Option Investor

Daily Newsletter, Tuesday, 4/25/2017

Table of Contents

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

Market Wrap


by Jim Brown

Click here to email Jim Brown

After two consecutive days of major gains, will there be a third?

Market Statistics

It appears the bulls have broken out of the range bound corral and are stampeding into greener pastures. The positive earnings by multiple Dow components sent the Dow rocketing higher. The breakout ran into trouble at the big round number of 21,000 but there were no real sellers. With multiple Dow stocks up $7, there was plenty of support.

Unlike Monday, the indexes gapped open and then continued to rise slightly. Tuesday's market saw some additional buying in tech stocks as the day progressed but the Dow and S&P saw muted gains after the morning highs.

Dow component DuPont (DD) reported earnings of $1.64 compared to estimates for $1.38. Revenue rose 4.6% to $7.74 billion as seed sales spiked 12.3% to $1.24 billion. The company said it was on track to merge with Dow Chemical is expected to close in August. Once complete the combined company will split into three separate public companies with one on agriculture, one on material science and one on production and sale of specialty products. Shares spiked sharply on the news to add 19.45 points to the Dow.

Dow component Caterpillar (CAT) reported blowout earnings of $1.28 compared to estimates for 62 cents. Revenue of $9.822 billion was well over estimates for $9.27 billion. CAT raised guidance for the full year for revenue of $38-$41 billion, up from $36-$39 billion previously. They raised earnings guidance from $2.90 to $3.75 and analysts had been looking for $3.25 and $38.24 billion.

CAT said revenue in Asia rose 11% with a 23% rise in construction industries. Latin America revenue rose 12%. The company said the global economy was improving and that was good news for the market. Shares of CAT rose $7.61 to add 52.12 points to the Dow.

Dow component McDonalds (MCD) reported earnings of $1.47 that beat estimates for $1.34. Revenue of $5.68 billion also beat estimates for $5.53 billion. Same store sales rose 1.7% in the U.S. and +4.0% globally. The launch of the all day breakfast menu in Canada and Europe was a big driver along with the Big Mac and specialty beverage promotions. CEO Steve Easterbrook has vowed to transform the oldest major fast food restaurant into a "modern, progressive burger company." McDonalds has banned antibiotics in U.S. chicken and they are adding self-service kiosks, mobile payments and "smart" menu boards. MCD shares rallied $7.47 to add 51.16 points to the Dow.

Dow component 3M (MMM) reported earnings of $2.16 compared to estimates for $2.07. Revenue of $7.69 billion also beat estimates for $7.49 billion. The company guided for full year earnings of $8.70-$9.05, up from $8.45-$8.80. Revenue guidance rose from 1%-3% to 2%-5%. Since 2012, the company has divested 14 businesses and reduced its businesses from 40 to 26 in an effort to focus on high quality growth and earnings. The gains in MMM were muted compared to the other Dow reporters and shares rose only 69 cents. 3M only added 6 points to the Dow.

Dow component Coca-Cola (KO) reported earnings of 43 cents that missed estimates for 44 cents. Revenue of $9.12 billion did beat estimates for $8.89 billion. The company guided for the full year for earnings to decline -1% to -3% from the $1.91 earned in 2016. That is slightly better than the prior guidance of -1% to -4%. The company said it was cutting 1,200 jobs due to shrinking global demand for carbonated drinks. Global sales fell -1% in Q1. They increased their cost-cutting target by $800 million in annualized savings and expect to save $3.8 billion by 2019. Shares declined fractionally on the news.

Also helping to lift markets higher was a positive group of economic reports. The New Home Sales for March rose from 587,000 to 621,000 on an annualized basis. New home sales rose 25.8% in the Northeast, 16.7% in the West, 1.6% in the South and fell -4.5% in the Midwest. The existing supply of new homes rose to 270,000 but the months of supply fell from 5.4 to 5.2 months and the lowest since September. The median price for a new home rose 7.2% to $312,800. Sales of homes over $300,000 rose from 47% to 56% of the total while sales of homes under that level declined from 52% to 44%. Analysts credited warmer weather in March for the surge in shopping and purchases.

Consumer Confidence for April dipped slightly from 124.9 to 120.3. This is still the second highest reading since December 2000. The present conditions component fell from 143.9 to 140.6 and the expectations component fell from 112.3 to 106.7. Potential homebuyers declined from 6.2% to 5.8% but auto buyers rose from 13.8% to 14.2%. Potential appliance buyers rose from 51.5% to 52.8%. Those who believe jobs were plentiful declined from 31.8% to 30.8%.

Expectations over the failed healthcare launch and fading hopes for a major tax cut weighed on consumers.

The Richmond Fed Manufacturing Survey for April declined slightly from 22 to 20 but remains at multiyear highs. New orders were still strong at 26.0 but order backlogs and employment expectations declined sharply. The report was still positive and suggests the manufacturing sector is experiencing a resurgence over the last six months.

In the separate services survey the headline number surged from 9 to 22 and hiring plans nearly doubled from 16 to 30. The wage index also spiked from 38 to 55. The big-ticket sales component jumped from 14 to 41.

The Texas Service Sector Outlook Survey for April declined from 13.2 to 9.0 for the third consecutive month of declines since the high at 21.2 in January.

The Case Shiller CoreLogic home price index for February showed prices rose 5.9% across the top 20 cities surveyed. The FHFA Purchase Only Home Price Index rose 6.4%. Homeowners are celebrating while homebuyers are suffering.

The calendar for the rest of the week is highlighted by the Q1-GDP on Friday and the potential for a government shutdown if a funding bill cannot be passed by midnight.

The consensus GDP expectations have risen slightly from last week from 0.8% to 1.1% growth. However, the Atlanta Fed real time GDPNow forecast remains stuck at a 0.5% projection. This is the last update before the actual GDP on Friday. If the number comes in significantly lower than the consensus it could be market negative. However, if it comes in significantly higher, it could also be market negative because it would raise the chances for a Fed rate hike in June or possibly even at the May meeting next week.

The French election event risk will come back to haunt us the following weekend if Le Pen begins to rise in the polls. As long as Macron remains the clear front-runner, the runoff will be ignored.

The Iranian election on May 19th has started to rise in importance. The prior president Mahmoud Ahmadinejad was disqualified by the Guardian Council and cannot run again. That makes the current president Hassan Rouhani an odds favorite but there are other problems. Ebrahim Raisi, a hard line mullah involved in the 1988 massacre of more than 30,000 political prisoners is running along with two other candidates. Rouhani is considered a moderate and given the rising tensions with Iran, it would be in the world's best interest if hard line Raisi was not elected.

Eli Lilly (LLY) reported earnings of 98 cents that beat estimates for 96 cents. Revenue of $5.23 billion missed estimates for $5.215 billion. The company reaffirmed its prior guidance of $4.05-$4.15 in earnings. That would be a growth rate of 15% to 18%. Revenues are expected to be $21.8 to $22.3 billion. Analysts were expecting $4.11 and $22.14 billion. Shares fell more than $2 on the news.

Centene (CNC) reported earnings of $1.12 that beat estimates for $1.05. Revenue rose 69% to $11.72 billion and beat estimates for $11.42 billion. The jump in revenue was due to the $6.3 billion purchase of Health Net last year. The company raised its full year guidance from $4.40-$4.85 to $4.50-$4.90. Shares rallied $1.50 on the news.

Ryder Systems (R) reported earnings of 82 cents and analysts expected 84 cents. Revenue of $1.75 billion also beat estimates for $1.69 billion. Those numbers were not bad but the guidance was horrible. They guided for Q2 earnings of 87-97 cents and analysts were expecting $1.36. They guided for full year earnings of $4.25-$4.55 and analysts were expecting $5.23. The company said a surplus of available used trucks was depressing the truck market and that is one-third of their business, managing fleets for other companies. Shares were crushed for a 14% loss.

After the bell, Chipotle Mexican Grill (CMG) reported earnings of $1.60 compared to estimates for $1.28. Revenue of $1.07 billion rose 28.1% and beat estimates for $1.05 billion. Same store sales reportedly rose 17.8% and above their own guidance for 15.5% growth. This is the first time comps have risen since the E-Coli and Norovirus outbreaks in 2015. For the rest of the year they are projecting high single-digit sales growth and the addition of 195-200 new stores.

An analyst bearish on CMG said we should not believe the numbers. Apparently, they include new stores in the same store sales numbers so we are comparing apples and oranges. They also have $2.5 billion in off balance sheet debt that most analysts do not consider.

Shares rallied $16 in afterhours.

Wynn Resorts (WYNN) reported earnings of $1.24 compared to estimates for 98 cents. Revenue jumped by nearly 50% to $1.48 billion and beat estimates for $1.34 billion. The casino earnings were bolstered by a resurgence in gambling in Macau, which rose 13% to $7.92 billion in Q1 and the strongest quarter in the recovery that started last August. Revenues from the Wynn Macau were $587.0 million with EBITDA of $181.1 million. Shares spiked $4 in afterhours.

Shares of US Steel (X) were crushed in afterhours falling 19% to $25 after reporting a loss of 83 cents compared to expectations for a profit of 30 cents. Revenue of $2.73 billion also missed estimates for $2.92 billion. Declaring a 5-cent dividend did not slow the decline. The company said "challenges at our Flat-Rolled facilities prevented us from benefitting from improved market conditions."

AT&T (T) reported earnings of 74 cents on revenue of $39.4 billion. Analysts were expecting 74 cents and $40.5 billion. The company said it added 2.7 million net new customers. AT&T said it would no longer provide guidance due to the unpredictability of the wireless handset sales.

Of all the companies reporting on Tuesday, 49 affirmed guidance, 10 raised guidance and 8 warned on future earnings. Those warning included CREE, X, DD, OESX, TRN, R, HUBB and CPLA.

Earnings results so far this quarter have seen 11.4% growth with 6.9% revenue growth. This is the best quarter since Q3-2011. Through Monday's close 79% have beaten on earnings and 14% have missed estimates. That is well above the averages.

There are three Dow components (BA, PG, UTX) reporting on Wednesday but I would not expect major blowouts like we saw today. Thursday will be a key day with a handful of megacap tech stocks reporting after the bell. This could fuel some volatility for Friday.

Netflix (NFLX) shares soared after a report the company will finally begin releasing original content in China after signing a licensing deal with iQiyi.com. Netflix has had problems breaking into China because foreign films and TV are routinely censored and streaming services are subject to strict data usage regulations. iQiyi.com is backed by Baidu and is currently one of China's largest streaming companies. Netflix guided in their earnings for subscriber growth in Q2 of 3.2 million new subscribers compared to analyst estimates for 2.4 million. It is unclear how the new deal with iQiyi.com will impact those numbers but the company announced last week it had passed the 100 million subscriber mark. As a result of that announcement analysts now believe Netflix was intentionally downplaying subscriber growth during the earnings report.


I would bet a lot of money that we are not going to see a third day of short squeezes and another 200-point gain on the Dow. However, President Trump is scheduled to unveil his "massive" tax reform package on Wednesday with a 15% corporate tax and 10% repatriation tax. While I personally do not think it would have a ghost of a chance of passing, there may be a few retail traders thinking they hit the jackpot.

That announcement could add to Wednesday's bullish bias even if it is panned by the press. The announcement that could really turn the market bullish would be an agreed budget compromise that could be passed quickly without the threat of a government shutdown. You cannot turn on the news today without that threat being discussed even though Trump has reportedly given up on forcing wall funding into this particular piece of legislation.

The markets have gone from two-month lows on the Dow five days ago to new highs on the Nasdaq and threatening new highs on the Dow, S&P and Russell 2000. This has been a very rapid reversal of fortunes and almost all of it was due to short squeezes on 3 of the last 4 days. Short squeezes are great but they rarely lead to new sustained rallies. It does happen from time to time but you cannot count on it.

The S&P gapped right up to resistance at 2,388 in the first 30 minutes of trading and then closed at that same level six hours later. There was no material buying after the initial spike. The next resistance level is 2,395 then round number resistance at 2,400.

The Dow gapped open to 21,003 then traded sideways all day to close at 20,997. All the gains were in the first 30 minutes of trading. The top six gainers on the Dow added 167 Dow points. This is the fallacy of having a narrow price weighted index. Only a few stocks can cause a significant whipsaw in direction. On Wednesday, Boeing has the best chance to push the Dow higher with UTX and PG having a lesser impact because of their lower prices.

I am sure you have heard many times before that gaps are normally filled. That means when a stock or index gaps up significantly, there is normally an eventual reversal that brings the price back down to the starting point to fill that gap. If you look back on the chart to late January and again on March 1st, those gaps were short squeezes that were eventually filled. The bigger the gap, the more likely it will be filled.

It is entirely possible for this suddenly bullish bias to be contagious and have the Dow continue higher to that 21,115 high close from March first but the first chart pattern that comes to mind if that happens is a potential double top.

The Nasdaq Composite has exploded well away from its consolidation range of 5800-5900 to make a new high over 6,000. Today's gap higher was followed by some additional buying but it is impossible to tell if investors suddenly decided to chase techs higher or there were just a lot of reluctant shorts slow to cover. There were not any major tech earnings this morning and most of the FAANG stocks were not participating with the exception of Netflix and Google. FB +1.02, AAPL +.89, AMZN +.21, GOOGL +9.91 on their new fake news announcement and NFLX +8.33 on their entry into China.

There were 297 new 52-week highs on the Nasdaq so the gains were fairly broad based. There were also 56 new 52-week lows. Advancers were 2:1 over decliners.

The biotech sector was on fire with the Biotech Index spiking 1.74% to 3,603. That is not a 52-week high but it is getting close. Biogen (BIIB) earnings helped with the stock spiking $10 on the news. This supported both the Nasdaq and the Russell 2000.

The small cap Russell 2000 traded at a new high at 1,415 intraday but faded slightly at the close. If the Russell can hold these gains and move out to a new high this would be very bullish for market sentiment. They have outperformed for the last week.

Generally, bullish sentiment is contagious regardless of what caused the initial outbreak. In order to reach the contagion stage it normally requires a week or more of strong gains. That is enough to squelch the naysayers and convince the investors on the sidelines the move is real and they are going to miss out if they do not get in immediately.

The Dow has been up 3 of the last 4 days after declining for the prior two weeks. We may not be at that stage where the naysayers are convinced the rally is real. There is also that class of doubters that believe every new high is just a selling opportunity until that trend comes to an end.

The Nasdaq breakout should be convincing but the magnitude of the gains, both on gap up short squeezes, will probably deter additional buyers until there is a pause to regroup.

As I said earlier, if lawmakers can pass a compromise on government funding and avoid a government shutdown, it would be bullish for the market. That could be the extra push we need, along with the tax plan, to convince retail traders it is time to board the train.

Not to be a wet blanket but we are approaching the "Sell in May and go away" cycle. It will be interesting to see if the sellers appear this year.

Enter passively, exit aggressively!

Jim Brown

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New Plays

Pause to Reflect

by Jim Brown

Click here to email Jim Brown
Editor's Note

Cautious investors are probably not betting the markets are going to repeat the gains again on Wednesday. At this point, I am a cautious investor. As I mentioned in the play update section, the individual stock gains were muted today other than a few big cap spikes. Most gains were 30-40 cents. After two giant short squeezes, the rally may have run its course for this week until after the tech earnings on Friday night. I am recommending we not add anything new today. Our portfolio is currently healthy so we are not "losing" out by not adding additional risk.


No New Bullish Plays


No New Bearish Plays

In Play Updates and Reviews

Back to Back

by Jim Brown

Click here to email Jim Brown

Editors Note:

The markets continue to be surprised with another 200+ point spike on the Dow thanks to Q1 earnings. The Dow has rallied 450 points in two days and the Nasdaq +115. Both days were major short squeezes. The Dow powered the rally higher after several components posted monster gains to juice the index. Not all Dow stocks were positive and only 8 gained more than $1.

This has created a seriously overbought condition and the odds of the market continuing higher are decreasing every day. The Dow and S&P are at resistance and could be setting up for a double top formation. The Nasdaq has exploded to new highs and closed well over 6,000. The Russell 2000 traded at a new high intraday at 1,415 but could not hold it at the close. It was still a good day for the small caps.

You may have noticed that with the exception of a very few big cap stocks the individual gains today were significantly less than Monday. The excitement is fading and there are fewer shorts left to cover.

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

FNSR - Finisar Corp
The long position was entered at the open.

FSLR - First Solar
The short stock position was stopped out for a breakeven.

If you are looking for a different type of trading strategy, try these newsletters:

Short term Calls and Puts on equities = Option Investor Newsletter

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BULLISH Play Updates

FNSR - Finisar Corp - Company Profile


No specific news. Shares gapped open but the damage was not bad. Shares still ended the day with a gain.

Original Trade Description: April 24th.

Finisar Corporation provides optical subsystems and components for data communication and telecommunication applications in the United States, Malaysia, China, and internationally. Its optical subsystems primarily consist of transmitters, receivers, transceivers, transponders, and active optical cables that provide the fundamental optical-electrical or optoelectronic interface for interconnecting the electronic equipment used in communication networks, including the switches, routers, and servers used in wireline networks, as well as the antennas and base stations used in wireless networks. The company also offers wavelength selective switches, which are used to switch network traffic from one optical fiber to multiple other fibers without converting to an electronic signal. In addition, it provides optical components comprising packaged lasers, receivers, and photodetectors for data communication and telecommunication applications; and passive optical components for telecommunication applications. Finisar Corporation markets its products through its direct sales force, as well as through a network of distributors and manufacturers' representatives to the original equipment manufacturers of storage systems, networking equipment, and telecommunication equipment, as well as to their contract manufacturers. Company description from FinViz.com.

We played Finisar several weeks ago and got caught in the downdraft on China worries. Reports out of the sector suggested orders from China had slowed. Shares crashed from $35 to $21 over the period of about six weeks. Raymond James said the selloff is overdone and the worries over China are overblown.

China is on track to network 120 major cities with populations of more than one million. That will take a lot of networking gear. The directives have been given from the governmental level but the actual orders will come from the provincial level. Bids for routing and wireless components have already been submitted and optical equipment is expected to be next in line.

Raymond James said Finisar has the most upside potential with a target of $39 and is cheap with a PE of only 9 times 2018 earnings estimates.

Shares have rebounded the last two days after the Raymond James note to investors.

Earnings June 8th.

Position 4/25/17:

Long FNSR shares @ $23.10, see portfolio graphic for stop loss.


Long June $25 call @ $1.20, see portfolio graphic for stop loss.

HABT - Habit Restaurants - Company Profile


No specific news. Another new 52-week high. The prior resistance at $18 should now be support. If we can continue higher, 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. Nice gain and a 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 4th.

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. Tested resistance at $25.35 and closed at a two-month high.

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. Third day with a big intraday spike but sold off into the close. It was a new historic high close. They announced a firm earnings date of May 9th.

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.

PTCT - PTC Therapeutics - Company Profile


No specific news. New 7-week high close.

Original Trade Description: April 19th.

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.

Update 4/20/17: The company announced they had completed the acquisition of Emflaza earlier than expected.

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.

Position 4/20/17:

Long PTCT shares @ $11.43, see portfolio graphic for stop loss.

No options due to prices and wide spreads.

USO - US Oil Fund ETF - ETF Profile


No material movement in crude prices ahead of Wednesday's EIA inventory report.

Original Trade Description: April 22nd.

The United States Oil Fund LP (USO) is an exchange-traded security designed to track the daily price movements of West Texas Intermediate ("WTI") light, sweet crude oil. USO issues shares that may be purchased and sold on the NYSE Arca.

The investment objective of USO is for the daily changes in percentage terms of its shares NAV to reflect the daily changes in percentage terms of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma, as measured by the daily changes in price of USO's Benchmark Oil Futures Contract, less USO's expenses.

USO's Benchmark is the near month crude oil futures contract traded on the NYMEX. If the near month futures contract is within two weeks of expiration, the Benchmark will be the next month contract to expire. The crude oil contract is WTI light, sweet crude oil delivered to Cushing, Oklahoma.

USO invests primarily in listed crude oil futures contracts and other oil-related futures contracts, and may invest in forwards and swap contracts. These investments will be collateralized by cash, cash equivalents, and US government obligations with remaining maturities of two years or less.

Oil prices fell -6% last week after Wednesday's inventory report failed to show a significant decline in crude inventories. Complicating the problem was the expiration of crude futures on Thursday. That means everyone long for the EIA report had to dump their position immediately to avoid expiration.

I expect the price of crude to return to $54 over the next several weeks. That equates to $11.25 or higher on the USO ETF. The ETF closed at $10.32 on Friday. I am recommending we buy the $10.50 call, currently 42 cents and plan to double our money and exit.

Oil prices will rise because refineries are restarting production after their normal two-month maintenance period centering on March. Oil inventories will begin to decline sharply in the coming weeks as they begin to fill the system with summer blend fuels before Memorial Day.

You could also just buy the USO ETF for $10.32 but you will get a better return using the option. I would not recommending buying a $10 stock with the intention of making 75 cents.

Position 4/24/17:

Long Jun $10.50 call @ 40 cents, no stop loss.

BEARISH Play Updates

FSLR - First Solar - Company Profile


No specific news. The short covering finally hit FSLR and we were stopped out of the short stock position at $27.50 for a breakeven. The long put position is still open. The company announced an earnings date of May 2nd. That is when we will either win or lose on the put option.

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:

Closed 4/25/17: Short FSLR shares @ $27.50, exit $27.50, breakeven.

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

VXX - Volatility Index Futures - ETF Description


Another nice decline but not as big as Monday. If the market bullishness continues, the VXX should continue to bleed points. However, we should expect the potential for a 2-point rise if the market tanks on the fiscal battles later this week. Long term, the VXX 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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