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Daily Newsletter, Saturday, 8/12/2017

Table of Contents

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

Market Wrap

Weekend Event Risk

by Jim Brown

Click here to email Jim Brown

The major indexes tried to rebound but only the Nasdaq was successful.

Weekly Statistics

Friday Statistics

Fear of the weekend event risk was the likely cause for the mediocre rebound in the Dow, S&P and Russell. The war of words with North Korea continued to intensify and President Trump said the U.S. was "locked and loaded" to respond if Kim Jong-un did anything stupid. China took the unusual step of saying they would not take sides if NK started a military conflict but they would respond if the U.S. started the fight. Since China has always had North Korea's back, for them to say they would not respond if NK started the fight, probably had a cooling effect on Kim. Without his protector, North Korea would be a lonely place in a battle with the USA.

NK did respond to the locked and loaded statement saying they would pound the U.S. into jelly. I am sure that struck fear into the U.S. military.

If North Korea was not enough geopolitical tensions, the president said he was not ruling out a military option in Venezuela. President Maduro replied with a call to meet with President Trump at the UN General Assembly next month. Maduro said he wanted to have a "personal conversation" with the president. In the same speech to the new ruling body in Venezuela he also said, he would not cede authority to any foreign power. Maduro and Chavez before him, routinely called the U.S. an evil power causing all the hardship in the country. It is a typical ploy of dictators to take the focus off of themselves and transfer it to some other entity, then they can take credit for trying to solve the problems this entity caused.

The markets traded in a narrow range with most of the gains in the early hours with the exception of the Nasdaq. The big cap techs rebounded from big losses to allow the Nasdaq to regain 40 of the 135 points it lost on Thursday.

Volume was light at 6.1 billion shares and the A/D line was almost dead even. There was a total lack of conviction on both sides.


The main economic report on Friday was the Consumer Price Index (CPI). The CPI rose 0.1% for July after a flat reading in June and -0.1% in May. There is no inflation. Analysts were expecting +0.2%. This puts a damper on the Fed's intentions to hike rates in December. They will need a sudden surge in inflation if they are still data dependent. I suspect, regardless the numbers they will try to find some reason to allow them to hike again. They have already begun to quote other factors in their justifications.

Food inflation rose +0.2% and energy declined -0.1%. The core CPI without those two components rose +0.1% with goods falling -0.1% and services up +0.2%. On a trailing 12-month basis the CPI is up +1.7% and well below the recent peak in February at 2.8%. The 12-month core CPI is also 1.7%.

Over the prior six months the headline CPI was down -0.1% in total and the first decline since 2015. The drop in oil prices has reduced prices for everything and the Fed continues to stress this is "transitory" but that transit could be with us for a long while.

The odds of a rate hike in September are zero with a minimal 4.1% chance of a rate cut. The current rate is 1.00%-1.25% and has a 95.9% chance of staying there.


The December futures are suggesting there is only a 35.9% chance of a rate hike. That combines the 1.25-1.50% with the very slim chance of a bump to 1.50%-1.75%. A bump that high has zero chance of happening and analysts believe the odds of no hike at all will increase over the coming months.

The most likely event at the September meeting is the start of QE taper where the Fed stops replacing all the securities that mature each month. They have put forth a plan to let a portion mature without replacement while the rest of the maturing securities would be replaced with new purchases. The market has not gotten too excited whenever this is mentioned but the last time they tried to taper there was a "taper tantrum" and the market crashed. While nobody expects a market tantrum this time because of the open communication for the last year that it was coming, it is best to never say never.


The lack of inflation in the CPI and the market crash on Thursday saw treasuries rally again in a flight to quality move. The yield fell to 2.189% and some analysts are saying we could see a 2.15% or lower if the market declines further.


The weak CPI also weighed on the dollar and it headed back towards its 12-month lows. This is beneficial for the 50% of the S&P sales that are overseas.


The calendar for next week is highlighted by retail sales, Philly Fed Manufacturing and the FOMC minutes. Traders will be watching the minutes for signs of the QE taper details. That is the most important event for the week.

The retail sales are expected to show a big rebound from June's -0.2% decline and a miss there could be disappointing for the market because it suggests a weak economy.

The Philly Fed Manufacturing Survey is the proxy for the national ISM two weeks later. This will be insight into the national economy.

The Fed's Jackson Hole meeting is still two weeks away and Yellen is expected to set the stage for the QE taper in her speech.

I added the budget and debt ceiling deadlines to the calendar because it is looking more likely there is going to be a major battle and the potential for a government shutdown. Quite a few senators claim they will not vote for the budget or debt ceiling as proposed and the other side is saying they are not going to allow changes. With the extreme partisan politics in Washington today, both sides are fortifying their bunkers for a long drawn out fight.


The earnings calendar shrank for next week now that most of the big name companies have reported. However, the last three Dow components will report with HD before the open on Tuesday, Cisco Systems after the close on Wednesday and Wal-Mart before the open on Thursday.

Alibaba is the last big Nasdaq tech stock to report before the bell on Thursday. The week is heavily stacked with retail stocks and lately it has been feast or famine with either big beats or big misses.

The earnings should not move the market this week but they could be a contributing factor.


More than 455 S&P companies have reported and earnings are expected to have grown by 12.0% when the cycle ends. Of those 455 companies, 73.6% have beaten on earnings and 68.3% have beaten on revenue. The long-term averages are 64% and 59% respectively so we are well above the averages.

There have been 55 guidance warnings and 34 positive preannouncements. The forward PE remains 17.6.

There are 20 S&P companies reporting this week.

On Friday, JC Penny (JCP) reported an adjusted loss of 9 cents that was larger than the 5-cent loss analysts expected. Revenue of $2.96 billion beat estimates for $2.84 billion. Same store sales declined -1.3% and slightly worse than the -1.2% analysts expected. The company guided for the rest of 2017 for sales to be down 1% to up 1%. They expect earnings to be in the range of 40 to 65 cents and analysts were expecting 49 cents. Shares fell 16% on the news.


Bottomline Technologies (EPAY) reported adjusted earnings of 28 cents. Analysts were expecting 25 cents. Revenue of $93.5 million beat estimates for $90.9 million. EPAY operates as a Software as a Service (SaaS) company handling digital payments, documentation and digital banking. They offer Paymode-X, a cloud based payment network with invoices, payments, ledgers and vendor support.


While there were only a couple reports on Friday, there were some notable reactions to stocks reporting earnings on Thursday evening. Fan favorite Nvidia (NVDA) reported earnings of $1.01 compared to estimates for 69 cents. Revenue of $2.23 billion also beat estimates for $1.96 billion. They guided for the current quarter for revenue of $2.35 billion and analysts were expecting $2.13 billion. Despite the blowout earnings and guidance, shares fell $9.

