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Daily Newsletter, Saturday, 2/11/2017

Table of Contents

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

Market Wrap

Rally Confirmation

by Jim Brown

Click here to email Jim Brown

All but one of the broad market indexes closed at a new high on Friday after two days of breakout gains.

Weekly Statistics

Friday Statistics

It is official. We now have a breakout in progress. The Dow, S&P-100, S&P-400, S&P-500, Nasdaq Composite, Nasdaq 100, NYSE Composite, Vanguard TSMI (VTI), Russell 1000, 2000 and 3000 all closed at new highs. Yes, even the Russell 2000 by less than 1 point. The only broad market index not joining the party was the S&P-600 Small Cap Index.

Friday's continued breakout was confirmation of the new high breakout from Thursday. The major indexes actually closed near their highs and it was not a short squeeze. There was a minor gap higher at the open but the buying was steady all day.

The resistance level at 2,300 on the S&P has now been broken with a close on Friday at 2,316. Both Nasdaq indexes closed well over their respective round number resistance levels at 5,700 and 5,200. It will be hard for the bears to recover from this mauling.


The motive power supposedly came from a comment by President Trump on Thursday that a "phenomenal tax cut" would be unveiled very shortly. Former Goldman Sachs president Gary Cohn is leading the tax reform effort and confirmed it would be released within weeks. The leaked details claim a cut in the corporate rate to 20% on U.S. income and imports with no tax on exports or income earned overseas. Reportedly, U.S. companies have accumulated $2.6 trillion in banks overseas while they waited for the next repatriation holiday. None of these details are carved in stone and may or may not make it through into the final plan or through Congress. However, there is a tax cut coming and that is what juiced the market.

On the economic front, the Consumer Sentiment for February declined slightly from 98.5 to 95.7. The present conditions component declined minutely from 111.3 to 111.2 and the expectations component fell from 90.3 to 85.7 for the majority of the headline decline.

This was the first decline in the headline number in four months. We should not read too much into the decline. Consumers have gotten their credit card bills from the holidays and the higher minimum payments always weigh on sentiment in February. Sixty-four percent of respondents said their financial conditions were better than five years ago, up from 61% last month.


Import prices for January rose 0.4% after a 0.5% rise in December. However, excluding oil, prices declined -0.2%. Excluding autos prices declined -0.3%. The rise in the dollar makes imports cheaper. By comparison oil import prices rose 7.9% in December thanks to the OPEC production cut headlines.

The prices for agricultural foods, feeds and beverages fell -1.9% in January. That was the same as the drop in December. Nonagricultural prices rose 1.0%. This report was ignored.

If a border adjustment tax is imposed or a tariff arrangement with Mexico, our import prices are going to shoot up rather quickly. For instance, we import about $300 billion in goods from Mexico annually. If there were just a 5% tax on those imports, it would mean the cost of those goods would rise by $15 billion a year. There have been numbers tossed around as high as 20%.

The calendar last week was devoid of any material economic reports. That is not the case this week. There is a flurry of economics with a surge of Fedspeak interspersed. Janet Yellen will give her semi-annual testimony on the economy to the Senate on Tuesday and House on Wednesday. Those are always flash points for the market because you never know what direction the questions will take and what answer will be given. In her early days as Fed Chairwoman, she did suffer from foot in mouth disease on more than one occasion. In recent appearances, she has been more cautious.

The Philly Fed Manufacturing Survey on Thursday is the most important regional report for the month. On Wednesday, the Retail Sales for January is probably the next most important for the week.

The Fed speakers are all clustered together on Tue/Wed so the headlines will flow but it will be over quickly.


Stock news on Friday was very sparse. With the earnings cycle winding down there were very few reporters that most people would recognize.

Engineering company Fluor (FLR) reported earnings of 82 cents. That is four cents above estimates. They will take a charge of $45 million or 32 cents a share on an IRS rule that limits the deductibility of foreign currency translation losses on some foreign subsidiaries. They expect to report actual earnings on Feb-17th. Shares were up fractionally.


Interpublic Group (IPG) reported earnings of 75 cents that beat estimates by 8 cents. Revenue rose +3% to $2.26 billion and matched analyst estimates. Interpublic is an advertising agency and they said ad sales rose 3.3% in the U.S. and 7.8% in international markets. The company announced a $300 million share repurchase program and raised their dividend by 20% to 18 cents. The dividend will be paid on March 15th to holders on March 1st. Shares spiked over $25 at the open but faded quickly.


Insurer Aon Plc (AON) reported earnings of $2.56 compared to estimates for $2.49. Revenue of $3.32 billion missed estimates for $3.4 billion. Free cash flow rose 22% for the year to $2.1 billion. Shares spiked at the open but faded quickly.


CBRE Group (CBG) reported earnings of 93 cents that beat estimates for 79 cents. Revenue of $3.82 billion rose 6% but missed estimates for $3.89 billion. The company guided for full year earnings of $2.35 to $2.45. Shares rallied 8% on the news.


Stock movement was mixed for companies reporting on Thursday evening. Expedia (EXPE) reported earnings of $1.17 that missed estimates by 20 cents. Revenue of $2.1 billion rose 23% but barely beat estimates for $2.068 billion. Gross bookings rose 8% or $1.2 billion to $16.1 billion. Analysts thought guidance was conservative and shares were volatile but closed only fractionally lower.


Nvidia (NVDA) reported earnings of 99 cents compared to estimates for 83 cents. Revenue of $2.17 billion also beat estimates for $2.11 billion. It was a record quarter for Nvidia. The company guided for Q1 revenue of $1.9 billion compared to estimates for $1.88 billion. Nvidia also said margins would decline in Q1. The company returned $1 billion to shareholders in 2016. They authorized a dividend of 14 cents to be paid March 17th to holders on Feb 24th.

The CEO bragged on Nvidia's inroads to AI, machine learning, cloud computing, gaming, autonomous vehicles, early cancer detection and weather prediction. "The era of AI is upon us." I am ok with that as long as they do not change their name to SkyNet.

Shares declined on the soft guidance but the stock has seen giant gains over the last year. It is due for a rest. They are kicking Intel's butt in new technology and while $120 is the current resistance, I have no doubt they will be higher in the coming months. I would be thrilled to have another chance to buy this stock at $100. Nvidia is the new technology revolution.


Activision (ATVI) reported earnings of 92 cents compared to estimates for 73 cents. Revenue rose 49% to $2.45 billion and beat estimates for $2.36 billion. The company raised its dividend by 15% to 30 cents and will buy back $1 billion in stock over the next 12 months. They also committed to repay $500 million in debt of which $139 million has already been paid in 2017.

Guidance was soft. The company guided for Q1 revenue of $1.05 billion and earnings of 18 cents. Analysts were expecting $1.196 billion and 31 cents. For the full year, they guided for $6.3 billion and $1.85 and analysts were expecting $6.68 billion and $2.03.

The CEO said the company had record revenue and earnings for both the quarter and the year. They have 447 million monthly active users. Customers spent 43 billion hours playing and watching Activision Blizzard content. Shares exploded higher with a 19% gain.

Think about that for a minute. Over 43 billion hours in one quarter playing games. I wonder how many of those hours were played by unemployed persons. That would be an interesting statistic.


NCR Corp (NCR) reported earnings of $1.07 compared to estimates for $1.03. Revenue of $1.8 billion beat estimates for $1.74 billion. For the current quarter, they expect earnings of 43 to 48 cents and revenue of $1.45 to $1.47 billion. This was their 14th consecutive quarterly earnings beat. For the full year, they guided for $6.6 to $6.72 billion and $3.25-$3.35 for earnings. Analysts were expecting $6.55 billion and $3.27 for earnings. Shares spiked 6% on the news but faded into the close.


Twitter (TWTR) reported a loss of 3 cents that beat estimates for a loss of 11 cents. Revenue of $717.2 million missed estimates for $737.7 million. The company only reported 4% user growth to 319 million monthly active users. Daily active users rose 11% probably due to Trump's 20 million followers.

The stock is in freefall and the odds are good the prior support at $14 is not going to hold this time around.


The earnings calendar for next week has only one Dow component and that is Cisco Systems on Wednesday. There are 54 S&P companies reporting. As you can see, the names in yellow are a lot less important than in prior weeks. The next two weeks are the small cap reporting period. The big caps are mostly over and the small caps will be generating the headlines starting next week.


According to FactSet 71% of S&P companies have reported with 67% beating EPS estimates and 52% beating revenue estimates. The blended earnings growth rate rose from 4.6% last week to 5.0% as of Friday. On December 31st, the estimate was for 3.1% earnings growth. For Q1, 57 companies have issued negative guidance and 25 have issued positive guidance.

For Q1 analysts are expecting 9.9% earnings growth and 7.5% revenue growth. For Q2 the numbers are 9.1% earnings growth and 5.5% revenue growth. For all of 2017 the forecast is 10.3% earnings growth and 5.6% revenue growth.

According to FactSet the most mentioned item on the 317 conference calls was tax policy on 85 calls, deregulation on 63 calls, trade policy 58, health care 25, infrastructure/stimulus 23, defense 11, energy 10 and immigration 6. Given the recent uproar over the travel ban, I would have expected immigration to be higher.

Intel (INTC) held an analyst day on Thursday and the company is probably wishing they had cancelled it. Intel said its three main areas of investment are memory chips, autonomous vehicles and wireless 5G chips. The company also said the secular decline in personal computer usage was a headwind to growth. Credit Suisse said Intel has a "spotty" track record when investing in new areas.

Intel sees a server contraction for the foreseeable future with a 5% decline per year through 2021. The reason was the decline in company operated server farms in favor of moving to the cloud. The spokesperson said the server decline will lead to smaller operating margins.

Analysts read through the chatter on why Intel was sticking with 14 nanometer (NM) products in 2017 instead of going with their new 10 nm process. Apparently, the yield and the margins on the 10 nm process are holding back full-scale production. Estimates were for full production in Q4 and too late for the back to school and holiday shopping seasons. The slowdown in technology implementation by Intel looks like an opportunity for AMD to steal back some market share with lower priced high performance PC/Server chips.

Intel shares broke support at $36.25 and declined sharply on the analyst downgrades, post meeting.


Sears Holdings (SHLD) spiked 39% at the open after the company pulled a rabbit out of their press release hat. The stock closed at a 14-year low on Thursday at $5.53 and gapped up to $7.70 on short covering at the open. The Sears press release was large and they promised multiple things, most of which were simply restatements of prior announcements.

They announced a restructuring in order to save $1 billion annually. They are going to combine the Kmart and Sears administrative offices. They are closing 150 stores. They have initiated a plan to sell $1 billion in real estate based on recommendations by Eastdil. They are going with computer analytics to plan inventory purchases by store and reduce unwanted inventory. They also took down the rest of their unused $500 million bank credit line while their total $1.971 billion revolving credit line was cut back to $1.5 billion.

Same store sales declined more than 10.3% in the holiday shopping period but they guided for revenue of $6.1 billion compared to analyst estimates for $5.68 billion. Despite the expected revenue beat, they will still post a loss between $535 million and $635 million.

Most of the analysts were astounded by the 39% spike in the shares since much of the press release was a repeat and the rest was vague, wishful thinking ideas.


The financial sector was up on Friday after the Fed's toughest watchdog on the sector resigned. Federal Reserve Governor Daniel Tarullo, announced he will retire on April 5th. He started his term the week President Obama took office. His term was not due to expire until 2022. He was a principal driver of the new rules and regulations to govern the sector since the financial crisis. Analysts believe that his replacement will more than likely favor deregulation as proposed by President Trump. Neil Dutta head of U.S. economics at Renaissance Macro Research said, "Buy banks. The dogs are running without a leash."

The Financial select SPDR (XLF) was up sharply on the news but faded late in the day.


Crude oil had a volatile week with a decline from $54 to $51.50 on news the U.S. added more than 13 million barrels to inventories last week. Crude immediately rebounded on the expectations for tax cuts and a stronger economy that lifted the broader market. Crude closed right back at $54 where it started the week and that was despite a rising dollar that closed at a two week high.


Active rigs rose +12 to 741 with 8 new oil rigs and 4 new gas rigs. That is the highest number of active rigs since November 4th 2015. The pace of additions is beginning to slow but that is still an addition of 82 rigs over the last four weeks. Producers are clearly expecting oil prices to remain over $50.


 


 

Markets

I scanned the Dow 30 charts because I was curious how many of the companies were at new highs. I was actually surprised that 16 of the Dow components were either at or relatively close to new 52-week highs. Those at the highs were CAT, BA, IBM, GS, HD, UTX, DD, V, UNH, AXP, CSCO, MSFT, JPM, DIS, MRK and AAPL. That suggests the rally is actually more broad based that it appeared on the surface.

The S&P finally broke over the 2,300 level convincingly and held its gains. There was only a two-point fade at the close to end at 2,316. If the S&P can hold those gains and even expand on them next week, we could be off to the races. The problem is the uptrend resistance at almost exactly 2,316. This is where the tax cut and deregulation enthusiasm runs head first into the reality of resistance. The most likely path is a fall back to 2,300 as support and then a new surge to a new high. On a positive note both Nasdaq indexes have already surpassed that same uptrend resistance.


The Dow managed to close 169 points over prior resistance of 20,100. Doing this on a Friday afternoon without any material selling at the close is very positive. The Dow actually closed just slightly above uptrend resistance from April while the S&P closed just below that level. ANY further gains by either/both indexes should trigger significant short covering and price chasing by portfolio managers.



Both Nasdaq indexes have broken over uptrend resistance and well over their respective round number resistance levels at 5,700 and 5,200. The winners list below is a good balance of all types of tech instead of just the big caps or the FAANG stocks. This is a broad market rally in the Nasdaq.




The Russell 2000 is still the laggard. The index did close at a new high by less than 1 point but in reality, it was a dead stop at the 1,388 resistance level. If the small caps were to catch fire and begin making new highs like the Nasdaq, it would be a race to buy stocks. Fence sitters would be coming off the sidelines in droves to keep from being left behind. A move over 1,400 would be very bullish for the broader market.


I am very encouraged to see an actual trend that is not sideways. With the earnings cycle nearly over for the big cap indexes, there will be less to motivate buyers. If the potential for a tax cut and deregulation is powering stocks as analysts believe then the slowing earnings may not be a problem.

It is very critical that the markets hold their gains and we do not slip back as we did the prior week. That decline to 19,800 on the Dow has been erased but it caused a two-week pause in the rally. In late January, there was also a two-week pause. I want to be done with these consolidation pauses. Let the markets rise for a full week so the bulls can develop some conviction and the sellers become converts.



Random Thoughts


The markets were choppy early in the week and this survey closes on Wednesday. The bears lost a lot of voters last week but only a few have made the full conversion to bullish. The other half decided to pause on the sidelines before diving in the rally river.

Last week results


Edward Snowden may be returning to the U.S. in the near future. Multiple sources claim Russia is done milking him for everything he knows and is considering sending him to the U.S. as a gift to the Trump administration. Putin is clearly trying to befriend the new president and Trump has called Snowden a traitor and a spy. The plan is reportedly to "curry favor" with President Trump. Russia is denying this rumor but it has sprung up from several sources. By keeping Snowden that is just one more point of contention between the U.S. and Russia and one that is easily rectified at no cost or effort to Russia.

If Snowden is returned to the U.S. it will be the end of his cushy lifestyle and he will spend the rest of his life in a maximum security prison. There have been calls to have him executed for treason. Also over one million people signed a petition to President Obama to grant him a pardon. Obama released Private Bradley (Chelsea) Manning instead. Manning was convicted of turning over hundreds of thousands of classified documents to WikiLeaks.

Snowden


Venezuela's food crisis has gotten so bad people are killing pink flamingos, anteaters, monkeys and other protected animals to stave off hunger. Zulia University reported finding more than 20 flamingo remains with their breast and torso removed. Citizens are transitioning from eating the pigeons, lizards, cats, dogs, horses, donkeys and anything else they could catch or steal. The new wild animal diet is now called the "Maduro Diet" after the current dictator Nicolas Maduro, who assumed power after Hugo Chavez died.

Inflation rose 700% in 2016 and is expected to be worse in 2017. The lack of money and price controls prevents anyone from importing food. Corporations are not going to import a chicken for $3 if they have to sell it at the government mandated price of $2. Currently 2 pounds of flour costs $2 on the black market. That is very expensive in Venezuela. When the average minimum wage in Venezuela is currently $11 a month, there is no money to buy groceries even if those groceries actually existed.

The protests against the government are becoming bloodier by the week. Troops are loyal to Maduro because he can feed them. If he were overthrown, chaos would accelerate even worse than what we see today.

The country is already a failed nation and is approaching a nationwide disaster as people slowly starve to death, literally. Any outside aid is seized by the government or by angry mobs as soon as it arrives. I seriously doubt Maduro will last the year.


 

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

 

"To buy when others are despondently selling and to sell when others are euphorically buying takes the greatest courage, but provides the greatest profit."

John Templeton


 

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New Plays

Sector Consolidation

by Jim Brown

Click here to email Jim Brown
Editor's Note

This fragmented sector with a dozen key players is due to consolidate. The cybersecurity sector has a dozen companies or more all trying to protect customers from the same attacks. Each does it differently and has created their own niche.



NEW BULLISH Plays

FEYE - FireEye - Company Profile

FireEye, Inc. provides cybersecurity solutions for detecting, preventing, analyzing, and resolving cyber-attacks. The company offers vector-specific appliance solutions that provide threat protection from network to endpoint for inbound and outbound network traffic that may contain sensitive information. It also offers Central Management System that provides cross-enterprise threat data correlation to identify and block attacks across multiple attack vectors; and Threat Analytics Platform to identify and respond to cyber threats by correlating enterprise-generated security event data from any security product with real-time threat intelligence, as well as Malware Analysis System to manually execute and inspect advanced malware, zero-day, and other advanced cyber-attacks embedded in files, email attachments, and Web objects. In addition, the company offers Network Forensics Platform that helps in detecting threats and view specific packets and sessions before, during, and after the attack to confirm what may have triggered a malware download or callback; Investigation Analysis System, a centralized analytical interface to the Network Forensics Platform; and Mandiant Intelligent Response that enables remote investigation of endpoints and allows security teams to collect targeted forensic data to identify attacker behavior, tools, and techniques. Further, it provides cloud-based subscription services; Security-as-a-Service; and incident response, compromise assessments, and related consulting, as well as training and professional, and customer support and maintenance services. Company description from FinViz.com.

FireEye is transitioning from a firewall appliance vendor to a cloud service and as always happens when companies go this route, the revenue slows temporarily. They reported Q4 results of a loss of 3 cents. Analysts were expecting a loss of 16 cents. This compares to a loss of 55 cents in the year ago quarter. Revenue of $184.7 missed estimates for $191.1 million.

For the current quarter the company guided to earnings of 26 to 28 cents and revenue of $160-$166 million. Analysts were expecting $177.5 million.

The company said several large deals had been expected to close in Q4 and they were pushed into Q1 versus being "lost."

They added 330 net new customers during the quarter. They closed 34 deals for more than $1 million each, including one of their largest SaaS deals ever. They announced a new product called Helix and more than 250 customers have already signed up to get the product as soon as it is released.

Other onetime negatives from the earnings release was news the CFO was leaving to pursue another opportunity and Chairman David Dewalt resigned from the board.

Earnings May 4th.

Cisco (CSCO) recently acquired AppDynamics and that is expected to start a flurry of acquisitions in the cybersecurity space. The space is fragmented today and highly competitive with each player commanding its own niche. The quickest way to expand your product offerings is to acquire somebody else that is a leader in their niche. FireEye is a leader in intrusion detection and tracking. Their recent fall from grace should make them an attractive target with only a $2 billion market cap.

Regardless of whether an acquisition cycle has begun, the stock decline to support is a buying opportunity.

Buy FEYE shares, currently $11.46, initial stop loss $10.45

No options recommended because of price.



NEW BEARISH Plays

No New Bearish Plays



In Play Updates and Reviews

Kicking and Screaming

by Jim Brown

Click here to email Jim Brown

Editors Note:

There are probably heel drag markets across the floor of the NYSE where the Russell 2000 was dragged back to the resistance highs. All the major indexes closed at new highs. The Russell was lifted back to close at 1,388.84 and just over the prior high of 1,388.07. That was a minimal breakthrough and it definitely cannot be called a breakout.

The big caps continue to lead and they held their gains on Friday. If they can continue to move higher on Monday, we could have a good week. If the Russell were to catch fire and move sharply higher, it could be a very good week.





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 - Updated only on Weekends


Current Position Changes


CARA - Cara Therapeutics
The long position was stopped out at $15.75.

SHLD - Sears Holdings
The short position was stopped out at $7.70.

IWM - Russell ETF
The long call 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

AKS - AK Steel - Company Profile

Comments:

No specific news. Shares pulled back slightly from the 8% gain on Thursday.

Original Trade Description: February 4th

AK Steel Holding Corporation, through its subsidiary, AK Steel Corporation, produces flat-rolled carbon, stainless and electrical steel, and tubular products in the United States and internationally. It produces flat-rolled value-added carbon steels, including coated, cold-rolled, and hot-rolled carbon steel products; and specialty stainless and electrical steels in sheet and strip forms. The company also produces carbon and stainless steel that is finished into welded steel tubing, which is used in the automotive, large truck, industrial, and construction markets; buys and sells steel and steel products, and other materials; and produces metallurgical coal from reserves in Pennsylvania. It sells its flat-rolled carbon steel products primarily to automotive manufacturers and to customers in the infrastructure and manufacturing markets, including electrical transmission, heating, ventilation and air conditioning equipment, and appliances; and coated, cold-rolled, and hot-rolled carbon steel products to distributors, service centers, and converters. The company sells its stainless steel products to manufacturers and their suppliers in the automotive industry; manufacturers of food handling, chemical processing, pollution control, and medical and health equipment; and distributors and service centers. It also sells electrical steel products to manufacturers of power transmission and distribution transformers, as well as for use in the manufacture of electrical motors and generators. Company description from FinViz.com.

Shares spiked from $5 to $11 after the election on hopes for a surge in infrastructure projects, lower regulations and a growing economy. AK shares peaked early and traded sideways for a month. The week before earnings they began to decline as analyst said the market gains were overdone.

The reported earnings of 25 cents on January 24th that beat estimates for 7 cents. Revenue of $1.42 billion was slightly lower than estimates for $1.43 billion. Shares spiked on the earnings news and collapsed on guidance that shipments to automakers had declined in Q4. The next day a spokesman clarified that saying the "decline in shipments compared to 2015 was primarily the result of a 41% decline in shipments to the distributor and converters market as the company intentionally reduced sales of commodity products." In other words, AK wanted to focus its efforts on the higher margin products and reduce exposure to low margin products.

Shares quit declining after the clarification and bottomed just under $8. Friday's close was right on the verge of a 7-day high. One more positive day and we could see a rebound begin.

Earnings April 25th.

The optional option position is for a longer-term holder with a June expiration. Very limited risk in terms of dollars invested and could be a decent winner if AKS returns to the $11.25 highs or higher on infrastructure stimulus headlines.

Position 2/6/17:

Long AKS shares @ $8.18, see portfolio graphic for stop loss.

Optional long-term option:

Long June $10 call @ 59 cents. No stop loss.



BOX - Box Inc - Company Profile

Comments:

No specific news. Minor profit taking from Thursday's 52-week high close.

Original Trade Description: January 21st.

Box, Inc. provides cloud-based mobile optimized enterprise content collaboration platform that enables organizations of various sizes to manage their enterprise content from anywhere. The company's platform enables users to collaborate on content internally and with external parties, automate content-driven business processes, develop custom applications, and implement data protection, security, and compliance features. Box, Inc. offers its solution in 22 languages. It serves healthcare and life sciences, financial services, legal services, media and entertainment, retail, education, energy, and government industries. Company description from FinViz.com.

Box is rapidly growing its customer for document management for companies with a global workforce. They are competing with other companies for cloud collaboration and access. More than 69,000 companies worldwide now use Box. They have broken into the media sector and now many production companies use Box for storing and distributing their production content. This has given Box a new niche in the market. Box has partnered with Salesforce.com, IBM and Microsoft in the cloud space. Their goal is to partner and grow with them rather than compete with those giants.

The company reported a smaller than expected loss for Q3 and expect to post an even narrower loss for Q4. Their guidance for Q4 is a loss of 13 cents on revenue of $109 million. That is better than the 26 cents loss in Q4-2015.

Earnings March 1st.

Shares broke out to a new 52-week high on January 12th before pulling back slightly with the market. They closed 5 cents below a new 52-week high on Friday.

Position 1/23/17 with a BOX trade at $17.10

Long BOX shares @ $17.10, see portfolio graphic for stop loss.



CARA - Cara Therapeutics - Company Profile

Comments:

Mo specific news. Monster decline on twice the average volume. Somebody wanted out in a hurry. We were stopped out at $15.75.

Original Trade Description: February 8th

Cara Therapeutics, Inc., a clinical-stage biopharmaceutical company, focuses on developing and commercializing chemical entities designed to alleviate pain and pruritus by selectively targeting kappa opioid receptors in the United States. The company is developing product candidates that target the body's peripheral nervous system. Its lead product candidate includes I.V. CR845, which is in Phase III clinical trials for the treatment acute postoperative pain in adult patients, as well as completed Phase II clinical trials for the treatment of uremic pruritus disease. The company is also developing Oral CR845, which is in Phase IIa clinical trials for the treatment of moderate-to-severe acute and chronic pain; and CR701, which is in preclinical trial stage for treating neuropathic and inflammatory pain. It has licensing agreements with Chong Kun Dang Pharmaceutical Corporation to develop, manufacture, and commercialize products containing CR845 in South Korea; and Maruishi Pharmaceutical Co., Ltd to develop, manufacture, and commercialize drug products containing CR845 for acute pain and uremic pruritus in Japan. Company description from FinViz.com.

This is a small company with only a $400 million market cap. However, the drug they are current testing has the potential to be a multibillion dollar blockbuster. The drug is CR845 and it treats acute and chronic pain. It does not cross the blood brain barrier to there is no euphoria that users get when they take opioid drugs. Test subjects were injected with 15 times the normal dosage and they reported feeling no different than when taking a placebo. There is no risk of overdose and it is not habit forming.

It does not have any of the other opioid side effects including nausea, vomiting, respiratory depression, sedation and constipation. The drug is also an anti inflammatory and long lasting. The typical dosage it 1 pill twice a day.

In hospital tests post operative use of morphine was cut almost in half. For chronic osteoarthritis the drug was more effective than controlled release oxycodone.

There are 60 million post operative patients in the U.S alone each year. There are more than 140 million prescriptions written for pain meds. This has the potential to be a blockbuster.

Cara presented at the JP Morgan Healthcare Conference in mid January and shares were taking off as investors learn about the potential for this drug.

Earnings March 9th.

Position 2/9/17 with a CARA trade at $16.85

Closed 2/10/17: Long CARA shares @ $16.85, exit $15.75, -1.10 loss




BEARISH Play Updates

CONN - Conn's Inc - Company Profile

Comments:

No specific news. Shares still holding over support at $10. Decent rebound on bargain hunting in a market rally.

Original Trade Description: January 26th

Conn's, Inc. operates as a specialty retailer of durable consumer goods and related services in the United States. It operates through Retail and Credit segments. The company's stores provide home appliances comprising refrigerators, freezers, washers, dryers, dishwashers, and ranges; furniture and mattress, including furniture and related accessories for the living room, dining room, and bedroom, as well as traditional and specialty mattresses; and home office products consisting of computers, tablets, printers, and accessories. Its stores also offer consumer electronics, such as LED, OLED, Ultra HD, and Internet-ready televisions; and Blu-ray players, and home theater and portable audio equipment. Conn's, Inc. also provides repair service agreements, installment credit plans, and various credit insurance products. As of March 29, 2016, the company operated approximately 100 retail locations in Arizona, Colorado, Georgia, Louisiana, Mississippi, Nevada, New Mexico, North Carolina, Oklahoma, South Carolina, Tennessee, and Texas. Company description from FinViz.com.

In the Q3 earnings cycle, Conn's reported a smaller than expected loss of 12 cents. Analysts were looking for -19 cents. Revenue of $308.4 million and below the $395.23 million in the year ago quarter. They guided for Q4 same store sales to decline -10%. At the end of Q3 analysts were expecting a profit of 13 cents and revenue of $453.44 million. The odds of them beating this forecast are slim. Zacks said the analyst estimates have declined significantly to a loss of 52 cents for Q4. They have dropped 11 cents in just the last 30 days.

Conn's sells electronics along with appliances and furniture. Electronics sales are being dominated by Amazon and Best Buy. The furniture sector has been slow and appliances are hit and miss. With appliance prices rising sharply it has cut down on buyers that can afford the big ticket items.

Earnings March 7th.

I believe Conn's will continue lower. Shares broke to a two month low on Thursday when support at $10.75 failed.

Position 1/27/17:

Short CONN shares @ $10.50, see portfolio graphic for stop loss.

No options because of wide spreads and no open interest.



GNC - GNC Holdings - Company Profile

Comments:

No specific news. Shares rose 5 cents with the intraday high missing our stop loss by one penny.

Original Trade Description: January 28th

GNC Holdings, Inc., together with its subsidiaries, operates as a specialty retailer of health, wellness, and performance products. The company operates through three segments: Retail, Franchise, and Manufacturing/Wholesale. Its products include vitamins, minerals, and herbal supplement products; and sports nutrition products, diet products, and other wellness products. The company sells its products under the GNC proprietary brands, including Mega Men, Ultra Mega, Total Lean, Pro Performance, Pro Performance AMP, Beyond Raw, GNC Puredge, GNC GenetixHD, and Herbal Plus, as well as under third-party brands. It operates a network of approximately 9,000 locations under the GNC brand worldwide. The company sells its products through company-owned retail stores; Websites, including GNC.com and LuckyVitamin.com, as well as Drugstore.com; domestic and international franchise activities; third-party contract manufacturing; and e-commerce and corporate partnerships. Company description from FinViz.com.

On January 19th GNC was cut to a sell by Goldman saying the already reduced earnings estimates were still too optimistic. GNC tried to sell itself last year and the deal fizzled. Then they announced a restructuring of the brand and the store format. As part of the relaunch of GNC they slashed prices across half their product line and discontinued many products entirely. The company also ended its Gold Card loyalty, which had been in effect for more than a decade. Six million members were paying $15 a year in exchange for discounted prices.

The GNC CEO said "the new GNC leaves the old, broken model behind" but we know "it will take time for the changes to take hold and translate into improved financial results." That is an implied earnings warning for the next couple quarters.

Earnings Feb 9th.

With earnings in two weeks this will be a short-term position. After looking at the cart I doubt many investors will want to hold the stock into the earnings event and that should cause a further decline next week.

Updare 1/31/17: The NFL rejected GNC's proposed advertisement. The NFL said they had a standing policy not to promote supplements. The NFL said GNC was on a list of prohibited companies because they promote products banned by the league.

FOX has been getting an average of $5 million per 30 seconds of airtime and that is a fee GNC will no longer have to pay but the ad was supposed to be a kickoff of their new marketing campaign.

Position 1/30/17:

Short GNC shares @ $8.77, see portfolio graphic for stop loss.

No options recommended because of the distance from the stock price. However, the Feb $7.50 put is only 25 cents. That might be an interesting lottery play to hold over their earnings report. If they get slammed on earnings again that could be a winner.



IWM - Russell 2000 ETF - ETF Profile

Comments:

This position will expire next Friday. This was a bet on the historical trend for stocks to decline in January. The Trump rally negated that trend and even though the Russell was the weakest index over the last month, it has not declined enough to make a difference. With the market breaking out, the odds of seeing $134 again are very slim.

Original Trade Description: December 10th

The IWM ETF seeks to track the investment results of the Russell 2000 Small cap Index.

The Russell is up +232 points or 20.1% in the last 22 trading days. It is grossly over extended and many small cap Russell stocks are up 30% to 40%. I understand the bullish sentiment that believes the economy will be better in 2017 but it will not be because of President Trump. His proposals will take months to get through the House and Senate and there is likely to be some major battles. Obamacare will not go away until 2018 or longer because it takes a long time to plan and execute a change that big. Lower taxes will not happen until 2018 because it will take months for both houses to vote on an acceptable tax bill. I seriously doubt they will change rates in the middle of the year. Any change will not occur until 2018.

I could go on but you get the picture. Typically, there is a honeymoon phase after a new president is elected. This phase has run its course. There are 14 trading days left in 2016 and any new highs are likely to be made before Christmas. After Christmas, investors may begin to worry and once into January and a new tax year, the selling could be dramatic. Do you remember January 2016? The market was not nearly as overextended as it is today and the Dow fell -2,150 points in just two weeks. Entering into a new tax year allows traders to capture profits and invest that money for another year before paying taxes.

Dow - January 2016

We also have the potential for a really messy inauguration or even a terrorist attack at the event. That potential will give cautious investors another reason to take profits in January.

I am recommending a long put on the Russell ETF. There is no stock vehicle we can use other than the VXX to capitalize on a market sell off. The VXX is flawed and while it may go up, it may not go up enough to make it worthwhile and it is volatile from day to day. I chose the Russell ETF because the premiums are cheap and the volatility should work in our favor. If you cannot use options then I suggest you buy the VXX shares at the first sign of market weakness after Christmas.

There is also another trigger factor to consider. The Dow is approaching 20,000 and that could be a massive sell the news event given the big gains. Since the Dow could hit that level this week I am recommending we initiate our long put position in advance.

Because the market could still rise, I want to follow the IWM higher and enter the position only when the ETF rolls over.

The ETF has short-term support at 137.75 and again at $137.25. I am recommending we enter the position with a dip to $137. If the Russell continues higher, I will continue raising the entry point as needed.

Position 12/12/16 with an IWM trade at $137.00

Long Feb $134 put @ $3.38, see portfolio graphic for stop loss.



SHLD - Sears Holdings - Company Profile

Comments:

Friday was a very disappointing day. We had a great short trade underway in Sears with shares down from $8.97 to $5.53 at Thursday's close. The company announced a major restructuring and shares spiked 39% at the open. To stop us out at the high of the day. Our $3.44 gain fell to only $1.27.

The company said it was restructuring to save $1 billion a year and would sell $1 billion in real estate. They are planning on combining the Kmart and Sears administrative offices and using computer modeling to handle inventory purchases. Good luck.

Much of the changes Sears announced on Friday had been previously announced. The cost savings plans were vague and same store sales are still falling.

Original Trade Description: January 9th

Sears Holdings Corporation operates as a retailer in the United States. It operates in two segments, Kmart and Sears Domestic. The Kmart segment operates retail stores that offer a range of products, including consumer electronics, seasonal merchandise, outdoor living, toys, lawn and garden equipment, food and consumables, and apparel; and in-store pharmacies. It provides merchandise under the Jaclyn Smith, Joe Boxer, and Alphaline labels; Sears brand products, such as Kenmore, Craftsman, and DieHard; and Kenmore-branded products. As of October 31, 2015, this segment operated approximately 952 Kmart stores. The Sears Domestic segment operates stores that provide appliances, consumer electronics/connected solutions, tools, sporting goods, outdoor living, lawn and garden equipment, apparel, footwear, jewelry, and accessories, as well as automotive services and products, such as tires, batteries, and home fashion products. It also offers appliances and services to commercial customers in the single-family residential construction/remodel, property management, multi-family new construction, and government/military sectors; appliance and plumbing fixtures to architects, designers, and new construction or remodeling customers; parts and repair services for appliances, lawn and garden equipment, consumer electronics, floor care products, and heating and cooling systems; and home improvement services, as well as protection agreements and product installation services. This segment provides merchandise under the Kenmore, Craftsman, DieHard, Covington, Canyon River Blues, Metaphor, Outdoor Life, Structure, and Apostrophe brands, as well as under the Roadhandler, Ty Pennington Style, and Alphaline brands. As of October 31, 2015, this segment operated 735 Sears stores. Company description from FinViz.com.

We played Sears as a short several times before. We were stopped out on Dec-30th when the CEO arranged a bridge loan to get them out of trouble temporarily. Now that the holiday numbers are starting to come in, the results are very dismal. Sears is eventually expected to file bankruptcy.

In November, they posted a GAAP loss of $748 million and an adjusted loss of $333 million. Gross margins fell to 19.2% compared to JC Penny at 37.2%. Sears is forced to severely discount items to attract what few shoppers they have. Same store sales at Kmart fell -4.4% and -10% at Sears. Revenue fell -12.5% to $5.0 billion.

Earnings March 9th.

Fitch warned Sears will burn through $1.5-$1.8 billion in cash this year and even selling off the Craftsman brand will only gain them an additional 12 months of life.

Sears closed at a new 14-year low on Dec-28th and the outlook is growing increasingly dim. Suppliers fear a bankruptcy in 2017 once the holiday shopping is over. Several suppliers have halted shipments to Sears on fears they will not be paid.

In early January, they announced they were closing 150 stores. There are 109 Kmarts and 41 Sears stores. Last week they announced the sale of the Craftsman brand to Stanley Black & Decker for $900 million but they get less than half of that in cash. The rest is paid out over the next 3-5 years. That shows how desperate they are for cash since they originally expected to raise $1.5 to $2.0 billion on the sale. Now they are looking to sell the Kenmore and Diehard brands.

With the Craftsman sale and the loan from the CEO and a new $500 million loan secured by real estate, they have developed about $1.5 billion in Liquidity. Fitch warned Sears will burn through $1.5-$1.8 billion in cash this year and even selling off the Craftsman brand will only gain them an additional 12 months of life.

When they announced the Craftsman sale at less than expected terms, the stock fell back from the early January gains. The outlook is grim despite the short-term cash inflows.

Update 1/11/17: In an OP-ED piece Forbes said the sale of Craftsman signaled the opening of the final chapter for Sears. They said the Craftsman sale and the potential sale of the Kenmore and Diehard brands represented a "going out of business" sale.

Update 1/19/17: Sears announced it was ending its decades old employee discount program. They are going to allow employees to earn points on purchases that will be good for future discounts. Currently they get a discount on items at the time of purchase. By scrapping that plan, the company gets the money up front and maybe the employee will use their points on future purchases. The point values differ on different types of merchandise. If Sears eventually files bankruptcy, the points would disappear. This is another sign the company is in trouble.

Update 1/21/17: Moody's downgraded Sears credit rating from Caa1 to Caa2. Moody's said Sears is running out of stuff it can sell for cash. They only have 211 properties that are unencumbered and worth about $2.5 billion. With the company burning cash at the rate of $1.5 billion they are rapidly approaching the end of the line. Moody's said they could raise cash with the sale of the Kenmore and Diehard brands but after that they are done. There is nothing left to sell that will produce a large inflow of cash.

Update 1/25/17: Fitch Ratings took another look at Sears and reiterated they expect a $1.6 billion cash burn for 2016 and $1.8 billion in 2017. The Barron's laid out the problems ahead for Sears and that tanked the stock on Wednesday.

Update 1/26/17: Moody's joined Fitch in another downgrade on Sears credit instruments. The debt instruments were cut from Caa2 to Caa3 because of accelerating cash burn and declining asset base. The WSJ had another article today negative on the outlook for Sears. Sales at companies like Mattel and Hasbro declined sharply in Q3 suggesting Sears and others did not reorder and earnings could be dismal.

Update 1/30/17: Sears announced a sale-leaseback arrangement with CBL & Associates for five Sears stores and two auto stores. A sale-leaseback is where the company sells the properties to raise cash and then agrees to lease them back from the buyer for a specific term. This is another sign Sears is continuing to have a cash crunch. This transaction leaves Sears with only 204 properties that are unencumbered and could be sold for cash out of the 1,680 stores they operate. Every time they sell a property they take on debt in the form of leases and that means the amount of cash burn increases with each deal.

Update 2/7/17: Credit default swaps rose to $4.5 million annually to insure $10 million of Sears debt. While nobody is likely to actually pay that fee, it is another confirmation point that Sears is headed for default. Kiffen Worldwide said they expect a Sears default in 2017.

Update 2/19/17: Sears won a $40 million lawsuit against the CEO and Seritage, a REIT spun off from Sears. The suit claimed CEO Eddie Lampert spun off $2.6 billion in Sears best properties to Seritage and Lampert owns 9.6% of Seritage. The suit claimed Lampert use the spinoff to enrich himself by stripping Sears of its best properties. The settlement does not require Lampert to admit guilt.

Position 1/10/17:

Closed 2/10/17: Short SHLD shares @ $8.97, exit $7.70, +1.27 gain.



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.


CX - Cemex - Company Profile

Comments:

CX said sales rose 4% in Q4 to $3.2 billion. EBITDA rose 10% to $654 million and +15% for the full year to $2.7 billion. Free cash flow rose 91% to $1.7billion in 2016. Debt declined by $2.3billion. Asset sales reached $2 billion of which $1 billion will close in 2017. Shares rebounded from the support break.

Original Trade Description: January 25th

CEMEX, S.A.B. de C.V. produces, markets, distributes, and sells cement, ready-mix concrete, aggregates, and other construction materials in Mexico and internationally. The company also offers various complementary construction products, including asphalt products; concrete blocks and roof tiles; architectural products; concrete pipes for storm and sanitary sewers applications; and other precast products comprising rail products, concrete floors, box culverts, bridges, drainage basins, barriers, and parking curbs. In addition, it provides building solutions for housing projects, pavement projects, and green building consultancy services; and information technology solutions and services. The company has operations in Mexico, the United States, Northern Europe, the Mediterranean, South America, the Caribbean, and Asia. Company description from FinViz.com.

Bernstein Research researched all the contractors that could supply materials for a border wall. In the Bernstein map below Cemex is represented by the red blocks. Building 1,000 miles of wall, which is what Trump has promised will take a lot of concrete.

Cemex is one of the world's largest suppliers of cement and readymix concrete. Analysts believe the wall will cost between $15 to $25 billion to build and concrete would be a major expense. Based on various comments about what Trump is asking for, analysts expect 7 feet deep and up to 40 ft high for 1,000 miles. That will take 7.1 million cubic meters of concrete worth $700 million. However, engineers believe it would be easier and cheaper to build precast panels like the wall in Israel and other places. That would allow the panels to be constructed close to Cemex locations and not have 1,000 concrete trucks rotating up and down the wall every day. The picture below is the Israeli wall made with concrete panels and it stretches 420 miles.

Regardless of how the wall is constructed, it will take a lot of concrete and Cemex is going to be a supplier. Cemex has a large presence in the U.S. so it is immune from the US First rule.

Update 2/2/17: The secretary of Homeland Security said they are planning to complete the border wall in less than two years. They plan on a crash construction project in the heavily traffic areas and then fill in the blanks over the next two years. That means once construction begins it could be in multiple locations at once and the velocity could be extreme in order to get most of it done before the 2018 elections.

Earnings Feb 9th.

CX shares have already spiked in January once it became apparent the wall was actually going to happen. The stock broke out to a new high on Wednesday and probably has a long way to go.

Position 1/26/17:

Long July $11 call @ 52 cents. No initial stop loss.

Previously closed 2/6/17: Long CX shares @ $9.42, exit $9.05, -.37 loss.



FCX - Freeport McMoran - Company Profile

Comments:

Freeport surged 7% at the open on Friday but gave back half of those gains. The Indonesian government said it had issued a new mining permit to Freeport and the company could apply for a new export license at any time now that the permit was in force.

However, Freeport immediately rebutted those claims saying the new mining permit was unacceptable because it increased taxes and required Freeport to divest 51% of its operations in Indonesia. The company said all those terms were in violation of its long term contract with the country. Freeport warned again it would be shutting down production if it did not receive a permit on the same terms and conditions of the prior permits and existing contract.

Original Trade Description: January 31st

Freeport-McMoRan Inc., a natural resource company, acquires, explores, and develops mineral assets, and oil and natural gas resources. The company explores for copper, gold, molybdenum, cobalt hydroxide, silver, and other metals, as well as oil and gas. It holds interests in various mines located in the Grasberg minerals district in Indonesia; Morenci, Bagdad, Safford, Sierrita, Miami, Chino, Tyrone, Henderson, and Climax in North America; Cerro Verde and El Abra in South America; and the Tenke Fungurume minerals district in the Democratic Republic of Congo, Africa. The company's oil and gas operations include oil production facilities in the Deepwater Gulf of Mexico; oil production facilities onshore and offshore in California; onshore natural gas resources in the Haynesville shale in Louisiana; natural gas production from the Madden area in central Wyoming; and a position in the Inboard Lower Tertiary/Cretaceous natural gas trend onshore located in South Louisiana. As of December 31, 2015, its consolidated recoverable proven and probable mineral reserves included 99.5 billion pounds of copper, 27.1 million ounces of gold, 3.05 billion pounds of molybdenum, 271.2 million ounces of silver, and 0.87 billion pounds of cobalt; and its estimated proved oil and natural gas reserves totaled 252 million barrels of oil equivalents. Company description from FinViz.com.

Freeport has had its share of problem over the last couple years. They bought back their spinoff oil and gas company in 2014, just as the price of oil began to crater. They bought the dip and added additional reserves in the deepwater gulf but the dip was not over. They tried for a year at the worst of the market to sell the energy business and could find no takers. Finally in Q4 they sold the deepwater assets to Anadarko Petroleum for $2 billion and far less than they were worth but at least they stopped the bleeding.

The decline in the global economy caused prices for copper to fall sharply and they were forced to sell some copper reserves as well as some other mining properties. Copper was selling for less than it cost to mine it so mines shut down and the industry restructured.

After copper bottomed at $1.93 in early 2016 it remains just over $2.00 for nine months until the surplus inventories started to deplete. Copper was $4.50 back in 2011. With copper prices at a 52-week high this week, Freeport shares also made a new 52-week high today.

Freeport has also had a battle with the government of Indonesia. With copper a major export, the government implemented a program a couple years ago that only allowed refined copper to be exported. The idea was to have the multiple mining companies build huge copper smelters and hire a lot of workers at decent wages. The miners battled the government to a standstill several times and production slowed to a crawl. With copper revenue crashing the government relented to some extent. However, Freeport reported with earnings that the pressure was on again and they were going to be forced to shut down production if the government did not allow them to export. A multiweek standoff occurred. On Tuesday, the government said it was going to exempt Freeport from some of the rules and shares rose.

Freeport is actually in good shape right now. The global economy is accelerating and commodity prices are rising. They have reduced debt and refocused their priorities. I expect shares to continue climbing.

Update 2/3/17: Freeport provided an update on the progress of negotiating with the Indonesian government on the new rules for exports the government put in place in January. Freeport warned that an unsuccessful outcome could reduce production by 70 million pounds of copper and 70,000 ounces of gold per month until approvals are received. This a high stakes game of chicken. The government wants to limit production and export of raw material and increase the amount that is smelted in Indonesia. However, there is not enough capacity at the jointly owned smelter and the mining companies do not want to commit millions of dollars to build a new smelter unless they are guaranteed an operating contract longer than five years, which is what the government is offering. The government is offering the option of a five-year extension but it is not guaranteed. Also, at the end of ten years the miners must have sold at least 51% of their business to Indonesian investors. So, spend millions to build a smelter, live under our austerity rules for the next five years and maybe we will let you continue but after 10 years controlling interest in your business belongs to Indonesia. Freeport has been fighting government rules for years and typically the government buckles because they need the export income and the jobs.

Earnings April 26th.

Position 2/2/17:

Long April $18 call @ $.99, see portfolio graphic for stop loss.

Previously closed 2/7/17: Long FCX shares @ $16.69, exit $15.45, -1.24 loss.



STM - STMicroelectronics - Company Profile

Comments:

No specific news. First 3-day decline since November. Shares did rebound from a 40 cent loss at the open to lose only 2 cents at the close.

Original Trade Description: February 6th

STMicroelectronics N.V., together with its subsidiaries, designs, develops, manufactures, and markets semiconductor products, and subsystems and modules worldwide. The company offers a range of products, including discrete and standard commodity components, application-specific integrated circuits, full-custom devices and semi-custom devices, and application-specific standard products for analog, digital, and mixed-signal applications, as well as silicon chips and smartcards. It also provides subsystems and modules, including mobile phone accessories, battery chargers, and ISDN power supplies for the telecommunications, automotive, and industrial markets; and in-vehicle equipment for electronic toll payment. The company sells its products through its distributors and retailers, as well as through sales representatives. Company description from FinViz.com.

STM is Europe's third largest chipmaker. The company reported revenue of $1.86 billion, an 11.5% increase. The also raised guidance for Q1 saying they expect 12.5% growth. The CEO said, "Based on market forecasts, a positive booking trend, and a strong performance at our distributors, we see the momentum from the second half of 2016 continuing as we enter 2017."

The chipmaker said improved efficiencies and product mix lifted gross margins from 33.5% to 37.5%. Their smartphone market share helped increase sales in that division by 17.8%. The automotive and industrial products segment saw sales increase 12.5%. STM is a supplier to Apple, Cisco Systems, HP, Seagate and Western Digital. Every one of those companies are reporting stronger sales and new product lines, all of which helps STM. They also make chips for drones, 3D printing and a wide variety of IoT products.

The consensus earnings estimates are for 103.4% growth in 2017.

Earnings April 27th.

Shares have caught fire because of expectations for a large boost in chips for the iPhone 8 or X whatever they end up calling it.

This stock is not cheap with a PE of 75 but the outlook is so strong that volume is exploding and the stock will not go down. We are going to hold our nose and buy it. A safer way to play this would be to buy the call option. That way your total risk is 70 cents a share.

Position 2/7/17:

Long April $15 call @ 65 cents. See portfolio graphic for stop loss.

Previously closed 2/9/17: Long STM shares @ $14.22, exit $13.75, -.47 loss.





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