Option Investor

Daily Newsletter, Wednesday, 3/11/2015

Table of Contents

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

Market Wrap

Big Moves in the U.S. Dollar and Euro

by Keene Little

Click here to email Keene Little
In the continuing currency war, with the ECB now taking a turn at the QE wheel, and an all-out effort by many nations now in a race for the bottom by devaluing their currencies, the U.S. Dollar's strong rally and the Euro's collapse has many wondering what's next. The uncertainty is causing some angst in the U.S. stock market.

Wednesday's Market Stats

The ECB kicked off their promised QE plan and it has created a rally in European stock markets as well as their bond markets. This has the euro crashing (nearing parity with the U.S. dollar) and European bond yields dropping further (into inflation-adjusted negative territory). Money is also flowing into U.S. Treasuries for their higher yields, especially after the recent climb in rates following last Friday's NFP report and worry that the Fed will start raising rates sooner rather than later. To say the central banks have made a mess of the markets would be a gross understatement.

The fact that the Fed would raise rates 1/8 of a point in June vs. September would hardly make a dent in any business plans. It seems such a silly worry by the market. But the real worry is the message behind a rate increase -- it would mean the Fed is done accommodating the markets and that they're on their own. Being used to so much liquidity and a "I've got your back" Fed makes the market very nervous about standing on its own two feet.

The stock market is overvalued by several different metrics (some more overvalued than others but valuing on forward-looking guidance is wrong when forward guidance keeps getting ratcheted down) and it's certainly overloved. High bullish sentiment and record-high use of margin debt in a market that could be losing the support of its major benefactor (the Fed) has many thinking the party is over.

As I've said many times before, it's not so much what the Fed does with money or policies but instead it's how they influence sentiment. As long as they were able to convince investors that the fed is protecting the market it kept investors willing to gamble more and pay top dollar, in hopes there will be another sucker, I mean investor who's willing to pay even more. Now investors are starting to wonder if the Fed is pulling their support and that makes them nervous about paying top dollar. Hence the profit taking.

But all is not lost for the bulls yet. The pullback in March can easily be considered just another bout of profit taking that will create another higher low and be followed by another rally to a new high. As always, I'll cover both possibilities with the charts.

There's not a lot of news going on in the markets right now and I've got a few different charts than usual tonight (I take a closer look at the dollar and euro) so I'm just going to jump right into them. I'll start with the NYSE Composite index to follow up last week's view of the Wilshire 5000 to take a look at the broader market's message.

The NYA weekly chart below shows the struggle it's had since hitting a high just over 11100 in July 2014. It has tested that high 4 times, although a little short of it in November, and left a strong bearish divergence with the March 2nd high. It doesn't look good for the bulls but helping them is the idea that all of the choppy price action since the October 2014 low could be a shallow rising wedge, which would fit as a 5th wave ending diagonal. As labeled in green, this interpretation calls for one more minor new high into April to complete the pattern. This short-term bullish pattern would be negated with a drop below the February 2nd low at 10495.

NYSE Composite index, NYA, Weekly chart

The daily NYA chart below shows a similar bearish pattern that I've been showing for the past few weeks. The sideways triangle off its November 25th high fits as a 4th wave correction and the March 2nd high completed the final 5th wave. The decline so far in March looks impulsive and that suggests it's the 1st wave in what will become a much larger decline. The bearish interpretation calls for a bounce, perhaps following one more minor new low, into next week and that will be a good setup to get short for a stronger decline. The bullish pattern, which is the shallow rising wedge pattern calls for another new high, in which case we could see NYA up around 11200 by the end of the month. It's going to be a little difficult determining which is playing out (assuming we'll get at least a bounce into next week) since the bounce for either scenario will be corrective but a rally back above the downtrend line from November, near 10880 next Monday, would also be a rally back above the 50- and 200-dma's and that would suggest the more bullish pattern is playing out, which would be better confirmed with a rally back above 11000. Below the uptrend line from December, near 10600, would be a bearish heads up and then better bearish confirmation would be a drop below the February 2nd low at 10495.

NYSE Composite index, NYA, Daily chart

The same rising wedge idea for NYA can be seen for SPX and today's decline has SPX testing the bottom of its wedge, which is the uptrend line from October-February (a slight break of it near 2044. Bears should be alert to the possibility for another rally leg to kick into gear at any time and an upside target would be 2140-2150. The bearish pattern would look best with a minor new low, possibly after a relatively small bounce Thursday morning, and then a rally into next week (opex). That would fulfill the head-fake move in front of opex followed by a rally. From a bearish perspective, a rally next week would be a 2nd wave correction in a new decline and it would therefore be an excellent setup to get short. The bounce pattern, assuming we'll get it, will have to be evaluated to see when would be a good time to try shorting it but I would look for a bounce up to the 2080-2090 area. A rally much above 2090 would turn it more bullish.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2093
- bearish below 2020

The 60-min chart shows SPX broke below the bottom of a parallel down-channel for its decline yesterday morning and has not been able to climb back above it since. That's bearish and it's possible it will simply continue lower from here. But the pattern would look better with a small bump back up tomorrow morning and then one more new low to give us a 5-wave move down from March 2nd. That in turn would provide bears with more of a reason to look to short the subsequent bounce, which I show as a wave-(ii) correction into opex week. From there, if the bearish wave count is correct, we'd have a strong decline that exceeds the March decline so far.

S&P 500, SPX, 60-min chart

It's the same picture for the DOW. If it drops a little lower it should find support at its uptrend line from October-February, currently near 17510 and then launch a higher bounce into next week. If we're to get "one more new high" I would expect we'll see the DOW up to the 18400-18500 area by the end of the month. How it plays out over the coming week will help answer the question as to who will be the likely winner.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 18,160
- bearish below 17,480

Unlike the blue chips, NDX made a higher low in February vs. its January low and that creates an alternate bullish possibility. Starting from its January 16th low we could have a 1-2-3 wave count to the March 2nd high, which calls the pullback since then the 4th wave. That calls for another rally for the 5th wave to put in a final high. This is shown in green on its daily chart below and as long as the pullback stays above the January 23rd high at 4292.88 (it can't overlap the green wave-i on the chart) there will remain the potential for a new high. But if the bears stay in control and we see NDX stair-step lower we could see it find support at its 50-dma, near 4286, or its uptrend line from October-February, near 4255 by Friday (where it would also back-test its broken downtrend line from November). This afternoon's low was at the bottom of a parallel up-channel for the rally off the January 16th low. Depending on how this decline finishes, a bounce into next week could set up the next shorting opportunity. What happens by the end of this week should tell us whether the bearish or the bullish path is the more likely one.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4425
- bearish below 4250

A stronger dollar is getting the credit for a relatively stronger RUT. Small caps tend to do better in this environment since they become more competitive (business tends to be domestic and therefore they have less currency risk than big international companies). As for its price pattern, the RUT, like NDX, made a higher low on February 2nd vs. its January 16th low and it has not overlapped its January 28th high at 1201.24. This keeps alive the idea that the pullback from March 2nd is a 4th wave correction that will lead to another new high in a 5th wave, like that shown for NDX. There's also the possibility for a 5th wave in a larger pattern for the rally from last October (labeled in light green on its daily chart below), which would complete a rising wedge pattern. This is similar to the patterns shown for the other indexes. Upside targets for a bullish move would be about 1250 and then about 1280 by the end of the month. Today's relative strength has me wondering if we're getting advance warning of this bullish move. The bears would be in a stronger position if they can the RUT below the uptrend line from October-February, currently near 1196. The short-term pattern suggests a new low tomorrow that finds support at or above the uptrend line, perhaps at the 50-dma near 1203, and then start a higher bounce into next week. The RUT made it back up into its price-level S/R zone at 1213-1217 so a continuation back above 1217 would be more bullish.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1236
- bearish below 1196

The TRAN continues to have me wondering if the market still has "one more new high" in it. The TRAN has not been confirming the DOW's new highs since its November high and that has obviously looked bearish for the market. But the sideways consolidation since November looks like a bullish continuation pattern and I can see the potential for another leg up to at least the 10,000 area to complete an alternate wave count. This supports the idea shown on the other charts, which point out the possibility for another rally leg to complete a 5th wave to one more new high. This bullish possibility is an alternate wave count at the moment but it's something I'll be watching carefully for evidence in any bounce patterns that begin to look stronger than just a correction to this month's decline.

Transportation Index, TRAN, Weekly chart

The U.S. dollar now looks to me like it's in a blow-off top. Out of its sideways triangle in February I expected one more leg up to complete the 5th wave in its rally from May 2014. As is often the case with commodities and currencies, it can sometimes look like a blow-off move that sucks in traders thinking the strong move will continue. Last week I was looking for an upside target at 97.27-97.35 and if it made it through that level, which it quickly did last Friday, the next upside projection is 99.20. This higher projection is where the 5th wave of the rally from May 2014 equals the 1st wave and today that level was achieved (with a high at 99.97). The last time the dollar was this high was nearly 12 years ago in April 2003. The rally could continue higher but I think when the dollar reverses it's going to reverse hard and century-level resistance at 100 could be the place to start it. The first reversal signal would be a drop back below 99 and then stronger confirmation of a top would be a drop below 97.30.

U.S. Dollar contract, DX, Daily chart

One reason why I say the dollar's rally appears to be in a blow-off move is because the rally from February 26th has gone parabolic, as demonstrated with increasing steepness of the uptrend lines on the dollar's 60-min chart below. Parabolic moves always end badly for whoever chases the move higher in its latter stages, which is where I think it is now. This looks like short covering and when it finishes there will be no more buyers left and the move back down is likely to be swift.

U.S. Dollar contract, DX, 60-min chart

The euro has been getting crushed with fears the ECB will completely destroy the value of the currency with their QE program. It's their way of making European products more competitive in the world trade markets and it's all part of the currency wars that are going on right now (started by our Fed). It's a race to the bottom to see who can out-devalue the other. In addition to the destruction of the euro we're seeing European bond yields take a nose dive as free money is used to jack up bond prices. Interestingly, the ECB is now saying they might have to rethink their QE program since it's had such a negative effect on the euro and bond yields. Do you think? What a bunch of numbskulls.

Like the dollar, but inversely, I see the euro's selloff as panic selling at this point. But it's now down to two overlapping price projections that could see the conclusion to its decline. The 5th wave of the decline from May 2014 has extended and the price projection for it (where it will be 162% of the 1st through 3rd waves) is at 1.04976. The 5th wave, which is the leg down from October 2014 (the same as the dollar but inversely) would be 162% of the 1st wave at 1.05158, which gives us nice correlation in the 1.05 area to watch for a possible completion of the decline (no guarantee of that; it's just a level of interest to watch carefully for support).

Euro contract, EC, Daily chart

Now lay the euro's daily chart above over the dollar's daily chart and you can see how they're mirror images of each other. And each is looking ready to complete their own panic moves. The current moves could continue for much longer, in a true blow-off move, but each has gone parabolic and it's a dangerous time to chase the trend.

U.S. Dollar vs. Euro, Daily chart

You can see on the euro's monthly chart below that it is more oversold than it's ever been. It can get more oversold but it just goes to show how strong the selling has been. Today's decline has the euro breaking below the bottom of a parallel down-channel for its decline from 2008, near 1.069. How it finishes for the week will be important since a close below 1.05 would be more bearish. Back above 1.084 would be a good indication the selling is over (but a retest of the low is likely in the future).

Euro contract, EC, Monthly chart

Gold has been hammered in the past two weeks and the strong dollar has been one reason. Fundamentally there aren't a lot of drivers in place yet for a gold rally and while gold bulls were very hopeful the bounce off last November's low would continue, especially with the strong spike up in January, disappointment is setting back in and those who rushed to buy are now dumping. When gold is no longer viewed as the place to be, which should happen at lower prices, then we'll know it's a good time to buy. There are still too many looking to buy each dip and breakout attempt but as I've been saying for a long time, the larger pattern has been calling for lower prices and until I see a better ending pattern to the downside I'll continue to view bounces as head fakes to the upside. For now I'm looking for a drop down to the 1090-1108 area where it could find support at the bottom of a shallow down-channel from 2013 (1108) or at the 50% retracement of its 2001-2011 rally (1090). But chasing gold lower from here looks a bit risky since a 5-wave move down from January could find a tradeable bottom at any time.

Gold continuous contract, GC, Weekly chart

Following the low for oil in January I was expecting to see a multi-month choppy sideways consolidation before heading lower after the summer. I thought then and still think that trading oil would be a fruitless exercise in frustration. In the large pattern for the decline from August 2013 the bearish wave count calls for a 4th wave correction and I call these corrections "feed your broker" times. Most traders get chopped to pieces and the only ones who make money are the brokers (and day traders who are quick to take small profits). Trying to figure out 4th wave patterns is worse than herding wild cats and so far the two months since the January 13th low has been no exception. I think we'll see another leg up from here, one that could test price-level S/R near 58.50, but it's by no means certain. The bulls would be in better shape if they can get oil back above 59 but until then mind the chop.

Oil continuous contract, CL, Weekly chart

In addition to the usual unemployment claims numbers tomorrow morning, we'll get the retail sales numbers (some improvement over January is expected) and export and import prices. None of these should move the market.

Economic reports and Summary

At this point we still don't know if the pullback from March 2nd is a correction to the longer-term rally (4th wave correction) that will lead to another new high (in a 5th wave) or if instead the March decline is the kickoff to a much larger decline to come this year. March has been a reversal month more years than not since 2000 so from a seasonal pattern perspective it should make bulls nervous. But as shown for all the indexes, I could easily argue for another new high this month and maybe March will continue to be a reversal month but not until after a new high before the end of the month. Bears need to respect this potential until there's better evidence the March 2nd highs will stand for a long time.

The kind of evidence the bears need is a high bounce into next week and then a drop below wherever the low for this pullback finishes. That would be solid evidence that THE high is in place. For now, look for a higher bounce to get started, either from here or preferably following a new low Thursday/Friday (head-fake move in front of opex?), and then next week, assuming we'll get the bounce, we can evaluate it for a setup to get short while keeping in mind the upside potential.

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

Lower Highs

by James Brown

Click here to email James Brown


Albermarle Corp. - ALB - close: 53.54 change: -0.80

Stop Loss: 55.65
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on March -- at $---.--
Listed on March 11, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.7 million
New Positions: Yes, see below

Company Description

Why We Like It:
There's a bear market in this specialty chemical stock. The company has a history of paying a dividend and they just raised their dividend for the 21st year in a row. Unfortunately, that's not drawing much investor attention. High-dividend stocks could become less attractive with the Federal Reserve poised to raise interest rates.

Officially the company describes itself as, "Albemarle Corporation, headquartered in Baton Rouge, Louisiana, is a premier specialty chemicals company with leading positions in attractive end markets around the world. With a broad customer reach and diverse end markets, Albemarle develops, manufactures and markets technologically advanced and high value added products, including lithium and lithium compounds, bromine and derivatives, catalysts and surface treatment chemistries used in a wide range of applications including consumer electronics, flame retardants, metal processing, plastics, contemporary and alternative transportation vehicles, refining, pharmaceuticals, agriculture, construction and custom chemistry services."

They are in the final stages of its acquisition of Rockwood Holdings. They announced the $6 billion deal last July and it's expected to close in the first quarter of 2015. Bulls will argue this deal is positive for ALB due to the expected demand for lithium batteries. Rockwood has one of the of the biggest lithium producing operations in North America. On a short-term basis we're not seeing any impact in the stock.

ALB most recent earnings report was January 28th. Wall Street was expecting ALB's Q4 results to be $1.02 a share on revenues of $637 million. The company disappointed with a profit of $0.99 as revenues dropped -6.4% to $598.5 million. Management offered lackluster guidance. Multiple analyst firms have downgraded the stock and started lowering their earnings estimates.

You can see the huge sell-off on the earnings report in late January. During the market's big rally in February ALB slowly climbed back to where it was trading just before the earnings announcement. Now ALB is rolling over again. This conforms to the stock's larger bearish trend (seen on the weekly chart). The point & figure chart is forecasting at $45.00 target.

Tonight I'm suggesting a trigger to open bearish positions at $53.25.

Trigger @ $53.25

- Suggested Positions -

Short ALB stock @ (trigger)

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

Buy the JUN $50 PUT (ALB150619P50) current ask $1.95

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

Daily Chart:

Weekly Chart:

In Play Updates and Reviews

Stocks Drift Lower Under Rising Dollar

by James Brown

Click here to email James Brown

Editor's Note:
Today the main story was the relationship between the plunging euro currency and how it's pushing the U.S. dollar higher (which hit new 12-year highs today). Analysts are worried that short-term this currency headwind will hurt corporate margins.

FIVE hit our stop loss.

Current Portfolio:

BULLISH Play Updates

Best Buy Co. Inc. - BBY - close: 40.22 change: +0.25

Stop Loss: 37.75
Target(s): To Be Determined
Current Option Gain/Loss: -0.1%
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

03/11/15: BBY continues to show some relative strength. The stock added +0.6% and closed above round-number resistance at $40.00. This move can be used as a new bullish entry point. However, I'd keep a cautious eye on the broader market. BBY might have trouble moving higher if the major indices are accelerating lower.

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

Cabela's Inc. - CAB - close: 55.65 change: -0.37

Stop Loss: 53.95
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on March -- at $---.--
Listed on March 09, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.0 million
New Positions: Yes, see below

03/11/15: CAB is having a hard time getting past technical resistance at its simple 200-dma. If shares don't show some progress soon we might drop this stock as a candidate. Our suggested entry point is $57.35.

Trade Description: March 9, 2015:
Outdoor gear and hunting equipment retailer CAB has been misfiring the last few quarters. They have missed analysts estimates three out of the last four quarters but the stock could be mounting a turnaround.

If you're not familiar with the company, "Cabela's Incorporated, headquartered in Sidney, Nebraska, is a leading specialty retailer, and the world’s largest direct marketer, of hunting, fishing, camping and related outdoor merchandise. Since the Company’s founding in 1961, Cabela’s® has grown to become one of the most well-known outdoor recreation brands in the world, and has long been recognized as the World's Foremost Outfitter®. Through Cabela's growing number of retail stores and its well-established direct business, it offers a wide and distinctive selection of high-quality outdoor products at competitive prices while providing superior customer service. Cabela's also issues the Cabela's CLUB® Visa credit card, which serves as its primary customer loyalty rewards program.

The company has been struggling with slowing sales and disappointing comparable same-store sales growth. They're not the only one. Companies like Dick's Sporting goods have also noted that sales in their hunting category were slow last year.

CAB's most recent report was its 2014 Q4 announcement on February 12th. Earnings of $1.11 a share missed estimates by a wide margin. Revenues were up +7.2%, which met expectations at $1.27 billion. Management said they expect a "return to a low-double-digit growth rate in revenue and a high-single to low-double-digit growth rate in diluted earnings per share for full-year 2015 as compared to full-year 2014 non-GAAP diluted earnings per share of $2.88."

The good news is that firearm sales appear to be stabilizing. After years of torrid sales during Obama's first term as president the pace of firearm sales slowed significantly. The latest data on background checks to buy a gun showed February 2015 to be the second strongest February on record. More than 1.28 million background checks were performed. That's up +1.3% from a year ago. December saw +7.5% surge in checks and January 2015 reported a +8.5% increase in background checks.

On March 3rd, 2015, gun maker Smith & Wesson (SWHC) just reported earnings that were significantly better than expected. SWHC management raised their guidance. That should bode well for CAB too.

Currently shares of CAB have bounced back toward resistance near $57.00 and its simple 200-dma. The stock appears to be breaking through resistance at its year-long trend of lower highs as well. If CAB can breakout the stock might see some short covering. The most recent data listed short interest at 16% of the 51.3 million share float. Currently CAB's point & figure chart is bullish and forecasting at $65.00 target.

Tonight I'm suggesting a trigger to open bullish positions at $57.35, which could be a new four-month high and a breakout past its January resistance.

Trigger @ $57.35

- Suggested Positions -

Buy CAB stock @ (trigger)

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

Buy the JUN $60 CALL (CAB150619C60)

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

Neurocrine Biosciences - NBIX - close: 40.53 change: +0.09

Stop Loss: 38.45
Target(s): To Be Determined
Current Option Gain/Loss: +7.6%
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

03/11/15: NBIX spent Wednesday's session drifting sideways and closed virtually unchanged for the day.

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: 46.11 change: +0.55

Stop Loss: 44.75
Target(s): To Be Determined
Current Option Gain/Loss: -2.9%
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

03/11/15: THRM displayed relative strength with a +1.2% gain. Yet shares are still trading below their simple 10-dma. I'm not suggesting new positions at this time.

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: 19.34 change: -0.41

Stop Loss: 17.75
Target(s): To Be Determined
Current Option Gain/Loss: -3.8%
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

03/11/15: Uh-oh! I am urging caution on our THRX. Readers already know we consider biotech stocks to be more aggressive trades. The action in THRX today does not look healthy. The early rally reversed and THRX underperformed the market with a -2.0% decline. Shares look like they are on the verge of breaking down below the 200-dma.

More conservative traders will want to consider raising their stop loss. I am not suggesting new positions.

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

Intrexon Corp. - XON - close: 46.81 change: -0.20

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

03/11/15: It was a quiet day for XON. The stock slowly drifted lower to close down -0.4%. If the stock fails to rally soon or breaks down under $45.00 we'll likely drop it.

We remain on the sidelines for now. Our suggested entry point to launch positions is at $50.65.

Trade Description: March 7, 2015:
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)

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

BEARISH Play Updates

3D Systems Corp. - DDD - close: 27.33 change: -0.22

Stop Loss: 30.15
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on March -- at $---.--
Listed on March 10, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 3.0 million
New Positions: Yes, see below

03/11/15: DDD tried to rally a couple of times today and both times it failed near the $28.00 level. The stock closed near its lows for the session, which should be a bearish signal for tomorrow. Odds are good we could see DDD hit our entry trigger at $26.90 soon.

Trade Description: March 10, 2015:
Expectations for DDD are still too high. The stock has been crushed from an early 2014 high near $96.00 a share down to $27.50. Even here, at multi-year lows, the stock has a P/E of 250.

The company describes itself as, "3D Systems provides the most advanced and comprehensive 3D digital design and fabrication solutions available today, including 3D printers, print materials and cloud-sourced custom parts. Its powerful ecosystem transforms entire industries by empowering professionals and consumers everywhere to bring their ideas to life using its vast material selection, including plastics, metals, ceramics and edibles. 3DS' leading personalized medicine capabilities save lives and include end-to-end simulation, training and planning, and printing of surgical instruments and devices for personalized surgery and patient specific medical and dental devices. Its democratized 3D digital design, fabrication and inspection products provide seamless interoperability and incorporate the latest immersive computing technologies. 3DS' products and services disrupt traditional methods, deliver improved results and empower its customers to manufacture the future now."

Last year was pretty tough for DDD. The company has delivered disappointing earnings and revenue growth. They issued an earnings warning back in October. DDD has been reporting +20% revenue growth the last couple of quarters but it's not enough. Management issued 2015 guidance that was in-line with analysts' estimates. Shares initially bounced because guidance wasn't worse than many had feared. However, currency headwinds are going to be an issue in 2015. A couple of analysts have slashed their price target on DDD's stock following the earnings report.

This time the bears might be right. Margins were hurt last year. The company is forecasting organic sales to improve in the second half of 2015. However, they are facing what will be major competition when Hewlett-Packard (HPQ) launches their commercial 3D printers in 2016. The most recent data listed short interest at 38% of the 105 million share float. That much short interest makes DDD a volatile stock to trade. We never know when something might spark a short squeeze. Traders may want to limit their risk by using options.

The stock's sell-off has produced a sell signal on the point & figure chart that is forecasting at $17.00 target. Currently DDD is hovering near support in the $27.50-28.00 region. A breakdown here could signal the next major leg lower. Tonight we're suggesting a trigger to open bearish positions at $26.90. Consider small positions to limit risk.

Trigger @ $26.90 *small positions to limit risk*

- Suggested Positions -

Short DDD stock @ (trigger)

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

Buy the MAY $25 PUT (DDD150515P25)

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


Five Below, Inc. - FIVE - close: 28.98 change: +0.40

Stop Loss: 29.65
Target(s): To Be Determined
Current Option Gain/Loss: +5.7%
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

03/11/15: Eventually, after a big enough sell-off, someone is going to think a stock is cheap. Today it was MKM Partners who thought the sell-off in FIVE was overdone. They upgraded the stock to a "buy" and slapped a $35 price target on it.

The stock gapped open higher at $29.21 and then spiked up to $30.28 before rolling over beneath short-term technical resistance at its 10-dma. Our new stop was hit at $29.65.

- Suggested Positions -

Short FIVE stock @ $31.45 exit $29.65 (+5.7%)

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

Apr $30 PUT (FIVE150417P30) entry $1.40 exit $2.13 (+52.1%)

03/11/15 stopped out
03/09/15 new stop @ 29.65
03/07/15 new stop @ $30.45
03/03/15 triggered @ $31.45
Option Format: symbol-year-month-day-call-strike