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Newsletter

Daily Newsletter, Wednesday, 2/11/2015

Table of Contents

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

Market Wrap

Headline Driven

by Keene Little

Click here to email Keene Little
With central bank money holding up the stock markets investors have long ago abandoned fundamental reasons for buying. Now the market is headline driven and the market is holding up in hopes there will be a successful effort to kick the can further down the road for Greece.

Wednesday's Market Stats

The market's volatility over the past three months has continued and the indexes are threatening to break out of bullish continuation patterns. But so far the breakout attempts have been on low volume and relatively weak market breadth, which gives pause to the idea that the bullish continuation patterns will work for the bulls. And if they don't work then the bears are going to pounce.

Part of the reason for the market's choppy behavior recently has to do with the news coming out of Europe, especially relative to Greece and its debt issue as well as what's happening in Ukraine and the beating of chests between the U.S. and Russia. The market doesn't like uncertainty and it makes it hard for the market to rally when there's real fear about what could happen to the EU if the dominoes start to fall, starting with Greece (which could lead the way for Portugal, Spain, Italy and others).

If Greece defaults on its loans, is forced out of the EU and then improves its economy by itself it will only embolden other countries to do the same. Nationalism is already coming to the fore as immigration issues, terrorist activities and labor protection prompts some to declare the need for border checks to be reinstituted. It's a slippery slope back to pre-EU days and that would only further push Europe, especially Germany (which is dependent on the rest of the EU to take their products), into a depression. The U.S. and the rest of the world would not be immune to significant trouble in Europe.

The big thing supporting the stock markets is all of the money coming out of central banks. Even without the Fed at the moment (they'll be back), there's now $60B/month of monetary stimulus coming from Japan and theoretically about $50B/month coming from Europe, which means about $110B of new money coming into the global financial markets every month. Much of that money is flowing into global stock markets, the U.S. included, and it's likely one reason why the stock markets have not been cratering on all of the worrisome news coming out of Europe recently. To say this new money is creating an extreme imbalance in the financial markets would be a gross understatement but for now it's certainly enough to keep the bears away.

The stock indexes have had a very volatile period since last November while prices have gone essentially nowhere. Today's closing price for SPX, at 2068, is where it was last Thanksgiving (the latter part of November). It's been a good trading environment if you were able to catch some of the swings but buy-and-holders have been marking time, with a couple of good scares thrown in there just to make things exciting.

What's still not clear, after nearly three months of this choppy whipsaw market, is whether or not we should expect higher highs. If yes then we should see them this month. If no then we should see prices below the 3-month trading range before the end of this month. The market is currently at the mercy of headline news and appears to be holding up under the assumption that the issues with Greece will be solved in a way to at least kick the can a little further down the road so that the Syriza party officials can tell the Greek people what a great job they're doing and the EU ministers can delay any resolution as to how Greece will pay back its debt. Each side has a strong desire to keep themselves in power and will do and say anything to make that happen.

In the meantime the market is having a tougher time justifying the higher stock prices when it comes to fundamental analysis. The chart below shows the expected earnings per share and sales growth for the coming year and as you can see, those expectations have been in decline since last September (interestingly, that's when the NYSE topped). The current projection is for zero sales growth and the EPS estimate is about a third of where it was in September (about 4% vs. more than 12%). And yet the DOW and SPX and others continue to hold near their highs and might even press higher this month. This is what the money from the central banks has done and this is why I say the disconnect between stock prices and reality will likely collapse quickly when (not if) it happens. The yield-chasing money managers simply continue to push prices higher regardless of value but as with all bubbles, this one too is simply looking for a pin to prick it.

Earnings per share and sales growth consensus for 2015, chart courtesy businessinsider.com

Another sign of the slowdown in the global economy (and we're all inextricably linked) is the continuing decline in the Baltic Dry Index (BDI), which has declined sharply since last November and is now below where it was at the end of 2008 and at the beginning of 2012. There's simply not as much product, especially commodities, that are shipping around the world. It's why we've seen such a large decline in commodity prices since the peak in prices in 2011. There's no good reason for stock prices to be as high as they are except for the fact that hot money (newly created from central banks) continues to chase prices higher. It's a game of musical chairs and everyone's hoping to grab a chair when the music stops.

But those are things to worry about if you're long the market and hope to see the writing on the wall before the bottom falls out. The scary thing is how many money managers are waiting for the same thing and I fear (for those who will get trapped in long positions) that when the music stops and money managers pull their money out of the market there will be no one on the other side of the trade to buy the stock from them. This is what creates the flash-crash scenario and we've had brief tastes of it in the past. But still, most people think the Fed will save them and they continue to buy without regard for downside risk. We could find out soon how well that works out for them.

