Option Investor

Daily Newsletter, Wednesday, 3/1/2017

Table of Contents

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

Market Wrap

Trump Rally Continues

by Keene Little

Click here to email Keene Little
Following President Trump's speech to Congress the stock market rallied strong. The Dow reached 21000 and notched another quick milestone as buyers gobble up the idea that Trump's policies will ignite the economy. Lack of specificity by Trump has not dissuaded buyers from continuing their bullish campaign.

Today's Market Stats

Before Trump's speech there were of course guesses about how the market would react. The common belief was that the market would not react well if Trump did not provide much in the way of details about his tax and spending policies. Well, we know what happens when the majority believes something and even though Trump's speech was long on promises and short on details, the market reacted with a strong rally today. But will it stick?

Trading volume was strong today so the rally was more than just short covering. There were practically no pullbacks during the day as each little pause brought in more buyers. The advance-decline line and advancing stocks minus declining stocks remained strong all day. New 52-week highs spiked up to a level not seen since January 25th and December 8th before that. The bulls have nothing to complain about with today's performance. Well, actually there are continuing signs of lack of momentum to the upside and with an overbought market that's always a concern.

March has come in like a lion and now we have to wonder if it will go out like a lamb (at least shorn of its wool, if not slaughtered for consumption). The good news for bulls is that statistically speaking, March has been the best month of the year in the past 10 years with an average gain of +2.7% (SPX gave us half that already today with its +1.4% gain) and positive 7 out of 10. April has been stronger in reliability -- up 9 out of the past 10 years.

But is this March going to be one that goes against statistics? January has a record of being the worst month of the year, down an average of -1.7% and positive only 4 out of the past 10 years. February is in the middle with a +0.39% average performance and up 6 out of the past 10 years. This January and February have hardly been weak and that paradoxically could set us up with a weak March.

But the data shows March can be even stronger when there's strength leading into it. Statistically speaking, a strong January-February still leads to a positive March but not quite as much. But March gets a strong boost if the market was positive November through February, which we've had.

The bulls clearly have a tail wind here and while I see the potential for a high this week, one that could lead to a larger pullback than we've seen since the end of January, it will be important to see what kind of pullback/consolidation we get. The pattern of the pullback will then provide clues about whether or not we should expect a continuation of the rally later this month.

If there's a strong tail wind behind the bulls why should we even consider the possibility that the bears might get their turn? In three words -- the Fed, debt and politics (not to mention more than a few technical indicators).

First, Yellen will be speaking on Friday and what she says could provide additional clues about what the FOMC will decide at their next meeting on March 14-15. Many are now thinking the Fed will be forced to raise rates again in March since inflation data requires them to start getting proactive. This could throw some cold water on the bulls.

Second, March 15th is also the technical deadline for the U.S. government to raise its debt ceiling. Congress is not playing well with each other right now and trying to reach an agreement could be a challenge. The market might not react well to all that, especially if the Fed has just raised rates and discussions of the amount of debt could prompt more hand wringing.

Third, European concerns could be reignited following the Dutch elections on March 15, especially if the Dutch show a continuation of an antiestablishment sentiment displayed by the Brits (Brexit) and Americans (Trump election). Following the Dutch vote will be the French vote and the worries about the EU unraveling could start to snowball.

All of the concerns mentioned above could certainly make March "different this time." That's of course all speculative but there are reasons to be cautious about the bullish expectations for March just because it has typically been so. In the meantime, the price pattern should provide early warning signs when things might change. I'll start tonight's chart review with a top-down look at the Dow.

Dow Industrials, INDU, Weekly chart

This morning's rally for the Dow popped it above the top of a parallel up-channel for its rally from February 2016, which is a bullish accomplishment if it can hold above the line, currently near 20960 (near this morning's open). A close below 20960 would be the first sign of trouble for the rally but until then the bulls have done nothing yet to indicate they're done buying.

Today's high was a small poke above a trend line along the highs from May 2011 - March 2015, currently near 21140, but obviously the rally could simply continue heading higher. On a weekly closing basis we'll have to see if the bulls can get the Dow above this potentially strong resistance in an overbought market.

Dow Industrials, INDU, Daily chart

The Dow's daily chart shows how this morning it gapped up to open at the top of its parallel up-channel for the rally from February. It then ran higher and poked above the trend line that runs along the highs from May 20111 - March 2015, near 21140, and as mentioned above, this line could end up being very strong resistance. Late in the day it pulled back below the trend line.

