Option Investor
Newsletter

Daily Newsletter, Monday, 6/30/2014

Table of Contents

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

Market Wrap

Old Quarter, Old Half

by Thomas Hughes

Click here to email Thomas Hughes
The 2nd quarter comes to an end while the market quietly awaits on this week's data.

Introduction

Today is the end of June, the end of the month, the end of the quarter and the end of the half. The markets opened with a whimper but were able to drag themselves higher, at least for a while. The same was basically true around the world during the overnight session. Asian market began the week in the green ahead of a big round of data including official Chinese PMI tomorrow and US data later in the week. European markets were mixed but basically flat on average with the ECB meeting on the table in that arena. The ECB is having their regular monthly policy meeting is largely unexpected to do anything after last months round of stimulating actions. Although recent data including today's EU CPI readings suggest that deflation is still a risk for the region it is likely the ECB will wait at least another month before making further moves if they do anything at all. EU CPI was reported at 0.5%, in line with expectations but well below the target rate of 2.0% which could lead to some speculation.


Futures trading was essentially flat this morning as well. Early trading had the S&P 500 down about 2 points but going into the close there was a pick up in activity. All the major indices moved close to flat line and even poked into the green ahead of the 9:30AM opening. After that trading was weak with the indices tread water once again around the 1960 level; this is now the 9th day of trading above 1950 for the SPX. The first 30 minutes of trading had the index under water but the 9:45AM release of PMI and then the 10AM release of pending home sales provided enough support to keep the index in the green for most of the rest of the day. There was a brief dip back below break even that hit bottom at 11:08AM just above 1959 and then later, during a press conference at the White House, the index also touched into the red along with the Dow. Late afternoon saw the market struggle and the SPX fall to about -2 before moving back up to close just shy of break even. The Nasdaq Composite was able to hold onto positive territory for the day and set a new high along with Transports.


Traders and the market are waiting for what this week will bring. It's just another week of data but this data could have a domino affect in terms of how this month turns out, this quarter and this half of the year not to mention the state of the economy going into the summer and the second half. The big focus of the week will be the NFP as usual but as always I put more faith in the data as a whole than in any one piece. This week, because of the July 4th holiday, there is no trading on Friday so the NFP data will be released on Thursday. Tomorrow there is auto/truck sales, ISM, and construction spending. Wednesday is the ADP employment change, Challenger Gray & Christmas survey of planned job cuts and factory orders. Thursday the usual jobless claims numbers plus the addition of NFP, unemployment, trade balance and ISM services index. And the ECB meeting/announcement on Thursday. And earnings season starts next week. What didn't seem to affect the market today was news of increased ISIS control in Iraq.

The Economy

Chicago PMI was reported at 9:45AM. This forward looking gauge of manufacturing declined, but less than expected, depending on which estimate you look at. Basically the reported 62.6 is in line with expectation but less than last month's 65. New orders did not expand as much as last month but the production component surged to 70. All in all the report points to rebound in the 2nd quarter that is carrying over into the third.

Pending home sales jumped more than expected. Analysts had been looking for a gain of about 1% but the actual 6.1% is the biggest gain since June of 2010. Pending home sales is a gauge of signed contracts that could lead to an increase in existing and new home sales in for June and more likely July. All four regions showed increases in pending sales but on a year over year basis we're still down 5.2%.

I really like the first sentence of Moody's weekly survey of business confidence created by Mark Zandi. It starts of with “Businesses couldn't be more upbeat”. The verbiage of the survey changed significantly for the first time weeks noting how current sentiment is in “stark contrast” to the revised first quarter GDP. Most importantly I think is that the hiring component of his survey has risen to a record high with more than half of respondents reporting they are intending to hire more employees.

In The News

The Supreme Court handed out two decisions on the eve of the summer break. The first to be announced was a 5 to 4 decision to prevent unions from forcing home based workers to join. This is in response to an Illinois case in which home based care workers were being forced to join a union against their will.

The second was concerning the Hobby Lobby case against Obamacare. Again in a 5-4 decision the justices ruled in favor of Hobby Lobby in saying that the corporation could in fact opt out of paying for certain benefits under Obamacare due to religious freedoms.

