The Dow resistance at 17,925 held at the close after a brief spike over that level intraday. The resistance on the Dow held but the S&P moved over prior resistance at 2,100 and closed at 2,109 and just under resistance at 2,110. This was mostly driven by another short squeeze with those stocks showing big gains making the most of their move for the day at the open.
We could be setting up for a turnaround Tuesday if there are no headlines on Tuesday to overcome this resistance. There is also the chance we could be setting up for a major short squeeze higher if futures are significantly positive at the open.
This is going to be a pivotal week regardless of which way we go. Even if we did move to new highs there is no guarantee we would keep going higher. New highs are one of the strongest resistance points you will ever see. Once past those highs the market could catch fire but that is all just speculation today.
Current Position Changes
NLNK - Newlink Genetics
The short position remains unopened until a trade at $11.15.
SWIR - Sierra Wireless
The long position remains unopened until a trade at $20.30.
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
CLVS - Clovis Oncology - Company Profile
No specific news. Shares rebounded from the Friday sell off. The ASCO conference ends on Tuesday. I tightened the stop loss in case it rolls over.
Original Trade Description: May 29th.
Clovis Oncology is a biopharmaceutical company that focuses on acquiring, developing and commercializing anti cancer agents worldwide. It is developing three product candidates, which include Rociletinib, an oral epidermal growth factor receptor and mutant-selective covalent inhibitor that is under review with the U.S. and E.U. regulatory authorities for the treatment of non-small cell lung cancer; Rucaparib, an oral inhibitor of poly polymerase, which is in advanced clinical development for the treatment of ovarian cancer; and Lucitanib, an oral inhibitor of the tyrosine kinase that is in Phase II development for the treatment of breast cancers.
Clovis announced it would make three presentations at ASCO and one discusses the potential for using Rucaparib for treatment of a different cancer other than the drugs original intent. That presentation is on pancreatic cancer and the other two are on ovarian cancer.
These are promising drugs and any positive data that Clovis releases could give the stock a significant boost.
In their recent earnings, they reported a loss of $1.98 compared to estimates for -$2.15. Because it is an experimental drug company, the earnings are not that material. Shares did decline about $1.50 after the report but have risen $4.50 in the last two weeks.
Earnings August 4th.
Resistance is $20.30 and shares closed at $16.70 on Friday. I would gladly take a $2 gain out of the middle over the next week and they tighten the stop loss as the multi-day conference begins next Friday.
Long CLVS shares @ $16.80, see portfolio graphic for stop loss.
No options recommendation because of wide spreads.
HPE - Hewlett Packard Enterprise - Company Profile
No specific news. Shares spiked to a new historic high.
Original Trade Description: June 2nd.
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 Q1 earnings of 42 cents and in line with estimates. Revenue of $12.711 billion would have been up +4% on a constant currency basis. Analysts were expecting $12.419 billion.
For the current quarter, HPE guided to earnings of $1.10 to $1.14. For the full year, they expect $1.85-$1.95 and that was more than analysts expected at $1.89. They increased free cash flow +101% to $1.1 billion for the quarter.
The good news came from their plans for the cash flow. HPE expects to generate $2.0-$2.2 billion in free cash flow in 2016. They are receiving $2 billion from the Tsinghua transaction which closed in early May and the money will be used for share repurchases. In 2016, HPE is increasing its commitment to return 100% of the free cash flow to investors in dividends and buybacks.
This means over the next couple of months we should see significant share activity as funds position themselves to be the beneficiaries of all this buyback/dividend activity that could exceed $4 billion in 2016. $2.5 billion of that is in an "accelerated" buyback program. The board authorized another $3 billion in buybacks to bring the current authorization to $4.8 billion.
They also announced a tax-free spinoff of their services division to Computer Sciences Corporation (CSC), which is expected to close in March 2017. This will produce another $8.5 billion in value to HPE shareholders in the form of $4.5 billion in equity in the combined company and $1.5 billion in a cash dividend and the removal of $2.5 billion in debt from HPE.
Earnings Aug 23rd.
HPE shares have shaken off their May weakness and closed today at a historic high. I am recommending we buy this stock in anticipation of additional fund investors moving in ahead of future dividends, buybacks and the spinoff.
Long HPE shares @ $18.40, see portfolio graphic for stop loss.
Long August $20 call @ 40 cents. No stop loss.
OMED - OncoMed Pharmaceuticals - Company Profile
The company made a presentation at ASCO and shares declined sharply for the second day. I am recommending we close this position.
Original Trade Description: May 21st.
OncoMed Pharmaceuticals is a clinical-stage company focused on discovering and developing novel anti-cancer stem cell and immuno-oncology therapeutics. OncoMed has seven anti-cancer therapeutic candidates in clinical development, where each target key cancer stem cell signaling pathways including Notch, Wnt and R-spondin LGR. OncoMed is advancing its wholly owned GITRL-Fc candidate and an undisclosed immuno-oncology candidate (IO#2) toward clinical trials in the 2016-2017 timeframe. OncoMed has formed strategic alliances with Celgene Corporation, Bayer Pharma AG and GlaxoSmithKline (GSK).
OncoMed is making six presentations at ASCO related to six oncology drug candidates, including robust preclinical anti-tumor activity data for its wholly owned GITRL-Fc candidate and from clinical trials of vantictumab, ipafricept, demcizumab and tarextumab.
All of that is Greek to me but this is a cancer conference and OncoMed is an up and coming cancer drug company. They should be right at home and the notes I have read suggest several of their drugs are very promising. They have milestone payments coming from GSK, Bayer and Celgene coming in 2016-2017 of more than $270 million.
Shares have risen steadily since the earnings miss on May 5th. As a preclinical company they do not have retail revenues and depend on funding from their partners. They will have operating losses until their drugs are in the marketplace.
Shares spiked on the 28th after AbbVie said they were buying cancer drug company Stemcentrx for $10.2 billion. That company is in the same stem cell research sector as OMED.
Earnings August 4th.
With the ASCO meeting still 10 days away we could benefit from some of the building excitement and hopefully the company's presentations at the meeting will increase the interest in the stock.
Long OMED shares @ $12.80, see portfolio graphic for stop loss.
No options recommended because of wide spreads.
P - Pandora Media - Company Profile
No specific news. Minor decline after 3 weeks of gains.
Pandora's chief product officer will present at the Stifel Technology Conference on June 7th.
Original Trade Description: June 1st.
Pandora provides internet music streaming services in North America. Listeners can create personalized stations to access free music and comedy catalogs as well as personalized play lists. They offer Pandora One, a paid subscription based service for listeners. They sell audio, video and display advertising for delivery on connected platforms. They also offer a ticketing platform for promoters and advertising to promote their events.
In Q1 active listeners rose to 79.4 million and hours streamed rose 4% to 5.52 billion. They reported a loss of 20 cents but that was 19 cents better than the 39 cent estimate.
Pandora's chairman Jim Hill bought 250,000 shares at $10.97 per share and then another 250,000 shares at $11.33 each. That is close to $6 million in purchases. CFO Mike Herring bought 225,000 shares a couple weeks earlier. Last week somebody bought 12,000 contracts of the September $12 call options. Today somebody bought 1,000 contracts of the July $13 calls and there was another trade for 2,500 of the September $10 calls.
So what is powering this sudden interest in Pandora? In May the hedge fund Corvex Management announced it had acquired a 9.9% stake and demanded the company be sold to the highest bidder. Keith Meister runs the fund and he believes there should be an auction and Facebook should buy the company. Since Pandora has only a $3 billion market cap that should be attractive to Facebook because it would get those 79 million listeners to further spread its advertising reach across the internet.
Apple, Google and Amazon already have some type of streaming app and that leaves Facebook as the likely candidate. Barron's suggested Verizon or Liberty Media could buy them. Sirius XM was also mentioned as a possible buyer.
With plenty of potential acquirers and insiders buying huge amounts of stock there may be some discussions in progress.
Update 6/3/16: Board membr, Timothy Lelweke, bought 10,000 shares on Wednesday at about $11.63 each. He now owns 43,768 shares so that was almost a 30% increase in his holdings. Something is definitely going on behind the scenes to generate all this insider buying.
Long Pandora shares @ $12.08. Initial stop loss $10.25.
No option recommended but the July $13 is only 62 cents.
SWIR - Sierra Wireless - Company Profile
No specific news. Shares are still holding at resistance at $20. Eventually there will be a high volume breakout or break down.
The position remains unopened until a trade at $20.30. High today was $20.07.
Original Trade Description: May 26th.
Sierra Wireless engages in building the Internet of Things with intelligent wireless solutions. They operate in three segments, Original Equipment Manafacturer, Enterprise Solutions, and Cloud Connectivity Services. They offer cellular embedded modules, software and tools to integrate wireless connectivity into various products and solutions.
In their recent earnings they reported an adjusted profit of 8 cents. Revenue declined -5.1% because of previously reported softness in orders from several existing automotive customers. For Q2 they expect earnings in the range of 9-17 cents on revenue of $150-$160 million. For the full year they guided to earnings of 60-90 cents on revenue of $630-$670 million. They bought back 549,583 shares in the quarter.
The revenue in the OEM solutions segment declined -9.1% due to softness in auto production in Q1. Enterprise solutions revenue rose 9% and cloud and connectivity systems revenue rose 92%. They began upgrading their global LTE core network to provide additional connectivity for wholesale operators.
In their guidance, they said business should improve significantly because of more than 40 new customer programs moving into production on new IoT products. They manufacture to customer specifications when the customer adds a new product.
Earnings Aug 4th.
To go from an 8 cent profit in Q1 to 60-90 cents for the full year is a major gain in profitability. Shares have been rising since the earnings report and showing no weakness when the market was down.
With a SWIR trade at $20.30
Buy SWIR shares, currently $19.90, initial stop loss $18.45.
No options recommended due to wide spreads.
BEARISH Play Updates
ENDP - Endo Intl Plc - Company Description
No specific news. Minor gain. Goldman initiated coverage at neutral. No ASCO drop here where we need it. We still have a long put option open. At 5 cents, it was not worth a stop loss. We have two weeks before that expires and anything is possible after ASCO.
Original Trade Description: May 11th.
Endo develops, manufactures and distributes pharmaceutical products and devices worldwide. The market well known brands including Percocet, Lidoderm, Voltaren and a wide range of pain medications and testosterone replacement therapies.
Shares have declined from $26 last week to $14 today. The company slashed full year guidance by -11% on revenue and -23% on earnings. The acceleration of the decline over the last several weeks has been in reaction to some generic competitors expected to receive approvals from the FDA soon.
The company also disclosed they were being investigated by the U.S. Attorney's Office for its relationship with pharmacy benefit managers or PBMs. In light of the improper relationship between Valeant and Philidor the USAO is investigating to see if the same problems exist at Endo. In November, Novartis had to pay a $390 million fine to settle charges it paid specialty pharmacies for illegal kickbacks in exchange for inducing patients to refill certain medications.
Endo is also under pressure as a result of the Valeant Pharmaceutical disaster and the overall decline in the biotech sector.
Earnings are August 4th.
Even though shares are down significantly from the May 6th news, I believe they will continue falling and could go into single digits. The similarities to Valeant's pharmacy problems and the impact to Valeant's stock are too close and should weigh on Endo.
Long June $12.50 put @ $1.05, see portfolio graphic for stop loss.
Previously closed 6/1/16: Short ENDP shares @ $13.81, exit $16.45, -2.64 loss.
NLNK - Newlink Genetics - Company Profile
No specific news. I am changing the entry trigger from $10.25 to $11.15. That was an error in the recommendation.
Original Trade Description: June 4th.
NewLink Genetics Corporation, a biopharmaceutical company, focuses on discovering, developing, and commercializing immunotherapeutic products to enhance treatment options for patients with cancer. Its portfolio includes biologic product candidates based on its HyperAcute cellular immunotherapy technology, which is designed to stimulate the human immune system; and small-molecule product candidates that are focused on breaking the immune system's tolerance to cancer by inhibiting the indoleamine-2, 3-dioxygenase pathway and the tryptophan-2, 3-dioxygenase pathway.
The company's lead product candidate, algenpantucel-L, an investigational immunotherapy, was being studied in Phase III clinical trials for patients with pancreatic cancer. They announced on May 10th the drug did not meet the goals of the study and may have actually made the patient sicker in the process. The company said a late-stage clinical trial for its algenpantucel-L treatment did not statistically improve survival rates in patients with resected pancreatic cancer. "In light of these negative results, our scientific and clinical teams will focus on other promising opportunities in our pipeline," said CEO Charles Link. Patients treated with the drug lived an average of 27.3 months compared to 30.4 months on existing treatment programs.
Shares collapsed from $17 to $9 and that was already down from $60 late in 2015. The problem is that Newlink had invested a lot of time and effort in that drug and it had already progressed into stage III trials. That cost them a lot of momentum and investors lost interest. Analysts now say that Newlink's cancer vaccine platform is now empty. They will have to rely more heavily on its IDO inhibitors, another form of cancer immunotherapy, which is only in early stage development. This field is very crowded and Newlink is fading to the back of the pack.
Earnings July 28th AM.
Shares of Newlink rose slowly from $10 to just under $13 on the ramp into ASCO. Investors were definitely not excited about the companies potential for a market moving presentation. Shares fell -8% on Friday as traders sold the ASCO news before the weekend. Nobody wanted to end up holding a company on Monday that was sinking on a negative headline. If some other company announces some new treatment than everyone else in the space will decline.
The conference runs until Tuesday afternoon so I am putting an entry trigger on the position just to make sure it is going lower before we jump in.
Position 6/6/16 with a NLNK trade at $11.15
Short NLNK shares, currently $12.24. Initial stop loss $12.65.
No options recommended because of wide spreads.
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