Option Investor
Newsletter

Daily Newsletter, Monday, 6/9/2014

Table of Contents

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

Market Wrap

Quietly Making New Highs

by Thomas Hughes

Click here to email Thomas Hughes
The market opened without much bang then quietly made its way to another new high.

Introduction

The Dow Jones Industrials, the Dow Jones Transports and the S&P 500 all made their way to new highs today. Last weeks employment data plus some better than expected news from the Asia-Pacific sector over the weekend combined to quietly propel all the major US indices higher in today's session. In China the trade surplus increased more than expected on higher exports and is now up 7% year to date. In Japan 1st quarter GDP was revised higher by nearly a full point to 6.7% from 5.9%. While these two bits of news are positive for the global economy and us in turn what was really important for the market going into the start of this week was the jobs report on Friday. Jobs creation remains steady and somewhat strong if not robust and high enough to support the current rate of expansion.


Futures trading was mostly flat to positive in the early morning hours. The Dow was indicated to open up by about a point, the SPX down by about a point. These levels held pretty steady going into the open. After the bell the indices opened at about these levels, dipped for about three minutes then began a steady march up to the morning high around +6 for the SPX and +45 for the Dow Industrials. There were no economic releases today and no earnings reports of consequence. This week is fairly light in terms of data and earnings but there are a few to be aware of. Tomorrow the JOLTS report on expected job openings, later in the week retail sales, jobless claims, business inventories, PPI and Michigan Sentiment are on the list.


During the afternoon portion of today's session the indices drifted back down to test the early lows. The S&P traded into the red by about a point or two before bouncing once again back into the green around 3PM. The last hour of trading was fairly quiet with the indices holding steady just above last weeks closing prices.

The Economy

According to Moody's weekly survey of Business Confidence administered by Mark Zandi businesses in the US, those participating, remain upbeat. Sentiment remains strong and shows “no sign of wavering”. According to the report this is the 2nd week in which there were no negative responses. Sales, pricing, inventory and hiring are also all still strong.

James Bullard, St Louis Federal Reserve President, spoke today at a conference. Among his statements he said that the US economy is as close “to a normal state” as it has been since the housing bubble. The new challenge for the Fed as he sees it is determining the appropriate pace of accommodation.

The Bank Of Japan is meeting this week. They are scheduled to release their statement early on Thursday morning. The bank is not widely expected to make any sort of move with their current policy. Economic data, most recently the revised 1st quarter GDP, supports earlier comments and statements to the effect that the current QE was enough, that Japan was improving and that the bank saw no need to increase stimulus now or in the near future. The USD/JPY hovered in a tight range just above the 102.50 level and the near the mid point of the 6 month trading range.


Merger Monday

M&A activity was semi hot over the weekend. Several companies announced acquisitions or the advancement of plans for acquisition. Topping the list was Tyson's bid for Hillshire Brands. Tyson beat out rival Pilgrims Pride in a deal worth $8.55 billion. There are still some small hurdles to cross before the deal can be finalized such as Hillshire being released from it's agreement to acquire Pinacle Foods. Today shares of Hillshire surged 5% to trade near $62, the deal values the company at $63. Shares of Tyson and Pilgrims Pride both fell, Tyson by about -2%, Pilgrims Pride by about -5%.

Carl Icahn announced a new 9.4% stake in Family Dollar. The stock surged more than 13% in the pre market and traded even higher during the day. Icahn is seeking to increase shareholder value through several initiatives and may seek a board seat. One possibility is a sale to Dollar General which also surged in today's trading.

Merck agreed to buy Idenix Pharmaceuticals in a deal that values the company at roughly 3.5X Friday's closing price of $7.23. The total value of the deal is roughly $3.85 billion. Shares of Idenix jumped more than 300% in today's session.

Analog Devices agreed to buy Hittite Microwave Corp at $78 a share, a 29% premium to Friday's close. Shares of both stocks traded higher, Analog by about 5%, Hittite by about 30%.

