Option Investor
Newsletter

Daily Newsletter, Tuesday, 3/28/2017

Table of Contents

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

Market Wrap

One-Day Wonder?

by Jim Brown

Click here to email Jim Brown

After setting a six-week low on the Dow and S&P on Monday, the short covering was fast and furious.

Market Statistics

According to analysts the short squeeze was caused by a spike in crude oil to almost $49 and a blowout number on March Consumer Confidence. Since confidence rarely moves the market, it is hard to understand why it suddenly mattered. However, the 12-point gain was astonishing. The spike in oil prices lifted the energy sector even though it may not last.

The Dow was down -30 points when the confidence numbers were released at 10:AM. By 11:AM it had rebounded 100 points and was still climbing. The S&P rebounded from a -5 point opening loss to trade over strong resistance at 2,360 for an hour late in the afternoon but sellers appeared at the close.


Consumer Confidence for March exploded higher from the previously reported 114.8 for February to 125.6. The February number was revised higher to 116.1. This is the highest level since the tech rally bull market in 2000. The present conditions component rose from 134.4 to 143.1 and the highest since 2001. The expectations component rose from 103.9 to 113.8 and the highest since 2000.

The "jobs are plentiful" component rose from 26.9 to 31.7 while the "jobs are hard to get" component fell slightly from 19.9 to 19.5. The percentage of respondents planning to buy an auto rose from 13.7% to 14.1%. The percentage for appliances rose from 49.9% to 52.9%. Potential homebuyers declined from 6.5% to 6.0%.

This was a solid report showing a huge amount of optimism over the future of the economy. Confidence at these levels is consistent with a 4% increase in the annualized rate of real consumer spending for this quarter. That would be a major increase.

The impact to confidence has something to do with the equity markets. The percentage of respondents that expect stock prices to rise hit 45.9% and the highest level ever since the beginning of this report in 1987. The percentage expecting stock prices to decline is now at the lowest since 2007. On a contrarian basis that would be negative since everyone should be "all in" with confidence in the market at record highs.


The Richmond Fed Manufacturing Survey was also strong. The headline number increased from 17 to 22 and the highest level since December 2010 at 23. New orders and order backlogs both increased. The employment component doubled from 10 to 20. Wages spiked from 11 to 21.

This was the fifth consecutive month of growth and the longest since 2014-2015 when an 11-month streak ended on March 2015.

Offsetting the bullishness in manufacturing was a decline in the separate services survey. The headline number declined from 15 to 9. The component for expected demand over the next six months declined sharply from 51 to 34. However, employment rose from 7 to 17 and average wages from 14 to 23. Analysts said government supplied a significant portion of the jobs in the Richmond area and potential cuts to government activities and employment probably depressed the service indicators.

Manufacturing Survey


Despite the recent bounce in the economic numbers, the Atlanta fed Real Time GDPNow is still predicting only 1% growth in GDP for Q1 compared to the 2% growth in Q4. The expectations for Q2 are rising sharply but we will not have a GDPNow chart for several more weeks. They will not produce it until the actual GDP for Q1 is released.


The economic calendar for Wednesday is light with the Pending Home Sales and EIA oil inventories the only reports. The last revision of the Q4 GDP is Thursday with expectations for 2% growth.


In stock news, Tesla (TSLA) shares spiked nearly 3% after China's social media giant Tencent (TCEHY) said it had taken a 5% passive stake worth $1.8 billion. They accumulated the stake in March through a private offering from Tesla and on the open market. Tesla announced in early March it was going to offer $250 million in stock and $750 million in senior debt to raise money to produce the Model 3. The offerings were expected to bring in $1.15 billion after underwriter over allotments. That makes Tencent the fifth largest shareholder behind Elon Musk and four others. Tesla said it was on track to manufacture 500,000 vehicles in 2018 compared to the 84,000 in 2016.



McCormick (MKC) reported earnings of 76 cents that beat estimates for 74 cents. Revenue of $1.04 billion missed estimates for $1.06 billion. They guided for full year earnings of $4.05-$4.13 per share compared to $3.78 in 2016. CFRA downgraded the stock from buy to hold saying the 2% revenue growth was below estimates for 3.6% and margins were shrinking due in part to the strong dollar. Shares fell -3% on the earnings.


Amazon (AMZN) beat out Dubai billionaire Mohamed Alabbar's Emaar Malls to buy Souq.com in a deal reportedly worth $800 million. Goldman Sachs called it the biggest ever technology deal in the Arab world. Note to Alabbar, don't get in a bidding war with Amazon. They will pay whatever they have to in order to acquire what they want. It does not have to make financial sense at the time. Souq.com stocks more than 8 million items on its website and generates about 50 million monthly visits. The company delivers to the six Arab states in the Gulf plus Egypt. Souq.com said despite the tech savvy population, most Arabs still prefer to shop in stores. They are hoping Amazon can help them change that trend.

Stifel Nicolaus boosted their price target on Amazon to $1,025, which is 20% above today's close at $856. That is the fourth largest price target behind Susquehanna at $1,250, and $1,050 at Cowen and Deutsche Bank. The analyst also raised his revenue targets saying Amazon has a long way to go before it tops out in U.S. revenue. He believes the Prime service will continue to flourish because it is too good a deal for consumers to pass up. Amazon is currently fighting new high resistance at $860.


Valeant's (VRX) former CEO is suing the company saying they failed to honor the separation agreement and pay him for the three million shares of stock he is owed. Michael Pearson said he is owed 580,676 regular shares and 2.5 million performance shares due November 3rd under the terms of the separation agreement. He also said Valeant owes him $180,000 in consulting fees for work done after his separation. The company said it would not be paying Pearson at this time because of their current financial difficulties. The CEO that replaced him, Joseph Papa is paid a base salary of $980,000 annually plus a $9.125 million annual bonus and stock options worth $52 million. Since Papa took over the stock has lost 62% of its value. You do not have to be good to make a lot of money. You just have to be in the right place at the right time.


Restoration Hardware (RH) reported earnings after the bell of 68 cents compared to estimates for 66 cents. Revenue of $586.7 million beat estimates for $584 million. The company guided lower for the full year during the prior quarterly results. They blamed the election uncertainty and the late delivery of its fall line. They guided today for full year 2017 for earnings of $1.78-$2.19 on revenue of $2.3-$2.4 billion. Analysts were expecting $1.94 and $2.33 billion. Shares spiked $5 in afterhours to $43.46.


Sonic Corp (SONC) reported earnings of 15 cents that matched estimates. Revenue of $100.2 million missed estimates for $107.3 million. They guided for the full year for same store sales to be down -2.0% and analysts were expecting a 0.9% decline. Shares declined about $1 in afterhours.


Verint Systems (VRNT) reported adjusted earnings of 90 cents and analysts were expecting 86 cents. Revenue was $295.9 million and analysts expected $294.1 million. Shares spiked $2.50 on the news.


Dave and Busters (PLAY) reported earnings of 63 cents compared to estimates for 58 cents. Revenue of $270.2 million just barely missed estimates for $270.6 million. They guided for full-year revenue of $1.16 to $1.17 billion. Analysts were expecting $1.164 billion. Shares initially fell about $4 but recovered by the end of the session to a loss of only $2.


Vertex Pharma (VRTX) shares spiked after the company said two clinical trials showed significant benefits for the treatment of cystic fibrosis. They already have drugs in the market for this disease and will apply for FDA approval of the new drug in Q3. Shares spiked $16 on the news.


Wells Fargo (WFC) said it would pay $110 million to settle a class action suit for opening more than 2 million unwanted accounts customers never requested. The bank paid $185 million in fines to regulators last year. The settlement will be paid to customers that had accounts opened in their name dating back to January 1st 2009. Thousands of employees have been fired for the practice. The bank offered incentives for opening new accounts and employees figured out how they could do it on their own to collect the incentives. For instance, if you had a checking account they would open a credit card account and you would suddenly get a new card in the mail. I actually think I might get a check because I opened a checking account when I got a HELOC on my home and over the next several months, I received three different credit cards in the mail. Shares rose 15 cents in afterhours.


Apple (AAPL) shares spiked to a new high after UBS analyst Steven Milunovich said the shares could rise to $200. He said Apple would have to continue the iPhone cycles and come up with a new tech gadget that everyone must have. He also said buybacks would have to reach $50 billion to keep the PE stable at 17x. The analyst said he sees double digit iPhone growth next year and single digit growth in 2019. He said the iPhone 8 could be a super-cycle based on new features and the aging phone population. The current user's iPhone averages 19.5 months in age. In smartphone terms, those are antique given all the new enhancements and features in the new phones. He said Apple could move into an innovation cycle in 2019 as the new products, yet unannounced, move into full production and distribution. He closed his best-case scenario saying his 12-month price target is $151 but all investors heard was $200. Shares rallied nearly $3 on the news.


Markets

The Dow snapped an eight session losing streak that was the longest since the year 2000. Had it lost ground on Tuesday a nine-day streak would have been the longest since 1978. Even though the Dow had declined for 8 days, it was only 3% below its closing high of 21,115 on March first. As mini corrections go, this one was very tame.

However, one day is not a trend. The 150-point short squeeze simply relieved some short term oversold conditions and failed to rebound back above resistance at 20,800. The majority of the damage on the decline was thanks to the banks and energy stocks and those were some of the supporters on Tuesday. Apple added 20 points to the Dow.


The Dow dropped to a six-week low at 20,412 at the open on Monday and closed at 20,701 today after nearly a 300-point rebound. The rebound came from converging uptrend support at 20,500 but prior support at 20,800 should now be resistance. I was pretty negative on the markets after the close on Monday and today's short squeeze has improved that outlook somewhat but the Dow still needs to move over 20,800 to convince some bears it is time to switch coats.


The S&P rebounded from a -5 point loss at the open to close with a 17-point gain but it could not break through the prior support at 2,360. The index traded slightly over that level for about an hour but faded into the close. Like the Dow, the S&P needs to move convincingly over 2,360 and make a credible attempt at the 2,390 resistance from mid March. With the tech stocks still leading the market higher this could be possible but we are still talking about a one-day wonder until it actually happens.


The Nasdaq never broke below support at 5,800 although it did trade there intraday on three occasions. The 105-point rebound from Monday's low was definitely strong and the index is only 28 points below a new high. That is roughly half a percent and the index could cover that easily in a good day. The Nasdaq gained 34 points today. Nasdaq big caps are still moving higher but only Apple and Facebook are actually at new highs. The others, with the exception of Google, are close.



The small cap indexes are actually recovering as well. The Russell 2000 and the S&P-600 both closed at six-day highs after making 4-month lows. If the small caps continue to rally it would greatly benefit sentiment.


When I started this commentary, the S&P futures were up +3 and they have slowly faded back to flat. This was a short squeeze today and without some new catalyst to lift stocks over the resistance I quoted above, we could be right back in the downtrend very quickly.

I would be cautious about adding a bunch of long positions because the next 3-5 weeks are typically volatile with dips and spikes as traders take money out for taxes and restructure positions ahead of the Q1 earnings cycle.

Enter passively, exit aggressively!

Jim Brown

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New Plays

Direction Please?

by Jim Brown

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Editor's Note

My crystal ball is cloudy today and there is no obvious direction. The major indexes rallied to strong resistance thanks to a short squeeze. Is this just a pause before they go higher or a one-day wonder that will be followed by another decline? Obviously, nobody knows but the S&P futures opened up +3 and have slowly bled points back to the flat line. We are overly long in the portfolio and there is no reason to force an entry into another position. I am not recommending any positions tonight.



NEW BULLISH Plays

No New Bullish Plays


NEW BEARISH Plays

No New Bearish Plays



In Play Updates and Reviews

Mini Dip Over?

by Jim Brown

Click here to email Jim Brown

Editors Note:

The small caps are suddenly recovering nicely with a close at a six-day high. Today was a surprise. The small cap indexes both rallied nicely to recover from the four-month low from Monday. Both indexes are showing promise.

On the big cap front the gains were mostly a short squeeze with the Dow gaining 150 points and the S&P +17. No complaints there either but resistance at 20,800 and 2,360 is still intact.

If we could just add one more day like today we could punch through that resistance and be off to the races and targeting new highs. The trouble is stringing positive days together. We have not been successful at that recently.





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


SPXC - SPX Corp
The short stock position was entered at the open.



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

Short term Calls and Puts on equities = Option Investor Newsletter

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Iron Condors = Couch Potato Trader



BULLISH Play Updates

BCRX - Biocryst Pharmaceuticals - Company Profile

Comments:

No specific news. Shares gave back the gains from Monday with the biotech sector weak.

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.

Update 3/24/17: News broke Friday that the bird flu had been detected in three new farms in Alabama. The state issued a "stop movement" order for birds and eggs in Alabama. The prior week three farms in Tennessee had to slaughter and dispose of all their chickens after testing positive.

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. Shares spiked 5% on the rebound in oil 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.



FNSR - Finisar - Company Profile

Comments:

No specific news. Nice gain to a new 3-week high.

Original Trade Description: March 25th.

Finisar Corporation provides optical subsystems and components for data communication and telecommunication applications in the United States, Malaysia, China, and internationally. Its optical subsystems primarily consist of transmitters, receivers, transceivers, transponders, and active optical cables that provide the fundamental optical-electrical or optoelectronic interface for interconnecting the electronic equipment used in communication networks, including the switches, routers, and servers used in wireline networks, as well as the antennas and base stations used in wireless networks. The company also offers wavelength selective switches, which are used to switch network traffic from one optical fiber to multiple other fibers without converting to an electronic signal. In addition, it provides optical components comprising packaged lasers, receivers, and photodetectors for data communication and telecommunication applications; and passive optical components for telecommunication applications. Finisar Corporation markets its products through its direct sales force, as well as through a network of distributors and manufacturers' representatives to the original equipment manufacturers of storage systems, networking equipment, and telecommunication equipment, as well as to their contract manufacturers. Company description from FinViz.com.

Finisar reported earnings of 59 cents that rose 136% but missed estimates for 62 cents. Revenue rose 23% to $380.6 million but also missed estimates for $389.5 million. They guided for Q1 earnings of 53 cents and revenue of $370 million. Analysts were expecting 58 cents and $393 million.

Despite the enormous improvement in sales and earnings the stock was crushed for a 25% decline from $35 to $26. The damage was worse because competitor Ciena (CIEN) had also reported a weaker quarter the day before. Panic gripped traders that optical networking was somehow slowing down. The pace of sales "growth" in China slowed slightly and that sent investors running for cover. China is building out its 100 gigabit network technology in metropolitan areas and they are consuming enormous amounts of networking equipment.

Earnings June 9th.

Good article in Barrons very positive on Finisar. Read it here.

Finisar is not a one trick pony. They are also pushing into the smartphone market and will be competing on the 3D sensor components in the next version of smartphones. They are also building out massive networks in the cloud computing datacenters that require miles of fiber and very fast connections.

After the drop, multiple analysts reiterated buys and outperforms on FNSR saying this was just a hiccup and there are far greater earnings in the future. Raymond James upgraded them from outperform to strong buy. Jefferies upgraded from hold to buy. MKM reiterated a buy rating and $41 price target. Needham reiterated a strong buy and $44 target. Stifel, Raymond James and William Blair all reiterated a buy rating.

Shares have rebounded $2 off the lows from last week and should continue to accelerate higher in the days ahead.

The Optical Networking and Communications Conference was last week and there were numerous positive comments about Finisar and Lumentum. This should help lift this stock.

I know FNSR is pressing our $30 limit in this newsletter and that means higher risk of loss if a disaster appears. Readers may want to buy the option instead on this position.

Position 3/17/17:

Long FNSR shares @ $27.89, see portfolio graphic for stop loss.

Optional: Long May $30 call @ $.85, see portfolio graphic for stop loss.



HABT - Habit Restaurants - Company Profile

Comments:

No specific news. Nice gain to a 3-month high close.

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. Minor decline from the three-month high close on Monday. The biotech sector was down today.

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 nearly hit our entry trigger today with a high at $20.88. Support has definitely formed at $20 and multiple headlines on other cancer drugs appear to be bleeding over to positively impact Newlink.

This position remains unopened until a trade at $21.00.

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 $21.00

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. Not a big gain but at least a gain.

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

SPXC - SPX Corp - Company Profile

Comments:

No specific news. Minor rebound in a positive market. Resistance at the 100-day is still intact.

Original Trade Description: March 27th.

SPX Corporation supplies infrastructure equipment serving the heating and ventilation (HVAC), detection and measurement, power transmission and generation, and industrial markets in the United States, China, South Africa, the United Kingdom, and internationally. It operates through three segments: HVAC, Detection and Measurement, and Engineered Solutions. The HVAC segment engineers, designs, manufactures, installs, and services cooling products for the HVAC and industrial markets, as well as boilers, comfort heating, and ventilation products for the residential and commercial markets. The Detection and Measurement segment offers underground pipe and cable locators, and inspection equipment, as well as bus fare collection systems, communication technologies, and specialty lighting products. The Engineered Solutions segment provides transformers for the power transmission and distribution markets; and process cooling equipment, as well as rotating and stationary heat exchangers for the power generation and industrial markets. This segment sells transformers for publicly and privately held utilities under the Waukesha brand name; and process cooling products and heat exchangers under the brand names of SPX Cooling, Marley, Yuba, and Ecolaire. Company description from FinViz.com.

SPX Corp is losing money. For Q4 they lost $86.1 million or -$2.06 per share after a -48 cent loss in the year ago quarter. Revenue of $395.3 million fell sharply from the $468.4 million in the year ago quarter. A lot of their loss came from divesting businesses that were marginally profitable or even losing money. They are trying to stop the bleeding. On an adjusted basis they reported earnings of 69 cents.

Earnings May 25th.

The company sold its European power generation business for "nominal cash at closing." That means they got rid of a loser and it did not cost them any additional money. They closed their dry-cooling tower business for $48 million. They also split into two companies, SPX Corp and SPX Flow (FLOW). After all their divestitures and spinoff they ended the year with only $100 million in cash. Last week they signed an agreement with creditors allowing them to keep the $48 million from the sale of the cooling tower business for another 360 days. The loan was partially secured by those assets and having to pay the loan down by that amount as called for in the prior agreement would have cut their cash on hand in half. The company said it was not looking to sell any other divisions at present but would be restructuring after the divestitures and trying to turn a profit. Good idea but not very convincing.

They guided for 2017 revenue of $1.3 to $1.4 billion and well below estimates for $1.47 billion. They did guide for earnings of $1.55 to $1.70, which would be an improvement if they can make it happen.

SPX Corp is not in good shape. It is a viable business but management made some bad decisions in the past and they are working through them. If the market weakens in April as is typically the case, SPXC is probably going to see more sellers than buyers. Investors have far more opportunities to buy growing companies rather than companies like SPX, which have been shrinking.

SPXC broke below support of the 100-day average and tried for three days to break back to the upside and failed. That average is now strong resistance. Back in November they tested the 200-day and that is the likely target on any continued decline.

Position 3/28/17:

Short SPXC shares @ $23.18, see portfolio graphic for stop loss.

No options recommended because of price.





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