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Daily Newsletter, Saturday, 6/25/2016

Table of Contents

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

Market Wrap

Sell the News

by Jim Brown

Click here to email Jim Brown

On Thursday, investors bought the rumor UK would remain in the EU. On Friday, they sold the news when that rumor proved untrue.

Market Statistics

Friday Statistics

There are not enough adjectives to describe the abrupt market decline when the Brexit vote did not turn out as expected. On Thursday, the Dow rallied +230 points and the S&P gained +28 after multiple polls suggested the tide had turned for the remain camp and citizens were not likely to vote for the exit. Even as late as Thursday afternoon with the vote underway there were still polls giving the edge to the remain camp. After the close on Thursday another poll was released showing the remain voters would prevail. The S&P futures spiked another +13 points in the afterhours session at 6:PM. Within an hour that had reversed 27 points to a decline of -14 and the carnage had begun. The futures eventually lost -87.50 for the day on Friday.

Those betting on a remain vote lost a lot of money while those betting on a Brexit were well rewarded. Even the bookies in London had it very wrong with odds showing an 81% chance of staying in the UK. They said the betting was very heavy with hundreds of millions of pounds wagered on the outcome. The number of bets were heavily favoring an exit but the big money bettors were heavily favoring a remain vote. The big money bettors are rarely wrong but this was one of those times.

The Dow fell -611 points to close at 17,400 and near the lows for the day. The S&P lost -76 points to close at 2,037. The Nasdaq Composite lost -202 points to close at 4,707. I am sure everyone noticed that each of those levels was strong support. The market crashed but critical support levels from May held.

You would think a decline of that magnitude that stopped exactly on critical support levels, would probably bounce the following day. However, as Art Cashin so eloquently put it, "Monday could be a baby and bathwater day."

I believe it will be margin call Monday. Everyone that was over leveraged on margin that did not have stop losses or continued to hold in hopes of a bounce, will get a margin call saying deposit more money or your account will be liquidated. Selling from those events normally comes at 10:AM and 2:PM. Tuesday would be the best bet for a rebound but that does not prevent institutions from buying that support on Monday while thinking any further declines will be manageable.

The damage from the Brexit vote was global. Markets all around the world plunged and currencies soared. The British pound fell -8% to lows not seen in more than 30 years.

The Japanese Nikkei was the biggest loser in the list below but some indexes not in the list fell even harder including Italy -12% and France -8%. They fell harder because of politicians promising an exit vote in their countries. Scotland is likely to vote for independence and the Netherlands is expected to schedule their own Nexit vote.




I want to remind everyone that NOTHING has changed in the UK. Prime Minister David Cameron said he was tendering his resignation. He was strongly in favor of staying in the EU. The PM is not voted on by the people. In the UK he is chosen by the party with the most votes in Parliament. His conservative party is the majority party and they will choose a successor. However, that may not occur until their conference in October. Boris Johnson, has already positioned himself as the potential replacement. British analysts claim the exit discussions will not begin until a new PM is chosen to lead the UK through the exit process. Some analysts believe the UK will not file an Article 50 notice of intent to leave until the new PM assumes office. That Article 50 notice would then start the two-year countdown clock.

However, there is no requirement that a notice be filed. Also, the public vote is nonbinding on Parliament and the MPs would have to ratify the document. Currently there are 463 MPs who do not want to leave the EU and 150 MPs that voted to leave. It may be a challenge to get the referendum or the notice ratified into law. It may be a long time before the UK actually leaves the EU.

As I have written before, the biggest challenge for the EU is not the UK but the desire of other countries to leave the EU as well. All day long on Friday, there was constant chatter about who will be the next to leave. Ireland and Scotland are expected to schedule their own votes to leave the UK after both countries voted to remain in the EU. Italy, Spain, Portugal and the Netherlands are also candidates to schedule votes to leave the EU.

If the UK does file an Article 50 request to exit the EU, it must be approved by 72% of the remaining 27 countries with a minimum of 65% of the population. It must also be approved by the EU Parliament by a simple majority. The UK has a long and winding road to travel before it can be independent again.

The Brexit will have an impact on the U.S. markets in the months ahead. The 2% rise in the dollar, 8% drop in the pound and 2.7% drop in the euro will make it harder for U.S. multinational companies to sell in Europe and the UK. There will most likely be plenty of earnings warnings over the next couple of quarters because of the currency translation issues.

On the positive side for equities is that the Brexit probably took the Fed out of play for the rest of 2016. There is now only a 1% chance of a rate hike in July and a 7% chance for a rate cut. September is showing identical numbers. November is showing a 1.9% chance of a hike and 7.0% chance for a rate cut. December is showing a 5.3% chance of a cut and 23.7% chance of a rate hike according to the CME FedWatch Tool. Instead of one and done for 2016 it is now looking like "none and done." The Fed cannot risk pushing the dollar higher when the European currencies are already plunging. If the dollar continues to spike they may be forced to cut rates to maintain currency stability.

Economics

There were some economic reports on Friday. The Durable Goods Orders for May fell -2.2% compared to a 3.4% rise in April. Analysts were expecting a -0.5% decline. Total shipments declined -0.2% and inventories fell -0.2%. Core capital orders fell -0.7% and shipments fell -0.5%. Orders for autos fell -2.8% and defense orders fell -28%.

Consumer Sentiment for June fell from 94.3 to 93.5. That is down from 94.7 in May. The present conditions component rose from 109.9 to 110.8 but the expectations component fell from 84.9 to 82.4. Analysts blamed it on the weak jobs numbers and rising gasoline prices. I blame it on the outlook for the elections with both candidates having record unfavorables with Trump at 70% and Clinton at 55%. There is not a lot there to get excited about.


The calendar for next week is relatively light. There are lots of reports but the ISM on Friday is the only one that could move the market. The GDP report on Tuesday is not expected to change much but a drop into negative territory would be a market mover.

Yellen speaks again on Wednesday and now that Brexit is behind us, she may have a different tone. The Richmond Fed surveys on Tuesday are informative but not something that traders really watch.

The following week we will get the June payroll data and that could be the final nail in the July rate hike coffin if the numbers come in weak.


There was also one earnings report. Finish Line (FINL) reported earnings of 23 cents that beat estimates for 22 cents. Revenue rose +2.3% to $453.5 million. The CEO praised Adidas for a "ton of momentum" saying the excitement around that brand is global, not just in the USA. He also said the basketball business has been challenging but Stephen Curry's sneakers have been a bright spot. He said basketball sneaker prices are too high and many styles are missing on fashion. That was a dig on Nike, which represents 70% of Finish Line's sales. He did say the Nike running shoes were still strong. Nike (NKE) shares closed at a 10-month low after the comments and the market crash. Finish Line shares gained +22% on short covering after the earnings beat. That is tough to do in Friday's market.


Headphone maker Skullcandy (SKUL) agreed to be acquired by privately held consumer technology company Incipio for $177 million. The company agreed to pay $5.75 in cash representing a 29% premium over the closing price on Thursday. Skullcandy will have a month to shop for a better deal. More than 8.29 million shares traded, much more than the average daily volume of 223,000 shares. Back on June 8th, the company said it was considering a "Go-Private" transaction where the founder, Richard Alden, would buy some or all of the company's stock. Alden owns or controls about 15% of the stock. Apparently, he decided against that plan.


Goldman Sachs (GS) lost 7% and was the biggest drag on the Dow with an $11 drop because 26% of their revenue comes from the UK. Banks like Goldman will have to decide whether to move to another major European city like Paris or Berlin in order to remain in the EU and face potentially onerous banking rules. The UK could suffer significant penalties for leaving the EU and one of them could be limitations on its European banking business. If the EU does enforce additional rules all the major banks could move a significant portion of their business.

JP Morgan gets 15% of its revenue from the UK and has 16,500 employees there. CEO Jamie Dimon was actively campaigning for the UK to remain in the EU in order to retain the open EU banking rules. He told his employees he did not want to move outside the UK but could be forced to move if the breakup was not peaceful.


The European banks were crushed because of the currency issues surrounding the Brexit vote. Credit Suisse (CS) lost -16%, Royal Bank of Scotland (RBS) declined -27%, UBS Group (UBS) declined -13%, Deutsche Bank (DB) -17% and Barclays PLC (BCS) -20%. RBS is headquartered in the UK and does most of its business in the area. These banks are going to be hit the hardest on any new rules affecting banking between the UK and EU.


Priceline (PCLN) lost -$158 or -11% on the Brexit vote. Expedia (EXPE) lost -7% and TripAdvisor (TRIP) lost 6%. Priceline derives a significant amount of revenue from Europe with its Booking.com hotel reservations unit based in the Netherlands. That service is heavily used in Europe. Priceline gets 85% of its revenue from international markets primarily in Europe.


