The Nasdaq rallied +57 points after Applied Materials spiked 14% and caused a massive short squeeze in the chip sector. AMAT only accounted for 3 Nasdaq points but their comments lifted the entire sector. QCOM, INTC, TXN, AVGO, MU, etc all spiked and the short squeeze carried over into techs stocks of all flavors.
The Dow rose +135 points but gave back 70 in the afternoon to settle at 17,500. That level was prior support and now it should be resistance. The trend is still down but these every 3-4 day short squeezes are keeping the indexes from actually taking the big dive.
There is just enough bullishness to keep our small cap shorts from falling. The Russell 2000 was up +1.6% and posted the biggest gain of any major index. The Russell paused all day at resistance at 1,110 but surged 5 points in the last few minutes of trading. That looked a lot like shorts covering before the weekend.
We were stopped out of Bloomin Brands by a 50-cent drop at the open but the stock rebounded back to positive territory almost instantly.
We were stopped out of Hortonworks after the stock gapped up at the open and ran for 12% on short covering before rolling over at resistance at $11. I am recommending we reload this at the open on Monday. This was purely short covering and it failed at resistance.
Current Position Changes
BLMN - Bloomin Brands
The long position was stopped out at $18.25.
HDP - Hortonworks
The short position was opened with at $10.18 and stopped out at $10.75.
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
BLMN - Bloomin Brands - Company Profile
No specific news. Shares dipped 50 cents at the open to stop us out and then rebounded to close positive for the day.
Original Trade Description: May 9th.
Bloomin Brands owns and operates casual, upscale casual and fine dining restaurants primarily in the USA. Their brands include Outback Steakhouse, Carrabbas Italian Grill, Bonefish Grill and Flemings Prime Steakhouse & Wine Bar. They operate over 1,500 locations in 48 states and 22 countries.
They reported operating earnings of 47 cents that missed estimates for 50 cents. Revenue of $1.16 billion missed estimates for $1.17 billion. Same store sales in the U.S. declined -1.5%.
Shares surged 9% despite the miss.
Despite the weak quarter the company reaffirmed full year estimates for earnings growth of at least 10%. The company blamed restructuring costs on the weak quarter and said that would not be a problem in future quarters. They had previously projected a strong second half of 2016. They also pointed to sales in the Brazilian Outback Steakhouse that rose 8.8%. During the quarter they also bought back $75 million in stock. Strong dollar currency translation issues also reduced earnings. The company also declared a dividend of 7 cents payable on May 19th to holders on May 6th. They entered into a sale leaseback transaction where they sold 41 restaurants for $141.4 million and used $87 million to pay down debt.
Shares spiked 9% after the earnings and continued moving higher over the last two weeks. They closed today at a 7-month high.
Long BLMN shares @ $19.71, exit $18.25, -1.46 loss.
SQ - Square - Company Profile
Shares sold off despite the market short squeeze. SQ gave back the 20 cents gain from Thursday.
Original Trade Description: May 7th.
Square develops and provides payment processing, point-of-sale, financial and marketing services worldwide. It provides Square Register, a point-of-sale software application for iOS and Android, which enables sellers to process credit cards for multiple items through their smart device.
The company was knocked for a 22% loss after reporting a Q1 loss of 14 cents compared to estimates for 9 cents. Revenue rose +51% to $379.2 million and beat estimates for $343.6 million. However, operating expenses rose +72% to $207 million. G&A costs rose from $28 million to $96 million because of a $50 million charge for a lawsuit against Robert Morley, who claims to be the creator of the Square card reader.
Square also has a share lockup expiration on Square on May 17th. About 64 million shares will be unlocked and the float will increase nearly three times. A lot of early investors including Visa, Starbucks, Sequoia Capital (5%) and Khosla Ventures (17%) will be able to sell their shares. Given the reduced guidance and rapid decline there may be a race to the exits.
According to the Wall Street Journal, a whopping 69.48% of the shares (14.6 million) are short as of March 15th. Currently the public float is only 21.01 million shares. Source
I was going to recommend shorting the stock into the lockup expiration but the short interest is too high. The cost to borrow the shares would be prohibitive and with that much short interest it could be explosive. Also, I have seen many lockup expirations that have turned into the bottom for the stock. Expectations are so bearish that the stock declines to a ridiculous price before the actual expiration and then there is no selling. Anyone with shares in the lockup could have already shorted the stock to protect those declining shares. When the lockup expires they use their unlocked shares to cover their shorts.
I am proposing we use a combination strategy. I am recommending we buy a May $10 put, which expires three days after the lockup expiration. At the same time I am recommending we buy a June $11 call in expectation for a sharp post lockup rebound. Remember, revenue increased 51% in Q1 and they raised guidance.
If the stock declines, we sell our put for a profit before expiration and that reduces the cost in the call.
Long Jun $11 call @ 55 cents. See portfolio graphic for stop loss.
Previously closed 5/17/16: Long May $10 put @ 60 cents. Exit $1.00, +.40 gain.
BEARISH Play Updates
AMAG - AMAG Pharmaceuticals - Company Profile
No specific news. Rebound from the new intraday low under $18 on Thursday but resistance at $19 held. Analyst meeting announced for June 1st.
Original Trade Description: May 14th.
AMAG Pharmaceuticals, Inc., a specialty pharmaceutical company, provides products and services with a focus on maternal health, anemia management, and cancer supportive care in the United States. They also own Cord Blood Registry. This company collects, processes and stores umbilical cord blood and cord tissue for use in fighting chronic diseases in later childhood.
In their recent earnings they reported 94 cents that beat estimates for 89 cents. However, revenue of $109.3 million missed estimates for $123 million. Service revenues at Cord Blood were $19.5 million. However, R&D expenses rose +103.6% to $14.2 million and SG&A expenses rose 96.7% to $63.2 million.
With revenue well under estimates and expenses rising dramatically, the outlook for earnings weakened. While the company reiterated guidance for full year revenue in the $520-$570 million range that would require a significant rise in drug sales from the $109 million in Q1. Shares were downgraded to hold by Raymond James.
Earnings August 2nd.
Shares are at a 52-week low and they did not rally on Friday when the entire biotech sector was up more than 1%. They also failed to rally on the 9th when the biotech sector was up +3%. Apparently investors are not convinced they are going to be able to meet their revenue targets and earnings are going to suffer.
Short AMAG shares @ $18.33, see portfolio graphic for stop loss.
Long August $17 put @ $1.08, see portfolio graphic for stop loss.
DB - Deutsche Bank - Company Profile
No specific news. DB was sued by the Boston Retirement Fund over collusion on fixing the prices on bonds. Shares were up because Europe was in rally mode on Friday. This dead cat bounce should fade.
Original Trade Description: May 14th.
Deutsche Bank AG provides investment, financial, and related products and services worldwide. The company operates through Global Markets; Corporate & Investment Banking; Private, Wealth and Commercial Clients; Postbank, Deutsche Asset Management; and Non-Core Operations Unit segments. It offers a range of financial markets products, including bonds, equities and equity-linked products, exchange-traded and over-the-counter derivatives, foreign exchange, money market instruments, and securitized products, as well as mergers and acquisitions, and debt and equity advisory and origination services; and commercial banking, advisory banking, and financial services. The company also provides investment and insurance, mortgages, business products, consumer finance, payments, cards and accounts, deposits, and mid-cap related products, as well as life and non-life insurance products, and corporate pension schemes; payments, financing for international trade, lending, trust, agency, depositary, custody, and related services; invests in a range of asset classes, including equities, fixed income, real estate, infrastructure, private equity, and hedge funds. As of December 31, 2015, it operated 2,790 branches in 70 countries. Deutsche Bank AG was founded in 1870.
Unfortunately, DB may be in serious trouble. There are numerous rumors of financial problems of all types. The bank reported a record loss for 2015 and is being buried by a mountain of litigation related to subprime loans, manipulation of foreign exchange rates and gold and silver prices. They are under attack for rigging the Libor and Euribor interest rates used to set the prices for mortgage loans and derivatives. DB has paid more than $3 billion in fines already but that is a drop in the proverbial bucket compared to what is coming. There are numerous class action suits for multiple offenses, many of which DB has already admitted it committed.
DB debt yields are soaring as investors race to get out of positions before the bank crashes. Last week DB offered customers a 5% yield if they would deposit 10,000 to 50,000 euros and leave the money in the bank for 90 days. With the ECB willing to lend an unlimited number of euros to any European bank on almost any collateral, why is the bank offering customers 5% interest for 90 day money? It appears there is a massive liquidity squeeze underway and money is rapidly flowing out of DB accounts.
In the fine print on the offer DB says, "In case of bankruptcy or risk of bankruptcy of financial institution, the saver is at risk of losing their savings or may be subject to a reduction / conversion into shares (bail-in) of the amount of the claim that he has the financial setting on top of the amount covered by the double German guarantee scheme for deposits".
I doubt savers are rushing to deposit money that can be confiscated by a bail-in for the bank like we saw in Greece.
Short DB shares @ $16.37, see portfolio graphic for stop loss.
Long July $16 put @ $1.10, see portfolio graphic for stop loss.
ENDP - Endo Intl Plc - Company Description
No specific news. John Paulson tripled his stake in the company saying it was deeply oversold.
Resistance is 15.85 to 16.15 and I recommend we stay with it until we see if that resistance will hold. The current stop loss of $16.45.
Original Trade Description: May 11th.
Endo develops, manufactures and distributes pharmaceutical products and devices worldwide. The market well known brands including Percocet, Lidoderm, Voltaren and a wide range of pain medications and testosterone replacement therapies.
Shares have declined from $26 last week to $14 today. The company slashed full year guidance by -11% on revenue and -23% on earnings. The acceleration of the decline over the last several weeks has been in reaction to some generic competitors expected to receive approvals from the FDA soon.
The company also disclosed they were being investigated by the U.S. Attorney's Office for its relationship with pharmacy benefit managers or PBMs. In light of the improper relationship between Valeant and Philidor the USAO is investigating to see if the same problems exist at Endo. In November, Novartis had to pay a $390 million fine to settle charges it paid specialty pharmacies for illegal kickbacks in exchange for inducing patients to refill certain medications.
Endo is also under pressure as a result of the Valeant Pharmaceutical disaster and the overall decline in the biotech sector.
Earnings are August 4th.
Even though shares are down significantly from the May 6th news, I believe they will continue falling and could go into single digits. The similarities to Valeant's pharmacy problems and the impact to Valeant's stock are too close and should weigh on Endo.
Short ENDP shares @ $13.81, see portfolio graphic for stop loss.
Long June $12.50 put @ $1.05, see portfolio graphic for stop loss.
FDC - First Data - Company Profile
No specific news. Shares spiked again thanks to the bounce in tech stocks. FDC missed our stop by a penny.
Original Trade Description: May 16th.
First Data provides electronic ecommerce solutions for merchants, financial institutions and card issuers worldwide. The operate in three segments including global business solutions, global financial solutions and network & security solutions. This includes retail point of sale solutions, mobile ecommerce solutions and webstore solutions.
In their Q1 earnings, they grew revenue 3% and operating income rose from $185 to $220 million. Earnings of 24 cents were slightly above expectations for 21 cents. Revenue of $1.69 billion was below estimates for $1.71 billion. Unfortunately, FDC has $19 billion in debt compared to its $3 billion market cap. Interest expense in the first quarter was $263 million or more than $1 billion a year.
Global business solutions revenue declined in the quarter while financial solutions and security solutions showed only marginal growth.
Earnings July 21st.
While the company tried to put a positive face on the future by projecting revenue growth, it appears investors were not impressed. Shares have fallen from $13.50 to $10.50 over the last three weeks since earnings. FDC does not provide guidance and that is troubling to some investors.
I am anticipating a retest of the post IPO low at $8.50 or even worse, depending on the market.
Short FDC shares @ $10.69, see portfolio graphic for stop loss.
Long July $10 put @ $.60, no initial stop loss.
GPRO - GoPro - Company Profile
No specific news. GoPro spiked 30 cents on no news thanks to the Nasdaq short squeeze.
Original Trade Description: May 5th.
GoPro develops hardware and software associated with capturing, managing, sharing and enjoying engaging content. They offer cameras and all the accessories associated with affixing those cameras to any object in order to capture action videos.
GoPro soared onto the scene in late 2014 and shares ramped up to nearly $100 until the execution problems began to appear. After owning the action camera sector for several years they are now facing a growing onslaught of competitors with far deeper pockets and bigger teams of software engineers. GoPro cameras remain some of the higher priced in the sector because of their history but that is quickly changing.
They reported earnings on Thursday after the bell. They posted a loss of 63 cents missing estimates for a loss of 60 cents. However, revenue of $183.54 million beat estimates for $171 million BUT it was a -49.5% decline over the year ago quarter of $363 million and a profit. They shipped 701,000 cameras but that was a -47.8% decline from last year. They affirmed guidance for revenue of $1.35 to $1.50 billion for the full year BUT they are delaying one of their biggest revenue drivers for the year.
The Karma drone was supposed to be released in the first half of 2016 and was expected to provide a revenue boost for the company. In the earnings conference call, they said the release of the drone would be pushed out into the holiday season. How they are going to meet their prior revenue estimates after losing six month of drone sales is a mystery. When asked about it on the conference call the CEO basically said, "trust us." This is especially troubling when SZ DJI Technology is rapidly monopolizing the drone market. DJI has been called the Apple of the drone industry. They sold and estimated 70% of the consumer drones sold in 2015. Now they will have another six months to flood the market with multiple drone models before the GoPro Karma even gets off the ground.
Here is an interesting article on GoPro competitors. We could see this stock reach low single digits. GoPro Competition
Shares fell slightly in afterhours but I expect them to make a new low in the weeks ahead. They closed the afterhours session at $10.16 and the historic low is $9.01. The afterhours low was $9.57.
Short GPRO shares at $8.75, see portfolio graphic for stop loss.
Previously Closed 5/13/16: Short GPRO shares @ $9.65. Exit $9.35, +.30 gain.
HDP - Hortonworks - Company Profile
We entered the position at $10.18 at the open but there was a monster short squeeze on no news. Shares ran up to $11 and then faded in the afternoon. We were stopped out at $10.75.
This short squeeze on no news was a one-day wonder. I am recommending we reload this at the open on Monday.
Short HDP shares, currently $10.70, stop loss $11.25
Original Trade Description: May 19th.
Hortonworks, Inc. focuses on the development, distribution, and support of Hadoop open source project in the United States and internationally. It offers Hortonworks Data Platform (HDP), an enterprise-grade data management platform that enables its customers to capture, store, process, and analyze increasing amounts of existing and new data types without the need to replace their existing data center infrastructure.
In March Hortonworks and Hewlett Packard Labs announced a collaboration to enhance Apache Spark. Hewlett & Hortonworks
Apparently, they are not setting the world on fire. They reported a Q1 loss of 68 cents that missed estimates by a penny. Revenue rose to $41.3 million and beat estimates slightly. They guided for the current quarter for revenue of $45 million that was in line with estimates.
Investors were not excited about the lackluster earnings and the prospect for continued losses. Shares fell from $12 to $10 after the earnings and after a small dead cat bounce back to $11 the trend has been lower. The stock closed at $9.89 today and a three-month low. The historic low is $7.12 and the odds are good it will be tested if the overall market remains weak.
Closed 5/20/16: Short HDP shares @ $10.18, exit $10.75, -.57 loss.
RELOAD the short at the open on Monday.
LOCO - El Pollo Loco - Company Profile
No specific news. Shares rebounded only 13 cents.
Original Trade Description: May 18th.
El Pollo Loco develops, franchises, licenses and operates quick service restaurants in the USA. The company offers individual and family sized chicken meals, Mexican inspired entrees and sides. They currently have 430 company owned and franchised restaurants. They are planning opening 16-20 additional stores in 2016.
The big spike on the IPO came on name recognition, a successful roadshow and a small number of shares initially offered. They later waived the lockup period and allowed insiders to sell their shares on November 19th, 2014, two months earlier than stated in the IPO documents. Shares crashed from $33 on the news and have never recovered that level.
The reported earnings on May 5th of 17 cents that missed estimates for 18 cents. Revenue of $94.4 million also missed estimates for $96.9 million. They guided for full year earnings of 70-74 cents, which was almost zero growth from the Q1 numbers. That suggests the competition is fierce and they are having trouble gaining market share. Earnings in 2015 were 71 cents.
Net income declined -19.8% in Q1. Same store sales declined -0.6% for company operated restaurants. That is not a good track record to use when selling new franchises.
Next earnings August 4th.
I think the crazy chicken is dying. Their moment in the sun is fading along with their stock price. Shares are rapidly approaching their post IPO low of $9.58 and once you break under that $10 level it is very hard to recover.
Short LOCO shares @ $10.61, see portfolio graphic for stop loss.
No options recommended.
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