Option Investor

Daily Newsletter, Saturday, 2/7/2015

Table of Contents

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

Market Wrap

Jekyll & Hyde Market

by Jim Brown

Click here to email Jim Brown

After declining more than -500 points the prior week the Dow rebounded +659 points despite some profit taking ahead of the weekend. This was the best weekly gain since December 2011 and pushed the Dow into positive territory for the year.

Market Statistics

I am surprised there was not a bigger decline on Friday with the Dow and S&P running into heavy resistance and the potential for destructive headlines over the weekend. With ISIS, Greece, Venezuela. Russia and Ukraine all fighting for headline space investors appeared unconcerned. A -60 point decline in the Dow was noise rather than a real market indicator.

The biggest headline for the day was of course the Nonfarm Payrolls. The headline number showed a gain of +257,000 jobs in January. This was well over the consensus estimates of +235,000. In addition the November and December numbers were revised higher by a total of +147,000 jobs. December rose from 252,000 to 329,000 and November rose from 353,000 to 423,000. It was the best 3-month job gain in 17 years. These are huge numbers suggesting the job market may be accelerating rapidly. It also means the chance of a Fed rate hike in June just became a lot stronger.

The BLS also published their revisions for all of 2014 but despite upward monthly revisions as high as +70,000 and downward revisions as large as -40,000 the total revision from January through October was a net of only +17,000 jobs. That is the smallest I can remember in recent years and basically a rounding error.

The unemployment rate for January rose slightly from 5.6% to 5.7% because a whopping 703,000 people rejoined the workforce and the separate Household Survey showed a gain of +435,000 jobs. These numbers are dramatic and completely trashed analyst comments about the potential for slowing job growth in January and the impact of the layoffs in the energy sector. Sources claim more than 30,000 layoffs in the energy sector in the last 90 days.

Lastly the average hourly earnings rocketed higher by +0.5% after the minimum wage hikes in more than a dozen states took effect January 1st. That is the biggest single month increase since November 2009. It was equaled in July 2011 but you have to go back to 2009 and the rebound out of the recession to see a higher number.

Analysts blamed mild January weather in most of the country for the strong increase in jobs relative to the harsh conditions in the prior January. However, the gains were broad based not just in outdoor jobs like construction. Retail posted a gain of +46,000 jobs and that is not specifically weather related. Mild weather may have brought more consumers into stores but retailers should have been laying off seasonal workers in mid January after the gift return cycle slowed. Apparently many of them retained some of those employees.

The education/healthcare sector saw job gains of +46,000 as a result of the implementation of the Affordable Care Act. Employment in the insurance sector also rose as a result of the ACA. You can expect growth in the finance/accounting field over the next several months as a result of the tax preparation changes required by the ACA.

The unemployment rate for teenagers rose to 18.8%. The other major categories were mostly unchanged with adult males 5.3%, adult women 5.1%, whites 4.9%, blacks 10.3%, Asians 4.0% and Hispanics 6.7%. The U6 rate of all unemployed and under employed rose from 11.2% to 11.3%. The number of workers forced to take part time jobs because full time was not available rose +20,000 to 6.81 million.

While January employment reports are very volatile because of the seasonal adjustments for holiday workers we should not lose sight of the fact that the average job gains over the last three months is now +336,300. That is a very large number and a dramatic change from earlier in the year. This raises the odds of a Fed rate hike in the near future.

Analysts who were pushing their expectations farther out into the future like Morgan Stanley projecting Q1-2016 are now faced with having to retract those estimates earlier into 2015. The consensus had been September-November but with the sudden appearance of the strong jobs and wage growth those were being pulled backwards to the June meeting once again.

The FOMC does not meet again until mid March but Janet Yellen will give her annual congressional testimony on February 24th. That may be the first indication we get of her new intentions.

Currently the word "patient" in the FOMC post meeting statement means the Fed will not hike rates for at least two meetings. Once that word is removed it will give the Fed the option but not the compulsion to raise rates at any time.

This sudden change in the outlook for employment was not lost on the bond market. The yield on the ten-year treasury jumped +6.8% on Friday alone to 1.94%. For the week the yield on the ten-year rose from a low of 1.65% to 1.94% or roughly +29 basis points in only five days. This represents an 18% spike in only one week. This is titanic and suggests the tide has turned and assuming the economy does not take a sudden downturn the low yields are now behind us.

The economic calendar for next week is lackluster with no reports that are likely to be market moving. The retail sales for January on Thursday would be the only one that could be a potential speed bump if it comes in significantly lower than expected. The -0.9% decline in December is expected to rebound to +0.3% in January.

Yelp (YELP) had a bad day on Friday despite beating earnings Thursday evening. The company reported better than expected earnings and raised guidance but only showed user growth of +13%. That was below expectations. The company was downgraded by Pacific Crest, Northland Securities and B. Riley & Co. BR analyst Sameet Sinha cut his rating from buy to sell and said the stock no longer deserves a premium multiple because growth prospects have changed. He cut his projected multiple from 7 times to 4 times. He said Google is stealing traffic and Yelp will have to pay more for page views in the future.

Pacific Crest said local advertising account growth, the clients that advertise on Yelp, declined to 54%, down from 84% in the year ago quarter. Yelp plans to boost its sales force by 40% to offset this decline in new accounts.

Shares declined -21% to $45.

DeVry Education (DV) better go back to school after reporting earnings of 75 cents that missed estimates for 78 cents. Revenue of $484.9 million was also below estimates of $487 million. They opened multiple locations in the USA and made two acquisitions in Brazil. The CEO said they were continuing to see growth in students but they were still facing challenges. One of them will be to rescue their stock price from a new 52-week low after earnings.

Buffalo Wild Wings (BWLD) reported earnings of $1.07 that missed estimates for $1.09. However, revenue of $4.08 million beat expectations for $4.05 million. The stock soared with a +7% gain after the company bragged on some new offerings and upbeat guidance. They are introducing a new lunch menu in April with "variety, value and speed," all the things lunch guests want. They will also add wraps or sandwiches that can be eaten on the go rather than take the time to dine in. All restaurants will have tablets at the table to allow ordering and payment to reduce wait time. Investors must have liked the plan to give BWLD shares a $13 boost.

Linkedin (LNKD) shares gained +11% after the company reported earnings Thursday evening. Earnings rose +56% to 61 cents and beating estimates of 53 cents. Revenue rose +44% to $643 million, also a beat. Membership rose +15 million to 347 million. Multiple analysts raised their price targets saying everything LNKD was doing was working. JP Morgan hiked the target from $253 to $300. RBC Capital from $245 to $300. Cowen & Co from $260 to $290. Canaccord Genuity from $240 to $285. Credit Suisse upped from $285 to $331. While LNKD gave cautious guidance analysts said ignore it. They always give cautious guidance.

Twitter (TWTR) shares rose +16% after reporting earnings on Thursday evening. This was amazing since the company reported mediocre subscriber growth of only 4 million users. They originally blamed it on a glitch in iOS 8 software in Apple phones that launched in the quarter. On Friday they retracted that excuse. In a tweet the company said it was not Apple's problem. It was a bug in Twitter's software.

The company guided for Q1 for a revenue midpoint of $445 million and consensus is for $450 million. They guided for earnings of $89-$94 million and also slightly below estimates. Twitter confirmed they had signed a deal with Google to integrate its tweets in real time into Google's search results. This is an effort to monetize the 200+ million logged off Twitter users that visit Twitter profiles each month. The new integration of video messaging is also expected to give the service a boost in 2015.

GoPro (GPRO) did a face plant after issuing weaker than expected guidance for Q1. The company is expecting 16 cents on revenue of $335 million compared to estimates for 17 cents and $325 million. That may not seem like a big miss but there were complicating issues. COO Nina Richardson unexpectedly resigned to "pursue other opportunities." Investors don't like unexpected departures. She had a block of 25,000 shares that were a signing bonus when she took the job in Feb 2013 and she had to remain employed for 24 months to vest. That could have had something to do with the timing of her resignation. She also had options on 450,000 shares that would vest 25% per year on Feb 2014, Feb 2015, etc so she gets half of those as well.

There are also 76.1 million shares that will become available for trading when the lockup expires on February 17th. There are only 127.77 million shares outstanding and 76.1 million will become available for trade on the 17th. Nearly 14% of the outstanding shares are currently held by institutions. The average daily volume is 7.4 million shares. The potential is very high for a major decline in the share price when those shares come out of lockup. Insiders holding those shares have seen them decline from $95 to $47 over the last four months. The odds are good they are going to want to cash "some" of them out before the price falls further.

GoPro reported earnings of 99 cents, up +200% from the year ago quarter, and well over the 70 cents analysts expected. Revenue of $634 million crushed estimates for $580 million. They shipped 2.4 million cameras compared to estimates for 1.95 million. That was roughly 1,000 units an hour for the entire quarter.

GoPro has a PE of 115 and competitors are showing up every month. They have a great product and a loyal customer base but their time as a high dollar stock may be over. If GPRO shares decline under the post IPO consolidation support at $38 we could see a wholesale dumping of the remaining shares as the PE compresses to something more reasonable.

The earnings calendar for next week is starting to slow. Nearly 70% of the S&P have reported earnings and the rest will be spread out over the next four weeks. So far 65% have beaten on earnings with 10% meeting estimates and 17% missing estimates. The earnings have not been the challenge but as always the guidance is the key. Unfortunately guidance has been ugly. However, we have reached the point where the "strong dollar" excuse is now a get out of jail free card because everybody with overseas sales has used it. Investors expect it and they are not holding the companies accountable for weak guidance because of the dollar.

The highlights for next week are Tesla, Cisco Systems, Whole Foods, Panera and FireEye on Wednesday. AIG, Cabellas and Kraft report on Thursday and Red Robin on Friday. It is not a very big list.


I am pretty sure that everyone will agree with me that a +624 point Dow gain for the week is excessive even though it declined -507 the prior week. Large market swings are symptoms of indecision and uncertainty. Shorts are squeezed on the unexpected rebounds and longs are crushed by the declines. This is what makes a market. It is our job to survive the volatility until the market picks a direction that lasts.

The S&P has spent all of 2015 wandering between about 1,985 and 2,064. It has made six trips across that range and Friday's high was the high for the year at 2,072 but it did not hold only to drop back to 2,055 at the close. Quite a few analysts believe we are due for another trip back to the 1,985 level. Fortunately the more that believe that theory the less likely it is to come to pass.

After Friday's payroll report we are facing a new problem. The stronger employment makes it more likely the Fed will hike rates in June. While that is still months away that cloud will linger over the market until it happens. Historically the first Fed rate hike causes a -5% dip in the market. Once that occurs the market tends to move higher from there because the Fed is hiking rates because the economy is doing better. Since the market is so tuned into the Fed communication today more than any point in the past this market hiccup could occur at any point from now until June.

The better than expected earnings are a positive for the market but the worse than expected guidance is a negative. If the market declines on the negative guidance then we are less likely to decline again in June if the Fed hikes rates. The key inflection point today is the Yellen testimony on Feb 24th. She will likely drop some clues as to what the Fed is planning when she testifies before Congress. Unfortunately the 24th is a long way off in market time. We could see the Dow move a couple thousand points before the 24th if it decides to go directional. That sounds like a lot but remember the Dow has moved over 500 points in each of the last two weeks.

Rather than concern ourselves about the distant future we only need to worry about the week ahead. The S&P has given us a clear range and a deviation from that range in either direction is a trading indicator. If the S&P moves over 2,064 it would be a buy signal with 2,073 and 2,093 the next resistance points. If it moves below 1,985 it would be a sell signal with 1,972 a potential support point. It we did break 1,985 on the next dip I fear there would be a bigger dip in our future.

The 150-day moving average is still in play at 1,999 but it was broken intraday last week.

The Dow volatility should calm down in the week ahead because the majority of the Dow components have already reported earnings. That means the sudden gaps higher or lower should give way to less dramatic movement. However, we do have Coke (KO) on Tuesday and Cisco Systems (CSCO) on Wednesday. Both are low dollar stocks and should not cause any serious post earnings volatility unless they really surprise on earnings. For instance if CSCO posted ugly results and dropped -10% (-$2.75) that would only equate to about -20 Dow points and hardly a material impact. A similar 10% move on KO ($4.10) would equate to about -28 Dow points. Neither of those stocks have a recent history of 10% or greater post earnings moves. Coke came close in October with a $2.70 move but Cisco rarely moves over $1 in a gap open.

If the Dow volatility calms then "investors" as opposed to "traders" will begin to reenter the market. Investors are waiting for the market to either begin moving higher at a measured pace or crash back to some level where they feel the risk of new positions is justified. During the January volatility they were simply waiting on the sidelines.

Resistance is now 17,915 with support, 17,500 and 17,375 at the 100-day.

The Nasdaq Composite outperformed the Nasdaq 100 last week with the big caps struggling to move past the resistance from early January. The composite index benefitted from small cap earnings that had no dollar exposure. The composite came very close to retesting the strong resistance at 4,800 with Friday's spike to 4,787.

The Nasdaq 100 barely exceeded the 4,250 resistance level from early January and fell back to 4,228 at Friday's close. The big caps are struggling but the composite index is the one the market watches. If it reaches and exceeds that 4,800 level next week it could drag the broader market higher.

Composite resistance 4,774, support 4,600.

Nasdaq 100 resistance 4,250 and downtrend resistance at 4,285. Support 4,100.

The small cap Russell 2000 is suddenly the most bullish chart. The Russell closed right at 1,209 on Thursday and only gave back -3 points on Friday. Because of their lack of dollar exposure the small caps could return as the market leader with a breakout over that 1,208 resistance and the historic high at 1,219. That would really fire up the market and create a directional market.

In the weekly chart below the Russell has been consolidating since early 2014. Louise Yamada coined the phrase "the longer the base the higher in space." If the Russell breaks out it could lead us higher, headlines permitting.

On the negative side the Dow Transports are not cooperating. We are on the verge of another lower high if the transports roll over next week. Support has been solid at 8,575 but with oil prices rising again and the government talking about doubling the tax on gasoline and diesel the transport rally may be over. Since the transports theoretically confirm Dow rallies and declines the weak transports suggest trouble ahead.

Oil is looking toppy after it's nearly $9 rebound from the prior Thursday's low of $43.58. That is a +20% gain in 7 days. While I expect oil to go higher long term I believe the rebound was overdone and we could see some backing and filling to something in the $47-$48 level before moving higher. Declining oil will mean declining energy stocks and the potential for a weak equity market.

However, there are still a lot of shorts in the oil market so any slow creep higher could trigger another round of short covering and energy stocks could lead the market higher. Oil inventories should continue to rise because we are moving into the maintenance season for refiners where oil consumption declines. Also slowing oil consumption is a strike by workers at multiple oil refineries. Late Saturday the union expanded the strike to add two BP refineries in the Midwest. This is the first nationwide strike since 1980. The addition of the two BP refineries brings the total refineries impacted to 11. Generally production is not materially impacted by strikes but the longer it lasts the more stoppages we will see.

Ironically the refinery utilization last week rose from 88.0% to 89.9% and a three week high. Oil inventories rose +6.3 million barrels to 413.1 million and 15.4% over year ago levels and the highest level since records were started in 1982. Having record levels of oil in storage is not conducive to prices moving higher. Global storage locations are nearly full and once consuming countries can no longer store more of today's cheap oil we could see prices implode once again. We will be headed into the high demand summer driving season in about three months and that will help reduce the glut somewhat.

If the dollar continues higher the price of oil will struggle to move higher. There is almost no scenario where the dollar weakens significantly in the coming months. Europe and Japan are racing each other to cheapen their currency and boost their economy. There are rumors that China will also enter the currency war in the coming weeks and that will force all those currencies even lower. With the Fed more likely to hike rates in June that will strengthen the dollar even further.

Active rigs declined -87 last week to 1,456 and bringing the total decline since September's high of 1,931 to -475 rigs. That is a -24.6% decline and analysts are expecting the drop to continue to the 1,000-1,100 level. Six months from now we will see a decline in production.

I would continue to be cautious about new longs until the S&P breaks through that resistance at 2,064 and the assault on the old highs begins. The earnings guidance could be a drag on the market despite the strong jobs report. Remember, the last dozen or so economic reports have been weaker than expected. Rising jobs suggests corporations have an optimistic outlook about the future but it is not yet showing up in the economic reports. Continue to be cautious about new plays until a confirmed trend appears.

Random Thoughts

Newly elected Greek officials are playing a game of chicken with the ECB and EU. On Wednesday the ECB said it would no longer accept Greek government debt as collateral for loans. On Friday the EU set a deadline of February 16th for Greece to apply for additional bailout funds. The current bailout agreement expires on February 28th. If Greece does not apply they will have no source of funds after the 28th. This deadline of the 16th means Greek officials will have to stop talking a belligerent game and either fall in line with the current rules or run out of cash in March.

The risk for the EU/ECB on pulling the bailout plug on Greece is that it may force Greece into a banking collapse and an exit from the Eurozone. They would be forced to establish their own currency. While that does not sound terribly bad it would set a precedent. The Eurozone is built on the idea of the common currency and that design is supposed to be irreversible. If Greece were to exit then it could open the door for Italy and Spain to exit and the Eurozone house of cards comes tumbling down.

