Option Investor

Daily Newsletter, Saturday, 11/22/2014

Table of Contents

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

Market Wrap

Central Bank Boost

by Jim Brown

Click here to email Jim Brown

China cut rates and Draghi again promised to do whatever it takes. This boosted world markets on Friday.

Market Statistics

Friday started off with a bang after China unexpectedly cut two rates and Mario Draghi repeated his "do whatever it takes" vow and suggested the ECB was close to buying sovereign bonds in an extension of its stimulus program. The twin central bank actions powered the European markets to gains of 2-3% on average.

China cut rates for the first time since July 2012 as economic conditions continue to weaken with the slowest growth since 1990. The one-year lending rate was lowered -0.4% to 5.6% and the one-year deposit rate were lowered by 0.25% to 2.75%. The deposit rate cap was raised from 110% to 120% of the benchmark rate. That allowed consumers to continue earning the same interest despite the drop in the deposit rate. This is really a managed economy where the government even controls how much interest banks can pay to individuals on deposits. The move by the PBOC to cut rates came as a big surprise to investors. The bank had been trying to micro manage the economy using non-standard methods but it was not working. The China EFT (FXI) spiked +3.68% on the news.

Draghi said Europe was teetering on the edge of a recession and "We will do what we must to raise inflation and inflation expectations as fast as possible, as our price-stability mandate requires. Some inflation expectations have been declining to levels that I would deem excessively low." The next policy meeting in less than two weeks away and analysts are speculating the ECB is moving closer to a full-fledged QE program of buying sovereign debt. With GDP at +0.2% and inflation at +0.4% the ECB is flirting with a major slowdown. The ECB has already indicated they will lower economic forecasts again at the Dec 4th meeting. The ECB began buying asset backed securities (ABS) on Friday.

The Dow spiked +176 points at the open and immediately began to fade to gain only +45 at midday. Buyers appeared late in the day to push it back over 17,806 with a +91 point gain. The S&P gained +11 points to close at 2,062. The S&P Energy sector gained +7.8%, Industrials +4.8%, materials +4% and financials +1.7%. The Nasdaq spiked more than +50 points at the open but gave back 40 to gain only 11 points for the day.

The economic calendar for the U.S. on Friday was lackluster. Leading the list was the Kansas City Fed Manufacturing Survey for November, which rose to 7.0 from 4.0 in October. This was the 11th consecutive month of gains for the index. However, new orders declined for the 4th month to only 1.0 after hitting 12.0 in July. Backorders rose from -8 to +4 and the first month in positive territory since June. Employment posted a six month high at 9, up from 6 in October. Over all it was a good report but that sharp drop in new orders is very troubling. That suggests it could be in negative territory next month.

We have a busy calendar for a holiday week as the majority of reports are squeezed into the first three days. The GDP revision will garner a lot of attention on Tuesday with the whisper number in the 2.9-3.1% range, down from +3.55% in the last reading. The Richmond Fed surveys also on Tuesday are of interest but rarely move the market. Wednesday has the two home sales numbers and that will be the highlight for the day.

Two of the biggest events of the week are not economic and not in the USA. The deadline on the Iranian nuclear negotiations is Monday. Early Friday Secretary John Kerry and Iran's counterpart Mohammad Javad Zariff both planned to leave the negotiations early because the talks were making no progress. Late Friday it was announced that both had cancelled plans to exit the negotiations and said they would meet again to try and salvage a last minute agreement.

The P5+1 nations have repeatedly said there would be no further extensions in the deadline. Iran is the master of the rope-a-dope with delaying tactics an art. These negotiations have been ongoing for the last ten years. Nothing constructive ever happens until the deadline arrives. If an agreement is reached we could see another 1.25 mbpd of oil come to market and that would further depress prices. If no agreement is reached we could see 1.0 mbpd cut off from the market by the resumptions of full sanctions.

A 45 page draft agreement has been prepared with a 5 page introduction and 30-40 pages of details according to an Iranian diplomat. Of course we don't know it that is a joint agreement or one that Iran drew up that is heavily weighted to their positions. The White House spokesman Eric Schultz said the U.S. will only approve a deal that "effectively cuts off all pathways to a nuclear weapon." Since there is a vocal majority in Iran that object to even participating in the talks and refuse to give up anything on the nuclear issue the odds of a comprehensive deal are slim.

On Thursday OPEC meets in Vienna to discuss production quotas. The outcome is far from certain. In a survey of 20 energy analysts by Bloomberg exactly half expected a production cut and half expected no cut. In the seven years since the surveys began this was the only one that was evenly divided. OPEC has to decide whether to cut production and lift prices from a four-year low and continue to empower the energy boom in the U.S. or leave production alone and possibly see prices decline into the $60s and cost them billions in revenue. Leaving production at the current levels will eventually pressure U.S. drillers to mothball some rigs and slow production growth but it won't stop U.S. production growth unless the price remains low for an extended period of time.

Not cutting production will hurt the finances of OPEC countries that depend on high oil prices to fund their budgets. With Brent crude prices down -31% since June that means a -30% cut to export revenue and that is a huge blow to countries like Algeria, Nigeria and Venezuela. If OPEC does not cut production and claim they are ok with the lower rates the market will test them almost immediately. Sellers will appear in volume until a bottom appears. OPEC knows this and they have to take this into account when they meet. They may be ok with Brent at $80 but are they ok with it at $65? It may be better to take the smaller dose of pain now and cut production rather than play games with the market and see oil trade significantly lower and still have to cut production later. This is one of the most important OPEC meetings in the last ten years.

Retailers continue to disappoint and the recent trend is to guide lower for Q4. Apparently they are not expecting big holiday sales despite the falling gasoline prices. Let the discounting begin! Weak expectations for holiday sales is the signal for retailers to start slashing prices before the shopping hysteria even begins.

Ann Inc (ANN) reported earnings of 72 cents, which beat estimates of 68 cents. Revenue of $646.8 million did not meet estimates of $653.1 million. For the current quarter ANN guided lower for sales of $630 million and analysts were expecting $633 million. I thought it was strange that they are guiding for lower sales in Q4 than Q3. That is a clear signal they are planning to cut prices to the bone. Shares fell fractionally on the news.

Gap stores (GPS) warned that Q4 earnings would now be $2.73 to $2.78 compared to earlier estimates of $3.95-$3.00 and analyst consensus of $2.91. The CEO said sales were sluggish and they were forced to slash prices to clear out slow moving merchandise. Same store sales at Gap stores fell -5% in the last reporting period. Not a good sign for the holiday shopping season. Shares fell -4% on the news.

Williams-Sonoma (WSM) parent of the Pottery Barn beat Q3 earnings but then guided lower for Q4. The CEO said "There's no question the holiday season will be even more competitive than last year." Shares gapped higher on the earnings beat but faded on the guidance warning.

