Option Investor
Newsletter

Daily Newsletter, Thursday, 3/23/2017

Table of Contents

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

Market Wrap

Healthcare And The Trump Agenda

by Thomas Hughes

Click here to email Thomas Hughes

Introduction

Today's action was buoyed by optimism for the Trump agenda as expectations the GOP healthcare bill would pass gained strength. The vote was scheduled for today although no action as of this writing, sources say no vote tonight.

The implication is clear, if the President is able to strike a deal and get the bill passed it will reassure the market the rest of his agenda will pass, if not then not. More on that as it develops. Also in today's news; positive economic data and business news.

International markets were lifted on hopes for the Trump agenda as well. Asian markets were muted, European a little more exuberant, but both positive. There were few headlines from either region save updates on the UK terror attack, now being claimed by ISIS. Despite the event markets in Europe were able to put on roughly 1%.

Market Statistics

Futures trading indicated a positive open for most of the early morning. This was supported by rising hopes the healthcare bill would pass, some positive news on the earnings front and economic data although the trade turned flat before the opening bell. The open was weak, indices gave up marginal amounts, but support quickly stepped in. By 11AM the indices were firmly in the green and moving up to the highs of the day, hit just before lunchtime. The highs were held until 1PM at which time news out of Washington D.C. sent them back down to test intraday support at yesterday's highs. The news: Trump delivered a final take-it-or-leave-it deal to the Freedom Caucus, the final stepping stone to full(ish) GOP support of the healthcare bill. Late in the day news that there would be no vote tonight sent stocks to the lows of the day where they remained into the close of the session.

Economic Calendar

The Economy

Economic data was good, in particular the New Home Sales but first up is jobless claims. First time claims rose 15,000 on top of a +2,000 revision to hit 258,000. The four week moving average of claims rose 1,000 to hit 240,000. On a not-adjusted basis claims rose 1.3% versus an expected decline of -4.6% but remain lower compared to last year, down -2.5% YOY. This is the highest level of first time claims in over 2 months but still low relative to long term trends and consistent with labor market health.


Continuing claims fell -39,000 to hit 2.000 million, just off the long term 44 year low. The four week moving average of continuing claims also fell, -32,000, and is also just above its long term 44 year low. Both numbers are consistent with labor market health.

The total number of claims fell -98,740 to hit 2.391. This is the lowest level in 2.5 months and consistent with seasonal trend and long-term recovery in labor markets. Looking forward expect this number to continue falling into the spring/summer hiring season with a downside target below 2.000 million.


New Homes Sales was reported at 10AM and came in well above expectations. Sales for February were reported rising 6.1% month to month and 12.8% year over year. Analysts had been expecting a much more modest increase, near 1%. The February data is a 7 month high and well on the way to hitting a new post-financial crisis high.


The Dollar Index

The Dollar Index held steady near the bottom of the short-term trading range and a 5 month low. The index is in a zone of potentially strong support, near $100, and poised to make a move, most likely based on Trumponomic expectations. A bounce from this level could see the index move back toward the top of the range, first target is $102, a break below could go as low as $98 or $97. The results of the House vote on healthcare could be the spark to drive this move.


The Gold Index

Gold prices dipped -0.25% today but otherwise held steady near the recent high. Spot gold is now trading just below resistance targets near $1,250 with a chance of testing that resistance further. A break above $1,250 would be bullish for gold with an upside target of $1,300. If resistance holds gold may trend sideways within short-term ranges with support targets at $1,230, $1,220 and $1,200.

The Gold Miners ETF GDX fell a little more than -2.0%, closing with a loss near -1.0%, and appears to have significant resistance. Today's action created a medium sized black bodied candle with long lower shadow, confirming resistance at the 38.2% retracement line for the 2nd time since the FOMC meeting. The indicators are bullish but very weak and showing early signs of resistance. Looking back over the past 6 months it looks like the ETF is winding up within a range and is now sitting at/near the mid-point of that range ready to break in one direction or other. This move is likely tied to the dollar, as always, and by extension the healthcare vote and its impact on economic outlook, the FOMC and rising interest rates.


The Oil Index

Oil prices shed roughly -0.5% to set a new 3.5 month closing low. Prices are under pressure from supply, production and capacity for production which are all at long-term highs. Prices are likely to remain under pressure until some new bit of evidence leads the market to think or hope that demand will pick up or supply will somehow be cut. Downside target is $45.

The Oil Index held steady in today's session, posting a loss near -0.05%. The index is in process of bouncing from support at the top of last years long-term trading range and may be building a bottom from which to move higher. The outlook for the sector is mixed, near-term is weighed down by falling oil prices while longer term outlook for earnings growth remains positive. The indicators are mixed but promising, consistent with support and set-up to produce a strong buy signal should prices move up from here. The deciding factor will likely be oil prices, if they remain low or fall lower all bets are off when it comes to future growth. A break below support could go down to 1,075 and the bottom of last years range. A confirmation of support would face resistance targets at $1,200, $1,225 and $1,250.


In The News, Story Stocks and Earnings

Ford cut its guidance this morning on rising costs, lower sales volume, price competition, the impact of currency conversions and a handful of other factors in and out of their control. The company now expects adjusted earnings in a range 25% below the previously set guidance. Shars of the stock fell more than -2% in the pre-market session to open at a 4 month low. Support stepped in at these prices and drove shares up to recover a little more than half of the early loss.


Shares of Google continue to fall as the fall-out over ad placement spreads. A number of new companies including Verizon and AT&T have joined a boycott of the ad placement service raising new questions about this quarter's and future quarter's ad revenues. Shares of the stock fell a little more than -1.5% to hit a 2.5 month low.


Food maker Conagra reported a mixed quarter as ongoing efforts to build a better brand and profit base continue. Revenue, adjusted for divestitures related to the repositioning, fell a little more than -4%, more than expected, although margins and EPS continue to expand. Margins grew 180 basis points, adjusted EPS by 37%, both helping to support prices. Shares opened with a small gain this morning and moved higher although profit-taking set in as prices approached the all-time high.


Chip maker Micron reported earnings after the bell and beat top and bottom line. The company saw strong demand for its memory products drive sales and pricing. The results were well above expectations and led to revised forward guidance. The company now expects to see next quarter earnings come in nearly double current consensus, the news driving share prices up more than 7% in after hours trading.


The Indices

The indices tried to move higher in today's trade but just could not do it. The move was lifted on hopes the Trump agenda would move forward and later dashed by more delay. In the end today's moves were minimal and led, as usual, by the transports. The Dow Jones Transportation Average fell -0.57% creating a small black bodied candle with upper shadow. Today's candle is the second day of consolidation at this new low and looks like it may lead to a continuation of Tuesday's selling. Both indicators are bearish and showing weakness, consistent with an index moving lower. This, combined with price action, suggests a move down to 8,500 or lower is very possible.


The S&P 500 made the next largest decline, but only fell -0.10%. The index created a small doji candle with visibly longer upper shadow, consistent with resistance at current levels, that may lead to further downside. The indicators are increasingly bearish and confirm the possibility of lower prices with a downside target of 2,300.


The NASDAQ Composite also created a small doji candle and also looks like it could move lower in the near term. A break below near term support at 5,800 could quickly fall to 5,700 and possible 5,600 before hitting next solid support. The indicators confirm this outlook, MACD is converging with the latest low while stochastic moves below the mid-point of the range in a sign weakness.


The blue chips posted the smallest losses today, about -0.02%, creating a small doji candle near the bottom of Tuesday's range. This move appears to be a consolidation within a near-term sell-off and is confirmed by the indicators. Both MACD and stochastic with strengthening selling with a down-side target near the January trading range.


The market is wound up on a lot of expectations and a lot of those expectations are based on the Trump Agenda. This health care vote is seen as a proxy for the entire enchilada and has taken control of near term sentiment. Tomorrow's action is likely to be driven by more news on the vote, expected to occur tomorrow but who knows if it will be? I remain bullish long term, looking for the next great entry. In the near term I am bearish regardless the outcome of the vote because the chart signals are pretty strong. If I'm wrong, if the vote goes through and it passes, and the market moves higher, I may be changing my tune but that's for Monday's wrap.

Until then, remember the trend!

Thomas Hughes


New Plays

Broken Charts

by Jim Brown

Click here to email Jim Brown
Editor's Note

The small cap sector cannot decide if it wants to rally or run hide. I am having a terrible time trying to find small cap stocks to recommend. Over the last two days I have looked at more than 350 small cap charts and it is a wasteland in terms of investable opportunities.

Remember two weeks ago the small cap indexes were on the verge of setting new lows. Last week they rallied while the big caps were sinking. This week they did collapse and the S&P-600 closed at a new 4-month low. When you translate that sector movement into the individual stocks, the charts are ugly. The short term volatility over the last three weeks has translated into a lot of new lows and some high volatility.

Rather than try and force a trade in a stock I am not that excited about, I am going to pass on new plays tonight and look again this weekend. If the healthcare bill goes to a vote on Friday, and fails to pass, we could see an ugly market. I expect they will hold it over until next week to have added time to negotiate. I am actually encouraged they pulled the vote for today. The longer they take the better chance of getting it passed in the House and that will be positive for the market.



NEW BULLISH Plays

No New Bullish Plays


NEW BEARISH Plays

No New Bearish Plays



In Play Updates and Reviews

Surprisingly Positive

by Jim Brown

Click here to email Jim Brown

Editors Note:

The small cap indexes actually posted solid gains despite the weak market. The S&P-600 gained nearly 6 points and the Russell 2000 nearly 8 points. The big cap indexes declined sharply from their highs with the Dow closing negative after being up 95 points. The S&P declined 14 points off its high to lose 2 points.

The decline came as it appeared the healthcare vote would not go well investors feared that would push tax reform farther into the future. After the bell the vote was cancelled and the S&P futures rallied 4 points on hopes they would reach an agreement and move on to the next policy change.





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


HABT - Habit Restaurants
The long stock position was entered at the open.

FOSL - Fossil
The short stock position was stopped at $16.65.

NLNK - Newlink Genetics
The long stock position remains unopened until 21.60.



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

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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. No movement in a weak market.

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.



ECA - Encana Corporation - Company Profile

Comments:

No specific news. No material movement because of the continued decline in crude prices.

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. Dipped back to support and is making me rethink the position. I tightened up the stop on the stock position to just under support but I am going to leave the option position unstopped.

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.



HABT - Habit Restaurants - Company Profile

Comments:

No specific news. Nice gain in a weak market.

Original Trade Description: March 22nd.

The Habit Restaurants, Inc., a holding company, operates fast casual restaurants under The Habit Burger Grill name. It specializes in offering fresh made-to-order char-grilled burgers and sandwiches featuring choice tri-tip steak, grilled chicken, and sushi-grade albacore tuna cooked over an open flame; and salads, as well as sides, shakes, and malts. As of March 2, 2017, the company operated approximately 170 restaurants in 15 locations in California, Arizona, Utah, New Jersey, Florida, Idaho, Virginia, Nevada, Washington, and Maryland, the United States; and the United Arab Emirates. The Habit Restaurants, Inc. was founded in 1969 and is headquartered in Irvine, California. Company description from FinViz.com.

Habit reported earnings of 7 cents that beat estimates for 3 cents. Revenue rose 21.8% to $73.9 million. Same store sales rose 1.7%. This was the 52nd consecutive quarter of positive same store sales. They opened 11 company stores and 2 franchises in Q4. The CEO said they were proud of their strong beat considering it is a fiercely competitive environment.

For full year 2017, they guided to revenue of $338 to $342 million, which represents 19.8% growth at the midpoint. The guided for 2% same store sales and the opening of 31 to 33 new company stores alony with 5 to 7 franchised stores. Analysts were expecting $339.2 million.

Earnings June 1st.

Shares spiked from $14 to $16 on the news and then pulled back for two weeks on post earnings depression. They have since recovered that $16 level and are about to break out to a new three month high. Shares dipped on Tuesday but very little and the rebound today erased the dip completely.

Position 3/23/17:

Long HABT shares, currently $15.95, see portfolio graphic for stop loss.
Optional: Long June $17 call @ 70 cents, no initial stop loss.



ITCI - Intercellular Therapies - Company Profile

Comments:

No specific news. Shares gained another 2.7%.

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. Shares closed well off their intraday high but still above support.

This position remains unopened until a trade at $21.60.

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.

With a NLNK trade at $21.60

Buy NLNK shares, initial stop loss $19.65.

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



VIPS - Vipshop Holdings - Company Profile

Comments:

No specific news. No material movement in a weak market.

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:

Fossil shares spiked at the open to nearly $17 after making a new 8-year low on Wednesday. The company issued a press release saying they were launching more than 300 connected watch styles across 14 brands in 2017. They range from slimmer and smaller hybrid watches to full-round touchscreen smartwatches with custom AMOLED displays and branded apps.

We were stopped out at $16.65 on the spike.

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:

Closed 3/23/17: Short FOSL shares @ $17.48, exit $16.65, +.83 gain

Closed 3/23/17: Long April $17 put @ $1.00, exit $1.00, breakeven.



SHLD - Sears Holdings - Company Profile

Comments:

No specific news but shares rebounded 21 cents and narrowly missed our stop loss.

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.

Update 3/21/17: 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.

Update 3/22/17: Sears declined 12% on the news they did not know if they would be in business at the end of 2017. That should be the kiss of death since vendors are not going to finance inventory if they fear Sears will file bankruptcy. The key sentence from the annual report reads, "substantial doubt exists related to the company's ability to continue as a going concern." Sears lost $2.2 billion in the year ended on January 28th. They ended the year with $286 million in cash but they received some money from the sale of the Craftsman brand to Stanley Black & Decker. Suppliers are now demanding either cash up front or payment upon delivery and shipping smaller orders according to several sources. Insurers that previously insured suppliers against a Sears default are no longer writing those policies. Sears inventory levels are "pathetically badly inventoried today and they will become worse" according to Mark Cohen a former CEO of Sears Canada.

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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