Option Investor

Daily Newsletter, Saturday, 6/24/2017

Table of Contents

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

Market Wrap

Perfect Setup

by Jim Brown

Click here to email Jim Brown

The market action last week and specifically the action on Friday set us up perfectly for additional gains next week.

Weekly Statistics

Friday Statistics

The setup is so good is scares me because there must be something I am overlooking or there is a black swan event fixing to bite us in the back. The Russell did not decline as expected on the rebalance and actually gained 10 points. Assuming the historical trend holds for a positive bias the week after the rebalance, the Russell should rise next week. The Dow made a new high on Monday and then retraced to fill the gap at 21,384 and despite a little volatility on Friday, it closed right above 21,390 and support all week. The Nasdaq fought resistance at 6,245 all week and then moved over that level on Friday with a decent gain. The FAANG stocks were all positive and Facebook closed at a new high. This suggests the quarter end window dressing will be focused on those stocks and should lift the Nasdaq higher. Next week is a pre holiday week and is typically bullish.

With all the positive points, the setup is too good to be true but I am sure most of us will be happy if it plays out as expected. The perma bears are going to be doubling down on their shorts on Monday as they do whenever I turn bullish. It is normally a bad omen for the market.

There was only one economic report on Friday but it was big news. The new home sales for May rose from the previously reported 569,000 to 610,000 and well over the Moody's estimate for 588,000. That was a 2.9% increase from April and 8.9% over May 2016. Over the same period, the median home price is up 16.8% to $349,400. April sales were also revised higher to 593,000.

The lack of inventory is leading to more homes being sold before they were completed. The percentage of homes sold where construction had not even started rose from 30.0% to 34.1%. Those sold while under construction declined slightly from 37.3% to 33.4%. Sales of completed homes fell from 44.5% to 32.5%. The inventory to sales ratio was flat at 5.3 months. The annualized rate of completions is roughly 800,000 but that is well below the 1.2 million in the 1995-2000 period.

On Wednesday existing home sales rose from 5.57 million annualized to 5.62 million. This report and the new home sales are positive for the GDP.

We will get the last revision of the Q1 GDP on Thursday and the consensus estimate is for unchanged at 1.2% growth. Moody's is expecting a drop to +0.8% growth.

The Q2 GDP is now projected at 2.9% and that is well below the initial expectations of 4.3% according to the Atlanta Fed real time GDPNow forecast. Since we are almost out of Q2, I would expect that forecast to settle somewhere in the 2.5% range based on the recent economic reports.

However, Citigroup's Economic Surprise Index has fallen to -80 and the lowest level since August 2011. This index tracks the various economic reports based on whether they are rising or falling and missing forecasts. We have been nearly this low in 2012 and 2015 and the world did not end. However, the sharpness of the decline suggests there are problems that need to be considered in an investment context.

On the flip side, the Dollar has recovered somewhat over the last couple weeks, although Friday was a bad day. Analysts believe once the dollar begins to rise it shows faith in the future economy.

Unfortunately, the bond investors are not convinced conditions are going to improve. The yield on the ten-year treasury closed at 2.144% on Friday and a 7-month low. This is helping the mortgage market and taking some of the sting out of rising home prices but it is a cloud over economic expectations. Bond investors typically get the economic direction right the majority of the time and they are expecting it to worsen.

I believe the bond buying has a lot more to do with the escalating events in Syria with Russia targeting coalition aircraft, North Korea and their nuclear ambitions and the potential for President Trump to do something rash and the rising tide of terror attacks internationally. Just my two cents.

The market does not seem to care about any of those problems with the Volatility Index holding at 24-year lows. Historically the VIX trades over 20 several times a year. The index has not been anywhere near 20 since the week before the election when traders were going crazy trying to forecast the outcome. The index closed at 9.75 on June 2nd. That is the lowest level since the 9.31 close on December 22nd, 1993. When you consider all the political, economic and geopolitical events over the last few weeks, to have the volatility this low is amazing.

There is nothing on the economic calendar for next week that is expected to increase that volatility. The Richmond Fed Manufacturing Survey, The Chicago Fed Activity Index and the Chicago PMI are the three most important reports. Since this is the last revision for the GDP, it will be ignored unless there is a major miss of expectations.

The economic calendar should not provide any roadblocks to successful end of quarter window dressing gains.

The earnings calendar is just as anemic for market moving events. Nike is a Dow component and their earnings after the bell on Thursday are not likely to move the market because they are only a $54 stock. It would take a 10% move in the stock to move the Dow 30 points.

We are only about three weeks away from the start of the Q2 earnings cycle and that is going to be important for market direction the rest of the year.

Late Friday, Reuters reported that Walmart (WMT) was not considering making a bid for Whole Foods Market (WFM). There had been speculation that Walmart would make a higher bid to keep Amazon out of the grocery business a little longer. Whole Foods customers are not Walmart customers and the high WFM grocery prices are not a threat for Walmart. Amazon has said they plan to lower prices because of their stronger buying power but it remains to be seen if they can do that with the niche vendors that supply Whole Foods.

Amazon is paying $42 a share for Whole Foods and the stock had run up to $43.84 in expectations for a bidding war or at least a competing offer. After the news broke, the shares declined to $42.95 and will probably bleed further next week. Kroger (KR) has also been a rumored bidder but they cannot afford Whole Foods. Kroger's market cap is $21 billion and to outbid Amazon, even if that was possible, would take a bid of $15 billion or more. I did an analysis of this back last fall when rumors were floating about Whole Foods and Kroger simply has too much debt and not enough credit. They may want to buy Whole Foods but it would be a very aggressive move in a market where gross margins are already paper thin. Kroger's market cap took a 30% haircut last week on earnings and the Amazon announcement.

