Option Investor
Newsletter

Daily Newsletter, Thursday, 3/5/2015

Table of Contents

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

Market Wrap

Market Holds Steady

by Thomas Hughes

Click here to email Thomas Hughes
The market held steady as traders focus on tomorrow's NFP and unemployment data.

Introduction

There was quite a lot of news to move the market today but it held steady. Starting things off in Asia, markets there were mixed after a surprise GDP revision from China. The worlds third largest economy lowered its 2015 growth target to 7%, down from 7.4% in 2014. The news is not good but only seemed to affect Chinese indices. The Shang Hai and Heng Seng indices lost about 1% each while those in Japan and elsewhere in the region were able to post gains.

The news did not spook European markets either, their focus being on the ECB and Mario Draghi. The ECB held their rate policy meeting this week and decided to hold rates steady. They also announced a few more details of the bond purchasing plan set to begin on Monday. In his statements Draghi got bullish and predicted stronger growth for the EU than previously expected for 2015. European indices gained about 1% on average.

Market Statistics

Our indices were indicated to open higher from the earliest of the electronic sessions. Futures held steady throughout the morning, just above break even levels, with a little weakening after today's employment data was released; jobless claims jumped more than expected but not so much as to alter recent trends and lay-offs remain high. Other news affecting early trading includes positive comp store sales data from the retail sector and positive earnings from Costco. While there are few companies left which report comp store sales on a monthly basis those that did were generally better than expected, led by Costco which reported better than expected earnings as well.

The market opened higher as expected. After the opening the bell the indices moved down to test support at yesterdays closing levels and bounced from there. The bounce carried them to the early high, about a quarter percent higher, where they tread water for the next hour. Just before 11AM sellers stepped in and drove the indices back down to the morning low. Support held and another bounce ensued, taking the market back to the top of what became the daily range. After lunch the morning lows were retested, and broken, but buyers once again stepped in to bring prices back above break even. They held steady for the remainder of the day.

Economic Calendar

The Economy

Today was a big day of economic data today. Starting things off is the Challenger Gray&Christmas report on planned lay-offs. In February, planned lay-offs declined slightly to 50,579, a drop of 5% and just off of the high set last month. The large number of planned lay-offs for February is attributed primarily to retail losses, which are in line with last year's figure, and to low oil prices which added 16,339 job losses for the past month alone. On a year-to-date basis job losses in 2015 are trending 19% higher than 2014, due largely to oil. Oil alone accounts for 38% of this years job losses, totaling just over 39,000 for this year, followed by restructuring. Based on estimates I have read this is about half of the expected losses to be expected from the oil sector, not counting any peripheral losses that may occur. These are largely expected, and looking at the data ex-oil impact, job losses are relatively low.

Challenger Gray & Christmas

Initial claims for unemployment jumped this week, versus an expected drop. Claims jumped by 7,000 to 320,000 from last weeks not revised figure, versus an expected decline of about 20,000. The four week moving average rose and is now above 300,000. This weeks rise in claims is not great but still within recent trends and the four week moving average is still hovering around 300,000. The gain may be reflecting the high number of lay-offs reported by Challenger and not a big concern providing initial claims do not rise further. There has been a lot of volatility in the initial claims data lately so they could easily dip next week. Over the long term they are still trending at low levels and in-line the of rising employment.

On an not adjusted basis claims rose by just over 10%, slightly more than the 8% predicted by seasonal factors. Massachusetts, Kentucky and Illinois led with gains of 3,807, 2,916 and 2,777 respectively, followed by Pennsylvania. No mention of oil was given as a reason for increases of job losses by any of these states. Pennsylvania says that trucking, warehousing and construction were to blame, partly due to the weather.


Continuing claims for unemployment also rose this week, gaining 17,000 to reach 2.421 million. This is from an upward revision of 3,000. The four week moving average climbed 3,750 to 2.403 million and is now above the 2.4 million level. The gain this week is marginal, this figure is holding steady right around 2.4 million as it has for the last 2-3 months. This statistic is seen as a less volatile indication of labor trends and it looks to me to be settling down around the long-term-low-level of 2.4 million. Over the next couple of weeks we'll need to watch the initial claims for further gains, and to see if the relatively high level of initial claims spills over into the longer term and less volatile continuing claims.

The total number of American filing for unemployment fell by -59,912 to 2.806 million. This is a slight decline from last week, the 5th week of relatively stable numbers and the 7th week of retreat from the peak set in early January. Claims are elevated from the low set last fall but still trending near that low and at levels consistent with the long term labor trends. On a year over year basis total claims are more than 18% lower than last year at this time.


