Option Investor
Newsletter

Daily Newsletter, Saturday, 4/8/2017

Table of Contents

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

Market Wrap

Geopolitical Risk Returns

by Jim Brown

Click here to email Jim Brown

The surprising news of the missile strike on Syria brought geopolitical risk back to the market.

Weekly Statistics

Friday Statistics

The S&P futures shook off a -15 point overnight decline to 2,336 and rebounded to 2,360 by Friday afternoon. However, weekend event risk suddenly took on an entirely new meaning with the Syrian headlines. Cautious investors moved to the sidelines and the afternoon gains faded back to minimal losses.

The big cap indexes all ended the day with single digit declines while the Russell 2000 was fractionally positive. The only two real gainers were the Biotech Index at +19 and the Semiconductor Index at +5.

Late Friday news broke that the Russian warship Admiral Grigorovich had entered the Eastern Mediterranean and was steaming full speed towards the two U.S. ships that fired the 60 Tomahawk cruise missiles. Russia later said "the ship, armed with the advanced Kalibar missiles would visit the logistics base in Tartus Syria." There were also headlines claiming Syrian aircraft had taken off from the same airbase in the afternoon to continue bombing civilians. Both of those headlines suggested on the surface that there could be further conflict in the future. Obviously, some investors did not want to be long over the weekend.

S&P Futures

On the economic front, there was a major upset. The Nonfarm Payrolls for March had been expected to show a gain of 180,000 jobs. That was revised down from estimates of 190,000 the prior week. The actual headline number was 98,000 and a major miss. The prior two months were revised lower by a total of 38,000 jobs.

The Nonfarm number was a surprise because the ADP Employment report on Wednesday greatly exceeded estimates for 185,000 with an actual number of 263,000 new jobs for March. That put everyone's mind at ease and the market spiked sharply higher on Wednesday.

The Nonfarm report showed that goods producers added only 28,000 jobs compared to the 95,000 in February. Construction also fell sharply to only a 6,000 job gain compared to the 59,000 in the prior month. Mining/energy added 11,000 thanks to the resurgence in the oil sector. Manufacturers showed a gain of 11,000.

Service sector job gains were only 61,000 and less than half the February total. Retailers were hammered for a 30,000 job loss. General merchandisers cut 20,000, department stores 13,000, clothing stores 6,000 and personal care -4,000.

Professional and business services remained strong at +56,000 and leisure and hospitality added +6,000.

The unemployment rate dropped to 4.5% from 4.7%, a 10-year low and the Fed's target for "full employment." The broader U6 unemployment rate fell to 8.9%, down from 9.2% and a post recession low. The labor participation rate remained at 63%.

There were two reasons being blamed for the weak jobs number. The first was the warm weather in February that drew outdoor jobs forward and then the return of winter weather in March that depressed hiring for outside jobs. The late Easter was also blamed for a delay in hiring. If this is the correct reason, the headline number should rebound in April.

The second excuse was the end of the Trump bump. Analysts said business optimism declined in March with the expected failure of the health care bill and the reality that tax restructure and infrastructure stimulus programs would be pushed well back in 2017, if not 2018. That supposedly caused employers to put off hiring until something was actually passed.

Offsetting the low 98,000 headline number on the establishment survey was the strong +472,000 increase in employed from the household survey. Analysts said the spike was due to increases at small businesses, which are captured by the ADP report but not by the Nonfarm payrolls, which only survey large businesses.


The weak payroll numbers did not impact the expectations for the next Fed rate hike. The CME Fed funds futures are predicting a 66.2% chance of a rate hike at the June meeting. There is also a 38.5% chance of a third hike at the September meeting. The various Fed speakers have tended to suggest the Fed could move faster unless they decide to begin selling off their $4.5 trillion in QE purchases, which would be the equivalent of multiple rate hikes. That potential was raised in the FOMC minutes and helped cause the market crash on Wednesday.


The various economic reports including the Nonfarm payrolls, knocked the forecast for the Atlanta Fed real time GDP for Q1 down from 1.2% on Tuesday to only +0.6% growth as of Friday. This is a material change and could impact the Fed's eventual rate hike plans.

The first look at the actual Q1 GDP will be on April 28th.


In other reports, the California Manufacturing Survey for Q1 declined slightly from 59.7 to 58.2.

U.S. Wholesale Trade for February rose from -0.2% to +0.4%. On a 12-month basis, inventories are up +3.2%. These reports were ignored.

We have a very light calendar for next week with Janet Yellen leading off with a speech on Monday. After the reaction to the Fed minutes and the topics discussed, she will probably try to calm the markets with additional "gradual" comments.

The next most important event is the bank earnings on Thursday. With Citi, JP Morgan, Wells Fargo, First Horizon, First Republic and PNC Bank all reporting on the same day there is significant potential for volatility. ALL of them report before the market opens. A trio of strong earnings beats from C, JPM and WFC could power the market higher. However, in the last cycle, earnings beats by those banks did not power them higher. With the sector down the last week, it would appear investors are pricing in some lackluster results OR they just feel the November rally has run its course until some actual deregulation appears.

With Friday a market holiday, the bank earnings on Thursday morning are going to create a flurry of volatility and then volume will drop to near zero for the rest of the day.


The yield on the ten-year treasury dipped to 2.27% and a five-month low after the Syrian attack was announced. When it appeared to be a "one of one" event and not a prelude to active long-term intervention in Syria, the yields began to rise slightly to 2.31% at 12:00. After NY Fed President William Dudley spoke at the Princeton Club, the yields spiked again to close at 2.37%. Dudley said the Fed might pause in its plan to normalize rates if it decided to begin reducing its balance sheet. He also said the U.S. should consider some small adjustments in the Dodd-Frank law which toughened oversight for financial institutions.

The last time the unemployment rate was 4.5% the yield on the ten-year was 4.75% and the Fed funds rate was 5.25%. The Fed claims their new normal target will be 3.0-3.5% for two years from now. If the Trump administration believes that, they should be locking in some long-term treasury debt soon. For every quarter of a point that interest rates rise it adds $50 billion a year in interest to the U.S. debt. A rise to 3.5% would add $500 billion a year in interest to the debt. We never actually pay the interest. The government sells new debt for enough to replace the old debt and cover the interest. That is like getting a cash advance on your credit card in order to make the payment on that card.


The dollar dropped sharply after the attack and the weak payroll report. However, that was a knee jerk reaction and the internals on the jobs report suggested the economy was still on track with the unemployment at a 10 year low. The dollar dip was immediately bought and then comments about a rate hike in June and September and possibly even December, set it soaring to a three-week high.


Credit Suisse said year to date in 2017 there have been 2,880 announced store closings in the retail sector. This is more than double prior years for this point on the calendar. They project as many as 8,700 store closings for the entire year. There have been 10 retail chain bankruptcies and 7 additional chains are expected to file this year. The retail sector is in a death spiral and those not able to adapt to the online model are doomed to fail.

The retail sector has lost 60,600 jobs over the last two months. That was the largest two-month contraction since December 2009 when the industry lost 62,200 jobs. Mall stores accounted for 34,700 job losses in March. Retail workers account for 10.9% of all jobs in the USA. That is down from 11.6% in 2000. Payless Shoes filed bankruptcy last week and is closing 400 stores.

The death of the mall is well documented. The Richmond Town Center outside of Cleveland had three anchor tenants. Sears, Macys and JC Penny's. Two of them have already closed and JC Penny's is closing in June.


Amazon (AMZN) announced it was going to hire 30,000 part time workers over the next year with 5,000 of those to be work from home jobs. The 5,000 workers from home will be its Virtual Customer Service Program and the remaining 25,000 will be hired at the 70 fulfillment centers across the USA. This is in addition to the 100,000 full time employees with benefits the company said it was going to hire back in January. That hiring was going to take place over the next 18 months. Part time workers who work over 20 hours are eligible for benefits that include life insurance, dental, vision and disability insurance and Amazon pays all the premiums. Amazon will also prepay 95% of tuition costs for courses related to in-demand fields even if those courses would not lead to a job at Amazon. Full time workers also get 401K matching programs and paid time off. Amazon added 150,000 employees over the last five years and had 180,000 employees at the end of 2016.


Yum Brands (YUM) said it was cutting the use of antibiotics in chickens bought for use in its KFC restaurants. The company is giving poultry suppliers until the end of 2018 to stop using the antibiotics. Yum is joining McDonalds (MCD) and Chick-Fil-A in ending the practice. KFC sells more than 65 million buckets of chicken every year. Yum normally buys only about one-third of the chickens in a seller's flock because the rest do not meet their quality standards. Chicken farms are shifting to things like putting oregano in the bird's water to kill bacteria and infuse chickens with antioxidants. Farmers are now required to wipe eggs with sanitizing wipes before sending them to a Tyson facility to be hatched. Once they arrive, Tyson puts them in a room of fog made from peracetic acid to keep the bacteria as low as possible before being placed in the incubators.


Twilio (TWLO) was upgraded by JP Morgan from neutral to overweight. They listed 7 reasons why they think Twilio is a buy. After surging to $70 post IPO, the stock fell back to $28 and now trades at only a slight valuation premium to its peers. Their 12 consecutive quarters of 70% revenue growth is impressive. Amazon, which invested in Twilio, is more of a partner than a competitor. They are adding new Twilio features to their AWS offerings almost every month. The 31 million-share lockup expiration in February has already passed. The company has cut its higher-risk variable revenue by 60% so future revenue will be more predictable. Twilio's services are more reliable than its competitors. The company's addressable market of $46 billion is more legitimate than other providers.

JPM said "customers and developers recognize Twilio as a best-in-class toolbox for communications with a multi-year industry lead." Shares rallied 4.6% on the upgrade.


WD-40 (WDFC) reported earnings of 87 cents that missed estimates for 90 cents. Revenue of $96.5 million missed estimates for $99.8 million. They guided for full year earnings of $3.64 to $3.71 and revenue of $390-$395 million. Shares fell -4.7% on the news.


PriceSmart (PSMT) reported earnings of 90 cents on revenue of $772.3 million. Analysts were expecting 92 cents and $794.4 million. Same store sales rose 2.1% in March after being flat in February and declining the prior two quarters.


Diana Shipping (DSX) saw shares rise by 9% after JP Morgan upgraded the company from neutral to overweight. JPM said rates will improve because of a more stable supply trend. The weak global economy has punished shippers but the bank believes conditions are going to improve. That would be beneficial for all shippers not just Diana.


Apple (AAPL) shares declined the last two days on new worries the iPhone 8 will be delayed. According to a news report in the Economic Daily News in China, the phone could be delayed as late as November instead of the normal September launch. The article quoted "technical issues" with components. They said the OLED screens and incorporating the 3D sensing technology into the phone were the reasons for the delay. Apple has reportedly placed an order for 70 million OLED screens from Samsung. Online website 9to5mac said the absence of leaks from Foxconn Technology, the actual maker of the phones, could signify delays. "Either Apple has tightened security to improve secrecy OR the devices are not yet being produced in mass quantities." Foxconn employs more than one million workers and once production begins, there are always a few people that post pictures and details.

Apple will be rushing to get its phones to market ahead of Google's updated Pixel phone also due out in late 2017. This is the second set of rumors suggesting a delay in production. The first came from a fire at a ST Microelectronics (STM) facility that manufactures the 3D sensors. After several weeks of tense headlines, that rumor faded but there was also a different comment last week saying STM would not be ready to ship components until September.

It would appear that Apple shares are priced for perfection and any concrete rumor that deliveries could be delayed a month or more could be catastrophic. Investors are betting on a blowout Q4.


The Syria attack helped to lift crude prices. Syria does not produce much oil but any additional instability in the Middle East is always good for oil prices. Crude actually rose despite the spike in the dollar and that suggests larger trader interest.


U.S. production increased by 52,000 bpd last week to 9.2 million bpd. That is still well below the peak of 9.61 mbpd in 2015. Active oil rigs increased by ten to 672 with most of them going to the Permian. Active gas rigs increased by 5 to 165. Continued gains in oil prices should accelerate rig activations.


Markets

Volume was light at 5.95 billion shares and decliners of 3,638 were slightly ahead of advancers at 3,272. The markets recovered from their early morning dip with the Dow at -56 at the low and returned to positive territory in early afternoon. The fear of weekend event risk saw investors heading for the sidelines just before the close.

However, the selling was light and there was nothing to suggest it will be worse next week. Given the various headline events last week, the market missed out on several opportunities to post a significant decline. That suggests the likely path is higher even though the Dow and S&P charts are still slightly bearish.

The Dow remains stuck under resistance at 20,750 but the declines have been minimal. We have had two days of lower highs and lower lows but the index is refusing to drop below 20,600 and there is even stronger support at 20,500. The bank earnings on Thursday could be a market driver in either direction. Banks have been depressed despite the Fed rate hike. Strongly positive earnings could trigger short covering and mediocre earnings could add to the depression.

The Dow leaders on Friday were an unlikely group with all the normal leaders clustered at the bottom of the list.



The S&P is also stuck in a range between 2,350 and 2,370 that has held for the last eight trading days. The overall chart is slightly bearish but only until that 2,350 support fails and then it will be solidly bearish. A move on decent volume over 2,370 that holds and then pierces the next level at 2,380 would turn the chart slightly bullish. Until the range from the last three weeks has broken, we will not know the market direction. Given the flurry of negative headlines, just holding in place is somewhat bullish from a sentiment perspective.


The resistance on the Nasdaq Composite has moved up to 5,915 after the 5,914 high close the prior Thursday. This level has been penetrated multiple times but each attempt failed at the close. The Nasdaq Composite pulled back only slightly and the bullish trend is still intact.

The Nasdaq 100 has solid resistance at 5,440 and the major big cap stocks have been ticking lower the last couple days. Despite the selling in Facebook, Apple, Amazon, Netflix and Google, the index continues to hold just below that resistance. All it would take would be one good day to set a new high but we need a positive catalyst and I do not see one on the horizon.




The small caps have not declined over the last two days. The fractional loss on the S&P-600 on Friday is not material. However, the index is holding just over support at 825 where the Nasdaq indexes are holding just under resistance. Helping the small caps on Friday were the biotechs and semiconductors.

If this index closes below 825 and last week's lows, it could signal a sentiment shift for the market. It appeared over the last couple days that rotation from big caps to small caps had returned but it is so weak we cannot claim it.


The market is closed on Friday making this a short week. With lawmakers out of town on their Easter recess until the 23rd, there will be little in the form of negative headlines unless there is another unexpected military confrontation. The economic calendar is uninspiring with the bank earnings on Thursday the only bright spot for the week.

I believe the market needs a catalyst to move higher. I have no clue what that could be but without one we could languish in a sideways range for another week.

The fireworks begin when the lawmakers return to work on the 24th with only five days to pass a funding bill and raise the debt ceiling. The fighting was already in progress before they left for the recess but it was muted because they did not want to give the folks back home something else to be mad at them about.

In theory, this week should be neutral but as Yogi Berra reportedly said, "In theory there is no difference between theory and practice. In practice there is." (The quote was actually first spoken by computer scientist Jan van de Snepscheut in the early 1980s. It first appeared in print in the 1986 book on Pascal programming by Walter Savitch and he said he heard it at a computer conference years earlier from Snepscheut. More than a decade passed before it was falsely attributed to Berra.)



Random Thoughts


The bearish crowd continues to grow with bullish investors shrinking for the second week. The shift in sentiment now shows that 71.7% of respondents do not believe the market is going higher. That means there are very few buyers to propel the market forward. On a contrarian basis, it also suggests an unexpected spike could pull a lot of traders off the sidelines or force them to cover bearish positions.

Last week results


The Trump administration warned Russia it was going to strike Syria and gave them time to move their planes and people. They did it over the de-confliction hotline that was in use to prevent inadvertent or deliberate conflicts between U.S. and Russian planes in the skies over Syria.

Late Friday, the U.S. News and World Report said Russia has shutdown the hotline saying it was no longer needed. In addition, Russian Defense Ministry spokesman Maj. Gen. Igor Konashenkov said Russia will quickly "strengthen the Syrian air defense system and increase its efficiency in order to protect Syria's most sensitive infrastructure facilities."

Russia is trying to send a message to Trump that any further attacks on Syria will be met with Russian defenses. If that response included attacking a U.S. ship that launched the missiles, we would be moving into an entirely new chapter on U.S. - Russian relations.

The real message Trump sent was also to North Korea and China. By launching the attack while at dinner with the Chinese president, he showed he was serious about red lines. North Korea has been crossing red lines at will without any negative results. The administration has said multiple times recently that the military option is on the table against North Korea if China does not control its wayward neighbor. China could stop North Korea's nuclear and missile programs very quickly but has refused to interfere. Thursday's strike on Syria probably caused Xi Jinping and Kim Jong Un to rethink their posture on flaunting those UN Security Council sanctions.


Speed of Change

3D Printing:

The price of the cheapest 3D printer came down from $18,000 to $400 within 10 years.

At the same time, it became 100 times faster.

All major shoe companies have started 3D printing of shoes.

Spare airplane parts are already 3D printed at remote airports.

The space station now has a printer that eliminates the need for the large amount of spare parts they used in the past.

At the end of this year, new smartphones will have 3D scanning possibilities.

You can then 3D scan your feet and print your perfect shoe at home.

In China, they have already 3D printed a complete 6-story office building.

By 2027, 10% of everything that's being produced will be 3D printed.


 

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

 

"A wise man can learn more from a foolish question than a fool can learn from a wise answer."

Bruce Lee


 

If you like the market commentary you have been receiving and you are on a free trial then now is the time to subscribe. Don't wait until you miss a newsletter to decide you want to take the plunge.

subscribe now

 


New Plays

Vacation Time is Here

by Jim Brown

Click here to email Jim Brown
Editor's Note

Where are you going on your vacation? This company has hundreds of choices available. ILG has properties all around the world for your vacation pleasure.



NEW BULLISH Plays

ILG - ILG Inc - Company Profile

ILG, Inc., together with its subsidiaries, provides non-traditional lodging covering a portfolio of leisure businesses from vacation exchange and rental to vacation ownership. The company operates through two segments, Exchange and Rental, and Vacation Ownership. The Exchange and Rental segment offers leisure and travel-related products and services to owners of vacation interests and others primarily through various membership programs, as well as related services to resort developer clients; and allows owners of vacation ownership interests to exchange their occupancy rights for alternative accommodations at another resort and/or occupancy period. This segment also provides vacation property rental services for condominium owners, hotel owners, and homeowners' associations. The Vacation Ownership segment engages in the management of vacation ownership resorts; and the sale, marketing, and financing of vacation ownership interests, as well as in the provision of related services to owners and associations. As of December 31, 2016, it provided management services to approximately 250 vacation ownership properties and/or their associations. The company was formerly known as Interval Leisure Group, Inc. and changed its name to ILG, Inc. Company description from FinViz.com.

ILG reported earnings of 48 cents on revenue of $455 million. Net income rose from $16 million to $61 million. Earnings rose from 27 cents to 48 cents. Free cash flow was $180 million. Analysts had expected revenue of $464 million and shares fell sharply over the next week. The company guided for full year revenue of $1.72 to $1.86 billion.

They repurchased 6.5 million shares and paid $52 million in dividends to return $153 million to shareholders. They currently pay a 2.83% dividend.

The company has been on an acquisition and renovation binge. They sometimes acquire properties in great locations that have issues and then spend a few million on renovations to turn them into star attractions. In May they completed the acquisition of Vistana Signature Experiences, formerly known as Starwood Vacation Ownership for $1.15 billion in cash and stock. With the transaction, they acquired an 80-year global license for the use of the Westin and Sheraton brands.

Despite their vast holdings and strong revenue they are still a relative unknown in the investment community. However, with their Vistana acquisition along with the Hyatt and St Regis vacation brands they are starting to become known.

Shares have risen $3 in the last four weeks and have begun to accelerate. The company is a member of the S&P-600 but with the acquisition of Vistana it has a market cap over $3 billion and is eligible for inclusion into the S&P-500. That could provide a nice boost to the stock price but it would be pure speculation.There are many companies with a higher market cap that have not been included.

Earnings May 30th.

Buy ILG shares, currently $21.20, initial stop loss $19.80

Optional: Buy June $22 call, currently 55 cents.



NEW BEARISH Plays

No New Bearish Plays



In Play Updates and Reviews

No Material Movement

by Jim Brown

Click here to email Jim Brown

Editors Note:

The small cap indexes closed only a few cents away from zero but that was better than the big cap indexes. The big caps all closed slightly negative wit single digit losses but the Russell gained +0.14 and the S&P-600 only lost -0.38. That is as close to a tie between buyers and sellers as you can get.

The weekend event risk had cautious traders moving to the sidelines but there was no material selling. This suggests next week could be positive given all the sell off chances the market has passed up in the last 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.




Lottery Ticket Plays - Updated only on Weekends


Current Position Changes


KRNT - Kornit Digital
The long stock position was entered at the open.

DEPO - Depomed
The short stock position was stopped at $12.95.

FNSR - Finisar
The long call position was stopped at $25.75.

AMD - Advanced Micro Devices
Drop the April long call position.

KR - Kroger
Drop the April long put position.



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

Short term Calls and Puts on equities = Option Investor Newsletter

Credit spreads and naked puts = OptionWriter

Long term option investments = LEAPS Investor

3-6 month Option Trades = Ultimate Investor

Iron Condors = Couch Potato Trader



BULLISH Play Updates

CPE - Callon Petroleum Company - Company Profile

Comments:

No specific news. Minor decline in a weak market.

Original Trade Description: April 3rd.

Callon Petroleum Company, an independent oil and natural gas company, acquires, explores for, develops, and produces oil and natural gas properties in the Permian Basin in West Texas. As of December 31, 2016, its estimated net proved reserves totaled 91.6 million barrel of oil equivalent. The company was founded in 1950 and is headquartered in Natchez, Mississippi. Company description from FinViz.com.

This is a small oil producer with 66 years of experience. They reported Q4 earnings of 8 cents that missed estimates for 10 cents. Revenue of $69.1 million also missed estimates for $71.8 million. However, that is not the real picture.

Production for the full year increased 59% with 77% oil. Q4 production increased 11% with 76% oil. Reserves increased 69% to 91.6 million Boe with 78% oil. They replaced 311% of production with new wells and new discoveries. Their finding and developing costs are very low at $8.77 per barrel. They increased their Permian acreage by 41,000 acres through multiple acquisitions. They raised 2017 production guidance by 60% to 24,000 Boepd. Callon ended the quarter with $653 million in cash.

Earnings May 29th.

Shares hit a low of $11 on March 14th and began to rebound. That rebound has begun to accelerate over the last week with oil prices rising back over $50. With refiners restarting after the Feb/March maintenance cycle, oil inventories should begin to decline. That always lifts prices in the spring and summer months and rising oil prices lifts equities.

Position 4/4/17:

Long CPE shares @ $13.31, see portfolio graphic for stop loss.

Optional: Long May $14 call @ .55, see portfolio graphic for stop loss.



ECA - Encana Corporation - Company Profile

Comments:

No specific news. Shares up at the open but faded with the market.

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.



HABT - Habit Restaurants - Company Profile

Comments:

No specific news. Support has formed at $17.25. 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.



KRNT - Kornit Digital - Company Profile

Comments:

No specific news. New closing high.

Original Trade Description: April 5th.

Kornit Digital develops, manufactures and markets industrial digital printing technologies for the garment, apparel and textile industries. Kornit delivers complete solutions, including digital printing systems, inks, consumables, software and after-sales support. Leading the digital direct-to-garment printing market with its exclusive eco-friendly NeoPigment printing process, Kornit caters directly to the changing needs of the textile printing value chain. Kornit’s technology enables innovative business models based on web-to-print, on-demand and mass customization concepts. With its immense experience in the direct-to-garment market, Kornit also offers a revolutionary approach to the roll-to-roll textile printing industry: Digitally printing with a single ink set onto multiple types of fabric with no additional finishing processes. Founded in 2003, Kornit Digital is a global company, headquartered in Israel with offices in the USA, Europe and Asia Pacific, and serves customers in more than 100 countries worldwide. Company description from Kornit.

The company description pretty much says it all. They have developed a process to print on fabric that is fast and cheap and the company is setting new highs as the demand for their product increases.

The company reported earnings of 16 cents on a 33.4% increase in revenue to $34 million. There was a secondary offering in January that raised $38 million for the company and was very oversubscribed.

The big spike in early January was news the company granted Amazon warrants to buy up to 2.9 million shares at $13. Since KRNT only has 31 million shares outstanding that is nearly a 10% position in the company. The warrants came after Amazon placed an order for a "large number" of textile production systems for Amazon's own use in the Merch by Amazon program.

Earnings May 16th.

Shares made a new high on March 31st and they closed within 10 cents of that high on Thursday. Shares have risen over the available option strikes so this will be a stock only position.

Position 4/7/17:

Long KRNT shares @ $19.00, see portfolio graphic for stop loss.




BEARISH Play Updates

ACOR - Acordia Therapeutics - Company Profile

Comments:

No specific news. Shares declined 45 cents to $16.60 and are now only 15 cents above a new ten-year low.

Original Trade Description: April 5th.

Acorda Therapeutics, Inc., a biopharmaceutical company, identifies, develops, and commercializes therapies for neurological disorders in the United States. The company markets Ampyra (dalfampridine), an oral drug to improve walking in patients with multiple sclerosis (MS); Zanaflex capsules and tablets for the management of spasticity; and Qutenza, a dermal patch for the management of neuropathic pain associated with post-herpetic neuralgia. It also markets Ampyra as Fampyra in Europe, Asia, and the Americas. In addition, the company develops CVT-301 that has completed a Phase III clinical trial for the treatment of OFF periods in Parkinson's disease; CVT-427, which has completed a Phase I clinical trial to treat migraine; Tozadenant that is in Phase III clinical trial for reduction of OFF time in Parkinson's disease; SYN120, which is in Phase II clinical trial to treat Parkinson's disease-related dementia; and BTT1023 (timolumab) that is in Phase II clinical trial for primary sclerosing cholangitis. Further, it develops rHIgM22, which is in Phase I clinical trial for the treatment of MS; Cimaglermin alfa that has completed a Phase I clinical trial in heart failure patients; and Chondroitinase Program that is in research stage for the treatment of spinal cord injury. The company has collaborations and license agreements with Biogen International GmbH; Alkermes plc; Rush-Presbyterian St. Luke's Medical Center; Alkermes, Inc.; SK Biopharmaceuticals Co., Ltd.; Astellas Pharma Europe Ltd.; Canadian Spinal Research Organization; Cambridge Enterprise Limited and King's College London; Mayo Foundation for Education and Research; Paion AG; Medarex, Inc.; and Brigham and Women's Hospital, Inc. Company description from FinViz.com.

It has not been a good four days for Acordia. The company reported on Friday a U.S. District Court had ruled that four key patents for their primary drug Ampyra were invalid. This clears the way for Mylan, Teva and Roxane to immediately begin producing a generic version. Those companies have already applied to the FDA for permission. Seven other companies had sought to copy the drug but agreed to delay settlements with Acordia.

The problem for Acordia is that Ampyra produced 90% of the $519 million in Acordia revenues in 2016. With multiple generic competitors hitting the market very soon, that number will be significantly lower for 2017. Acordia said they were going to appeal the verdict but that is a long shot at best and those larger companies have more money to defend their case.

Acordia said on Wednesday they were cutting 20% of the workforce to save $21 million a year. Unfortunately, that will not be near enough to save the company. They ended 2016 with $153 million in cash and revenue guidance for $540 million in 2017. If that is cut in half they will be forced to raise money with a secondary offering. If they are smart they should already have it queued up and ready to go before the stock falls into single digits. Obviously, that will further depress the stock price but they have no other alternative.

Shares have fallen significantly over the last four days but the patent decision is the equivalent of a death sentence if they cannot raise money quickly.

Earnings are April 27th and the expectations for guidance could be ugly.

Position 4/6/17:

Short ACOR shares @ $17.05, see portfolio graphic for stop loss.

No options recommended because of price.



DEPO - Depomed Inc - Company Profile

Comments:

No specific news. Monster 15% rebound on no news. Something triggered another short squeeze and it was huge. We were stopped out of the short stock position with a 43 cent loss and the long put position is still open and wil move to the lottery play section next week.

Original Trade Description: April 1st.

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.

Update 4/4/17: The company announced the prepayment of $100 million of its $475 million in secured debt. The loan facility matures in 2022 and Depomed is planning on refinancing the remaining $375 million later this year. Shares gained 25 cents on the news.

Position 4/3/17:

Closed 4/7/17: Short DEPO shares @ $12.52, exit $12.95, -.43 loss.

Still open: Long May $12 put @ 80 cents, see portfolio graphic for stop loss.



FSLR - First Solar - Company Profile

Comments:

Reportedly FSLR wants to exit its joint venture with Sunpower (SPWR). The two companies package completed utility scale solar farms into a "Yield Co" for sale to investors. Yield Cos have lost favor with the investing public after SunEdison filed bankruptcy in 2016. Shares posted a minor gain.

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.




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:

AKS announced the opening of their 135,000 square foot Research and Innovation Center where new products will be developed. Investors liked it with an 8% gain on Friday.

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:

On Thursday Goldman initiated coverage on AMD with a SELL rating and $11 price target. The analyst said they would see increased competition from Nvidia and Intel. Apparently, the analyst has been living under a rock because they always have increased competition from those companies. This drop from the $14.50 level effectively killed our remaining position. I am recommending we drop the position, not close it. There was a rumor early in the week that they were talking to Texas Instruments about a possible acquisition of AMD. That would be a big deal and with the option currently at 5 cents we do not want to sell, just in case lightning does strike.

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:

Long Apr $16 call @ 67 cents, currently 6 cents, dropping coverage, -67 cent loss.

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



CX - Cemex - Company Profile

Comments:

Shares were upgraded to overweight at Morgan Stanley. Shares traded at a 52-week high on Wednesday. The company said it was retaining its Croatia operations after the European Commission failed to approve the sale to Duna-Drava Cement.

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 traded at a 5-week high on Wednesday.

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.



FNSR - Finisar - Company Profile

Comments:

No specific news. Shares continued to decline and we were stopped out of the option position at $25.75 on Wednesday.

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:

Closed 4/5/17: May $30 call @ $.85, exit .25, -.60 loss.

Closed 4/4/17: Long FNSR shares @ $27.89, exit $26.45, -1.44 loss.



HIMX - Himax Technologies - Company Profile

Comments:

Shares rebounded back to a six-month high after our stock position was stopped out by an article in DigiTimes last week. The option is actually positive now.

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.

Update April 5th: 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.

Position 3/30/17:

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

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



INFN - Infinera Corporation - Company Profile

Comments:

No specific news. Shares have returned to the March lows and our July $10 put is 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 rebounding from support and our April put is likely to expire worthless. I am recommending we drop it from the portfolio. I am not recommending a sell because anything can happen over the next two weeks.

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 are creeping back towards the new high set the prior week. Time is short. The stock needs to hurry.

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 rebounded from support but needs to move back over $14 this week to help us.

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.





If you like the trade setups you have been receiving and you are on a free trial then now is the time to subscribe. Do not wait until you miss a newsletter to decide you want to take the plunge.

subscribe now