Option Investor

Daily Newsletter, Saturday, 12/16/2017

Table of Contents

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

Market Wrap

Tax Reversal

by Jim Brown

Click here to email Jim Brown

The markets shook off Thursday's worries about the tax bill and rallied on positive comments Friday morning.

Weekly Statistics

Friday Statistics

On Thursday, there were multiple concerns about getting enough votes to pass in the senate with multiple senators either undecided or definite no votes. Further tweaking occurred, promises made and early Friday there appeared to be enough votes to pass it. In addition, as details leaked out the FIFO provision had been removed, corporate AMT was removed and the cuts are effective January 1st. The market gapped open on multiple positive rumors but representative Kevin Brady's comments at 11:AM lifted the Dow to 24,674 and slightly above prior resistance. The markets remained positive the rest of the day as further details appeared and rallied again just before the close as Rubio and Corker said they would vote yes. There was some option expiration selling at the close but the markets remained strongly bullish. The Dow rebounded 277 points from Thursday's closing low to Friday's intraday high.

Here is the skinny details of the tax plan:

Corporate tax rate cut from 35% to 21%.

Individual tax rates with 7 brackets, 10%, 12%, 22%, 24%, 32%, 35% and 37%. The current top rate is 39.6%.

CNCB Table for New Rates

CNBC Table Current Tax Rates

The standard deduction rises to $12,000 or $24,000 for a family.

Pass through businesses will receive a 20% deduction for the first $315,000 in income.

Obamacare lack of insurance penalty removed starting in 2019.

Corporate AMT eliminated. Individual AMT threshold raised significantly.

Estate tax remains but the $5.5 million exemption before taxation was doubled.

Child tax credit doubled from $1,000 to $2,000.

SALT deductions up to $10,000 for local sales, income or property taxes.

Current mortgage interest exemptions remain. New mortgages are capped for loans up to $750,000, down from $1,000,000.

Tax deductions for charitable contributions and retirement savings plans remain.

FIFO, first in, first out, stock sale provision removed.

The last hurdle is getting it passed by both the house and senate. In the senate that means John McCain and Thad Cochran, both currently in the hospital, will have to show up to vote. The only senator still on the fence is Susan Collins and she is leaning towards a yes vote after three amendments she backed were included. In theory McCain and Cochran would not have to show up if republicans were sure the other 50 GOP senators were going to vote yes. Vice President Pence could cast the tie breaking 51st vote. However, I am sure they will not want to take that risk. There is always the potential for an unexpected event so those two should be there if they have to arrive by ambulance and rolled in on a gurney.

The House is planning to vote on it on Tuesday. The Senate vote depends on when they expect McCain and Cochran to show up. That is more than likely on Wednesday.

With all the major warts out of the bill and corporate cash flows expected to grow by 15% to 20% next year as a result, the market "should" be positive into the end of December. Without the FIFO worries there is no reason to sell stocks that would have given you an higher tax bill in 2018. That threat is gone.

While nobody knows how much of the tax reform expectations for 2018 have been pulled forward into 2017, there should still be some gas left in the tank.

The S&P is up +590 points (28%) since the election without any material pullback. There was a 3.1% decline in March but we normally have two 5% declines and one 10% decline every year. There is a lot of uncaptured profit in the market and that means January could see some strong volatility.

Friday's economic reports were positive but far from bullish. The NY Empire State Manufacturing Survey for December declined from 19.4 to 18.0. That was not a big month-month decline but the high was 30.2 in October and December was a 5-month low so it is material. Anything over zero represents economic expansion so it was still positive. New orders declined slightly from 20.7 to 19.5. Back orders also declined slightly but from -4.6 to -8.7. That was the worst component in the report. Employment declined slightly from 11.5 to 5.1. The capital expenditures component rose sharply from 25.4 to 34.1 and the highest reading since 2010. Technology spending rose from 10.8 to 22.5 and a five-year high.

Industrial production for November declined from +1.2% to +0.2%. The majority of the decline came from a drop in utility output due to unseasonably warm weather. Overall, industrial production is up +3.4% since November 2016. Remaining outages from hurricane damage to the supply chain were also a factor.

The economic reports for the week lifted the Atlanta Fed's real time GDPNow forecast for Q4 back to 3.3% growth, up from 2.9% on December 8th. Spending growth estimates rose from 2.5% to 3.2% after the Consumer Price Index.

The final revision for Q3 GDP will be released on Thursday. Expectations are for 3.3% and unchanged from the prior revision.

This is the week for the housing reports with the Housing Index, existing sales and new home sales. The Philly Fed Survey is also on Thursday and the most important economic report for the week because it is a proxy for the national ISM.

The biggest challenge for the week is still the government funding deadline for midnight on Friday. The republicans are adamant about getting defense funding done for the rest of the fiscal year, reauthorization of the Children's Health Insurance Program or CHIP and increased funding for immigration enforcement. The democrats are equally firm on subsidizing premiums for Obamacare, authorizing citizenship for "dreamers" and various other funding for social issues. Both sides have said multiple times they will not support the funding for the items on the other side. The house wants to submit a defense funding bill for the full year and kick everything else into January with another continuing resolution. Democrats have said absolutely not and even some republicans are against that tactic.

There will be a fight and there will be negative headlines about a potential government shutdown. If that causes a market meltdown, it could be a buying opportunity but there is still risk of a minor correction in January.

Earnings actually pickup some next week with an active schedule on Tue/Thr. FedEx and Micron will highlight on Tuesday and Dow component Nike on Thursday.

The three big cap tech stocks that reported earnings after the bell were moving on Friday. Costco (COST) posted a $6 gain after beating on earnings by 2 cents. Revenue rose 13.3% to $31.12 billion. Expectations were high because of their recent release of blowout sales numbers for November. Same store sales rose 10.5% and e-commerce sales rose 43.5%. Membership renewals were 90%, which is in line with the historical average, so no drop offs. Member households rose from 49.4 million to 49.9 million and cardholders rose from 90.3 million to 91.5 million. They plan to add 20-25 stores in 2018. I challenge anyone to show me the impact of the Amazon/Whole Foods acquisition. I have pointed out many times the two stores are not related.

Adobe Systems (ADBE) reported earnings of $1.26 beating estimates for $1.16. Revenue rose 25% to $2.01 billion and beating estimates for $1.95 billion. They guided for the current quarter for earnings of $1.27 compared to estimates for $1.24. Revenue of $2.04 billion was in line with current estimates. Adobe said they were raising the subscription fees for various creative cloud products in March. They said they were seeing aggressive renewals by enterprise customers ahead of that price increase. Bank of America reiterated a buy with a $220 price target. Barclay's raised the price target to $193. Morgan Stanley reiterated a neutral and $186 price target. BMO reiterates a buy and raised their target to $205. Pivotal Research maintained a hold and $162 target. Shares closed at $177.

Oracle (ORCL) reported earnings of 70 cents compared to estimates for 68 cents. Revenue of $9.62 billion beat estimates for $9.57 billion. Cloud revenue rose 44% to $1.52 billion with software as a service revenue rose 55% to $1.12 billion. Analysts were expecting $1.56 billion and $1.14 billion respectively and a miss on both metrics. It was a good quarter and surprising when revenues can grow 44% and 55% and still miss estimates. Shares were punished despite the good quarter.

Teva Pharmaceutical (TEVA) announced on Thursday they were cutting 14,000 workers from their 56,000-person workforce. They expect to reduce costs by $3 billion by the end of 2019, with $1.5 billion in cost reductions in 2018. The company also suspended its dividend for ordinary shares and will eliminate bonuses for 2017. They are planning on closing a "significant number" of R&D facilities, offices and other locations around the world. They are going to consolidate offices in the US from 7 locations to only one campus. Teva incurred a lot of debt when they purchased the Allergan generic pharmaceuticals business for $40 billion last year. That was poorly timed just as generic prices were crashing. The company is also reviewing its asset base in order to sell noncore assets. Apparently, the new CEO, Kare Schultz, is determined to turn the company around sooner rather than later. Shares are bouncing back from a 17-year low in November. Shares were upgraded by Morgan Stanley, Goldman Sachs and Credit Suisse on Friday.

Foot Locker (FL) was upgraded from hold to buy at Canaccord and they raised the price target from $42 to $64. Part of the thesis was the move by Nike (NKE) to reduce their retailers from 30,000 to only 40. Foot Locker was one of the 40. Those 30,000 retailers have more than 110,000 locations. Nike said it was not going to remove product from those locations but it was going to focus future efforts on marketing and exclusive product offerings with those top 40 partners. Nike is going to prioritize "direct to consumer" e-commerce sales rather than a major network of small retailers. Nike wants retailers to create a unique "branded" Nike space within their stores. Foot Locker has already put that plan in motion.

Nike will supply trained and experienced sales and marketing people to assist with sales. More than one-third of Nike offerings will be exclusive to Nike.com e-commerce sales. The company is also cutting available styles by 25% starting in January. Canaccord sees Foot Locker as the major Nike retailer with more than 3,350 stores. Foot Locker shares were up 3% but the real winner last week was Nike with a $5 gain to a new 52-week high.

Fitbit (FIT) fell -8% after Stifel Nicolaus cut the stock from hold to sell. The analyst said, "With the stock market near all-time highs, no visibility to monetization of healthcare opportunities, and no opportunity for Fitbit to benefit from corporate tax reform, we cannot advocate owning Fitbit shares. There are no sightlines to profitability" with demand weak for fitness trackers. Earlier in the week, Morgan Stanley said inventory was continuing to build despite the holiday season.

Bitcoin had a rocky week after the CBOE began trading futures last Sunday evening. The coin fell from $18,000 to nearly $13,000 and then rebounded back to $18,000. Volume declined as the week progressed. Volume peaked on the 8th at $22.3 billion traded with Friday's volume at roughly $5 billion in trades according to WorldCoinIndex.com.

The CBOE began trading bitcoin futures last Sunday evening and their website was very slow to down completely for most of the first 6 hours. The CME will begin trading bitcoin futures Sunday night with a 5-bitcoin contract. Several brokers announced on Friday they would allow customers to begin trading and shorting bitcoin futures next week. Up until now, there were only a limited number of traders able to actually buy bitcoin futures. The faster new investors are allowed to trade the futures the less volatility will be seen. Volume reduces volatility as an actual market is created.

Crude prices continue to be dormant. The price has fluctuated between $56-$58 for the last two weeks. There has not been a material move since the OPEC meeting. There have been some daily moves but they were reversed almost immediately. Inventories should continue to decline over the next two weeks then rise again in January after the property tax deadline passes on December 31st. Refiners do not want oil in inventory on the 31st, but there will be a surge of imports beginning the next week. As inventories rise, prices should decline, assuming there are no additional outages. The 450,000 bpd Forties pipeline in the North Sea was shut down last week because of cracks and could be down for a couple weeks. This will help reduce the global inventory levels by about 3.1 million barrels a week until restarted.



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If conventional wisdom ruled the markets, we could expect several more months of stellar gains as investors priced in lower taxes, cash repatriation, higher dividends and more stock buybacks. Unfortunately, the markets are controlled by fear and greed and they tend to look forward months into the future.

That means some portion of the 590 S&P points (28.3%) gained since the election was in anticipation of reduced regulations and tax reform. How many of those points were pulled forward is unknown. Analysts have said that corporate tax cuts to 20% would add 10% to 15% to S&P earnings and that would equate to about 225-275 S&P points. The S&P has already gained 590 in the Trump bump so we have to assume a lot of those 225-275 points have already been pulled forward.

This does not mean the market is not going higher but it does mean we should not expect to see S&P 3,000 by March. Now that FIFO is no longer a threat to holding positions over December 31st, we could see continued gains for the rest of the year. Investors will now want to hold over and not sell until 2018 so they can get the benefit of the lower tax rates.

I continue to believe we could see some increased volatility in January as investors in "low tax rate" stocks like tech stocks, dump those shares in favor of high tax rate sectors where the impact of lower taxes could be dramatic.

Sectors with the highest tax rates according to Goldman:

Energy 35%
Telecom 33%
Industrials 32%
Utilities 31%
Consumer Discretionary 30%
Consumer Staples 30%
Finance 28%
Materials 27%
Healthcare 27%
Technology 24%

The S&P is only 25 points from 2,700. That seems to be a given at this point even though it could produce a minor sell the news dip. With two normally bullish weeks left in December, I have no idea how much higher the index could run. Conventional wisdom would suggest 2,800 could be a target since selling should be limited. Bearish analysts have been predicting tops for weeks and I am sure they will target 2,700 and 2,750 as easily discernible selling points. Personally, if I were bearish, I would take the rest of the year off and sell the open on January 2nd.

Support is now 2,650 with 2,675 as initial resistance.

The Dow broke out to a new high and even with the -31 point drop at the close, it posted a nice gain of 143 points. Resistance was 24,666-24,672 and the Dow traded just over that intraday but fell back at the close. I do not see this as material. I do expect higher highs and the 25,000 level would be the obvious target and a highly visible selling target if there were any shorts left in the market.

The Nasdaq was significantly responsible for the market gains on Friday. The Nasdaq and the Russell 2000 had been lagging. The Nasdaq big caps have been weak for the last three weeks since the sector rotation virus hit the index. The big cap stocks woke up on Friday and the index surged to a new high well over 6,900. The Nasdaq 100 blew out over 6,400 to a new high. I doubt this run is over. These stocks have been lagging so badly that Fridays short squeeze in tech stocks probably has room to run.

The Russell 2000 closed at a three-week low on Thursday with a -1.16% decline. They spiked over two weeks of resistance on Friday with a +1.55% gain. Since small caps are normally favored in December and the tax cut will be beneficial to small corporations, I am surprised the index has not been stronger. It may have been fears the tax bill was going to fail and investors were taking profits. Once it appeared to be a sure win, they raced back into the sector. That is one theory.

Financials were up strongly on Friday and that is 17% of the index. Biotechs were also up strongly along with semiconductors, also large index components. Everything was working in the Russell's favor.

Investor sentiment surged 8% to 45.0% and the first time in five weeks it is over the historical average of 38.5%. This survey closed on Wednesday so sentiment should be higher again next week with all the major indexes at new highs and the tax bill passed.

New market highs tend to produce additional new highs. We are not in a euphoria stage yet and there is just enough weakness every few days to give investors new entry points and keep the party rolling. While there is nothing on the horizon to hold the market back other than the potential for a government shutdown on the 23rd, there is always the risk of profit taking. The market has a million moving parts and it only takes a few to cause a hiccup.

The potential for a government shutdown does not carry as big an impact as in the past. Everyone knows it will only be temporary but the negative headlines could provide a buying opportunity. Just be aware of the potential for some portfolio restructuring in early January.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email


"All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident."

Arthur Schopenhauer 1788-1860

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New Plays

Speech Recognition

by Jim Brown

Click here to email Jim Brown
Editor's Note

Alexa and Siri may be getting better at speech recognition but Nuance has been doing it for two decades. Nuance Communications has been marketing its Dragon dictation software since the mid 1990s.


NUAN - Nuance Communications - Company Profile

Nuance Communications, Inc. provides voice recognition and natural language understanding solutions worldwide. It operates through four segments: Healthcare, Mobile, Enterprise, and Imaging. The Healthcare segment offers transcription solutions, which enables physicians to streamline clinical documentation with medical transcription platform; Dragon Medical, a dictation software that empowers physicians to accurately capture and document patient care in real-time on various devices; clinical document improvement and coding solutions to ensure patient health information is accurately documented, coded, and evaluated; and diagnostic solutions that allows radiologists to document, collaborate, and share medical images and reports. It also provides Dragon professional and personal productivity solutions to business users and consumers. The Mobile segment provides a portfolio of virtual assistants and connected services built on voice recognition, text-to-speech, natural language understanding, dialog, and text input technologies to automotive manufacturers, device makers, and mobile operators. The Enterprise segment offers OnPremise solutions and services, an automated customer service solution comprising speech recognition, voice biometrics, transcription, text-to-speech, and dialog and analytics products; and OnDemand multichannel cloud, a platform that offers enterprises the ability to implement automatic customer service. The Imaging segment provides MFP Scan automation solutions to offer scanning and document management solutions; MFP Print automation solutions to deliver printing and document management solutions; and PDF and OCR software, a technology that enables the capture, creation, and management of document workflows. The company was formerly known as ScanSoft, Inc. and changed its name to Nuance Communications, Inc. in October 2005. Nuance Communications, Inc. was founded in 1992 and is headquartered in Burlington, Massachusetts. Company description from FinViz.com.

Expected earnings Feb 27th.

Nuance took a hit after Q3 earnings because of a malware attack that knocked 11 cents off their results. The still reported 20 cents that beat estimates for 15 cents. Revenue of $$465.9 million declined 8% because of the attack. The company said sales fell -$53 million because customers were unable to process orders on the website. Net new bookings fell 18% to $424.4 million.

On the positive side recurring revenue from subscriptions accounted for 71% of the total making future projections more accurate. Full year bookings rose 10%. Enterprise sales rose 7%.

Also impacting the stock was the downgrade to current quarter guidance because of the unknown repercussions from the malware attack. Recovering lost sales and momentum were hard to determine. They guided for the current quarter for revenue of $486-$500 million and earnings of 19-22 cents.

Shares spiked on the better than expected earnings then immediately declined on the weak guidance. Several analysts thought it was a buying opportunity because the attack was behind them and their cloud offerings were growing steadily.

They did guide for all of 2018 for revenue of $2.03-$2.08 billion and earnings of $1.06-$1.15 per share. That was in line with analyst estimates so it suggests there was no real damage to the business.

Shares went through two weeks of post earnings depression and are now rebounding. Friday's close was a 4-month high.

Buy NUAN shares, currently $16.87, initial stop loss $15.45.
Alternate position: Buy Apr $18 call, currently 95 cents, no initial stop loss.


No New Bearish Plays

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

Bunge Trading

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Russell dropped -1.14% on Thursday to a 3-week low and rebounded 1.55% on Friday to a 2-week high. Every day is a new day in the market. Worries over problems getting the tax bill passed weighed on the market on Friday and expectations for an easy passage on Friday boosted it again. Everyone that shorted stocks on Thursday woke up to a different reality on Friday. The market spiked shortly after the open after Kevin Brady said they had enough votes for passage.

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

NGVC - Natural grocers Vitamin Cottage
The long position was opened with a trade at $8.75.

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BULLISH Play Updates

BOTZ - Global X Robotics AI - Company Profile


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

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.

Update 10/26: Shares of BOTZ fell 50 cents for the biggest one-day drop since the ETF began in September 2016. There was no news but volume of 4.16 million shares was the largest ever and well over the 964,000 historical average.

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.

CHGG - Chegg Inc - Company Profile


No specific news. Shares up with the market.

Original Trade Description: November 27th

Chegg, Inc. operates student-first connected learning platform that help students transition from high school to college to career. The company's products and services help students to study for college admission exams, find the right college to accomplish their goals, get better grades and test scores while in school, and find internships that allow them to gain skills to help them enter the workforce after college. It offers print textbook and eTextbook library for rent and sale; and provides eTextbooks, supplemental materials, Chegg Study service, tutoring service, writing tools, textbook buyback, test preparation service, internships, and college admissions and scholarship services, as well as enrollment marketing and brand advertising services. The company has a strategic alliance with Ingram Content Group Inc. Chegg, Inc. was founded in 2005. Company description from FinViz.com.

Expected earnings Jan 29th.

The company reported Q3 earnings of 1 cent, up from a loss of 3 cents and beat earnings for a loss of 1 cent. Those are not big numbers but the company is investing for the future. Revenue of $62.6 million beat estimates for $57.7 million. The company guided for the full year for revenue of $251-$252 million, up from prior guidance of $241-$243 million.

The company just acquired Cogeon GmbH, a provider of AI driven adaptive math technology and the math app, Math42.com. With access to new original content, they can launch their own math courses to provide self-guided and individualized solutions to more students. This will increase their market share in the high school market. The company is growing at a 26% annual rate.

The company said recent studies showed 64% of high school graduates were not prepared for college level math courses. Some 40% of college freshmen have to take at least one remedial math course.

Citigroup just initiated coverage with a buy rating. With Chegg's 4% penetration into a very large addressable market, there is plenty of room to grow. The analyst said Chegg's business model is a positive feedback loop that aids in new subscriber acquisition and cross-selling. They have a pipeline of new products aimed at expanding the addressable market.

Shares declined after earnings but are rebounding from the post earnings depression.

Position 11/28/17:

Long CHGG shares @ $15.07, see portfolio graphic for stop loss.
Alternate position: Long Apr $17.50 call @ 85 cents, see portfolio graphic for stop loss.

DEPO - Depomed - Company Profile


No specific news. Shares holding at resistance at $8.50.

Original Trade Description: November 25th

Depomed, Inc., a specialty pharmaceutical company, engages in the development, sale, and licensing of products for pain and other central nervous system conditions in the United States. It offers Gralise (gabapentin), an once-daily product for the management of postherpetic neuralgia; CAMBIA (diclofenac potassium for oral solution), a non-steroidal anti-inflammatory drug indicated for acute treatment of migraine attacks in adults; Zipsor (diclofenac potassium) liquid filled capsule, a non-steroidal anti-inflammatory drug for the treatment of mild to moderate acute pain in adults; and Lazanda (fentanyl) nasal spray, an intranasal fentanyl drug used to manage breakthrough pain in adults. The company also provides NUCYNTA ER (tapentadol extended release tablets), a product for the management of pain severe enough to long term opioid treatment, including neuropathic pain associated with diabetic peripheral neuropathy (DPN) in adults; and NUCYNTA (tapentadol), a product for the management of moderate to severe acute pain in adults. In addition, it is involved in the clinical development of Cebranopadol for the treatment of chronic nociceptive and neuropathic pain. The company sells its products to wholesalers and retail pharmacies. It also has a portfolio of license agreements based on its proprietary Acuform gastroretentive drug delivery technology with Mallinckrodt Inc.; Ironwood Pharmaceuticals, Inc.; and Janssen Pharmaceuticals, Inc. Company description from FinViz.com.

Shares of Depomed fell from $11 to $6 in August and traded sideways until sinking before earnings in November. Shares fell to $4.31 ahead of earnings.

They reported earnings of 14 cents that beat estimates for 8 cents. Revenue was $95.4 million. They guided for full year revenue of $375-$380 million. Shares spiked from $4.50 to $6.50 on the news.

They reported the damage to their processing plant in Puerto Rico was less than initially feared and the lost production would be less than $10 million in revenue.

After three weeks of post earnings depression the stock began to rise again in a weak market and closed at a 4-month high on Friday.

Update 12/4: Depomed announced it was contracting with Collegium Pharmaceuticals (COLL) to market its most lucrative product, the Nucynta line of pain killers. The company plans to cut 40% of its workforce and move its headquarters to the Midwest or East Coast where overhead will be cheaper. They are currently in Newark California. They will eliminate all of its painkiller sales force and any brand advertising for the product and collect royalties from Collegium. The company said the layoffs and the move to a lower overhead location would be a significant step in reducing expenses and provide financial and strategic benefits. The company will receive a minimum of $135 million a year in royalties and they are cutting $70 million a year in expenses. Shares were up 5% intraday but faded with the market.

Update 12/6: Shares continued to rise after Depomed announced an exit from opioid sales. Depomed will receive $135 million annually for four years plus royalties from Collegium Pharmaceutical. After 4 years, they will receive a double-digit royalty on sales of Nucynta. This was a good deal for Depomed because they are now out of the opioid business as regulators come down on the sector.

Position 12/4/17:

Long DEPO shares @ $7.27, see portfolio graphic for stop loss.
Alternate position: Long March $8 call @ 65 cents, see portfolio graphic for stop loss.

NGVC - Natural Grocers - Company Profile


No specific news. This position was opened with a trade at $8.75.

Original Trade Description: December 13th.

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 July 27, 2017, it operated 140 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.

Expected earnings Feb 15th.

Natural Grocers, more commonly known as Vitamin Cottage, was given up for dead after they reported earnings of only 3 cents in August. Shares fell 35% to $5.50 and traded sideways for the next three months. In mid November they reported earnings of 6 cents that beat estimates by a penny. Revenue of $198.5 million also beat estimates. They guided for full year earnings of 21-31 cents which was above estimates for 21 cents.

Shares rebounded on the earnings beat and positive guidance. They rallied to $8.50 and stalled at that level. They gained 5.6% on Wednesday. Any further gains targets the next resistance level at $10.50.

I am going to put an entry trigger on this position to make sure they are going to move higher before we jump in.

Position 12/15/17 with a NGVC trade at $8.75

Long NGVC shares @ $8.75, see portfolio graphic for stop loss.
Alternate position: Long March $10 call @ 35 cents, see portfolio graphic for stop loss.

That strike price is well out of the money but we have 3 months and it is cheap. If you buy it, plan on holding it long-term.

SFM - Sprouts Farmers Market - Company Profile


No specific news. Decent gain to close at a 4-month high but not quite free of resistance yet.

Original Trade Description: December 4th.

Sprouts Farmers Market, Inc., a healthy grocery store, provides fresh, natural, and organic food in the United States. The company's stores offer fresh produce, bulk foods, vitamins and supplements, packaged groceries, meat and seafood, deli products, baked goods, dairy and dairy alternatives, frozen foods, body care and natural household items, and beer and wine. As of May 04, 2017, it operated 280 stores in 15 states. The company was founded in 2002 and is based in Phoenix, Arizona. Company description from FinViz.com.

Sprouts was written off as dead after Amazon bought Whole Foods. However, just like Whole Foods is not a competitor to Costco, they are not a competitor to Sprouts either. Sprouts is not a "grocery" store. They are an organic produce store with meat and dairy and a few other items. They are a specialty store for organic products. Whole Foods had this original concept but morphed into more of a full service grocery store with organic products.

Some readers may disagree with me on the comparison but Sprouts is making money and Whole Foods was struggling and that is the bottom line.

For Q3 revenue rose 16% and same store sales rose 4.6%. Gross margins of 29.1% are far superior to grocery store margins and only 40 basis points below the peak in 2016 before the competition heated up.

Expected earnings Feb 1st.

Why Amazon? Sprouts has 280 stores spread across the country but only 7% are on the east coast where Aldi and Lidl are turning grocery shopping into a competitive sport. They are not going to be hurt by those big chains.

The small footprint and market cap of only $3 billion makes Sprouts an add on to Whole Foods. Since the companies are similar in that they are all organic, it would be a slam dunk for Amazon to double the size of their footprint on the cheap. Organic buyers spend more money than normal shoppers. The stores are in upscale neighborhoods and customers are likely Amazon Prime members.

Sprouts already has a partnership with Amazon with 2 hour home delivery to Prime customers. They just expanded the service area from the original 8 cities and that is another reason Amazon could scoop them up and head for the express checkout isle.

Shares have recovered from their Whole Foods reaction dip in August and are very close to breaking out to a new high. There is resistance just under $25 but the stock is moving up aggressively on their good earnings and guidance.

In order to get an option after the Feb earnings we have to reach out to March. They are a little more expensive than those I normally recommend in this newsletter. However, while the January options are cheaper, they will decay faster as we approach the December expiration in two weeks. You get what you pay for. As a compromise, I am going to use the $27.50 call instead of the $25 call. You can choose which call strike/series you like.

Update 12/12: IBD upgraded SFM to a 95% composite rating and 80% relative strength rating.

Position 12/5/17:

Long SFM shares @ $24.09, see portfolio graphic for stop loss
Alternate position: Long Mar $27.50 call @ 80 cents, see portfolio graphic for stop loss.

YRCW - YRC Worldwide - Company Profile


No specific news. Shares rebounded slightly with support at $14.

Original Trade Description: December 9th.

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

YRCW reported Q3 earnings of 22 cents that missed estimates for 28 cents. Revenue of $1.25 billion matched estimates. Shipments were impacted by the hurricanes in Texas and Florida. Shares traded sideways on the miss.

Regional shipments increased 4.0% despite the hurricane impact. Revenue per hundredweight ros 3.4% and revenue per shipment rose 3.8%. That was the highest revenue per hundredweight increase in more than 3 years. They are refreshing the fleet to more economic tractors and transitioning 8 terminals to become regional distribution centers. This will add capacity and reduce costs.

Expected earnings Feb 1st.

The entire transportation sector crashed in late October and early November and that knocked 25% of YRCW shares. The rebound started in mid November and shares have recovered all the loss and are close to a breakout to a new 52-week high.

Update 12/11: After the bell, YRC provided an operational update for November. Tonnage per day increased 1.1%, revenue per hundredweight rose 3.7%. Revenue per shipment rose 5.0%. Regional tonnage per day rose 6.0%, revenue per hundredweight rse 0.8% and revenue per shipment rose 4.1%. Overall these were some good numbers.

Position 12/11/17:

Long YRCW shares @ $14.20, see portfolio graphic for stop loss.
Alternate position: Long Jan $15 call @ 71 cents, see portfolio graphic for stop loss.

This is a short-term call and we will need to be out of it by the end of December. The next available option series was April at double the cost.

BEARISH Play Updates

VXX - Volatility Index Futures - ETF Description


Since this is a long-term slow moving ETF 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.

XONE - Exone Co - Company Profile


No specific news. Shares posted another decline of 4.3%. Target is $7.

Original Trade Description: December 11th.

The ExOne Company develops, manufactures, and markets three dimensional (3D) printing machines, 3D printed and other products, materials, and services primarily in North America, Europe, and Asia. The company provides various machines that enable designers and engineers to design and produce industrial prototypes and production parts. Its machines include Exerial, S-Max/S-Max+, and S-Print, which are indirect printing machines; M-Print, M-Flex, and Innovent that are direct printing machines; and MWT industrial grade microwaves. The company also supplies associated materials comprising consumables and replacement parts; and other services, such as training and technical support services. It markets its products to industrial customers and other end-market users in the aerospace, automotive, heavy equipment, energy/oil/gas, and other industries under the ExOne brand name. The ExOne Company was founded in 2005 and is headquartered in North Huntingdon, Pennsylvania. Company description from FinViz.com.

Expected earnings Feb 8th.

The company reported a Q3 loss of 30 cents on revenue of $15.9 million. Those anemic numbers came after a 32% increase in machine revenue and 13% increase in non-machine revenues. It makes you wonder how bad it would have been if revenues had not surged.

The stock has rolled over and is heading lower at a rapid pace. With earnings on Feb 8th, we can buy a $10 February put for 90 cents. This is strictly a bet on the falling chart and the fact that investors are dumping this stock before year-end.

Poition 12/12/17:

Short XONE shares @ $10.39, see portfolio graphic for stop loss.
Alternate position: Long Feb $10 put @ 90 cents, 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.

AMD - Advanced Micro Devices - Company Profile


Shares closed at a 2-week high after the semiconductor sector rebounded with the Nasdaq. AMD announced a partnership with Baidu ABC Datacenters to offer AMD powered platforms in the cloud. We have a long-term call position remaining.

Original Trade Description: November 4th

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 Jan 23rd.

Nvidia (NVDA) shares were rocked again last week after news broke that Tesla was looking at options other than 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.

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.

AMD reported earnings of 10 cents compared to analyst estimates for 8 cents. Revenue of $1.64 billion rose 25.7% and beat estimates for $1.51 billion. Shares collapsed in afterhours after the company guided for a 12% to 18% decline in Q4 revenue to around $1.34-$1.44 billion and analysts were expecting $1.34 billion. Based on analyst expectations that lower guidance was not that bad but it is the principle of lower guidance that sends investors running for the exits.

The new CEO for AMD, Lisa Su, said in an interview last week that with 10 major product launches this year, AMD has completely restructured its product portfolio. "This shift is perhaps one of the most ambitious product ramps that has been done, certainly in AMD's lifetime."

The new Ryzen Mobile combines the best points of the Zen processor and the best of the Vega product and the most recent graphics architecture into a single product. No other company has been able to combine premium processor cores from both categories and merge them into a single chip that runs in an ultra-thin notebook.

HPQ, Lenovo and Acer have announced products that will ship this quarter in time for holiday shopping. AMD products have found new popularity in the key retailer market. Su said they had captured 50% of sales at Amazon and Newegg, the two biggest online computer marketplaces. Processor revenue rose 74% in the latest quarter. Their new AI product, MI25, is already shipping in quantity to data centers around the world and acceptance was accelerating.

I think analysts were wrong on the Q3 earnings. I believe AMD is right on the edge of a resurgence that will make the company a real competitor again.

I am using the April options to get us past their January earnings. When we exit before the event the options will still have an expectation premium.

Update 11/6/17: AMD and Intel could have waited one more day before announcing a partnership to combine AMD's graphics chip with an Intel processor and High Bandwidth Memory to create a thinner and lighter chip for laptops with top tier visual performance. This was rumored several weeks ago but Intel denied it at the time. On Oct 10th, I wrote this.

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 was no longer referenced on the website. Vega Inside

Update 11/8/17: AMD's head of the graphics chip unit, Raja Kordui, announced his resignation. This creates big sentiment problems for AMD. He said he was leaving to spend more time with his family but why would a highly successful department head exit right on the eve of a major product expansion? Of course AMD said this would not impact their direction and future goals but Kordui was credited with making AMD GPUs competitive with Nvidia and kept Nvidia from dominating the space. CEO Lisa Su will assume Kordui's role until a replacement is named. She is by far the most intelligent and dynamic CEO the company has ever had and she is more than capable of occupying both positions.

Update 11/27/17: Benchmarks on AMD's new Ryzen 5 5200U processors showed they beat Intel's 7th generation counterparts by a wide margin and came close to the newest 8th generation Kaby Lake products for a significantly lower price point. Their GPU products outperformed Intel's and maintained parity with Nvidia. That means their performance gap did not increase.

Update 11/28/17: Mizuho warned that cryptocurrency demand for chips could slow in 2018. The chip sector declined with Nvidia and AMD taking the heat. Nvidia only gets $80 million a year from GPU sales for currency mining. AMD gets nearly $500 million.

Update 12/5/17: AMD shares took another hit after Nvidia announced the new Titan V video GPU card aimed at super high performance video, AI and neural networks. This card is 9 times more powerful than the prior Titan Xp that was announced in April. This is the kind of performance advances that makes Nvidia unbeatable in the video market.

Position 11/6/17:

Long April $12 call @ $1.50, see portfolio graphic for stop loss.

Previously Closed 12/4/17: Long AMD shares @ $12.04, exit $10.50, -1.54 loss.

EXTR - Extreme Networks - Company Profile


No specific news. We have a long-term call position remaining.

Original Trade Description: November 25th

Extreme Networks, Inc. provides software-driven networking solutions for enterprise customers worldwide. The company designs, develops, and manufactures wired and wireless network infrastructure equipment; and develops the software for network management, policy, analytics, security, and access controls. It offers edge/access Ethernet switching systems that delivers Ethernet connectivity for edge of the network; aggregation/core Ethernet switching systems for aggregation, top-of-rack, and campus core environments; data center switching systems for enterprises and cloud data centers; and wireless access point products, as well as distributed Wi-Fi networks. The company also provides ExtremeControl, a network access control solution that allows the enterprises to unify the security of their wired and wireless networks with visibility and control over users, devices, and applications; and ExtremeAnalytics, a network-powered application analytics and optimization solution, which captures, aggregates, analyzes, correlates, and reports network data that enables in decision making and enhancing business performance. In addition, it offers ExtremeCloud, a wired and wireless cloud network management solution, which offers advanced visibility and control over users and applications. The company sells and markets its products through distributors, resellers, and field sales organizations. It serves enterprises and organizations in education, healthcare, manufacturing, hospitality, transportation, and logistics, as well as government agencies. Company description from FinViz.com.

Over the last year Extreme bought the networking assets of Avaya after they went bankrupt. They also bought the networking assets from Brocade, a company that is being acquired by Broadcom. They also acquired the wireless networking unit from Zebra Technologies (ZBRA) in a restructuring move. Each of these assets they acquired for less than half annual sales. This is a bargain in the tech world. They also acquired the customers from these acquisitions and have begun cross selling to them from their other product lines. Extreme is no longer a bit player in the networking sector but has grouped together end to end solutions.

In the last quarter, they grew revenue by 73%. Earnings rose from 7 cents to 16 cents and beat estimates for 14 cents. They are targeting margins of 60% in future quarters. Revenue was $211.7 million and they guided for $236-$246 million in the current quarter.

Expected earnings Feb 6th.

The key to Extreme's progress is software networking. The industry is moving from hard coded command line interface routers and switches to Windows like interfaces that can be operated by lower skilled operators rather than high dollar network technicians proficient in Cisco router code.

Shares have rallied sharply over the last two weeks but I believe they have farther to go because the recent earnings surprised investors.

Position 11/27/17:

Long Mar $15 call @ $1.15, see portfolio graphic for stop loss.

Previously Closed 11/29: Long EXTR shares @ $13.81, exit $12.25, -1.56 loss.

FINL - Finish Line - Company Profile


No specific news. Shoe companies are rising after Nike and Foot Locker both received upgrades.

Original Trade Description: October 21st

The Finish Line, Inc., together with its subsidiaries, operates as a retailer of athletic shoes, apparel, and accessories for men, women, and kids in the United States. The company offers athletic shoes, as well as an assortment of apparel and accessories of Nike, Brand Jordan, adidas, Under Armour, Puma, and other brands. It engages in the in-store and online retail of athletic shoes for Macy's Retail Holdings, Inc.; Macy's Puerto Rico, Inc.; and Macys.com, Inc., as well as online at macys.com. As of April 2, 2017, the company operated 573 Finish Line stores in 44 states in the United States and Puerto Rico. It also operates e-commerce site, finishline.com and mobile commerce site, m.finishline.com. The company was founded in 1976 and is based in Indianapolis, Indiana. Company description from FinViz.com.

This is a simple scenario. UK retailer Sports Direct has acquired an 8% interest in Finish Line as it tries to expand its presence in the USA. Sports Direct was acquiring additional shares through third parties in order to force an acquisition. In late August, Finish Line adopted a poison pill to prevent a forced takeover. Since that pill was enacted, the companies have been in discussions and insiders claim the deal is moving along nicely towards completion.

Wells Fargo said there was at least a 50% probability the deal would happen and they are targeting a sale in the $14 - $16 range. Shares are currently trading at $10.50 and EBITDA of 4.5. Wells Fargo said that would be the cheapest takeout in years. Staples was bought by Sycamore for 5.5 times in September. Since Staples had not posted positive comps in 10 years they believe Finish Line will be sold for more than the Staples rate.

Shares jumped on Friday after the company declared an 11-cent dividend.

I am recommending as own this stock ahead of earnings on Dec 22nd. If there is going to be a deal announced it should happen on or before earnings.

Update 10/31/17: Shares fell sharply on the Under Armour revenue drop and weak guidance. We were stopped out of the stock.

Position 10/23/17:

Long Feb $12 call @ 75 cents, see portfolio graphic for stop loss.

Previously closed 10/31: Long FINL shares @ $10.49, exit $9.50, -.99 loss.

INVA - Innoviva Inc - Company Profile


No specific news. Shares have rebounded to resistance.

Original Trade Description: November 15th

Innoviva, Inc. engages in the development and commercialization of bio-pharmaceuticals. Its portfolio of respiratory products include RELVAR/BREO ELLIPTA, (fluticasone furoate/ vilanterol, FF/VI) and ANORO ELLIPTA (umeclidinium bromide/ vilanterol, UMEC/VI). The company, under its the Long-Acting Beta2 Agonist (LABA) collaboration agreement and the strategic alliance agreement with Glaxo Group Limited (GSK), is entitled to receive royalties on the sales of RELVAR/BREO ELLIPTA; and a 15% of any future payments made by GSK under its agreements relating to the combination FF/UMEC/VI and the Bifunctional Muscarinic Antagonist-Beta2 Agonist program, as monotherapy and in combination with other therapeutically active components. It has LABA collaboration agreement with GSK to develop and commercialize once-daily LABA products for the treatment of chronic obstructive pulmonary disease and asthma. The company was formerly known as Theravance, Inc. and changed its name to Innoviva, Inc. in January 2016. Innoviva, Inc. was founded in 1996 and is headquartered in Brisbane, California. Company description from FinViz.com.

Expected earnings January 24th.

Innoviva reported earnings of 21 cents ($23.8 million) compared to estimates for 33 cents. Revenue was $48.6 million. Yes, earnings were nearly 50% of revenue. Adjusted EBITDA rose 39% to $46.0 million. Cash onhand was $168.2 million. They received $51.9 million in royalties from Glaxo Group (GSK).

Shares crashed nearly $3 on the earnings miss despite very positive business comments from the company. Their new drugs now being marketed by Galxo were dowing well. The sales of Relvar/Breo Ellipta rose 40% to $297.4 million. Sales of Anoro Ellipta rose 51% to $111.9 million. They received a positive opinion in September from the EU Medicine Agency for Trelegy Ellipta for COPD. They received approval for the same drug from the FDA. Read further business updates in their release HERE.

Everything looks bright for INVA and their strong relative strength in a weak market suggests they will do well when the market recovers.

Position 11/16/17:

Long March $15 call @ 60 cents, see portfolio graphic for stop loss.

Previously Closed 12/7: Long INVA shares @ $13.03, exit $12.76, -.27 loss.

RDN - Radian Group - Company Profile


No specific news. The trend is still positive and that was a 9-yr high on Dec 12th.

Original Trade Description: December 6th.

Radian Group Inc., through its subsidiaries, provides mortgage and real estate products and services in the United States. It operates through two segments, Mortgage Insurance and Services. The Mortgage Insurance segment offers credit-related insurance coverage, principally through private mortgage insurance that protects mortgage lenders and third-party beneficiaries by mitigating default-related losses on residential mortgage loans made to home buyers, as well as facilitates the sale of these mortgage loans in the secondary mortgage market. It provides primary mortgage insurance coverage on residential first-lien mortgage loans. This segment primarily serves mortgage bankers, mortgage brokers, commercial banks, savings institutions, credit unions, and community banks. The Services segment offers outsourced services, information-based analytics, valuations, and specialized consulting and surveillance services for buyers and sellers of, and investors in, mortgage- and real estate-related loans and securities, and other consumer asset-backed securities. This segment provides loan review and due diligence, monitoring of mortgage servicer and loan performance, real estate valuation and component services, real estate owned asset management services, and outsourced mortgage services. It primarily serves financial institutions, government-sponsored enterprises, securitization trusts, investors, regulators, and other mortgage-related service providers. Radian Group Inc. was founded in 1977 and is headquartered in Philadelphia, Pennsylvania. Company description from FinViz.com.

Expected earnings Jan 25th.

Radian reported Q3 earnings of 46 cents that beat estimates for 42 cents. Revenue rose 3% to $270 million. Mortgage insurance written rose 3% to $15.1 billion. Total primary mortgage insurance in force rose 8% to $196.8 billion. Deliquent loans were flat for the quarter. The company said defaults were declining.

The company provides mortgage insurance for credit worthy buyers who do not have the 20% down payment to avoid the insurance requirement. This means more millennials are able to buy houses and they are the population sector with rising incomes and trying to build their credit while buying homes to raise a family.

The company just completed the sale of Clayton EuroRisk, a provider of outsourced mortgage services in Europe, to a global investment firm. Radian is trying to focus on its core business in order to reduce expenses and maximize profits.

Shares gained $1 on the news four days ago and then moved sideways until today. Shares posted a minor gain but closed at a new nine-year high. (post financial crisis)

Update 12/13/17: Shares declined for the second day with the weak market putting a drag on the stock. The stock hit a 9-year high on Tuesday. We were stopped out of the stock position at the close when the stock hit $21.45. The option position will move to the lottery play section.

Position 12/7/17:

Long Feb $23 call @ 65 cents, see portfolio graphic for stop loss.

Previously Closed 12/14: Long RDN shares @ $21.89, exit $21.45, -.44 loss.

STM - ST Microelectronics - Company Profile


No specific news. Shares were down with the sector in late November.

Original Trade Description: November 11th

STMicroelectronics N.V., together with its subsidiaries, designs, develops, manufactures, and markets semiconductor products, and subsystems and modules worldwide. The company offers a range of products, including discrete and standard commodity components, application-specific integrated circuits, full-custom devices and semi-custom devices, and application-specific standard products for analog, digital, and mixed-signal applications, as well as silicon chips and smartcards. It also provides subsystems and modules, including mobile phone accessories, battery chargers, and ISDN power supplies for the telecommunications, automotive, and industrial markets; and in-vehicle equipment for electronic toll payment. The company sells its products through its distributors and retailers, as well as through sales representatives. STMicroelectronics N.V. was founded in 1987 and is headquartered in Geneva, Switzerland. Company description from FinViz.com.

STM reported earnings of 28 cents rose 136% on revenue of $2.14 billion, which rose 19%. Analysts were expecting 24 cents and $2.09 billion. Earnings were boosted by multiple products in the Apple product line. All product groups reported double-digit revenue growth with strong demand across all geographies. The CEO said "we continue to see strong demand in Q4 across all products and all geographies with strong booking activity and the expected acceleration of growth serving wireless applications. Revenue should increase 10% in Q4."

Expected earnings January 25th.

Demand is surging for their new "time of flight" sensors, which Apple is buying as a proximity or motion detector for the iPhones.

Last week STM announced a new, faster wireless charging QI extended power chip for phones and tablets. The chip supports the very latest QI standard for faster charging. By raising the power from 5W to 15W phones can charge three times faster.

I have looked at playing STM a dozen times over the last several months and kept waiting for a pullback that never came. Shares dipped on Thursday with the chip sector but immediately rebounded. I believe the chip sector will remain hot and STM will continue higher. With the earnings beat and strong guidance there should be nothing holding it back.

Update 11/27: STM created a tiny motor driver chip that brings finer motion control to laboratory automation, industrial robots, 3D printers and other applications. The chip offers a smaller size, lower power consumption and precise micro stepping delivering greater precision.

Position 11/13/17:

Long April $25 call @ $1.70, see portfolio graphic for stop loss.

April is the only option series that allows us to exit before earnings but still have the expectation in the option price.

Previously Closed 11/29: Long STM shares @ $23.56, exit 23.85, +.29 gain.

SVU - Supervalu - Company Profile


Supervalue completed the acquisition of Associated Grocers. This will increase their share of specialty and organic foods. They also updated their partnership with Instacart to allow shoppers to purchase more products online for pickup in the stores using a drive up service where the merchandise is delivered to their cars.

Original Trade Description: October 28th

SUPERVALU INC., together with its subsidiaries, operates as a grocery wholesaler and retailer in the United States. The company operates through two segments, Wholesale and Retail. The Wholesale segment engages in the wholesale distribution of various food and non-food products to independent retail customers, such as single and multiple grocery store operators, regional chains, and the military. This segment also provides various services, such as retail store support, advertising, couponing, e-commerce, network and data hosting solutions, and training and certification classes, as well as administrative back-office solutions. As of February 25, 2017, this segment operated approximately 1,902 stores with a network spanning 40 states. The Retail segment operates retail stores that provide groceries and various additional products, including general merchandise, home, health and beauty care, and pharmacy products. This segment operated 217 stores under the Cub Foods, Shoppers Food & Pharmacy, Shop 'n Save, Farm Fresh, and Hornbacher's banners, as well as 2 Rainbow stores. The company's stores offer a range of branded and private-label products comprising perishable and nonperishable grocery products. SUPERVALU INC. was founded in 1871 and is headquartered in Eden Prairie, Minnesota. Company description from FinViz.com.

Supervalu has morphed into more of a wholesaler of groceries than a retailer. Given the movement by Amazon and Walmart into online groceries that may be the way to go.

For Q3 they reported adjusted earnings of 46 cents that beat estimates for 36 cents. Revenue of $3.8 billion narrowly beat estimates for $3.79 billion. Wholesale sales rose 63% from $1.7 billion to $2.7 billion while retail and corporate sales were flat. They announced the acquisition of Associated Grocers of Florida for $180 million. Associated had revenue of $650 million for the trailing 12 months. This is a major bolt on acquisition where they can add value and scale and increase their presence in Florida, the Caribbean, South America and Asia. In June they completed the acquisition of Unified Grocers, an active distributer on the West Coast for $390 million. Unified had revenue of $3.8 billion in 2016.

Shares of SVU have been declining since their high of $84 in April 2015. With these two acquisitions and the sale of the Sav-A-Lot division in 2016, the company is turning the business around. I like that they are reducing their exposure to retail and all the expenses and employee related hassles that go with running a retail grocery store. By focusing on the wholesale business they can reduce overhead and expand their reach and their profit margins.

Who knows, maybe Amazon will decide they need to buy a wholesale grocery distributor.

Earnings Jan 17th.

Position 10/30/17:

Long Jan $18 call @ $1.05, see portfolio graphic for stop loss.

Closed 11/8: Long SVU shares @ $16.13, exit 15.65, -.48 loss.

SYNT - Syntel - Company Profile


Shares gapped down on Tuesday to stop us out of the long stock position but shares have rebounded and are threatening to break out once again. This is a very long term position.

Original Trade Description: November 18th

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

Syntel reported earnings of 51 cents that beat estimates for 41 cents. Revenue of $231.3 million also beat estimates for $218.2 million. For the full year they guided for earnings of $1.81-$1.88 and revenue of $890-$902 million. They ended the quarter with $109 million in cash.

Business is good and a highly qualified labor force has allowed them to reduce their employee coult from 23,055 last year to 21,928 at the end of Q3. The CEO said the demand for digital services was robust and the insurance segment continued to post healthy growth.

Shares spiked from $19 to $25 on the earnings in mid October. After a month of post earnings depression the uptrend has returned with the stock back at $25.

Because the stock is a few pennies over $25 the next available option strike is the $30 level. There is no open interest in Dec/Feb series. I am going to reach out to May where there is open interest of 415 contracts and there is actually a bid and ask quote. We do not have to hold the position until May but should we get lucky and Syntal makes a breakout, the long dated options will inflate relatively quickly.

Update 12/12: Shares hit a new 52-week high on Monday and dropped $2 at the open today to stop us out of the stock position. The drop came after Goldman downgraded them from neutral to underweight (sell).

Position 11/20/17:

Long May $30 call @ $1.05, see portfolio graphic for stop loss.

Previously Closed 12/12: Long SYNT shares @ $25.00, exit $24.00, -1.00 loss.

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