The small cap indexes failed to rebound after Tuesday's big drop and that suggests more trouble ahead. The Russell 2000 tried to rebound but stalled at prior support, now resistance at 1,232. This pattern suggests a retest of support before a rebound back over that resistance level. The lackluster rebound is a drag on market sentiment.
The entire market was weak with the high point for the day at 2:Pm when the FOMC minutes were released. Immediately after the market began to decline to close on the lows for the afternoon.
S&P futures are down -4 in the afterhours so the outlook tonight is weak.
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
ZOES - Zoes Kitchens
The short stock position was stopped at $21.95.
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BULLISH Play Updates
ALRM - Alarm.com - Company Profile
No specific news. Shares still holding over support with a minor gain today.
Original Trade Description: October 1st.
Alarm.com Holdings, Inc. provides cloud-based software platform solutions for the connected homes in the United States and internationally. It offers multi-tenant software-as-a-service platform that allows home and business owners to intelligently secure and manage their properties, as well as remotely interact with an array of connected devices through a single intuitive interface. The company provides interactive security solutions, which offer intelligent security and awareness services through a dedicated, cellular, and two-way connection to the home or business; and intelligent automation solutions that connects, integrates, and controls the devices in the home or business, such as security systems, garage doors, lights, door locks, thermostats, electrical appliances, environmental sensors, and other connected devices. It also offers video monitoring solutions, which provide live streaming, smart clip capture, high definition continuous recording, and instant video alerts through its mobile app or on the Web; and energy management solutions that offer enhanced energy monitoring and management services. It has approximately 2.6 million residential and business subscribers. Company description from FinViz.com.
For Q2, the company reported earnings of 15 cents compared to estimates for 11 cents. Revenue rose 24% to $64.4 million and beat estimates for $58.6 million. Software as a Service (SaaS) revenue rose 23% to $42 million. The company guided for the ful lyear for earnings of 49-51 cents and revenue of $242.3-$245.8 million. Analysts were expecting 48 cents on $241.7 million.
Earnings Nov 8th.
Despite the strong beat and strong guidance shares crashed from the historic high close of $33 before the earnings were released. Shares were up +135% since the February low at $14 and traders took profits. The only ratings change was from Raymond James from outperform to market perform based on value because of the strong gains. At the same time Imperial Capital raised their price target from $24.50 to $30. Since shares closed the day before at $30 that was an implied neutral rating.
Shares collapsed back to $28 and here there for three weeks then fell sharply on September 6th on no news to bottom at $25. That bottom was quickly bought and Friday's gain lifted the shares back over resistance at $28.50.
There is no bad press for Alarm.com. Earnings and revenue are growing, subscribers are growing and shares are back over resistance. If the market is going to rally in late October this should be a tech stock that outperforms.
Position 10/3/16 with a ALRM trade at $29.05
Long ALRM shares @ $29.05, see portfolio graphic for stop loss.
No options recommended because of price.
FNSR - Finisar Corp - Company Profile
No specific news. Minor gain to hold over support.
Original Trade Description: October 3rd.
Finisar Corporation provides optical subsystems and components for data communication and telecommunication applications in the United States, Malaysia, China, and internationally. Its optical subsystems primarily consist of transmitters, receivers, transceivers, transponders, and active optical cables that provide the fundamental optical-electrical or optoelectronic interface for interconnecting the electronic equipment used in communication networks. The company also offers wavelength selective switches, which are used to switch network traffic from one optical fiber to multiple other fibers without converting to an electronic signal. In addition, it provides optical components comprising packaged lasers, receivers, and photodetectors for data communication and telecommunication applications; and passive optical components for telecommunication applications. Company description from FinViz.com.
Finisar shares rallied throughout the third quarter. In early September shares spiked after earnings and then leveled off but retaining a positive bias. They reported earnings of 38 cents that beat estimates for 30 cents. Revenue of $341.3 million also beat estimates for $334 million. The company guided for the current quarter for earnings of 44-50 cents on sales of $355-#375 million. Analysts were only expecting 32 cents and $344 million. The CEO blamed the soaring earnings on booming sales of certain transceivers and switches. China is in the middle of their upgrade to a 100 Gb infrastructure and the U.S. carriers like Verizon are just getting started.
Earnings December 8th.
Shares spiked from $23 to $27 on the news even after a big ramp up from $17 at the beginning of the quarter. Shares slowed their ascent but reached $30 last week. That is a five-year high. A move over that psychological resistance at $30 could start a new leg higher. The intraday high last week was $30.19. I am recommending we enter a position with a trade at $30.25.
Position 10/5/16 with a FNSR trade at $30.46
Long FNSR shares @ $30.46, see portfolio graphic for stop loss.
NLNK - Newlink Genetics - Company Profile
No specific news. Only a minor decline despite a -3% decline in the biotech sector.
This position remains unopened until a trade at $16.55.
Original Trade Description: October 10th.
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, is being studied in Phase III clinical trials for patients with pancreatic cancer; tergenpumatucel-L, is being investigated in Phase IIb clinical trial for patients with advanced non-small cell lung cancer(NSCLC), as well as Phase I/II clinical trial is evaluating the combination of indoximod and docetaxel for patients with advanced NSCLC; and dorgenmeltucel-L, is being investigated in a Phase II clinical trial for patients with advanced melanoma. It is also developing HyperAcute cellular immunotherapies for renal, prostate, and breast cancers. In addition, the company is developing IDO pathway inhibitors comprising indoximod and GDC-0919 for patients with advanced NSCLC, advanced melanoma, metastatic prostate cancer, and other cancers; NLG2101 for patients with metastatic breast cancer; NLG2102 for treating refractory malignant brain tumors; NLG2103 for patients with advanced melanoma; NLG2014 for patients with metastatic pancreatic cancer; and NLG2105 for pediatric patients with refractory malignant brain tumors. Company description from FinViz.com.
Newlink shares have been improving rapidly since late September for multiple reasons. They have an Analyst Day coming up on October 25th and they are expected to present a rosy picture.
Last Tuesday after the bell they announced a $25 million award from the U.S. Dept of Health and Human services to support advanced development of the V920 Ebola Zaire vaccine candidate. The award has an additional $51 million of additional contract options as results stages are met. DHHS has already funded $76.8 million for developing the manufacturing facility and manufacturing process activities along with additional clinical trials.
The FDA has already designated V920 as a breakthrough therapy and the European Medicines Agency (EMA) has given it PRIME (PRIority MEdicines) status.
The new contract will enable accelerated full-scale production of V920, once it is approved. Merck (MRK) has already licensed the drug from Newlink in order to help Newlink accelerate development using Merck's vaccine expertise. Merck will be responsible for distribution and regulatory approvals.
Having a big sugar daddy with deep pockets backing your efforts along with the Dept of HHS is a real plus. This vaccine is going to be produced and could save thousands of lives. In the last outbreak alone more than 9,200 patients died.
Earnings Nov 3rd.
Shares spiked again on the Ebola news and will likely continue rising. Shares closed at $16.41 with resistance at $20, which will be our target in this position.
With a NLNK trade at $16.55
Buy NLNK shares, initial stop loss $14.45
No options recommended due to wide spreads.
BEARISH Play Updates
TASR - Taser Intl Inc - Company Profile
No specific news. Still waiting for a support break.
Original Trade Description: October 8th.
TASER International, Inc. develops, manufactures, and sells conducted electrical weapons (CEWs) worldwide. The company operates through two segments, TASER Weapons and Axon. Its CEWs transmit electrical pulses along the wires and into the body affecting the sensory and motor functions of the peripheral nervous system. The company offers TASER X26P and TASER X2 smart weapons for law enforcement; TASER C2 and TASER Pulse CEWs for the consumer market; and replacement cartridges. It also provides Axon Body, a body-worn camera for law enforcement; Axon Body 2 camera system; Axon Flex camera system that records video and audio of critical incidents; TASER Cam HD, a recording device; Axon Fleet, an in-car video system; Axon Interview, a video and audio recording system; Axon Signal, a body-worn camera; and Axon Dock, a camera charging station. In addition, the company offers Evidence.com, a cloud-based digital evidence management system that allows agencies to store data and enables new workflows for managing and sharing that data; Evidence.com for Prosecutors to manage evidence; and Evidence Sync, a desktop-based application that enables evidence to be uploaded to Evidence.com. Further, it provides Axon Capture a mobile application to allow officers to capture digital evidence from the field; Axon View, a mobile application to provide instant playback of unfolding events; Axon Five, a software application to enhance and analyze images and videos; Axon Convert, a software solution to convert unplayable file formats; and Axon Detect, a photo analysis program for tamper detection. The company sells its products to military forces, private security, and consumer personal protection markets, as well as to federal, state, and local law enforcement agencies and corrections through its direct sales force, distribution partners, online store, and third-party resellers.
Company description from FinViz.com.
Taser shares were crushed last week when the NYPD chose VieVu instead of Taser for its supplier of more than 1,000 body cameras. The camera has become a larger market for Taser than the actual Taser weapon. When Taser sells a camera they also sell a 3-5 year subscription to Evidence.com, which is their video storage and retrieval application in the cloud. While a Taser sale may be in the hundreds of thousands of dollars per police department and the camera sale also in the hundreds of thousands, the subscription to archive the hundreds of thousands of hours of video footage costs millions of dollars.
The $399 camera is just the camel's nose under the tent. Each camera requires its own subscription to Evidence.com which costs $39 to $79 a month before quantity discounts. The 1,000 camera order for the NYPD would have been a minimum of $39,000 a month for five years or $2.3 million to $5.0 million in revenue.
The Safariland VieVu camera system is now deployed in more than 4,000 agencies in 17 countries. With Safariland the camera is holster activated and turns on when the officer's gun is drawn. This is a major competitor for Taser.
Another blow for Taser last week was a Supreme Court decision not to hear a case involving the death of a person stunned by a Taser. The court let stand a ruling that said Tasers amount to an unconstitutional use of excessive force and officers can only use Tasers if they are in immediate danger. This could negatively impact Taser sales, which is still the largest portion of their international revenue.
If Taser sales slow because of the ruling, then body camera sales could also slow since many times they are packaged together. That means Evidence.com subscriptions would also slow.
Earnings Nov 3rd.
Taser shares are in free fall after the dual blow last week. The Supreme Court decision is the one problem that will last.
Position 10/11/16 with a TASR trade at $22.25
Short TASR shares @ $22.25, see portfolio graphic for stop loss.
Long Nov $22 put @ $1.25. See portfolio graphic for stop loss.
VXX - Volatility Index Futures - ETF Description
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.
ZOES - Zoes Kitchen - Company Profile
No specific news. Shares rebounded +3.5% to stop us out with a nice gain.
Original Trade Description: September 27th.
Zoe's Kitchen, Inc., through its subsidiaries, develops and operates a chain of fast-casual restaurants. It operates a range of restaurant formats, including in-line, end-cap, and free-standing restaurants. As of August 22, 2016, the company operated 191 owned and franchised restaurants in 20 states of the United States. Zoe's Kitchen, Inc. was founded in 1995 and is based in Plano, Texas. Company description from FinViz.com.
For Q2, ZOES reported earnings of 6 cents that matched estimates. Revenue of $66.3 million missed estimates for $67.3 million The earnings were not the problem.
Same store sales rose only 4% and that was due to a 3.1% increase in prices so the real rise was only +0.9%. This compares to +8.0% in Q1. They also cut their guidance for the full year from 4.5% to 6.0% down to 4.0% to 5.0% and remember that includes a 3.1% price increase so the real comparable numbers are 0.9% to 1.9% sales growth.
The company also cut its revenue guidance from $277 - $281 million to $277 - $280 million, which is not a big drop but analysts were expecting $280 million so the midrange $278 million would be another miss.
Earnings Nov 14th.
The market appears saturated with fast casual restaurants and "earnings were not bad" is not sufficient to propel the stock higher given the decline in same store sales.
ZOES closed at a historic low at $23.80 on Sept 20th. Shares rallied on short covering in the market rebound but are headed back to set a new low.
Closed 10/12/16: Short ZOES shares @ $23.95, exit $21.95, +$2.00 gain.
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