Option Investor

Daily Newsletter, Wednesday, 4/19/2017

Table of Contents

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

Market Wrap

Bears Keep Blocking Bulls

by Keene Little

Click here to email Keene Little
A morning gap up saw very little follow through and the indexes gave most, if not all, of the morning rally back. The bears have been effectively blocking attempts to rally and it's looking like we'll get lower prices before potentially heading higher.

Today's Market Stats

Thanks to an overnight rally in equity futures, which appeared to be designed to get indexes up and over some resistance levels, the market gapped up this morning (except for the Dow, which was dragged down by IBM) and bulls had an opportunity to reverse the downtrend we've been in since March 1st. But the bear's defense team blocked the attempt and the lack of follow through to the morning buying brought the bear's offensive team back onto the field.

There was very little in the way of economic reports or overnight news from overseas to help move the market and once the initial buying in the morning quickly petered out we saw the continuation of downward pressure. The bounce attempts have been consistently on lower volume while selling has been on higher volume. This is consistent with a downtrend and at the moment it appears the downtrend will continue to pressure the market.

The overall pattern of the pullback from March 1st is a choppy mess and it looks more like a correction to the rally than something more bearish. That could of course change in a hurry if we start to get a sharp strong decline that starts breaking some important support levels, but at the moment I think we're looking for a buying opportunity in the not-too-distant future. We might see the pullback continue the rest of this month and into early May before setting up a buying opportunity.

For now I see more opportunity for traders on the short side, based on the price and volume pattern. But the choppy price pattern is difficult to trade because of the whipsaws and reversals of reversals. Unless you're a fast day trader or one who can hang onto a trade in the face of sharp reversals in your face, this is a tough market to trade right now.

The current market condition will change but for now it requires caution and an opportunity to practice what I like to call the double-cheek trade -- stand up, firmly grab both butt cheeks and then sit down, trapping your hands and not allowing them to "accidentally" hit the buy/sell button. We are traders who like to trade and feel like we're wasting our time (and money-making opportunities) when not trading. But as Jesse Livermore told other traders, his success (when he had it) was based more on knowing when not to trade than what he traded.

The Dow was the worst performer today, thanks to IBM's big gap down and selling. The reaction to yesterday's after-hours earnings report was quite negative and the poor Dow never had a chance to get out of the red. The other indexes were doing well in the morning but then gave up most of the gains. SPX also dropped back into the red but the techs and RUT stayed in the green all day.

We often hear about how well corporate earnings are doing, how much they beat (if they beat) estimates, etc., but in fact corporate profit margins have been in decline since 2011. The stock market has been ignoring this fact by focusing on just earnings while forgetting about expenses. Expenses like higher dividend payouts, stock buybacks, interest on massive borrowing.

For a long time margins have been shrinking, which should affect valuations based on growth potential but the stock market has been whistling past the graveyard on this issue. Unless the decline shown on the chart below can get reversed we could find the market in serious trouble, even if that day of reckoning will be months from now. Manually matching those periods with declining profit margins will show you that the stock market did not do well during those periods.

Corporate Profit Margins, 1947-March 2017

The stock market has been pulling back since the March 1st highs and it's not looking yet like the pullback is complete. The pattern supports those who are looking to buy the dip but I think that opportunity could be another week or two or three away. The price patterns can be confusing at times like this but we have some key levels to watch to help guide the way.

S&P 500, SPX, Weekly chart

The choppy pullback from the March 1st high is looking more and more like a bullish consolidation pattern. There will likely be lower prices ahead but so far it's looking more like a bull flag type of pattern than something more bearish. An uptrend line from February-November 2016, currently near price-level support at 2275, could be the downside target for the pullback.

The bottom of a bull flag for the pullback is currently near 2300 so we have a 2275-2300 support zone to watch for. There is of course the potential for another rally leg to kick into gear at any time but so far the shorter-term pattern suggests lower prices before setting up the possibility for another rally leg. If the decline starts to accelerate I'll then start to think a little more bearishly but at the moment I'm thinking a larger choppy pullback this month before setting up another rally leg.

S&P 500, SPX, Daily chart

The daily chart below shows the possible down-channel and a projection to the bottom of the channel where it meets the uptrend line from February-November 2016 near 2293 May 9th. This is of course speculation on my part but a continuation of a choppy pullback to that time/price would be a very good setup to get long for the next rally.

