Option Investor
Newsletter

Daily Newsletter, Thursday, 6/22/2017

Table of Contents

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

Market Wrap

Market Steady In Quiet Trade

by Thomas Hughes

Click here to email Thomas Hughes

Introduction

Global indices held steady in the wake of Wednesday's dive in oil prices. US indices were able to tick higher, led by the health care sector, as the Senate unveils their version of the Obamacare Repeal/Replacement bill. The bill, as expected, was released to a barrage of criticism. The bills passage is questionable, there are more than enough GOP opponents to block the bill at next week's vote.

International indices were flat in today's action. Asian indices were mostly lower but losses were minimal, Australia being the standout with a gain of 0.7%. Chinese stocks received little support from MSCI's decision to include them in the Emerging Markets Index. European indices fared little better, about half closed with losses and half with gains, as a 2 day meeting of the EU Governing Council gets underway. The meeting is expected to generate headlines in the areas of strengthening the EU and protecting its citizens from terrorism.

Market Statistics

Futures trading was flat all morning. The indices were expected to open with gains less than 0.05% and that held true through the release of economic data and into the open of the session. The indices did indeed open higher, about 1.5 points for the SPX, and quickly moved down to test support just below yesterday's close. This level held, a bottom formed and the indices were able to move back up to test and break the early high. Between 11AM and 1PM the indices drift higher, the SPX moving up to +5, and held those levels most of the afternoon. The release of FOMC bank stress tests, due out at 4:30, put a damper on the days gains. As the close approached indices moved lower to close almost exactly flat for the day.

Results for the first part of the stress test reveal that America's 34 top banks appear to have enough cash to return some to shareholders.

Economic Calendar

The Economy

Economic data was fairly light today, jobless claims and Leading Indicators. Initial jobless claims rose 3,000 from last week's upward revision of 1,000 to hit 241,000. The four week moving average of claims gained 1,500 to hit 244,750. On a not adjusted basis claims fell -2.4% versus an expectation for -3.8% and are down -7.8% on a year over year basis. Despite the rise claims remain low relative to the recovery and historic levels, consistent with labor market health.


Continuing claims rose by 8,000 on top of an upward revision of 1,000 to hit 1.949 million. The four week moving average of claims rose by 5,000 to hit 1.932 million. This figure has been creeping up since hitting its 44 year low about a month ago but remains low relative the long-term recovery, below the 2.00 million mark and is consistent with ongoing labor market health and tightening.

The total number of Americans receiving unemployment benefits rose by 30,993 to hit 1.816 million. This gain is as expected and is coming off a record seasonal low. On a year over year basis claims are -10.25% and have been running at a double digit deficit to last year for some time now. We can expect to see total claims trend higher over the next 5 to 6 weeks with a peak in early to mid July near the 2.0 million mark. Long-term, claims remain in down trend and consistent with ongoing improvement in employment levels and labor market tightening.


The Index of Leading Indicators was released at 10AM. The index rose 0.3% in May, the 9th consecutive month of expansion, following a 0.2% increase (revised) in April and a 0.4% (revised) increase in March. Conference Board economists say the increase shows expansion expected through the end of 2017 in the range of 2% and maybe faster. The Coincident and Lagging Indices also rose, by 0.1% and 0.1% respectively.


The Dollar Index

The Dollar Index slipped a bit in today's action but was able to regain the loss and close with a gain near 0.05%. The index created a small doji candle sitting on support at the short-term moving average near $97.50. This is significant in other ways as well, the $97.50 level also represents near-term resistance, resistance which was broken in confirmation of an apparent price reversal earlier this week. The indicators are bullish and showing strength although they are also consistent with a peak and pull-back to support. A confirmation of support at $97.50 would be bullish, a break back below would be bearish.


The Gold Index

Gold prices were also steady in today's trade, gaining about a half percent intraday to trade above $1,250. The gains did not hold though, prices slipped back below $1,250 to close with a gain near 0.25%. Today's action is not definitive but bears the look of a test and confirmation of resistance. If gold prices fail to regain upward momentum a deeper fall is likely. With so little data coming out over the next week there is little to move gold directly other than risk-on/risk-off sentiment, political news and Fedspeak. Downside targets are near $1,235 and $1,220 should prices confirm resistance.

The Gold Miners ETF GDX was able to extend its bounce from support today but, at best, remains range bound within its ever narrowing trading range. The ETF gained 0.30% to trade at the resistance of the long-term moving average with indicators that continue to flounder within their respective ranges. Momentum is bearish but weak and trending near the zero line over the past 6 weeks, stochastic is showing some weakness as %D reaches the lower signal line but also signs of support with %K's bounce and bullish crossover. Bottom line, the FOMC meeting did not result in a definitive move for the gold miners. The sector remains range bound and looks like it will be so into the near-term. Support is along the $22 level, resistance is just above the current level in a range between $22.50 and $23.


The Oil Index

Oil prices rebound from yesterday's deep declines but is more likely due to short-covering/profit-taking than anything else. WTI settled with a gain of 0.5%, trading at $47.74, with little to support it at this time. Although we can expect to see US production growth and rig counts slow there is still ample supply in the world and very little in the way of demand growth. I don't expect to see oil prices stage a significant gain until something along those lines changes, and it will take a lot more than OPEC's production cap to do it.

The Oil Index continues to ratchet lower, today's action saw it post small gains but not enough to recover previous support targets. The index gained about a half percent today to test the 1,100 level and that level was rejected. Today's candle is a small green bodied candle with long upper and lower shadows that is typically a sign of indecision. Today's candle comes after a long red candle and formed below the midpoint of that candle so also confirming a bearish harami which is usually a sign of weakness and possibly continuation. With oil prices falling the way they are I am giving up my bullish long-term outlook due to an expectation forward earnings growth outlook will start seeing major downgrades. Downside target is the bottom of last year's trading range near 1,080, I'll reassess at that time.


