Option Investor

Daily Newsletter, Wednesday, 4/22/2015

Table of Contents

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

Market Wrap

Bulls Hammering at Resistance

by Keene Little

Click here to email Keene Little
Selloffs are being met with buy programs and the indexes are knocking on the door to new highs but resistance is still holding at the moment. However, a good gap up could easily take care of resistance, something this market is very good at (with an overnight rally in the futures). Whether or not that happens here should provide further clues for the coming week.

Wednesday's Market Stats

Equity futures had spiked down shortly after 3:00 AM and ES dropped a little more than 18 points from a high at 2098.50 (+7.50) to a low at 2080.25 (-10.75) by 6:00 AM. That was then followed by a rescue and futures were pushed back into positive territory before the open. The small gap up was immediately sold into and the indexes dropped to new lows for the week but another couple of buy programs took care of the shorts and sent the bears scurrying.

It only took 30 minutes for the DOW to rally 120 points off its morning low, which was then followed by another smaller pullback before rallying some more into the close. We're getting only inside days (trading inside a previous day's range) since last Friday's big drop so there's clearly some indecision here. But there's also clearly an effort being made to hold the market up and they could be close to accomplishing a breakout, especially if it starts off bullishly on Thursday.

This morning was quiet in regards to economic reports, which consisted of some home data, including existing home sales. The numbers were a little better than expected, with existing sales for March at 5.19M, which was an improvement over February's 4.89M. Tomorrow we'll get new home sales, which should give us a better idea how the home builders will do. But for some reason the home builders index (DJUSHB) sold off hard today, down about -3% at today's low, and that's a firm break of its 20-dma and now 50-dma. It had been trying to hold these MAs but the index is giving us a heads up that not all is well in the housing market (as well as declining lumber prices).

A slowdown in the housing market would be just another sign for the bulls to ignore (the proverbial wall of worry) and if the indexes can push just a little higher it could ignite some short covering as stops on short positions start getting hit. I'm sure that's what the purpose of last night's save in the futures was all about and then again this morning -- "they" (government/Fed-sponsored big banks) know that if they can get the indexes to start breaking resistance they'll then be able to ignite another rally leg. As I'll describe below, corporations are also large net buyers of stock right now and they've been greatly helping the current rally. But it's also reminiscent of what we saw into the 2007 high so it's not necessarily a good thing (short term yes, long term no).

For now all we can do is follow the charts and shut out all the noise around us (CNBC and other "news" sources and opinions, except for those of us at OIN of course, wink). I do have to admit though that the charts are currently not all that helpful since we've been in a 2-month chop zone. A sideways consolidation in a bull market is most often a bullish continuation pattern and that's the way I'm leaning. But we've seen many sideways choppy topping patterns in this market and instead of rallying out of the top of the pattern it suddenly breaks down instead (a failed pattern tends to fail hard as it catches too many traders leaning the wrong way). This makes it imperative to wait for a breakout or breakdown before acknowledging what the new direction is (and of course being careful about a head-fake break).

Kicking off a review of the charts, the SPX weekly chart shows price has worked its way over to its uptrend line from March 2009 - October 2011 (purple line), which was tested on April 1st and held. The rally off that low is what could lead us to new highs if resistance at the top of its little sideways triangle, which was tested again today, breaks. A sideways triangle fits well as the 4th wave in the move up from last October and triangle patterns typically lead to the final move of the trend (up in this case). Assuming it will break to the upside it would fit well as the final 5th wave of its rally to give us a high for the year (probably the high for years).

S&P 500, SPX, Weekly chart

The daily chart shows a closer view of the sideways triangle off the February 25th high, the top of which is currently near 2108. SPX pushed marginally above it today (the high was near 2110) but then closed on the line, which leaves both sides guessing whether or not resistance will hold. This has been resolved many times in the past with a gap up the next morning so we'll soon find out if the handlers can arrange that for the bulls. If we do get a breakout that's then followed by a back-test (similar to what it did when it broke out of the descending wedge back in early February) it would give us a very good buying opportunity. But a breakout that's then followed by a drop back below the top of the triangle would be a failed breakout attempt and put SPX on a sell signal (stop at the false breakout high). Upside potential is 2160-2180 by mid-May (an important cycle turn date is May 13th).

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2112
- bearish below 2045

What can't be ruled out yet is another drop down inside the trading range and if it drops down to its uptrend line from March 2009 - October 2011 we could see 2067 before it sets up the next rally. It takes a drop below 2050 to negate the bullish pattern. The most important thing to keep in mind here is that these triangle patterns tend to whip traders around like little rag dolls. It's why even right here there is no assurance which way this market will head next and it's why I've been urging caution until we get a confirmed breakout/down.

S&P 500, SPX, 60-min chart

The DOW has formed more of a parallel down-channel off its March 2nd high, which fits well as a bull flag pattern. Ideally, like the triangle pattern for SPX, it needs one more leg down inside the pattern to complete it, which would then be a good setup to get long. Going long here, at/near resistance, is usually not a good idea. As of today's close it was a coin toss for tomorrow and I'm waiting to see if the DOW can break out from here or if instead the bears will take another swipe at the bulls. If the DOW loses support at its uptrend line from October-February, near 18010, and its 50-dma at 17971 it could usher in stronger selling. Its 20-dma is currently near 17904.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 18,289
- bearish below 17,410

Watching what has happened to GE's stock over the past week reminded me of something I recently read about cash holdings of U.S. companies. It's looking like we're seeing a repeat of what happened into the 2007 stock market high. Corporate cash holdings have reached a historical high, which is great for companies and their bank accounts, but what it says is they don't have anything better to do with their cash than hold onto it. Instead of investing it in their businesses (capital improvement programs, buying competitors, etc.) and finding more productive ways to invest their cash, they have been buying back their own stock and offering higher dividends (or just sitting on higher piles of cash). The below chart shows the continuation of cash hoarding (you can see the little "dip" in 2007-2009).

The chart below shows the S&P buybacks (dark green bars, in $B) and how the current level is nearly back up to where it was in 2007. The smaller light green bars are domestic equity flows into mutual funds and ETFs. From this it's clearly evident that companies are much bigger buyers of stocks than those investing in mutual funds and ETFs. If you want to know why the stock market keeps heading higher, in spite of a slowdown in the economy and worsening corporate earnings, this is certainly one explanation.

The fact that the companies are buying back so much of their stock, and the underlying support this creates for the stock market, hides the fact that the stock market is once again rising against a deterioration of the underlying fundamentals. Instead of putting their money into productive uses, for which they can derive future benefits (earnings), these companies are simply buying back shares so that it shows improved earnings today (this of course helps companies reward their executive management teams for doing such a splendid job with their businesses). Company management is really no better than your average retail trader -- corporations buy most of their own stock back at market highs and they sell the most stock at market lows.

The problem for both the companies and the stock market is that all this buying covers up a significant problem -- the deterioration in current earnings is being masked by share buybacks. When the companies decide to rein in their stock purchases it will reduce the support that the stock market has been experiencing. Recognition of a slowing economy would then take its toll on the stock market as well. A repeat of what happened in 2007-2009 looks to be a logical conclusion.

General Electric (GE) was in the news last week after it announced it was going to sell its capital lending business and other "non-core" businesses and then they'll use some of their cash reserves to buy back more of their shares and offer higher dividends. They plan on repatriating some of their earnings in foreign countries and they're willing to pay $4B in taxes to do so. That's great for helping the government pay its bills (albeit only a tiny drop in an ocean of debt in which the U.S. government is swimming) but what does it say about GE's lack of investment opportunities? Rather than invest the money in revenue-generating operations they'd rather fork over $4B to the IRS. They'd rather hand the money out to their investors (and themselves) than invest it in more productive ventures.

