Option Investor
Newsletter

Daily Newsletter, Monday, 7/10/2017

Table of Contents

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

Market Wrap

Eagerly Awaiting Earnings

by Thomas Hughes

Click here to email Thomas Hughes

Introduction

A quiet market held steady ahead of earnings season, the season kicks off this Friday with releases from Citigroup, Wells Fargo and JP Morgan. Expectation for the season remains high, based on the first 5% f the S&P 500 to report those expectations will likely be met. Today's action was very light, volume for the SPY was less than half the 30 day average, and may remain so until later in the week when economic and earnings releases hit the market.

Asian indices were mostly higher following the Friday jobs reports. Better than expected jobs and steady wage growth reinforced economic and FOMC expectations bolstering market sentiment. The Shang Hai composite stands out as a lone loser, shedding about -0.20% for the day. European indices also closed largely higher following a choppy session. Indices across the region gained in the range of 0.25% to 0.75% following last week's labor data and G-20 headlines coming out over the weekend. While little of substance was accomplished it seems like tensions between world leaders is easing.

Market Statistics

Futures trading was flat and mixed for most of the morning. The tech sector led with gains while the broad market held steady near break-even and the industrials lagged with small losses. There was no data or earnings to move early trading so these levels held fairly steady all morning. The open was calm and without event, the indices began trading as expected but quickly began to show signs of support. By 10AM it was clear that bias was to the upside however weak the market, intraday bottom was established and the market drifted higher from there. The SPX topped out at 2PM with gains in the range of +6 points and then made a brief retreat to test support. By 3:30 support was established and another run higher was made. New daily highs were made just before the close but they did not hold, selling just before the bell sent most back to break-even before the close.

Economic Calendar

The Economy

No economic data today but there is a bit later this week. Tomorrow is fairly light as well, wholesale inventories and JOLTs, with Wednesday bringing the Fed's Beige Book. Thursday picks up with PPI alongside the weekly jobless claims, Friday wraps the week with 6 major releases including CPI and retail sales.

Moody's Survey of Business Confidence rose 0.4 to hit 33.2%. The index has stabilized after falling from a peak mid-June. Even so confidence remains high relative to historic levels. Mr. Zandi's commentary is a bit less euphoric than it was a few weeks ago but still positive. He says global business sentiment is upbeat led by the US and lagged by South America. Asian sentiment is improving while Europe remains tepid.


Earnings season begins in earnest this Friday with reports from 3 of the worlds largest financial institutions. That being said the season is underway with a little more than 5% of the S&P 500 reporting. Of those 78% have beaten EPS estimates and 87% have beaten revenue estimates, both well above average. The blended rate of earnings growth for the quarter is now 6.5%, down a tenth from the beginning of the month, with a chance of rising 4% or more before the end of the cycle if the 4 year trends hold true.


Looking forward earnings growth expectations have held fairly steady over the past few weeks. Growth is expected to remain in the picture for the next 6 quarters or more with that growth expanding on a quarter to quarter basis. Third quarter growth is estimated at 7.3% and grows to 12.4% in the fourth quarter for a full year 2017 growth rate of 9.8%. Full year 2018 estimate is 11.6%.


The Dollar Index

The Dollar Index held steady in today's session, closing with a gain less than 0.05% and creating a small doji candle. The index is consolidating at a support target, $96, and was able to close above it today. The slide in value driven by diminished FOMC hawkishness and increasing ECB hawkishness has halted in the near term and supported by last week's NFP. The index is set to retrace back to the short term moving average near the $97 level. Data later in the week, particularly the CPI and PPI, could move the index higher provided they support economic outlook. If the index falls through $96 first target for support is $95.50, a bounce higher may find resistance at $97.


The Gold Index

Gold prices held steady today as well, steady near the 4 month low. Prices are sitting just above the $1,200 support level and poised to test that level again as political risk and flight-to-safety traders leave the market. A break below $1,200 would be bearish with downside target near $1,175. A bounce would be bullish in the near term but without a major dollar weakening event likely to be capped by resistance. Targets for resistance are $1,215, $1,235 and $1,250.

The Gold Miners ETF GDX rose from support at the bottom of the short-term trading range but was capped at the $21.75 resistance line. The ETF is trapped in a range with little sign of breaking out although that may change should gold prices continue to fall. The ETF is bouncing from a strong support level with indicators consistent with range bound trading and a move to support. Stochastic is divergent from the near-term low and trending in the middle portion of the range with %K pointing higher. MACD is divergent from the low over the short-term, hovering near the zero-line and rolling over from a bearish peak. A move higher would be bullish but only in the near-term. Resistance is just above today's close at $21.75 and then just above that at the short-term and long-term moving averages and then the top of the down sloping resistance line. Support is $21, a break below that would be bearish with downside target near $20 in the near-term.


