Option Investor
Newsletter

Daily Newsletter, Saturday, 6/24/2017

Table of Contents

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

Market Wrap

Perfect Setup

by Jim Brown

Click here to email Jim Brown

The market action last week and specifically the action on Friday set us up perfectly for additional gains next week.

Weekly Statistics

Friday Statistics

The setup is so good is scares me because there must be something I am overlooking or there is a black swan event fixing to bite us in the back. The Russell did not decline as expected on the rebalance and actually gained 10 points. Assuming the historical trend holds for a positive bias the week after the rebalance, the Russell should rise next week. The Dow made a new high on Monday and then retraced to fill the gap at 21,384 and despite a little volatility on Friday, it closed right above 21,390 and support all week. The Nasdaq fought resistance at 6,245 all week and then moved over that level on Friday with a decent gain. The FAANG stocks were all positive and Facebook closed at a new high. This suggests the quarter end window dressing will be focused on those stocks and should lift the Nasdaq higher. Next week is a pre holiday week and is typically bullish.

With all the positive points, the setup is too good to be true but I am sure most of us will be happy if it plays out as expected. The perma bears are going to be doubling down on their shorts on Monday as they do whenever I turn bullish. It is normally a bad omen for the market.


There was only one economic report on Friday but it was big news. The new home sales for May rose from the previously reported 569,000 to 610,000 and well over the Moody's estimate for 588,000. That was a 2.9% increase from April and 8.9% over May 2016. Over the same period, the median home price is up 16.8% to $349,400. April sales were also revised higher to 593,000.

The lack of inventory is leading to more homes being sold before they were completed. The percentage of homes sold where construction had not even started rose from 30.0% to 34.1%. Those sold while under construction declined slightly from 37.3% to 33.4%. Sales of completed homes fell from 44.5% to 32.5%. The inventory to sales ratio was flat at 5.3 months. The annualized rate of completions is roughly 800,000 but that is well below the 1.2 million in the 1995-2000 period.

On Wednesday existing home sales rose from 5.57 million annualized to 5.62 million. This report and the new home sales are positive for the GDP.

We will get the last revision of the Q1 GDP on Thursday and the consensus estimate is for unchanged at 1.2% growth. Moody's is expecting a drop to +0.8% growth.

The Q2 GDP is now projected at 2.9% and that is well below the initial expectations of 4.3% according to the Atlanta Fed real time GDPNow forecast. Since we are almost out of Q2, I would expect that forecast to settle somewhere in the 2.5% range based on the recent economic reports.


However, Citigroup's Economic Surprise Index has fallen to -80 and the lowest level since August 2011. This index tracks the various economic reports based on whether they are rising or falling and missing forecasts. We have been nearly this low in 2012 and 2015 and the world did not end. However, the sharpness of the decline suggests there are problems that need to be considered in an investment context.


On the flip side, the Dollar has recovered somewhat over the last couple weeks, although Friday was a bad day. Analysts believe once the dollar begins to rise it shows faith in the future economy.


Unfortunately, the bond investors are not convinced conditions are going to improve. The yield on the ten-year treasury closed at 2.144% on Friday and a 7-month low. This is helping the mortgage market and taking some of the sting out of rising home prices but it is a cloud over economic expectations. Bond investors typically get the economic direction right the majority of the time and they are expecting it to worsen.

I believe the bond buying has a lot more to do with the escalating events in Syria with Russia targeting coalition aircraft, North Korea and their nuclear ambitions and the potential for President Trump to do something rash and the rising tide of terror attacks internationally. Just my two cents.


The market does not seem to care about any of those problems with the Volatility Index holding at 24-year lows. Historically the VIX trades over 20 several times a year. The index has not been anywhere near 20 since the week before the election when traders were going crazy trying to forecast the outcome. The index closed at 9.75 on June 2nd. That is the lowest level since the 9.31 close on December 22nd, 1993. When you consider all the political, economic and geopolitical events over the last few weeks, to have the volatility this low is amazing.


There is nothing on the economic calendar for next week that is expected to increase that volatility. The Richmond Fed Manufacturing Survey, The Chicago Fed Activity Index and the Chicago PMI are the three most important reports. Since this is the last revision for the GDP, it will be ignored unless there is a major miss of expectations.

The economic calendar should not provide any roadblocks to successful end of quarter window dressing gains.


The earnings calendar is just as anemic for market moving events. Nike is a Dow component and their earnings after the bell on Thursday are not likely to move the market because they are only a $54 stock. It would take a 10% move in the stock to move the Dow 30 points.

We are only about three weeks away from the start of the Q2 earnings cycle and that is going to be important for market direction the rest of the year.


Late Friday, Reuters reported that Walmart (WMT) was not considering making a bid for Whole Foods Market (WFM). There had been speculation that Walmart would make a higher bid to keep Amazon out of the grocery business a little longer. Whole Foods customers are not Walmart customers and the high WFM grocery prices are not a threat for Walmart. Amazon has said they plan to lower prices because of their stronger buying power but it remains to be seen if they can do that with the niche vendors that supply Whole Foods.

Amazon is paying $42 a share for Whole Foods and the stock had run up to $43.84 in expectations for a bidding war or at least a competing offer. After the news broke, the shares declined to $42.95 and will probably bleed further next week. Kroger (KR) has also been a rumored bidder but they cannot afford Whole Foods. Kroger's market cap is $21 billion and to outbid Amazon, even if that was possible, would take a bid of $15 billion or more. I did an analysis of this back last fall when rumors were floating about Whole Foods and Kroger simply has too much debt and not enough credit. They may want to buy Whole Foods but it would be a very aggressive move in a market where gross margins are already paper thin. Kroger's market cap took a 30% haircut last week on earnings and the Amazon announcement.

Kroger has bigger problems with Aldi and Lidl moving into the USA. Lidl has more than 10,000 stores in Europe and expects to have several thousand in the U.S. in the coming years. Aldi also has more than 10,000 stores in 18 countries including 2,018 in the U.S. and those are expected to rise to 2,200 by the end of 2017. Both are major discounters and will cause serious pain to Kroger and Walmart. Aldi and Lidl are much bigger threats to their grocery business than Amazon and Whole Foods.

Unless a private equity firm steps up to start a bidding war with Amazon, the Whole Foods acquisition is likely to occur. There is the very remote chance Aldi or Lidl could make a bid but they focus on the discount shopper not the high dollar, organic shopper so the store model is not really a fit.



Some of the stocks being demoted from the Russell 1000 to the Russell 2000 include JCP, DDS, GRPN, YELP, FIT, DO, NE and ESV. Sometimes the demoted companies see shares rally after the rebalance. With the dividing line between the Russell 1000 and 2000 a market cap of about $2.0 billion, the demoted stocks suddenly become big fish in a pond of small fish. More fund managers are tracking the Russell 2000 than the 1000 and that means they will have to buy a larger number of shares of the new entrants because of their top end market cap. Of that group above GRPN, YELP and ESV have the largest market cap at $2 billion. The rest have already been crushed down to $1 billion. That makes those three stocks the most likely to see extended buying next week.

The end of quarter window dressing means portfolio managers will be adding the FAANG stocks as well as outstanding Dow performers like Boeing, McDonalds, 3M, etc. I was flipping through the charts of the Dow components and saw that Home Depot, at a new high just four days ago, was getting crushed on no news. This is somewhat confusing since existing home sales are up so strongly. The CEO was on CNBC last week and he said strong home sales and rising home prices were a boon for Home Depot. People are either improving their homes so they can sell them or remodeling because it is too expensive to move. Either way it benefits HD. Shares imploded on Friday with a $4 drop and there was no news. They hit a new high with the Dow on Monday at $159 and closed Friday at $151. Ideally, you would want to buy a rebound from $146 but at this level, they are already interesting.


Boeing (BA) should be a favorite of the window dressing crowd. We exited a nice position in Boeing on Wednesday because we were up strongly and the Paris Air Show was coming to an end. Shares typically decline after the show but apparently investors did not get the memo on the prior history and shares rocketed off to another $2.79 gain on Friday. That is going to attract window dressers like flies to a picnic.


We also exited a position on Dow component McDonalds (MCD) the prior week because we were highly profitable and the stock was due for a pullback. That dip with the market was very temporary and the stock is making new highs again. This should also be a window dressing favorite.


While we know portfolio managers are going to make sure they have some of those stocks in their portfolio by next Friday, we also know that gains like those will not continue forever. This is the fuel for a summer correction. Any fund manager that has had those stocks in their portfolio since January or earlier, has an obscene amount of profit at risk. They cannot afford to just let it ride because the next flash crash could eliminate it very quickly.

While I am positive on the market for next week, I would be cautious on the market once we are into the new quarter. The Q2 earnings cycle is likely to keep investors involved for several more weeks but August and September are the worst two months of the year. With the market at new highs, it will take very strong earnings to keep it moving forward. Expectations are very high.

Sears (SHLD) announced with a SEC filing they are closing another 18 Sears stores and 2 Kmart stores. The leases are held by Seritage (SRG), a REIT spun off by Sears a couple years ago. Sears can terminate the leases with the payment of one year's rent. In theory, that gives Seritage time to remodel and remarket the stores using the termination payment. Sears has previously announced the closing of 62 Sears stores and 164 Kmart stores this year. This brings the total to 246 locations announced in 2017. Since there have only been about 180 days in 2017 that equates to about 1.4 store closings a day. In Q1, revenue declined from $5.4 billion to $4.3 billion and they are on track to burn about $1.5 billion in cash for 2017.



Bed, Bath and Beyond (BBBY) reported earnings of 58 cents that missed estimates for 66 cents. They reported 80 cents in the year ago quarter. Revenue of $2.74 billion missed estimates for $2.79 billion. The company said they had to resort to active promotions, discounts and higher advertising costs to offset the sharp decline in customer traffic. To put their dilemma into one word, they were "Amazoned." Shares fell -12%.


Blackberry (BBRY) reported earnings of 2 cents and analysts were expecting a breakeven. Revenue of $244 million missed estimates for $264 million. Organic revenue growth in software sales rose 12% but that was slightly lower than expected. Their guidance for the year is for 10% to 15% revenue growth. CEO Chen said a lot of their products are new and are just now gaining traction. Also, most of their products are long-term sales and managing those on a quarter-to-quarter basis is a tough job. For instance, if they sell an automaker on using the QNX operating system in one of their models, it could take 12-24 months before those models begin hitting the streets but eventually there could be several hundred thousand on the road. Multiply that by the dozens of models already running the software and dozens expected to use it and they are on the right path to profitability.


Caterpillar (CAT) was downgraded from buy to hold by Deutsche Bank saying there is no way to tell if there will ever be an infrastructure plan enacted by President Trump. "Without an infrastructure stimulus we see little prospects for continued North American non residential construction growth." CAT shares declined at the open but rebounded to close fractionally positive.


We actually saw some gains in the energy sector on Friday. Oil prices were only marginally higher but energy stocks were catching a bid. This could have been sector rotation, short covering or a bet that oil prices have bottomed. I would not take that bet. I hope I am wrong but I think it is going to take a price in the high $30s to get OPEC's attention again.

There was a headline on Thursday about the potential for deeper cuts by OPEC and almost immediately three OPEC ministers said absolutely not and the existing cuts were not likely to be extended. I am surprised oil prices did not hit $40 instantly.

Personally, I believe they are going to shift into a shale starvation posture. They were unsuccessful in raising prices with their cuts and the U.S. shale production continues to shoot higher. Under $45, many shale drillers are not profitable. Around $40 they can no longer hedge their production by selling into the futures market and that means they will quickly run out of cash if they do not halt drilling. There are a few companies that can make money at $40 and those include PXD, EOG and PE to name a few. Others are going to dry up and blow away if oil stays in the $40 range. We have already seen the sudden flurry of headlines about the potential for loan defaults later this year if prices remain this low.

OPEC ministers may be changing to the long game and hoping a lot of shale drillers give up. Most OPEC countries have costs under $40 but it is still painful. Russia could be hurt the worst and that cash shortfall would curtail their ability to wage proxy wars in Syria and elsewhere. It would also hurt Iran and that would be fine with the rest of the OPEC producers.

We could be moving into a new chapter in the OPEC price war. It will be interesting to see how it plays out. Meanwhile U.S. drivers are benefitting from the lowest gasoline prices in years for the July 4th holiday. Gasoline prices in the Denver area this weekend are $2.15 at the discount stations and $2.24 on average with the cheapest at $2.06 according to GasBuddy.com. According to AAA this holiday will be the cheapest gasoline in 12 years.


Producers activated another 11 oil rigs last week and that was a record 23 consecutive weeks of gains. Gas rigs declined by 3. It should not take but 2-3 weeks for the low oil prices to begin impacting the rig activations. Once we see a negative week, it could provide a boost to oil prices.



 

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Markets

The Dow and S&P made only minor gains for the week despite the big short squeeze rally on Monday to new highs. The broader indexes pulled back daily to retrace almost all their gains by Friday's close. The Dow was up 144 points on Monday but gained only 10 points for the week. The S&P managed to add only 5 points for the week. The Nasdaq was the star performer with a 113 point gain.

The biotech sector helped to keep the S&P in the green and powered the Nasdaq back over resistance. The Biotech Index ($BTK) gained 325 points for the week. The index broke over 4,000 for the first time since September 2015.


The Nasdaq broke through the resistance at 6,245 and could be targeting the early June high close of 6,305.80. If the portfolio managers window dress with the FAANG stocks I would be surprised if we did not test that level.




The S&P spiked to close at 2,453.46 on Monday and a new high just barely over the round number resistance at 2,450. The retreat on Tuesday was sharp with a drop back to 2,436 on Wednesday it filled the gap from Monday at 2,422 and then held at 2,435 the rest of the week. Resistance remains 2,440 and was tested the last three days. Short-term support has appeared at 2,430 with longer-term support still at 2,420.

The 2,450 level could be a challenge to cross without a catalyst. That is the year-end S&P target for a number of analysts so it becomes a natural selling point. However, should a catalyst appear that causes a surge through that level we could see significant short covering.


The Dow also filled the gap from Monday's short squeeze open and then held at that gap fill level at 21,384 the rest of the week. The index overcame weakness in Goldman Sachs and Home Depot thanks to strength in Boeing, Visa, Microsoft and 3M. Even Chevron and Exxon overcame early week declines to post gains on Friday.

As I wrote earlier, portfolio managers should be buying many of the recent Dow leaders as we go into quarter end. Assuming no unexpected headlines, the Dow could be positive the first three days of the week.



The Russell 2000 surprised with a 10-point gain despite the rebalance. Since there will be some added buying to adjust positions over the next three days, this could mean the Russell will remain positive early in the week. Fund managers put in their buy/sell orders to rebalance on Friday but depending on fills, ratios and weightings, they may need to add a few shares here and there to complete the rebalance. This is a 2,000 stock index so there is a lot of fine-tuning to be accomplished.


I am expecting the first three days of next week to be positive. Where that puts the indexes will determine how the rest of the week plays out. If the S&P is bumping up against 2,450 and the other indexes against their highs, we could see a stall ahead of the holiday. Investors and managers may not want to put extra money to work until after the 4th. Monday the 3rd, the market will be a ghost town so it might as well have been a holiday. For all practical purposes it will be a four-day holiday weekend.


Random Thoughts


Sentiment was flat for the week. With the market spiking to new highs on Monday and then giving it all back by the survey's close on Wednesday everyone was neutral. This is the least change I can remember in a very long time. Just over 67% of investors still do not believe the market is going higher. On a contrarian basis that is good because those unbelievers will be chasing prices if we do move to new highs.



You may have noticed that except for two weeks in February, the markets stagnated in the first quarter. There is a good reason for that. The S&P reported last week that corporate stock repurchases totaled $133.1 billion for Q1. That sounds like a lot of money but it was 1.6% lower than Q4 and 17.5% below the $161.4 billion in Q1-2016. For the 12 months ending on March 31st, buybacks were $508.1 billion, down 13.8% from the $489.4 billion in the prior 12-month period. However, that period that ended on March 21st, 2016 was an all time record high.

Companies buy back shares to return money to shareholders in a onetime event rather than committing to a continuing dividend program. They also buy back shares to increase earnings per share. IBM has been the poster child for this for more than a decade. With earnings struggling, they would buy back shares to increase the earnings per share. It was a perfect example of financial engineering.

255 S&P-500 companies reduced their outstanding shares in Q1, down from 284 companies in Q1-2016. The top 20 stocks accounted for 42.1% of all share repurchases.

Another reason for slowing buybacks is high stock prices. With the market at its highs, companies do not want to buy their own shares. They would rather wait for a dip to get more bang for their buck.

Click here for more details.


The Supreme Court has only one week left before their summer recess. They are expected to rule on the administrations travel ban but the news everyone is expecting would be a retirement announcement by Justice Kennedy. He turns 81 next month and while nothing has been said, there have been clues that he could announce this week that he is retiring. He has been a justice for nearly 30 years. This could start another firestorm of headlines in Washington and further divide the parties in the Senate.


 

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

 

"Experience is the hardest kind of teacher, it gives you the test first and the lesson afterward."

Oscar Wilde


 


Index Wrap

Technical Conflict

by Jim Brown

Click here to email Jim Brown
What do you do when the charts and indicators do not agree with your outlook?

The answer is to take another look and make sure your time frame and that of your charts is consistent. For instance, I am expecting the markets to rise for the next three days. The normal technical indicators do not function on a day to day basis. Most indicators are oscillators and that means they swing from one side to the other based on a set of averages. Just the term averages should give you a clue where I am going. One day does not make an average. Most indicator averages are in the 9-12 day range. That means it takes 2-3 days for a shift in direction to show a clearly defined change in the indicators.

The Nasdaq pushed through resistance at 6,240 on Friday. There is a clearly defined series of higher lows since the double bottom dip on the 12th and 15th. The bottoms of 6,110 and 6,107 had a difference of only 3 points. In chart terms on a 6,100 index, they were identical and as close to perfect as you can get.

However, it is now six days later and the RSI is just starting to tick higher and the MACD is still about two days away from a bullish cross.

This is when we need to go with the signal flow on the indicators rather than the hard crosses. Both indicators are clearly improving.

Personally, I think the chart is all the indication you need to see the potential for a continued move higher. I like this chart. We had a decent pullback, decent consolidation and now a decent move higher. Other than the mini flash crash on the first day, all the moves have been moderate. Those moderate moves allowed investors to exit calmly and reenter new positions. Now we have a nice trend in progress that should retest the highs. Once we get there, all bets are off because the timing could coincide with a good opportunity for a double top.

After July 4th, there could be some levitation on earnings expectations but the summer curse will appear along with earnings as we head into the two worst month of the year with August and September. That means traders are going to start looking for a top right after the holiday week.


The S&P chart is far less bullish and even slightly bearish. The 2,450 level is a year-end target for many analysts and that means any move over current resistance at 2,440 is likely to be met with selling. The one fact that could help the S&P next week is the end of quarter window dressing. All the winners over the last month will be bought by fund managers and that could lift the S&P back to the 2,450 mark. Getting over that level could require a major catalyst and I do not see one on the calendar. The volume is going to fall off a cliff after Wednesday and not return until the following Thursday. Since volume is a weapon of the bulls that means upward momentum after Wednesday could be tough to maintain.

Note that the indicators are in decline on the S&P compared to the Nasdaq.


The Dow has the same negative indicators despite the new high on Monday. The index declined to fill its Monday gap at 21,384 but then failed to rebound from that level the rest of the week. While the Nasdaq is being lifted by the big cap techs and the biotech sector, the Dow has to depend on only a couple different leaders every day. There is no broad sector representation that can continue to exert upward pressure. You would think the three tech stocks including Microsoft, Intel and Apple could impart some Nasdaq momentum but it is not happening when other stocks with a larger price are tanking on alternating days. The Dow is in trouble relatively speaking. The narrow compensation can be a blessing or a curse depending on the day.


