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Daily Newsletter, Saturday, 10/22/2016

Table of Contents

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

Market Wrap

Outlook Fading

by Jim Brown

Click here to email Jim Brown

With one week left in October and the broader indexes weakening the expectations for an end of October rebound are fading.

Weekly Statistics

Friday Statistics

The first week of the best six-week period of Q4 was definitely lackluster although the major indexes did post a minor gain. However, the markets are being held up by a few big cap stocks and the broader indexes are fading. The Russell 3000, the 3,000 largest stocks in the equity market, posted a very weak rebound from the Oct 13th support test at 1,250. Another test of that level may not be successful.

However, this coming week is window dressing week as fund managers close out their fiscal year on October 31st. That could lift the markets temporarily but the longer-term outlook is fading because of election uncertainty.


The only economic report on Friday was the Regional and State Employment. The report showed that job growth was slowing, which is not surprising in the 7th year of an economic expansion. We have seen declines in the payroll reports but everyone continues to claim all is well.

In September, only 14 states saw employment increase but that was up from the 4 states in August. In June and July there were 15 and 18 states showing increases. Employment was flat in 33 states and declined in 3 states. The three largest gains came from Texas at +38,300, California +30,000 and Florida +23,000. The three biggest losers were Wisconsin -10,500, Alabama -6,600 and New Mexico -4,200. The report was ignored.

The calendar for next week is relatively uneventful except for the four Fed speakers on Monday and the GDP report on Friday. The GDP for Q3 has declined significantly from the +3.7% forecast by the Atlanta Fed GDPNow in early August. The forecast was for +2.0% as of Wednesday, up slightly from the +1.9% earlier in the week. If the Friday report shows GDP growth significantly less than 2% or significantly higher, the market could react sharply. Any further decline will put pressure on the Fed to skip a rate hike in December.


Currently the odds for a rate hike at the November meeting are around 9% and practically impossible unless the Fed produced a dramatic surge in hawkish Fedspeak and that is not expected.

The odds for a hike at the December meeting have risen to 69.9% and almost a certainty with some expecting the possibility of a 50-point increase.


The Richmond Fed Manufacturing Survey on Tuesday is relatively important but nobody is expecting a material change.


Friday was all about earnings and the reaction to specific reports. The biggest impact to the open was McDonalds (MCD). The company reported earnings of $1.62 that beat estimates for $1.48. Revenue of $6.42 billion, declined from $6.62 billion but still beat estimates for $6.28 billion. Same store sales rose +3.5% globally and +1.3% in the USA. In the year ago quarter they posted +3.1% rise globally. Currency issues removed 3 cents a share from earnings. Revenues at company-operated stores rose 7.3% to $3.97 billion. Revenue at franchised stores rose 5.1% to $2.45 billion. The company said the introduction of Chicken McNuggets with no artificial preservatives boosted sales. McDonalds shares spiked $3.50 at the open to add +25 points to the Dow.


General Electric (GE) had the opposite impact on the Dow. The company reported earnings of 32 cents that beat estimates by a penny. However, revenue of $29.27 billion missed estimates for $29.84 billion. GE lowered full year organic growth guidance to 2%, down from the 2-4% in the prior forecast from July. They maintained their full year earnings guidance but narrowed the range. They guided for $1.48-$1.52, down from $1.45-$1.55. The midpoint is the same. Analysts were expecting $1.49. GE said organic industrial orders fell -6% but digital and software orders rose 11%. Oil and gas revenues declined -25% but power unit revenue rose 37%. GE also raised its stock buyback program by $4 billion. As the biggest industrial manufacturer, the continued weakness in their sector suggests the U.S. economy is slowing. Shares dropped to $28.33 at the open but rebounded nearly to the flat line and closed at $28.98. GE shares do not normally move in a hurry.


Honeywell (HON) reported earnings of $1.67 compared to estimates for $1.60. Revenue of $9.80 billion beat estimates for $9.78 billion. The company said it was well positioned for double-digit earnings growth in Q4 and that would push them to 8-9% earnings growth for the full year. For Q4 they guided for $1.74-$1.78 in earnings and analysts were expecting $1.80. They guided for the full year to earnings of $6.60-$6.64 and revenue of $39.4 to $39.6 billion. Analysts were expecting $6.68 and $39.63 billion.

Shares rallied despite the lowered guidance because Honeywell had already warned two weeks ago and shares were crushed. The company focused on being upbeat about 2017 saying they expect double-digit earnings because of the restructuring they accomplished in 2016. The company laid off 3,017 positions in Q3 as they separated the automation and control solutions business into two new reporting segments. They took a charge of $202 million on the restructuring and layoffs. Because of the big drop in early October, the risk should be reduced for Honeywell shares.


Microsoft (MSFT) reported earnings after the bell on Thursday. They reported 76 cents compared to analyst estimates for 68 cents. Revenue of $22.3 billion beat estimates for $21.7 billion. The company said revenue growth in the Azure cloud rose 116%. Overall cloud growth which includes the server products and cloud services rose 8% to $6.4 billion. Shares spiked 4% to $59.66 and a historic 15-year high. Shares had been flat for the last three months along with the market. I would not buy MSFT shares on the breakout but I would buy a dip. Microsoft is in growth mode again and their future is bright.



Skechers (SKX) reported earnings of 42 cents that missed estimates for 48 cents. Revenue rose 10.1% to $942 million but also missed estimates for $954 million. For Q4 they guided to revenue of $710-$735 million and analysts were expecting $800 million. The domestic wholesale business, which accounts for 60% of their revenue declined -3.4%. The international wholesale business rose 18% but that was well below the 50% growth rate for Q3-2015. Shares fell -17% on the news.


According to FactSet 23% of the S&P 500 companies have reported earnings. Of those companies, 78% have beaten on earnings and 65% have beaten on revenue. The current blended earnings decline is now -0.3% and significantly better than the -2.7% forecast at the beginning of the quarter. That should be a significant boost for the market but nobody appears to be paying attention. The blended revenue forecast has risen to +2.6% and the first time since Q4-2014 there has been revenue growth.

However, these earnings beats have been against lowered expectations. Twenty-three of the Dow 30 stocks saw their estimates lowered over the quarter. For example, Apple (AAPL) reports earnings next week and their estimates have been lowered from $1.96 to $1.66 over the last quarter. This will be the third consecutive quarter of earnings declines for Apple.

The guidance for Q4 has also improved. Of the 17 S&P companies issuing guidance, only 10 have guided lower and 7 have guided higher. Q4 earnings growth is now expected to be +5.5% with revenue growth of +5.2%.

There are 178 S&P-500 companies reporting this week and 12 Dow components.

Tuesday is the big day for the Dow with 7 stocks reporting.


There was a series of major cyber attacks on the Internet infrastructure on Friday. Early in the morning, a distributed denial of service (DDOS) attack was localized to the northeast. That one faded as providers mitigated the damage and the internet slowly returned to normal.

Morning outage map

When the second attack came, it was stronger than the first and was followed later in the day by a third wave of attacks. Security analysts said it was especially hard to stop because there were "tens of millions of IPs" involved in the attack. Hackers take control of innocent PCs and hide software they can trigger at any time. These PCs can remain dormant for weeks, months or even a year before activated. Once the hackers decide to launch the attack, their governing program wakes up these PCs and gives them the coordinates to attack. The PCs immediately begin making web requests against the IPs provided as targets. It is the equivalent of you sitting at your PC and hitting "refresh" on your browser every second only there are no outward signs of the attack on your PC. Multiply this constant refresh request by a million PCs all attacking at once and the target servers are overloaded.

This particular attack was directed against Dyn DNS, a company that offers dynamic DNS (domain name service) addressing. Every website has an IP address. When you type in a website name, your computer uses that name to look up the actual IP address at a service provider like Dyn. Once your PC has that IP address it contacts the website and displays the web page you are requesting. With millions of these requests hitting Dyn every minute, the system became overloaded and no IP addresses were being returned. That meant that phones, tablets and PCs were unable to connect to thousands of websites around the world. Amazon, Netflix, Twitter and many other major companies "appeared" to be offline because individual PCs could not get a response to the request for IP.

DYN released a news update about 5:30 ET saying the majority of the attacking IPs belonged to Internet of Things (IoT) devices like printers, smart TVs, DVRs, WiFi devices, security cameras, routers and even kitchen appliances. I discussed this several weeks ago that there were millions of devices and growing every day, which were Internet capable but had no antivirus software to protect them from hackers. We can put virus software on our PCs but most IoT devices do not have that capability to host the programs. There are 3.4 billion internet users but there are 10-15 billion IoT devices already in use.

Late in the day, the impact of the attack had grown to include many areas of the U.S. and the impact was starting to be felt around the world. DYN issued another update at 6:30 saying the attack had been resolved but computer traffic continued to be slow until nearly 10:PM.

Afternoon Outage Map

Time Warner (TWX) shares spiked 8% after it was confirmed they were in talks with AT&T (T) about an acquisition. Shares were trading at $79 on Thursday before the news started to trickle out. On Friday, there were several confirmations and shares traded as high as $94 before fading into the close. The combination could create a media conglomerate with wireless and pay TV subscribers and extensive content from HBO, Warner Brothers and CNN to name a few. Analysts believed a stock deal for Time Warner would have to be over $100 a share given previously attempted deals. Time Warner refused an $85 bid from 21st Century Fox in 2014. Shares closed at $89.50 on Friday.

On Saturday, the companies announced an $85 billion deal where AT&T would but TWX for $107.50 per share in cash and stock. The deal will combine AT&T's 315 million wireless subscribers with Time Warner's vast movie and television content. There is likely to be some stiff regulatory opposition to put this much content control into one company. The Time Warner CEO will leave the firm after the transition period. There is a $500 million breakup fee, which is very small given the size of the deal.


Qualcomm (QCOM) has reportedly sealed a deal to acquire NXP Semiconductors (NXPI) for $110 per share in cash. The deal would value NXPI at $37 billion. NXPI shares closed at $101.71. The deal would allow Qualcomm to expand beyond chips for mobile phones and into automotive, industrial and Internet of Things devices. This would create the second largest chip company by revenue with Intel the largest. NXP's biggest customers are Apple, Ericsson, Bosch, Huawei, Hyundai, Nokia and Samsung. If this acquisition is completed it could set off a wave of consolidation because there are dozens of smaller players that would need to grow quickly or risk being shut out of the market.


British American Tobacco offered to buy Reynolds American (RAI) in a $47 billion cash and stock deal. BAT already owns 42.2% of RAI and offered $56.50 per share for the rest. That is a 20% premium over the $47.17 closing price on Thursday. RAI bought Lorillard last year for $25 billion.


Virgin America (VA) and Alaska Airlines (ALK) have a merger agreement where ALK will pay $2.6 billion for VA. However, regulators are balking at approving the deal and the deadline has been extended again from the October 17th date. Analysts believe it will eventually be approved since both are small airlines and do not occupy a large market share. However, a lawsuit was filed by 42 plaintiffs in San Francisco to stop the merger. Alaska said it would lay off 225 Virgin America management positions as redundant once the merger is completed. The suit had been on hold pending regulatory action. On Friday, the judge in the case ruled the suit could now continue. The suit was brought by travel agents and frequent fliers who claim the merger will lessen competition on many routes. The judge said he would begin a trial as soon as the Justice Dept approves the merger. He said there is no reason for a trial if the DOJ blocks the merger. He is sitting on a motion for an injunction to prevent completion of the deal, until the DOJ rules. Analysts believe there is still a 75% chance the deal will get done. VA shares have been volatile over the last five weeks as the DOJ and suit headlines call into question the deal.


Alkermes (ALKS) shares rose 27% after the company said its depression drug ALKS 5461 met its main goal in a final-stage study. The drug was found effective in rebalancing brain function in patients with major depressive disorder that have not responded to other treatments. More than 16 million U.S. patients suffer from this disorder.


Crude prices continue to hold over $50 thanks to a sharp decline of -5.2 million barrels in the weekly EIA inventory report. This is typically a period where inventories rise by that amount. Not only were inventories down but refinery inputs were at a six-month low at 15.37 million barrels per day. Imports were also at a multi-month low of 6.91 million bpd, down from 8-9 mbpd in August. Gasoline demand fell from 9.264 mbpd the prior week to 8.798 mbpd. U.S. oil production is at three-month lows at 8.45 mbpd.

All the demand factors are slowing sharply and inventories are still declining thanks to the one million bpd drop in imports. I continue to believe that the unseasonable inventory patterns are related to the hurricane in the Gulf and imports will catch up.


Active rigs rose by 14 after a gain of 15 the prior week. Oil rigs rose by 11 for the 16th weekly rise in the last 17 weeks. It appears producers believe oil prices will remain at $50 or higher and they are putting rigs back to work in order to increase production in 2017. Active gas rigs have risen 20% over the last four weeks and natural gas prices fell sharply on Friday with a -6% decline.


 


 

Markets

Friday was option expiration Friday and market volume normally rises. However, volume on Friday was only 6.0 billion shares. That compares to the very low average volume for the week of 5.76 billion per day and Thursday's volume of 6.1 billion, which was the highest day of the week.

Nobody is trading. The market remains locked in a range and that range is sinking. The chart is getting messy with increased volatility and a trend that is currently negative. The S&P has closed under the 100-day average on 8 of the last 9 days. The resistance at 2,145 has grown stronger with each failure to move back over that 100-day level.

The opening dip to 2,130 looked like it had legs but buyers unexpectedly appeared thanks to Microsoft and McDonalds.


The Dow is even worse with the support at 18,100 being tested on five out of the last 9 days. We have a pattern of lower highs and lower lows and it looks like the next test could be of 18,000. We came within 49 points on Friday.

There are 12 Dow components reporting next week with 7 on Tuesday alone. Typically, even when they beat on earnings and spike the next day, the trend for the rest of the week is down. It is called post earnings depression. The excitement prior to earnings evaporates as traders move on to find a new stock that has not yet reported.

The three biggest gainers, MCD, MSFT and DIS, added 50 points to the Dow and the index still closed with a 16-point loss. There is significant risk that a couple additional earnings misses could push the Dow under 18,000. Our best hope is that fund managers finally begin window dressing for the October 31st year-end next week.



The Nasdaq continues to show a slightly better chart pattern than the Dow and S&P. The big cap tech stocks are holding their own with Facebook, Google and Netflix leading the index higher.

I mentioned several times over the last couple weeks that fund managers might give up trying to decide what to buy given the political uncertainty and just throw money at big cap techs until the end of October. It appears that is what is happening.




The Nasdaq is only about 80 points below its historic high thanks to those big cap stocks. This week we will see earnings from Amazon, Amgen, Google, Tesla, Expedia and some other large tech stocks. If we get some big beats like we saw with Netflix and Microsoft we could see the index hit new highs.



The small cap Russell 2000 is really struggling. Support at 1,210 has been tested multiple times and a breakdown there targets 1205-1195. A failure at 1,195 would trigger a major market meltdown. We need a catalyst for the small caps to keep them from breaking through support but today I do not know what that would be. This is a market sentiment index on the verge of failure.


The first week of the best six weeks of Q4 is over and technically, it was positive. All the major indexes posted minor gains but only because of spike on Tue/Wed. Monday, Thursday and Friday were negative.

We are going to need more bullish conviction next week just to stay in positive territory. We need that end of October window dressing to begin or investors are going to start running to the sidelines in confusion.

I believe the political uncertainty is weighing on the market. Earnings are better than expected and guidance has been decent. The only material economic report will be the GDP on Friday. While there is no bullish catalyst on the horizon there are no negative events either. This will be an earnings focused week and hopefully it will cause investors to forget the election.

Early Bird Special As of next Sunday there will only be 62 days left in 2016. On the last weekend in October, we begin the Early Bird Special for the End of Year Renewal Special. For a one-week period, we offer the EOY Special for an additional $50 discount. Be prepared to act quickly because the Early Bird Special only lasts one week. The regular EOY begins the weekend after Thanksgiving.

If you like the market commentary you have been receiving and you are on a free trial then now is the time to subscribe. Do not wait until you miss a newsletter to decide you want to take the plunge.

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Random Thoughts


Bullish and even neutral sentiment continued to decline with bullish sentiment now well below the average of 38.5%. This is the second consecutive week of sharp increases in bearish sentiment. Given the normally bullish six-week period that started last week, this is a definite warning sign.



The dollar closed at a 9-month high on expectations for a December rate hike. GE said they saw the impact of the dollar decline in Q3 but their problems are going to come right back. Since the beginning of October the dollar has surged despite weak economics and slowing employment. The solid expectations for a hike have trumped all the economic fundamentals.

It is surprising that oil has maintained the $50 level with the strong dollar because gold prices have collapsed. Commodities are cheaper when the dollar is stronger.




Sears (SHLD) is in trouble again. On Friday, Sears responded to news that Jakks Pacific has suspended shipments to Kmart stores ahead of the holiday season. Jakks is the fifth-largest U.S. toy company and they told investors on their earnings call on Thursday that is had halted shipments to "a major U.S. customer" which was presumed to be Kmart. They halted shipments of Star Wars and Disney products after discussing the situation with their bankers. The halt in shipments caused revenue to decline -10% to $302 million for the quarter. The company said based on what they were seeing in regards to this particular retailer, Jakks was best served to reduce its accounts receivable risk by holding back products.

At a recent toy fair in Dallas, a BMO analyst was asked by multiple vendors if they should continue shipping toys to Sears/Kmart. There is a lot of worry about payment from Sears. There is considerable concern that Kmart is headed for a system wide shutdown in January as parent Sears kills off the chain to stop the cash drain. They can then sell off the real estate to raise cash. Sears has already said they were closing 64 Kmart stores in mid December out of the 883 stores still operating. Sears has closed more than 400 Kmart stores in recent years.

CEO Eddie Lampert wrote, "Recent reports have suggested that Kmart will cease operations. I can tell you that there are no plans and there have never been any plans to close the Kmart format."

Obviously, it is incumbent on Lampert to maintain that stance until the day he announces otherwise. If he did not refute the rumor, all his suppliers would immediately cut off shipments.



Railroads running on empty. Shares of Union Pacific fell -7% on Thursday after reporting its sixth consecutive quarterly earnings decline. Older analysts have always claimed that slowing rail shipments were a leading indicator of economic decline. Union Pacific said volume declined along with total revenue by carload. Shipments of agricultural products declined in 5 of its 6 business segments. Coal shipments were down -19% and chemical shipments fell -1%. Justin Long, an analyst at Stephens, said we have been in a freight recession for two years. He blames the slow growth in the global economy and the strong dollar for the lack of exported consumer goods and commodities.

BK Asset Management said "from a global macro perspective we are starting to see some serious cracks in global growth." China's industrial production fell short of estimates and Australia's job growth fell off a cliff last month. A governor from the Bank of Canada warned there were serious "structural" issues with global trade.



Builders excavating for a building foundation in Romania in 1974 found a machined object that is 90% aluminum and is reportedly 250,000 years old. The geologic layer where it was found was about 11,000 years old. The object was found 33 feet underground along with two mastodon bones that were up to 10,000 to 80,000 years old. Since modern man did not begin producing aluminum until about 200 years ago in 1808, this archeological find has baffled scientists. Aluminum smelting requires temperatures of 1,000 degrees or more. The layer of surface oxidation suggests it had been buried for at least 300-400 years. The find was documented at the time but was not widely reported until recently.

The technology required to combine aluminum with the 12 metals that compose the other 10% of metals in the object does not exist on earth according to scientists. The clean cut hole on one of the ears was drilled to test the metal.

If you have ever watched the National Geographic series "Ancient Aliens" on TV, you know there are numerous unexplained relics from the past and this one is very puzzling.

Here is a link to a video of the item. Unexplained Metal

Link to news item. Source




 

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

 

"The only thing necessary for the triumph of evil is for good men to do nothing."

Edmund Burk


 


New Plays

Crowded Market

by Jim Brown

Click here to email Jim Brown
Editor's Note

When there are only a couple players in a market the profits come easy. Once the competition shows up the price slashing begins. Piper Jaffray said there are now 68 3D printer manufacturers and service bureau operators. For a relatively new industry that is a lot of competition.



NEW BULLISH Plays

No New Bullish Plays


NEW BEARISH Plays

SSYS - Stratasys Ltd - Company Profile

Stratasys Ltd. provides three-dimensional (3D) printing and additive manufacturing (AM) solutions for the creation of parts used in the processes of designing and manufacturing products; and for the direct manufacture of end parts. Its 3D printing systems utilize its patented fused deposition modeling (FDM) and inkjet-based PolyJet technologies to enable the production of prototypes, tools used for production and manufactured goods directly from 3D CAD files or other 3D content. The company offers entry-level desktop 3D printers to systems for rapid prototyping, and production systems for direct digital manufacturing under the Dimension, Objet, Fortus, Polyjet, SolidScape, and MakerBot brands, as well as MoJo and uPrint product families, and Dental Series products. It also provides 3D printing consumable materials, including FDM, cartridge-based materials, Polyjet cartridge-based materials, Smooth Curvature Printing inkjet-based materials, and non-color digital materials, as well as provides color variation services. In addition, the company offers customer support, basic warranty, and extended support programs; leases or rents 3D printers and 3D production systems; produces prototypes and end-use parts for customers from a customer-provided CAD file; and provides plastic and metal parts for rapid prototyping and production processes, as well as related professional services. Further, it operates Thingiverse, an online community for sharing downloadable, digital 3D designs; and GrabCAD Community for mechanical engineers and designers. The company's products and services are used in aerospace, automotive, consumer electronics, consumer goods, medical processes and medical devices, education, dental, jewelry, and other industries. Company description from FinViz.com.

Stratasys does not report earnings until Nov 15th. Piper Jaffray believes they will miss on revenue because of a recent survey of 68 firms showed "extremely discouraging" demand for SSYS and 3D Systems (DDD) products. Stratasys is expected to post its first year over year profit in 8 quarters because of extensive cost cutting but revenue is expected to fall short of the $174.5 million consensus estimate.

The challenge is the entry of the 800 pound gorilla into the 3D market. That gorilla is Hewlett Packard. They announced their entry into the market five months ago and will begin shipping products over the next two months. Piper and some other analysts said buyers are waiting to commit to purchases until they actually see the HP products. The HP product line is expected to be robust and priced competitively. Another manufacturer, privately held Carbon 3D, is also drawing attention and suddenly buyers have an entire array of 3D printers and manufacturers to choose from. GE just bought a 3D printing company in Europe and is expected to expand the offering in a big way given their available cash and manufacturing experience. Because of the expense on some of these printers, buyers are taking the extra time to make sure they buy the one that fits their needs the best.

Shares are trading at a 3-month low and only about 50 cents above an 8-month low. If support at $19.35 fails we could see $15 in a hurry as investors flee before the mid November earnings.

Sell short SSYS shares, currently $19.92, initial stop loss $21.25.

No options recommended because of distance from the $17.50 strike and short time frame.




In Play Updates and Reviews

Support Test

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Russell 2000 small cap index retested resistance at the 1,210 level at the open before rebounding to close at 1,218. The Russell came very close to a breakdown to a three month low with the opening dip to 1,209 but buyers were waiting.

I said on Thursday I was skeptical of the market and the morning dip to support was further confirmation of that feeling. Friday was option expiration and some of the volatility could have been related to that event. It is entirely possible we could open positive on Monday and never look back as fund managers begin to window dress for their October 31st year-end.

Earnings have been decent with 80% of the 116 S&P companies reported having beaten estimates. It is the economic issues and the uncertainty over the election that is holding the market back.




Current Portfolio


Stop Loss Updates

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


Profit Targets

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




Lottery Ticket Plays


Current Position Changes


FNSR - Finisar
The long stock position remains unopened until a trade at $30.15.


CSIQ - Canadian Solar
The long stock position remains unopened until a trade at $16.15.


FDC - First Data
The long call lottery position expired.


NAVI - Navient
The long call lottery position expired.



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

Short term Calls and Puts on equities = Option Investor Newsletter

Credit spreads and naked puts = OptionWriter

Long term option investments = LEAPS Investor

3-6 month Option Trades = Ultimate Investor

Iron Condors = Couch Potato Trader



BULLISH Play Updates

ALRM - Alarm.com - Company Profile

Comments:

No specific news. Minor gain in a weak market but big rebound off the opening low.

Original Trade Description: October 1st.

Alarm.com Holdings, Inc. provides cloud-based software platform solutions for the connected homes in the United States and internationally. It offers multi-tenant software-as-a-service platform that allows home and business owners to intelligently secure and manage their properties, as well as remotely interact with an array of connected devices through a single intuitive interface. The company provides interactive security solutions, which offer intelligent security and awareness services through a dedicated, cellular, and two-way connection to the home or business; and intelligent automation solutions that connects, integrates, and controls the devices in the home or business, such as security systems, garage doors, lights, door locks, thermostats, electrical appliances, environmental sensors, and other connected devices. It also offers video monitoring solutions, which provide live streaming, smart clip capture, high definition continuous recording, and instant video alerts through its mobile app or on the Web; and energy management solutions that offer enhanced energy monitoring and management services. It has approximately 2.6 million residential and business subscribers. Company description from FinViz.com.

For Q2, the company reported earnings of 15 cents compared to estimates for 11 cents. Revenue rose 24% to $64.4 million and beat estimates for $58.6 million. Software as a Service (SaaS) revenue rose 23% to $42 million. The company guided for the ful lyear for earnings of 49-51 cents and revenue of $242.3-$245.8 million. Analysts were expecting 48 cents on $241.7 million.

Earnings Nov 8th.

Despite the strong beat and strong guidance shares crashed from the historic high close of $33 before the earnings were released. Shares were up +135% since the February low at $14 and traders took profits. The only ratings change was from Raymond James from outperform to market perform based on value because of the strong gains. At the same time Imperial Capital raised their price target from $24.50 to $30. Since shares closed the day before at $30 that was an implied neutral rating.

Shares collapsed back to $28 and here there for three weeks then fell sharply on September 6th on no news to bottom at $25. That bottom was quickly bought and Friday's gain lifted the shares back over resistance at $28.50.

There is no bad press for Alarm.com. Earnings and revenue are growing, subscribers are growing and shares are back over resistance. If the market is going to rally in late October this should be a tech stock that outperforms.

Position 10/3/16 with a ALRM trade at $29.05

Long ALRM shares @ $29.05, see portfolio graphic for stop loss.

No options recommended because of price.



CC - Chemours - Company Profile

Comments:

No specific news. Another new high.

Original Trade Description: October 17th.

The Chemours Company helps create a colorful, capable and cleaner world through the power of chemistry. Chemours is a global leader in titanium technologies, fluoroproducts and chemical solutions, providing its customers with solutions in a wide range of industries with market-defining products, application expertise and chemistry-based innovations. Chemours ingredients are found in plastics and coatings, refrigeration and air conditioning, mining and oil refining operations and general industrial manufacturing. Our flagship products include prominent brands such as Teflonâ„¢, Ti-Pureâ„¢, Krytoxâ„¢, Vitonâ„¢, Opteonâ„¢ and Nafionâ„¢. Chemours has approximately 8,000 employees across 35 manufacturing sites serving more than 5,000 customers in North America, Latin America, Asia-Pacific and Europe.

Chemours was spun off from DuPont in 2015. The company spent hundreds of millions of dollars developing hydrofluoroolefin (HFO)-based alternatives and blends with low global warming potential. These replace the hydrofluorocarbons (HFCs) that were used in air conditioners for decades and reportedly responsible for global warming.

The UN's Montreal Protocol calls for HFCs to be phased out and replaced. Chemours has created a replacement and expects more than 24 million vehicles to be on the road in 2016 using their HFO-1234yt (Opteon) product in their air conditioners. By the end of 2017 that number will rise to more than 50 million. They believe by 2025 the HFO-based solutions will have replaced 325 million tons of Co2 equivalents. The Opteon product line has been widely accepted and nearly every refrigeration manufacturer is moving in that direction.

For Q2 they reported adjusted earnings of 27 cents that easily beat estimates for 17 cents. Management delivered more than $100 million in cost reductions in the first six months of 2016.

Earnings Nov 3rd.

CC has been moving up steadily since August as analysts began coverage and the company beat on earnings on August 8th. Over the last 30 days consensus estimates for Q3 have risen from 26 cents to 30 cents. Full year estimates have risen from 77 cents to 84 cents. Rising estimates suggest the stock will continue higher.

After a $7 rally since the earnings, the stock pulled back last week and found support at $14.75. Shares were up today on the UN news since it means even more manufacturers will be forced to switch to the HFO products.

Position 10/18/16 with a CC trade at $15.45

Long CC shares @ $15.45, see portfolio graphic for stop loss.

No options recommended.



CSIQ - Canadian Solar - Company Profile

Comments:

No specific news. Minor gain in a weak market.

This position remains unopened until a trade at $16.15.

Original Trade Description: October 20th.

Canadian Solar Inc., together with its subsidiaries, designs, develops, manufactures, and sells solar wafers, cells, and solar power products primarily under the Canadian Solar brand name. The company operates through Module, Energy Development, and Electricity Generation segments. Its products include various solar modules that are used in residential, commercial, and industrial solar power generation systems. The company also provides specialty solar products consisting of Andes Solar Home System, an off-grid solar system, designed to provide an economical source of electricity to homes and communities without access to grid; and Maple Solar System, a clean energy solution for families, as well as solar system kits, which are a ready-to-install packages, such as inverters, racking system, and other accessories. In addition, it develops, builds, and sells solar power projects; performs the engineering, procurement, and construction (EPC) work for the solar projects; and offers operation and maintenance services that include inspection, repair, and replacement of plant equipment, site management, and administrative support services. It offers its products to distributors, system integrators, project developers, and installers/EPC companies. Company description from FinViz.com.

Canadian Solar has a global pipeline of commercial and utility installations in progress of 2.4 gigawatts of power. Last week they bought a 49% stake in two 15 megawatt solar projects in Telangana India. The projects come with a 25 year power purchase agreement and a 5.54 rupee tariff per kilowatt hour.

This is just one more project for CSIQ as the continue to grow in scale and extend their reach around the world. They have installed more than 16 gigawatts across 90 countries since 2002 but this is their first project in India. Australia recently approved funding for two projects totaling 47 megawatts with a 20 year power purchase contract. The 17 Mw Longreach project will consist of 54,600 MaxPower2 solar modules and produce 39.0 gigawatts of power in the first year. The 30 Mw Oakey project will use 93,600 solar modules and produce 59.9 gigawatts of power the first year.

The company had $3.47 billion in sales last year with $171 million net profit. They are currently priced very cheaply at a PE of 11 times earnings. They have more than $500 million in cash and their market cap is only $900 million. Sales are growing at a rapid rate.

Earnings Nov 10th.

Share have resistance at $16 and then clear sailing until $20.

With a CSIQ trade at $16.15

Buy CSIQ shares, currently $15.70, initial stop loss $14.35

Optional: Buy Nov $17 call, currently .65, no stop loss.



CLVS - Clovis Oncology - Company Profile

Comments:

No specific news. Minor decline after the 6% spike on Thursday.

Original Trade Description: October 12th.

Clovis Oncology, Inc., a biopharmaceutical company, focuses on acquiring, developing, and commercializing anti-cancer agents in the United States, Europe, and internationally. 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. Company description from FinViz.com.

Clovis has been rising on the prospects for the drug Rucaparib. They reported in September the FDA was not planning on holding an advisory committee meeting to discuss the new NDA application. The FDA has accepted the company's NDA for accelerated approval and granted it a priority review. The FDA response is expected to be positive and is expected by Feb 23rd.

However, on October 7th the company released data on a Rucaparib trial that appeared to show it was less effective than a competing drug already on the market from AstraZeneca. Shares were crushed for a $10 drop at the open. Analysts were quick to come to their defense saying there are many trials and making a decision by just one trial with a very narrow patient subset was comparing apple to oranges. Shares immediately rebounded.

Clovis has several anti cancer drugs in final stages and the outlook is very positive. Just seeing that CLVS shares have not declined with the sector over the last couple of days is a very strong indication that portfolio managers are buying and holding.

Earnings Nov 3rd.

Position 10//13/16:

Long CLVS shares @ $31.97, see portfolio graphic for stop loss.

No options recommended because of price.



FNSR - Finisar - Company Profile

Comments:

No specific news. Minor decline. Still trapped in the consolidation channel.

This position remains unopened until a trade at $30.15.

Original Trade Description: October 19th.

Finisar Corporation provides optical subsystems and components for data communication and telecommunication applications in the United States, Malaysia, China, and internationally. Its optical subsystems primarily consist of transmitters, receivers, transceivers, transponders, and active optical cables that provide the fundamental optical-electrical or optoelectronic interface for interconnecting the electronic equipment used in communication networks. The company also offers wavelength selective switches, which are used to switch network traffic from one optical fiber to multiple other fibers without converting to an electronic signal. In addition, it provides optical components comprising packaged lasers, receivers, and photodetectors for data communication and telecommunication applications; and passive optical components for telecommunication applications. Company description from FinViz.com.

Finisar shares rallied throughout the third quarter. In early September shares spiked after earnings and then leveled off but retaining a positive bias. They reported earnings of 38 cents that beat estimates for 30 cents. Revenue of $341.3 million also beat estimates for $334 million. The company guided for the current quarter for earnings of 44-50 cents on sales of $355-#375 million. Analysts were only expecting 32 cents and $344 million. The CEO blamed the soaring earnings on booming sales of certain transceivers and switches. China is in the middle of their upgrade to a 100 Gb infrastructure and the U.S. carriers like Verizon are just getting started.

Earnings December 8th.

We entered a FNSR position on October 4th just as shares gapped open to $31. That turned out to be the peak for a three month rally. After a week of declines the shares could be ready to move higher.

The declines were sector related. The optical networking stocks were all slammed after some guidance warnings in the space. Finisar was riding the crest of a Goldman Sachs upgrade to buy on the 11th. That caused the peak in the stock just as the sector news appeared.

I am putting an entry trigger on this position to make sure the stock can get over recent resistance before we buy it.

With a FNSR trade at $30.15

Buy FNSR shares, currently $29.65, initial stop loss $28.75

No options recommended.



FTNT - Fortinet - Company Profile

Comments:

No specific news. The rebound is accelerating. With earnings next Thursday we will probably exit on Tue/Wed.

Original Trade Description: October 15th.

Fortinet, Inc. provides cyber security solutions for enterprises, service providers, and government organizations worldwide. The company offers FortiGate physical and virtual appliances 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 acceleration; FortiManager product family to provide a central management solution for FortiGate products comprising software updates, configuration, policy settings, and security updates; and the FortiAnalyzer product family, which provides a single point of network log data collection. It also offers FortiAP secure wireless access points; FortiWeb, a Web application firewall; FortiMail email security; FortiDB database security appliances; FortiClient, an endpoint security software; and FortiSwitch secure switch connectivity products. In addition, the company provides FortiSandbox advanced threat protection solutions; and FortiDDos and FortiDB database security appliances. Further, it offers security subscription, technical support, training, and professional services. Company description from FinViz.com.

Fortinet released preliminary earnings numbers on the 11th and the stock was crushed in the afterhours market. The company said earnings would be in the range of 15-16 cents compared to prior guidance of 17-18 cents. Revenue would be in the range of $343-$348 million compared to guidance of $372-$376 million.

This is not the end of the world but shares fell from $34 to $29. They blamed the guidance miss on lengthening deal cycles saying enterprises were becoming more strategic in their purchasing decisions and buying with less urgency than last year. They also admitted to "sales execution challenges" in North America as the result of a new sales force in that market. They just recently expanded into North America. There were also "macro" issues in Latin America and the U.K. that they did not explain.

Despite the guidance cut they are still positive about Q4 and 2017 saying the "competitive-differentiating and market-leading security fabric" was intact and they remain confident in the underlying strength of the business. They will release their actual earnings on October 27th. Normally, when a company warns in advance, they report better earnings than their guidance in the warning.

Shares are already rebounding because multiple brokers immediately reiterated their buy ratings. Wunderlich said buy with price target of $42. Doughtery said buy with a price target of $35. RBC Capital reiterated a sector perform rating with a price target of $37.

I believe there is very little risk in taking a position in FTNT at this level. The damage has already been done.

Position 10/17/16:

Long FTNT shares @ $30.92, see portfolio graphic for stop loss.



MENT - Mentor Graphics - Company Profile

Comments:

No specific news.

Original Trade Description: October 13th.

Mentor Graphics Corporation provides electronic design automation software and hardware solutions to design, analyze, and test electro-mechanical systems, electronic hardware, and embedded systems software worldwide. It offers printed circuit boards; Mentor Graphics Scalable Verification tools; Questa platform to verify systems and integrated circuits (ICs); FastSPICE, Eldo, and ADVance MS analog/mixed signal simulation tools; and Veloce hardware emulation system. Further, the company provides software, tools, and professional engineering services; and methodology development, enterprise integration, and deployment services. It sells and licenses its products through direct sales force, distributors, and sales representatives to the communications, computer, consumer electronics, semiconductor, networking, multimedia, military and aerospace, and transportation industries. Company description from FinViz.com.

Billionaire Paul Singer, head of Elliott Management, announced on Sept 29th his firm was taking an active 8.1% stake in Mentor Graphics. In the SEC filing Elliott said there are "strategic opportunities" available at MENT and he is going to force a sale. Singer is no stranger to activist investing. Since 1994 he has launched 114 campaigns and 14 proxy fights when companies do not take his advice and get the M&A ball rolling. Elliott has $27 billion under management and Mentor only has a $3 billion market cap. If the board does not take action quickly, Elliott could launch a proxy fight to get enough people on the board that will take action. As a relatively small company, Mentor is in the crosshairs and there is very little chance for escape.

Shares spiked in the middle of the day on Thursday after TheStreet posted an article explaining Elliott' s game plan. The close at $27.92 was a 15-year high. Since Elliott announced his position at $24.69 the shares have risen about $3.50 with $2 of that the first day. Elliott is in for the long term and they will not be bailing on a $3 gain. They have a much larger goal in mind.

Earnings Nov 17th.

A lot of investors follow these activist funds and I would expect the stock to continue to rise as the headlines appear. More than 7,000 Jan $30 calls were bought today against an open interest of only 3,944.

Because of the afternoon spike I was going to put an entry trigger on the position just over the afternoon high. However, the S&P futures are down hard again tonight and maybe we will get an opportunity to buy the stock lower so I did not add the trigger. Support is $26.

Position 10/14/16:

Long MENT shares @ $28.54, see portfolio graphic for stop loss.

Optional:

Long Jan $30 call @ $1.35, no stop loss.

We will hold the option as a lottery ticket play is the long stock position is stopped.




BEARISH Play Updates

VXX - Volatility Index Futures - ETF Description

Comments:

Another new historic low.

Since this is a long-term play, I am not going to comment on it every day. Just forget it is in your portfolio and hope for a strong market rally in Q4.

Original Trade Description: September 6th.

The VXX is a short term volatility product based on the VIX futures. As a futures product it has the rollover curse. Every time they roll to a new futures contract they have to pay a premium and that lowers the price of the ETF. It is a flawed product with a perpetual decline built in from the monthly roll over in the futures contracts.

As evidence of this flaw, they have now down four 1:4 reverse stock splits. The last four reverse splits occurred at $13.11 (11/2010), $8.77 (10/2012), $12.84 (11/2013), $9.52 (8/8/16). The prospectus says it can reverse split anytime it trades under $25 for a prolonged period and the splits will always be 1:4.

After the August split the ETF moved sideways for four weeks at $36. I think everyone was waiting for the typical August volatility. When it did not show up and the market rallied on Friday that support broke. And the decline has begun.

Because there may be some September volatility, anyone in this position must understand that it may move higher before it moves lower BUT it will always move lower. We just have to wait it out. Volatility never lasts forever.

Unfortunately, put options are expensive with a volatility instrument at this price level. The only recommendation is to short the ETF and forget it. If we do get a prolonged rally as some are expecting we could see strong gains in the next 2-3 months. This will be a long-term position. This is not a 2-3 week play. I can guarantee you, if history holds, we can play this until it splits 1:4 again at $10. Once we are in the position and profitable I will put a trailing stop loss on it. We will take profits and then look for a bounce to get back in. We could keep this play in the portfolio on a trading basis permanently.

Position 9/7/16:

Short VXX shares @ $33.88, no initial stop loss.

No options recommended because of price.




Left Over Lottery Tickets

These positions were left over from prior plays where we had an optional option with no stop after the stock position was closed. Rather than close these for a few cents they are left open as a "Lottery Ticket" play. With months before expiration, anything is possible. A strong move in a single stock can be well worth the additional patience.

These positions are only updated on the weekend.


FDC - First Data - Company Profile

Comments:

No specific news. Our leftover October $14 call option expired on Friday with FDC shares closing at $13.90. Close but not a winner.

Original Trade Description: August 10th.

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. They currently process 2,500 financial transactions a second across 118 countries.

First Data was taken private in 2007 for $26 billion by KKR. This debt ended up on the company's books and weighed them down for the last ten years. KKR helped them land a $3.5 billion private placement in 2013. That helped to reduce some of the high interest debt. KKR took them public again in 2015 and raised about $2.8 billion. That was the largest IPO of 2015. The company is still fighting the debt problem with $480 million in interest payments in the first half of 2016. Earlier this year we tried to short FDC because they were strangling under this debt. The situation appears to be improving.

In Q2 they reported adjusted earnings of 35 cents that beat estimates for 34 cents. It also beat the $26 million loss they took in the year ago quarter. Revenue rose 1.9% to $2.93 billion. Revenue in the global financial solutions division rose 12% to $395 million. This is their growth engine. They reduced their net debt by $300 million in the quarter.

Earnings Oct 26th.

Shares spiked from $12 to $13 after earnings and they are about to break over long-term resistance at $13.35. The weakness and volatility from the first six months of 2016 may be coming to an end. If FDC can move over that $13.35 level the next target would be around $16.50.

Position 8/23/16 with a FDC trade at $13.50

Closed 10/21/16: Long Oct $14 call @ .50, expired, -.50 loss.

Previously closed 9/9/16: Long FDC shares @ $13.50, exit $13.75, +.25 gain.



HOV - Hovnanian Enterprises - Company Profile

Comments:

No specific news. We closed the long stock position at the open on Monday. The February $2 call is still open.

Original Trade Description: July 27th.

Hovnanian Enterprises, Inc. is a builder of residential homes. The Company designs, constructs, markets and sells single-family detached homes, attached townhomes and condominiums, urban infill, and active lifestyle homes in planned residential developments. It markets and builds homes for first-time buyers, first-time and second-time move-up buyers, luxury buyers, active adult buyers and empty nesters. The Company has two distinct operations: homebuilding and financial services. The Company, excluding unconsolidated joint ventures, is offering homes for sale in 196 communities in 34 markets in 16 states throughout the United States. The Company's financial services operations provide mortgage loans and title services to the customers of its homebuilding operations.

Prior to the financial crisis HOV was an active buyer of land and had extensive holdings when the crash appeared. The decline in home buying and the change in the mortgage business caused them to be very over extended as a result of the crash. Since 2009 they have liquidated a lot of land holdings, built out and sold a lot of properties and have consolidated their efforts and reduced costs significantly.

For Q2 they reported a loss of 6 cents, which was less than half the 13-cent loss in the year ago quarter. Revenues rose 39.6% to $654.7 million. For the first 6-months of the fiscal year revenues rose 34.5% to $1.23 billion. The $7.9 million loss was well below the $25.2 million loss in the year ago quarter. The number of active contracts rose +0.9% to 1,812 homes with the value of the contracts rising 16% to $1.4 billion. The number of contracts in the first six months of fiscal 2016 rose 7.3% to 3,343. The total contract backlog at the end of the quarter was $1.58 billion, up 27.8% from the $1.23 billion at the end of fiscal Q2 2015. As of April 30th, they controlled 34,997 lots.

They paid off $233.5 million in debt over the prior two quarters and ended the period with $125.6 million in liquidity. Since the end of the quarter liquidity has risen $75.1 million due to closings and joint venture funds received. They also paid off another $86.5 million in debt that matured in May.

CEO Ara Hovnanian said, "While our revenue grew 40% and Adjusted EBITDA increased over 220%, as we said last quarter, we remain focused on deleveraging our balance sheet and maximizing our profitability rather than on additional growth. Since October 15, 2015, we have paid off $320 million of debt. More importantly, we continue to believe that we will have the liquidity to pay off the remaining debt maturities through the end of 2017. We are certain that we are taking the correct steps that will best position our company for future success. While it is discouraging to report a loss for the first half of fiscal 2016, it is nevertheless a significantly reduced loss, and we anticipate our profitability in the second half of the year will more than offset this loss."

With the low mortgage rates and the rising number of home sales, I do expect HOV to return to profitability by the end of the year. It has been a long 7 years but they are finally getting rid of the accumulated debt and are riding the wave of new home buyers.

Stocks typically begin to rise about 6-months before widely predicted events. If HOV expects to post profits in Q3/Q4 now is the time to buy the stock. At $1.87 per share I look at it as a LEAP option that does not expire. This is not going to be a rocket stock. This is a buy it and forget it position until year end. Once we are in the position I will track it in the Lottery Play portfolio each weekend. Shares traded at $7 in 2013-2014 and could easily return to that level once they post those profits.

Update 9/9/16: HOV reported Q2 earnings of zero compared to estimates for 6 cents. Revenue rose +32.6% to $716.9 million. For the full year the company guided to revenue of $2.7 to $2.9 billion and analysts were expecting $2.75 billion. The sold or joint ventured 21 communities to reduce their active selling communities from 214 to 193. This impacted revenue as the older communities were culled from the active business. They sold 1,467 homes in Q2 and slightly less than the 1,658 in the same period in 2015, also the result of selling some communities. Their order backlog rose 7.7% to $1.48 billion. There are 3,232 homes currently contracted to be built. They delivered 1,574 homes in the quarter, a +11.8% rise. After paying off $320 million in debt their cash position was $187.7 million. They acquired about 900 lots in the quarter in 20 different communities. They guided for a solid profit in the current quarter of $32-$42 million before some expenses including land acquisitions.

Do not back up the truck on this position just because the stock is cheap. Unexpected events do happen. Just buy a few hundred shares and we will shoot for a return to $6 or a 400% gain.

Position 7/28/16

Closed 10/17/16: Long HOV shares @ $1.86, closed $1.61, -.25 loss.

Optional:

Long February $2 call @ 20 cents. No stop loss.



HUN - Huntsman Corp - Company Profile

Comments:

No specific news. Earnings this week could provide some movement.

We were stopped out of the long position on HUN shares on Sept 8th. We have a left over November $19 call.

Original Trade Description: August 23rd.

Huntsman Corporation manufactures and sells differentiated organic and inorganic chemical products worldwide. The company operates in five segments: Polyurethanes, Performance Products, Advanced Materials, Textile Effects, and Pigments and Additives. The company's products are used in various applications, including adhesives, aerospace, automotive, construction products, personal care and hygiene, durable and non-durable consumer products, electronics, medical, packaging, paints and coatings, power generation, refining, synthetic fiber, textile chemicals, and dye industries. Huntsman Corporation was founded in 1970.

They reported Q2 earnings of 53 cents that beat estimates for 52 cents. Revenue of $2.54 billion matched estimates. They generated more than $350 million in free cash flow and made an early repayment of $100 million in debt. They also announced they were selling some of its European facilities and would use the proceeds to repay debt. They sold a manufacturing facility to Innospec Inc for $225 million and the transaction is expected to close in Q4. Huntsman will remain a raw materials supplier to the facilities once the transaction is completed.

They are also planning to close their titanium dioxide manufacturing (TiO2) facility in South Africa in addition to spinning off their remaining TiO2 business in early 2017. The closure/spinoff will save $200 million.

The earnings, restructuring and debt repayment plans have given the stock a positive bias. Shares broke over resistance on Tuesday to trade at a 52-week high. The next material resistance is $23.

Earnings Oct 26th.

Position 8/30/16 with a HUN trade at $17.65

Long Nov $19 call @ 54 cents. No stop loss.

Previously Closed 9/8/16: Long HUN shares @ $17.65, exit $16.65, -$1.00 loss.



NAVI - Navient - Company Profile

Comments:

Navient beat on earnings but shares collapsed and our October $15 option expired.

Shares are still stuck at resistance at $14.50 but eventually a breakout will appear and it could be strong.

Original Trade Description: August 6th.

Navient Corporation provides financial products and services in the United States. The company offers Federal Family Education Loan Program (FFELP) Loans, Private Education Loans, and Business Services. It holds the portfolio of education loans insured or guaranteed under the FFELP, as well as the portfolio of private education loans. The company also provides asset recovery services for loans and receivables on behalf of guarantors of FFELP loans, and higher education institutions, as well as federal, state, court, and municipal clients. They also offer business processing services on behalf of municipalities, public authorities, and hospitals. Navient was spun off from Sallie Mae in April 2014.

Adjusted earnings for Q2 rose 17.5% to 47 cents and beat estimates for 45 cents. Helping produce the earnings beat was a 44.4% decline in provisions for credit losses to $110 million.

During the quarter Navient acquired FFELP loans of $623 million bringing their total under management to $92.6 billion.

The private education loan segment reported earnings of $57 million. During the quarter Navient acquired another $23 million to bring their total under management to $24.7 billion. The spread on the private loans was stable at 3.66%. The charge off rate was only 2.2%.

During the quarter they retires $255 million in senior unsecured debt and they completed three ABS placements totaling $2.278 billion to raise liquidity. They repurchased 13.6 million shares for $175 million and had $360 million outstanding under the current authorization.

Earnings Oct 18th.

Although Navient is not a high flying investment like Apple or Netflix it is a good solid business. Friday's close at $14.50 was a 52-week high and a breakout over prior resistance. The next resistance will be a gap fill around $17 from last July.

Position 8/8/16:

Closed 10/21/16: Long Oct $15 call @ 50 cents. Expired, -.50 loss.

Previously closed 8/12/16: Long NAVI shares @ 14.57, exit $13.35, -1.22 loss





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