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Newsletter

Daily Newsletter, Saturday, 9/24/2016

Table of Contents

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

Market Wrap

Apple, Facebook and Oil

by Jim Brown

Click here to email Jim Brown

There were three major drags on Friday's market in addition to a bout of profit taking.

Weekly Statistics

Friday Statistics

Apple (AAPL) was trading sideways early in the day but at 1:30 a report broke that caused shares to drop from $114.70 to $111.55 and cause a serious market drag. The report from German research firm GFK said according to channel checks in 17 countries iPhone 7 sales were down -25% from iPhone 6 rates. The countries checked did not include the USA.

This would be in stark contrast to the comments from Sprint and T-Mobile saying sales were up +375% in the first weekend in the USA. Apple also reported the initial inventory of iPhone 7s had sold out. However, that specific headline could easily be manipulated by shipping a smaller quantity and then bragging when it sold out. That kind of gimmick is common in all forms of retail sales.

Lastly, a Digitimes article on Friday reported Apple chip suppliers had been told that Q1 orders would be 20% lower than Q4, which was already 20% lower. If the iPhone sales were so strong, why are they making 20% fewer? That could also be explained by the expectations for the 10-year anniversary iPhone reportedly due out in September 2017 and Apple is planning on shrinking the supply of iPhone 7s well in advance. The anniversary phone is rumored to have a large number of new, must have features.

Apple shares fell sharply on the news and this story may have legs that last well into the future. Remember, Apple broke with tradition for this cycle and said they would not report the early iPhone sales. They blamed the blackout on "supply issues" that would limit the available phones for sale. Of course that was convenient if you were expecting lower sales and were planning on shipping a smaller quantity of phones in hopes you could announce a "sell out" that would spur future sales.

If that was not enough to weigh on Apple shares, a Reuters report claims Japanese regulators are considering antitrust action against the company for possible violations that might have helped it dominate the smartphone sector in Japan and gain a 50% market share.


Another big cap tech stock was also dragging the market lower. Facebook (FB) admitted to significantly overstating viewer time on video ads by eliminating videos viewed less than 3 seconds from the overall calculation. While that makes sense in one aspect that artificially inflated the metrics to make it appear Facebook advertising videos had a lot longer viewing rate. One advertiser, Publicis Group SA, said Facebook told them the earlier method likely overstated the average time spent watching videos by 60% to 80% for two years. While the calculation did not impact the billing for advertising, it probably impacted the decisions for advertisers to place ads on Facebook if they thought the viewing time was significantly higher. Facebook shares were down more than 2% intraday and impacted the Nasdaq indexes.


On Wednesday, oil prices soared after Saudi Arabia said they would agree to a production freeze if Iran would agree to a freeze. That was the first time a Saudi official has said they would agree to a freeze. Unfortunately, that lasted about 24 hours and then fell apart. On Friday, another Saudi official cautioned not to expect a deal and the meeting in Algeria next week would be more of a chance to consult rather than reach any agreement. Iranian officials were also said to have refused to freeze production although there was no official statement. Iran has increased production since the end of sanctions from 2.3 million bpd to 3.7 million bpd. Crude prices fell nearly 4% on Friday as the potential agreement was seen to be collapsing before any meetings are even held.


Active rigs rose +5 to 511 with oil rigs gaining +2 and gas rigs rising +3. With oil prices more likely to hit $40 than $50 over the next month, the addition of new rigs should slow.


The combination of those three events helped to push the equity markets lower in an already weak environment. Friday was already expected to be a day for profit taking ahead of the weekend event risk and Apple, Facebook and oil prices simply accelerated the decline.

There were no economic events on Friday. However, next week has so many events I had to leave some off the calendar. Now that the Fed meeting is over the quiet period has ended and the Fed speakers are out in force. There are 11 Fed heads speaking in the first four days and in addition, Janet Yellen speaks twice. We can expect to hear multiple conflicting views on the chance for future rate hikes. Eric Rosengren already got his two cents in on Friday saying the economy needs "modest gradual tightening now." He warned the unemployment rate was going to fall to unsustainable levels that would push up inflation. When employers have to raise wages to compete for workers, it creates inflation.

The outlook for the November meeting is only a 12.4% chance of a hike because it is only 4 working days before the election. The outlook for December is now 54% and it will be interesting to see how it changes after a week of heavy Fedspeak.


The presidential debate on Monday is going to be a hurdle. There is almost no outcome that does not produce market volatility. A knockout by either candidate could produce a significant market move as those sectors seen benefitting from their win, will rise sharply. If Clinton wins the debate the biotech sector and energy sectors will crash along with others. Just expect volatility on Tuesday and if none appears, be grateful.

  Since 1980, the week after the first presidential debate has been negative 83% of the time. The average decline is -1.8% for the Dow and -1.5% for the S&P. The Monday night debate is going to have about 100 million viewers, or the equivalent of a Super Bowl only with no commercials. This is likely to produce the lowest ratings in a decade for a Monday night NFL game.

The final GDP revision on Thursday will probably be in the range of 1.0% to 1.2% growth and the third consecutive quarter of roughly 1% growth after 0.83% in Q1 and 0.87% in Q4. Any revision under 1% could be market negative.


Another tech stock with a lot of activity on Friday was Twitter. Reportedly, the company has received multiple expressions of interest after Evan Williams said on CNBC two weeks ago the board has to look seriously at any potential offers. I said at the time that sounded like a sales pitch designed to solicit offers. Apparently if you pitch it, they will come. The only two companies named in the news were Google (GOOGL) and SalesForce.com (CRM) but reportedly, there are several others. The stock shot up to a nine-month high at $22.62 on the news. The obvious question is the acquisition price. Since any bid would assume a premium, the obvious target would be $26 and their original IPO valuation at 20 times EBITDA. Twitter may not be worth that on a fundamental basis but they are a unique property and should command at least a minor premium.

In a case of bad timing, RBC Capital downgraded Twitter to sell after the close on Thursday based on a survey of 1,100 advertising professionals. Twitter placed 5th out of 7 in ROI on advertising dollars spent. Some 28% of advertisers planned to cut spending on Twitter and 30% of respondents said they were not allocating any spending on Twitter. RBC cut their price target from $17 to $14. The acquisition news broke right before the open and erased the pre market decline. Twitter traded 194 million shares or 7 times normal volume.



Shares of cybersecurity firm Imperva (IMPV) spiked after news broke that IBM and Cisco Systems may be interested in buying the company. Forcepoint, private company owned by PE firms was also mentioned as interested. Imperva hired Qatalyst Partners to do a strategic review that has apparently paid off. Shares spiked 21%. Final bids are due in two weeks.


Yahoo (YHOO) announced it suffered the second biggest cyber hack in history with records stolen for more than 500 million accounts. We found out on Friday that CEO Marissa Mayer knew of the data breach in July and well before the bidding process for Yahoo ended with Verizon the winner. She did not tell anyone involved in the bidding process about the hack and only told Verizon two days ago. Yahoo claims this was a state sponsored hack but state operators rarely divulge the data or sell it. Currently the data is available for sale on the dark web and that would suggest it was not state sponsored. That excuse is just being used by Yahoo to try and deflect some of the blame. Another option is that there were two separate hacks of Yahoo's servers by two different groups.

The stolen data contained names, email addresses, telephone numbers, date of birth, some passwords, security questions and answers. Credit card numbers, bank account details and payment info was not stolen. If Mayer knew of the attack in July and did not notify anyone, including users, the company could be in breach of SEC rules.

Yahoo has already been sued by a user on behalf of all the other users, accusing the company of gross negligence. They are asking for class action status and this will be one more thorn in Mayer's side.


Finish Line (FINL) reported earnings of 55 cents compared to estimates for 53 cents. Revenue of $509.4 million beat estimates for $493.6 million. Same store sales rose +5.1% compared to estimates for 2.9%. The demise of Sports Authority helped send consumers to Finish Line stores. The company guided to full year earnings of $1.50-$1.56 per share. Analysts were expecting $1.54 per share so that guidance was slightly below estimates. They guided for same store sales between 3% and 5% for the full year.

Shares fell -5% after the CEO warned that September same store sales had risen at a "low single-digit percentage rate." That suggests the uptick in sales in July/Aug has faded.


 


 

Markets

Friday's decline was expected. Apple and Facebook only made it worse along with the drop in oil prices. The post Fed reaction lifted the markets back to resistance and buyers ran out of conviction ahead of the weekend and Monday's debate.

Last week was the fifth week of the sixth most volatile weeks of the year. Next week is the sixth and final week. That does not mean week 7 will suddenly explode higher but typically the last two weeks of October are bullish. The problem with next week is the debate and that is a once every four year event so it is hard to quantify other than the historical details I posted earlier. The worst part about it is that the other two debates are five days apart the following week. We are going to be drinking political news from a fire hose and that is likely to be market negative unless one candidate surges ahead after the Monday debate.

I would like to think portfolio managers are so starved for returns they will jump in anyway after Monday's debate but we have to see the results first.

The S&P closed at 2,177 on Thursday, which was right in the middle of the congestive resistance from the six weeks of consolidation. Friday's decline moved it closer to the bottom but still well above prior support at 2,150.

Gaining the 30 points needed to make a new high could be a tough challenge but not insurmountable if the right events appear.

Three weeks from now, we will begin the Q3 earnings cycle. Earnings are expected to decline -2.3% compared to the forecast for a +0.3% increase as of June 30th at the start of the quarter. This will be the sixth quarter or earnings declines. So far, 70 S&P companies (69% of those issuing guidance) have issued negative guidance and only 35 have given positive guidance. On the positive side, revenue is expected to rise +2.6% and the first quarter of revenue growth since Q4-2014.

The weak earnings for Q3 are already factored into the market but the positive expectations for Q4 are not. The guidance with the earnings will be very important and should they confirm the analyst expectations for Q4 we could see a lasting rally appear.

Unfortunately, there are two weeks of political hurdles in out path and Monday's event should give us a clue of what to expect in the rest. You may remember Romney had a good first debate and the market rallied. His second two debates were failures and the market had to adjust for the Obama recovery.

This debate has the potential to be more like a UFC cage match than a civilized debate. That makes the outcome even more volatile.

That means predicting the path of the S&P next week is next to impossible.


The Dow was down -137 at its low on Friday. That took it right back to the 18,250 level, which was prior resistance and is now support. The biggest stocks in the Dow were also the biggest losers and that could continue next week.

The Dow spiked over initial resistance at 18,350 on Thursday and looked like it had a good chance of holding that level. The breakdown in Apple helped drag the other stocks lower in sympathy.

Support is now 18,250, 18,100 and 18,000. Falling back under 18,200 could poison sentiment and cause a larger decline.



The Nasdaq was the hero for the week with two consecutive closes at new highs. The -33 point decline on Friday is still in new high territory so the relative strength is still there. The index would have to fall back to 5,225 for sentiment to weaken.

The Nasdaq will be penalized by the debate if Clinton is seen to be the winner. The biotech sector will crash and that is a large component of the tech index. Secondly, the news on Friday that Apple chip suppliers are seeing another 20% cut in orders for Q1, suggests the semiconductor sector could also be weak. Losing both chips and biotechs would make it nearly impossible for the Nasdaq to post any material gains.

Support is now 5,200.



The small cap S&P 600 came very close to a new high at 764.64 on Thursday with the prior high at 765.47. The -5 point decline on Friday was not material. The SP600 failed to break below support at 730 on the early September decline and maintained its relative strength. As long as that support does not fail, the broader market should remain in a positive trend.


We are entering the sixth week of the six most volatile weeks of the year and this could be a wild ride. The Fed may be out of the picture on rates but with 11 Fed speeches and two Yellen speeches next week, they will be front and center with their opposing sound bites. In the prior 30 years, there has only been two times where three voting members have dissented on the policy action taken. Last Wednesday was the third time and you can bet those dissenters will be trying to make their case to the market in the weeks ahead. With the December meeting so far away, investors may ignore any screaming hawks and focus on the soothing cooing from the doves.

We are approaching a point where the market "should" rally once all the political headlines are digested. Pick a few stocks on your shopping list and decide where you would like to buy them on a dip. You may get that chance.

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Random Thoughts


I am shocked the bullish sentiment declined again last week. The survey ends on Wednesday and investors should have been breathing a sigh of relief when the Fed pushed the rate hike into December. Bullish sentiment still declined and bearish sentiment rose. There may be more unrest in the investor population than is visible on the surface.



The largest cyber hack of all time was actually a hack of 420,000 sites of all sizes. A Russian gang amassed more than 1.2 billion unique sets of data by purchasing a small set of credentials and using those credentials to hack progressively larger sites where they stole new credentials that allowed them into even larger sites. They wrote programs that scanned the web using the credentials they already had to see what other websites had users with those same credentials.

The third largest hack was 360 million MySpace accounts. Next was 167 million Linkedin accounts followed by 145 million Ebay accounts. Lastly, 130 million MasterCard and Visa accounts were stolen from Heartland payment systems. Heartland paid $140 million in fines for allowing access to the information.


This item was sent to me by a reader.

Some people believe the stock market can predict the presidential election, based on its performance in the 3 months leading up to the election. When the stock market is down so is the incumbent party but when the stock market is up there is a greater likelihood the people will keep the incumbent party in power. It is another example of how the stock market is an excellent barometer of social mood. Of the past 22 elections, since 1928, the stock market's performance has accurately predicted the election results 19 times (86%). In the game of odds, those are darn good. The S&P closed at 2,180 on August 8th. With Friday's close at 2,164 that would suggest an incumbent loss.

The chart below is courtesy InvesTech Research.



So far, in this election campaign the Secret Service has paid Trump's campaign $1.6 million to cover the costs of flying agents charged with protecting him on his personal plane. That is less than the $2.6 million the service has paid Clinton's campaign. The Clinton amount is larger because she has been chartering private planes and the cost is much higher. The Federal Election Commission (FEC) requires the service to pay its own way or reimburse the candidates.

Clinton's campaign disclosed it paid $36,602.99 to the government for her travel on Air Force One from Washington to Charlotte NC with President Obama on July 5th. Air Force One costs $206,337 per hour to operate. There were some other travel reimbursements in that $36K number but the campaign would not break them out. Analysts say the $30K number is about right for the flight. I am sure it was worth it to Clinton just to get that picture of her and Obama waving from the cabin door at the top of the stairs.



UPS delivered its first package by drone on Thursday. The 2 pound package was a medical inhaler and was flown unattended without a pilot to an island 3 miles offshore Beverly, Massachusetts and landed on a patch of grass at the destination. Flying without a pilot was a simulated urgent medical delivery.

UPS has a partnership with CyPhy Works, a drone maker in which UPS has a stake. It was the first test delivery as UPS experiments in using drones for difficult locations or emergency deliveries.



 

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

 

"Every stock is a canoe in the ocean and the Fed is the tide."

Rick Santelli


 


Index Wrap

Last Week of Volatility?

by Jim Brown

Click here to email Jim Brown
This coming week is the last week of the worst six weeks of the year period but that does not mean the future path is paved with gold bricks.

This may be the last week of that normal volatility period but being an election year we may have some added volatility in the two weeks that follow. Since 1980, the week after the first presidential debate has been negative 83% of the time. The average decline is -1.8% for the Dow and -1.5% for the S&P. The Monday night debate is going to have about 100 million viewers, or the equivalent of a Super Bowl only with no commercials. The following week has two debates on Oct 4th and 9th. Assuming there is a clear leader after the third debate the market should go directional. Notice I did not say that direction will be higher.

Clinton is seen as the status quo candidate and that is normally good for the market except that she is talking about price controls on drugs and nearly shutting down the energy sector. While those efforts would require congressional approval, which is not likely to be approved, just the constant talk about the plans between now and the election could be enough to send the sectors into a nosedive. If Trump is leading the energy and defense sectors should rally strongly.

I could speculate for another dozen paragraphs but it would just be speculation and no guarantee of the future. There was a relief rally after the Fed decision but it was lackluster and slow to start on Wednesday. Once started the short covering kicked in and we ended with a decent gain. The overseas markets were up Wednesday night on the Fed decision and the decision by the Bank of Japan. The big 2-3% gains in Europe translated into a gap open on Thursday in the U.S. markets but that opening print was the high of the day, except for the Nasdaq, which closed at a new high.

Friday's profit taking was expected and I wrote about the potential on Thursday evening. The Apple, Facebook and oil price declines only accelerated the move lower.

Now that the initial profit taking is out of the way, the focus turns to Monday's debate and the potential repercussions for the rest of the week. There is also a flood of 13 Fed speeches that will be contradicting each other on what they believe is the right monetary policy.

The headlines from these items may not be enough to cause any real market decline but they probably will not create the conditions necessary for a lasting rally. Uncertainty will continue for at least another week.

The Russell 3000 is the broadest representation of the market and it failed to retest the prior high at just below 1,295 and the index fell back into the middle of the prior consolidation range to come to rest on support at 1,283. The midweek gains were strong but they faded fast on Friday. In reality, we are right back to where we have been trading for the last six weeks. The eight-day decline has been erased but the momentum faded quickly.


The Nasdaq 100 big cap index was the hero for the week with a surge to a new high at 4,891 that was 60 points over the old high set on September 7th. The Friday decline erased half of that expansion with a -32 point loss thanks to Apple and Facebook and the semiconductor stocks that supply Apple. If the Nasdaq could hold its gains it would be positive for market sentiment. However, the reports of slower iPhone sales and slower chip orders could have a lasting impact on the index.


The relationship between the Nasdaq and the Semiconductor Index has been documented before. This is a weekly chart and the impact to the semi stocks on Friday has not been felt because of the overall gains for the week. If the $SOX rolls over it will drag the Nasdaq indexes lower.



The small cap S&P-600 almost made a new high and failed to give much back. The small cap strength could help market sentiment if that strength holds. The midcap S&P-400 was less bullish and did pullback to prior resistance, now support, at 1,549. The mid cap index would be the middle of the market and it is showing only mediocre strength.



Another potential weight on the market is the price of oil. With the Algerian energy conference Monday through Wednesday and the potential for negative headlines about a production freeze, we could see prices drift back towards $40. However, if there are positive headlines it would produce a market bounce. Oil prices have a lot of influence on equity prices. There are hundreds of oil companies from the very small to the very large and they all move in concert with oil prices and manipulate the indexes.

Fortunately the dollar has been relatively tame over the last several weeks and that allowed oil prices to remain locked in the $43-$48 range. Without a rate hike the dollar should remain dormant for the next several weeks.



We are not in control of our own fate next week. It will be dictated by the debate, Fed speakers, the Algerian energy headlines and whatever hangover we get from the Apple news. The market is back in the neutral zone on the big cap indexes and until those headlines clear we are likely to stay in that range or decline if the headlines are negative.

Keep your eyes on the headlines and your finger on the exit trigger while the markets are open.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email


New Option Plays

Market Share Battle

by Jim Brown

Click here to email Jim Brown

Editors Note:

The battle of the brands in the grocery store wars is heating up. There is a new company opening stores all over the east coast and their known for their rock bottom prices. This new entry into the grocery sector promises to shake up an already battered market place.



NEW DIRECTIONAL CALL PLAYS

No New Bullish Plays


NEW DIRECTIONAL PUT PLAYS

KR - Kroger Co - Company Profile

The Kroger Co., operates as a retailer in the United States. It also manufactures and processes food for sale in its supermarkets. The company operates retail food and drug stores, multi-department stores, jewelry stores, and convenience stores. Its combination food and drug stores offer natural food and organic sections, pharmacies, general merchandise, pet centers, fresh seafood, and organic produce; multi-department stores provide general merchandise items, such as apparel, home fashion and furnishings, outdoor living, electronics, automotive products, toys, and fine jewelry; and price impact warehouse stores offer grocery, and health and beauty care items, as well as meat, dairy, baked goods, and fresh produce items. The company's marketplace stores comprise full-service grocery, pharmacy, health and beauty departments, and perishable goods, as well as general merchandise, including apparel, home goods, and toys. It operates under the banner brands, such as Kroger, Ralphs, Fred Meyer, King Soopers, etc., as well as Simple Truth and Simple Truth Organic brands. As of January 30, 2016, the company operated 2,778 retail food stores, including 1,387 fuel centers; 784 convenience stores; and 323 fine jewelry stores and an online retail store, as well as 78 franchised convenience stores. The Kroger Co. was founded in 1883. Company description from FinViz.com.

I wish I was writing a bullish play recommendation on Kroger but the chart is going in the opposite direction. They have so much going for them it is hard to understand the decline in the stock price. Hardly a week goes by that some broker does not reiterate a bullish rating on initiate a new one. Still the stock continues to fall.

I believe most are not aware of the new competition in the sector. The European discount grocer Lidl (Lee-dle) has established its U.S. headquarters in Arlington VA. They are planning store openings in Virginia, Maryland, NC and SC, Georgia, Delaware, New Jersey and Pennsylvania. Those states are dominated by Kroger's various brands.

Lidl acquired the Harris Teeter Supermarket chain in NC in 2014 to get their foot in the door. The resulting performance of those stores convinced Lidl to go all out in an expansion phase.

Another German chain, Aldi, already has 1,400 discount grocery stores in the U.S. and plans to expand to 2,000 stores by 2018. That is a monster addition to the sector that is already scratching to make pennies on every item.

For Q2, Kroger posted earnings of 47 cents that beat estimates for 45 cents. That was a 6.8% increase over the comparison quarter. However, "due to continued deflation" the company lowered full year earnings guidance from $2.19-$2.28 to $2.10-$2.20 per share. Revenue of $26.565 billion rose 4% but missed estimates for $26.783 billion. Same store sales rose 1.7%. They guided for 0.5% to 1.5% for the rest of 2016, which was lower than Q2.

Earnings Dec 9th.

With Kroger warning about lower earnings I think we could see shares decline back to the $25 range. The stock made a monster move in 2014 and then traded sideways for 2015-2016. That sideways trend has now failed and there is a lot of blank space on this chart.

Buy Jan $30 put, currently $1.45, no initial stop loss.



In Play Updates and Reviews

Right Decision

by Jim Brown

Click here to email Jim Brown

Editors Note:

Not adding new plays on Thursday evening was the right decision. The potential for profit taking ahead of the weekend was too great and now that has occurred. The key for next week is whether support holds and the rally can continue. Historically next week could see some increased volatility after the Monday debate. Friday's decline could have been investors getting ready for that volatility.

We were only stopped out on one position and that was Alexion with a whopping -6.47 drop on no news. The stocks with the biggest gains from Thursday saw the biggest declines on Friday but that is normal. Also normal was the sudden rebound in the stocks with puts. Those stocks most beaten down tend to attract buyers when the market declines because they appear to be already oversold.



Current Portfolio


Stop Loss Updates

Check the graphic below for any new stop losses in bright yellow. We need to always be prepared for an unexpected decline.


Profit Targets

Check the graphic below for any profit stops in green. We need to always be prepared for a profit exit at resistance.




Current Position Changes


ALXN - Alexion Pharma

The long call position was stopped out with a trade at $127.85.



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BULLISH Play Updates


ALXN - Alexion Pharmaceuticals - Company Profile

Comments:

Major implosion on Alexion on no news. Wedbush initiated coverage at neutral but I doubt that causes the selling. This was more than likely a sell the news event on the drug approval on Thursday. Investors waiting on that event, exited with their gains. Shares rose $3.33 on Thursday and fell -$6.30 today. We were stopped out on the drop.

Original Trade Description: September 14th.

Alexion Pharmaceuticals, Inc., a biopharmaceutical company, develops and commercializes life-transforming therapeutic products. The company offers Soliris (eculizumab), a monoclonal antibody for the treatment of paroxysmal nocturnal hemoglobinuria (PNH), a genetic blood disorder; and atypical hemolytic uremic syndrome (aHUS), a genetic disease. It provides Strensiq (asfotase alfa), a targeted enzyme replacement therapy for patients with hypophosphatasia (HPP); and Kanuma (sebelipase alfa) for the treatment of patients with lysosomal acid lipase deficiency. The company also conducts Phase IV clinical trials on Soliris for the treatment of PNH registry; Phase III clinical trials for the treatment of myasthenia gravis, neuromyelitis optica spectrum disorder, and delayed kidney transplant graft function; and Phase II clinical trials for antibody mediated rejection in presensitized renal transplant patients. It develops cPMP (ALXN 1101) that is in Phase II/III trial for treating metabolic disorders; and ALXN 1007, a novel humanized antibody in Phase II clinical trial for the treatment of anti-phospholipid syndrome and graft versus host disease. Company description from FinViz.com.

The Uncommon Strength campaign supports building global communities for patients with rare diseases, which include atypical hemolytic uremic syndrome (aHUS), hypophosphatasia (HPP), lysosomal acid lipase deficiency (LAL-D) and paroxysmal nocturnal hemoglobinuria (PNH). While the platform aims to provide key information about the diseases to educate the patients and their families, it also offers interactive connection through social media components to unite the global community.

Last week Alexion was awarded orphan drug status by the EU on the ALXN1007 drug for the treatment of graft-versus-host disease (GVHD). This is an anti-inflammatory monoclonal antibody targeting complement protein C5a, currently in a phase II study in patients with newly diagnosed acute GVHD of the lower gastrointestinal tract (GI-GVHD). This disease has a 30-40% mortality rate. The orphan drug status provides certain incentives for the company to proceed with marketing including a longer period of market exclusivity. They have several other drugs similar to ALXN1007.

In Q2 they reported adjusted earnings of $1.25 compared to estimates for $1.17. Revenue of $753.1 million also beat estimates for $742.5 million.

Earnings Oct 27th.

Shares dipped in late August and traded sideways for two weeks. They have been trying to rebound despite the volatile market. Options are expensive so I am recommending a November call spread to reduce the expense.

Position 9/15/16 with a ALXN trade at $130.50

Closed 9/23/16: Long Nov $135 call @ $6.00, exit $4.20, -1.80 loss.
Closed 9/23/16: Short Nov $145 call @ $1.90, exit $2.15, -.25 loss.
Net loss $2.05.


CLVS - Clovis Oncology - Company Profile

Comments:

No specific news. Traders took some profits after the $2.68 gain on Thursday.

Original Trade Description: September 13th.

Clovis Oncology, Inc., a biopharmaceutical company, focuses on acquiring, developing, and commercializing anti-cancer agents in the United States, Europe, and internationally. It is developing three product candidates, which include Rociletinib, an oral epidermal growth factor receptor and mutant-selective covalent inhibitor that is under review with the U.S. and E.U. regulatory authorities for the treatment of non-small cell lung cancer; Rucaparib, an oral inhibitor of poly polymerase, which is in advanced clinical development for the treatment of ovarian cancer; and Lucitanib, an oral inhibitor of the tyrosine kinase that is in Phase II development for the treatment of breast cancers. Company description from FinViz.com.

Clovis has been rising on the prospects for the drug Rucaparib. They reported last week the FDA was not planning on holding an advisory committee meeting to discuss the new NDA application. The FDA has accepted the company's NDA for accelerated approval and granted it a priority review. The FDA response is expected to be positive and is expected by Feb 23rd.

Clovis has several anti cancer drugs in final stages and the outlook is very positive. Just seeing that CLVS shares have not declined in the recent market drops is a very strong indication that portfolio managers are buying and holding.

Earnings Nov 3rd.

We have to use a January call spread because October is the only other series available and with Friday the expiration for September, the October premiums will collapse next week. The net cost is the same but with the January options, we have more flexibility in the weeks ahead.

Position 9/14/16

Long JAN $30 call @ $6.00, see portfolio graphic for stop loss.
Short JAN $40 call @ $3.31, see portfolio graphic for stop loss.
Net debit $2.69


IDCC - Interdigital - Company Profile

Comments:

On Thursday IDCC boosted its dividend 50% to 30 cents per quarter. This dividend is payable on Oct 26th to holders on Oct 12th. Shares rallied +1.88 to a new high. On Friday they declined -1.25. Not a big loss.

Original Trade Description: September 7th.

InterDigital, Inc. designs and develops technologies that enable and enhance wireless communications in the United States and internationally. It offers technology solutions for use in digital cellular and wireless products and networks, such as 2G, 3G, 4G, and IEEE 802-related products and networks. The company develops cellular technologies comprising technologies related to CDMA, TDMA, OFDM/OFDMA, and MIMO for use in 2G, 3G, and 4G wireless networks and mobile terminal devices; and other wireless technologies related to Wi-Fi, WLAN, WMAN, and WRAN. Its patented technologies are used in various products, including mobile devices, such as cellular phones, tablets, notebook computers, and wireless personal digital assistants; wireless infrastructure equipment comprising base stations; and components, dongles, and modules for wireless devices. As of December 31, 2015, it had a portfolio of approximately 20,400 patents and patent applications related to the fundamental technologies that enable wireless communications. Company description from FinViz.com.

IDCC does not make the equipment that uses its designs and patents. They lease those patents to other companies for annual royalty payments based on the volume of devices sold. This is a very lucrative business because they do not have the cost of production or the risk any specific product will not sell in the marketplace.

For Q2 they reported earnings of 48 cents that beat estimates for 26 cents. Revenue of $75.9 million was $300,000 short of estimates. They received an arbitration award of roughly $150 million from Huawei in the quarter that will be reported as income in Q3. They also announced a new multi-year patent agreement with Huawei for 3G and 4G units. They ended Q2 with $814 million in cash.

Update 9/8/16: The company issued revenue guidance for Q3 of $220-$225 million. This compares to Q2 revenue of $75.9 million. Quarterly revenues are volatile because they receive royalties on new products when shipped. For instance, a royalty on the iPhone 7 would show a monster jump in Q4 compared to minimal revenue in Q3.

Earnings Oct 27th.

IDCC is a member of the S&P-400 MidCap index.

IDCC shares are moving slowly higher with very little volatility. They closed at a new high on Wednesday. I know the daily chart looks scary but the 90-min chart below shows the three weeks of consolidation after their Q2 earnings jump. That consolidation is breaking to the upside and given their guidance, I believe it has room to run. I am using an inexpensive option in case disaster strikes.

Position 9/8/16 with a IDCC trade at $73.25

Long Oct $75 call @ $1.60. See portfolio graphic for stop loss.


ITW - Illinois Tool Works - Company Profile

Comments:

No specific news. Shares fell back to prior resistance, now support.

Original Trade Description: September 12th.

Illinois Tool Works Inc. manufactures and sells industrial products and equipment worldwide. It operates through seven segments: Automotive OEM; Test & Measurement and Electronics; Food Equipment; Polymers & Fluids; Welding; Construction Products; and Specialty Products. The company distributes its products directly to industrial manufacturers, as well as through independent distributors. Illinois Tool Works Inc. was founded in 1912. Company description from FinViz.com.

In late July, ITW reported earnings of $1.46 that rose 12.3% and beat estimates for $1.40. Revenue of $3.43 billion beat estimates for $3.40 billion. ITW guided for Q3 earnings of $1.42-$1.52 compared to analyst estimates for $1.46. The company raised full year guidance for earnings by 10 cents to the $5.50-$5.70 range. Analysts were expecting $5.51 per share.

Earnings Oct 19th.

The stock jumped from $111 to $115 on the news and then traded sideways for two weeks on post earnings consolidation. In early August, the shares started a slow climb to hit $119 and a new high. Every day I thought about recommending ITW but I kept waiting for a pullback.

On Sept 2nd shares spiked to $123.50 on no news. That spike was erased and shares drifted back down to the prior consolidation range of $119 and held there for two days. The 9/9 crash knocked us out of our prior position and shares dipped to $114.91 on Monday the 12th. Real support is $114.50. I am going to recommend this position for a reentry on a dip to $115.50 on any further market weakness.

Position 9/13/16 with an ITW trade at $115.50

Long Dec $120 call @ $2.50. See portfolio graphic for stop loss.


LITE - Lumentum Holdings - Company Profile

Comments:

No specific news. Only a minor decline from Thursday's high close.

Original Trade Description: September 12th.

Lumentum Holdings Inc. manufactures and sells optical and photonic products for optical networking and commercial laser customers worldwide. It operates in two segments, Optical Communications and Commercial Lasers. The Optical Communications segment offers components, modules, and subsystems that enable the transmission and transport of video, audio, and text data over high-capacity fiber optic cables. It offers optical communication products, including optical transceivers, optical transponders, and supporting components, such as modulators and source lasers; modules or sub-systems containing optical amplifiers, reconfigurable optical add/drop multiplexers or wavelength selective switches, optical channel monitors, and supporting components; and products for 3-D sensing applications, including a light source product. This segment serves customers in telecom and datacom markets. The Commercial Lasers segment offers diode, direct-diode, diode-pumped solid-state, fiber, and gas lasers; and photonic power products, such as fiber optic-based systems for delivering and measuring electrical power. This segment serves customers in markets and applications, such as manufacturing, biotechnology, graphics and imaging, remote sensing, and precision machining such as drilling in printed circuit boards, wafer singulation, and solar cell scribing. Company description from FinViz.com.

In Q2 LITE reported adjusted earnings of 41 cents compared to estimates for 35 cents. Revenue of $241.7 million beat estimates for $238.4 million. The company guided to earnings of 40-46 in Q3 and revenue in the range of $245-$255 million. Both were slightly ahead of analyst estimates.

Raymond James upgraded the stock saying strong demand from new datacenter build outs and from China was pushing sales higher. The company only has two competitors, Finsar and Nistica, and they only compete in certain products. Raymond James believes LITE can increase sales in that category by 50% by year-end. Verizon's network upgrades are expected to supply $900 million to LITE over the next several years. Zacks also joined the upgrade club with a strong buy.

The stock is also getting a boost from the strong performance of Acacia (ACIA), which sells some similar products. The winning is rubbing off on LITE.

Shares made a new high at $37.82 on Friday morning and then dipped to $35.37 this morning before rebounding to close just under the prior high.

Position 9/13/16 with a LITE trade at $37.75

Long DEC $40 call @ $2.65, see portfolio graphic for stop loss.


NVDA - Nvidia Corp - Company Profile

Comments:

No specific news. Only gave back -7 cents from Thursday's new high.

Original Trade Description: September 17th.

NVIDIA Corporation operates as a visual computing company worldwide. It operates in two segments, GPU and Tegra Processor. The GPU segment offers processors, which include GeForce for PC gaming; Quadro for design professionals working in computer-aided design, video editing, special effects, and other creative applications; Tesla for deep learning, accelerated computing, and general purpose computing; and GRID for cloud-based streaming on gaming devices. The Tegra Processor segment provides processors that integrate a computer onto a single chip under the Tegra brand name; DRIVE automotive computers, which offer supercomputing capabilities; and tablet and portable devices for mobile gaming under the SHIELD name. The company's products are used in gaming, professional visualization, datacenter, and automotive markets. It sells its products primarily to original equipment manufacturers, original design manufacturers, system builders, motherboard manufacturers, add-in board manufacturers, and retailers/distributors. Company description from FinViz.com.

Q2 earnings rose 800% to 40 cents and beat estimates for 37 cents. Revenue of $1.43 billion beat their own guidance of $1.35 billion they gave in Q1. Earnings in the year ago quarter were 5 cents and $1.15 billion. They hiked full year revenue guidance as well as the current quarter. They guided for Q3 revenue of $1.68 billion and analysts were only expecting $1.45 billion. During the first six months of 2016, they bought back $509 million in shares and paid $124 million in dividends. The company had $4.88 billion in cash at the end of Q2.

Earnings Nov 10th.

They recently released several new graphics cards that are twice as fast and 40% cheaper than the cards they are replacing.

Nvidia's Graphics Processing Units or GPUs have become more than just video chips. They have become supercomputing processors and can be packaged in large groups to parallel process monster datasets and computations that would have taken weeks with conventional chips. They are truly revolutionizing the processor industry.

The focus on Artificial Intelligence or AI, a lot of companies like Google and Amazon are turning to GPUs to handle the monster amounts of data they collect every day. Facebook already uses Nvidia M40 GPU accelerators to power its Big Sur machine learning computers. Those NVIDIA GPUs were specifically designes to train deep neural networks for enterprise data centers, and the company says they are 10-20 times faster than other network computers. Nvidia said their GPD powered machine learning computers can help train networks new things in just a few hours that would take days or weeks with less powerful systems.

The new P100 GPU is 12 times faster than the prior version and can provide more performance than "several hundred computer nodes" and up to eight P100s can be interconnected to provide previously unheard of computing power. The chips in the GPUs contain more than 15.3 billion transistors each and the largest chip ever built at 16 nanometer technology. That is twice as many as on Intel's biggest chips. The P100 delivers more than 10 teraflops of performance. One teraflop can process one trillion floating-point instructions per second and the P100 can do 10 teraflops or 10 trillion calculations per second.

The COSMOS weather forecasting application runs faster on the P100 than the 27 servers, running twin multicore processors each that were previously tasked with the project. Intel makes commodity processors for the millions of PCs and servers in the world. Nvidia is light years ahead of Intel in technology. Nvidia's data center revenue increased 63% in Q1.

Nvidia shares have been stair-stepping higher since January. That means they post solid gains for a month or so and then pause to consolidate with a minor retracement. They set a new high at $63.38 on August 12th, the day after their Q2 earnings beat. Shares have moved sideways for a month. Last week, when the extreme market volatility hit on the 9th, shares dropped from $63 to $57. Within 4 days the stock was back at $63. I believe it it now poised to breakout now that the weak holders have been eliminated.

Position 9/19/16:

Long Nov $65 call @ $3.45, no initial stop loss.



BEARISH Play Updates (Alpha by Symbol)

RGR - Sturm Ruger & Company - Company Profile

Comments:

No specific news. Gun stocks seeing investor attention after daily shootings suggest more gun control talk ahead.

Original Trade Description: September 15th.

Sturm, Ruger & Company, Inc. designs, manufactures, and sells firearms under the Ruger trademark in the United States. It operates in two segments, Firearms and Castings. The company offers single-shot, autoloading, bolt-action, and sporting rifles; rimfire and centerfire autoloading pistols; single-action and double-action revolvers; and firearms accessories and replacement parts, as well as manufactures and sells steel investment castings and metal injection molding (MIM) parts. It sells its firearm products through independent wholesale distributors to commercial sporting market; and castings and MIM parts directly or through manufacturers' representatives. The company also exports its firearm products through a network of commercial distributors and directly to foreign customers comprising primarily of law enforcement agencies and foreign governments. Company description from FinViz.com.

In Q2, RGR reported earnings of $1.22 that beat estimates for $1.19. Revenue rose +19% to $167.9 million. The company said the new AR-15 clone, the AR-556 was responsible for one-third of all sales.

However, the pace of sales growth declined from the 26% rate in Q1. Ruger also surprised investors with a new CEO succession plan. The highly regarded Michael Fifer will retire in May and be replaced by the COO Christopher Killoy. The company had not mentioned a possible succession plan at the last shareholder meeting. Killoy is a good choice because he graduated from West Point and worked at both GE and competitor Smith & Wesson before joining Ruger as head of sales in 2003. He will only be the fourth CEO in Ruger's history.

The slowdown in sales growth was accompanied by a decline in background checks. FBI background checks slowed in August to only a 6% rise compared to 37% growth in July and 39% in June. The actual number of checks fell from 2.19 million in July to 1.85 million in August.

The gun makers have been posting some outstanding earnings thanks to rapidly rising gun sales only those sales are slowing now that Trump has pulled even or slightly ahead of Clinton. Trump is pro gun and Clinton is anti gun. As long as his numbers are improving, gun sales are likely to slow. However, should Clinton surge into the lead again, the numbers will rocket higher. Consumers are not going to spend hundreds of dollars to buy another gun if they think their gun rights will be safe for another 4 years. If Clinton surges into the lead again, they will be out in force buying those "extra" guns. The biggest surge will occur if Clinton wins the election on Nov 8th. At that point we want to be long every gun manufacturer and ammunition maker.

Earnings Nov 1st.

Ruger shares closed at an 8-month low on Wednesday. The rebound on Thursday was lackluster in a market were the Dow was up +200 points. With sales growth slowing and investors thinking the "bun boom" is over we could see Ruger retest the November lows at $48.

Position 9/20/16 with a RGR trade at $54.85

Long Jan $52.50 put @ $3.50, see portfolio graphic for stop loss.
Optional:
Short Jan $45 put @ $0.80, see portfolio graphic for stop loss.
Net debit $2.70


SIG - Signet Jewelers - Company Profile

Comments:

No specific news. Another big gain on no news in a bearish market. This typically happens in a market decline. Investors buy previously beaten up stocks thinking they are oversold. Our stop loss is only 28 cents above the close so we could be stopped on Monday is the resistance at $79 does not hold.

Original Trade Description: September 20th.

Signet Jewelers Limited engages in the retail sale of diamond jewelry and watches. Its Sterling Jewelers division operates stores in malls and off-mall locations under the Kay Jewelers, Kay Jewelers Outlet, Jared The Galleria Of Jewelry, Jared Vault, Jared Jewelry Boutique, JB Robinson Jewelers, Marks & Morgan Jewelers, Every kiss begins with Kay, He went to Jared, Celebrate Life. Express Love., the Leo Diamond, Hearts Desire, Artistry Diamonds, Charmed Memories, Diamonds in Rhythm, Open Hearts by Jane Seymour, Radiant Reflections, Colors in Rhythm, Chosen by Jared, Now and Forever, and Ever Us names. As of January 30, 2016, this segment operated 1,540 stores.

The company's Zale division operates jewelry stores and mall-based kiosks in shopping malls under the Zales, Zales Jewelers, Zales the Diamond Store, Zales Outlet, Gordon's Jewelers, Peoples Jewellers, Peoples the Diamond Store, Peoples Outlet the Diamond Store, Mappins, Piercing Pagoda, Arctic Brilliance Canadian Diamonds, Candy Colored Jewelry, Celebration Diamond, The Celebration Diamond Collection, Unstoppable Love, and Endless Brilliance names. This segment operated 977 jewelry stores and 605 mall-based kiosks. Company description from FinViz.com.

In Q2, Signet reported earnings of $1.14, down from $1.28 and well below analyst estimates for $1.45. Revenue fell -2.6% to $1.37 billion and also missing estimates. Same store sales declined -2.3% system wide with sales at Jared down -7.6% and Kay Jewelers seeing a -0.5% decline.

The CEO blamed the drop in oil prices for the decline in jewelry sales. The company slashed guidance, cutting the earnings forecast from $8.35-$8.55 to $7.25-$7.55. They cut same store sales guidance from 2.0% - 3.5% growth to a decline of -2.5% to -1%.

Next earnings Nov 22nd.

Shares fell from $95 to $80 on the earnings news. After moving sideways for three weeks, shares began to fade last week and closed at a two year low today at $75.65.

Position 9/21/16 with a SIG trade at $75

Long Nov $70 put @ $2.43, see portfolio graphic for stop loss.


VXX - VIX Futures ETF - Company Profile

Comments:

No specific news. Sharea gained only 24 cents in a bearish market. This is why we are short the VXX. The ETF is broken.

This is a long-term position and I will not be commenting on it on a daily basis.

Original Trade Description: September 21st.

The VXX is a short term volatility product based on the VIX futures. As a futures product it has the rollover curse. Every time they roll to a new futures contract they have to pay a premium and that lowers the price of the ETF. It is a flawed product with a perpetual decline built in from the monthly roll over in the futures contracts.

As evidence of this flaw, they have now down four 1:4 reverse stock splits. The last four reverse splits occurred at $13.11 (11/2010), $8.77 (10/2012), $12.84 (11/2013), $9.52 (8/8/16). The prospectus says it can reverse split anytime it trades under $25 for a prolonged period and the splits will always be 1:4.

After the August split the ETF moved sideways for four weeks at $36. The volatility event on Sept 9th with the Dow falling -2.5% spiked the VXX from $33 to $42 in three days. That bounce has faded and it is almost back at $33. You are probably thinking, the $40 level would have been a good entry point and you are right in hindsight. However, with the market in danger of breaking down if the Fed had hiked rates, it was better to wait. Now there is nothing on the horizon to cause a spike other than normal market movement.

This is going to be a long-term position. I am not putting a stop loss on the position because long term the VXX always goes down. If we get another volatility spike we will buy another position at a higher level and then ride them both back down.

The market typically rises in late October and into the Thanksgiving weekend. A rising market reduces volatility.

I thought about using a spread to reduce the out of pocket costs. However, that means the strikes have to be relatively close together for the short strike to have any premium. Since the VXX could decline 10 points or more before December, that would limit our potential return to 3-4 points in a spread. However, if we do get a big decline we can spread out at much lower level to further increase our gains.

Position 9/22/16:

Long Dec $33 Put @ $4.20. No stop loss.




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