Option Investor

Daily Newsletter, Monday, 3/7/2016

Table of Contents

  1. Market Wrap
  2. New Plays
  3. In Play Updates and Reviews

Market Wrap

The Market Drifts Higher

by Thomas Hughes

Click here to email Thomas Hughes


Th market drifted higher today as oil prices reached a new high. There was little in the way of market moving data today, aside from a 4.5% gain for WTI, and little due out this week. The biggest mover this week is likely to be the ECB meeting on Thursday when they are expected to increase QE in some form, what they will do and will it meet market expectations is the question.

Asian indices finished their Monday mixed. Japan fell, Shang Hai rose and the Hang Send finished the day flat. Moving those indices, or not, was a new set of data targets issued at the National Peoples Congress over the weekend. New targets for 2016 are GDP in the range of 6.5-7%, CPI of 3% and a budget deficit of 3% of GDP. Analysts seem to think the targets mean that China is not through with its stimulus efforts and expect to see an expansion of current programs in the coming months. Neither the China news nor ECB expectations were able to support the EU markets which closed with loses in the range of -0.25 to -0.45%, led by the German DAX.

Market Statistics

US futures began the day in negative territory and drifted lower up to about the 6AM hour. Losses at the low were in the range of -0.4% (S&P 500) and held relatively steady between 6AM and the opening bell. The open was a bit weak, the indices opened with the indicated losses and then ever so slowly crept higher. The Dow Jones Industrial Average was the first to hit positive territory and by noon the S&P 500 and Nasdaq Composite joined it. Intraday highs were reached in early afternoon, just after 1PM, about 0.25% for the SPX.

Once the highs were hit the market retreat back to the day's opening levels and by 2:30PM were bottoming. Late afternoon trading saw them bounce back to retest resistance at break even levels. By the close most were back in positive territory but did not regain the early highs.

Economic Calendar

The Economy

There was very little economic today and there will be very little this week. The only release aside from the Moody's Survey was consumer credit figures announced at 3PM. The big event of this week will be the ECB meeting, next week heats up with a full calendar including a BOJ meeting and the March FOMC meeting.

The Moody's Survey Of Business Confidence gained 0.7% from last week making this the third week of gains since hitting a multiyear low. This week's reading of 29.2% is an improvement but still very low relative to the high set last summer. According to Mark Zandi the number, even though week, is still indicative of a healthy and expanding economy. In his summary he says that businesses are most concerned about current conditions with outlook for the summer coming in much stronger. It is possible that sentiment has bottomed but whether or not it has reversed is yet to be seen.

The fourth quarter 2015 earnings reporting season is almost over. According to Factset 99% of the S&P 500 has reported earnings with only 2 scheduled to report this week. The blended rate for earnings growth is now -3.4%, slightly worse than what was reported last week and most likely what we will see as the final rate once the season is officially over.

Expectations for the first quarter and every quarter in 2016 have been revised lower from last week. The first quarter is now expected to post an all index earnings growth rate of -8.0%. This is down from 0.3% at the end of December and hurt by downward revisions in all 10 sectors, led by the energy sector. The energy sector is now expected to post an earnings decline of -94.9%, more than double the decline predicted on December 31st.

Projections for the 2nd, 3rd and 4th quarters have also come down in the past week but despite this full year projections gained a tenth to +2.9%. This is likely due to rising oil prices, at least in part, and could signal the bottom in declining projections. Another reason could be the utilities sector. This sector saw a massive increase in expectations for the full year over the past week, jumping to +25.2% from only 2.8% last week, while the other 9 sectors had only marginal downward revisions.

The Oil Index

Oil prices surged another 5.5% today as changing sentiment, fund in-flows and chatter from OPEC producers support prices. The overall supply and demand outlook is still on the bearish side with little expectation of increasing demand but the recent bottom, declining US rig counts, low output from Iraq and the upcoming meeting between Russian and OPEC have raised hopes. It is likely we will see a retest of support but when it may come is not clear. Today WTI climbed to near $38 with the next obvious resistance level at $40. If you have long positions keep your stops tight and ride it out.

The Oil Index climbed on the back of oil prices and has extended its move above resistance. The index has completed a double bottom reversal that appears to be confirmed by the break and extension above resistance at the 1050 level. The indicators are convergent with the break to new highs and consistent with a rising market. Next upside target is near 1115. First target for support on a pull back is 1050 with next target near 1015.

The Gold Index

Gold prices wavered a bit today but held near the $1265 level. In early trading spot prices were able to move higher by a few dollars and then later in the day they fell back to just below last week's closing prices. Spurring the move in early trading was FOMC rate hike and ECB QE expectations, later in the day comments from the Fed's Fischer and Brainard helped to push them lower although even their statements didn't keep them down. The two central bankers both see signs that inflation is on the rise but neither seemed to think that it was necessary to rush into raising rates just yet, Brainard at least argued for patience in the light of risks to economic growth.

The gold miners were able to move higher in today's session although gains were capped by golds late day reversal and Fedspeak. The Gold Miners ETF GDX gained about 3.5%. Today's candle helps to remove the threat posed by Friday's pin-bar/shooting star candle although consolidation or reversal is not out of the question. The indicators are equally indicative of consolidation or potential reversal so caution and tight stops are advisable. This index, and the underlying commodity are still riding a strong wave of upward momentum and could continue higher but with the ECB and FOMC meetings coming up risk of reversal is present, even with a read on expectations there is still no telling what either may do. Resistance is near $21 with first target for support near $18.

In The News, Story Stocks and Earnings

The dollar remains under pressure. The next two weeks is going to be uuuge for the Dollar Index with three central bank meetings on the schedule. The BOJ may be a mover but without doubt the ECB and the FOMC will. The FOMC has a 0% expectation according to Fed Funds Futures to raise rates which should at least keep dollar values down if not weaken it further. Economic data next week could go a long way toward helping that move; Goldilocks data and in particular CPI and PPI will keep rate hikes off the table for the next couple of meetings at least. The real risk, in my opinion, is the ECB. They are expected to enact more QE this week. If the ECB meets or exceeds expectations the euro is likely to fall versus the dollar, if they don't the euro is likely to strengthen. Based on the past few years of watching the ECB I am leaning toward the idea they will do more QE, but it will not be what or as much as the market expects.

Today the Dollar Index fell back to the three week low near $97. The indicators are weakening and, for now, pointing to lower prices. Down side target are $96.50, $96 and $95.50 in the near term, all of course dependent on what the ECB does later this week.

BG Staffing is a micro-cap staffing service that I thought would be interesting to look at in light of economic conditions and the labor market. They released earnings this morning before the bell and, frankly, did pretty good last year. On a quarterly basis the company increased revenue by 55.3% from last year, net income by 207.7%, and adjusted EBITDA by 100.7%. The company operates in three segments had substantial gains in profits for each; Multifamily up 45.9%, Professional up 173% and Commercial up 25.2%. Full year 2015 net income is up 1346.9% and the company sees 2016 easily matching industry expectations of 6% growth. Today's market action was flat, the stock closed with little movement on average volume which is only about 3,000 shares daily.

Shares of Netflix fell -6% today as new research from ITG spooked investors. The new report says current market valuation and expectations for 2016 are high. They expect 1Q new subscribers to track below estimates and for full year subscriptions to fall -10% from last year. This comes as the new season of House Of Cards is released (we watch it but only subscribe each year long enough to do so). The company is expected to spend about $6 billion on original content this year alone.

Shake Shack reported after the bell and did not satisfy investors. The results were good, but only as expected and not good enough for the wannabe star of the growth restaurant scene. Quarterly revenue grew 46% from last year, reversing a loss in the comparable quarter, while sales rose 49% and same store sales increased by 11%. Guidance was also reaffirmed, but only in line with current consensus. Shares fell -7% in after hours trading.

The Indices

The indices tried to make gains today and some of them did. Today's action was led by the Dow Jones Transportation Index which made an advance of 0.45% and set a new two month closing high. The index created a small bodied candle with long lower shadow indicative of support but upside was contained by resistance at the 7,700 level. The index is bouncing and looks like it wants to move higher but this resistance level will need to be overcome. The indicators are both bullish and pointing to higher prices although momentum is waning and the near term is overbought. A little consolidation would be good for the longer term health of the rally and could come over the next week and half up to and until the FOMC meeting. If the index breaks above resistance next upside target is near 8,000 with a possible move up to 8,400. First target for support should the index pull back or enter consolidation is near 7,500.

The Dow Jones Industrial Average gained 0.40% in today's action and set a new 2 month intraday and closing high. The blue chips created a small bodied candle, but slightly larger than the previous three, and looks like it will continue to move higher. The indicators are both bullish and support rising prices although there is risk of consolidation or pull back; stochastic is overbought and momentum is declining. Today's move was halted by resistance near 17,100 and could easily enter a sideways range if no catalyst emerges to drive it higher. A break to the upside could carry 500 or 600 points higher to next resistance target near 17,750. First target for support should the index pull back or enter consolidation is near 16,750.

The S&P 500 made the third biggest gain in today's session, about 0.09%. The broad market tested support at the 2,000 level and it held. The broad market was also able to set a new 2 month closing high. The indicators are both bullish and rising, consistent with a rising market and higher prices. Momentum is not strengthening, but it is not waning either, although stochastic is indicating overbought conditions so it is not unlikely we see a consolidation in the near term. If support fails first target for support is near 1,950 and the long term up trend line. Next target for resistance is near 2,025 with the range between 2,000 and 2,025 as a possible consolidation zone. If 2,025 is broken next upside target is 2,075.

The NASDAQ Composite was the only index to post a loss in today's session although it was able to poke its head into positive territory on an intraday basis. Even with today's loss this index looks like it is moving higher, the indicators are both bullish and consistent with a market in rally. Today's action appears to be part of a consolidation above the 4,650 level, a consolidation that could help alleviate overbought near term conditions and set us up for another leg higher. For now resistance is at the 4,750 level, the tip of Friday's candlestick, with first support target near 4,650. The 4,880 is first upside target on a bullish break out, 4,490 is down side target on a bearish break with possible support at the short term moving average near 4,586.

Today's action is promising if a bit tame; the indices tested support levels and they held with many of them setting new closing highs. This action is welcome in mid rally as it will help the market to digest the news and changes of sentiment that drove it higher as well as to alleviate overbought conditions that are present in all four of the indices I regularly track. This week is a good week for such a move too, there is not much happening other than the ECB meeting giving us 6 full trading days before the FOMC meeting next week.

Final thought; don't forget about oil. Oil prices are one of the major if not the main reason we are in rally mode right now. While oil prices move higher and/or remain at these levels the market should respond favorably, if they reverse and fall back to retest support the market could fall with it. I don't think it's time to sell but a little profit taking, perhaps examining stop loss levels and/or a little protection for bullish positions would not be unwise.

Until then, remember the trend!

Thomas Hughes

New Plays

Buying Cash

by Jim Brown

Click here to email Jim Brown
Editor's Note

When we can buy a promising pharmaceutical company for less than the cash they have in the bank there has to be some other companies thinking that is a good deal as well. Chimerix shares have fallen 95% since August because of a cancelled stage 3 trial that did not go as planned. That is not the only thing Chimerix has in the pipeline but the stock was trashed.


CMRX - Chimerix - Company Profile

Chimerix is a pharmaceutical company that discovers, develops and commercializes oral antivirals to address unmet needs in the USA. Their drug farthest along in testing was brincidofovir otherwise known as CMX001, which was planned for adult transplant patients to treat adenovirus infection. The drug did no better than a placebo in state 3 trials and they were cancelled.

However, there are other uses for that drug and they have multiple other drugs under development. This recommendation is not based on some super drug in their pipeline.

This is a technical trade based on the probability of either a sharp rebound or an acquisition.

As of today's close CMRX has a market value of about $250 million. At the end of Q4 they had $221 million in cash and $159 million in investments. The company has an estimated shareholder equity of $8.50 per share with no active drugs. With multiple drugs in the pipeline and continued research underway they represent a cheap acquisition for anyone who believes their drugs have promise. Because of their cash and investments that means any active acquisition would have to command a premium over that intrinsic $8.50 value. They do have a poison pill in place to prevent a hostile takeover but they would be open to a friendly acquisition.

They reported earnings on Feb 29th that were a loss of 82 cents compared to estimates for 68 cents. The company also said they were cutting 20% of the workforce (25 workers) in order to be "prudent with their capital."

Earnings are May 9th.

Shares traded to a low of $4.41 post earnings on the 29th and have risen steadily over the last five days with a 5% gain on Monday alone. I am recommending we buy the shares with a trade at $5.75 with our first exit target around $7.60 if no news appears. That would be a 32% gain if we exited there.

I am not recommending any options but the May $7.50 call is 65 cents.

With a CMRX trade at $5.75 (just over Monday's high)

Buy CMRX shares, initial stop loss $4.75.


No New Bearish Plays

In Play Updates and Reviews

Teetering on the Brink

by Jim Brown

Click here to email Jim Brown

Editors Note:

Today's market action around S&P support at 1,999 was equivalent to walking on the edge of a cliff. The opening dip to 1,989 was bought with a rally up to 2,006 but sellers appeared to make that a lower high for the index. Friday's high was 2,009.

On the positive side, the afternoon dip back to 1,991 was bought and we closed at 2,001. If the dips had not been bought, I would be a lot more negative. The Russell 2000 had no opening dip and the -9 point afternoon decline was bought and the loss completely erased to end right at the high of the day.

We have two trading days left before the ECB rate decision on Thursday morning. That could be negative for the market but I am anticipating traders will continue to buy the dips in hopes the ECB fires their bazooka as Mario Draghi has hinted.

Current Portfolio

Current Position Changes

HDP - Hortonworks

The long position was opened when HDP traded at $12.35.

NLNK - Newlink Genetics

The short position in CUDA was entered with a trade at $17.85 at the open and then stopped out when shares rallied to $19.25 and exactly our stop loss at midday.

Profit Targets

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

ACAT - Arctic Cat - Company Profile


Minor gain in a choppy market but the intraday chart showed a sharp rebound from the lows in the last hour. This could suggest we will see a higher move on Tuesday.

Target $21.45 for an exit.

Original Trade Description: February 24th

Arctic Cat makes snowmobiles, all terrain vehicles (ATVs) and recreational off-road vehicles (ROVs). They reported a bad quarter because of the exceptionally warm weather and lack of snow. Sales declined -14.3%. Of that 4.9% was due to the strong dollar. The brand is one of the most wildly recognized brands of off-road equipment.

Arctic Cat has been in a restructuring program for several quarters to revamp their dealer network, eliminate debt, reduce inventory and produce new cutting edge vehicles.

In Q4, they reduced long-term debt by $15.8 million. They suspended the quarterly dividend to save $6.5 million in cash for the restructuring. Inventory decreased -$25 million sequentially. They generated approximately $27 million in free cash flow.

The company expects to see the benefits of their restructuring in the next two quarters with sales expected to rise +40% in the current quarter. New models and new products coming out this summer are expected to boost sales as well. They are announcing a new "single ski" snow bike at the snow dealer show in March.

While the outlook is far from exciting the company shares have rebounded from the low of $9 on January 28th to $16.45 today. The stock momentum is strong and it reached primary resistance at $16.50 this week. If the stock breaks through this resistance it could trigger additional short covering with the next resistance at $22.25. I am recommending a long position on a resistance break and an exit before we reach that higher resistance at $22.

Earnings are May 12th.

Position 2/26/16 with an ACAT trade at $17.25

Long ACAT shares @$17.25, see portfolio graphic for stop loss.


Long June $20 call @ $1.70, see portfolio graphic for stop loss.

AMLP - Alerian MLP ETF - ETF Profile


Great +3.7% move for a $10 stock. I expect the ETF will continue minor gains as long as oil prices to not crash again. The 11.4% yield on the dividend is a powerful attractant for dividend investors.

Original Trade Description: March 2nd.

The MLP sector has been trashed along with the producers even though they have almost no risk. A pipeline MLP is a toll collector. They get paid a fee for every barrel of oil or cubic foot of gas that travel through their pipelines.

The vast majority of the pipelines in the country are full. They are so full that producers are having to resort to truck and rail shipments to get their oil to market. The pipelines are not in any material danger of a sudden drop in petroleum products flowing through their pipelines. Many contracts are take or pay. Producers commit to ship a certain amount of product and they pay for that commitment.

I am recommending the Alerian MLP ETF. This is an ETF that owns an entire basket of MLP securities and they all pay dividends. The AMLP is currently yielding 11.4%. They have raised their dividend every quarter since Q1-2012. They are not likely to break that string and if they did I suspect it would only be by a small amount. The Q1 dividend they announced on Feb 10th was 29.9 cents, payable on February 18th.

There are analysts that believe the MLP model is at risk. They believe the cost of capital will rise with the Fed rate hikes and the crash in the oil market. That means existing MLPs will have to pay more for new assets. That does not affect existing MLPs that already have their assets in place. They do not have to grow in the current energy environment. They can be content to sit on their assets and continue to pay dividends on their existing pipelines.

AMLP Holdings

I believe the risk at the current price level is minimal. The MLP panic has run its course with several cutting their dividends and causing the sharp drops in the ETFs. Now that oil prices are firming and expected to firm even more beginning in April when inventories begin to decline, the MLP ETF buyers will return. Just a year ago AMLP was trading over $20 and could be there again by this time next year.

There is no scenario where oil prices remain low long term. This is a normal boom/bust cycle and they will recover and will trade significantly higher in the years ahead.

This is a LONG-TERM position. Oil prices should rebound starting this summer and then rise sharply in 2017 and you need to be content to collect the 11.4% while we wait for those prices to move higher.

You do not have to hold long term. My initial target would be $14 and that would be a 40% return and we could see that by July.

Position 3/3/16:

Long AMLP shares @ $10.40. No stop loss.


Long July $12 call, entry 55 cents. No stop loss.

CDW - CDW Corp - Company Profile


Very minor 4 cent drop after a $1 gain on Thursday. That is a total drop of -6 cents in two days. While the resistance at the 150-day average is strong, they are not able to push it lower.

Previous: The interesting factoid is that the stock came to rest almost exactly on the 150-day average at $40.90 for the third consecutive day. There must be a high frequency trading program that is focused on CDW because the almost perfect respect for each of the moving averages is too precise for a day trader to manipulate the stock. Volume is 800,000 a day so it has to be a computer program. I looked at the time & sales and the vast majority of the trades, probably 85% or more are even 100 share lots. There are dozens of sequential trades with only a penny difference and sometimes less than a penny. Then dozens of trades a penny higher. That repeated all day long. That suggests a break over the 150-day average will run to the 100-day at $41.32.

Original Trade Description: February 29th.

CDW distributes IT solutions in the U.S. and Canada through its website CDW.com. They offer hardware and software products to integrated IT solutions including mobile, security, data center optimization, cloud computing, virtualization and collaboration. They offer a full line of IT products of every size, shape, brand, model and configuration. They also offer customization, installation, warranty and repair services as well as infrastructure as a service. This is the IT distributor for the home office, company datacenter or the datacenter as a service for those companies that do not have an extensive IT staff.

CDW has more than 250,000 corporate customers and 1,000 supply partners.

They reported Q4 earnings of 73 cents that rose +23% and matched estimates on revenue that rose +12.1% to $3.42 billion, which beat estimates slightly. For the full year they earned $2.35 on revenue of $12.99 billion.

They also announced a quarterly dividend of 10.75 cents to be paid on March 10th to holders on Feb 25th.

Shares rebounded from the earnings and are trading at $39.50. CDW has a very clear relationship with moving averages, especially the 200-day and the 300-day. Every break of either average has resulted in a significant move. On Monday CDW closed 9 cents above the resistance of the 200-day after trading between the 200-300 for the last two weeks. A breakout over that 200-day should target the $43 level if not higher.

CDW shares posted a 77-cent gain today in a weak market.

The high today was $39.76 and I am going to use an entry trigger at $39.85. That will mean the option price could be a little higher than expected since I am using the $40 strike. The $45 strike is too far away and has no open interest.

Position 3/1/16 with a CDW trade at $39.85

Long CDW shares @ $39.85, initial stop loss $37.85.


Long Apr $40 call @ $1.50, no initial stop loss.

CUDA - Barracuda Networks - Company Profile


CUDA rallied to a new two-month high on no news. Considering the Nasdaq sold off this was very positive.

Original Trade Description: March 3rd

This is going to be a simple play description because the main objective is to be long CUDA when the buyers begin making offers.

Barracuda Networks designs and delivers security and storage solutions for clouds and corporate data centers. They protect against unwanted intrusions, malicious activities, they provide spam filtering to prevent phishing schemes to gain access to the internal networks. They are especially active in protecting websites from hackers and providing load balancing solutions for high volume websites.

Shares have been declining since June at $40 to trade under $10 in January. The company promised some new initiatives and restructuring that has not worked out to investor satisfaction.

On February 1st, Bloomberg reported that Barracuda had retained Morgan Stanley to "seek potential buyers" citing unnamed sources. While the process is ongoing BWS Financial reported there could be a number of companies interested in the Barracuda brand. BWS also said a complete turnaround if no buyers emerged would take 1-2 more quarters but it would be completed as subscribers transition to a cloud based product. They have a $20 price target on the shares.

Ahmet Okumus, Okumus Fund, reported in a 13G a couple weeks ago they had established a new position in CUDA of 3.73 million shares or 7.03%. Apparently they believe a bidder will appear.

Shares have rallied from $10 to $14 over the last four weeks. With the share price near $20 in early January any acquisition price would likely be in that range. If a bidding war emerges it could be higher. There is always the possibility that no bidder emerges and Barracuda continues on its restructuring path.

Earnings are April 25th and I would plan on exiting before that report. I am not recommending any options because the spreads are too wide.

The high on Thursday was $14.11 and I am putting a $14.25 entry trigger to open the position. If by chance we are late to the party the position will not be opened.

Position 3/4/16 after a CUDA trade at $14.25

Long CUDA shares @ $14.25, see portfolio graphic for stop loss.

DWRE - Demandware - Company Profile


Nice gain in a negative Nasdaq market. There was no news for DWRE.

Target $43.25 for an exit.

Original Trade Description: February 22nd

Demandware provides enterprise-class cloud based digital commerce solutions in the U.S., Germany, UK, and internationally. The Demandware Commerce platform enables customers to establish complex digital e-commerce strategies including multi-brands, multi-site, omni-channel and in-store operations.

Everything is integrated including payment systems, email marketing, campaign management, personalization, taxation, ratings, reviews and social commerce.

Demandware shares were caught in the Tableau Software disaster on February 5th when Tableau warned they saw enterprise spending slowing. Shares crashed from $44 to $30 on the Tableau news.

Demandware reported earnings on the 9th of 38 cents that beat street estimates for 23 cents. Revenue of $75.6 million also beat estimates for $72.3 million. They guided for full year revenue in the $295-$305 million range. Shares dropped at the open the next day because the street was expecting $302.26 million. It was a very minor guidance blink but shares dropped $2 the next day. That was the low for the month.

Shares have rebounded from that $26.50 low to $33.50 because they are not Tableau Software. They did not report any weakness in their earnings and revenue but they were punished for the Tableau guidance prior to earnings.

I believe Demandware will return to the $44 level where the close before Tableau dumped on the cloud software sector.

The high today was $33.97. I am putting an entry trigger on this play of $34.15 to get us over that level just in case the market takes a turn for the worse. If we do get some broad based profit taking, I will modify this play to take advantage of any new dips.

Earnings May 5th.

Position 2/26/16 with a DWRE trade at $34.15

Long DWRE shares @ $34.15, see portfolio graphic for stop loss.


Long April $35 call @ $2.70, see portfolio graphic for stop loss.

GME - Gamestop Corp - Company Profile


GME dipped under prior resistance at $30.85 that should now be support. This was a negative event and will make Tuesday's trade very important with our stop loss at $30.25.

Original Trade Description: February 26th.

Gamestop was originally a reseller of used video games. As the business model matured they moved into new games, game consoles and recently into smart phones, tablets, MP3 players, headphones and manner of consumer electronics. They are a certified Apple consumer electronics reseller, an authorized AT&T reseller and Cricket Wireless seller of prepaid cell phones. As of January 31st, they operated 7,100 stores in 14 countries.

Gamestop's death has been reported prematurely numerous times and they just keep reinventing themselves in the expanding market. When more games became downloadable rather than cartridge or CD based everyone thought that was the death knell for the company. Instead they ramped up their sales of consoles and consumer electronics to increase their customer base and store traffic.

Recently they even ramped up their quarterly dividend to 37 cents ($1.44 annually) to yield 5%. Very few companies paying a 5% dividend are in danger of going out of business. The current dividend will be paid on March 22nd to holders on March 9th.

Gamestop will report earnings March 24th after the close and hold a conference call at 5:PM ET. They will also host an investor conference on April 13-14 and feature presentations from the leadership team and tours of the retail brand family. They are doing everything possible to be recognized as a growing business. They are a Fortune 500 and S&P 500 company.

All of these initiatives are foiling the plans for those traders holding the 37.7% short interest. That represents 39.5 million shares and the average daily volume is 1.69 million. That equates to a very bad week for the shorts if prices were to suddenly spike higher.

Other traders have been selling puts on GME at a record rate. Selling puts on a stock is a bullish strategy with expectations for the stock to go higher. On one day last week, more than 4,000 March $28.50 puts were sold at $1.40 each. Two days later another 4,000 $29.50 puts were sold at $1.38 on average.

There is resistance at $30.85 and I am going to recommend an entry at $31.10 because there may be some new traders waiting to sell at that $31 level. Once the stock moves over that resistance level we could see a flood of short covering.

Position 3/1/16 with a GME trade at $31.10

Long GME shares @ $31.10, see portfolio graphic for stop loss.


Long April $32 call @ $1.40, see portfolio graphic for stop loss.

HDP - Hortonworks Inc - Company Profile


HDP rallied to $12.47 at the open to trigger the position at $12.35 to gain 4.6%. Market permitting I would expect to see a move higher on Tuesday.

Original Trade Description: March 2nd.

Hortonworks is a software provider that focuses on development, distribution and support of the Hadoop open source project. Hortonworks Data Platform (HDP), an enterprise-grade data management platform that enables its customers to capture, store, process, and analyze increasing amounts of existing and new data types without the need to replace their existing data center infrastructure.

Whether or not you have heard about this platform is immaterial because it is the up and coming thing for big data users. Hortonworks and Hewlett Packard Labs announced a collaboration this week to enhance Apache Spark. Hewlett & Hortonworks

They also announced new streaming analytics capabilities utilizing Hortonworks DataFlow (HDF) powered by Apache Kafka, Storm and NiFi. I hope you know what that means because I do not. DataFlow HDF

I could go on with dozens of new features and functions but the point I am making is that Hortonworks is not dormant and they are a bleeding edge software provider for big data customers.

In the Q4 earnings release they reported subscription revenue growth of +146% and a doubling of customers to more than 800. HDP was founded by a group of ex Yahoo engineers. Revenue in the quarter nearly tripled to $37.4 million. They guided for full year 2016 to revenue of $188 million and gross billings of $261 million.

This is a small company but one that is likely to explode higher or be acquired. Since their earnings on Feb 11th the uptrend has been steady with almost no volatility. Shares are currently at resistance at $12. A move over $12.25 should trigger some short covering as investors project the next resistance at $16.

Earnings are May 12th.

Position 3/7/16 with a HDP trade at $12.35

Long HDP shares, initial stop loss $10.85.

I am not recommending an option because of wide spreads.

LGF - Lions Gate Entertainment - Company Description


LGF posted another gain as the movie trailers for the next movie in the Divergent series begin to play. "Allegiant" begins on March 17th. I want to be out of this position before that opening. I raised the exit target by 50 cents. LGF is poised for a run to $26 but I recommend we exit early.

Target $25.25 to exit.

Original Trade Description: February 17th.

Lions Gate reported earnings on the 5th and dropped like a rock from $26 to $16 on ten times normal volume. Adjusted earnings of 45 cents missed estimates for 47 cents. Revenue of $670 million missed estimates for $767 million.

Lions Gate earnings are always lumpy. As a film maker with 2-3 major motion pictures a year the quarter with a big release always spikes and the quarters without a release crash. In the latest quarter the Hunger Games Mockingjay Part 2 had a huge audience but it was sandwiched between James Bond's Specter and the Martian. Those big films sucked up the available screens and pushed Mockingjay out of the headlines. Even with the competition the film grossed more than $650 million.

The studio has three movies for the first half of 2016 but none are expected to be blockbusters. Lions Gate also has a sizeable portfolio of TV shows like Orange is the New Black, Nashville, The Royals, The Wendy Williams Show and Casual, with more than 75 others across 40 networks. They have contracted future revenue from those shows of $1.3 billion at the end of December. They have a library of more than 16,000 motion picture and television titles.

One of the reasons the stock fell so sharply was the expectations for LGF to acquire a lot of other "free radicals" as John Malone calls them. Those are smaller studios that could help add to the LGF franchise. However, as a Canadian company they are prohibited from acquiring anyone bigger than themselves. When their market cap dropped from $7 billion to $3 billion after earnings it meant their potential acquisition candidates shrunk significantly. They were also rumored to be considering a merger with the Starz Network. That also played into the stock drop mix because owning their own TV network could present problems for selling their content to the other 40 networks they partner with. STRZA shares dropped from $31 to $20 on the earnings because it suggested there would be no merger.

Update 2/24/16: LGF and MGM have taken an equity position in Asian based Fifth Journey, a company founded by former executives from LucasArts, Universal Pictures and Gameloft. The company develops next-generation Hollywood games and interactive entertainment. The partnership and equity stake will allow LGF and MGM to break into the highly lucrative Asian gaming market with an eventual translation into Asian movies.

Now that the smoke has cleared LGF shares are rising again. They closed just under $21 on Wednesday. They are heavily oversold and heavily shorted. The combination in a positive market could continue to push the shares higher.

The lumpy earnings will be forgotten and the stock will recover. It was trading at $41 back in November before the merger news appeared. If that is no longer an option we could see a swift rebound.

I am putting an entry trigger at $21.25, just over the $21.09 high for today. We will only enter the position on a continued move higher.

Position 2/24/16 with a LGF trade at $21.25

Long LGF shares @ $21.25, see portfolio graphic for stop loss.


Long June $23 calls @ $1.50, see portfolio graphic for stop loss.

SGI - Silicon Graphics Intl - Company Profile


Inch by inch SGI is moving higher. After the big gain on Thursday, anything extra today is gravy. The uptrend is still intact.

Original Trade Description: February 19th

Silicon Graphics is a leader in high performance supercomputing. They build server components that handle compute intensive, fast algorithm workloads, such as Computer Assisted Engineering (CAE), genome assembly and scientific simulations. For instance, the SGI UV-3000 scales from 4 to 256 CPU sockets, utilizing multiple CPU cores per socket and up to 64 terabytes of shared memory. UV-3000 Description That description may be jibberish to readers without a tech background. I started working in computers since 1967 and I can assure you this is thousands of times more powerful than the computers NASA used to send men to the moon and 1,000 times more powerful than your desktop computer today.

SGI surged last week after Hewlett Packard Enterprise (HPE) said they were going to utilize the SGI platform in their new HPE Integrity MC990 X Server. This is a large business server that supports heavy workloads. This strategic partnership with SGI will greatly extend the reach of SGI technology. It is also a confirmation of the stability and high performance of the SGI platform and could lead to additional acceptance by other manufacturers.

In late January, SGI reported adjusted earnings of 14 cents compared to estimates for 5 cents. Revenue of $152 million beat estimates for $145 million. However, shares plunged from $7.80 to $5.20 the next day after the company filed a shelf registration for $75 million in new shares. The company market cap is only $200 million.

Shares remained volatile around $5 until the 12th and the full impact of the Hewlett Packard partnership was understood. They closed at $5.85 on Friday and a four-week high.

I believe the worst is over and the shelf registration forgotten in light of the partnership news.

I am recommending we buy SGI shares with a trade at $6.05 and target $7.35 for an exit. That would be a 21% gain. I am not recommending an option on this position but they do exist. The June $6 call is 95 cents and the $7 call is 60 cents. If you buy the option, I would plan on holding it longer than the stock position and hope that shares move over resistance at $7.40.

Earnings are April 27th.

Position 2/26/16 with SGI trade at $6.05

Long SGI shares @ $6.05, see portfolio graphic for stop loss.

SKX - Skechers - Company Profile


I am not a happy camper here. The -$1.05 decline followed a big drop at the close on Friday. The close today was right on support so any further decline stops us out.

Original Trade Description: January 21st.

Skechers designs, develops, markets and distributes footwear for men, women and children, as well as performance footwear for men and women under the Skechers GO brand. They currently operate more than 1,340 retail stores.

On Wednesday, the company was named the Brand of the Year for the second consecutive year by the Footwear Industry Awards. They were also named Ladies Brand of the Year.

In the 25,000 runner LA Marathon on February 14th, performance athlete "Meb" finished second in the event wearing the custom Skechers GOmeb Speed 3 shoe. Meb secured his place in the 2016 Olympics with the second place finish. The first place finisher, Weldon Kirui, was also wearing the Skechers GOmeb Speed 3 shoes.

They reported Q4 earnings of 20 cents that matched estimates. Revenue rose +27% to $722.7 million and easily beat estimates for $648 million. The CEO said they saw high single digit sales gains in the domestic business and a 41% increase in the international business. The goal is to grow sales 50% over the next couple of years.

The positive earnings and continued positive headlines lifted shares from the $26 level two weeks ago to $33 today. The $33.25 level is strong resistance. If SKX can close above $33.50 they should be off to the races, pardon the pun.

The next material resistance is near $46.

Position 3/1/16 with a SKX trade at $33.55

Long SKX shares @ $33.55, see portfolio graphic for stop loss.


Long April $35 call @ $1.10, see portfolio graphic for stop loss.

USO - US Oil Fund ETF - ETF Description


Short covering in WTI continues to lift energy stocks. WTI closed at $37.90 today. Investors are holding a record number of long contracts in WTI futures. However, this short squeeze cannot continue. I know the press is talking about $50 oil but the fundamentals do not support it. This was going to be a long term play but the gains in WTI are going to be erased when the short covering ends. I am recommending we exit at $10.50 and then get back in on the next dip.

Target $10.50 for an exit.

Original Trade Description: January 27th

The USO ETF attempts to reflect the performance of West Texas Intermediate crude oil. The ETF invests in futures contracts for oil, diesel, heating oil, gasoline, natural gas and other fuels traded on the Nymex in an effort to track WTI and avoid futures roll over bleed.

Typically, a futures oriented ETF buys forward contracts. As those contracts expire, the funds are rolled over into the next series of futures contracts at higher prices. This causes a disconnect between the actual price of the underlying commodity.

The USO attempts to reduce that as much as possible by spreading the terms and types of futures contracts it holds.

If you are still reading this you are probably wondering why I am recommending a somewhat perishable ETF on oil when we all expect oil prices to go lower. Good question!

Yes, oil prices "should" go lower as inventories build over the next two months. However, the entire world of professional investors understands this but prices have spiked twice in the last week on rumors of a Russian - OPEC agreement to cut production. If such an agreement was actually reached, we could see prices back over $50 very quickly.

I am proposing we try to buy the USO on the next dip on the chance that an agreement will eventually be reached. Last week it traded down to $7.92. When oil was $38 in December the USO was $11. If we can buy it in the $8.50 range we could see a 30% gain on any deal announcement and even more once oil prices reacted to the change in production dynamics.

Obviously, we cannot predict that a deal will happen. Saudi Arabia and Russia are enemies. However, they both have the same problem and that is they are hemorrhaging cash. In July 2014 when oil prices were $105, Saudi Arabia was taking in about $1.06 billion a day in revenue. Today at $30, they are receiving $303 million. That is a loss of $757 million a day, every day, and the kingdom is suffering from it. Russia is losing about $650 million a day. They both have millions of reasons to put their differences aside and reach an agreement.

While we cannot guarantee this will happen the headline chatter is growing daily. They may not be ready to call a truce just yet but together they are losing more than $1.4 billion a day. That is a huge incentive to do something. The next regular OPEC production meeting is early June. I am recommending we buy the USO on the next dip and hold it until July. I cannot imagine OPEC continuing the madness past the June meeting and they are likely to hold an emergency meeting earlier if crude drops back into the $20s again.

Typically, prices rise when inventories begin to decline in late April as refiners ramp up production for the summer driving season. Even if Russia and OPEC do not reach an agreement, we should see a rise in prices starting in May or earlier.

I am not going to try to buy the bottom because we may not see it again. I am recommending we buy the USO at $8.50 and hold it with no stop loss because it could go lower. I believe we will be rewarded over the next few months and with the right set of circumstances, we could be very well rewarded.

2/1/16: Position entered with a USO trade at $9.00:

Long USO shares @ $9.00, no stop loss.


Long USO July $10.00 calls @ $.85. No stop loss.

BEARISH Play Updates

NLNK - Newlink Genetics - Company Profile


Newlink dropped to $17.71 at the open to trigger the short position at $17.85 but then rebounded immediately to $19.25, which was exactly our stop loss to take us out of the position. This is extremely frustrating but these things do happen. There were a couple of new headlines about the Zika virus this morning that lifted the stock.

Original Trade Description: March 4th.

Newlink is a biopharmaceutical company focused on discovering, developing and commercializing immunotherapeutic products to treat cancer patients. Newlink has had some challenges with recent trials and shares are declining.

Shares recently bounced slightly when they said they were researching a vaccine to prevent the Zika virus. Unfortunately they have some serious competitors including GlaxoSmithKline (GSK), Sanofi (SNY) and Inovio (INO). The Zika virus scare blossomed into the U.S. headlines a month ago and then faded.

The virus is transmitted by mosquitoes and sexual contact with someone that already has the virus. People that catch the disease rarely even know they have it but a byproduct for pregnant women is severe birth defects.

Newlink partnered with Merck in 2014 to develop a vaccine for Ebola. An eventual vaccine was developed but Newlink did not discover it. They licensed it from the Public Health Agency of Canada. Since Newlink did not develop it but merely discovered the PHAC compounds would work, they passed it on to Merck and the headlines faded.

Newlink has not developed any infectious disease vaccines so they were quickly ignored once the Zika headlines began to fade.

Shares have declined from $23 and are falling steadily. Earnings are May 30th.

I am recommending we short Newlink shares with a decline below Friday's low at $18.04 which was a 16 month low and nearly a 3-year low. I am not recommending an option because they are expensive.

Position 3/7/16 with a NLNK trade at $17.85

Closed 3/7/16: Short NLNK shares @ $17.85, exit $19.25, -$1.40 loss.

VXX - VIX Futures ETF ETF - ETF Description


The mixed market confused investors and the VXX ended the day flat. We have plenty of time to wait for our exit.

The exit target is 19.50 to close the position.

Original Trade Description: August 24, 2015

The U.S. stock market's sell-off has been extreme. Most of the major indices have collapsed into correction territory (-10% from their highs). The volatile moves in the market have investors panicking for protection. This drives up demand for put options and this fuels a rally in the CBOE volatility index (the VIX).

You can see on a long-term weekly chart that the VIX spiked up to levels not seen since the 2008 bear market during the financial crisis. Moves like this do not happen very often. The VIX rarely stays this high very long.

How do we trade the VIX? One way is the VXX, which is an ETN but trades like a stock.

Here is an explanation from the product website:

The iPath® S&P 500 VIX Short-Term Futures® ETNs (the "ETNs") are designed to provide exposure to the S&P 500 VIX Short-Term FuturesTM Index Total Return (the "Index"). The ETNs are riskier than ordinary unsecured debt securities and have no principal protection. The ETNs are unsecured debt obligations of the issuer, Barclays Bank PLC, and are not, either directly or indirectly, an obligation of or guaranteed by any third party. Any payment to be made on the ETNs, including any payment at maturity or upon redemption, depends on the ability of Barclays Bank PLC to satisfy its obligations as they come due. An investment in the ETNs involves significant risks, including possible loss of principal and may not be suitable for all investors.

The Index is designed to provide access to equity market volatility through CBOE Volatility Index® (the "VIX Index") futures. The Index offers exposure to a daily rolling long position in the first and second month VIX futures contracts and reflects market participants' views of the future direction of the VIX index at the time of expiration of the VIX futures contracts comprising the Index. Owning the ETNs is not the same as owning interests in the index components included in the Index or a security directly linked to the performance of the Index.

I encourage readers to check out a long-term chart of the VXX. This thing has been a consistent loser. One market pundit said the VXX is where money goes to die - if you're buying it. We do not want to buy it. We want to short it. Shorting rallies seems to be a winning strategy on the VXX with a constant trend of lower highs.

Today the VXX spiked up to four-month highs near $28.00 before fading. We are suggesting bearish positions at the opening bell tomorrow. The market volatility is probably not done yet so we are not listing a stop loss yet.

Position 8/25/15:
Short VXX @ $21.82, no stop loss.

Second Position 9/2/15:

Short VXX @ $29.01, no stop loss.

Trade History
11/07/15 adjust exit target to $16.65
11/02/15 adjust exit target to $16.50
10/19/15 add an exit target at $16.25
10/15/15 planned exit for the October puts
10/14/15 if you own the options, prepare to exit tomorrow at the close
09/02/15 2nd position begins. VXX gapped down at $29.01
09/01/15 Double down on this trade with the VXX's spike to 6-month highs
08/25/15 trade begins. VXX gaps down at $21.82

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