The initial reaction to GE's announcement was a large spike in their share price, from April 8th's closing price at 25.01 (the day before the announcement) to a high of 28.68 (+14.7%) the day after the announcement. The stock started to rally strong the day of the announcement on the 9th (they announced after the bell on the 9th) but it looked like "someone" got wind of the announcement and started the rally early. I'm sure there was no inside trading though because that would be illegal. But following the spike up on the 10th GE has pulled back and it leaves me wondering if the spike on good news might have been the completion of its rally.

I've found over the years that GE tends to trade very well technically. It reacts to trend lines, price levels, Fibs, trading patterns, etc. and at the moment we have two opposing setups and the resolution here will tell us what will likely happen longer term. And as GE goes, the rest of the market could follow right behind it.

The weekly chart below shows GE's spike last week stopped right at its downtrend line from 2000-2007 -- this is a very important longer-term trend line so whether or not GE can get above it, near 28.65, will tell us which side is in control. At the moment it's resistance until proven otherwise. At the same level is the mid-line of its up-channel from October 2011 so it's double resistance. The 62% retracement of its 2007-2009 decline is at 28.24 so make that triple resistance, all of which makes it look like it's going to be tough for the bulls to break through.

General Electric Co., GE, Weekly chart

The bulls in GE are not to be discounted yet. Notice last week's breakout from a bull flag pattern that GE was in since the December 2013 high. That's a bullish break (and on volume) and so far the pullback from last week's high has found support at the top of the flag, near 26.55 (yesterday's low). A drop back into the flag would leave a failed breakout attempt (head fake) and give us a sell signal, especially if it drops back below its 50-week MA at 25.82. The bulls need to negate this potential with a breakout above 28.70 and then hold above (I see the potential for another new high, perhaps 29.40, to complete a 5-wave move up from January, but then a reversal back down so I'll be watching for that possibility). In the next week or so we could have some further clues about GE and therefore the broader market.

The Nasdaq is getting closer to challenging its all-time at 5132.52 on March 10, 2000. The closing high on that day was 5048.62 and today's closing high was 5035.17 (after making an intraday high at 5040.65) -- only 13 more points for a new all-time closing high and the bulls can taste it (they've been tasting it since first climbing back above 5000 on March 2nd). As with the blue chips, it's possible we'll see one more drop down to the bottom of the sideways consolidation, or at least down to the uptrend line from January where it would meet its 20- and 50-dma's near 4950 next week. Notice the hanging man doji for today at the trend line along the highs from January 2004 - October 2007. It's decision time for the bulls here -- the bullish pattern calls for a continuation higher but they need to keep the rally going from here. Upside potential is the all-time high at 5132 and then 5150 where it would hit two intersecting trend lines from previous highs, one from April 2010 - March 2014 and the other from last November. Those lines cross at the end of this month and it would make for an interesting setup for a longer-term top.

Nasdaq Composite index, COMPQ, Daily chart

Key Levels for COMPQ:
- bullish above 5042
- bearish below 4912

For a while the RUT was helping the bulls with their mojo but lately it's been holding back some of that mojo. Following its April 15th high I've been wondering if it will instead switch sides and start leading the bears back down the hill. The April 15th high was a small throw-over above the top of a rising wedge pattern for the rally off the March 26th low and it fit well as an important top. Of the different indexes at the moment, this is the one that has me thinking the rally might not have much of a chance of making it much higher. But in reality, like the others, the RUT is simply inside a choppy trading range and this makes it very difficult to make predictions for the next big move. Above its April 15th high near 1279 would clearly be more bullish whereas a drop below its uptrend line from October 2014 - February 2015, near 1248, and its 50-dma, near 1243, would be more bearish. A drop below the March 26th low is needed by the bears to confirm an important high is already in place.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1279
- bearish below 1225

The VIX is typically a mirror image of SPX and since March 2nd it's been chopping up and down opposite to what SPX has been doing. The VIX appears to be forming a bullish descending wedge pattern off its February 2nd high and has a little more downside potential to the bottom of the wedge, currently near 12.05. It would test the December 5th low at 11.53. The VIX has been holding its uptrend line from Sept-Dec 2014 so it's possible it will get another bounce if SPX pulls back from resistance. If SPX does break out into a stronger rally it will be interesting to see if the VIX only makes it down to the bottom of its wedge and continues with a bullish divergence, which would be an additional warning to bulls not to get complacent about new highs.

Volatility index, VIX, Daily chart

The 30-year Treasury yield (TYX) looks like it could soon be heading lower. At least that's what the current bear flag pattern is pointing to. Following its March 6-25 decline it's been in a choppy bounce pattern and today's high tagged the top of the little parallel up-channel for the bounce (the bear flag). If it rallies much above the top of the flag, near today's high at 2.662%, it could be the start of a more bullish move (bearish for bond prices) but I'd first want to see it climb above its downtrend line from September 2014 - March 2015, near 2.74%, which is also where its broken uptrend line from July 2012 - October 2014 is located. But if TYX starts back down from here I'll be looking for at least a test of its January low near 2.23%.

30-year Yield, TYX, Daily chart

The TRAN continues to hold support at the bottom of its trading range since last November, near 8580, which was last tested on April 14th. It has managed to get back above its 20-dma, at 8708, and is now close to testing its broken 50-dma, near 8900 (today's high was 8878). It would be good for the bulls to see a rally above 8900 and hold above. The risk at the moment is that the TRAN has accomplished a 3-wave bounce off its April 6th low with two equal legs up at 8868 (it closed at 8863). If we have just an a-b-c bounce correction off the April 6th low it could start back down from here and another break below support at 8580 would very likely be followed by stronger selling. That would be fair warning to bulls that this index is paying attention to underlying fundamentals about our deteriorating economy. It wouldn't prevent the DOW from making yet another new high without the TRAN but it would clearly be a strong warning not to trust the new high.

Transportation Index, TRAN, Daily chart

The U.S. dollar's bounce off its March 18th low might have completed at the April 13th high and now we'll get another leg down as part of what will become a larger pullback correction from its March 13th high. Two equal legs down would give us a preliminary downside target at 94.25 but a further drop to its 200-dma, perhaps near 90.50 in early May. However, there's still a bullish wave count that's looking for one more rally before starting a larger pullback and the dollar remains bullish as long as it holds its 50-dma, currently 97.24, as well as the bottom of its up-channel from last year, which it's trying to hold right here at 98.23.

U.S. Dollar contract, DX, Daily chart

Gold has been consolidating since late-March and it has formed a sideways triangle in the process. This can be viewed as a bullish continuation pattern but the gold bulls need to defend price here otherwise any further decline will leave a failed pattern. If it does rally out of the pattern we'd have an upside projection at 1263 for two equal legs up from March 17th but if it starts to break down from here then we'll very likely see gold drop toward 1000.

Gold continuous contract, GC, Daily chart

I show the gold chart every week but I also keep an eye on silver because it has been the one that has helped me stay bearish gold even when gold is looking bullish. That hasn't changed yet, although silver has the potential to rally for another leg up off its March 11th low. What's looking more bearish for silver at the moment is the fact that it has not formed a sideways consolidation like gold has done. It has dropped back down and while I see the potential for a small bounce before heading lower, it's looking like silver could break down before gold, giving gold traders a heads up. The neckline for the H&S continuation pattern is currently near 15.37 so a break of that would be a bearish warning sign for the metals.

Silver continuous contract, SI, Daily chart

Crude inventory builds have been a little volatile recently, climbing +10.9M barrels for the week ending April, +1.3M barrels for the week ending April 11 and then +5.3M barrels last week. The initial reaction in crude was a spike up this morning (obviously as a reaction to the jump in inventories not being as high as feared) but then the price worked its way back down during the day and finished in the red. Since last Thursday's high oil has been trading in a small sideways range, which is what I was expecting to see for a 4th wave correction in its move up from March 18th. This should lead to another leg up for the 5th wave to complete the c-wave of an a-b-c bounce off its January 13th low. An upside projection for the 5th wave will be to about 61.50 by the end of the month if it can get through price-level resistance near 58.50. That would get oil up to the top of its rising wedge pattern for the c-wave and upon completion of that move we'd very likely see oil start heading back down as part of a larger multi-month consolidation pattern.

Oil continuous contract, CL, Daily chart

Tomorrow's economic reports include unemployment claims and new-home sales. They will not likely move the market since it has been more concerned about what central banks are doing around the world. That will continue to dominate this market for a while.

Economic reports and Summary


The choppy trading range that we've been in for the past two months could continue for at least a little longer if the market pulls back from resistance here. So far the sideways consolidation fits as a bullish continuation pattern and it's for the bulls to lose. That would take a drop below the March 26th lows (watch the TRAN as a leading indicator in this regard) but in the meantime a pullback to the lower region of the trading range would be a buying opportunity. It's possible the rally will simply continue from here since resistance is close and it won't take much to break through, especially for SPX since a rally above 2112 (only 2 points above today's high) would signal the consolidation is likely finished. Unless of course a breakout is followed by a collapse back down -- a pullback would need to hold above 2108 to stay bullish.

These choppy consolidation patterns drive both sides crazy with the lack of follow through to even large moves. This could continue a little longer so a continuation inside the trading range should be reason enough to back away until we get a break one way or the other. Day trading only. Assuming we'll get an upside breakout, once it's confirmed there should be a good trading opportunity on a pullback so wait for the right setup or let the bus leave without you and wait for another one. That's the nice thing about trading the market -- they always send another bus, hoping to entice you to climb aboard. Just don't get taken for a ride.

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

Keene H. Little, CMT

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

New Plays

High-Definition Sound

by James Brown

Click here to email James Brown


DTS Inc. - DTSI - close: 36.94 change: +0.96

Stop Loss: 34.95
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on April -- at $---.--
Listed on April 21, 2015
Time Frame: Exit PRIOR to earnings on May
Average Daily Volume = 166 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
DTSI is a small-cap technology stock that has rallied to new three-year highs. The small cap Russell 2000 index is up +5% this year. Shares of DTSI are outperforming with a +20% gain in 2015.

The company is considered part of the application software industry. The company describes itself as "DTS, Inc. (DTSI) is a premier audio solutions provider for high-definition entertainment experiences—anytime, anywhere, on any device. DTS' audio solutions enable delivery and playback of clear, compelling high-definition audio, which is incorporated by hundreds of licensee customers around the world, into an array of consumer electronic devices."

If you're curious, here's more details on DTSI, "From a renowned legacy as a pioneer in high definition multi-channel audio, DTS became a mandatory audio format in the Blu-ray Discâ„¢ standard and is now increasingly deployed in enabling digital delivery of compelling movies, music, games and other forms of digital entertainment to a growing array of network-connected consumer devices. DTS technology is in car audio systems, digital media players, DVD players, game consoles, home theaters, PCs, set-top boxes, smart phones, surround music content and every device capable of playing Blu-rayâ„¢ discs. Founded in 1993, DTS' corporate headquarters are located in Calabasas, California."

Earnings results from DTSI have consistently beat analysts' expectations. They have beaten estimates on both the top and bottom line the last four quarters in a row. They raised guidance with their Q2 and Q3 reports last year. Their most recent report was March 2nd when DTSI announced Q4 earnings of $0.34 a share. Revenues were $35.2 million. Their full year 2014 results saw sales up +10% to $130.6 million.

DTSI is forecasting 2015 sales to be in the $148-155 million range (about +14% to +19% growth). Earnings are forecasted to rise +23% in 2015.

The stock exploded higher on its Q4 results. Traders have been buying the dips since then. The point & figure chart is very bullish and projecting a $57.00 target. Shares displayed relative strength today with a +2.6% gain and a close at multi-year highs. Tonight I'm suggesting a trigger to launch small bullish positions at $37.15.