Amazon (AMZN) shares fell -3% to close under $700 for the first time in a month on UK concerns. Amazon has about 10 distribution centers in the UK and 20 smaller centers that sort packages before they are delivered to local post offices and shippers. That is only a small portion of the 300 distribution centers globally but the UK is a shipping hub for Amazon. The company stores inventory for sellers and any restrictive cross border shipping rules imposed on the UK by the EU could be a major challenge. Without the unrestricted passage between EU countries they enjoy today, it could add delivery delays as well as tariffs.


The biotech sector completed a round trip to and from the ASCO conference. The stocks began to rally in mid May and rallied into the conference before immediately rolling over and retracing all their gains in the last three weeks. The sector is very close to a new 52-week low. The Brexit vote is not expected to impact the sector but shares of the IBB fell -5% anyway. When you have to raise money fast you sell everything.


Volume was extremely high on Friday because of the sell off and the Russell index rebalance at the close. More than 15.2 billion shares were traded. The CME said they traded more than 30 million contracts, more than twice normal volume. However, the selling was orderly despite the heavy volume. There were no trading halts and the Volatility Index ($VIX) actually declined 4 points intraday after spiking to 24 at the open. By 10:AM it had declined to 19.48 but it began to rise slowly the rest of the day as investors bought puts to protect against a continued decline. When the market began to accelerate lower at 2:PM the VIX began to accelerate higher. At 25-30 it is at a level that is normally associated with a strong buy signal.



Crude prices fell -5% to $47.57 on worries over slower demand growth as the UK tries to work through it the Brexit. Mostly, the decline was due to the sharp rise in the dollar. There were no specific factors impacting oil prices for the week.


Active rigs declined -3 to 421. Oil rigs fell -7 to 330 and gas rigs rose +4 to 90. It was an uneventful week in the sector. However, after three weeks of rebounds in active oil rigs they gave up most of those gains with Friday's -7 rig decline. Oil prices will have to stay over $50 for several weeks before we see a real increase in rig activity. Producers are scared of incurring the expense of putting rigs back to work only to have prices decline again.




Markets

S&P said more than $830 billion was lost in the U.S. markets and more than $2.1 trillion globally. Friday was just the first day and losses could continue if the currencies continue to decline. The Bank of England and Bank of Japan both said they were ready to intervene in the currency markets to halt the declines. That may not be as easy as it sounds given the severity of the event.

However, this was a government created event not an economic event. It was well telegraphed for months in advance and the actual economic impact could be more than two years away. As one analyst said, it was catalytic not cataclysmic. The initial market impact should be brief.

What made it worse was the pre vote, buy the rumor, rally that lifted the Dow +230 points on Thursday. That boosted spirits and lured investors who had been cautiously waiting on the sidelines for the event to pass, back into the market. The results were disastrous.

Fortunately, the weakness should be short lived. Funds were sitting on near record amounts of cash approaching 6%. With the end of the quarter only four days away, they will need to put some of that cash to work. That suggests there could be a substantial buy the dip rally in the coming days.

The 15.2 billion shares of volume may have been a new record. I could not find a day with more volume but I could only look back a couple years. Decliners beat advancers 6,142 to 1,234. Declining volume was 13.2 billion to 1.9 billion of advancing volume or 6:1. On Thursday up volume was 5:1 over down volume but only 6.4 billion shares were traded.

The S&P closed at 2,037 with a loss of -76 points or -3.6%. This is just under strong support at 2,040 from May and just over support at 2020-2025. Last week I suggested a dip to the 2,040 level would be a buyable event. I am sticking with that recommendation. While we might dip to that 2,020 level, I do think cooler heads will prevail and the dip will be bought. The rebound could be strong now that the initial uncertainty about the event has passed.


The Dow crashed back to major support at 17,400 with a -610 point loss. On Thursday, the Dow closed at 18,008 and this makes the second time in June the Dow has failed at that level. All Dow components were negative some may remain negative. Those are the banks, energy companies, Caterpillar, IBM, UTX and Boeing. They have significant revenue in Europe and the currency issues are going to be a challenge. One you would not expect is Coke. They have a very large business in the UK and they could warn on currencies when they report earnings.

The Dow could remain weaker than the S&P because the majority of the Dow stocks will have currency issues. The only difference is the degree of impact. The international S&P companies derive about 50% of their revenue from Europe but I do not know how much of that is from the UK. Only about 50% of the S&P companies have any material exposure to Europe. This will insulate that index to some extent compared to the Dow.

Resistance is so far above it is not material to this discussion. We could have a challenge at 17,600, which was prior support.



