Option Investor
Newsletter

Daily Newsletter, Tuesday, 6/10/2014

Table of Contents

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

Market Wrap

Summer Slumber

by Jim Brown

Click here to email Jim Brown

The markets wandered aimlessly on light volume as prior gains were consolidated.

Market Statistics

Today could have been a summer Friday with the low volume and the lack of headlines to move the market. The indexes spent most of the day in negative territory but they returned to the flat line at the close. The Dow squeezed out another new high on a +2 point gain. Volume was almost nonexistent and the Volatility Index ($VIX) dipped to close under 11 once again.

Those traders actually in the market were apparently taking profits from the prior week's gains but they did not appear to be in any hurry to jump back into the market. We are still in a buy the dip market until proven wrong.

The economic reports were slightly bullish but there were no market moving releases. The NFIB Small Business Optimism Index rose slightly from 95.2 to 96.6 in May to the highest level since September 2007. The internals in the survey were very mixed with several components still in contraction territory. I am surprised the headline number posted a gain.

This was the third consecutive monthly gain since the low of 91.4 in February. Respondents said credit was becoming easier to get and a net of 10% of businesses are planning on hiring more workers over the next several months. More than 15% said they were planning on raising wages and that was the largest number in six years. Respondents were evenly split on the direction of the economy over the next six months.

Since small companies create more than 80% of new jobs we need for these entrepreneurs to feel good about the future of the economy.

The Job Openings Labor Turnover Survey (JOLTS) showed a jump in job openings from 4.166 million to 4.455 million. Hires increased slightly from 4.706 to 4.708 million but separations also rose from 4.491 to 4.496 million. Quits also rose from 2.461 to 2.473 million. Layoffs increased from 1.638 to 1.651 million. What this shows us is that employees were more open to changing jobs and that suggests the job market is improving. This is a lagging report for April and it is normally ignored.

The Manpower Employment Outlook Survey for Q3 showed 18% of employers were expecting to add employees compared to 15% for Q2 and 10% for Q1. This was a positive report but is pretty generic and is just one more indicator that the economy is growing slowly.

The weekly chain store sales fell -2.8% after a +2.9% gain the prior week. That was simply a blip caused by the Memorial Day weekend sales. This report should be ignored.

Wholesale Trade inventories for April rose +1.1% and above the consensus for a +0.5% gain. Sales rose +1.3% and down slightly from the +1.6% rise in March. The stronger than expected rise in inventories is positive for the Q2 GDP.

There is nothing on the calendar for Wednesday that will move the market. The next material report is the Retail Sales for May on Thursday. Sales are expected to have risen from +0.1% in April to +0.6% in May. This could be a minor market mover if the number deviates significantly from expectations.


This was a VERY slow news day for stocks as well. If this is any indication of how the summer is going to shape up we are going to be asleep at our computers for most of the summer.

Amazon (AMZN) was making news after news broke that they were planning on launching a marketplace for local services to compete with Yelp (YELP) and Angie's List (ANGI). They will offer everything from clowns, redecorating services, yard work, remodeling, photographers, tutors, etc. They are going to test their concept in several major markets before rolling it out nationwide. This is similar to how they rolled out the Amazon Fresh grocery delivery service. The Amazon services effort will be backed by their "A-Z Guarantee" of satisfaction. That will separate the Amazon product from every other service currently in operation. Most are simply referral services and get their revenue from advertising the vendors. There is no real guarantee.

Amazon is well on its way to being everything for everybody and the next big money maker for them could be Amazon Payments to compete with PayPal. I am surprised they have not branched into this area yet. They recently announced the product and have been testing it on several third party websites. It will not be long before all retail websites will be asking how you want to pay and the options will be credit card, PayPal or Amazon Payments. With Amazon's more than 150 million customers and their broad retail reach is going to make them a serious competitor to Paypal.

Amazon shares rallied +$5 on the news.


