Option Investor

Daily Newsletter, Tuesday, 7/1/2014

Table of Contents

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

Market Wrap

New Highs for Everyone

by Jim Brown

Click here to email Jim Brown

A sudden spurt of short covering triggered by a PMI spike in China and quarter end retirement contributions pushed the market higher.

Market Statistics

Overnight China's Purchasing Manager Index (PMI) rose from 50.8 to 51.0 in June. This is the highest level in six months. The HSBC PMI rose from 49.4 to 50.7. The combination of reports suggested the Chinese economy had stabilized and helped to spike the futures overnight and set the stage for the U.S. markets to rise today.

The remainder of the Russell reconstitution buying also helped give the markets an upward bias. Add in the normal end of quarter contributions to retirement accounts and the stage was set for a strong market day.

The Nasdaq had been in breakout mode for several days and the opening print on the S&P sent it to a new high and a market stampede was in progress. The Dow rallied +171 points to a new high at 16,998.70 intraday and only 1.3 points from the psychological 17,000 level.

More importantly the Russell 2000 broke out to a new high at 1,213 intraday and completely erased the -9.3% drop to the May lows. The Russell 2000 is the sentiment indicator for the market and it has been bullish for the last week.

The U.S. economics were mixed again but the weak reports were not weak enough to drag on the market. The ISM Manufacturing for June declined slightly from 55.4 to 55.3 compared to estimates for a rise to 55.9. The minor decline failed to upset the market since it remained near six month highs. Anything over 50 represents expansion.

The new orders component rose from 56.9 to 58.9. However, order backlogs declined from 52.5 to 48.0 and export orders fell from 56.5 to 54.5. Inventories were flat at 53.0 and employment was flat at 52.8. Overall the report was weaker than expected but it was not dramatic.

The 88 economists surveyed by Bloomberg projected an average rise to 55.9 with estimates ranging from 54.0 to 57.0.

Construction spending rose only 0.1% in May compared to Moody's estimates for a +0.8% gain. This was down from the revised gain of +0.8% in April. Residential spending declined -1.5% and non-residential spending rose +1.1%. Most of that was the result of a +4.3% spike in spending on utility structures. That sector is up +29.7% since May 2013. Spending on highways rose +0.7% and bridges +3.2%. This report was ignored.

The Intuit Small Business Employment Index declined from 0.16% to 0.10% for June. The index suggested small businesses added only 20,000 jobs compared to 25,000 jobs in May. Workers took home an average of $2,715 in June compared to $2,804 in May for an annual drop in wages of -$1,080. To summarize, new hires declined, hours worked were flat and wages declined. It was not an encouraging report.

The Texas service sector outlook survey rose from 10.3 in May to 21.1 in June. The revenue index rose from 13.1 to 16.9. Employment rose from 13.8 to 16.5. Conditions in Texas appear to be continuing their rebound from the February lull. Hours worked increased from 4.9 to 7.3 and wages rose from 17.0 to 20.8. Those components suggest the job market in Texas is improving otherwise wages and hours would not be rising.

Auto sales surged in June to an annualized rate of 16.98 million, up from 16.8 million in May. Estimates were for a decline to 16.3 million. The June rate is the highest since July 2006 and compares to the 15.9 million rate from June 2013. Auto sales are soaring because the average age of a vehicle in the U.S. is around 10 yrs, interest rates are very low and the spring weather has been outstanding. This is a good sign for U.S. economic growth.

A report from the Health Department Inspector General on Obamacare problems found the administration had been unable to resolve problems with 2.6 million applications out of the reported 8 million people that signed up. The main problem was verifying citizenship and income. The report said the government's eligibility checking system was still not fully functional. Without successful eligibility verification the system takes the information submitted by the applicant to estimate how much subsidy money the applicant is eligible to receive. The inspector general said this was a major problem because insured persons would have to repay the subsidies with their taxes in 2015. Those that are eventually found to be ineligible for insurance because they are not citizens will have received free healthcare in the interim funded by taxpayers.

Other "inconsistencies" may mean some applicants are not receiving all the subsidy funds they are qualified to receive. Overall about 80% of the 8 million applicants are receiving subsidies. The CBO has retracted its prior claims of a potential deficit reduction by the passage of Obamacare and now say measuring the fiscal impact of the program is impossible.

"The provisions that expand insurance coverage established entirely new programs or components of programs that can be isolated and reassessed," the office wrote. "In contrast, other provisions of the Affordable Care Act significantly modified existing federal programs and made changes to the Internal Revenue Code. Isolating the incremental effects of those provisions on previously existing programs and revenues four years after enactment of the Affordable Care Act is not possible."

Wednesday is a big day for economic events with the ADP Employment, Factory Orders and a speech by Janet Yellen on Financial Stability. The ADP Employment report will probably give traders direction on the Nonfarm Payrolls on Thursday and traders may close their positions after the ADP numbers and head for the beach.

Yellen is not expected to say anything new and her speeches have been bullish for the market. Today's rally could have been instigated in part on expectations for another bullish speech by Yellen.

The Nonfarm Payrolls will be the closing bell for the markets for the week. After the opening print with reaction to the number the market should go dormant with the lowest volume of the year.

Today is the first day of the second half and despite dire predictions by numerous analysts all through the first six months of the year the markets had a great first half. The Dow was the laggard with a +2.3% gain followed by the Russell 2000 at +3.7%. However, that Russell gain came after a -9.3% decline in Q2. The big cap indexes managed bigger gains with the S&P-100 gaining +5.9% and S&P-500 +6.9%. The Nasdaq Composite gained +6.9% and Nasdaq 100 +8.5%. The Dow Transports overcame higher fuel costs with a +11.6% gain. Semiconductors gained +20.6% and Biotechs +21.8%. Energy gained +12.5%.

