” . Within the results it was revealed that four measures of employment and wages rose in the first quarter and are either holding steady or on the rise going into the 2nd quarter. Growth expectations for the next two quarters remains intact with an expected rebound in sales as well as rising margins.

Two interesting things that stood out to me were that 74% of respondents reported that the slowdown in China has had little to no negative effect on their businesses and may have even positively affected some. Also, 62% report no negative affect from strong dollar values and 49% say the upcoming FOMC rate hike is not expected to have material affect on business.

Moody's Survey Of Business Confidence fell by -0.6% this week but remains near the all-time high. Mr. Zandi's summary of the results is also at or near all-time high levels. His reading of the data shows increased confidence, optimism and business conditions. In the first take he says...

“Business confidence has never been stronger in the more than 12-year history of the survey. Sentiment is strongest in the U.S. but has recently improved in much of the rest of the world. The slowing in U.S. growth is not evident in the survey results. Hiring has never been stronger, and sales and investment spending are robust. Credit is widely available, and pricing is sturdy, despite heightened deflation concerns in much of the developed world”

According to FactSet just over 10% of S&P 500 companies have reported earnings so far this season. There are an additional 25% of them scheduled to report this week making it one of the busiest for the season. Of those who have reported 77% have been above the blended rate for earnings and 46% have beaten the blended rate for revenue. The projected blended rate for 1st quarter earnings growth is now -4.1%, up 0.7% from last week led by strong earnings in the financial sector.

Stripping out the energy sector the blended rate has also increased, by 0.77% to 1.97%. Based on the four year averages and the way the season is going so far we can expect both the full blended rate and the rate ex-energy to increase by another 3% or so. Outlook for the 2nd quarter is still weak with an expected earnings growth rate of -2.6%. Looking out to the end of the year full year earnings growth has also fallen marginally but the 2016 outlook remains above 12.5%.

The rest of the week is pretty light too, probably a good thing because next week is super charged. It's the end of the moth again so the monthly macro-data will start to roll out although the labor numbers won't be released for 2 weeks. On deck are Pending Home Sales, Income & Spending, PMI, Auto Sales, Construction Spending and Michigan Sentiment. What makes next week such a potential powder keg for the market is the FOMC meeting and policy statement, scheduled for Wednesday at 2PM, and the 1st estimate for 1st quarter GDP. The market is looking for 2.2% growth; there is no telling what the FOMC may do. Possibilities include no change to statement all the way through a surprise rate hike however unlikely that is.

The Oil Index

Oil prices were volatile today as a weekend report of near record Saudi output was weighed against rising tensions in the Middle East. The conflict in Yemen between the Saudi's and Iran backed militants rages on and has reached a new intensity. The Saudi's are now on high alert for a terrorist attack, possibly targeting a shopping mall. Prices for Brent and WTI had been done, about -1.25% in the early part of the trading day, and both rebound to new highs. WTI gained more than 1.5% to trade above $56.50 while Brent made a more modest gain of nearly 0.35%.

The oil sector gained on the rise in oil prices, as expected. The Oil Index gained nearly 0.75% in today's session, testing resistance, and then falling back to break even. The index has been trending higher over the past few weeks, is now near a 5 month high and may be about to break to another new high. Both indicators are bullish but have formed a peak consistent with resistance at this level. A break above resistance, near 1,435, would be bullish. Price action is setting up in a potential flag pattern with a target roughly 150 points above the current level. Earnings are likely to be a catalyst for this sector with an eye toward the earnings rebound expected for later this year and next. Speaking of earnings, Haliburton its earnings expectations posting adjusting EPS of $0.76 versus the expected $0.46.

The Gold Index

Gold prices are still dancing to the tune of the dollar. Today the dollar index gained 0.24% in a move confirming support near the bottom of its two month range. The slight rise in dollar value caused gold prices to drift below $1200 and approach support near $1190. This situation, mild fluctuations in the dollar leading to similar fluctuations in gold, could continue until the FOMC next week. At that time there is likely to be some change, either from the FOMC itself or in investor sentiment, that will lead to a more pronounced move in both.

The Gold Index remains within its bottoming pattern and has yet to make a move in either direction. The index is supported by gold prices and by extension earnings outlook. The miners begin reporting next week and may provide additional lift to the overall blended rate for earnings growth. I am specifically looking to production levels and selling prices; production levels have been on the rise and this quarters average selling price for gold is likely to be higher, a combination that could produce positive earnings surprises. Today the index gained just enough to close in the green after opening lower. Today's move found support at the short term moving average with bullish indicators. The MACD and stochastic are both bullish and indicating support at these levels. If the index breaks to the upside my target is $22.50/$23 in the near to short term.

In The News, Story Stocks and Earnings

Lots of business news today including deals, buybacks, dividend increases and earnings. To quickly recap some headlines that do not include earnings; Raytheon is investing $1.7 billion in a cyber unit. Costco is buying back $4 billion in stock. Groupon is also buying back stock, $300 million, and is also selling a 46% stake in Ticket Monster to a group including KKR.

Moving on to earnings. Today Morgan Stanley reported earnings that beat on both the top and bottom line, increasing the boost earnings growth is getting from the financial sector. The company reported a profit of $2.9 billion on $9.9 billion in revenues. The gains were driven by an increase in M&A activity as well as as trading volumes. Shares of Morgan Stanley gained over 1% in today's trading but created a black candle. The stock gapped up to resistance from whence it fell.

The entire financial sector got a boost in today's session. The XLF gained a little over a half percent in a move that regained the upper side of the short term moving average. The ETF is basically trending sideways with indicators that are relatively neutral. Both MACD and stochastic are consistent with a meandering, range bound stock. Over the past month the ETF has traded within the $24-$24.50 range and looks like it could keep doing so... maybe until next week and FOMC meeting? The expected/projected rise in interest rates is pretty important for earnings projections in this sector.

Hasbro reported earnings and revenue above expectations. The company also reported that operating profits increased 25% while net earnings increased 43% excluding a $0.10 per share favorable tax charge. Company execs said they were able to grow sales across all brands and all markets, particularly in Europe and emerging markets, and was able to do so while overcoming “significant exchange headwinds”. Shares of the stock jumped on the news gaining about 5% in the pre-opening session and then doubling that gain and more during the open session. Hasbro is now trading at an all-time high with strongly bullish indicators. Hasbro is the owner of several Disney and Marvel licenses as well as its own classic lines of toys.

Royal Caribbean reported better than expected earnings and a strong first quarter. Results of $0.20 per share are more than a nickel above expectations and likely to continue. However, the company cited currency exchange issues and rising costs as the reason for lowering full year guidance. Guidance was lowered from $4.65-$4.85 to $4.45-$4.65. The news was not met with glee and sent shares tanking in the early session. The stock lost about 5% before the opening bell even sounded and then extend those losses during the day. The indicators are bearish but may be indicating some support at this level with a long lower shadow. My first thought it is that the company could be setting itself up to beat earnings later in the year, if so a support level may form around $71.50.

IBM reported after the closing bell. Big Blue was expected to earn in the range of $2.84, about 45% lower than the previous quarter, and beat them by a nickel. IBM reported earnings of $2.91 on slighly weaker than expected revenues. Shares of the stock rallied all day, positing a gain of nearly 3.5%, and then extended those gains in the after-hours session.

The Indices

The bulls came charging out of the gates today. The fall on Friday turned out to be a pretty good entry for trend followers and resulted in some of the biggest moves the indices have seen in many weeks. Today's move was led by the Dow Jones Transportation Average which made an impressive 1.69% bounce from Friday's lows that helps confirm support at the bottom of the 6 month trading range. The indicators are bullish but showing weakness in the near term consistent with last weeks fall to support. The index continues to trend sideways within the range with a slight upside bias and a target near the top of the range.

The NASDAQ Composite is runner up in today's race. The tech heavy index gained 1.27% but fell short of the 5,000 mark. It looks like the index is making a bounce from the short term moving average in line with the underlying long term trend but resistance is just above so caution is still due. The indicators are bullish but showing near term weakness that could indicate a peak. Longer term indications are consistent with support along the moving average, in line with the trend, but there is still resistance at the 15 year high. A break above the high could take the index as high as 5,250 in the near to short term. Support is still along the moving average, with the long term trend line near 4,750 below that upon a break down.

The Dow Jones Industrial Average gained 1.11% in today's action. The blue chips created a long white candle that regained the high side of the short term moving average and the 18,000 level, confirming support. The index is making a bounce from support with bullish indicators and a target near 18,250. While bullish, the indicators are also very weak and consistent with a trading range. If the index does not break to a new high the 6 month trading range may remain intact.

The S&P 500 brings up the rear today. The broad market gained only 0.92% compared to the +1% moves put in by the other major indices. Today's move confirms support along the long term moving average and is supported by the indicators. Stochastic and MACD are both bullish, although showing near term weakness consistent with Friday's plunge in prices. The index has been winding up over the past 2-3 months and is forming a possible pennant formation. During this time the index has trended sideways, supported by the long term trend line, with consecutively lower peaks. It appears to be bullish but has yet to break out. There is resistance in a narrow range just above the current level with a break above it carrying a target near 2,220 in the near to short term.

The market still looks strong, but it also still looks a little indecisive. Today's action was a good sign for the bulls but until there is a break above resistance at the current all-time/long-term highs the future of the rally is in question. The test and possible break above resistance is likely going to be centered on or around the FOMC meeting next week, no surprise there, this has been the trend for quite some time. A move and then a consolidation and/or correction all timed between earnings seasons and FOMC meeting. Until then the market may continue to do what it has been, churning within a range, looking like it wants to go higher but just not doing it.

Of course, there is the earnings picture to consider. This is a big week filled with big names that could move the market regardless of the FOMC. At this point the idea of a rate hike is so bake into the cake that I think not raising would be worse for the market. If earnings are still good, if expectations continue to be exceeded, if outlook remains rosy then the market could move up. In other words, I'm still bullish, buying on the dips and keeping a very cautious eye on the market.

Until then, remember the trend!

Thomas Hughes

New Plays

Sinking Technology

by James Brown

Click here to email James Brown


Solera Holdings - SLH - close: 50.43 change: +0.59

Stop Loss: 52.15
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on April -- at $---.--
Listed on April 20, 2015
Time Frame: 3 to 4 weeks, exit PRIOR to earnings in May
Average Daily Volume = 536 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
Investor sentiment appears to have soured on SLH. The longer-term trend is now down. The company is in the technology sector. They're considered part of the application software industry.

Here's a brief company description, "Solera is a leading provider of risk and asset management software and services to the automotive and property marketplace, including the global P&C insurance industry. Solera is active in over 70 countries across six continents. The Solera companies include: Audatex in the United States, Canada, and in more than 45 additional countries; Informex in Belgium and Greece; Sidexa in France; ABZ and Market Scan in the Netherlands; HPI, CarweB and CAP Automotive in the United Kingdom; Hollander serving the North American recycling market; AUTOonline providing salvage disposition in a number of European and Latin American countries; IMS providing medical review services; Explore providing data and analytics to United States property and casualty insurers; Service Repair Solutions, a joint venture with Welsh, Carson, Anderson & Stowe, that provides solutions for the service, maintenance and repair market; and I&S, a provider of software and business management tools, third-party claims administration, first notice of loss and network management services to the U.S. auto and property repair industries, specializing in glass claims."

Their most recent earnings report was the 2014 Q4 results on February 5th. Wall Street was expecting a profit of $0.79 a share on revenues of $283 million. SLH missed estimates with 40.77 a share. Revenues were up +18% but came in just a hair below expectations (essentially in-line). Unfortunately management lowered their earnings and revenue guidance for 2015 below Wall Street estimates.

Today SLH is trading with a bearish trend of lower highs and lower lows. The point & figure chart is bearish and forecasting at $44.00 target. Currently the stock is hovering just above round-number support at the $50.00 level. Last Friday's intraday low was $49.65. Tonight we are suggesting a trigger to launch bearish positions at $49.40. We'll try and limit our risk with an initial stop loss at $52.15. We will plan on exiting prior to earnings in mid May (no official date yet).

Trigger @ $49.40

- Suggested Positions -

Short SLH stock @ $49.40

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

Buy the JUN $50 PUT (SLH150619P50) current ask $2.40
option price is a current quote and not a suggested entry price.

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

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

Daily Chart:

Intraday Chart:

In Play Updates and Reviews

Stocks Surge On Central Bank News

by James Brown

Click here to email James Brown

Editor's Note:
New stimulus measures from China's central bank helped spark a bounce in equities. Traders may want to stay cautious since the bounce today failed to erase Friday's losses for many stocks.

Our plan was to exit the WWWW trade this morning.

Current Portfolio:

BULLISH Play Updates

CDW Corp. - CDW - close: 38.31 change: +0.48

Stop Loss: 36.40
Target(s): To Be Determined
Current Option Gain/Loss: -0.9%
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

04/20/15: CDW actually managed to erase Friday's loss with a +1.26% rebound today. Shares are once again poised to breakout to new highs. I am suggesting investors wait for a rally past $38.65 before considering new bullish 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: 50.21 change: +0.13

Stop Loss: 49.45
Target(s): To Be Determined
Current Option Gain/Loss: -2.2%
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

04/20/15: I am worried about our CGNX trade. Shares did not truly participate in today's widespread market rally. The stock pared its gains and closed up +0.25%. This is the second day in a row the rally failed near $51.00.

I am not suggesting new positions at this time.

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

Daqo New Energy Corp. - DQ - close: 29.78 change: -1.31

Stop Loss: 28.75
Target(s): To Be Determined
Current Option Gain/Loss: -5.6%
Entry on April 20 at $31.55
Listed on April 18, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 127 thousand
New Positions: see below

04/20/15: Our aggressive trade on DQ is not off to a very good start. The stock spiked higher at the open and hit our suggested entry point at $31.55. Unfortunately the rally didn't last. DQ reversed into a -4.2% decline. This was likely due to the widespread declines across the Chinese markets today.

Technically today's move has generated a bearish engulfing candlestick reversal pattern but it needs to see confirmation. I would keep an eye on the simple 10-dma near $29.00 as short-term support. I'm not suggesting new positions at this time.

Trade Description: April 18, 2015:
Solar energy stocks can be volatile. The market is constantly reacting to the swirling waters of politics, international trade, tariffs, and subsidies. Currently it looks like solar stocks are on the rebound after a rough second half in 2014.

DQ is in the technology sector. According to the company, "Daqo New Energy Corp. (DQ) is a leading polysilicon manufacturer based in China. Daqo New Energy primarily manufactures and sells high-quality polysilicon to photovoltaic product manufacturers. It also manufactures and sells photovoltaic wafers."

They provide more detail on their website. DQ says, "We utilize the chemical vapor deposition process, or the 'modified Siemens process,' to produce polysilicon, and have fully implemented the closed loop system to produce high-quality polysilicon cost-effectively. We manufacture and sell high-quality polysilicon to photovoltaic product manufacturers, who further process our polysilicon into ingots, wafers, cells and modules for solar power solutions. Currently our annual capacity for polysilicon is 6,150 MT. We plan to further increase the capacity to 12,150 MT."

Plus, "We also plan to upgrade our off-gas treatment process from traditional Hydrogenation technology to Hydrochlorination technology. Based on our ultra pure polysilicon, we have expanded into downstream wafer business. Our current wafer manufacturing annual capacity is 72 million pieces. Most of our wafer product is high efficiency wafer which represents approximately 4.3 watts per piece."

The company's most recent earnings report was April 10th. DQ reported their 2014 Q4 and full year results. Last quarter the company earned a profit of $3.6 million but that's down from $5.9 million a year ago. Revenues were better than expected at $49.5 million versus the $46.1 million estimate. Gross margins improved from 31.7% to 32.1%.

Their full year 2014 results saw revenues improve +67.5%. Polysilicon shipments were up +40.6% versus 2013. Gross profit hit $43.3 million compared to a loss of $26.1 million in 2013.

A few of the details in their Q4 2014 results did spark some concern. DQ saw an increase in selling, general, and administrative expenses. The cost to produce their polysilicon rose +1.4%. The average selling price for polysilicon fell from $21.50/kg from Q3 to $20.47 in Q4. At the same time DQ's shipments were down -3.8%. To boil it down, analysts are concerned about oversupply and overcapacity issues. At the moment investors appear to be ignoring those concerns thanks to DQ's optimistic outlook.

In their latest earnings report the company provided an optimistic industry forecast. DQ management said, "Global solar PV installations in 2014 totaled approximately 45.0 GW, which represents a 23.2% increase compared to 36.5 GW in 2013. Currently most analyst reports forecast that global solar PV installations in 2015 will be in the range of 52~55 GW, which represents a growth of 16%~22% compared to 2014. In 2014, annual solar PV installations in China were reported to amount to 10.6 GW. In March 2015, Chinese National Energy Administration released the 2015 target for solar PV installations of 17.8GW, which is 19% higher than the initial target of 15GW, and represents an increase of almost 70% from 10.6 GW in 2014. Although some additional polysilicon supply may enter the market mainly in the second half of 2015, we believe the supply and demand of polysilicon will remain in balance, on the premise that the global markets, including the China market, will grow as expected."

This positive outlook has helped push shares of DQ to new four-month highs and above significant resistance at $30.00 and its simple 200-dma. The point & figure chart has turned positive and currently forecasting a long-term target at $48.00.

I want to remind readers that solar stocks can be volatile and DQ especially since it has a very, very small float of only 5.37 million shares. Therefore I'm suggesting very small bullish positions if DQ can trade at $31.55. We'll try and limit our risk with an initial stop loss at $28.75.

*small positions to limit risk* - Suggested Positions -

Long DQ stock @ $31.55

04/20/15 Caution: DQ has produced a potential one-day bearish reversal pattern
04/20/15 triggered @ $31.55

Prestige Brands Holdings - PBH - close: 44.30 change: +0.48

Stop Loss: 42.85
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: Exit PRIOR to earnings on May 14th
Average Daily Volume = 342 thousand
New Positions: see below

04/20/15: PBH delivered a +1.0% gain. The level to watch is overhead resistance at the $45.00 mark. 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

04/18/15 new stop @ 42.85
03/21/15 new stop @ 40.35
03/20/15 triggered @ 42.35
Option Format: symbol-year-month-day-call-strike

Sierra Wireless - SWIR - close: 36.79 change: -0.56

Stop Loss: 36.45
Target(s): To Be Determined
Current Option Gain/Loss: -4.6%
Entry on April 16 at $38.55
Listed on April 15, 2015
Time Frame: Exit PRIOR to earnings on May 7th
Average Daily Volume = 712 thousand
New Positions: see below

04/20/15: Warning! Shares of SWIR did not participate in the market's widespread rally on Monday. Instead SWIR underperformed with a -1.49% decline to short-term support at its 10-dma.

I am not suggesting new positions at this time. If there is any follow through lower tomorrow we'll see SWIR hit our stop at $36.45.

Trade Description: April 15, 2015:
The Internet of Things (IoT) is going to be huge. Depending on who is making the forecast the size of just how huge it can become is staggering. Last year (2013) there were an estimated 300 million embedded connected devices in the IoT. IDC is estimating that could reach 15 billion connected devices by 2015. Cisco Systems (CSCO) is forecasting 25 billion devices connected to the Internet of Things by 2015 and 50 billion by 2020. Intel is forecasting up to 200 billion connected devices by 2020.

The backbone of the IoT is M2M communication. That's machine-to-machine communication. SWIR is the market leader with 34% of the market for cellular M2M embedded module market.

According to the company, "Sierra Wireless is building the Internet of Things with intelligent wireless solutions that empower organizations to innovate in the connected world. Over the past 20 years, Sierra Wireless has built a proven track record of developing innovative products and solutions for its customers. We offer the most comprehensive portfolio of wireless machine-to-machine (M2M) devices including 2G, 3G, and 4G embedded modules and gateways that are seamlessly integrated with our secure cloud and connectivity services. OEMs and enterprises worldwide trust our innovative solutions to get their connected products and services to market faster. Our devices are operating on more than 80 networks globally and we have shipped more than 100 million M2M devices worldwide."

Earnings have been improving. Back in July they reported their Q2 results that beat Wall Street's estimates on both the top and bottom line and management guided higher. SWIR announced their Q3 results on November 5th. Even after guiding higher the prior quarter they still beat estimates. SWIR raised their guidance again for the fourth quarter of 2014.

The string of earnings beats continued when SWIR reported its Q4 earnings on February 5th. The company delivered better than expected results on both the top and bottom line. Revenues were up +25.7%. Unfortunately management lowered their Q1 guidance below analysts' estimates. The stock dropped quickly on this new forecast.

The weeks since its February earnings report have been a bit rocky for SWIR. On the plus side the stock appears to have found a new bottom with support in the $32.00 area. After some profit taking yesterday traders bought the dip at technical support near its 10-dma and 50-dma this morning. If this bounce continues SWIR could see some short covering. The most recent data listed short interest a 14% of the relatively small 30.9 million share float.

We are suggesting a trigger to launch bullish positions at $38.55. We'll try and limit our risk with an initial stop loss at $36.45. Please note that this will be a short-term trade. SWIR has earnings coming up on May 7th. We'll plan on exiting prior to their announcement.

- Suggested Positions -

Long SWIR stock @ $38.55

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

Long MAY $40 CALL (SWIR150515C40) entry $1.55

04/16/15 triggered @ 38.55
Option Format: symbol-year-month-day-call-strike

Vipshop Holdings - VIPS - close: 28.58 change: -0.32

Stop Loss: 27.85
Target(s): To Be Determined
Current Option Gain/Loss: -5.2%
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

04/20/15: Weakness in the Chinese stock markets may have weighed on shares of VIPS today. The stock underperformed with a -1.1% decline. VIPS looks like it could test the $28.00 level soon.

