Option Investor
Newsletter

Daily Newsletter, Thursday, 6/16/2016

Table of Contents

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

Market Wrap

Desperately Seeking Support

by Thomas Hughes

Click here to email Thomas Hughes

Introduction

The FOMC did not raise rates but weakened growth outlook, poor earnings expectations and fear of Brexit continue to weigh on the market. Today's action was volatile, an early plunge in equities was reversed later in the day but likely due to tomorrow's OPEX rather than true market support. While the FOMC's decision to hold rates steady may be seen as a positive it is also a negative as it shows a lack of confidence in the economy, further evidenced by their lowered outlook for 2017 and 2018.

Global markets were not happy with the FOMC statements, among other issues. Asian indices fell, led by the Nikkei's -3.0%, on poor growth outlook and the BOJ's decision to hold rates steady. Their decision, aided by the dovish Fed, caused the yen to strengthen and further eroded confidence in Abenomics. In Europe the combined effect of the FOMC and BOJ meetings, along with Brexit concerns, also caused selling. The EU indices fell nearly -2% intraday but were able to regain most of the losses before the close of the session.

Market Statistics

Futures trading indicated a lower opening from the earliest portion of the electronic session. The indications were for an open nearly -1% from yesterday's close and this did not change much throughout the morning. Economic data released in the pre-opening hours continues to show weak growth, slowly rising inflation and positive outlook but little to spark a rally. After the open the indices drifted lower for the first hour or so, hitting morning lows a little more than -1% below yesterday's close. By 10:40AM they had hit bottom and began a steady rise that eventually regained all of the early losses. By 3PM most indices were trading in positive territory and were able to hold those levels into the close of the session.

Economic Calendar

The Economy

Today's data was mixed and did little to alter outlook; growth is slow, inflation is low and while forward outlook is for growth, it too is faltering. First up is jobless claims. Initial claims gained 13,000 this week to hit 277,000. This is the 67th week for claims to come in below 300,000. Last week's figure was not revised. The four week moving average of claims rose by 250 to hit 269,250. On a not adjusted basis claims rose 14.5% versus an expected gain of only 9.3% and are no 2.9% above last years level in the comparable period. Despite the rise adjusted claims remain low relative to the economic recovery, near the long term lows and consistent with labor market health. The fact that not adjusted claims keeps bobbing along at or near last years levels suggest that perhaps we've reached the end of recovery and the labor market has reached a point of equilibrium.


Continuing claims also rose this week, gaining 45,000 to hit 2.157 million. Last week's figure was revised upward by 17,000, the four week moving average gained 1,000 to hit 2.150 million. Despite the rise continuing claims remain consistent with labor market health and trending near the long term lows. The risk I see now is, taking into account the weak NFP and sluggish growth, is for claims to begin reversing so we will need to keep a close eye on them over the next couple of months.

The total number of claims fell by -34,678 to hit 1.981, the first time they have been below 2 million since last fall. The fall to this level is expected, based on seasonal and long term trends, but is fast approaching an expected seasonal bottom. Beginning in the next 2-3 weeks we should see this figure begin to rise with a projected peak in late July early August near 2.25 million. Regardless, the total claims figures remain consistent with labor market health and are very near the long term low. This week's figure is -7.5% lower than last year at this time.


CPI data was also released this morning before the bell. The headline all-inclusive number was +0.2%, slightly below forecast and half of the number reported last month. Headline CPI is up 1% over last year. At the core level, ex food and energy, inflation rose 0.2% last month, in line with expectations and equal to the previous months increase. Core CPI is up +2.2% over the past 12 months. The food index fell -0.2%, the energy index rose 1.2% led by a 2.3% advance in the gasoline index.


The Philadelphia Fed Business Outlook survey gained 7 points to hit 4.7, much better than the expected 0.7 and the previous month's -1.8. However, even with the beat the data within the report is not to promising. The employment index fell more than 6 points to hit -10.9, the 6th month of negative readings. New Orders fell 1 point and remain in negative territory, shipments fell -2 points and are also in negative territory as are unfilled orders. The 6 month forward outlook remains positive but slipped -6.3 points, the second month of decline, to hit 29.8.