Germany is demanding that Greece continue to undergo serious austerity and repay its debt in full, which is approaching 300 billion euros. There is no way this will ever happen simply because Greece has very little money. The interest on the debt is more than Greece can pay so demanding debt repayment on top of that is ridiculous. Greece only has 11 million citizens and the GDP is only 2% of the Eurozone. The ECB/EU/IMF got themselves into this predicament by giving bailout loans to Greece in an amount they can never repay. Now Greece is standing up to the Troika and demanding concessions that the EU/ECB are not likely to ever allow. The newly elected government of Greece was elected on a platform of ending austerity and cancelling the bailout agreements. The new government has to stand firm or there will be riots and violence in Greece. The ECB/EU has to stand firm or risk the entire Eurozone collapsing. One analyst said it was the equivalent of two trucks loaded with dynamite heading towards each other at full speed.

S&P downgraded Greece to B- saying it expected the worst case scenario with bank runs and capital controls followed by an "exclusion from the Economic and Monetary Union."

Russia announced it was increasing military spending +33% in 2015 and plans to increase its nuclear arsenal, which is already the largest in the world. How it plans to do that with oil prices down -50% is the $64 question. Deputy Defense Minister Tatlana Shevtsova said 50% of spending will be to modernize and refurbish the existing military. "Expenses on the defense industry will not be cut regardless of the current economic situation." State defense spending will grow by 20% in 2015 to a peak of 40% growth in 2017. In 2014 the number of weapons supplied to the military rose +65%.

Russia is a big exporter of military hardware but the sanctions have cut into that revenue stream. The drop in oil prices and the rise in the dollar further damaged the Russian economy. Putin could be the Greek savior. He has invited Mr Tsipras to Moscow in May. If Putin can pull Greece into the fold then being kicked out of the Eurozone would be less of a problem for Greece. For Putin Greece is an aircraft carrier in the middle of the Mediterranean. If he establishes a foothold in Greece that becomes a problem for everyone else in the area with Russian military planes and ships basing out of Greece.

The EU will impose more sanctions on Russia on Monday but they are still just pinpricks. Angela Merkel and Francois Hollande went to Moscow last week in an attempt to work on a resolution to the Ukraine problem. The meeting did not go well. Putin continues to claim Russia is not involved in the fighting. The U.S. administration said there was nothing they could do to prevent further fighting and the eventual acquisition of the Donetsk and Luhansk regions by Russia. All that is necessary for evil to flourish is for good men to do nothing.

China is preparing to cut down on global gambling by Chinese citizens. President Xi Jinping warned last week that citizens will be gambling much less in China, neighboring countries and the USA. The deputy chief in the Ministry of Public Security said, "Some foreign countries see our nation as an enormous market...A fair number of neighboring countries have casinos, and they have set up offices in China to attract and drum up interest from Chinese citizens to go abroad and gamble. This will also be an area that we will crack down on."

Xi has seen the outflow of cash as casino chains built billion dollar casinos dedicated to the Chinese gambler. Large sums of money flow out of China and much less returns to China. The government is cutting down on the number of advertisements promoting Macau. Visa restrictions are being tightened and money transferred by retail gamblers is being tracked. The anticorruption crackdown has already slowed the travel of mainlanders to the world's largest gambling center. High rollers don't want the government watching how much money they transfer to Macau. It alerts government watchers to investigate those individuals as part of the corruption crackdown. Gaming revenue in Macau declined -30% in December alone. MGM and LVS are in trouble if this trend continues.

The Baltic Dry Shipping Index hit a new 30-year low last week as the demand for dry commodity carriers falls to a cycle low as a result of the economic decline in Europe and China. This is the price to rent a dry bulk carrier by the day. It is hard to build any kind of bullish scenario for the coming year with commodity demand falling off a cliff.

Deflation in the U.S. rose to levels not seen since October 2008 according to the ISM report. The prices paid component of the ISM declined to 35 or a -3.5% fall compared to December. Only 11% of respondents reported paying higher prices while 41% reported paying lower prices. This is the third consecutive month of declines with the price component declining -18.5% over the last three months. In the ISM any number over 50 represents an increase and under 50 represents a contraction. Of the 18 manufacturing industries the only industry reporting an increase in prices paid was the Printing and Related Support Activities. That is hardly a benchmark industry. If the decline continues the USA will be struggling to fight deflation and our Fed interest rates are already at zero.

A Societe Generale's strategist, Albert Edwards, has warned that the deflation threat currently dogging the euro zone is greater in the U.S. and that equity markets will soon be "ripped to smithereens." Also, "The deflationary fault line on which the U.S. sits is every bit as precarious as that of the euro zone, but is being disguised," he said in a new research note on Thursday. "The scales will soon lift from the market's eyes." Edwards is seen as bearish by the rest of the analyst community. Link to his full statement.

Yields on Nestle's corporate debt went negative last week. That means investors are essentially paying a fee to buy Nestle's debt just so they can park their cash somewhere safe. Euro denominated debt of Shell and Novartis are also approaching negative yields. Euro denominated debt from Bank of America, General Electric and McDonalds are all trading at zero yields. Yields on government debt from Belgium, Denmark, France, Germany and Japan are all negative. Bank of America estimates that yields are now negative on of 1.2 trillion euros of European debt compared to 500 billion euros at the end of October.

Need condoms? Don't buy them in Venezuela. A 36-pack is now selling for $755 or 85% of the national monthly minimum wage. Inflation is so bad citizens can't afford to buy anything even if they could find it on store shelves. The military was guarding food stores until last week when they took them over to prevent price hikes. Citizens wait hours in line only to enter the stores and find nothing on the shelves. Starvation is everywhere and the situation is getting worse by the day for the 29 million citizens. Hospitals, clinics and surgical centers are shutting down because they have no supplies and no doctors. Everyone that could flee the country already has. It will not be long before disease is rampant and the government is overthrown.

Radio Shack finally pulled the plug on its recovery and filed bankruptcy last week. The company started in 1921 in Boston selling ham radios. Over the years the stores have progressed from selling the first computers, a TRS-80 with an operating system written by Bill Gates in 1977. In 1983 it sold the first laptop called the TRS-80 Model 100. In 1984 they started selling mobile phones and satellite TV in 1985. Today it has more than 4,000 stores and plans to sell 2,400 of them in the bankruptcy. Sprint and hedge fund Standard General will purchase the stores. Sprint will operate 1,750 of them as phone stores but they will still carry the Radio Shack brand. Radio Shack has $1.3 billion in debt and $1.2 billion in assets. The new symbol is RSHC, now trading at 13 cents. How far have computers come? Click here to see the 1981 computer catalog.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"Everyone is a disciplined, patient investor, entirely focused on the long term. And then an hour goes by."

Josh Brown


New Plays

Surging Earnings Growth

by James Brown

Click here to email James Brown


Silicon Motion Technology - SIMO - close: 29.59 change: -0.20

Stop Loss: 27.85
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on February -- at $---.--
Listed on February 07, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 538 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
Shares of this technology stock are trading at all-time highs as sales growth surged last year. SIMO is part of the technology sector. They're considered part of the diversified electronics industry.

The company describes itself as "We are a fabless semiconductor company that designs, develops and markets high performance, low-power semiconductor solutions to OEMs and other customers in the mobile storage and mobile communications markets. For the mobile storage market, our key products are microcontrollers used in solid state storage devices such as SSDs, eMMCs and other embedded flash applications, as well as removable storage products. For the mobile communications market, our key products are LTE transceivers and mobile TV IC solutions. Our products are widely used in smartphones, tablets, and industrial and commercial applications."

Last year (2014) saw SIMO's revenues soar. Their Q2 revenues grew +19% from the year ago period. Q3 revenues were up +51.5%. Their Q4 revenues surged +53.4% to $80.5 million, which was just a hair below expectations.

Earnings are seeing similar improvement. Their most recent earnings report was January 26th. SIMO reported a profit of $40.48 a share. That is a +60% improvement from a year ago and one cent above Wall Street's estimate. Their fourth quarter saw sales of SIMO's embedded storage product soar +70% from a year ago. Their full year 2014 revenues were a company record.

Guidance was mixed. SIMO warned that Q1 could see some seasonal weakness but they still provided guidance that was relatively bullish compared to analysts' estimates. SIMO's 2015 guidance is forecasting revenue growth in the +15% to +25% range.

After peaking in September 2014 the stock did experience a correction but SIMO has since recovered. Actually that's an understatement. The NASDAQ is only up +0.6% in 2015 while SIMO is already up +25% this year. The recent strength has created a buy signal on the point and figure chart that is forecasting a long-term target of $47.00.

Currently SIMO sits just below round-number resistance at $30.00. We are suggesting a trigger to open bullish positions at $30.15.

Trigger @ $30.15

- Suggested Positions -

Buy SIMO stock @ (trigger)

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

Buy the MAR $30 CALL (SIMO150320C30) current ask $1.60

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

Daily Chart:

Weekly Chart:

In Play Updates and Reviews

Stocks Fade Lower Toward The Weekend

by James Brown

Click here to email James Brown

Editor's Note:
The U.S. market delivered widespread gains last week. Yet traders seemed nervous ahead of the weekend and equities started to see some profit taking on Friday afternoon.

INFA hit our entry point on Friday.

Current Portfolio:

BULLISH Play Updates

Cree, Inc. - CREE - close: 35.88 change: -0.73

Stop Loss: 33.90
Target(s): To Be Determined
Current Option Gain/Loss: -1.8%
Entry on February 05 at $36.55
Listed on February 03, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.8 million
New Positions: see below

02/07/15: I'd like to see CREE followed the market lower on Friday. Unfortunately shares underperformed with a -1.99% decline. I don't see any specific headlines behind the relative weakness. Then again CREE is a high-beta name (it normally moves more than the market does).

Nimble traders could wait for a dip near $35.00 and buy a bounce. I'm not suggesting new positions at current levels.

Earlier Comments: February 3, 2015:
Shares of CREE might be seeing a turnaround. The company is part of the technology sector. According to a press release, "Cree is leading the LED lighting revolution and making energy-wasting traditional lighting technologies obsolete through the use of energy-efficient, mercury-free LED lighting. Cree is a market-leading innovator of lighting-class LEDs, lighting products and semiconductor products for power and radio frequency (RF) applications."

Last year was pretty rough on CREE investors. The trouble started back in 2013. Earnings have been sour. Management had developed a habit of missing earnings estimates and then guiding lower. However, after guiding lower the last two quarters in a row CREE finally offered the market some bullish guidance.

Their most recent earnings report was January 20th. Earnings came in at $0.33 a share. That's significant below the year ago period of $0.46 but their 33-cent profit beat Wall Street estimates by 11 cents. Revenues were essentially flat at $413 million.

CREE offered guidance (currently in their Q3) of $0.21-0.25 a share. That compares to analysts' estimates of $0.21. They're forecasting revenues in the $395-414 million range versus estimates of $405 million.

The last few months have been very volatile for CREE but the rally has created a buy signal on the point & figure chart that is forecasting a long-term $56 target. More importantly CREE appears to be breaking out past its long-term trend line of resistance (see weekly chart below). If this rally continues CREE could see a short squeeze. The most recent data listed short interest at 23% of the 109 million share float.

Tonight I am suggesting a trigger to open bullish positions at $36.55. We'll start this trade with a stop loss at $33.90.

- Suggested Positions -

Long CREE stock @ $36.55

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

Long MAR $35 CALL (CREE150320C35) entry $2.80

02/05/15 triggered @ 36.55
Option Format: symbol-year-month-day-call-strike


Interactive Brokers Group - IBKR - close: 32.53 change: +0.39

Stop Loss: 29.80
Target(s): To Be Determined
Current Option Gain/Loss: +4.4%
Entry on February 03 at $31.15
Listed on February 02, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 568 thousand
New Positions: see below

02/07/15: IBKR ignored the market's weakness on Friday. Shares added another +1.2% to mark its fifth up day in a row. I wouldn't chase it here. Broken resistance near $31.00 should be new support. It might be time to start raising our stop loss.

Earlier Comments: February 2, 2015
One stock that has been showing some resilience the last few days has been IBKR. The company describes itself as "Interactive Brokers Group, Inc., together with its subsidiaries, is an automated global electronic broker that specializes in catering to financial professionals by offering state-of-the-art trading technology, superior execution capabilities, worldwide electronic access, and sophisticated risk management tools at exceptionally low costs. The brokerage trading platform utilizes the same innovative technology as the Company’s market making business, which executes and processes trades in securities, futures and foreign exchange instruments on more than 100 electronic exchanges and trading venues around the world."

Last month was pretty crazy for many of the brokers, especially if they had any significant forex trading operations. When the Swiss National Bank removed their currency beg it sent shockwaves through the banking, brokerage, and currency world. You can see the big spike down in IBKR on January 16th. Fortunately, IBKR said that while they did have some clients who lost money (their accounts were now negative thanks to the wild currency swings) the total amount of potential losses for IBKR was only $120 million. That is less than 2.5% of their net worth.

The stock quickly recovered. A few days later on January 20th IBKR reported its Q4 earnings results. IBKR's 12 cents per share profit was six cents better than the $0.06 estimates. Investors seemed to ignore that fact that revenues were down -16.7% to $208.1 million and below estimates. That 12-cent profit was a +71% improvement from a year ago. IBKR's average daily trading volume was up +22% from Q4 2013.

It looks like the trading momentum has continued into 2015. IBKR just announced today that their Daily Average Revenue Trades (DARTs) were up +16% from a year ago and +15% from the prior month. Client accounts rose +17% from a year ago to 285 thousand.

Looking at IBKR's performance the last few days is encouraging. The market has been volatile while IBKR has been consolidating sideways in the $30-31 zone. A breakout higher could signal the next leg up. The point & figure chart is bullish and forecasting at long-term target of $48.00.

Friday's intraday high was $31.08. Tonight we are suggesting a trigger to open bullish positions at $31.15. Investors may want to start with small positions. There is a chance that the old 2008 highs in the $32.00-32.50 zone could be overhead resistance.

*start with small positions to limit risk*

- Suggested Positions -

Long IBKR stock @ $31.15

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

Long MAR $30 CALL (IBKR150320C30) entry $1.85

02/03/15 triggered @ 31.15
Option Format: symbol-year-month-day-call-strike


Informatica Corp. - INFA - close: 42.52 change: +0.02

Stop Loss: 40.65
Target(s): To Be Determined
Current Option Gain/Loss: -0.3%
Entry on February 06 at $42.65
Listed on February 04, 2015
Time Frame: 6 to 12 weeks
Average Daily Volume = 1.5 million
New Positions: see below

02/07/15: As expected shares of INFA did hit our entry point on Friday at $42.65. Unfortunately the market's widespread decline on Friday afternoon pulled INFA lower. Shares essentially closed unchanged on the day. Nimble traders may want to try and launch positions on a dip or a bounce near the simple 10-dma near $42.00. If you're not feeling nimble then I suggest waiting for a rise past $42.870 as our next entry point.

Earlier Comments: February 4, 2015:
INFA is in the technology sector. The company was getting a lot of attention last week as speculation soared they could be up for sale. The company describes itself as "Informatica Corporation (INFA) is the world's number one independent provider of data integration software. Organizations around the world rely on Informatica to realize their information potential and drive top business imperatives. Informatica Vibe, the industry's first and only embeddable virtual data machine (VDM), powers the unique 'Map Once. Deploy Anywhere.' capabilities of the Informatica Platform. Worldwide, over 5,500 enterprises depend on Informatica to fully leverage their information assets from devices to mobile to social to big data residing on-premise, in the Cloud and across social networks."

The stock had a relatively rough 2014 but appeared to bottom after investors sold the stock following its July earnings report. Things turned interesting last week. On January 26th the stock soared on news an activist investors was getting involved.

Bloomberg news said that hedge fund Elliott Associates was boosting its stake in INFA. This was later confirmed in a 13D filing. Elliott now owns an 8.8% stake in INFA. Elliott's manager, Paul Singer, said he might suggest to INFA management that they sell the company to unlock shareholder value. Shares of INFA soared on this news because Elliott Associates has had previous success pushing other companies to sell themselves.

There are critics. Some analysts believe this story to sell INFA is a fantasy. Wall Street is not a place to let the truth get in the way of a good story. Shares of INFA soared on speculation it could be up for sale (eventually). The very next day INFA reported its Q4 earnings. Results were better than expected.

INFA delivered a profit of $0.56 a share with revenues rising +10% to $303.7 million. That beat analysts' estimates on both the top and bottom line. INFA said their Q4 software revenues hit a record $150.2 million, up +12% from a year ago. They also signed a record-setting 41 deals worth more than $1 million and 145 deals worth more than $300,000. Their subscription revenues rose +53% year over year.

INFA management also announced a $500 million stock buyback program. The Board of Directors approved an additional $337 million to boost their current program. They will spend $300 million in an accelerated share repurchase program.

The combination of the activist investors news and the better than expected earnings results produced a strong one-two punch to the bears. INFA soared. There hasn't been that much profit taking. It looks like traders have started to buy the dip.

Tonight we are suggesting a trigger to open bullish positions at $42.65. We suspect that INFA will be able to breakout past its early 2014 highs in the $43.50 area.

- Suggested Positions -

Long INFA stock @ $42.65

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

Long MAR $42.50 CALL (INFA150320C42.50) entry $1.90

02/06/15 triggered @ 42.65
Option Format: symbol-year-month-day-call-strike


Total System Services - TSS - close: 36.48 change: -0.12

Stop Loss: 34.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on February -- at $---.--
Listed on February 05, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 883 thousand
New Positions: Yes, see below

02/07/15: Friday was a relatively quiet session for TSS. The stock drifted sideways inside a 40-cent range. Shares marked their fourth up week in a row. We expect this rally to continue if TSS can breakout past the $37.00 level. Our suggested entry point is $37.05.

Earlier Comments: February 5, 2015:
Financial stocks as a group have struggled this year. The sector is down about -4% in 2015. Yet shares of TSS is up +6.4% and trading near all-time highs.

According to a company press release, "At TSYS® (TSS), we believe payments should revolve around people, not the other way around. We call this belief "People-Centered Payments®." By putting people at the center of every decision we make, TSYS supports financial institutions, businesses and governments in more than 80 countries. Through NetSpend®, A TSYS Company, we empower consumers with the convenience, security, and freedom to be self-banked. TSYS offers issuer services and merchant payment acceptance for credit, debit, prepaid, healthcare and business solutions. TSYS' headquarters are located in Columbus, Ga., U.S.A., with local offices spread across the Americas, EMEA and Asia-Pacific."

The last few earnings reports from TSS have come in better than expected. Their most recent earnings report was January 27th. TSS' CEO said, "We finished 2014 on a high note. Organic revenue grew 5.8%, year over year, with total revenues growing 18.5% and revenues before reimbursable items up 20.2%."

Wall Street was looking for a Q4 profit of $0.53 a share on revenues of $620.4 million. TSS delivered a profit of $0.58 with revenues climbing almost 9% to $635 million. The company's guidance was only in-line with Wall Street estimates but that didn't stop shares from soaring on the news. TSS management also announced a new 20 million share stock buyback program. That's significant since the company only has 183 million shares outstanding.

The stock's up trend has created a buy signal on the point & figure chart pointing to at $40.00 target. The last few days have seen traders buying the dip. TSS looks like it's coiling for a breakout past the $37.00 level.

Given the stock's recent volatility I am labeling this a more aggressive, higher-risk trade. Tonight we are suggesting a trigger at $37.05 to buy the stock.

Trigger @ $37.05

- Suggested Positions -

Buy shares of TSS @ 37.05


BEARISH Play Updates

Abercrombie & Fitch Co - ANF - close: 25.78 change: -0.04

Stop Loss: 26.55
Target(s): To Be Determined
Current Option Gain/Loss: -3.5%
Entry on February 02 at $24.90
Listed on January 31, 2015
Time Frame: exit PRIOR to earnings on March 4th
Average Daily Volume = 2.6 million
New Positions: see below

02/07/15: ANF tried to rally on Friday but the stock failed at its 10-dma. While that's probably a good sign if you're bearish the stock did not see much follow through lower. ANF essentially closed unchanged on Friday. Considering the market's widespread decline on Friday I'm concerned that ANF is not cooperating.

Readers may want to wait for a new drop under $25.00 before considering new bearish positions. We will plan on exiting positions prior to ANF's earnings report on March 4th.

Earlier Comments: January 31, 2015:
The bear market in shares of ANF continue. ANF used to be one of the hottest brands for the much coveted teenage market. Unfortunately for ANF shareholders the company failed to keep up with the changing tastes of its audience.

For anyone who doesn't know who ANF is here is a bit from the a company press release, "Abercrombie & Fitch Co. is a leading global specialty retailer of high-quality, casual apparel for Men, Women and kids with an active, youthful lifestyle under its Abercrombie & Fitch, abercrombie, Hollister Co. and Gilly Hicks brands. At the end of the third quarter, the Company operated 834 stores in the United States and 166 stores across Canada, Europe, Asia, Australia and the Middle East. The Company also operates e-commerce websites at www.abercrombie.com, www.abercrombiekids.com, www.hollisterco.com and www.gillyhicks.com."

The company has been struggling with weak same-store sales for months, if not years, across all of its brands. Back in November 2014 they company issued an earnings warning (you can see the gap down on the daily chart). They reported earnings on December 3rd that was one cent above analysts' newly lowered estimates. Quarterly revenues were down -11.8%. Management then guided lower yet again.

ANF lowered their 2015 guidance from the $2.15-2.35 range to $1.50-1.65 a share. They continue to expect same-store sales to be negative an in the mid to high single digit percentages.

On December 9th the stock popped from multi-year lows after it was announced that ANF's CEO Michael Jeffries, a man whom many considered to be a terrible CEO, had abruptly retired. The rally from this headline didn't last very long.

It's interesting that consumer sentiment is currently at 11-year highs but we're not seeing that translate into consumer spending. Many have been expecting (hoping) that all the money consumers are saving at the gasoline pump, thanks to oil at six-year lows, would be spent on other items. Thus far we are not seeing any big trends that consumers are spending their savings and it's definitely not going toward teen apparel retailers.

There is a lot of short interest in this stock thanks to the bearish outlook for the company. This time the bears might be right. The most recent data listed short interest at 35% of the 68.1 million share float. That does raise the risk of a short squeeze should ANF suddenly bounce.

Another risk for the bears in ANF is M&A headlines. Now that the old CEO is gone there has been some speculation that ANF is a takeover target. The company also might be a target for a leveraged buy out offer to take ANF private. While this is a risk we can't time it. Any such news, if it ever happens, could be months or years away.

Right now ANF continues to underperform the market and is currently down -10% in 2015. The point & figure chart is forecasting a $17.00 target. Looking at the long-term chart the nearest support might be the $22.50 area or the $17 area.

Tonight I am suggesting a trigger to open bearish positions at $24.90.

- Suggested Positions -

Short ANF stock @ $24.90

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

Long MAR $25 PUT (ANF150320P25) entry $2.20

02/05/15 new stop at $26.55
Option Format: symbol-year-month-day-call-strike


Discovery Communications - DISCA - close: 29.91 change: +0.72

Stop Loss: 30.85
Target(s): To Be Determined
Current Option Gain/Loss: +2.2%
Entry on January 14 at $30.57
Listed on January 13, 2015
Time Frame: Exit PRIOR to earnings on Feb. 19th
Average Daily Volume = 3.8 million
New Positions: see below

02/07/15: The sideways churn between $28.70 and $30.50 continues in DISCA. Shares dropped sharply on Thursday but there was no follow through. The stock immediately ricocheted higher and outperformed the broader market with a +2.4% gain.

I am not suggesting new positions at current levels.

Earlier Comments: January 13, 2015:
We have heard for a long time that content is king. Discovery has some great content. So why is the stock suffering so poorly? The stock market posted double-digit gains last year and yet shares of DISCA was one of the market's worst performers with a -23.8% decline.

According to company marketing materials, "Discovery Communications (Nasdaq: DISCA, DISCB, DISCK) is the world's #1 pay-TV programmer reaching nearly 3 billion cumulative subscribers in more than 220 countries and territories. Discovery is dedicated to satisfying curiosity, engaging and entertaining viewers with high-quality content on worldwide television networks, led by Discovery Channel, TLC, Animal Planet, Investigation Discovery and Science, as well as U.S. joint venture network OWN: Oprah Winfrey Network. Discovery also controls Eurosport International, a premier sports entertainment group, including six pay-TV network brands across Europe and Asia. Discovery also is a leading provider of educational products and services to schools, including an award-winning series of K-12 digital textbooks, through Discovery Education, and a digital leader with a diversified online portfolio, including Discovery Digital Networks."

It looks like the revenue picture has soured for DISCA. Back in February 2014 the company reported earnings and raised their revenue guidance. One quarter later, when they reported in July, they lowered the top end of their guidance. Then in November, when they reported earnings, DISCA missed Wall Street's revenue estimate and management lowered their revenue guidance.

In a recent interview Discovery's CEO said they are having trouble monetizing all of their content. The advertising environment has gone soft and they haven't figured out why there is a lull in ad spending.

Research is forecasting that online video watching will more than double by 2020. A USB analyst believes online will eventually pose a significant threat to more traditional TV watching trends and companies. Another analyst, this time with Sanford Bernstein, believes the huge declines in TV viewership will continue. Analyst Todd Juenger said, "We believe ad-supported TV is in the early stages of a structural decline." That's long-term bearish for TV. DISCA needs to do a better job of monetizing their content online.

Technically DISCA looks very bearish. The oversold bounce from November stalled in the $36 area several time. The point & figure chart is bearish and forecasting at $23.00 price target. Today DISCA is breaking down to new 52-week lows.

We are suggesting a trigger to open bearish positions at $30.90. Plan on exiting ahead of DISCA's earnings report in mid February.

- Suggested Positions -

Short DISCA stock @ $30.57

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

Long FEB $30 PUT (DISCA150220P30) entry $1.20

01/15/15 new stop @ 30.85
01/14/15 triggered on gap down at $30.57, trigger was $30.90
Option Format: symbol-year-month-day-call-strike


Greif, Inc. - GEF - close: 39.39 change: -0.41

Stop Loss: 40.35
Target(s): To Be Determined
Current Option Gain/Loss: +1.4%
Entry on January 26 at $39.94
Listed on January 24, 2015
Time Frame: Exit PRIOR to earnings in late February
Average Daily Volume = 177 thousand
New Positions: see below

02/07/15: GEF's resistance near the $40.00 mark continues to hold - for now. Last week's bounce snapped a six-week losing streak in shares of GEF. This could be just a pause within the down trend or it could be a potential reversal. I am not suggesting new positions.

Earlier Comments: January 24, 2015:
Shares of GEF are crumbling like wet cardboard. The company operates in the consumer goods sector. They make packaging and container products. According to a company press release, "Greif is a world leader in industrial packaging products and services. The company produces steel, plastic, fibre, flexible, corrugated and reconditioned containers, intermediate bulk containers, containerboard and packaging accessories, and provides blending, filling, packaging and industrial packaging reconditioning services for a wide range of industries. Greif also manages timber properties in North America. The company is strategically positioned in more than 50 countries to serve global as well as regional customers."

Unfortunately for investors GEF did not have a good 2014 on the earnings front. They missed analysts estimates the last four earnings reports in a row. In August 2014 GEF's management guided earnings lower. In December they lowered guidance again.

GEF's most recent earnings report was January 14th and Q4 earnings plunged -90% to $8.7 million. Revenues dropped -4% to $1.05 billion, below Wall Street estimates. For all of 2014 GEF said profits declined -38% and revenue slipped -3%. Once again management guided earnings lower. They now expected 2015 earnings in the $2.25-2.35 range compared to Wall Street estimates of $2.78 a share.

The company's earnings report provided an outlook where management issued this statement:

The company anticipates the overall global economy to reflect a modest recovery in fiscal 2015, with positive aspects of the improving economy in the United States being offset by the negative trends in other regions, particularly in Europe and Latin America. We anticipate that foreign currency matters will continue to present challenges for the company, as the strengthening of the United States dollar against other currencies will continue to impact the company’s revenues and net income.

Following GEF's Q4 results several analyst downgraded their rating on the stock. The point & figure chart is bearish and currently forecasting at $31.00 target.

Technically Friday's display of relative weakness (-2.7%) broke down through significant support near $40.00. We are suggesting bearish positions immediately on Monday morning. More conservative traders may want to wait for a little confirmation (perhaps a decline below $39.25). The nearest support looks like the $35 and $30 regions.

NOTE: GEF does have options but the spreads are too wide to trade.

- Suggested Positions -

Short GEF stock @ $39.94

02/05/15 new stop at $40.35
01/26/15 trade began this morning. GEF opened at $39.94