Option Investor
Newsletter

Daily Newsletter, Wednesday, 6/8/2016

Table of Contents

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

Market Wrap

Creeping Higher

by Thomas Hughes

Click here to email Thomas Hughes

Introduction

The indices are creeping higher as fears of FOMC rate hike recede. According to the Fed Watch Tool there is now only a 2% chance of a June hike. This, along with surging oil prices and a weakening dollar are helping to support the indices despite the World Bank's reduced 2016 global growth outlook, last week's less than tepid NFP report and the prospect of another quarter of negative earnings growth.

Yesterday the World Bank lowered its 2016 global growth forecast by a half percent to 2.4%. The reason, “sluggish growth in advanced economies, stubbornly low commodity prices, weak global trade, and diminishing capital flows”. This news hit Europe hardest, down roughly -0.75% in today's session, but also took a toll on the Asian markets. Futures trading here at home did not seem affected, buoyed instead by rising oil prices. WTI crossed the $51 level in early trading, setting a new 2016 high.

Market Statistics

Futures indicated a flat to positive open all morning. Aside from the World Bank report and oil prices there was little in the way of actual news to impact trading. The S&P 500 opened the session with a gain of 0.58, points not percent, and quickly moved up to test resistance levels near 2,120. An early high was set within the first half hour of trading, at resistance, followed by a quick retreat to near the opening level and choppy sideways trading from there until late afternoon. Shortly after 2:30 most of the indices were able to work themselves up to the highs of the day or slightly higher. For the SPX this means a touch to my resistance line at 2,120.25 where resistance once again it held the bulls at bay.

Economic Calendar

The Economy

Two bits of economic data today, the mortgage index and the JOLTs report. The mortgage index showed a surprise gain of 9.3% from last week, possibly due to a marginal decline in interest rates or rebound from the slump seen the week before Memorial Day.

The JOLTs report continues to support the idea of labor market health, despite low job creation in May. The number of openings was "little changed" according to the report, but up nearly a half million jobs to a new all time high. This news is completely contradictory to a headline I saw this morning stating that large numbers of job seekers have quit looking for jobs. To that I say... those people may not be finding the job they really really want but there are plenty of jobs available, just look on Craigslist where MILLIONS of jobs are listed daily. The real problem is a growing skills gap, which I see employers complaining of more and more.

Within the JOLTs report the number of hires fell to 5.1 million, but is still near historic high levels, and the quits rate remains steady, also trending near historic high levels. Trades, transportation & utility and durable good manufacturing jobs led with the largest number of new openings, more than 150,000 combined.


There is very little data left this week, jobless claims and wholesale inventories the big two, but there is a lot of data due out next week. Before the FOMC announcement we'll get retail sales, business inventories, PPI and industrial production, all of which will play into economic and FOMC outlook. Following the announcement we'll get CPI, more jobless claims, Philly Fed, housing starts and building permits, all of which will play into economic and FOMC rate hike outlook. Basically, next week has a lot of potential to be a make or break week for the market.

The Dollar Index

The Dollar Index fell again. Today's action shaved another -0.35% in a move that looks set to test support near the $92.50 level. The indicators are both bearish and pointing lower, consistent with this outlook. MACD is on the rise and may gain momentum into the end of the week, beginning of next week, while we wait on the FOMC meeting. The risk between now and then is in the data, of which there is very little, and the FOMC itself, who knows which member will come out with comments to move the market. A move below support targets is not likely, unless the FOMC statement next week is too dovish and leads the market to believe a rate hike will be put off further.


The Oil Index

Oil prices surged this morning to levels not seen since last October on global supply disruptions. WTI crossed the $51 mark but had a hard time holding the level as current supply/demand issues persist. The weekly US inventory data showed a -3.2 million barrel draw down, in line with expectations, but other data shows rising production and storage levels. Gasoline storage levels rose by 1 million barrels, distillates rose by 1.8 million barrels and US production rose by 100,000 BPD. Gasoline and distillates levels may come down over the summer driving season, but with production on the rise supply of oil in general is likely to remain very high. Oil prices may continue to rise, momentum is to the upside, but I am very wary.

The Oil Index has finally broken out of its congestion band and is moving higher. It has not yet set a new high to match the price of the underlying commodity but it is getting closer. Today's action took the index up about 0.25% to hit the 1,170 resistance line, where resistance was present and capped gains. The indicators are on the rise, consistent with rising prices and a likely continued testing of resistance. With oil prices on the rise as well, a break of resistance is very possible. If so a move up to 1,200 or possibly 1,250 looks likely in the near term. If oil prices fall from their new high the index is sure to follow, first target for support is near 1,120 and short term moving average.


The Gold Index

Gold prices are reacting favorable to diminished FOMC rate hike out look. The spot price jumped 1.35% to hit a two week high. While this move has upward momentum and is likely to reach recent resistance levels near $1290/$1300 further upside is uncertain. The FOMC is likely not to raise rates next week but they are likely to raise them later this year. July is the next likely opportunity and any statements to that effect, or hawkish sounding in general, could put a bid back in the dollar and send gold back to support.

The gold miners jumped on the move in gold with many setting new highs. The Gold Miners ETF GDX gained more than 4% on the news and set a new high, near the $26.50 resistance level, creating a small and potentially ominous candle. Today's action, while posting huge gains, created a very small doji candle that could easily become a shooting star or pin bar, or even worse, an abandoned baby. Also of concern, two gaps have opened over the last week of trading days which leaves the ETF open to pull back. The indicators are on the rise with momentum showing some strength, suggestive this move to test resistance will continue, but with the FOMC next week and the chance they will surprise the market a possibility today's level is more attractive as a selling opportunity to me than they are for buying.


In The News, Story Stocks and Earnings

Lululemon reported earnings before the bell. The maker of yoga wear delivered mixed results but overall a good report. Earnings per share were slightly below estimates, revenue above estimates, driven by a 3% increase in comp store sales. Revenue rose 17% versus the same quarter last year, profits 16%, leading the company to raise guidance for next quarter and the full year. Despite the increase guidance remains below consensus estimates but was enough to send the stock higher. Shares rose nearly 4% to set a new 2.5 year high with strong momentum. Upside target is near $75.


Valeant lowered its guidance for the 3rd time in 6 months today citing its deal with Walgreen's as the reason. The company claims that Walgreen's is issuing prescriptions without first ensuring health insurance will pay for the medicines, causing Valeant to lose money. Valeant is trying to restructure the deal with Walgreen's but nothing is firm at this time. The stock fell -3% in today's session and is trading just off the all time low.


The Indices

The indices drifted higher, many are approaching all time highs, but the move was very weak. Today's leader was the Dow Jones Transportation Average which gained about a half percent but created the weakest looking candle of the day. The transports began the day with a nice move, close to 1%, but sellers stepped in and drove prices back toward the low of the day. Today's candle is relatively small and on low volume but created a longish upper shadow, indicative of resistance. The indicators are moving higher but weakly and stochastic is beginning to rollover beneath the upper signal line, also suggestive of resistance. The index may continue higher, next target would be near 8,125, but I'd like to see a stronger move before getting too bullish.


The other indices all closed within a very narrow range of each other, only a few hundredths of a percent, with the Dow Jones Industrial Average leading by a nose. The blue chips closed the day with a gain near 0.37% after moving up to test resistance at the 18,000 level once again. This is the 2nd day in a row it has wrestled with this level and today it closed slightly above. That being said it also looks very weak and susceptible to correction. Stochastic is moving higher and has broken the upper signal line, ordinarily a sign of strength but in this instance I think more a sign of overbought conditions than anything else. MACD momentum is very weak and does lend itself to much of a bullish argument at this time. If it does break through next target is near 18,150. A failure to break through may result in a move down to support at the short term moving average near 17,750.


The S&P 500 closed with a gain just shy of the Dow Jones' and set a new almost 11 month high. That being said it was not able to break resistance at 2,120 and does not appear very strong. The indicators are bullish, but like the Dow, consistent with a range bound index trading near at resistance. MACD is flat and very weak, stochastic entering the upper signal zone and indicating overbought conditions. If the index does break through the next target is the all time high, about 13 points above today's close. A failure to break could result in a move down to 2,100 or lower.


The NASDAQ Composite brings up the rear with a gain near 0.25%. The tech heavy index created a very small candle, the second of two spinning tops, just above the 4,950 support/resistance target. The index may be setting up for a move up to the next resistance target, near 5,050, but the indicators are not very supportive. MACD momentum is bullish, but retreating from a peak and approaching the 0 line, stochastic is high in overbought territory and making a bearish crossover, together indicating an index at or near resistance.


Today the market continued to drift higher. Rising oil and gold prices were a big help, as was FOMC outlook. The caveat is that the move is weak and without much conviction which leaves me skeptical the market will be able to break out to new all time highs, at least for now.

The FOMC meeting next week is focal point for all traders, it may set the market up for its next move, along with the data, but it will be the next round of earnings that drives the market up or down. The outlook remains negative for the quarter, growth is not expected to return until the next quarter.

The problem, and the thing holding me back from being too hopeful right now, is that earnings expectations have been slowing eroding for the past year. Each and every quarter for the last 4 has had similar outlook, negative now but positive next, up to and until projections were lowered and the next quarter became the next quarter of negative growth. It may not happen this time, I'm simply waiting to see the data improve. If, when, earnings expectations begin to rise I will get back on the bull train. With oil prices hitting new highs that could be very soon. For now, I remain cautious.

Until then, remember the trend!

Thomas Hughes


New Plays

Cars and Biotechs

by Jim Brown

Click here to email Jim Brown
Editor's Note

Hertz Global is racing towards a spinoff at the end of June and the CEO just fired up investors saying rental prices were rising.

Endo Pharmaceutical has refused to decline in the face of much pessimism and negativity in the biotech sector. Analysts are starting to talk about $40-$50 price targets given their $4.50 earnings guidance.


NEW BULLISH Plays

HTZ - Hertz Global Holdings - Company Profile

Hertz engages in the rental and lease of cars and trucks worldwide. It operates through four segments: U.S. Car Rental, International Car Rental, Worldwide Equipment Rental, and All Other Operations. The company rents various makes and models of cars, crossovers, and light trucks under the Hertz, Dollar, Thrifty, and Firefly car rental brands on hourly, daily, weekend, weekly, monthly, or multi-month basis through a network of company-owned rental airport and off-airport locations, as well as franchise locations. They operate 9,980 corporate and franchise locations. They also rent industrial equipment like earthmovers, air compressors, power generators, etc.

Last week Hertz shareholders formally agreed to the proposed split of hertz into two companies. Hertz Global will remain a car rental company. Herc Holdings will be the equipment rental company and trade under the symbol HRI.

The HRI stock will be spun off on June 30th to shareholders on June 22nd as a dividend distribution and therefore taxed at a lower rate when sold.

Shareholders will receive one HRI share for every five HTZ shares they own. Further complicating the process the HRI shares will have a reverse split of 15:1 on July 1st. The HRI portion of Hertz is significantly smaller and the reverse split is to boost the initial share price.

Activist investor Carl Icahn filed a notice with the SEC last week that he had increased his stake in Hertz to 15.24%. The Herc Holdings company will add three Icahn affiliate directors when the spinoff occurs.

With Icahn remaining on board the company should continue to be shareholder friendly. Icahn was instrumental in forcing the company split.

Also, the Hertz CEO was instrumental in producing a boost in the stock earlier in the week when he said the tide had turned for pricing in the rental car market. The fleet sizes had been reduced, everyone was running very tight and rental prices were rising. That fueled the sector on hopes of better earnings.

I am recommending we add the stock now and then decide on June 21st if we want to hold over the spinoff. Shares are right at resistance from March at $11.50. I would like to see them move over that level before we jump in.

With HTZ trade at $11.75

Buy HTZ shares @ $11.75, initial stop loss $10.45.

No options recommended because of the spinoff.



ENDP - Endo Pharmaceuticals - Company Profile

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 in mid May. 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 was also under pressure as a result of the Valeant Pharmaceutical disaster and the overall decline in the biotech sector. However, now that the Valeant disaster has turned into old news, analysts are starting to talk about price targets on Endo in the $40-$50 range.

Full year earnings are expected to be in the $4.50 range and that means their current PE is around 4.5. That is ridiculously cheap. That guidance was reduced from $5.85-$6.20 because of some generics going off patent, specifically Voltarena Gel and Percocet. Investor Wally Weitz believes there is significant upside in Endo and they probably reduced guidance conservatively so they would makes sure to hit future earnings.

Earnings are August 4th.

The shares have rebounded from the May lows at $12.50 and refused to decline after the ASCO conference ended. I am putting an entry trigger on this position to make sure we buy on a breakout rather than a breakdown.

With a ENDP trade at $18.35

Buy ENDP shares, currently $17.71. Initial stop loss $15.95.

No options recommended with $20 the closest OTM strike.



NEW BEARISH Plays

No New Bearish Plays



In Play Updates and Reviews

Cracks in the Ceiling

by Jim Brown

Click here to email Jim Brown

Editors Note:

Buyers pushed the Dow over 18,000 twice intraday and then again right at the close. Cracks are forming in the resistance ceiling on the Dow and the S&P is in breakout mode.

The war is still raging around the 18,000 level on the Dow but the buyers are starting to gain some ground. On the S&P there is a breakout in progress with the close at 2,119 and only 12 points from a new closing high. Volume was very low at 5.62 billion shares and the trading was very lackluster. However, most meltups occur on low volume when conviction is weak on both sides.

I am dropping Endo as a short position today and adding it back in as a potential long position. The stock refuses to decline after the ASCO conference ended and analysts are talking about a $40-$50 price target. After all the bad news the lack of a decline suggests the worst is over.




Current Portfolio





Current Position Changes


NLNK - Newlink Genetics

The short recommendation has been cancelled.


ENDP - Endo Pharma

The short position has been dopped.


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


HPE - Hewlett Packard Enterprise -
Company Profile

Comments:

Shares spiked to a new historic high but faded at the close on analyst comments they could be bidding on F5 Networks.

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.



P - Pandora Media - Company Profile

Comments:

No specific news. Yesterday the company announced a new streaming ad service that will show ads to its 80 million subscribers. This is going to produce millions in revenue and could be a big plus for the company.

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 member, 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. See portfolio graphic for stop loss.

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



SWIR - Sierra Wireless - Company Profile

Comments:

No specific news. Shares closed over resistance at $20 but still not in breakout mode. The longer it holds here the more likely we will see a breakout.

The position remains unopened until a trade at $20.30. High today was $20.26.

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.



UIS - Unisys Corp - Company Profile

Comments:

Only good news about new products but shares declined slightly.

Original Trade Description: June 6th.

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.

Position 6/7/16:

Long UIS shares @ $8.47, no initial stop loss.

Optional:

Long October $9 call @ 80 cents. No stop loss.




BEARISH Play Updates

ENDP - Endo Intl Plc - Company Description

Comments:

No specific news. Endo appears to be coiling for a potential breakout. It did not decline after ASCO and some analysts are talking about $40-$50 as a price target. I am dropping this position but I would not close the option. It has no value so holding it another week will not hurt. You never can tell when a headline could tank the stock. I am going to recommend Endo as a long position since there was no post ASCO decline.

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:

Dropping: Long June $12.50 put @ $1.05, currently zero, Hold until expiration.

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. Today's rebound erased Tuesday's decline. I am cancelling this 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.

Recommendation cancelled.





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