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Daily Newsletter, Saturday, 4/1/2017

Table of Contents

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

Market Wrap

Window Dressing Over

by Jim Brown

Click here to email Jim Brown

The first quarter is in the books and window dressing on Wed/Thr is behind us.

Weekly Statistics

Friday Statistics

I think there were still some shenanigans underway on Friday to try and keep certain stocks pinned to their recent highs but managers lost control ahead of the close. The Dow and S&P plunged sharply in the last 20 minutes as traders tried to get in front of potential window undressing next week.

The S&P recovered from an opening drop to 2,362 to trade positive intraday but a burst of selling at 1:30 and another surge at 3:30 knocked 6 points off the index each time. The fund managers were not able to hold the S&P at its highs for the end of the quarter.

The Russell 2000 and the S&P-600 were the strongest indexes for the day but they also saw a sharp sell off at the close.



For the first quarter of 2017 the Dow gained 4.5%, Nasdaq Composite +9.8%, Nasdaq 100 +11.8%, S&P-500 +5.5% and Russell 2000 +2.3%. It was definitely a big cap tech quarter with more than twice the gains of the Dow and S&P. It was the best quarter for the market since Q4-2015.

The Semiconductor sector gained 11.6%, biotechs +16%, housing sector +12% but the banks just barely broke even at +0.3%. Oil declined -5.8% and the energy sector -6.8%.

Volume for the last week of the quarter declined with Wed/Thr at 5.8 billion shares each and the average for the week at only about 6.1 billion shares. The indexes all posted a gain for the week but it was minimal and there was no conviction. After setting a new closing high on March 1st, the Dow actually lost -149 points for the month of March and the first monthly loss since October.

The economic reports on Friday were just as lackluster as the market. The Consumer Sentiment for March came in a 96.9 and slightly below the prior reading at 97.6. The present conditions component rose from 111.5 to 113.2 and the expectations component was flat at 86.5, down from the high of 90.3 in January. This report was a long way from the blowout in Consumer Confidence earlier in the week.


Personal income for February rose +0.4% compared to the +0.5% gain in January. Income growth has been relatively steady over the last eight months averaging about 0.4%. Higher minimum wages that took effect in 19 states has helped lift the national average.

Personal spending declined -0.1% after a -0.2% decline in January. This was the largest two-month decline since the recession. The personal savings rate rose from 5.4% to 5.6%.

The drop in personal spending caused a sharp drop in the Atlanta Fed real time GDPNow forecast for Q1 from 1.3% to 0.9% growth. The forecast had spiked from 0.9% to 1.3% since March 22nd on positive economic reports but that came to a screeching halt on Friday when those gains were erased. For reference, the forecast was for 3.4% Q1 growth back on February 1st.


We have a busy calendar for next week with a lot of reports and headlined by the payroll numbers. The ADP forecast is for a decline from 298,000 to 190,000 jobs for March. The Nonfarm Payrolls are expected to decline from 235,000 to 190,000. About the only thing guaranteed is that the prior nonfarm number will see a stiff revision. Everything else is just a coin toss. We saw that last month when analysts missed the ADP estimate by roughly 100,000 jobs.

The FOMC minutes will also be a key event since the Fed raised rates, analysts will want to see how close they were to a half point hike or how likely the odds are for a June hike.

The national ISM Manufacturing Index is expected to show a slight decline from 57.7 to 57.3.

On Friday, the Senate is expected to vote to confirm Neil Gorsuch for the Supreme Court. That vote was delayed until this week and there is no telling if/when it will actually occur. It has to be this week because the Senate is going on Easter recess until April 21st. The democrats are still vowing to block the nomination and there is going to be a battle. Voting for Gorsuch specifically is not an economic issue. It is the battle between the parties that will cause trouble. With the fight over government funding and the debt ceiling the week after their recess, any lingering hostility from the Gorsuch vote will make the debt ceiling vote even tougher.


In stock news, Blackberry (BBRY) reported adjusted earnings of 4 cents that beat estimates for a loss of 1 cent. Revenue of $286 million easily beat estimates for $186 million. Software revenue rose to $193 million and that line item alone beat estimates for the entire company. Blackberry is trying to become a software and services company rather than a hardware supplier. For the full year, they produced $640 million in software revenue. Blackberry has outsourced all phone production to other companies to further reduce costs. They ended the quarter with $1.7 billion in cash.

The company said it expects to be profitable for all of FY 2018, which began in March. Gross margins were around 60% and they expect those to rise to 70%. They are heavily involved in developing software for self-driving cars and have a partnership with Ford involving in car connectivity. They also have a suite of security-focused software products and are developing operating systems for guided missiles. The CEO said we could see Blackberry branded medical devices showing up soon.


Toshiba won shareholder approval to sell its flash memory unit and there is a feeding frenzy ahead of the bid closing scheduled for next week. Broadcom (AVGO) and PE firm Silverlake Partners have offered $17.9 billion. However, there are nine other bidders including Western Digital (WDC), Micron (MU) and Hynix. The winner gets to enter the very competitive Nand flash memory market. Currently there is a shortage of memory and Micron reported prices rose around 20% last quarter. Hewlett Packard warned earnings would suffer for all of 2017 because of the shortage and the higher prices they were being forced to pay. Some analysts caution we could be nearing a top in the Nand business because shortages always cause manufacturers to add extra capacity and that could produce a surplus in 2018. Others claim the surge in Internet of Things devices and cloud server farms will continue to cause rising demand.

With WDC bidding as well, you can bet that Toshiba will get the best price for their business. WDC is riding the wave of rising memory prices and shares are at a 52-week high.



Johnson & Johnson (JNJ) said their $30 billion tender for Swiss biotech firm Actelion was a success after shareholders tendered 73.25% of the outstanding shares. JNJ said they expect the deal to close in the second quarter because the transaction has already been cleared by the U.S. and was on track in the EU. They plan on spinning out Actelion's research and development segment into a separate business called Idorsia Ltd. The main business will be added to JNJ's Swiss company Janssen, to expand the range of medicines it produces. Actelion has 15 promising treatments in its pipeline.

JNJ is well off its 2017 highs and has been a drag on the Dow for the last two weeks.


Apple (AAPL) won a confusing case in Australia regarding an attempt by banks to use Apple's iPhone payment technology without using Apple Pay. Four large Australian banks had sued to gain access to Apple's near-field communication technology (NFC) so they could add their own tap and pay apps. The court ruled in favor of Apple in what could have global implications. The Australian tap and go market is worth about $85 billion a year.

Competitor Android allows companies to use its NFC technology but Apple does not want to open that door on the iPhone. Obviously, they would like every iPhone user to have Apple Pay as their only option.

Canaccord Genuity upgraded their price target on Apple shares from $154 to $165 saying the excitement was building for the upcoming iPhone 8. The analyst said the age of existing iPhones plus the number of new features expected should provide a very strong upgrade cycle that will last long into 2018. Canaccord said they believe the iPhone installed base of more than 570 million users will provide a strong upgrade cycle for those loyal to Apple and holding an older generation phone. The analyst said the Samsung Galaxy S8 would not cause loyal Apple users to switch to an Android product this close to the iPhone 8 launch but it would cause an upgrade cycle among current Android users.


McDonalds (MCD) shares are holding at new highs after they announced they were going to use fresh beef in their Quarter Pounder burger in order to better compete with chains like Shake Shack and others. McDonalds has been using a frozen compressed burger patty since 1973. The new burgers will be cooked to order and not precooked and kept warm like the existing burgers. It will be a slow process to roll this out to all their U.S. stores but they expect to be completed by mid-2018. This will only apply to the Quarter Pounder. All the other burgers will remain frozen.

They recently said they were moving to cage free eggs with stricter antibiotic policies and they eliminated high-fructose corn syrup from "some" of their buns along with removing artificial preservatives from the chicken McNugget. They are fighting a multiyear decline in traffic because of the rise of the premium hamburger chains. The company said it had lost 500 million customers since 2012 and same store sales fell -2.9% in Q4. The menu overhaul is going to cost them $1.7 billion. They are also testing mobile ordering in California with plans to launch another pilot in Spokane Washington.


TRC Company Inc (TRR) shares spiked 46% on news it had entered into an agreement with New Mountain Capital to sell itself for $17.55 per share, a 47% premium to Thursday's close. The company is an engineering, environmental consulting and construction management firm that employs 4,100 with 120 offices.


FMC Corp (FMC) shares spiked 13% after the company said it was acquiring a significant portion of DuPont's Crop Protection business. DuPont is required to divest the business by an EU ruling in order to merge with Dow Chemical. DuPont will acquire FMC Health and Nutrition and FMC will pay DuPont $1.2 billion. FMC said the transactions will be immediately accretive upon closing. After closing FMC Agricultural Solutions will become the fifth largest crop protection chemical company in the world with revenue of $3.8 billion.


Amazon (AMZN) shares exploded higher last week after Loop Capital released a bullish research note and a $1,100 price target. That is the third highest of the 46 analysts that cover the stock. The analyst said Amazon will continue to dominate the retail market and Amazon Web Services will eventually be spun off for a potential value of more than $200 billion. Barclay's initiated coverage on Wednesday with a $1,120 price target. Stifel has $1,025, Goldman $1,050 and Credit Suisse $1,050.


Forward Pharma (FWP) fell sharply on Friday after Biogen (BIIB) won a patent victory over the active ingredient in their competing multiple sclerosis treatments. Forward had won several patent fights against Biogen and demanded royalties from that company on Tecfidera. Biogen tried to buy the patent for $1.25 billion in January but Forward refused to accept it. Biogen's win could free them to market Tecfidera without any restrictions. Since Forward's market cap is only $1 billion maybe they should have accepted the January offer. Forward plans to appeal the verdict.


In another patent case, a district court invalidated four patents on a multiple sclerosis drug named Ampyra marketed by Acorda Therapeutics (ACOR). The patents were related to the drug delivery mechanism. One patent for an extended release version was upheld. The invalidated patents mean generic competition can begin almost immediately. Teva Pharmaceuticals (TEVA) and Roxane Labratories are two of ten companies already building generic versions. Ampyra was responsible for 90% of Acorda revenue in 2016 at $519 million. Acorda expects to appeal the decision.


Crude prices helped lift the market late in the week after there was a smaller than expected build in inventories, Libyan production was interrupted and OPEC continued to talk about the potential for extending the current production cuts. WTI bounced exactly from the longer-term uptrend support ahead of the refinery restart period.

Last week refinery utilization jumped 2% to 89.3% for the second 2% weekly gain in a row. That is a multi-month high and shows the refiners are starting production on summer fuel blends. Crude inventories rose only 900,000 barrels and should begin to decline over the next two weeks and that decline trend will last until July.

U.S. production rose 20,000 bpd to 9.15 million bpd but the big news was the jump in gasoline demand from the late winter lows to 9.52 million bpd and we are not even really into spring yet. Unfortunately, with crude prices rising back towards $55, the price of gasoline is also going to be rising sharply.



Rig activations continue to surge with 15 rigs added last week. With the latest gains, active rigs have now doubled the level from last May.


Markets

One week a quarter, window dressing definitely impacts the markets and that was last week. Typically, there is some undressing the following week but this quarter could be different. Factset is forecasting the earnings growth rate for Q1 at 9.1% and that would be the highest growth since Q4-2011 at 11.6%. This anticipated rate is down from the forecast of 12.5% on December 31st, but still an outstanding number.

For Q1, 79 S&P companies have issued negative earnings guidance and 32 have issued positive guidance. Seventeen companies have already reported Q1 earnings and 13 beat earnings estimates and 9 beat revenue estimates.

The worst sector for negative guidance has been consumer discretionary with 20 companies warning and only 2 companies providing positive guidance. The second most came from technology with 18 warnings but this sector also had the most companies giving positive guidance at 19.

Since the start of Q1 the earnings forecast has declined -3.6% from $30.59 to $29.49. This is actually a smaller decline than the average of -4.5% for the last four quarters. With earnings estimates declining and the S&P rising the PE ratio has risen to 17.6.

The S&P managed to squeeze back over resistance at 2,360 but only slightly. On Friday, the index dipped 6 points to close at 2,362 and technically over that level, which could once again be recognized as support.

The March 1st closing high was 2,396 and those 34 points between Friday's close and a new high are going to be very tough to achieve. There is now resistance at 2370, 2388 and 2396. With many traders still expecting a decline, there will be an active group shorting every minor blip higher. In some ways that is good because it causes repeated short covering if the market does not roll over.


The Dow has equivalent resistance at 20,750, 20,800, 21,000 and 21,115 which was the March 1st closing high. The Dow shook off some strong declines in several components to rebound from the converging uptrend support at 20,500 on Monday. The opening drop on Monday gave the bears every opportunity to create a real decline but they were unsuccessful. Whether the rebound came from a surge of dip buying or this was the beginning of the window dressing move, we may never know. If the market craters early next week, we could surmise the prior Monday rebound was window dressing.

The Dow remains the weakest index and it needs to push through resistance at the 20,800 level to rebuild some confidence in the large cap stocks.



The Nasdaq Composite closed at a new high at 5,914 on Thursday and gave back only 2.6 points on Friday. I suspect this was definitely window dressing because the large cap techs have been so strong recently, many portfolio managers wanted to keep them pinned at their highs for quarter end. Next week will be a real test for the big caps. Some portfolio managers may not want to wait around for the next four weeks in hopes of a big pre earnings rally since April has such a strong record of market volatility. Portfolio managers have massive profits at risk in the big cap tech stocks and the road ahead could be filled with potholes.




The small cap indexes rallied all week and the Russell 2000 closed just below strong resistance at 1,388. The seven consecutive days of gains came after a triple test of support at 1,340. This appeared to be rotation out of big caps into small caps and strongly suggests it was related to end of quarter window dressing. Portfolio managers not only want to show they are in the big cap winners but have a broad portfolio of small cap hopefuls as well. The performance of the Russell next week will be key in determining if this was real buying for the future or simply cosmetic surgery ahead of quarter end.


If the coming week is positive for the market then I would expect the following week to be positive as well. Once lawmakers return from the Easter recess, there is real danger of a Washington disaster. Also, the week after April 15th is typically rocky.

The government funding runs out on April 28th and lawmakers have to deal not only with the funding but also the debt ceiling limitations. The republican conservative caucus is going to be another sticking point and democrats will be looking to block anything republicans put forth. This makes the last week of April very risky for the market. It would also suggest investors may not want to be placing big bets ahead of April 15th.



Random Thoughts


The prior week's 4.1% bounce in bullish sentiment did not last long. Those same switchers appear to have bounced back to the bearish camp to raise that level to 37.4%. That means 69.8% of investors do not expect the market to move higher this week. On a contrarian basis that means an unexpected rally could be fueled by those investors running back into the market.

Last week results


Consumer spending has declined for the last two months. Retailers reported an ugly holiday shopping season. The health of the sector is not improving. Nine retailers have filed bankruptcy in 2017. That is the same number that filed bankruptcy in all of 2016. That is half the number that filed in 2009 at the depths of the recession.

The number of brick and mortar stores is dwindling but there is still an extreme surplus. Consumers are not going to the malls or the strip malls. They are shopping online for the majority of their goods.

The number of retailers in trouble but have not yet filed bankruptcy is also at the highest level since the recession. Payless is rumored to be closing 500 stores ahead of a bankruptcy filing. Bebe Stores is also rumored to be preparing to file. Sports Authority closed 460 stores and went out of business. Aeropostale closed 600 stores. Macy's, JC Penny's, Sears, Kmart, GameStop and Abercrombie & Fitch are also closing stores.

Moody's said the following stores are in distress and could end up liquidating or restructuring. The analyst said there is a whopping $3.7 billion in debt on these companies that matures over the next five years.

99 Cent Only, Bon-Ton, Charming Charlie, J Crew, Claire's Stores, David's Bridal, Savers, Gymboree, Totes, Nine West, NYDJ Apparel, Rue21, Sears, Toms Shoes, Tops and True Religion.

So far in 2017, these retailers have filed bankruptcy.

Limited Stores
Gordmans Stores
Gander Mountain
Radioshack
Wet Seal
Eastern Outfitters
BCBG Max
HHGregg

Sears is not expected to make it through 2017 despite recent stock purchases by the CEO and the largest stockholder, Bruce Berkowitz.

Target and JC Penny are expected to gain market share from the bankruptcies and store closings of their competitors. However, the one retailer gaining market share on everyone is still Amazon with revenue rising by 20% a year. Home Depot and Costco are the only stores thought to be Amazon proof but Amazon is still squeezing them on any item that can be shipped by UPS. Best Buy has toughened up after nearly going out of business a couple years ago and they are surviving after a tough restructuring process.

Remember the first retailer Amazon targeted? Barnes and Noble books (BKS) is still alive and operating retail bookstores. Now Amazon is experimenting with its own retail locations as well as retail grocery stores. Retail is cyclical and what is hot today may not be hot tomorrow. One of the biggest losers of the current retail recession is the malls. They are closing up by the hundreds as anchor tenants leave and the specialty stores disappear. Nobody likes to shop in a mall with a lot of vacancies. It depresses shoppers and depressed shoppers spend less and shop less at those locations. That forces retail prices lower, reduces profit margins and drives more companies out of business leading to more vacancies.

Shopping center REITS like Seritage Growth Properties are in trouble. Long term there will be more vacancies than they can handle and the properties will eventually be bulldozed and turned into office buildings or condos. That is a tough journey of ever decreasing returns until that final decision is made.

In January the giant 1.1 million square foot Galleria Mall in Pittsburgh, was sold out of foreclosure for $100 million. Wells Fargo held the mortgage and was the only bidder. The mall was built in 2005 but was recently appraised for only $11 million. It was only 55% occupied in December. REITS like Seritage own more than 100 of these types of properties but since Sears or Kmart was the anchor tenant in the Seritage malls, they are not as new and in far worse areas. I would not want to be a retailer or a mall owner in this environment.



There is a new 50-Cent making headlines. I am not talking about rapper Curtis James Jackson III, known professionally as 50 Cent. There is a new, unknown trader spending a fortune in VIX calls at 50 cents each. While that sounds like a miniscule amount of money, he or she has spent $90 million buying VIX calls at that level. Traders are now calling the unnamed trader 50 Cent.

Basically, every day the trader comes in and buys VIX calls that are priced at 50 cents. The strike does not appear material just as long as the premium is 50 cents. He recently purchased 50,000 of the May 21 calls at 49 cents or $2.5 million in premium. Unless the VIX spikes to a five-month high of 21, those calls will expire worthless at expiration. Obviously, a sharp spike that did not hit 21 could also inflate the premium if he was prepared to jump out at the right time. On the same day, 15,000 May 20 calls were purchased at 51 cents and 10,000 additional May $21 calls at 47 cents.

Option trackers claim he has spent about $90 million in premium and options costing $55 million have already expired worthless. Analysts claim total open interest in VIX calls has risen to an all time high and the massive call buying could actually be dampening volatility. Since it is hard to answer strategy questions simply by looking at one set of trades we do not really know if 50 Cent is losing money or simply hedging a massive portfolio. He could also be selling VXX futures and using the VIX options as a hedge against the short futures trade. We may never know who is pulling the trigger on these trades but he does have deep pockets. Eventually a volatility event could occur and we will be wishing we had followed his trades.



Speed of Change

In 1998, Kodak had 170,000 employees and sold 85% of all photo paper worldwide. Within just a few years, their business model disappeared and they went bankrupt. What happened to Kodak will happen in a lot of industries in the next 10 year - and most people do not see it coming.

Did you think in 1998 that 3 years later you would never take pictures on paper film again? Yet digital cameras were invented in 1975.

The first ones only had 10,000 pixels, but followed Moore's law. Today's average cameras have 24 million pixels. The iPhone 7 can take a panoramic picture with 63 million pixels. Entire movies have been shot with smartphone cameras. One hour photo processing locations have disappeared.

So as with all exponential technologies, it was a disappointment for a long time, before it became far superior and then became mainstream in only a few short years.

It will now happen with Artificial Intelligence, health, autonomous and electric cars, education, 3D printing, agriculture and jobs.

Welcome to the 4th Industrial Revolution. Welcome to the Exponential Age.


 

Enter passively and exit aggressively!

Jim Brown

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"A government big enough to give you everything you want, is strong enough to take everything you have."

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New Plays

Activist Victory

by Jim Brown

Click here to email Jim Brown
Editor's Note

Starboard Value saw value slip away when Depomed announced an agreement to replace the CEO and two board members.



NEW BULLISH Plays

No New Bullish Plays


NEW BEARISH Plays

DEPO - Depomed Inc - Company Profile

Depomed, Inc., a specialty pharmaceutical company, engages in the development, sale, and licensing of products for pain and other central nervous system conditions in the United States. It offers Gralise (gabapentin), an once-daily product for the management of postherpetic neuralgia; CAMBIA (diclofenac potassium for oral solution), a non-steroidal anti-inflammatory drug indicated for acute treatment of migraine attacks in adults; Zipsor (diclofenac potassium) liquid filled capsule, a non-steroidal anti-inflammatory drug for the treatment of mild to moderate acute pain in adults; and Lazanda (fentanyl) nasal spray, an intranasal fentanyl drug used to manage breakthrough pain in adults. The company also provides NUCYNTA ER (tapentadol extended release tablets), a product for the management of pain severe enough to long term opioid treatment, including neuropathic pain associated with diabetic peripheral neuropathy (DPN) in adults; and NUCYNTA (tapentadol), a product for the management of moderate to severe acute pain in adults. In addition, it is involved in the clinical development of Cebranopadol for the treatment of chronic nociceptive and neuropathic pain. The company sells its products to wholesalers and retail pharmacies. It also has a portfolio of license agreements based on its proprietary Acuform gastroretentive drug delivery technology with Mallinckrodt Inc.; Ironwood Pharmaceuticals, Inc.; and Janssen Pharmaceuticals, Inc. Company description from FinViz.com.

The company is under attack by activist investor Starboard Value. Starboard wants to own the company for a potential M&A move at some point in the future. Last week, the company said they had reached an agreement with Starboard to replace the CEO and add two new Starboard nominated members to the board.

Normally when an activist investor gains control of a company it suggests the stock will go up. However, analysts at Cantor Fitzgerald say it is not currently a buy. They believe there will be continued weakness in the shares once investors realize it could be a long time before a merger/acquisition is accomplished.

CF said existing problems include "softness" in the opioid market and the potential attack on opioid drugs by the new administration. There needs to be a realignment in Depomed's sales force. They need to explore the exit opportunities in Opana. They also need to supply clarity relating to Depomed's debt refinancing.

CF said all those factors should continue to pressure the stock. Starboard will also have to create some additional value before they can market the company for a profit. The analyst thought this would take the better part of 2017.

Depomed guided for Q1 revenue of $95-$100 million and analysts were expecting $114.6 million.

Earnings May 23rd.

Shares broke support at $14.75 on the news of the agreement with Starboard. Shares are dropping like a rock on the Cantor Fitzgerald analysis.

Sell short DEPO shares, currently $12.54, stop loss $14.05.

Optional: Buy May $12 put, currently 80 cents, initial stop loss $15.25




In Play Updates and Reviews

Quarter Over

by Jim Brown

Click here to email Jim Brown

Editors Note:

The first quarter is over and next week we will see if the small cap rotation was real or temporary. If the rotation out of the big cap stocks and into small caps was just for end of quarter window dressing, then we could see some weakness in the small caps next week. If this was the real deal then the rally could continue.

With Congress going on recess on April 10th they are not likely to start any new firefights other than the Supreme Court vote on Friday and we will have almost two weeks before they come back. Unfortunately, April is typically a volatile period for other reasons so we should not become too complacent.





Current Portfolio


Stop Loss Updates

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


Profit Targets

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




Lottery Ticket Plays - Updated only on Weekends


Current Position Changes


FSLR - First Solar
The short stock position was entered at the open.

HIMX - Himax Tech
The long stock position was stopped out at $8.45.

SPXC - SPX Corp
The short stock position was stopped out at $24.45.



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BULLISH Play Updates

BCRX - Biocryst Pharmaceuticals - Company Profile

Comments:

No specific news. A minor gain and still trapped 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 and energy equities were slightly positive.

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. Another sharp decline to support at $27. That level needs to hold or we will be stopped out.

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. Habit is nearing resistance at $18. If we can get through that level, the next challenge would be $21 and then $24. The historic high in 2014 was $44.

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:

Shares dropped sharply at the open before DigiTimes reported Himax will supply part of the 3D sensing technology in the iPhone 8. The opening dip stopped us out of the short stock position and we missed out on the big rebound. Fortunately, the long call did not have a stop loss. This position will more to the Lottery Play section for next week.

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:

Closed 3/31/17: Long HIMX shares @ $9.26, exit $8.46, -.81 loss.

Still Open: 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:

No specific news. Shares gained another dollar so no complaints.

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.

Update 3/30/17: 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.

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




BEARISH Play Updates

FSLR - First Solar - Company Profile

Comments:

No specific news. Shares declined again to a new five-year low.

Original Trade Description: March 30th.

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.

Position 3/31/17:

Short FSLR shares @ $27.50, see portfolio graphic for stop loss.

Optional: Long June $25 put @ $1.15, see portfolio graphic for stop loss.



SPXC - SPX Corp - Company Profile

Comments:

No specific news. Shares posted another minor gain intraday to punch through resistance at the 100-day average and that was enough to stop us out. I am going to watch this stock for a breakdown and we will try to short it again if that occurs.

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:

Closed 3/31/17: Short SPXC shares @ $23.18, exit $24.45, -1.27 loss.




Left Over Lottery Tickets

These positions were left over from prior plays where we had an optional option with no stop after the stock position was closed. Rather than close these for a few cents they are left open as a "Lottery Ticket" play. With months before expiration, anything is possible. A strong move in a single stock can be well worth the additional patience.

These positions are only updated on the weekend.


AKS - AK Steel - Company Profile

Comments:

No specific news. Shares traded flat for the week with minor bumps as talk of trade and infrastructure spending hit the headlines.

Original Trade Description: February 4th

AK Steel Holding Corporation, through its subsidiary, AK Steel Corporation, produces flat-rolled carbon, stainless and electrical steel, and tubular products in the United States and internationally. It produces flat-rolled value-added carbon steels, including coated, cold-rolled, and hot-rolled carbon steel products; and specialty stainless and electrical steels in sheet and strip forms. The company also produces carbon and stainless steel that is finished into welded steel tubing, which is used in the automotive, large truck, industrial, and construction markets; buys and sells steel and steel products, and other materials; and produces metallurgical coal from reserves in Pennsylvania. It sells its flat-rolled carbon steel products primarily to automotive manufacturers and to customers in the infrastructure and manufacturing markets, including electrical transmission, heating, ventilation and air conditioning equipment, and appliances; and coated, cold-rolled, and hot-rolled carbon steel products to distributors, service centers, and converters. The company sells its stainless steel products to manufacturers and their suppliers in the automotive industry; manufacturers of food handling, chemical processing, pollution control, and medical and health equipment; and distributors and service centers. It also sells electrical steel products to manufacturers of power transmission and distribution transformers, as well as for use in the manufacture of electrical motors and generators. Company description from FinViz.com.

Shares spiked from $5 to $11 after the election on hopes for a surge in infrastructure projects, lower regulations and a growing economy. AK shares peaked early and traded sideways for a month. The week before earnings they began to decline as analyst said the market gains were overdone.

The reported earnings of 25 cents on January 24th that beat estimates for 7 cents. Revenue of $1.42 billion was slightly lower than estimates for $1.43 billion. Shares spiked on the earnings news and collapsed on guidance that shipments to automakers had declined in Q4. The next day a spokesman clarified that saying the "decline in shipments compared to 2015 was primarily the result of a 41% decline in shipments to the distributor and converters market as the company intentionally reduced sales of commodity products." In other words, AK wanted to focus its efforts on the higher margin products and reduce exposure to low margin products.

Shares quit declining after the clarification and bottomed just under $8. Friday's close was right on the verge of a 7-day high. One more positive day and we could see a rebound begin.

Update 2/21/17: AK Steel said they were increasing prices by a minimum of $30 a ton effective immediately.

Update 3/3/17: The steel sector received some good news. The US International Trade Commission (ITC) said it was imposing import duties of 63.86% on stainless steel sheets and 76.64% on stainless strips and impose countervailing duties of 75.6% to 190.71%. This complaint was filed in early 2016. This is a major win for the steel sector.

Earnings April 25th.

The optional option position is for a longer-term holder with a June expiration. Very limited risk in terms of dollars invested and could be a decent winner if AKS returns to the $11.25 highs or higher on infrastructure stimulus headlines.

Position 2/6/17:

Long-term option:

Long June $10 call @ 59 cents. No stop loss.

Previously closed 2/23/17: Long AKS shares @ $8.18, exit $8.65, +.47 gain.



AMD - Advanced Micro Devices - Company Profile

Comments:

AMD held support around $14 and spiked to close at a four-week high on Friday. The stock will have to hurry to hit $16 by April expiration but it is entirely possible. The outlook for AMD is continuing to increase with its new round of products.

Original Trade Description: February 22nd.

Advanced Micro Devices, Inc. operates as a semiconductor company worldwide. The company's products primarily include x86 microprocessors as an accelerated processing unit (APU), chipsets, discrete graphics processing units (GPUs), and semi-custom System-on-Chip (SoC) products. It provides x86 microprocessors for desktop PCs under the AMD A-Series, AMD E-Series, AMD FX CPU, AMD Athlon CPU and APU, AMD Sempron APU and CPU, and AMD Pro A-Series APU brands; and microprocessors for notebook and 2-in-1s under the AMD A-Series, AMD E-Series, AMD C-Series, AMD Z-Series, AMD FX APU, AMD Phenom, AMD Athlon CPU and APU, AMD Turion, and AMD Sempron APU and CPU brands. The company also offers chipsets with and without integrated graphics features for desktop, notebook PCs, and servers, as well as controller hub-based chipsets for its APUs under the AMD brand; and AMD PRO mobile and desktop processors. In addition, it provides discrete desktop graphics products and discrete GPUs for notebooks under the AMD Radeon brand; professional graphics products under the AMD FirePro brand; and customer-specific solutions based on AMD's CPU, GPU, and multi-media technologies. Further, the company offers microprocessors for server platforms under the AMD Opteron; embedded processor solutions for interactive digital signage, casino gaming, and medical imaging under the AMD Opteron, AMD Athlon, AMD Sempron, AMD Geode, AMD R-Series, and G-Series brands; and semi-custom SoC products that power the Sony Playstation 4 and Microsoft Xbox One game consoles. Advanced Micro Devices, Inc. sells its products through its direct sales force, independent distributors, and sales representatives. The company serves original equipment manufacturers, original design manufacturers, system builders, and independent distributors. Advanced Micro Devices, Inc. was founded in 1969. Company description from FinViz.com.

AMD has played second fiddle to Intel nearly its entire life. Intel technology is always a couple steps ahead and that means AMD is always running to catch up to a moving target. Recently, Intel's advances have slowed. PC computing power has reached a point where there are no slow PCs for sale at the local computer store. Performance is cheap and that performance is more than a normal user will ever need. Gamers will spend big bucks for the fastest processor but even that has migrated into the video cards themselves and Nvidia owns that market.

Consumers do not need a super fast computer for email, spreadsheets and web browsing. In the server sector the processors have become so fast that the input-output devices cannot keep up. Very few servers today run anywhere near their rated speeds.

AMD has spent four years developing their Zen processor in an attempt to meet Intel head on in the PC and server markets. They announced on Wednesday the first processors will ship in March and are priced about half of Intel for the top of the line and just under Intel for the midrange processors. Neither company wants to get into a price war. With only two companies making computer processors, to fight on price would only hurt profits for both and probably not change the consumer demand.

The key here is that AMD can be competitive again with their new Ryzen or Zen processors. ADM said their one goal in developing the new processor was to "disrupt the PC market and bring innovation, choice and performance to as many people as possible."

The fastest processor in the line is an 8-core Ryzen 7-1800X at $499. That compares to a similar Intel 8-core Core i7-6900K processor at $1,000.

AMD reported a Q4 loss of a penny which easily beat estimates for a loss of 10 cents. Revenue of #1.11 billion beat estimates for $1.07 billion. They guided for revenue of $988 million in Q1 and analysts were only expecting $964 million. Gross margins rose from 30% to 32%. Shares spiked on the February 1st news. Shares spiked again on the new processor announcement on Feb-22nd.

Earnings May 2nd.

The gain on Wednesday saw a close at a new 52-week high and above the post earnings consolidation phase. AMD may be choppy from here but I think it has enough going for it today that the rally can continue.

Update 3/2/17: AMD's new chip made its debut today with multiple positive reviews. However, one review from PC Gamer knocked the stock for a $1 loss. The PC Gamer review said the chip was not as strong as expected against its Intel rival in certain games. AMD responded saying certain games had been developed and optimized for Intel's processors since the AMD chip did not exist. AMD said we the chips and games progress the benchmarks will narrow as programmers take advantage of the Ryzen's features. With the tech sector already selling off, it was a bad day for AMD.

Update 3/25/17: AMD is holding its recent gains at $14 and won a battle last week when the International Trade Court agreed to take a patent case against three companies AMD said infringed on their patents. There had to be some material evidence to get the court to take the case so AMD will eventually win some licensing rewards in the future.

Position 2/23/17:

Closed 3/3/17: Long AMD shares @ $14.20, exit $13.45, -.75 loss.

Optional:
Long Apr $16 call @ 67 cents, no stop loss.



CX - Cemex - Company Profile

Comments:

Cemex was upgraded by Longbow from neutral to buy. Shares are starting to tick higher again with Friday's close at resistance and a two-week high. We have a July call so we have plenty of time.

Original Trade Description: January 25th

CEMEX, S.A.B. de C.V. produces, markets, distributes, and sells cement, ready-mix concrete, aggregates, and other construction materials in Mexico and internationally. The company also offers various complementary construction products, including asphalt products; concrete blocks and roof tiles; architectural products; concrete pipes for storm and sanitary sewers applications; and other precast products comprising rail products, concrete floors, box culverts, bridges, drainage basins, barriers, and parking curbs. In addition, it provides building solutions for housing projects, pavement projects, and green building consultancy services; and information technology solutions and services. The company has operations in Mexico, the United States, Northern Europe, the Mediterranean, South America, the Caribbean, and Asia. Company description from FinViz.com.

Bernstein Research researched all the contractors that could supply materials for a border wall. In the Bernstein map below Cemex is represented by the red blocks. Building 1,000 miles of wall, which is what Trump has promised will take a lot of concrete.

Cemex is one of the world's largest suppliers of cement and readymix concrete. Analysts believe the wall will cost between $15 to $25 billion to build and concrete would be a major expense. Based on various comments about what Trump is asking for, analysts expect 7 feet deep and up to 40 ft high for 1,000 miles. That will take 7.1 million cubic meters of concrete worth $700 million. However, engineers believe it would be easier and cheaper to build precast panels like the wall in Israel and other places. That would allow the panels to be constructed close to Cemex locations and not have 1,000 concrete trucks rotating up and down the wall every day. The picture below is the Israeli wall made with concrete panels and it stretches 420 miles.

Regardless of how the wall is constructed, it will take a lot of concrete and Cemex is going to be a supplier. Cemex has a large presence in the U.S. so it is immune from the US First rule.

Update 2/2/17: The secretary of Homeland Security said they are planning to complete the border wall in less than two years. They plan on a crash construction project in the heavily traffic areas and then fill in the blanks over the next two years. That means once construction begins it could be in multiple locations at once and the velocity could be extreme in order to get most of it done before the 2018 elections.

Update 2/10/17: CX said sales rose 4% in Q4 to $3.2 billion. EBITDA rose 10% to $654 million and +15% for the full year to $2.7 billion. Free cash flow rose 91% to $1.7billion in 2016. Debt declined by $2.3billion. Asset sales reached $2 billion of which $1 billion will close in 2017. .

Update 3/17/17: Cemex did not bid on the border wall. The company said they felt it would be bad faith and they could face repercussions from their home company of Mexico even though they have multiple concrete plants on both side of the border. However, they did say if a contractor asked for prices for cement they would be obliged to provide those prices and supply the cement.

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

Update 3/25/17: Mexico warned Mexican companies it would not be in their best interest to participate in building the border wall between the two countries. The government said it was not going to pass a sanctions law but consumers would know and they would likely boycott any company that participated.

Cemex has said they would not participate but did say they would provide raw materials if asked by the eventual bid winners. Competitor Grupo Cemantos has said they would participate in the project.

The U.S. government said they had received expressions of interest from 720 companies to build the wall or supply components and services.

Earnings Feb 9th.

CX shares have already spiked in January once it became apparent the wall was actually going to happen. The stock broke out to a new high on Wednesday and probably has a long way to go.

Position 1/26/17:

Long July $11 call @ 52 cents. No initial stop loss.

Previously closed 2/6/17: Long CX shares @ $9.42, exit $9.05, -.37 loss.



ETSY - ETSY Inc - Company Profile

Comments:

No specific news. Shares are moving back up again and closed at a 4-week high.

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

Previously Closed 3/27/17: Long ETSY shares @ $10.25, exit $9.75, -.50 loss.



INFN - Infinera Corporation - Company Profile

Comments:

No specific news. Shares have returned to the March low and our July $10 put is almost in the money.

Original Trade Description: February 25th

Infinera Corporation provides optical transport networking equipment, software, and services worldwide. The company offers Infinera DTN-X family of platforms for subsea, long-haul, regional, and metro mesh networks; Infinera DTN platform for subsea, long-haul, and regional mesh networks that support a range of Ethernet and optical transport network client interfaces; and Infinera FlexILS Line System platform that connects various Infinera platforms over long distance fiber optic cable. It also provides Infinera TM-Series, a carrier-grade packet-optical transport platform; Infinera TS-Series, a passive optical wavelength-division multiplexing (WDM) product; Infinera Cloud Xpress Platform, a compact platform for cloud/data center interconnect applications; and Infinera ATN Platform, a small form-factor WDM platform. In addition, the company offers Infinera Open Transport Switch, a software platform that enables abstraction and virtualization of the underlying Infinera platforms; and Infinera Management Suite, a network management system used by network operators to manage various Infinera platforms. Further, it provides various support services for vraious hardware and software products. The company serves communications service providers, Internet content providers, cable providers, wholesale and enterprise carriers, research and education institutions, and government entities. Company description from FinViz.com.

Infinera makes products primarily used by telecom companies to increase their capabilities over existing fiber optic cables to reduce the need to laying more fiber. Their major market today relies on infrastructure upgrades in China, which is a very competitive market.

The company reported a loss of 12 cents that narrowly beat estimates for a 13 cents loss but was down sharply from the 5 cent profit in the year ago quarter. Revenue declined 30% to $181 million but did beat estimates for $175 million. For the current quarter they guided for revenue of $167-$178 million, down from $249 million in the year ago quarter. Analysts were expecting $171 million. However, they guided for a loss of 16 cents and analysts were expecting 11 cents.

Analysts claim the company is suffering from a perfect storm of M&A among its biggest clients that has reduced demand.

Earnings May 11th.

After trading flat at $8.50 for seven months the shares spiked to just over $12 on the better than expected earnings. Short covering is a wonderful thing if you are long. However, everyone that sat on the $8 stock for seven months is now running for the exits. I believe the stock will return to its prior levels given the negative guidance.

Update 3/17/17: Goldman upgraded INFN from neutral to buy on Thursday and shares spiked 8% on the news. Our profitable short was immediately turned into a losing position. We still have the long July put and I added a stop loss.

Position 2/27/17:

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

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



KR - Kroger Co - Company Profile

Comments:

No specific news. Kroger is trying to hold support at $29 but there are almost daily headlines about the rising competition in the grocery space.

Original Trade Description: March 7th

The Kroger Co., together with its subsidiaries, operates as a retailer in the United States. It also manufactures and processes food for sale in its supermarkets. The company operates retail food and drug stores, multi-department stores, jewelry stores, and convenience stores. Its combination food and drug stores offer natural food and organic sections, pharmacies, general merchandise, pet centers, fresh seafood, and organic produce; multi-department stores provide general merchandise items, such as apparel, home fashion and furnishings, outdoor living, electronics, automotive products, toys, and fine jewelry; and price impact warehouse stores offer grocery, and health and beauty care items, as well as meat, dairy, baked goods, and fresh produce items. The company's marketplace stores comprise full-service grocery, pharmacy, health and beauty departments, and perishable goods, as well as general merchandise, including apparel, home goods, and toys. It operates under the banner brands, such as Kroger, Ralphs, Fred Meyer, King Soopers, etc., as well as Simple Truth and Simple Truth Organic brands. As of January 30, 2016, the company operated 2,778 retail food stores, including 1,387 fuel centers; 784 convenience stores; and 323 fine jewelry stores and an online retail store, as well as franchised 78 convenience stores. Company description from FinViz.com.

Kroger reported earnings of 53 cents that matched estimates but declined 7% from the year ago quarter. Revenues rose 5% to $27.611 billion and that best estimates for $27.357 billion. Same store sales fell -0.7% and the first decline in 13 years. Analysts expected a 0.1% rise. Competitors Ahold Delhaize, Walmart, Publix and Aldi reported an increase in sales so apparently Kroger is losing market share.

They guided for 2017 for earnings in the range of $2.21-$2.25 per share. Analysts were expecting $2.23.

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

Earnings June 1st.

There is a major battle shaping for the grocery sector. German discounter Aldi is on a push to open hundreds of new stores in areas currently served by Kroger. Target has vowed to lower prices and sacrifice margins in order to retain market share. Amazon is experimenting with the grocery store concept and has been rumored to be considering opening more than 1,000 stores. Walmart has expanded their grocery departments and now carry more than 350 organic products under the private Walmart labels.

Kroger has been forced to adopt a more promotional posture with bigger ads and lower prices in order to retain share. Goldman removed Kroger from their conviction buy list and warned they doubt they will be able to even get close to their forecast for 8-11% earnings growth. Northcoast cut them from buy to neutral and several analysts cut their price targets.

Tuesday's close was a two year low and the decline is not likely to stop. The grocery sector is broken and profits are going to be tough to generate.

Position 3/8/17:

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

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



STM - STMicroelectronics - Company Profile

Comments:

No specific news. Shares closed at a new high the prior Friday and declined -40 cents for the week.

Original Trade Description: February 6th

STMicroelectronics N.V., together with its subsidiaries, designs, develops, manufactures, and markets semiconductor products, and subsystems and modules worldwide. The company offers a range of products, including discrete and standard commodity components, application-specific integrated circuits, full-custom devices and semi-custom devices, and application-specific standard products for analog, digital, and mixed-signal applications, as well as silicon chips and smartcards. It also provides subsystems and modules, including mobile phone accessories, battery chargers, and ISDN power supplies for the telecommunications, automotive, and industrial markets; and in-vehicle equipment for electronic toll payment. The company sells its products through its distributors and retailers, as well as through sales representatives. Company description from FinViz.com.

STM is Europe's third largest chipmaker. The company reported revenue of $1.86 billion, an 11.5% increase. They also raised guidance for Q1 saying they expect 12.5% growth. The CEO said, "Based on market forecasts, a positive booking trend, and a strong performance at our distributors, we see the momentum from the second half of 2016 continuing as we enter 2017."

The chipmaker said improved efficiencies and product mix lifted gross margins from 33.5% to 37.5%. Their smartphone market share helped increase sales in that division by 17.8%. The automotive and industrial products segment saw sales increase 12.5%. STM is a supplier to Apple, Cisco Systems, HP, Seagate and Western Digital. Every one of those companies are reporting stronger sales and new product lines, all of which helps STM. They also make chips for drones, 3D printing and a wide variety of IoT products.

The consensus earnings estimates are for 103.4% growth in 2017.

Update 3/10/17: Shares pulled back from their last week high after a small fire in the basement of a manufacturing facility in France, is expected to cause a delay in the 3D motion sensor for the iPhone 8. The sensors have a long production time with a low yield rate and every day the facility is offline, pushes delivery farther into the future. Apple employees are reportedly on site trying to determine the actual time until restart so they can project the actual delivery of the iPhone. If this is not rectified over the next couple of weeks, it could be a major problem for Apple.

Earnings April 27th.

Shares have caught fire because of expectations for a large boost in chips for the iPhone 8 or X whatever they end up calling it.

This stock is not cheap with a PE of 75 but the outlook is so strong that volume is exploding and the stock will not go down. We are going to hold our nose and buy it. A safer way to play this would be to buy the call option. That way your total risk is 70 cents a share.

Position 2/7/17:

Long April $15 call @ 65 cents. See portfolio graphic for stop loss.

Previously closed 2/9/17: Long STM shares @ $14.22, exit $13.75, -.47 loss.



VIPS - Vipshop Holdings - Company Profile

Comments:

No specific news. Shares declined a minimal 8 cents on Friday.

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.

Update 3/30/17: 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.

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.





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