While it's possible today's flare-up will be followed by the start of a decline, the short-term pattern supports the need for just a small pullback correction, maybe Thursday morning, and then a final (?) small rally to complete the leg up from January 31st. So we could end up with a throw-over finish above the line but then a reversal back down into next week. The continued bearish divergence against the December high should be worrisome to bulls.

Key Levels for DOW:
- bullish above 21,155
- bearish below 20,734

Dow Industrials, INDU, 60-min chart

The Dow's 60-min chart shows an expectation for a small pullback correction into tomorrow and then one more leg up to complete he wave count for the rally from January 31st. The current projection is to about 21230. The first sign of trouble for the bulls would be a drop below Monday afternoon's high at 20851. Actually, we'd have a bearish heads up if the Dow drops back below 21K.

S&P 500, SPX, Daily chart

SPX continues to rally with increasing steepness in its uptrend lines, a sign that the rally is going parabolic. Or at least we know that steep trend lines tend not to last as long and when they break it's usually followed by a steep correction. Where this rally will end is anyone's guess but like the Dow, I think we're looking at just a small pullback and then one more minor new high to complete the rally.

I show a new key level to the upside at 2416, which is based on a projection off the short-term wave pattern (actually it's slightly lower, around 2413) and the Gann Square of Nine chart. I don't show the chart but it's interesting that 2416 is square to 666, the March 2009 low. Below that is 2406, which is aligned with the October 2002 low, October 2007 high, October 2011 low and October 2012 high.

Key Levels for SPX:
- bullish above 2300
- bearish below 2200

S&P 500, SPX, 60-min chart

The SPX pattern is very similar to the Dow's (the same with the tech indexes) and ideally we'll see a little more pullback/consolidation Thursday morning and then a final push higher. The top of a parallel up-channel for the rally will be near 2413 by Friday afternoon. From a Gann chart perspective we have 2406 and 2416 as potentially important numbers. From a pattern perspective it looks like we could make a high in between those two numbers. At least it's something to watch for since eventually even this rally is going to complete.

Nasdaq Composite, COMPQ, Daily chart

On February 15th the Nasdaq climbed above its trend line along the highs from April-August 2016, which was obviously bullish, and then used the line for support when it pulled back into last Friday's low and again on Tuesday. The back-test and bullish kiss goodbye led to today's rally and now I'm watching a trend line along the highs from November 22 - February 21, currently near 5925 (today's high was 5911).

There's also a price projection at 5940.60, which is where the 5th wave of the rally from November would equal the 1st wave. For now that gives us an upside target zone for the completion of the rally at about 5925-5941. The Nasdaq stays bullish as long as it doesn't drop below last Friday's low at 5800, a break of which would confirm the top is likely in place. This is true for the other indexes as well.

Key Levels for NDX:
- more bullish above 5941
- bearish below 5800

Russell-2000, RUT, Daily chart

The RUT finally reached its trend line along the highs from 2007-2014-2015, near 1414, with today's high at 1414.82. Slightly higher is a price projection near 1422 for the completion of a 5-wave move up from January 30th, which means it would be more bullish above 1422. At the moment we have a 1414-1422 target zone and the RUT has achieved the minimum expectation. While the short-term pattern, like the others, would look better with a small correction to today's rally and then a final push higher, the risk on the long side is now elevated with the RUT up against potentially strong resistance and showing significant bearish divergence since December.

Key Levels for RUT:
- bullish above 1422
- bearish below 1386

10-year Yield, TNX, Weekly chart

TNX has been chopping sideways since its high on December 15th and it formed a sideways triangle for the consolidation. This is a bullish consolidation pattern but it also points to just one more leg up to complete its rally from July 2016. Last Friday's low was a slight throw-under below the bottom of the triangle, typical for the completion of a triangle, and now this week's rally, especially today's, is a good signal that the next leg up for its rally has begun (although it hasn't yet broken out of its triangle pattern, the top of which is currently near 2.5%).

An upside target zone for TNX is 2.606-2.687, with the lower end being the projection for the 5th wave of the rally from July 2016 where it would equal the 1st wave. The upper projection is where the c-wave of an expanded flat correction off the January 2015 low would equal 162% of the a-wave. In between is a downtrend line from 1988-2007, currently near 2.64. TNX stays bullish (bond prices bearish) as long as it stays above last Friday's low (like stocks) at 2.314.

