Option Investor

Daily Newsletter, Saturday, 7/15/2017

Table of Contents

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

Market Wrap

Conviction Returns

by Jim Brown

Click here to email Jim Brown

Friday's volume was light but the market internals were strong.

Weekly Statistics

Friday Statistics

Friday's gains were broad based with volume of only 5.3 billion shares but advancers of 4,876 easily beat decliners of 2,242. New highs of 610 beat 93 decliners.

The Dow and S&P surged to new highs while the Nasdaq posted decent gains to pull to within only 9 points of a new high. Even the Russell 2000 managed to squeeze out a new high by two points.

As expected, there was a sell the news event on the bank earnings BUT it only impacted the banks. That was the only sector that lost ground for the day. Banks had rallied into their earnings cycle and traders took profits on those gains.

The Dow dipped at the open thanks to the declines in JP Morgan (JPM) and Goldman Sachs (GS). The index rebounded back into record territory and held at barely positive until 12:30 when a sudden spurt of buying triggered some short covering ahead of the weekend and the Dow and S&P surged to new highs.

Some of the market rally was due to weak economic data. Yes, you read that right. The weak data is putting the data dependent Fed on hold and there is a growing consensus that they will not hike rates again in 2017. There is a 97% chance of no hike at the July meeting. There is now a 91.6% chance of no hike at the September meeting. That shrinks slightly to 87.9% for the November meeting. The December meeting has risen to a 51.6% chance for no hike. January is now a 50% chance. Previously, September had a decent chance for a rate hike and December was almost guaranteed. The weak data is causing the Fed plenty of consternation.

The first item of weakness on Friday was the Consumer Price Index for June. The headline number was zero with the core rate rising only +0.1%. On a trailing 12-month rate, the headline inflation is up only 1.6% compared to the 2.8% reading back in February. This sharp decline is why the Fed is starting to get worried. The core rate over the last 12 months is 1.7%, down from 2.3% in January. Analysts and the Fed are blaming the decline in inflation on "transitory" factors. Yellen said this would fade over the next couple of years. Yes, years. So why has the Fed been in such a hurry to hike rates? Because they are afraid this 8-year expansion is eventually going to fade and the Fed will only have a couple of bullets in their rate cut arsenal to deal with it.

Energy has been a major contributor to the decline in inflation. The energy CPI fell -1.6% in June after a -2.7% drop in May. Gasoline declined -2.8% in June after a -6.4% drop in May.

Food prices have been flat. Even healthcare prices have been declining thanks to the tidal wave of generic drugs hitting the market.

Retail sales for June declined -0.2% after a -0.1% drop in May. The May number was revised higher from the previously reported -0.3% number. Retail sales were again driven lower by falling energy prices. Sales at gasoline stations declined -1.3% for the biggest component loss. However, even if you take out energy, sales still declined -0.1%.

Food and beverages fell -0.4%, sporting goods and hobbies -0.6%, food service and bars -0.6% and clothing -0.1%. Building materials rose +0.5%, general merchandisers +0.4% and nonstore retailers +0.4%.

Retailers have no pricing power. Amazon and other online retailers are squeezing brick and mortar retailers and 19 chains are closing large numbers of stores in 2017. They are fighting for their lives and cannot raise prices and hope to maintain market share. Consumers are the big winners in this battle. Wages are growing very slowly so declining prices are a benefit.

Industrial production for June rose 0.4% compared to the +0.1% rise in May. This was the fifth consecutive monthly rise. However, the majority of the gain came from mining and energy production, which increased 1.6% compared to manufacturing production rising +0.2%.

Business inventories rose 0.27% after a -0.20% decline in April. The June gains reversed a five month decline since the +0.85% rise in November. Retail inventories rose 0.51%, wholesale inventories +0.38% and manufacturing inventories declined -0.5%. This report was ignored.

Consumer sentiment for July declined 2 points from 95.1 to 93.1 and the lowest level since the election. October was a multi-year low at 87.2 and that spiked to 98.2 in December. Cleary, there was a huge post election surge but that has been fading and the decline is now accelerating. The new administration needs to start accomplishing some legislative goals or sentiment is going to continue declining at a rapid pace.

The present conditions component rose from 112.5 to 113.2 but the expectations component declined from 83.9 to 80.2.

The key reports for next week are the Housing Market Index on Tuesday, Housing starts on Wednesday and the Philly Fed Manufacturing Survey on Thursday. As we get closer to the end of the week, the Fed meeting on the 26th will begin to weigh on the market. This is a fairly light week for economics and all eyes will be on the earnings calendar.

This is a busy first week of earnings with nine Dow components starting on Tuesday. We also have Netflix on Monday after the close, Qualcomm on Wednesday and Ebay on Thursday. This is the first week of the four-week cycle and activity will increase in the following two weeks. These earnings are the incentive for traders to remain invested as we head toward the two worst months of the year in August and September. Once the first two weeks of the cycle are over the market risk increases because the earnings outcome will be known and the anticipation will begin to fade.

With 6% of the S&P already reported, 80% have beaten earnings estimates and 83% have beaten revenue estimates. The five-year average is 68% and 53% respectively. Current Q2 earnings growth is 6.8% but the early estimates are normally low by more than 3%. Revenue growth is expected to be up 5.5%. One company has warned on future results and five companies have raised guidance. That 17% negative guidance rate is far below the average of 75%.

Earnings estimates for Q3 are currently 7.1% growth with 5.0% revenue growth. For Q4, earnings are estimated to grow 12.2% and 5.0% revenue growth.

The strong earnings growth compared to recent years is powering the market rally. The weak economics are expected to remain weak the rest of the year with an average of 2.0% GDP growth. That and the low inflation should keep the Fed from forcing the economy into a recession with another series of rate hikes. However, Morgan Stanley said on Friday they still expect one more hike in 2017 and four hikes in 2018. They are far outside the current mainstream consensus.

The major banks reported earnings on Friday. Rather than write an update on each I am going to summarize.

JPM $1.82 vs est $1.57, revenue $26.4B vs est $24.8B.
Citi $1.28 vs est $1.21, revenue $17.9B vs est $17.3B.
WFC $1.07 vs est $1.01, revenue $22.2B vs est $22.5B.
PNC $2.10 vs est $2.01, revenue $4.06B vs est $4.0B

JPM provision for credit losses declined 13%. Core loans up 8%, investment banking fees up 14%. Returned $4.5 billion to shareholders. Over the last 4 quarters they have generated over $25 billion in profits.

Citi's net income was $3.9 billion, down -3%. Cost of credit rose 22% to $1.7 billion. Trading revenue declined -7% but less than guidance of -12%. Loan growth rose 2%. Returned $2.2 billion to shareholders.

WFC net income was $5.8 billion, up 5%. Loans declined from $982B to $957.4B. Auto loan originations of $4.5 billion fell -17% from Q1 and -45% from year ago quarter. Deposits flat at $1.3 trillion.

PNC net income $1.1 billion, up 10.9%. Net charge offs $110 million, down -18%. Commercial loans $145.8 billion, up 6%.

All four stocks declined on Friday in a sell the news event even though Wells Fargo was the only one with a minor miss. JPM attracted additional attention after CEO Jamie Dimon went off on politicians and the press saying as he travels around the world it was embarrassing to be an American because of the dysfunction in Washington. He said in spite of all the regulation and roadblocks to business, the economy continued to grow at 2% and the banks were doing really well. If the government would quit doing "stupid sh**" everything would grow a lot faster. Needless to say that caught the attention of quite a few reporters.

The retail sector is no longer hated if you believe all the upgrades on Friday. Telsey Advisory Group upgraded Ross Stores (ROST) to outperform and a $70 price target. Shares spiked $1.65 at the open to reverse a bearish trend but then gave back most of the gains by the close.

Wal-Mart (WMT) shares gained $1.29 after Goldman Sachs put them on their conviction buy list with a price target of $84. The analyst said Wal-Mart was better positioned than any other retailer to cope with the demand of e-commerce and technology spending to compete with Amazon. He said Wal-Mart alone has the scale to compete aggressively. Wal-Mart is starting to offer grocery delivery in addition their in-store pickup options. The $84 price target is only a 12% gain from here. Resistance at $80 could be a challenge until after Amazon completes the Whole Foods acquisition. There is legislative opposition growing on that transaction so it is not a done deal.