Moving to the charts, as confusing as this market currently is, we still have the best chance of seeing where prices might turn or get confirmation when a new trend might start (at the present the trend is a choppy sideways move). The weekly chart is bullish if only because price is still above the uptrend line from March 2009 - October 2011, which was tested last week. This argues for another rally up to the trend line along the highs from April 2010 - May 2011, currently near 2143. But I also see the potential for a bear flag pattern for all of the choppy price action we've seen since mid-December and price is currently at the top of the flag. The bulls need to keep the rally going from here otherwise we might see another leg down to at least the 1970 area. The bulls are in control and the bears need to respect the upside potential but the bears would take back control if SPX drops below the February 2nd low near 1981.

S&P 500, SPX, Weekly chart

My daily chart is full of trend lines as I try to find where price will head next. When it gets choppy and whippy as it's been I find trend lines are often successful in identifying where and when price will reverse. It might not be a lasting reversal but it's often good for a day trade (or short swing trade). Instead of a bear flag pattern that I drew on the weekly chart, I've been watching an expanding triangle on the daily chart and SPX is currently banging its head at the top of the triangle (this is a bearish pattern). At the same time SPX is also back-testing its broken uptrend line from October through the January 6th low. You can see how price has reacted around these uptrend lines from October through the successive lows.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2080
- bearish below 1972

The bearish setup is for another leg down at least equal to the December 29 - Jan 6 decline, which targets 1972 from here, and potentially down to the 1900 area in what could turn into a stronger reversal of the rally. The bullish pattern, also drawn on the daily chart, is a bullish descending wedge following the December high, and the breakout on February 5th was followed by a back-test and bullish kiss goodbye with this week's rally. It says we should rally up to at least the 2125 area (trend line across the highs from July-December 2014. It's an important inflection point and the news about Greece could be the catalyst for the next big move.

The 60-min chart below shows multiple patterns. "Pick one, any one" is what I feel like telling the market here. Just pick one and let's get the next move started. This jerking around inside a wild trading range is getting old so let's get a new trend started. Watch for the possibility of only a head-fake break above 2080 but a rally above that level that can hold above it would be bullish and I'd look for 2125 minimum. Below 2401 would be bearish with a bearish warning below today's low at 2058.

S&P 500, SPX, 60-min chart

The DOW's daily chart below shows a bull flag for its consolidation pattern following the December high. I could easily add the expanding triangle, similar to the one for SPX, so this is just one possibility. The breakout last week from the bull flag pattern was followed by a bullish back-test on Monday (along with its 50-dma) and that keeps it on a buy signal until negated with a drop below Monday's low at 17685, which would be better confirmed with a break back inside the flag pattern, which would indicate a failed breakout attempt, and below the 20-dma, currently at 17576.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 17,950
- bearish below 17,575

NDX finally made it up to the top of its descending triangle pattern yesterday and today's rally had it breaking out the top. That's bullish and if it can now hold above the top of the triangle (downtrend line from November-December), near 4281, it will stay bullish. But a drop back below 4280 would leave a failed breakout attempt and that would get the sellers all over it. Pooh Bear would see it as a honey pot and he'd be jumping in with both feet. Better confirmation for the bulls would be a rally above the December high at 4323 and for the bears it would be a decline below Monday's low at 4206.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4323
- bearish below 4206

SOX and BKX are two good indexes to keep an eye on when trying to guess the direction of the market. If they're in synch it's generally good to follow their lead. When they're not in synch it's usually a time of consolidation for the market (choppy whippy moves), like today. One of the biggest semiconductor stocks to watch is Intel (INTC) since it's typically a good barometer for the broader market. While the broader market got a strong rally last week, the same thing cannot be said for INTC and that's a bearish warning sign (or at least be careful about trusting the rally).

Last week INTC consolidated the previous week's loss, which was a big one (-9.4%). As can be seen on its monthly chart below, the rally into the December 2014 high had it poking above the top of a long-term parallel channel, which slopes slightly down from 2002. This channel is a very large consolidation before an expected 2nd leg down to complete a larger A-B-C pullback from 2000. INTC had also rallied up to its trend line along the highs from April 2010 - May 2012, with a slight poke above it in December. The brief throw-over above the line was followed by a selloff into the end of January and the drop back into the channel created a sell signal. On a longer-term basis, by this pattern, INTC is now on a sell signal that can only be negated with a rally above its December high at 37.90.