GameStop (GME) shares fell -13% after reporting earnings of 57 cents that missed estimates of 62 cents and were a penny lower than the year ago quarter. Revenue of $2.092 billion also missed estimates of $2.214 billion. Same store sales fell -2.3%. New video game sales fell -34.4% but mostly due to a strong release of games in the year ago quarter. GameStop operates 6,664 stores. The company said same store sales for Q4 would be in the range of -5% to +2% and much lower than the 6-12% increase in prior forecasts. Full year earnings are now expected to be $3.40-$3.55 down from $3.40-$3.70. Analysts were looking for $3.73.

Ross stores (ROST) reported earnings of 93 cents that beat estimates of 87 cents. Revenue of $2.6 billion also beat. Same store sales rose +4% and twice company guidance. They expect same store sales of 1-2% in Q4 and earnings of $1.05-$1.09, up from $1.02 in the year ago quarter. Total revenue growth was projected in the 5-6% range. Full year earnings guidance was raised from $4.18-$4.26 to $4.28-$4.32. Shares spiked +7% on the news.

The Maxim Group upgraded Ross from sell to hold. Deutsche Bank reiterated a buy rating and Wedbush reiterated an outperform rating.

There were a lot of analyst upgrade/downgrades on Friday and some were on major stocks. Lockheed Martin (LMT) was upgraded from sell to neutral at UBS. Jefferies initiated coverage on Microsoft (MSFT) with an underperform (sell) rating and $40 price target. Aruba Networks (ARUN) was downgraded to underperform at Bank of America. The bank also downgraded Dillards (DDS) from buy to neutral. Evercore downgraded Ebay from hold to sell. Jefferies initiated coverage of Adobe (ADBE) with a buy rating and Checkpoint (CHKP) with a buy rating. Nomura initiated coverage of Amazon with a buy rating and $410 price target. Stifel Nicolaus initiated coverage of Caterpillar (CAT) with a buy rating.

CAT soared +4% on the rate cut news from China. This is positive for future sales in the country and the stock was responsible for about 35 Dow points on Friday.

Intel shares faded after a strong rally of +5% on Thursday on raised guidance. Revenue in 2015 is now expected to grow in mid single digits compared to prior expectations of 1-2%. The company also raised guidance on gross margin and raised the dividend 6.7%. Stifel Nicolaus reiterated a buy rating and Imperial Capital reiterated an outperform rating.

CLSA cut Intel to sell on a difference in Intel's PC chip forecast compared to expectations for PC sales. CLSA said Intel is expecting volume in the PC segment to grow +9% but CLSA expects overall PC sales to decline -2%. The company said they expect Intel's PC chip revenue to decline -6% in 2015.

It was a sunny day for SolarCity. The company announced it has entered into a contract with Walmart (WMT) to install new solar systems at facilities in 36 states over the next four years. The company has already completed more than 200 systems for Walmart since 2010. Walmart is testing different battery storage configurations to use stored electrical power to run the stores after the sun goes down. Walmart will test ten new configurations in 2015 using a 400 kilowatt hour battery. Walmart has asked for a quote for 400 more stores and fully expects to upgrade all its stores to solar over the next decade.

Alibaba's (BABA) Jack Ma caused investors some worries last week when he said Alibaba is facing its most dangerous moment. Coming only two months after the IPO that could be a little unnerving. He said people may be expecting too much from Alibaba. "Two months before the IPO people did not think we could make money. Now the problem is people think we are too good - we can do anything. This is the most dangerous moment."

A Chinese analyst said this is Jack Ma's speech style. He tries to be provocative instead of routine. The company announced last week it was going to sell $8 billion in debt to refinance its existing credit lines and loans. The offering was extremely oversubscribed with more than $57 billion in bids. The company said it may raise the offering to $10 billion thanks to the record demand. This would be the biggest dollar denominated bond sale ever in Asia. The bonds have been rated A+ by S&P. Alibaba has $11 billion in existing debt.

Alibaba is already the top online shopping site in Russia and Brazil and is working on cornering other markets as well.


One commentator said this was a Taylor Swift "Shake it Off" market. Regardless of the economic or geopolitical events the market just keeps shaking it off and moving higher. While that may be true it is not doing it in a very convincing fashion. The Dow spike to +176 at the open was pure short covering and then the decline to only +46 intraday was investors taking profits at the highs and shorts setting up new positions.

On the positive side we did close higher ahead of the Thanksgiving week and the indexes posted decent gains for the week with the exception of the Russell 2000. However, it was a fight. Every point gained was in the three steps forward, two steps back method. Last week is normally choppy and we definitely had a choppy market. Next week is typically bullish but the average gain is less than 1%.

The market has plenty to be happy about with the S&P 500 components posting more than $30 in earnings in Q3 and that is a record. Q4 is expected to be even higher. Unfortunately 59% of companies missed on revenue and nearly every company that reported this week or issued guidance, warned on Q4 revenue.

The biggest complaints are the higher dollar and its impact on overseas sales and the weakness in Europe. There is a real fear that the weakness will migrate to the U.S. and throw us back into recession. At the same time the economics while mixed have been improving. The Philly Fed Manufacturing Survey on Thursday soared from 20.7 to 40.8 and only 3 points below a 30 year high at 43.4 from March 2011. This reading came after two months of declines and was totally unexpected. New orders doubled from 17.3 to 35.7 and employment nearly doubled from 12.1 to 22.4. This was a very strong report but it is just one section of the country.

Despite the Philly Fed report we are still lagging behind optimal growth with GDP in the +3% range. The worries over Europe have put the Fed rate hikes on hold for the foreseeable future. Citigroup changed their expectations for the first rate hike from September to December 2015. As long as China, Japan and Europe are pouring stimulus on the fire because of slowing economies the Fed is not going to raise rates or halt the process of reinvesting matured QE securities. That process of reinvesting matured securities is a stealth QE program that is still supporting our markets. With $3.5 trillion in securities about $5 billion a week mature and new securities are purchased. That is a significant amount of continuing stimulus.

The S&P has now closed over its 5-day average for a record 26 days. The S&P has now posted its best five week gain since April 2009. Obviously this is evidence the bulls are in control but it also suggests we are stretching our luck. All streaks eventually come to an end and this one may end not with a whimper but with a bang. I am not saying the market is going to roll over next week but every day this streak continues brings us a day closer to some serious profit taking.

The S&P breakout last week freed it from more than a week of consolidation and in theory that consolidation phase should provide decent support on any market weakness. For three days the 2,050 level provided resistance and after Friday's spike to close over 2,060 that prior resistance should now be support. Overhead resistance is slim until just below 2,100. However, the Friday high at 2,071 could be a speed bump on any further rally. Support should be 2,050 and 2,040.

The Dow surged through resistance at 17,725 to 17,894 at the highs. The decline to close at 17,806 sets it up for a relatively easy test of the 18,000 level but it still faces uptrend resistance from 2011 at 17,860. That level was tested on Friday and was immediately sold. Caterpillar and Visa were the main drivers of the Friday gains.

