Option Investor

Daily Newsletter, Saturday, 4/15/2017

Table of Contents

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

Market Wrap

Weekend Event Risk

by Jim Brown

Click here to email Jim Brown

Geopolitical worries over what may happen over the long holiday weekend pushed the market to multi-month lows.

Weekly Statistics

Friday Statistics

The Dow and S&P closed at the lows for the day and at two-month lows. The S&P-600 small cap index closed at four-month lows. The Dow Transports closed at almost a five-month low. The Nasdaq indexes were weak but remained over critical support levels.

The only index that closed with a gain was the Biotech Index, which rallied 1.3% led by Alexion (ALXN), Regeneron (REGN), Kite Pharma (KITE), Incyte (INCY), Ionis (IONS) and Ultragenics (RARE). There was a flurry of drug news that stimulated the biotech rally.

The small cap segment of the market had been riding a wave of consecutive daily gains until Wednesday when the sector imploded. Thursday's added decline saw the S&P-600 close well under critical support at 820 and at a four month low.

Helping to push the VIX higher and the market lower was news North Korea was likely to test a nuclear bomb as early as Saturday. The U.S. warned against it and positioned two Tomahawk carrying destroyers 300 miles off the country's coast. The nonverbal warning was clear to everyone and Little Kim said he was not going to be deterred and would test his weapons whenever he decided the time was right. Whether he is stupid enough to act in the face of extreme danger remains to be seen. It did weigh on the market since he has shown no restraint in any past actions including having family members poisoned, killed by being ripped apart by dogs and shot with anti-aircraft weapons. At this point, I think he is running out of family members to kill.

Also on Friday the U.S. said it dropped a thermobaric Massive Ordnance Air Blast (MOAB) bomb in Afghanistan. The 21,000 pound bomb is nicknamed Mother of All Bombs because of its explosive power. The bomb just above ground level. It contains a highly explosive liquid that is ejected from the bomb just above the ground using a small explosion that atomizes the liquid explosive. The atomized liquid explosive mixes with the oxygen in the air and when the secondary explosion occurs it ignites the "fuel air" mixture in its wake to provide a massive thermal explosion that kills everything within 500 yards in every direction. It kills from massive overpressure from the blast rather than shrapnel or bomb fragments. The blast can be heard up to 100 miles away and can blow out windows over a mile away.

The bomb was used to neutralize an ISIS tunnel complex thought to contain as many as 100 fighters. Because it works on overpressure, they can be well underground and immune to normal bombs but they are not immune to the pressure from the blast. It is actually worse in the caves and tunnels because of the compression effects. MOAB Description Not to be outdone, Russia created the Father of all Bombs on the same principal and said it was four times as powerful as the MOAB. The Russian bomb is said to be the equivalent of 44 tons of TNT.

The U.S. does have an even bigger bomb called the GBU-57 Massive Ordnance Penetrator (MOP) that weighs 37,000 pounds and is designed to burrow deep underground through heavily reinforced concrete bunkers. The bomb reportedly can penetrate more than 60 feet of reinforced concrete before detonating. The Air Force only ordered 20 of them and they cost $314 million each. GBU-57 Description

The press was all excited on Thursday and were spewing the "biggest non nuclear weapon ever used in combat" message and trying to create some news from their different spins on the message. That helped push the market over the cliff on Thursday afternoon.

Adding to the tension in the market was several position changes by the Trump administration. The tax reform effort is back on hold until a health care plan can be completed. That could take months and there is growing doubt that tax reform will occur in 2017. President Trump also flipped his position on NATO, the UN, China as a currency manipulator, the strong dollar, Janet Yellen as Fed Chairman and the Export-Import Bank. It was a very eventful week for the president and Washington is spinning with the multiple abrupt changes in posture despite his campaign rhetoric. The Trump Bump in the market appears to be fading rapidly.

There are growing concerns that we are facing a potential government shutdown on April 29th. When lawmakers come back from recess on April 24th, they only have five days to pass a funding bill and raise the debt ceiling. President Trump campaigned on reducing the $20 trillion in debt and he constantly criticized republicans for being too quick to raise the debt ceiling. Now that he is in charge, some analysts believe it will be too tempting for him not to demand some concessions before agreeing to raise the limit. The democrats have pledged to defeat anything that is not a "clean" limit increase. Republicans are also split on hiking the limit so getting anything passed in the five days after the recess, is going to be a major challenge.

Bond investors are betting on a disaster ahead. The yield on the ten-year treasury fell to 2.23% on Friday and a five-month low. This is not a good sign for the stock market since falling yields normally mean investor flight from equities.

The Volatility Index is at five-month highs going into the weekend on the geopolitical worries and the falling equity market. The VIX rarely stays at elevated levels for more than a few days but it could go significantly higher. We have not had that capitulation event yet. So far, the selling has been relatively slow and steady rather than a panic event.

On the economic front the Producer Price Index (PPI) for March declined -0.1% and the first decline in seven months. However, on a trailing 12-month basis producer prices are up +2.3%. Core PPI rose 1.7% over the last 12 months. Impacting the headline number was a -2.9% decline in energy prices with a -8.3% drop in gasoline prices.

