Option Investor
Newsletter

Daily Newsletter, Tuesday, 6/21/2016

Table of Contents

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

Market Wrap

Slowly Going Nowhere

by Jim Brown

Click here to email Jim Brown

Traders took a nap during the Yellen testimony as they wait the next round of Brexit polls on Wednesday.

Market Statistics

Yellen said nothing of importance that we have not heard before. Yes, China is facing increased challenges. Yes, a UK vote to exit the EU could have significant economic impact resulting in a risk off move in the markets. She also said the Fed was not relying on forward guidance to direct the markets. Since they have been nearly 100% wrong, that is probably a good thing. She was asked when the Fed would begin to reduce their $4 trillion balance sheet. She said there was no timetable for liquidating those securities.

The market seemed to ignore her comments although there was a minor bout of selling at 11:20 but it just bought the Dow back into the narrow range for the day. The Dow's range for the day was only 78 points and it closed with a minimal 25-point gain.

There were no economic reports of note today. The Risk of Recession for May rose from 17% to 20%. That is the probability of the nation falling into recession over the next six months. Yawn.

On Wednesday we will endure another two hours of Yellen testimony where she tries to avoid giving specific answers that can be held against her in future sessions. However, you never know when she will suffer from foot in mouth disease and it has happened in the past. A stray off the cuff remark can have significant impact if she deviates from the established script.


What is not on the calendar above is the four surveys due out tomorrow on the Brexit vote. There were several surveys out today but they were inconclusive with different results in each. The Survation poll showed the stay camp had lost some momentum but it was still slightly ahead at 44.9% compared to the leave camp at 43.8%. The prior Survation poll published on Sunday had it 45% stay and 42% leave. The leave camp was picking up that momentum the stay camp was losing. The bottom line is that the vote will be very close.

The FT Poll of Polls is showing an average of 44% remain, 45% leave.

Recent Polls

There will not be any preliminary results published as in a general election. The exit polls are normally reported at 10:PM UK time, which is 5:PM ET. According to MarketWatch, here is the general timetable for the results in New York time.

Thursday Morning:
2:00 AM Polling stations open.
5:00 PM Polling stations close. No exit polls.
6:30 PM First announcements on voter turnout.
7:30 PM Results expected from the first counting areas.
11:00 PM Results from half of the counting areas.
Friday Morning:
12:00 AM About 80% of results will be counted.
2:00 AM All vote counting should be completed.
3:00-5:00 AM Official results expected to be reported.

Because there are no exit polls, hedge funds and investment banks have commissioned private exit surveys to give them a head start on trading. That means we should know what the result is by watching the S&P futures on Thursday night.

Stock News

After the close Tesla (TSLA) offered to buy SolarCity (SCTY) for $2.8 billion. Tesla said it offered between $26.50 and $28.50 for SolarCity, which represents a 25-35% premium to Tuesday's close. Elon Musk owns 19% of SolarCity but said he would recuse himself from voting on the deal. Musk said Tesla wanted to expand its clean energy business and the battery business would combine well with the solar business since you only get the real benefit from solar if you have a huge battery pack to store that energy. SCTY shares spiked in afterhours from $21 to $26 but faded back to $25. However, Tesla shares fell -10% from $220 to $195 and shed about $3.7 billion in market cap. Musk was probably not expecting that.



FedEx (FDX) reported adjusted earnings of $3.30 compared to estimates for $3.26. Revenue of $12.98 billion also beat estimates for $12.83 billion. However, the company said it plans to spend $5.1 billion to expand its ground network and buy more aircraft. As a result, they projected earnings of $11.75-$12.25 for the full year and analysts were expecting $12.17. They said the growth in online shopping was straining the existing shipping network. Shares dropped $2 in afterhours.


Adobe Systems (ADBE) reported 71 cents compared to estimates for 68 cents. Record revenue rose 20% to $1.4 billion and matched analyst estimates. Digital media revenue rose 26% to $943 million. Creative revenue rose 37% to a record $755 million. Creative Cloud annualized recurring revenue rose $285 million to $3.41 billion. Adobe Marketing Cloud revenue rose 18% to a record $385 million. Overall operating income rose +78%. Despite the good quarter they guided for Q2 for revenue of $1.42-$1.47 billion and earnings of 69-75 cents. Analysts were expecting $1.47 billion and 71 cents. Shares fell -5% in afterhours.


KB Homes (KBH) reported earnings of 17 cents that beat estimates for 16 cents. Revenue rose 18% to $811 million and beat estimates for $753 million. Deliveries rose 30% to 2,329 homes. The average selling price rose 2% to $346,700. Backorders rose 14% to $1.83 billion. Homes in the backlog rose 10% to 5,205. Net order value in the quarter rose 14% to $1.2 billion. Net orders rose 8% to 3,249. The cancellation rate fell from 25% to 21%. They ended the quarter with $278 million in cash and inventories of $3.53 billion. They controlled 47,283 lots of which 82% were owned. They repurchased 8.4 million shares for $85.9 million. Shares rose about 25 cents.


Hewlett Packard (HPQ) raised guidance for Q2 to 43-46 cents compared to analyst estimates for 39 cents. They reaffirmed full year guidance at $1.59-$1.69 and analysts were expecting $1.59. They see free cash flow of $2.0-$2.3 billion with net capital expenditures of $500 million. The company said it plans to use the gains from the divestiture of HPE to invest in the rapidly changing printer business. They plan to reduce inventory of printers and toner cartridges by $450 million over the next two quarters. Shares lost 40 cents on the news.


Carmax (KMX) fell -5% after reporting earnings of 90 cents on revenue of $4.13 billion. Analysts were expecting 92 cents on $4.19 billion. Sales of cars had slowed and credit was starting to be an issue. However, they did see third-party finance fees rise 30%, as they laid off some weaker credits to other finance plans. Used car prices were flat at $19,858 on average but wholesale prices were down -3% to $5,268. Overhead expenses rose and profit margins declined.


Lennar (LEN) shares spiked at the open after a big earnings beat but collapsed to a 1% loss. The company reported earnings of 95 cents that beat estimates for 87 cents. Revenue rose from $2.38 billion to $2.75 billion. Home deliveries rose 12% to 6,724 homes. One analyst speculated Lennar could be looking to acquire KBH.


Crude oil futures expired at the close at $49.95. The new August contract opened in the afterhours session at $50.29. That is not likely to hold over $50 unless the Brexit vote is to remain in the UK. An exit vote will cause low information traders to expect a decline in demand. The dollar will also rocket higher on an exit vote and that will push commodities lower.


Markets

There is really nothing intelligent to say about market direction other than watch the Brexit polls. The market will react to the polls released on Wednesday and we cannot do anything about it but watch.

However, the market does appear to be pricing in a vote to stay in the EU. If this upward bias continues on Wednesday and Thursday it could actually steal some of the impact of that vote. We could see an immediate rally on a stay vote that is met with a sell the news event.

I know it is impossible to actually predict anything. If we think the market is pricing in a stay vote then smarter institutional investors may have already figured that out and that is how we get a sell the news event. You could carry this to extremes like an old Abbot and Costello skit but since there is no real answer until we get to Friday we just have to go with the flow or wait on the sidelines.

The S&P failed at 2,100 on Monday and crept a little closer today with a 5 point gain to 2,088. However, that 2,100 and 2,116 resistance remains strong. If we did get an exit vote, the support at 2,040 is also strong. Until that range breaks in one direction of the other we are just passing time.


The Dow did not make it back to the 18,000 resistance on Monday despite the +270 gain at the open. It also crept a little higher today to close at 17,829 but the effort was lackluster. The Dow traded in a narrow 78-point range and closed only 29 points off the lows. The leaders were a mixed bag with Microsoft the biggest gainer followed by Apple, Chevron and Goldman. Boeing was the biggest loser despite signing a reported $25 billion order with Iran and a possible $4 billion order to build (10) 747-8 freighters for AirBridgeCargo.



The Nasdaq struggled and traded in negative territory much of the day only to gain 6 points at the close. The biotech sector was again the biggest drag. The Nasdaq is holding over the 4,800 level but just barely. Resistance at 4,968 remains the next target but that is 125 points away.



The weakest major index for the day was the Russell 2000 with a loss of 4 points. This is the early stages of the index rebalance that is coming on Friday as well as the weakness in biotechs. The stocks being deleted from the Russell are being shorted by speculators in hopes of getting ahead of the rebalance decline.


If you do not have to be in the market the rest of the week it would be a good idea to take a trading vacation and come back on Monday when the direction may be known and volatility should be lower. Volume was very low at just over 5 billion shares. All the smart money iw waiting on the sidelines.

At this point the market direction the rest of the week is a daily coin toss unless the Wednesday polls suddenly begin to widen with a clear outcome in sight. Even then, we cannot be sure what the market will do once the event occurs and whether or not the result will be what the polls predicted. I personally believe they will remain in the EU because I do not think there are that many people in the UK that are willing to vote in a recession. However, I cannot believe voters in the U.S. selected the two current candidates so obviously my logic does not reflect reality.

 

INDEPENDENCE DAY SPECIAL!

Welcome to our mid-year Independence Day Subscription Special. Save 50% or more on your subscription!

The options market isn’t waiting for you.  And you shouldn’t wait to keep Option Investor coming at the lowest prices you’ll see until December! There isn’t a minute to spare.  Order now.

Renew for as little as $249
for six months,
ONLY $1.38 per day


 

Enter passively, exit aggressively!

Jim Brown

Send Jim an email

 

If you like the market commentary you have been receiving and you are on a free trial then now is the time to subscribe. Don't wait until you miss a newsletter to decide you want to take the plunge.

subscribe now

 


New Option Plays

Looking Long

by Jim Brown

Click here to email Jim Brown

Editors Note:

The market appears to be pricing in a "stay" vote for the UK. For that reason I am going to add another long position in a stock that has very good relative strength. If the market tanks on a "leave" vote we will deal with that when it happens.


NEW DIRECTIONAL CALL PLAYS

CNC - Centene Corp - Company Description

Centene Corporation operates as a diversified and multi-national healthcare enterprise that provides programs and services to under-insured and uninsured individuals in the United States. It operates through two segments, Managed Care and Specialty Services. The Managed Care segment offers Medicaid and Medicaid-related health plan coverage to individuals through government subsidized programs, including Medicaid, the State childrens health insurance program, long-term care, foster care, and dual-eligible individual, as well as aged, blind, or disabled programs. Its health plans include primary and specialty physician care, inpatient and outpatient hospital care, emergency and urgent care, prenatal care, laboratory and x-ray services, home health and durable medical equipment, behavioral health and substance abuse, 24-hour nurse advice line, transportation assistance, vision care, dental care, immunizations, prescriptions and limited over-the-counter drugs, specialty pharmacy, therapies, social work services, and care coordination. The Specialty Services segment provides pharmacy benefits management services; health, triage, wellness, and disease management services; vision services; dental services; correctional healthcare services; in-home health services; and integrated long-term care services, as well as care management software that automate the clinical, administrative, and technical components of care management programs.

On Monday Centene was upgraded by Barclays to overweight (buy) with an $82 price target. They based the upgrade on the growth and valuation potential after the completion of the $6.8 billion Health Net (HNT) merger at the end of March. Health Net had 5.9 million individuals in plans in all 50 states. They also offered employee assistance plans to approximately 7.3 million individuals. The combined companies now insure more than 10 million individuals. Barclays said the combined management team had improved with the merger.

Barclays said, "we believe shares of CNC have simply corrected too far and too long, and now represent a very attractive investment."

Earnings are July 26th.

Shares spiked $2 on the upgrade and failed to pull back on Tuesday. That spike pushed CNC over resistance and any further move higher would be a breakout.

Buy August $72.50 call, currently $2.15, initial stop loss $65.65.


NEW DIRECTIONAL PUT PLAYS

No New Bearish Plays



In Play Updates and Reviews

Just Passing Time

by Jim Brown

Click here to email Jim Brown

Editors Note:

The markets moved sideways with a slightly bullish bias as the Brexit polls barely improved. It was a day where traders occupied themselves with other things as they wait for some indications from the last four Brexit polls due out tomorrow.

The last poll out today had the Brexit side with 43.8% and the Bremain side with 44.9%. This is going to be a nail biter and Wednesday will be the last look before the actual vote.



Current Portfolio




Current Position Changes


ZBRA - Zebra Technologies

The long call position was entered at the open at $57.44.


MYGN - Myriad Genetics

The long put position was entered at the open at $31.08


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 fell -2% to close at $52. This was probably pre Brexit profit taking.

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. Decent gain as it moves back toward resistance at $159.

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:

No specific news. Minor decline from Monday's new high.

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 won approval from the FDA on three milk-based non GMO infant formulas. Shipments to customers have already begun. The brands are Enfamil Infant Non-GMO, Similac Advance Non-GMO and Similac Sensitive Non-GMO. No other news. Minor decline.

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. Decent gain ahead of Brexit.

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.


ZBRA - Zebra Technology - Company Description

Comments:

Minor pause on no news. Here is an interesting article on their new products. Zebra Technology IoT

Original Trade Description: June 20th.

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.

Position 6/21/16:

Long August $60 call @ $2.95. See portfolio graphic for stop loss.



BEARISH Play Updates (Alpha by Symbol)

FL - Foot Locker - Company Description

Comments:

No specific news. Minor rebound. Still clinging to support at $54.

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.


MYGN - Myriad Genetics - Company Description

Comments:

No specific news. Minor decline. Monday's gain is bleeding off.

Original Trade Description: June 29th.

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.

Position 6/21/16:

Long August $29 put @ $1.40, see portfolio graphic for stop loss.


PYPL - PayPal - Company Description

Comments:

Piper Jaffray said Paypal could start losing customers to Apple Pay this holiday season as Apple becomes a more aggressive competitor. About half of Paypal's merchants will also have Apple Pay by the holidays. With both options available at checkout Piper said more Apple customers will be choosing Apple Pay. With the feature also available on websites the impact to Paypal is going to grow. Shares fell -2%.

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.




If you like the trade setups you have been receiving and you are on a free trial then now is the time to subscribe. Don't wait until you miss a newsletter to decide you want to take the plunge.

subscribe now