Revisions to Q4 productivity and labor costs were also released at 8:30AM. Productivity was revised lower to -2.2% from the previous estimate of -1.8%. While revised lower, it was not revised as low as expected and reflects an increase in the number of hours worked. The decline in productivity is due to an imbalance in the amount of output, which increased 2.6%, and the number of hours worked, which rose by 4.9%.

unit labor cost also increased in revision to +4.1%. This quite a bit more than the previous estimate of 2.7%, the expected revision to 2.9% and the previous quarters 2.6%. The reason for the rise in costs is due to an increase in wages of 1.9% and hours worked, offset by the drop in productivity. My take is that labor is improving as evidenced by increases in hours worked and wages, and that capacity is expanding to point of increased excess. Because of this we may see a decline in capacity utilization in the next release.

Factory orders data was released at 10AM. Orders fell by -0.2% versus an expected gain of 0.1%. This is on top of a downward revision to the previous month and the 6th month of decline. X-Transportation the number is worse, -1.8%. Shipments, unfilled orders and inventory all declined as well with weather a leading cause. It seems like the weather effect is in effect, although still nothing to compare with last year.

Tomorrow the big economic event will be the NFP number. Current estimates are in the 240K range but I think it may be a little low. There is volatility in initial claims but steadiness in the longer-term continuing and total claims belies any weakness that volatility may indicate. At the same time high levels of lay-offs are being matched by high levels of job openings, unfilled positions and a decent ADP number. Not only was the ADP OK, it is still indicating underlying momentum though positive revisions.

The Oil Index

Oil prices tried to rally again but failed. The price of WTI hung just over $51 for most of the day with a spike up to $51.50 early in the morning. However, by late afternoon sellers overpowered buyers and sent prices back down below yesterday's close. Competing GDP expectations may have been a cause of today's turnaround; on one hand China says it's growth is slowing, on the other Mario Draghi says EU growth is picking up, in between we have rising stockpiles, tepid demand and spreading ISIS conflicts throughout the Middle East. I think it needless to say that we should expect volatility in oil to continue, with an eye on $48 as near term support.

The Oil Index also traded lower today. The index traded in a very tight range, just beneath the 38.8% Fibonacci Retracement. This level could act as resistance now and the indicators are bearish so a drop is very possible. A move below the low set yesterday would be further bearish in my view. A drop below here could take it down to next support along the the long term up trend line near 1,250.


The Gold Index

Gold traded in a tight range during a choppy session. Prices held steady around $1,200 for most of the day but like oil, spiked higher mid-day and then fell sharply in the late afternoon. At that time gold fell below $1,200 bit and was not able to regain that level before before the end of the day. Gold prices continue to hold around $1,200 while the market tries to decide when the Fed will begin to move. The jobs number could help sway the market one way or the other but I still think any dip below this level will find buyers. A drop below $1,200 would find support between $1,175 and $1,190. a price region that saw a lot of bullish activity towards the end of last year.

The Gold Miners ETF GDX gained in today's action but traded down from the opening price. The ETF opened with a small gap and moved up to test resistance, then retreated to set a new two month low. The ETF is now below my support line at $20.50 and in danger of moving lower. If gold prices don't maintain support around $1,200 the possibility will grow. A move below $20 could take it down as far as $17.50. The indicators are bearish but beginning to show stronger signs of support at the current level so I'm not too sure of a break just yet. MACD is showing a nice divergence from prices as they set the new low and the stochastic is setting up into what could become a strong trend following signal.... assuming a bottom was set during during the Nov/Dec time period.


In The News, Story Stocks and Earnings

I haven't touched base on the dollar in a while but today is a good day to do it. The Dollar Index has been in consolidation for the last two months, basically since the ECB announced they would do QE bond purchases, and today's announcements helped send it shooting to a new high. The Dollar Index, which is euro heavy, continued its move above resistance with a gain of nearly 0.5%. Mario Draghi's dovish comments are likely to send the USD/EUR pair lower and this index higher in the near to short term as well. This is great for dollar bulls but will no doubt have an adverse affect on companies who have already be reporting the negative effects of currency conversion.


Costco reported earnings before the bell and beat street estimates on the top and bottom lines. The discount club retailer reported EPS of $1.35, a 29% increase over the comparable quarter last year. This is driven by an increase in traffic, sales and reduction in costs. Comparable store sales were strong, up in the high single digits for the US and the international segments of business, and expected to remain so. This is good news and helped by the recent switch to Citigroup and Visa sponsored credit cards,a move which should help to reduce cost even more. Today's news was well received and sent the stock up by 3% to approach the all time high set last month.


