Option Investor

Daily Newsletter, Saturday, 10/14/2017

Table of Contents

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

Market Wrap

Lethargic Week

by Jim Brown

Click here to email Jim Brown

The major indexes posted gains for the week but they were minimal.

Weekly Statistics

Friday Statistics

The S&P only gained 1.5 points since the 2,552 close six days ago on October 5th. The Dow set three record highs but gained only 98 points for the week. The Nasdaq managed to close at a record high on Friday but gained only 15 points for the week. The Russell 2000, Biotech Index, Dow Transports and the S&P-600 all lost ground for the week.

The prior week sported a strong gain on the indexes ahead of the big bank earnings. Early this week everyone was nervously awaiting the reports and there was a little sell the news decline on everyone but Bank of America. The banks had rallied for four weeks into the numbers so it was only logical for traders to take profits on disappointing results. This held the markets to minimal gains for the week.

The economic reports were mixed and that added another layer of confusion for investors. Retail sales for September exploded higher by 1.6% and the largest gain since March 2015. Pushing the headline number up was a monster 5.8% rise in sales at gasoline stations as gas prices shot up in the aftermath of Hurricane Harvey. Vehicle sales surged 2.1% as people replaced cars destroyed by the storm. Building supply store sales rose 2.1% as consumers rushed in to buy items to repair their homes.

The only sectors declining were sporting goods -0.2%, electronics and appliances -1.1% and furniture -0.4%.

To show how much the gasoline sales impacted the headline number, if you exclude service stations and cars, sales only rose 0.5%.

Obviously, this sales surge will fade since it is storm related but it will take months for conditions to return to normal.

The spike in sales caused the Atlanta Fed's real time GDPNow forecast for Q3 to rise slightly to 2.7% growth.

The Consumer Price Index (CPI) rose +0.5% for September but this was also impacted by storms. The energy component rose 6.1% with gasoline up 13.1%. The core rate, excluding food and energy, rose only +0.1% and remains below the rate the Fed is hoping to see in order to hike rates again in December. Inflation year over year is 1.7% and it has been flat at that level since May. The tame inflation numbers actually reduced the chance of a December hike to 81.7%.

Consumer Sentiment for October surged to 101.1 from 95.1 and the highest level since January 2004. This was only the second time over 100 since Y2K. The present conditions component rose from 111.7 to 116.4 and the highest reading since the year 2000. The six-month expectations component rose from 84.4 to 91.3 and the highest level since 2004. The percentage of people expecting the economy to improve over the next 12 months rose 8% to 55%. With the stock market at record highs, daily headlines about tax cuts and a strong job market, the average consumer is happy today.

The economic calendar for this week will key on home sales and manufacturing. The Fed Beige Book on Wednesday will summarize the economic conditions in each of the Fed districts. It is normally neutral for the market. The Fed has been going to a lot of trouble to figure out how to use the word "moderate" in describing the activity in the various districts. The market will ignore the report unless something has changed dramatically and we have not seen any indications in the normal weekly reports.

On Wednesday, China launched its 19th National Congress of the Communist Party, which is held every five years. The China event is not noteworthy for the US except that Kim Jong-Un is reportedly preparing to launch a barrage of short and long-range missiles on that day. He does it to remind China they do not control him. On Friday, Kim again threatened to launch missiles against Guam so trouble may be brewing.

President Trump has one carrier battle group on station off South Korea and he has dispatched a second Nimitz class carrier, the Theodore Roosevelt, complete with a 7,500 man Marine detachment, which should arrive there soon. The pressure on North Korea is building. Wednesday could be the trigger point.

Any shooting between North Korea and the US would be very market negative because of the potential ramifications.

The earnings calendar went from about 10 companies last week to about 125 this week. The big dog on Monday will be Netflix (NFLX). There are nine Dow components reporting this week (pink) and they will move the market. Goldman Sachs and IBM on Tuesday could be the early trouble spots.

Netflix is the first big tech stock to report and analysts are tripping over each other to hike their target prices. Over just the last week there were nine hikes to the target and the prior week Wells Fargo beat the pack with an upgrade to $235.

New Price Targets

$206 Jefferies
$215 Cosen
$215 KeyBanc
$225 JPM
$225 Morgan Stanley
$225 Canaccord
$230 Stifel
$230 Bernstein
$235 Wells Fargo
$235 Goldman Sachs

The catalyst for all these target hikes is the recent hike in subscription prices. The bump in rates is expected to earn Netflix roughly $200 million a month in additional revenue with no increase in expenses. One analyst calculated the subscription increase was worth about $15 billion in market cap and NFLX has only gained about $8 billion since the announcement.

Netflix is expected to have added about 800,000 subscribers in Q3 compared to their guidance for 750,000. I would be surprised if the actual number was not over one million new subs.

Netflix traded over $200 intraday but that was a sell trigger for a few traders ahead of Monday's earnings. This will be an interesting report and an even more interesting stock reaction. Shares are up $20 over the last week on the hike in subscription prices. Assuming Netflix just has a good quarter rather than a blowout quarter, I would expect to see a significant decline on the news. Any decline from this point would be a buying opportunity.

The big earnings news on Friday was the continuation of the big bank reporting. Wells Fargo (WFC) posted earnings of $1.04 that narrowly beat estimates for $1.02. Revenue of $21.9 billion missed estimates for $22.4 billion. The bank had to take a charge of $1 billion for a litigation reserve given their many ongoing legal problems. The bank said credit quality was better than ever. Loan originations for auto loans fell 47% to $4.3 billion as they try to reduce their lending to non-prime credit customers. Mortgage loan originations fell -16% to $59 billion because the rising price of homes and rising interest rates were limiting the number of customers that can qualify for loans. Shares fell -2.75% on the news.

Bank of America (BAC) reported earnings of 48 cents that beat estimates for 46 cents. Revenue of $22.83 billion beat estimates for $22.02 billion. Like the other big banks, the low market volatility has hurt their trading desks with a 13% decline in trading revenue. Deposits rose $45 billion or +4% while business loan balances increased $46 billion or +6%. The bank repurchased $7.9 billion in stock and paid $2.8 billion in dividends. Shares rose slightly on the news.

PNC Financial (PNC) reported earnings of $2.16 that beat estimates for $2.13. Revenue of $4.58 billion beat estimates for $4.13 billion. Loans rose $3.1 billion to $221.1 billion. Deposits rose $1.6 billion to $260.7 billion. Credit quality remained stable. They repurchased 4.2 million shares and paid dividends of $400 million. The quarterly dividend rose 20 cents to 75 cents. Shares declined $1.50 on the news.

JB Hunt Transportation (JBHT) reported earnings of 91 cents that missed estimates for 96 cents. Revenue of $1.84 billion narrowly beat estimates for $1.83 billion. The company has missed on earnings in three of the last four quarters. The company blamed "increases in driver wages and recruiting costs, increased rail purchase transportation rates, higher insurance and claims costs, increased legal and consulting costs, higher equipment maintenance costs and acquisition and integration costs." They also said the intermodal segment experienced $1.8 million in additional costs because of Harvey, Irma and Maria. The Dedicated Contract Services division saw a $1 million hit from the storms that resulted in an 18% hit to earnings. Network disruption "limited our ability to handle 5,500 loads" in the intermodal segment. Shares fell $4.34 on the report.

