Option Investor
Newsletter

Daily Newsletter, Thursday, 2/19/2015

Table of Contents

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

Market Wrap

Oil And Greece...Again

by Thomas Hughes

Click here to email Thomas Hughes
The market teetered on the verge of selling off as near term factors cloud longer term views.

Introduction

A number of factors fought for attention today. First up were headlines from Europe that the EU, Germany and Greece have not come to an agreement. Germany flat out rejected the plea for additional lenience keeping this issue firmly on the front burner and not unexpected. European indices at first fell on the news but later shrugged it off, many of them returning to positive trading before their close. The Greece news of course had an impact on our markets as did another massive swing in oil and some mixed earnings reports. The price for WTI was down as much as 6% in early trading and is likely to remain volatile. Earnings were mixed but reports from Priceline and T-Mobile helped to support the market.

Market Statistics

Economic data was another focus this morning. Initial claims were better than expected and added some support to early futures trading. Later in the day Philly Fed and Leading Indicators added a little more. The SPX moved down to test the previous all-time high within the first 30 minutes and then bounced off of that level after the 10AM release of Philly Fed and Leading Indicators. The bulls were able to push the market higher from there and recaptured most if not all of the early losses. The markets drifted during the afternoon but maintained a tight range with most indices trading within a quarter point of yesterday's closing price.

Economic Calendar

The Economy

Lots of data today, especially since we're in the wake of the FOMC minutes. The minutes themselves were not too unexpected except I think they may be a little too dovish in their outlook. Initial claims fell more than expected to 283,000 from an unrevised 304,000 last month. The four week moving average also fell, for the fourth week in a row, and is now just above its 15 year low. On an not adjusted basis claims fell by 13.9%, almost double the expected 7.5% decline. On a state by state basis NY, TX, CA and PA led with a net increase near 11,000 new claims.

Texas made no comment on where the jobs were lost but Pennsylvania reported most were lost in construction and manufacturing. The two biggest states reporting declines in claims were Georgia and Tennessee with a combined total of only -2,063. This weeks drop in claims makes it look like job losses and turnover are beginning to decline again after holding semi-steady in the 4th quarter of last year.


Continuing claims rose by 58,000 to 2.425 million. This puts the number of continuing claims back above 2.4 million but is still relatively steady for the first part of this year. Claims are trending near the long term lows and at levels indicative of a strong labor market. The four week moving average of continuing claims fell however, for the fourth week, and is itself very close to crossing under 2.4 million.

Total claims fell, shedding -31,699 to come in at 2.854 million. This is down from last week and from the high set at the end of last year but still holding above the long term low. The recent pick up in total claims is a concern but possibly explained by the increase in participation rate and if so a net positive so long as job creation remains strong. Last year at this time there were over 3.5 million total claims and less participation so we've made some progress somewhere.


Leading indicators and Philly Fed Survey of Manufacturing were both released at 10AM. Leading indicators for January rose by 0.2%, slightly below consensus of 0.3% and below the 0.4% set the previous month. This is still positive but now the second month of decline. This decline indicates a slowing of growth, or more likely a lull in growth if the forward looking surveys are to be believed, but not an end. The Coincident and Lagging Indicators both rose as well, by 0.2% and 0.3% respectively, and indicate momentum is still present in the economy.

Philly Fed came in at 5.2 for February, down from 6.3 in January and a 12 month low. This reading is also below expectations for a slight rise to 7.0. While weaker than expected and well off the high set last November this number is still expansionary and internals reveal some positives for the future. For one, the employment component rose by 6 points and is in positive territory. Additional signs include a rise in inventory and significant increases to shipments and unfilled orders. Shipments rose by 15 points, unfilled orders rose 16 and both are now positive as well. The forward looking future activity index is where the most weakness was felt. It is still well above 0 but fell more than 21 points from 50.9 to 29.7. Despite the sharp drop future expectations remains positive and strong for the next 6 months.


There is no other data this week. Next week is moderately full with the bulk of data falling on Thursday and Friday. Early in the week are existing home sales and consumer confidence, later in the week look for CPI, Durable Goods, Chicago PMI, Michigan Sentiment, Pending Home Sales and the 2nd estimate for 4th quarter GDP.

The Oil Index

Oil prices fell hard today, dropping more than 6% at one point to trade below $49.50. Today's cause was rising inventories as reported by the EIA. WTI supplies rose by 7.7 million barrels, more than expected, and is a sign that production and consumption levels have not stabilized. Today's low was hit just after 9:30AM at which time prices began to rise. By the end of the day WTI had reached levels above $51 where it remained until settlement.

