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Newsletter

Daily Newsletter, Saturday, 1/13/2018

Table of Contents

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

Market Wrap

Irrational Exuberance

by Jim Brown

Click here to email Jim Brown

Alan Greenspan must be taking sleeping pills at night after this recent rally.

Weekly Statistics

Friday Statistics

After a strong first week, the markets opened sharply lower on Monday but immediately rebounded to finish the week sharply higher. The Dow gained 2%, small caps 2%, biotechs, banks and brokers 3% and oil and the transports up more than 4%. Euphoria is breaking out all over.

This has turned into a classic FOMO market (fear of missing out). The difference in the market over the last four weeks could not be more profound. The last two weeks of 2017 were dead flat with the Dow closing at 2-week lows. The first two weeks of 2018 have been nearly vertical with the Dow gaining 1,083 points in only nine days. If we gain another 200 points next week to 26,000 it will be the fastest ramp ever between 1,000 point levels.

The market has now posted the best two weeks to start the year since 2003 and S&P targets just keep rising. Fundstrat's Tom Lee said his base case for 2018 is now 3,025 on the S&P but we could easily see 3,300. Let's hope he is right.


In a strange twist of circumstances, the AAII investor sentiment survey retreated from the 59.8% high for bullish sentiment we saw last week. This survey does end on Wednesday and that was the day the market dipped sharply by -130 points at the open on the China worries. It is entirely possible that one hiccup seriously dented sentiment. I am sure the back-to-back 200-point gains on Thr/Fri have converted some of those fence sitters back into the bullish camp. Next Wednesday's survey will be interesting.

The prior week's 59.8 bullish reading was the highest level in 7 years. The last time sentiment was that bullish was December 23rd, 2010 at 63.3%. Bearish sentiment at 15.6% was the lowest since November 6th, 2014 with the historical average 30.5%. Even without the Dow dip on Wednesday, we were due for sentiment to fade slightly.


Helping lift the market on Friday was the retail sales report for December. The headline number rose +0.4% and just slightly under estimates for +0.5%. The number for November was revised higher by one tenth to 0.9%. Building materials and nonstore retailers saw the biggest rise at 1.2% each. Food service rose +0.7%, furniture and furnishings +0.6%, food and beverages +0.5% and general merchandise +0.1%. Sporting goods fell -1.6%, clothing -0.3% and electronics/appliances -0.2%.

It was a strong holiday season with October rounding out the quarter at +0.7%. Overall December sales were 5.4% above December 2016.

The Consumer Price Index (CPI) rose only 0.1% for December indicating that inflation is still weak. The headline number was weakened by a -1.2% decline in energy prices. The core CPI, excluding food and energy, rose +0.3%. Natural gas was a big drag and offset rising oil prices. Food prices rose +0.2%. The core CPI is up only 1.8% over year ago levels. However, services are up 2.6% while goods are down -0.8%. Goods inflation has been negative on a year over year basis since February 2016. The Fed is going to be hard pressed to hike rates more than 2-3 times in 2018.

The California Manufacturing Survey for Q1 slipped from 64.9 to 61.8. Anything over 50 is growth so they are still expecting the economy to expand but at a slightly slower rate. Despite the decline in the headline number, the index is still at historical highs. New orders declined from 69.1 to 65.4 and employment fell from 62.5 to 57.6. The commodity cost component rose from 72.7 to 76.2 suggesting future prices for goods are going to rise.

Business inventories rose +0.4% in November, up from a -0.1% decline in October. The October number was revised up to zero. Wholesalers saw a 0.8% rise in inventories and manufacturers inventories rose +0.4%.

The economic reports for the week combined to lift the Atlanta Fed real time GDPNow forecast for Q4 to 3.3% growth. This is up from 2.8% on January 10th. If these numbers hold and there is no reason why they should not, this will be the third consecutive quarter of GDP growth over 3% and this has not happened since early 2005. The first release of the actual Q4 numbers will be on January 26th and any number over 3% is going to get a lot of press and that will help to lift the economy even further if people begin to believe this economic recovery is in rally mode. Strong growth promotes additional growth.


There are no market moving economic reports due out next week. The Philly Fed Survey and the Fed Beige Book are the most watched but they are not likely to get anyone excited.

The biggest challenge is going to be the potential government shutdown on Friday. After the preliminary agreement was shot down on Thursday and President Trump made the s***hole comment, the democrats are even more determined to shove their immigration desires through the process. However, Trump is not the guy you want to push into a corner or unexpected events could occur. The president has 46.6 million followers on Twitter and he is not afraid to use that pulpit. He is already slamming them and their "missed" DACA opportunity on Twitter a couple times per day.

The odds of a government shutdown appear to be increasing but there is always the possibility of another can kick down the road in order to buy more time on the budget resolution.


The Q4 earnings cycle has begun with several of the big banks reporting on Friday. The cycle will gain some speed next week with four Dow components and another round of banks reporting.

So far, 26 S&P companies have reported and 76.9% have beaten earnings estimates and 84.6% have beaten on revenue. The current earnings forecast is for 12.1% earnings growth and 7.0% revenue growth. There have been 70 earnings warnings for Q4 and 45 positive guidance upgrades. There are 27 S&P companies reporting this week.


Facebook (FB) shares were knocked for an $8 loss on Friday after Mark Zuckerberg said they were making changes to the news feed to prioritize user interactions and reduce the amount of non-advertising content from publishers and brands. Facebook has been criticized for allowing too much fake news into user pages and this is one way they are going to try and combat it. The company said the new ranking system would hurt non-advertising content from publishers and brands, like news stories and viral video posts, but not change the ranking of paid advertisers.

Shares were crushed because Zuckerberg said page views and user time on Facebook could decline with the change. However, what this means is that publishers and advertisers will have to pay up and increase their spending to get the same number of page views they got in the past. Advertising agencies immediately warned that prices would go up. With fewer opportunities and more advertisers bidding for those opportunities, it becomes a seller's market. Analysts were at first worried it would impact revenue for Facebook but if you read the news it says "non-advertising content" will be restricted. I believe this is a buying opportunity.

There is strong support at $176 from the 100-day average, uptrend support and horizontal support. You know they are going to beat on earnings estimates when they report on January 31st. Lastly, Zuckerberg has warned three times before on changes they were going to make to the news feed and every dip was bought.


Gamestop (GME) shares fell 11% after they reported a big spike in holiday sales. The problem came from an impairment charge of $350-$400 million related to their technology brands business. They said gamers were not upgrading their phones as rapidly as in the past. The longer upgrade cycle, limited availability on the iPhone X and changes made by AT&T to the compensation structure prompted the charge.

For the 9-week holiday period same store sales rose 11.8% globally and 18.7% in the US. Overall sales rose 10.6% to $2.77 billion. Hardware sales rose 38.3% thanks to the Nintendo Switch and Xbox One X. Video game accessory sales rose 33.7% but pre-owned sales declined -8.1%. They guided for full year 2017 earnings "near the middle" of prior guidance for $3.10-$3.40 and same store sales growth of 4% to 6%.

If the chart were not so ugly, I would have said this was a buying opportunity as well. Their sales are exploding and they are writing off the phone business. However, they have been plagued with constant gaps lower on earnings and they will not report actual earnings until late March.


A rumor broke shortly before Friday's close that Viacom (VIAB) and CBS (CBS) were talking about merging. The two companies were one over a decade ago and split. Both are controlled by Sumner Redstone or more correctly by his daughter Shari Redstone. She is vice chairman of both companies. Shares shot higher but less than an hour later the rumor was rebutted saying the companies were not involved in active discussions.

Apparently, Shari had discussed at some point in the past the idea of recombining the two companies because one larger company would have a better chance of competing in today's market. There was an attempt to talk up a merger in 2016 but it failed. Shares declined only slightly off their highs despite the rumor denials. Even in afterhours, shares held their closing levels. Traders are probably thinking "where there is smoke, there is fire" and just talking about it in the news could rekindle the merger talks from 2016.


Kohl's (KSS) shares rallied to a new two-year high after RBC Capital and JP Morgan upgraded the stock on the same day. RBC upgraded from sell to neutral but JPM upgraded from neutral to overweight, the equivalent of a buy rating. Citigroup reiterated a buy rating and $69 price target on Wednesday. JPM called Kohl's a "rare large cap 'value' idea." The analyst said the company focused on households earning over $75,000 a year and with store locations outside of malls. They expect Kohl's to generate multi-year high-single to low-double-digit EPS growth.


Lowe's (LOW) shares rallied 5% after news broke that activist investor D.E. Shaw was building a stake in the company. The firm plans to agitate for changes at Lowe's. The store needs some help. While Home Depot raised earnings estimates significantly after the hurricanes, Lowe's kept full year estimates the same and below analyst forecasts. The store chain is not as aggressive as Home Depot and they are losing the market share battle. Their prices are also higher than Home Depot for the same items. On the positive side, Lowe's locates its stores in higher income areas that can afford the higher prices.


Aflac (AFL) shares fell 7% after a story in The Intercept claiming the company was defrauding its contractors. Supposedly, the company pushes a high-pressure contract scheme on employees. Reportedly, the company exploits its employees by forcing them to register as contractors and then pressure them with sales goals that push workers to sell policies to customers without the customer's consent. They also claimed that Aflac attracted new sales associates and contract positions with the promise of earning an unrealistic amount of money, with new hires only making a small percentage of those promised earnings. Then Aflac reportedly pushes these new associates to sell policies to friends and relatives, while also making them targets to be recruited.

The article in the Intercept was only the first in a series of articles that claims they will explain in detail how Aflac implements this scheme, pending lawsuits on these claims and what employees have to say about the scheme. Aflac spokesman Jon Sullivan said "these allegations are baseless and we will be filing to have the suits dismissed." These claims are being propagated by a very small number of contractors and does not represent the thousands of Aflac employees.


JP Morgan (JPM) reported earnings of $1.07 compared to estimates for $1.69. Revenue of $25.45 billion beat estimates for $25.15 billion. However, the earnings included a 69-cent charge or $2.4 billion for accounting changes caused by the tax reform law. Excluding the charge the net income would have been $6.7 billion, down -1% from the year ago level. Provision for credit losses rose from $864 million to $1.3 billion. The bank took a mark to market loss of $143 million for a margin loan to a single account.

Corporate and investment banking net income fell 32% from $3.43 billion to $2.32 billion with revenues declining -12%. Revenue in markets and investor services fell -22% caused by a 26% drop in markets revenue.

The results were definitely lackluster but shares spiked nearly $2 to a new high. The motive power came from rousing comments from Jamie Dimon that despite the big charge for tax changes, the new law would make banks more competitive on a global basis and more profitable in future quarters. Unless revenue begins to rise again he is going to have a tough task proving those comments.


Wells Fargo (WFC) reported earnings of $1.16 compared to estimates for $1.23. Revenue of $22.05 billion missed estimates for $22.45 billion. The bank reported a $3.35 billion benefit from the tax bill where other banks have large liabilities. Wells had a tax deferred liability instead of deferred tax assets held by the other banks. Unfortunately, they also booked a $3.25 billion charge for litigation related to their past problems related to bogus accounts, car insurance forced on auto-loan customers and bogus fees assessed on mortgage loan clients.

Residential mortgage originations were $53 billion, down from $59 billion in Q3. Auto loan originations declined 33% to $4.3 billion as they intentionally cut back on that sector. Loan loss provisions declined from $805 million to $651 million.


Blackrock (BLK) reported earnings of $6.24 compared to estimates for $6.07. Revenue of $3.47 million also beat estimates for $3.35 billion. For the full year, they reported a profit of $30.23 per share or $4.97 billion on revenue of $12.49 billion. The company said assets under management rose to more than $6.3 trillion with the strongest inflows in history at $367 billion. CEO Fink said the stimulus from the tax bill is likely to drive more money into investment products and push stock and bond prices even higher. The CEO said the tax bill is going to do "wonderful things" for small businesses and raise the GDP.


The Bitcoin Investment Trust (GBTC) announced a 91:1 stock split. The trust will reward holders on January 22nd with 90 additional shares for every share they own. The actual split date will be January 26th. This will turn the 1,916,000 current outstanding shares into 174,510,600 shares. Shares closed at 1,970 on Friday and a 91:1 split will reduce that share price to about $21.65 each depending on how much movement there is over the next week. Currently a share of the trust represents ownership in 0.092 bitcoin. After the split, each share will represent roughly 0.001 bitcoin. The good news is that the shares will be significantly cheaper and you can buy a lot of them and still not invest a lot of money. The bad news is that at 0.001 bitcoin per share, the price of bitcoin will have to rise a lot for the GBTC shares to move significantly.

Since the majority of investors will have no clue about the operation of the trust, there will probably be a lot of new buyers and the shares could rise immediately after the split simply from the new demand. If you are going to play this, I would buy some shares at the current price so you will be in the split. I would then sell them several days after the split when the initial price bump is over. If they were to rise just a buck or two post split, that would be worth a couple hundred presplit dollars. Of course, there is always the possibility they do nothing.

Because of the rise and flow of demand for GBTC shares, they have traded as much as 2.32 times the value of the bitcoins they hold. The median price is about 42% higher than the corresponding bitcoin value. This is an example of how the speculation factor works when investors do not understand the underlying holdings.



Crude prices rose almost $3 for the week to close at $64.40. This was due to another large decline in inventories but also a monster decline in the dollar. The dollar index closed at a three-year low on Friday. Gold prices have surged to $1,338 and only $27 below their $1,365 highs from 2016.

The rise in oil prices well over $60 and the end of the holidays caused a big spike in rig activations. Oil rigs rose by 10 to 752 and gas rigs rose by 5 to 187 for the week ended on Friday. That is not likely to be a one-week event. With oil prices closing in on $65, the shale drillers will be throwing caution to the wind and ramping up drilling programs on the hopes of generating some big profits. Just a month ago, the big producers had been calling for calm in the sector and a return to a reasonable drilling rate with restrained capex spending. It is amazing what an $8 rise in oil prices can do to the animal spirits in the oil patch.





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Market

For the first full week of the year, Bank of America said there were inflows of $24.4 billion into equity funds. That was the sixth highest inflows ever. Inflows into bond funds were $13.1 billion, also abnormally high. With the dollar crashing, investors are racing to put those dollars into anything that can supply a return.

The expected benefits to earnings from tax reform are the number one bet in the market today. Analysts worried all December about the impact already being priced into the market and the gains from 2018 having been pulled into 2017. So far in 2018 that does not appear to be the case.

Every day the market moves higher we are moving father into dangerous territory. There is a tremendous risk that Q4 earnings and guidance could get messy. Nobody really knows what impact the tax reform will have on all corporations. Just like JPM took a huge charge for the accounting changes and WFC booked a $3.35 billion gain. Nobody knows what to expect other than lower taxes going forward.

This should be good for further market gains for the next four weeks. Once the Q4 earnings start to fade, the rally will be at risk for major profit taking. At that point, the 2018 guidance will be known and profit expectations will be known and priced into the market. I hope I am wrong but somewhere around February option expiration there could be some increased volatility.

For next week, the S&P is likely to hit 2,800. For those analysts like Goldman Sachs with 2018 targets of 2,850 they are probably starting to get nervous. However, I do not recall a single analyst regardless of their yearend target that does not think we will have a summer decline. That potential dip seems to be a recurring theme this year.

The S&P is well above critical support but in some cases when a stock or index breaks out of a well defined regression channel, the prior uptrend resistance becomes support. If that is the case today that would put support around 2,750 and well within range for a short-term test.


The Dow actually used the top of the long-term regression channel as support last week and proves that case. The index has sprinted more than 430 points above that line with back to back 200+ point gains over the last two days. That puts current support around 25,400.

Boeing continues to be the point leader and has added 265 Dow points over the last six trading days. Over that same period of time the Dow has risen 728 points and Boeing was 36% of those gains. Eventually, Boeing is going to rest.


The earnings from Dow components begin next week with UNH, IBM, AXP and GS. Goldman already warned of a $5 billion charge on tax accounting so the bad news is already priced into the stock. None of these four have been big gainers over the last couple of weeks so there is not a lot of risk to the Dow but there is always the potential for an unexpected report.



The Nasdaq, like the other indexes, is completely out of character compared to the last six months of movement. The index had been returning to its uptrend support every 2-3 weeks. If that were to occur today, it would be about a 250-300 point drop to around 6950-7000. I am not predicting it but simply making an observation. The 7,000 level should be support but that is a mighty big drop. I would expect a pause at 7,120 and roughly the lows from Wednesday if a retracement were to occur.



The Russell 2000 exploded higher on Thursday with a 1.73% single day gain. That was dramatically out of character for the index with the last gain of that magnitude back in September. There was a dead stop at uptrend resistance at just below 1,600. After several weeks of single digit point gains, I would be very surprised if the index just blew through 1,600 without looking back.


On Saturday morning, civil defense workers in Hawaii pushed the wrong button twice and sent out a ballistic missile warning using the emergency alert network to everyone in range. It was over 30 minutes before they officially used the same service saying it was a false alarm. The island was in panic mode and the news services have been blasting the headlines all day. Who knows if this will have any impact on the market on Tuesday? While it was traumatic while it was happening, there is no reason for it to carry over into next week. If we were to get an opening dip, it would be a buying opportunity.


As I stated earlier, I expect the market to continue higher, maybe not in a straight line, until somewhere around expiration week in February. The external event that could derail continued gains would be the potential for a government shutdown next Friday. I would like to think they would finally kick the can farther down the road if they cannot come to an agreement but both sides seem to have dug in on their positions and a fight is brewing.

If we were to have a shutdown, I would expect it to also be a buying opportunity for traders. There is the potential for it to damage sentiment and cause the market to lose traction. Currently investors appear to be euphoric. If that euphoria is damaged, it may not return.

If you have not taken advantage of the EOY subscription special yet, your time has run out. The offer ends on Monday. For one low price, you get four newsletters, two option expiration calendar mouse pads and a genuine Morgan silver dollar. This is the cheapest price of the year and the offer is expiring.

Jim Brown

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New Plays

Positive Drug Trial

by Jim Brown

Click here to email Jim Brown
Editor's Note

This company just completed a drug trial that saw stunning results after a single day of treatment. Patients saw a 50% decrease in symptoms after just one day.



NEW BULLISH Plays

ALDR - Alder BioPharmaceuticals - Company Profile

Alder BioPharmaceuticals, Inc., a clinical-stage biopharmaceutical company, discovers, develops, and commercializes therapeutic antibodies in the United States, Australia, and Ireland. The company??s lead product candidate includes ALD403, an antibody, which is in Phase II clinical trial to target calcitonin gene-related peptide for the prevention of migraine. It also develops ALD1910, a genetically engineered monoclonal antibody that is in preclinical study for the treatment of migraine; and Clazakizumab, an antibody, which has been completed Phase IIb clinical trial that inhibits the pro-inflammatory cytokine interleukin-6 for the treatment of rheumatoid and psoriatic arthritis. In addition, the company has preclinical programs in the discovery phase for various indications. Alder BioPharmaceuticals, Inc. was incorporated in 2002 and is headquartered in Bothell, Washington. Company description from FinViz.com.

Alder just reported phase III results for Eptinezumab for the treatment of migraines. The patients had an average of 16 migraine episodes per month. After treatment with Eptinezumab, migraines decreased 50% on day one and 15% of the patients reported zero incidents for the entire 12 weeks of the trial. While the endpoint of eliminating migraines for everyone was not met, everyone did receive relief while some were cured. This means the drug will be approved and could become very profitable.

In addition, Alder settled its patent dispute with Teva over the drug in an EU patent case. Under the terms of the settlement Alder will withdraw its appeal, make a one time payment of $25 million to Teva. They will make a second $25 million payment on approval of a biologics license application for the drug. Following the commercial launch of the drug they will pay an additional $75 million when sales reach $1 billion and another $75 million at the $2 billion level. They will also pay royalties to Teva of 5% to 7%. This also gives Alder access to Teva's patent portfolio and a clear path to commercialize the drug on a global basis.

The company has secured private financing of $250 million to fund the payments to Teva, the drug application process and the marketing effort to commercialize the drug.

Expected earnings Feb 6th.

Shares rallied sharply over the last two weeks and they have failed to sell off after their big gains. The stock closed 5 cents under a 6-month high on Friday.

Buy ALDR shares, currently $17.85, initial stop loss $16.25.
Alternate position: Buy Feb $20 call, currently 80 cents, initial stop loss $16.25.

We will hold the call over earnings then exit.



NEW BEARISH Plays

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

Resistance Wreck

by Jim Brown

Click here to email Jim Brown

Editors Note:

After a strong week, the Russell ran into resistance at 1,600. The small cap index had a blowout rally on Thursday and attempted to continue that on Friday but came to a dead stop when sellers appeared in volume just below the 1,600 level and uptrend resistance.

This was a strong week with the Russell up 2% but most of that (1.7%) came on Thursday. Now that the Russell is solidly in new high territory it needs to contineu adding gains or the bears will become bolder.





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


OHI - Omega Healthcare
The short position was entered at the open.

DEPO - Depomed (Lottery Play)
The long position was stopped at $7.80.

INVA - Innoviva (Lottery Play)
The long position was stopped at $13.95.



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BULLISH Play Updates

BB - Blackberry Ltd - Company Profile

Comments:

No specific news. We have an insurance put that will allow us to hold it through some volatility.

Original Trade Description: January 8th.

BlackBerry Limited operates as security software and services company in securing, connecting, and mobilizing enterprises worldwide. The company operates in three segments: Software & Services, Mobility Solutions, and Service Access Fees (SAF). The Software & Services segment offers enterprise software and services, including mobile-first security, productivity, collaboration, and end-point management solutions for the Enterprise of Things through the BlackBerry Secure platform; BlackBerry technology solutions, such as BlackBerry QNX, Certicom, Paratek, BlackBerry Radar, and intellectual property and licensing; AtHoc, which provides secure, networked crisis communications solutions; SecuSmart that offers secure voice and text messaging solutions with encryption and anti-eavesdropping facilities; licensing and services related to BlackBerry Messenger; and cybersecurity consulting services and tools. The Mobility Solutions segment engages in the development and licensing of secure device software and the outsourcing to partners of design, manufacturing, sales, and customer support for BlackBerry-branded handsets. This segment also develops software updates for its legacy BlackBerry 10 platform, and delivers BlackBerry productivity applications to Android smartphone users via the Google Play store; and sells its DTEK60, DTEK50, Priv, Leap, and Passport smartphones and smartphone accessories, as well as offers non-warranty repair services. The SAF segment consists of operations related to subscribers using mobile devices with its legacy BlackBerry 7 and prior operating systems. The company was formerly known as Research In Motion Limited and changed its name to BlackBerry Limited in July 2013. BlackBerry Limited was founded in 1984 and is headquartered in Waterloo, Canada. Company description from FinViz.com

Expected earnings March 21st.

BlackBerry started out as a smartphone manufacturer under the name Research in Motion (RIMM). Over the years they failed to keep pace with Apple and Android and the BlackBerry phones are now just a niche market and they contract with another company to have them made.

BlackBerry has evolved into a software and services company with security software, mobility solutions, and dozens of other categories. The company is now the largest provider of automobile operating systems with tens of millions of cars using their QNX software.

They are using their experience in auto OS to build the next generation of autonomous vehicles. They announced last week that Baidu had chosen them to help develop self-driving technology. Baidu said "by integrating the QNX OS with the Apollo platform, we will enable carmakers to leap from prototype to production systems." BlackBerry radar, an asset tracking solution, is already available at more than 2,800 heavy-duty truck dealerships across North America. This software and equipment tracks trucks, loads, trailers, containers, heavy machinery and other transportation assets. Trucking companies and shippers can track the location of their cargo and vehicles in real time all the time.

Last week they reported earnings of 3 cents that beat estimates for a breakeven quarter. Revenues of $226 million beat estimates for $212 million. The company guided for the full year for revenue of $920-$950 million with software revenue up as much as 15%. This was the second quarter of positive earnings surprises after a long drought of weak results. The company promised positive EPS and cash flow for the future.

There are rumors in the market that BlackBerry could suddenly become an acquisition target because of their small size of $8 billion market cap and vast array of growing software services. Shares spiked to a new 4-year high on the earnings and guidance and the stock is suddenly hot once again. This is not some new fad company. There is history and there is a remarkable turnaround in progress.

I am going out to June with the option to get past the March earnings. There is likely to be some profit taking from the recent gains, so we need to buy some time.

I am going to recommend the stock but I am adding a March put, just in case the rebound fails. I fully expect the stock to be significantly higher a couple months from now but I am recommending a 50 cent insurance policy.

Position 1/9/18:
Long BB shares @ $14.22, see portfolio graphic for stop loss.
Long Mar $13 put @ 50 cents, see portfolio graphic for stop loss.

Alternate position: Long June $15 call @ $1.30, see portfolio graphic for stop loss.



BOTZ - Global X Robotics AI - Company Profile

Comments:

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

Comments:

No specific news.

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.



IMMU - Immunomedics Inc - Company Profile

Comments:

No specific news.

Original Trade Description: December 23rd.

Immunomedics, Inc., a clinical-stage biopharmaceutical company, focuses on the development of monoclonal antibody-based products for the targeted treatment of cancer, autoimmune disorders, and other diseases. The company engages in developing antibody-drug conjugate (ADC) products comprising IMMU-132, an ADC that contains SN-38, which is in Phase II trials used for the treatment of patients with metastatic triple-negative breast cancer, and small-cell and non-small-cell lung cancers; IMMU-130, an anti-CEACAN5-SN-38 ADC that is in Phase II trials for the treatment of solid tumors and metastatic colorectal cancer; and IMMU-140 that targets HLA-DR for the potential treatment of liquid cancers. It also develops products for the treatment of cancer and autoimmune diseases, including epratuzumab, anti-CD22 antibody; veltuzumab, anti-CD20 antibody; milatuzumab, anti-CD74 antibody; and IMMU-114, a humanized anti-HLA-DR antibody. The company also provides LeukoScan, a diagnostic imaging product to determine the location and extent of infection/inflammation in bone. In addition, it offers other product candidates for the treatment of solid tumors and hematologic malignancies, as well as other diseases, which are in various stages of clinical and pre-clinical development. The company has a research collaboration with The Bayer Group to study epratuzumab as a thorium-227-labeled antibody. Immunomedics, Inc. was founded in 1982 and is headquartered in Morris Plains, New Jersey. Company description from FinViz.com.

Immunomedics recently announced a blinded trial on breast cancer drug sacituzumab govitecan showed positive results. The drug is an anti-TROP-2 antibody that can target multiple tumor types including breast cancer, lung cancer and colorectal cancers. This would be a holy grail of cancer treatment if the drug continues to post solid results. The drug is being tested to treat triple negative breast cancer, a tough-to-treat indication with limited treatment options. These cases represent 15% of the 246,660 new cases of breast cancer reported each year resulting in 40,450 deaths per year. In the recent trial the "objective response rate" or ORR was 31% or nearly double the historical rate for the standard treatment of these patients. The company plans to file for an accelerated FDA approval in early 2018. An independent study of this drug by an outside firm estimated it could produce $3 billion in annual sales by 2025.

Obviously, there is no guarantee the drug will be approved or be successful in the real world but the outlook is promising and it is lifting the stock price. Shares broke out to a new 15-year high on Friday and could continue to make new highs as long as the research on this drug and others continues to be positive. Seattle Genetics (SGEN) owns 7.3% of the company and executed warrants to acquire 8.6 million shares on December 5th for $42.4 million. They obviously believe the drug has potential.

Hopefully the potential for a blockbuster drug will insulate us from any market negativity in January.

Update 1/8/18: Royalty Pharma bought $75 million of IMMU shares at $17.15 per share, 15% over the current price. They also paid $175 million for the rights to market Sacituzumab Govitecan (IMMU-132) on a global basis. They will pay a royalty of 4.15% on a step down basis until sales reach $6 billion annually then the rate will be 1.75%. The $250 million in cash will allow IMMU to fund its next phase of growth with expenses covered well into 2020. Shares declined slightly since the stock sale added to the shares outstanding.

Position 12/26/17:

Long IMMU shares @ $14.69, see portfolio graphic for stop loss.
Alternate position: Long Feb $16 call @ $1.15, see portfolio graphic for stop loss.



JCP - JC Penny Company - Company Profile

Comments:

No specific news.

Original Trade Description: January 10th.

J. C. Penney Company, Inc., through its subsidiary J. C. Penney Corporation, Inc., sells merchandise through department stores. The company sells family apparel and footwear, accessories, fine and fashion jewelry, beauty products, home furnishings, and appliances, as well as provides various services, including styling salon, optical, portrait photography, and custom decorating. As of November 10, 2017, it operated approximately 874 department stores in the United States and Puerto Rico. The company also sells its products through its Website, jcpenney.com. J. C. Penney Company, Inc. was founded in 1902 and is based in Plano, Texas. Company description from FinViz.com.

This is going to be a short play description. JCP had been left for dead as the next retailer to disappear after Sears because they are both anchor tenants in dying malls across America. A funny thing happened on the way to bankruptcy court. JCP actually began to recover.

The company raised guidance last week saying same store sales rose 3.4% thanks to strong demand for home goods, beauty products and jewelry. The company said their ecommerce sales rose double digits. They reaffirmed their full year earnings forecast and the CFO warned Sears, "we are coming after your appliance business." That is pretty cocky and suggests JCP is a long way from dead.

Expected earnings Feb 9th.

Shares are suddenly recovering and the outlook has improved significantly.

The best thing about this position is that the May option is very cheap since investors have not really caught on to the recovery yet. We can slip in and take a position and hold the option over earnings and we could have a big long term winner.

Position 1/11/18:
Long JCP shares @ $3.97, see portfolio graphic for stop loss.
Alternate position: Long May $4 call @ 60 cents, see portfolio graphic for stop loss.



TEVA - Teva Pharmaceutical - Company Profile

Comments:

No specific news.

Original Trade Description: January 6th.

Teva Pharmaceutical Industries Limited develops, manufactures, markets, and distributes generic medicines and a portfolio of specialty medicines worldwide. It operates through two segments, Generic Medicines and Specialty Medicines. The Generic Medicines segment offers sterile products, hormones, narcotics, high-potency drugs, and cytotoxic substances in various dosage forms, including tablets, capsules, injectables, inhalants, liquids, ointments, and creams. This segment also develops, manufactures, and sells active pharmaceutical ingredients. The Specialty Medicines segment provides branded specialty medicines for use in central nervous system and respiratory indications, as well as the women's health, oncology, and other specialty businesses. Its products in the central nervous system area comprise Copaxone for multiple sclerosis; Azilect for the treatment of Parkinson's disease; and Nuvigil for the treatment of excessive sleepiness associated with narcolepsy and certain other disorders. This segment's products in the respiratory market include ProAir, ProAir Respiclick, QVAR, Duoresp Spiromax, Qnasl, Braltus, Cinqair/Cinqaero, and Aerivio Spiromax for the treatment of asthma and chronic obstructive pulmonary disease, as well as Treanda/Bendeka, Granix, Trisenox, Lonquex, and Tevagrastim/Ratiograstim products in the oncology market. This segment also offers a portfolio of products in the women's health category, which includes ParaGard, Plan B One-Step, and OTC/Rx, as well as other products. The company has collaboration arrangements with Attenukine, Procter & Gamble Company, and Regeneron Pharmaceuticals, Inc. Teva Pharmaceutical Industries Limited was founded in 1901 and is headquartered in Petach Tikva, Israel. Company description from FinViz.com

Expected earnings Feb 1st.

Teva is the largest generic drug manufacturer in the world. Unfortunately, that market place is becoming very competitive and the company has to reinvent itself to return to a profitable growth profile.

Fortunately, the company is taking action. They have been selling off noncore assets to pay down debt. They just installed a new CEO, Kare Schultz, and he took immediate action. On his second day on the job, he restructured the management team and said he would present a major restructuring plan in mid December. In early December the stock jumped to a two-month high after news broke they were considering cutting 10,000 of their 57,000 workers in an effort to save $1.5-$2.0 billion a year.

Teva announced in mid December 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 after the restructuring news.

Shares fell in early November after the company cut full year guidance for the third time and said they may sell shares to reduce their debt. In early December, they pulled back on the share sale idea saying they have no plans for a secondary offering in the near future.

I believe the worst is over. The reaction to the news over the last four months has been horrendous. Shares had fallen from $32 to $10. Since the new CEO took control, they have rebounded back to $19.

The rebound from the restructuring news lifted Teva back to $19 and just below current resistance. Thursday closed at a 5 month high but Friday saw a slight fade. I expect Teva shares to break through the current resistance and begin to recapture some of their losses.

