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Daily Newsletter, Saturday, 3/11/2017

Table of Contents

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

Market Wrap

Lost Opportunity

by Jim Brown

Click here to email Jim Brown

The markets lost some ground for the week but missed a good opportunity for a real decline.

Weekly Statistics

Friday Statistics

The markets attempted to decline all week with lower highs and lower lows but every minor dip was bought and while the indexes did post a loss for the week it was minimal. Critical support held on the Dow at 20,800 and S&P 2,360 and the Friday rebound kept the weekly losses at a minimum.

With nearly everyone expecting at least a minor sell off you would think there would be no buyers. Apparently, there is also a significant lack of motivated sellers and just enough buyers to keep the losses to a minimum.


The big economic event on Friday was the Nonfarm Payrolls for February. The headline number of 235,000 easily beat upwardly revised estimates for 190,000. The January total was revised higher from 227,000 to 238,000 and the December total was revised lower by 2,000 jobs to 155,000.

The manufacturing and construction sectors were big winners thanks to the warmer weather in February. Goods producing sectors saw jobs rise 95,000 with service sectors rising 140,000. Of the 235,000 jobs, 227,000 were private jobs and 8,000 were governmental.

The construction sector added 58,000 jobs, leisure & hospitality 26,000, healthcare 27,000, manufacturers 28,000, mining/energy 9,000 and financial services 7,000. Retail was the big loser with a loss of 26,000 jobs as retailers close stores and layoff the remaining holiday workers.

Average hourly earnings rose +0.2% to 2.8% YoY. The unemployment rate declined from 4.8% to 4.7%. The broader U6 rate declined to 9.2%.

The labor force increased by 340,000 and the labor force participation rate rose one tenth to 63%.

The ADP report on Wednesday showed a gain of 298,000 compared to estimates for 190,000 and the second blowout in a row. The prior month showed a gain of 261,000 jobs.

I wrote last Sunday when estimates for both reports were 175,000 that I would be surprised if the actual numbers were not over 200,000. I guess my analysis was better than the people that get paid to study payroll reports.


The blowout jobs numbers cemented the chances for a Fed rate hike next Wednesday. At the close on Friday, the CME FedWatch Tool showed an 88.6% chance of a quarter-point rate hike. There was actually some talk of a half point hike but you can see on the chart below there is zero chance of more than a quarter point. The real risk is that economy continues to grow and the Fed accelerates their pace. Current estimates are for June and December with a potential balance sheet reduction announcement next March.


Currently the median expectations for all the FOMC participants is 1.25% for the end of 2017. That rises to 1.75% for 2018 and 2.5% for 2019. We will get a new Dot Plot after Wednesday's Fed announcement. If this has changed significantly, it would be market negative. The market wants to see a slow and steady pace and no acceleration. The Dot Plot is a significant help to the market in forecasting future rates.


The economic calendar for next week is very busy. The high points are of course the Fed announcement and the expiration of the debt ceiling. In October 2015, congress elected to avoid another contentious battle and just suspended the debt ceiling until a new president was elected. That suspension expires on March 15th. If a new deal is not reached by March 31st, the government will have to stop paying some bills and prioritize the payments on the debt to protect the country's credit rating. Treasury Secretary Steven Mnuchin has said that Treasury debt payments are a "critical commitment." The head of Office of Management and Budget, Mick Mulvaney, has questioned the urgency of raising the debt limit and has supported prioritizing debt payments over other obligations. After March 31st, the government will have to evoke "extraordinary measures" to allow the government to continue operating. That means things like contributions to federal retirement accounts will stop as well as other nonessential functions. That would allow the government to continue operating until September. However, once the debt ceiling suspension expires, it will become a daily topic on the nightly news and that could weigh on the market.

There is also a flurry of events outside the U.S. this week starting with Mario Draghi's speech on Monday. The Dutch election is on Wednesday with the far right anti-Islam populist, Geert Wilders, is in a dead heat with the current prime minister Mark Rutte. If Wilders wins, it would be another blow against liberal Europe. Wilders has pledged to close the Netherland's borders, shut down the mosques and leave the Euro and EU. Some analysts believe he has an 80% chance to win even though the actual polls are neck and neck. Pollsters believe voters for Wilders are afraid to say they are voting for him so his polls are artificially low. Wilders claims he is part of a growing worldwide movement and he speaks for the will of the people. That sounds eerily familiar to our recent election in the USA. If he wins, he would still have to build a coalition in a highly fractured parliament.

On Thursday the Swiss Central Bank, Bank of England and the Bank of Japan will all update their monetary policy so this will be a big day for the global markets.


In stock news, Sears Holdings (SHLD) reported an adjusted loss of $1.28 that was better than expectations for a loss of $2.85 per share. That still represented a loss of $607 million and they are burning cash at an alarming rate. Analysts believe they need $2 billion to make it through 2017. Revenue was $6.1 billion, down from $7.3 billion but beat estimates for $5.9 billion.

Susquehanna said Sears is struggling just to exist and the results were terrible. They do believe the chain will continue to exist through 2017 thanks to sales of real estate and brands, and then the outlook becomes increasingly worse once there are no longer any assets to sell. By selling their real estate and leasing it back, they raise immediate cash but they take on a new debt on every store. Outstanding debt and capital lease obligations rose from $2.2 billion to $4.2 billion in 2016. That means their cash burn in 2017 will actually increase significantly.

The company said it had completed the sale of Craftsman to Stanley Black & Decker (SWK) for an upfront cash payment of $525 million. That buys them another quarter of cash burn.

Shares spiked 15% on short covering, because nobody in their right mind would buy Sears for an investment. Time to get short again.


Finisar (FNSR) reported earnings of 59 cents on revenue of $380.6 million. Analysts were expecting 62 cents on revenue of $389.7 million. The company guided for earnings of 50-60 cents for Q1 on revenue of $360-$380 million. Analysts were expecting 58 cents and $393.1 million. The company said they were seeing a slowdown of demand in China in what could be the result of a weakening economy. China has been a large part of demand for networking manufacturers over the last year as they build out their 4G networks. If that demand is slowing it means other vendors will also have earnings problems.


Ulta Beauty (ULTA) exploded higher on Friday after reporting earnings of $2.24 compared to estimates for $2.13. Revenue of $1.58 billion also beat estimates for $1.54 billion. They guided for the current quarter to revenue of $1.24-$1.26 billion and analysts were expecting $1.28 billion. The weak guidance did not seem to matter to investors.


Vail Resorts (MTN) reported earnings of $3.63 and analysts were expecting $3.45. Revenue of $725.9 million also beat estimates for $709.3 million. Earnings and revenue have been growing as they continue to acquire other ski areas and then cross-market to their fan base. They recently bought Whistler Blackcomb in British Columbia. They announced last month they were acquiring Stowe Mountain in Vermont. Total lift revenue rose 25% to $358.2 million. Their results were even more surprising since the winter conditions early in the season were below average and slower to build a snow base. The more ski locations they add, the more the season pass becomes attractive for skiers that are interested in traveling to multiple locations. This means the higher end season passes will sell better. The company announced a new quarterly dividend of $1.053 per share.


Q4 earnings growth appears to have topped out at 4.9% but that is the first time we have had two consecutive quarters of growth since Q1-2015. With 99% of the S&P reported, 78 companies have issued negative guidance and 30 have issued positive guidance. More than 65% of companies beat the earnings estimates but only 53% beat on revenue. The 12-month forward PE is now 17.7 and above the 5-year average of 15.0 and the 10-year average of 13.9.

Earnings are over. There are a few stragglers but only a couple where you would recognize the symbols. Oracle and Adobe are the highlights for the week and the first couple days are devoid of anything material.


Ionis Pharmaceuticals (IONS) was cut from neutral to sell by Goldman saying the shares were overpriced and could fall by 45%. The company just got a drug approved with partner Biogen (BIIB) called Spinraza for spinal muscular atrophy. They also reported positive phase III results on Volanesorsen for familial chylomicronemia syndrome and they are applying for FDA approval. Goldman did not feel this drug would be a big winner. Ionis is planning on adding five new drug candidates to its pipeline in 2017. Shares fell -9% on the downgrade.


Snap Inc (SNAP) continued its decline after Facebook announced its third Snapchat clone called Messenger Day. It runs on Messenger and allows you to take a photo of yourself or surroundings, draw on it, add a filter or special effect, and then post it like a status update. It will be viewable by your friends for only 24 hours. Facebook already debuted Instagram Stories and WhatsApp Status, two other clones of SnapChat. Shortly after the Instagram Stories was announced more than 150 million had been posted. Since Messenger already has more than 1 billion users, adding the SnapChat like feature means those 1 billion users will not need to download another app just to accomplish the same thing. SNAP is not expected to be profitable for at least a year, if ever. The insider lockup period was changed to 150 days from the IPO date. Currently there are 660 million shares but only 150 million are available for trading. By the end of 2017 there will be 1.5 billion shares trading due to an aggressive stock-based compensation program and expiring lockups. By Friday, the short interest had already grown to 4.4% in only four days the stock has been available to short. Since it is not going into the indexes until at least six months, if at all because of the nonvoting stock, there is going to be a lot of selling interest and very little buying interest.

Options were listed on Friday and will be available for trading on Monday.


Incyte Corp (INCY) spiked 8% on Friday after a rumor broke it was nearing a deal to be acquired by Gilead Sciences (GILD). Incyte's Jakafi drug for myelofibrosis could give Gilead a starting point for cancer immunotherapy. If Gilead makes a deal for INCY then Tesaro (TSRO) could decline because it was also seen as potential acquisition target for Gilead. Shares have been declining for the last two weeks. Gilead shares have been declining for the last year because their drug sales for Hep-C are declining and investors were worried they would make a stupid acquisition.



Citigroup (C) said they were still buyers of Nvidia. They restated all the various sectors where Nvidia is either dominant or becoming dominant including AI, machine learning, automotive, IoT, gaming and multiple cloud partnerships. They just announced a joint venture with Microsoft where it will offer the HGX-1 Hyperscale GPU, which it bills as an "industry standard hyperscale GPU accelerator." The GPU is built from an open-source design Nvidia and Microsoft developed as part of the Project Olympus initiative and part of the Open Compute Project consortium. The head of Microsoft's Azure cloud platform said, "The HGX-1 AI accelerator provides extreme performance scalability to meet the demanding requirements of fast-growing machine learning workloads, and its unique design allows it to be easily adopted into existing data centers around the world."

I have said it over and over again, Nvidia is the bleeding edge of chip technology today. I believe Citi's price target is $145.


STM Micro (STM) reported a small fire in the basement of a manufacturing facility in France. This is the facility that makes the 3D motion sensors for the iPhone 8. The sensor manufacturing process is time consuming and the yields are very low. That means they can only make a limited quantity at a time. The delay from the fire could set production back weeks or even longer since the clean room above the fire has to be cleaned of smoke and recertified before production can resume. Apple engineers are on the site trying to get an idea how long the production process is going to be offline and whether Apple will have to change the anticipated delivery date of the new phones. This is the only facility that makes that sensor so Apple cannot just offload the order to somebody else. If the phone delivery date was pushed back a month because of the problem, it could disrupt earnings expectations for Apple for Q4. That would be a monumental event given the ramp in Apple shares on those expectations. Expect to hear more about this in the weeks ahead.


S&P announced another flurry of changes to the S&P indexes. These will take effect on Monday March 20th. The one stock most likely to benefit should be AMD going into the S&P-500. The stock is heavily shorted, has been a recent favorite and will require a lot of buying to bulk it up into S&P-500 portfolios. The stocks coming out of the S&P-500 could see some decent selling.

S&P-500 large cap:
In = Advanced Micro (AMD), Raymond James (RJF) and Alexandria Real Estate Equities (ARE).
Out = Frontier Communications (FTR), First Solar (FSLR), Urban Outfitters (URBN).

S&P-400 midcap:
In = Take-Two (TTWO), Masimo (MASI) and Coherent (COHR), Frontier Communications (FTR), First Solar (FSLR), Urban Outfitters (URBN).
Out = Advanced Micro (AMD), Raymond James (RJF) and Alexandria Real Estate Equities (ARE), Fossil (FOSL), Denbury Resources (DNR), Vista Outdoor (VSTO).

S&P-600 small cap:
In = Fossil (FOSL), Denbury Resources (DNR), Vista Outdoor (VSTO).
Out = Take-Two (TTWO), Masimo (MASI) and Coherent (COHR).

Crude prices crashed to the low for the year at $48.39 and the lowest level since November 30th. Prices fell -9% in three days to knock energy equities to the lowest levels since November. The problem boils down to inventories and production. Inventories rose to a new record high with the addition of 8.2 million barrels. Most of the oil producers met at CERAWeek in Houston last week and investors did not get any clues suggesting OPEC would extend their production cuts past June. Since Saudi Arabia has to increase production by 1.0 mbpd in the summer and burn the extra oil to generate electricity, it would be hard to say we are extending the cuts and then boost production by 1.0 mbpd. I am not expecting an extension.

U.S. production rose again to 9.09 mbpd and the highest level since last May as the shale fields came alive with new activity. The more than 5,000 drilled and uncompleted wells from 2016 are rapidly being completed and put into production and we could see another 500,000 bpd increase by the end of 2017.

Lastly, the net long open interest in crude futures was near record highs on the hopes the OPEC production cut would cause prices to continue to rise. When that did not happen, they have been stuck between $52-$55 for two-months, and OPEC oil ministers in Houston did not telegraph any extended cut, the fire alarm rang and everyone rushed to the exits at once.


Over the last 9 weeks, U.S. inventories have risen nearly 50 million barrels. While this may seem alarming, it is not. It is only alarming to uneducated traders. Inventories rise in Jan/Feb/Mar because refiners are taken offline for maintenance while fuel demand is low. This reduces oil demand by as much as 2.0 mbpd during that period. By the end of March, refiners are coming back online and they will begin producing summer blend fuels in high quantity. They have to let the winter blend fuels deplete and as you can see in the graphic below that is exactly what is happening. Once they move back into production, oil supplies will begin to fall and fuel inventories will begin to rise. They have to be in full production well ahead of Memorial Day and the unofficial start of the summer driving season.

Oil prices crashing in Feb/Mar is a good thing because it gives us a buying opportunity for energy equities. Oil prices typically peak around August ahead of Labor Day and the end of driving season.

Yellow is a recent low and green a recent high.



Active rigs rose by 12 last week to 768 with oil rigs up +8 to 617 and gas rigs adding 5 to 151. Even the offshore rig count rose +2 to 20. Since the low at 404 onshore rigs last May we have added 364 and almost doubled. By this May I am certain we will have double the active rig count over last year.


 


 

Markets

The markets missed a good chance for a decent bout of profit taking last week but that does not mean they will not get another chance in the coming week. The Fed statement is always a challenge. Traders worry about what they might say and then wonder what they worried about when the statement actually appears.

Do not forget the Tuesday before a Fed announcement is normally positive. Since that trend is so well known, I would not be surprised to see Monday positive as well. The Fed statement typically produces some immediate volatility but the initial direction after the release is seldom the one that sticks. The March meeting has a Yellen press conference at 2:30 so that is another opportunity for the Fed to calm markets if the statement was hawkish or to stir them up if she thinks the market did not react as expected.

Typically, Yellen is seen as the queen of the doves and even when she is trying to be hawkish, it seldom comes across as she expects.

The bigger problems will be the debt ceiling and the central bank statements from overseas. The BoE and BoJ would be the ones to watch. Since their statements come after the Fed policy statement, I would expect them to follow in the same line of thinking. They will not normally want to deviate significantly from the Fed's path.

Overall, the various indexes saw support tested on Thursday and there was a minor rebound on Friday. After six days of declines there were some oversold pressures starting to build. Friday's afternoon rebound was an equalization of those pressures as shorts took profits and covered ahead of the weekend event risk.

The S&P tested 2,360 on Thursday and closed 12 points above that level on Friday. Uptrend support has now reached that 2,360 level so it should have increased strength next week.

As of Friday, the S&P has traded for 103 sessions without a 1% market drop.


The Dow saw 20,800 tested and it held but the rebound was lackluster and the 20,902 close was not really out of trouble. At one point last week the Dow had erased the post speech gains but it recovered to end with a loss for the week of only 102 points.

The 20,800 level should remain support with uptrend support at 20,700.



The Nasdaq remains the market leader with the Nasdaq 100 spiking on Friday to close only 5 points below a new high. The big caps are rising and Google (GOOGL) set a new high close at $861 and Facebook at $138.79. Amazon missed a new high close by $4.

The Nasdaq Composite closed at a 5-day high at 5,861 but failed to really move out of the congestion range from the prior three weeks. Support at 5,800 was not tested but the Thursday drop to 5,812 came close. This level should continue to provide support unless there is a significantly negative headline. The historic high close was 5,904.




The S&P-600 small cap index declined to roughly 825.50 on each of the last two days with the 825 level strong support. Clearly, there were some buyers waiting but the rebound was lifeless and without a sudden change in sentiment, I would expect that 825 level to be tested again and probably with a little more volume.


With the multiple major events next week, this could be a volatile period for the markets. However, they like to climb a wall of worry and this week would qualify.

We saw a decent support test and a mediocre rebound that suggests we could see another support test. Our four-leaf clover for next week is the tendency for the markets to rally on the Tuesday before the Fed announcement. That could be the slight bullish bias we need to avoid an early week retest.



Random Thoughts


There was a major change in sentiment last week. Bearish sentiment jumped a whopping 10.9% and bullish sentiment fell -7.9%. You would think there had been a market crash instead of just several days of breakeven trading. That is the highest level of bearish sentiment since February 2016 at 48.7%. On a contrarian basis the S&P is typically up 5.8% six months after a high in bearish sentiment. The only question is whether or not this is the high.

Last week results


Late Friday the SEC denied a request by Cameron and Tyler Winklevoss to list a Bitcoin ETF for trading on the Bats exchange. Bitcoin's value had risen to $1,325 early Friday afternoon on hopes the SEC would approve the request. Immediately after the SEC ruling, the Bitcoin Price Index declined to $1,022. The SEC said based on Bitcoin's record of cyber security breaches and the lack of consistent treatment of the assets by governments, we believe the Bitcoin market is unregulated and not ready to be publicly traded in an ETF. They said over time, markets of significant size may develop and they could look at it again when that occurred.

There are two other applications pending from the Bitcoin Investment Trust and SolidX Partners, a blockchain services company.



Twitter claims to have 319 million monthly active users. However, researchers at USC claim as many as 48 million may be robots. They used more than 1,000 features to identify robot accounts and determined that between 9% and 15% of Twitter accounts are actually robot accounts. Twitter had previously said they thought 8.5 million accounts were machines. Not all robot accounts are bad. Robots can notify people of disasters by reading the tweet stream and analyzing the data. By screening the data stream, only the tweets that have data deemed useful to the actual user makes it through to the user or a distribution list.

However, some robots are negative. They can look for tweets and content that has a specific political perspective and then blast it out to hundreds or thousands of other news feeds to make sure the information is widely disseminated. Some emulate human behavior to manufacture fake grass roots support, promote terrorist propaganda or recruitment. If robots can now tell us what to think, can even more significant machine control be on the horizon?


Since January 4th, the high on the Volatility Index (VIX) has been 13.28. That is the longest period of low volatility since the financial crisis. This suggests total complacency and on a contrarian basis, extreme market risk. The VIX has gone through 46 sessions as of Friday without breaking 13.5. The last time this happened began in September 2006 and ran for 112 days. The VIX can remain low for a long time but the longer the period of relative calm, the worse the correction at the end.



 

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Jim Brown

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New Plays

Solid Resistance

by Jim Brown

Click here to email Jim Brown
Editor's Note

The post earnings bounce came to a dead stop at prior resistance. We have played Sears several times and I believe Friday's short squeeze is the perfect opportunity to jump back in.



NEW BULLISH Plays

No New Bullish Plays


NEW BEARISH Plays

SHLD - Sears Holdings - Company Profile

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

We played Sears as a short several times before. Sears is eventually expected to file bankruptcy. It is only a matter of time.

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

Sears closed at a new 14-year low on Feb-9th before spiking the next day on misplaced optimism to stop us out of a short position for a decent gain.

In early January, they announced they were closing 150 stores. There are 109 Kmarts and 41 Sears stores. Last week they announced the completion of the sale of the Craftsman brand to Stanley Black & Decker for $525 million in cash and payments over the next 3-5 years to total $900 million. That shows how desperate they are for cash since they originally expected to raise $1.5 to $2.0 billion on the sale. Now they are looking to sell the Kenmore and Diehard brands.

Sears reported an adjusted Q4 loss of $1.28 that was better than expectations for a loss of $2.85 per share. That still represented a loss of $607 million and they are burning cash at an alarming rate. Analysts now believe they need $2 billion to make it through 2017. Revenue was $6.1 billion, down from $7.3 billion but beat estimates for $5.9 billion.

Earnings June 8th.

Susquehanna said Sears is struggling just to exist and the results were terrible. They do believe the chain will continue to exist through 2017 thanks to sales of real estate and brands, and then the outlook becomes increasingly worse once there are no longer any assets to sell. By selling their real estate and leasing it back, they raise immediate cash but they take on a new debt on every store. Outstanding debt and capital lease obligations rose from $2.2 billion to $4.2 billion in 2016. That means their cash burn in 2017 will actually increase significantly.

Shares spiked on short covering after the earnings but came to a dead stop at $9.50 and exactly where resistance held back in January. I think the shorts will load up again now that earnings are over and no further headlines are expected.

Sell short SHLD shares, currently $9.22, initial stop loss $9.85.

No options recommended because of price.

The $9 put is $2.05 and 22% of the stock price.




In Play Updates and Reviews

No Material Rebound

by Jim Brown

Click here to email Jim Brown

Editors Note:

The S&P-600 rebounded from the intraday low at 825.42 but only managed a gain of 3 points. This was a cleanup day for everyone that has been short over the last six days of declines. They covered ahead of weekend event risk. The Russell 2000 was not much better with a 5 point gain but that compared to the 50 point loss since the prior Wednesday's high at 1,415.

There is no reason to be joyful because of Friday's positive indexes. The biggest potholes in the rally road are next week.

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 days ahead. A support break on the S&P-600 could be a disaster.





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


SWIR - Sierra Wireless
The long stock position was stopped out at $27.65.

CRAY - Cray Inc
The short stock position was stopped out at $19.95.



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BULLISH Play Updates

ARNC - Arconic - Company Profile

Comments:

No specific news. Shares rebounded 34 cents from the four-week low. This was a direct hit to our profitability since the put was $1.50 in the money. Resistance is $27 and our stop loss is just above that level.

Use $26 as an exit target on the put. We will keep the call open just in case a headline appears.

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. The earnings date was rescheduled to March 21st. That killed this position and our option will expire on the 17th. We really need a major rebound over the next several days.

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. Something or somebody triggered a sharp 4% decline to stop us out of the position. There was no news to justify the decline.

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:

Closed 3/10/17: Long SWIR shares @ $29.10, exit $27.65, -1.45 loss.



VIPS - Vipshop Holdings - Company Profile

Comments:

No specific news. Shares rebounded back over support and away from our stop.

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.

Update 3/7/17: The company announced a new credit facility for $632,500,000 for the purpose of repurchasing outstanding 1.5% convertible notes due 2019.

Position 3/3/17:

Long VIPS shares, currently $13.15, see portfolio graphic for stop loss.
Position 3/6/17: Long April $14 call @ 30 cents, no stop loss.




BEARISH Play Updates

CONN - Conn's Inc - Company Profile

Comments:

No specific news. Shares are clinging to psychological support at $8 and a break there could hit $6.50 very quickly.

Original Trade Description: March 6th

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

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

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

Earnings March 28th.

I believe Conn's will continue lower because everything we have heard about the Q4 retail picture has been negative. Shares are trading at a 6-month low with support at $6.50. I believe we can still get $1.50 between now and earnings on the 28th. The odds of a rebound over the next three weeks are very slim.

Position 3/7/17:

Short CONN shares @ $8.00, see portfolio graphic for stop loss.
No options recommended because of price.



CRAY - Cray Inc - Company Profile

Comments:

No specific news. There was a major spike at the open that stopped us out. Somebody bought 35,000 shares and that is roughly 15% of the days volume. We exited with a nice gain.

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:

Closed 3/10/17: Short CRAY shares @ $21.30, exit $19.95, +1.35 gain.

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



FOSL - Fossil Group - Company Profile

Comments:

S&P announced after the close that FOSL is being removed from the S&P-400 midcap index and added to the S&P-600 small cap index before the open on March 20th. Shares rebounded slightly in a mixed market before the news. The announcement came after 6:PM so there was no afterhours trading impact.

Original Trade Description: March 5th

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.

Position 3/6/17:

Short FOSL shares @ $17.48, see portfolio graphic for stop loss.

Optional: Long April $17 put @ $1.00, see portfolio graphic for stop loss.



INFN - Infinera Corporation - Company Profile

Comments:

No specific news. New 4-week low close.

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.



KR - Kroger Co - Company Profile

Comments:

No specific news. Still holding at a two-year low.

Original Trade Description: March 7th

The Kroger Co., together with its subsidiaries, operates as a retailer in the United States. It also manufactures and processes food for sale in its supermarkets. The company operates retail food and drug stores, multi-department stores, jewelry stores, and convenience stores. Its combination food and drug stores offer natural food and organic sections, pharmacies, general merchandise, pet centers, fresh seafood, and organic produce; multi-department stores provide general merchandise items, such as apparel, home fashion and furnishings, outdoor living, electronics, automotive products, toys, and fine jewelry; and price impact warehouse stores offer grocery, and health and beauty care items, as well as meat, dairy, baked goods, and fresh produce items. The company's marketplace stores comprise full-service grocery, pharmacy, health and beauty departments, and perishable goods, as well as general merchandise, including apparel, home goods, and toys. It operates under the banner brands, such as Kroger, Ralphs, Fred Meyer, King Soopers, etc., as well as Simple Truth and Simple Truth Organic brands. As of January 30, 2016, the company operated 2,778 retail food stores, including 1,387 fuel centers; 784 convenience stores; and 323 fine jewelry stores and an online retail store, as well as franchised 78 convenience stores. Company description from FinViz.com.

Kroger reported earnings of 53 cents that matched estimates but declined 7% from the year ago quarter. Revenues rose 5% to $27.611 billion and that best estimates for $27.357 billion. Same store sales fell -0.7% and the first decline in 13 years. Analysts expected a 0.1% rise. Competitors Ahold Delhaize, Walmart, Publix and Aldi reported an increase in sales so apparently Kroger is losing market share.

They guided for 2017 for earnings in the range of $2.21-$2.25 per share. Analysts were expecting $2.23.

Earnings June 1st.

There is a major battle shaping for the grocery sector. German discounter Aldi is on a push to open hundreds of new stores in areas currently served by Kroger. Target has vowed to lower prices and sacrifice margins in order to retain market share. Amazon is experimenting with the grocery store concept and has been rumored to be considering opening more than 1,000 stores. Walmart has expanded their grocery departments and now carry more than 350 organic products under the private Walmart labels.

Kroger has been forced to adopt a more promotional posture with bigger ads and lower prices in order to retain share. Goldman removed Kroger from their conviction buy list and warned they doubt they will be able to even get close to their forecast for 8-11% earnings growth. Northcoast cut them from buy to neutral and several analysts cut their price targets.

Tuesday's close was a two year low and the decline is not likely to stop. The grocery sector is broken and profits are going to be tough to generate.

Position 3/8/17:

Short KR shares @ $28.85, see portfolio graphic for stop loss.

Optional: Long April $27.50 put @ 45 cents, no 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:

After the bell on Friday, AKS announced a $30 per ton price increase on carbon steel, stainless and electrical steel products, primarily for automotive, infrastructure, electrical and manufacturing markets. Looks like AKS is getting ahead of the infrastructure stimulus proposed by the new administration.

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.

Update 3/3/17: 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.

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.



AMD - Advanced Micro Devices - Company Profile

Comments:

AMD is shaking off the single bad review of the Ryzen processor. The stock will get a boost on Monday after S&P announced they were adding it to the S&P-500 on Monday March 20th. Shorts will get squeezed and fund managers will have to load up. The announcement was after the close on Friday so no movement on Friday.

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.



CX - Cemex - Company Profile

Comments:

Cemex will host its annual investor day on March 16th starting at 8:30 ET. Shares are moving sideways until the infrastructure stimulus and Great Wall headlines begin to appear again.

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 remains in progress. However, Freeport said it was going to resume production of copper concentrate starting on March 21st. Freeport is still barred from exporting concentrate but they are going to mine enough to max out the smelter on the main island of Java. Ships are already lining up to take on cargoes.

With the option at 2 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.

Update 3/3/17: 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.

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:

Shares pulled back from their last week high after a small fire in the basement of a manufacturing facility in France, is expected to cause a delay in the 3D motion sensor for the iPhone 8. The sensors have a long production time with a low yield rate and every day the facility is offline, pushes delivery farther into the future. Apple employees are reportedly on site trying to determine the actual time until restart so they can project the actual delivery of the iPhone. If this is not rectified over the next couple of weeks, it could be a major problem for Apple.

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. The weak guidance by Dicks Sporting Goods and the blowout guidance by Adidas could be the final nails in the Under Armour coffin. Shares are continuing to decline and without a miracle in their next quarterly earnings the outlook is bleak. However, they are delivering and setting up their stores within a store at all the Kohl's locations in the U.S. so Q2 could actually show a decent rebound.

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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