Option Investor

Daily Newsletter, Wednesday, 2/22/2017

Table of Contents

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

Market Wrap

Bulls Still Holding the Reins

by Keene Little

Click here to email Keene Little
The Dow was the only one of the major indexes to finish today in the green but only be a small amount. The day was more or less a continuation of the consolidation from last week and we wait to see if it results in another leg up.

Today's Market Stats

We know the market is overbought and overloved and showing signs of tiring. But that hasn't stopped the bulls from keeping the bears away and as long as the buyers keep buying the small dips, which they're doing, we have higher potential. There are enough warning signs to suggest caution about chasing the market higher but there are no signs of a top yet. There's nothing for a bear to chew on but at the same time it's looking risky to the upside, all of which has traders heading for the sidelines while waiting for the next good setup.

The only economic report of significance today was the FOMC minutes, released at 14:00. The indexes had been chopping sideways (slightly up for the Dow) before the release, did a little squiggle after the announcement and then continued chopping sideways for the rest of the day. Virtually no reaction.

Even though we've seen recent data that suggests inflation is already at the Fed's 2% target rate, the Fed believes there's little risk to the economy. The Fed believes they have "ample time to respond" to any rise in inflation. Call me unconvinced, especially knowing how well they've been able to predict anything about the economy, ever. They have a perfect record of never being right.

The lack of urgency on the Fed's part means there's not likely to be a change to their expected plans on raising rates. This was reflected in a sharp decline in the U.S. dollar following the announcement (and spike in gold) while Treasury rates dropped sharply. All the moves were relatively small but the reactions were telling -- universal agreement that the Fed may stay somewhat reluctant to raise rates even while threatening to do so.

Apparently there is some disagreement between the Fed heads about how the labor market is doing. With the official unemployment rate currently at 4.8% there are some who fear rising wages could boost inflation faster than expected, which they argue means a need for higher rates sooner rather than later. But apparently the majority does not hold that opinion and the minutes reflected more caution than aggressiveness about raising rates.

The Dow's day in the green makes it 9 in a row from February 8th and 13 up days if we ignore the minor loss on February 8th. But it too is showing signs of weakening and likely near a top for at least the leg up from January. At the same time we're seeing many signs of increased risk as investors show more signs of greed and not enough fear (although the VIX has been slowly climbing as the rally makes its way higher).

One of the highlights of the rally is how steady it's been with practically no volatility. At first glance that would seem bullish -- nice steady accumulation and it could very well be just that. But typically a lack of volatility for a period of time leads to an expansion of volatility and with that a big price move. The question here is whether that will mean an acceleration higher or a fast drop back down.

The S&P 500 has now gone more than 50 days without a 1% move in either direction, which is the longest stretch since 1970. Think about that for a moment -- it's been nearly 50 years since the market has been this quiet and we're now facing a tired market that has investors feeling bullish to an extreme.

In addition to the quiet rally, we haven't seen a 1% correction since October 11th (91 trading days), which is the longest streak since 2006. This also begs the question about what kind of correction will follow this quiet period. Without the normal inhalation-exhalation the market becomes even more vulnerable to a strong disconnect to the downside. A little volatility moves traders in and out of the market, which in turn strengthens the remaining holders. Instead, we now have a lot of "untested" long players who will likely bail quickly out of fear (and fear is more powerful than greed).

Assuming we're overdue a correction the big question is whether it will be just a pullback correction or something more bearish. We could see a multi-week, scare the hell out of the bulls, kind of pullback and then set up the next big rally. Or we could start a major reversal back down. We'll have to wait for clues from the pattern of the pullback/decline (corrective vs. impulsive) to help figure that out later. First we have to identify when the current trend (up) has changed.

In support of just a pullback and then higher is a record that strongly favors the bulls. Sam Stovall, Chief Investment Guru at CFRA, issued a call this morning that says we should remain bullish for the year. He noted that since 1945 there have been 27 years where the S&P 500 was positive in both January and February and each of those years finished higher, no exceptions. In only 2 of those 27 years the S&P finished lower in the subsequent 10 months but never to a loss for the year.

The chart below shows each of the 27 years in which both January and February were positive. The average rise was +24% and with the S&P currently +5.5% for the year that's a lot of growth potential. Only 1987 (+5%) and 2011 (+2%) finished below where SPX is currently and so the question now is whether or not this year will be different.

S&P 500 returns since 1945 when January and February are positive, chart courtesy CFRA

One could argue that things are very different now than they were prior to 2009, especially with a volatile president at the helm and a Fed that is becoming less accommodative. I certainly would not use this 27-year record as a reason to mortgage the house and put it all in the stock market but it does provide a reason to only cautiously think about the bearish potential while the market is pulling back (assuming the current stock market hasn't negated the laws of gravity).

I see higher risk for the market than the above record would suggest and it's reason enough for me to recommend not riding the next pullback in long positions with the assumption that it will come back. I think the risk is high that it won't come back and that this year will break the above 27-year record.

It will be a while before we'll have a better idea about the possibility for a more significant decline but with the potential for an explosive move, presumably down, is it really worth the risk in simply plugging your nose and holding on through the next downturn? And if you like to play the short side we could soon be in a position to play.

The RUT has reached a potentially very important level and how it does from here could tell us lots about what this market might do next. I'll therefore start off tonight's chart review with weekly chart of the RUT.

Russell-2000, RUT, Weekly chart

I've shown the RUT's weekly chart before to point out the big megaphone pattern that has developed since early 2014. A trend line that runs along the highs from June 2007-March 2014-June 2015 is currently near 1412 and Tuesday's high missed it by only 2 points. While the RUT would be more bullish above 1415, based on this pattern, we need to keep in mind that it's a bearish pattern and it calls for a decline to the bottom, which is the trend line along the lows since February 2014.

For some perspective, that line will be near 825 by the end of this year. The May 2011 high was at 868. The short-term pattern remains bullish since it's obviously in an uptrend, which is why it would be more bullish above 1415. But with the bearish divergence at the current high at vs. the December high (daily and weekly charts) I think it's a high-risk bet to be thinking long here. And if you wouldn't buy it here should you also be thinking of selling?

Russell-2000, RUT, Daily chart

The RUT's daily chart shows a tiny little air gap between Tuesday's high and the trend line along the highs from 2007-2015. We could see another attempt to reach the line, and it might even poke above it (to hit a lot of stops), before starting back down but that's a high-risk bet here. While the RUT remains bullish until proven otherwise, the setup here is for a top of significance. A drop back below the downtrend line from December 9th, currently near 1376, which would also be a break of its uptrend line from November, would confirm a top is in place. We have a setup for a top but no confirmation of it.

Key Levels for RUT:
- bullish above 1415
- bearish below 1376

Russell-2000, RUT, 60-min chart

The 60-min chart of the RUT shows the first crack in the bull's foundation with today's break of its short-term uptrend line from February 8th. I see the potential for a bounce back up to a minor new high to do a back-test of that uptrend line, which would result in it reaching the trend line along the highs from 2007-2015. But again, it's not something I'd be willing to bet any money on. If it happens, watch for continuing bearish divergence and short a rollover from resistance. The second sign of trouble for the bulls would be a drop below the February 16th low near 1391.

S&P 500, SPX, Daily chart

SPX is now nearing a price projection at 2376, which is where the 2nd leg of a 3-wave move up from December 30th would be 162% of the 1st leg up. It should be noted that the pieces are in place for a top at any time but obviously the bulls have had different ideas and keep buying the small dips. That could continue but again, the risk for a big move is high and chasing this higher from here is too risky unless you're day trading this.

Key Levels for SPX:
- more bullish above 2377
- bearish below 2300

S&P 500, SPX, 60-min chart

The 2nd leg of the rally from December 30th is the leg up from January 31st and the 60-min chart shows the 2376 projection for it. There are a couple of other shorter-term projections at 2373 and 2382, which gives us a relatively small range to watch for a possible high. The little sideways consolidation off Tuesday's high looks like a bullish consolidation pattern that is holding at the uptrend line from February 8th, both of which call for another rally leg on Thursday.

One more leg up would do a nice job finishing the wave count for the rally from January 31st so watch it carefully for a possible shorting opportunity. On the other hand, if it breaks down from here it would be immediately bearish.

Dow Industrials, INDU, Daily chart

The Dow looks like SPX with the February 14th break above its trend line along the highs from April-December 2016. That made the Dow even more bullish and now it stays bullish as long as the trend line holds as support on a pullback. The bulls now need to negate the bearish divergence against the December high. A top would be confirmed in place if the Dow drops below its January 26th high at 20125.

Key Levels for DOW:
- stay bullish above 20,550
- bearish below 20,125

Nasdaq Composite index, COMPQ, Daily chart

The Nasdaq turned more bullish on February 14th when it broke above the tops to two rising wedge patterns, one for the rally from February 2016 and the other for the leg up from November. The tops of those rising wedges cross on Thursday near 5800 and as long as that level holds as support on a pullback it will stay bullish. But a drop back below 5800 would leave a throw-over finish to the two rising wedge patterns and that would likely lead to a very strong selloff (rising wedges get retraced very quickly).

There is still some upside potential to a price projection at 5940.60, which is where the 5th wave of the rally from November would equal the 1st wave. But the 5th wave has already met its minimum expectation, at 5801 (62% of the 1st wave), and therefore rally completion can be called at any time.

Key Levels for COMPQ:
- stay bullish above 5802
- bearish below 5700

10-year Yield, TNX, Weekly chart

Treasuries continue to consolidate since mid-December and TNX remains inside a sideways triangle that has formed for the consolidation. This is a bullish continuation pattern and therefore the expectation is for another leg up. But a triangle consolidation typically leads to the last leg of the move (up in this case) and therefore I'm not expecting much higher (lower for bond prices). A downtrend line from 2007-2013 is currently near 2.63% (the December 15th high was 2.621%) and a price projection for an a-b-c bounce pattern off the January 2015 low points to 2.687%.

Assuming we'll see another rally leg those are the two levels to watch. But if TNX drops below its January 12th low near 2.3% I'd start to think more bearishly about yields sooner rather than later, especially since a failed bullish pattern would likely mean a fast drop in yields. This could happen if there's a sudden rush into the relative safety of bonds.

KBW Bank index, BKX, Weekly chart

Last week I pointed out how BKX had reached a price projection target zone at 97.07-92.21 with a high at 97.25 last Wednesday. Since then it's been struggling to push higher but has only been able to reach 97.08 and 97.12 yesterday and today, respectively. The sideways consolidation is potentially bullish, like the broader averages, in which case the next upside projection is 102.19. That's where the 5th wave of the leg up from June 2016 would equal the 1st wave. But it's important to note that the pattern can be considered complete at any time.

SPX comparison to Relative Strength of TRAN/UTY and XLY/XLP, Daily chart

The TRAN's chart is not clear at the moment, except that it has developed a strong bearish divergence since early December at its new price highs in January and lost week. But I think we continue to have a bearish warning when comparing the strength of the TRAN to the Utility index (the black line on the bottom chart below). The TRAN has been underperforming UTY since December, including into this week, and that's not a good sign about the economy.

The same can be said when looking at the underperformance of the Consumer Discretionary (XLY) vs. Consumer Staples (XLP), which is the blue line on the bottom chart. This tells us the consumer is spending more carefully and more on staples than want-to-have stuff. This often accompanies a slowdown in the economy.

U.S. Dollar contract, DX, Daily chart

The US$ dropped sharply after the FOMC minutes were released this afternoon, which is another indication that traders in the dollar believe the Fed may be reluctant to raise rates soon (rate hikes make the dollar more attractive to investors, which drives the price higher). But this afternoon's pullback has retraced only a small portion of the bounce off the pullback into the February 16th low. While I see the potential for another move higher for the dollar, perhaps up to about 102, I think there's a higher probability for the dollar to continue its decline from its January 3rd high. At the moment it's struggling to get back above its broken 50-dma, currently at 101.37.

Gold continuous contract, GC, Daily chart

Doing the reverse of the dollar, gold had declined during the day but did a sharp reversal back up at 14:00 and erased most of the day's loss. But by the end of the day the daily candle was just another doji inside the trading range that gold has been in since February 8th. This consolidation suggests we'll see another leg up for gold, which fits the projection I've been showing at 1273.20 for two equal legs up from its December 15th low. Or perhaps it will only make it up to its broken 200-dma, currently at 1264.50. Above 1274 would be more bullish for gold but for now I'm thinking we're getting only a bounce correction off the December low that will then be followed by a resumption of its decline.

Silver continuous contract, SI, Daily chart

Looking at silver to see how it's confirming (or not) the pattern for gold, I see the same potential for at least a little higher before turning back down. Two equal legs up from December 20th points to 18.32 and the top of rising wedge for its bounce off the December 20th low will be near 18.50 by the end of the month. But the oscillators are threatening to roll over as silver struggles with its 200-dma, currently at 17.95 (as well as its 200-week MA at 18.01), and it's nearing its downtrend line from July 2016, currently near 18.22. With all of this it looks like silver might be able to make it up to 18.22-18.50 but might roll over sooner rather than later.

Oil continuous contract, CL, Daily chart

If nothing else oil has been tenaciously holding near its December 12th high at 54.51. One could easily interpret the choppy sideways consolidation since then as a bullish continuation pattern, in which case we could see oil rally to 59-60. But with the COT report showing a very bullish speculator crowd vs. a bearish commercial crowd I think it's safer to bet with the commercial traders.

The bearish divergence since December also makes it difficult to think about the long side, although the bleeding off of an overbought condition from December while price has chopped sideways can also be considered bullish. Above 55.50 would be arguably bullish but until then I think there's a higher probability for a breakdown.

Economic reports

The rest of the week will remain quiet as far as economic reports go. The market will be responding more to overseas events and markets.


The stock market has been moving higher in relatively small steps but the lack of selling has made it relatively easy for the buyers to keep the market moving steadily higher. There are no signs of a market top but there are plenty of signs of waning momentum and deteriorating market internals. There's no reason to short this market but there's also elevated risk in chasing this higher.

As mentioned above, the sustained length of time without much in the way of volatility actually makes the market riskier here. While it's possible we'll see a strong acceleration higher I think the higher-odds probability is for a strong breakdown that scares lots of traders out of the market. It's likely we're going to see a strong spike in the VIX in the process (June VIX calls anyone?).

It's too early to short (although we could see a setup on Thursday or Friday) and it's too late to get long, which leaves many traders on the sidelines here. Wait for your setup and don't force a trade; look for your candidates to short while waiting for the correction.

Good luck and I'll be back with you next Wednesday.

Keene H. Little, CMT

New Plays

Back from the Dead

by Jim Brown

Click here to email Jim Brown
Editor's Note

AMD has been written off as dead many times but the company will not stay buried.


AMD - Advanced Micro Devices - Company Profile

Advanced Micro Devices, Inc. operates as a semiconductor company worldwide. The company's products primarily include x86 microprocessors as an accelerated processing unit (APU), chipsets, discrete graphics processing units (GPUs), and semi-custom System-on-Chip (SoC) products. It provides x86 microprocessors for desktop PCs under the AMD A-Series, AMD E-Series, AMD FX CPU, AMD Athlon CPU and APU, AMD Sempron APU and CPU, and AMD Pro A-Series APU brands; and microprocessors for notebook and 2-in-1s under the AMD A-Series, AMD E-Series, AMD C-Series, AMD Z-Series, AMD FX APU, AMD Phenom, AMD Athlon CPU and APU, AMD Turion, and AMD Sempron APU and CPU brands. The company also offers chipsets with and without integrated graphics features for desktop, notebook PCs, and servers, as well as controller hub-based chipsets for its APUs under the AMD brand; and AMD PRO mobile and desktop processors. In addition, it provides discrete desktop graphics products and discrete GPUs for notebooks under the AMD Radeon brand; professional graphics products under the AMD FirePro brand; and customer-specific solutions based on AMD's CPU, GPU, and multi-media technologies. Further, the company offers microprocessors for server platforms under the AMD Opteron; embedded processor solutions for interactive digital signage, casino gaming, and medical imaging under the AMD Opteron, AMD Athlon, AMD Sempron, AMD Geode, AMD R-Series, and G-Series brands; and semi-custom SoC products that power the Sony Playstation 4 and Microsoft Xbox One game consoles. Advanced Micro Devices, Inc. sells its products through its direct sales force, independent distributors, and sales representatives. The company serves original equipment manufacturers, original design manufacturers, system builders, and independent distributors. Advanced Micro Devices, Inc. was founded in 1969. Company description from FinViz.com.

AMD has played second fiddle to Intel nearly its entire life. Intel technology is always a couple steps ahead and that means AMD is always running to catch up to a moving target. Recently, Intel's advances have slowed. PC computing power has reached a point where there are no slow PCs for sale at the local computer store. Performance is cheap and that performance is more than a normal user will ever need. Gamers will spend big bucks for the fastest processor but even that has migrated into the video cards themselves and Nvidia owns that market.

Consumers do not need a super fast computer for email, spreadsheets and web browsing. In the server sector the processors have become so fast that the input-output devices cannot keep up. Very few servers today run anywhere near their rated speeds.

AMD has spent four years developing their Zen processor in an attempt to meet Intel head on in the PC and server markets. They announced on Wednesday the first processors will ship in March and are priced about half of Intel for the top of the line and just under Intel for the midrange processors. Neither company wants to get into a price war. With only two companies making computer processors, to fight on price would only hurt profits for both and probably not change the consumer demand.

The key here is that AMD can be competitive again with their new Ryzen or Zen processors. ADM said their one goal in developing the new processor was to "disrupt the PC market and bring innovation, choice and performance to as many people as possible."

The fastest processor in the line is an 8-core Ryzen 7-1800X at $499. That compares to a similar Intel 8-core Core i7-6900K processor at $1,000.

AMD reported a Q4 loss of a penny which easily beat estimates for a loss of 10 cents. Revenue of #1.11 billion beat estimates for $1.07 billion. They guided for revenue of $988 million in Q1 and analysts were only expecting $964 million. Gross margins rose from 30% to 32%. Shares spiked on the February 1st news. Shares spiked again on the new processor announcement on Feb-22nd.

Earnings May 2nd.

The gain on Wednesday saw a close at a new 52-week high and above the post earnings consolidation phase. AMD may be choppy from here but I think it has enough going for it today that the rally can continue.

Buy AMD shares, currently $14.29, initial stop loss $12.50.

Optional: Buy Apr $16 call, currently 70 cents, no stop loss.


No New Bearish Plays

In Play Updates and Reviews

Uneasy Market

by Jim Brown

Click here to email Jim Brown

Editors Note:

Worries over the FOMC minutes and increased chatter about a market top held the indexes back. The Dow was still the strongest index with a 32 point gain and the Nasdaq 100 squeezes out a minor 1 point gain to keep its string alive. However, the small cap indexes were the weakest point in the market once again. The Russell gained 10 points on Tuesday and gave back 6.5 points today.

The FOCM minutes suggested a rate hike sooner rather than later and the market dipped but just temporarily. It will be interesting to see if investors are still as confident on Thursday. The closer we get to the unofficial State of the Union speech next Tuesday, the more volatile the markets may become.

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

BOX - Box Inc
The long stock position was stopped at $17.85.

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


No specific news. The good news about the $30 per ton rate hike lasted only one day and shares fell -3% on Wednesday.

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.

Update 2/21/17: AK Steel said they were increasing prices by a minimum of $30 a ton effective immediately.

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. Shares are starting to move up again. New high today.

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. Shares fell -1.8% to break below support and stop us out for a minor gain.

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. Minor gain in a mixed market.

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. Whopping 5% decline back to Friday's support level. We missed being stopped by 5 cents.

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.

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. Eventually the market will crack and investors will hit the sell button on CRAY.

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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