While on the same topic of electronic payments we learned today that PayPal's President, David Marcus, is leaving PayPal to join Facebook (FB). That should give you some clue where Facebook is going with payments. One analyst speculated Facebook might make a run at buying Ebay where they could monetize Facebook's one billion users in Ebay sales and more importantly by integrating PayPal into Facebook. PayPal has 340 million users but Facebook has over one billion. Even if Zuckerberg did not want Ebay he could buy the company, split off PayPal and then spinoff Ebay again. The problem with that idea is the $61 billion market cap of Ebay. That would be a huge acquisition for Facebook with a market cap of $131 billion.

Now that he has the brains of PayPal inside Facebook he could also simply create a Facebook payment system. That would be a lot of work, involve a lot of hurdles and then have to overtake PayPal in the marketplace. He would have to pay more to go the PayPal route but the system is already in place worldwide and readily accepted. With Amazon announcing the payments push it makes it even more important for Facebook to acquire PayPal.

Facebook shares rallied +4.6% on the news and broke out of a consolidation range and resistance at $64. Ebay (EBAY) shares declined -2.7% and should continue lower.



On Friday Green Mountain (GMCR) rallied from $112 to $123 in only a few minutes late in the afternoon. After the spike there were numerous rumors trying to put a reason behind the spike. Nothing showed up in the headlines and the stock lost nearly all its gains on Monday.

Today Green Mountain announced a partnership with Subway to put the single serve brewers in thousands of Subway locations. By introducing the single serve brewers customers can have any kind of coffee they deserve that is brewed on demand especially for them. More than half of Subway stores have already adopted the Keurig K150 single serve brewer after Subway offered the Keurig option to franchisees last year. The agreement today will put the brewers in the remaining stores and create a high volume sales outlet for Green Mountain.

Shares spiked on the news today but not really to the extent of the spike on Friday. GMCR shares gained only $1 at the close after being up more than $3 intraday.


UBS downgraded Las Vegas Sands (LVS) because of the recent headlines about the UnionPay terminals and slowing VIP betting trends in Macau. The Macau Monetary Authority ordered jewelry stores and pawnshops to remove the UnionPay card terminals by July 1st. Some analysts believe the UnionPay card terminals provided as much as 30% of the cash for the mass market, low dollar gamblers. Also starting July 1st China will limit transit visas to 2-3 days, down from 7 days before. This should not impact the mass market players but VIP players tend to stay longer than 3 days. The visa change could further pressure revenue from VIP customers.


Receptos (RCPT) reported successful results from a trial for a multiple sclerosis drug. The results of the phase 2 trial met endpoint goals with statistical significance. The double blind test covered 258 patients across 77 sites in 13 countries. Patients experienced an 86% reduction in brain lesions compared to patients on placebos. Shares of RCPT spiked +37% on the news.


Apple (AAPL) shares made it through their second day of trading without falling prey to the normal post split depression. Volume has been relatively low at 62.8 million today and 75 million on Monday. I still believe that once the influx of new investors fades we will see shares move lower. There are simply too many new shares on the market and odds are good there will be significant profit taking once the stock split news fades.


Since Friday's gap open to 1,948 on the S&P the index has traded in a very narrow range to close at 1,950 today. The high for those three days was 1,955 and the low 1,945. Nobody is selling and nobody is buying. At least there is not enough pressure from either side to knock the S&P out of its pattern. There are no headlines that give the bulls a reason to push stocks higher and none to energize the sellers to push it lower.

Considering we are at historic highs after a big gain this is extended hang time at this level is bullish. We remain in a buy the dip market until proven wrong. The lack of volume is a problem. Only 5.1 billion shares were traded and that is the lowest in a week. Volume represents conviction in either direction. No volume means no conviction. This could mean the market is being held at this level by a lot of weak holders that could be shaken out by the arrival of a small amount of volatility.

Personally I believe there are a lot of investors that are now looking for a decent dip to buy where in the past they were looking for a price spike to sell. While new highs attract new money there are a significant amount of investors who would rather buy a dip than a new high.

The 1,950 level is acting like a price magnet despite not being material support or resistance. It is simply a round number that happens to be very close to the 1,957 average yearend estimates from most analysts. The next real resistance is in the 1,963-1,965 range with ultimate resistance at 2,000. If that target is hit I think we can count on some significant selling.

The S&P is overextended so consolidation and/or profit taking are always a possibility.


Like the S&P the Dow has moved in a very narrow 70 point range for the last three days. The 17,000 target is looming and could be reached any day. Other than being round number psychological resistance the number is not material. The next real resistance is around 17,200 but that would add another +250 points to the +600 points gained since May 20th. The index is already extended and adding another couple hundred points without a dip is going to be a challenge.

Initial support is now 16,900.



The Nasdaq 100 ($NDX) has found resistance at 3,800 and came to a dead stop at that level at the close. The NDX move from early May paused for consolidation at the 3,750 level for a couple days and it appears to be doing the same thing at 3,800. As long as Apple does not spoil the party a breakout could be imminent.


The Nasdaq composite has not changed much since Friday. The dead stop at 4,346 and the bottom of the new high resistance range is a pause for consolidation. Getting though that resistance could be a challenge and the index will need a fresh start. I like the fact that investors are not rushing to take profits at this resistance barrier. That means the bullish sentiment has not changed.



The Russell 2000 declined about -1% intraday but the dip was bought. The resistance at 1,180 is solid and it will take a new surge in bullish sentiment to push the index over that level. The Russell is over extended after a +5% gain in four days. Today was a pause to regroup. I would use today's low at 1,167 as a signal of increasing weakness. If that low were to break I think it would change the underlying sentiment and likely drag the other indexes lower.


The Dow Transports are really over extended and well above the historical support of the 100-day average. I scanned several of the component charts like UPS and FDX and they appear to be weakening. The airlines ad railroads are providing support but they can't lift the index higher by themselves.


As I said earlier I believe we are in "buy the dip" mode until proven wrong. The indexes are over extended but they could still move higher if the consolidation dips continue to be bought. There are no headlines on the horizon to push the market in either direction but the ones that count are never expected. We are headed into the summer doldrums season so try not to overload your accounts with longs. Summer corrections can be ugly. However, summer rallies are always unexpected and the short squeezes on low volume are always fun.

Enter passively, exit aggressively!

Jim Brown

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New Plays

Heating Up

by James Brown

Click here to email James Brown


NEW BULLISH Plays

Ingersoll-Rand Plc - IR - close: 62.96 change: +0.45

Stop Loss: 59.25
Target(s): To Be Determined
Current Gain/Loss: unopened

Entry on June -- at $--.--
Listed on June 10, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.8 million
New Positions: Yes, see below

Company Description

Why We Like It:
IR is in the industrial goods sector. They operate two business divisions, their Climate and Industrial segments. The climate business accounts for the majority of their sales as they compete in the heating, ventilation, and air conditioning markets. They're best known for their Club Car, Ingersoll Rand, Thermo King, and Trane brand names.

The company has been consistently growing earnings with EPS growth of +28% from 2011 to 2013. They've also seen operating margins improve over the same three-year period. Their most recent earnings report in April beat analysts' estimates by three cents with a profit of 29 cents a share. Revenues were up +3.2% from a year ago to $2.72 billion. Orders were up +5% for the quarter while margins in its climate business rose 210 basis points.

Steady revenue growth and margin growth sound like a pretty good deal if you're bullish on the stock. Management followed up their earnings news by raising their guidance on the second quarter this year.

Weather was a factor in the first quarter but now that we're into summer any increase in construction should be a boon for IR. In yesterday's new play (AOS) we noted that the U.S. real estimate market looks poised for improvement. Housing starts were up 13 percent month over month in April. New permits to build houses hit their highest levels in five years. This should all point to improved sales for IR's HVAC business.

We know that somebody is bullish on IR. The last couple of weeks have seen some pretty big option bets. Thousands of July calls options have been purchased expecting IR's rally to continue over the next few weeks.

Technically we are seeing IR rebound from its long-term up trend. The last four months have also built what appears to be an inverse head-and-shoulders pattern, which forecasts a $69-70 target.

The January 2014 high near $63.50 could be resistance. We're suggesting a trigger to buy calls at $63.75. We're not setting an exit target tonight but the Point & Figure chart for IR is bullish with a $71.00 target.

Trigger @ $63.75

Suggested Position: buy IR stock @ (trigger)

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

buy the Sept $65 call (IR140920C65) current ask $2.00

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

Annotated chart:

Weekly chart:




In Play Updates and Reviews

Hitting The Pause Button

by James Brown

Click here to email James Brown

Editor's Note:
Someone hit "pause" on the stock market rally today. A number of sectors closed in the red but losses were very mild.


Current Portfolio:


BULLISH Play Updates

American Airlines Group Inc. - AAL - close $43.66 change: +0.07

Stop Loss: 37.25
Target(s): to be determined
Current Gain/Loss: +8.5%

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:
06/10/14: AAL spent Tuesday's session consolidating sideways.

I am not suggesting new positions. More conservative investors may want to raise their stop loss.

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



AO Smith Corp. - AOS - close: 50.91 change: -0.16

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

Comments:
06/10/14: AOS delivered a very quiet session with shares drifting sideways near $51.00. There is no change from my earlier comments.

Earlier Comments: June 9, 2014:
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.



Arrowhead Research - ARWR - close: 14.90 change: +0.44

Stop Loss: 10.75
Target(s): to be determined
Current Gain/Loss: +23.7%

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:
06/10/14: ARWR dipped toward Friday's low near $13.75 and then surged higher with a strong afternoon rally. Shares closed up +3.0% for the day. 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: 41.92 change: +0.05

Stop Loss: 40.44
Target(s): to be determined
Current Gain/Loss: +11.3%

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:
06/10/14: Deutsche Bank reiterated their "buy" rating on DAL and raised their price target to $48.00 a share. Meanwhile shares of DAL are consolidating sideways. Traders bought the dip at short-term support on its rising 10-dma.

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: 53.15 change: +0.16

Stop Loss: 47.90
Target(s): To Be Determined
Current Gain/Loss: + 3.7%

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:
06/10/14: Shares of DOW also rebounded off short-term support on its rising 10-dma. This move can be used as a new bullish 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: 49.94 change: +0.41

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:
06/10/14: FL outperformed the broader market with a +0.8% bounce. Yet the stock remains under round-number resistance at the $50.00 mark. 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: 11.32 change: +0.15

Stop Loss: 9.45
Target(s): $11.75
Current Gain/Loss: + 9.9%

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:
06/10/14: FLEX continues to race past the market with another +1.3% today. The stock is growing more overbought. Readers may want to take some money off the table.

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: 25.60 change: +0.13

Stop Loss: 23.75
Target(s): To Be Determined
Current Gain/Loss: + 1.4%

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:
06/10/14: NNBR is still drifting higher and managed to outperform the major indices with a +0.5% gain.

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: 45.66 change: -0.43

Stop Loss: 42.90
Target(s): To Be Determined
Current Gain/Loss: -0.7%

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:
06/10/14: SAIA gave back about two thirds of yesterday's rally. It does appear that SAIA found support in the $45.50 area on its intraday chart. I would use a new bounce above $46.00 as another entry point.

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: 22.76 change: +0.06

Stop Loss: 19.90
Target(s): To Be Determined
Current Gain/Loss: +2.3%

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:
06/10/14: SMCI recovered from its Tuesday morning lows and made it back into positive territory by the closing bell. I would consider new positions now at current levels.

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: 52.59 change: +0.08

Stop Loss: 48.75
Target(s): To Be Determined
Current Gain/Loss: + 3.2%

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:
06/10/14: Another day, another record high for WFC. Shares are starting to look overbought and due for a pullback.

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: 56.06 change: -0.16

Stop Loss: 57.10
Target(s): To Be Determined
Current Gain/Loss: -2.7%

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:
06/10/14: TJX underperformed the market with a -0.28% decline today. Yet most of the session was spent drifting sideways near $56.00. I am not suggesting new positions at this time.

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