Option Investor
Newsletter

Daily Newsletter, Tuesday, 12/2/2014

Table of Contents

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

Market Wrap

One Day Wonder

by Jim Brown

Click here to email Jim Brown

Monday's sharp decline turned into a one day wonder as the Dow rallied back to another new high.

Market Statistics

It was a turnaround Tuesday with the Dow surging to a new high and the rest of the indexes posting solid gains after an ugly decline on Monday. The Nasdaq lost -62 points on Monday but rebounded with a decent +28 point gain today.

The motivation for the rebound came from positive news from ShopperTrak on Black Friday sales. ShopperTrak said retail sales for the long Thanksgiving weekend fell -2.1%. This was in stark contrast to the headline news on Monday from the National Retail Federation (NRF) saying sales fell -11%. Retail stocks were crushed on Monday with Best Buy (BBY) falling -5.5% and JC Penny (JCP) falling -6% as examples.

Both companies said the numbers were impacted by earlier sales in Black Friday week and stores open on Thanksgiving. These events pull forward sales which would have normally occurred over the Black Friday weekend.

ShopperTrak retained its forecast for a +3.8% rise in sales for the holiday period and the NRF is projecting +4.1%. This is the biggest boost since 2010. Analysts are pointing out the changing retail trends and suggesting we can no longer rely on Black Friday weekend sales as a predictor of future holiday gains. Retail trackers may have to switch to an 8 day period from Saturday before Thanksgiving through Sunday after Thanksgiving to get a better picture of sales trends.

The economic reports from the week suggest the economy is improving. The ISM Manufacturing on Monday declined only fractionally from 59.0 to 58.7 with the forecast for a drop to 56.0. New orders and order backlogs both rose while inventories declined. This suggests the U.S. manufacturing sector is still healthy and has not been materially impacted by the slowdown in Europe or the strong dollar.


The Construction Spending report showed a jump in spending from -0.1% in September to +1.1% in October to $971 billion. Analysts had only expected an increase of +0.5%. The headline number is now +3.3% above year ago levels. Public construction spending rose +2.3% to $279 billion with a +1.3% rise in private residential spending to $354 billion. This report was market positive.

The ISM New York business report rose from 657.2 to 663.4. The current conditions component rose from 54.8 to 62.4, a whopping +8 points in one month. However, the employment component declined from 64.4 to 48.4 and back into contraction territory. The revenue component imploded from 71.9 to 53.1 and expected demand declined from 78.1 to 68.8.

Clearly the current conditions component rescued the index from a nasty fall but it does suggest we could see weakness in future months. This report is normally ignored.

The most bullish report of the day was the vehicles sales for November. Sales soared to an annual pace of 17.2 million compared to 16.5 million in October. Sales of domestic cars rose from 13.0 million to 13.7 million while imported cars rose only slightly from 3.4 to 3.5 million. Sales of the Jeep Cherokee rose +67%, Chevy Silverado truck +24% and the Honda CRV +43%. Sales of the Chevy Volt declined -30%, Toyota Prius -13% and Ford Taurus -37%. While the trend is still early the drop in gasoline prices has definitely boosted sales of trucks and SUVs while compact car sales have declined.

Gasoline prices averaged $2.76 today and it was the 68th consecutive day that prices have declined. Many analysts are now predicting $2.50 gas on average by the end of December and sub $2 in many Gulf coast states. This is going to seriously boost truck and SUV sales and prompt additional holiday spending by consumers.

New York Fed President William Dudley and Fed Vice chairman Stanley Fischer both spoke this week saying the drop in gasoline prices was going to be a mini stimulus program and consumers would definitely be spending more on the holidays. Both men suggested the boost to the economy from lower gasoline prices would allow the Fed to hike rates in the middle of 2015. This is contrary to recent analyst comments claiming the low oil prices would further depress inflation and keep the Fed on hold until 2016.

Dudley did warn the Fed should continue to be cautious about raising rates. He said, "When interest rates are this low the risks of tightening a bit too early are likely to be considerably greater than the risks of tightening a bit too late."

The job data starts tomorrow with the ADP Employment. This could be the pothole in the rally road if it comes in much lower or higher than expected. If it is lower the analysts will start projecting slower economic growth and worry that Europe is weighing on the USA. That is a bad news is good news story since it will keep the Fed on the sidelines longer. If the number comes in a lot higher then it is good for the economy but the Fed could act quicker. The Goldilocks number would be in the +220,000 range.

The Fed Beige Book is expected to be market positive with a continued upgrade to the economic conditions around the country. Some weakness in a couple regions is expected but overall I expect that conditions have improved.

The Nonfarm Payrolls on Friday is expected to show a gain of +235,000 jobs. The range of estimates in a Bloomberg survey was from 140,000 to 275,000. Either of those numbers could create some market volatility. The Goldilocks number here would also be in the +220,000 range.


MasterCard (MA) must be feeling the joy of the season with all those Black Friday purchases on credit cards. They raised their dividend +45% to 16 cents and announced a $3.75 billion stock buyback program. The company has $275 million remaining on its existing $3.5 billion buyback program they announced last December. The dividend will be paid on Feb 9th to holders as of Jan 9th. Since MasterCard went public in 2006 the stock has gained +1,800%. Shares recovered from a morning loss on news of the announcement.


