Three days of alternating 1% moves suggests there is trouble ahead. The Dow has had three back to back 200+ days in alternating directions. Today was the 4th loss in five days. The S&P-600 Small Cap Index closed at a 6-week low. The outlook has changed from buy the dip to raise cash.
We were stopped out of our last two longs and small caps are being sold hard. We need to look for a bottom before we start adding new replacement positions. Adding new shorts after the market action for the last four days is also not a good move. We could short right into the next short squeeze like we saw on Monday. It is time to be patient rather than aggressive.
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.
Check the graphic below for any profit stops in green.
We need to always be prepared for a profit exit at resistance.
Current Position Changes
CC - Chemours
The long stock position was stopped with a trade at $12.50.
UNT - Unit Corp
The long stock position was stopped with a trade at $16.50.
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BULLISH Play Updates
CC - Chemours Co - Company Profile
No specific news. A 6% decline on Friday, 4% rally on Monday and -4% decline on Tuesday to sop us out at $12.50 by 3 cents.
Original Trade Description: September 3rd.
The Chemours Company provides performance chemicals in North America, the Asia Pacific, Europe, the Middle East, Africa, and Latin America. It operates in three segments: Titanium Technologies, Fluoroproducts, and Chemical Solutions. The Titanium Technologies segment produces and sells titanium dioxide (TiO2) under the Ti-Pure brand name to deliver whiteness, brightness, opacity, and protection in various applications, such as architectural and industrial coatings, flexible and rigid plastic packaging, PVC window profiles, laminate papers, coated paper, and coated paperboard used for packaging. The Fluoroproducts segment provides fluoroproducts, such as hydrofluorocarbon refrigerants, and fluoropolymer resins and downstream products and coatings under the Teflon brand name. The Chemical Solutions segment offers industrial and specialty chemicals used in gold production, oil refining, agriculture, industrial polymers, and other industries in North America. This segment provides cyanides; and performance chemicals and intermediates, such as clean and disinfect chemicals, aniline, methylamines, glycolic acid, Vazo free radical initiators, and reactive metals. Company description from FinViz.com.
This company has had a hard life since going public. Back in June Citron Research released a report critical of Chemours saying it was a "zero" because of lingering liabilities they inherited when DuPont spun them off. According to Citron they had liabilities for the manufacture of PFOA while it was part of DuPont. Citron said the company was "designed for bankruptcy" to rid DuPont of those lingering liabilities. Chemours issued a strong rebuttal. Bloomberg researched the background and said Chemours might have $800 million to $1.5 billion in risk. Anyone suing for contamination has to sue DuPont first and they have deep pockets. Chemours agreed to share some of the risk in the event of a judgment. In any event, it will be years before there is any real liability to Chemours.
Shares collapsed but at the same time David Einhorn raised his stake from 5.44 million shares to 8.44 million. If Einhorn is not worried, we should not be worried for a 30-45 day trade. We will exit before earnings. Argus upgraded them to a buy saying they had a significant competitive advantage becaus of their size, vertically integrated structure and rapid cost cutting.
Earnings Nov 3rd.
When they reported for Q2 they earned 27 cents compared to estimates for 17 cents. Revenue was $1.38 billion and missed estimates for $1.42 billion because of the sale of a division. The company said it was delivering $350 million in cost reductions and add $150 million in adjusted EBITDA through 2017. The prior quarter they earned 6 cents compared to estimates for a penny. They have history for strongly beating estimates.
They announced the sale of their sulfur business for $325 million and the sale of the Clean and Disinfect business for $230 million. The company is shedding noncore assets to improve profitability.
Zachs said analysts they follow are raising estimates but they still believe Chemours will post another beat. Based on Sach's proprietary indicators companies with the Chemours profile beat 70% of the time. Over the prior week the 2016 consensus estimate rose from 63 cents to 77 cents. For 2017 the estimates rose from $1.10 to $1.27, which is 64% over 2015 levels.
A week ago, a large investor sold 2,000 October $10 calls for $2.90 and reinvested the gain into 4,200 January $15 calls for $1.
Position 9/6/16 with a CC trade at $13.75
Closed 9/13/16: Long CC shares @ $13.75, exit $12.50, -1.25 loss
PTLA - Portola Pharmaceuticals - Company Profile
No specific news. Shares declined with the market at the open but rebounded in the afternoon. Good relative strength.
Original Trade Description: September 12th.
Portola Pharmaceuticals, Inc., a biopharmaceutical company, develops and commercializes therapeutics for patients in the areas of thrombosis, other hematologic disorders, and inflammation. The company is developing Betrixaban, an oral, once-daily Factor Xa inhibitor, which is in Phase III clinical trial for treating venous thromboembolism prophylaxis in acute medically ill patients in-hospital and post discharge; and Andexanet alfa, a recombinant protein that is designed to reverse the anticoagulant activity in patients treated with a Factor Xa inhibitor. The company is also developing Cerdulatinib, which is in Phase I/IIa proof-of-concept study, an orally available kinase inhibitor that inhibits spleen tyrosine kinase (Syk) and janus kinases enzymes, which regulate signaling pathways, as well as for hematologic, or blood, cancers, and inflammatory disorders. In addition, it is involved in the development of PRT2607, a selective Syk inhibitor. Portola has collaboration agreements with nearly a dozen major pharma companies including Bristoll Myers, Pfizer and Bayer to name a few. Company description from FinViz.com.
The billion dollar drug is Andexxa (Andexanet Alpha). In February, Portola licensed the rights in Japan to Bristol-Myers and Pfizer for $15 million in upfront payments, $90 million in milestone payments and double-digit royalties. This is just for Japan. Portola is planning on submitting the MAA for approval in Q3.
In the U.S., Portola suffered a setback in August when the FDA rejected its BLA submission for Andexxa. The FDA asked for some manufacturing information and a change to the labeling. Portola plans to meet with the FDA in the coming weeks to resolve any outstanding questions. Once the drug is approved we could see the shares spike significantly. There is almost zero risk of non-approval based on the remaining questions posed by the FDA. Shares fell from $28 to $18 on the news in late August and the rebound is starting to accelerate.
Shares only lost $1 in the Friday crash and recovered 50% of that on Monday. Support is $21 and shares closed at $22.
Earnings Nov 9th.
Because the futures are down so sharply tonight I am going to put an entry trigger on the position. I hate to say buy something and then have the market gap down -100 points at the open on its way to a repeat of Friday.
With a PTLA trade at $22.25
Buy PTLA shares, initial stop loss $19.75.
(Wide stop loss because of the market volatility)
UNT - Unit Corp - Company Profile
No specific news. A 3% decline in oil prices plus a major market reversal caused Unit to fall -5% to stop us out.
Original Trade Description: September 7th.
Unit Corporation, operates as an oil and natural gas contract drilling company primarily in the United States. The company operates through three segments: Oil and Natural Gas, Contract Drilling, and Mid-Stream. The Oil and Natural Gas segment acquires, explores, develops, and produces oil and natural gas properties primarily located in Oklahoma and Texas, as well as in Arkansas, Colorado, Kansas, Louisiana, Mississippi, Montana, New Mexico, North Dakota, and Wyoming. As of December 31, 2015, this segment had approximately 65 gross proved undeveloped wells. The Contract Drilling segment is involved in the contract drilling of onshore oil and natural gas wells for its own account, as well as for a range of other oil and natural gas companies primarily in Oklahoma, Texas, Wyoming, and North Dakota, as well as in Louisiana and Kansas. As of December 31, 2015, this segment had 26 operating rigs. The Mid-Stream segment buys, sells, gathers, transports, processes, and treats natural gas for third parties and for its own account. This segment operates 3 natural gas treatment plants, 13 processing plants, and 25 gathering systems, as well as approximately 1,464 miles of pipeline. Unit Corporation was founded in 1963. Company description from FinViz.com.
For Q2 the company reported an adjusted loss of 15 cents compared to estimates for a loss of 22 cents. Revenue was $138.3 million. They recorded record production of 97 million cubic feet per day from the Wilcox play, a 25% increase year over year and a 9% increase from Q1. Seven of eight of their highly features BOSS rigs were currently operating under contract to other producers compared to six in Q1. The Midstream segment volumes rose 15%.
Earnings Nov 3rd.
Since oil and gas prices have declined they have reduced drilling of new wells and used their rigs to recomplete existing wells to boost production. An example of the production increase came from four Wilcox wells that were producing 700 Mcfe per day before the recompletion and 17,000 Mcfe after the work over. They anticipate putting additional rigs to work on new wells in early 2017.
Unit has been using the weakness in oil prices to reduce costs and streamline operations rather than try to continue drilling new wells during glut conditions. They are poised to increase production on demand because they own their own fleet of rigs and are not paying high lease fees for drilling equipment.
Oil prices are in rally mode this week because of a unique agreement announced on Monday where Russia and Saudi Arabia will form a joint venture to stabilize oil prices among OPEC and non-OPEC producers. It remains to be seen if it will ever happen but prices are rising on the expectations.
Unit has been relatively calm during the ups and downs in oil prices in 2016 and are poised to break out to a new high for the year.
Closed 9/13/16: Long UNT shares @ $18.38, exit $16.50, -1.88 loss.
BEARISH Play Updates
ACAT - Arctic Cat - Company Profile
No specific news. Monday's rebound nearly erased. New 4-month closing low.
Original Trade Description: August 20th.
Arctic Cat Inc. designs, engineers, manufactures, and markets snowmobiles and all-terrain vehicles (ATVs), and recreational off-highway vehicles under the Arctic Cat and MotorFist brand names. The company also provides related parts, garments, and accessories. It offers accessories consisting of bumpers, cabs, luggage racks, lights, snow plows, backrests, windshields, wheels, track systems, and winch kits; shocks, attachments, and float avalanche airbags; and maintenance supplies, such as oil and fuel additives. In addition, the company provides snowmobile garments for adults and children under the Arcticwear brand, which include jackets, coats, pants, and casual sportswear. Its Arcticwear line of clothing also includes insulated outerwear, hats, mittens, helmets, boots, sweatshirts, T-shirts, and casual wear.
For Q2 the company reported a loss of 81 cents that was twice what analysts expected at 40 cents. Revenue of $104.9 million also missed estimates for $118.7 million. The company lowered guidance for the full year to a loss of 70 cents to $1 per share on revenue of $635-$655 million. Shares crashed from $18.25 to $14.33 on the news.
Earnings Oct 28th.
Since the July 29th earnings, analysts have been slashing estimates. Six analysts have cut full year estimates from a consensus loss of 19 cents to a loss of 92 cents. For the current quarter, five analysts have cut estimates from 41 cents to 62 cents.
Shares tried to rebound twice and failed. If the post earnings low fails we could see ACAT move into single digits.
I am recommending we short the stock if it makes a new August low. The current low is $14.33. It could take several days before this position it triggered.
Position 8/31/16 with a ACAT trade at $14.15
Short ACAT shares @ $14.15. See portfolio graphic for stop loss.
VXX - Volatility Index Futures - ETF Description
Major increase in volatility only a couple days after we entered the position. There will be ups and downs. Just hang in there and the long-term trend will always be down.
If you are not already in this position the spike today would be an excellent place to enter a new short.
Since this is a long-term play, I am not going to comment on it every day. Just forget it is in your portfolio and hope for a strong market rally in Q4.
Original Trade Description: September 6th.
The VXX is a short term volatility product based on the VIX futures. As a futures product it has the rollover curse. Every time they roll to a new futures contract they have to pay a premium and that lowers the price of the ETF. It is a flawed product with a perpetual decline built in from the monthly roll over in the futures contracts.
As evidence of this flaw, they have now down four 1:4 reverse stock splits. The last four reverse splits occurred at $13.11 (11/2010), $8.77 (10/2012), $12.84 (11/2013), $9.52 (8/8/16). The prospectus says it can reverse split anytime it trades under $25 for a prolonged period and the splits will always be 1:4.
After the August split the ETF moved sideways for four weeks at $36. I think everyone was waiting for the typical August volatility. When it did not show up and the market rallied on Friday that support broke. And the decline has begun.
Because there may be some September volatility, anyone in this position must understand that it may move higher before it moves lower BUT it will always move lower. We just have to wait it out. Volatility never lasts forever.
Unfortunately, put options are expensive with a volatility instrument at this price level. The only recommendation is to short the ETF and forget it. If we do get a prolonged rally as some are expecting we could see strong gains in the next 2-3 months. This will be a long-term position. This is not a 2-3 week play. I can guarantee you, if history holds, we can play this until it splits 1:4 again at $10. Once we are in the position and profitable I will put a trailing stop loss on it. We will take profits and then look for a bounce to get back in. We could keep this play in the portfolio on a trading basis permanently.
Short VXX shares @ $33.88, no initial stop loss.
No options recommended because of price.
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