Option Investor
Newsletter

Daily Newsletter, Monday, 6/2/2014

Table of Contents

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

Market Wrap

The Data Wave

by Thomas Hughes

Click here to email Thomas Hughes
The week began without a bang then the market stealthily set a new record high for the Dow, SPX and Transports.

Introduction

I was a little surprised by how soft the market opened today but only a little. The late day rally on Friday, carrying the S&P 500 to new highs, was one reason for my surprise. I though that could lift trading on Monday. Of course, this week is full of macroeconomic data and that is reason enough for traders to take pause. Not to mention the mixed PMI reports from Asia and Europe over night. In China flash PMI readings were better than expected at a five month high. In Europe flash PMI readings were not as good as hoped and lead to further speculation that the ECB will act in some way at its meeting this week. The Chinese PMI was off set by two separate surveys of home prices which both declined. Regardless, both China and the EU are still in expansion although both are still suffering to various degrees.


Early futures trading was positive. The S&P 500 was indicated up by a point or two followed by the Dow with about a 20 point gain indicated. There was no data or major market moving news released before the bell but after the bell is a different story. The markets opened as indicated, the Dow setting a new intra day high, then drifted quickly down to break even. The indices held this level until 10AM when ISM Index and Construction Spending figures were released. At that time the markets sold off quickly sending the SPX down about -7 points and the other major indices into the red. The reaction and sell off was knee jerk at best and quickly reversed course. The SPX found near term support at 1920, a level that may be important this week as data is revealed piece by piece. By late morning the indices had returned to break even or just about. Late afternoon trading saw the indices tread water above or near break even before a little push just before the close put the Dow at a new closing high.

The economic calendar is the reason for the cautious tone to trading today. The markets want to be bullish but still need the data, and the Fed, to reaffirm that sentiment. Today, ISM and Construction Spending, tomorrow Auto/Truck Sales, Factory Orders and the Fed's Beige Book. Later This week the jobs bundle unfolds with the ADP Employment numbers, Challenger survey of planned lay offs, jobless claims (expected to remain stable) and then on Friday it wraps up with the Non Farm Payrolls report and US Unemployment. Current consensus expects for jobs to moderate from last months surprise surge back to levels we would have been happy to see just 6 months ago. No doubt there will be a revision to last months figures to consider as well.


The Economy

The ISM Index and construction spending numbers were not robust, but they are still in line with economic trends. ISM was an expansionary 53.2. This is below the expected 55-56 range predicted by economists and below the 54.9 posted last month. Later in the day the ISM revised the number, and then revised it again blaming software for the problem. The number was finally set at 55.4, right in line with expectations. Regardless this is the 12th month of expansion according to this index. Within, smaller data points reveal that new orders, employment, productivity and inventory are all on the rise, just not as quickly as last month or as expected. Prices paid also rose which is a negative sign for inflation (coincidentally a Fed chief restated today “no rate hikes until ...inflation...”.

Headline construction spending was less than expected but expansionary. The headline reported spending increased by only 0.2% but since last month was revised upward by 0.4% from 0.2% I would say that spending is on track. Total spending in the US, including government spending, is at a 5 year high. This is also the third month of gains for spending and another good sign for both the labor market but also for GDP in general. While these figures are not directly fed into the GDP calculation it is a sign that GDP is expanding, the question is, how much?

Mark Zandi reports in his weekly survey of business that confidence is strong. Survey participants say that sales, pricing and hiring are strong. Longer term sentiment is upbeat and show optimism through the end of the year. This report is in line with the expectation that the a rebound is happening.

The Gold Index

Gold prices hovered around the $1245 region and Friday's closing prices. The data had initially sent gold prices marginally higher but once traders realized the headlines weren't the news that bid fell out of the market. Gold prices could hover the rest of the week, or at least until the economics lead the market one way or the other. At this time there is no reason to expect the Fed to let off the taper or to put off an interest rate hike much farther than currently expected which I think is still in the May-June 2015 time frame. With this in mind, economic data showing expansion and the equities markets marching higher there still isn't a reason to get long on gold that I can see.

The Gold Index traded lower today and is still in consolidation following the drop from resistance last week. This consolidation may result in a bearish flag and continuation pattern but will need to break current support just above the $84 level. When gold was at $1300 there wasn't a lot of reason to think gold miners would be able to improve profits, gold at $1250 will make any improvements even harder to achieve. My original targets for the near to short term around $80 and $81 are still looking good at this time.


The Banks

The banking sector traded mostly higher today. The Banking Index (BKX) gained about a half percent driven by today's economic data. Construction spending at long term highs with expansion basically pacing expectations along with improving labor conditions can only mean good things for this sector, especially mortgage originators and real estate related business. This index has been range bound for about 7 months and may remain so with resistance around the $72.50 level. Expanding economic data can help raise sentiment and expectations but I think the banks will have to prove they can make profits and grow for the sector to break out. Indicators are bullish in the near term and consistent with a ranging market in the short to long term.


Market News And Story Stocks

As I mentioned earlier, Fed President Evans said that there would be no interest rate hike until inflation data warranted it. Later in the morning the prices paid component of the ISM suggested that inflation was up at least a little.

The EPA unveiled sweeping new legislation aimed at reducing coal emissions. The new laws seek to reduce emissions by up to 25% and are now subject to several years of review by legislators and the states.

Golfer Phil Mickelson made the news for suspected insider trading. Apparently a chain of events starting with Carl Icahn led to Phil playing golf with someone who said something like “that sounds like a good stock to buy, lets go get some” and they did and made some money. Whether or not it was insider trading is still undecided but the general opinion in the news is that it isn't.

Apple made the news not once but twice today. First, today is the date of record for the upcoming 7-for-1 stock split scheduled for Friday. Owners of record at the end of today's trading will receive their new shares at the end of trading on Friday in order for the new stock to trade on Monday. In other news Apple held its World Wide Developers Conference today revealing the name of its next operating system, OS X Yosemite. Today, Apple trade to the downside, losing about -0.6%. I think today's action had more to do with the stock split and less to do with the conference. I would expect to see this stock move lower into Friday as traders take profits from the earlier rally and pre-split run up in prices. The indicators, especially the MACD, are incredibly divergent and support my theory.


The Transports were a leading sector today, led in turn by Delta Airlines. Delta moved higher by nearly 2% today in a continuation of the 12+ month rally in the stock. The indicators are bullish but there is a divergence in momentum that needs to be monitored although current price action suggests the stock is moving higher. Today's candle completes a potentially bullish continuation signal with near term implications at least.


The Indices

Starting with the Transports the markets are looking good. The Dow Jones Transportation average powered to another new high. The indicators are bullish and on the rise suggesting strength in the index. At this time it is well above the trend line and short term 30 day moving average and in danger of near term correction but there is no sign of weakness yet.


The SPX's trading day can be described as a spinning top, a small candle of basically indeterminate direction. This was more or less expected but I still thought there might have been, not strongly, but might have been some more bullish activity at the open. In any event the broad index maintained support even with the knee jerk reaction to the ISM and Construction data. At the end of the day the index closed in the green with bullish indicators, both the MACD and stochastic are on the rise. Stochastic is still below the upper signal line but fast approaching it in a show of potential strength. This week of data could be what gives the market permission to keep on rallying.


The Dow made its first new all time intra-day high this morning and marched its way to an all time closing high by the close of today's trading. The activity I semi-expected at the open didn't materialize, maybe those eager traders waited for the close. Not a bad idea since there was that brief sell off this morning. The indicators here are weak but bullish. Momentum is still weak but stochastic is indicative of buying in the near and short term. The break above all time highs is an important move and one foreshadowed by the Transports for some time. The Transports have been rallying for months, will the Dow do the same? A first target based on past support/resistance levels is about 500 points higher provided the break is sustained. Today's break was kind of stealthy, just like the SPX two weeks ago on Friday.


The tech heavy Nasdaq Composite was the laggard of the big three indices. The indice fell in today's trading and never was able to move into positive territory. Today's action helps to confirm a resistance level set by the Nasdaq on its way up to the long term high and then back down on the way to support. The indicators are positive and indicate strength in the index but it may have some trouble with the 4,250 level. That is of course provided the data unfolds as expected.


