Option Investor

Daily Newsletter, Saturday, 4/29/2017

Table of Contents

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

Market Wrap

Uneasy Calm

by Jim Brown

Click here to email Jim Brown

After the short squeezes on Monday/Tuesday, the markets traded sideways on moderate volume but very calmly.

Weekly Statistics

Friday Statistics

Despite the calm, there were a lot of shares traded. Volume averaged more than 7 billion shares a day for the entire week. Despite the small declines in the big cap indexes, there were 4,360 decliners to 2,625 advancers.

While the market appeared calm on the surface, I have a perfect analogy. Picture a flock of ducks moving slowly up stream. They may look calm on the surface but they are probably paddling like crazy underneath. That is what happened to the markets the last three days. The indexes barely moved but the volume was heavier than normal, about 1 billion shares a day over the average for the last five weeks. That is a lot of volume for markets not making material changes.

Granted, it is earnings season and that does create more volume. Earnings have been strong this quarter but the last two days down volume has been significantly stronger than up volume.

The most significant event on Friday was the -1.2% decline in the Russell 2000 and the S&P-600 small cap indexes. They have been bullish for the last 7-8 days and suddenly reversed significantly while the big cap indexes barely declined. That could be a sign of a sentiment shift in the market or just some profit taking ahead of weekend event risk. We will not know until Tue/Wed next week. The Russell had gained 5.6% in only 8 trading days so it was due for some profit taking.

On the economic front, the GDP report for Q1 was depressing. The GDP declined from 3.52% in Q3 to 2.08% in Q4 to 0.69% in Q1. Analysts were working themselves into a sweat trying to come up with a reason to blame. It was the weather, excessive inventory adjustments, late tax refunds or maybe it was Russia hacking the Bureau of Economic Analysis servers. Everybody had a different excuse.

Without going off on a political rant here, let's just agree that the slow growth has been a product of the economic environment over the last several years. Moody's said, "The economy is expanding at the same pace as it has throughout the last eight years." There is also the problem with Q1 numbers in general. For the last 30 years, the Q1 GDP has consistently underperformed the surrounding quarters. The BEA has written about it over the last several years and they are trying to find a way to tweak the numbers for Q1 so they "better represent" the actual conditions. I have written about this in the past. When bean counters do not like the answers their models produce, they always want to change the models until they get a number they like.

The better way is to have an accurate model for the entire year and average the results on a trailing four-quarter basis. That way the peak quarters as we had in Q3, average out the trough quarters as we had in Q1. That takes the critical focus off the quarter-to-quarter changes. It is a big economy. The models are never going to be exactly right so live with it.

Over the last six years, the Q1 average has been 0.87% growth. That compares to the average of all quarters over the last six years of 2.0% growth or 2.36% growth if you leave the Q1 numbers out of the calculation. Yes, there is a problem with Q1 but it may be just the way it is. Consumers are shopped out after Q4, businesses are planning for the rest of the year and the winter weather does retard activity. Note in the chart below that the two negative bars over the last six years have been for Q1.

A major factor in the drop was a drop in consumer spending from 2.4% to 0.23% in Q1. That is the lowest level in years. We knew it was coming because of the wasteland that is the retail sector. Over the prior four quarters, spending averaged a 2.1% contribution to GDP with Q1-2016 the lowest contributor at 1.11%.

Inventories subtracted -0.93%. Exports only added +0.07% and government subtracted -0.3%.

The forecast for Q2 GDP is roughly 3%. I do not think there has been a dramatic change in the actual economy over the last three months. The optimism is there and hiring has picked up slightly but did the economy surge 2.3% over Q1?

We have known for many weeks that the Q1 number was going to be bad. The Atlanta Fed real time GDPNow number declined to a forecast of only 0.2% growth as of Thursday after the Census Bureau lowered the estimate for inventory growth.

The final Consumer Sentiment for April declined 1 point from the initial reading to 97 and just slightly over the March number at 96.9. The present conditions component declined from 113.2 to 112.7 and the expectations component rose from 86.5 to 87.0. Sentiment and confidence have begun to fade from the post election highs but only slightly. The percentage of consumers expecting a strong economy over the next four years declined 4% to 49%.

