Option Investor

Daily Newsletter, Tuesday, 4/11/2017

Table of Contents

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

Market Wrap

Divergent Markets

by Jim Brown

Click here to email Jim Brown

The Dow declined -145 points at the low, S&P -20, Nasdaq -62 while the Russell 2000 gained 10 points.

Market Statistics

The rotation out of the big caps and into small caps would normally be bullish for the long-term health of the market. However, with the big cap indexes threatening to break through support, the eventual outcome is unknown. If the Dow breaks below support at 20,500 and S&P at 2,340 and they close below those levels it could poison the bullish sentiment lifting the small cap stocks higher.

The Nasdaq indexes both lost 62 points intraday and they failed to rebound as strongly as the Dow and S&P. The big cap tech stocks were weak, led by a sharp decline in Apple. The Nasdaq indexes had been holding at their recent highs and should this weakness persist, we could at some point see a sudden flurry of profit taking. The tech sector has already been fading for the last 6 days.

The small cap stocks were helped by the NFIB Small Business Survey for March. The Optimism Index declined slightly from 105.3 to 104.7 but remains near the 43-year high of 105.9 set in January. The elevated optimism began after the election and it is not letting up. The headline numbers were back near 94 prior to the election and trending sideways after hitting a low of 92.6 in March.

Small business is severely impact by government regulations and President Obama instituted 81,640 pages of regulations in 2016. The U.S. Manufacturers Association said that cost businesses and consumers $2 trillion a year in added expenses, higher prices, reduced employment and business closures. Small businesses today are hopeful that President Trump will follow through on his pledge to significantly cut regulations. That should be a target rich environment.

The NFIB survey found that 22% of respondents felt now was a good time to expand while 29% planned on increasing capital expenditures. Another 16% planned to increase employment. The uncertainty index rose from 86 to 93 as plans to replace Obamacare failed to pass in the House.

The Job Openings and Labor Turnover Survey (JOLTS) for February showed that job openings rose slightly from 3.7% to 3.8%. The number of people hired declined from 5.424 million to 5.314 million. Job separations fell from 5.247 million to 5.071 million. Quits declined from 3.186 million to 3.084 million. Employers advertised for 5.74 available positions in February, up from 5.63 million in January. This report was for February and was ignored as lagging data.

The calendar for Wednesday is light but we do get a handful of earnings reports. Thursday is the big day with six big banks reporting before the open. This will produce the last flurry of volume before the weekend. By 10:AM the market will be dormant, assuming there are no geopolitical headlines.

Geopolitical concerns are back and weighing on the markets. Putin is saying the U.S. faked the chemical weapons attack so they could bomb Syria and said the U.S. was preparing more fake chemical attacks so they launch attacks against Assad personally.

The U.S. said there were indications Russia knew in advance about the chemical attacks and suggested Assad bomb the hospital where the victims were being taken in order to cover up the chemical attack. That second attack destroyed the hospital and killed more civilians. A Russian drone was seen following the vehicles with wounded to the clandestine hospital. Once the drone discovered the hospital's location, the planes appeared to bomb it.

Russia has dispatched several additional warships to the Mediterranean to offset the U.S. forces offshore of Syria. That is just one more opportunity for a trigger event that escalates the tensions.

The situation around North Korea is also heating up with Trump tweeting an implied threat to China to help eliminate the North Korean nuclear threat or the U.S. would do it alone. Since North Korea is an ally of Syria and China, U.S. bombing of NK would further incite hostility from those countries.

Adding to the geopolitical concerns, the headlines are building about a potential government shutdown on April 29th. Lawmakers do not return from the Easter recess until the 24th and they have five days to pass a funding bill and raise the debt ceiling before funding expires on the 28th.

The yield on the ten-year treasury closed at 2.298% and a four-month low on the concerns listed above. Bonds are being bought and equities are weak. That is a recipe for an equity decline if tensions do not recover soon.

Gold prices spiked $20 in the regular session to a five-month high on the geopolitical issues. The flight to safety trade is in full bloom with an $80 gain since early March.

Apple (AAPL) added to the market weakness since it is in both the Dow and the Nasdaq. The stock declined $3 intraday after Qualcomm sued them for an unspecified amount claiming they were not paying their licensing fees. Apple sued Qualcomm three months ago saying their licensing scheme was illegal and required fees for items not included in the license.

Qualcomm said Apple bought modem chips from both Qualcomm and Intel for the iPhone 7. When Apple realized the Intel chips were inferior, they hobbled the phones with the Qualcomm chips so that both phones operated equally. Apple then threatened Qualcomm about making claims the Qualcomm equipped phones were faster.

Apple also declined on news it was going to start producing its own chips for use in its iPhone and iPad devices. The company taking the heat was German company Dialog Semiconductor, which was cut to a sell rating by Bankhaus Lampe. Dialog makes power management chips and Apple reportedly wants to produce its own so that it can control the battery usage better. Dialog fell -16%.

What hurt the market other than the $3 drop in Apple was the corresponding drop in all the other chipmakers that provide components for Apple. This was a knee jerk reaction since nobody knows which chips Apple would eventually replace and it would take at least until 2019 before the company could ramp up production of its own components. Broadcom (AVGO), Skyworks Solutions (SWKS), Cirrus Logic (CRUS), Qorovo (QRVO), Analog Devices (ADI) and InvenSense (INVN) shares were all lower. When the semiconductor sector crashes, it always drags the Nasdaq with it.

Apple shares topped out with a climax close at $144.77 on the 4th and have declined daily since that high. They rebounded to erase half of their intraday low today but could be weak in the days ahead on uncertainty.

The biggest mistake of the week goes to United Continental (UAL) for the way they handled the overbooking problem on the Chicago to Louisville flight over the weekend. I am sure everyone has seen the video of Doctor Dao being physically dragged off the plane with blood streaming down his face. It took three days and multiple press releases before United finally said they were sorry on Tuesday afternoon. While United was justified in removing the passenger from the plane, their method of removal and the follow up press releases have cost them millions of dollars and will continue to cost them millions for months to come.

Here are the facts. The airlines have a right to deny boarding or passage to anyone. Read the fine print. There were four passengers randomly picked and asked to leave the aircraft. The names of three of them are unknown because they simply took the $800 and the overnight hotel room and left peacefully. The only reason Dr Dao's eviction turned into such an international incident is because HE physically resisted. He accidentally hit his face on an armrest during his resistance.

On the 12 major airlines over 40,000 passengers are either denied boarding or removed from aircraft in the U.S .each year. While that sounds like a lot, there are more than 434,000 travelers who voluntarily give up their seat and accept payment from the airline for taking another flight. That is roughly 1,200 travelers a day. United had 3,800 involuntarily denied boardings in 2016 out of 86 million passengers. That does not count the passengers that accepted payment for taking another flight.

Delta has implemented a bump question when you buy a ticket online. They ask you to click a box from $200 to $500 for what price you would agree to accept another flight. That way when an overbooked condition occurs they just select the cheapest category of passenger and pay them their agreed bump price.

United could have paid more money. They are authorized to offer up to $1,350 plus a hotel room but they stopped at $800. By not raising the bump offer that extra $550 they are going to incur millions in losses for months to come from passengers booking other carriers instead of United. Because Dr Dao was Chinese, an entirely new problem was created and Chinese travelers are now boycotting United.

Note to Dr Dao. It is not wise to cause a stink and get your name in the headlines when your background is easily found to be questionable. In 2005 Dr Dao was charged with 98 felony counts of "illegally prescribing and trafficking in painkillers and exchanging drug prescriptions for sex." He also received five years probation for six counts of illegally obtaining drugs. His license was suspended. In 2015 the suspension was lifted and he is allowed to practice medicine only ONE day a week at an outpatient facility. This has absolutely no bearing on his treatment on the flight but if you do not want your dirty laundry aired in public do not make a scene. His wife and four of his children are also doctors. Dr Dao

Western Digital (WDC) shares spiked after JP Morgan raised the rating from neutral to overweight and hiked the price target from $80 to $116. The analyst said NAND memory prices were still going higher and the PC market was stabilizing. Over the last quarter, Micron said memory prices had risen about 20% due to a shortage of components and high demand. The analyst raised his revenue estimate for 2017 by 6% to $19.7 billion and earnings to $10.24. He raised the FY 2018 earnings target to $11.13 and well above consensus of $9.36.

Goldman Sachs put Disney on their conviction buy list with a $138 price target. The company cited their best upcoming calendar of movies ever. In FY 2018, they have 4 Marvel films, 2 Star Wars films and 3 animated films. Goldman expects record profits from the studio in 2017 and 2018. The analyst said Disney was seeing accelerating profit growth at ESPN and record profits from the theme parks. Avatar Land, Toy Story Land and Star Wars Land all making debuts over the next couple years, the parks are going to be flooding the company with cash. Disney has also filed for patents on humanoid robots suggesting they may be considering a Westworld exhibit as well.

According to the patent filing, the robot has soft, squeezable skin that supports "playful physical interaction," posable joints, and pressure sensors that "sense contact and provide protection to the child and robot while interacting." Disney's droids are meant to be "huggable and interactive," so that children at the park could play with them in a fun and safe manner. Their parts will be 3D printed, just like in the TV series Westworld.

After the bell, shares of Tractor Supply (TSCO) guided for Q1 to revenue of $1.56 billion that missed estimates for $1.58 billion. Earnings guidance for 45-46 cents also missed estimates for 53 cents. They said same store sales declined -2% in Q1 driven by weak sales of seasonal merchandise. Shares fell $3 in afterhours.

Oil prices rose 32 cents in the regular session and another 14 cents in afterhours to trade at $53.50 after Saudi Arabia reportedly told OPEC it wanted to extend the production cuts for another six months. This is hearsay by somebody "in the know" according to the WSJ but it did lift prices. Inventory levels are expected to decline in Wednesday's EIA report and that will also help lift prices.


This was a rocky day for the big caps and S&P futures are down -5.50 as I type this. The Volatility Index spiked to nearly 16 intraday and closed over 15. If we were to drop again at the open on Wednesday we could see the VIX spike over 16 with the geopolitical tensions rising. Today's close was a five-month high.

The volume was stronger at 6.4 billion shares than the 5.47 billion on Monday. The sharp downdraft and then the corresponding rebound added to the volume. There were 4,087 advancers to 2,907 decliners with 209 new 52-week highs.

The S&P dipped below 2,340 intraday and a two-week low. The rebound from -20 to -3 lifted the index back over critical support at 2,350. The chart is bearish until we get a close back over 2,380 so that would take at least a couple days of strong gains. If the decline continues and closes below that 2,340 level it would project a potential dip to 2,250 but without a government shutdown on April 29th or rockets fired into North Korea, I do not see that as likely. The dip buyers are alive and well as we saw today.

This Dow decline was brought to you by Apple and Goldman with some help from DuPont. Together they subtracted 23 Dow points. The Dow is barely holding over 20,600 on a closing basis and traded down to 20,512 intraday before rebounding +140 points to close almost positive. The Dow is under pressure from the financial stocks with earnings on Thursday. Add in some weak tech stocks driven by the decline in the Nasdaq and it is a wonder the index did not close lower.

Resistance remains 20,750 and weak support at 20,600.

The Nasdaq indexes were consolidating just under resistance and today's intraday dip was reactionary rather than market driven. The rebound to the middle of the recent range is encouraging but support was weakened by the intraday drop. The dip buyers showed up in force but down volume of 884 million shares still beat up volume of 658 million.

Real support is well below at 5,800 and the Composite Index closed at 5,866. Resistance is well above at 5,915.

The small cap indexes were strongly positive with the S&P-600 gaining nearly 1% in a very weak market. If this continues, it could offset some of the bearish sentiment beginning to build in the large cap indexes.

Today's decline was more than likely positioning for the rest of the week and for events later in the month. There is a lot of profit that has not been captured since the election. With April 15th just a few days away there will be some money extracted to pay taxes. That normally creates some volatility a couple days after the date as well.

The biggest problem remains the potential for a government shutdown on the 29th and the chance for a confrontation in North Korea. Their biggest holiday of the year is founders day, also on April 15th, and they like to do things like explode bombs and launch missiles to commemorate that day. With the carrier strike force sitting offshore this year in a "threatening position" according to North Korea, there is the potential for an event that could roil the markets.

Enter passively, exit aggressively!

Jim Brown

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New Plays

No Rush

by Jim Brown

Click here to email Jim Brown
Editor's Note

The five days of small cap gains suggest there is a change in the wind but the big cap markets are diverging. Spiking volatility does not provide a good opportunity for new positions. The S&P futures are -5.50 as I type this and the VIX closed over 15. Any position we would enter at the open on Wednesday would not get a good fill if these conditions continue overnight. With volume expected to be weak and headline events on the horizon we are already overly long and shorts are not working. I am going to pass on adding new plays today and will be looking for directional confirmation on Wednesday. There is no reason to rush into new positions


No New Bullish Plays


No New Bearish Plays

In Play Updates and Reviews

Small Caps Accelerating

by Jim Brown

Click here to email Jim Brown

Editors Note:

A new trend is developing and it should be positive for the market. The small cap segment of the market rallied strongly again today when the big cap indexes were weak. The Dow was down -145 points at its lows before rebounding but the Russell 2000 gained 10 points and closed at a 7 day high.

The Dow, S&P and Nasdaq appear to be getting weaker while the small caps are soaring. Long term this should be market positive IF the big cap indexes hold their various support levels. This would mean we are simply looking at bullish rotation into small caps. However, if support breaks for the big indexes, it would definitely drag the small caps lower as well.

Volume was average at 6.4 billion shares, up from the low 5.47 billion on Monday.

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

ACOR - Acordia Therapeutics
The short position was stopped out at $17.65.

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BULLISH Play Updates

CPE - Callon Petroleum Company - Company Profile


No specific news. The earnings date changed from May 29th to May 2nd.

Original Trade Description: April 3rd.

Callon Petroleum Company, an independent oil and natural gas company, acquires, explores for, develops, and produces oil and natural gas properties in the Permian Basin in West Texas. As of December 31, 2016, its estimated net proved reserves totaled 91.6 million barrel of oil equivalent. The company was founded in 1950 and is headquartered in Natchez, Mississippi. Company description from FinViz.com.

This is a small oil producer with 66 years of experience. They reported Q4 earnings of 8 cents that missed estimates for 10 cents. Revenue of $69.1 million also missed estimates for $71.8 million. However, that is not the real picture.

Production for the full year increased 59% with 77% oil. Q4 production increased 11% with 76% oil. Reserves increased 69% to 91.6 million Boe with 78% oil. They replaced 311% of production with new wells and new discoveries. Their finding and developing costs are very low at $8.77 per barrel. They increased their Permian acreage by 41,000 acres through multiple acquisitions. They raised 2017 production guidance by 60% to 24,000 Boepd. Callon ended the quarter with $653 million in cash.

Earnings May 29th.

Shares hit a low of $11 on March 14th and began to rebound. That rebound has begun to accelerate over the last week with oil prices rising back over $50. With refiners restarting after the Feb/March maintenance cycle, oil inventories should begin to decline. That always lifts prices in the spring and summer months and rising oil prices lifts equities.

Position 4/4/17:

Long CPE shares @ $13.31, see portfolio graphic for stop loss.

Optional: Long May $14 call @ .55, see portfolio graphic for stop loss.

ECA - Encana Corporation - Company Profile


No specific news. New 7-week closing high.

Original Trade Description: March 13th

Encana Corporation, together with its subsidiaries, engages in the exploration, development, production, and marketing of natural gas, oil, and natural gas liquids in Canada and the United States. The company owns interests in various assets, such as the Montney in northern British Columbia and northwest Alberta; Duvernay in west central Alberta; and other upstream operations, including Wheatland in southern Alberta, Horn River in northeast British Columbia, and Deep Panuke located offshore Nova Scotia. It also holds interests in assets that comprise the Eagle Ford in south Texas; Permian in west Texas; San Juan in northwest New Mexico; Piceance in northwest Colorado; and Tuscaloosa Marine Shale in east Louisiana and west Mississippi. Company description from FinViz.com.

Encana reported earnings of 9 cents compares to estimates for 3 cents. Revenue of $822 million also beat estimates for $771.9 million. Production averages 237,100 Boepd. Drilling and completion costs declined by 30%. They reduced long term debt by $1.1 billion and net debt by 50%. They replaced 326% of production.

They currently have more than 10,000 premium drilling locations and expect to grow that number in 2017. Since December 31st, they have added more than 50 premium locations in the Eagle Ford alone. They ended 2016 with a whopping $5.3 billion in liquidity and cash of nearly $1 billion. They expect to spend $1.6 to $1.8 billion on capex in 2017 and grow liquids production by 35%. Capex willbe funded by cash on hand. Proved reserves were 920 million barrels and 3P reserves were 2.372 billion barrels.

With the cash, production rates, reserves and drilling inventory listed above they are definitely an acquisition candidate with only a $10 billion market cap.

JP Morgan initiated coverage with an overweight rating and $16 price target.

Earnings May 18th.

Over the last couple of weeks an investor built up 7,000 July $11 calls at $1 each and 7,000 October $11 calls at $1.50 each. That is a $1.7 million investment in call options. I am suggesting we follow them in that trade as well as buy the stock. They may know something that is not public information or they just believe that the company is too good to pass up. With the drop in crude prices ECA has fallen to a 5-month low and is resting on the 200-day average.

Position 3/14/17:

Long ECA shares @ $10.43, see portfolio graphic for stop loss.

Optional: Long October $11 call @ $1.40, no stop loss.

HABT - Habit Restaurants - Company Profile


No specific news. Holding at the three-month high. Habit is nearing resistance at $18. If we can get through that level, the next challenge would be $21 and then $24. The historic high in 2014 was $44.

Original Trade Description: March 22nd.

The Habit Restaurants, Inc., a holding company, operates fast casual restaurants under The Habit Burger Grill name. It specializes in offering fresh made-to-order char-grilled burgers and sandwiches featuring choice tri-tip steak, grilled chicken, and sushi-grade albacore tuna cooked over an open flame; and salads, as well as sides, shakes, and malts. As of March 2, 2017, the company operated approximately 170 restaurants in 15 locations in California, Arizona, Utah, New Jersey, Florida, Idaho, Virginia, Nevada, Washington, and Maryland, the United States; and the United Arab Emirates. The Habit Restaurants, Inc. was founded in 1969 and is headquartered in Irvine, California. Company description from FinViz.com.

Habit reported earnings of 7 cents that beat estimates for 3 cents. Revenue rose 21.8% to $73.9 million. Same store sales rose 1.7%. This was the 52nd consecutive quarter of positive same store sales. They opened 11 company stores and 2 franchises in Q4. The CEO said they were proud of their strong beat considering it is a fiercely competitive environment.

For full year 2017, they guided to revenue of $338 to $342 million, which represents 19.8% growth at the midpoint. The guided for 2% same store sales and the opening of 31 to 33 new company stores alony with 5 to 7 franchised stores. Analysts were expecting $339.2 million.

Earnings June 1st.

Shares spiked from $14 to $16 on the news and then pulled back for two weeks on post earnings depression. They have since recovered that $16 level and are about to break out to a new three month high. Shares dipped on Tuesday but very little and the rebound today erased the dip completely.

Position 3/23/17:

Long HABT shares, currently $15.95, see portfolio graphic for stop loss.
Optional: Long June $17 call @ 70 cents, no initial stop loss.

ILG - ILG Inc - Company Profile


No specific news. Closed at new 52-week high.

Original Trade Description: April 8th.

ILG, Inc., together with its subsidiaries, provides non-traditional lodging covering a portfolio of leisure businesses from vacation exchange and rental to vacation ownership. The company operates through two segments, Exchange and Rental, and Vacation Ownership. The Exchange and Rental segment offers leisure and travel-related products and services to owners of vacation interests and others primarily through various membership programs, as well as related services to resort developer clients; and allows owners of vacation ownership interests to exchange their occupancy rights for alternative accommodations at another resort and/or occupancy period. This segment also provides vacation property rental services for condominium owners, hotel owners, and homeowners' associations. The Vacation Ownership segment engages in the management of vacation ownership resorts; and the sale, marketing, and financing of vacation ownership interests, as well as in the provision of related services to owners and associations. As of December 31, 2016, it provided management services to approximately 250 vacation ownership properties and/or their associations. The company was formerly known as Interval Leisure Group, Inc. and changed its name to ILG, Inc. Company description from FinViz.com.

ILG reported earnings of 48 cents on revenue of $455 million. Net income rose from $16 million to $61 million. Earnings rose from 27 cents to 48 cents. Free cash flow was $180 million. Analysts had expected revenue of $464 million and shares fell sharply over the next week. The company guided for full year revenue of $1.72 to $1.86 billion.

They repurchased 6.5 million shares and paid $52 million in dividends to return $153 million to shareholders. They currently pay a 2.83% dividend.

The company has been on an acquisition and renovation binge. They sometimes acquire properties in great locations that have issues and then spend a few million on renovations to turn them into star attractions. In May they completed the acquisition of Vistana Signature Experiences, formerly known as Starwood Vacation Ownership for $1.15 billion in cash and stock. With the transaction, they acquired an 80-year global license for the use of the Westin and Sheraton brands.

Despite their vast holdings and strong revenue they are still a relative unknown in the investment community. However, with their Vistana acquisition along with the Hyatt and St Regis vacation brands they are starting to become known.

Shares have risen $3 in the last four weeks and have begun to accelerate. The company is a member of the S&P-600 but with the acquisition of Vistana it has a market cap over $3 billion and is eligible for inclusion into the S&P-500. That could provide a nice boost to the stock price but it would be pure speculation.There are many companies with a higher market cap that have not been included.

Earnings May 30th.

Position 4/10/17:

Long ILG shares @ $21.28, see portfolio graphic for stop loss.

Optional: Long June $22 call @ 60 cents.

KRNT - Kornit Digital - Company Profile


No specific news. Minor decline from Friday's closing high.

Original Trade Description: April 5th.

Kornit Digital develops, manufactures and markets industrial digital printing technologies for the garment, apparel and textile industries. Kornit delivers complete solutions, including digital printing systems, inks, consumables, software and after-sales support. Leading the digital direct-to-garment printing market with its exclusive eco-friendly NeoPigment printing process, Kornit caters directly to the changing needs of the textile printing value chain. Kornit’s technology enables innovative business models based on web-to-print, on-demand and mass customization concepts. With its immense experience in the direct-to-garment market, Kornit also offers a revolutionary approach to the roll-to-roll textile printing industry: Digitally printing with a single ink set onto multiple types of fabric with no additional finishing processes. Founded in 2003, Kornit Digital is a global company, headquartered in Israel with offices in the USA, Europe and Asia Pacific, and serves customers in more than 100 countries worldwide. Company description from Kornit.

The company description pretty much says it all. They have developed a process to print on fabric that is fast and cheap and the company is setting new highs as the demand for their product increases.

The company reported earnings of 16 cents on a 33.4% increase in revenue to $34 million. There was a secondary offering in January that raised $38 million for the company and was very oversubscribed.

The big spike in early January was news the company granted Amazon warrants to buy up to 2.9 million shares at $13. Since KRNT only has 31 million shares outstanding that is nearly a 10% position in the company. The warrants came after Amazon placed an order for a "large number" of textile production systems for Amazon's own use in the Merch by Amazon program.

Earnings May 16th.

Shares made a new high on March 31st and they closed within 10 cents of that high on Thursday. Shares have risen over the available option strikes so this will be a stock only position.

Position 4/7/17:

Long KRNT shares @ $19.00, see portfolio graphic for stop loss.

BEARISH Play Updates

ACOR - Acordia Therapeutics - Company Profile


No specific news. Shares spiked to $17.65 at the open and that was our stop loss to know us out of the position.

Original Trade Description: April 5th.

Acorda Therapeutics, Inc., a biopharmaceutical company, identifies, develops, and commercializes therapies for neurological disorders in the United States. The company markets Ampyra (dalfampridine), an oral drug to improve walking in patients with multiple sclerosis (MS); Zanaflex capsules and tablets for the management of spasticity; and Qutenza, a dermal patch for the management of neuropathic pain associated with post-herpetic neuralgia. It also markets Ampyra as Fampyra in Europe, Asia, and the Americas. In addition, the company develops CVT-301 that has completed a Phase III clinical trial for the treatment of OFF periods in Parkinson's disease; CVT-427, which has completed a Phase I clinical trial to treat migraine; Tozadenant that is in Phase III clinical trial for reduction of OFF time in Parkinson's disease; SYN120, which is in Phase II clinical trial to treat Parkinson's disease-related dementia; and BTT1023 (timolumab) that is in Phase II clinical trial for primary sclerosing cholangitis. Further, it develops rHIgM22, which is in Phase I clinical trial for the treatment of MS; Cimaglermin alfa that has completed a Phase I clinical trial in heart failure patients; and Chondroitinase Program that is in research stage for the treatment of spinal cord injury. The company has collaborations and license agreements with Biogen International GmbH; Alkermes plc; Rush-Presbyterian St. Luke's Medical Center; Alkermes, Inc.; SK Biopharmaceuticals Co., Ltd.; Astellas Pharma Europe Ltd.; Canadian Spinal Research Organization; Cambridge Enterprise Limited and King's College London; Mayo Foundation for Education and Research; Paion AG; Medarex, Inc.; and Brigham and Women's Hospital, Inc. Company description from FinViz.com.