GM made the news all day, more or less. Early in the day the compensation plan was revealed by Kevin Feinberg. In his plan any previous settlements are still included in the new plan which could pay approved claims in as little as 180 days. Expected payouts range from $2 million to $8 million depending on the individual case. Later in the day shares of GM were halted pending a news announcement at 2:30PM. GM announced another 6 recalls affecting 8.6 million vehicles on top of all the other recalls they have already announced. This brings the 2nd quarter total for recall charges up to $1.2 billion and $2.5 billion for the first half of the year. Shares of GM traded down today but were supported at the 30 day EMA. The indicators are weak and turning bearish so a retest of longer term support around $35 and $33.50 is not out of the question. It looks like GM will weather this scandal, they are certainly trying to stay ahead of the curve with all the recalls.


Obama held a press conference at 3PM today announcing an order to Homeland Security and the Attorney General to send interior assets to the borders to help strengthen border patrols. The focus is to be focuses on preventing the influx being experienced along the southern borders. During his statements the markets dipped back down to break even and into the red.

US Steel is being dropped from the S&P 500 tomorrow afternoon. The steel maker is being replaced by a crushed stone and gravel producer from NC, my home state. US Steel is being moved to the S&P Mid Cap 400. Shares of X opened lower and then regained break even by the close of the day.


The Gold Index

Gold lost a few dollars in the early morning session but regained that lost ground after the open. Gold trading was fairly stable throughout the day, holding around $1315 for most of the day. Then, during the Obama press conference gold prices spiked up to trade above $1325. I guess this move was based on Obama sending more forces to help along the border.... Any way, gold has been testing $1320 for about 2 weeks now and has not been able to hold above that level yet.

The Gold Index opened the week down from the Friday close but moved higher throughout the day. Resistance was met once again at the $100 with deteriorating technicals. The index is at long resistance, in a long term down trend with indicators that are setting up for a bearish trend following signal. I may be wrong and reading this from the wrong side of the action but I just don't see a reason to get long on gold, or much reason to expect significant earnings growth from the gold miners. If the index were to break through $100 it could easily carry to about $110 on momentum. If the index fails to break then a near to short term double top could form with a potential target as low as $85 with supports at $95, $92.50 and $90 along the way.


The Oil Index

Oil prices fell today as the Iraq premium lost a little more value. There was more news of ISIS and the insurgency in Iraq but the oil infrastructure remains as yet unharmed and traders are slowly beginning to believe it. I think now there may be risk of an actual threat to oil which could cause oil to spike even higher than before but that is just a random thought. WTI fell about a quarter percent with Brent shedding just a little more. The Oil Index lost about -0.15% in today's trading but held above long term resistance turned support at the previous all time intraday high. The indicators are bearish now but so long as the index holds this level then that is OK. High oil prices will lead to higher oil earnings, lets wait to see how the oil companies, and the oil services companies, fare this time around. The big oil companies report about a month in to the season so we should see those around the first week of August.


The Indices

The Transports led the market higher today, gaining more about 0.33% in today's session. The index is still inside what looks to be a potentially bully flag/triangle formation that could send the index higher provided it can break above resistance. I think the only thing holding it back right now is the week ahead, the data could help or hinder the rally providing catalyst for correction or bricks in the wall of worry. Momentum is still a little bearish but declining and very nearly at zero while stochastic is still showing the strong trend following signal.


The Nasdaq continues to be a market leader and set a new 14 year high today. The tech heavy index climbed by 10 points or roughly 0.23% extending its reach above previous resistance. Momentum is mildly bullish but basically neutral while stochastic is producing a decent trend following signal but one that usually appears later in a rally. The indicator is overbought in the longer term as %D is high in the range and has been so for almost a month. This doesn't mean a rally can't follow, just that the market has already rallied some already. In a protracted rally the market can remain overbought or near overbought with dips to or below the upper signal line for many months. 4370 and 4250 are potential areas of support with the 30 day moving average wedged in between.


The SPX was first loser in today's action with a loss of -0.04. The broad market is trading just beneath the current all time highs with mildly bearish momentum and a stochastic that is wiggling right at the upper signal line. Both %K and %D lines are together at the signal line and overlapping. The indicator is in mid signal but not quite and this index, like the transports and the Nasdaq, is still beneath resistance and in need of break out for confirmation. What we need to keep in mind through all this near term consolidation is that the SPX just had the 6th straight quarter of gains and the best 2nd quarter since 2009.


The Dow Jones Industrials led the losers today with a drop of -0.15. The blue chips traded down but were supported by the 30 day moving average which is a good sign for the bulls going into this big week of data. The indicators here are not so rosy with momentum a little more bearish than the rest and stochastic doing something weird pointing higher in the longer term but also indicating near term weakness. Current support is the 30 day EMA and just below that level around 16,750.


