Option Investor
Newsletter

Daily Newsletter, Tuesday, 3/21/2017

Table of Contents

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

Market Wrap

End of the Trend?

by Jim Brown

Click here to email Jim Brown

The trend is your friend until it ends and Tuesday was definitely a change in that direction.

Market Statistics

The change in direction was blamed on at least a dozen different things but it may have just been time for a pause. I wrote several times recently that the three weeks after March option expiration were typically rocky. The Q1 option cycle is over, Q4 earnings are over and the tax payment deadline is only three weeks away. Traders have to look at their portfolio, cash on hand and anticipated tax due and make decisions on how to handle that problem. This is the perfect time for changes since the Q1 earnings cycle does not start for three more weeks. The Fed is behind us and there are no catalysts in the market that require an urgent investment. This is why this three-week period is typically rocky.

This year there are other problems for equities. The Trump honeymoon is coming to a rapid end with the healthcare train wreck in the House. After several weeks of haggling and arm-twisting, the bill is all but dead. In the republican side of the House, there are 136 supporters, 52 undecided and 48 opposed or seriously concerned according to one survey. Late in the afternoon the Conservative Caucus reportedly had 25 hard line no votes and 2 leaning to a hard no. That is the death knell for the bill because the republicans can only afford to lose 21 votes and still get it passed. The odds are nearly 100% that the bill will be pulled rather than go up for a vote on Thursday. There is no chance for passage in the Senate regardless of the outcome in the House.

This is rapidly being seen as the wheels falling off the Trump train. If the republicans are too fractured to get a healthcare bill passed then they will have no chance getting a major tax overhaul completed, major deregulation accomplished and almost anything else on the agenda. This is a political disaster for the Trump policy plans.

Adding to the problem were comments from House Ways and Means committee Chairman, Rep Kevin Brady, that a border tax is a given. That happened just before the open and that caused a significant ripple when the markets began trading. Retailers of all types sold off hard because of the significant hike in prices they would face.

The small cap stocks sold off hard because they would benefit the most from the Trump policies and with those policies suddenly in serious doubt, the small cap stocks imploded. The Russell 2000 lost -2.7% or a whopping -37 points to close just over critical support at 1,340. The S&P-600 closed at a 4-month low at 822 and just under support at 825. This is a major breakdown and any further declines could trigger a broader market selloff.


There were no economic reports to move the market. The Current Account Deficit was nearly unchanged from the last update at -$112.4 billion for Q4. This was old news and ignored by the market. State and local tax revenues increased slightly from 1.4% to 1.6% in Q4. This was also ignored since we already at the end of Q3.

The only material report on the calendar for Wednesday is the Existing Home Sales for February. Expectations are for a slight decline to 5.59 million. On Wednesday, Yellen speaks again but she is not expected to move the markets. If anything, she will just repeat the key points from the press conference last week.

There are plenty of other Fed speakers over the next two days and they will spin their own views of the economy and rates.


Two other indicators have been suggesting for the last week there was trouble ahead for equities. The bond yields began to fall despite the Fed's rate hike. Investors seeing the train wreck in Washington began to hedge their equity bets last week by increasing bond positions.

The dollar began to decline after the Fed meeting and Dutch election outcome. When the anti-EU candidate lost, the Euro strengthened. When the anti-EU candidate did poorly in the French debate, the Euro eased up slightly once again.



The rising Euro will be beneficial for Europe but it will make it tougher for U.S. companies to sell goods overseas.


The falling dollar should be lifting crude prices but oil fell another $1 to a four month closing low on worries about demand, inventories and over production. This break of support at $48.50 suggests there could be lower lows ahead. This caused energy equities to decline again and helped to weaken the overall market.


The border tax comments from Rep Brady crushed retailers and Under Armour (UA) was the biggest decliner on the S&P with a 4% drop. This was a new historic low close. Macy's (M) closed at a five-year low. Target (TGT) also closed at a five year low.

This is not going to be a temporary dip. If the border tax is a done deal, we are going to see a lot of disruption in the retail market on nearly every item from shoes, clothes, food, auto parts, gasoline prices, sporting goods, etc. This will change the entire scope of the retail sector and there will be many stores that go out of business because they cannot compete with the scope of a store like Walmart.




Before the bell homebuilder Lennar Corp (LEN) reported earnings of 59 cents compared to estimates for 56 cents. Revenue of $2.34 billion also beat estimates for $2.17 billion. The company said it was riding a wave of economic optimism and buyer confidence. The company said the supply of previously own homes was the tightest they had ever seen.

New orders rose 12% and beat estimates for 7.7%. They delivered 5,452 homes in the quarter, up 13% with gross margins of 21.1%. That was below the estimates for 22.3% and shares declined after the report despite the outstanding quarter.


After the bell Dow component Nike (NKE) reported earnings of 68 cents that beat estimates for 53 cents. Revenue of $8.43 billion missed estimates for $8.47 billion. Gross margin fell 140 basis points to 44.5% due to higher selling costs and strong dollar issues. Nike brand revenues rose 7% to $7.9 billion on a constant dollar basis thanks to double-digit growth in Western Europe, Greater China and emerging markets. Revenues for Converse rose 3% to $498 million.

They repurchased $475 million in shares as part of their 4-year $12 billion program of which $8.4 billion remains open. They ended the quarter with $6.2 billion in cash. Inventory levels rose 7% after a similar gain in Q3. This suggests the sell through is not working as well as expected.

Nike is facing a lot of competition from Adidas and Under Armour. Shorts on Nike are over $2 billion for the first time ever. Shares fell -4% in afterhours.


FedEx (FDX) reported earnings of $2.35 that missed estimates for $2.62. Revenue of $15 billion matched estimates. They shipped a record number of packages in Q4. Operating profit margin was 7.5%, down from 9.2%. Margin on the ground segment fell from 12.6% to 11%. The company reaffirmed full year guidance for earnings of $10.80 to $11.30.

FedEx said a major increase in fuel prices in Q4 depressed profits. FedEx Freight saw a drop of 27% in operating income and the company was targeting double digit growth. Shares fell -$7 in afterhours.


Disney (DIS) shares were upgraded after the monster $170 million opening weekend take by Beauty and the Beast. Multiple analysts reiterated buys saying this is why you always want to own Disney. They are capable of producing blockbuster movies one after the other. Nomura raised estimates to $125 and Instinet matched that move as well. With the success of the live action Beast, they still have 11 other classics in the process of being remade into live action movies or in the case of Mary Poppins, a live action sequel. Those are Mulan, Aladdin, Lion King, 101 Dalmatians, Little Mermaid, Pinocchio, Sword in the Stone, Peter Pan, Snow White and the Seven Dwarfs, Dumbo and the sequel to Marry Poppins.


Facebook was upgraded by BTIG to a buy with a $175 price target. The analyst said he was wrong when he downgraded them last year after they warned they would spend more money. Now he is upgrading because they are revolutionizing their business and the decline in profits never appeared. He said the new Instagram Stories feature had taken off and was extremely popular. Also, their new handling of video is also compelling. He thinks ad revenue will rise sharply.


Apple (AAPL) announced the new iPhone 7 and 7+ in the (PRODUCT)RED Special Edition in recognition of the more than 10 years of partnership between Apple and (RED). This is the Global Fund working to eliminate AIDS. Apple has contributed more than $130 million to date. Since it's founding in 2006 (RED) has generated more than $465 million for the Global Fund. The Special Edition iPhone 7 and 7+ with 128gb or 256gb start at $749. The models will be available worldwide on March 24th.

Apple also introduced a new iPad with 9.7-inch retinal display. The 32gb memory with WiFi will start at $329 while the WiFi and cellular model starts at $459. This is cheaper than prior versions of the iPad, reflecting the increased competition.

Bernstein raised their target price for Apple shares to $160 from $140 saying the iPhone 8 upgrade cycle will be very strong. The analyst also noted that any tax change or change to the repatriation rules would provide a significant opportunity for buybacks and dividends along with stronger earnings.


Well after the close Sears (SHLD) filed its annual report with the SEC and warned that it may cease to be a "going concern" at some point in 2017. This is a red flag warning and they waited until after the afterhours session was over before they filed the report. Last week the lenders for Sears hired a bankruptcy attorney so they knew there was trouble ahead.



Markets

The streak is dead. All those various streaks on the indexes where they went X days without an intraday move of 1% or a closing move of 1% or more are dead. All those watching and waiting for "the correction" have finally got something to point to and say we knew it was coming. However, it may not be over. Very rarely does the market just drop unexpectedly -1.5% or more on one day and suddenly reverse to the upside.

Critical support has been broken on the major indexes and now it is time to see if the sellers have any conviction. It is one thing to drop sharply on several headlines but an entirely different event if that decline continues for several more days.

At this point, I would not be surprised if we continue lower because the healthcare train wreck could be the gift that keeps on giving. Remember, the bigger picture. If the healthcare bill is delayed, it pushes everything else including the tax cut proposals, well into the future. That tax cut proposal is the pot of gold at the end of the rainbow. If the rainbow begins to fade, the tax cut benefits already priced into the market will begin to fade with it. I have written several times that Citigroup believes the market will decline 10% if it appears the tax cuts are going to be postponed until 2018. That is not the case, yet, but every day they do move farther into the future.

The S&P broke through support at 2,360 and closed on light uptrend support at 2,345. Any further decline would target the 2,250 level according to multiple analysts. That would be about a 6% correction. The 2275-2300 level could produce a pause but that support is light.


The four largest decliners on the Dow accounted for more than 120 Dow points. Goldman was the biggest loser at -$9 which erased 62 points from the Dow. The financial sector was crushed. The SPDR Bank ETF (KBE) lost nearly 5% while the Financial Select SPDR (XLF) declined -2.88%. The XLF has other components like insurance companies.



The Dow has been the weakest large cap index and it blew through support at 20,800 to close at 20,668. There is some converging light uptrend support at 20,500 and that could easily be hit on Wednesday. The Dow is unsupported at today's close so the most likely path is lower.



The Nasdaq lost -108 points or -1.8% to close 5 points below critical support at 5,800. That is close enough to claim it honored that support, if it rebounds on Wednesday. The Nasdaq had its props knocked out with the biotech sector falling -4%. The Biotech Index lost a whopping -149 points. This is a result of the failing healthcare bill. Analysts are worried there will be drug price restrictions to help get the bill passed. Uncertainty is a killer in the markets.


It was a big cap disaster with all the major stocks except for Facebook and Apple, clustered at the top of the biggest loser's list. The majority of the others are biotechs.


The Nasdaq needs to hold that closing level to have a chance at a rebound. Unfortunately, the Nasdaq futures are down -15 as I type this commentary. The next chance of decent support is in the 5525-5575 range.


Despite the big cap slaughter, the Nasdaq 100 only broke initial support at 5,340. The 5,300 level still has a chance to contain the decline.


The Russell 2000 stopped short of critical support at 1,340 so there is still hope for a recovery. However, with the S&P-600 closing at a 4-month low, the Russell may be only a day behind in the plunge.


Tomorrow is not looking good. The S&P futures are down -7 as I type this and continuing to decline. Sometimes these events become self fulfilling as selling begets selling and investors panic as they race for the exits. Everyone has been so complacent for the last four months that a sudden reversal of fortune has caught most investors by surprise.

Investors forgot that a 1% down day is not unusual. Having 110 consecutive days without a 1% down day is unusual.

I would still buy a rebound. I would not buy the dip. When it appears a bottom has formed, I would take a chance with some prior winners. They will be the first stocks to rebound because traders have a short memory. What worked before should work again or at least that is the idea.

Remember, the three-week period after March option expiration is typically choppy with bouts of selling as investors restructure their portfolios for the Q1 earnings cycle and extract cash for the taxman.

Enter passively, exit aggressively!

Jim Brown

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New Plays

Avoid Hungry Bears

by Jim Brown

Click here to email Jim Brown
Editor's Note

The selloff finally arrived and the bears are on the prowl. The S&P futures are down -7 and the Nasdaq futures -17 as I type this. There is no reason to try and guess market direction for Wednesday's open. Those numbers could reverse overnight or they could become worse. In times of uncertainty it is better to watch and wait and be ready to strike when the time is right.


NEW BULLISH Plays

No New Bullish Plays


NEW BEARISH Plays

No New Bearish Plays



In Play Updates and Reviews

Small Caps Imploded

by Jim Brown

Click here to email Jim Brown

Editors Note:

The S&P-600 closed at a four-month low after a -2.6% decline. The Russell 2000 lost -2.71% or a whopping -37 points to close just barely above critical support at 1,340. This is a very bad sign for the market and ANY further material declines could signal an imminent correction.

The small caps had the most to gain from the proposed Trump policies and if those are dead or modified significantly in order to get something to pass later in the year, it will be the small caps that suffer.

We were fortunate that we only lost one position. I adjusted the stop losses on several others to just under support in hopes of avoiding a continued implosion at Wednesday's open. Whether that will help or not remains to be seen.





Current Portfolio


Stop Loss Updates

Check the graphic below for any new stop losses in bright yellow. We need to always be prepared for an unexpected decline.


Profit Targets

Check the graphic below for any profit stops in green. We need to always be prepared for a profit exit at resistance.





Current Position Changes


NLNK - Newlink Genetics
The long stock position was opened at $22.56 and stopped at 20.65.
I am recommending we reload the position at the open.



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Short term Calls and Puts on equities = Option Investor Newsletter

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3-6 month Option Trades = Ultimate Investor

Iron Condors = Couch Potato Trader



BULLISH Play Updates

BCRX - Biocryst Pharmaceuticals - Company Profile

Comments:

No specific news. The new 52-week high was sold and shares dropped back to short-term support.

Original Trade Description: March 18th

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.

Position 3/20/17:

Long BCRX shares @ $8.82, see portfolio graphic for stop loss.
No options due to price and spreads.



CSIQ - Canadian Solar - Company Profile

Comments:

CSIQ reported earnings of 24 cents that missed estimates for 29 cents. Revenue of $668.4 million also missed estimates for $678.7 million. Shares fell -$1.22 and effectively killed the position. I am moving it to the Lottery Play section because it would be a miracle if the stock rebounded $4 before the April expiration. We knew this would be a risk when we entered the position with a plan to hold over earnings.

Original Trade Description: February 27th

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

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

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

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

Position 2/28/17:

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



ECA - Encana Corporation - Company Profile

Comments:

No specific news. Very minor loss despite another drop in crude prices and the market crash.

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. Shares declined 2.7% in a weak market. Support is $9.85 and $9.50.

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 crashed through initial support to come to rest just above last chance support at $14.

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.



NLNK - Newlink Genetics - Company Profile

Comments:

No specific news. We entered this position at the open just before the market trap door opened beneath us. The biotech sector fell a whopping -4.08% as evidenced by the $BTK. We were stopped out for a $1.91 loss.

I am recommending we reopen this position with a trade at $21.60. Support is $20 and I would normally want to buy the stock exactly where it is today. However, with the sector collapsing I do not want to catch a falling knife. When the sector rebounds, I believe NLNK will be a leader. If we do get a continued decline I will lower the entry point when it appears safe.

Original Trade Description: March 20th.

NewLink Genetics Corporation, a biopharmaceutical company, focuses on discovering, developing, and commercializing immunotherapeutic products for the treatment of cancer. Its portfolio includes biologic product candidates based on its HyperAcute cellular immunotherapy technology, which is designed to stimulate the human immune system to attack cancer cells; and small-molecule product candidates that are focused on breaking the immune system's tolerance to cancer by inhibiting the indoleamine-2, 3-dioxygenase pathway and the tryptophan-2, 3-dioxygenase pathway. The company is developing IDO pathway inhibitors comprising indoximod that is in multiple Phase I and Phase II clinical trials for patients with melanoma, pancreatic cancer, malignant brain tumors, metastatic breast cancer, acute myeloid leukemia, prostate cancer, and non-small cell lung cancer (NSCLC); and GDC-0919 and atezolizumab (MPDL3280A) that is in Phase Ib clinical trials for patients with locally advanced or metastatic solid tumors. Its clinical development products include NLG2101 for metastatic breast cancer; NLG2102 for refractory malignant brain tumors; NLG2103 for advanced melanoma; NLG2104 for metastatic pancreatic cancer; NLG2105 for pediatric patients with refractory malignant brain tumors; and NLG2106 for acute myelogenous leukemia. The company's HyperAcute cellular immunotherapy product candidates under clinical development include tergenpumatucel-L, is being investigated in Phase Ib/II clinical trial for patients with advanced NSCLC; and dorgenmeltucel-L, is being investigated in a Phase II clinical trial for patients with advanced melanoma. Its infectious disease program includes replication-competent recombinant vesicular stomatitis virus, a vaccine technology to treat Ebola and Marburg viruses. The company has license and collaboration agreements with Genentech, Inc. and Merck, Sharpe and Dohme Corp. Company description from FinViz.com.

NewLink reported a loss of 46 cents in Q4 and that beat analyst estimates for 66 cents. Revenue of $12.7 million significantly beat estimates for $4.3 million. They ended the quarter with $131.5 million in cash.

Earnings May 30th.

Newlink has multiple drugs in the pipeline targeting cancer and it has been mentioned multiple times as a possible acquisition target by Gilead Sciences. In addition to the IDO pathway drugs they partnered with Merck to develop an Ebola vaccine. The drug received breakthrough therapy designation from the FDA and PRIME status from the EU Medicines Agency. In December, the final results of a trial in Guinea were published in the Lancet confirming the efficacy of the vaccine.

In early April the company will present two abstracts at the American Association for Cancer Research (AACR) annual meeting. Presenters accepted to deliver their abstracts normally rise into the meeting. They present on April 4th. The abstracts being presented are chosen by an AACR committee as the best and most promising. This is an honor to be chosen.

This is a stock only play because option prices are out of sight. Shares hit a new 52-week high on Monday.

Position 3/21/17:

Closed 3/21/17: Long NLNK shares @ $22.56, exit $20.65, -1.91 loss

RELOAD with a NLNK trade at $21.60



VIPS - Vipshop Holdings - Company Profile

Comments:

No specific news. Shares gave back some of the recent gains but remains above support. I lowered the stop loss to below support.

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 dipped to close at a new 8-year low but the decline was not as big as you would have expected with the border tax killing the other retailers. I tightened up the stop losses.

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.



SHLD - Sears Holdings - Company Profile

Comments:

I actually considered closing the Sears position after it declined only 8 cents in a bad market and with the border tax likely to cause them severe pain.

However, well after the close and after the evening session had ended, Sears filed its annual report saying there was "substantial doubt" that the company could continue to exist as a "going concern" which is the legal term for remaining in business. This along with the fact that lenders for Sears hired a bankruptcy attorney a couple weeks ago should be the death knell for Sears shares.

Since the afterhours session was over we do not know how this will impact shares but Susquehanna already has a $4 price target and that is likely to decline.

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.





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