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

04/16/15 new stop @ 27.85
04/09/15 triggered @ $30.15
Option Format: symbol-year-month-day-call-strike

BEARISH Play Updates

Strayer Education, Inc. - STRA - close: 54.01 change: +1.63

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

04/20/15: Shares of STRA shot higher this morning and spent most of the day hovering near $54.00. The stock closed with a +3.1% gain, significantly outperforming the major indices.

More conservative traders may want to lower their stop loss. 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

Tessera Technologies Inc. - TSRA - close: 38.61 change: +0.48

Stop Loss: 40.15
Target(s): To Be Determined
Current Option Gain/Loss: -3.2%
Entry on April 17 at $37.40
Listed on April 16, 2015
Time Frame: Exit PRIOR to earnings on May 5th
Average Daily Volume = 585 thousand
New Positions: see below

04/20/15: TSRA continued to bounce and added another +1.25%, which was in-line with the NASDAQ's gain. The level to watch is short-term resistance at the $39.00 mark. A failure near $39.00 could be used as a new bearish entry point.

Trade Description: April 16, 2015:
After months of gains and generally bullish news shares of TSRA appear to be correcting lower.

The company is considered part of the semiconductor industry. According to the company, "Tessera Technologies, Inc., including its Invensas and FotoNation subsidiaries, generates revenue from licensing our technologies and intellectual property to customers and others who implement it for use in areas such as mobile computing and communications, memory and data storage, and 3DIC technologies, among others. Our technologies include semiconductor packaging and interconnect solutions, and products and solutions for mobile and computational imaging, including our FaceToolsTM, FacePowerTM, FotoSavvyTM, DigitalApertureTM, face beautification, red-eye removal, High Dynamic Range, autofocus, panorama, and image stabilization intellectual property."

Their earnings report in late October 2014 was better than expected and TSRA raised guidance. They raised guidance again in January. Their earnings news in February helped push the stock to new 52-week highs. Unfortunately momentum appears to have reversed. The semiconductor space has been hit with downgrades and earnings warnings.

Now shares of TSRA has broken below multiple layers of support. The point & figure chart has generated a new triple-bottom breakdown sell signal with a $33.00 target. Today shares of TSRA sit on technical support at the 100-dam. A breakdown from here could portend a drop toward $34 or even $32.00 (near the 200-dma).

Tonight we are suggesting a trigger to launch bearish positions at $37.40. This is going to be a short-term trade. We will plan on exiting prior to earnings on May 5th.

- Suggested Positions -

Short TSRA stock @ $37.40

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

Long MAY $37 PUT (TSRA150515P37) entry $1.55

04/17/15 triggered @ 37.40
Option Format: symbol-year-month-day-call-strike

Olympic Steel Inc. - ZEUS - close: 11.37 change: +0.01

Stop Loss: 13.55
Target(s): To Be Determined
Current Option Gain/Loss: +8.7%
Entry on April 08 at $12.45
Listed on April 07, 2015
Time Frame: Exit PRIOR to earnings on May 1st
Average Daily Volume = 56 thousand
New Positions: see below

04/20/15: The fact that ZEUS did not participate in the market's widespread rally today is a victory for the bears. There is no change from my recent comments.

I'm suggesting we exit near $10.00 if we get the chance. Keep in mind we want to exit prior to earnings on May 1st.

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


Web.com Group, Inc. - WWWW - close: 19.32 change: +0.66

Stop Loss: 18.45
Target(s): To Be Determined
Current Option Gain/Loss: -1.2%
Entry on March 30 at $19.00
Listed on March 28, 2015
Time Frame: Exit PRIOR to earnings near the end of April
Average Daily Volume = 533 thousand
New Positions: see below

04/20/15: WWWW had been struggling with resistance near its 200-dma for over a week. In the weekend newsletter we decided to exit this trade on Monday morning. WWWW gapped open higher at $18.78 before surging to a +3.5% gain on the session.

- Suggested Positions -

Long WWWW stock @ $19.00 exit $18.78 (-1.2%)

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

MAY $20 CALL (WWWW150515C20) entry $1.30 exit $0.50 (-61.5%)

04/20/15 planned exit
04/18/15 Prepare to exit on Monday morning
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