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Newsletter

Daily Newsletter, Saturday, 4/22/2017

Table of Contents

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

Market Wrap

Quiet Expiration

by Jim Brown

Click here to email Jim Brown

After Friday's morning dip the market never strayed very far from the flat line except for a short sell program at 1:PM. It was a very quiet option expiration.

Weekly Statistics

Friday Statistics

The market open was calm for an expiration Friday and the earnings were mostly positive. The constant chatter was more about the French elections than the saber rattling around North Korea. President Trump and Steve Mnuchin made separate comments about releasing their new healthcare proposal and the tax reform proposal next week. Those comments lifted the Dow off its morning lows but the ever-present weekend event risk kept investors on the sideline. The most volatility came from a sell program about 1:PM. It could have been a headline reaction instead but I could not find anything at that time. The Dow fell nearly 70 points in just over 5 minutes.


The only economic report that mattered was the Existing Home Sales for March. The headline number rose from 5.47 million to 5.71 million homes at an annualized rate. This was the fastest rate of sales since the 5.75 million pace in July 2008. That was a 4.4% increase from February and 5.9% increase from the year ago period.

The median single-family home price fell -0.5% to $245,300 and the price for a condo declined -0.4% to $231,690. Those prices are still up +6.8% from year ago levels. The supply of homes on the market was flat at 3.8 months. Sales in the Northeast rose 10.1%, Midwest 9.2%, South 3.4% and sales fell in the West by -1.6%. Listings for single-family homes rose slightly to 1.61 million thanks to the arrival of spring. Average days on the market for a home have fallen to record lows due to a shortage of inventory and more than half the homes coming to market are sold in less than 30 days.


We have a very busy calendar for next week with four regional Fed reports. There are two home sales reports and the first GDP release for Q1. The GDP report is not expected to be good. The official forecast is for +0.8% growth but the Atlanta Fed real time GDPNow is currently forecasting only 0.5% growth. This is the lowest forecast since the Fed began tracking it back in early February.

If the actual GDP is close to the GDPNow, the market may suddenly decide it is too optimistic for the current conditions. The Q1 GDP is the result of the prior administration because Trump policies and directives have either not yet been enacted or it is too soon for any impact. It will be Q1-2018 before there is any meaningful policy impact.

With the PE of the S&P-500 at 18.0, you really have to be optimistic with a 0.5% GDP. There could be a reality check if the actual number is low.


The Fed meets again the following week to consider rates. Currently there is only a 4.3% chance of a rate hike at that meeting. However, they could reveal more of their plans for reducing their QE balance sheet and that could have more of a market impact than another rate hike.


The French elections on Sunday should be good for a 10% move in the European markets. The direction depends on who wins. This is a four-person race and the top two finishers will compete head to head in another election in June. The most current polls have Le Pen at 22% and Macron at 23% with Fillon and Melenchon at less than 20% each. There is one other candidate at 8% but Hamon has no chance of winning.

The terrorist attack in Paris last week should give an edge to Le Pen because of her anti immigration, anti terrorist platform.

Citigroup believes Le Pen and Macron will be the top two in this election. In the runoff in June, they expect Macron to win with 65% of the vote and Le Pen 35%. If Sunday's election plays out like Citigroup expects, they believe the European markets will rise 5% to 10% over the coming months on the expectation for Macron to be the runoff winner. However, should Le Pen post a much stronger showing on Sunday it could be enough to cause chaos in the market since she wants to exit the euro and go back to the franc.

The ideal scenario for the U.S. markets would be a strong showing by Macron that suggests he will win the runoff. The chart below is before the terrorist attack.

FiveThirtyEight Chart

Lastly, the government funding battle is starting to heat up with democrats talking about poison pills in the resolution that will be deal killers. The stage is set for a confrontation but there is talk of implementing a short-term continuing resolution for a week or two to give lawmakers time to work out a solution. That is the right attitude. Stay away from the potential government shutdown as long as possible but eventually there will be a showdown. The farther away from the current earnings cycle the better.


The earnings cycle heats up next week with 194 S&P companies reporting. There are 12 Dow components reporting. The current forecast for Q1 is for earnings growth of 11.2%. Of the 95 S&P companies that have already reported, 75.8% have beaten estimates for earnings. That is higher than the average of 71% over the prior four quarters. Only 62.1% of the companies have beaten on revenue but that is still above the recent average of 53%. So far, in Q1, there have been 83 earnings warnings and 33 companies have issued positive guidance. Over the next two weeks, 325 S&P companies will report. When you add the 95 already reported a whopping 420 S&P companies will have reported in only three weeks. According to StarMine, companies expected to beat earnings estimates next week include NOC, FTI, AMZN, AMT, AAL, AJG, EQIX, CNC, XL, PEP and NEM.

Thursday is especially jam packed with tech stocks with INTC, MSFT, AMZN, GOOGL, SBUX, UPS and WDC.


On Friday, Dow component GE got the ball rolling with earnings of 21 cents that beat estimates for 17 cents. Revenue declined -1% to $27.66 billion but still beat estimates for $26.37 billion. The energy division continued to drag on results and they said they were on track to merge that division with Baker Hughes (BHI) on schedule around the middle of 2017. The company guided for full year earnings of $1.60-$1.70 per share. Analysts expected $1.63.

GE said they closed the acquisition of LM Wind Power for $1.65 billion. The company makes rotor blades for wind turbines.

CEO Jeffrey Immelt said global growth was accelerating while the U.S. continued to improve. During his trips overseas, he said China, Southeast Asia, Latin America and Africa were all stronger than in 2016. Shares fell -2.4% on the report.


Honeywell (HON) reported earnings of $1.66 compared to estimates for $1.62. Revenue declined slightly to $9.492 billion but beat estimates for $9.328 billion. The company guided for the full year for earnings of $6.90-$7.10 per share, a 5-cent increase on the low side. They said the "commercial aftermarket within aerospace and the global distribution business within home and building technologies remained strong." The demand for performance materials and technologies were boosted by "low-global warming products." Shares rebounded $3 to a dead stop at resistance at $127.


Stanley Black & Decker (SWK) reported earnings of $1.29 that beat estimates for $1.19. Revenue rose 5% to $2.806 billion and topped estimates for 2.75 billion. That was even more impressive since they took a 1% hit from currency translation and 2% from divestitures. They paid dividends of $86.7 million and repurchased $17.3 million in shares. They guided for the full year to earnings of $7.08-$7.28, up from prior guidance of $6.98-$7.18. Shares spiked $5 on the news.


SunTrust Banks (STI) reported earnings of 87 cents compared to estimates of 84 cents. Adjusted revenue of $2.21 billion rose 7% but barely beat estimates for $2.20 billion. Deposits averaged $158.9 billion with the average loan balance $143.7 billion. Provision for credit losses rose 18% to $119 million. Shares declined slightly on the news.


McDonalds (MCD) coverage was initiated at BMO Capital with an outperform rating and a $153 price target. The analyst said "McDonalds was a premium brand in the early stages of mounting a comeback with a favorable risk/reward profile." Shifting to fresh, never frozen, beef for their Quarter Pounder was a major step and the first of many changes ahead. The analyst also initiated coverage on Wendy's with an outperform rating saying the company had a "defensible" premium position following structural enhancements.


Domino's Pizza (DPZ) rebounded from its recent funk after Guggenheim rated the stock a buy, saying the company has scale, disciplined decision making and an excellent franchise network. The pizza company has had a rough few weeks after a report by M Science warned the company's domestic sales growth would be "well below consensus for Q1." M Science would not respond to analyst questions on why they are projecting a miss. Shares of DPZ fell -$13 on the news in early April.


Wal-Mart (WMT) has declared war on the grocery sector. The retailer is slashing prices in its grocery dept with a goal of being 15% cheaper than everyone else at least 80% of the time. Barclay's checked prices on identical items at competing chains and found Wal-Mart was 4% cheaper than Kroger because the smaller chain is trying to compete with Wal-Mart's cuts to retain market share. Wal-Mart was cheaper on 74% of the items checked. Wal-Mart was 5.6% cheaper on nonperishable and frozen items. Kroger's "fresh products," currently not on sale, were 15% more expensive than Wal-Mart. Kroger runs constant sales on some fresh items as loss leaders to convince shoppers their prices are cheaper overall. Barclays said Kroger was a better operator but Wal-Mart's scale made them almost unbeatable. This grocery price war is great for consumers and Kroger shares are suffering while Wal-Mart shares are rising.

This is another reason why analysts believe Kroger should buy Whole Foods Market with 460 stores. It would give Kroger access to millions of shoppers who are not specifically price conscious. Kroger already owns a dozen chains with different brands and adding Whole Foods would be simple. Currently Whole Foods is suffering from lower grocery prices in general rather than a price war with Wal-Mart on the lowest level products. A can of beans may cost 65 cents at Wal-Mart, 75 cents at Kroger and 85 cents at Whole Foods. Whole Foods profits would benefit from the greater scale of Kroger's operation.

Whole Foods shares are rising on the almost daily commentary about somebody making an offer. A couple weeks ago, it was revealed that Amazon had considered buying the company to jump-start their entry into the grocery business. Just knowing that Amazon was thinking about it should scare Kroger into action to keep Amazon from acquiring that foothold.




Bebe Stores (BEBE) announced on Friday it would liquidate all merchandise and close all of its stores by the end of May. They are selling the merchandise, furnishings, fixtures and equipment. They will take a $20 million charge from deferred rents on the closed stores and employee terminations. The company had 180 stores on Decc-31st. Previously they had said they planned to close only 25 stores. There have been more than 3,000 announced retail store closings in 2017.

BEBE did a 1 for 10 reverse split in December to avoid being delisted.


Oil prices imploded and fell more than 6% for the week. The $2 decline on Wednesday was probably due more to futures expiration on Thursday. Everyone hoping for a big jump in prices from the EIA inventory report on Wednesday morning, were forced to bail out when that spike did not come. There was almost no movement in the futures on Thursday but volume rose again on Friday with more than 665,000 contracts trading compared to a daily average of 525,000 contracts.

The CFTC showed speculative long positions as of April 18th rose to 355,077 contracts and the highest level in more than a month.

Another factor in the price decline was news from Clipperdata that there was more waterborne imports arriving from the Middle East than in recent months. There is more waterborne crude today than there was before the OPEC production cuts were enacted in January. OPEC can say it has cut production but the tanker shipments tell the tale. A country like Saudi Arabia with tens of millions of barrels in storage, can brag they cut production but continue exporting more oil with the extra coming out of storage.

There are multiple views today on whether OPEC and Russia will extend the cuts for another six months. Russia has refused to answer the question more than once on whether they would honor any extension. Nordic Bank believes OPEC will end the cuts because a spike in prices over $55 would benefit the U.S. shale drillers and cause another production spike.


Producers added another 10 rigs last week to raise the total to 857. This was the 14th consecutive week of activations with 367 rigs activated since October 1st. U.S. production has increased 220,000 bpd in just the last eight weeks. Analysts expect that rate to grow significantly over the next six months as the roughly 5,000 drilled by uncompleted wells in inventory on January 1st are put on production. Completing those wells is the fastest way for producers to generate additional production and income.


Markets

The markets traded sideways for the week on low volume with a minor increase in volatility. The Dow closed at a two-month low on Wednesday before a major short squeeze lifted it back into consolidation territory on Thursday. Despite the rebound the Dow remains under resistance at 20,600 and the chart remains bearish.

The reasons for the bearish breakdown was a combination of earnings from several high profile Dow components and a new round of event risk from North Korea, France and impending budget battle in Washington. There is always a reason for a decline or at least commentators will blame something. They forget the market does not need a reason to take profits.

I wrote over the prior two weeks that the market normally declines immediately after April 15th as funds are extracted to pay the tax bills. That deadline was extended to April 18th and the market declined for two days. Coincidence?

The markets appear to be poised for a big move. North Korea is a paper tiger and I do not apply any credence to their warning for a "super-mighty preemptive nuclear strike." Some people may be concerned over the headlines but Little Kim has suddenly found himself in a lot of trouble. China quit accepting his coal shipments and suddenly his gas stations are out of gas thanks to a lack of imports. China has gotten his attention and they can continue squeezing the noose tighter since they supply 90% of the country's oil imports.

The risk for Monday is a stronger than expected showing in the French election by Marion Le Pen. Saturday headlines are reporting a sudden surge in the polls after the Paris attack. She is very strong on restricting immigration and the attack has given voters another reason to pick her. Forbes said on Saturday if Le Pen captures 30% or more of the vote, she could go on to win the runoff in June. Goldman Sachs said Le Pen was in the "pole position" and they were short French bond futures as a precaution. As of Saturday morning, more than 30% of French voters had not yet decided on their candidate. The election carries a 5% to 10% downside risk for the European markets, which would carry over into the U.S. markets.

The local event risk is the budget battle. Democrats are making headlines this weekend saying they will shut down the government if the republicans add funding for several items or fail to add funding for the democrat's desires. This could be a rocky week if the two parties cannot pass a temporary continuing resolution to avoid a shutdown.

An ideal outcome for the U.S. markets could be for Macron to emerge the vote leader in France and for lawmakers to pass a CR first thing on Monday to remove all the drama from the process. Unfortunately, I am not expecting either event to occur.

The Dow has minor support at 20,400 where it bounced on Thursday. The index closed under resistance at 20,600 with 20,750 the next level higher. I am using a line chart this week to better show the Dow direction. I believe investors get distracted by the triple digit moves in both directions and forget the overall direction is still down.



The S&P rebounded from 2,330 on Monday and moved slowly higher in choppy trading the rest of the week. The index gained 19 points but had to fight for every point. Thursday's close was over critical resistance at 2,350 but the index slipped fractionally below that again at Friday's close.

This has been a big cap rally. The top ten companies in the S&P have accounted for more than 20% of the index gains. Roughly, 130 companies are trading below their 200-day average and more than 70 are within a few percentage points from their lows.

The big caps in the Dow were mostly responsible for the rough week in the S&P with the multiple earnings disappointments dragging the rest of the S&P lower. This coming week will see 194 S&P companies report. The majority are expected to meet or beat estimates. This should help provide support in an otherwise rocky environment.

Despite the rebound, the chart is still bearish. That rebound could be a good start for a move higher but until that happens and the index closes over 2,370, the chart will still be bearish.


The Nasdaq big caps are still controlling the broader market. The Nasdaq Composite closed at a new high on Thursday and gave back only 6 points on Friday. Thursday will be tech earnings day with multiple major companies reporting. That expectation for good earnings could hold the Nasdaq at the highs. Obviously, a general market meltdown as the result of those headlines listed above would negate those expectations.




The Russell 2000 was strong on Friday despite the weakness of the big caps. The Russell declined -15 points intraday then rebounded strongly to regain 10 of those points to close with just a minor loss. The Russell was very strong on Thursday with a 17-point gain to put the index very close to strong resistance at 1,388. If the Russell were to break through that level it would be a major boost to market sentiment.


I have already beaten this event risk horse to death so I will not repeat it. The Russell rebound suggests investors are not as worried as it would appear from the Dow and S&P weakness. The Russell and the Nasdaq are strong and ANY positive news over the next several days could send us significantly higher.

If there were a Brexit like dip as a result of the French election, it would be a buying opportunity. As long as President Trump and Steve Mnuchin continue to hype the "massive" tax reform program coming, the market will have a bullish bias. If they announce the details and the democrats and conservative republicans denounce it, like they did the health care reform, then we could see the beginning of the "sell in May and go away" cycle for 2017. Mnuchin said getting tax reform passed before the August recess was not realistic and others have said they expect it in the first half of 2018. Once investors see this reality, we could see market optimism fade quickly.



Random Thoughts


Individual investors are playing a sort of musical chairs in their sentiment position. The details have not changed much over the last three weeks with the bulls gaining a little the prior week and the bears lost a little. Those gains/losses reversed this week but the changes were not material. We still have 74.3% that believe the market is not going higher.

Last week results


Google, one of the largest internet advertisers on the planet has decided to include an ad blocker in its Chrome browser. I know what you are thinking. They will probably allow you to block all the ads except for the ones they provide. This is not true because they would be opening themselves up to the largest class action suit ever.

Google has talked with the Coalition for Better Ads, a group representing the online advertising industry. The group includes Facebook, News corp, Unilever, Procter & Gamble, etc. The current plan would be to adhere to industry standards, which are still being determined, and would be friendly to both advertisers and consumers. With standards including size of the ad, speed to load, content restrictions, etc, Google is trying to improve the browsing experience rather than eliminate ads.

I view thousands of web pages a week tracking news articles on potential stocks. Some websites are nearly unusable without an ad blocker. I have found that Adblock Plus, (Google for the free download) is by far the best. It will not block all the ads but it gets most of them. For instance, the page containing the story on Google had 14 ads blocked by Adblock. Now all I need is a reliable SPAM blocker for my Thunderbird email client.


Researchers have made some progress in locating Malaysian flight MH370 in the Indian Ocean. Some months ago, a wing part appeared on La Reunion island along with two other misc pieces. Researchers plotted the ocean currents and put an identical wing part in the ocean near Hobart, Tasmania. They tracked this wing part to the same destination. Being able to accurately track and plot the path and backdate the original finding suggests the plane is farther north than the old search zone that covered 46,000 square miles. The new target area is about 10,000 square miles and somewhat north of the original search zone.

The original search for the plane was the most expensive ever and led by the Australian Navy with help from dozens of other volunteer ships.


On four days last week Russian Tu-95 Bear, nuclear capable bombers and/or Ilyushin IL-38 spy planes flew into the U.S. ADIZ around Alaska. Three times the planes were met by Air Force F-22 fighters and CF-18 Hornets. Once, an E-3 Sentry AWACS plane was launched to make sure there were no other Russian planes trying to sneak in at lower altitudes while the air controllers were distracted with the bigger targets.

Earlier in the week, a Russian news report claimed the armed forces had an electronic warfare weapon that could render U.S. planes, ships and satellites completely ineffective. I reported a couple years ago that a Russian SU-24 had disabled the electronic systems on the USS Donald Cook in the Black Sea in April 2014. Reportedly, the Russian system codenamed "Khibiny" disabled the state of the art Aegis warfare system on the destroyer and allowed the unarmed SU-24 to make 12 simulated missile attack runs against the destroyer before leaving the scene with another SU-24 that was watching the event from a distance.

They also claimed they have an electronic dome they can erect instantly over bases and forces to make them invisible from radar and protect them from attack.

We have to remember that the Russian media is controlled by the state and this could be a total propaganda effort to give enemies (U.S.) a reason to rethink any conflict.


A G2 class geomagnetic storm is scheduled to hit the earth on Mon/Tue after a major crack (coronal hole) opened on the sun and caused a large solar flare. The fissure on the sun is currently pointed in our direction and there could be more storms to follow. Officials are warning of potential temporary blackouts, magnetic interference in radio and TV and disruptions of satellites. This is expected to be a moderate storm. The ratings scale goes from G1 to G5. The ones we need to worry about are the X class CME events. Those happen on average 4 times every 11 years and fortunately they are seldom pointed at the earth.

The black spot is the massive crack in the Sun as of Saturday.



 

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Jim Brown

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New Plays

Frexit Dip?

by Jim Brown

Click here to email Jim Brown
Editor's Note

Will there be a repeat of the Brexit dip if the wrong person comes out on top in the French elections? Nobody knows but analysts are saying the European markets could move 5% to 10% with the direction depending on the outcome.

With the earnings calendar knocking out 75% of the available stocks, I am going to recommend an ETF to profit from any post election volatility.

I am also adding a play on the oil ETF to profit from a rebound from last week's crash.



NEW BULLISH Plays

IWM - Russell 2000 ETF - ETF Profile

The iShares Russell 2000 ETF seeks to track the investment results of an index composed of small-capitalization U.S. equities. Description from iShares.com

The Russell 2000 has been moving sideways since early December and has tested both sides of its range multiple times. Over the last several days the Russell has shown good relative strength to the big cap indexes. The index gained 17 points on Wednesday and recovered from a 15 point dip on Friday to lose only 4 points.

I believe any post France volatility will be brief. If we see a Brexit like dip, it should be a buying opportunity. If we see a positive result, we could see resistance broken and a new leg higher.

The fly in this soup is the potential government shutdown in the U.S. if the parties cannot come to an agreement by Friday or pass a short-term continuing resolution while they battle it out. The market will not care how long it takes to work it out as long as there is an agreement to keep extending the deadline until the problem is solved. The republicans have learned they do not want to shut down the government. Hopefully enough democrats have learned that same lesson and we will not have that same problem again.

I am going to profile two positions. ONLY ENTER ONE.

If the market opens higher on Monday, we will buy the June $140 call option, currently $2.13.

If the market drops and the ETF trades at $135, we will buy the June $138 call option.

By using the ETF we are insulated from the individual earnings announcements and the single stock volatility.

Once we are in the position I will assign a stop loss. Since there could be significant volatility on Monday, I do not want to be in and out on the same day.

With an IWM trade at $137.65, buy June $140 call, currently $2.13. No initial stop loss.

OR:

With an IWM trade at $135, buy June $138 call, estimated $2.00, No initial stop loss.



USO - US Oil Fund ETF - ETF Profile

The United States Oil Fund LP (USO) is an exchange-traded security designed to track the daily price movements of West Texas Intermediate ("WTI") light, sweet crude oil. USO issues shares that may be purchased and sold on the NYSE Arca.

The investment objective of USO is for the daily changes in percentage terms of its shares NAV to reflect the daily changes in percentage terms of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma, as measured by the daily changes in price of USO's Benchmark Oil Futures Contract, less USO's expenses.

USO's Benchmark is the near month crude oil futures contract traded on the NYMEX. If the near month futures contract is within two weeks of expiration, the Benchmark will be the next month contract to expire. The crude oil contract is WTI light, sweet crude oil delivered to Cushing, Oklahoma.

USO invests primarily in listed crude oil futures contracts and other oil-related futures contracts, and may invest in forwards and swap contracts. These investments will be collateralized by cash, cash equivalents, and US government obligations with remaining maturities of two years or less.

Oil prices fell -6% last week after Wednesday's inventory report failed to show a significant decline in crude inventories. Complicating the problem was the expiration of crude futures on Thursday. That means everyone long for the EIA report had to dump their position immediately to avoid expiration.

I expect the price of crude to return to $54 over the next several weeks. That equates to $11.25 or higher on the USO ETF. The ETF closed at $10.32 on Friday. I am recommending we buy the $10.50 call, currently 42 cents and plan to double our money and exit.

Oil prices will rise because refineries are restarting production after their normal two-month maintenance period centering on March. Oil inventories will begin to decline sharply in the coming weeks as they begin to fill the system with summer blend fuels before Memorial Day.

You could also just buy the USO ETF for $10.32 but you will get a better return using the option. I would not recommending buying a $10 stock with the intention of making 75 cents.

Buy Jun $10.50 call, currently 42 cents, no stop loss.



NEW BEARISH Plays

No New Bearish Plays



In Play Updates and Reviews

Impressive

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Russell 2000 fell -15 points at the open but recovered to close the day with only a 4 point loss ahead of weekend event risk. This was an impressive recovery in a weak market. There are multiple events that could cause trouble this weekend and early next week and investors actually bought the dip. This suggests they are ready to run higher if the threat of a government shutdown is avoided.

The S&P-600 only gave back -2 points. The Nasdaq closed -6 points below Thursday's record high. This is also confirmation the markets could be ready to move higher.





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


STM - ST Microelectronics
The April long call position expired.

VIPS - Vipshop Holdings
The April long call position expired.



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

HABT - Habit Restaurants - Company Profile

Comments:

No specific news. Holding over prior resistance at $18. If we can continue higher, 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.



ILG - ILG Inc - Company Profile

Comments:

No specific news. Minor gain but a new 52-week high.

Original Trade Description: April 8th.

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 4th.

Position 4/10/17:

Long ILG shares @ $21.28, see portfolio graphic for stop loss.

Optional: Long June $22 call @ 60 cents.



JUNO - Juno Therapeutics - Company Profile

Comments:

No specific news. Shares fell sharply with the biotech sector and lost $1.

Original Trade Description: April 17th.

Juno Therapeutics, Inc., a biopharmaceutical company, engages in developing cell-based cancer immunotherapies. The company develops cell-based cancer immunotherapies based on its chimeric antigen receptor and T cell receptor technologies to genetically engineer T cells to recognize and kill cancer cells. Its CD19 product candidates include JCAR017 that is in Phase I/II trials for adults with relapsed or refractory (r/r) B cell aggressive non-Hodgkin lymphoma (NHL) and pediatric patients with r/r B cell acute lymphoblastic leukemia (ALL); JCAR014, which is in Phase I/II trials to treat various B cell malignancies in patients relapsed or refractory to standard therapies; and JCAR015 that is in Phase II trials for adult patients with r/r ALL. The company's CD22 product candidate comprise JCAR018, which is in Phase I trial for pediatric and young adult patients with CD22-positive r/r ALL or r/r NHL. Its additional product candidates include CD171, a cell-surface adhesion molecule to treat neuroblastoma; Lewis Y for the treatment of lung cancer; JCAR023, which is in Phase I trial for patients with refractory or recurrent pediatric neuroblastoma; MUC-16, a protein for treating ovarian cancers; IL-12, a cytokine to overcome the inhibitory effects; ROR-1, a protein for the treatment of non-small cell lung, triple negative breast, pancreatic, and prostate cancers; WT-1, an intracellular protein that is in Phase I/II clinical trials to treat adult myeloid leukemia and non-small cell lung, breast, pancreatic, ovarian, and colorectal cancers; and IL13ra2 for treating glioblastoma. Juno Therapeutics, Inc. has collaboration agreements with Celgene Corporation, Fate Therapeutics, Inc., Editas Medicine, Inc., MedImmune Limited, and Memorial Sloan Kettering Cancer Center. Company description from FinViz.com.

Juno shares were hammered in March after they reported they were ending a trial early on a hot new CAR-T drug they had expected to do well. The Phase II Rocket Trial of JCAR015 was paused twice and finally ended early after two patients died from swelling in the brain. The CAR-T process involves removing T-cells from their blood and reengineering them to recognize cancer cells from acute lymphoblastic leukemia and kill them. Once the modification is complete, they are re-injected into the patient so they can go to work. In this particular case the brain swelling was a side effect.

However, that is not the only drug in process at Juno. They will have more than 20 trials in progress by the end of 2017 on a variety of anticancer drugs. The company has nearly $1 billion in cash and a burn rate of about $200 million a year. They are in no danger of running out of money and they have dozens of partnerships and collaborations contributing money for research.

Earnings May 31st.

Over the last three weeks Juno has not declined. The stock is continuing to move slowly higher with resistance currently at $25. Once through that level the next resistance is $33.

With the biotech sector selling off every other day you would have expected JUNO to be reactive to those moves but the stock continues to climb.

Position 4/19/17 with a JUNO trade at $24.55

Long JUNO shares, see portfolio graphic for stop loss.

No options due to price and strike availability.



KRNT - Kornit Digital - Company Profile

Comments:

No specific news. Big spike intraday to nearly $21 but faded with the market at the close but another new 52-week 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.



PTCT - PTC Therapeutics - Company Profile

Comments:

No specific news. Minor gain in a weak market.

Original Trade Description: April 19th.

PTC Therapeutics, Inc., a biopharmaceutical company, focuses on the discovery, development, and commercialization of orally administered, small molecule drugs that target post-transcriptional control processes. The company's lead product is Translarna (ataluren), for the treatment of nonsense mutation Duchenne muscular dystrophy in ambulatory patients; and which is in phase III clinical trials to treat cystic fibrosis caused by nonsense mutations. It also develops Translarna, which is in Phase II clinical trials for the treatment of mucopolysaccharidosis type I caused by nonsense mutation, nonsense mutation aniridia, and nonsense mutation Dravet syndrome/CDKL5; and RG7916 that is in Phase I clinical trials to treat spinal muscular atrophy. In addition, the company's product candidate in cancer stem cell program include PTC596, an orally bioavailable and potent small molecule, which has completed phase I clinical trials that targets tumor stem cell populations by reducing the activity and amount of a protein called BMI1. PTC Therapeutics, Inc. has collaborations with F. Hoffman-La Roche Ltd and Hoffman-La Roche Inc., and the Spinal Muscular Atrophy Foundation to develop and commercialize compounds identified under its spinal muscular atrophy sponsored research program; and research collaboration with Massachusetts General Hospital for the treatment of rare genetic disorders resulting from pre-mRNA. Company description from FinViz.com.

PTC suffered two hits in March. The first was a failed drug trial on a Cystic Fibrosis drug. That drop knocked shares down from $13 to $10. Drug trials fail all the time and that is just the risk of owning a drug company.

On March 15th, the company announced it was buying a Duchenne Muscular Dystrophy (DMD) drug named Emflaza from Marathon for cash and stock. Companies buy rare drugs from other companies all the time. This particular drug had just created a hornet's nest of controversy after Marathon priced it at $89,000 per year. There had been a monster uproar over the pricing and even Bernie Sanders got into the act saying it should be $1,000 a year. For PTC to jump into the hornet's nest with a $140 million upfront purchase before the drug even succeeds in the market caused investors to flee the stock.

Here is the key point. The drug is in a class called corticosteroids that are anti inflamatories used all around the world to treat DMD as well as other diseases. The drug can be cross marketed and sold for multiple applications besides DMD.

The drug is new and was just approved by the FDA in February. When Marathon priced it at $89,000 right in the middle of the drug price happenings in Washington, they were forced to pause the launch to re-evaluate the price. PTC arrived on the scene and solved their problem.

Now PTC is evaluating the "correct" pricing for the drug and shares are rebounding from their headline induced crash.

Update 4/20/17: The company announced they had completed the acquisition of Emflaza earlier than expected.

Earnings June 15th.

PTC shares broke through resistance on Wednesday to close at a two month high at $11.39. Resistance is now $14 to give us a potential $2 window.

Position 4/20/17:

Long PTCT shares @ $11.43, see portfolio graphic for stop loss.

No options due to prices and wide spreads.




BEARISH Play Updates

FSLR - First Solar - Company Profile

Comments:

No specific news. Only gained a nickel after a week of declines.

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.

Update 4/7/17: 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.

Update 4/10/17: Despite a negative article on Bloomberg shares still posted a strong gain of $1.16.

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.



VXX - Volatility Index Futures - ETF Description

Comments:

Minor gain because there was still some weekend event risk fear in the market. We should expect the potential for a 2-point rise if the market tanks on the fiscal battles next week. Long term, the VXX always goes down.

Original Trade Description: April 12th.

The VXX is a short-term volatility product based on the VIX futures. As a futures product it has the rollover curse. Every time they roll to a new futures contract, they have to pay a premium and that lowers the price of the ETF. It is a flawed product with a perpetual decline built in from the monthly roll over in the futures contracts.

As evidence of this flaw, they have now done four 1:4 reverse stock splits. The last four reverse splits occurred at $13.11 (11/2010), $8.77 (10/2012), $12.84 (11/2013), $9.52 (8/8/16). The prospectus says it can reverse split anytime it trades under $25 for a prolonged period and the splits will always be 1:4.

The VXX has rebounded $3 over the last week as the volatility returned. The VIX traded over 16 today and could hit 18 if there are any geopolitical events over the Easter weekend.

Unfortunately, put options are expensive with a volatility instrument at this price level. The only recommendation is to short the ETF and forget it. If we do get a prolonged rally as some are expecting we could see strong market gains in the next 2-3 months. This will be a long-term position. This is not a 2-3 week play. I can guarantee you, if history holds, we can play this until it splits 1:4 again at $10. Once we are in the position and profitable I will put a trailing stop loss on it. We will take profits and then look for a bounce to get back in.

We know from experience that the VXX always declines. The last time we shorted this ETF we had a $7.23 gain.

Position 4/13/17:

Short the VXX @ $17.98, no stop loss because it always declines eventually.




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:

Shares rebounded after President Trump signed an executive order to investigate dumping into the U.S. from global manufacturers.

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 June $10 call @ 59 cents. See portfolio graphic for stop loss.

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



CPE - Callon Petroleum Company - Company Profile

Comments:

Shares collapsed for the week after oil prices fell more than 6% to close under $50 on Friday. This decline is temporary. Unfortunately, our May option only has 4 weeks left.

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

Previously closed 4/13/17: Long CPE shares @ $13.31, exit $12.50, -.81 loss.



CX - Cemex - Company Profile

Comments:

The company said it was selling its northwestern assets consisting of aggregate, asphalt and ready mix concrete in Oregon and Washington to Cadman Materials for $150 million. The money will be used for debt repayment and general corporate purposes.

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.



DEPO - Depomed Inc - Company Profile

Comments:

No specific news. The 15% spike that stopped out the stock position has been erased and the long May $12 put is now in the money.

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:

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

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



ECA - Encana Corporation - Company Profile

Comments:

No specific news. Encana fell with the rest of the energy sector as crude prices fell more than 6% for the week to close under $50. The drop in Encana was not stock related. It was purely on reaction to oil prices.

Original Trade Description: March 13th

Encana Corporation, together with its subsidiaries, engages in the exploration, development, production, and marketing of natural gas, oil, and natural gas liquids in Canada and the United States. The company owns interests in various assets, such as the Montney in northern British Columbia and northwest Alberta; Duvernay in west central Alberta; and other upstream operations, including Wheatland in southern Alberta, Horn River in northeast British Columbia, and Deep Panuke located offshore Nova Scotia. It also holds interests in assets that comprise the Eagle Ford in south Texas; Permian in west Texas; San Juan in northwest New Mexico; Piceance in northwest Colorado; and Tuscaloosa Marine Shale in east Louisiana and west Mississippi. Company description from FinViz.com.

Encana reported earnings of 9 cents compares to estimates for 3 cents. Revenue of $822 million also beat estimates for $771.9 million. Production averages 237,100 Boepd. Drilling and completion costs declined by 30%. They reduced long term debt by $1.1 billion and net debt by 50%. They replaced 326% of production.

They currently have more than 10,000 premium drilling locations and expect to grow that number in 2017. Since December 31st, they have added more than 50 premium locations in the Eagle Ford alone. They ended 2016 with a whopping $5.3 billion in liquidity and cash of nearly $1 billion. They expect to spend $1.6 to $1.8 billion on capex in 2017 and grow liquids production by 35%. Capex willbe funded by cash on hand. Proved reserves were 920 million barrels and 3P reserves were 2.372 billion barrels.

With the cash, production rates, reserves and drilling inventory listed above they are definitely an acquisition candidate with only a $10 billion market cap.

JP Morgan initiated coverage with an overweight rating and $16 price target.

Earnings May 18th.

Over the last couple of weeks an investor built up 7,000 July $11 calls at $1 each and 7,000 October $11 calls at $1.50 each. That is a $1.7 million investment in call options. I am suggesting we follow them in that trade as well as buy the stock. They may know something that is not public information or they just believe that the company is too good to pass up. With the drop in crude prices ECA has fallen to a 5-month low and is resting on the 200-day average.

Position 3/14/17:

Long October $11 call @ $1.40, no stop loss.

Previously closed 4/19/17: Long ECA shares @ $10.43, exit $11.15, +.72 gain.



ETSY - ETSY Inc - Company Profile

Comments:

On Friday the Australian Tax Office warned overseas sellers their websites would be blocked if they did not comply with the GST LVG tax laws in Australia. Ebay, Alibaba, Amazon, Etsy and others have complained they are not sellers. They merely match buyers and sellers for a commission. Ebay and Etsy do not collect the money so they cannot pay the tax. The tax only applies to vendors that sell $75,000 a year and therefore any forced collection could not be implemented until a vendor reached that level. It would be impossible to then go back and collect the tax from the vendor for the first $75,000 sold.

Shares were trading at an 8-week high on Thursday. Major sell off on Friday's news. The company said it would report earnings on May 2nd.

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 2nd.

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.



HIMX - Himax Technologies - Company Profile

Comments:

Shares are still declining on the news Apple was going to start making their own chips. This is crazy since it would be 2019 before Apple could do anything in volume.

I am recommending we drop this position. Shares have declined too far to make it back to $10 over the next four weeks. They currently have no value so I would not close the position. You never know when a small semiconductor company could be acquired.

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.

Update 4/16/17: Shares crashed with the rest of the sector when news broke that Apple was thinking about making their own chips. Himax also made a strategic investment into Emza Visual Sense Ltd for 45.1% ownership with a one-year option to acquire the remaining 54.9%. Emza is an Israeli company that is developing extremely efficient visual sensors with "orders of magnitude" improvement in power consumption. This is a big plus for Himax and I would be a buyer of these shares again for a longer-term hold.

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 are still declining 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.



STM - STMicroelectronics - Company Profile

Comments:

Continued worries over STM being responsible for a delay in sensors for the iPhone 8 pushed shares down below our strike price and the option expired on Friday.

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:

Closed 4/21/17: Long April $15 call @ 65 cents. Expired, -.65 loss.

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



VIPS - Vipshop Holdings - Company Profile

Comments:

Close but no cigar. Shares held support and rallied back to $13.80 and just under our $14 call price. The option expired 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 4/21/17: Position 3/6/17: Long April $14 call @ 30 cents, expired, -.30 loss.

Previously closed 3/30/17: Long VIPS shares @ $13.13, exit $13.35, +.22 gain.





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