The National Association Of Home Builders released the Index of Home Builder Sentiment at 10AM. The index rose 2 points from last month to hit 60 after holding steady at 58 the previous 4 months. Present conditions gained 1 point to hit 64, the 6 month outlook gained 5 points to hit 70 and traffic rose 3 points to reach 47. All readings are within their respective 12 month ranges.

The Dollar Index

The Dollar Index went on a wild ride, first up a little more than a half percent, then down about a half percent and then back up to close near the open of the day. The FOMC decision and increased dovishness, along with the BOJ's strengthening of the yen, weakened the dollar while at the same time Brexit fears helped to strengthen it. The tug of war between bulls and bears created a long legged doji with a close below the short term moving average. At face value it seems as the dollar should weaken from here but the Brexit remains a wild card, as do the ECB and BOJ which are both expected to make some form of additional QE in the coming months. The index is currently trading near $94.60, between the resistance of the short term moving average and the support of the 78.6% retracement line. A break beyond either line would be significant following today's doji candle and could lead to further movemet in the direction of the break.


The Oil Index

Oil prices fell again today as demand outlook was hurt by Brexit fears and lower growth outlook. At the same time supply concerns are heightened due to rising rig counts, high global production and yesterday's weak draw down of US stockpiles. WTI fell more than -4% to close near the $46 level and a one month low. Prices may continue to fall until one or both of two things happen; demand outlook stabilizes/rises and production comes in-line with demand. First target for support is around $45.

The Oil Index fell to a one month low in a move that tested support at the 1,100 level. Today's candle s not overly large but comes with a long lower shadow in evidence of support. The 1,100 and slightly below has been the bottom of a 6 week trading range and may continue to support prices.The indicators are pointing lower but very weak, consistent with a trading range and test of support along the bottom of that range. If the index breaks below 1,100 a move to 1,050 looks likely.


The Gold Index

Gold, wow, made a 2% jump this morning to trade at a +2 year high near the $1320 mark on dovish Fed statements. This move was amplified by the BOJ policy stance which further weakened the dollar but was not able to hold the gains. By late day gold had reversed the move and retreated back below resistance at the $1,290 level creating a very distinctive shooting star type candle. Today's candle and the failure to close above resistance levels is alarming and may indicate an end to further rally in gold. First target for support should it continue to fall is near $1250.

The gold miners had a wild ride today as well, first rising on the move in gold and then later falling under the pressure of profit takers. The Gold Miners ETF GDX gapped up at the open, above the $26.70 resistance target, only to fall from that level and close near the low of the day. The index has created another very ominous dark cloud cover candlestick and does not appear as if it will be able to move higher. The indicators remain mixed; momentum is bullish but declining, stochastic is moving higher but showing a bearish crossover and sign of rolling over at/near the upper signal line. A fall from this level may find support near $25, or just below that near the short term moving average, with a drop below these levels possibly going as low as $22.50.


In The News, Story Stocks and Earnings

The battle for control of Viacom rages on. Today the holding company through which Sumner Redstone controls the company ousted 5 directors including CEO and long time friend Phillipe P. Dauman. The board responded by filing charges against the company claiming that his, Redstone's, daughter is behind the decision and working to fulfill her own agenda. Sumner issued a statement through a spokesperson stating to the effect he was disappointed in the handling of Viacom and the 40% decline in value seen over the past year. Shares of Viacom gained nearly 5% in today's session in a strong move up from the short term moving average.


Earnings season is getting underway although the unofficial kick-off is not for another 4 weeks. Oracle reported after the bell, beating revenue expectations with earnings in-line with expectations. Cloud services, SAAS and PAAS all beat expectations while a -12% decline in software licensing offset those gains. In the statement Larry Ellison says the company expects "hyper growth" in the cloud, SAAS and PAAS businesses to continue into the foreseeable future. Shares of Oracle gained more than 3% in after hours trading after drifting marginally higher during the open session.


Smith&Wesson also reported after the bell, producing top and bottom line beats on strong sales. The company reported EPS of $0.66 versus an expected $0.54 and also raised guidance. Sales in the quarter were up more than 20% along with a 450 BPS increase in gross margins. Shares of the stock jumped more than 7% on the news to regain the upper side of potential resistance and the short term moving average.