This is going to be an active week for economic reports. This is a payroll week as well as ISM reports and factory orders. Right in the middle of the week is the Fed meeting and rate hike decision.

The House punted on the government funding battle and postponed it until next Friday so we have another whole week of wondering if there will be a government shutdown.

If that is not enough to worry about, we have the French runoff election next Sunday. Marine Le Pen is rapidly closing the gap between her and Emmanuel Macron. She gained 2% in the last two days and 6% over the last week. She is still well behind at 41% compared to Macron's 59% but the race is tightening. After the election last Sunday, she was only given a 35% chance. If she pulls within 2-3 points by the weekend, Europe will be freaking out again with the possibility of a Trump style come from behind win.

It has been a good earnings cycle so far. According to Thompson Reuters of the 288 S&P companies that have reported 76.7% have beaten analyst estimates for earnings and 64.8% have beaten on revenue. The averages over the last four quarters are 71% and 53% respectively. Q1 earnings are now expected to grow by 13.6% and well over the estimates on March 31st for 9%. Excluding energy, the earnings growth shrinks to 9.3% but still great. This will be the first quarter of double digit earnings growth since Q3-2011. Revenue growth for the quarter is expected to rise 7.1%.

The earnings forecast for Q2 is 9.3% growth, Q3 9.3% and Q4 13.5%. Q1 of 2018 is expected to grow by 11.6%. If all these forecasts were to play out as expected this could be a very strong growth period for the market. If a tax reform package is passed that lowers corporate taxes and allows for repatriation at a reasonable rate, those earnings numbers could rocket higher.

The earnings estimates have surged over the last three weeks as seen in the FactSet chart below. The estimates were still hovering at 9% in mid April and then spiked over the last two weeks. This is due to the large number of companies beating estimates. This should be bullish for the market because 13% earnings were not priced into equities.

For Q2, 38 companies have issued negative guidance and 24 have issued positive guidance.

Next week there are 127 S&P companies reporting and two Dow components, AAPL and MRK. The most watched companies for the week will be Apple for obvious reasons, Facebook, Tesla and Activision. There are a lot of companies reporting but the number of high profile companies have declined.

Chevron (CVX) reported better than expected earnings on Friday of $1.41 per share. Analysts were expecting 86 cents. However, the Chevron number included $600 million gain from an asset sale. Revenue of $33.4 billion missed estimates for $34.9 billion. Operating costs declined -14% and capex for 2017 is down about 30%. Net production increased 3% and they guided for a 4-9% growth for the full year. Shares gained $1.23 to add 8.4 points to the Dow.

ExxonMobil (XOM) reported earnings of 95 cents that beat estimates for 88 cents. Revenue of $63.3 billion missed estimates for $66.4 billion. The better earnings came from the upstream division with a profit of $2.3 billion. The refining division generated $1.1 billion in profits and the chemical business created $1.2 billion. Production was 4.2 million boepd, a decline of 4% due to more downtime for maintenance and smaller entitlements because of higher prices. Some leases and production contracts have production sharing. Exxon gets the majority of the production when prices are low as an incentive to drill and produce but when prices rise the other parties get an increased share. This reduces the production credited to Exxon even though the actual rate of production did not change. Shares rose a minimal 39 cents to add 2.67 points to the Dow.

GM reported earnings of $1.70 that rose 34.9% and easily beat estimates for $1.45. Revenue of $41.2 billion rose 10.6% and beat estimates for $40.25 billion. The company guided for full year earnings of $6.00 to $6.50 compared to the $6.12 it earned in 2016. Free cash flow is expected to be $6 billion and GM will return $7 billion to shareholders in buybacks and dividends. Shares managed to remain fractionally positive.

Cruise line Royal Caribbean (RCL) reported earnings of 99 cents compared to estimates for 92 cents. Revenue of $2.01 billion narrowly missed estimates for $2.02 billion. The company guided for the current quarter to earnings of $1.60-$1.65 and analysts were expecting $1.40. For the full year, RCL is guiding for $7.00 to $7.20. Shares spiked $6 on the news.