The Nasdaq Composite crashed back to support from May at 4,700. This produced an immediate halt for the decline with the low at 4,698.42. That was momentum that carried it through support. There was a rebound of about 32 points from that level but selling returned at the close.

The Nasdaq has light support at 4,600 and again at 4,500. However, any material decline under that 4,700 level could turn into a rout. The Nasdaq composite was the weakest of the major indexes with a -4.1% decline. You can thank the 5.1% decline in the Biotech Index ($BTK) for the added momentum.

This was the Nasdaq's fourth consecutive weekly loss and it is on track for its second consecutive quarterly loss. That would be the first time since 2011 that has happened.



The Nasdaq 100 ($NDX) lost -4.1% as well and closed exactly on support at 4,285. Having all the major indexes close right at support tends to lend credibility to my expectations for rebound next week. With all the big cap techs losing big bucks I am surprised the drop did not continue.


The Russell 2000 closed at 1,127 with a 3.8% drop and there is no support anywhere close. The next support level would be the band from 1095-1110 where it has bounced before. However, the week after a Russell rebalance the R2K is normally bullish as funds clean up their Friday stock switch with new buys of the stocks added to the index. Whether that will happen this time in light of the external events is unknown.


I would pay a fortune for an accurate crystal ball this weekend. With the indexes at support, it suggests a rebound next week. With funds sitting on piles of cash ahead of the quarter end, they should be putting that to work. However, in normal years June tends to close at the lows. We can check that box off now because we are at the lows. Any rebound will not negate that trend.

We are headed into a period of seasonal weakness but as I showed last week, the markets are about evenly split between 8-12% moves over the summer months. Some are down and some are up. Right or wrong, I plan on buying the dip on Monday with the knowledge we could dip lower before a rebound appears. Markets rarely bottom on Fridays. When I say buy the dip, I do not mean just blindly buy something in the middle of a decline. I should say "buy the rebound" because I like to see a bounce first before I commit to the entry.

My friend Art Cashin suggested waiting until 11:AM on Tuesday to buy the dip. With margin call selling at 10:AM that gets us past the potential weakness. That would be a relatively safe plan if there were such a thing as a safe plan.

 

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Random Thoughts


Brexit Do-Over?

After markets and currencies all around the world collapsed on the Brexit vote, many Britons are asking for a do-over. A petition was started on the House of Commons website early Friday and in just a couple hours it had over 200,000 signatures requesting a new vote. By Friday evening, it had 527,000 signatures. They want any vote invalidated if it does not win with a 60% majority. The Brexit vote passed with a 52% majority. The volume was so high it crashed the House website hosting the document. The House of Commons said it had seen "high volumes of simultaneous users on a single petition, significantly higher than on any previous occasion." UK citizens are suffering from voter's remorse. In the 12 hours after the vote Google reported a surge in searches for "what happens if the UK leaves the EU." Apparently, quite a few voters were stunned by a result they had never considered.


Bullish sentiment declined -3.4% to 22.0% for the week ended on Wednesday. The survey ends on Wednesday so the Thursday/Friday moves are not in the numbers. Neutral sentiment jumped 5.7% to 42.8% and bearish sentiment declined -2.3% to 35.2%. If the market does not rebound early in the week it will be interesting to see what the numbers look like next Wednesday with the Brexit crash included.



Dozens of seminar attendees at a Tony Robbins event in Dallas, suffered burns after trying to walk across hot coals. The "Unleash the Power Within" three day event encourages attendees to "storm across a bed of hot coals" in order to "overcome the unconscious fears that are holding you back. Once you start doing what you thought was impossible, you will conquer the other fires in your life with ease" or so Robbins claims.

Unfortunately, "dozens" suffered burn injuries after attempting the feat. At least five people ended up hospitalized after five ambulances were called to treat the injured. A Robbins spokesperson said more than 7,000 attendees successfully participated in the fire walk while a few had to be hospitalized. She said, "We always have a few people with some discomfort afterwards and we do our best to take care of them." About 1% experience "hot spots" which are similar to a sunburn and can be treated with Aloe. She said the injured "may" have been trying to take selfies as they walked across the coals. Source

Personally, I think they need psychological treatment if they are willing to walk across hot coals.


An Illinois man named Gambles won the lottery for the second time using the same five numbers. He plays the daily Lucky Day Lotto and has bought a $1 ticket every day for the last nine years. On June 7th on his second win, he won more than $1 million. The prior win was 9 years ago. At $1 per day, he has spent more than $4,000 over nine years. That is a pretty good return on his investment. He says he has played the same five numbers every day. They are the numbers for his jerseys from football and basketball when he was in high school. He is planning on setting up annuities for his daughter and granddaughter. He said he will continue to play the same five numbers every day until "I can't play anymore." Source


Why did UK voters decide to leave the EU. There were multiple reasons but immigration and regulation were high on the list. UK citizens did not like being told they had to accept hundreds of thousands of Syrian refugees as mandated by the EU. The UK had to pay the EU 20 billion euros a year for the privilege of being governed by the EU parliament.

The EU government was going overboard in their regulations and it angered UK citizens on a daily basis. Other EU rules included:

Bananas must be nearly straight. A 1994 regulation specified that bananas must be "free from abnormal curvature." Cucumbers must be perfectly straight. Any curves were not allowed. This law was overturned by voters 3 years ago.

Fruit like apples, oranges, lemons, etc, must be a certain diameter to be sold in retail markets. Small fruit was banned. For instance, a kiwi is required to weigh a minimum of 62 grams. Kiwis under that weight could not even be given away.

The size, shape, wattage and type of light bulbs were specifically regulated.

Vacuum cleaners could not be over a certain power rating in order to reduce electrical usage across the EU. There were plans to extend the regulations to cover hair-dryers, toasters and other appliances but the changes were tabled amid fears it would influence the Brexit vote.

Water bottles could no longer be labeled "improves hydration" after a 2011 law that claimed there was no evidence to suggest drinking water stops dehydration. This regulation was also overturned.

Diabetics taking insulin could lose their drivers license if they ever had an attack of hypoglycemia.

A 2009 law banned eating horses after lawmakers realized more than 2 million horses were eaten in the EU every year. Now all horses, ponies, donkeys and related animals must have a "horse passport."

A law passed in 2010 stated that a fruit preserve must contain at least 60% sugar to be called a jam. Anything less had to be relabeled to be called a "fruit spread" while a low-sugar jam with less than 50% sugar was named a "conserve."

A 2013 law required bottles of olive oil on restaurant tables to be non-refillable.

Balloons must contain a warning text printed on the latex itself saying injuries and death could result from their use. Children under 6 were not allowed to blow up balloons without adult supervision.

Party buzzers, the kind made out of rolled up paper that unrolls and makes a sound when blown, are illegal for children under 14.

The EU ruled there was insufficient evidence to establish a cause and effect relationship between the consumption of prunes and normal bowel function and they could not be referenced as a laxative.

Eggs and other food products could no longer be sold by quantity as in a dozen eggs or a bag of 10 apples. All food products had to be sold by weight.

There was a constant barrage of stupid laws coming from the EU that touched every facet of human life. More than 400 new regulations have been passed since 2010. The bureaucrats or "eurocrats" as they were called in the UK were running wild and multiplying in astonishing numbers. There were reportedly 40,000 in the UK alone.


 

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

 

"You can lead a human to knowledge but you can't make him think."

Unknown



Index Wrap

One Day Wonder?

by Jim Brown

Click here to email Jim Brown

The Brexit vote is over and the UK is going to leave the EU. The Dow lost -610 points, S&P -76 an Nasdaq -202. It was a really ugly Friday but the major indexes stopped right at strong support. Will this decline be a one day wonder?

There is a good possibility we could see some follow through selling at the open on Monday. I would not expect it to be as heavy as Friday but it could take the S&P down to 2,025 or even the 200-day average at 2,020. I would expect a rebound from those levels.

There is also the slim possibility we could see a positive market at the open but that would be a wildcard. The problem is the impact of currencies overseas. Japan and China could react to the currency fluctuations by intervening in the market. That could provide further volatility.

The dollar is likely to continue rising and the British pound should continue declining. However, the pound is already at 31-year lows so there could be an oversold bounce at any time.

The rising dollar is going to depress commodities and that could weigh on energy equities and mining stocks. Banks and financial stocks could also be a trouble spot as interest rates decline and questions about post exit operations continue to swirl.

The market this week will be a series of eddies and whirlpools like you see in the water behind a boat. The British exit from the UK is like a super tanker moving past a bunch of moored sailboats. Some stocks, sectors and markets could be shaken severely and others will just bob up and down on the waves.

I warned last week to "batten down the hatches because a storm was coming." The storm was intense but once they pass the weather normally turns calm again. The big question is whether the storm has passed or is it still in progress? We will know that at the open on Monday.

The Dow Transports crashed through support at 7,500 on worries over future European travel restrictions. Once the UK leaves, they will not have the same unrestricted travel they currently enjoy as an EU country.

The decline in the transports is troubling for the Dow because Dow Theory suggests the Dow cannot move higher without confirmation from the transports.


Crude prices fell -5% to $47.50 but it was mostly on the 2% spike in the dollar rather than worries over energy dealings in Europe. However, the -8% drop in the pound with some analysts saying it could turn into a 15% decline, means it will be significantly more expensive to buy oil in dollars. Converting pounds to dollars to pay for oil is going to be very painful.


The dollar-oil relationship is clearly visible with oil turning sharply lower while the dollar moved sharply higher last week. We could easily see oil prices under $45 as the dollar moves higher.


Gold exploded higher to $1,362 intraday in a safe haven trade but the spiking dollar caused that gain to evaporate to close at $1,319. This will be a complex trade in the weeks ahead because the rising dollar is going to be a problem. Gold prices are at two-year highs despite the dollar impact.


The Semiconductor Sector ($SOX) declined -6% from an 11-month high on Thursday to a 6-week low on Friday. Investors are worried that a 10% drop or more in the pound will slow purchases of tech equipment into the UK almost immediately. Overnight everything coming into the country costs 10% more in dollar terms. Several tech firms derive more than 10% of their revenue from the UK. Hewlett Packard Enterprise (HPE) gets 13% of their revenue there. This is a knee-jerk reaction but quite possibly a real problem.


The banks and financial stocks were crushed because most of the money center banks have big operations in the UK. Goldman Sachs gets 26% of their revenue from the UK, JP Morgan 15%, etc. If the EU imposes some harsh penalties on the UK exit the banking sector could bear the brunt of the sanctions. Currently there are limited, if any, banking restrictions between EU countries. Stepping out of the EU causes all those country-to-country problems to reappear.


The broader NYSE Composite Index ($NYA) failed for the third time at 10,625 before falling back to a 3-month low. This broad index has support at 10,000 and a failure there could put it into free fall. This is a good representation of the broader market since it contains stocks of all sizes and sectors.


The flight to safety trade sent billions in cash into the German bund and forced the yield down to -0.05%. Cash will continue to flow out of the UK because of the future uncertainty.

FYI: Germany will have to pay the EU an additional $3 billion a year to make up for their share of the budget once the UK no longer pays its $20 billion a year into the EU coffers. This is an added incentive for EU regulators to extract a financial penalty from the UK in future business relations.


The percentage of S&P stocks trading over their 50-day average fell to 34% after Friday. The percentage over the longer 200-day average fell to 62%. The percentage of stocks still holding a point and figure buy signal fell to 60%. None of these indicators are in critical territory yet but they are moving south at a rapid rate.




However, the percentage of Nasdaq stocks over their 50-day average has fallen to a 4-month low at 35.78% with the MACD negative and declining. This suggests the tech sector could see some additional weakness.


There is no way to know if the Friday market crash was a one day wonder until the smoke clears next week. About the only thing we can be certain of is that there will be volatility. For those that took my advice last week to take a vacation from trading until Monday, you saved yourself a lot of panic and frustration. If the market dips to 2020-2025 on Monday I would be a buyer. I am actually a buyer on any rebound on Monday but I am still looking for some margin selling that could push it temporarily lower.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email




New Option Plays

Buy the Dip

by Jim Brown

Click here to email Jim Brown

Editors Note:

The market indexes all declined to strong support and skidded to an abrupt halt. This "could" be a market bottom or it could be just a pause to take a breath before continuing lower. The key point for me is that nothing has changed in Europe. It was just a vote. Prime Minister Cameron will not leave office until October and his replacement will be the the person that begins the exit process. Even then it could take up to two years for the transition.

The market reaction came after a false rally the day before that had everyone leaning in the wrong direction. That made the surprise result an even bigger surprise for the markets.

I could be wrong but I expect some further weakness on margin selling on Monday and then a rebound as fund managers put their excessive cash hoards back to work before the end of the quarter on Thursday.



NEW DIRECTIONAL CALL PLAYS

IWM - Russell 2000 ETF - ETF Description

The Russell 2000 ETF attempts to track the investment results of the Russell 2000 Index composed of small-capitalization U.S. equities.

The Russell indexes were "reconstituted" at the close on Friday. Unlike an S&P-500 rebalance where only the weightings change, the Russell indexes have additions and deletions that impact all the weightings and constitution.

The Russell company sorts all the U.S. stocks by market cap and the top 1,000 become the Russell 1000 and the next 2,000 become the Russell 2000 Index. Stocks that grew over the last year can shift out of the R2K and into the R1K. Stocks that saw their market cap shrink can move from the R1K to the R2K. Stocks that were acquired are eliminated and new stocks take their place in the overall order. Stocks that saw their market cap shrink enough to place them far enough down the list to miss the 3,000 stock cutoff are removed from the indexes. It is a complicated procedure and funds that follow the indexes have a lot of restructuring to accomplish in a single day.

The Russell 2000 Index normally has a positive bias in the week after the rebalance as fund managers clean up their portfolios and balance the positions correctly. With a 3,000 stock universe in the Russell 1000, 2000, 3000, it is next to impossible to get it all completed on Friday. Managers know which stocks were dropped and those were sold at the close. Getting the weighting right on the remaining stocks and the new stocks added to the indexes is a little more complicated.

This means managers are buying stocks in small amounts for most of next week until the weightings match the index and their benchmarks. This produces the slight upward bias.

Whether that bias can overcome the negative Brexit sentiment is unknown but remember, nothing changed in Europe. At this point, the Brexit is just a headline. The actual changes will be many months if not years in the future.

Current support for the IWM is down in the $109 range with some congestion around $110. I am going to recommend two entry points. If we rise on Monday, I want to enter the position with an IWN trade at $113. If the market goes lower, I want to enter the trade at $110. If there is volatility and the $113 entry is made first, I still want to add to it with a trade at $110. If we move lower and the $110 entry is made first then the $113 entry recommendation is cancelled.

This will be a short term position for a couple weeks just to capture a rebound and the potential to return to resistance at $118-$120.

With an IWM trade at $113 buy August $115 call, currently $2.05. No initial stop loss.

With an IWM trade at $110 buy August $115 call, currently $2.05. No initial stop loss.

If $113 is hit first the $110 trade recommendation remains active.
If $110 is hit first the $113 trade recommendation is cancelled.



SWHC - Smith & Wesson - Company Description

Smith & Wesson was founded in 1852 and manufacturers firearms in the U.S. and internationally under many different brands but primarily Smith & Wesson.

Gun sales are booming again. With every terrorist attack or mass shooting more consumers rush out to buy guns for self defense. With the potential for additional attacks in the U.S. this trend is not going to slow. However, sales are cyclical. They surge after attacks like San Bernardino or Orlando or after speeches by politicians about gun control. President Obama has been the best gun salesman we have ever had. Every push by the administration to get more laws passed results in millions of new gun sales. The constant gun headlines over the last two weeks have lifted S&W to 3-month highs.

In their Q4 earnings where there was a surge in gun sales after San Bernardino. In their recent Q1 earnings there was no mention of the Orlando shootings because the shooting was only 4 days before their earnings. The Q1 results did not have any sales bump from that event.

In their Q1 report, they posted earnings of 63 cents compared to estimates for 54 cents. Revenue of $221 million also beat estimates for $214 million. They guided for the full year for revenue between $740-$760 million and analysts were expecting $723 million. They guided for full year earnings of $1.83-$1.93 and analysts were only expecting $1.66. Q1 sales rose +22% and the CEO said demand was strong. They forecast current quarter revenue at $190-$200 million and analysts were only expecting $162 million. That is a massive improvement.

Since the Orlando shooting there has been nonstop headlines about gun control. Gun stores are reporting four times the volume in traffic and many stores are having trouble keeping guns in stock. This is going to be a banner quarter for S&W.

Earnings August 25th.

Shares have been in constant rebound since the earnings on June 16th erased fears about slowing sales. The stock gained 51 cents on Friday despite the severely negative market.

Buy Sept $27 call, currently $1.70, no initial stop loss due to volatile market.


NEW DIRECTIONAL PUT PLAYS

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In Play Updates and Reviews

It Could Have Been Worse

by Jim Brown

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Editors Note:

We only lost three positions due to the big Brexit crash. It could have been a lot worse. We lost Ambarella, Nvidia and Zebra. The first two were victims of a 6% decline in the semiconductor index, which was hit hard by the economic outlook as a result of Brexit.

I am still positive on those stocks and will probably add them back into the portfolio as soon as they find a bottom.

The market crash has caused havoc in the charts. Prior winners were sold while some prior losers dipped only slightly as investors saw them as a potential safe haven. The prior winners were sold because traders were trying to capture profits to offset other losses. In a panic you sell what you can, not necessarily what you want to sell.