It has not been a good four days for Acordia. The company reported on Friday a U.S. District Court had ruled that four key patents for their primary drug Ampyra were invalid. This clears the way for Mylan, Teva and Roxane to immediately begin producing a generic version. Those companies have already applied to the FDA for permission. Seven other companies had sought to copy the drug but agreed to delay settlements with Acordia.

The problem for Acordia is that Ampyra produced 90% of the $519 million in Acordia revenues in 2016. With multiple generic competitors hitting the market very soon, that number will be significantly lower for 2017. Acordia said they were going to appeal the verdict but that is a long shot at best and those larger companies have more money to defend their case.

Acordia said on Wednesday they were cutting 20% of the workforce to save $21 million a year. Unfortunately, that will not be near enough to save the company. They ended 2016 with $153 million in cash and revenue guidance for $540 million in 2017. If that is cut in half they will be forced to raise money with a secondary offering. If they are smart they should already have it queued up and ready to go before the stock falls into single digits. Obviously, that will further depress the stock price but they have no other alternative.

Shares have fallen significantly over the last four days but the patent decision is the equivalent of a death sentence if they cannot raise money quickly.

Earnings are April 27th and the expectations for guidance could be ugly.

Position 4/6/17:

Closed 4/11/17: Short ACOR shares @ $17.05, exit $17.65, -.60 loss.

FSLR - First Solar - Company Profile


No specific news. Shares spiked to $28.24 and missed our stop loss by one penny.

Original Trade Description: March 30th.

First Solar, Inc. provides solar energy solutions in the United States and internationally. It operates through two segments, Components and Systems. The Components segment designs, manufactures, and sells cadmium telluride solar modules that convert sunlight into electricity. This segment offers its products to solar power systems integrators and operators. The Systems segment provides turn-key photovoltaic solar power systems or solar solutions, such as project development; engineering, procurement, and construction; and operating and maintenance services to utilities, independent power producers, commercial and industrial companies, and other system owners. The company was formerly known as First Solar Holdings, Inc. and changed its name to First Solar, Inc. in 2006. Company description from FinViz.com.

First Solar shares have been under pressure for months. On March 20th they were removed from the S&P-500 and investors are still selling the shares.

They reported a Q4 loss of $6.92 per share compared to estimates for $1.00 in earnings. The earnings included a $729 million restructuring charge compared to only $4 million in Q3. If we back out the restructuring charges the company would have earned $1.24 and shown a sizeable beat. However, revenue declined from $480 million in Q3 to $208 million in Q4.

Earnings May 23rd.

First Solar is building quality projects but they are facing a stiff headwind. Tax incentives around the world are shrinking and it is becoming increasingly harder to make a profit. Whenever they get a big power generation facility completed they are forced to sell it to recover their money rather than sit back and let the long term profits roll in.

On Thursday, March 30th, they sold the 250-megawatt Moapa Southern Pauite Solar Project in Nevade to Capital Dynamics, a Swiss private equity firm. The facility supplies power to the Los Angles Dept of Water and Power. They did not disclose the terms of the sale and the stock tanked again. By not disclosing the terms, investors always fear the worst, that they were forced to sell at a big discount.

The stance taken by the new Trump administration on EPA restrictions on coal and gas fired electric generation plants will make power cheap again and these massive solar developments will find it harder to break even. Solar power generation is getting cheaper to build but it cannot compete with gas fired plants at $3 or coal fired plants that operate even cheaper.

Shares broke to a five-year low last week and today's decline is a lower low. The prior low back in 2012 was $11.50 and we could be headed to that level long term.

Update 4/7/17: Reportedly FSLR wants to exit its joint venture with Sunpower (SPWR). The two companies package completed utility scale solar farms into a "Yield Co" for sale to investors. Yield Cos have lost favor with the investing public after SunEdison filed bankruptcy in 2016. Shares posted a minor gain.

Update 4/10/17: Despite a negative article on Bloomberg shares still posted a strong gain of $1.16.

Position 3/31/17:

Short FSLR shares @ $27.50, see portfolio graphic for stop loss.

Optional: Long June $25 put @ $1.15, see portfolio graphic for stop loss.

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