Option Investor

Daily Newsletter, Wednesday, 2/18/2015

Table of Contents

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

Market Wrap

Hurry Up and Wait

by Keene Little

Click here to email Keene Little
Anyone who has served in the military knows how to hurry up and wait, which is what the market has done. We had a strong rally last week in anticipation of a resolution to both the Greek and Ukraine issues, which have yet to be resolved and now we're waiting for something to happen this week.

Wednesday's Market Stats

The market's anticipatory rally last week was in expectation (hope) there would be a resolution to the Greek debt issue and the confrontation that's building between Russian and its western neighbors. The Greek tragedy has not yet been resolved, although there's now hope that the can will be successfully kicked six months down the road, and hard fighting continues in Ukraine. While our Nobel peace prize-winning president decides how much to arm the Kiev government (who the U.S. helped to install), other European nations, namely Germany and France, are trying to defuse the situation. Perhaps the stock market is not worried about a wider war breaking out because of the European efforts. The end result has been a strong rally into this week and now we're sitting here marking time while we wait for whatever it was we rallied for.

There hasn't been much else in the news, earnings or economic reports to move the market and consequently both sides are not quite sure what will happen next. Today's economic reports didn't even cause a ripple in the market, primarily because it was breathlessly waiting for this afternoon's FOMC minutes (a non-event also). This morning we received the Housing Starts and Permits numbers for January, both of which dropped marginally from December. As you can see in the chart below, the housing "recovery" since 2009 has only managed to retrace a little less than 38% of its 2006-2009 decline. Following a 5-wave move down we've had a correction to the decline, which will be followed by another leg down before the housing bear is captured and released somewhere (Russia?).

Housing Starts and Permits, January 1999 - January 2015, chart courtesy briefing.com

Before the bell we also received the PPI numbers. As Jim mentioned yesterday, in his discussion about the NY Empire Manufacturing Survey, the prices received component experienced a sharp decline to 3.4 from 12.6 in January, which indicates reduced pricing pressure for manufactured goods. Today's PPI numbers show a similar decline in the prices for goods vs. flat prices for services and this was primarily due to the significant drop in energy-related prices. PPI saw a decline of -0.8% in January vs. -0.2% in December while the core PPI, which excludes food and energy, was relatively flat but still down -0.1% and up only slightly from December's -0.3%. The charts below show the significant drop in Goods vs. Services in the past month.

Producer Price Index, PPI, January 2012-January 2015

With the PPI numbers down there's certainly less worry on the Fed's part about problems with inflation and in fact it's quite the opposite. In order to qualify for service with the Fed you must first submit to a genetic reprogramming that makes you deathly afraid of deflation. You must admit that you'd kill your mother if that was what it required to prevent the country suffering through another bout of deflation. The Fed is hell bent on creating inflation and the only reason they haven't succeeded yet is because we're in a deflationary cycle.

Relating inflation/deflation to a credit cycle we have been in a credit contraction cycle since 2000 (at least for consumers and businesses but the same thing can't be said yet for the government) and it hasn't run its course yet. The central banks around the world have been working hard to create inflation and yet the chart above shows they have not been successful. This, by the way, is one reason why gold has struggled, much to the dismay of gold bulls who believe the global QE efforts should be sparking a massive inflation problem and higher gold prices (it will but not yet).

While on the subject of inflation, I recently read an article by Martin Pring, which can be read here: What Happened to the Secular Bear Market?, in which he discusses why the Bear is likely not done with us yet. In the article Pring discusses the labor market, debt-to-GDP, valuations and several other factors that investors need to consider when deciding how bullish you want to be right now. More importantly, investor's need to decide where their stops belong.

Pring's conclusion to his article gives you a sense of what he's thinking:

"The secular bear case has reached a critical juncture in that inflation-adjusted equity prices have moved back to their 2000 peak. Previous highs and lows often serve as important resistance points, which means that the secular bear case is about to be tested. Valuation/sentiment measures are currently at bullish extremes more typically associated with a secular high than low. Since they failed to move to the levels of extreme pessimism associated with previous secular lows, these indicators represent a missing piece of evidence in the secular bull case. Moreover, several indicators that have consistently identified primary trend turning points in the past are flagging danger and that means that our next Stock Barometer sell signal is likely to be a prescient one. We are paying close attention but until then, enjoy the ride but definitely buckle up tighter than usual!"

Pring's discussion about inflation-adjusted stock prices reminded me of the work I've done keeping track of the long-term parallel up-channel since the 1929 high and 1932 low. I've shown that chart in the past and used it to explain one of the reasons why I think SPX will see 550-600 before the bear is dead. Pring used a similar chart to show the inflation-adjusted prices for SPX since 1900, which is the bottom line in the chart below (the chart is hard to read because it's been squeezed to fit so I added larger-text dates at the bottom).

Inflation-Adjusted S&P Composite, chart courtesy Martin Pring

As Pring pointed out with the above chart, the horizontal dotted lines off the peaks of previous bull markets then become S/R when retested (in inflation-adjusted prices). This can be seen in the 1950s and 1960's following the 1929 peak and then in the 1980s and 1990s following the 1966 peak. Now here we are testing the 2000 peak (again, in inflation-adjusted prices). Actually it's not quite there yet -- a dollar in 2000 is currently equal to 72.2 cents and that makes yesterday's 2101 high for SPX equal to 1517.68. The March 2000 high near 1553 in inflation-adjusted dollars would be about 2150 today, about another 50 points (2.4%).

The other economic data today, which included Industrial Production and Capacity Utilization, were also disappointments, coming in less than had been expected. We've had plenty of signs the economy is slowing and that earnings expectations for companies are declining. So why is the stock market rallying? Because all of that bad economic news means the central banks will continue to create new money, with much (most?) of it making its way into the stock market.

The reason the market was flat for most of today was because it was waiting for the FOMC minutes and there remains hope that all these signs of economic trouble will keep the Fed's finger off the "Raise Rates" button. The minutes gave no hint about raising rates and that was met with a muted but positive response from the market. With weak economic numbers (despite what the Fed calls them) and "disinflation" problems, it will be a while before the Fed feels the need to raise rates. In fact they're probably very concerned about the recent spike in Treasury yields (which is yet another example of how the market determines rates, not the Fed).

I'll start off tonight's chart review with NDX since it shows one of the clearer breakout patterns on its daily chart. The weekly chart shows upside potential to the top of a parallel up-channel, currently near 4580, that has contained price since November 2012. That's another 190 points (+4.3%) higher so the bulls still have a reason to hang on for more. But there's also reason for caution by those who are long and hoping for more. Even though NDX has made a new high above its late-November high, it's within the "retest" zone and it's another test of the projection near 4354, shown on the chart, which is where the rally from November 2008 has two equal legs up (for a large A-B-C bounce correction to the 2000-2008 decline). You can also see the significant bearish divergence at the current high vs the November high, which is what I would expect to see accompany the final 5th wave of the pattern.

Nasdaq-100, NDX, Weekly chart

Not shown on the weekly chart above is a projection for the 5th wave of the move up from November 2012. It would be 62% of the 1st wave at 4440, which is a projection that I would like to see as a minimum (and is only 50 points higher). The 5th wave would equal the 1st wave near 4654, which crosses the top of the parallel up-channel about a month from now. Keep those numbers in mind if the rally continues.

The daily chart below shows the descending triangle off the late-November high and the clear breakout last Wednesday. It never even came back for a back-test to let wannabe bulls aboard, which has had both sides chasing the move higher. The vertical blue lines show the price objective out of the triangle pattern, which is near 4525. A trend line along the highs from March-November 2014 is slightly lower than the top of the parallel up-channel noted on the weekly chart and is currently near 4550. NDX stays bullish above the top of its triangle, near 4275,

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- Stay bullish above 4270
- bearish below 4270

Referencing the trend line along the highs from July-December 2014, SPX doesn't have quite as much upside potential as NDX. As can be seen on its daily chart below, the line is currently only about 25 points (+1.2%), near 2125. I had mentioned earlier, with the inflation-adjusted price discussion, the March 2000 high would be tested with a price near 2150, which gives us a 25-point window for a possible important top to the market.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- stay bullish above 2070
- bearish below 2070

It could be the market is simply resting before continuing higher but at the moment the rally is looking like it's running out of steam. An uptrend line from February 2nd was broken today, although admittedly it isn't much of a break when price simply runs sideways through it. Bulls beware though. In the meantime I see at least the potential for the market to work its way higher to the 2130 area next week. A drop below 2072 would be below the 1st wave in the rally from February 2nd and that would violate the EW rule that states a 4th wave correction cannot overlap the end of the 1st wave. An overlap would leave a 3-wave move up from February 2nd and that in turn could mean we're in a large corrective pullback pattern from December, which would mean a possible sharp decline to below the December 16th low near 1972. Bullish above 1972, bearish below.

S&P 500, SPX, 60-min chart

Ideally the rally from February 2nd will finish with a clean 5-wave move and maybe even up against trendline resistance, maybe even something like what I've depicted on the DOW's daily chart below. A 5-wave move would do a nice job completing what could be the final 5th wave of its rally and it should show bearish divergence against its December high, which so far it is. A 5-wave move would also be a good setup for a reversal to play, regardless of the longer-term wave count. At the moment it's a little risky for bulls as the DOW struggles at its December 26th high at 1810, with yesterday's high at 18052. Double top with bearish divergence? The bulls need to step back in before the bears become braver.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- stay bullish above 17,950
- bearish below 17,685

There's another trend line that the DOW is fighting right now, which is shown on its weekly chart below. The daily chart above is using the arithmetic price scale and you can see the uptrend line from October 2011 - November 2012 (bold green) is well below the current price (it's where the October decline found support). But when that line is viewed with the log price scale (arguably the better way to look at longer-term trend lines), it's currently where the DOW is struggling. This shows the potential for a back-test here and any selling that follows from here would leave a bearish kiss goodbye.

Dow Industrials, INDU, Weekly chart

The RUT has joined the other indexes (other than the DOW) at new all-time highs and out of its sideways triangle pattern there is an upside price objective near 1275 (+3.8%), shown with the bold blue lines on its daily chart below. A clean 5-wave move up to that level would be a good setup for a reversal but at the moment I'm a little leery about the possibility for a head-fake breakout here. Back below 1217 would be trouble for the bulls but it stays bullish above that level. As with the other indexes, a drop below its February 10th low, near 1190, would be bearish since it could lead to a quick drop below the December 16th low near 1134.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- stay bullish above 1217
- bearish below 1190

The small caps index like the RUT is a good "sentiment" index since it tells us how bullish investors are feeling. Many tech stocks fit in the same category and right now AAPL is a good sentiment stock. Practically everyone is looking for higher prices for AAPL and each time analysts get like this I usually see a reason for at least a temporary high, which has been proven to be true many times in the past. And we're there again with AAPL. As can be seen on its weekly chart below, keep an eye on 131.78 if it's reached in the next week or so. That's the level where the 5th wave in the rally from April 2013 would equal the 1st wave. It doesn't have to get there or stop there but it is a level of interest if reached and the longer-term wave count says that could be a longer-term top for AAPL. At 128.97 it's also about to test the 162% extension of its previous decline (September 2012 - April 2013), a level where reversals commonly occur. With a high so far at 128.88 I'm watching closely to see if it finds a top in the 128.97-131.78 area.

Apple Inc., AAPL, Weekly chart

Bond yields have been on a tear since their lows on January 30th (a day before the stock market its current rally). Rising yields of course means selling in the bond market. But yields look ready for at least a pullback after completing a 5-wave move, which had TNX (10-year) testing its downtrend line from September-December 2014. Today's strong decline in yields (rally in bond prices) looks like the start of the pullback/decline and considering it led the stock market rally by a day it's possible the stock market will follow yields lower from here (a rally in bond prices could result from money rotating back out of stocks into bonds). I don't think we've seen THE low for bond yields yet but the shorter-term pattern is not clear enough for me to predict lower yields from here or not until we see a larger 3-wave bounce off the January 30th low.

10-year Yield, TNX, Daily chart

Earlier I had mentioned housing starts and showed a chart to point out the recovery is only a little less than 38% of its decline. Looking at the home builders index I see the recovery as only marginally better. The 38% retracement of its 2005-2008 decline is near 508 and the high for the home builders index is currently near 579, made yesterday. It could be a case where the stocks of the home builders is doing better than actual housing starts (another case of stock prices perhaps inflated more than is warranted, thanks to all the central bank money). But at the moment I see a potential top in the making for the index, as shown on its weekly chart below. It has made it up to the top of two parallel up-channels, one longer-term one for the bounce off its November 2008 low and the other a shorter-term one for the rally off August 2013 low. The tops of these two channels cross here near 575 and only slightly below the projection near 584 for two equal legs up from August 2013. The pieces are in place for a top and it could be a significant one since another leg down in the bear market (to below the November 2008 low at 130) is what should be the next major move in the coming years.

DJ Home Construction index, DJUSHB, Weekly chart

There's been no change in my outlook for the U.S. dollar. The pullback from the January 26th high continues to look choppy and corrective and is pointing to another push higher, in which case the projections to 97.35 could play out. That expectation could be in trouble if the dollar drops back below the top of its parallel up-channel from 2008-2011, currently near 93.25.

U.S. Dollar contract, DX, Weekly chart

No change to the big picture for gold either. There is the potential for another leg up for a larger 3-wave bounce off its November 7th low (it's currently a smaller 3-wave bounce), in which case we could see gold rally up to 1375 for two equal legs up. But a drop below price-level support near 1180 would be a stronger sell signal and point to lower prices from here.

Gold continuous contract, GC, Weekly chart

Oil's bounce off the January 29th low stalled following its February 3rd high and it could be building energy for another leg up, which should happen in the next day or two if it's going to happen. In that case we could see a rally up to 58-60 but at the moment I'm not seeing anything more bullish than that. I continue to believe oil will bounce/consolidate near its low for several months before heading lower.

Oil continuous contract, CL, Weekly chart

Tomorrow's economic reports (not that the market cares) includes unemployment claims, the Philly Fed index and the LEI (Leading Economic Indicators). A continuation of signs of economic slowing are expected. There will be no major economic reports on Friday.

Economic reports and Summary

The bond market pulled a reversal today with a fairly strong decline in yields (buying in bonds) and that could be a warning shot across the bow for bulls to pay attention to. The stock market rally off the February 2nd low was led by the bond market's reversal the day before on January 30th. The buying in bonds could pull money out of the stock market, which is why we're tending to see the stock market and bond yields trade more in synch than not.

The pattern for the stock market supports higher prices and as long as the February 6th highs are not violated in a pullback I'd look for higher prices (but keep a close eye on the bond market). Below the February 6th highs would be trouble for the bulls but the bears would not be in better shape until the indexes drop below the February 9th lows. It might be a continuation of a choppy whippy market from there but at the very least I would not want to be long if those lows are taken out.

Continue to keep in mind that we have a headline-driven market at the moment and while there's additional upside potential for the indexes, the downside risk is greater than upside potential. This market is propped up on hope, a commodity that can be (and usually is) quickly snuffed out.

Good luck and I'll be back with you next Wednesday.

Keene H. Little, CMT

In the end everything works out and if it doesn't work out, it is not the end. Old Indian Saying

New Plays

Huge Backlog & Raising Guidance

by James Brown

Click here to email James Brown


Spirit AeroSystems - SPR - close: 50.00 change: +0.55

Stop Loss: 47.65
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on February -- at $---.--
Listed on February 18, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.3 million
New Positions: Yes, see below

Company Description

Why We Like It:
Aerospace and defense stocks have been very strong performers the past couple of years. The defense cuts from Washington a couple of years ago prompted defense companies to diversify their customer base. Meanwhile airline companies had grown lean and mean to work in a high-priced oil environment. Now with oil near five-year lows their margins are improving. This is the backdrop that SPR operates.

You may not be familiar with SPR but they were spun off from Boeing (BA) back in 2005. SPR went public with their own IPO in November 2006. According to the company, "Spirit AeroSystems, with headquarters in Wichita, Kan., USA, is one of the world's largest non-OEM designers and manufacturers of aerostructures for commercial aircraft. In addition to its Wichita and Chanute facilities in Kansas, Spirit has locations in Tulsa and McAlester, Okla.; Kinston, N.C.; Nashville, Tenn.; Prestwick, Scotland; Preston, England; Subang, Malaysia; and Saint-Nazaire, France. In the U.S., Spirit's core products include fuselages, pylons, nacelles and wing components. Additionally, Spirit provides aftermarket customer support services, including spare parts, maintenance/repair/overhaul, and fleet support services in North America, Europe and Asia. Spirit Europe produces wing components for a host of customers, including Airbus."

Last year was a record-breaker for SPR's sales. Their third quarter earnings report in late October was the third quarter in a row that SPR crushed Wall Street's earnings estimates by a wide margin. Their Q3 earnings were up +79% on revenues up +12.6%. Management then raised their 2014 guidance.

SPR ended the year with a strong quarter as well. Q4 earnings were announced on February 3rd. Earnings grew +39% to $0.87 a share, which beat estimates by 10 cents. Revenues were up +5.4% to $1.57 billion. The revenue number did miss expectations but the stock rallied anyway. That's probably because SPR provided bullish guidance.

The company sees 2015 revenues in the $6.6-6.7 billion zone. That's slightly below analysts' estimates of $6.95 billion. However, SPR is forecasting 2015 earnings in the $3.60-3.80 range compared to Wall Street estimates of $3.63 a share. SPR management said their order backlog jumped 7% to $47 billion. That's about eight years worth of business. Following its Q4 results analysts have started raising their price targets on SPR.

There is a risk that rising oil prices could depress aerospace-related names. However, right now oil is likely headed even lower. Oil inventories inside the U.S. are at record highs and we're quickly running out of room to store crude oil. If we do actually run out of storage the price of oil is going to plummet, which will just be one more tailwind for SPR.

SPR has spent several days following its earnings report in a sideways consolidation. It's bullish to see the lack of profit taking from its late January and early February rally. Now shares are challenging round-number resistance at $50.00. Tonight we are suggesting a trigger to open bullish positions at $50.30.

Trigger @ $50.30

- Suggested Positions -

Buy SPR stock @ (trigger)

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

Buy the APR $50 CALL (SPR150417C50) current ask $2.00

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

Daily Chart:

In Play Updates and Reviews

Stocks Churn Sideways

by James Brown

Click here to email James Brown

Editor's Note:
The market ignored dovish Fed minutes and Reuters confirming that Greece will ask for a loan extension. Equities looked tired as stocks churned sideways. Another big drop in crude oil weighed on energy names.

GLW has been removed. ANF hit our stop loss.

Current Portfolio:

BULLISH Play Updates

Abbott Laboratories - ABT - close: 46.41 change: +0.00

Stop Loss: 44.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on February -- at $---.--
Listed on February 17, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 5.34 million
New Positions: Yes, see below

02/18/15: The stock market churned sideways on Wednesday. ABT was a good example with a narrow range and closing unchanged on the session. Nothing has changed from last night's new play description. Our suggested entry point is $46.65.

Earlier Comments: February 17, 2015:
ABT is in the healthcare sector. With a history that starts back in the late 1880s this is one of the oldest publicly traded companies in the U.S. The company has grown to a global giant with sales of more than $20 billion a year. About 70% of sales are outside the United States.

According to the company, "Abbott is a global healthcare company devoted to improving life through the development of products and technologies that span the breadth of healthcare. With a portfolio of leading, science-based offerings in diagnostics, medical devices, nutritionals and branded generic pharmaceuticals, Abbott serves people in more than 150 countries and employs approximately 77,000 people."

The most recent earnings report was January 29th. ABT's earnings rose +22% from a year ago to $0.71 a share. That beat estimates of $0.68. Revenues were up +5.6% to $5.36 billion. Unfortunately that did miss estimates of $5.43 billion. The company did raise its annual dividend from $0.88 to $0.96 and revenues were up +10% for the whole year (2014). ABT also said its adjust net margins grew over 200 basis points for the full year.

Here's the interest part, ABT management issued 2015 guidance of $2.10-2.20 per share. That is growth of about +6% to +11% while facing significant currency challenges due to the strong dollar (near 11-year highs). Wall Street was estimating $2.25 per shares for 2015. The stock rallied in spite of this lowered outlook.

The following day a Bank of America/Merrill Lynch analyst upgraded the stock from "neutral" to a "buy" and raised their price target because they believe that ABT will see strong revenue growth and margin improvement in 2015.

Shares of ABT have definitely been showing relative strength with the stock up four weeks I a row. These are all-time highs for the stock and ABT is in the process of breaking out past its December 2014 highs. Tonight we are suggesting a trigger to open bullish positions at $46.65.

Trigger @ $46.65

- Suggested Positions -

Buy ABT stock @ (trigger)

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

Buy the AUG $50 CALL (ABT150821C50)

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

Cree, Inc. - CREE - close: 37.84 change: -0.10

Stop Loss: 34.85
Target(s): To Be Determined
Current Option Gain/Loss: +3.5%
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

02/18/15: CREE is another example of how quiet the market was today. Shares traded inside a 60-cent range. The stock is still poised to breakout past resistance 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

Interactive Brokers Group - IBKR - close: 32.31 change: -0.08

Stop Loss: 31.85
Target(s): To Be Determined
Current Option Gain/Loss: +3.7%
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

02/18/15: It's starting to look like the upward momentum in IBKR has stalled. Shares slipped lower for the third day in a row. Fortunately IBKR bounced off the $32.00 level. However, I am suggesting caution here. No 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

02/17/15 new stop @ 31.85
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: 43.71 change: -0.16

Stop Loss: 42.65
Target(s): To Be Determined
Current Option Gain/Loss: +2.5%
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

02/18/15: INFA turned in a quiet session too. After the bell the company announced a "joint Data Warehouse Optimization" solution with Cisco Systems (CSCO). The news did not seem to have any impact on INFA's stock price after hours.

I am not suggesting new positions at this time. The prior January high near $43.19 and the 10-dma (near $43.17) should both be short-term support.

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

02/17/15 new stop @ 42.65
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: 47.96 change: -0.79

Stop Loss: 44.90
Target(s): To Be Determined
Current Option Gain/Loss: +1.3%
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

02/18/15: It was a rough morning for shares of LLTC. The stock gapped open lower after an analyst at UBS cut the stock to a "sell" rating. The analyst called LLTC one of the best run companies in the semiconductor industry but felt the stock lacked any potential and was already fully valued. Their price target is down at $42.00. The UBS analyst is concerned that the semiconductor industry has just hit a peak.

Shares of LLTC opened at $47.48 (-2.6%) but immediately bounced and pared its loss to -1.6% on the session. The $47.00 area remains support. I am not suggesting new positions at this time.

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: 55.24 change: +0.10

Stop Loss: 53.85
Target(s): To Be Determined
Current Option Gain/Loss: +0.0%
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

02/18/15: MO reaffirmed its 2015 earnings outlook at $2.75-2.80 a share. This equals +7% to +9% growth versus 2014's numbers. Wall Street is estimating $2.79 a share.

The stock didn't move much today but it did rebound off its opening lows.

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

Neurocrine Biosciences - NBIX - close: 36.56 change: -0.78

Stop Loss: 34.90
Target(s): To Be Determined
Current Option Gain/Loss: -2.9%
Entry on February 17 at $37.65
Listed on February 14, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 937 thousand
New Positions: see below

02/18/15: NBIX underperformed the market with a -2.0% decline today. This relative weakness was likely a reaction to news out last night where NBIX announced they are selling more stock to raise another $225 million in capital.

Currently NBIX has about 77.1 million shares outstanding. If they sold the news shares at $36.00 each that would be about 6.25 million more shares (an addition of about +8% to the number of shares outstanding). It could be worse. NBIX gave the underwriters an option to buy an additional 15% of the number of shares sold (yet to be determined).

This news definitely cools my enthusiasm for short-term bullish positions in NBIX. I am not suggesting new positions at this time.

Earlier Comments: February 14, 2015:
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.

*small positions to limit risk* - Suggested Positions -

Long NBIX stock @ $37.65

02/17/15 after the close, announces a secondary offering
02/17/15 triggered @ 37.65
Option Format: symbol-year-month-day-call-strike

Sensata Technologies - ST - close: 52.80 change: +0.92

Stop Loss: 51.35
Target(s): To Be Determined
Current Option Gain/Loss: -0.1%
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

02/18/15: ST looks a lot healthier following today's +1.77% bounce. Shares erased about 3 1/2 days worth of declines. If ST sees any follow through on this rally it could be our next entry point to open bullish positions.

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

02/17/15 new stop @ 51.35
02/10/15 triggered @ 52.85
Option Format: symbol-year-month-day-call-strike

Total System Services - TSS - close: 37.26 change: +0.13

Stop Loss: 34.90
Target(s): To Be Determined
Current Option Gain/Loss: +0.6%
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

02/18/15: TSS is still slowly pushing higher. Today's gain is the sixth advance in a row. It also marks another record high for TSS.

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

None. We do not have any active bearish trades.


Corning Inc. - GLW - close: 24.63 change: +0.03

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: see below

02/18/15: GLW briefly traded under short-term technical support at its 10-dma before paring its losses. We've been waiting on a breakout past $25.00 (our trigger was $25.20). Yet GLW can't seem to generate enough momentum to hit new highs.

Tonight we are removing GLW from the newsletter. I will point out that GLW does still have a bullish trend of higher lows. Maybe if you have more patience this trade could work.

Trade did not open.

02/18/15 removed from the newsletter, trigger was $25.20



Abercrombie & Fitch Co - ANF - close: 25.77 change: -0.19

Stop Loss: 26.20
Target(s): To Be Determined
Current Option Gain/Loss: -5.2%
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

02/18/15: ANF underperformed the broader market with a -0.7% decline. Sadly shares spiked higher first and hit our stop loss at $26.20. The long-term trend for ANF is still bearish so consider keeping ANF on your watch list for another entry point.

- Suggested Positions -

Short ANF stock @ $24.90 exit $26.20 (-5.2%)

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

MAR $25 PUT (ANF150320P25) entry $2.20 exit $1.25 (-43.2%)

02/18/15 stopped out
02/14/15 new stop @ 26.20
02/05/15 new stop at $26.55
Option Format: symbol-year-month-day-call-strike