Option Investor

Daily Newsletter, Tuesday, 4/19/2016

Table of Contents

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

Market Wrap

Climbing the Wall of Worry

by Jim Brown

Click here to email Jim Brown

The big cap indexes shook off some high profile earnings disasters and the Dow posted a new nine-month high.

Market Statistics

A falling dollar, rising oil prices and a continued short squeeze in energy stocks and earnings from Dow components Goldman Sachs and United Health helped to overcome some big decliners. IBM dropped -$10 intraday to knock about 70 points off the Dow but the gains in GS, UNH, JNJ, DIS and CVX helped to erase that deficit.

The Nasdaq was not so lucky with Netflix (NFLX) and Illumina (ILMN) losing -$14 and -$41 respectively. Google, both of them, lost more than $10 each and Amazon sank -$7.50 to knock -20 points off the index.

Traders also shook off some negative economics to start the day. New residential construction for March came in at an annualized rate of 1.089 million homes and missing estimates for 1.170 million by a wide margin. The February rate was 1.178 million making March activity an -8.8% decline.

Given the relatively warm weather in March, this was a major miss for new housing starts. Single-family starts declined from 841,000 to 764,000 and multifamily starts declined from 353,000 to 325,000. New permits, normally a gauge for future activity also declined. Single-family permits declined from 736,000 to 727,000 and multifamily permits declined from 441,000 to 359,000.

The only bright point was a rise in completions from 1.025 million to 1.061 million or +3.5%. Housing starts, even at this depressed rate, are still 14.2% higher than March 2015. Single-family starts were up +22.6% from the prior March. The biggest decline in new construction came from the Midwest with a -25.4% decline.

After the close today, the API reported weekly crude inventories rose by 3.1 million barrels and higher than the 1.6 million estimate. The EIA forecast for Wednesday is for a 3.5 million barrel build. Crude futures sold off slightly on the report to $40.50, a -57 cent decline. May WTI futures expire at the close on Wednesday. This is why prices have been up this week. All those shorts ahead of the Doha meeting on Sunday had to cover their positions before the futures expire. Next week could be a different story for price direction.

The inventory build was expected to be light because the 590,000 bpd Keystone was closed for a week to fix a leak. That kept nearly 4 million barrels from moving south and into the refinery system.

Tomorrow we will get existing home sales as we head into the spring selling season. For sale signs are popping up all over my neighborhood where there have not been any for the last three years. This suggests homeowners may be sensing a top in prices and have the urge to cash out. There may also be an increasing trend to downsizing as the baby boomers look for smaller and cheaper homes closer to doctors.

The next big economic hurdle is the FOMC meeting next week. Nobody expects the Fed to move but everyone is still cautious ahead of the event.

Goldman Sachs (GS) reported the worst quarterly results in four years because of volatile markets that kept clients from trading and investing. Q1 revenues declined -40% from $10.62 billion to $6.34 billion. Fixed income, currency and commodities trading revenue fell -47%. Equity trading revenue declined -23%. Earnings fell -60% to $2.68. Analysts were expecting $2.48 on revenue of $7.11 billion. In the year ago quarter Goldman earned $4.68 on revenue of $7.27 billion. Despite the big decline in earnings, Goldman shares rose +$3.63 on the news. This was definitely a case of "less bad" results generating a relief bounce.

UnitedHealth (UNH) reported adjusted earnings of $1.81 compared to analyst estimates for $1.72. Revenue rose +25% to $44.53 billion. The company raised guidance for the full year to $7.75-$7.95 compared to analyst estimates for $7.73. Shares rose +$2.69 on the news.

UnitedHealth said they were exiting the Obamacare exchanges in all but a handful of states because they were not profitable. They expect to lose $475 million on the public exchange business in 2016, down from a $700 million loss in 2015. UnitedHealth now offers exchange plans in 34 states and said those would be reduced to a "handful" for 2017. Arkansas, Georgia and Michigan are already confirmed drops and there will be many more states disclosed in the coming months. United said the higher risk profile of this market segment means we can no longer serve it on an effective and sustained basis.

Johnson & Johnson (JNJ) reported earnings of $1.68 ($4.69 billion) that beat estimates by 3 cents. Revenue rose +0.6% to $17.48 billion and matching estimates. The strong dollar cost them 3.3% of revenue growth otherwise it would have been a blowout. In the consumer segment currencies reduced revenue by 9.3%. The company raised revenue guidance by $400 million to $71.2-$71.9 billion and earnings by 10 cents to $6.52-$6.68 per share.

Harley Davidson (HOG) reported earnings of $1.36 compared to estimates for $1.29. Revenue rose from $1.67 billion to $1.75 billion. International sales rose +4.5% but U.S. sales slowed due to increased competition. Sales in Latin America fell -26.5%. The company guided to deliveries of 269,000-274,000 motorcycles in 2016, up +3% from 2015. Shares opened up initially but declined -2.5% for the day.

After the bell, Intel (INTC) reported earnings of 54 cents that beat estimates for 48 cents. Revenue of $13.702 billion was short of estimates for $13.8 billion. They guided for Q2 revenue of $13.5 billion give or take $500 million. Analysts were expecting $14.2 billion. The company said they were going to continue to restructure and would cut another 12,000 jobs globally over the next year. They will take a charge of $1.2 billion in Q2 for the layoffs. The CFO is also moving to head sales and manufacturing and out of the CFO position. The CEO said Intel is evolving from a PC company to a company that powers the cloud and billions of smart connected and computing devices.

Intel expects PC sales to decline in the "high single digits" in 2016. However, servers and datacenter demand for high-end chips is robust. When asked if PC sales would decline so much that Intel would no longer be able to invest in other parts of the business the CEO said he was not worried because the restructuring would make the company more profitable and other business areas were expanding rapidly. Shares declined about 70 cents in afterhours.

Yahoo (YHOO) reported earnings of 8 cents compared to estimates for 7 cents. Revenue of $1.09 billion beat estimates for $1.08 billion. There was a news story out last week that Yahoo was buying traffic from other search engines and websites in order to keep overall revenue numbers higher until after the company was sold. Organic revenue was reportedly declining as Yahoo's once popular pages became stale.

They guided to Q2 revenue from $1.05-$1.09 billion and that missed estimates for $1.1 billion.

Reportedly, only two companies actually submitted bids to acquire Yahoo out of the 40+ that had expressed interest. Verizon and YP Holdings, formerly known as Yellowpages.com actually submitted bids. Time Inc, Alphabet, Comcast, AT&T and IAC Interactive stepped out of the bidding at the last minute prior to the Monday deadline. There was no word on what prices were bid but analysts believe the core business is worth $3-$5 billion and Yahoo is reportedly asking $10 billion. Given the two bidders, Verizon is likely to be the winner if a sale is completed. Yahoo shares rose 30 cents after the bell.

Discover Financial (DFS) reported earnings of $1.35 and beat estimates for $1.29. The company said charge card volume rose +4%. Shares rose +3% in afterhours.

Intuitive Surgical (ISRG) reported earnings of $3.54 compared to estimates for $3.43. Shares rose +2% in afterhours.

Shares of VMWare (VMW) rose nearly 6% after reporting earnings of 86 cents compared to estimates for 84 cents. Revenue of $1.59 billion beat estimates for $1.57 billion.

Myriad Genetics (MYGN) was crushed today after Medicare said it priced a hereditary breast cancer test at $622 compared to a similar test from Myriad at $2,180. InVitae (NVTA) had requested a price of $950 on the new test, which was already less than half the current rate. While Myriad's test is slightly more comprehensive and does not have the same Medicare code, the impact was to sentiment as Medicare tries to cut costs. MYGN fell -7% on the news and NVTA was unchanged.

Viacom (VIAB) shares fell -8% after the company warned viewers of Dish TV that Viacom channels including MTV, Nickelodeon and Comedy Central could be blacked out after today because of a contract dispute. This impacts 14 million subscribers. Viacom has been trying to renegotiate a contract with Dish at a lower price and Dish has refused. A blackout could cost Viacom 15% of its revenue. Viacom began running notices on its programming warning a blackout was possible. Dish replied back saying "We regret that Viacom has chosen to involve customers in a business negotiation when time remains to reach an agreement." Multiple cable TV operators have dropped Viacom over the last year. The Dish CEO, Charlie Ergen, is a former professional poker player, so I would say the odds favor a resolution in the favor of Dish.

Lexmark (LXK) announced after the close it had agreed to be acquired by a consortium led by Apex Technology, Legend Capital Management and PAG Asia Capital for $3.6 billion. The all cash deal for $40.50 per share. This was a 17% premium to the share price. The deal is expected to close in the second half of the year pending regulatory approval. While the three purchasers are in China, the company headquarters will remain in Lexington Kentucky.

Dow components American Express (AXP) and Coca Cola (KO) report earnings on Wednesday along with a bunch of tech stocks plus US Bank, United Continental and Yum Brands.


The rally that refuses to die continues to climb the bricks in the wall of worry to progressively higher levels. From a technical point of view, this should not be happening. Resistance has proven to be almost invisible and weak economics and earnings are being ignored. This is the new high syndrome in full bloom. The closer we get to the prior highs the less the fundamentals matter. As Spock would say, "Jim, it is not logical." If you want logic, you should not look in the stock market.

The S&P rallied to close just over 2,100 and over the initial resistance band from Q4. The next hurdle will be the 2100-2115 range and then the upper band at 2116-2128. With the S&P only 29 points from a new closing high it would appear the fix is in. It would take a significant change in sentiment to send the market lower today. The big declines in Netflix, Illumina, the Google(s), Tesla, Amazon and Priceline today barely dented the Nasdaq for a -20 point loss. The Nasdaq 100 lost -32 but the Composite is the index in focus.

The Dow shook off a 10 point decline in IBM for -70 Dow points and still closed positive thanks to "less bad" earnings from Goldman Sachs and some help from JNJ and UNH. That is all the proof you need that the prior highs are going to be tested.

The Dow has almost touched the sky with its high at 18,103 today. The high close last May was 18,312 and it is very close. The pesky resistance from 18,110 to 18,165 has to be crossed first but in this rally that is almost a given.

Eventually fundamentals and economics will matter and that will probably happen when the new high is made. Traders typically lose interest once the high is made and they immediately begin making plans for the next leg down. We could be setting up for a very wide double top but we will deal with that formation once it appears.

There are still ten Dow components to report this week but none should have the impact of IBM and Goldman. Support is now 17,750 followed by 17,600.

The Nasdaq has traded over resistance at 4,900 for the last five days but it cannot seem to seal the deal with a move over 4,950. Once over that level the real resistance is 5100-5160 and then the historic high close at 5,218. The Nasdaq has been lagging the other indexes because of the impact from the biotech sector. The Biotech Index lost -2% today due to various headlines from the cancer conference currently in progress.

Nasdaq futures are -9 tonight as a result of the Intel earnings and there are some big names reporting over the next couple days that could also sour sentiment. I am not as convinced the Nasdaq will make a new high as I am the Dow will complete the task. Time will tell.

The Russell 2000 sprinted over downtrend resistance and the 200-day average and has not looked back. All the small cap, mid cap indexes are outperforming. If the Russell can move over resistance at 1,165 that could produce some additional bullish sentiment for the broader market.

By all rights, the market should be declining. S&P futures are down -4.50, Nasdaq -9.50 and Dow futures -38 as I type this. In theory, that should mean a negative open but we were down -14 on Monday morning and rebounded into a major short squeeze. That energy squeeze has one more day to run. Some energy stocks are up more than 10% over the last two days because shorts are being squeezed. If WTI rolls over after the expiration at Wednesday's close, that short squeeze will fade and we could be looking at a different market.

The euphoria over "less bad" earnings will eventually run its course as well but probably not until the Dow makes a new high. I would be very cautious over adding new longs at this point but I would not back up the truck on new shorts until the new highs are reached. The sell in May cycle is still several weeks away so pace yourself. There is no rush to add positions in either direction.

Enter passively, exit aggressively!

Jim Brown

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New Plays

Looking for Direction

by Jim Brown

Click here to email Jim Brown
Editor's Note

The futures are telling us sentiment may be changing. With the markets nearing new highs and resistance increasing, we need to focus. The problem is that we do not know which direction to focus our attention. The S&P only has about 30 points before a new high and the Dow about 200. The Nasdaq is not in consideration because it has been lagging.

Typically, a new high after a long period of consolidation means a pause to reflect. Investors are suddenly left without a target and the market becomes listless. Traders want an overhead target to shoot at. Once into blue sky territory they lose their sense of direction.

This is even more complicated this week because the economics are still lousy, earnings, even "less bad" results will still be down for four consecutive quarters and this will be the worst quarter since the financial crisis. So why are we in rally mode? What will keep us in rally mode once the new high target is hit?

With the S&P futures down -5, Nasdaq futures -9 and Dow futures -38 tonight, I am not going to add any new plays. We do not really know which direction will appear on Wednesday. We could gap down and rebound like we did on Monday or maybe the market is actually going to take some profits before the next surge higher. I see no reason to add plays when we do not have a reasonable sense of direction.


No New Bullish Plays


No New Bearish Plays

In Play Updates and Reviews

Big Caps at 3 Month Highs

by Jim Brown

Click here to email Jim Brown

Editors Note:

The big cap indexes minus the Nasdaq moved to three-month highs despite some high profile earnings disasters. IBM was a -75 point drag on the Dow and the index still added +50 points to close at 18,053. The S&P punched through the first band of resistance and closed just over 2,100. The next resistance band is from 2,095 to 2,116.

The Nasdaq was the laggard with a -20 point decline thanks to Netflix (-$15) and Illumina (-$41). After the bell Intel posted an earnings beat along with some weak guidance and moved down in afterhours. Yahoo also posted a beat and moved up slightly on anticipation of announcing the bidders for the core business.

We were stopped out of CellDex with the biotech sector losing -2% on various news headlines. We were gifted after the close when the S&P announced it was adding KKD to the S&P-600 on Friday. Shares spiked to nearly $17. Now we need to wish for a lower open for the market in order to get filled closer to our $16.50 target. Given the low volume in KKD at 335,000 shares we could see a giant spike over the next couple days.

This is a reminder that Trinity Industries has earnings on the 21st and we are going to hold over. If you would rather not take the risk, you should exit on Wednesday.

The S&P futures are down -2.50 in afterhours but that could easily reverse before morning.

Current Portfolio

Current Position Changes

KKD - Krispy Kreme

The long position remains unopened until KKD trades at $16.50.

ORBC - Orbcomm

The long position remains unopened until ORBC trades at $10.50.

LGF - Lions Gate Entertainment

The short position remains unopened until LGF trades at $19.65.

CLDX - Celldex

The long position was stopped out with a trade at $4.25.

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

CLDX - Celldex Therapeutics - Company Profile


CellDex crashed -9% on further news from the cancer conference. There was no specific news on CellDex but other biotechs were crushed from the headlines. We were stopped out at $4.25 on the decline.

Original Trade Description: April 5th.

Celldex Therapeutics is a biopharmaceutical company that develops, manufactures, and commercializes novel therapeutics for human health care in the United States.

That could be the opening sentence for almost any biotech company in the USA. They have multiple cancer drugs in trials and they have a drug for breast cancer in a registration trials after already passing through the gauntlet of multiple clinical trials.

Earnings are May 4th.

The stock was starting to recover from a long-term decline until a brain cancer drug failed a clinical trial and shares collapsed from $8 to $3. Now after a month of consolidation shares are starting to move higher again.

In biotech stocks with bad news, traders tend to over sell the news. The stock crashes to some ridiculous low and then languishes there for a while until all the existing owners get fed up due to the lack of a bounce and leave. New investors seeing a bargain and the opportunity to get in at a ridiculous low begin to accumulate the stock. I believe that is what we are seeing now.

This is really a play on the potential for a rebound in the biotech sector rather than some outstanding CLDX quality. I believe the stock is oversold and it has been rising for the last four days along with the biotech sector. If the sector continues to rise as I expect we should see CLDX rise as well as the penny stock investors begin to load up on an oversold opportunity.

Shares hit $4.65 today before fading with the market. I am recommending we buy a trade at $4.75 with a stop at $3.25. I will raise that stop rapidly if the trade begins to stall.

Position 4/6/16 with a CLDX trade at $4.75

Closed 4/19/16: Long CLDX shares @ $4.75, exit $4.25, -.50 loss.


Closed 4/19/16: Long May $5 call @ 50 cents, exit .25, -.25 loss.

DPLO - Diplomat Pharmacy - Company Profile


No specific news. Coverage was initiated by Avondale at outperform. The company announced an investor day for May 18th.

Original Trade Description: April 15th.

Diplomat Pharmacy operated as an independent specialty pharmacy in the USA. The company stocks, dispenses and distributes prescriptions for various biotechnology and specialty pharmaceutical manufacturers. A specialty pharmacy does more than just dispense pills. The provide other services for the patients like infusion, patient financial assistance, risk evaluation and medication strategies. Many of their patients are on complex programs with multiple high dollar drugs. The company has 16 locations and was founded in 1975.

DPLO had a rough six months. The Valeant problem with specialty pharmacy Philidor put a cloud over the entire sector. After DPLO reported robust earnings back in March, JP Morgan downgraded them saying they could decline 15%. The company guided below expectations but remained bullish. The analyst said he could not bridge the gap between the guidance and management bullishness. Shares dropped from $36 to $26 on the downgrade.

Fortunately, that was the bottom and shares have been moving up steadily. They accelerated last week after the company announced the availability of a new Lilly drug for Plaque Psoriasis. This confidence in DPLO by Lilly seemed to encourage investors.

Earnings are May 9th.

Shares are just over $30 with resistance at $35. With the potential for a market meltdown on Monday if the OPEC meeting in Doha does not go well, I am putting an entry trigger on the position.

Position 4/18/16 with a DPLO trade at $30.35

Long DPLO shares @$30.35, initial stop loss $28.75

No options because of wide spreads.

HALO - Halozyme Therapeutics - Company Profile


Minor decline when other biotechs were plunging. On Monday HALO presented preclinical data at AACR on two new compounds for combating tumors.

Original Trade Description: April 13th.

HALO is a biotechnology company that researches, develops and commercializes human enzymes. Its human enzymes are used to facilitate the delivery of injected drugs and fluids, enhancing the efficacy and the convenience of other drugs or can be used to alter tissue structures for clinical benefit. The company is also developing PEGylated recombinant human hyaluronidase (PEGPH20) for the treatment of metastatic pancreatic cancer, non-small cell lung cancer, gastric cancer, metastatic breast cancer, and other cancers in combination with various cancer therapies.

This is an easy play. The company is presenting data from multiple trials at the American Association of Cancer Research meeting that will take place April 17-20th. They will release five different abstracts detailing drug interactions at this conference. At the same time they will host an investor/analyst meeting on April 18th at 4:PM.