Trigger @ $37.15 *small positions to limit risk*

- Suggested Positions -

Buy DTSI stock @ $37.15

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

Buy the JUN $40 CALL (DTSI150619C40) current ask $0.90
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:

In Play Updates and Reviews

Market Rebounds Into A Widespread Rally

by James Brown

Click here to email James Brown

Editor's Note:
Thus far Q1 earnings seem to be coming in better than feared. This has helped power another rally in stocks. The U.S. market saw widespread gains by the closing bell.

CGNX hit our stop loss.

We want to exit our PBH trade tomorrow morning.

Current Portfolio:

BULLISH Play Updates

CDW Corp. - CDW - close: 38.93 change: +0.21

Stop Loss: 36.40
Target(s): To Be Determined
Current Option Gain/Loss: +0.7%
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

04/22/15: CDW continues to look strong with shares bouncing off their 10-dma today. The rebound launched CDW to new highs. I would consider new positions at this time.

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

Daqo New Energy Corp. - DQ - close: 29.06 change: +0.03

Stop Loss: 28.75
Target(s): To Be Determined
Current Option Gain/Loss: -7.9%
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

04/22/15: The early morning rally in DQ failed at resistance near $30.00 and its 200-dma. This is another warning sign. I don't see any changes from yesterday's comments.

More conservative traders will want to exit immediately. If there is any follow-through lower tomorrow odds are high we'll see DQ hit our stop loss at $28.75. 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: 43.16 change: -1.02

Stop Loss: 42.85
Target(s): To Be Determined
Current Option Gain/Loss: +1.9%
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

04/22/15: After the closing bell tonight PBH announced that its President and CEO Matthew Mannelly will retire effective June 1, 2015. He is being replaced by PBH's Chief Financial Officer.

One has to wonder if this leadership change was leaked this morning and accounts for the stock's relative weakness. PBH underperformed the broader market with a -2.3% decline.

Tonight I'm suggesting an immediate exit tomorrow morning.

- Suggested Positions -

Long PBH stock @ $42.35

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

Long JUL $45 CALL (PBH150717C45) entry $1.55

04/22/15 prepare to exit tomorrow morning
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

Vipshop Holdings - VIPS - close: 29.55 change: -0.43

Stop Loss: 27.85
Target(s): To Be Determined
Current Option Gain/Loss: -2.0%
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

04/22/15: The Chinese stock markets continued to rally on Wednesday. Yet VIPS did not participate. The stock appears to be struggling with round-number resistance at $30.00. I am not suggesting 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

Krispy Kreme Doughnuts - KKD - close: 18.80 change: +0.01

Stop Loss: 19.15
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on April -- at $---.--
Listed on April 21, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 608 thousand
New Positions: Yes, see below

04/22/15: It was a quiet day for KKD. Shares closed virtually unchanged on the session. There is no change from last night's new play description.

Trade Description: April 21, 2015:
Earlier this year everyone was speculating that the multi-year lows in gasoline prices would be bullish for consumer spending, especially at restaurants. Thus far that premise hasn't really panned out. Gasoline prices remain $1.00 lower than they were a year ago but restaurant stocks as a whole are not seeing a significant increase in sales. Investor sentiment on shares of KKD seems to have gone stale with shares down -15% from their 2015 highs.

KKD is in the services sector. They're part of the restaurant industry. According to the company, "Krispy Kreme is a leading branded specialty retailer and wholesaler of premium quality sweet treats and complementary products, including its signature Original Glazed® doughnut. Headquartered in Winston-Salem, N.C., the Company has offered the highest quality doughnuts and great tasting coffee since it was founded in 1937. Today, there are over 980 Krispy Kreme shops in more than 20 countries around the world."

Their 2015 Q3 earnings back in December were in-line with estimates while revenues came in below analysts' expectations. Yet KKD offered a bullish guidance for the rest of their fiscal year. Shares sold off anyway in spite of the improved guidance.