Intel Corp, INTC, Monthly chart

Moving in closer, the weekly chart of INTC below shows it's currently finding support at its uptrend line from February 2014, near 33, which is also the location of its 200-dma. If the bulls can't hold 33 we'll know INTC is in trouble but at the moment it would not be hard for me to argue for one more minor new high, just above 38, to complete a 3-drives-to-a-high topping pattern. That would be pure speculation from here but bears need to respect the possibility. You can see the significant bearish divergence at the December high vs. the prior highs in July and September 2014.

Intel Corp, INTC, Weekly chart

Last Thursday the RUT broke its downtrend line from December and this week it dropped back down to the line, currently near 1189, which so far is holding on the back-test. The bulls would like to see a bullish kiss goodbye and new highs, in which case we could be looking for a rally for the rest of this month, with the potential for the RUT to make it up to its broken uptrend line from March 2009 - October 2011, which will be near 1260 by the end of the month. That would be the 3rd back-test, following the ones in November and late December, which would create a 3-drives-to-a-high topping pattern. That's a setup we'll worry about if and when the RUT makes it up to there. But if last week's breakout attempt fails to hold and the RUT drops back below 1180 it will leave a bearish failure and the result would likely be strong selling to follow.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1217
- bearish below 1180

Recently I've been showing the TLT (20+ year Treasury ETF) weekly chart to point out how it had rallied up to potentially strong resistance at its trend line along the highs from December 2008 - July 2012, as well as its trend line along the highs from February-October 2014. It popped above the latter at the end of January and almost tagged the longer-term trend line but then fell back below both when it gapped down on February 3rd, creating a sell signal. This morning TLT dropped down to its 50-dma, near 129.10, and the short-term bullish divergence on its intraday charts suggested support at the 50-dma would likely hold, which it did. At the moment it's looking like we can expect at least a bounce correction to the decline from January 30th.

20+ Year Treasury ETF, TLT, Daily chart

I see the potential for TLT to rally to a minor new high, perhaps up to about 139.30 (depicted in green) to complete a 5-wave move up from September 2014 but this requires the current pullback to stay above the October 2014 high at 127.68. With today's low at 128.96 there's not much wiggle room left, which makes support at its 50-dma that much more important here. A drop below 127 would be more bearish and confirm an important high is in place for bonds.

The banks have been relatively weak compared to many of the other indexes and has underperformed SPX since September 2014. As can be seen on the BKX weekly chart below, it has essentially gone nowhere since the beginning of 2014 and in the process has created a bearish expanding triangle topping pattern. This can be viewed as the left half of what could develop into a diamond top. Last week BKX got a strong bounce but so far it's only good enough for a back-test of its broken uptrend line from March 2009 - October 2011, which was broken in January. This is a bearish setup and if BKX starts heading lower it would be a warning sign to not trust any rally in the broader market (follow the money).

KBW Bank index, BKX, Weekly chart

Very little has changed in the past week for the U.S. dollar. The pullback from its high on January 26th is a 3-wave pullback correction that found support at the top of its parallel up-channel from 2008-2011 and another leg up to the 97.35 area continues to look like the higher-odds scenario. The dollar would be in trouble below the February 3rd low at 93.38.

U.S. Dollar contract, DX, Weekly chart

Gold's high on January 22nd stopped a little short of its broken uptrend line from 2001-2005 (bold green line on the weekly chart below) and has since dropped back down, leaving a back-test and bearish kiss goodbye. It is now back down to its broken downtrend line from October 2012 - July 2014, near 1221, so now we'll see if the bulls can chase the gold bears away. In addition to support at its broken downtrend line the pullback from January has two equal legs down at 1217.80, which was achieved with today's low at 1216.50. It could be good for a bounce here but I think the larger bearish pattern continues to hold sway and another new low for gold is expected in the coming months. Gold needs to get above 1350 before I would turn bullish the shiny metal.

Gold continuous contract, GC, Weekly chart

So far the price action following the low in January for oil has been corrective and it's doing what I thought it might -- it looks like it's in the early stages of what should turn into a multi-month consolidation before heading lower later this year. Until and unless oil can climb back above price-level S/R near 58 I would not turn bullish on oil, especially since there's still the risk for oil to drop down to its January 2009 low at 33.20. Other than some short-term trades I don't see a good trading environment for oil here.