This week will be a big one for economic data and the market. The data is nothing unusual, just monthly data. In terms of the rally, the first quarter revisions, the expected 2nd quarter rally and how the third quarter projections the data is huge. This week, and even today with the CPI and Pending Home Sales, will be a glimpse into the final numbers revealing how much the economy rebounded during the quarter. Today's data was better than expected and that is what I expect tomorrow and the rest of the week. The indices closed the quarter at another high while longer term economic indicators are pointing to more of the same. There is some concern that the second quarter won't be as strong as projected and that is likely to be right given the revision to 1st quarter numbers. Just how strong was the bounce, and how strong relative to the 1st quarter is the question to be answered.

Until then, remember the trend!

Thomas Hughes


New Plays

Pushing Through Resistance

by James Brown

Click here to email James Brown


NEW BULLISH Plays

FireEye, Inc. - FEYE - close: 40.55 change: +1.63

Stop Loss: 36.90
Target(s): To Be Determined
Current Gain/Loss: unopened

Entry on June -- at $--.--
Listed on June 30, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 5.2 million
New Positions: Yes, see below

Company Description

Why We Like It:
FireEye is an advanced cyber-security company. They provide products and services for detecting, preventing and resolving advanced cyber-security threats. This is not the virus protection program you have on your PC. This is industrial strength corporate defense against the thousands of hack attempts that happen every day.

They supply web threat protection for websites that analyzes all inbound and outbound traffic. They offer email threat prevention appliances that detect and stop advanced attacks. And of course they offer file threat appliances that analyze network traffic to and from corporate servers to detect and quarantine malicious software.

I could go on with the dozens of other types of services but the point there is that they offer end to end cutting edge security for corporate networks and websites.

Everyone has heard about the 40 million credit cards lost in the Target attack. If you pay attention to the news almost every week there are a couple more retailers and corporations that have customer data stolen. This is becoming very expensive for corporations. MasterCard and Visa are changing the rules and corporations are now going to be liable for fraudulent charges made from stolen credit card info.

For a company like Target with 40 million lost cards this could run into the billions of dollars if the card data was compromised. Fortunately for Target some of the information was encrypted and not all of those cards were able to be used. Other companies may not be so fortunate in the future. This kind of network intrusion could put companies out of business.

FireEye tracks all traffic on the network so they can not only tell you what was stolen but where it went. In the case of Target it was weeks before they even knew what was stolen and they had no idea who took it. With FireEye they could have tracked it to the source in real time.

The annual Mandiant Trends report showed that advanced attacks go undetected for an average of 229 days and only one-third of organizations identify breaches on their own. Attackers are increasing their technology far faster than corporations managing internal networks.

FireEye made headlines last month when it warned that a sophisticated group of hackers had exploited a buy in Microsoft's Internet Explorer browser and Microsoft immediately went into panic mode to produce a fix for the previously unknown exploit. This company is on the bleeding edge of the cyber-security problem.

FireEye announced with earnings in May 2014 their acquisition of nPulse Technologies, a leader in network forensics. Their network forensics will be married to the Mandiant endpoint forensics to provide the only available end to end solution for visibility into the entire attack life cycle.

The company was actually guided by the CIA in the early days because there was no security against some of the advanced nation state attacks. The CIA gave FireEye a list of specifications and told them if they could block those intrusions they would be a customer. FireEye succeeded and the CIA is not only a customer but an investor in FireEye.

After Google was hacked by Chinese spies the FireEye client list expanded because nobody else could block the sophisticated attacks that Google experienced. Now government agencies all over the world are using FireEye products.

Nawaf Bitar, SVP of Juniper Networks called FireEye the "Gorilla" in the field when it comes to combating advanced attacks. Edward Kiledjian, CISO for Bombardier Aerospace and a user of FireEye products said, "This is a fantastic tool that provides invaluable information."

FireEye rallied from its IPO close at $36 in September to trade at $97 in March. Three insiders took advantage of the high price to sell shares to cover tax liabilities and they announced a secondary at $87.50. They reported earnings that included a recent acquisition. Shares declined from an overheated valuation to $40 over the next two months. The selloff in the Nasdaq momentum stocks also added to the FireEye decline.

Q1 earnings was a 53 cent loss that was right in the middle of prior guidance for a loss of 51-56 cents. Revenue of $74 million tripled was above guidance of $70-$72 million. Deferred revenue (subscriptions) spiked +$25.2 million to $212.7 million.

However, the new format for earnings with multiple reporting segments appeared to confuse investors and the stock was knocked for a -25% loss.

