Option Investor

Daily Newsletter, Tuesday, 2/21/2017

Table of Contents

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

Market Wrap

Highest Level Since 1992

by Jim Brown

Click here to email Jim Brown

Should we be worried when every daily headline mentions the length of a streak or the magnitude of the gains?

Market Statistics

The Nasdaq 100 ($NDX) RSI reading rose again to 84.71 when 70 is considered overbought. Monday was the highest reading since January 9th, 1992 when it hit 86.39 after a 20% gain in the Nasdaq in only 13 days consecutive days. That move was followed by a six-month decline.

We know how this movie ends but we do not know if it will be this week or next month but the bull will eventually stumble.

There was only one economic report on Tuesday. The PMI Manufacturing for February fell from 55.1 to 54.3 to slightly slower growth but still a decent number. The flash PMI for services declined -2 points to 53.9. The PMI service sector outlook has faded back to where it was just before the November election. Respondents were reporting slower growth and cautious clients. This report was ignored.

The hurdle for Wednesday will be the FOMC minutes for the February meeting. With conflicting statements from Yellen and her merry band of bankers, analysts will be paying rapt attention for clues about a March rate hike.

The next market cliff could be President Trump's address to the joint session of Congress next Tuesday evening. He will be under pressure to disclose details on a potential tax deal and he will undoubtedly mention some other topics that will not be received well by the market. There is the potential for a Trump bump after the speech but there is greater potential for a sell the news event. The market could anticipate this and see increased volatility heading into the speech.

The market opened strongly positive after earnings from Walmart and Home Depot, both Dow components. Walmart (WMT) reported earnings of $1.30 compared to estimates for $1.28. However, revenue of $130.94 billion missed estimates for $131.1 billion. The company guided for the full year to $4.20-$4.40 per share.

Same store sales rose 1.8% and beat estimates for 1.3% with Sam's Club showing a 2.4% increase. This was the best same store sales for Walmart since July 2012. E-Commerce sales rose 29% after they bought Jet.com in September.

The company took a shot at the proposed border adjustment tax saying "The border adjustment tax, for us, is a concern. Clearly anything that would potentially raise prices for our customers in the US is a concern for us."

Walmart also raised their dividend 2% to $2.04 for the year. The first installment of 51 cents will be paid on April 3rd to holders on March 10th. This is their 44th consecutive year of dividend increases.

Shares rallied 3% to resistance at $72 but closed well off their highs.

Home Depot (HD) reported earnings of $1.44 compared to estimates for $1.34. Revenue of $22.21 billion rose 5.5% and beat estimates for $21.8 billion. Same store sales were very strong at +5.8% compared to estimates for a +3.7% increase. The company guided for full year earnings of $7.17 and a 4.6% rise in revenue. The number of customers and the average ticket price both rose 2.9%. They ended the quarter with $2.538 billion in cash. They generated $9.783 billion in free cash flow in 2016 and expect $11.3 billion in 2017.

The company said it was benefitting from a strong home market with rising property values as well as increased productivity. They said the unseasonably warm weather allowed contractors to continue working on outdoor projects all through the winter.

They increased their targeted dividend payout from 50% to 55% of net earnings. They increased the current dividend by 29% to 89 cents payable on March 23rd to holders on March 9th. This is the 120th consecutive quarterly dividend. They announced a new $15 billion share repurchase program that will replace the existing program. Shares gained $2 on the news.

Expeditors Intl (EXPD) reported earnings of 61 cents compared to estimates for 59 cents. Revenue of $1.64 billion rose 3% and beat estimates for $1.62 billion. Shares finished the day slightly negative.

Advance Auto Parts (AAP) reported earnings of $1.00 that missed estimates for $1.09. That was also a -18% decline from the $1.22 in the year ago quarter. Revenue of $2.08 billion did beat estimates for $2.01 billion and $2.03 billion in the year ago quarter. The company operated 5,062 stores and services 1,250 Carquest stores as of the end of the quarter. They will open 75 to 85 stores in 2017. The CEO presented a five-year plan in November and they are just getting started in the restructuring and aggressive cost reductions. Shares were fractionally lower.

Macys (M) reported earnings of $2.02 that beat estimates for $1.97 but declined from the $2.09 reported in the year ago quarter. Given the weak holiday shopping season, I think these earnings were respectable. They guided for the full year for $2.90-$3.15 compared to the $3.11 earned in 2016. Revenue of $8.515 billion missed estimates for $8.582 billion. Same store sales declined -2.7%. For 2017, they are projecting a decline in same store sales of 2% to 3%. Shares were flat because nobody expected them to do well.

First Solar (FSLR) reported adjusted earnings of $1.24 compared to estimates for 97 cents. Revenue of $480.4 million beat estimates for $391.8 million. For the full year, they guided in a range from a loss of 80 cents to earnings of 50 cents with revenue around $2.85 billion. Analysts were expecting 41 cents in earnings and $2.53 billion in revenue. The unadjusted GAAP earnings had a pre-tax charge of $729 million related to restructuring actions. They ended the quarter with $2.0 billion in cash. The company is moving forward with the conversion from Series 5 to Series 6 panels. They said their conversion efficiency on their best products was above 16.9%.

Tronox (TROX) reported an adjusted loss of 14 cents on revenue of $548 million. For the full year, the company narrowed its loss to $59 million or 50 cents per share. Tronox is a producer of titanium ore and titanium dioxide. They also announced the acquisition of the same business from Saudi Arabian company Cristal for $1.67 billion in cash and stock. This will make Tronox the world's largest producer of titanium oxide with 11 plants in 8 countries. Shares spiked 35%.

Texas Roadhouse (TXRH) saw its shares fall $5 in afterhours after reporting earnings of 29 cents compared to estimates for 37 cents. Revenue of $484.7 million missed estimates for $496.6 million. Revenue growth rose only 7% compared to prior growth at 10%. Earnings also fell -10%. Same store sales rose 1.2%. They blamed higher employee costs that exceeded declining food costs. They opened nine new restaurants in the quarter.

The earnings headliners for Wednesday are Tesla, Hewlett Packard and Jack in the Box. I would look for JACK to raise guidance. They recently raised prices on some items by as much as 35%. As long as sales did not tank as a result of the higher prices they should be doing really well in the current quarter.

The market does not seem to be paying attention but Q1 earnings growth estimates have declined -2.7% from the beginning of the quarter. For 61% of S&P-500 companies earnings growth estimates are slightly lower than analysts originally expected. This is typical but the pace of the decline is accelerating. For Q4, growth estimates declined -2.2% and Q3 -1.9%. This is not a big deal but it is important. For instance if analysts expected S&P earnings to rise 8% in Q1 and now they are expecting 7.8% growth, it is still decent growth. They are simply becoming less excited about the future. Offsetting this is the normal better than expected results when the quarter actually reports. If analysts are expecting 8% growth at the end of the quarter, typically we will see 9% or even higher when the results are announced.

Verizon (VZ) and Yahoo (YHOO) announced they had reached an agreement on the acquisition. Verizon will pay $4.48 billion in cash, a discount of $350 million from the original price as a result of the hacking scandal. The two Yahoo data breeches affected more than 1 billion user accounts. The two companies will split any liability arising from the two events. Shares of both companies were fractionally higher.

Popeye's Louisiana Kitchen (PLKI) agreed to be acquired by Restaurant Brands International (QSR) for $1.8 billion. QSR will pay $79 for each PLKI share. That is a 19% premium to Friday's closing price. QSR was formed in 2014 when Burger King bought Tim Hortons for $11 billion. Popeye's started 45 years ago as a "Chicken on the Run" fast food restaurant in New Orleans. PLKI now has 2,600 stores in 26 countries. The acquisition is expected to close in April.

Natural gas prices fell -9% in the regular session after forecasters said winter was over. This came after a 7% decline last week. The warmer than normal winter has left gas in storage well above normal levels and we could actually see an injection into storage this week more than a month ahead of the normal pattern. Forecasters also said there was evidence of El Nino forming in the pacific and that would mean a cooler than normal summer for the North East. Reportedly temperatures in the North East over the winter were 5 to 8 degrees above average with lower than normal snowfall.

Crude prices rose 1.2% to close just over $54 and right at two-month resistance. OPEC reported that its proposed production cuts had reached 90% compliance, which would be a record high if that number were correct. Normal compliance would be 50% to 70% of announced cuts. IF, and that is a big IF, they do maintain 90% compliance and agree to continue for an additional six-months starting in July, we could see inventories begin to deplete and prices rise to as much as $65 in midsummer. While I would love to see that happen, I am not holding my breath.


There is not much to say about the markets. They are overbought and nobody seems to care. Investors are buying stocks at new highs after weeks of gains. I am excited to see the gains but there is a cloud of dread over my desk. Markets do not go straight up and the Dow has posted 8 consecutive days of gains. If you do not count the one day with a 4-cent decline on the Nasdaq 100, it is up for 13 consecutive days. We know there is a cliff in our future but for now, investors are still racing up the mountain.

The S&P surged through three-day resistance at 2,350 to close at 2,361 and a nice 14-point gain. The S&P is now higher than more than half of the blue chip analyst forecasts for the end of 2017.

Year End 2017 Forecasts:

2,275 Fundstrat, Tom Lee
2,300 Bank of America, Savita Subramanian
2,300 Credit Suisse, Lori Calvasina
2,300 Goldman Sachs, David Kostin
2,300 Morgan Stanley, Adam Parker
2,300 UBS, Julian Emanual
2,325 Jefferies, Sean Darby
2,340 Canaccord, Tony Dwyer
2,350 BMO, Brian Belski
2,350 Deutsche Bank, David Bianco
2,400 JPMorgan, Dubravko Lakos-Bujas
2,400 Barclays, Jonathan Glionna
2,400 Societe Generale, Roland Kaloyan
2,424 Piper Jaffray, Craig Johnson
2,425 Citigroup, Tobias Levkovich
2,450 Oppenheimer, John Stoltzfus
2,500 RBC Capital Markets, Jonathan Golub

The Dow posted a strong gain thanks to Home Depot, Walmart, Boeing and UnitedHealth. Only six Dow components were negative for the day. All the Dow components have now reported earnings so stimulation will have to come from some other source.

Dow 21,000 is the new target and we are only 257 points away. This could be a very fast move from one thousand-point level to another. The Dow has gained +2,855 points since the November 4th close at 17,888.

The Nasdaq Composite is only slightly less overbought than the big cap index. The Composite index gapped open to 5,850 and closed at 5,853 with a 27-point gain but that open/close is significant. The entire gain was short covering at the open and the lack of a material intraday range left us with a shooting star candle which is normally bearish. If Wednesday were a down day, the candle pattern would be an evening star also suggesting the end of the surge.

Neither of those means it is the end of the rally. They are just formations suggesting we could have seen a temporary top in the Nasdaq today.

A bullish event for today was the breakout of the small cap indexes on the S&P-600 and Russell 2000. I have said several times, if the small caps begin to make new highs, the broader market could continue significantly higher. On the S&P-600, the 7-point gain to 862 was just barely a breakout over 860 so I am not ready to start targeting 900 just yet.

I hate to be a wet blanket but we know the recent market moves are too good to last without at least a couple days of weakness to allow sidelined traders an opportunity to get back in the market.

That does not mean we are going to crash on Wednesday but we should be cautious about adding a lot of new long positions. I know the animal spirits are running wild but like the running of the bulls in Pamplona Spain, the outcome can be erratic and painful if participants are in the wrong place at the wrong time. Try not to be overly long until we get a new buying opportunity.

We have been exceptionally lucky because of a lack of negative headlines that could impact the market. This is not normal and not likely to last.

Jim Brown

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New Plays

Small Cap Gains

by Jim Brown

Click here to email Jim Brown
Editor's Note

The small cap indexes posted decent gains on Tuesday but still not a breakout. The stock moves in our portfolio were lackluster considering both small cap indexes closed positive. The Russell gained 10 points and the S&P 600 gained 7 points. I would like to think the market is poised to move even higher but the big cap indexes were showing negative indications at the close. I am passing on adding new plays today.


No New Bullish Plays


No New Bullish Plays

In Play Updates and Reviews

New Russell High

by Jim Brown

Click here to email Jim Brown

Editors Note:

The small cap index finally found some traction with a 10-point gain. If the small caps are finally going to break out of their lethargy and begin to make new highs as well, the broader market could really catch fire. The small caps have been the sector that has held the big cap indexes to minor daily gains.

The Nasdaq 100 just continues to become more overbought every day and we know how this story ends. Whether it is this week or next month, it is likely to end badly. Meanwhile, enjoy the ride.

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.

Current Position Changes

CRAY - Cray Inc
The short stock position was entered at the open.

If you are looking for a different type of trading strategy, try these newsletters:

Short term Calls and Puts on equities = Option Investor Newsletter

Credit spreads and naked puts = OptionWriter

Long term option investments = LEAPS Investor

3-6 month Option Trades = Ultimate Investor

Iron Condors = Couch Potato Trader

BULLISH Play Updates

AKS - AK Steel - Company Profile


AK Steel said they were increasing prices by a minimum of $30 a ton effective immediately. Shares rallied to $9.06.

Last Thursday a trader bought the weekly $9 calls for next Friday. More than 28,000 were bought at a whopping 20 cents each. That is still $560,000 worth for a one-week option. Now we know why the trader bought those calls. Another 7,000 were traded today.

Original Trade Description: February 4th

AK Steel Holding Corporation, through its subsidiary, AK Steel Corporation, produces flat-rolled carbon, stainless and electrical steel, and tubular products in the United States and internationally. It produces flat-rolled value-added carbon steels, including coated, cold-rolled, and hot-rolled carbon steel products; and specialty stainless and electrical steels in sheet and strip forms. The company also produces carbon and stainless steel that is finished into welded steel tubing, which is used in the automotive, large truck, industrial, and construction markets; buys and sells steel and steel products, and other materials; and produces metallurgical coal from reserves in Pennsylvania. It sells its flat-rolled carbon steel products primarily to automotive manufacturers and to customers in the infrastructure and manufacturing markets, including electrical transmission, heating, ventilation and air conditioning equipment, and appliances; and coated, cold-rolled, and hot-rolled carbon steel products to distributors, service centers, and converters. The company sells its stainless steel products to manufacturers and their suppliers in the automotive industry; manufacturers of food handling, chemical processing, pollution control, and medical and health equipment; and distributors and service centers. It also sells electrical steel products to manufacturers of power transmission and distribution transformers, as well as for use in the manufacture of electrical motors and generators. Company description from FinViz.com.

Shares spiked from $5 to $11 after the election on hopes for a surge in infrastructure projects, lower regulations and a growing economy. AK shares peaked early and traded sideways for a month. The week before earnings they began to decline as analyst said the market gains were overdone.

The reported earnings of 25 cents on January 24th that beat estimates for 7 cents. Revenue of $1.42 billion was slightly lower than estimates for $1.43 billion. Shares spiked on the earnings news and collapsed on guidance that shipments to automakers had declined in Q4. The next day a spokesman clarified that saying the "decline in shipments compared to 2015 was primarily the result of a 41% decline in shipments to the distributor and converters market as the company intentionally reduced sales of commodity products." In other words, AK wanted to focus its efforts on the higher margin products and reduce exposure to low margin products.

Shares quit declining after the clarification and bottomed just under $8. Friday's close was right on the verge of a 7-day high. One more positive day and we could see a rebound begin.

Earnings April 25th.

The optional option position is for a longer-term holder with a June expiration. Very limited risk in terms of dollars invested and could be a decent winner if AKS returns to the $11.25 highs or higher on infrastructure stimulus headlines.

Position 2/6/17:

Long AKS shares @ $8.18, see portfolio graphic for stop loss.

Optional long-term option:

Long June $10 call @ 59 cents. No stop loss.

ARNC - Arconic - Company Profile


No specific news.

Original Trade Description: February 16th.

Arconic Inc develops and manufactures engineered products and solutions for the aerospace, industrial gas turbine, commercial transportation and oil and gas markets. Company description from FinViz.com.

What that description does not tell you is that Arconic is the old Alcoa. Back in October Alcoa spun off the aluminum smelter business and named it Alcoa. The remaining hith tech manufacturing business they named Arconic. Basically, this is the profitable part of the old Alcoa. They produce all sorts of high tech aluminum products for nice profits.

Their Q4 earnings were mixed because of expenses incurred as a result of the spinoff.

Zacks reported Q1 estimates have risen from 20 cents to 25 cents over the last several weeks as analysts reevaluate the new company. Full year estimates have risen from 92 cents to $1.10, a 19.6% increase.

On Wednesday Arconic said it had sold 60% of the Alcoa stake it kept during the spinoff for $890 million and would use the money to pay down debt and buy back shares. They also retained loss carry forward tax credits that will offset future earnings.

Earnings May 2nd.

Shares went ballistic after the Q4 earnings and rose from $23 to $30. Every day I kept watching the stock and thinking, "ok, tomorrow they will dip and I will add them to the portfolio." They never dipped until this week. That dip was very shallow and has lasted only 3 days.

We never know. They could fall off a cliff tomorrow and retest the $23 pre-earnings. I seriously doubt it because funds have been adding Arconic as a new position.

I am going to recommend an options only strategy with a four-week duration. I am recommending we buy a $30 call and a $28 put. The total cost will be $1.52 and that is our total risk. We only need ARNC to move in either direction more than a couple bucks and we should be profitable.

Either way at least one option should be profitable and offset the cost of the other. Depending on the market we could actually profit on both if we got a big dip and then a big rebound. The only way we lose both premiums is if the stock holds at $29 for the next month. That is not likely.

Update 2/17/17: Hedge fund Lion Point, a minor shareholder in Arconic, urged the company to "promptly engage" with Elliott Management to increase shareholder value. Elliott is the largest shareholder in Arconic is trying to get the CEO replaced and they have nominated five board members. Lion Point and Elliott both believe "the intrinsic value of Arconic materially exceeds the company's current stop price."

Position 2/17/17:

Long Mar $30 call @ 90 cents. No stop loss.
Long Mar $28 put @ 60 cents, No stop loss.

BOX - Box Inc - Company Profile


No specific news. No material movement.

Original Trade Description: January 21st.

Box, Inc. provides cloud-based mobile optimized enterprise content collaboration platform that enables organizations of various sizes to manage their enterprise content from anywhere. The company's platform enables users to collaborate on content internally and with external parties, automate content-driven business processes, develop custom applications, and implement data protection, security, and compliance features. Box, Inc. offers its solution in 22 languages. It serves healthcare and life sciences, financial services, legal services, media and entertainment, retail, education, energy, and government industries. Company description from FinViz.com.

Box is rapidly growing its customer for document management for companies with a global workforce. They are competing with other companies for cloud collaboration and access. More than 69,000 companies worldwide now use Box. They have broken into the media sector and now many production companies use Box for storing and distributing their production content. This has given Box a new niche in the market. Box has partnered with Salesforce.com, IBM and Microsoft in the cloud space. Their goal is to partner and grow with them rather than compete with those giants.

The company reported a smaller than expected loss for Q3 and expect to post an even narrower loss for Q4. Their guidance for Q4 is a loss of 13 cents on revenue of $109 million. That is better than the 26 cents loss in Q4-2015.

Earnings March 1st.

Shares broke out to a new 52-week high on January 12th before pulling back slightly with the market. They closed 5 cents below a new 52-week high on Friday.

Position 1/23/17 with a BOX trade at $17.10

Long BOX shares @ $17.10, see portfolio graphic for stop loss.

BRKS - Brooks Automation - Company Profile


No specific news. The Steet.com was speculating today that the pause in Brooks was just temporary and would lead to a bigger gain. Let's hope they are right.

Original Trade Description: February 13th

Brooks Automation, Inc. provides automation and cryogenic solutions for various applications and markets. It operates through two segments, Brooks Semiconductor Solutions Group and Brooks Life Science Systems. The Brooks Semiconductor Solutions Group segment offers critical automated transport, vacuum, and contamination controls solutions and services. This segment's products include atmospheric and vacuum robots, robotic modules, and tool automation systems that provide precision handling and clean wafer environments; automated cleaning and inspection systems for wafer carriers, as well as reticle pod cleaners and stockers; and vacuum pumping and thermal management solutions for use in critical process vacuum applications. This segment also provides support services, including repair, diagnostic, and installation, as well as spare parts and productivity enhancement upgrades. The Brooks Life Science Systems segment provides automated cold storage systems; consumables, including various formats of racks, tubes, caps, plates and foils; and instruments used for labeling, bar coding, capping, decapping, auditing, sealing, peeling, and piercing tubes and plates. This segment also provides sample management services, such as on-site and off-site sample storage, cold chain logistics, sample relocation, bio-processing solutions, disaster recovery, and business continuity, as well as project management and consulting. In addition, this segment offers sample intelligence software solutions and customer technology integration; and laboratory work flow scheduling for life science tools and instrument work cells, sample inventory and logistics, environmental and temperature monitoring, and clinical trial and consent management, as well as planning, data management, virtualization, and visualization services. The company sells its products and services in approximately 50 countries. Company description from FinViz.com.

Brooks reported earnings of 25 cents that beat estimates for 20 cents. Revenue of $160 million also squeezed by estimates for $159.7 million. For the current quarter they guided to earnings of 24 to 27 cents and revenue from $165 to $170 million.

The company provides automation and cryogenic solutions for various markets. Their expected growth rate for 2017 is 105% compared to the industry rate of 19.5%. Consensus estimates for the current year rose from 82 cents to 96 cents over the last 30 days. Estimates for the current quarter rose from 21 to 24 cents and the company guided for 24 to 27 cents.

Shares spiked from $17.50 to $21.00 on the earnings beat on February 1st. After three days of consolidation and profit taking, shares have started to rise again. They closed at a new high on Monday. I know this chart is over extended but the strong earnings, guidance and expected growth rate suggests they can continue climbing, market permitting.

Earnings May 3rd.

Position 2/14/17:

Long BRKS shares @ $21.58, see portfolio graphic for stop loss.

No options recommended because of wide spreads.

FEYE - FireEye - Company Profile


No specific news. Resistance appeared at $12.

Original Trade Description: February 11th

FireEye, Inc. provides cybersecurity solutions for detecting, preventing, analyzing, and resolving cyber-attacks. The company offers vector-specific appliance solutions that provide threat protection from network to endpoint for inbound and outbound network traffic that may contain sensitive information. It also offers Central Management System that provides cross-enterprise threat data correlation to identify and block attacks across multiple attack vectors; and Threat Analytics Platform to identify and respond to cyber threats by correlating enterprise-generated security event data from any security product with real-time threat intelligence, as well as Malware Analysis System to manually execute and inspect advanced malware, zero-day, and other advanced cyber-attacks embedded in files, email attachments, and Web objects. In addition, the company offers Network Forensics Platform that helps in detecting threats and view specific packets and sessions before, during, and after the attack to confirm what may have triggered a malware download or callback; Investigation Analysis System, a centralized analytical interface to the Network Forensics Platform; and Mandiant Intelligent Response that enables remote investigation of endpoints and allows security teams to collect targeted forensic data to identify attacker behavior, tools, and techniques. Further, it provides cloud-based subscription services; Security-as-a-Service; and incident response, compromise assessments, and related consulting, as well as training and professional, and customer support and maintenance services. Company description from FinViz.com.

FireEye is transitioning from a firewall appliance vendor to a cloud service and as always happens when companies go this route, the revenue slows temporarily. They reported Q4 results of a loss of 3 cents. Analysts were expecting a loss of 16 cents. This compares to a loss of 55 cents in the year ago quarter. Revenue of $184.7 missed estimates for $191.1 million.

For the current quarter the company guided to earnings of 26 to 28 cents and revenue of $160-$166 million. Analysts were expecting $177.5 million.

The company said several large deals had been expected to close in Q4 and they were pushed into Q1 versus being "lost."

They added 330 net new customers during the quarter. They closed 34 deals for more than $1 million each, including one of their largest SaaS deals ever. They announced a new product called Helix and more than 250 customers have already signed up to get the product as soon as it is released.

Other onetime negatives from the earnings release was news the CFO was leaving to pursue another opportunity and Chairman David Dewalt resigned from the board.

Earnings May 4th.

Cisco (CSCO) recently acquired AppDynamics and that is expected to start a flurry of acquisitions in the cybersecurity space. The space is fragmented today and highly competitive with each player commanding its own niche. The quickest way to expand your product offerings is to acquire somebody else that is a leader in their niche. FireEye is a leader in intrusion detection and tracking. Their recent fall from grace should make them an attractive target with only a $2 billion market cap.

Regardless of whether an acquisition cycle has begun, the stock decline to support is a buying opportunity.

Position 2/13/17:

Long FEYE shares @ $11.75, see portfolio graphic for stop loss.

No options recommended because of price.

UA - Under Armour - Company Profile


No specific news. Still fighting resistance at $20. Foot Locker earnings on Friday are certain to give UA a direction. Let's hope it is up.

Original Trade Description: February 15th

Under Armour, Inc. together with its subsidiaries, develops, markets, and distributes branded performance apparel, footwear, and accessories for men, women, and youth primarily in North America, Europe, the Middle East, Africa, the Asia-Pacific, and Latin America. The company offers its apparel in compression, fitted, and loose types to be worn in hot, cold, and in between the extremes. It provides various footwear products, including football, baseball, lacrosse, softball and soccer cleats, slides, performance training, running, basketball, and outdoor footwear. The company also offers accessories, which include headwear, bags, and gloves; and digital fitness platform licenses and subscriptions, as well as digital advertising, as well as licenses its brands. It primarily provides its products under the UA Logo, UNDER ARMOUR, UA, ARMOUR, HEATGEAR, COLDGEAR, ALLSEASONGEAR, PROTECT THIS HOUSE, and I WILL, as well as ARMOURBITE, ARMOURSTORM, ARMOUR FLEECE, and ARMOUR BRA trademarks. The company sells its products through wholesale channels, including national and regional sporting goods chains, independent and specialty retailers, department store chains, institutional athletic departments, and leagues and teams, as well as independent distributors; and directly to consumers through a network of brand and factory house stores, and Website. Company description from FinViz.com.

UA posted 26 consecutive quarters of +20% revenue growth. For Q4 that fell to 12%. That was a major blow for the stock. They also announced the CFO was leaving immediately for personal reasons. Could it be because he missed so badly on guidance?

They guided for 2017 for revenue growth of 11% to 12%. That is significantly lower than the 20% bar they have been reaching for the last 9 years.

However, Q4 was a really bad quarter for retailers. Traffic was down everywhere and overall sales only rose 1.4%, Under Armour gets 85% of its revenue from the U.S. and 60% of its revenue from retail stores. Under Armour supplied the products but retailers were unable to attract any traffic. It was not a shoe problem but a retailer problem.

To be fair there was a shoe problem as well. The super high dollar famous player shoes were discounted heavily because of the lack of retail customers. Foot Locker was having 50% off sales on their website because shoes were not moving. The lack of buyers was due to a weak retail season rather than a specific drop in UA products.

Earnings May 2nd.

Shares fell from $25 to $18 on the earnings and after two weeks in the dungeon they closed at a two week high on Wednesday.

I am going to recommend a distant option because the stock is $19.86 at the close making the $20 call "at the money" with an inflated premium of $1.20 for April. The $22.50 option is only 40 cents but it is 12% out of the money or $2.64 away from the strike. However, we have 65 days and if UA cannot move $2.64 in 65 days, I picked the wrong play.

Position 2/16/17:

Long UA shares @ $19.94, see portfolio graphic for stop loss.

Optional: Long April $22.50 call @ 35 cents, no stop loss.

BEARISH Play Updates

CRAY - Cray Inc - Company Profile


No specific news. No material movement. Support at $21.25 is holding.

Original Trade Description: February 18th

Cray Inc., together with its subsidiaries, designs, develops, manufactures, markets, and services high-performance computing systems. The company operates through Supercomputing, Storage and Data Management, Maintenance and Support, and Engineering Services and Other segments. It offers a range of supercomputing systems, including the Cray XC40-LC, XC40-AC, CS400-AC, CS400-LC, and CS-Storm supercomputers. The company also provides analytics products comprising Cray Urika-GD Graph Discovery Appliance, which addresses the interactive data discovery with graphs; and Cray Urika-XA Extreme Analytics Platform used for production-class data analytics workloads. In addition, it offers storage and data management products, such as the Cray Sonexion storage systems that embeds the Lustre parallel file system and other software in an optimal configuration; Cray DataWarp applications I/O accelerator; and Cray Tiered Adaptive Storage, a flexible storage and archiving solution, which allows customers to transparently move data among fast, primary, and archival tiers. Further, the company provides custom engineering solutions; and customer support services comprising hardware and software maintenance, applications support, installation project management, system installation and de-installation, site preparation, and technical training for its systems, as well as ancillary services in application consulting, third-party software support, site engineering, on-site analysts for defined projects, and specialized training. Company description from FinViz.com.

Shares of CRAY were weak in January after the company provided selective guidance that was not specifically positive. They reported earnings on Feb 9th and spiked from $17.50 to $22.50 but never rose any higher.

The earnings of $1.38 were good and beat estimates for $1.24. Revenue of $346.6 million also beat estimates. However, the earnings guidance and commentary was lackluster. "While 2016 was not nearly as strong as we originally targeted we finished the year well." "Due to current market conditions, the company has limited visibility into 2017. While a wide range of results remains possible, the company continues to believe it will be difficult to grow revenue compared to 2016." Revenue is expected to be flat to down. Operating expenses are expected to be higher and gross profits are expected to be slightly lower. It was hardly an exciting outlook.

Earnings May 9th.

Shares began to decline last week and are poised to break below the post earnings support at $21. With a lackluster outlook, any decline in the Nasdaq could be magnified in Cray.

Position 2/21/17:

Short CRAY shares @ $21.30, see portfolio graphic for stop loss.

Optional but not recommended: April $20 put, $1.00.

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