Option Investor
Newsletter

Daily Newsletter, Monday, 6/20/2016

Table of Contents

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

Market Wrap

Brexit Fears Recede

by Thomas Hughes

Click here to email Thomas Hughes

Introduction

A poll released over the weekend shows leave/not leave Brexit sentiment equal at 44%, and the market rises. Although the poll did not show a definitive No-Vote it did do a lot to alleviate Brexit fears and that had an affect that coursed through the global markets. Another poll, released after the market close today, shows no-vote sentiment rising to 53%.

Asian indices gained between 1.6% (China) and 2.3% (Japan) as risk-on investors returned to the market. European indices gained more than 3% across the board. The referendum will be held Thursday, polls closing locally at 8PM New York time with an estimated 50% of results expected in by 11PM. We'll know for sure what happens on Friday morning.

Market Statistics

Futures trading was positive right from the start, and strong. The major indices were indicated to open with gains greater than 1% and with little to know market news in the early hours this held into the opening bell. After the open the indices shot higher and hit the intraday peak just after 10AM. The SPX made an intraday high of 1.4%, hitting the 2,100 level, before moderating gains into the close. From 10AM until the close of trading the indices drifted lower off their highs, giving up most of the days gains in the last half hour of trading, but remained positive for the day.

Economic Calendar

The Economy

There was no official economic data today, and none due out tomorrow either, and very little due out this week. Wednesday we'll get Existing Home Sales and Housing Price Index, Thursday is weekly jobless claims and New Home Sales, Friday Durable Goods and Michigan Sentiment are on the schedule.

Moody's Survey Of Business Confidence fell -1.9% to hit a new multi-year low of 25.6. Mr. Zandi still says that US business are the most confident with responses indicative of an economy expanding above its potential. Globally sentiment is much weaker, the weakest in South America where political turmoil is still running rampant. There is no mention of the Brexit although I can't help but think it has something to do with declining business sentiment, same with the FOMC lowered growth outlook.


According to FactSet the blended rate for Q2 earnings growth is now -5.1%. This is -0.2% lower than last week, there have been 3 reports so far. Of those reports only 1 has beaten on EPS and one on revenue. Since the end of the previous quarter expectations for 8 sectors have been revised lower.


Looking forward growth is still expected to return in the 2nd half but projections remain weak. Third quarter estimates have been lowered to 1.3%, down a tenth, while the 4th quarter remains steady at 7.6%. Full year 2016 earnings growth has been revised down a tenth, full year 2017 remains steady at 13.6%. There are 8 reports scheduled for this week, the bulk of reports are not due out until after 7/11 when Alcoa reports.


The Dollar Index

The dollar fell today as the pound and euro gained, due to the Brexit polls. The Dollar Index fell a little more than -0.5% in today's action, falling from the 78.6% retracement level and extending the drop below the short term moving average begun last week. The index looks set to move lower on positive EU sentiment, provided the Brexit does not happen. Near term support may be present at the $93.30 level, a move below here could go as low as $92.62 and a retest of the 100% retracement level. The indicators are showing what could be a strong bearish signal; increasing bearish MACD confirmed by a strong bearish stochastic crossover. Also of note, Janet Yellen begins two days of testimony before congress tomorrow, it should be interesting.


The Oil Index

Oil prices rose today, WTI gaining more than 2.65%, as Brexit fears receded and global growth fears are alleviated. Helping today's move in oil was a draw down of supply at the Cushing facility greater than a half million barrels. Also affecting today's trade is the expiration of the July futures contract tomorrow. WTI is now trading near $49.25, resistance is likely to set in near the $50 level.

The Oil Index jumped about 2% on today's gains in oil to trade above the short term moving average. The index remains range bound, between 1,100 and 1,175, with indicators consistent with a trading range. This range is likely to continue until we get a definitive move in oil, one way or the other. If the index continues to move upward now first target for resistance is at the top of the range, 1,175, with the 1,100 level as support and the short term moving average acting as a pivot point.


The Gold Index

Gold prices fell on the Brexit news as risk on trading overcame the flight to safety. Spot prices fell as much as -1% intraday, trading below $1,280, before regaining some but not all of today's losses. If the dollar continues to move lower gold prices may recover and retest resistance at $1,300, if not a move down to test support near 1,250 is also possible. For this week, gold's movements are tied to the Brexit, once we get past that dovish Fed outlook and economic data will come back to the fore. With rate hikes apparently off the table for the time being a weakened dollar and stronger gold seems inevitable. The Fed Watch Tool shows a 12% chance of rate hike in July, 33% in September and only 36% in November. By December it moves up above 50%, but only to 51%.

The gold miners remain strong despite the seesaw in gold prices over the past week or so. The Gold Miners ETF GDX moved up today after a lower opening, closing with a loss near -0.5%. Today's action helps confirm support at the $25 level and the bottom of a congestion band that has been forming over the past two weeks. This band/range may continue into the end of the week while we wait on the outcome of the Brexit but like with gold, future direction is more tied to the FOMC and the dollar than anything else. A fall from this level, dropping out of the range and below the short term moving average, would be bearish and could go as low as $22.50. A move higher will find resistance at the top of the band, near $26.75. The indicators are basically bullish but with momentum receding to near 0 and stochastic possibly rolling over at the upper signal line so for now at least, it appears as if resistance is holding. A break above resistance would be bullish and could take the ETF up to the $35 level in the short to long term.


In The News, Story Stocks and Earnings

Wal-Mart made the news today when it announced a new deal to enhance its presence in China. The deal, a sale of its online resources to JD.com, the 2nd largest online retailer in the country, is seen as a positive for both companies. It is expected to help Wal-Mart sales online and in physical stores and help JD.com compete with Alibaba. Wal-Mart is reported to receive about 5% of JD.com should the deal be consummated. Shares of Wal-Mart gained about 0.5% in today's action to trade near a 10 month high.


Facebook came under scrutiny today as the board and Mark Zuckerberg seek approval for him, Mark Zuckerberg, to retain majority voting control even as he sells off his stake in the company for philanthropic reasons. The vote, if successful, would create a third class of stock with no voting power in order to help him keep control. Shares of Facebook gained 0.66%, trading in a very narrow range, but are still below the short term moving average with very weak indicators. A move down to $110 is very possible.


Lennar and KB Homes are set to report earnings tomorrow; Lennar is set to report before the open, KB Homes after the close of trading. Expectations for both are low but with the strength in new homes sales and starts could easily beat them. As a recap, April New Home Sales were up more than 16.5% from March and up 23.8% from April last year; May Housing Starts fell moderately from the previous month but are up 9.5% from the same time last year. The XHB Home Builders SPDR gained more than 1% in today's action, moving above the short term moving average, but remain within the three month range. The indicators are mixed but could be rolling into a bullish signal, positive earnings reports from these two companies could help.


The Indices

The indices tried to make a strong rally today, and almost succeeded. The major indices gained more than a full percent in early trading, only to give up most of the gains by the end of the day. The day's leader was the Dow Jones Transportation Average which closed with a gain of 1.09%. The transpots made a strong move higher, intraday, to test resistance at 7,750 and the short term moving average but was not able to hold it. Today's candle is a smallish white bodied candle with long upper shadow, indicative of resistance at these levels. The indicators are mixed, reflecting a bounce from support begun last week but otherwise bearish and consistent with range bound trading.


The 2nd largest move in today's session was posted by the NASDAQ Composite, 0.77%. The tech heavy index gapped higher at the open, moved up above the short term moving average, and then fell throughout the day to create a bearish candle. Today's move appears bearish and confirming resistance at the short term moving average with downside target near 4,800. The indicators are bearish as well, but a little mixed as the bearish MACD may have peaked and stochastic %K is moving higher. A move below support would be bearish and could take the index down to 4,750 or 4,700 in the near term.


The next largest gain in today's session was made by the Dow Jones Industrial Average. The blue chips closed with a gain of 0.74% after moving higher to test resistance near 18,000. Despite the late day sell-off the index was able to close above the short term moving average. Even so, it appears more range bound than not, especially in the nearer term, with resistance at 18,000 and support near 17,500. The indicators are currently bearish but consistent with a bounce from the bottom of the range, possibly rolling over into a bullish signal but that would require a break above resistance.


The S&P 500 made the smallest gain in today's session, only 0.54%. The broad market created a small white bodied candle with long upper shadow, indicative of resistance at that 2,100 level. Despite the late day sell-off the index was able to close above the short term moving average, a potentially bullish scenario. The indicators are mixed, consistent with range bound trading. Support appears to be near 2,050 with resistance currently near the all-time high.


The indices are range bound and do not appear ready to break out just yet, in either direction. The Brexit is certainly a concern and will likely drive the market this week although I still think earnigns season will turn out to be more important. The Brexit results will likely have an impact on earnings outlook, either good or bad, but until we get into the season we really won't know what to expect going forward. For now, we are still expecting to see a poor earnings season and broad market projections continue to decline so there is little reason to expect the market to rally. The positive factor is that the market is still expected to return to earnings growth next quarter, so long as this remains true any correction/pull-back caused by this earnings cycle will likely be a prime entry point for longer term positions. I remain cautious for the near term and waiting for the next good signal for entry.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Very Frustrating

by Jim Brown

Click here to email Jim Brown

Editors Note:

A big move like we had today plays havoc with the charts and inflates option premiums. The three call plays I had on my short list for today were PVH, CNC and AET. All spiked significantly with call premiums soaring. I cannot justify recommending one today because the odds are good we could see a decline just as big as the short squeeze today. The Brexit polls due out tomorrow can push the market just as far as it did today and it could be in either direction.

The failure exactly at resistance at 2,100 on the S&P is very telling. That means there are still sellers waiting to dump stock on any bounce. We need to be careful in adding new positions because of the potential volatility ahead.



NEW DIRECTIONAL CALL PLAYS

ZBRA - Zebra Technology - Company Description

Zebra Technologies designs, manufactures, sells, and supports direct thermal and thermal transfer label printers, radio frequency identification (RFID) printer/encoders, dye sublimation card printers, real-time locating solutions, related accessories, and support software worldwide. Its products are used principally in automatic identification (auto ID), data collection, and personal identification applications. The company also provides mobile computing and advanced data capture technologies and services, which include rugged and enterprise-grade mobile computers; laser, imaging, and radio frequency identification based data capture products; wireless LAN (WLAN) solutions and software; and applications that are associated with these products and services. In addition, it offers barcode scanners; specialty printers for barcode labeling and personal identification; real-time location systems; and related accessories and supplies, such as self-adhesive labels and other consumables, utilities, and application software.

Back on May 10th Zebra was trading at $63 when it reported disappointing earnings. Shares tanked to $48 on the news and the stock has been steadily creeping higher since the bottom on May 19th. The company reported earnings of $1.01 compared to estimates for $1.22. Revenue of $847 million missed estimates for $879 million. They blamed the miss on a cautious enterprise spending environment and tough comparisons from double-digit growth in the year ago quarter. They adopted a "tempered outlook" for full year revenue between $3.56 and $3.7 billion and analysts were expecting $3.72 billion.

Earnings August 9th.

Apparently, investors are willing to forgive and forget and the stock is in rebound mode. Resistance is that $63 level where it was trading before the earnings. That is $6 above today's close so plenty of room for a profitable trade.

Buy August $60 call, currently $2.95. Initial stop loss $54.50.


NEW DIRECTIONAL PUT PLAYS

MYGN - Myriad Genetics - Company Description

This was a recommendation from the weekend but the market bounce caused the stock to gap up over the stop loss at the open. Nobody should have entered the position. Since there was no volume on the put strike it appears nobody did. I am repeating the recommendation today because it rolled over in the afternoon and we can actually get a better entry than we could have without the bounce.

Myriad Genetics is a personalized medicine company, focuses on the development and marketing of predictive, personalized, and prognostic medicine tests worldwide. It discovers and commercializes molecular diagnostic tests that: determine the risk of developing disease, diagnose disease, assess the risk of disease progression, and guide treatment decisions across six medical specialties where molecular diagnostics can enhance patient care and lower healthcare costs.

On June 10th, Crescendo Bioscience, a wholly owned subsidiary of Myriad announced the results of some trials on Vectra DA for patients with rheumatoid arthritis. Apparently the results did not please investors and shares began to collapse. Only a couple days before they announced a $200 million share buyback but that did not help.

When they reported earnings in early May the 41 cents beat estimates for 38 cents. However, they lowered revenue guidance for the full year from $750-$770 million to $753-$755 million. Analysts were expecting $758 million. Earnings guidance was also lowered from $1.63-$1.68 to $1.63-$1.65. Analysts were expecting $1.66. Guidance for the current quarter dropped to 36-38 cents and analysts were expecting 41 cents.

Earnings are August 9th.

Shares crashed on the 10th, consolidated slightly and then began to sell off again. Shares closed at a two-year low on Friday.

With a MYGN trade at $29.85

Buy August $29 put, currently $1.65, initial stop loss $31.85.



In Play Updates and Reviews

Another Dead Stop at Resistance

by Jim Brown

Click here to email Jim Brown

Editors Note:

The monster gap higher at the open was due to a change in the polls ahead of the Brexit vote. The poll of polls jumped from about a 5% advantage for the Brexit camp to a 44% to 44% dead heat. That will change each day this week as the campaigning kicks into high gear again. The market will react to every change in the polls.

The European markets blasted higher with better than 3% gains and that powered the U.S. markets higher at the open. The Asian markets also rallied despite an 11% drop in exports by Japan.

The S&P came to a dead stop at the 2,100 resistance with the high at 2,165. The big opening gain sold off in the afternoon with the Dow dropping from a +270 point opening gain to only a +129 point gain at the close. If the polls out on Tuesday show the Bremain camp slipping again we could easily see a similar move to the downside.



Current Portfolio




Current Position Changes


AMBA - Ambarella

The long call position was opened with a trade at $53.20.


PYPL - PayPal

The long put position was stopped out by a penny
Reload at the open on Tuesday.


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


AMBA - Ambarella -
Company Description

Comments:

No specific news. Shares gapped up to $54.10 and well over resistance but then faded with the market for only a minor gain.

Original Trade Description: June 18th.

Ambarella, Inc. develops semiconductor processing solutions for video that enable high-definition (HD) video capture, sharing, and display worldwide. The companys system-on-a-chip designs integrated HD video processing, image processing, audio processing, and system functions onto a single chip for delivering video and image quality, differentiated functionality, and low power consumption. Its solutions enable the creation of video content for wearable sports cameras, automotive aftermarket cameras, and professional and consumer Internet Protocol (IP) security cameras, as well as cameras incorporated into unmanned aerial vehicles in the camera market; and manage IP video traffic, broadcast encoding and transcoding, and IP video delivery applications in the infrastructure market.

The company reported earnings on June 3rd of 34 cents that beat estimates for 28 cents. They guided for Q2 for revenues of $60-$66 million compared to estimates for $69 million. They announced a $75 million share buyback effective immediately or 5.4% of the company's stock.

The verbal guidance for stronger sales was much better than the actual numbers presented. Analysts believe they were underpromising so they can continue beating estimates. The revenue miss came from two sources. GoPro cameras are facing stiffer competition and sales are slowing. However, the hero 5 is expected to be announced in September and demand should be strong. Secondly, Sony had a problem with the sensors in its new cameras and production was pushed back significantly until they get the problem solved. That prevented Ambarella from delivering and billing for a large quantity of chips until Sony was ready to proceed. That is also expected to be solved in Q2.

Ambarella popped to about $53 in the week after earnings from a prior close at $42. Shares have consolidated in the $51-$52 range for more than a week and are now pressing the top end of that range. With a positive market I would expect a strong breakout. Even in the currently weak market the shares have been posting minor gains and no material declines.

Earnings are August 30th.

I am going to put an entry trigger on this play just in case the market tanks on Monday. If we do get a significant pullback next week I will revise the recommendation.

Position 6/20/16 with an AMBA trade at $53.50

Long August $57.50 call @ $2.51, see portfolio graphic for the stop loss.


COST - Costco - Company Description

Comments:

No specific news. Big gap higher with the market but also faded with the market.

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:

Nvidia announced the P100 super computer card for regular PCs. This GPU card processes applications faster than 32 regular PCs combined at a 70% lower cost. In a test on servers one P100 equiped server had higher performance than 50 regular CPU servers when running the AMBER molecular dynamics code.

Shares gapped higher but faded with the market. However, it was a new closing high despite the afternoon decline.

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:

Argus downgraded Perrigo from buy to hold after the company said it was selling its U.S. vitamins, minerals and supplements business to International Vitamin Corporation. The transaction should be completed in August.

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. Big 3% gain even after the afternoon fade with the market.

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. Minor rebound. Probably short covering ahead of the weekend event risk.

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, see portfolio graphic for stop loss.


PYPL - PayPal - Company Description

Comments:

No specific news. Shares gapped sharply higher to stop us out at the open at $37.75 and only a penny below the high for the day and the stock rolled over to close with a loss. I am recommending we reload this position at the open on Tuesday.

RELOAD August $35 Put at the open

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, exit $1.05, -.30 loss.

RELOAD this position at the open.




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