Consumer Sentiment for April rose from 96.9 to 98.0 and a three-month high. The 13-year high was 98.5 in January. The present conditions component rose from 113.2 to 115.2 and are at the highest level since 2000. The expectations component rose from 86.5 to 86.9. Spring weather and an abundance of jobs seem to be the main factors in the strong sentiment. More than 89% of respondents expected their financial situation to improve in 2017. More than 78% of respondents believe business conditions are going to improve.

On Friday the Consumer Price Index (CPI) for March declined -0.3% after a +0.1% rise in February and +0.6% rise in January. The core CPI fell -0.1%. The pace of inflation is slowing thanks to the decline in oil prices, but it should be only temporary.

Retail Sales for March declined -0.2% after a -0.3% decline in February. Excluding autos, it would have been flat and excluding autos and gasoline there would have been a minor +0.1% gain. Motor vehicles and parts declined -1.2%, gasoline -1.0%, building materials -1.5% and sporting goods -0.8%. Electronics was the only material gainer at +2.6%.

Business Inventories for February rose +0.3% and the smallest gain in four months. Wholesale inventories rose +0.4% and retailers rose +0.3%.

The calendar for next week is light with the Philly Fed Survey and two home sales updates the most important reports. The Fed Beige Book on Wednesday will be watched but recent revisions have been neutral with a slightly positive bias so unless something changed, it will be ignored.

The most important event will be the French elections on Sunday the 23rd. The far right candidate, Marine Le Pen and the independent centrist candidate, Emmanuel Macron are currently leading the four-person race with 23-24% of the vote each. The far left candidate, Jean-Luc Melenchon, surged 7% last week and could upset the status of the leaders. Melenchon has a radical tax and spend platform with a 100% tax rate on people making more than 33,000 euros a month. He is currently 6% behind the leaders.

The two candidates with the most votes will go head to head in a second election. If Melenchon continues to surge and take votes from Macron, there could be a previously unimaginable prospect of a runoff between the far left and far right candidates in a contest that would split the country right down the middle and cause a massive upheaval in French and European politics. Melenchon has seen his approval rating rise 22 points to 68% and he is now the most popular politician in France. Besides the 100% tax rate for the rich he favors cutting the workweek from 35 to 32 hours, lowering the retirement age to 60, raising the minimum wage and social security benefits. He wants to shutdown the nuclear power plants, from which France gets 75% of its power. He wants to withdraw from NATO and forge a warmer relationship with Russia. Conservatives are calling him the French Hugo Chavez, the socialist dictator that bankrupted Venezuela before his recent death.

Le Pen wants to pull out of the EU, so whichever candidate wins, there could be some big changes for France and the EU. Analysts claim a runoff between the two would be a choice of "economic disaster and economic chaos."

Having Le Pen and Melenchon win the four-person race on Sunday would almost be the equivalent of Brexit. Knowing that one of them would be the eventual president would throw the financial system into a panic, tank the EU markets and roil the global markets.

Thursday was bank earnings day. JP Morgan (JPM) reported earnings of $1.65 compared to estimates for $1.51. That compares to the $1.35 earned in the year ago quarter. Revenue of $25.59 billion was powered by $12.39 billion in interest income and beat estimates for $24.88 billion. That compares to $24.08 billion and $11.67 billion in the year ago quarter. Investment banking revenue rose 34% and trading revenue rose 14%. Credit card balances rose from $127.3 billion to $137.2 billion.

Citigroup (C) reported earnings of $1.35 compared to estimates for $1.24. This compares to the $1.10 in earnings in Q1-2016. Revenue of $18.120 billion beat estimates for $17.758 billion. Loans rose 2% to $629 billion and deposits rose 2% to $950 billion. Net interest margin was 2.74%. The bank reported gains in all areas except for Asia, which declined -3%.

Wells Fargo reported earnings of $1.00 compared to estimates for 97 cents. Revenue of $22.0 billion narrowly missed estimates for $22.1 billion. The bank said business was down as a result of the account opening scandal. They also said expenses were up as they employed numerous firms to help them unwind the mess from the scandal and modify policies and procedures to prevent future issues. Wells is also going to reimburse everyone who had accounts opened in their name during the term of the scandal.

PNC Financial (PNC) reported earnings of $1.96 compared to estimates for $1.84. Revenue of $3.88 billion beat estimates for $3.77 billion. Loans rose by $2 billion to $212.8 billion. Consumer loans declined -$700 million due to lower home equity loans, student loans and credit card balances. Shares declined slightly.

Hanes Brands (HBI) preannounced Q1 results of 28-29 cents and slightly above estimates for 27 cents. Estimated revenue of $1.38 billion missed estimates for $1.39 billion. They guided for the full year for earnings of $1.93-$2.03 and revenue of $6.45-$6.55 billion. Analysts were expecting $1.96 and $6.46 billion. Analysts said the results were decent given the weak retail sector and the Easter shift two weeks later than normal.

The earnings parade begins on Monday with Netflix. There are nine Dow components reporting starting on Tuesday. Goldman and IBM on Tuesday have the biggest chance for moving the Dow.

Analysts said 72% or pre-earnings guidance has mentioned the shift in Easter. In 2016 Easter was in March and this year in mid April. This shifts strong buying patterns from Q1 into Q2. All the earnings misses for Q1 will be blamed on the Easter Bunny.

Tesla shares surged again after the company said it was ready to unveil an electric semi-truck in September. Musk tweeted about the upcoming announcement. He had already said he planned to produce a semi and minibus. After several people responded to his tweet on Twitter he also admitted a pickup truck was in the works in 18-24 months as well as a convertible roadster.

An investor group complained that Tesla board members were too connected to Musk and demanded he appoint two independent outside directors. In reply, he said dissatisfied shareholders should buy Ford (F) stock instead. The Ford family controls Ford using two classes of stock and the family has owned the company since the beginning.

Tesla said they would reveal the final Model 3 in July along with all the features and pricing. Morgan Stanley said it could be the safest car on the road. Musk said the initial production models of the Model 3 would have "horribly negative margins" because of all the startup costs to produce the new version. Shares rallied $7 on the news.

News broke on Friday that Apple might be injecting itself into the Toshiba memory auction process. Toshiba is selling its memory business after its Westinghouse subsidiary filed bankruptcy. They have to raise cash and the Toshiba memory division has lots of value. They started with about ten potential bidders but that list had been shaved to only three on Thursday. Those were Broadcom at $23 billion, Hon Hai Precision (Foxconn) at $27 billion and Western Digital at $15-$18 billion. Hynix is reportedly still in the bidding but would be blocked on national security issues. Western has the power to veto any sale because it is a 50% owner in a joint venture with Toshiba. Western warned Toshiba last week that the sale was in violation of their joint venture agreement and demanded exclusive negotiation rights.

Late Thursday news broke that Apple has offered to buy a stake in the business from Toshiba of more than 20%. That would allow Toshiba to retain partial ownership as well as generate some cash. Since Foxconn is Apple's iPhone manufacturer, a joint Foxconn/Apple bid for only a portion of the business could satisfy regulators concerned about national security issues from selling the business to a Chinese company. Japanese broadcaster NHK said Apple wanted Foxconn to own 30%.

This story is bound to have a lot more chapters before we reach a final sale.

Also on Friday, Apple was awarded a permit to begin testing self-driving cars in California. The permit covers three 2015 Lexus RX 450H Hybrid SUVs and six individual drivers. In California all testing must be done with a driver that can take control in the event of a malfunction. Apple is the 30th company to be awarded a permit in California. Those include Ford, GM, BMW, VW, Tesla and Google. The Google subsidiary Waymo has a fleet of cars that have logged more than 2 million miles.

Nintendo confounded everyone on Thursday when they said they were going to discontinue the NES Classic, which just began delivering in Q4. The company has already sold 1.5 million of the games. The list price is $59.99 but the game has been so popular it has been impossible to actually find them in stores. You can buy them from scalpers on Ebay or Amazon for $325-$350. The console contains 32 of Nintendo's most popular games like Super Mario Brothers, Donkey Kong, Pacman, Tetris, etc.

Nintendo said it was discontinuing the Classic because the Switch console had become so popular. Since the beginning of March the switch has sold 906,000 copies in North America alone along with an equal number of copies of the Legend of Zelda, also a classic game.

It appears Nintendo made a mistake in releasing the Classic. Since the games are included and the price is so cheap, they are not making any money on it. With the Switch, the games are extra.

Crude prices declined slightly on Friday after reaching a 4-week high. Energy stocks were down sharply with the market. During the week, Saudi Arabia was rumored to have asked OPEC to extend the production cuts for six more months.

Active rig growth slowed slightly from prior weeks and it was probably due to the approaching Easter holidays. The rig gain for the current week will probably be light as well. Gas rigs are struggling with a loss of 3 while oil rigs rose +11.


I think it is time to start looking for stocks to buy on the dip. As of late Saturday afternoon, there have not been any military events in North Korea. If we can escape the weekend without an event, the market could rally next week. Unfortunately, it might only be a short-term blip since we still have the problem with the government funding and debt ceiling the following week.

The major indexes closed below critical support levels, which would normally suggest we were going lower. When that kind of close comes on a clear geopolitical headline, there is a good chance of recovery when that headline fades. In this case, it was the MOAB in Afghanistan that the news media blew out of proportion and tried to make it a statement over a possible attack on North Korea. That compounded the April 15th Founders Day risk for North Korea and caused the markets to drop.

If we do rebound next week, I would not be too anxious about jumping into a lot of long positions. A government shutdown has historically caused significant market dips. You would think lawmakers would not want to take that risk but the partisan hostility in Washington is at record levels. If one party thought they could successfully blame a shutdown on the other, they may go for it.

In theory, the S&P close at 2,329 and well under strong support at 2,350 and minimal support at 2,340 should suggest a new target of 2,250. Multiple support levels have broken, there is a clear downtrend in place and the index closed at the low for the day at a two-month low. It does not get much more negative than that.

The Dow closed at 20,453 and well under prior support of 20,600. This was a two-month low and the Dow closed on its lows. On a technical basis, the chart is projecting a target of 19,800. Only two Dow components were positive. The energy stocks were big losers despite a lack of geopolitical headlines that would have impacted prices. Goldman closed on support just above $185 and could be poised for a major fall if earnings disappoint on Tuesday.

The Nasdaq indexes remain the strongest segment of the market but even the strong suffered from the recent weakness. The Nasdaq Composite closed just over critical support at 5,805 and avoided a two-month low close by 16 points. A break below that level would target 5,330.

The Nasdaq 100 has been weak for the last seven days as the big cap tech stocks began to see multiple sessions of light profit taking. The index is still well over support and remains the strongest chart.

The small cap indexes imploded over the last two days after positive gains for the prior three days while the large cap indexes were falling. The combination of headlines was too convicting and investors sold everything, especially small caps where the volatility risk is greater.

I would start looking for stocks you want to buy on a dip. Without a negative weekend headline, we could see a relief rally early in the week. Unfortunately, if the government funding and debt ceiling negotiations do not go well the following week, we could see a very volatile market.

If a potential government shutdown appears likely, we could see lower lows. However, these events pass and once the situation is resolved, we could see a decent market rally.

The wild card in all of this forecasting is the "sell in May" cycle, which could be stronger this year given the collapse in the administration's policy agenda. Once we are past the budget impasse, if the tax reform process looks like it will be put off to Q4 or longer, there will be a larger incentive to take profits and come back after the dog days of summer.

Random Thoughts

The market did not really roll over until Wednesday afternoon and this survey ends on Wednesday. A few bears became less cautious and moved to straddle the fence. The bulls did not really gain any converts and sentiment remained neutral for the week.

Last week results

JC Penny said it was going to postpone the liquidation and closing of 138 stores previously scheduled for April 17th. The company said it was seeing strong sales at the stores listed for closing. This is not uncommon according to JCP. When you announce a closure, local shoppers will appear looking for bargains while others will return to shop because of nostalgia about losing an old friend. They remember shopping there in years past and suddenly want to see what they have been missing. The company said sales had been brisk and it was "prudent to continue selling the spring and summer merchandise at the current promotional levels and begin the actual liquidation a month later than originally planned." The new liquidation will begin on May 22nd and the stores will be closed on July 21st.

This "going out of business" phenomenon has been well known for decades. Back in the 50s and 60s stores would announce going out of business sales at least once a quarter. Once they got you in the store, it was always a particular brand or model year they were closing out. I remember when I lived in Dallas in the 60s they passed a law about how frequently you could "go out of business." I am surprised Sears has not picked up on this and started holding quarterly going out of business sales. Of course, they have been going out of business for so long now, nobody would believe them.

The Canadian government announced on Thursday that it will introduce new legislation to legalize the use of recreational marijuana for adults 18 years and older. The government will introduce a number of bills that will set a "strict framework" around the age, production, distribution and sale. Individual provinces will be able to modify legislation to fit their own localities. Canadians will be able to grow their own but be limited to 4 plants per household. There will be a zero tolerance policy for driving under the influence.

Analysts in the U.S. believe every state could have some kind of permissions by 2021. These are the states that have already passed marijuana access laws.

A student group at Duquesne University in Pennsylvania wants to prohibit a Chick-fil-A from opening on campus because it would cut down on the school's "safe places." Apparently, chicken sold by a company with a Christian founder is discriminatory. I feel sorry for these students when they actually have to make it in the real world where it is survival of the fittest and there are no safe places.


Enter passively and exit aggressively!

Jim Brown

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New Plays

Chart Failure

by Jim Brown

Click here to email Jim Brown
Editor's Note

The small cap indexes have been trading sideways for the last four months. This is not a pattern that is conducive to profitable trades. We get a 4-5 day bounce and then a 4-5 day decline. 99% of the small cap charts look just like the Russell chart, or worse. The sharp decline over the last two days turned nearly every small cap chart bearish but this was due to headline event risk. It was not a general market decline on normal factors.

I have not been able to find a small cap play I want to add to the portfolio this weekend. We have no clue which way the market will open on Monday but without a negative headline, it should be positive. We could have a monster gap open relief rally that runs into trouble almost immediately as we close in on the budget battle the last week of April.

There is no reason to add a position just because it is a newsletter day. We need to wait until there is a trend or at least until a trending stock appears. I saw none this weekend.


No New Bullish Plays


No New Bearish Plays

In Play Updates and Reviews

Positive to Negative

by Jim Brown

Click here to email Jim Brown

Editors Note:

Two days made a world of difference with the small caps going from consecutive days of gains to a crash back to support. The weakness in the big caps and the approaching weekend event risk continued to drag the small caps lower.

The S&P-600 closed below critical support at 820 and ANY further decline would suggest a major correction ahead. The 200-day average at 790 would be the next potential support but I would be cautious until we actually see it hold.

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.

Lottery Ticket Plays - Updated only on Weekends

Current Position Changes

VXX - VIX Futures ETF
The short stock position was entered at the open.

CPE - Callon Petroleum
The long stock position was stopped at $12.50.

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BULLISH Play Updates

CPE - Callon Petroleum Company - Company Profile


Shares were upgraded by Euro Pacific Capital from hold to buy with a price target of $17 but the declining market was too much to overcome and we were stopped out on the long stock position.

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:

Closed 4/13/17: Long CPE shares @ $13.31, exit $12.50, -.81 loss.

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

ECA - Encana Corporation - Company Profile


No specific news. New 7-week closing high on Tuesday. Back to support on Thursday.

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. New three-month high on Wednesday, minor decline on Thursday. 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. Minor decline from the 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 gain in a weak market.

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

FSLR - First Solar - Company Profile


No specific news. Shares hit $28.06 and missed our stop loss by 19 cents. That is the lowest high in three days. Maybe our luck is changing.

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.

VXX - Volatility Index Futures - ETF Description


I think we got a good entry on this short. Friday's decline was event risk fear for the holiday weekend. If a shooting war does not break out over the weekend, the market could rebound on Monday.

Original Trade Description: April 12th.

The VXX is a short term volatility product based on the VIX futures. As a futures product it has the rollover curse. Every time they roll to a new futures contract, they have to pay a premium and that lowers the price of the ETF. It is a flawed product with a perpetual decline built in from the monthly roll over in the futures contracts.

As evidence of this flaw, they have now done four 1:4 reverse stock splits. The last four reverse splits occurred at $13.11 (11/2010), $8.77 (10/2012), $12.84 (11/2013), $9.52 (8/8/16). The prospectus says it can reverse split anytime it trades under $25 for a prolonged period and the splits will always be 1:4.

The VXX has rebounded $3 over the last week as the volatility returned. The VIX traded over 16 today and could hit 18 if there are any geopolitical events over the Easter weekend.

Unfortunately, put options are expensive with a volatility instrument at this price level. The only recommendation is to short the ETF and forget it. If we do get a prolonged rally as some are expecting we could see strong market gains in the next 2-3 months. This will be a long-term position. This is not a 2-3 week play. I can guarantee you, if history holds, we can play this until it splits 1:4 again at $10. Once we are in the position and profitable I will put a trailing stop loss on it. We will take profits and then look for a bounce to get back in.

We know from experience that the VXX always declines. The last time we shorted this ETF we had a $7.23 gain.

Position 4/13/17:

Short the VXX @ $17.98, no stop loss because it always declines eventually.

Left Over Lottery Tickets

These positions were left over from prior plays where we had an optional option with no stop after the stock position was closed. Rather than close these for a few cents they are left open as a "Lottery Ticket" play. With months before expiration, anything is possible. A strong move in a single stock can be well worth the additional patience.

These positions are only updated on the weekend.

AKS - AK Steel - Company Profile


Shares fell sharply last week on news that Mitsui said they were not interested in acquiring AKS. Also, Trump's warm comments about China and cooling of his trade policy threats, suggests the steel dumping fro China could be overlooked.

Original Trade Description: February 4th

AK Steel Holding Corporation, through its subsidiary, AK Steel Corporation, produces flat-rolled carbon, stainless and electrical steel, and tubular products in the United States and internationally. It produces flat-rolled value-added carbon steels, including coated, cold-rolled, and hot-rolled carbon steel products; and specialty stainless and electrical steels in sheet and strip forms. The company also produces carbon and stainless steel that is finished into welded steel tubing, which is used in the automotive, large truck, industrial, and construction markets; buys and sells steel and steel products, and other materials; and produces metallurgical coal from reserves in Pennsylvania. It sells its flat-rolled carbon steel products primarily to automotive manufacturers and to customers in the infrastructure and manufacturing markets, including electrical transmission, heating, ventilation and air conditioning equipment, and appliances; and coated, cold-rolled, and hot-rolled carbon steel products to distributors, service centers, and converters. The company sells its stainless steel products to manufacturers and their suppliers in the automotive industry; manufacturers of food handling, chemical processing, pollution control, and medical and health equipment; and distributors and service centers. It also sells electrical steel products to manufacturers of power transmission and distribution transformers, as well as for use in the manufacture of electrical motors and generators. Company description from FinViz.com.

Shares spiked from $5 to $11 after the election on hopes for a surge in infrastructure projects, lower regulations and a growing economy. AK shares peaked early and traded sideways for a month. The week before earnings they began to decline as analyst said the market gains were overdone.

The reported earnings of 25 cents on January 24th that beat estimates for 7 cents. Revenue of $1.42 billion was slightly lower than estimates for $1.43 billion. Shares spiked on the earnings news and collapsed on guidance that shipments to automakers had declined in Q4. The next day a spokesman clarified that saying the "decline in shipments compared to 2015 was primarily the result of a 41% decline in shipments to the distributor and converters market as the company intentionally reduced sales of commodity products." In other words, AK wanted to focus its efforts on the higher margin products and reduce exposure to low margin products.

Shares quit declining after the clarification and bottomed just under $8. Friday's close was right on the verge of a 7-day high. One more positive day and we could see a rebound begin.

Update 2/21/17: AK Steel said they were increasing prices by a minimum of $30 a ton effective immediately.

Update 3/3/17: The steel sector received some good news. The US International Trade Commission (ITC) said it was imposing import duties of 63.86% on stainless steel sheets and 76.64% on stainless strips and impose countervailing duties of 75.6% to 190.71%. This complaint was filed in early 2016. This is a major win for the steel sector.

Earnings April 25th.

The optional option position is for a longer-term holder with a June expiration. Very limited risk in terms of dollars invested and could be a decent winner if AKS returns to the $11.25 highs or higher on infrastructure stimulus headlines.

Position 2/6/17:

Long-term option:

Long June $10 call @ 59 cents. No stop loss.

Previously closed 2/23/17: Long AKS shares @ $8.18, exit $8.65, +.47 gain.

CX - Cemex - Company Profile


Shares traded at a 52-week high the prior Wednesday and then fell off a cliff on no news.

We have a July call so we have plenty of time.

Original Trade Description: January 25th

CEMEX, S.A.B. de C.V. produces, markets, distributes, and sells cement, ready-mix concrete, aggregates, and other construction materials in Mexico and internationally. The company also offers various complementary construction products, including asphalt products; concrete blocks and roof tiles; architectural products; concrete pipes for storm and sanitary sewers applications; and other precast products comprising rail products, concrete floors, box culverts, bridges, drainage basins, barriers, and parking curbs. In addition, it provides building solutions for housing projects, pavement projects, and green building consultancy services; and information technology solutions and services. The company has operations in Mexico, the United States, Northern Europe, the Mediterranean, South America, the Caribbean, and Asia. Company description from FinViz.com.

Bernstein Research researched all the contractors that could supply materials for a border wall. In the Bernstein map below Cemex is represented by the red blocks. Building 1,000 miles of wall, which is what Trump has promised will take a lot of concrete.

Cemex is one of the world's largest suppliers of cement and readymix concrete. Analysts believe the wall will cost between $15 to $25 billion to build and concrete would be a major expense. Based on various comments about what Trump is asking for, analysts expect 7 feet deep and up to 40 ft high for 1,000 miles. That will take 7.1 million cubic meters of concrete worth $700 million. However, engineers believe it would be easier and cheaper to build precast panels like the wall in Israel and other places. That would allow the panels to be constructed close to Cemex locations and not have 1,000 concrete trucks rotating up and down the wall every day. The picture below is the Israeli wall made with concrete panels and it stretches 420 miles.

Regardless of how the wall is constructed, it will take a lot of concrete and Cemex is going to be a supplier. Cemex has a large presence in the U.S. so it is immune from the US First rule.

Update 2/2/17: The secretary of Homeland Security said they are planning to complete the border wall in less than two years. They plan on a crash construction project in the heavily traffic areas and then fill in the blanks over the next two years. That means once construction begins it could be in multiple locations at once and the velocity could be extreme in order to get most of it done before the 2018 elections.

Update 2/10/17: CX said sales rose 4% in Q4 to $3.2 billion. EBITDA rose 10% to $654 million and +15% for the full year to $2.7 billion. Free cash flow rose 91% to $1.7billion in 2016. Debt declined by $2.3billion. Asset sales reached $2 billion of which $1 billion will close in 2017. .

Update 3/17/17: Cemex did not bid on the border wall. The company said they felt it would be bad faith and they could face repercussions from their home company of Mexico even though they have multiple concrete plants on both side of the border. However, they did say if a contractor asked for prices for cement they would be obliged to provide those prices and supply the cement.

Cemex is reducing debt by as much as $4 billion through price hikes and asset sales. They expect revenue from the U.S. to rise by $550 million in 2017 without any impact from the wall. In their analyst meeting last week the tone was positive and they expect overall revenue to rise 4% to 6%. That would rise if any infrastructure spending programs were enacted.

Update 3/25/17: Mexico warned Mexican companies it would not be in their best interest to participate in building the border wall between the two countries. The government said it was not going to pass a sanctions law but consumers would know and they would likely boycott any company that participated.

Cemex has said they would not participate but did say they would provide raw materials if asked by the eventual bid winners. Competitor Grupo Cemantos has said they would participate in the project.

The U.S. government said they had received expressions of interest from 720 companies to build the wall or supply components and services.

Earnings Feb 9th.

CX shares have already spiked in January once it became apparent the wall was actually going to happen. The stock broke out to a new high on Wednesday and probably has a long way to go.

Position 1/26/17:

Long July $11 call @ 52 cents. No initial stop loss.

Previously closed 2/6/17: Long CX shares @ $9.42, exit $9.05, -.37 loss.

DEPO - Depomed Inc - Company Profile


No specific news. The 15% spike that stopped out the stock position last Friday is fading.

Original Trade Description: April 1st.

Depomed, Inc., a specialty pharmaceutical company, engages in the development, sale, and licensing of products for pain and other central nervous system conditions in the United States. It offers Gralise (gabapentin), an once-daily product for the management of postherpetic neuralgia; CAMBIA (diclofenac potassium for oral solution), a non-steroidal anti-inflammatory drug indicated for acute treatment of migraine attacks in adults; Zipsor (diclofenac potassium) liquid filled capsule, a non-steroidal anti-inflammatory drug for the treatment of mild to moderate acute pain in adults; and Lazanda (fentanyl) nasal spray, an intranasal fentanyl drug used to manage breakthrough pain in adults. The company also provides NUCYNTA ER (tapentadol extended release tablets), a product for the management of pain severe enough to long term opioid treatment, including neuropathic pain associated with diabetic peripheral neuropathy (DPN) in adults; and NUCYNTA (tapentadol), a product for the management of moderate to severe acute pain in adults. In addition, it is involved in the clinical development of Cebranopadol for the treatment of chronic nociceptive and neuropathic pain. The company sells its products to wholesalers and retail pharmacies. It also has a portfolio of license agreements based on its proprietary Acuform gastroretentive drug delivery technology with Mallinckrodt Inc.; Ironwood Pharmaceuticals, Inc.; and Janssen Pharmaceuticals, Inc. Company description from FinViz.com.