The Oil Index

Oil prices firmed today but remain under pressure. Today saw WTI gain a half percent but still trading below $44.50. Today's rise was aided by the possibility OPEC will widen the production cap to include Nigeria and Libya, two countries currently excluded, but supply issues will persist regardless. On the domestic front rig counts rose again, adding supply to what is already robust production and high storage levels. Without a change to fundamentals, a real change, I see no reason for oil to sustain a rise in prices and lots of reason for further decline. Resistance is at $45 for now with a downside target is the recent low near $42.

The Oil Index gained about 0.20% today, moving up from Friday's test of support. Near term support is now just above 1,080 and the next possibility for my long awaited bottom. Price action over the last month is consistent with support, a bottom is not yet indicated or confirmed. The indicators persist in giving mixed signals which suggests the down trend is not as strong as it may look. MACD for one has been weak since February, ever since prices reentered the 2016 trading range between 1,080 and 1,200. In that time stochastic never truly entered bear market territory, trending in the middle portion of the range consistent with a trading range. Forward outlook for earnings growth remains positive for the sector, perhaps the earnings reports will confirm that and spark a rally. Until then the sector is likely to remain under pressure with gains capped at resistance. Upside target is near 1,120 and the short-term moving average.


In The News, Story Stocks and Earnings

Amazon was today's major headline due to the Prime Day crypto-holiday which begins tonight at 9PM. The Internet behemoth is expected to bring in up to a billion, $1,000,000,000, dollars in one day due to expanded and deeper discounts. Shares of the stock soared in today's action gaining nearly 18% on expectations of greatness. I for one am a little scared of Amazon and its penetration into our lives, but that's just my inner conspiracy theorist speaking out.


The banking sector held steady and looks poised to move higher on earnings releases. Today's action saw the XLF Financial SPDR close with a loss of -0.11% after trading sideways for the 7th day. The ETF appears to be waving a bullish flag just below the ten year high with eyes on moving higher. Resistance is just above $25 and based on the indicators will be tested or broken. MACD momentum is bullish but has retreat a bit from the most recent peak, stochastic is pointing higher but also showing signs of resistance. A break of resistance supported by earnings will be very bullish for this ETF with upside targets near $26 and $27.


TheVIX has retreat from last week's peak but has not quite decided it's ready to fall back below the 11 level. The fear index is poised to go either way, depending on earnings results most likely, with little indication of direction from the indicators. Both MACD and stochastic are technically bullish but both are also very weak and inconsistent with strong movement. The index may trend sideways over the course of the week with Friday a target for real movement, direction dependent on the banks and their earnings reports.


The Indices

Today's action was weak to say the least. The good news is that it was above support levels with no signs of deeper correction forming at this time. Tech led again, the NASDAQ Composite posting a gain of 0.37% and creating a small green bodied candle. Price action opened above the short term moving average, tested it and moved higher confirming support at that level. The indicators remain bearish but both are consistent with a test of support within an uptrend and rolling into bullishness. Support is along the long-term up trend line near 6,125. A move higher would be bullish and trend following with target at the all-time high. A move lower would find support along the up trend line, a break below that would be bearish.


The other indices all posted losses although they were minimal. The Dow Jones Industrial Average posted the smallest loss, -0.02%, but still created a green candle. Today's action is above the short-term moving average with little sign of breaking through support. The index is trapped within a near-term trading range a likely to remain so, at least until Friday. The indicators are weakly bearish, consistent with a pull back to support within an up trend, and showing early signs of rolling over. A move higher from this level would be bullish and trend following with upside target at the top of the near-term range and the all-time high. Support is at the bottom of the range near 21,250 and the short-term moving average, a break below that would be bearish.


The S&P 500 posted the 2nd largest decline, -0.09%. The broad market created a small bodied green candle and spinning top just above the short-term moving average. There is a bit of visible upper wick indicative of some resistance but price action as a whole is pretty weak. The indicators are also weak but generally consistent with a move to support within an up trend. Support is near 2,410. A move higher would be bullish and trend following with upside target at the bottom of the up trend line and the current all-time high. A break of support would be bearish and could lead to correction of -2% to -5%.