KBW Bank index, BKX, Weekly chart

The banks got a big boost today (BKX was up +3.6% at its high before finishing with a +3.2% gain) and like the other indexes it looks like BKX should pull back a little and then head a little higher before running into a potentially important high. BKX had stalled last week near a price projection just above 97 but then blasted through it today. The next upside target is 102.19, which is where the 5th wave of the rally from June 2016 would equal the 1st wave.

A shorter-term pattern for its rally suggests BKX could top out 100-101, which means we have a 100-102 target zone for BKX. After this week's high, which is when I think BKX could complete its rally, we'll have to determine from the next pullback/decline whether or not we should expect another leg up in May-June or if instead we'll get a more serious decline.

Transportation Index, TRAN, Daily chart

The TRAN has been working hard to rally since its January 3rd low but has only managed to make a small rising wedge with its minor new highs. This is an ending pattern, typically seen at market tops. A drop back below its November 2014 high at 9310 would be a bearish heads up and below its February 2nd low at 9047 would tell us a top is in place.

SPX vs. Relative Strength of TRAN/UTY, XLY/XLP, RUT and BKX, Daily charts

The 3 charts below show SPX at the top, clearly making new highs since December. But what's disconcerting, as can be seen in the middle chart, is the lack of participation in some key sectors. The two bottom charts show Relative Strength (RS) and the middle chart shows the transports have been underperforming the defensive utility sector since the December high. And if the consumer was doing well we'd see XLY (consumer discretionary) outperforming XLP (consumer staples) but since the December high we've seen just the opposite.

The bottom chart shows the significant underperformance of the RUT vs. SPX, which is not supporting the "animal spirits" that we typically see in a bull market. The positive thing for the market is the fact that the banks are showing at least equal strength at this point, although again, it's best if the banks are out in front. I don't show the RS for the semiconductors but since February 8th the SOX has been underperforming SPX. I like to see BKX and SOX in synch and leading the market in order to feel better about the direction. Right now we have mixed and weak signals that do not support this rally.

U.S. Dollar contract, DX, Daily chart

The US$ spiked up last night but then pulled back sharply this morning. The early-morning high was another test of the top of a previously broken up-channel for the rally from May 2016, which was last tested on February 15th. I see the potential for the dollar to make it up to 103 for a larger bounce pattern off the February 2nd low but at the moment I think there's a good chance the dollar will drop from here instead of rally.

Gold continuous contract, GC, Daily chart

Gold consolidated today after this morning's low tested support at its 20-dma, near 1237. That and the uptrend line from December, currently near 1235, should act as support if there are higher prices to come for the current bounce. But following Monday's high, which back-tested its broken 200-dma, currently near 1264, it's looking like we could see gold head back down from here. A drop below 1235 would tell us the high is likely in place. But for the short term there is upside potential to a price projection at 1273.20 (for two equal legs up from December), which would also result in a test of a downtrend line from August 2016.

Oil continuous contract, CL, Daily chart

Oil's high on February 23rd was essentially a test of its January 3rd high and is showing a significant bearish divergence. It could be consolidating sideways as MACD "resets" near zero and a break above 55 would likely lead to a rally to the 58-59 area. But the choppy move up from January 10th looks like an ending pattern and I think the higher-odds scenario points to a breakdown. A drop below the February 8th low at 51.22 is needed to confirm a high is in place.

Economic reports

Today was a busy day for economic reports but they were all ignored. There were no real surprises and the market had already been on a tear to the upside. The rest of the week will be fairly quiet.


The VIX issued a warning signal today by not agreeing completely with the stock market's rally. It gapped down this morning but then by this afternoon it rose sharply and retraced most of this morning's decline. Someone does not believe the rally will last and when we've seen this before it has often been a good warning sign for bulls not to get complacent. Stops should be pulled up tight, such as no lower than last Friday's or yesterday's lows.

Price is king and the new highs must be respected, especially by bears who stare in disbelief that the rally continues as it has. We have lots of warning signs and technical indicators that tell us not to trust this rally, especially since it's been built on hope and not much in the way of concrete accomplishments by the Trump administration (when it comes to tax and spend policies). This makes the rally especially dangerous and reason enough to pay close attention to those little signals that warn us things are not as rosy as they appear when looking at just price.

The wave pattern for the rally looks nearly complete and ideally needs just a small pullback/consolidation into Thursday morning and then one more push higher. If we get the push higher I'd then pull stops up real tight on long positions and if you're itching to get short, look for a rollover from a new high and use the high for your stop. It might take a stab or two to make it work (never try more than 3 times since that's the market telling you you're too early). If we get a new high, use a break of the pullback low from today's high as a stop level for getting into a short position (with a stop on the play at the high).

Bears should be close to having a turn at the feeding trough but at the moment it's too early and it's important to let price tell you when to try, and not by trying to anticipate when and where that high will occur. I have my guesses, noted on the charts in my commentary, but don't we all (wink).

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

Keene H. Little, CMT

New Plays

Internet of Things

by Jim Brown

Click here to email Jim Brown
Editor's Note

Picking a new stock after the biggest rally in four months is not an easy task. With the Dow up more than 300 points, S&P over 32 and Nasdaq over 78 points, every stock worth owning has gapped higher and inflated the option premiums. The stocks that did not gap higher today we do not want to own for obvious reasons. If they are not moving higher in today's market they are probably not going to be winners as this short squeeze bleeds off. I went with SWIR because of their strong earnings and guidance and exposure to the IoT.


SWIR - Sierra Wireless - Company Profile

Sierra Wireless, Inc. provides wireless wide area modem solutions for the mobile computing, rugged mobile, and machine-to-machine (M2M) markets. It develops and markets wireless modems for mobile computers; embedded modules for original equipment manufacturers (OEMs); and fixed and mobile wireless data solutions for industrial, commercial, and public safety applications. The company's products and solutions connect people, their mobile computers, and fixed terminals to wireless voice and mobile broadband networks. Its mobile computing products are used by businesses, consumers, and government organizations to enable high speed wireless access to a range of applications, including the Internet, e-mail, corporate intranet, remote databases, and corporate applications; and rugged mobile and M2M products are primarily used in the public safety, energy, industrial, transportation, and transaction processing markets. The company also provides various product development and integration support services, which include software and hardware integration, platform RF testing and optimization, regulatory approvals, mobile operator certification, project management, and sales and technical support training. Company description from FinViz.com.

Sierra guided for Q4 earnings of 13-19 cents and revenue of $157 million. They reported earnings of 27 cents on revenue of $163 million. Revenue from OEM solutions rose 11.2% and Enterprise solutions +27.1%. Gross margin was 34.3%. They guided for Q1 revenue from $152-$161 million representing up to 12.7% growth. They projected earnings of 13-20 cents. Analysts were expecting $154.8 million and 12 cents.

Earnings may 11th.

The company is very strong in the IoT and just won the fastest connected car contract with Volkswagen. The car company will be using Sierra's modems to connect the cars to the cloud through its Car-Net platform. The connected car market is expected to grow 31% annually through 2020 and be worth $41 billion a year.

They have a 33% market share in the machine to machine (M2M) market. They recently announced a new wide area WiFi technology to allow IoT devices to be plug and play.

The company has a lot going for it and they beat their own guidance significantly last quarter.

Buy SWIR shares, currently $29, initial stop loss $26.75.

No options recommended because of price and spreads.


No New Bearish Plays

In Play Updates and Reviews

Alternating Volatility

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Russell has had alternating gains and losses of 1% or more in four of the last five days. The massive short squeeze today powered the Russell to a new high but only by 3 points. The Russell peaked at noon while the other indexes continued higher until 2:30. The corresponding S&P-600 rallied 1.85% but failed to close at a new high. The index came to a dead stop on resistance.

The Russell has been moving sideways for three months and the increased volatility over the last week it typical of market tops. It is entirely possible the small caps can continue higher but their afternoon performance relative to the big cap indexes today was disappointing. The Russell did have a higher percentage gain at 1.95% compared to 1.4% on the Dow and S&P but the early end to the gains means there were sellers waiting.

Today's market moves were just short covering. The real test of the market will be on keeping and adding to these gains.

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

No Changes

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


No specific news. Shares rebounded 50 cents and back to within 25 cents of Tuesday's high.

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. Back in the middle of the recent range thanks to the short squeeze.

Arconic shares are still moving sideways overall as the entire metals sector is weak 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.

CSIQ - Canadian Solar - Company Profile


No specific news. No rebound in a bullish market. Interesting move with a 27-cent decline. We have an option position here and will hold over the Mar-9th earnings.

Original Trade Description: February 27th

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.

Position 2/28/17:

Long April $16 call @ 95 cents, see portfolio graphic for stop loss.

BEARISH Play Updates

CRAY - Cray Inc - Company Profile


No specific news. Small rebound at the open but shares fell back to support at $20.85.

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. Only a minor rebound from a two-week closing low. That suggests more downside ahead.

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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