Think about this. Revenue rose 56%, net income rose 123%, revenue in the data center segment rose 175%. Revenue from gaming rose 52%. The company has posted total revenue growth of more than 50% in each of the last three quarters and triple digit earnings growth for five consecutive quarters. So why did Nvidia shares crash? Because the stock is up 700% over the last three years and $35 in the last six weeks. Is Nvidia still a great stock? Absolutely, because it is growing faster than any other tech stock in the market and many times faster than any industrial stock. These gains will continue because they keep announcing new chips, new equipment and most importantly new performance standards. They just announced a new chip that is 12 times faster than their current top of the line chip and the current speed leader. Yes, they are replacing the fastest chip available with one that is 12 times faster. What has Intel and AMD done lately that even remotely compares?

When Nvidia fell back to $140 after their last earnings, I was pounding the table on the buying opportunity. While I do not know where this current post earnings drop will end, it is still a new buying opportunity even at the current level. If it declines any further it will just be a better opportunity.

Short seller Andrew Left was out talking his book on Nvidia again on Thursday saying he shorted Nvidia ahead of earnings because they were grossly overbought. You may remember him touting his short position in June and predicting the stock would decline to $90. He only missed it by $50 and if he is still holding that initial short he is in a world of trouble with the stock hitting a new high at almost $175 on Thursday. Left could continue to make waves with his short thesis and push the stock lower in the short term. If he does, we should thank him for the buying opportunity. Needham just upped their price target to $200.


Snap Inc (SNAP) continued to disappoint both with earnings and the tone of the conference call. Snap reported a loss of 16 cents compared to estimates for 14 cents. Revenue of $181.7 million missed already lowered estimates for $186.9 million. Snap officials blamed unnamed competitors (Facebook, Twitter and others) for "growth hacking" and using phone notifications to lure back prior users. An analyst spoke up and said "why is that different? Snap is doing exactly the same thing." The Snap answer was convoluted and the analyst laughed out loud and said, "I did not even understand his response" suggesting the CEO was being specifically vague. That would not have been a problem except the microphone was still on and everybody on the call heard the laughter and comments. This was typical for Snap. They tend to talk down to analysts on the call and then analysts talk down the stock. Snap will not give guidance so analysts are flying blind when they produce their estimates and they are going to be wide. Much of their problems are self-inflicted. Shares fell to $11.83 on their way to single digits.


Etsy (ETSY) shares spiked 2% after news that CEO Josh Silverman had purchased 64,000 shares in the open market for $15.67 each. That is roughly a $1 million acquisition. Silverman became CEO in May. Etsy blew away earnings the prior Friday.


Crude prices tried to rally after the big decline in inventories and the OPEC & non-OPEC meeting early in the week. WTI actually pushed through $50 briefly but fell back on the weak economics and general market weakness. Sometimes when the market crashes, you have to sell other things to cover margin calls and raise cash. That was probably a driver for crude prices.

The IEA pointed out that the decline in global inventories was not enough to allow OPEC to end its production cuts for a long time. The IEA said those cuts "could be here to stay" if something does not change in the demand cycle. Global inventories are declining about 500,000 bpd but even if the cuts lasted until the end of Q1-2018, they would still be 60 million over the five-year average and the target for OPEC. The compliance for the 1.8 million bpd production cut fell to 75% in July or about 470,000 bpd less than they agreed to cut.

On the positive side, the IEA raised their demand growth estimates for 2017 to 1.5 million bpd after Q2 demand soared to 1.8 million bpd. That is not expected to continue but they are seeing solid demand from Germany and the US. The EIA said US demand rose 820,000 bpd in May and the highest since 2007. China's demand rose 290,000 bpd in the first half of 2016 but European demand fell -125,000 bpd.

Global supply of oil rose 520,000 bpd in July to 98.16 million bpd. OPEC output rose 230,000 bpd to a new high of 32.84 million bpd, and this is with 75% compliance on the 1.8 million bpd of cuts.

I warned recently that Saudi Arabia was only promising to cut exports by 1.0 million bpd because they needed the extra oil to burn to produce electricity in August. They actually admitted it last week when Saudi Energy Minister Khalid al-Falih said exports would be limited to 6.6 million bpd to satisfy peak power demand in August. So much for the benevolent Saudi kingdom trying to do their part in boosting oil prices. We knew the truth would eventually appear.


U.S. shale drillers can see the future and it is bearish. More than anyone, they understand that demand is going to fall off a cliff in early September and prices will fall as well. To combat the expected fall in prices they are cutting back on active rigs. Five rigs were deactivated last week and 4 rigs the week before. Over the last five weeks, they have only added a net of 3 rigs. Multiple companies lowered capex guidance when they reported earnings. Projected well completions have been reduced with some completions pushed out until 2018.

U.S. companies are not joining OPEC in the voluntary cuts. They are just planning their expenses for the next down cycle in crude prices. The result is the same. Depletion will do the rest. In the Permian, they are losing 154,000 bpd per month to depletion in older wells. If they slow drilling that depletion will offset new production and total production will not rise.




Markets

The major indexes tried to rebound in a low volume market but the weekend event risk was likely to blame for their failure to make material gains. The early morning gains were sold at the close when traders realized stocks were not going higher.

I actually think the fact they did not fall back into negative territory was a positive. That could mean once traders see there were no military attacks over the weekend they will be more conducive to buying again. Of course, all the new weekend headlines will have to be factored in as well.

The S&P fell 36 points on Thursday and rebounded only 3 points on Friday. That is hardly a bullish event but there was the event risk. The S&P is flirting with very light support at 2,440 with the 2,420-2,410 the real target level.

While a 36 point drop is a lot for one day, the S&P is only down -1.6% from its closing high from Monday at 2,480.91. So far, Thursday's decline was just a hiccup rather than a sell off.

Until the S&P moves under 2,420, I am not going to be worried. We know the next 8-weeks are normally bearish so we should expect further declines and be happy if our expectations are wrong.

A drop to 2,381 would be a 3% decline and 2,332 would be a 5% decline. In normal markets a 3%-5% decline occurs a couple times a year.


The Dow declined -204 points on Thursday and rebounded only 14 points on Friday. Despite this decline, the Dow is only -1.2% below its closing high of 22,118 from Monday. The winners list from Friday was led by those normally at the top with the exception of Microsoft, which hardly ever gains $1 because of the 7.7 billion outstanding shares. It takes a lot to move that stock. Microsoft hit a 6-week low on Thursday and Disney a 9-month low so they were due for a decent rebound. It was probably not a change in their trend.

Apple has been an outperformer since their earnings. The iPhone 8/Pro is now expected to be announced on time but with slow deliveries. That is fine with analysts and they are just adjusting their Q4/Q1 sales expectations. Several key features are now rumored to be off the table and that has freed up production schedules.

The Dow could be a leader again if the market turns positive next week. The falling dollar and rising overseas economies favor the blue chips in the index.

Initial support on the Dow remains 21,500 and Friday's close was 350 points away. It would not hurt for the Dow to rest for a few additional days to let emotions settle before making another attempt to move higher.



The Nasdaq was the rebound leader on Friday with a 40 point gain on the Composite Index and a 43 point gain on the Nasdaq 100. The Nasdaq Composite is only down -2.6% from its 6,422 closing high from July 25th. The index did not make a new closing high on the 7th along with the other big cap indexes.

The Composite Index has support at 6,100 and closed at 6,256. From the intraday high of 6,460 on the 27th to the low on Thursday, the Composite has lost 246 points.




The Nasdaq 100 found initial support in the 5,800 range and closed at 5,831. That is roughly 257 points above real support around 5,575. Except for Thursday, the big cap index has been holding its recent gains even though it was not moving higher.


The Russell 2000 is the problem index. The Russell has fallen -78 points or -5.4% from its July 25th high of 1,452. The Russell began to decline before the other indexes and has fallen significantly farther. Current support is 1345-1355 so I am using 1,350 as a round number. If it reached that level, it would be a 6.5% drop. A move below 1,345 would be a significant negative event for the broader market.


Monday is going to be a critical day. The headlines from the weekend will be filtered and decisions made on whether they are important. Traders will determine if it is safe to go back into the market and sellers will be waiting for the next bounce. Volume is likely to be light and intraday volatility could be strong. Eventually one side will win the battle. Monday's outcome could influence the market for the rest of the week.

However, remember we are entering into a normally weak period and rallies could be sold. There is no rush to buy dips because there may be a better buying opportunity in the weeks ahead.

After the House comes back from the August recess there are only 12 work days before the budget and debt ceiling must be approved. The odds of this happening are very low. There will be volatility around these events in September.

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

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Random Thoughts


This survey ended on Wednesday, before the big market drop. A few more bulls eased back over to neutral but I would expect next week's survey could be significantly different unless we get an early week rebound. 66% still believe the market is not going higher.



With all the headlines about North Korea attacking Guam and President Trump promising instant retaliation, I found it interesting that there are only 6 B1 bombers in Guam. Since that is the vehicle to deliver the long distance retaliation, it would seem to be a small fleet unless they are going to use nuclear weapons. The best description of a plan to retaliate suggests they will use the B1s and some cruise missiles to take out their 30+ missile launch and storage locations. However, there are no carrier strike forces near the Korean peninsula and it would take several weeks to move them back into position. Apparently, the U.S. is not taking the threat seriously despite the constant headlines.

Also of interest is that only 30 of the 62 B1 bombers in inventory can fly because of a lack of spare parts. This condition came from continuous budget cuts over the last 8 years. Nearly half of our existing fighters are grounded for parts and more than half of our tanks are mothballed because they have been scavenged for parts. Stockpiles of bombs and rockets are around 40% of recommended levels. We are not prepared to fight an actual war. We have the greatest military in the world but budget cuts have caused more damage than any enemy has.


Somebody in Illinois won the $393 million Mega Millions jackpot. Their odds were 1 in 258,890,850. You have better odds of being struck by lightning 3 times. Assuming they took the lump sum option of an estimated $247.3 million, the taxes are going to be painful. The Federal government will keep 25% up front and eventually get 39.6% or $97.9 million. Illinois will get $12.4 million up front. While a tax bill of $110.3 million is a lot of money, the $137 million that is left over would definitely pay my bills. I do not think any of us would complain about the taxes. Just give me the check please!


The world's oldest man died just short of his 114th birthday. He was born in 1903. He survived both wars and years in Auschwitz where his wife and two kids were killed. He was constantly asked what his secret was to a long life. He always replied, "I do not know. There have been smarter, stronger and better-looking men than me who are no longer alive." Francisco Olivera, a resident of Spain, now has the title of oldest man at 112 years and 242 days. The oldest verified male ever was 116 years and 54 days old when he died in Japan.

The oldest living woman is Jamaican resident Violet-Mosse Brown at 117 years, 155 days. She was born March 10th, 1900. When asked her secret she said, "Really and truly, when people ask what me eat and drink to live so long, I say to them that I eat everything, except pork and chicken, and I don't drink rum and them things," There you have it, the secret to living longer.

World's Oldest Women

World's Oldest Men


The CBOE said options on VIX hit a record 2.56 million contracts on Thursday. VIX futures volume hit a record of 939,000 contracts. Analysts said the sudden spike in volume to record levels suggested Thursday's decline was more serious than it appeared on the surface. With the near constant addition of volatility products including ETN/ETFs there could be an issue with leverage since all these products link back to the VIX. With the various inverse ETFs and the 2x, 3x ETFs there is the potential for very wide intraday swings in volatility that is accentuated by the heavy volume in the underlying that is much higher than would be dictated by the swing in the S&P. In a major market move, traders and funds are forced to buy back short positions at the worst possible time and that rapidly inflates prices just like a monster short squeeze in a thinly traded equity position. What this means is that individual traders should not be short volatility ETN/ETFs or you could eventually have a very bad day.



 

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

 

"De Omnibus Dubitandum" - Question Everything!

Soren Kierkegaard


 


New Plays

Strong Bullish Guidance

by Jim Brown

Click here to email Jim Brown
Editor's Note

Not many companies are increasing current quarter guidance by 65%. Ultra Clean beat on earnings and revenue and raised significantly.



NEW BULLISH Plays

UCTT - Ultra Clean - Company Profile

Ultra Clean Holdings, Inc. designs, develops, prototypes, engineers, manufactures, and tests production tools, modules, and subsystems for the semiconductor capital equipment and equipment industry segments primarily in North America, Asia, and Europe. It offers precision robotic systems that are used when accurate controlled motion is required; gas delivery systems, which include one or more gas lines consisting of small diameter internally polished stainless steel tubing products, filters, mass flow controllers, regulators, pressure transducers and valves, component heaters, and an integrated electronic and/or pneumatic control system; and various industrial and automation production equipment products. The company also provides subsystems, such as wafer cleaning sub-systems; chemical delivery modules that deliver gases and reactive chemicals in a liquid or gaseous form from a centralized subsystem to the reaction chamber; frame assemblies, which are support structures fabricated from steel tubing or folded sheet metal; and top-plate assemblies. In addition, it offers liquid delivery systems; process modules, which are the subsystems of semiconductor manufacturing tools that process integrated circuits onto wafers; and other high level assemblies. The company primarily serves original equipment manufacturing customers in the semiconductor capital equipment, consumer, medical, energy, industrial, flat panel, and research industries. Company description from FinViz.com.

We have played UCTT several times before with varying results. The stock is volatile based on the direction of the chip sector. Since UCTT sells to chip makers, their good/bad fortune impacts UCTT. Fortunately, we are in a tech world where every year, more chips are required to make more gadgets including computers, tablets, phones, TVs and now the billions of IoT devices to be installed over the next several years.

The company reported earnings of 62 cents and analysts were expecting 51 cents. Revenues rose 75% to $228 million and beat estimates for $214 million.

They guided for earnings in the current quarter of 62-68 cents and analyst estimates were only 39 cents. At the midpoint of 65 cents that would be 66% higher than estimates. Very few companies are growing earnings that fast. Shares declined after the CEO said he was taking two months off to addess a treatable medical condition.

Expected earnings Oct 26th.

Shares are starting to rebound from the post earnings dip.

Buy UCTT shares, currently $22.08, initial stop loss $20.55, under the post earnings dip.
Alternate position: Buy Sept $22.50 call, currently $1.15, initial stop loss $20.55.

This is a short-term call because the next option series is December and options are too expensive. We have to buy just out of the money because the next strike at $25 requires a 10% move in the stock in only 4 weeks. That is very possible but we are entering a weak market period.



NEW BEARISH Plays

No New Bearish Plays


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



In Play Updates and Reviews

Mediocre Rebound

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Nasdaq posted a decent gain but the Dow, S&P and Russell barely avoided a negative close. Weekend event risk was probably the biggest factor keeping investors from buying the dip. The war of words with North Korea continues to accelerate and multiple analysts said they expected some sort of action by North Korea this weekend. That kept investors cautious. There is no reason to put money at risk when some idiot can do something stupid and cause a market meltdown at Monday's open.

The Russell lost 24 points on Thursday and only rebounded 1 point. The S&P lost 36 and rebounded 3. The Dow lost 204 and gained only 14 back. The rebound was definitely mediocre unless you were into big cap tech stocks with a 39-point gain to offset their 135 point loss on Thursday.





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


KR - Kroger
The long position was stopped at 23.35.

FRGI - Fiesta Restaurants
The short position was stopped at $17.95.

NGVC - Natural Grocers
The short position was stopped at $6.25.



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BULLISH Play Updates

GIII - G-III Apparel - Company Profile

Comments:

No specific news. Positive earnings by Kohls lifted PVH and GIII.

Original Trade Description: June 29th.

G-III Apparel Group, Ltd. designs, manufactures, and markets men's and women's apparel. It operates in two segments, Wholesale Operations and Retail Operations. The company's products include outerwear, dresses, sportswear, swimwear, women's suits, and women's performance wear; and women's handbags, footwear, small leather goods, cold weather accessories, and luggage. It markets swimwear, resort wear, and related accessories under the Vilebrequin brand; footwear, apparel, and accessories under the G.H. Bass brand; and proprietary products under the DKNY, Donna Karan, Andrew Marc, Marc New York, Black Rivet, Wilsons, Eliza J, Jessica Howard, G-III Sports by Carl Banks, and G-III for Her brands. G-III Apparel Group, Ltd. also licenses its products under the Calvin Klein, Tommy Hilfiger, Karl Lagerfeld Paris, Guess?, Kenneth Cole NY, Cole Haan, Levi's, Vince Camuto, Ivanka Trump, Ellen Tracy, Kensie, and Jessica Simpson brands, as well as has licenses with the National Football League, National Basketball Association, Major League Baseball, National Hockey League, Hands High, Touch by Alyssa Milano, Collegiate Licensing Company, Major League Soccer, Starter, and Warrior by Danica Patrick, as well as approximately 140 U.S. colleges and universities. The company offers its products to department, specialty, and mass merchant retail stores in the United States and internationally. As of January 31, 2017, it operated 411 leased retail stores, which included 190 Wilsons Leather stores, 163 G.H. Bass stores, 50 DKNY stores, 5 Calvin Klein Performance stores, and 3 Karl Lagerfeld Paris stores. The company also operates Wilsons Leather, G.H. Bass, and DKNY branded online stores. Company description from FinViz.com.

G-III shares were pressured in May by the weakness in the retail sector in general. They rebounded in early June on better than expected earnings but were hit again in early July by the next wave of retailer warnings.

In the last quarter, G-III saw sales rise 16% to $529 million. Because of costs associated with the acquisition of Donna Karan they posted a loss of 18 cents but analysts were expecting a loss of 37 cents. Wholesale sales are growing by double digits in most brands. The Wilsons Leather and Bass Stores are the exception and they said they were closing some stores and repurposing some others. The Donna Karan brand is rapidly expanding with new merchandise and G-III thinks it could eventually be their biggest brand. The company is expected to earn $1.27 in 2017 and $1.72 in 2018.

Expected earnings September 5th.

Shares have risen over the last three weeks despite the market volatility. They closed only 20 cents below a five-month high on Friday. A breakout could trigger short covering and additional buying.

Position 7/31/17:

Long GIII shares @ $26.10, see portfolio graphic for stop loss.
Alternate position:
Long Sept $30 call @ 72 cents, see portfolio graphic for stop loss.



KR - Kroger - Company Profile

Comments:

No specific news. Shares gapped lower at the open to stop us out at $23.23 and just below out stop loss at $23.35. Kroger closed at the stop loss on Thursday so this was not a surprise.

Original Trade Description: July 31st.

The Kroger Co., together with its subsidiaries, operates as a retailer in the United States. It also manufactures and processes food for sale in its supermarkets. The company operates retail food and drug stores, multi-department stores, jewelry stores, and convenience stores. Its combination food and drug stores offer natural food and organic sections, pharmacies, general merchandise, pet centers, fresh seafood, and organic produce; multi-department stores provide general merchandise items, such as apparel, home fashion and furnishings, outdoor living, electronics, automotive products, toys, and fine jewelry; and price impact warehouse stores offer grocery, and health and beauty care items, as well as meat, dairy, baked goods, and fresh produce items. The company's marketplace stores comprise full-service grocery, pharmacy, health and beauty departments, and perishable goods, as well as general merchandise, including apparel, home goods, and toys. It operates under the banner brands, such as Kroger, Ralphs, Fred Meyer, King Soopers, etc., as well as Simple Truth and Simple Truth Organic brands. As of January 28, 2017, the company operated 2,796 retail food stores, including 1,445 fuel centers; 784 convenience stores; and 319 fine jewelry stores and an online retail store, as well as franchised 69 convenience stores. The Kroger Co. was founded in 1883. Company description from FinViz.com.

Expected earnings September 14th.

Shares crashed from $30 to $20 on the Amazon announcement but over the last week a strong rebound has begun. Whole Foods has 340 stores. Kroger has 2,796 stores. Whole Foods sells to a high dollar consumer, thus the nickname Whole Paycheck Foods. They have an estimates 12 million potential customers. Kroger sells to everyone with a potential customer base of more than 200 million. Amazon is not going to be a threat to Kroger for a long time even if the acquisition gets approved and that is still an unknown with multiple committees researching antitrust issues and the current administration clearly anti-Amazon.

I am recommending we ride the stock back up until reality returns to the price.

Position 8/1/17:

Closed 8/11: Long KR shares @ $24.50, exit $23.23, -1.27 loss.
Alternate position:
Closed 8/11: Long Sept $25 call @ $.98, exit .45, -.53 loss.



RCII - Rent A Center - Company Profile

Comments:

No specific news. Minor rebound so don't count it out just yet.

Original Trade Description: August 2nd.

Rent-A-Center, Inc., together with its subsidiaries, leases household durable goods to customers on a rent-to-own basis. The company operates through four segments: Core U.S., Acceptance Now, Mexico, and Franchising. It offers durable products, such as consumer electronics; appliances; computers, including tablets; smartphones; and furniture, including accessories under rental purchase agreements. The company also provides merchandise on an installment sales basis; and offers the rent-to-own transaction to consumers who do not qualify for financing from the traditional retailer through kiosks within retailer's locations. It operates retail installment sales stores under the Get It Now and Home Choice names; and rent-to-own and franchised rent-to-own stores under the Rent-A-Centre, ColorTyme, and RimTyme names. As of December 31, 2016, the company owned and operated approximately 2,463 stores in the United States, Canada, and Puerto Rico, including 45 retail installment sales stores; 1,431 Acceptance Now kiosk locations in 40 states and Puerto Rico; 478 Acceptance Now virtual (direct) locations; and 130 stores in Mexico, as well as franchised 229 rent-to-own stores in 31 states under the Rent-A-Center, ColorTyme, and RimTyme names. Company description from FinViz.com.

Earnings were not good. The company posted a loss of 1 cents compared to estimates for earnings of 7 cents. Revenue of $677.6 million did beat estimates for $664.7 million. The problem was a number of new initiatives that take time to manifest into gains. This is a company with a portfolio of loans on household goods and there is not much they can do to change that on a qtr to qtr basis. The new initiatives only apply to new business so it takes a while to generate a large portfolio under the new rate plan. Core U.S. sales rose 230 basis points in Q2. Acceptance Now, a new initiative, saw sales rose 380 basis points. The average monthly rate of new finance agreements rose 5.7%. Higher end products now compromise 65% of store inventory. Same store sales in existing stores rose 6.7%.

Expected earnings Oct 25th.

Hedge fund Marcato Capital Management demanded the company sell itself or it would start a proxy war to replace the entire board. Hedge fund Engaged Capital has already been demanding a company sale arguing that a restructuring could best be done by new owners. Engaged won a proxy fight and now has 3 board members. RCII turned down offers from HIG Capital, Lone Star Funds and Vintage Capital over the last several months. Marcato said the $15 offer from Vintage was the opening offer and would rise if RCII would negotiate with Vintage and open its books.

The stock appears to be rising on takeover interest. Resistance is $16 and the stock traded as high as $37 in the last couple of years. If Vintage does raise their offer it would probably be in the $16-$16.50 range. Whether RCII would accept it is unknown.

With multiple sharks circling and two hedge funds demanding a sale, there could actually be competing offers once RCII decides to negotiate. The downside would appear limited.

Position 8/3/17:

Long RCII shares @ $13.63, see portfolio graphic for stop loss.
Alternate position: Long Sept $15 call @ 30 cents, see portfolio graphic for stop loss.




BEARISH Play Updates

DDD - 3D Systems - Company Profile

Comments:

No specific news. Shares rebounded only slightly. Support still $12.

Original Trade Description: August 7th.

3D Systems Corporation, through its subsidiaries, provides 3D printing products and services worldwide. The company's 3D printers transform data input generated by 3D design software, CAD software, or other 3D design tools into printed parts using a range of print materials, including plastic, nylon, metal, composite, elastomeric, wax, polymeric dental materials, and Class IV bio-compatible materials. It offers various 3D printing technologies, such as stereolithography, selective laser sintering, direct metal printing, multijet printing, and colorjet printing. The company also develops, blends, and markets various print materials, such as plastic, nylon, metal, composite, elastomeric, wax, polymeric dental materials, and Class IV bio-compatible materials. It offers its printers under the Accura, DuraForm, LaserForm, CastForm, and VisiJet brand names. In addition, the company provides digital design tools, including software, scanners, and haptic devices, as well as products for product design, mold and die design, 3D scan-to-print, reverse engineering, and production machining and inspection. Further, it offers proprietary software and drivers that provide part preparation, part placement, support placement, build platform management, and print queue management; and 3D virtual reality simulators and simulator modules for medical applications, as well as digitizing scanners for medical and mechanical applications. Additionally, the company provides warranty, maintenance, and training services; on-demand solutions; and software and healthcare services. Company description from FinViz.com.

3D reported adjusted earnings of 8 cents compared to 12 cents in the year ago quarter. Revenue rose less than 1% to $158.4 million but sales of 3D printers declined -4%. Analysts were expecting 12 cents and $162.5 million.

The company guided for the full year for revenue of $643-$671 million, down from $643-$684 million. They guided for earnings of 46 cents, down from 51-55 cents.

3D keeps talking about new products adding to revenue in 2018 but that is a long way off and could be wishful thinking.

Expected earnings November 1st.

Shares fell $5 on the earnings and guidance miss but I expect them to fall further. If shares break support at $12, they could fall to $6 and a 7-year low.

Position 8/8/17:

Short DDD shares @ $13.00, see portfolio graphic for stop loss.
Alternate position: Long Sept $12 put @ 44 cents, see portfolio graphic for stop loss.



DF - Dean Foods - Company Profile

Comments:

No specific news. Shares found buyers again and came very close to stopping us out. When markets are weak, shares that have been previously sold are seen as safe havens.

Original Trade Description: August 9th.

Dean Foods Company, a food and beverage company, processes and distributes milk, and other dairy and dairy case products in the United States. The company manufactures, markets, and distributes various branded and private label dairy case products, such as fluid milk, ice creams, cultured dairy products, creamers, ice cream mixes, and other dairy products; and juices, teas, bottled water, and other products. It sell its products under approximately 50 national, regional, and local proprietary or licensed brands, and private labels, including DairyPure, TruMoo, Alta Dena, Berkeley Farms, Country Fresh, Dean's, Friendly's, Garelick Farms, LAND O LAKES, Lehigh Valley Dairy Farms, Mayfield, McArthur, Meadow Gold, Oak Farms, PET, T.G. Lee, Tuscan, and others. The company sells its products to retailers, distributors, foodservice outlets, educational institutions, and governmental entities through its sales forces. Company description from FinViz.com.

Dean Foods reported earnings of 21 cents that declined -47.1% and missed estimates for 31 cents. Revenue of $1.93 billion, which also missed forecasts. The lowered their full-year guidance from $1.35-$1.55 to 80-95 cents. That is a major haircut.

Expected earnings Nov 8th.

Dean Foods handles a lot of milk brands and the USDA said milk sales nationwide declined -2.9% in May alone. Management said competitive and volume pressures are hurting the company and the negative dynamics are expected to continue the rest of the year.

Milk has been found to cause diabetes or at least make it worse and the news is spreading fast. I have a friend that has been taking insulin for 20 years. I talked him into dropping milk from his diet and he was able to get off insulin within 3 weeks. A year later he backslid and began to drink milk again and he had to go back on insulin. He was quickly convinced and has sworn off forever and now leads a normal life with no diabetes meds.

Shares fell sharply to a 5-year low but given the severity of the guidance warning and the size of the earnings miss, the stock could continue to decline.

Position 8/10/17:

Short DF shares @ $11.37, see portfolio graphic for stop loss.
Alternate position: Long Sept $11 put @ 30 cents, see portfolio graphic for stop loss.



SABR - Sabre Corp - Company Profile

Comments:

No specific news. Shares rebounded only 2 cents after the 3.5% drop on Thursday.

Original Trade Description: August 5th.

Sabre Corporation, through its subsidiary, Sabre Holdings Corporation, provides technology solutions to the travel and tourism industry worldwide. It operates through two segments, Travel Network, and Airline and Hospitality Solutions. The Travel Network segment operates as a business-to-business travel marketplace that offers travel content, such as inventory, prices, and availability from a range of travel suppliers, including airlines, hotels, car rental brands, rail carriers, cruise lines, and tour operators with a network of travel buyers comprising online and offline travel agencies, travel management companies, and corporate travel departments. The Airline and Hospitality Solutions segment provides a portfolio of software technology products and solutions through software-as-a-service and hosted delivery models to airlines, hoteliers, and other travel suppliers. This segment offers SabreSonic Customer Sales & Service, a reservation system that provides capabilities around managing sales and customer service across an airline's diverse touch points; Sabre AirVision Marketing & Planning, a set of airline commercial planning solutions; and Sabre AirCentre Enterprise Operations, a set of solutions for planning and management of airline, airport, and customer operations. The Airline and Hospitality Solutions segment also provides software and solutions to hoteliers through SynXis, a central reservation system; SynXis Property Manager Solution for property management; and marketing, professional, and revenue management services. Company description from FinViz.com.

American Airlines founded the company in 1960 and spun it off in 2000. Texas Pacific Group and Silver Lake Partners acquired it in 2007. They listed on the Nasdaq in 2014. Sabre is the largest global distributions systems provider for air bookings in North America.

Sabre closed its first week of trading at $16.50 in April 2014. The odds are good we are going to see that level again soon. They recently reported earnings of 35 cents that matched estimates. Revenue rose 6.6% to $900.7 million and beat estimates for $895 million.

The company announced a new "cost reduction and business alignment program" with the goal of saving $110 million a year in expenses. They are going to reduce global headcount by 9%. They reiterated their full year guidance of $3.54-$3.62 billion and earnings of $1.31-$1.45. However, they said earnings would likely come in at the lower half of guidance. Think about that for a minute. We are going to affirm our guidance but earnings will be at the low end of that guidance. Did they actually affirm guidance of lower guidance?

They said the poor results were related to multiple factors. They halted work on the implementation of their new SabreSonic reservation system, no reason given but clearly it was not going well. They said they were seeing higher stability, security and technology costs related to a "security incident" in their Sabre Hospitality central reservation system during the quarter. Were they hacked? They did not say. Lastly, they said they were dealing with accounting changes for revenue collected from customer Alitalia, which is going through a bankruptcy process. Typically that means you get pennies on the dollar for receivables. The guidance was not good. Shares crashed from $22 to $19.50.

There was a dead cat bounce over the next couple days and now they are heading lower again. I do not see any reason why anyone would want to own Sabre when there are much better companies like Priceline, Tripadvisor, Trivago, Expedia, etc.

Expected earnings Oct 31st.

Shares closed at a two-year low on Friday at $19.73 and could be headed for a retest of the post IPO low at $15.

In addition to the short on the shares we have two ways to play the option. We can buy the October $17.50 put for 10 cents and forget about it. It will expire before earnings so it will have to be in the money at some point in the future to make any money. It is $2 OTM now and October has 75 days until expiration. If we want to roll the dice, the January $17.50 put is only 45 cents. That lets us hold over the October earnings, which should be disappointing. And gives us an extra 90 days to profit. The difference is $35 in cost. The key here is that January is well out of our normal 30-45 day play scenario. I am going to recommend the October option but you should choose the one that best suits your risk reward profile.

Update 8/7/17: Bank of America downgraded the stock from neutral to underperform (sell) and shares fell sharply at the open. It would have been nice if they had waited until after we were in the position. Shares fell about $1 at the open, rebounded slightly and then rolled over again in the afternoon. I think BAC helped us overall since it will put added pressure on the stock.

Position 8/7/17:

Short SABR shares @ $19.02, see portfolio graphic for stop loss.
Alternate position: Long Oct $17.50 put @ 40 cents, see portfolio graphic for stop loss.




Left Over Lottery Tickets

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

These positions are only updated on the weekend.


AOBC - American Outdoor Brands - Company Profile

Comments:

The company completed its acquisition of Gemini Technologies and assuming the regulatory environment changes as expected this will be a major profit center for AOBC. That is 6-12 months into the future. They do not report earnings until Sept 24th and we will be out of the position before then.

Original Trade Description: July 22nd.

American Outdoor Brands Corporation, formerly Smith & Wesson Holding Corporation, is a manufacturer of firearms and a provider of accessory products for the shooting, hunting and outdoor enthusiast. The Company operates through two segments. The Firearms segment manufactures handgun and long gun products sold under the Smith & Wesson, M&P and Thompson/Center Arms brands, as well as providing forging, machining and precision plastic injection molding services. The Outdoor Products & Accessories segment provides shooting, hunting and outdoor accessories, including reloading, gunsmithing, gun cleaning supplies, tree saws, vault accessories, knives, laser sighting systems and tactical lighting products. Brands in Outdoor Products & Accessories include Crimson Trace, Caldwell Shooting Supplies, Wheeler Engineering, Lockdown Vault Accessories, BOG POD and Golden Rod Moisture Control, as well as knives and specialty tools under Schrade, Old Timer, Uncle Henry and Imperial. Company description from FinViz.com.

Smith and Wesson saw the future when they changed names to American Outdoor Brands. President Obama was the best firearms salesman ever. He never missed an opportunity to talk down firearms and talk up gun control. Consumers, worried there would be a change in policy, rushed out to buy guns every time there was a new verbal assault on the second amendment. Gun sales hit record levels year after year.

When President Trump was elected as a pro-gun president, the urgency to buy more guns, faded. 2017 is still going to be another record year but only by a thin margin.

Smith & Wesson realized while President Obama was in power they needed to rebrand themselves to avoid the curse of being a prominent gun company in case the laws changed. They changed names to American Outdoor Brands and began a concentrated campaign to acquire a bunch of outdoor brands for products that had nothing to do with the shooting sports but they acquired some of those as well. Scopes, knives, safes, reloading, camping supplies, etc. Unfortunately, their main product line still depended on a continuing rise in firearms sales.

They reported earnings in late June of 57 cents that easily beat estimates for 37 cents. Revenue of $229.2 million beat estimates for $211 million. However, they guided for the current quarter for earnings of 7-12 cents and revenue in the $140-$150 million range. For the full year, they guided for $1.42 to $1.62 and revenue of $750-$790 million. Analysts were expecting $1.61 and $827.8 million. They said gun sales had slowed because of the new president. Secondly, they said they were going to use their unused portion of their $500 million line of credit to acquire additional growth opportunities. That means they were going to leverage up to their max debt to acquire new brands.

The CEO said, "Although good for the long-term viability of the industry, we believe that the election results coupled with a Republican Congress and choice of Supreme Court justice(s) could be a net-negative for [American Brands] as it eliminates any realistic fear of gun regulation, which has been a major driver of gun sales over the past eight years."

Shares declined sharply to $21. Over the last three weeks they have tried to rebound from that level but there is no excitement left. There have been a series of lower highs and Friday's close was below support and a three-month low.

Expected earnings September 24th.

I believe AOBC is going to retest the March lows at $18 if not lower. There are no positive catalysts on the horizon.

Position 7/24/17:

Long Sept $20 put @ $1.00, see portfolio graphic for stop loss.

Previously closed 8/1: Short AOBC shares @ $20.78, exit $20.95, -.17 loss.



ECA - Encana Corporation - Company Profile

Comments:

No specific news. Shares continue to be volatile with oil.

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 compared 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 will be 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 July 27th.

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.

Update 5/5/17: Encana reported earnings of 11 cents that beat estimates for 4 cents. Revenue of $1.297 billion also beat estimates for $789 million. Production declined 18% due to low prices and depletion. This was an excellent report from a beaten down energy stock.

Update 6/10/17: Encana agreed to sell its Piceance natural gas assets to Caerus Oil for $735 million. There are 3,100 operated wells that produce 240 million cubic feet of gas and 2,178 barrels of natural gas liquids every day.

Update 7/21/17: Encana reported earnings of 18 cents that easily beat analyst estimates for 4 cents. Revenue of $1.08 billion also beat estimates for $773.2 billion. The outlook and long-term projections were also strong. Shares closed positive but were hampered by a -1.32 drop in oil that tanked the sector.

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.



FRGI - Fiesta Restaurant Group - Company Profile

Comments:

FRGI missed on earnings and revenue but investors liked what they heard on the call and shares exploded higher to stop us out. Unfortunately, even though the option was in the money at the open the market maker killed us with a 15-cent bid compared to a $1.25 ask. On thinly traded options they can do that.

Original Trade Description: July 12th.

Fiesta Restaurant Group, Inc., through its subsidiaries, owns, operates, and franchises fast-casual restaurants. It operates its fast-casual restaurants under the Pollo Tropical and Taco Cabana brand names. The company's Pollo Tropical restaurants offer various Caribbean inspired food, and Taco Cabana restaurants offer a selection of Mexican food. As of January 1, 2017, it had 177 company-owned Pollo Tropical restaurants, 166 company-owned Taco Cabana restaurants, and 29 franchised Pollo Tropical restaurants in the United States, Puerto Rico, Panama, Trinidad & Tobago, Guatemala, the Bahamas, Venezuela, and Guyana, as well as 5 franchised Taco Cabana restaurants located in New Mexico, 2 non-traditional Taco Cabana licensed locations on college campuses in Texas, and 1 location in a hospital in Florida. Company description from FinViz.com.

Expected earnings August 7th.

On May 8th, Fiesta reported earnings of 25 cents compared to estimates for 30 cents. Revenue of $175.6 million missed estimates for $178.2 million. Same store sales declined -6.7% at Pollo Tropical and transactions declined -8.9%. Sales at Taco Cabana decreased 4.5% and sales transactions fell -4.0%. The company closed 30 stores that were losing money.

The company is under attack by JCP Investment Management, which has a 3% stake. JCP had lobied for changes to be voted at the June shareholder meeting. The company and JCP have been trading hostile press releases. The shareholder meeting went in favor of Fiesta but JCP is not giving up. Shares began to decline further when JCP did not gain control of the board.

Shares closed at a 4-year low on Wednesday at $18.80 and the IPO price in 2012 was $11. Shares had traded as high as $69. With the chain closing stores at a rapid pace, their long term future is in doubt.

Position 7/13/17:

Closed 8/8/17: Long September $17.50 put @ $1.05, exit .15, -.90 loss. .

Previously closed 7/21/17: Short FRGI shares @ $18.75, exit $18.85, -.20 loss.



HZNP - Horizon Pharma - Company Profile

Comments:

Horizon posted a big earnings beat with 41 cents compared to estimates for 12 cents. Revenue was $289.5 million compared to estimates for $237 million. They guided for revenue of $1.01-$1.05 billion for the full year and analysts were expecting $991 million. Shares spiked to $14 on the news but quickly fell back to $11.33 over the next three days. There were no headlines to support the decline. Somebody was waiting for the earnings to unload a big block. With expiration next Friday, this $14 call option will expire worthless without a big move.

Original Trade Description: July 15th.

Horizon Pharma Public Limited Company, a biopharmaceutical company, engages in identifying, developing, acquiring, and commercializing medicines for the treatment of orphan diseases, arthritis, pain, and inflammation and inflammatory diseases in the United States and internationally. The company's marketed medicine portfolio consists of ACTIMMUNE for the treatment of chronic granulomatous disease and malignant osteopetrosis; RAVICTI and BUPHENYL/AMMONAPS to treat urea cycle disorders; PROCYSBI for the treatment of nephropathic cystinosis; QUINSAIR for the treatment of chronic pulmonary infections due to pseudomonas aeruginosa in cystic fibrosis patients; and KRYSTEXXA to treat chronic refractory gout. Its products also include RAYOS/LODOTRA for the treatment of rheumatoid arthritis, polymyalgia rheumatic, systemic lupus erythematosus, and multiple other indications; DUEXIS to treat signs and symptoms of osteoarthritis and rheumatoid arthritis; MIGERGOT for the treatment of vascular headache; PENNSAID 2% to treat pain of osteoarthritis of the knees; and VIMOVO for the treatment of signs and symptoms of osteoarthritis, rheumatoid arthritis, and ankylosing spondylitis. The company has collaboration agreements with Fox Chase Cancer Center to study ACTIMMUNE in combination with PD-1/PD-L1 inhibitors for use in the treatment of various forms of cancer; and Alliance for Lupus Research (ALR) to study the effect of RAYOS on the fatigue experienced by systemic lupus erythematosus (SLE) patients. Company description from FinViz.com.

Expected earnings August 7th.

Horizon posted and earnings disappointment in May that saw the stock collapse from $15.50 to $9.50. They reported earnings of 21 cents that missed estimates for 25 cents. Revenue was $220.9 million and missed estimates for $248 million. They guided for the full year for revenue of $1.0 to $1.03 billion. The problem was a shift in the contracting model with pharmacy benefit managers that was not performed in accordance with expectations.

That contracting problem has been solved. They also announced that three patents cases against Dr Reddy's, Lupin Ltd and Mylan Labs were upheld by a US District Court, which will prevent generics for VIMOVO until 2022 at the earliest.

Horizon is small company with numerous drugs in the pipeline and in trials. Shares are recovering from the May disaster and there is still $2.50 to gain to fill the gap from the post earnings crash.

Position 7/17: Alternate position:
Long Aug $14 call @ $.50, see portfolio graphic for stop loss.



INFY - Infosys - Company Profile

Comments:

No specific news in over a week. Shares are holding in the $15.50 range.

Original Trade Description: June 26th.

Infosys Limited, together with its subsidiaries, provides consulting, technology, and outsourcing services in North America, Europe, India, and internationally. It provides business information technology services, including application development and maintenance, independent validation, infrastructure management, and business process management services, as well as engineering services, such as engineering and life cycle solutions; and consulting and systems integration services comprising consulting, enterprise solutions, systems integration, and advanced technologies. The company's products include Finacle, a banking solution that provides analytics, core banking, consumer e-banking, corporate e-banking, Islamic banking, mobile banking, origination, payments, SME enable, treasury, wealth management, and youth banking solutions. Its products also comprise Infosys Mana, a knowledge-based AI platform; Infosys Information Platform, an analytics platform that enables to get insights from various data sources for decisions across industries; AssistEdge, CreditFinanceEdge, ProcureEdge, and TradeEdge that are cloud-hosted business platforms; Panaya that enables various SAP and Oracle EBS changes; and Skava, which are digital experience solutions, as well as analytics, cloud, and digital transformation services. The company serves clients in the financial services, manufacturing, retail, consumer packaged goods and logistics, energy and utilities, communication and services, hi-tech, life sciences, healthcare and insurance, and other industries. Company description from FinViz.com.

Infosys reported earnings of 24 cents that rose 5.8% and beat estimates by a penny. Revenues of $2.651 billion beat estimates for $2.629 billion. Revenues rose 6.3% on a constant currency basis. The company announced numerous wins of high profile contracts.

The company is dilligently following its "Renew Now" program with three offerings. Those are Artificial Intelligence, Knowledge-based IT and Design Thinking. During the reported quarter, Infosys continued to renew traditional services and rolled out others in areas such as Cloud Ecosystem, Big Data and Analytics, API and Micro Services, Cyber Security, and IoT Engineering Services. Also, during the quarter, Infosys launched Boundaryless Data Lake, an offering powered by the Information Grid Solution on Amazon Web Services (AWS).

The company raised 2018 guidance with revenue growth in the range of 7.1% to 9.1%, up from 6.1%-8.1%.

Earnings October 13th.

Shares rebounded over the last week to close at a new 9-month high on Wednesday.

Position 7/27/17:

Long Oct $17 call @ 25 cents. See portfolio graphic for stop loss.

Previously closed 8/7: Long INFY shares @ $15.66, exit $15.55, -.11 loss.



NGVC - Natural Grocers Vitamin Cottage - Company Profile

Comments:

No specific news but shares are in a steady rebound. We were stopped out at $6.25 for a minor gain.

Original Trade Description: June 24th.

Natural Grocers by Vitamin Cottage, Inc., together with its subsidiaries, operates natural and organic groceries, and dietary supplement retail stores in the United States. Its stores offer natural and organic grocery products, such as organic produce; bulk food and private label products; dry, frozen, and canned groceries; meat and seafood products; dairy products, dairy substitutes, and eggs; prepared foods; bread and baked products; and beverages. The company's stores also provide private label dietary supplements; body care products comprising cosmetics, skin care, hair care, fragrance, and personal care products containing natural and organic ingredients; pet care and food products; household and general merchandise, including cleaning supplies, paper products, dish and laundry soap, and other common household products; and books and handouts. As of June 6, 2017, it operated 138 stores in 19 states. The company operates its retail stores under the Natural Grocers by Vitamin Cottage trademark. Natural Grocers by Vitamin Cottage, Inc. was founded in 1955 and is headquartered in Lakewood, Colorado. Company description from FinViz.com.

The company reported earnings of 13 cents that missed estimates for 16 cents. Revenue of $192.2 million missed estimates for $197.3 million. Same store sales declined -1.7%. They narrowed their full year guidance to earnings of 50-54 cents. They said they were cutting back on the number of new stores previously announced. That is a sure sign they are seeing competitive pressures on the business. The CEO warned that "the food retailing environment remains challenging."

The Amazon announcement just made their retailing environment significantly more challenging. NGVC has a very nice produce section of organic produce and a small grocery department roughly one fourth the size of a Whole Foods Market. Another 25% of their space is dedicated to vitamins. I visit one about once a week for a couple items. I have long ago switched my vitamin buying to Amazon because of the significantly reduced cost. I ran out of something a couple weeks ago and thought I will just swing by NGVC and get a bottle. The price was so high compared to Amazon, the sticker shock had me leaving the store empty handed. I had it from Amazon two days later.

I am afraid that is what many people are learning. It is hard to beat Amazon prices and the selection is much larger. NGVC was a niche store 10 years ago and did well. Now that Safeway, Walmart and Kroger carry so much organic food, NGVC is having trouble competing.

Expected earnings August 3rd.

NGVC shares are in free fall after their earnings. The Amazon announcement just greased the slide a little more.

Update 6/29/17: NGVC won the "Good Egg Award" at the Good Farm Animal Awards Ceremony in London. Shares spiked to $8.60 at the open to stop us out of the stock position at $8.45. The option position remains open.

Position 6/26/17:

Closed 8/8: Long August $7.50 put @ 28 cents, exit $1.05, +.77 gain.

Previously closed 6/29/17: Short NGVC shares @ $8.06, exit $8.45, -39 cent loss.





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