The Dow Jones Transportation Average brings up the rear with a loss of -0.21%. The transports created a small shooting star doji setting a new all-time intraday high and indicative of resistance to new all-time highs. The indicators are bullish and gaining strength however so I would expect to see resistance tested again and possibly broken. A failure to break resistance would be bearish in the near to short-term with downside target near 9,400.


The indices have retreat to what appears to be strong support levels ahead of earnings season. Price action over the past month or so has been choppy and directionless but did not do damage to long or short-term trends. This action was largely due to sector rotation, aided by politics the FOMC and other news, and has left the market ready and waiting for what comes next. Based on the charts it looks like the expectation is for the market to move higher, based on the VIX it looks like traders are protected in case it doesn't. I remain cautious for the near-term simply because the earnings cycle has yet to begin but I am bullish and ready to trade.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Global Competition Growing

by Jim Brown

Click here to email Jim Brown

Editors Note:

Being in business since 1889 does not protect you from increased competition. Being that old makes McCormick a household name but an increasing number of private labels are stealing market share.



NEW DIRECTIONAL CALL PLAYS

No New Bullish Plays


NEW DIRECTIONAL PUT PLAYS

MKC - McCormick & Company - Company Profile

McCormick & Company, Incorporated manufactures, markets, and distributes spices, seasoning mixes, condiments, and other flavorful products to the food industry. The company operates through two segments, Consumer and Industrial. The Consumer segment offers spices, herbs, and seasonings, as well as desserts. This segment markets its products under the McCormick, Lawry's, Club House, Gourmet Garden, OLD BAY brands in the Americas; Ducros, Schwartz, Kamis, and Drogheria & Alimentari, and Vahine brand names in Europe, the Middle East, and Africa; McCormick and DaQiao brands in China; and McCormick, Aeroplane, and Gourmet Garden brand names in Australia, as well as markets regional and ethnic brands, such as Zatarain's, Stubb's, Thai Kitchen, and Simply Asia. It also supplies its products under the private labels. This segment serves retailers comprising grocery, mass merchandise, warehouse clubs, discount and drug stores, and e-commerce retailers directly and indirectly through distributors or wholesalers. The Industrial segment offers seasoning blends, spices and herbs, condiments, coating systems, and compound flavors to multinational food manufacturers and foodservice customers. It serves foodservice customers directly and indirectly through distributors. McCormick & Company, Incorporated was founded in 1889 and is based in Sparks, Maryland. Company description from FinViz.com.

McCormick reported earnings of 82 cents that beat estimates for 76 cents. Revenue of $1.11 billion rose 4.8% mostly due to acquisitions in 2016. Analysts were expecting $1.1 billion. They reaffirmed their full year guidance for earnings of $3.94 to $4.02 but they did lower estimates for some of the other projections.

Expected earnings September 28th.

Analysts asked them repeatedly on the conference call why they did not lower earnings guidance when everything else was declining. The CEO said it was "too early" to make that call and they would review it at the end of this quarter. For analysts that was an admission that guidance would probably be lowered at a later date. Shares declined sharply.

Shares rebounded almost immediately but are now poised to move lower after closing at a 4-month low on Monday.

Buy Sept $90 put, currently $1.15, initial stop loss $98.50.



In Play Updates and Reviews

Mixed Markets

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Dow rebound failed at downtrend resistance but the loss was minimal. The Nasdaq and S&P posted minimal gains but the Dow slid back into negative territory at the close. The Nasdaq managed to trade over resistance at 6,175 but fell back to that level at the end of the session. The S&P failed at downtrend resistance but managed to gain 2 points.

Monday's market action was very lackluster with low volume and no material movements. Traders are afraid of Yellen's face time on camera on Wed/Thr. This could lead to a negative market on Tuesday.



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


CPB - Campbells Soup
The long put position was entered at the open.

RH - RH Inc
The long call position was stopped out at $60.65.



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

AAPL - Apple Inc - Company Profile

Comments:

An Apple analyst said the iPhone 8 could start at $1,200 and go higher from there. This is definitely going to put a crimp in iPhone 8 sales but Apple should still post higher revenue and profits thanks to the high price. The iPhone 8 is rumored to be available in four colors. There is a continuing rumor that Apple may drop the fingerprint sensor from the model 8 because of space considerations. There are so many features packed into the model 8 that there is no physical room for the sensor in the new screen configuration. Just a rumor but it refuses to go away.

Original Trade Description: June 28th.

