Option Investor
Newsletter

Daily Newsletter, Thursday, 3/30/2017

Table of Contents

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

Market Wrap

Waiting And Watching

by Thomas Hughes

Click here to email Thomas Hughes

Introduction

The market moved higher in listless trading, lots of news but nothing to give direction. The biggest headline was Putin's interview this morning while attending a conference in Arkhangelsk. He told US reporters unequivocally that he'd nothing to do with manipulating US politics, I don't think too many believed him and the news did little to move the market. In other news 4th quarter GDP was revised higher and labor data came in as expected, neither important enough to move the market either but at least a positive reinforcement of trends and outlook.

International indices were equally without direction. Asian indices fell on dollar strength and geopolitical uncertainty, the Nikkei losing about -1.00% while the Chinese indices fared a little better. European indices were mostly flat, the invocation of Article 50 by Theresa May has traders wary but so far no signs of economic meltdown.

Market Statistics

Futures trading was flat all morning. There was some fluctuation but nothing more than a few ticks either way. The open was a little hectic. An initial round of selling lasting about 10 minutes drove the S&P down by a point or two until buyers regained control of the market to push prices back into positive territory. An early high was hit around 11AM setting the days range, from that point forward the indices moved sideways within that range while remaining positive for the day. After hours action was light, not much in the way of earnings but comments from Wilbur Ross could have stocks moving tomorrow. He says the administration would like to trigger NAFTA talks before Congress spring recess.

Economic Calendar

The Economy

US 4th quarter GDP was revised higher by 0.2% to 2.1%. This follows 3.5% in the 3rd quarter and 1.4% in the second, leaving full year real GDP at 1.6%. Looking forward to the current quarter and year, expectations remain positive and expansionary if in a wide range with a mid-point near 3%.


First time claims for unemployment fell -3,000 to 258,000 from last week's not revised figure. The four week moving average of claims gained 7,750. On a not adjusted basis claims rose 1.5% versus an expected 2.7% and are down -3% YOY. Over the past few weeks these figures have bounced from long-term lows and appear to be stabilizing just above those levels. This may indicate a slackening in the pace of hiring, consistent with the season, so next week's NFP may not be as good as last month's.


Continuing claims rose by 65,000 to hit 2.052 million. Last week's figure was revised lower by -3,000. The four week moving average of claims fell 1,250 to hit a 17 year low. While a positive sign that labor trends are intact I do expect to see this figure bounce higher in the next 2 to 3 weeks simply based on the rise in initial claims. Regardless, this number is good and indicative of labor market health.

The total number of claims fell by -69,526 to hit 2.322 million. This is the lowest level in 11 weeks and consistent with season and long term labor market trends. To date, the total number of Americans on unemployment is in downtrend with no expectation of that to end. This should result in a net decline in unemployment, offset by rising participation rates.


Tomorrow there are a few bits of important data; Personal Income and Spending, PCE, Chicago PMI and Michigan Sentiment. Next week is the turn of another month which means another round of macro-data including the NFP, ADP, Challenger, FOMC Minutes, Auto Sales, Construction Spending and more.

The Dollar Index

The Dollar Index gained nearly 0.5% in a move extending a bounce from support. Today's action takes the index back above the $100 handle for the first time in a week and appears to be moving higher. The index is trapped in a range once again, with US economic outlook providing support. Aiding the move was weak inflation data from Germany suggesting that the ECB would not be doing to much tightening in the near to short-term. The $100.50 level may provide resistance, a break above that would be bullish with upside target near $102.50. Tomorrow's PCE data could be a mover, it is the Fed's preferred measure of inflation.


The Gold Index

Gold prices fell on dollar strength but did not fall too far. Spot gold shed about -0.75% to trade near $1,245 and remains above support. The metal may continue to fall, especially if the data comes in strong, but geopolitical uncertainty remains as support so downside is limited. Support targets are $1,235 and $1,220 in the near-term.

The gold miners fell along with gold, as expected, but did not fall too far. The Gold Miners ETF GDX shed a little more than -1.30% to trade at the bottom of the 2 week range, near the mid-point of a short-term range dating back to last fall. The ETF appears to be winding up, waiting for gold and the dollar to make their move, and it could start in the next week. Starting tomorrow we get PCE inflation data, then next week is the FOMC minutes and other major data points used by the Fed. A move up could go to $25, a move lower could go to $20, a move beyond either may take additional catalyst.


The Oil Index

Oil prices gained nearly 1.75% to trade above $50 and at a 2 week high. The move is supported by OPEC hopes, hopes they will follow through on talks to extend the production cuts another 6 months. Despite the move downside pressure remains. Current supply, storage and capacity remain high with little expectation of a major pick up in demand. This means the ceiling for oil is likely at the recent high, near $55, if not lower.

The Oil Index got a lift from today's rise in oil prices but was halted at resistance. The index made a small gap up to the 1,200 level where it met sellers. Price action created a small black bodied candle, hanging at resistance, but otherwise looks strong. The indicators are both pointing upward, in support of higher prices, and suggest that resistance will be tested again at least. A break above 1,200 would be bullish with an upside targets of 1,225, 1,250 and 1,300. Looking forward, the bounce in oil prices, no matter the cause, is a plus for the sector because it supports earning growth outlook.


In The News, Story Stocks and Earnings

Lululemon, the would-be iconic manufacturer of all things yoga related, reported earnings after the closing bell yesterday. The company delivered what could be the worst results in its history as comp store sales decline and revenue misses expectations. The CEO says they are not happy with the quarter, by the looks of the chart the market is not happy with it either. Share prices fell nearly -25% to trade at a 15 month low.


The VIX fell a half percent today to trade below $11.50. The fear index is back to it relative low levels, just above the long-term low and consistent with a quiet market, if not a rising one. Based on this indication it looks like the SPX is comfortable at its current levels, there is little fear of correction, and could easily continue to consolidate until the onset of earnings season.


The Indices

The indices extended their bounce from support and the move looks like it could go higher. Leading today's move is the Dow Jones Transportation Average. The transports closed with a gain near 0.90%, creating a medium sized white bodied candle. This move takes the index to a new 2 week high and is confirmed by the indicators. The indicators are both confirming a trend following buy, stochastic has been moving higher and today MACD made a zero line crossover, although upside is limited by potential resistance. Resistance is the top of the near term range, at the current all-time high, near 9,600.


The Dow Jones Industrial Average was the 2nd best performer today with a move of 0.32%. The blue chips created a small white bodied candle halted at potential resistance with mixed indications. Potential resistance is 20,750, a break above which would be bullish in the near to short-term. The indicators are mixed in that MACD remains bearish although the set-up is consistent with a trend following swing to the upside. If the index does move higher next resistance is the current all-time high, just above 21,000.


The NASDAQ Composite and S&P 500 were just about neck and neck all day. The NASDAQ closed with a gain of 0.28% and set a new closing high. The tech heavy index appears to be moving higher although a more definitive break of resistance would be nice. The indicators are in support of a trend following swing to the upside but not yet confirmed by MACD. A break to new highs would be bullish and could go as high as 6,050 in the near-term. Failing to break to new highs may result in a near-term trading range with support target of 5,750.


The SPX closed with a gain of 0.29% and created a small white bodied candle. The index appears to be moving higher within a near term range with the current all-time high as target. The indicators are consistent with a trend following swing in momentum but have yet to confirm. Based on the magnitude of and convergence with the most recent bearish MACD peak it looks like the index could retest support at the long term up-trend line, which means that the near-term trend is most likely range-bound between 2,335 and 2,500.


Today's and this week's bounce from support and move higher is very promising. It shows support for the index at high levels consistent with consolidation but is not yet a sign of higher prices to come. Considering the amount of data due out next week, and the reports on the list, it is likely that the near term trading ranges will persist at least until next Friday if not longer. The next possible trigger for higher prices will be the onset of earnings season, still about 2 weeks away, discounting the possibility that something from the political sector sparks a rally before then. I remain bullish for the short and long-term, neutral for the near-term.

Until then, remember the trend!

Thomas Hughes


New Plays

No Shade Here

by Jim Brown

Click here to email Jim Brown
Editor's Note

First Solar cannot seem to do anything right. If they build a new facility and hold it the stock is sold. If they sell it they are cussed again and the stock falls.



NEW BULLISH Plays

No New Bullish Plays


NEW BEARISH Plays

FSLR - First Solar - Company Profile

First Solar, Inc. provides solar energy solutions in the United States and internationally. It operates through two segments, Components and Systems. The Components segment designs, manufactures, and sells cadmium telluride solar modules that convert sunlight into electricity. This segment offers its products to solar power systems integrators and operators. The Systems segment provides turn-key photovoltaic solar power systems or solar solutions, such as project development; engineering, procurement, and construction; and operating and maintenance services to utilities, independent power producers, commercial and industrial companies, and other system owners. The company was formerly known as First Solar Holdings, Inc. and changed its name to First Solar, Inc. in 2006. Company description from FinViz.com.

First Solar shares have been under pressure for months. On March 20th they were removed from the S&P-500 and investors are still selling the shares.

They reported a Q4 loss of $6.92 per share compared to estimates for $1.00 in earnings. The earnings included a $729 million restructuring charge compared to only $4 million in Q3. If we back out the restructuring charges the company would have earned $1.24 and shown a sizeable beat. However, revenue declined from $480 million in Q3 to $208 million in Q4.

Earnings May 23rd.

First Solar is building quality projects but they are facing a stiff headwind. Tax incentives around the world are shrinking and it is becoming increasingly harder to make a profit. Whenever they get a big power generation facility completed they are forced to sell it to recover their money rather than sit back and let the long term profits roll in.

On Thursday, March 30th, they sold the 250-megawatt Moapa Southern Pauite Solar Project in Nevade to Capital Dynamics, a Swiss private equity firm. The facility supplies power to the Los Angles Dept of Water and Power. They did not disclose the terms of the sale and the stock tanked again. By not disclosing the terms, investors always fear the worst, that they were forced to sell at a big discount.

The stance taken by the new Trump administration on EPA restrictions on coal and gas fired electric generation plants will make power cheap again and these massive solar developments will find it harder to break even. Solar power generation is getting cheaper to build but it cannot compete with gas fired plants at $3 or coal fired plants that operate even cheaper.

Shares broke to a five-year low last week and today's decline is a lower low. The prior low back in 2012 was $11.50 and we could be headed to that level long term.

Sell short FSLR shares, currently $27.46, initial stop loss $29.35

Optional: Buy June $25 put, currently $1.15, initial stop loss $29.35.




In Play Updates and Reviews

Rotation!

by Jim Brown

Click here to email Jim Brown

Editors Note:

The rotation away from big caps and into small cap stocks is in full swing. The big cap indexes posted decent gains but the small cap indexes were the star performers. The Russell 2000 added 11 points and the S&P-600 gained nearly 8 points. Initial resistance was broken on the Russell and the rally appears to be strengthening.

Thursday was the last day for end of quarter window dressing and there is a possibility this was part of that movement. The last day of the quarter rarely sees a big gain and next week we could see window undressing if that is what pushed us higher this week.





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


HIMX - Himax Technology
The long stock position was entered at the open.



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BULLISH Play Updates

BCRX - Biocryst Pharmaceuticals - Company Profile

Comments:

No specific news. Another minor loss but still in the recent range.

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. Oil prices were up slightly intraday but the gains may have run their course.

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. Minor gain to start the slow hike higher.

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. Another 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.



HIMX - Himax Technologies - Company Profile

Comments:

No specific news. Excellent example of picking the top in a long entry. Biggest one day decline in months. Hopefully the initial support at $8.65 will hold or we will be out of this position quickly.

Original Trade Description: March 29th.

Himax Technologies, Inc., a fabless semiconductor company, provides display imaging processing technologies to consumer electronics worldwide. The company operates through Driver IC and Non-Driver Products segments. It offers display driver integrated circuits (ICs) and timing controllers used in televisions (TVs), laptops, monitors, mobile phones, tablets, digital cameras, car navigation, and other consumer electronics devices. The company also designs and provides controllers for touch sensor displays, liquid crystal on silicon micro-displays used in palm-size projectors and head-mounted displays, light-emitting diode driver ICs, power management ICs, scaler products for monitors and projectors, tailor-made video processing IC solutions, and silicon IPs. In addition, it offers digital camera solutions, including complementary metal oxide semiconductor image sensors and wafer level optics, which are used in various applications, such as mobile phone, tablet, laptop, TV, PC camera, automobile, security, and medical devices. The company markets its products to panel manufacturers, agents or distributors, module manufacturers, and assembly houses; and camera module manufacturers, optical engine manufacturers, and television system manufacturers. Company description from FinViz.com.

Himax is riding the wave of Ultra HD and 4K TVs as well as the surge in normal TVs to higher definition and width. Nobody has a 24 inch or even a 32 inch TV in their family room. Those have gone the way of console TVs and black and white. Worldwide the demand for display driver IC (DDIC) chips is expected to grow by 19.5% annually through 2020. Add in the surging demand for VR and AR (augmented reality) products, self driving cars, tablets and laptops, phones and business is booming.

They missed on earnings when they reported in mid February but guidance was so strong the stock rose 50% over the next week. After two-weeks of post earnings depression the stock has been moving higher again.

Earnings May 18th.

Since their earnings four brokers upgraded the shares and one upgraded them twice. Morgan Stanley upgraded them from underweight to equal-weight. A week later they came back and upgraded them again to overweight. Northland upgraded to outperform, Nomura to buy and Roth Capital to buy.

Shares flat lined last week with a slower rise. They dipped slightly on Wednesday with the entire sector weak. If we buy this minor dip we can keep the stop loss tight and have limited risk. Resistance is $11.

Position 3/30/17:

Long HIMX shares @ $9.26, see portfolio graphic for stop loss.

Optional: Long May $10 call @ 26 cents. No stop loss.



ITCI - Intercellular Therapies - Company Profile

Comments:

No specific news. Minor decline from the three-month high.

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:

Newlink was upgraded by SunTrust from hold to buy. The analyst said Newlink was "well positioned" as a takeover target with a strong pipeline of promising prospects in the IDO inhibitor space for cancer therapy. The price target was raised from $12 to $30.

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 3/29/17 with a NLNK trade at $21.00

Long NLNK shares @ $21, see portfolio graphic for stop loss.

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. Resistance at $14 held and uptrend support broke. We were stopped out at $13.35 on the drop. The long call option remains open but it is an April option so it would take a move over $14 to increase the value. The play will move to the Lottery Section.

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:

Closed 3/30/17: Long VIPS shares @ $13.13, exit $13.35, +.22 gain.
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. Shares posted another minor gain but resistance is $24 and resistance at the 100-day of $24.15 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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