Uranium miner Cameco (CCJ) is having a rough decade. Shares were trading at $43 in 2011 when Japan's Fukushima disaster occurred. A 15-meter high tsunami disabled the power supply and cooling at the three Fukushima Daiichi reactors causing a meltdown. As a precaution, nearly all of Japan's 50+ reactors were shut down until they could be inspected and then recertified to withstand higher earthquake intensity. Currently 42 reactors are operable and able to restart with 24 in the actual process of getting restart approvals.

The loss of 10% of the world's 449 reactors for the last six years caused a major problem for Cameco. Uranium that had been contracted to refuel the Japanese reactors over that six-year period created a glut in the market and uranium prices crashed sending Cameco on a roller coaster of declines with the low at $7.50 in October 2016. Uranium prices hit a 13-year low in October.

I am telling this story because the outlook for Cameco is still outstanding, long-term and a reader recently asked me my opinion about the stock. When those 42 reactors eventually restart, they will join the 60+ currently under construction worldwide and uranium demand is going to rocket higher again. The long-term problem is that there is not enough uranium to fuel the growing fleet once those reactors are all operational. Multiple analysts have been predicting a production shortfall for several years but the long-term business of restarting or building a new reactor is measured in years, not months. Back in 2011 more than 15% of the uranium used in reactors came from Russian bombs. In a program started in 1993 called megatons to megawatts, Russia shipped excess uranium from deactivated weapons to the U.S. to be converted into fuel for nuclear reactors. The 20-year program terminated in 2013. The U.S. bought the highly enriched uranium from Russia in order to take it out of circulation and the byproduct of the deal was to provide fuel for reactors. Without that program supplying 15% of the fuel needed, the uranium shortfall will be even greater. Cameco is a stock I have recommended many times over the years but the restart timeframe always caused problems. The restart is always coming soon but it has never arrived. If you have a long-term investment horizon, I would not hesitate to put some Cameco shares in your portfolio.

Cameco reported a loss of 5 cents (Canadian) for Q1, compared to earnings of 20 cents in the year ago quarter. Revenue fell -4% to $393 million. Another challenge Cameco has is that uranium is ordered years in advance and Cameco stores it until time for delivery. They cannot claim the revenue until the delivery takes place. That makes their quarter-to-quarter revenue very volatile depending on how many reactors took delivery that quarter. Hurting them in Q1 was the final cancellation of the contract by Tokyo Electric Power, the operator of the Fukushima plants that will not be restarting.

Colgate Palmolive (CL) reported earnings of 67 cents that beat estimates by a penny. Revenue of $3.76 billion missed estimates for $3.8 billion. A 2.5% price increase was offset by a 2% loss in global volume and a 0.5% hit from global currency issues. North American sales accounted for 20% of total sales, Latin America 25%, Europe 15%, Asia Pacific 19%, Africa/Asia 6% and Hill's Pet Nutrition 15%. Shares fell $1 on the news.

The real news was not the earnings on Friday but the tech titans that reported after the bell on Thursday. Microsoft posted a fractional gain to a new high after reporting earnings of 73 cents compared to estimates for 70 cents. Revenue of $22.1 billion missed estimates for $23.6 billion. Shares rose because of positive comments the company made about their growing cloud business.

Intel reported earnings of 66 cents that beat estimates by a penny. Revenue of $14.80 billion rose 7% and missed estimates for $14.81 billion but it was a minor miss. They guided for Q2 revenue of $14.4 billion and full year revenue of $60 billion, with Q2 earnings of 68 cents and full year of $2.85. These were just slightly over analyst estimates. Shares declined on the slowing of Intel's high margin datacenter business. With AMD, Nvidia and now Qualcomm seeing increasing sales in that area, Intel is fighting to maintain its market share.

Alphabet (GOOGL) reported earnings of $7.73 that beat estimates for $7.38. Revenue of $24.75 billion beat estimates for $24.22 billion. That is an awful lot of ad clicks to produce that kind of revenue. Paid clicks rose 44% during the quarter with clicks on Google sites rising 53%. Revenues in the "other" segment, which includes cloud, rose 49% to $3.1 billion. This was Google's 29th quarter of 20+% revenue growth.

Analysts were quick to raise their price targets.

Monness Crespi Hardt from $900 to $1,050
Oppenheimer from $1,000 to $1,050
Pivotal Research from $950 to $990
Stifel Nicolas from $1,050 to $1,075
Nomura from $925 to $985
Credit Suisse from $1,100 to $1,150
Cantor Fitzgerald from $1,040 to $1,070
BMO Capital from $900 to $970
Cowen from $1,050 to $1,075
Barclay's $1,065
Deutsche Bank $1,250

Amazon (AMZN) reported earnings of $1.48 and revenue of $35.7 billion. Analysts were expecting $1.08 and $35.3 billion. Operating cash flow rose 53% to $17.6 billion and free cash flow rose to $10.2 billion and this was just for the quarter. Amazon Web Services had revenue of $3.6 billion which rose 43% and generated $890 million in earnings. For Q2 the company guided for revenue of $35.35 to $37.75 billion and that includes a massive $720 million hit from currency issues. Operating income guidance was $425 million to $1.1 billion. Amazon is still spending on new projects and building out its supply chain infrastructure. Jeff Bezos believes in the mantra, "If you build it they will come." They emphasized an opportunity in India and that country has four times as many consumers than the USA. If they are successful there it will catapult them into an even higher revenue bracket.

Starbucks (SBUX) broke my heart again after they reported earnings of 45 cents on revenue of $5.29 billion. Analysts were looking for 45 cents and $5.42 billion. Every time I buy Starbucks on a promising chart, there is some unexpected hiccup that costs me money. Despite jam packed stores, same store sales rose only 3% compared to expectations for 3.6%. They are suffering from multiple problems. Their mobile ordering application proved so successful that stores were swamped during peak periods and customers became frustrated and did not visit as often. Starbucks is increasing staff and procedures and they are confident they can handle the problem. Having too much business is a good thing once you learn how to handle it. Secondly, chains like Dunkin Donuts and McDonalds are eating into their market share. McDonalds is offering $1 coffee and $2 specialty drinks and no waiting. I still have confidence in Starbucks for the long-term but these post earnings disappointments are getting to be a habit.

Western Digital (WDC) reported earnings of $2.39 that beat estimates for $2.16. Revenue of $4.65 billion beat estimates for $4.59 billion. The drive maker guided for revenue of $4.8 billion in Q2 and earnings in the $2.55-$2.66 range. Analysts were expecting $4.6 billion and $2.14. They generated $1 billion in free cash flow and ended the quarter with $5.8 billion in cash. They are kicking Seagate's butt in the drive market and since they bought SanDisk last year they now have another business line and they are announcing new products every couple of weeks.

Just last week they announced a new 12 TB Ultrastar enterprise hard drive, filled with helium, which is the largest enterprise drive on the market for random activity. Helium is 1/7th the density of air, which allows the read/write heads to "fly" closer to the recording surface, allows for thinner disks and the addition of two extra platters. They have shipped more than 15 million of these in the smaller sizes. This is a must own stock for long-term investors but look for a dip.

Oil prices continued to fall to nearly $48 on worries U.S. shale production was rebounding too quickly. Crude inventories did decline -3.6 million barrels but those draw downs have been slow to appear. U.S. production rose to 9.27 million bpd, up +200,000 bpd over the last eight weeks. The peak in June 2015 was 9.61 mbpd. The low point in July 2016 was 8.428 mbpd. Over the last ten months, production has risen 840,000 bpd and that was using a much smaller number of rigs. We have more than doubled the number of active rigs since the historic low of 404 last May. If the current pace of production increases holds, an average increase of 18,000 bpd per week, we could add another 720,000 bpd by the end of 2017. Since we now have double the active rigs that pace could actually increase.

This is a challenge for OPEC and their decision to extend the production cuts for another six months. If they do that, and prices rise, U.S. producers will put even more rigs to work.

The U.S. imported 8.91 mbpd last week, 1.1 mbpd more than the prior week and the most in months. Traders are worried about U.S. production but they should also be worried about the pace of imports. Refiners import oil because it is cheap and it is a heavier oil needed to make products other than gasoline, including diesel, heating oil, etc.

Green is a high, yellow a low.

Producers activated 9 additional oil rigs and 4 gas rigs last week. However, offshore rigs declined by 3 to 17 and a three-month low.


The markets exploded higher on Mon/Tue and then went dormant. The S&P has been fighting a battle with resistance at 2,388 since Tuesday afternoon with moves above and below but returning to that level at the close. On Friday that changed and the index dipped slightly on the afternoon event risk selling.

The 2,388 level has become our directional indicator. If the market moves lower from here that becomes the level all future moves are measured against. If it moves back over 2,388 the shorts will have to cover and we could see an extended move. For traders the play would be to remain short under 2,388 and go long over 2,400. That 2,400 level is also going to be tough to cross. I would remain neutral between those levels.

The Dow has an equally difficult hurdle at the 21,000 level. The index spiked to that level by 10:AM on Tuesday and then failed to extend the gains despite some intraday penetration on Wednesday. That is rock solid resistance and it will probably take a decent catalyst to power the Dow higher from here. There are only two Dow components reporting next week and Apple after the bell on Tuesday could be a market mover. Let's hope the direction is up. Until Apple reports, there may be some hesitancy for investors to get long the market.

The Nasdaq indexes are on a mission. They are making new highs every day even though the other indexes have stalled. The Nasdaq Composite is up +237 points (4.1%) since the close on April 13th. This move is very over extended and now that most of the big cap techs have reported, we could see a lack of enthusiasm. Apple, Facebook and Tesla are the market movers reporting this week. The Composite Index is closing in on uptrend resistance at roughly 6,100 and that would be another 60 points higher. If we were to reach that level, I would definitely be a seller on a short-term trade.

The Nasdaq 100 managed to post a gain on Friday thanks to GOOGL, AMZN, PCLN and TSLA. With Apple and Facebook reporting this week there is a strong possibility we could see another upside move but after that, the majority of the big cap tech earnings will be over. The index is extended and could be setting up for the sell in May cycle. Long-term uptrend resistance from November 2014 is about 5,635.

The biotech sector surged on Friday to cap a strong week after Regeneron (REGN) reported the FDA accepted their new license application for the drug Kevzara targeting rheumatoid arthritis. Shares spiked $22 on Friday to lift the sector. The spike in biotechs should have supported the Nasdaq and the Russell but both were negative. Obviously, those losses would have been worse without the biotech support.

I mentioned earlier about the weakness in the Russell and the small caps. The S&P-600 fell back below strong resistance at 860 after a nice two-week gain. This could be a critical event for Monday. If the small cap indexes continue to decline, we could be in for a broader dip.

This is a Fed meeting week. Typically, there is a market bump on Tuesday ahead of the Fed decision. Whether that trend will be enough to lift the indexes back over resistance is unknown, especially with Apple reporting after the bell on Tuesday. The first day of May is typically bullish so that is also working in our favor.

The weekend event risk probably will not become a factor until Thursday and that depends on the headlines out of Washington on the budget crisis and French election headlines. Since the Fed decision is Wednesday, the Nonfarm Payroll report on Friday will be of lesser importance. Analysts will still bloviate about the jobs gain, regardless of what it is, but the market is not likely to react to the number.

We are approaching the "sell in May and go away cycle." Using the MACD indicator to time the exit from stocks it would appear we are still days or even weeks ahead of that signal. More on this in the Random Thoughts.

We are at the point in the market where we need to be cautious about being over extended. Once the earnings excitement fades, we could see some decent profit taking.

Random Thoughts

Wow! Bullish sentiment spiked a whopping 12.3% from 25.7% to 38.0%. That is a monster jump and a two-month high. The new market highs on Tuesday must have converted a lot of the fence sitters because bearish and neutral categories also fell sharply. This is actually worrisome since the herd is normally wrong. When the herd is most bullish, we should be getting ready for a decline.

Last week results

"When the VIX is high it is time to buy. When the VIX is low it is time to go."

The VIX made a new 10-year intraday low at 10.22 on Tuesday. While it can go lower, it very rarely accomplishes that feat. Even though it closed at 10.82 on Friday, the index is holding at three-year lows. When the market is at new highs and the VIX at new lows, we should be worried. The index can stay in the 11-12 range for some time but the longer it is low the more likely a sell off will appear.

Stock Trader's Almanac Six Month Switching Strategy

Back in 1986 the Stock Trader's Almanac discovered the position switching strategy that corresponds with the "Sell in May and go away" strategy that has been around for decades. They found that investing only in the best six months of the year and sitting out the worst six months of the year produced astonishing returns.

Since 1950, if you had invested $10,000 in the Dow over the worst six months of the year you would have a cumulative loss of $6,710 over the 66-year period. If you invested $10,000 in the Dow in 1950 and never touched it you would have a gain of $860,000 today. However, if you used the best six months switching strategy with a MACD entry point, you would have generated $2,496,586 in profits. Obviously, that is a significant difference and the strategy is really easy.

Basically, the best six month period is November-April and the worst six months are May-October. Since millions of events impact the market the Almanac publishers figured out that using a MACD buy/sell signal could significantly improve results rather than just using a strict calendar formula.

Currently the MACD is in a bullish position thanks to the market spike last week. When the MACD rolls over in May it would be a sell signal for long positions. They recommend moving to cash or bonds or some neutral position. The advantage is that you are out of the market over the summer months and free to vacation without worrying about the market gyrations. When we get close to November, you begin looking for a positive signal on the MACD to time the entry back into the market for the next six months.

A lot of investors follow this strategy so it is sort of a self-fulfilling strategy.

Read the full details HERE


Enter passively and exit aggressively!

Jim Brown

Send Jim an email


"Experience is the hardest kind of teacher, it gives you the test first and the lesson afterward." And "Experience is the name everyone gives to their mistakes."



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New Plays

Phoenix Rising

by Jim Brown

Click here to email Jim Brown
Editor's Note

Companies do rise from the ashes to become desirable again. Blackberry is one of those companies.


BBRY - Blackberry - Company Profile

Research In Motion Limited designs, manufactures, and markets wireless solutions for the mobile communications market worldwide. The company was renamed Blackberry Ltd in an effort to change its public identity. The company's products include BlackBerry smartphones and accessories, including bundles, cases, audio and memory products, Bluetooth, chargers, batteries and doors, and card readers; SureType, a keyboard technology, which allows users to compose messages using single-handed operation or two-handed thumb-typing; and SurePress, a touch screen that helps in navigation and typing. Its products provide access to time-sensitive information, including email, phone, short messaging service, and Internet and intranet-based applications. The company's products also enable third party developers and manufacturers to enhance their products and services with wireless connectivity to data. Blackberry Limited markets and sells its products directly, as well as through strategic partners and distribution channels. It has a strategic alliance with Hewlett-Packard Company to deliver a portfolio of solutions for business mobility on the BlackBerry platform. Company description from FinViz.com.

Blackberry has evolved from a hardware vendor to a software company. They no longer produce their own phones and their main product is a secure software interface that is used by security conscious governments and firms everywhere.

Blackberry has moved from just a phone company to multiple product lines including software packages for automobiles. Blackberry just signed a new deal with Ford to use the Blackberry QNX software. The software has been deployed in more than 60 million vehicles. BlackBerry is a mobile-native security software and services company dedicated to securing people, devices, processes and systems for today's enterprise.

The Blackberry phones now run an Android operating system. The Blackberry KeyONE was just launched in the UK with a 4.5 inch screen above a traditional Blackberry keyboard. The device will go on sale in May in the rest of the world. The phone has a Qualcomm Snapdragon 625 chipset, 3gb of RAM, 12MP rear camera, 8MP front camera, Android 7.1 and a 3,505mAh battery for long life. Blackberry phones fill a niche for those who want an actual keyboard and/or greater security than you can get in other phones.

In their recent earnings the CEO said Blackberry was looking at opportunities for branded tablets, wearables, medical devices, appliances, point of sale terminals and other smartphones. The key point is that Blackberry security software will be integrated into all Blackberry branded items even though they will be made by over companies. That makes them low risk, all reward, opportunities.

They announced a couple weeks ago they had been awarded $814 million in royalty overpayments plus attorney's fees and interest from Qualcomm. The arbitration proceeding has been in process for a long time. This is a major infusion of cash for Blackberry.

Shares spiked to $9 on the award. After some initial profit taking they have started to rise again and closed at a new 52-week high on Friday.

Earnings June 30th.