The first post oil crash acquisition is now in the books. Berkshire Hathaway's Lubrizol business bought two units from Weatherford International (WFT) for $750 million. The Integrity Industries drilling fluids business and Engineered Chemistry, which provides additives for fracking, were the two units purchased. Lubrizol was purchased by Berkshire in 2011. Lubrizol has been actively making acquisitions with the last a pipeline flow improver from Phillips 66 in February. Lubrizol has been expanding its influence in the fracking community by increasing its offerings in the fracking fluids space.

Buffett has been asking the CEOs of the companies in the Berkshire portfolio to make their own acquisitions because it takes the pressure off Buffett to spend his growing pile of cash, now over $60 billion.


Iberia Capital upgraded Baker Hughes (BHI) today with an outperform rating and a $65 price target. Two weeks ago Halliburton (HAL) agreed to buy them for $78.62 based on the Halliburton share price at the time. There has been some fade from that announced price because the acquisition is for 1.12 shares of Halliburton plus $19 in cash or $64.19 based on today's prices. Baker Hughes closed at $56.70 today because the acquisition should not close until the second half of 2015.


Biogen's (BIIB) Alzheimer's drug BIIB037 was allowed to move directly from Phase I trials to Phase III testing and bypassing Phase II. The company said the drug had a significant effect on cognition among patients in the 54 week Phase I trial along with a decrease in amyloid deposits on the brain.

The CEO said the company was going to start the Phase III testing "very aggressively" because the data was encouraging enough to skip the Phase II process. Even with an aggressive testing schedule the drug will not be available to the public until 2018-2019. A Robert Baird analyst said there were some safety concerns with the drug but they might be handled with a lower dosage program. BIIB shares rallied +6% on the news.


North Korea is now a prime suspect in the successful hacking of Sony (SNE) and the distribution of confidential internal data to multiple new outlets. North Korea declared war against Sony in June after the country found out Sony was going to release a James Franco-Seth Rogan comedy about a plot to assassinate Kim Jong Un. The Korean foreign ministry said all North Koreans were determined to "mercilessly destroy anyone who dares hurt or attack the supreme leadership of the country, even a bit."

The hackers stole multiple movies from Sony including the Brad Pit movie "Fury" and a remake of "Annie," "Still Alice," "Mr Turner," and "To Write Love on Her Arms" and made them available on the Internet. Fury was downloaded more than 500,000 times since the Nov 25th attack. Variety.com said downloads could reach 1.2 million this week. They also released a list of Sony's top employees, rate of pay, identification numbers, dates of raises, home addresses and dozens of other items of personal information. Writers have jumped on this data to show that of the top 17 highest paid employees making over $1 million a year there was only one female.

The hack attack also crippled some computer systems at Sony with the picture of a skull appearing on company computer screens. The picture had a hashtag for "Guardians of Peace" and a warning that private data would be released unless demands were met. Researchers found Korean language in the software left behind in the attack. A FireEye (FEYE) subsidiary has been hired to help clean up the systems and prevent future attacks.

Lions Gate Films had the "Expendables 3" film stolen and placed on the Internet where it was viewed by more than 2 million people before the movie was available in theaters.


Amazon (AMZN) sold its biggest bond offering ever today with a $6 billion sale. The retailer sold $1.5 billion at 4.95% for 30 years at 205 basis points over 30-year treasuries. They also sold $1.25 billion at 3.8% for 10-years and 4.8% for 20 years. Lastly they sold $1 billion in 2.6% for 5 years and 3.3% for 7 years. The bonds were rated Baa1 by Moodys.

Jeff Bezos was interviewed at a conference and was asked about earnings. He said something like "we don't run the company to manage quarterly earnings. We are still a startup and building for the future. Startups have a lot of earnings volatility because of their expansion expenses." Bezos says he only spends about 6 hours a year on investor relations because he is totally focused on building the company. Shares were flat on the day.


Hedge funds are closing at the fastest rate since the financial crisis. In the first half of 2014 more than 460 funds have closed. If that pace continued in the second half it could exceed the 1,023 closures in 2009. Funds are posting disappointing returns with an average of +2% YTD in 2014 and the worst performance since 2011.

The $37 billion Brevan Howard Asset Management LLP closed a $630 million commodity fund last week after it lost -4.3% YTD. Personally I don't see how any commodity fund could have made money this year unless they shorted everything in sight in January and then turned off their computers.

Funds are not having any trouble finding capital despite their poor performance. Dan Loeb opened Third Point LLC for new money briefly on October 1st and raised $2.5 billion. Bill Ackman also raised $2.7 billion in October for a new fund. Ackman has produced a 42% return YTD. For more information on fund closures click here

The CME raised margins on crude futures for the fifth time in the last two months. Starting at the close today the margin on a WTI futures contract rose +16% to $4,895 for speculators and the highest since the $4,950 back on January 29th 2013. Margin for natural gas, gasoline and diesel futures also increased.

When volatility increases in various commodities the CME will raise the margin to make it more expensive to trade in an attempt to slow the volatility and reduce their risk. The CME is responsible for making sure there is enough collateral at risk in case of a default by the investor.


Gasoline futures hit a five-year closing low at $1.82 at the close today. Feel free to jump for joy!


Harold Hamm, CEO of Continental Resources lost $12 billion or more than half of his wealth over the last three months because of the drop in oil prices. Continental is an active shale driller in the Bakken and the company closed all its hedges a couple weeks ago when he basically called a bottom in the oil market. Unfortunately he was wrong.

He said on Monday that U.S. drilling is likely to slow dramatically since nobody wants to drill an unprofitable well. "Drilling will slow until prices recover. That is the way it ought to be." Hamm said the U.S. has the upper hand in battling OPEC. "We can adjust quickly. It is a lot easier to adjust company activity than it is for countries to adjust. When you have people starving or social policies within countries that people are used to, it is hard to adjust those."

Hamm claims Continental can continue to post profits at $50 a barrel. He said, "People need to calm down and take the long view and there is no need to panic at this point."


Over the last three years the energy sector has seen more than $90 billion in junk-rated debt sold to fund drilling expenses. That debt has fallen an average of -13% since crude began falling in June. Halcon (HK), Goodrich Petroleum (GDP) and SandRidge (SD) are three out of 21 borrowers that operate in the most expensive shale fields in the USA. They will be unprofitable at $60 WTI but their cash flow has already been severely disrupted.

A money manager at Alliance Bernstein said the company is worried there will be defaults because far too much money had been chasing the high interest loans in the oil sector. HK 9.75% bonds worth $1.15 billion have lost -33% since oil prices began to decline in June. $750 million in SandRidge notes have declined -29% and Goodrich debt has fallen -37%.

Those companies will have to quickly curtail drilling to preserve cash because there will not be any new debt offerings to help them out. Companies are able to borrow vast amounts of money based on the value of their proven reserves. Those reserves are worth a lot less today at $68 than they were at $102 a barrel back in June. The lender geese with the golden eggs have disappeared and companies are going to be forced to sell assets to raise cash to pay debt and future drilling expenses.

Analysts believe as many as one-third of drillers could default over the next year because of rapidly declining cash flow if oil prices remained at this level.

Companies have sold $1.5 trillion in corporate bonds YTD in 2014 and that is a record. Medtronic sold $17 billion on Monday and the largest sale in a year. So far borrowers have sold $1.168 trillion in investment-grade notes and $344 billion in junk bonds. This beats the $1.146 trillion of high grade and $348 billion in junk sold in 2013. The average yield has risen to 3.85%.

Markets

The Tuesday turnaround propelled the Dow to a new closing high at 17,877 but the other indexes failed to keep up. The S&P recovered to 2,066 with the record high close at 2,072 last Wednesday. The historical record shows that December is the best month of the year and investors are going to be betting on that trend to continue.

If there was anything the Monday dip showed us it is that dip buyers are alive and well. The opening lows were the lows for the day and while the indexes did not simply sprint higher every intraday dip was a higher low suggesting buyers were getting anxious about missing the rebound.

The S&P decline was halted at 2,050 on Monday and that is now our line in the sand as support. Resistance is that past high at 2,072.


The Dow chart is very bullish. The Dow finally managed a close well over that 17,825 level that held us back all last week. The Dow still closed at resistance but it was a material improvement over last week. If the Dow moves higher from here it is going to trigger additional short covering and a lot of price chasing into the end of December.

Support is now 17,725, 17,775 and 17,800.



The Nasdaq failed to rebound to a new high despite some strong gains from BIIB, REGN, NFLX and ALXN. A big drag on the index was Priceline with a -$15 loss after an analyst downgrade.

Both the Nasdaq 100 and the Nasdaq Composite pulled back from their recent highs to use prior resistance as support. This was a textbook reversal and rebound. The key here is whether the rebound continues on Wednesday. This will be a critical day for market direction with the ADP Employment report a potential trigger.

Support on the Nasdaq Composite was rock solid at 4,725. That becomes the focal point on any future decline. Any move below that level would trigger significant selling.





The Russell 2000 rebounded +1.24% today but remains well below resistance at 1,188. New support has formed at 1,155 giving us a 48 point range for the rest of the week. The Russell has lagged the big cap indexes as it normally does in late November. I got a cute cartoon from Hedgeye today that illustrates how the Russell has been a drag on the market.



I think the Monday dip was good for the market. Everyone waiting on the sidelines for a new entry got their wish. However, most of them probably procrastinated and missed it. Fortunately for us they will be the ones chasing prices higher for the rest of the week.

I am somewhat concerned about the payroll reports but any dip should be bought just like it was on Monday. I remain in buy the dip mode until proven wrong. Watch the 4,725 level on the Nasdaq Composite for a possible change in trend.

Annual End of Year Renewal Special

It is that time of year again when we offer the best prices of the year on a package of our top newsletters. If you have been a subscriber for several years you know this is the best price and best deal of the year.

Please follow the link below to see for yourself the EOY subscription special for 2015. You will not be disappointed!

Enter passively, exit aggressively!

Jim Brown

Send Jim an email

 


New Plays

All-Time Lows

by James Brown

Click here to email James Brown


NEW BEARISH Plays

Voxeljet AG - VJET - close: 10.17 change: -0.04

Stop Loss: 11.05
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on December -- at $---.--
Listed on December 01, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 372 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
VJET is in the technology sector. The company is part of the 3D printer industry. A company press release describes VJET as "a leading provider of high-speed, large-format 3D printers and on-demand parts services to industrial and commercial customers. The Company's 3D printers employ a powder binding, additive manufacturing technology to produce parts using various material sets, which consist of particulate materials and proprietary chemical binding agents. The Company provides its 3D printers and on-demand parts services to industrial and commercial customers serving the automotive, aerospace, film and entertainment, art and architecture, engineering and consumer product end markets."

Unfortunately this industry has been struggling. Q3 earnings results were disappointing almost across the board with 3D printing companies either posting earnings misses, lowering guidance, or both. VJET happens to fall in the both category.

VJET reported its Q3 results on November 13th. Analysts were expecting a loss of €0.03 for the quarter. The actual results were significantly worse with VJET reporting a loss of €0.41. That compares to a profit of €0.11 in Q3 2013. Management lowered their guidance following the Q3 earnings report.

The industry is facing a new competition in printer giant Hewlett-Packard (HPQ). Everyone knew that HPQ would eventually jump into the 3D printer market and HPQ has finally announced they will next year. HPQ recently gave a presentation saying their 3D printer technology will use "multi-jet fusion" which will generate speeds 10 times faster than current 3D printers.

Shares of VJET have been underperforming the market with a bearish trend of lower highs and lower lows. The point & figure chart is bearish and forecasting at $6.00 target.

Today VJET is setting at all-time lows and poised to break what should be round-number, psychological support at the $10.00 mark. Tonight we are suggesting a trigger to open bearish positions at $9.90.

Please note I do consider this a more aggressive, higher-risk trade. There is already a lot of short interest in this name. The most recent data listed short interest at 22% of the very small 12.4 million share float. That poses the risk of a short squeeze should VJET ever bounce. You may want to use put options to limit your risk to the cost of the option.

Trigger @ $9.90 *higher-risk, more aggressive trade*

- Suggested Positions -

Short VJET stock @ (trigger)

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

Buy the 2015 Jan $10 PUT (VJET150117P10) current ask $1.00

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

Annotated Chart:



In Play Updates and Reviews

Small Caps Lead The Bounce

by James Brown

Click here to email James Brown

Editor's Note:
After yesterday's widespread selloff it was encouraging to see the small caps leading the market's rebound today.

XON hit our stop loss today.


Current Portfolio:


BULLISH Play Updates

Columbia Sportswear Co. - COLM - close: 44.44 change: +0.78

Stop Loss: 42.85
Target(s): To Be Determined
Current Option Gain/Loss: +10.4%
Entry on November 06 at $40.25
Listed on November 04, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 138 thousand
New Positions: see below

Comments:
12/02/14: COLM pierced short-term technical support at its rising 10-dma this morning but the stock quickly recovered. COLM actually outperformed the major indices with a +1.78% gain.

Investors may want to move their stop closer to today's low of $43.25.

I am not suggesting new positions.

Earlier Comments: November 5, 2014:
COLM has been consistently beating earnings expectations all year long. The company is part of the consumer goods sector.

According to a company press release, "Columbia Sportswear Company is a leader in the global outdoor and active lifestyle apparel, footwear, accessories and equipment industry. Founded in 1938 in Portland, Oregon, the company has assembled a portfolio of global brands whose products are sold in approximately 100 countries. In addition to the Columbia brand, Columbia Sportswear Company also owns the Mountain Hardwear, Sorel, prAna, Montrail and OutDry brands."

The trend of earnings in 2014 has been strong with COLM beating Wall Street's earnings estimates four quarters in a row and raising guidance three out of four quarters. Their most recent earnings report was October 30th. Analysts were looking for a profit of $0.87 per share on revenues of $632.29 million. COLM delivered earnings growth of +20% to $0.93 a share. Revenues soared +29% to $675.3 million.

Management then raised their full year 2014 earnings and revenue guidance above analysts' estimates. COLM expects 2014 sales to hit $2.06 billion, which is +22% improvement above 2013. They also expect gross margins to rise 130 basis points from a year ago. COLM is guiding 2014 net income to rise +35% to $1.80 per share.

COLM's president and chief executive office, Tim Boyle, said they expect 2015 net sales to grow at a double-digit rate above their new 2014 estimate of $2.06 billion. They plan to hit mid-teen operating margins.

COLM appears to have strong sales momentum as we head into the crucial holiday shopping season. Retail analysts are expecting industry wide sales to be above average this year. Low gasoline prices provide a great tailwind for all the consumer goods companies.

Technically shares of COLM found support near $34-35 dating back to their prior highs (see the long-term chart below). The rebound has accelerated thanks to the company's earnings report and bullish guidance. Now COLMN is breaking out past resistance at $40.00 and its simple 200-dma. We are suggesting a trigger to open bullish positions at $40.25.

- Suggested Positions -

Long COLM stock @ $40.25

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

Long 2015 Jan $40 call (COLM150117C40) entry $1.75

11/29/14 new stop @ 42.85
11/25/14 new stop @ 42.25
11/24/14 new stop @ 41.85
11/19/14 new stop @ 41.45, readers may want to take some money off the table right here.
11/12/14 new stop @ 39.25
11/06/14 triggered @ $40.25
Option Format: symbol-year-month-day-call-strike


Barracuda Networks - CUDA - close: 34.61 change: +0.40

Stop Loss: 33.65
Target(s): To Be Determined
Current Option Gain/Loss: - 2.9%
Entry on November 18 at $35.65
Listed on November 12, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 247 thousand
New Positions: see below

Comments:
12/02/14: CUDA bounced at the $34.00 mark and rebounded to a +1.1% gain. I am suggesting caution here. No new positions at this time.

Earlier Comments: November 15, 2014:
CUDA is part of the technology sector. This is a small cap company in the cloud computing space. According to the website, "Barracuda provides cloud-connected security and storage solutions that simplify IT. These powerful, easy-to-use and affordable solutions are trusted by more than 150,000 organizations worldwide and are delivered in appliance, virtual appliance, cloud and hybrid deployments. Barracuda's customer-centric business model focuses on delivering high-value, subscription-based IT solutions that provide end-to-end network and data security."

CUDA has only been a public company for little more than a year. Lately they have been on a roll with their earnings reports. CUDA has beaten Wall Street's estimates on both the top and bottom line four quarters in a row. The last two reports also included bullish guidance.

CUDA's most recent report was October 9th when they reported their Q2 results. Analysts were expecting a profit of $0.04 a share on revenues of $66.7 million. CUDA delivered a big beat with a profit of $0.8 on revenue growth of +18.9% to $68.7 million.

Management said their active subscribers grew +18% and their renewal rate was 96.5%. Their Next Generation Firewall solutions saw sales up +50% in the quarter. CUDA said sales were up across all geographically regions. Plus their gross margins were strong with an improvement to 81.7%. That's above the prior quarter's 80.4% and the year ago period 79.8%.

CUDA's guidance was bullish. Their Q3 estimates are for revenues in the $69-70 million range versus Wall Street's $69 million estimate. They expect a profit in the $0.04-0.05 zone compared to estimates of only $0.03. They raised their 2015 revenue guidance above their prior estimates but this was slightly below Wall Street's estimate. They also raised their 2015 earnings growth into the $0.22-0.24 range compared to analysts' consensus estimates of only $0.17.

Technically the stock has been soaring from its double bottom in the $24.00 area. The point & figure chart is bullish and forecasting a long-term target of $56.00. Right now CUDA is testing resistance in the $35.00 area. A breakout here could spark some short covering. The most recent data listed short interest at 9.7% of the very, very small 9.9 million share float.

We are suggesting a trigger to open bullish positions at $35.65.

- Suggested Positions -

Long CUDA stock @ $35.65

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

Long 2015 Jan $35 call (CUDA150117c35) entry $3.15

11/22/14 new stop @ 33.65
11/18/14 triggered @ $35.65
Option Format: symbol-year-month-day-call-strike


Cynosure, Inc. - CYNO - close: 28.50 change: +0.97

Stop Loss: 25.90
Target(s): To Be Determined
Current Option Gain/Loss: +8.6%
Entry on November 12 at $26.25
Listed on November 11, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 201 thousand
New Positions: see below

Comments:
12/02/14: Shares of CYNO shot higher on Tuesday and outperformed the market with a +3.5% gain. I didn't see any company-specific news that might account for today's relative strength. The close above short-term resistance near $28.00 is encouraging. Traders may want to move their stop closer to $27.00.

I am not suggesting new positions at this time.

Earlier Comments: November 11, 2014:
CYNO is in the healthcare sector. The company is part of the medical equipment industry. According to a company press release, "Cynosure designs, manufactures and markets medical devices for aesthetic procedures and precision surgical applications worldwide that enable plastic surgeons, dermatologists and other medical practitioners to perform non-invasive and minimally invasive procedures to remove hair, treat vascular and benign pigmented lesions, remove multi-colored tattoos, revitalize the skin, liquefy and remove unwanted fat through laser lipolysis, reduce cellulite, clear nails infected by toe fungus and ablate sweat glands."

Their flagship product is the PicoSure laser workstation, designed to remove tattoos. This laser technology produces ultra-short bursts of energy to the skin in trillionths of a second. The company recently gained FDA approval to use their PicoSure system to treat acne scars and wrinkles.

CYNO's earnings results have been mixed. Their Q1 report back in May missed estimates by four cents even though revenues were up +52% from a year ago. The stock sold off on this report. They followed that with a Q2 report in July that beat estimates as revenues soared +45% from a year ago. Growth slowed a bit in their latest report in October.

Analysts were expecting 25 cents a share on revenues of $70 million. CYNO met expectations on the bottom line while the top line grew +18% to $71.5 million.

CYNO's Chairman and CEO Michael Davin commented on the quarter saying, "Cynosure delivered record third-quarter revenue of $71.5 million, up 18 percent year-over-year as revenue in each of our direct sales channels improved from the same period in 2013. North American laser revenue increased 17 percent, revenue from our Asia Pacific subsidiaries rose 46 percent, while our European direct sales channel was up 7 percent. Product and technology innovation, expanded indications and new international marketing clearances continue to drive favorable results for the Company."

Discussing his company's outlook Davin said, "We are on schedule to launch our next flagship platform in 2015 for non-invasive fat removal, and we believe this large addressable market represents a significant growth opportunity for the Company."

Technically shares have broken out from a six-month consolidation in the $19-24 range. The rally following its October earnings report lifted CYNO above key resistance at $24.00 and its 200-dma. Shares have already retested this level as support and now the stock is breaking out to multi-month highs. The point & figure chart is bullish with a $31.50 target.

Tonight I am suggesting small bullish positions if CYNO can trade at $26.25. We want to keep our position size small to limit our risk.

*small positions* - Suggested Positions -

Long CYNO stock @ $26.25

11/19/14 new stop @ 25.90
11/18/14 caution: potential bearish reversal today
11/15/14 new stop @ $25.35
11/12/14 triggered @ 26.25


Electronic Arts - EA - close: 43.63 change: +0.48

Stop Loss: 42.85
Target(s): To Be Determined
Current Option Gain/Loss: + 4.5%
Entry on November 17 at $41.75
Listed on November 12, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 3.7 million
New Positions: see below

Comments:
12/02/14: Bullish analyst comments on EA helped the stock bounce with a +1.1% gain on Tuesday. Today's move is an inside day, which means the profit taking may not be over yet.

I am not suggesting new positions at this time.

Earlier Comments: November 13, 2014:
EA is considered part of the technology sector. More broadly they are part of the entertainment industry. Previously EA was the biggest video game company on the planet but when Activision merged with Blizzard they stole the top spot. It remains a fight. EA has annual revenues of $4.1 billion while AVTI has annual revenues around $4.35 billion.

According to a company press release, "Electronic Arts (EA) is a global leader in digital interactive entertainment. The Company delivers games, content and online services for Internet-connected consoles, personal computers, mobile phones and tablets. EA has more than 300 million registered players around the world. Headquartered in Redwood City, California, EA is recognized for a portfolio of critically acclaimed, high-quality blockbuster brands such as The Sims, Madden NFL, EA SPORTS, FIFA, Battlefield, Dragon Age, and Plants vs. Zombies."

Video games are big business. Microsoft (MSFT) has sold more than 83 million Xbox 360s. Rival Sony (SNE) has sold more than 80 million PlayStation 3s. Meanwhile, another company, Steam, is the biggest online retailer for downloadable PC games and has over 75 million users. Back in 2012 the global video game market was $78 billion. That grew to $93 billion in 2013. Research firm Gartner estimates that global video game sales (all formats) could hit $111 billion by 2015. In comparison the global movie box office is only about $38 billion in 2014.

EA continues to fight for market share and dominance in the gaming industry and they've seen success in 2014. The company has beaten Wall Street's earnings estimates on both the top and bottom line three quarters in a row. Their most recent quarterly report was October 28th. Analysts were expecting a profit of $0.53 a share on revenues of $1.16 billion. EA blew those numbers away with a profit of $0.73 and revenues up +17% to $1.22 billion. Gross margins surged thanks to rising digital sales. Mobile sales were also up strongly and in-game purchases soared.

EA offered bullish guidance for both their December quarter (EA's Q3) and their fiscal year 2015. The company raised their Q3 guidance to $0.90, which was above analysts' estimates. They also raised their 2015 guidance to $2.05, which is above Wall Street's estimate.

The stock reacted by soaring to new highs in late October. Since then shares of EA have been consolidating sideways in the $40-41 zone. It looks like that consolidation could be over with EA breaking out to new highs today. The Point & Figure chart is bullish and forecasting a long-term target of $60.00.

Analysts are expecting a strong holiday shopping season this year. The big drop in oil and thus gasoline prices is giving consumers a little extra spending money. The National Retail Federation is forecasting sales growth of +4.1% versus the normal 10-year average of +2.9%. That's a very broad retail outlook. It could be even stronger for video games this year.

Tonight we are suggesting a trigger to open bullish positions at $41.75.

- Suggested Positions -

Long EA stock @ $41.75

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

Long 2015 Jan $45 call (EA150117c45) entry $0.71

11/29/14 new stop @ 42.85
11/22/14 new stop @ 40.85
11/20/14 Caution. EA could be volatile tomorrow in reaction to GME's earnings report
11/17/14 triggered @ 41.75
Option Format: symbol-year-month-day-call-strike


Isis Pharmaceuticals - ISIS - close: 53.04 change: +2.07

Stop Loss: 49.45
Target(s): To Be Determined
Current Option Gain/Loss: - 0.4%
Entry on November 25 at $53.25
Listed on November 24, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.5 million
New Positions: see below

Comments:
12/02/14: Biotech stocks were showing relative strength on Tuesday and shares of ISIS soared +4.0%. Shares are now challenging recent resistance in the $53.50 area. I would be tempted to use a rally past $53.60 as a new bullish entry point.

Earlier Comments: November 24, 2014:
ISIS is part of the healthcare sector. They operate in the biotech space. Biotech stocks have been crushing the market this year. The BTK biotech index is up +43.4% year to date. ISIS is only up +2.2% but it has come a long way from its May 2014 lows near $22.25. The last seven months have produced a +135% rally.

According to a company press release, "Isis is exploiting its leadership position in antisense technology to discover and develop novel drugs for its product pipeline and for its partners. Isis' broad pipeline consists of 34 drugs to treat a wide variety of diseases with an emphasis on cardiovascular, metabolic, severe and rare diseases, including neurological disorders, and cancer.

Isis' partner, Genzyme, is commercializing Isis' lead product, KYNAMRO, in the United States and other countries for the treatment of patients with homozygous FH. Isis has numerous drugs in Phase 3 development in severe and rare and cardiovascular diseases. These include a novel triglyceride lowering drug, ISIS-APOCIIIRx, for patients with familial chylomicronemia syndrome; ISIS-TTRRx, which Isis is developing with GSK to treat patients with the polyneuropathy form of TTR amyloidosis; and, ISIS-SMNRx, which Isis is developing with Biogen Idec to treat infants and children with spinal muscular atrophy, a severe and rare neuromuscular disease. Isis' patents provide strong and extensive protection for its drugs and technology."

Part of the challenge with biotech stocks is their volatility. Biotechs can be extremely sensitive to any headline. The right or wrong headline about an FDA approval or clinical trial results can send a biotech stock soaring or crashing in a heartbeat.

Another challenge is earnings. Many of the smaller biotech names suffer from very lumpy earnings based on milestone payments by partners. For example, last quarter ISIS saw their quarterly revenues soar almost +90% yet they still missed Wall Street revenue estimate.

Most bulls on this stock will point to the company's pipeline. ISIS has a very broad pipeline so it's not just a one-trick pony. You can view their current pipeline here on this webpage: ISIS pipeline.

The stock has been stair-stepping higher with investors buying the dips as prior resistance acts as new support. Last week the stock garnered a new price target upgrade to $62.00. ISIS will also present at a couple of analyst conferences in early December that might offer more catalysts to keep the rally going. The big bounce from its 2014 lows has produced a huge buy signal on the Point & Figure chart that is projecting a long-term target of $73.00.

More aggressive investors may want to open bullish positions now. I am suggesting we wait for a rally past the November high ($53.12) and use a trigger to open positions at $53.25.

- Suggested Positions -

Long ISIS stock @ $53.25

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

Long 2015 Jan $55 call (ISIS150117C55) entry $3.15

11/25/14 triggered @ 53.25
Option Format: symbol-year-month-day-call-strike


Microsoft Corp. - MSFT - close: 48.46 change: -0.16

Stop Loss: 47.15
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on December -- at $---.--
Listed on December 01, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 28.6 million
New Positions: Yes, see below

Comments:
12/02/14: MSFT shot higher this morning thanks to a bullish rating by JP Morgan who put a $53 price target on the stock. Unfortunately the rally didn't last long and gains faded. The intraday high was only $49.05.

I don't see any changes from last night's new play comments. Our suggested entry point is $49.15.

Earlier Comments: December 1, 2014:
Founded in 1975, Microsoft (MSFT) started as a software company. Today they are one of the biggest companies in the world with a market cap of more than $400 billion. They continue to make software but they have expanded into computer and gaming hardware, including their X-box gaming console.

In June this year Intel (INTC) surprised the market when they reported stronger than expected enterprise sales of PCs. Many believed the PC market was dying as people buy more laptops, tablets, and smartphones. This resurgence in PC sales was linked to MSFT discontinuing support for its venerable Windows XP operating system. By ending support XP would become more vulnerable to hacking, viruses and malware. This prompted an upgrade cycle. While that's good news for Intel it's also good news for MSFT as more and more people replace old machines with their new Windows 8 operating system. The latest data suggest Windows 8 now has a bigger installation base than XP.

Investors have been generally enthusiastic with the company's direction since Mr. Satya Nadella took over as CEO of the company. Their most recent earnings report was October 23rd. Wall Street was expecting a profit of $0.48 a share on revenues of $22 billion. MSFT beat estimates with a profit of $0.54 a share. Revenues were up +25% to $23.2 billion.

The stock has been a strong performer this year with shares up +20% in 2014 versus the +11.8% gain in the S&P 500 and the +14.7% gain in the NASDAQ composite. MSFT displayed relative strength today with a +1.7% gain. The correction from its mid November high may be over. Investors bought the decline near support at its prior September highs.

We want to hop on board if MSFT continues to rally. Tonight I'm suggesting a trigger to open bullish positions at $49.15.

Trigger @ $49.15

- Suggested Positions -

Buy MSFT stock @ (trigger)

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

Buy the 2015 Feb. $50 call (MSFT150220C50)

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


Micron Technology - MU - close: 35.61 change: +0.62

Stop Loss: 32.45
Target(s): To Be Determined
Current Option Gain/Loss: + 1.4%
Entry on November 24 at $35.10
Listed on November 22, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 24.8 million
New Positions: see below

Comments:
12/02/14: Profit taking in MU continued for the first few minutes of trading this morning. The stock found support at $34.64 and then soared to a +1.75% gain on the day. I would still consider new positions at current levels.

Earlier Comments: November 22, 2014:
MU is in the technology sector. The company is part of the semiconductor industry. They make memory chips. According to a company press release, "Micron Technology, Inc., is a global leader in advanced semiconductor systems. Micron's broad portfolio of high-performance memory technologies—including DRAM, NAND and NOR Flash—is the basis for solid state drives, modules, multichip packages and other system solutions. Backed by more than 35 years of technology leadership, Micron's memory solutions enable the world's most innovative computing, consumer, enterprise storage, networking, mobile, embedded and automotive applications."

The semiconductor space has been a strong performer this year with the SOX semiconductor index up +23.9% in 2014. That outperforms the NASDAQ's +12.8% and the S&P 500's +11.6% gain. MU is beating all of them with a +57.7% rally in 2014.

The company has been beating Wall Street's earnings and revenue estimates all year long. Their most recent report was MU's Q4 results that came out in September. Analysts expected a profit of $0.81 on revenues of $4.15 billion. MU delivered $0.82 as revenues soared +48.7% to $4.23 billion.

Management then raised their Q1 revenue guidance into the $4.45-4.70 billion range, which was above analysts' estimates. They also announced at $1 billion stock buy back program. Following its results and the buy back news the stock has seen several price target upgrades. Many brokers have price targets in the low to mid $40s. One firm has a $60 target.

Technically shares have been stuck under resistance in the $34.85 area since July. A rally past $35.00 would create a new buy signal on MU's point & figure chart. Tonight I am suggesting a trigger to open bullish positions at $35.10.

- Suggested Positions -

Long MU stock @ $35.10

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

Long 2015 Jan $35 call (MU150117C35) entry $2.01

11/24/14 triggered @ $35.10
Option Format: symbol-year-month-day-call-strike


Qlik Technologies - QLIK - close: $30.72 change: +0.11

Stop Loss: 29.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on November -- at $---.--
Listed on November 25, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.6 million
New Positions: Yes, see below

Comments:
12/02/14: Early Tuesday gains faded and QLIK ended the session with a +0.3% gain. I suspect we will see QLIK retest the $30 area again. I am suggesting readers stick to the plan and wait for QLIK to trade at $31.75 before initiating positions.

Earlier Comments: November 25, 2014:
QLIK is in the technology sector. The company provides business intelligence software. According to a company press release, "Qlik is a leader in data discovery delivering intuitive solutions for self-service data visualization and guided analytics. Approximately 33,000 customers rely on Qlik solutions to gain meaning out of information from varied sources, exploring the hidden relationships within data that lead to insights that ignite good ideas. Headquartered in Radnor, Pennsylvania, Qlik has offices around the world with more than 1700 partners covering more than 100 countries."

It has been a very rocky road for QLIK investors the last couple of years. QLIK's stock peaked in mid 2013. Since then shares have seen big swings both up and down. Uneven earnings results and guidance have played their part. The last four quarters have seen QLIK beat Wall Street's bottom line estimate by a penny each quarter. Yet three out of the last four quarters QLIK management has lowered their guidance.

Their most recent earnings report was October 23rd. Analysts were looking for the company to breakeven ($0.00 a share) on revenues of $124 million. QLIK delivered $0.01 a share with revenues up +26% to $131.3 million. Then management guided lower on both EPS and revenues for the fourth quarter. So why did shares of QLIK soar higher the next day?

The answer is likely the company's license growth. QLIK is seeing sharp improvement in its license growth. The first quarter it was +2% growth. The second quarter saw that improve to +11%. Last quarter it was +24% year over year.

The stock has continued to gather bullish analyst opinions. Last week the stock received a price target upgrade to $37.00. This week Citigroup added QLIK to their focus list and upped their price target to $38. The point & figure chart is bullish and forecasting at $42 target.

The stock is volatile and therefore I am labeling this a higher-risk, more aggressive trade. Investors will want to consider limiting their position size or using the options to limit risk to the cost of their option.

Technically the recent breakout past $30.00 is bullish. Yet QLIK still has resistance near its 2014 Q1 highs in the $31.25-31.55 zone. Tonight I am suggesting a trigger to open small bullish positions at $31.75.

Trigger @ $31.75 *small positions, higher-risk trade*

- Suggested Positions -

Buy QLIK stock @ (trigger)

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

Buy the 2015 Jan $33 call (QLIK150117C33)

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


Seagate Technology - STX - close: 67.54 change: +1.60

Stop Loss: 62.45
Target(s): To Be Determined
Current Option Gain/Loss: + 1.5%
Entry on November 21 at $66.52
Listed on November 20, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.7 million
New Positions: see below

Comments:
12/02/14: STX displayed relative strength with a +2.4% gain and a bullish breakout past resistance in the $66.50 area.

Earlier Comments: November 20, 2014:
STX is in the technology sector. The company makes hard disk drives, solid-state drives, and additional computer memory and storage systems.

STX's main rival is Western Digital (WDC). The two have something of a duopoly on the global hard drive and storage business. STX has suffered a bit of a public relations problem when a study came out earlier this year that showed WDC's hard drives had a longer (average) life span than STX drives. The news has helped WDC steal some market share from STX but both companies are still seeing strong growth.

Back in July STX announced their Q4 results and guided higher for their Q1 (calendar Q3). The company's Q1 numbers were better than expected and above their July guidance thanks to big demand for their PC, gaming, and cloud storage products. Management noted they are definitely seeing better than expected momentum in their cloud-computing systems.

STX's most recent earnings report was October 27th. Wall Street expected a profit of $1.24 a share on revenues of $3.6 billion. STX beat both estimates with a profit f $1.34 a share and revenues of $3.79 billion. The EPS number was up +22% from the prior quarter and up +4% from a year ago. Revenues were up +8.5% from a year ago and up +15% against the prior quarter.

Management said they have confidence in their future cash flow generation which is why they raised their quarterly dividend from $0.42 to $0.54. STX's guidance for the current quarter is $3.7 billion in revenues, which is above Wall Street's estimate.

Technically shares have recovered from a brief November pullback and now the stock is hitting all-time highs. The point & figure chart is bullish and forecasting a long-term $94 target.

Today's breakout past resistance at $65.00 looks like a bullish entry point. I'd like to see just a little bit more confirmation. Tonight we are suggesting a trigger to open bullish positions at $65.75.

- Suggested Positions -

Long STX stock @ $66.52

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

Long 2015 Jan $65 call (STX150117c65) entry $3.10

11/21/14 trade opened on gap higher at $66.52, suggested trigger was $65.75
Option Format: symbol-year-month-day-call-strike




BEARISH Play Updates


None. We do not have any active bearish trades.




CLOSED BULLISH PLAYS

Intrexon Corp. - XON - close: 25.04 change: -0.41

Stop Loss: 24.85
Target(s): To Be Determined
Current Option Gain/Loss: - 7.7%
Entry on December 01 at $26.92
Listed on November 29, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 506 thousand
New Positions: see below

Comments:
12/02/14: Unfortunately our new trade on XON is already over. I cautioned readers that this was a more aggressive trade due to the stock's volatility. Yesterday we saw XON significant underperform the market as stocks sank. That weakness continued with XON dipped to $24.40 intraday on Tuesday. Our stop loss was hit at $24.85.

*small positions, more aggressive trade* - Suggested Positions -

Long XON stock @ $26.92 exit $24.85 (-7.7%)

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

2015 Jan $30 call (XON150117C30) entry $1.60 exit $0.91 (-43.1%)

12/02/14 stopped out
12/01/14 Trade opened on gap higher at $26.92, suggested entry was $26.75
Option Format: symbol-year-month-day-call-strike

chart: