Option Investor

Daily Newsletter, Thursday, 2/26/2015

Table of Contents

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

Market Wrap

FCC Votes Yes To Net Neutrality

by Thomas Hughes

Click here to email Thomas Hughes
The long awaited FCC vote on net neutrality finally came...and it passed.


The market was relatively quiet in early trading as attention seemed to be focused on the FCC. The commission vote on the issue of net neutrality has finally come and they passed the measure 3 to 2 . Early trading was very calm up until the vote was announced and afterward remained calm. The markets hung just below the current highs all day, trading in a fairly narrow range and closing near the highs of the day. Overseas markets were less affected by the vote and were able to reach new highs with little trouble. Asian indices got an additional boost as traders returning from the lunar New Year holiday added to volumes, earnings and rising gold prices helped lift shares in Europe. There were some important headlines for earnings and economic data as well but neither source moved the market noticeably. I think that what really kept the market in check today was anticipation for the GDP revision due out tomorrow.

Market Statistics

Trading here at home was negative from the start of the early electronic sessions. After the opening bell trading remained weak, but stable just below the recently set highs. By 10AM the market had moved down to hit the morning low, about -0.10% lower, and then bounced back to break even levels. The NASDAQ for one was able to move into the green at that point, the indices continued to hover in a tight range at or just below break even until well after lunch. I thought that the FCC vote, when it was announced, might have spooked or sparked the market but it did not happen. Trading remained quietly in balance on the news. The market did move down to test the lows of the day in the late afternoon, but that was most likely driven by oil. Once the oil market closed the equities market bounced back to earlier highs and hold there until it closed.

Economic Calendar

The Economy

We got a blast of data right at 8:30AM. Included with the weekly jobless claims numbers was the latest read on CPI and Durable Goods. Much of the data was unexpected but on balance a positive for the market. Initial claims for unemployment jumped more than expected to 313,000. This is a gain of 31,000, from a down ward revision of -1,000, and 18,000 more than expected. The four week average also moved up, by 11,5000, but is still below 300,000. On a not adjusted basis claims rose by 0.8% versus the expected drop of -0.9%. While unexpected, this weeks gain is not a shock and still well within the recent range. Claims are still trending at long term low levels and consistent with a healthy labor market. It looks like there might be some volatility in claims but so long as they don't begin to rise things are OK. I've noticed over the past few weeks that the seasonal factors have been out of synch with the raw data which may be causing said volatility. It could also be caused by low oil prices and/or seasonal shifts in the calendar or weather related or combination.

Continuing claims fell by -21,000 to 2.401 million. Last week's figure was revised lower by -3,000 as well. The four week moving average rose however, reflecting last weeks jump in claims. Both the headline and the moving average are very close to 2.4 million and have been trending near that level for a few weeks. It is starting to look like continuing claims may be stabilizing around this number but more data is needed.

Total claims rose by 12,469 to 2.86 million. This is a mild gain from last week, below the high set last month, and the fourth week of relatively flat numbers. It looks like total claims may have stabilized as well, but again more data is needed. Regardless, even with total claims elevated from the low set last year it is still at long term low levels and consistent with a healthy labor market.

The Consumer Price Index fell by -0.7%, as expected. Ex food and energy it rose 0.2%, slightly ahead of expectations. On a trailing 12 month basis ex food and energy prices have risen 1.6%. Data within the report reveals the impact of gas prices on the consumer, the all energy index fell by -9.7%, led by a -18.7% drop in gasoline. Overall this is a great report in my view as it shows overall consumer level inflation is still tame, but also rising at a core level. Eventually energy prices will rebound and add additional upward pressure to inflation and then things may be different.

Durable good were much better than expected at 2.8%, 0.1% ex-transportation. The market predicted a decline of -1% on the headline and an increase of 0.3% ex-transportation. This is a resounding rebound from the decline in December and a good sign of GDP growth in the first quarter. Shipments fell by -1.1% but were offset by increases in inventory(+0.4%), transportation (+0.5%) and capital goods (9.5%). The jump in capital goods is a nice forward looking piece of data as it shows investment in business/manufacturing infrastructure.

The Oil Index

Oil is still trading back and forth across the $50 level in wild swings. Today's move was greater than 4.5%, to the downside, and left WTI trading near $48.40. While volatile, oil has held relatively stable around $50 for nearly a month and is now at the low of the range. There are still a lot questions about the actual state of supply/demand issues but until the balance is clearly in favor of one side or the other oil could keep trading in the range between $48.50 and $53.

The Oil Index fell today as well, losing about -1%. It looks like the index is falling back from the top of the 3 month trading range but has yet to break below the short term moving average. The average is currently supporting prices and pressuring them against resistance at the same time resistance is pushing down. One or the other will break, and soon. The indicators are bearish in the near term and consistent with a pull back from resistance. Over the short term, based on the bounce from the long term trend line in December and January, it looks like the index could be setting up to break above resistance. The indicators confirm support along the trend line and while bearish in the near term, are very weak and in a position to confirm the upward trend. I think it will come down to oil prices, if they go up, the index will go up, if they go down support could be broken. Resistance is 1,400 with support just below along the short term moving average near 1,375.

The Gold Index

Gold prices jumped today, adding over 1% to trade above $1210. The Fed's stance is one reason for the jump, physical buying in Asia another. Janet Yellens testimony builds on previous statements by giving firmer guidance of when rate hikes will come and yet remains vague, which has led to a renewed round of speculation. Just a few months ago the prospect of higher interest rates was one of the reasons gold bottomed, now the market thinks the hike may be later than previously expected and gold is climbing again. The exact date of the first hike is still an unknown but we can speculate based on what Yellen said in testimony over the past two days.

What I heard her say during the portions I watched was that the Fed was still patient, that there would be a change in the statement before the rate was raised, that the change in statement would signal the increase would come within a meeting or two, and that the change in statement itself could come over the next couple of meetings. Consensus now puts the hike in September but I think there is a chance it could come in June, if the statement is changed within the next two meetings that would leave two meetings until the change in rates. If the economy continues to pick up over the spring the scale could tilt in favor of a June rate hike. Today's Durable Goods is one indication that expectations for growth may not be misplaced.

The Gold Index gained over 1% in today's action and moved above the 30 day moving average. The index is bouncing off of potentially strong support and could be getting ready to move higher. Support is right around $20.50, consistent with the top of the range set by the Nov/Dec reversal. The move down to test support from the recent high near $23 is coincident with gold's pop to $1,300 and test of support at $1,200. Support looks strong at this time but may be tested again. The indicators are mixed but, assuming that the Nov/Dec bottom was a reversal, in line with an early trend following signal. MACD is still bearish but declining toward the zero line while stochastic is firing a weak trend following signal. A bounce could take the index up to $22.50 while a break of support could take it down to $17.50.

In The News, Story Stocks and Earnings

IBM hit the news early with an announced $4 billion in capital expenditures. The company is now planning to spend money to enhance its position in cloud computing, social media, internet security and mobile. The plan is to boost revenue from those sources from a current 27% to 40% of gross by the end of 2018. This is an aggressive target but needed in light of expected slowdown of other core businesses. Shares of the stock sank -1.25% on the news and are now sitting on long term support just above $160. The indicators are bullish but weakening so support is likely to be tested again, at least. A break below the short term moving average could take it lower.

Netflix releases House Of Cards tomorrow and is likely going to get a surge of renewals and sign ups. If you haven't watched it I can recommend it. The company is also likely to be affected by net neutrality laws when and if they are enforced. Shares of the stock surged more than1% to test the all time high.

Transocean reported today. The oil rig operator beat the street and will no doubt have an upward affect on overall S&P earnings growth for the quarter. EPS of $0.95 was well above consensus estimates near $0.80, 18% better than expected. The beat was driven by higher day rates for rigs as well as a reduction in costs. Guidance for the current year is roughly in line with estimates and helped support an early rally. Shares of the stock opened higher but fell under selling prices to move below yesterday's close. The stock is now trading just above the long term low and support at $15.

Gap Stores reported after the bell. The teen retailer beat on the bottom line by a penny with revenues in line with expectations. The company guidance for the coming year is in line with expectations but diminished by overshadowing issues related to the west coast port shut down and currency conversions in overseas markets. The results were good enough for the board to increase the dividend and initiate a share buy back program of $1 billion. Shares of the stock traded higher in the after hours market.

The Indices

The indices tread water just below the current highs, except for the NASDAQ Composite, which set a new high. Volume was light which may have had something to do with today's action. Another reason may be the tidal wave of economic data that is due out tomorrow and next week. There are a half dozen reports tomorrow, including the 2nd estimate for 4th quarter GDP, and another 2 dozen next week. It's the end of the month again which means another round of important macro-data including the NFP and unemployment figures.

The NASDAQ Composite gained 0.42% today, leading the market and coming within 13 points of 5,000. The tech heavy index is drifting higher on a wave of momentum that may be losing its force. The indicators are bullish but MACD continues to decline and stochastic is overbought. The index could continue to move higher into the near term. A brush against 5,000 may bring out the bears, at least for a test of the market if nothing else. The long term trend is up and I remain bullish but this index is extended and ripe for correction/pullback so I also remain cautious.

The Dow Jones Industrial Average is runner up but did not make a gain today. The blue chip index was able to poke its head into the green for a brief time but did not hold that level to the close. The index appears to be peaking and could pull back to support or continue to consolidate at the current highs. First support is the previous all time high just above 18,000 with the short term moving average next target and just below. The indicators are bullish, but MACD is weak and slowly edging lower while stochastic is high in the range and overbought in both the near and short terms. The index could keep drifting higher, in line with the trend, but there is enough evidence to warrant a little protection.

The S&P 500 closed with a loss -0.15% after falling as much as -0.25% in today's session. The broad market's dip took it down to just above 2,100, a possible target for support should a more pronounced pull back ensue. The index is pulling back from a new all time high with weak indicators so I suspect support will be tested even if the up trend continues. The indicators are similar to the other indices in that MACD is weak and edging lower toward the zero line and stochastic is overbought. These put the index in position to pull back but do not necessarily mean that it is happening tomorrow or at all. A break below 2,100 may find additional support near 2,090 and the below that near 2,075 and the 30 day moving average.

The Dow Jones Transportation Average brings up the rear. The transports are now moving down from the top of the three month trading range with indicators in support of that range. Bullish MACD has peaked and stochastic is making a bearish crossover while high in the upper signal zone, both supportive of a range. However, the long term trend is up and the index is also still supported by the short term moving average. The average could provide a spring board to higher prices and possibly break the index out of the range, if catalyst emerge. The catalyst could be economic data scheduled for tomorrow and next week. A break below the moving average could take the index down to the bottom of the range, near 8,550.

The major indices have all broken out to new highs this week, or are approaching them, and are now pulling back from those highs. The is being driven on the expectations of economic growth and profits in 2015. Those expectations are led by the data and we are on the cusp of one of the heaviest weeks of economic data in months. There are a lot of chances for news, headlines and near term emotions to move the market over the next week, lots of possible catalysts. This may explain why the market looks weak but it's not weak, it's waiting for the data, and the waiting is present in the charts. The charts are poised for a trend following signal, but also poised to pull back from a peak, depending on what the data tells us and that is what they are showing.

I expect to see a lot of volatility and reaction to data over the next week but I think it all needs to be kept in perspective. Some of the data, like tomorrow's GDP revision, is rear looking and some is more forward looking. Some of the data is still from the 4th quarter of last year and some of it is from this quarter and this year. We know that the 4th quarter was weak, a bad number will be a bummer but not as bad as if weakness is revealed in the current quarter. I'm still a bull, cautiously waiting for the data and what the market will do with it.

Until then, remember the trend!

Thomas Hughes

New Plays

More Short Covering Ahead

by James Brown

Click here to email James Brown


FireEye, Inc. - FEYE - close: 45.41 change: +0.01

Stop Loss: 42.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on February -- at $---.--
Listed on February 25, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 6.8 million
New Positions: Yes, see below

Company Description

Why We Like It:
The cyber attack on media giant Sony last year was headline news for weeks. It was a major warning bell for corporations around the world to spend more on cyber security. Today it still seems like every week we hear about some high-profile cyber attack. Online criminals and saboteurs are growing more sophisticated and that's fueling corporate demand for high-tech defenses.

The company describes itself as, "FireEye has invented a purpose-built, virtual machine-based security platform that provides real-time threat protection to enterprises and governments worldwide against the next generation of cyber attacks. These highly sophisticated cyber attacks easily circumvent traditional signature-based defenses, such as next-generation firewalls, IPS, anti-virus, and gateways. The FireEye Threat Prevention Platform provides real-time, dynamic threat protection without the use of signatures to protect an organization across the primary threat vectors and across the different stages of an attack life cycle. The core of the FireEye platform is a virtual execution engine, complemented by dynamic threat intelligence, to identify and block cyber attacks in real time. FireEye has over 3,100 customers across 67 countries, including over 200 of the Fortune 500."

The stock was a real high flyer in late 2013. Shares began to fade in early 2014 and then really got crushed when FEYE issued an earnings warning in May 2014. FEYE spent the rest of 2014 consolidating sideways in a very wide $25-40 trading range.

This year FEYE's stock has seen a reversal of fortunes. Suddenly shares are soaring and up more than +40% thanks to better than expected earnings results. FEYE's most recent earnings report was February 11th. Earnings improved from a loss of 50 cents a year ago to a loss of 38 cents in the fourth quarter, which was eleven cents better than expected. Revenues soared a whopping +149% to $143 million, which was above expectations.

Management guided 2015 earnings and revenues essentially in-line with consensus. The company is forecasting revenues in the $605-625 million range. FEYE expects a 2015 loss of $1.80 to $1.90 per share. Gross margins are expected to be in the 71-75 percent range.

Analysts have expressed concern with the surge in FEYE's spending but management said they are spending in-line with the company's growth. FEYE CEO Dave DeWalt said FEYE saw its growth double in 2014 and is up tenfold in the last three years.

Above average short interest in the stock helped fuel the rally from $36 to $46 in February. The most recent data listed short interest is still at 20% of the 126 million share float. Today shares of FEYE are hovering just below last week's high above $46.00. The intraday high today was $46.44. Tonight we're suggesting small bullish positions if FEYE can trade at $46.65 or higher.

I do consider this a more aggressive, higher-risk trade because shares of FEYE can be volatile. Normal April and May options are not available yet so we'll use June options (if you trade options).

Trigger @ $46.65 *small positions*

- Suggested Positions -

Buy FEYE stock @ (trigger)

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

Buy the Jun $50 CALL (FEYE150619C50) current ask $3.30

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

Intraday Chart:

Daily Chart:

In Play Updates and Reviews

NASDAQ & Russell 2K Keep Rising

by James Brown

Click here to email James Brown

Editor's Note:
The S&P 500 struggled to close in the green but the NASDAQ composite and the Russell 2000 kept the rally going. Overall Thursday was more of the same with muted movement.

SPR and ST hit our stop loss

Current Portfolio:

BULLISH Play Updates

Abbott Laboratories - ABT - close: 47.61 change: +0.21

Stop Loss: 44.75
Target(s): To Be Determined
Current Option Gain/Loss: +2.1%
Entry on February 19 at $46.65
Listed on February 17, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 5.34 million
New Positions: see below

02/26/15: Traders bought the dip in ABT this morning. The stock rebounded to close at a new high. It might be time to start raising our stop loss.

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.

- Suggested Positions -

Long ABT stock @ $46.65

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

Long AUG $50 CALL (ABT150821C50) entry $0.91

02/19/15 triggered @ $46.65
Option Format: symbol-year-month-day-call-strike

The ADT Corp. - ADT - close: 39.51 change: -0.30

Stop Loss: 37.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on February -- at $---.--
Listed on February 23, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.5 million
New Positions: Yes, see below

02/26/15: ADT tagged resistance near $40.00 again and then retreated. There is no change from my prior comments. Our suggested entry point is $40.10.

Earlier Comments: February 23, 2015:
ADT is in the alarm and home monitoring business. It has been a very bumpy ride for investors since the company was spun off from Tyco International back in 2012. Shares of ADT plunged from $50 a share in early 2013 down toward $28 by early 2014. The company has been working on a turnaround and the worst seems to be behind it.

The company describes itself as "The ADT Corporation (ADT) is a leading provider of security and automation solutions for homes and businesses in the United States and Canada. ADT's broad and pioneering set of products and services, including ADT Pulse® interactive home and business solutions, and health services, meet a range of customer needs for today’s active and increasingly mobile lifestyles. Headquartered in Boca Raton, Florida, ADT helps provide peace of mind to nearly seven million customers, and it employs approximately 17,500 people at 200 locations."

ADT has been consistently beating Wall Street's earnings expectations the last few quarters. Their most recent earnings report was ADT's 2015 Q1, which was announced on January 28th. Results were 51 cents a share. That's a +18.6% increase from a year ago. Revenues were up +5.7% to $887 million, above estimates.

Management said their recurring subscription revenues, about 93% of total revenues, were up +6.5% from a year ago. The number of client accounts had risen from 6.4 million to 6.7 million in the last two quarters. ADT reported higher average revenue per customer with an increase of +5.3%. That's likely due to their growth in Pulse subscribers. Pulse is a higher-end subscription for ADT, which now accounts for 19% of its subscription base. Pulse customers have a lower dropout rate and higher margins.

Previously Wall Street was worried that cable giants like Comcast, when they jumped into the home alarm monitoring business, would steal customers and hurt ADT's business. Thus far that has not been the case. Now the race is on to see who can cash in on the "connected home" industry, which will be a big part of the Internet of Things.

Technically shares of ADT have been showing relative strength. They recently broke through resistance near $37.00-38.00 and formed an inverse head-and-shoulders pattern (which is bullish). The point & figure chart is also very bullish with a breakout and a $52.00 target (see below). The most recent data listed short interest at 27% of the 170 million share float. That's plenty of fuel for a short squeeze. Tonight we are suggesting a trigger to open bullish positions at $40.10.

Trigger @ $40.10

- Suggested Positions -

Buy ADT stock @ (trigger)

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

Buy the APR $40 CALL (ADT150417C40)

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

Anthera Pharmaceuticals - ANTH - close: 5.05 change: +0.12

Stop Loss: 4.58
Target(s): To Be Determined
Current Option Gain/Loss: +0.0%
Entry on February 26 at $5.05
Listed on February 25, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 715 thousand
New Positions: see below

02/26/15: ANTH showed relative strength on Thursday and closed with a +2.4% gain. Shares also broke out to close above round-number resistance at $5.00. Our trigger to open small bullish positions was hit at $5.05. I would consider new positions at current levels. Just remember this is a speculative, more aggressive trade.

Earlier Comments: February 25, 2015:
Biotech stocks were outperformers last year and they continue to outperform the broader market in 2015. One biotech stock that did not participate in last year's rally was ANTH. The stock was actually on the verge of being delisted from the NASDAQ. That changed with the company' recent press release.

According to the company, "Anthera Pharmaceuticals is a biopharmaceutical company focused on developing and commercializing products to treat serious and life-threatening diseases, including lupus, lupus with glomerulonephritis, IgA nephropathy, and exocrine pancreatic insufficiency due to cystic fibrosis."

The press release that changed the stock's direction came out on February 10th. ANTH announced "successful completion of an interim analysis of its Phase 3 trial (CHABLIS-SC1) of blisibimod in patients with Systemic Lupus Erythematosus and that the study should continue to completion as planned. An independent statistician conducted the interim futility analysis for the CHABLIS-SC1 study, evaluating the SRI-6 response at the 24 week time point. Enrollment in the trial is projected to conclude in mid-2015."

What is blisibimod? In the press release the company states, "Anthera is developing blisibimod, a selective inhibitor of B-cell activating factor (BAFF), to explore its clinical utility in various autoimmune diseases including systemic lupus erythematosus (SLE) and IgA nephropathy. Blisibimod is a novel FC-fusion protein, or peptibody, and is distinct from an antibody. BAFF is a tumor necrosis family member and is critical to the development, maintenance and survival of B-cells. Abnormal elevations of B-cells and BAFF may lead to an overactive immune response, which can damage normal healthy tissues and organ systems. Multiple clinical studies with BAFF antagonists have reported the potential benefit of BAFF inhibitors in treating patients with lupus and IgAN." You can read the entire press release here.

SLE can be hard to diagnose. Current estimates suggest 300,000 and up to 1.5 million people in America suffer with SLE. Most of them are women.

The stock exploded higher on this positive clinical trial data. Shares have essentially doubled. Momentum suggest this rally will continue. Regular readers know that we consider biotech stocks higher-risk and more aggressive trades. The right or wrong headline can send a stock soaring or crashing. We could see shares gap up or down at any time. I definitely consider ANTH a higher-risk, aggressive trade.

Today the stock appears to be coiling for a bullish breakout past round-number resistance in the $5.00 area. I am suggesting small bullish positions if ANTH can trade at $5.05 or higher (although if shares gap open too high you may want to hesitate on launching positions).

*small positions* - Suggested Positions -

Long ANTH stock @ $5.05

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

Long Apr $5 CALL (ANTH150417C5) entry $1.10

02/26/15 triggered @ $5.05
Option Format: symbol-year-month-day-call-strike

Cree, Inc. - CREE - close: 39.48 change: +0.08

Stop Loss: 34.85
Target(s): To Be Determined
Current Option Gain/Loss: +8.0%
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

02/26/15: CREE is still moving sideways just below significant resistance in the $39.50-40.00 area (we should include the 200-dma at $40.10). A breakout past $40.00 could be very bullish even though CREE is starting to look overbought with a four-week rally from its February lows.

I am not suggesting new positions at this time.

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

Linear Technology Corp. - LLTC - close: 48.40 change: -0.08

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

02/26/15: LLTC tested short-term support at its 10-dma again. If you're worried about waning momentum then consider waiting for a new relative high 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

Luxoft Holding - LXFT - close: 51.59 change: +0.14

Stop Loss: 47.40
Target(s): To Be Determined
Current Option Gain/Loss: +2.7%
Entry on February 24 at $50.25
Listed on February 19, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 241 thousand
New Positions: see below

02/26/15: LXFT tagged another new high before paring its gains. If you're looking for a new entry point consider waiting for a dip or a bounce near the $50.00 mark.

Earlier Comments: February 19, 2015:
LXFT is a technology company with a stock hitting all-time highs. You may not be familiar with LXFT since the company became public in mid 2013. "Luxoft Holding, Inc. is a leading provider of software development services and innovative IT solutions to a global client base consisting primarily of large multinational corporations." The company sells its services around the globe as it "develops its solutions and delivers its services from 18 dedicated delivery centers worldwide. It has over 8,600 employees across 22 offices in 14 countries in the North America, Mexico, Western and Eastern Europe, and Asia Pacific."

Last year shares of LXFT closed virtually unchanged for all of 2014. That surprises me. The company has raised its earnings guidance the last four quarterly reports in a row. They have beaten Wall Street's estimates on both the top and bottom line the last three quarters in a row.

On the daily chart you can see the big rally on February 12th. That was a reaction to LXFT's most recent earnings report. Management said earnings grew +50% to $0.81 a share last quarter. That was 21 cents above analysts' expectations. Revenues rose +31.8% to $145.75 million, also above estimates. LXFT raised their 2015 guidance from $2.00 a share to $2.15.

The stock is up significantly from its late January low near $37.00 so it wasn't a surprise to see shares correct after trading near $50 on February 13th (last Friday). What's interesting is how fast traders bought the dip. LXFT is now challenging round-number, psychological resistance at $50.00 again.

Tonight I am suggesting small bullish if LXFT can breakout higher. We'll start with an entry trigger at $50.25. We're not setting a target tonight but the point & figure chart is very bullish and forecasting a long-term target of $76.00.

Please note I am labeling this a slightly more aggressive trade and thus we want to keep our position size small to limit risk. Not only has LXFT been volatile the last couple of weeks but it might have exposure to geopolitical risk with Russia. LXFT is headquartered in Switzerland and does business around the globe. They are a subsidiary of IBS Group, which is a Russian company. LXFT also does business in Ukraine. Shares dropped sharply last March as the Ukraine situation heated up. Right now the most recent cease-fire attempt in Eastern Ukraine appears to have failed. That could prompt more sanctions from the West against Russia. We can't tell if new sanctions would hurt LXFT or not but it remains a potential risk.

*small positions to limit risk* - Suggested Positions -

Long LXFT stock @ $50.25

02/24/15 triggered @ $50.25

Microchip Technology - MCHP - close: 51.47 change: +0.12

Stop Loss: 49.25
Target(s): To Be Determined
Current Option Gain/Loss: -2.1%
Entry on February 24 at $51.15
Listed on February 21, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.8 million
New Positions: see below

02/26/15: The consolidation in MCHP seems to be narrowing. The stock looks poised to breakout. Depending on your trading style you could buy another dip near $50.00 or wait or a new high above $51.70.

Earlier Comments: February 21, 2015:
Semiconductor stocks have been big winners for investors over the last couple of years. Last year saw sales for the whole industry hit a record-breaking $335 billion. That's up almost +10% from 2013. While the SOX semiconductor index is currently trading at multi-year highs it did see a sharp sell-off in October 2014. That was thanks to MCHP.

MCHP is considered a bellwether for the industry. According to the company, "Microchip Technology Incorporated is a leading provider of microcontroller, mixed-signal, analog and Flash-IP solutions, providing low-risk product development, lower total system cost and faster time to market for thousands of diverse customer applications worldwide. Headquartered in Chandler, Arizona, Microchip offers outstanding technical support along with dependable delivery and quality."

Last October MCHP shocked the market when they lowered their earnings guidance and warned of an industry wide slowdown. This sparked an industry-wide sell-off. Shares of MCHP plunged. The stock spent the rest of the year trying to climb out of that hole. By the end of 2014 the stock had recovered enough to close essentially breakeven on the year.

Helping shares recover was an update in December. Management provided a slightly better earnings and revenue picture. MCHP said that business had improved significantly from early October. They now believed that the worst of the industry downturn was already behind them. This helped fuel gains for the semiconductor stocks while MCHP shares languished.

Fortunately today MCHP is playing catch up to its peers. The company reported its Q3 2015 results on January 29th. Wall Street was expecting a profit of $0.62 a share on revenues of $525.5 million. MCHP beat estimates with $0.64 a share as revenues grew +11.1% to $535.8 million.

MCHP said that calendar year 2014 was a strong one for their microcontroller business, which was up +13.8% overall. Their 8-bit, 16-bit, and 32-bit microcontroller segments all hit record sales with 16-bit sales up +27.7% and 32-bit sales up +41%. Management said overall they did witness broad-based growth across all their product lines. MCHP then raised their dividend and raised their guidance. They expected Q4 2015 earnings (current quarter) to be in the $0.65-0.67 range and revenues in the $541-551.9 million range. That's above analysts' estimates of $0.65 and $538.8 million.

Steve Sanghi, MCHP's President and CEO, commented on their quarterly results, "We are very pleased with our execution in the December quarter. Our original revenue guidance was to be down 4.5% sequentially and in early December we improved our guidance for revenue to be down only 3.5% at the midpoint. Our actual non-GAAP revenue results were down only 1.9%, which was better than what is seasonally normal. Calendar year 2014 was Microchip's first year above the $2 billion revenue mark and was up 12.8% from calendar year 2013 as a result of very strong performance from our microcontroller and analog product lines."

Investors cheered and the stock has soared from a low near $44 in early February to a new multi-year high above resistance at $50.00. The point & figure chart is forecasting a target at $56.00. Tonight we are suggesting a trigger to open bullish positions at $51.15.

- Suggested Positions -

Long MCHP stock @ $51.15

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

Long Apr $50 CALL (mchp150417C50) entry $2.40

02/24/15 triggered @ 51.15
Option Format: symbol-year-month-day-call-strike

Altria Group Inc. - MO - close: 55.64 change: -0.08

Stop Loss: 53.85
Target(s): To Be Determined
Current Option Gain/Loss: +1.5%
Entry on February 12 at $55.25
Listed on February 11, 2015
Time Frame: 10 to 16 weeks
Average Daily Volume = 7.8 million
New Positions: see below

02/26/15: Shares of MO displayed relative strength today with a +0.8% gain and anther new high. I do not see any changes from my recent comments.

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: 40.05 change: +0.46

Stop Loss: 34.90
Target(s): To Be Determined
Current Option Gain/Loss: +6.4%
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

02/26/15: NBIX saw an early morning dip but traders jumped in near the rising 10-dma and support around the $38.00 level. This stock looks poised to rally tomorrow and could hit new multi-year highs.

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

Total System Services - TSS - close: 38.40 change: +0.07

Stop Loss: 34.90
Target(s): To Be Determined
Current Option Gain/Loss: +3.6%
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

02/26/15: TSS keeps the rally going. Traders bought the dip near $38.00 and the stock closed at another high. I would not chase it here.

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

02/21/15 Caution: TSS is starting to look short-term overbought.
02/13/15 triggered @ 37.05

BEARISH Play Updates

None. We do not have any active bearish trades.


Spirit AeroSystems - SPR - close: 49.69 change: +0.01

Stop Loss: 49.25
Target(s): To Be Determined
Current Option Gain/Loss: -2.1%
Entry on February 19 at $50.30
Listed on February 18, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.3 million
New Positions: see below

02/26/15: SPR was looking super strong last week. Unfortunately shares reversed lower this week and broke down below short-term support. SPR hit our new stop loss at $49.25 today.

- Suggested Positions -

Long SPR stock @ $50.30 exit $49.25 (-2.1%)

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

APR $50 CALL (SPR150417C50) entry $2.09 exit $1.25 (-40.2%)

02/26/15 stopped out
02/25/15 new stop @ 49.25
02/19/15 triggered @ $50.30
Option Format: symbol-year-month-day-call-strike


Sensata Technologies - ST - close: 53.65 change: -0.57

Stop Loss: 53.45
Target(s): To Be Determined
Current Option Gain/Loss: +1.1%
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

02/26/15: The profit taking in ST continued today. Technically today's drop confirms the bearish reversal pattern. However, shares did find support at the 10-dma today. Unfortunately ST also hit our new stop loss at $53.45.

- Suggested Positions -

Long ST stock @ $52.85 exit $53.45 (+1.1%)

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

Long JUN $55 CALL (ST150619C55) entry @ $1.85 exit $1.75 (-5.4%)

02/26/15 stopped out
02/25/15 new stop @ 53.45
02/17/15 new stop @ 51.35
02/10/15 triggered @ 52.85
Option Format: symbol-year-month-day-call-strike