In The News, Story Stocks and Earnings

Oracle reported earnings after the bell yesterday and delivered stellar results. The company, which offers more software applications in more categories than any other firm, blew past estimates on revenue and profits driven by the cloud computing segment. The stock surged more than 10% in the pre-market session to hit a new all-time high. Profit takers were able to drive prices down from the high but left the stock with gains in the range of 8%.


Carnival cruise line reported before the bell and delivered a triple shot of good news. The company reported better than expected revenue and earnings on improving margins, and raised guidance due to forward booking ahead of last year and at higher prices. Shares of the stock fell marginally in the premarket, shot up during the session to set a new all-time high but fell back under the pressure of profit-taking.


The VIX fell -3.5% today in a move that confirms resistance at the short-term moving average. Toda's candle is medium and red moving down from the 11 level to close below 10.50. The fear index remains range bound at low levels with indicators that suggest more of the same with a possibility of moving lower. MACD has been trending flat for weeks with stochastic rolling into a bearish buy that suggests a move lower within current ranges downside target would be the recent lows near 10 and $9.50, consistent with ongoing market complacency.


The Indices

The indices tried to move higher but the threat of stress test results capped gains and left them flat for the day. The NASDAQ Composite posted a gain of 0.04% creating a small spinning top doji. Today's action is above support levels and near the current all-time high but indecisive and not supported by the indicators. Stochastic has formed a weak bullish crossover, trend following, but both %K and %D are pointing lower showing weakness in both time frames. This could change in as little as one day but until then this signal is very weak and highly questionable. MACD is in the same boat. Momentum is bearish but showing signs of rolling over into what could become a trend following signal. A move higher would be bullish in the near-term only and faces resistance at the all-time high. A break above there would be more firmly bullish.


The S&P 500 posted the smallest loss, only -0.04%. The broad market index created a small spinning top candle sitting on the long-term up trend line and looks like it will fall through. While price action is still above support, the indicators are persistent in bearishness and confirming a pull-back. Downside targets on a break of the uptrend line are the short-term moving average near 2,420, the round number of 2,400 and then on a deep pull-back 2,350 although I do not expect that at this time.


The Dow Jones Industrial Average posted a loss of -0.06% and created a small spinning top doji. Today's candle is sitting on support at the long-term up trend line and looks like prices will continue to test support into the near-term. The indicators have been rolling over into sell signals that confirmed today with a bearish crossover of MACD. Such signals are, within an uptrend, usually a precursor to trend following buy signals but it is too early to act on that assumption now. A break below the up trend line would be bearish near-term with downside targets near 21,180 and 21,000 respectively. A bounce from the trend line would be trend following a bullish but near-term only, resistance is only a few hundred points above today's close at the current all-time high.


The Dow Jones Transportation Average also closed with a loss of -0.06%. The transports created a small doji-like candle with green body sitting on support at the short-term moving average and below resistance at a former all-time high simultaneously. The index appears to be in a near-term correction, about halfway through it, and confirmed by the indicators. Stochastic has fired a sell-signal and is showing weakness confirmed today with a bearish MACD crossover. A break of the short-term moving average would be bearish with downside target near the long-term moving average just above the 9,000 level. A bounce from here would be bullish near-term with a target at the current all-time high.


The indices remain in uptrend although near-term direction is highly questionable. The indicators are throwing signals of weakness that could easily turn into the next trend following signal, or a deeper correction. With so little in the way of economic data or earnings over the next week or so there will not be much to drive the market higher so I am very very cautious in the near-term. If the market is able to hold these levels great, if not the dip will likely be a buying op and the next great long-term entry. Forward earnings growth remains positive and strong, so long as that remains true I am bullish for the long-term.

Until then, remember the trend!

Thomas Hughes


 

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New Option Plays

Rebalance Rebound

by Jim Brown

Click here to email Jim Brown

Editors Note:

Friday is the biggest day of the year for the Russell Indexes. They "should" decline as stocks still in the index but being deleted at the close, are sold to make room for new additions.



NEW DIRECTIONAL CALL PLAYS

IWM - Russell 2000 ETF - ETF Profile

The Russell 2000 represents the 2,000 smallest stocks in the Russell 3,000, which is the largest 3,000 stocks in the market. They are routinely called the small cap stocks but the index contains a lot of midcap stocks as well. There is a smaller index called the Russell Microcap index for even smaller stocks.

On the Friday in June after quadruple witching expiration, Russell rebalances their indexes. Some stocks move up from the R2K to the Russell 1000 and some move down from the 1000 to the 2000. Other stocks are added like IPOs or stocks that have grown to the point where they qualify for insertion. Others that are in a downtrend, have seen their market cap shrink and they no longer qualify for inclusion.

Russell put out their updated list of additions and deletions last week. All the fund managers that index to the Russell indexes have to buy the additions and sell the deletions at the close on Friday. A lot will actually do it at the close but some have been making changes for the last several days. A lot will begin selling earlier in the day to avoid the rush.

Since selling a stock that is technically still in the index until the close will make index decline, the Russell 2000 "should" close at the low for the day. Buying additions to the indexes on Friday has no impact on the indexes since they are not technically index components until Monday. Since fund managers will be adding positions and adjusting most of next week, the index should rise.

In theory, the Russell should decline into the close on Friday. I am recommending a short-term call on the Russell IWM ETF. We only want to hold it a week or maybe two.

ENTER THE POSITION AT THE CLOSE

Buy July $141 call, currently $1.34, initial stop loss $137.50.


NEW DIRECTIONAL PUT PLAYS

No New Bearish Plays



In Play Updates and Reviews

No Direction

by Jim Brown

Click here to email Jim Brown

Editors Note:

The major indexes traded both positive and negative intraday but selling accelerated into the close. The indexes tried to rally but after the first few minutes of trading it was a battle to hold on to the early points. Late in the afternoon, the sellers appeared and the indexes ended mixed.

The big cap tech stocks were all negative with the exception of Tesla. However, the losses were very small and fractional in most cases. The Russell was actually positive, which was surprising ahead of the Russell rebalance at the close on Friday. The extremely high volume expected could keep the indexes from actually being directional. There will be a lot of buying/selling for the rebalance and that could obscure any non-rebalance trading.



Current Portfolio


Stop Loss Updates

Check the graphic below for any new stop losses in bright yellow. We need to always be prepared for an unexpected decline.


Profit Targets

Check the graphic below for any profit stops in green. We need to always be prepared for a profit exit at resistance.





Current Position Changes


RMD - ResMed
The long call position was stopped at $77.75.

PYPL - PayPal
The long call position was entered at the open.

FL - Foot Locker
The long put position was entered at the gap open.

COST - Costco
The long call recommendation has been cancelled.



If you are looking for a different type of option strategy, try these newsletters:

Credit spreads and naked puts = OptionWriter

Long term option investments = LEAPS Investor

3-6 month Option Trades = Ultimate Investor

Iron Condors = Couch Potato Trader

Long and short equity trades = Premier Investor



BULLISH Play Updates

ADSK - Autodesk Inc - Company Profile

Comments:

No specific news. Nice rebound in a mixed market.

Original Trade Description: June 19th.

Autodesk, Inc. operates as a design software and services company worldwide. The company's Architecture, Engineering and Construction segment offers Autodesk Building Design Suites to manage various phases of design and construction; Autodesk Revit products that offer model-based design and documentation systems; Autodesk Infrastructure Design Suites; AutoCAD Civil 3D, a surveying, design, analysis, and documentation solution; and AutoCAD Map 3D software for infrastructure planning, design, and management. Its Platform Solutions and Emerging Business segment offers AutoCAD software, a professional design, drafting, detailing, and visualization software; and AutoCAD LT, a professional drafting and detailing software. The company's Manufacturing segment provides Autodesk Product Design Suites for digital prototyping; Autodesk Inventor to go beyond 3D design to digital prototyping; AutoCAD Mechanical software to accelerate the mechanical design process; Autodesk Moldflow, an injection molding simulation software; Autodesk Delcam, a CAD and computer-aided manufacturing software; Autodesk PLM 360, a product lifecycle management application; and Autodesk Fusion 360, a product development environment. Its Media and Entertainment segment offers Autodesk Maya and Autodesk 3ds Max software products that offer 3D modeling, animation, effects, rendering, and compositing solutions; and Autodesk Flame and Autodesk Lustre software applications that offer editing, finishing, and visual effects design and color grading solutions. Autodesk, Inc. sells consumer products for digital art, personal design and creativity, and home design in digital storefronts and over the Internet. It licenses or sells its products to customers in the architecture, engineering, and construction; manufacturing; and digital media, consumer, and entertainment industries directly, as well as through resellers and distributors. Company description from FinViz.com.

Autodesk (ADSK) reported a loss of 28 cents that beat estimates for a loss of 33 cents. Revenue of $478.8 million beat estimates for $474.1 million. The company is losing money because they are converting from a software sales model to a subscription model and that always causes a short fall in the first 12-24 months of the process but results in larger profits in the future. New subscriptions rose 26% to 1.09 million, up 227,000 from the same period in 2015.

The company guided for the current quarter for a loss of 21-27 cents on revenue of $460-$480 million. Analysts were expecting $503 million and a 13-cent loss. Shares declined $2 on the news.

Earnings Aug 17th.

The stock spiked to $114.50 on the earnings in May and then faded on colsolidation until the Nasdaq flash crash the prior week. Being a tech stock it imploded with the rest of the tech sector. The rebound followed the pattern of the rest of the large cap tech stocks. A couple days higher and then a retest of the decline. Shares rebounded today on short covering with the rest of the market. I believe, market permitting, we will see shares break back above resistance at $108 and move on to new highs.

Shares could get a bounce when Adobe reports earnings on Tuesday.

Update 6/20/17: The CEO said today the global building boom is a big boost for Autodesk revenue. You have to have a program to build a building today and that program has to be linked to dozens or even hundreds of smartphones. All of that is a positive for Autodesk.

Position 6/20/17:

Long Aug $110 call @ $3.85, see portfolio graphic for stop loss.


ATVI - Activision Blizzard - Company Profile

Comments:

Oppenheimer said the game Overwatch has taken over from Call of Duty as the number one game for Activision and he raised the price target to $70. The analyst said he would not be surprised if they made movies and generated an action hero following.

Original Trade Description: May 22nd.

Activision Blizzard, Inc. develops and publishes games for video game consoles, personal computers (PC), mobile devices, and online social platforms. The company operates through three segments: Activision Publishing, Inc., Blizzard Entertainment, Inc., and King Digital Entertainment. The company develops, publishes, and sells interactive software products and entertainment content through retail channels or digital downloads; and downloadable content. It also publishes subscription-based massive multiplayer online role-playing games; and strategy and role-playing games. In addition, the company maintains a proprietary online gaming service, Battle.net that facilitates the creation of user generated content, digital distribution, and online social connectivity in its games. Further, it engages in creating original film and television content; and provides warehousing, logistics, and sales distribution services to third-party publishers of interactive entertainment software, as well as manufacturers of interactive entertainment hardware products. The company serves retailers and distributors, including mass-market retailers, consumer electronics stores, discount warehouses, game specialty stores, and consumers through third-party distribution and licensing arrangements in the United States, Australia, Brazil, Canada, China, France, Germany, Ireland, Italy, Japan, Malta, Mexico, the Netherlands, Romania, Singapore, South Korea, Spain, Sweden, Taiwan, and the United Kingdom. Activision Blizzard, Inc. was incorporated in 1979 and is headquartered in Santa Monica, California. Company description from FinViz.com.