GoPro (GPRO) has turned into the IPO of the year with the share price having doubled in only 5 days. The average gain per day has been +20%. The sharp rise in the price is related to multiple things. First the name is very well known to the public and especially to the younger generations. There are millions of hours of YouTube videos shot with a GoPro camera.

Secondly the company only released 18 million shares out of the 123 million authorized. This created a feeding frenzy for the shares and the younger investor drawn to this product is probably not buying them based on fundamentals. They like the product and therefore they buy the stock. The daily spikes only increase the feeding frenzy. Options will be listed next week according to the CBOE.

NetFlix (NFLX) shares rallied $7 after Goldman Sachs went bullish on the stock saying it could rise another 34%. Goldman said international subscribers of 11.7 million at the end of Q1 could rise to 62 million by the end of 2017. Goldman said the U.S. user base could grow from the current 46 million to 55 million. Expanding into new international markets could push the total subscriber base to 207 million with a market share of 30%. The bank said Netflix could add profits almost at will by adjusting prices. At $8.99 they felt a Netflix subscription could increasingly be viewed as a high-value add-on to a wireless data plan for any number of devices. Goldman upgraded the company from neutral to buy with a price target of $560. Shares closed at $473 with a +7.4% gain.

Acuity Brands (AYI) was not having a very good day. The company missed earnings for the second consecutive quarter and investors were not kind. Revenue rose +11.5% to $603.9 million and short of estimates for $609.1 million. Earnings rose +3.1% to $1.00 but analysts were expecting $1.12. The earnings report spent a lot of time talking about new trends and rising sales but investors still trashed the stock. Shares fell -15% to $117.

GM shares rallied +3.5% despite saying they were adding another 8 million cars to the recall list GM has now recalled more cars than they made in total over the last three years. Apparently GM has decided to go "all in" on the recalls because they have nothing else to lose. The weekly recall announcements for the last several months plus the CEO testimony to congress and the constant blasting in the press has finally reached the ignore point for consumers. The news is so common they don't even hear it any more. By dumping all the potential problems they can find into a series of new recalls they have created a huge kitchen sink quarter for earnings. They believe the recalls will cost them around $2-$3 billion and they can take that charge in one quarter and then be done with the entire problem at least financially.

GM shares have risen for the last six weeks despite the negative news. Today they actually posted an increase in sales in June of +1% when most analysts were expecting a decline of up to -6%. SUV sales were strong with Escalade sales rising +84% and Suburban sales rising +72.7%. With gas prices spiking it is really surprising to see sales spike for the large SUV models.

Want cream with your coffee? Keurig Green Mountain (GMCR) and Nestle announced a multiyear agreement to produce K-cups with Coffee-Mate creamer in the cup. The 2-in-1 K-cup will be available initially in Original and French Vanilla flavors. They will be available in stores and online nationwide.

The Coffee-Mate creamer was first introduced in 1961 and is now offered in 20 different flavor combinations. Since 25% of coffee drinkers use creamer in their coffee this was a natural deal. Green Mountain has a 72% market share of the single serve market.

Blackberry (BBRY) continues to surprise investors with its daily gains. The stock is up +35% since May and it just keeps going and going and going. The rally is based on comments from CEO John Chen about a return to profitability, new products and a new focus. Apparently somebody believes him because the stock keeps rising. There is a tremendous amount of short interest and those shorts are getting flushed out every day. John Chen has been focused on the upcoming launch of the Blackberry Z3 in India and the Middle East and that should provide an earnings boost. Better sales of the BB10 will also help earnings. The company has built up a $3.1 billion cash reserve and talks about Blackberry's demise have all but disappeared. Shares of BBRY have significant resistance at $10.85 but a move over that level should create a huge short squeeze.

Google (GOOGL) announced it is acquiring privately held Songza for an undisclosed price. Songza is a service that creates soundtracks tailored for people's changing modes. This shows Google is aware of the changing trends favoring services that create tailored playlists for remote devices. Google is planning on using Songza's technology in its own music-streaming service as well as on the YouTube video site.

Salix Pharma (SLXP) surged +13% to $140 after saying its drug Xifaxan succeeded in a late stage study of irritable bowel syndrome with diarrhea. The company said patients in the phase-three study showed significant improvement in symptoms compared to the placebo group. A Sterne Agee analyst said the company could see significant incremental profits from the drug because they already have a strong suite of gastrointestinal drugs and a sales force in place.

IBM shares gained more than +5 points and added more than 40 points to the Dow as a major short squeeze was triggered. IBM has been declining for the last three months as a result of weakness in Asia. China and Asian neighbors are not buying IBM servers because they fear the NSA backdoors engineered into the hardware. Whether true or not the result is the same. Slowing sales and struggling profits.

The decline was short circuited today after IBM announced a new Big Data service in the cloud. The scope is truly amazing and far too detailed to describe here. IBM believes there is 2.5 billion gigabytes of data created every day from things like point of sale terminals, invoices, purchase orders, legal forms, emails, proposals, technical documents, web pages, loyalty cards, credit card charges, etc. IBM can manage all these information sources in the cloud to make every piece of data available to everyone based on their authorized clearance. Two thirds of the Fortune 500 say their biggest challenge in linking everything together is data variety.

With a high short interest in IBM any announcement can trigger short covering and once that fuse is lit we can get a rather large candle in certain stocks. The positive market news today added to the lift from the announcement and the squeeze was launched.

As we near the start of the Q2 earnings cycle in two weeks the estimates are already coming down. Bloomberg surveyed a number of analysts and estimates have come down from 7.3% to 5.2% with revenues dropping from 3.7% growth to 3.2%. S&P Capital IQ said today they are still expecting 7.11% growth in earnings but revenue estimates have declined from 3.4% the prior week to 2.6% today. S&P said the majority of the earnings gains will come from the Telecommunications Services, Materials and Energy sectors with growth of 39.5%, 15.0% and 12.0% respectively. Financial are expected to be the biggest drag at only +0.6% earnings growth. S&P believes all 10 sectors will report positive gains with total S&P earnings at a record of $28.84 for the quarter.

Let's hope both surveys are correct and we do show decent earnings growth in Q2 and hopefully better than the +3.4% final number for Q1. With the manufacturing sector stuck in the mud and barely maintaining the current trend and consumer spending in the tank thanks to higher food and energy prices we could see some disappointments this quarter.

The markets are not showing any hesitancy over the coming earnings cycle. With the strong gains today we are off to a good start for Q3. However, as Jeffery Saut pointed out the S&P is up the last two days of June and the first five days of July about 72% of the time since 1950. That is a pretty good record. That record has the benefit of the Russell index reconstitution and the end of quarter/half retirement contributions.

I do expect the market to continue to creep higher this holiday week IF the ADP/Nonfarm payrolls are close to the forecasts and Janet Yellen puts on her patriotic hat and gives a bullish speech on Wednesday. I don't think she has a bearish speech in her repertoire but you never know when she might decide to live on the wild side.

The S&P rallied to a new intraday high at 1,978.58 and closed at a new high at 1,973.34. The S&P is still about 25 points from the assumed target at 2,000 but it is making progress. The intraday spike today failed right at uptrend resistance at 1,978. We are now a long way from support at 1,950 and 1,925 so we do have room for volatility to appear.

Volume today was 6.09 billion shares and just over the 5.7 billion on Monday. Volume the rest of the week should be much less unless some economic event causes a serious market stumble.

The Dow spiked to within 1.3 points of 17,000. While this number is more psychological than technical there is uptrend resistance at this level. A breakout could quickly run for 200-300 points on short covering. We saw strong uptrend support at 16,800 last week and the range between support and resistance is narrowing.

We need to thank IBM and Visa for the majority of the Dow's gains. Between them they added about 70 Dow points.

The failure just under 17,000 is the third time in the last month. While we can still breakout any day we do have history at this level. If we truly fail here again it could prompt a reset and possibly lower lows. While I don't see that tonight it is always possible.

The Nasdaq is truly in breakout mode. The last three days of gains have been to new 14 year highs and despite the +50 point spike there was very little pullback at the close. However, the Nasdaq is now in overbought territory after the +420 point run since the late May lows at 4,040. We had plenty of consolidation time in mid June but the acceleration really started on June 25th. We have gained +120 points in only five days. It may be time for a rest.

However, if you look at the winners and sinners list below the bullish gains were far stronger than the losses. This brings up the market saying, "Buy the dips and sell the rips." We definitely had a rip higher the last several days.

The Nasdaq 100 is also in breakout mode and has added nearly 100 points since the struggle at 3,800 for the prior two weeks.

The Russell 2000 hit a new intraday high at 1,213 but could not hold on and slipped to 1,205 at the close and beneath the historic high close at 1,208. I am perfectly happy with the Russell. It has erased the -9.3% drop in Q2 to trade at new highs again. We definitely can't complain.

We need the Russell to punch through that old high resistance and close somewhere in the 1,215-1,220 range to really light this market candle.

Analysts continue to claim this is the most hated market rally in history because so few people are invested. Equity funds have seen outflows for the last eight weeks and bond funds have seen inflows. Investor participation is definitely not in sync with the new market highs. Investors waiting on the sidelines are losing money every day the market makes a new high.

I believe this "disbelief" in the rally will keep a floor under it for some time. Everyone who realizes the error of their ways in going to cash is now hoping for a pullback so they can jump back in. Every minor 2-3% dip is immediately bought. Unless there is a really negative surprise in the payroll reports there is nothing on the immediate horizon that could derail the rally. Everybody is drinking the Kool-Aid and believes the economy is accelerating. Until something appears to shock investors out of their bullish daze the rally should continue.

This is of course contrary to the normal midterm election year decline. Since we are just entering the Q2 earnings cycle there may be just enough bullish momentum to carry us 2-3 more weeks but I would be increasingly cautious if we start seeing some unexplained drops. The market does not need an excuse to correct. The talking heads on TV will assign whatever excuse is convenient if it happens.

Enter passively, exit aggressively!

Jim Brown

Send Jim an email

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New Plays

Testing Resistance

by James Brown

Click here to email James Brown

Editor's Note:

Equities extended their gains today. The path of least resistance is definitely higher. At the moment the Dow Industrials are testing potential round-number resistance at the 17,000 mark. The S&P 500 index is testing potential resistance at the 1980 level. I wouldn't be surprised to see a dip tomorrow.

We are not adding any new trades tonight.

In Play Updates and Reviews

July Starts With Broad-Based Rally

by James Brown

Click here to email James Brown

Editor's Note:
The U.S. market delivered widespread gains on Tuesday with the S&P 500 and the Dow Industrials tagging new highs.

FEYE hit our entry trigger today.
We want to exit our DOW trade tomorrow morning.

Current Portfolio:

BULLISH Play Updates

American Airlines Group Inc. - AAL - close $43.86 change: +0.90

Stop Loss: 39.85
Target(s): to be determined
Current Gain/Loss: + 9.0%

Entry on May 28 at $40.25
Listed on May 17, 2014
Time Frame: 9 to 12 weeks
Average Daily Volume = 10.3 million
New Positions: see below

07/01/14: AAL bounced off its 20-dma and recovered almost all of yesterday's decline. The stock looks poised to challenge $45.00 soon.

Earlier Comments: May 17, 2014:
AAL is in the services sector. AAL is the merger between US Airways and American Airlines (AMR). The new company, American Airlines Group, is the largest carrier with nearly 6,7000 flights a day, over 330 destinations, to more than 50 countries, with over 100,000 employees worldwide.

