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Newsletter

Daily Newsletter, Saturday, 1/20/2018

Table of Contents

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

Market Wrap

Buy the Dip

by Jim Brown

Click here to email Jim Brown

The Senate failed to pass the budget resolution on Friday and the government is in shutdown mode.

Weekly Statistics

Friday Statistics

The market did not seem to care if the government was going to shutdown on Friday at midnight. We have been here before when President Obama weaponized the 2013 shutdown by closing everything possible to inflict pain on voters and have them direct their ire toward the republicans. However, the administration message all day on Friday was for a less stressful event. The Trump administration planed to keep everything open and running as much as possible claiming there is no need for America to stop running just because politicians are in disagreement.

After that message made headlines around lunchtime on Friday, the major indexes began to rebound and the Nasdaq, S&P and Russell all closed at record highs. The Russell was especially bullish with a 1.3% rally. The index rebounded sharply after a minor dip at the open and never looked back. The Dow spent most of the day in negative territory and did not begin rebounding until 2:00.



While the impact of a shutdown on the market is normally minimal, the rebound is normally strong. Kensho reported that the average S&P decline is -0.3% although some have been substantially more. The average rebound after the shutdown is +2.1% on the S&P. Today that would be about 60 points. In the 16-day shutdown in 2013, the S&P declined from 1,682 to 1,656 or -1.5%. The rebound ran from Oct 10th through December 31st where the S&P closed at 1,848 for an 11.6% post shutdown gain. This suggests that any decline next week should be bought. There is no guarantee the market will continue significantly higher but it should continue for the next couple of weeks until after the big cap tech earnings have been released.

The market did not get any help from the economic reports on Friday. The Consumer Sentiment for January declined for the third consecutive month falling from 95.9 to 94.4. The peak was a multiyear high at 100.7 in October. The present conditions component declined from 113.8 to 109.2 and the lowest level since November 2016. The expectations component rose slightly from 84.3 to 84.8. Of the respondents, 34% mentioned the tax reform unprompted and 70% said they expected a positive impact to incomes. Some 56%, up +3%, expect the economy to do well over the next 12 months.


The industry GDP rose from 2.74% in Q2 to 3.28% in Q3. Private industries added 3.3% while the government only accounted for 0.07%. Because this is a lagging report, it was ignored. The actual GDP for the entire US will be out next week and a 3% growth number will be the third consecutive quarter of GDP growth over 3% and this has not happened since early 2005.

The calendar for next week has a lot of reports but none are expected to be market moving. The new and existing home sales will continue to tell us that business is good. The Chicago, Richmond and Kansas reports should be in line with estimates and show continued expansion. The GDP is likely to get the most press if it is over 3% growth.


The earnings calendar will be more important to the market than economics. With eight Dow components reporting we could see additional Dow volatility. Thursday has CAT and MMM before the open and that could generate a downdraft if they do not post outstanding results. Intel reports after the close and there are worries they could guide lower because of the Meltdown and Specter hacks that still require active patching both to old chips/software and design changes to new processors.


As of Friday, 11% of the S&P has reported with 68% beating on earnings and 85% beating on revenue. However, the blended earnings growth for Q4 declined sharply from 10.8% to -0.2%. The reason was the big charges taken in the financial sector related to the new tax law. The financial sector alone accounted for a drop in S&P earnings of -$29.2 billion. This is the only sector that posted earnings declines last week.

This is going to be a problem in the future. As a result of the tax changes the earnings reports are going to be messy. These are all non-cash charges and gains but they will make comparisons to prior quarters nearly impossible. Each individual stock will rise and fall on its own merits based on the adjusted earnings numbers but the official GAAP earnings are going to be a witch's brew of charges.


Bank of America reported that $58 billion in cash has flowed into the market in the four weeks ended on Wednesday. That is the highest pace ever since records have been kept. That has powered the Dow to a 5.5% gain for the year, Nasdaq 6.7%, S&P 5.1% and Russell 4.0%. Equity ETFs saw inflows of $38.2 billion with mutual funds garnering $5.6 billion.

Last week $23.9 billion flowed into equities and that was the 7th largest inflow ever. Unfortunately, those money flows are not going to continue forever.

One challenge is the sudden rebound in yields on treasuries. The yield on the ten-year closed at 2.637% and the highest level since June 2014. At some point, investors are going to decide the equity market is grossly over extended and the yield on a treasury would be a good place to park their cash until the equity market corrects.

Conversely, Bill Gross proclaimed the end of the multi-decade bull market in treasuries and said a new bear market had begun. With bonds/treasuries suddenly selling off, those investors are looking at equities as a better opportunity.

I know those two scenarios contradict each other but there is a point where treasuries will become attractive again. Analysts believe that is the 3% yield level. They do not see yields spiking much over 3% with central banks still overly accommodative. That means yields will probably peak around the 2013 highs at 3.0% and hold there until the Fed executes a few more rate hikes this year.

In the short term, funds are coming out of treasuries and into equities. That is helping prevent any material market declines.


Monday will be a record 395 trading days without 5% drop on the S&P. That is the longest streak in history with records dating back to 1929 according to Goldman Sachs. The current economic expansion is nine years old and the second longest on record. After multiple quarters of earnings declines, we have seen six consecutive quarters of earnings growth. Despite all this bullishness, the median analyst price target for year-end is only 2,855.


The Investors Intelligence poll of professional newsletter editors rose to 66.7% bullish versus 12.7% bearish. That is the widest spread since April 1986.

The AAII sentiment survey of individual investors saw a rebound in bullish sentiment to 54.1% while bearish sentiment declined to 21.4%. This was still below the extreme readings of 59.8% and 15.6% from two weeks ago. That was the most bullish since December 2010 and the most bearish since November 2014.

Individual investor sentiment is still rising but at a slower pace after the multiple days of whiplash volatility over the last week. Some of the "over extended" comments by analysts may be taking hold.


The dollar is continuing to decline and that remains positive for commodities. Gold rose again and is likely headed back to the $1,365 resistance from mid 2016.



In stock news, Facebook (FB) was making waves again saying they were going to prioritize "trustworthy news" based on user surveys. Users rather than moderators, experts or Facebook executives would determine which of more than two million news sources had accurate news stories. Zuckerberg said the change would eventually shrink the amount of news on Facebook by 20% to about 4% of all content. As users answer survey questions about what they read, the system would prioritize the most trusted sources and reduce exposure to those with the worst reviews.

I am sure you can see where this is headed. Trump's base will be clicking "fake news" on every mainstream media site and democrats will be giving Fox news negative reviews. It will turn into the website with the least negative reviews winning the rating race rather than the website with the most positive reviews.

Since Facebook has already been found guilty multiple times of suppressing conservative news and promoting liberal views, it is questionable at best on how this new system will work out. This is their third plan over the last year on trying to deal with fake news such as the Russian spamming that was heavy during the election. Newscorp pledged to look for "any signs that the weighting of news sites is politically motivated." Good luck with that.


Wynn Resorts Ltd (WYNN) said a group of people, including employees at the Wynn Macau had stolen $6 million in chips. One dealer and several accomplices were arrested. Wynn said they were still unclear on exactly how the group got the chips out of the casino. One theory is that the group accumulated the chips in a VIP room and just stuffed them into a bag and walked out with them. This is not exactly an Ocean's Eleven type of operation but more than likely a simple crime of opportunity. They may have distracted casino officials in order to get their loot out the door but the cameras do not lie. Once the chips went missing, a review of the security footage provided the suspects.

Wynn shares did not react negatively to the news. Shares are up $17 over the last week to close at a new high. Jefferies added a boost on Friday when they initiated coverage with a buy rating. Earnings will be released before the open on Jan 22nd. Puts anyone?


Protection One (ADT) went public on Friday and nobody protected their stock. They tried to price it between $17-$19 but at the last minute changed it to $14. The stock opened at $12.65 and dipped to $12 just before the close. The company raised $1.47 billion with 105 million shares. PE firm Apollo Global Management retained 84.87% of the company. ADT has 7.2 million customers and handles about 15 million alarms a year. They have about 30% share in this increasingly competitive sector. Revenue over the last nine months was $3.21 billion, up 69% with more than 90% coming from monthly monitoring subscriptions.

The challenge for ADT is their enormous debt load and the surge in Ring Central, Nest Security, Stanley Convergent Security, Vivint, Tyco, Arlo security cameras and dozens of other lesser-known competitors. The sector is booming with the do it yourself home security systems.


Shares of Chipotle Mexican Grill (CMG) gained $6 on Friday after Raymond James upgraded them from sell to hold. That is hardly a strong upgrade and the analysts said they no longer see any downside risks to 2018 estimates. Obviously that is different than saying the outlook is good. They warned that CMG was "not out of the woods" yet because of poor traffic flows in Q4.

At the same time Cowen reiterated an underperform saying Facebook check-ins suggested traffic trends were still falling. The Cowen analyst said comps for Q4 would be flat and could lead to disappointing 2018 guidance.


Jefferies upgraded Kohl's (KSS) to a buy with a $100 price target. The analyst said Kohl's is sleeping with the enemy (AMZN). In October, the retailer began selling Amazon's smart home products and accepting returns on Amazon products. The pilot program has been a success and the analyst expects it to roll out to all of the Kohl's stores. The retailer has also been ramping up its "ship from store" capability that allows them to sell to people that are not close enough to drop by but still in the retailer's area. Kohl's is also planning on adding groceries to its larger stores. The company is shrinking its retail space and reducing the number of skus they are carrying in inventory. This leaves them with 10-15,000 sqft of unused space and by partnering with a grocery retailer, they can benefit from the daily traffic generated by the grocer.


McCormick & Company (MKC) was downgraded by Deutsche Bank from hold to sell with the price target cut from $103 to $98. There does not appear to be a lot of analyst confidence in that call with only a $5 spread. However, the stock closed at $103 on Thursday and hit $98.57 on Friday. Time to buy now? I would probably wait for a dip to $94.


Crude prices fell $1 for the week despite an unexpected decline in inventories. Inventories should have risen last week but instead declined -6.9 million barrels. Refinery utilization fell sharply from 95.4% to 93%. With the extremely cold weather in most of the nation in January, gasoline and diesel demand is falling. This will add to inventories in the weeks ahead. Active rigs declined by -3 after a +15 gain the prior week. That was also unexpected given the oil prices near $65 and at $70 for Brent.





Markets

The S&P posted a decent gain of 12 points to close at a new high and become even further over extended. Markets can continue to maintain directional momentum far longer than anyone expects. The government shutdown could be a drag next week but I would expect another rebound once the shutdown is over. It is not that the event will impact the economy in a material way but the post shutdown rebound is just a relief rally that nothing serious happened.

The uptrend resistance is around 2,750 with a potential pause point at 2,774.


The Dow is starting to run into some trouble. With eight Dow components reporting next week there will be volatility. Whether it will impact direction is unknown. We do know that by Feb 2nd, more than two-thirds of the Dow will have reported and post earnings depression will be a factor. Even if a company spikes higher post earnings they tend to fade within a week. That suggests the Dow could peak over the next ten trading days.

Some of the big gainers are already starting to slow and once CAT, MMM and UTX report next week, they could add extra drag. Boeing does not report until the 31st.



The Nasdaq continues to make new highs despite choppy performance by the big cap tech stocks. Only half were positive on Friday but other than Priceline and Broadcom the rest were only fractionally negative. Google was leading the pack with new highs and Nvidia was dragging the chip sector higher with its new high.

The Nasdaq has a 13-day rally going and that is the second longest streak without profit taking since April. The 2-3 week cycle should be coming to an end sometime in early February.

Support is back at 7,200 followed by 7,110.



The Russell 2000 was a shock on Friday with a 1.3% rally and a new high close. Uptrend resistance at 1,600 is just ahead and it was solid on the last two attempts. The small caps should be in rally mode but they have only been able to post three solid single day gains since mid December. I wish Friday was the start of a new leg higher but the government shutdown could impact the Russell more than the big cap indexes.


As of late Saturday, the government shutdown appears likely to extend into next week. As I have written several times over the last two weeks, the two sides are growing farther apart rather than closer together. Now that the shutdown has occurred, they have hardened their positions in an effort not to appear weak and conciliatory. Both sides have solidified their positions on illegal immigration with the democrats claiming they will not approve funding for anything until the 850,000 illegal DACA immigrants have been given some sort of amnesty. The republicans, from the White House on down have said they will not negotiate on DACA or any immigration points while the democrats are holding 330 million Americans hostage with their immigration demands. Democratic senators are blocking all attempts to bring new votes to the floor. The senate will reconvene again on Sunday but the outlook is grim.


The house was supposed to be out of town this week. In the calendar below the yellow is when both the house and senate are in session. The blue is when only the senate is in session. Many house members had already left for their home state when the senate vote had stalled. The few members remaining have already prepared for an accelerated voting process if the senate were to pass a funding bill.


The farther this shutdown progresses, the more heated it will become. That means the market is more likely to be impacted by the events. However, the instant there is daylight at the end of the process, the market should move higher in a relief rally. I would recommend buying any dip for a short-term bounce.

Enter passively and exit aggressively!

Jim Brown

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New Plays

Overlooked Chip Stock

by Jim Brown

Click here to email Jim Brown
Editor's Note

Everybody knows Intel, AMD, Broadcom and Nvidia but there are quality companies with names you would not recognize. TTM Technologies is one of those companies.



NEW BULLISH Plays

TTMI - TTM Technologies - Company Profile

TTM Technologies, Inc., together with its subsidiaries, manufactures printed circuit boards (PCBs) worldwide. It provides a range of PCBs and electro-mechanical solutions, including conventional PCBs, high density interconnect PCBs, flexible PCBs, rigid-flex PCBs, custom assemblies and system integration products, and IC substrates. It also produces test specialized circuits that are used in radio-frequency or microwave emission and collection applications; printed circuits with heavy copper cores, and embedded and press-fit coins; PCBs with electrically passive heat sinks; and PCBs with electrically active thermal cores. In addition, the company offers various services, including design for manufacturability, PCB layout design, simulation and testing, and quick turnaround services. The company's customers include original equipment manufacturers and electronic manufacturing services companies that primarily serve the networking/communications, cellular phone, computing, aerospace and defense, and medical/industrial/instrumentation end markets of the electronics industry; and the U.S. government. TTM Technologies, Inc. was founded in 1978 and is headquartered in Costa Mesa, California. Company description from FinViz.com.

TTMI is an underappreciated chip stock. Earnings are rising and they are growing by acquisition. For Q3 they reported earnings of 32 cents on revenue of $667 million. For Q4 they guided for earnings of 49-55 cents on revenue of $700-$750 million. This was the fourth consecutuve quarter of organic growth, revenues and earnings that exceeded guidance.

On December 3rd they announced a deal to acquire radar components maker Anaren for $775 million in case from Veritas Capital. Anaren produces microwave components for wireless, space and defense electronics providers and counts Raytheon Co Lockheed Martin Corp, and Northrop Grumman Corp as customers. TTMI said the deal would immediately reduce costs and be accretive to earnings.

Earnings expected on Feb 7th.

Shares are about to break out to a six month high over $17.50 ahead of earnings. The short-term trend over the last month has been steadily higher. They have long-term resistance at $19.50 and a break over that level would be a new high and cause significant buying.

I do not usually recommend stocks just before earnings. I am suggesting we play the stock position and exit before the Feb 7th event. I am recommending we hold the very inexpensive option over the earnings in hopes of a real breakout to new highs. The stock closed at $17.59 so the $17.50 strike is expensive and risky. The next strike is $20, well OTM but the price is only 35 cents. It is a cheap bet on a positive earnings breakout.

Buy TTMI shares, currently $17.59, initial stop loss $16.50.
Wide stop to avoid any government shutdown dip.

Alternate position: Buy March $20 call, currently 35 cents. No initial stop loss.




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

Russell Leads

by Jim Brown

Click here to email Jim Brown

Editors Note:

The small cap index surged 1.3% to close at a new high with the largest gain of the major indexes. The small caps posted decent gains and pulled closer to uptrend resistance once again. Investors appeared to not worry over the potential government shutdown. The Dow was weak all day and did not move solidly into positive territory until just before the close. The Nasdaq and S&P joined the Russell with new closing highs.





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


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BULLISH Play Updates

BB - Blackberry Ltd - Company Profile

Comments:

No specific news. We have a $13 put so we are not in danger of a big loss.

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.

Update 1/16: BlackBerry launched a product called BlackBerry Jarvis. This is anti hacking software for self driving cars. Manufacturers can use it to scan their product before they are released to look for weak points that could be hacked. Tata Motors said the product allowed them to cut the analysis time down from 30 days to 7 minutes.

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.



IMMU - Immunomedics Inc - Company Profile

Comments:

No specific news. Shares still consolidating.

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. Support held.

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.




BEARISH Play Updates

OHI - Omega Healthcare Investors - Company Profile

Comments:

No specific news.

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.

Update 1/17: The company announced its 22nd consecutive quarterly increase in its dividend to 66 cents. Up one cent. The dividend is payable Feb 15th to holders on Jan 31st. Shares gained 52 cents on the news after closing at a new low on Tuesday.

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 specific news. Nice rebound to close at a 2-month high.

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.



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 Apr $17.50 call @ 85 cents, see portfolio graphic for stop loss.

Previously Closed 1/16: Long CHGG shares @ $15.07, exit $16.45, +$1.38 gain.



EXTR - Extreme Networks - Company Profile

Comments:

They rebounded after a presentation at the Needham Growth Conference on Jan 17th. They were also named the official Wi-Fi analytics provider for Super Bowl LII for the 5th consecutive year. Shares closed at a 6-week high.

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.



NUAN - Nuance Communications - Company Profile

Comments:

No specific news.

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:

No specific news but shares spiked to a 19 month high.

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.

Update 1/12: 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.

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 spiked to close at a 15-yea rhigh on Friday. 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 since Dec 28th. Very quiet. 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

AOBC - American Outdoor Brands - Company Profile

Comments:

No specific news. Shares rebounded slightly with the Shooting, Hunting and Outdoor Trade show (SHOT) starting next week in Las Vegas. I would close the position ahead of the event but for 20 cents we are better off holding it and looking for a post show decline.

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:
Long March $10 put at 35 cents.

Previously Closed 1/16: Short AOBC shares @ $12.14, exit $12.35, -.21 loss.



SNAP - Snap Inc - Company Profile

Comments:

SNAP said it was laying off another 24 people, mostly from the content department that manage relationships with publishers. That is not a good sign. This is the third series of layoffs in six months. The company sent a series of stern memos to employees threatening to file charges and sue for damages if any employee leaked any internal SNAP news.

"If you leak Snap Inc. information, you will lose your job and we will pursue any and all legal remedies against you," Michael O'Sullivan, general counsel for Snapchat's parent company Snap, said in the memo obtained by financial news network Cheddar.

"And that’s just the start," he continued. "You can face personal financial liability even if you yourself did not benefit from the leaked information. The government, our investors, and other third parties can also seek their own remedies against you for what you disclosed. The government can even put you in jail."

It would appear management has got something to hide and they are really afraid it could go public.

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. Update 1/12/18: 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."

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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