Option Investor
Newsletter

Daily Newsletter, Tuesday, 2/17/2015

Table of Contents

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

Market Wrap

All Greece All the Time

by Jim Brown

Click here to email Jim Brown

The market seems to be hanging on every word coming out of the negotiations over the Greek bailout program. Every headline causes immediate but minor moves in the indexes. The biggest hit came from the Monday battle between Germany and Greece that caused a temporary but abrupt end to talks. Cooler heads prevailed today and the markets recovered.

Market Statistics

The headline battle on Monday caused the S&P futures to drop more than -10 points in overnight trading. The Dow opened lower by about -60 points but recovered throughout the day as the Greek talks progressed. News in mid afternoon that Greece may ask for an extension of the bailout temporarily lifted the markets but once the headline was confirmed it was not an extension of the bailout but only of the existing loan program. The markets gave back their gains and there was $1.4 billion in market on close orders at 3:45. The dip buyers prevailed and the indexes managed to post some minor gains with the S&P adding only +3 but still making a new high.

The market appears to be on hold because of the Greek crisis and the FOMC minutes on Wednesday. Nobody knows what to really expect from a negative decision on Greece and they are afraid the FOMC minutes could also indicate a larger possibility for a rate hike.

The economic reports did not help bullish sentiment. The NY Empire Manufacturing Survey headline number declined from 10.0 in January to 7.8 for February. The new orders component declined from 6.1 to 1.2 and just barely over contraction territory. The unfilled orders component improved slightly from -8.4 to -6.7 but it has been in contraction territory now for over a year.

The prices paid component rose from 12.6 to 14.6 indicating higher costs but the prices received component declined from 12.6 to 3.4 indicating they are getting less for their higher cost goods. On the positive side the capital expenditure plans rose from 14.7 to 32.6 suggesting business believe this is a good time to expand. That is a key sentiment indicator since businesses would not expand if they thought conditions were going to weaken.


The NAHB Housing Market Index for February declined slightly from 57 to 55 after a high of 58 in November. The buyer traffic component declined from 44 to 39 but that could be a result of the onslaught of harsh winter weather. That was the lowest level since July 2014. To rebut that idea the Northeast where the weather was the worst saw the conditions improve from 43 to 48 and its first gain in three months. It was the Midwest that dragged the index lower with a drop from 59 to 49. The West remains the strongest region with conditions falling only slightly from 65 to 64. The South was flat at 56.

Builder sentiment remains fairly strong and low mortgage rates should help the spring buying season that began on President's Day. However, mortgage rates jumped an eighth of a point today alone and so far in February we have seen the biggest monthly rate bounce in six years and the month is only half over.


Internet E-Commerce sales for Q4 rose from $77.8 in Q3 to $79.6 billion. That is a relatively mild +2.3% increase from Q3 but a whopping +14.6% increase from Q4-2013. Sales in Q3 rose +3.6% so the pace of increase slowed in the holiday quarter. E-Commerce sales have been rising steadily to 6.7% of all retail sales compared to 6.6% in Q3. Internet sales have risen for 24 consecutive quarters and without a U.S. recession analysts expect them to continue rising.

The calendar for Wednesday is highlighted by the FOMC minutes and a possible reason why the market action today was muted. While nobody really expects any bad news from the minutes the worry over rate hike language is a cloud over the market.

This drives me crazy. Historically, despite the Fed telegraphing the move months in advance the market tends to decline about -6% on the first rate hike. In the months and hikes that follow the market tends to rise because business conditions are improving enough for the hikes to take place. This means for the next several months the market will remain nervous about the timing of the first hike, which is now expected to be June.

The Philly Fed Manufacturing Survey on Thursday is an important report but it is not expected to really move the market unless if misses the estimate by a wide margin.

Yellen's testimony next Tuesday is the real hurdle but at least the Greek issue should be resolved by then.


GoPro (GPRO) soared +12% today as the lockup expired on 76 million shares. This effectively doubles the amount of shares available to trade. The key here is that more than 50% of the float on GoPro was sold short in expectations for a flood of insider selling when the lockup expired. There was a surge in volume from the average of 7.9 million shares to 15.7 million today. The price spike suggests that was probably a lot of shorts trying to cover. Analysts are relatively undecided on the stock with 5 buy ratings and 10 with hold ratings according to FactSet.


Shares of Vipshop Holdings (VIPS) surged +15% after reporting earnings of 12 cents compared to estimates of 14 cents. The earnings miss failed to hurt the stock thanks to a sharp uptick in sales. Revenue rose +109% to $1.36 billion and that easily beat estimates of $1.23 billion. The number of active users rose +114% to 12.2 million. The company guided for revenue in the range of $1.25-$1.30 billion with analyst estimates at $1.21 billion. The guidance upgrade was responsible for the big stock gains.


Waste Management (WM) wins the price for the most volatility. On Friday WM gapped down from $52.70 to $50.70 on a downgrade from buy to hold by Stifel. Today the stock rallied +5% to $54 on earnings of 67 cents compared to estimates for 61 cents. Revenue of $3.44 billion was slightly below estimates for $3.5 billion due to a divestment of Wheelabrator Technologies. However, the board approved a $1 billon buyback program to be completed in 2015. The trash hauler guided for earnings in the $2.48-$2.51 range and analysts were expecting $2.48. Just yesterday the CEO said the drop in oil prices was making recycling unprofitable.


Fossil (FOSL) reported earnings of $2.69 but that missed estimates of $3.07. Revenue of $1.07 billion also missed estimates of $1.12 billion. Currency headwinds reduced sales by $32.5 million. Even worse the company is expecting a sales decline in Q1 of 5.5% to 7.5% with some of that due to the strong dollar. They guided to a "best case" for the full year of a +1% increase in revenue with a worst case a -3% decline. Investors were not happy. Shares fell -14% to $85 in afterhours trading.


Jack in the Box (JACK) parent of Qdoba Mexican Grill, reported a 24% increase in earnings to 93 cents compared to estimates for 87 cents. Revenue of $468.6 million beat estimates of $460.3 million. The company guided for full year earnings in the range of $2.85-$2.97 and analysts were expecting $2.84. Same store sales at Jack in the Box stores rose +3.9% and Qdoba sales rose +12.9%. They guided for 4% growth in 2015 with 8.5% sales growth at Qdoba. I hate this because JACK shares spiked to $91.20 after the report and I was hoping for a dip to the 30-day average at $84.50 for an entry point.


Rackspace (RAX) reported earnings of 26 cents that beat estimates of 19 cents but revenue was light at $472.4 million. The company warned for the current quarter saying revenue would be in the range of $477-$484 million and analysts were expecting $492.6 million. Amazon Web Services is killing the datacenter service business and RAX is in the crosshairs. The company also said the strong dollar was a headwind since 32% of their customers were non-U.S. clients. Shares fell -$2.50 in afterhours.


The earnings calendar is shrinking and after this week there will be only a few left to report. The highlight on Wednesday is oil driller EOG and Solar City. Thursday is the last big day with Priceline and Walmart the highlights. The Q4 cycle is nearing the end and traders will have to look elsewhere next week for trade ideas.


Celsus Therapeutics (CLTX) shares fell -81% on news their lead drug failed a mid-stage study. The company said it would stop developing the experimental drug to fight inflation for ulcerative colitis and psoriasis. Turn out the lights, the party is over.


A rebound in crude prices helped lift the market off its lows. The dip to $50.81 early this morning depressed the energy stocks and the recovery surge to a high of $54.15 lifted those same stocks off the bottom and relieved the pressure on the indexes.

There is an analyst war on the price of oil. Goldman said the recent decline in active rigs will not slow down U.S. production growth, which hit a 35 year high last week at 9.223 mbpd. Active oil rigs have declined about -35% to 1,056 but Baker Hughes expects a decline of 40% to 60%. Goldman is expecting an oil price in the lower $30s.

Morgan Stanley believes the supply glut that caused the crash is quickly coming under control. "We are seeing tentative signs that oil markets are starting to rebalance later this year." Analyst Martin Rats said, "Make no mistake there is still overproduction, but the estimated amount of overproduction is getting smaller and that is a positive development." Morgan Stanley upgraded Oil Services and Exploration and Production stocks to "attractive."

Analyst and economist Gary Shilling believes the price is going down to $10-$20 per barrel. He said U.S. production is expected to rise +300,000 bpd in 2015 because it is the inefficient rigs and low return fields that are being idled. Rigs drilling in the strong production areas are still going full speed ahead. In addition the recent Iraq deal with the Kurds will allow another 550,000 bpd of Iraq oil to enter the market.

However, offsetting Shilling's dire forecast is the drop in production in Libya to almost zero due to the heavy fighting. Also, the IEA said it was seeing some declines in activity in the Middle East as a result of the drop in oil prices. All of these factors will influence future prices.

My worry is that when available storage capacity fills up the 1.3 mbpd of excess production today will have nowhere to go. That is when the prices will implode. If demand for cheap oil can increase quickly and oil production in conflict areas around the world decline we may not see that over capacity event. Right now I am not holding my breath.


Mortgage rates are exploding higher because treasury yields are also surging. Two weeks ago we saw a 1.65% yield on the ten-year treasury. That yield has surged to 2.145% over just the last ten trading days. It rose +6.1% (12 bps) today alone. We may finally be seeing the "great rotation" everyone has been predicting for the last two years. If the Fed is really going to begin hiking rates then bonds are no longer a safe haven. If you owned the ten-year treasury two weeks ago you were a happy camper but the rebound in yields has been very painful. The bond market may be moving from TINA status (there is no alternative) to junk status as investors rotate out of bonds and into stocks at new highs. As I have said many times in the past nothing pulls investors off the sidelines faster than new market highs.


Markets

The markets hit new highs again today with the exception of the Dow, which closed -6 points under a new high. That is close enough to count. The markets appear to be pricing in a compromise deal on Greece and avoiding the worst case scenario of Greece leaving the eurozone. Reportedly Greece is going to ask for an extension of its loan but not an extension of the bailout, which has severe austerity measures attached. Good luck with that. That is the equivalent of saying "I am not going to sign your contract, just give me the money." However, the results of not reaching a compromise are so severe on both sides that the market is pricing in a solution. What really happens if there is no compromise is unknown.

The S&P rallied +3 points to strong psychological resistance at 2,100 and came to a dead stop. Personally I am glad the touch of that level did not act like an electric fence and repel the index to lower levels. Fortunately we closed right on 2,100 with no real evidence of selling and that is a positive for tomorrow. If sellers were waiting at that level their volume was so small that it did not matter. Tomorrow may be another matter after they have had the night to think about it.

Clearly the bulls are in control and the dip buyers are alive and well. The early morning dip was bought even though the morning headlines were dire. While the S&P is at new high levels the rebound from the February lows at 1,980 is getting a little overbought. A +120 point gain in ten trading days is not extreme but any further gains will increase the likelihood of some profit taking. If you look at the short term chart of the S&P the gains have been rather mild from day to day so traders have been able to rotate in and out of positions without any significant increase in volatility. Slow moves like these could last for weeks. Markets can always stay overbought longer than analysts expect.


On the daily chart the prior resistance at 2,075 should now be support on any profit taking. The next real resistance is in the 2,125 range. Despite closing right on 2,100 that level is still in play as decent resistance because it is the lowest end of year target by Barclays and Goldman Sachs. This provides the psychological resistance at that level.



The Dow closed only 6 points below the prior high at 18,053.71. In theory it would only take a hiccup by any Dow component to push it over that level but there are some underperforming components that are holding it back. Walmart reports earnings on Thursday and most analysts are not expecting a good report. One stock can actually weigh on the Dow enough to matter as we saw with American Express last week.

Just closing over 18,053 will not seal the deal. There were three intraday highs over 18,070 with the highest at 18,103 in December. The Dow needs to close over that 18,103 mark and then tack on additional gains in the days that follow in order to confirm a breakout. It will not be smooth sledding because of some longer term uptrend resistance.

Support remains 17,800 and resistance 18,053 and 18,103.



The Nasdaq continued its winning ways but only managed to add another +5 points. That put it right at 4,900 and moving ever closer to that historic high close of 5,132 in March of 2000. Apple closed at a new high at $127.82 with a 75 cent gain. A challenge this week could be Priceline when it reports on Thursday.

The Nasdaq is becoming more over extended than the S&P because of its +315 point gain since the February 2nd lows at 4,580. The index has gone vertical thanks to the semiconductor and biotech sectors.

Support remains 4,800 and resistance 4,925.



The Russell tacked on another +2 points to come to a dead stop at resistance at 1,225. I am still encouraged since the rise in the small caps points to fund manager support. They do not appear to be worried about Greece or the FOMC minutes if they continue to nibble away at the small caps. The Nasdaq is still the market leader but the Russell could steal the baton at any time.


The fly in the soup is the Dow Transports. They are still not confirming the gains on the Industrials although they are trying to creep higher from the 9,000 level. I understand why the transports are lagging with oil prices rising but Dow theory needs the transports to confirm a Dow breakout with a new high of their own.


I remain positive on the market but I would rather buy a dip than a breakout. That gives me some cushion if the breakout fails. There is some concern that the Dow could "double top" here but as long as the other indexes are outperforming that should not happen.

Late today the wire services reported that ISIS burned alive 45 people in the western Iraq town of al-Baghdadi. That is only 5 miles from the Ain al-Asad air base where 400 U.S. military personnel are training Iraqi soldiers. This is the equivalent of taunting the American forces and America in general. The markets did not even blink when the news broke.

Enter passively, exit aggressively!

Jim Brown

Send Jim an email

 

 


New Plays

Healthcare Highs

by James Brown

Click here to email James Brown


NEW BULLISH Plays

Abbott Laboratories - ABT - close: 46.41 change: +0.32

Stop Loss: 44.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on February -- at $---.--
Listed on February 17, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 5.34 million
New Positions: Yes, see below

Company Description

Why We Like It:
ABT is in the healthcare sector. With a history that starts back in the late 1880s this is one of the oldest publicly traded companies in the U.S. The company has grown to a global giant with sales of more than $20 billion a year. About 70% of sales are outside the United States.

According to the company, "Abbott is a global healthcare company devoted to improving life through the development of products and technologies that span the breadth of healthcare. With a portfolio of leading, science-based offerings in diagnostics, medical devices, nutritionals and branded generic pharmaceuticals, Abbott serves people in more than 150 countries and employs approximately 77,000 people."

The most recent earnings report was January 29th. ABT's earnings rose +22% from a year ago to $0.71 a share. That beat estimates of $0.68. Revenues were up +5.6% to $5.36 billion. Unfortunately that did miss estimates of $5.43 billion. The company did raise its annual dividend from $0.88 to $0.96 and revenues were up +10% for the whole year (2014). ABT also said its adjust net margins grew over 200 basis points for the full year.

Here's the interest part, ABT management issued 2015 guidance of $2.10-2.20 per share. That is growth of about +6% to +11% while facing significant currency challenges due to the strong dollar (near 11-year highs). Wall Street was estimating $2.25 per shares for 2015. The stock rallied in spite of this lowered outlook.

The following day a Bank of America/Merrill Lynch analyst upgraded the stock from "neutral" to a "buy" and raised their price target because they believe that ABT will see strong revenue growth and margin improvement in 2015.

Shares of ABT have definitely been showing relative strength with the stock up four weeks I a row. These are all-time highs for the stock and ABT is in the process of breaking out past its December 2014 highs. Tonight we are suggesting a trigger to open bullish positions at $46.65.

Trigger @ $46.65

- Suggested Positions -

Buy ABT stock @ (trigger)

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

Buy the AUG $50 CALL (ABT150821C50) current ask $0.87

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Markets Rally On Greek Hopes

by James Brown

Click here to email James Brown

Editor's Note:
Equities ignored some disappointing headlines out today in favor of hope for a Greek deal by the end of February. The major indices all posted gains. Tonight we are updating a few stop losses.

NBIX hit our entry point. Our plan was to exit the SIMO trade today.


Current Portfolio:


BULLISH Play Updates

Cree, Inc. - CREE - close: 37.94 change: +0.43

Stop Loss: 34.85
Target(s): To Be Determined
Current Option Gain/Loss: +3.8%
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:
02/17/15: CREE started this holiday-shortened week on an update. The stock outperformed the major indices with a +1.1% gain. The stock remains under resistance near $38.00.

I am not suggesting new positions at this time. More conservative traders may want to use a stop closer to $36.00.

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

02/12/15 new stop @ 34.85
02/05/15 triggered @ 36.55
Option Format: symbol-year-month-day-call-strike


Corning Inc. - GLW - close: 24.60 change: -0.40

Stop Loss: 23.20
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on February -- at $---.--
Listed on February 12, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 8.5 million
New Positions: Yes, see below

Comments:
02/17/15: GLW underperformed the market with a -1.6% decline. Yet shares found support at its rising 10-dma again. If GLW doesn't rebound tomorrow we might remove it as an active candidate. Currently our suggested entry point is $25.20.

Earlier Comments: February 12, 2015:
The future is going to look amazing if GLW has its way. The company makes a number of different products but it's probably best known for its glass. At a recent shareholder meeting GLW said they're working on a new type of glass that will allow companies to make LED TVs as thin as your smartphone.

Last year they introduced Gorilla Glass 4, which is the latest innovation in the Gorilla Glass line of scratch resistant glass that is already on three billion products around the world from smartphones, tablets, laptop PCs and more. GLW believes their new Gorilla glass automotive designs will help car companies reduce weight so carmakers can achieve the U.S. regulations to double miles-per-gallon performance by 2025.

Large screen TVs will continue to get larger. GLW said that the large-size TV display industry grew more than 50% last year. Right now the average TV screen is growing more than 1 inch per year. Every inch in screen size adds about 150 million square feet of additional glass demand.

The company describes itself as "Corning (www.corning.com) is one of the world`s leading innovators in materials science. For more than 160 years, Corning has applied its unparalleled expertise in specialty glass, ceramics, and optical physics to develop products that have created new industries and transformed people`s lives. Corning succeeds through sustained investment in R&D, a unique combination of material and process innovation, and close collaboration with customers to solve tough technology challenges. Corning`s businesses and markets are constantly evolving. Today, Corning`s products enable diverse industries such as consumer electronics, telecommunications, transportation, and life sciences. They include damage-resistant cover glass for smartphones and tablets; precision glass for advanced displays; optical fiber, wireless technologies, and connectivity solutions for high-speed communications networks; trusted products that accelerate drug discovery and manufacturing; and emissions-control products for cars, trucks, and off-road vehicles."

Last year the company delivered very consistent revenue growth. Their 2014 Q1 revenues were up +31.7%. Q2 revenues rose +27.5%. Q3 saw sales up +25.7%. GLW just reported their Q4 results on January 27th. Revenues soared +29.8%. Earnings were up +55% from a year ago to $0.45 a share, which was seven cents above Wall Street estimates. GLW management said, "We are entering 2015 with positive momentum in all of our businesses."

Investors have been consistently buying the dips in GLW. Today shares challenged their January highs and look poised to breakout to new multi-year highs. Tonight I am suggesting a trigger to open bullish positions at $25.20. We'll start this trade with a relatively wide stop loss at $23.20.

Trigger @ 25.20

- Suggested Positions -

Buy GLW stock @ (trigger)

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

Buy the May $25 CALL (GLW150515C25)

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


Interactive Brokers Group - IBKR - close: 32.39 change: -0.12

Stop Loss: 31.85
Target(s): To Be Determined
Current Option Gain/Loss: +4.0%
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:
02/17/15: On a very short-term basis we're starting to see a trend of lower highs on IBKR's intraday chart. That's not very encouraging. Tonight we are raising the stop loss to $31.85. I am not suggesting new positions at this time.

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

02/17/15 new stop @ 31.85
02/12/15 new stop @ 30.90
02/03/15 triggered @ 31.15
Option Format: symbol-year-month-day-call-strike


Informatica Corp. - INFA - close: 43.86 change: -0.31

Stop Loss: 42.65
Target(s): To Be Determined
Current Option Gain/Loss: +2.8%
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:
02/17/15: INFA garnered some bullish analyst comments today and yet the stock did not seem to benefit from the positive outlook. Instead INFA underperformed with a -0.7% decline. This snapped a four-day winning streak.

The simple 10-dma near $43.00 should be short-term support. Tonight we are moving the stop loss to $42.65.

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

02/17/15 new stop @ 42.65
02/12/15 new stop @ 41.85
02/06/15 triggered @ 42.65
Option Format: symbol-year-month-day-call-strike


Linear Technology Corp. - LLTC - close: 48.75 change: +0.37

Stop Loss: 44.90
Target(s): To Be Determined
Current Option Gain/Loss: +3.0%
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:
02/17/15: The rally continues for LLTC. Traders bought the dip near $48.00 intraday and shares rebounded to new relative highs. This is the fifth gain in a row. I am not suggesting new positions at this time.

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


Altria Group Inc. - MO - close: 55.14 change: +0.38

Stop Loss: 53.85
Target(s): To Be Determined
Current Option Gain/Loss: -0.2%
Entry on February 12 at $55.25
Listed on February 11, 2015
Time Frame: 10 to 16 weeks
Average Daily Volume = 7.8 million
New Positions: see below

Comments:
02/17/15: Shares of MO also dipped toward short-term support and bounced. The stock traded just below its simple 10-dma and rebounded to a +0.7% gain. This bounce could be used as a new entry point for bullish positions.

Earlier Comments: February 11, 2015:
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.

- Suggested Positions -

Long MO stock @ $55.25

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

Long JUN $55 CALL (MO150619C55) entry $2.00

02/14/15 new stop @ 53.85
02/12/15 triggered @ 55.25
Option Format: symbol-year-month-day-call-strike


Neurocrine Biosciences - NBIX - close: 37.34 change: +0.12

Stop Loss: 34.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on February 17 at $37.65
Listed on February 14, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 937 thousand
New Positions: see below

Comments:
02/17/15: Our new trade on NBIX is open. Shares started the day on a strong note and quickly hit our suggested entry point at $37.65. I am a bit concerned that the rally failed near $38.30 twice today. More conservative traders may want to wait for a rally past $38.30 before considering new bullish positions.

Earlier Comments: February 14, 2015:
Biotech stocks were big performers last year outpacing the broader market. It looks like that outperformance will continue in 2015 with the major biotech indices and ETFs already up +5% to +7% this year. One biotech that's really outperforming its peers in NBIX, with shares already up more than +60% in 2015.

According to the company's marketing materials, "Neurocrine Biosciences, Inc. discovers and develops innovative and life-changing pharmaceuticals, in diseases with high unmet medical needs, through its novel R&D platform, focused on neurological and endocrine based diseases and disorders. The Company's two lead late-stage clinical programs are elagolix, a gonadotropin-releasing hormone antagonist for women's health that is partnered with AbbVie Inc., and a wholly owned vesicular monoamine transporter 2 inhibitor for the treatment of movement disorders. Neurocrine intends to maintain certain commercial rights to its VMAT2 inhibitor for evolution into a fully-integrated pharmaceutical company."

NBIX has two therapies planned for phase III trials in 2015. You can see NBIX's pipeline on this web page.

The drug making headlines for NBIX this year is Elagolix, a treatment for endometriosis. Shares of NBIX soared on January 8th after the company and its partner on this treatment, AbbVie, announced positive results for their latest Phase 3 trials. Endometriosis could affect up to 10% of all women in their reproductive years. That's a pretty big market. You can see why Wall Street is so excited about this news and sent shares of NBIX soaring.

Make no mistake, this is an aggressive, higher-risk trade. Biotech stocks can be volatile. The right or wrong headline can send the stock soaring or crashing. NBIX is already very, very overbought with a run from $20 to $37 since its early January lows. Yet that doesn't mean it won't keep running. Sometimes biotech stocks have a mind of their own. There is not any clear resistance. You have to go back more than ten years and you might find resistance in the $42.50-45.00 area. Should this rally continue NBIX could see more short covering. The most recent data listed short interest at 12% of the small 66 million share float.

I'm going to repeat myself. This is an aggressive play. NBIX does have options but the spreads are too wide to trade. The intraday bounce on Friday looks like a test of short-term support near $35.00. You can see on the intraday chart that NBIX has a very short-term pattern of lower highs. Therefore, we are suggesting a trigger to open small bullish positions at $37.65. If triggered we'll start with a stop loss at $34.90.

*small positions to limit risk* - Suggested Positions -

Long NBIX stock @ $37.65

02/17/15 triggered @ 37.65
Option Format: symbol-year-month-day-call-strike


Sensata Technologies - ST - close: 51.88 change: -0.62

Stop Loss: 51.35
Target(s): To Be Determined
Current Option Gain/Loss: -1.8%
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:
02/17/15: Caution! ST underperformed the U.S. market's major indices with a -1.1% decline. Today's close below the simple 10-dma is also short-term bearish. I am not suggesting new positions. We will raise the stop loss to $51.35.

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

02/17/15 new stop @ 51.35
02/10/15 triggered @ 52.85
Option Format: symbol-year-month-day-call-strike


Total System Services - TSS - close: 37.13 change: +0.04

Stop Loss: 34.90
Target(s): To Be Determined
Current Option Gain/Loss: +0.2%
Entry on February 13 at $37.05
Listed on February 05, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 883 thousand
New Positions: see below

Comments:
02/17/15: TSS spiked lower at the opening bell but the weakness didn't last long. Shares recovered and managed to close at a new high. I would consider new positions at current levels.

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.

- Suggested Positions -

Long shares of TSS @ 37.05

02/13/15 triggered @ 37.05




BEARISH Play Updates

Abercrombie & Fitch Co - ANF - close: 25.96 change: -0.12

Stop Loss: 26.20
Target(s): To Be Determined
Current Option Gain/Loss: -4.3%
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:
02/17/15: ANF did not see any follow through on last week's oversold bounce. Instead the stock just drifted sideways and actually closed with a loss while the broader market hit new highs. I am still urging caution. ANF is less than 25 cents away from our stop loss and could hit our stop tomorrow.

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

02/14/15 new stop @ 26.20
02/05/15 new stop at $26.55
Option Format: symbol-year-month-day-call-strike



CLOSED BULLISH PLAYS

Silicon Motion Technology - SIMO - close: 29.90 change: +0.82

Stop Loss: 27.85
Target(s): To Be Determined
Current Option Gain/Loss: -3.5%
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:
02/17/15: We ran out of patience on SIMO and its sideways consolidation. In the weekend newsletter we decided to exit this trade on Tuesday morning. The stock opened at $29.08 and then rallied to a +2.8% gain on the session. This looks like a bullish breakout from the pennant-shaped consolidation SIMO formed over the last several days.

- Suggested Positions -

Long SIMO stock @ $30.15 exit $29.08 (-3.5%)

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

MAR $30 CALL (SIMO150320C30) entry $1.80 exit $1.05 (-41.7%)

02/17/15 planned exit at the open
02/14/15 prepare to exit on Tuesday morning
02/09/15 triggered @ 30.15
Option Format: symbol-year-month-day-call-strike

chart: