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Newsletter

Daily Newsletter, Tuesday, 2/10/2015

Table of Contents

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

Market Wrap

Bulls Gaining Confidence

by Jim Brown

Click here to email Jim Brown

The S&P closed over short term resistance and the Nasdaq hit a six week high and the S&P Midcap 400 is only 2 points from a new high. Headlines about Greece, China, Russia, Europe, ISIS and the strong dollar's impact to earnings are all fading from investor's minds as the market climbs the wall of worry.

Market Statistics

Monday's decline was blamed on Greece but in reality it was probably just profit taking from the prior week's gains. The Greek situation certainly did not improve today so if anything it should still be a cloud over the market.

If you remember the last several times Greece was a major market headline back when they were getting the original bailout funds the market grew bored with the daily chatter and finally ignored it completely. I think the boredom threshold was even lower this time even though the potential for disaster is even greater. If Greece does implode in the next couple of weeks the headline flurry could still impact the market but for today it is still just a war of words between the newly elected Greek government and the EU/IMF/ECB. Traders don't really see how it is going to impact the U.S. market.

The U.S. economic reports were just a couple more steps in that wall of worry with 2 of the 3 reports negative. The NFIB Small Business Survey fell -2.5 points in January to 97.9 and the lowest level in three months. The drop came from weakness in the economic outlook. Those respondents that expected the economy to improve fell from 12% to zero. This means respondents were evenly divided between those expecting improvement and those expecting an economic decline. Those expecting an improvement in earnings declined from a net of -15% to -19% of respondents. I could go on listing the various components but the results are the same. As we move closer to potential Fed rate hikes the sentiment over business conditions is likely to deteriorate further.

Wholesale inventories rose only +0.1% in December, down from +0.8% in November and an average of +0.6% gain in the prior four months. Sales declined -0.4% for the second month. The inventory to sales ratio rose to 1.22 with a steady +0.01 monthly rise for the last five months. This is a result of slowing sales allowing inventory levels to build. This report is one traders normally ignore so there was no impact on the market.

The Job Openings and Labor Turnover Survey (JOLTS) showed that job openings rose from 4.847 million in November to 5.028 million in December and the highest since 2002. That is up 28.5% compared to year ago levels. Hires rose from 5.054 million to 5.148 million. Separations also rose from 4.7 million to 4.886 million. These numbers suggest the job market is definitely improving. However, layoffs also rose from 1.655 million to 1.726 million but the layoff rate at 1.2% is at historic lows.

The largest number of separations, which covers voluntary and involuntary, was in construction and leisure/hospitality. This was a positive report but it is also a lagging report for the December period and investors normally ignore it.

Weighing on the market this morning was news that China's Consumer Price Index (CPI) for January rose only +0.8% and the smallest gain since November 2009. This suggests the economic downturn in China, lower commodity prices and a crash in the real estate market is pushing China closer to deflation. Producer prices (PPI) fell -4.3% in January and more than the -3.8% decline analysts expected. Prices have been falling at the factory level for nearly three years. According to analysts the continued declines will force China to cut interest rates in March/April and announce new stimulus programs to prevent the second largest global economy from falling into a possible long term deflationary slump.

Wednesday's economic calendar is also boring. The EIA oil inventories may end up being the most important even though it is normally just a 10 second sound bite for futures traders.

The geopolitical calendar is highlighted by the emergency meeting of the EU Finance Ministers on Wednesday on the topic of Greece. There is no telling what is going to come out of this meeting but I doubt it will be favorable for Greece.


Oil inventories are at 80 year highs and global storage is filling up fast. Once available storage is at capacity the impact to oil prices is going to be dramatic. Crude inventories in the U.S. have risen over 30 million barrels in the last four weeks to 413 million barrels. That is an 8% rise in inventories in just four weeks and this can't continue forever. According to the EIA the U.S. has 373 million barrels of storage capacity in various tank farms plus 70 million barrels at the Cushing Oklahoma futures delivery hub. Refineries have another 148 million barrels of capacity.

In theory that is 591 million barrels of storage capacity except that you can't fill everything to capacity. Operators like to keep 15-20% of space available for operations. They need to have space available for new oil coming in while old oil in other tanks is flowing out. Some of these tank farms blend crude by combining heavier crude with lighter crude to match refinery input specifications. That requires available capacity to provide the blending tasks of moving oil around. In reality the threshold level is probably in the 475 million barrel range and we are at 413 million today. Inventories normally rise until early May so there may be some trouble ahead. Crude oil declined -4% today to $50.78.

The International Energy Agency (IEA) released their monthly report today and warned that excess oil supplies will raise global storage to a record 2.83 billion barrels by the end of June. The IEA warning means lower prices ahead but they do expect the supply/demand ratio to be back in balance by the end of 2015. Currently production is 1.5 mbpd over demand and that oil has to be stored somewhere.

The U.S. Energy Information Administration (EIA) said its production expectations for 2015 and 2016 were virtually unchanged from the prior month. They believe new oil coming online from new projects will offset any temporary decline in shale production.

The world's largest oil trading company Vitol said they expect a "dramatic build in oil inventories over the next few months." If oil builds as we expect we could see a dramatic drop in prices. Most oil analysts believe the +20% spike in crude over the last two weeks was short covering and a new move lower is ahead.


An internal memo from Tesla's Elon Musk suggests heads are about to roll over dismal sales in China. Sources that have seen the memo claim Tesla sold only 120 cars in China in January. If those sales numbers are correct it would be very negative for the Tesla earnings due out on Wednesday. In the memo Musk threatened to fire or demote country managers if they are "not on a clear path to positive long term cash flow." Tesla's goal for annual sales in 2014 was 33,000 cars. They will need to have sold 11,000 in Q4 to reach that goal. Shares declined just over $1 when the news broke.


Apple (AAPL) shares rallied +$2.30 today to close at a new high at $122. This gives the company a market cap of $711 billion and the first company to exceed the $700 billion mark. With $178 billion in cash the odds are good shares are going higher. This cash pile is after Apple has spent $103 billion of its $130 billion dividend and stock repurchase program.

This afternoon Apple announced it was investing $848 million in a solar farm built by First Solar (FSLR) in California's Monterey County. The plant will produce enough electricity to power 60,000 homes. Apple will get 130 megawatts to power its new campus and 150 megawatts would go into the PG&E grid in California. This is the largest commercial solar deal on record and the deal is for a 25-year commitment. That $848 million is roughly four days of earnings for Apple. They made $18 billion in profit in Q4.



Micron (MU) shorts were treated to a big surprise when the company signed a new supply agreement with Inotera for 2016. Under the modified agreement Micron can purchase all of Inotera's output at discounted market prices for the rest of 2015. The only change in the 2015 agreement was the addition of "discounted" to market prices. The company also extended the deal for 2016 with a new formula that shares profits between Micron and Inotera. The agreement can be extended for another two years after 2016 and one year extensions in the years after that.

Micron shares exploded higher with a +10% gain as massive short positions were squeezed out of existence. Micron has been declining since early December as margin issues hit the DRAM sector. SanDisk warned back in early January and forced another leg down on the chip stocks. Short interest in Micron was very high. Micron has been a crowd favorite for trading in both directions for years because of the high volatility and low price. Shorts got their volatility injection today.


Shares of Pier One (PIR) were knocked for a -30% drop after the company warned that earnings for the current quarter would be in the range of 80-83 cents, down from a prior forecast of $.95 to $1.05. Analysts were expecting $1.00. The company said sales in January were "well below our forecasts" and forcing us to take a cautious view on February. Before today's drop shares had gained +10% in 2015.


Halliburton (HAL) said today it will lay off at least 5,000 to as many as 6,200 workers as a result of falling oil prices and a sharp decline in oilfield service contracts. This comes after a cut of 1,000 workers in December. Competitor Schlumberger (SLB) announced in January it was cutting 9,000 jobs. Baker Hughes (BHI), which is being acquired by Halliburton, said in January it was cutting 7,000 workers.

Also today Baker Hughes and Halliburton both received additional requests for information from the Dept of Justice in regard to the acquisition of Baker Hughes. Both companies had expected the requests. This is a formality that extends the waiting period on government approval by another 30 days. With an acquisition this large the additional time was needed.


Martin Marietta Materials (MLM) surprised investors with a +15% gain to $137 after reporting strong earnings thanks to high demand for cement. The company reported earnings of 99 cents compared to analyst estimates for 85 cents. MLM said they see rising demand for construction materials in an improving economy. They acquired cement maker Texas Industries for $2.06 billion in July and that gave them a foothold in the fast growing Texas market. The company said demand for cement in Texas is likely to outstrip supply for the next ten years. They recently hiked prices to account for the high demand. An example of the demand came from the $100 million in cement revenue in Q4 compared to $210 million for the entire year.


Molson Coors Brewing (TAP) disappointed investors with earnings of 55 cents that missed analyst estimates for 67 cents. Revenue fell of 5.3% to $973.8 million, which still beat estimates of $969 million. However, the company said beer sales were being hurt by the strong dollar and they guided for more of the same for the rest of 2015.


Dow component Coke (KO) posted a 55% decline in profits but earnings of 44 cents beat estimates of 42 cents. The company overcame a decline in carbonated beverage sales with new offerings. Coke said an earlier survey showed that more than 30% of sales came from products that did not exist 5 years ago. The younger generation is not as fond of carbonated drinks as they were in the 70s and 80s. The boomer generation is also moving away from carbonation in favor of healthier beverages.


