Option Investor
Newsletter

Daily Newsletter, Monday, 3/9/2015

Table of Contents

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

Market Wrap

Monday Rebound

by Thomas Hughes

Click here to email Thomas Hughes
The market rebound from Friday's sell-off.

Introduction

The market rebound from Friday's sell-off but I'm not convinced the correction is over. The strong NFP report has helped to cushion the fall but I think that we have not yet seen the end of it. Earnings season is just about over so there are few catalysts until the next round of monthly data, earnings outlook is negative and we have an FOMC meeting on the horizon. All reasons for the market to pause.

Market Statistics

The first day of daylight saving time began in the red. International markets were quiet and largely influenced by Friday's sell-off. Asian indices closed mostly lower while those in Europe were able to shake off early blah's and rise to break even by the close of their trading day. Our market were indicated higher from the start. Futures were indicating the market would open a few points above Friday's close and it did. There was no economic data today and very little news with a real effect on market direction.

A few company specific news events moved individual stocks with the most attention paid to Apple. The long awaited, eagerly anticipated and heavily speculated Apple “Spring Forward” event was this afternoon and came to pass with the usual amount of hoopla. After the opening bell the market moved higher throughout the day but was not able to regain the losses suffered on Friday.

Economic Calendar

The Economy

This week Moody's Survey Of Business Confidence declined by nearly 2 points to 38.2. This is the fifth week of decline and matches the lowest levels of the year. Despite the decline the index remains near the all-time high, set 5 weeks ago, and indicates positive forward outlook among global businesses. In his summary Mark Zandi remains upbeat but the exuberance in his earlier reports is lacking. He says;

“Business sentiment remains upbeat, although it weakened a bit in early March. Confidence is especially strong in the U.S. It is weakest in South America. U.S. businesses are feeling good about sales, hiring and investment. Pricing is holding up well despite heightened deflation concerns in much of the developed world. The survey results are consistent with an economy that is expanding well above its potential.”


According to data from FactSet, 496 S&P 500 companies have reported earnings so far this season. Of those, 75% have beaten the mean estimate for earnings and 58% have beaten on sales. The blended growth rate stands at 3.7%, up 2% from expectations at the start of the quarter. This is in line with recent trends but not strong or exciting. Within the index seven of the ten sectors have beaten expectations while three have not, led by earnings declines in the energy sector. So far 82 companies have issued negative guidance for the current quarter, again led by energy. Four of the seven sub-sectors showed declines but surprisingly, two have reported double digit earnings growth. These are equipment services and refining & marketing.

Looking at the ten year chart of S&P 500 compared to forward P/E it is obvious that valuation has far exceeded expected earnings for this index. The question is whether or not valuation is leading expected earnings or the other way around. In the near term P/E may lead the index lower until earnings expectations begin to rise. I still think that earnings ex-energy are going to be more important to watch over the next quarter than overall earnings due to the expected weakness in energy. Stripping out the energy sector for the current reporting period would elevate the blended rate to 6.8%. Considering the expected boost to the consumer and the economy due to low gasoline, and economic tail winds, it is possible for earnings growth in the S&P 500 ex-energy.


There isn't very much data due out this week. Tomorrow is JOLTs, look for high levels of job openings and strong levels on the quits rate. Later in the week look out for wholesale and business inventories for January, February retail sales, PPI and Michigan Sentiment. As a heads up the next FOMC is meeting is next week and will likely overshadow any other single piece of data until then.

The Oil Index

West Texas Intermediate persists in trading around $50. Today's action began with prices slightly below $50 and then later lifted to just over $50 on news from Cushing. The latest report shows storage levels had risen less than expected. Prices remain volatile but less so each day as prices appear to be stabilizing around $50, supply and demand balance remains cloudy. Supply levels are still rising although OPEC says there will be a shortfall soon, the US rig count is falling and fighting in the Middle East is threatening production in Libya, Iraq and other locations.

The Oil Index traded to the upside although momentum remains bearish. The index gained about a half percent in today's session, rising from the low set Friday, but still well below resistance. The indicators are bearish and in line with the move downward with targets near my support lines. Target for support is the long term trend line, near 1,250. The indicators, while bearish in the near term and pointing to a test of support, are also consistent with the longer term uptrend and a possible continuation of that trend. Because of this I will be looking for a bounce at that level. Resistance is now at 1,350 and the short term moving average. Oil prices will of course keep this index moving in day-to-day action.