Update 1/8: Teva announced an agreement with Alder BioPharma in the field of anti-CGRP based therapy. This validated Teva's EU patent #1957106 B1 in relation to anti-calcitonin gene-related peptide (CGRP) antibodies and methods of use. Alder will receive an non-exclusive license to Teva's CGP portfolio and will manufacture and commercialize Eptinezumab globally. Alder will cancel its patent litigation and make a one-time payment of $25 million to Teva. A second $25 million payment will be made on approval of a BLA for that drug. Once the drug is marketed Alder will pay $75 million when sales reach $1 billion and $75 million when sales reach $2 billion annually. They will also pay royalty payments of 5% to 7% to Teva. This was a win for Teva.

Update 1/10: Teva said it had reached an agreement with employees regarding closing two plants in Israel. Workers had been protesting since the closures were announced to occur by the end of 2019. Teva made some concessions to the workers and they are returning to work on Thursday. The closures are part of a restructuring that will save Teva $3 billion a year in expenses, which are currently about $16.1 billion a year. In other news directors agreed to cut their compensation in half. Shares rallied 3.5%.

Position 1/8/17:
Long TEVA shares @ $19.31, see portfolio graphic for stop loss.
Alternate position: Long March $20 call @ $1.32, see portfolio graphic for stop loss.



YRCW - YRC Worldwide - Company Profile

Comments:

No specific news.

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.

Update 1/11: We closed the expiring Jan $15 call at the open because of the evaporating premium and YRCW surged 63 cents. We were a day early on that close but hindsight is always 20:20. Position 12/11/17:

Long YRCW shares @ $14.20, see portfolio graphic for stop loss.
Alternate position:
Closed 1/11: Long Jan $15 call @ 71 cents, exit .55, -.16 loss.




BEARISH Play Updates

AOBC - American Outdoor Brands - Company Profile

Comments:

No specific news. Shares are rebounding on the general bullish sentiment about retailers.

Original Trade Description: December 30th.

American Outdoor Brands Corporation, formerly Smith & Wesson Holding Corporation, is a manufacturer of firearms and a provider of accessory products for the shooting, hunting and outdoor enthusiast. The Company operates through two segments. The Firearms segment manufactures handgun and long gun products sold under the Smith & Wesson, M&P and Thompson/Center Arms brands, as well as providing forging, machining and precision plastic injection molding services. The Outdoor Products & Accessories segment provides shooting, hunting and outdoor accessories, including reloading, gunsmithing, gun cleaning supplies, tree saws, vault accessories, knives, laser sighting systems and tactical lighting products. Brands in Outdoor Products & Accessories include Crimson Trace, Caldwell Shooting Supplies, Wheeler Engineering, Lockdown Vault Accessories, BOG POD and Golden Rod Moisture Control, as well as knives and specialty tools under Schrade, Old Timer, Uncle Henry and Imperial. Company description from FinViz.com.

AOBC is a great company but times have changed. Under the 8-years of Barack Obama as president the firearms sector boomed because Obama never missed a chance to blame firearms for every act of violence rather than the criminal acts of the violent offenders. He had said numerous times he would ban firearms if he could and enacted policies that pressured gun dealers including limiting their access to banking. With a potential new gun control law behind every event, gun sales boomed to all time records. In the last year of his presidency he bragged several times that he had become the best gun salesman ever.

President Trump is pro gun and there are multiple pro gun laws making their way through congress. There is no fear of any gun bans even after the Las Vegas shooting. With no urgency to buy new guns, sales are falling. AOBC said rising inventories were a problem and they are being forced to reduce production.

Earnings March 8th.

Investors looking for promising stocks for 2018 with rising revenue and earnings, will likely avoid AOBC because they have neither. In their Q3 earnings report, revenue declined -36% to $148.4 million and earnings fell -90% from $32.5 million to $3.2 million. With 3 years left in Trump's term, the outlook for rising sales is weak at best.

They guided for 2018 for earnings of 57-67 cents and will include write downs of acquired assets.

Update 1/4/18: Firearms background checks fell -8.4% in 2017, the first year over year decline in 15 years. Checks rose from 8.45 million in 2002 to 27.54 million in 2016. AOBC has to deal with this sharp decline in volume.

Position 1/4/18:
Short AOBC shares @ $12.14, see portfolio graphic for stop loss.
Alternate position: Long March $10 put at 35 cents.
No stop loss and we will hold over earnings.



OHI - Omega Healthcare Investors - Company Profile

Comments:

No specific news. Nice decline in a bullish market.

Original Trade Description: January 11th

Omega Healthcare Investors, Inc. is a real estate investment firm. The firm invests in the real estate markets of United States. It invests in healthcare facilities, primarily in long-term healthcare facilities in order to create its portfolio. Omega is a real estate investment trust investing in and providing financing to the long-term care industry. As of September 30, 2017, Omega has a portfolio of investments that includes approximately 1,000 properties located in 42 states and the United Kingdom and operated by 77 different operators. Omega Healthcare Investors, Inc. was founded in 1992 and is based in Maryland, United States. Company description from Omega.

When Omega reported Q3 earnings, they also reported that two of their 77 operators (lessees) had fallen behind on their rents. The company had to record a charge of $194.7 million in non-cash impairment charges. The problem is that companies that far behind in their rent are not likely to suddenly catch up and send in a check for the past due. It typically suggests a longer term problem that could be terminal for those companies.

Funds from operations (FFO) were 79 cents and -4.8% below the year ago quarter. The company did raise their dividend to 65 cents for the 21st consecutive quarter. However, with massive delinquencies, that dividend could be in trouble. Shares plunged on the news and actually spiked the yield to 9.1% but you never want to be invested in a rising yield stock because the stock itself is declining. Investors appear to be heading elsewhere rather than risk a loss of capital.

Expected earnings Feb 7th.

Shares closed at a five-year low on Thursday. If a stock cannot rally in this market, it is definitely sick.

I am going to recommend this as an option only position. Because this is a bull market we could see a sudden rebound in OHI as a "value" play because of its decline.

Position 1/12/18L
Long March $26 put @ 85 cents, see portfolio graphic for stop loss.



VXX - Volatility Index Futures - ETF Description

Comments:

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.




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

Comments:

No material news on AMD. The company did say it had slightly more risk to the Specter flaw in its processors but it was not material.

I am going to retain this position until the Jan-23rd earnings and see if the partnership with Intel boosted their earnings. If the stock is not moving after earnings, I will drop it.

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.



DEPO - Depomed - Company Profile

Comments:

No specific news. Shares dipped below support on Monday when the market crashed at the open on the China worries. This stopped us out of the position with only a minor gain.

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:

Closed 1/8/18: Long March $8 call @ 65 cents, exit .80, +.15 gain.

Previously Closed 12/28: Long DEPO shares @ $7.27, exit $8.35, +1.08 gain.



EXTR - Extreme Networks - Company Profile

Comments:

No specific news. Shares rebounded again but stalled at resistance. They will have a presentation at the Needham Growth Conference on Jan 17th. 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.



INVA - Innoviva Inc - Company Profile

Comments:

No specific news. Shares dipped with the market at the open on Monday to stop us out with a breakeven.

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:

Closed 1/8/18: Long March $15 call @ 60 cents, exit 60 cents, breakeven.

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



NUAN - Nuance Communications - Company Profile

Comments:

No specific news. Shares rebounded to close at a 5-month high on Tuesday.

Original Trade Description: December 16th.

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.

Position 12/18/17:

Long Apr $18 call @ 95 cents, see portfolio graphic for stop loss.

Previously Closed 12/29: Long NUAN shares @ $16.98, exit $16.25, -.73 loss.



SFM - Sprouts Farmers Market - Company Profile

Comments:

Sprouts partnered with Instacart to expand home delivery in additional markets. They will start in Arizona and then roll out to other US cities later in the year. Sprouts already has a home delivery deal with Amazon in eight cities.

The company also preannounced Q4 earnings. They expect same store sales to rise 4.6%. For all of 2017 they expect net sales growth of 15.3% with same store sales of 2.9% with earnings of 98-99 cents. The guidance excluded any benefits from the tax reform.

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 Mar $27.50 call @ 80 cents, see portfolio graphic for stop loss.

Previously Closed 12/27: Long SFM shares @ $24.09, exit $24.45, +.36 gain.



STM - ST Microelectronics - Company Profile

Comments:

No specific news. Shares are almost back to the highs. The company demonstrated multiple new products at CES to rave reviews. Plenty of time with this April call.

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.



SYNT - Syntel - Company Profile

Comments:

No specific news. The stock could be significantly higher (or lower) by May.

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.


Bearish Play Updates



BEARISH Play Updates

SNAP - Snap Inc - Company Profile

Comments:

Raymond James downgraded from neutral to sell on Friday calling it an overvalued chat company. The analyst said, "agency checks indicate Snap's advertising platform is still largely experimental and user demographics are less attractive to advertisers. In our discussions with ad agencies, Snapchat's very young audience is not as attractive to many advertisers given their much lower income levels."

Original Trade Description: December 30th.

Snap Inc. operates as a camera company. It offers Snapchat, a camera application that helps people to communicate through short videos and images. The company also provides a suite of content tools for partners to build, edit, and publish snaps and attachments based on editorial content; and Spectacles, which are sunglasses that capture video from a human perspective. The company was formerly known as Snapchat, Inc. and changed its name to Snap Inc. in September 2016. Snap Inc. was founded in 2010 and is headquartered in Venice, California. Company description from FinViz.com.

There is no magic to this position. Shares are declining ahead of their Jan 23rd earnings. The company has failed to increase users in a meaningful way. Facebook is killing them with their similar product. CNN recently cancelled their daily Snapchat News show called "The Update" because it was not making any money. Advertisers had abandoned the feature. Everything is negative for SNAP's outlook.

Evercore ISI rated them an underperform, the equivalent of a sell rating, with a price target of $7 on December 6th. SNAP shares are already about 50% below their post IPO peak and they were trading at $15 at the open on Friday. The Evercore rating is looking for another 50% decline.

Over the last 12 months the company had revenue of $705 million but lost a whopping $3.2 billion when stock grants were included. If you back out the onetime expenses they still lost $818 million on revenue of $705 million. They cannot continue doing this. You cannot operate at a 100% loss forever.

The Facebook program Instagram copied most of the SnapChat features and has 700 million daily active users. SnapChat only had 178 million in Q3 and that number had only risen 3% for the quarter. SNAP is four times more expensive than Twitter on a price to sales ratio and even Twitter is struggling to succeed.

SNAP has a market cap of $13 billion and it is a failing company. That market cap is going to shrink as the losses continue to pile up. Earnings are Jan 23rd and the odds are very good they will miss estimates again.

Update 1/2/18: The 27-year old founder of Snap Inc hosted a New Years Eve party for employees that cost $4 million with the rapper Drake the headline performer. The news probably helped SNAP shares post a 30 cent gain but investors overall were hostile that he could spend that kind of money with SNAP shares in the tank. Position 1/2/18:

Alternate position: Long Feb $14 put @ 84 cents, see portfolio graphic for stop loss.

Previously Closed 1/3/18: Short SNAP shares @ $14.69, exit $15.25, -.56 loss.





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