Option Investor
Newsletter

Daily Newsletter, Thursday, 3/12/2015

Table of Contents

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

Market Wrap

The Banks Bounce Back

by Thomas Hughes

Click here to email Thomas Hughes
The banking sector led the market higher on a raft of dividend increases and share repurchase programs.

Introduction

The market bounced back today, led by the banking sector. The results of the stress tests and approval of capital plans has revealed strength and liquidity in the sector, produced a wave of cash returned to shareholders and sparked a rally.

The news, which came after hours on Wednesday, helped to lift global markets. Asian indices powered higher, moving up by over 1% on average with a surprise rate cut from the Bank Of Korea helping to lift spirits. European markets were not quite so enthusiastic. The DAX and others held the new all time highs set yesterday but did not move higher. US futures were up from the start. Early indications had the SPX up by roughly 0.5% and that level held into the open.

Market Statistics

There was a fair amount of economic data released this morning. The news was a mix of good and bad, pointing to economic growth but growth so strong we should expect a rate hike too soon. The market took it all in stride with barely a ripple in prices. After the opening bell the indices quickly moved higher, led by the Dow Jones Industrial Average.

Today's move was broad, all 10 S&P sectors moved higher with some isolated weakness in the technology and energy sectors. The early highs were hit before noon and then, after an hour or two of quiet sideways action a late day rally took the market to new highs. By 2:30 the Dow was up by nearly 1.5%, trailed by the NASDAQ's 0.85%. Buying persisted throughout the afternoon, leaving the indices at or near their highs at the close of trading.

Economic Calendar

The Economy

Today's round of data starts with a surprise drop in initial claims. Claims fell -36,000 from an upward revision of 5,000 to 289,000. This is 7 times the expected drop of -5,000. The 4 week moving average also fell, by -3,750, and is now at 302,250. On a not adjusted basis claims fell by -12.2% versus the -1.2% predicted by the seasonal factors. The drop is a good sign after the recent rise in claims but it is obvious that volatility persists. Claims are now back below 300K and remain low relative to the long term trend. New York, California and Tennessee led with increases totaling over 30,000. New York stands out with an increase of over 21,000 new claims. Massachusetts and Michigan led the decliners with a net decline just over -5,000. There is no mention of oil by any of the states who commented in the statement.


Continuing claims also declined but only by -5,000. This is from an upward revision of 2,000, in line with expectations and puts the number of continuing claims just above 2.4 million. This number remains stable near 2.4 million and has not been affected by volatility in the initial claims figures. This suggests that although there is a lot of activity in job turnover, those who file for the first week are finding a job pretty quickly. The four week moving average gained 12,750 but is also trending steadily around 2.4 million.

The total number of claims climbed by over 84,000 to 2.891 million in the week ending February 21st. This is a modest rise from the previous weeks figure but stable relative to the past 6 weeks. This figure may begin to decline soon because lags initial claims by two weeks, which makes this weeks data the same time period that initial claims were spiking. Since then claims have fallen. All together this weeks jobs data is positive, including the JOLTs report and the KC Fed Index of Labor Market Conditions. The LMCI, released yesterday, reveals rising activity and strong momentum.


Retail sales provided a mixed bag of numbers. Retail sales declined by -0.6% in February versus an expected gain near 0.1%. This follows an not-revised -0.8% in January. Ex-auto the number doesn't get much better, rising only to -0.1%. The good news is that the decline does not reverse gains made on a year-over-year and trailing 3 month basis. Sales for February are up from last year by 1.7%, and the past three months are up 2.9% from the comparable period last year. Also, although total sales are down, on-line sales saw an increase, possibly boosted by winter weather.


Import/Export prices were also released at 8:30AM. Import prices were up 0.4% in February, -0.3% ex-energy. Export prices fell by -0.1%, but rose by 0.2% ex-agriculture.


Business inventories were released at 10AM. Inventories remained unchanged from January, in line with expectations. Sales declined by -2%.

The Oil Index

Oil prices fell again today, losing more than -1.25%. WTI is extending the decline below $50 and is approaching a one month low. Supplies are still on the rise with no sign of increased demand. A break below $47.00 could take WTI down to the three month low near $45.

The Oil Index started out with a gain today, climbing about a half percent, before falling towards the end of the day. The index looks set to test support along the long term trend line and may be setting up for a bigger move. The indicators are still bearish but have peaked, in line with an anticipated trend line bounce. There is no real signal yet but we may get one over the next few days or weeks. In the very near term support is along the long term trend line, near 1,250, with resistance just above near 1,300. If oil falls to its long term low the Oil index could make a strong test of support with a chance of breaking through.


The Gold Index

Gold prices held steady around $1150 today as the dollar retreated from its recent high. Today's move took gold as high as $1165 and was the first sign of buyers along this level. Gold prices will continue to be affected by dollar value over the next week, up to and until the FOMC meeting, and could drift along this level. Now that all of the currently expected central bank moves have come to pass there is a good chance that the dollar could peak out or enter a consolidation range. The only real chance of change to fundamentals that I see on the horizon is a very wee possibility the Fed will change the wording of their statement next week. In any event, $1150 was an active level for buyers and a possible target for a gold bottom before and it remains one now. If it does not hold gold could make a move down to $1130 or lower.

The gold miners ETF GDX lost over 1.25% today as investor focus wavers between near term gold prices and long term outlook. With gold prices back near the long term low there is little hope for real earnings growth in the sector. However, rising production levels may offset the decline in sale price, assuming that the miners even choose to sell their product at these low levels.

The ETF is now near it's long term low with MACD momentum convergent with the current move. The index is likely to retest support along the long term low but stochastic suggests it will hold. The longer term weekly charts also suggest the index is approaching support and if confirmed could result in the second bottom of a long term double bottom reversal. Support is along my line near $16.50.


In The News, Story Stocks and Earnings

To say the banks were in the news today is an understatement. The approval of capital plans, the massive wave of dividend increases and the billions in stock buy backs was the focus for many of today's market participants. Just about every major bank rallied on the news with at least one notable name, Bank Of America, falling. Bank of America needs to refile their plan so is not yet able to return cash to shareholders and not as yet participating in the rally. The Banking Index moved higher today, gaining more than 3%. The index has reached a new 2 month closing high and has broken above resistance. The indicators are still bearish but could be rolling over into a bullish signal. Current target is near $75 with a chance for higher prices.


Lumber Liquidators is still in the news. The company held an investor conference today and the CEO is scheduled to speak tomorrow. He and the company stand by their claims the tests used by 60 Minutes don't match California code and that the story is not correct. The stock was able to move higher today, gaining nearly 12%, but is still well below the level it was trading before the story was made public.


Shake Shack, one of this years more eagerly anticipated IPO's, disapointed investors with poor earnings and weak guidance. The company posted a loss more than double the expectations and gave cautious forward outlook for growth. Shares of the stock fell hard in the after hours session yesterday and in the pre-market session today. It opened much lower today but was able to regain the loss and more. Buyers stepped in and drove prices up to set a new closing high on twice average volume.


Teen retailer Aeropostale reported earnings after the bell. The company reported a surprise profit of $0.01 versus the expected loss of -$0.03 but the stock sank on weak guidance. Current expectations call for a loss near -$0.30 in the current quarter but company execs guided a range near double that. The stock had been sitting on support all day but fell beneath it in after hours trading.


The Indices

The indices posted some impressive gains today and the move is a good sign for the bulls. The caveat is that the indices are also below significant resistances that could keep the rally from progressing much further. Today's move was led by the Dow Jones Industrial Average which gained 1.47% and closed near the highest level of the day. The blue chip index made a strong move higher and created a long bodied white candle. This could be the start of a move to test the all time highs but faces multiple lines of resistance. These include the short term moving average and my resistance line at 18,000. T indicators are mixed; they are bearish but also showing signs that yesterday's low, about 3.5% off the all-time high, could be the bottom of the correction. If so it may be retested before a further rally ensues.


The S&P 500 made the biggest move today climbing 1.25%. The broad market made a long white candle and broke above one line of resistance. This line is the top of the January range and leaves the index on positive ground for the year. This is a bullish sign but there is still more resistance, primarily in the form of the short term 30 day moving average and then above that between 2,100 and the all time high. The indicators are bearish, but like on the Dow, beginning to roll over and consistent with the early stages of a trend following signal. It could move higher to test resistance tomorrow, if not it could retest yesterday's low or lower.


The Dow Jones Transportation Average is third in today's line-up with a gain of 1.24%. The trasnports also made a long bodied white candle and was able to move above the 30 day moving average. Despite being range bound for the past 4 ½ months this index actually looks the most bullish of the lot. Today's action moved price above a near term resistance level, leaving only the top of the range, which is the current all time high, as resistance. At the same time the indicators are slightly more bullish as well, MACD is retreating from its bearish peak and stochastic is making a weak bullish crossover. Unless something unexpected happens overnight or over the weekend this one could hit the top of the range in the next 2-3 trading days.


The NASDAQ Composite brings up the rear with a gain of 0.84%. The tech heavy index only made an average size candle but like the transports, looks a lot more bullish than the blue chips or the broader market. This index has also moved above the short term moving average and appears to be making a trend following bounce from long term support. The indicators are still weak but in the early stages of rolling over into a bullish signal. Resistance is just above today's closing price, inside the gap formed on Tuesdays move lower, and then just above that at the all time high. The index may not move to a new high but it looks like it will test resistance at least.


The indices bounced today and look like they are moving higher. The only caveat is that there is resistance in place that may keep them from breaking out to new highs. It is no coincidence that once again the market is in this position ahead of an FOMC meeting so don't be surprised to find them testing resistance up to and until the statement is released. At that time who knows what will happen? There is no telling what the FOMC is going to say in their statement and every little nuance will be heavily debated for signs of a June rate hike, or a September rate hike, or some other plan that could move the market.

Until then, remember the trend!

Thomas Hughes


New Plays

Outperforming Its Peers

by James Brown

Click here to email James Brown


NEW BULLISH Plays

Expeditors Intl. of Washington - EXPD - close: 48.26 chg: +0.68

Stop Loss: 46.45
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on March -- at $---.--
Listed on March 12, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.3 million
New Positions: Yes, see below

Company Description

Why We Like It:
EXPD is showing relative strength. The stock is up +8% in 2015 versus an S&P 500 that is virtually flat. Meanwhile the Dow Jones Transportation Average is down -1.4%.

EXPD is part of the services sector. According to the company, "Expeditors is a global logistics company headquartered in Seattle, Washington. The company employs trained professionals in 186 full-service offices and numerous satellite locations located on six continents linked into a seamless worldwide network through an integrated information management system. Services include the consolidation or forwarding of air and ocean freight, customs brokerage, vendor consolidation, cargo insurance, domestic time-definite transportation services, purchase order management, warehousing and distribution and customized logistics solutions."

The first half of 2014 was forgettable. EXPD delivered mediocre results with earnings a penny above or below estimates and revenues in-line with expectations. Business improved in the second half of last year. EXPD beat earnings estimates by four cents in the third quarter and by two cents in the fourth quarter. Revenues were up almost +11% in Q3 2014 and up +8.8% in the fourth quarter. Both were above Wall Street estimates.

Bradley Powell, Senior Vice President and CFO commented on the fourth quarter, "During the 2014 fourth quarter we saw strong year-over-year increases in both air and ocean freight volumes. Despite the 10 basis point reduction in overall net revenue margin, airfreight and ocean freight net revenues both managed double digit increases, up 10% and 11%, respectively, as overall net revenue increased 9%."

The stock shot higher on its Q4 results. Shares have been relatively resistant to any profit taking during the market's recent pullback. Traders bought the dip exactly where they should have - at prior resistance. Today's bounce looks like a bullish entry point. The stock's rally in 2015 has helped produce a buy signal on the point & figure chart that is forecasting at $66.00 target. Tonight I am suggesting a trigger to open bullish positions at $48.55.

Trigger @ $48.55

- Suggested Positions -

Buy EXPD stock @ (trigger)

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

Buy the May $50 CALL (EXPD150515C50) current ask $1.00

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

Daily Chart:

Weekly Chart:



In Play Updates and Reviews

Traders Hope The Fed Will Delay

by James Brown

Click here to email James Brown

Editor's Note:
The sentiment today suggested investors are optimistic the Federal Reserve will not raise rates in June. That allowed stocks to rally. A pullback in the U.S. dollar also helped. Meanwhile crude oil sank to new six-week lows.

ALB hit our bearish entry point.


Current Portfolio:


BULLISH Play Updates

Best Buy Co. Inc. - BBY - close: 40.85 change: +0.63

Stop Loss: 37.75
Target(s): To Be Determined
Current Option Gain/Loss: +1.5%
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:
03/12/15: The rally continues in BBY with shares outperforming the market again. The stock gained +1.5% following yesterday's breakout past resistance at $40.00. I would still consider new positions at current levels.

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: 56.45 change: +0.80

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:
03/12/15: CAB bounced off short-term support at its 10-dma and rallied back toward its recent highs. There is no change from my recent comments. 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: 40.45 change: -0.08

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:
03/12/15: Hmm... NBIX did not participate in the market's rally today. Has this stock run out of steam? 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: 47.49 change: +1.38

Stop Loss: 44.75
Target(s): To Be Determined
Current Option Gain/Loss: +0.0%
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:
03/12/15: Auto-part stocks were showing relative strength today. THRM soared +2.99% to set a new five-month closing high. A close above last week's high would be encouraging.

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: 19.19 change: -0.15

Stop Loss: 18.35
Target(s): To Be Determined
Current Option Gain/Loss: -4.5%
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:
03/12/15: Traders should be concerned with the recent performance in THRX. The stock failed to participate in today's widespread market rally. The action over the last few days is starting to look like a top.

More conservative investors may want to abandon ship now. We will raise our stop loss to $18.35 since the $18.50 level might be short-term support.

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

03/12/15 Caution: THRX looks vulnerable. Traders may want to consider an early exit.
03/12/15 new stop @ 18.35
03/05/15 triggered @ $20.10


Intrexon Corp. - XON - close: 47.48 change: +0.67

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:
03/12/15: XON continues to bounce along its rising 10-dma. I don't see any changes from my recent comments. 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

Albermarle Corp. - ALB - close: 53.65 change: +0.40

Stop Loss: 55.65
Target(s): To Be Determined
Current Option Gain/Loss: -0.8%
Entry on March 12 at $53.25
Listed on March 11, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.7 million
New Positions: see below

Comments:
03/12/15: The early morning rally attempt in ALB failed. Shares reversed and managed to tag our bearish entry point at $53.25 before erasing its losses. Our trade was opened today. However, investors may want to see a new relative low (under $53.25) before initiating new positions.

Trade Description: March 11, 2015:
There's a bear market in this specialty chemical stock. The company has a history of paying a dividend and they just raised their dividend for the 21st year in a row. Unfortunately, that's not drawing much investor attention. High-dividend stocks could become less attractive with the Federal Reserve poised to raise interest rates.

Officially the company describes itself as, "Albemarle Corporation, headquartered in Baton Rouge, Louisiana, is a premier specialty chemicals company with leading positions in attractive end markets around the world. With a broad customer reach and diverse end markets, Albemarle develops, manufactures and markets technologically advanced and high value added products, including lithium and lithium compounds, bromine and derivatives, catalysts and surface treatment chemistries used in a wide range of applications including consumer electronics, flame retardants, metal processing, plastics, contemporary and alternative transportation vehicles, refining, pharmaceuticals, agriculture, construction and custom chemistry services."

They are in the final stages of its acquisition of Rockwood Holdings. They announced the $6 billion deal last July and it's expected to close in the first quarter of 2015. Bulls will argue this deal is positive for ALB due to the expected demand for lithium batteries. Rockwood has one of the of the biggest lithium producing operations in North America. On a short-term basis we're not seeing any impact in the stock.

ALB most recent earnings report was January 28th. Wall Street was expecting ALB's Q4 results to be $1.02 a share on revenues of $637 million. The company disappointed with a profit of $0.99 as revenues dropped -6.4% to $598.5 million. Management offered lackluster guidance. Multiple analyst firms have downgraded the stock and started lowering their earnings estimates.

You can see the huge sell-off on the earnings report in late January. During the market's big rally in February ALB slowly climbed back to where it was trading just before the earnings announcement. Now ALB is rolling over again. This conforms to the stock's larger bearish trend (seen on the weekly chart). The point & figure chart is forecasting at $45.00 target.

Tonight I'm suggesting a trigger to open bearish positions at $53.25.

- Suggested Positions -

Short ALB stock @ $53.25

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

Long JUN $50 PUT (ALB150619P50) entry $1.75

03/12/15 triggered @ $53.25
Option Format: symbol-year-month-day-call-strike


3D Systems Corp. - DDD - close: 27.84 change: +0.51

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

Comments:
03/12/15: The market's broad-based bounce helped push DDD to a +1.8% gain. We are waiting for a new relative low. Our suggested entry point to launch bearish trades is at $26.90.

Trade Description: March 10, 2015:
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)

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