Option Investor
Newsletter

Daily Newsletter, Monday, 4/25/2016

Table of Contents

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

Market Wrap

Weak Market Waits On FOMC

by Thomas Hughes

Click here to email Thomas Hughes

Introduction

Weak earnings and another FOMC meeting have the market moving lower. The FOMC meeting starts tomorrow with a policy announcement on Wednesday; there is no expectation for change, the statement and what it says about the state of the economy and future rate hikes will have far reaching affect. Adding to today's instability in equity prices are a raft of expected economic data, a meeting of the BOJ and instability in the oil market.

International markets were equally cautious in today's trading. Asian indices fell across the board as traders in that region wait on both the FOMC and the BOJ, led by a -0.76% drop in the Nikkei 225. The BOJ is feared to increase QE in the form of additional negative rates on loans. European indices began the day lower, driven by weakness in global sentiment. The FTSE 100 led the European market lower with a loss of -0.76%.

Market Statistics

Early trading in the futures market indicated a lower open for US indices although not a major decline. Global sentiment along with weak earnings, declining earnings projections and the FOMC gave plenty of reason for pause. There was no economic data before the bell, and very little in the way of earnings, to move futures so trading held fairly steady into the opening bell. At the bell the indices did indeed open lower, about 3 points for the SPX, and then proceeded to move lower, not hitting bottom until shortly after 11AM. At that point a narrow trading, near the early low, was entered and lasted until early afternoon. Around 1PM the indices moved up off the low to trade near the middle of the day's range and held that level into the closing bell.

Economic Calendar

The Economy

Very little economic data today other than the weekly Moody's Survey and earnings insight from FactSet. The data we did get, New Home Sales, was negative on the headline but comes with a bit of a silver lining. Home sales fell by -1.5% from last month to an annualized rate of 511,000. This is slightly below the analysts estimates of 519,000 but mitigated by last months upward revision. February New Home Sales were revised up to 519,000 from 512,000, wiping out most of the losses posted for this month. Within the report sales in the west were weakest suggesting that the market remains healthy and expanding in the rest of the country. On a year over year basis New Home Sales are up 5.4%.

Moody's Survey Of Business Confidence gain 0.2% this week, the 11th week of upwardly trending sentiment. This week's reading is another positive sign for the economy moving forward although the index is still -25% below last years high. Mr. Zandi says the reading reveals an economy expanding above potential and that global markets, US and Europe in particular, have been able to shrug off market volatility seen earlier in the year.


Earnings continue to roll in, this week will be the biggest of the season with more than 37% of S&P 500 companies scheduled to report. The blended rate for the 1st quarter improved slightly over the past week, to -8.9% from -9.3%, but projections for the rest of the year and the full year fell. To date, 26% of the index has reported with 76% beating on EPS and only 55% beating on the revenue end.


Full year 2016 projections have fallen to 1.1%, the lowest of the series, shedding nearly a full percent from last week. All three forward quarters have had their projections cut in the last week although growth is still expected to return by the 3rd quarter. The 2nd quarter was revised down by nearly a full percent, the 3rd quarter by -0.4% and the 4th quarter by a whopping -2.4%. The only good news in earnings this week is that 2017 projections gained a tenth but I'll not put too much trust in that number until much later in the year.


Data will be light tomorrow, only Consumer Confidence and Durable Goods, but the next day we will get the FOMC decisions, and then on Thursday 1st quarter GDP and the BOJ. Earnings reports were relatively light today, only about 60 or so, but tomorrow the schedule heats up with over 125 reports including Apple, AT&T, Barrick Gold, Ebay, Fiat-Chrylser, JetBlue, Proctor & Gamble and Chipotle Mexican Grill.

The Dollar Index

The Dollar Index fell today, dropping about -0.5% from last week's peak. The index has met resistance, ahead of the FOMC and the BOJ, at the short term moving average and remains in downtrend. The FOMC is not expected to raise rates, the CME Fed Watch Tool shows a 0% expectation for rate hike at this meeting (only 25% for June) so it will be the statements, data and whatever it is the BOJ does, which will move markets this week. A dovish Fed will likely weaken the dollar although risks lie in the BOJ which could weaken the yen more. Resistance is at the short term moving average, about $95, with first target for support near $94. A break of either line could cause a quick move in the index with downside target near $93 and upside target near $96.


The Oil Index

Oil prices fell in a volatile session driven by supply/demand imbalance and profit taking. WTI fell from near a 5 month high to trade near $43. There are signs of rebalance in the market, helping to support prices, while short to long term fundamentals remains skewed to the supply side. Another factor affecting oil markets today may have been the announced reforms Saudi Arabi expects will alleviate the kingdoms dependence on oil. The reforms include regulatory, policy and economic changes intended to increase non-oil GDP from 16% to 50%. Regardless, global production remains high and outpaces demand so until this changes the risk in oil is to the downside.

The Oil Index fell -1.5% from a 4.5 month high and the 1170 resistance target. The index has been trending higher for just over 3 months, driven by the production-cap-rumor, expectations for 2017 market rebalance and little else. The indicators remain bullish, consistent with this trend, but are showing signs of weakness not limited to the oil market. MACD momentum is highly divergent from the new highs while stochastic is high in overbought territory with both showing nearer term weakness. MACD is moving lower, off of its peak, and stochastic is making a bearish crossover high in the upper signal zone, a set up consistent with potential correction. A move lower would likely find near term support between 1,100 and 1,120, a break below this level could take it down to 1,000. If some other bullish catalyst emerges and is able to move oil prices higher, above 1,170 resistance targets, 1,235 becomes next upside target.


The Gold Index

Gold prices moved up by 1% in anticipation of the FOMC meeting, and today's move lower for the dollar. This move is consistent with recent price action and the 3 month trading range. This range could be broken this week; between the FOMC the BOJ and the data there are quite a few potential catalysts for the dollar. A weakened dollar should lend additional support for gold and push it above $1250, perhaps to the top of the range near $1270. A stronger dollar will push gold back to the low end of the range near $1220.

The gold miners continue to consolidate near 1.5 year highs while gold prices hover within the trading range. Today's action saw the miners ETF GDX move lower to briefly test the $22.50 level before finding support. The ETF lost about 0.5% on the day and is above support levels although the indicators have been weakening. Both MACD and stochastic indicate further testing of support which may occur over the next couple of days. A break below $22.50 could take the index down to $21.25 or lower, depending heavily on the FOMC/BOJ, dollar value and gold prices. Regardless of the exact price of gold, prices are well above the 2015 levels and conducive to improved balance sheets, earnings and dividend health among the miners which could lend support to the group.


In The News, Story Stocks and Earnings

Apple hit the news today in two separate articles focused on China. In one, Chinese billionaire Jia Yueting CEO of LeEco, says Apple is outdated and losing momentum in China. At a conference in China Jia said Apple's innovation is slowing, a sentiment echoed by many analysts and evidenced by the recent product release where new models of the same old products launched. The other article suggests that Apple may be shut out of the Chinese market, a move that would greatly diminish the companies current earnings and hopes for future growth. In both cases the news has little bearing on the company today but raises additional hurdles the company may have to jump in order to maintain its dominance. Shares of the stock fell about a half percent to trade at $105, near the middle of the 5 month trading range. Apple is expected to post earnings of $2.00 tomorrow, after the close, a decline of 15% from last year at this same time. A miss on earnings could take the stock back to the low end of the range, near $95.


Xerox reported earnings before the bell. The document technology company reported GAAP earnings of $0.03, down from $0.19 last year, and adjusted earnings of $0.22, just shy of expectations. The company reports it is on track to complete the split into two publicly traded companies by end of year and has made significant process on its 3year restructuring program. The services segment of business was able to post year over gains in revenue and earnings, the document technology side was not and posted a -10% decline in year over year revenue, due primarily to weakness in the emerging markets. Company execs reaffirmed full year guidance but this was not enough to support prices. Shares of the stock fell more than 13% on the news to trade at a 2 month low.


The Container Store released earnings after the bell and, though results were on the weak side with only marginally better guidance, the stock shot higher in after hours trading. Earnings per share were in line with expectations on slightly lower than expected revenue, the silver lining is that comp store sales increased more than expected. Comps were expected to fall by nearly -2% but surprised the market with growth of 0.2%, which is what led investors to shrug off guidance. Guidance for revenue came in under consensus but EPS is now expected in the range of $0.20 to $0.30, above the consensus expected $0.21. Shares of the stock gained more than 20% in the after hours session to trade above $7.10.


The Indices

Today's action was to the downside but with the exception of the Dow Jones Transportation Average was relatively light. The transports fell nearly -1.2%, a full percent more than the other major indices, but remains near the recent high. Today's move is additional sign of market weakness but, with the week so full of events, not to alarming yet. The index is hanging near a 5 month high, above the short term moving average, and could easily continue to move higher if earnings results improve or the FOMC pleases, the data looks good or oil prices rise. The indicators are consistent with a possible top and pull back to stronger support, MACD and stochastic are both divergent while stochastic is moving toward a bearish crossover, so extreme caution is necessary when considering bullish positions. A move lower may find support along the short term moving average, near 7,775, but if not next support target is just below this level near 7,750.


The next largest loss in today's action was posted by the the NASDAQ Composite. The tech heavy index fell a little more than-0.20% and created a small spinning top candle, just above the support of the short term moving average. Today's action is a sign of wariness in the market, a wariness that could turn into outright selling should the week's news fail to inspire confidence. The indicators continue to weaken however, and are suggesting a decline in index value is at least very possible, if not likely. Both MACD and stochastic have diverged from the recent high, as I have been noting over the past few weeks, and are now confirming this divergence with bearish crossovers. A break below near term support, near 4,890, could take the index down to 4,800 or 4,650 in the near term.


The broad market S&P 500 made the third largest decline today, about -0.18%. Today's action created a very small spinning top candle just above the 2,075 support line. Today's candle has a small amount of lower shadow, consistent with support, but not enough to market this line as strong support at this time. The indicators persist in diverging from the latest high and are now confirming that divergence with bearish crossovers. At the least we can expect to see support at 2,075 tested again, at worst a pull-back to stronger support is on the way. A break below 2,075 could take the index down to 2,050, near the short term moving average, or lower if the moving average is broken. Strong resistance, should the index move higher, is just above last week's high near the 2130 level.


The Dow Jones Industrial Average made the smallest decline in today's session, only -0.14%. The blue chips created a very small spinning top candle just below the 18,000 resistance line and above the short term moving average. The index appears to be at a top with growing sign of market weakness, the indicators remain divergent with bearish crossovers now confirming. A failure to regain the 18,000 level could take the index down to the short term moving average, about -1.5% below today's close. A break below this level could take it down to the long term up trend line near 17,250, about -3% from today's close. Upside potential remains, this week's news could surprise, but the market remains weak with next resistance target only about 1.5% above today's close, near 18,300.


Today's action was weak and without direction, basically indicating a market waiting on big news and there is big news due out this week. Not only is there a large amount of data, including Q1 GDP, it is the biggest week of earnings for the season and there are central banks to consider.

In terms of central banks the BOJ is a wildcard, there is no telling what they may do or how the market will react. The FOMC a little less so, it is not expected to raise rates and so far the data is not compelling enough to expect one at the next meeting either. A dovish sounding Fed is likely to weaken the dollar, a hawkish sounding one to strengthen it; a dovish Fed may support the equities and a hawkish one not. The data is a concern but more so in light of FOMC expectations than anything else at this time; trends support continued slow growth so any deviation of that will play into FOMC speculation.

The real risk, in my opinion, remains earnings. Earnings outlook for this year has dimmed to new lows and is not likely to inspire a lot of buying across the broad market. If we don't see earnings and revenue come in better than expected and/or a brightening of forward outlook into the end of the year, there will be little reason for buyers to step into the market at today's levels. I remain bullish for the long term, earnings growth is coming, but increasingly wary of the near term and prepared for market correction.

Until then, remember the trend!

Thomas Hughes


New Option Plays

David & Goliath

by Jim Brown

Click here to email Jim Brown

Editors Note:

Sometimes size does matter when you are fighting for market share. The bigger you are the harder it is to change direction. You become stuck selling the same products with minimal innovation. In this environment the smaller more nimble competitor wins.


NEW DIRECTIONAL CALL PLAYS


UA - Under Armour -
Company Description

Under Armour develops, markets and distributes branded performance apparel, footwear and accessories for men, women and youth in the U.S. and internationally.

Under Armour has posted double digit sales growth for 27 consecutive quarters. Competitor Nike saw sales rise 8% in Q4 and has only seen double digit revenue growth in 11 of the last 27 quarters.

When UA beat earnings last week they guided for the full year to revenue of $5.0 billion, a 26% increase compared to prior guidance of $4.95 billion. Gross margin is expected to remain at 48.1%. Analysts immediately raised earnings estimates from 65-85 cents to 67-87 cents. Footwear revenue rose +64% with basketball shoes especially strong in the Curry Two models. Premium products including $150 Speedform and Gemini 2 RE drove average sales prices higher.

Meanwhile, analyst channel checks included a high traffic Foot Locker location in NYC where several variations of the LeBron James shoes were discounted 50%, Kobe Bryant 40% and Kevin Durant 50%. On FL.com, 56 of the top 60 selling LBJ shoes, 50 of the top 58 KD shoes and 44 of the top 60 selling Kobe shoes are currently heavily discounted.

Under Armour foorwear sales rose +64% while Nike shoes are being discounted by 50%. What is wrong with this picture? Apparently, UA has been nimble in their designs and marketing and will continue to outperform their larger competitor.

Earnings July 21st.

UA just completed a 2:1 split on April 8th and has undergone a little over two weeks of post split depression. They beat earnings on the 20th and shares spiked $3 on the news to $47. They have traded sideways for the last three days and there is always the possibility they will decline but scorching double digit growth is hard to find.

If UA moves higher from here I would like to own it. If it moves lower we will look for a bottom to form and try a lower entry. With the market choppy to weak, I do not mind putting a higher entry trigger on the stock. If we are hit, that is great but should the market continue to decline we remain safely out of the position. There is a good chance the market is going to decline so we may never be triggered. If that is the case we will try to get a lower entry somewhere under $45.

With a UA trade at $48.05

Buy July $50 calls, currently $1.25, initial stop loss $45.50.



NEW DIRECTIONAL PUT PLAYS


No New Bearish Plays




In Play Updates and Reviews

Nearly Positive

by Jim Brown

Click here to email Jim Brown

Editors Note:

The sharp drop at the open reversed and the major indexes nearly turned positive at the close. Volume was very low and reaffirmed the lack of conviction. Traders have a lot to worry about this week. Apple earnings after the close on Tuesday could be catastrophic or they could be explosive. You have to be psychic to know which way to trade in advance.

The Fed meeting on Wednesday could be a challenge if enough Fed members decide they want to send a message about accelerating future rate hikes. The Facebook earnings on Wednesday should be positive but Amazon on Thursday could be a big miss. There are lots of potential land mines in our path forward.

The Dow was down -150 points at the lows and came back to close down only 26 points. Traders would have preferred a positive close to start recovering some of the points lost in prior sessions but we do not always get what we want.

The Russell 2000 fell back to support at Thursday's lows and lost -9 points for the day. The small caps were weaker for a change and that is troubling because they were creating positive sentiment with their stronger gains. If the small caps are rolling over then we are in trouble.

We are likely to trade sideways on Tuesday because traders are not going to want to make a big bet ahead of Apple's earnings.



Current Portfolio




Current Position Changes


FL - Foot Locker

The long put position was entered at the open on Monday.


ACN - Accenture

The long call position remains unopened until ACN trades at $116.65.


Profit Targets

Check the graphic above for any profit stops in green. We need to always be prepared for a profit exit at resistance.


Stop Loss Updates

Check the graphic above for any new stop losses in bright yellow. We need to always be prepared for an unexpected decline.



BULLISH Play Updates


ACN - Accenture PLC -
Company Description

Comments:

Accenture was up slightly in a weak market. No specific news.

This position remains unopened until ACN trades at $116.65.

Original Trade Description: April 20th.

Accenture provided management consulting, technology and outsourcing services worldwide. It operates in multiple segments including Communications, Media & Technology, Financial Services, Health & Public Services, Product support including supply chain management, Resources including chemicals, energy, commodities and utilities. The company was founded in 1989 and has risen to a $73 billion market cap. Accenture employs about 373,000 people in 120 countries.

Basically, Accenture helps other companies become more profitable. When Mondelez (MDLZ) wanted to improve its margins they called Accenture and implemented their suggestions. The new systems saved $350 million in the first year and is expected to save Mondelez more than $1 billion over the next three years. Accenture does this worldwide for almost any business in any sector.

This week they sold a 60% stake in their Duck Creek Technologies division to private equity firm Apax Partners. The joint venture will accelerate the innovation of claims, billing and policy administration software for the insurance industry leveraging advanced digital and cloud technology. They will invest in Duck Creek On-Demand, a native Software as a Service capability delivered through the cloud. Approximately 1,000 insurance and insurance software specialists will join the new venture. Accenture acquired Duck creek Technologies in 2011.

The key for Accenture is not specifically the Duck Creek venture but the rapidly expanding scope of the company. Nearly every day there is some new press release where they are expanding into new markets and new endeavors. This is what IBM and Hewlett Packard wish they were.

Earnings are June 23rd.

Accenture rallied to a new high in early April at $116.35. Shares paused with the market and consolidated their gains. Since April 8th shares have begun to move back to that high and could breakout at any time. I am recommending we buy that breakout over $116.35 because shares could begin a new leg higher, market permitting. Options are cheap!

With an ACN trade at $116.65

Buy June $120 call, currently $1.30, initial stop loss $113.45


ADBE - Adobe Systems - Company Description

Comments:

No specific news. Nice rebound from Friday's Nasdaq drop. Back to resistance at $96.

Original Trade Description: April 4th.

Adobe Systems Incorporated operates as a diversified software company worldwide. Its Digital Media segment provides tools and solutions that enable individuals, small and medium businesses, and enterprises to create, publish, promote, and monetize their digital content.

For years they sold their Photoshop software and assorted tools as boxed software on a CD with a license key. Once you bought it you own it and Adobe never received any further revenue unless you upgraded to a newer version at some later date.

All that has changed with the move to the cloud. The new product is called the Creative Cloud and is a subscription based product where you pay and pay and pay for as long as you continue to use it.

Moving to the cloud model has a lot of inherent problems. Once you quit selling your boxed software that big chunk of retail revenue goes away. In the case of Adobe their software sold for many hundreds, if not thousands of dollars. That meant the one time revenue disappeared in exchange for a $19 to 49 a month subscription fee. Over the long term the revenue is stable and eliminates the volatility of the single sale model.

Earnings for the quarter reported in March were 66 cents that beat estimates for 61 cents. Revenue rose 25% to $1.38 billion also beating estimates for $1.34 billion. They signed up a whopping 798,000 new subscribers to the Creative Cloud suite service. They guided for earnings of 64-70 cents for the current quarter and above analyst estimates for 65 cents.

Earnings are June 21st.

Shares spiked to $98 on the news before pulling back to consolidate at $92 for over a week. Over the last several days they crept up to $96 and then sold off in the weak market on Monday. I believe this market weakness is a buying opportunity for Adobe.

I would like an entry point closer to $92 but there is no guarantee we are going to get it. The S&P futures are down hard tonight at -6.50 and the market is likely to open lower on Tuesday. I am suggesting we buy the option 5 min after the open. That will give the prices time to evaporate in a falling market. Hopefully ADBE will gap down a couple dollars.

Position 4/5/16

Long May $95 call @ $2.48. See portfolio graphic for stop loss.


EXP - Eagle Materials - Company Description

Comments:

No specific news. EXP closed at a three day low. I am abandoning the exit target at $76 and recommending we exit at the open on Tuesday. We have a nice gain and I do not want it to get away from us.

CLOSE THIS POSITION AT THE OPEN

Original Trade Description: April 14th.

Eagle Materials Inc. manufactures and distributes Cement, Gypsum Wallboard, Recycled Paperboard, Concrete and Aggregates, and Oil and Gas Proppants from 40 facilities across the US. Eagle is headquartered in Dallas, Texas.

In the last quarter revenues declined -5% and earnings -12% to 93 cents. However, cash flow from operations increased +66% to $108.7 million.

There were two problems impacting EXP results. The first was the dramatic decline in oil well drilling. They supply cement for those wells and they use a lot. The slowdown in the sector has weighed on EXP for the last year. However, they have survived and they are doing well.

The second problem was a high volume of rain October and December that reduced sales volume by delaying and slowing construction projects that use EXP materials.

Cement, concrete and aggregates revenue rose 11% in the quarter thanks to a 4% increase in prices to offset the lower demand for oil well cement. Cement revenues alone rose +9% to $135.4 million. They delivered 1.2 million tons at an average cost of $97.10 a ton.

The rain caused sheetrock sales to decline 9% but missed revenues will likely be pushed into Q1. They sold 568 million square feet of sheetrock, which is actually called Gypsum wallboard. They raised prices on that product as of March 31st and they expected a surge in bulk purchases ahead of the price increase. That will show up in the current quarter numbers.

Oil anf gas proppant sales declined 73% because of the slowdown in drilling and fracking. Fracsand volumes declined -47%. Proppants are a minor part of company revenue at only $8.5 million in Q4 compared to total revenue of $277.4 million.

Earnings are May 12th. We will exit before earnings.

Standpoint Research initiates coverage at accumulate and BB&T Capital upgraded them from hold to buy.

As we move into spring the construction activity will surge along with demand for concrete and sheetrock. Earnings should have improved for Q1 and will likely be much stronger in Q2 because of the activity and price increases.

Shares have rebounded to resistance at $71.50 and the close today was slightly over that level. I believe EXP is going to breakout and possibly run to the $77-$80 level before earnings, market permitting.

Position 4/15/16 with a trade at $72

Long May $75.00 call @ $1.95, see portfolio graphic for stop loss.


FDX - FedEx - Company Description

Comments:

No specific news. Sharp drop intraday but rebounded +1.50 off the lows. Still holding near the highs.

Original Trade Description: April 18th.

FedEx provides transportation, e-commerce and business services worldwide. I doubt there is anyone that does not already know what FedEx does so there is no need of a lengthy explanation.

FedEx operates 65,000 vehicles and trailers from a network of 370 service centers. By comparison Amazon is operating 20 planes but they are adding hundreds of trucks to move products between regional warehouses. After Amazon contracted for those 20 planes the analyst community was all worried that Amazon was going to create its own delivery service and kick FedEx and UP to the curb.

The FedEx CEO, Mike Glenn, called the rumors "fantastical" and said it would take years and tens of billions of dollars in order to build sufficient scale and density to even replicate some of the existing FedEx network." Glenn said Amazon is "supplementing" FedEx with their new push into moving product around the country. However, Amazon has no real interest in delivering that last mile to customers all across the country. Amazon is simply improving their capability to get vast numbers of packages to the UPS/FDX locations all around the country to reduce costs and improve delivery times. UPS/FDX will still be responsible for delivering each of those packages to the customers.

When FDX reported earnings in March they reported $2.51 compared to estimates for $2.34. That was up from earnings in the comparison quarter of $2.03. Revenue rose from $11.7 billion to $12.7 billion. The company raised guidance for the full year from $10.40-$10.90 to $10.70-$10.90. The analyst consensus estimate was $10.56 on revenue of $49.91 billion. Shares soared from $145 to $161 on the report.

After moving sideways for over a month, the shares are starting to tick higher. There was resistance at $165 and that broke late last week. I am recommending a $170 call with expectations FDX will try to make a new high over $180, market permitting. Oil prices are not expected to move much higher so that is a positive for future expenses.

Earnings are June 21st.

Position 4/19/16:

Long June $170 call @ $3.68, see portfolio graphic for stop loss.


PVH - PVH Corp - Company Description

Comments:

No specific news. Minor decline in a weak market.

Original Trade Description: April 21st.

PVH is an international apparel company. They operate in six segments including Calvin Klein North America, Calvin Klein International, Tommy Hilfiger North America, Tommy Hilfiger International, Heritage Brands Wholesale and Heritage Brands Retail.

Some of the brands marketed by PVH in addition to those above include Van Heusen, iZod, Arrow, Warners, Olga, Eagle, Speedo, Geoffrey Beene, Kenneth Cole, Sean John, Michael Kors, Chaps, etc.

They sell through company operated stores, wholesale outlets, department stores, chain stoes, specialty stores, mass market stores, club stores, off-price and independent stores and distributors and through e-commerce. The company was founded in 1881.

Last week PVH announce it had closed on a deal to acquire the remaining 55% stake in TH Asia, the joint venture for Tommy Hilfiger in China. The deal will increase revenue by $100 million a year.

In February PVH inked a deal with G-III Apparel to allow G-III to design, manufacture and distribute Tommy Hilfiger women's wear in the U.S. and Canada. This not only includes PVH’s existing women's wear operations, but also new categories like suit separates, denim and performance. Long term I would not be surprised to see PVH buy G-III (GIII).

In January, PVH licensed MagnaReady, a shirt system without buttons, from MagnaReady Technology LLC. Men's sport and dress shirts with MagnaReady technology will be available in stores in 2016.

In their earnings reported in late March, they had earnings of $1.52 that beat estimates for $1.45 and exceeded PVH guidance for $1.37-$1.47. On a currency neutral basis earnings rose 7%. Revenue rose 2.1% to $2.112 billion also beating estimates.

Shares spiked on earnings in late March and then drifted lower as the gains were consolidated. They are starting to move higher again with resistance at $100. It may take a few days but I believe they will break that resistance, market permitting. Shares gained 78 cents today in a down market.

Earnings are late June.

Position 4/22/16

Long June $100 call @ $3.41, see portfolio graphic for stop loss.



BEARISH Play Updates (Alpha by Symbol)


FL - Foot Locker - Company Description

Comments:

Minor decline. Many times stocks that have sold off will be stronger in a weak market. Investors believe the damage has already been done. The trend has not changed.

Original Trade Description: April 23rd.

Foot Locker is an athletic shoe and apparel retailer. They offer retail stores and online e-commerce. As of January 1st they operated 3,383 primarily mall-based stored in the U.S., Canada, Europe, Australia and New Zealand. There are 64 franchised stores in other countries. The company was founded in 1879.

Foot Locker is suffering from Nike fatigue. Nike whiffed on earnings last month and inventory was building. Cowen analyst John Kernan downgraded the stock from outperform to neutral. The analyst conducted multiple store checks. One included a high traffic location in NYC and several variations of the LeBron James shoes were discounted 50%, Kobe Bryant 40% and Kevin Durant 50%. On FL.com, 56 of the top 60 selling LBJ shoes, 50 of the top 58 KD shoes and 44 of the top 60 selling Kobe shoes are currently heavily discounted.

Cowen cited the popularity of the lower-priced Under Armour Steph Curry 2 and Nike Kyrie 2 was not enough to offset the declining growth/margins in the higher priced shoes. The analyst said the ability to constantly raise ticket prices was becoming more difficult. With Kobe now out of basketball they believe the sales of his shoes will decline. Same store sales (SSS) are likely to decline sharply because they are tied to the average selling prices. With so many shoes discounted it would be very hard to match prior SSS numbers. The increased promotional activity also reduces margins.

Another analyst said Foot Locker sales would be hurt by the current trend in declining mall traffic. It has been widely reported that mall traffic is in a secular decline and many malls are dying while others are spending millions to reinvent themselves. More and more people are shopping online and mobile rather than visit the malls.

Earnings May 20th.

Shares have been in decline since last September. The $59 level has been rough support but the decline is accelerating. I believe support will fail before earnings, which just happen to be on May expiration Friday.

Position 4/25/16:

Long May $60 put @ $1.94, initial stop loss $62.75.


HRB - H&R Block - Company Description

Comments:

No specific news. Beaten up stock posted minor gain in a weak market. This is normal.

Original Trade Description: April 13th.

H&R Block has been doing taxes since 1946. They provide tax preparation, banking and other services to the general public through a system of retail offices.

Unfortunately for HRB the times are changing. The general public is moving to do-it-yourself tax preparation software like Turbo-Tax from Intuit (INTU). That is not the biggest problem. On Wednesday Senator Elizabeth Warren introduced the "Tax Filing Simplification Act of 2016" and Bernie Sanders is a co-sponsor.

Donald Trump, Ted Cruz and John Kasich have all said they would drastically change the tax code and Ted Cruz wants to simplify it enough so that all your taxes can be submitted on a post card sized form. If a republican wins the election the tax preparation business is going to suffer. However, if Hillary wins she has proposed 18 new taxes to raise $1 trillion in new revenue. That will further complicate the preparation situation.

Obamacare has also made tax preparation harder and more complicated. Taxpayers have been forced to use accountants to prepare their forms because of the complications. HRB could do it but the perception is that you need somebody other than a part time tax preparer to give you the right advice.

In the last quarter HRB posted a loss of 34 cents that was larger than the analyst estimates for 26 cents. It was also larger than the 13 cent loss in the year ago quarter.

Revenue declined -6.7% because of lower volumes of clients. Revenue of $474.5 million missed estimates for $505 million. Tax preparation fees declined -4.2%. Operating expenses rose +1.7%. Long-term debt rose from $500 million to $2.6 billion. Cash burn rose from $1.2 billion to $1.4 billion.

Earnings are June 8th.

I am recommending a July option so there will still be some earnings expectation premium left when we exit before earnings.

Position 4/18/16:

Long July $23 put @ $1.10, no initial stop loss.


LB - L Brands - Company Description

Comments:

Not a good day for us. Stifel upgraded LB to a buy saying the expected short-term weakness in sales during the restructuring would pass. They raised the price target to $90. I lowered the stop loss in case the bounce continues.

Original Trade Description: April 20th.

We tried to play LB on the 13th but shares rallied unexpectedly for three days and I cancelled the play. Shares have since rolled over and are again threatening to collapse. I recommend we try it again.

L Brands operates as a specialty retailer of women's intimate and other apparel, beauty and personal care products, and accessories. Everybody knows of Victoria Secret. They are the premier lingerie retailer in the country. They offer products under the Victoria's Secret, Pink, Bath & Body Works, La Senza, Henri Bendel, CO Bigelow, White Barn Candle Company and many other brand names. They have 2,721 stores in the USA, 270 in Canada and more than 700 international stores in 70 countries.

Two weeks ago the company said it was cutting 200 jobs and restructuring into three divisions. Those will be lingerie, beauty and the teen brand PINK. The company said it was getting rid of multiple merchandise categories but they did not say which ones. The online business will be revamped and integrated into the main business rather than operating as a separate entity. They plan on reducing promotions and eliminating the catalog. Citigroup said eliminating the catalog could be a nightmare that could have serious repercussions. JC Penny's revived its catalog last year after seeing sales decline after it was discontinued. There is a rumor they are eliminating swimwear, a $500 million a year category. They plan on utilizing the retail space for sports clothing.

The company reported March sales growth of 5% to $1.027 billion. Same store sales rose +3%.

Goldman Sachs downgraded the stock from buy to neutral saying the restructuring and elimination of multiple merchandise lines would impact sales in the short term. Two weeks earlier Credit Suisse cut them from buy to neutral and JP Morgan made the same downgrade last quarter.

Earnings May 18th.

Shares fell off rather steeply ahead of the sales reporting and Goldman downgrade and then hit a seven-month low on the downgrade. Many traders thought it was a buying opportunity and shares rebounded promptly in last Tuesday's short squeeze. The rebound lasted four days and now the negative trend has returned.

I am recommending we buy a put on a trade under today's low at $77.25. If the stock continues to decline it will trigger the position, otherwise we are just watching. If shares fall below that $76 print from April 12th there is a lot of air before the next support at $65.

Position 4/21/16 with a LB trade at $77.25

Long June $75 put @ $2.20, see portfolio graphic for stop loss.


SPY - S&P 500 ETF - ETF Description

Comments:

After a sharp drop at the open, the S&P rebounded to close down only 4 points. Resistance has held and it may be a choppy week or two before a longer term decline appears. Be patient.

Original Trade Description: March 16th.

All good things must come to an end. The market appears poised to rally and produce a new leg higher. However, there is serious resistance starting at 2,075 on the S&P and continuing through 2,100. The odds are very slim that a rally will make it through that resistance ahead of the earnings cycle and assuming earnings for Q1 are as bad as the guidance we have been getting then it is even more likely the market rolls over into the "Sell in May" cycle.

Nobody can accurately pick turning points in the market on a routine basis. There are far too many things that can push and pull the indexes but at critical resistance levels we can normally anticipate at least a little reaction to those levels.

The S&P has strong resistance beginning at 2,078, which equates to $208 on the SPY. That resistance runs from 2,078 to 2,105 or roughly $211 on the SPY. I am proposing we buy puts on the SPY starting at $207 with a stop loss at $213.

The S&P may never hit those levels or it could hit them next week. The close after the Fed decision was 2,027, which means it would still have to rally 50 points to hit our initial entry point. Once it reaches that level it will have rebounded for +268 points and would be extremely overbought when it reached that 2,078 level. That makes it even more likely it will fail when it gets there.

I am going to recommend the June $200 puts. They should cost about $4 when the SPY reaches the $207 level. I want to use June because we may not reach that resistance for a couple weeks, if at all, and once we do hit that level I want to be able to profit from any sell in May decline.

This position could go for several weeks without being triggered and there is a good chance we will not get to play it with numerous analysts calling for a failure at 2,040 and 2,050 along the way. There are analysts calling for a retest of the 1,900 level this summer with some projecting significantly lower levels. If you look hard enough you can probably find someone projecting targets a couple hundred points higher or lower than the ones discussed.

Morgan Stanley's Adam Parker slashed his price target for the S&P from 2,175 to 2,050 yesterday. Most of the major banks are in the 2,050 to 2,100 range so the expectations for a major rally from here are pretty slim.

Position 3/23/16 with SPY trade at $204.11

3/23/16: Long June $200 put @ $4.77 with SPY trade at $204.11
4/01/16: Long June $200 put @ $3.26 when SPY traded at $207.

4/19/16: Long June $200 put @ $1.95 when SPY traded at $210.
See portfolio graphic for stop loss.


TWTR - Twitter - Company Description

Comments:

Twitter is still moving sideways ahead of its earnings on Tuesday.

Original Trade Description: April 9th.

Twitter operates as a global platform for public self expression and conversation in real time. I am pretty sure everyone knows what Twitter is so I am not going into depth in this explanation.

Twitter has become the bet of the year. Analysts either think it is going to single digits or going to the moon. The highest price target is $36 and the lowest is $11 with the average at $20.86 across a total of 27 brokers.

Twitter has trouble keeping users because the learning curve is steep and Twitter spam is increasing daily. Twitter bots can be programmed to spread tweets and make it appear there is a huge volume of interest in a specific subject. Andres Sepulveda, a Latin American political operative used custom software to direct 30,000 Twitter bots to create false enthusiasm for candidates and spread rumors about the opposition. Sepulveda said the tactics gave him "the power to make people believe almost everything." The man responsible for his operations said two American presidential candidates had contact him and one of those was Donald Trump.

Unfortunately, Twitter has been having trouble monetizing all the traffic regardless of whether it is real or fake. Their monthly active users include a lot of churn and barely any growth. While nobody expects Twitter to go out of business they are losing faith in the business model.

CEO Jack Dorsey is also CEO of Square and that carries mixed emotions. Some want him replaced and others want him full time. Almost nobody wants him to continue the dual role.

There are constant rumors that Twitter will be bought by someone like Google or Apple. If that were to occur it would carry a huge premium to the current $16 stock price.

Twitter has been earnings challenged for a long time and the stock has declined from $55 to the current $16 level on a lack of confidence they will turn the company around.

Earnings April 26th.

The stock is either going to single digits or it will be back well over $20 soon. It is not likely to continue moving sideways at $16.

I am recommending we do a strangle on Twitter using the June options. Regardless of the stock or market direction we should be able to profit. Because Twitter is $16 and stagnant the options are relatively cheap. I want to buy them now and hold over earnings because that is likely to be a volatility event. We could also get some market moving news with the earnings release.

You could use the $18 call and $15 put for a net debit of $2.22 if you want a cheaper option.

Position 3/11/16

Long June $17 call @ $2.07, no stop loss.
Long June $16 put @ $1.45, no stop loss.
Net debit $3.52.


USO - US Oil Fund - Company Description

Comments:

Crude lost 2% on worries the recent rally had no fundamental basis. Duh! This is exactly what I have been saying all along.

Original Trade Description: April 12th.

The U.S. Oil Fund is designed to track the daily price movement of WTI crude oil. This is the simplest method to speculate on the direction of crude oil on a short-term basis.

The USO, or any futures ETF, should not be held long-term because it bleeds value when the futures roll over once a month. On a short term basis it works great for speculation.

Crude oil has spiked 15% over the last several days with a 4% rise today alone. This is speculation over a production freeze agreement in Doha, Qatar on Sunday between OPEC and major crude producing countries. On Tuesday Russia's Interfax news service quoted some diplomat in Qatar saying Russia and Saudi Arabia had agreed to freeze production even if Iran decided not to participate.

This is contrary to what the Saudi deputy crown prince has said over the last couple weeks. The prince said Saudi would not participate unless Iran and the other major producers all agreed to freeze production. Obviously, he could change his mind but after making those statements more than once a change of heart could make him look weak.

There is significant potential for a Doha disaster where the meeting deteriorates into a brawl and nothing is accomplished. Even if they do agree to a freeze that would still maintain 1.45 mbpd of excess production at current levels. Iran, Libya, Kuwait, Iraq, Nigeria and the UAE all have plans to increase production so it would be a major change of plans to agree to a freeze. Most have said they would not support a freeze but when it comes down to the meeting, anything is possible.

Lastly, OPEC members are notorious about saying one thing and doing another. They could all agree to the freeze, wink wink, in order to lift prices and then continue on doing what they are already doing and pumping every barrel they can produce.

I believe there is a good probability we will see oil prices significantly lower in the days/weeks following the meeting. I am recommending we buy an inexpensive put on the USO and see what happens. If you are aggressive you could also buy a call just in case a miracle does occur and prices spike higher. I view that as nearly impossible since Saudi Arabia has said they do not want to see prices much over $40 because that would allow U.S. shale drillers to increase production.

Position 4/13/16:

Long May $10.50 put @ 58 cents. No stop loss.




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