Option Investor

Daily Newsletter, Monday, 2/27/2017

Table of Contents

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

Market Wrap

Quietly Waiting

by Thomas Hughes

Click here to email Thomas Hughes


The broad market quietly set new all time highs, waiting for the State of the Union Address scheduled for Tuesday. Today's action was light, volume was low and direction was mostly sideways. Just like last week, when the indices were down at near term support levels buyers stepped in to drive prices back up.

Today's action received some support from President Trump. He spoke to the National Governor's Association about his budget plan to be released in a few weeks. He says it is a safety and security plan, and one focused on infrastructure and defense spending.

International markets were also in wait-and-see mode. Asian indices fell hardest, shedding about a half percent on average. The Nikkei led with a drop of -0.90%, others in the region fared a little better. European indices were more mixed, opening with small gains and then falling back to hover near break-even the remainder of the day.

Market Statistics

Futures trading indicated a flat to slightly negative open for most of the morning. Action was choppy throughout the pre-open session with some upward movement going into the opening bell. The open was negative, the S&P 500 posting an initial loss of just over -2 points, and downward pressure persisted the first 15 minutes of trading. By 9:45AM intraday bottom had been hit and was not touched again. That being said, action was muted all day. Once bottom had been hit the indices drift upward to break-even and, in some cases, into new all-time high territory. The next few hours saw the market drift sideways, bobbing over and under break-even levels until late afternoon. Late day trading saw the indices move up to the highs of the day, where they held until the close of trading.

Economic Calendar

The Economy

Today's economic calendar includes the Durable Goods report and Pending Homes Sales. Durable Goods was reported before the bell and was as expected, up 1.8%. Stripping out transportation durable orders is down -0.2%, ex-defense is up 1.5%. On a year over year basis headline durables orders are down -0.8%. Transportation equipment was the strongest segment, up 6%.

Pending Homes sales came in at -2.8%, well below the expected +1.0% predicted by economists and a 12 month low. The reason for the decline are historic low levels of inventory and rising prices, prices rising due to supply/demand imbalance. On a year over year basis pending sales are up 0.4%. Sales are expected to remain sluggish with upward pressure to prices so long as inventory remains low. What I think we can expect to see now, and there is some evidence of it, is renewed activity among the home-builders.

Moody's Survey Of Business Confidence fell -0.6% to 33.1. The index is hovering just below a multi-month high and indicative of stabilizing sentiment. Mr. Zandi says that global businesses remain upbeat and performing at the high end of expectations. The North America is strongest, South America weakest with Europe and Asia both cautious.

Just over 92% of the S&P 500 has reported earnings this cycle, of those 66% have beaten EPS estimates and 52% have beaten revenue estimates. The averages are on the low side of trend, suggesting that companies are having a harder time beating estimates. This could be because 1) companies are doing worse than low-ball estimates expect or 2) estimates this season are a little more aggressive than they have been. Based on the evidence I think it is a combination of the two, those doing poorly are doing worse than expected and those doing well are not quite doing as much better-than-expected as trends suggest. To date, the blended rate is only 4.9%, trends suggested it would go as high as 7% or 8% by end of season but that does not look likely now.

Looking forward expanding growth is still in the forecast. Full year 2016 growth is hovering at 0.4% and will likely remain there. Looking out to 2017 full year growth is expected in the range of 10% and that goes up for 2018 to 11.8%. First quarter 2017 is projected at 9.3%, down -0.3% from last week, while 2nd quarter expectation is holding steady 9.0%.

The Dollar Index

The Dollar Index held steady in today's session as the market awaits a busy couple of weeks. To stat with there is the State of the Union Address tomorrow night, any talk of tax plans, spending, job creation etc could easily support the dollar. After that this week is fairly heavy with data, next week even more so, and then after that the FOMC meeting. In terms of rate hike, expectation is on the rise. The March meeting is now showing a 33% chance of at least a quarter point hike with May at 54% and June over 70%.

This week, in terms of data, the most important piece may be the Fed's Beige Book scheduled for Wednesday afternoon. Today the index posted a small gain after testing support at the $100.50 level. Support is confirmed by price action, the short term moving average and the indicators although it may be tested again. A break below support is bearish near term with downside target near $99.50 and then $98.65. A bounce would be trend following with upside target near $103.00.