Apple Inc. designs, manufactures, and markets mobile communication and media devices, personal computers, and portable digital music players to consumers, small and mid-sized businesses, and education, enterprise, and government customers worldwide. The company also sells related software, services, accessories, networking solutions, and third-party digital content and applications. It offers iPhone, a line of smartphones; iPad, a line of multi-purpose tablets; and Mac, a line of desktop and portable personal computers. The company also provides iLife, a consumer-oriented digital lifestyle software application suite; iWork, an integrated productivity suite that helps users create, present, and publish documents, presentations, and spreadsheets; and other application software, such as Final Cut Pro, Logic Pro X, and FileMaker Pro. In addition, it offers Apple TV that connects to consumers' TV and enables them to access digital content directly for streaming high definition video, playing music and games, and viewing photos; Apple Watch, a personal electronic device; and iPod, a line of portable digital music and media players. Further, the company sells Apple-branded and third-party Mac-compatible, and iOS-compatible accessories, such as headphones, displays, storage devices, Beats products, and other connectivity and computing products and supplies. Additionally, it offers iCloud, a cloud service; AppleCare that offers support options for its customers; and Apple Pay, a mobile payment service. The company sells and delivers digital content and applications through the iTunes Store, App Store, Mac App Store, TV App Store, iBooks Store, and Apple Music. It also sells its products through its retail and online stores, and direct sales force, as well as through third-party cellular network carriers, wholesalers, retailers, and value-added resellers. Company description from FinViz.com.

This play is not going to take a lot of explanation. Shares rallied to $156 in May and then stalled at that level as various rumors continued to circulate over a potential delay in shipping the iPhone 8. Analysts routinely debated the various pros and cons of the Apple outlook. Shares fell to $144 and they have been trading at $145 for the last three weeks. On Tuesday's decline the stop lost $2, which was immediately recovered on Wednesday.

Apple is expected to report earnings on August 1st. The stocks always ramps up into earnings. Since Apple is expected to announce multiple iPhone models in September, a shipment delay on the big iPhone 8 will not be a disaster. We will be out of the position before the August earnings so that will not impact us either way.

The plan is to capture the ramp into the earnings and then exit. Having Apple dormant at $145 for the last three weeks shows there is plenty of support under that level and a rebound could start at any time. Fortunately, because of the dormancy, the options premiums have shrunk.

Apple is a sleeping giant. When it awakes, there could be plenty of price chasing.

Update 7/5/17: Nomura said iPhone 7 demand was weak but it was ok because of the pent up demand for the iPhone 8, expected out in a couple months. The analyst said the model 8 would provide sufficient upside in both volume and price to more than compensate for the current weak sales in the model 7.

Update 7/6/17: Qualcomm is seeking to ban imports of some iPhones in their long running patent dispute with Apple. The news was announced after the bell and shares of Apple declined about 10 cents. This will not impact any current phones or the iPhone 8 because the case will not even begin to be heard until spring of 2018 or later. The two companies will eventually settle out of court. This is just legal sparring.

Update 7/7/17: Canaccord Genuity said it was seeing "steady" iPhone 7 sales ahead of the company's earnings on August 1st. The analyst said the pace of sales is consistent with prior estimates for 42 million in Q2 and 47 million in Q3. They have a $180 price target. A Raymond James analyst said their survey found strong consumer interest in the watch, and Apple speakers including the Beats wireless speakers and the upcoming HomePod smart speaker. The survey found that 14% of iPhone owners plan to buy the HomePod when it goes on sale in December. They also found that 12% of consumers plan to buy the Apple Watch, the highest level since the watch was announced.

Position 6/29/17:

Long August $150 call @ $3.00, see portfolio graphic for stop loss.


BABA - Alibaba - Company Profile

Comments:

RBC analyst Mark Mahaney raised his price target on BABA from $140 to $160 and reiterated an outperform rating saying fundamental trends remain impressive. Alibaba said recently it is targeting $1 trillion in gross merchandise volume in 2020. Alibaba's Singles Day promotion is 40 times larger in sales than Amazon's Prime Day, which starts tonight.

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.

Update 6/27/17: JP Morgan initiated coverage with an overweight rating and $190 price target. Barclays said it valued Alibaba in a sum of the parts method at $200 but their price target for the parent is $175 with an overweight rating.

Update 6/29/17: Mott Capital said Alibaba could be worth $210 on a fundamental basis. A "source" in China said Alibaba will launch a device similar to Amazon's Echo but Chinese speaking, next week. That should give the stock a decent pop.

Update 7/5/17: Alibaba announced the Alexa clone called Genie X1, which will be available to the first 1,000 people for a one-month trial. The cost will be $73 during this live test and it only speaks mandarin.

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.


PYPL - PayPal - Company Profile

Comments:

Bernstein upgraded PayPal to outperform with a price target of $61. The analyst said we should watch for an acquisition announcement.

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.

Update 7/5/17: Payment processor, Vantiv, offered $10 billion to buy London based Worldpay. That immediately boosted Paypal and Square on thoughts there may be other combinations in the future. Paypal has a market cap of $66 billion and Square $5 billion so Paypal is not likely a potential target but they could benefit from acquiring a smaller player.

Position 6/22/17:

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


RH - RH Inc - Company Profile

Comments:

No specific news. Profit taking finally caught up with RH and two consecutive days of declines to stop us out for a minor loss. There was zero news.

Original Trade Description: June 26th.

RH, together with its subsidiaries, operates as a retailer in the home furnishings market. The company offers products in various categories, including furniture, lighting, textiles, bathware, decor, outdoor and garden, tableware, and child and teen furnishings. It provides its products through its retail galleries and Source Books, as well as online through rh.com, rhmodern.com, restorationhardware.com, rhbabyandchild.com, rhteen.com, and waterworks.com Websites. As of January 28, 2017, the company operated 85 retail galleries, including 50 legacy galleries, 6 larger format design galleries, 8 next generation design galleries, 1 RH modern gallery, and 5 RH baby and child galleries in the United States and Canada; 15 Waterworks showrooms in the United States and the United Kingdom; and 28 outlet stores. The company was formerly known as Restoration Hardware Holdings, Inc. and changed its name to RH in January 2017. Company description from FinViz.com

RH reported earnings of 5 cents that beat estimates for 4 cents. Revenue of $562.1 million beat estimates for $560.4 million. However, they guided for Q2 earnings of 38-43 cents and analysts were expecting 53-75 cents. That is not a misprint.

The company said it was ditching its prior merchandising model and switching to a membership model in order to make the company Amazon proof and enhance the customer experience. They are moving away from the highly promotional retail experience with constant sales and discounts and moving to a membership model where the focus will be on the customer experience. "Members" will pay $100 a year for the ability to shop in a high quality store where they will find only high quality merchandise.

The Costco CEO once told Jeff Bezos at an event that once people buy a membership they no longer price shop. Bezos went on to create Amazon Prime where customers pay $99 a year for a membership and the rest is history. RH is trying to duplicate that experience.

Shares crashed 26% to $42 on the guidance but the rebound has been amazing. Apparently, investors like the concept and the idea of a "Costco" model but in high quality products.

Earnings August 31st.

Shares closed at a 52-week high on Monday as shorts are being forced to cover. There are a lot of shorts! The surge over the May highs should be a trigger for an entirely new round of short covering.

Options are expensive because of the rapid gain since they changed the retail model. I am using September to retain that earnings expectation premium. We can buy time but we do not have to use it.

Position 6/27/17:

Closed 7/10/17: Long Sep $65 call @ $5.20, exit $4.12, -1.08 loss.
Closed 7/10/17: Short Sep $75 call @ $1.26, exit 1.66, +.24 gain.
Net loss 84 cents.



BEARISH Play Updates (Alpha by Symbol)

CPB - Campbell Soup - Company Profile

Comments:

No specific news. Shares fell to a new 52-week low for a great entry into the position.

Original Trade Description: July 8th.

Campbell Soup Company, together with its subsidiaries, manufactures and markets food and beverage products. It operates through three segments: Americas Simple Meals and Beverages; Global Biscuits and Snacks; and Campbell Fresh. The Americas Simple Meals and Beverages segment engages in the retail and food service of Campbell's condensed and ready-to-serve soups; Swanson broth and stocks; Prego pasta sauces; Pace Mexican sauces; Campbell's gravies, pastas, beans, and dinner sauces; Swanson canned poultry; Plum food and snacks; V8 juices and beverages; and Campbell's tomato juices. The Global Biscuits and Snacks segment provides Pepperidge Farm cookies, crackers, bakery, and frozen products in the United States retail; and Arnott's biscuits in Australia and the Asia Pacific; and Kelsen cookies worldwide, as well as meals and shelf-stable beverages in Australia and the Asia Pacific. The Campbell Fresh segment provides Bolthouse Farms fresh carrots, carrot ingredients, refrigerated beverages, and refrigerated salad dressings; and Garden Fresh Gourmet salsa, hummus, dips, and tortilla chips, as well as refrigerated soups. The company sells its products through retail food chains, mass discounters, mass merchandisers, club stores, convenience stores, drug stores, and dollar stores, as well as other retail, commercial, and non-commercial establishments; and independent contractor distributors. Campbell Soup Company was founded in 1869. Company description from FinViz.com.

