The small cap indexes were flat, big cap indexes negative and the Nasdaq was soaring. Today was a waste of digital ink unless you were following the Nasdaq. The other big cap indexes traded in a narrow range and closed well off their highs. Just another day like nearly every day we have had over the prior three weeks.
Unfortunately, Wednesday could be dramatically different. The S&P futures are down -8.50 as I type this after Trump reportedly asked Comey to put some reporters in prison. This just broke about an hour ago and it could have lasting repercussions. Buckle up!
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.
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
HZNP - Horizon Pharma
The long position was entered at the open.
HABT - Habit Restaurants
The long stock position was stopped out at $18.75.
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
BBRY - Blackberry - Company Profile
Blackberry is working with at least two automakers on security software that would monitor the car's operating system and warn the driver if the system has been hacked. This is going to be very important in the future as self-driving cars become more plentiful. The system is currently being tested by Aston Martin and Range Rover. The virus software would cost drivers $10 a month. Blackberry software is already running in millions of cars. Shares exploded higher.
Original Trade Description: April 28th.
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.
Update 5/1/17: CEO was on CNBC this morning talking about accelerating transition to a software service company. Video of interview
Update 5/4/17: TechCrunch reviewed the new BlackBerry phone and said it was the one they should have introduced 10 years ago. CNBC also did an article on it. Read it Here
Update 5/15/17: Blackberry is actually profiting from the WannaCry malware. The company pivoted to a software security firm a couple years ago and they offer security for both mobile and enterprise applications.
Earnings June 30th.
Long BBRY shares @ $9.34, see portfolio graphic for stop loss.
Optional: Long July $10 call @ 35 cents. No stop loss.
FNSR - Finisar Corp - Company Profile
No specific news. Minor move over resistance at $25.
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.
Update 4/28/17: 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.
Update 5/5/17: Nice gain on unusual option activity. More than 6,800 May $24 calls traded against an open interest of 2,800, which means they were bought at around 75 cents each. Another 2,000 May $25 calls were bought at 45 cents. That is a total of $600,000 in premium when the normal volume is only a couple hundred contracts. Somebody is betting big on a short fuse with only two weeks to go.
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. New earnings in the retail sector caused another drop in HABT at the open that stopped us out of the stock position. The option position is still open and will move to the Lottery Play section.
Original Trade Description: May 10th.
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 revenue of $78.6 million that increased 17.4%. Earnings were 9 cents. Same store sales rose +0.9% despite the flooding in California in Q1. That is where they have the most stores. This was their 53rd quarter of consecutive same store sales growth. They opened 3 new stores in the quarter to total 165 company operated locations and 13 franchised locations.
They guided for the full year for revenue of $338-$342 million. Same store sales of 2%. They will open 31-33 company operated stores and 5-7 franchised stores.
The company had $49.5 million in cash and no debt other than $9 million in short term lease-financing costs for stores under construction.
Earnings August 2nd.
Habit dies not suffer from the same discounting problem afflicting other QSR chains. Habit has a solid repeat customer base and they keep this base faithful by offering new premium menu items on a limited time basis every few weeks. By introducing short term premium specials they attract customers back into the stores every time. That creates repeat business between the announcement of new menu items. By not continuing them on the menu, it keeps their inventory costs lower and causes people to rush in to get the next special because they know it is going away.
They implemented digital advertising program during the quarter and expanded their email mailing list from 278,000 to 538,000 using a promotion for a free Charburger. The redemption rate was 49%, which is unheard of in fast food retailing. The average amount spent when customers redeemed the special was $3.85, which consisted of additional high profit items like fries and drinks. In reality, the special had no material cost and doubled the size of their email list.
It appears HABT shares are about to break out to a new leg higher after the two week pause for earnings.
Closed 5/16/17: Long HABT shares @ $19.50, exit $18.75, -.75 loss.
Still open: Long Sept $21 call @ $1.15, see portfolio graphic for stop loss.
HZNP - Horizon Pharma - Company Profile
No specific news. Only a minor gain but still a gain.
Original Trade Description: May 15th.
Horizon Pharma Public Limited Company, a biopharmaceutical company, engages in identifying, developing, acquiring, and commercializing medicines for the treatment of orphan diseases, arthritis, pain, and inflammation and inflammatory diseases in the United States and internationally. The company's marketed medicine portfolio consists of ACTIMMUNE for the treatment of chronic granulomatous disease and malignant osteopetrosis; RAVICTI and BUPHENYL/AMMONAPS to treat urea cycle disorders; PROCYSBI for the treatment of nephropathic cystinosis; QUINSAIR for the treatment of chronic pulmonary infections due to pseudomonas aeruginosa in cystic fibrosis patients; and KRYSTEXXA to treat chronic refractory gout. Its products also include RAYOS/LODOTRA for the treatment of rheumatoid arthritis, polymyalgia rheumatic, systemic lupus erythematosus, and multiple other indications; DUEXIS to treat signs and symptoms of osteoarthritis and rheumatoid arthritis; MIGERGOT for the treatment of vascular headache; PENNSAID 2% to treat pain of osteoarthritis of the knees; and VIMOVO for the treatment of signs and symptoms of osteoarthritis, rheumatoid arthritis, and ankylosing spondylitis. The company has collaboration agreements with Fox Chase Cancer Center to study ACTIMMUNE in combination with PD-1/PD-L1 inhibitors for use in the treatment of various forms of cancer; and Alliance for Lupus Research (ALR) to study the effect of RAYOS on the fatigue experienced by systemic lupus erythematosus (SLE) patients. Company description from FinViz.com.
Horizon reported earnings of 21 cents that missed estimates for 25 cents. Revenue of $220.9 million rose 8% but missed estimates for $253 million. They guided for full year revenue of $1.0 to $1.035 billion, down from $1.26 billion. Analysts were expecting $1.4 billion. Shares were crushed for a 39% drop from $15.50 to $9.50.
Earnings July 31st.
However, the company said the declines in earnings and revenue were due to a change in business practices and how they contract with pharmacy benefit managers. To combat this change the company is changing its cost and pricing structure to better match the new contract requirements.
Secondly, they said they were expsnding investments in the drug Krystexxa and they raised sales expectations from $250 million to $400 million for the full year. They also signed a deal to acquire River Vision and its Thyroid Eye Disease drug for $146 million and the acquisition will close immediately. They also received approval from a supplemental New Drug Application (NDA) for Ravicti, a drug for urea cycle disorders in children.
Horizon has a portfolio of orphan drugs with more on the way. The shares were hammered but they are already rebounding strongly on what some investors are seeing as a buying opportunity.
Long HZNP shares @ $10.75, see portfolio graphic for stop loss.
Optional: Long June $11 call @ 55 cents, see portfolio graphic for stop loss.
STM - STMicroelectronics - Company Profile
No specific news. New closing high.
Original Trade Description: May 6th.
STMicroelectronics N.V., together with its subsidiaries, designs, develops, manufactures, and markets semiconductor products, and subsystems and modules worldwide. The company offers a range of products, including discrete and standard commodity components, application-specific integrated circuits, full-custom devices and semi-custom devices, and application-specific standard products for analog, digital, and mixed-signal applications, as well as silicon chips and smartcards. It also provides subsystems and modules, including mobile phone accessories, battery chargers, and ISDN power supplies for the telecommunications, automotive, and industrial markets; and in-vehicle equipment for electronic toll payment. The company sells its products through its distributors and retailers, as well as through sales representatives. Company description from FinViz.com.
STM is Europe's third largest semiconductor maker. They posted a surge in revenue growth after six years of declines thanks to IoT, phones, automotive and industrial demand. Revenue is expected to grow 12.3% in Q2 and the company said it was on track to meet 2017 objectives. The CEO said, "Entering the second quarter, we continue to see healthy demand, with strong booking trends across all our product groups and regions."
They reported revenue of $1.821 billion that rose 12.9% and matched analyst estimates. Earnings of 12 cents missed estimates for 14 cents. The company said it would webcast its Capital Markets Day on Thursday.
Earnings July 27th.
Shares closed at a new high on Friday and the turnaround excitement is building. A positive analyst day on Thursday could send it higher. Shares rallied from November through February and then went dormant in Mar/Apr. Now that the consolidation is complete, they are surging again.
Long STM shares @ $16.34, see portfolio graphic for stop loss.
Optional: Long July $17.50 call @ 65 cents, no initial stop loss.
USO - US Oil Fund ETF - ETF Profile
Oil prices dipped slightly ahead of Wednesday's inventory numbers.
It is only a matter of time before we begin to see dramatic inventory declines as we approach the summer driving season.
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.
Update 5/8/17: Saudi's oil minister, Khalid al-Falih, said "after conversations with participants, I am confident the production cut agreement will be extended for another six months and possibly beyond." The OPEC meeting is May 25th and we should be getting almost daily headlines ahead of that event.
Long Jun $10.50 call @ 40 cents, no stop loss.
WLL - Whiting Petroleum - Company Profile
No specific news. Minor decline on oil price drop.
Original Trade Description: May 1st.
Whiting Petroleum Corporation, an independent oil and gas company, engages in the development, production, acquisition, and exploration of crude oil, natural gas liquids, and natural gas primarily in the Rocky Mountains region of the United States. It sells oil and gas to end users, marketers, and other purchasers. As of December 31, 2016, the company had total estimated proved reserves of 615.5 million barrels of oil equivalent; and interests in 1,917 net productive wells on approximately 517,200 net developed acres. Whiting Petroleum Corporation was founded in 1980 and is based in Denver, Colorado. Company description from FinViz.com.
Whiting reported an adjusted loss of 15 cents and analysts were expecting a loss of 22 cents. Revenue of $371.3 million beat estimates for $361.4 million. Production of 10.6 million Boe beat guidance of 10.4 million Boe. Lease operating expenses declined from $9.00 to $8.56. General and administrative expenses declined from $3.15 to $2.34 and interest expenses declined from $4.80 to $3.83 per share.
Earnings July 26th.
The company raised guidance for the year for multiple reasons. They just completed a three-well Loomer pad in North Dakota using advanced completion models with longer laterals and 8.9 million pounds of sand in each well. The resulting production suggests each well will produce 1.5 million Boe over their productive life. That is 50% higher than other wells in the area. That equates to roughly $75 million in revenue from each well with an initial cost of about $9 million each.
Whiting plans to apply this completion method to all its 2017 wells while continuing to test and improve on the model.
Also helping Whiting is the recently completed Dakota Pipeline that President Trump approved a couple months ago. That makes it considerably easier to transport oil out of the Bakken and at a lower cost.
Whiting raised full year guidance to 45.2 to 46.2 million Boe but did not raise the capex expectations. The production guidance was raised because of the better completion methods. This will be a 23% increase in production from Q1 start to Q4 end.
Energy companies have been hammer recently with oil prices falling back under $50. This is a temporary situation. The refinery maintenance cycle was longer than normal and the restart just accelerated over the last two weeks. Inventories last week declined -3.6 million barrels and they should continue to decline sharply over the next four months. Prices will rise as the summer driving season begins.
I think the September $9 option is too expensive at $1.13 and the $10 option is expensive as well. The June options are a short fuse with earnings after expiration. The tradeoff suggests the short term June would be the best play.
Long WLL shares @ $8.55, see portfolio graphic for stop loss.
Optional: Long June $9 call @ 60 cents, see portfolio graphic for stop loss.
WTW - Weight Watchers - Company Profile
No specific news.
Original Trade Description: May 13th.
Weight Watchers International, Inc. provides weight management services worldwide. The company operates in four segments: North America, United Kingdom, Continental Europe, and Other. It offers a range of products and services comprising nutritional, activity, behavioral, and lifestyle tools and approaches. The company also engages in the meetings business, which presents weight management programs, as well as allows members to support each other by sharing their experiences with other people experiencing similar weight management challenges. In addition, it offers various digital subscription products, including Weight Watchers OnlinePlus and a weight management companion for Weight Watchers meeting members to digitally manage the day-to-day aspects of their weight management plan, as well as provides interactive and personalized resources that allow users to follow weight management plan. Further, the company provides Personal Coaching, an online subscription product that offers one-on-one telephonic, e-mail, and text support and personalized planning from a Weight Watchers-certified coach, as well as offers access to other online tools. Additionally it offers various products, including bars, snacks, cookbooks, food, and restaurant guides with SmartPoints values, Weight Watchers magazines, SmartPoints calculators, and fitness kits, as well as third-party products, such as activity-tracking monitors. The company also licenses the Weight Watchers brand and other intellectual property in frozen foods, baked goods, and other consumer products, as well as endorses selected branded consumer products; and engages in publishing magazines, as well issues other publications, such as cookbooks, and food and restaurant guides with SmartPoints values. It offers products through its meeting and franchisee business, as well as online. Weight Watchers International, Inc. was founded in 1961. Company description from FinViz.com.
Weight Watchers posted a Q1 profit of 16 cents compared to estimates for a 4-cent loss. Revenue of $329.1 million rose 7.2% and beat estimates for $323 million.
Subscribers rose 16% to 3.6 million. Subscribers have now risen for 5 straight quarters. This is the first time since 2011 that they gained subscribers for a full year. The company raised guidance for the full year to $1.40-$1.50. Analysts were expecting $1.27. They said they were off to a strong start thanks to the Oprah Effect. The TV personality joined the brand late in 2016.
Earnings August 1st.
The stock has been a rocket since Oprah began pitching for the brand but it is showing no signs of fading. The post earnings spike to $25 saw some post earnings depression but shares are already moving back to that post earnings level. I believe female investors are betting on the Oprah Effect to continue driving profits. Even at this level the stock is not overly expensive with a PE of 17.
I am recommending it because it has refused to decline in a weak market. The risk is less with the option position.
Long WTW shares @ $24.48, see portfolio graphic for stop loss.
Optional: Long July $26 call @ 90 cents, see portfolio graphic for stop loss.
BEARISH Play Updates
ERA - Era Group - Company Profile
No specific news. Nice intraday dip to a new low but rebounded at the close.
Original Trade Description: May 8th.
Era Group Inc. provides helicopter transportation services primarily to the oil and gas exploration, development, and production companies. Its helicopter services include emergency response search and rescue; air medical services; Alaska flightseeing tours; and other services, as well as utility services to support firefighting, mining, VIP transport, power line, and pipeline survey activities. The company also leases helicopters to third parties and foreign affiliates; engineers, manufactures, and distributes after-market helicopter parts and accessories; and provides classroom instruction, flight simulator, and other training services. As of December 31, 2016, the company owned, leased, or managed a total of 136 helicopters, including 13 heavy helicopters, 49 medium helicopters, 33 light twin engine helicopters, and 41 light single engine helicopters. It also serves cruise line passengers. Company description from FinViz.com.
Era reported a loss of 27 cents on revenue of $54.5 million. This was the second quarterly revenue decline but revenues have been weakening for the last two years. The last quarter they posted positive earnings was June 2016 and the losses are growing. In this table from Capital Cube all the numbers look terrible.
Earnings August 1st.
I am frustrated because I almost recommended them in the weekend newsletter. I decided to wait until support broke at $11.50. That support failed today with a big drop. I believe the shares are going to retest the November lows at $7.50. After looking at that table above would you buy this stock?
Short ERA shares @ $10.69, see portfolio graphic for stop loss.
No options recommended because of wide spreads.
VXX - Volatility Index Futures - ETF Description
Minor rebound from the new closing low. Tomorrow could be ugly. Futures are down nearly 10 points on Trump disaster.
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.
Short the VXX @ $17.98, no stop loss because it always declines eventually.
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