The Nasdaq 100 sprinted well above resistance to a new 14 year high but gave back -35 of those points to close at 4,250 and a +9 point gain. That level was resistance earlier in the week and should be support as we start off on Monday. However, it may be weak support with the real support level well back at 4,200 which has held all tests since Nov 13th. I still believe the Nasdaq big caps are the stocks to watch for market direction over the next few weeks.

The Nasdaq Composite blew through resistance at 4,725 at the open to touch 4,751 but the hang time was measured in minutes rather than hours. The index was immediately sold and retreated back below that resistance to close at 4,711. It was clearly a short squeeze and the speed at which everyone already long took profits and those shorts that were squeezed reinstituted short positions was amazing. Friday was one of those days where an active trader could have made money in both directions very easily.

For next week that 4,725 resistance is still intact and the speed of the decline on Friday suggests it may be a battle to get over that area in a normal market. Support is well below at 4,657.

For the Russell 2000 the major resistance at 1,180 is still intact after a spike through to 1,182 at the open. Like the other indexes the Russell stocks were immediately sold and the index barely managed to end the day with a +1.66 gain. As I have reported before there is something in the trading pattern of fund managers that favors big caps in late November and small caps tend to fade. Everything is proceeding according to that historical trend.

The smallest of the small, the Russell Microcaps ($RUMIC) have an even bigger challenge. They peaked for the year in March and are now in a clearly defined bearish channel. They failed at the upper resistance last week and could be poised to retest downtrend support. ANY move over 464 would be a breakout of this pattern and could trigger significant short covering.

Friday's volume was just slightly over 7.0 billion shares and for an expiration Friday that was very tame. The average for the prior four days was low at about 5.9 billion shares. There is still no conviction in the market and everyone seems content to just hold the cards they have and wait for the next catalyst to appear. However, any deviation from neutral in either direction is immediately bought or sold depending on the direction. There are plenty of investors taking profits on every spike and just as many buying the dips whenever they appear. The markets appear to be evenly balanced ahead of a historically bullish period.

Like last week I would not complain about a 2-3 day decline but I also intend to profit from any continued rally. We are in buy the dip mode until proven wrong.

Random Thoughts

You may have heard that President Obama and Chinese President Xi Jinping agreed to a radical environmental program. China has the world's worst pollution. For the seven days prior to the APEC summit China closed factories and limited traffic in Beijing so that the air would not be poisonous to the dignitaries attending the conference. More than 140 factories in Beijing were ordered to close and operational limits were placed on 3,900 plants in Hebei province and 1,953 firms in Tianjin city.

China has reached the point where pollution is so bad it is causing social discontent and you don't want to make 1.2 billion people angry about your disregard about their health. As part of the environmental agreement the U.S. has to cut emissions to 27% below 2005 levels by 2025 with a target of a 17% reduction by 2020.

China has agreed to "cap" its carbon emissions by 2030 and get 20% of its energy from renewable sources. Note that the U.S. has to "cut" emissions to 27% of 2005 levels while China only has to cap emissions or halt their climb by 2030. Who got the better deal there?

To put China's task into perspective they will need to add about 1,000 nuclear reactors, 500,000 wind turbines and 50,000 solar farms to meet those goals. They will need to produce about 67 times more nuclear energy than they have today, 30 times more solar and 9 times more wind power. Those additions amount to the current generating capacity of the entire USA today.

Part of China's problem comes from their developing economy. Electricity demand will rise 46% by 2020 and double by 2030. They currently depend on coal for two-thirds of their electricity. That is the most of any G20 country other than South Africa.

China will have to spend more than $4.5 trillion upgrading its power industry by 2040. Nuclear, wind and solar alone will cost nearly $1.8 trillion. China currently has 22 nuclear reactors, 26 under construction and 159 currently proposed. Globally there are slightly over 415 reactors in operation and 91 under construction. Japan has 19 that have been shut down for the last two years and are in the long restart approval process to boost the global operating number to 434. For China to expand its fleet to 1,000 by 2030 or even 2040 would seem to be an insurmountable task even for a country with 1.2 billion people. The amount of money and manpower required is astronomical. This is going to be a windfall for companies like Cameco (CCJ) and General Electric (GE) but the time horizon is very long. China would have to accelerate the process and build at least 45 per year to reach their goal. A typical nuclear plant takes ten years to permit and build in the U.S. but I am sure that time can be shortened considerably in China to possibly 5 years.

The real question for me is the environmental agreement. In the U.S. cutting emissions by 27% from 2005 levels is going to mean significant pain for the consumer and for manufacturers. Your utility bill is going to triple or quadruple as companies are forced to install wind, solar or natural gas to replace coal fired plants. I am in favor of reducing emissions but not at any expense. Building new plants to be energy efficient and environmentally friendly is one thing but forcing the shut down or remodeling of every existing plant at enormous cost to the consumer is not a viable alternative. Secondly, why should the U.S. cut emissions 27% in just over ten years and China has 15 years just to stop increasing emissions? There are 620 coal fired plants in China and they build ten new coal fired plants every month with more than 570 currently in planning or construction stages. There are just over 2,300 coal fired power plants worldwide and China has 25% and they consume 50% of global coal production. I think the deal stinks and American consumers are going to be paying the bill for a very long time.

In 2010 VP Joe Biden proclaimed the U.S. military would be out of Afghanistan by the end of 2014 come "hell or high water." Apparently the administration has decided it does not want another Iraq because the president signed an order last week extending the mission there at least through 2015. Also, it authorizes a more expansive mission with troops authorized to attack the Taliban as well as Al Qaeda and their offshoots. This also authorizes American fighter jets, bombers and drones to support Afghan troops on combat missions.

In May President Obama proclaimed in a Rose Garden speech that American would not have a combat presence in Afghanistan after 2014. The 9,800 troops remaining in country would be limited to training Afghan forces. Apparently that proclamation has evolved in order to avoid a repeat of Iraq. It was interesting that the president announced this just two weeks after the election despite the decision being made in "recent weeks" as the announcement stated. Clearly political forces were in play. Announcing before the election may have cost the democrats even more seats just as announcing the executive order on immigration would have prompted an even bigger election landslide against democrats since exit polls showed 74% of voters were against amnesty. More than 20 times in recent years the president has said in his speeches he did not have the authority to make the immigration changes by executive order. Immediately after the election he suddenly decided he had the authority. Coincidence, right?

In the Ukraine the Russian army has gone on the offensive launching 78 artillery attacks on Ukrainian positions and multiple mortar attacks on Ukrainian villages this weekend. VP Biden was visiting Ukraine this weekend and condemned the Russian attacks. Russian foreign minister Sergei Lavrov again denied they were in the Ukraine or were helping the rebels. Apparently as long as you deny something it is not true.

Google (GOOGL) has been targeted by the EU for what they consider anti-competitive behavior. They are considering an action to split up companies that focus on web search. The EU is considering forcing an "unbundling" of search engines from other "commercial services" in order to aid Europe's digital industry. Google has a 90% market share in many European countries. The EU is considering a "copyright levy" against companies with excessive market share. Lawmakers are demanding the EU antitrust regulators act "immediately and unequivocally" to prevent Google from discriminating against its rivals. They want the search engines to display searches that are best for the user not best for Google. In other words paid search results would no longer be allowed.

It was not a good week for the Affordable Care Act otherwise known as Obamacare. Back in May regulators said there were 8.1 million people enrolled in the program. In September the revised number was 7.3 million. Last week the number dropped again to 6.7 million. Part of the initial decline was 1.1 million people enrolled into dental plans that were counted by mistake as Obamacare enrollees. Basically they were double counted. Last week another 400,000 people in dental plans were discovered and removed from the rolls leaving 6.7 million supposedly enrolled in the program. This is in comparison to the administrations claims that 50.7 million people would have access to high quality medical care when the program was inaugurated.

HHS secretary Sylvia Burwell also disclosed that more than a million enrollees dropped out during the year and either quit paying or defaulted on payments.

OK, so Obamacare actually had 6.7 million enrollees at the end of October according to HHS. However, another study found that 71% of the people enrolled in Obamacare were actually pushed into Medicaid instead of a paid healthcare program. Actually the number was 6.07 million and that 71% number was using the September claimed total enrollment of 8.5 million. So, if 6.07 million are in Medicaid and the new total enrolled is 6.7 million does that mean only 630,000 people are actually enrolled in Obamacare?

Those numbers are so bizarre that I seriously doubt their accuracy. It would be easier if HHS would just disclose the numbers on their website but if the above math is accurate it is obvious why they don't disclose them. The political outrage would be off the scale. Lastly approximately 81% of the enrollees are receiving subsidies according to the latest study. That makes the numbers even more disastrous. With only 19% of enrollees paying the full cost and supporting the other 81% the numbers will not work long term. Once the employer mandate kicks in next year the numbers should improve because people with jobs are going to be paying premiums rather than receiving subsidies.

Remember, the Supreme Court agreed to rule on the validity of subsidies for the 34 states that did not create their own exchanges. The law specifically spells out that those states are not allowed to offer subsidies and plan architect Jonathan Gruber has been shown on videos explaining why they designed the law that way. It would be very difficult for the Supreme Court to rule in any way except against the subsidies. That decision could end Obamacare as we know it and the decision should be out late next summer.

Oops! Federal investigators announced this weekend that as many as 30,000 missing Lois Lerner emails have been found. Lerner headed the committee that targeted conservative groups applying for tax classifications from the IRS. When the earlier investigation heated up the IRS waited over a year to disclose that Lerner's hard drive as well as the drives of 8 of her subordinates, also under investigation, had crashed and been destroyed. No emails were available and Lerner refused to testify under oath. If the Feds really found 30,000 Lerner emails I bet she is really nervous this weekend.

In April an unarmed Russian SU-24 tactical bomber flew over the USS Donald Cook in the Black Sea and using an electronic warfare weapon disabled the entire ship. This is important because the Donald Cook is an Aegis equipped guided missile destroyer. The Aegis weapons system is the most integrated and advanced combat weapons system the U.S. has available.

The ship carries 56 Tomahawk missiles in standard mode and 96 in attack mode and can launch nuclear missiles. It also has more than 50 antiaircraft missiles. The Aegis weapons system can link to all the other ships in the area to enable tracking of hundreds of targets in real time. It is also installed on NATO's most modern ships.

The SU-24 had only an electronic warfare pod and no bombs or missiles. The electronic warfare device is called a Khibiny. The device disabled all radars, control circuits, computer systems, information transmission systems, etc. After the first pass that disabled all fire control the plane circled around and made a simulated missile attack on the destroyer, not once but 12 times before flying away. The Donald Cook immediately headed for a port in Romania for repairs. Reportedly 27 sailors on the Donald Cook requested to be relieved from active duty service. This is very disconcerting that the best electronic warfare capability we have was eliminated so easily. It is even more of a problem with Putin ramping up military challenges all around Europe. NATO has scrambled fighters to intercept Russian plane more than 400 times this year. That is three times more than in 2013. AEGIS fails in the Black Sea

Russian Foreign Minister Lavrov accused the West on Saturday of trying to use sanctions imposed against Moscow to seek "regime change" in Russia. The war of words between Russia and the West is definitely increasing as the economic hardship of the sanctions and the drop in oil prices weighs on Russia. Regime Change

Late Saturday the Jerusalem Post claims Israel is considering military action against Iran if the current P5+1 negotiations with Iran end in an agreement that allows Iran to continue nuclear research. Reportedly Israel has seen the rough draft agreement being proposed and it is unacceptable to Israel. Iran has said if they had a nuclear weapon their first target would be Israel. The draft agreement would restrict Iran's nuclear program for ten years but would only cap its ability to weaponize fissile material for a minimum of nine months.

Who should be the TIME Person of the Year? Would you believe the Ferguson protestors are in third place in the polls with 4.7% of the vote? That is right behind Vladimir Putin in 2nd place with 6.5% of the vote. John Kerry is in 7th place with 2.9% and Barack Obama is in 12th place with 2.1%. The CEO of Apple, Tim Cook is 18th with 1.8%. Leading the list by a wide margin is Narenda Modi, the Prime Minster of India, at 14.1%. See the rest of the list HERE.

Only 4 shopping days until Thanksgiving and 32 shopping days until Christmas.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"People somehow think you must buy at the bottom and sell at the top. That is nonsense. The idea is to buy when the probability is greatest that the market is going to advance."

Martin Zweig


New Plays

Serious Outperformance

by James Brown

Click here to email James Brown


Micron Technology - MU - close: 34.30 change: +1.09

Stop Loss: 32.45
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on November -- at $---.--
Listed on November 22, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 24.8 million
New Positions: Yes, see below

Company Description

Why We Like It:
MU is in the technology sector. The company is part of the semiconductor industry. They make memory chips. According to a company press release, "Micron Technology, Inc., is a global leader in advanced semiconductor systems. Micron's broad portfolio of high-performance memory technologies—including DRAM, NAND and NOR Flash—is the basis for solid state drives, modules, multichip packages and other system solutions. Backed by more than 35 years of technology leadership, Micron's memory solutions enable the world's most innovative computing, consumer, enterprise storage, networking, mobile, embedded and automotive applications."

The semiconductor space has been a strong performer this year with the SOX semiconductor index up +23.9% in 2014. That outperforms the NASDAQ's +12.8% and the S&P 500's +11.6% gain. MU is beating all of them with a +57.7% rally in 2014.

The company has been beating Wall Street's earnings and revenue estimates all year long. Their most recent report was MU's Q4 results that came out in September. Analysts expected a profit of $0.81 on revenues of $4.15 billion. MU delivered $0.82 as revenues soared +48.7% to $4.23 billion.

Management then raised their Q1 revenue guidance into the $4.45-4.70 billion range, which was above analysts' estimates. They also announced at $1 billion stock buy back program. Following its results and the buy back news the stock has seen several price target upgrades. Many brokers have price targets in the low to mid $40s. One firm has a $60 target.

Technically shares have been stuck under resistance in the $34.85 area since July. A rally past $35.00 would create a new buy signal on MU's point & figure chart. Tonight I am suggesting a trigger to open bullish positions at $35.10.

Trigger @ $35.10

- Suggested Positions -

Buy MU stock @ $35.10

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

Buy the 2015 Jan $35 call (MU150117C35) current ask $1.65

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

Annotated Chart:

Weekly Chart:

In Play Updates and Reviews

Stocks Rise On Central Bank News

by James Brown

Click here to email James Brown

Editor's Note:
More central bank action helped fuel market gains on Friday. Unfortunately most equities faded from their Friday morning highs.

STX and TTWO were both triggered on the market's Friday morning surge.

NUS has been removed.

Current Portfolio:

BULLISH Play Updates

Ambarella, Inc. - AMBA - close: 49.63 change: -0.97

Stop Loss: 47.35
Target(s): To Be Determined
Current Option Gain/Loss: + 6.7%
Entry on November 07 at $46.50
Listed on November 06, 2014
Time Frame: Exit PRIOR to earnings on December 4th
Average Daily Volume = 1.6 million
New Positions: see below

11/22/14: AMBA has extended its gains to six up weeks in a row. It is worth noting that last week was kind of choppy for the stock. The volatility might indicate a potential top. I'm not suggesting new positions.

Thursday's intraday low was $47.50. We will raise our stop loss to $47.35.

Note: AMBA has earnings coming up on December 4th. We will likely exit prior to the announcement.

Earlier Comments: November 6, 2014:
AMBA is in the technology sector. They're considered part of the semiconductor and semiconductor equipment makers. The company was founded in 2004 and went public in October 2012 at $6.00 a share. That price was significantly below where AMBA was expected to price in the $9-11 range. Investor sentiment has definitely changed since then.

The company has grown from making broadcast-class encoders to making consumer and sports cameras, security cameras, and now automotive cameras. Their high-definition chips are being integrated into security IP cameras and wearable cameras. AMBA is also capturing part of a new market - cameras on consumer-level remote control drones.

The last two plus years have seen a strong performance in AMBA with the stock up more than +600% from its IPO price. AMBA has GoPro, Inc. (GPRO) to thank for part of that rally. GPRO came to market in June this year and the stock has been in rally mode since mid August with a rally in GPRO from less than $40 to $90 a share. I mention GPRO because AMBA happens to make the HD camera sensors in many of GPRO's products. As GPRO rallies it could be giving AMBA a boost and GPRO expects record sales this holiday season. I find it interesting that GPRO has been chopping sideways the last few weeks while AMBA has hit new highs.

Another note on GPRO, the company reported earnings on October 30th and beat estimates on both the top and bottom line. GPRO management then raised their earnings guidance significantly above Wall Street's estimates. That should spell good news for AMBA's business with GPRO.

GPRO isn't the only one with strong earnings. AMBA's rally has been helped by consistent earnings growth. The company has beat Wall Street's estimates on both the top and bottom line for the last four quarters in a row. Their most recent earnings report in September saw AMBA's management raise their revenue guidance.

Shorts are getting killed. As the rally continues AMBA could see more short covering. The most recent data listed short interest at 26.7% of the small 28.0 million share float.

Currently AMBA is bouncing from the $44.00 level after a two-day pullback. If this rebound continues we want to hop on board. The company will likely report earnings in early December so our time frame is the next four to six weeks.

- Suggested Positions -

Long AMBA stock @ $46.50

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

Long DEC $50 call (AMBA141220C50) entry $2.15

11/22/14 new stop @ 47.35
11/13/14 Warning! Today's move is a potential bearish reversal
11/12/14 new stop @ 46.75
11/07/14 triggered @ $46.50
Option Format: symbol-year-month-day-call-strike


Columbia Sportswear Co. - COLM - close: 43.31 change: +0.00

Stop Loss: 41.45
Target(s): To Be Determined
Current Option Gain/Loss: + 7.6%
Entry on November 06 at $40.25
Listed on November 04, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 138 thousand
New Positions: see below

11/22/14: The market's bullish open on Friday helped COLM trade to a new multi-month high. The rally didn't last and shares faded. COLM ended Friday unchanged for the session. It was a big week for COLM thanks to the strong rally on Wednesday. Shares are now up five weeks in a row.

This stock does have potential resistance in the $44-45 zone so investors may want to consider just taking profits now.

I am not suggesting new positions.

Earlier Comments: November 5, 2014:
COLM has been consistently beating earnings expectations all year long. The company is part of the consumer goods sector.

According to a company press release, "Columbia Sportswear Company is a leader in the global outdoor and active lifestyle apparel, footwear, accessories and equipment industry. Founded in 1938 in Portland, Oregon, the company has assembled a portfolio of global brands whose products are sold in approximately 100 countries. In addition to the Columbia brand, Columbia Sportswear Company also owns the Mountain Hardwear, Sorel, prAna, Montrail and OutDry brands."

The trend of earnings in 2014 has been strong with COLM beating Wall Street's earnings estimates four quarters in a row and raising guidance three out of four quarters. Their most recent earnings report was October 30th. Analysts were looking for a profit of $0.87 per share on revenues of $632.29 million. COLM delivered earnings growth of +20% to $0.93 a share. Revenues soared +29% to $675.3 million.

Management then raised their full year 2014 earnings and revenue guidance above analysts' estimates. COLM expects 2014 sales to hit $2.06 billion, which is +22% improvement above 2013. They also expect gross margins to rise 130 basis points from a year ago. COLM is guiding 2014 net income to rise +35% to $1.80 per share.

COLM's president and chief executive office, Tim Boyle, said they expect 2015 net sales to grow at a double-digit rate above their new 2014 estimate of $2.06 billion. They plan to hit mid-teen operating margins.

COLM appears to have strong sales momentum as we head into the crucial holiday shopping season. Retail analysts are expecting industry wide sales to be above average this year. Low gasoline prices provide a great tailwind for all the consumer goods companies.

Technically shares of COLM found support near $34-35 dating back to their prior highs (see the long-term chart below). The rebound has accelerated thanks to the company's earnings report and bullish guidance. Now COLMN is breaking out past resistance at $40.00 and its simple 200-dma. We are suggesting a trigger to open bullish positions at $40.25.

- Suggested Positions -

Long COLM stock @ $40.25

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

Long 2015 Jan $40 call (COLM150117C40) entry $1.75

11/19/14 new stop @ 41.45, readers may want to take some money off the table right here.
11/12/14 new stop @ 39.25
11/06/14 triggered @ $40.25
Option Format: symbol-year-month-day-call-strike


CSX Corp. - CSX - close: 37.56 change: +0.27

Stop Loss: 36.25
Target(s): To Be Determined
Current Option Gain/Loss: +1.2%
Entry on November 20 at $37.10
Listed on November 19, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 7.2 million
New Positions: see below

11/22/14: The market's Friday morning rally helped CSX gap open. Unlikely a lot of stocks on Friday CSX managed to maintain most of its gains and closed up +0.7%. The company reaffirmed its Q4 and 2015 guidance on Friday.

The breakout past resistance near $37.00 is bullish but traders may want to wait for a dip before initiating positions. Look for $37 to act as new support.

Earlier Comments: November 19, 2014:
CSX is in the services sector. They run a railroad and intermodal transport business that covers much of the U.S. and Canada. According to the company website, "CSX Corporation, together with its subsidiaries based in Jacksonville, Fla., is one of the nation's leading transportation suppliers. The company's rail and intermodal businesses provide rail-based transportation services including traditional rail service and the transport of intermodal containers and trailers.

Overall, the CSX Transportation network encompasses about 21,000 route miles of track in 23 states, the District of Columbia and the Canadian provinces of Ontario and Quebec. Our transportation network serves some of the largest population centers in the nation. Nearly two-thirds of Americans live within CSX's service territory.

CSX serves major markets in the eastern United States and has access to over 70 ocean, river and lake port terminals along the Atlantic and Gulf Coasts, the Mississippi River, the Great Lakes and the St. Lawrence Seaway. The company also has access to Pacific ports through alliances with western railroads."

The railroad stocks have been showing relative strength as the broader U.S. economy slowly improves. Weekly average carloads have hit levels not seen in years. CSX's most recent earnings report was October 14th and it was a record breaker with record revenue, operating income, net earnings and EPS.

Wall Street was expecting a profit of $0.48 per share on revenues of $3.18 billion. CSX reported $0.51 a share, which is a +13% increase from $0.45 a year ago. Revenues were up +7.9% to $3.22 billion. Management said that "This performance was supported by volume increases of 7 percent, with broad-based growth across nearly all markets CSX serves." It was CSX's third earnings beat in a row.

CSX's Executive Vice President of Sales and Marketing and Chief Commercial Officer, Mr. Clarence Gooden, said, "The underlying macro-economy remains strong and the data and our experience suggest a positive outlook for growth." CSX is expecting steady growth in the fourth quarter and they see growth improving to double-digit earnings growth and margin strength in 2015.

When asked about the drop in oil prices CSX does not think the drop in oil will impact their business. CSX management said they have already signed more than 50% of their 2015 contracts. There has been some speculation that coal could impact the rail business but CSX believes domestic coal volumes will remain strong as utilities continue to rebuild their inventories.

Investors might like to know that CSX saw some big gains in October over M&A speculation. Evidently Canadian Pacific (CP) had approached CSX about a merger but CSX rejected the offer. That has revived the idea that the railroad industry could see more M&A.

Shares of CSX have spent the last few days consolidating sideways in the $36.40-37.00 zone. A breakout could be a new entry point. I'm suggesting a trigger to open bullish positions at $37.10.

- Suggested Positions -

Long CSX stock @ $37.10

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

Long 2015 Jan $37 call (CSX150117c37) entry $1.30

11/20/14 triggered @ 37.10
Option Format: symbol-year-month-day-call-strike


Barracuda Networks - CUDA - close: 35.28 change: -0.23

Stop Loss: 33.65
Target(s): To Be Determined
Current Option Gain/Loss: - 1.0%
Entry on November 18 at $35.65
Listed on November 12, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 247 thousand
New Positions: see below

11/22/14: CUDA has been struggling with new resistance near $36.00 the last few days. Shares reversed at $36.09 on Friday and dipped toward short-term support at its rising 10-dma. The stock should bounce here but traders may want to see a new relative high before initiating bullish positions.

Tonight I am moving the stop loss to $33.65.

Earlier Comments: November 15, 2014:
CUDA is part of the technology sector. This is a small cap company in the cloud computing space. According to the website, "Barracuda provides cloud-connected security and storage solutions that simplify IT. These powerful, easy-to-use and affordable solutions are trusted by more than 150,000 organizations worldwide and are delivered in appliance, virtual appliance, cloud and hybrid deployments. Barracuda's customer-centric business model focuses on delivering high-value, subscription-based IT solutions that provide end-to-end network and data security."

CUDA has only been a public company for little more than a year. Lately they have been on a roll with their earnings reports. CUDA has beaten Wall Street's estimates on both the top and bottom line four quarters in a row. The last two reports also included bullish guidance.

CUDA's most recent report was October 9th when they reported their Q2 results. Analysts were expecting a profit of $0.04 a share on revenues of $66.7 million. CUDA delivered a big beat with a profit of $0.8 on revenue growth of +18.9% to $68.7 million.

Management said their active subscribers grew +18% and their renewal rate was 96.5%. Their Next Generation Firewall solutions saw sales up +50% in the quarter. CUDA said sales were up across all geographically regions. Plus their gross margins were strong with an improvement to 81.7%. That's above the prior quarter's 80.4% and the year ago period 79.8%.

CUDA's guidance was bullish. Their Q3 estimates are for revenues in the $69-70 million range versus Wall Street's $69 million estimate. They expect a profit in the $0.04-0.05 zone compared to estimates of only $0.03. They raised their 2015 revenue guidance above their prior estimates but this was slightly below Wall Street's estimate. They also raised their 2015 earnings growth into the $0.22-0.24 range compared to analysts' consensus estimates of only $0.17.

Technically the stock has been soaring from its double bottom in the $24.00 area. The point & figure chart is bullish and forecasting a long-term target of $56.00. Right now CUDA is testing resistance in the $35.00 area. A breakout here could spark some short covering. The most recent data listed short interest at 9.7% of the very, very small 9.9 million share float.

We are suggesting a trigger to open bullish positions at $35.65.

- Suggested Positions -

Long CUDA stock @ $35.65

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

Long 2015 Jan $35 call (CUDA150117c35) entry $3.15

11/22/14 new stop @ 33.65
11/18/14 triggered @ $35.65
Option Format: symbol-year-month-day-call-strike


Cynosure, Inc. - CYNO - close: 27.31 change: -0.02

Stop Loss: 25.90
Target(s): To Be Determined
Current Option Gain/Loss: +4.0%
Entry on November 12 at $26.25
Listed on November 11, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 201 thousand
New Positions: see below

11/22/14: It was another volatile week for CYNO. Thankfully shares bounced twice from new support near $26.00, which was prior resistance. The stock closed virtually unchanged on Friday, which doesn't tell us much.

I would hesitate to launch new positions at this time. The $28.00 level remains short-term overhead resistance.

Earlier Comments: November 11, 2014:
CYNO is in the healthcare sector. The company is part of the medical equipment industry. According to a company press release, "Cynosure designs, manufactures and markets medical devices for aesthetic procedures and precision surgical applications worldwide that enable plastic surgeons, dermatologists and other medical practitioners to perform non-invasive and minimally invasive procedures to remove hair, treat vascular and benign pigmented lesions, remove multi-colored tattoos, revitalize the skin, liquefy and remove unwanted fat through laser lipolysis, reduce cellulite, clear nails infected by toe fungus and ablate sweat glands."

Their flagship product is the PicoSure laser workstation, designed to remove tattoos. This laser technology produces ultra-short bursts of energy to the skin in trillionths of a second. The company recently gained FDA approval to use their PicoSure system to treat acne scars and wrinkles.

CYNO's earnings results have been mixed. Their Q1 report back in May missed estimates by four cents even though revenues were up +52% from a year ago. The stock sold off on this report. They followed that with a Q2 report in July that beat estimates as revenues soared +45% from a year ago. Growth slowed a bit in their latest report in October.

Analysts were expecting 25 cents a share on revenues of $70 million. CYNO met expectations on the bottom line while the top line grew +18% to $71.5 million.

CYNO's Chairman and CEO Michael Davin commented on the quarter saying, "Cynosure delivered record third-quarter revenue of $71.5 million, up 18 percent year-over-year as revenue in each of our direct sales channels improved from the same period in 2013. North American laser revenue increased 17 percent, revenue from our Asia Pacific subsidiaries rose 46 percent, while our European direct sales channel was up 7 percent. Product and technology innovation, expanded indications and new international marketing clearances continue to drive favorable results for the Company."

Discussing his company's outlook Davin said, "We are on schedule to launch our next flagship platform in 2015 for non-invasive fat removal, and we believe this large addressable market represents a significant growth opportunity for the Company."

Technically shares have broken out from a six-month consolidation in the $19-24 range. The rally following its October earnings report lifted CYNO above key resistance at $24.00 and its 200-dma. Shares have already retested this level as support and now the stock is breaking out to multi-month highs. The point & figure chart is bullish with a $31.50 target.

Tonight I am suggesting small bullish positions if CYNO can trade at $26.25. We want to keep our position size small to limit our risk.

*small positions* - Suggested Positions -

Long CYNO stock @ $26.25

11/19/14 new stop @ 25.90
11/18/14 caution: potential bearish reversal today
11/15/14 new stop @ $25.35
11/12/14 triggered @ 26.25


Electronic Arts - EA - close: 43.50 change: +0.35

Stop Loss: 40.85
Target(s): To Be Determined
Current Option Gain/Loss: + 4.2%
Entry on November 17 at $41.75
Listed on November 12, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 3.7 million
New Positions: see below

11/22/14: It was an encouraging week for EA bulls. The stock managed to ignore a very disappointing earnings report form GameStop (GME), a video game retailer. Instead shares of EA have continued to climb and hitting multi-year highs. Tonight we will move the stop loss to $40.85.

I do want to caution traders that EA is nearing potential resistance at a trend line of higher highs.

I am not suggesting new positions at this time.

Earlier Comments: November 13, 2014:
EA is considered part of the technology sector. More broadly they are part of the entertainment industry. Previously EA was the biggest video game company on the planet but when Activision merged with Blizzard they stole the top spot. It remains a fight. EA has annual revenues of $4.1 billion while AVTI has annual revenues around $4.35 billion.

According to a company press release, "Electronic Arts (EA) is a global leader in digital interactive entertainment. The Company delivers games, content and online services for Internet-connected consoles, personal computers, mobile phones and tablets. EA has more than 300 million registered players around the world. Headquartered in Redwood City, California, EA is recognized for a portfolio of critically acclaimed, high-quality blockbuster brands such as The Sims, Madden NFL, EA SPORTS, FIFA, Battlefield, Dragon Age, and Plants vs. Zombies."

Video games are big business. Microsoft (MSFT) has sold more than 83 million Xbox 360s. Rival Sony (SNE) has sold more than 80 million PlayStation 3s. Meanwhile, another company, Steam, is the biggest online retailer for downloadable PC games and has over 75 million users. Back in 2012 the global video game market was $78 billion. That grew to $93 billion in 2013. Research firm Gartner estimates that global video game sales (all formats) could hit $111 billion by 2015. In comparison the global movie box office is only about $38 billion in 2014.

EA continues to fight for market share and dominance in the gaming industry and they've seen success in 2014. The company has beaten Wall Street's earnings estimates on both the top and bottom line three quarters in a row. Their most recent quarterly report was October 28th. Analysts were expecting a profit of $0.53 a share on revenues of $1.16 billion. EA blew those numbers away with a profit of $0.73 and revenues up +17% to $1.22 billion. Gross margins surged thanks to rising digital sales. Mobile sales were also up strongly and in-game purchases soared.

EA offered bullish guidance for both their December quarter (EA's Q3) and their fiscal year 2015. The company raised their Q3 guidance to $0.90, which was above analysts' estimates. They also raised their 2015 guidance to $2.05, which is above Wall Street's estimate.

The stock reacted by soaring to new highs in late October. Since then shares of EA have been consolidating sideways in the $40-41 zone. It looks like that consolidation could be over with EA breaking out to new highs today. The Point & Figure chart is bullish and forecasting a long-term target of $60.00.

Analysts are expecting a strong holiday shopping season this year. The big drop in oil and thus gasoline prices is giving consumers a little extra spending money. The National Retail Federation is forecasting sales growth of +4.1% versus the normal 10-year average of +2.9%. That's a very broad retail outlook. It could be even stronger for video games this year.

Tonight we are suggesting a trigger to open bullish positions at $41.75.

- Suggested Positions -

Long EA stock @ $41.75

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

Long 2015 Jan $45 call (EA150117c45) entry $0.71

11/22/14 new stop @ 40.85
11/20/14 Caution. EA could be volatile tomorrow in reaction to GME's earnings report
11/17/14 triggered @ 41.75
Option Format: symbol-year-month-day-call-strike


International Paper Co. - IP - close: 53.62 change: -0.12

Stop Loss: 52.85
Target(s): To Be Determined
Current Option Gain/Loss: +0.6%
Entry on November 10 at $53.30
Listed on November 08, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 3.8 million
New Positions: see below

11/22/14: I am urging caution on our IP trade. After a five-week surge higher the stock is finally seeing some profit taking. The last few days have seen IP retreat from $55.00 and breakdown under its 10-dma. Friday's action only reaffirmed the pullback with a display of relative weakness. Odds are good we could see IP test $53.00 soon. If it falls any lower it will hit our stop at $52.85.

I'm not suggesting new positions at this time.

Earlier Comments: November 8, 2014:
IP is part of the consumer goods sector. According to a company press release "International Paper (IP) is a global leader in packaging and paper with manufacturing operations in North America, Europe, Latin America, Russia, Asia and North Africa. Its businesses include industrial and consumer packaging and uncoated papers. Headquartered in Memphis, Tenn., the company employs approximately 65,000 people and is strategically located in more than 24 countries serving customers worldwide. International Paper net sales for 2013 were $29 billion (which included our now divested xpedx business)."

The company has been facing a lot of headwinds this year but they still managed to beat Wall Street's earnings estimates three quarters in a row. Their most recent earnings report was November 4th. Analysts were expecting a profit of $0.89 per share on revenues of $6.0 billion. IP reported a profit of $0.95 with revenues beating estimates at $6.05 billion.

The company saw significant improvements in its operating profits in all three categories: industrial packaging, printing papers, and consumer packaging. Management expects a surge in packaging orders in the fourth quarter.

Wall Street loves the company's focus on delivering value to shareholders. IP is almost done with their $1.5 billion stock buyback program they announced in September 2013. They also raised their dividend 14% from $1.40 to $1.60. This is IP's third consecutive fourth quarter double-digit dividend increase. The stock now sports a 3.0% yield.

IP's CEO said they were looking seriously at converting part of their business into a master-limited partnership (MLP). This would be another shareholder friendly step as MLPs do not pay federal tax if the return most of their cash to shareholders.

The stock's current rally has produced a buy signal on the point & figure chart with a long-term target at $70.00. This last week has seen shares of IP break out to new multi-year highs. It is also on the verge of breaking out from a major channeling pattern on its weekly chart (see below).

Tonight we are suggesting a trigger to open bullish positions at $53.30.

- Suggested Positions -

Long IP stock @ $53.30

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

Long 2015 Jan $55 call (IP150117c55) entry $1.21

11/20/14 new stop @ 52.85
11/12/14 new stop @ 52.35
11/10/14 triggered @ 53.30
Option Format: symbol-year-month-day-call-strike


Seagate Technology - STX - close: 64.94 change: -0.60

Stop Loss: 62.45
Target(s): To Be Determined
Current Option Gain/Loss: -2.4%
Entry on November 21 at $66.52
Listed on November 20, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.7 million
New Positions: see below

11/22/14: We were hoping to launch bullish positions on STX at $65.75. Unfortunately the stock market's surge higher on Friday morning produced a gap open in STX. Shares opened at $66.52, affecting our entry price.

Traders were buying the dip in STX on Friday afternoon in the $64.80 area. A new rally on Monday, above $65.25 or maybe $65.60, could be used to launch new positions.

Earlier Comments: November 20, 2014:
STX is in the technology sector. The company makes hard disk drives, solid-state drives, and additional computer memory and storage systems.

STX's main rival is Western Digital (WDC). The two have something of a duopoly on the global hard drive and storage business. STX has suffered a bit of a public relations problem when a study came out earlier this year that showed WDC's hard drives had a longer (average) life span than STX drives. The news has helped WDC steal some market share from STX but both companies are still seeing strong growth.

Back in July STX announced their Q4 results and guided higher for their Q1 (calendar Q3). The company's Q1 numbers were better than expected and above their July guidance thanks to big demand for their PC, gaming, and cloud storage products. Management noted they are definitely seeing better than expected momentum in their cloud-computing systems.

STX's most recent earnings report was October 27th. Wall Street expected a profit of $1.24 a share on revenues of $3.6 billion. STX beat both estimates with a profit f $1.34 a share and revenues of $3.79 billion. The EPS number was up +22% from the prior quarter and up +4% from a year ago. Revenues were up +8.5% from a year ago and up +15% against the prior quarter.

Management said they have confidence in their future cash flow generation which is why they raised their quarterly dividend from $0.42 to $0.54. STX's guidance for the current quarter is $3.7 billion in revenues, which is above Wall Street's estimate.

Technically shares have recovered from a brief November pullback and now the stock is hitting all-time highs. The point & figure chart is bullish and forecasting a long-term $94 target.

Today's breakout past resistance at $65.00 looks like a bullish entry point. I'd like to see just a little bit more confirmation. Tonight we are suggesting a trigger to open bullish positions at $65.75.

- Suggested Positions -

Long STX stock @ $66.52

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

Long 2015 Jan $65 call (STX150117c65) entry $3.10

11/21/14 trade opened on gap higher at $66.52, suggested trigger was $65.75
Option Format: symbol-year-month-day-call-strike


Take-Two Interactive - TTWO - close: 26.89 change: -0.05

Stop Loss: 25.45
Target(s): To Be Determined
Current Option Gain/Loss: - 1.9%
Entry on November 21 at $27.42
Listed on November 18, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.6 million
New Positions: see below

11/22/14: We have a similar situation with TTWO. The plan was to open bullish positions at $27.30. The market's big move higher on Friday morning produced a gap open in TTWO. Shares opened at $27.42, triggering our play. The stock faded from its morning highs as did most of the market. At this time I would wait for a new rally above $27.30 before initiating bullish positions.

Earlier Comments: November 18, 2014:
TTWO is considered part of the technology sector. The company makes video games. They're probably best known for their Grand Theft Auto franchise, L.A. Noire, and Red Dead Redemption.

According to the corporate website, "Headquartered in New York City, Take-Two Interactive Software, Inc. is a leading developer, publisher and marketer of interactive entertainment for consumers around the globe. The Company develops and publishes products through its two wholly-owned labels Rockstar Games and 2K. Our products are designed for console systems and personal computers, including smartphones and tablets, and are delivered through physical retail, digital download, online platforms and cloud streaming services."

If you read the Electronic Arts (EA) trade in the Premier Investor newsletter than you already know how big the video game market is and how fast it's growing. Unfortunately the earnings cycle for most video game companies has a lot of peaks and valleys. TTWO's latest earnings report on October 29th is a good example.

The company's Q3 2013 quarter was strong thanks to their record-breaking launch of the Grand Theft Auto V game. One year later revenues plunged -89% to $134.5 million in Q3 2014. That was still above Wall Street's estimate of only $111 million. TTWO said they lost $0.44 a share, which was 15 cents better than analyst expectations.

TTWO management then issued mixed guidance but most of it was bullish. The company expects their current quarter to see a profit in the $1.34-1.45 range compared to Wall Street's estimates of $1.20. Yet TTWO guided revenues below consensus estimates.

They also raised their 2015 guidance and expect profits in the $1.05-1.30 range compared to prior guidance in the $0.80-1.05 zone. TTWO also raised their revenue guidance but was less than Wall Street expected.

TTWO's results and guidance was good enough to spark a big rally in the stock. Likely due to the high amount of short interest. The most recent data listed short interest in TTWO at almost 20% of the 73.8 million share float. The fact that TTWO has not seen any correction following its post-earnings rally probably has bears in a panic.

TTWO has spent the last two weeks consolidating its gains in a sideways manner. Now it's breaking out from this trading range and hitting new 2014 highs. This move could spark more short covering.

Today's high was $27.19. I am suggesting a trigger to open bullish positions at $27.30.

- Suggested Positions -

Long TTWO stock @ $27.42

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

Long 2015 Jan $28 call (TTWO150117C28) entry $1.05

11/21/14 triggered on gap higher at $27.42, suggested entry was $27.30
Option Format: symbol-year-month-day-call-strike


BEARISH Play Updates

None. We do not have any active bearish trades.


Nu Skin Enterprises - NUS - close: 41.16 change: +1.02

Stop Loss: 41.55
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on November -- at $---.--
Listed on November 17, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.78 million
New Positions: see below

11/22/14: NUS is clearly not cooperating. The stock has bounced higher four days in a row. Our trade has not opened yet. Tonight we're choosing to remove it as an active candidate.

Trade did not open.

11/22/14 removed from the newsletter, suggested entry was $37.90