Editor's Note:
Better than expected earnings news from Citigroup helped fuel widespread gains in the U.S. market on Monday.


Current Portfolio:


BULLISH Play Updates

Microsoft Corp. - MSFT - close: 42.14 change: +0.05

Stop Loss: 39.90
Target(s): To Be Determined
Current Gain/Loss: + 0.7%

Entry on June 17 at $41.85
Listed on June 14, 2014
Time Frame: 10 to 12 weeks
Average Daily Volume = 23 million
New Positions: see below

Comments:
07/14/14: The stock market's early morning rally pushed MSFT to new multi-year highs near $42.50. Gains faded by the closing bell but the short-term trend is up.

In other news MSFT said they are planning to launch super-cheap Windows powered devices to compete with Google's Chromebook. One of MSFT's newest products will be a $199 HP Windows laptop called "Stream".

Keep in mind that MSFT is due to report earnings on July 22nd.

Earlier Comments: June 14, 2014:
It's back to the future with old-tech heavyweights making progress on Friday. Semiconductor giant Intel (INTC) surprised the market with an announcement Thursday night. INTC raised their revenue guidance due to stronger PC sales. That's right, they said stronger PC sales. Intel chips are in about 80% of the world's PCs. Unfortunately the PC has been declared dead for years due to the explosion of laptops, smartphones, and tablets. It is true that PC shipments have been falling for the last eight quarters in a row. IDC expects PC shipments to fall another -6% in 2014. If that's true then what's the story behind Intel's positive guidance? It might be Microsoft.

Microsoft ended support for its Windows XP operating system in April this year. No more support means they would no longer provide patches or virus updates to protect your system from hackers. With credit card data being stolen a constant threat for businesses the lack of support for XP has sparked an upgrade cycle, especially among corporations.

There does seem to be some disagreement on just how long and how big of an effect this upgrade cycle will last. Was it a one quarter bump or will it last throughout the rest of 2014? An FBR analyst estimates that 25% of the PCs connected to the Internet still run Windows XP. That is a very large number so the upgrade cycle for Microsoft could last a while. It could be bigger than expected too.

Not only are consumers and businesses going to upgrade their operating system from Windows XP to Windows 8 but they will most likely buy an upgraded copy of Microsoft Office. MSFT will likely sell a few more copies of SQL server as well.

The MSFT story is not just about software either. The company seems to be making in-roads into the healthcare sector with their Surface Pro 3 tablets. MSFT is also slugging it out with Sony in the game console wars. Consumers bought $3.6 billion in video games in the first quarter of 2014. MSFT's line up of games for its Xbox One looks pretty good following the annual E3 conference last week.

Technically shares of MSFT are in a long-term up trend and hitting 14-year highs. As an investor would you rather buy a 10-year bond with a 2.6% yield or MSFT with a 2.7% yield and good chance for price appreciation?

More conservative investors may want to wait for a rally past $42.00 before initiating positions.

current Position: long MSFT stock @ $41.85

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

Long 2015 Jan $45 call (MSFT150117c45) entry $1.16

06/30/14 new stop @ 39.90
06/17/14 triggered @ 41.85
Option Format: symbol-year-month-day-call-strike



SoftBank Corp. - SFTBY - close: 37.82 change: +0.72

Stop Loss: 35.35
Target(s): To Be Determined
Current Gain/Loss: +3.1%

Entry on June 17 at $36.68
Listed on June 16, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 499 thousand
New Positions: see below

Comments:
07/14/14: The Japanese stock market was up today (+0.8%) and that helped boost SFTBY at the open. Shares gapped higher and outperformed the U.S. indices with a +1.9% gain. SFTBY is still facing overhead resistance in the $38.50 area.

Keep in mind that Alibaba is still expected to IPO this summer. There has been some speculation it could happen later this month. Others believe Alibaba wants to IPO on the "lucky" date of August 8th. The number eight is considered a lucky number is Chinese culture.

Earlier Comments: June 16, 2014:
SoftBank Corp. has been referred to as the Warren Buffet of Technology although a better comparison is probably to Buffet's Berkshire Hathaway. They are a holding company with hundreds of businesses. According to the company website SFTBY has 235 subsidiaries and 108 affiliates (including 150 consolidated subsidiaries and 83 equity method companies). SoftBank Group possesses both advanced infrastructure and diverse services and content, and invests in promising companies working in the Internet field.

SFTBY owns 80.2% of Sprint Corp., 33.3% of eAccess Ltd., 100% of WILLCOM, Inc., 33.3% of Wireless City Planning Inc., 58.5% of GungHo Online Entertainment, and 42.5% of Yahoo Japan Corp. They also own 34% of Renren Inc., which is considered the Chinese version of Facebook. They also own 36.7% of Alibaba Corp., which is a much larger and more profitable version of Amazon.com. That's on top of owning SoftBank Telecom, SoftBank BB Corp. and SoftBank Mobile.

SFTBY's combined telecom assets makes the company one of the largest telecom/wireless players in Japan. In 2013 they added 4.1 million new subscribers and more than double the 1.19 million subscriber gain by NTT DoCoMo and 2.8 million for AU, which is owned by KDDI. Softbank added 47% of the Android phones activated in Japan and 39% of the iPhone 4s and 5c models. Both metrics are the largest in Japan and shows how Softbank is gaining market share.

Their Renren investment could be a big. China already has the largest Internet audience on the planet and it's only going to get bigger. Currently Renren has about 200 million users. This will grow. Like Facebook, Renren is developing its mobile platform. Renren is currently valued at about $8 per user but this seems extremely low considering what Facebook paid for WhatsApp.

SFTBY's majority stake in Sprint is starting to pay off. Sprint has had a rough few years working through its merger with Nextel. Sprint later acquired Clearwire. It looks like Sprint is now in recovery mode after adding +477,000 subscribers in Q4 2013 versus losing -337,000 in Q4 2012. SFTBY wants to acquire T-Mobile and combine it with Sprint. Currently 75% of U.S. customers are on AT&T or Verizon. SFTBY calls them an American duopoly but they believe by combining Sprint, the third largest carrier, with T-Mobile, the fourth largest, the combined company could compete with AT&T and Verizon, which would be good for competition and ultimately consumers.

Today the real allure of SFTBY is its 37% ownership of Alibaba. Amazon.com (AMZN) is an Internet powerhouse with sales of $86 billion in 2013 and a net profit of $274 million. Alibaba dwarfs AMZN with 2013 sales of $160 billion and a profit of $2.16 billion. Right now it looks like Alibaba will IPO this summer. Analysts have been estimating they could be the biggest IPO in history with a value of $160 to 185 billion.

There were new numbers out on Alibaba today with the company stating that its Q4 revenues only rose +39% to $1.9 billion. That's down from 62% growth in Q3. Margins retreated from 51.3% to 45.3% on higher marketing costs. This spooked investors today into thinking that maybe the valuation may not be in the $160-185 billion range.

We believe that SFTBY's shares are very undervalued and when the Alibaba IPO does hit this stock could soar. Tonight we're suggesting investors launch positions tomorrow morning at current levels. Depending on your trading style this could be an aggressive entry point. Technically SFTBY still has resistance in the $38-39 zone. More conservative investors may want to wait for SFTBY to close above $39.00 before initiating new positions. The risk of not launching positions now is that we do not know when Alibaba is going to announce its IPO. It could be any day and likely in the next few weeks. We will plan on exiting after Alibaba's first day of trading.

Current Position: Long SFTBY stock @ $36.68

07/11/14 News hits that SFTBY might buy T-Mobile soon.
06/30/14 new stop $ 35.35
06/17/14 trade opens. SFTBY gapped down at $36.68
note: SFTBY does not have options.



Steris Corp. - STE - close: 54.19 change: -0.19

Stop Loss: 52.65
Target(s): To Be Determined
Current Gain/Loss: unopened

Entry on July -- at $--.--
Listed on July 12, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 246 thousand
New Positions: Yes, see below

Comments:
07/14/14: Monday proved to be a quiet day for STE. Shares spent most of the session in a 50-cent range. I do not see any changes from our new play description from the weekend newsletter below.

Earlier Comments: July 12, 2014:
The company website describes STERIS as a global leader in infection prevention, contamination control, surgical and critical care technologies, and more. STERIS is the world's pre-eminent infection prevention, decontamination, and surgical and critical care company, with a long list of first-to-market products and industry-leading service innovations and thousands of customers in more than 60 countries.

While the corporation was founded as Innovative Medical Technologies in 1985 and renamed STERIS in 1987, our history dates back to 1894 with the founding of American Sterilizer Company, a long-time, global leading innovator of sterilization products. Today, through a series of strategic acquisitions and continual innovation of new products, STERIS holds one of the broadest portfolios of products in the industry. It stands at the forefront of efforts to prevent infection and contamination in healthcare and pharmaceutical environments, and is broadening its reach with products to meet the needs of defense and industrial markets (source: www.Steris.com).