The Indices

The indices began the day in free-fall but were able to bounce from support. The bounce did not take them very high, but high enough to reverse all of the early loss and all of yesterday's. Today's move was led by the Dow Jones Industrial Average which closed with a gain of 0.53%. The blue chips bounced from the 17,500 level, just above the long term trend line, creating a small bodied white candle with long lower shadow indicative of support. While at once a positive sign of support along the trend line, the move also failed to cross the short term moving average which could provide resistance tomorrow and next week. The indicators are pointing lower, if weakly, and suggest support will be tested again.


Runner up in today's action is the S&P 500. The broad market gained 0.31% and created a small white candle with longish lower shadow. The shadow is indicative of support, and bounce from support, at the 2,050 level. This level may prove to be strong but declining indicators suggest it will be tested again. If the bounce begun today is able to push higher tomorrow first target for resistance is just above today's closing level at the short term moving average. A fall below 2,050 would be bearish for the near term and could take the index down to 2,020 or lower.


Next runner up in today's session is the NASDAQ Composite with a gain of 0.21%. The tech heavy index also created a small bodied white candle with long lower shadow, bouncing from support levels near 4,790. The move did not quite make it up to the short term moving average which is the first likely area of resistance should the bounce continue. The indicators pointing lower and suggest further testing of support is likely. If support is broken a move down to 4,600 looks likely. A break above the short term moving average would be bullish and could go as high as 4,950 before meeting next possible resistance.


The Dow Jones Transportation Average was the only major index to not move into positive territory with today's bounce. The transports created a small doji, possibly a hammer, after testing support at 7,500 and the bottom of the 3.5 month trading range. Today's action may indicate a continuation of the range but the indicators are still pointing lower so further testing of support is likely. A break below this range would be bearish and could take it down to 7,000 or lower.


The market staged a nice rebound from today's low but I am not quite convinced. The FOMC may have relieved fear of rising interest rates but they also raised fear of slow, slower and slowing growth that give very little reason to believe current earnings projections for the coming quarters and next year will stand.

The nearest worry for the market now is the Brexit. This may prove to be a non-event for the market but until it passes is certainly something to be wary of. If they exit it could spark a major rally in the dollar, yen and gold. If they don't it may be the balm the market needs to soothe fears and move higher.

I am still very wary of the coming earnings cycle. Today's reports were nice and suggest the aggregate will be better than expected. If so that will be great, I've been waiting for some positive revision to outlook and rising forward expectations. If not the market will have very little reason to rally. I am still cautious in the near term, anticipating possible correction and waiting for the next signal to rally.

Don't forget, tomorrow is OPEX and will likely cause some volatility.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Don't Play in Traffic

by Jim Brown

Click here to email Jim Brown

Editors Note:

If you want to live a long life, do not play in heavy traffic. That goes for your financial life as well. This could be the heaviest quadruple option expiration of the entire year. More than $1 billion in S&P options will expire at the open on Friday.

Today was an interesting day in the options market. Normally the S&P will gravitate to the "max pain" point prior to expiration. That is the point where the most options expire worthless on both puts and calls. The max pain point was 2,050 on the S&P or $205 on the SPY. We touched that exactly at the intraday lows but then rocketed back to 2,080 ($208) at the close. For the S&P the options expire at the open on Friday. I cannot imagine the market makers being able to force the S&P back to that 2,050 level so a lot of put options are going to expire worthless but almost an equal number of call options will be in the money. This rarely happens.

There were four major buy programs in the market today. Somebody was managing the market to keep the S&P as far away from 2,050 as possible. They definitely succeeded in the +262 point rebound in the Dow and +30 point rebound in the S&P.

Friday will probably be the highest volume day of the year and it could be volatile. I am recommending we not add any new plays tonight.



NEW DIRECTIONAL CALL PLAYS

No New Bullish Plays


NEW DIRECTIONAL PUT PLAYS

No New Bearish Plays



In Play Updates and Reviews

Managed Market

by Jim Brown

Click here to email Jim Brown

Editors Note:

The S&P lost -22 points intraday and then rebounded +30 points into the close on the back of four buy programs. That was a 1.5% rebound and lifted the index almost back to the strong resistance at 2,085. The S&P dipped to exactly 2,050 at the morning low and then rebounded in a series of 4 distinct surges that looked like buy programs. If the Fed's Plunge Protection Team was at work keeping equities from crashing ahead of a big event this is what the rebound would look like. In years long past when the PPT was active they tended to buy support when the market was down big in an effort to trigger a short squeeze. Today, whenever the buying surge ended the index began to roll over and immediately a new buy program appeared.