Activision reported Q1 earnings of 56 cents, up 17%. Sales rose 19% to $1.73 billion. Activision had originally guided for 25 cents and $1.55 billion. Analysts were expecting 22 cents and $1.1 billion so it was a major blowout. For the full year, they raised guidance to 88 cents and $6.1 billion, up from 72 cents and $6.0 billion.

Blizzards's monthly active users rose to 431 million. King Digital has 342 million active users. The new Overwatch game was the fastest Blizzard title to hit 25 million registered players and now has more than 30 million. Revenues from in game purchases rose 25% driven by World of Warcraft and Overwatch customization features.

Activision is a powerhouse with rapidly rising revenue and multiple game titles arriving in the coming months.

Earnings August 3rd.

Shares dropped sharply with the market last Wednesday and have already rebounded to close at a new high today.

Position 5/23/17 with an ATVI trade at $57.75:

Long August $60 calls @ $2.24, see portfolio graphic for stop loss.

Previously closed 6/9/17: Long August $60 calls @ $2.66, exit $2.02, -.64 loss.


BABA - Alibaba - Company Profile

Comments:

Shares of Chinese internet stocks sold off slightly after Chinese regulators ordered Weibo and two other platforms to halt video and audio streaming. Alibaba was not involved but shares dipped slightly on the report. China does not allow uncensored content that is political or shows too much freedom and lifestyles in other countries.

Original Trade Description: June 10th.

Alibaba Group Holding Limited, through its subsidiaries, operates as an online and mobile commerce company in the People's Republic of China and internationally. It operates Taobao Marketplace, an online shopping destination; Tmall, a third-party platform for brands and retailers; Juhuasuan, a sales and marketing platform for flash sales; Alibaba.com, an online wholesale marketplace; Alitrip, an online travel booking platform; 1688.com, an online wholesale marketplace; and AliExpress, a consumer marketplace. The company also provides pay-for-performance and display marketing services through its Alimama marketing technology platform; Taobao Ad Network and Exchange (TANX), a real-time bidding online marketing exchange in China; and data management platform through TANX for marketers to execute their campaigns with proprietary and tailored data. In addition, it offers cloud computing services, including elastic computing, database, storage and content delivery network, large scale computing, security, and management and application services through its Alibaba Cloud Computing platform; Web hosting and domain name registration services; payment and escrow services; and develops and operates mobile Web browsers. The company provides its solutions primarily for businesses. Company description from FinViz.com

Alibaba is the poor investor's Amazon. With shares at $135, the options are at least reasonable but not cheap. Alibaba is growing as fast or faster than Amazon and tries to copy everything Amazon does.

When the company reported earnings for the last quarter at 63 cents, they missed estimates for 68 cents. Revenue of $5.6 billion easily beat estimates for $5.2 billion. Other than the earnings miss it was a solid quarter with ecommerce up 47% and cloud computing up 102%. Digital media growth was up 234%. Mobile MAUs rose from 493 to 507 million. That is important because 90% of China's ecommerce occurs on a mobile device.

The company announced plans to buy back $6 billion in stock over a two-year period.

Earnings August 18th.

Shares dipped on the earnings miss then spiked on the guidance to $125.50, which was a new high. After a little more than two weeks of post earnings consolidation, shares returned to that $125.50 level and closed at a new high.

There was an analyst day last week and that kicked the stock up to another level with a $10 gain. The company guided for 45% to 49% revenue growth in this year and analysts were only expecting 37%. MKM partners raised the price target to $177. Pacific Crest raised their price target to $160 from $137. Needham raised their target to $155. The Benchmark Company is targeting $175.

Shares declined on Tuesday on no news. With the stock overbought after the analyst meeting we could be seeing some simple profit taking. I am going to put an entry trigger on the position. If shares continue lower I will revise the entry.

Update 6/20/17: Alibaba is hosting a forum for 3,000 entrepreneurs in Detroit to explain how easy it is for them to begin selling products on Alibaba's websites. CEO Jack Ma said in another interview he expects to employ 1 million workers in the USA.

Position 6/19/17 with a BABA trade at $139.50

Long Aug $145 call @ $5.95, see portfolio graphic for stop loss.
Short Aug $155 call @ $2.92, see portfolio graphic for stop loss.
Net debit $3.03.


COST - Costco - Company Profile

Comments:

Costco crashed again with a $3.50 drop as it broke through short-term support. I am cancelling this recommendation. We were never triggered on the rebound entry.

Original Trade Description: June 1st.

Costco Wholesale Corporation, together with its subsidiaries, operates membership warehouses. It offers branded and private-label products in a range of merchandise categories. The company provides dry and packaged foods, and groceries; snack foods, candies, alcoholic and nonalcoholic beverages, and cleaning supplies; appliances, electronics, health and beauty aids, hardware, and garden and patio; meat, bakery, deli, and produces; and apparel and small appliances. It also operates gas stations, pharmacies, optical dispensing centers, food courts, and hearing-aid centers; and engages in the travel businesses. In addition, the company provides gold star individual and business membership services. As of August 28, 2016, it operated 715 warehouses, including 501 warehouses in the United States, Washington, District of Columbia, and Puerto Rico; 91 in Canada; 36 in Mexico; 28 in the United Kingdom; 25 in Japan; 12 in Korea; 12 in Taiwan; 8 in Australia; and 2 in Spain. Further, the company sells its products through online. Company description from FinViz.com.

Costco reported earnings of $1.59 compared to estimates for $1.30. Revenue of $28.22 billion rose 8% but missed estimates for $28.6 billion. Same store sales rose 5% and beat expectations for 4%. Shares spiked $2.50 on the report.

Earnings August 24th.

On May 31st, Costco reported May sales results of $9.86 billion, an increase of 7%. Same store sales rose 4.5% in the U.S. and 6.4% internationally with the company average at 4.5%.

Guggenheim said the May comps reinforce the case for 20% earnings growth in Q4. Costco customers are on track to spend more than $100 billion on their Visa branded credit cards and 70% will be at retailers that are not Costco. The company stands to make $170 million on the commissions from Visa.

People love to shop at Costco and they spend a lot of money. A weekend shopping trip to the local Costco store will expose you to roughly 30 tables of free samples as Costco employees cook up concoctions available for sale in the store. Broiled salmon, cocktail weenies, crab dip, jalapeno biscuits, barbecue, etc, are all available for tasting. Weekend shopping takes on a party atmosphere and the local stores are always full. Amazon cannot crack this code.

Amazon is the largest online seller of Costco products marketed under the Kirkland brand. They have 69.5% of the online market share for Kirkland products. Costco only has 23.2% market share online. Who knew Amazon was such a big supporter of Costco?

We played Costco before the earnings and exited with a nice gain after they announced $7 special dividend for mid May. Now that earnings are over and shares are breaking out to a new high, it is time to play them again.

Update 6/20/17: I believe this is just a knee jerk reaction to the news. It will be a long time before Amazon completes the acquisition. Getting regulatory approval could be tough. Amazon said they expect to close before the end of 2017 but there is already a call for a Senate inquiry into the transaction. I would expect early 2018. Even after the acquisition it would probably take 6-12 months before any changes could impact Costco.

Secondly, multiple analysts believe another bidder will appear. Walmart and Kroger are routinely mentioned. This would be a defensive move to keep Amazon was gaining an entry into their space.

Recommendation cancelled.

Previously closed 6/16/17: Long July $183 Call @ $2.60, exit .26, -2.34 loss.


FB - Facebook - Company Profile

Comments:

Facebook changed its mission statement from "more open and connected" to "bring the world closer together." Facebook is going to nudge users into social groups. Good luck with that.

Original Trade Description: May 17th.

Facebook, Inc. provides various products to connect and share through mobile devices, personal computers, and other surfaces worldwide. Its solutions include Facebook Website and mobile application that enables people to connect, share, discover, and communicate each other on mobile devices and personal computers; Instagram, a mobile application that enables people to take photos or videos, customize them with filter effects, and share them with friends and followers in a photo feed or send them directly to friends; Messenger, a messaging application to communicate with people and businesses across platforms and devices; and WhatsApp Messenger, a mobile messaging application. The company also offers Oculus virtual reality technology and content platform, which allow people to enter an immersive and interactive environment to play games, consume content, and connect with others. Company description from FinViz.com.

Facebook also blew away earnings estimates and they are growing earnings at the fastest rate of any of the FAANG stocks. They have multiple revenue streams and sites like Instagram and WhatsApp that are just starting to accelerate earnings. They said Instagram had reached 50,000 advertisers. Facebook's problem is they do not have enough page views to monetize despite the 1.9 billion users. They have more advertisers than they have space.

Facebook said the new Instagram Stories product has reached 250 million daily users compared to Snap's 160 million for the same function.

Earnings August 2nd.

Facebook had been moving sideways since hitting the $153 high post earnings. Volatility was low and investors were just waiting for a market dip so they could get a better entry point. Share fell to uptrend support at $145 and even if they due decline further there is strong support around $140.

Update 5/18/27: Facebook was fined $122.4 million by EU regulators for giving them false information in the WhatsApp acquisition process. The EU asked how many WhatsApp users were also Facebook users and the company said it did not know and did not have way of matching the usernames. A year after the acquisition Facebook launched a service that did match users and the EU said they had the capability all the time.

The company also announced a new effort to reduce "clickbait" headlines and punish websites that continually publish fake news. I hope they are successful.

Update 5/19/17: Facebook is going to live stream 20 Major League Baseball Friday night games. The company also said it was adding an "Order Food" option to let some users order, pay and have food delivered or be available for pickup. The service works with restaurants that use Delivery.com or Slice.

Update 5/22/17: Facebook shares were weak after the BROWSER bill was introduced in the House. Websites and browsers must get explicit permission from users in order to collect and use personal data including browser history, search terms, cookies, etc. They also cannot deny you the use of their program if you decline to give them permission to use your data. While the bill has little chance of passing it was a wet blanket on Facebook today.

Update 5/24/17: Reuters reported that Facebook has signed content deals with Vox Media, Buzzfeed, ATTN, Group Nine Media and others to begin creating shows for its upcoming video service. They are going to develop both short and long form content with ad breaks included. The first scripted shows will be up to 30 min which Facebook will own. The second tier will be shorter scripted and unscripted shows with episodes lasting 5-10 minutes.

Update 6/14/17: Facebook has built an AI that learned how to lie to get what it wants. Can Skynet be much farther into the future? Facebook fed the AI computer the text messages from 5,808 human conversations where they negotiated for some specific outcome either an item, event or decision. Then they tried to negotiate with the computer over some items each were given. The key was for the computer to end up with a specific item. During the testing they found that the computer had learned to lie to misdirect the opponent from the item the computer actually wanted. This is scary. Extrapolate this into a much larger environment with millions of conversations to learn from and the outcome could be an entirely new level of computer consciousness.

Update 6/16/17: Facebook said it was using artificial intelligence (AI) to search out terrorist accounts and propaganda in its pages. The company has already deleted hundreds of thousands of accounts and it making it harder for users to reopen new accounts under different names. Fortunately, Facebook has years of history from those deleted accounts and has developed algorithms to compare new account activity against those old posts and automatically discover and delete new terrorist accounts.

Position 6/12/17:

Long Aug $150 call @ $4.75, see portfolio graphic for stop loss.

Previously closed 6/9/17: Long Aug $150 call @ $4.90, exit $6.80, +$1.90 gain.


JCOM - J2 Global Inc - Company Profile

Comments:

J2 Global priced $650 million senior unsecured notes. This was $100 million over the previously announced offering. The notes were priced at 6% and due 2025 and the proceeds will be used to pay off the 8% senior notes due in 2020 as well as pay all amounts due under their existing credit facility.

