Option Investor
Newsletter

Daily Newsletter, Saturday, 4/20/2019

Table of Contents

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

Market Wrap

Hurry Up and Wait

by Jim Brown

Click here to email Jim Brown

The major indexes rocketed higher from the December low only to stagnate the closer they get to the record highs.

Weekly Statistics

Friday Statistics


Please read the important announcement
at the bottom of this commentary.


The S&P remains locked in a range from 2895-2910 with the record high close at 2,930. We are very close but every attempt to move higher is sold. There is no excitement about the new highs or the better than expected earnings.


The small cap sector which should be leading the market, is weakening after failing for five consecutive days at 1,585. This is bearish for sentiment.


The Nasdaq 100 ($NDX) has closed at record highs for the last two days but that also failed to generate any excitement. The normal "breakout" when a new high is made, turned into a slow crawl higher. That is still positive, but it failed to ignite the breakout rocket.


There was a ton of economic reports on Thr/Fri. The weekly jobless claims came in at 192,000 and the lowest level since September 6th, 1969. Claims have declined for five consecutive weeks suggesting the payroll report for April is going to be a blowout. The four-week moving average fell to 201,250 and the lowest level since November 1st, 1969. The insured unemployment rate was 1.2% and the lowest rate on record is 1.1% so we are close to a record low. Employers are reluctant to layoff workers because they know they will not be able to find replacements.

The Philly Fed Manufacturing Survey for April declined from 13.7 to 8.5. That comes after a 17.8-point jump in the March reading. New orders exploded higher to 15.7, up from 1.9. Inventories declined sharply from 17.2 to 2.6 suggesting a pickup in manufacturing in the coming weeks. Backorders declined slightly from 3.1 to 0.4. Employment also rose sharply from 9.6 to 14.7.

Prices paid and received went in opposite directions and not in a good way. Prices paid rose from 19.7 to 21.6 and prices received declined from 24.7 to 20.0. There is a margin squeeze in progress and inflation is declining rather than rising. New orders rose for 39.4% of manufacturers and declined for 23.8%. Some 26.8% of manufacturers reported increased hiring, which suggests stronger metrics ahead.


Retail sales for March rebounded sharply from -0.2% to 1.6%. While that sounds good on the surface, the majority of the gains were driven by rising gasoline prices. Gas prices have been rising for nearly two months. If you exclude autos, sales rose 1.2%. If you exclude autos and gasoline, sales rose 0.9%. Motor vehicles and parts rose 3.1% and gasoline stations rose 3.5%. Furniture and fixtures rose 1.7%, electronics 0.5%, food and beverages 1.0%, clothing 2.0%, general merchandise 0.7%, food service and drinking 0.8% and non-store retailers 1.2%.

The headline gain was the largest since September 2017. Year over year sales were up 3.6% overall. Analysts claim tax refunds may have boosted spending. As more people go to work, spending will increase.

Conference board leading indicators rose 0.4% after a downwardly revised 0.1% in February. Employment was credited with supplying the biggest boost. The report suggests the economy is poised to accelerate in the months ahead. The leading indicator report takes numbers from all the other reports to predict future economic growth.

Business inventories rose 0.28% in February and less than the 0.5% analysts expected. This was the lowest level in three months after a 0.86% rise in January. Motor vehicle parts rose 0.3% and auto parts dealers saw inventories rise 0.4%. In theory the slowing of the inventory build cycle suggests either sales are increasing, or manufacturers are letting inventories deplete after the weak retail sales in February. Fortunately, low inventories mean higher manufacturing activity at some point in the near future.

New residential construction for March declined slightly from a 1.142 million annualized pace to 1.139 million. Single family starts declined slightly from 788,000 to 785,000. Multifamily starts were flat at 354,000. Starts in the Northeast declined -4.4%, Midwest -16.6% due to weather, South -7.2%. Starts in the West rose 31.4% as the spring building season arrived. Permits, a leading indicator for future starts, declined from 1.291 million to 1.269 million.


The Atlanta Fed real time GDPNow forecast for Q1 GDP rose sharply from 2.3% at the beginning of the week to 2.8% thanks to the housing starts, retail sales and inventories. The first quarter is normally a blackhole for GDP but this one is shaping up nicely. We get the first official look at the GDP from the BEA on April 26th.

This is far from the outlook at the end of 2018 when the S&P was down 19% and analysts were worried about a recession. This suggests Q2 will be even stronger, especially if there is a China trade deal.


The calendar for next week is led by home sales and the Richmond Fed Manufacturing Survey. The survey is not a market mover, but strong home sales numbers could lift the economic outlook.


We have a big week of earnings ahead with a lot of big names on Wednesday and Thursday. Earnings have been coming in better than expected with many companies beating estimates by 5-7%. The average beat in prior quarters is about 3.5%. However, there are still a few companies every day that stink up the place. There have been 77 S&P companies that have reported and 77.9% have beaten on earnings with 48.1% beating revenue estimates. The current earnings forecast for Q1 is -1.7% and a 5.0% increase in revenue. It is very unusual to see earnings decline when revenue is increasing. The forward PE is 16.8. There have been 85 earnings warnings for Q1, and 31 companies issued positive guidance. During the coming week 155 S&P companies report earnings.


In earnings on Thursday Union Pacific (UNP) was a big winner. The company reported earnings of $1.93 that beat estimates for $1.89. Revenue declined 2% to $5.38 billion and that missed estimates for $5.48 billion. However, expenses declined -3% to $3.42 billion allowing them to increase profits on less freight. The company said severe cold weather flooding along the Missouri river impacted schedules for more than three weeks and led to the lower overall volume. They guided for volume to grow at a low single digit rate in 2019 but they also projected another $500 million decline in expenses. Shares gained $7 to a new high on the news.


Honeywell (HON) reported earnings of $1.92 that beat estimates for $1.83. Revenue declined sharply from $10.39 billion to $8.88 billion but beat estimates for $8.63 billion. Aerospace revenue fell 16% to $3.34 billion but still beat estimates for $3.24 billion. For the full year they raised their guidance from $7.80-$8.10 to $7.90-$8.15. Revenue guidance rose from $36.0-$36.9 billion to $36.5-$37.2 billion. Shares rallied $6 to a new high.


Travelers (TRV) reported earnings of $2.83 that beat estimates for $2.72. Revenue rose to $7.671 billion and beat estimates for $7.113 billion. Net premiums written rose 3% to $7.057 billion. They increased their dividend by 6.5% to 82 cents payable June 28th to holders on June 10th. Earnings came from lower catastrophe losses, which offset a decline in net investment income. Shares spiked to a 52-week high at the open.


Dover Corporation (DOV) reported a 37.7% rise in earnings to $1.24 that beat estimates for $1.12. Revenues rose 5.3% to $1.725 billion and beat estimates for $1.687 billion. Organic growth rose 8.3% and results were impacted by a 3.4% revenue hit from the strong dollar. Bookings at the end of Q1 were $1.78 billion and order backlogs increased 6% to $1.42 billion. Shares closed at a new high.


Checkpoint Software (CHKP) did not have a good day. The company reported earnings of $1.32 that narrowly beat estimates for $1.31 and only 2 cents over the year ago quarter. Revenue rose 4% to $472 million and barely beat estimates for $471 million. For the current quarter they guided for $474-$500 million and earnings of $1.31-$1.40. The revenue was in line, but the earnings guidance was 2 cents below analyst estimates. Shares fell nearly $10 on the weak guidance.


Genuine Parts (GPC) reported earnings of $1.28 that missed estimates for $1.31. Revenue of $4.74 billion also missed estimates of $4.8 billion by 1%. Net sales rose 3.3% but 2% was due to acquisitions. They also suffered a 2% headwind due to the strong dollar. Revenue from the automotive segment rose only slightly from $2.56 billion to $2.62 billion. Industrial parts revenue rose from $1.55 billion to $1.64 billion. For the full year they guided for revenue to rise 3-4% and earnings of $5.81-$5.96. Shares fell $7 on the missed earnings.


Phillip Morris (PM) reported earnings of $1.09 that beat estimates for 98 cents. Revenue declined -2.1% to $6.75 billion and narrowly beat estimates for $6.74 billion. Cigarette volume was flat at 164.3 billion units. Marlboro shipments rose 3.4% to 60.0 billion units. For the full year the company guided for earnings to rise from $4.84 to $5.09 but missed estimates for $5.18. The tobacco sector also took a big hit from a new bill introduced to raise the age for purchasing tobacco from 18 to 21.



Intuitive Surgical (ISRG) reported earnings of $2.61 that missed estimates for $2.70. Revenue rose from $847.5 million to $973.7 million. Analysts expected $975 million. Shares fell $35 in afterhours to cap a monster decline impacting the sector from the Medicare for All proposal Bernie Sanders announced earlier in the week. The biotech and drug stocks were crushed. ISRG said the number of procedures rose 18% and they delivered 235 Davinci systems in the quarter. These are great numbers and ISRG should recover once the sector rout is over.


Energy services giant Schlumberger (SLB) reported earnings of 30 cents that matched estimates. Revenue rose only slightly to $7.879 billion but it was enough to beat estimates for $7.810 billion. Both numbers were lower than the prior quarter. The company projected lower activity in land rigs in North America and seasonal slowness in international markets. North American revenue was down -3% because of pricing weakness. They do expect the overall market to improve as production cuts overseas take effect. They also warned that four years of slowing investment in the sector would result to lower services activity in the years ahead.


Multiple analysts have warned that higher long-term oil prices are coming because of this significantly lower investment. If the market turned sharply higher today it would take 5-7 years for investment and production to catch up. Currently there is a massive number of drilled but uncompleted (DUC) wells in North America. There is no reason for producers to continue punching holes until pipeline capacity catches up and these 8,500 DUCs are completed.


Crude inventories declined slightly last week despite this being the season for refinery utilization to rocket higher. There have been several unplanned outages and that is impacting the numbers. Utilization should be over 90% by now with the summer driving season just ahead.

Crude prices are stuck just under $65 and have been for more than a week. While there are multiple levels of instability as in Libya and Venezuela, we are in that low demand period before summer driving accelerates. We are also seeing a spike in gasoline prices as a result of the refinery outages and the normal price ramp that peaks around Memorial Day. Gasoline prices have been up sharply since mid-February. This will impact summer demand.

Active rigs declined by another 10 rigs last week with 8 oil and 2 gas rigs dropping out of service.

Natural gas prices fell to two year low on warner than normal late winter weather. Demand has declined and we have seen injections into storage for the last three weeks.






Zoom Technologies (ZOOM) saw a huge bump in their stock price over the last month as investors confused them with Zoom Video (ZM), which IPOed on Friday. Investors who had been holding ZOOM shares at 25 cents since late 2014 were rewarded with a surge to $6 over the last week. Anyone paying attention could have received a monster windfall. Even after the difference in tickers was widely discussed in the news the shares closed at $2.70 on Friday.


Zoom Video (ZM) surged $26 on the first day of trading for a 72% pop after the IPO. Underwriters left a lot of money on the table on this one. The CEO immigrated from China 22 years ago at the age of 27. He spoke only a little English and learned while he helped build WebEx, which Cisco bought in 2011 for $3.2 billion. Eric Yuan is a much-respected CEO with a 99% approval from his employees. He was named Glassdoor's big company CEO in 2018. Today he is worth roughly $3 billion. This is why everyone wants into the USA because we are the land of opportunity. Zoom posted 118% revenue growth in 2018 and actually made a profit.


Pinterest (PINS) shares opened at $23.75 and well over the IPO price of $19. After spiking over $25 intraday they closed at $24.50 and a 28% gain. Pinterest lost $63 million in 2018 on revenue of $756 million. They had 291 million monthly active users on March 31st, up 22% from the year ago period. Pinterest shares may struggle some in the months ahead until the company can turn a profit.


Sears Holdings (SHLDQ) creditors are suing former Chairman Eddie Lampert, his hedge fund ESL investments and other members of the board including Treasury Secretary Steven Mnuchin. The suit alleges that Lampert stripped Sears of its most important assets in order to repay ESL investors for their initial investment in Sears when Lampert took over in 2005. The complaint seeks billions of dollars in value "looted" from Sears over his term.

For instance, Lampert spun off 266 of Sears best stores into an entity known as Seritage Growth Properties. This benefitted investors linked to Lampert and forced Sears to begin paying large rents on these 266 stores that they had previously owned outright. This guaranteed income to Seritage and saddled Sears with billions in lease obligations. Lampert also sold Lands End and Sears Hometown Outlets in spinoffs/sales of more than $2 billion. Lampert rejected a bid for Lands End for $1.6 billion and instead spun it off to himself, ESL and others. Sears received only $500 million in the form of a dividend. Lampert won a bid to buy the remaining Sears assets through a bankruptcy auction and will reduce the store count to 425, down from the 3,500 at the time of the merger he orchestrated in 2005. I always wondered how he was getting away with the self-dealing as Chairman of Sears. Maybe he has not escaped after all.



Markets

We are so close to new highs but there is very little momentum. The S&P has been trapped in a very narrow range for over a week. The Dow has been struggling with plunging prices on shares of UnitedHealth and volatility in the tariff sensitive stocks. However, the index is still moving slowly higher.

The Nasdaq Composite has been posting minimal gains while the Nasdaq 100 has quietly made new highs. The Russell 2000 is struggling to hold on to recent gains and appears to be losing the battle.

This is a perfect example of a few mega cap tech stocks leading the market higher while the broader market flounders around looking for direction.

All the major indexes were positive on Friday with the Dow adding 110 points. However, the overall market saw 3,774 advancers and 3,773 decliners. You could not make that up. The market was exactly even and the individual indexes showed similar ratios but not dead even.

The market needs a catalyst to produce a real directional move. Earnings have been better than expected but the forecast is still negative for Q1 and every post earnings spike is sold.

Reportedly, all the major details have been worked out on the Chinese trade agreement and everyone is just waiting for President's Trump and Xi to announce the date for a meeting in Florida. Chines economics have improved, and the announcement of a deal could provide a significant boost in their market. This has already been priced into the US markets although we could see a short-term bounce when the meeting is announced.

Brexit was put off indefinitely since October 31st is years away in market time. This hurdle is no longer a factor in the current market.

So, what are investors waiting for as a signal to buy stocks? As I have warned for weeks, we could be facing a sell the news event when the major indexes reach the prior highs. The markets are up 20% in 2019, more if you count from the December lows, and with earnings negative, there is little excitement about buying a market top. Everyone appears to be waiting for a dip to buy. With the summer doldrums ahead, we could see a sell the news event and a slide into summer given the weak earnings.

With the Nasdaq 100 at new highs and the other indexes only 1% or so below their highs you would expect investor sentiment to be strong. However, 62% of investors are either neutral or bearish. Bullish sentiment actually declined despite the Nasdaq 100 highs. On a contrarian basis this could provide a big boost if there was an unexpected catalyst because so many investors would have to cover shorts and chase prices. Unfortunately, I do not see a large catalyst on the horizon. The summer is shaping up to be boring with months of additional collusion/obstruction headlines overpowering economic news.

AAII Investor Sentiment

While we are close to new highs, sentiment is lackluster at best. That could be predicting a coming decline. Granted, sentiment can change very quickly but normally it requires a sudden change in outlook for either economics or earnings. The challenge here is that the main earnings push will be over in two weeks and the stocks with the weaker earnings will begin to report and the overall earnings growth forecast will begin to decline.


Thank you, UnitedHealth! After two weeks of volatility and erasing roughly 275 Dow points at the lows, the stock rebounded on Friday to return 31 of those Dow points. Once investors feel the bad news is priced in, we should see the stock rebound sharply and drag the Dow higher.

Merck and Pfizer accounted for -117 points of negativity on the Dow over the last two weeks as the Medicare for All proposal tanked their shares. Now that the fiscal stupidity of that proposal has been disseminated, we should see those stocks begin to recover.

Clearly, if it were not for those three stocks erasing nearly 400 Dow points, we would already be at a new high on the Dow. That does not mean there will not be some more surprises as other Dow components report but the worst should be over.

The Dow is only 269 points below a new high. We could do that in one day with the right catalyst. The key is whether the index surges over that level or remains pinned to that level.

There is always the potential for a head and shoulders pattern on the Dow. We are right at the right shoulder and a material decline from this level could trigger significant technical selling.




Like the S&P, the Nasdaq has stalled in a tight range just below 8,000 for the last five days. The prior high was 8,109 so the index is only 109 points below its high. So why can't it gain 100 points in five days? The A/D line on the broader Nasdaq composite is almost dead even and that includes the big cap stocks in the graphic below. Advancers beat decliners 18:12 but the amount of the gains was minimal with the exception of the top four, which almost perfectly overcame the bottom four. The index was up 2 points for the day. The overall AD was 1,449 advancers to 1,535 decliners.

As I have said for the last week there is no conviction by either the buyers or the sellers.



The small cap index remains the weakest link and the Russell typically leads the broader market. With the major indexes stalled and the Russell weakening, there is no incentive for investors to leave the safety of cash. If the Russell suddenly pushed over 1,600, I think it would trigger a broad market rally. If it falls back below the 50-day average at 1,556, it could trigger a broad market decline. Investors are waiting for the Russell to commit to a direction.


I recommend we continue to be cautious until the S&P and Dow move to new highs on decent volume. I don't mean just a few points over the prior highs but a real breakout that triggers some short covering and price chasing. The Blackrock CEO, Larry Fink, said investors were sitting on near record amounts of cash that could be put to work on a breakout. I hope he is right. Personally, I would rather use that cash to buy a summer dip than a market top, but a true breakout could be powerful.

IMPORTANT ANNOUNCEMENT

It is with a heavy heart that I make this announcement this weekend. For nearly 22 years I have published this newsletter on a daily basis. We have written through market highs and market lows. I wrote back in early January that I had some health issues that were causing me to rethink sitting in my chair seven days a week cranking out research. At age 72 I need to get out of my chair and spend what time I have left with my family. I always joked that someday my wife would find me dead, slumped over my keyboard. As that possibility becomes more real, it is no longer a joking matter.

I have looked for months for someone to take over the management of the newsletters and give me some time off. I still want to write because I love what I do. I love the market and writing about it. I have been unsuccessful in my quest. I have found numerous people who would write five paragraphs and three ads and call it a market wrap. I have higher standards than that for the newsletter. As I wrote earlier, I have found many people who would pay good money just to get access to the subscriber database. That is not going to happen. I have never sold access to the names and never will.

I have decided to convert the newsletter to a weekly publication starting this week. The Option Investor and Premier Investor newsletters will be published on the weekend along with the LEAPS Investor newsletter. I will include more plays in the weekend editions to compensate for the lack of daily play updates. The Option Writer newsletter will be published on Wednesday. I will continue to search for a quality person to manage the newsletters and return to a daily publication.

I am in talks with one individual regarding starting an ETF newsletter and possible a Crowd Funding newsletter. I am not going away.

I appreciate your continued support. Some of our readers have literally been with us since we started on Thanksgiving weekend in 1997. I hope I can continue to count on your support for years to come.

Enter passively and exit aggressively!

Jim Brown

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"A good plan violently executed now is better than a perfect plan executed next week."

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New Plays

Weak Sector

by Jim Brown

Click here to email Jim Brown
Editor's Note

If Schlumberger is struggling to make its estimates you know the little guys are struggling. Baker Hughes is no pipsqueak but they are one fifth the size of SLB.



NEW BULLISH Plays

No New Bullish Plays


NEW BEARISH Plays

BHGE - Baker Hughes GE - Company Description

Baker Hughes, a GE company provides integrated oilfield products, services, and digital solutions worldwide. Its Oilfield Services segment offers drilling, wireline, evaluation, completion, production, and intervention services; and drilling and completions fluids, completions tools and systems, wellbore intervention tools and services, artificial lift systems, pressure pumping systems, and oilfield and industrial chemicals for integrated oil and natural gas, and oilfield service companies. The company's Oilfield Equipment segment designs and manufactures products and services, including pressure control equipment and services, subsea production systems and services, drilling equipment, and flexible pipeline systems; and onshore and offshore drilling and production systems, and equipment for floating production platforms, as well as provides a range of services related to onshore and offshore drilling activities. Its Turbomachinery & Process Solutions segment provides equipment and related services for mechanical-drive, compression, and power-generation applications across the oil and gas industry, as well as products and services to serve the downstream segments of industry. Its product portfolio includes drivers, compressors, and turnkey solutions; and pumps, valves, and compressed natural gas and small-scale liquefied natural gas solutions. This segment serves upstream, midstream, onshore and offshore, industrial, engineering, procurement, and construction companies. The company's Digital Solutions segment provides sensor-based measurement, non-destructive testing and inspection, turbine, generator and plant controls, and condition monitoring, as well as pipeline integrity solutions for a range of industries, including oil and gas, power generation, aerospace, metals, and transportation. It serves through direct and indirect channels. The company is based in Houston, Texas. Baker Hughes, a GE company is a subsidiary of General Electric Company. Company description from FinViz.com.

On Thursday energy services giant Schlumberger (SLB) reported earnings of 30 cents that matched estimates. Revenue rose only slightly to $7.879 billion but it was enough to beat estimates for $7.810 billion. Both numbers were lower than the prior quarter. The company projected lower activity in land rigs in North America and seasonal slowness in international markets. North American revenue was down -3% because of pricing weakness. They do expect the overall market to improve as production cuts overseas take effect. They also warned that four years of slowing investment in the sector would result to lower services activity in the years ahead.

If Schlumberger is struggling in this energy market then Baker Hughes GE will be struggling as well. Shares rallied with oil prices early in 2019 but now that prices have stabilized and we are losing 10 active rigs a week, their earnings should be suffering.

They make a lot of money from fracking and completing wells. With drilled and uncompleted wells now over 8,500 there is plenty of work but that number is growing instead of declining. That means production companies are not completing them. With pipelines at capacity there is no reason to spend a couple million dollars completing a well only to have it sit idle because you can't get the oil to market.

I suspect Baker Hughes is going to disappoint when they report earnings on April 30th. I am recommending we buy an inexpensive put option and hold over the report. The May $25 put is relatively inexpensive.

Buy May $25 put, currently 75 cents, no stop loss.




In Play Updates and Reviews

Clinging to Support

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Russell closed right on correction level support at 1,566. Despite a minor loss while all the other indexes rallied, the Russell managed to hold onto the 1,566 level one more time. This support/resistance level as seen more trqaffic than Grand Central Station but remains firmly in play. The S&P and Nasdaq posted only minor gains so the Russell's 2 point loss was not that big of a departure from the overall market on Friday. The index remains the weakest link and a drag on sentiment.



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.





Current Position Changes


CY - Cypress Semiconductor
Close the long stock position at the open on Wednesday.



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Full updates on all plays on Wednesday and Saturday. Only closed plays are updated on other days.


BULLISH Play Updates

CY - Cypress Semiconductor - Company Profile

Comments:

No specific news. New 7-month closing high on Wednesday, slight weakness on Thursday. Earnings are next Thursday. Close the long stock position at the open on Wednesday. Leave the long call position open if you want to hold over earnings.

Original Trade Description: April 5th.

Cypress Semiconductor Corporation designs, develops, manufactures, markets, and sells embedded system solutions worldwide. It operates in two segments, Microcontroller and Connectivity Division, and Memory Products Division. The Microcontroller and Connectivity Division provides microcontroller (MCU), analog, and wireless and wired connectivity solutions, including Traveo automotive MCUs; programmable system-on-chip and general-purpose MCUs; analog power management integrated circuits and energy harvesting solutions; CapSense capacitive-sensing controllers; TrueTouch touchscreens; Wi-Fi, Bluetooth, and Bluetooth low energy; and USB controllers comprising solutions for the USB-C and USB power delivery standards, as well as wireless Internet of things connectivity solutions. The Memory Products Division provides NOR and NAND flash memories, static random access memory (SRAM) products, HyperRAm, synchronous and asynchronous SRAMs, nonvolatile SRAMs, F-RAM ferroelectric memory devices, and other specialty memories and clocks. The company serves various markets, including automotive, industrial, consumer, computation, white goods, communications, handset, PC peripherals, mobile devices, networking, telecommunications, video, data communications, computation, and medical markets. Cypress Semiconductor Corporation sells its semiconductor products through distributors and manufacturing representative firms, as well as through sales force directly to original equipment manufacturers and their suppliers. The company was founded in 1982 and is headquartered in San Jose, California. Company description from FinViz.com.

Cypress makes chips for the Internet of Things or IoT. That has evolved into automotive uses as well as today's cars are connected to the internet in multiple ways. Self-driving cars obviously have more chips but many cars today function as their own WiFi hotspot for the occupants. I am sure the explosion of IoT devices we have seen over the last several years is just the tip of the iceberg for the years to come.

Shares spiked in early February after the company reported earnings of 35 cents compared to estimates for 33 cents. Revenue of $604.5 million also beat estimates for $599 million.

After several days of gains the stock rolled over with the chip sector in early March. Over the last several days shares have rallied to close at a 6-month high on Friday.

Earnings May 7th.

More than 7,800 of these calls were bought on Friday compared to an open interest of only 257. Somebody is betting a lot that the stock will go up. Because of the cheap price we may hold over earnings unless we have a decent profit to protect before they report. We will NOT hold the stock over the earnings.

Position 4/8/19:
Long CY shares @ $15.90, see portfolio graphic for stop loss.
Optional: Long May $17 call @ 40 cents, see portfolio graphic for stop loss.



INO - Inovio - Company Profile

Comments:

Inovio published new data on their cancer killing T-Cell engagers. The DNA encoded Bi-specific T Cell Engagers cleared established tumors in preclinical studies. One dose of the drug lasted for months compared to only hours for the current versions.

The option position is still open.

Original Trade Description: April 3rd.

Inovio Pharmaceuticals, Inc., a late-stage biotechnology company, focuses on the discovery, development, and commercialization of DNA-based immunotherapies and vaccines to prevent and treat cancers and infectious diseases. Its SynCon immunotherapy design has the ability to break the immune system's tolerance of cancerous cells, as well as is intended to facilitate cross-strain protection against known, as well as new unmatched strains of pathogens, such as influenza. The company is involved in conducting and planning clinical studies of its proprietary SynCon immunotherapies for human papillomavirus-caused pre-cancers and cancers; bladder cancer; glioblastoma multiforme; hepatitis B virus; hepatitis C virus; human immunodeficiency virus; Ebola virus; middle east respiratory syndrome; and Zika virus. Its partners and collaborators include MedImmune, Limited; The Wistar Institute; University of Pennsylvania; GeneOne Life Science Inc.; ApolloBio Corporation; Regeneron Pharmaceuticals, Inc.; Genentech, Inc.; Plumbline Life Sciences, Inc.; Drexel University; National Institute of Allergy and Infectious Diseases; United States Military HIV Research Program; U.S. Army Medical Research Institute of Infectious Diseases; National Institutes of Health; HIV Vaccines Trial Network; Defense Advanced Research Projects Agency; the Parker Institute for Cancer Immunotherapy; and Coalition for Epidemic Preparedness Innovations. Inovio Pharmaceuticals, Inc. was founded in 1979 and is headquartered in Plymouth Meeting, Pennsylvania. Company description from FinViz.com.

Inovio is developing new cancer treatments that deliver coded DNA to cells so they can create their own antibodies against the invading cancer cells. They have multiple trials in progress and the success of any one trial will catapult INO significantly higher.

The drawback is money. They ended the year with $85.5 million after burning through $69 million in 2018. In February they announced a secondary to raise another $82 million. The secondary was convertible notes at $5.38 in 2023. Since that is almost a slam dunk deal, investors trashed the stock because of the 17% dilution in 2023. I think that is very short sighted since we could see three years of stock gains before that comes to pass.

Earnings May 8th.

After crashing to $3.30 on the secondary announcement shares have started to rebound. Wednesday's close was a two-month high. They announced the early closing for enrollment on two different cancer trials. They also announced a new therapy against respiratory tract tumors in a new study. Good things are breaking out all over.

Position $4/4/19:
Closed 4/17: Long INO shares @ $3.86, exit $3.85, -.01 loss.
Optional: Long May $4 call @ 30 cents, see portfolio graphic for stop loss.



PSTG - Pure Storage - Company Profile

Comments:

No specific news. Resistance holding. Still a chance for a positive breakout.

Original Trade Description: April 5th.

Pure Storage, Inc. engages in building a data platform that enables businesses to enhance performance and reduce complexity and costs worldwide. The company delivers its data platform through Purity Operating Environment, an optimized software for solid-state memory that offers enterprise-class storage and protocol services; FlashArray and FlashBlade optimized hardware products for solid-state memory to enhance the performance and density of flash, optimize its advanced software services, and reduce solution cost for customers; Pure1, a cloud-based management and support software; and FlashStack and Artificial Intelligence Ready Infrastructure converged infrastructure solutions. Its data platform is used for a range of use cases, including database applications, large-scale analytics, artificial intelligence/machine learning, private and public cloud infrastructure and webscale applications, virtual server infrastructure, and virtual desktop infrastructure; and helps customers scale their businesses through real-time and accurate analytics, increase employee productivity, improve operational efficiency, and deliver compelling user experiences to their customers and partners. The company serves enterprise and commercial organizations, cloud, global systems integrators, and service providers across various set of industry verticals, consumer web, education, energy, financial services, governments, healthcare, manufacturing, media, retail, and telecommunications through a network of distribution and channel partners. The company was formerly known as OS76, Inc. and changed its name to Pure Storage, Inc. in January 2010. Pure Storage, Inc. was founded in 2009 and is headquartered in Mountain View, California. Company description from FinViz.com.

Their memory management products are state of the art and their acquisition of Compuverde will increase those capabilities. Compuverde is a leading developer of file software solutions for enterprises and cloud providers. The combination of the two companies will allow customers to implement true hybrid architectures in on premise or cloud applications or a mix of both.

They reported earnings of 14 cents that missed estimates for 19 cents. However, the miss was due to a breakdown at a contract manufacturer and prevented them from shipping a large number of orders. Revenue still rose 24% to $422.2 million despite missing estimates for $443 because of the supplier breakdown.

Shares dipped on the initial earnings results but have rebounded to six month high. Shares have been consolidating for the last six days but appear to be ready for a breakout.

Earnings May 30th.

Position 4/11/19:
Long PSTG shares @ $23.40, see portfolio graphic for stop loss.
Optional: Long May $25 call @ 40 cents, see portfolio graphic for stop loss.



VIPS - Vipshop Holdings - Company Profile

Comments:

No specific news.

Original Trade Description: March 30th.

Vipshop Holdings Limited operates as an online discount retailer for various brands in the People's Republic of China. It operates in two segments, Vip.com and Internet Finance Business. The company offers women's apparel, such as casual wear, jeans, dresses, outerwear, swimsuits, lingerie, pajamas, and maternity clothes; men's apparel comprising casual and smart-casual T-shirts, polo shirts, jackets, pants, and underwear; women and men shoes for casual and formal occasions; and accessories that include belts, jewelry, watches, and glasses for women and men. It also provides handbags, which comprise purses, satchels, duffel bags, and wallets; apparel, gears and accessories, furnishings and decor, toys, and games for boys, girls, infants, and toddlers; sports apparel, sports gear, and footwear for tennis, badminton, soccer, and swimming; and consumer electronic products, including computers, mobile handsets, digital cameras, and home appliances. In addition, the company offers skin care and cosmetic products, such as cleansers, lotions, face and body creams, face masks, sunscreen, foundations, lipsticks, eye shadows, and nail polish; and home furnishings comprising bedding and bath products, home decors, dining and tabletop items, and small household appliances. Further, it provides designer apparel, footwear, and accessories; and snacks and health supplements, and occasion-based gifts. Additionally, the company offers Internet finance services, which comprise consumer and supplier financing, and wealth management services. It provides its branded products through its vipshop.com, vip.com, and lefeng.com online platforms, as well as through its cellular phone application. Additionally, the company offers warehousing, logistics, procurement, research and development, consulting, and software development and information technology support services. Vipshop Holdings Limited was founded in 2008 and is headquartered in Guangzhou, the People's Republic of China. Company description from FinViz.com.

Earnings May 22nd.

In late February, the company reported earnings of 19 cents that beat estimates for 18 cents. However, revenue of $3.80 billion missed estimates for $3.96 billion. The 8.1% rise in revenue was down from a 16.4% rise in the prior quarter. The CEO said the weak quarter was the result of the company shifting some low margin categories from the "first-party business" and into the "marketplace platform." He said the move would result in a positive improvement in earnings beginning next quarter. For the current quarter they were only targeting 1-5% revenue growth and analysts were expecting 11.6%. The CEO cautioned that revenue growth was not the metric to worry about. The company is now focused on increasing profits rather than increasing revenue at any cost.

Zacks reiterated a buy rating saying earnings estimates had risen 5.9% over the last 60 days which includes the post earnings commentary. VIPS only has a 9.7 PE compared to 29.4 for the rest of the industry.

After the Zacks comments on the 25th the stock began escalating sharply and closed at an 8-month high on Friday. The stock is now over the 50, 100 and 200 day averages.

Position 4/1/19:
Long August $9 call @ 75 cents, see portfolio graphic for stop loss.

Previously closed 4/15: Long VIPS shares @ $8.19, exit $7.85, -.34 loss.



BEARISH Play Updates

GME - Gamestop - Company Description

Comments:

No specific news. Analysts continue to warn that Microsoft's all digital Xbox is going to be a death blow to Gamestop. New 52-week low.

Original Trade Description: March 23rd.

GameStop Corp. operates as a multichannel video game, consumer electronics, and wireless services retailer. It operates in five segments: United States, Canada, Australia, Europe, and Technology Brands. The company sells new and pre-owned video game hardware; video game software; pre-owned and value video games; video game accessories, including controllers, gaming headsets, virtual reality products, memory cards, and other add-ons; and digital products, such as downloadable content, network points cards, prepaid digital and prepaid subscription cards, and digitally downloadable software. It also sells wireless products, services, and accessories; collectibles, such as licensed merchandise primarily related to the video game, television, and movie industries, as well as pop culture themes; gaming-related print media, and mobile and consumer electronics products; PC entertainment software in various genres comprising sports, action, strategy, adventure/role playing, and simulation; and carry strategy guides, magazines, and interactive game figures. In addition, the company operates e-commerce sites under the GameStop, EB Games, Micromania, and ThinkGeek brands; collectibles stores under the Zing Pop Culture and ThinkGeek brands; and Spring Mobile, an authorized AT&T reseller operating AT&T branded wireless retail stores. Further, it provides Game Informer magazine, a print and digital video game publication; and operates Simply Mac, an authorized Apple reseller that sells Apple products, including desktop computers, laptops, tablets and smart phones, and related accessories and other consumer electronics products, as well as training, warranty, and repair services. As of March 28, 2018, the company operated approximately 7,200 stores across 14 countries. It primarily operates its stores under the GameStop, EB Games, and Micromania brands. The company was formerly known as GSC Holdings Corp. GameStop Corp. was founded in 1994 and is headquartered in Grapevine, Texas. Company description from FinViz.com.

Gamestop is headed to the same fate as Blockbuster. Gamestop sells preowned game consoles and video games. With Google announcing Stadia where all games are browser based and run on any device and computing power is not important, this is a major hurdle for Gamestop.

Microsoft announced a similar fate with plans on moving the Xbox to the cloud, called Project XCloud, and there will be no game consoles or game CDs.

With these two giants eliminating the hardware and software that is resold by Gamestop, this company is in a world of trouble. They do sell other products but consumers come into their stores for the games. With 7,200 stores they have a lot of overhead and their biggest revenue items are disappearing.

Granted, this will not happen overnight. These game conversions to the cloud will take months to take hold and many months to become the majority of market share. However, investors will see the future, with Blockbuster a prime example, and Gamestop shares are going to bleed value in the months ahead.

Earnings April 2nd. Normally we would not take a position in front of earnings but there will be analyst questions about the path of progress. The answers may be hard for investors to handle. I am recommending we own a put and hold it over the earnings report.

Update 4/3: Gamestop (GME) reported earnings of $1.60 that matched estimates but was down from $2.02 in the year ago quarter. Revenue declined from $3.32 billion to $3.06 billion and missed estimates for $3.28 billion. Even worse they projected a 5% to 10% decline in revenue in 2019 and losses of up to 5 cents per share in Q1. The company is struggling to adapt to changes in the video game industry.

Microsoft has announced a new Xbox game console that only uses downloaded games. That prevents users from reselling the games to Gamestop on CDs as in the past. Apple and Google also announced new video game offerings that stream games through your browser and the game does not reside on your computer or mobile device. That means no CDs and no consoles needed to play the games. That means no resale opportunities for Gamestop. This is also going to impact the resale value of existing games and consoles. In addition to their woes, Activision Blizzard announced today they were going to release a battle-royale version of Call of Duty that would be free online in the month of April.

Shares fell below $9 at the open but rebounded sharply in what should be a dead cat bounce.

Update 4/6/19: After the disappointing earnings Bank of America reiterated an underperform (sell) with a price target of $5. However, Telsey Advisory reiterated a market perform and a $10 target. The stock closed at $9.86.

Position 3/25/19:
Long May $10 put @ 65 cents. see portfolio graphic for stop loss.



SIG - Signet Jewelers - Company Description

Comments:

No specific news. Testing 52-week lows.

Original Trade Description: April 13th.

Signet Jewelers Limited engages in the retail sale of diamond jewelry, watches, and other products. As of February 02, 2019, it operated 3,334 stores and kiosks. The company operates through three segments, North America, International, and Other. The North America segment operates stores in malls and off-mall locations primarily under the Kay Jewelers, Kay Jewelers Outlet, Jared The Galleria Of Jewelry, Jared Vault, Zales Jewelers, Zales Outlet, Piercing Pagoda, Peoples Jewellers, Gordon's Jewelers, and Mappins Jewellers regional banners; and JamesAllen.com, an online jewelry retailer Website. This segment operated 2,729 locations in the United States and 128 locations in Canada. The International segment operates stores in shopping malls and off-mall locations, principally under the H.Samuel and Ernest Jones brands. This segment operated 477 stores in the United Kingdom, the Republic of Ireland, and the Channel Islands. The Other segment is involved in the purchase and conversion of rough diamonds to polished stones, as well as provision of diamond polishing services. Signet Jewelers Limited was founded in 1950 and is based in Hamilton, Bermuda. Company description from FinViz.com.

On April 4th, Signet Jewelers reported earnings of $3.96 that beat estimates for $3.77 but that was still a decline of 7.5% from the year ago quarter. Revenue of $2.154.7 billion beat the estimates for $2.142 billion but declined 6% year over year.

Globally same store sales declined -2% with sales in North America down -5.5%. The average number of transactions declined 4%. Sales at Zales stores declined -2% and Piercing Pagoda sales declined -17.1%. Kay stores fell -1.6%, Jared -8.4% and James Allen -1.4%. international sales declined -16.6% to $195 million and same store sales fell -7.3%. Average transaction values declined -5.4% and the number of transactions declined -2.3%.

They guided for Q2 for a loss of 17-28 cents and analysts were expecting a loss of 6 cents. Same store sales are expected to decline between 0.5% and 1.5%. For the full year they guided for earnings of $2.87-$3.45 and analysts were expecting $3.53. Same store sales are expected to be down -2.5% for the year. They closed 262 stores in 2018 and plan to close another 150 in 2019.

There was NOTHING to like about these earnings. Shares have fallen $5 since April 4th and with metrics like those they could fall significantly lower. Shares closed at a new 52-week low on Friday.

Position 4/15/19:
Short SIG shares @ $23.18, see portfolio graphic for stop loss.
Optional: Long July $20 put @ $1.35, see portfolio graphic for stop loss.



VXXB - Barclays VIX Futures ETN - ETN Description

Comments:

New historic low on Thursday.

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.

Position 2/1/19:
Short VXXB shares @ $35.33, see portfolio graphic for stop loss.