The infection prevention industry is expected to hit global sales of $109 billion in 2017. This area of healthcare is growing at more than 5% a year. STE is growing three times faster than the industry due to acquisitions and strong organic growth.

STE recently purchased Integrated Medical Systems International, Inc. (IMS) for $165 million. IMS has sales of $150 million a year in the sterile processing, surgical instrument management, and endoscope repair. This particular industry is fragmented and STE believes they can grab market share as well as capitalize on synergies with IMS.

STE's recent earnings report in May was very encouraging. Analysts were looking for a profit of $0.86 a share on revenues of $455.9 million. STE beat estimates with a profit of 91 cents on revenues of $465.3 million.

Revenues were up 9% for the quarter with 7% of that as organic growth. STE saw strong revenue growth in consumables (+17%) and its service business (+23%). Even with the Obama administration's new medical device excise tax STE managed to grow its gross margins 30 basis points to 41.5%. Its healthcare sterilization business saw margins jump 410 basis points. STE also reported growth in its backlog of business.

They expect double-digit top and bottom line growth in 2015 and boosted their revenue estimates into the +15% to 17% range.

Technically shares have been consolidating sideways the last few weeks. That's not surprising after the big spike higher following its earnings report in May. Now STE appears to be almost done with this consolidation phase. Shares look poised to breakout past resistance near $55.00 and hit new record highs.

The May 12th high was $55.36. Tonight I am suggesting a trigger to open bullish positions at $55.50 with a stop loss at $52.65, just under last Thursday's low. We are not setting an exit target tonight but I will point out that the Point & Figure chart is bullish and suggesting at $74.00 long-term target.

Trigger @ $55.50

Suggested Position: buy STE stock @ (trigger)



BEARISH Play Updates

DSW Inc. - DSW - close: 27.40 change: -0.21

Stop Loss: 29.15
Target(s): To Be Determined
Current Gain/Loss: unopened

Entry on July -- at $--.--
Listed on July 12, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.5 million
New Positions: Yes, see below

Comments:
07/14/14: DSW continued to underperform the market as we expected. However, shares did not hit our suggested entry point at $26.90. More aggressive traders might want to consider launching positions now.

Earlier Comments: July 12, 2014:
DSW Designer Shoe Warehouse runs over 400 company-owned stores. They also participate in hundreds of other shoe departments in regional department stores through their Affiliated Business Group.

There appears to be a bear market in designer shoes. At least that is the picture if you're looking at shares of DSW Inc. The stock has actually been a big winner for investors if you have owned it the past few years. On a post 2-for-1 split adjusted basis DSW traded down to $3.33 in 2009. It peaked in 2013 with a close at $47.22 in November last year. That's a huge run (more than 1,400%). Unfortunately last November was indeed the peak. DSW has been stuck in a bearish trend of lower highs and lower lows since then.

DSW lowered its earnings guidance back in February 2014. Of course back then just about all of the retail companies were warning about lack of sales and blaming it on the extremely cold winter weather. That was after weeks of worry over the 2013 holiday shopping season.

The U.S. economy is slowly recovering but consumer spending has not. There are still large chunks of the consumer who continue to struggle. The sharp rise in food prices this year combined with elevated gasoline prices has not helped. There seems to be a bifurcation in the consumer spending. There has been strong demand for big ticket items like housing and cars. Yet smaller discretionary spending is just not there.

The overall retail industry saw some improvement in May. There was hope that June same-store sales would come in better than expected. Analysts and investors were a bit disappointed when the retail industry delivered June numbers that were only in-line with estimates.

Meanwhile DSW continues to struggle. The company reported earnings on May 28th. Wall Street was expecting a profit of $0.48 per share on revenues of $622.9 million. DSW announced earnings of 42 cents on revenues of $599 million. A miss on both counts. Management then lowered their 2015 guidance. The company blamed the weather (again) and said they were facing an intense promotional retail environment. The Container Store (TCS) has a completely different product mix but recently mirrored DSW's troubles and said they were experiencing a retail "funk" (i.e. lack of sales).

Shares of DSW dropped from $32.50 to $23.60 on its earnings miss and earnings warning late May. Since then the stock has bounced but it has found new resistance in the $28.50 area. Now DSW looks like it is rolling over again.

Friday's low was $27.20. I am suggesting a trigger to open bearish positions at $26.90. If triggered I'm expecting DSW to at least test its May lows if not breakdown to new lows.

We will plan on exiting prior to DSW's late August earnings report.

Trigger @ $26.90

Suggested Position: short DSW stock @ (trigger)

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

Buy the OCT $25 PUT (DSW141018P25) current ask $0.95

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