The company raised guidance for a full year loss up from $2.00-$2.20 to $2.10-$2.30 due to higher R&D spending to integrate recent acquisitions into the product line. The CEO told analysts they were spending more on R&D to "disrupt the market and improve their innovative technology." They are going to announce four new products over the next 90 days.

FireEye had a record quarter with revenue growth of +132% year over year. The Core FireEye business grew over 50%. The Mandiant business they acquired just 90 days ago grew by more than 50%. The company raised revenue guidance for the fourth time in six months. William Blair said the pullback in FEYE created an attractive entry point saying the earnings were "very strong" and they kept an outperform rating on the stock.

Technically shares of FEYE have gone from extremely overbought back in February-March to extremely oversold after it dropped following its earnings report in May. Now FEYE Has been slowly climbing higher. The stock has pushed past potential resistance at several key moving averages including its simple 50-dma. Plus FEYE has rallied past resistance at the top of its gap down from May 6th. Today we see FEYE breaking out past round-number, psychological resistance at the $40.00 level.

Tonight we are suggesting a trigger to open bullish positions at $41.10. We are not setting an exit target tonight but I will point out that the point & figure chart is bullish with a $54.00 target.

Trigger @ $41.10

Suggested Position: buy FEYE stock @ (trigger)

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

Buy the Sep $45 call (FEYE140920C45) current ask $3.30

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

Annotated chart:




In Play Updates and Reviews

A Mixed Performance

by James Brown

Click here to email James Brown

Editor's Note:
Our Premier Investor play list delivered a mixed performance today. A few stocks hit new highs. A few pulled back. Overall it was relatively quiet.

BITA hit our entry trigger. XYL has been removed.


Current Portfolio:


BULLISH Play Updates

American Airlines Group Inc. - AAL - close $42.96 change: -1.04

Stop Loss: 39.85
Target(s): to be determined
Current Gain/Loss: + 6.7%

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:
06/30/14: Airline stocks saw some profit taking today with the XAL index off -0.47%. Shares of AAL underperformed its peers with a -2.3% drop. Shares closed near technical support at its 20-dma.

Investors may want to consider raising 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*

06/28/14 new stop @ 39.85
06/14/14 new stop @ 38.85
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: 14.31 change: -0.04

Stop Loss: 12.75
Target(s): to be determined
Current Gain/Loss: +18.8%

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:
06/30/14: Monday was a nonevent for shares of ARWR with the stock closing virtually unchanged. I am not suggesting new positions at this time.

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*

06/25/14 new stop @ 12.75
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



Bitauto Holdings - BITA - close: 48.70 change: +2.44

Stop Loss: 43.45
Target(s): To Be Determined
Current Gain/Loss: + 2.0%

Entry on June 30 at $47.75
Listed on June 28, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 933 thousand
New Positions: see below

Comments:
06/30/14: Our new play on BITA is off to a strong start. Today's +5.2% rally has pushed BITA to all-time highs. Our suggested entry point was hit at $47.75.

Earlier Comments: June 28, 2014:
According to BITA's website, Bitauto Holdings Limited is a leading provider of internet content and marketing services for China's fast-growing automotive industry. Bitauto manages its businesses in four segments: the bitauto.com advertising business, the EP platform business, the taoche.com business, and the digital marketing solutions business. They were founded in 2000 and headquartered in Beijing, China.

BITA has partnerships with all the major Chinese Internet portals like Sina, Tencent, Yahoo! China, Alibaba, Netese, Qihoo360, and Tom. They have sales networks in more than 70 cities.

The company is developing a trend of beating analysts' estimates. Their most recent quarterly report was May 8th with their Q1 results. Wall Street expected a profit of 16 cents on revenues of $54.3 million. BITA delivered a profit of 18 cents with revenues climbing +46.6% to $56.9 million. The company has also made significant progress with its gross margins, which jumped to 79.1%.

This trend is likely to continue. Earnings are up +296% from 2010 to last year (2013). Sales are up +246% over the same time frame. Wall Street is expecting BITA's profits to rise 50 percent in 2014.

It's not surprising to see why. Millions of Chinese people are entering the middle class. That means surging demand for automobiles. China is now the biggest auto market on the planet with almost 20 million new cars purchased every year. The U.S. is having a good year for new cars sales too but we are only on track for 16.7 million vehicles this year.

Currently shares of BITA are hovering near their highs and what looks like resistance in the $47.00 area. The stock peaked to $47.00 back in March this year and it's been trying to breakout past this area the last several days.

Please note I do consider a more aggressive, higher-risk trade. BITA has been a volatile stock in the past. Investors may want to use small positions to limit their risk. We are not setting any targets tonight but the point & figure chart is bullish and forecasting at $57.00 target.

*small positions to limit risk*

Current Position: long BITA stock @ $47.75

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

Long Oct $50 call (BITA141018C50) entry $5.40*

06/30/14 triggered @ 47.75
*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: 51.46 change: -0.15

Stop Loss: 50.85
Target(s): To Be Determined
Current Gain/Loss: + 0.4%

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:
06/30/14: Shares of DOW drifted sideways on Monday. I remain cautious given last week's drop out of the $51.75-53.25 trading range. I am not suggesting new positions.

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*

06/28/14 DOW spiked lower after DuPont issued an earnings warning the night before
06/24/14 new stop @ 50.85
06/14/14 new stop @ 49.75
05/27/14 triggered @ 51.25
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike



Flextronics Intl. - FLEX - close: 11.07 change: -0.13

Stop Loss: 10.75
Target(s): $11.75
Current Gain/Loss: + 7.5%

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:
06/30/14: FLEX bounced off the $11.00 level again. Shares are still struggling with a short-term trend of lower highs.

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

06/16/14 new stop @ 10.75
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: 62.51 change: -0.19

Stop Loss: 61.65
Target(s): To Be Determined
Current Gain/Loss: - 2.1%

Entry on June 20 at $63.85
Listed on June 10, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.8 million
New Positions: see below

Comments:
06/30/14: We are disappointed with IR's performance. Shares did bounce off its 20-dma again today but it also failed under its 10-dma and short-term resistance near $63.00 again.

Tonight we are moving the stop loss to $61.65.

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.

We're not setting an exit target tonight but the Point & Figure chart for IR is bullish with a $71.00 target.

current Position: Long IR stock @ $63.85

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

Long Sept $65 call (IR140920C65) entry $2.36*

06/30/14 new stop @ 61.65
06/20/14 triggered on gap higher at $63.85
suggested entry point was $63.75
*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



Sky-mobi Limited - MOBI - close: 8.28 change: +0.30

Stop Loss: 7.19
Target(s): To Be Determined
Current Gain/Loss: +6.6%

Entry on June 26th $ 7.77
Listed on June 25, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 696 thousand
New Positions: see below

Comments:
06/30/14: MOBI surged toward the $8.60 level before paring its gains. The stock still outperformed the major indices with a +3.75% gain.

Earlier Comments: June 25, 2014:
China is a massive market and continues to see strong growth in mobile phone adoption. That means more application downloads for the smartphone market. MOBI is cashing in on the app download business with their Maopao app store with 147 million users. They've already had over 15 billion apps downloaded from their store since 2005.

MOBI has strategic partnerships with China Mobile and China Unicom plus over 100 Chinese OEMs who pre-install MOBI's Maopao store on their mobile platforms. This allows MOBI to gain 400,000 new users every day.

When the stock market peaked in early March investors sold all of the high-growth and momentum names. MOBI was caught up in that sell-off with a correction from $12.00 to $6.00. Now shares appear to have found a bottom at the $6.00 level. The recent pullback this week looks like and entry point given MOBI's long-term prospects. The mobile gaming market in China is expected to surge +94% in 2014. MOBI's sales will surge as gaming grows.

Technically MOBI is starting to bounce after a 50% retracement of the rally off its June lows. We want to jump on board and buy today's bounce at the opening bell tomorrow morning. More conservative investors might want to consider waiting for a rally past $8.00 as an alternative entry point.

We are not setting a target just yet. I will point out that the point & figure chart is bullish and forecasting at $13.00 target.

This can be a volatile stock. Traders may want to consider limiting their position size to reduce their risk.

Current Position: Long MOBI stock @ $7.77

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

Long Oct $10 call (MOBI141018c10) entry $0.85

06/26/14 trade opens. MOBI opened @ 7.77
Option Format: symbol-year-month-day-call-strike



Microsoft Corp. - MSFT - close: 41.70 change: -0.55

Stop Loss: 39.90
Target(s): To Be Determined
Current Gain/Loss: - 0.4%

Entry on June 17 at $41.85
Listed on June 14, 2014
Time Frame: 10 to 12 weeks
Average Daily Volume = 23 million
New Positions: see below

Comments:
06/30/14: Lack of follow through on Friday's rally in MSFT is disappointing. This back and forth churn can be frustrating.

MSFT should find short-term support near $41.50. Below that the 50-dma should be support. We are going to adjust our stop loss higher to $39.90.