Their most recent earnings report was March 11th when KKD announced its 2015 Q4 results. Earnings were up a significant +36% to $0.17 a share. That was one cent above Wall Street estimates. Revenues rose +11.3% to $125.4 million. Unfortunately that missed expectations for $128 million. Domestic same-store sales were up +3.6% while international same-store sales were down -2.6% most likely due to the strong U.S. dollar.

KKD management expects their 2016 fiscal year results to be in the $0.79-0.85 range. That is already accounting for low gasoline prices, which is still expected to boost sales throughout the remainder of the year. The bad news is that Wall Street was looking for earnings of $0.85 per share. The combination of the revenue miss (second quarter in a row) and the lowered guidance helped send KKD's stock lower.

Bulls could argue that KKD is growing and sales will improve as they expand. In fiscal year 2016 KKD does plan to open several new stores including 10 to 15 new company-owned stores, 10 to 20 new domestic franchise stores, and 95 to 110 net new international franchise locations. Unfortunately, if the stock's chart is any indication, investors aren't buying it.

Currently the stock has fallen toward significant support in the $18.00-18.50 zone, which is underpinned by the simple 200-dma. This area is also support on the point & figure chart, which is currently bearish and forecasting at $16.00 target. If KKD breaks down under $18.00 it could signal a drop toward its 2014 lows near $15.00.

Tonight we are suggesting a trigger to open bearish positions at $17.90. I want to point out that April 23rd and 24th could be volatile for KKD. Much larger rivals Dunkin Donuts (DNKN) and Starbucks (SBUX) both report earnings on April 23rd. Their quarterly results could have an influence on shares of KKD.

Trigger @ $17.90

- Suggested Positions -

Short KKD stock @ $17.90

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

Buy the AUG $18 PUT (KKD150821P18)

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

Solera Holdings - SLH - close: 50.49 change: +0.37

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

04/22/15: This morning SLH announced it was purchasing DMEautomotive, LLC, a "leader in data-driven customer retention and marketing solutions for the retail automotive industry." Terms were not disclosed.

Meanwhile shares of SLH flirted with another breakdown below $50 but quickly bounced. We are still on the sidelines. Our suggested entry point to launch bearish positions is $49.40.

Trade Description: April 20, 2015:
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)

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

Strayer Education, Inc. - STRA - close: 54.15 change: +0.21

Stop Loss: 56.15
Target(s): To Be Determined
Current Option Gain/Loss: -2.3%
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

04/22/15: The intraday rally in STRA failed near resistance at $55.00. Shares still managed a +0.38% gain.

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: 39.84 change: +0.40

Stop Loss: 40.15
Target(s): To Be Determined
Current Option Gain/Loss: -6.5%
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

04/22/15: The bounce in TSRA continued with a +1.0% gain on Wednesday. Shares closed just below what should be round-number resistance at $40.00 and technical resistance at the simple 50-dma (at $40.21). Our stop is at $40.15. I am not suggesting new positions at this time.

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: 10.79 change: -0.32

Stop Loss: 12.30
Target(s): To Be Determined
Current Option Gain/Loss: +13.3%
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

04/22/15: ZEUS continues to sink and fell to $10.44 intraday. The stock managed to pare its losses to just -2.8% by the closing bell. The stock's oversold bounce in mid April failed at $12.25. Tonight we'll move the stop loss down to $12.30.

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

04/22/15 new stop @ 12.30
04/08/15 triggered @ $12.45


Cognex Corp. - CGNX - close: 50.62 change: +0.48

Stop Loss: 49.45
Target(s): To Be Determined
Current Option Gain/Loss: -3.7%
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

04/22/15: We have been worried about CGNX the last couple of days. Unfortunately the market's spike lower this morning pushed CGNX to $49.31. Our stop was hit at $49.45.

- Suggested Positions -

Long CGNX stock @ $51.35 exit $49.45 (-3.7%)

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

MAY $50 CALL (CGNX150515C50) entry $5.20 exit $1.67 (-67.9%)

04/22/15 stopped out @ 49.45
04/09/15 triggered @ 51.35
Option Format: symbol-year-month-day-call-strike