The Gold Index

Gold prices held fairly steady in today's session, first up about a half percent and then down about a quarter percent. Today's action is in response to the dollar and supported by economic/political uncertainty stemming from the Trump administration. That being said I see the dollar moving higher and gold moving lower.

The gold miners did not rise, or even hold steady, in today's session. The Gold Miner's ETF GDX fell nearly -4.5%, diverging from gold prices and perhaps foreshadowing a fall in the underlying metal. Today's action breaks support at $23.50 with downside target near $21.50. The risk now is that gold won't fall, if so the sell-off in the miners could be overblown and may snap-back with quickness.

The Oil Index

Oil prices closed with small gains after an early surge of 1%. The move up was driven by hopes of supply/demand rebalance and rising prices but was quashed by reports of stockpile builds out of the Cushing supply hub. Oil prices remain range bound in the near term and winding up for what could be a big move. The only question now is if production will continue to outpace demand.

The Oil Index gained nearly a full percent in today's session, rising up from Friday's test of support. Support is the 1,200 level, the top of last years nearly 8 month trading range, and confirmed by the indicators. A drop below this level would be bearish with a near term target near 1,175 or 1,150. Longer term outlook is bullish, earnings growth is expected, so I am bullish on the sector. A move up from 1,200 would be trend following, a break above 1,250 would be bullish with upside targets near 1,300 in the near term.

In The News, Story Stocks and Earnings

Tenet Health Care reported earnings after the closing bell and did not meet expectations. The hospital operator posted growth across all segments but earnings were impaired due to restructuring and legal expenses. Shares of the stock fell more than -10% on the news.

Priceline reported after the closing bell and blew past estimates. EPS of $14.20 beat estimates by more than a dollar and sent shares soaring in after hours trading, revenue was also well above estimates. Next quarter guidance was weak, in the range of $8.50 compared to consensus of $10.72, but did not hinder trading. Shares of the stock gained more than 3.5% after the release.

The VIX rose modestly today, gaining a little less than 6%. The candle is a small one, nothing alarming, but it is the 8th close above the short term moving average. Today's action is still below resistance at 12.50 but that may be tested or broken. The indicators are consistent with range bound trading but also bullish suggesting a test of resistance could come. A break above 12.50 would be bearish for the market in the near term. Until then the index remains very low and indicative of relative market calm.

The Indices

Today's action was much like Friday, only a little less active. The early part of the session saw the indices retreat to near term support, mid-day that support was turned into a base and late day that base led to new all time highs (in some cases). Leading the charge, but not setting a new all time high, was the Dow Jones Transportation Average with a gain of 0.56%. The transports created a medium sized white bodied candle extending a bounce from support and the short term moving average. Today's action is trend following but nit quite confirmed by the indicators. Both MACD and stochastic are in process of rolling into trend following signals but have yet to complete the move, MACD looking set to do so tomorrow provide action is to the upside. A continuation of this move has an upside target at the current all time high with the possibility of new all time highs. Support is near 9,250, a break below there is bearish in the near term.

The NASDAQ Composite made the next strongest move today, 0.28%, extending a bounce from near term support. The index did not set a new all time high but is only a few points from doing so. The indicators remain consistent with a peak within an uptrend and divergent in the longer term, suggesting more consolidation or correction is possible. Near term support is near 5,750 and the short term moving average should the index pull back more than it has, a move higher is trend following with upside targets near 6,000.

The S&P 500 made the third largest gain today, 0.10%, and set a new all time closing and intraday high. Today's candle is a small white bodied candle with visible lower shadow testing near term support near 2,36. The move extends the current leg of the rally and breaks the index out of the near term trading range set last week. The indicators are bullish but also consistent with a peak or slowing trend so caution is due. Upside target remains 2,400 in the near term with 2,500 in the short. A break below the bottom of last weeks range would be bearish near term with downside target near 2,325.

The Dow Jones Industrial Average posted the smallest gain today, only 0.08%, but was able to set new all-time and intraday closing highs. The index created a small white bodied spinning top and may be cresting a peak. The indicators are both bullish and consistent with a slowing trend or peak within a bull market but do not guarantee correction or pull back. Near term support is near 20,650, a break below here would be bearish with first target for additional support near 20,500. Until then the trends are up in the near, short and long term with upside target of 21,000 in the near term.

If last week can be considered a "dip" that was bought, today can too. The indices moved lower at the open in a half-hearted attempt at selling only to meet near term support, move higher and set a new all time high. The trend is definitely up and while not a stampede, there is a steady flow of money into the market. Until we get a reason for this to stop I expect we'll keep seeing new highs.

Looking forward there are some hurdles to get over but I think they are merely bricks in the "wall of worry". The first is the State of the Union Address;Trump could do a lot to sway investor sentiment, it just depends on what he chooses to talk about. After that it will be the data as always, until the FOMC meeting, and that is on track for growth. Tomorrow look out for the 2nd estimate of 4th quarter GDP, it is expected to be revised higher, as well as auto sales, Chicago PMI and consumer confidence. I remain bullish but cautious.

Until then, remember the trend!

Thomas Hughes

New Plays

Free Energy

by Jim Brown

Click here to email Jim Brown
Editor's Note

Companies have been trying to harness this free energy for decades and CSIQ is winning the battle.


CSIQ - Canadian Solar - Company Profile

Canadian Solar Inc., together with its subsidiaries, designs, develops, manufactures, and sells solar wafers, cells, and solar power products primarily under the Canadian Solar brand name. The company operates through Module, Energy Development, and Electricity Generation segments. Its products include various solar modules that are used in residential, commercial, and industrial solar power generation systems. The company also provides specialty solar products consisting of Andes Solar Home System, an off-grid solar system, designed to provide an economical source of electricity to homes and communities without access to grid; and Maple Solar System, a clean energy solution for families, as well as solar system kits, which are a ready-to-install packages, such as inverters, racking system, and other accessories. In addition, it develops, builds, and sells solar power projects; performs the engineering, procurement, and construction (EPC) work for the solar projects; and offers operation and maintenance services that include inspection, repair, and replacement of plant equipment, site management, and administrative support services. It offers its products to distributors, system integrators, project developers, and installers/EPC companies. The company has operations in North America, South America, Europe, Africa, the Middle East, Australia, and Asia. Company description from FinViz.com.

Shares are rebounding out of a three month base at $12 and nearing a four-month high. They had a tough Q3 where they matched earnings estimates after a drop in Chinese demand due to a drop in incentives. That resulted in a 30% decline in panel prices.

CSIQ is the second largest solar manufacturer in the world with 5.8 gigawatts of annual module capacity. It has a strong pipeline of orders, $1 billion in cash and $1.2 billion in future proceeds from the sale of non-core assets. That is a lot of liquidity for a solar company. They have an operating portfolio of solar plants worth $1.4 billion that will eventually be sold to investors.

CSIQ has earnings on March 9th. Normally I would not recommend a position ahead of earnings. However, I am not recommending this as a stock position. In a normal stock position we risk about $1 per share. I am recommending we buy a call option, currently 93 cents and hold over earnings. The stock is moving in the right direction and earnings expectations are low. We could have a break out situation with CSIQ.

Buy April $16 call, currently 95 cents, no initial stop loss.


No New Bearish Plays

In Play Updates and Reviews

Surprise, Surprise

by Jim Brown

Click here to email Jim Brown

Editors Note:

The big cap indexes posted minimal gains but the Dow and S&P did close at new record highs. The Dow gained only 15 points and was right on the verge of closing negative right up to the last couple minutes of trading. The overbought conditions appear to be weighing on further gains.

However, the big surprise came from the Russell 2000 with a whopping 1% gain in an otherwise flat market. If the Russell is suddenly going to regain its normal leader status we could have an entirely new bull leg higher the rest of the week.

However, the elephant in the room is still the president's speech on Tuesday evening. He could literally ignite a new fire under the market or he could cause a significant bout of profit taking. Until we get to Wednesday, the risk of a bearish move is significantly higher than the potential for a bullish sprint higher.

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

INFN - Infinera
The short stock position was entered at the open.

UA - Under Armour
Buy UA shares with a trade at $20.15.

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

AMD - Advanced Micro Devices - Company Profile


Shares of AMD spiked $1.08 to a 10 year high on news early order activity for the Ryzen processors had been very strong. The most powerful Ryzan 7 chip will go on sale this week.

Original Trade Description: February 22nd.

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.

Position 2/23/17:

Long AMD shares @ $14.20, see portfolio graphic for stop loss.

Long Apr $16 call @ 67 cents, no stop loss.

ARNC - Arconic - Company Profile


No specific news. Arconic shares are still weak as the entire metals sector is down on news the infrastructure stimulus program could be delayed until 2018.

We have plenty of time.

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."

Update 2/23/17: Arconic declared a quarterly dividend of 6 cents on common stock, 93.75 cents on Class A preferred stock and $6.71875 on Class B shares. The dividends are payable on May 25th to holders on May 5th.

Position 2/17/17:

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

BRKS - Brooks Automation - Company Profile


No specific news. Only a minor 11 cents decline from Friday's new high.

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.

UA - Under Armour - Company Profile


Instinet analyst Simeon Siegel cut his rating from neutral to sell. Shares fell -3% on the rating change.

Buy UA shares with a trade at $20.15. Initial stop loss $19.25.

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:

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

With a UA trade at $20.15: Buy UA shares. Initial stop loss $19.25.

Previously closed 2/24/17: Long UA shares @ $19.94, exit $19.35, -.59 loss.

BEARISH Play Updates

CRAY - Cray Inc - Company Profile


No specific news. Shares rebounded despite no news.

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.

INFN - Infinera Corporation - Company Profile


No specific news. Minor 18 cent rebound.

Original Trade Description: February 25th

Infinera Corporation provides optical transport networking equipment, software, and services worldwide. The company offers Infinera DTN-X family of platforms for subsea, long-haul, regional, and metro mesh networks; Infinera DTN platform for subsea, long-haul, and regional mesh networks that support a range of Ethernet and optical transport network client interfaces; and Infinera FlexILS Line System platform that connects various Infinera platforms over long distance fiber optic cable. It also provides Infinera TM-Series, a carrier-grade packet-optical transport platform; Infinera TS-Series, a passive optical wavelength-division multiplexing (WDM) product; Infinera Cloud Xpress Platform, a compact platform for cloud/data center interconnect applications; and Infinera ATN Platform, a small form-factor WDM platform. In addition, the company offers Infinera Open Transport Switch, a software platform that enables abstraction and virtualization of the underlying Infinera platforms; and Infinera Management Suite, a network management system used by network operators to manage various Infinera platforms. Further, it provides various support services for vraious hardware and software products. The company serves communications service providers, Internet content providers, cable providers, wholesale and enterprise carriers, research and education institutions, and government entities. Company description from FinViz.com.

Infinera makes products primarily used by telecom companies to increase their capabilities over existing fiber optic cables to reduce the need to laying more fiber. Their major market today relies on infrastructure upgrades in China, which is a very competitive market.

The company reported a loss of 12 cents that narrowly beat estimates for a 13 cents loss but was down sharply from the 5 cent profit in the year ago quarter. Revenue declined 30% to $181 million but did beat estimates for $175 million. For the current quarter they guided for revenue of $167-$178 million, down from $249 million in the year ago quarter. Analysts were expecting $171 million. However, they guided for a loss of 16 cents and analysts were expecting 11 cents.

Analysts claim the company is suffering from a perfect storm of M&A among its biggest clients that has reduced demand.

Earnings May 11th.

After trading flat at $8.50 for seven months the shares spiked to just over $12 on the better than expected earnings. Short covering is a wonderful thing if you are long. However, everyone that sat on the $8 stock for seven months is now running for the exits. I believe the stock will return to its prior levels given the negative guidance.

Position 2/27/17:

Short INFN shares @ $10.87, see portfolio graphic for stop loss.

Optional: Long July $10 put @ 78 cents, see portfolio graphic for stop loss.

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