The earnings calendar for the rest of the week is heaviest for Wednesday. Dow component Cisco systems and several other high profile companies highlight the list. After Wednesday the pace of earnings will decline significantly.


Markets

According to the Stock Trader's Almanac there has not been a down year for the third year in a presidential election cycle since 1939. Editor Jeff Hirsch said the gains normally come in the first half of the year before the presidential primary race begins to take shape. In the last half of the year the mudslinging begins and investors begin to worry about the economy.

That prediction and $5 will buy you a pricey Starbucks coffee but it won't guarantee us a positive market for the next six months. Mutual fund cash on hand is at 40 year lows. Margin debt at the NYSE is at record highs. Market breadth is shrinking and the market is being lifted by a few high profile stocks rather than broad based buying.

S&P earnings estimates for 2015 have fallen from $134 to $119 over the last four months and that type of decline has only happened twice in the last 30 years.

In theory the market is setting up for a decent decline but evidence this week suggests otherwise. If you want logic don't look in the stock market.

The S&P Midcap 400 is only two points away from a new high. The S&P-500 closed at 2,068 and just over strong resistance at 2,064. The dips are being bought again and the market could make new highs this week if Greece does not implode.


The S&P-500 inched past resistance at 2,064 to close at 2,068. I know that is not a big breakout but every point counts. The next challenge is the early December resistance at 2,075 then the all time closing high at 2,090 and the mother of all resistance 2,100. The S&P has traded in a broad range since topping out in November and it is moving back to test the upper limits of that range this week. That 2,100 level is the lower end of analyst expectations for year-end 2015. The average estimate is 2,227 but that is a long way from here. Once we hit that 2,100 level there could be a sell the news event as some investors decide the gains are in the bag. I would expect that to be very few investors but traders are another matter. Hitting 2,100 would definitely be a trading event with shorts piling on in expectation for another dip.


The rest of the week is not going to be a cake walk. If crude prices continue to fall the energy sector will be a drag on the market. Offsetting that is the sudden surge in the financial sector on expectations for a June rate hike. If we do succeed in moving over 2,075 it should draw a lot of investors off the sidelines.

Resistance (adjusted to round numbers) 2,075, 2,090, 2,100. Support 2,040.


You know it was a short squeeze day when IBM leads the list of Dow gainers. Half of the companies in this list were being heavily shorted just a week ago. The Dow is edging slowly higher with strong resistance at 17,915 to 17,960. We saw a decent +139 point gain today to close just below those levels. More importantly this rebound was from a higher low. The two day decline to 17,685 was the first higher low in a month. That is a definite technical positive. If the Dow can move over 17,915 we should see some additional short covering and a new high is actually possible. Nobody would have thought that on Friday February 2nd at 17,037.



The Nasdaq Composite is also very close to a new 14 year high. The high close in December was 4,806.91 and we closed at 4,787 today. The Nasdaq can jump that distance in a single day if traders were properly motivated but I don't see that urgency today. I would expect a slow creep higher with some possible backfilling as we get to the 4,800.

However, this is a bullish chart. Any move over 4,800 is going to attract attention and shorts will get nervous. Anyone still short this market at this level is asking for trouble.

Resistance 4,791, 4,800, 4,807. Support 4,722.



The Russell 2000 small caps continue to creep higher but resistance at 1,208 is solid. I think the Midcap 400 is going to be the spark that ignites any rally this week. If it breaks out to a new high the Russell and the Nasdaq should be right behind it.


Unfortunately there is a negative chart. The Dow Transports are not confirming any Dow move higher. The transports have formed another lower high and any uptick in oil prices is going to further pressure this sector. A break below 8,575 is really going to drag on the Dow.


In theory the internals, economics and fundamentals tell us we should be watching for a decline in the markets. The markets will always do almost the exact opposite of what analysts expect so we may see some new highs this week. However, the emergency meeting of the EU Finance Ministers on Wednesday could be a real hurdle for the rest of the week. Anything is possible and probable. While they will not vote to just kick Greece out of the Eurozone they may make it so difficult for Greece that the country decides on its own to exit. The headlines could be scary for Europe but the U.S. impact should be muted.

Assuming the FM meeting does not end in a declaration of war against Greece the market should shake it off and could move higher.

Enter passively, exit aggressively!

Jim Brown

Send Jim an email

 


New Plays

Semiconductor Strength

by James Brown

Click here to email James Brown


NEW BULLISH Plays

Linear Technology Corp. - LLTC - close: 47.17 change: +1.27

Stop Loss: 44.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on February -- at $---.--
Listed on February 10, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.7 million
New Positions: Yes, see below

Company Description

Why We Like It:
LLTC is part of the technology sector. The company makes an array of semiconductor products.