There was an interesting divergence over the last two weeks. The semiconductors almost always lead the Nasdaq. However, there was a break in that relationship and the Nasdaq is leading the semis today. This is due to the rebound in the FAANG stocks. The semis are trading flat but the big caps stocks are leading. This will not last long. Once the end of quarter window dressing is over, the semis will establish control again.


Netflix broke out of the crowd over the last two weeks. Shares really collapsed in the mini flash crash but they are now rebounding equally as strong. Facebook closed at a new high on Friday. Fund managers will be buying these stocks early next week and of the four, Netflix should post the most gains as it moves back into parity with the others.


Remember this chart. I have not changed a thing on it in over a year and we have reached the point where the market has a decision to make. The technical high as represented by the breakout should be around 2,458 and the S&P hit 2,453.80 last Monday. While I am not expecting a perfect resistance top, if we did not go higher from here that would be close enough for me, considering it was projected over a year ago. As George Peppard as Hannibal used to say on the A Team, "I love it when a plan comes together!"


I expect the markets to be positive the first three days of the week but falling volume and long holiday weekend event risk could weigh on them starting on Thursday. If you can avoid trading after Wednesday, you will probably enjoy the holiday weekend a lot better.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email


New Option Plays

Hit the Road Jack

by Jim Brown

Click here to email Jim Brown

Editors Note:

Low gasoline prices are a good reason why business is so good. Years ago, you could not give away a RV because gasoline prices were so high. Today is the exact opposite.



NEW DIRECTIONAL CALL PLAYS

THO - Thor Industries - Company Profile

Thor Industries, Inc., through its subsidiaries, designs, manufactures, and sells recreational vehicles, and related parts and accessories primarily in the United States and Canada. It operates through Towable Recreational Vehicles and Motorized Recreational Vehicles segments. The company offers travel trailers under the Airstream International, Classic Limited, Sport, Flying Cloud, Land Yacht, and Eddie Bauer trade names, as well as Interstate and Autobahn Class B motorhomes; gasoline and diesel Class A and Class C motorhomes under the Four Winds, Hurricane, Chateau, Challenger, Tuscany, Axis, Vegas, Palazzo, Synergy, Quantum, Compass, Gemini, A.C.E, Alante, Precept, Greyhawk, and Redhawk trade names; and fifth wheels under the Redwood and DRV Mobile Suites trade names. It also provides conventional travel trailers and fifth wheels under the Montana, Springdale, Hideout, Sprinter, Outback, Laredo, Alpine, Bullet, Fuzion, Raptor, Passport, Cougar, Coleman, Kodiak, Aspen Trail, Voltage, Cameo, Cruiser, ReZerve, Sunset Trail, Zinger, Landmark, Bighorn, Sundance, Elkridge, Trail Runner, North Trail, Cyclone, Torque, Prowler, Wilderness, Shadow Cruiser, Fun Finder, Stryker, Sportsmen, Spree, Venom, Durango, SportTrek, Connect, Sportster, Sonic, Jay Flight, Jay Feather, Eagle, Pinnacle, Seismic, AR-One, Launch, Autumn Ridge, Travel Star, Highlander, Roamer, and Open Range trade names. In addition, the company offers equestrian recreational vehicle products with living quarters under the Premiere, Silverado, Ranger, Laredo, Trail Boss, and Trail Hand trade names; lightweight travel trailers and specialty products under the Camplite and Quicksilver trade names; and Class A motorhomes under the Insignia, Aspire, Anthem, and Cornerstone trade names, as well as provides aluminum extrusions and specialized component products. Company description from FinViz.com

In a weak economy, Thor is kicking butt. The company reported earnings of $2.11 which rose 41.6% compared to estimates for $1.87. Revenue of $2.02 billion rose 57% beat estimates for $1.96 billion. Operating cash flow rose 26.2% and gross profits rose 45.5%.

