Option Investor

Daily Newsletter, Saturday, 11/29/2014

Table of Contents

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

Market Wrap

OPEC Declares War

by Jim Brown

Click here to email Jim Brown

OPEC's failure to cut production was a declaration of war on the U.S. shale industry and the first salvo may have been a knockout punch.

Market Statistics

(Be sure to check the bottom of this commentary for a special offer.)

OPEC met in Vienna on Thursday and despite a lot of posturing they elected to keep the current 30.0 mbpd production target unchanged. They are already over producing that target with 30.9 mbpd last month. The official statement suggested they were comfortable letting oil prices seek their own level in an over produced market with slowing demand in Europe and Asia. They may regret this decision.

In reality Saudi Arabia and the GCC states of Kuwait, Qatar and the UAE would have been expected to bear the brunt of any announced cuts. The other 8 OPEC members led by Iran and Venezuela would never have honored any production cuts but they would have benefitted from cuts by the GCC states. Apparently OPEC has died as a price fixing cartel. It is every country for itself and Saudi Arabia is holding the winning hand. Saudi Arabia's cost to produce oil is under $10 a barrel. They currently produce over 9.0 mbpd and if they take off their current internal production limits they could conceivably produce another 2.0 mbpd within 6 months. They would still be making money on their oil and the extra 2.0 mbpd would offset the lower prices.

Meanwhile the other OPEC nations with costs of $30, $40 and even $60 a barrel will barely be breaking even with Brent at $70. Saudi Arabia has not only declared a price war on the other OPEC nations it has declared a war on the U.S. shale industry.

Many of the shale producers have costs in the $60-$70 range and they will not be able to continue their aggressive drilling programs without oil prices over $80 a barrel. Shale oil has a large percentage of super light condensate and it sells for a lower price than WTI. There is also the transportation factor from the shale fields to the refineries and with a shortage of pipelines a lot of the oil moves by rail. This transportation cost also lowers the price producers get for their oil. Typically Bakken crude sells for $7 to $10 under WTI prices and sometimes at even more of a discount.

The breakeven point on the Tuscaloosa-Marine Shale in Louisiana and Mississippi is $79.52 a barrel because the wells are 2 miles deep vertically before they turn horizontal. These wells cost more to drill. Bloomberg produced a chart of the highest cost U.S. shale areas, which produce about 413,000 bpd. Link to article I think it is safe to say there will be very little new production from those areas.

With WTI closing at $66 on Friday that means shale producers could be forced to sell their oil from $55 to $60 and at or below costs. While existing wells will continue producing those drillers will be hard pressed to fund many new wells. Lending covenants for many producers could be in trouble. We could see some forced sales and significant M&A activity along with a dramatic decline in active rigs. Without the solid cash flow produced by $85-$100 oil that drillers have seen for the last 3 years there are serious concerns that many drillers will not be able to pay their bills.

Energy companies are heavy borrowers in the debt market. Analysts claim energy companies are responsible for 15% to 20% of all the high yield debt in the market. If their cash flows dry up this debt is going to come back to haunt them along with the current holders of that debt.

The carnage in the energy sector was huge. The smaller drillers and service companies were decimated with declines in the -20% to -30% ranges. This hit the drillers, frackers, sand companies, rail car companies and even the railroads.

Sorted by percentage loss

The larger companies posted huge dollar declines with the percentage losses in the teens on average. Continental Resources (CLR) was especially hard hit because they closed their hedges for 2014 and 2015 a couple weeks ago thinking the worst was over and prices were going to return to $85-$90. Continental produces more than 10,500 bpd from the South Central Oklahoma Oil Province (SCOOP) and the breakeven rates for the region range from $79.28 to $186.73 per barrel. Sandridge (SD) pumps over 23,000 bpd from the Mississippian formation and the breakeven there is between $78.56 and $163.51 per barrel. The company has 1.85 million acres under lease.

Exxon (XOM) is not at the top of the losers list because they only declined -$4 and -4%. Conoco (COP) declined -$5 and -7% and Chevron (CVX) -$6 and 5%. They are diversified and their average cost per barrel is significantly less and they have plenty of cash to weather the storm.

Sorted by dollar loss

This oil war could easily have some seriously unintended consequences. For instance the U.S. dollar remains the chief reserve currency of the world mainly because of the money the U.S. spends on oil imports. These petrodollars go to oil producing countries around the world and they put those dollars to work buying goods from other countries including the USA. In 2006 this petrodollar outflow peaked at $511 billion a year. That is windfall cash for producers exporting to the USA. They recycled that cash and provided dollar liquidity though out Asia, Europe and South America.

According to BNP Paribas 2014 will be the first year of negative outflows in 18 years and much of that is due to the plunging price of oil. The BNP chart below shows the net outflows by region. Note that the purple (Middle East) share is declining rapidly and Latin America in orange has disappeared for 2015.

What this means is that instead of swimming in dollars as in the past the oil exporting nations have very little dollars flowing into their central banks. Their budgets were built on exporting oil to the U.S. and using those dollars for purchases elsewhere. Without the inflow of dollars they are forced to withdraw capital from the markets to pay their bills. Essentially they are being forced to eat their reserves. Oil exporters are being forced to pull liquidity out of the markets rather than using dollars as their purchase currency.

The sharp drop in oil prices plus the rapid expansion of U.S. production means significantly less revenue for oil exporters. Just like in every business or personal scenario less revenue in means less spending. This means U.S. exports of other goods like clothing, computers, etc, will slow. The rising U.S. dollar means other currencies are worth less. Not only are oil exporters faced with falling income denominated in dollars but their own currencies are declining in value.

BNP believes net capital outflows by energy exporters will decline -$253 billion in 2014. That is $253 billion less liquidity for the global markets. With oil prices imploding late in 2014 this means the 2015 numbers are going to be even worse. This will result in lower amounts of trade between countries around the world.

The falling oil prices will result in lower global GDP by -0.5% or more. Effectively all the oil producers just saw their income fall by nearly 40% compared to 2013. Lower income creates lower spending and lowers GDP. Oil and gas exporters account for 26% of total emerging market GDP and 21% of external bond demand.

The OPEC nations are playing a dangerous game here. As their income declines the amount of money available for social programs declines and the risk of social unrest increases. The difference between $90 oil and $70 oil could be the difference between a stable government and a collapse. Just look at Libya for an example of what could happen if these tightly controlled governments begin experiencing cash shortfalls.

The petrodollar is dying. The U.S. House is considering allowing oil exports and that will make it even worse. If we begin exporting oil it will further decrease our net dollars spent on exports. Since our oil exports will be priced in dollars it will require other countries to suck dollars out of their financial markets to pay for our oil. India, China, Russia and Brazil are already trading oil in currencies other than dollars. This is weakening the long term outlook for the dollar as the reserve currency. There are troubling times ahead as a result of the implosion in oil prices.

I wrote an article on OilSlick.com last week on why the U.S. should use oil as a weapon against Russia, Iran and Venezuela. I received quite a few positive comments on it. This drop in oil prices makes our oil production an even stronger weapon. Read it here

The crash in crude prices is going to create a dot.com type disaster in the energy sector. The companies with a strong business model and low debt will survive but the companies operating on highly leveraged debt to cash flow are going to disappear when their cash flow disappears. These crude prices are probably going to stay with us for the next six months at least because OPEC does not meet again until June. They could call an emergency meeting if the financial bleeding becomes too bad.

Meanwhile the U.S. consumer is going to reap a windfall gain in the decline of gasoline prices. The national average on Friday was $2.79 and the lowest for this period since 2009. Analysts believe it could decline to $2.55-$2.60 by Christmas.

There is a positive side to the OPEC decision. Dramatically lower oil prices rapidly increase demand and stimulates the global economy. This painful decline in oil prices could end up doing more to stimulate the global economy than Mario Draghi and Shinzo Abe combined. Goldman has said for every 25 cent drop in oil prices the daily demand for oil could increase +500,000 barrels. If gasoline prices to drop to $2.60 on average that could increase demand by well over 1.0 mbpd in 2015. We have already seen one restaurant chain beat on earnings because the lower gas prices boosted traffic on the interstates. Cracker Barrel (CBRL) beat on earnings and raised guidance because of higher traffic. Multiply that all across the world and it becomes a powerful economic stimulus.

Also, falling oil prices are going to dramatically impact inflation in the U.S. and keep the Federal Reserve on the sidelines for a lot longer than previously expected. Citigroup started the ball rolling by moving their estimate for the first rate cut to December 2015. Several other analysts have now moved their targets to early 2016. Analyst Richard Bove believes the Fed will not be able to raise rates until well into the future even if they wanted to. With the global economy slowing and U.S. inflation set to decline the Fed is trapped. If they raised rates the dollar would strengthen even further at a time with Europe, Japan and China are actually devaluing their currency.

Crude production in the U.S. was 9.077 mbpd last week and the highest since 1986. Production is still expected to increase over the next six months because of projects already underway. The money has been spent and the rigs contracted for several more months. The IEA expects U.S. production to rise to 9.4 mbpd for the full year. Gulf of Mexico production is expected to increase by 500,000 bpd over the next two years as several massive projects underway for the last several years finally begin to produce.

Friday's oil crash was not limited to oil. Natural gas prices declined -6% in sympathy even though a slowdown in shale drilling for oil would also generate less gas. This was a "dump anything energy related and ask questions later" day. First Solar (FSLR) fell -5%, SolarCity (SCTY) -3% and SunEdison (SUNE) -5%. Even Cameco (CCJ) a uranium miner declined -4%. Neither Cameco or those solar stocks have anything to do with oil. Cheaper oil will not impact the need for natural gas or uranium.

On the economic front there were no reports on Friday. All your government employees were out shopping on Black Friday.

The calendar for next week is full of important reports. The Week starts off with the ISM Manufacturing, which is a national report. After the volatility in some of the regional reports this will be of great interest. A fractional decline is expected.

The ISM Nonmanufacturing (services) report is out on Wednesday and analysts are expecting a fractional increase.

The big news for the week is the ADP Employment on Wednesday and the Nonfarm Payrolls on Friday. The ADP report is expected to show a minor increase of +5,000 jobs over the 230,000 new jobs reported for October. The Nonfarm Payroll report is expected to show an increase of just over 20,000 jobs from the 214,000 reported for October. That October report is expected to be revised higher.

The challenge here is that the weekly jobless claims have been rising for the last three weeks and posted a 12 week high at 313,000 last week. Rising jobless claims are an indicator of falling employment numbers. I would not be surprised to see the Nonfarm number fall below 200,000 new jobs despite the strong temporary hiring for the holidays.

More negative news out of Japan, China and India plus a drop in Eurozone inflation to 0.3% sent investors into treasuries once again. The yield on the ten-year fell to 2.19% and a six-week closing low.

There was very little stock news on Friday but there was plenty of stock movement. Airline stocks soared on the OPEC decision and the drop in crude prices. United Airlines (UAL) spiked +8% on the oil news with Delta (DAL) gaining +5%, Alaska Air (ALK) +5% and Southwest (LUV) +6%.

Even Carnival Corp (CCL) gained +5% on the oil drop. I have a hard time trying to decide why Carnival would be so dependent on oil prices but they do use a lot of fuel. I suppose they could get a minimal boost from consumers paying for cheaper gasoline but I have a hard time justifying a 5% boost in the stock price.

Retailers, led by Walmart (WMT), rallied on early reports that the malls were packed and shoppers were carrying bags of merchandise. Of course Walmart will also benefit from the lower gasoline prices for consumers and lower diesel prices for their fleet of 6,500 trucks that drive more than 700 million miles a year. Walmart shares rallied 3% on the drop in oil.

UPS (UPS) rallied +3% on the drop in oil prices even though they won't see much of the savings. They went to a fuel surcharge program several years ago so shipping prices fluctuate with the price of oil. Obviously it will benefit them because of their huge fleet of trucks and planes but shippers will benefit as well. UPS workers were out in force on Friday after UPS cancelled their normal Black Friday holiday they had enjoyed for years. I talked with my UPS driver when he delivered on Friday and he was not too upset. Like most guys he never rushed out on Black Friday to shop. Men would rather go to the dentist than stand in line and fight the crowds. He said having Black Friday off always meant they worked until long after dark on Monday to catch up with the packages that result from the pre Friday sales.

Here is another mystery. Constellation Brands (STZ), a distributor of beer, wine and spirits, surged 2% to a new high on Friday. I don't see any oil connection so I am assuming it was simply a dose of holiday cheer. Lower gasoline prices may leave consumers some left over cash for an extra bottle or wine but that is the only reason I could see for the rally.

Vodafone (VOD) said it was considering a deal to buy Liberty Global (LBTYA) to create Europe's largest phone, Internet and TV company worth more than $130 billion. Vodafone said it was analyzing the financial and regulatory hurdles as well as investor support for a share based transaction. The company said it also had concerns about the debt levels of the combined company. Shares of VOD rose +2.9% and LBTYA rose +7.4%.

Best Buy's (BBY) website crashed Friday morning for an extended period as an army of shoppers clicked in to see what specials they had available. The company said "A concentrated spike in mobile traffic triggered issues that led us to shut down BestBuy.com in order to take proactive measures to restore full performance,"

About 5:30 the site went down again with the company claiming "record levels of traffic" were affecting site performance. People taking to social media to complain also said it was briefly down late Wednesday night and again around 9:AM Thursday morning.

Best Buy quit releasing comments on the repeated outages and simply posted the message below.


U.S. markets posted a strong gain for the month with the Dow and Nasdaq finishing at new highs. The S&P suffered a -5 point decline that was purely related to the drop in energy stocks. The S&P closed at 2,067.56 with the 5-day average at 2,068.07 to end the consecutive day winning streak. The S&P had closed over that short term average for 29 consecutive days and the longest streak on record. The streak really has no relevance and is more of a fun fact to follow but it does give us an idea on the staying power of this rally.

The markets are very overbought but they just keep rising. The S&P has rebounded +11% since the October 15th low. The gains in November were lower with the Dow and S&P adding +2.5% with the Nasdaq adding +3.5%. Stronger than expected earnings and guidance along with positive expectations about Q4 retail sales and profits have stimulated investors. The upgrade in the Q3 GDP to 3.9% also helped. It is often reported that new highs tend to attract money from the sidelines faster than flies to a picnic.