If the bears take control of this market and drive SPX below the bottom of its down-channel, currently near 2304, it would then start to look more bearish. Because of the choppy pattern there are a myriad possibilities for price movement and the big caution right now is that this is not a good time for traders -- there are simply too many whipsaws and lack of follow through. And bulls need to exercise caution since there are no indications yet that the next rally leg is ready to start.

Key Levels for SPX:
- bullish above 2379
- bearish below 2322

S&P 500, SPX, 60-min chart

The 60-min chart shows a short-term down-channel within the down-channel from March 1st. The bounce attempts have been 3-wave moves and on weaker volume, which shows them as corrections to the decline. The likelihood is that the decline will continue and has the potential to accelerate lower in the coming days. A drop below the bottom of both down-channels and a break of price-level S/R near 2300 would be potentially worrisome for the bullish expectations following the pullback but the more important level for the bears to break is near 2275.

There will be plenty of time to evaluate the decline, assuming we'll see more to the downside, to see if it will continue to support the longer-term expectation for another rally leg.

Dow Industrials, INDU, Daily chart

The negative reaction to IBM's after-hours earnings release yesterday (today it finished down -8.36, -4.9%) hurt the Dow today. Chevron and Exxon were also weak with the oil sector today and they helped pull the Dow lower. The net result was the Dow did not gap up with the other indexes this morning and led to the downside but still lost only -0.6%. It is the first major index to drop below its March 27th low (20,412) and further supports the idea that we're going to see a move down to at least the bottom of a down-channel for the pullback from March 1st.

The bottom of its down-channel is currently near 20160 and crosses price-level S/R near 20K on May 5th, which is close to the same day as the May 9th date mentioned for SPX. Two equal legs down from March 1st points to 20131 and based on all this I think a good downside target/support zone is 20,000-20,130. Below 20K would be more bearish.

Key Levels for DOW:
- bullish above 20,888
- bearish below 20,412

Nasdaq-100, NDX, Daily chart

Yesterday NDX ran up to resistance at its broken 20-dma and its broken uptrend line from December, both near 5399. Thanks to an overnight rally in equity futures that resistance was easily taken care of with this morning's gap up. It then promptly ran into the trend line along the highs from April-August 2016 and turned back down. Notice how this trend line (purple) acted as support for most of the time since mid-February until it was broken again on April 11th.

It's now back up for a back-test and the bearish pattern says we'll get another leg down. A drop below its 50-dma, which held as support last Thursday, currently near 5366, would be a bearish heads up and then a drop to the bottom of its megaphone pattern, near

Key Levels for NDX:
- bullish above 5443
- bearish below 5275

Russell-2000, RUT, Daily chart

The RUT was again the stronger index today and that's typically a bullish sign. But the RUT's early gains fizzled with the rest of the market and even though it finished in the green with its +0.4% gain it showed weakness following this morning's rally attempt. Like the NDX, it gapped up this morning and jumped over resistance at its broken 20-dma near 1363 and then made it back above its broken uptrend line from November 4 - March 27.

Unfortunately for the bulls there was stronger resistance waiting to pound the RUT back down. At this morning's high at 1376.69 it was only pennies above its broken 50-dma and its downtrend line from March 1st. The decline from the morning high dropped the RUT back down to its uptrend line from November, currently near 1367. Intraday it looks like a pullback to support and ready to spring higher but on the daily chart, with the shooting star at resistance, it looks like a failure to recapture the broken uptrend line. We'll know better on Thursday which support and resistance line is stronger.

Key Levels for RUT:
- bullish above 1390
- bearish below 1345

10-year Yield, TNX, Daily chart

Treasuries have kept rallying this weak and that's putting downward pressure on stocks as money rotates out of stock and into bonds. This has resulted in a continuation of the pullback in yields, which is an indication that there's less fear of an expanding economy and resulting higher inflation. Recent data does in fact show a reversal of inflation that was ticking higher in the past several months.

As can be seen on the TNX daily chart below, it has broken important support at the bottom of its trading range since the end of November as well as dropping back below its downtrend line from 2007-2013. This follows the double top in December and March and the width of the trading range suggests a downside price objective at 2.00%. This has been considered a pivotal yield level for the 10-year and what happens after that will be very important to the longer-term picture.

KBW Bank index, BKX, Daily chart

The banks have been weaker than the broader market since December and was especially weak at the March 1st high (note the bearish divergence in March relative to December). There is the possibility we have a H&S top (left shoulder in December, head in March and the right shoulder into April. The height of the head projected down from the H&S neckline points to about 76 for a downside target. It doesn't guarantee it will get there, or stop there, but it provides a sense of downside risk.

Prior to 76 there is support at the H&S neckline, near 87.25, the bottom of a down-channel from March 1st, near 83.75, its 200-dma, near 82.20 and then its July 2015 high at 80.87. In other words the bears will have a lot of work to do before they can hope to achieve the downside objective near 76. Note today's failure at the trend line along the highs from April 2010 - July 2015, which acted as support until it was broken last week. Today it was resistance on a back-test.

Transportation Index, TRAN, Daily chart

The TRAN has also formed a possible H&S top, which includes bearish divergence at its March 1st high relative to its previous highs in December and January. The downside objective out of the H&S top is down near 7925. Again, there are plenty of support levels between here and there but it shows the downside risk. The first sign of bullishness would be a rally above the April 10th high at 9218. This morning's high at 9043 was a back-test of its broken 20-dma at 9040.

U.S. Dollar contract, DX, Daily chart

The US$ is potentially inside a bullish descending wedge off its January 3rd high but it's missing the kind of bullish divergence I would expect to see to help validate the pattern. It's also possible the 3-wave pullback into the March 27th low is all the pullback correction we'll see before heading higher and a rally above the April 10th high at 101.26 would point to that possibility. But the bearish wave count calls for an acceleration of the selling from here and a drop below the bottom of the wedge, currently near 98.40, would likely be followed by strong selling.

Gold continuous contract, GC, Daily chart

The short-term pattern for gold would look best with one more minor new high to complete the leg up from March 10th. Two equal legs up from March 10th points to 1307.60, which is slightly above its downtrend line from September 2011 - July 2016. This is an important longer-term trend line, currently near 1304, and a strong break of it would be a strong bullish statement. But with a 3-wave move up from December 15th to a potentially strong line of resistance and with the dominant trend still to the downside, gold traders can look to get short near the trend line, using a stop just above 1308.

The next upside target above that level is 1335.10, which is where the rally from December 15th would achieve two equal legs up. Above 1336 would be especially bullish but for now I think buying a minor new high, if we get it, could lead to disappointment. We could have much better prices ahead for us to pick up the shiny metal for long-term holdings.

Silver continuous contract, SI, Monthly chart

I always like to see what silver is doing since it has less of a currency-like demand as does gold. It's more of an industrial metal and it's therefore more of a reflection of the economy than is gold (although gold also is an industrial metal, especially in the semiconductor industry). At any rate, I like to see gold and silver in sync to help with confidence in determining the larger trend.

The monthly chart of silver is shown below to show the dominant trend had been down since it peaked in April 2011. Just as the dominant trend for gold is down, until the downtrend line from 2011-2016 is broken, there's a parallel down-channel for the decline, the top of which is a downtrend line from April 2011 - July 2016.

Sunday's overnight high at 18.65 tested the top of silver's down-channel. Near the same level, currently at 18.14 and where silver closed today, is the 50-month MA. The bulls need to see a continuation of the rally in order to break through these two important lines of resistance. Until resistance is broken this is a place to short silver with a relatively tight stop (no higher than 19).

Oil continuous contract, CL, Weekly chart

Oil dropped sharply today and that had the energy sector suffering. Oil's decline follows a back-test of double trendline resistance and looks bearish as the weekly RSI rolls over from its own back-test of the broken uptrend line from 2015. MACD has barely been able to lift off the zero line and a rollover from here would create a MACD sell signal.

Since the low in August 2015 there is a potential inverse H&S pattern for oil, with the head at its January/February 2016 double bottom and the right shoulder at the August 2016 low. The neckline (bold blue line) is currently near 53.30 and was back-tested last week. There's a downtrend line from May 2015 that could be the neckline of a larger inverse H&S pattern and it too was back-tested with last week's high at 53.76.

The setup looks good for oil bears to take a shot at getting short black gold (and maybe soon the real gold as well) with a tight stop just above 53.80. A rally above price-level S/R near 58.50 would be a bullish move, in which case the H&S objective near 80 would be the upside target (if it can get through its 200-week MA, currently at 66.35.

Economic reports

Tomorrow's economic reports include the Philly Fed index, which is expected to drop sharply to 24 from 32.8 in March. Leading indicators is also expected to show a slowdown. The only report of consequence on Friday will be existing home sales, which are expected to show continued growth (the rally to new highs in the home builders is a good sign for the housing market, although I do see evidence of them putting in a top soon).


The overall pattern of the pullback from March 1st continues to suggest we're getting just a correction to the longer-term rally. A choppy move counter to the dominant trend is typically just a correction to that trend and it will be followed by a resumption of the trend. After more than six weeks of a choppy pattern it's hard to argue that it's bearish. We could see the choppy pullback continue for another week or two but unless it starts spiking to the downside and taking out some key support levels (could happen) we'll be looking to be buyers of the correction. But I don't see a setup for buyers yet.

Using SPX as a market proxy, I see the potential for a continuation lower to a support zone at 2275-2300, about another 1.6%-2.7% lower. A choppy pattern such as we've had, and could continue to have, is not a good time for traders. From an EW perspective, the pattern fits a 4th wave correction (to be followed by one more rally to complete the 5th wave) and 4th waves have a reputation for sending brokers' children to expensive colleges while causing traders to go broke. You want to avoid trading inside 4th waves.

Assuming we'll see the market work its way lower over the next couple of weeks, we'll have time to evaluate the setup to get long. In the meantime exercise patience and if you need to be in the market I'd rather be short than long expect lots of whipsaws.

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

Keene H. Little, CMT

New Plays

Buy Low, Sell Higher

by Jim Brown

Click here to email Jim Brown
Editor's Note

Some drug companies have taken big hits recently. It is time to buy PTC Therapeutics after their recovery from the big announcement in March.


PTCT - PTC Therapeutics - Company Profile

PTC Therapeutics, Inc., a biopharmaceutical company, focuses on the discovery, development, and commercialization of orally administered, small molecule drugs that target post-transcriptional control processes. The company's lead product is Translarna (ataluren), for the treatment of nonsense mutation Duchenne muscular dystrophy in ambulatory patients; and which is in phase III clinical trials to treat cystic fibrosis caused by nonsense mutations. It also develops Translarna, which is in Phase II clinical trials for the treatment of mucopolysaccharidosis type I caused by nonsense mutation, nonsense mutation aniridia, and nonsense mutation Dravet syndrome/CDKL5; and RG7916 that is in Phase I clinical trials to treat spinal muscular atrophy. In addition, the company's product candidate in cancer stem cell program include PTC596, an orally bioavailable and potent small molecule, which has completed phase I clinical trials that targets tumor stem cell populations by reducing the activity and amount of a protein called BMI1. PTC Therapeutics, Inc. has collaborations with F. Hoffman-La Roche Ltd and Hoffman-La Roche Inc., and the Spinal Muscular Atrophy Foundation to develop and commercialize compounds identified under its spinal muscular atrophy sponsored research program; and research collaboration with Massachusetts General Hospital for the treatment of rare genetic disorders resulting from pre-mRNA. Company description from FinViz.com.

PTC suffered two hits in March. The first was a failed drug trial on a Cystic Fibrosis drug. That drop knocked shares down from $13 to $10. Drug trials fail all the time and that is just the risk of owning a drug company.

On March 15th, the company announced it was buying a Duchenne Muscular Dystrophy (DMD) drug named Emflaza from Marathon for cash and stock. Companies buy rare drugs from other companies all the time. This particular drug had just created a hornet's nest of controversy after Marathon priced it at $89,000 per year. There had been a monster uproar over the pricing and even Bernie Sanders got into the act saying it should be $1,000 a year. For PTC to jump into the hornet's nest with a $140 million upfront purchase before the drug even succeeds in the market caused investors to flee the stock.

Here is the key point. The drug is in a class called corticosteroids that are anti inflamatories used all around the world to treat DMD as well as other diseases. The drug can be cross marketed and sold for multiple applications besides DMD.

The drug is new and was just approved by the FDA in February. When Marathon priced it at $89,000 right in the middle of the drug price happenings in Washington, they were forced to pause the launch to re-evaluate the price. PTC arrived on the scene and solved their problem.

Now PTC is evaluating the "correct" pricing for the drug and shares are rebounding from their headline induced crash.

Earnings June 15th.

PTC shares broke through resistance on Wednesday to close at a two month high at $11.39. Resistance is now $14 to give us a potential $2 window.

Buy PTCT shares, currently $11.39, initial stop loss $9.85.

No options due to prices and wide spreads.


No New Bearish Plays

In Play Updates and Reviews

Stealth Rally

by Jim Brown

Click here to email Jim Brown

Editors Note:

The big Dow loss distracted from the gains in the small caps and the tech sector. The Dow fell -113 points but the Nasdaq, Russell and S&P-600 all posted gains. Those gains were well off the intraday highs but were dtill decent gains. The fallacy of a 30 stock price weighted index has been clearly demonstrated over the last several days.

We are moving closer to the fiscal battle next week and the next two days could see some increased volatility.

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

JUNO - Juno Therapeutics
The long stock position was opened with a trade at $24.55.

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BULLISH Play Updates

ECA - Encana Corporation - Company Profile


No specific news. Encana fell with the rest of the energy sector after crude prices dropped -$1.83 in the regular session to $50.58 and well under the nearly $54 high last week. The stock position was stopped out for a minor gain and the option position will move to the lottery play section.

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:

Closed 4/19/17: Long ECA shares @ $10.43, exit $11.15, +.72 gain.

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

HABT - Habit Restaurants - Company Profile


No specific news. Minor 5 cent decline after testing the 3-month high resistance in the morning. 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. Excellent gain to a new 52-week high in a weak market.

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.

JUNO - Juno Therapeutics - Company Profile


No specific news. Shares spiked over $1 intraday to trigger our entry at $24.55.

Original Trade Description: April 17th.

Juno Therapeutics, Inc., a biopharmaceutical company, engages in developing cell-based cancer immunotherapies. The company develops cell-based cancer immunotherapies based on its chimeric antigen receptor and T cell receptor technologies to genetically engineer T cells to recognize and kill cancer cells. Its CD19 product candidates include JCAR017 that is in Phase I/II trials for adults with relapsed or refractory (r/r) B cell aggressive non-Hodgkin lymphoma (NHL) and pediatric patients with r/r B cell acute lymphoblastic leukemia (ALL); JCAR014, which is in Phase I/II trials to treat various B cell malignancies in patients relapsed or refractory to standard therapies; and JCAR015 that is in Phase II trials for adult patients with r/r ALL. The company's CD22 product candidate comprise JCAR018, which is in Phase I trial for pediatric and young adult patients with CD22-positive r/r ALL or r/r NHL. Its additional product candidates include CD171, a cell-surface adhesion molecule to treat neuroblastoma; Lewis Y for the treatment of lung cancer; JCAR023, which is in Phase I trial for patients with refractory or recurrent pediatric neuroblastoma; MUC-16, a protein for treating ovarian cancers; IL-12, a cytokine to overcome the inhibitory effects; ROR-1, a protein for the treatment of non-small cell lung, triple negative breast, pancreatic, and prostate cancers; WT-1, an intracellular protein that is in Phase I/II clinical trials to treat adult myeloid leukemia and non-small cell lung, breast, pancreatic, ovarian, and colorectal cancers; and IL13ra2 for treating glioblastoma. Juno Therapeutics, Inc. has collaboration agreements with Celgene Corporation, Fate Therapeutics, Inc., Editas Medicine, Inc., MedImmune Limited, and Memorial Sloan Kettering Cancer Center. Company description from FinViz.com.

Juno shares were hammered in March after they reported they were ending a trial early on a hot new CAR-T drug they had expected to do well. The Phase II Rocket Trial of JCAR015 was paused twice and finally ended early after two patients died from swelling in the brain. The CAR-T process involves removing T-cells from their blood and reengineering them to recognize cancer cells from acute lymphoblastic leukemia and kill them. Once the modification is complete, they are re-injected into the patient so they can go to work. In this particular case the brain swelling was a side effect.

However, that is not the only drug in process at Juno. They will have more than 20 trials in progress by the end of 2017 on a variety of anticancer drugs. The company has nearly $1 billion in cash and a burn rate of about $200 million a year. They are in no danger of running out of money and they have dozens of partnerships and collaborations contributing money for research.

Earnings May 31st.

Over the last three weeks Juno has not declined. The stock is continuing to move slowly higher with resistance currently at $25. Once through that level the next resistance is $33.

With the biotech sector selling off every other day you would have expected JUNO to be reactive to those moves but the stock continues to climb.

Position 4/19/17 with a JUNO trade at $24.55

Long JUNO shares, see portfolio graphic for stop loss.

No options due to price and strike availability.

KRNT - Kornit Digital - Company Profile


No specific news. Only a 5 cent gain but it tied Monday's new 52-week 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

FSLR - First Solar - Company Profile


No specific news. Shares have now declined for five consecutive days.

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


Minor rebound with the Dow crashing. We should expect the potential for a 2 point rise if the market tanks on the fiscal battles next week. Long term, it always goes down.

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.

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