A Quick Thought On Volume

Volume today was low again. There aren't a lot of traders in the market at this time but that may be a good thing. I like to attribute low volume to the average trader wising up. Perhaps they, the average trader, have realized trading because because a spunky baby thinks it's cool is not a sound investment strategy. They may have figured you don't have to sit in front of the fancy trade station all day waiting for multiple signals to form in real time on your state of the art option trading platform and money losing machine to profit in the market. If the average trader has wised up then he/she isn't trading their money away and that could be a reason for lower volume.

If this theory is true then volatility in equities and options could or would subside just because of less activity. If that is true then there may be evidence in the VIX and the VIX is now at lows not seen since before the market crash of 2008. These are levels when the stock market was rallying and day trading as a way of life was at a peak. In those days the VIX did not just touch these low levels once, it bounced and bobbed along at these low levels because they were normal.


Like Jim says, low VIX levels are reason for caution because they often signal impending pull backs. The market tip toes down to a low VIX level like a swimmer entering a pool, when the tepid cold market is too shocking the market pulls back. If however, the economic pool begins to heat up, as it appears it is, how deep can the VIX go before the market pulls back again? Economics are changing, demographics are changing and the market could be changing with it. If, and I know there are about a dozen if's in this theory, the times really are changing and we really are in a long term bull market could the VIX return to the pre-2008 levels and a new normal?

It seems as if the market wants to rally. I'm with it but there is still a whole lot of data coming out this week. As a trader I and we need to be prepared for volatility throughout the week. Tomorrow Auto/Truck sales could fall short. How will that affect out look? The Beige Book could be more dovish/hawkish than expected and that could move the. After that the jobs picture could be robust or rust. Until we know for sure and even afterward caution is due.

Until then, remember the trend!

Thomas Hughes


New Plays

Small Cap Industrials

by James Brown

Click here to email James Brown


NEW BULLISH Plays

NN Inc. - NNBR - close: 24.79 change: +0.26

Stop Loss: 23.40
Target(s): To Be Determined
Current Gain/Loss: unopened

Entry on June -- at $--.--
Listed on June 02, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 153 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
NNBR is in the industrial goods sector. The company makes precision bearing and metal components, industrial plastic, and rubber products. They sell components to the aerospace, agriculture, automotive, construction, energy, industrial, marine, and medical industries.

NNBR's big rally in 2013 has continued into 2014. This year has been a bit of a roller coaster ride for the stock. The rally really picked up steam in early May after NNBR reported earnings on May 6th.

Wall Street was expecting a profit of 29 cents a share on revenues of $1.1.3 million. NNBR delivered 31 cents a share with revenues rising +9.3% to $102.5 million. The 31-cent net profit is a +47.6% surge from a year ago. The company said its gross margins rose 110 basis points to 21.7%.

News on NNBR is pretty quiet but industrial stocks have been leading the market higher. Rising revenues, rising profits, and rising margins sound like a good recipe for further appreciation.

Currently NNBR is hovering below round-number resistance at the $25.00 mark. We are suggesting a trigger to open bullish positions at $25.25.

We're not setting a bullish target tonight but I will point out that the point & figure chart is forecasting a long-term bullish target of $49. I also want to note that it's possible, but unlikely, that NNBR could see potential resistance at its all-time highs at $26.75 set 18 years ago back in May 1996.

Trigger @ $25.25

Suggested Position: buy NNBR stock @ (trigger)

Annotated chart:




In Play Updates and Reviews

Trimming Some Unopened Plays

by James Brown

Click here to email James Brown

Editor's Note:
Tonight we are removing some unopened plays. Meanwhile airline stocks continue to outperform.

AEGR hit our entry trigger.

EXR and TFM have been removed from the newsletter.


Current Portfolio:


BULLISH Play Updates

American Airlines Group Inc. - AAL - close $41.22 change: +1.06

Stop Loss: 37.25
Target(s): to be determined
Current Gain/Loss: +2.4%

Entry on May 28 at $40.25
Listed on May 17, 2014
Time Frame: 9 to 12 weeks
Average Daily Volume = 10.3 million
New Positions: see below

Comments:
06/02/14: Airline stocks displayed relative strength today. Morgan Stanley had some bullish comments on the group. Bloomberg also posted an article discussing now the International Air Transport Association (IATA) expects airline profits to hit an all-time high this year at $18 billion for the industry. The IATA also warned that margins remain thin with an industry average profit of $11.09 per passenger. Fortunately that's up from $2.83 back in 2012.