They reported earnings of 3 cents compares to expectations for a loss of 11 cents. Revenue was $52.2 million.

HALO has partnerships with Roche, Baxalta, Pfizer, Janssen, AbbVie and Lilly. This is not a pipsqueak company.

HALO broke over recent resistance at $11.25 on Wednesday and could run if the data presented is positive. I am recommending we take a long position with a tight stop at $10.50.

Position 4/14/16

Long HALO shares @ $11.99 initial stop loss $10.50.

No options recommended.

KKD - Krispy Kreme - Company Profile


Minor decline to $16.24. The position remains unopened until shares trade at $16.50.

After the close, the S&P announced KKD will join the S&P SmallCap 600 index at the close on Friday. Shares spiked to $16.90 in afterhours. Cancel the exit target at $18 until we see how this news impacts the stock.

Original Trade Description: April 18th.

Krispy Kreme operates as a branded retailer and wholesaler of doughnuts, coffee, treats and packaged sweets. Who would have thought that Krispy Kreme Donuts would be impacted by falling oil prices and currency translation issues? They are a donut store headquartered in the USA. Unfortunately, not all their stores are in the U.S. KKD only has 297 stores in 41 states but they have more than 825 stores in 25 other countries.

There are 105 stores in Saudi Arabia, 136 in Mexico, 19 in the UAE, 14 in Kuwait and 12 in Russia. All of those countries have been impacted by the drop in oil prices and spike in the dollar.

In the last quarter sales at locations outside the U.S. fell -7.1% and expectations are for a continued decline in sales. The strong dollar caused revenue to decline -3.4% to $7.4 million in last quarter.

In late March they warned earnings would be in the range of 87-91 cents and analysts were expecting 93 cents. Shares fell -10% on the news. However, within four days the stock had rebounded to more than the level before the warning and have continued higher. Monday's close was an 8-month high.

They are running promotions to boost sales in the U.S. and they appear to be succeeding. On April 1st they gave away a free donut to anyone walking in their door, no purchase necessary. The stores were packed.

KKD only has $11 million in debt and $51 million in cash. They bought back 2.8 million shares in 2015. They have an authorized buyback for up to $144 million in shares for 2016.

Earnings are June 21st.

I am recommending we buy KKD shares with a trade at $16.50, just over today's high using a tight stop loss.

With KKD trade at $16.50

Buy KKD shares, initial stop loss $15.65

Optional: Buy May $17 call, currently .25, no stop loss.

ORBC - Orbcomm Inc - Company Profile


No specific news. ORBC continues to move sideways but with every consolidation in the past the end result was a strong spike.

The position remains unopened until ORBC trades at $10.50.

Original Trade Description: April 5th.

Orbcomm provides machine-to-machine (M2M) and internet of things (IoT) solutions in the U.S., South America, Japan, Europe and internationally. Customers are able to track and manage fixed and mobile assets. They also provide satellite automatic identification service (AIS) for vessel navigation. Orbcomm has its own constellation of 41 low earth orbit satellites. Communication can also be handled through terrestrial based cellular network services.

Basically, Orbcomm can track anything and communicate with anything that is Internet, Cellular or GPS enabled. Companies use Orbcomm devices to track refrigerated trucks and trailers while monitoring temperatures of those vehicles. Orbcomm can track and monitor engine performance, locations, operating time, etc on over the road trucks, earth moving equipment, trailers on trains, containers on ships, etc.

Orbcomm added 239,000 connected devices in Q4 alone. Total installed and billable communicators rose from 976,000 at the end of 2014 to 1,569,000 at the end of 2015. On December 21st Orbcomm successfully launched 11 second generation OG2 satellites from Cape Canaveral and after testing all satellites went live on March 1st.

Large fleet customers are signing up for the Orbcomm service faster than the devices can be installed. Growth is accelerating faster than the 61% increase in 2015. Current high profile customers include Caterpillar, Hitachi Construction, John Deere, Komatsu, Volvo, C&S Wholesale, Canadian National Railway, Hub Group, KLM Transport, Marten Transport, Swift Transportation, Target, Tropicana, Tyson Foods, Walmart, Union Pacific Railroad, Werner Enterprises and hundreds more.

Earnings last quarter were only a penny because of the high cost of satellite launches. They also acquired three companies, Skywave, InSync and WAM Technologies.

Earnings are May 5th.

Shares of ORBC have been erratic over the last four months. As they announce successful satellite launches, new Fortune 100 customers, etc the stock spikes and then goes dormant for a week or two until the next announcement. Most traders have never heard of the company so every press release introduces ORBC to a new segment of investors. I know the stock looks over extended but I believe they are in a growth phase that will continue.

I am recommending we buy ORBC on a breakout over $10.50 with a stop loss at $8.75. One analyst last week was talking about $25 now that the satellite expansion phase was complete and the M2M and IoT applications were becoming a reality.

With ORBC trade at $10.50

Buy ORBC shares, initial stop loss $8.75

No options because of wide spreads.

TRN - Trinity Industries - Company Profile


No specific news. Earnings are Thursday. We will not be exiting before earnings. We have a July call option so plenty of time.

Original Trade Description: March 18th

Trinity Industries manufacturers rail cars, highway guard rails and steel beams for infrastructure projects, structural towers for wind turbines and electrical distribution grids, oil and chemical storage tanks, barges to transport grain, coal, aggregates, tank barges to transport oil, chemicals and petroleum products. The company was founded in 1933.

Shares crashed in mid February after they reported earnings that beat the street but guidance that disappointed. Earnings of $1.30 easily beat estimates for $1.07 but revenue of $1.55 billion missed estimates for $1.61 billion. They had full year earnings of $5.08 per share.

They guided for 2016 to earnings of $2.00 to $2.40 per share. The challenge is the slowdown in orders for railroad tank cars and barges to transport oil. With oil prices crashing the producers and refiners are cutting back on capex spending until prices recover. Trinity said revenue in 2016 could decline -32%. Shares declined -35% over two days on the news.

The key here is that Trinity is now trading at a PE of 3. Yes 3.74 to be exact. With earnings in the middle of their range at $2.20 and a PE of 10 that would equate to a $22 stock price.

Here is the good news. The company has $2.12 billion in cash and undrawn credit. They are not in financial trouble. They authorized a $250 million share buyback starting January 1st. They have an order backlog of $5.4 billion in orders for 48,885 railcars. They received orders for 2,455 cars in Q4 and their backlog stretches out to 2020. The barge division received orders for $190.1 million in Q4 and had a backlog of $416 million as of December 31st. The structural tower segment has $371.3 million in order backlogs.

They recognize that tankcar and barge orders are going to remain slow until oil prices recover, which should happen later this year.

This stock was extremely oversold but began recovering in early March. Trinity produces a lot of railcars for carrying all types of products other than oil. That demand is not going to disappear and they already have order backlogs stretching into 2020.

At their current valuation they could also be an acquisition candidate. This is a great business that has been overly punished by the oil crash.

Earnings April 21st.

Position 3/21/16:

Long July $20 call @ $1.50, no stop loss.

Previously Closed 4/5/16: Long TRN shares @ $19.15, exit $17.50, -1.65 loss.

WIN - Windstream Holdings - Company Profile


No specific news. New 10-month high.

Original Trade Description: March 11th

Windstream provided network communications and technology solutions for consumers, businesses and enterprise organizations. They provide high-speed internet access, hosted web services and cable TV to a combined total of 1.6 million residential and business customers. They have more than 125,000 miles of high-speed fiber optic cable with speeds up to 500 gbps along their main corridors. They have 11 major data centers providing web hosting, cloud services, etc.

In the Q4 earnings, WIN reported adjusted earnings of $1.41 that crushed estimates for a loss of 48 cents. Revenue of $1.427 billion missed estimates slightly for $1.433 billion. The major earnings beat came from a spinoff of some of its telecom assets into a REIT. The cash received from the spinoff will allow some major network improvements in the months ahead.

The company declared a 15-cent quarterly dividend payable April 15th to holders on March 31st. That equates to a 7.3% annual yield.

WIN shares have been moving higher since they reported earnings on February 25th. Shares are at resistance at $8.25 and could breakout this week. The next resistance would be $11.85.

While we are not playing the stock for a takeover there is always the chance that somebody like Verizon or even Google could decide the $750 million market cap was chump change for 125,000 miles of high-speed fiber, cable TV and data center business.

I am going way out on the option to August because it is cheap and it will make a good lottery play even if we close the stock position early.

Position 3/11/16

Long August $9.00 call @ .38 cents.(Adjusted) NO STOP LOSS

Previously closed 3/29/16: Long WIN shares @ $8.22, exit $7.10, -1.12 loss.

BEARISH Play Updates

LGF - Lions Gate Entertainment - Company Profile


LGF dipped to within 5 cents of our entry target. No specific news.

This position remains unopened until LGF trades at $19.65.

Original Trade Description: April 12th.

Lions Gate Entertainment engages in motion picture production and distribution, television programming and syndication, home entertainment, digital distribution and sales activities. They produced the series Twilight, Hunger Games and Divergent along with dozens of other films.

Shares have been falling since the Hunger Games and Divergent movies have run their course. The last Divergent movie, "Allegiant" only produced $137 million in worldwide ticket sales and was considered a disappointment.

The company has other films in progress but none are expected to be the box office draws like the ones mentioned above. There was a report last week that Lions Gate may be looking to partner with another studio and may be looking at buying a minority interest in Paramount. That would be a good deal for Lions Gate since Paramount owns Transformers, Mission Impossible and Star Trek. However at the 25-35% stake being discussed that would be roughly $2 billion and a big bite for Lions Gate at a time when future cash flows may be shrinking.

Lions Gate has not been one to shy away from acquisitions. They have done several in the past and that is how they got the Hunger Games and Twilight franchises when they purchased Summit Entertainment. They even tried to buy MGM in 2010 but failed.

Knowing that Lions Gate is on the prowl for an acquisition and has no major movies in the pipeline has put the stock into a slide.

Earnings are May 10th.

I am recommending we short LGF with a trade at $19.65 and look for them to set a new low on any acquisition announcement. Normally the acquirer shares go down. Even if they do not make an acquisition we know they are looking so investors are getting out of the way now.

With a LGF trade at $19.65

Short LGF shares, initial stop loss $20.65


Buy May $19 put, currently 80 cents, stop loss $20.65.

XLF - Financial ETF - ETF Profile


Excellent gain thanks to Goldman Sachs. Let's hope this continues.

Original Trade Description: April 11th.

The XLF is commonly referred to as the banking ETF. However, it is actually a Financial Sector ETF. Banks account for 33% of the holdings with WFC, JPM, BAC, C, USB and GS six of the top ten holdings. Insurance, brokers, diversified financial services and REITs make up the rest of the ETF.

We are playing it to capitalize on the movements in those six top banks as they report earnings. The ETF normally moves slowly and I would not recommend it as a stock holding ahead of those earnings simply because we do not know which way it will move.

I am recommending a short-term option strategy called a strangle using very inexpensive options. We only care about catching the post earnings move in what could be a rocky quarter. Since estimates are already very low there is the potential for an upside surprise and that could cause some short squeezes with the banks.

I looked at playing the weekly puts but the premiums were in some cases higher than the May premiums so we will buy the time even though we will not use it.

Position 4/12/16

Long May $23 call, @ 19 cents, no stop loss.
Long May $22 put @ 47 cents, no stop loss.
Net debit 66 cents.

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