According to the company, "Linear Technology Corporation, a member of the S&P 500, has been designing, manufacturing and marketing a broad line of high performance analog integrated circuits for major companies worldwide for over three decades. The Company’s products provide an essential bridge between our analog world and the digital electronics in communications, networking, industrial, automotive, computer, medical, instrumentation, consumer, and military and aerospace systems. Linear Technology produces power management, data conversion, signal conditioning, RF and interface ICs, µModule® subsystems, and wireless sensor network products."

Back in October 2014 LLTC reported earnings that were in-line with estimates but management guided lower. They tried to soften this disappointing news by announced a 10 million share stock buyback program over the next two years (the company has about 239 million shares outstanding).

The earnings picture improved with their most recent report. LLTC reported Q4 earnings (its fiscal Q2) on January 13th. Earnings were up +16% from a year ago with a profit of $0.51 a share. That was two cents above estimates. Revenues were up +5.4% to $352.5 million, which was just a hair below expectations.

The company has retired its debt and management said they plan to increase the amount of cash they return to shareholders. With their earnings report they also announced the Board of Directors had bumped their quarterly dividend from $0.27 to $0.30. That's the 23rd year in a row LLTC has raised its dividend. Management also offered a bullish outlook on their current quarter. LLTC now expects revenues to improve +4% to +7% sequentially. That's about $366-377 million, which is above the $364 million analyst estimate.

Technically shares of LLTC have been consolidating sideways below resistance in the $47.00-47.25 zone for about eight weeks. If you look closely you can see an inverse head-and-shoulders pattern (a bullish formation). The stock was definitely showing some relative strength today with a +2.7% gain. Now LLTC is poised for a bullish breakout past resistance. We are suggesting a trigger to open bullish positions at $47.35.

Trigger @ $47.35

- Suggested Positions -

Buy LLTC stock @ (trigger)

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

Buy the May $50 CALL (LLTC150515C50) current ask $0.75

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Stocks Snap Two-Day Slide

by James Brown

Click here to email James Brown

Editor's Note:
The U.S. market ended a two-day pullback with a widespread rally on Tuesday. The NASDAQ led the charge thanks to a strong performance in semiconductor-related stocks.

DISCA hit our stop loss.

ST hit our entry trigger.


Current Portfolio:


BULLISH Play Updates

Cree, Inc. - CREE - close: 37.03 change: +1.09

Stop Loss: 33.90
Target(s): To Be Determined
Current Option Gain/Loss: +1.3%
Entry on February 05 at $36.55
Listed on February 03, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.8 million
New Positions: see below

Comments:
02/10/15: Semiconductor-related stocks were showing relative strength today. CREE surged +3.0% and looks poised to challenge its recent high near $38 soon.

Earlier Comments: February 3, 2015:
Shares of CREE might be seeing a turnaround. The company is part of the technology sector. According to a press release, "Cree is leading the LED lighting revolution and making energy-wasting traditional lighting technologies obsolete through the use of energy-efficient, mercury-free LED lighting. Cree is a market-leading innovator of lighting-class LEDs, lighting products and semiconductor products for power and radio frequency (RF) applications."

Last year was pretty rough on CREE investors. The trouble started back in 2013. Earnings have been sour. Management had developed a habit of missing earnings estimates and then guiding lower. However, after guiding lower the last two quarters in a row CREE finally offered the market some bullish guidance.

Their most recent earnings report was January 20th. Earnings came in at $0.33 a share. That's significant below the year ago period of $0.46 but their 33-cent profit beat Wall Street estimates by 11 cents. Revenues were essentially flat at $413 million.

CREE offered guidance (currently in their Q3) of $0.21-0.25 a share. That compares to analysts' estimates of $0.21. They're forecasting revenues in the $395-414 million range versus estimates of $405 million.

The last few months have been very volatile for CREE but the rally has created a buy signal on the point & figure chart that is forecasting a long-term $56 target. More importantly CREE appears to be breaking out past its long-term trend line of resistance (see weekly chart below). If this rally continues CREE could see a short squeeze. The most recent data listed short interest at 23% of the 109 million share float.

Tonight I am suggesting a trigger to open bullish positions at $36.55. We'll start this trade with a stop loss at $33.90.

- Suggested Positions -

Long CREE stock @ $36.55

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

Long MAR $35 CALL (CREE150320C35) entry $2.80

02/05/15 triggered @ 36.55
Option Format: symbol-year-month-day-call-strike


Interactive Brokers Group - IBKR - close: 32.46 change: +0.50

Stop Loss: 29.80
Target(s): To Be Determined
Current Option Gain/Loss: +4.2%
Entry on February 03 at $31.15
Listed on February 02, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 568 thousand
New Positions: see below

Comments:
02/10/15: IBKR did not see any follow through on yesterday's profit taking. The stock managed to outperform the major indices with a +1.5% gain.

Broken resistance near $31.00 should be new support. It might be time to start raising our stop loss.