This $17 billion merger was threatened by the U.S. Justice department last year. Regulators tried to block the merger on fears the new company would be too big, hold too much power, and reduce competitiveness and thus pricing for consumers. A U.S. district judge just recently approved a settlement worked out between AAL and the Justice Department where the new company agreed to sell certain assets to competitors. Getting the legal hurdle for its merger out of the way it's one more worry that investors can forget.

The airlines would also like to forget about winter. The 2014 winter season was brutal for the airline industry. In January and February the Bureau of Transportation Statistics said 6.05% of all domestic flights were cancelled. That number dropped to 4.6% of all flights cancelled in March. Put them all together and you have the worst winter cancellation rate in 20 years. Yet this news has failed to stop the rally in airline stocks. Granted AAL did consolidate sideways for a few weeks but now it is only a couple of points away from new eight year highs.

AAL just recently released data on April. Their revenue passenger miles for April were up 4.7 percent to 18.1 billion in 2014 versus April 2013. Odds are this number is going to improve since summers tend to be more bullish for the airline business.

Wall Street seems keen on shares of AAL. Goldman Sachs recently put a $46 price target on the stock. In the latest 13F filings it was revealed that Paulson & Co had raised their stake in AAL from 8.5 million shares to 12.2 million. Meanwhile David Tepper is the hot fund manager everyone loves and his Appaloosa Management has AAL as its second largest holding. In the last quarter Appaloosa increased their AAL stake by 22.5%.

current Position: Long AAL stock @ $40.25

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

Long Aug $40 call (AAL140816C40) entry $2.65*

06/28/14 new stop @ 39.85
06/14/14 new stop @ 38.85
05/28/14 triggered @ 40.25
*option entry price is an estimate since the option did not trade at the time our play was opened.
option format: symbol-year-month-day-call-strike

Arrowhead Research - ARWR - close: 13.58 change: -0.73

Stop Loss: 12.75
Target(s): to be determined
Current Gain/Loss: +12.7%

Entry on May 27 at $12.05
Listed on May 19, 2014
Time Frame: 6 to 8 weeks
Average Daily Volume = 1.3 million
New Positions: see below

07/01/14: Ouch! ARWR underperformed today with a painful -5.1% decline. If you look at the intraday chart the last couple of weeks almost looks like a bearish head-and-shoulders pattern forming. More conservative investors may want to raise their stop loss closer to $13.00 or $13.25.

If we get stopped out at $12.75 it's going to cut our potential gains to +5.8%. I am not suggesting new positions at this time.

Earlier Comments: May 19, 2014:
ARWR is in the healthcare sector. The company is in the biotech industry. Biotech stocks peaked in early March as investors started selling momentum and high-growth names. ARWR was definitely a target for profit taking after a rally from $2.00 a share back in July 2013 to over $25 in March 2014.

Biotech analysts believe ARWR has a lot of potential. The company is working on a treatment for hepatitis B and should have new data available in the third quarter this year. If successful the hepatitis B treatment could be a multi-billion drug as there are over 300 million patients around the world. ARWR currently has a market cap of about $600 million but a Deutsche bank analysts believes ARWR's market cap could surge to $4-to-$5 billion if its hepatitis B treatment is approved. ARWR is also developing new treatments on its RNAi technology.

Make no mistake, this is an aggressive trade. ARWR is an early stage biotech firm with no revenues. Any investment is a belief they will bring successful clinical data and eventually get FDA approval for its drugs in development.

Technically after a drop from $25 to $10 most of the air has been let out of the prior bubble. As investors return to risk on trades we think ARWR could outperform.

Current Position: Long ARWR stock @ $12.05

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

Long Sep $12.50 call (ARWR140920C12.5) entry $3.40*

06/25/14 new stop @ 12.75
06/09/14 the intraday pullback today might be a short-term top. Our trade is up +20% and investors may want to take some money off the table
05/27/14 triggered @ 12.05
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

Bitauto Holdings - BITA - close: 47.68 change: -1.02

Stop Loss: 43.45
Target(s): To Be Determined
Current Gain/Loss: - 0.1%

Entry on June 30 at $47.75
Listed on June 28, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 933 thousand
New Positions: see below

07/01/14: After hitting new highs yesterday shares of BITA hit a little profit taking today with a -2.0% pullback.

Earlier Comments: June 28, 2014:
According to BITA's website, Bitauto Holdings Limited is a leading provider of internet content and marketing services for China's fast-growing automotive industry. Bitauto manages its businesses in four segments: the bitauto.com advertising business, the EP platform business, the taoche.com business, and the digital marketing solutions business. They were founded in 2000 and headquartered in Beijing, China.

BITA has partnerships with all the major Chinese Internet portals like Sina, Tencent, Yahoo! China, Alibaba, Netese, Qihoo360, and Tom. They have sales networks in more than 70 cities.

The company is developing a trend of beating analysts' estimates. Their most recent quarterly report was May 8th with their Q1 results. Wall Street expected a profit of 16 cents on revenues of $54.3 million. BITA delivered a profit of 18 cents with revenues climbing +46.6% to $56.9 million. The company has also made significant progress with its gross margins, which jumped to 79.1%.

This trend is likely to continue. Earnings are up +296% from 2010 to last year (2013). Sales are up +246% over the same time frame. Wall Street is expecting BITA's profits to rise 50 percent in 2014.

It's not surprising to see why. Millions of Chinese people are entering the middle class. That means surging demand for automobiles. China is now the biggest auto market on the planet with almost 20 million new cars purchased every year. The U.S. is having a good year for new cars sales too but we are only on track for 16.7 million vehicles this year.

Currently shares of BITA are hovering near their highs and what looks like resistance in the $47.00 area. The stock peaked to $47.00 back in March this year and it's been trying to breakout past this area the last several days.