Original Trade Description: June 17th.

j2 Global, Inc., together with its subsidiaries, engages in the provision of Internet services worldwide. It operates through two segments, Business Cloud Services and Digital Media. The Business Cloud Services segment offers cloud services to sole proprietors, small to medium-sized businesses and enterprises, and government organizations. This segment provides online fax services under the eFax, MyFax, eFax Plus, eFax Pro, eFax Secure, eFax Corporate, and eFax Developer names; on-demand voice and unified communications services under the eVoice and Onebox names; online backup and disaster recovery solutions under the KeepItSafe, LiveDrive, LiveVault, and SugarSync names; hosted email security, email encryption, and email filtering and archival services under the FuseMail name; email marketing services under the Campaigner name; and cloud-based customer relationship management solutions under the CampaignerCRM name. The Digital Media segment operates a portfolio of Web properties, including PCMag.com, IGN.com, Speedtest.net, AskMen.com, TechBargains.com, Offers.com, and Everydayhealth.com that offer technology products, gaming and lifestyle products and services, news and commentary related products, speed testing for Internet and network connections, and online deals and discounts for consumers, as well as professional networking tools, targeted emails, and white papers for IT professionals. This segment also sells display and video advertising solutions, as well as targets advertising across the Internet; sells business-to-business leads for IT vendors; promotes deals and discounts on its Web properties for consumers; and licenses the right to use PCMag's Editors' Choice logo and other copyrighted editorial content to businesses. Company description from FinViz.com.

Very few business people would not recognize some of their brands including eFax.com, PCMag.com, TechBargains.com, etc.

The reported earnings of $1.14 that rose 12% but missed estimates by 7 cents. Revenue rose 27% to $254.7 million and also missed estimates for $258.5 million. However, they raised full year guidance to $5.60-$6.00 and $1.13-$1.17 billion. Analysts were expecting $5.59 and $1.15 billion. They also announced a dividend increase to 37.5 cents. Digital media revenues rose 81.5% to $113.1 million.

Estimates earnings August 7th.

Shares declined from $91.50 to $80.50 on the May 9th earnings and have recovered to $87.50. They are about to break out to a six week high. They have been relatively stable in the recent market weakness.

Position 6/19/17:

Long Sept $90 call @ $3.80, see portfolio graphic for stop loss.


NFLX - Netflix - Company Profile

Comments:

No specific news. Very low volume and closed near the high. There are no sellers but buyers are also waiting for a break over $155.

Original Trade Description: May 17th.

Netflix, Inc., an Internet television network, engages in the Internet delivery of television (TV) shows and movies on various Internet-connected screens. The company operates in three segments: Domestic Streaming, International Streaming, and Domestic DVD. It offers members with the ability to receive streaming content through a host of Internet-connected screens, including TVs, digital video players, television set-top boxes, and mobile devices. The company also provides DVDs-by-mail membership services. It serves approximately 100 million streaming members in 190 countries. Netflix, Inc. was founded in 1997 and is headquartered in Los Gatos, California. Company description from FinViz.com.

Netflix posted blowout earnings and shares rocketed higher to hit $161 on Monday. I have been waiting for three weeks for a pullback. Analysts are projecting higher highs with the high price targets at $175. There have been continuous rumors that either Disney or Apple will try to buy them not only to acquire the platform but to keep the other company from acquiring it. Both have said they want to have a big presence in streaming. Tim Cook just said it last week. Both have the cash and Disney has billions of dollars in content it can immediately add to the platform.

Netflix is expected to add 3 million subscribers in Q2. They are testing higher prices in Australia to see what price levels will cause subscriber flight. Once they figure it out you can bet they will apply it to the rest of their 100 million customers. That is instant profit. Bumping rates by $5 gets them another $500 million a month in revenue.

They announced with earnings they were finally entering China through a partnership with the largest existing streamer in China. This is one more step to a full release in the future.

Update 5/18/17: The FCC voted 2-1 to roll back the 2015 net neutrality order from President Obama. Some say this will impact major internet users like Netflix. However, the company said last month that elimination of the order would not have any impact on their business because they were big enough and had a broad enough customer base that ISPs would not try to slow down their streaming traffic. The order prevented ISPs from charging for faster bandwidth for heavy users. Netflix is responsible for 40% of the internet traffic in peak hours.

Update 5/22/17: Netflix expects to have 102 million subscribers by the end of Q2 with 51.45 million in the U.S. and 50.49 million internationally. Three years ago the company only had 11 million international subscribers. They expect international numbers to exceed U.S. subscribers by the end of the third quarter. With international subscribers growing roughly 3 million per quarter they should reach 100 million in 2020 as acceptance continues to grow. That puts them on track for 200 million total subscribers by 2025.

Update 5/27/17: Piper Jaffray reiterated an overweight rating this morning but raised the price target from $166 to $190. The analyst said Netflix probably low-balled the company's 2020 earnings expectations by as much as half. The analyst said it the international viewers grow as well over the next 10 quarters as the last 10 then expectations could be 100% too low. They believe Netflix could have 180 million international subscribers by 2020. Jaffray said the total addressable market of broadband viewers could be more than 765 million by 2020.

MKM Partners also raised their price target from $175 to $195.

Update 6/2/17: Tom Lee of Fundstrat said "stick with the FANG stocks in 2H-2017 for 20% to 40% additional gains." Netflix added $2 to a new high close.

Update 6/6/17: Cantor Fitzgerald raised their price target from $165 to $190 saying international subscriptions are set to surge. The analyst said Netflix has 50% penetration in the US households with broadband access but only 5.7% internationally. He expects that international number to rise dramatically as advertising and acceptance grows.

Update 6/13/17: Netflix partnered with telecom giant Altice and will begin rolling out pay services in France, Portugal, Israel and the Dominican Republic in the coming months.

