Option Investor

Daily Newsletter, Saturday, 3/7/2015

Table of Contents

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

Market Wrap

Jobs Tank Market on Fed Rate Worries

by Jim Brown

Click here to email Jim Brown

A much stronger than expected payroll report caused traders to believe a rate hike in June was almost guaranteed. The Fed may be forced to rethink their "data dependent" guidance or be forced to raise rates sooner rather than later.

Market Statistics

After a month of weak economic data the analyst community had pretty much written off the chance of a June rate hike and moved the consensus forecast to September or even into 2016. Surprise, surprise! The sudden appearance of strong jobs data upset the applecart and now the forecasts are racing back to June. This will make the Fed post meeting statement on the 18th extremely critical for the market.

The Nonfarm Payroll report for February showed a gain of +295,000 jobs compared to the consensus estimate for +240,000. There were a large number of recent estimates for numbers under 200,000 and as low as 150,000 because of the severe winter weather and the massive layoffs in the energy sector. For the number to come in at 295,000 given those factors it means March could be much higher once the weather improves. January was revised lower from 257,000 to 239,000.

We are looking at a significant improvement in employment trends. The average for the last four months is +319,000 and typically there is a dip in Jan/Feb that did not happen this year. This suggests March could be really strong.

The unemployment rate fell to 8.7 million or 5.5%. The real unemployment rate that includes those who have exhausted their benefits and dropped off the roles and those forced to take a part time job because full time was not available declined from 11.3.0% to 11.0% after adjusting for seasonal factors. The number of persons employed part time for economic reasons was 6.6 million.

The average hourly wage barely budged with a +0.1% gain and the average work week remained flat at 34.6 hours for the fifth month. Private employment registered almost the entire job gain at +288,000 with government employment rising only +7,000. The services sector exploded higher with 266,000 jobs compared to the manufacturing sector adding only 29,000 jobs.

Leisure and hospitality added +66,000 jobs, which are mostly part time. Education and healthcare added +54,000, professional and business services added +51,000. Construction additions fell from 49,000 in January to 29,000 in February.

Energy/Mining jobs declined -8,000 but it is likely mining gains offset the declines in energy. Challenger, Gray and Christmas said there have been 39,621 layoffs in the energy sector so far in 2015 with 16,339 in February. Those are the jobs that are specific to the energy sector and does not include the related jobs in areas like housing, restaurants and other service businesses that cater to the oil field workers.

The strong jobs report runs contrary to the economic conditions. JP Morgan (JPM) just revised its GDP forecast for Q1 from +2.5% to 2.0% growth with the comment that revision risks continue to be skewed to the downside. Just like last year the analysts are slashing their forecasts for Q1 because of the continued severe weather that is closing stores and businesses and has cancelled more than 50,000 airline flights in February. Last week I shared a chart showing the Atlanta Fed is now predicting only +1.2% growth.

The market cratered on Friday because traders suddenly expected the Fed to fast forward their rate hikes. If the Q1 GDP is in the 1% range or even lower there will be no rate hikes. The problem is that the real GDP forecasts are not as widely known and most traders are still thinking 2.5% to 3.0% because that is where they were a couple months ago when the Q4 GDP revisions were in progress. The first Q4 reading was +2.64% and the second reading +2.19% and most of that was because of Obamacare spending and rising healthcare costs.

Also, the last reading on the CPI declined -0.7% in January after a -0.3% decline in both November and December. Year over year inflation was -0.2% but that was due to a -20% decline in energy over the same period. There is no inflation and certainly nothing near the +2.0% Fed target. Yellen expects the energy factors causing inflation to decline to ease over the next 12 months but definitely not by June.

The dollar spiked +1.38% on Friday alone on expectations for a rate hike. We have seen how destructive this is for earnings for U.S. companies and an actual rate hike would spike it even further. With S&P earnings expected to decline in Q1 and Q2 our U.S. companies don't need the currency headwinds that a June rate hike would bring.

New orders for U.S. factory goods declined -0.2% in January after a -3.5% decline in December. Excluding transportation orders the number declined -1.8%. Economists were expecting a +0.2% gain. This is the sixth consecutive month of declines and the rising dollar was blamed. Yellen does not need to accelerate this trend by pushing the dollar higher.

The ECB is launching its 60 billion euros of QE starting on Monday and extending to September 2016 or longer. This is going to push the interest rates in Europe to even lower lows and push the euro currency to a new 10-year low. A plunging euro and soaring dollar will make it even more difficult for the Fed to raise rates even by a minor amount.

While I understand the knee jerk reaction to the strong jobs numbers I believe cooler heads will prevail in the days to come. A strong jobs number is just ONE factor out of dozens that the Fed considers when making rate decisions. We know the Fed wants to normalize rates but their commentary suggests it will happen over a 2-3 year period with early hikes maybe only an eighth of a point rather than the normal quarter of a point. I believe the instant concern over future rate hikes has been greatly exaggerated.

The economic calendar for next week is rather light. There are several reports of note but none of them are normally market movers. The real problem will be the FOMC meeting the following week. There will be a lot of hand wringing and digital ink spilled over the potential for the Fed to remove the word "patient" from the post meeting announcement and thereby unofficially project June as the first potential rate hike. As long as the word patient remains in the release the Fed has said it would be "at least two meetings" before a rate hike would occur.

The actual sentence states, "Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy." If that sentence disappears the market is going to be really upset. At the same time if the sentence remains there should be some other "comfort" language to soothe nervous investors. They will have to address the jobs data in relation to their "data dependent" guidance.

The one thing we can be absolutely sure of is that the Fed will telegraph its rate moves well in advance. Until that happens all this uncertainty in the market is just a tempest in a teapot.

This time last week it appeared the Nasdaq was on track to be making new highs on Tuesday to correspond with the 15 year anniversary of the all time high in 2000. It does not look like that is going to happen after Friday's crash but it did close only 73 points from Nasdaq 5,000 so it is technically possible for a rebound to a new 15 year high to happen. Technically possible is a long way from likely.

Monday is the six-year anniversary of the recession low at 1,265. Don't you wish you had backed up the truck and loaded up with Nasdaq stocks six years ago?

The Dow declined -278 points on the same day it was announced that Apple (AAPL) would replace AT&T (T) in the index at the close of business on March 18th. That just happens to be the day that Visa (V) the heaviest weighted stock in the Dow is splitting 4:1. That will lower Visa's weighting in the index to 2.5%.

AT&T was initially added to the Dow on Oct 4th, 1916 so this is the end of an era for that stock. Bette Midler tweeted: "Apple is replacing AT&T in the Dow. They tried to call AT&T for comment but the call kept getting dropped."

The Dow Industrial Average was first calculated on May 26th, 1896. Let's hope that the Dow's consumption of Apple does not follow the same scenario from the Garden of Eden.

Apple set the stage for being included in the Dow when it split 7:1 last year. With Apple shares at $126.59 at the close it will only carry a 4% weighting when it enters the Dow. The index is price weighted so higher prices stocks have a higher weighting. Apple has a market cap ($737 billion) that is more than twice the next largest stock in the index, which is Exxon at $359 billion.

After Visa splits the top weighted stocks will be as follows based on Friday's prices.

7.0% Goldman Sachs (GS) $187
6.2% 3M (MMM) $164
6.0% IBM (IBM) $158
5.7% Boeing (BA) $153
4.7% Apple (AAPL) $127

This will also change the weighting by sector. The addition of Apple will not push technology to the top but it will be close.

20.28% Industrials - MMM, BA, UTX, CAT, GE
17.11% Technology - IBM, AAPL, MSFT, INTC, CSCO, V
16.25% Financials - GS, TRV, AXP, JPM
15.43% Consumer Discretionary - HD, DIS, MCD, NKE
11.42% Health Care - UNH, JNJ, MRK, PFE
 7.76% Consumer staples - PG, WMT, KO
 7.06% Energy - XOM, CVX
 2.89% Materials - DD
 1.80% Telecom - VZ

Today a $1 move in any Dow component adds about 6.5 Dow points. The 4:1 split on Visa will reduce that number but the replacement of AT&T by Apple will compensate for Visa's decline and change the factor to 6.75 Dow points per $1 increase in any stock. If Apple had been in the Dow on January 16th its +27 point sprint to $133 would have added +175 Dow points.

Recently the addition of a tech stock to the Dow has been the kiss of death. Microsoft (MSFT) and Intel (INTC) were both added in November 1999 and they have been a drag on the Dow instead of a lift. Microsoft has declined -43% since inclusion and Intel has declined -52%. Cisco was added in 2009 and has declined -16%.

There is a fallacy in the market that the addition of a stock to the Dow means it will spike as index funds are forced to buy the stock. In theory that is correct since the Dow does have some tracking ETFs but overall the impact is minimal. Historically when a stock is added to the Dow it tends to gain about 3% over the next month. The problem is that the amount of dollars indexed to the Dow is trivial compared to the more than $7 trillion indexed to the S&P-500. If you want your stock to move higher get it added to the S&P.

You would also think that stocks removed from the Dow would decline as the attention was removed from their symbol. That is also not true. Since 1929 stocks removed from the Dow have typically posted gains in the year following their removal.

In stock news Lululemon (LULU) was downgraded to sell by Goldman Sachs. The bank said competition was increasing for athletic-leisure wear. Nike, Under Armour and Athleta.com were some of those named. The bank also said their Canadian sales had stalled and strong dollar issues were becoming a problem. Goldman is expecting a 500 basis point hit to EBIT margins.

Foot Locker (FL) reported earnings of $1.00 that beat estimates of 91 cents. That was a +22% increase in earnings and a +22% gain in the prior quarter as well. Revenue increased +6.7% to $1.911 billion. They have posted double digit earnings gains in all but one of the past 17 quarters. Foot Locker controls 45% of the basketball shoe market. Shares rallied +4% on a bad day in the market.

Life Time Fitness (LTM) shares rose +15% on Friday after news broke that it was in advanced talks with KSL Capital and another unnamed private equity firm on taking the company private. The bidding is expected to end next week. The company operates 113 fitness centers and is considering converting its land holdings into a REIT to enhance value. Revenue rose +7% in 2014 to $1.29 billion.

Medical device maker Cooper Companies (COO) reported earnings of $1.75 and beat estimates by 22 cents but missed on revenues. They raised earnings guidance for 2015 but lowered revenue guidance. Earnings for 2015 are now expected to be in the range of $7.40-$7.70. Shares rose +9%.

The active rig count in the U.S. declined -75 to 1,192. Oil rigs declined by -64 to 922 and gas rigs fell -12 to 268 and another 18 year low. Total rigs have declined -687 (-35.6%) from the 1,931 high in September. U.S. production spiked +39,000 bpd last week to 9.324 mbpd and the highest level since 1972. U.S. crude inventories rose +10.3 million barrels to 444.4 million and a new 80 year high. Several analysts are now expecting existing storage capacity to run out by the end of March. This is why oil prices refuse to move over $50. There is still a shoe waiting to drop until inventory levels peak and begin to decline. Memorial Day is the beginning of high demand season in the USA. Refineries are in maintenance mode now and will be converting to summer blend gasoline in the coming weeks.


The markets experienced normal profit taking midweek but sentiment changed completely on Friday. The Dow was down over -300 points just before the close and there was very little short covering ahead of the weekend. The common excuse was that investors were running scared after the strong jobs report. However, there were quite a few question marks suggesting there was something else afoot.

Volume rose only about one billion shares over the 6.3 billion run rate for the first three days of the week. There were some sub-indexes being rebalanced at the close and some of that volume was related to the rebalance. That means the -300 point Dow drop occurred on very little increase in volume.

Art Cashin remarked just before the close that there was $1 billion in market on close orders to sell but the market was not crashing like it should have in the last 15 minutes if that was really the case. The low actually came at 3:40 and the Dow rebounded +30 points into the close despite the supposed order imbalance.

There were suspicions from several traders/analysts that the Friday decline was due to high frequency traders capitalizing on the rate headlines. Momentum was achieved early and it lasted all day. HFT volume is normally low but steady and tends to extend market trends. Others speculated that fund managers were lightening their exposure to stocks ahead of the Fed but the lack of volume disputed that theory.

There are two Fed heads speaking on Monday. I think it is the last day they can actually make public comments before the quiet period ahead of the FOMC meeting. If those Fed speakers want to put they market at ease this is their last chance. Unfortunately Mester does not speak until 2:25 and Richard Fisher is at 7:30. Neither will be much help for Monday's market.

We went the entire month of February where bad economic news appeared to be good news for the market. Suddenly on Friday the situation reversed and good news became bad news. I expected a market decline after option expiration. We were overextended and due for a short term pullback. Up until the jobs numbers on Friday morning everything was going according to plan. They say the best laid battle plans last only until the first shot is fired. Friday was the first shot. If it was an accidental discharge then we could get the all clear on Monday. If it was the equivalent of the revolutionary shot heard around the world then our troubles are just beginning.

I may be suffering from bias syndrome (BS) and I am looking for reasons to discount the selling. Friday just did not add up for me.

Whether we believe the reasons for the decline or not we have to respect it. Far too many people have gone broke from betting on what they thought should be happening instead of what is really happening.

The S&P broke below critical support at 2,085 and closed at 2,070. Next level support is 2,065 followed by 2,050 and then a long drop to 2,015 and 1,985. The key for Monday will be the open. If the S&P drops sharply to 2,065 or even 2,050 and firms I would expect the dip buyers to appear. Bullish sentiment did not disappear just because prosperity may be breaking out.

Of course traders don't need an external reason to sell. The psychologically important Nasdaq 5,000 level could have simply been a signal to take profits. Many analysts and high profile traders were running around saying the market was very overvalued even though the forward PE on the S&P is only 16.5. There is an old saying. If enough people say you are drunk you should sit down. Maybe if enough people say it is overvalued the market actually becomes overvalued for a short time. Everything is a matter of perception.

I said on Tuesday I would remain bullish unless the S&P broke below 2,085. We closed at 2,070 so now what? I think we should watch the market for clues.

I think we have to watch the market action and trade in the direction of the trend. While I would like to see a dip to 2,050 or 2,065 and a V bottom rebound I have found that what I would like rarely matters to the market. If we get that additional drop I would be buying the dip.

March 9th is the six-year anniversary of the 666 bottom on the S&P in 2009.

All 30 Dow components were negative on Friday and the Dow closed at a new three-week low. Support at 17915 failed with a close at 17856. Next support is 17775 and 17700. Fifteen of the Dow components are in a downtrend and a handful are trading sideways with only about 5 attempting to preserve their gains and move higher. Normally only 5-6 of the components actually do the heavy lifting and the rest are evenly divided between those that simply remain positive and those that are weak because of their own issues. The Dow internals today appear to suggest further weakness but that could be erased in a heartbeat on a news headline. Those stocks in a downtrend would see an initial short squeeze and help lift the average on the first day.

If we do get an additional decline I would probably be a dip buyer at the 17700 level. Resistance is 18100-18150.

The entry of Apple into the Dow at the close on the 18th will add some volatility in my opinion. Apple shares are almost never dormant. They are constantly moving up and down and not always in a trend.

Nasdaq 5000 turned into the market top everyone was fearing. The close at 5008 on Monday was the high for the week and we closed -81 points lower on Friday at 4927. It is notable that 55 of those points were lost on Friday and only 26 on the prior three days. Friday's flush appeared to be a combination of stop loss selling and program trading.

If you look at the short term chart the index consolidated in a range both before and after the Monday spike and the pattern failed to the downside. In retrospect this appears to have been a distribution pattern. The obvious target on a continued dip would be 4900. Any movement below that level and we move into a correction bias rather than a short term dip.

There was no common thread in Friday's selling. It was not a sudden drop in semiconductors or biotechs or Internet stocks, etc. It was broad based and no specific sector was the cause. This suggests there was a lot of ETF selling rather than specific stocks.

Resistance is 4990 and 5000. Support just over 4900.

Back in the day, Dow 10,000 was a big deal and hundreds of Dow 10K hats were handed out on the floor of the NYSE. Nasdaq 5000 hats were never popular because you only get to wear them one day per decade.

The Russell 2000 actually held up rather well until Friday. The small caps were holding their own until the bottom fell out. With several levels of near term support I think it would take some concentrated selling to push the index back under 1190.

The Dow Transports finally returned to resistance at 9200 but were immediately rejected and they have been in a confirmed downtrend since February 25th. The transports are not confirming any further Dow gains and are actually projecting further Dow losses. Support is now 8600 and the low from February 2nd. This decline bears watching as a sentiment indicator for the Dow.

To summarize the Friday decline was out of character for the recent market. I believe there was a program trading component and I am sure there were a lot of stop losses hit. When the market goes up for several weeks without a material dip it is susceptible to a sudden downdraft because of trailing stop losses used by traders to protect profits.

I am not really buying the "oh heck, the Fed is going to raise rates, run for the hills" scenario. Who in their right mind did not know that the Fed is eventually going to raise rates and June has been a common target in the press for months.

Market dips occur on headlines but that does not mean the world is coming to an end. Until this decline is confirmed with continued losses we should look at it as temporary. If Monday continues the downtrend then trade in the direction of the trend.

Daylight savings time is Sunday. Spring forward at 2:AM on Sunday.

Random Thoughts

In September 2007 he spacecraft Dawn was launched from Earth and over the last 8 years it has traveled more than 3 billion miles to reach a couple of dwarf planets called Vesta and Ceres. The ship is powered by a revolutionary ION drive that relies on electrically charged ions to push the ship through space and enabled it to reach the speed of 10 kilometers per second. Dawn arrived at Ceres last week and this picture snapped from 29,000 miles away shows two unexplained bright dots that are "unique in the Solar system" according to NASA.

Dawn will eventually find out what those dots represent but for now the entire scientific community is excited beyond words to find something that is so far unexplained. Some scientists theorize it is ice reflecting sunlight or steam from internal geysers or a mineral deposit left by a small meteor impacting inside the existing crater. X-Files theories abound including a spaceship from some other solar system, an alien mining colony, a giant solar array setup by extraterrestrials, etc. Dawn is still establishing orbit and is on the dark side of Ceres now and will not be able to send back additional photos until early April. Eventually Dawn will orbit as close as 230 miles so any object in the crater will be clearly visible. Now we wait.

The Baltic Dry Index is still holding at multi-year lows indicating there is still no demand for commodities of almost any flavor. China lowered their growth outlook last week from 7.5% to 7.0% and it could possibly be even lower by the end of 2015. Europe is bordering on recession/depression. The Middle East is in budget lockdown mode because of the drop in oil prices. We will know the global economy is improving when shipping rates begin to rise and not until then.

The strong dollar is pressuring commodities and making some unprofitable to mine at today's prices. More than 20% of today's mined copper is unprofitable today. A global copper surplus of more than 500,000 tons is expected in 2015 and the first time since 2009. Mine output is expected to rise +4.3% and demand only +1.1%. Copper is used in almost every manufactured product from plumbing to cars and computers to solar panels and smartphones. Miners are being forced to produce more in order to generate the same income from lower prices and that just adds to the glut.

Bloomberg reported that 304 U.S. companies now have more than $2.1 trillion in cash parked overseas waiting for a tax holiday to bring it home and put it to work. The amount of cash overseas rose +8% in 2014. Microsoft, Apple and Google each boosted their overseas profits by more than 20% in 2014.

Alan Greenspan is still stirring up trouble as he turned 89 on Thursday. Greenspan said Fed QE lowering the real rate of interest "has been responsible for the rise in P/E multiples... and when rates normalize, that will reverse," adding that "we can't argue that we are extremely overvalued in the marketplace." Also, he pointed out that "the annual rate of increase in entitlement payments is 9% per year and that the people that receive it believe it is their money and they have a right to it." Eventually this will end badly because the 9% per year increase is unsustainable.

Apple will launch its new Apple Watch this week and the features are being leaked out everywhere. Every time somebody finds a fact they rush to the web to post it. Here is the most comprehensive list so far. Apple Watch

There was a troubling factoid making the rounds last week. Margin debt on the NYSE has suddenly taken a turn downward and that suggests investors are worried about the future. Since the peak in February 2014 at $466 billion the debt has fallen to $455 billion in January 2015. That may not sound like a big decline but $11 billion in margin could buy up to $25 billion in stocks depending on various factors. In March 2009 total margin debt was only $182 billion.

Chart from Mark Hulbert

Lord Rothschild warned investors last week the geopolitical situation is the most dangerous since WWII. His comments below.

Our policy has been clearly expressed over the years. Simply put, it is to deliver long-term capital growth while preserving shareholders' capital; the realization of this policy comes at a time of heightened risk, complexity and uncertainty. The economic and geopolitical environment therefore becomes increasingly difficult to predict.

The world economy grew at a disappointing and uneven rate in 2014 after six years of monetary stimulus and extraordinarily low interest rates.

Stock market valuations however, are near an all-time high with equities benefiting from quantitative easing.

Not surprisingly, the value of paper money has been debased as countries have sought to compete and generate growth by lowering the value of their currencies – the Euro and the Yen depreciated by over 12% against the US Dollar during the course of the year and Sterling by 5.9%.

In addition to this difficult economic background, we are confronted by a geopolitical situation perhaps as dangerous as any we have faced since World War II: chaos and extremism in the Middle East, Russian aggression and expansion, and a weakened Europe threatened by horrendous unemployment, in no small measure caused by a failure to tackle structural reforms in many of the countries which form part of the European Union.

Notably, equities are not well supported by current valuations, while monetary policy is limited by high debt levels and interest rates that are already close to zero...exposing equities to a potentially sharp correction.

In July 2014 the dollar began a spike that would add +21% to the dollar index. At the same time crude oil began to decline sharply from the $107 level. Since oil is priced in dollars a stronger dollar means it takes fewer dollars to buy a barrel of oil. As much as $28 in oil's decline was related to the rising dollar strength.

Think Amazon is just a great place to shop for items that will be delivered to your door in 2 days for free? Think again. Amazon now sells hotel rooms just like Expedia and Priceline. The service is just getting started but knowing Jeff Bezos he will undercut everyone until there is no profit left and the buyer will get a cheaper stay. Amazon understands e-commerce and user experience and they are very good at building consumer loyalty. Look for a big advertising splash in the near future.

The Stock Trader's Almanac pointed out that the fourth longest bull market in history turns six-years old next week. The bull market narrowly avoided an abrupt end in October 2011 when the S&P declined -19.4% but avoided the 20% threshold necessary to signal the start of a new bear market. So far the Dow has gained +179.3%, S&P +213% and Nasdaq +294.8% since the march 2009 lows. As bull markets go this has been spectacular.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

"I am not Spock. However, if given the chance to pay any character I would play Spock. I respect and admire him."

Leonard Nimoy


New Plays

Synthetic Biology

by James Brown

Click here to email James Brown


Intrexon Corp. - XON - close: 50.16 change: +0.66

Stop Loss: 46.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on March -- at $---.--
Listed on March 07, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.1 million
New Positions: Yes, see below

Company Description

Why We Like It:
We are quickly approaching a world where science fiction is becoming a reality. One company leading the charge is Intrexon (XON). They are leaders in synthetic biology.

What is synthetic biology? According to XON's website, "Synthetic Biology is the engineering of biological systems to enable rational, design-based control of cellular function for a specific purpose. The programming of DNA and reformatting of genetic circuitry within cell platforms has created a paradigm shift whereby the analysis of biology is being supplanted by its synthesis. This advancement has the potential to significantly impact approaches relied upon for some time across a variety of industries. The ability to create and modify 'organic' materials on increasingly larger scales has occurred with a number of breakthroughs in genetic engineering including automated DNA sequencing, DNA synthesis, the advent of computational bioinformatics, and the creation of genetically modified organisms."

One man who knew a thing or two about technology was Apple Inc. founder and technology icon Steve Jobs. Mr. Jobs said, "I think the biggest innovations of the 21st century will be at the intersection of biology and technology. A new era is beginning."

Biotech stocks were market leaders last year and that relative strength has continued into 2015. This group has been so strong that I've been hearing a some speculation about a bubble in biotech stocks the last couple of weeks.

You may not be familiar with XON since the company has only been public since August 2013. The company describes itself as "Intrexon Corporation (XON) is a leader in synthetic biology focused on collaborating with companies in Health, Food, Energy, Environment, and Consumer sectors to create biologically-based products that improve the quality of life and the health of the planet. Through the Company's proprietary UltraVector® platform and integrated technology suite, Intrexon provides its partners with industrial-scale design and development of complex biological systems delivering unprecedented control, quality, function, and performance of living cells."

Shares of XON have been very reactive to positive headlines lately. In mid January the stock soared on news it had signed an exclusive licensing agreement with the University of Texas MD Anderson Cancer Center in partnership with ZIOPHARM Oncology (ZIOP). All three will be working on a collaboration to "genetically engineer our patients' immune-system T cells to efficiently attack and destroy cancer cells."

Shares of XON rallied again on February 10th after Synthetic Biologics (SYN), in collaboration with XON, announced positive Phase 1b trial results for a treatment to prevent C. difficile infections. In the press release SYN states their "oral beta-lactamase enzyme designed to protect the microbiome and prevent Clostridium difficile (C. difficile) infection, antibiotic-associated diarrhea and secondary antibiotic-resistant infections in patients receiving intravenous (IV) beta-lactam antibiotic therapy... U.S. Centers for Disease Control and Prevention (CDC) has identified C. difficile as an 'urgent public health threat' that often occurs in people who have had recent medical care with IV antibiotics. These antibiotics can create a harmful imbalance in the gut microbiome by killing "good" bacteria, giving C. difficile a chance to multiply and cause diarrhea, which can lead to dehydration, fever, abdominal pain, cramping, nausea, colitis, and even death. In all, 24 million Americans receive IV antibiotics annually."

Then just a few days later on February 13th XON announced it was buying ActoGeniX for about $60 million. "ActoGeniX is a European clinical stage biopharmaceutical company forging a new frontier in cellular therapeutics and other innovative products. Its proprietary TopActâ„¢ platform enables the molecular engineering of food-grade microbes (Lactococcus lactis) to generate biologically-contained ActoBioticsâ„¢ for in situ expression and secretion of proteins, peptides and metabolites in the gastrointestinal tract of humans and other animals. This groundbreaking class of orally available biopharmaceuticals has the potential to facilitate targeted therapies against oral, gastrointestinal, metabolic, allergic and autoimmune diseases."

The stock rally continued after XON reported Q4 earnings on March 2nd. Analysts were expecting a loss of 15 cents a share on revenues of $26.1 million. XON reported earnings of $0.18, that's 33 cents better than expected. The company's revenues soared +335% from a year ago to $31.09 million.

Naturally XON's management was pretty optimistic. The company's CEO commented on the future saying, "Looking ahead, we are very excited about our near term prospects and have much higher goals for 2015. In Health, we expect to see new major alliances formed, while we believe that our existing ECC partners will be in the clinic with up to ten novel therapeutic candidates. In Food, we anticipate continued growth of our base business with projected product and service revenues exceeding $100M, while we sign new ECCs and execute on some attractive acquisitions. We expect that our program in Energy, which is based on our continuing work on the engineering of the methanotroph to provide for the upgrading of natural gas to higher value hydrocarbons, will show tangible progress both technically and otherwise. Finally, our relatively newer efforts in the Environment and Consumer Sectors should become contributors to our enterprise. At this stage in our growth, we fully appreciate the amplified effect of each additional level of achievement as well as the increasing synergies that exist among our platforms, teams and even among our partners. This realization inspires us to ever greater levels of performance on behalf of our shareholders."

Curious investors can see a lot more about XON's collaborations and acquisitions on the company website. Here's a link to their press releases.

The big rallies in XON have been fueled by short covering. The most recent data listed short interest at 35% of the relatively small 42.4 million share float. Today shares of XON are hovering near round-number resistance at the $50.00 level. Further gains from here could spark even more short covering.

Before I continue I want to remind readers that we consider biotech stocks aggressive, higher-risk trades. The wrong headline can send this stock crashing. We often see biotech stocks gap open (up and down) so stop losses don't always work the way there are supposed to. We will still try and limit our risk with a stop loss at $46.90. You could use options to limit your risk but after such big gains in XON over the last several weeks the option prices are very, very expensive.

Tonight we're suggesting a trigger to launch small bullish positions at $50.65.

Trigger @ $50.65 *small positions to limit risk*

- Suggested Positions -

Buy XON stock @ (trigger)

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

Buy the Apr $55 CALL (XON150417C55) current ask $3.80

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

Daily Chart:

Intraday Chart:

In Play Updates and Reviews

Hot Jobs Number Sparks Sell-off

by James Brown

Click here to email James Brown

Editor's Note:
The better than expected nonfarm payroll number sparked a widespread sell-off across the market on Friday. Investors are concerned the Fed will feel compelled to raise rates sooner rather than later.

Just about everything displayed weakness on Friday including stocks, bonds, and precious metals.

We have removed JCI as a candidate. MO hit our stop loss.

We want to exit LLTC, LXFT, and TSS on Monday morning.

Current Portfolio:

BULLISH Play Updates

Anthera Pharmaceuticals - ANTH - close: 6.12 change: +0.59

Stop Loss: 5.25
Target(s): To Be Determined
Current Option Gain/Loss: +21.2%
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

03/07/15: ANTH completely ignored the market's weakness on Friday. Shares accelerated higher with a +10.6% gain on the session. Tonight we are adjusting our stop loss to $5.25.

I am not suggesting new positions at this time.

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

03/07/15 new stop @ $5.25
02/26/15 triggered @ $5.05
Option Format: symbol-year-month-day-call-strike


Best Buy Co. Inc. - BBY - close: 39.71 change: +0.08

Stop Loss: 37.75
Target(s): To Be Determined
Current Option Gain/Loss: -1.3%
Entry on March 06 at $40.25
Listed on March 04, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 6.2 million
New Positions: see below

03/07/15: BBY managed to shrug off the market's decline on Friday at least for the first hour of trading. Shares broke through resistance at $40.00 and hit our entry trigger at $40.25. Unfortunately the stock eventually turned around and followed the market lower.

I would wait for a new rally past $40.25 before considering new positions.

Trade Description: March 4, 2015:
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.

- Suggested Positions -

Long BBY stock @ $40.25

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

Long MAY $40 CALL (BBY150515C40) entry $1.99

03/06/15 triggered @ $40.25
Option Format: symbol-year-month-day-call-strike


Cree, Inc. - CREE - close: 39.11 change: +0.25

Stop Loss: 36.25
Target(s): To Be Determined
Current Option Gain/Loss: +7.0%
Entry on February 05 at $36.55
Listed on February 03, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.8 million
New Positions: see below

03/07/15: CREE spiked higher on Friday morning. Sadly the rally failed at resistance near $40.00 and its simple 200-dma. It's still impressive that CREE managed to post a gain (+0.6%) when the rest of the market was sinking.

I'm not suggesting new positions. More conservative investors may want to raise the stop loss.

The stock has a significant amount of short interest (about 20% of the float). A breakout higher, above resistance near $40.00, could spark a short squeeze.

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


Linear Technology Corp. - LLTC - close: 47.65 change: -0.72

Stop Loss: 46.95
Target(s): To Be Determined
Current Option Gain/Loss: +0.6%
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

03/07/15: The trading in shares of LLTC last week looks like a bearish reversal. There is still a chance that shares will find support near $47.00 and its trend of higher lows. However, we are going to try and reduce our risk and just exit early. Plan on exiting this trade Monday morning.

- Suggested Positions -

Long LLTC stock @ $47.35

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

Long May $50 CALL (LLTC150515C50) entry $0.85

03/07/15 prepare to exit on Monday morning
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: 49.13 change: -0.45

Stop Loss: 47.40
Target(s): To Be Determined
Current Option Gain/Loss: -2.2%
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

03/07/15: It looks like the rally in LXFT has run out of steam. Last week saw shares breakdown under the $50.00 mark. LXFT was unable to recover. Tonight we're suggesting an immediate exit on Monday morning.

*small positions to limit risk* - Suggested Positions -

Long LXFT stock @ $50.25

03/07/15 prepare to exit on Monday morning
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: 50.75 change: -0.13

Stop Loss: 49.65
Target(s): To Be Determined
Current Option Gain/Loss: -0.8%
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

03/07/15: MCHP weathered the market's storm on Friday reasonably well. Shares lost -0.25%. I've been warning readers that MCHP would likely test the $50.00 level if stocks continued to sink. Odds are good we'll see MCHP dip to $50 soon. Just in case the $50.00 mark doesn't hold we are raising our stop loss to $49.65.

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

03/07/15 new stop @ 49.65
02/24/15 triggered @ 51.15
Option Format: symbol-year-month-day-call-strike


Neurocrine Biosciences - NBIX - close: 40.67 change: -0.25

Stop Loss: 38.45
Target(s): To Be Determined
Current Option Gain/Loss: +8.0%
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

03/07/15: NBIX was not immune to the market's sell-off on Friday. However, shares did find support near $40.00 and at its rising 10-dma (both are short-term support levels).

More conservative traders may want to inch their stop loss closer to $40.00. 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


Gentherm Inc. - THRM - close: 45.78 change: -1.27

Stop Loss: 44.75
Target(s): To Be Determined
Current Option Gain/Loss: -3.6%
Entry on March 06 at $47.48
Listed on March 05, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 456 thousand
New Positions: see below

03/07/15: Unfortunately I need to urge caution on our new THRM trade. The plan was to launch bullish positions at $47.30. Our trade opened when THRM gapped higher on Friday morning at $47.48. The rally didn't last. Shares reversed and underperformed the market with a -2.68% decline. Friday saw a -4.3% drop from its intraday highs.

Shares did close on short-term support at the 10-dma. However, Friday's session also produced a bearish engulfing candlestick reversal pattern. These patterns need to see confirmation but it's still a warning sign.

I am not suggesting new positions at this time. Let's see how THRM performs on Monday and then re-evaluate.

Trade Description: March 5, 2015:
I remember the first time I bought a car with heated seats. I vowed to never own another automobile without them. Considering how cold the last couple of winters have been I'm sure a lot of consumers feel the same way. One company that makes the technology behind heated seats and other products is Gentherm.

THRM is in the consumer goods sector. According to the company's marketing material, "Gentherm (THRM) is a global developer and marketer of innovative thermal management technologies for a broad range of heating and cooling and temperature control applications. Automotive products include actively heated and cooled seat systems and cup holders, heated and ventilated seat systems, thermal storage bins, heated automotive interior systems (including heated seats, steering wheels, armrests and other components), cable systems and other electronic devices. The Company's advanced technology team is developing more efficient materials for thermoelectric and systems for waste heat recovery and electrical power generation for the automotive market that may have far-reaching applications for consumer products as well as industrial and technology markets. Gentherm has more than 9,000 employees in facilities in the U.S., Germany, Mexico, China, Canada, Japan, England, Korea, Malta, Hungary and the Ukraine."

THRM has been consistently beating Wall Street's on both the top and bottom line the last four quarters in a row. The exception was their Q4 revenue number. They raised guidance twice last year. Their most recent report was 2014 Q4 earnings announced on February 24th. Earnings were $0.56 a share on revenues of $205.2 million. That beat estimates of $0.48. Revenues were just a hair under estimates of $207 million. Management said their "adjusted EBITDA for the 2014 fourth quarter was $35.7 million, up $10.0 million or 39 percent, compared with Adjusted EBITDA of $25.6 million for the 2013 fourth."

THRM's 2014 gross margins grew to 29.8 percent versus 26.4 percent in 2013. Last year saw THRM's revenues rise +23% over the prior year. Their net income more than doubled. Management expects 2015 to see revenues grow +10-15% above 2014 levels.

Last month saw shares of THRM breakthrough technical resistance at its simple 200-dma. It has also rallied past price resistance near the $44.00 level. Traders just bought the dip at its 10-dma and now THRM looks poised to make a run towards its 2014 highs near $52.00. Tonight we're suggesting a trigger to open bullish positions at $47.30.

- Suggested Positions -

Long THRM stock @ $47.48

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

Long Jun $50 CALL (THRM150619C50) entry $2.98

03/06/15 triggered on gap higher at $47.48, trigger was $47.30
Option Format: symbol-year-month-day-call-strike


Theravance Inc. - THRX - close: 19.60 change: -0.26

Stop Loss: 17.75
Target(s): To Be Determined
Current Option Gain/Loss: -2.5%
Entry on March 05 at $20.10
Listed on March 3, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.0 million
New Positions: see below

03/07/15: THRX snapped a four-day winning streak with Friday's decline. The stock's profit taking produced a dip toward $19.00 and its simple 200-dma. Fortunately traders stepped in and THRX pared its losses by the closing bell.

If you're considering a trade now I would wait for a new rally above $20.15. More conservative traders could wait for a close above $20.00 instead.

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.

*small positions to limit risk* - Suggested Positions -

Long THRX stock @ $20.10

03/05/15 triggered @ $20.10


Total System Services - TSS - close: 37.49 change: -0.59

Stop Loss: 36.85
Target(s): To Be Determined
Current Option Gain/Loss: +1.2%
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

03/07/15: TSS lost -1.5% on Friday. That added to its decline for the week and shares broke its trend of seven up weeks in a row. TSS could have support at the $37.00 level. However, we're choosing to exit this trade now to avoid a loss. Plan on exiting Monday morning.

- Suggested Positions -

Long shares of TSS @ 37.05

03/07/15 prepare to exit on Monday morning
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: 29.10 change: -0.81

Stop Loss: 30.45
Target(s): To Be Determined
Current Option Gain/Loss: +7.5%
Entry on March 03 at $31.45
Listed on February 28, 2015
Time Frame: Exit PRIOR to earnings on March 25th
Average Daily Volume = 1.2 million
New Positions: see below

03/07/15: The sell-off in shares of FIVE accelerated last week. The stock underperformed the broader market with a -2.7% decline on Friday. The breakdown below $30.00 is good news if you're bearish. The next potential support level is the late 2012 lows around $27.80.

Tonight we're moving the stop loss down to $30.45. I am not suggesting new positions at this time.

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

03/07/15 new stop @ $30.45
03/03/15 triggered @ $31.45
Option Format: symbol-year-month-day-call-strike



Johnson Controls Inc. - JCI - close: 49.86 change: -0.72

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: see below

03/07/15: JCI appears to have reversed at the $52.00 level. Friday's session saw shares breakdown below what should have been round-number support at $50.00. Our trade has not opened yet so we are removing JCI as a candidate.

Trade did not open.

03/07/15 removed from the newsletter, suggested entry was $52.15


Altria Group Inc. - MO - close: 53.37 change: -2.13

Stop Loss: 53.85
Target(s): To Be Determined
Current Option Gain/Loss: -2.5%
Entry on February 12 at $55.25
Listed on February 11, 2015
Time Frame: 10 to 16 weeks
Average Daily Volume = 7.8 million
New Positions: see below

03/07/15: Everyone knows that the Fed is going to raise rates. The only question is how far in the future will that occur? There has been speculation that it could be this June. Others believe it will be September. Some market watchers think the Fed might wait until 2016.

When the jobs number came in hotter than expected on Friday suddenly everyone was worried that the Fed would definitely raise interest rates in June. When they do that will give bond yields a boost and that tends to make high-dividend stocks a little bit less attractive.

Short-term traders appeared to panic and sold MO on Friday. The stock produced one of its biggest one-day declines in months. Our stop loss was hit at $53.85.

- Suggested Positions -

Long MO stock @ $55.25 exit $53.85 (-2.5%)

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

JUN $55 CALL (MO150619C55) entry $2.00 exit $1.20 (-40.0%)

03/06/15 stopped out
02/14/15 new stop @ 53.85
02/12/15 triggered @ 55.25
Option Format: symbol-year-month-day-call-strike