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Daily Newsletter, Saturday, 12/6/2014

Table of Contents

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

Market Wrap

Irrational Exuberance

by Jim Brown

Click here to email Jim Brown

Eighteen years ago on December 5th Allen Greenspan shook up the equity markets by questioning the value of stocks.

Market Statistics


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On December 5th, 1996 Greenspan gave a televised speech titled "The challenge of central banking in a democratic society." In that speech he posed the following question.

Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?

The Japanese market was open during the speech and it immediately dropped -3% and markets around the world followed suit. Greenspan wrote in his 2008 book that the phrase came to him while he was in the bathtub thinking about his upcoming speech. The phrase was later used as the title of Robert Shiller's March 2000 book "Irrational Exuberance" making several arguments that the equity markets were very overvalued. The Nasdaq market crash occurred within days of the book's release.

Fortunately our markets are not irrationally overvalued today but there was some serious acrophobia on Friday. The closer the Dow got to 18,000 the weaker the breadth became. Eventually enough traders began taking profits and the Dow's ascent ended at 17,991. The profit taking was limited and the Dow, S&P, Nasdaq Composite and Russell 2000 all closed with gains. The Nasdaq 100 ended slightly lower after a downgrade of Google (GOOGL) weighed on the big caps.

The big news of the day was not the Google downgrade. The Nonfarm Payroll report stole all the headlines and deservedly so. The report surprised everyone with +321,000 new jobs created in November. This was significantly higher than the +228,000 analysts expected. In addition the October gains were revised higher from 214,000 to 243,000 and September was revised up from 256,000 to 271,000. This brings the three month average up to 278,000 and the trailing 12 month average to 228,000.

This was a huge number and the market should have cratered on expectations for Fed action sooner rather than later. However, cooler heads prevailed because one month does not make a trend. We have to discount the three-month average because it contains all the temporary hires for the holiday season. The 12-month average at 228,000 is right in line with what everyone expects to see in the future. However, if December and January jobs come in higher than expected then the Fed will not be far behind. We have to get out of Q4 before the numbers have any real validity. The Q4 period has monster seasonal adjustments that can severely distort the headline number if they are wrong.

For instance the separate Household survey only showed a gain of +4,000 jobs. The ADP Employment on Wednesday only showed a gain of +208,000 jobs. We saw three different numbers over the last three days and there is a spread of 317,000 jobs between the high and the low numbers. Which one is correct? We will not know the answer for three months until the final revisions are in but I would bet on the ADP number at +208,000 as the real pace of job growth.

The commonly quoted U3 unemployment rate held at 5.8% with the U6 unemployment rate declining slightly from 11.5% to 11.4%.

More than 69,000 workers dropped out of the labor force and the total unemployed rose by +115,000. The U.S. population rose +187,000. The labor force participation rate was flat at 62.8%.

Involuntary part-time workers declined by -177,000, which is really positive. Those are people who were forced to take part-time because a full time job was not available. Voluntary part-time workers rose by +235,000. Chalk that up to seasonal holiday workers.

Average hourly earnings rose +0.37% and the fastest pace since February. The average workweek rose slightly to 34.6 hours.

If this was an accurate dataset it suggests the U.S. economy is shifting gears to a faster rate of growth. I personally believed the number was distorted by the seasonal adjustments but research suggests otherwise. According to the BLS tables the unadjusted job gains were +471,000. That means the seasonal adjustment only removed -176,000 jobs as seasonal temporary workers. They take the average over the last five years to develop their seasonal adjustments. This suggests the hiring pace, at least for the holiday months, has definitely surged.

The market took the headline number in stride and futures actually went negative for a few minutes before the open but when the bell rang the market gapped higher. Either nobody believed the number or they believe the rest of the world is still in such bad shape the Fed can't possibly raise rates until late in 2015.

This may have actually been a case where good news was actually good news and not a reason to run for cover.


On the flip side Factory Orders for October declined -0.7% after a -0.5% decline in September and a -10.0% decline in August. The internals were not pretty. Nondurable goods orders declined -1.5% and nondefense capital goods ex-aircraft declined -1.6%. Durable goods rose only +0.3%. The only real highlight was a +10.8% spike in defense orders. That was probably the 5,000 Hellfire missiles ordered for Iraq. Defense orders are very volatile because of the dollar amounts and random nature of the orders.

This was not a good report and does not suggest the economy is accelerating. The strong dollar is making it difficult for buyers overseas. This makes U.S. goods cost more and will end up hurting U.S. corporations.

The economic calendar for next week is lackluster. There are several important reports but none of them are market movers. The big event, especially in light of the payroll numbers, is the FOMC meeting the following week. What they have to say about employment in the post meeting statement will be market moving.


After the close on Friday Gentex Corp (GNTX) announced a 2:1 split for January 2nd. Hain Celestial is holding its gains after the prior week's 2:1 split announcement. Both could give us a decent split run. GNTX was already at a new high and it gapped up about $1 to $38.67 in afterhours.


