Option Investor
Newsletter

Daily Newsletter, Monday, 6/6/2016

Table of Contents

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

Market Wrap

Approaching The All Time High

by Thomas Hughes

Click here to email Thomas Hughes

Introduction

The market moved higher despite last week's poor NFP, all eye's are on the Fed meeting scheduled for next week.

The NFP, it was a shocker don't get me wrong but let's put it into perspective. The number is only one month of data, there is a margin of error of 115,000 and all other labor market indicators support labor market health. Jobless claims are trending at historic lows, unemployment is falling, employee confidence (JOLTs quite rate) is trending at historic highs, wages are up more than 2% YOY and the number of job openings hit another all-time high in March. As I've asked before, does it matter if we create new jobs when we still can't fill the openings there are?

Today there were a number of Fed speakers, including Janet Yellen, and they still seem to think a rate hike is due fairly soon. Rosengren and Meister say a hike is still appropriate, Bullard says June may not be right but July could be.

In her speech today Yellen said many things, here is a quick recap; despite the weak NFP the economy is on track, wage growth appears to be picking up, she expects inflation to move up, a gradual increase in rates is warranted, it is likely the FOMC will raise rates before targets of full employment and 2% inflation are reached, and no mention of timing. She also warned against overreacting to a single data point. According to the CME's Fed Watch Tool there was only a 6% chance of a rate hike at this meeting as of this morning, that chance fell to only 4% following Yellen's speech.

Market Statistics

International markets were mixed. In Asia markets were mostly flat or marginally lower. The NFP report sent the yen surging against the dollar and helped depress the Japanese market which weighed on the rest of the region. In Europe the day began much the same, mixed to slightly down, until the open of trading here at home. At that time positive sentiment, and rising oil prices, helped to lift the DAX and others firmly into positive territory.

Futures trading indicated a flat to positive open for the US indices. The early hours were largely without market moving news, no major earnings reports or official economic data was released, so the trade held fairly steady going into the opening bell. At the bell the indices moved higher, by about a half of a percent in the first 20 minutes, and then drifted higher for the remainder of the morning. After a brief pull-back, around 1PM, the indices continued their march higher into the afternoon. Daily high was set near 2:30PM at which time the rally lost momentum and drifted sideways into the close of the day.

Economic Calendar

The Economy

No official economic data today but we did get the weekly Moody's Survey Of Business Confidence. The index fell by -1.8 points from last week, the second week of significant decline, to hit 26.7 and a new multi-year low. Mr. Zandi says that poor sales strength and less hiring are to blame as global sentiment deteriorates. The US remains the strongest region while Europe weakens; South America is the weakest region, affected by political instability.


There was no update on earnings or outlook from FactSet this week. As of last report the 2nd quarter is still expected to be very weak with negative growth of -4.8%. The unofficial start to the next cycle is only 5 weeks away.

The rest of the week is light on data as well. Even so, there are a few released due out this week and they may have impact on FOMC outlook and how the market views the NFP data. Tomorrow we'll get the revised productivity and labor cost data for Q1. This data, productivity especially, is expected to see positive revision and if so will play into the theory that job creation is slowing because productivity is on the rise. Wednesday is the JOLTs report for April, Thursday is the weekly jobless claims and wholesale inventories, Friday wraps it up with Michigan Sentiment.

The Dollar Index

The dollar tried to move higher from last week's sell-off but was not able to make significant gains. The Dollar Index was able to gain about a tenth of a percent intra-day but closed flat on the day. The index is sitting at a near one month low, below the $94 level and the 78.6% retracement level, with bearish indicators. The index certainly looks set to move lower, potential target near $92.50, and the indicators are in support of this view, but it will come down to data and what the FOMC does next week. If the FOMC surprises the market with a rate hike, or indicates that July is likely, the dollar could reverse last week's losses very quickly. Further, the BOJ is also set to meet next week and could move to weaken the yen, which could lift the DXY.


The Oil Index

Oil got a boost from a trifecta of near term events. First, a weakened dollar has helped to support prices. Next, sabotage at a major Nigerian facility has disrupted supply outlook furthering impairing supply from Africa's largest producer. Adding to supply/demand outlook is a reported 1 million barrel draw from the Cushing storage facility. The price of WTI rose as much as 2.25% in today's trading, coming just shy of the $50 mark, before Yellen's statements caused prices to retreat. Even so, WTI closed up by 1% on the day, trading above $49.

The Oil Index continues to trade near the 1,125 level. Today the index gained a little more than 1.5% to gain the upper side of this level but remains within the tight trading range we've seen over the past month. The indicators are neutral, possibly rolling into a bullish signal but without indication of true direction. At this point it looks like the index is waiting for something, possibly a more concrete idea of when supply/demand imbalances will re-balance. A break out of this range will could spark a large movement with up and down-side targets 75 points to either side of the 1,125 level.

I want to point out that the Oil index has still not made a new high and is in fact more than 6.5% below the last high while the price of oil continues to flirt with 7 month highs. This divergence gives reason for caution as the oil price may have gotten ahead of the market. If oil prices are able to hold these levels and/or move higher I would expect to see the index move up to make a new high as well.


The Gold Index

Gold was a bit choppy today even though moves were small. The spot price was down about a half percent in early trading but those losses were recovered following Yellen's speech. Spot price hung around the $1245 level and is near the mid-point of the 4 month range. Price may remain near this level into the FOMC announcement next Wednesday, after that it will come down to what they do and what they say. As always, if the FOMC appears to be more hawkish than not the dollar could rise and gold could fall back to support. If not a move up to recent resistance in the $1280 area is likely. Regardless, gold is likely to remain inside the range between $1200 and $1300 until the FOMC actually raises rates, or the data shows real weakening of the economy.

The gold miners made small gains today, about a half percent, and are trading near the multi-year high and the top of 6 week consolidation range. The miners are definitely benefiting from higher prices but as always remained tied to the price of the underlying commodity. The indicators are pointing higher, both have recently made bullish crossovers, with a possible test of the $26.70 level. The caveat, if the FOMC surprises with a rate hike or hawkish statements it could easily fall back to support along with gold. Bottom line, expect some volatility in gold over the next week, and the dollar, and most likely in the broader market, all due to the FOMC.


In The News, Story Stocks and Earnings

The board of Hertz Global Holdings approved the plan to split the company into two publicly traded companies. The split will produce Hertz Global Holdings, a car rental company, and Herc Holdings, a business equipment rental company. The deal is expected to be tax free for US shareholders for income tax purposes. The deal will be completed as a dividend distribution of all the assets deemed belonging to Herc Holdings at the rate of 1 for every 5 shares of the parent company. The deal is expected to be completed by July, 1st for shareholders of record on June 22nd. Trading on a "when issued" basis will begin two days prior to the close. Today shares of Hertz gained over 6.25% to trade at a 2 month high.


Home Depot was one of the few stocks to move lower in today's session and the biggest drag on the Dow. Today's move set a new 2.5 month low with mixed indicators, unless there is something I am missing this looks like a test of support following the all-time high set last month. Other than the fact that co-founder and former CEO endorsed Donald Trump for president, and the stock went ex-dividend on Friday, there was very little news to spur the near -2% decline in share value. If the decline continues support looks likely at the $125 level, a break below this level would be bearish and could take it down to $120 or $115.


FedEx announced a dividend increase after the bell. The global shipping company raised distribution by a whopping 60%, to $.040 from $0.25. The news helped to lift the stock by a half percent in after hours trading.


The Indices

The market moved higher today and is approaching, in many cases, long term resistance and the possibility of touching all-time highs. Today's leader was the Dow Jones Industrial Average which posted a gain of 0.63%. The blue chips created a medium bodied white candle with bullish indicators and appears to be moving higher. The caveat is that the index is approaching a potentially strong resistance level, 18,000, and the indicators are weak. A touch to this level could spark another sell-off if no bullish catalyst emerges. A break above this level would be bullish but also comes with the caveat that resistance at the current all-time high is just above.


The Dow Jones Transportation Average posted the 2nd largest gain in today's session. The transports gained 0.55% in a move that created a small bodied white candle with visible lower shadow. The candle formed precisely on the 7,750 support/resistance line, coincident with the short term moving average, with a close above that line. The close above the moving average, and the lower shadow, suggests support is present at this level although it is not showing much strength at this time. The indicators are bullish, but mixed and showing signs of potential weakness in that MACD momentum is in decline and stochastic may be rolling over. A move up from here may find next resistance at near 8,000, a fall back below the 7,750 level could go down to 7,500.


The NASDAQ Composite Index was third in line today with a gain of 0.53%. The tech heavy index closed above the 4,950 resistance level and set a new intra-day high for 2016. The indicators are bullish and suggest the move could continue although momentum is weakening. If the index does move higher over the next few days next upside target is near 5,035.


The S&P 500 made the smallest gain in today's session, only 0.49%. The broad market moved up to set a new 2016 high and is now less than 25 points away from the all-time high. It looks like the index is set to move up and test next resistance, which is the all-time high, but the momentum is weak so I am not confident it will break out even if it does set a new high.


The market moved higher today and may reach new all-time highs. Whether it holds those highs and moves higher is very questionable. In the near term the FOMC meeting and decision is driving the market. Friday's data and today's comments from Yellen seem to have taken a rate hike off the table, in June at least, but her message was mixed. The economy is better than the market thinks, but still not good enough for a rate hike. This may sooth an anxious market but is not enough to keep it at new highs, not without earnings growth and the coming cycle is not expected to produce growth.

Longer term, and of more importance I think, is the future of earnings growth. If the next cycle produces better than expected results, and forward outlook improves, we may very well see a summer break out to new highs and a rally that lasts into the end of the year. If not,well, the market is likely to correct again before moving higher. Don't forget, the market has been drifting sideways at or below the all-time high for over a year and a half, that's along time for investors to hold positions that are only treading water. A touch back to those level could easily draw sellers into the market. I remain cautious in the near term and hopeful in the long, waiting for earnings season to start.

Until then, remember the trend!

Thomas Hughes


New Plays

Moving to Stealth Mode

by Jim Brown

Click here to email Jim Brown
Editor's Note

When you transact banking business online, you want to be invisible to hackers. Unisys, a company founded in 1873 just launched Unisys Stealth, a cybersecurity product to keep banking customers safe regardless of the device you use.


NEW BULLISH Plays


UIS - Unisys Corp - Company Profile

Unisys Corporation provides information technology services worldwide. It operates through two segments, Services and Technology. The Services segment provides cloud and infrastructure services, application services, and business process outsourcing services. The Technology segment designs and develops software, servers, and related products. It offers a range of data center, infrastructure management, and cloud computing offerings for clients to virtualize and automate data-center environments. This segments product offerings include enterprise-class servers, such as the ClearPath Forward family of fabric servers; the Unisys Stealth family of security software; and operating system software and middleware. The company serves commercial, financial services, public sector, and the U.S. federal government through direct sales force, distributors, resellers, and alliance partners.

Unisys has morphed in its 143 years of operation into a global cloud, IT and infrastructure services company. That is a long way from the original company that produced the first commercially viable typewriters and adding machines under the name Burroughs, Sperry and Remington Rand.

Today one of their main products is Unisys Stealth for protection of digital and physical assets. Stealth Mobile protects secur emobile applications and Stealth Cloud expands that protection to the cloud.

Just before their recent earnings they announced a deal with Mitel to provide the Unisys stealth technology to protect their 60 million mobile and enterprise customers. Business is booming but it has been a long time coming. In Q1 revenue declined -3% and services declined -2%. However, the company said its "lumpy" quarter-to-quarter strategy was changing with a stronger focus on the Stealth products and their rapid wide scale adoption. They expect the amount of money spent on cybersecurity to more than double from the $75 billion in 2015 to more than $170 billion in 2020. The cost of data breaches will rise to $2.1 trillion annually by 2019 and more than four times the cost in 2015.

Unisys has been a stealth company for the last year with shares declining from $30 to $7. With their new products and the rapid acceptance of those products their stock is rebounding off the three month consolidation pattern.

Earnings July 28th.

Shares moved over resistance at $8.25 last week and are preparing to move higher. The big decline in March was a $190 million offering of convertible senior notes due 2021 with a conversion price of $9.76. That was a 20% premium to the stock price post announcement.

If the current rebound continues the next material resistance is $12.

Buy UIS shares, currently $8.47, no initial stop loss.

Optional:

Buy October $9 call, currently 95 cents. No stop loss.



NEW BEARISH Plays

No New Bearish Plays



In Play Updates and Reviews

Resistance Held Again

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Dow resistance at 17,925 held at the close after a brief spike over that level intraday. The resistance on the Dow held but the S&P moved over prior resistance at 2,100 and closed at 2,109 and just under resistance at 2,110. This was mostly driven by another short squeeze with those stocks showing big gains making the most of their move for the day at the open.

We could be setting up for a turnaround Tuesday if there are no headlines on Tuesday to overcome this resistance. There is also the chance we could be setting up for a major short squeeze higher if futures are significantly positive at the open.

This is going to be a pivotal week regardless of which way we go. Even if we did move to new highs there is no guarantee we would keep going higher. New highs are one of the strongest resistance points you will ever see. Once past those highs the market could catch fire but that is all just speculation today.




Current Portfolio





Current Position Changes


NLNK - Newlink Genetics

The short position remains unopened until a trade at $11.15.


SWIR - Sierra Wireless

The long position remains unopened until a trade at $20.30.


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


CLVS - Clovis Oncology -
Company Profile

Comments:

No specific news. Shares rebounded from the Friday sell off. The ASCO conference ends on Tuesday. I tightened the stop loss in case it rolls over.

Original Trade Description: May 29th.

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

Clovis announced it would make three presentations at ASCO and one discusses the potential for using Rucaparib for treatment of a different cancer other than the drugs original intent. That presentation is on pancreatic cancer and the other two are on ovarian cancer.

These are promising drugs and any positive data that Clovis releases could give the stock a significant boost.

In their recent earnings, they reported a loss of $1.98 compared to estimates for -$2.15. Because it is an experimental drug company, the earnings are not that material. Shares did decline about $1.50 after the report but have risen $4.50 in the last two weeks.

Earnings August 4th.

Resistance is $20.30 and shares closed at $16.70 on Friday. I would gladly take a $2 gain out of the middle over the next week and they tighten the stop loss as the multi-day conference begins next Friday.

Position 5/31/16:

Long CLVS shares @ $16.80, see portfolio graphic for stop loss.

No options recommendation because of wide spreads.



HPE - Hewlett Packard Enterprise - Company Profile

Comments:

No specific news. Shares spiked to a new historic high.

Original Trade Description: June 2nd.

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 Q1 earnings of 42 cents and in line with estimates. Revenue of $12.711 billion would have been up +4% on a constant currency basis. Analysts were expecting $12.419 billion.

For the current quarter, HPE guided to earnings of $1.10 to $1.14. For the full year, they expect $1.85-$1.95 and that was more than analysts expected at $1.89. They increased free cash flow +101% to $1.1 billion for the quarter.

The good news came from their plans for the cash flow. HPE expects to generate $2.0-$2.2 billion in free cash flow in 2016. They are receiving $2 billion from the Tsinghua transaction which closed in early May and the money will be used for share repurchases. In 2016, HPE is increasing its commitment to return 100% of the free cash flow to investors in dividends and buybacks.

This means over the next couple of months we should see significant share activity as funds position themselves to be the beneficiaries of all this buyback/dividend activity that could exceed $4 billion in 2016. $2.5 billion of that is in an "accelerated" buyback program. The board authorized another $3 billion in buybacks to bring the current authorization to $4.8 billion.

They also announced a tax-free spinoff of their services division to Computer Sciences Corporation (CSC), which is expected to close in March 2017. This will produce another $8.5 billion in value to HPE shareholders in the form of $4.5 billion in equity in the combined company and $1.5 billion in a cash dividend and the removal of $2.5 billion in debt from HPE.

Earnings Aug 23rd.

HPE shares have shaken off their May weakness and closed today at a historic high. I am recommending we buy this stock in anticipation of additional fund investors moving in ahead of future dividends, buybacks and the spinoff.

Position 6/3/16:

Long HPE shares @ $18.40, see portfolio graphic for stop loss.

Optional:

Long August $20 call @ 40 cents. No stop loss.



OMED - OncoMed Pharmaceuticals - Company Profile

Comments:

The company made a presentation at ASCO and shares declined sharply for the second day. I am recommending we close this position.

Original Trade Description: May 21st.

OncoMed Pharmaceuticals is a clinical-stage company focused on discovering and developing novel anti-cancer stem cell and immuno-oncology therapeutics. OncoMed has seven anti-cancer therapeutic candidates in clinical development, where each target key cancer stem cell signaling pathways including Notch, Wnt and R-spondin LGR. OncoMed is advancing its wholly owned GITRL-Fc candidate and an undisclosed immuno-oncology candidate (IO#2) toward clinical trials in the 2016-2017 timeframe. OncoMed has formed strategic alliances with Celgene Corporation, Bayer Pharma AG and GlaxoSmithKline (GSK).

OncoMed is making six presentations at ASCO related to six oncology drug candidates, including robust preclinical anti-tumor activity data for its wholly owned GITRL-Fc candidate and from clinical trials of vantictumab, ipafricept, demcizumab and tarextumab.

All of that is Greek to me but this is a cancer conference and OncoMed is an up and coming cancer drug company. They should be right at home and the notes I have read suggest several of their drugs are very promising. They have milestone payments coming from GSK, Bayer and Celgene coming in 2016-2017 of more than $270 million.

Shares have risen steadily since the earnings miss on May 5th. As a preclinical company they do not have retail revenues and depend on funding from their partners. They will have operating losses until their drugs are in the marketplace.

Shares spiked on the 28th after AbbVie said they were buying cancer drug company Stemcentrx for $10.2 billion. That company is in the same stem cell research sector as OMED.

Earnings August 4th.

With the ASCO meeting still 10 days away we could benefit from some of the building excitement and hopefully the company's presentations at the meeting will increase the interest in the stock.

Position 5/23/16:

Long OMED shares @ $12.80, see portfolio graphic for stop loss.

No options recommended because of wide spreads.



P - Pandora Media - Company Profile

Comments:

No specific news. Minor decline after 3 weeks of gains.

Pandora's chief product officer will present at the Stifel Technology Conference on June 7th.

Original Trade Description: June 1st.

Pandora provides internet music streaming services in North America. Listeners can create personalized stations to access free music and comedy catalogs as well as personalized play lists. They offer Pandora One, a paid subscription based service for listeners. They sell audio, video and display advertising for delivery on connected platforms. They also offer a ticketing platform for promoters and advertising to promote their events.

In Q1 active listeners rose to 79.4 million and hours streamed rose 4% to 5.52 billion. They reported a loss of 20 cents but that was 19 cents better than the 39 cent estimate.

Pandora's chairman Jim Hill bought 250,000 shares at $10.97 per share and then another 250,000 shares at $11.33 each. That is close to $6 million in purchases. CFO Mike Herring bought 225,000 shares a couple weeks earlier. Last week somebody bought 12,000 contracts of the September $12 call options. Today somebody bought 1,000 contracts of the July $13 calls and there was another trade for 2,500 of the September $10 calls.

So what is powering this sudden interest in Pandora? In May the hedge fund Corvex Management announced it had acquired a 9.9% stake and demanded the company be sold to the highest bidder. Keith Meister runs the fund and he believes there should be an auction and Facebook should buy the company. Since Pandora has only a $3 billion market cap that should be attractive to Facebook because it would get those 79 million listeners to further spread its advertising reach across the internet.

Apple, Google and Amazon already have some type of streaming app and that leaves Facebook as the likely candidate. Barron's suggested Verizon or Liberty Media could buy them. Sirius XM was also mentioned as a possible buyer.

With plenty of potential acquirers and insiders buying huge amounts of stock there may be some discussions in progress.

Update 6/3/16: Board membr, Timothy Lelweke, bought 10,000 shares on Wednesday at about $11.63 each. He now owns 43,768 shares so that was almost a 30% increase in his holdings. Something is definitely going on behind the scenes to generate all this insider buying. Position 6/2/16

Long Pandora shares @ $12.08. Initial stop loss $10.25.

No option recommended but the July $13 is only 62 cents.



SWIR - Sierra Wireless - Company Profile

Comments:

No specific news. Shares are still holding at resistance at $20. Eventually there will be a high volume breakout or break down.

The position remains unopened until a trade at $20.30. High today was $20.07.

Original Trade Description: May 26th.

Sierra Wireless engages in building the Internet of Things with intelligent wireless solutions. They operate in three segments, Original Equipment Manafacturer, Enterprise Solutions, and Cloud Connectivity Services. They offer cellular embedded modules, software and tools to integrate wireless connectivity into various products and solutions.

In their recent earnings they reported an adjusted profit of 8 cents. Revenue declined -5.1% because of previously reported softness in orders from several existing automotive customers. For Q2 they expect earnings in the range of 9-17 cents on revenue of $150-$160 million. For the full year they guided to earnings of 60-90 cents on revenue of $630-$670 million. They bought back 549,583 shares in the quarter.

The revenue in the OEM solutions segment declined -9.1% due to softness in auto production in Q1. Enterprise solutions revenue rose 9% and cloud and connectivity systems revenue rose 92%. They began upgrading their global LTE core network to provide additional connectivity for wholesale operators.

In their guidance, they said business should improve significantly because of more than 40 new customer programs moving into production on new IoT products. They manufacture to customer specifications when the customer adds a new product.

Earnings Aug 4th.

To go from an 8 cent profit in Q1 to 60-90 cents for the full year is a major gain in profitability. Shares have been rising since the earnings report and showing no weakness when the market was down.

With a SWIR trade at $20.30

Buy SWIR shares, currently $19.90, initial stop loss $18.45.
No options recommended due to wide spreads.




BEARISH Play Updates

ENDP - Endo Intl Plc - Company Description

Comments:

No specific news. Minor gain. Goldman initiated coverage at neutral. No ASCO drop here where we need it. We still have a long put option open. At 5 cents, it was not worth a stop loss. We have two weeks before that expires and anything is possible after ASCO.

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.

Position 5/12/16:

Long June $12.50 put @ $1.05, see portfolio graphic for stop loss.

Previously closed 6/1/16: Short ENDP shares @ $13.81, exit $16.45, -2.64 loss.



NLNK - Newlink Genetics - Company Profile

Comments:

No specific news. I am changing the entry trigger from $10.25 to $11.15. That was an error in the recommendation.

Original Trade Description: June 4th.

NewLink Genetics Corporation, a biopharmaceutical company, focuses on discovering, developing, and commercializing immunotherapeutic products to enhance treatment options for patients with cancer. Its portfolio includes biologic product candidates based on its HyperAcute cellular immunotherapy technology, which is designed to stimulate the human immune system; and small-molecule product candidates that are focused on breaking the immune system's tolerance to cancer by inhibiting the indoleamine-2, 3-dioxygenase pathway and the tryptophan-2, 3-dioxygenase pathway.

The company's lead product candidate, algenpantucel-L, an investigational immunotherapy, was being studied in Phase III clinical trials for patients with pancreatic cancer. They announced on May 10th the drug did not meet the goals of the study and may have actually made the patient sicker in the process. The company said a late-stage clinical trial for its algenpantucel-L treatment did not statistically improve survival rates in patients with resected pancreatic cancer. "In light of these negative results, our scientific and clinical teams will focus on other promising opportunities in our pipeline," said CEO Charles Link. Patients treated with the drug lived an average of 27.3 months compared to 30.4 months on existing treatment programs.

Shares collapsed from $17 to $9 and that was already down from $60 late in 2015. The problem is that Newlink had invested a lot of time and effort in that drug and it had already progressed into stage III trials. That cost them a lot of momentum and investors lost interest. Analysts now say that Newlink's cancer vaccine platform is now empty. They will have to rely more heavily on its IDO inhibitors, another form of cancer immunotherapy, which is only in early stage development. This field is very crowded and Newlink is fading to the back of the pack.

Earnings July 28th AM.

Shares of Newlink rose slowly from $10 to just under $13 on the ramp into ASCO. Investors were definitely not excited about the companies potential for a market moving presentation. Shares fell -8% on Friday as traders sold the ASCO news before the weekend. Nobody wanted to end up holding a company on Monday that was sinking on a negative headline. If some other company announces some new treatment than everyone else in the space will decline.

The conference runs until Tuesday afternoon so I am putting an entry trigger on the position just to make sure it is going lower before we jump in.

Position 6/6/16 with a NLNK trade at $11.15

Short NLNK shares, currently $12.24. Initial stop loss $12.65.

No options recommended because of wide spreads.





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