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Daily Newsletter, Tuesday, 2/7/2017

Table of Contents

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

Market Wrap

Mixed Highs

by Jim Brown

Click here to email Jim Brown

The Nasdaq indexes both made new highs but the Dow and S&P struggled to gain ground.

Market Statistics

The Dow spiked to 20,155 intraday and a new high. Unfortunately, sellers appeared almost immediately to knock the index back below 20,100 for the rest of the day. Both the Nasdaq indexes posted solid gains and closed at new highs. The S&P failed to even touch the critical resistance at 2,300 and gained only half a point for the day. The Russell 2000 lost another 6 points to be the biggest loser for the second consecutive day.

There is clear divergence between the indexes with the Nasdaq continuing to lead the markets higher while the other indexes are struggling just to hold their gains. Oil prices and the strong dollar weighed on the markets and that problem is not likely to go away soon.


The economic reports for the day were less than exciting. The CoreLogic Home Price Index for December showed a 7.2% rise year over year compared to 7.1% in November. That is the fastest gain since March 2014. The index has posted consecutive monthly gains for the last two years. The report was ignored.

The international trade deficit for December declined slightly from -$45.7 billion to -$44.3 billion. Analysts expected a deficit of $45 billion. The average has been about $42 billion over the last year with November's level the largest deficit for the year. Exports totaled $190.7 billion and imports $235.0 billion.

The Job Openings & Labor Turnover Survey (JOLTS) for December saw the job openings rate decline slightly from 3.7% to 3.6%. Job openings fell only slightly from 5,505 million to 5.501 million. Hires rose from 5,212 million to 5.252 million. Separations declined from 5.018 million to 4.968 million. Quits also declined from 3.077 to 2.979 million. Layoffs rose slightly from 1.619 to 1.635 million. This report was neutral for the market and it was ignored.

Consumer credit for December fell from $24.5 billion to $14.2 billion. That was well below the $20 billion analysts expected. The weak holiday shopping season is probably shown in these numbers. Consumers were not rushing out to spend more on their credit cards. The report was ignored.

The calendar for the rest of the week is also uninspiring. There are no market moving reports.


The earnings calendar is also lackluster. Tesla reports after the close on Wednesday and Twitter on Thursday, will be heavily watched. Humana, Yum and Whole Foods on Wednesday should also attract some headlines. The lackluster calendar this week and next should contribute to post earnings depression. The excitement is fading from the market and traders will be trimming positions and deciding what they are going to sell to raise money for taxes.


After the bell Dow component Disney (DIS) reported earnings of $1.55 compared to estimates for $1.49. However, revenue of $14.78 billion missed estimates for $15.26 billion. ESPN continued to be a thorn in their side with revenue from the cable segment at $6.23 billion and below estimates for $6.42 billion. Cable network income declined -11% to $864 million. Disney said this was due to lower advertising revenue on ESPN and higher programming costs. The lower advertising came from a lower number of impressions and a decrease in average viewership.

Studio income fell -17% to $842 million because of super strong comparisons from the Star Wars movie in the year ago quarter. The Force Awakens earned $936.7 million and is now the number one all-time domestically according to Box Office Mojo. Income from the parks segment rose 13% to $1.1 billion.

CEO Bob Iger said he was open to staying on past his scheduled retirement in 2018 because the business was going to a series of major transformations and they do not have anyone that is clearly defined as a possible successor. That was good news for investors but shares still declined in afterhours. Shares dipped to $105 but recovered to close at $108.60 after Iger said there is way too much pessimism about ESPN.


Buffalo Wild Wings (BWLD) saw their shares plunge in after hours on disappointing earnings. The company reported earnings of 87 cents compared to estimates for $1.27. That is correct, not a typo. Revenue of $494.2 million missed estimates for $515 million. The company guided for the full year for earnings of $5.60 to $6.00 per share. The CEO said the restaurant environment had been challenging and December was especially rough. She said store traffic worsened considerably in December. Same store sales fell -4% and analysts were expecting -1.7%. The company also saw a sharp increase in wing costs from $1.81 per pound to $1.99 in Q4. The company also said it was under pressure from activist investor Marcato capital Management, which owns 5.2%. The board is under pressure with two members stepping down and three new members added. Marcato nominated four additional members.


Gilead sciences (GILD) reported adjusted earnings of $2.70 compared to estimates for $2.43. Revenue of $7.32 billion beat estimates for $7.17 billion. Hep C drug sales were $3.2 billion, down 35% from the year ago period. Sales of Hep C drugs for all of 2016 were $14.8 billion and a 23% decline. The company guided for total revenue in 2017 of $22.5-$24.5 billion and analysts were expecting $28 billion. Guidance for Hep C sales was $7.5-$9.0 billion and analysts were looking for $12 billion.


Panera Bread (PNRA) reported earnings of $2.05 compared to estimates for $2.00. Revenue rose 5% to $727.1 million and met expectations. The company guided for the full year to income of $7.45 to $7.70 per share and analysts were expecting $7.67. Personally, with revenue just matching estimates and guidance below expectations, I would have expected the stock to decline. Shares rose $5 in afterhours.


YUM China (YUMC) reproted its first quarterly earnings as a separate company. They had earnings of 17 cents that beat estimates for 10 cents. Same store sales were flat after a 3% increase at KFC and a 7% drop at Pizza Hut. Analysts were only expecting a +0.1% increase overall so it was not much of a miss. Revenue was $1.978 billion. Yum China said they approved a $300 million stock buyback. Shares declined -2.4% on the news. YUM Brands reports earnings on Wednesday.


Akamai (AKAM) reported earnings of 72 cents that beat estimates for 58 cents. Revenue of $616.1 million beat estimates for $605.7 million. Performance and security solutions rose 17% to $367 million and cloud security revenue rose 41% to $102 million. Shares were very volatile in afterhours.


Zillow Group (ZG) reported earnings of 14 cents compared to estimates for 11 cents. Revenue rose 34% to $227.6 million compared to estimates for $222.3 million. Unique visitors rose 13% to 140 million. They guided for Q1 to revenue of $232-$237 million. Analysts were expecting $235.9 million. That produced a major drop in afterhours of nearly -10%.


Twilio (TWLO) reported breakeven earnings compared to estimates for a 5-cent loss. Revenue of $82 million beat estimates for $74.2 million. They guided for Q2 for a loss of 6-7 cents and revenue of $82-$84 million. Analysts were expecting a loss of 4 cents and $78.3 million. Shares initially dropped -3% but ended the session about breakeven.


Crude prices have declined about $3 since Monday's high at $54.13 on worries about oversupply. Numbers are starting to come in from the OPEC production cuts and they only achieved about half of the targeted cuts for January. Active rig counts are shooting up and inventories are rising.

The API weekly inventory report tonight showed oil in storage in the U.S. rose by 14.2 million barrels and more than five times what analysts expected. Gasoline rose by 2.9 million barrels and nearly three times expectations. For the first three weeks of 2017, inventories rose 21 million barrels. If the EIA report on Wednesday confirms the API gains that would put the January gains at close to 35 million barrels.

Gasoline prices are already falling because refiners are trying to push as much oil through the system into refined products as possible. Oil, distillates and gasoline inventories are already at multi-month highs.

The rising dollar is also putting pressure on prices for oil and other commodities. The dollar index has rebounded for the last three days and is back over the 100 level.




Markets

The markets tried to rally at the open but gave back most of their gains. The Nasdaq managed to make a new closing high but the other indexes were weak. The Dow spiked to 20,155 at the open but faded to close at 20,090. The resistance at 20,100 is strong.

The S&P failed to even touch the resistance at 2,300 and ended with only a half point gain at 2,292. The S&P is the index to watch with the 2,300 level the new Dow 20,000. If the S&P punches through 2,300 the rest of the indexes should follow it higher. Support is back at 2,275 and 2,268.


The Dow managed the new intraday high but the 20,100 level still has a grip on the index. Support is well back at 19,850. With Disney down a couple bucks after the close, there should not be a material impact to the Dow on Wednesday. IBM and Boeing were the major supporters for the Dow on Tuesday. IBM could continue higher but is currently testing new high resistance at $178.66, just 20 cents over today's close. Boeing gapped up $3.50 and faded to close up +$2.50. Shares also have new high resistance at $169 with the close at $166.50.

With oil prices down sharply tonight, Chevron and Exxon will probably be negative at the open and offset some bullishness. The Dow futures are down slightly tonight.



The Nasdaq Composite closed well off the intraday highs but it was enough to notch another new high at 5,674. That was 16 points off the intraday high. The Nasdaq 100 almost hit 5,200 intraday and closed at 5,185 and a new high. The big cap tech stocks are currently leading the market.

The Nasdaq 100 has strong uptrend resistance at 5,200 and a breakout there could be a powerful market motivator. The same resistance level on the Nasdaq Composite is 5,700. That means both indexes are facing a strong challenge to any continued gains.




The Russell 2000 remains the biggest loser with another decline today. However, there is decent support at 1340-1350 and as long as those levels hold, the big cap indexes could continue to gain. A break below 1,340 could spell real trouble for the overall market.


The S&P futures are down -3.25 and falling late Tuesday. There is still a lot of darkness before morning and anything can happen. We have seen double digit declines erased on some headline from overseas. The problem that concerns me is the post earnings depression phase. Expiration week in February and the week that follows have been weak in the past. With the big names already reported there is nothing to really draw in investors off the sidelines. The more analysts call for a correction the less those fence sitters will feel like buying the market highs. RBS was a big name on Monday warning of an impending correction.

Everybody has an opinion but not all opinions are accurate. I recommend we continue following the trend until it ends but be aware that the market does feel heavy and resistance is strong on the Dow and S&P. That means if we were to break out there could be some significant short covering and price chasing. Remember, there have been no serious sellers. We have seen shallow dips but buyers have been waiting.

With earnings news slowing, that means other news will take on a greater significance. That means political news, of which there is no shortage, could be a market driver.

Enter passively, exit aggressively!

Jim Brown

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New Option Plays

Sentiment Mixed

by Jim Brown

Click here to email Jim Brown

Editors Note:

Indexes are struggling despite the new Nasdaq highs. While I believe the market could push though the current resistance, the impending uptrend resistance on the Nasdaq could complicate the outlook. I scanned my list of several hundred potential plays and there was nothing that just jump out and screamed "buy me" so I am not recommending anything new today. We are evenly balanced between bullish and bearish positions so whichever way the market decides to run we should be ok.



NEW DIRECTIONAL CALL PLAYS

No New Bullish Plays


NEW DIRECTIONAL PUT PLAYS

No New Bearish Plays



In Play Updates and Reviews

New Nasdaq High

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Nasdaq overcame a drop in the biotech sector to close at a new high and continue leading the markets higher. The Dow made a new intraday high at 20,155 but that resistance at 20,100 remains strong and the index dropped back below that level at the close. The S&P failed to even touch resistance at 2,300 and that remains the critical level to watch.

The biotechs lost another 1% after the White House press secretary answered a question about drug prices that sent stocks lower. The Russell 2000 gave back 6 points to close at a 3-day low.



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


VIX - Volatility Index

The long call position was entered at the open.

BMY - Bristol-Myers

The long call position was entered at the open.

SLCA - U.S. Silica

Close the long call position at the open on Wednesday.



If you are looking for a different type of option strategy, try these newsletters:

Credit spreads and naked puts = OptionWriter

Long term option investments = LEAPS Investor

3-6 month Option Trades = Ultimate Investor

Iron Condors = Couch Potato Trader

Long and short equity trades = Premier Investor



BULLISH Play Updates

BMY - Bristol Myers - Company Profile

Comments:

No specific news. Minor gain to open the position.

Original Trade Description: February 6th

Bristol-Myers Squibb Company discovers, develops, licenses, manufactures, markets, and distributes biopharmaceutical products worldwide. It offers chemically-synthesized drug or small molecule, and biologic in various therapeutic areas, including virology comprising human immunodeficiency virus infection (HIV); oncology; immunoscience; cardiovascular; and neuroscience. Its products include Baraclude for the treatment of chronic hepatitis B virus infection; Daklinza and Sunvepra for the treatment of hepatitis C virus infection; Reyataz and Sustiva for the treatment of HIV; Empliciti, a humanized monoclonal antibody for the treatment of multiple myeloma; Erbitux, an IgG1 monoclonal antibody that blocks the epidermal growth factor receptor; Opdivo, a fully human monoclonal antibody for non-small cell lung and renal cell cancer, and melanoma; Sprycel, a tyrosine kinase inhibitor for the treatment of adults with Philadelphia chromosome-positive chronic myeloid leukemia; Yervoy, a monoclonal antibody for metastatic melanoma; Abilify, an antipsychotic agent for adults with schizophrenia, bipolar mania disorder, and depressive disorder; Orencia to treat rheumatoid arthritis; and Eliquis, an oral factor Xa inhibitor targeted at stroke prevention in atrial fibrillation. Its products pipeline includes Beclabuvir, a non-nucleoside NS5B inhibitor for the treatment of HCV; BMS-663068, an investigational compound that is being studied in HIV-1; and Prostvac, a Phase III prostate-specific antigen to treat asymptomatic or minimally symptomatic metastatic castration-resistant prostate cancer. The company has clinical trial collaborations with Calithera Biosciences, Inc. and Janssen Biotech, Inc.; and a research collaboration with GeneCentric Diagnostics, Inc. Company description from FinViz.com.

BMY reported earnings of 63 cents that missed estimates for 67 cents. They guided for 2017 for earnings of $2.70-$2.90 and analysts were expecting $2.97. The shares were crushed with a $9 drop over five days. Complicating the earnings was news that sales of two drugs were slowing because of competition. However, what was not said was that BMY has dozens of other drugs currently being sold and dozens more in the pipeline. BMY has one of the richest pipelines in the business.

Fund manager Dodge & Cox did an extensive analysis of BMY and said the recent problems have just been a temporary setback and the strong pipeline of drugs plus their immuno-oncology business makes them particularly attractive and they initiated a large position. They said BMY has capitalized on its recent problems to become a focused biopharmaceutical company that is positioned to grow.

Several other analysts have recently called the BMY dip a buying opportunity. We are going to take them at their word.

Earnings April 27th.

Shares are starting to rebound from the $46 low and they have plenty of ground to cover. The biotech sector is actually positive over the last week as through investors believe the danger from Trump and drug prices may have passed or at least moved into a new stage.

Position 2/7/17:

Long March $52.50 call @ $1.11, no initial stop loss.


DVMT - Dell Technologies - Company Profile

Comments:

No specific news. Dell partnered with NTT Communications to expand the cloud in Japan.

Original Trade Description: February 4th

Dell Technologies Inc. provides a range of technology solutions worldwide. It offers client computing devices, including desktop personal computers, notebooks, and tablets; rack, blade, tower, and hyperscale servers for enterprise customers; value tower servers for small organizations, networks, and remote offices; networking solutions; and storage solutions, including storage area networks, network-attached and direct-attached storage, and backup systems. It also sells peripherals, including monitors, printers, projectors, and other client and enterprise peripherals, as well as third-party software products. In addition, the company offers support and extended warranty, enterprise installation, and configuration services; and infrastructure and security managed, cloud computing and infrastructure consulting, and security consulting and threat intelligence services. Further, it provides application services, such as application development, maintenance, migration, management, and consulting, as well as package implementation, testing and quality assurance functions, business intelligence and data warehouse solutions; business process services comprising back office administration, call center management, and other technical and administration services; and system and information management, and security software services. Additionally, the company offers financial services, including originating, collecting, and servicing customer receivables primarily related to the purchase of its products. It serves corporate businesses; educational institutions, government, healthcare, and law enforcement agencies; small and medium-sized businesses; and consumers directly, as well as through retailers, third-party solution providers, system integrators, and third-party resellers. The company was formerly known as Denali Holding Inc. and changed its name to Dell Technologies Inc. in August 2016. Dell Technologies Inc. was founded in 1984 and is headquartered in Round Rock, Texas. Company description from FinViz.com.

The company came public without a lot of fanfare back in August and moved sideways for two months. Since the election, the stock has been unstoppable. There was a spike last week when Michael Dell was seen in one of the presidents CEO meetings and identified as the CEO of Dell Technologies. I don't think the average investor has picked up on the fact that Dell is public again.

You may recall that Dell recently bought EMC and VMWare and they are leveraging that technology internationally. Dell has been on a mission to divest as many non-core entities as possible. On October 31st, they sold the Dell Software Group for $2.4 billion. In November, they sold the Dell Services group for $3 billion. In September, they announced a deal to sell the EMC Enterprise Content division for $1.6 billion.

In Q3, they reported revenue of $16.8 billion. Not bad for a company many investors have forgotten about.

The original Dell Company created thousands of millionaires as the stock doubled and tripled, split and repeat multiple times. I know the chart is ridiculous with a $10 gain over the last month but it has very low volatility and the option is cheap. I have put off recommending it several times thinking I would wait for a dip, only it never dips.

Earnings March 9th.

Position 2/6/17:

Long March $65 call @ $1.75, see portfolio graphic for stop loss.


PANW - Palo Alto Networks - Company Profile

Comments:

No specific news. Minor gain in a mixed market.

Original Trade Description: Jan 23rd

Palo Alto Networks, Inc. provides security platform solutions to enterprises, service providers, and government entities worldwide. Its platform includes Next-Generation Firewall that delivers application, user, and content visibility and control, as well as protection against network-based cyber threats; Advanced Endpoint Protection, which prevents cyber attacks that exploit software vulnerabilities on various fixed and virtual endpoints and servers; and Threat Intelligence Cloud, which offers central intelligence capabilities, security for software as a service applications, and automated delivery of preventative measures against cyber attacks. The company provides firewall appliances; Panorama, a security management solution for the control of appliances deployed on an end-customer's network as a virtual or a physical appliance; and Virtual System Upgrades, which are available as an extensions to the virtual system capacity that ships with the physical appliances. It also offers subscription services covering the areas of threat prevention, uniform resource filtering, malware and persistent threat, laptop and mobile device, and firewall protection services, as well as cyber attack, threat intelligence, and content control services. In addition, the company provides support and maintenance services; and professional services, including application traffic management, solution design and planning, configuration, and firewall migration, as well as provides online and classroom-style education training services. Palo Alto Networks, Inc. primarily sells its products and services through its channel partners, as well as directly to medium to large enterprises, service providers, and government entities operating in various industries comprising education, energy, financial services, government entities, healthcare, Internet and media, manufacturing, public sector, and telecommunications. Company description from FinViz.com.

In November, PANW posted earnings that beat the street but revenue, which rose 34% missed estimates by a fraction. Revenue was $398.1 million and analysts were expecting $400.1 million. PANW had guided for revenue growth of 33% to 35% so they were right in the middle of their guidance range. Earnings of 55 cents beat estimates for 53 cents. Shares were crushed because the company said the market was "lumpy" and customers were taking longer to make purchase decisions.

In Q3 they added more than 1,500 new customers to hit 35,500 globally. Subscription revenue has risen to 60% of total revenue as they move to a cloud model.

In early January, noted short seller Andrew Left of Citron Research, put out a bullish note on PANW saying they had a fantastic moat, which would be a barrier to entry for other companies trying to duplicate their type of firewall. His price target is $170. Shares rallied $14 over the next three weeks on the call. At the same time Bernstein put out a very positive note on the company saying nobody serious about protecting their web environment should be without PANW as their security solution.

Shares have rebounded to their November gap down level of $144 and have found resistance. They are not giving back their gains but there was a slight retracement on Monday in a weak market. I believe they will overcome this resistance level and move higher, market permitting.

There is a persistent rumor in the market that Microsoft and Cisco Systems are both looking for a cybersecurity company to acquire. Given Palo Alto's position in the sector, they would be a good target.

Earnings February 28th.

Because of the price of the options, I am forced to turn this into a spread. If you want to go with a naked call, I would probably use the $150 strike.

Position 1/24/17:

Long March $145 call @ $6.00, see portfolio graphic for stop loss.
Short March $155 call @ $3.15, see portfolio graphic for stop loss.
Net debit $2.85


RHT - Red Hat Inc - Company Profile

Comments:

No specific news. Minor gain with next resistance at $80.

Original Trade Description: Jan 21st

Red Hat, Inc. provides open source software solutions to develop and offer operating system, virtualization, management, middleware, cloud, mobile, and storage technologies to various enterprises worldwide. It offers infrastructure-related solutions, such as Red Hat Enterprise Linux, an operating system platform that runs on hardware for use in physical, virtual, container, and cloud environments; Red Hat Satellite, a system management offering that helps to deploy and manage Red Hat infrastructure across physical and virtual servers, and cloud environments; and Red Hat Enterprise Virtualization, a software solution that allows customers to utilize and manage a common hardware infrastructure to run multiple operating systems and applications. The company offers application development-related and other technology solutions, such as Red Hat JBoss Middleware, a solution for developing, deploying, and managing applications, as well as integrating applications, data, and devices along with business processes automation; Red Hat cloud offerings, a software solution that enables customers to build and manage various cloud computing environments; Red Hat Mobile, a software development platform that enables customers to develop, integrate, deploy, and manage mobile applications for enterprises; and Red Hat Storage, a software solution that enables customers to treat physical server storage as a scalable, shared, centrally-managed pool of virtual storage and to manage large, unstructured, or semi-structured data in physical, virtual, and cloud environments. It also provides consulting, support, and training services; and real-time operating system, distributed computing, directory services, and user authentication. Company description from FinViz.com.

On December 21st, the company reported earnings of 61 cents that beat estimates by 3 cents. However, the beat came mostly from a lower tax rate. Revenue rose 17.5% to $615.3 million compared to estimates for $618.4 million so a slight miss there. Billings rose 8.7% to $679 million but misses estimates for $713 million. Subscription revenue rose 19% to $543 million and 88% of total revenue. That is recurring and will help smooth out future earnings.

The CEO explained that two large government deals worth $20 million slipped into Q4. Also, two large customers chose to be billed rather than pay up front and that took another $27 million out of billings. If those deals were included the billings would have been up +16% instead of 8.7%. The good news is that all of those deals are now in Q4 and that will give Q4 an earnings boost.

Earnings March 22nd.

Shares have rebounded to $74 and appear poised to break over that level and move back to the $80 range. I am using the March options, which expire 4 days before the earnings and they are half price the next cycle in June.

Position 1/23/17:

Long March $75 call @ $2.35, see portfolio graphic for stop loss.


SLCA - U.S. Silica - Company Profile

Comments:

No specific news. Shares fell sharply on the drop in crude prices. I was planning on holding this longer-term but given the potential for oil prices to decline further, I am recommending we close the position. After the bell today the API released their weekly inventory report showing a gain of 14.4 million barrels of oil. Crude prices imploded again in the after hours session.

Original Trade Description: Jan 25th

U.S. Silica Holdings, Inc. produces and sells commercial silica in the United States. The company operates through two segments, Oil & Gas Proppants, and Industrial & Specialty Products. It offers whole grain commercial silica products to be used as fracturing sand in connection with oil and natural gas recovery; and resin coated proppants, as well as sells its whole grain silica products in various size distributions, grain shapes, and chemical purity levels for manufacturing glass products. The company also provides ground commercial silica products for use in plastics, rubber, polishes, cleansers, paints, glazes, textile fiberglass, and precision castings; and fine ground silica for use in premium paints, specialty coatings, sealants, silicone rubber, and epoxies. In addition, it offers other industrial mineral products, such as aplite, a mineral used to produce container glass and insulation fiberglass; and adsorbent made from a mixture of silica and magnesium for preparative and analytical chromatography applications. The company serves oil and gas recovery markets; and industrial end markets with customers involved in the production of glass, building products, foundry products, chemicals, and fillers and extenders. As of December 31, 2015, it had approximately 400 million tons of proven and probable recoverable mineral reserves. Company description from FinViz.com.

In the gold rush in the 1800's it was not the miners that got rich but it was the companies that sold them the picks, shovels and wheelbarrows. In the energy sector every shale well has to be fractured and that required mountains of sand. We are not talking regular beach sand. The primary frac sand is mined in Wisconsin and other northern states. There are various grades of sand depending on the geology of the well and what the drillers are trying to accomplish.

In 2014 it took an average of 4.2 million pounds of frac sand per well. However, in 2015 and 2016 there was a significant increase in fracking intensity that began to use much larger quantities per well. In late 2015 the amount of sand rose from 9% of the fracking fluid to 20%. In early 2016 Simmons & Co reported two wells in the Permian that used 60 million pounds of sand each while two in the Haynesville Basin used 35 million pounds each.

Houston based oilfield logistics company Twin Eagle reproted receiving "historic shipments" of frac sand at its facility outside the Eagle Ford. They reported receiving one 130-car train of sand a week. One car carries 100 tons so that is 13,000 tons per week. That is 26 million pounds of sand per week. If wells are now using 20 to 25 million pounds per well that is one train per well.

Last week the active rig count rose by 29 oil wells to 551 active oil wells. Each rig drills a minimum of two wells per month. If each well used 25 million pounds that would be more than 1,100 trains of sand per month.

There are rumors making the rounds that because of the increased intensity of sand in fracking there could be a sand shortage as the number of active rigs increase and producers began to rapidly complete the 3,000 or so wells that have been drilled over the last 18 months but never completed because of low oil prices. There is going to be a surge in the demand for sand.

U.S. Silica is one of the major sand suppliers with multiple facilities. They have used the downturn in the drilling industry to buy multiple competitors in order to bulk up for the future demand.

Update 1/31/17: Halliburton selected U.S. Silica as its preferred provider of containerized sand for last mile logistics to drilling locations. They signed a long-term contract with SandBox, a U.S. Silica subsidiary. Shares rebounded to within a few cents of a new high.

Earnings Feb 2nd.

SLCA has earnings on Feb 2nd but almost every company trading today has earnings over the next three weeks so that is just something we have to deal with. I am recommending we buy a longer-term option to get past any potential volatility around earnings. Their guidance should be good.

Position 1/26/17:

Long June $65 call @ $4.10, no stop loss until after earnings.


SPY - S&P-500 ETF - ETF Profile

Comments:

The S&P returned to just below major resistance at 2,300 and could be poised to break out. However, that is major resistance as we saw again today.

Original Trade Description: Jan 12th

The SPDR S&P 500 ETF Trust seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P 500 Index.

The SPY dipped to $225 intraday before the dip buyers rushed into the market. Initial support is $223 and I believe we have a chance to test that level before the inauguration. There are only four trading days left. If the bank earnings disappoint on Friday we could see a decline in low volume. With the three-day weekend ahead we could see traders move to the sidelines to avoid weekend event risk while the U.S. markets are closed.

We could also see a pre inauguration decline as traders worry about event risk surrounding the event.

Whatever the reason we could see the ETF test that level over the next four days. Assuming there is no disaster surrounding the inauguration, we could see a real rally begin afterwards.

This is a short-term position using March options just in case any potential dip turns into a crash. The estimated option premium should be less than $3.

Position 1/25/17 with a SPY trade at $228.25

Long MAR $232 call @ $1.69, no initial stop loss.


$VIX - Volatility Index - Index Description

Comments:

We reentered the VIX call at the open. The intraday bounce in the VIX was erased at the close.

Original Trade Description: Jan 26th

The VIX is a computed index, much like the S&P 500 itself, although it is not derived based on stock prices. Instead, it uses the price of options on the S&P 500, and then estimates how volatile those options will be between the current date and the option's expiration date. The CBOE combines the price of multiple options and derives an aggregate value of volatility, which the index tracks.

The VIX closed at 10.63 and very close to record lows. You have to go back to June of 2014 for a lower recent close at 10.28. Before that, you have to travel back in time to Feb-2007 for a close at 10.05. The next lowest close was 9.48 in Dec-1993.

The point here is that volatility is near record lows only reached four times in the last 23 years. That qualifies for an abnormal event. I believe it is time we bought some VIX calls. The odds of the VIX remaining this low for the next two months are about as close to zero as you can get.

There is a very old saying in the market. "When the VIX is high, it is time to buy. When the VIX is low, it is time to go." You cannot get much lower than this.

The VIX is telling us that everyone expects the market to continue moving higher. Nobody is worried that some unexpected headline or event is going to trigger a significant market decline. When nobody expects an event is when we should be the most concerned.

Position 2/7/17:

Long March $12 call @ $2.40, no stop loss

Previously Closed 2/1/17: Long March $12 call @ $2.60, exit $2.50, -.10 loss.


WDC - Western Digital - Company Profile

Comments:

No material movement. No specific news.

Original Trade Description: Jan 31st

Western Digital Corporation, together with its subsidiaries, develops, manufactures, and sells data storage devices and solutions worldwide. It offers performance hard disk drives (HDDs) that are used in enterprise servers, data analysis, and other enterprise applications; capacity HDDs and drive configurations for use in data storage systems and tiered storage models, as well as for use in storage of data for years; and enterprise solid state drives (SSDs), including NAND-flash SSDs and software solutions that are designed to enhance the performance in various enterprise workload environments. The company also provides InfiniFlash System, a system solution that offers petabyte scalable capacity with performance metrics; higher value data storage platforms and systems; datacenter software and systems; and HDDs and SSDs for desktop PCs, notebook PCs, gaming consoles, set top boxes, security surveillance systems, and other computing devices. In addition, it offers embedded NAND-flash storage products, including custom embedded solutions; and iNAND embedded flash products, such as multi-chip package solutions that combine NAND and mobile dynamic random-access memory in an integrated package for mobile phones, tablets, notebook PCs, and other portable and wearable devices, as well as in automotive and connected home applications, and NAND-flash wafers. Further, it provides HDDs embedded into WD- and HGST-branded external storage products; and NAND-flash products, which include cards, universal serial bus flash drives, and wireless drives. Company description from FinViz.com.

WDC is kicking butt and taking no prisoners in the disk drive sector. Since the acquisition of flash/NAND memory manufacturer SanDisk, they have upgraded and expanded their product line with additional new products announced almost weekly. SanDisk was the right acquisition at the right time. Today flash memory supply is tight and prices are rising.

The company reported earnings of $2.30 compared to estimates for $2.06. Revenue of $4.89 billion also beat estimates for $4.78 billion. They shipped 44.8 million hard drives in the quarter. The guided for Q1 earnings of $2.00-$2.10, which was above analyst expectations for $1.79. Of the 21 analysts that follow the company, 18 have it as a buy or strong buy. Only 3 rate WDC as a hold. The consensus price target is just under $95 per share with the stock trading at $79.

Update 2/6/17: WDC announced a new 512 Gigabit NAND chip that will be delivering in the second half of 2017. This is another one of those technology developments that the human brain cannot even comprehend unless you are a theoretical engineer. The power, speed and capability is so far beyond "public" computing platforms it is like being in a different galaxy from us.

Earnings April 26th.

Shares traded up on Tuesday in a weak market.

Position 2/1/17:

Long April $85 call @ $2.65, see portfolio graphic for stop loss.



BEARISH Play Updates (Alpha by Symbol)

DIA Dow ETF - ETF Profile

Comments:

This position is dead without a black swan event. The January dip never appeared and the put will expire on Friday.

Original Trade Description: December 7th

The SPDR Dow Jones Industrial Average ETF Trust seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Dow Jones Industrial Average.

Remember Dow 10,000? Traders talked about it for weeks. When it was finally hit, they were passing out Dow 10,000 hats on the floor of the NYSE for a week. That was December 11th 2003. It was a big milestone for the market.

Now 13 years later, we are about to double that with Dow 20,000. Given the place on the calendar, the massive post election rally and the potential for normal profit taking in January, the Dow 20,000 touch could be a massive sell on the news event.

However, we are only 386 points way and it could happen as soon as next week. The Fed rate announcement on Wednesday could either cripple that potential or accelerate it if the Fed maintains a dovish posture on future rate hikes. I believe we will hit Dow 20K before the end of December. When that happens I want to be short the DIA ETF and plan on holding it through January.

I am choosing the Dow because it is the most overbought and could produce the biggest percentage move. Just look at Goldman's chart and the profit that needs to be removed there.

Because there will be plenty of other traders thinking along the same lines I want to enter the put position at 19,900 or $199 on the DIA ETF. I know I am jumping in front of a speeding train to enter a short position on a runaway market but the potential is very high for a good trade.

Position 12/12/16:

12/12 - 1/2 position: Long Feb $195 put @ $3.40, no initial stop loss.

12/13 - 1/2 position: Long Feb $195 put @ $3.15, no initial stop loss.


GIII - G-III Apparel Group - Company Profile

Comments:

No specific news. New 3-year closing low.

Original Trade Description: January 28th

G-III Apparel Group, Ltd. designs, manufactures, and markets men's and women's apparel. It operates through two segments: Wholesale Operations and Retail Operations. The company's products include outerwear, dresses, sportswear, swimwear, women's suits, and women's performance wear; and women's handbags, footwear, small leather goods, cold weather accessories, and luggage. It markets swimwear, resort wear, and related accessories under the Vilebrequin brand; footwear, apparel, and accessories under Bass and G.H. Bass brands; and apparel products under Andrew Marc, Marc New York, Jessica Howard, Eliza J and Black Rivet, Weejuns, and other private retail labels. G-III Apparel Group, Ltd. also licenses its products under the Calvin Klein, ck Calvin Klein, Karl Lagerfeld, Guess, Guess?, Kenneth Cole NY, Reaction Kenneth Cole, Cole Haan, Levi's, Vince Camuto, Tommy Hilfiger, Jessica Simpson, Ivanka Trump, Jones New York, Ellen Tracy, Kensie, Dockers, Wilsons, G-III Sports by Carl Banks, and G-III for Her brands, as well as have licenses with the National Football League, Major League Baseball, National Basketball Association, National Hockey League, Touch by Alyssa Milano, Hands High, Collegiate Licensing Company, Major League Soccer, and Starter. The company offers its products to department, specialty, and mass merchant retail stores in the United States, Canada, Europe, and the Far East; and distributes products through its retail stores, as well as through G.H. Bass, Wilsons Leather, Vilebrequin, and Andrew Marc Websites. As of January 31, 2016, it operated 199 Wilsons Leather stores, 163 G.H. Bass stores, and 5 Calvin Klein performance stores. Company description from FinViz.com.

The holiday shopping season was not kind to any retailer except for Amazon. Most retailers are reporting negative comps and warning about slowing traffic. GIII was no exception. GIII warned Q4 saw a significant decline in sales that would cut 20 cents off earnings. They guided for the full year 2016 that ended January 31st, for revenue of $2.41 billion and earnings of $1.21-$1.31 compared to their prior guidance of $2.43 billion and earnings of $1.41 to $1.51. For 2017, they guided to earnings of $1.41-$1.51 compared to $2.44 in fiscal 2016.

The company said they were expecting positive comps in Q4 but now expect low double-digit negative comps. That is a heck of a swing. They blamed warmer weather and significantly lower traffic in the stores.

Earnings March 2nd.

Shares broke below support and closed at a three-year low on Friday. Given the trends in the retail sector, they could continue significantly lower with their guidance warning.

Position 1/30/17:

Long March $25 put @ $1.60, see portfolio graphic for stop loss.


HA - Hawaiian Holdings - Company Profile

Comments:

Shares spiked at the open on the new flight statistics but erased all the gains by the close.

Original Trade Description: February 1st

Hawaiian Holdings, Inc., through its subsidiary, Hawaiian Airlines, Inc., engages in the scheduled air transportation of passengers and cargo. It offers daily services on North America routes between the state of Hawai'i and Los Angeles, Oakland, Sacramento, San Diego, San Francisco, and San Jose, California; Las Vegas, Nevada; Phoenix, Arizona; Portland, Oregon; and Seattle, Washington. The company also provides daily services on its Neighbor Island routes among the six major islands of the State of Hawai'i; daily services on its international routes between the state of Hawaii and Sydney, Australia; and Tokyo and Osaka, Japan. In addition, it offers scheduled services between the state of Hawai'i, and New York City, New York; scheduled services between the State of Hawai'i and Pago Pago, American Samoa; Papeete, Tahiti; Brisbane, Australia; Auckland, New Zealand; Sapporo, Japan; Seoul, South Korea; and Beijing, China, as well as other ad hoc charter services. Hawaiian Holdings, Inc. markets its tickets through various distribution channels, including its Website, www.hawaiianairlines.com primarily for North America and Neighbor Island route customers, as well as through travel agencies and wholesale distributors primarily for its international route customers. As of December 31, 2015, the company's fleet consisted of 18 Boeing 717-200 aircraft for the Neighbor Island routes; 8 Boeing 767-300 aircraft; and 22 Airbus A330-200 aircraft for the North America, international, and charter routes, as well as 3 ATR42 turboprop aircraft. Company description from FinViz.com.

In late January HA reported earnings of $1.28 that missed earnings for $1.30. However, revenue of $633 million did beat estimates for $627.6 million. With fuel costs rising and much of HA routes considered long hauls, their costs are going to rise. Non0fuel costs are expected to rise 3% to 6% in Q1. They are currently negotiating a new contract with pilots and that will cause a rise in labor costs. Costs were already rising in Q4 and investors tanked the stock after earnings.

Earnings April 25th.

Shares have fallen $5 since the January 24th earnings and are hugging support at $50. If that level breaks, the next material support is $45.

Position 2/2/17:

Long March $50 put @ $2.10, see portfolio graphic for stop loss.


QCOM - Qualcomm - Company Profile

Comments:

A Barron's article said Canaccord believes the legal issues are already priced into the stock but Bernstein disagreed saying maybe not.

Original Trade Description: January 30th

QUALCOMM Incorporated develops, designs, manufactures, and markets digital communications products and services in China, South Korea, Taiwan, the United States, and internationally. The company operates through three segments: Qualcomm CDMA Technologies (QCT); Qualcomm Technology Licensing (QTL); and Qualcomm Strategic Initiatives (QSI). The QCT segment develops and supplies integrated circuits and system software based on code division multiple access (CDMA), orthogonal frequency division multiple access (OFDMA), and other technologies for use in voice and data communications, networking, application processing, multimedia, and global positioning system products. The QTL segment grants licenses or provides rights to use portions of its intellectual property portfolio, which include various patent rights useful in the manufacture and sale of certain wireless products comprising products implementing CDMA2000, WCDMA, CDMA TDD, and/or LTE standards, as well as their derivatives. The QSI segment invests in early-stage companies in various industries, including digital media, e-commerce, healthcare, and wearable devices for supporting the design and introduction of new products and services for voice and data communications. The company also develops and offers products for implementation of small cells; mobile health products and services; software products, and content and push-to-talk enablement services to wireless operators; and development, and other services and related products to the United States government agencies and their contractors. In addition, it licenses chipset technology and products for data centers. Company description from FinViz.com.

Qualcomm it under attack from every direction. A while back China's regulator assessed a $975 million fine for improper licensing and made them lower royalties. The South Korean FTC imposed a fine of $853 million because it found the company's licensing practices to be monopolistic. The KFTC found that Qualcomm's market share had risen from 34% in 2010 to 69% in 2015 while many competitors were forced out of the market.

In early January, the US FTC attacked the company for anticompetitive practices that prevented competitors from supplying chips to handset makers. This is another billion dollar problem.

Three days later Apple sued Qualcomm for $1 billion claiming Qualcomm charged five times as much for licensing than all other cellular patent licensors combined. Apple also claimed the company withheld $1 billion in rebates because Apple had cooperated with KFTC when that investigation was active.

There is blood in the water and there will probably be other suits from companies that suffered under the Qualcomm licensing scheme as well. The odds are also good that Qualcomm will have to change their licensing scheme, which will probably result in lower fees.

With roughly $4 billion in fines and suits over the last few weeks, the investor appetite for QCOM shares has evaporated. Brokers are slashing their ratings from buy to hold or even sell.

Last week the company reported earnings of $1.19 that matched estimates but missed on revenue. They guided for $1.15-$1.25 for Q1 and analysts were expecting $1.17. Other than that the guidance was lackluster with a lot of excuses and questions deflected.

Update 1/31/17: Qualcomm said NXP Semiconductor (NXPI) shareholders had approved the acquisition by Qualcomm. The acquisition is expected to be completed by the end of 2017. QCOM will start a new subsidiary in Amsterdam that will actually buy the shares for $110 each. The funding will come from $28.6 billion in cash currently held by Qualcomm overseas. They will not be taxed on the money as long as it is reinvested overseas.

Update 2/1/17: Qualcomm said NXP Semiconductor (NXPI) shareholders had approved the acquisition by Qualcomm. The acquisition is expected to be completed by the end of 2017. QCOM will start a new subsidiary in Amsterdam that will actually buy the shares for $110 each. The funding will come from $28.6 billion in cash currently held by Qualcomm overseas. They will not be taxed on the money as long as it is reinvested overseas.

Update 2/6/17: The company extended its tender offer for NXPI shares at $110 saying more than 43 million have already been tendered. Shares are currently trading at $100

Earnings April 26th.

Shares have collapsed on the news of the suits and fines and are threatening a steeper decline. Initial support is $50.

Position 1.31.17:

Long March $52.50 put @ $1.68, see portfolio graphic for stop loss.




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