Bank stress test results were released after the closing bell and all 31 cleared their capital requirements. The Banking Index traded choppy today, first moving lower to test support along the short term 30 day moving average and then bouncing higher. By the end of the day price action had returned to near break even where it held into the close. The index is trading near the top of the 12 month trading range and does not look like it is about to break out but this news could lead to some buying and/or short covering tomorrow. The indicators are very weak bu could easily reverse if the bulls decide to buy into the banks who “passed” their tests.


Grocer chain Kroger reported earnings today and may have revealed one place where the consumer is spending money saved from low gas price. The chain reported earnings of $1.04, $0.23 (28%) above last year at this time. The gains are driven by higher sales, traffic and improved margins due to lower fuel costs. Company execs expect to see these trends continue into the current year and have raised guidance. The new target is full year EPS in the range of $3.80-$3.90 per share, a full ten cents above the previous guidance. Shares jumped more than 6% in today's action to reach another new all time high.


The Indices

Today's action was a little mixed, but largely to the upside. Trading ranges were very tight and lead me to think that the market is waiting for tomorrow's data before committing to one direction over the other. Most of the indices were able close in the green but not the Dow Jones Transportation Index. The transportation average was able to poke its head above break even but spent most of the day underwater and closed with a loss of -0.15%. Today's action was light and tested support along the short term moving average. The indicators are bearish and point to lower prices in the near term but I would not bet on that until after the NFP is released. Each time support was tested today buyers stepped in. A move below the moving average could keep the index range bound into the near to short term, with a downside target near 8,600. A bounce from this level would be in line with the long term trend and likely take it to test the all time high.


The S&P 500 made the smallest gain of the day, only 0.12%. This is after moving as high as 0.25% above yesterday's close and as low as -0.25%, creating a small spinning top floating just above support, support at the previous all-time high. Today's action is indicative, I think, of a wait-and-see attitude that could be focused on the NFP release. The indicators are moving lower, in line with this weeks move down to support, but not strong and still consistent with a naturally occurring pull-back to support. If support should break down the index could find support at the short term moving average and then below that near 2,050. If support holds upside targets remain near 2,200 or higher.


The Dow Jones Industrial Average made the next biggest gain, just over 0.21%. The blue chip index is situated similarly to the SPX in that it too is sitting just above the support of previous all-time highs and has created a small spinning top with today's action. The indicators are bearish, in line with the pull back to support, and could be indicating further testing of support along 18,000. If this breaks the short term moving average is just below and may provide additional support.


The NASDAQ Composite is today's leader in terms of percent gain. The tech heavy index climbed 0.32% in today's session but still created a spinning top, perhaps the most indecisive one of the lot as it is also a doji. The index is not sitting at support like the others so with the indicators the way they are looks especially vulnerable to sell-off. A pull back from here could take the index down to the 30 day moving average, about 130 points below today's closing price.


The market is waiting for the NFP number like it always does. Regardless of what the rest of the economic tells us, this one number is the what the market likes to pin its hopes too. I think it will be strong but even if it is not the trends are still positive and one month of data does not break a trend. Employment is improving and everybody (almost) is benefiting from low oil prices. This combination should add up to a nice surge in growth at some time in the foreseeable future if I am not totally off base. There could be a correction sparked by tomorrow's release but if so will likely be another buying opportunity for long term investors.

Until then, remember the trend!

Thomas Hughes


New Plays

Beating Estimates Again

by James Brown

Click here to email James Brown


NEW BULLISH Plays

Gentherm Inc. - THRM - close: 47.04 change: +0.78

Stop Loss: 44.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on March -- at $---.--
Listed on March 04, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 456 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
I remember the first time I bought a car with heated seats. I vowed to never own another automobile without them. Considering how cold the last couple of winters have been I'm sure a lot of consumers feel the same way. One company that makes the technology behind heated seats and other products is Gentherm.

THRM is in the consumer goods sector. According to the company's marketing material, "Gentherm (THRM) is a global developer and marketer of innovative thermal management technologies for a broad range of heating and cooling and temperature control applications. Automotive products include actively heated and cooled seat systems and cup holders, heated and ventilated seat systems, thermal storage bins, heated automotive interior systems (including heated seats, steering wheels, armrests and other components), cable systems and other electronic devices. The Company's advanced technology team is developing more efficient materials for thermoelectric and systems for waste heat recovery and electrical power generation for the automotive market that may have far-reaching applications for consumer products as well as industrial and technology markets. Gentherm has more than 9,000 employees in facilities in the U.S., Germany, Mexico, China, Canada, Japan, England, Korea, Malta, Hungary and the Ukraine."

THRM has been consistently beating Wall Street's on both the top and bottom line the last four quarters in a row. The exception was their Q4 revenue number. They raised guidance twice last year. Their most recent report was 2014 Q4 earnings announced on February 24th. Earnings were $0.56 a share on revenues of $205.2 million. That beat estimates of $0.48. Revenues were just a hair under estimates of $207 million. Management said their "adjusted EBITDA for the 2014 fourth quarter was $35.7 million, up $10.0 million or 39 percent, compared with Adjusted EBITDA of $25.6 million for the 2013 fourth."

THRM's 2014 gross margins grew to 29.8 percent versus 26.4 percent in 2013. Last year saw THRM's revenues rise +23% over the prior year. Their net income more than doubled. Management expects 2015 to see revenues grow +10-15% above 2014 levels.

Last month saw shares of THRM breakthrough technical resistance at its simple 200-dma. It has also rallied past price resistance near the $44.00 level. Traders just bought the dip at its 10-dma and now THRM looks poised to make a run towards its 2014 highs near $52.00. Tonight we're suggesting a trigger to open bullish positions at $47.30.

Trigger @ $47.30

- Suggested Positions -

Buy THRM stock @ (trigger)

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

Buy the Jun $50 CALL (THRM150619C50) current ask $2.65

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Quiet Ahead Of Jobs Number

by James Brown

Click here to email James Brown

Editor's Note:
The major U.S. indices managed a bounce on Thursday but overall trading was quiet ahead of the February jobs report due out tomorrow morning.

THRX hit our entry trigger.


Current Portfolio:


BULLISH Play Updates

Anthera Pharmaceuticals - ANTH - close: 5.53 change: +0.36

Stop Loss: 4.58
Target(s): To Be Determined
Current Option Gain/Loss: +9.5%
Entry on February 26 at $5.05
Listed on February 25, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 715 thousand
New Positions: see below

Comments:
03/05/15: Biotech stocks displayed relative strength thanks to some M&A headlines. Shares of ANTH soared +6.9% to new 52-week highs. Investors should consider raising their stop loss. I am not suggesting new positions at this time.

Earlier Comments: February 25, 2015:
Biotech stocks were outperformers last year and they continue to outperform the broader market in 2015. One biotech stock that did not participate in last year's rally was ANTH. The stock was actually on the verge of being delisted from the NASDAQ. That changed with the company' recent press release.

According to the company, "Anthera Pharmaceuticals is a biopharmaceutical company focused on developing and commercializing products to treat serious and life-threatening diseases, including lupus, lupus with glomerulonephritis, IgA nephropathy, and exocrine pancreatic insufficiency due to cystic fibrosis."

The press release that changed the stock's direction came out on February 10th. ANTH announced "successful completion of an interim analysis of its Phase 3 trial (CHABLIS-SC1) of blisibimod in patients with Systemic Lupus Erythematosus and that the study should continue to completion as planned. An independent statistician conducted the interim futility analysis for the CHABLIS-SC1 study, evaluating the SRI-6 response at the 24 week time point. Enrollment in the trial is projected to conclude in mid-2015."

What is blisibimod? In the press release the company states, "Anthera is developing blisibimod, a selective inhibitor of B-cell activating factor (BAFF), to explore its clinical utility in various autoimmune diseases including systemic lupus erythematosus (SLE) and IgA nephropathy. Blisibimod is a novel FC-fusion protein, or peptibody, and is distinct from an antibody. BAFF is a tumor necrosis family member and is critical to the development, maintenance and survival of B-cells. Abnormal elevations of B-cells and BAFF may lead to an overactive immune response, which can damage normal healthy tissues and organ systems. Multiple clinical studies with BAFF antagonists have reported the potential benefit of BAFF inhibitors in treating patients with lupus and IgAN." You can read the entire press release here.

SLE can be hard to diagnose. Current estimates suggest 300,000 and up to 1.5 million people in America suffer with SLE. Most of them are women.

The stock exploded higher on this positive clinical trial data. Shares have essentially doubled. Momentum suggest this rally will continue. Regular readers know that we consider biotech stocks higher-risk and more aggressive trades. The right or wrong headline can send a stock soaring or crashing. We could see shares gap up or down at any time. I definitely consider ANTH a higher-risk, aggressive trade.

Today the stock appears to be coiling for a bullish breakout past round-number resistance in the $5.00 area. I am suggesting small bullish positions if ANTH can trade at $5.05 or higher (although if shares gap open too high you may want to hesitate on launching positions).

*small positions* - Suggested Positions -

Long ANTH stock @ $5.05

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

Long Apr $5 CALL (ANTH150417C5) entry $1.10

02/26/15 triggered @ $5.05
Option Format: symbol-year-month-day-call-strike


Best Buy Co. Inc. - BBY - close: 39.63 change: -0.16

Stop Loss: 37.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on March -- at $---.--
Listed on March 04, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 6.2 million
New Positions: Yes, see below

Comments:
03/05/15: BBY, like most of the market today, quietly churned sideways. Shares continue to sit just below resistance at $40.00. Our suggested entry point is $40.25.

Trade Description: March 4, 2015:
BBY has got a bullish recipe brewing. The company has rising sales, rising earnings, rising dividends, and rising stock buybacks. The company launched a massive turnaround effort when they changed management in 2012. According to Fortune, BBY has "turned around its U.S. operations., shed assets abroad and trimmed expenses to help lift profitability."

If you're not familiar with BBY the company describes itself as "one of the world's largest consumer electronics retailers, offering expert service and unbeatable prices to the consumers who visit its websites and stores more than 1.5 billion times each year. In the United States, more than 70 percent of Americans are within 15 minutes of a Best Buy store. Additionally, the company operates businesses in Canada and Mexico. Altogether, Best Buy employs more than 125,000 people and earns annual revenues of more than $40 billion."

This week BBY has been making headlines thanks to its better than expected Q4 earnings results, which came out on March 3rd. Wall Street was expecting a profit of $1.35 a share on revenues of $14.33 billion. BBY said earnings hit $1.48 a share. That's a +23% increase from a year ago. Their unadjusted earnings were up +75% from a year ago. Q4 revenues were up +1.3% to $14.21 billion. BBY's U.S. same-store sales were up +2.8%. International was down -4% but their online sales surged +9.7%. Their U.S. same-store sales results are noteworthy because it's the second consecutive quarter of same-store sales growth for the first time in five years.

BBY's CEO and President Hubert Joly commented on his company's results saying,

"In the fourth quarter, our teams delivered positive comparable sales, improved profitability and continued progress in our Renew Blue transformation. This resulted in a 1.3% increase in revenue to $14.2 billion and a 23% increase in non-GAAP diluted EPS to $1.48 versus $1.20 last year, primarily driven by growth in the Domestic segment. A compelling merchandise assortment and strong multi-channel execution drove these better-than-expected results as we capitalized on the product cycles in large screen televisions and mobile phones. These two categories were the primary drivers of our year-over-year revenue growth, and more than offset weakness in the tablet category which was impacted by material industry declines."
Joly did warn that in fiscal 2016 BBY will "be facing industry and economic pressures on our business related to deflationary pricing and weak industry demand in certain product categories." However, investors didn't care. They didn't care about the revenue miss or the negative foreign currency headwinds. Everything was overshadowed by BBY's very shareholder friendly capital return initiatives.

The company said they are raising their normal dividend by +21% to 23 cents a share effectively immediately. They are also going to pay a special, one-time dividend of $0.51 a share. Plus they are re-starting their stock buyback program. Previously BBY had a $5 billion stock repurchase program but that halted it back in 2012 to work on their turnaround strategy. Management announced they plan to spend $1 billion on stock buybacks over the next three years.

Multiple analysts firms raised their price target on BBY following the company's earnings results and dividend news. Most of the new targets were in the $45-50 range.

Currently shares of BBY are trading just below key round-number resistance at the $40.00 mark. A breakout here could spark some short covering. The most recent data listed short interest a 10% of the 304 million share float. Tonight we're suggesting a trigger to launch bullish positions at $40.25.

Trigger @ $40.25

- Suggested Positions -

Buy BBY stock @ (trigger)

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

Buy the MAY $40 CALL (BBY150515C40)

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


Cree, Inc. - CREE - close: 38.86 change: -0.13

Stop Loss: 36.25
Target(s): To Be Determined
Current Option Gain/Loss: +6.3%
Entry on February 05 at $36.55
Listed on February 03, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.8 million
New Positions: see below

Comments:
03/05/15: CREE was also little changed today. Investors are probably waiting on the jobs report tomorrow.

Prior resistance near $38.00 could be new support. Investors may want to raise their stop loss again. 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

02/28/15 new stop @ 36.25
02/12/15 new stop @ 34.85
02/05/15 triggered @ 36.55
Option Format: symbol-year-month-day-call-strike


Johnson Controls Inc. - JCI - close: 50.58 change: -0.12

Stop Loss: 49.65
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on March -- at $---.--
Listed on March 2, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 3.5 million
New Positions: Yes, see below

Comments:
03/05/15: JCI delivered a similar performance with shares drifting sideways. Currently we're on the sidelines waiting for a breakout past $52.00.

Trade Description: March 2, 2015:
JCI is in the consumer goods business. A large chunk of their sales is in the auto parts industry. Right now auto-part stocks have been showing relative strength.

According to the company, "Johnson Controls is a global diversified technology and industrial leader serving customers in more than 150 countries. Our 170,000 employees create quality products, services and solutions to optimize energy and operational efficiencies of buildings; lead-acid automotive batteries and advanced batteries for hybrid and electric vehicles; and interior systems for automobiles."

The earnings picture last year was not that hot. Back in April 2014 JCI actually lowered guidance for their third quarter and fiscal 2014. The next two quarters were pretty bland. However, the earnings picture began to improve when JCI reported results last October. Their 2014 Q4 numbers beat analysts' estimates on the bottom line.

JCI held their annual investor day on December 2nd. Management said, "We believe initiatives to improve the profitability of our businesses continue to gain momentum. Our 2014 results provide a foundation that we believe will position us to deliver record sales and earnings in 2015." JCI expects steady growth and minor margin improvement in the auto seating business. Their power solutions business should grow faster (about +5.5%) and margins should improve about 50 basis points to 18.5%.

JCI's next earnings report was their first quarter of 2015. Their announcement on January 22nd showed earnings grew +20% to $0.79 a share, beating expectations. Revenues were up +5% but when you account for currency adjustments they were up less than 1% but still above analysts' estimates. It's the first time they beat the revenue estimate in a while. Their Q1 results were driving by a strong performance in China where sales surged +15%.

JCI's Chairman and CEO Alex Molinaroli said, "Profitability improved significantly in the quarter, as we benefitted from higher volumes and our continuing focus on execution improvements. The results in the quarter are better than the expectations we provided at our analyst day in December.

The company also announced a joint venture agreement. According to the press release JCI and "Hitachi, Ltd. and Hitachi Appliances, Inc. signed a definitive agreement on January 21, 2015 to form a previously announced global joint venture that will bring customers world-class variable refrigerant flow (VRF) technology, as well as room air conditioners and absorption chillers to meet increasing demands for energy efficient air conditioning options. The Johnson Controls-Hitachi joint venture is expected to have 2016 sales of approximately $3.0 billion. The formation of the joint venture is expected to close in the fourth quarter of fiscal 2015, pending regulatory approvals." JCI will own 60% of the business.

Technically shares of JCI have been in rally mode following their earnings report. Investors have been buying the dips and now JCI is challenging major resistance in the $52.00 area. The point & figure chart is bullish and forecasting a long-term target at $67.00. On the weekly chart (see below) JCI has formed an inverse head-and-shoulders pattern, which is bullish. Tonight we are suggesting a trigger to launch bullish positions at $52.15.

Trigger @ $52.15

- Suggested Positions -

Buy JCI stock @ (trigger)

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

Buy the Jul $55 CALL (JCI150717C55)

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


Linear Technology Corp. - LLTC - close: 48.37 change: +0.82

Stop Loss: 46.95
Target(s): To Be Determined
Current Option Gain/Loss: +2.2%
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:
03/05/15: After a rough, two-day drop shares of LLTC bounced and outperformed the broader market with a +1.7% gain. I'd like to see some follow through before considering new positions.

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

03/04/15 new stop @ 46.95
02/11/15 triggered @ $47.35
Option Format: symbol-year-month-day-call-strike


Luxoft Holding - LXFT - close: 49.58 change: -0.12

Stop Loss: 47.40
Target(s): To Be Determined
Current Option Gain/Loss: -1.3%
Entry on February 24 at $50.25
Listed on February 19, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 241 thousand
New Positions: see below

Comments:
03/05/15: LXFT traded down toward $48.00 before finally paring its losses. I am still suggesting caution on this trade. You might want to raise your stop close to today's low ($48.07). I am not suggesting new positions.

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.

*small positions to limit risk* - Suggested Positions -

Long LXFT stock @ $50.25

03/03/15 Today's decline looks ominous. Readers may want to consider an early exit
02/24/15 triggered @ $50.25


Microchip Technology - MCHP - close: 50.88 change: -0.60

Stop Loss: 49.25
Target(s): To Be Determined
Current Option Gain/Loss: -0.5%
Entry on February 24 at $51.15
Listed on February 21, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.8 million
New Positions: see below

Comments:
03/05/15: Hmm... MCHP underperformed both the broader market indices and the semiconductor index. I suspect we're going to see shares test round-number support at $50.00 soon.

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.

- Suggested Positions -

Long MCHP stock @ $51.15

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

Long Apr $50 CALL (mchp150417C50) entry $2.40

02/24/15 triggered @ 51.15
Option Format: symbol-year-month-day-call-strike


Altria Group Inc. - MO - close: 55.50 change: -0.29

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:
03/05/15: MO reaffirmed its 2015 guidance for earnings in the $2.75-2.80 range. Wall Street estimates are abound $2.80 a share. Meanwhile the stock slipped further from its highs earlier in the week. If the $55.00 region fails to hold support then look for a dip toward the rising 40-dma around $54.00.

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: 40.92 change: -0.35

Stop Loss: 38.45
Target(s): To Be Determined
Current Option Gain/Loss: +8.7%
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:
03/05/15: NBIX tagged a new high above $42.00 a share before succumbing to profit taking. If the recent trend is any guide then NBIX should find support at its rising 10-dma (currently near $39.95).

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

03/03/15 new stop @ 38.45
03/02/15 new stop @ 35.75
02/17/15 after the close, announces a secondary offering
02/17/15 triggered @ 37.65
Option Format: symbol-year-month-day-call-strike


Theravance Inc. - THRX - close: 19.86 change: +0.22

Stop Loss: 17.75
Target(s): To Be Determined
Current Option Gain/Loss: -1.2%
Entry on March 05 at $20.10
Listed on March 3, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.0 million
New Positions: see below

Comments:
03/05/15: Biotech stocks continued to rally today thanks to some M&A news in the industry. Shares of THRX spiked up to $20.49 this morning. Unfortunately the rally faded and shares closed back below round-number resistance at $20.00. Our trigger to launch positions was hit at $20.10. If you're considering a trade now I would wait for a new rally above $20.10. More conservative traders could wait for a close above $20.00 instead.

Trade Description: March 3, 2015:
Biotech stocks were huge performers last year. One biotech that underperformed its peers and the broader market was THRX. It looks like the bear market in THRX is over. Shares have been surging from their February lows.

A concise summary of who THRX and what they do is the following, "Theravance (NASDAQ: THRX), A Royalty Management Company, is focused on stockholder returns by: maximizing the potential value of our respiratory assets partnered with GlaxoSmithKline plc (GSK), providing capital returns to our stockholders and reducing the overall corporate cost of capital."

If you would like a more detailed description of who they are and what biotech assets they are trying to leverage the company has provided this description: "Theravance, Inc. is focused on maximizing the potential value of the respiratory assets partnered with Glaxo Group Limited (GSK), including RELVAR®/BREO® ELLIPTA® and ANORO® ELLIPTA®, with the intention of providing capital returns to stockholders. Under the Long-Acting Beta2 Agonist (LABA) Collaboration Agreement with GSK, Theravance is eligible to receive the associated royalty revenues from RELVAR®/BREO® ELLIPTA® (fluticasone furoate/vilanterol, "FF/VI"), ANORO® ELLIPTA® (umeclidinium bromide/vilanterol, "UMEC/VI") and if approved and commercialized, VI monotherapy. Theravance is also entitled to a 15% economic interest in any future payments made by GSK under agreements entered into prior to the spin-off of Theravance Biopharma, and since assigned to Theravance Respiratory Company, LLC, relating to the combination of UMEC/VI/FF and the Bifunctional Muscarinic Antagonist-Beta2 Agonist (MABA) program, as monotherapy and in combination with other therapeutically active components, such as an inhaled corticosteroid, and any other product or combination of products that may be discovered and developed in the future under these agreements with GSK (other than RELVAR®/BREO® ELLIPTA®, ANORO® ELLIPTA® and VI monotherapy)."

We are adding THRX as a momentum play. This appears to be a short squeeze in progress. Biotech stocks delivered steady consistent gains in the first half of February but then started to see upward momentum fade. THRX did consolidate a little bit the rally started anew this week and today's display of relative strength (+1.7%) also produced a bullish breakout above technical resistance at its simple 200-dma.

THRX has about 60.7 million shares outstanding. Short interest is about 50% of the float. THRX has already rallied from about $10.60 to $19.50 in just the last four and a half weeks. Right now it's hovering just below significant resistance at the $20.00 mark. A breakout here could spark another leg higher.

Regular readers know that we consider biotech stocks more aggressive, higher-risk trades. The right or wrong headline could send shares gapping open up or down in a big way. Stop losses don't always work. THRX should definitely be considered a more aggressive trade. It does have options available but after the recent rally the option spreads are too wide to trade.

Tonight we are suggesting a trigger to launch small bullish positions at $20.10 with an initial stop loss at $17.75.

*small positions to limit risk* - Suggested Positions -

Long THRX stock @ $20.10

03/05/15 triggered @ $20.10


Total System Services - TSS - close: 38.08 change: -0.04

Stop Loss: 36.85
Target(s): To Be Determined
Current Option Gain/Loss: +2.8%
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:
03/05/15: TSS closed virtually unchanged after rebound from its intraday lows. The stock is at risk of breaking its trend of seven up weeks in a row. I am not suggesting new positions at this time.

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

03/02/15 new stop @ 36.85
02/28/15 new stop @ 36.40
02/21/15 Caution: TSS is starting to look short-term overbought.
02/13/15 triggered @ 37.05




BEARISH Play Updates

Five Below, Inc. - FIVE - close: 29.91 change: -1.05

Stop Loss: 33.15
Target(s): To Be Determined
Current Option Gain/Loss: +4.9%
Entry on March 03 at $31.45
Listed on February 28, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.2 million
New Positions: see below

Comments:
03/05/15: The weakness in FIVE accelerated today with shares losing -3.3% to close at new two-year lows. It is possible that the $30.00 mark is round-number support so I wouldn't be surprised to see a little bit of an oversold bounce tomorrow.

Earlier Comments: February 28, 2015:
Five Below is struggling. Consumer spending accounts for almost 70% of the U.S. economy. FIVE has chosen to carve out a niche between the $1.00 store-model and discount variety stores. Considering the drop in gasoline prices from a year ago, business should be good. Low-income consumers have more money to spend. Unfortunately we are not seeing a lot of evidence that consumers are spending the money they save at the gas pump, at least they're not spending it on merchandise.

If you're not familiar with FIVE the company describes itself as "Five Below is a rapidly growing specialty value retailer offering a broad range of trend-right, high-quality merchandise targeted at the teen and pre-teen customer. Five Below offers a dynamic, edited assortment of exciting products in a fun and differentiated store environment, all priced at $5 and below, including select brands and licensed merchandise across a number of category worlds: Style, Room, Sports, Tech, Crafts, Party, Candy, and Now." They currently have about 304 locations in 19 states.

Right now the trend is not FIVE's friend. In September 2014 they reported Q2 results and guided lower for the third quarter. On December 4th FIVE reported their 2014 Q3 numbers with earnings in-line with estimates. Revenues were up +24.7% from a year ago to $138 million, just a hair above expectations. However, management lowered their guidance again. You can see how investors reacted with the big drop on December 5th.

Shares got clobbered again on January 9th. That's because FIVE lowered guidance! That's the third time since September they have lowered guidance. If FIVE is struggling to generate sales now with low gas prices and consumer confidence near 11-year highs what are they going to do when gas prices rebound?

You can see that shares of FIVE did not have much of a bounce following the January sell-off. The stock now has a bearish trend of lower highs as traders sell the rallies. Currently FIVE is breaking down below support near $32.00. The next support level could be $30.00 or it could be the late 2012 lows near $28.00 or it could be the all-time low near $25.00. The point & figure chart is bearish and forecasting at $26.00 target.

The stock is definitely underperforming the market and investor sentiment has soured. The stock is likely headed for the mid $20s. I will caution readers that short interest is almost 19% of the 51.9 million share float. That could generate volatility. You may want to use small positions to limit your risk or use put options to limit your risk. Tonight we are suggesting a trigger to launch bearish positions at $31.45.

- Suggested Positions -

Short FIVE stock @ $31.45

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

Long Apr $30 PUT (FIVE150417P30) entry $1.40

03/03/15 triggered @ $31.45
Option Format: symbol-year-month-day-call-strike