The oil sector was hit hard by the drop and led the broader market lower. The Oil Index gapped lower at the open and traded down from there until it was clear that oil prices had bottomed for the day. At that point the index found support, just above the short term 30 day moving average, and moved up to close the gap. Prices regained most of today's drop but remain below my resistance line at the 1395 level. This resistance is coincident with the top of the three month trading range, a range confirmed by the indicators. MACD is bullish but clearly making a Head&Shoulders pattern in tandem with prices braking above and then falling below resistance, stochastic making a bearish crossover and overbought. Based on this it looks like the Oil Index could remain range bound in the near term. Current support is near 1350 and the short term moving average with targets near 1300 and1250 should the moving average fail to hold.


The Gold Index

Gold prices rose today after hitting a 6 week low yesterday. The FOMC minutes have only added to confusion over when interest rates would rise, and along with news from the EU have combined to cause some volatility in the currency world that is affecting gold prices. The metal is now bouncing from possible support at the $1200 level but has not confirmed. Further testing of $1200 is possible in the least and if broken could take gold down to $1190 or lower very quickly.

The Gold Index fell today despite the 1% gain in gold. The index was hit by earnings that have revealed the impact of low realized prices. Many of the producers have reported an increase of production, but revenues and earnings that are in line or below those from previous comparable quarters. Today the index lost close to 2.5% in a fall from the short term moving average. This is just one day after the index bounced from support, support consistent with the top of the trading range broken in the first weeks of this year. The indicators are bearish so I expect to see this level testd again. If it is broken the next target is near the bottom of the aforementioned range near $17.50.


In The News, Story Stocks and Earnings

Wal-Mart made big news today when it released earnings. The company reported a nice beat on EPS, with revenues slightly lower than expected. Company EPS was $1.61 versus an expected $1.53 with the largest rise in US comp store sales seen in years. The strength led the company to raise the dividend by a penny and to enact some radical, for this company at least, new cap-ex. New spending will go to new wages and affect at least 40% of employees. This might have been OK if not for the weak forward guidance. The news, primarily the low guidance, sent shares lower by -1.60% in the pre-market and extended that to -2.6% after the opening bell. Since Wal-Mart's plan is to raise wages to $10 per hour I wonder how many of these dollars are going to make it back to the company in the form of sales and services? Wal-Mart employees are consumers too and they work in a centralized location of consumer goods and services. It only makes sense to think a significant portion of any raises will go directly back to the store in the form of revenue.


GoldCorp released earnings this morning, alongside a number of other miners. The company reported earnings that at first glance are weak, and they are weak, but also reveal the chance for significant gains in the future. The company reported EPS of $0.07, a few pennies shy of consensus, on revenue that was also a little light of expectations, both number below last year's comparable quarter. What I see as the positive is that production rose nearly 16%. This may not seem positive since what it really does is reveal the impact of the decline in gold prices. However, since production is also expected to rise by 20% in the next year, and there is a reasonable expectation for prices to remain firm at or near current prices I see a significant chance for earnings increases in coming quarters. The stock fell more than 6% on the news, dropping below the short term moving average and a Fibonacci Retracement at $22.50. The indicators are bearish and gaining strength so could take it down to $20 or lower.


Priceline reported before the opening bell and is one that delivered on all levels. The company reported a top and bottom line beat with expected growth into the current year. First quarter guidance is a little below expectations but the $3 billion stock buyback helped to relieve the sting. Shares of the stock jumped more than 8.5% in the pre-market session and are now trading above $1200 for the first time in nearly 4 months.


T-Mobile also reported some surprisingly good numbers. The mobile phone company reported a record year of growth which includes 2.1 million new users in the 4th quarter. The company also reported that revenues grew by 19.4% for the quarter and that they captured 80% of all new post-paid sign-ups. The stock surged in the pre-market, gapped up at the open and then traded lower from there. Today's move leaves the stock 3% higher than yesterday's close but created a large bearish candle.


The Indices

The market seemed indecisive today. Most of the indices were weighed down by worries but the NASDAQ Composite was immune. The tech heavy index was able to make another gain and come a few points closer to 5,000. The index moved 0.37% higher in today's session and created a small bodied green candle. This is the 8th day of positive trading and upward movement since bouncing from the short term moving average early last week. The indicators are in line with this move but not looking strong. MACD has made a peak and stochastic is high in it's range with near term %K moving down. Neither are indication of imminent reversal but are signs of caution. Price action is bullish and moving in line with long term trends so I'm bullish but see this as a time to raise stops on current positions rather than enter new ones.


The transports made the next best run at new highs today but was not able to close in the green. The Dow Jones Transportation Index fell by -0.04% after spending most of the day trading in positive territory. Today's action created an alarming candle as it is a doji and beneath resistance. The indicators are bullish but in positions that are hinting at resistance and the top of a range. MACD momentum is bullish and steady, but very weak, and could easily reverse from here. Stochastic is moving higher in the near term and could be on the verge of showing strength by crossing over the upper signal line but could also easily reverse from here and confirm resistance. Resistance is the current all-time high and top of the four month trading range near 9,250. Now that I've said all that I want to point out that this index is also in mid-bounce, in line with the underlying trend, with bullish indicators so I am bullish, but very very cautious.


The SPX is next up with a loss of -0.10%. The broad market created a spinning top, the third of three, above the previous all time high. Today the index was able to move into the green and set a new all-time-intra-day high but was not able to hold it. The indicators are bullish but like with the other indices give reason for caution. Other reasons for caution are that the index is sitting just off the all time high, at the highs of the year and at a 3 week high, all ahead of options expiration, which is tomorrow. If the previous all-time high does not hold as support next target is 2063 and the top of the January range. If the market manages to consolidate at this level and follow through with another rally it could carry us another 100 points higher.


The Dow Jones Industrial Average brings up the rear today. The blue chips lost nearly a quarter percent, -0.24, and may be leading the market in a decline the other charts are only hinting at. This index has now declined two days in a row and is testing support just below the current all time high. The indicators are bullish but like the rest are suggestive of resistance, if not possible reversal, and could lead to a further test of support or even a pull-back. Either event would likely be another entry opportunity but until then caution is due. If today's pullback becomes more than just a consolidation it could take the index down to the short term moving average near 17,750 or lower.


Today's action was tepid at best. The market shrank back from all time highs on weak oil, international news and a mish mash of earnings. Weak oil is bad in the near term but good in the long term, Greek news is more like a soap opera than anything else, not to make too light of the situation, and earnings are like always, some are doing well and some are not. What still concerns me is the growing expectation for earnings decline in the 1st and 2nd quarters of this year. Declining earnings are never good but this expectation is based on the drop in oil and the oil sector, not unexpected, so I think so long as earnings X-oil are OK the market will be OK. In the meantime the indices are poised in a way that makes me think they could rally, but also that gives me reason to be worried. I'm bullish, but cautious and waiting for a stronger signal because I don't think we got it today.

Until then, remember the trend!

Thomas Hughes


New Plays

Soaring Earnings Growth

by James Brown

Click here to email James Brown


NEW BULLISH Plays

Luxoft Holding - LXFT - close: 49.72 change: +0.97

Stop Loss: 47.40
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on February -- at $---.--
Listed on February 19, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 241 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
LXFT is a technology company with a stock hitting all-time highs. You may not be familiar with LXFT since the company became public in mid 2013. "Luxoft Holding, Inc. is a leading provider of software development services and innovative IT solutions to a global client base consisting primarily of large multinational corporations." The company sells its services around the globe as it "develops its solutions and delivers its services from 18 dedicated delivery centers worldwide. It has over 8,600 employees across 22 offices in 14 countries in the North America, Mexico, Western and Eastern Europe, and Asia Pacific."

Last year shares of LXFT closed virtually unchanged for all of 2014. That surprises me. The company has raised its earnings guidance the last four quarterly reports in a row. They have beaten Wall Street's estimates on both the top and bottom line the last three quarters in a row.

On the daily chart you can see the big rally on February 12th. That was a reaction to LXFT's most recent earnings report. Management said earnings grew +50% to $0.81 a share last quarter. That was 21 cents above analysts' expectations. Revenues rose +31.8% to $145.75 million, also above estimates. LXFT raised their 2015 guidance from $2.00 a share to $2.15.

The stock is up significantly from its late January low near $37.00 so it wasn't a surprise to see shares correct after trading near $50 on February 13th (last Friday). What's interesting is how fast traders bought the dip. LXFT is now challenging round-number, psychological resistance at $50.00 again.

Tonight I am suggesting small bullish if LXFT can breakout higher. We'll start with an entry trigger at $50.25. We're not setting a target tonight but the point & figure chart is very bullish and forecasting a long-term target of $76.00.

Please note I am labeling this a slightly more aggressive trade and thus we want to keep our position size small to limit risk. Not only has LXFT been volatile the last couple of weeks but it might have exposure to geopolitical risk with Russia. LXFT is headquartered in Switzerland and does business around the globe. They are a subsidiary of IBS Group, which is a Russian company. LXFT also does business in Ukraine. Shares dropped sharply last March as the Ukraine situation heated up. Right now the most recent cease-fire attempt in Eastern Ukraine appears to have failed. That could prompt more sanctions from the West against Russia. We can't tell if new sanctions would hurt LXFT or not but it remains a potential risk.

Trigger @ $50.25 *small positions to limit risk*

- Suggested Positions -

Buy LXFT stock @ (trigger)

Daily Chart:



In Play Updates and Reviews

Market Momentum Moderates

by James Brown

Click here to email James Brown

Editor's Note:
Most of the European and Asian markets posted gains today. Yet the U.S. market struggled to keep the rally going. The NASDAQ was the lone gainer among the major indices.


Current Portfolio:


BULLISH Play Updates

Abbott Laboratories - ABT - close: 46.61 change: +0.20

Stop Loss: 44.75
Target(s): To Be Determined
Current Option Gain/Loss: -0.1%
Entry on February 19 at $46.65
Listed on February 17, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 5.34 million
New Positions: see below

Comments:
02/19/15: ABT ignored the market's lackluster performance today. Instead shares bounced off the $46.00 level and rallied to a new high. Our trigger to launch bullish positions was hit at $46.65.

Earlier Comments: February 17, 2015:
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.

- Suggested Positions -

Long ABT stock @ $46.65

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

Long AUG $50 CALL (ABT150821C50) entry $0.91

02/19/15 triggered @ $46.65
Option Format: symbol-year-month-day-call-strike


Cree, Inc. - CREE - close: 38.26 change: +0.42

Stop Loss: 34.85
Target(s): To Be Determined
Current Option Gain/Loss: +4.7%
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:
02/19/15: CREE also showed some relative strength today. The stock added +1.1% and closed at new four-month highs.

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


Interactive Brokers Group - IBKR - close: 32.24 change: -0.07

Stop Loss: 31.85
Target(s): To Be Determined
Current Option Gain/Loss: +3.5%
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:
02/19/15: IBKR's performance is not generating any confidence. Shares just posted their fourth loss in a row. So far the $32.00 level continues to hold as support but I'm not sure I'd bet on it holding. Readers may want to exit early. No 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: 43.93 change: +0.23

Stop Loss: 42.65
Target(s): To Be Determined
Current Option Gain/Loss: +3.0%
Entry on February 06 at $42.65
Listed on February 04, 2015
Time Frame: 6 to 12 weeks
Average Daily Volume = 1.5 million
New Positions: see below

Comments:
02/19/15: INFA has spent the last couple of days churning sideways in the $43.50-44.00 zone. Today shares happened to close near the top of the range. I am not suggesting new positions at this time.

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: 47.88 change: -0.09

Stop Loss: 44.90
Target(s): To Be Determined
Current Option Gain/Loss: +1.1%
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:
02/19/15: Investors seemed indecisive with LLTC today. Shares drifted sideways in a very narrow range. I'd keep an eye on the $47.00 area, which should be support.

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: 55.48 change: +0.24

Stop Loss: 53.85
Target(s): To Be Determined
Current Option Gain/Loss: +0.4%
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:
02/19/15: MO's performance today was encouraging. The midday dip found support around the $55.00 mark and MO was rebounding higher into the close. I would consider new positions on a rally past today's intraday high ($55.69).

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: 37.42 change: +0.86

Stop Loss: 34.90
Target(s): To Be Determined
Current Option Gain/Loss: -0.6%
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:
02/19/15: Yesterday we discussed NBIX's new plans to offer a secondary sale of stock to raise $225 million. This morning the company announced that they priced their offering at $36.00 a share and plan to sell 6.9 million shares. The stock digested this news pretty well. The $36.00 area acted as support most of the day and then NBIX started rally into the closing bell. The lack of weakness on this stock sale is encouraging.

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 after the close, announces a secondary offering
02/17/15 triggered @ 37.65
Option Format: symbol-year-month-day-call-strike


Spirit AeroSystems - SPR - close: 50.97 change: +0.97

Stop Loss: 47.65
Target(s): To Be Determined
Current Option Gain/Loss: +1.3%
Entry on February 19 at $50.30
Listed on February 18, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.3 million
New Positions: see below

Comments:
02/19/15: Our new play on SPR is off to a strong start. Defense-related names were in rally mode today. SPR actually dipped to $49.57 before soaring to a new high and closing with a +1.9% gain on the day. Our trigger to launch positions was hit at $50.30. If you missed it consider waiting for a dip near $50.00 as an alternative entry point.

Earlier Comments: February 18, 2015:
Aerospace and defense stocks have been very strong performers the past couple of years. The defense cuts from Washington a couple of years ago prompted defense companies to diversify their customer base. Meanwhile airline companies had grown lean and mean to work in a high-priced oil environment. Now with oil near five-year lows their margins are improving. This is the backdrop that SPR operates.

You may not be familiar with SPR but they were spun off from Boeing (BA) back in 2005. SPR went public with their own IPO in November 2006. According to the company, "Spirit AeroSystems, with headquarters in Wichita, Kan., USA, is one of the world's largest non-OEM designers and manufacturers of aerostructures for commercial aircraft. In addition to its Wichita and Chanute facilities in Kansas, Spirit has locations in Tulsa and McAlester, Okla.; Kinston, N.C.; Nashville, Tenn.; Prestwick, Scotland; Preston, England; Subang, Malaysia; and Saint-Nazaire, France. In the U.S., Spirit's core products include fuselages, pylons, nacelles and wing components. Additionally, Spirit provides aftermarket customer support services, including spare parts, maintenance/repair/overhaul, and fleet support services in North America, Europe and Asia. Spirit Europe produces wing components for a host of customers, including Airbus."

Last year was a record-breaker for SPR's sales. Their third quarter earnings report in late October was the third quarter in a row that SPR crushed Wall Street's earnings estimates by a wide margin. Their Q3 earnings were up +79% on revenues up +12.6%. Management then raised their 2014 guidance.

SPR ended the year with a strong quarter as well. Q4 earnings were announced on February 3rd. Earnings grew +39% to $0.87 a share, which beat estimates by 10 cents. Revenues were up +5.4% to $1.57 billion. The revenue number did miss expectations but the stock rallied anyway. That's probably because SPR provided bullish guidance.

The company sees 2015 revenues in the $6.6-6.7 billion zone. That's slightly below analysts' estimates of $6.95 billion. However, SPR is forecasting 2015 earnings in the $3.60-3.80 range compared to Wall Street estimates of $3.63 a share. SPR management said their order backlog jumped 7% to $47 billion. That's about eight years worth of business. Following its Q4 results analysts have started raising their price targets on SPR.

There is a risk that rising oil prices could depress aerospace-related names. However, right now oil is likely headed even lower. Oil inventories inside the U.S. are at record highs and we're quickly running out of room to store crude oil. If we do actually run out of storage the price of oil is going to plummet, which will just be one more tailwind for SPR.

SPR has spent several days following its earnings report in a sideways consolidation. It's bullish to see the lack of profit taking from its late January and early February rally. Now shares are challenging round-number resistance at $50.00. Tonight we are suggesting a trigger to open bullish positions at $50.30.

- Suggested Positions -

Long SPR stock @ $50.30

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

Long APR $50 CALL (SPR150417C50) entry $2.09

02/19/15 triggered @ $50.30
Option Format: symbol-year-month-day-call-strike


Sensata Technologies - ST - close: 52.68 change: -0.12

Stop Loss: 51.35
Target(s): To Be Determined
Current Option Gain/Loss: -0.3%
Entry on February 10 at $52.85
Listed on February 09, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.2 million
New Positions: see below

Comments:
02/19/15: Hmm.... ST did not see any follow through on yesterday's big bounce. Shares appear to be struggling with resistance near $53.00. I would hesitate to launch positions here.

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: 37.52 change: +0.26

Stop Loss: 34.90
Target(s): To Be Determined
Current Option Gain/Loss: +1.3%
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:
02/19/15: TSS gave you a chance to buy another dip near $37.00 this morning. The stock consolidating along $37.00 for a while before surging to a new high. This is the seventh up day I a row.

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


None. We do not have any active bearish trades.