Option Investor
Newsletter

Daily Newsletter, Tuesday, 3/10/2015

Table of Contents

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

Market Wrap

Dollar Strength, Rate Worries, Negative Market

by Jim Brown

Click here to email Jim Brown

The dollar shot up another +1.2% to a new 12 year high and oil prices dipped to nearly $48. Bearish forecasts for earnings and oil prices along with the outlook for rates sent equities lower with financials leading the way.

Market Statistics

The Dow collapsed with a -332 point drop and the S&P gave back -35 points to close well below obvious support levels. Monday's +133 point rebound turned into a dead cat bounce and sellers came back on heavy volume. Crude oil closed the regular session at $48.29 after multiple analysts lowered their forecasts suggesting Brent crude could trade down to $45. That would suggest WTI could trade under $40. This weighed heavily on equities with the emphasis on the energy sector.

Financials traded sharply lower ahead of the Fed's ruling on their capital programs on Wednesday. Citigroup lost -3.2% with Bank of America (BAC), Wells Fargo (WFC) and JP Morgan (JPM) losing about -2.5% each.

The dollar gained another +1.18% to 98.75 on the Dollar Index. This is going to crush the earnings from the 50% of the S&P that receive a lot of their revenue from overseas. This is forcing analysts to further cut their earnings estimates on a weekly basis. Investors are now pricing in a decline in earnings for Q1 and Q2.


The economic news for today was not negative and that is a change from the recent trend. The Wholesale Trade report for January showed a +0.3% gain in inventories compared to zero growth in December. However, sales were significantly negative. Sales of durable goods declined -1.4% and nondurable goods declined -4.6%. That is the sixth consecutive monthly decline for the nondurable goods. This forced the inventory to sales ratio up from 1.22% to 1.27%. This suggests the rise in inventories was not because wholesalers were bullish but because of slowing sales.

The Intuit Small Business Employment Index showed hiring rose +0.7% in February. That equates to a gain of +15,000 jobs compared to +30,000 in December and +20,000 in January. Compensation declined -0.05% and hours worked declined -0.09%. Overall February was relatively weak for small business conditions. Revenues have been declining since October and that continued in February.

The NFIB Small Business Economic Trends showed optimism rose from 97.9% to 98.0% and a barely noticeable change. Those companies with plans to increase employment declined from 14% to 12%. Capex plans were flat at 26% and expectations for increasing sales were flat at 16%. Those with current job openings did rise from 26% to 29%. Earnings trends remained flat at -19% meaning more businesses felt negative than positive. The report was ignored.

The Job Openings and Labor Turnover Survey (JOLTS) showed job openings rose +3.4% and the same pace for the last four months. The number of job openings did rise to 5 million and a 14 year high. Hiring declined slightly from 5.2 million to 5.0 million. Separations also declined from 4.9 million to 4.82 million. The quit rate rose +2% and layoffs declined -4.7% from year ago levels.

The most important economic release on the calendar for Wednesday is oil inventories. However, the Fed will release its approvals for capital spending by the big banks and it is possible the Fed could curtail some of those plans. The Comprehensive Capital Analysis and Review (CCAR) tests the 31 largest banks on their plans to return capital to shareholders with dividends and buybacks. The recent stress test assumed the unemployment rate rising to 10%, stocks entering a bear market and a 25% decline in housing prices. The banks have been closing down some operations and selling others in order to reduce risk and raise cash. That does not guarantee the Fed will let them give money back to shareholders but it is a start. Last year Citigroup passed the stress test but the Fed would not approve their capital allocation strategy saying they were still too exposed to losses in "material parts of its global operations."

The capital approvals should all pass this time around since the banks knew from last year what the Fed was looking at and where their ratios needed to be. Any bank that is curtailed by the Fed this year will see its shares decline.


The FOMC meeting next week is becoming more important as each day passes. Monday evening outgoing Fed President Richard Fisher, a noted hawk on rate policy, said in a speech the Fed needed to hike rates immediately at a moderate pace because waiting longer could force the Fed to hike rates faster once they started and cause another recession. He favored not waiting for wage growth to pickup saying it will eventually rise with inflation.