Campbell added a fresh foods division but the business is failing. Sales fell -8% in Q2 to $260 million. The company warned that sales would decline for the rest of 2017. The CEO said, "Let's be real, I am not satisfied with our overall sales performance in the quarter. Our performance over the last year in fresh food has been disappointing." Total sales declined to $2.17 billion and missed estimates for $2.22 billion. The company has spent almost $2 billion since 2012 to build the Fresh Division and it is still declining.

The company announced on Friday it was buying Pacific Foods of Oregon, an organic foods distributor, for $700 million. Pacific only produced revenue of $218 million in 2016. This is actually a good move for Campbell but they paid too much for Pacific. Their earlier acquisition for the Fresh Division was Bolthouse, a producer of carrots, juices and salad dressings, for $1.55 billion.

Campbell's is struggling because consumers are buying less packaged foods and more fresh and organic foods. They are buying less packaged food because they are moving to healthier choices. The CEO's admission that sales would decline for the rest of 2017, will likely be followed by another one that sales will decline in 2018. It is a tough retail market and Amazon's acquisition of Whole Foods is going to make it even harder.

Earnings August 18th.

Shares have fallen below support at $52.50 and could continue significantly lower.

Position 7/10/17:

Long Aug $50 put @ 80 cents. see portfolio graphic for stop loss.


NKE - Nike Inc - Company Profile

Comments:

No specific news. Shares posted another decent rebound. I lowered the stop loss to take us out on a continued gain.

Original Trade Description: July 5th.

NIKE, Inc., together with its subsidiaries, designs, develops, markets, and sells athletic footwear, apparel, equipment, and accessories worldwide. It offers products in nine categories, including running, NIKE basketball, the Jordan brand, football, men's training, women's training, action sports, sportswear, and golf. The company also markets products designed for kids, as well as for other athletic and recreational uses, such as cricket, lacrosse, tennis, volleyball, wrestling, walking, and outdoor activities. In addition, it sells sports apparel; and markets apparel with licensed college and professional team and league logos. Further, the company sells a line of performance equipment, including bags, socks, sport balls, eyewear, timepieces, digital devices, bats, gloves, protective equipment, golf clubs, and other equipment under the NIKE brand name for sports activities; various plastic products to other manufacturers; athletic and casual footwear, apparel, and accessories under the Jumpman trademark; action sports and youth lifestyle apparel and accessories under the Hurley trademark; and casual sneakers, apparel, and accessories under the Converse, Chuck Taylor, All Star, One Star, Star Chevron, and Jack Purcell trademarks. Additionally, it licenses agreements that permit unaffiliated parties to manufacture and sell apparel, digital devices, and applications and other equipment for sports activities under NIKE-owned trademarks. The company sells its products to footwear stores, sporting goods stores, athletic specialty stores, department stores, skate, tennis and golf shops, and other retail accounts through NIKE-owned retail stores and Internet Websites (direct to consumer operations), as well as independent distributors and licensees. Company description from FinViz.com.

Nike reported earnings last week of 60 cents that beat estimates for 50 cents. Revenue of $8.7 billion narrowly beat estimates for $8.6 billion. The earnings spike was due mostly to a lower tax rate.

The stock spiked $5 on short covering after they announced they were turning to Amazon to help them sell shoes and apparel. Some analysts believe this will lead to further discounting because Amazon is a cutthroat market. We have already seen a weak market for high dollar Nike models with sales at 50% off. Moving to Amazon will cause additional discounting in those high dollar models. They also believe it will lead to lower orders from distributors and cause them even more grief in the U.S. where sales were flat. The U.S. is Nike's biggest market where they face less competition from brands like Adidas, which is rapidly accelerating.

Futures orders were reportedly down -10% indicating weak orders from distributors. As Nike shifts more from wholesale sales to the direct to retail market, they are going to face an entirely different set of problems. They announced they were laying off 1,400 employees as part of their consumer direct offense strategy.

Expected earnings Sept 28th.

The earnings are over and the post earnings depression phase should be starting. With everyone else starting their earnings next week, traders will be leaving Nike to find a stock with positive momentum.

Position 7/6/17:

Long Aug $57.50 put @ $1.51, see portfolio graphic for stop loss.




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