Oil continuous contract, CL, Weekly chart

Tomorrow's economic reports include unemployment claims and retail sales data before the open. The retail sales data could move the market but frankly I don't think the market cares one wit about economic data. It's driven by one thing only now -- how much cash is coming into the markets courtesy of the central banks. The only affect that economic reports have is based on what the market thinks about how it will affect the thinking of the Fed in regards to raising rates. My hope at this point is that Rand Paul generates enough support to audit the Fed and start the process of dismantling the central bank. There would be short-term hell to pay in the markets but once equilibrium is reestablished, through the free market system, we'd all be much better off and we'd stop the insane transfer of wealth for Mom and Pop saver to Wall Street bankers. It's probably a pipe dream but I have to remain hopeful that it will eventually happen.

Economic reports and Summary

The stock market has been stuck in the mud for almost 3 months but the wheels have been spinning fast and splattering lots of mud over both parties trying to help get it unstuck. There's a huge battle going on between the bulls and the bears as the bulls argue there's too much money coming into the markets (courtesy of the central banks) to ignore. It needs to get put to work and that will drive stock prices higher. Funnymentals be damned, full speed ahead.

The bears talk about the huge disconnect between stock prices and reality -- the global economy is heading for the toilet, central banks are creating a bubble and this is going to end in tears for the bulls. And guess what, both sides are correct and that's why the battle continues as each side remains somewhat convinced in their argument but not enough to overpower the other side.

The indexes are on the verge of breaking out and it needs just one good day to convince the bears to back off and let this thing ride. A new rally could be good for at least another +5% for the market and new all-time highs this month. Other than a quick pop up and then immediate strong decline, buying a breakout from here could be a good swing trade. But carrying overnight, with the inherent huge downside risk, would be very risky in my opinion.

If the current breakout attempts fail to hold and the indexes drop below Monday's lows I think traders would have a good swing trade on the short side for prices to drop at least marginally below the January lows. It could get much more bearish than that but for now I think that's a good downside target. Traders who are playing short term are the ones who are doing better than the ones swinging for the fences. Home run time will come but not yet.

For those who like numbers, here's an interesting one to think about -- 2094.78, which is about a point above the December 2013 high for SPX. Taking the March 2009 low at 666.79 and multiplying it by pi (3.14159...) gives us 2094.78. The fact that the December 2013 high for all intents and purposes achieved that level could be purely coincidental, or maybe not.

Good luck and I'll be back with you next Wednesday.

Keene H. Little, CMT

In the end everything works out and if it doesn't work out, it is not the end. Old Indian Saying


New Plays

Looking For Safety

by James Brown

Click here to email James Brown


NEW BULLISH Plays

Altria Group Inc. - MO - close: 54.76 change: +0.99

Stop Loss: 52.80
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on February -- at $---.--
Listed on February 11, 2015
Time Frame: 10 to 16 weeks
Average Daily Volume = 7.8 million
New Positions: Yes, see below

Company Description

Why We Like It:
The yield on the U.S. 10-year note is trading just below 2%. Two weeks ago the 30-year U.S. note had dropped to multi-decade lows. Yields on sovereign debt from healthy European countries like Germany are trading near all-time lows near zero. Last week saw yields on huge European corporate debt, like Nestle, actually go negative.

Super low or negative yields paints a picture that investors are nervous. Smart money is looking for safety. They would rather park their money in bonds with little to zero yield (or even negative yield in some cases) just to know their money is safe. This is one reason why shares of MO look so attractive. Even at all-time highs, like it is now, MO has a 3.9% dividend yield.

The traditional cigarette industry is slowly dying. That's a good thing since the practice is so poisonous. The cigarette industry saw the volume of cigarettes decline -2.5% in the Q4 2014 and down -3.5% in all of 2014. The drop in volume for MO was not quite that bad. Yet even though the number of cigarettes being sold is falling the company continues to make money and a lot of money at that!

One secret to MO's profitability has been price increases and stealing market share from its rivals. A strong stock buyback program also helped its earnings numbers. Last quarter the company spent $260 million buying about 5.3 million shares of its stock. This helped boost its earnings per share growth to +15.8% in the fourth quarter. Results were $0.66 a share, in-line with estimates. Revenues grew +4.7% to $4.61 billion, which beat analysts' expectations.

Almost 90% of MO's business is still in the smokeable category (i.e. traditional cigarettes). They managed +3.3% revenue growth even though their volumes were down -1.7%. They're also seeing growth in their smokeless products, namely the e-cigarette business. Management offered bullish guidance of +7% to +9% growth in their earnings per share for 2015.

MO is likely to stay a popular investment among yield-conscious traders, especially since their business is so addictive, I mean predictable. The stock has been consolidating sideways in the $53.00-55.00 zone the last couple of weeks. Today shares displayed relative strength with a surge toward the top of this range. We want to be ready if MO breaks out. Tonight I am suggesting a trigger to open bullish positions at $55.25. Keep in mind that MO is something of a slow-moving stock. We will need to be patient for this trade to pay off.

Trigger @ $55.25

- Suggested Positions -

Buy MO stock @ $55.25

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

Buy the JUN $55 CALL (MO150619C55) current ask $1.88

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Markets Deliver A Quiet Session

by James Brown

Click here to email James Brown

Editor's Note:
The major U.S. indices recovered from their intraday lows. The rebound stalled near the unchanged level. Investors could be waiting for more clarity on the Greece situation.

GEF hit our stop loss.


Current Portfolio:


BULLISH Play Updates

Cree, Inc. - CREE - close: 36.86 change: -0.17

Stop Loss: 33.90
Target(s): To Be Determined
Current Option Gain/Loss: +0.8%
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:
02/11/15: CREE rebounded off its short-term trend line of higher lows midday. The stock pared its losses by the close to less than -0.5%. I would be tempted to buy this bounce but more conservative traders may want to raise their stop.

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: 32.47 change: +0.01

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:
02/11/15: IBKR quietly churned sideways in a 40-cent range most of the day. I don't see any changes from my prior comments.

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: 43.39 change: +0.33

Stop Loss: 40.65
Target(s): To Be Determined
Current Option Gain/Loss: +1.7%
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:
02/11/15: INFA continued to push higher on Wednesday with a +0.7% gain. The stock has broken out past potential resistance at its January highs. Now this stock faces potential resistance at its January 2014 highs near $44.00.

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


Linear Technology Corp. - LLTC - close: 47.23 change: +0.35

Stop Loss: 44.90
Target(s): To Be Determined
Current Option Gain/Loss: -0.3%
Entry on February 11 at $47.35
Listed on February 10, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.7 million
New Positions: see below

Comments:
02/11/15: Our brand new play on LLTC is open. Shares briefly traded to new multi-month highs and above resistance. LLTC hit our suggested entry point at $47.35 before paring its gains. I'd like to see more follow through higher. Traders looking for an entry point may want to wait for a rally past today's high at $47.50 as an alternative entry point.

Earlier Comments: February 10, 2015:
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.

- Suggested Positions -

Long LLTC stock @ $47.35

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

Long May $50 CALL (LLTC150515C50) entry $0.85

02/11/15 triggered @ $47.35
Option Format: symbol-year-month-day-call-strike


Silicon Motion Technology - SIMO - close: 28.87 change: -0.91

Stop Loss: 27.85
Target(s): To Be Determined
Current Option Gain/Loss: -4.2%
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:
02/11/15: Hmm... our SIMO trade could be in trouble. Shares displayed volatility yesterday. Today the stock showed relative weakness with a -3.0% decline on no news. The nearest support is $28.00 and our stop is at $27.85. I am not suggesting new positions at this time.

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: 52.30 change: -0.69

Stop Loss: 49.65
Target(s): To Be Determined
Current Option Gain/Loss: -1.0%
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:
02/11/15: ST underperformed the market today with a -1.3% pullback. If this dip continues the nearest support is probably the 50-dma near $51.25. Investors may want to wait and see if ST tags its 50-dma before considering new positions.

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: 36.52 change: +0.03

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:
02/11/15: TSS continues to consolidate sideways. There is no change from my recent comments. We want to see shares breakout past $37.00.

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: 24.51 change: +0.23

Stop Loss: 26.55
Target(s): To Be Determined
Current Option Gain/Loss: +1.6%
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:
02/11/15: ANF has produced a little bit of an oversold bounce with gains the last two days in a row. Shares might be trying to fill the gap. 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


CLOSED BEARISH PLAYS

Greif, Inc. - GEF - close: 40.27 change: +1.02

Stop Loss: 40.35
Target(s): To Be Determined
Current Option Gain/Loss: -1.0%
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:
02/11/15: The last couple of days have been volatile for GEF. Yesterday saw the big intraday move. Today shares continued to bounce and outperformed the broader market with a +2.59% gain. The breakout past short-term resistance at $40.00 is potentially bad news for the bears. Our stop loss was hit at $40.35.

- Suggested Positions -

Short GEF stock @ $39.94 exit $40.35 (-1.0%)

02/11/15 stopped out
02/05/15 new stop at $40.35
01/26/15 trade began this morning. GEF opened at $39.94

chart: