The Russell finally caught fire to breakout over 1,400 after trading negative much of the morning. This may be the signal the rest of the market needed. The Russell 2000 small caps exploded higher at exactly 12:00 to gain 11 points over the next 3 hours. There was a minor bit of selling at the close but the index still ended at 1,402 and over that psychological level.
The Dow and Nasdaq sprinted higher after Yellen failed to drop any bombs in her second day of testimony. The Nasdaq is the most overbought since July 2014 so while this has been a fun ride, there are some bumps ahead.
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
GNC - GNC Holdings
The short position was closed at the open.
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BULLISH Play Updates
AKS - AK Steel - Company Profile
No specific news. The steel sector was flat again today.
Original Trade Description: February 4th
AK Steel Holding Corporation, through its subsidiary, AK Steel Corporation, produces flat-rolled carbon, stainless and electrical steel, and tubular products in the United States and internationally. It produces flat-rolled value-added carbon steels, including coated, cold-rolled, and hot-rolled carbon steel products; and specialty stainless and electrical steels in sheet and strip forms. The company also produces carbon and stainless steel that is finished into welded steel tubing, which is used in the automotive, large truck, industrial, and construction markets; buys and sells steel and steel products, and other materials; and produces metallurgical coal from reserves in Pennsylvania. It sells its flat-rolled carbon steel products primarily to automotive manufacturers and to customers in the infrastructure and manufacturing markets, including electrical transmission, heating, ventilation and air conditioning equipment, and appliances; and coated, cold-rolled, and hot-rolled carbon steel products to distributors, service centers, and converters. The company sells its stainless steel products to manufacturers and their suppliers in the automotive industry; manufacturers of food handling, chemical processing, pollution control, and medical and health equipment; and distributors and service centers. It also sells electrical steel products to manufacturers of power transmission and distribution transformers, as well as for use in the manufacture of electrical motors and generators. Company description from FinViz.com.
Shares spiked from $5 to $11 after the election on hopes for a surge in infrastructure projects, lower regulations and a growing economy. AK shares peaked early and traded sideways for a month. The week before earnings they began to decline as analyst said the market gains were overdone.
The reported earnings of 25 cents on January 24th that beat estimates for 7 cents. Revenue of $1.42 billion was slightly lower than estimates for $1.43 billion. Shares spiked on the earnings news and collapsed on guidance that shipments to automakers had declined in Q4. The next day a spokesman clarified that saying the "decline in shipments compared to 2015 was primarily the result of a 41% decline in shipments to the distributor and converters market as the company intentionally reduced sales of commodity products." In other words, AK wanted to focus its efforts on the higher margin products and reduce exposure to low margin products.
Shares quit declining after the clarification and bottomed just under $8. Friday's close was right on the verge of a 7-day high. One more positive day and we could see a rebound begin.
Earnings April 25th.
The optional option position is for a longer-term holder with a June expiration. Very limited risk in terms of dollars invested and could be a decent winner if AKS returns to the $11.25 highs or higher on infrastructure stimulus headlines.
Long AKS shares @ $8.18, see portfolio graphic for stop loss.
Optional long-term option:
Long June $10 call @ 59 cents. No stop loss.
BOX - Box Inc - Company Profile
No specific news. Minor gain but enough for a new 52-week high.
Original Trade Description: January 21st.
Box, Inc. provides cloud-based mobile optimized enterprise content collaboration platform that enables organizations of various sizes to manage their enterprise content from anywhere. The company's platform enables users to collaborate on content internally and with external parties, automate content-driven business processes, develop custom applications, and implement data protection, security, and compliance features. Box, Inc. offers its solution in 22 languages. It serves healthcare and life sciences, financial services, legal services, media and entertainment, retail, education, energy, and government industries. Company description from FinViz.com.
Box is rapidly growing its customer for document management for companies with a global workforce. They are competing with other companies for cloud collaboration and access. More than 69,000 companies worldwide now use Box. They have broken into the media sector and now many production companies use Box for storing and distributing their production content. This has given Box a new niche in the market. Box has partnered with Salesforce.com, IBM and Microsoft in the cloud space. Their goal is to partner and grow with them rather than compete with those giants.
The company reported a smaller than expected loss for Q3 and expect to post an even narrower loss for Q4. Their guidance for Q4 is a loss of 13 cents on revenue of $109 million. That is better than the 26 cents loss in Q4-2015.
Earnings March 1st.
Shares broke out to a new 52-week high on January 12th before pulling back slightly with the market. They closed 5 cents below a new 52-week high on Friday.
Position 1/23/17 with a BOX trade at $17.10
Long BOX shares @ $17.10, see portfolio graphic for stop loss.
BRKS - Brooks Automation - Company Profile
No specific news. Only a minor gain but a new high close.
Original Trade Description: February 13th
Brooks Automation, Inc. provides automation and cryogenic solutions for various applications and markets. It operates through two segments, Brooks Semiconductor Solutions Group and Brooks Life Science Systems. The Brooks Semiconductor Solutions Group segment offers critical automated transport, vacuum, and contamination controls solutions and services. This segment's products include atmospheric and vacuum robots, robotic modules, and tool automation systems that provide precision handling and clean wafer environments; automated cleaning and inspection systems for wafer carriers, as well as reticle pod cleaners and stockers; and vacuum pumping and thermal management solutions for use in critical process vacuum applications. This segment also provides support services, including repair, diagnostic, and installation, as well as spare parts and productivity enhancement upgrades. The Brooks Life Science Systems segment provides automated cold storage systems; consumables, including various formats of racks, tubes, caps, plates and foils; and instruments used for labeling, bar coding, capping, decapping, auditing, sealing, peeling, and piercing tubes and plates. This segment also provides sample management services, such as on-site and off-site sample storage, cold chain logistics, sample relocation, bio-processing solutions, disaster recovery, and business continuity, as well as project management and consulting. In addition, this segment offers sample intelligence software solutions and customer technology integration; and laboratory work flow scheduling for life science tools and instrument work cells, sample inventory and logistics, environmental and temperature monitoring, and clinical trial and consent management, as well as planning, data management, virtualization, and visualization services. The company sells its products and services in approximately 50 countries. Company description from FinViz.com.
Brooks reported earnings of 25 cents that beat estimates for 20 cents. Revenue of $160 million also squeezed by estimates for $159.7 million. For the current quarter they guided to earnings of 24 to 27 cents and revenue from $165 to $170 million.
The company provides automation and cryogenic solutions for various markets. Their expected growth rate for 2017 is 105% compared to the industry rate of 19.5%. Consensus estimates for the current year rose from 82 cents to 96 cents over the last 30 days. Estimates for the current quarter rose from 21 to 24 cents and the company guided for 24 to 27 cents.
Shares spiked from $17.50 to $21.00 on the earnings beat on February 1st. After three days of consolidation and profit taking, shares have started to rise again. They closed at a new high on Monday. I know this chart is over extended but the strong earnings, guidance and expected growth rate suggests they can continue climbing, market permitting.
Earnings May 3rd.
Long BRKS shares @ $21.58, see portfolio graphic for stop loss.
No options recommended because of wide spreads.
FEYE - FireEye - Company Profile
No specific news. The company presented at the Goldman Sachs Technology and Internet Conference this morning. There was a minor post event decline.
Original Trade Description: February 11th
FireEye, Inc. provides cybersecurity solutions for detecting, preventing, analyzing, and resolving cyber-attacks. The company offers vector-specific appliance solutions that provide threat protection from network to endpoint for inbound and outbound network traffic that may contain sensitive information. It also offers Central Management System that provides cross-enterprise threat data correlation to identify and block attacks across multiple attack vectors; and Threat Analytics Platform to identify and respond to cyber threats by correlating enterprise-generated security event data from any security product with real-time threat intelligence, as well as Malware Analysis System to manually execute and inspect advanced malware, zero-day, and other advanced cyber-attacks embedded in files, email attachments, and Web objects. In addition, the company offers Network Forensics Platform that helps in detecting threats and view specific packets and sessions before, during, and after the attack to confirm what may have triggered a malware download or callback; Investigation Analysis System, a centralized analytical interface to the Network Forensics Platform; and Mandiant Intelligent Response that enables remote investigation of endpoints and allows security teams to collect targeted forensic data to identify attacker behavior, tools, and techniques. Further, it provides cloud-based subscription services; Security-as-a-Service; and incident response, compromise assessments, and related consulting, as well as training and professional, and customer support and maintenance services. Company description from FinViz.com.
FireEye is transitioning from a firewall appliance vendor to a cloud service and as always happens when companies go this route, the revenue slows temporarily. They reported Q4 results of a loss of 3 cents. Analysts were expecting a loss of 16 cents. This compares to a loss of 55 cents in the year ago quarter. Revenue of $184.7 missed estimates for $191.1 million.
For the current quarter the company guided to earnings of 26 to 28 cents and revenue of $160-$166 million. Analysts were expecting $177.5 million.
The company said several large deals had been expected to close in Q4 and they were pushed into Q1 versus being "lost."
They added 330 net new customers during the quarter. They closed 34 deals for more than $1 million each, including one of their largest SaaS deals ever. They announced a new product called Helix and more than 250 customers have already signed up to get the product as soon as it is released.
Other onetime negatives from the earnings release was news the CFO was leaving to pursue another opportunity and Chairman David Dewalt resigned from the board.
Earnings May 4th.
Cisco (CSCO) recently acquired AppDynamics and that is expected to start a flurry of acquisitions in the cybersecurity space. The space is fragmented today and highly competitive with each player commanding its own niche. The quickest way to expand your product offerings is to acquire somebody else that is a leader in their niche. FireEye is a leader in intrusion detection and tracking. Their recent fall from grace should make them an attractive target with only a $2 billion market cap.
Regardless of whether an acquisition cycle has begun, the stock decline to support is a buying opportunity.
Long FEYE shares @ $11.75, see portfolio graphic for stop loss.
No options recommended because of price.
BEARISH Play Updates
GNC - GNC Holdings - Company Profile
The company has earnings on before the open on Thursday. The earnings outlook is negative because of recent marketing changes that will have reduced sales significantly. I recommended we close the position at the open today to avoid a post earnings gap higher.
Original Trade Description: January 28th
GNC Holdings, Inc., together with its subsidiaries, operates as a specialty retailer of health, wellness, and performance products. The company operates through three segments: Retail, Franchise, and Manufacturing/Wholesale. Its products include vitamins, minerals, and herbal supplement products; and sports nutrition products, diet products, and other wellness products. The company sells its products under the GNC proprietary brands, including Mega Men, Ultra Mega, Total Lean, Pro Performance, Pro Performance AMP, Beyond Raw, GNC Puredge, GNC GenetixHD, and Herbal Plus, as well as under third-party brands. It operates a network of approximately 9,000 locations under the GNC brand worldwide. The company sells its products through company-owned retail stores; Websites, including GNC.com and LuckyVitamin.com, as well as Drugstore.com; domestic and international franchise activities; third-party contract manufacturing; and e-commerce and corporate partnerships. Company description from FinViz.com.
On January 19th GNC was cut to a sell by Goldman saying the already reduced earnings estimates were still too optimistic. GNC tried to sell itself last year and the deal fizzled. Then they announced a restructuring of the brand and the store format. As part of the relaunch of GNC they slashed prices across half their product line and discontinued many products entirely. The company also ended its Gold Card loyalty, which had been in effect for more than a decade. Six million members were paying $15 a year in exchange for discounted prices.
The GNC CEO said "the new GNC leaves the old, broken model behind" but we know "it will take time for the changes to take hold and translate into improved financial results." That is an implied earnings warning for the next couple quarters.
Earnings Feb 9th.
With earnings in two weeks this will be a short-term position. After looking at the cart I doubt many investors will want to hold the stock into the earnings event and that should cause a further decline next week.
Updare 1/31/17: The NFL rejected GNC's proposed advertisement. The NFL said they had a standing policy not to promote supplements. The NFL said GNC was on a list of prohibited companies because they promote products banned by the league.
FOX has been getting an average of $5 million per 30 seconds of airtime and that is a fee GNC will no longer have to pay but the ad was supposed to be a kickoff of their new marketing campaign.
Closed 2/15/17: Short GNC shares @ $8.77, exit $8.20, +.57 gain.
IWM - Russell 2000 ETF - ETF Profile
This position will expire on Friday. This was a bet on the historical trend for stocks to decline in January. The Trump rally negated that trend and even though the Russell was the weakest index over the last month, it has not declined enough to make a difference. With the market breaking out, the odds of seeing $134 again are very slim.
Original Trade Description: December 10th
The IWM ETF seeks to track the investment results of the Russell 2000 Small cap Index.
The Russell is up +232 points or 20.1% in the last 22 trading days. It is grossly over extended and many small cap Russell stocks are up 30% to 40%. I understand the bullish sentiment that believes the economy will be better in 2017 but it will not be because of President Trump. His proposals will take months to get through the House and Senate and there is likely to be some major battles. Obamacare will not go away until 2018 or longer because it takes a long time to plan and execute a change that big. Lower taxes will not happen until 2018 because it will take months for both houses to vote on an acceptable tax bill. I seriously doubt they will change rates in the middle of the year. Any change will not occur until 2018.
I could go on but you get the picture. Typically, there is a honeymoon phase after a new president is elected. This phase has run its course. There are 14 trading days left in 2016 and any new highs are likely to be made before Christmas. After Christmas, investors may begin to worry and once into January and a new tax year, the selling could be dramatic. Do you remember January 2016? The market was not nearly as overextended as it is today and the Dow fell -2,150 points in just two weeks. Entering into a new tax year allows traders to capture profits and invest that money for another year before paying taxes.
Dow - January 2016
We also have the potential for a really messy inauguration or even a terrorist attack at the event. That potential will give cautious investors another reason to take profits in January.
I am recommending a long put on the Russell ETF. There is no stock vehicle we can use other than the VXX to capitalize on a market sell off. The VXX is flawed and while it may go up, it may not go up enough to make it worthwhile and it is volatile from day to day. I chose the Russell ETF because the premiums are cheap and the volatility should work in our favor. If you cannot use options then I suggest you buy the VXX shares at the first sign of market weakness after Christmas.
There is also another trigger factor to consider. The Dow is approaching 20,000 and that could be a massive sell the news event given the big gains. Since the Dow could hit that level this week I am recommending we initiate our long put position in advance.
Because the market could still rise, I want to follow the IWM higher and enter the position only when the ETF rolls over.
The ETF has short-term support at 137.75 and again at $137.25. I am recommending we enter the position with a dip to $137. If the Russell continues higher, I will continue raising the entry point as needed.
Position 12/12/16 with an IWM trade at $137.00
Long Feb $134 put @ $3.38, see portfolio graphic for stop loss.
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