Option Investor

Daily Newsletter, Saturday, 2/14/2015

Table of Contents

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

Market Wrap

Friday the 13th Not a Problem

by Jim Brown

Click here to email Jim Brown

There were no black cats or broken mirrors on Friday but several of the major indexes broke out to new highs. Investors were not walking under ladders but using them to climb the wall of worry to those new heights.

Market Statistics

Hopefulness over a potential resolution in Greece, a possible cease fire in the Ukraine and stronger economic data out of Germany seemed to energize investors and the major indexes crept slowly higher to historic levels. The S&P-400 Midcap, S&P-500, Russell 1000, 2000 and 3000 and the Semiconductor Index closed at historic highs and the Nasdaq Composite and Nasdaq 100 closed at new 15-year highs. The Dow was the laggard after American Express (AXP) lost -$8 over the last two days to knock more than 50 points off the Dow and held the index to only modest gains.

Only one economic report generated any interest on Friday. The Consumer Sentiment headline number for February fell from 98.1 to 93.6 and giving back all of January's gains. The prior month number was an 11-year high and analysts had it expected February to be flat. The decline from expectations of 98.1 to 93.6 was the biggest estimate miss on record. Both components declined. The present conditions component declined from 109.3 to 103.1. The expectations component declined from 91.0 to 87.5.

Respondents were less comfortable with their finances in February than January. This is probably due to the holiday credit card bills coming due. Forty-four percent said finances were better than a year ago, down -4% from January, and 29% said their finances were worse, up +2% from January. Another 29% believed business conditions will improve in 2015 and 50% said the country was headed for good times in 2015, down from 61% in January.

Consumers have noticed that gasoline prices began to rebound at the end of January with a +30 cent spike at the wholesale level since January 27th. After paying a low of $1.57 several weeks ago the listed prices at my local station are now $1.97. Gas prices are still cheap but the panic lows quickly evaporated. Rising gas prices quickly put a crimp in investor sentiment.

Consumers are not spending money. On Thursday we saw the retail sales for January decline -0.8% after a -0.9% decline in December. Consumers are saving their windfall from fuel prices rather than rushing to the malls. Healthcare prices are rising and a lot of people are unsure how this will impact their income tax and worry they might be forced to refund some of the subsidies. More than 80% of Obamacare users receive subsidies. Five of the eleven categories in the retail sales report declined sharply and the others posted only minor gains.

The economic calendar for next week is also light with the exception of the Philly Fed Manufacturing Survey on Thursday. That is the economic highlight of the week and it is expected to rise and that would be the first gain in three months.

The FOMC minutes on Wednesday will be a potential trouble spot because of their bearing on future Fed policy.

The big news event will be the Yellen testimony to congress the following Tuesday. With all the uncertainty about the Fed her testimony in front of the newly constituted congress will be critical. With a republican faction wanting to audit the Fed the questions may be a little more hostile this time around.

No changes to the spilt calendar this week.

Friday was a slow news day with the Greek debacle the main headline. Greece and its creditors are extending talks over the weekend in hopes of reaching a deal before the Monday meeting of EU finance ministers in Brussels. The new prime minister Alexis Tsipras has promised to exit the current bailout program, which he blames for the slide in the Greek economy. He is trying to negotiate a bridge financing deal to make payments while allowing the various parties another 90 days to come up with an acceptable solution. Tsipras wants to raise wages and reinstate government workers but the Troika is against those actions because it would increase the deficit for Greece.

The current head of the EU finance minister meetings is the Dutch finance minister Jeroen Dijsselbloem. He said on Friday, "You can only spend money when you have it. Greece wants a lot but has very little money to cover those desires." If the troika gives in to the Greek demands then other countries would want a new deal on their indebtedness. Spain and Italy would be at the top of the list.

Tsipras campaigned on ending austerity, getting the troika to write down the balances on the Greek debt and to end audits of the Greek books by the troika. He has since cut back on his demands once he found out that actually governing was a lot tougher than talking about governing. The bailout loans made by the troika initially went to cover existing Greek debt and to pay various amounts of past due bills. The Troika audits routinely discovered fraudulent bookkeeping by Greece and every discovery led to more loans. The troika will not want to give up their audits for obvious reasons. For the last two years the majority of the loan payments from the troika actually went to pay interest on the loan balance. Essentially the troika was loaning Greece money to pay the interest on the earlier loans. This increased the loan balances significantly. Now Tsipras wants the banks that profited from those loans and payments to refund those payments so Greece can use the money to pay down the debt rather than make payments on the debt. I seriously doubt this will fly. It would be the equivalent of going to your mortgage company and demanding they refund the last three years of interest so you can use the money to pay principal instead.

Uncertainty over the fate of Greece has caused depositors to withdraw nearly 20 billion euros from Greek banks. Those banks have been supported by 65 billion euros of Emergency Liquidation Assistance (ELA) from the Bank of Greece, subject to approval by the ECB. If Greece can't strike a deal by Monday's meeting the ECB governing council would likely cut off or limit the amount of ELA cash available to the Bank of Greece. The council meets on February 18th. The EU and ECB don't want Greece to leave the eurozone because it would create a precedent that other nations could follow to further fracture the eurozone. They may not have any choice if Tsipras stands his ground and demands structural changes or Greece will exit.

I think the market has already factored in some kind of a deal. The market does not expect the worst but it does expect some kind of compromise. If it becomes clear over the next week that a compromise is not going to happen then the market could suffer. ANY actual compromise that leaves Greece in the eurozone should be market positive.

The other geopolitical headline supporting the market was the peace deal in the Ukraine. In theory France, Germany, Russia and the Ukraine agreed to a cease fire after "epic" 16-hour talks. The cease fire was due to start at midnight on Saturday. That left two days for forces to push for as much ground gains as they could muster. The cease fire line is whatever each side controls as of midnight Saturday. Journalists said the fighting has been fierce as each side tries to gain more ground. The fiercest fighting was for control of Debaltseve in an effort to keep it inside Ukraine control.

The $64 question here is whether or not Putin will respect the ceasefire. He has never respected any of the earlier agreements. Even by gaining control of a large portion of eastern Ukraine with part of Donetsk and Luhansk he has failed to secure a land bridge to Crimea, which would have required control of a portion of Zaporizah and Kherson as well. The Russian Black Sea fleet harbors at the ice free deepwater port of Sevastopol. Without a capturing a contiguous stretch of land from Russia across eastern Ukraine the fleet is cutoff with access either by plane or ferry. It is tough to move tanks and heavy equipment on a ferry across the 5 kilometer wide strait between Russia and Crimea. The odds are very good the ceasefire will not hold and Putin will continue to press for land access.

American Express (AXP) is finding that breaking up may be easy but it is still painful. Friday afternoon Bloomberg reported the company was breaking up with JetBlue (JBLU) and parting ways on their co-branded credit card. This came only one day after AXP said it was breaking up with CostCo (COST) and would no longer provide them with a cobranded card once the current agreement ends in March 2016. Costco accounts represent about 20% of AXP loans and about 8% or $80 billion of its billed business. AXP shares lost -6% on Thursday on the Costco news.

Bloomberg said JetBlue had reached an agreement with Barclays and MasterCard for a future branded card. JetBlue had been partners with American Express since 2005. AXP shares lost another -3% on Friday on the JetBlue news.

Apple (AAPL) rose to another new high at $127.08 on Friday after news broke that the company is working on building an electric car. Several hundred employees are working on creating an electric car in a project code-named "Titan." The early designs are said to resemble a minivan. There is no guarantee they will complete the project but with hundreds of engineers working on the project they are definitely serious. The leak came from the Wall Street Journal. The Financial Times also reported that Apple was hiring automotive experts to work in a secret research lab. They have a long way to go to catch up with Tesla but they have more than enough cash on hand at $178 billion to complete the task.

Apple is rumored to be planning a new product announcement for February 24th. It has not been publicly announced yet but several Apple insiders have confirmed it.

After the close Alibaba (BABA) said it had received a request for information from the SEC related to its dealings with a Chinese regulator. The SEC wants to know about dealings with China's State Administration and Commerce or SAIC regarding the issue of fake products being sold on the company's websites. The SAIC issued a white paper last month saying it had met with Alibaba before the IPO to discuss the problem of fake items sold on its platform. However, SAIC had withheld the report until after the IPO to not affect the public offering in September. The SAIC retracted the report a couple weeks after it was published. BABA shares fell -4.4% when the report was released. Now the SEC wants to know the details behind the investigation and why the SAIC backed off.

Alibaba's Chairman Jack Ma had some bad news for employees this year. Traditionally during the Chinese Lunar New Year the company handed out red envelopes stuffed with cash to employees as bonuses. The New Year is next Thursday and Ma said there will not be any red envelopes this year. He said Alibaba's performance in 2014 was not good enough to warrant handing out bonuses. The company said "Red envelopes are not guarantees. They are a discretionary part of a larger compensation package." Employees will still receive their year-end bonus this month, which is usually equivalent to one month's salary.

SeaDrill (SDRL) shares fell -13% after the company reduced its order backlog by -$1.1 billion due to problems at Petrobras. The top management at Petrobras quit earlier this month in a widening corruption probe. The company said it may take until the end of May to account for the losses. SeaDrill had an order backlog of $20 billion at the end of Q3 and announced contract extensions in November. Day rates for the best rigs have fallen from $650,000 to $400,000 and may fall even further.

Heartland Payment Systems (HPY) reported earnings of 42 cents that missed estimates of 68 cents by a wide margin. Revenue of $604 million also missed estimates of 622 million. However, the company raised its quarterly dividend by 17% to 10 cents. The company also guided lower for 2015 to earnings in the $2.75-$2.85 range on revenue of $775 million. Analysts were looking for $3.00 and $782 million. Shares fell -10% on the news.

Assurant (AIZ) reported adjusted earnings of 87 cents that missed analyst estimates of $1.66. Revenue of $2.62 billion also missed estimates of $2.64 billion. Multiple segments posted lower results and they missed on full year earnings. The guided for 2015 for earnings to be in line with 2014. Some segment premiums were expected to decline in 2015. There was not much in the report that was positive.

Zillow (Z) reported earnings after the close on Friday of 24 cents that missed estimates by a penny. For the full year the company reported a loss of $1.09 on revenue of $326 million. The company said it would close the acquisition of Trulia as early as Tuesday after the FTC closed its investigation on Friday. The original $3.5 billion acquisition, now valued at $1.78 billion gives 0.444 of a Zillow share to Trulia shareholders. The decline in Zillow's share price impacted the value of the deal. The acquisition led to additional costs for Zillow in Q4 and that reduced their earnings. Shares of Zillow rose +$6 in afterhours.

Earnings are winding down pretty fast. The highlights for next week are Jack in the Box on Tuesday, Marriott and EOG on Wednesday, Walmart, Priceline and Nordstrom on Thursday followed by Deere on Friday. The lack of material earnings means the market will focus more on the earnings we do have. While 79% of companies have reported earnings that beat the street the earnings guidance has been especially bad. The ratio of negative to positive guidance is 5.6 to 1 and normal is 2:1.

Security firm, Kaspersky Lab, will publish a report on Monday showing that more than 100 banks in 30 countries have lost more than $300 million to hackers. It will go down as one of the biggest bank robberies ever and was perpetrated by a criminal group that included Russians, Chinese and Europeans. The hackers infiltrated the banks with malicious software that sat dormant for months monitoring bank processes and daily routines. When the software went active based on all the accumulated data hundreds of millions of dollars was transferred from banks in the U.S., Russia, Japan, Switzerland and the Netherlands into dummy accounts setup in other countries. While Kaspersky has evidence of at least $300 million in losses the company believes the actual loss could be triple that amount.

Kaspersky said because of nondisclosure agreements with the banks that called them in to analyze the attacks they can't identify the banks but the White House and the FBI have been briefed on the findings. The amounts transferred were kept under levels that would have triggered additional scrutiny but the largest transfers hit $10 million. The security company said the group "Carbanak cybergang" represented an increase in the sophistication of cyber attacks on financial firms. After gaining access to the bank systems they installed a Remote Access Tool or RAT that could capture videos and screenshots of computer screens and transactions on employee computers. The goal was to be able to mimic valid transactions so the transfers would go unnoticed.

