Option Investor

Daily Newsletter, Saturday, 10/1/2016

Table of Contents

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

Market Wrap

The Stage is Set

by Jim Brown

Click here to email Jim Brown

The market appears to be setting up for an October rally but the timing is still unclear.

Weekly Statistics

Friday Statistics

The markets shrugged off negative news on Friday and celebrated a potential settlement deal between the Justice Department and Deutsche Bank. A news report just before the bell turned the S&P futures from seriously negative at -13 to a gap higher for the markets at the open.

With a pattern of higher lows, the markets may be getting ready to retest the highs but first we have to get through the first two weeks of October, which are famous for seeing many second half lows.

There were only two economic reports on Friday. The Personal Income and Spending for August showed incomes rose +0.2% and in line with consensus estimates. This compares to a +0.4% rise in July. Consumer spending was flat compared to +0.2% estimates and +0.4% in July. Auto sales were weak as were non-durable goods. The PCE Price Index rose only +0.1% compared to estimates for zero and the core index rose +0.2%. The headline inflation over the trailing 12 months rose to 1.0% with core inflation at +1.7% and inching closer to the Fed's 2.0% goal.

The final revision of Consumer Sentiment for September rose from 89.8 to 91.2 and the surge in the last third of the month suggests we could have a strong number in October in the 92 to 93 range. The expectations component rose 4 points to 82.7 but the current conditions component fell nearly -3 points to 104.2. Since gasoline prices are unusually low, the decline in the current conditions component is likely related to the political battle now in progress. Sentiment typically weakens late in the presidential cycle because the candidates are telling consumers how bad conditions are and what they will do to fix them.

The Fed heads are going to be out in force again next week with 9 speeches. With analysts already resigned to a rate hike in December, this will be another chance for the Fed to solidify those expectations.

This is payroll week with the ADP Employment on Wednesday with expectations for +170,000 new jobs. The Nonfarm Payrolls on Friday are expected to show a gain of +168,000 jobs. Neither number is exciting and both are right in the Goldilocks zone of not too hot and not too cold. Actual numbers in those ranges should have no impact on the future Fed decision.

The ISM Manufacturing Index on Monday could be a bright spot. The index is expected to rebound out of contraction territory at 49.4 to minimally expansive at 50.2. If the ISM were to surprise to the upside that would be market positive.

The vice presidential debate on Tuesday is not expected to generate any fireworks and should be market neutral. The population votes for the president not necessarily the vice president so the viewership will be considerably lower.

The S&P futures were down -13 points at 3:AM Friday morning. Deutsche Bank (DB) was setting new historical lows under $10 in the European market and all the commentary was negative. Just before the open, a rumor broke that DB was near a settlement with the Dept of Justice for $5.4 billion after a headline number of $14 billion was floated last week. Immediately shares began to rebound and the S&P futures exploded higher causing the market to gap higher on short covering.

The news report from AFP may not even be credible but it prevented a very ugly Friday in the U.S. markets. Reportedly, according to German law if a rumor appears in the market and the numbers are close to reality then the company has to issue a press release confirming the actual number. However, if the numbers are wildly wrong, the company does not have to do anything. DB did not issue a press release so the AFP article may be significantly in error. The report said a deal may not be reached for several days.

The big concern in the U.S. is that DB could turn into a Lehman moment for Europe. Numerous analysts have debunked that theory. The circumstances are very different. DB has deposits of 566 billion euros and 223 billion euros in liquidity. Their debt is high at 135 billion euros but they are not in danger of an imminent collapse. Secondly, despite claims to the contrary, Germany is not going to let its biggest bank fail. They would step in and orchestrate some kind of solution. DB continues to say it does not need to raise capital in a secondary offering so an immediate stock sale appears to be off the table.

Shares of DB rallied +14% in the U.S. and that does not take into account the sharp decline overnight in the European markets. This was a major short squeeze in DB shares.

There was very little stock news since most companies are moving into their quiet periods before the Q3 earnings cycle begins.

McCormick (MKC) reported earnings of $1.03 that beat estimates for 95 cents and posted a 21% rise thanks to acquisitions. Revenue of $1.09 billion was in line with street estimates. Revenue rose 6% on a constant currency basis. The company guided for full year earnings of $3.75-$3.79 per share, up from previous guidance of $3.68-$3.75. That is an 8% increase over the $3.48 in 2015. Analysts were expecting $3.75.

After the bell on Thursday Costco (COST) reported earnings of $1.77 that beat estimates for $1.73. Revenue of $36.56 billion was in line with estimates. The company said profits rose because they were paying lower fees to Visa than previously paid to American Express. Also, shoppers spent more on appliances, electronics and hardware. The company said grocery margins were under pressure from the constant deflation in food prices. There is a price war between the big chain stores and the smaller chains as each battle for market share by cutting prices. This led to a -1.0% decline in same store sales. If you exclude the impact of fuel and currency fluctuations, same store sales rose +2.0%. Shares spiked +3.4% on Friday to $152.51 after trading to nearly $155 at the open.

Alcoa (AA) said the board of directors approved the company's planned split in to two companies. One company will remain Alcoa and be the traditional aluminum business and the other, called Arconic (ARNC), will operate the high performance jet and auto parts business. The split will be effective November 1st.

In addition to the split into two companies, Alcoa is also planning on doing a 1:3 reverse stock split to raise the stock price before splitting the company. There is a shareholder meeting on Wednesday to approve the reverse split. With the shares currently at $10.14 that would make the stock price just over $30 when the company split occurs. I do not know if the company split will be even with each company having a $15 stock price or whether there will be a ratio where one might have a $20 price and the $10. Arconic will be the new parent company and will retain 85% of the company's $9 billion in debt. The new Alcoa will be spun off and existing shareholders will have 80.1% of the shares. Arconic will retain 19.9% after the spilt but plans to sell that stake eventually.

Paul Singer's activist fund Elliott Associates doubled their stake in Mentor Graphics (MENT) from 4% to 8.1% saying the company was significantly undervalued. The fund said it had "initiated a dialog with the management and board of directors regarding strategic opportunities." Shares spiked 7% on the news.

Salesforce.com (CRM) called for help in fighting Microsoft's acquisition of Linkedin (LNKD). Salesforce urged the EU to take a close look at Microsoft's acquisition plans. Salesforce plans to warn the EU that the acquisition threatens the future of innovation and competition. "By gaining ownership of Linkedin's unique dataset of more than 450 million professionals in more than 200 countries, Microsoft will be able to deny competitors access to that data and in doing so obtain an unfair advantage."

Salesforce also said insights gained from that professional data could give Microsoft a vast advantage over rivals. The EU is concerned Microsoft could apply artificial intelligence to the information to analyze business trends and company intentions that could aid sales of its other products. The deal has already been approved in the U.S. but it has not yet been presented to the EU for approval. An aggressive objection by Salesforce could add months to the approval process and possibly put some conditions on the deal approval.

Printer manufacturer Lexmark (LEX) spiked 14% after a consortium of buyers led by Apex Technology and PAG Asia Capital moved a step closer to acquiring the company. The Committee on Foreign Investment in the United States (CFIUS) approved the transaction. The consortium agreed to buy LXK for $40.50 per share. The transaction is expected to close in 2016.

Crude prices rose slightly on Friday but remain under resistance at $48.50. The OPEC agreement to "consider" a production cut at the regularly scheduled November 30th OPEC meeting is nothing but headline spam designed to lift prices in the normally weak Sept/Oct period.

In theory, the OPEC countries want to cut production back from the current 33.24 million bpd to 32.5 mbpd in order to "accelerate the ongoing drawdown of the stock overhang and bring rebalancing forward." The OPEC ministers said a committee of representatives from member countries would calculate recommended production levels for OPEC countries and consult with non-OPEC countries, namely Russia, and suggest production levels that would help stabilize inventories.

OK, so the OPEC member countries will show up at the November meeting and found out that their peers have suggested a 10% production cut is recommended and that will cut your cash flow by billions of dollars. Are countries just going to say "ok" and head for the bar? In my opinion, it is not going to happen. Meanwhile, for the next 60 days the price of oil will be artificially high thanks to the recurring headlines.

They have already suggested that Iraq, Iran, Nigeria and Libya can continue growing production until they reach "reasonable" levels. Just returning to pre civil war levels would add another two million barrels of production above and beyond the stated 32.5 mbpd goal. This is a production cut in name only and should not have any impact on reducing supplies.

Hurricane Matthew has been downgraded from a category 5 to a category 4 storm as it approaches Cuba and the first one of that magnitude in the Atlantic since 2007. Currently, sustained winds are 150 mph. It is expected to cross over Cuba on Monday evening and hit the Bahamas on Wednesday. The current path projections suggest it will only brush Florida and will not be a problem for the oil platforms in the Gulf of Mexico. However, it may be a huge problem for the East Coast.

If oil prices are going back to $50 on these headlines, the rebound in active rigs will accelerate. Last week 11 rigs were reactivated but there are still more than 1,400 sitting in storage lots rusting. There are 522 active rigs today and there were 1,931 at the peak in 2014. Some analysts claim there are as many as 4,500 drilled but uncompleted wells in the USA. Those can be brought online very quickly. If OPEC succeeds in lifting oil prices over $50 the U.S. production declines can be reversed in less than a year. Currently U.S. production is -1.113 million bpd below the 2014 peak. We could easily resurrect that in 12-18 months and even add to it. If OPEC suddenly got serious about cutting production and hiking prices, it would generate a drilling revival in the U.S. that would put 500,000 people back to work and erase their production cuts in a very short period of time.




The S&P futures declined -13 points to 2,135 at 3:AM on Friday. The Deutsche Bank rumor resurrected those futures and they rebounded to near 2,170 before the close. That is almost a 35-point move in a 12-hour period. Traders were heavily short going into Thursday's close in anticipation of more bad news for Deutsche Bank. The 2,140 level was support and it was punctured only briefly and we escaped a major market selloff.

Last week was the sixth week of the six most volatile weeks of the year. However, the volatility was relatively light and the indexes never pulled very far away from their prior highs. It was a tame six weeks.

Just because that historical period is behind us it does not mean we are out of the volatility woods. The markets normally set the lows for the second half in the first two weeks of October. The keyword there is normally. This has not been a normal year in any way.

While I believe the markets will be higher at the end of October, we do have a very hostile election process underway. That will continue to supply uncertainty for at least the next 8 weeks. Yes, that is two weeks past the election because the markets will adjust for whichever candidate eventually wins.

I would not be surprised to see some post quarter end portfolio restructuring next week. With quarter end window dressing over portfolio managers are now free to dump any stocks they held on Friday and add new positions before their fiscal year ends on October 31st.

If I had my wish, I would love to see a repeat of last October. The S&P added nearly 245 points (+13%) from the September 29th low at 1,871 to the Nov 3rd high at 2,116. That November 3rd high lasted until June 8th without being broken. Do I expect that to happen again? Definitely not. It could but we could also continue to move sideways until after the election.

On the positive side, Q4 earnings estimates are rising, currently +5.6% compared to a -2.1% decline for Q3. The third quarter will be the sixth consecutive quarterly decline in earnings. However, if analysts are to be believed, 2017 will be a banner year with earnings growth of 13% and revenue growth of 6.1%. If portfolio managers are going to buy stocks, they should do it going into an earnings recovery.

The S&P is currently moving higher at a pace resembling a drunken sailor with two steps forward and one step back. The alternating gains and losses is making it very hard to attack overhead resistance with any conviction. Investors are gun shy after weeks with no direction. Support remains 2,150 and 2,120 and resistance 2,175 and 2,185. The current intraday high is 2,193, which has been touched more than once.

The Dow has changed character completely over the last three weeks. We went from a very narrow range trade to a very broad range from 18,000 to 18,400. The last six days have all seen triple digit moves. In fact, since September 8th there has only been two days that did not see triple digit moves and one of those days was close at 98 points.

High intraday volatility is a symptom of market tops and bottoms. Since we are only 1.5% from the recent high, it would be hard to characterize this as a bottom. However, the majority of the moves have been headline related rather than market related. Deutsche Bank, the Fed, the Bank of Japan, etc have all produced triple digit moves.

The dip to 18,000 three weeks ago was a major move. The intraday ranges were huge. Those ranges have now shrunk and the intraday lows are moving progressively higher. I prefer to look at this period of volatility as a bottoming process for the early September decline.

We are approaching the earnings cycle again and we should see some pre-earnings anticipation begin to build in the Dow stocks. I went through the charts on the Dow 30 and only 7 stocks are showing any bullish trends. If the others are going to start rising ahead of earnings they will begin reversing higher soon.

With only 30 stocks in the index, disasters like Nike and Apple can and do impact the index movement. Hopefully there are not any earnings warnings in the near future from other Dow stocks.

With the pattern of higher lows, the Dow could be preparing to retest the overhead resistance at 18,600 but we still have to get through the next two weeks, which are typically rocky.

The Nasdaq Composite Index gained 43 points on Friday to close at 5,312 and only 27 point below the 5,339 new high from the prior week. Semiconductors and biotechs helped power the move but both sectors have been volatile for the last couple weeks so future gains are always in doubt.

The big cap techs helped lead the charge higher but late in the week the small cap techs also provided an assist. The Nasdaq is the most bullish index and a breakout to a new high at this point on the calendar would be bullish for the rest of the market.

Support formed at 5,250 and has not been tested in three days. The higher low pattern is bullish, especially this close to a new high.

The Russell 2000 small caps have been lagging the Nasdaq. Support at 1,240 is holding but resistance at 1,255 has been rock solid the last three days with the intraday highs at 1,255.58 to 1,255.94. There were no spike through and fall back days. That resistance level was rock solid. That could change in a heartbeat with a gap open market on Monday but any decline from here only reinforces it. The S&P-600 small cap index has an identical problem at 758. The buying in the small caps is without conviction. When resistance appears, the buyers fade away.

Monday is the start of Rosh Hashanah and the first day of the year 5777 on the Jewish calendar. For a long time, there has been a saying in the market, "Sell Rosh Hashanah, buy Yom Kippur." This year Yom Kippur is on October 12th. The idea is that many traders and investors are busy with the religious observance and family events. Positions are closed and volume fades, creating a low volume market with no buyers. According to the analysts at Bespoke Investments, that strategy has worked in 10 of the last 16 years. The average decline has been about 1.6%.

Rather than be worried about whether the market is going to go down over the next two weeks I would rather be planning what I am going to buy if it does take another dip. Since 1990, the fourth quarter has averaged a 4.54% gain and the stronger stocks have done much better. We are at that point on the calendar where buying the dip is even more important than ever.

We exited the sixth week of the six most volatile weeks of the year with a gain and while the gains and losses alternated, the volatility was not that bad.

We are approaching the point where the market "should" rally into Q4. Pick a few stocks on your shopping list and decide where you would like to buy them on a dip. If one appears, it may be brief.

If you like the market commentary you have been receiving and you are on a free trial then now is the time to subscribe. Do not wait until you miss a newsletter to decide you want to take the plunge.

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Random Thoughts

The Nasdaq is setting new highs and the S&P is only 1% below a record high but the number of bullish investors continues to decline. The alternating days of gains and losses is confusing. The lack of direction is keeping investors neutral or even bearish on the market.

Multiple companies warned of a new type of cyber attack launched last week. Millions of DVRs, security cameras and other internet connected devices were hacked and turned into drones to launch the largest denial of service attack ever. The attackers used more than one million Chinese made security cameras, DVRs and other devices to generate webpage requests and data requests that knocked their targets offline.

The head of security at Level 3 Communications said this might be just the tip of the iceberg. Everything from smart thermostats to internet connected TVs are designed to be controlled over the Internet. Very few of them ever have their software updated. Once installed and running they are forgotten unlike a PC that can warn you of threats and update the operating system automatically. PCs have firewalls and virus protection programs. DVRs, cameras, TVs, refrigerators and smart thermostats do not have protection. Once hackers learn how to hack into one device model, there are millions of identical models already in service that can immediately be used.

Akamai Technologies (AKAM) said even Wi-Fi routers are a growing source of concern because their software is never updated. Dahua, a manufacturer of smart electronics has 71 technology partners that put their names on Dahua products. It is the same OS whether it is called Canon, Sony, Magnavox or any other name. Once the hack is perfected on one device, the others are immediately vulnerable.

Akamai said malicious traffic on its network on September 20th reached 700 Gigabits a second. That is the equivalent of streaming 140,000 high definition movies at once. That was twice the size of the previous big U.S. attack. Arbor Networks is a security firm that handled some Olympic websites said home set top boxes and home routers were pounding those sites with more than 540 Gigabits a second of webpage requests.

This is going to force another round of security upgrades and enforcement. New devices will have to have an automatic firewall system and be continually refreshed by the manufacturer. This adds another level of complexity that manufacturers are not prepared to implement. Source WSJ

Nobody should ever complain they cannot make money. The United States is a breeding ground of entrepreneurs. You do not have to start the next Facebook or Google. You just have to think of something that fills a need. It does not have to be fancy. It just has to fill a need.

Everybody has probably heard of Amazon's KickStarter program. Aspiring entrepreneurs launch a KickStarter page to explain their new product. If people like the idea, they will contribute money so you can make your product and bring it to market.

A reader sent me this link. The device is called a Fidget Cube. Their goal was to raise $15,000. As of Saturday, more than 130,000 people had contributed $5,391,245. Apparently, the device is a huge hit. If people will invest more than $5 million on this toy, there is no limit to how much anybody can raise if they get off the couch, engage their brain and make something happen.

Fidget Cube Link

Ford unveiled the Ford GT in 2015 at the Detroit Auto Show. The car has a 3.5 liter twin-turbo V6 that produces 650 horsepower and a reported top speed of 205 mph. Last week three of the GT cars were clocked at 101 mph in a 50 mph zone on I-70 in Glenwood Canyon in Colorado. The officer that clocked them on radar knew he could not catch them so he radioed ahead and multiple officers pulled them over 35 miles later. The cars were outfitted with a significant amount of high altitude testing equipment and the drivers explained they were testing the cars for Ford. The officers were not impressed and wrote each driver a ticket. You cannot outrun a radio.

I mentioned this a couple weeks ago and received several emails from readers in disbelief. At the Fed's Jackson Hole conference a speaker mentioned buying stocks in addition to treasuries as a way to support the market in times of stress. Yes, we are rapidly becoming Japan.

Last week Janet Yellen mentioned the Fed could support the market if it ran out of treasuries to purchase by adding stocks to their asset purchase list. The idea has taken root at the Fed and that should scare everyone.

Quick, pass me the Kool Aid!

Larry Edelson, Money and Markets editor said, "The Dow Jones Industrial will lead the way higher and catapult to 31,000 over the next two years."

Ron Baron, CEO of Baron Capital agreed, "The Dow is going to 30,000."

Jeffrey Hirsch, editor of the Stock Trader's Almanac said, "The Dow Jones Industrial Average will surge to 38,820 in a 'super boom' beginning in 2017."

Paul Mampilly's hedge fund was named by Barrons as "One of the World's Best." Today he says, "Stocks are on the cusp of an historic surge. They could easily hit 50,000. It will be a bull market run that will dwarf the tech boom of the '90s. I’ve never been more certain of anything in my career."


Enter passively and exit aggressively!

Jim Brown

Send Jim an email


"It is far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

Warren Buffett


New Plays

Rising Star

by Jim Brown

Click here to email Jim Brown
Editor's Note

This security company has rapidly rising sales and just broke over resistance. Alarm.com beat on earnings and guidance but because of their strong gains the stock suffered through an ugly period of post earnings depression.


ALRM - Alarm.com - Company Profile

Alarm.com Holdings, Inc. provides cloud-based software platform solutions for the connected homes in the United States and internationally. It offers multi-tenant software-as-a-service platform that allows home and business owners to intelligently secure and manage their properties, as well as remotely interact with an array of connected devices through a single intuitive interface. The company provides interactive security solutions, which offer intelligent security and awareness services through a dedicated, cellular, and two-way connection to the home or business; and intelligent automation solutions that connects, integrates, and controls the devices in the home or business, such as security systems, garage doors, lights, door locks, thermostats, electrical appliances, environmental sensors, and other connected devices. It also offers video monitoring solutions, which provide live streaming, smart clip capture, high definition continuous recording, and instant video alerts through its mobile app or on the Web; and energy management solutions that offer enhanced energy monitoring and management services. It has approximately 2.6 million residential and business subscribers. Company description from FinViz.com.

For Q2, the company reported earnings of 15 cents compared to estimates for 11 cents. Revenue rose 24% to $64.4 million and beat estimates for $58.6 million. Software as a Service (SaaS) revenue rose 23% to $42 million. The company guided for the ful lyear for earnings of 49-51 cents and revenue of $242.3-$245.8 million. Analysts were expecting 48 cents on $241.7 million.

Earnings Nov 8th.

Despite the strong beat and strong guidance shares crashed from the historic high close of $33 before the earnings were released. Shares were up +135% since the February low at $14 and traders took profits. The only ratings change was from Raymond James from outperform to market perform based on value because of the strong gains. At the same time Imperial Capital raised their price target from $24.50 to $30. Since shares closed the day before at $30 that was an implied neutral rating.

Shares collapsed back to $28 and here there for three weeks then fell sharply on September 6th on no news to bottom at $25. That bottom was quickly bought and Friday's gain lifted the shares back over resistance at $28.50.

There is no bad press for Alarm.com. Earnings and revenue are growing, subscribers are growing and shares are back over resistance. If the market is going to rally in late October this should be a tech stock that outperforms.

With a ALRM trade at $29.05

Buy ALRM shares, initial stop loss $27.65

No options recommended because of price.


No New Bearish Plays

In Play Updates and Reviews

Here Today, Gone Tomorrow

by Jim Brown

Click here to email Jim Brown

Editors Note:

The pattern of alternating gains and losses has returned as we exit the six-week volatility period. Wednesday's gain was erased by Thursday's loss, which was erased by Friday's gain. This is no way to run a rally. On the positive side, higher support on the S&P-600 small cap index at 748 held and we are back to resistance at 758 and only 6 points away from a new high.

The market normally makes second half lows in the first two weeks of October so there may be some additional volatility in our future as portfolio managers make news moves now that Q3 has ended.

Current Portfolio

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.

Profit Targets

Check the graphic below for any profit stops in green. We need to always be prepared for a profit exit at resistance.

Lottery Ticket Plays

Current Position Changes

CREE - Cree Inc
The long stock position remains unopened until a trade at $26.00.

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BULLISH Play Updates

AAOI - Applied OptoElectric - Company Profile


No specific news. Excellent gain right to resistance. Company exhibiting new products at the SCTE/ISBE Cable-Tec Expo this week.

Original Trade Description: September 17th.

Applied Optoelectronics, Inc. designs, manufactures, and sells fiber-optic networking products primarily for Internet data center, cable television (CATV), and fiber-to-the-home (FTTH) networking end-markets. It offers optical modules, optical transceivers, lasers, transmitters, and turn-key equipment, as well as headend, node, and distribution equipment. The company sells its products to internet data center operators, CATV and telecommunications equipment manufacturers, and internet service providers through its direct and indirect sales channels worldwide. Company description from FinViz.com.

For Q2, the company reported adjusted earnings of 16 cents that beat estimates for 6 cents. Revenue of $55.3 million beat estimates for $50.8 million. For the current quarter the company guided to earnings of 16-21 cents and revenue of $56-$59 million.

AAOI is in the same optical sector as NPTN and is also experiencing rapid growth. However, the company's products are also used by cable TV providers. Amazon is AAOI's largest customer.

Last week AAOI won an order for 10,000 transceivers worth more than $5 million from a new company.

Zacks said the consensus earnings for AAOI have been rising rapidly as analysts upgrade their forecasts. Over the last month alone the consensus Q3 estimate has risen from 13 cents to 22 cents. Full year estimates have risen from 37 cents to 51 cents.

Earnings Nov 3rd.

Over the last three months, shares have rebounded from $9 to $21 as the earnings and outlook increased. Resistance is currently $22. With the super cycle getting a lot of headlines I believe the stock will break out.

I am putting an entry trigger on it just in case the recently volatile market gaps down.

Position 9/19/16:

Long AAOI shares @ $22.10, initial stop loss $19.25

BOX - Box Inc - Company Profile


No specific news. A breakout to a new 14-month high.

Original Trade Description: September 15th.

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.

In Q2, Box reported an adjusted loss of 14 cents that improved from the 28 cent loss in the comparison quarter. Analysts were expecting a loss of 19 cents. Revenue rose 30% and deferred revenue rose 40%. They had cash on hand of $173.33 million, up from $140 million in the comparison quarter.

The company added 4,000 new corporate customers including Electronic Arts (EA), Pfizer (PFE), AutoDesk (ADSK), Western Union (WU), Uber and the Federal Communications Commission (FCC) to bring their installed base to 66,000.

Box has adopted a neutral strategy. They joined with Microsoft in offering Office 365. They partnered with Alphabet to offer Google's suite of word processing, spreadsheets and other productivity tools known as Google Docs. Box will act as a third party content repository for Google Docs. That may seem odd since they also offer Office 365, which is a competing product suite but that is the key for Box. They are creating a common platform where customers can use the tools they like. One group of people in an office may like Office 365 and another group Google Docs.

Box also partnered with IBM to introduce Box Relay, which is a collaboration platform where outside users, fellow workers, etc, can be invited to participate in documents and worksheets and track changes, alert other users of changes and reduce bottlenecks in the workflow process. You no longer have to email a spreadsheet to other employees and then receive it back by email once they modify it, then add all the changes into the master document. Now it can all be done in the cloud in real time.

Box also partnered with Apple and Amazon in other collaboration projects.

By maintaining a neutral stance in the cloud, Box can take advantage of the current customers of other cloud customers. Everybody benefits because they are not competing but collaborating.

Box shares broke out of a long-term base this week and should be headed back to post IPO levels at $19 or higher now that their technology is receiving widespread acceptance.

Position 9/16/16:

Long BOX shares @ $14.74, see portfolio graphic for stop loss.

CREE - Cree Inc - Company Profile


No specific news. Williams Capital initiated coverage with a hold rating but shares gained 39 cents anyway. High today was $25.83.

This position remains unopened until a trade at $26.

Original Trade Description: September 28th.

Cree, Inc. provides lighting-class light emitting diode (LED), lighting, and semiconductor products for power and radio-frequency (RF) applications in the United States, China, Europe, South Korea, Japan, Malaysia, Taiwan, and internationally. Its Lighting Products segment offers LED lighting systems and bulbs for use in settings, such as office and retail space, restaurants and hospitality, schools and universities, manufacturing, healthcare, airports, municipal, residential, street lighting and parking structures, and other applications. This segment sells its products to distributors, retailers, and customers. The company's LED Products segment provides blue and green LED chip products for use in various applications, including video screens, gaming displays, function indicator lights and automotive backlights, headlamps, and directional indicators. It also offers XLamp LED components and LED modules for lighting applications; and surface mount and through-hole packaged LED products for video, signage, general illumination, transportation, gaming, and specialty lighting applications. In addition, this segment provides silicon carbide (SiC) materials for RF, power switching, gemstones, and other applications. Its Power and RF Products segment offers SiC-based power products consisting of Schottky diodes, SiC metal semiconductor field-effect transistors, and SiC power modules for use in power supplies used in computer servers, solar inverters, uninterruptible power supplies, industrial power supplies, and other applications. This segment also provides gallium nitride (GaN) high electron mobility transistors (HEMTs) and monolithic microwave integrated circuits (MMICs) for military, telecom, and other commercial applications; and custom die manufacturing services for GaN HEMTs and MMICs. Company description from FinViz.com.

Last week Cree introduced a new bulb portfolio of 25 new products. They offer better light quality, better dimming, better lifetime, better warranty and better pricing. LED lighting has finally gone mainstream.

Everybody hates to change light bulbs and the new product line has a life expectancy of 22 to 32 years. The light color has been improved and you can now dim them to as low as 1% output. The new bulbs are now guaranteed for a minimum of 10 years with a 100% satisfaction guarantee. The good news is that LED bulbs are only one of Cree's multiple product lines.

With the democratic political platform strongly green energy based and advocating products that reduce climate change, Cree should be at the top of the green list. The 60-watt replacement bulb offers the same 815 lumens of light but only consumes 9 watts of power. The downside is the cost at $12 for a 4-pack. The upside is a $135 savings in electricity over the 22.8-year life of the bulb.

Cree shares fell -4.50 to $23 when they missed earnings by a penny in August. They also lowered guidance on revenue for the current quarter. That is now behind them and shares are at a seven week high of $25.50. The last week of gains has been powered by multiple new product announcements and suggestions to buy before a Clinton presidency.

Earnings Oct 18th.

The earnings are only four weeks away so this will be a short term position to capitalize on all the "green" talk over the next several weeks.

With a CREE trade at $26.00

Buy CREE shares, currently $25.52, initial stop loss $24.50.

No options recommended because of the short time frame.

KS - KapStone Paper & Packaging - Company Profile


No specific news. Minor gain, holding at prior resistance. RBC Capital reiterated an outpeform rating and $23 price target.

Original Trade Description: September 21st.

KapStone Paper and Packaging Corporation manufactures and sells containerboards, corrugated products, and specialty paper products in the United States and internationally. The company operates in two segments, Paper and Packaging, and Distribution. The Paper and Packaging segment offers containerboards consisting of linerboard and corrugated medium to manufacture corrugated containers for packaging products; and corrugated products. It also offers specialty paper products, including kraft paper comprising multiwall paper used to produce bags for agricultural products, pet food, baking products, cement and chemicals, and grocery bags; specialty conversion products, such as wrapping paper products, dunnage bags, and roll wraps; and lightweight paper. In addition, this segment provides saturating kraft paper under the Durasorb trade name for use in construction, electronics manufacturing, and furniture manufacturing industries; and unbleached folding carton board under the Kraftpak trade name to integrated and independent converters in the folding carton industry. Company description from FinViz.com.

On Sept 7th Kapstone announced it was spending $25 million in Q4 to build a new state of the art sheet plant in Ontario, California. They are also investing as a minority partner in a sheet feeder plant in the same city. The facilities will be producing paper by January 2017. The investments will boost Kapstone's annual capacity by over 60,000 tons. They recently completed an acquisition of Central Florida Box, which added 20,000 to 25,000 tons per year.

Kapstone is the fifth largest U.S. producer of containerboard and corrugated packaging products and the largest producer of kraft paper. They have 4 paper mills, 22 corrugated converting facilities and 65 distribution centers.

They reported adjusted earnings of 27 cents that missed estimates for 30 cents. Revenue of $784.9 million missed estimates for $823.8 million. However, revenue rose 17%. The earnings miss was due to the integration costs from multiple acquisitions, and less favorable product mix and the timing of planned maintenance outages. The CEO said this was temporary now that they have achieved the goal of integrating the 115,000 tons of supply from the Victory acquisition into Kapstone's mill and plant system. The company said earnings would now rise over the next 12 months thanks to the higher capacity.

Earnings Oct 26th.

Shares dipped only slightly after the July 27th earnings and have risen steadily in the weeks that followed. On Monday Bank of America upgraded Kapstone from underperform to neutral saying containerboard market conditions are improving and there is limited downside risk for Kapstone. They highlighted the robust revenue growth both in the recent past but expected in coming quarters.

Shares closed at a 9-month high on Wednesday with a breakout over resistance at $18.50.

Position 9/22/16 with a KS trade at $19.35

Long KS shares @ $19.35, see portfolio graphic for stop loss.

BEARISH Play Updates

PPC - Pilgrims Pride - Company Profile


No specific news. Only a minor rebound.

Original Trade Description: September 26th.

Pilgrim's Pride Corporation engages in the production, processing, marketing, and distribution of fresh, frozen, and value-added chicken products to retailers, distributors, and foodservice operators in the United States, Mexico, and Puerto Rico. It offers fresh chicken products comprising pre-marinated or non-marinated refrigerated (non-frozen) whole chickens, whole cut-up chickens, and selected chicken parts. The company also provides prepared chicken products, including portion-controlled breast fillets, tenderloins and strips, delicatessen products, salads, formed nuggets and patties, and bone-in chicken parts. The company sells its products to foodservice market, including chain restaurants, food processors, broad-line distributors, and other institutions; and retail market customers comprising grocery store chains, wholesale clubs, and other retail distributors. In addition, it exports chicken products to the Middle East, Asia, the Commonwealth of Independent States, and other countries. Pilgrim's Pride Corporation was founded in 1946. Company description from FinViz.com.

The chicken business is becoming a lot more competitive. The consumer movement to free range chickens with no antibiotics and growth hormones is squeezing normal high volume breeders and reducing their market share. When your chickens have been previously grown in one square foot cages the change to free range brings a lot of problems and a decline in volumes. They are also faced with the growing occurrences of various bird flu breakouts.

PPC sells a lot of meat internationally and the prohibitions are growing against antibiotics and growth hormones. When an entire country becomes suddenly off limits because of new restrictions that can be costly.

In order to combat these problems the company spent large sums of money in research and development and now that debt has become a new burden in a shrinking marketplace. Earnings are also sensitive to price movement in the agricultural community with the cost of soybeans, corn and other feed grains continually rising. The fluctuating dollar is also a problem with their international sales.

Earnings Oct 26th.

Shares are about to trade at a 10-month low when they fall under $20.65. That could accelerate the selling as investors give up on the stock.

Position 9/27/16:

Short PPC shares @ $20.94, see portfolio graphic for stop loss.


Long Nov $20 put @ 70 cents, see portfolio graphic for stop loss.

SHLD - Sears Holdings - Company Profile


News broke that Sears had released a device similar to the Amazon Echo that allows people to ask questions or place orders with just a touch of the device. It is not as fully featured as the Echo but the news caused SHLD shares to spike from Thursday's low at $10.83 to $12.05 and stop us out. Shares immediately rolled over I am planning on putting this position back in the portfolio next week.

Original Trade Description: September 19th.

Sears Holdings Corporation operates as a retailer in the United States. It operates in two segments, Kmart and Sears Domestic. The Kmart segment operates retail stores that offer a range of products, including consumer electronics, seasonal merchandise, outdoor living, toys, lawn and garden equipment, food and consumables, and apparel; and in-store pharmacies. It provides merchandise under the Jaclyn Smith, Joe Boxer, and Alphaline labels; Sears brand products, such as Kenmore, Craftsman, and DieHard; and Kenmore-branded products. As of the end of May, this segment operated approximately 833 Kmart stores.

The Sears Domestic segment operates stores that provide appliances, consumer electronics/connected solutions, tools, sporting goods, outdoor living, lawn and garden equipment, apparel, footwear, jewelry, and accessories, as well as automotive services and products, such as tires, batteries, and home fashion products. It also offers appliances and services to commercial customers in the single-family residential construction/remodel, property management, multi-family new construction, and government/military sectors; appliance and plumbing fixtures to architects, designers, and new construction or remodeling customers; parts and repair services for appliances, lawn and garden equipment, consumer electronics, floor care products, and heating and cooling systems; and home improvement services, as well as protection agreements and product installation services. This segment provides merchandise under the Kenmore, Craftsman, DieHard, Covington, Canyon River Blues, Metaphor, Outdoor Life, Structure, and Apostrophe brands, as well as under the Roadhandler, Ty Pennington Style, and Alphaline brands. As of the end of May, this segment operated 709 Sears stores. Sears Holdings Corporation was founded in 1899. Company description from FinViz.com.

After 117 years, Sears is about to go the way of the dinosaurs. The chain has not been able to keep up with the changing times and the competition from online retailers. The company announced on Friday it was closing 64 additional Kmart stores in addition to the 68 Kmarts and 10 Sears stores previously announced in July. In May they warned the total store closings for the year would reach 170 so they are well on their way.

The chain has lost more than $9 billion in recent quarters and were it not for investments by Edward Lampert and sales of real estate for $2.7 billion the store would already be out of business. In Q2 Sears lost $395 million and ended the quarter with only $276 million in cash on hand. CEO Lampbert agreed to loan the company another $300 million so they could survive another quarter. Moody's warned last week that Sears and Kmart do not have enough cash to stay in business. Moody's said the company was bleeding cash and would have to continue relying on real estate sales, sales of assets or outside funding to sustain operations. Moody's estimated their cash burn was $1.5 billion a year. In August, Sears reported cash on hand of only $276 million and not near enough to buy inventory for the holiday shopping season. The company's minimum pension contributions for 2016-2017 are $596 million and nearly twice the cash on hand.

In Q2, sales fell -8.8% to $5.7 billion. Same store sales for Sears fell -7% and -3.3% for Kmart.

In 2000, Sears had sales of $41 billion a year. That declined to $15 billion in 2015. Over the same period Kmart sales have fallen from $37 billion to $10 billion. Sears has funded debt of $3.5 billion and unfunded pension liabilities of $2.1 billion.

Shoppers claim when they do go to a Sears store they have to beg them to take their money. Many report wandering around the floor for a long time just trying to find a sales person to handle their sales. Other say they have quit going back because the shelves are bare and the merchandise they do have has been picked over so much there is nothing left but scraps.

Shoppers at Kmarts claim the store has been using sheets and shower curtains to hide empty shelves and closed departments.

When Sears does go out of business, it will be a windfall for JC Penny. There are 59 malls that have both Sears and JC Penny stores. Any Sears customers that have not already made the switch will immediately move to JC Penny as their general merchandise store of choice. Some people are very faithful to malls they have shopped at for years and that is a boon for JC Penny.

The recent cash burn headline from Moody's may have put Sears into its final death spiral. The shelves are empty, cash is limited and Lampbert is not going to continue putting good money into a bad investment. This could be a long term position.

Update 9/28/16: Fitch warned that Sears had a high risk of bankruptcy within a year. The 114 page report showed a heightened risk of bankruptcy with Sears, Claire's Stores and Nine West Holdings. Fitch said consumers are abandoning the shopping mall in favor of online shopping or local boutique stores. Fitch also said a Sears bankruptcy would obliterate Seritage, the REIT spun off from Sears last year to generate $2.8 billion in cash. Seritage has 266 retail properties with 170 leased to Sears and 82 leased to Kmart. About 79% of Seritage's rental income comes from Sears. The retailer has already filed notice of termination for 17 stores totaling 1.7 million square feet at the end of January.

Position 9/20/16:

Closed 9/30/16: Short SHLD shares @ $12.00, exit $12.00 for breakeven.

VXX - Volatility Index Futures - ETF Description


Since this is a long-term play, I am not going to comment on it every day. Just forget it is in your portfolio and hope for a strong market rally in Q4.

Original Trade Description: September 6th.

The VXX is a short term volatility product based on the VIX futures. As a futures product it has the rollover curse. Every time they roll to a new futures contract they have to pay a premium and that lowers the price of the ETF. It is a flawed product with a perpetual decline built in from the monthly roll over in the futures contracts.

As evidence of this flaw, they have now down four 1:4 reverse stock splits. The last four reverse splits occurred at $13.11 (11/2010), $8.77 (10/2012), $12.84 (11/2013), $9.52 (8/8/16). The prospectus says it can reverse split anytime it trades under $25 for a prolonged period and the splits will always be 1:4.

After the August split the ETF moved sideways for four weeks at $36. I think everyone was waiting for the typical August volatility. When it did not show up and the market rallied on Friday that support broke. And the decline has begun.

Because there may be some September volatility, anyone in this position must understand that it may move higher before it moves lower BUT it will always move lower. We just have to wait it out. Volatility never lasts forever.

Unfortunately, put options are expensive with a volatility instrument at this price level. The only recommendation is to short the ETF and forget it. If we do get a prolonged rally as some are expecting we could see strong gains in the next 2-3 months. This will be a long-term position. This is not a 2-3 week play. I can guarantee you, if history holds, we can play this until it splits 1:4 again at $10. Once we are in the position and profitable I will put a trailing stop loss on it. We will take profits and then look for a bounce to get back in. We could keep this play in the portfolio on a trading basis permanently.

Position 9/7/16:

Short VXX shares @ $33.88, no initial stop loss.

No options recommended because of price.

ZOES - Zoes Kitchen - Company Profile


No specific news. New closing low.

Original Trade Description: September 27th.

Zoe's Kitchen, Inc., through its subsidiaries, develops and operates a chain of fast-casual restaurants. It operates a range of restaurant formats, including in-line, end-cap, and free-standing restaurants. As of August 22, 2016, the company operated 191 owned and franchised restaurants in 20 states of the United States. Zoe's Kitchen, Inc. was founded in 1995 and is based in Plano, Texas. Company description from FinViz.com.

For Q2, ZOES reported earnings of 6 cents that matched estimates. Revenue of $66.3 million missed estimates for $67.3 million The earnings were not the problem.

Same store sales rose only 4% and that was due to a 3.1% increase in prices so the real rise was only +0.9%. This compares to +8.0% in Q1. They also cut their guidance for the full year from 4.5% to 6.0% down to 4.0% to 5.0% and remember that includes a 3.1% price increase so the real comparable numbers are 0.9% to 1.9% sales growth.

The company also cut its revenue guidance from $277 - $281 million to $277 - $280 million, which is not a big drop but analysts were expecting $280 million so the midrange $278 million would be another miss.

Earnings Nov 14th.

The market appears saturated with fast casual restaurants and "earnings were not bad" is not sufficient to propel the stock higher given the decline in same store sales.

ZOES closed at a historic low at $23.80 on Sept 20th. Shares rallied on short covering in the market rebound but are headed back to set a new low.

Position 9/28/16:

Short ZOES shares @ $23.95, see portfolio graphic for stop loss.

Left Over Lottery Tickets

These positions were left over from prior plays where we had an optional option with no stop after the stock position was closed. Rather than close these for a few cents they are left open as a "Lottery Ticket" play. With months before expiration, anything is possible. A strong move in a single stock can be well worth the additional patience.

These positions are only updated on the weekend.

FDC - First Data - Company Profile


No specific news. Shares are holding at prior support at $13.

Original Trade Description: August 10th.

First Data provides electronic ecommerce solutions for merchants, financial institutions and card issuers worldwide. The operate in three segments including global business solutions, global financial solutions and network & security solutions. This includes retail point of sale solutions, mobile ecommerce solutions and webstore solutions. They currently process 2,500 financial transactions a second across 118 countries.

First Data was taken private in 2007 for $26 billion by KKR. This debt ended up on the company's books and weighed them down for the last ten years. KKR helped them land a $3.5 billion private placement in 2013. That helped to reduce some of the high interest debt. KKR took them public again in 2015 and raised about $2.8 billion. That was the largest IPO of 2015. The company is still fighting the debt problem with $480 million in interest payments in the first half of 2016. Earlier this year we tried to short FDC because they were strangling under this debt. The situation appears to be improving.

In Q2 they reported adjusted earnings of 35 cents that beat estimates for 34 cents. It also beat the $26 million loss they took in the year ago quarter. Revenue rose 1.9% to $2.93 billion. Revenue in the global financial solutions division rose 12% to $395 million. This is their growth engine. They reduced their net debt by $300 million in the quarter.

Earnings Oct 26th.

Shares spiked from $12 to $13 after earnings and they are about to break over long-term resistance at $13.35. The weakness and volatility from the first six months of 2016 may be coming to an end. If FDC can move over that $13.35 level the next target would be around $16.50.

Position 8/23/16 with a FDC trade at $13.50

Long Oct $14 call @ .50, no stop loss.

Previously closed 9/9/16: Long FDC shares @ $13.50, exit $13.75, +.25 gain.

HOV - Hovnanian Enterprises - Company Profile


No specific news.

This is a long-term position on expectations HOV will return to profitability in Q3/Q4 as outlined by the CEO in the Q2 earnings.

Original Trade Description: July 27th.

Hovnanian Enterprises, Inc. is a builder of residential homes. The Company designs, constructs, markets and sells single-family detached homes, attached townhomes and condominiums, urban infill, and active lifestyle homes in planned residential developments. It markets and builds homes for first-time buyers, first-time and second-time move-up buyers, luxury buyers, active adult buyers and empty nesters. The Company has two distinct operations: homebuilding and financial services. The Company, excluding unconsolidated joint ventures, is offering homes for sale in 196 communities in 34 markets in 16 states throughout the United States. The Company's financial services operations provide mortgage loans and title services to the customers of its homebuilding operations.

Prior to the financial crisis HOV was an active buyer of land and had extensive holdings when the crash appeared. The decline in home buying and the change in the mortgage business caused them to be very over extended as a result of the crash. Since 2009 they have liquidated a lot of land holdings, built out and sold a lot of properties and have consolidated their efforts and reduced costs significantly.

For Q2 they reported a loss of 6 cents, which was less than half the 13-cent loss in the year ago quarter. Revenues rose 39.6% to $654.7 million. For the first 6-months of the fiscal year revenues rose 34.5% to $1.23 billion. The $7.9 million loss was well below the $25.2 million loss in the year ago quarter. The number of active contracts rose +0.9% to 1,812 homes with the value of the contracts rising 16% to $1.4 billion. The number of contracts in the first six months of fiscal 2016 rose 7.3% to 3,343. The total contract backlog at the end of the quarter was $1.58 billion, up 27.8% from the $1.23 billion at the end of fiscal Q2 2015. As of April 30th, they controlled 34,997 lots.

They paid off $233.5 million in debt over the prior two quarters and ended the period with $125.6 million in liquidity. Since the end of the quarter liquidity has risen $75.1 million due to closings and joint venture funds received. They also paid off another $86.5 million in debt that matured in May.

CEO Ara Hovnanian said, "While our revenue grew 40% and Adjusted EBITDA increased over 220%, as we said last quarter, we remain focused on deleveraging our balance sheet and maximizing our profitability rather than on additional growth. Since October 15, 2015, we have paid off $320 million of debt. More importantly, we continue to believe that we will have the liquidity to pay off the remaining debt maturities through the end of 2017. We are certain that we are taking the correct steps that will best position our company for future success. While it is discouraging to report a loss for the first half of fiscal 2016, it is nevertheless a significantly reduced loss, and we anticipate our profitability in the second half of the year will more than offset this loss."

With the low mortgage rates and the rising number of home sales, I do expect HOV to return to profitability by the end of the year. It has been a long 7 years but they are finally getting rid of the accumulated debt and are riding the wave of new home buyers.

Stocks typically begin to rise about 6-months before widely predicted events. If HOV expects to post profits in Q3/Q4 now is the time to buy the stock. At $1.87 per share I look at it as a LEAP option that does not expire. This is not going to be a rocket stock. This is a buy it and forget it position until year end. Once we are in the position I will track it in the Lottery Play portfolio each weekend. Shares traded at $7 in 2013-2014 and could easily return to that level once they post those profits.

Update 9/9/16: HOV reported Q2 earnings of zero compared to estimates for 6 cents. Revenue rose +32.6% to $716.9 million. For the full year the company guided to revenue of $2.7 to $2.9 billion and analysts were expecting $2.75 billion. The sold or joint ventured 21 communities to reduce their active selling communities from 214 to 193. This impacted revenue as the older communities were culled from the active business. They sold 1,467 homes in Q2 and slightly less than the 1,658 in the same period in 2015, also the result of selling some communities. Their order backlog rose 7.7% to $1.48 billion. There are 3,232 homes currently contracted to be built. They delivered 1,574 homes in the quarter, a +11.8% rise. After paying off $320 million in debt their cash position was $187.7 million. They acquired about 900 lots in the quarter in 20 different communities. They guided for a solid profit in the current quarter of $32-$42 million before some expenses including land acquisitions.

Do not back up the truck on this position just because the stock is cheap. Unexpected events do happen. Just buy a few hundred shares and we will shoot for a return to $6 or a 400% gain.

Position 7/28/16

Long HOV shares @ $1.86, no stop loss.


Long February $2 call @ 20 cents. No stop loss.

HUN - Huntsman Corp - Company Profile


Shares continuing to rebound but the progress is slow.

We were stopped out of the long position on HUN shares on Sept 8th. We have a left over November $19 call.

Original Trade Description: August 23rd.

Huntsman Corporation manufactures and sells differentiated organic and inorganic chemical products worldwide. The company operates in five segments: Polyurethanes, Performance Products, Advanced Materials, Textile Effects, and Pigments and Additives. The company's products are used in various applications, including adhesives, aerospace, automotive, construction products, personal care and hygiene, durable and non-durable consumer products, electronics, medical, packaging, paints and coatings, power generation, refining, synthetic fiber, textile chemicals, and dye industries. Huntsman Corporation was founded in 1970.

They reported Q2 earnings of 53 cents that beat estimates for 52 cents. Revenue of $2.54 billion matched estimates. They generated more than $350 million in free cash flow and made an early repayment of $100 million in debt. They also announced they were selling some of its European facilities and would use the proceeds to repay debt. They sold a manufacturing facility to Innospec Inc for $225 million and the transaction is expected to close in Q4. Huntsman will remain a raw materials supplier to the facilities once the transaction is completed.

They are also planning to close their titanium dioxide manufacturing (TiO2) facility in South Africa in addition to spinning off their remaining TiO2 business in early 2017. The closure/spinoff will save $200 million.

The earnings, restructuring and debt repayment plans have given the stock a positive bias. Shares broke over resistance on Tuesday to trade at a 52-week high. The next material resistance is $23.

Earnings Oct 26th.

Position 8/30/16 with a HUN trade at $17.65

Long Nov $19 call @ 54 cents. No stop loss.

Previously Closed 9/8/16: Long HUN shares @ $17.65, exit $16.65, -$1.00 loss.

NAVI - Navient - Company Profile


No specific news. Shares rallied after the IRS named a Navient subsidiary as a collection agency for old tax debts.

Shares are still stuck at resistance at $14.50 but eventually a breakout will appear and it could be strong.

Original Trade Description: August 6th.

Navient Corporation provides financial products and services in the United States. The company offers Federal Family Education Loan Program (FFELP) Loans, Private Education Loans, and Business Services. It holds the portfolio of education loans insured or guaranteed under the FFELP, as well as the portfolio of private education loans. The company also provides asset recovery services for loans and receivables on behalf of guarantors of FFELP loans, and higher education institutions, as well as federal, state, court, and municipal clients. They also offer business processing services on behalf of municipalities, public authorities, and hospitals. Navient was spun off from Sallie Mae in April 2014.

Adjusted earnings for Q2 rose 17.5% to 47 cents and beat estimates for 45 cents. Helping produce the earnings beat was a 44.4% decline in provisions for credit losses to $110 million.

During the quarter Navient acquired FFELP loans of $623 million bringing their total under management to $92.6 billion.

The private education loan segment reported earnings of $57 million. During the quarter Navient acquired another $23 million to bring their total under management to $24.7 billion. The spread on the private loans was stable at 3.66%. The charge off rate was only 2.2%.

During the quarter they retires $255 million in senior unsecured debt and they completed three ABS placements totaling $2.278 billion to raise liquidity. They repurchased 13.6 million shares for $175 million and had $360 million outstanding under the current authorization.

Earnings Oct 18th.

Although Navient is not a high flying investment like Apple or Netflix it is a good solid business. Friday's close at $14.50 was a 52-week high and a breakout over prior resistance. The next resistance will be a gap fill around $17 from last July.

Position 8/8/16:

Long Oct $15 call @ 50 cents. No initial stop loss.

Previously closed 8/12/16: Long NAVI shares @ 14.57, exit $13.35, -1.22 loss

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