The Dow, S&P and Russell posted gains but it was a fight. The Dow surged thanks to five stocks alone adding over 140 points. (BA, MMM, GS, JNJ, UTX) The Russell 2000 was positive with a 2 point gain. However, the decliners were significantly more than the advancers. The Russell has been struggling the last several days with decliners in the lead. We are getting picked off one stock at a time as the small caps fade. The index is being held up by the financials and biotechs while the rest of the stocks decline. Futures are up at +4 tonight but I do not trust them for a small cap rebound.
Stop Loss Updates
Check the graphic below for any new stop losses in bright yellow.
We need to always be prepared for an unexpected decline.
Check the graphic below for any profit stops in green.
We need to always be prepared for a profit exit at resistance.
Current Position Changes
HIBB - Hibbett Sports
The long position was stopped at $24.45.
JCP - JC Penny
The long stock position was stopped at $3.75.
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BULLISH Play Updates
BB - Blackberry Ltd - Company Profile
No specific news. Shares broke below support. I am recommending we close the stock position and maintain the long put/call. We have a $13 put so we are not in danger of a further 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.
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
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.
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.
HIBB - Hibbett Sports - Company Profile
The retail sector has been weak for the last three days and we were stopped out at $24.45. It looks like I picked at least a short-term top in the sector.
Original Trade Description: January 22nd.
Hibbett Sports, Inc., together with its subsidiaries, operates athletic specialty stores in small and mid-sized markets primarily in the South, Southwest, Mid-Atlantic, and the Midwest regions of the United States. Its stores offer a range of merchandise, including athletic footwear, team sports equipment, athletic and fashion apparel, and related accessories. The company also sells merchandise directly to educational institutions and youth associations. As of January 28, 2017, it operated 1,059 Hibbett Sports stores and 19 Sports Additions athletic shoe stores. Hibbett Sports, Inc. was founded in 1945 and is based in Birmingham, Alabama. Company description from FinViz.com.
Earnings expected on Feb 16th.
Hibbett had a tough 2017 with shares crashing back to $10 on various problems including those created by Nike and Under Armour. The shoe and sports apparel business was very weak but that has turned around and even Nike is posting strong gains. Retailers in every sector are surging.
Last week Bank of America upgraded HIBB from underperform (sell) to a buy and hiked the price target from $14 to $30. The analyst said a successful launch of its ecommerce business and very easy comps for the next 12 months made Hibbett a buy.
The ecommerce launch at the beginning of last quarter added 5% to same store sales and helped eliminate a lot of aged inventory. They expect ecommerce to be accretive to 2018 earnings. The analyst also said it was providing sales from areas where Hibbett does not have stores and therefore was not cannibalizing sales at existing locations.
BAC said Hibbett had reallocated footwear space and styles for faster sales of Nike and Adidas products.
Hibbett has a healthy balance sheet, low PE, active buyback program and high short interest.
Closed 1/25: Long HIBB shares @ $26.25, exit $24.45, -1.80 loss
Closed 1/25: Long March $30 call @ $1.40, exit .76, -.64 loss.
IMMU - Immunomedics Inc - Company Profile
No specific news. Only a minor decline.
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.
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
No specific news. The weak retail sector knocked us out of the stock position on JCP with a minor 22 cent loss. The option position will move to the Lottery Play section.
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.
Closed 1/25: Long JCP shares @ $3.97, exit $3.75, -.22 loss.
Alternate position: Long May $4 call @ 60 cents, see portfolio graphic for stop loss.
TTMI - TTM Technologies - Company Profile
No specific news. Shares down four days in a row and missed the stop loss by 8 cents.
Original Trade Description: January 20th.
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.
Long TTMI shares @ $17.48, see portfolio graphic for stop loss.
Alternate position: Long March $20 call @ 34 cents, see portfolio graphic for stop loss.
BEARISH Play Updates
VXX - Volatility Index Futures - ETF Description
Since this is a long-term slow moving ETF position, there will not be daily commentary.
Original Trade Description: September 18th.
The VXX is a short-term volatility ETF based on the VIX futures. As a futures product it has the rollover curse. Every time they roll to a new futures contract, they have to pay a premium and that lowers the price of the ETF. It is a flawed product with a perpetual decline built in from the monthly roll over in the futures contracts.
As evidence of this flaw, they have now done four 1:4 reverse stock splits. The last five reverse splits occurred at $13.11 (11/2010), $8.77 (10/2012), $12.84 (11/2013), $9.52 (8/8/16), $12.77 (8/22/17). The prospectus says it can reverse split anytime it trades under $25 for a prolonged period and the splits will always be 1:4.
We know from experience that the VXX always declines. The last two times we shorted this ETF we had a $7.23 and $5.98 gain.
Unfortunately, put options are expensive with a volatility instrument at this price level. The only recommendation is to short the ETF and forget it. If we do get a prolonged rally into year-end we could see a sharp decline in the VXX over the next 2-3 months. This will be a long-term position. This is not a 2-3 week play. I can guarantee you, if history holds, we can play this until it splits 1:4 again at $10. Once we are in the position and profitable I will put a trailing stop loss on it. We will take profits and then look for a bounce to get back in.
The VXX is hard to short. Shortsqueeze.com says there are 19.9 million shares short out of 26.7 million shares outstanding. The shares are out there and being traded because the volume on Monday was 29.6 million. You have to tell your broker you really want to short it and make them find the shares. Sometimes it takes days or even a week before your broker will find you the shares. Trust me, be persistent and it will be worth the effort.
I had held off after the 1:4 reverse split because the options were expensive and I was expecting volatility in September from the budget battle and debt ceiling hurdle. With those issues pushed out into December, the volatility is dropping like the proverbial rock. Several readers have already emailed me asking when I was going to put this position back in the portfolio.
Short VXX shares @ $40.95, see portfolio graphic for stop loss.
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