This was not normal buying. Somebody, and we will never know who, was supporting the market. The short squeeze they were looking for never appeared.

Friday is a monster quadruple witching expiration with more than $1 billion in S&P options alone that will expire. The odds are very good we will see some higher volatility and probably the highest volume of the year tomorrow.



Current Portfolio




Current Position Changes


FL - Foot Locker

The long put position was opened with a trade at $54.22.


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


COST - Costco -
Company Description

Comments:

No specific news. Closed at a two month high. Analysts estimate Costco could save up to $220 million a year with the switch from American Express to Visa. Starting Monday American express cards will no longer be accepted.

Original Trade Description: June 11th.

Costco Wholesale Corporation, together with its subsidiaries, operates membership warehouses. The company offers branded and private-label products in a range of merchandise categories. It provides dry and institutionally packaged foods; snack foods, candy, tobacco, alcoholic and nonalcoholic beverages, and cleaning and institutional supplies; appliances, electronics, health and beauty aids, hardware, and garden and patio; meat, bakery, deli, and produce; and apparel and small appliances. The company also operates gas stations, pharmacies, food courts, optical dispensing centers, photo-processing centers, and hearing-aid centers; and engages in the travel business. They operate 690 warehouse stores plus online shopping.

A Costco membership costs $55. It is almost worth the cost if all you bought was gasoline. The store charges 7-15 cents less than the prevailing rates at other local stations. There are normally lines at the Costco pumps because it is a bargain. If you purchased 15 gallons of gas per week and saved an average of 10 cents you would save $78 a year and more than enough to cover the cost of the membership. Multicar families would save even more.

However, Costco to many people means bulk purchases of items too big to store in your normal pantry. The mental image of Costco is someone pushing a cart with cases of toilet paper, paper towels, laundry soap and canned goods. While that may be true for a lot of shoppers there are still bargains on everything else. My son stopped there on Saturday to buy 15 gallons of ice cream, 10 watermelons, scores of picnic plates and plastic utensils for a party he was throwing. I know people who only shop at Costco and do not go to stores like Safeway, Kroger, etc. Once you get the Costco shopping virus it is hard to not go there. You can even by caskets at Costco. Members bought 465,000 cars through Costco in 2015. The warehouse chain is the number 1 seller of organic food at $4 billion in 2015 compared to Whole Foods at $3.6 billion. Costco has 84 million paying members and you can cancel at any time and get a full refund.

This has helped Costco maintain an average annual growth rate of 13% while other stores are lucky to manage 2-4% a year. Walmart only grew at 0.44% last year and Target 5.4%. In the latest quarter adjusted for fuel and currency fluctuations Costco managed only 3% same store sales growth compared to estimates for 4.6%. They blamed the colder than normal April weather and the weak retail consumer. We already know from other retailers that sales were down sharply all across the sector.

They reported adjusted earnings of $1.24 compared to estimates for $1.22. Revenue rose +2.6% to $26.77 billion and missed estimates for $27.07 billion for the reasons I stated above. Analysts expect earnings to grow 12% annually over the next two years.

Earnings are Sept 29th.

Shares spiked up to $154 after earnings on May 26th and then went sideways for a week while those gains were consolidated. Now they are trending higher again and even closed up on Friday in a weak market.

Position 6/13/16:

Long Oct $160 call @ $4.40, see portfolio graphic for stop loss.

You could lower your cost and improve your profitability by selling the Oct $140 put short for $2.50 making your net debit $1.85 and it does not look like Costco will see $140 again.


NVDA - Nvidia Corp - Company Description

Comments:

Shares closed at a new historic high. Canaccord raised the price target to $55 from $45 and maintained a buy rating.

Original Trade Description: May 11th.

NVIDIA Corporation operates as a visual computing company worldwide. It operates in two segments, GPU and Tegra Processor. The GPU segment offers processors, which include GeForce for PC gaming; Quadro for design professionals working in computer-aided design, video editing, special effects, and other creative applications; Tesla for deep learning, accelerated computing, and general purpose computing; and GRID for cloud-based streaming on gaming devices. The Tegra Processor segment provides processors that integrate a computer onto a single chip under the Tegra brand name; DRIVE automotive computers, which offer supercomputing capabilities; and tablet and portable devices for mobile gaming under the SHIELD name. The companyÂ’s products are used in gaming, professional visualization, datacenter, and automotive markets. It sells its products primarily to original equipment manufacturers, original design manufacturers, system builders, motherboard manufacturers, add-in board manufacturers, and retailers/distributors.

Q1 earnings rose 46% to 33 cents and beat earnings by a penny. They hiked full year revenue guidance as well as the current quarter. Tor Q2 they raised the forecast to $1.35 billion that was above analyst estimates at $1.28 billion. Gaming revenue was up 17% to $687 million but all areas of effort saw significant gains. They recently released a new graphics card that is twice as fast and 40% cheaper than the card it is replacing.

Nvidia's Graphics Processing Units or GPUs have become more than just video chips. They have become supercomputing processors and can be packaged in large groups to parallel process monster datasets and computations that would have taken weeks with conventional chips. They are truly revolutionizing the processor industry.

The focus on Artificial Intelligence or AI, a lot of companies like Google and Amazon are turning to GPUs to handle the monster amounts of data they collect every day. Facebook already uses Nvidia M40 GPU accelerators to power its Big Sur machine learning computers. Those NVIDIA GPUs were specifically designes to train deep neural networks for enterprise data centers, and the company says they are 10-20 times faster than other network computers. Nvidia said their GPD powered machine learning computers can help train networks new things in just a few hours that would take days or weeks with less powerful systems.

The new P100 GPU is 12 times faster than the prior version and can provide more performance than "several hundred computer nodes" and up to eight P100s can be interconnected to provide previously unheard of computing power. The chips in the GPUs contain more than 15.3 billion transistors each and the largest chip ever built at 16 nanometer technology. That is twice as many as on Intel's biggest chips. The P100 delivers more than 10 teraflops of performance. One teraflop can process one trillion floating-point instructions per second and the P100 can do 10 teraflops or 10 trillion calculations per second.

The COSMOS weather forecasting application runs faster on the P100 than the 27 servers, running twin multicore processors each that were previously tasked with the project. Intel makes commodity processors for the millions of PCs and servers in the world. Nvidia is light years ahead of Intel in technology. Nvidia's data center revenue increased 63% in Q1.

More than 50 automakers are testing the new Drive PX chip for self-driving cars. The chip combines inputs from cameras, lasers, maps and sensors to allow cars to drive themselves and learn from each experience.

Earnings August 11th.

I have been waiting for a dip to enter a position on Nvidia but it never came. I thought the $1 drop this week was a prelude and we could get a better entry point when the market pulled back. The market does not look like it will decline until after the Fed meeting and Nvidia is back at a new high. I am going to bite the bullet and make the entry before it is over $50 and I am kicking myself even harder.

Position 6/10/16:

Long August $49 call @ $2.22, see portfolio graphic for stop loss.


PRGO - Perrigo Company - Company Description

Comments:

Perrigo shares rebounded slightly from the acquisition rumor decline. After the bell, the company announced it had been approved for a new generic pain killer originally made by Mallinckrodt. If the company wants to offer a generic version Perrigo will be the sole authorized generic distributor.

Original Trade Description: June 8th.

Perrigo develops, manufactures, markets, and distributes over-the-counter (OTC) consumer goods and pharmaceutical products worldwide. The company operates through Consumer Healthcare (CHC), Branded Consumer Healthcare (BCH), Prescription Pharmaceuticals (Rx), Specialty Sciences, and Other segments. The CHC segment offers OTC products in various categories, including analgesics, cough/cold/allergy/sinus, gastrointestinal, infant nutritional, smoking cessation, animal health, feminine hygiene, diabetes and dermatological care, diagnostic, scar management, and other healthcare products, as well as vitamins, minerals, and dietary supplements (VMS); and contract manufacturing services. It serves retail drug, supermarket, mass merchandise chains, and wholesalers through sales force and industry brokers. The BCH segment provides branded OTC products in the natural health and VMS; cough, cold, flu, and allergy; personal care and derma-therapeutics; lifestyle; pain relief, nasal decongestants, and cold sore management; and anti-parasite areas, as well as offers generic pharmaceutical products. It serves pharmacies, drug, and grocery stores through pharmacy sales force, as well as a network of pharmacists. The Rx segment offers generic and specialty pharmaceutical prescription drugs in various dosage forms, such as creams, ointments, lotions, gels, shampoos, foams, suppositories, sprays, liquids, suspensions, solutions, powders, controlled substances, injectables, hormones, women's health products, oral solid dosage forms, and oral liquid formulations; and ORx products. It serves wholesalers; retail drug, supermarket, and mass merchandise chains; hospitals; and pharmacies. The company was founded in 1887.

In the first quarter Perrigo was doing ok in a weak market for pharma stocks until CEO Joe Papa resigned unexpectedly to take over as CEO of Valeant. Shares fell from $128 to $85 over about three weeks. The company suffered multiple analyst downgrades and investors fled the stock.

They reported earnings on May 12th of $1.75 that missed estimates for $1.83. However, revenue of $1.38 billion did beat estimates for $1.35 billion. You would have thought that would push shares even lower but the company reiterated guidance for full year earnings of $8.20 to $8.60 per share, an 8-13% increase. Adjusted gross margin was a record at 47.9% with operating margins of 25.1%.

Earnings August 4th.

Shares immediately begin to rise after the guidance. Today's close at $100 is above the close on the CEO exit drop. This should be the start of a major recovery back to the $120 level by year end. The strong earnings guidance offset the kitchen sink quarter that normally occurs when a new CEO takes charge. They want to get all the skeletons out of the closet so future quarters under their reign will be positive.

On June 1st, Morningstar named Perrigo as one of their top ten buys for 2016.

Unfortunately, Perrigo options are expensive. We cannot use July strikes because the next strike is $5 out of the money, June expires next Friday and the premiums will collapse. The next strike is August but at least that will leave some earnings expectations premium when we exit before earnings. If you want to defray your net debit you can sell a higher priced call or offset by selling a naked put.

I will profile both sets of options. My recommendation would be to sell the put since PRGO is in a strong uptrend. That way you are not limiting your upside as you would by selling the higher strike call.

Position 6/9/16

Long August $105 call @ $4.55, initial stop loss $94.45.

Optional

Preferred: Short August $90 put @ $2.20, initial stop loss $94.45.
Net debit $2.35. No limit to upside potential.

Less margin: Short August $115 call @ $1.77, initial stop loss $94.45
Net debit $2.78. Upside limited to $7.22.


QRVO - Qorvo Inc - Company Description

Comments:

No specific news. Minor loss in a weak market. Shares nearly returned to positive after a dip to $53.50 at the open.

The gain for the day on the option price in the portfolio graphic is wrong. There was a bad tick at the close and somebody traded 1 contract for more than $6.

Original Trade Description: June 14th.

Qorvo, Inc. provides technologies and radio frequency (RF) solutions for mobile, infrastructure, and defense and aerospace applications worldwide. It operates through Mobile Products (MP) and Infrastructure and Defense Products (IDP) segments. The MP segment supplies its RF solutions into mobile devices, including smartphones, notebook computers, wearables, tablets, and cellular-based applications for the Internet of things. The IDP segment provides low noise amplifiers, switches, radio frequency filter solutions, CMOS system-on-a-chip solutions. This segment supplies its RF solutions to wireless network infrastructure, defense, and aerospace markets; and connectivity applications for commercial, consumer, industrial, and automotive markets.

Qorvo is a major supplier to Apple and other smartphone manufacturers. The slowdown in Apple iPhone sales hurt earnings last quarter but sales increases to Samsung and Chinese handset maker Huawei have helped to offset sluggish demand. The Samsung Galaxy S7 is selling very well and taking over the smartphone market. Strong base station demand rose +25% sequentially and a 9% increase in defense spending is helping offset the perceived slowdown in iPhones.

However, sales of the new iPhone 5E were only expected to be 10-15 million but sales have ramped up and are now expected to be in the 40-45 million range. Citigroup upgraded Qorvo and downgraded Slyworks saying the high performance Qorvo chips were much better than the Skyworks product and the company had a commanding lead in that segment. Qorvo is much better positioned for the carrier aggregation market and the low-band market fed by Skyworks was seeing a lot more competition.

Qorvo should benefit significantly from the ramp of 3G and 4G handsets into India and lower dollar emerging markets. The 5G specifications are starting to emerge and Qorvo is expected to be a leader in that transition, which will involve hundreds of millions of chips.

Earnings August 3rd.

Shares of QRVO gained 74 cents today in a very weak market. I have to stretch some on the strike because shares are just under $55 and that strike is too expensive. I am going out to $60 to get some premium relief.

Position 6/15/16:

Long Aug $60 call @ $2.10, no initial stop loss.



BEARISH Play Updates (Alpha by Symbol)

FL - Foot Locker - Company Description

Comments:

No specific news. We entered the Foot Locker trade at the righs time. Shares fell -2% when support broke. Unfortunately the put premiums spiked with the negative open and we got a high fill.

Original Trade Description: June 15th.

Foot Locker, Inc. operates as an athletic shoes and apparel retailer. The company operates in two segments, Athletic Stores and Direct-to-Customers. The Athletic Stores segment retails athletic footwear, apparel, accessories, and equipment under various formats, including Foot Locker, Lady Foot Locker, Kids Foot Locker, Champs Sports, Footaction, and SIX:02, as well as Runners Point, and Sidestep. As of January 30, 2016, it operated 3,383 primarily mall-based stores in the United States, Canada, Europe, Australia, and New Zealand.

Unfortunately, mall traffic is slowing as we have seen repeatedly in retailer earnings comments. Sports Authority just closed all 450 of its stores because of declining sales. The NPD Group Consumer Tracking Service said the "performance" shoe business has never been worse but the total sneaker business remains solid. That means all the high dollar shoes with a sports star name attached to them are not selling, with the exception of Stephen Curry.

Only about 24% of people who buy a specific type of shoe actually wear it for that purpose. That means 75% of the shoes are just bought to wear as a daily living shoe rather than the specific sport. Running shoes are the strongest with 50% of buyers actually running. Basketball logs in at about 33% and outdoor shoes are low at 10%. Asics has been a top selling brand for sports with 66% saying they use them for that particular sport. Skechers was the lowest brand at 10%.

The luxury brands with names like Michael Jordan, Le Bron James, etc are not selling near as well as they did in the past. Foot Locker had a 50% off sales on the high dollar shoes in April in order to reduce inventory.

With shoe makers paying more and more money for super star endorsements they have to charge more for their shoes. In the current economy that is not working out well. A $200 pair of shoes is not a hot item when money is being spent on smartphones and video games instead.

Foot Locker reported earnings back on May 20th and shares dropped $5 on the news. It was not pretty. Foot Locker has been declining since the highs back in October. After the post earnings drop they rebounded about $2 to $56 but could not gain any momentum. Now that basketball is over and the summer doldrums are approaching shares have declined back to $54 and could easily break to a new 52-week low.

Earnings are August 19th.

Given the lack of excitement in shoes and the slowdown in retail, I am recommending we place a bet that Foot Locker does break down before earnings. There is support at $52 but the decline since October is accelerating.

Position 6/16/16:

Long August $52.50 put @ $2.40, initial stop loss $56.25.


PYPL - PayPal - Company Description

Comments:

No specific news. Shares were down most of the daya but rebounded with the market ahead of the close.

Original Trade Description: June 13th.

Paypal bills itself as a technology company that enabled digital and mobile payments on behalf of consumers and merchants worldwide. The software allows users to pay and be paid from any computer or mobile device. They have outlasted several competitors but their time in the number one position is running out.

Apple announced Apple Pay for the web. With more than 1 billion Apple devices in use worldwide and 300 million of those are iPhones. When counting Macs and iPads there are more than 500 million Apple users. That is an instant market for Apple Pay on the web and it is going to be a major blow to Paypal.

Paypal has 14 million active merchant accounts and 170 million active consumer accounts. The one feature that works in PayPal's favor is that Apple Pay will initially only be available in the Safari browser and not on Chrome, which has more than 1 billion users.

Regardless the perceived hit to Paypal is likely to be detrimental to the stock price, which is already in decline.

Earnings July 27th.

Position 6/14/16:

Long Aug $35 put, @ $1.35, no initial stop loss.




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