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Daily Newsletter, Thursday, 6/12/2014

Table of Contents

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

Market Wrap

Iraq Violence Curbs Market

by Thomas Hughes

Click here to email Thomas Hughes
Rising violence in Iraq gripped the market sending oil prices climbing and equities into retreat.

Introduction

The newly revised global GDP estimate released yesterday along with the rising tide of violence in Iraq kept the global markets in check during the overnight session. Asian markets closed in the red while EU marketplaces were able to hold closer to break even as Al Quaeda linked militants marched on the major cities of Iraq, threatening oil infrastructure and supply. The violence was also the cause for today's more than $2 spike in WTI and Brent crude. Here at home the futures trade indicated a flat to negative opening for most of the major indices up until the release of economic data at 8:30AM. After the release the indices began to drift marginally lower up into the open. The data was more of the same, growth but not as much as expected, but it was the situation in Iraq that gripped the markets once trading began.


Current reports show that the forces have already taken control of several of Iraq's key cities. The rebels say they are going to march on Baghdad in order to settle “scores” against the government. Iraq's own protective forces are also reported to have abandoned their posts, throwing down their weapons and taking off their uniforms. A mid-day press conference from President Obama did little to bolster confidence in the markets. The S&P had been trading down about -5 points after a morning spent bobbing between 1935 and 1940, after the presidents statements that there was “no ruling out” American involvement the S&P moved back down and set a new intraday low. Later in the afternoon Iran put out a statement that it would attack rebels if they came to close to their territory and the market sank even lower.


The Economy

There was a bit more data today than the usual jobless claims. Top of the list is Business Inventories which climbed by 0.6%. This is ahead of the expected 0.3% and the previous month's unrevised 0.4%. Ex-auto's inventories climbed by a smaller 0.2%. Business Inventories is a component of GDP and will be a factor in the amount of rebound we get from the first quarter. In the first quarter business inventories was a negative impact on GDP. Business sales increased at a rate of 0.7%.

Import and export prices both rose marginally in the current data. Import and export prices both rose by 0.1%. For the 12 month period ending in May import prices are up only 0.4%. At this time inflation from imported goods is still very low.

Retail was the big disappointment of the day and indicates that the consumer my not be bouncing back as strongly as expected. Sales increased by 0.3%, less than the expected 0.7%. Ex-Autos sales increased only 0.1%. Analysts had expected a much larger gain on the headline for one due to the strong sales numbers reported by the auto-makers.

Initial claims for unemployment rose by 4,000 to 317,000. This is in line with expectations and still at the lower end of the 12 month range. The previous week's figure was revised up by 1,000 for a total gain of 5,000 over the last reported numbers. The four week moving average rose as well, to 315,250, just above the 7 year low. On an unadjusted basis claims rose by near 50,000 or 18.2%. On a state by state basis no state had an increase in claims more than 1,000. Tennessee, Puerto Rico and Connecticut all reported increases in the range of 600-700 while California, New Jersey and Pennsylvania all reported decreases greater than -1,500.


Continuing claims rose by 11,000 to 2.614 million from last weeks unrevised figure. This number is also just above the 7 year low set in the last few weeks. Continuing claims still appears to be trending lower. Total claims is the only number that declined this week. Total claims fell by -66,000 to a new low of -2.44 million.


The Gold Index

A flight to safety took place in the gold market today as the details of the Iraq situation percolated through the market. Gold prices climbed more than $10 to hover around the $1270 level for most of the day. A slightly weaker dollar also had some impact on gold prices. In terms of the trends this new crisis in Iraq will likely be short lived but may keep gold trading higher in the near term. In the short to long term economic trends are still pointing to continued, if sluggish, growth which is a negative for gold.

The Gold Index moved higher today but was halted by resistance at the $93 level, the previously broken support level from last month. While Iraq has gold prices up the Gold Index could continue to rebound. The $93 level will be important to watch over the next few days as well. In the nearer term the index is already overbought so $93 may hold into the weekend. On the long term horizon the FOMC meeting next week has the most chance of changing the fundamental picture on gold but that is not likely. Even though the world bank has lowered its global forecast the economic trends are still up which means that interest rates are going to rise sooner rather than later and that will keep gold prices down. Another though I just had concerns potentials for profits among gold miners. High oil prices will only further pressure margins that the miners have been struggling to improve. Earnings in this sector may be disappointing.


The Oil Index

Oil was the obvious winner in today's session. Prices for WTI and Brent both rose by more than $2 as the violence escalated. This is a day after OPEC statements led traders and speculator to wonder if OPEC was even able to increase production if they wanted to, a subject much debated in oil circles. What did they say? That the oil markets are stable and that OPEC would be maintaining current production levels. The Oil Index surged on the rise in oil prices to a new all time closing and all time intra-day high, the first all time intraday day high since 2008. The break above resistance looks to have some potential strength as bullish momentum is on the rise and stochastic is crossing the upper signal line.


The Dollar and the Yen

The Dollar weakened some today on the data and somewhat on flight to safety moves into the yen. At the same time the yen may also be strengthening on expectation the BOJ will make no move to increase QE at the meeting being held today. The bank is expected to release its statement sometime overnight tonight but there is no time scheduled. Bank Governor Kuroda and other bank members have held a firm stance that Abenomics was working, the Japanese economy is getting better and that no QE was needed. The recent upward revision to Japanese 1st quarter GDP supports that stance and helps to confirm in my mind that the bank will keep sticking with it. The Dollar Index lost about a quarter percent today in a move that may be confirming the resistance at the top of the 9 month range. Momentum turned bearish with today's actions and stochastic is already pointing down suggesting a test of support near the moving average and the mid point of the range could be at hand.


The USD/JPY also fell today, by about a half percent from the opening tic. The momentum in this pair has just turned bearish and the stochastic is also pointing lower. The recent peak in stochastic makes it look like 102.50 may be emerging as a new resistance level. So long as there as no chance of more QE from the BOJ and the taper is well discounted by now I think there is little chance for the pair to move any higher. The flight to safety trade may take the pair down to support along the 100.50 level if the BOJ statements don't.


Story Stocks

First up, a little reminder that the “official” earnings season starts in less than a month. Alcoa is set to report on Tuesday July the 8th.

Elon Musk went on record today opening up the patents on Tesla's electric car technology so that other companies can help build charging stations and advance electric car technology.

After hours Intel boosted 2nd quarter guidance. The company increase revenue and margin outlook. Revenue for Intel has been flat for some time. The stock popped in the after market to a 52 week high.

Lululemon Athletica reported earnings today. The company reported earnings per share that beat estimates but failed to deliver positive guidance. The company earned $0.34 per share versus estimates of $0.32. Guidance was set as a range between $1.71 -$1.76 for the year which is more than a dime short of consensus at best. The company also issued a stock buy back but this did not provide enough support for the stock today. Shares of Lulu fell more than 15% in today action. I would not be surprised to see Lulu continue to fall short on future sales as discounting becomes more and more a part of their model. They have high levels of inventory to move and, lets face it, why would anyone pay full price for Lulu when you can get something else for much less? Lulu is now at a fresh 3+ year low.


Sector Watch

The transportation stocks, in particular the airlines, were hit hard today as high oil prices raised concerns over the future. Delta alone fell close to 5.5%, dropping below the short term moving average on high volume and a shift in momentum. Today's move, along with high oil prices, may have ended, or at least paused, the rally in airlines that has been going on over the past 12 months or so. Delta is still above trend but looks as though support will be tested.


The Indices

Let's start with the Transports, recent market leaders and today's loss leader. The Dow Transportation Average lost nearly -2% today compared to -0.79, -0.71 and -0.65 for the Nasdaq Composite, SPX and Dow Jones Industrials. Among the transports the airlines were hit particularly hard but higher oil is bad news for any transportation related industry. The thing to keep in mind that many of them hedge their oil use and may be taking the opportunity to do just that while oil prices are so high. Today's action has brought the index down to the short term moving average with bearish momentum and a downward pointing stochastic. This is not indicative of reversal but does suggest a retest of support, perhaps as far down as the long term trend line around the 7,750 level, could be at hand.


The Nasdaq was the next big loser of the day but not half so bad as the Trannies. The candle formed is not even that bad looking compared to the selling that occurred in this index during the March/April correction. Today's action confirms resistance exists at the previous high but bullish momentum and strong stochastic suggest that at least a test of the actual resistance line, about 75 above the current level, is likely. In the near term support exists about 50 points lower around 4,250.


The SPX is next in terms of loss for today. The broad market fell by -0.71% in a move that looks more like normal profit taking at a high level than any major fear inspired move I have seen before. I don't want to make light of what going on but I don't think, at this time yet, that the Iraq situation is market reversing material. The index is still well above the short term moving average and the long term trend line so there is still solid short and long term support for the market. A test of that support looks likely and could easily come over the next few days.


The Dow Jones Industrials were the laggard in terms of today's run for cover. Perhaps because of dividends, the Dow 30 are still averaging a better return than the 10 Year Treasury. The Dow fell -0.65%, halting just above the 30 day EMA. The indicators are rolling over into bearishness similar to the other indices and is expected to test support over the next couple of days. The moving average is currently at 11667 with more significant support just below that level in the 16,250-16,500 range.


The long term trends are up but recent economic data is not supporting the rebound as strongly as we would like. This has called into question the strength of the current economic rebound and may keep stocks range bound until more data is revealed. On one hand the first quarter looks worse and worse with each revision or addition to the data which could make the rebound stronger than originally estimated. On the other hand if the current data isn't as strong as expected that may put a cap on expectations and lower GDP. I think the answer to the question of how the economy is really doing is what was really behind today's sell off.

Next week the FOMC may clear things up for us but I think it more likely they raise as many questions as they answer. Anticipation of the meeting will also have an impact on trading and could help keep stock prices lower up until the meeting. Afterward depends on what they say.

Earnings season is also coming up. Even if economic data starts to show better improvement the market may wait for the earnings before resuming the rally.

The Iraq violence is significant but more of an excuse than a real catalyst. Just look at Ukraine, it was a serious threat to the market for about 6-8 weeks. Just long enough for the market to correct to trend and/or long term support in order to bounce back to a new high. This could be the same situation but as always, vigilance is due on both the technical and fundamental levels. Eventually we will be able to look back and know for sure.

Until then, remember the trend!

Thomas Hughes

 


New Plays

Iraq Fuels Market Decline

by James Brown

Click here to email James Brown

Editor's Note:

Terrorist victories in Iraq and worries over Iraq's oil production fueled big gains for crude oil and losses for equities.

Oil prices surged to nine-month highs on this news. The spike in oil sparked a sell-off in transportation stocks. The rest of the market was looking for an excuse to take some money off the table and Iraq is a convenient reason.

Stocks could see more weakness on Friday morning as markets react to headlines out of Iraq.

We are not adding new trades tonight. If the S&P 500 fails to hold the 1920 level then the next area of support is 1900.




In Play Updates and Reviews

A Risk Off Market

by James Brown

Click here to email James Brown

Editor's Note:
Traders were in a "risk off" mood today and the major indices all posted losses.


Current Portfolio:


BULLISH Play Updates

American Airlines Group Inc. - AAL - close $40.20 change: -2.09

Stop Loss: 37.25
Target(s): to be determined
Current Gain/Loss: -0.1%

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:
06/12/14: Airline stocks were crushed today on the spike in oil prices. The group had been leading the transports higher so it is not terribly surprising to see some profit taking. AAL gapped open lower and then plunged to $38.86 before bouncing back above $40.00. Essentially shares are back to where they were two weeks ago. Listening to the traders on CNBC's Fast Money show they were mostly bullish on the airlines and suggested this pullback as an entry point.

I am not suggesting new positions at the moment.

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: 50.12 change: -0.67

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:
06/12/14: AOS is testing round-number support at $50.00. More aggressive traders may want to launch bullish positions here. We're still suggesting a trigger at $51.25.

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: 13.66 change: -1.28

Stop Loss: 10.75
Target(s): to be determined
Current Gain/Loss: +13.4%

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

Comments:
06/12/14: Traders were in a risk-off mood today. Shares of ARWR plunged -8.5% in profit taking after a four-week rally. The $13.00 level might be short-term support. 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



The Dow Chemical Co. - DOW - close: 52.00 change: -0.86

Stop Loss: 47.90
Target(s): To Be Determined
Current Gain/Loss: + 1.5%

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

Comments:
06/12/14: DOW was not immune to the market's widespread profit taking today. The stock lost -1.6% and closed near short-term support at the $52.00 level. If this market pullback continues we could see DOW drop into the $50-51 zone.

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: 49.49 change: -0.12

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:
06/12/14: FL is holding up well. The stock continues to consolidate sideways inside the $49-50 zone. We are waiting for a breakout higher.

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: -0.03

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:
06/12/14: FLEX is showing impressive strength by resisting the market's weakness the last couple of days. Shares are just levitating near $11.30.

I do not see any changes from my recent comments. FLEX is overbought and due for a pullback. Readers may want to take some money off the table now. 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



Ingersoll-Rand Plc - IR - close: 62.03 change: -0.17

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

Comments:
06/12/14: IR has spent the last two days hovering near the $62.00 level. If this market decline continues we could see IR dip toward support near $60.00. If that occurs we might re-evaluate our entry point strategy. Currently we are waiting on a breakout higher.

Earlier Comments: June 10, 2014:
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)

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



NN Inc. - NNBR - close: 25.82 change: +0.04

Stop Loss: 23.75
Target(s): To Be Determined
Current Gain/Loss: + 2.3%

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:
06/12/14: NNBR closed virtually unchanged on Thursday. More importantly the stock has managed its slow drift higher. Shares look poised to breakout past the $26.00 level soon.

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: 45.41 change: -0.20

Stop Loss: 42.90
Target(s): To Be Determined
Current Gain/Loss: -1.3%

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:
06/12/14: The sharp rise in oil punished the transport stocks today. Yet SAIA held up pretty well. I would hesitate to launch new positions. Further market weakness could push SAIA to short-term support near its 20-dma (around $44.30).

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: 22.35 change: -0.30

Stop Loss: 19.90
Target(s): To Be Determined
Current Gain/Loss: +0.4%

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:
06/12/14: Shares of SMCI slipped -1.3% and look like they could retest support near $22.00 and its 10-dma soon.

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: 51.71 change: -0.53

Stop Loss: 48.75
Target(s): To Be Determined
Current Gain/Loss: + 1.5%

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:
06/12/14: After outperforming its peers the last few weeks shares of WFC were a target for profit taking today. The stock lost -1.0% with a drop toward short-term support at its 10-dma. If this dip continues the next level of support would be $51.00 and $50.00.

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: 54.69 change: -0.78

Stop Loss: 57.10
Target(s): To Be Determined
Current Gain/Loss: -0.1%

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:
06/12/14: Retail stocks were underperformers today. The U.S. May retail sales number came in below estimates at +0.3% for the month.

Shares of TJX accelerated lower and we're almost back to breakeven. The next hurdle for the bears is pushing TJX through support near $53.85.

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