Buy BBRY shares, currently $9.34, initial stop loss $8.45

Optional: Buy July $10 call, currently 37 cents. No stop loss.

Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.


No New Bearish Plays

In Play Updates and Reviews


by Jim Brown

Click here to email Jim Brown

Editors Note:

The Russell 2000 and S&P-600 small cap indexes collapsed with 1.2% declines when the other indexes were barely negative. Investors were getting excited over the last week as the small caps outperformed the large caps after the early week short squeeze. This was a complete reversal of the gains over the prior three days. This was even more surprising because the biotech sector was up strongly and that normally supports the Nasdaq and the Russell.

This was more than likely a simple case of profit taking before an event risk filled weekend. However, if the indexes continue lower, this could easily turn into a rout. Everyone with profits at risk from the prior week's gains could hit the eject button in a hurry.

Next week is going to be critical for the markets since it is the start of the sell in May cycle. We do not know if that cycle will be strong this year given the current economic optimism but the odds of getting any new laws passed on health care or tax reform before the fall are almost zero. That will impact the market once investors understand.

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

HABT - Habit Restaurants
The long position was stopped out at $18.75.

JUNO - Juno Therapeutics
The long stock position was closed at the open.

KRNT - Kornit Digital
The long position was stopped out at $20.15.

DEPO - Depomed
The long put position was stopped out at $12.25.

INFN - Infinera Corp
The long put position was stopped out at $9.95.

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

Short term Calls and Puts on equities = Option Investor Newsletter

Credit spreads and naked puts = OptionWriter

Long term option investments = LEAPS Investor

3-6 month Option Trades = Ultimate Investor

Iron Condors = Couch Potato Trader

BULLISH Play Updates

FNSR - Finisar Corp - Company Profile


No specific news. Stifel Nicolaus lowered their price targets on LITE, FNSR, FN and OCLR but maintains a buy rating. The new target on FNSR declined from $39 to $33 with shares at $23. The analyst cut the targets based on the slowness in bid requests from China's governments on the 120 city networking project.

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.

Update 4/26/17: The U.S. government expanded its investigation regarding compliance with sanctions programs against Iran, Cuba, Sudan and Syria. The target is China-based Huawei but OCLR, ACIA, LITE and FNSR have similar operations. Last month ZTE, a peer to these companies, pleaded guilty and faces fines of $1.2 billion. If the government is going name by name in their investigation, investors may reconsider their ownership of these companies. At least one analyst said today's dip on sector related news rather than company specific, was overdone.

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. The drop at the open stopped us out at $18.75 for a nice gain. We had the stop tight because earnings are next Wednesday. If we get a post earnings drop I will reinstate the position on a rebound.

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:

Closed 4/28/17: Long HABT shares, currently $15.95, exit $18.75, +$2.80 gain.
Closed 4/28/17: Long June $17 call @ 70 cents, exit $2.05, +$1.35 gain.

ILG - ILG Inc - Company Profile


No specific news. Earnings next week so I have raised the stop loss to take us out on any dip. The low today was 9 cents above our stop loss.

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


Juno revised the earnings date to May 4th and I recommended we close the position since the shares were not rising. We closed the position at the open and that was the high for the day.

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

Closed 4/28/17: Long JUNO shares @ $24.55, exit $24.91, +.36 gain.

KRNT - Kornit Digital - Company Profile


No specific news. Thursday we got the breakout and today we got the breakdown. We were stopped at $20.15 for a decent gain.

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:

Closed 4/28/17: Long KRNT shares @ $19.00, exit $20.15, +$1.15 gain.

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. The USO dipped at the open but returned to neutral in the afternoon.

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

NTNX - Nutanix Inc - Company Profile

Nutanix Inc provides next-generation enterprise cloud platform that converges traditional silos of server, virtualization and storage into one integrated solution and can also connect to public cloud services. Nutanix makes infrastructure invisible, elevating IT to focus on the applications and services that power their business. The Nutanix Enterprise Cloud Platform leverages web-scale engineering and consumer-grade design to natively converge compute, virtualization and storage into a resilient, software-defined solution with rich machine intelligence. The result is predictable performance, cloud-like infrastructure consumption, robust security, and seamless application mobility for a broad range of enterprise applications. Company description from FinViz.com.

While their company description sounds good, they are having trouble conveying that image to the business community and to investors. When they reported earnings back in March they beat on the top and bottom but guided significantly lower for the next quarter.

They reported a loss of 28 cents compared to estimates for a loss of 35 cents. Revenue exploded higher by 77% to $182.2 million and beating estimates for $178.3 million. They added 900 customers to bring their total to 5,380.

They guided for a current quarter loss of 45-48 cents and analysts were expecting a loss of 35 cents. Revenue was only expected to rise to $185 million from the $182.2 million in the prior quarter.

Earnings June 1st.

The company has only been public for 7 months and it closed at a historic low on Wednesday. The short covering in the broader market this week barely had any impact on NTNX shares. Insiders have been selling shares like crazy. Lightspeed Ventures a 10% owner, liquidated their position in early April.

There was a press release at 7:PM tonight about a successful installation at a customer location. I doubt it will have any impact but it may give us the opportunity to short the shares a few cents higher. If the stock gaps up, adjust the stop loss accordingly.

Position 4/27/17:

Short NTNX shares @ $15.76, see portfolio graphic for stop loss.

VXX - Volatility Index Futures - ETF Description


Holding at the historic low close. 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 next Friday. 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.

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


The steel sector sold off after the news faded on President Trump's executive order to investigate dumping into the U.S. from global manufacturers. That box was checked, nothing more to see in the sector.

I am recommending we drop this position. I seriously doubt the stock will recover to $10 by June expiration without some major event. Do not close it for 3 cents. Just hold it until expiration in case lightning strikes.

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 June $10 call @ 59 cents. See portfolio graphic for stop loss.

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

CPE - Callon Petroleum Company - Company Profile


Barclays initiated coverage with an overweight rating and $16 price target. Unfortunately, with oil prices trading under $50 all week, the outlook for the May option is bleak. I am recommending we drop this position. It currently has no value so do not close it. Just hold it until expiration.

Earnings are Tuesday so maybe we will get lucky.

Original Trade Description: April 3rd.

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

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

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

Earnings May 29th.

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

Position 4/4/17:

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

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

CX - Cemex - Company Profile


The company reported a ten-fold increase in quarterly profits aided by asset sales. Cemex earned $336 million in Q1 compared to the $35 million in the year ago quarter. They made $152 million on selling a concrete tube business in the U.S. and $98 million on selling part of a unit in the GCC. They have another $320 million in announced asset sales set to close. Revenue rose 6% on a constant currency basis and debt fell -3.7% to $12.16 billion. Shares are trying to push through resistance at $9.25.

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. There was a $1 bounce on Wednesday that stopped us out of the put position.

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 4/26/17: Long May $12 put @ 80 cents, exit .60, -.20 loss.

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

ECA - Encana Corporation - Company Profile


No specific news. Encana fell with the rest of the energy sector the prior week as crude prices fell more than 6% for the week to close under $50. Shares have held steady this week while we wait for oil prices to rise.

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 October $11 call @ $1.40, no stop loss.

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

ETSY - ETSY Inc - Company Profile


Etsy opened an online arts and craft marketplace to provide supplies to their crafters. Shares are returning to the 8-week highs from the prior week. Earnings are Tuesday.

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.

Update 4/22/17: On Friday the Australian Tax Office warned overseas sellers their websites would be blocked if they did not comply with the GST LVG tax laws in Australia. Ebay, Alibaba, Amazon, Etsy and others have complained they are not sellers. They merely match buyers and sellers for a commission. Ebay and Etsy do not collect the money so they cannot pay the tax. The tax only applies to vendors that sell $75,000 a year and therefore any forced collection could not be implemented until a vendor reached that level. It would be impossible to then go back and collect the tax from the vendor for the first $75,000 sold.

Shares were trading at an 8-week high on Thursday. Major sell off on Friday's news. The company said it would report earnings on May 2nd.

Earnings May 2nd.

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.

INFN - Infinera Corporation - Company Profile


No specific news. Shares spiked ahead of earnings to stop us out of the July $10 put for a minor gain.

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:

Closed 4/24/17: Long July $10 put @ 78 cents, exit .90, +.12 gain.

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

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