Please note I do consider a more aggressive, higher-risk trade. BITA has been a volatile stock in the past. Investors may want to use small positions to limit their risk. We are not setting any targets tonight but the point & figure chart is bullish and forecasting at $57.00 target.

*small positions to limit risk*

Current Position: long BITA stock @ $47.75

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

Long Oct $50 call (BITA141018C50) entry $5.40*

06/30/14 triggered @ 47.75
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

The Dow Chemical Co. - DOW - close: 51.54 change: +0.08

Stop Loss: 50.85
Target(s): To Be Determined
Current Gain/Loss: + 0.6%

Entry on May 27 at $51.25
Listed on May 24, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 9.5 million
New Positions: see below

07/01/14: We have been worried about DOW since it broke down late last week thanks to an earnings warning from DuPont. DOW's long-term trend is still higher but short-term I'm concerned we will see the stock spike lower.

If you have a longer-term time frame I suggest you place your stop loss below $50.00 or its 100-dma and let it ride. This would give DOW's long-term trend of higher lows a chance to continue.

We are taking a more cautious approach and suggesting an immediate exit tomorrow morning.

Current Position: Long DOW stock @ $51.25

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

Long Sep $50 call (DOW140920C50) entry $2.88*

07/01/14 prepare to exit tomorrow morning
06/28/14 DOW spiked lower after DuPont issued an earnings warning the night before
06/24/14 new stop @ 50.85
06/14/14 new stop @ 49.75
05/27/14 triggered @ 51.25
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

FireEye, Inc. - FEYE - close: 41.04 change: +0.49

Stop Loss: 36.90
Target(s): To Be Determined
Current Gain/Loss: - 0.1%

Entry on July 01 at $41.10
Listed on June 30, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 5.2 million
New Positions: see below

07/01/14: Wall Street firm FBR Capital said that security software spending trends were tracking well. That bodes well for FEYE's second quarter results.

The stock rallied to $41.82 before paring its gains to +1.2%. Our suggested entry point was hit this morning at $41.10.

Earlier Comments: June 30, 2014:
FireEye is an advanced cyber-security company. They provide products and services for detecting, preventing and resolving advanced cyber-security threats. This is not the virus protection program you have on your PC. This is industrial strength corporate defense against the thousands of hack attempts that happen every day.

They supply web threat protection for websites that analyzes all inbound and outbound traffic. They offer email threat prevention appliances that detect and stop advanced attacks. And of course they offer file threat appliances that analyze network traffic to and from corporate servers to detect and quarantine malicious software.

I could go on with the dozens of other types of services but the point there is that they offer end to end cutting edge security for corporate networks and websites.

Everyone has heard about the 40 million credit cards lost in the Target attack. If you pay attention to the news almost every week there are a couple more retailers and corporations that have customer data stolen. This is becoming very expensive for corporations. MasterCard and Visa are changing the rules and corporations are now going to be liable for fraudulent charges made from stolen credit card info.

For a company like Target with 40 million lost cards this could run into the billions of dollars if the card data was compromised. Fortunately for Target some of the information was encrypted and not all of those cards were able to be used. Other companies may not be so fortunate in the future. This kind of network intrusion could put companies out of business.

FireEye tracks all traffic on the network so they can not only tell you what was stolen but where it went. In the case of Target it was weeks before they even knew what was stolen and they had no idea who took it. With FireEye they could have tracked it to the source in real time.

The annual Mandiant Trends report showed that advanced attacks go undetected for an average of 229 days and only one-third of organizations identify breaches on their own. Attackers are increasing their technology far faster than corporations managing internal networks.

FireEye made headlines last month when it warned that a sophisticated group of hackers had exploited a buy in Microsoft's Internet Explorer browser and Microsoft immediately went into panic mode to produce a fix for the previously unknown exploit. This company is on the bleeding edge of the cyber-security problem.

FireEye announced with earnings in May 2014 their acquisition of nPulse Technologies, a leader in network forensics. Their network forensics will be married to the Mandiant endpoint forensics to provide the only available end to end solution for visibility into the entire attack life cycle.

The company was actually guided by the CIA in the early days because there was no security against some of the advanced nation state attacks. The CIA gave FireEye a list of specifications and told them if they could block those intrusions they would be a customer. FireEye succeeded and the CIA is not only a customer but an investor in FireEye.

After Google was hacked by Chinese spies the FireEye client list expanded because nobody else could block the sophisticated attacks that Google experienced. Now government agencies all over the world are using FireEye products.

Nawaf Bitar, SVP of Juniper Networks called FireEye the "Gorilla" in the field when it comes to combating advanced attacks. Edward Kiledjian, CISO for Bombardier Aerospace and a user of FireEye products said, "This is a fantastic tool that provides invaluable information."

FireEye rallied from its IPO close at $36 in September to trade at $97 in March. Three insiders took advantage of the high price to sell shares to cover tax liabilities and they announced a secondary at $87.50. They reported earnings that included a recent acquisition. Shares declined from an overheated valuation to $40 over the next two months. The selloff in the Nasdaq momentum stocks also added to the FireEye decline.

Q1 earnings was a 53 cent loss that was right in the middle of prior guidance for a loss of 51-56 cents. Revenue of $74 million tripled was above guidance of $70-$72 million. Deferred revenue (subscriptions) spiked +$25.2 million to $212.7 million.

However, the new format for earnings with multiple reporting segments appeared to confuse investors and the stock was knocked for a -25% loss.

The company raised guidance for a full year loss up from $2.00-$2.20 to $2.10-$2.30 due to higher R&D spending to integrate recent acquisitions into the product line. The CEO told analysts they were spending more on R&D to "disrupt the market and improve their innovative technology." They are going to announce four new products over the next 90 days.