Once the impact of the oil crash on energy stocks has passed the S&P should return to gains in the week ahead. There are 43 energy stocks in the S&P-500. Friday was month end and the next couple days should see some retirement money being put to work. However, early December is when tax selling begins. Whether we see that cycle or not is unclear after the nearly -10% drop in October. If managers were planning on taking tax losses in December on specific stocks the October dip could have accelerated that process.

The S&P has plenty of support levels just under the 2,067 close so it would take some concentrated selling to push it much below 2,050. At this point buyers would love to see a dip and every intraday dip continues to be bought.

The S&P is overbought with 84% of stocks trading over their 50-day averages. The 84% to 88% level has been a top for the last two years. However, December is the most bullish month in the year. Since 1950 the S&P has been up 48 times in December and down 15. The average gain was +1.7%. We can remain at this level for weeks given the historical trends and the bullish fundamentals. Eventually we are going to revisit lower levels but probably not until January.

Only 73.8% of the S&P stocks have a buy signal on the Point & figure charts. This gives us room for further upside gains with 85% the normal peak.

The Dow chart is still locked in a resistance battle at the 17,850 level with 17,800 current support. It was a miracle the oil crash did not knock the Dow for a big loss with the three biggest energy losers giving back $15 or the equivalent of -120 Dow points. Fortunately the retailers carried the day with Walmart, Home Depot, etc all packing on gains.

The Dow only added 18 points for the week but managed to close at a new high. That shows you just how tight the trading range was for the Dow. The chart below shows it perfectly with four spikes out of congestion that were immediately sold to knock it back to the 17,825 level.

The Transports should have been the big gainer but the morning spike to 9,310 was sold hard to leave the index with only a +2 point gain at 9,198 and -112 points off its highs. The selling came at the expense of the railroads, which have been transporting a lot of sand and oil and that could decline. CSX lost -4%, KSU -5%, NSC -5% and UNP -5%.

The Nasdaq big caps soared on Friday with a +20 point gain. This was by far the biggest index gain. The NDX came within 3 points of the uptrend resistance at 4,350. For the last three days Apple has stagnated and failed to push the index higher but I think that is about over. Apple closed today at $118.93 and only 7 cents below the historic high. Next week could see another surge begin.

The Nasdaq Composite traded over the round number resistance at 4,800 for most of the day but sellers appeared at the close to knock it back to 4,792 and -18 points off its high. It was still a new 14 year high and it is now only 5% below the historic high close of 5,048 set back in March 2000.

The Nasdaq has been pretty vertical since the 20th and should rest soon. It has added +150 points in only six trading days since the low on the 20th. Initial support should be around 4,755 followed by 4,700.

The Russell 2000 collapsed on Friday with a -17 point drop. The reason should be obvious since there are quite a few energy stocks that fall into the small cap category. While I don't think this is a trend change for the Russell I also don't think the selling is over. Investors that were at the malls on Friday are going to be setting at their computers at the open on Monday to dump those lousy energy stocks. Monday could be a capitulation day for energy equities.

The Russell fell back to interim support at 1,175 but we could easily test 1,150 on Monday. This is frustrating because Wednesday's gains pushed it over near term resistance and it was poised to target the old highs at 1,208.

Next week could be tricky. Monday and Tuesday should be positive unless the continued selling in the energy sector poisons the market. Month end retirement funds should be hitting the market to offset at least some of that energy selling.

The latter part of the week is facing the two big payroll reports and the beginning of tax selling season. Tax selling can take two forms. The first is when an investor sells underperforming stocks at a loss to offset the gains on assets that have outperformed. The second case is when an investor sells a position for a loss in order to offset gains elsewhere but then repurchases that same stock more than 30 days in the future. For instance an investor that has been holding Core Labs (CLB) in their portfolio since April. His basis is $200 and the stock closed Friday for $129. He still believes in the stock but he has gains in other stocks he wants to shelter. He sells the CLB position and takes the $71 loss to cover gains elsewhere. After 30 days passes he buys back the CLB shares to hold for the eventual recovery. There may be a lot of tax selling in energy stocks this year since the high for the year was in June. There are a lot of losses being carried in investor portfolios. I see this as an opportunity once the carnage is over. Oil will not stay low forever. The more production is knocked off line the faster prices will recover. Put some energy stocks on your shopping list for January.

