Option Investor
Newsletter

Daily Newsletter, Tuesday, 6/3/2014

Table of Contents

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

Market Wrap

Just Passing Time

by Jim Brown

Click here to email Jim Brown

Traders were just passing time today as they await the ECB and payroll reports later in the week.

Market Statistics

Despite some good economics at the open the markets dipped slightly on some minor profit taking and then traded sideways on very low volume the rest of the day. With the ADP Employment on Wednesday and the expected bazooka out of the ECB on Thursday followed by the Nonfarm Payrolls on Friday the rest of the week is a minefield of economic reports. With the low volume and minor profit taking it appears traders are going to hold what they have and wait for the reports. Even with all the major indexes finishing in the red the VIX remains below 12 with only a .29 point rise. There is rampant complacency and no fear in the market.


The weekly chain store sales snapped back from a -1.2% reading the prior week to a huge +2.9% gain last week. These numbers have a lot of noise and are not normally followed but the big gain did attract attention. Obviously the Memorial Day weekend disrupted spending patterns and provided a holiday bounce. ICSC Research expects same store sales for May to rise +3.0-3.5%.

The Intuit Small Business Employment Index rose +0.16% compared to +0.12% in April. That equates to a gain of +30,000 workers for the month. The internal components showed that hours worked and worker compensation rose sharply. The gains were the strongest since March 2013.

The ISM New York report for May showed business conditions rose at the fastest pace in four months to 630.1, up from 627.4 in April. The internal components showed some nice gains. The six-month outlook rose from 58.8 to 69.7. The current conditions component rose from 50.6 to 55.3 and employment rose from 43.1 to 50.3. The quantity of purchase component soared from 41.7 to 58.9. Expected demand rose from 62.5 to 68.0. This strong rebound came after the worst performance in 10 months in April.

Factory Orders for April came in at +0.7% compared to +1.5% in March and +1.7% in February. While that represented some slowing from the prior months it was well above the +0.2% consensus estimates. However, ex-aircraft orders declined -1.2%. Backorders rose only +0.1% to 0.9% suggesting not much order flow other than aircraft.

New orders for durable goods rose only +0.6% after rising +3.7% and +2.6% in the prior two months. Computer and electronics orders fell by -1.3%.

U.S. Auto Sales for May came in at 16.8 million on an annualized basis and well above the estimate for 16.0 million. This was the fastest pace since February 2007. However, there is a qualification. May had five weekends and auto companies always have major sales and promotions over the Memorial Day weekend.

Kansas City Fed President Ester George made investors happy with a call for the Fed to shrink its balance sheet by allowing holdings to mature before the Fed considers raising interest rates. This "passive runoff" as holdings mature and are redeemed is going to be a major point in the eventual normalization of rates. The Fed owns too many securities to sell them back into the market or rates would rocket higher. They can just let them mature but that is going to take 5-7 years to make a major dent in the Fed's balance sheet. The potential for another recession during that period are about 100%. We average a recession about every 5 years and our five years are already up.

The big reports for Wednesday are the ADP Employment, ISM Services and the Fed Beige Book. The ADP is probably the most critical since it will give everyone an idea what to expect in Friday's Nonfarm Payrolls. A big ADP number should mean a big Nonfarm number and this would suggest the economy is in growth spurt mode. A low number would suggest a low Nonfarm and bring the economic doubt back into the picture.

I can't imagine that the Beige Book will be negative. The trend has been to tout rising activity and without a black hole in some region pulling down the metrics they will continue to tout any gains in activity regardless of how small.

Thursday has the highly anticipated ECB decision and while it won't have any direct impact on the U.S. the implications for growth in Europe will impact our markets. If the ECB lowers rates already at zero it will start a new round of financial engineering experimentation. The problem is that even with rates at zero the banks are not putting the money to work in the economy. Forcing them to pay interest on their reserves rather than earn interest is an unproven tactic although it has been tried in limited tests around the world with mixed results.

If the ECB follows through on a rate cut it will only make U.S. treasuries more attractive for banks looking for yield. This could have been the reason for the treasury rally last week. European banks expecting the rate cut may have moved into treasuries ahead of the event.

Friday's Nonfarm Payrolls are expected to show a gain of +215,000 jobs. Anything over 180,000 should be market neutral and over 225,000 bullish for the market.


Art Cashin alerted me to some work done by Dan Clifton at Strategas concerning the recent drop in treasury yields. Clifton pointed out that the Fed is purchasing a larger share of treasuries today than at any other time during QE. The reason for this is the government is issuing debt at a slower pace than the Fed is tapering QE. Over the last two months the amount of outstanding treasuries has been reduced by $100 billion while the Fed was in the market buying $58 billion. The government was reducing debt at the same time the Fed was buying treasuries from that shrinking base. On a six-month rolling basis the Fed has purchased 73% of new treasury issuance. That leaves very little for normal investors to buy and a good reason the yields have been falling.

There was very little stock news today. We are right in the middle of the earnings cycle where Q1 earnings are over and Q2 warnings won't begin for several more weeks. This is the quiet period where companies have nothing to say.

Clovis Oncology (CLVS) fell another -20% after Citigroup offered a competing opinion on their CO-1686 drug for certain non-small cell lung cancer patients. I believe the Citi analyst was preaching his own book because the data from the trials and the comments from the Clovis CEO on Monday contradict the Citi statement.

Clovis shares declined -$3.50 on Monday after news broke at the ASCO cancer conference that "some" of the patients taking their new cancer drug CO-1686 saw a rise in blood sugar. The press immediately jumped on the news claiming the drug caused diabetes but according to the CEO that is not true. "We do not cause diabetes" he said in an interview.

He was interviewed at the conference and said only a few patients had exhibited hypoglycemia problems and those were easily handled with the oral drug Metformin. He reminded everyone that ALL cancer drugs have side effects and any effect that can be handled with an oral pill is the best kind.

These patients have lung cancer. They are terminal without treatment. He said 95% of patients show improvements in quality of life and "progression free survival." That means the cancer does not worsen and longer life spans are expected. In 65% of patients the improvement in quality of life was "startling" and progression free survival was greatly extended according to the CEO.

In only 22% of patients did they see the appearance of minor hypoglycemia. He said if the problem was bad patients would be dropping out of the trial. To date there have been ZERO patients withdraw from the trial due to the hypoglycemia.

What would you do? Take an oral pill to suppress it or stop the drug and die?

Mizuho said the data from CO-1686 looks superior on progression free survival compared to AstraZeneca's AZD9291. The firm reiterated a buy rating on CLVS with a $100 price target. Citi said today the AstraZeneca drug AZD9291 appeared superior because early stage cardiovascular side effects were unfounded. However, in the current trial any patients with any cardiovascular problems were rejected. In prior trials there were increases in QTc that are associated with heart problems that cause sudden death.

So, the options are to take a drug that may cause sudden cardiac death if you have any cardiac risk or take a drug that provides "startling" improvements in progression free survival and 20% of patients may have to take an oral supplement to eliminate the hypoglycemia? I think the answer is clear.

The stock was pummeled for a -20% decline because the Street's Adam Feuerstein reported the drug is "turning patients into diabetics", which is completely untrue but the unsubstantiated claim was being repeated by Citigroup. I believe this sell off is a huge buying opportunity.


Tesla (TSLA) CEO Elon Musk dangled the potential for doing "something drastic" to accelerate the acceptance of electric cars. While he did not say what the majority of analysts believe it has something to do with his patents. If he volunteered his patents to other manufacturers line Ford and GM they could quickly ramp up a successful electric car program. Tesla has already announced a partnership with Toyota but until they can increase battery availability those plans are on hold.

Musk made these comments at the Tesla shareholder meeting today. He said there are roughly 2 billion cars on the road and 100 million new ones sold every year. Tesla only sold 22,000 in 2013 and they expect to sell 35,000 in 2014. He also said he would stay on as CEO of Tesla for at least 4-5 years "through volume production of a third-generation car" for the mass market in the $35,000 range. He said "Nobody is a CEO forever. Eventually they carry you out."

He said they have not yet picked a site for the "Gigafactory" to mass produce batteries. They have narrowed it down to a "few sites" but they planned on doing a "down-select" for a primary site around year-end. Musk said they were shooting for a 30% decrease in battery costs but thought they could probably do better than that.

Tesla is constrained by the supply of batteries it can get from partner Panasonic. They expect enough to build 35,000cars this year but the goal with the gigafactory is to ramp up production to supply 500,000 cars per year. Panasonic said they expect to be the "sole manufacturer" in the battery factory. The company noted Tesla is looking for a $3 billion investment in addition to the $2 billion Tesla will put up. Tesla hopes to begin battery production in 2017. The company announced in February that Arizona, Nevada, New Mexico and Texas were in the running for the site. However, California is pushing to be considered as well. Musk said he is planning on pitting 3 states against each other in the final selection process. Musk is requiring states in the competition to have all plans and permits finalized and approved before they can be considered in the finals. This probably leaves out California since they can't get anything done in a reasonable period of time especially environmental plans approved. Some analysts believe Nevada has an edge with the site near the Reno-Stead general aviation airport that would make visitations and deliveries easier.

An R.W. Baird senior analyst, Ben Kallo, said Tesla was his top stock pick for the second half of 2014. "We have a quarter that is lined up nicely for a solid beat. Production is very good. We were out at the factory 3 weeks ago and I think they are ahead of their targets for the quarter."


Hillshire Brands (HSH) authorized takeover talks with Tyson Foods (TSN) and Brazil's JBS Sa. The bidding war in the $6.7 billion food fight over Hillshire is entering a new stage. Hillshire was previously called Sara Lee before it spun off some of its tea and coffee products in 2012.

Pilgrim's Pride (PPC) raised its offer to $55 or $6.7 billion after Tyson offered $50. Pilgrim's Pride is 75% owned by JBS. Both offers from PPC and TSN require Hillshire to terminate its $6.6 billion bid to buy Pinnacle Foods. JBS slaughters and packages beef and poultry and buying Hillshire would give it an entry into the prepared meat market where profits are higher. JBS said that would open up the international market using the Hillshire brands. HSH shares gained another 9% today.


Krispy Kreme (KKD) shareholders are probably reliving nightmares from the past when earnings misses were a regular event. The company reported earnings that were in line with estimates but missed on revenue. Then they lowered full year estimates from 73-79 cents to 69-74 cents. Analysts were expecting 78 cents. They blamed the winter weather for the weak guidance. The company said their store count rose 3.3% to 855 and same store sales rose +2.3% in the USA but declined -2.2% overseas. Shares declined -15% on the news.


Volume today across all exchanges was 5.2 billion shares, up only slightly from the 4.88 billion on Monday. The low volume is reducing volatility and the trading ranges. The S&P traded in a very narrow 7 point range today and the Dow range was only 46 points. Trades are simply waiting for the economic events later in the week and they are not trading.

Traders are covering shorts and reducing their longs. The lack of a real direction is causing a serious bout of uncertainty. With the markets only a couple points under their historic highs there is no rush to be long. Traders are slowly taking profits but at the same time there are funds nibbling at stocks on every dip.

The stealth rally of the last two weeks is still concerned about the weakness in the Russell 2000 and the Nasdaq but not too concerned or they would be buying puts. The New York Fed President Bill Dudley warned last week that the extremely low volatility may be giving investors the wrong impression of the markets and this was something that concerned the Fed.