FireEye had a record quarter with revenue growth of +132% year over year. The Core FireEye business grew over 50%. The Mandiant business they acquired just 90 days ago grew by more than 50%. The company raised revenue guidance for the fourth time in six months. William Blair said the pullback in FEYE created an attractive entry point saying the earnings were "very strong" and they kept an outperform rating on the stock.

Technically shares of FEYE have gone from extremely overbought back in February-March to extremely oversold after it dropped following its earnings report in May. Now FEYE Has been slowly climbing higher. The stock has pushed past potential resistance at several key moving averages including its simple 50-dma. Plus FEYE has rallied past resistance at the top of its gap down from May 6th. Today we see FEYE breaking out past round-number, psychological resistance at the $40.00 level.

We are not setting an exit target tonight but I will point out that the point & figure chart is bullish with a $54.00 target.

current Position: long FEYE stock @ $41.10

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

Long Sep $45 call (FEYE140920C45) entry $3.30*

07/01/14 triggered @ 41.10
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

Flextronics Intl. - FLEX - close: 11.23 change: +0.16

Stop Loss: 10.75
Target(s): $11.75
Current Gain/Loss: + 9.0%

Entry on June 00 at
Listed on May 31, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 6.9 million
New Positions: see below

07/01/14: FLEX surged +3.8% this morning before reversing at resistance near $11.50. I don't see any news to account for the pop higher.

I am not suggesting new positions here.

Earlier Comments: May 31, 2014:
FLEX is in the technology sector. The company is the second largest contract electronics manufacturer. They make electronic components for some of the world's biggest companies like Apple, Samsung, Cisco Systems, Google, IBM, and Microsoft.

FLEX reported earnings on April 30th and results beat Wall Street's estimates on both the top and bottom line. EPS was 24 cents, 4 cents above consensus estimates. Revenues rose 27% from a year ago to $6.72 billion for the quarter, well above analysts' estimates. Operating income surged +72% from a year ago.

Just a few days ago the stock broke out past major resistance in the $9.75 region following its analysts day. FLEX appears to be making improvements that will bring about better margins and earnings growth. The most recent quarter saw gross margins improve 170 basis points.

The company ended the quarter with $1.59 billion in cash and cash equivalents and have continued to deliver on their strong stock buyback program. FLEX has already repurchased 9% of its outstanding shares in fiscal 2014. Value investors also love FLEX's strong free cash flow, which is the highest among its peers at more than 12% FCF. The company looks poised to outperform its peers with EPS growth of +27% by the end of 2016 versus average growth of +20% from its rivals.

current Position: Long FLEX stock @ $10.30

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

Long Oct $10 call (FLEX1018C10) entry $0.80

06/16/14 new stop @ 10.75
06/07/14 set target at $11.75
06/03/14 triggered @ 10.30
Option Format: symbol-year-month-day-call-strike

Ingersoll-Rand Plc - IR - close: 62.87 change: +0.36

Stop Loss: 61.65
Target(s): To Be Determined
Current Gain/Loss: - 1.5%

Entry on June 20 at $63.85
Listed on June 10, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.8 million
New Positions: see below

07/01/14: IR erased yesterday's decline but it is still struggling with its 10-dma as overhead resistance.

Earlier Comments: June 10, 2014:
IR is in the industrial goods sector. They operate two business divisions, their Climate and Industrial segments. The climate business accounts for the majority of their sales as they compete in the heating, ventilation, and air conditioning markets. They're best known for their Club Car, Ingersoll Rand, Thermo King, and Trane brand names.

The company has been consistently growing earnings with EPS growth of +28% from 2011 to 2013. They've also seen operating margins improve over the same three-year period. Their most recent earnings report in April beat analysts' estimates by three cents with a profit of 29 cents a share. Revenues were up +3.2% from a year ago to $2.72 billion. Orders were up +5% for the quarter while margins in its climate business rose 210 basis points.

Steady revenue growth and margin growth sound like a pretty good deal if you're bullish on the stock. Management followed up their earnings news by raising their guidance on the second quarter this year.

Weather was a factor in the first quarter but now that we're into summer any increase in construction should be a boon for IR. In yesterday's new play (AOS) we noted that the U.S. real estimate market looks poised for improvement. Housing starts were up 13 percent month over month in April. New permits to build houses hit their highest levels in five years. This should all point to improved sales for IR's HVAC business.

We know that somebody is bullish on IR. The last couple of weeks have seen some pretty big option bets. Thousands of July calls options have been purchased expecting IR's rally to continue over the next few weeks.

Technically we are seeing IR rebound from its long-term up trend. The last four months have also built what appears to be an inverse head-and-shoulders pattern, which forecasts a $69-70 target.

We're not setting an exit target tonight but the Point & Figure chart for IR is bullish with a $71.00 target.

current Position: Long IR stock @ $63.85

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

Long Sept $65 call (IR140920C65) entry $2.36*

06/30/14 new stop @ 61.65
06/20/14 triggered on gap higher at $63.85
suggested entry point was $63.75
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

Sky-mobi Limited - MOBI - close: 8.02 change: -0.26

Stop Loss: 7.19
Target(s): To Be Determined
Current Gain/Loss: +3.2%

Entry on June 26th $ 7.77
Listed on June 25, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 696 thousand
New Positions: see below

07/01/14: I warned readers that MOBI is a volatile stock. Today's early morning gains faded and shares closed on short-term support near $8.00 and its simple 10-dma. Unfortunately today's session has created a bearish engulfing candlestick reversal pattern but this signal needs to see confirmation.

I am not suggesting new positions at this time.

Earlier Comments: June 25, 2014:
China is a massive market and continues to see strong growth in mobile phone adoption. That means more application downloads for the smartphone market. MOBI is cashing in on the app download business with their Maopao app store with 147 million users. They've already had over 15 billion apps downloaded from their store since 2005.

MOBI has strategic partnerships with China Mobile and China Unicom plus over 100 Chinese OEMs who pre-install MOBI's Maopao store on their mobile platforms. This allows MOBI to gain 400,000 new users every day.

When the stock market peaked in early March investors sold all of the high-growth and momentum names. MOBI was caught up in that sell-off with a correction from $12.00 to $6.00. Now shares appear to have found a bottom at the $6.00 level. The recent pullback this week looks like and entry point given MOBI's long-term prospects. The mobile gaming market in China is expected to surge +94% in 2014. MOBI's sales will surge as gaming grows.

Technically MOBI is starting to bounce after a 50% retracement of the rally off its June lows. We want to jump on board and buy today's bounce at the opening bell tomorrow morning. More conservative investors might want to consider waiting for a rally past $8.00 as an alternative entry point.

We are not setting a target just yet. I will point out that the point & figure chart is bullish and forecasting at $13.00 target.

This can be a volatile stock. Traders may want to consider limiting their position size to reduce their risk.

Current Position: Long MOBI stock @ $7.77

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

Long Oct $10 call (MOBI141018c10) entry $0.85

06/26/14 trade opens. MOBI opened @ 7.77
Option Format: symbol-year-month-day-call-strike

Microsoft Corp. - MSFT - close: 41.87 change: +0.17

Stop Loss: 39.90
Target(s): To Be Determined
Current Gain/Loss: - 0.0%

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

07/01/14: The sideways churning in MSFT continues. I am not suggesting new positions tonight. MSFT underperformed the NASDAQ today.

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: 37.54 change: -0.06

Stop Loss: 35.35
Target(s): To Be Determined
Current Gain/Loss: +2.3%

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

07/01/14: SFTBY is also drifting sideways and trading in a very narrow range. I don't see any changes from my previous comments. Resistance remains overhead near $38.50.

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

06/30/14 new stop $ 35.35
06/17/14 trade opens. SFTBY gapped down at $36.68
note: SFTBY does not have options.

Super Micro Computer, Inc. - SMCI - close: 25.44 change: +0.17

Stop Loss: 24.15
Target(s): To Be Determined
Current Gain/Loss: +14.3%

Entry on June 09 at $22.25
Listed on June 07, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 467 thousand
New Positions: see below

07/01/14: SMCI added +0.6% today but shares are still trading beneath their two-week trend of lower highs.

I would not open new positions.

Earlier Comments:
SMCI is in the technology sector. The company makes high performance servers (computers). The stock has been stuck in the $8.00-18.00 trading range for years. That changed back in January when SMCI reported earnings that beat analysts' estimates on both the top and bottom line. If that wasn't enough SMCI's management also raised their guidance. Shares soared to all-time highs on this news. You can see the spike higher in January.

When investors turned sour on high-growth and momentum names this past spring shares of SMCI corrected sharply but now it's back and poised to challenge its highs. That's because SMCI has delivered another strong quarter of growth.

SMCI reported its Q3 results on April 22nd. Wall Street was expecting a profit of $0.27 per share on revenues of $335.19 million. SMCI bested estimates with a profit of $0.37 per share and revenues soared +34.5% to $373.8 million. Management then guided higher for the current quarter and raised its top and bottom line estimates above Wall Street's estimate. It was their second straight quarter of record highs for revenues and earnings.

Analysts have started revising their numbers on SMCI as the company is growing faster than its rivals. Some might consider SMCI cheap with a P/E at 20.

The point & figure chart is bullish and forecasting at $25 target.

current Position: long SMCI stock @ $22.25

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

Long Oct $22.50 call (SMCI141018C22.50) entry $2.25*

06/28/14 new stop @ 24.15
06/16/14 SMCI rallies +10.7%
06/09/14 triggered @ 22.25
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike

Waste Connections, Inc. - WCN - close: 48.89 change: +0.34

Stop Loss: 45.75
Target(s): To Be Determined
Current Gain/Loss: +2.4%

Entry on June 25 at $47.75
Listed on June 21, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 464 thousand
New Positions: see below

07/01/14: WCN extended its gains to five days in a row. I would not chase it here.

Earlier Comments: June 21, 2014:
According to the company website, Waste Connections is an integrated solid waste services company that provides solid waste collection, transfer, disposal and recycling services in mostly exclusive and secondary markets.

Through its R360 Environmental Solutions subsidiary, the Company also is a leading provider of non-hazardous oilfield waste treatment, recovery, and disposal services in several of the most active natural resource producing areas in the United States, including the Permian, Bakken, and Eagle Ford Basins. Waste Connections serves more than two million residential, commercial, industrial and exploration and production customers from a network of operations across the United States. We also provide intermodal services for the movement of solid waste and cargo containers in the Pacific Northwest.

We seek to avoid highly competitive, large urban markets and instead target markets where we can attain high market share either through exclusive contracts, vertical integration or asset positioning. We also target niche markets, like exploration and production, or E&P, waste treatment and disposal services, with similar characteristics and, we believe, higher comparative growth potential.

Apparently the company's strategy is working. WCN is developing a pattern of beating Wall Street's earnings estimates on both the top and bottom line. WCN's model is generating more profit than its rival with EBITDA margins of 34% compared to its larger rival Waste Management's 24% margins.

WCN is seeing strong growth in its oil field waste business. The company said that its E&P (oil) waste business surged +20% in the first quarter of 2014. It's traditional solid waste business grew +5.5%. Management is optimistic with 2014 off to a strong start. Revenues are up. Free cash flow is up. Margins are improving. They expect to see 12% to 15% growth this year.

Technically shares of WCN just broke out from a two-week consolidation and closed at all-time highs. One could argue that WCN produced a big, inverse head-and-shoulders pattern over the last several months. The point & figure chart is bullish and suggesting a $62 price target.

WCN does have options but the option spreads are too wide to trade.

Current Position: Long WCN stock @ $47.75

06/25/14 triggered @ 47.75

Wells Fargo & Co - WFC - close: 52.72 change: +0.16

Stop Loss: 50.90
Target(s): To Be Determined
Current Gain/Loss: + 3.2%

Entry on June 02 at $50.94
Listed on May 31, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 13.5 million
New Positions: see below

07/01/14: WFC inched higher on Tuesday. The stock is approaching its June highs near $53.00.

I am not suggesting new positions at this time. WFC has earnings coming up on July 11th. We might choose to exit before the announcement.

Earlier Comments: May 31, 2014:
WFC is in the financial sector. They are a major, money center bank, headquarter in San Francisco with annual revenues of $81.72 billion and net income of over $21.5 billion. The financial sector has been a strong performer these last couple of weeks and WFC has helped lead the group higher.

Currently WFC is up +11.8% year to date. Its closest rivals are all negative for the year. Bank of America (BAC) is down -2.75%. JPMorgan Chase (JPM) is off -4.98%. Citigroup (C) is down -8.7% for 2014. WFC says business is good and they expect it to get better. The bank reported that credit quality has been improving. They managed to reduce their loan loss reserves in the first quarter and they expect this trend to continue in 2014.

At WFC's recent analyst day their CFO said they want to raise how much money they return to shareholders. They'd like to pay out 55 percent to 75 percent of net income back to shareholders as dividends and stock buybacks. That's up from 34% in 2013 but the new capital plans are subject to regulatory approval.

The shareholder friendly management at WFC is probably just one reason that Warren Buffet likes this company. WFC is Berkshire Hathaway's largest holding. Some have suggested that WFC is the best way to benefit from any long-term rebound in the U.S. housing market and consumer spending.

In recent news WFC says it is poised to end some of its legal troubles surrounding the robo-signing scandal during the housing crisis. It could final settle this issue for $67 million fine and put this issue behind it.

Technically shares of WFC looks very bullish with a long-term up trend. This past month has seen WFC breakout past key resistance at the $50.00 level. Shares ended the week at a new all-time high.

Current Position: Long WFC stock @ $50.94

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

Long Oct $50 call (WFC141018C50) entry $2.31

06/28/14 new stop @ 50.90
06/16/14 new stop @ 49.70
06/09/14 new stop @ 48.75
06/02/14 trade begins. WFC gapped higher at $50.95
Option Format: symbol-year-month-day-call-strike

BEARISH Play Updates

The TJX Companies, Inc. - TJX - close: 53.51 change: +0.36

Stop Loss: 54.25
Target(s): To Be Determined
Current Gain/Loss: +0.3%

Entry on June 25 at $53.65
Listed on June 24, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 4.5 million
New Positions: see below

07/01/14: TJX has extended its oversold bounce to three days in a row. We are expecting this stock to find resistance near $54.00.

Earlier Comments: June 24, 2014:
According to their website, the TJX Companies, Inc. is the leading off-price retailer of apparel and home fashions in the U.S. and worldwide. With over 3,200 stores in the U.S., Canada and Europe, 3 e-commerce sites and approximately 191,000 Associates at the end of 2013, we see ourselves as a global, off-price, value retailer and our mission is to deliver great value to our customers through the combination of fashion, brand, quality and price.

The stock has been a strong performer on Wall Street for years. Shares of TJX are up 2008 lows near $10 a share to until they peaked near $64.00 late last year. It would appear the long-term momentum is fading.

TJX, along with most retailers, are facing a tough consumer market. Big ticket items like new homes and automobiles are selling well. Smaller purchases like fashion and apparel have been tough unless you're in the luxury market.

The U.S. Commerce Department reported that consumer spending fell -0.1% in April, marking the first decline in a year. It is worth noting that consumer spending was up the prior two months, but that didn't help TJX first quarter sales. TJX reported earnings on May 20th. Their Q1 results (ending April) were 64 cents a share on revenues of $6.49 billion. That was three cents less than Wall Street's estimate of 67 cents a share on revenues of $6.59 billion.

TJX management said their Q1 same-store sales growth was only +1%, which was below guidance. TJX then lowered their 2015 guidance. There has been some speculation that TJX could be losing some market share to the return of JC Penney (JCP).

The issue could be bigger than just one or two stores fighting for market share. The U.S. consumer is facing higher prices. Consumer price inflation is up, especially for everyday items. Over the past twelve months the CPI has risen +2.1%. The price of meat, chicken, eggs, and fish is up +7.7%. The price of fruits and vegetables are up +3.2%.

The consumer is also facing higher gasoline prices. AAA said the national average on gas had risen to $3.68 per gallon. That is the high for this time of year. AAA is currently forecasting a range of $3.55 to $3.70 per gallon. Fortunately, they are hoping that gasoline prices will not hit $4.00 a gallon. However, that could change quickly if the violence in Iraq escalates and terrorist start to impact Iraq's oil exports. Another issue here at home is talk of raising the U.S. federal tax on gasoline from 18.5 cents per gallon to 30.5 cents over the next two years. Call your senator if you do not want that tax to go up.

All of these price increases are weighing on most Americans who are stuck with flat or very low wage gains. Oddly enough consumer confidence just hit a six-year high today. Hope springs eternal but just because consumers are hopeful doesn't mean they're actually spending more money.

Technically shares of TJX are bearish. It has a trend of lower highs and lower lows and just broke down under support near $54.00. We are not setting a bearish target tonight but I will point out that the point and figure chart is bearish and forecasting at $45.00 target.

Current Position: short TJX stock @ $53.65

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

Long Oct $50 put (TJX141018P50) entry $1.05*

06/30/14 new stop @ 54.25
06/25/14 triggered @ 53.65
*option entry price is an estimate since the option did not trade at the time our play was opened.
Option Format: symbol-year-month-day-call-strike