Option Investor
Newsletter

Daily Newsletter, Tuesday, 2/28/2017

Table of Contents

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

Market Wrap

Highest Volume since Dec-16th

by Jim Brown

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The markets were relatively well behaved despite the highest volume day in 2017.

Market Statistics

Stocks sold off on worries over the president's speech tonight. The selling was not heavy and more of a lack of buyers and a minor bit of profit taking. However, volume was very heavy at 7.9 billion shares. Declining volume was 5.5 billion to 2.2 billion shares of advancing volume. Declining stocks were 5:2 over advancers right in line with the volume.

Investors are afraid the president will either say too much about the wrong topics or not enough about the right topics and there could be a sell the news drop on Wednesday if that was the case. With the market so overbought, everything is prices to perfection with an average of about 500 stocks making new highs every day. That means there is a significant risk of major profit taking if investors do not hear what they want.

The president is not a polished public speaker so it will be harder for him to impress investors with economic optimism is already at maximum.

On the positive side, the market could have sold off a lot more today and did not even with the heavy volume. That means the dip buyers are alive and well and will probably buy any volatility dip on Wednesday.

The Dow did break its string of record closes with a minor decline today. The Dow tied the prior record at twelve days and one more day would have been the longest ever.

Note the somewhat rounding top on the Dow chart below. The gains over the last week have been minimal so there is some concern being shown despite the record string. Now that the string has broken, there is a stronger possibility of further weakness.


It was a busy day economically. The GDP revision for Q4 was unrevised at 1.9% and the same as the initial reading. The analyst consensus was for a rise to 2.2% and Moody's expected 2.3%. This compares to a 3.5% growth rate in Q3. Consumer spending contributed 2.05% of that headline reading.


The Richmond Fed Manufacturing Survey for January rose from 12.0 to 17.0 and the highest level since last March. New orders were especially strong with a rise from 15.0 to 24.0 and the highest level in seven years. Backorders rose slightly from 4.0 to 8.0. Expectations for future shipments rose from 50 to 53 and expectations for new orders rose from 44 to 53. Manufacturers are definitely turning bullish.

The separate services survey was flat with January at 15. The expected demand component rose from 38 to 51 and a 12-month high. Expected retail demand rose from 51 to 69. Overall, the service sector improved, only the headline number remained flat.



The Texas Service Sector Outlook Survey for February declined from 16.2 to 14.1. Optimism appeared to decline slightly. The expected selling prices component fell from 12.5 to 5.2 and capital expenditure plans fell from 10.9 to 9.8. With the energy sector rebounding, the Texas service economy should be improving because of the thousands of people going back to work. The report was ignored.

The U.S. Trade Deficit for January expanded from $65.0 billion to $69.2 billion. Exports fell -0.3% to $126.2 billion with imports rising 2.3% to $195.4 billion. This report was also ignored.

The big report for Wednesday is the ISM Manufacturing Index. This is a national number compared to the various regional surveys by the Fed. The Beige Book is also important because it covers all the Fed regions.


Starting the morning off was an earnings miss from Target (TGT). The company reported earnings of $1.45 compared to estimates for $1.50. Earnings declined -4.6% over the year ago period. Revenue of $20.69 billion fell -4.3% and missed estimates for $20.746 billion. Same store sales fell -4.3%.

Target guided for full year earnings of $3.80-$4.20, down from $5.01 in 2016 and $69.5 billion in revenues. Analysts were expecting $5.35 and $70.51 billion. For Q1 they guided for earnings of 80 cents to $1.00. Same store sales are expected to decline in the low to mid single digits for 2017.

Target said to fight the sales decline they would lower prices, add brands and invest more in some of its stores and e-commerce channels. Shares fell -12% for the biggest single day decline ever.


Valeant Pharmaceutical (VRX) reported adjusted earnings of $1.26 that beat estimates for $1.20. Revenue declined from $2.7 billion to $2.4 billion but beat estimates for $2.3 billion. The CEO said they reduced debt by $519 million in Q4 and agreed to divest a "number" of assets. They guided for 2017 for revenue of $8.9 to $9.1 billion. They are targeting $5 billion in debt repayment in 2017. Investors were not impressed and shares fell -14%.


Autozone (AZO) reported earnings of $8.08 that missed estimates for $8.20. Revenue of $2.29 billion rose 1.4% but missed estimates for $2.35 billion. Same store sales were flat for the quarter. They opened 33 stores in the U.S. and four internationally in the quarter. They currently operate 5,872 stores. Inventory rose 8.7% to $665,000 per store. They repurchased $198 million in stock in the quarter with $585 million left on the authorization. Shares declined only slightly on the news.


Perigo (PRGO) shares crashed 12% on news it was going to sell its royalty stream on the MS drug Tysabri. The royalty stream is being sold to RPI Finance Trust for $2.85 billion with $2.2 billion in cash and up to $650 million in payments based on future net sales. The company also preannounced 2016 earnings with a range of $7.10 to $7.25. They guided for 2017 earnings of $6.30 to $6.65. They also announced the CFO had resigned effective immediately. The CFO quit to join another pharmacy company. Immediate resignations are never positive for company shares.


Tenet Healthcare (THC) shares fell -15% after they reported adjusted earnings of 6 cents compared to estimates for 20 cents. Revenue of $4.86 billion missed estimates for $4.97 billion. For the current quarter, they expect a loss of 45-60 cents per share. They guided for revenue of $4.75-$4.95 billion and analysts were looking for $4.95 billion. Shares fell -15%.


After the close Palo Alto Networks (PANW) fell -18% after a huge earnings miss. The company reported adjusted earnings of 63 cents that beat by a penny. Record revenue of $422.6 million missed estimates for $429.6 million. That was the slowest revenue growth in four years. They announced a new $500 million share repurchase to bring outstanding authorizations to $1 billion. They guided for Q1 of 54-56 cents on revenue of $406-$416 million. Authorizations are worthless unless they actually spend the money and PANW had not spent any on its prior authorization.


Salesforce.com (CRM) reported earnings of 28 cents compared to estimates for 25 cents. Revenue of $2.29 billion barely edged over estimates for $2.28 billion. They guided for 2017 for revenue of $10.15 to $10.20 billion, up from $10.10 to $10.15 billion. For Q1 they guided for $2.34-$2.35 billion, a 22% increase and earnings of 25-26 cents. Analysts were expecting 30 cents and $2.37 billion. The light guidance caused the stock to decline in afterhours.


Earnings highlights for Wednesday include Broadcom, Best Buy and Mylan followed by Costco and Sears on Thursday.


Shares of Signet Jewelers (SIG) fell 13% after a report of widespread sexual harassment at the Sterling Jewelers subsidiary. According to a report Sterling paid female workers less than males, promoted them less frequently, and male executives engaged in rampant sexual harassment for years demanding sexual favors for raises and advancement. A private arbitration committee ruled that 69,000 current and former female employees can sue for discrimination and back wages. This will go to trial in the fall and could be a major hit for Signet.


Apple shares shrugged off the weak Nasdaq and remained fractionally positive after UBS boosted the price target from $138 to $151 and Guggenheim raised their price target to $180. Both analysts said the iPhone 8 and its new features could be a blockbuster for Apple that could lead to several years of new sales growth.

There was additional confirmation that the iPhone 8 will have a curved OLED screen and much larger memory capacity. It may also have wireless charging and a USB port. Another report said Apple had more than 1,000 engineers working on augmented reality for the iPhone. This is going to be a good year for Apple if only half the claims and events come true.


Amazon Web Services suffered a major outage in its Simple Storage System or S3 and thousands of websites were knocked offline or rendered ineffective. The S3 system is where corporations and websites store large volumes of files for later retrieval. For instance a publisher could store the digital texts of thousands of books that may not be reviewed or even recalled for months but need to be online. That archival storage does not need to reside on a more expensive cloud server used for every day operations. The files are there if they are needed. Ironically one of the systems knocked offline was Amazon owned Audible.com. All those stored audio books were not available for download for several hours. Some of Apple's systems were offline as well as some Facebook systems. Amazon is the biggest cloud provider and when they have a hiccup it affects thousands of companies.


Another factor has slowly risen to impact market sentiment. The chance for a March rate hike has risen sharply from 17.7% a week ago to 62% at today's close. The comments from the FOMC minutes and from various Fed speakers has tilted the outcome significantly. Suddenly, sooner rather than later, has come back to bite investors.

As of February 17th.

As of today's close.

Oil prices declined to $53.18 intraday on headlines suggesting additional OPEC production cuts. Those headlines faded in the afternoon when the actual production numbers quoted showed a minor decrease from 29.96 mbpd in January to 29.87 mbpd in February. WTI rebounded to close at $54.01. After the bell, the API inventory report showed a gain of 2.5 million barrels to lift U.S. inventories to a new record high.



Markets

The markets weakened on worries over the president's speech. The market is worried the president will either say too much about the wrong topics or not enough about the right topics and there is a very good chance there would be a sell on the news event. Tonight should be interesting.

Given the sharp rise in volume the market actually held up rather well. That suggests it could take a major blunder in the speech to reall knock the market lower. Minor issues could be overlooked and lead to a monster blowout at the open. Obviously everything is speculation and we will not know which way the market is going until 10:AM on Wednesday.

I am very worried about a gap down open that clears all the stop losses and then rebounds sharply. I would recommend everyone reevaluate their own risk profile and make a rational decision about how they want to handle opening volatility on Wednesday.

I am skimping on market analysis tonight because market direction tomorrow is totally dependent on the speech.

The S&P declined slightly despite the high volume and remains above initial support at 2,350 and stronger support at 2,300. The S&P did set a record today. The average intraday range for the last 50 trading days is the lowest in history.


The Dow traded in a very narrow 60-point range despite the high volume. No Dow components gained or lost $1. The Dow is showing a potential rounding top but we still have a pattern of higher lows. That suggests a benign speech could propel the index higher.

The new target is 21,000 and we closed 188 points away from that level.



The Nasdaq has a pattern of lower highs since the record high last Tuesday. The techs stocks were the most overbought so it makes sense they were big losers ahead of the speech. The 5,800 level is decent short term support and the level to watch on Wednesday.



The Russell 2000 gained 1% on Monday and gave back -1.5% today to close at a two-week low. Small cap investors were racing to the sidelines to avoid a possible disaster on Wednesday. If the speech is successful, we could see this decline completely erased tomorrow. The small caps have been volatile from day to day but relatively flat since the 21% post election rebound.


I am not going to speculate on the speech any further than I have over the last several days. The market is at extreme risk but a successful performance could avoid a sell the news event and potentially propel the Dow to 21,000 this week.

There are so many political factors in play, the technicals do not seem to matter. Remember the cartoon from the weekend newsletter. Buy the dip.

Enter passively, exit aggressively!

Jim Brown

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New Plays

Russell Implosion

by Jim Brown

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Editor's Note

Small cap investors ran for the sidelines on Tuesday to avoid post speech volatility. The Russell lost -21 points or -1.5%. The market is worried the president will either say too much about the wrong topics or not enough about the right topics and there is a very good chance there could be a sell the news drop on Wednesday if that was the case. There is a strong possibility for a volatility event in either direction at the open on Wednesday. I am not adding any new plays until we see what happens.


NEW BULLISH Plays

No New Bullish Plays


NEW BEARISH Plays

No New Bearish Plays



In Play Updates and Reviews

Gotcha!

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Russell 2000 gained 1% on Monday and investors cheered. The index lost -1.5% on Tuesday as the trap door was opened under them. Gotcha! Monday could have been a buying climax and today the first day of a significant decline. Unfortunately, it could also be any one of a dozen other things. The Russell probably sold off on worries over the president's speech. The other indexes only declined an average of 0.3% so there was a significant change in small cap sentiment.

I stated yesterday "Until we get to Wednesday, the risk of a bearish move is significantly higher than the potential for a bullish sprint higher" and that risk definitely appeared.

The speech tonight could trigger a monster market move in either direction depending on tone, content and delivery. It had better be an optimistic view of the future if investors are going to be convinced to hold on to their current positions. Anything else is likely to turn into a market decline.





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


CSIQ - Canadian Solar
The long call position was entered at the open.

UA - Under Armour
Buy UA shares with a trade at $20.15.



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

Short term Calls and Puts on equities = Option Investor Newsletter

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Iron Condors = Couch Potato Trader



BULLISH Play Updates

AMD - Advanced Micro Devices - Company Profile

Comments:

Shares of AMD gave back most of the $1.08 gain from Monday with a 74-cent loss. There was no specific news. This was market related.

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:

No specific news. Arconic shares are still weak as the entire metals sector is down 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."

Update 2/23/17: 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 are payable on May 25th to holders on May 5th.

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. Big decline after breaking support stopped us out at $21.15 for a minor loss.

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:

Closed 2/28/17: Long BRKS shares @ $21.58, exit $21.15, -.38 loss.



CSIQ - Canadian Solar - Company Profile

Comments:

No specific news. Minor decline in a weak market.

Original Trade Description: February 27th

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

Shares are rebounding out of a three month base at $12 and nearing a four-month high. They had a tough Q3 where they matched earnings estimates after a drop in Chinese demand due to a drop in incentives. That resulted in a 30% decline in panel prices.

CSIQ is the second largest solar manufacturer in the world with 5.8 gigawatts of annual module capacity. It has a strong pipeline of orders, $1 billion in cash and $1.2 billion in future proceeds from the sale of non-core assets. That is a lot of liquidity for a solar company. They have an operating portfolio of solar plants worth $1.4 billion that will eventually be sold to investors.

CSIQ has earnings on March 9th. Normally I would not recommend a position ahead of earnings. However, I am not recommending this as a stock position. In a normal stock position we risk about $1 per share. I am recommending we buy a call option, currently 93 cents and hold over earnings. The stock is moving in the right direction and earnings expectations are low. We could have a break out situation with CSIQ.

Position 2/28/17:

Long April $16 call @ 95 cents, see portfolio graphic for stop loss.



UA - Under Armour - Company Profile

Comments:

Big 4% decline on no news. I am cancelling the long recommendation on the shares. I am moving the position to the Lottery Play section after today.

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

Previously closed 2/24/17: Long UA shares @ $19.94, exit $19.35, -.59 loss.




BEARISH Play Updates

CRAY - Cray Inc - Company Profile

Comments:

No specific news. Shares fell back to new support at $20.85.

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.



INFN - Infinera Corporation - Company Profile

Comments:

No specific news. New 2-week closing low.

Original Trade Description: February 25th

Infinera Corporation provides optical transport networking equipment, software, and services worldwide. The company offers Infinera DTN-X family of platforms for subsea, long-haul, regional, and metro mesh networks; Infinera DTN platform for subsea, long-haul, and regional mesh networks that support a range of Ethernet and optical transport network client interfaces; and Infinera FlexILS Line System platform that connects various Infinera platforms over long distance fiber optic cable. It also provides Infinera TM-Series, a carrier-grade packet-optical transport platform; Infinera TS-Series, a passive optical wavelength-division multiplexing (WDM) product; Infinera Cloud Xpress Platform, a compact platform for cloud/data center interconnect applications; and Infinera ATN Platform, a small form-factor WDM platform. In addition, the company offers Infinera Open Transport Switch, a software platform that enables abstraction and virtualization of the underlying Infinera platforms; and Infinera Management Suite, a network management system used by network operators to manage various Infinera platforms. Further, it provides various support services for vraious hardware and software products. The company serves communications service providers, Internet content providers, cable providers, wholesale and enterprise carriers, research and education institutions, and government entities. Company description from FinViz.com.

Infinera makes products primarily used by telecom companies to increase their capabilities over existing fiber optic cables to reduce the need to laying more fiber. Their major market today relies on infrastructure upgrades in China, which is a very competitive market.

The company reported a loss of 12 cents that narrowly beat estimates for a 13 cents loss but was down sharply from the 5 cent profit in the year ago quarter. Revenue declined 30% to $181 million but did beat estimates for $175 million. For the current quarter they guided for revenue of $167-$178 million, down from $249 million in the year ago quarter. Analysts were expecting $171 million. However, they guided for a loss of 16 cents and analysts were expecting 11 cents.

Analysts claim the company is suffering from a perfect storm of M&A among its biggest clients that has reduced demand.

Earnings May 11th.

After trading flat at $8.50 for seven months the shares spiked to just over $12 on the better than expected earnings. Short covering is a wonderful thing if you are long. However, everyone that sat on the $8 stock for seven months is now running for the exits. I believe the stock will return to its prior levels given the negative guidance.

Position 2/27/17:

Short INFN shares @ $10.87, see portfolio graphic for stop loss.

Optional: Long July $10 put @ 78 cents, see portfolio graphic for stop loss.





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