Option Investor
Newsletter

Daily Newsletter, Thursday, 4/28/2016

Table of Contents

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

Market Wrap

Icahn Moved The Market

by Thomas Hughes

Click here to email Thomas Hughes

Introduction

The market seemed to shrug off a pair of central bank meetings and weak GDP data until late day selling drove it lower. Early action was driven by news and data, late day trading by a sell off in Apple sparked by comments from Carl Icahn. His comments? That he had sold out of Apple due to earnings and the China question.

The BOJ decided to leave interest rates unchanged which was surprising enough by itself. Kuroda took things a step further when he said that negative interest rates were not on the table although more QE may still be needed. Asian markets were hit hard by the news after expecting some form of QE to be unveiled. The Japanese Nikkei fell more than -3.5% followed by smaller declines in mainland Chinese indices and other markets in the region. EU markets were similarly affected but were able to rise in late day trading. Early losses on the DAX were in the range of -1.5% but this was turned into a small gain by the close of the day.

Market Statistics

Futures trading indicated a weak opening all morning. Indicated losses ranged from about -0.75% at the low to about -0.5% by the open. Losses were muted in part by positive earnings reports and a flurry of M&A activity but losses persisted into the opening bell. After the bell the indices quickly fell to the morning low but just as quickly reversed course. By 10AM the SPX was near break even levels and by 11AM it was trading in positive territory, moving up to set a high for the day. Another high was hit shortly before noon and from there it was down again to eventually retest the low of the day, and it did not hold. Just after 3PM the SPX reached the early low, and went right through it. Selling accelerated until hitting support targets just before 3:30. A small bounce formed but it did not carry the indices very far, by the closing bell they were back near the low of the day.

Economic Calendar

The Economy

Weekly jobless claims figures remain near long term lows although GDP figures were the headline of the morning. The first read on 1st quarter GDP was much weaker than expected, only 0.5%, helping push back expectations for FOMC rate hikes to later in the year. Consensus was in the range of 1% but had been coming down in recent weeks. This is only the first read, we can expect two more revisions so it may not be as bad as it looks. Regardless, this is the slowest pace of growth since the first quarter of 2014,due to deceleration in positive contributions including PCE and residential real estate.


Initial claims rose by 9,000 from last week's upward revision of 1,000 to hit 257,000. The four week moving average fell by -4,750 to 256,000, the lowest level it has seen since 1973. On a not adjusted basis claims rose by 1.2%, faster than the expected decline of -2.7%. On a state by state basis Massachusetts and Connecticut led with increases of 1,653 and 1,105 while Pennsylvania and Texas led with declines in claims of -4,270 and -2,539. Claims remain at historic low levels and trending lower in the long term, consistent with labor market health and contrary to economic slowing as indicated by the GDP data.


Continuing claims fell -5,000 from a downward revision to last weeks data to hit 2.130 million, the lowest level since November, 2011. The 4 week moving average also fell, shedding -10,000 to hit its lowest level since November, 2011. This data helps confirms health in the labor market as indicated by the initial claims data as it too is trending to new lows over the long term. Together these numbers indicate strength in jobs availability and declining unemployment levels so next week's NFP/unemployment data should be good.

The total number of jobless claims fell -69,811 to 2.255 million. This is the lowest level since November last year, -7.5% below last years level and consistent with seasonal trends as well as the long term down trend in unemployment. Based on the historical data we can expect the current slide in claims to continue for about 6 more weeks with an expected target near 2 million.


Tomorrow's economic calendar is pretty full. Personal income and spending data is rounded out by the Employment Cost Index, Michigan Sentiment and Chicago PMI. Next week is the turn of another month so ADP, Challenger, NFP and Unemployment data are all on tap along with auto sales, construction spending and factory orders.

The Dollar Index

The Dollar Index moved down to retest the 6 month low near $93.60. The index is being pushed lower by both the euro and the yen in the wake of yesterday's FOMC meeting, and today's BOJ. The FOMC appears ready to hike, but still dovish in terms of when. The BOJ is still in easing mode, but not quite as desperate as thought. Together, with the ECB's pause to easing, has provided a back drop in which both the euro and yen are firm and/or firming against the dollar while the dollar itself is weakening. Support may be at $93.60 but a break below this level will likely take the index down to $93. The indicators are rolling over in the line with the prevailing down trend so a test of support is likely.