Earlier Comments: February 2, 2015
One stock that has been showing some resilience the last few days has been IBKR. The company describes itself as "Interactive Brokers Group, Inc., together with its subsidiaries, is an automated global electronic broker that specializes in catering to financial professionals by offering state-of-the-art trading technology, superior execution capabilities, worldwide electronic access, and sophisticated risk management tools at exceptionally low costs. The brokerage trading platform utilizes the same innovative technology as the Company’s market making business, which executes and processes trades in securities, futures and foreign exchange instruments on more than 100 electronic exchanges and trading venues around the world."

Last month was pretty crazy for many of the brokers, especially if they had any significant forex trading operations. When the Swiss National Bank removed their currency beg it sent shockwaves through the banking, brokerage, and currency world. You can see the big spike down in IBKR on January 16th. Fortunately, IBKR said that while they did have some clients who lost money (their accounts were now negative thanks to the wild currency swings) the total amount of potential losses for IBKR was only $120 million. That is less than 2.5% of their net worth.

The stock quickly recovered. A few days later on January 20th IBKR reported its Q4 earnings results. IBKR's 12 cents per share profit was six cents better than the $0.06 estimates. Investors seemed to ignore that fact that revenues were down -16.7% to $208.1 million and below estimates. That 12-cent profit was a +71% improvement from a year ago. IBKR's average daily trading volume was up +22% from Q4 2013.

It looks like the trading momentum has continued into 2015. IBKR just announced today that their Daily Average Revenue Trades (DARTs) were up +16% from a year ago and +15% from the prior month. Client accounts rose +17% from a year ago to 285 thousand.

Looking at IBKR's performance the last few days is encouraging. The market has been volatile while IBKR has been consolidating sideways in the $30-31 zone. A breakout higher could signal the next leg up. The point & figure chart is bullish and forecasting at long-term target of $48.00.

Friday's intraday high was $31.08. Tonight we are suggesting a trigger to open bullish positions at $31.15. Investors may want to start with small positions. There is a chance that the old 2008 highs in the $32.00-32.50 zone could be overhead resistance.

*start with small positions to limit risk*

- Suggested Positions -

Long IBKR stock @ $31.15

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

Long MAR $30 CALL (IBKR150320C30) entry $1.85

02/03/15 triggered @ 31.15
Option Format: symbol-year-month-day-call-strike


Informatica Corp. - INFA - close: 43.06 change: +0.58

Stop Loss: 40.65
Target(s): To Be Determined
Current Option Gain/Loss: +1.0%
Entry on February 06 at $42.65
Listed on February 04, 2015
Time Frame: 6 to 12 weeks
Average Daily Volume = 1.5 million
New Positions: see below

Comments:
02/10/15: Shares of INFA also outperformed the broader market thanks to a +1.3% gain. The stock is about to breakout past its late January high near $43.20.

Earlier Comments: February 4, 2015:
INFA is in the technology sector. The company was getting a lot of attention last week as speculation soared they could be up for sale. The company describes itself as "Informatica Corporation (INFA) is the world's number one independent provider of data integration software. Organizations around the world rely on Informatica to realize their information potential and drive top business imperatives. Informatica Vibe, the industry's first and only embeddable virtual data machine (VDM), powers the unique 'Map Once. Deploy Anywhere.' capabilities of the Informatica Platform. Worldwide, over 5,500 enterprises depend on Informatica to fully leverage their information assets from devices to mobile to social to big data residing on-premise, in the Cloud and across social networks."

The stock had a relatively rough 2014 but appeared to bottom after investors sold the stock following its July earnings report. Things turned interesting last week. On January 26th the stock soared on news an activist investors was getting involved.

Bloomberg news said that hedge fund Elliott Associates was boosting its stake in INFA. This was later confirmed in a 13D filing. Elliott now owns an 8.8% stake in INFA. Elliott's manager, Paul Singer, said he might suggest to INFA management that they sell the company to unlock shareholder value. Shares of INFA soared on this news because Elliott Associates has had previous success pushing other companies to sell themselves.

There are critics. Some analysts believe this story to sell INFA is a fantasy. Wall Street is not a place to let the truth get in the way of a good story. Shares of INFA soared on speculation it could be up for sale (eventually). The very next day INFA reported its Q4 earnings. Results were better than expected.

INFA delivered a profit of $0.56 a share with revenues rising +10% to $303.7 million. That beat analysts' estimates on both the top and bottom line. INFA said their Q4 software revenues hit a record $150.2 million, up +12% from a year ago. They also signed a record-setting 41 deals worth more than $1 million and 145 deals worth more than $300,000. Their subscription revenues rose +53% year over year.

INFA management also announced a $500 million stock buyback program. The Board of Directors approved an additional $337 million to boost their current program. They will spend $300 million in an accelerated share repurchase program.

The combination of the activist investors news and the better than expected earnings results produced a strong one-two punch to the bears. INFA soared. There hasn't been that much profit taking. It looks like traders have started to buy the dip.