The Gold Index

Gold fell hard on Friday. The NFP data, which was stronger even than I thought it would be, has spooked the market into thinking the FOMC will raise interest rates sooner than expected. What I find interesting is that the rising chances of FOMC interest rate hikes was at least part of why gold prices rallied in January so why are these same speculations causing prices to fall now? It may be due to rising dollar values but the dollar has been rising for months.

The gold miners continued the sell off begun Friday, the sector ETF GDX losing 3.5% and falling below my rising support line. The ETF is moving lower in tandem with gold prices and will likely test support near the long term low in the least. The indicators are bearish and gaining strength in the near term, convergent with the current move and pointing to lower prices. Next target is near $16.50 provided there is no rebound in gold prices.


In The News, Story Stocks and Earnings

Apple of course was the biggest name in stock news today. The worlds largest company revealed a full line up of new gadgets, including the watch. Along with it the company also announced a new iTV with lower price as well as an exclusive deal with HBO. Now HBO shows will be available over the iTV where before they were only available through cable or satellite. They also launched a new, slimmer Macbook and gave an update on the Pay service. Now there are over 2,500 banks on board with the program, and over 700K merchants. The watch looks cool and for $349 is likely to sell out pretty quick. Shares of Apple traded higher up and into the event, which started around 1PM, until the watch was unveiled. At that time shares fell, but remained above break even for the day. Apple is trading below $130 which may become resistance.


GM announced a $5 billion share buy back today, a move that helped to send the stock up by over 3%. The announcement was met with mixed approval as some see it as a negative. Moody's Investor Service said the buy back was a credit negative although they held their rating steady. The statement given mentions that it would “delay any potential consideration for an upgrade”, which sounds to me like GM was in the running for an upgrade. Shares are now trading just below $38 and the 12 month high with weak indicators. A drop from here would find some support along $37 and just below near the short term moving average. A break above $38 would be bullish and could take it as high as $40 before hitting the next significant resistance.


McDonald's announced further declines in comp store sales. My New Year resolution to stop eating french fries is having its affect. Global comps fell -1.7%, more than double the expected -0.8%. Losses were led by the Asia/Pacific region but there was weakness in other major regions as well. US comp sales declined with a 4 handle, due in part to increased competition in the burger space. Europe posted a surprising gain of +0.7% which, along with emerging markets, helped to keep global sales from being much worse. Shares of McDonald's rallied on the news, I presume because investors expect quicker action from management now that sales declines are worsening, and gained nearly 1%.


Urban Outfitters reported earnings after the bell. The hip teen retailer was expected to earn in the range of $0.57 per share and beat estimates, due largely to share repurchasing over the last quarter. Revenue declined significantly but an increase in earnings per share was reported due to a decline in the number of shares outstaning. The stock traded in a tight range just under resistance all day but surged in the after hours market by 2.5%.


The Indices

The indices traded positive all day but were not able to hold the highs. Today's action was more of an upward drift than anything else and resulted in small bodied candles on most of the charts. Today's action was led by the Dow Jones Industrial Average. The blue chips gained 0.71% at the close, after trading as high as 0.91% during the day, but did not close above 18,000. The index moved above 18,000 at one point but was not able hold the level. The index is just above the short term moving average but below resistance so needs to quickly regain 18,000 or risk deeper correction. The indicators are bearish but not yet showing strength so the moving average could hold; MACD is only just peaking on the bear side, very weak, and stochastic is just now falling out of the upper signal zone. If the index continues to fall my target is near 17,250, about 4.5% lower.


The S&P 500 is next up with a gain of 0.39%. The broad market is in a slightly different position than the blue chips, it is above support and below the moving average. In this case the moving average could pressure the index another 30 points lower, which the index has done every time it has crossed under the EMA for the last 12 months at least. The indicators are bearish and gaining strength, although still rather weak, and suggest further downside is possible. This could lead to a testing of support in the 2,050 to 2,060 region, coincident with the top of the January trading range. If support does not hold the index could move down as far as 1,990, about 4% below the current level.


The NASDAQ Composite still looks like an index that is trending higher, much different than the first two. This index gained 0.31% today, trading above the short term moving average and just off of a 15 year high. The problem is that the 15 year high is a significant are of resistance be it round-number resistance or any other kind you can think of and could be expected to produce some form of pull-back or correction, even if the trend is up. The indicators are bearish and in line with this peak suggesting a move down to the moving average is at hand. If the EMA doesn't hold there are other areas of potentially strong support at 4,800 and 4,700, about 250 points or 5% below the current level.