The Oil Index

Oil prices persist in moving higher despite evidence of oversupply and over production. WTI flirted with 2016 highs day, driven more by a weakening dollar than anything else. Yesterday's US storage data, all time record highs, along with global production levels and demand outlook do not really support bull market conditions. There is sign of declining production, US daily production has fallen by about a half million BPD over the past year, but on a global level production remains well above demand with really no hope of a coordinated effort to curb it. We may get a rebalancing of the market by 2017 as many predict but that is a long way off. Until then I remain wary of oil prices at these levels and expect we'll see some of form of correction before then.

The Oil Index fell in today's session after trying to move higher. Today's candle shows signs of resistance with the long upper shadow and may indicate a peak has been reached. MACD is bullish but divergent from the new 5 month high while stochastic is overbought, leaving it susceptible to correction. Price needs to remain above 1,170, now support, to maintain a bullish outlook. ConnocoPhillips reported before the bell today, beating earnings and revenue expectations, adding support to the sector. Exxon reports tomorrow and could also produce better than expected results. Better than expected earnings is a good thing but with the bar set so low for this sector I'm not sure it matters if earnings decline -100% or -105% from the first quarter of last year.


The Gold Index

Gold prices got support from two central banks over the course of the past two days and saw prices jump more than 1.25%. A dovish toned Fed and less than ultra-dovish toned BOJ combined to send the dollar lower and gold higher. Spot price gained more than $16.00 to trade above $1265 and near the top of the 3 month trading range. It looks like prices will be supported by central banks into the next month to 6 weeks so it's time to turn to the data for cues. Upside target is near $1280 for now, unless data begins to come in hotter than expected. A move above $1280 could go to $1200-$1215. Support remains in the $1225 to $1235 region.

The gold miners surged to new highs today as gold prices firmed and the miners begin to report. GoldCorp reported yesterday, better than expected, and reversed losses experienced in the first quarter of last year. The company also reaffirmed full year guidance. Royal Gold also reported better than expected results yesterday, a 26% increase in revenue driven by higher realized prices and increased production. The gold miners ETF GDX jumped more than 4.25% and reached a new 19 month high. The indicators are both confirming the break to new highs with bullish crossovers although it looks like the three month uptrend may be losing strength. Upside target is now $26.70, the 78.6% retracement line which provided resistance in 2014.


In The News, Story Stocks and Earnings

M&A was almost a bigger story than earnings, data or central banks. So many deals were announced I lost count but the one garnering the most attention was Abbot's takeover of St. Jude. The deal is worth $25 in cash and stock and is aimed at strengthening Abbot's presence in the cardio-vascular arena. Together the two companies will be able to compete with Boston Scientific and Medtronic in just about every aspect of cardiac care. Abbot expects to close the deal later this year and begin to see the resulting increase in revenue soon after, pending regulatory approval. Shares of St Jude gained more than 25% in response to the offer, shares of Abbot fell nearly -10% in pre-opening action but regained some of the loss during the open session.


Ford reported earnings before the bell and delivered solid results. Earnings and revenue reached new record highs on cost saving initiatives and strength in global car sales. Boosting results was a near doubling of operating margin driven by solid results in the three top performing regions; US, EU and Asia. Along with this guidance was reaffirmed to be at least as good if not better than last year. Based on today's results and outlook for car sales this year it looks like this will be easily met. Shares of the stock jumped more than 3.75% on the news and are moving up from the lower end of a long term trading range. Today's move is accompanied by bullish indicators which are both rising and indicative of higher prices. Next upside target is near $14.50 with an additional catalyst due next week, auto sales figures. Positive auto sales data could attract new buyers and add momentum to the sector.


Facebook jumped more than 10% today after releasing better than expected earnings yesterday. The company proved yet again that it can monetize its assets and it is being rewarded for it. Amazon reported after the bell and blew away the expectations. The company reported top and bottom line beats that were well above projections driven on a 28% increase in 1st quarter sales. Shares of the stock jumped more than 10% on the news although guidance was only in line with forecast.


The Indices

Icahn's Apple comments may have been the spark that started the afternoon sell-off but there are many factors at play, not least of which is weak growth. Weak growth trumps no rate hike, especially if outlook dims. Today's action was led by the Dow Jones Transportation Average which lost a little more than -1.55%. Even with today's decline the index remains near the four month high. The index could continue to trend at this level into the near term although signs of weakness persist. Divergences in the indicators are confirmed today with bearish crossovers in both MACD and stochastic Support target on a pull back has a first target at the short term moving average near 7,775 and then next target 7,750.


The NASDAQ Composite was the second biggest lower in today's session, shedding -1.19%. The tech heavy index was caught in a tug of war between positive and negative earnings reports, succumbing to Icahn's opinion in the end. Today's action created the largest black candle in two months, and fell below the short term moving average. This move confirms bearish crossovers in the indicators which formed earlier in the week but the index has yet to break below support targets. Support appears to be 4,785, just below today's close, and likely to be tested.


The Dow Jones Industrial Average made the third largest decline in today's session, -1.17%, the biggest daily decline in about two months. Today's action is a move down from resistance, confirmed by bearish crossovers in both indices, that may lead the market into mild correction. First down side target is the short term moving average, just above 17,600, with next target should this one fail near 17,250.


The S&P 500 made the least decline in today's session, only about -0.9%. The broad market created a medium bodied black candle that closed near the bottom of the range, just above the short term moving average, and appears set to move lower. Today's action confirms resistance set by last week's 5.5 month high and bearish crossovers in the indicators. First target if selling sets in is near the short term moving average, if this does not hold prices will likely retreat to 2,050 -2,025.


The market has weathered several storms this week and it looks like the skies are clearing but this does not mean we've gotten the all clear for rally. Earnings are better than expected, yes, and the FOMC is in no hurry to raise rates, yay, but growth remains slow, earnings remain weak and earnings growth is still at least two quarters away. Bottom line, the bull market is intact but the chance for near term correction remains and this is backed up by the charts. The indices are cresting 3 month rallies just beneath all time high levels with increasingly weak technicals, divergences and signs of topping that add up to a weak market ripe for correction. I remain cautious for the near term, anticipating correction and opportunities for bullish entries.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Sell the Gap

by Jim Brown

Click here to email Jim Brown

Editors Note:

Amazon, Linkedin, Expedia and Baidu all posted earnings beats after the close and were up strongly in the afterhours session. This suggests the Nasdaq will gap open on Friday. However, the Nasdaq lost 58 points on Thursday to close under support at 4,830. This is a four-week low and suggests the Nasdaq could be rolling over.


NEW DIRECTIONAL CALL PLAYS


No New Bullish Plays



NEW DIRECTIONAL PUT PLAYS


QQQ - Nasdaq 100 ETF
Description

The Powershares QQQ is an index tracking stock for the Nasdaq 100 Index ($NDX). The QQQ represents the 100 largest domestic and international nonfinancial companies listed on the Nasdaq Stock market based on market capitulation.

The Nasdaq 100 is expected to gap higher at the open on Friday. As with most opening gaps based on some post earnings activity there is a good chance the opening print is the high for the day. The shorts in those stocks that are gapping higher will cover and the buying interest will wane.

Amazon was up $75 in the afterhours session. Linkedin gained +8. Expedia gained +11 and Baidu +8. This should produce a decent opening bounce in the index.

However, the Nasdaq 100 close at 4,363 was the lowest close since March 11th. This is below support at 4,378 and suggests the index is breaking down.

I am recommending we buy puts on the QQQ at the open when the market gaps higher in anticipation of a drop in the $NDX back to 4,200.

Since I expect the index to gap higher I am recommending the at the money put. It should be a little cheaper at the open.

Buy June $106 put, currently $2.35, no initial stop loss.




In Play Updates and Reviews

Thank Carl Icahn

by Jim Brown

Click here to email Jim Brown

Editors Note:

The indexes were weak but somewhat stable until Carl Icahn was interviewed on CNBC and said he had closed his Apple position and was worried about the market. Those comments were all traderes needed to push the sell button.

The market had been limping through the week on worries over Apple, the Fed, the BOJ, weak earnings and weak economics. There were no buyers but sellers were mostly absent as well. As long as the indexes were holding at prior levels, traders were content to hold as well. The combination of all those events plus the Icahn comments finally pushed the internals into negative territory, stocks began to move lower and sell stops began to be hit.

The Dow closed at a two-week low at 17,830 and well below that solid resistance at 18,110 that held last week. We now have a lower high at 18,084 and a lower low at 17,796 for the week. If Friday closes negative to end the month we could be heading back to 17,500 or even lower.

The normal month end buying was noticeably absent and it remains to be seen if the first two days of May will be positive or not. Next Wednesday could be a pivotal day for the earnings cycle and the markets.

Amazon posted blowout numbers after the bell and shares rallied $75 on the news. Linkedin also beat and shares were up +8. Expedia also beat and shares were up +11. Despite those Nasdaq winners the Nasdaq futures are only up +1 and the S&P futures are -1. That is not a good sign for the market on Friday.

The weak market did a number on our longs and stopped out the Adobe position. All the longs except for the unopened UA position lost more than $1 for the day. If the market continues lower, it could be expensive. I raised the stop losses on the long positions in case this turns into a rout.



Current Portfolio




Current Position Changes


V - Visa

The long call position was entered at the open.


LB - L Brands

The long put position was closed at the open.


ADBE - Adobe

The long call position was stopped at $93.75.


UA - Under Armour

The long call position remains unopened until UA trades at $48.05.


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:

No specific news. Down with the market.

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. The drop was strictly Apple/Nasdaq related but it was enough to stop us out at $93.75.

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

Closed 4/28/16; Long May $95 call @ $2.48, exit $1.49, -.99 loss.


FDX - FedEx - Company Description

Comments:

No specific news. UPS managed to beat estimates on a 10% increase in profits. Both shippers were down in a weak market.

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. Down with the 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.


UA - Under Armour - Company Description

Comments:

UA only lost 14 cents in a very weak market. Maybe the decline is over.

UA remains unopened until it trades at $48.05. If shares do not rebound on Thursday/Friday I will drop this position in the weekend newsletter.

Original Trade Description: April 25th.

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 footwear 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.


V - Visa - Company Description

Comments:

No specific news. This Dow component was down with the weak Dow.

Original Trade Description: April 27th.

Visa bills itself as a "payments technology" company. They operate an open-loop payment network worldwide. The company facilitates commerce through the transfer of value and information among financial institutions, merchants, consumers, businesses and government entities.

Everybody understands Visa. Unlike American Express, Visa does not have any credit risk. Visa licenses its cards and network to banks and financial companies and charges them a transaction fee for the service. Visa assumes no credit risk because it has no borrowers. The underlying banks assume the risk and the loans created by the customers.

This is about as close as you can get to the perfect business. It is a service everyone wants and you get paid every time one of your licensee's customers use their card.

Visa reported earnings on the 22nd and warned that earnings growth may be delayed because its purchase of Visa Europe Ltd for 21.2 billion euros would be delayed following feedback from the European Commission. Visa made changes to the deal to get EU approval. Visa and Visa Europe split in 2007 before Visa's IPO in the USA. The reacquisition of the European business will add significant earnings and growth to Visa. The modified acquisition may not be completed until after June 30th and therefore appear on the earnings for Q3 rather than Q2 as previously expected.

They also said timing issues surrounding the new partnership with Costco, and USAA would push some of the expected earnings into Q3.

They lowered top line growth estimates for fiscal 2016 to 7-8%, down from "high single digit to low double-digit" range they have previously specified. This is only due to the timing of the Europe acquisition and issues in the implementation of the Costco and USAA partnerships. Visa is fine and once they complete those items the growth will rise.

In the recent period earnings rose 10% to 68 cents and beat estimates by a penny. Revenue rose 6.4% to $3.63 billion. Payment volume rose 5.7% to $1.3 trillion.

Shares dipped $3 after the earnings report and have been moving up steadily the last four days. Visa is a Dow component and any Dow rally will lift Visa as well. Conversely, a Dow decline will weigh on Visa as well.

Position 4/28/16

Long June $80 call @ $1.58, no initial stop loss.



BEARISH Play Updates (Alpha by Symbol)


FL - Foot Locker - Company Description

Comments:

No specific news. We got a minor decline. I am going to give it one more day and I am kicking it to the curb if it does not fall farther.

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:

HRB rebounded in a weak market as is normally the case with beaten down stocks. We were stopped out on the rebound at $20.75 and the lowered stop from last night. We exited with a nice $1.70 gain.

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:

Closed 4/28/16: Long July $23 put @ $1.10, exit $2.80, +$1.70 gain.


LB - L Brands - Company Description

Comments:

Another beaten down stock rallied in a weak market. We closed the position at the open this morning for a 71 cent loss.

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

Closed 4/28/16: Long June $75 put @ $2.20, exit $1.49, -.71 loss.


SPY - S&P 500 ETF - ETF Description

Comments:

The S&P fell back below recent resistance at 2,075 and could be poised for a longer-term drop to 2,042 or even lower. This is definitely starting to look like a topping process. 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 continued to decline and that is a good omen for future sessions. Support at $14 is the next hurdle.

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.




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