Apple (AAPL) rumors were swirling on Friday of two new iPhone 6 models for 2015. The first is a 4 inch compact mini dubbed the 6C. There are no close competitors and the compact form is a better fit for business men. This is expected in March/April. Apparently there are a lot of iPhone 6 complaints because there is not a smaller version. Many users were not happy about upgrading to the larger format. The iPhone 5 had a 4 inch screen, iPhone 6 a 4.7 inch and 5.5 inch for the Plus. The Chinese website Feng.com quoted suppliers claiming Apple was sourcing parts for the 6C.

The second rumor was an upgrade to the base memory in the iPhone 6 from 16gb to 32gb. This would increase demand for the phone alongside the release of the Apple Watch. More memory would make the phone faster in interfacing with the apps on the Watch.

On Cyber Monday 78% of mobile shopping occurred on Apple devices, down from 84.1% on the same day in 2013. Android's share rose from 15.4% to 21.6%.

UBS is predicting Apple could sell 70.9 million iPhones in Q4 compared to the Wall Street consensus of 64 million. UBS said if Apple does not reach that number it will not be due to a lack of demand but a lack of parts. If Apple is supply constrained UBS expects only 67 million phones sold. The analyst said demand for the 6 plus is accelerating and Apple may be forced to shift production from the regular version to boost the plus version. Demand in China is especially strong. Currently demand is 3-1 for the regular phone over the Plus but the ratio is moving towards the Plus.

UBS raised their target to $125 and Cannacord is targeting $135 but Alex Gauna at JMP Securities has them beat. Alex raised his target to $150 saying investors should buy ahead of the Q4 earnings in January and the China Mobile 4G subscriber update in a couple of weeks. That will tell investors how fast iPhone 6 sales are ramping up in China.

Apple shares traded down last week after Pacific Crest recommended selling Apple because the iPhone 6 expectations were already in the stock. Pacific Crest is expecting sales of only 63 million units because of production shortages. Morgan Stanley also recommending selling Apple shares from a 4% weighting to 3% in their model portfolio.

Apple was also hit by the unusual trading on Monday where 6.7 million shares were sold in one minute at 9:51 am. Later a high frequency trading firm said they saw program trading in 300 stocks that started at 9:50. Alibaba (BABA) also fell sharply (-1.4%) at the same time and the SPY traded 1.5 million shares in the same minute.

Lastly Apple has been in court all week in a $1 billion class action suit over iPod music. When Apple updated the iPod in one of the earlier versions all songs downloaded from other sources quit working because of Apple's new licensing issues as well as technology issues. Steve Jobs said Real Networks hacked the iPod to figure out how to play music that was not uploaded from the iTunes store. Apple fixed the hack and all that third party music quit working. There were 3 plaintiffs and one dropped out. Apple checked the serial numbers on the three iPods in question and found that at least one and possibly all three were bought after the complaint period. If the remaining two plaintiffs can't come up with receipts that are acceptable with the court the 6 year old case could be thrown out.

Whatever the reason for the stock decline I believe it is a buying opportunity. They can't make phones fast enough and it looks like demand will last well into 2015. That will boost earnings over the $7.69 consensus and they may have some new products in the mix that are not currently in the revenue/earnings calculations.


Google (GOOGL) is not having a good month. Shares have declined -$20 for the week with a -14.50 drop on Friday. Bank of America cut Google from buy to neutral and lowered the price target from $600 to $580. Google shares closed at $528. Bank America Merrill Lynch (BAML) cut earnings estimates to $33.81 and below consensus at $35.77. They blamed slowing growth in search at 8-9% in the USA. BAML also said capex could rise +50% and hiring +22%.

BAML also pointed to the increasing regulatory risk. The EU is considering whether to breakup or constrain Google in Europe on antitrust issues.

Bing has captured 18% of market share in search and accelerating. Apple is widely expected to dump Google and move to Bing when the contract agreement with Google ends in the first half of 2015. Apple is widely believed to be moving away from giving any business to their Android competitor. Facebook is also improving its search capabilities and capturing search advertisers that previously ran on Google.

Earlier in the week Google admitted that 56% of the ads it serves are not seen by a human. They were either served too low on a page to be seen or were served up to search robots scanning pages for indexes. Analysts believe "non-viewable ads" will be worthless in 2015. The technology is moving fast enough that advertisers will be able to demand view ability on their advertising purchases. The move towards full disclosure in the ad world could be painful for Google in 2015. Dan Niles at AlphaOne said Google was his number one short idea.


Northrop Grumman (NOC), a current Option Investor play, got a major boost on Friday. Bank America reiterated a neutral rating with a $150 price target. That did not get much play because at the same time Goldman Sachs upgraded the stock to its "conviction buy" list and raised the price target to $165. It came after Northrop announced after the close on Thursday a new $3 billion stock repurchase program. Goldman believes Northrop's position as a major subcontractor on the $1.5 trillion Joint Strike Fighter program will continue to power Northrop's profitability. Earnings are expected to increase from $8.34 this year to $9.48 in 2015. This is up from $7.80 in 2013.