Shares of AAL surged +2.6% and set new multi-year highs.

Earlier Comments:
AAL is in the services sector. AAL is the merger between US Airways and American Airlines (AMR). The new company, American Airlines Group, is the largest carrier with nearly 6,7000 flights a day, over 330 destinations, to more than 50 countries, with over 100,000 employees worldwide.

This $17 billion merger was threatened by the U.S. Justice department last year. Regulators tried to block the merger on fears the new company would be too big, hold too much power, and reduce competitiveness and thus pricing for consumers. A U.S. district judge just recently approved a settlement worked out between AAL and the Justice Department where the new company agreed to sell certain assets to competitors. Getting the legal hurdle for its merger out of the way it's one more worry that investors can forget.

The airlines would also like to forget about winter. The 2014 winter season was brutal for the airline industry. In January and February the Bureau of Transportation Statistics said 6.05% of all domestic flights were cancelled. That number dropped to 4.6% of all flights cancelled in March. Put them all together and you have the worst winter cancellation rate in 20 years. Yet this news has failed to stop the rally in airline stocks. Granted AAL did consolidate sideways for a few weeks but now it is only a couple of points away from new eight year highs.

AAL just recently released data on April. Their revenue passenger miles for April were up 4.7 percent to 18.1 billion in 2014 versus April 2013. Odds are this number is going to improve since summers tend to be more bullish for the airline business.

Wall Street seems keen on shares of AAL. Goldman Sachs recently put a $46 price target on the stock. In the latest 13F filings it was revealed that Paulson & Co had raised their stake in AAL from 8.5 million shares to 12.2 million. Meanwhile David Tepper is the hot fund manager everyone loves and his Appaloosa Management has AAL as its second largest holding. In the last quarter Appaloosa increased their AAL stake by 22.5%.

current Position: Long AAL stock @ $40.25

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

Long Aug $40 call (AAL140816C40) entry $2.65*

05/28/14 triggered @ 40.25
*option entry price is an estimate since the option did not trade at the time our play was opened.
option format: symbol-year-month-day-call-strike



Arrowhead Research - ARWR - close: 12.00 change: -0.58

Stop Loss: 10.75
Target(s): to be determined
Current Gain/Loss: - 0.4%

Entry on May 27 at $12.05
Listed on May 19, 2014
Time Frame: 6 to 8 weeks
Average Daily Volume = 1.3 million
New Positions: see below

Comments:
06/02/14: The profit taking in ARWR continues with a drop to support near $12.00. Traders can use a bounce from current levels as a new entry point.

Earlier Comments:
ARWR is in the healthcare sector. The company is in the biotech industry. Biotech stocks peaked in early March as investors started selling momentum and high-growth names. ARWR was definitely a target for profit taking after a rally from $2.00 a share back in July 2013 to over $25 in March 2014.

Biotech analysts believe ARWR has a lot of potential. The company is working on a treatment for hepatitis B and should have new data available in the third quarter this year. If successful the hepatitis B treatment could be a multi-billion drug as there are over 300 million patients around the world. ARWR currently has a market cap of about $600 million but a Deutsche bank analysts believes ARWR's market cap could surge to $4-to-$5 billion if its hepatitis B treatment is approved. ARWR is also developing new treatments on its RNAi technology.

Make no mistake, this is an aggressive trade. ARWR is an early stage biotech firm with no revenues. Any investment is a belief they will bring successful clinical data and eventually get FDA approval for its drugs in development.

Technically after a drop from $25 to $10 most of the air has been let out of the prior bubble. As investors return to risk on trades we think ARWR could outperform.

Current Position: Long ARWR stock @ $12.05

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

Long Sep $12.50 call (ARWR140920C12.5) entry $3.40*

05/27/14 triggered @ 12.05
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike



Delta Air Lines - DAL - close: 40.77 change: +0.86

Stop Loss: 36.45
Target(s): to be determined
Current Gain/Loss: + 8.3%

Entry on May 05 at $37.65
Listed on May 03, 2014
Time Frame: 6 to 8 weeks
Average Daily Volume = 13.5 million
New Positions: see below

Comments:
06/02/14: My comments about the airline industry in the AAL trade also apply to DAL. The group is performing well and DAL added +2.1% to set another high.