The Dow Jones Transportation Average brings up the rear today with a gain of 0.23%. The transports made the smallest move but look most determined to move lower. The index is trapped within a trading range dating back to the first of November and does not look like it is going to break out of it this week. The index is moving lower, near the middle of the range, below the moving average, with bearish indicators and no real expectation of bullish catalysts this week. The indicators are weak and consistent with a range having support just below 8,750 and resistance above 9,250.


The indices look like they are set up for a correction, or at least a pull back, of around 5%. There isn't really a reason for it that I can think of, other than natural market cycles and the disparity between valuation and forward P/E. This disparity could result in values coming down, or forward expectations coming up but I think it more likely that valuation will fall before expectations are raised. How deep of a correction, if one does come, is yet to be determined.

What I want to suggest is that what might actually be happening is a sector rotation. Aggregate earnings expectations are shifting due to low oil prices and are could be causing a shift in portfolio positions around the world. The good news is that we are largely expected to return to growth by the third quarter at the latest, which may help the indices to hold their long term trend lines and support levels rather than began a protracted sell-off.

Even now 7 of the 10 S&P 500 sectors still growing and with the added benefit of low oil prices and economic tailwinds could begin to grow faster than expected. It is quite possible that investors are merely shifting out of the weaker stocks as revealed by this seasons earnings reports, and into the stronger companies that have shown the benefit of low gas prices and are expected to grow. The way that analysts change their minds I would not be surprised to see expectations begin to rise in the next couple of months.

Until then, remember the trend!

Thomas Hughes


New Plays

Turnaround In Progress

by James Brown

Click here to email James Brown


NEW BULLISH Plays

Cabela's Inc. - CAB - close: 56.27 change: -0.30

Stop Loss: 53.95
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on March -- at $---.--
Listed on March 09, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.0 million
New Positions: Yes, see below

Company Description

Why We Like It:
Outdoor gear and hunting equipment retailer CAB has been misfiring the last few quarters. They have missed analysts estimates three out of the last four quarters but the stock could be mounting a turnaround.

If you're not familiar with the company, "Cabela's Incorporated, headquartered in Sidney, Nebraska, is a leading specialty retailer, and the world’s largest direct marketer, of hunting, fishing, camping and related outdoor merchandise. Since the Company’s founding in 1961, Cabela’s® has grown to become one of the most well-known outdoor recreation brands in the world, and has long been recognized as the World's Foremost Outfitter®. Through Cabela's growing number of retail stores and its well-established direct business, it offers a wide and distinctive selection of high-quality outdoor products at competitive prices while providing superior customer service. Cabela's also issues the Cabela's CLUB® Visa credit card, which serves as its primary customer loyalty rewards program.

The company has been struggling with slowing sales and disappointing comparable same-store sales growth. They're not the only one. Companies like Dick's Sporting goods have also noted that sales in their hunting category were slow last year.

CAB's most recent report was its 2014 Q4 announcement on February 12th. Earnings of $1.11 a share missed estimates by a wide margin. Revenues were up +7.2%, which met expectations at $1.27 billion. Management said they expect a "return to a low-double-digit growth rate in revenue and a high-single to low-double-digit growth rate in diluted earnings per share for full-year 2015 as compared to full-year 2014 non-GAAP diluted earnings per share of $2.88."

The good news is that firearm sales appear to be stabilizing. After years of torrid sales during Obama's first term as president the pace of firearm sales slowed significantly. The latest data on background checks to buy a gun showed February 2015 to be the second strongest February on record. More than 1.28 million background checks were performed. That's up +1.3% from a year ago. December saw +7.5% surge in checks and January 2015 reported a +8.5% increase in background checks.

On March 3rd, 2015, gun maker Smith & Wesson (SWHC) just reported earnings that were significantly better than expected. SWHC management raised their guidance. That should bode well for CAB too.

Currently shares of CAB have bounced back toward resistance near $57.00 and its simple 200-dma. The stock appears to be breaking through resistance at its year-long trend of lower highs as well. If CAB can breakout the stock might see some short covering. The most recent data listed short interest at 16% of the 51.3 million share float. Currently CAB's point & figure chart is bullish and forecasting at $65.00 target.

Tonight I'm suggesting a trigger to open bullish positions at $57.35, which could be a new four-month high and a breakout past its January resistance.

Trigger @ $57.35

- Suggested Positions -

Buy CAB stock @ (trigger)

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

Buy the JUN $60 CALL (CAB150619C60) current ask $1.85

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Stocks Manage Rebound After Friday's Sell-off

by James Brown

Click here to email James Brown

Editor's Note:
It was a quiet session for economic news so the financial media spent all day talking about the launch of the Apple Watch. Biotech stocks turned in a mixed session.

We closed LLTC, LXFT, and TSS at the opening bell today.

ANTH hit our stop loss.


Current Portfolio:


BULLISH Play Updates

Best Buy Co. Inc. - BBY - close: 39.83 change: +0.12

Stop Loss: 37.75
Target(s): To Be Determined
Current Option Gain/Loss: -1.0%
Entry on March 06 at $40.25
Listed on March 04, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 6.2 million
New Positions: see below

Comments:
03/09/15: BBY delivered a relatively quiet session on Monday. The stock spent most of the day inside a 50-cent range.

I would wait for a new rally past $40.25 before considering new positions.

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.

- Suggested Positions -

Long BBY stock @ $40.25

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

Long MAY $40 CALL (BBY150515C40) entry $1.99

03/06/15 triggered @ $40.25
Option Format: symbol-year-month-day-call-strike


Cree, Inc. - CREE - close: 38.81 change: -0.30

Stop Loss: 38.35
Target(s): To Be Determined
Current Option Gain/Loss: +6.2%
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:
03/09/15: Shares of CREE displayed relative weakness with a -0.76% decline. We are turning more defensive and raising our stop loss up to $38.35.

I am not suggesting new positions.

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

03/09/15 new stop @ 38.35
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


Microchip Technology - MCHP - close: 51.33 change: +0.58

Stop Loss: 49.65
Target(s): To Be Determined
Current Option Gain/Loss: +0.4%
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:
03/09/15: MCHP displayed relative strength. Today's +1.1% gain outperformed the SOX semiconductor index and the NASDAQ. I would hesitate on launching new positions.

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

03/07/15 new stop @ 49.65
02/24/15 triggered @ 51.15
Option Format: symbol-year-month-day-call-strike


Neurocrine Biosciences - NBIX - close: 39.66 change: -1.01

Stop Loss: 38.45
Target(s): To Be Determined
Current Option Gain/Loss: +5.3%
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:
03/09/15: I am urging caution on our NBIX trade. Shares underperformed the major indices and the biotech industry with a -2.48% decline. The close below $40.00 and its 10-dma is short-term bearish.

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


Gentherm Inc. - THRM - close: 46.59 change: +0.81

Stop Loss: 44.75
Target(s): To Be Determined
Current Option Gain/Loss: -1.9%
Entry on March 06 at $47.48
Listed on March 05, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 456 thousand
New Positions: see below

Comments:
03/09/15: THRM did not see any follow through on Friday's bearish reversal pattern. That's encouraging news. Shares actually showed strength today with a +1.7% gain. However, I would hesitate to launch new positions. We'll wait and see if THRM can build on today's move.

Trade Description: March 5, 2015:
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.

- Suggested Positions -

Long THRM stock @ $47.48

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

Long Jun $50 CALL (THRM150619C50) entry $2.98

03/06/15 triggered on gap higher at $47.48, trigger was $47.30
Option Format: symbol-year-month-day-call-strike


Theravance Inc. - THRX - close: 20.20 change: +0.60

Stop Loss: 17.75
Target(s): To Be Determined
Current Option Gain/Loss: +0.5%
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:
03/09/15: THRX was also showing relative strength today. The stock rallied up to $21.16 intraday, a +7.9% move, before paring its gains. Traders may want to start raising their stop loss.

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


Intrexon Corp. - XON - close: 48.72 change: -1.44

Stop Loss: 46.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on March -- at $---.--
Listed on March 07, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.1 million
New Positions: Yes, see below

Comments:
03/09/15: Some of the biotech stocks were seeing some volatile moves today. Shares of XON spiked down to $46.21 before bouncing. The stock underperformed the broader market to close with a -2.8% decline. I don't see any company-specific news behind the move. It could just be profit taking after last week's big rally.

Our suggested entry point to launch positions is at $50.65.

Trade Description: March 7, 2015:
We are quickly approaching a world where science fiction is becoming a reality. One company leading the charge is Intrexon (XON). They are leaders in synthetic biology.

What is synthetic biology? According to XON's website, "Synthetic Biology is the engineering of biological systems to enable rational, design-based control of cellular function for a specific purpose. The programming of DNA and reformatting of genetic circuitry within cell platforms has created a paradigm shift whereby the analysis of biology is being supplanted by its synthesis. This advancement has the potential to significantly impact approaches relied upon for some time across a variety of industries. The ability to create and modify 'organic' materials on increasingly larger scales has occurred with a number of breakthroughs in genetic engineering including automated DNA sequencing, DNA synthesis, the advent of computational bioinformatics, and the creation of genetically modified organisms."

One man who knew a thing or two about technology was Apple Inc. founder and technology icon Steve Jobs. Mr. Jobs said, "I think the biggest innovations of the 21st century will be at the intersection of biology and technology. A new era is beginning."

Biotech stocks were market leaders last year and that relative strength has continued into 2015. This group has been so strong that I've been hearing a some speculation about a bubble in biotech stocks the last couple of weeks.

You may not be familiar with XON since the company has only been public since August 2013. The company describes itself as "Intrexon Corporation (XON) is a leader in synthetic biology focused on collaborating with companies in Health, Food, Energy, Environment, and Consumer sectors to create biologically-based products that improve the quality of life and the health of the planet. Through the Company's proprietary UltraVector® platform and integrated technology suite, Intrexon provides its partners with industrial-scale design and development of complex biological systems delivering unprecedented control, quality, function, and performance of living cells."

Shares of XON have been very reactive to positive headlines lately. In mid January the stock soared on news it had signed an exclusive licensing agreement with the University of Texas MD Anderson Cancer Center in partnership with ZIOPHARM Oncology (ZIOP). All three will be working on a collaboration to "genetically engineer our patients' immune-system T cells to efficiently attack and destroy cancer cells."

Shares of XON rallied again on February 10th after Synthetic Biologics (SYN), in collaboration with XON, announced positive Phase 1b trial results for a treatment to prevent C. difficile infections. In the press release SYN states their "oral beta-lactamase enzyme designed to protect the microbiome and prevent Clostridium difficile (C. difficile) infection, antibiotic-associated diarrhea and secondary antibiotic-resistant infections in patients receiving intravenous (IV) beta-lactam antibiotic therapy... U.S. Centers for Disease Control and Prevention (CDC) has identified C. difficile as an 'urgent public health threat' that often occurs in people who have had recent medical care with IV antibiotics. These antibiotics can create a harmful imbalance in the gut microbiome by killing "good" bacteria, giving C. difficile a chance to multiply and cause diarrhea, which can lead to dehydration, fever, abdominal pain, cramping, nausea, colitis, and even death. In all, 24 million Americans receive IV antibiotics annually."

Then just a few days later on February 13th XON announced it was buying ActoGeniX for about $60 million. "ActoGeniX is a European clinical stage biopharmaceutical company forging a new frontier in cellular therapeutics and other innovative products. Its proprietary TopActâ„¢ platform enables the molecular engineering of food-grade microbes (Lactococcus lactis) to generate biologically-contained ActoBioticsâ„¢ for in situ expression and secretion of proteins, peptides and metabolites in the gastrointestinal tract of humans and other animals. This groundbreaking class of orally available biopharmaceuticals has the potential to facilitate targeted therapies against oral, gastrointestinal, metabolic, allergic and autoimmune diseases."

The stock rally continued after XON reported Q4 earnings on March 2nd. Analysts were expecting a loss of 15 cents a share on revenues of $26.1 million. XON reported earnings of $0.18, that's 33 cents better than expected. The company's revenues soared +335% from a year ago to $31.09 million.

Naturally XON's management was pretty optimistic. The company's CEO commented on the future saying, "Looking ahead, we are very excited about our near term prospects and have much higher goals for 2015. In Health, we expect to see new major alliances formed, while we believe that our existing ECC partners will be in the clinic with up to ten novel therapeutic candidates. In Food, we anticipate continued growth of our base business with projected product and service revenues exceeding $100M, while we sign new ECCs and execute on some attractive acquisitions. We expect that our program in Energy, which is based on our continuing work on the engineering of the methanotroph to provide for the upgrading of natural gas to higher value hydrocarbons, will show tangible progress both technically and otherwise. Finally, our relatively newer efforts in the Environment and Consumer Sectors should become contributors to our enterprise. At this stage in our growth, we fully appreciate the amplified effect of each additional level of achievement as well as the increasing synergies that exist among our platforms, teams and even among our partners. This realization inspires us to ever greater levels of performance on behalf of our shareholders."

Curious investors can see a lot more about XON's collaborations and acquisitions on the company website. Here's a link to their press releases.

The big rallies in XON have been fueled by short covering. The most recent data listed short interest at 35% of the relatively small 42.4 million share float. Today shares of XON are hovering near round-number resistance at the $50.00 level. Further gains from here could spark even more short covering.

Before I continue I want to remind readers that we consider biotech stocks aggressive, higher-risk trades. The wrong headline can send this stock crashing. We often see biotech stocks gap open (up and down) so stop losses don't always work the way there are supposed to. We will still try and limit our risk with a stop loss at $46.90. You could use options to limit your risk but after such big gains in XON over the last several weeks the option prices are very, very expensive.

Tonight we're suggesting a trigger to launch small bullish positions at $50.65.

Trigger @ $50.65 *small positions to limit risk*

- Suggested Positions -

Buy XON stock @ (trigger)

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

Buy the Apr $55 CALL (XON150417C55)

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




BEARISH Play Updates

Five Below, Inc. - FIVE - close: 28.88 change: -0.22

Stop Loss: 29.65
Target(s): To Be Determined
Current Option Gain/Loss: +8.2%
Entry on March 03 at $31.45
Listed on February 28, 2015
Time Frame: Exit PRIOR to earnings on March 25th
Average Daily Volume = 1.2 million
New Positions: see below

Comments:
03/09/15: FIVE tried to bounce this morning but traders quickly sold the rally. Shares closed down another -0.75%. We are moving the stop loss down to $29.65. I am not suggesting new positions at this time.

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

03/09/15 new stop @ 39.65
03/07/15 new stop @ $30.45
03/03/15 triggered @ $31.45
Option Format: symbol-year-month-day-call-strike



CLOSED BULLISH PLAYS

Anthera Pharmaceuticals - ANTH - close: 5.21 change: -0.91

Stop Loss: 5.25
Target(s): To Be Determined
Current Option Gain/Loss: +4.0%
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:
03/09/15: After big gains last week shares of ANTH have reversed. The stock was down almost -20% at its worst levels of the day. Our stop loss was hit at $5.25.

*small positions* - Suggested Positions -

Long ANTH stock @ $5.05 exit $5.25 (+4.0%)

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

Apr $5 CALL (ANTH150417C5) entry $1.10 exit $0.90 (-18.2%)

03/09/15 stopped out
03/07/15 new stop @ $5.25
02/26/15 triggered @ $5.05
Option Format: symbol-year-month-day-call-strike

chart:


Linear Technology Corp. - LLTC - close: 47.77 change: +0.12

Stop Loss: 46.95
Target(s): To Be Determined
Current Option Gain/Loss: +0.6%
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:
03/09/15: It was our plan to exit LLTC at the opening bell this morning. The stock should have support near $47.00 but last week's action appears to be a bearish reversal pattern.

- Suggested Positions -

Long LLTC stock @ $47.35 exit $47.64 (+0.6%)

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

May $50 CALL (LLTC150515C50) entry $0.85 exit $0.85 (+0.0%)

03/09/15 planned exit
03/07/15 prepare to exit on Monday morning
03/04/15 new stop @ 46.95
02/11/15 triggered @ $47.35
Option Format: symbol-year-month-day-call-strike

chart:


Luxoft Holding - LXFT - close: 49.19 change: +0.06

Stop Loss: 47.40
Target(s): To Be Determined
Current Option Gain/Loss: -2.2%
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:
03/09/15: LXFT appears to reversed lower last week. We decided in the weekend newsletter to exit trade today at the opening bell. Shares opened at $49.14.

*small positions to limit risk* - Suggested Positions -

Long LXFT stock @ $50.25 exit $49.14 (-2.2%)

03/09/15 planned exit
03/07/15 prepare to exit on Monday morning
03/03/15 Today's decline looks ominous. Readers may want to consider an early exit
02/24/15 triggered @ $50.25

chart:


Total System Services - TSS - close: 37.83 change: +0.34

Stop Loss: 36.85
Target(s): To Be Determined
Current Option Gain/Loss: +1.1%
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:
03/09/15: We wanted to exit our TSS trade at the open today. Shares did rebound following Friday's decline. The $38.00 level and the 10-dma remain short-term resistance.

- Suggested Positions -

Long shares of TSS @ 37.05 exit $37.45 (+1.1%)

03/09/15 planned exit
03/07/15 prepare to exit on Monday morning
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

chart: