Option Investor
Newsletter

Daily Newsletter, Wednesday, 4/26/2017

Table of Contents

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

Market Wrap

More Hope for A Bigger Rally

by Keene Little

Click here to email Keene Little
French election results and a bolt Trump tax plan have had investors feeling bullish the stock market this week. Follow through has been lacking and we're left to wonder if tax-plane reality will be a kick in the pants.

Today's Market Stats

Other than the excitement over the French election results on Sunday (Marie Le Pen did not do as well as had been feared by the market), Tuesday's gap-up was presumably on the hopes that Trump's tax plan, which was announced today, would spark another big rally. The tax plan is supposed to decrease corporate tax rates, boost the standard deduction for personal returns (effectively reducing personal tax rates) and simplify returns. It all sounds great but of course the devil is in the details.

I saw two headlines today on MarketWatch -- one was "Trump's tax plan sets the stage for Dow 30,000" and the other was "Here's how much a Trump tax-plan letdown could whack the stock market." The first article talked about how a significant reduction in the corporate tax rate (to 15% and 10% on repatriated earnings), along with some other changes, could boost corporate earnings. That in turn would support higher stock prices and Dow 30,000 here we come. Makes me think of trying to breathe on Mt. Everest without supplemental oxygen.

The other article talked about why the tax plan could struggle to get approved. We have a hope-filled rally that's unfortunately likely headed for disappointment. A tax plan without a lot of details about how it's to be paid for could be a challenge, to put it mildly, since Congress, even a Republican one, is not likely to pass a plan that puts us further into debt by another $3T to pay for the tax breaks. Any whiff of a failure to get Trump's tax plan passed is going to disappoint a lot of investors who have been buying on the assumption the plan will get passed.

I'll add my own opinion of the tax plan -- it has a snowball's chance in Hell of passing. There are too many entrenched special interests which make a lot of money with the existing tax scheme. A big tax cut without offsetting tax gains will be very difficult for Congress to swallow. A big tax cut with offsetting tax gains would simply mean taking money from one pocket and putting it in the other and that could easily have the net effect of zero. There are too many in Congress who want to see Trump fail and the bigger the changes he calls for the more they'll push back. Bully for Trump for coming up with a bold proposal but unfortunately we have a Congress and special interests who are not interested in bold. Bold scares them.

Today started quietly and remained quiet for most of the day. The RUT continued its relative strength but ran into strong resistance (more later with its charts). The techs were relatively weak today and remained near the flat line while the blue chips tried to rally with the RUT. By the end of the day, following the announcement of the Trump tax plan, all but the RUT finished in the red. This begs the question about whether or not this week's rally was buying the rumor and this afternoon was a small sell-the-news reaction. We'll know more on that score after Thursday's trading.

This week's rally in the stock market was brought to us almost exclusively by the morning gaps on Monday and Tuesday. Those spikes to the upside might have been mostly short covering since there was little buying that followed. And with SPX essentially testing its March 1st high, at 2401 with today's high at 2398, the bulls would like to see some greater participation by all stocks instead of fewer than were seen at the March 1st high.

S&P 500 vs. new 52-week highs and Advancing-Declining stocks, Daily charts

As can be seen on the charts below, the number of stocks participating in the rally to new highs has been declining since the highs last November/December. The advancing minus declining stocks also peaked in December and there's a strong bearish divergence since mid-March. This is even with the number of small caps rallying to new highs this week.

Other than the French election and Trump's tax plan there hasn't been much to move the market this week. Other than some home sales data yesterday there was little in the way of economic reports to sway the market one way or the other. Thursday's reports, including durable goods orders and pending home sales might move the needle but probably not much. The market will now need to digest this week's gains and decide whether or not to add to them.

Trump's tax plan included a large reduction in corporate tax rates and a plan to help small businesses. The latter is one of the reasons why the RUT rallied strong off the April 13th low -- investors were climbing aboard in what was expected to be a big boost to small caps. The result might have been a rally up to strong resistance and now disappointment might start to set in.


Russell-2000, RUT, Weekly chart

Today's rally brought the RUT right up to its trend line along the highs from 2007-2014-2015, near 1426 (today's high was 1425.70). The last time this trend line was tested was on March 1st and before that on December 9th. This is the 3rd test and with the significant bearish divergence since December there is a good possibility this is setting up a 3-drives-to-a-high topping pattern at the top of a large megaphone topping pattern. There is also a small megaphone pattern up against the larger one.

For those who use DeMark Sequential counts (not shown on the chart), a daily sequential sell signal triggered this week and next week we'll get a weekly sequential sell signal. This chart alone, until the RUT can successfully break above the trend line, and stay above, should scare the bulls into getting very defensive.


Russell-2000, RUT, Daily chart

Other than the 2007-2015 trend line there doesn't appear to be much in the way of a further rally for the RUT. It has broken above its March 1st high, near 1415, and the oscillators have room to run to the upside. All the bulls need to do is rally the RUT above 1434 (that level is shown further below on the 60-min chart) and keep it above the trend line near 1426. That could be a tall order, considering how it reacted to the trend line in June 2015, December 2016 and March 2017. Play defensive until the bulls can prove this time will be different.

Key Levels for RUT:
- bullish above 1434
- bearish below 1364


Russell-2000, RUT, 60-min chart

There is one price pattern that supports a move up to about 1434, which is where the leg up from April 13th would be 162% of the March 22-31 rally (for a possible a-b-c bounce within what will become a larger corrective pattern off the March 1st high). Between the 2007-2015 trend line, near 1426, and the 1433.84 projection we have potentially stiff resistance to any further rally. By the same token, it would be more bullish above 1435.

The rally from April 13th developed steeper uptrend lines, indicating the rally was going parabolic. This afternoon's relatively small pullback broke the steeper uptrend line and that's another warning sign that the rally peaked today.


S&P 500, SPX, Weekly chart

Looking at the SPX weekly chart, there are a few different ways to interpret the wave count for the rally from January/February 2016. One thought is that we need to see a larger pullback correction from March 1st before potentially heading higher again. Counter to the possible top that the RUT is putting in (yet to be proven) is a bullish wave count that calls for higher prices for at least another month.

A rising wedge pattern for the rally suggests 3-wave/corrective moves for each of the waves and we could be into the final 5th wave. If the 4th wave correction in the rally, which is the pullback from March 1st, completed at the March 27th low (we could get another leg down to about 2300 before it completes) then I would expect a 3-wave move up to complete the 5th wave of the pattern, which is what I'm depicting in bold green.

The minimum projection for the 5th wave in this pattern is to the 2500 area. A price projection near 2507 crosses the top of the rising wedge in mid-June. There is by no means a guarantee that we'll see a rally from here to there but it's the upside potential as long as we continue to see bullish price action. The first sign of trouble for the bulls would be closure of this week's gap up (last Friday's close at 2348). Whether or not that would lead to just another pullback before starting the rally to new highs is something that will have to be figured out later.


S&P 500, SPX, Daily chart

Today SPX came within less than 3 points from its March high at 2400.98 before pulling back in the final hour. The result is a shooting star candlestick at resistance, which is a potential reversal candlestick. A down day on Thursday would confirm the reversal. But to stay with the bullish price path shown on the weekly chart above, I would expect to see higher prices in the coming days and support at the March 1st high.

There is an intermediate-term price pattern that is short-term bearish but still longer-term bullish. At the moment we have a 3-wave move down from March 1 to March 27 that's been followed by a 3-wave move back up to today's high. That could be followed by a sharp decline to 2275-2300 to complete a larger 3-wave pullback from March 1st before setting up the final 5th wave rally shown on the weekly chart. This possibility would be evaluated more carefully if and when we get a sharp move down to the 2300 area.

Key Levels for SPX:
- bullish above 2401
- bearish below 2348


Dow Industrials, INDU, Daily chart

Like SPX, the Dow is at risk of putting in a double top against its March 1st high. A rollover in the oscillators from here would show a significant bearish divergence and obviously that's not something the bulls want to see. They'd rather see a continuation of the rally and it would be more bullish above the March 1st high at 21169, in which case I'd look for a rally to the trend line along the highs from May 2011 - December 2014, which will be near 21400 by early May.

If the rally is completing here we'll see the Dow drop back down to close this week's gaps and a drop below Tuesday's gap (Monday's close) at 20763 would be the first bearish warning sign.

Key Levels for DOW:
- bullish above 21,170
- bearish below 20,760


Nasdaq-100, NDX, Daily chart

Yesterday and again today NDX tested its trend line along the highs from April 2016 - March 2017, currently near today's high at 5564. So far there's no proof this trend line will hold as resistance but that's the bearish setup, especially if the daily oscillators roll over from here.

The wave count for the rally from November also supports the idea that today's high might have been THE high. The rally started with a series of 1st and 2nd waves, a longer middle 3rd wave (December 30 - March 1) and then a series of 4th and 5th waves to finish "unwinding" the count. The final 5th wave equals the first 1st wave at 5561.79, which was achieved today. The combination of the wave count, price achievement and trend line could be too much for the bulls to handle and any turn back down from here has the potential to develop into a stronger selloff.

Key Levels for NDX:
- bullish above 5562
- bearish below 5442


10-year Yield, TNX, Daily chart

Bond investors reacted to the Trump tax plan announcement by buying bonds, which dropped yields from their 2-week high, as they worry that the tax plan will likely not pass through Congress without major changes and a big battle. The bond market, which is arguably smarter than the stock market, is saying they're not worried about an economy that could expand and drive inflation higher.

From a price pattern perspective, TNX has been able to bounce off its April 18th low and get back above the downtrend line from June 2007 - December 2013, near 2.27, as well as the bottom of the November-April trading range, near 2.31. It also climbed back above its broken 20-dma, currently at 2.306, all of which is potentially bullish. Today's little pullback to the bottom of its November-April trading range could be a back-test that will lead to higher yields (lower bond prices).

A drop back below 2.26 would likely mean a drop lower, possibly down to a price projection at 2.00 (the width of its November-April trading range). This is the way I'm currently leaning and I'll continue to believe lower yields are directly ahead unless TNX is able to climb back above its broken 50-dma, currently at 2.40.


KBW Bank index, BKX, Daily chart

The banks got a strong bounce with the rest of the market but is now hitting potentially strong resistance as well. On Tuesday BKX came close to back-testing its broken 50-dma and then sold off, leaving a shooting star candlestick at resistance. It then tried again today and successfully hit its 50-dma, at 93.56 with its high at 93.67, but then sold off again, leaving another shooting star.

A double failure is not a good sign for the bulls but they could pull a surprise here and rally BKX above its 50-dma. I would turn more bullish the banks if BKX can close above 93.60, otherwise this looks like a setup for a reversal back down. The bears would be in better shape with BKX back below its 20-dma, currently near 90.80.


Transportation Index, TRAN, Daily chart

The transportation stocks were weaker than the broader market today and the TRAN finished down -0.9%. This follows a back-test of price-level resistance at 9310, which is its November 2014 high, with yesterday's high at 9301 and today's high at 9275. In addition to price-level resistance it also back-tested its broken uptrend line from June-October 2016.

In addition to those two lines, a price projection at 9294 for two equal legs up from March 27th was also achieved. That makes three reasons why the TRAN should turn back down and today might have been the start of the move down. Conversely, the TRAN would be more bullish above 9310.


U.S. Dollar contract, DX, Daily chart

On Monday the US$ broke below its uptrend line from May-August 2016 and price-level support, both near 99.10. Today the bounce back up tagged its broken uptrend line and then sold off. It looks like a back-test followed by a bearish kiss goodbye, giving it the setup for further decline. It would be at least short-term bullish above Monday's gap close, at 99.67, or it might get a bounce/rally off the bottom of a possible descending wedge (a trend line along the lows from December), near 98.39. But with the break also below its 200-dma, at 98.94, if it stays below that level we could see a sharper decline from here.


Gold continuous contract, GC, Daily chart

Gold pulled back a little stronger this week as the stock market rallied (less fear) but at the moment it could be just for a back-test of its recovered 200-dma, currently near 1257. Another bounce back up would give gold the chance to test its downtrend line from September 2011 - July 2016, near 1300. The price projection at 1335 is where the bounce off the December low would achieve two equal legs up. But it's possible the bounce is already completed and now we'll see gold head back down. A drop below its March 30th low at 1241 would be a confirmed break of its uptrend line from December.


Silver COT report, 2007-present

Silver is looking weaker than gold and today it closed below its uptrend line from December, which could be forewarning us that gold will follow. And even though silver has pulled back sharply from its April 17th high it hasn't stopped speculators from betting it's just a dip to buy. As can be seen on the Commitment of Traders (COT) report, the non-commercial traders are net long in a big way (much more so than anything seen since 2007). In the meantime the commercial traders have a huge net short position. Care to guess who's going to win this bet?

Gold and silver don't always trade in sync but they do more than not. This is fair warning to gold and silver bugs to protect long trading positions (vs. those who own the metals for the long term and are not trading the metals). I think we'll have lower prices on both to give us a good opportunity to become long-term holders of the metals.


Oil continuous contract, CL, Daily chart

Oil's sharp decline from April 12th had it quickly breaking back below its 50- and then 20-dma's and it's now holding support at its 200-dma, at 48.92. It's also trying to hold onto its uptrend line from April-August 2016, currently near 49.53. A drop below its 200-dma would have me looking for a test of its uptrend line from August-November, near 47.60. A drop below its March 22nd low at 47 would confirm the next leg down is in progress. A rally back above price level S/R at 50.92, as well as its coincident 20- and 50-dma's, would be at least short-term bullish.

The COT report for WTI crude is not near any kind of extreme but it does show a spike up in the net long position of speculators and a spike in the opposite direction by the commercials with their large net short position. The last time they were near the current levels, at the end of October, oil experienced a sharp decline into the November 14th low.


Economic reports

Thursday will be a little busier for economic reports but unless there's a real negative surprise in the durable goods numbers I don't think the market will be paying much attention. It seems too focused on The "Donald."


Conclusion

As shown on tonight's SPX chart, I see upside potential for this market for at least another month as it continues to work its way higher (not in a straight line of course). But the RUT and NDX charts give me pause -- they show a strong reason why you want to have very tight stops on long positions and why you should be looking to short today's highs. Shorting this market is obviously trying to catch rising knives at the moment and it's a risky thing to do.

Waiting for confirmation of a top, starting with a sharp impulsive reversal back down, and then shorting a bounce with a stop at a new high, is a more conservative way to try shorting the market. But I know there are a lot of Type A traders out there who are itching to short the top. Any rollover from here is an opportunity to do that.

Hat tip to Carla for the info on short interest in the S&P 500, which is at a low not seen since May 2007. I haven't seen the actual numbers but obviously a very low level of short interest makes it more difficult to drive the market higher with short covering. Perhaps that's one reason why there was so little follow through to the gap-up starts on Monday and Tuesday.

Between the ultra-low VIX (below 11), which indicates complacency, and the lack of shorts we might not be far from an "exogenous" event that creates more than a little panic in the market, and without shorts to use for driving the market back up. There might be more upside left to this market but the downside risk is again dwarfing upside potential. Caveat emptor.

Good luck and I'll be back with you next Wednesday.

Keene H. Little, CMT


New Plays

Things Do Not Always Work Out

by Jim Brown

Click here to email Jim Brown
Editor's Note

On the road to fame and riches, there are potholes of reality. Nutanix hit a bunch of potholes and the stock took a wrong turn in the process.



NEW BULLISH Plays

No New Bullish Plays


NEW BEARISH Plays

NTNX - Nutanix Inc - Company Profile

Nutanix Inc provides next-generation enterprise cloud platform that converges traditional silos of server, virtualization and storage into one integrated solution and can also connect to public cloud services. Nutanix makes infrastructure invisible, elevating IT to focus on the applications and services that power their business. The Nutanix Enterprise Cloud Platform leverages web-scale engineering and consumer-grade design to natively converge compute, virtualization and storage into a resilient, software-defined solution with rich machine intelligence. The result is predictable performance, cloud-like infrastructure consumption, robust security, and seamless application mobility for a broad range of enterprise applications. Company description from FinViz.com.

While their company description sounds good, they are having trouble conveying that image to the business community and to investors. When they reported earnings back in March they beat on the top and bottom but guided significantly lower for the next quarter.

They reported a loss of 28 cents compared to estimates for a loss of 35 cents. Revenue exploded higher by 77% to $182.2 million and beating estimates for $178.3 million. They added 900 customers to bring their total to 5,380.

They guided for a current quarter loss of 45-48 cents and analysts were expecting a loss of 35 cents. Revenue was only expected to rise to $185 million from the $182.2 million in the prior quarter.

Earnings June 1st.

The company has only been public for 7 months and it closed at a historic low on Wednesday. The short covering in the broader market this week barely had any impact on NTNX shares. Insiders have been selling shares like crazy. Lightspeed Ventures a 10% owner, liquidated their position in early April.

There was a press release at 7:PM tonight about a successful installation at a customer location. I doubt it will have any impact but it may give us the opportunity to short the shares a few cents higher. If the stock gaps up, adjust the stop loss accordingly.

Sell short NTNX shares, currently $15.70, initial stop loss $16.75.


Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.



In Play Updates and Reviews

Don't Look Now

by Jim Brown

Click here to email Jim Brown

Editors Note:

Don't look now but the Russell 2000 and S&P-600 small cap indexes both closed at new highs today. In theory this should be very bullish for the broader market because it suggests fund managers are no longer afraid to invest in small caps. Considering the remaining event risk is confined to the government funding battle on Friday, it appears funds are expecting a positive outcome.

The small cap indexes are the sentiment indicators for the broader market. Having them breakout to new highs, especially when the big cap indexes rolled over, is very bullish. Now they just have to hold their gains for the next two days.

Because of the impending earnings on HABT, ILG, KRNT and PTCT, I am really tightening the stop losses with the intention of being out before their earnings events. Any material dip will cause us to stop out. If we do not get a dip we will close the positions on the day before their earnings.





Current Portfolio


Stop Loss Updates

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


Profit Targets

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





Current Position Changes


FSLR - First Solar
The long put position was stopped out at $28.35.



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

FNSR - Finisar Corp - Company Profile

Comments:

The U.S. government expanded its investigation regarding compliance with sanctions programs against Iran, Cuba, Sudan and Syria. The target is China-based Huawei but OCLR, ACIA, LITE and FNSR have similar operations. Last month ZTE, a peer to these companies, pleaded guilty and faces fines of $1.2 billion. If the government is going name by name in their investigation, investors may reconsider their ownership of these companies. At least one analyst said today's dip on sector related news rather than company specific, was overdone.

Original Trade Description: April 24th.

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.

We played Finisar several weeks ago and got caught in the downdraft on China worries. Reports out of the sector suggested orders from China had slowed. Shares crashed from $35 to $21 over the period of about six weeks. Raymond James said the selloff is overdone and the worries over China are overblown.

China is on track to network 120 major cities with populations of more than one million. That will take a lot of networking gear. The directives have been given from the governmental level but the actual orders will come from the provincial level. Bids for routing and wireless components have already been submitted and optical equipment is expected to be next in line.

Raymond James said Finisar has the most upside potential with a target of $39 and is cheap with a PE of only 9 times 2018 earnings estimates.

Shares have rebounded the last two days after the Raymond James note to investors.

Earnings June 8th.

Position 4/25/17:

Long FNSR shares @ $23.10, see portfolio graphic for stop loss.

Optional:

Long June $25 call @ $1.20, see portfolio graphic for stop loss.



HABT - Habit Restaurants - Company Profile

Comments:

No specific news. Another new 52-week high. The prior resistance at $18 should now be support. If we can continue higher, the next challenge would be $21 and then $24. The historic high in 2014 was $44. Earnings are May 3rd so we will need to exit soon. I am raising the stop loss.

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:

ILG added the "The Fives Beach Residences at Playa del Carmen" in Mexico to its list of luxury properties available for vacationers. Nice gain and a new 52-week high. Earnigns next week so I am raising the stop loss to take us out on any dip.

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. Tested resistance again at $25.35 and closed at a two-month high.

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. Another new historic high close. We developing a pattern of higher lows and lower highs as the buyers and sellers squeeze together. We are going to have either a break out or down soon.

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. New 7-week high close.

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.



USO - US Oil Fund ETF - ETF Profile

Comments:

No material movement in crude prices. The USO spiked after the inventory report but returned to neutral after it was digested.

Original Trade Description: April 22nd.

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.

Position 4/24/17:

Long Jun $10.50 call @ 40 cents, no stop loss.




BEARISH Play Updates

FSLR - First Solar - Company Profile

Comments:

No specific news. Shares spiked $1.45 ahead of next Tuesday's earnings and the long put position was stopped out for a 58 cent loss.

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:

Closed 4/26/17: Long June $25 put @ $1.15, exit .57, -.58 loss.

Previously closed 4/25/17: Short FSLR shares @ $27.50, exit $27.50, breakeven.



VXX - Volatility Index Futures - ETF Description

Comments:

Minor gain after the market rolled over in the afternoon. If the market bullishness continues, the VXX should continue to bleed points. However, we should expect the potential for a 2-point rise if the market tanks on the fiscal battles later this 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.





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