Kroger has bigger problems with Aldi and Lidl moving into the USA. Lidl has more than 10,000 stores in Europe and expects to have several thousand in the U.S. in the coming years. Aldi also has more than 10,000 stores in 18 countries including 2,018 in the U.S. and those are expected to rise to 2,200 by the end of 2017. Both are major discounters and will cause serious pain to Kroger and Walmart. Aldi and Lidl are much bigger threats to their grocery business than Amazon and Whole Foods.

Unless a private equity firm steps up to start a bidding war with Amazon, the Whole Foods acquisition is likely to occur. There is the very remote chance Aldi or Lidl could make a bid but they focus on the discount shopper not the high dollar, organic shopper so the store model is not really a fit.

Some of the stocks being demoted from the Russell 1000 to the Russell 2000 include JCP, DDS, GRPN, YELP, FIT, DO, NE and ESV. Sometimes the demoted companies see shares rally after the rebalance. With the dividing line between the Russell 1000 and 2000 a market cap of about $2.0 billion, the demoted stocks suddenly become big fish in a pond of small fish. More fund managers are tracking the Russell 2000 than the 1000 and that means they will have to buy a larger number of shares of the new entrants because of their top end market cap. Of that group above GRPN, YELP and ESV have the largest market cap at $2 billion. The rest have already been crushed down to $1 billion. That makes those three stocks the most likely to see extended buying next week.

The end of quarter window dressing means portfolio managers will be adding the FAANG stocks as well as outstanding Dow performers like Boeing, McDonalds, 3M, etc. I was flipping through the charts of the Dow components and saw that Home Depot, at a new high just four days ago, was getting crushed on no news. This is somewhat confusing since existing home sales are up so strongly. The CEO was on CNBC last week and he said strong home sales and rising home prices were a boon for Home Depot. People are either improving their homes so they can sell them or remodeling because it is too expensive to move. Either way it benefits HD. Shares imploded on Friday with a $4 drop and there was no news. They hit a new high with the Dow on Monday at $159 and closed Friday at $151. Ideally, you would want to buy a rebound from $146 but at this level, they are already interesting.

Boeing (BA) should be a favorite of the window dressing crowd. We exited a nice position in Boeing on Wednesday because we were up strongly and the Paris Air Show was coming to an end. Shares typically decline after the show but apparently investors did not get the memo on the prior history and shares rocketed off to another $2.79 gain on Friday. That is going to attract window dressers like flies to a picnic.

We also exited a position on Dow component McDonalds (MCD) the prior week because we were highly profitable and the stock was due for a pullback. That dip with the market was very temporary and the stock is making new highs again. This should also be a window dressing favorite.

While we know portfolio managers are going to make sure they have some of those stocks in their portfolio by next Friday, we also know that gains like those will not continue forever. This is the fuel for a summer correction. Any fund manager that has had those stocks in their portfolio since January or earlier, has an obscene amount of profit at risk. They cannot afford to just let it ride because the next flash crash could eliminate it very quickly.

While I am positive on the market for next week, I would be cautious on the market once we are into the new quarter. The Q2 earnings cycle is likely to keep investors involved for several more weeks but August and September are the worst two months of the year. With the market at new highs, it will take very strong earnings to keep it moving forward. Expectations are very high.

Sears (SHLD) announced with a SEC filing they are closing another 18 Sears stores and 2 Kmart stores. The leases are held by Seritage (SRG), a REIT spun off by Sears a couple years ago. Sears can terminate the leases with the payment of one year's rent. In theory, that gives Seritage time to remodel and remarket the stores using the termination payment. Sears has previously announced the closing of 62 Sears stores and 164 Kmart stores this year. This brings the total to 246 locations announced in 2017. Since there have only been about 180 days in 2017 that equates to about 1.4 store closings a day. In Q1, revenue declined from $5.4 billion to $4.3 billion and they are on track to burn about $1.5 billion in cash for 2017.

Bed, Bath and Beyond (BBBY) reported earnings of 58 cents that missed estimates for 66 cents. They reported 80 cents in the year ago quarter. Revenue of $2.74 billion missed estimates for $2.79 billion. The company said they had to resort to active promotions, discounts and higher advertising costs to offset the sharp decline in customer traffic. To put their dilemma into one word, they were "Amazoned." Shares fell -12%.

Blackberry (BBRY) reported earnings of 2 cents and analysts were expecting a breakeven. Revenue of $244 million missed estimates for $264 million. Organic revenue growth in software sales rose 12% but that was slightly lower than expected. Their guidance for the year is for 10% to 15% revenue growth. CEO Chen said a lot of their products are new and are just now gaining traction. Also, most of their products are long-term sales and managing those on a quarter-to-quarter basis is a tough job. For instance, if they sell an automaker on using the QNX operating system in one of their models, it could take 12-24 months before those models begin hitting the streets but eventually there could be several hundred thousand on the road. Multiply that by the dozens of models already running the software and dozens expected to use it and they are on the right path to profitability.

Caterpillar (CAT) was downgraded from buy to hold by Deutsche Bank saying there is no way to tell if there will ever be an infrastructure plan enacted by President Trump. "Without an infrastructure stimulus we see little prospects for continued North American non residential construction growth." CAT shares declined at the open but rebounded to close fractionally positive.