Story Stocks

Apple's much anticipated 7-for-1 stock split went into effect today. The new shares traded opened around $92.50 and showed a little volatility going into the lunch hour. Shares initially traded lower, pushing to an adjusted three day low before rebounding and moving to a new high. I would expect some more volatility in this stock throughout the week simply because of the massive amount of new shares on the market. Some investors will want to take some profits and some investors will want to get in at this new and attractive lower price. For now it looks likes there may be more interested buyers than sellers.


McDonald's announced that global comp store sales increased by 0.9%, about a half % better than expected. There were areas of strength and weakness with the US the notable area of weakness. US comp sales decreased by -1% while Europe and Asia both saw gains. Europe is up 0.4% and the Asia-Pacific region is up more than 2.5%. Shares of McDonald's fell about 1% in today's session but found support around the short term moving average which helped to reduce some of the loss. Momentum is bearish in the near term but there is some evidence of support in the MACD and stochastic. Current resistance is around $102.50 with next support just below the current level around $100.


The Ten Year Treasury

The yield on the ten year treasury note climbed today to near a one month high. The yield is now near 2.610%. Indications are bullish at this time with a potential upside target near the top of the range around 2.750%. Current resistance is the 150 day EMA at 2.644%.


The Gold Index

Gold prices held steady around $1253 today. Early trading saw the price rise a few dollars, later trading saw it fall a few dollars. Although above $1250 the price of gold is still near a four month low. I still can find no reason to get bullish on gold and data from the CFTC released last week shows that fund managers have cut their bullish positions on gold to the lowest levels since January, just before the start of the most recent decline. At the same time the Ukraine situation, which had been driving some money into gold, is quieting down and the global equities markets are rallying to new highs. The Gold Index traded marginally higher today but is still below near and short term resistance. Indicators are turning bullish but without a break above resistance and/or some major shift in the outlook for gold I expect this to be a relief rally and entry point for bearish positions. The BOJ meeting this week could shift gold values but I see the FOMC meeting next week as more of a potential catalyst.


Sector Snap

Among today's leaders, including the industrials and the transports, was the banking sector. The Banking Index surged more than 1.5% today, making a very strong white candle and breaking resistance. The index has been very strong since hitting bottom in mid May and now looks good to test recent highs and potentially break out to new highs. Momentum in the index is very strong and rising in the short and long term. Helping the move today was a string of positive news in the sector. Suntrust, a southeastern regional, received an upgrade. Wells Fargo hit a new all time high and Chase received a new round of tax credits for it's efforts to support jobs in low income areas under the New Markets Tax Credit.


The health sector was today's notable laggard. Among the 9 S&P Spyder Sectors there were four trading in the red today led by the Health Sector, -0.58%, and followed by utilities and consumer staples with roughly a -0.2% drop each. The Health Sector Spyder (XLV) is falling from long term resistance and in danger of a double top. Bullish MACD has peaked and is convergent with a top over the longer term. Stochastic is overbought and making a bearish cross in the top of the upper signal range. These signs do not mean reversal is definite but this sector will bear watching over the next few weeks and months. Current resistance is just above $60 with first support around $57.50 on a drop below the short term 30 day moving average.


The Indices

The S&P 500 made a new high today but did it the hard way. The index opened slightly lower, moved a little lower still, bounced back up, made a new high about 6-7 points above last weeks close, drifted back into the red and then hovered just above break even into the close. Regardless, the index made a new high but now the question of short term pull back or consolidation is in my mind. Today's action was bullish but shows there is some resistance to higher prices. This resistance may be due to earnings expectations, earnings season starts in about 5 weeks, or it could be due to the FOMC meeting next week which I think more likely at this time. Momentum is still bullish and on the rise but stochastic has made a bearish cross. In terms of the trend the stochastic cross is not a bearish entry signal but could be a warning for the bulls; the market is in rally but now may not be the best time to get into new positions. The rest of the week could see the index move more sideways than up until the data comes out on Thursday and Friday. Support is now at 1950 for the near term with stronger support around 1925. My upside targets around 2000-2020 still stand, we probably wont get there in a straight line though.


The Dow Jones Industrials also made a new high today and is also similarly signaling that a near term peak may be at hand. Today's candle was small compared to the last two days with a significant upper wick for its size. This is indicative of selling but not necessarily a sign of reversal. The index is trending up and supported by indicators in the short and long term but is also at a level where some profit taking could be taking place.


The Dow Jones Transports broke out of a near term consolidation just last week, Friday to be exact. Today's action took the index up to yet another new high but similar price action to the blue chips and broad market suggest a possible near term top or peak may have been reached. Looking at the indicators the MACD is most troubling here because it is forming a potential H&S pattern that can precede a correction. I don't see any catalyst for a real reversal in this index but the weeks data could bring some pull back if it is weaker than expected. The long term trend is up and the long term outlook for the economy is up so any pullback or correction that does happen should be a potential buying opportunity.


The Nasdaq Composite climbed marginally higher today, in line with the other indices, and made a similar candle formation. The difference is that with this index the resistance is more tangible. The SPX, the Dow and the Trannies are all wrestling with new all time high resistance, the Techs are fighting with longer term, previous all time high resistance set in March at the beginning of the last correction of this index. The indicators are bullish but also suggest the top of a range is being approached. The Nasdaq could enter a significant period of consolidation once it meets the previous all time high and could in fact be the cause of consolidation in the other indices.


This week is relatively quiet compared to what we have had to deal with over the past two months. If there wasn't data or earnings to contend with it was the Ukraine. For now, the economic calendar is very light, earnings are very light and the Ukraine situation is calm and quiet, which, with the FOMC next week, could keep trading very light. Things to keep an eye on will be the BOJ and then the few points of data we will get on Thursday and Friday. The trends are up but some caution is due.If the economic trends continue as is then it will be time really soon to start talking about earnings expectations and whether or not the current consensus is too low or too high.

Until then, remember the trend!

Thomas Hughes

 


New Plays

Boiling Higher

by James Brown

Click here to email James Brown


NEW BULLISH Plays

AO Smith Corp. - AOS - close: 51.07 change: +1.08

Stop Loss: 47.90
Target(s): To Be Determined
Current Gain/Loss: unopened

Entry on June -- at $--.--
Listed on June 09, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 577 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
AOS is in the industrial goods sector. The company manufactures water heaters and boilers for the residential and commercial markets. The company's most recent earnings report was April 22nd. Their results were mixed but Wall Street liked it anyway. Analysts were expecting a profit of 53 cents a share on revenues of $557.84 million. AOS delivered a profit of 54 cents on revenues of $552.2 million for the quarter. Evidently these results were good enough to spark three upgrades the next day.

What investors like is AOS' growth rate and steady business. About 85% of AOS sales come from its replacement business. Water heaters have a limited lifespan and eventually need replacing. AOS also has exposure to new construction. As the U.S. economy improves and construction increases then it should be more new business for AOS. Earlier this year there were concerns about a slowdown in the U.S. real estate market but most recent data suggests that housing starts were up 13 percent month over month in April. We also saw new permits to build houses hit their highest levels in five years. As housing construction improves it will boost AOS' business.

In their last earnings report AOS management said business was strong enough that they passed along a small price increase to help offset rising steel costs.

AOS is also seeing growth in both India and China. Their sales in China surged +25% last quarter. As more and more Chinese move from the rural west to the coastal cities and join the middle class it will boost demand for luxuries like water heaters.

Analysts like the stock because AOS is showing strong earnings growth. Earnings grew +36% last year and estimates suggest they will have a compound growth rate of almost 18% over the next four years.

Technically shares of AOS just broke out past round-number, psychological resistance at the $50.00 mark. We want to see a little follow through so we're suggesting a trigger to open bullish positions at $51.25. The $55.00 level is overhead resistance but we think AOS can hit new highs before the year is out.

Trigger @ $51.25

Suggested Position: buy AOS stock @ (trigger)

FYI: We're not listing any options for AOS. The bid/ask spreads on the longer-term options are too wide to play.

Annotated chart:

Weekly chart:




In Play Updates and Reviews

New Plays Triggered Today

by James Brown

Click here to email James Brown

Editor's Note:
Our new bullish plays from the weekend newsletter hit our entry triggers on Monday (SAIA and SMCI).


Current Portfolio:


BULLISH Play Updates

American Airlines Group Inc. - AAL - close $43.59 change: -0.29

Stop Loss: 37.25
Target(s): to be determined
Current Gain/Loss: +8.3%

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:
06/09/14: The rally in AAL paused today but it's business isn't slowing down. A Bloomberg article today discussed how AAL expected Q2 revenue for each seat flown a mile will exceed its prior guidance. Overall summer time travel looks to be very healthy. AAL reported that this metric of revenue per passenger miles rose +1.9% in May to 17.2 billion.

Earlier Comments: May 17, 2014:
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: 14.46 change: +0.25

Stop Loss: 10.75
Target(s): to be determined
Current Gain/Loss: +20.0%

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:
06/09/14: ARWR spiked past resistance near $15.00 and hit $15.42 before reversing. Shares still managed a +1.75% gain.

I am concerned that today's intraday pullback looks a bit like a short-term top. More conservative investors may want to take some money off the table. I am not suggesting new positions.

Earlier Comments: May 19, 2014:
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*

06/09/14 the intraday pullback today might be a short-term top. Our trade is up +20% and investors may want to take some money off the table
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: 41.87 change: -0.36

Stop Loss: 40.44
Target(s): to be determined
Current Gain/Loss: +11.2%

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:
06/09/14: DAL is another airline stock that had positive news but traders were in a selling mood. DAL had its price target raised to $50 by a Wall Street analyst but this failed to stymie today's profit taking.

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: 52.99 change: -0.14

Stop Loss: 47.90
Target(s): To Be Determined
Current Gain/Loss: + 3.4%

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:
06/09/14: DOW briefly traded to a new relative high intraday before paring its gains. Traders may want to wait for a new rally past $53.15 or $53.30 as your next entry point.

Earlier Comments: May 24, 2014:
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



Foot Locker, Inc. - FL - close: 49.53 change: -0.07

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

Comments:
06/09/14: FL is still flirting with a breakout past $50.00 but didn't make it today. The intraday high was $50.08. I do not see any changes from my earlier comments.

Earlier Comments: June 5, 2014:
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)

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



Flextronics Intl. - FLEX - close: 11.17 change: +0.18

Stop Loss: 9.45
Target(s): $11.75
Current Gain/Loss: + 8.4%

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:
06/09/14: The rally continues for FLEX with a +1.6% gain. The stock is up eight out of the last nine sessions. Shares are now short-term overbought and due for a pullback.

I am not suggesting new positions here.

Earlier Comments: May 31, 2014:
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

06/07/14 set target at $11.75
06/03/14 triggered @ 10.30
Option Format: symbol-year-month-day-call-strike



NN Inc. - NNBR - close: 25.47 change: +0.24

Stop Loss: 23.75
Target(s): To Be Determined
Current Gain/Loss: + 0.9%

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:
06/09/14: There was no follow through on Friday's profit taking in NNBR. That's good news. Today's bounce from $25.00 could be used as a new entry point.

Earlier Comments: June 2, 2014:
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

06/07/14 new stop @ 23.75
06/04/14 triggered @ 25.25



Saia, Inc. - SAIA - close: 46.09 change: +0.63

Stop Loss: 42.90
Target(s): To Be Determined
Current Gain/Loss: +0.2%

Entry on June 09 at $46.00
Listed on June 07, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 239 thousand
New Positions: see below

Comments:
06/09/14: Our new play on SAIA is open. The stock broke out to new highs and hit our suggested entry trigger at $46.00.

I don't see any changes from my weekend comments below.

Earlier Comments:
SAIA is in the services sector. The company runs trucking service to handle shipments between 100 and 10,000 pounds. They were formerly known as SCS Transportation.

The S&P 500 index ended the week at record highs. The transportation stocks have been leading the market higher. The Dow Jones Transportation Average also closed at all-time highs. The latest economic data has been mixed with the most recent Q1 GDP estimate revised lower. Yet data from the transport industry suggest a growing economy. Rail traffic has been strong and trucking traffic has also been improving.

Cass Information Systems reported that trucking shipments in May were up +3.6% year over year and up 1% from the prior month. Thus far trucking companies have seen freight shipments in the first five months of 2014 hit their best levels "since the end of the Great Recession" (source: IBD).

The first quarter was rough for a lot of companies but not for SAIA. The company delivered its Q1 results on April 25th and beat Wall Street's top and bottom line estimates in spite of the harsh weather. Analysts are expecting SAIA's earnings to grow +30% this year and +24% in 2015.

On May 20th SAIA said LTL tonnage per day rose +7.5% in April compared to a year ago. Halfway through May their LTL tonnage was up more than 8%. If this keeps up the company is likely to deliver another strong quarter of earnings.

Current Position: long SAIA stock @ $46.00

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

Long Sep $50 call (SAIA140920C50) entry $1.75

06/09/14 triggered @ 46.00
Option Format: symbol-year-month-day-call-strike



Super Micro Computer, Inc. - SMCI - close: 22.70 change: +0.87

Stop Loss: 19.90
Target(s): To Be Determined
Current Gain/Loss: +2.0%

Entry on June 09 at $22.25
Listed on June 07, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 467 thousand
New Positions: see below

Comments:
06/09/14: Our brand new play on SMCI is off to a strong start. The stock broke out past resistance near $22.00 and displayed relative strength with a +3.9% gain. Our suggested entry point was hit at $22.25.

If you missed our entry then consider waiting for a dip near $22.00.

Earlier Comments:
SMCI is in the technology sector. The company makes high performance servers (computers). The stock has been stuck in the $8.00-18.00 trading range for years. That changed back in January when SMCI reported earnings that beat analysts' estimates on both the top and bottom line. If that wasn't enough SMCI's management also raised their guidance. Shares soared to all-time highs on this news. You can see the spike higher in January.

When investors turned sour on high-growth and momentum names this past spring shares of SMCI corrected sharply but now it's back and poised to challenge its highs. That's because SMCI has delivered another strong quarter of growth.

SMCI reported its Q3 results on April 22nd. Wall Street was expecting a profit of $0.27 per share on revenues of $335.19 million. SMCI bested estimates with a profit of $0.37 per share and revenues soared +34.5% to $373.8 million. Management then guided higher for the current quarter and raised its top and bottom line estimates above Wall Street's estimate. It was their second straight quarter of record highs for revenues and earnings.

Analysts have started revising their numbers on SMCI as the company is growing faster than its rivals. Some might consider SMCI cheap with a P/E at 20.

The point & figure chart is bullish and forecasting at $25 target.

current Position: long SMCI stock @ $22.25

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

Long Oct $22.50 call (SMCI141018C22.50) entry $2.25*

06/09/14 triggered @ 22.25
*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



Wells Fargo & Co - WFC - close: 52.51 change: +0.53

Stop Loss: 48.75
Target(s): To Be Determined
Current Gain/Loss: + 3.1%

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:
06/09/14: WFC is still racing ahead of its peers. The XLF added +0.4% today while WFC surged +1.0% to a new high.

We are moving the stop loss to $48.75.

Earlier Comments: May 31, 2014:
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

06/09/14 new stop @ 48.75
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: 56.22 change: -0.20

Stop Loss: 57.10
Target(s): To Be Determined
Current Gain/Loss: -2.9%

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:
06/09/14: TJX rallied again this morning but failed to breakout past resistance near $57.00 and its simple 30-dma. Shares underperformed the market with a -0.35% decline.

Earlier Comments: May 27, 2014:
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