Earlier Comments: June 14, 2014:
It's back to the future with old-tech heavyweights making progress on Friday. Semiconductor giant Intel (INTC) surprised the market with an announcement Thursday night. INTC raised their revenue guidance due to stronger PC sales. That's right, they said stronger PC sales. Intel chips are in about 80% of the world's PCs. Unfortunately the PC has been declared dead for years due to the explosion of laptops, smartphones, and tablets. It is true that PC shipments have been falling for the last eight quarters in a row. IDC expects PC shipments to fall another -6% in 2014. If that's true then what's the story behind Intel's positive guidance? It might be Microsoft.

Microsoft ended support for its Windows XP operating system in April this year. No more support means they would no longer provide patches or virus updates to protect your system from hackers. With credit card data being stolen a constant threat for businesses the lack of support for XP has sparked an upgrade cycle, especially among corporations.

There does seem to be some disagreement on just how long and how big of an effect this upgrade cycle will last. Was it a one quarter bump or will it last throughout the rest of 2014? An FBR analyst estimates that 25% of the PCs connected to the Internet still run Windows XP. That is a very large number so the upgrade cycle for Microsoft could last a while. It could be bigger than expected too.

Not only are consumers and businesses going to upgrade their operating system from Windows XP to Windows 8 but they will most likely buy an upgraded copy of Microsoft Office. MSFT will likely sell a few more copies of SQL server as well.

The MSFT story is not just about software either. The company seems to be making in-roads into the healthcare sector with their Surface Pro 3 tablets. MSFT is also slugging it out with Sony in the game console wars. Consumers bought $3.6 billion in video games in the first quarter of 2014. MSFT's line up of games for its Xbox One looks pretty good following the annual E3 conference last week.

Technically shares of MSFT are in a long-term up trend and hitting 14-year highs. As an investor would you rather buy a 10-year bond with a 2.6% yield or MSFT with a 2.7% yield and good chance for price appreciation?

More conservative investors may want to wait for a rally past $42.00 before initiating positions.

current Position: long MSFT stock @ $41.85

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

Long 2015 Jan $45 call (MSFT150117c45) entry $1.16

06/30/14 new stop @ 39.90
06/17/14 triggered @ 41.85
Option Format: symbol-year-month-day-call-strike



SoftBank Corp. - SFTBY - close: 37.60 change: -0.04

Stop Loss: 35.35
Target(s): To Be Determined
Current Gain/Loss: +2.5%

Entry on June 17 at $36.68
Listed on June 16, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 499 thousand
New Positions: see below

Comments:
06/30/14: SFTBY is still consolidating sideways in the $36.00-38.50 zone. I do not see any changes from my prior comments. However, we will raise the stop loss to $35.35.

Earlier Comments: June 16, 2014:
SoftBank Corp. has been referred to as the Warren Buffet of Technology although a better comparison is probably to Buffet's Berkshire Hathaway. They are a holding company with hundreds of businesses. According to the company website SFTBY has 235 subsidiaries and 108 affiliates (including 150 consolidated subsidiaries and 83 equity method companies). SoftBank Group possesses both advanced infrastructure and diverse services and content, and invests in promising companies working in the Internet field.

SFTBY owns 80.2% of Sprint Corp., 33.3% of eAccess Ltd., 100% of WILLCOM, Inc., 33.3% of Wireless City Planning Inc., 58.5% of GungHo Online Entertainment, and 42.5% of Yahoo Japan Corp. They also own 34% of Renren Inc., which is considered the Chinese version of Facebook. They also own 36.7% of Alibaba Corp., which is a much larger and more profitable version of Amazon.com. That's on top of owning SoftBank Telecom, SoftBank BB Corp. and SoftBank Mobile.

SFTBY's combined telecom assets makes the company one of the largest telecom/wireless players in Japan. In 2013 they added 4.1 million new subscribers and more than double the 1.19 million subscriber gain by NTT DoCoMo and 2.8 million for AU, which is owned by KDDI. Softbank added 47% of the Android phones activated in Japan and 39% of the iPhone 4s and 5c models. Both metrics are the largest in Japan and shows how Softbank is gaining market share.

Their Renren investment could be a big. China already has the largest Internet audience on the planet and it's only going to get bigger. Currently Renren has about 200 million users. This will grow. Like Facebook, Renren is developing its mobile platform. Renren is currently valued at about $8 per user but this seems extremely low considering what Facebook paid for WhatsApp.

