The small cap index only posted a minimal gain but it was still a 2-month high. Friday could have easily been a market decline given the post earnings depression from recent reporters and weekend event risk. Instead the Nasdaq was the only loser thanks to a $92 drop in Amazon. This is a positive sign for the Russell to be positive on a Friday after a big gain.
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
VXXB - VIX Futures ETN
The short position was entered at the open.
SNCR - Synchronos
The long position was closed at the open.
If you are looking for a different type of trading strategy, try these newsletters:
Short term Calls and Puts on equities = Option Investor Newsletter
Credit spreads and naked puts = OptionWriter
Long term option investments = LEAPS Investor
3-6 month Option Trades = Ultimate Investor
Full updates on all plays on Wednesday and Saturday. Only closed plays are updated on other days.
BULLISH Play Updates
BOX - Box Inc - Company Profile
No specific news. Continued rally to a 4-month high.
Original Trade Description: Jan 19th.
Box, Inc. provides a cloud content management platform that enables organizations of various sizes to manage and share their enterprise content from anywhere or any device. The company's Software-as-a-Service platform enables users to collaborate on content internally and with external parties, automate content-driven business processes, develop custom applications, and implement data protection, security, and compliance features. Box, Inc. offers its solution in 23 languages. It serves healthcare and life sciences, financial services, legal services, media and entertainment, retail, education, and energy industries, as well as government sector primarily in the United States. The company was formerly known as Box.net, Inc. and changed its name to Box, Inc. in November 2011. Box, Inc. was founded in 2005 and is headquartered in Redwood City, California. Company description from FinViz.com.
Earnings February 27th.
Box is a provider of cloud content management services to enterprise customers. Procter & Gamble and GE are two of its largest customers. Over the last several weeks there has been a persistent rumor they will be acquired. Google has been a rumored acquirer but it is more likely Microsoft or even Hewlett Packard could be interested.
Entering a position on acquisition rumors is rarely a good move. More than 90% of the time nothing happens. In this case revenue is growing in excess of 25% for 2018 and they guided for 20%+ for 2019. They also guided for their first quarterly profit in Q4 since they went public in 2015.
Their customer retention rate is close to 100% and they had more than 90,000 customers at the end of Q3. Box has enough scale that it makes sense to be acquired rather than a large company trying to replicate their product and service and spend years stealing market share. Buying Box now would be an instant add on to profits.
Shares broke over three-month resistance on Friday and the next material level is $24.
Long BOX Shares @ $19.74, see portfolio graphic for stop loss.
Optional: Long March $21 Call @ $1.00, see portfolio graphic for stop loss.
INFN - Infinera - Company Profile
Major 17% spike on absolutely no news.
Original Trade Description: Jan 5th.
Infinera Corporation provides optical transport networking solutions, equipment, and software and services worldwide. The company's product portfolio consists of Infinera DTN-X Family of terabit-class transport network platforms, including the XTC Series, XTS Series, and XT Series; Infinera DTN-X XTC series multi-terabit packet optical transport platforms that integrate digital OTN switching and optical WDM transmission; and Infinera DTN-X XT series for terrestrial applications and XTS series for subsea applications. It also provides Infinera XTM Series packet-optical transport platform that enables high-performance metro networks with service-aware, application-specific capabilities; and Infinera Cloud Xpress Family designed to meet the varying needs of ICPs, communication service providers, Internet exchange service providers, enterprises, and other large-scale data center operators. In addition, the company offers Infinera FlexILS open line system platform that connects various Infinera and third-party terminal equipment platforms over long-distance fiber optic cable providing switching, multiplexing, amplification, and management channels. Further, it provides software solutions, including Xceed Software Suite that address long-haul, subsea, and metro networks, as well as a range of support services for all hardware and software products. The company also serves telecommunications service providers, Internet content providers, cable providers, wholesale and enterprise carriers, research and education institutions, enterprise customers, and government entities. It markets and sells its products and related support services primarily through its direct sales force. The company was formerly known as Zepton Networks. Infinera Corporation was founded in 2000 and is headquartered in Sunnyvale, California. Company description from FinViz.com.
Earnings Feb 5th.
Infinera is a global supplier of terabyte speed network equipment. They are in nearly every country. Their products handle long haul data transmission even in undersea links.
Shares collapsed back in early November when they reported earnings. The CEO said the company had seen a pause in sales as buyers evaluated the combined company. They had just purchased Coriant. The CEO said revenue in Q4 would increase by 50% because of the acquisition but they would post a bigger loss on acquisition expenses.
For Q3 they lost 4 cents and analysts were expecting a 5-cent loss. The guidance for Q4 was a loss of 26-30 cents because of the acquisition.
Shares fell to $3.50 post earnings. Over the last week they have recovered to $4.25 and appear to be accelerating higher. Resistance is $5.
This is not a fast mover, but all the bad news is now priced into the stock.
Readers have been requesting more low dollar stock recommendations and this would fit that scenario.
Update 1/10: The Australia to Japan undersea cable completed a major upgrade of the 12,700 kilometer cable system using Infinera ICE4 devices allowing multi terabit capacity.
Long INFN shares @ $4.22, stop loss $3.75.
Optional: Long April $5 Call @ 31 cents, no stop loss.
NUAN - Nuance Communications - Company Profile
Nuance completed the sale of its document imaging division to Kofax for $400 million. This allows Nuance to focus more on its AI and cloud based business.
Original Trade Description: Jan 16th.
Nuance Communications, Inc. provides voice recognition and natural language understanding solutions worldwide. It operates through five segments: Healthcare, Automotive, Enterprise, Imaging, and Other. The Healthcare segment offers clinical speech and clinical language understanding solutions, such as Dragon Medical, a dictation software that allow physicians to capture and document patient care in real-time; transcription solutions, which enable physicians to streamline clinical documentation with a transcription platforms; clinical document improvement and coding solutions; diagnostic solutions that allow radiologists to document, collaborate, and share medical images and reports; and professional and personal productivity solutions to business users and consumers. The Automotive segment provides branded and personalized virtual assistants and connected car services for automotive manufacturers and their suppliers. The Enterprise segment offers On-Premise solutions and services, an automated customer service solution that comprise automated speech recognition, voice biometrics, transcription, text-to-speech, and dialog and analytics products; and On-Demand multichannel cloud, a platform, which offers enterprises the ability to implement automatic customer service. The Imaging segment provides multi-function printer (MFP) scanning and document management solutions; MFP printing and document management solutions to capture and automate paper to digital work flows; and PDF and OCR software for capturing, creation, and management of document work flows. The Other segment offers voicemail transcription and other value-added services to mobile operators; and speech recognition solutions and predictive text technologies for handset devices. 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.
Multiple positive headlines over the last three weeks plus an appearance at the JP Morgan healthcare conference last week has brought new life to Nuance.
In mid November the company announced the spinoff of its automotive unit and shares tanked in an already down market. The spinoff will be completed before the end of 2019 so it is not anything that should impact price today.
Their expertise in voice recognition software is being married with a new AI background to bring this technology to a wide range of applications. Organic revenue rose 12%.
Shares have rebounded from $12.50 to $15.20 in three weeks and could easily retest their November highs near $18 on the new business applications. Fund managers are looking for beaten down small cap stocks as we move into 2019.
Earnings February 19th.
Buy NUAN shares, currently $15.20, see portfolio graphic for stop loss.
Optional: Long Apr $16 call @ 90 cents, see portfolio graphic for stop loss.
SFIX - Stitch Fix - Company Profile
No specific news. Minor decline on no news. Resistance battle still underway.
Original Trade Description: Jan 23rd.
Stitch Fix, Inc. sells a range of apparel, shoes, and accessories through its Website and mobile app in the United States. It offers denim, dresses, blouses, skirts, shoes, jewelry, and handbags for men, women, and kids under the Stitch Fix brand. The company was formerly known as rack habit inc. and changed its name to Stitch Fix, Inc. in October 2011. Stitch Fix, Inc. was founded in 2011 and is headquartered in San Francisco, California. Company description from FinViz.com.
Stitch posted Q3 earnings in early December of 10 cents compared to estimates for 3 cents. Revenue rose from $295.6 million to $366.2 million and beat estimates for $358 million. They guided for Q4 for revenue of $360-$368 million. Analysts were expecting $363 million.
Shares sank because the expected growth was nearly flat. The company said it was changing its focus to quality long term customers rather than short term customers that are more costly. This is a great move but short sighted investors sold the stock.
They want to move away from customers that continually return everything in their box creating headaches for the company. They want to keep customers that actually buy some or all of the items in their box because that generates the profits. They don't want to add customers at a breakneck speed just to please analysts.
Shares rebounded from the December earnings drop and market crash to a two-month high on Friday. This week has seen a pullback, which could be an entry point.
Long SFIX shares @ $21.82, see portfolio graphic for stop loss.
Optional: Long March $23 call @ $1.88, see portfolio graphic for stop loss.
SNCR - Synchronoss Technologies - Company Profile
No specific news. We closed the position at the open for lack of forward progress.
Original Trade Description: Jan 5th.
Synchronoss Technologies, Inc. provides cloud, digital, messaging, and Internet of things platforms, products, and solutions worldwide. Its products and services include cloud-based sync, backup, storage and content engagement capabilities, broadband connectivity solutions, analytics, white label messaging, and identity/access management that enable communications service providers, cable operators/multi-services operators, original equipment manufacturers with embedded connectivity, and multi-channel retailers, as well as other customers to accelerate and monetize value-add services for secure and broadband networks and connected devices. The company also provides Synchronoss Enterprise solutions, such as secure mobility management, data and analytics, and identity and access management solutions for the financial, healthcare, and life sciences markets; and Synchronoss Personal Cloud platform that delivers an operator-branded experience for subscribers to backup, restore, synchronize, and share their personal content across smartphones, tablets, computers, and other connected devices. Its products and platforms are designed to enable multiple converged communication services to manage across a range of distribution channels, such as e-commerce, m-commerce, telesales, customer stores, indirect, and other retail outlets. The company markets and sells its services through direct sales force and strategic partners. Synchronoss Technologies, Inc. was founded in 2000 and is headquartered in Bridgewater, New Jersey. Company description from FinViz.com.
At CES 2019, Synchronoss Technologies announced a partnership with TBCASoft to redefine telecom operators with a blockchain payment processing system. This will allow users to make instore payments, mobile and digital purchases directly from their phones using the Synchronoss secure-multichannel communications platform. Payments can be made vis SMS, email and rich communications services (RCS) leveraging the TBCASoft cross-carrier blockchain payment system. Synchronoss plans to leverage distributed ledger technology to remove middlemen parties typically found in other payment ecosystems.
Shares rose 20% over the last 10 days as the news surrounding CES became known in the investor marketplace. The stock is on the verge of a breakout to a seven-month high.
Earnings Feb 6th.
Closed 2/1: Long SNCR shares @ $6.75, exit $7.15, +.40 gain.
Closed 2/1: Long March $7.50 call @ 60 cents, exit 55 cents, 5 cent loss.
YRCW - YRC Worldwide - Company Profile
YRCW did not decline today. The minor gain after an earnings miss is unusual. I am dropping the long put position as a loss but I would not close it. Just because YRCW did not decline today does not mean it will not fall next week. It is not worth closing for the current price of 3 cents. Miracles do happen. Hold it until expiration.
Original Trade Description: Jan 26th.
YRC Worldwide Inc., through its subsidiaries, provides various transportation services primarily in North America. Its YRC Freight segment offers various services to transport industrial, commercial, and retail goods; and provides specialized services, including guaranteed expedited services, time-specific deliveries, cross-border services, coast-to-coast air delivery, product returns, temperature-sensitive shipment protection, and government material shipments. It serves manufacturing, wholesale, retail, and government customers. As of December 31, 2017, this segment had a fleet of approximately 7,600 tractors comprising 5,900 owned and 1,700 leased; and 30,900 trailers consisting of 23,800 owned and 7,100 leased. The company's Regional Transportation segment provides regional delivery services, which include next-day local area delivery and second-day services, consolidation/distribution services, protect-from-freezing and hazardous materials handling, truck loading, and other specialized offerings; guaranteed and expedited delivery services consisting of day-definite, hour-definite, and time definite capabilities; interregional delivery services; and cross-border delivery services, as well as operates hollandregional.com, newpenn.com, and reddawayregional.com, which are e-commerce Websites offering online resources to manage transportation activities. This segment had a fleet of approximately 6,500 tractors, including 4,700 owned and 1,800 leased; and 13,700 trailers comprising 10,500 owned and 3,200 leased. The company was formerly known as Yellow Roadway Corporation and changed its name to YRC Worldwide Inc. in January 2006. YRC Worldwide Inc. was founded in 1924 and is headquartered in Overland Park, Kansas. Company description from FinViz.com.
YRCW has a problem with earnings reports. They either gap up or gap down immediately afterwards. Their performance has been so spotty on earnings there is no accurate expectation of what they will report.
The stock is cheap at $5.75. Over the last two weeks shares have risen to that level from the December market crash and have plateaued there with no further movement. For any normal stock this would appear to be staging for a post earnings breakout.
Since the options are so cheap, I am recommending a combination play where we buy a cheap option on either side of the stock price and hope for a strong move in either direction.
Earnings Thursday January 31st.
Update 1/31: YRCW reported earnings of 6 cents that missed estimates for 12 cents. That was still a 50% increase from the year ago quarter. Revenues of $1.25 billion beat estimates by a fraction. Shares spiked to $7.26 at the open before fading back to $6.
I messed up on this position. I recommended the position with no stop losses on either side. However, somewhere in the transposition to the portfolio graphic I inadvertently added a $6.65 stop loss to the call. That means we were stopped out of the call side at the open. Even though it was not supposed to be there, I have to take the exit because that is what was in the newsletter.
The long put has no value today but YRCW missed estimates. If the market was not so bullish, we could have seen the stock head back towards the lows. I am recommending we keep the put and see if the recent gains begin to erode.
Closed 1/31: Long Feb $6 call @ 40 cents, exit $1.10, +.70 gain.
Long Feb $5 put @ 25 cents, no stop loss.
BEARISH Play Updates
VXXB - Barclays VIX Futures ETN - ETN Description
The new position on VXXB was entered at the open and today was a choppy market so we did not get any decline.
Original Trade Description: Nov 17th.
The investment seeks return linked to the performance of the S&P 500 VIX Short-Term Futures Index TR. The ETN offers exposure to futures contracts of specified maturities on the VIX index and not direct exposure to the VIX index or its spot level. The index is designed to provide investors with exposure to one or more maturities of futures contracts on the CBOE Volatility Index. Company description from FinViz.com.
The VXXB is a short-term volatility ETN 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 ETN. 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, the prior VXX ETN had done five 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 VXXB and its predecessor the VXX always decline long term.
Unfortunately, put options are expensive with a volatility instrument at this price level. The only recommendation is to short the ETN and forget it. 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 may put a trailing stop loss on it. We will take profits and then look for a bounce to get back in. We could keep this play in the portfolio on a trading basis permanently.
The VXXB will be hard to short. The shares are out there and being traded because the volume on Thursday was 22.1 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.
Short VXXB shares @ $35.33, see portfolio graphic for stop loss.