The Q3 earnings cycle is still young but 32 S&P companies have reported with 84.4% beating estimates and 81.3% beating revenue estimates. Revenue and earnings are expected to rise 4.4% for the quarter but over the last four years the October earnings have risen 4% above the initial estimates, which would mean 8.4% growth if that trend continues.

Nvidia (NVDA) closed at another new high after Goldman raised their price target to $217, RBC Capital to $220 and Needham from $200 to $250. That ties the Evercore ISI target at $250. Needham said Nvidia is not a one trick pony. They have "huge opportunities" in data centers, self-driving cars, artificial intelligence, video game consoles, gaming PCs and crypto currency mining. The analyst said the total addressable market for data center processors could be $21-$35 billion over the next five years. "We believe our data center estimates for $1.7 billion in 2018, $2.1 billion in 2019 and $2.8 billion in 2020 could prove conservative when addressing a $30 billion market."

Goldman reiterated a conviction buy rating with the analyst saying he was even more convicted after attending the GTC Europe 2017 conference.

The sheer power and capability of the new Nvidia Drive PX Pegasus system is causing a lot of upgrades. With the power to process 320 trillion operations per second and combine all the cars sensors into one interface, it is years ahead of the competition.

PG&E Corp (PCG) had a bad week after regulators began investigating to see if the California wildfires were caused by power lines downed by strong winds. The company confirmed California fire officials were investigating. PG&E equipment has caused fires in the past when power lines were blown down. PG&E has $800 million in insurance but that would be a mere pittance compared to their liability exposure if their equipment was to blame. With 31 people confirmed dead, 400 reported missing and billions in property damage, the liability could be huge. In 2015, a power line problem caused the Butte fire that destroyed 70,000 acres, burned hundreds of homes and businesses and killed 2 people. In 2013, a power line problem caused a 670-acre fire near Hollister CA.

Facebook (FB) said it had launched an online food ordering and delivery service. The initial companies on the service include Chipotle Mexican Grill, Jack in the Box, Five Guys and Papa John's. The service has also signed on food ordering services including EatStreet, Deliver.com, DoorDash and OLO. The ordering process is under the "Explore" menu on the left side of your Facebook page. Shares of GrubHub declined on the news.

Facebook shares closed at a two-month high but still below resistance at $175. Earnings are not until November 1st. The shares have overcome all the election advertising hoopla so far and earnings are almost a guaranteed beat. Mizuho has the highest price target on the street at $230 but it is only a matter of time before somebody puts a $250 number out for the stock.

Hewlett Packard (HPQ) raised guidance saying earnings are likely to come in at the high end of prior guidance. They guided for earnings of $1.74-$1.84 for FY 2018 and analysts were expecting $1.68-$1.86. The company expects to produce at least $3 billion in free cash flow and return up to 75% of that to shareholders. HP said growth opportunities could accelerate in sectors like 3D printing in plastics and metals. Gartner (IT) said HP is now the leading supplier of PCs again. The outlook for the stock is good since its current PE is only 15. Shares rose 6.5% on the guidance update.

President Trump said he was going to halt payments to insurers that a court found to be unconstitutional several months ago. The payments had been authorized by an executive order from President Obama when he knew he could not get them approved by Congress. The CSR payments amounted to billions of dollars for "cost sharing reduction." This puts the problem back on Congress if they want these subsidies to the insurance companies to continue. Many of the large companies had already planned for the payments to be discontinued after they were found to be unconstitutional.

The insurance companies will still be required to offer the subsidies to low income consumers who sign up for Obamacare but the government is no longer going to refund those subsidies. Nearly 85% of those insured under Obamacare receive a subsidy against their payments. The insurers in the Obamacare system were hit hard on Friday. Those who had already exited the system or never entered were still declining because investors were throwing everyone out rather than take the time to figure out who had exposure.

Dow component, UnitedHealth (UNH) fell sharply on the announcement to $186 but recovered to close flat at $192 because they had already reduced their exposure to the system in anticipation of the payments being cancelled.

Hospitals also declined on worries that more patients would not be able to pay their bills if they were forced out of Obamacare because of higher premiums.

Bitcoin surged again to $5,741 and almost back to the high set on Oct 12th. I am kicking myself again for not using my computer background and building a Bitcoin mining operation in my garage back in January 2015 when Bitcoin was only $200. Back then I thought, "It is only $200. If I only mined a couple a month it would not be worth it." Boy was I wrong. A couple a month over the last 34 months would be 68 today and worth almost $400,000 for a $10,000 investment in the mining computers.

The key with Bitcoin is that supply is limited to 21 million by the algorithm used to produce them. Currently there are 16 million in circulation and only five million left undiscovered. The amount of power needed to mine Bitcoins today is exponentially higher than 3 years ago because computers have to wade through trillions of unprofitable computations before finding the one that results in a coin. Some analysts believe Bitcoin could rise to $25,000 or even $50,000 over the next decade as demand increases but supply is fixed. The value of all Bitcoins in circulation was $92.8 billion as of Friday.

Saudi Arabia may be rethinking the IPO of Saudi Aramco. Originally, they considered floating 5% in the IPO with expectations of raising $100 billion. With oil prices struggling to hold at $50 and no guarantee they will rise before a late 2018 launch date, the kingdom may be having second thoughts. Low oil prices would mean significantly less money from the IPO process. Last week we learned that a Chinese investor may be trying to take a large stake in the enterprise. How large was not disclosed but reportedly very large. Why that would impact an IPO is unknown. There are also rumors that Saudi Arabia is considering selling large stakes to other sovereign wealth funds.

There is also talk about a two stage IPO where it lists on Riyadh's Tadawful exchange in 2019 and then expands to an international listing in 2020. Another factor could be the outlook on prices. With production rising in OPEC and non-OPEC countries and oil demand growth slowing because of the surge in electric cars and cars that require less fuel, they may be projecting lower oil prices in the 2020s and less benefit for Saudi Aramco. However, that would be a reason to IPO sooner rather than later since future profits would be declining. Who knows what they are really thinking but oil prices are not likely to rise significantly until mid 2018. Longview Economics chief market strategist predicted $10 oil in 2023-2025 because of the rapid adoption of electric vehicles. I would not hold my breath.

On Friday, the weak Consumer Price Index report caused the dollar to decline sharply in the morning and commodity prices to rise. The Iran decertification event also provided price support even though any impact would be a long way off. Congress has to get off its collective butt and actually do something about changing the JCPOA and/or adding additional sanctions. Even after that point, any Iranian oil export limitations would be well into the future and subject to a complete lack of compliance by other nations. Iran exports 2.3 million bpd with 10% going to Turkey, 13% to Europe, 46% to China/India, 14% to Japan/Korea and 17% going to other places. Unless Iran tested a nuclear weapon, I do not see any of those countries voluntarily halting Iranian imports.

US oil production declined 81,000 bpd last week because all of the Gulf production platforms have not yet been restarted after Hurricane Nate blew through last weekend. I am surprised the decline was not larger.

For the week ended on Friday the active rig count declined by 8 rigs to 928 and the lowest level since June 9th. Five oil rigs were deactivated and two gas rigs. Offshore rigs declined -2 but that could have been the result of the hurricane.


The major indexes managed to creep higher last week despite the worry over bank earnings, political headlines, economics and the concerns over Iraq and Iran. Next week the earnings really accelerate and those headlines will overshadow the rest of the topics in that last sentence. The only wild card would be an outright provocation by North Korea.

The bears are beginning to capitulate. Fundstrat's Tom Lee raised his year-end price target on the S&P from 2,275 to 2,475 saying he was wrong to be so bearish over the last several months. However, his new target is still 79 points below Friday's close. The confirmed bears are struggling to accept the reality of a market making new highs.

The sentiment survey for last week saw a sharp decline in the number of bearish investors. Bullish sentiment is back above the historical average for only the sixth time this year. Since the markets have been making new highs since early January it is surprising that sentiment has only been above the historical average six times. Bearish sentiment hit a five-week low as more investors begin to capitulate and join the bullish crowd.

The S&P gained only 2 points on Friday and finished one third of a point below its prior closing high. It was close but the crashing insurance companies stole the intraday gains. The resistance level at 2,550 has broken and new resistance is 2,555. Initial support is 2,544 followed by 2,525 and 2,495.

The Dow suffered from lackluster performance by its components on Friday. There were no big winners or losers and only four components moved more than $1 and they offset each other. American Express was the surprise gainer since the majority of the banks were lower on their earnings. Apple posted another surprising gain despite constant headlines about delivery problems, iPhone 8 mechanical problems and Qualcomm's suit to halt sales of the iPhone in China.

The Dow missed closing at a new high by one point but it was still a decent day given all the cross currents in the market. The Dow is relatively unsupported after ten days of mostly gains. The advance has been slow but steady. Initial support is around 22,735 and resistance is going to be 23,000 as a large round number that is sure to attract sellers unless a monster rally breaks out to power us through that level. The 20-30 points a day, the index has been adding is likely to come to a halt at that level.

The Nasdaq eased through the 6,600 level to close at a new high on Friday. The majority of the big caps were positive and the index shook off losses in the biotechs to post a minor 14-point gain. The Nasdaq has not had a 200 point dip since mid August and it is definitely due. With earnings approaching, I would expect some volatility but no material change in direction for the next couple weeks. We could easily see some consolidation of the last three weeks of gains. Initial support is 6,565 with resistance around 6,700.

The Russell 2000 is slowly bleeding points but has only given back 12 of the 162 points it gained since August. This remains bullish as long as the support at 1,500 holds. A breakdown there could trigger some cascade selling as investors rush to lock in gains.

The outlook for the market remains bullish but the major indexes have lost their momentum. There are various reasons for the slowdown and hopefully the barrage of earnings headlines next week can push those other concerns aside. The North Korea situation remains the wild card and hopefully the next event will be just a simple missile launch and the market can ignore it.

I continue to recommend holding some cash in your account just in case a buying opportunity does appear. The market does not need a reason to decline. We sometimes attach too much importance to the daily headline stream as a market propulsion device. Markets have a mind of their own and they can be very unpredictable at times.

If you like the market commentary you have been receiving and you are on a free trial then now is the time to subscribe. Do not wait until you miss a newsletter to decide you want to take the plunge.

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Enter passively and exit aggressively!

Jim Brown

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"I find that the harder I work the more luck I seem to have."

Thomas Jefferson


New Plays

Retail Hell

by Jim Brown

Click here to email Jim Brown
Editor's Note

Any brick and mortar retailer competing against Amazon is in a world of trouble. Bed, Bath and Beyond is that retailer.


No New Bullish Plays


BBBY - Bed, Bath and Beyond - Company Profile

Bed Bath & Beyond Inc., together with its subsidiaries, operates a chain of retail stores. It sells a range of domestics merchandise, including bed linens and related items, bath items, and kitchen textiles; and home furnishings, such as kitchen and tabletop items, fine tabletop, basic housewares, general home furnishings, consumables, and juvenile products. It also provides various textile products, amenities, and other goods to institutional customers in the hospitality, cruise line, healthcare, and other industries. As of February 25, 2017, the company had a total of 1,546 stores, includes 1,023 Bed Bath & Beyond stores in 50 states, the District of Columbia, Puerto Rico, and Canada; 276 stores under the names of World Market, Cost Plus World Market, or Cost Plus; 113 buybuy BABY stores in 35 states and Canada; 80 stores under the CTS name; and 54 stores under the Harmon name. It also offers products through various Websites and applications, such as bedbathandbeyond.com, bedbathandbeyond.ca, harmondiscount.com, christmastreeshops.com, buybuybaby.com, buybuybaby.ca, harborlinen.com, t-ygroup.com, and worldmarket.com. In addition, the Company operates Of a Kind, an e-commerce Website that features specially commissioned limited edition items from emerging fashion and home designers; One Kings Lane, an online authority in home decor and design that offers a collection of selected home goods, and designer and vintage items; PersonalizationMall.com, an online retailer of personalized products; Chef Central, an online retailer of kitchenware, cookware, and homeware items catering to cooking and baking enthusiasts; and Decorist, an online interior design platform that provides personalized home design services. Company description from FinViz.com.

It is a tough world when nearly every one of your products is listed on Amazon along with a dozen competitive products with free 2-day delivery. Bed, Bath and Beyond is stuck in that rut and it is painful.

In their recent earnings they reported 67 cents, down from $1.11 in the year ago quarter and missed estimates for 93 cents. Revenue of $2.9 billion also missed estimates for $3 billion. Same store sales declined -1.7%. The retailer said it was undertaking a number of "transformational initiatives." One of those initiatives was the termination of 880 manager positions. Shares fell 18% on the earnings.

With Toys-R-Us filing bankruptcy, there are now concerns about other stores possibly following suit. BBBY is in trouble even though they are buying back shares and paying a dividend. With sales and earnings declining those shareholder friendly efforts may have to be curtailed. They have 65,000 employees and 1,550 stores.

This is simply a case of a large brick and mortar retailer trying to compete with an all powerful Amazon and we know who is going to win this battle in the long run.

Expected earnings Dec 19th.

I am reaching out to January on the option because we can buy an extra 40 days of time for 21 cents. We can buy time but we do not have to use it.

Sell short BBBY shares, currently $21.23, initial stop loss $22.85.
Alternate position: Buy Jan $20 put, currently $1.13, initial stop loss $24.15.

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

In Play Updates and Reviews

Slow Bleed

by Jim Brown

Click here to email Jim Brown

Editors Note:

The small cap indexes are slowly retracing their gains but there is no urgency. The Russell lost another 2 points on Friday but support at 1,500 is still holding. The index has retraced about 13 of the 162 points it gained since August 21st. We would gladly take that ratio on any index gain. The lack of material selling is bullish. However, if we do get a break under 1,500 it could turn into a trigger for additional selling.

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

CIEN - Ciena
The long call position was stopped at $21.65.

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

Short term Calls and Puts on equities = Option Investor Newsletter

Credit spreads and naked puts = OptionWriter

Long term option investments = LEAPS Investor

3-6 month Option Trades = Ultimate Investor

Iron Condors = Couch Potato Trader

BULLISH Play Updates

AMD - Advanced Micro Devices - Company Profile


No specific news. BNP Paribas upgraded from neutral to outperform.

Original Trade Description: Sept 23rd

Advanced Micro Devices, Inc. operates as a semiconductor company worldwide. Its primarily offers x86 microprocessors as an accelerated processing unit (APU), chipsets, discrete graphics processing units (GPUs), and professional graphics; and server and embedded processors, and semi-custom System-on-Chip (SoC) products and technology for game consoles. The company provides x86 microprocessors for desktop PCs under the AMD A-Series, AMD E-Series, AMD FX CPU, AMD Athlon CPU and APU, AMD Sempron APU and CPU, and AMD Pro A-Series APU brands; and microprocessors for notebook and 2-in-1s under the AMD A-Series, AMD E-Series, AMD C-Series, AMD Z-Series, AMD FX APU, AMD Phenom, AMD Athlon CPU and APU, AMD Turion, and AMD Sempron APU and CPU brand names. It also offers chipsets with and without integrated graphics features for desktop, notebook PCs, and servers, as well as controller hub-based chipsets for its APUs under the AMD brand; and AMD PRO mobile and desktop PC solutions. In addition, the company provides discrete GPUs for desktop and notebook PCs under the AMD Radeon brand; professional graphics products under the AMD FirePro brand name; and customer-specific solutions based on AMD's CPU, GPU, and multi-media technologies. Further, it offers microprocessors for server platforms under the AMD Opteron; embedded processor solutions for interactive digital signage, casino gaming, and medical imaging under the AMD Opteron, AMD Athlon, AMD Sempron, AMD Geode, AMD R-Series, and G-Series brand names; and semi-custom SoC products that power the Sony Playstation 4, Microsoft Xbox One, and Xbox One S game consoles. Company description from FinViz.com.

Expected earnings Oct 24th.

Nvidia (NVDA) shares were rocked last week after news broke that Tesla was looking at moving to AMD and away from Nvidia for the chips to power the autonomous driving functions. The initial headline saw AMD spike and Nvidia decline. The actual story is that AMD and Nvidia are partnering on creating a chip solution for Tesla. It is no surprise that AMD is in the mix because Tesla hired Jim Keller to lead development of Autopilot. Keller previously worked at AMD and led the development of the Zen architecture and the new Ryzen processors.

It appears that Nvidia and AMD have a team of about 50 engineers working to develop a comprehensive solution for Tesla. Here is where it gets interesting. I would not be surprised to see Tesla make an acquisition bid for AMD. The company only has a $13 billion market cap compared to $110 billion for Nvidia. AMD has a lot of products that are different from the Nvidia product line even though they both make GPUs. AMD has only existed for years as a foil for Intel. The bigger company could not be considered a monopoly as long as AMD existed. Now with Qualcomm getting into the processor market and AMD and Nvidia in a high tech partnership, it would make sense for Nvidia to acquire AMD. Since GPUs are a small part of AMD's product line, there may not be that much regulatory concern. Is it a long shot? Absolutely, but definitely in the realm of possibilities.

Even if there is never an acquisition bid, just the combination of AMD and Nvidia in a partnership validates the technical capabilities of AMD and lifts them into the big league. Where AMD has always been a low cost alternative to Intel and always 1-2 generations behind in technical expertise, they have dramatically improved their game in the last 12-18 months. Instead of being road kill on the Intel superhighway to state of the art processors, they have surged to be a real competitor. Partnering with Nvidia is a real step up for the company.

The chart is ugly with no apparent trend but there is decent support at $12. They could easily catch fire as investors begin to understand the ramifications of the partnership and we could see another leg higher like the one that started the prior May. There are no guarantees but I do not believe anyone sees AMD's future as anything but positive given recent events.

Update 9/25/17: AMD and Nvidia declined after Intel announced the next generation in the Core CPU line for desktops. This 8th generation Core-i7-8700K is the bet gaming processor ever with an internal clock frequency of 4.7 Ghz and Intel's fastest ever. They will also support 4K video. This is a challenge for AMD but the company is still ahead of Intel in the GPU race.

Update 10/3/17: AMD announced a new embedded GPU requiring less power and capable of driving five simultaneous 4K displays. The GPU requires less than 40 watts TDP and comes in a smaller, thinner package. The chip has a 1.25 TFLOPS speed and comes in three form factors including MCM, MXM and PCI Express. The 4K and 3D support works for games, medical imaging, advertising signage and industrial uses. The GPU has 4 GB of GDDR5 memory. Shares gained more than 5% on the news.

Update 11/10/17: AMD shares rallied after a processor conference and upgrade to Nvidia. Yesterday there was an article with a picture of a new Intel processor with "Vega Inside" but it has disappeared today. Intel has previously denied any licensing with AMD but the picture showed a mobile processor with Intel Outside, Vega Inside, which would mean AMD's Vega graphics on an Intel chip. This was for a mobile processor for a notebook or tablet. Apparently, Intel was not ready for the world to see that internal graphic and the article was removed from circulation. If/when Intel does announce a deal with AMD the stock is going to soar.

Update: I was able to go back and find the link I had saved even though it is no longer on the website. Vega Inside

Position 9/25/17:

Long AMD shares @ $13.25, see portfolio graphic for stop loss.
Alternate position: Long Jan $14 call @ $1.25, see portfolio graphic for stop loss.

BOTZ - Global X Robotics AI - Company Profile


No specific news. Long term position.

Original Trade Description: October 4th.

The investment seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the Indxx Global Robotics & Artificial Intelligence Thematic Index. The fund invests at least 80% of its total assets in the securities of the underlying index. The underlying index is designed to provide exposure to exchange-listed companies in developed markets that are involved in the development of robotics and/or artificial intelligence as defined by Indxx, the provider of the underlying index. The fund is non-diversified. Company description from FinViz.com.

Robots of every description are taking over the manufacturing sector, service sector, etc. Drones are automated. Autos are becoming autonomous.

Even more important to this ETF is the sudden arrival of Artificial Intelligence or AI. That is the buzzword for everything. Everybody is trying to get into the AI business.

This ETF took off last January and while there have been several mild hiccups along the way, the chart is nearly vertical as investors become aware of it.

I am going to lag back on the stop loss because this could be a long-term position.

Position 10/5/17:

Long BOTZ shares @ $22.10, see portfolio graphic for stop loss.
Alternate position: Long Mar $23 call @ 80 cents, see portfolio graphic for stop loss.

HPE - Hewlett Packard Enterprise - Company Profile


No specific news. Dropped at the open but recovered quickly.

Original Trade Description: Oct 2nd

Hewlett Packard Enterprise Company provides technology solutions to business and public sector enterprises. It operates through Enterprise Group, Software, Enterprise Services, and Hewlett Packard Financial Services segments. The Enterprise Group segment offers servers, management software, converged infrastructure solutions and technology services; hybrid cloud solutions, including private cloud platform; business critical systems; storage products, as well as 3PAR StoreServ, a Storage platform; and networking products comprising switches, points, controllers, routers, and wireless local area network and network management products. This segment also provides software-defined networking and communications capabilities; network access solutions for mobile enterprises; and consulting services. The Software segment offers software to capture, store, explore, analyze, protect, and share information and insights within and outside organizations; enterprise security, application delivery management, and IT operations management software products. This segment provides HP Vertica, an analytics database technology for machine, structured, and semi-structured data; and HP IDOL, an analytics tool for human information, as well as solutions for archiving, data protection, eDiscovery, information governance, and enterprise content management. The Enterprise Services segment offers consulting, outsourcing, and support services across infrastructure, applications, and business process domains; and application and business services that help clients to develop, revitalize, and manage their applications and information assets. The Hewlett Packard Financial Services segment provides leasing, financing, IT consumption and utility programs, and asset management services. Company description from FinViz.com.

Expected earnings Dec 5th.

HPE has been undergoing an intense reorganization for several years. That included splitting off from HPQ in an effort to separate the corporate business from the consumer business. Meg Whitman has done a superb job in trimming excess departments and selling off non-core assets.

Recently, she announced another 10% reduction in the workforce that would result in 5,000 job cuts. She said the reductions would result in fewer lines of business and a more streamlined decision process. The current 3-year plan calls for savings of $1.5 billion and shift the focus towards research and development.

When Whitman took over in 2011 Hewlett Packard had 350,000 workers before the spinoff. Now HPE has 52,000.

The company now specializes in cybersecurity, enterprise WiFi, cloud services, servers and other corporate technology. Whitman recently said the company is seeing rapidly growing demand across key areas of the business.

Shares closed at a new high on Monday after trading in a $2 range for almost a year. I believe the latest announcement on reductions and streamlined operations has finally struck a chord with investors.

Update 10/3/17: Shares down slightly on news they allowed Russia to examine the source code of security software used to guard Pentagon secrets. The review was required by Russia and other countries prior to those countries considering HPE as a cybersecurity vendor for their secrets. However, by letting Russian software engineers view the source code, supposedly to make sure there was no hidden back door access for US spies, they learned how the code worked, what the software was guarding against and gave them insights as to how they could defeat it. The top White House cyber security official said this was becoming a bigger problem because everyone (other countries) was demanding to see the source code and that has now become a security risk.

Position 10/3/17:

Long HPE shares @ $14.97, see portfolio graphic for stop loss.
Alternate position: Long Jan $16 call @ 50 cents, see portfolio graphic for stop loss.

KTOS - Kratos Defense - Company Profile


No specific news. We held KTOS through the dip caused by their secondary offering and recovered the losses. However, momentum has evaporated and I am recommending we close the long stock portion of the position. We will retain the long call as a Lottery Play.

Original Trade Description: August 14th.

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 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 department spending.

Kratos unveiled its newest high performance class of military unmanned aerial system technology at the Paris Air Show. 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.

Just over the last couple weeks Kratos announced a $2.9 million order for an airborne communications system, a $10 million order for a ballistic missile defense system, $23 million for a military radar system and $8 million for a GPS Satellite protection system. Analysts are expecting a record $800 million in revenue for 2018. They expect to do $150 million in unmanned revenues in 2018.

Kratos posted earnings of 1 cent and a $10.4% increase in revenue to $186 million. They guided to be free cash flow positive by $25 million in 2017.

Expected earnings Oct 26th.

With the daily new contract awards shares have risen $1.50 in the last week and closed at a 5-week high on Monday. They are very close to breaking out to a new high.

Update 9/5/17: New high in a weak market. Unfortunately, after the close they announced a secondary offering of 12.5 million shares that will increase the float by 14%. If I recommended we sell at the open on Wednesday, we are going to get hit with the normal "sell the news" decline. If we retain the position, stocks normally rise after a secondary is completed. We can either take a loss on Wednesday or hang on for a bigger gain later. I am recommending we hold the position. I am removing the stop loss to avoid being knocked out of the position for a loss. Shares declined to $12.80 in afterhours, a drop of $1. If that is all the decline we get, I would be very happy.

Update 9/6/17: KTOS announced a $46 million contract with the Saudi Royal Navy to assist in increasing military communications and preparedness. They also announced the QWK Integrated Solutions LLC, a partnership of multiple defense firms had won a $3.038 billion five year contract. The partnership will provide for rapid development and integration of space, missile defense, cyber, directed energy and related technologies to support SMDC/ARSTRAT and the warfighter.

Update 9/11/17: The company announced it had successfully completed a required number of missions with their jet powered unmanned drone system. The missions are part of the performance demonstrations prior to delivery of ten drones over the next six months. The customer was not announced for security reasons. However, a program they announced with the Navy several months ago called for delivery of 10 drones in 2017 with the potential for multiple follow on orders in 2018. This could be part of that project.

Update 9/18/17: Kratos deployed the first fully autonomous vehicle in Colorado with the Colorado Dept of Transportation. The robot vehicle replaces the trailing vehicle in a work construction crew. It follows the crew throughout the day and acts as a mobile crash barrier. Previously, a CDOT employee had to drive a specially built truck mounted with impact absorbing rear bumpers. Basically, this protects the work crew on the road by giving erratic drivers something to hit other than the work crew. There is still the problem of the driver in this truck when a car, truck or semi plows into the truck at 70 mph. In Colorado these bumper trucks were hit an average of 7 times per year, sometimes with injury to the CDOT drivers. The Kratos robotic crash guard truck has no driver so nobody is injured with an errant civilian vehicle crashes into it. The robot vehicle monitors the work crew and maintains a safe distance behind them with enough lane coverage to keep them from getting hit.

Update 9/21/17: KTOS successfully completed the third test of AN/SPY-6(V) Air and Missile Radar (AMDR) against a live ballistic missile target. The new radar is slated to begin service on the Navy's next generation Arleigh Burke Class Guided Missile Destroyer currently under development. This is a big step for Kratos.

Position 8/15/17:

Long KTOS shares @ $12.78, see portfolio graphic for stop loss.
Alternate position: Long Nov $15 call @ 65 cents, see portfolio graphic for stop loss.

With shares just crossing the $12.50 strike price, we had to reach out to $15 and a distant month.

MRVL - Marvel Technology - Company Profile


No specific news. The stock continues to have a problem with breakout out over resistance at $18.60.

Original Trade Description: August 30th.

Marvell Technology Group Ltd. designs, develops, and markets analog, mixed-signal, digital signal processing, and embedded and standalone integrated circuits. It offers a range of storage products, such as hard disk drive (HDD) and solid-state drive controllers, as well as HDD components, such as HDD preamps components; and develops software enabled silicon solutions consisting of serial advanced technology attachment port multipliers, bridges, serial attached SCSI, and non-volatile memory express redundant array of independent disks controllers and converged storage processors for enterprise, data centers, and cloud computing businesses. The company also provides networking products comprising Ethernet solutions comprising Ethernet switches, Ethernet physical-layer transceivers, and single-chip network interface devices; and embedded communication processors. In addition, it offers a portfolio of connectivity solutions, including Wi-Fi, and Wi-Fi/Bluetooth integrated system-on-a-chip products, which are integrated into a variety of end devices, such as enterprise access points, home gateways, multimedia devices, gaming products, printers, automotive infotainment and telematics units, and smart industrial devices. Further, the company provides printer-specific standard products, as well as full-custom application-specific integrated circuits; and communications and applications processors. Company description from FinViz.com.

Marvel reported earnings of 30 cents that beat estimates for 28 cents. Revenue of $605 million beat estimates for $601 million. Free cash flow more than doubled from $38 million to $89 million. Core revenues rose 6%, storage controller revenues rose 13%. SSD chips rose from 20% to 25% or revenue. The new SSD products are rapidly gaining market share and remain a high profit item. Gross margin was 60.4%. They guided for Q3 for revenue of $595-$625 million with earnings of 30-34 cents per share.

Expected earnings Nov 23rd.

The company is in the midst of a restructuring process while they are changing their product mix for the better. Apparently it is working.

Shares spiked from $15.75 to $17.25 after earnings then pulled back slightly on post earnings depression. They rebounded today to a new 2-month high and very close to a new high.

Position 8/31:

Long MRVL shares @ $17.79, see portfolio graphic for stop loss.
Alternate position:
Closed 10/9: Long Oct $18 call @ 64 cents, exit 64 cents, breakeven.

ON - ON Semiconductor - Company Profile


ON announced to new System on a Chip (SOC) 1.0 Megapixel CMOS image sensing products for the automotive imaging sector. The company said annual shipments of cameras for use in cars will easily surpass 80 million units by 2020.

Original Trade Description: Oct 9th.

ON Semiconductor Corporation manufactures and sells semiconductor components for various electronic devices worldwide. It operates through three segments: Power Solutions Group, Analog Solutions Group, and Image Sensor Group. The Power Solutions Group segment offers discrete, module, and integrated semiconductor products for various applications, such as power switching, power conversion, signal conditioning, circuit protection, signal amplification, and voltage reference. The Analog Solutions Group segment designs and develops analog, mixed-signal, and logic application specific integrated circuits and standard products, as well as power solutions for a range of end-users in the automotive, consumer, computing, industrial, communications, medical, and aerospace/defense markets. This segment also provides trusted foundry, trusted design, and manufacturing services, as well as integrated passive devices technology. The Image Sensor Group segment offers complementary metal oxide semiconductors and charge-coupled device image sensors, as well as proximity sensors, image signal processors, and actuator drivers for autofocus and image stabilization for a range of customers in automotive, industrial, consumer, wireless, medical, and aerospace/defense markets. The company serves original equipment manufacturers, distributors, and electronic manufacturing service providers. Company description from FinViz.com.

Earnings Nov 6th, unconfirmed.

ON continues to power higher on a surge of new products as the IoT boom continues. The company completed the acquisition of Fairchild Semiconductor in September.

A major factor in the boom is the Advanced Driver-Assistance Systems. This market is expected to reach $42 billion by 2021 according to MarketsandMarkets. This is giving ON a tremendous boost in earnings and forecasts.

However, they missed earnings for Q2. They reported 26 cents and estimates were 33 cents. Revenue of $1.34 billion beat estimates for $1.31 billion. The company guided for the current quarter for $1.34-$1.39 billion.

Somebody believes they are going to beat those estimates by a mile. On Monday, somebody bought 11,000 of the November $20 calls at 65 cents. That is a $715,000 bet. I suggest we follow them.

Because of the steep gains over the last month, I am not recommending a stock position. We will do this with options only.

Update 10/11/17: ON and Fujitsu announced an agreement where ON will purchase 40% of Fujitsu's 8-inch wafer fabrication plant in Aizu-Wakamatsu. The purchase will be completed by April 1st. ON already had a 10% share and will acquire another 30%. ON said it planned to increase ownership to 80% in the second half of 2018 and 100% in the first half of 2020. By scaling into the ownership it will allow ON to add capacity as demand increases.

Update 10/12/17: ON announced to new System on a Chip (SOC) 1.0 Megapixel CMOS image sensing products for the automotive imaging sector. The company said annual shipments of cameras for use in cars will easily surpass 80 million units by 2020.

Position 10/10/17:

Long Nov $20 call @ 80 cents, see portfolio graphic for stop loss.

BEARISH Play Updates

JKS - Jinko Solar - Company Profile


No specific news. No movement while investors ponder Jinko's future.

Original Trade Description: October 11th.

JinkoSolar Holding Co., Ltd., together with its subsidiaries, engages in the design, development, production, and marketing of photovoltaic products in the People's Republic of China and internationally. It offers solar modules, solar cells, silicon ingots, silicon wafers, and recovered silicon materials. The company sells its products to distributors, project developers, and system integrators under the JinkoSolar brand, as well as on an original equipment manufacturer basis. JinkoSolar Holding Co., Ltd. was founded in 2006 and is based in Shangrao, the People's Republic of China. Company description from FinViz.com.

Expected earnings Dec 6th, unconfirmed.

Declining demand for certain types of solar panels, new requirements in China, new rules in China and an excess of supply in the market is depressing Jinko shares.

Of the last five analyst actions, 2 have been a cut back to hold and 3 have been a cut to sell. Axiom cut them to sell with a $10 price target.

To make matters worse, on Sept 27th, the company announced an "at the market" offering of $100 million in stock. That represents about 5 million shares in addition to their 27 million shares outstanding. At the market means the selling broker will simply sell the shares into the market at a time and pace of their own choosing. Average daily volume is about 800,000 so assuming they sold 100,000 shares per day it would take 50 trading days of continuous selling pressure.

Over the last month the consensus earnings estimates for the full year have declined from $1.99 to 77 cents. Estimates for the quarter have declined from 41 cents to 17 cents. Axiom said estimates should turn negative for Q4 and remain negative all the way through 2019.

Unfortunately, the outlook is so negative the put options are very high. This will be a stock only position.

Update 10/12/17: Jinko announced its annual meeting will be held November 15th. The announcement was before the open while there was nothing unusual in the press release, the stock gapped up sharply. Shares gapped up 5% to $23.72 before fading slightly to end with a 92-cent gain for the day. Fortunately, the gap higher at the open gave us a short entry at a higher than expected level and we missed half of the gain. Now we need the decline to continue.

Position 10/12:

Short JKS shares @ $23.03, see portfolio graphic for stop loss.

VIPS - Vipshop Holdings - Company Profile


No specific news. Minor decline to a new four-year low close.

Original Trade Description: October 7th.

Vipshop Holdings Limited, through its subsidiaries, operates as an online discount retailer for various brands in the People's Republic of China. It offers a range of branded products, including women's apparel, such as casual wear, jeans, dresses, outerwear, swimsuits, lingerie, pajamas, and maternity clothes; men's apparel comprising casual and smart-casual T-shirts, polo shirts, jackets, pants, and underwear; women and men shoes for casual and formal occasions; and accessories consisting of belts, fashionable jewelry, watches, and glasses for women and men. The company also provides handbags, such as purses, satchels, duffel bags, and wallets; apparel, gear and accessories, furnishings and decor, toys, and games for boys, girls, infants, and toddlers of all age groups; sports apparel, and sports gear, and footwear for tennis, badminton, soccer, and swimming; and skin care and cosmetic products, including cleansers, lotions, face and body creams, face masks, sunscreen, foundations, lipsticks, eye shadows, and nail polish. In addition, it offers home furnishing products comprising bedding and bath products, home decors, and dining and tabletop items; small household appliances; designer apparel, footwear and accessories; and snacks, health supplements, and occasion-based gifts, such as chocolates, moon-cakes, and tea. Further, the company provides consumer financing, supply chain financing, and wealth management services. The company provides its branded products through its vipshop.com, vip.com, and lefeng.com Websites, as well as through its cellular phone application. Company description from FinViz.com.

Vipshop is in the flash sale business. That means other retailers bring them products they cannot sell and Vipshop marks down the price and runs a special flash deal special to clear out the inventory. Vipshop has been around for nearly 10 years and did very well in the early years. Unfortunately, profits are fading because manufacturers and other retailers can now unload their products on Amazon and Alibaba without the valuation haircut that occurs with Vipshop.

Earnings for the recent quarter were 17 cents and estimates were 19 cents. Revenue rose 30% to $2.58 billion. They filled 84.8 million orders.

Expected earnings Nov 15th.

The problem was rising costs. Margins declined in what Vipshop called a highly promotional market with higher advertising costs in hopes of gaining market share. If you translate that sentence it means they had to cut prices to generate the sales and they had to pay more for advertising to lure customers into the sale process.

With Alibaba's growth surging well beyond the optimistic estimates by analysts, they are taking over the online sales channel in China. This does not bode well for Vipshop in the future. Add in the Amazon monopoly in the US and Vipshop has nowhere to go to escape the rapidly growing retail cloud. The flash sales business has died in the US after a flood of competitors surged into business and then quickly disappeared.

Shares closed at a four-year low on Friday at $8.35 with the next support level around $2.50.

Position 10/9/17:

Short VIPS shares @ $8.36, see portfolio graphic for stop loss.
Alternate position: Long Nov $8 put @ 40 cents, see portfolio graphic for stop loss.

VXX - Volatility Index Futures - ETF Description


Since this is a long-term position, there will not be daily commentary.

Original Trade Description: September 18th.

The VXX is a short-term volatility ETF 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 five reverse splits occurred at $13.11 (11/2010), $8.77 (10/2012), $12.84 (11/2013), $9.52 (8/8/16), $12.77 (8/22/17). The prospectus says it can reverse split anytime it trades under $25 for a prolonged period and the splits will always be 1:4.

We know from experience that the VXX always declines. The last two times we shorted this ETF we had a $7.23 and $5.98 gain.

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 into year-end we could see a sharp decline in the VXX over 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.

The VXX is hard to short. Shortsqueeze.com says there are 19.9 million shares short out of 26.7 million shares outstanding. The shares are out there and being traded because the volume on Monday was 29.6 million. You have to tell your broker you really want to short it and make them find the shares. Sometimes it takes days or even a week before your broker will find you the shares. Trust me, be persistent and it will be worth the effort.

I had held off after the 1:4 reverse split because the options were expensive and I was expecting volatility in September from the budget battle and debt ceiling hurdle. With those issues pushed out into December, the volatility is dropping like the proverbial rock. Several readers have already emailed me asking when I was going to put this position back in the portfolio.

Position 9/19/17:

Short VXX shares @ $40.95, see portfolio graphic for stop loss.

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.

CIEN - Ciena Corporation - Company Profile


No specific news. Shares fell sharply at the open on Wednesday to stop us out of the call position.

Original Trade Description: Sept 2nd

Ciena Corporation provides equipment, software, and services that support the transport, switching, aggregation, service delivery, and management of voice, video, and data traffic on communications networks worldwide. The company's Networking Platforms segment offers hardware networking solutions optimized for the convergence of coherent optical transport, optical transport network switching, and packet switching. Its products include 6500 Packet-Optical Platform and the 5430 Reconfigurable Switching System, Waveserver stackable interconnect system, CoreDirector Multiservice Optical Switches, and OTN configuration for the 5410 Reconfigurable Switching System, as well as Z-Series Packet-Optical Platform; 3000 family of service delivery switches and service aggregation switches, and the 5000 family of service aggregation switches, as well as 8700 Packetwave Platform and the Ethernet packet configuration for the 5410 Service Aggregation Switch; and 4200 Advanced Services Platform, Corestream 5100/5200 Advanced Services Platform, Common Photonic Layer, and 6100 Multiservice Optical Platform. This segment also sells operating system software and enhanced software features embedded in each of these products. The company's Software and Software-Related Services segment offers network management solutions, including the OneControl Unified Management System, ON-Center Network & Service Management Suite, Ethernet Services Manager, Optical Suite Release, and Planet Operate; and Blue Planet network virtualization, service orchestration, and network management software platform, as well as related installation, support, and consulting services. Its Global Services segment provides consulting and network design, installation and deployment, maintenance support, and training services. Company description from FinViz.com.

Ciena reported earnings of 51 cents that beat estimates of 49 cents. Revenue rose 9% to $728.7 million and beat estimates for $726.9 million. Gross margins were 45% with an 11.3% operating margin. They ended the quarter with $854.1 million in cash and generated free cash flow of more than $50 million. Shares were knocked for a 15% loss on the news.

They guided for Q3 revenue of $720-$750 million and a record quarter. Analysts were expecting $766 million.

The CEO talked to a Barron's analyst after the earnings call and was very upbeat. He said we are still in bullish mode with 7% annual growth and 5% growth in North America. Compound growth over the last five years is 9%. The Q3 guidance takes into account two factors. Government spending overall has slowed. That means less spent on networking equipment. Secondly, Tier One telecom operators get a lot of government business and the slowing government spend has affected them as well. There has been a lot of regional M&A that is being digested. This impacts the entire networking market not just Ciena. We are still predicting 7% growth and a record quarter despite the temporary government slowdown.

Piper Jaffray reiterated an overweight rating saying they understood the government and regional provider problem and Ciena had a lot of positive signs despite this government slowdown. Ciena is executing well, new product acceptance is good. We believe Ciena is the best positioned system supplier for the two hottest segments of the optical market.

Citi upgraded from neutral to buy. Doughtery reiterated a buy and $27 price target.

Earnings Nov 30th.

Shares declined after earnings to support at $21.50 and rebounded 2% on Friday.

Update 9/7/17: Good article in Barron's on what Wall Street is missing about the Ciena outlook. Full Article

Position 9/5/17:

Closed 10.11.17: Long Nov $23 call @ 93 cents, exit .27, -.66 loss.

Previously closed 9/13: Long CIEN shares @ $21.89, exit $21.98, +.09 gain.

DSW - DSW Inc - Company Profile


DSW shares have gone into free fall since we were stopped with a break of support on Monday. This is a January option and there is always a chance of a recovery and there is support at $18.50. However, I view those odds as slim. I am recommending we drop this position. It will be up to you on whether or not you close it for the 40 cents offered today. Since it is a January option there are three months of time remaining. I suggest we drop it from weekly discussion but keep it open just in case lightning strikes.

Original Trade Description: Sept 30th

DSW Inc., together with its subsidiaries, operates as a branded footwear and accessories retailer in the United States. The company operates through two segments, DSW and Affiliated Business Group. The company offers dresses, casual and athletic footwear, and accessories under various brands for women, men, and kids. It also provides handbags, hosiery, jewelry, and other accessories. As of August 29, 2017, the company operated 511 stores in 43 states; dsw.com, an e-commerce site; and m.dsw.com, a mobile site, as well as supplied footwear to 379 leased locations in the United States. DSW Inc. was founded in 1917. Company description from FinViz.com.

The CEO recently said "we seen an opportunity to acquire market-share as the retail industry consolidates." "We have reinvigorated and positioned DSW to benefit, beginning with a new brand mission: We inspire self-expression."

They have reorganized their stores, updated their marketing, added customer merchandise and expanded their online presence. Marketing statement

They reported Q2 earnings of 38 cents compared to estimates for 29 cents. Revenue of $680.4 million beat estimates for $669.2 million. They guided for the full year for earnings of $1.45-$1.55 and analysts were only expecting $1.44.

They announced a new $500 million share buyback program on top of $33 million left over from the prior authorization.

Expected earnings Nov 21st.

Shares closed at a 5-month high on Friday and on the verge of breaking out of a 10-month consolidation period.

I really like the option on this position.

Update 10/9/17: News that DSW was adding a manicure and pedicure salon to its leading edge stores was not accepted well by investors. Shares plunged 4% at the open to stop us out of the long stock position. The option position will move to the lottery play section next weekend.

Position 10/2/17:

Long Jan $22.50 call @ $1.50, see portfolio graphic for stop loss.

Previously Closed 10/9/17: Long DSW shares @ $21.60, exit $20.85, -.75 loss.

ETSY - Etsy Inc - Company Profile


No specific news. Shares are still declining but very slowly. I still have hopes for a resumption of the bullish trend. This is a December option so we have plenty of time.

Original Trade Description: Sept 13th.

Etsy, Inc. operates as a commerce platform to make, sell, and buy goods online and offline worldwide. Its platform includes its markets, services, and technology, which enables to engage a community of sellers and buyers. The company offers approximately 45 million items across approximately 50 retail categories to buyers. It also provides various seller services, including direct checkouts, promoted listings, and shipping labels, as well as Pattern by Etsy to create custom Websites; and seller tool and education resources to start, manage, and scale businesses to entrepreneurs primarily through Etsy.com. In addition, the company operates A Little Market, a handmade and supplies market for sellers and buyers. Company description from FinViz.com.

For Q2, the company reported earnings of 10 cents that rose from a 6-cent loss in the year ago quarter. Revenue rose 19.1% to $101.7 million. Active sellers rose 10.9% to 1.83 million. Gross merchandise volume rose 11.7% to $748 million. Sales on mobile devices rose 47%. International sales rose 31% to 32% of gross sales. The number of employees in the workforce declined 23% thanks to an aggressive push by the CEO to expand profitability.

They guided for gross merchandise sales to rise 12% to 14% for the full year, up from prior guidance of 11.7%. Full year revenue is expected to rise 18% to 20% and in line with the 19.1% in Q2.

The company is growing rapidly, especially internationally and they are reducing costs significantly. Over the last several months, they replaced the CEO, CFO and CTO in their push to grow the company and profits quickly.

Expected earnings Nov 2nd.

On Sept 7th a Davidson's analyst, Tim Forte, went all in on ETSY with a glowing forecast. Shares spiked to $17.50 and then faded for a couple days. They have rebounded over the last three days and closed at a new high on Wednesday.

Position 9/14/17:

Long Dec $20 call @ 70 cents, see portfolio graphic for stop loss.

Previously closed 9/27: Long ETSY shares @ $17.79, exit $16.75, -1.04 loss.

FDC - First Data - Company Profile


No specific news. Shares have declined to support and the next move lower could be a trigger for further selling.

Original Trade Description: September 16th.

First Data is a global leader in commerce-enabling technology, serving approximately six million business locations and 4,000 financial institutions in more than 100 countries around the world. The company's 24,000 owner-associates are dedicated to helping companies, from start-ups to the world's largest corporations, conduct commerce every day by securing and processing more than 2,800 transactions per second and $2.2 trillion per year. Company description from FDC.

First Data earnings will be impacted by the three hurricanes because retail activity was slowed significantly over the weeks following the hurricane impacts. FDC said retail activity declined 72% in the first three days and was not expected to resume significantly for weeks. Stores need to recover from the floodwaters and flooding. They need electricity restored in order to run registers and POS terminals.

Expected earnings Nov 6th.

FDC also had the unfortunate luck of filing for a secondary offering of 85 million shares with an overallotment allowance of another 12.75 million on September 11th, just after the twin storms. The shares were sold by New Omaha Holdings, a major shareholder in FDC. With only about 300 million shares actively traded that is close to a 25% increase in the float. The shares were priced on Sept 18th at $17.75 each.

Selling nearly 100 million shares when your shares are already depressed would be expected to depress them even further. Shares closed at $17.55 on Wednesday and the 4-month low close is $17.47. Any further decline could put them into free fall to major support at $15.

There is always the potential for an earnings warning over the next several weeks.

Update 9/28/17: FDC announced a new service called Disburse-to-Debit to allow companies that hire temporary workers or "gig" workers to pay them instantly upon completion of a task by sending the money to their debit cards. This works for people like Uber drivers, part time workers at special events or even insuranve companies paying claims. An agent can upload the user data and the debit card payment arrives instantly. This is a smart service and FDC shares rallied 33 cents on the news.

Position 9/28:

Long Jan $17 put @ 70 cents, see portfolio graphic for stop loss.

Previously Closed 10/11/17: Short FDC shares @ $17.56, exit $17.90, -.34 loss.

HIMX - Himax - Company Profile


No specific news. Himax crashed through support with almost a $2 drop for the week. I am recommending we close this position. Something has changed in the trend.

Original Trade Description: Sept 9nd

Himax Technologies, Inc., a fabless semiconductor company, provides display imaging processing technologies to consumer electronics worldwide. The company operates through Driver IC and Non-Driver Products segments. It offers display driver integrated circuits (ICs) and timing controllers used in televisions (TVs), laptops, monitors, mobile phones, tablets, digital cameras, car navigation, and other consumer electronics devices. The company also designs and provides controllers for touch sensor displays, liquid crystal on silicon micro-displays used in palm-size projectors and head-mounted displays, light-emitting diode driver ICs, power management ICs, scaler products for monitors and projectors, tailor-made video processing IC solutions, and silicon IPs. In addition, it offers digital camera solutions, including complementary metal oxide semiconductor image sensors and wafer level optics, which are used in various applications, such as mobile phone, tablet, laptop, TV, PC camera, automobile, security, and medical devices. The company markets its products to panel manufacturers, agents or distributors, module manufacturers, and assembly houses; and camera module manufacturers, optical engine manufacturers, and television system manufacturers. Company description from FinViz.com.

Himax produces video drivers for 4K TVs and that accounted for 36% of total revenue in Q2. However, the big news comes from the 3D sensing chips. They are expecting a 90% increase in revenue from this technology in Q3. There are rumors that Himax is going to supply the 3D sensing technology for the new iPhones. Since several companies are rumored to have been selected, somebody is riding the rumor wave.

Since Himax guided for a 90% increase in revenue in Q3 from those sensors, it would suggest there is a surprise in store for the chip community.

They also provide chips for vehicle display panels and they recently guided for demand to jump from 135 million units in 2016 to 200 million by 2022.

On August 30th, Qualcomm and Himax jointly announced a new high resolution, low power, active 3D depth sensing camera system to enable conputer vision capabilities such as biometric face authentication, 3D reconstruction and scene perception for mobile, IoT, surveillance, automotive and AR/VR. They specifically said it would enable Android smartphones to have unparalleled 3D experiences. They called it "game changing technology for smartphones." This technology is the culmination of 4 years of research and development by these two firms.

Shares rallied on the announcements but then faded last week. The company issued a press release suggesting an Oppenheimer analyst had become too excited about the prospects and they reaffirmed their recent guidance. The fading excitement erased $1.50 in gains but support appeared at $10 and the overall uptrend should resume.

Expected earnings November 7th.

Position 9/11/17:

Long Dec $11 call @ $1.20, see portfolio graphic for stop loss.

Previously closed 9/25/17: Long HIMX shares @ $10.31, exit $9.65, -.66 loss.

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