We actually saw some gains in the energy sector on Friday. Oil prices were only marginally higher but energy stocks were catching a bid. This could have been sector rotation, short covering or a bet that oil prices have bottomed. I would not take that bet. I hope I am wrong but I think it is going to take a price in the high $30s to get OPEC's attention again.

There was a headline on Thursday about the potential for deeper cuts by OPEC and almost immediately three OPEC ministers said absolutely not and the existing cuts were not likely to be extended. I am surprised oil prices did not hit $40 instantly.

Personally, I believe they are going to shift into a shale starvation posture. They were unsuccessful in raising prices with their cuts and the U.S. shale production continues to shoot higher. Under $45, many shale drillers are not profitable. Around $40 they can no longer hedge their production by selling into the futures market and that means they will quickly run out of cash if they do not halt drilling. There are a few companies that can make money at $40 and those include PXD, EOG and PE to name a few. Others are going to dry up and blow away if oil stays in the $40 range. We have already seen the sudden flurry of headlines about the potential for loan defaults later this year if prices remain this low.

OPEC ministers may be changing to the long game and hoping a lot of shale drillers give up. Most OPEC countries have costs under $40 but it is still painful. Russia could be hurt the worst and that cash shortfall would curtail their ability to wage proxy wars in Syria and elsewhere. It would also hurt Iran and that would be fine with the rest of the OPEC producers.

We could be moving into a new chapter in the OPEC price war. It will be interesting to see how it plays out. Meanwhile U.S. drivers are benefitting from the lowest gasoline prices in years for the July 4th holiday. Gasoline prices in the Denver area this weekend are $2.15 at the discount stations and $2.24 on average with the cheapest at $2.06 according to GasBuddy.com. According to AAA this holiday will be the cheapest gasoline in 12 years.

Producers activated another 11 oil rigs last week and that was a record 23 consecutive weeks of gains. Gas rigs declined by 3. It should not take but 2-3 weeks for the low oil prices to begin impacting the rig activations. Once we see a negative week, it could provide a boost to oil prices.



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The Dow and S&P made only minor gains for the week despite the big short squeeze rally on Monday to new highs. The broader indexes pulled back daily to retrace almost all their gains by Friday's close. The Dow was up 144 points on Monday but gained only 10 points for the week. The S&P managed to add only 5 points for the week. The Nasdaq was the star performer with a 113 point gain.

The biotech sector helped to keep the S&P in the green and powered the Nasdaq back over resistance. The Biotech Index ($BTK) gained 325 points for the week. The index broke over 4,000 for the first time since September 2015.

The Nasdaq broke through the resistance at 6,245 and could be targeting the early June high close of 6,305.80. If the portfolio managers window dress with the FAANG stocks I would be surprised if we did not test that level.

The S&P spiked to close at 2,453.46 on Monday and a new high just barely over the round number resistance at 2,450. The retreat on Tuesday was sharp with a drop back to 2,436 on Wednesday it filled the gap from Monday at 2,422 and then held at 2,435 the rest of the week. Resistance remains 2,440 and was tested the last three days. Short-term support has appeared at 2,430 with longer-term support still at 2,420.

The 2,450 level could be a challenge to cross without a catalyst. That is the year-end S&P target for a number of analysts so it becomes a natural selling point. However, should a catalyst appear that causes a surge through that level we could see significant short covering.

The Dow also filled the gap from Monday's short squeeze open and then held at that gap fill level at 21,384 the rest of the week. The index overcame weakness in Goldman Sachs and Home Depot thanks to strength in Boeing, Visa, Microsoft and 3M. Even Chevron and Exxon overcame early week declines to post gains on Friday.

As I wrote earlier, portfolio managers should be buying many of the recent Dow leaders as we go into quarter end. Assuming no unexpected headlines, the Dow could be positive the first three days of the week.

The Russell 2000 surprised with a 10-point gain despite the rebalance. Since there will be some added buying to adjust positions over the next three days, this could mean the Russell will remain positive early in the week. Fund managers put in their buy/sell orders to rebalance on Friday but depending on fills, ratios and weightings, they may need to add a few shares here and there to complete the rebalance. This is a 2,000 stock index so there is a lot of fine-tuning to be accomplished.

I am expecting the first three days of next week to be positive. Where that puts the indexes will determine how the rest of the week plays out. If the S&P is bumping up against 2,450 and the other indexes against their highs, we could see a stall ahead of the holiday. Investors and managers may not want to put extra money to work until after the 4th. Monday the 3rd, the market will be a ghost town so it might as well have been a holiday. For all practical purposes it will be a four-day holiday weekend.

Random Thoughts

Sentiment was flat for the week. With the market spiking to new highs on Monday and then giving it all back by the survey's close on Wednesday everyone was neutral. This is the least change I can remember in a very long time. Just over 67% of investors still do not believe the market is going higher. On a contrarian basis that is good because those unbelievers will be chasing prices if we do move to new highs.

You may have noticed that except for two weeks in February, the markets stagnated in the first quarter. There is a good reason for that. The S&P reported last week that corporate stock repurchases totaled $133.1 billion for Q1. That sounds like a lot of money but it was 1.6% lower than Q4 and 17.5% below the $161.4 billion in Q1-2016. For the 12 months ending on March 31st, buybacks were $508.1 billion, down 13.8% from the $489.4 billion in the prior 12-month period. However, that period that ended on March 21st, 2016 was an all time record high.

Companies buy back shares to return money to shareholders in a onetime event rather than committing to a continuing dividend program. They also buy back shares to increase earnings per share. IBM has been the poster child for this for more than a decade. With earnings struggling, they would buy back shares to increase the earnings per share. It was a perfect example of financial engineering.

255 S&P-500 companies reduced their outstanding shares in Q1, down from 284 companies in Q1-2016. The top 20 stocks accounted for 42.1% of all share repurchases.

Another reason for slowing buybacks is high stock prices. With the market at its highs, companies do not want to buy their own shares. They would rather wait for a dip to get more bang for their buck.

Click here for more details.

The Supreme Court has only one week left before their summer recess. They are expected to rule on the administrations travel ban but the news everyone is expecting would be a retirement announcement by Justice Kennedy. He turns 81 next month and while nothing has been said, there have been clues that he could announce this week that he is retiring. He has been a justice for nearly 30 years. This could start another firestorm of headlines in Washington and further divide the parties in the Senate.


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."

Oscar Wilde


New Plays

Shrinking Market Share

by Jim Brown

Click here to email Jim Brown
Editor's Note

Amazon buying Whole Foods has sector wide repercussions. Grocery stores were the first to be hit but nobody is thinking about the health foods grocers. Their market is going to be stressed as well.


NGVC - Natural Grocers Vitamin Cottage - Company Profile

Natural Grocers by Vitamin Cottage, Inc., together with its subsidiaries, operates natural and organic groceries, and dietary supplement retail stores in the United States. Its stores offer natural and organic grocery products, such as organic produce; bulk food and private label products; dry, frozen, and canned groceries; meat and seafood products; dairy products, dairy substitutes, and eggs; prepared foods; bread and baked products; and beverages. The company's stores also provide private label dietary supplements; body care products comprising cosmetics, skin care, hair care, fragrance, and personal care products containing natural and organic ingredients; pet care and food products; household and general merchandise, including cleaning supplies, paper products, dish and laundry soap, and other common household products; and books and handouts. As of June 6, 2017, it operated 138 stores in 19 states. The company operates its retail stores under the Natural Grocers by Vitamin Cottage trademark. Natural Grocers by Vitamin Cottage, Inc. was founded in 1955 and is headquartered in Lakewood, Colorado. Company description from FinViz.com.

The company reported earnings of 13 cents that missed estimates for 16 cents. Revenue of $192.2 million missed estimates for $197.3 million. Same store sales declined -1.7%. They narrowed their full year guidance to earnings of 50-54 cents. They said they were cutting back on the number of new stores previously announced. That is a sure sign they are seeing competitive pressures on the business. The CEO warned that "the food retailing environment remains challenging."

The Amazon announcement just made their retailing environment significantly more challenging. NGVC has a very nice produce section of organic produce and a small grocery department roughly one fourth the size of a Whole Foods Market. Another 25% of their space is dedicated to vitamins. I visit one about once a week for a couple items. I have long ago switched my vitamin buying to Amazon because of the significantly reduced cost. I ran out of something a couple weeks ago and thought I will just swing by NGVC and get a bottle. The price was so high compared to Amazon, the sticker shock had me leaving the store empty handed. I had it from Amazon two days later.

I am afraid that is what many people are learning. It is hard to beat Amazon prices and the selection is much larger. NGVC was a niche store 10 years ago and did well. Now that Safeway, Walmart and Kroger carry so much organic food, NGVC is having trouble competing.

Expected earnings August 3rd.

NGVC shares are in free fall after their earnings. The Amazon announcement just greased the slide a little more.

Sell short NGVC shares, currently $8.00, initial stop loss $9.00.
Alternate position: Buy August $7.50 put, currently 50 cents. No initial 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 at the market open.


No New Bearish Plays

In Play Updates and Reviews

Rebalance Surprise

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Russell rebalance on Friday failed to generate the monster volume and the market rallied. Volume was only 10.5 billion shares and 1 billion under estimates. Market moved were muted as expected but the Russell 2000 actually rose 10 points to buck the normal trend of declines. Analysts were somewhat confused by the low volume but happy to see the gains.

The Nasdaq big caps rallied strongly and that suggests the quarter end window dressing could also be strong next week. Portfolio managers want to end the quarter with winners in their portfolio and that will mean buying the FAANG stocks and stocks like MCD, MMM and BA. These moves should lift the market over the first three days of the week.

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

SYNT - Syntel
The short stock position was stopped at $16.60.

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BULLISH Play Updates

ACOR - Acordia Therapeutics - Company Profile


No specific news. Excellent 4% gain in a weak market.

Original Trade Description: June 21st.

Acorda Therapeutics, Inc., a biopharmaceutical company, identifies, develops, and commercializes therapies for neurological disorders in the United States. The company markets Ampyra (dalfampridine), an oral drug to improve walking in patients with multiple sclerosis (MS); Zanaflex capsules and tablets for the management of spasticity; and Qutenza, a dermal patch for the management of neuropathic pain associated with post-herpetic neuralgia. It also markets Ampyra as Fampyra in Europe, Asia, and the Americas. In addition, the company develops CVT-301 that has completed a Phase III clinical trial for the treatment of OFF periods in Parkinson's disease; CVT-427, which has completed a Phase I clinical trial to treat migraine; Tozadenant that is in Phase III clinical trial for reduction of OFF time in Parkinson's disease; SYN120, which is in Phase II clinical trial to treat Parkinson's disease-related dementia; and BTT1023 (timolumab) that is in Phase II clinical trial for primary sclerosing cholangitis. Further, it develops rHIgM22, which is in Phase I clinical trial for the treatment of MS; Cimaglermin alfa that has completed a Phase I clinical trial in heart failure patients; and Chondroitinase Program that is in research stage for the treatment of spinal cord injury. The company has collaborations and license agreements with Biogen International GmbH; Alkermes plc; Rush-Presbyterian St. Luke's Medical Center; Alkermes, Inc.; SK Biopharmaceuticals Co., Ltd.; Astellas Pharma Europe Ltd.; Canadian Spinal Research Organization; Cambridge Enterprise Limited and King's College London; Mayo Foundation for Education and Research; Paion AG; Medarex, Inc.; and Brigham and Women's Hospital, Inc. Company description from FinViz.com.

Acordia took a fall at the end of March when two Multiple Sclerosis patents were invalidated by a court. This is normal stuff and happens all the time to biotech companies when competitors want to introduce a generic. Shares crashed but the outlook for Acordia did not.

They fell another 5% in late April when revenue of $112 million missed estimates for $121 million. The company did reaffirm guidance for ful lyear Ampyra sales in the range of $525-$545 million.

Recently, their experimental Parkinsons drug CVT-301 was named Inbrija. In early June they presented Phase III data which met its primary endpoint of improvement in motor function compared to a placebo. Multiple secondary endpoints were also met. The company plans to file a new drug application with the FDA by the end of this quarter.

Expected earnings July 27th.

Shares have been rebounding sharply and cleared resistance from the April/May decline. They have a long way to go to recover their highs and that is a potential for profit.

Position 6/22/17:

Long ACOR shares @ $18.80, see portfolio graphic for stop loss.

KTOS - Kratos Defense - Company Profile


No specific news. New record high as Paris air show closes.

Original Trade Description: May 24th.

Kratos Defense & Security Solutions, Inc. provides mission critical products, solutions, and services in the United States. The company operates through three segments: Kratos Government Solutions, Unmanned Systems, and Public Safety & Security. The Kratos Government Solutions segment offers microwave electronic products; satellite communications; technical and training solutions; modular systems; and defense and rocket support services. The Unmanned Systems segment provides unmanned aerial, ground, and seaborne, as well as command, control, and communications systems. The Public Safety & Security segment designs, engineers, deploys, operates, integrates, maintains, and operates security and surveillance solutions for homeland security, public safety, critical infrastructure, government, and commercial customers. The company serves national security related agencies, the department of defense, intelligence agencies, and classified agencies, as well as international government agencies and domestic and international commercial customers; and critical infrastructure, power generation, power transport, nuclear energy, financial, IT, healthcare, education, transportation, and petro-chemical industries, as well as government and military customers. Kratos Defense & Security Solutions, Inc. was founded in 1994 and is headquartered in San Diego, California. Company description from FinViz.com.

Kratos builds drones for target practice for the U.S. military. They are also building drones for combat for air to air and air to land. They also provide communication systems for missiles, satellites and various other platforms.

China and Russia are rapidly militarizing space and Kratos is working with the U.S. military to improve satellite communication to defend against attacks. The DoD is currently spending a lot of money to prepare for war in space. Kratos owns and operates a global satellite demonitoring business with revenues rising 61% in Q1.

Kratos expects to build $30 to $40 million in unmanned target drones for the Navy in the 2017 budget. That is per batch of BQM-177 drones and there is the potential for multiple batches.

Kratos has so many new programs in operation it would be impossible to list them here and several of them are secret programs for unnamed clients.

Kratos guided for a return to profitability in Q2 and sharply rising revenue for the full year. Shares spiked 30% in the four weeks after Q1 earnings. Their next report is August 3rd. I am recommending we buy an option and hold over the report. If the earnings are as positive as they teased in the Q1 report we could see another sharp reaction. This company is in all the right places for the increase in defense depart spending.

I am not recommending a stock position given the sharp gains already.

Update 6/13/17: Kratos said it was going to unveil its newest high performance class of military unmanned aerial system technology at the Paris Air Show next week. The XQ-222 Valkyrie and UTAP-22 Mako drones provide fighter like performance and are designed to function as wingmen to manned aircraft in contested airspace. The Valkyrie can carry various weapons and intelligence systems and has a range of 3,000 miles. The Mako is designed to carry sensors and stealthily infiltrate hostile airspace to gather intelligence. Both are designed to operate with or without manned flights. The Air Force recently pitched the functions of the Valkyrie saying a F-35 with a group of fighter/bomber drones could maximize control of airspace and ground attack operations. The F-35 can select targets and pass information to specific drones while maintaining situational awareness from a stealthy and relatively safe position.

Position 5/30/17:

Long August $12.50 call @ 59 cents, see portfolio graphic for stop loss.

LXRX - Lexicom Pharmaceuticals - Company Profile


No specific news. Breakout to a new 8-month high.

Original Trade Description: June 19th.

Lexicon Pharmaceuticals, Inc., a biopharmaceutical company, focuses on the development and commercialization of pharmaceutical products for the treatment of human diseases. The company offers XERMELO, an orally-delivered small molecule drug candidate for the treatment of carcinoid syndrome diarrhea in combination with SSA therapy in adults. Its orally-delivered small molecule drug candidates under development comprise Sotagliflozin that is in Phase 3 clinical trials for use in the treatment of type 1 and type 2 diabetes; LX2761, which is in Phase 1 development for use in the treatment of diabetes; and LX9211 for use as a treatment for neuropathic pain. The company has license and collaboration agreements with Sanofi; Ipsen Pharma SAS; Bristol-Myers Squibb Company; and Genentech, Inc. Company description from FinViz.com.

Lexicon reported a loss of 31 cents that easily beat estimates for a loss of 44 cents. Revenue of $18.3 million beat estimates for $14.8 million. Small developmental drug companies rarely have earnings until their drugs reach the market.

Estimates earnings August 1st.

Lexicon recently reported positive results for two pivotal studies of the diabetes drug sotagliflozin. The Tandem1 and Tandem2 studies showed significant reduction in A1C and a lower rate of ketoacidosos than patients on insulin pumps. A new oral diabetes drug would be in high demand.

In Q1, they received approval for marketing for Xermelo a drug for carcinoid syndrome diarrhea. Patients were receiving the drug within days of the approval.

Shares closed at a 7 month high on Monday and just over resistance. This company could be ready for a breakout.

Options have very wide spreads so there will not be an option recommendation.

Position 6/2017:

Long LXRX shares @ $17.00, see portfolio graphic for stop loss.

MYGN - Myriad Genetics - Company Profile


No specific news. Still holding at the recent highs.

Original Trade Description: June 17th.

Myriad Genetics, Inc., a personalized medicine company, focuses on the development and marketing of predictive, personalized, and prognostic medicine tests worldwide. It operates through two segments, Diagnostics and Other. The Diagnostics segment primarily provides testing and collaborative development of testing that is designed to assess an individual's risk for developing disease; identify a patient's likelihood of responding to drug therapy; guide a patient's dosing to ensure optimal treatment; and assess a patient's risk of disease progression and disease recurrence. The Other segment provides testing products and services to the pharmaceutical, biotechnology, and medical research industries; and research and development, and clinical services for patients. Its molecular diagnostic DNA sequencing tests include myRisk Hereditary cancer, a test for hereditary cancers; BRACAnalysis and BART, which are tests for hereditary breast and ovarian cancers; BRACAnalysis CDx test for use in identifying ovarian cancer patients with suspected deleterious germline; and Tumor BRACAnalysis CDx test that is used to predict DNA damaging agents, such as platinum based chemotherapy agents and poly ADP ribose inhibitors. The company also provides COLARIS test for colorectal and uterine cancers; COLARIS AP test for colorectal cancer; Vectra DA protein detection test for assessing the disease activity of rheumatoid arthritis; Prolaris, a RNA expression test for prostate cancer; EndoPredict RNA expression test for breast cancer; myPath Melanoma RNA expression test for diagnosing melanoma; myChoice homologous recombination deficiency (HRD) test to measure three modes of HRD; and myPlan lung cancer, an RNA expression test for lung cancer. Myriad Genetics, Inc. has collaboration with AstraZeneca for the development of an indication for BRACAnalysis CDx. Company description from FinViz.com.

In early June Myriad announced that EndoPredict, the novel new breast cancer test, had been approved for reimbursement by nearly all the medical plans in the USA. As of July 1st, public plans representing more than 35 million covered lives will join the private plans representing more than 109 million covered lives will have positive coverage of EndoPredict.

Medicare and Medicaid have posted a positive draft local coverage determination (LCD) for EndoPredict. If this LCD is approved as expected it would bring plan coverage to more than 75% of breast cancer patients in the USA. The ramp to coverage has been extremely fast as a result of the positive test results that showed EndoPredict "markedly outperformed prior generations of accepted tests" for breast cancer diagnosis.

Myriad has other breast cancer tests in the pipeline and in late stage trials. The company is rapidly becoming a powerhouse in the breast cancer field.

Earnings are already starting to rise as a result. In the Q1 update, they reported earnings of 27 cents that beat estimates for 24 cents. Revenue of $196.9 million beat estimates for $188.9 million. They guided for the current quarter to earnings of 26-28 cents and revenue of $192-$194 million. For the full year, they guided for $1.01-$1.03 and revenue of $763-$765 million.

Estimates earnings August 1st.

Position 6/19/17:

Long MYGN shares @ $24.03, see portfolio graphic for stop loss.
Alternate position: Long Aug $25 call @ $1.20, see portfolio graphic for stop loss.

TWLO - Twilio Inc - Company Profile


No specific news. I moved this position back the Lottery Play section into the daily rotation because the stock is moving sharply higher and I want to maintain a rising stop loss.

Original Trade Description: May 20th.

Twilio Inc. provides cloud communications platform that enables developers to build, scale, and operate communications within software applications through the cloud as a pay-as-you-go service in the United States and internationally. It offers programmable communications cloud software that enables developers to embed voice, messaging, video, and authentication capabilities into their applications through application programming interfaces. The company also provides use case products, such as a two-factor authentication solution. Twilio Inc. was founded in 2008 and is headquartered San Francisco, California. Company description from FinViz.com.

Twilio has a messaging application that is built in to dozens of apps you probably use every day. When tech startups try to decide how to engineer a solution they normally find that imbedding Twilio messaging is much simpler in the beginning. The thought process is that once the company is running and profitable they will go back and build their own platform. For most businesses that never happens and they end up paying for Twilio forever.

When they reported earnings on May 3rd, they said revenue growth would slow because Uber was finally taking that step of engineering their own messaging platform and would be phasing out Twilio. When a company reaches the size of Uber they can afford to build their own interface. Only a few companies ever make the switch. Other major customers on their network with no plans to change are Nordstrom, Airbnb, Amazon, Facebook, WhatsApp to name a few.

Uber accounts for 12% of Twilio revenue so the exit is painful. Pacific Crest downgraded the stock saying they had underestimated the risk from Uber. JP Morgan reiterated its overweight rating and $36 price target saying Twilio would continue riding Amazon's coattails to success with Amazon Web Services. Their price target is $33.

Shares fell after Twilio guided for an adjusted loss of 10-11 cents on revenue of $86.5 million. Analysts were expecting 8 cents and $87.8 million.

Last week CEO Jeff Lawson bought 100,000 shares at an average price of $23.43 ($2.34 million). Board member Jim McGeever, VP of Oracle's Netsuite unit, bought 10,000 shares at $23.19. They do not appear to be worried about the business slowing.

Earnings August 1st.

Shares are ticking higher and closed at a three week high on Friday.

Position 5/22/17:

Long July $28 call @ $.75, see portfolio graphic for stop loss.

Previously closed 5/31/17: Long TWLO shares @ $25.01, exit $23.85, -1.10 loss.

WTW - Weight Watchers - Company Profile


No specific news. Another amazing gain to a new high. Tightening the stop loss again.

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.

Position 5/15/17:

Long WTW shares @ $24.48, see portfolio graphic for stop loss.
Alternate: Long July $26 call @ 90 cents, see portfolio graphic for stop loss.

BEARISH Play Updates

SYNT - Syntel Inc - Company Profile


No specific news. Shares rebounded back over prior support to stop us out on the stock position. The option position is still open and will move to the Lottery Play section next week.

Original Trade Description: June 7th.

Syntel, Inc. provides digital transformation, information technology (IT), and knowledge process outsourcing (KPO) services worldwide. The company operates through Banking and Financial Services; Healthcare and Life Sciences; Insurance; Manufacturing; and Retail, Logistics, and Telecom segments. It offers managed services, including software applications development, maintenance, and digital modernization testing, as well as IT infrastructure, cloud, and migration services. The company also provides a range of consulting and implementation services built around enterprise architecture; data warehousing and business intelligence; enterprise application integration; and SMAC technologies, including social media, Web and mobile applications, big data, analytics, and Internet of things. In addition, it offers KPO services that provide outsourced solutions for knowledge and business processes; and business intelligence, enterprise resource planning, and business and technology consulting services. The company offers its products to various companies in the banking and financial services, healthcare and life sciences, insurance, manufacturing, retail, logistics and telecom, and other industries. Syntel, Inc. was founded in 1980 and is headquartered in Troy, Michigan. Company description from FinViz.com.

Syntel has been around for a long time but there is far more competition today than just a decade ago. Cloud sourcing has overtaken outsourcing. Companies do not need to maintain their own server farms and services like SalesForce.com and Automatic Data can handle all the service issues of running a business.

Syntel reported earnings of 46 cents and analysts were expecting 44 cents. Those estimates had dropped from 51 cents over the prior four weeks. Revenue of $225.9 million beat estimates for $225.1 million.

The company guided for the full year for earnings of $1.57 to $1.77. Analysts were expecting $2.32 but had revised their estimates lower over the prior 4 weeks to $1.90. Syntel still missed the lowered targets.

Estimated earnings July 20th.

Shares are sinking fast and are very close to a new 7-year low at $16.35. There is very little buying activity.

Position 6/8/17:

Closed 6/23/17: Short SYNT shares @ $16.65, exit $16.60, +0.05 gain.

Alternate position: Long August $15 put @ .43, no stop loss.

VXX - Volatility Index Futures - ETF Description


New historic closing low.

We are nearing the point where the ETF will do a 1:4 reverse split. That will be an excellent opportunity for us to get short again at a higher level.

Barron's is reporting current short interest at 59 million shares out of 66 million outstanding.

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.

ECA - Encana Corporation - Company Profile


No specific news. Another support level broken as oil trades down to $42.

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 compared 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 will be 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 July 27th.

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.

Update 5/5/17: Encana reported earnings of 11 cents that beat estimates for 4 cents. Revenue of $1.297 billion also beat estimates for $789 million. Production declined 18% due to low prices and depletion. This was an excellent report from a beaten down energy stock.

Update 6/10/17: Encana agreed to sell its Piceance natural gas assets to Caerus Oil for $735 million. There are 3,100 operated wells that produce 240 million cubic feet of gas and 2,178 barrels of natural gas liquids every day.

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.

FRAC - Keane Group - Company Profile


No specific news. Shares finally broke through support on falling oil prices.

I am dropping this position from the portfolio because the odds are slim that it will regain value before the July option expiration. Unless oil prices were to return to $50 this should expire worthless. I am not recommending we close it because the option is already worthless and miracles can happen.

Original Trade Description: May 31st.

Keane Group, Inc. provides full-service completions that include hydraulic fracturing, wireline, coiled tubing, and nitrogen units. It also offers drilling and well construction services that include top hole air rig packages and cementing. The company was founded in 1973 and is based in Houston, Texas. Company description from FinViz.com.

Investors are fleeing energy stocks and analysts are talking about $40 oil. This is ridiculous. All the major players, EIA, IEA, OPEC, Wood MacKenzie, etc all believe global inventory levels are declining by 700,000 bpd thanks to the OPEC production cuts. There are challenges where production is increasing. Libya is ramping up production after years of dormancy because of the civil war. The U.S. is ramping up production we well. These facts are constantly quoted by the bears. What they do not tell you is that global demand is expected to increase between 1.2 and 1.4 million bpd in 2017. With the summer driving season now underway, that demand will begin to surge. Inventory levels in the U.S. have declined -19 million barrels over the last 7 weeks. Now that driving season is here they will begin to decline at a faster rate.

In order for U.S. production to increase there needs to be an increase in fracking capacity. Much of that capacity was cold stacked in 2016 after the oil crash. Today there is not enough capacity and prices are surging.

Keane Group is an oil field service company that just came public in January. The dual oil crashes in March and May, crushed the stock back from $23 to $12. When they reported earnings in early May they were reactivating fracking capacity at a frantic pace. They went from 15 operating fleets to 19 fleets over the last quarter and are still in the progress of reactivating the rest.

In late May they announced the acquisition of RockPile Energy, another oilfield service company and fracking operator. The acquisition will increase Keane's fleet of frackers by 26% and it will be one of the largest and most modern pressure pumping fleets in North America. They will have about 1.2 million hydraulic fracturing horsepower available.

The evolution of hydraulic fracturing in the U.S. over the last three years has been remarkable. The horizontal laterals on the wells are longer with most now in the range of 10,000 feet. The amount of sand and chemicals forced into the wells have increase by a factor of four or more, which means more horsepower, bigger sand capability and better technology. The frackers are going to be in high demand for years to come because producers have figured out how to produce oil and be profitable under $50.

Keane's shares have declined from the IPO price but over the last month they have been rising while all the other energy stocks have been declining. This is proof that frackers are in high demand and investors are understanding the production curve.

Expected earnings August 1st.

Weekly inventories are due out on Thursday morning. If there is another big decline the oil price meltdown could end as quickly as it began.

Because this is a new stock, the option spreads are wide and dangerous. If FRAC performs as expected, we will be ok. If not there could be a substantial penalty in stopping out of an option position. For that reason the alternative option position will not have a stop loss.

Position 6/1/17:

Alternate position:

Long July $17.50 call @ 45 cents. Expiring, -45 cent loss.

Previously closed 6/8/17: Long FRAC shares @ $15.34, exit $14.64, -.70 loss.

STM - STMicroelectronics - Company Profile


No specific news. The constant rumor that Apple's iPhone 8 could be delayed by 2 months due to problems at suppliers has knocked the stock down $2 from its highs.

I am dropping this position from the portfolio because the odds are slim that it will regain value before the July option expiration. I am not recommending we close it because the option is already worthless and miracles can happen.

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.

Position 5/08/17:

Long July $17.50 call @ 65 cents, expiring, -65 cent loss.

Previously closed 5/17/17: Long STM shares @ $16.34, exit $16.25, -0.09 loss.
Closed 6/12/17: Long STM shares @ $16.25, exit $15.79, -.46 loss.

YRCW - YRC Worldwide - Company Profile


No specific news. Shares are trying to rebound back over prior support.

Original Trade Description: June 13th.

YRC Worldwide Inc., through its subsidiaries, provides various transportation services primarily in North America. Its YRC Freight segment offers various services to transport industrial, commercial, and retail goods; and provides specialized services, including guaranteed expedited services, time-specific deliveries, cross-border services, coast-to-coast air delivery, product returns, temperature-sensitive shipment protection, and government material shipments. It serves manufacturing, wholesale, retail, and government customers. As of December 31, 2016, this segment had a fleet of approximately 7,700 tractors comprising 6,200 owned and 1,500 leased; and 31,000 trailers consisting of 24,900 owned and 6,100 leased. The company's Regional Transportation segment provides regional delivery services, which include next-day local area delivery and second-day services, consolidation/distribution services, protect-from-freezing and hazardous materials handling, truck loading, and other specialized offerings; guaranteed and expedited delivery services that consist of day-definite, hour-definite, and time definite capabilities; interregional delivery services; and cross-border delivery services, as well as operates hollandregional.com, reddawayregional.com, and newpenn.com, which are e-commerce Websites offering online resources to manage transportation activities. This segment had a fleet of approximately 6,600 tractors, including 5,000 owned and 1,600 leased; and 13,500 trailers comprising 10,800 owned and 2,700 leased. The company was formerly known as Yellow Roadway Corporation and changed its name to YRC Worldwide Inc. in January 2006. YRC Worldwide Inc. was founded in 1924 and is headquartered in Overland Park, Kansas. Company description from FinViz.com.

For the 4th time in 7 years, Walmart selected YRC Freight as the National LTL Carrier of the Year. YRCW delivers to Walmart stores, Sams Club facilities and distribution centers all across North America. Walmart said the extensive YRCW network offers significant coverage to Walmart and their suppliers.

The company reported a loss of 70 cents for Q1 compared to estimates for 27 cents. Revenue of $1.17 billion did beat estimates for $1.14 billion. Shares imploded on the earnings miss and fell from $10.69 to $7.36.

Next estimates earnings August 3rd.

The company announced a restructuring plan to reduce management headcount and "de-layer" operational overhead. They announced several initiatives to reduce costs.

Last week they released metrics for the last two months. In April, freight tonnage per day rose 6.2% with May tonnage rising 3.3% over year ago levels. Regional tonnage increased 1.4% in April and 5.5% in May.

The business is growing and a reduction in costs will be positive. Investors seem to like the news with a rebound to pre-earnings levels. Resistance is $11.25 and a breakout there could easily run to $14.00 if the story and the market remains positive.

Position 6/14/17:

Long July $11 call @ 55 cents, see portfolio graphic for stop loss.

Previously closed 6/21/17: Long YRCW shares @ 10.70, exit $9.95, -.75 loss.

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