Sales of towable travel trailers rose 52.6% and sales of motorized RVs rose 78.7%. There was no bad news in the Thor report.

Estimated earnings date September 4th.

With the company posting record earnings the stock spiked from $94 to $104 on June 6th. When the market dipped, shares only pulled back to $102. Over the last week they have returned to $108 and Friday's close was a four-month high.

Winnebago (WGO) reported earnings last week of 94 cents and analysts expected 66 cents. These blowout numbers by both companies prove how strong the sector really is. We can thank low oil prices for part of the surge in RV sales.

I believe we will see Thor continue to stretch its gains and head back to the highs at $115. I am using a September spread because of the high option premiums and September earnings date. We will exit well before then but that date will keep the premiums inflated.

Buy Sept $110 call, currently $4.50, initial stop loss $101.35.
Sell short Sept $120 call, currently $1.30, initial stop loss $101.35.
Net debit $3.20.


NEW DIRECTIONAL PUT PLAYS

No New Bearish Plays



In Play Updates and Reviews

Headed for Quarter End

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Nasdaq and the big cap tech stocks posted decent gains ahead of end of quarter window dressing. The big cap techs posted some outstanding gains and moved over prior resistance left over from the mini flash crash. Facebook closed at a new high. Next week we should see additional gains as end of quarter window dressing sees managers move into the recent winners.

The Russell 2000 went against historical trends and posted a decent gain despite the rebalance pressures. Volume of 10.5 billion was well under expectations suggesting funds were better prepared and the need to adjust positions was less pronounced than in prior years. Hopefully the positive trend for the week after a rebalance will continue and we will not see a reversal there as well.



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


V - Visa
The long call position was closed at the open.

IWM - Russell 2000 ETF
The long call position was entered at the close.



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 gain 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:

No specific news and shares declines after hitting a new high on Thursday.

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:

BABA shares recovered from their Thursday decline after Chinese regulators shut down streaming on Weibo. It had no impact on Alibaba but all Chinese stocks wilted. BABA shares are trading at their recent highs.

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.


FB - Facebook - Company Profile

Comments:

Facebook closed at a new high at $155.09 with a $1.67 gain. The company is more than likely going to report more than 2.0 billion monthly active users when it reports earnings on August 2nd. (unconfirmed) They had 1.94 billion at the end of the March quarter and added 800,000. If they duplicated that feat they would be over 2.0 billion. However, the bigger you are the harder it is to grow because the early adopters have already adopted. Now they have to convert the slow converts like older people and business people.

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.


IWM - Russell 2000 ETF - ETF Profile

Comments:

The best way to kill a trend is to bet on it. Typically, the Russell declines into the rebalance on the Friday close. On Friday, the Russell was the strongest index. I have no obvious reason why. Biotechs were just slightly positive and financials were slightly negative. Both are reasons why the Russell should not have been a strong performer. Fortunately, the gain in the option was minimal so we really did not lose much by entering at the close. The positive move on Friday suggests next week could be stronger than expected.

Original Trade Description: June 22nd.

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.

Position 6/23/17:

Long July $141 call @ $1.60, see portfolio graphic for stop loss.


JCOM - J2 Global Inc - Company Profile

Comments:

No specific news. Nice gain to a new six-week high and very close to a historic high.

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. Excellent break over resistance at $155. Next target is the high at $165.88.

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 close at $54.39.

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.


SHOP - Shopify - Company Profile

Comments:

No specific news. Nice breakout over 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. I recommended we close the position so of course it would rally immediately afterwards.

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:

Closed 6/23/17: Long Aug $95 call @ $2.30, exit $2.25, -.05 loss



BEARISH Play Updates (Alpha by Symbol)

FL - Foot Locker - Company Profile

Comments:

No specific news. Finish Line reported results and missed on revenue. Shares of FL spiked again at the open but gave 75 cents into the close. Apparently, there are people trying to buy the dip but the opening spike the last two days was immediately sold. I am going to give it a couple more days to see if a trend develops.

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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