Option Investor

Daily Newsletter, Saturday, 2/28/2015

Table of Contents

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

Market Wrap

Do Fundamentals Finally Matter?

by Jim Brown

Click here to email Jim Brown

After a week of economic misses, lowered guidance and downward revisions to earnings estimates the markets began to give back some of their record gains. Does this mean that investors are suddenly deciding that fundamentals matter or did the market just pause to consolidate?

Market Statistics

The Dow gave back -81 points on Friday and the Nasdaq -24 with the S&P losing -6 and closing at 2,104. After trading at new highs most of the week it was only natural for the indexes to suffer from profit taking on a Friday afternoon. The declines were minimal and given the ugly economic data I think the losses could have been a lot worse. Friday was also a rebalance of the Morgan Stanley indexes at the close and that could have also created some volatility.

The ISM Chicago or Chicago PMI as it was called in the past declined from December's 59.4 to 45.8 in January. This was a five year low. Analysts were expecting 58 based on a Bloomberg survey. The new orders, production and employment components all posted double digit declines. Analysts blamed the sharp downturn on the weather and the port delays on the west coast which prevented Chicago manufacturers from receiving parts. There is no way to accurately determine how much of that impact was real versus imagined. Access to the internals details are subscription only for a high fee.

The Q4 GDP was revised down from +2.64% growth to +2.19% and that was down from +4.97% in Q3. The revisions were led by inventories and exports. The contribution from inventories declined from +0.8% to +0.1%. Net exports reduced growth by -1.2%, which was more than the -1.0% in the prior estimate. Consumer spending was the strongest category with a rise from +2.2% to +2.8%.

The personal consumption expenditures (PCE) showed deflation of -0.4% in Q4 compared to +1.3% inflation in Q3. The Fed will not be glad to see that number. Real disposable income rose from +2.4% in Q3 to +3.8% in Q4.

Analysts were expecting a decline with some expecting under 2.0% so the market damage from the GDP was minimal.

The final revision of the Consumer Sentiment for February rose slightly to 95.4 from the initial reading at 93.6. This is still a relatively small decline from the 11-year high at 98.1 in January but it was the biggest point decline in 16 months. The present conditions component declined from 109.3 to 106.9 and the expectations component declined from 91.0 to 88.0. The revised report was ignored.

The Pending Home Sales Index for January rose +1.7% to 104.2 to erase December's -1.5% decline but it was far short of the expectations for a +3.4% rise. This is the fifth consecutive miss on forecasts. Analysts were quick to blame the weather because I guess it never snowed in January before. The Northeast posted a gain of +0.1% after a -3.6% decline in December. It was the Midwest with a -0.7% decline that weighed on the index. The South rose +3.2% and West +2.2%.

Next week is a big week for economic reports. The ADP and Nonfarm payrolls will be the most watched with the two ISM also providing key details on the current state of the economy. The Fed Beige Book on Wednesday could be a challenge with the regional manufacturing reports trending lower it could be reflected in the Book. This would be a serious hiccup for the street because the general consensus is that the economy is chugging right along at a 2.5-3.0% growth rate.

There are multiple factors that could have impacted economics over the last month. The weather was certainly a concern followed by the rapid slowdown of activity in the energy sector and the port slowdown. This could have impacted multiple Fed regions and the book should give us the details. The key will be how the market reacts to it since all those factors are already common knowledge.

The ADP payrolls are expected to be flat with last month at +210,000 jobs. The Nonfarm payrolls are also expected to be nearly flat with only a 7,000 job decline to +250,000. I worry that all the factors I mentioned above may have put a crimp in hiring for February. That is especially true for the Northeast where the winter weather was especially severe. Unless you were hiring for snow shoveling positions there was probably not much activity.

Two new splits were announced last week with South Jersey Industries and Magna Intl. Neither is expected to produce a split run like we are seeing in HBI and Visa.

Fed Vice Chair Stanley Fischer was interviewed late Friday and he said it was about time for the Fed to raise rates and he expected it to happen in June or September. Other than that he repeated the party line about data dependence and at least two meetings with no change as long as the word patient was in the statement. The market took a dive about the time of the Fischer interview so his blunt answers may have been a minor concern.

It has been 9 years since the Fed has announced a rate hike.

The Fed wants to raise rates but before they can do that they want to see GDP growth, earnings growth, job growth and inflation growth. The economy is just not cooperating.

For the month of February 38 economic reports missed estimates and came in weaker than expected and only six reports came in better than expected.

The FDIC created some news when it prematurely announced that the Doral Bank in Puerto Rico had failed and the assets had been sold to Banco Popular de Puerto Rico. The news was released at 3:03 PM and normally the announcements are made after the close of business, which in Puerto Rico is 6:PM. The FDIC sent another email claiming the release had been sent in error. An appeals court determined this week that Doral was not owed a $229 million tax refund by Puerto Rico's Treasury, overturning a verdict favoring the bank. Earlier in the week a former Doral executive was arrested for allegedly defrauding the bank of $2.3 million in a procurement scheme. It was not a good week for Doral.

Doral Bank had $5.9 billion in total assets and $4.1 billion in total deposits. Banco Popular will buy $3.25 billion of Doral's assets. The FDIC said Doral's 26 branches would remain open for normal business under new names starting on Saturday. Banco Popular would operate 8 of them and three other banks acquired the rest. Shares of parent company Doral Financial (DRL) declined -46% into the close. Shares of Banco Popular (BPOP) rose on the news.

In stock news Monster Worldwide (MNST) shares rallied +13% after reporting earnings of 72 cents compared to estimates for 59 cents. Revenue of $605.6 million also beat estimates of $585 million. The company is expanding its distribution partnership with Coca-Cola and that allowed them to expand sales in both domestic and international markets in Q4. They launching new drinks and they look unstoppable.

The company said the deal with Coke was still set to close in Q2. Under that deal Coke will buy the non-energy drink brands from Monster for $2.15 billion in cash. Coke will transfer its own energy drinks to Monster. Monster will also get to use Coke's international distribution infrastructure. Some analysts believe Coke will eventually end up buying Monster.

JC Penny (JCP) shares declined -7% after reporting zero earnings when analysts expected 11 cents. Revenue of $3.89 billion did beat estimates of $3.68 billion. Shares had been trading over $9 at a five month high in expectations that the company was succeeding in their comeback from the Ron Johnson disaster. He tried to remake Penny's and failed badly with shares trading as low as $5 and investors worrying they would file bankruptcy. Shares declined sharply at the open to $7.88 and rebounded to nearly $9 intraday. When the markets began to roll over the rebound faded.

Penny's is making good strides. Same store sales rose +4.4% but the company only projected 3-5% for 2015 and down from their last projection. The operating income of $63 million was not much but it ended a streak of 13 straight quarterly losses. However, after raising $3 billion in 2013 the company said free cash flow in 2015 would be flat. While that is better than burning cash it is not very encouraging.

Weight Watchers (WTW) no longer needs to go on a diet after shares lost -35% with very weak guidance and earnings miss. The company reported adjusted earnings of 7 cents compared to estimates for 8 cents. The company guided for full year earnings in the range of 40-70 cents and analysts were expecting $1.43. The -35% decline was the largest single day drop in 13 years. This was on top of a -78% decline over the last three years. Since America is the most obese nation the WTW guidance is not because people don't need to lose weight. They are simply not doing it with Weight Watchers.

Tetra Technologies (TTI) reported earnings of 9 cents compared to estimates for 8 cents. Revenue of $315.9 million missed estimates for $321 million. Shares jumped +20% after the company said sales in its fluids division rose 24% in Q4.

Horizon Pharma (HZNP) reported earnings of 27 cents that beat estimates by a nickel. Full year revenue spiked +300% to $297 million and a profit of 95 cents compared to a loss of 58 cents in 2013. They raised revenue guidance for 2015 by $25 million to $475 million. The +8% jump in the shares closed at a new high.

Nimble Storage (NMBL) lost -8% after beating earnings but guiding below consensus. The company posted a loss of 13 cents that beat estimates by a penny. However, they guided to a loss of 13 cents in the current quarter and that was below analyst estimates. The company said it was reaching an inflection point as enterprises of all sizes are starting to justify the risk of moving away from long standing vendor relationships. In theory that means Nimble should seen improving profits but they are not promising that today.

Key earnings for next week include Costco, Palo Alto networks, Staples, Abercrombie & Fitch, Caesars and Ctrip.com. The number of big name companies are disappearing fast as the small caps take over the end of the earnings cycle.

How do you play a stock that has 320 million shares outstanding but has 2 billion shares coming out of lockup in the coming months? Alibaba (BABA) currently has 320 million shares available to trade with an average volume of 14.9 million per day. On March 18th another 429 million shares come out of lockup and are available to trade. Shares are already only a couple dollars off their historic low but the stock is not declining as you would expect with another 429 million shares about to drop on the market. I looked at multiple option strategies but the potential for a big move has inflated the premiums.

While I don't expect a monster drop on the 18th there may be weakness. Since every BABA shareholder knows the share expiration is coming they should have already sold or protected themselves with options. I know the market always assumes there will be heavy selling when these lockups expire but that rarely happens because the event is so well telegraphed. This suggests we should look for some bullish trades but the expiration cloud is still clouding my judgment.

To make matters worse on September 20th the lockup will expire on another 1.2 billion shares. With the shares available to trade more than doubling on March 18th you would think that the lead up to the September event could be really ugly. The better trade may be to wait for BABA to bounce and then buy long term puts after the option premium fades. With Jack Ma cutting bonuses and complaining about revenue I don't see a flurry of earnings surprises in the near future.

Crude oil lost $1.58 for the week despite a counter trend short squeeze to $51.28 on Wednesday. There was no reason for the spike since oil inventories rose +8.4 million barrels to 434.1 million and another 80 year high. There was a rumor that the OPEC president was thinking about calling an emergency meeting "in several weeks" if prices did not stabilize. U.S. production rose slightly to 9.285 mbpd and another post 1972 high.

I have written about the coming lack of storage capacity several times in recent weeks. There is a limit to how much oil can be stored. On Friday an analyst at Bank of America noted that storage was becoming critical and could run out by the end of March. When that happens it will be a bidding war to sell for any price to anyone with available storage.

Normal buying patterns are already in disarray. For instance, Mexico is shipping oil to South Korea and Japan for the first time in more than 20 years. Typically those countries buy from Middle Eastern producers like Saudi Arabia. Mexico is so desperate to sell its oil that it severely discounted it in order to get it sold. Mexico is selling its oil for the lowest price in nearly 20 years. Mexico has oil to sell because the U.S. is producing almost 4.2 million barrels per day more now than we produced in 2008. In January 2008 the U.S. only produced 5,028 mbpd compared to the 9.285 mbpd we are producing now. This has significantly disrupted the import patterns. For the week of June 25th, 2004 we imported 10,591 mbpd and that has declined to an average of about 7.2 mbpd for February. That means roughly 3.4 mbpd that we used to import is now competing for market share somewhere else in the world.

Oil prices should not have risen on Wednesday's inventory data. I believe traders were so short that even a little headline caused a knee jerk reaction and a short squeeze. On Friday when the rig data came in with fewer rig declines than expected the price dipped to $48.50 but then a flurry of buying hit as traders took profits ahead of the weekend.

Active rigs declined -43 to 1,267, now down -664 rigs from the 1,931 high in September. Oil rigs declined -33 to 986 and gas rigs declined -9 to 280 and a new 18 year low.

If you are paying attention we have lost -664 rigs since September but oil production set a new 43 year high last week. Oil production will eventually decline but it could be another 3-6 months because wells already drilled still need to be completed and connected to the pipelines.

While I believe we are setting up for another decline in oil prices we are seeing very stubborn support at $49. Since consumption rises in early May as refiners begin pushing summer gasoline blends into the system the price of crude also rises. The $64 question is whether consumption will begin before storage capacity runs out. Stay tuned.


I don't think we should take Friday's decline too seriously. The rebalancing of the Morgan Stanley indexes, fear of holding gains over the weekend and normal month end profit taking were probably the reasons for the weakness. The markets made new highs and the Nasdaq moved to within 11 points of 5,000. It was still a good week.

When you consider the overextended nature of the indexes we are due for a rest. If the Dow had closed over 18,206.58 it would have had the biggest one-month point gain in history. It traded over that level to 18,213 intraday but ended up giving back -81 points to close at 18,134 for a +970 point gain for the month. We can't complain about an 81 point loss.

The S&P struggled the last two days because Apple was struggling. The stock closed -$5 off its highs for the week. That is not a big loss but it was enough to drag down the S&P and Nasdaq. The 2,120 level proved to be short-term resistance for the S&P 500. Thus far the big cap index is only down nine points from its high. The pullback may not be over yet. Watch for potential support near 2,104 and 2,090.

The Nasdaq has been levitating higher all month with the 5,000 mark acting like a magnet. We almost got there on Thursday with an intraday high of 4,989. Potential support looks like 4,950 and 4,900.

The small cap Russell 2000's dip on Friday snapped a ten-day winning streak. Small caps could definitely see more profit taking. Short-term support is probably the late December highs near 1,220.

My bullish bias hasn't changed. I cautioned readers on Tuesday that we were due for a dip. This dip may not be over yet. On the plus side the first few days of a new month tend to have a positive bias as fund managers put new money to work. We will have to see if investors are still in a buy-the-dip mood.

Enter passively, exit aggressively!

Jim Brown

New Plays

Breaking Down Thanks To Lowered Guidance

by James Brown

Click here to email James Brown


Five Below, Inc. - FIVE - close: 31.74 change: -0.36

Stop Loss: 33.15
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on February -- at $---.--
Listed on February 28, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.2 million
New Positions: Yes, see below

Company Description

Why We Like It:
Five Below is struggling. Consumer spending accounts for almost 70% of the U.S. economy. FIVE has chosen to carve out a niche between the $1.00 store-model and discount variety stores. Considering the drop in gasoline prices from a year ago, business should be good. Low-income consumers have more money to spend. Unfortunately we are not seeing a lot of evidence that consumers are spending the money they save at the gas pump, at least they're not spending it on merchandise.

If you're not familiar with FIVE the company describes itself as "Five Below is a rapidly growing specialty value retailer offering a broad range of trend-right, high-quality merchandise targeted at the teen and pre-teen customer. Five Below offers a dynamic, edited assortment of exciting products in a fun and differentiated store environment, all priced at $5 and below, including select brands and licensed merchandise across a number of category worlds: Style, Room, Sports, Tech, Crafts, Party, Candy, and Now." They currently have about 304 locations in 19 states.

Right now the trend is not FIVE's friend. In September 2014 they reported Q2 results and guided lower for the third quarter. On December 4th FIVE reported their 2014 Q3 numbers with earnings in-line with estimates. Revenues were up +24.7% from a year ago to $138 million, just a hair above expectations. However, management lowered their guidance again. You can see how investors reacted with the big drop on December 5th.

Shares got clobbered again on January 9th. That's because FIVE lowered guidance! That's the third time since September they have lowered guidance. If FIVE is struggling to generate sales now with low gas prices and consumer confidence near 11-year highs what are they going to do when gas prices rebound?

You can see that shares of FIVE did not have much of a bounce following the January sell-off. The stock now has a bearish trend of lower highs as traders sell the rallies. Currently FIVE is breaking down below support near $32.00. The next support level could be $30.00 or it could be the late 2012 lows near $28.00 or it could be the all-time low near $25.00. The point & figure chart is bearish and forecasting at $26.00 target.

The stock is definitely underperforming the market and investor sentiment has soured. The stock is likely headed for the mid $20s. I will caution readers that short interest is almost 19% of the 51.9 million share float. That could generate volatility. You may want to use small positions to limit your risk or use put options to limit your risk. Tonight we are suggesting a trigger to launch bearish positions at $31.45.

Trigger @ $31.45

- Suggested Positions -

Short FIVE stock @ (trigger)

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

Buy the Apr $30 PUT (FIVE150417P30) current ask $1.25

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

Daily Chart:

Weekly Chart:

In Play Updates and Reviews

February's Momentum Fades

by James Brown

Click here to email James Brown

Editor's Note:
February 2015 turned out to be a great month for bullish investors. However, this past week the rally was starting to look tired and stocks retreated toward month end.

Current Portfolio:

BULLISH Play Updates

Abbott Laboratories - ABT - close: 47.37 change: -0.24

Stop Loss: 44.75
Target(s): To Be Determined
Current Option Gain/Loss: +1.5%
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

02/28/15: ABT followed the rest of the market lower on Friday. Shares did manage to tag another high on an intraday basis. If the market sees a pullback I would watch for support in the $46.50 area.

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: 39.22 change: -0.29

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

02/28/15: The retreat from $40.00 continued on Friday. Shares of ADT lost -0.73% to close near technical support on its rising 10-dma. Currently we are on the sidelines and waiting for a breakout. 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: +0.00

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

02/28/15: Biotech stocks have been somewhat volatile last week and the group followed the major indices lower on Friday. ANTH tried to rally but eventually closed unchanged on the session.

Looking at ANTH's intraday chart the afternoon high was $5.10. Consider waiting for a rally past $5.10 before initiating new positions. Don't forget that 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: 39.26 change: -0.22

Stop Loss: 36.25
Target(s): To Be Determined
Current Option Gain/Loss: +7.4%
Entry on February 05 at $36.55
Listed on February 03, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.8 million
New Positions: see below

02/28/15: The market's widespread decline also weighed on CREE. However, this stock was already struggling with resistance in the $40.00 region. Fortunately traders did buy the dip at short-term support near the 10-dma.

Tonight I am raising the stop loss to $36.25. You may want to raise your stop even higher.

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

02/28/15 new stop @ 36.25
02/12/15 new stop @ 34.85
02/05/15 triggered @ 36.55
Option Format: symbol-year-month-day-call-strike


FireEye, Inc. - FEYE - close: 44.27 change: -1.14

Stop Loss: 42.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on February -- at $---.--
Listed on February 26, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 6.8 million
New Positions: Yes, see below

02/28/15: FEYE was hit with profit taking on Friday. Shares have been volatile lately and the stock underperformed on Friday with a -2.5% decline. On the plus side shares did find short-term support at their rising 10-dma. I don't see any changes from the Thursday night new play description. Our suggested entry point to open bullish positions is at $46.65.

Earlier Comments: February 26,
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)

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


Linear Technology Corp. - LLTC - close: 48.19 change: -0.22

Stop Loss: 44.90
Target(s): To Be Determined
Current Option Gain/Loss: +1.8%
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

02/28/15: Friday was a quiet session for LLTC. Technically the close below its 10-dma is a little bit concerning but nothing to panic about. The $47.00 level should be support.

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: 50.70 change: -0.89

Stop Loss: 47.40
Target(s): To Be Determined
Current Option Gain/Loss: +0.9%
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

02/28/15: Shares of LXFT hit new all-time highs midweek. It wasn't surprising to see a little profit taking on Friday. We want to see the $50.00 level hold as support. Consider waiting for a dip near or a bounce from $50 as our next entry point.

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: 51.27 change: -0.20

Stop Loss: 49.25
Target(s): To Be Determined
Current Option Gain/Loss: +0.2%
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

02/28/15: MCHP held up pretty well on Friday. The consolidation appears to be narrowing with short-term support at the 10-dma and overhead resistance in the $51.65 area. This should blossom into a bullish breakout.

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: 56.29 change: +0.20

Stop Loss: 53.85
Target(s): To Be Determined
Current Option Gain/Loss: +1.9%
Entry on February 12 at $55.25
Listed on February 11, 2015
Time Frame: 10 to 16 weeks
Average Daily Volume = 7.8 million
New Positions: see below

02/28/15: MO ignored the market's weakness on Friday and closed at all-time highs. The stock is now up three weeks in a row. If you don't feel like buying new highs then wait for a dip near $55.00 instead.

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: 39.05 change: -1.00

Stop Loss: 34.90
Target(s): To Be Determined
Current Option Gain/Loss: +3.7%
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

02/28/15: It was a rocky week for biotech stocks. NBIX churned sideways between $38.00 and $40.75. Thus far the 10-dma is still holding up as short-term technical support (so is the $38.00 level). It is worth noting that NBIX posted a loss for the week and that ended a run of eight up weeks in a row. 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


Total System Services - TSS - close: 38.20 change: -0.20

Stop Loss: 36.40
Target(s): To Be Determined
Current Option Gain/Loss: +3.1%
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

02/28/15: TSS tagged another record high on Friday before succumbing to the market's broad-based malaise. If this dip continues the nearest support should be the rising 10-dma near $37.80. Last week was TSS' eighth weekly gain in a row.

Tonight we'll adjust the stop loss up to $36.40. I am not suggesting new positions at this time.

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

02/28/15 new stop @ 36.40
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.