I hope the trend is about to change because the one we have is not looking good. The market has rallied at the open for the last three days only to sell off into the afternoon and close at or near the lows for the day. Having a trend change where we actually close at the highs of the day would be nice but I am not expecting it.
With a flurry of companies warning on earnings and Alcoa disappointing in their report tonight the outlook is not improving. Even higher oil prices at $40.50 could not hold the market up and energy equities declined.
Companies are warning on Q1 guidance and analysts are downgrading others ahead of earnings. Under Armour (UA) was reiterated at a sell today saying increased competition and weak mall traffic would hurt their Q1 earnings. The Retail Sales report on Wednesday is likely to disappoint as well. All the retail stocks are in decline ahead of the report.
Juniper (JNPR) warned after the close saying enterprise demand was weak. That means demand from large corporations and that is not a good sign for tech stocks for the rest of the quarter. You may remember when Tableau Software (DATA) warned back in early February they said enterprise demand was weak. That crushed the entire sector. It appears the trend is still intact. We would like to believe it was a company specific problem with Juniper but we need to see earnings from others in the sector before we know that for sure.
The major indexes are in danger of falling back to two-week lows at 2,025 and 17,400 if buyers do not appear soon. The easiest way to discourage buyers is exactly what happened over the last three days where early morning rallies are immediately sold with the indexes closing near the lows for the day. After 3 days I would be surprised if we saw many more bullish opens.
Current Position Changes
ORBC - Orbcomm
The long position remains unopened until ORBC trades at $10.50. High Monday was $10.39
VXX - Volatility ETF
The bearish long position on the VXX was entered at the open at $18.15.
Check the graphic above for any profit stops in green.
We need to always be prepared for a profit exit at resistance.
Stop Loss Updates
Check the graphic above for any new stop losses in bright yellow.
We need to always be prepared for an unexpected decline.
BULLISH Play Updates
CLDX - Celldex Therapeutics - Company Profile
No specific news. CellDex fading with the biotech decline.
Original Trade Description: April 5th.
Celldex Therapeutics is a biopharmaceutical company that develops, manufactures, and commercializes novel therapeutics for human health care in the United States.
That could be the opening sentence for almost any biotech company in the USA. They have multiple cancer drugs in trials and they have a drug for breast cancer in a registration trials after already passing through the gauntlet of multiple clinical trials.
Earnings are May 4th.
The stock was starting to recover from a long-term decline until a brain cancer drug failed a clinical trial and shares collapsed from $8 to $3. Now after a month of consolidation shares are starting to move higher again.
In biotech stocks with bad news, traders tend to over sell the news. The stock crashes to some ridiculous low and then languishes there for a while until all the existing owners get fed up due to the lack of a bounce and leave. New investors seeing a bargain and the opportunity to get in at a ridiculous low begin to accumulate the stock. I believe that is what we are seeing now.
This is really a play on the potential for a rebound in the biotech sector rather than some outstanding CLDX quality. I believe the stock is oversold and it has been rising for the last four days along with the biotech sector. If the sector continues to rise as I expect we should see CLDX rise as well as the penny stock investors begin to load up on an oversold opportunity.
Shares hit $4.65 today before fading with the market. I am recommending we buy a trade at $4.75 with a stop at $3.25. I will raise that stop rapidly if the trade begins to stall.
Position 4/6/16 with a CLDX trade at $4.75
Long CLDX shares @ $4.75, see portfolio graphic for stop loss.
Long May $5 call @ 50 cents. No stop loss.
DDD - 3-D Systems Corp - Company Profile
No specific news. New nine-month high.
Original Trade Description: March 29th.
3D Systems provides 3D printing products and services worldwide. The printers use input from 3D design software, CAD software and other design tools using a range of print materials including plastic, metal, nylon, rubber, wax and composite materials.
3D crashed and burned after a couple of horrific earnings reports in 2015 and shares declined from $33 to $7 at the January lows. The entire sector saw a reset of stock prices and expectations.
For Q4 3D posted earnings of 16 cents that blew away estimates for 3 cents. 3D is the industry leader and appears to be roaring out of the darkness that enveloped the sector in 2015. Three-dimensional printing revenues are expected to grow from $3.07 billion annually in 2013 to $12.8 billion in 2018 and $21 billion by 2020 with a consolidated average growth rate of 34%.
On Monday 3D Systems announced several new software products that overcome prior limitations weighing on all printer companies. The product suite called Geomagic Freeform has multiple products that will power a jump forward in the 3D technology capability and greatly reduce the time needed to go from concept to printed article.
Under Armour (UA) just announced it used 3D Systems selective laser-sintering technology to produce the UA Architech shoe. This is the world's first performance training shoe with a 3D-printed midsole that is available to the general consumer market. Under Armour plans to release an entire line of 3D printed shoes in 2016. Late last year New Balance also partnered with 3D to make a commercially available running shoe with a 3D-printed midsole.
DDD shares are rallying on the multiple announcements and the appearance that all is well in 3D land. Resistance is $15.45.
Earnings are May 5th.
Position 3/30/16 with a DDD trade at $15.60
Long DDD shares @ $15.60, See portfolio graphic for stop loss.
Long May $17 call @ $1.05, See portfolio graphic for stop loss.
FGEN - Fibrogen - Company Profile
Major decline as the biotech short squeeze faded. Missed our stop loss by 2 cents. No specific news.
Original Trade Description: April 2nd.
FibroGen is a research-based pharmaceutical company that discovers, develops and commercializes therapeutic agents to treat serious unmet medical needs. They have multiple drugs in the pipeline and they have collaboration agreements with Astellas Pharma and AstraZenaca (AZN).
Some of the drugs in process include roxadustat, or FG-4592, an oral small molecule inhibitor of hypoxia inducible factor prolyl hydroxylases (HIF-PHs) that is in Phase III clinical development for the treatment of anemia in chronic kidney disease; FG-3019, a monoclonal antibody in Phase II clinical development for the treatment of idiopathic pulmonary fibrosis, pancreatic cancer, and liver fibrosis; and FG-5200 for the treatment of corneal blindness resulting from partial thickness corneal damage.
Fibrogen and its partners are currently conducting seven Phase 3 trials on roxadustat for registration in the US, EU, China and other countries. A Phase 2 study for FG-3019 is underway on patients with inoperable Stage 3 pancreatic cancer. The company has completed funding its portion of research on roxadustat and AstraZenaca and Astellas are responsible for all further expenses until the drug is approved. This reduces significantly the drain on cash from Fibrogen. Cash on hand at the end of the quarter was $337 million. Fibrogen has multiple pathways to success with the multiple drugs in progress.
Earnings are May 10th.
Shares plunged on January 1st with the biotech sector and have traced almost exactly the same chart pattern as the Biotech Index. Friday's close on FGEN was a two-month high. Resistance at $21 appears to be breaking.
I am recommending we buy FGEN shares on a move over Friday's high. Once over that level there is limited resistance until the $30 range.
Position 4/4/16 with a FGEN trade at $21.75
Long FGEN shares @ $21.75, initial stop loss $18.00.
The stop will be raised promptly on further gains.
No options due to wide spreads.
FTNT - Fortinet Inc - Company Profile
No specific news. Big decline in the last ten minutes of trading to miss our stop by just 7 cents.
Close the position with a FTNT trade at $32.10.
Original Trade Description: March 22nd.
Fortinet provides cyber security solutions for enterprises, service providers and government organizations worldwide. They offer FortiGate physical and virtual appliance products that provide various security and networking functions, including firewall, intrusion prevention, anti-malware, virtual private network, application control, web filtering, anti-spam, and wide area network accelerations.
Essentially they provide an enterprise level roadblock or firewall between the Internet and the organizations internal network and servers. If you can block the attacks at the primary entry into the network then the attackers cannot run rampant inside the network.
A couple weeks ago Fortinet signed a cyber security partnership agreement with NATO. We all realize NATO is facing cyber attacks all across Europe and the organization is a major target. Fortinet will help improve the cyber defense for the entire network. Implementing the Fortinet devices will raise awareness of the cyber threats to the network and allow early detection and elimination.
Fortinet has more than 210,000 enterprise customers worldwide including some of the largest and most complex organizations, corporations and governmental agencies.
This will be a short-term play because earnings are April 26th.
Shares are trying to break over resistance at $30 with the high at $30.36 today before the market rolled over.
Position 3/29/16 with a FTNT trade at $28.75
Long FTNT shares @ 28.75, see portfolio graphic for stop loss.
Long May $31 call @ $1.10, see portfolio graphic for stop loss.
HPE - Hewlett Packard Enterprise - Company Profile
No specific news. HPE cannot seem to escape that resistance at $18. It was tested again today.
Do not forget there is $2 billion in dividends and buybacks coming in June.
Original Trade Description: March 14th.
Hewlett Packard Enterprise was spun off from Hewlett Packard (HPQ) to be the high growth segment of the company. The remaining HPQ was the slower growing PC and printer company.
HPE reported adjusted Q4 earnings of 41 cents compared to estimates for 40 cents. Revenue of $12.72 billion would have been up +4% on a constant currency basis. Analysts were expecting $12.68 billion.
CEO Meg Whitman said, "We saw the progress that comes from being more focused and nimble. We delivered a third-consecutive quarter of year-over-year constant currency revenue growth, and excluding the impact of recent M&A activity, we saw revenue growth in constant currency across every business segment for the first time since 2010."
For the current quarter HPE guided to earnings of 39-43 cents. For the full year they expect $1.85-$1.95 and that was more than analysts expected at $1.87.
Earnings are boring. The really good news came from the cash flow. HPE expects to generate $2.0-$2.2 billion in free cash flow in 2016. Last year they returned $1.3 billion to shareholders in the form of dividends and share buybacks. In 2016 HPE is increasing its commitment to return 100% of the free cash flow to investors in dividends and buybacks.
In May they expect to close their previously announced deal with China's Tsinghua and that will provide an additional $2 billion in cash that HPE said it would use to repurchase shares.
This means over the next couple of months we should see significant share activity as fund position themselves to be the beneficiaries of all this buyback/dividend activity that could exceed $4 billion in 2016.
Earnings June 2nd.
HPE shares have shaken off their post spinoff weakness and are now trading at a four-month high. I am recommending we buy this stock in anticipation of investors moving in ahead of future dividends and buybacks. I am not recommending an option because they are too expensive.
Long HPE shares @ $16.36, see portfolio graphic for stop loss.
ORBC - Orbcomm Inc - Company Profile
Big spike at the open to $10.39 but faded with the market. Shares refuse to give back their prior gains.
The position remains unopened until ORBC trades at $10.50.
Original Trade Description: April 5th.
Orbcomm provides machine-to-machine (M2M) and internet of things (IoT) solutions in the U.S., South America, Japan, Europe and internationally. Customers are able to track and manage fixed and mobile assets. They also provide satellite automatic identification service (AIS) for vessel navigation. Orbcomm has its own constellation of 41 low earth orbit satellites. Communication can also be handled through terrestrial based cellular network services.
Basically, Orbcomm can track anything and communicate with anything that is Internet, Cellular or GPS enabled. Companies use Orbcomm devices to track refrigerated trucks and trailers while monitoring temperatures of those vehicles. Orbcomm can track and monitor engine performance, locations, operating time, etc on over the road trucks, earth moving equipment, trailers on trains, containers on ships, etc.
Orbcomm added 239,000 connected devices in Q4 alone. Total installed and billable communicators rose from 976,000 at the end of 2014 to 1,569,000 at the end of 2015. On December 21st Orbcomm successfully launched 11 second generation OG2 satellites from Cape Canaveral and after testing all satellites went live on March 1st.
Large fleet customers are signing up for the Orbcomm service faster than the devices can be installed. Growth is accelerating faster than the 61% increase in 2015. Current high profile customers include Caterpillar, Hitachi Construction, John Deere, Komatsu, Volvo, C&S Wholesale, Canadian National Railway, Hub Group, KLM Transport, Marten Transport, Swift Transportation, Target, Tropicana, Tyson Foods, Walmart, Union Pacific Railroad, Werner Enterprises and hundreds more.
Earnings last quarter were only a penny because of the high cost of satellite launches. They also acquired three companies, Skywave, InSync and WAM Technologies.
Earnings are May 5th.
Shares of ORBC have been erratic over the last four months. As they announce successful satellite launches, new Fortune 100 customers, etc the stock spikes and then goes dormant for a week or two until the next announcement. Most traders have never heard of the company so every press release introduces ORBC to a new segment of investors. I know the stock looks over extended but I believe they are in a growth phase that will continue.
I am recommending we buy ORBC on a breakout over $10.50 with a stop loss at $8.75. One analyst last week was talking about $25 now that the satellite expansion phase was complete and the M2M and IoT applications were becoming a reality.
With ORBC trade at $10.50
Buy ORBC shares, initial stop loss $8.75
No options because of wide spreads.
SPXC - SPX Corporation - Company Profile
Another new 7 month high. No specific news.
Target $16.65 for an exit.
Original Trade Description: March 30th
SPX provides specialized heating, ventilation and air conditioning (HVAC) solutions worldwide. They also provide instrumentation, detection and measurement for industrial markets. They offer detection and inspection equipment for underground pipes and cables, specialty lighting products, communications technologies and bus fare collection systems. Their power segment provides all types of equipment and technology for the power generation, transmission and distribution market.
As part of a companywide restructuring process in December they agreed to sell their dry-cooling tower business. On the Q4 conference call they also announced plans to sell portions of the power division. They hired an outside advisor to provide strategic alternatives as they sell off the low margin and poorly performing portions of the business. They spun off the flow food and power portion into a new company SPX Flow (FLOW) in September.
They reported earnings of 52 cents that missed estimates of 57 cents. However, shares rebounded on the news of the various restructuring efforts. Shares rallied to resistance at $14.85 at the close today. A break over that resistance could hit $17 in the days ahead.
Earnings are May 26th.
Position 3/31/16 with a trade at $15.05
Long SPXC shares @15.05, see portfolio graphic for stop loss.
No options because of wide spreads.
TRN - Trinity Industries - Company Profile
Still clinging to support at $18. Minor gain but still a gain in a bad market. The earnings date was changed to April 20th.
We have a long way to go to get back over $20 but we have a July call option so plenty of time.
Original Trade Description: March 18th
Trinity Industries manufacturers rail cars, highway guard rails and steel beams for infrastructure projects, structural towers for wind turbines and electrical distribution grids, oil and chemical storage tanks, barges to transport grain, coal, aggregates, tank barges to transport oil, chemicals and petroleum products. The company was founded in 1933.
Shares crashed in mid February after they reported earnings that beat the street but guidance that disappointed. Earnings of $1.30 easily beat estimates for $1.07 but revenue of $1.55 billion missed estimates for $1.61 billion. They had full year earnings of $5.08 per share.
They guided for 2016 to earnings of $2.00 to $2.40 per share. The challenge is the slowdown in orders for railroad tank cars and barges to transport oil. With oil prices crashing the producers and refiners are cutting back on capex spending until prices recover. Trinity said revenue in 2016 could decline -32%. Shares declined -35% over two days on the news.
The key here is that Trinity is now trading at a PE of 3. Yes 3.74 to be exact. With earnings in the middle of their range at $2.20 and a PE of 10 that would equate to a $22 stock price.
Here is the good news. The company has $2.12 billion in cash and undrawn credit. They are not in financial trouble. They authorized a $250 million share buyback starting January 1st. They have an order backlog of $5.4 billion in orders for 48,885 railcars. They received orders for 2,455 cars in Q4 and their backlog stretches out to 2020. The barge division received orders for $190.1 million in Q4 and had a backlog of $416 million as of December 31st. The structural tower segment has $371.3 million in order backlogs.
They recognize that tankcar and barge orders are going to remain slow until oil prices recover, which should happen later this year.
This stock was extremely oversold but began recovering in early March. Trinity produces a lot of railcars for carrying all types of products other than oil. That demand is not going to disappear and they already have order backlogs stretching into 2020.
At their current valuation they could also be an acquisition candidate. This is a great business that has been overly punished by the oil crash.
Earnings April 21st.
Long July $20 call @ $1.50, no stop loss.
Previously Closed 4/5/16: Long TRN shares @ $19.15, exit $17.50, -1.65 loss.
WIN - Windstream Holdings - Company Profile
Spiked over resistance at $8 at the open but faded with the market. Windstream announced the availability of Kinetic TV in Sugar Land Texas. This is a fiber optic cable TV service with full HD, Whole Home DVR, watch 1 channel and record 4 others, Video on Demand. Not home? Watch any TV channel in your package on your phone, pc, laptop or tablet. The basic package is $39 or add 25 Mbps Internet and it rises to $59 a month.
Original Trade Description: March 11th
Windstream provided network communications and technology solutions for consumers, businesses and enterprise organizations. They provide high-speed internet access, hosted web services and cable TV to a combined total of 1.6 million residential and business customers. They have more than 125,000 miles of high-speed fiber optic cable with speeds up to 500 gbps along their main corridors. They have 11 major data centers providing web hosting, cloud services, etc.
In the Q4 earnings, WIN reported adjusted earnings of $1.41 that crushed estimates for a loss of 48 cents. Revenue of $1.427 billion missed estimates slightly for $1.433 billion. The major earnings beat came from a spinoff of some of its telecom assets into a REIT. The cash received from the spinoff will allow some major network improvements in the months ahead.
The company declared a 15-cent quarterly dividend payable April 15th to holders on March 31st. That equates to a 7.3% annual yield.
WIN shares have been moving higher since they reported earnings on February 25th. Shares are at resistance at $8.25 and could breakout this week. The next resistance would be $11.85.
While we are not playing the stock for a takeover there is always the chance that somebody like Verizon or even Google could decide the $750 million market cap was chump change for 125,000 miles of high-speed fiber, cable TV and data center business.
I am going way out on the option to August because it is cheap and it will make a good lottery play even if we close the stock position early.
Long August $9.00 call @ .40 cents. NO STOP LOSS
Previously closed 3/29/16: Long WIN shares @ $8.22, exit $7.10, -1.12 loss.
BEARISH Play Updates
VXX - VIX Futures ETF - ETF Profile
The opening gap higher in the market actually gave us a good fill on the VXX as it dropped to $18.15 at the open.
Original Trade Description: April 9th.
The VXX ETF tracks one-month futures contracts on the Volatility Index of $VIX. The VXX is actually less volatile than the VIX but travels in the same direction. The VXX is highly liquid with average volume of roughly 75 million shares.
The VXX or any volatility ETP or leveraged ETF should not be held for long periods of time because the futures roll over every month will reduce the value of the position. However, it is suitable for short-term tactical trades. We closed a short on the VXX a couple weeks ago for a decent profit.
With the potential for another bout of market volatility I am recommending we go long the VXX this time. Long the VXX is the equivalent of a short position since it rises with a decline in the market.
The VXX touched 17 last Monday and that was a seven-month low. I think the odds of the VXX returning to 21-22 are excellent and returning to 25 reasonably good. Going long the VXX will be a hedge against out long stock positions.
Long VXX shares @ $18.15. Initial stop loss $16.75.
No options because of high premiums.
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