Tonight we are suggesting a trigger to open bullish positions at $42.65. We suspect that INFA will be able to breakout past its early 2014 highs in the $43.50 area.

- Suggested Positions -

Long INFA stock @ $42.65

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

Long MAR $42.50 CALL (INFA150320C42.50) entry $1.90

02/06/15 triggered @ 42.65
Option Format: symbol-year-month-day-call-strike


Silicon Motion Technology - SIMO - close: 29.78 change: +0.05

Stop Loss: 27.85
Target(s): To Be Determined
Current Option Gain/Loss: -1.2%
Entry on February 09 at $30.15
Listed on February 07, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 538 thousand
New Positions: see below

Comments:
02/10/15: SIMO began trading ex-dividend today. The quarterly dividend was 15 cents a share. I was surprised that SIMO did not gap down at the open. However, shares did show some volatility with a plunge toward $28.10 in the first 70 minutes of trading. I don't see any news to account for the relative weakness this morning. Fortunately, traders did buy the dip and SIMO bounced back into positive territory by the closing bell.

I would wait for a new rally past $30.15 before launching new positions.

Earlier Comments: February 7, 2015:
Shares of this technology stock are trading at all-time highs as sales growth surged last year. SIMO is part of the technology sector. They're considered part of the diversified electronics industry.

The company describes itself as "We are a fabless semiconductor company that designs, develops and markets high performance, low-power semiconductor solutions to OEMs and other customers in the mobile storage and mobile communications markets. For the mobile storage market, our key products are microcontrollers used in solid state storage devices such as SSDs, eMMCs and other embedded flash applications, as well as removable storage products. For the mobile communications market, our key products are LTE transceivers and mobile TV IC solutions. Our products are widely used in smartphones, tablets, and industrial and commercial applications."

Last year (2014) saw SIMO's revenues soar. Their Q2 revenues grew +19% from the year ago period. Q3 revenues were up +51.5%. Their Q4 revenues surged +53.4% to $80.5 million, which was just a hair below expectations.

Earnings are seeing similar improvement. Their most recent earnings report was January 26th. SIMO reported a profit of $40.48 a share. That is a +60% improvement from a year ago and one cent above Wall Street's estimate. Their fourth quarter saw sales of SIMO's embedded storage product soar +70% from a year ago. Their full year 2014 revenues were a company record.

Guidance was mixed. SIMO warned that Q1 could see some seasonal weakness but they still provided guidance that was relatively bullish compared to analysts' estimates. SIMO's 2015 guidance is forecasting revenue growth in the +15% to +25% range.

After peaking in September 2014 the stock did experience a correction but SIMO has since recovered. Actually that's an understatement. The NASDAQ is only up +0.6% in 2015 while SIMO is already up +25% this year. The recent strength has created a buy signal on the point and figure chart that is forecasting a long-term target of $47.00.

Currently SIMO sits just below round-number resistance at $30.00. We are suggesting a trigger to open bullish positions at $30.15.

- Suggested Positions -

Long SIMO stock @ $30.15

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

Long MAR $30 CALL (SIMO150320C30) entry $1.80

02/09/15 triggered @ 30.15
Option Format: symbol-year-month-day-call-strike


Sensata Technologies - ST - close: 52.99 change: +0.41

Stop Loss: 49.65
Target(s): To Be Determined
Current Option Gain/Loss: +0.3%
Entry on February 10 at $52.85
Listed on February 09, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.2 million
New Positions: see below

Comments:
02/10/15: Our new bullish trade on ST is now open. Shares continued to rally and added another +0.77%. Our trigger to open positions was hit at $52.85. I would still consider new positions now at current levels.

Earlier Comments: February 9, 2015:
ST is a Dutch technology company that makes sensors. According to the company, "Sensata Technologies Holding N.V. is one of the world's leading suppliers of sensing, electrical protection, control and power management solutions with operations and business centers in eleven countries. Sensata's products improve safety, efficiency and comfort for millions of people every day in automotive, appliance, aircraft, industrial, military, heavy vehicle, heating, air-conditioning and ventilation, data, telecommunications, recreational vehicle and marine applications."

ST has been delivering consistently strong revenue growth. Their 2014 Q1 revenues were up +17.3%. Q2 revenues grew +13.7%. Q3 revenues jumped +15.7%. ST reported a significant acceleration in their Q4 revenues with +39.7% growth to $705.3 million, which was above expectations. Management issued relatively cautious guidance for the first quarter and full year 2015 estimates. That did not slow the rally.

Shares of ST were showing relative strength today with a +1.7% gain. The trading in ST over the last few weeks looks like a consolidation and a new base to build its next leg higher on. Tonight I am suggesting a trigger to open bullish positions at $52.85. The $54.00 level is overhead resistance but we are expecting the larger up trend to power ST through this obstacle.

- Suggested Positions -

Long ST stock @ $52.85

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

Long JUN $55 CALL (ST150619C55) entry @ $1.85

02/10/15 triggered @ 52.85
Option Format: symbol-year-month-day-call-strike


Total System Services - TSS - close: 36.49 change: +0.42

Stop Loss: 34.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on February -- at $---.--
Listed on February 05, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 883 thousand
New Positions: Yes, see below

Comments:
02/10/15: Today's bounce in TSS erased yesterday's loss. We are still waiting for a new relative high.

Earlier Comments: February 5, 2015:
Financial stocks as a group have struggled this year. The sector is down about -4% in 2015. Yet shares of TSS is up +6.4% and trading near all-time highs.

According to a company press release, "At TSYS® (TSS), we believe payments should revolve around people, not the other way around. We call this belief "People-Centered Payments®." By putting people at the center of every decision we make, TSYS supports financial institutions, businesses and governments in more than 80 countries. Through NetSpend®, A TSYS Company, we empower consumers with the convenience, security, and freedom to be self-banked. TSYS offers issuer services and merchant payment acceptance for credit, debit, prepaid, healthcare and business solutions. TSYS' headquarters are located in Columbus, Ga., U.S.A., with local offices spread across the Americas, EMEA and Asia-Pacific."

The last few earnings reports from TSS have come in better than expected. Their most recent earnings report was January 27th. TSS' CEO said, "We finished 2014 on a high note. Organic revenue grew 5.8%, year over year, with total revenues growing 18.5% and revenues before reimbursable items up 20.2%."

Wall Street was looking for a Q4 profit of $0.53 a share on revenues of $620.4 million. TSS delivered a profit of $0.58 with revenues climbing almost 9% to $635 million. The company's guidance was only in-line with Wall Street estimates but that didn't stop shares from soaring on the news. TSS management also announced a new 20 million share stock buyback program. That's significant since the company only has 183 million shares outstanding.

The stock's up trend has created a buy signal on the point & figure chart pointing to at $40.00 target. The last few days have seen traders buying the dip. TSS looks like it's coiling for a breakout past the $37.00 level.

Given the stock's recent volatility I am labeling this a more aggressive, higher-risk trade. Tonight we are suggesting a trigger at $37.05 to buy the stock.

Trigger @ $37.05

- Suggested Positions -

Buy shares of TSS @ 37.05




BEARISH Play Updates

Abercrombie & Fitch Co - ANF - close: 24.28 change: +0.17

Stop Loss: 26.55
Target(s): To Be Determined
Current Option Gain/Loss: +2.5%
Entry on February 02 at $24.90
Listed on January 31, 2015
Time Frame: exit PRIOR to earnings on March 4th
Average Daily Volume = 2.6 million
New Positions: see below

Comments:
02/10/15: ANF briefly trades to a new multi-year low before bouncing on Tuesday. Nimble traders could use a failed rally near the 10-dma or the $26.00 area as a new entry point for bearish positions.

FYI: We will plan on exiting positions prior to ANF's earnings report on March 4th.

Earlier Comments: January 31, 2015:
The bear market in shares of ANF continue. ANF used to be one of the hottest brands for the much coveted teenage market. Unfortunately for ANF shareholders the company failed to keep up with the changing tastes of its audience.

For anyone who doesn't know who ANF is here is a bit from the a company press release, "Abercrombie & Fitch Co. is a leading global specialty retailer of high-quality, casual apparel for Men, Women and kids with an active, youthful lifestyle under its Abercrombie & Fitch, abercrombie, Hollister Co. and Gilly Hicks brands. At the end of the third quarter, the Company operated 834 stores in the United States and 166 stores across Canada, Europe, Asia, Australia and the Middle East. The Company also operates e-commerce websites at www.abercrombie.com, www.abercrombiekids.com, www.hollisterco.com and www.gillyhicks.com."

The company has been struggling with weak same-store sales for months, if not years, across all of its brands. Back in November 2014 they company issued an earnings warning (you can see the gap down on the daily chart). They reported earnings on December 3rd that was one cent above analysts' newly lowered estimates. Quarterly revenues were down -11.8%. Management then guided lower yet again.

ANF lowered their 2015 guidance from the $2.15-2.35 range to $1.50-1.65 a share. They continue to expect same-store sales to be negative an in the mid to high single digit percentages.

On December 9th the stock popped from multi-year lows after it was announced that ANF's CEO Michael Jeffries, a man whom many considered to be a terrible CEO, had abruptly retired. The rally from this headline didn't last very long.

It's interesting that consumer sentiment is currently at 11-year highs but we're not seeing that translate into consumer spending. Many have been expecting (hoping) that all the money consumers are saving at the gasoline pump, thanks to oil at six-year lows, would be spent on other items. Thus far we are not seeing any big trends that consumers are spending their savings and it's definitely not going toward teen apparel retailers.

There is a lot of short interest in this stock thanks to the bearish outlook for the company. This time the bears might be right. The most recent data listed short interest at 35% of the 68.1 million share float. That does raise the risk of a short squeeze should ANF suddenly bounce.

Another risk for the bears in ANF is M&A headlines. Now that the old CEO is gone there has been some speculation that ANF is a takeover target. The company also might be a target for a leveraged buy out offer to take ANF private. While this is a risk we can't time it. Any such news, if it ever happens, could be months or years away.

Right now ANF continues to underperform the market and is currently down -10% in 2015. The point & figure chart is forecasting a $17.00 target. Looking at the long-term chart the nearest support might be the $22.50 area or the $17 area.

Tonight I am suggesting a trigger to open bearish positions at $24.90.

- Suggested Positions -

Short ANF stock @ $24.90

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

Long MAR $25 PUT (ANF150320P25) entry $2.20

02/05/15 new stop at $26.55
Option Format: symbol-year-month-day-call-strike


Greif, Inc. - GEF - close: 39.25 change: +0.16

Stop Loss: 40.35
Target(s): To Be Determined
Current Option Gain/Loss: +1.7%
Entry on January 26 at $39.94
Listed on January 24, 2015
Time Frame: Exit PRIOR to earnings in late February
Average Daily Volume = 177 thousand
New Positions: see below

Comments:
02/10/15: Shares of GEF saw a sharp sell-off this morning. The stock was down about -5.6% at its worst levels of the day. The selling didn't last long and GEF bounced back to close almost unchanged on the session. I don't see any specific news behind the weakness this morning. I am not suggesting new positions.

Earlier Comments: January 24, 2015:
Shares of GEF are crumbling like wet cardboard. The company operates in the consumer goods sector. They make packaging and container products. According to a company press release, "Greif is a world leader in industrial packaging products and services. The company produces steel, plastic, fibre, flexible, corrugated and reconditioned containers, intermediate bulk containers, containerboard and packaging accessories, and provides blending, filling, packaging and industrial packaging reconditioning services for a wide range of industries. Greif also manages timber properties in North America. The company is strategically positioned in more than 50 countries to serve global as well as regional customers."

Unfortunately for investors GEF did not have a good 2014 on the earnings front. They missed analysts estimates the last four earnings reports in a row. In August 2014 GEF's management guided earnings lower. In December they lowered guidance again.

GEF's most recent earnings report was January 14th and Q4 earnings plunged -90% to $8.7 million. Revenues dropped -4% to $1.05 billion, below Wall Street estimates. For all of 2014 GEF said profits declined -38% and revenue slipped -3%. Once again management guided earnings lower. They now expected 2015 earnings in the $2.25-2.35 range compared to Wall Street estimates of $2.78 a share.

The company's earnings report provided an outlook where management issued this statement:

The company anticipates the overall global economy to reflect a modest recovery in fiscal 2015, with positive aspects of the improving economy in the United States being offset by the negative trends in other regions, particularly in Europe and Latin America. We anticipate that foreign currency matters will continue to present challenges for the company, as the strengthening of the United States dollar against other currencies will continue to impact the company’s revenues and net income.

Following GEF's Q4 results several analyst downgraded their rating on the stock. The point & figure chart is bearish and currently forecasting at $31.00 target.

Technically Friday's display of relative weakness (-2.7%) broke down through significant support near $40.00. We are suggesting bearish positions immediately on Monday morning. More conservative traders may want to wait for a little confirmation (perhaps a decline below $39.25). The nearest support looks like the $35 and $30 regions.

NOTE: GEF does have options but the spreads are too wide to trade.

- Suggested Positions -

Short GEF stock @ $39.94

02/05/15 new stop at $40.35
01/26/15 trade began this morning. GEF opened at $39.94


CLOSED BEARISH PLAYS

Discovery Communications - DISCA - close: 30.84 change: +0.79

Stop Loss: 30.85
Target(s): To Be Determined
Current Option Gain/Loss: -0.9%
Entry on January 14 at $30.57
Listed on January 13, 2015
Time Frame: Exit PRIOR to earnings on Feb. 19th
Average Daily Volume = 3.8 million
New Positions: see below

Comments:
02/10/15: A broad based market rally helped DISCA breakout from its recent trading range. Short covering probably helped push DISCA to a +2.6% gain today. Our stop loss was hit at $30.85. Without much time left on our February put option the value declined pretty quickly.

- Suggested Positions -

Short DISCA stock @ $30.57 exit $30.85 (-0.9%)

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

FEB $30 PUT (DISCA150220P30) entry $1.20 exit $0.35 (-70.8%)

01/15/15 new stop @ 30.85
01/14/15 triggered on gap down at $30.57, trigger was $30.90
Option Format: symbol-year-month-day-call-strike

chart: