Option Investor
Newsletter

Daily Newsletter, Saturday, 3/18/2017

Table of Contents

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

Market Wrap

Rotation

by Jim Brown

Click here to email Jim Brown

After weeks of big cap stocks leading the charge higher and small caps declining, that reversed last week.

Weekly Statistics

Friday Statistics

The small cap indexes were sharply higher on Friday after three days of gains and they posted the best performance of the week. If this continues, it will be bullish for the overall market. The S&P-600 gained 5 points and closed over short-term resistance after testing support three times over the last two weeks. The small cap index gained 2.3% for the week. This is very bullish if it continues but there is solid resistance at 860 so it will not be an easy task. The Russell 2000 also gained 5 points on Friday and 1.9% for the week.


For a quadruple witching option expiration, Friday was positively boring. Over 9.6 billion shares traded and the major indexes closed basically flat. Typically, the fireworks are seen earlier in the week but the Fed decision probably kept trading in check. Monday after an expiration is normally lackluster as well because of option settlements.

The economic reports did not generate any market excitement with traders focused on the option expiration. The Consumer Sentiment for March rebounded from 96.3 to 97.6. The February number had declined from the 98.5 high in January.

The present conditions component rose from 111.5 to 114.5 and the highest level since the year 2000. The expectations component rose only slightly from 86.5 to 86.7. The rising jobs numbers and decade lows on the weekly jobless claims are helping to support sentiment.


Industrial Production for February was flat at zero after a -0.1% decline in January and +0.6% gain in December. Durable goods rose +0.6% thanks to a +0.8% surge in motor vehicles and parts. Production of high tech equipment rose only +0.2%. Nondurable goods rose +0.4%. Mining/energy rose 2.7% as the oil fields go back to work. The report was ignored.

Now that the Fed is behind us until early May, the talk is turning to the GDP. The real time estimates from the Atlanta Fed have declined to +0.9% growth for Q1, down from the 3.4% forecast at the beginning of February. This is not a good sign but it should keep the Fed on a "gradual" path of rate hikes for the rest of 2017.


The Fed is expected to hike rates twice more in 2017 and the next hike will not be at the May meeting unless something changes quickly. The Fed futures are only predicting a 6% chance of a rate hike at that meeting. The June meeting is the next target for a hike and already has a 54% chance according to the futures.

You may remember that three weeks ago, the outlook for a hike in March was only about 20%. Through Fedspeak by the various Fed officials and even Yellen herself, that expectation rapidly advanced to 94% just before the meeting. They managed the expectations in the direction they wanted. That means we can never completely discount a meeting as "not a live meeting." The outlook can change very quickly.



We have a very light economic calendar for next week. The most important event will be Yellen's speech on Thursday. Now that the March hike is behind them, she will need to begin posturing for the next hike, but the clues will be miniscule. With 10 other Fed speeches next week there will be plenty of Fedspeak to decipher.

The home sales on Wed/Thr will be a highlight since the warmer than normal weather probably got consumers off the couch and out into the market. With interest rates rising there will be some incentive to make a move soon before the next Fed hike.

The event I am looking forward to the most is the Vernal Equinox otherwise known as the arrival of spring at 4:30 PM EDT on Monday. I am ready for the cold weather, what little we had, to change into springtime temperatures.


In stock news, Tiffany (TIF) reported earnings of $1.45 that beat estimates for $1.37. Revenue of $1.23 billion just barely beat estimates for $1.22 billion. The company guided for revenue to increase by low single digit percentage for 2017. They opened 11 stores in fiscal 2016 to bring their total to 313 stores. Sales were boosted in Japan by brand exposure on a popular TV show and a strong yen. Sales also rose in China. Sales of items under $500 were stronger than normal and the company is going to increase offerings in that range. They said disruptions around Trump tower in Q4 caused sales at that store to decline 7%. Shares rallied 3% to a 20-month high on the news.


Valeant Pharmaceuticals (VRX) found a friend in activist hedge fund ValueAct Capital. How much of a friend remains to be seen. The company boosted its stake in VRX from 4.4% to 5.2%, an addition of 3 million shares making it the second largest shareholder. Paulson & Co owns 5.68% and is the largest shareholder now that Bill Ackman's Pershing Square fund has dumped their holdings. Shares rallied at the open but closed fractionally lower. I wonder how many investors are waiting until they see a rebound appear, thinking there is a double here easy if the company makes the right moves? The problem for me is the ton of legal issues, probes by regulators, class action suits and $30 billion in debt when the company's market cap is only $4 billion.


Bernstein initiated coverage on Netflix (NFLX) with a buy rating and $178 price target. The analyst, Todd Juenger, said "Netflix is a polarizing stock. You either believe in the ten-year story or you don't. We believe." Juenger said subscription video on demand or SVOD will become the dominant business model for delivering premium content and Netflix is the "anchor" service. Because of the extremely large global market, he expects Netflix subscribers to triple from the 99 million they have today. He said the current enterprise value of $62 billion is "absurdly low compared to future value." They are using the Amazon model of foregoing profits now to build a massive subscriber base. He said rival services like Amazon Prime Video are growing the SVOD market rather than taking market share.

Netflix just added a new button that will allow you to skip the opening credits. Also, after the widely ridiculed Amy Schumer profanity driven "Leather Special" comedy show, Netflix is changing its ratings method. After the show received so many one star ratings, the company is changing the system to either a "thumbs up or thumbs down" system. They claim they have been considering this for some time but the Schumer special must have triggered the change. Netflix said the old system was flawed. Say you watched a show like Sharknado you may have given it a two star rating for its lack of redeemable content but you still enjoyed watching the show for some light entertainment. A bunch of two star ratings would tell everyone else the show was worthless whereas a thumbs up or down would tell them if it was worth watching. If 65% gave it a thumbs up then you might consider watching it. If 65% gave it a two star rating you probably would not watch. Netflix said in a study, users gave 200% more ratings when presented the up/down option rather than a 5 star system.


Citibank (C) warned of a phishing email with the sender address of alert@citibank.com and a hyperlink appearing to go to Citibank but actually a phishing website overseas. Citi warned that the emails were fraudulent and would steal your personal information if you clicked the link and acted on the confirmation page. With more than 200 million customers, you can bet several thousand clicked on the link and gave their information to a bogus webpage.

These emails happen daily. Because of all the "open" email addresses we had on the website in the past, I get more than 10,000 spam emails a week. Fortunately, we have a couple of good spam/virus filters but a few always seem to sneak through. You have to be very vigilant about what you click regardless of how valid it appears. Always go to the actual website by typing in the webpage address rather than clicking on a link.

In a recent study of 19,000 individuals by Intel Security, they showed each person 10 different emails and asked them to identify the real ones and the fake ones. Only 3% identified all ten correctly. That means 18,430 would have clicked on a phishing email. Clearly, everyone needs a security program to protect us from ourselves.

The financial sector was down sharply on Friday despite the Fed rate hike. The sector lost -1.3% and has been weak for the last 11 days. The rate hike was already priced in two weeks ago.



Goldman Sachs (GS) was the biggest loser in the financials. CEO Lloyd Blankfein saw his compensation cut by 27% in 2016 to "only" $22 million. He received $16 million in stock and a $4 million cash bonus in addition to his $2 million in salary. I just do not understand how he can live on only $22 million.

JP Morgan's CEO, Jamie Dimon, received $28 million, Morgan Stanley's CEO James Gorman $22.5 million, Bank of America's Brian Moynihan $20 million, Citigroup's Mike Corbat $15.5 million and Wells Fargo's Tim Sloan $12.8 million. Sloan is the new kid on the block having only become CEO in October.

Goldman was the biggest drag on the Dow on Friday with a $4 decline that knocked 29 points off the Dow.


Boeing (BA) was the second biggest gainer on the Dow after the company said it signed a $3.4 billion contract with the Army and an unidentified international customer. The Army will get 244 remanufactured Apache helicopters and the customer will get 24 new helicopters of the latest Apache AH-64E variant. The 64E first began deliveries in October 2011 and seven countries in addition to the U.S. currently operate this version. Fifteen other countries operate older variants of the Apache.

Boeing also said it won a $371 million contract for support of the F-15 fighter. The F-15 is undefeated in aerial combat in more than 100 air-to-air clashes. A couple months ago Boeing was also awarded a $4 billion contract to upgrade the radar in the F-15 with the Eagle Passive Active Warning Survivability System. That suggests those planes will be flying for a long time. There are more than 1,600 in service in six countries. They are still being produced with 15 delivered in 2016.


Thursday after the close, Adobe (ADBE) reported earnings of 94 cents that beat estimates of 87 cents. Revenue increased 21.6% to $1.68 billion and beat estimates for $1.65 billion. They guided for the current quarter to revenue of $1.73 billion and earnings of 94 cents. Analysts were expecting $1.72 billion and 91 cents. The company said the shift to a subscription model with the Creative Cloud package was the main driver. Annualized recurring revenue was $4.25 billion, an increase of $265 million for the quarter. Adobe Marketing Cloud revenue was a record at $477 million. Shares spiked 4% on the news.


Jabil Circuit (JBL) reported earnings of 48 cents compared to estimates for 45 cents. Revenue of $4.45 billion beat estimates for $4.36 billion. They guided for 19-39 cents for the current quarter. Analyst said the strong earnings in Jabil and other Apple suppliers meant the weakness in Apple should be over. Multiple analysts have recommended buying the suppliers in the Apple food chain ahead of the iPhone 8.


Apple (AAPL) shares stalled over the last two weeks on concerns over the 3D motion sensor manufactured by ST Microelectronics (STM). I wrote about it in the past. There was a fire at a STM facility and there were concerns the sensor would be delayed. Multiple analysts are now claiming there is no material problem and there will be a delay of a week or two at the most. Shares of STM have recovered and are at new highs. Shares of Apple opened at a new high intraday on Friday at $141. One trader sold 9.24 million shares at $141 in a single trade at the open. That is $1.3 billion. Since it was quadruple witching day, analysts believe this was an adjustment of some kind rather than somebody dumping the stock. That dented the opening surge but shares rallied back almost to $141 at 2:00 before sellers appeared and shares plunged in the afternoon as another 4.5 million shares sold in the last few minutes of trading.



Amgen (AMGN) released the results of a landmark study of 27,564 patients taking Repatha to manage LDL cholesterol levels. The study proved that reducing LDL levels below what is currently achievable with statins, leads to a further reduction in major cardiovascular events including heart attacks and strokes. The study found that adding Rapatha to existing statin therapies reduced the number of adverse cardiac events by 20% with no significant increase in side effects. The longer the patient was on the treatment the better the results. In the first year, events declined 16%, second year 20% and third year 25%. This would seem to be an outstanding new drug for at risk patients.

However, it was not as good as analysts had hoped. The drug is expensive at $14,000 a year. Amgen said it would offer a 30% discount to pharmacy benefit managers and they offered a novel money back guarantee, with some qualifications, if you have a cardiac event while you are taking the drug. Based on the mortality profile insurers would have to pay for the drug for 25 patients to prevent one cardiac event. That is according to research at the American College of Cardiology. This suggests insurers are not going to be willing to pay $250,000 a year for 25 patients just to save one hospital visit that would cost them significantly less. Shares of Amgen crashed 6.4% and took other companies with cholesterol drugs down with them. REGN lost $12 (-3%), ESPR -$6 (-20%) and MDCO -$4 (-8%).


While the number of earnings reports declines significantly for next week there are three companies worth watching. These are FedEx, Nike and Finish Line. FedEx will be important for guidance for the post holiday quarter. Nike and Finish Line are important to the retail outlook. They sell high dollar products and their guidance could help or sink the retail sector. Under Armour is not reporting but it will get either a boost or a hit on those earnings.


Crude prices were actually relatively flat for the week after bottoming at $47.09 on Tuesday. With futures expiring on Monday there was little activity on Friday. Volume was very low.


Traders are confused after Saudi Arabia increased production in February. The "we are storing it" excuse did not fly with most traders. While they may be storing it for the summer electrical generation demand, they could also be storing it just until a tanker can load it. We have learned in the past to listen to what they say but watch what they do.


Active rigs exploded higher with a gain of 21 last week. Oil rigs rose by 14 and gas rigs gained 6. One more strong weekly gain and active rigs will have risen 100% over the lows last May. However, if oil declines any further it could slow those reactivations. Any rigs restarted last week had been in the moving and setup category for several weeks before they actually went to work.



Markets

There was a whirlwind of headline activity last week and traders had a lot to worry about. The markets climbed the wall of worry into Janet Yellen's news conference Wednesday afternoon. After the conference everyone exhaled with a big sigh of relief. The excitement was gone and the pending option expiration became the focus as traders waited for their option positions to expire.

The big caps saw some cash drain as the small caps suddenly found favor. Whether that will last into next week is the big question. If the small cap stocks are going to assume their leadership role after three months of consolidation, I would be thrilled. They have been holding the broader market back.

Hurting the Nasdaq on Friday was the decline in healthcare stocks. The sector lost 1% after the huge run since the end of January. The Health Care ETF (XLV) made a new high at $76.75 on Wednesday. That was an $8 gain since the $69 low on January 31st. The drop was powered by the decline in the cholesterol stocks and weighed on the Nasdaq.


The prior closing high on the Nasdaq Composite was 5,904 on March 1st. The index has now closed at 5,899 for three consecutive days. Clearly, this is solid resistance. I just hope it is not a double top.

The Nasdaq big caps have been leading the market higher with FB, AMZN, NFLX, GOOGL, ORCL and ADBE all at new highs. Amazon and Netflix are struggling with new high resistance while the rest are setting new highs.

The semiconductor sector is also setting new highs and the biotech sector set a new 52-week high on Wednesday.

A lot of these supporters need to rest. The biotechs declined the last two days to cause a drag on the Nasdaq. The crash in the drug stocks on Friday also pulled it lower. If the Nasdaq Composite can shake off this weakness and set a new high while the small caps are still positive it would be a big lift to bullish sentiment.




The Dow has been the weakest big cap index. It is barely holding over support at 20,850 and the end of week trading was lackluster. Now that the Fed decision is behind us, we should not expect any help from Goldman or JP Morgan. Caterpillar is in trouble with the government raiding their offices and we should not expect any big gains there. Crude prices should remain volatile for a couple more weeks and that means Chevron and Exxon should be flat. Intel is being attacked from all sides on the technology front and is setting lower lows.

The middle of the Dow, stocks like Verizon, McDonalds, Coke, Procter & Gamble, etc are likely to remain choppy without a discernible trend.

This means the Dow is not likely to be the market leader but could follow the S&P and Nasdaq in whatever direction they choose.



The Russell 2000 was bullish on Friday with its third day of gains and a close over the 1385-1388 resistance. If the gains continue this could rekindle market sentiment. A break down here making a lower high and lower low below 1,350 would be the kiss of death to any future market rally.


We have a light economic calendar with almost no earnings and plenty of Fedspeak to confuse the outlook. The Monday after a quadruple witching expiration is not normally a strongly directional market. Option settlements are being handled and traders are trying to decide what to do next.

We are still in a bullish uptrend. Dips are shallow and still being bought. Follow the trend.



Random Thoughts


The weekly sentiment survey becomes more confusing every week. The high bearish sentiment from last week declined by 7.8% but those traders moved to neutral rather than bullish. We are still looking at nearly 70% of respondents not in the bullish category. That is a large majority not expecting further gains. That should suggest there is plenty of money on the sidelines ready to go to work if sentiment improves.

Last week results


The S&P has now gone 108 days without a 1% single day decline. That is the 9th longest streak since 1950. If it can go another 7 days, it will be the sixth longest streak at 115 days. This will eventually end but there are no clues that it will be this week.



Volatility has not been this low for this long since the period from Oct-1st 2006 through Feb 26th 2007 when it traded below 10 numerous times and rarely reached 12 on temporary spikes. The historic low of 8.60 was made in this period. We know how that period of low volatility ended and there were no real clues in the equity market that the crash was coming.



The Shakespeare of Rock and Roll passed away this weekend. Chuck Berry was 90 and is survived by Toddy, his wife of 68 years. Chuck made rock and roll famous as he combined rhythm & blues with country and western. His big hits included Maybellene, Johnny B Goode, Roll Over Beethoven and Brown Eyed Handsome Man. He was called the "father of rock and roll." Leonard Cohen said, "All of us are footnotes to the words of Chuck Berry." He spent three terms in prison for armed robbery, tax evasion and violation of the Mann Act for driving an underage girl across state lines from Texas to his home in Missouri. Before becoming famous, he worked on an assembly line and studied cosmetology. Chuck had already announced the release of his first album in 38 years, scheduled for release this year and dedicated it to his wife. He will not be forgotten until long after all of us in his generation cease to exist.



 

Enter passively and exit aggressively!

Jim Brown

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Voltaire (1764)


 

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New Plays

Bird Flu is Back

by Jim Brown

Click here to email Jim Brown
Editor's Note

The bird flu is back and rapidly expanding with the most human cases on record. Scientists have been tracking the bird flu since it first appeared in the headlines in 2013. It was rarely transmitted to humans and only about 100 cases were reported. That has changed significantly.


NEW BULLISH Plays

BCRX - Biocryst Pharmaceuticals - Company Profile

BioCryst Pharmaceuticals, Inc., a biotechnology company, designs, optimizes, and develops small molecule drugs that block key enzymes involved in the pathogenesis of diseases. The company markets peramivir, an intravenous neuraminidase inhibitor, which is approved for uncomplicated seasonal and acute influenza in the United States and Canada under the name RAPIVAB, in Japan and Taiwan as RAPIACTA, and in Korea as PERAMIFLU. It also has various ongoing development programs, including BCX7353 and second generation oral inhibitors of plasma kallikrein for hereditary angioedema; and galidesivir, a broad spectrum viral RNA polymerase inhibitor that is indicated to treat filoviruses, as well as forodesine, an oral purine nucleoside phosphorylase inhibitor for use in oncology. It has collaborative relationships with Mundipharma International Holdings Limited for the development and commercialization of forodesine; Shionogi & Co., Ltd. and Green Cross Corporation for the development and commercialization of peramivir in Japan, Taiwan, and South Korea; Seqirus UK Limited for the development and commercialization of RAPIVAB worldwide, except Japan, Taiwan, Korea, and Israel; and the University of Alabama at Birmingham for the development of influenza neuraminidase and complement inhibitors. Company description from FinViz.com.

BioCryst produces drugs and vaccines that treat or prevent the flu. They have a novel new drug called Rapivab that is used to treat viruses. They also have a new broad-spectrum antiviral for use against Ebola, Zika and the Marburg virus, among others. Whenever bird flu or swine flu headlines appear, BioCryst shares tend to rise because of their vaccines and treatments.

The current bird flu is H7N9 and a new version just appeared called the Yangtze River Delta lineage. This particular strain is highly contagious and jumps human to human. The virus has changed into a "high path" virus as opposed to a "low path" virus. That means it spreads faster inside the body and causes more damage. More than 41% of people infected eventually die.

The number of cases per year dating back to 2013 were in the 100-200 range and mostly in China. In the last several months with the outbreak of this new strain more than 460 cases have been confirmed. Remember, more than 41% die. This is the worst bird flu season on record.


Normally the bird flu is confined to mainland China. However, because there are open air fowl markets in China, the flu can be picked up by any migratory bird and spread around the world.

In early March, a form of H7N9 was discovered at a Tyson chicken farm in Tennessee. This was the high-path form. The farm was quarantined and the entire flock of 55,000 chickens was destroyed. The problem is that the infection was caused by a wild bird that contaminated the flock. Since the virus does not impact the birds, nobody knows if the flock is contaminated except they are constantly checked with blood tests. Once they find one chicken is infected it is too late.

In the U.S. bird farms are supposedly "bio-secure" to isolate the chickens from wild birds. Normally that works in most cases. However, the virus still makes it into the population unless extreme measures are taken.

The key to this position is that there will likely be more H7N9 headlines in the U.S. because the possibility of further farm contamination is too great. This is not one bird that flew from China and contaminated one farm. Birds carrying it fly north across Russia to Alaska infecting other birds as they go. Once in Alaska they are pushed south by the winter weather and everywhere they stop, other birds are infected. There is no telling how many thousands or even millions of wild birds are infected in the U.S. already because it does not affect their health. They are passive carriers.

When new headlines appear, it will boost stocks that have vaccines and treatments against exotic viruses like Ebola, Zika, etc. Those treatments will not specifically work against the bird flu other than as a broad-spectrum antiviral. However, the stocks will rise on the expectations.

BCRX spiked to $9 on the news of the farm in Tennessee and should move higher on their own even if there are no further headlines. The potential for the H7N9 contamination to be limited to just one farm is highly doubtful.

Earnings May 29th.

We have to buy the stock because the option premiums are inflated due to the expectations of another significant spike. I looked at buying a longer strike out in June but the spreads are too wide. If you buy that call you have to hold it or lose half your premiums if stopped out.

Buy BCRX shares, currently $8.85, initial stop loss $7.85.
No options due to price and spreads.



NEW BEARISH Plays

No New Bearish Plays



In Play Updates and Reviews

Very Positive Day

by Jim Brown

Click here to email Jim Brown

Editors Note:

The big cap indexes all lost ground but the small cap indexes were big winners. The Russell 2000 gained 5 points and the S&P-600 also gained 5 points. With the big cap indexes closing negative this suggests there is some much needed rotation underway that will be long term market positive.

Unfortunately, despite the positive indexes all of our long positions declined and the short positions rose. This is another effect of rotation. Stocks with recent gains are sold while recent losers are bought. This should be temporary if the small cap rally continues.





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


ITCI - Intra Cellular
The long stock position was opened at $15.72.

KR - Kroger
The short stock position was stopped at $29.50.

ARNC - Arconic
The long call position expired.



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

Short term Calls and Puts on equities = Option Investor Newsletter

Credit spreads and naked puts = OptionWriter

Long term option investments = LEAPS Investor

3-6 month Option Trades = Ultimate Investor

Iron Condors = Couch Potato Trader



BULLISH Play Updates

ARNC - Arconic - Company Profile

Comments:

The long call side of the strangle expired on Friday. After closing the put earlier for a decent gain the net loss on the position was 32 cents.

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:

Closed 3/17/17: Long Mar $30 call @ 90 cents. Expired, -.90 loss .
Closed 3/15/17: Long Mar $28 put @ 60 cents, exit $1.18, +.58 gain.
Net loss 32 cents.



CSIQ - Canadian Solar - Company Profile

Comments:

No specific news. Earnings are Tuesday before the bell. This will determine our final winner/loser status on this position.

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.



ECA - Encana Corporation - Company Profile

Comments:

No specific news. Minor decline on oil price volatility.

Original Trade Description: March 13th

Encana Corporation, together with its subsidiaries, engages in the exploration, development, production, and marketing of natural gas, oil, and natural gas liquids in Canada and the United States. The company owns interests in various assets, such as the Montney in northern British Columbia and northwest Alberta; Duvernay in west central Alberta; and other upstream operations, including Wheatland in southern Alberta, Horn River in northeast British Columbia, and Deep Panuke located offshore Nova Scotia. It also holds interests in assets that comprise the Eagle Ford in south Texas; Permian in west Texas; San Juan in northwest New Mexico; Piceance in northwest Colorado; and Tuscaloosa Marine Shale in east Louisiana and west Mississippi. Company description from FinViz.com.

Encana reported earnings of 9 cents compares to estimates for 3 cents. Revenue of $822 million also beat estimates for $771.9 million. Production averages 237,100 Boepd. Drilling and completion costs declined by 30%. They reduced long term debt by $1.1 billion and net debt by 50%. They replaced 326% of production.

They currently have more than 10,000 premium drilling locations and expect to grow that number in 2017. Since December 31st, they have added more than 50 premium locations in the Eagle Ford alone. They ended 2016 with a whopping $5.3 billion in liquidity and cash of nearly $1 billion. They expect to spend $1.6 to $1.8 billion on capex in 2017 and grow liquids production by 35%. Capex willbe funded by cash on hand. Proved reserves were 920 million barrels and 3P reserves were 2.372 billion barrels.

With the cash, production rates, reserves and drilling inventory listed above they are definitely an acquisition candidate with only a $10 billion market cap.

JP Morgan initiated coverage with an overweight rating and $16 price target.

Earnings May 18th.

Over the last couple of weeks an investor built up 7,000 July $11 calls at $1 each and 7,000 October $11 calls at $1.50 each. That is a $1.7 million investment in call options. I am suggesting we follow them in that trade as well as buy the stock. They may know something that is not public information or they just believe that the company is too good to pass up. With the drop in crude prices ECA has fallen to a 5-month low and is resting on the 200-day average.

Position 3/14/17:

Long ECA shares @ $10.43, see portfolio graphic for stop loss.

Optional: Long October $11 call @ $1.40, no stop loss.



ETSY - ETSY Inc - Company Profile

Comments:

No specific news. Minor decline in a weak market.

Original Trade Description: March 15th

Etsy, Inc. operates as a commerce platform to make, sell, and buy goods online and offline worldwide. Its platform includes its markets, services, and technology, which enables to engage a community of sellers and buyers. The company offers approximately 45 million items across approximately 50 retail categories to buyers. It also provides various seller services, including direct checkouts, promoted listings, and shipping labels, as well as Pattern by Etsy to create custom Websites; and seller tool and education resources to start, manage, and scale businesses to entrepreneurs primarily through Etsy.com. In addition, the company operates A Little Market, a handmade and supplies market for sellers and buyers. Company description from FinViz.com.

Etsy reported earnings of 3 cents that beat estimates for a penny. Revenue of $110.2 million also beat estimates for $106.9 million. Merchandise sold rose 16.7% to $865.2 million. The stock was crushed because the company guided for higher costs. However, there was a good reason and shares are starting to rise again.

Etsy is an ecommerce website where crafters can post and sell their wares. So far, so good. The company has come up with the great idea to sell craft supplies on the website so other existing crafters plus all the people shopping the website can buy their supplies there as well. Not only will the company provide supplies but they are adding tutorials and other craft ideas. That will make the site even more "sticky." This is scheduled to launch in April.

In addition, they introduced Google Shopping on the website and launched their first ever global brand campaign. They have changed the backend of the seller website to provide a new seller dashboard and new application called Shop Manager.

I think this expansion is a great idea. Where other retail websites are stagnant, Etsy is growing rapidly and these new features will increase viewers, buyers and sellers. The knee jerk decline in the stock price on the rise in expenses was a buying opportunity.

Earnings May 30th.

Position 3/16/17:

Long ETSY shares @ $10.25, see portfolio graphic for stop loss.

Optional: Long June $12.50 call @ 36 cents, no stop loss.



ITCI - Intercellular Therapies - Company Profile

Comments:

No specific news. Shares pulled back slightly on the decline in the health care sector of 1% on Friday.

Original Trade Description: March 16th

Intra-Cellular Therapies is developing novel drugs for the treatment of neuropsychiatric and neurodegenerative diseases and diseases of the elderly, including Parkinson's and Alzheimer's disease. The Company is developing its lead drug candidate, lumateperone (also known as ITI-007), for the treatment of schizophrenia, bipolar disorder, behavioral disturbances in patients with dementia, including Alzheimer's disease, depression and other neuropsychiatric and neurological disorders. Lumateperone, a first-in-class molecule, is in Phase 3 clinical development for the treatment of schizophrenia, bipolar depression and agitation associated with dementia, including Alzheimer's disease. The Company is also utilizing its phosphodiesterase platform and other proprietary chemistry platforms to develop drugs for the treatment of CNS and other disorders. Company description from company website.

ITCI is meeting with the FDA in late March to discuss the filing of their newest drug for schizophrena and they have already contracted with a manufacturer to supply commercial quantities. The drug is lumateperone and it has already successfully navigated all the required studies and the results were presented at the annual meeting of the American College of Neuropsychopharmacology (ACNP) and the CNS Summit. For company information on their other drugs Click Here

They reported a smaller than expected Q4 loss of 64 cents compared to estimates for 77 cents. The company has averaged a 14.6% positive earnings surprise over the last four quarters. They are not a big company and deal mostly in research so they have a permanent loss until their new drugs hit the market. They have $10 per share in cash.

Shares were very volatile the day the earnings were released and shares settled at $13.50 several days later. Now a new uptrend has begun with a close at $15.75 today. The prior high was the mid $40 range. Shares crashed in September when a trial of drug ITI-007 for schizophrena failed a stage three trial for one specific test. The drug has 7 other uses.

Earnings May 31st.

There is an uptrend forming with resistance at $17. If the stock breaks above that resistance level it could run because of the recent memory of the $45 highs.

Position 3/17/17:

Long ITCI shares @ $15.72, initial stop loss $13.75,
No options recommended because of high prices and wide spreads.



VIPS - Vipshop Holdings - Company Profile

Comments:

No specific news. Shares declined slightly from Thursday's five-month high close.

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

FOSL - Fossil Group - Company Profile

Comments:

No specific news. Shares rebounded slightly from Wednesday's 8-year closing low.

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.

Update 3/15/17: Fossil said it entered into a loan modification agreement with its lenders that appears to be bearish. The amendment reduces the credit available to $850 million but the press release did not say what level it was reduced from. The amendment also removed an incremental term loan that was previously available. It also extends the maturity date until May 17th, 2019 BUT removes the company's ability to ask for an extension.

Basically, their credit limit was lowered, one facility was cancelled and they cannot ask for an extension of the maturity date, meaning the loan has to either be paid or a new loan with new lenders has to be acquired.

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.



KR - Kroger Co - Company Profile

Comments:

No specific news but shares rose for the second day to stop us out of the short stock position. The option position remains open and will be covered in the Lottery Play section starting next week.

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.

The Dow Theory Forecasts newsletter cut their rating on Kroger from buy to sell based on declining fundamentals, increased competition and disappointing guidance.

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:

Closed 3/17/17: Short KR shares @ $28.85, exit $29.50, -.65 loss

Still open: Long April $27.50 put @ 45 cents, no stop loss.



SHLD - Sears Holdings - Company Profile

Comments:

No specific news. Minor 9 cent gain.

Original Trade Description: March 11th

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.

Update 3/13/17: Sears lenders hired Kramer Levin to represent them in expected debt talks. The lenders are expecting trouble so they already hired a bankruptcy firm. That is not a good sign for Sears.

Update 3/15/17: Sears lost the third top executive in the last three months. Kmart president Alasdair James is no longer with the company. Sears does not announce departures because there has been so many. The name just disappears from the website. James was removed on Wednesday. Sears will not comment on departures even when asked.

Position 3/13/17:

Short SHLD shares @ $9.10, see portfolio graphic for stop loss.

No options recommended because of price.

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




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:

AKS successfully completed the sale of $400 million in notes due March 2027 and will retire older notes due in 2020. Shares are holding above support at $7.75.

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 rallied early in the week on the addition to the S&P-500 but faded as the week progressed. This happens at the open on Monday. The company said the Ryzen processor for high performance PCs will be available worldwide on April 11th.

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 did not bid on the border wall. The company said they felt it would be bad faith and they could face repercussions from their home company of Mexico even though they have multiple concrete plants on both side of the border. However, they did say if a contractor asked for prices for cement they would be obliged to provide those prices and supply the cement.

Cemex is reducing debt by as much as $4 billion through price hikes and asset sales. They expect revenue from the U.S. to rise by $550 million in 2017 without any impact from the wall. In their analyst meeting last week the tone was positive and they expect overall revenue to rise 4% to 6%. That would rise if any infrastructure spending programs were enacted.

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:

Zero news on FCX for the week. No change in the Indonesia battle with the government.

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.



INFN - Infinera Corporation - Company Profile

Comments:

Goldman upgraded INFN from neutral to buy on Thursday and shares spiked 8% on the news. Our profitable short was immediately turned into a losing position. We still have the long July put and I added a stop loss.

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:

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

Previously Closed 3/16/17: Short INFN shares @ $10.87, exit $11.10, -.23 loss.



STM - STMicroelectronics - Company Profile

Comments:

Analysts are now claiming there will not be a material delay in the iPhone sensor and recommending suppliers be bought on the weakness. STM is at a new high.

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.

Update 3/10/17: 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.

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 NCAA tournament normally gives shoe companies a lift and shares of UA have gained slightly over the last several days.

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.

Update 3/10/17: 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.

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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