Last Wednesday I warned readers that DAL is nearing its trend line of higher highs, where shares have failed multiple times. DAL looks like it might hit that trend line (resistance) in the $41.00-41.25 area.

More conservative traders may want to take profits near $41.00.

I am not suggesting new positions at this time.

Current Position: long DAL stock @ $37.65

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

Long Sept $40 call (DAL1420i40) entry $2.20*

05/28/14 DAL is nearing potential resistance at its trend line of higher highs.
05/12/14 new stop @ 36.45
05/07/14 new stop @ 35.75
05/05/14 triggered @ 37.65
*option entry price is an estimate since the option did not trade at the time our play was opened.



The Dow Chemical Co. - DOW - close: 52.51 change: +0.39

Stop Loss: 47.90
Target(s): To Be Determined
Current Gain/Loss: + 2.5%

Entry on May 27 at $51.25
Listed on May 24, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 9.5 million
New Positions: see below

Comments:
06/02/14: DOW tagged another new 52-week high by lunchtime but pared its gains by the closing bell. I don't see any changes from my prior comments. The $51.00 level should offer some support.

Earlier Comments:
DOW is in the basic materials sector. The company supplies chemical products as raw materials. As Wall Street searches for returns and yield DOW will likely continue to show up on their radar screen.

The company has been doing a good jog on maintaining cost controls and returning capital to shareholders. The Q1 2014 earnings report showed net profits surged +75% from a year ago. The first quarter was their sixth consecutive quarter of year-over-year earnings growth.

Dow has raised their dividend by 15% and now sports a 3.0% yield. They plan to complete a $4.5 billion stock buyback program in 2014.

In spite of higher feedstock and energy costs DOW still managed to see margins grow. They expect 2014 to see this margin growth gain further momentum.

Wall Street has been upgrading the stock and raising earnings forecasts.

Shares of DOW are in a long-term up trend (see weekly chart below). Yet the last couple of months have seen shares consolidating gains in a sideways move near $50. This consolidation looks like it's about over. DOW is poised for a breakout higher.

Current Position: Long DOW stock @ $51.25

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

Long Sep $50 call (DOW140920C50) entry $2.88*

05/27/14 triggered @ 51.25
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike



Flextronics Intl. - FLEX - close: 10.29 change: +0.12

Stop Loss: 9.45
Target(s): To Be Determined
Current Gain/Loss: n/a

Entry on June 00 at
Listed on May 31, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 6.9 million
New Positions: Yes, see below

Comments:
06/02/14: Our new trade on FLEX could be opened tomorrow.

Traders bought the dip before lunchtime and FLEX rebounded to a +1.1% gain and closing at a new multi-year high. FLEX actually closed at its high for the day at $10.29. Our suggested entry point to open positions is $10.30, which will likely be triggered tomorrow morning.

Earlier Comments:
FLEX is in the technology sector. The company is the second largest contract electronics manufacturer. They make electronic components for some of the world's biggest companies like Apple, Samsung, Cisco Systems, Google, IBM, and Microsoft.

FLEX reported earnings on April 30th and results beat Wall Street's estimates on both the top and bottom line. EPS was 24 cents, 4 cents above consensus estimates. Revenues rose 27% from a year ago to $6.72 billion for the quarter, well above analysts' estimates. Operating income surged +72% from a year ago.

Just a few days ago the stock broke out past major resistance in the $9.75 region following its analysts day. FLEX appears to be making improvements that will bring about better margins and earnings growth. The most recent quarter saw gross margins improve 170 basis points.

The company ended the quarter with $1.59 billion in cash and cash equivalents and have continued to deliver on their strong stock buyback program. FLEX has already repurchased 9% of its outstanding shares in fiscal 2014. Value investors also love FLEX's strong free cash flow, which is the highest among its peers at more than 12% FCF. The company looks poised to outperform its peers with EPS growth of +27% by the end of 2016 versus average growth of +20% from its rivals.

Currently shares of FLEX are hovering just below short-term resistance near $10.25. We are suggesting a trigger to open bullish positions at $10.30. We'll start with a stop loss at $9.45. More conservative investors may want to consider a higher stop loss.

Trigger @ $10.30

Suggested Position: buy FLEX stock @ (trigger)

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

buy the Oct $10 call (FLEX1018C10) current ask $0.80

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



Wells Fargo & Co - WFC - close: 51.09 change: +0.31

Stop Loss: 47.40
Target(s): To Be Determined
Current Gain/Loss: + 0.3%

Entry on June 02 at $50.94
Listed on May 31, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 13.5 million
New Positions: see below

Comments:
06/02/14: Our brand new play on WFC is off to a good start. Shares gapped open higher at $50.94 and outperformed the financial sector with a +0.6% gain. I don't see any changes from my earlier comments.

Earlier Comments:
WFC is in the financial sector. They are a major, money center bank, headquarter in San Francisco with annual revenues of $81.72 billion and net income of over $21.5 billion. The financial sector has been a strong performer these last couple of weeks and WFC has helped lead the group higher.

Currently WFC is up +11.8% year to date. Its closest rivals are all negative for the year. Bank of America (BAC) is down -2.75%. JPMorgan Chase (JPM) is off -4.98%. Citigroup (C) is down -8.7% for 2014. WFC says business is good and they expect it to get better. The bank reported that credit quality has been improving. They managed to reduce their loan loss reserves in the first quarter and they expect this trend to continue in 2014.

At WFC's recent analyst day their CFO said they want to raise how much money they return to shareholders. They'd like to pay out 55 percent to 75 percent of net income back to shareholders as dividends and stock buybacks. That's up from 34% in 2013 but the new capital plans are subject to regulatory approval.

The shareholder friendly management at WFC is probably just one reason that Warren Buffet likes this company. WFC is Berkshire Hathaway's largest holding. Some have suggested that WFC is the best way to benefit from any long-term rebound in the U.S. housing market and consumer spending.

In recent news WFC says it is poised to end some of its legal troubles surrounding the robo-signing scandal during the housing crisis. It could final settle this issue for $67 million fine and put this issue behind it.

Technically shares of WFC looks very bullish with a long-term up trend. This past month has seen WFC breakout past key resistance at the $50.00 level. Shares ended the week at a new all-time high.

Current Position: Long WFC stock @ $50.94

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

Long Oct $50 call (WFC141018C50) entry $2.31

06/02/14 trade begins. WFC gapped higher at $50.95
Option Format: symbol-year-month-day-call-strike



BEARISH Play Updates

Aegerion Pharma. - AEGR - close: 30.40 change: -2.45

Stop Loss: 32.55
Target(s): to be determined
Current Gain/Loss: - 3.1%

Entry on June 02 at $29.50
Listed on May 20, 2014
Time Frame: 6 to 8 weeks
Average Daily Volume = 1.4 million
New Positions: see below

Comments:
06/02/14: AEGR plunged -7.45% today. Shares were down -10.3% at their worst levels of the session. I don't see any specific news behind today's weakness. AEGR did hit new lows and did trade below support at $30.00. Our trigger to open bearish positions was hit at $29.50.

If you missed our entry today I would suggest waiting for a new decline below today's low of $29.45 before initiating positions.

Don't forget that this is an aggressive, higher-risk trade.

Earlier Comments:
AEGR is in the healthcare sector. The company is a biotech firm that develops treatments for rare diseases. This stock delivered a tremendous rally from October 2012 to October 2013. That's when shares revered at the $100 level and it's been downhill ever since. Exacerbating AEGR's decline has been the company's earnings warning. They lowered guidance back in January and they lowered guidance again when they reported earnings on May 7th.

The stock gapped down sharply following the May 7th report and there has been no oversold bounce. Wall Street was expecting revenues of $33.6 million for the quarter. The company only reported $27 million.

AEGR seems to be facing challenges with its only marketed product, Juxtapid. This is an oral treatment for homozygous familial hypercholesterolemia. This is a genetic disorder characterized by extremely high levels of cholesterol, especially the LDL (bad) cholesterol.

Most of the company's sales are in the U.S. Last quarter a large chunk of its sales in Brazil evaporated with a -70% decline due to an investigation into anticorruption laws in Brazil.

There are concerns that AEGR may have to lower the price for its Juxtapid treatments, which currently cost in the $250,000-$300,000 a year range. There are competing treatments for a lot less money. There is also a worry that there may be fewer customers than previously believed. There were some claims that Juxtapid might have the potential to treat 3,000 patients in the U.S. Yet homozygous familial hypercholesterolemia only affects one in a million people. That means there are closer to 300 potential patients in the U.S.

The company is also facing an investigation from the U.S. Department of Justice for comments made by AEGR's CEO when he appeared on CNBC's Fast Money program last year.

The company seems to be facing a lot of negatives and is clearly in a bear market with lower as the path of least resistance. Currently shares of AEGR are testing round-number support at $30.00. We want to wait for a breakdown below $30.00 and launch bearish positions at $29.50. If triggered we will try and limit our risk with a stop loss at $32.55.

Traders should consider this an aggressive, higher-risk trade. Not only can AEGR see big intraday swings but there is a risk of a short squeeze. The most recent data listed short interest at 30% of the small 28.39 million share float. So far the shorts have been right.

We're not setting an exit target yet but the $20.00 level looks like it could be significant support.

current Position: short AEGR stock @ $29.50

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

Long Sep $30 PUT (AEGR140920P30) entry $4.10*

06/02/14 triggered at $29.50
*option entry price is an estimate since the option did not trade at the time our play was opened.



The TJX Companies, Inc. - TJX - close: 54.13 change: -0.32

Stop Loss: 57.10
Target(s): To Be Determined
Current Gain/Loss: +0.9%

Entry on May 28 at $56.41
Listed on May 27, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 4.5 million
New Positions: see below

Comments:
06/02/14: TJX tried to bounce this morning but traders were selling into strength. Shares faded back toward short-term support near $54.00.

Investors might want to wait for a new relative low under its May low of $53.87 before initiating positions.

FYI: After the closing bell tonight TJX priced a debt offering of $750 million with an interest rate of 2.75%. The debt is due in 2021.

Earlier Comments:
TJX is in the services sector. The company runs off-price apparel and home fashion retail outlets with brand names under T.J.Maxx, Marshalls, HomeGoods, and more. TJX has over 1,000 locations.

Retail has had a tough time this year. Disappointing Q4 Christmas shopping season results were then followed by one of the worst winter seasons in years. TJX has not been immune to the issue. The company reported Q4 earnings results and missed estimates and then lowered guidance for Q1 and full year 2015. They did it again just a few days ago when they reported their Q1 results. TJX missed estimates on both the top and bottom line and then management lowered their guidance for 2015 again.

Shares collapsed last week following the new earnings earning and the oversold bounce has already failed. TJX has also broken down through some long-term bullish trend lines (see weekly chart below).

There are a few analysts saying the sell-off is overdone and traders should buy this weakness but no one seems to be listening. There could be more analysts coming out and trying to call a bottom on TJX, which might spark some short-term rallies but the path of least resistance is down.

Currently the point & figure chart is bearish and forecasting at $45 target.

current Position: short TJX stock @ $54.61

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

Long Oct $52.50 PUT (TJX141018P52.50) entry $1.70*

05/28/14 trade begins. TJX opened at $54.61
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike




CLOSED BULLISH PLAYS

Extra Space Storage Inc. - EXR - close: 52.50 change: +0.15

Stop Loss: 49.90
Target(s): To Be Determined
Current Gain/Loss: unopened

Entry on May -- at $--.--
Listed on May 28, 2014
Time Frame: Exit PRIOR to June 13th
Average Daily Volume = 583 thousand
New Positions: see below

Comments:
06/02/14: EXR managed a minor gain today. The overall trend is still bullish but shares are just not moving fast enough for us.

We are removing EXR from the newsletter. The trade did not open.

Trade did not open.

06/02/14 removed from the newsletter, suggested entry was $53.05

chart:



CLOSED BEARISH PLAYS

The Fresh Market, Inc. - TFM - close: 30.52 change: -0.13

Stop Loss: 31.55
Target(s): To Be Determined
Current Gain/Loss: unopened

Entry on May -- at $--.--
Listed on May 24, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 995 million
New Positions: see below

Comments:
06/02/14: TFM underperformed the market today with a -0.4% decline. Yet the trend over the last few days has been higher.

Our trade is not open yet. We've been waiting for a new relative low. Unfortunately TFM is not cooperating so we're dropping it as a candidate.

Trade did not open.

06/02/14 removed from the newsletter, suggested entry trigger was $28.45

chart: