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Gilead Sciences (GILD)

Jun 19, 2015

Gilead Sciences (GILD) has been hot in 2015.

But it may soon face serious headwinds, as investors catch news that China has turned down a patent application for the company’s hepatitis C drug, Sovaldi.

The news could easily stall any progress on making money in such a key market.

Worse, the company’s dominant position in the hepatitis drug market could take a hit if other countries follow suit. Hefty prices, rendering the drug unaffordable for may parts of the world, could easily derail recent upside in the stock.

“Gilead has drawn fire for the cost of its top-selling drug Sovaldi, priced at $1,000 per pill in the United States or $84,000 for a typical 12-week course and its patents have been challenged in the U.S., India and Europe,” notes Reuters.

It’s another wait-and-see situation worth paying attention to.

Over-extensions on RSI and MACD lead me to believe the stock could put in a respectable pullback near-term. Consider taking a small position in the GILD August 2015 120 put up to $5.20 with a -25% mental stop.

 

Market Vectors Semiconductor (SMH) ETF

Jun 18, 2015

As boring as semiconductors are, the stocks are still red hot. The industry is still red hot. We have to remember that demand is about to get an even bigger boost from what’s known as the “Internet of Things”. All those ‘things’ will need an even greater amount of semiconductor technology.

IBM just invested $3 billion to build an “Internet of Things,” hoping to harness the data collected by smartphones, tablets, cars and appliances to help companies better manage their business.

In 2011, the industry had global sales of just over $299 billion.

By 2014, sales reached as high as $338 billion, 13% growth over 2011.

Sales could easily run to $345 billion this year, and to $355 billion by 2016.

That’s impressive growth. There are two ways to trade this opportunity.

One, buy the underlying SMH ETF up to $58.50…

And, or two buy to open the SMH November 2015 58 call up to $3.50.

 

 

S&P 500

Jun 17, 2015

After breaking to new high of 2130, the S&P 500 found heavy resistance, as persistent economic fears and worries of a 2015 rate hike gave way to selling pressure. We knew that if the 50-day was broken to the downside, the next area of support was 2075.

That’s exactly where it found support over the last few days, testing triple bottom support dating back to early May 2015. If 2075 fails to hold near-term, we could easily test April 2015 support of 2060, and quite possibly March 2015 support at 2040.

Of course, that’s worst-case scenario.

At the same time, we don’t believe we’ll see a September rate hike, as many fear. Even Goldman Sachs, which we rarely agree with, has said there are “persuasive” reasons for the Fed to wait until 2016.

A September rate hike “remains a close call,” they note. That’s because there’s a great deal of economic uncertainty. And there’s no real danger of the Fed being behind the curve of inflation. The Fed also knows it runs the risk of crashing the markets.

The smart money isn’t betting on a rate hike either.

In fact, futures traders are only pricing in 28% probability of a hike. It’s pricing in a 65% probability of a rate hike by December, though. But again, that all depends on the health of the economy. We also have to consider that a September hike makes no sense politically, given budget wars and a potential government shutdown.

That's not an environment the Fed should be raising interest rates in…

 

Zumiez, Inc. (ZUMZ)

Jun 16, 2015

I was going to post this Wednesday morning, but the opportunity is too good to wait.  Enjoy.

About 450 sheep jumped to their death in 2005, as reported by USA Today.

One sheep jumped to its death.

Then shepherds watched as 1,500 others followed…

They all jumped off that very cliff to sudden death. The ones that survived were lucky. They landed on pillows of dead sheep.

It’s okay to laugh.

But what’s sad is this same situation unfolds on Wall Street every day. We – as sheep-like traders and investors – follow what every one else is doing.

If a stock is plummeting, and every one is losing their minds, we lose our minds, too… and sell. But we never stop to ask what happened. We just react, and overreact.

Look at Zumiez (ZUMZ), for example.

After positing poor guidance, anticipating a 3% to 5% drop in sales, the stock was pummeled, falling $6 a share. That’s a severe overreaction… at least to me. The stock is now a steal at less than sales, trading well into oversold territory, as Money Flow, MACD, and RSI begin to reverse. Williams % Range is just beginning to gain traction, too.

I’m willing to bet we see an eventual bearish gap refill at $30 with patience here. Historically, all bearish gaps have been refilled on this stock if we examine a five-year chart.

Consider buying to open the ZUMZ stock up to $25, as well as the ZUMZ August 2015 25 calls up to $1.50.

 

FedEx Corporation (FDX)

Jun 16, 2015

Atop all time highs, FDX is wildly overbought.

There’s little to get excited about even as the company attempts to stabilize with a 25% dividend increase.

Earnings are tomorrow... and may have been priced in.   

A simple look at the pivoting moves on RSI and oversold indications on MACD tell me the stock is desperate need of a near-term correction.

And what concerns me is that the Dow Jones Transportation Index (DJTA) is in correction moving down 10% from all time highs. We also have to consider the Postal Service is taking away business from FDX by delivering for Amazon.

While I’d like to buy a put option here to profit from a sudden move lower, we can’t. I’m not a big fan of placing bets ahead of earnings. Let’s wait until after the report Wednesday morning to revisit.

 

 

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