One thing I am sure of is what the Fed will do about it. If they believe the low volatility is making the market too complacent they will do something to shake it up. It is only a matter if time.

A couple of weeks ago I warned about the resistance at 1,925 and that is exactly where the S&P has stopped its gains. That may only be a temporary stall but for the last two days it has been rock solid with the afternoon rise into the close coming to a stop right at that level.

We can have a stealth correction just like we can have stealth rallies. The S&P can continue to wander around in the 1,920-1,925 range for several more days as positions are rotated but I doubt that will happen. Economic events are going to power the market one way or another.

Initial support is now 1,910 and resistance 1,925. The 50-day average is rising about a point a day and is now 1,877.


The Dow closed at a new high at 16,743 on Monday and only gave back -21 points today. The trend is still higher and the next resistance level is 16,800 once we get over Monday's intraday high at 16,756.

The majority of the Dow stocks were pretty tame on Tuesday with Goldman the leader and Visa the laggard.



The Nasdaq 100 ($NDX, QQQ) continues to languish just below critical upper edge resistance at 3,740. Apple shares declined sharply on Monday after the WWDC kickoff but recovered today on positive analyst comments about the new iOS and the pending 7:1 stock split. If Apple continues to remain positive it could be our best chance to the NDX to break over that resistance. Beware next week when Apple trades post split. The post split depression period for Apple could be severe.


The Nasdaq Composite has stalled in a 40 point range for the last six days just below the 4,250 level. No major gains and losses only a slow rotation inside the major Nasdaq stocks. Momentum stocks have stalled and recent winners are taking a break. There is nothing to be determined from the chart except that resistance has held but traders have prevented a material sell off. The deadlock is sure to be broken soon and without any materially negative headlines I would expect it to move higher.

The Nasdaq has only lost -3 points in total over the last five days. There is plenty of dip buying but no price chasing.



The Russell 2000 remains the weakest link. The Russell closed down again to close at a six-day low. The rebound rally has lost traction although there is buying on every dip. It is enough to lift the index off the lows of the day but not enough to turn it positive. Eventually these buyers are going to get tired of lower lows and ignore the dip so they can see how far it drops.

The 1,120 support level at the 200-day average was breached intraday but quickly bought to close at 1,126. Another lower low on Wednesday could put it below that 1,120 level and that would be a sell signal.


As long as the Russell remains above the 1,120 level my market bias is slightly bullish. However, as we have seen numerous times in the past there can be huge sell programs launched whenever a critical economic event is perceived to be bullish. It happens regularly although we have not seen any recently. As we approach the summer doldrums and increasingly lower volume the potential for a sudden sell program reversal is growing. Investors are simply too bullish and too complacent. I would be cautious about being too long until after Friday's Nonfarm Payrolls. Trading the market this week is a coin toss for direction. Do you really want to risk your trading capital or retirement funds on a coin toss?

Enter passively, exit aggressively!

Jim Brown

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New Plays

Looking Towards Thursday

by James Brown

Click here to email James Brown

Editor's Note:

We are not adding any new trades tonight.

Market momentum stalled today and stocks will likely drift sideways tomorrow. Investors are looking towards Thursday's ECB meeting as the next market turning point. ECB President Mario Draghi has all but promised to announce some sort of stimulus package for Europe. If he does not then the equity market reaction could be sour. Even if he does announce some creative program it has been argued that this "good" news is already baked into stocks and the equities could sink anyway as traders sell the news.




In Play Updates and Reviews

Small Caps Still Underperforming

by James Brown

Click here to email James Brown

Editor's Note:
The small cap Russell 2000 index underperformed its large-cap peers. It is worth noting the $RUT bounced intraday at potential support near 1120 and its simple 200-dma.

FLEX hit our entry trigger.


