After failing at 1,452 resistance three times, the Russell 2000 has returned to support at 1,425. The optimistic rally over the prior two weeks has returned to the breakout point and now faces a significant decision. Are traders going to buy small caps ahead of the typically volatile Aug/Sep period or has the summer decline already started?
The Dow managed to close at a new high thanks to UnitedHealth, Goldman Sachs and Chevron. The Nasdaq closed well off its lows but still lost 7 points. The S&P eroded further with a minor 3-point loss.
Stop Loss Updates
Check the graphic below for any new stop losses in bright yellow.
We need to always be prepared for an unexpected decline.
Check the graphic below for any profit stops in green.
We need to always be prepared for a profit exit at resistance.
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BULLISH Play Updates
ARNC - Arconic Inc - Company Profile
No specific news. Shares declined slightly with the weakness in the Nasdaq.
Original Trade Description: June 24th.
Arconic creates breakthrough products that shape industries. Working in close partnership with our customers, we solve complex engineering challenges to transform the way we fly, drive, build and power. Through the ingenuity of our people and cutting-edge advanced manufacturing techniques, we deliver these products at a quality and efficiency that ensure customer success and shareholder value. Arconic Inc develops and manufactures engineered products and solutions for the aerospace, industrial gas turbine, commercial transportation and oil and gas markets. (description from company release)
For Q2, Arconic reported earnings of 32 cents that beat estimates for 27 cents. Revenue of $3.261 billion beat estimates for $3.233 billion. Since the breakup of Alcoa, Arconic has been focused on reducing costs, reducing debt and expanding their product line. They guided for the full year for revenues of $12.3-$12.7 billion, up from prior guidance at $11.8-$12.4 billion. Earnings guidance was raised to $1.15-$1.20, up from $1.10-$1.20. They ended the quarter with $1.8 billion in cash. They declared a 6-cent quarterly dividend payable August 25th to holders on August 4th.
Expected earnings Oct 24th.
After the breakup of Alcoa, Arconic saw their share price double because this was the high tech portion of the business. They make complex aluminum components for airplanes, aerospace, autos and just about everything that needs a high performance, lightweight component. After the big ramp higher they traded sideways for three months along with the market, Shares declined sharply after the high rise fire in England because one of their components was used in the cladding that had recently been added to the building. Investors did not know if Arconic had any liability risk. The answer is probably not.
The contractor on the building combined multiple components in an unsafe manner to cover the outside of the building. It was not an Arconic component that failed and their products conformed to all the building codes. Once that was established shares began to rise again in late June.
Shares closed at $25 on Monday and resistance is $28. They reported earnings before the bell and after a pre-market spike they traded flat for the day with an uptick at the close. I am going to put an entry trigger on this position just in case there is a delayed reaction to the earnings.
Position 7/25/17 with an ARNC trade at $25.35
Long ARNC shares @ $25.35, see portfolio graphic for stop loss.
Alternate position: Long Oct $27 call @ $.95, see portfolio graphic for stop loss.
INFY - Infosys - Company Profile
No specific news. Minor rebound.
Original Trade Description: June 26th.
Infosys Limited, together with its subsidiaries, provides consulting, technology, and outsourcing services in North America, Europe, India, and internationally. It provides business information technology services, including application development and maintenance, independent validation, infrastructure management, and business process management services, as well as engineering services, such as engineering and life cycle solutions; and consulting and systems integration services comprising consulting, enterprise solutions, systems integration, and advanced technologies. The company's products include Finacle, a banking solution that provides analytics, core banking, consumer e-banking, corporate e-banking, Islamic banking, mobile banking, origination, payments, SME enable, treasury, wealth management, and youth banking solutions. Its products also comprise Infosys Mana, a knowledge-based AI platform; Infosys Information Platform, an analytics platform that enables to get insights from various data sources for decisions across industries; AssistEdge, CreditFinanceEdge, ProcureEdge, and TradeEdge that are cloud-hosted business platforms; Panaya that enables various SAP and Oracle EBS changes; and Skava, which are digital experience solutions, as well as analytics, cloud, and digital transformation services. The company serves clients in the financial services, manufacturing, retail, consumer packaged goods and logistics, energy and utilities, communication and services, hi-tech, life sciences, healthcare and insurance, and other industries. Company description from FinViz.com.
Infosys reported earnings of 24 cents that rose 5.8% and beat estimates by a penny. Revenues of $2.651 billion beat estimates for $2.629 billion. Revenues rose 6.3% on a constant currency basis. The company announced numerous wins of high profile contracts.
The company is dilligently following its "Renew Now" program with three offerings. Those are Artificial Intelligence, Knowledge-based IT and Design Thinking. During the reported quarter, Infosys continued to renew traditional services and rolled out others in areas such as Cloud Ecosystem, Big Data and Analytics, API and Micro Services, Cyber Security, and IoT Engineering Services. Also, during the quarter, Infosys launched Boundaryless Data Lake, an offering powered by the Information Grid Solution on Amazon Web Services (AWS).
The company raised 2018 guidance with revenue growth in the range of 7.1% to 9.1%, up from 6.1%-8.1%.
Earnings October 13th.
Shares rebounded over the last week to close at a new 9-month high on Wednesday.
Long INFY shares @ $15.66, see portfolio graphic for stop loss.
Alternate position: Long Oct $17 call @ 25 cents. See portfolio graphic for stop loss.
BEARISH Play Updates
AOBC - American Outdoor Brands - Company Profile
No specific news. Shares closed at a new three month low by a few cents.
Original Trade Description: July 22nd.
American Outdoor Brands Corporation, formerly Smith & Wesson Holding Corporation, is a manufacturer of firearms and a provider of accessory products for the shooting, hunting and outdoor enthusiast. The Company operates through two segments. The Firearms segment manufactures handgun and long gun products sold under the Smith & Wesson, M&P and Thompson/Center Arms brands, as well as providing forging, machining and precision plastic injection molding services. The Outdoor Products & Accessories segment provides shooting, hunting and outdoor accessories, including reloading, gunsmithing, gun cleaning supplies, tree saws, vault accessories, knives, laser sighting systems and tactical lighting products. Brands in Outdoor Products & Accessories include Crimson Trace, Caldwell Shooting Supplies, Wheeler Engineering, Lockdown Vault Accessories, BOG POD and Golden Rod Moisture Control, as well as knives and specialty tools under Schrade, Old Timer, Uncle Henry and Imperial. Company description from FinViz.com.
Smith and Wesson saw the future when they changed names to American Outdoor Brands. President Obama was the best firearms salesman ever. He never missed an opportunity to talk down firearms and talk up gun control. Consumers, worried there would be a change in policy, rushed out to buy guns every time there was a new verbal assault on the second amendment. Gun sales hit record levels year after year.
When President Trump was elected as a pro-gun president, the urgency to buy more guns, faded. 2017 is still going to be another record year but only by a thin margin.
Smith & Wesson realized while President Obama was in power they needed to rebrand themselves to avoid the curse of being a prominent gun company in case the laws changed. They changed names to American Outdoor Brands and began a concentrated campaign to acquire a bunch of outdoor brands for products that had nothing to do with the shooting sports but they acquired some of those as well. Scopes, knives, safes, reloading, camping supplies, etc. Unfortunately, their main product line still depended on a continuing rise in firearms sales.
They reported earnings in late June of 57 cents that easily beat estimates for 37 cents. Revenue of $229.2 million beat estimates for $211 million. However, they guided for the current quarter for earnings of 7-12 cents and revenue in the $140-$150 million range. For the full year, they guided for $1.42 to $1.62 and revenue of $750-$790 million. Analysts were expecting $1.61 and $827.8 million. They said gun sales had slowed because of the new president. Secondly, they said they were going to use their unused portion of their $500 million line of credit to acquire additional growth opportunities. That means they were going to leverage up to their max debt to acquire new brands.
The CEO said, "Although good for the long-term viability of the industry, we believe that the election results coupled with a Republican Congress and choice of Supreme Court justice(s) could be a net-negative for [American Brands] as it eliminates any realistic fear of gun regulation, which has been a major driver of gun sales over the past eight years."
Shares declined sharply to $21. Over the last three weeks they have tried to rebound from that level but there is no excitement left. There have been a series of lower highs and Friday's close was below support and a three-month low.
Expected earnings September 24th.
I believe AOBC is going to retest the March lows at $18 if not lower. There are no positive catalysts on the horizon.
Short AOBC shares @ $20.78, see portfolio graphic for stop loss.
Long Sept $20 put @ $1.00, see portfolio graphic for stop loss.
VXX - Volatility Index Futures - ETF Description
Only a minor rebound and closed well off the highs. Next week could see volatility spike. We will ride it out.
The VIX historical low close was 9.31 on Dec 22nd, 1993. We are at those levels now.
Fundstrat said "go long volatility" because there is a 50% chance of a 10% correction in the S&P over the next three months.
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.
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.
BOX - Box Inc - Company Profile
No specific news. Shares continued their Nasdaq decline from Thursday.
Original Trade Description: July 17th.
Box, Inc. provides cloud content management platform that enables organizations of various sizes to manage their enterprise content from anywhere. The company's platform enables users to collaborate on content internally and with external parties, automate content-driven business processes, develop custom applications, and implement data protection, security, and compliance features. Box, Inc. offers its solution in 22 languages. It serves healthcare and life sciences, financial services, legal services, media and entertainment, retail, education, energy, and government industries primarily in the United States. The company was formerly known as Box.net, Inc. and changed its name to Box, Inc. in November 2011. Company description from FinViz.com.
Expected earnings August 30th.
Box is making a lot os smart moves lately. The recently partnered with Microsoft to jointly offer Box cloud management to Azure enterprise customers. Box will use Azure as a strategic public cloud platform and the companies have committed to share go-to-market investments, including initiatives to co-sell Box with Azure. Any time you can get Microsoft to partner with you, share the expenses and market your product, it was a good move.
Last week Box appointed Stephanie Carullo as the new COO. Carullo led U.S. sales for Apple's education business. Before that whe led the data center and virtualization architecture group at Cisco Systems. That is a good pedigree.
Shares have ticked up since both of those events last week and could be headed for a breakout over $19.50.
Long Sept $20 call @ 90 cents, see portfolio graphic for stop loss.
Previously closed 7/27: Long BOX shares @ $19.21, exit $19.25, +0.04 gain.
ECA - Encana Corporation - Company Profile
No specific news. Shares are holding their prior gains thanks to higher oil prices.
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.
Update 7/21/17: Encana reported earnings of 18 cents that easily beat analyst estimates for 4 cents. Revenue of $1.08 billion also beat estimates for $773.2 billion. The outlook and long-term projections were also strong. Shares closed positive but were hampered by a -1.32 drop in oil that tanked the sector.
Long October $11 call @ $1.40, no stop loss.
Previously closed 4/19/17: Long ECA shares @ $10.43, exit $11.15, +.72 gain.
FRGI - Fiesta Restaurant Group - Company Profile
No specific news. Shares collapsed for the week to close at a 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.
Long September $17.50 put @ $1.05, see portfolio graphic for stop loss.
Previously closed 7/21/17: Short FRGI shares @ $18.75, exit $18.85, -.20 loss.
HZNP - Horizon Pharma - Company Profile
No specific news. There was a stunning reversal today. Shares rallied 50 cents at the open then reversed to lose 50 cents for the day.
Original Trade Description: July 15th.
Horizon Pharma Public Limited Company, a biopharmaceutical company, engages in identifying, developing, acquiring, and commercializing medicines for the treatment of orphan diseases, arthritis, pain, and inflammation and inflammatory diseases in the United States and internationally. The company's marketed medicine portfolio consists of ACTIMMUNE for the treatment of chronic granulomatous disease and malignant osteopetrosis; RAVICTI and BUPHENYL/AMMONAPS to treat urea cycle disorders; PROCYSBI for the treatment of nephropathic cystinosis; QUINSAIR for the treatment of chronic pulmonary infections due to pseudomonas aeruginosa in cystic fibrosis patients; and KRYSTEXXA to treat chronic refractory gout. Its products also include RAYOS/LODOTRA for the treatment of rheumatoid arthritis, polymyalgia rheumatic, systemic lupus erythematosus, and multiple other indications; DUEXIS to treat signs and symptoms of osteoarthritis and rheumatoid arthritis; MIGERGOT for the treatment of vascular headache; PENNSAID 2% to treat pain of osteoarthritis of the knees; and VIMOVO for the treatment of signs and symptoms of osteoarthritis, rheumatoid arthritis, and ankylosing spondylitis. The company has collaboration agreements with Fox Chase Cancer Center to study ACTIMMUNE in combination with PD-1/PD-L1 inhibitors for use in the treatment of various forms of cancer; and Alliance for Lupus Research (ALR) to study the effect of RAYOS on the fatigue experienced by systemic lupus erythematosus (SLE) patients. Company description from FinViz.com.
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.
Long Aug $14 call @ $.50, see portfolio graphic for stop loss.
NGVC - Natural Grocers Vitamin Cottage - Company Profile
No specific news. Shares rebounded sharply the last two days. This may be a case of people exiting plays in the market weakness and looking for stocks already beaten up in hopes of a rebound from a position of relative safety.
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.
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.
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