The group setup fake accounts at JP Morgan Chase and the Agricultural Bank of China to receive the transferred funds. Neither bank would comment to the New York Times. When it came time to retrieve the funds the group sent commands to ATMs at numerous locations to dispense all its cash at a preset time when an accomplice would be waiting. In one such instance the accomplice did not appear and the ATM just started spewing cash for anyone nearby to grab. This alerted authorities to the scam. One bank lost $7.3 million through ATM withdrawals alone. Other methods included inflating the digital balance in a random individuals account by thousands of dollars then transferring the money away from the bank into other accounts then returning the digital balance to the original amount over a period of just a few minutes. The user was never the wiser that his account had been used. Link to full story

The increasing incidence of cyber attacks is going to increase the importance of security firms like FireEye (FEYE), Palo Alto Networks (PANW), Symantec (SYMC), CheckPoint (CHKP) and others. These firms will become indispensible to corporations to not only prevent these kinds of attacks but track the intrusions and help identify the culprits when they do occur. These companies are investing heavily in research and technology and should be in your portfolio.

Crude oil only gained 61 cents for the week but it closed at a 6-week high at $52.65. It is pretty much a tie between those analysts that believe oil has bottomed and those that believe we will see lower lows. OPEC helped lift prices last week when they sharply upgraded their expectations for demand. They now expect demand for OPEC oil in 2015 to be 29.21 mbpd an increase of 430,000 bpd from their last forecast. They now expect non-OPEC supply to increase only 850,000 bpd in 2015 and -420,000 bpd less than their prior forecast. OPEC produced 30.15 mbpd in January, down -53,000 bpd from December.

OPEC officials said the sharp decline in capex spending and the rapid decline in active rigs in the U.S. would slow the growth in U.S. production. OPEC now believes U.S. production will be lower by -170,000 bpd. Global demand is expected to grow by 1.17 mbpd in 2016 to 92.32 mbpd.

U.S. crude inventories rose by another 4.9 million barrels to 417.9 million and an 80 year high. Beware the price when refiners and tank farms run out of storage capacity.

Active rigs in the U.S. declined last week by -98 to 1,358. Oil rigs declined -84 to 1,056 and gas rigs fell -14 to 300. That is an 18-year low for gas rigs. Active rigs have now declined -572 or -29.7% since the cycle high of 1,931 in September. This is the fastest decline on record.


Multiple indexes broke out to new highs on Friday. However, a breakout is not a one day event. The three day rule definitely applies. In this case we don't consider it an actual breakout unless the market remains over the old highs and adds to its gains for at least three days. The S&P only closed about 6 points over its old closing high of 2,090.57 and momentum was sluggish. In cases like these we have to be on watch for a double top to form at this level and for the index to roll over. While I am not expecting that it is always a caution when indexes return to prior highs.

I believe the Dec/Jan volatility was consolidation from the 2014 gains. Despite the number of days where the Dow lost triple digits the maximum declines were only about -4%. While some of them were scary there was no real danger since support always held.

We consolidated for about six weeks with three major attempts to sell off but none could break support. This gave the bulls confidence and now they are pressing the advantage. If the S&P can press on to psychological resistance at 2,100 and actually surpass it then investors should appear in volume and we will start a new leg higher.

The wall of worry is starting to crack. Q4 earnings dropped sharply in the early days of the cycle but have rebounded to +7.5% growth. Job growth appears to be strong and improving. However, earnings are expected to decline -1.9% for Q1 due mostly to the energy sector. Recent economic reports have been declining. Offsetting the economic worries is the hope that Russia will cease hostilities in the Ukraine, Greece will work out a deal and China will enact a new stimulus program. Also, German GDP actually rose in the last report.

While the economic and geopolitical fundamentals are actually in turmoil the Fed just keeps on repeating the party line that the economy is growing and apparently the investing public believes them.

The bulls are climbing the wall of worry and the positive data points are actually accelerating the climb.

Now that we have a tentative breakout it will be up to investors to either confirm it with further gains or quickly take profits now that we have returned to the December levels.

The S&P is facing psychological resistance at 2,100 and the first target level of analysts for the end of 2015. This fact will not be lost on the investing public. Once over that level the next resistance is in the range of 2,125.

The Dow benefitted from rising oil prices with CVX, XOM and CAT leading the gains on Friday. However, it was hardly a charge to new highs. The Dow only gained +46 points and did not reach a new high. American Express knocked off more than 50 Dow points over the last two days and was a weight on the index. There were quite a few names on the losing side of the ledger but all but two were only fractional losses. There was simply no excitement on the Dow stocks. In theory this is because of the negative impact of the strong dollar since all the companies operate internationally.

The Dow closing high in December was 18,053.71. The high on Friday was 18,037 so even the intraday high failed to reach the December levels. The intraday high in December was 18,103 so the Dow needs to add another 100 points to really threaten a breakout.

Support is now 17,800 and resistance those 18,053 and 18,103 levels.

The Dow also has some long term uptrend resistance in the 18,150-18,200 range.

The Nasdaq Composite has broken out. Unlike the wimpy +6 point breakout on the S&P the Nasdaq is in lift off mode. The strong resistance at 4,800 has been strongly broken by a two day ramp to 4,894 at Friday's close. This is a real breakout and shorts are running scared. In the table below there were quite a few big gainers on Friday with only seven stocks losing more than $2 on the Nasdaq. Market breadth was strongly positive with 1,629 advancers to 945 decliners. There were 130 new 52-week highs and the most since the day after Christmas when the index set the last 15-year high.

Apple has broken out with a $7 gain over the last material resistance at $120. This helped power the Nasdaq higher. Google is also at a post November high after a really ugly month. Amazon is at a 52-week high after surprising with strong earnings in late January.

The tech sector is on fire with the Semiconductor Index also in breakout mode. Biotechs have not been leading but the sector indexes are finally showing life again and they could lead the Nasdaq higher next week.

There is uptrend resistance at 4,925 and support is well back at 4,800 and 4,725.

The historic high close was 5,132 in March of 2000.

The Russell 2000 broke over strong resistance at 1,208 and the prior high close of 1,219 to close at 1,223 on Friday. This was another wimpy breakout that needs to be confirmed by several more days of gains. A new high by +4 points is barely a new high. In theory the small caps don't have the strong dollar exposure and should continue to rise as long as the U.S. economy remains in growth mode.

Resistance 1,225, support 1,208 and 1,200.

The Dow Transports did move higher by +1% last week but they are struggling. Oil prices have quit going down and fuel prices are rising. They should continue to be under pressure until the economic reports improve. Slowing economics and rising fuel prices are not a recipe for a transport breakout.

I believe the market is going to try and move higher. While U.S. investors have grown tired of the Greek headlines we still face a danger from that if no agreement is reached. The Ukraine annexation has reached the point where nobody on this side of the pond seems to care so that should have little impact on the U.S. markets. The FOMC minutes on Wednesday should be the next hurdle but without a significant change in tone they should just reinforce what traders already know.

I would watch for further upside confirmation by the S&P and Russell 2000 and without that I would be cautious about buying this rally. Any further gains would be a positive signal for investors so be prepared to climb aboard if the train leaves the station.

Random Thoughts

Winter storm Neptune is bearing down on the Northeast with some of the lowest temperatures in 20 years. The Weather Channel said wind chills in New York could be -30 below on Monday. Apparently the Polar Vortex has returned with a vengeance. Temperatures in Boston could dip below zero for the first time since 1994. The area has up to 5 feet of snow on the ground and more on the way. This is unprecedented in modern times.

Retail sales in January declined -0.8% after a -0.9% decline in December. If the port problems in California continue much longer the declines are going to get a lot worse. If a complete shutdown occurs the results could be catastrophic. Already the impact of the long running port slowdown will impact GDP and cause the loss of thousands of jobs. Without merchandise to sell the stores will lay off workers. Without parts to fuel the manufacturing process many factories will lay off workers. The transportation supply chain is grinding to a halt with goods to be imported into California still locked on more than 35 ships anchored offshore Los Angeles harbor and every port on the coast.

The labor problem is very unrealistic to people who don't live in California. A dock worker earns $147,000 a year, plus $35,000 in employer paid healthcare and an annual pension of $80,000 according to press releases. Add in overtime and the total wages and benefits balloons to more than $250,000 a year. They are negotiating to get a hefty raise above those numbers. Shipping companies announced on Thursday they were partially shutting down the docks for four days in the middle of the dispute. That is basically a lockout where the workers don't get paid. The shipping companies don't want to pay overtime because they claim the dock workers have slowed production to the point that it requires constant overtime to get any ships unloaded. "Slowing down production significantly represents a strike with pay." The vessel trade at West Coast ports represents 3.5% of GDP. A continued slowdown or eventual shutdown would be economic suicide.

Greece could win the debt argument. Greece owes the Troika (EU, ECB, IMF) 315 billion euros. They can't afford to even pay the interest on the debt and will never be able to pay off the actual debt. The Eurozone is the bank and they have two choices. They can play hardball and kick Greece out of the Eurozone and forfeit the entire balance. There would be massive write downs and recapitalizations. It would be a horrendous problem for the eurozone.

The second option is to restructure the debt by writing off a large portion and extending the payment stream for decades into the future so the payment shrinks to the point where Greece can at least make the payments. Basically this is the equivalent of kicking the can way down the road. The banks realize they will never be repaid. However, with a 50 year repayment schedule they can write off the balance slowly over the next several decades so when Greece finally defaults it won't be such a catastrophe.

The Eurozone would survive intact for a few more years and on the surface "face would be saved" and the status quo would continue. Greece wants the ECB to buy Greek bonds with a 5 year maturity, which would give Greece some money to pay the interest on the big debt. Everyone could go back to business as usual and the talks would restart five years from now. The Greek theory is that the ECB is ready to launch QE so launch some towards Greece and the short term problem is solved.

The eurozone has the biggest problem. While Greece was stupid enough to accept the bailout and 315 billion euros of debt the eurozone was even more stupid to lend it to them when they knew they had no chance of paying it back. Obviously the eurozone was the most stupid in this deal and now they are paying for their stupidity.

The indexes are breaking out to a new high so the bull market is alive and well. At least that is the conventional wisdom. However, Credit Suisse just lowered their S&P midyear target for 2015 from 2,250 to 2,100 only 3 points above Friday's close. His end of year target dropped from 2,200 to 2,150. Analyst Andrew Garthwaite said the gains from now until the end of the year to be just 5% and the lowest gains in five years. Previously Garthwaite had been expecting 2,250 at midyear and 2,200 at the end of December.

He said U.S. and global earnings revisions are at 6 and 3 year lows respectively and levels that have been associated with flat markets in the past. He said geopolitical headlines and economics are likely to be a headwind until summer. He still expects gains for the year but well below prior year gains.

UBS analysts Ramin Nakisa and Stephane Deo warned "the calm of the markets is not consistent with near-term risks." They recommend cutting exposure to stocks because of geopolitical and global economic risks. They said the market is "very sanguine" about the potential for a sell off and "We believe it is time to reduce equity exposure."

This comes at the same time that several SEC filings from various hedge funds show they are reducing their exposure to stocks. David Tepper's Appaloosa Management cut exposure to U.S. stocks by 40%. Appaloosa reduced equity exposure by -$2.74 billion to $4 billion by exiting positions in Citigroup, Halliburton, Facebook, Ford, Alibaba, CBS and Apple. The firm also sold almost all its shares in the SPY that tracks the S&P-500.

Technician Tom McClellan said he turned neutral on the market at Thursday's close. He believes the markets are putting in a short term top and are now due for two weeks of choppiness, followed by an upturn at the end of February. However, the lack of the classic signs of a major top makes him believe the market will move higher in March.

Putin won again. The Minsk Summit with Putin, Merkel and Hollande only had one possible outcome. Putin would agree to some concessions in order to avoid being the villain. Had he snubbed Merkel and Hollande he would have lost what little political credibility he has left and guaranteed a new round of tougher sanctions from Europe. Now that the agreement is in the books Putin is seen as the peacemaker for at least the next several days. When the agreement fails and fighting breaks out again he can blame it on Ukraine forces and launch a new wave of attacks to gain more ground.

Think about this. Putin has claimed for months that Russian troops are not in the Ukraine and he has no influence over the conflict. However, he is willing to negotiate terms like troop withdrawals, neutral zones and a halt to artillery fire. Obviously his tattered veil of denial is falling apart. There is almost no chance the Russian/rebel troops will honor the cease fire for more than a few days at most.

The $564.1 million Powerball jackpot was won by three people. One each in North Carolina, Texas and Puerto Rico. The North Carolina winner was a 26 yr old unemployed single mother of four. Since she will receive about $130 million in a cash payment she should not have to ever work again. Odds are good she will not remain single long given the vast army of suitors that will be calling soon. With odds of 1 in 175,000,000 you have a better chance of being killed by a falling asteroid (1 in 700,000) or many times more likely to be killed by lightning (1 in 136,000). Odds of being attacked by a shark are 1 in 12 million, killed in a plane crash 1 in 8,000 or play professional football 1 in 1 million.

The government has decided that cholesterol is no longer bad for you. The nation's top nutrition panel has decided to drop warnings about cholesterol laden food as a health risk. The panel has found that cholesterol in the diet need no longer be considered a "nutrient of concern." This follows multiple studies in recent years that found cholesterol in your diet may not significantly affect the amount of cholesterol in your blood or increase the risk of heart disease. This reverses the panel's warnings for the last 40 years. Oops! How many egg white omelets have you endured over the last 40 years in an effort to eat healthy? Many will be celebrating this news this weekend with some barbecued ribs or a juicy rib-eye steak. I am sticking with my low fat vegan diet because the fat will kill you much faster than the cholesterol.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"It was never my thinking that made the big money for me. It was always my sitting. Got that? My sitting tight!"

Jesse Livermore


New Plays

Soaring On Positive Phase 3 Trials

by James Brown

Click here to email James Brown


Neurocrine Biosciences - NBIX - close: 37.22 change: +0.27

Stop Loss: 34.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on February -- at $---.--
Listed on February 14, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 937 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
Biotech stocks were big performers last year outpacing the broader market. It looks like that outperformance will continue in 2015 with the major biotech indices and ETFs already up +5% to +7% this year. One biotech that's really outperforming its peers in NBIX, with shares already up more than +60% in 2015.

According to the company's marketing materials, "Neurocrine Biosciences, Inc. discovers and develops innovative and life-changing pharmaceuticals, in diseases with high unmet medical needs, through its novel R&D platform, focused on neurological and endocrine based diseases and disorders. The Company's two lead late-stage clinical programs are elagolix, a gonadotropin-releasing hormone antagonist for women's health that is partnered with AbbVie Inc., and a wholly owned vesicular monoamine transporter 2 inhibitor for the treatment of movement disorders. Neurocrine intends to maintain certain commercial rights to its VMAT2 inhibitor for evolution into a fully-integrated pharmaceutical company."

NBIX has two therapies planned for phase III trials in 2015. You can see NBIX's pipeline on this web page.

The drug making headlines for NBIX this year is Elagolix, a treatment for endometriosis. Shares of NBIX soared on January 8th after the company and its partner on this treatment, AbbVie, announced positive results for their latest Phase 3 trials. Endometriosis could affect up to 10% of all women in their reproductive years. That's a pretty big market. You can see why Wall Street is so excited about this news and sent shares of NBIX soaring.

Make no mistake, this is an aggressive, higher-risk trade. Biotech stocks can be volatile. The right or wrong headline can send the stock soaring or crashing. NBIX is already very, very overbought with a run from $20 to $37 since its early January lows. Yet that doesn't mean it won't keep running. Sometimes biotech stocks have a mind of their own. There is not any clear resistance. You have to go back more than ten years and you might find resistance in the $42.50-45.00 area. Should this rally continue NBIX could see more short covering. The most recent data listed short interest at 12% of the small 66 million share float.

I'm going to repeat myself. This is an aggressive play. NBIX does have options but the spreads are too wide to trade. The intraday bounce on Friday looks like a test of short-term support near $35.00. You can see on the intraday chart that NBIX has a very short-term pattern of lower highs. Therefore, we are suggesting a trigger to open small bullish positions at $37.65. If triggered we'll start with a stop loss at $34.90.

Trigger @ $37.65 *small positions to limit risk*

- Suggested Positions -

Buy NBIX stock @ (trigger $37.65 or higher)

Intraday Chart:

Daily Chart:

In Play Updates and Reviews

The NASDAQ Leads Market Higher

by James Brown

Click here to email James Brown

Editor's Note:
The market rally continued on Friday with the NASDAQ composite hitting 14-year highs. The S&P 500 couldn't quite keep pace with the NASDAQ but still managed a record high of its own.

We want to exit our SIMO trade on Tuesday morning (the market is closed on Monday).

Current Portfolio:

BULLISH Play Updates

Cree, Inc. - CREE - close: 37.51 change: +0.08

Stop Loss: 34.85
Target(s): To Be Determined
Current Option Gain/Loss: +2.6%
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

02/14/15: CREE was slowly drifting higher all week. Unfortunately the rally seems to be struggling with resistance near $38.00, which is compounded by technical resistance at its descending 150-dma (not shown below but near $38.00).

I am not suggesting new positions at this time. More conservative traders may want to use a stop closer to $36.00.

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


Corning Inc. - GLW - close: 25.00 change: +0.14

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

02/14/15: GLW continued to march higher on Friday. Shares added +0.5%, which was slightly faster than the S&P 500's +0.4% gain. Shares are still trading just below our suggested entry point at $25.20. If this rally continues next week we should see GLW trigger our play soon.

Earlier Comments: February 12, 2015:
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)

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


Interactive Brokers Group - IBKR - close: 32.51 change: -0.04

Stop Loss: 30.90
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

02/14/15: The rally in IBKR has stalled in the last day and a half. Fortunately traders were still in a buy-the-dip mood on Friday. More conservative traders may want to raise their stop loss again. I am not suggesting new positions at this time.

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: 44.17 change: +0.17

Stop Loss: 41.85
Target(s): To Be Determined
Current Option Gain/Loss: +3.6%
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

02/14/15: The relative strength in INFA is very encouraging but it can't last forever. We need to expect a dip. This stock is up five weeks in a row. It's also up nine out of the last ten trading days. I am not suggesting new positions at this time.

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: 48.39 change: +0.46

Stop Loss: 44.90
Target(s): To Be Determined
Current Option Gain/Loss: +2.2%
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

02/14/15: LLTC is another technology stock that delivered a significant rally last week. The breakout past resistance near $47.00 is very bullish. However, after a four-day string of gains, I would not chase it here. Consider waiting for a dip before launching new positions.

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: 54.76 change: -0.78

Stop Loss: 53.85
Target(s): To Be Determined
Current Option Gain/Loss: -0.9%
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

02/14/15: MO delivered a disappointing end to the week. Thursday's 78-cent gains was snuffed out. MO reversed but a glance at the intraday chart showed traders buying the dip near $54.50. Considering MO's relative weakness on Friday traders may want to wait for a new rebound back above $55.00 before initiating bullish positions.

We are raising the stop loss to $53.85.

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

02/14/15 new stop @ 53.85
02/12/15 triggered @ 55.25
Option Format: symbol-year-month-day-call-strike


Silicon Motion Technology - SIMO - close: 29.08 change: -0.39

Stop Loss: 27.85
Target(s): To Be Determined
Current Option Gain/Loss: -3.5%
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

02/14/15: The U.S. stock market is in rally mode with the major indices hitting new highs. Yet SIMO is not participating. Shares appeared to reverse lower this past week. Tonight we want to cut our losses early and plan on exiting first thing Tuesday morning (market is closed on Monday).

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

02/14/15 prepare to exit on Tuesday morning
02/09/15 triggered @ 30.15
Option Format: symbol-year-month-day-call-strike


Sensata Technologies - ST - close: 52.50 change: +0.01

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

02/14/15: The last couple of days have been disappointing with ST drifting sideways instead of participating in the market's rally. 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: 37.09 change: +0.17

Stop Loss: 34.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on February 13 at $37.05
Listed on February 05, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 883 thousand
New Positions: see below

02/14/15: TSS appears to be breaking out from its two-week consolidation. Shares hit our entry point at $37.05 on Friday. I would consider new positions now at current levels.

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.

- Suggested Positions -

Long shares of TSS @ 37.05

02/13/15 triggered @ 37.05


BEARISH Play Updates

Abercrombie & Fitch Co - ANF - close: 26.08 change: +0.85

Stop Loss: 26.20
Target(s): To Be Determined
Current Option Gain/Loss: -4.7%
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

02/14/15: Do you remember ANF's big downgrade on Feb. 9th? Shares were cut to a sell and had its price target slashed. Shares gapped down toward $24.00 and set a new five-year closing low. Well unfortunately for bears in this stock shares of ANF have gone up every day since.

ANF was downgraded again on Friday by a different analyst firm but it didn't seem to matter. The stock continued to bounce. Shorts may have been panicking with the breakout past its 10-dma.

The rally on Friday stalled right at resistance in the $26.10 area. The intraday high was $26.15. Tonight we are lowering our stop loss to $26.20. If this bounce continues we'll be stopped out pretty quickly.

No new positions at this time.

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

02/14/15 new stop @ 26.20
02/05/15 new stop at $26.55
Option Format: symbol-year-month-day-call-strike