Option Investor
Newsletter

Daily Newsletter, Thursday, 4/7/2016

Table of Contents

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

Market Wrap

A Turning Point

by Thomas Hughes

Click here to email Thomas Hughes

Introduction

Oil retreats and drags the broad market with it, on the cusp of another earnings season; a turning point may have been reached. Today's action was dominated by volatility in the oil patch, data from Cushing and output from Iraq combined to drive oil prices lower but the focus is on earnings season.

Trading in the international markets was mixed. Asian indices closed mostly higher but mixed is a better description. A rapidly strengthening yen is the story of the day in that circle, driven on the FOMC's minutes dovish tone and a lack of faith in the BOJ. European indices began the day moving higher on an early gain in oil prices but this did not last long. Bearish data sent oil prices lower and dragged them down as well.

Market Statistics

Futures trading indicated a negative open for the US indices all morning. The Dow was pointing to a drop near -100 points lower, about -12 for the SPX, and this held steady all morning. There was a brief uptick following the jobless claims data but that did not last long, going into the opening bell futures were near the lows of the morning. The open was as expected, declines in the range of -0.5% were logged for all the indices almost immediately. The first 45 minutes of trading saw the bulls try to stage a rally but this was capped near yesterday's break even level; from that point on the market drifted lower into the end of the day.

Economic Calendar

The Economy

Not much in the way of economic data today except the weekly jobless claims. Initial claims fell -9,000 to hit 267,000, the third week of decline since hitting a peak in early March. Last week's figure was not revised. The four week moving average of claims rose 3,500 to hit a four week high of 266,750 but remains very low and consistent with labor market health. On a not adjusted basis claims rose by 4.4%, less than the 7.9% predicted by seasonal factors and are now down only -3% from last years levels. The states with the largest increase in claims were Pennsylvania and New Jersey with gains of 2,058 and 1,457. The territory and state with the largest decreases were Puerto Rico and Indians with -1,415 and -908.


The number of continuing claims rose by 19,000 to hit 2.191 million on top of an upward revision of 1,000 to last week's figure. The four week moving average of continuing claims fell though, shedding 1,750 to 2.288 million. Despite the uptick in claims this figure remains very low, just above the 43 year low, and consistent with labor market health.

The total number of Americans receiving unemployment benefits is 2.454 million, down -83,120 from last week and the fourth week of pronounced decline. The total number of claims is now at a three month low and in seasonal decline, as expected. On a year over year basis the total claims is down -6%. If the figures hold true to historical trend the decline in total claims which began last month should continue into June and set a new low for the series. Regardless, at this time the claims data is consistent with labor market health.


The only data due out tomorrow is Wholesale Inventories, not too earth shattering. Next week is full again with over a dozen reports including retail sales, CPI, PPI and Fed's Beige Book.

The Oil Index

Oil prices had another wild ride. Yesterday's pop on bullish storage data carried through into the early part of this morning until new data, storage levels at Cushing and Iraqi output, reversed sentiment. Basically, Cushing storage was better than expected and seemingly unaffected by two major pipeline issues. Iraqi output was also better than expected; both pieces of news adding to the fundamental picture of oversupply and low demand. WTI fell more than -2% intraday to trade below $37, it closed with a loss near -1.25% trading near $37.50. Fundamentals will continue to drag on prices but the risk is that news, rumor, about production cuts and meetings could drive them higher.

The Oil Index fell about -1% to sit on the 1,050 support level. The index is suffering from volatility and indecision in the oil pits and is indicated to drift lower/retest support again. Both indicators are pointing lower but there is sign of near term support so a break of 1,050 is no guarantee. If it does fail the index could move down to next support target near 1,025 or lower to the 975-1000 level. Oil prices will be the primary driver in the weeks to come, with earnings a close second.


The Gold Index

Gold prices are the only thing supported by the FOMC minutes in today's session. Spot prices gained nearly 1.5% on dovish Fed outlook and a weaker dollar to trade above $1240. Prices are now just below possible resistance near $1250 but still well within recent ranges. The move higher could continue provided rate hike outlook remains diminished but is likely to hit resistance, if not at $1250 then near $1275-$1280. The ECB and BOJ are the biggest risk at this time, either of them could add to QE although there is little expectation of that now.

The gold miners ETF GDX moved up by roughly 3.25% to trade just below the $21 resistance target. The move created a gap that could be the beginning of a break out but for now is just churn within a consolidation zone. The indicators have been in retreat over the past few weeks, confirming consolidation and indicating caution, but have begun to roll into an early, trend following, bullish entry. Resistance is at $21 and needs to be broken to get overly bullish on the index, if not a retreat to retest support levels is likely.


In The News, Story Stocks and Earnings

The dollar weakened following the FOMC minutes but may have hit a bottom. Today's action say the dollar index fall more than a half percent to set a new low and then bounce back from a retracement level, a move indicative of support. This move may be just the first test of $94.25 but divergences in the indicators help confirm support of this level. Support may hold until the next central bank meetins unless strong data or surprise news hits the market. The next round of central bank meetings is begins in 2 weeks with the ECB. They are not currently expected to add more QE so the statement will be the focus. A break of support could take the index down to $92.60 and a full retracement of the trading range.


Food giant Conagra reported earnings before the bell. The company reported top and bottom lines beats driven on improvements in both consumer and commercial foods segments; both showing double digit increases in profit growth. They also reported the completion of a planned divestiture which led to a massive reduction in debt. Guidance for the year, when adjusted for comparable purposes, was slightly above expectations and helped to send the stock higher. Shares climbed by more than 1.5% to set a new high.


Yahoo caught a bid when news hit the market Verizon would be making a bid for the company. There is no news yet as to what kind of bid, those details are due next week, but the target is the web business. Shares of Yahoo jumped on the news after opening with a loss but were not able to sustain the gains. The stock closed with a loss of -1.3% but remains above the recently broken trading range.


Gap took a dive in after hours trading after reporting poor March and first quarter sales figures. The retailer saw a -6% decline in comp store sales, leading to year over year declines in revenues which, coupled with a warning of narrowing margins, helped spur a -10% fall in share prices. Look for shares of Gap to fall to the long term lows near $22.


The Indices

The indices did carry through on the post-Fed minutes rally of yesterday afternoon. They began the day in retreat and end the day near the lows of the session. Today's action was led by oil prices but mostly on low volume as we wait for massive round of earnings reports we're going to get over the next month. The decline was led by the NASDAQ Composite Index which fell -1.47% and set a one week intraday low; closing low is within the one week range. Price action is below resistance, and well above support targets, so risk appears to be to the downside. The indicators remain bullish, but also persist in showing weakness through divergences and indicative of a weakening market. If the market does pull back to support first downside target is near 4,775.


The Dow Jones Transportation Average made the second largest decline, about -1.30%, and fell below support targets at 7,700. This level is also the short term moving average and could lead to further decline without some form of bullish catalyst. The indicators confirm the break, both moving lower and gaining strength, so further decline should be expected. Next down side target is near 7,500.


The S&P 500 made the third largest decline, -1.20%, and appear set to test support levels near 2,020. The index set a 6 day low in today's session, within a multi-week consolidation, that could be setting the index for a short term head&shoulders reversal. Neck line appears to be the 2,020 level, coincident with current support targets and the short term moving average. The indicators have rolled over into a bearish signal so a test of support appears to be likely. A break of support could take the index down to stronger support levels near 1,950 to 2,000.


The Dow Jones Industrial Average made the smallest decline, about -0.98%, and is also approaching what could become the neckline of a head&shoulders reversal. The neck line of such a pattern would be between 17,400 and 17,500, consistent with near term support targets. The indicators have rolled into a bearish signal, consistent with a top, so a test of support should be expected. A break of support would help confirm the top and could the index down to 17,350 or further.


The market appears to be cresting a top. Today's action was driven by oil prices but that was just an excuse. The thing really driving the market now is earnings. The FOMC, the minutes and upcoming meetings are a back drop, earnings and the state of earnings growth and outlook for the same is what is on the minds of the market. The season is not going to be good. It may be better than expected but at best we can expect to see year over year declines near -4% for the S&P 500 and this is likely to cause the market to sell off.

What it will come down to are the statements within the report and guidance for future earnings. The longer term outlook remains positive so any market dip or test of support that occurs now is likely to be a buying opportunity for longer term positions. I'm still bullish for the long term, cautious in the near, waiting with the rest of the market to see what the earnings season brings us.

Until then, remember the trend!

Thomas Hughes


New Plays

View from the Stands

by Jim Brown

Click here to email Jim Brown
Editor's Note

If you play in traffic, you can get killed. If you are watching a car race, you are better off watching from the stands rather than dodging cars on the track. We may be better off watching Friday's market from the stands rather than trying play in the financial traffic.

The market is acting "toppy" with a lower high and lower low on the Dow and S&P. The Dow lost -133 on Tuesday, gained +113 on Wednesday and was down -234 at the lows today before closing with a -174 loss. This high volatility is a symptom of a market top.

After posting a seven-week rally the index has gone sideways for the last two weeks The 17,544 close is 50 points below the close on March 18th then the index first reached this level. Today was the lowest close since March 29th.

The S&P closed at 2,042 and also below its March 18th close of 2,050. These are lower highs and lower lows and suggest the market could be headed lower. There is support at 2,040 on the S&P and again at 2,025.

The problems are many and include the global economy, Japanese Yen, U.S. economy, earnings and the Fed. The S&P futures are down -4 points we I type this.

I am not recommending any new plays tonight until we see which direction the market takes on Friday.


NEW BULLISH Plays


No New Bullish Plays



NEW BEARISH Plays


No New Bearish Plays




In Play Updates and Reviews

No Real Losses

by Jim Brown

Click here to email Jim Brown

Editors Note:

Despite a 175-point loss on the Dow and 70-point decline on the Nasdaq our declines were minimal. We did not lose any plays and the biggest individual decline was FGEN at -84 cents. Two positions did not post a loss. However, GoPro, our only short play gained 17 cents. That is not a good sign.

The biotech short squeeze from yesterday reversed with a -2.2% decline but that was after a 6% gain on Wednesday. That weighed on the Nasdaq and the Russell 2000.

The new support at 2,045 on the S&P failed with a drop to 2,033 and a close at 2,042. The rally on Wednesday and the drop today produced a lower high and a lower high after the peak on April 1st. This is technically negative and suggests we could be going lower.




Current Portfolio





Current Position Changes


ORBC - Orbcomm

The long position remains unopened until ORBC trades at $10.50.


Profit Targets

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


Stop Loss Updates

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



BULLISH Play Updates


CLDX - Celldex Therapeutics - Company Profile

Comments:

Minor 18-cent decline in a bad market. No news. I raised the stop loss to $3.95.

Original Trade Description: April 5th.

Celldex Therapeutics is a biopharmaceutical company that develops, manufactures, and commercializes novel therapeutics for human health care in the United States.

That could be the opening sentence for almost any biotech company in the USA. They have multiple cancer drugs in trials and they have a drug for breast cancer in a registration trials after already passing through the gauntlet of multiple clinical trials.

Earnings are May 4th.

The stock was starting to recover from a long-term decline until a brain cancer drug failed a clinical trial and shares collapsed from $8 to $3. Now after a month of consolidation shares are starting to move higher again.

In biotech stocks with bad news, traders tend to over sell the news. The stock crashes to some ridiculous low and then languishes there for a while until all the existing owners get fed up due to the lack of a bounce and leave. New investors seeing a bargain and the opportunity to get in at a ridiculous low begin to accumulate the stock. I believe that is what we are seeing now.

This is really a play on the potential for a rebound in the biotech sector rather than some outstanding CLDX quality. I believe the stock is oversold and it has been rising for the last four days along with the biotech sector. If the sector continues to rise as I expect we should see CLDX rise as well as the penny stock investors begin to load up on an oversold opportunity.

Shares hit $4.65 today before fading with the market. I am recommending we buy a trade at $4.75 with a stop at $3.25. I will raise that stop rapidly if the trade begins to stall.

Position 4/6/16 with a CLDX trade at $4.75

Long CLDX shares @ $4.75, see portfolio graphic for stop loss.

Optional

Long May $5 call @ 50 cents. No stop loss.



DDD - 3-D Systems Corp - Company Profile

Comments:

Only lost 4 cents after an 8 month closing high. No news.

Original Trade Description: March 29th.

3D Systems provides 3D printing products and services worldwide. The printers use input from 3D design software, CAD software and other design tools using a range of print materials including plastic, metal, nylon, rubber, wax and composite materials.

3D crashed and burned after a couple of horrific earnings reports in 2015 and shares declined from $33 to $7 at the January lows. The entire sector saw a reset of stock prices and expectations.

For Q4 3D posted earnings of 16 cents that blew away estimates for 3 cents. 3D is the industry leader and appears to be roaring out of the darkness that enveloped the sector in 2015. Three-dimensional printing revenues are expected to grow from $3.07 billion annually in 2013 to $12.8 billion in 2018 and $21 billion by 2020 with a consolidated average growth rate of 34%.

On Monday 3D Systems announced several new software products that overcome prior limitations weighing on all printer companies. The product suite called Geomagic Freeform has multiple products that will power a jump forward in the 3D technology capability and greatly reduce the time needed to go from concept to printed article.

Under Armour (UA) just announced it used 3D Systems selective laser-sintering technology to produce the UA Architech shoe. This is the world's first performance training shoe with a 3D-printed midsole that is available to the general consumer market. Under Armour plans to release an entire line of 3D printed shoes in 2016. Late last year New Balance also partnered with 3D to make a commercially available running shoe with a 3D-printed midsole.

DDD shares are rallying on the multiple announcements and the appearance that all is well in 3D land. Resistance is $15.45.

Earnings are May 5th.

Position 3/30/16 with a DDD trade at $15.60

Long DDD shares @ $15.60, See portfolio graphic for stop loss.
Optional

Long May $17 call @ $1.05, See portfolio graphic for stop loss.



FGEN - Fibrogen - Company Profile

Comments:

4% decline off a new 3 month high on no news. The trend is still intact.

Original Trade Description: April 2nd.

FibroGen is a research-based pharmaceutical company that discovers, develops and commercializes therapeutic agents to treat serious unmet medical needs. They have multiple drugs in the pipeline and they have collaboration agreements with Astellas Pharma and AstraZenaca (AZN).

Some of the drugs in process include roxadustat, or FG-4592, an oral small molecule inhibitor of hypoxia inducible factor prolyl hydroxylases (HIF-PHs) that is in Phase III clinical development for the treatment of anemia in chronic kidney disease; FG-3019, a monoclonal antibody in Phase II clinical development for the treatment of idiopathic pulmonary fibrosis, pancreatic cancer, and liver fibrosis; and FG-5200 for the treatment of corneal blindness resulting from partial thickness corneal damage.

Fibrogen and its partners are currently conducting seven Phase 3 trials on roxadustat for registration in the US, EU, China and other countries. A Phase 2 study for FG-3019 is underway on patients with inoperable Stage 3 pancreatic cancer. The company has completed funding its portion of research on roxadustat and AstraZenaca and Astellas are responsible for all further expenses until the drug is approved. This reduces significantly the drain on cash from Fibrogen. Cash on hand at the end of the quarter was $337 million. Fibrogen has multiple pathways to success with the multiple drugs in progress.

Earnings are May 10th.

Shares plunged on January 1st with the biotech sector and have traced almost exactly the same chart pattern as the Biotech Index. Friday's close on FGEN was a two-month high. Resistance at $21 appears to be breaking.

I am recommending we buy FGEN shares on a move over Friday's high. Once over that level there is limited resistance until the $30 range.

Position 4/4/16 with a FGEN trade at $21.75

Long FGEN shares @ $21.75, initial stop loss $18.00.

The stop will be raised promptly on further gains.

No options due to wide spreads.



FTNT - Fortinet Inc - Company Profile

Comments:

Still holding the gains over resistance from Friday.

Close the position with a FTNT trade at $32.10.

Original Trade Description: March 22nd.

Fortinet provides cyber security solutions for enterprises, service providers and government organizations worldwide. They offer FortiGate physical and virtual appliance products that provide various security and networking functions, including firewall, intrusion prevention, anti-malware, virtual private network, application control, web filtering, anti-spam, and wide area network accelerations.

Essentially they provide an enterprise level roadblock or firewall between the Internet and the organizations internal network and servers. If you can block the attacks at the primary entry into the network then the attackers cannot run rampant inside the network.

A couple weeks ago Fortinet signed a cyber security partnership agreement with NATO. We all realize NATO is facing cyber attacks all across Europe and the organization is a major target. Fortinet will help improve the cyber defense for the entire network. Implementing the Fortinet devices will raise awareness of the cyber threats to the network and allow early detection and elimination.

Fortinet has more than 210,000 enterprise customers worldwide including some of the largest and most complex organizations, corporations and governmental agencies.

This will be a short-term play because earnings are April 18th.

Shares are trying to break over resistance at $30 with the high at $30.36 today before the market rolled over.

Position 3/29/16 with a FTNT trade at $28.75

Long FTNT shares @ 28.75, see portfolio graphic for stop loss.

Optional:

Long May $31 call @ $1.10, see portfolio graphic for stop loss.



HPE - Hewlett Packard Enterprise - Company Profile

Comments:

No news and no gain. It was a sideways day.

Don't forget there is $2 billion in dividends and buybacks coming in June.

Original Trade Description: March 14th.

Hewlett Packard Enterprise was spun off from Hewlett Packard (HPQ) to be the high growth segment of the company. The remaining HPQ was the slower growing PC and printer company.

HPE reported adjusted Q4 earnings of 41 cents compared to estimates for 40 cents. Revenue of $12.72 billion would have been up +4% on a constant currency basis. Analysts were expecting $12.68 billion.

CEO Meg Whitman said, "We saw the progress that comes from being more focused and nimble. We delivered a third-consecutive quarter of year-over-year constant currency revenue growth, and excluding the impact of recent M&A activity, we saw revenue growth in constant currency across every business segment for the first time since 2010."

For the current quarter HPE guided to earnings of 39-43 cents. For the full year they expect $1.85-$1.95 and that was more than analysts expected at $1.87.

Earnings are boring. The really good news came from the cash flow. HPE expects to generate $2.0-$2.2 billion in free cash flow in 2016. Last year they returned $1.3 billion to shareholders in the form of dividends and share buybacks. In 2016 HPE is increasing its commitment to return 100% of the free cash flow to investors in dividends and buybacks.

In May they expect to close their previously announced deal with China's Tsinghua and that will provide an additional $2 billion in cash that HPE said it would use to repurchase shares.

This means over the next couple of months we should see significant share activity as fund position themselves to be the beneficiaries of all this buyback/dividend activity that could exceed $4 billion in 2016.

Earnings June 2nd.

HPE shares have shaken off their post spinoff weakness and are now trading at a four-month high. I am recommending we buy this stock in anticipation of investors moving in ahead of future dividends and buybacks. I am not recommending an option because they are too expensive.

Position 3/15/16:

Long HPE shares @ $16.36, see portfolio graphic for stop loss.



ORBC - Orbcomm Inc - Company Profile

Comments:

The ugly market prevented Orbcomm from progressing. Only a 12 cent loss shows good relative strength.

The position remains unopened until ORBC trades at $10.50.

Original Trade Description: April 5th.

Orbcomm provides machine-to-machine (M2M) and internet of things (IoT) solutions in the U.S., South America, Japan, Europe and internationally. Customers are able to track and manage fixed and mobile assets. They also provide satellite automatic identification service (AIS) for vessel navigation. Orbcomm has its own constellation of 41 low earth orbit satellites. Communication can also be handled through terrestrial based cellular network services.

Basically, Orbcomm can track anything and communicate with anything that is Internet, Cellular or GPS enabled. Companies use Orbcomm devices to track refrigerated trucks and trailers while monitoring temperatures of those vehicles. Orbcomm can track and monitor engine performance, locations, operating time, etc on over the road trucks, earth moving equipment, trailers on trains, containers on ships, etc.

Orbcomm added 239,000 connected devices in Q4 alone. Total installed and billable communicators rose from 976,000 at the end of 2014 to 1,569,000 at the end of 2015. On December 21st Orbcomm successfully launched 11 second generation OG2 satellites from Cape Canaveral and after testing all satellites went live on March 1st.

Large fleet customers are signing up for the Orbcomm service faster than the devices can be installed. Growth is accelerating faster than the 61% increase in 2015. Current high profile customers include Caterpillar, Hitachi Construction, John Deere, Komatsu, Volvo, C&S Wholesale, Canadian National Railway, Hub Group, KLM Transport, Marten Transport, Swift Transportation, Target, Tropicana, Tyson Foods, Walmart, Union Pacific Railroad, Werner Enterprises and hundreds more.

Earnings last quarter were only a penny because of the high cost of satellite launches. They also acquired three companies, Skywave, InSync and WAM Technologies.

Earnings are May 5th.

Shares of ORBC have been erratic over the last four months. As they announce successful satellite launches, new Fortune 100 customers, etc the stock spikes and then goes dormant for a week or two until the next announcement. Most traders have never heard of the company so every press release introduces ORBC to a new segment of investors. I know the stock looks over extended but I believe they are in a growth phase that will continue.

I am recommending we buy ORBC on a breakout over $10.50 with a stop loss at $8.75. One analyst last week was talking about $25 now that the satellite expansion phase was complete and the M2M and IoT applications were becoming a reality.

With ORBC trade at $10.50

Buy ORBC shares, initial stop loss $8.75

No options because of wide spreads.



SPXC - SPX Corporation - Company Profile

Comments:

Positive gain in a down market. No complaints here.

Original Trade Description: March 30th

SPX provides specialized heating, ventilation and air conditioning (HVAC) solutions worldwide. They also provide instrumentation, detection and measurement for industrial markets. They offer detection and inspection equipment for underground pipes and cables, specialty lighting products, communications technologies and bus fare collection systems. Their power segment provides all types of equipment and technology for the power generation, transmission and distribution market.

As part of a companywide restructuring process in December they agreed to sell their dry-cooling tower business. On the Q4 conference call they also announced plans to sell portions of the power division. They hired an outside advisor to provide strategic alternatives as they sell off the low margin and poorly performing portions of the business. They spun off the flow food and power portion into a new company SPX Flow (FLOW) in September.

They reported earnings of 52 cents that missed estimates of 57 cents. However, shares rebounded on the news of the various restructuring efforts. Shares rallied to resistance at $14.85 at the close today. A break over that resistance could hit $17 in the days ahead.

Earnings are May 26th.

Position 3/31/16 with a trade at $15.05

Long SPXC shares @15.05, see portfolio graphic for stop loss.

No options because of wide spreads.



TRN - Trinity Industries - Company Profile

Comments:

Still clinging to support at $18. We have a long way to go to get back over $20 but we have a July call option so plenty of time.

Original Trade Description: March 18th

Trinity Industries manufacturers rail cars, highway guard rails and steel beams for infrastructure projects, structural towers for wind turbines and electrical distribution grids, oil and chemical storage tanks, barges to transport grain, coal, aggregates, tank barges to transport oil, chemicals and petroleum products. The company was founded in 1933.

Shares crashed in mid February after they reported earnings that beat the street but guidance that disappointed. Earnings of $1.30 easily beat estimates for $1.07 but revenue of $1.55 billion missed estimates for $1.61 billion. They had full year earnings of $5.08 per share.

They guided for 2016 to earnings of $2.00 to $2.40 per share. The challenge is the slowdown in orders for railroad tank cars and barges to transport oil. With oil prices crashing the producers and refiners are cutting back on capex spending until prices recover. Trinity said revenue in 2016 could decline -32%. Shares declined -35% over two days on the news.

The key here is that Trinity is now trading at a PE of 3. Yes 3.74 to be exact. With earnings in the middle of their range at $2.20 and a PE of 10 that would equate to a $22 stock price.

Here is the good news. The company has $2.12 billion in cash and undrawn credit. They are not in financial trouble. They authorized a $250 million share buyback starting January 1st. They have an order backlog of $5.4 billion in orders for 48,885 railcars. They received orders for 2,455 cars in Q4 and their backlog stretches out to 2020. The barge division received orders for $190.1 million in Q4 and had a backlog of $416 million as of December 31st. The structural tower segment has $371.3 million in order backlogs.

They recognize that tankcar and barge orders are going to remain slow until oil prices recover, which should happen later this year.

This stock was extremely oversold but began recovering in early March. Trinity produces a lot of railcars for carrying all types of products other than oil. That demand is not going to disappear and they already have order backlogs stretching into 2020.

At their current valuation they could also be an acquisition candidate. This is a great business that has been overly punished by the oil crash.

Earnings May 30th.

Position 3/21/16:

Long July $20 call @ $1.50, no stop loss.

Previously Closed 4/5/16: Long TRN shares @ $19.15, exit $17.50, -1.65 loss.



WIN - Windstream Holdings - Company Profile

Comments:

No loss in an ugly market. Good relative strength. No stop loss on the option.

Original Trade Description: March 11th

Windstream provided network communications and technology solutions for consumers, businesses and enterprise organizations. They provide high-speed internet access, hosted web services and cable TV to a combined total of 1.6 million residential and business customers. They have more than 125,000 miles of high-speed fiber optic cable with speeds up to 500 gbps along their main corridors. They have 11 major data centers providing web hosting, cloud services, etc.

In the Q4 earnings, WIN reported adjusted earnings of $1.41 that crushed estimates for a loss of 48 cents. Revenue of $1.427 billion missed estimates slightly for $1.433 billion. The major earnings beat came from a spinoff of some of its telecom assets into a REIT. The cash received from the spinoff will allow some major network improvements in the months ahead.

The company declared a 15-cent quarterly dividend payable April 15th to holders on March 31st. That equates to a 7.3% annual yield.

WIN shares have been moving higher since they reported earnings on February 25th. Shares are at resistance at $8.25 and could breakout this week. The next resistance would be $11.85.

While we are not playing the stock for a takeover there is always the chance that somebody like Verizon or even Google could decide the $750 million market cap was chump change for 125,000 miles of high-speed fiber, cable TV and data center business.

I am going way out on the option to August because it is cheap and it will make a good lottery play even if we close the stock position early.

Position 3/11/16

Long August $9.00 call @ .40 cents. NO STOP LOSS

Previously closed 3/29/16: Long WIN shares @ $8.22, exit $7.10, -1.12 loss.




BEARISH Play Updates


GPRO - GoPro - Company Profile

Comments:

Support at $11.50 still holding. No decline in a weak market. Maintain the stop loss at $12.55.

Original Trade Description: March 28th

GoPro develops hardware and software solutions associated with capturing, managing, sharing and enjoying engaging video content. Basically they make action cameras and had the market cornered for several years. That is no longer the case.

Analysts expect GoPro sales to decline -16% in 2016 compared to 15% growth in 2015 and 41% growth in 2014. The company has made numerous mistakes in execution and competitors caught up with them and some have passed GoPro in technology. The company expects to fix their sagging sales by discontinuing three cheaper models in 2016 and introduce the new Hero 5 camera sometime this year. They will also release the Karma drone and the Omni VR rig later this summer.

However, Kodak, Nikon, Ricoh, Nokia and 360Fly have already launched similar devices at cheaper prices than GoPro normally charges. Analysts claim the streamlined cameras from those manufacturers make GoPro cameras look bulky and clumsy. Nokia is selling an 8 camera VR device for $60,000 to professional filmmakers. GoPro is trying to market a 16 camera setup for $15,000 but the software is clunky and hard to use.

The bottom line here is that GoPro had the lead spot in the market and is in danger of losing it to major, well-funded competitors. Secondly, many analysts say the action camera market has become saturated and anyone that wanted one now has one.

Shares fell 7% today on the Nokia VR news. The closed at $11.50 with support at $10. That looks like a done deal given the choppy market and the downward trajectory on GoPro shares. With competition mounting, I would not be surprised to see GoPro set a new low.

Earnings are April 28th.

Position 3/29/16 with a GPRO trade at $11.40

Short GPRO shares @ $11.40, see portfolio graphic for stop loss.

Optional

Long May $11 put @ $1.17, see portfolio graphic for stop loss.





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