Option Investor

Daily Newsletter, Wednesday, 3/18/2015

Table of Contents

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

Market Wrap

DOW 400-point Reversal on FOMC Announcement

by Keene Little

Click here to email Keene Little
The market was down for most of the day today prior to the FOMC announcement this afternoon but you wouldn't know that by looking at the closing prices. The DOW finished +227, which was 380 points off the low just prior to the FOMC announcement. The market liked the fact that the Fed is showing patience even though they removed the word "patient" from their language. Saying a rate hike in April is "unlikely" is what the market wanted to hear.

Wednesday's Market Stats

Thanks to the FOMC's decision to not change anything in today's announcement, especially the important word "patient," the stock market saw a relief rally this afternoon that quickly wiped out the day's losses. The DOW jumped +400 points (exactly) while SPX rallied 45 points from low-to-high before both pulled back in the final hour. Bond yields tanked on the announcement, as did the U.S. dollar, and both are providing a very interesting message as we look ahead.

The Fed actually got a little more dovish than the market had expected. I've long held the belief that we'll see QE4 long before we'll see a rise in rates and perhaps the Fed's concern about the health of the economy has more market participants beginning to sense the same thing. Basically the Fed is impotent (nothing's changed) and the market will soon become very disappointed in the Fed's inability to make a difference, QE4 or otherwise, and that will be part of the mood change in the next and final bear market leg down in the coming years. There are no good fundamental reasons for why the stock market is as high as it is but for now the market is still pinning its hopes on the Fed being able to do something.

The Fed repeated its statement that it sees improvement in the labor market (apparently they're one of the few who actually believe the labor department's numbers) but not enough. Between that and the inflation rate stubbornly remaining below its 2% target the Fed is saying they'll continue to watch the data before announcing plans to raise rates. It's hinting that a rate hike is coming; just not in April and that's all the market cares about right now. A June rate hike is a possibility but many market analysts now think the first rate hike won't happen until September at the earliest. It was the Fed's expression of caution about the economy that got the bulls excited this afternoon. "Woohoo, a weak economy, let's rally!"

In a nutshell, here's a brief explanation of today's moves, thanks to the Fed (hat tip to Bob):

- Yellen mentioned dollar strength hurting the economy – Result: Dollar down
- She mentioned economy not as strong – Result: lower interest rates
- Lower interest rates and lower dollar – Result: stocks, commodities and bonds UP!

- Lower US interest rates and lower dollar –> (higher Euro and Yen) –> pressure on the EU and Asian economies –> selloff in EU and Asian stocks -> money flow back to the US –> higher US stocks, bonds and commodities

Now we wait to see if today's moves were more or less a knee-jerk response or something more.

Kicking off tonight's review of the charts will be a look at SPX, which remains one of the better indexes to see what THE market is doing. The RUT has made a new high above its March 2nd high (the first and only to do so), which could be leading the others higher but at the moment I'm not so sure about that happening. It will be important how the rest of this week plays out.

The SPX weekly chart shows price is getting crowded as it gets pinched in multiple rising wedge patterns. There are two wave counts that I consider the highest probabilities and unfortunately it's a coin toss as to which one is the more likely one. As already mentioned, the RUT says follow me to new highs, but the short-term pattern suggests bulls might have used up the rest of their buying power this afternoon. Both wave counts point to lower prices this summer but one is short-term bullish (green) into the end of March/early-April before the market puts in what should be a final high for the year. The more immediately bearish wave count (red) says the high is already in place and we'll see lower prices directly from here.

The uptrend line from March 2009 - October 2011 (bold purple) is currently near 2034 and it's the important trend line for the bulls to defend on a weekly closing basis. You can see a sharp drop below it last October (the tail on the weekly candle) and the minor drop below it at the February 2nd low. A third drop below the line, especially a weekly close below it would be a potentially big deal since it would be a signal that the final high is already in place. Until that happens there is still the potential for another leg up to complete a 5-wave ending diagonal (rising wedge) for the move up from October. The top of the rising wedge is currently near 2132 and then if it can make it up to the trend line along the highs from April 2010 - May 2011 we could see SPX rally up to the 2175 area by early April.

S&P 500, SPX, Weekly chart

In the short-term pattern, the rally off last Friday's low had me thinking we'll get another leg up this afternoon following the pullback from Monday afternoon's high. The pullback into today's FOMC announcement was a good setup for the bulls and the positive reaction could see some follow through tomorrow. But the typical pattern has been for the post-FOMC rally to get reversed the next day and the bearish wave count setup calls for the same thing. If the bounce off last Friday's low is just a correction to the March 2-13 decline then we should not see SPX above today's high at 2107 so a rally above that level would tell us new highs are coming. This afternoon's low near 2061 is an important level for the bulls to defend since a break below that would tell us the bounce finished and the next leg down has begun. It should be a 3rd wave down and that means it would be a stronger decline than the March 2-13 decline.

S&P 500, SPX, Daily chart

Key Levels for SPX:
- bullish above 2107
- bearish below 2061

If the bulls can keep this afternoon's rally going I'll be looking for the 2130 area before starting a consolidation and then higher next week, potentially up to the 2150 area (maybe higher into early April). But as labeled in red on the 60-min chart below, so far the bounce is an a-b-c correction to the decline and that's why this afternoon's low near 2061 is important for the bears to break. That would confirm this week's bounce is a correction and a stronger decline will follow.

S&P 500, SPX, 60-min chart

The DOW has the same possibilities as shown for SPX. As you can see on its daily chart below, it's not hard to imagine a continuing rally up to about 18400 by the end of the month to reach the top of its rising wedge pattern. The first thing the bulls need to do is get the DOW back above price-level S/R near 18100 (today's high was 18097). But from a bearish perspective it has now completed an a-b-c bounce off last Friday's low, at 18100 resistance, and it will now be followed by a strong 3rd wave down. For the bearish wave count we could see 17000 before the end of the month and then lower into early April before setting up a large bounce correction. As with SPX, the bulls need to defend this afternoon's low at 17697.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- bullish above 18,100
- bearish below 17,697

It's the same pattern for the NDX as the blue chips -- it looks good for the bears to try a short play and use today's high for your stop (small risk on the play). If the bulls can press the rally higher and only allow choppy pullbacks we should then see new highs this month notice where MACD is -- a turn back down from here would have MACD rolling back over from the zero line, which would create a strong sell signal (MACD having been "reset"). The bearish pattern calls this afternoon's high completes a 3-wave bounce off last Friday's low with two equal legs up at 4440.17 (this afternoon's high was 4440.49) and as such it fits as an a-b-c bounce correction to the March 2-13 decline. The expectation for a short play here is a strong decline for a 3rd wave.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- bullish above 4484
- bearish below 4344

The RUT has been out in front of the latest rally since last week's lows, starting with the higher low last Friday. This afternoon's rally had the RUT climbing above the trend line along the highs from last September-December, which had stopped the rally into the March 2nd high (it closed marginally above the line but then dropped back below it the next day). That trend line is currently near 1247 and the bulls want to prevent a similar occurrence as the March 2nd high since it would leave another reversal signal and could mark the top of its rally. But if the bulls can hang on (with nothing more than a choppy pullback) and drive the RUT higher we could then see the broken uptrend line from March 2009 - October 2011 tested, which will be near 1285 by the end of the month. A short-term trend line along recent highs, starting from January 28th, intersects the broken uptrend line from 2009-2011 at the end of the month. A clean 3-wave move up from March 11th, to the 1285 area by the end of the month, would be a good finish to a large rising wedge pattern off the October low. The bears need to negate that potential with a strong impulsive decline from here and a drop below its 20-dma, near 1233 would be a good first step. The RUT is obviously the canary dressed up like a bull at the moment and that's reason enough for bears to be cautious.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- bullish above 1256
- bearish below 1206

There were three things the Fed accomplished today -- they drove the stock market up, bond yields down and the U.S. dollar down. They of course want stock prices higher because it helps the "wealth effect," even though it's been well proven that the only ones benefitting from that are the wealthy. The Fed of course wants to keep bond yields down (hence their reluctance to raise rates) so that the governments, businesses and people can borrow at lower costs. That has been a huge help for debt-strapped governments and it's been a huge boon for businesses who borrow money at very low cost and then buy back stock and other things to increase the stock value so that executives can get higher bonus compensation. Consumers haven't taken advantage of cheaper loans and instead have been working their debt levels down.

The other problem for the Fed has been the strong dollar, which makes it less profitable for businesses to conduct business overseas due to the exchange rate and higher selling prices in the foreign country. This creates a drag on the economy and it's why other countries have been involved in the ongoing currency war -- whoever can drive the value of their currency lower than the others is the one who wins in trade. It's also an effort to create inflation as the deflationary cycle becomes harder to fight off.

With so many other currencies valued against the dollar it has been their devaluing efforts that has helped drive the dollar's value higher and I'm sure there's been some gnashing of teeth at the Fed as to how to stop it. They could implement another QE program (and likely will in the not-too-distant future) but for now that would spook the markets. The next best thing is to jawbone the dollar lower by talking about the need to raise rates soon but not yet. Talk about a soft economy but that you think things are improving enough to warrant a rate increase in the near future. It's a narrow line the Fed is walking but so far they haven't fallen off it (a few well-timed and large buy programs in the stock and bond markets helped).

With this afternoon's strong rally in the bond market it crushed bond yields. The 10-year yield (TNX) dropped -5.2% and back below 2%, dropping from 2.05% to 1.944% before bouncing a little and closing at 1.951%. The "magic" level for the 10-year is 2% so it'll be telling us something over the next week once we see if the reversal off the March 6th high continues or not.

Looking at bond prices, using TLT, I could easily argue for another new high to complete its leg up from December 2013 (and potentially its longer-term 30-year rally). The January 20th high came very close to the trend line along the highs from December 2008 - July 2012 and I can see the potential for another test of that trend line with bearish divergence against the peak left on January 30th. Based on this we could see bonds rally into April/May and see TLT top out around 140. If reached, it might not stop there but it would be a good place to evaluate a possible reversal. If TNX (10-year) heads for 1% and TYX (30-year) heads for 2%, which I've believed for years will happen, then we'll see TLT head higher than 140.

20+ Year Treasury ETF, TLT, Weekly chart

Higher yields actually help the banks since they get to make a larger spread between what they can get from the Fed (virtually 0%) and what they can get for loans. So today's large drop in yields hurts banks and the banking index was one of the few to close in the red. The leg up from January 16th can be considered complete at any time, although I see a little more upside potential to the top of its expanding triangle pattern, as shown on its weekly chart below. But betting on the long side for banks is a risky bet in my book. The longer-term bearish divergence, along with the bearish expanding triangle (a topping pattern) tells us that this could break down hard at any time.

KBW Bank index, BKX, Weekly chart

For some time, since November, the TRAN has not been able to keep up with the DOW and the DOW's new highs in December and February went unmatched by the TRAN. That has created a Dow Theory bearish non-confirmation so it's incumbent upon the bulls to get the TRAN at least above its February 25th high near 9215 (today's high was near 9142). Today's rally for the TRAN was not as strong as the DOW's but it's now close to its February high and might be able to get above it if it can through the downtrend line from November. This trend line stopped the February rally so we'll see if the bulls can do better this time. But because of a possible rising wedge pattern for its final leg up, the top of which is currently near 9250, I think price will have to get above about 9270 before one could declare the TRAN bullish. Back below its 50-dma, near 8940, would be the first indication the bulls lost the battle.

Transportation Index, TRAN, Daily chart

The U.S. dollar's rally from February 26th, which I've been calling the 5th of the 5th wave in the rally from May 2014, had gone parabolic (more easily seen on a 60-min chart with the increasing steepness of uptrend lines) and it was begging for a sharp selloff to start at any time. It just needed an excuse (catalyst) and that was provided by the Fed this afternoon. The dollar had been down more than -5% but then recovered with a spike back up to 97.77 after 16:00. But the damage has been done and I think we've seen the top for the dollar for a while.

The dollar looks like it has now completed a 5-wave move up from May 2014 and that calls for at least a multi-month pullback or consolidation (depending on how the larger pattern is interpreted). I would turn more bearish the dollar if it drops back below the top of its large parallel up-channel from 2008-2011, which it broke above in January and is currently near 93.40. The first level of support is the apex of the previous triangle (the consolidation pattern in February), near 94.50.

U.S. Dollar contract, DX, Daily chart

On March 6th gold had dropped below price-level support near 1180 and it's been struggling since to get back above that level. It got a good bounce today, thanks to expectations that the Fed will continue to back away from accommodation, but it has multiple levels of resistance between 1180 and about 1220. The bearish pattern suggests gold will drop a little lower to the bottom of a shallow down-channel from 2013, near 1105, before bouncing stronger but nothing has changed with my expectation for gold to drop down to the 1000 area before setting up a potentially good buying opportunity.

Gold continuous contract, GC, Weekly chart

I'm always watching silver with gold because I want to see the two in synch to help identify the more likely directions. The pattern for silver is one of the things that has kept me bearish the metals even during the last high bounce for gold. I'm looking forward to the time when I can start building a long-term hold position in both metals but I still see this as too early to start (other than nibbling every now and then when I see a good deal). The first bullish sign for silver would be a rally above 19.61 where it would have two equal legs up from December 1, 2014 and it would break its longer-term downtrend line from April 2011, which is the top of the down-channel it's been in since that high.

Silver continuous contract, SI, Weekly chart

Yesterday oil dropped to a new low and then a little lower this morning (42.03). It then consolidated for most of today until the FOMC announcement when it shot back up (thanks in part to the dollar's decline). The pattern looks good for a stronger bounce in oil so we'll see if this afternoon's rally gets some follow through. This morning's low achieved a 162% projection for the 2nd leg of the pullback from February 17th, at 42.12, and almost achieved the 127% extension of the previous bounce (January 13 - February 17), at 41.47. A bounce off this Fibonacci cluster suggests the pullback from February 17th is part of a larger a-b-c bounce pattern off the January 13th low. The c-wave should be a sharp rally and it typically achieves a 162% projection of the a-wave, which points to 58.13, as shown on the chart. This is pennies away from price-level S/R near 58.50 and makes for a good upside target in the large sideways consolidation that I expect oil to do for the first part of this year.

Oil continuous contract, CL, Daily chart

Thursday's economic reports will include the usual unemployment numbers before the open and then at 10:00 we'll get the Philly Fed and Leading Indicators, neither of which should be a market mover. There have been a string of economic misses (economists are not seeing the slowdown that's in progress) and tomorrow's reports could continue the same streak but so far the market has been much more interested in what central banks are doing. The economy will matter again sometime, and probably soon, but it hasn't yet.

Economic reports and Summary


The Fed managed (perhaps directly) to pull off a successful move in several markets this afternoon. They got a rally in the stock and bond markets and a decline in the dollar. Golf clap for the Fed. Now we'll see if there will be any follow through in each of the markets. For the stock market there are two reasons why I expect a reversal of this afternoon's rally and we should find out quickly whether or not the reversal will happen. First, following the post-FOMC move, which is typically a rally, the following day often sees a reversal of the move. Second, there's a bearish wave count that says this afternoon's rally completed the c-wave of an a-b-c bounce off last Friday's low and will be followed by a resumption of the decline. It should be a 3rd wave (or c-wave) down and that means it should be stronger than the March 2-13 decline. It was reason enough to attempt a short play at today's close (tight stop at a new high).

The bullish case is strongly argued by the RUT, which made a new high above its March 2nd high. Bullish sentiment is high if they're buying the small caps. The absence of the tech indexes joining the RUT is a little bothersome but that could quickly be resolved with a continuation of the rally on Thursday. And a continuation of the rally Thursday morning would strongly argue for new highs for all the indexes. Either way, I suspect we'll have our answer in the first hour of trading.

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

Telecommunication Software

by James Brown

Click here to email James Brown


BroadSoft, Inc. - BSFT - close: 34.79 change: +0.56

Stop Loss: 32.45
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on March -- at $---.--
Listed on March 17, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 286 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
BSFT is in the technology sector. The stock is outperforming the broader market this year and it's up significantly from its 2014 lows.

According to the company, "BroadSoft is the leading provider of software and services that enable mobile, fixed-line and cable service providers to offer Unified Communications over their Internet Protocol networks. The Company's core communications platform enables the delivery of a range of enterprise and consumer calling, messaging and collaboration communication services, including private branch exchanges, video calling, text messaging and converged mobile and fixed-line services."

BSFT has delivered a stomach churning performance since its IPO back in 2010. You can review its performance on the long-term chart below. The stock got off to a slow start but then sprinted from about $9.00 in late 2010 to $55.00 less than six months later. Unfortunately, since the early 2011 peak shares have been nothing but a roller coaster ride of ups and downs (we're talking really, really ugly downs).

It would appear that the tone has changed for BSFT. The company has beaten Wall Street's earnings and revenue estimates the last three quarters in a row. The big rally in early November 2014 was a reaction to its earnings beat with revenues up +27% from a year ago. The prior quarter revenues grew +19%.

The stock rallied big again on February 25th with BSFT reporting Q4 earnings of $0.64 a share, beating estimates by seven cents. Revenues surged +26.5% to $65.8 million. Management offered earnings guidance that was relatively in-line with consensus estimates. However, their revenue guidance was above expectations for both the first quarter and fiscal year 2015. Don't let the in-line earnings guidance fool you. Wall Street is expecting +78% earnings growth this year. The rally off its 2014 lows has produced a long-term target of $51.00 on the point & figure chart.

BSFT has been showing relative strength the last couple of weeks. Tonight we are suggesting a trigger to launch small bullish positions at $35.15. I suggest small positions because shares don't have a lot of volume and history would suggest the stock is prone to wild bouts of volatility.

Trigger @ $35.15 *small positions to limit risk*

- Suggested Positions -

Buy BSFT stock @ (trigger)

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

Buy the MAY $35 CALL (BSFT150515C35) current ask $2.70

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

Daily Chart:

Weekly Chart:

In Play Updates and Reviews

Fed Fuels A Fervor

by James Brown

Click here to email James Brown

Editor's Note:
Dovish comments from Federal Reserve Chairman Janet Yellen helped fuel a widespread market rally on Wednesday afternoon. Both stocks and bonds rallied while the U.S. dollar declined.

We have removed TFM as a candidate.

Current Portfolio:

BULLISH Play Updates

Best Buy Co. Inc. - BBY - close: 41.77 change: +0.13

Stop Loss: 39.85
Target(s): To Be Determined
Current Option Gain/Loss: +3.8%
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

03/18/15: Traders bought the dip in BBY midday. The stock rebounded to a +0.3% gain. While the trend remains higher shares did underperform the broader market this afternoon. The next hurdle for the bulls appears to be the $42.00 level.

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

03/17/15 new stop 39.85
03/06/15 triggered @ $40.25
Option Format: symbol-year-month-day-call-strike

Cabela's Inc. - CAB - close: 57.47 change: -0.17

Stop Loss: 53.95
Target(s): To Be Determined
Current Option Gain/Loss: +0.2%
Entry on March 13 at $57.35
Listed on March 09, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.0 million
New Positions: see below

03/18/15: CAB also delivered a disappointing session with the stock losing -0.29%. However, on the plus side traders bought the dip near short-term support at the rising 10-dma. Traders may want to wait for a breakout past $58.00 to initiate new positions.

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.

- Suggested Positions -

Long CAB stock @ $57.35

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

Long JUN $60 CALL (CAB150619C60) entry $2.70

03/13/15 triggered @ 57.35
Option Format: symbol-year-month-day-call-strike

Expeditors Intl. of Washington - EXPD - close: 49.20 chg: +0.49

Stop Loss: 47.45
Target(s): To Be Determined
Current Option Gain/Loss: +1.3%
Entry on March 13 at $48.55
Listed on March 12, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.3 million
New Positions: see below

03/18/15: The stock market's widespread rally this afternoon lifted EXPD to a +0.99% gain and another closing high. I would consider new positions on a rally past today's high ($49.29).

Trade Description: March 12, 2015:
EXPD is showing relative strength. The stock is up +8% in 2015 versus an S&P 500 that is virtually flat. Meanwhile the Dow Jones Transportation Average is down -1.4%.

EXPD is part of the services sector. According to the company, "Expeditors is a global logistics company headquartered in Seattle, Washington. The company employs trained professionals in 186 full-service offices and numerous satellite locations located on six continents linked into a seamless worldwide network through an integrated information management system. Services include the consolidation or forwarding of air and ocean freight, customs brokerage, vendor consolidation, cargo insurance, domestic time-definite transportation services, purchase order management, warehousing and distribution and customized logistics solutions."

The first half of 2014 was forgettable. EXPD delivered mediocre results with earnings a penny above or below estimates and revenues in-line with expectations. Business improved in the second half of last year. EXPD beat earnings estimates by four cents in the third quarter and by two cents in the fourth quarter. Revenues were up almost +11% in Q3 2014 and up +8.8% in the fourth quarter. Both were above Wall Street estimates.

Bradley Powell, Senior Vice President and CFO commented on the fourth quarter, "During the 2014 fourth quarter we saw strong year-over-year increases in both air and ocean freight volumes. Despite the 10 basis point reduction in overall net revenue margin, airfreight and ocean freight net revenues both managed double digit increases, up 10% and 11%, respectively, as overall net revenue increased 9%."

The stock shot higher on its Q4 results. Shares have been relatively resistant to any profit taking during the market's recent pullback. Traders bought the dip exactly where they should have - at prior resistance. Today's bounce looks like a bullish entry point. The stock's rally in 2015 has helped produce a buy signal on the point & figure chart that is forecasting at $66.00 target. Tonight I am suggesting a trigger to open bullish positions at $48.55.

- Suggested Positions -

Long EXPD stock @ $48.55

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

Long May $50 CALL (EXPD150515C50) entry $1.06

03/17/15 new stop @ 47.45
03/13/15 triggered @ 48.55
Option Format: symbol-year-month-day-call-strike

Golar LNG Ltd - GLNG - close: 36.05 change: +0.12

Stop Loss: 32.85
Target(s): To Be Determined
Current Option Gain/Loss: +2.3%
Entry on March 17 at $35.25
Listed on March 16, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 2.3 million
New Positions: Yes, see below

03/18/15: GLNG spent most of Wednesday's session churning sideways in the $35.50-36.35 range. At the end of the day GLNG managed another gain to post its sixth gain in a row. I'm not suggesting new positions at the moment.

Trade Description: March 16, 2015:
GLNG is part of the shipping industry. Unfortunately demand for shipping has been crushed thanks to a slowing global economy. The surging dollar doesn't help when it comes to commodity prices. Shares of GLNG have seen a significant sell-off with the stock down from $74 in September 2014 to less than $30 in January this year.

According to the company, "Golar is one of the world's largest independent owners and operators of LNG carriers with over 40 years of industry experience. Golar's innovation delivered the world's first Floating Storage and Regasification Units (FSRU) based on the conversion of existing LNG carriers. Golar's latest strategic move is to extend its business model further upstream by deploying its floating liquefaction technology (GoFLNG). The objective is to become the industry's leading integrated midstream LNG services provider, supporting resource owners, gas producers and gas consumers."

Management confessed that demand for charting LNG shipping will likely be weak in the first half of 2015. They expect a significant improvement in the second half of the year. What investors should note is that all the bad news over the last several months seems to be priced in. Cautious comments from management failed to send GLNG stock to new lows.

Earlier this month the stock soared (on March 5th) after GLNG announced it had signed a memorandum of understanding with Russian natural gas giant Rosneft. The company press release states that Rosneft is the third largest gas producer in Russia. Rosneft gas production reached 42.1 bcm in 2013, while the recoverable natural gas reserves topped 6.5 tcm. The company target is to reach 100 bcm of annual gas production by 2020. As investors it's worth noting that Rosneft is 75% owned by the Russian government. The two companies are going to be working together on some of Rosneft's natural gas assets. Shares of GLNG soared on this news.

GLNG did see some profit taking on the big move but investors are have started buying the dip. Now GLNG is poised to breakout past resistance at the $35.00 level. The point & figure chart looks very bullish with a triple-top breakout buy signal forecasting at $48.00 target.

Tonight I'm suggesting a trigger to launch small bullish positions at $35.25. We want to limit our position size to reduce risk. Energy-related names have been tough to trade lately.

*small positions to limit risk* - Suggested Positions -

Long GLNG stock @ $35.25

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

Long JUN $40 CALL (GLNG150619C40) entry $2.40

03/17/15 new stop @ 32.85
03/17/15 triggered @ 35.25
Option Format: symbol-year-month-day-call-strike

Neurocrine Biosciences - NBIX - close: 42.49 change: -0.04

Stop Loss: 40.65
Target(s): To Be Determined
Current Option Gain/Loss: +12.9%
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

03/18/15: Hmm.... NBIX failed to rally with the rest of the market today. Shares tagged new highs on an intraday basis but they closed virtually flat. More conservative investors might want to take some money off the table.

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

03/17/15 new stop @ 40.65
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: 47.52 change: +1.63

Stop Loss: 44.75
Target(s): To Be Determined
Current Option Gain/Loss: +0.1%
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

03/18/15: THRM produced a big rally off its morning lows. Shares outperformed the major indices with a +3.5% gain. Yet the stock remains just below resistance near $48.00. Traders may want to wait for a breakout past $48.00 before considering new positions.

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

Wells Fargo & Co - WFC - close: 56.17 change: +0.26

Stop Loss: 53.25
Target(s): To Be Determined
Current Option Gain/Loss: +0.0%
Entry on March 18 at $56.15
Listed on March 17, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 15.8 million
New Positions: see below

03/18/15: The rally in WFC continued with shares marking their fifth gain in the last six sessions. Shares also broke through resistance near $56.00 and hit our suggested entry point at $56.15. I would consider new positions at current levels.

Trade Description: March 17, 2015:
Banks had a rough start to the year but one stock leading the pack is WFC. Shares of WFC are up about +2% in 2015 versus a virtually flat financial sector.

According to the company, "Wells Fargo & Company (WFC) is a nationwide, diversified, community-based financial services company with $1.7 trillion in assets. Founded in 1852 and headquartered in San Francisco, Wells Fargo provides banking, insurance, investments, mortgage, and consumer and commercial finance through more than 8,700 locations, 12,500 ATMs, and the internet (wellsfargo.com), and has offices in 36 countries to support customers who conduct business in the global economy. With approximately 265,000 team members, Wells Fargo serves one in three households in the United States. Wells Fargo & Company was ranked No. 29 on Fortune’s 2014 rankings of America’s largest corporations."

WFC is very shareholder friendly. Back in 2014 the company said they wanted to pay out 55% to 75% of their net income to shareholders, which was a +34% jump from the prior year. This year WFC's CFO John Shrewsberry said they would like to distribute 50% to 70% of net income through dividends and stock buy backs. The amount of money they can pay in dividends is regulated by the Federal Reserve but WFC has raised their dividend six times in the last five years.

The Fed's annual bank stress test is a big deal and this was just completed a week ago. WFC passed the Fed's very severe stress test. The bank has asked permission to raise their dividend +7% to $0.375 a share (up from $0.35). WFC's consistent dividend might be a reason the stock is one of Warren Buffet's biggest holdings in Berkshire Hathaway.

Some have suggested that WFC could be a way to play the improving U.S. economy and consumer spending. That is because WFC is the biggest residential lender and largest auto lender in America.

The stock's rally has produced a buy signal on the point & figure chart that is forecasting a long-term target of $74.00. Currently the stock is hovering just below resistance at the $56.00 level. We are suggesting a trigger to open bullish positions at $56.15.

- Suggested Positions -

Long WFC stock @ $56.15

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

Long MAY $55 CALL (WFC150515C55) entry $2.20

03/18/15 triggered @ 56.15
Option Format: symbol-year-month-day-call-strike

BEARISH Play Updates

Albermarle Corp. - ALB - close: 52.75 change: +0.26

Stop Loss: 54.65
Target(s): To Be Determined
Current Option Gain/Loss: +0.9%
Entry on March 12 at $53.25
Listed on March 11, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.7 million
New Positions: see below

03/18/15: ALB tagged a new relative low before bouncing. Shares underperformed the broader market with a +0.49% gain. However, the bounce may not be over yet. We could see ALB rise toward $54.00, which looks like short-term resistance. I'm not suggesting new positions at this time.

Trade Description: March 11, 2015:
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.

- Suggested Positions -

Short ALB stock @ $53.25

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

Long JUN $50 PUT (ALB150619P50) entry $1.75

03/17/15 new stop @ 54.65
03/12/15 triggered @ $53.25
Option Format: symbol-year-month-day-call-strike

3D Systems Corp. - DDD - close: 27.67 change: +0.97

Stop Loss: 28.35
Target(s): To Be Determined
Current Option Gain/Loss: -2.9%
Entry on March 16 at $26.90
Listed on March 10, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 3.0 million
New Positions: see below

03/18/15: The stock market's big post-FOMC meeting rally lifted shares of DDD from $26.75 to $27.70. The rebound paused right at technical resistance on the simple 10-dma. DDD should also find resistance near the $28.00 level. Nimble traders can watch for a failed rally in this area as a new entry point for bearish positions.

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.

*small positions to limit risk* - Suggested Positions -

Short DDD stock @ $26.90

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

Long MAY $25 PUT (DDD150515P25) entry $1.56

03/17/15 new stop @ 28.35
03/16/15 triggered @ $26.90
Option Format: symbol-year-month-day-call-strike


The Fresh Market, Inc. - TFM - close: 40.98 change: -0.29

Stop Loss: 39.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on March -- at $---.--
Listed on March 14, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 628 thousand
New Positions: see below

03/18/15: TFM is not cooperating. Shares did bounce off round-number support near $40.00 intraday. Unfortunately the stock failed to rally with the rest of the market and closed down -0.7%. We have been waiting for a breakout past resistance near $42.00. Considering the recent relative weakness we've decided to remove TFM as an active candidate. You may want to keep this stock on your watch list. A breakout past $42.00 could spark a short squeeze.

Trade did not open.

03/18/15 removed from the newsletter, suggested trigger was $42.50