The Fisher speech caused another spike in the dollar and the collapse in the European markets. Some European indexes were down over -2% as the euro fell to $1.07 and the dollar rocketed +1.2% higher. Deutsche Bank predicted the euro would fall to parity with the dollar by the end of 2015, drop to 90 cents in 2015 and 85 cents in 2016 as a result of ECB QE and rising rates in the USA. This is going to cause severe earnings distress for multinational companies that represent more than 50% of the S&P.

In stock news Apple (AAPL) shares declined -$3 intraday to knock about 15 points off the Nasdaq 100 ($NDX). The company formerly announced the watch on Monday and a new smaller and lighter MacBook laptop. They also announced HBO Now for $14.95 a month on Apple TV and dropped the price of the TV to $69 to better compete with Amazon at $29. Apple bragged that every major car brand is adding Apple's CarPlay. This is an in car system for listening to music, getting directions and making calls from your iPhone.

Today was the Apple shareholder meeting and Tim Cook was all smiles. Apple sold more than 200 million iPhones in 2014 and produced more than $200 billion in revenue. They returned $57 billion to shareholders through dividends and buybacks. He promised the watch would change the way people use the Internet and that is a very risky call. He was very bullish on the partnership with IBM and expected their applications to boost sales of iPads. In talking about weak iPad sales he said there were "other things in the pipeline" that would boost sales. He was why Apple did not buy Tesla and accelerate their plans to create an electric car. Cook ignored the real question by saying they had no relationship with Tesla but "we would love for them to use" CarPlay.

Apple shares tend to decline to the 100-day average, now $114.50, every few months. I view this as the level to enter new positions. Shares rallied +$28 in Jan/Feb and today's close at $124 is about $10 over the optimum entry level.


Barnes & Noble (BKS) shares declined -10% after reporting earnings of 93 cents compared to estimates for $1.41. The company is working on spinning off its college bookstore business from the retail stores and the Nook e-reader. The breakup is expected to be completed by August. This would leave BKS with the struggling retail business that is being killed by Amazon and other online retail sites, and the money-losing Nook division. The company is also adding toys and gifts in the retail stores to try and market to a wider audience. Same store sales rose +1.7% and revenue of $1.96 billion beat estimates for $1.9 billion. Last June the company gave up on selling its own e-reader hardware and partnered with Samsung to provide the device. The company said losses in the Nook division decreased -53% from the prior quarter. They are still losing money, just losing it slower.

Personally I don't understand why the stock is worth even $22. The PE is a -112 and Amazon is beating them badly. Apparently I don't understand the outlook and the potential for turning them from a book seller into a gift and toy store.


Urban Outfitters (URBN) was the biggest gainer in the S&P with a +11.5% spike after earnings. The company posted earnings of 60 cents compared to estimates of 57 cents. A +12% increase in revenue to a record $1.1 billion only met estimates. Wedbush Securities and Credit Suisse reiterated their neutral ratings and Brean Capital reiterated their buy rating. While analysts were not excited about the earnings but shares soared on the outlook that the turnaround was accelerating. There are 22.3 million shares remaining on the existing stock buyback and that should supply support.


Qualcomm (QCOM) announced on Monday it was going to buyback $15 billion in shares with at least $10 billion over the next 12 months. This replaces the existing program that had $2 billion remaining. The company also raised its dividend by +14% to 48 cents. Qualcomm is sitting on $32 billion in cash. Qualcomm is the major communications chip supplier for Apple and Android phones.


Orbital ATK (OA) continues to ris ein the face of a negative market with a +4% gain today. Orbital Sciences and ATK merged in early February to form Orbital ATK. In the process they spun off Vista Outdoor (VSTO), an outdoor sporting goods supplier, and became a pure play aerospace manufacturer. Barclays upgraded it from neutral to buy today after Orbital signed a $120 million deal with the Army for a fuse for precision guidance munitions. On Wednesday they will test fire the new SLS boosters in Promontory Utah. These boosters will be used for the next moon mission and the eventual manned flight to Mars. Orbital ATK shares are being bought on increasing volume now that they are a pure play aerospace company.


Lumber Liquidators (LL) rebounded +6% after Blackrock increased their investment in the company and well known short seller Citron Research said the selloff was way overdone. Blackrock increased its stake from 4% to 10.1%. Short interest is roughly 34% and the rebound suggests some shorts were caught off guard.


Acadia Pharmaceuticals (ACAD) rallied +18% to $46 after the company cancelled two investor meetings and sparking speculation that a deal to buy the drug maker could be in the works. Acadia is working on drugs for the nervous system including Parkinsons. The cancelled events were Monday and Tuesday and hosted by Cowen & Co and Roth Capital partners. Acadia has a partnership with Allergan. Company spokesman did not answer calls asking for comments.


Just before the close an investor bought 200,000 contracts of the January $94/$102 put spread on the FXE paying nearly $2 or roughly $39 million in premium. This is a bet that the euro (FXE) will decline another 11% by January 2016. While I believe that is a pretty safe bet I would not bet $39 million on the outcome. January is a long way off and anything can happen. Whoever placed this bet has some serious conviction. If the FXE moves close to that lower $94 strike the investor can make $120 million.


Crude prices continue to be under pressure by the rise in the dollar. There is a battle in progress here with the $49 level the battleground. Storage is filling up at an accelerated pace and refiners are in the middle of their annual maintenance cycle and crude refining volumes are dropping. Refinery utilization is down to 86%. It is a race now to get the refineries turned back on before storage becomes critical.

The EIA lowered its price forecast for 2015 from $55.02 to $52.15 before rebounding to average $71 in 2016. They raised the production expectations from 9.3 mbpd in 2015 to 9.6 mbpd in 2016. I should note that production last week was a 35 year high at 9.324 mbpd and already over the EIA forecast.

Just yesterday Goldman Sachs said its $40 forecast for WTI may be too low because the oil market is "surprisingly healthy." The bank said weather disruptions, the failure of global inventories to increase and stronger than expected demand could keep oil above that level for the next two quarters. Sandstorms disrupted Iraqi exports, Libya closed down 11 fields because of violence, cold weather in the U.S. and a drought in Brazil bolstered consumption, according to Goldman.

A senior Saudi Aramco executive said the industry could cancel more than $1 trillion in projects if oil prices do not rebound soon. Capex around the world is being slashed and many companies have now cut spending forecasts more than once.

So far this has not boosted the price of oil. Analysts said inventories in the U.S. could rise as much as 8 million barrels this week and continue adding to the storage pressures. One analyst was quoted today predicting Brent prices could fall to $45, which would suggest WTI could trade under $40. The trouble with price predictions is that everyone has one and very few will be right. However, WTI's failure to move over $50 for over a month is telling me the next move may be lower. Support at $49 has been rock solid but eventually investor patience will expire.


Markets

There is nothing positive to say about today's decline. The S&P dropped -35 points to close at 2045 with the 100-day average at 2040. However, the 100-day has not been reliable support in prior declined. Recently the 150-day average has been more predictable and that is 2016 today. If we did move that low I would expect the 2000 level to be tested as it was four times in December and January. This is clearly the support target on any continued decline.

The pace of the decline was extreme at the open after the futures turned sharply negative at 4:AM after the European markets turned negative. The S&P dropped -28 points in the first hour of trading and then dipped again as two other sell programs hit at 11:30 and 1:30. In the last 10 minutes of trading another sell program hit to produce a $3 billion imbalance in market on close orders to the sell side. This closed the markets on the lows of the day.

About 85% of the volume was negative despite decliners running only about 3:1 over advancers. The high beta stocks were being crushed while the average security was down only slightly.

Support on the S&P is 2040, 2016, 2000. Resistance 2082, 2100.


The Dow lost -230 points in the first hours and after a minor rebound at 11:00 it fell victim to the same sell programs as the S&P to close on the lows at 17,677. All uptrend support has failed and the Dow may have minimal support at the 100-day average at 17,609. The Dow did react to that average on 3 of the last 4 declines. I would not bet the farm on a rebound from that level. The severity of the breakdown over the last week suggests we are going lower with the obvious target the 200-day at 17,251. The big names on the Dow were crushed with Visa losing -$6, Goldman -$5 and MMM -$4. Those are the highest weighted stocks in the Dow and their declines cemented the Dow's loss.

Typically when the Dow falls into "cascade" mode it does not rebound abruptly. There will be a day of indecision at the bottom and then a rebound. The alternative is an intraday V bottom with a rebound.

However, futures are strongly positive tonight and suggest somebody is buying the dip.



The Nasdaq is stronger on a relative basis than the Dow and S&P and strength in a couple of sectors can sometimes overcome a broad market decline. That did not happen today. The Nasdaq gapped down -67 points in the first hours and closed down -82 for the day. Apple was responsible for about -15 of those points on the Nasdaq 100. Add in big declines in Google, Amazon and Netflix and the index had no hope of recovery.

The Nasdaq has light support at 4850 before falling into a congestion range with the 100-day at 4711. That is a huge spread of 139 points. The key for the Nasdaq will be the fight at 4850. If it loses that ground at the open it could have another ugly day.

Resistance is 4950, support 4850.

Today is the 15th anniversary of the March 2009 historic high close at 5048 and intraday high at 5132.



The Russell 2000 gave back -15 points to close right on support at 1208. That is where the opening gap stopped and that level held all day. This is the only encouraging point I can make about the markets. The small caps crashed with the market at the open but drew a line at 1208 and would not cross it. This may not be bullish but it is a positive sign.


Volume was NOT heavy despite the monster decline. Total volume was just over 7 billion shares and less than we saw on Friday's decline at 7.4 billion. At the end of the day declining volume was 6:1 over advancing volume with decliners 5501 to 1508 advancers. Typically it takes an 8:1 to 10:1 declining volume day to produce a washout and suggest a rebound the next day. We did not get that today.

S&P futures are up +5 points at 9:PM and that would suggest a strong open but there is a lot of darkness before morning. If overseas markets follow us lower those futures can evaporate in a heartbeat.

I have no bias for Wednesday. The bank capes approvals could be a help if all the banks are approved or a hindrance if several are prevented from implementing their capex plans.

When the S&P broke below 2065-2070 that turned the outlook bearish for me. However, whenever we get a big flush I always expect the dip buyers to appear. Whether or not they want to venture into these waters is unknown. Multiple -300 point declines (Fri/Tue) tend to blunt investor sentiment and sometimes declines beget more declines. I would want to see the S&P climb back above 2060 on decent volume before I would turn bullish on the markets this week.

Enter passively, exit aggressively!

Jim Brown

Send Jim an email

 

 


New Plays

The Disappointment Continues

by James Brown

Click here to email James Brown


NEW BEARISH Plays

3D Systems Corp. - DDD - close: 27.55 change: -0.46

Stop Loss: 30.15
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on March -- at $---.--
Listed on March 10, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 3.0 million
New Positions: Yes, see below

Company Description

Why We Like It:
Expectations for DDD are still too high. The stock has been crushed from an early 2014 high near $96.00 a share down to $27.50. Even here, at multi-year lows, the stock has a P/E of 250.

The company describes itself as, "3D Systems provides the most advanced and comprehensive 3D digital design and fabrication solutions available today, including 3D printers, print materials and cloud-sourced custom parts. Its powerful ecosystem transforms entire industries by empowering professionals and consumers everywhere to bring their ideas to life using its vast material selection, including plastics, metals, ceramics and edibles. 3DS' leading personalized medicine capabilities save lives and include end-to-end simulation, training and planning, and printing of surgical instruments and devices for personalized surgery and patient specific medical and dental devices. Its democratized 3D digital design, fabrication and inspection products provide seamless interoperability and incorporate the latest immersive computing technologies. 3DS' products and services disrupt traditional methods, deliver improved results and empower its customers to manufacture the future now."

Last year was pretty tough for DDD. The company has delivered disappointing earnings and revenue growth. They issued an earnings warning back in October. DDD has been reporting +20% revenue growth the last couple of quarters but it's not enough. Management issued 2015 guidance that was in-line with analysts' estimates. Shares initially bounced because guidance wasn't worse than many had feared. However, currency headwinds are going to be an issue in 2015. A couple of analysts have slashed their price target on DDD's stock following the earnings report.

This time the bears might be right. Margins were hurt last year. The company is forecasting organic sales to improve in the second half of 2015. However, they are facing what will be major competition when Hewlett-Packard (HPQ) launches their commercial 3D printers in 2016. The most recent data listed short interest at 38% of the 105 million share float. That much short interest makes DDD a volatile stock to trade. We never know when something might spark a short squeeze. Traders may want to limit their risk by using options.

The stock's sell-off has produced a sell signal on the point & figure chart that is forecasting at $17.00 target. Currently DDD is hovering near support in the $27.50-28.00 region. A breakdown here could signal the next major leg lower. Tonight we're suggesting a trigger to open bearish positions at $26.90. Consider small positions to limit risk.

Trigger @ $26.90 *small positions to limit risk*

- Suggested Positions -

Short DDD stock @ (trigger)

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

Buy the MAY $25 PUT (DDD150515P25) current ask $1.57

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Stocks Sink To One-Month Lows

by James Brown

Click here to email James Brown

Editor's Note:
The U.S. market delivered its worst trading day since early January. The profit taking that began last week accelerated. Market pundits were pointing to a new 12-year high in the dollar as a potential challenge. A rising dollar generates currency headwinds for any American companies doing business overseas.

CREE and MCHP hit our stop losses.


Current Portfolio:


BULLISH Play Updates

Best Buy Co. Inc. - BBY - close: 39.97 change: +0.14

Stop Loss: 37.75
Target(s): To Be Determined
Current Option Gain/Loss: -0.7%
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:
03/10/15: It was a rough day for stocks but BBY actually looks okay here. Traders bought the dip near its 10-dma and BBY bounced back into positive territory.

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


Cabela's Inc. - CAB - close: 56.02 change: -0.25

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

Comments:
03/10/15: The S&P 500 fell -1.69% yet CAB only lost -0.4% today. I don't see any changes from last night's new play description. Our suggested entry point is $57.35.

Trade Description: March 9, 2015:
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)

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


Neurocrine Biosciences - NBIX - close: 40.44 change: +0.78

Stop Loss: 38.45
Target(s): To Be Determined
Current Option Gain/Loss: +7.4%
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:
03/10/15: Traders bought the dip at $39.00 and NBIX rallied to close back above short-term resistance at $40 and its 10-dma. The stock outperformed the wider market with a +1.9% gain.

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: 45.56 change: -1.03

Stop Loss: 44.75
Target(s): To Be Determined
Current Option Gain/Loss: -4.0%
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:
03/10/15: THRM almost hit our stop loss during today's market plunge. Shares dipped to $44.80 before paring their loss to close with a -2.2% decline. Our stop loss is at $44.75. If the market continues to sink tomorrow we'll likely be stopped out. I am not suggesting new positions at this time.

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: 19.75 change: -0.20

Stop Loss: 17.75
Target(s): To Be Determined
Current Option Gain/Loss: -1.7%
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:
03/10/15: THRX couldn't escape the market's sell-off. Shares did manage to pare their loss to just -1.0%.

More conservative traders might want to consider a stop loss closer to the 10-dma (currently near $19.20).

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: 47.01 change: -1.71

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:
03/10/15: Before the opening bell XON was downgraded. Shares reacted by gapping lower at $46.25. Traders bought the dip near round-number support at $45.00 but XON still ended the session with a -3.5% decline.

We remain on the sidelines for now. 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: 28.58 change: -0.30

Stop Loss: 29.65
Target(s): To Be Determined
Current Option Gain/Loss: +9.1%
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:
03/10/15: Anther day, another decline for FIVE. The stock is quickly approaching potential support at its late 2012 lows near $27.80. I would expect FIVE to see a bounce near this area. 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

Cree, Inc. - CREE - close: 38.75 change: -0.06

Stop Loss: 38.35
Target(s): To Be Determined
Current Option Gain/Loss: +4.9%
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:
03/10/15: CREE's upward momentum had stalled at resistance near $40.00. Today the combination of a market-wide sell-off and less than enthusiastic analyst' comments helped spark some profit taking. Shares traded down to $37.63. Our stop was hit at $38.35.

- Suggested Positions -

Long CREE stock @ $36.55 exit $38.35 (+4.9%)

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

MAR $35 CALL (CREE150320C35) entry $2.80 exit $3.30 (+17.9%)

03/10/15 stopped out
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

chart:


Microchip Technology - MCHP - close: 49.53 change: -1.80

Stop Loss: 49.65
Target(s): To Be Determined
Current Option Gain/Loss: -2.9%
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:
03/10/15: Semiconductor stocks were hit hard today with the SOX index down -1.9%. Yet MCHP underperformed its peers with a -3.5% plunge that broke support at the $50.00 mark. Our stop loss was hit at $49.65.

- Suggested Positions -

Long MCHP stock @ $51.15 exit $49.65 (-2.9%)

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

Apr $50 CALL (mchp150417C50) entry $2.40 exit $1.35 (-43.8%)

03/10/15 stopped out
03/07/15 new stop @ 49.65
02/24/15 triggered @ 51.15
Option Format: symbol-year-month-day-call-strike

chart: