Option Investor
Newsletter

Daily Newsletter, Monday, 2/23/2015

Table of Contents

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

Market Wrap

When Janet Yellen Speaks...

by Thomas Hughes

Click here to email Thomas Hughes
The market is waiting to hear from Fed Chair Janet Yellen who is scheduled to testify before Congress on Tuesday.

Introduction

Global markets surged to new highs this morning but testimony from Janet Yellen, scheduled to begin tomorrow, kept US bulls quietly biding their time. International markets were buoyed by the apparent deal between Greece and the EU but that news was not enough inspire a rally here. There was no economic data to affect premarket action and only one released today, existing home sales. The data was weaker than expected but shrugged off as was the massive amount of earnings reports. The bulk of the S&P has already reported, more than 85%, but there are still hundreds if not thousands of small and mid caps on the list this week.

Market Statistics

The S&P 500 was indicated to open about 5 points lower than last week's closing price and quickly moved to that level once the opening bell sounded. The low of the day was hit soon after at which time the market bounced and began to trend sideways. Today's action was very light and without direction as traders are waiting on what Janet Yellen might say. This seems to be more important than every since the FOMC minutes reveal the Fed is less firm in it's outlook than the market might want. The indices were able to hold today's levels and even moved up to the high of the day before the close. The NASDAQ at least was able to move into the green and close at a new high.

Economic Calendar

The Economy

Existing home sales dropped by -4.9% in January, more than double the expected drop, but remain at levels above those seen a year ago. This is the fourth straight months sales have been higher than at the comparable time last year but still a 9 month low. Weather may be to blame in part of the country but limited supply is taking its toll on traffic as well. There is more housing data due out this week as well including the more forward looking pending home sales scheduled for Friday. Between then and now new home sales, the Case Shiller Index and the housing price index are also due for release.

Moody's Survey of Business Confidence fell by -1.6 points to 40.1. This is the second week of decline but confidence remains near the all time high. Mark Zandi reports that the economy is still expanding and that hiring is strong. According to his analysis the strength in hiring is supported by the absorption of office space, which is at a record high.


According to Factset 443 S&P 500 companies have reported as of last Friday. Of those more than 75% are reporting above the blended estimate for earnings and 58% are beating the blending estimate for sales. The estimated earnings growth for the fourth quarter is now up to 3.5%, double what it was at the end of the year, led by telecom and health care. Seven of the ten S&P sectors are beating estimates with energy the laggard. Forward P/E for the index is also on the rise and is now 17.1, the highest level in 10 years, despite an expectation for net earnings decline in the next quarter.


There is some other data due out this week as well. Aside from the housing data there is CPI, durable goods, PMI, Michigan Sentiment and the 2nd estimate for 4th quarter GDP. The previous estimate was 2.6% growth, current estimates are closer to 2.0% and could go a little lower. However, there was a lot of strength in labor last quarter so I think it might not go as low as expected.

The Oil Index

Oil traded in another 3% move today, to the downside. The price of WTI fell more than 3.5% in early trading only to spike back to break even later in the day. The spike was caused by a new story stating Nigeria thinks OPEC could hold a meeting very soon to discuss oil prices and to possibly move to support falling prices. The spike in prices did not last long as traders recognized the headline for what it was, a verbal speculation from Nigeria's oil minister, and prices returned to the lows of the day. On the fundamental side of things new reports say that Libya's Sharara field is back on line so that will have an impact on supply and prices. WTI closed below $50 near $49.25.

The Oil Index lost ground today as well, but only -0.08%. The index opened lower on the drop in oil and then traded up from there but never regained break even. Today's action keeps prices above the short term moving average and below resistance at the top of the three month range. The indicators are still bullish but are weakening and could lead to a break down of support. If price moves below the short term moving average it could go as low as 1,300 or 1,250. This will of course have a lot to do with the price of oil. If oil prices fall back to their lows I would expect to see the Oil Index test its lows as well. If prices can hold on to levels above or near $50 the bulls in this market could regroup and make another test of resistance.


The Gold Index

Gold fell in the overnight sessions and broke below $1200. This move did not last long, prices crept back up to above $1200 just before the open of equity trading. Prices peaked close to $1210 before settling near $1202. Today's action leaves gold at a 7 week low but also show, I think, support at or just below $1200 and the previous support level of $1190. There is not a pressing reason to get long gold at this time or level but long term buyers have been in the market at this level before. Gold may break below $1200 again and test support at $1190 or lower but I will be surprised if such a dip does not result in a buying opportunity.

The miners ETF GDX opened lower on the drop in gold but was able to recover the loss. The index gained just under 0.5% after testing support below $20.50. This support line is the top of the reversal pattern formed during December/January and could be important for near term direction. A break down of support could take the index down to the bottom of the range, a confirmation could take it back to $22.50 or higher. The indicators are currently bearish, in line with the pull back of the last two weeks, but so far consistent with support. One warning sign that support may be breaking down is found in the stochastic, which is moving below the lower signal line. This is an indication of weakness but not an entry signal in and of itself.


In The News, Story Stocks and Earnings

Dish Network reported before the bell. The company reported earnings that blew away estimates but revealed that subscriber numbers were falling. Much of the beat reported today was due to increases in broadband subscriptions and fees related to new and current pay TV users. The company also announced that CEO Joseph Clayton will be retiring. Investors cheered the report at first but the later announcement the CEO was leaving caused a mid-day reversal. Shares of DISH fell -1.17% today after testing resistance, indicators are in line with resistance and suggest a return to $75 or $70 is likely.


Steak chain Texas Roadhouse reported earnings after the bell. The company reported earnings of $0.26 per share, in line with estimates, on revenue that is also in line. This is a 10% increase over the comparable quarter and overcomes a near 0.5% decrease in operating margins. The decline in margin is due to food cost inflation and is not expected to abate. The company also reported opening 9 new stores under 2 brands. Shares of the stock gained 2.5% in today's session to reach a new all time high and traded up in the after hours.


Valeant Pharma hit the news today with a double shot of good news. First the company raised its guidance to $0.03 above consensus and is now $2.30 for the full year. Second, Valeant announced the purchase of Salix Pharma. Salix is a maker of gastrointestinal drugs with several promising money makers in the pipeline. The deal is worth $10.1 billion and is expected to go through without any trouble. Shares of Valeant popped in the pre market session, gapped open by about 10% and moved higher from there. Total gain for the day was nearly 15%.


Homebuilder Toll Brothers is scheduled to report tomorrow. Current estimates are for earnings of $.30 per share, down from $0.70 in the previous quarter. Today the stock lost over -1.25%, possible driven down by the weaker than expected existing home sales. If so the selling could be misplaced as Toll Brothers is a builder of new homes and not a seller of old homes, and the lack of inventory of existing homes could cause an increase in new home sales. The stock is currently trading near a 12 month high and resistance at $37.50.


The Indices

Today's action was very mellow. The market moved lower but was able to hold near long term highs despite a shaky Greece deal, plunging oil prices and weaker than expected housing data. The market may be looking past the near term noise of Greece and volatility in oil, but is still cautious in respect to the FOMC and Janet Yellen. It is her testimony I think that is really the cause for today's action. We've reached a point where there is a reasonable expectation of an interest rate hike sometime before October and the minutes of the last meeting were not firm in support of this. Now there is confusion and the market is looking to Chairman Yellen for direction.

Today's action had a downward bias but left the indices at or above their respective highs. The move was led by the Dow Jones Transportation Average which gained 0.14%. Today's action left the index at a new high for the year but so far it has not been able to break out to a new all time high. The index also has yet to break above the doji formed last week, making 9,150 look like possible resistance. The indicators remain bullish so further testing could ensue with a move to challenge the all time very possible. A break above 9,250 would be consistent with moves already made by the other indices and could lead to further upside for all.


The NASDAQ Composite also finished in the green, making a gain of 0.10%. The tech heavy index was aided in part by the massive move put forth by Valeant but also by Apple which set another new high. The index is moving higher with bullish indicators but momentum has peaked and stochastic is overbought so it is possible the rally has peaked too. This does not mean a reversal is coming tomorrow but it is cautionary and should be watched. The trend remains up with current price action in line with that trend so the index could easily keep running until it hits the all time high.


The S&P 500 nearly recovered all of its early losses but fell short by -0.03%. The broad market created a very small spinning top just under the all time high and above previous resistance. The index has been moving up for the last three weeks, after bouncing off of the 1990 level, and may be peaking out. The indicators are bullish but momentum is weak and declining while stochastic is high in the upper signal zone and overbought. These conditions can sometimes go on indefinitely while the market rallies but support needs to be watched and stops should remain tight. A break below 2,100 could take the index down to 2,050 or lower while a confirmation of support could lead to additional upside. If a bounce from 2,100 occurs next upside target is above 2,200.


The Dow Jones Industrial Average brings up the rear with a loss of -0.13%. The blue chips fell from the current high to test support at the previous high, near 18,050. The index is trending higher, but like the others, could be at a peak. The indicators are bullish but momentum is weak and stochastic is in overbought territory.


The indices are hanging at or near all time highs and look like they could be going higher. The thing is, they also look like they could be at a peak. What is mostly likely happening is a near term consolidation that will lead to a move one direction or the other, depending on what Janet Yellen says over the next two days. The economic trends are up and expectations for future growth remain strong, the question faced now is what to think to about rate hikes. . . and first quarter earnings. Rate hikes are baked into the cake as far as I'm concerned, they have been on the table a long time. First quarter earnings are a concern but as I mentioned last week so long as the market ex-energy shows growth the rally should be able to continue.

Until then, remember the trend!

Thomas Hughes


New Plays

Potential Short Squeeze Candidate

by James Brown

Click here to email James Brown


NEW BULLISH Plays

The ADT Corp. - ADT - close: 39.84 change: +0.46

Stop Loss: 37.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on February -- at $---.--
Listed on February 23, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.5 million
New Positions: Yes, see below

Company Description

Why We Like It:
ADT is in the alarm and home monitoring business. It has been a very bumpy ride for investors since the company was spun off from Tyco International back in 2012. Shares of ADT plunged from $50 a share in early 2013 down toward $28 by early 2014. The company has been working on a turnaround and the worst seems to be behind it.

The company describes itself as "The ADT Corporation (ADT) is a leading provider of security and automation solutions for homes and businesses in the United States and Canada. ADT's broad and pioneering set of products and services, including ADT Pulse® interactive home and business solutions, and health services, meet a range of customer needs for today’s active and increasingly mobile lifestyles. Headquartered in Boca Raton, Florida, ADT helps provide peace of mind to nearly seven million customers, and it employs approximately 17,500 people at 200 locations."

ADT has been consistently beating Wall Street's earnings expectations the last few quarters. Their most recent earnings report was ADT's 2015 Q1, which was announced on January 28th. Results were 51 cents a share. That's a +18.6% increase from a year ago. Revenues were up +5.7% to $887 million, above estimates.

Management said their recurring subscription revenues, about 93% of total revenues, were up +6.5% from a year ago. The number of client accounts had risen from 6.4 million to 6.7 million in the last two quarters. ADT reported higher average revenue per customer with an increase of +5.3%. That's likely due to their growth in Pulse subscribers. Pulse is a higher-end subscription for ADT, which now accounts for 19% of its subscription base. Pulse customers have a lower drop out rate and higher margins.

Previously Wall Street was worried that cable giants like Comcast, when they jumped into the home alarm monitoring business, would steal customers and hurt ADT's business Thus far that has not been the case. Now the race is on to see who can cash in on the "connected home" industry, which will be a big part of the Internet of Things.

Technically shares of ADT have been showing relative strength. They recently broke through resistance near $37.00-38.00 and formed an inverse head-and-shoulders pattern (which is bullish). The point & figure chart is also very bullish with a breakout and a $52.00 target (see below). The most recent data listed short interest at 27% of the 170 million share float. That's plenty of fuel for a short squeeze. Tonight we are suggesting a trigger to open bullish positions at $40.10.

Trigger @ $40.10

- Suggested Positions -

Buy ADT stock @ (trigger)

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

Buy the APR $40 CALL (ADT150417C40) current ask $1.65

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

Daily Chart:

Point & Figure chart:



In Play Updates and Reviews

Rally Slows Ahead Of Fed Testimony

by James Brown

Click here to email James Brown

Editor's Note:
The U.S. stock market's rally paused on Monday. Investors could be waiting to hear what Fed Chairman Yellen has to say this week. She speaks on Tuesday and Wednesday to congress.

INFA hit our stop loss.


Current Portfolio:


BULLISH Play Updates

Abbott Laboratories - ABT - close: 47.32 change: -0.16

Stop Loss: 44.75
Target(s): To Be Determined
Current Option Gain/Loss: +1.4%
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:
02/23/15: ABT snapped its eight-day winning streak with a minor decline today. If you're looking to buy a dip I'd rather wait for a dip closer to support near $46.50.

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: 38.47 change: -0.72

Stop Loss: 34.85
Target(s): To Be Determined
Current Option Gain/Loss: +5.2%
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:
02/23/15: CREE encountered some profit taking today with shares losing -1.8%. That erased most of Friday's gains. We can look for what should be short-term support at $38.00 and the 10-dma near $37.65.

I am not suggesting new positions at this time.

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


Linear Technology Corp. - LLTC - close: 47.92 change: -0.33

Stop Loss: 44.90
Target(s): To Be Determined
Current Option Gain/Loss: +1.2%
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:
02/23/15: LLTC dipped to short-term support at its 10-dma again. Support held but shares did close down -0.6%. A bounce from current levels could be used as a bullish entry point.

Earlier Comments: February 10, 2015:
LLTC is part of the technology sector. The company makes an array of semiconductor products.

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

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

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

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

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

- Suggested Positions -

Long LLTC stock @ $47.35

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

Long May $50 CALL (LLTC150515C50) entry $0.85

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


Luxoft Holding - LXFT - close: 49.86 change: +0.14

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

Comments:
02/23/15: Monday was a quiet day for LXFT. Shares tagged round-number resistance at $50.00 this morning but spent most of the day drifting sideways in the $49.20-49.60 zone.

Our suggested entry point is $50.25.

Earlier Comments: February 19, 2015:
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)


Microchip Technology - MCHP - close: 50.62 change: -0.30

Stop Loss: 49.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on February -- at $---.--
Listed on February 21, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.8 million
New Positions: Yes, see below

Comments:
02/23/15: MCHP did not see any follow through on Friday's rebound from support near $50.00. Instead shares meandered sideways in the $50.50 region. There is no change from my weekend new play comments. Our suggested entry point for bullish positions is $51.15.

Earlier Comments: February 21, 2015:
Semiconductor stocks have been big winners for investors over the last couple of years. Last year saw sales for the whole industry hit a record-breaking $335 billion. That's up almost +10% from 2013. While the SOX semiconductor index is currently trading at multi-year highs it did see a sharp sell-off in October 2014. That was thanks to MCHP.

MCHP is considered a bellwether for the industry. According to the company, "Microchip Technology Incorporated is a leading provider of microcontroller, mixed-signal, analog and Flash-IP solutions, providing low-risk product development, lower total system cost and faster time to market for thousands of diverse customer applications worldwide. Headquartered in Chandler, Arizona, Microchip offers outstanding technical support along with dependable delivery and quality."

Last October MCHP shocked the market when they lowered their earnings guidance and warned of an industry wide slowdown. This sparked an industry-wide sell-off. Shares of MCHP plunged. The stock spent the rest of the year trying to climb out of that hole. By the end of 2014 the stock had recovered enough to close essentially breakeven on the year.

Helping shares recover was an update in December. Management provided a slightly better earnings and revenue picture. MCHP said that business had improved significantly from early October. They now believed that the worst of the industry downturn was already behind them. This helped fuel gains for the semiconductor stocks while MCHP shares languished.

Fortunately today MCHP is playing catch up to its peers. The company reported its Q3 2015 results on January 29th. Wall Street was expecting a profit of $0.62 a share on revenues of $525.5 million. MCHP beat estimates with $0.64 a share as revenues grew +11.1% to $535.8 million.

MCHP said that calendar year 2014 was a strong one for their microcontroller business, which was up +13.8% overall. Their 8-bit, 16-bit, and 32-bit microcontroller segments all hit record sales with 16-bit sales up +27.7% and 32-bit sales up +41%. Management said overall they did witness broad-based growth across all their product lines. MCHP then raised their dividend and raised their guidance. They expected Q4 2015 earnings (current quarter) to be in the $0.65-0.67 range and revenues in the $541-551.9 million range. That's above analysts' estimates of $0.65 and $538.8 million.

Steve Sanghi, MCHP's President and CEO, commented on their quarterly results, "We are very pleased with our execution in the December quarter. Our original revenue guidance was to be down 4.5% sequentially and in early December we improved our guidance for revenue to be down only 3.5% at the midpoint. Our actual non-GAAP revenue results were down only 1.9%, which was better than what is seasonally normal. Calendar year 2014 was Microchip's first year above the $2 billion revenue mark and was up 12.8% from calendar year 2013 as a result of very strong performance from our microcontroller and analog product lines."

Investors cheered and the stock has soared from a low near $44 in early February to a new multi-year high above resistance at $50.00. The point & figure chart is forecasting a target at $56.00. Tonight we are suggesting a trigger to open bullish positions at $51.15.

Trigger @ $51.15

- Suggested Positions -

Buy MCHP stock @ (trigger)

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

Buy the Apr $50 CALL (mchp150417C50)

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


Altria Group Inc. - MO - close: 55.51 change: -0.10

Stop Loss: 53.85
Target(s): To Be Determined
Current Option Gain/Loss: +0.5%
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:
02/23/15: MO tagged a new relative high this morning thanks to some bullish analyst comments. Unfortunately gains faded. MO settled with a very minor loss on the day. I would consider new bullish positions at current levels. Just remember this is a slower-moving trade.

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: 39.10 change: -0.30

Stop Loss: 34.90
Target(s): To Be Determined
Current Option Gain/Loss: +3.9%
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:
02/23/15: Biotech stocks continued to show strength on Monday. NBIX managed to tag a new high this morning. Unfortunately the rally didn't last for NBIX and shares underperformed their peers with a -0.7% decline.

I am not suggesting new positions at this time.

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: 50.35 change: -0.92

Stop Loss: 47.65
Target(s): To Be Determined
Current Option Gain/Loss: +0.1%
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:
02/23/15: SPR snapped a six-day winning streak with a -1.8% decline today. Over the weekend I suggested readers wait for a dip near $50.00 as a potential entry point. Today I would modify that. The 10-dma, near $49.50, should also be support. Therefore traders could use a dip in the $49.50-50.00 region as a new entry point or consider watching for a dip and buy the bounce.

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: 55.10 change: +1.71

Stop Loss: 51.35
Target(s): To Be Determined
Current Option Gain/Loss: +4.3%
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:
02/23/15: Looking at an intraday chart of ST you can see that Friday's rally didn't stop it just continued into Monday. Shares of ST outperformed the broader market with a +3.2% gain and a breakout to new highs.

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: 37.90 change: -0.13

Stop Loss: 34.90
Target(s): To Be Determined
Current Option Gain/Loss: +2.3%
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:
02/23/15: I cautioned readers in the weekend newsletter that TSS was due for a dip. After an eight-day rally shares slipped a whole 13 cents. That's probably not a big enough pullback. Broken resistance near $37.00 should be support. I'd wait for a dip near $37 before considering new positions.

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

02/21/15 Caution: TSS is starting to look short-term overbought.
02/13/15 triggered @ 37.05




BEARISH Play Updates


None. We do not have any active bearish trades.




CLOSED BULLISH PLAYS

Informatica Corp. - INFA - close: 43.25 change: -0.65

Stop Loss: 43.35
Target(s): To Be Determined
Current Option Gain/Loss: +1.6%
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:
02/23/15: Shares of INFA underperformed the market today with a -1.48% decline. I don't see any specific news to account for the relative weakness. The stock broke down under its simple 10-dma and hit our stop loss at $43.35.

- Suggested Positions -

Long INFA stock @ $42.65 exit $43.35 (+1.6%)

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

MAR $42.50 CALL (INFA150320C42.50) entry $1.90 exit $1.75 (-7.9%)

02/23/15 stopped out
02/21/15 new stop @ 43.35
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

chart: