Option Investor
Newsletter

Daily Newsletter, Thursday, 2/23/2017

Table of Contents

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

Market Wrap

Consolidation

by Thomas Hughes

Click here to email Thomas Hughes

Introduction

Profit taking and new highs. The indices opened the day with new highs but profit taking quickly set in. Downward pressure was not strong, losses were minimal in most cases, and looks to be nothing more than profit taking and consolidation at this time. Early trading was lifted by positive earnings results in the pre-market session, this week's jobs data and comments from Steve Mnuchin. Later in the day markets were lifted again but this time by the upbeat vibe coming out of the Presidents meeting with his council of top US manufacturers.

International markets were mixed in the overnight session. Asian indices closed flat in the wake of the FOMC minutes. The latest read on the Fed was a bit more hawkish than what we've heard before, but not more hawkish than the market was expecting and still without a clear indication of when and how much the next interest rate hike will be. European indices were much the same but succumbed to selling once out markets opened and it became clear today was a day for profit taking.

Market Statistics

Today's action was light and a little bit choppy. Futures trading indicated a positive opening all morning and gained strength going into the opening bell. The indices opened at new all time highs, about +5 points for the S&P 500, and those levels held for the first 10 to 15 minutes. After that profit taking slowly chipped away at the early gains until the SPX was pushed into negative territory, shortly after 10:15AM. The intraday low was hit almost exactly at 11:15AM and from there the market bounced back to regain most of the days earlier gains. By noon the SPX had broken back into positive territory but intraday resistance capped gains. Buyers at least matched sellers, causing the SPX to bob along near break even the remainder of the day.

Economic Calendar

The Economy

Not much data today but what there was is good. Initial claims for unemployment gained 6,000 from last week's figure, last week's figure having been revised down by -1,000, to hit 244,000. This is slightly above expectations but nevertheless a low number. The four week moving average of claims fell -4,000 to hit 241,000, a new low dating back to 7/21/2017. On a not adjusted basis claims fell -2.2% versus an expected -4.3% and are down -3.3% from last year.


Continuing claims fell -17,000 from an upward revision of +1,000 to hit 2.06 million. The four week moving average of continuing claims fell -10,750 to hit 2.069 and appears to be headed lower. Taken together, the initial claims and continuing claims data is still solid, still trending lower and is consistent with labor market health.

The total claims fell as well, shedding -18,035 to hit 2.508. This decline is as expected and in-line with long running trends. The total number of claims is down -7.35% from last year and consistent with ongoing improvements in the labor market. We can expect to see this figure fall off into the spring with a downside target near 1.75 million.


The Dollar Index

The Dollar Index fell today but the losses were minimal. The index fell nearly -0.25% to hit support at the short term moving average, just above $101. Today's move is in response to the FOMC minutes from yesterday, the FOMC is more hawkish than they were before which supports the near term uptrend but they weren't more hawkish than the market was expecting so the news wasn't the bullish catalyst it may have been otherwise. The indicators are rolling over in indication of resistance to higher prices in the range of $101.50. Now that the Fed has tipped its hand its back to the data for us. Strong data and positive moves in the Trump economy should be dollar strong, weak data the opposite. A break above $101.50 is bullish, upside target near the recent highs. A break below support is bearish with downside target near $99.25.


The Gold Index

Gold jumped nearly 1.5% on yesterday's FOMC minutes and today's drop in the dollar. The move is capped at a 3 month high, just a hair above $1,250, and may be misplaced euphoria. The FOMC minutes did not give clear indication of the rate hike time line, which is helping to support gold, but the risk is that data will come in stronger than expected, push the Fed to lift rates sooner or faster than expected and send gold crashing back to reality.

Price action in the gold miners may reflect the reality of the gold outlook. The miners ETF GDX gained more than a full percent today but created a bearish candle beneath resistance with bearish indications. The ETF has been in a topping/reversal pattern the past month or so, recently hitting the first downside target at the short term moving average. Today's action extends a bounce from support at that target, based on the indicators we can expect to see support tested again. A break below the moving average, near $24.5, would be bearish with downside target near $23.50.


The Oil Index

Oil prices got a nice little boost today, up more than1.5%, but remain within the near term trading range. Today's action was supported by US inventory data which revealed a smaller than expected build, and news from Exxon that they'd lowered their reserve estimates by 3.3 billion barrels. WTI gained a little more than $0.80 to trade near $54.40.

The Oil Index is looking very promising. On a technical basis it looks to be putting in a nice bottom at the 1,200 level. Today's action saw the index open with a gain near 1.5% only to sell off, hit support at 1,200 and bounce back to close near the open. The indicators are both consistent with support at this level, MACD has diverged from the most recent low and is now confirming support while stochastic is trending higher after putting in a double bottom of its own. Resistance is near 1,235 and the short term moving average, a break above this level is bullish with upside target near 1,300 in the near term.


In The News, Story Stocks and Earnings

Kohl's reported before the bell and delivered a mixed bag. Results were better than expected but comp sales were down and guidance was weak. Company CEO says sales are being hurt by online. Full year guidance is a range with $3.80 at the top end, consensus is $3.80. Despite the lack luster results the dividend was raised which helped to support share prices.


Jack In The Box delivered a trifecta of weaker than expected earnings, less than expected revenue and weak forward guidance. The silver lining, if there is one, is that earnings are up significantly from last year. Despite this shares of the stock fell more than -11% in the premarket and closed with a loss of only -7%.


HP Inc, the legacy business of former Hewlett Packar, reported before the bell as well and turned out to be the darling of the market, for today at least. EPS was at the high end of the guided range, above consensus estimates, with a 4% increase in net revenue. Forward guidance is in-line with estimates and helped sooth fears the company would not be able to compete in today's marketplace. Shares of the stock rose slightly in the pre-market session and the extended those gains to nearly 9% to hit a more than 2 year high.


The Indices

Today's action was positive but shows signs the rally may be hitting a peak. The indices in general were able to hold flat to yesterday's close and in some cases set new all-time intraday and/or closing highs. Today's leader was the Dow Jones Industrial Average which posted a gain of 0.17%. The blue chips spent the day trending sideways just above yesterday's close, only briefly dipping into negative territory during the middle part of the day. The index continues to drift higher on bullish indicators although there are some potential warnings signs. First, momentum is not that strong and may be peaking. Second, stochastic is reaching overbought. Together these bring up the possibility of correction or consolidation but do not guarantee it, stochastic for one could easily simmer at this level indefinitely during a prolonged uptrend. Upside target is still 21,000, first target for support is 20,500.


The S&P 500 was the only other major index to post a gain in today's session and almost didn't. The index opened with gains near 5 points, gave all that up and more, spent hours hovering around break-even, dipped into the red just before the close and then in the last 2 minutes moved up anough to close with a gain of 0.04%. The index created a hanging man/dragonfly doji, set a new all time closing high, and may continue to trend sideways tomorrow. The indicators are both bullish but are also both showing signs of peaking which usually lead to consolidation or correction. Consolidation at this level would be bullish and could lead to an extension of the rally. Upside target is in the range of 2,400 to 2,500 short term, first target for support should a pull-back occur is the short term moving average nea 2,300.


The NASDAQ Composite snapped its winning streak with a loss of -0.43%. The tech heavy index created a medium sized black bodied candle while setting an all-time intraday high and formed a Dark Cloud Cover. This usually precedes a change in trend which in this case could be consolidation or pull-back. The indicators are both consistent with a peak in trend but do not at this time suggest a major correction. Near term support is just beneath today's close, at the lower end of today's lower wick, near 5,800. A break below here would be bearish near term and could go as low as 5,750. A consolidation and move higher would be bullish with upside target of 6,000.


The Dow Jones Transportation Average posted the largest decline, a whopping -1.19%. The transports created a large black candle falling from resistance at the just-broken previous all-time high. Today's move met support at the shot term moving average, near 9,335. The indicators have rolled over confirming the peak but remain bullish in the longer term. Support may be tested further, a break below the moving average would find additional support targets at 9,250 and 9,150.


It looks like the rally has hit a peak and entered a period of consolidation. This may go on until the next round of market moving events begin to take place. In the near term there is economic data. Tomorrow's calendar is light with only Michigan Sentiment and New Home Sales but next week's is packed. After that there is the FOMC meeting March 15th and whatever developments occur in the Trump economy. We've been promised a look at the tax plan and health care reform in the coming weeks, perhaps one of those will set the bulls running again. I remain bullish but looking to take profits in preparation for the next big move.

Until then, remember the trend!

Thomas Hughes


New Plays

Feeling Lucky?

by Jim Brown

Click here to email Jim Brown
Editor's Note

Remember the old Dirty Harry line, "Do you feel lucky punk." I do not feel lucky about Friday. There were too many negative headlines today and too many sectors and indexes suddenly taking a breather. We need for the market to pause and maybe today was the beginning.

Market internals reversed to negative and new 52-week lows were the most since December 22nd. The market shook off some worries about the potential tax cut being delayed until Q4 and new comments on the border adjustment tax showed it was not dead. The Nasdaq composite fell -52 points at the lows before recovering half of that loss thanks to the strength in the Dow.

However, while one day does not make a trend, we should pay attention when the current bullish trend appears to lose traction. This may have been just a one-day event but S&P futures are down -3 points and the tax cut delay chatter is all over the news. With the State of the Union speech on Tuesday, we could see some investors move to the sidelines before the weekend. There is no reason to add new plays today. If the market moves higher, we already have longs. If the market rolls over there is no reason to add one more play just to be stopped out.



NEW BULLISH Plays

No New Bullish Plays


NEW BEARISH Plays

No New Bearish Plays



In Play Updates and Reviews

Cracks in the Foundation

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Russell 2000 has declined -16 points over the last two days from its closing high on Tuesday. The Russell, S&P-600, both Nasdaq indexes, Dow Transports and the biotech sector were down today. The Dow squeezed out another new high and is now only 190 points from 21,000. The S&P rebounded from its lows but only closed fractionally positive.

This could be just some consolidation but the political headlines were not flowing well on Thursday. The border adjustment tax came back to life, the tax cut could be pushed into Q4 and infrastructure spending may get delayed until 2018. The only pro business endeavor that was not delayed was the attempt to remove unnecessary regulations. The market was more concerned about the tax cuts and that weighed on the recent gains.





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.





Current Position Changes


AKS - AK Steel
The long stock position was stopped at $8.65.

AMD - Advanced Micro
The long stock position was entered at the open.



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BULLISH Play Updates

AKS - AK Steel - Company Profile

Comments:

The entire metals sector was crushed today on worries an infrastructure stimulus program could be put off until 2018. This weighed on multiple sectors but steel, copper and aluminum were killed. We were stopped out of this position at $8.65 for a small gain. The long call option will move to the Lottery Play section.

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.

Update 2/21/17: AK Steel said they were increasing prices by a minimum of $30 a ton effective immediately.

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:

Closed 2/23/17: Long AKS shares @ $8.18, exit $8.65, +.47 gain.

Optional long-term option:

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



AMD - Advanced Micro Devices - Company Profile

Comments:

No specific news. Only a minor gain but still a new 52-week high in a mixed market.

Original Trade Description: February 22nd.

Advanced Micro Devices, Inc. operates as a semiconductor company worldwide. The company's products primarily include x86 microprocessors as an accelerated processing unit (APU), chipsets, discrete graphics processing units (GPUs), and semi-custom System-on-Chip (SoC) products. It provides x86 microprocessors for desktop PCs under the AMD A-Series, AMD E-Series, AMD FX CPU, AMD Athlon CPU and APU, AMD Sempron APU and CPU, and AMD Pro A-Series APU brands; and microprocessors for notebook and 2-in-1s under the AMD A-Series, AMD E-Series, AMD C-Series, AMD Z-Series, AMD FX APU, AMD Phenom, AMD Athlon CPU and APU, AMD Turion, and AMD Sempron APU and CPU brands. The company also offers chipsets with and without integrated graphics features for desktop, notebook PCs, and servers, as well as controller hub-based chipsets for its APUs under the AMD brand; and AMD PRO mobile and desktop processors. In addition, it provides discrete desktop graphics products and discrete GPUs for notebooks under the AMD Radeon brand; professional graphics products under the AMD FirePro brand; and customer-specific solutions based on AMD's CPU, GPU, and multi-media technologies. Further, the company offers microprocessors for server platforms under the AMD Opteron; embedded processor solutions for interactive digital signage, casino gaming, and medical imaging under the AMD Opteron, AMD Athlon, AMD Sempron, AMD Geode, AMD R-Series, and G-Series brands; and semi-custom SoC products that power the Sony Playstation 4 and Microsoft Xbox One game consoles. Advanced Micro Devices, Inc. sells its products through its direct sales force, independent distributors, and sales representatives. The company serves original equipment manufacturers, original design manufacturers, system builders, and independent distributors. Advanced Micro Devices, Inc. was founded in 1969. Company description from FinViz.com.

AMD has played second fiddle to Intel nearly its entire life. Intel technology is always a couple steps ahead and that means AMD is always running to catch up to a moving target. Recently, Intel's advances have slowed. PC computing power has reached a point where there are no slow PCs for sale at the local computer store. Performance is cheap and that performance is more than a normal user will ever need. Gamers will spend big bucks for the fastest processor but even that has migrated into the video cards themselves and Nvidia owns that market.

Consumers do not need a super fast computer for email, spreadsheets and web browsing. In the server sector the processors have become so fast that the input-output devices cannot keep up. Very few servers today run anywhere near their rated speeds.

AMD has spent four years developing their Zen processor in an attempt to meet Intel head on in the PC and server markets. They announced on Wednesday the first processors will ship in March and are priced about half of Intel for the top of the line and just under Intel for the midrange processors. Neither company wants to get into a price war. With only two companies making computer processors, to fight on price would only hurt profits for both and probably not change the consumer demand.

The key here is that AMD can be competitive again with their new Ryzen or Zen processors. ADM said their one goal in developing the new processor was to "disrupt the PC market and bring innovation, choice and performance to as many people as possible."

The fastest processor in the line is an 8-core Ryzen 7-1800X at $499. That compares to a similar Intel 8-core Core i7-6900K processor at $1,000.

AMD reported a Q4 loss of a penny which easily beat estimates for a loss of 10 cents. Revenue of #1.11 billion beat estimates for $1.07 billion. They guided for revenue of $988 million in Q1 and analysts were only expecting $964 million. Gross margins rose from 30% to 32%. Shares spiked on the February 1st news. Shares spiked again on the new processor announcement on Feb-22nd.

Earnings May 2nd.

The gain on Wednesday saw a close at a new 52-week high and above the post earnings consolidation phase. AMD may be choppy from here but I think it has enough going for it today that the rally can continue.

Position 2/23/17:

Long AMD shares @ $14.20, see portfolio graphic for stop loss.

Optional:
Long Apr $16 call @ 67 cents, no stop loss.



ARNC - Arconic - Company Profile

Comments:

Arconic declared a quarterly dividend of 6 cents on common stock, 93.75 cents on Class A preferred stock and $6.71875 on Class B shares. The dividends ar epayable on May 25th to holders on May 5th.

Arconic shares were crushed as the entire metals sector crashed on news the infrastructure stimulus program could be delayed until 2018.

We have plenty of time.

Original Trade Description: February 16th.

Arconic Inc develops and manufactures engineered products and solutions for the aerospace, industrial gas turbine, commercial transportation and oil and gas markets. Company description from FinViz.com.

What that description does not tell you is that Arconic is the old Alcoa. Back in October Alcoa spun off the aluminum smelter business and named it Alcoa. The remaining hith tech manufacturing business they named Arconic. Basically, this is the profitable part of the old Alcoa. They produce all sorts of high tech aluminum products for nice profits.

Their Q4 earnings were mixed because of expenses incurred as a result of the spinoff.

Zacks reported Q1 estimates have risen from 20 cents to 25 cents over the last several weeks as analysts reevaluate the new company. Full year estimates have risen from 92 cents to $1.10, a 19.6% increase.

On Wednesday Arconic said it had sold 60% of the Alcoa stake it kept during the spinoff for $890 million and would use the money to pay down debt and buy back shares. They also retained loss carry forward tax credits that will offset future earnings.

Earnings May 2nd.

Shares went ballistic after the Q4 earnings and rose from $23 to $30. Every day I kept watching the stock and thinking, "ok, tomorrow they will dip and I will add them to the portfolio." They never dipped until this week. That dip was very shallow and has lasted only 3 days.

We never know. They could fall off a cliff tomorrow and retest the $23 pre-earnings. I seriously doubt it because funds have been adding Arconic as a new position.

I am going to recommend an options only strategy with a four-week duration. I am recommending we buy a $30 call and a $28 put. The total cost will be $1.52 and that is our total risk. We only need ARNC to move in either direction more than a couple bucks and we should be profitable.

Either way at least one option should be profitable and offset the cost of the other. Depending on the market we could actually profit on both if we got a big dip and then a big rebound. The only way we lose both premiums is if the stock holds at $29 for the next month. That is not likely.

Update 2/17/17: Hedge fund Lion Point, a minor shareholder in Arconic, urged the company to "promptly engage" with Elliott Management to increase shareholder value. Elliott is the largest shareholder in Arconic is trying to get the CEO replaced and they have nominated five board members. Lion Point and Elliott both believe "the intrinsic value of Arconic materially exceeds the company's current stop price."

Position 2/17/17:

Long Mar $30 call @ 90 cents. No stop loss.
Long Mar $28 put @ 60 cents, No stop loss.



BRKS - Brooks Automation - Company Profile

Comments:

No specific news. Support holding.

Original Trade Description: February 13th

Brooks Automation, Inc. provides automation and cryogenic solutions for various applications and markets. It operates through two segments, Brooks Semiconductor Solutions Group and Brooks Life Science Systems. The Brooks Semiconductor Solutions Group segment offers critical automated transport, vacuum, and contamination controls solutions and services. This segment's products include atmospheric and vacuum robots, robotic modules, and tool automation systems that provide precision handling and clean wafer environments; automated cleaning and inspection systems for wafer carriers, as well as reticle pod cleaners and stockers; and vacuum pumping and thermal management solutions for use in critical process vacuum applications. This segment also provides support services, including repair, diagnostic, and installation, as well as spare parts and productivity enhancement upgrades. The Brooks Life Science Systems segment provides automated cold storage systems; consumables, including various formats of racks, tubes, caps, plates and foils; and instruments used for labeling, bar coding, capping, decapping, auditing, sealing, peeling, and piercing tubes and plates. This segment also provides sample management services, such as on-site and off-site sample storage, cold chain logistics, sample relocation, bio-processing solutions, disaster recovery, and business continuity, as well as project management and consulting. In addition, this segment offers sample intelligence software solutions and customer technology integration; and laboratory work flow scheduling for life science tools and instrument work cells, sample inventory and logistics, environmental and temperature monitoring, and clinical trial and consent management, as well as planning, data management, virtualization, and visualization services. The company sells its products and services in approximately 50 countries. Company description from FinViz.com.

Brooks reported earnings of 25 cents that beat estimates for 20 cents. Revenue of $160 million also squeezed by estimates for $159.7 million. For the current quarter they guided to earnings of 24 to 27 cents and revenue from $165 to $170 million.

The company provides automation and cryogenic solutions for various markets. Their expected growth rate for 2017 is 105% compared to the industry rate of 19.5%. Consensus estimates for the current year rose from 82 cents to 96 cents over the last 30 days. Estimates for the current quarter rose from 21 to 24 cents and the company guided for 24 to 27 cents.

Shares spiked from $17.50 to $21.00 on the earnings beat on February 1st. After three days of consolidation and profit taking, shares have started to rise again. They closed at a new high on Monday. I know this chart is over extended but the strong earnings, guidance and expected growth rate suggests they can continue climbing, market permitting.

Earnings May 3rd.

Position 2/14/17:

Long BRKS shares @ $21.58, see portfolio graphic for stop loss.

No options recommended because of wide spreads.



FEYE - FireEye - Company Profile

Comments:

Shares of FEYE spiked to $12 at the open on news Symantec offered $16 per share to acquire the company several months ago but FEYE turned it down. Symantec said there were no current talks. FEYE was trading around $14.50 at the time. Shares declined on the news talks were not ongoing.

Original Trade Description: February 11th

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.

Position 2/13/17:

Long FEYE shares @ $11.75, see portfolio graphic for stop loss.

No options recommended because of price.



UA - Under Armour - Company Profile

Comments:

No specific news. Still fighting resistance at $20. Foot Locker earnings on Friday are certain to give UA a direction.

Original Trade Description: February 15th

Under Armour, Inc. together with its subsidiaries, develops, markets, and distributes branded performance apparel, footwear, and accessories for men, women, and youth primarily in North America, Europe, the Middle East, Africa, the Asia-Pacific, and Latin America. The company offers its apparel in compression, fitted, and loose types to be worn in hot, cold, and in between the extremes. It provides various footwear products, including football, baseball, lacrosse, softball and soccer cleats, slides, performance training, running, basketball, and outdoor footwear. The company also offers accessories, which include headwear, bags, and gloves; and digital fitness platform licenses and subscriptions, as well as digital advertising, as well as licenses its brands. It primarily provides its products under the UA Logo, UNDER ARMOUR, UA, ARMOUR, HEATGEAR, COLDGEAR, ALLSEASONGEAR, PROTECT THIS HOUSE, and I WILL, as well as ARMOURBITE, ARMOURSTORM, ARMOUR FLEECE, and ARMOUR BRA trademarks. The company sells its products through wholesale channels, including national and regional sporting goods chains, independent and specialty retailers, department store chains, institutional athletic departments, and leagues and teams, as well as independent distributors; and directly to consumers through a network of brand and factory house stores, and Website. Company description from FinViz.com.

UA posted 26 consecutive quarters of +20% revenue growth. For Q4 that fell to 12%. That was a major blow for the stock. They also announced the CFO was leaving immediately for personal reasons. Could it be because he missed so badly on guidance?

They guided for 2017 for revenue growth of 11% to 12%. That is significantly lower than the 20% bar they have been reaching for the last 9 years.

However, Q4 was a really bad quarter for retailers. Traffic was down everywhere and overall sales only rose 1.4%, Under Armour gets 85% of its revenue from the U.S. and 60% of its revenue from retail stores. Under Armour supplied the products but retailers were unable to attract any traffic. It was not a shoe problem but a retailer problem.

To be fair there was a shoe problem as well. The super high dollar famous player shoes were discounted heavily because of the lack of retail customers. Foot Locker was having 50% off sales on their website because shoes were not moving. The lack of buyers was due to a weak retail season rather than a specific drop in UA products.

Earnings May 2nd.

Shares fell from $25 to $18 on the earnings and after two weeks in the dungeon they closed at a two week high on Wednesday.

I am going to recommend a distant option because the stock is $19.86 at the close making the $20 call "at the money" with an inflated premium of $1.20 for April. The $22.50 option is only 40 cents but it is 12% out of the money or $2.64 away from the strike. However, we have 65 days and if UA cannot move $2.64 in 65 days, I picked the wrong play.

Position 2/16/17:

Long UA shares @ $19.94, see portfolio graphic for stop loss.

Optional: Long April $22.50 call @ 35 cents, no stop loss.




BEARISH Play Updates

CRAY - Cray Inc - Company Profile

Comments:

No specific news. No material movement. Support at $21.25 is holding. Eventually the market will crack and investors will hit the sell button on CRAY.

Original Trade Description: February 18th

Cray Inc., together with its subsidiaries, designs, develops, manufactures, markets, and services high-performance computing systems. The company operates through Supercomputing, Storage and Data Management, Maintenance and Support, and Engineering Services and Other segments. It offers a range of supercomputing systems, including the Cray XC40-LC, XC40-AC, CS400-AC, CS400-LC, and CS-Storm supercomputers. The company also provides analytics products comprising Cray Urika-GD Graph Discovery Appliance, which addresses the interactive data discovery with graphs; and Cray Urika-XA Extreme Analytics Platform used for production-class data analytics workloads. In addition, it offers storage and data management products, such as the Cray Sonexion storage systems that embeds the Lustre parallel file system and other software in an optimal configuration; Cray DataWarp applications I/O accelerator; and Cray Tiered Adaptive Storage, a flexible storage and archiving solution, which allows customers to transparently move data among fast, primary, and archival tiers. Further, the company provides custom engineering solutions; and customer support services comprising hardware and software maintenance, applications support, installation project management, system installation and de-installation, site preparation, and technical training for its systems, as well as ancillary services in application consulting, third-party software support, site engineering, on-site analysts for defined projects, and specialized training. Company description from FinViz.com.

Shares of CRAY were weak in January after the company provided selective guidance that was not specifically positive. They reported earnings on Feb 9th and spiked from $17.50 to $22.50 but never rose any higher.

The earnings of $1.38 were good and beat estimates for $1.24. Revenue of $346.6 million also beat estimates. However, the earnings guidance and commentary was lackluster. "While 2016 was not nearly as strong as we originally targeted we finished the year well." "Due to current market conditions, the company has limited visibility into 2017. While a wide range of results remains possible, the company continues to believe it will be difficult to grow revenue compared to 2016." Revenue is expected to be flat to down. Operating expenses are expected to be higher and gross profits are expected to be slightly lower. It was hardly an exciting outlook.

Earnings May 9th.

Shares began to decline last week and are poised to break below the post earnings support at $21. With a lackluster outlook, any decline in the Nasdaq could be magnified in Cray.

Position 2/21/17:

Short CRAY shares @ $21.30, see portfolio graphic for stop loss.

Optional but not recommended: April $20 put, $1.00.





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