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Daily Newsletter, Saturday, 3/4/2017

Table of Contents

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

Market Wrap

Another Friday Save

by Jim Brown

Click here to email Jim Brown

The Dow did not return to positive on Friday until a couple minutes after the close as the final trades were settled.

Weekly Statistics

Friday Statistics

The major indexes battled back from an early morning decline and the Dow was actually up 15 points at its high at 3:35 before fading into negative territory in the last 30 minutes. After closing with a 3-point loss, it slowly regained positive territory after the bell as the final trades were settled. Volume was 6.6 billion shares and the lightest day of the week but it was a Friday.

The Dow only gained 0.8% (+183) for the week despite the 303-point gain on Wednesday. Both small cap indexes actually lost ground for the week despite the big gains on Wednesday. This was definitely a large cap rally and I cannot decide if Friday was bullish or bearish. More on that later.

The only material economic report on Friday was the ISM Nonmanufacturing Index. The headline number rose slightly from 56.5 to 57.6 for February. That is the highest reading since October 2015. The sector has now shown a positive gain for 86 consecutive months. New orders rose from 58.6 to 61.2 and backorders from 48.0 to 52.0. Employment edged up slightly from 54.7 to 55.2. Respondents were very upbeat with one saying the improvement in business starting in December has been "dramatic."

It may take a few months for all the optimism to translate into real business development but that optimism definitely exists.


The economic calendar for next week is headlined by the job reports from ADP and the Bureau of Labor Statistics. I believe the numbers will be strong. One reason for my optimism is the collapse in weekly jobless claims. Last week there were only 223,000 claims and a new cyclical low and the lowest level in 41 years. The four-week moving average is 234,000 and also a new low for this economic cycle. There were some comments that the low claims were artificial because of the President's Day holiday skewing the numbers. However, claims have been falling for months (green line) and there were 5.5 million unfilled job openings in the January JOLTS report. There are plenty of available jobs. Secondarily, spring weather arrived early this year and people are already busy looking for spring/summer employment.

Moody's Chart

The ADP estimate is for a gain of 180,000 jobs compared to the 246,000 in January. The Nonfarm estimate is for 175,000 compared to the 227,000 jobs January. I will be very surprised if the actual numbers are not over 200,000 on both BUT, I am not an economist. I just read the various reports and form an opinion. We will see who is closest this week.


The big challenge for the market is the following week. The debt-ceiling deadline on Wednesday is the same day as the Fed meeting decision. The Fed is widely expected to hike rates. The CME Fedwatch tool tracking a March rate hike spiked from an 18% chance two weeks ago to an 80% chance at Friday's close. On Friday, Janet Yellen said as clear as possible that assuming the jobs report is not abnormally low the Fed will hike rates in March. The market did not even blink. That tells us that a hike is already priced in and the market believes it is due to improving economic conditions and optimism about the future.

The Fed is still targeting three hikes for 2017 and the targets for additional hikes are now May at 8%, June at 42%, July 50%, September 68%, November 71% and December 86%. Obviously all those numbers will change significantly after the March meeting and statement. More than likely the Fed will hike in June and December, economy permitting.


Last November, congress and the Obama administration avoided a debt crisis by postponing the debt-ceiling crisis until March 15th, 2017. Currently the spending limit has been "suspended" but that ends on the 15th. After that date, the government can use "extraordinary measures" to avoid defaulting and that can extend the crisis until late June or early July. However, that means halting spending on some programs, putting off payments for non-critical purposes, postponing projects and borrowing money from other accounts to keep operations going. If we go past the 15th without a new debt ceiling resolution, you can bet that every day will see more headlines about some program or department that has no funding. This would kill the current optimistic environment.

I believe we can expect the volume of debt ceiling headlines to increase daily starting next week. You may remember back in August 2011 when the S&P dropped 250 points in about two weeks when there was a fight over the debt ceiling and S&P cut the rating on U.S. debt. While I do not expect this kind of response this time around, this will be the first major congressional test for the new president. Given the current hostility between the democrats and republicans, the headlines are going to be ugly if there is not a quick resolution to the issue.


Costco (COST) was a big loser on Friday after they reported earnings of $1.24 compared to estimates for $1.36. Revenue of $29.13 billion rose 6% but missed estimates for $28.85 billion. Same store sales rose 3% but missed estimates for 3.6%.

The company announced it was raising membership fees by $5 to $60 effective June 1st with executive memberships rising by $10 to $120. Costco has about 35 million members with roughly half of them executive members. The 2% maximum reward associated with executive memberships will rise from $750 to $1000 a year. The minor increase in fees is not likely to cause material subscriber flight. Costco members are very loyal. The membership increase will produce another $260 million in annual revenue for Costco with no additional costs.

Unfortunately, the earnings miss caused an $8 drop in the stock price but it was up $36 since the election so this was minor profit taking. The stock closed at $170 and $167 should be decent support. I would look to be a buyer in that range. There is much stronger support at $162 so buy early and avoid the rush.


Autodesk (ADSK) reported a loss of 28 cents that beat estimates for a loss of 33 cents. Revenue of $478.8 million beat estimates for $474.1 million. The company is losing money because they are converting from a software sales model to a subscription model and that always causes a short fall in the first 12-24 months of the process but results in larger profits in the future. New subscriptions rose 26% to 1.09 million, up 227,000 from the same period in 2015.

The company guided for the current quarter for a loss of 21-27 cents on revenue of $460-$480 million. Analysts were expecting $503 million and a 13-cent loss. Shares declined $2 on the news. This stock has an $80-$82 buy point.


Big Lots (BIG) reported adjusted earnings of $2.26 compared to estimates for $2.22. Revenue of $1.58 billion just missed the estimate for $1.59 billion. Same store sales of 0.3% missed estimates for 1.1% but was offset by a smaller number of stores.

BIG guided for earnings of 95 cents to $1.05 for Q1 and analysts were expecting $1.01. For the year, they expect $3.95-$4.10 and analysts expected $4.45. They guided for same store sales in Q1 of 0% to 2% compared to estimates for 0.4%. Shares gained 4% on the news.


Snap Inc (SNAP) had a very strong IPO but the real market has not yet appeared. Shares were priced at $17 and rocketed to $29.44 on its second day of trading before fading back to $27. However, there is one key fact. You cannot short the stock until after the settlement date or 3 days after the IPO. The instant those shares are settled and available to borrow, the price could decline sharply.

Four analysts have already issued ratings on SnapChat. Pivotal Research initiated coverage with a sell rating and $10 price target. Nomura initiated with a reduce, same as sell, and a price target of $16. Aegis Capital initiated with a hold and $22 price target. Susquehanna initiated at neutral and price target of $22. You can bet there will be additional ratings next week as everybody jumps in on the overly hyped stock. There are close to a dozen reasons why analysts are negative. I will not list them all but the general idea is that Snap is another Twitter with a minimally growing user base that leans towards the teenager category and they are not going to draw a lot of advertisers.

Snap added 21 million users in Q2, 10 million in Q3 and only 5 million in Q4. The excitement on the messaging app is already fading.

Jim Cramer must have gotten some IPO shares because he says it is going to $100 soon. That is a clear sell signal.

If you need another reason, NBCUniversal, parent of CNBC, bought $500 million in the IPO and agreed to hold them at least a year. Why does NBC think SnapChat is worth $28 billion, the current value of the IPO? If you subtract the shares held by NBC there are only 150 million shares in the market and the volume for Thursday was 217 million and 148 million on Friday.


Deutsche Bank (DB) announced Friday afternoon they were considering a secondary offering for $8.5 billion in order to pay off some if its fines and problems. In December, DB agreed to pay the Dept of Justice $7.2 billion related to issuance of residential mortgage-backed securities or RMBS ahead of the financial crisis. The bank is also expected to raise $1.8 billion in a sale of other assets. Shares fell -4% on the news.


Bill Ackman is throwing in the towel on Chipotle (CMG). After the bell on Friday, Ackman's Pershing Square Capital Management filed a prospectus with the SEC to sell 2.88 million shares of Chipotle or 10% of the company. The prospectus said Pershing does not have immediate plans to sell the stake but reserves the right to do so at any time. Ackman disclosed his stake in September and said he was working with management to streamline the cost structure and boost shareholder value. Apparently, those efforts have hit a brick wall because the shares are the same price today as when Ackman announced the stake. Ackman has had some challenges lately with various investments and cash is probably tight. Since CMG shares are not responding to his efforts this would be an easy way to raise a lot of cash. That stake was worth $1.2 billion at Friday's close.


Walmart (WMT) said it paid $51 million to acquire outdoor retailer Moosejaw. They retail outdoor clothes and equipment online. This was the third acquisition in the last five months as it tries to broaden its brands and web presence to compete with Amazon. Moosejaw sells brands like North Face and Patagonia that Walmart does not sell. Acquiring Moosejaw gives Walmart an immediate entry into that space for next winter. Walmart recently acquired Jet.com for $4 billion and ShoeBuy for $70 million. Walmart now offers free two-day shipping for online purchases of more than $35. Their e-commerce sales rose 20.6% in Q4.


Important earnings for next week are concentrated on Thursday with Sears, Staples and Ultra Cosmetics. This is the last active week of the Q4 earnings cycle.


With 98% of the S&P companies reported the blended earnings growth for Q4 is 4.9% and revenue growth was also 4.9%. More than 65% of companied beat on earnings and 53% beat on revenue. The average percentage of companies beating earnings estimates is 71% so this cycle was slightly weaker.

As of Friday, 74 S&P companies have issued negative guidance and 30 have issued positive guidance. The forward PE is now 17.9 compared to the 14.4 10-year average.

Crude prices fell to $52.57 on Thursday after Russian production numbers for February showed 11.11 mbpd and only 100,000 bpd below the October levels. Russia had pledged to cut 300,000 bpd and claimed to cut 118,000 bpd in January even though actual production for the month was higher than December.

OPEC continued to claim compliance with the promised cuts was 94%, which would be a record high for any promised cut, ever. However, only three OPEC countries have actually complied and those three including Saudi Arabia, Kuwait and the UAE, actually cut more than promised to make up for the noncompliant members.

The non-OPEC producers including Russia committed to cut by 558,000 bpd but the OPEC compliance committee said compliance in January was roughly 48% and that rose to just over 60% in February.


Active oil rigs rose by 7 to 609 but active gas rigs declined -5 to 146. The surge in active rigs appears to be slowing since prices are no longer rising on the promise of OPEC production cuts. U.S. production rose to 9.032 mbpd and the highest level since March 18th. U.S. inventories rose to a new record high at 520.2 million barrels.


 


 

Markets

I was talking with a reader by email this weekend about the never-ending rally. I promised him that when I went bullish in the newsletter that would be a capitulation event and the rally would end. For the last several weeks, I have been expecting the nonexistent dip we could buy. That dip continues to be elusive and the day I change that outlook to go all in, that would be the day a correction appears. We just need to remain wary that a dip will eventually appear. I believe it will be a buying opportunity so whether we continue to rise or dip first, the outcome should be the same long term.

On Wednesday, the S&P gained 32 points or 1.37% on 8.22 billion shares and the highest volume since December 16th. That leap was powered by a whopping $8.0 billion in inflows into the S&P-500 ETF (SPY) according to Bank of America. That was the largest cash inflow since December 19th, 2014.

Bank of America's Savita Subramanian raised her price target on the S&P from 2,300 to 2,450 saying there is increasing likelihood the bull market is entering a terminal phase. "We are entering a typical end-of-bull-market rally where fundamentals take a back seat to sentiment and technicals." She said the fair value for the S&P today would be 2,230 and well under the 2,383 close on Friday. She pointed out that historically, the last two years of a bull market in stocks returned a minimum of 30%. The current bull market is approaching its 8th anniversary on March 9th and is currently the second longest ever. When the S&P reaches 2,467 it will become the third largest bull market gain ever.

Wells Capital Management's chief investment strategist, Jim Paulsen, said the S&P is likely to rise to 2,600 then fall back to 2,200 before closing the year at 2,350.

Morgan Stanley's Andy Chase is rated as the number one market strategist by Barron's. He believes the market will gain 50% over the next two years, which would put the S&P at 3,600. I want some of whatever he is smoking.

The S&P has now gone 96 days without a 1% decline. On Saturday, the S&P celebrated its 60th anniversary. It was launched 60 years ago on March 4th, 1957. Today there is more than $2.4 trillion indexed to the S&P and no other index even comes close. Standard & Poors combined the Industrials, Transportation, Utility and Financial indexes in 1957 to create the S&P-500.

Only a third of the analysts listed below expect the S&P to move higher from here.

Year End 2017 Forecasts:

2,275 Fundstrat, Tom Lee
2,280 Wells Fargo, Scott Wren
2,300 Credit Suisse, Andrew Garthwaite
2,300 Goldman Sachs, David Kostin
2,300 Morgan Stanley, Adam Parker
2,300 UBS, Julian Emanual
2,325 Jefferies, Sean Darby
2,325 Citigroup, Tobias Levkovich
2,335 CFRA, Sam Stoval
2,340 Canaccord, Tony Dwyer
2,350 BMO, Brian Belski
2,350 Deutsche Bank, David Bianco
2,350 BNY Mellon, Leo Grohowski
2,350 Wells Capital Management, Jim Paulsen
2,400 JPMorgan, Dubravko Lakos-Bujas
2,400 Barclays, Jonathan Glionna
2,400 Societe Generale, Roland Kaloyan
2,424 Piper Jaffray, Craig Johnson
2,450 Bank of America, Savita Subramanian
2,450 Oppenheimer, John Stoltzfus
2,500 RBC Capital Markets, Jonathan Golub
2,600 Deutsche Bank, Binky Chadha

The S&P spent most of the day in negative territory on Friday and only managed to gain 1 point. Given the 32-point gain on Wednesday and the 14-point loss on Thursday, I am having trouble deciding if the minor gain on Friday was a positive or a negative for the outlook. The index is holding over half of its Wednesday gains but it was not able to rebound from the Thursday decline.

My first impulse is that the weak Friday showing is a sign of things to come. However, the dip buyers are alive and well but do not normally jump right in on a Friday because of the weekend event risk. The answer to my dilemma requires another day of trading. Monday could be a significant day for market direction. If the S&P begins to move up again it would be a good sign. If there is an early dip that is bought that lifts the index back to a decent gain before the close, that would also be a good sign. Any decline that is not bought would produce a negative outlook for the week.

Initial support is now 2,375 followed by 2,360. The support at 2,360 should be decent because we traded at that level for six days prior to the speech. Minor dips were immediately bought.


The Dow remains significantly overbought and the very minor gain at the close was probably financial engineering by some large trader. That minor gain only took a 50-cent addition to any stock to lift the index from negative to positive ahead of the weekend.

The Dow will be under pressure as those four weeks of gains are digested. The 20,750 level is initial support and then there is a lot of air before we begin to see support again in the 19,800-20,100 range.

Only two stocks had moves over $1 on Friday and most were just trading around the flat line most of the day. With earnings over and the president's speech now distant history, the optimism that lifted the Dow to this level could begin to fade ahead of a rate hike and the debt ceiling battle.



The Nasdaq Composite is more tightly clustered at the top than the Dow or S&P. There is not as much separation on the chart between the last three days and the prior five days. This suggests some of the overbought conditions are bleeding off the index and the 5,800 level should remain decent support. The uptrend support is also converging if the index can remain over 5,800 for another week or two.



The small cap indexes remain the weakest link. The S&P-600 did not actually breakout to a new high even though it closed a few pennies over the prior high. The support at 846 is now critical. A breakdown there targets 820 and a break below 820 would be ugly. The critical level on the Russell 2000 is 1,388.



We constantly try to find excuses for why a market goes up or down. Unfortunately, the market does not need an excuse. It can rise unexpectedly at any point and the biggest declines are always the ones nobody expects. Sentiment as measured by Investors Intelligence is at a 30 year high at 63.1% and the highest level since 1987. A reading above 55 is normally considered a sell signal. The term irrational exuberance is being used almost daily to describe the current market rally.

Obviously, markets can remain bullish far longer than analysts expect and then turn on a dime once everyone converts to the bullish mindset. We cannot predict where this market will go other than to caution that an eventual correction will find a lot of unbelievers buying the dip over and over and giving back a lot of their bullish gains.

Enjoy the rally but refrain from being overly long. There will eventually be a dip that is not bought. Until then, buy the dip. I know that sounds like a contradiction of terms but we are better off adding risk on dips than at new highs. When the real dip appears, we will lose less than those chasing prices higher.



Random Thoughts


This was a very interesting week for sentiment. The survey ends on Wednesday and that was the day of the market blowout over 21,000 and 2,400 on the S&P. Instead of seeing sentiment explode higher, we saw the opposite. The bullish sentiment declined slightly but bearish sentiment rose 3.3%. That restores my faith in crowd sourcing to some extent that retail traders believe the market may be overbought and are exercising at least a little caution.

Last week results


More than 45,000 voters in France have signed a petition urging Barack Obama to run for president. They are putting up posters all over France that translate to "Yes, we can." Supporters hope to have one million signatures by March 15th. While Obama is wildly popular in France, he is not French and cannot be elected. The supporters are doing this as a joke and a way to signal they want change in the government.



On another Obama topic, it was announced last week that Penguin Random House has signed a joint book deal with the president and Michelle Obama for $65 million. Each will pen a separate book about their time as president and first lady. Bill Clinton received $15 million and George Bush received $10 million. Who says politics does not pay.


In the commentary above I listed Bank of America's S&P target as 2,450 from analyst Savita Subramanian. Michael Hartnett, chief investment strategist for BofA, has called the Trump rally the "Icarus Trade." Icarus was the son of labyrinth-designer Daedalus, who constructed a pair of feathered wings held together by wax for his son. In the fable, Icarus flew too close to the sun and the wax melted sending him crashing back to earth.

In this modern day fable, Hartnett has pegged S&P 2,500 as the peak for the Icarus market. Hartnett believes the market will continue to rise in the first half of 2017 to that 2,500 level before crashing back to earth in the second half as the reality of getting policy changes approved by congress comes back to haunt investors.

Hartnett also believes not only the Fed but also central banks around the world will begin to scale back on stimulus. The bond market has not yet priced in this eventuality and once that pricing begins, it will be negative for the equity markets.

The Fed has only hiked rates twice in the last ten years. On March 15th, they will hike rates for the second time in three months. If the market suddenly begins to expect a hike every quarter, we could see a change in sentiment. That would mean the Fed funds rate could rise to 2% by 2018. Remember, the Fed is continuing to reinvest the funds when a treasury matures. Once they halt that reinvestment and begin to let the balance sheet decline that will be another hurdle for the markets. Basically, the Fed is maintaining the QE levels from prior years by keeping their balance sheet at $4.5 trillion. Once they begin to let that run off, interest rates could take another turn higher.

The "sell in May and go away" trade could be significant in 2017.



 

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

 

"A government which robs Peter to pay Paul can always depend on the support of Paul."

George Bernard Shaw


 

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New Plays

Time Flies

by Jim Brown

Click here to email Jim Brown
Editor's Note

Fossil Group is struggling as watch sales decline. Some fashion brands are selling but overall the sector is in decline. High dollar watches are out of style and high tech watches like the Apple Watch are squeezing the traditional market.



NEW BULLISH Plays

No New Bullish Plays


NEW BEARISH Plays

FOSL - Fossil Group - Company Profile

Fossil Group, Inc., together with its subsidiaries, designs, develops, markets, and distributes consumer fashion accessories. The company's principal products include a line of men's and women's fashion watches and jewelry, handbags, small leather goods, belts, sunglasses, and soft accessories. It offers its products under its proprietary brands, such as FOSSIL, MICHELE, RELIC, SKAGEN, and ZODIAC, as well as under the licensed brands, including ADIDAS, ARMANI EXCHANGE, BURBERRY, DIESEL, DKNY, EMPORIO ARMANI, KARL LAGERFELD, KATE SPADE NEW YORK, MARC BY MARC JACOBS, MICHAEL KORS, and TORY BURCH. The company sells its products through department stores, specialty retail stores, specialty watch and jewelry stores, company-owned retail and outlet stores, mass market stores, e-commerce sites, licensed and franchised FOSSIL retail stores, and retail concessions, as well as sells its products on airlines and cruise ships. As of January 2, 2016, it owned and operated 99 retail stores and 139 outlet stores located in the United States, as well as 250 retail stores and 131 outlet stores internationally. Company description from FinViz.com.

Fossil reported adjusted earnings of $1.36 that beat estimates for $1.21. Unfortunately, that was a decline of 23.2% over the year ago quarter. Revenue of $959.2 million declined -3% and missed estimates for $971.7 million. For the current quarter, the company expects to lose 10 to 25 cents compared to earnings of 11 cents a year ago. They guided for a wide range for earnings of $1.00 to $1.70 for the full year. They guided for Q1 revenue to decline 8% to 11.5%.

Traditional watch sales declined -2%. Sales of jewelry and leathers declined -5%. Global same store sales fell -7% with declines in all product categories. Gross margin declined 200 basis points and operating margins fell from 9.0% to 6.9%. Cash on hand at the end of the quarter declined -$64 million to $236 million.

Over the last 30 days consensus earnings estimates for the ful lyear have declined from $1.94 to $1.19. All revisions have been negative.

Earnings May 16th.

Shares dropped sharply on Friday after the consensus earnings revisions were released. The $17.42 close was an 8 year low and the very negative comments above suggest shares could go a lot lower.

Sell short FOSL shares, currently $17.42, initial stop loss $19.35.

Optional: Buy April $17 put, currently $1.00, initial stop loss $19.35.




In Play Updates and Reviews

Small Caps Not Participating

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Russell and the S&P-600 continue to show weakness as big caps battle back to positive territory. The Russell and the S&P-600 both lost 2 points so it was not a big move. However, both are fighting critical support. For the Russell it is 1,388 and the S&P-600 is 846. A break below those levels could cause some cascade selling. The next support on the S&P-600 is 820 and 1,350 on the Russell.

The market was due for a minor pullback from the giant short squeeze on Wednesday. If this was all we got, the next upward move would be strong because cautious traders will give up and begin chasing stocks. However, with a Fed rate hike likely on the 15th and the government debt ceiling expiring on the same day, there could be some additional profit taking in the near future.





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


VIPS - Vipshop Holdings
The long stock position was entered at the open.

AMD - Advanced Micro
The long stock position was stopped at $13.45.



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BULLISH Play Updates

AMD - Advanced Micro Devices - Company Profile

Comments:

AMD continued to decline on that bad chip review by PC Gamer. AMD had a lot of built in and uncaptured profits from the $9 post election rally. The situation has changed for some investors and they are bailing out.

We were stopped out of the long stock position but the long call will move to the lottery play section for next week. If the initial selling abates, we could see a new rally because the chip does exist and it works great for everything except for a couple games that were written to use the Intel processors.

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.

Update 3/2/17: AMD's new chip made its debut today with multiple positive reviews. However, one review from PC Gamer knocked the stock for a $1 loss. The PC Gamer review said the chip was not as strong as expected against its Intel rival in certain games. AMD responded saying certain games had been developed and optimized for Intel's processors since the AMD chip did not exist. AMD said we the chips and games progress the benchmarks will narrow as programmers take advantage of the Ryzen's features. With the tech sector already selling off, it was a bad day for AMD.

Position 2/23/17:

Closed 3/3/17: Long AMD shares @ $14.20, exit $13.45, -.75 loss.

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



ARNC - Arconic - Company Profile

Comments:

No specific news. Shares continued to decline.

We do not care which way Arconic moves just as long as it moves a lot in one direction.

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.

Update 3/2/17: The board appointed former UTX executive David Hess as an independent director. At the same time they issued an open letter to shareholders rebutting activist investor Elliott Management's attempt to take over the board and replace the CEO Klaus Kleinfeld. Shares declined $1 as the fight took a very public turn.

Position 2/17/17:

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



CSIQ - Canadian Solar - Company Profile

Comments:

No specific news. We have an option position here and will hold over the Mar-9th earnings.

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.



SWIR - Sierra Wireless - Company Profile

Comments:

No specific news. Shares still consolidating in a weak market.

Original Trade Description: March 1st

Sierra Wireless, Inc. provides wireless wide area modem solutions for the mobile computing, rugged mobile, and machine-to-machine (M2M) markets. It develops and markets wireless modems for mobile computers; embedded modules for original equipment manufacturers (OEMs); and fixed and mobile wireless data solutions for industrial, commercial, and public safety applications. The company's products and solutions connect people, their mobile computers, and fixed terminals to wireless voice and mobile broadband networks. Its mobile computing products are used by businesses, consumers, and government organizations to enable high speed wireless access to a range of applications, including the Internet, e-mail, corporate intranet, remote databases, and corporate applications; and rugged mobile and M2M products are primarily used in the public safety, energy, industrial, transportation, and transaction processing markets. The company also provides various product development and integration support services, which include software and hardware integration, platform RF testing and optimization, regulatory approvals, mobile operator certification, project management, and sales and technical support training. Company description from FinViz.com.

Sierra guided for Q4 earnings of 13-19 cents and revenue of $157 million. They reported earnings of 27 cents on revenue of $163 million. Revenue from OEM solutions rose 11.2% and Enterprise solutions +27.1%. Gross margin was 34.3%. They guided for Q1 revenue from $152-$161 million representing up to 12.7% growth. They projected earnings of 13-20 cents. Analysts were expecting $154.8 million and 12 cents.

Earnings May 11th.

The company is very strong in the IoT and just won the fastest connected car contract with Volkswagen. The car company will be using Sierra's modems to connect the cars to the cloud through its Car-Net platform. The connected car market is expected to grow 31% annually through 2020 and be worth $41 billion a year.

They have a 33% market share in the machine to machine (M2M) market. They recently announced a new wide area WiFi technology to allow IoT devices to be plug and play.

The company has a lot going for it and they beat their own guidance significantly last quarter.

Position 3/2/17:

Long SWIR shares @ $29.10, see portfolio graphic for stop loss.

No options recommended because of price and spreads.



VIPS - Vipshop Holdings - Company Profile

Comments:

No specific news. Shares moving sideways as they consolidate recent gains.

I had a reader ask why I did not recommend an option on this position. First, Premier Investor is primarily a stock trading newsletter for low dollar stocks. I may not always recommend an option on every position.

I did not recommend an option on Thursday because the $13 call was in the money and too expensive and open interest was only 10 contracts. The decline today did not really deflate the option. It only declined -2 cents to 75 cents. I expected more when it looked at it midday. Another 20 contracts traded to raise the open interest to 30 but that is still very slim. If you want to use an option here, I would go with the April $14 call for 40 cents. If VIPS just moves to $14 the option should double. We have roughly 7-weeks until the April expiration. We could easily see VIPS move over $14 by then, market permitting. Just be aware that the open interest on the $14 call is only 24. That could mean some wider spreads in the future if open interest does not increase.

I am going to add that call to the recommendation.

Buy April $14 call, currently 40 cents, no stop loss.

Original Trade Description: February 27th

Vipshop Holdings Limited, through its subsidiaries, operates as an online discount retailer for various brands in the People's Republic of China. It offers a range of branded products, including women's apparel, such as casual wear, jeans, dresses, outerwear, swimsuits, lingerie, pajamas, and maternity clothes; men's apparel comprising casual and smart-casual T-shirts, polo shirts, jackets, pants, and underwear; women and men shoes for casual and formal occasions; and accessories consisting of belts, fashionable jewelry, watches, and glasses for women and men, cosmetics, toys and games, sports equipment and hundreds of other categories. Company description from FinViz.com.

In Q4 revenue rose 36.5% to $2.73 billion. Full year revenue rose 40.8% to $8.15 billion. The number of active customers in Q4 rose 39% to 27.5 million. The number of total customers rose 42% to 52.1 million. Total orders for Q4 rose by 26% to 82.0 million. Total orders for the full year rose 40% to 269.8 million. Gross profits for Q4 rose 33.4% to $643.4 million. Gross profits for the full year rose 37.4% to $1.96 billion. They added five local distribution centers to further improve speed and efficiency of order processing. They have more than 20,000 staff and 2,000 self-operated delivery stations.

Earnings May 22nd.

Vipshop is tiny compared to Alibaba but they are growing rapidly and the three main rating agencies recently gave them favorable ratings. Fitch rated them BBB+, Moody's Baa1 and S&P BBB. The company is not a flash in the pan and those ratings indicate they are solid.

Shares spiked to $13 on the earnings news and moved sideways for a week. They posted a minor gain today in a weak market to close at a five-day high.

Position 3/3/17:

Long VIPS shares, currently $13.15, see portfolio graphic for stop loss.




BEARISH Play Updates

CRAY - Cray Inc - Company Profile

Comments:

No specific news. Shares closed at a new 3-week low.

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. Minor bounce from the three-week 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.




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.


AKS - AK Steel - Company Profile

Comments:

The steel sector received some good news. The US International Trade Commission (ITC) said it was imposing import duties of 63.86% on stainless steel sheets and 76.64% on stainless strips and impose countervailing duties of 75.6% to 190.71%. This complaint was filed in early 2016. This is a major win for the steel sector. Shares of AKS rose early in the week but faded on Thr/Fri.

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:

Long-term option:

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

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



CX - Cemex - Company Profile

Comments:

Cemex said it closed a tender offer to repurchase about $475 million in outstanding notes at high rates of interest. The offering was oversubscribed by 2.6 to 1. Shares also rose after President Trump skipped the anti Mexico rhetoric in the Tuesday night speech.

Shares rallied back to resistance at $9.15 on Wednesday but faded on Thursday.

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.

Update 2/10/17: 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. .

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:

The battle with the government of Indonesia is ongoing. Freeport said it was shelving a $1 billion a year expansion project and 2017 ore output estimates were cut by one third. The government passed new rules in January mandating Freeport sell 51% of its operations to local investors. That is appropriation and it is not allowed under the long term contract signed in 1991. Under that contract Indonesia has received $16.5 billion in taxes and royalties while Freeport has received only $10.5 billion. For the government to suddenly decide it wants 51% ownership is nationalization. Shares declined to support on the news.

With the option at 5 cents there is no reason to close the position.

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.

Update 2/10/17: 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.

Update 2/17/17: The Indonesia saga continues. On Friday, Freeport declared force majeure at the Greasburg mine after a five-week export ban. At the same time, the government said it issued a permit allowing for the export of 1.1 million tons for 2017. Freeport has said it will not accept the permit if it is not based on the current contract with the government. There was no word on Friday if the new permit was acceptable. Shares are declining on the battle despite copper prices being at 20-month highs.

Update 2/24/17: The battle with the government of Indonesia is ongoing. Freeport threatened to take the matter to arbitration and will begin to layoff contract workers next week. More than 20,000 of the 32,000 workers at the mine are contract workers. Shares have declined to critical support.

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. The company closed at a new high on Wednesday and only penny below that high on Friday. The call option is now 68 cents in the money.

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.



UA - Under Armour - Company Profile

Comments:

No specific news. Shares appear to have found support at $18.50.

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.





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