Current Portfolio:


BULLISH Play Updates

American Airlines Group Inc. - AAL - close $41.44 change: +0.22

Stop Loss: 37.25
Target(s): to be determined
Current Gain/Loss: +3.0%

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:
06/03/14: AAL spiked to another new relative high this morning. Shares traded just above $42 before trimming their gains. If airline stocks see a pullback the $40.00 level should offer AAL some short-term support.

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: 12.88 change: +0.88

Stop Loss: 10.75
Target(s): to be determined
Current Gain/Loss: + 6.9%

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:
06/03/14: The roller coaster ride in ARWR continues. Biotech stocks as a group were showing relative strength today. That allowed ARWR to rally from support at the $12.00 mark. Shares surged +7.3%. ARWR does still face potential technical resistance at its 150-dma and 50-dma in the $13.00-13.50 zone.

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: 41.15 change: +0.38

Stop Loss: 40.44
Target(s): to be determined
Current Gain/Loss: + 9.3%

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:
06/03/14: Shares of DAL hit new all-time highs today after the company announced passenger revenue for each seat flown one mile (PRASM) rose 7 percent in May from a year ago period. DAL also reported that overall traffic increased +5.8% and their passengers flew a total of 17.73 billion miles last month.

This strength is encouraging abut DAL is now testing its trend line of higher highs. This has been resistance for months. More conservative investors may want to just take profits right now.

We are moving our stop loss up significantly to $40.44.

FYI: The September $40 call option closed with a bid/ask spread of $3.40/3.50.

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*

06/03/14 new stop @ 40.44, investors may want to take profits now as DAL tests a trend line of higher highs.
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: 52.61 change: +0.10

Stop Loss: 47.90
Target(s): To Be Determined
Current Gain/Loss: + 2.7%

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:
06/03/14: Shares of churned sideways but managed to post another gain. I suspect DOW is due for a little pullback. Investors may want to wait for a dip before initiating new positions.

DOW is scheduled to present tomorrow at the Deutsche Bank annual conference for industrials and basic materials companies. This might generate some news for the stock.

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: 10.30 change: +0.08

Stop Loss: 9.45
Target(s): To Be Determined
Current Gain/Loss: + 0.7%

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

Comments:
06/03/14: As expected shares of FLEX hit our entry trigger at $10.30 today. The stock displayed relative strength with a +0.77% gain and a new multi-year high. I don't see any changes from my earlier comments.

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.

current Position: Long FLEX stock @ $10.30

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

Long Oct $10 call (FLEX1018C10) entry $0.80

06/03/14 triggered @ 10.30
Option Format: symbol-year-month-day-call-strike



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

Comments:
06/03/14: NNBR briefly traded above round-number resistance at the $25.00 level but failed to hit our suggested entry point at $25.25. Shares did show some relative strength with a +0.5% gain. If this continues tomorrow we will likely see our trade open. I do not see any changes from my earlier comments.

Earlier Comments:
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)



Wells Fargo & Co - WFC - close: 51.09 change: +0.00

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:
06/03/14: It was a quiet day on Wall Street. How quiet was it? Shares of WFC drifted sideways and eventually closed unchanged on the session.

If you are looking for a new bullish entry point consider waiting for a dip near $50.50 or $50.00.

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: 30.69 change: +0.29

Stop Loss: 32.55
Target(s): to be determined
Current Gain/Loss: - 4.0%

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:
06/03/14: A widespread rally in biotech stocks helped fuel early gains for AEGR. Fortunately the stock's rebound peaked before lunchtime near $31.60 and AEGR trimmed its gains by the closing bell.

If you missed our entry I would suggest waiting for a new decline below $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.

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: 54.23 change: +0.10

Stop Loss: 57.10
Target(s): To Be Determined
Current Gain/Loss: +0.7%

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:
06/03/14: TJX tested its May 20th low near $53.87. Given such a lackluster session in the market today I am not surprised to see TJX bounce.

Investors might want to wait for a new relative low under $53.86 before initiating positions.

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