SFTBY's majority stake in Sprint is starting to pay off. Sprint has had a rough few years working through its merger with Nextel. Sprint later acquired Clearwire. It looks like Sprint is now in recovery mode after adding +477,000 subscribers in Q4 2013 versus losing -337,000 in Q4 2012. SFTBY wants to acquire T-Mobile and combine it with Sprint. Currently 75% of U.S. customers are on AT&T or Verizon. SFTBY calls them an American duopoly but they believe by combining Sprint, the third largest carrier, with T-Mobile, the fourth largest, the combined company could compete with AT&T and Verizon, which would be good for competition and ultimately consumers.

Today the real allure of SFTBY is its 37% ownership of Alibaba. Amazon.com (AMZN) is an Internet powerhouse with sales of $86 billion in 2013 and a net profit of $274 million. Alibaba dwarfs AMZN with 2013 sales of $160 billion and a profit of $2.16 billion. Right now it looks like Alibaba will IPO this summer. Analysts have been estimating they could be the biggest IPO in history with a value of $160 to 185 billion.

There were new numbers out on Alibaba today with the company stating that its Q4 revenues only rose +39% to $1.9 billion. That's down from 62% growth in Q3. Margins retreated from 51.3% to 45.3% on higher marketing costs. This spooked investors today into thinking that maybe the valuation may not be in the $160-185 billion range.

We believe that SFTBY's shares are very undervalued and when the Alibaba IPO does hit this stock could soar. Tonight we're suggesting investors launch positions tomorrow morning at current levels. Depending on your trading style this could be an aggressive entry point. Technically SFTBY still has resistance in the $38-39 zone. More conservative investors may want to wait for SFTBY to close above $39.00 before initiating new positions. The risk of not launching positions now is that we do not know when Alibaba is going to announce its IPO. It could be any day and likely in the next few weeks. We will plan on exiting after Alibaba's first day of trading.

Current Position: Long SFTBY stock @ $36.68

06/30/14 new stop $ 35.35
06/17/14 trade opens. SFTBY gapped down at $36.68
note: SFTBY does not have options.



Super Micro Computer, Inc. - SMCI - close: 25.27 change: +0.58

Stop Loss: 24.15
Target(s): To Be Determined
Current Gain/Loss: +13.6%

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:
06/30/14: SMCI managed to recover most of Friday's losses with a +2.3% bounce today. The stock currently has a short-term, two-week trend of lower highs.

I would not open new positions.

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*

06/28/14 new stop @ 24.15
06/16/14 SMCI rallies +10.7%
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



Waste Connections, Inc. - WCN - close: 48.55 change: +0.41

Stop Loss: 45.75
Target(s): To Be Determined
Current Gain/Loss: +1.7%

Entry on June 25 at $47.75
Listed on June 21, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 464 thousand
New Positions: see below

Comments:
06/30/14: The rally continues in WCN with a +0.85% gain and another new high. If you're looking for an entry point consider buying dips near its 10-dma.

Earlier Comments: June 21, 2014:
According to the company website, Waste Connections is an integrated solid waste services company that provides solid waste collection, transfer, disposal and recycling services in mostly exclusive and secondary markets.

Through its R360 Environmental Solutions subsidiary, the Company also is a leading provider of non-hazardous oilfield waste treatment, recovery, and disposal services in several of the most active natural resource producing areas in the United States, including the Permian, Bakken, and Eagle Ford Basins. Waste Connections serves more than two million residential, commercial, industrial and exploration and production customers from a network of operations across the United States. We also provide intermodal services for the movement of solid waste and cargo containers in the Pacific Northwest.

We seek to avoid highly competitive, large urban markets and instead target markets where we can attain high market share either through exclusive contracts, vertical integration or asset positioning. We also target niche markets, like exploration and production, or E&P, waste treatment and disposal services, with similar characteristics and, we believe, higher comparative growth potential.

Apparently the company's strategy is working. WCN is developing a pattern of beating Wall Street's earnings estimates on both the top and bottom line. WCN's model is generating more profit than its rival with EBITDA margins of 34% compared to its larger rival Waste Management's 24% margins.

WCN is seeing strong growth in its oil field waste business. The company said that its E&P (oil) waste business surged +20% in the first quarter of 2014. It's traditional solid waste business grew +5.5%. Management is optimistic with 2014 off to a strong start. Revenues are up. Free cash flow is up. Margins are improving. They expect to see 12% to 15% growth this year.

Technically shares of WCN just broke out from a two-week consolidation and closed at all-time highs. One could argue that WCN produced a big, inverse head-and-shoulders pattern over the last several months. The point & figure chart is bullish and suggesting a $62 price target.

WCN does have options but the option spreads are too wide to trade.

Current Position: Long WCN stock @ $47.75

06/25/14 triggered @ 47.75



Wells Fargo & Co - WFC - close: 52.56 change: -0.34

Stop Loss: 50.90
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:
06/30/14: WFC gapped open lower this morning thanks to a downgrade before the bell. Shares spent most of the day hovering near $52.50.

I am not suggesting new positions at this time. WFC has earnings coming up on July 11th. We might choose to exit before the announcement.

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

06/28/14 new stop @ 50.90
06/16/14 new stop @ 49.70
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: 53.15 change: +0.38

Stop Loss: 54.25
Target(s): To Be Determined
Current Gain/Loss: +0.9%

Entry on June 25 at $53.65
Listed on June 24, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 4.5 million
New Positions: see below

Comments:
06/30/14: The oversold bounce in TJX continued on Monday with a +0.7% gain. With a six-day drop from $55.50 to $52.00 shares have started to bounce. Now TJX is up two days in a row. Broken support near $53.85 should be new overhead resistance.

Tonight we are adjusting our stop loss down to $54.25.

Earlier Comments: June 24, 2014:
According to their website, the TJX Companies, Inc. is the leading off-price retailer of apparel and home fashions in the U.S. and worldwide. With over 3,200 stores in the U.S., Canada and Europe, 3 e-commerce sites and approximately 191,000 Associates at the end of 2013, we see ourselves as a global, off-price, value retailer and our mission is to deliver great value to our customers through the combination of fashion, brand, quality and price.

The stock has been a strong performer on Wall Street for years. Shares of TJX are up 2008 lows near $10 a share to until they peaked near $64.00 late last year. It would appear the long-term momentum is fading.

TJX, along with most retailers, are facing a tough consumer market. Big ticket items like new homes and automobiles are selling well. Smaller purchases like fashion and apparel have been tough unless you're in the luxury market.

The U.S. Commerce Department reported that consumer spending fell -0.1% in April, marking the first decline in a year. It is worth noting that consumer spending was up the prior two months, but that didn't help TJX first quarter sales. TJX reported earnings on May 20th. Their Q1 results (ending April) were 64 cents a share on revenues of $6.49 billion. That was three cents less than Wall Street's estimate of 67 cents a share on revenues of $6.59 billion.

TJX management said their Q1 same-store sales growth was only +1%, which was below guidance. TJX then lowered their 2015 guidance. There has been some speculation that TJX could be losing some market share to the return of JC Penney (JCP).

The issue could be bigger than just one or two stores fighting for market share. The U.S. consumer is facing higher prices. Consumer price inflation is up, especially for everyday items. Over the past twelve months the CPI has risen +2.1%. The price of meat, chicken, eggs, and fish is up +7.7%. The price of fruits and vegetables are up +3.2%.

The consumer is also facing higher gasoline prices. AAA said the national average on gas had risen to $3.68 per gallon. That is the high for this time of year. AAA is currently forecasting a range of $3.55 to $3.70 per gallon. Fortunately, they are hoping that gasoline prices will not hit $4.00 a gallon. However, that could change quickly if the violence in Iraq escalates and terrorist start to impact Iraq's oil exports. Another issue here at home is talk of raising the U.S. federal tax on gasoline from 18.5 cents per gallon to 30.5 cents over the next two years. Call your senator if you do not want that tax to go up.

All of these price increases are weighing on most Americans who are stuck with flat or very low wage gains. Oddly enough consumer confidence just hit a six-year high today. Hope springs eternal but just because consumers are hopeful doesn't mean they're actually spending more money.

Technically shares of TJX are bearish. It has a trend of lower highs and lower lows and just broke down under support near $54.00. We are not setting a bearish target tonight but I will point out that the point and figure chart is bearish and forecasting at $45.00 target.

Current Position: short TJX stock @ $53.65

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

Long Oct $50 put (TJX141018P50) entry $1.05*

06/30/14 new stop @ 54.25
06/25/14 triggered @ 53.65
*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




CLOSED BULLISH PLAYS

Xylem Inc. - XYL - close: 39.08 change: -0.17

Stop Loss: 37.75
Target(s): To Be Determined
Current Gain/Loss: unopened

Entry on June -- at $--.--
Listed on June 21, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.1 million
New Positions: Yes, see below

Comments:
06/30/14: XYL is not cooperating. We've been waiting for a breakout past resistance at $40.00 but XYL is just not moving fast enough.

Our trade has not opened yet. Tonight we are removing XYL as a candidate. You might want to keep it on your watch list for a close above $40.00.

Trade did not open.

06/30/14 removed from the newsletter. suggested entry was $40.25

chart: