Option Investor

Daily Newsletter, Thursday, 3/9/2017

Table of Contents

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

Market Wrap

Expecting A Strong NFP

by Thomas Hughes

Click here to email Thomas Hughes


The market continued to test support while we wait on next week's FOMC meeting. Looking to the economic calendar I see that the next four trading days, culminating with the FOMC announcement on Wednesday, are packed with data that promise to move the market. Tomorrow is of course the NFP and unemployment data, I expect to see some strong numbers across the board; strong jobs creation, declining unemployment, rising participation and increasing wages. After that Monday is a dud, nothing released that day, and then PPI Tuesday mornings, CPI Wednesday morning and the FOMC later that day.

Today's action was affected by economic data and the ECB meeting. Trading in Asia was less affected, being closed long before the ECB meeting or the release of US data, although producer level inflation in China suggests an uptick in economic activity. Official PPI jumped 7.8% in February, the fastest pace since before the global financial crisis, but was offset by weak consumer level data. Chinese indices fell on the news, about -0.5%, while equities in Japan continue to rise on weaker yen and better than expected GDP growth.

European market closed almost exactly flat after a choppy session. The trade was driven by Mario Draghi who's comments may qualify as Goldilocks. The ECB kept rates unchanged, as expected, with little to no change to the statement. The comments during the press conference however came across as mixed, he talked up the health of the global economy, the effectiveness of ECB policy and signs of recovery in the EU while maintaining the stance that rates would remain at or below current levels for quite some time. Other positives from the press conference are higher targets for 2017 inflation and GDP growth.

Market Statistics

Futures trading was flat to negative for most of the early morning. This moderated to flat as the ECB announcement was hitting the wires and turned slightly positive after the press conference and the release of today's economic data. The open was calm, the indices opened with small gains and were able to hold them for most of the day. Early action was calm, trading within tight ranges just above break-even. Around 1:30PM this all changed when some sell orders hit the market. The S&P lost about 10 points over the next 45 minutes, hitting intraday bottom at 2,355. A double bottom formed between 2:15 and 2:45 resulted in a push back toward break-even levels from below. The late day rally held into the close, leaving the indices near the highs of the day.

Economic Calendar

The Economy

First off let me comment on the ADP figures from yesterday. Wow. That was surprising but not unexpected, the labor market as a whole has been building up to a boil for a long time. Data within the report was also quite good, showing a healthy and broad increase in jobs across all sectors.

Today's data is not as surprisingly good as yesterday's but is consistent with ongoing labor-market recovery and health. First up is the Challenger, Grey & Christmas report on planned lay-offs. The number of lay-offs planned or announced in February is 36,957. This is down 19% from the previous month and is down -40% from last year. On a year-to-date basis job cuts in 2017 are down -40% from this same time last year as well. Retail leads the cutting, led in turn by JC Penny and their announced store closings. Energy has recovered from last years cuts, this months total for the sector is down -87%. The number 1 and number 2 reasons for cutting jobs are cost cutting and restructuring. On a side note, Challenger says that plans to hire or increase hiring have hit an all-time high.

Initial claims for unemployment rose by 20,000, rebounding from last week's 44 year low, to hit 243,000. Last week's figure was not revised. The four week moving average of claims rose by 2,250. On a not adjusted basis claims rose by 14.6% versus an expected 5.0% and are down -1.5% year-over-year. Despite the narrowing between in YOY data the not-adjusted claims are trending well below last years levels, as are adjusted claims, and both remain consistent with ongoing labor market health.

Continuing claims fell by -6,000 to hit 2.058 million from last week's revised figure. Last week's figure was revised lower by -2,000. Except for a little volatility over the holiday season this figure has been hovering near this level, just off the long term low, since last September and is consistent with labor market health.

The total number of American receiving unemployment benefits fell by nearly 100,000 this week to hit 2.434 million. This is in line with expectations, seasonal and long-running trends, and consistent with ongoing labor-market recovery. This week's total is the lowest level since the post-holiday peak and likely precedes a multi-month decline in claims that will end in late spring.

Import/export data was also releases at 8:30AM. Import prices rose 0.2% versus an expected 0.1%. Export prices, ex-oil, rose 0.3% and in-line with expectations.

The Dollar Index

The Dollar Index lost a little ground today despite dovish comments from Mario Draghi. The index fell -0.20% creating a small black bodied candle hanging below potential resistance levels. The ECB's actions were not unexpected, the comments were however a little confusing in that they seemed to predict economic improvement and the need for stimulus at the same time. Bottom line, the FOMC is on track to raise rates next week and this year while the ECB isn't which puts them on divergent paths once again. The dollar may churn sideways o pull-back over the next few days, so long as the data is not strong and supportive of rate-hikes, up to and until the FOMC meeting but the short to long term outlook is bullish. Resistance is near $102.50, a break above would be bullish with next resistance at the current long term high. Near term support is along the short term moving average near $101.15 with a firmer target near $101.50.

The Gold Index

Gold prices fell a little more than -0.5% to trade at a new 5 week low. The move is driven by rising expectations for a Fed interest rate hike, probability now over 90%, and could be the beginning of a much larger move. The question now is not when the next rate hike will be but how much will they raise rate this year, and how often. The data is picking up, there is a real chance for accelerated economic growth this year, so it is not impossible the FOMC will raise rates more often or in larger increments than expected. Support target for gold is $1,200, just below today's closing price, a break below this level could easily go to $1,150 in the near term with lower prices a possibility in the long term.

The gold miners remain under pressure and poised for a move lower. The Gold Miners ETF GDX fell -0.65% today, reversing yesterday's rebound and falling from support turned resistance at $21.50. The indicators remain bearish and supportive of lower prices. Stochastic is showing weakness with a cross below the lower signal line but MACD momentum is falling off so any move lower that does occur may be muted. Downside target is the long term low near $18.50.

The Oil Index

The reality of supply/demand imbalance has hit the oil market, prices are falling. WTI fell another -2.5% in today's session, extending yesterday's -5% decline, to trade near $49.25 and the lowest levels since last November. This decline may continue into the near term with a possible floor near $45. This is the price at which shale production is expected to turn-off and if so could slow production and supply enough to possibly support prices.

The Oil Index opened lower and moved lower from there to hit support levels, about face and move higher. The index closed with a gain slightly greater than 0.5% and indicative of support at this level. Price action has returned to the top of the long-term trading range that was broken when OPEC announced their deal. Now that the deal is coming to a close and we've seen it didn't really do anything the market has also returned to reality, which I think is a good thing. Long term outlook for earnings growth is still bullish, the market should be able to move higher in the short to long term once a near term bottom can be established. Today's candle has a long lower shadow, indicative of support, but not a guarantee lower prices will not be seen so I'd be cautious for now. The indicators are bearish in the near term but remain consistent with support over the longer term in the range of 1,100 to 1,170.

In The News, Story Stocks and Earnings

Zumiez reported after the bell and did not satisfy investors. The company blew away fourth quarter estimates but provided weak forward guidance. Quarterly results include an 8.7% increase in net sales, a 5.1% increase in comp sales and a 38% increase in net earnings. The downside is that forward guidance is below consensus, a net loss in the first quarter, although mitigated by plans to open 18 new stores this year. Shares of the stock were down marginally during the open session and then fell an additional -10% in after hours trading.

Ulta Beauty reported after the bell as well and the report was an echo of Zumiez. The beauty product company beat top and bottom line earnings but gave weak forward guidance mitigated by plans to open new stores in 2017. Shares of the stock fell -5% in after hours trading.

The VIX rose 3.71% today and is approaching the top of the near term range. Today's rise is not alarming in and of itself but could be the precursor to a sharper move should the market get spooked. The indicators are consistent with a trading range and move to the top of a trading range but not overly bullish. The top of the range is near 12.50, a break above this could be bullish for volatility and bearish for the market. Regardless, the VIX remains low and consistent with bull market conditions.

The Indices

Today was a day of mixed trading. The indices first seemed to want to move higher, then they succumbed to selling and dipped into negative territory only to bounce back before the close and end, for the most part, the day with small gains. One index bucked today's trend and closed with a substantial loss and that was the Dow Jones Transportation Average. The transports closed with a loss of -0.68%, at a 3 week low and below the 9,230 support target. Today's action is a little alarming for the bulls, a break down of support is not what we want to see, but is not yet indicative of deeper correction. The indicators are consistent with a test of support so this level may be tested further or broken. If broken downside target for support is 9,000 in the near term and 8,500 in the short to long.

The day's biggest gainer was the S&P 500 with an increase of 0.08%. Today's action snaps the 3 day losing streak and confirms again near term support at the bottom of last week's trading range, near 2,360. The indicators are still pointing lower so there could be further testing of support but for now it looks like it will hold. A break below support has a near term target of 2,325, near a long term up-trend line. A bounce would be trend following with initial target at the current all-time highs.

The NASDAQ Composite and Dow Jones Industrial Average both closed with gains of 0.02%, just barely above yesterday's close. The tech heavy index created a small spining top doji just above the short term moving average. This is the fourth such candle this, all within last week's trading range and above near term support levels. The indicators are pointing lower, consistent with a test of support, but not suggestive of deep correction at this time. Near term support is near 5,800, a break below here would be bearish with possible targets as low as 5,500. A bounce would be trend following and bullish with targets at and above the current all-time high.

The Dow Jones Industrial Average created a small doji candle touching down to support at the bottom of last week's trading range, the pre-Wednesday support level. Today's action closes the gap formed on last Wednesday, the last index to do so. The indicators are rolling over and pointing lower, consistent with a test of support but not indicative of deep correction at this time. Near term support is just below today's close, near 20,850, and likely to hold provided there is no shock to the system or let-down in expectations. A break below support would be bearish near-term with downside target near 20,000. A bounce from this level would be bullish with upside target at the current all-time high and above.

This week has been a bit nerve-wracking for us bulls as the indices retreat from last week's all time highs. The good news is that near term support levels are holding, for now, and that forward outlook remains positive. Tomorrow's NFP could be the trigger to start the next big market move, whichever direction it is, but if not the FOMC meeting is only a few days away and is usually a pivotal moment for the market. Speaking of the NFP, strong data should not be negative for the market since the FOMC is already expected to raise rates next week and several more time this year. This means there is a chance that good news could be good news and not a harbinger of doom, if the NFP is as strong as the ADP that would be great news for the economy. I'm still bullish, cautiously anticipating the next move but aware there is a chance for correction. If there is I'll be buying on that dip too.

Final thought. Today is the bull market's 8th birthday. In terms of cyclical bull markets that is old and it could mean the end. In terms of secular bull markets, in which we are in, 8 years is only about middle-aged so I think we can still expect to see many more years of higher prices.

Until then, remember the trend!

Thomas Hughes

New Plays

Successful Support Test?

by Jim Brown

Click here to email Jim Brown
Editor's Note

The Dow and S&P both tested initial support intraday and rebounded back to positive territory. The Dow tested 20,800 and the S&P 2,360 with minor penetrations on both before the afternoon decline rebounded strongly back to positive territory. The gains were minimal of 1-4 points on the Dow, S&P and Nasdaq but they did post gains after being down sharply.

The S&P futures are up +7 in afterhours. This is the biggest move of the week and the first time in positive territory. This suggests traders may be thinking the support test was enough and they are ready to go again.

I scanned my list of 300 small cap stocks again and nothing is begging to be bought. There were no indications of any number of stocks starting to tick up or down. Almost everything is flat with a slight bleed lower, just like the stocks in the portfolio.

If the market is going to gap up at the open anything we would add tonight would get a bad fill. There are still a couple major potholes in the road for next week and I would rather err on the side of caution and not try to force a position just to add a play in the newsletter.


No New Bullish Plays


No New Bearish Plays

In Play Updates and Reviews

Test on Friday

by Jim Brown

Click here to email Jim Brown

Editors Note:

The S&P-600 declined to within 1 point of critical support at 825. Friday will be a key day. If the index drops just a little further into the support band from 820-825 and rebounds strongly, the worst may be over. If there is no rebound, next week could be ugly.

The Russell did not decline we far with a 6 point loss but it is closing in on the 1340-1350 support range where we would expect to see some buyers appear. The Russell has been helped by the biotech sector for the last two days and that kept the declines from being worse.

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. A support break on the S&P-600 could be a disaster.

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

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Iron Condors = Couch Potato Trader

BULLISH Play Updates

ARNC - Arconic - Company Profile


No specific news. Another minor decline put us farther into the money. We need one more big push lower. I am putting an exit target on the position at $26. I am worried that the stock will eventually rebound and put us back into a loss position.

Use $26 as an exit target on the put. We will keep the call open just in case a headline appears.

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. The earnings date was rescheduled to March 21st. Our option will expire on the 17th. We really need a rebound over the next several days.

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. Minor decline to take it within 11 cents of our stop loss.

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.

Update 3/7/17: The company announced a new credit facility for $632,500,000 for the purpose of repurchasing outstanding 1.5% convertible notes due 2019.

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

CONN - Conn's Inc - Company Profile


No specific news. Shares dropped back to psychological support at $8 and a break there could hit $6.50 very quickly.

Original Trade Description: March 6th

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.

Position 3/7/17:

Short CONN shares @ $8.00, see portfolio graphic for stop loss.
No options recommended because of price.

CRAY - Cray Inc - Company Profile


No specific news. Shares posted another minor gain. I am lowering the stop loss.

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. New 8-year low.

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. New 4-week low close.

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.

KR - Kroger Co - Company Profile


Kroger announced a new $500 million share buyback program in addition to the $120 million remaining on the prior authorization. Shares still declined back to the two-year low.

Original Trade Description: March 7th

The Kroger Co., together with its subsidiaries, operates as a retailer in the United States. It also manufactures and processes food for sale in its supermarkets. The company operates retail food and drug stores, multi-department stores, jewelry stores, and convenience stores. Its combination food and drug stores offer natural food and organic sections, pharmacies, general merchandise, pet centers, fresh seafood, and organic produce; multi-department stores provide general merchandise items, such as apparel, home fashion and furnishings, outdoor living, electronics, automotive products, toys, and fine jewelry; and price impact warehouse stores offer grocery, and health and beauty care items, as well as meat, dairy, baked goods, and fresh produce items. The company's marketplace stores comprise full-service grocery, pharmacy, health and beauty departments, and perishable goods, as well as general merchandise, including apparel, home goods, and toys. It operates under the banner brands, such as Kroger, Ralphs, Fred Meyer, King Soopers, etc., as well as Simple Truth and Simple Truth Organic brands. As of January 30, 2016, the company operated 2,778 retail food stores, including 1,387 fuel centers; 784 convenience stores; and 323 fine jewelry stores and an online retail store, as well as franchised 78 convenience stores. Company description from FinViz.com.

Kroger reported earnings of 53 cents that matched estimates but declined 7% from the year ago quarter. Revenues rose 5% to $27.611 billion and that best estimates for $27.357 billion. Same store sales fell -0.7% and the first decline in 13 years. Analysts expected a 0.1% rise. Competitors Ahold Delhaize, Walmart, Publix and Aldi reported an increase in sales so apparently Kroger is losing market share.

They guided for 2017 for earnings in the range of $2.21-$2.25 per share. Analysts were expecting $2.23.

Earnings June 1st.

There is a major battle shaping for the grocery sector. German discounter Aldi is on a push to open hundreds of new stores in areas currently served by Kroger. Target has vowed to lower prices and sacrifice margins in order to retain market share. Amazon is experimenting with the grocery store concept and has been rumored to be considering opening more than 1,000 stores. Walmart has expanded their grocery departments and now carry more than 350 organic products under the private Walmart labels.

Kroger has been forced to adopt a more promotional posture with bigger ads and lower prices in order to retain share. Goldman removed Kroger from their conviction buy list and warned they doubt they will be able to even get close to their forecast for 8-11% earnings growth. Northcoast cut them from buy to neutral and several analysts cut their price targets.

Tuesday's close was a two year low and the decline is not likely to stop. The grocery sector is broken and profits are going to be tough to generate.

Position 3/8/17:

Short KR shares @ $28.85, see portfolio graphic for stop loss.

Optional: Long April $27.50 put @ 45 cents, no stop loss.

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