Update 6/20/17: Guggenheim raised their price target from $175 to $180 and reiterated a buy rating. Netflix has started releasing interactive shows where the viewer gets to choose the path the hero takes. Whenever the hero reaches the proverbial fork in the script, the viewer can decide which option the character takes. The first one is an animated cartoon with 13 direction options throughout the show. There are more already in production.

Earnings July 17th.

We have to use a spread because options are still expensive.

Position 6/12/17:

Long July $160 call @ $4.96, see portfolio graphic for stop loss.
Short July $175 call @ $1.65, see portfolio graphic for stop loss.
Net debit $3.31.

Previously closed 6/9/17:
Long July $160 call @ $6.45, exit $7.50, +1.05 gain.
Short July $175 call @ $2.16, exit $2.41, -.25 loss.
Net gain 80 cents.


PYPL - PayPal - Company Profile

Comments:

No specific news. Shares posted a minor gain as it pulls closer to the prior high at $55.

Original Trade Description: June 21st.

PayPal Holdings, Inc. operates as a technology platform company that enables digital and mobile payments on behalf of consumers and merchants worldwide. It enables businesses of various sizes to accept payments from merchant Websites, mobile devices, and applications, as well as at offline retail locations through a range of payment solutions, including PayPal, PayPal Credit, Braintree, Venmo, Xoom, and Paydiant products. The company's platform allows consumers to shop by sending payments, withdraw funds to their bank accounts, and hold balances in their PayPal accounts in various currencies. Company description from FinViz.com.

PayPal started out as a payment system for Ebay. Since then they have moved into dozens of areas including credit cards, peer to peer payments. Instead of being locked into one business model, they are rapidly expanding to multiple business models. Recently they partnered with MasterCard and Visa to have their digital payments processed on their systems. The company is expanding the scope of its Venmo payment platform, which handled $6.8 billion in Q1, up 114%. This peer to peer app will now allow you to pay for goods at any merchant that accepts the app, just like Apple pay.

In Q1 PayPal revenue rose 17% to $2.975 million and earnings rose 5%. Total accounts rose 23% to 203 million. As a comparison, Mastercard's revenue was less at $2.7 billion. That is a shocker to most people.

With their Q1 earnings, PayPal committed to buy back $5 billion in stock.

Expected earnings July 26th.

Shares dipped with the Nasdaq tech crash but are recovering. Their recent high was $55 and shares closed at $53.50 today. Options are inexpensive.

Position 6/22/17:

Long August $55 call @ $1.58, see portfolio graphic for stop loss.


RMD - ResMed Inc - Company Profile

Comments:

No specific news. Shares appear to have topped at $79 and after two days of mild declines we were stopped out at $77.75 for a nice gain.

Original Trade Description: June 6th.

ResMed Inc. designs, develops, manufactures, and markets medical devices and cloud-based software applications that diagnose, treat, and manage respiratory disorders. Its portfolio of products include devices, such as air flow generators, ventilators, and oxygen concentrators; diagnostic products; mask systems; headgear and other accessories; dental devices; portable oxygen concentrators; and cloud-based software informatics solutions. The company also produces continuous positive airway pressure, variable positive airway pressure, and AutoSet systems for the titration and treatment of sleep disordered breathing (SDB). In addition, it offers data communications and control products, such as EasyCare, ResLink, ResControl, ResControl II, TxControl, ResScan, and ResTraxx modules that facilitate the transfer of data and other information to and from the flow generators. The company markets its products to sleep clinics, home healthcare dealers, patients, hospitals, physicians, and third-party payers through a network of distributors and direct sales force in approximately 100 countries. Company description from FinViz.com.

ResMed reported earnings of 71 cents that rose 2.8% and beat estimates by a penny. Revenue of $514.2 million rose 13.3% but missed estimates for $519 million. Revenue in the America's rose 18% compared to a 9% rise in EMEA and APAC. Gross margin was 58.3%. They ended the quarter with $827.3 million in cash. They announced a quarterly dividend of 33 cents, payable on June 15th.

Expected earnings July 27th.

ResMed's recent claim to fame is the ResMed AirMini, the world's smallest CPAP mask. Their goal is to change 20 million lies by 2020 with products that improve patient outcomes and daily lives. They manufacture and market products for chronic diseases where there is a large patient base.

They currently provide remote monitoring for more than three million patients around the world.

Shares closed at a two year high on Wednesday. Earnings are July 27th and the July options will deflate too quickly. I am recommending the October strikes but we will exit before the earnings. We can always buy time but we do not have to use it.

Position 6/8/17:

Closed 6/22/17: Long Oct $75 call @ $2.90, exit $5.30, +$2.40 gain.


SHOP - Shopify - Company Profile

Comments:

No specific news. Minor gain and holding at resistance at $91.25.

Original Trade Description: May 31st.

Shopify Inc. provides a cloud-based multi-channel commerce platform for small and medium-sized businesses in Canada, the United States, the United Kingdom, Australia, and internationally. Its platform provides merchants with a single view of their business and customers in various sales channels, including Web and mobile storefronts, physical retail locations, social media storefronts, and marketplaces; and enables them to manage products and inventory, process orders and payments, ship orders, build customer relationships, and leverage analytics and reporting. The company was formerly known as Jaded Pixel Technologies Inc. and changed its name to Shopify Inc. in November 2011. Company description from FinViz.com.

The company reported a Q1 loss of 4 cents compared to estimates for a loss of 11 cents. Revenue rose 75% to $127.4 million and beat estimates for $122.1 million. Merchant solution revenue rose 92% to $65.3 million and subscription revenue rose 60% to $62.1 million. They guided for Q2 to revenues of $142-$144 million and the full year for $615-$630 million. That is above their prior guidance of $580-$600 million.

Expected earnings August 1st.

The company was very positive about the future outlook. On May 18th they announced a secondary offering for $500 million at $91 per share. The stock dropped from $91 to $81 on the news but immediately recovered. Wednesday's close was a two-week high after that announcement.

