Option Investor

Daily Newsletter, Wednesday, 3/4/2015

Table of Contents

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

Market Wrap

Seesaw Market Continues

by Keene Little

Click here to email Keene Little
Up and down, down and up -- the past 12 trading days has left the market where it was in mid-February and the choppy price could continue for at least another day (to get through Friday's NFP report). But the market looks like it's setting up for a big move.

Wednesday's Market Stats

Traders have been whipped around for the past two trading weeks and it hasn't stopped this week. SPX finished today a point off where it was on February 13th and the question here is whether the price consolidation is a bullish continuation pattern or is instead a topping pattern. As always, an argument can be made for either case as to what the market will do in the coming week. The bigger question is what kind of pullback/decline will follow the current rally (even if the rally will extend another week or so).

The market has been reacting to what the Fed thinks, or at least to what the market thinks the Fed thinks. And then of course what the market thought the Fed said vs. what they think can lead to confusion about what was actually said vs. what was inferred and that can then lead to all kinds of erroneous conclusions about what the Fed is going to do next, which then gets traders looking for a train from one direction while they get slammed from the one they didn't see coming from the other direction. Confused? Welcome to the club.

The list of economic misses is significant, with each one showing a continuing sign of economic slowing. Yet when you look at the stock market you would think the economy is humming along nicely. After all that's what the Fed believes so it must be true. Of course you know the real way to tell if the Fed or politicians are lying to us -- it's when their lips are moving. To say the stock market is totally and completely disconnected from the economy and reality is a gross understatement. The only takeaway from this situation is to recognize that the disconnect cannot and will not stay that way and when they start to reconnect it will be either the economy improving (not happening) or the stock market will decline. And the reconnect usually happens very quickly once the mood of the market changes. What that trigger will be is anyone's guess and the bears know better than anyone that it's taking a really long time.

As for the latest economic reports, the ADP Employment Change for February was a little less than expected, coming in a 212K vs. 220K and a drop from the upwardly revised 250K (from 213K) for January. There's wasn't enough of a change to suggest how Friday's NFP report will look, which is expected to show a gain of 240K following January's 257K.

The ISM Non-Manufacturing (Services) number for February ticked up to 56.9 from 56.7 in January, which is the 61st straight month of growth (above 50). There tends to be very little volatility in this index and therefore very few surprises. Hence the market tends to ignore it.

The Fed's Beige Book was released this afternoon and the statements about the economy were general positive. What's interesting is that the Fed stated the economy was growing at a moderate pace with steady manufacturing and employment gains. I guess they have different metrics than most of the rest of us follow. But regardless, as mentioned above, the market has been ignoring all the signs of slowing in the economy, as can be seen on the list of reports below and which ones were below expectations (most) and which ones exceeded expectations (a few).

February U.S. Economic Results, table courtesy Bloomberg via zerohedge.com

Monday was a positive day for the market, which many have come to expect since it was the first trading day of the month. But interestingly, that pattern is actually not holding any more. Betting on the long side just because it's the first day of the month hasn't worked in a while. Rob Hanna, from QuantifiableEdges.com, showed two interesting charts to highlight the change in behavior of the 1st trading day of the month. It has been generally accepted that the reason for first-day bullishness is because of new investment money (paycheck distributions, retirement accounts, etc.) being put to work. A trading technique had been developed around it where you buy the close of the last trading day of the month and you sell at the close of the first trading of the new month. This was a very winning strategy, as can be seen on Hanna's chart below.

SPX results for 1st trading day of month, 2000-2010, chart courtesy QuantifiableEdges.com

First thing to point out here is that the period covered above is 2000-2010 and the blue line shows a net gain of 419.81 points trading just the first day of the month. But if you were out of the market on the 1st trading day and in on all the other trading days (red line) you would have suffered a loss of 631.42 points. That's a 1050-point spread between the two! It's no wonder this idea of bullish first days became so well known. And this was during a period where the market experienced some significant declines

But look what has happened in the period 2011 through February 2015, shown on the chart below. The blue line at the bottom shows a loss of 18.66 points over the past 4 years if you had traded this same strategy. And this was during the time of a raging bull market -- being invested all the other days except the first trading day of the month netted you 871.76 points, a spread of about 900 points against the idea of a bullish first trading day. It's a perfect example of once something is known about the market it stops working, and it's also why many historical patterns, such as those in Trader's Almanac, are not necessarily reliable.

SPX results for 1st trading day of month, 2010-February 2015, chart courtesy QuantifiableEdges.com

Now the big question is what this might mean during the next bear market. If the 1st day of the month has struggled during one of the strongest bull markets we've seen, what will it do during a bear market? There is of course no way to know but at least the takeaway here is that you should not enter the new month feeling bullish based a pattern that is clearly no longer working (even if it did work this past Monday).

I'll start tonight's chart review with a weekly chart of THE market, the Wilshire 5000 index, which has been warning bulls that to expect much more of a rally might not be the best bet. There's always the possibility for more rally (this market has proven that over and over again) but when up against a trend line while overbought and overloved (high bullish sentiment) it's generally best to take at least a cautionary approach to the long side. Bears have been required to be extremely cautious but the W5000 is telling us the bears might have the better trade here.

Following a series of 1st and 2nd waves in the rally off the October 2011 low the wave count has been "unwinding" with a series of 4th and 5th waves since the July 2014 high. The trend line along the highs since last July is where the rally stopped last week. One of the things to look for with 5th waves is negative divergence and that's what we see with the higher price highs but lower MACD and RSI highs. This helps confirm the wave count and the rally from February 2nd should be the final 5th wave to complete the rally from October 2011 (which in turn completes a large A-B-C correction off the March 2009 low). The final 5th wave would be 62% of the first 1st wave at 22383, which is shown on the chart. The February 25th high missed that projection by 14 points with a high at 22369. There's still more upside potential to the trend line along the highs since April 2012, near 23700, so a break above last week's high should be taken seriously by the bears.

Wilshire 5000 index, W5000, Weekly chart

The daily chart of the W5000 shows the rollover from the trend line along the highs since last July. It bounced off its 20-dma this morning, near 22061 today, which shows traders are still buying dips to support. Only time will tell us whether or not buying the dips is still the right way to go or if instead we've had a trend change and selling the bounces is the way to go. To keep it relatively simple here, I think it would be bullish above last week's high at 22369 and bearish below 22000.

Wilshire 5000 index, W5000, Daily chart

Key Levels for W5000:
- bullish above 22370
- bearish below 22000

One chart I've shown before is the W5000 compared to new 52-week highs and the number of advancing stocks minus declining stocks. The middle chart shows the decline in the number of new 52-week highs since the peak in October 2014. The 10-dma of the advance-decline smoothes out the daily wild swings and shows a coinciding decline with the number of new 52-week highs. The rally since last October has been on the backs of fewer and fewer stocks and this is another sign of the endgame. Bull markets see this kind of deterioration at the end, not at the beginning of the next major bull leg, which many pundits are calling for. This could turn around but at the moment it's another warning sign.

W5000 vs. New 52-week Highs and Advancing-Declining Issues, daily chart

The daily chart for SPX looks very similar to W5000 and the two track each other very closely, which adds confidence to using SPX as a good proxy for the stock market. Its trend line along the highs from July-December 2014, like that for the W5000, has not been reached yet and I've been keeping it on my radar as far as upside potential. That trend line, which is very close to the longer-term trend line along the highs since April 2010, is currently near 2134. SPX also bounced off its 20-dma today and many traders will use that MA to help define the intermediate-term trend. It will be near price-level support at 2093 (its December 29th high) and therefore the bulls would be in more trouble with a close below that level (for more than a day). It stays bullish above 2093.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- stay bullish above 2093
- bearish below 2064

The short-term pattern since last week's high is not clear enough yet to help determine the next move from here. Based on a 5-wave move up from February 2nd, labeled in red, I could make the argument that the rolling top appearance over the past two weeks, the bearish divergence and the break below price-level support at 2102 all support the idea that an important top is already in place. But I could also argue the idea that today's low was the completion of the 4th wave in the rally from February 2nd and we still need a 5th wave, which is shown in green. A price projection shown at 2144 is where the 5th wave would equal 62% of the 1st wave (which would be expected since the green 3rd wave is shorter than the 1st wave. A rally up to that level would also coincide with a test of its trend line along the highs from last July-December. Better confirmation for the bears would be a drop below the 1st wave high (February 6) near 2072.

S&P 500, SPX, 60-min chart

Like SPX, the DOW has more upside potential if it's to make it up to its trend line along the highs from December 2013 - December 2014, near 18390 by the end of the week. Above 18100 the DOW stays bullish but below 18K would turn it more bearish since it would be a break of trend line, price-level and 20-dma support.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- stay bullish above 18,100
- bearish below 18,000

The DOW's 30-min chart below is being used to show how the market could be at an important juncture right here. From a bullish perspective, the pullback from Monday is an a-b-c correction and it will be followed by another rally. But this rally needs to get started immediately Thursday morning or else it could turn uglier for bulls. The bearish wave count for the move down from Monday is a 1-2, 1-2 setup and that calls for a 3rd of a 3rd wave down, something that would likely drop the DOW to the 17800 area on Thursday and then stair-step lower from there into Friday (to then set up a bounce correction next week). This bearish 1-2, 1-2 potential exists for all of the major indexes. Note the close below its December 26th high at 18103 -- it's only by 6 points but it should make bulls a little nervous here. If the market immediately drops Thursday morning we could see some strong selling kick in, otherwise the bears need to give the bullish potential some respect, especially if the bounce continues immediately out of the gate and makes it back above Tuesday afternoon's high, which would leave a confirmed a-b-c pullback (so bullish above 18215).

Dow Industrials, INDU, 30-min chart

As with the other indexes, the NDX shows some more upside potential if it's going to make it up to its trend line along the highs from March-November 2014, near 4590 by the end of the week. As I've shown on its daily chart below, there's a price projection based on the width of its previous descending triangle (December-January) at 4520. But the bulls better get back to buying soon otherwise a rollover from here could leave a completed 5th wave at Monday's high near 4484.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- stay bullish above 4420
- bearish below 4270

Like the W5000, the RUT has rolled over after a minor poke above its trend line along the highs from last September-December. The daily oscillators have turned down and it's looking a little more bearish than bullish here. But the bottom of a small parallel up-channel for the part of the rally following the first leg up from February 2nd is aligned with the 20-dma, near 1222 today. It would therefore be more bearish below that level but it stays bullish above it. There's upside potential to its broken uptrend line form March 2009 - October 2011, near 1270 next week, or maybe only up to the top of its little parallel up-channel, near 1254 by Friday. But for the bullish potential to hold we're going to have to see some stronger buying kick in and soon.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- stay bullish above 1222
- bearish below 1214

I've been keeping an eye on HYG, the High Yield (Junk) bond fund, to watch for clues when it's signaling possible danger for the bulls. This fund is of course a very good risk-on/risk-off indicator and right now it's telling me traders are about to take risk off. The 3-wave bounce off the December 16th low created a rising wedge for the c-wave and price poked above the top of the wedge last week but then failed to hold. It's a classic finish to these rising wedge patterns and the drop below the wedge on Monday, with a further selloff yesterday and today, tells me the A-B-C bounce off the December low has completed. It should now head back down and drop below the December low and I strongly suspect the stock market won't be far behind. This is a good canary index for the stock market and while it doesn't prevent the stock market from still making a new high, it does mean it should not be trusted if HYG is not participating.

High Yield Bond ETF, HYG, Daily chart

Last week the TRAN almost made it above its downtrend line from November 28th, poking slightly above it but then dropping back down. It's holding support at its 50-dma, tested today at 8970, and a shorter-term downtrend line from December 31st, near today's low at 8963. That trend line will be near 8940 by the end of the week and as long as the TRAN can stay above that line it stays potentially bullish for another run higher with the broader market (if the broader market is able to do the same). Bullish above last week's high at 9215 and bearish below 8940.

Transportation Index, TRAN, Daily chart

Last Thursday the U.S. dollar finally busted out of its sideways triangle and it's now looking very good for the final leg (5th wave) to complete the rally from May 2014. Once it completes we should see a multi-month pullback/consolidation before heading higher (bullish case). There is the potential that this rally will complete a larger corrective pattern off its 2008 low and start another bearish decline that will take the dollar below the 2008 low at 71.05. At the moment that's not my preferred wave count but at a minimum we should expect some kind of correction of the rally from last May. The 97.28-97.35 target zone continues to look good for the dollar, with the possibility that it will stretch higher to the 99.20 projection for the 5th wave. Dollar bulls (and any trades around the dollar) should now be moving into a defensive position and a good stop level would be the apex of the sideways triangle (near 94.50) or more conservatively wait for a break below its up-channel, the bottom of which is currently near 92.45.

U.S. Dollar contract, DX, Daily chart

Gold has been struggling to get another bounce started and it might not be able to do it, in which case we should see a drop below its November low at 1130 and on down toward the 1000 level. But there's still the potential for a higher a-b-c bounce off the November low and if it can start the next leg up from here we have an upside projection at 1307 for two equal legs up from November. The first sign of trouble for gold bulls would be another drop below price-level support near 1180.

Gold continuous contract, GC, Weekly chart

Oil was a little volatile today after dropping this morning (following a report of a huge inventory build) but after slightly breaking its 50-dma at 50.04 it took off to the upside. A sharp rally up to 52 keeps alive the potential for another leg up to create a larger 3-wave bounce off its January low. Two equal legs up points to 58.47, which is right at price-level S/R. If reached, which could take another week or two if the choppy price action continues, I think it would be a good setup for a reversal back down since I continue to believe oil will be consolidating for months before heading lower.

Oil continuous contract, CL, Daily chart

Tomorrow's economic reports will not likely be market moving. The Factory Orders at 10:00 AM could have an impact, especially if it shows more slowing than the -0.1% that's expected but this market has been ignoring deteriorating economics for a long time. This will eventually catch up with the market but not until the fallacy of depending on the Fed is exposed. I mean really, what can the Fed do at this point? They're trapped and soon the market will fully realize it. Friday's NFP report will be the big report for the week, which is expected to show some more slowing but that's OK, it will keep the Fed's finger off the raise-rates button.

Economic reports and Summary

Friday, March 6, is the 6-year anniversary of the current bull market, a streak that is thanks mostly to central bank policies and the massive distortions in asset prices that their interference has created. Many are calling for another year, at least, for the bull market but even if we do get that I seriously doubt it will continue to rally much, if any, from here. At a minimum I think we should be looking for a multi-month pullback and March has been an important turn month in the past. Just since the March 2000 high we've had a March 2001 low, March 2002 high, March 2003 low, March 2004 high, March 2005 high, skip 2006, March 2007 pullback low, March 2008 low, March 2009 low, skip 2010, March 2011 pullback low, March 2012 high, skip 2013 and 2014, and now we're sitting at a high in March 2015. It can always go higher but with the kind of reputation March has for reversing trends I'm not so sure I'd want to fight it.

When you consider how weak this rally has become over the past several months and how bullish the sentiment is and the fact that margin debt is at record highs, I think the market is ripe for more than just a pullback. The EW count also provides a reason to believe we're going to get more than just a pullback. It's a matter of identifying the top, whether here or a little higher, but in any case I think upside potential is dwarfed by downside risk and I think your trade/investment positions would do well to heed the warning that the market's technical indicators are showing us right now. Even the canary index, the HYG, is telling bulls to pull their stops up tight now since the downside could get a little rough.

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

Keene H. Little, CMT

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

New Plays

On The Rise

by James Brown

Click here to email James Brown


Best Buy Co. Inc. - BBY - close: 39.79 change: +0.61

Stop Loss: 37.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on March -- at $---.--
Listed on March 04, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 6.2 million
New Positions: Yes, see below

Company Description

Why We Like It:
BBY has got a bullish recipe brewing. The company has rising sales, rising earnings, rising dividends, and rising stock buybacks. The company launched a massive turnaround effort when they changed management in 2012. According to Fortune, BBY has "turned around its U.S. operations., shed assets abroad and trimmed expenses to help lift profitability."

If you're not familiar with BBY the company describes itself as "one of the world's largest consumer electronics retailers, offering expert service and unbeatable prices to the consumers who visit its websites and stores more than 1.5 billion times each year. In the United States, more than 70 percent of Americans are within 15 minutes of a Best Buy store. Additionally, the company operates businesses in Canada and Mexico. Altogether, Best Buy employs more than 125,000 people and earns annual revenues of more than $40 billion."

This week BBY has been making headlines thanks to its better than expected Q4 earnings results, which came out on March 3rd. Wall Street was expecting a profit of $1.35 a share on revenues of $14.33 billion. BBY said earnings hit $1.48 a share. That's a +23% increase from a year ago. Their unadjusted earnings were up +75% from a year ago. Q4 revenues were up +1.3% to $14.21 billion. BBY's U.S. same-store sales were up +2.8%. International was down -4% but their online sales surged +9.7%. Their U.S. same-store sales results are noteworthy because it's the second consecutive quarter of same-store sales growth for the first time in five years.

BBY's CEO and President Hubert Joly commented on his company's results saying,

"In the fourth quarter, our teams delivered positive comparable sales, improved profitability and continued progress in our Renew Blue transformation. This resulted in a 1.3% increase in revenue to $14.2 billion and a 23% increase in non-GAAP diluted EPS to $1.48 versus $1.20 last year, primarily driven by growth in the Domestic segment. A compelling merchandise assortment and strong multi-channel execution drove these better-than-expected results as we capitalized on the product cycles in large screen televisions and mobile phones. These two categories were the primary drivers of our year-over-year revenue growth, and more than offset weakness in the tablet category which was impacted by material industry declines."
Joly did warn that in fiscal 2016 BBY will "be facing industry and economic pressures on our business related to deflationary pricing and weak industry demand in certain product categories." However, investors didn't care. They didn't care about the revenue miss or the negative foreign currency headwinds. Everything was overshadowed by BBY's very shareholder friendly capital return initiatives.

The company said they are raising their normal dividend by +21% to 23 cents a share effectively immediately. They are also going to pay a special, one-time dividend of $0.51 a share. Plus they are re-starting their stock buyback program. Previously BBY had a $5 billion stock repurchase program but that halted it back in 2012 to work on their turnaround strategy. Management announced they plan to spend $1 billion on stock buybacks over the next three years.

Multiple analysts firms raised their price target on BBY following the company's earnings results and dividend news. Most of the new targets were in the $45-50 range.

Currently shares of BBY are trading just below key round-number resistance at the $40.00 mark. A breakout here could spark some short covering. The most recent data listed short interest a 10% of the 304 million share float. Tonight we're suggesting a trigger to launch bullish positions at $40.25.

Trigger @ $40.25

- Suggested Positions -

Buy BBY stock @ (trigger)

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

Buy the MAY $40 CALL (BBY150515C40) current ask $1.88

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

Daily Chart:

Weekly Chart:

In Play Updates and Reviews

Stocks Sink For A Second Day

by James Brown

Click here to email James Brown

Editor's Note:
The market digested some mixed economic data on Wednesday. Meanwhile traders were looking ahead toward Thursday's ECB meeting and Friday's nonfarm payroll number.

We have removed FEYE as a candidate.

Current Portfolio:

BULLISH Play Updates

Anthera Pharmaceuticals - ANTH - close: 5.17 change: +0.07

Stop Loss: 4.58
Target(s): To Be Determined
Current Option Gain/Loss: +2.4%
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

03/04/15: The relative strength continues in ANTH. Once again traders bought the dip near its rising 10-dma and shares rebounded to a +1.3% gain on the session. I would still consider new positions here. However, if you're worried about the broader market you could wait for ANTH to rally past $5.25 before initiating positions.

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: 38.99 change: -0.50

Stop Loss: 36.25
Target(s): To Be Determined
Current Option Gain/Loss: +6.7%
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

03/04/15: CREE has been relatively resistant to profit taking lately. That strength is starting to fade today with shares down -1.26%. This is the first close below its 10-dma since early February. Prior resistance near $38.00 could be new support. Investors may want to raise their stop loss again. 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

Johnson Controls Inc. - JCI - close: 50.70 change: -0.49

Stop Loss: 49.65
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on March -- at $---.--
Listed on March 2, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 3.5 million
New Positions: Yes, see below

03/04/15: The last two days JCI has followed the market lower. If shares don't bounce near $50.00 we'll likely remove it as a candidate. Currently we're on the sidelines waiting for a breakout past $52.00.

Trade Description: March 2, 2015:
JCI is in the consumer goods business. A large chunk of their sales is in the auto parts industry. Right now auto-part stocks have been showing relative strength.

According to the company, "Johnson Controls is a global diversified technology and industrial leader serving customers in more than 150 countries. Our 170,000 employees create quality products, services and solutions to optimize energy and operational efficiencies of buildings; lead-acid automotive batteries and advanced batteries for hybrid and electric vehicles; and interior systems for automobiles."

The earnings picture last year was not that hot. Back in April 2014 JCI actually lowered guidance for their third quarter and fiscal 2014. The next two quarters were pretty bland. However, the earnings picture began to improve when JCI reported results last October. Their 2014 Q4 numbers beat analysts' estimates on the bottom line.

JCI held their annual investor day on December 2nd. Management said, "We believe initiatives to improve the profitability of our businesses continue to gain momentum. Our 2014 results provide a foundation that we believe will position us to deliver record sales and earnings in 2015." JCI expects steady growth and minor margin improvement in the auto seating business. Their power solutions business should grow faster (about +5.5%) and margins should improve about 50 basis points to 18.5%.

JCI's next earnings report was their first quarter of 2015. Their announcement on January 22nd showed earnings grew +20% to $0.79 a share, beating expectations. Revenues were up +5% but when you account for currency adjustments they were up less than 1% but still above analysts' estimates. It's the first time they beat the revenue estimate in a while. Their Q1 results were driving by a strong performance in China where sales surged +15%.

JCI's Chairman and CEO Alex Molinaroli said, "Profitability improved significantly in the quarter, as we benefitted from higher volumes and our continuing focus on execution improvements. The results in the quarter are better than the expectations we provided at our analyst day in December.

The company also announced a joint venture agreement. According to the press release JCI and "Hitachi, Ltd. and Hitachi Appliances, Inc. signed a definitive agreement on January 21, 2015 to form a previously announced global joint venture that will bring customers world-class variable refrigerant flow (VRF) technology, as well as room air conditioners and absorption chillers to meet increasing demands for energy efficient air conditioning options. The Johnson Controls-Hitachi joint venture is expected to have 2016 sales of approximately $3.0 billion. The formation of the joint venture is expected to close in the fourth quarter of fiscal 2015, pending regulatory approvals." JCI will own 60% of the business.

Technically shares of JCI have been in rally mode following their earnings report. Investors have been buying the dips and now JCI is challenging major resistance in the $52.00 area. The point & figure chart is bullish and forecasting a long-term target at $67.00. On the weekly chart (see below) JCI has formed an inverse head-and-shoulders pattern, which is bullish. Tonight we are suggesting a trigger to launch bullish positions at $52.15.

Trigger @ $52.15

- Suggested Positions -

Buy JCI stock @ (trigger)

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

Buy the Jul $55 CALL (JCI150717C55)

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

Linear Technology Corp. - LLTC - close: 47.55 change: -0.65

Stop Loss: 46.95
Target(s): To Be Determined
Current Option Gain/Loss: +0.4%
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

03/04/15: Warning! The trading in LLTC over the last few sessions is looking like a bull trap pattern and bearish reversal. Shares could still have support at the $47.00 level so we'll raise the stop loss to $46.95. I am not suggesting new positions at this time.

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

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

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

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

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

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

- Suggested Positions -

Long LLTC stock @ $47.35

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

Long May $50 CALL (LLTC150515C50) entry $0.85

03/04/15 new stop @ 46.95
02/11/15 triggered @ $47.35
Option Format: symbol-year-month-day-call-strike

Luxoft Holding - LXFT - close: 49.70 change: -0.15

Stop Loss: 47.40
Target(s): To Be Determined
Current Option Gain/Loss: -1.1%
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

03/04/15: LXFT found support near $49.00 this morning. Volume was very light today. This is the second day in a row that LXFT has closed below the $50.00 mark and that doesn't bode well for the bulls.

More conservative investors will want to consider an early exit now to cut their losses. I am not suggesting new positions.

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

03/03/15 Today's decline looks ominous. Readers may want to consider an early exit
02/24/15 triggered @ $50.25

Microchip Technology - MCHP - close: 51.48 change: +0.05

Stop Loss: 49.25
Target(s): To Be Determined
Current Option Gain/Loss: +0.6%
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

03/04/15: Traders bought the dip multiple times in the $50.90 area and MCHP eventually rebounded to close in positive territory. If the market continues to sink I suspect we'll see MCHP test $50.00.

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: 55.79 change: -0.67

Stop Loss: 53.85
Target(s): To Be Determined
Current Option Gain/Loss: +1.0%
Entry on February 12 at $55.25
Listed on February 11, 2015
Time Frame: 10 to 16 weeks
Average Daily Volume = 7.8 million
New Positions: see below

03/04/15: MO was not immune to the market's weakness today. Shares slipped -1.1% to close just below its 10-dma. If this dip continues I'd watch for support in the $54.75-55.25 region. No new positions at this time.

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: 41.27 change: +0.41

Stop Loss: 38.45
Target(s): To Be Determined
Current Option Gain/Loss: +9.6%
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

03/04/15: Biotech stocks displayed relative strength today. NBIX added another +1% and closed at new highs. Giving NBIX a boost this morning was news that Barclays initiated coverage on NBIX with an "overweight" and a $60 price target.

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

03/03/15 new stop @ 38.45
03/02/15 new stop @ 35.75
02/17/15 after the close, announces a secondary offering
02/17/15 triggered @ 37.65
Option Format: symbol-year-month-day-call-strike

Theravance Inc. - THRX - close: 19.64 change: +0.08

Stop Loss: 17.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on March -- at $---.--
Listed on March 3, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.0 million
New Positions: Yes, see below

03/04/15: THRX ignored the market's weakness and continues to drift higher. Shares are getting closer to round-number resistance at $20.00. Our suggested entry point is $20.10.

Trade Description: March 3, 2015:
Biotech stocks were huge performers last year. One biotech that underperformed its peers and the broader market was THRX. It looks like the bear market in THRX is over. Shares have been surging from their February lows.

A concise summary of who THRX and what they do is the following, "Theravance (NASDAQ: THRX), A Royalty Management Company, is focused on stockholder returns by: maximizing the potential value of our respiratory assets partnered with GlaxoSmithKline plc (GSK), providing capital returns to our stockholders and reducing the overall corporate cost of capital."

If you would like a more detailed description of who they are and what biotech assets they are trying to leverage the company has provided this description: "Theravance, Inc. is focused on maximizing the potential value of the respiratory assets partnered with Glaxo Group Limited (GSK), including RELVAR®/BREO® ELLIPTA® and ANORO® ELLIPTA®, with the intention of providing capital returns to stockholders. Under the Long-Acting Beta2 Agonist (LABA) Collaboration Agreement with GSK, Theravance is eligible to receive the associated royalty revenues from RELVAR®/BREO® ELLIPTA® (fluticasone furoate/vilanterol, "FF/VI"), ANORO® ELLIPTA® (umeclidinium bromide/vilanterol, "UMEC/VI") and if approved and commercialized, VI monotherapy. Theravance is also entitled to a 15% economic interest in any future payments made by GSK under agreements entered into prior to the spin-off of Theravance Biopharma, and since assigned to Theravance Respiratory Company, LLC, relating to the combination of UMEC/VI/FF and the Bifunctional Muscarinic Antagonist-Beta2 Agonist (MABA) program, as monotherapy and in combination with other therapeutically active components, such as an inhaled corticosteroid, and any other product or combination of products that may be discovered and developed in the future under these agreements with GSK (other than RELVAR®/BREO® ELLIPTA®, ANORO® ELLIPTA® and VI monotherapy)."

We are adding THRX as a momentum play. This appears to be a short squeeze in progress. Biotech stocks delivered steady consistent gains in the first half of February but then started to see upward momentum fade. THRX did consolidate a little bit the rally started anew this week and today's display of relative strength (+1.7%) also produced a bullish breakout above technical resistance at its simple 200-dma.

THRX has about 60.7 million shares outstanding. Short interest is about 50% of the float. THRX has already rallied from about $10.60 to $19.50 in just the last four and a half weeks. Right now it's hovering just below significant resistance at the $20.00 mark. A breakout here could spark another leg higher.

Regular readers know that we consider biotech stocks more aggressive, higher-risk trades. The right or wrong headline could send shares gapping open up or down in a big way. Stop losses don't always work. THRX should definitely be considered a more aggressive trade. It does have options available but after the recent rally the option spreads are too wide to trade.

Tonight we are suggesting a trigger to launch small bullish positions at $20.10 with an initial stop loss at $17.75.

Trigger @ $20.10 *small positions to limit risk*

- Suggested Positions -

Buy THRX stock @ (trigger)

Total System Services - TSS - close: 38.12 change: -0.05

Stop Loss: 36.85
Target(s): To Be Determined
Current Option Gain/Loss: +2.9%
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

03/04/15: TSS spiked down to $37.71 intraday but quickly rebounded. Shares spent most of the session hovering just above the $38.00 level. If the market decline continues we could see TSS retreat toward $37.00. 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

03/02/15 new stop @ 36.85
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

Five Below, Inc. - FIVE - close: 30.96 change: -0.45

Stop Loss: 33.15
Target(s): To Be Determined
Current Option Gain/Loss: +1.6%
Entry on March 03 at $31.45
Listed on February 28, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.2 million
New Positions: see below

03/04/15: The relative weakness in FIVE continues. Shares underperformed the market with a -1.4% decline. The stock closed on its low for the session, which should be a bearish signal for tomorrow morning.

Earlier Comments: February 28, 2015:
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.

- Suggested Positions -

Short FIVE stock @ $31.45

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

Long Apr $30 PUT (FIVE150417P30) entry $1.40

03/03/15 triggered @ $31.45
Option Format: symbol-year-month-day-call-strike


FireEye, Inc. - FEYE - close: 43.82 change: -1.25

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: see below

03/04/15: FEYE is not cooperating. Shares displayed relative weakness with a -2.7% decline. Our trade has not opened yet and it seems unlikely that FEYE will breakout to new highs soon.

Trade did not open.

03/04/15 removed from the newsletter, suggested entry was $46.65