Option Investor
Newsletter

Daily Newsletter, Thursday, 6/5/2014

Table of Contents

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

Market Wrap

Rally On, Rally On

by Thomas Hughes

Click here to email Thomas Hughes
ECB actions, economic data and comments from David Tepper helped spur the rally to new highs.

Introduction

Today started quietly as traders around the world awaited the results of the most recent ECB meeting. The ECB and Mario Draghi gave the market what it wanted but it was comments from hedge fund manager David Tepper that are credited for today's new highs. Mr. Tepper says he sees market concerns alleviating and that he is not as worried about market conditions today as he was just a month ago. Following his comments indices that had been simmering near yesterdays close began a steady march to new highs.


Early trading was positive. Index futures were indicated a few points higher across the board. The steady release of news and data before the bell did little to move the markets more than a point or two in either direction. The ECB statement was met with relief but not surprise as the moves were largely expected and our own economic data was also unable to move the market. Challenger reports that planned job cuts increased while the weekly jobless claims figures show that unemployment claims continue to trend lower.

The S&P 500 was indicated about 4 points higher throughout the morning and went into the open about +2. The first hour of trading was steady but without direction. The indices drifted from the opening highs, the SPX and DJI both opening at new all time highs, back to near break even and then briefly into the red. Although eyes are on the NFP report tomorrow it appears as if the results, whatever they may be, have been discounted by the markets already. After touching near term support, just above 1920 for the SPX, the indices bounced back into the green and then were propelled to new all time highs.


The Economy

Today's economic calendar started early with the release of the Challenger, Grey & Christmas survey of planned lay off's. Planned lay off's in May totalled over 52,000, the highest level in 15 months and a 31% increase over the last month. This is the second month of increase since the sharp drop in claims seen in March. To date, the total number of lay offs this year is 214,600, -2.3% from last year at this time. The bulk of the cuts were in the tech sector led by HP's planned 16,000 job cuts which accounts for nearly a third of this months gains. Tech's and computer in particular are the leading sector for jobs cuts this year. The report went on the project labor condition for the rest of the year saying that job cuts should decline and that job growth will continue into the end of the second half.

Initial claims for unemployment rose by 8,000 to 312,000 which is basically as expected. Last weeks figure was revised up by 4,000 making this weeks figures 12,000 higher than last weeks report. The four week moving average fell to 310,250, the lowest level since June 2,2007. On an unadjusted basis claims fell -4.5% or -12,481. Initial claims remain within and near the bottom of the 12 month range between 300K and 350K. Near term unemployment and job turnover remains steady at this time. Claims were steady on a region to region basis led by an increase in claims from NY of +1,327 and MI with a decline of -6,083.


Continuing claims fell by -20,000 to 2.603 million. This is the lowest level for this figure since October 27,2007. The previous week was revised lower by -8,000 for a net drop of -28,000. Continuing claims is declining rapidly and suggesting that something big is shifting in the labor markets. Assuming people are finding jobs and not giving up on work this could be indicative of strong(ish) NFP numbers tomorrow. Adding to this theory is the decline in total claims. Total claims for unemployment fell by over -40,000 to 2.513 million and yet another new low. Annecdotal evidence; I have a group of friends who are all involved in building/construction in some form and all agreed last night that if you can't find work you aren't looking.


Net worth in America grew by $1.5 trillion in the firs quarter to $81.76 trillion. The gain comes mostly on increases in home values and stocks.

Going into tomorrow the most important economic event will be the Non Farm Payroll report. Expectations are for claims to decline from last month to a level around 200,000 to 220,000 but it may not matter. Earlier in the week the ADP report revealed that private payrolls had increased by less than expected which raises some concern the NFP will also fail to meet expectations and yet the market rallies. On the other hand strong home and auto sales data combined with declining levels of employments claims suggest that job creation could be strong.

The Dollar Index

The Dollar gained and lost ground against the euro today in the build up to and aftermath of the ECB statement. The index surged to a near 5 month high just over $91 and the top of the recent trading range before heavy selling sent it back down into negative territory. The index made such a wild move because of fluctuating euro values due to speculation over what the ECB may still do in its effort to raise inflation and weaken the euro.

On top of the new interest rates and LTRO facility Draghi pledged to “do more” to help stimulate the economy as and when needed. Today the ECB lowered its deposit rate to -0.1% which effectively charges banks for leaving capital unused. This move is meant to push banks into lending money to the public sector rather than let it sit in the central banking system. The lending rates were also cut to new lows but there were no asset purchases made. The statements following the announcement did include hints of preparations for some form of purchases in the future. Today's price action created a bearish candle for the Dollar Index confirming the top of the current 5-6 month range between $79 and $81. The indicators are bullish at this time but overbought and convergent with the trading range.


The EUR/USD made a near mirror image move to the Dollar Index. The pair traded lower in the early part of today's session, briefly touched support and then reversed. The pair is at the lower end of a near 8 month trading range with bearish indicators. The indicators are oversold and in line with the range bottom theory. The pair could trend upward to retest resistance near 1.38870. In the near term economic data from us tomorrow (NFP), BOJ policy next week and the FOMC meeting the week after will be drivers of this trade. Strong US data should strengthen the dollar and could return the pair to support. Support is currently at the bottom of the range around 1.3500.


The Oil Index

Oil prices fell by about a percent during the early part of the day until the ECB decision sent the dollar plunging versus the euro. The lower dollar helped to support oil prices, along with a smaller than expected build in natural gas, and by the end of the day WTI was trading back near $102.50. The Oil Index has been in turn supported by the relatively high prices for oil and other product along with the rising economic trends. The index traded to the upside today, breaking above the long term resistance line, but is still contained within the current chart pattern. The index has been trending sideways for about 6 weeks now, since hitting the current resistance level, and is forming a potentially bullish triangle. In that time prices have bounced from the 30 day EMA twice, stochastic has fired off the stronger trend following signal and bearish momentum has retreated to near 0; all that is left now is for prices to break out to new highs. Tomorrow's NFP report could be the catalyst that does it. If not, and the index fails to break resistance, support exists just below the current level at 1,600 and then next at 1,550.


The Gold Index

Gold prices rebounded today in part on a weaker dollar as well as simple rebounding from the recent precipitous drop. Gold traded up about $10 for most of the day, hovering around the $1252-$1255 level. The move in gold is rooted in the ECB's efforts to add inflation which have in turn affected dollar values. This is I think only a short term shift and not a reason to change stance on gold prices. The Gold Index also traded higher today but is still well below the recently broken support level. The rebound in gold is helping to support index prices but I don't know if this will last. Until some reason to expect gold prices to improve or earnings for gold miners to improve I am treating any pull backs to resistance as selling opportunities in this sector. Tomorrow's NFP could return the dollar to strength and put pressure on gold.


Sector Snap

I found it interesting today when I read into the Challenger report that technology and computers were leaders in job cuts. The technology sector was the leader in jobs cuts last month and to date is the leader for the year. This was interesting to me because the tech heavy Nasdaq was today's market leader among the big three indices with a more than 1% gain and the XLK (technology sector Spyder) broke out to a new high. The new high in the XLK was also aided by a string of upgrades for tech companies like Microsoft and Broadcom, Microsoft being the #2 holding of the XLK.


The Semi Conductor Index also traded higher today and is looking quite bullish. Today's action created the third of Three White Soldiers ( a weak one but one none the less) and is accompanied by bullish indicators. Momentum is strong, on the rise and approaching long term high levels. Stochastic is also on the rise and looking strong.


The Indices

The Nasdaq was today's leader with a more than 1% gain, followed by the SPX and the DJI with 0.65% and 0.59% respectively. The Nasdaq Composite made a strong move up, from previous short term resistance, with rising bullish indicators. The bounce from long term support that began a few weeks ago looks good to continue up to long term resistance at or near the current long term highs. Tomorrow's NFP could help or hinder the move but it looks like it may be discounted already.


The SPX also made a strong move up today, creating a long white candle, with rising indicators. Momentum is strong in the near to short term and supportive of higher prices in the near future. Stochastic is on the rise but now very high in the range. This is indicative of an overbought market but also one of strength during times of rally. This index looks like it is in the middle stages of a short term rally that could keep it trending higher for another 80 or 90 points putting my target around 2020. Of course, there is the NFP to keep an eye on so caution is due until we can see what is going on in the morning.


The Dow Jones Industrial Average moved above the round number resistance area of 16,750 today. Today's action created a strong white candle in this index as well, one that is also accompanied by bullish indicators. Momentum is weak at this time but stochastic is showing some strength as it is about to cross the upper signal line. This index is also looking like it is in the early to mid-stage of a short term rally with a target near 17,000-17,250.


The transports traded to the upside, approaching, but not making a new high today. The index has been consolidating for the past 4 or 5 trading sessions and is forming a potentially bullish flag. The indicators are bullish but weakening. The index at this level certainly looks like an decent spot to take some profits I don't think the move upward is quite over yet. The Trannies have been leading the markets higher for over a year and I see no reason for that to end now.


All eyes are on the NFP tomorrow, or are they? At the beginning of the week I think most would have agreed with that statement. Today's rally might make you think the number, whatever it is, is already factored into the mix. Of course most would not have guessed comments from a respected hedge fund manager would give traders permission to rally either. I think the early action in today's market was in line with the thought that the NFP was the most important thing on the schedule this week and it probably still is. David Tepper's comments did not change economic trends or the importance of the data but it did give the market an excuse to stop worrying about it and I think that is what led to today's new highs. Tomorrow will still be big day and an important one.

Until then, remember the trend!

Thomas Hughes


New Plays

Jogging Higher

by James Brown

Click here to email James Brown

Editor's Note:

Additional Trading Ideas:

Consider these stocks as possible trading ideas and watch list candidates. Some of these may need to see a break past key support or resistance:

(bullish ideas)
CSX, AA, SAIA, CTRN, PBF, THC, MSFT



NEW BULLISH Plays

Foot Locker, Inc. - FL - close: 49.82 change: +0.62

Stop Loss: 46.90
Target(s): To Be Determined
Current Gain/Loss: unopened

Entry on June -- at $--.--
Listed on June 05, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.2 million
New Positions: Yes, see below

Company Description

Why We Like It:
FL is in the consumer goods sector. The company is a retailer focused on footwear and athletic apparel. As of February 2014 they had 3,473 stores.

This is one retailer that did not seem to be affected by the harsh winter weather that so many retailers blamed for their poor Q1 performances. FL actually beat analysts estimates on both the top and bottom line when they reported earnings on May 23rd. FL is developing a trend of beating Wall Street's estimates.

Their Q1 results were a net profit of $1.11 per share on revenues of $1.87 billion. Consensus estimates were $1.06 on revenues of $1.79 billion. FL also said their comparable-store sales surged +7.6%. Analysts were only expecting +6% improvement. Gross margins also improved +0.4 to 34.6 percent.

Rising revenues, rising same-store sales, rising gross margins all sound like a great recipe for new highs on the stock, which is what we're seeing today. Wall Street thinks there is more upside ahead. Recent analysts comments suggest FL will be able to keep the momentum alive.

Tonight shares of FL are hovering just below psychological, round-number resistance at $50.00. We're suggesting a trigger to open bullish positions at $50.25. If triggered we'll start with a stop loss at $46.90, under its 50-dma. We are not setting a target tonight but a good area to aim for is probably the $55 region.

Trigger @ $50.25

Suggested Position: buy FL stock @ (trigger)

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

Buy the Aug $50 call (FL140816C50) current ask $1.65

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

Annotated chart:

Weekly chart:




In Play Updates and Reviews

Super Mario Power Up

by James Brown

Click here to email James Brown

Editor's Note:
Equity markets rallied following new monetary easing policies from ECB President Mario Draghi today.


Current Portfolio:


BULLISH Play Updates

American Airlines Group Inc. - AAL - close $42.41 change: -0.41

Stop Loss: 37.25
Target(s): to be determined
Current Gain/Loss: +5.4%

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:
06/05/14: Shares of AAL hit a little profit taking today, capping a multi-day rally. The stock is poised to mark its eighth weekly gain in a row.

Broken resistance near $40.00 should be new 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: 14.06 change: +1.26

Stop Loss: 10.75
Target(s): to be determined
Current Gain/Loss: +16.7%

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:
06/05/14: Another bullish day for the biotechs helped fuel a bullish breakout in shares of ARWR. The stock surged +9.8% today and closed above both its 50-dma and its 150-dma.

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: 41.50 change: -0.67

Stop Loss: 40.44
Target(s): to be determined
Current Gain/Loss: +10.2%

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:
06/05/14: DAL is another airline stock seeing some profit taking after surging to new highs yesterday. If this pullback continues tomorrow we could see DAL hit our new stop at $40.44.

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: 52.62 change: +0.14

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:
06/05/14: DOW underperformed today. The stock has spent the last few days consolidating sideways in the $52.50-53.00 zone. Investors can use a new rally above $53.00 as another entry point to launch positions.

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: 10.83 change: +0.13

Stop Loss: 9.45
Target(s): To Be Determined
Current Gain/Loss: + 5.1%

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:
06/05/14: FLEX continued to show relative strength with a +1.2% gain on top of yesterday's rally. It is worth noting that the $11.00 mark is potentially round-number resistance. I am not suggesting new positions here.

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: 25.64 change: +0.37

Stop Loss: 23.40
Target(s): To Be Determined
Current Gain/Loss: + 1.5%

Entry on June 04 at $25.25
Listed on June 02, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 153 thousand
New Positions: see below

Comments:
06/05/14: Trading volume remained light but NNBR rallied to a new 18-year high today.

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.

Current Position: Long NNBR stock @ $25.25

06/04/14 triggered @ 25.25



Wells Fargo & Co - WFC - close: 51.63 change: +0.59

Stop Loss: 47.40
Target(s): To Be Determined
Current Gain/Loss: + 1.4%

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:
06/05/14: Financial stocks were some of the market's best performers today. WFC outpaced many of its peers with a +1.1% gain.

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

The TJX Companies, Inc. - TJX - close: 56.02 change: +0.49

Stop Loss: 57.10
Target(s): To Be Determined
Current Gain/Loss: -2.6%

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:
06/05/14: Shorts are worried. TJX has bounced a strong bounce from support near $54.00 toward resistance near $56.00. More conservative investors may want to lower their stop.

I am not suggesting new positions at this time.

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