I expect some further margin selling on Monday but then a rebound later in the week. The S&P dropped right to strong support at 2,040 and this will be a critical pivot point. Any material decline from here would change the outlook for the market to bearish. A rebound back over 2,050 could attract dip buyers.



Current Portfolio




Current Position Changes


AMBA - Ambarella

The long call position was stopped at the open at $49.50.


NVDA - Nvidia

The long call position was stopped at the open at $45.45.


ZBRA - Zebra Technologies

The long call position was stopped at the open at $54.50.


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. Market crash stopped us out on th eopening gap lower.

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 under promising 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

Closed 6/24/16: Long August $57.50 call @ $2.51, exit $1.12, -1.39 loss.


CNC - Centene Corp - Company Description

Comments:

No specific news. New 10-month high on Thursday kept us from being stopped out on Friday. Nice rebound on the recovery.

Original Trade Description: June 21st.

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.

Position 6/22/16

Long August $72.50 call @ $1.97, see portfolio graphic for stop loss.


COST - Costco - Company Description

Comments:

No specific news. Costco gapped lower to $153 but did not hit our stop loss and rebounded to close at $155.50. It was actually positive for part of the day. Excellent relative strength.

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.


JPM - JP Morgan - Company Description

Comments:

The good news is that we did not get stopped out. Shares fell -7% but they were actually the strongest of the major banks. Once the panic passes on Mon/Tue we should see a rebound. However, I said going into this it was total speculation and would either be a 100% loser or 200% winner. With the UK voting to exit the winner option is off the table. Now we are playing for a rebound to recover as much of our premium as possible.

JP Morgan did well in the Fed stress tests and should announce a dividend increase in the next couple of weeks.

Original Trade Description: May 11th.

JPMorgan Chase & Co. operates as a financial services company worldwide. It operates through Consumer & Community Banking, Corporate & Investment Bank, Commercial Banking, and Asset Management segments. The Consumer & Community Banking segment offers deposit and investment products and services to consumers; lending, deposit, and cash management and payment solutions to small businesses; residential mortgages and home equity loans; and credit cards, payment services, payment processing services, auto loans and leases, and student loans. The Corporate & Investment Bank segment provides investment banking products and services, including advising on corporate strategy and structure, capital-raising in equity and debt markets, as well as loan origination and syndication; treasury services, such as cash management and liquidity solutions; and cash securities and derivative instruments, risk management solutions, prime brokerage, and research services. It also offers securities services, including custody, fund accounting and administration, and securities lending products for asset managers, insurance companies, and public and private investment funds.

JP Morgan has 15% revenue exposure to Brexit. That will be the major market mover the rest of the week. They are also expected to increase their capital return percentages for buybacks and dividends. Those will be announced next Wednesday.

I am playing the call side because the potential for a short squeeze on a remain vote or a major buy the dip program on an exit vote. The put options are more than double the call options so it appears everyone is expecting the worst. Shares have declined to the bottom of their uptrend channel.

I am using the August options to capture all the events over the next couple weeks. Earnings are July 14th and we will exit before earnings.

This is probably a 100% loser or a 200% gainer. There is no in between because of the binary nature of the event. We cannot use stop losses on this position because of the potential for opening gaps.

Position 6/23/16:

Long August $65 call @ $1.31, no stop loss.


NVDA - Nvidia Corp - Company Description

Comments:

No specific news. Chip stocks were crushed with the semiconductor index down -5% and the Nasdaq the biggest broad index loser at -4%. We were stopped out on the Brexit crash.

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:

Closed 6/14/15: Long August $49 call @ $2.22, exit $1.59, -.63 loss.


QRVO - Qorvo Inc - Company Description

Comments:

No specific news. New 7-month high on Thursday lifted the stock higher enough that we were not stopped out on Friday. This is very encouraging because buyers should flock to the relative strength.

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:

No specific news. Despite the new 2-month high on Thursday shares collapsed -8% and broke below support at $55 to stop us out.

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.

Here is an interesting article on their new products. Zebra Technology IoT 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. Shares collapsed intraday to $51.45 then rebounded sharply to end at $53.11. Apparently the positive earnings from Finish Line helped lift them from the lows. I lowered the stop loss in case the rebound continues.

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. Big 4% decline to a new 4-month low.

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 6/21/16:

Long Aug $35 put, @ $1.05, see portfolio graphic for stop loss.

Previously Closed 6/20/16: Position 6/14/16 Long Aug $35 put, @ $1.35, exit $1.05, -.30 loss.




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