Option Investor

Daily Newsletter, Monday, 3/6/2017

Table of Contents

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

Market Wrap

Another Dip Bought

by Thomas Hughes

Click here to email Thomas Hughes


Global markets were cautious in today's trade with the ECB, NFP and FOMC at hand, but the dip was bought. There was little to move the market today, the economic and earnings calendar's were both light on events, and there is quite a bit of market moving data due out later this week so volume was light and action directionless. The dominant thing in everyone's mind is the FOMC meeting, they are expected to raise rates by at least 25 basis points, but not enough to overshadow the NFP on Friday. Expectations aren't wild, only 210,000, so anything in the range of 175,000 to 250,000 should be Goldilocks.

Indices in Asia were more mixed than down. Chinese markets were up on optimistic talk coming out of the annual meeting of China's parliament. Japanese market were down however as a stronger dollar hurt the yen and North Korea fires more missiles at them. This time 4 ballistic missiles were fired with at least 3 of them landing within Japan's economic zone of operations. Europe moved lower as well, first down about a half percent but paring those losses by the close.

Market Statistics

Futures trading indicated a negative open all morning. The trade was relatively steady for most of the morning, down about -5 points for the SPX, but fell off a bit going into the open. At the open there was a mild rush of selling, not too strong, that pushed the index down about -13 points but that was the bottom of the day. The market had begun to move higher by 11:30AM, after the SPX closed the gap formed last Wednesday and confirming near term support. Between 11:30 and 1PM the indices halved their losses at least and then entered a tight trading range that persisted into the close.

Economic Calendar

The Economy

Only one economic release today, Factory Orders for January. New orders for manufactured goods rose by 1.2%, better than expected but down a tenth from last month and the 6th month of increases. Last month was not revised. Within the report shipments continues to rise while unfilled orders fell. Inventories rose by a tenth after falling -0.3% last month. Durable goods order rose by 2%, led by transportation equipment.

Moody's Survey of Business Confidence gained 0.5% to hit 33.6 and is just off the short term high. Mr. Zandi's summary is little changed. He says that global business remains optimistic, stable and strong. The global economy is growing at the high end of its potential, view of current conditions has improved from the fall and forward outlook is positive.

Earnings season is just about over for this cycle. To date, 98% of the S&P 500 has reported earnings with 65% beating earnings estimates and 53% beating revenue estimates. The blended rate is 4.9%, not bad considering the long earnings recession we were just in but not as good as I had expected. Forward outlook remains positive although the estimates are creeping lower.

First quarter 2017 is now expected to see earnings growth of 9.0%, down -0.3%, with second quarter growth down to only 8.5%. Full year 2017 outlook fell to 9.7%, still robust, with that growing to 11.9% in 2018. Estimates for next year are on the rise, rising a tenth from last week. Energy is still expected to lead in 2017 with full year growth of 315%.

The Dollar Index

The Dollar Index fell in early trading to test support at the short term moving average. Today's action is most likely backing-and-filling as forward outlook is quite bullish for the dollar. The FOMC is expected to raise rates next week, the CME's Fedwatch tool rising above 80% today, with the prospects of 3 hikes this year growing day by day. The risks this week are the data, which may be too weak or too strong, and the ECB meeting on Thursday. A hawkish sounding ECB or Mario Draghi could boost the euro and take the wind out of the dollar's sails. Support is the short term moving average, upside targets are near $103.75.

The Gold Index

Gold prices held steady today, spot gold closing with almost no movement, but downside pressure remains. The FOMC is a near certainty to raise rates, if the data is good they might be expected to raise rates a little quicker than they are now. If so support for gold could dry up. First target is $1,200 but a break below here could send it down to $1,150 in the near to short term.

The gold miners continue to lose ground. The Gold Miners ETF GDX fell more than -2.5% today to test support at $21.50. The ETF appears to be heading lower, the indicators are both consistent with a strengthening sell-off and lower prices, but a break below support is required. There may be a bounce from here this week while we wait on the data and then the FOMC next week but longer term outlook remains bearish. Resistance may be as high as $23.50, a break below support could go as low as $18.50.

The Oil Index

Oil prices lost ground today as rising US production and storage continue to offset OPEC production cuts. Today's action was supported to by talk of further OPEC cuts but negative all the same. WTI fell a little more than -0.25% to trade just above $53, near the mid-point of the near-term trading range. There is still no clear indication of supply/demand rebalancing so I expect this range to hold in the near to short term.

The Oil Index gained 0.34% today, contrary to the broad market's decline, in a move confirming support at the 1,200 level. The index appears to be building a base at this level, supported by forward earnings outlook, and is only awaiting the right catalyst to send it higher. The indicators are both confirming support at this level and set up for a fairly strong bullish entry signal in-line with the prevailing long-term trend. MACD has turned bullish and stochastic is set up for a strong bullish signal so all that's left is for a move to the upside. Near term resistance is the short term moving average, just above today's close, with additional targets near 1,235 and 1,250. A break above these could lead to a long term upward movement with upside targets near 1,350 and 1,500.

In The News, Story Stocks and Earnings

Shares of Tyson Foods, maker of all manner of poultry products, got slammed today on reports one of its suppliers had a case of the bird flu. This is the first case of bird flu in a year and is in process of being contained. If not it could affect other companies, Cal-Maine is one that springs immediately to mind. Cal-Maine is one of the largest supplier of shell eggs in the country and could get a boost if the hen population gets sick and eggs get scare. Shares of Tyson fell more than -2.5% on the news, finding support near the bottom of the three month trading range. Shares of Cal-Maine gained 1% and look like they may be heading back to the top of a 6 month range.

Shares of GoPro got slammed today as well following a downgrade by Goldman Sachs. The investment banker says the camera makers market is saturated and the entry into the drone business was not very promising. The rating was dropped to a sell from neutral with a price target of $6. The stock fell nearly -8% on the news and is now trading at a new all-time low, just above $8.

The VIX gained a little more than 2.5% in today's session but created a black bodied candle. Today's action made a small gap up at the open, opening at the short term moving average, and then falling throughout the day. The index appears to be falling back to the long-term lows and the indicators are in agreement. Both MACD and stochastic are indicating a peak and falling off, consistent with a retreat to support. Support is near $10.50 and historic low levels, levels consistent with ongoing market rally.

The Indices

The indices tried to sell-off again and again it was a halfhearted attempt. The early declines did not last long, buyers stepped in on the dip, and drive them back almost to break-even by the close. If not for a round of selling in the last 15 minutes today's losses would be even less. The Dow Jones Transportation Average led with a decline of -0.75%. The transports created a small bodied black candle with long lower shadow, hammer doji-like, confirming near term support at the short term moving average. The indicators are both bearish, consistent with a test of support, but very weak so the test may not be very deep. A break below the short term moving average is bearish in the near term with downside target near 9,250 and would be a possible entry for long term bullish positions.

The NASDAQ Composite made the second largest decline but only half that of the transports, -0.37%. The tech heavy index created a small white bodied spinning top candle testing near term support at the bottom of the gap opened last Wednesday. The indicators are consistent with a pull-back or consolidation so support could be tested again. A break below 5,820 would be bearish in the near-term with downside target near 5,750 and a long term up-trend line. A move higher from here may find resistance at the all-time high, a break above that is bullish with new all-time high targets near 6,000.

The S&P 500 made the third largest decline, -0.33%, closing with a loss of -7.81. Today's action created a small doji hammer testing support at the bottom of the gap opened last Wednesday. This is a good thing as it allows those who've missed out on the last week's rally to get in without having to chase prices, and for a calm consolidation while profits are taken and new positions are opened. The indicators are consistent with a top, both rolling over from recent peaks, so support may be tested again. A break below support would be bearish near-term with downside target near 2,350 and the bottom of last week's trading range. A move up from support may find resistance at the all-time high, a break above there would be bullish with upside target near 2,450.

The Dow Jones Industrial Average made the smallest decline today, -0.24%. The blue chips created a small spinning top doji, testing for support, but did not close the gap formed last Wednesday. The indicators are rolling over, consistent with a peak, so the gap could be closed tomorrow or Wednesday if nothing spurs the bulls into buying. A break below 20,850 would be bearish near-term with downside target near 20,500, a bounce from these levels would be bullish with upside target at the all-time high with chances for new all-time highs.

Today's action was not bad at all. There was some selling but no one lost their nerve over the weekend, there was no mad rush to get out of the market and near-term support levels held. Tomorrow could be more of the same, there are only two data points and neither one a market move in my opinion; consumer credit and the trade balance. The earnings calendar is also light, we've entered the doldrums of the cycle so there's a few weeks before things get going, so probably nothing market moving there either. As for the rest of the week; Trump could Tweet, we might get a look at the new health care plan and there is some key labor data due but the big mover will be the NFP on Friday. Until then, near-term ranges could hold, after that we'll have to see. Longer term I remain bullish. If there is a deeper pullback or correction, caused by the NFP or the FOMC, it will likely be a buying opportunity. If there isn't a deeper pull-back or correction hold on tight because more new highs are on the way.

Until then, remember the trend!

Thomas Hughes

New Plays

Retail Disaster

by Jim Brown

Click here to email Jim Brown
Editor's Note

The Q4 shopping season was not kind to major retailers and lesser retailers fared even worse. Conn's is not only exposed to low sales but also weak credit losses from finance customers.


No New Bullish Plays


CONN - Conn's Inc - Company Profile

Conn's, Inc. operates as a specialty retailer of durable consumer goods and related services in the United States. It operates through Retail and Credit segments. The company's stores provide home appliances comprising refrigerators, freezers, washers, dryers, dishwashers, and ranges; furniture and mattress, including furniture and related accessories for the living room, dining room, and bedroom, as well as traditional and specialty mattresses; and home office products consisting of computers, tablets, printers, and accessories. Its stores also offer consumer electronics, such as LED, OLED, Ultra HD, and Internet-ready televisions; and Blu-ray players, and home theater and portable audio equipment. Conn's, Inc. also provides repair service agreements, installment credit plans, and various credit insurance products. As of March 29, 2016, the company operated approximately 100 retail locations in Arizona, Colorado, Georgia, Louisiana, Mississippi, Nevada, New Mexico, North Carolina, Oklahoma, South Carolina, Tennessee, and Texas. Company description from FinViz.com.

In the Q3 earnings cycle, Conn's reported a smaller than expected loss of 12 cents. Analysts were looking for -19 cents. Revenue of $308.4 million and below the $395.23 million in the year ago quarter. They guided for Q4 same store sales to decline -10%. At the end of Q3 analysts were expecting a profit of 13 cents and revenue of $453.44 million. The odds of them beating this forecast are slim. Zacks said the analyst estimates have declined significantly to a loss of 52 cents for Q4. They have dropped 11 cents in just the last 30 days.

Conn's sells electronics along with appliances and furniture. Electronics sales are being dominated by Amazon and Best Buy. The furniture sector has been slow and appliances are hit and miss. With appliance prices rising sharply it has cut down on buyers that can afford the big ticket items.

Earnings March 28th.

I believe Conn's will continue lower because everything we have heard about the Q4 retail picture has been negative. Shares are trading at a 6-month low with support at $6.50. I believe we can still get $1.50 between now and earnings on the 28th. The odds of a rebound over the next three weeks are very slim.

Short CONN shares, currently $8.03, initial stop loss $8.95.
No options recommended because of price.

In Play Updates and Reviews

S&P-600 Below Support

by Jim Brown

Click here to email Jim Brown

Editors Note:

The S&P-600 and the Russell 2000 both closed below critical support. Both only closed a couple points below their support levels but it was a definite break. It appears the small caps are setting up for a deeper dive. If market sentiment were to worsen, these indexes could go into free fall.

None of the major indexes rebounded back into positive territory after being down sharply at the open on multiple concerns.

With a Fed rate hike likely on the 15th and the government debt ceiling expiring on the same day, there could be some additional profit taking in the days ahead.

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

FOSL - Fossil Group
The short stock position was entered at the open.

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BULLISH Play Updates

ARNC - Arconic - Company Profile


No specific news. Elliott Management reported buying another 700,000 shares.

We do not care which way Arconic moves just as long as it moves a lot in one direction.

We have plenty of time. The put is now in the money.

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.

Update 3/2/17: The board appointed former UTX executive David Hess as an independent director. At the same time they issued an open letter to shareholders rebutting activist investor Elliott Management's attempt to take over the board and replace the CEO Klaus Kleinfeld. Shares declined $1 as the fight took a very public turn.

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. Shares fell -5% despite no news. 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.

SWIR - Sierra Wireless - Company Profile


No specific news. Shares still consolidating in a weak market.

Original Trade Description: March 1st

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.

Position 3/2/17:

Long SWIR shares @ $29.10, see portfolio graphic for stop loss.

No options recommended because of price and spreads.

VIPS - Vipshop Holdings - Company Profile


No specific news. Shares still moving sideways as they consolidate recent gains.

