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4/13/2017 10:15:33 AM Eastern Time

Angst Builds
By Charles Payne, CEO & Principal Analyst

 Click here to download PDF version

It was another sloppy session with all the major indices and oil closing lower while gold and bonds edged higher on Wednesday.

Late in the session, President Trump lamented that the U.S. dollar was “getting too strong,” sending the U.S. Dollar Index (DXY) plunging. The DXY was already making lower highs and lows since peaking on December 12, 2016, but it’s come a long way since trading under 75 in 2011. 

A cheaper dollar would make President Trump happy, and it would bolster bottom lines of multinational corporations. 

On that note, President Trump has decided not to label China a currency manipulator, which tamps down friction between the nations, perhaps making trade compromises easier. 

Iron Ore Hammered

The biggest move of the session was the plunge in the price of iron ore.  Closing at $68.00 a ton, iron ore lost $6.34 or 8.5%, making it the biggest one-day decline since March 2014.  It’s coming off a whirlwind rally that began in November; it peaked at 94.46 in February, but it’s now free-falling more than 28% in the blink of an eye.

Before becoming too hysterical, we need to look at the bigger picture, which puts the current pullback into perspective.  The all-time high of $191.90 a ton was in February 2011; it’s a long way from being overbought.  

Still, it’s been a roller coaster mirroring global economic turmoil and narratives.  The scuttlebutt yesterday was high inventory levels and a slowing China demand.  You could also argue the notion of a strong demand via the trillion-dollar infrastructure plan that is also beginning to fade, too.

Portfolio Hedge

On another note, I’m not in panic mode but many folks are asking me about a hedge. I would focus on a pullback in the Russell 2000, which has been the biggest post-election winner.  If the Trump economic agenda is derailed or delayed, multinational stocks become more attractive and smaller domestic names could take big hits.  

ProShares UltraPro Short Russell2000 (SRTY)

For more details, touch base with your representative; if you don’t have one, call or contact research@wstreet.com

Today, we’ll get a better idea of the nation’s economic circumstance when several major banks report earnings:

  • (C) Citigroup
  • (WFC) Wells Fargo
  • (JPM) JPMorgan & Chase
  • (PNC) PNC Bank

Today’s Session

Equity futures have been under pressure all morning long and bank earnings have been mixed with bottom line beats but concerns on slowing loan growth.  (These results are making a good argument for bringing back Glass Steagall so Main Street can get a bite at the apple.  I will have more on that on the note or Monday morning commentary.)  Overall, JPM was most impressive while WFC missed on revenue and continues to suffer a well-deserved PR nightmare.

JP Morgan

Revenue

Earnings

Actual

$25.5 billion

$1.65

Estimate

$24.8 billion

$1.52

 

Wells Fargo

Revenue

Earnings

Actual

$22.0 billion

$1.00

Estimate

$22.3 billion

$0.97

 

Citigroup

Revenue

Earnings

Actual

$18.1 billion

$1,35

Estimate

$17.9 billion

$1.24

 

Fed Relief

Then there’s the latest read on inflation that saw producer prices decline after six sequential monthly increases so this gives the Fed some room not to force rate hikes.  Of course, the biggest sigh of relief at the Fed was from the chairman’s office, where Janet Yellen got a reprieve from President Trump who told the Wall Street Journal her job is safe.  In the same interview, he said he likes the low rate environment.

 

 

 

 

Long Idea: Oclaro, Inc. (OCLR) @ $8.96
Industry: Technology; Semiconductors
Click here to view the trading alerts that followed this recommendation

Trading Parameters
Status Closed
Entry Price$8.96
Entry Limitsee comments
Stop LossN/A
Target$12.00


Options Trade Parameters
Status Closed
Type Call
Option Symbol OCLR170721C00009000
Entry Price $1.10
Strike Price $9.00
Expiration Date 7/21/2017
  Add to Position Tracker

BACKGROUND: Oclaro, Inc. is a provider of optical components, modules and subsystems for the core optical transport, service provider, enterprise and data center markets. The Company provides various solutions for optical networks and interconnects driving the next wave of streaming video, cloud computing, application virtualization and other bandwidth-intensive and high-speed applications. The Company's product offerings include client side transceivers, line side transceivers, tunable laser transmitters, lithium niobate modulators, transponder modules, and discrete lasers and receivers. It designs, manufactures and markets optical components, modules and subsystems that generate, detect, combine and separate light signals in optical communications networks. The Company supplies transmission products at the component level and the module level into 10 gigabits per second (Gb/s), 40 Gb/s and 100 Gb/s communications solutions.

SKINNY: Oclaro, Inc. (OCLR) breaks out at $9.12; through there we see room to $12.00 in the longer term.


Key Fundamentals
PEG  0.79
Book Value  2.45
Institutional Holdings  46.00
Price/Sales  2.78
Average Daily Volume  10.33
Shares Outstanding  166.59
Market Value  1.44
Insider Activity  6 Buys
52-week High  9.27
52-week Low  4.25
Annual Earnings Estimate  0.2

Analyst Coverage
 MKM Partners  BUY
 Needham  BUY
 Stifel  BUY



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