The Gap (GPS) gained 2% after JP Morgan put them on their "Americas Focus List" with a price target of $27. Shares closed at $23.28. Since The Gap has seen 11 earnings estimate downgrades over the last two months, a positive comment was unusual. Gap has 13% of its shares sold short so any good news could lead to a short squeeze. The lackluster rebound on Friday suggests very few shorts were concerned. Some may have already been squeezed out after the Target guidance on Thursday caused a big rebound in Gap shares.

Ulta Beauty (ULTA) shares rose slightly after Goldman Sachs went bottom fishing and upgraded the stock from neutral to buy with a price target of $310, which was lower than their prior target at $321. Confused? The analyst was catching heck in various headlines for the conflicting signals. He said same store sales are positive and "sector leading" and the company will not be impacted by Amazon. The company has "convenient locations, a product assortment that mixes mass market and prestige items and service rather than price." "We do not believe that price competition will derail Ulta's core value proposition, or that Amazon yet offers a compelling alternative to the consumer."

Sprint (S) shares spiked on Friday after news broke they had approached Warren Buffett and John Malone's Liberty Media soliciting an investment between $10 and $20 billion in the wireless carrier. Masayoshi Son, the CEO of Softbank, which controls Sprint, met with Buffett and Malone separately at a conference in Sun Valley. Sprint CEO Marcelo Claure was also at the meetings. Berkshire Hathaway is reportedly considering an investment of $20 billion while the amount under consideration by Liberty Media is unknown. Sprint has been in play for some time and most assume they will eventually merge with T-Mobile despite regulatory issues. This is a new twist and it will be interesting to see if either of those big fish actually take the bait. Sprint only has a $34 billion market cap so that would be an enormous investment.

Casino stocks including WYNN, MGM and LVS plunged on Friday after a top prosecutor in Macau was found guilty of corruption. The man was sentenced to 21 years for illegally awarding nearly 2,000 public contracts that benefitted his family. The casinos in Macau are being audited over issues in the junket industry and potential money laundering issues. The junket industry is responsible for 53% of revenue for the casinos. Where ever there are large sums of cash changing hands in China there are concerns on money laundering as consumers try to move their assets out of China. With all the new casinos there are worries there will be blowback on the casino operators from the illegal construction and services contracts. WYNN shares were the hardest hit with a $4.50 drop.

F5 Networks (FFIV) was downgraded by Piper Jaffray from buy to neutral with a price target reduction from $144 to $136. The analyst said the product refresh cycle is not going as expected, meaning product growth "could remain challenged." The analyst said survey data showed a decline in quarter-over-quarter demand. He also said the guidance warning by A10 Networks (ATEN) was also a negative sign. F5 shares lost $4.50.

The two bouts of ransomware over the last month did not help CyberArk Software (CYBR). The company warned that revenue would be in the range of $57-$57.5 million compared to prior guidance of $61-$62 million. They slashed their adjusted income to a range of $8.5-$8.9 million, down from $10.9-$11.7 million. They said several anticipated transactions did not close before the end of the quarter and performance in Africa and the Middle East was lacking. Shares were crushed for a 16% loss.

Crude prices rebounded sharply from the drop the prior week and the gains lifted the energy sector and the market in general. There is a relationship between oil and equities and sometimes you can almost follow it from minute to minute across the markets.

Inventories declined sharply on Wednesday and OPEC said it was considering production limits on Libya and Nigeria. I personally think the biggest factor in the rebound was simply the extremely bearish sentiment. With Goldman predicting oil under $40, the longs had evaporated. The short trade was crowded and the inventory decline triggered the beginning of a short squeeze.

On Friday the Baker Hughes rig report showed no gain for the week. Actually, there was a gain of two oil rigs but a loss of two gas rigs so the combined number was zero. That encouraged investors that maybe the surge in active rigs was over since this was the second week in the last three that active rigs did not rise. I think it is wishful thinking.


The Dow, S&P, Russell 1,000, 2000, 3000 and Dow Transports all closed at new highs. The Nasdaq is only slightly below a new high. The four weeks of sideways volatility have resolved into a new push higher. We should all be celebrating and sending Janet Yellen thank you cards.

The Dow may be at a new high but every Dow stock has not participated. Since trends tend to reverse, I thought I would show you the seven Dow stocks that have lost ground over the first six months of 2017. If they are going to reverse over the last six months of the year, they need to get started. Intel and Goldman are the only two stocks that appear to be trying to rebound from their lows. The other five are still stuck at the bottom.

When fund managers restructure their portfolios as they tend to do in the summer, they try to find overlooked "values" that are oversold. I would not be a buyer but others might. If funds begin to nibble at these stocks, it would go a long way towards sending the Dow higher. Right now, they are all anchors that are holding back any rally attempt.

The Dow gained 84 points on Friday but it was not due to a significant outperformance by any one stock. Boeing was the leader with a $2 gain but it was the broad based rally that helped the most.

The index surged in the afternoon on what appeared to be a buy program at 12:30 that triggered some pre-weekend short covering. The uptrend resistance was broken intraday but the last minute selling kept the Dow from an outstanding breakout over that level. Support is now well back at 21,525 and the Dow could be poised to make a new run higher.

The S&P rallied most of the day but surged on the 12:30 buying burst. The intraday high at 2,463 almost reached the uptrend resistance at 2,465 but fell just short. The S&P has added 30 points in three consecutive days of gains. It has added 50 points since the prior Thursday close at 2,409. Adding 50 points in a week is a cause for celebration but also a caution signal. We should see some profit taking soon. It is possible the earnings expectations could keep the rally going so hopefully the earnings reports will be good.

The big cap tech stocks are back in the groove with Nvidia leading the pack with a $25 gain over the last 8 trading days. Netflix will be the first big tech to report earnings on Monday but they will come in rapid-fire succession over the next two weeks.

The Nasdaq has rebounded from the July 6th low of 6,081 to add +231 points over the last 8 days. The Friday close was just barely over resistance at 6,308 but headed in the right direction. The prior high close was 6,321.76. With the big cap techs ramping up into earnings, we "should" breakout to a new high next week. There are no guarantees.

The decline in the bank stocks was a drag on the Russell 2000 since 17% of its components are financial. However, it did close at a new high by 2 points. If the banks can shake off their sell the news event, the Russell could move higher and that would be a strong sentiment boost for the broader market.

Next week should be positive but it seems like every time we end the week with a good setup for the next week, the market reverses on some new headline. Earnings are rising, warnings are very few, economics are weak but steady, the Fed is likely on hold and the coming earnings cycle should be positive. What could go wrong?

Next Friday more than $550 billion in S&P-500 options are going to expire. JP Morgan said there were sizeable call positions in the 2450-2480 strikes that could lead to dealer hedging to dampen market volatility should the S&P trade in this range. Similarly, there are large put positions in the 2370-2400 strikes that could boost volatility if there was a sell off. In English, if the market moves up slightly it should remain calm. If it declines to 2,400 it could be very chaotic. The maximum pain point is 2,430 where the most options expire worthless. Typically, the market gravitates toward that level.

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Random Thoughts

Despite the new market highs, we continue to see very little movement in the sentiment survey over the last week. Just over 71% of investors still do not believe the market is going higher. Investors seem to be confident in their view of market direction and they are not changing from week to week.

A huge sunspot 75,000 miles wide (AR2665) that was nine times larger than the earth, caused a coronal mass ejection (CME) on July 14th that is expected to hit the earth on July 16th. Source. Eventually one of these will be big enough and pointed in the right direction to knock down our power grid for months or worse. In the Carrington Event in 1859 the CME melted the copper telegraph lines off the poles, burned telegraph buildings and produced daylight conditions overnight in the U.S. where people got up early and went to work thinking it was morning. If that happened today, it would be the equivalent of a nuclear EMP and destroy anything electric. There was a similar sized event on July 23rd, 2012 that narrowly missed the earth and 99.99999% of the population never even knew how close we came to a mega disaster because NASA did not make the information public until April 2014. Lloyds of London researchers estimated the cost of a Carrington Event today at up to $2.6 trillion in the U.S. alone. AR2665 was an M class flare and should only cause brief problems with communications. In May 2013, there was an X class flare that was 280 times larger but fortunately, it was pointed away from the earth.

Elon Musk has said some dystopian things in the past and he continues to make unexpected comments in his speeches. On Saturday, he said the shift to sustainable energy was inevitable "but it does matter whether it happens sooner or later." Musk said, "The sun is a giant fusion reactor in the sky. It is really reliable. It comes up every day. If it doesn't we have other problems."

Then he tanked his stock again. Since the speech was on Saturday it has not fallen yet but Monday could be a bad day. He has a habit of calling Tesla stock overpriced much to the chagrin of his shareholders. He said, the stock price "is higher than we have any right to deserve especially based on current and past performance." "The stock price obviously reflects a lot of optimism on where we will be in the future. Those expectations sometimes get out of control. I hate disappointing people. I am trying really hard to meet those expectations."

He also said he would not be selling any stock except to pay taxes. "I am going down with the ship. I will be the last to sell."

He then attacked regulations. "It is important to get the rules right. Regulations are immortal. They never die unless somebody actually goes and kills them. A lot of times regulations can be put in place for all the right reasons but nobody goes back and kills them when they no longer make sense."

He said 20 years from now actually driving a car would be like having a horse. There will be people that will have non-autonomous cars, like people have horses today. It would just be unusual to use that as a mode of transport.

Where he went off the rails was in a plea for the government to regulate artificial intelligence (AI) before things advance too far. "Until we see robots going down the street killing people, they do not know how to react because it seems so ethereal. AI is a rare case where I think we need to be proactive in regulation instead of reactive, because I think by the time we are reactive to AI regulation, it is too late. Normally the way regulations are set up is when a bunch of bad things happen there is a public outcry and after many years a regulatory agency is set up to regulate that industry. It takes forever. That is bad but in the past it was not a fundamental risk to civilization. AI is a fundamental risk to the existence of human civilization."

John Mauldin is as concerned about our future as Elon Musk. Only he sees a different danger in the very near future. He believes there will be another financial crisis in 2018 and he is warning to prepare now. Prepare for Turbulence

Here is an excerpt from that article.

"Get out of Dodge" was a phrase made popular by Marshall Matt Dillon on the TV show Gunsmoke in the 1960s. The phrase slipped into the youth culture and endures as a shorthand way of saying that you'd better leave town before the stuff hits the fan.

"I believe the Fed is aware that they should have been raising rates earlier. They also understand the present risks. While I believe it is appropriate to raise rates slowly, I simply cannot understand why they would want to reduce their balance sheet at this late date, at the same time that they jack up rates. They could have been letting the balance sheet roll off for four years, but to do so now in conjunction with raising rates simply increases the risk of a policy error. But I don't think they will see that as their problem.

Chair Yellen and I both believe the majority of the current governors will be gone by the second quarter of next year. It would not surprise me at all if Vice-Chair Fischer offers to resign before his term is up in June 2018. This Fed is going to raise rates a few more times, start reducing the balance sheet, and then get the hell out of Dodge.

Federal Reserve governors basically have a 14-year term, which reduces the ability of any one president to appoint a majority of the FOMC within a four-year term. Of course, resignations affect the balance.

Trump is going to have the unusual opportunity to appoint at least six, and more likely seven, governors by the middle of next year, if not sooner. Whether he wants it to be or not, this will be the Trump Fed. Without major reforms in place, the Trump Fed will face a recession, serious global economic issues, and a resulting major equity bear market. Think they will continue to raise rates? How long before they start to talk about supplying a little more QE to appease the markets?

The current FOMC simply hopes that everything holds together until they can slip out the back way from Dodge. Who do you think will get the blame for the next crisis? It should be this FOMC, but that's not the way the real world works.

The Trump Fed will be politicized and stigmatized by its Democratic opponents no matter what they do. Howls for outside controls and oversight will rise in the night."

"Would I say there will never, ever be another financial crisis? You know probably that would be going too far, but I do think we are much safer, and I hope that it will not be in our lifetimes and I don't believe it will be. Janet Yellen

"I disagree with almost every word in those two sentences, but my belief is less important than Chair Yellen's. If she really believes this, then she is oblivious to major instabilities that still riddle the financial system. That's not good. "

Read the rest of the article for the full explanation of the problem. Prepare for Turbulence

The Citigroup Economic Surprise Index closed at a two-year low on Friday and not that far above a six-year low. With earnings expected to end the cycle around 10% growth, Citi warned "we may be approaching a cyclical peak." The biggest concern is that "hard" economic data has been anything but good.


Enter passively and exit aggressively!

Jim Brown

Send Jim an email


"There are men running governments that should not be allowed to play with matches."

Will Rogers


New Plays

Recovery in Progress

by Jim Brown

Click here to email Jim Brown
Editor's Note

Patents validated and new drug approvals are providing lift for Horizon Pharma. Shares are coming way back from the May disaster.


HZNP - Horizon Pharma - Company Profile

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.

Expected earnings August 7th.

Horizon posted and earnings disappointment in May that saw the stock collapse from $15.50 to $9.50. They reported earnings of 21 cents that missed estimates for 25 cents. Revenue was $220.9 million and missed estimates for $248 million. They guided for the full year for revenue of $1.0 to $1.03 billion. The problem was a shift in the contracting model with pharmacy benefit managers that was not performed in accordance with expectations.

That contracting problem has been solved. They also announced that three patents cases against Dr Reddy's, Lupin Ltd and Mylan Labs were upheld by a US District Court, which will prevent generics for VIMOVO until 2022 at the earliest.

Horizon is small company with numerous drugs in the pipeline and in trials. Shares are recovering from the May disaster and there is still $2.50 to gain to fill the gap from the post earnings crash.

Buy HZNP shares, currently $13.02, initial stop loss $12.15.
Alternate position: Buy Aug $14 call, currently $.45, initial stop loss $12.15.

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

Russell Scores a New High

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Russell 2000 finally managed to push through resistance to close at a new high. The new high was only 2 points above the prior high but it still counts. The Dow and S&P also closed at new highs and were much stronger. The Nasdaq is still just below its record but could easily breakout with even a slightly positive market on Monday.

The rally was broad based and quite a few bearish stocks saw sudden gains. We were stopped on two if them as shorts covered ahead of the weekend in a bullish market. Nobody wants to see the market open up a couple hundred points on Monday when they went into the weekend short.

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

CARA - Cara Therapeutics
The short position was stopped at $14.65.

FTR - Frontier Communications
The short position was stopped at $14.65.

KTOS - Kratos Defense
The short position was stopped at $12.50.

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

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3-6 month Option Trades = Ultimate Investor

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BULLISH Play Updates

ACOR - Acordia Therapeutics - Company Profile


No specific news. Minor decline. It appears some resistance has formed at $20.85.

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


That was painful! No news but shares dropped 7.5% to $11.90. Volume was four times normal. I just added the stop loss on Thursday and we exited at the open for a minor gain.

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.

Update 6/27/17: KTOS received $16 million in radar and system contract awards from a national security systems provider. Due to the classified nature of the program, on additional information was given.

Update 6/28/17: KTOS announced the award of a $37 million initial production contract for subsonic target drones from the U.S. Navy. This is the initial annual order in a long term acquisition program so this represents a major win for KTOS. The company said the anticipated annual order for 2018 was expected to be 25% larger. The aircraft can carry electronic counter measures, active and passive radar augmentation, infrared, identification friend of foe, internal chaff and flare dispensing, threat emitter simulators, smoke and scoring devices. In addition, separate contracts for Peculiar Support Equipment, Initial Systems Spares, External Payload Systems and Flight Consumables will follow shortly.

Update 7/11/17: Kratos was awarded a contract from the U.S. Government to help define the next generation ground architecture for wideband communications for the Dept of Defense. The project is to come up with solutions to maintain satellite contact in a wartime environment. No dollar amount was given.

Update 7/13/17: Kratos annlunced the acceptance of an advanced space radio monitoring system by the Sultanate of Oman. The project began in 2014 and includes 10 years of long-term support services.

Position 5/30/17:

Closed 7/14: Long August $12.50 call @ 59 cents, exit 90 cents, +.31 gain. .

BEARISH Play Updates

CARA - Cara Therapeutics - Company Profile


No specific news but a monster 10% rebound to stop us out at $14.65.

Original Trade Description: July 8th.

Cara Therapeutics, Inc., a clinical-stage biopharmaceutical company, focuses on developing and commercializing chemical entities designed to alleviate pain and pruritus by selectively targeting kappa opioid receptors in the United States. It is developing product candidates that target the body's peripheral nervous system. The company's lead product candidate comprises I.V. CR845, which is in Phase III clinical trials for the treatment of patients with acute postoperative pain in adult patients, as well as in Phase II/III clinical trial for the treatment of uremic pruritus disease. It is also developing Oral CR845 that is in Phase IIb clinical trial to treat moderate-to-severe acute and chronic pain, as well as in Phase I clinical trial to treat uremic pruritus; and CR701, which is in preclinical trial for the treatment of neuropathic and inflammatory pain. The company has license agreements with Maruishi Pharmaceutical Co., Ltd to develop, manufacture, and commercialize drug products containing CR845 for acute pain and uremic pruritus in Japan; and Chong Kun Dang Pharmaceutical Corporation to develop, manufacture, and commercialize drug products containing CR845 in South Korea. Company description from FinViz.com.

Cara had two drugs in the pipeline. CR701 is a cannabis derivative for pain management that is not an opiod. It would seem to be a promising drug but the company is not pushing it towards acceptance.

Their hot new drug CR845 is a kappa-opioid receptor that is being studied for severe itching caused by chronic kidney disease and for various types of pain.

Last week they reported results for a phase 2b study on CR845 that were not statistically significant. The three levels of medication included 1.0 mg, 2.5 mg and 5.0 mg. The 1.0 and 2.5 failed to show any results. The 5.0 mg showed only a minute improvement in pain that could have been related to the placebo effect or simply random chance. The trial was a failure.

CARA had run up significantly on the hopes for the drug. Shares imploded over five days to give back half their value. I would not normally recommend a position with such a large decline but the six day rally before the results was roughly $9 so an $11 drop just erased that last bit of irrational exuberance. With CR845 in limbo until new trials and new uses can be developed and CR701 apparently on hold for some unknown reason, the company suddenly has no appeal for investors. If light support at $13.40 fails we could see $8.50 very quickly. Investors are suddenly fleeing this sinking ship.

Update 7/12/17: Cara spiked at the open on positive results on an early-stage trial of a treatment for chronic kidney disease-associated pruritus or CKD-aP. The company is expecting to begin a later stage test before the end of the year.

Expected earnings August 3rd.

Position 7/10/17:

Closed 7/14: Short CARA shares @ $13.50, exit $14.65, -1.15 loss.
Alternate position:
Closed 7/14: Long Aug $12.50 put @ 1.05, exit .70, -.35 loss.

FRGI - Fiesta Restaurant Group - Company Profile


No specific news. Shares closed flat at the 4-year low.

Original Trade Description: July 12th.

Fiesta Restaurant Group, Inc., through its subsidiaries, owns, operates, and franchises fast-casual restaurants. It operates its fast-casual restaurants under the Pollo Tropical and Taco Cabana brand names. The company's Pollo Tropical restaurants offer various Caribbean inspired food, and Taco Cabana restaurants offer a selection of Mexican food. As of January 1, 2017, it had 177 company-owned Pollo Tropical restaurants, 166 company-owned Taco Cabana restaurants, and 29 franchised Pollo Tropical restaurants in the United States, Puerto Rico, Panama, Trinidad & Tobago, Guatemala, the Bahamas, Venezuela, and Guyana, as well as 5 franchised Taco Cabana restaurants located in New Mexico, 2 non-traditional Taco Cabana licensed locations on college campuses in Texas, and 1 location in a hospital in Florida. Company description from FinViz.com.

Expected earnings August 7th.

On May 8th, Fiesta reported earnings of 25 cents compared to estimates for 30 cents. Revenue of $175.6 million missed estimates for $178.2 million. Same store sales declined -6.7% at Pollo Tropical and transactions declined -8.9%. Sales at Taco Cabana decreased 4.5% and sales transactions fell -4.0%. The company closed 30 stores that were losing money.

The company is under attack by JCP Investment Management, which has a 3% stake. JCP had lobied for changes to be voted at the June shareholder meeting. The company and JCP have been trading hostile press releases. The shareholder meeting went in favor of Fiesta but JCP is not giving up. Shares began to decline further when JCP did not gain control of the board.

Shares closed at a 4-year low on Wednesday at $18.80 and the IPO price in 2012 was $11. Shares had traded as high as $69. With the chain closing stores at a rapid pace, their long term future is in doubt.

Position 7/13/17:

Short FRGI shares @ $18.75, see portfolio graphic for stop loss.
Alternate position: Long September $17.50 put @ $1.05, see portfolio graphic for stop loss.

FTR - Frontier Communications - Company Profile


No specific news. Shares rebounded 5% so stop us out for a fractional gain. I am going to reload this position when FTR trades at $12.90. That would be a post split low.

Original Trade Description: July 10th.

Frontier Communications Corporation provides communications services to residential, business, and wholesale customers in the United States. It offers broadband, video, voice, and other services and products through a combination of fiber and copper based networks to residential customers. The company also provides broadband, Ethernet, traditional circuit-based, data and optical transport, and voice services, as well as Multiprotocol Label Switching and Time Division Multiplexing services to small business, medium business, and larger enterprises, as well as sells customer premise equipment. In addition, it offers 24/7 technical support; wireless broadband services in selected markets; and frontier secure suite of products, including computer security, cloud backup and sharing, identity protection, and equipment insurance. Further, the company provides satellite TV video services; voice services, including data-based VoIP, and long distance and voice messaging services; and a package of communications services. Additionally, it offers a range of access services that allow other carriers to use facilities to originate and terminate their local and long distance voice traffic. As of December 31, 2016, it served approximately 5.4 million customers and 4.3 million broadband subscribers in 29 states. The company was formerly known as Citizens Communications Company and changed its name to Frontier Communications Corporation in July 2008. Frontier Communications Corporation was founded in 1927. Company description from FinViz.com.

Earnings August 1st.

When a company's stock enters the terminal decline mode and reaches penny stock status, many will do a reverse split to avoid being delisted. The hope is that lifting the stock from $1 to $15 will entice funds to come back to your shares. Many funds are prohibited from holding stocks under $5 so they would have left the stock when that $5 level was broken. The problem with this strategy is that the stock is normally in a terminal decline and just bumping up the stock price does nothing to change the fundamentals.

Also, when a declining stock suddenly jumps back to $15 as is the case with Frontier, that encourages the shorting community to double down at the higher prices. Shorts that rode it down the first time, see the news and jump back in for another ride. FTR shares closed at $1.06 on Friday.

You cannot use options this soon after a reverse split. The premiums are crazy. After several days they will mellow and I will look at adding them to the recommendation.

Position 7/11/17:

Closed 7/14: Short FTR shares @ $14.68, exit $14.65, +.03 gain.

VXX - Volatility Index Futures - ETF Description


New closing low with a decent decline.

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.

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


Raymond James upgraded from outperform to strong buy. Encana announced a change in the earnings to July 21st. Since we are so negative on this position, I am recommending we hold over the report.

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.

NGVC - Natural Grocers Vitamin Cottage - Company Profile


No specific news. Shares are slowly eroding support at $8 and could break lower at any time.

Original Trade Description: June 24th.

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.

Update 6/29/17: NGVC won the "Good Egg Award" at the Good Farm Animal Awards Ceremony in London. Shares spiked to $8.60 at the open to stop us out of the stock position at $8.45. The option position remains open.

Position 6/26/17:

Long August $7.50 put @ 28 cents, see portfolio graphic for stop loss.

Previously closed 6/29/17: Short NGVC shares @ $8.06, exit $8.45, -39 cent loss.

SYNT - Syntel Inc - Company Profile


No specific news. Shares rebounded again but resistance at $17 should hold.

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:

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

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

YRCW - YRC Worldwide - Company Profile


Moody's changed YRCW credit rating outlook to positive. Shares broke over resistance and closed at a 4-month high. I added a stop loss.

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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