Original Trade Description: February 27th

Vipshop Holdings Limited, through its subsidiaries, operates as an online discount retailer for various brands in the People's Republic of China. It offers a range of branded products, including women's apparel, such as casual wear, jeans, dresses, outerwear, swimsuits, lingerie, pajamas, and maternity clothes; men's apparel comprising casual and smart-casual T-shirts, polo shirts, jackets, pants, and underwear; women and men shoes for casual and formal occasions; and accessories consisting of belts, fashionable jewelry, watches, and glasses for women and men, cosmetics, toys and games, sports equipment and hundreds of other categories. Company description from FinViz.com.

In Q4 revenue rose 36.5% to $2.73 billion. Full year revenue rose 40.8% to $8.15 billion. The number of active customers in Q4 rose 39% to 27.5 million. The number of total customers rose 42% to 52.1 million. Total orders for Q4 rose by 26% to 82.0 million. Total orders for the full year rose 40% to 269.8 million. Gross profits for Q4 rose 33.4% to $643.4 million. Gross profits for the full year rose 37.4% to $1.96 billion. They added five local distribution centers to further improve speed and efficiency of order processing. They have more than 20,000 staff and 2,000 self-operated delivery stations.

Earnings May 22nd.

Vipshop is tiny compared to Alibaba but they are growing rapidly and the three main rating agencies recently gave them favorable ratings. Fitch rated them BBB+, Moody's Baa1 and S&P BBB. The company is not a flash in the pan and those ratings indicate they are solid.

Shares spiked to $13 on the earnings news and moved sideways for a week. They posted a minor gain today in a weak market to close at a five-day high.

Position 3/3/17:

Long VIPS shares, currently $13.15, see portfolio graphic for stop loss.
Position 3/6/17: Long April $14 call @ 30 cents, no stop loss.

BEARISH Play Updates

CRAY - Cray Inc - Company Profile


No specific news. Shares closed at a new 3-week low.

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.

FOSL - Fossil Group - Company Profile


No specific news. Shares declined slightly on a third of Friday's volume.

Original Trade Description: March 5th

Fossil Group, Inc., together with its subsidiaries, designs, develops, markets, and distributes consumer fashion accessories. The company's principal products include a line of men's and women's fashion watches and jewelry, handbags, small leather goods, belts, sunglasses, and soft accessories. It offers its products under its proprietary brands, such as FOSSIL, MICHELE, RELIC, SKAGEN, and ZODIAC, as well as under the licensed brands, including ADIDAS, ARMANI EXCHANGE, BURBERRY, DIESEL, DKNY, EMPORIO ARMANI, KARL LAGERFELD, KATE SPADE NEW YORK, MARC BY MARC JACOBS, MICHAEL KORS, and TORY BURCH. The company sells its products through department stores, specialty retail stores, specialty watch and jewelry stores, company-owned retail and outlet stores, mass market stores, e-commerce sites, licensed and franchised FOSSIL retail stores, and retail concessions, as well as sells its products on airlines and cruise ships. As of January 2, 2016, it owned and operated 99 retail stores and 139 outlet stores located in the United States, as well as 250 retail stores and 131 outlet stores internationally. Company description from FinViz.com.

Fossil reported adjusted earnings of $1.36 that beat estimates for $1.21. Unfortunately, that was a decline of 23.2% over the year ago quarter. Revenue of $959.2 million declined -3% and missed estimates for $971.7 million. For the current quarter, the company expects to lose 10 to 25 cents compared to earnings of 11 cents a year ago. They guided for a wide range for earnings of $1.00 to $1.70 for the full year. They guided for Q1 revenue to decline 8% to 11.5%.

Traditional watch sales declined -2%. Sales of jewelry and leathers declined -5%. Global same store sales fell -7% with declines in all product categories. Gross margin declined 200 basis points and operating margins fell from 9.0% to 6.9%. Cash on hand at the end of the quarter declined -$64 million to $236 million.

Over the last 30 days consensus earnings estimates for the ful lyear have declined from $1.94 to $1.19. All revisions have been negative.

Earnings May 16th.

Shares dropped sharply on Friday after the consensus earnings revisions were released. The $17.42 close was an 8 year low and the very negative comments above suggest shares could go a lot lower.

Position 3/6/17:

Short FOSL shares @ $17.48, see portfolio graphic for stop loss.

Optional: Long April $17 put @ $1.00, see portfolio graphic for stop loss.

INFN - Infinera Corporation - Company Profile


No specific news. Minor bounce from the three-week low.

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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