Dow components Goldman Sachs (GS) and Visa (V) were big contributors to the Dow's gains on Friday with a +3.50 spurt by Goldman and +2.21 gain by Visa. That amounted to about 45 points of the Dow's gain. Since July 3rd when the Dow hit 17,000 Visa has added +301 points to the Dow, Goldman +166.9 points, Nike +134.0, Home Depot +113, United Health +109 and 3M +108 points. If Apple had been in the Dow it would have added 166 points. In that same period IBM subtracted -162, Chevron -130, Caterpillar -79, Exxon -56, MCD, UTX and AXP about -25 each. The Dow steering committee has to be careful on which stocks they include in the index because the volatility of the price weighted index can increase sharply if they add a rocket stock to the mix.


Markets

The S&P squeezed out another new high at 2,075, one point over Wednesday's high. Considering where we started the week with a dip to 2,050 we really can't complain. I would be perfectly happy with 10-15 point gains per week for the rest of the year.

The VIX spiked to nearly 15 on Monday but fell to 11.82 at Friday's close. This is back at complacency levels indicating buyers are in control and there is no fear of an imminent meltdown. This could last for a couple more weeks as fund managers chase prices into the end of December.


There is a warning on the horizon. The high yield ETF (HYG) has sold off -4% since October. Since 2007 the HYG has sold off -5% in 30 trading days only 10 times. On 9 of those declines the S&P sold off as well with an average drop of -9%. Only once did the S&P post a gain and it was only +0.4%. That is some pretty bad odds but historical repeats are never guaranteed. The HYG still has -1% to fall to equal the prior declines but we should be seeing some weakness in the S&P if it was going to follow the HYG lower and there is no weakness. Let's keep our fingers crossed.


Brett Steenbarger, author of "The Psychology of Trading" plus other books, pointed out on Thursday that the number of stocks making new three-month lows actually outnumbered those making new highs at a time when the market was setting new highs. This broad divergence is historically negative for the weeks that follow. However, I believe you can't just look at numbers in a vacuum. You have to understand why it is happening. I think we are seeing the new lows mostly from the energy sector as a result of the lower oil prices. The low oil prices are actually bullish for future earnings and improving economics. Everybody understands the drop in energy stocks and that is why the markets are still trading at the highs. This is just my theory.

Secondly, Brett pointed out the correlation between stocks and sectors are at the lowest since 2004. Correlation trends tend to rise during market declines and then remain at the highs on the eventual rebounds. As the rebound crests the correlation begins to fade as weak sectors begin to sell off and break away from the crowd. As those sectors peel off from the remaining strong sectors the correlation widens and the market becomes unstable. Brett says we are seeing "massive divergences, thanks to the relative weakness among raw materials (XLB), energy stocks (XLE), regional banks (KRE) and small cap (IJR) and midcap (MDY) stocks."

Trimtabs.com tracks the money flows into ETFs and they claim we are at extremes not seen since just before the 2008 market crash. Inflows into ETFs for the month ending November 26th totaled $42.9 billion and a level not seen since December 2007. That is also five-times the year to date average. Flows at Pre-crash Highs

Obviously we have to look at the fundamentals as well as technicals and we have to take into account the investing calendar. With December the strongest month of the year and economic conditions improving with corporate earnings setting new highs there are good reasons for being bullish for the next several weeks. Once into January we should worry as portfolio managers begin to restructure portfolios for 2015. Profits taken in January can be invested all year before taxes have to be paid.

The S&P is still making new highs thanks to the big cap stocks and finally the financials, which participated last week to offset the energy stocks. If oil were to firm and the energy sector rebound we could have a decent rally but oil is still looking week.

I see resistance at 2,080 and 2,100 and support at 2,065 and 2,050.


The Dow finally closed well above the twin levels of uptrend resistance and should be free to move higher. Those resistance levels should not be support. Again, if Exxon and Chevron were to turn positive at the same time as the financials the Dow could stretch its gains. We are definitely in blue sky territory and definitely overbought. That can continue thanks to the consolidation at the highs the prior week.

Dow 18,000 seems to be the price magnet and there may be a sell the news event when it is hit. The selling that appeared on Friday when the Dow reached 17,990 is a clue as to what may lie ahead. Support is well below at 17,800 and that 18,000 level should be resistance.



The Nasdaq Composite crashed back to support at 4,725 on Monday and then struggled higher the rest of the week to close at 4,780. The gains were steady with the exception of the hiccup on Thursday. The November high close was 4,792.

The problem is the big caps dragging down the index. The Nasdaq 100 ($NDX) lost -26 points for the week because of big cap declines in stocks like Google and Apple while the Composite lost -11 points.

Fortunately the downgrades have probably run their course. With the positive jobs numbers and nothing material on the economic calendar for next week we should see fund managers buy the dips on those big cap declines. The keyword there was "should."

Support on the Nasdaq remains 4,725 and resistance is 4,790 and 4,800.




The Russell 2000 actually gained ground last week but at +9 points it was not much. Just being positive is a help because a negative Russell is a sentiment drag on the rest of the indexes. We need it to climb back over 1,190 and rekindle some animal spirits now that November is over. It is time for fund managers to start adding some small caps in advance of the Santa Claus rally, which is the last 5 days of December and first two days of January.

Support is 1,170, resistance 1,190.


I expect the market to be positive this week. There is only one Fed speaker on tap because they go quiet the week before a FOMC meeting. That means we should escape any comments about interest rate hikes. The economic calendar is weak and that also removes potential trouble spots.

The positive jobs report, even if the numbers are confusing, should provide a positive sentiment boost. Just remember that the market does not need a reason to correct. Sometimes it just happens. However, the next two weeks are historically bullish and a lot of fund managers are still trailing their benchmarks. This means bonuses will be minimal and they only have a couple weeks to redeem themselves.


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Random Thoughts

Sunday is the anniversary of the attack on Pearl Harbor that triggered our entry into World War II. Starting at 7:48 AM the base was attacked by 353 Japanese fighter planes launched from six aircraft carriers. A total of 2,403 Americans were killed, less than in the World Trade Center attack, and 1,178 were wounded. Only 29 Japanese aircraft were shot down. By attacking Pearl Harbor the Japanese would later say they woke the sleeping bear. For the U.S. the war began in December 1941 and ended on September 2nd, 1945.

During those four years the American industrial complex was mobilized to design and build over 1,000 ships, thousands of planes and tanks and munitions of all shapes and sizes and get all of it overseas to the battlefield. There was no OSHA or EPA to retard the process. If the U.S. was attacked today we do not have the capability to build more than 1,000 ships and thousands of tanks and planes in just a couple years. Everything is more complex today and a lot of our materials and components come from overseas. Despite 7 decades of "progress" we don't have the same manufacturing capabilities today as we had back then. Between 50 and 85 million people died in the war. If there is a WW III the number of dead could be significantly higher.

We have spent more money in Iraq and Afghanistan than was spent in WW II and the fighting continues. This is the difference between planning to win a war at all costs and fighting a war waged by politicians and political correctness. We could have wiped out ISIS by now if we wanted to but that does not fit the current political agenda.

On Black Friday the national debt exceeded $18 trillion for the first time. This amounts to $56,369 for every U.S. citizen or $153,729 for each taxpayer. Current tax revenue is about $3.1 trillion and our GDP is about $17.2 trillion. Six years ago the national debt was $10.6 trillion. It is expected to rise by $1.3 trillion a year over the next two years and exceed $20 trillion by the end of 2016 and $25 trillion by 2020.

The national debt is different than the total debt. The national debt is the amount of loans we have outstanding in the form of treasury bonds and notes. The nation has an additional $115.7 trillion in "unfunded liabilities" that are not included in the debt totals. These are payments that will come due for Social Security, Medicare, etc.

The debt clock is ticking and the debt bomb will eventually do more damage to the U.S. than the last world war. Once global investors realize that the U.S. can't ever pay its debt they will demand more interest to counteract the additional risk. What is the magic number? $20 trillion, $25 trillion? There is a number that will trigger the debt bomb and it is not that far into our future.

Once the Fed begins to "normalize" interest rates we could see the problem begin. Currently, because of the low interest rates the interest on our debt is about $450 billion a year. We just sell an extra $450 billion a year in treasuries to pay it. Basically we get another cash advance on our credit card to pay the current bill. Once interest rates begin to rise within 2 years the interest on our debt will rise to $1 trillion a year. Remember, we only take in $3.1 trillion in taxes. This will be the straw that breaks our economic back by accelerating our total debt by as much as $2 trillion a year. Global investors will take note and it will get ugly.

Just to emphasize this fact the U.S. Treasury sold $1.04 trillion in new debt since October 1st, just to raise money to pay the interest and principal on maturing securities. Over the same period the Treasury took in $341.6 billion in revenues.

Treasury Secretary Jack Lew told the Senate Finance Committee the U.S. "rolls over about $100 billion in U.S. bills every week. If U.S. debt holders decided they wanted to be repaid instead of continuing to roll over their investments, we could dissipate our entire cash balance. There is no plan other than continuing to raise the debt limit that permits us to meet all our obligations." You heard it from the man in charge. There is no plan to stop the never ending debt acceleration. Don't forget the Fed owns more than $4 trillion of the debt. The government owes more than $5 trillion to entities like the Social Security Trust Fund where it borrowed the funds on deposit and left the fund with a note instead.

Only $1.54 trillion is in 30-year treasuries. The rest is in short term notes that mature in 2,3,5,7 and 10 years with an average interest rate of 1.807%. The government can't afford to pay the higher interest rates of longer term securities even at the current record low rates. This means the interest on those short term securities can escalate violently if the debt market suddenly turned against the USA. This means the fuse on the debt bomb is very short. Once it is lit the change in conditions can occur very rapidly. It could be one of the fastest economic collapses on record.

While everyone was worrying about the Ferguson and Staten Island events last week China became the biggest economy on the planet. The U.S. dropped into the number 2 position. This is a problem of our own creation. We have the highest corporate taxes in the world and the most regulations that stifle growth and job creation. We have the best minds in the world and the best entrepreneurial spirit but the regulations, negative legal system and high taxes have pushed us into the number 2 position.

The U.S. is under outright cyber attack by numerous state-sponsored agencies and we are doing nothing about it. It was reported last week that Iranian hackers have infiltrated the U.S. critical infrastructure systems, some of which control the country's water, gas and transit networks and airport security networks. The administration is ignoring the attacks and instead giving Iran another 7 month extension on its nuclear program and talking to them about helping fight ISIS in Iraq.

At the same time China is hacking our satellite networks that affect aviation, shipping and hundreds of other critical uses. A couple days earlier they hacked into the U.S. Postal Service and accessed data on 800,000 employees. A cyber security expert said Chinese are hacking into corporate networks with "reckless abandon" because they are convinced "there are no consequences to getting caught."

China's latest stealth fighter, the J-31, is believed to be entirely based on stolen top secret specifications of the F-35 Joint strike Fighter being built by Lockheed Martin.

Russian hackers have been invading U.S. services networks and security systems for years. The Dept of Homeland Defense said in November that a Russian state-backed effort had compromised "numerous critical components of U.S. industries." In October a Russian state-sponsored cyber attack successfully breached the White House computer network.

Numerous intrusions into the U.S. electrical grid infrastructure have been carried out by state-sponsored teams from Russia and China. One set of Russian code has been found in more than 1,100 grid locations. It would be obscenely naive to believe that neither of these rogue nations were not capable of shutting down our electric grid at will.

The U.S. consumer is saving $630 million a day on lower gasoline prices compared to the $3.31 average high in June. If prices were to stay this low for a year that would amount to a $230 billion windfall and a monster stimulus program for the U.S. economy. On Friday gas prices fell under $2 in Oklahoma and within the next week that should spread to several other coastal states. On Friday the national average was $2.75 and AAA expects it to drop another 10-20 cents by the end of the month. I paid $2.32 with a loyalty card in Denver on Saturday.

At the current price of oil OPEC members could lose $590 billion in revenue. Global producers in total will see a -$1.5 trillion drop in revenue. The U.S., Japan, China and India will benefit the most. Saudi Arabia, Russia, Iraq, Venezuela and Nigeria will suffer the most. The London based Capital Economics said the drop in fuel prices could boost the global GDP by 1% in 2015. Global demand could increase up to 1.0 mbpd over the prior forecast as a result of the lower fuel prices. U.S. gasoline demand has increased +429,000 bpd to 9.43 mbpd or nearly +5% over just the last four weeks as a result of the lower prices. There are already rumors that OPEC will call an emergency meeting for the end of January to again discuss production cuts. At the last meeting 8 countries were for cutting production and 4 countries against a cut. Saudi Arabia, whose vote counts the most, was against a cut.

Cyber Monday was a blowout for some companies. Walmart said it was the "biggest online day in its history." Thanksgiving was the second largest day in their history. Even more interesting they said 70% of traffic to their site came from mobile devices. Walmart was offering same day in store pickup on most items. That means you could order online at the sale price and not have to fight the crowds. Just walk in and pick it up whenever it was convenient. The biggest online sellers were the iPad mini 16gb, PS4 500Gb console, Nintendo 3DS XL handheld, Xbox One Assassins Creed Unity Bundle, LG 49" LED HDTV and LEGO Giant Creative Tower with 1,600 pieces.

The Pied Piper of the ECB again promised more stimulus but failed to deliver. Mario Draghi pledged to assess the need for more stimulus early in 2015 despite sharply lower forecasts for economic activity. This is like saying the house is really burning now but let's wait another week or two before trying to put it out. It may get better by itself.

Jim Cramer of the TheStreet.com was called out by a shareholder last week. J. Carlo Cannell's hedge fund is the second largest shareholder in TheStreet.com (TST) at 9%. He sent a letter to the company complaining that Jim Cramer spent far too much time working for CNBC and not enough time working for TST. "You are simultaneously an employee of CNBC and a director, major shareholder and employee of TST. To which entity do you ascribe your greater allegiance?"

Cannell urged Cramer to resolve the conflict by either pursuing a sale of TheStreet.com or quit CNBC. "Resign from CNBC and align your considerable energy and talents to helping your fellow shareholders crawl back from Hades."

He also suggested Cramer take a pay cut as part of a full-time return to TST complaining that his annual compensation is almost 5% of the company's market value. "Why in the very worst years for TST shareholders must you pay yourself more than $3.5 million per year? When you lie on your deathbed how will you reflect upon your legacy?" He said Cramer has "enjoyed considerable nonpecuniary compensation such as perfumed sedan driver(s) and assorted assistants who spray ionized lavender water on your barren cranium." Company filings show Cramer is guaranteed $2.5 million a year in royalties, $300,000 in licensing as well as stock awards. In 2013 TST lost -$3.8 million, which was better than the $13 million loss in 2012. In 2013 another shareholder, Spear Point LLC, urged the company to put itself up for sale. According to Bloomberg Spear Point no longer has a stake in TST today.


ISIS has just claimed on Twitter that they have a dirty bomb. ISIS stole radioactive material from the Mosul University and they claim they have already weaponized it and have plans to use it. Iraq's UN ambassador said in July that the nuclear material had been stolen and the UN Secretary General warned the substance can be used to create a weapon of mass destruction. If the bomb was used in a city like London it would be terribly disruptive even more so than a regular bomb. With a regular bomb you clean up the wreckage and rebuild. With a major dirty bomb the city may have to close off the area for years while cleanup occurs.

The toilet seat in a supermarket bathroom may be cleaner than a shopping cart handle. A University of Arizona survey swabbed 85 grocery carts and found that nearly 75% contained some type of fecal bacteria. More than 50% contained E. Coli bacteria. Studies have also found that children are at increased risk of salmonella infections if they ride in a grocery cart.

The largest white truffle in the world goes up for auction this weekend. The 4.16 pound truffle should fetch a record price. This one is twice the size of the existing record holder that sold for $417,200 in 2010. White truffles are rare and can only be found three months of the year in Italy. The finder has already been offered more than $1 million from a buyer in China. Not a bad find while he was out training his new dog. Truffle hunters train dogs to sniff out the buried truffles. You know you have too much money when you can pay $1 million for a hunk of fungus.


Sam Eisenstadt, former research director at Value Line, is predicting the S&P will reach 2,300 by the end of May. That is an 11% gain from here. Eisenstadt is known for his accurate predictions. Back in June with the S&P at 1,924 he predicted the S&P would reach 2,100 in early December. With the S&P at 2,079 on Friday he has another winning prediction he can add to his portfolio. He retired in 2009 after 63 years at Value Line but he still follows the market. He has a proprietary model developed over 7 decades of research.

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!

Only 18 shopping days until Christmas.

Enter passively and exit aggressively!

Jim Brown

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"A government which robs Peter to pay Paul can always depend on the support of Paul."

George Bernard Shaw

 


New Plays

Not Growing Fast Enough

by James Brown

Click here to email James Brown


NEW BEARISH Plays

Zulily, Inc. - ZU - close: 26.25 change: -0.50

Stop Loss: 27.30
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on December -- at $---.--
Listed on December 06, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.3 million
New Positions: Yes, see below

Company Description

Why We Like It:
ZU is in the services sector. They're considered part of the discount variety store industry. Yet the company doesn't have any retail locations. Instead they operate online. ZU focuses on the "flash sales" model with 72 hour sales (and occasionally 24 hour sales).

The website describes the company as follows, "zulily (http://www.zulily.com) is a retailer obsessed with bringing moms special finds every day—all at incredible prices. We feature an always-fresh curated collection for the whole family, including clothing, home decor, toys, gifts and more. Unique products from up-and-coming brands are featured alongside favorites from top brands, giving customers something new to discover each morning. zulily was launched in 2010 and is headquartered in Seattle with offices in Reno, Columbus and London."

If you do any research on ZU you'll hear a lot about the business model. It makes sense. The company doesn't suffering from all the hassles and expenses of normal retail locations. The constantly rotating nature of their flash sales model generates a sense of urgency for the buyer. It seems like a great idea. The last couple of earnings reports have been better than Wall Street expected. Yet the stock is getting crushed.

ZU's most recent report was their Q3 results on November 4th. Wall Street was expecting ZU to lose between 3 to 4 cents per share on revenues of $285.4 million. ZU reported a profit of $0.02, which is up from $0.00 a year ago. Revenues soared +71.5% to $285.8 million.

Management said it was a good quarter for ZU. Darrell Cavens, CEO of zulily, said, "This was a strong quarter where we hit several key milestones— the business reached a billion dollars in revenue on a trailing 12 month basis and the majority of our North American orders now come from mobile." They also saw their active customers surge +72% from a year ago to 4.5 million. Their average purchase was up +4%. In spite of all the good news the stock plunged -20% the next day.

The reason appears to be guidance and valuations. ZU issued Q4 guidance, the critical holiday shopping season, that was below analysts' estimates. Another major issue is valuation. At current prices ZU is still valued at $2 billion for a company with a net income of only $11.5 million. Their current P/E is about 202. They do seem to be growing rapidly but evidently not enough to justify current valuations.

Eventually shares will get cheap enough that the selling stops. Where that bottom is no one knows yet. The point & figure chart is bearish and forecasting at $14.00 target. There are a lot of investors betting on new lows. The latest data listed short interest at 31% of the 41.7 million share float.

We think ZU heads lower but I consider this a more aggressive, higher-risk trade. The big short interest could make ZU volatile. Tonight we're suggesting small bearish positions if ZU can trade at $25.90. You may want to use the put options to limit your risk.

NOTE: ZU's IPO priced at $22.00. It's possible that $22 could be potential support.

Trigger @ $25.90 *small positions to limit risk*

- Suggested Positions -

Short ZU stock @ (trigger)

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

Buy the Jan $25 PUT (ZU150117P25) current ask $1.10

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

Annotated Chart:

Weekly Chart:



In Play Updates and Reviews

Jobs Number Fuels Another Gain

by James Brown

Click here to email James Brown

Editor's Note:
Better than expected nonfarm payroll numbers fueled a rally on Friday but equities did pare their gains by the closing bell.


Current Portfolio:


BULLISH Play Updates

Columbia Sportswear Co. - COLM - close: 44.60 change: +0.23

Stop Loss: 42.85
Target(s): To Be Determined
Current Option Gain/Loss: +10.8%
Entry on Novo:tember 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:
12/06/14: COLM outperformed the major indices on Friday with a +0.5% gain. Yet shares still posted a loss for the week. That snaps a six-week streak of weekly gains.

This stock continues to look overbought. Investors may want to take profits early. 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

chart:


Barracuda Networks - CUDA - close: 35.06 change: +0.27

Stop Loss: 33.85
Target(s): To Be Determined
Current Option Gain/Loss: - 1.7%
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:
12/06/14: CUDA spent the entire week trying to recover from last Monday's selloff. Yet shares have been unable to breakout above its 10-dma again. This is potentially a warning sign for the bulls. Tonight we'll inch our stop loss up to $33.85.

I am not suggesting new positions.

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

12/06/14 new stop @ 33.85
11/22/14 new stop @ 33.65
11/18/14 triggered @ $35.65
Option Format: symbol-year-month-day-call-strike

chart:


Cynosure, Inc. - CYNO - close: 28.95 change: +0.77

Stop Loss: 25.90
Target(s): To Be Determined
Current Option Gain/Loss: +10.3%
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:
12/06/14: CYNO displayed significant relative strength on Tuesday and Friday this past week. The stock ended at multi-month highs. Shares look poised to race toward the $30.00 level.

More conservative traders may want to move their stop loss 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

chart:


Electronic Arts - EA - close: 46.66 change: +0.17

Stop Loss: 44.85
Target(s): To Be Determined
Current Option Gain/Loss: +11.7%
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:
12/06/14: It turned out to be a very bullish week for shares of EA thanks to bullish analyst comments on Wednesday. The stock broke through a trend line of higher highs going back to May of this year. The stock is overbought given the big rally from its October low.

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

12/04/14 new stop @ 44.85
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

chart:


Isis Pharmaceuticals - ISIS - close: 52.76 change: +0.08

Stop Loss: 49.45
Target(s): To Be Determined
Current Option Gain/Loss: - 0.9%
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:
12/06/14: Biotech stocks continued to rally last week. The IBB, BIB, and BTK (all biotech ETFs or indices) are up three weeks in a row. ISIS is now up four weeks in a row and up seven out of the last eight weeks. The trend could continue as money managers chase performers into year end.

I am not suggesting new positions at current levels.

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

chart:


Microsoft Corp. - MSFT - close: 48.84 change: +0.76

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:
12/06/14: Friday was disappointing if you are a MSFT bull. Shares failed to see any follow through on Thursday's rally after the stock received an upgrade and a new $56 price target. We are still on the sidelines with a suggested entry point at $49.15. If MSFT doesn't perform soon we'll likely drop it.

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

chart:


Micron Technology - MU - close: 36.49 change: +0.42

Stop Loss: 32.45
Target(s): To Be Determined
Current Option Gain/Loss: + 4.0%
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:
12/06/14: Both the SOX semiconductor index and shares of MU continued to show relative strength on Friday. MU added another +1.1% to close at a new multi-year high.

I am not suggesting new positions at this time. More conservative investors may want to start raising their stop loss.

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

chart:


Seagate Technology - STX - close: 66.40 change: +0.31

Stop Loss: 64.85
Target(s): To Be Determined
Current Option Gain/Loss: - 0.2%
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:
12/06/14: Traders bought the dip in STX on Friday at $65.50. Shares bounced back to close in positive territory. STX even managed another weekly gain. Shares are now up four weeks in a row and up six out of the last seven weeks. Unfortunately momentum has stalled the last few sessions. We are turning more defensive and raising the stop loss to $64.85.

I am not suggesting new positions at the moment. Let's see if STX can build on Friday's intraday bounce. A close above $66.75 would be encouraging.

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

12/06/14 new stop @ 64.85
11/21/14 trade opened on gap higher at $66.52, suggested trigger was $65.75
Option Format: symbol-year-month-day-call-strike

chart:


TASER Intl. - TASR - close: 24.82 change: +0.67

Stop Loss: 23.25
Target(s): To Be Determined
Current Option Gain/Loss: +5.0%
Entry on December 04 at $23.63
Listed on December 03, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.9 million
New Positions: see below

Comments:
12/06/14: TASR continued to electrify on Friday with a +2.7% gain. That bumps last week's gain to +15.5%. The company received another positive article on Investors Business Daily discussing the company's growing Evidence.com business and the body-worn cameras for police. The L.A. Police Department recently announced they were going to purchase TASR's Axon body cameras for police. Seeing the big-name, high-profile police departments buy TASR's new products it could generate more sales from departments still considering a purchase.

Tonight we are raising the stop loss to $23.25. I am not suggesting new positions at current levels.

Earlier Comments: December 3, 2014:
50,000 volts. That's what a Taser electro-muscular disruption (EMD) device shoots through your body to override the central nervous system. Your body freezes as all the muscles contract.

Their website describes the company as "TASER International makes communities safer with innovative public safety technologies. Founded in 1993, TASER first transformed law enforcement with its electrical weapons. TASER continues to define smarter policing with its growing suite of technology solutions, including AXON body-worn video cameras and EVIDENCE.com, a secure digital evidence management platform."

They may have started with electrical weapons but now the company is expanding to mobile video cameras worn on a law enforcement officer's gear. The company has been in the news lately thanks to President Obama. On Monday this week Obama wants to spent $75 million over the next three years to outfit the nation's police force with body-worn cameras.

The White House believes that body-worn cameras on police will help reduce violence and avoid another event like the one in Ferguson. Current estimates suggest there are only 70,000 police wearing cameras now. Obama's plan would almost double that. Industry analysts are forecasting significant growth if the federal government approves Obama's plan. There are nearly 800,000 policemen in the U.S. There's plenty of room to grow. Plus TASR is expanding internationally.

The bears will argue that TASR's stock is expensive with a P/E near 50. There is no denying that. However, the body-camera business could soar. Currently it's less than 8% of their annual sales. The real winner could be TASR's Evidence.com ecosystem. This is a subscription service for law enforcement to back up and manage all the data from TASER electric weapons, body-worn cameras, and more.

The stock hit multi-year highs on Tuesday following Obama's comments. Traders bought the dip today at $21.63. We think the rally continues. Tonight we are suggesting a trigger to open bullish positions at $23.25.

I will caution investors that TASR can be a volatile stock. You may want to limit your position size. I will point out that the latest data lists short interest at almost 20% of the 51.3 million share float. If the rally continues TASR could see some short covering.

- Suggested Positions -

Long TASR stock @ $23.63

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

Long Mar $25 CALL (TASR150320C25) entry $2.20

12/06/14 new stop @ 23.25
12/04/14 triggered on gap higher at $23.63, suggested trigger was $23.25
Option Format: symbol-year-month-day-call-strike

chart:


Veeva Systems - VEEV - close: 30.97 change: -0.55

Stop Loss: 29.70
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on December -- at $---.--
Listed on December 04, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 991 thousand
New Positions: Yes, see below

Comments:
12/06/14: Hmm... VEEV did not see any follow through on Thursday's rebound. That is a bit troubling. Shares actually underperformed on Friday with a -1.7% decline. I did warn readers that this is a volatile stock so we shouldn't be too surprised with the big swings.

Currently our suggested entry point for bullish positions is $32.05.

Earlier Comments: December 4, 2014:
Wall Street loves a growth stock and this company is growing quickly.

VEEV is in the technology sector. They're part of the healthcare information technology industry. A company press release describes Veeva Systems Inc. as "a leader in cloud-based software for the global life sciences industry. Committed to innovation, product excellence, and customer success, Veeva has more than 200 customers, ranging from the world's largest pharmaceutical companies to emerging biotechs. Veeva is headquartered in the San Francisco Bay Area, with offices in Europe, Asia, and Latin America."

The company held its IPO in 2013 and shares priced at $20.00 and traded up to $49.00 four days later. The next eight months were painful as VEEV's stock drifted down to the $17.50 area. Fortunately shares have reversed thanks in large part to VEEV's earnings.

The company has beaten Wall Street's estimates on both the top and bottom line and guided higher the last three quarters in a row. Their most recent report was November 25th. Analysts were expecting a profit of $0.08 per share on revenues of $78.97 million. VEEV reported a profit of $0.09 while revenues soared +52.4% from a year ago to $83.8 million. They said their subscription service revenues in the third quarter rose +58% from a year ago. Their third quarter operating income doubled from $10.0 million to $19.9 million.

VEEV's management raised their Q4 guidance on both the top and bottom line. The stock soared the next day (Nov. 26th) and hit new eight month highs. Shares have since corrected but investors are buying the dip near support in the $30 area. Further gains could spark some serious short covering. Depending on the source, current short interest is between 22% and 55% of the relatively small 37.1 million share float.

This stock is volatile so I am suggesting investors limit their position size to reduce risk. Tonight we are suggesting a trigger to open bullish positions at $32.05.

Trigger @ $32.05

- Suggested Positions -

Buy VEEV stock @ (trigger)

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

Buy the JAN $32 CALL (VEEV150117c32)

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

chart:




BEARISH Play Updates

Voxeljet AG - VJET - close: 9.26 change: -0.69

Stop Loss: 11.05
Target(s): To Be Determined
Current Gain/Loss: +6.5%
Entry on December 04 at $ 9.90
Listed on December 01, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 372 thousand
New Positions: see below

Comments:
12/06/14: Good news! VJET accelerated lower on Friday. Shares underperformed the market with a -6.9% plunge to new all-time lows. Traders may want to start adjusting their stop loss lower.

I am not suggesting new positions at the moment. Broken support at $10.00 should be new resistance.

Earlier Comments: December 2, 2014:
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.

*higher-risk, more aggressive trade* - Suggested Positions -

Short VJET stock @ $9.90

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

Long 2015 Jan $10 PUT (VJET150117P10) entry $1.05

12/04/14 triggered @ $9.90
Option Format: symbol-year-month-day-call-strike

chart: