Option Investor

Daily Newsletter, Thursday, 2/12/2015

Table of Contents

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

Market Wrap

Good News At Last?

by Thomas Hughes

Click here to email Thomas Hughes
The market surged on a triple shot of good news, but will it last?


The market surged to new 2015 highs on a triple shot of good news that couldn't have come at a better time. Two shots involve Greece and Russia. When the market closed yesterday afternoon there was fighting in the Ukraine and a chance that Greece would exit the EU. The situation changed overnight as first a tentative deal was announced for Greece and then later a cease fire in the Ukraine received the Putin seal of approval. The third shot of good news was a round of strong earnings from a number of big name companies, primarily in the tech sector, that sent the NASDAQ to new highs. The question is, will the news stay good or will it come back to spook the market again?

Market Statistics

Futures trading was up in the early hours, as were indices in Asia and Europe. The news was well received around the world and helped indices in both regions close in the green. Our indices were indicated to open higher by about 0.25%-0.5% over yesterday's close and held that level for most of the morning. Economic data in the form of jobless claims, retail sales and business inventories was not quite as expected and caused a little movement in early trading but were generally discounted in the face of earnings, long term trends and the positive vibe inspired by geopolitical events.

The bulls took charge as soon as the opening bell sounded. The markets moved up and hit an early high within the first 45 minutes of trading. There was a brief pull back mid morning that did not last long. Once the bulls regrouped they were able to then march higher into the close of trading. Today's move was led by the tech sector but all the indices participated with most setting a new 2015 high.

Economic Calendar

The Economy

Initial claims for unemployment rose more than expected. Claims jumped by 25,000 to climb back above 300,000 for the first time in over a month with a revision of 1,000 to the previous week. The four week moving average continues to decline however as the impact of the January dip is still being felt. On an not adjusted basis claims rose by 5.6% versus an expected decline of -3.0%. California reported the largest increase in claims, +18,000, followed by Pennsylvania's increase of 1,507. New Jersey is the only state to report a decline in claims greater than 1,000 with a drip of -1,608. Claims have jumped, but from a 15+ year low and are still trending below 300,000. The volatility in claims over the past few weeks could be due to the oil sector and may continue into the near future. So far the oil sector has contributed volatility but has not served to reverse the trend.

Continuing claims fell by -51,000 to 2.354 million, with a revision of 5,000 to last week. Continuing claims are now back below 2.4 million and approaching the long term lows set last fall. Claims for the second week of benefits have been trending sideways for the last couple of months but are at levels in line with a stable and strong labor market. The total number of claims for unemployment rose by 44,284 to 2.884 million. This is a modest gain from last week, and still elevated off of the long term low, but also 17.5% below claims at this time last year. If initial, continuing and total claims remain at or near these levels, and jobs creation remains strong then overall unemployment should be able to continue trending lower as it is expected to do.

Retail sales fell more than expected in January. Headline sales fell by -0.8% versus an expected decline of only -0.2%. The decline was led by gas which is down by -23.5% from the previous month. Looking back, sales are up 3.3% from January last year and up 3.8% over the past three months versus the comparable period last year. The decline has raised further speculation of whether low gas prices are helping the consumer or not... and if they are helping then where is the money going? Another thought about retail sales I have had is centered on the shipping port stand-still out west. Could it be having an impact on sales because items are making it to the shelves?

December business inventories rose, but not as much as expected. Inventories rose by 0.1% versus the expected 0.2% and may negatively impact 4th quarter GDP. On a year over year basis inventories are up 3.9% with the inventory-to-sales ratio rising to 1.33.

The Oil Index

Today's weak data helped to weaken the dollar as well and that helped send oil back above $50. This is in the face of the latest report from Cushing showing a rise in oil stockpiles. Although reserves are still on the rise growing signs of production reductions may be inspiring traders to get long, or at least to not be short. The trend in prices is still down, but $50 is emerging as a potential support level so should be watched closely. A move below could drive the price down to $40.

The Oil Index gained 1.6% in today's session and is now back at resistance. The index has been testing resistance near 1,390 for the last two weeks and has yet to break through. The indicators are still bullish but are not strong and may be indicating the top of a range. Near term support is just below the current level at 1,350. The index may range between these two levels while oil prices consolidate around $50. If oil moves one way or the other look for this index to move as well and break out of the two week range. The long term trend is up so any pull back to the up trend-line could be a buying opportunity.

The Gold Index

Gold prices tried to rebound today and gained over 1% on an intraday basis. Gold prices have been in decline of late but are still well above long term lows and potential support levels in the $1200-$1215 range. Near term events could continue to pressure gold lower but I will be looking to those as possible entries for long term positions with the expectation the FOMC is going to raise rates this year, and maybe in June or earlier.

The gold miners gained in today's session. The GDX gold miners ETF gained 1.25% and traded in a tight range around the short term moving average. The ETF is also just above support with bearish indicators. Support at $20.50 is the top of the December-January range and the base line of a double bottom reversal pattern from the same period. Support is likely to be tested and a break through could take the ETF down $17.50.

In The News, Story Stocks and Earnings

Lots of business news today and not just earnings. Perhaps the biggest deal to hit the wires today was Expedia's planned purchase of Orbitz. The deal is worth over $1.6 billion and delivers $12 in cash to current shareholders. The move further consolidates the on line travel space and is subject to regulatory approval. Expedia CEO does not think there will be a problem with approval. Shares of both companies saw significant gains in today's session. Orbitz is trading $0.30 shy of the deal price, a gain of more than 25%, while shares of Expedia gained nearly 15%.

American Express announced that it was ending its exclusive partnership with Costco. The two companies were not able to reach an agreement in order to extend the deal which ends March 31st, 2016. The loss is a big one for AXP and will have a material affect on earnings and profits as early as next year. Shares of the stock fell on the news losing 6.5% and are now sitting on long term support.

Zynga reported after the bell and disappointed on many levels. The game company reported earnings, revenue, monthly users and next quarter guidance. The report is starkly different from competitor King Digital, maker of Candy Crush, who announced a massive beat on the top and bottom line that and a special dividend of $0.94 per share. Shares of Zynga fell in after hours trading, shares of King Digital soared.

Groupon also reported after the bell and believe it or not was able to not only create a profit, but to beat estimates. Actual results of $0.06 per shares are double consensus but the forward guidance was not strong. The news caused some volatile trading in the stock which at one time was both up and down 8% in after hours trading.

The Indices

The market heard what it wanted to hear today; Greece isn't going to be a problem, Russia is backing down a little, earnings are not as bad as feared and economic data is in line with trends. The combination of positive factors and removal of fear resulted in a slow and steady march higher for all the indices. Today's move was led by the NASDAQ Composite which received a nice boost from Cisco. Cisco reported earnings after the bell yesterday and gained nearly 10% today.

The tech heavy index was moving even before the opening bell and created a small at the open. The index also moved above resistance and is now trading at a new high, very close to its all time high levels. The indicators are bullish and on the rise so this move could continue tomorrow. Momentum is not strong at this time and stochastic is overbought in the near term but both indicators have room to run before extreme levels are reached.

The S&P 500 gained just shy of 1% today. The broad market did not set a new all time high, but did set a new 2015 high and is now trading just below the current all time high. The index created a long white candle and completed what looks like a three day continuation signal centered around the 30 day moving average. The indicators are bullish and moving higher so I expect to see resistance tested in the least. Possible upside target is near 2,200 but a break above resistance is required.

The Dow Jones Transportation Average made the third largest gain today, adding 0.78% to yesterday's close. Although the index made a nice gain today it did not make a new 2015 high or any other kind. The index is still near the middle of its 3 month range with indicators pointing higher. The index is in a long term up trend and bouncing upward off the short term 30 day moving average so I am confident it will move up to the top of the range at the current all time high but anything after that is in question.

The Dow Jones Industrial Average brings up the rear in today's action. The blue chip index gained only 0.62% but unlike its cousin the transports did make a new 2015 high. The index is moving up from the short term moving average and is now trading just under resistance at the current all time high. Indicators are bullish but not yet showing strength so while I can say it looks set to give resistance a real test a break above is far from certain. There are some economic releases due out over the next week that could keep this and the other indices contained, one such being the FOMC minutes scheduled for release on Tuesday.

The market is moving higher and if the NASDAQ is any indication is on the verge of breaking to new highs. The caveat is that today's move is based in part at least on relief over Greece and Russia. This relief could easily sour and leave the bulls high and dry if Putin reneges of his new pledge, or if Greece decides it doesn't want to play ball with the EU. Even if we are able to move past these events there will always be the chance they flare up again in the future. Assuming that there is no change to geopolitical events tomorrow's session will be influenced by earnings, rebounding oil and economic data. The trend is up and the market is moving in line with the trend so I am bullish, if cautious.

Until then, remember the trend!

Thomas Hughes

New Plays

TVs As Thin As Your Smartphone

by James Brown

Click here to email James Brown


Corning Inc. - GLW - close: 24.86 change: +0.31

Stop Loss: 23.20
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on February -- at $---.--
Listed on February 12, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 8.5 million
New Positions: Yes, see below

Company Description

Why We Like It:
The future is going to look amazing if GLW has its way. The company makes a number of different products but it's probably best known for its glass. At a recent shareholder meeting GLW said they're working on a new type of glass that will allow companies to make LED TVs as thin as your smartphone.

Last year they introduced Gorilla Glass 4, which is the latest innovation in the Gorilla Glass line of scratch resistant glass that is already on three billion products around the world from smartphones, tablets, laptop PCs and more. GLW believes their new Gorilla glass automotive designs will help car companies reduce weight so carmakers can achieve the U.S. regulations to double miles-per-gallon performance by 2025.

Large screen TVs will continue to get larger. GLW said that the large-size TV display industry grew more than 50% last year. Right now the average TV screen is growing more than 1 inch per year. Every inch in screen size adds about 150 million square feet of additional glass demand.

The company describes itself as "Corning (www.corning.com) is one of the world`s leading innovators in materials science. For more than 160 years, Corning has applied its unparalleled expertise in specialty glass, ceramics, and optical physics to develop products that have created new industries and transformed people`s lives. Corning succeeds through sustained investment in R&D, a unique combination of material and process innovation, and close collaboration with customers to solve tough technology challenges. Corning`s businesses and markets are constantly evolving. Today, Corning`s products enable diverse industries such as consumer electronics, telecommunications, transportation, and life sciences. They include damage-resistant cover glass for smartphones and tablets; precision glass for advanced displays; optical fiber, wireless technologies, and connectivity solutions for high-speed communications networks; trusted products that accelerate drug discovery and manufacturing; and emissions-control products for cars, trucks, and off-road vehicles."

Last year the company delivered very consistent revenue growth. Their 2014 Q1 revenues were up +31.7%. Q2 revenues rose +27.5%. Q3 saw sales up +25.7%. GLW just reported their Q4 results on January 27th. Revenues soared +29.8%. Earnings were up +55% from a year ago to $0.45 a share, which was seven cents above Wall Street estimates. GLW management said, "We are entering 2015 with positive momentum in all of our businesses."

Investors have been consistently buying the dips in GLW. Today shares challenged their January highs and look poised to breakout to new multi-year highs. Tonight I am suggesting a trigger to open bullish positions at $25.20. We'll start this trade with a relatively wide stop loss at $23.20.

Trigger @ 25.20

- Suggested Positions -

Buy GLW stock @ (trigger)

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

Buy the May $25 CALL (GLW150515C25) current ask $1.10

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

Intraday Chart:

Daily Chart:

In Play Updates and Reviews

Cease-Fire Fuels The Rally

by James Brown

Click here to email James Brown

Editor's Note:
News of a potential cease-fire in Ukraine and a hopes for a deal to keep Greece in the Eurozone helped keep the market rally going. Oil managed a bounce as well in spite of record high storage levels.

Current Portfolio:

BULLISH Play Updates

Cree, Inc. - CREE - close: 37.43 change: +0.57

Stop Loss: 34.85
Target(s): To Be Determined
Current Option Gain/Loss: +2.4%
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

02/12/15: CREE continued to push higher today and managed to outperform the broader market with a +1.5% gain. Tonight we will raise our stop loss up to $34.85.

In other news CREE announced that U.S. regulators are looking into CREE's claim that Feit Electric Company has infringed on ten of CREE's patents.

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

02/12/15 new stop @ 34.85
02/05/15 triggered @ 36.55
Option Format: symbol-year-month-day-call-strike

Interactive Brokers Group - IBKR - close: 32.55 change: +0.08

Stop Loss: 30.90
Target(s): To Be Determined
Current Option Gain/Loss: +4.5%
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

02/12/15: IBKR briefly traded to new highs this morning. The rally failed under the $33.00 level and shares reversed. It was a disappointing performance considering the market's widespread rally.

Tonight we will raise the stop loss to $30.90.

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

02/12/15 new stop @ 30.90
02/03/15 triggered @ 31.15
Option Format: symbol-year-month-day-call-strike

Informatica Corp. - INFA - close: 44.00 change: +0.61

Stop Loss: 41.85
Target(s): To Be Determined
Current Option Gain/Loss: +3.2%
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

02/12/15: It has been a strong week for INFA. The stock added another +1.4% with today's gain pushing INFA to new multi-year highs. We will raise the stop loss to $41.85.

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

02/12/15 new stop @ 41.85
02/06/15 triggered @ 42.65
Option Format: symbol-year-month-day-call-strike

Linear Technology Corp. - LLTC - close: 47.93 change: +0.71

Stop Loss: 44.90
Target(s): To Be Determined
Current Option Gain/Loss: +1.2%
Entry on February 11 at $47.35
Listed on February 10, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.7 million
New Positions: see below

02/12/15: The rally in LLTC accelerated today with a +1.49% gain. If you were looking for LLTC to confirm the recent breakout you got it.

Earlier Comments: February 10, 2015:
LLTC is part of the technology sector. The company makes an array of semiconductor products.

According to the company, "Linear Technology Corporation, a member of the S&P 500, has been designing, manufacturing and marketing a broad line of high performance analog integrated circuits for major companies worldwide for over three decades. The Company’s products provide an essential bridge between our analog world and the digital electronics in communications, networking, industrial, automotive, computer, medical, instrumentation, consumer, and military and aerospace systems. Linear Technology produces power management, data conversion, signal conditioning, RF and interface ICs, µModule® subsystems, and wireless sensor network products."

Back in October 2014 LLTC reported earnings that were in-line with estimates but management guided lower. They tried to soften this disappointing news by announced a 10 million share stock buyback program over the next two years (the company has about 239 million shares outstanding).

The earnings picture improved with their most recent report. LLTC reported Q4 earnings (its fiscal Q2) on January 13th. Earnings were up +16% from a year ago with a profit of $0.51 a share. That was two cents above estimates. Revenues were up +5.4% to $352.5 million, which was just a hair below expectations.

The company has retired its debt and management said they plan to increase the amount of cash they return to shareholders. With their earnings report they also announced the Board of Directors had bumped their quarterly dividend from $0.27 to $0.30. That's the 23rd year in a row LLTC has raised its dividend. Management also offered a bullish outlook on their current quarter. LLTC now expects revenues to improve +4% to +7% sequentially. That's about $366-377 million, which is above the $364 million analyst estimate.

Technically shares of LLTC have been consolidating sideways below resistance in the $47.00-47.25 zone for about eight weeks. If you look closely you can see an inverse head-and-shoulders pattern (a bullish formation). The stock was definitely showing some relative strength today with a +2.7% gain. Now LLTC is poised for a bullish breakout past resistance. We are suggesting a trigger to open bullish positions at $47.35.

- Suggested Positions -

Long LLTC stock @ $47.35

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

Long May $50 CALL (LLTC150515C50) entry $0.85

02/11/15 triggered @ $47.35
Option Format: symbol-year-month-day-call-strike

Altria Group Inc. - MO - close: 55.54 change: +0.78

Stop Loss: 52.80
Target(s): To Be Determined
Current Option Gain/Loss: +0.5%
Entry on February 12 at $55.25
Listed on February 11, 2015
Time Frame: 10 to 16 weeks
Average Daily Volume = 7.8 million
New Positions: see below

02/12/15: We didn't have to wait long for MO to hit our entry point. Shares broke out from its $53-55 trading range and hit our suggested entry at $55.25. I would still consider new positions now or nimble traders could look for a dip.

Earlier Comments: February 11, 2015:
The yield on the U.S. 10-year note is trading just below 2%. Two weeks ago the 30-year U.S. note had dropped to multi-decade lows. Yields on sovereign debt from healthy European countries like Germany are trading near all-time lows near zero. Last week saw yields on huge European corporate debt, like Nestle, actually go negative.

Super low or negative yields paints a picture that investors are nervous. Smart money is looking for safety. They would rather park their money in bonds with little to zero yield (or even negative yield in some cases) just to know their money is safe. This is one reason why shares of MO look so attractive. Even at all-time highs, like it is now, MO has a 3.9% dividend yield.

The traditional cigarette industry is slowly dying. That's a good thing since the practice is so poisonous. The cigarette industry saw the volume of cigarettes decline -2.5% in the Q4 2014 and down -3.5% in all of 2014. The drop in volume for MO was not quite that bad. Yet even though the number of cigarettes being sold is falling the company continues to make money and a lot of money at that!

One secret to MO's profitability has been price increases and stealing market share from its rivals. A strong stock buyback program also helped its earnings numbers. Last quarter the company spent $260 million buying about 5.3 million shares of its stock. This helped boost its earnings per share growth to +15.8% in the fourth quarter. Results were $0.66 a share, in-line with estimates. Revenues grew +4.7% to $4.61 billion, which beat analysts' expectations.

Almost 90% of MO's business is still in the smokeable category (i.e. traditional cigarettes). They managed +3.3% revenue growth even though their volumes were down -1.7%. They're also seeing growth in their smokeless products, namely the e-cigarette business. Management offered bullish guidance of +7% to +9% growth in their earnings per share for 2015.

MO is likely to stay a popular investment among yield-conscious traders, especially since their business is so addictive, I mean predictable. The stock has been consolidating sideways in the $53.00-55.00 zone the last couple of weeks. Today shares displayed relative strength with a surge toward the top of this range. We want to be ready if MO breaks out. Tonight I am suggesting a trigger to open bullish positions at $55.25. Keep in mind that MO is something of a slow-moving stock. We will need to be patient for this trade to pay off.

- Suggested Positions -

Long MO stock @ $55.25

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

Long JUN $55 CALL (MO150619C55) entry $2.00

02/12/15 triggered @ 55.25
Option Format: symbol-year-month-day-call-strike

Silicon Motion Technology - SIMO - close: 29.47 change: +0.60

Stop Loss: 27.85
Target(s): To Be Determined
Current Option Gain/Loss: -2.3%
Entry on February 09 at $30.15
Listed on February 07, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 538 thousand
New Positions: see below

02/12/15: SIMO outperformed the U.S. market's major indices with a +2.0% gain. However, today's move is an inside day (inside yesterday's range). This suggest indecision on the part of traders. I am urging caution here. No new positions at this time.

Earlier Comments: February 7, 2015:
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.

- Suggested Positions -

Long SIMO stock @ $30.15

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

Long MAR $30 CALL (SIMO150320C30) entry $1.80

02/09/15 triggered @ 30.15
Option Format: symbol-year-month-day-call-strike

Sensata Technologies - ST - close: 52.49 change: +0.19

Stop Loss: 49.65
Target(s): To Be Determined
Current Option Gain/Loss: -0.7%
Entry on February 10 at $52.85
Listed on February 09, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.2 million
New Positions: see below

02/12/15: Traders bought the dip in ST near $52.00 for the second day in a row but the rally didn't make it very far. I am not suggesting new positions at this time.

Earlier Comments: February 9, 2015:
ST is a Dutch technology company that makes sensors. According to the company, "Sensata Technologies Holding N.V. is one of the world's leading suppliers of sensing, electrical protection, control and power management solutions with operations and business centers in eleven countries. Sensata's products improve safety, efficiency and comfort for millions of people every day in automotive, appliance, aircraft, industrial, military, heavy vehicle, heating, air-conditioning and ventilation, data, telecommunications, recreational vehicle and marine applications."

ST has been delivering consistently strong revenue growth. Their 2014 Q1 revenues were up +17.3%. Q2 revenues grew +13.7%. Q3 revenues jumped +15.7%. ST reported a significant acceleration in their Q4 revenues with +39.7% growth to $705.3 million, which was above expectations. Management issued relatively cautious guidance for the first quarter and full year 2015 estimates. That did not slow the rally.

Shares of ST were showing relative strength today with a +1.7% gain. The trading in ST over the last few weeks looks like a consolidation and a new base to build its next leg higher on. Tonight I am suggesting a trigger to open bullish positions at $52.85. The $54.00 level is overhead resistance but we are expecting the larger up trend to power ST through this obstacle.

- Suggested Positions -

Long ST stock @ $52.85

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

Long JUN $55 CALL (ST150619C55) entry @ $1.85

02/10/15 triggered @ 52.85
Option Format: symbol-year-month-day-call-strike

Total System Services - TSS - close: 36.92 change: +0.40

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

02/12/15: We have been patiently waiting for TSS to breakout from its sideways consolidation. Today's rally leaves TSS just below resistance at $37.00. Shares could hit our entry point at $37.05 tomorrow.

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: 25.23 change: +0.72

Stop Loss: 26.55
Target(s): To Be Determined
Current Option Gain/Loss: -1.3%
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

02/12/15: The market's widespread gains continue to help fuel an oversold bounce in ANF. Shares are testing short-term resistance at its simple 10-dma. A failure here could be used as a new entry point. However, I suspect we might see ANF trade up into the $25.50-25.75 zone before it starts to roll over.

FYI: 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