According to the Stock Trader's Almanac 2015 should be a banner year. It is by far the best year of the 4-year cycle and especially in a second term president. Since 1939 the Dow has averaged a 16% gain, S&P +16.3% and the Nasdaq a +30.9% gain. Years ending in five have only had one down year in the last 13 decades. The average gain is 28.3% for the Dow, +25.3% for the S&P and +25.6% for the Nasdaq. For the current election cycle the current quarter and the first 2 quarters of next year average gains of 21% for the Dow and S&P and +34% for the Nasdaq. Finally, in the last 84 years there have only been 3 times where the markets were up double digits 3 years in a row. In each of those occurrences the 4th year was up an average gain of +23.1%. Let's all hope really hard that all those historical averages repeat in 2015.

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Random Thoughts

I hope you had a happy Thanksgiving and restrained yourself on the Black Friday shopping. A friend sent me this cartoon and I thought it was appropriate.

It is official. We kicked the Iranian can farther down the road. The administration's game plan appears to be "if we can't get a deal then postpone the deadline until we are out of office." After repeatedly claiming over the last six months that the deadline would not be extended and the sanctions would come back in full force on November 25th, the deadline was extended until July. The sanctions relief will remain in force until the next immovable deadline in July. Over the last six months since the sanctions were weakened in an effort to bring Iran to the negotiating table the country received between $4.6 to $11.0 billion in cash and non-oil imports that had been restricted under the sanctions. This program of relaxed sanctions will remain in place until July and they will receive another $5-$11 billion in cash and allowed imports. For a country that refuses to negotiate they are doing really well.

Not only are they profiting from the delays but the officials continue to be belligerent about the chances for a deal and warn that Israel's security is declining as each day passes.

The problem with getting an agreement last week boiled down to three things. Iran did not want to give up even a little on the uranium enrichment front and they still don't want to let inspectors into their nuclear research facilities. The third thing was a complete objection to any of the terms of the proposed deal by all of the Western allies. All the countries in the Persian Gulf objected. Saudi Arabia objected strenuously saying it was a bad deal. Israel objected vigorously and repeatedly. The other five western nations in the negotiations objected. Apparently the only person arguing for a deal was Secretary Kerry. The president is so anxious to get any win on a foreign policy initiative they were willing to give up almost anything. The final draft was so watered down Iran only had to agree to a 12 month window on enrichment. The draft deal supposedly prevented Iran from enrichment levels that would keep them from creating a nuclear weapon for a minimum of 12 months. That is not a deal for the West but Iran still opposed it. We can guess why. Our only hope now is that oil prices will drop so low that Iran will not be able to fund its nuclear research for the next seven months.

I wrote about Amazon's Web Services and their massive scale several weeks ago in the nightly commentary. As a former tech geek earlier in my career I find technical details about cutting edge technology fascinating. For an old guy that used to manage a datacenter for Exxon in the 1960s I cannot even comprehend the scale of Amazon's cloud. I found a new article describing the efforts they went through to build this massive cloud product. If you are not tech literate I doubt you will get much out of it but geeks of the world will enjoy it. The Massive Scale of AWS

With the drop in oil prices everyone is turning to the question of what does it cost to produce oil in various fields. By determining a field's breakeven cost and knowing who is drilling in that field you can decide who is likely to cut capex the most, who is likely to have cash flow problems, etc. Well your research problem has been solved. Ed Morse at Citigroup has put together a breakeven chart for not only all the shale plays in the USA but all the fields in the world. Yes, the world. He points out that there is a lot of oil available at $90 oil because producers can hedge their production to protect cash flow. However, at $70 or less the margins are too slim and there is no hedging capability in the futures markets. Here are the charts. Citi Cost per Field

Google has thrown in the towel on renewable energy. Back in 2007 Google promised to go green to stop global warming. They installed all kinds of renewable energy using wind, solar and several experimental programs. They spent billions on the effort. In 2009 the Green Energy Czar at Google, Bill Weihl boasted, we have a 50:50 chance of having multiple megawatts of plants installed over the next three years. Oops! No plants and Bill is no longer at Google.

Larry Page had a program called "Renewable Energy Cheaper than Coal (RE Jeremy Grantham, fund manager at GMO, sent a letter to clients saying the market could surge another 10% from here before getting into bubble territory, which starts at 2,250 on his charts. However, he said picking stocks today was tough with many individual stocks over valued. He also points out that the best seven months in the third year of a second presidential term have averaged about +2.5% per month. Seventeen of the last 20 third year periods have been bullish with 3 bearish and averaging about a -6.4% decline. With the eurozone and Japan increasing stimulus it should help the equity markets.

Vladimir Putin is still projecting the Russian flag all around the world. Russian warships entered the English Channel for "exercises" on Friday. The four warships were led by the anti-submarine ship Severomorsk. The real purpose of the exercise is to remind everyone that Russia has a military force and is not afraid to use it. The flotilla was shadowed by the Royal Navy warship HMS Tyne.

On Friday Russia test fired a new Bulava nuclear ICBM from the Alexander Nevsky submarine from a position in the Barents Sea. Russia claims the sub launched missile has a range of 8,000 miles and can carry up to 10 nuclear warheads. Russia is spending $400 billion on new weapons and upgrades by 2020. The U.S. is cutting its military budget by $400 billion.

I want to thank everyone once again for supporting the Option Investor family of newsletters. Reward yourself now for 2015 and that will be one less item on your list of New Year's resolutions.

Most of the indexes are near new highs and the outlook for the future is improving. Analyst year-end estimates are rising almost daily for next year. Don't go through 2015 alone. Take advantage of our 16th annual End of Year Renewal Special today. Don't wait until the last minute.

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Enter passively and exit aggressively!

Jim Brown

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"When one door closes, another opens; but we often look so long and so regretfully upon the closed door that we do not see the one which has opened for us."

Alexander Graham


New Plays

Big Potential For A Short Squeeze

by James Brown

Click here to email James Brown


Intrexon Corp. - XON - close: 26.53 change: +0.71

Stop Loss: 24.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on December -- at $---.--
Listed on November 29, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 506 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
XON is considered part of the healthcare sector. They have an interesting attitude toward the application of biotechnology. Here's a bit from the company's website:

"Intrexon Corporation, founded in 1998, is a leader in synthetic biology focused on collaborating with companies in Health, Food, Energy, Environment and Consumer sectors to create biologically based products that improve quality of life and the health of the planet. At present rates of global industrialization and population growth, food and energy supplies and environmental and healthcare resources are becoming scarcer. We believe Intrexon’s leading Better DNA® approach to synthetic biology has the potential to provide new, more effective and sustainable solutions to address these challenges.

With a suite of proprietary and complementary technologies, Intrexon applies engineering to biological systems to enable DNA-based control over the function and output of living cells. Working with key collaborators, Intrexon seeks to develop high value applications that can bring better medicines to more people, alleviate shortages of essential nutrients, develop renewable fuels and other resources, and protect the environment."

The health division is working on new therapies for both humans and animals. The food division is trying to develop new science to boost crop yields. Their energy research hopes to find a biological approach toward greener energy. The company also plans to develop technology to help our environment and provide new solutions for consumers.

As is typical with most biotech companies their earnings are very lumpy. One quarter might see strong earnings results and the next they could be down sharply. XON is no different with hits and misses in its bottom line results. The good news is that the company is seeing revenue growth. In May 2014 XON reported revenues of $7.9 million, up +102% from a year ago. Their report in August saw revenues up +76% to $11.8 million. Their latest report in November XON said revenues grew +253% to $21.2 million.

The current rally in XON has powered shares from $16 toward resistance in the $26-27 area. A breakout here could spark a big short squeeze. The most recent data listed short interest at 73% of the float (12.1 million shares short versus a float of 16.5 million).

Tonight I am suggesting a trigger to open small bullish positions at $26.75 with an initial stop loss at $24.85. More conservative investors may want to wait for XON to rally past last week's high of $27.22 before initiating positions. We want to keep our position size small to limit risk since biotechs can be very volatile.

Trigger @ $26.75 *small positions, more aggressive trade*

- Suggested Positions -

Buy XON stock @ $26.75

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

Buy the 2015 Jan $30 call (XON150117C30) current ask $1.50

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

Intraday Chart:

Daily Chart:

In Play Updates and Reviews

Another Weekly Gain

by James Brown

Click here to email James Brown

Editor's Note:
The U.S. market posted another gain for the week although the small caps are struggling to keep pace.

We have updated a few stop losses tonight.

Current Portfolio:

BULLISH Play Updates

Ambarella, Inc. - AMBA - close: 55.00 change: +0.15

Stop Loss: 50.75
Target(s): To Be Determined
Current Option Gain/Loss: +18.3%
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

11/29/14: AMBA managed another gain on top of Wednesday's +7% rally. The stock traded as high as $56.88 on Friday. AMBA is now up seven weeks in a row and very short-term overbought.

Investors may want to take profits now. Tonight we are raising the stop loss to $50.75. However, I want to forewarn you that we will most likely exit prior to AMBA's earnings report, which is this coming Thursday, December 4th.

I'm not suggesting new positions.

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

11/29/14 new stop @ 50.75
11/26/14 new stop @ 48.75
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: 45.05 change: +0.65

Stop Loss: 42.85
Target(s): To Be Determined
Current Option Gain/Loss: +11.9%
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

11/29/14: Consumer-related stocks were showing relative strength on Friday thanks to generally positive news about Black Friday sales and crowds. Shares of COLM outperformed the major indices with a +1.4% gain. This is a new all-time closing high for the stock.

Shares remain overbought thanks to its seventh weekly gain in a row. The simple 10-dma has risen to $43.28. We will move our stop loss up to $42.85.

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

11/29/14 new stop @ 42.85
11/25/14 new stop @ 42.25
11/24/14 new stop @ 41.85
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: 36.49 change: -1.42

Stop Loss: 36.25
Target(s): To Be Determined
Current Option Gain/Loss: - 1.6%
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

11/29/14: Ouch! Most of the transport stocks rallied on Friday but railroads were the exception and significantly underperformed the market. The sell-off was due to the OPEC meeting on Thursday. OPEC decided they would not cut production and crude oil prices plunged (natural gas dropped too). While airline and trucking stocks rallied the railroads sank.

The idea here is that lower oil and natural gas prices will bring down demand for coal. The railroads make a lot of money transporting coal for utilities to burn for electricity but cheap natural gas makes coal look less appealing.

Another challenge is that lower oil prices will start to hurt exploration and production inside the U.S. The shale oil boom has been a big blessing for the rails as the demand to transport oil by rail has soared in recent years. If oil prices continue to drop then production could slow because it's unprofitable to produce and that would hurt demand to transport oil by rail.

Shares of CSX plunged -3.74% and broke down under its 10-dma and short-term support near $37.00. The intraday low was $36.32. If there is any follow through lower on Monday we will see CSX hit our stop loss at $36.25.

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: 35.93 change: +0.08

Stop Loss: 33.65
Target(s): To Be Determined
Current Option Gain/Loss: + 0.8%
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

11/29/14: CUDA briefly hit new relative highs before closing virtually unchanged on Friday. Shares continue to struggle with resistance near $36.00. Traders may want to wait for CUDA to close above $36.30 before considering new positions.

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: 27.57 change: -0.13

Stop Loss: 25.90
Target(s): To Be Determined
Current Option Gain/Loss: +5.0%
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

11/29/14: The last few days have been quiet for CYNO. The stock is consolidating sideways between $28.00 above and short-term technical support at its simple 10-dma below. I am not suggesting new positions.

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: 43.93 change: +0.25

Stop Loss: 42.85
Target(s): To Be Determined
Current Option Gain/Loss: + 5.2%
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

11/29/14: Friday's shortened session was a quiet one for EA. The stock hovered near the $44.00 level. Shares remain just below resistance at its trend line of higher highs.

Tonight we are raising the stop loss to $42.85.

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

11/29/14 new stop @ 42.85
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


Isis Pharmaceuticals - ISIS - close: 51.79 change: -0.96

Stop Loss: 49.45
Target(s): To Be Determined
Current Option Gain/Loss: - 2.7%
Entry on November 25 at $53.25
Listed on November 24, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.5 million
New Positions: see below

11/29/14: Shares of ISIS have been sawing their way higher with a back and forth motion over the last few days. Friday's move just happened to be the next dip. ISIS did close the week with a gain. The stock is now up six out of the last seven weeks.

I would hesitate to launch new positions at the moment.

Earlier Comments: November 24, 2014:
ISIS is part of the healthcare sector. They operate in the biotech space. Biotech stocks have been crushing the market this year. The BTK biotech index is up +43.4% year to date. ISIS is only up +2.2% but it has come a long way from its May 2014 lows near $22.25. The last seven months have produced a +135% rally.

According to a company press release, "Isis is exploiting its leadership position in antisense technology to discover and develop novel drugs for its product pipeline and for its partners. Isis' broad pipeline consists of 34 drugs to treat a wide variety of diseases with an emphasis on cardiovascular, metabolic, severe and rare diseases, including neurological disorders, and cancer.

Isis' partner, Genzyme, is commercializing Isis' lead product, KYNAMRO, in the United States and other countries for the treatment of patients with homozygous FH. Isis has numerous drugs in Phase 3 development in severe and rare and cardiovascular diseases. These include a novel triglyceride lowering drug, ISIS-APOCIIIRx, for patients with familial chylomicronemia syndrome; ISIS-TTRRx, which Isis is developing with GSK to treat patients with the polyneuropathy form of TTR amyloidosis; and, ISIS-SMNRx, which Isis is developing with Biogen Idec to treat infants and children with spinal muscular atrophy, a severe and rare neuromuscular disease. Isis' patents provide strong and extensive protection for its drugs and technology."

Part of the challenge with biotech stocks is their volatility. Biotechs can be extremely sensitive to any headline. The right or wrong headline about an FDA approval or clinical trial results can send a biotech stock soaring or crashing in a heartbeat.

Another challenge is earnings. Many of the smaller biotech names suffer from very lumpy earnings based on milestone payments by partners. For example, last quarter ISIS saw their quarterly revenues soar almost +90% yet they still missed Wall Street revenue estimate.

Most bulls on this stock will point to the company's pipeline. ISIS has a very broad pipeline so it's not just a one-trick pony. You can view their current pipeline here on this webpage: ISIS pipeline.

The stock has been stair-stepping higher with investors buying the dips as prior resistance acts as new support. Last week the stock garnered a new price target upgrade to $62.00. ISIS will also present at a couple of analyst conferences in early December that might offer more catalysts to keep the rally going. The big bounce from its 2014 lows has produced a huge buy signal on the Point & Figure chart that is projecting a long-term target of $73.00.

More aggressive investors may want to open bullish positions now. I am suggesting we wait for a rally past the November high ($53.12) and use a trigger to open positions at $53.25.

- Suggested Positions -

Long ISIS stock @ $53.25

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

Long 2015 Jan $55 call (ISIS150117C55) entry $3.15

11/25/14 triggered @ 53.25
Option Format: symbol-year-month-day-call-strike


Micron Technology - MU - close: 35.95 change: +0.33

Stop Loss: 32.45
Target(s): To Be Determined
Current Option Gain/Loss: + 2.4%
Entry on November 24 at $35.10
Listed on November 22, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 24.8 million
New Positions: see below

11/29/14: The semiconductor stocks continued to rally on Friday and MU outperformed most of its peers with a +0.9% gain and another multi-year high.

Investors may want to start raising their stop loss.

Earlier Comments: November 22, 2014:
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.

- Suggested Positions -

Long MU stock @ $35.10

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

Long 2015 Jan $35 call (MU150117C35) entry $2.01

11/24/14 triggered @ $35.10
Option Format: symbol-year-month-day-call-strike


Qlik Technologies - QLIK - close: $30.83 change: -0.37

Stop Loss: 29.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on November -- at $---.--
Listed on November 25, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.6 million
New Positions: Yes, see below

11/29/14: QLIK displayed some weakness on Friday with a -1.1% loss. Shares have essentially churned sideways the last three sessions. I don't see any changes from my prior comments.

Our suggested entry point for bullish positions is $31.75.

Earlier Comments: November 25, 2014:
QLIK is in the technology sector. The company provides business intelligence software. According to a company press release, "Qlik is a leader in data discovery delivering intuitive solutions for self-service data visualization and guided analytics. Approximately 33,000 customers rely on Qlik solutions to gain meaning out of information from varied sources, exploring the hidden relationships within data that lead to insights that ignite good ideas. Headquartered in Radnor, Pennsylvania, Qlik has offices around the world with more than 1700 partners covering more than 100 countries."

It has been a very rocky road for QLIK investors the last couple of years. QLIK's stock peaked in mid 2013. Since then shares have seen big swings both up and down. Uneven earnings results and guidance have played their part. The last four quarters have seen QLIK beat Wall Street's bottom line estimate by a penny each quarter. Yet three out of the last four quarters QLIK management has lowered their guidance.

Their most recent earnings report was October 23rd. Analysts were looking for the company to breakeven ($0.00 a share) on revenues of $124 million. QLIK delivered $0.01 a share with revenues up +26% to $131.3 million. Then management guided lower on both EPS and revenues for the fourth quarter. So why did shares of QLIK soar higher the next day?

The answer is likely the company's license growth. QLIK is seeing sharp improvement in its license growth. The first quarter it was +2% growth. The second quarter saw that improve to +11%. Last quarter it was +24% year over year.

The stock has continued to gather bullish analyst opinions. Last week the stock received a price target upgrade to $37.00. This week Citigroup added QLIK to their focus list and upped their price target to $38. The point & figure chart is bullish and forecasting at $42 target.

The stock is volatile and therefore I am labeling this a higher-risk, more aggressive trade. Investors will want to consider limiting their position size or using the options to limit risk to the cost of their option.

Technically the recent breakout past $30.00 is bullish. Yet QLIK still has resistance near its 2014 Q1 highs in the $31.25-31.55 zone. Tonight I am suggesting a trigger to open small bullish positions at $31.75.

Trigger @ $31.75 *small positions, higher-risk trade*

- Suggested Positions -

Buy QLIK stock @ (trigger)

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

Buy the 2015 Jan $33 call (QLIK150117C33)

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


Seagate Technology - STX - close: 66.11 change: +0.26

Stop Loss: 62.45
Target(s): To Be Determined
Current Option Gain/Loss: - 0.4%
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

11/29/14: STX spent most of Friday inside a $1.00 range. Shares briefly traded above short-term resistance at $66.50. The intraday high was $66.68. Depending on your trading style we could open bullish positions on a dip near $65.00 or wait for a new relative high above $66.70.

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: 27.66 change: -0.50

Stop Loss: 26.85
Target(s): To Be Determined
Current Option Gain/Loss: + 0.9%
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

11/29/14: TTWO snapped a three-day winning streak with some profit taking on Friday. Shares underperformed the market with a -1.7% pullback. Shares did manage to pare its losses as it neared short-term technical support at the simple 10-dma, currently near $27.20.

Tonight we will raise the stop loss up to $26.85. I am not suggesting new positions at this time.

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

11/29/14 new stop @ 26.85
11/26/14 new stop @ 25.85
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.