The company is under attack by activist investor Starboard Value. Starboard wants to own the company for a potential M&A move at some point in the future. Last week, the company said they had reached an agreement with Starboard to replace the CEO and add two new Starboard nominated members to the board.

Normally when an activist investor gains control of a company it suggests the stock will go up. However, analysts at Cantor Fitzgerald say it is not currently a buy. They believe there will be continued weakness in the shares once investors realize it could be a long time before a merger/acquisition is accomplished.

CF said existing problems include "softness" in the opioid market and the potential attack on opioid drugs by the new administration. There needs to be a realignment in Depomed's sales force. They need to explore the exit opportunities in Opana. They also need to supply clarity relating to Depomed's debt refinancing.

CF said all those factors should continue to pressure the stock. Starboard will also have to create some additional value before they can market the company for a profit. The analyst thought this would take the better part of 2017.

Depomed guided for Q1 revenue of $95-$100 million and analysts were expecting $114.6 million.

Earnings May 23rd.

Shares broke support at $14.75 on the news of the agreement with Starboard. Shares are dropping like a rock on the Cantor Fitzgerald analysis.

Update 4/4/17: The company announced the prepayment of $100 million of its $475 million in secured debt. The loan facility matures in 2022 and Depomed is planning on refinancing the remaining $375 million later this year. Shares gained 25 cents on the news.

Position 4/3/17:

Closed 4/7/17: Short DEPO shares @ $12.52, exit $12.95, -.43 loss.

Still open: Long May $12 put @ 80 cents, see portfolio graphic for stop loss.

ETSY - ETSY Inc - Company Profile


No specific news. Shares were holding at support until noon on Thursday. When the market accelerated lower, Etsy followed.

Original Trade Description: March 15th

Etsy, Inc. operates as a commerce platform to make, sell, and buy goods online and offline worldwide. Its platform includes its markets, services, and technology, which enables to engage a community of sellers and buyers. The company offers approximately 45 million items across approximately 50 retail categories to buyers. It also provides various seller services, including direct checkouts, promoted listings, and shipping labels, as well as Pattern by Etsy to create custom Websites; and seller tool and education resources to start, manage, and scale businesses to entrepreneurs primarily through Etsy.com. In addition, the company operates A Little Market, a handmade and supplies market for sellers and buyers. Company description from FinViz.com.

Etsy reported earnings of 3 cents that beat estimates for a penny. Revenue of $110.2 million also beat estimates for $106.9 million. Merchandise sold rose 16.7% to $865.2 million. The stock was crushed because the company guided for higher costs. However, there was a good reason and shares are starting to rise again.

Etsy is an ecommerce website where crafters can post and sell their wares. So far, so good. The company has come up with the great idea to sell craft supplies on the website so other existing crafters plus all the people shopping the website can buy their supplies there as well. Not only will the company provide supplies but they are adding tutorials and other craft ideas. That will make the site even more "sticky." This is scheduled to launch in April.

In addition, they introduced Google Shopping on the website and launched their first ever global brand campaign. They have changed the backend of the seller website to provide a new seller dashboard and new application called Shop Manager.

I think this expansion is a great idea. Where other retail websites are stagnant, Etsy is growing rapidly and these new features will increase viewers, buyers and sellers. The knee jerk decline in the stock price on the rise in expenses was a buying opportunity.

Earnings May 30th.

Position 3/16/17:

Long June $12.50 call @ 36 cents, no stop loss.

Previously Closed 3/27/17: Long ETSY shares @ $10.25, exit $9.75, -.50 loss.

HIMX - Himax Technologies - Company Profile


Shares crashed with the rest of the sector when news broke that Apple was thinking about making their own chips. Himax also made a strategic investment into Emza Visual Sense Ltd for 45.1% ownership with a one-year option to acquire the remaining 54.9%. Emza is an Israeli company that is developing extremely efficient visual sensors with "orders of magnitude" improvement in power consumption. This is a big plus for Himax and I would be a buyer of these shares again for a longer term hold.

Original Trade Description: March 29th.

Himax Technologies, Inc., a fabless semiconductor company, provides display imaging processing technologies to consumer electronics worldwide. The company operates through Driver IC and Non-Driver Products segments. It offers display driver integrated circuits (ICs) and timing controllers used in televisions (TVs), laptops, monitors, mobile phones, tablets, digital cameras, car navigation, and other consumer electronics devices. The company also designs and provides controllers for touch sensor displays, liquid crystal on silicon micro-displays used in palm-size projectors and head-mounted displays, light-emitting diode driver ICs, power management ICs, scaler products for monitors and projectors, tailor-made video processing IC solutions, and silicon IPs. In addition, it offers digital camera solutions, including complementary metal oxide semiconductor image sensors and wafer level optics, which are used in various applications, such as mobile phone, tablet, laptop, TV, PC camera, automobile, security, and medical devices. The company markets its products to panel manufacturers, agents or distributors, module manufacturers, and assembly houses; and camera module manufacturers, optical engine manufacturers, and television system manufacturers. Company description from FinViz.com.

Himax is riding the wave of Ultra HD and 4K TVs as well as the surge in normal TVs to higher definition and width. Nobody has a 24 inch or even a 32 inch TV in their family room. Those have gone the way of console TVs and black and white. Worldwide the demand for display driver IC (DDIC) chips is expected to grow by 19.5% annually through 2020. Add in the surging demand for VR and AR (augmented reality) products, self driving cars, tablets and laptops, phones and business is booming.

They missed on earnings when they reported in mid February but guidance was so strong the stock rose 50% over the next week. After two-weeks of post earnings depression the stock has been moving higher again.

Earnings May 18th.

Since their earnings four brokers upgraded the shares and one upgraded them twice. Morgan Stanley upgraded them from underweight to equal-weight. A week later they came back and upgraded them again to overweight. Northland upgraded to outperform, Nomura to buy and Roth Capital to buy.

Shares flat lined last week with a slower rise. They dipped slightly on Wednesday with the entire sector weak. If we buy this minor dip we can keep the stop loss tight and have limited risk. Resistance is $11.

Update April 5th: Shares dropped sharply at the open before DigiTimes reported Himax will supply part of the 3D sensing technology in the iPhone 8. The opening dip stopped us out of the short stock position and we missed out on the big rebound. Fortunately, the long call did not have a stop loss. This position will more to the Lottery Play section for next week.

Position 3/30/17:

Long May $10 call @ 26 cents. No stop loss.

Previously Closed 3/31/17: Long HIMX shares @ $9.26, exit $8.46, -.81 loss.

INFN - Infinera Corporation - Company Profile


No specific news. Shares are still declining and our July $10 put is in the money.

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.

Update 3/17/17: Goldman upgraded INFN from neutral to buy on Thursday and shares spiked 8% on the news. Our profitable short was immediately turned into a losing position. We still have the long July put and I added a stop loss.

Position 2/27/17:

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

Previously Closed 3/16/17: Short INFN shares @ $10.87, exit $11.10, -.23 loss.

STM - STMicroelectronics - Company Profile


No specific news. Shares crashed with the rest of the sector when news broke that Apple was thinking about making their own chips. Without a strong move this position will expire on Friday.

Original Trade Description: February 6th

STMicroelectronics N.V., together with its subsidiaries, designs, develops, manufactures, and markets semiconductor products, and subsystems and modules worldwide. The company offers a range of products, including discrete and standard commodity components, application-specific integrated circuits, full-custom devices and semi-custom devices, and application-specific standard products for analog, digital, and mixed-signal applications, as well as silicon chips and smartcards. It also provides subsystems and modules, including mobile phone accessories, battery chargers, and ISDN power supplies for the telecommunications, automotive, and industrial markets; and in-vehicle equipment for electronic toll payment. The company sells its products through its distributors and retailers, as well as through sales representatives. Company description from FinViz.com.

STM is Europe's third largest chipmaker. The company reported revenue of $1.86 billion, an 11.5% increase. They also raised guidance for Q1 saying they expect 12.5% growth. The CEO said, "Based on market forecasts, a positive booking trend, and a strong performance at our distributors, we see the momentum from the second half of 2016 continuing as we enter 2017."

The chipmaker said improved efficiencies and product mix lifted gross margins from 33.5% to 37.5%. Their smartphone market share helped increase sales in that division by 17.8%. The automotive and industrial products segment saw sales increase 12.5%. STM is a supplier to Apple, Cisco Systems, HP, Seagate and Western Digital. Every one of those companies are reporting stronger sales and new product lines, all of which helps STM. They also make chips for drones, 3D printing and a wide variety of IoT products.

The consensus earnings estimates are for 103.4% growth in 2017.

Update 3/10/17: Shares pulled back from their last week high after a small fire in the basement of a manufacturing facility in France, is expected to cause a delay in the 3D motion sensor for the iPhone 8. The sensors have a long production time with a low yield rate and every day the facility is offline, pushes delivery farther into the future. Apple employees are reportedly on site trying to determine the actual time until restart so they can project the actual delivery of the iPhone. If this is not rectified over the next couple of weeks, it could be a major problem for Apple.

Earnings April 27th.

Shares have caught fire because of expectations for a large boost in chips for the iPhone 8 or X whatever they end up calling it.

This stock is not cheap with a PE of 75 but the outlook is so strong that volume is exploding and the stock will not go down. We are going to hold our nose and buy it. A safer way to play this would be to buy the call option. That way your total risk is 70 cents a share.

Position 2/7/17:

Long April $15 call @ 65 cents. See portfolio graphic for stop loss.

Previously closed 2/9/17: Long STM shares @ $14.22, exit $13.75, -.47 loss.

VIPS - Vipshop Holdings - Company Profile


No specific news. Shares rebounded from support but needs to move back over $14 this week to help us. Without a miracle this position will expire on Friday.

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.

Update 3/30/17: Resistance at $14 held and uptrend support broke. We were stopped out at $13.35 on the drop. The long call option remains open but it is an April option so it would take a move over $14 to increase the value.

Position 3/3/17:

Closed 3/30/17: Long VIPS shares @ $13.13, exit $13.35, +.22 gain.
Position 3/6/17: Long April $14 call @ 30 cents, no stop loss.

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