SHOP has been discussed multiple times as takeover bait for Ebay or Amazon. Neither company will comment but Amazon would be the likely player. They could gobble up Shopify at $7 billion like a late night snack.

I believe shares are going to resume their upward momentum now that the secondary offering has been consumed by the market.

Update 6/5/17: The S&P/TSX index is considering whether to add SHOP to the Canadian index. That would equate to about 5.4 million shares of additional buying from index funds. The rule change that would allow SHOP to benefit is out for comment until June 9th.

I wanted to buy calls that expire after earnings but there are no August strikes yet. The next strike in October is too expensive. Even the short-term strikes are expensive so I am going with a July spread to reduce the risk.

Position 6/19/17 with a SHOP trade at $89.25:

Long July $95 call @ $3.20, see portfolio graphic for stop loss.
Short July $105 call @ $1.26, see portfolio graphic for stop loss.
Net debit $1.94

Previously closed 6/9/17:
Long July $95 call @ $5.25, exit $5.00, -.25 loss.
Short July $105 call @ $2.35, exit 2.50, -.15 loss.
Net loss 40 cents.


V - Visa Inc - Company Profile

Comments:

No specific news. No excitement. Slowly declining. I am recommending we close the position.

Original Trade Description: June 10th.

Visa Inc. operates as a payments technology company worldwide. The company facilitates commerce through the transfer of value and information among consumers, merchants, financial institutions, businesses, strategic partners, and government entities. It operates VisaNet, a processing network that enables authorization, clearing, and settlement of payment transactions; and offers fraud protection for account holders and assured payment for merchants. The company also offers gateway services for merchants to accept, process, and reconcile payments; manage fraud; and safeguard payment security online, as well as processing services for participating issuers of visa debit, prepaid, and ATM payment products. In addition, it provides digital products, including Visa Checkout that offers consumers an expedited and secure payment experience for online transactions; and Visa Direct, a push payment product platform, which facilitates payer-initiated transactions that are sent directly to the Visa account of the recipient, as well as Visa token service that replaces the card account numbers from the transaction with a token. Further the company offers corporate (travel) and purchasing card products, as well as value-added services. It provides its services under the Visa, Visa Electron, Interlink, V PAY, and PLUS brands. Company description from FinViz.com.

Visa reported earnings of 86 cents compared to estimates for 79 cents. Revenue of $4.5 billion rose 23.5% and beat estimates for $4.3 billion. They raised full year revenue guidance saying they expect to come in at the high end of the $17.49-$17.79 billion prior forecast. Analysts were expecting $17.75 billion. Shares rallied $10 since the earnings report.

Estimated earnings July 20th. Visa shares declined sharply on Friday even though they are not a tech stock. The sudden need to raise cash because of losses elsewhere may have caused investors to take profits in Visa. This should be a buying opportunity. With the Fed likely to raise rates this week the financial community should continue to post gains.

Position 6/12/17:

Long Aug $95 call @ $2.30, see portfolio graphic for stop loss.



BEARISH Play Updates (Alpha by Symbol)

FL - Foot Locker - Company Profile

Comments:

No specific news. Shares spiked at the open but put prices still went up 25 cents. The opening spike faded and turned into a loss midday and selling accelerated into the close.

Original Trade Description: May 15th.

Foot Locker, Inc., through its subsidiaries, 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, Kids Foot Locker, Lady Foot Locker, Champs Sports, Footaction, Runners Point, Sidestep, and SIX:02. As of January 28, 2017, it operated approximately 3,363 mall-based stores, as well as stores in urban retail areas and high streets in the United States, Canada, Europe, Australia, and New Zealand. The Direct-to-Customers segment sell athletic footwear, apparel, equipment, team licensed products, and private-label merchandise through Internet and mobile sites, and catalogs. This segment operates sites for eastbay.com, final-score.com, eastbayteamsales.com, and sp24.com, as well as footlocker.com, ladyfootlocker.com, six02.com, kidsfootlocker.com, champssports.com, footaction.com, footlocker.ca, footlocker.eu, runnerspoint.com, and sidestep-shoes.com. The company has agreements with third parties for the operation of 54 Foot Locker franchised stores in the Middle East and 5 franchised stores in the Republic of Korea; and operates 15 stores under the Runners Point banner in Germany. Foot Locker, Inc. was founded in 1879 and is headquartered in New York, New York. Company description from FinViz.com.

Foot Locker reported earnings of $1.36 that missed estimates for $1.38 and lower than the $1.39 reported in the year ago quarter. Revenue of $2.0 billion missed estimates for $2.02 billion.

The company blamed a delay in tax refunds for slow sales. Some refunds for poverty level consumers cannot be issued until after February 15th. I guess if you are on welfare and food stamps you need an "earned-income tax credit" refund to buy an expensive pair of Michael Jordan or Steph Curry shoes.

However, the CEO said the slow start in February was NOT offset by stronger sales in March and April. Doesn't that throw cold water on the tax refund excuse? Add in the rapid decline of the malls and their 3,363 mall based stores and the outlook is not good.

Same store sales rose only 0.5% and analysts were expecting 1.4%. Shares crashed 15% on the news and have not slowed the decline since then.

Estimated earnings date August 18th.

I kept thinking they would find a bottom and rebound. However, Tuesday's close was a three year closing low and the decline is accelerating rather than slowing. Finish Line (FINL) reports earnings on Friday and weak earnings there could be another weight on the sector.

This position was recommended on Tuesday but the stock gapped down $3 at the open on news that Nike might be considering selling its products on Amazon. That would be a killer for Foot Locker.

Since the stock gapped lower at the open the position was not entered. The option price more than doubled at the open to more than $2 and then dropped back to $1.45 at the close. I am recommending we enter the position at the open on Thursday now that the hysteria has passed. Long term, I still expect the stock to move lower.

Position 6/22/17:

Long August $45 put @ $1.75, see portfolio graphic for stop loss.




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