Option Investor
Newsletter

Daily Newsletter, Wednesday, 7/12/2017

Table of Contents

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

Market Wrap

The Yellen Surprise

by Thomas Hughes

Click here to email Thomas Hughes

Introduction

Janet Yellen testified before congress in what could be her last appearance, and what she said surprised the market. Her testimony in a nutshell; the balance sheet should begin to shrink this year, regardless it will remain larger than it was pre-crisis, inflation is sluggish due to one-off events, the Fed is near its equilibrium rate and we may not need too much more in the way of interest rate hikes.

Asian markets down ahead of the news, closing well before she made her way to Capitol Hill. Austalia led with a loss near -1.0% but other markets saw much smaller declines. European indices were lower early but closed with Yellen driven gains. Most indices gained more than 1% with many in the range of 1.5%.

Market Statistics

Futures trading was positive all morning and gained some strength going into the open. The open was bullish. The SPX gained 10 points at the get-go and moved up from there. Intraday high was hit just before 10:30 with the SPX rising nearly 20 points or 0.75%. This top held for the better part of the day with the index trending in a tight range just below it. The Beige Book release at 2PM was good and helped support the market but was not able to push it to new intraday highs. The market held near the highs all day, where they remained until the close.

Economic Calendar

The Economy

Very little economic data today but it was bullish. The Fed's Beige Book shows growth in all 12 regions,modest to moderate growth in 11. The Pennsylvania district was the weakest with only slight growth. The report also shows that labor markets are tightening and contributing to wage growth. Inflationary pressure is present but not enough to warrant rate hikes.

The Dollar Index

The dollar was mixed today. The Dollar Index moved both higher and lower to create a small doji candle. The candle is sitting just above $95.50 and a confirmation of near term support. Janet Yellen's comments were largely to blame as they seemed to support strengthening economic conditions and quash interest rate expectations at the same time. The indicators are bearish but also mixed. Bearish MACD is in retreat and fast approaching the zero line, consistent with support, while stochastic is pointing lower but also showing evidence of support at this level. A bounce from here would be bullish but not likely to go very far without some tailwind to push it. A break below this level would be bearish and trend following with targets near $95 and $94. Longer term it looks like the index is going to remain range bound. Positive data will be bullish for the dollar but it will need to be strong, and stronger than European data, in order to overcome the strengthening euro.


The Gold Index

Gold prices were equally mixed. The spot price fell a few dollar in early trading and then reversed to gain nearly a half percent by settlement. First target for resistance was near $1,220 and broken today. If the metal is able to move higher next target is near $1,235. For the next few weeks, until the July FOMC meeting, gold prices are likely to drift on economic data and political risk.

The Gold Miners ETF GDX gained about a half percent on the news but the move does not look overly bullish. The ETF gapped up at the open to begin trading near the short-term moving average. Resistance selling took over from there and drove prices lower creating a red bodied candle falling from resistance. The indicators do not agree and may in fact be indicating a buy, the caveat is that the ETF has been trading in a narrowing range for more than 6 months and they are more consistent with that than anything else. The next potential catalysts for break-out are PPI and CPI released tomorrow and Friday. Support is near $21, resistance near $22, a break of either will be significant and bring short term moves of $2.50 to $.300. Downside target is near $18.50, upside target is near $25.00.


The Oil Index

Oil prices spiked on inventory data. Today's data shows a larger than expected draw of US stockpiles which drove WTI up more than 1.5%. While bullish today the news does not alter underlying fundamental conditions. Oil may continue to percolate to the upside but supply, production and capacity will continue to overshadow the market into the long term.

The Oil Index spiked today as well only it did not hold the gains. The index gained more than 1.25% intraday only to fall back from resistance. Resistance is at the short term moving average, just below 1,120, and confirmed by today's candle. The candle is a tombstone type doji and possible shooting star and if so, is consistent with the current trend. A move lower would be trend following with downside target near 1,090. A move below that will depend on earnings and forward outlook. With oil prices down forward outlook will take a hit. So long as it remains positive my longer term outlook will remain bullish, near and short term will depend on how positive the outlook is.


In The News, Story Stocks and Earnings

Amazon is expected to break records with Prime Day. According to a press release from the company sales grew 60% over last year. The number of Prime members making a purchase increased more than 50% to total in the tens of millions and the number of new Prime registrations was the largest in history. And the stock rose by nearly 1.25% to move above the $1,000 to close just below the current all time high.


Fastenal, supplier of screws blades and other bits of construction related sundries, reported earnings this morning. The company beat on the top and bottom lines but the stock closed with a loss of nearly -2.0%. Earnings grew by more than 15% over last year on improving sales across all product lines. The bad news, and not really bad considering business in general is improving, is that they are closing stores. My thought is if the stores aren't making money then why keep them open? Shares opened with a nice gap of nearly 6% but selling took over and drove shares lower throughout the day. On a side note the company was also upgraded to Outperform at Baird.


The VIX fell more than -5% to fall below the $11 and close near $10.25. This action is consistent with a return to rally and a very positive sign as we approach the onset of earnings season. The indicators remains consistent with sideways trading at current levels with a bias to the downside. Downside target is $10 and just below at the current long term low.


The Indices

The indices moved higher. The move was led by the Dow Jones Transportation Average. It gained 1.21.% and set a new all time high. This is a bullish event but I have some reservations. While stochastic is showing strength with a crossover of the upper signal line MACD momentum is diverging from the high. This may be nothing but is a red flag to be wary of. The signal is bullish but I would not be surprised to see the index hit a near term top in the near future. Upside target is near 10,000 in the near term, support is at the previous all time high.


The NASDAQ Composite made the second largest gain today. The tech heavy index gapped up at the open by roughly 0.5% and extended the gain to 1.09%. The indicators confirm the move with today's MACD crossover with an upside target at the current all time high near 6,350.


The S&P 500 comes in third today with a gain of 0.73%. The broad market index made a small gap up at the open and moved higher from there to create a medium sized green candle. The move is confirmed by stochastic but not MACD, the MACD crossover is imminent but not guaranteed. Upside target is the current all time high near 2,450. Resistance at this level may be strong as it is coincident with the underside of my long term up trend line. A break to new highs would be additionally bullish.


The Dow Jones Industrial Average also made a small gap up at the open. The blue chips are on the rise and confirmed by stochastic with a strong buy. This signal is yet to be confirmed by MACD but that signal is at hand. Today's action set new all time closing and intraday highs capped by technical resistance. Resistance is just above today's close at my long term up trend line. A break above the trend line would be bullish. Upside target is near 22,500 in the short term, 22,000 in the nearer.


The market is on the move driven by earnings, earnings expectations and earnings outlook. Today's comments from Janet Yellen went a long way toward paving a smooth path for the rally to roll forward on. From where I sit it sounded a lot to me like the Fed thinks economy is OK, that policy is nearly normalized and we can expect things to remain as they are for some time to come. This may mean the Fed is finally exiting center stage so the market can focus on what the market is all about, the economy business and earnings. All we have to worry about now is The Great Unwind and whatever that brings us. Until then I am cautiously bullish in the near term and still firmly bullish for the long.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Twin Opportunities

by Jim Brown

Click here to email Jim Brown

Editors Note:

The earnings cycle makes it very hard to find new candidates that do not have earnings over the next couple of weeks. I have one short-term call and a longer term put candidate today.



NEW DIRECTIONAL CALL PLAYS

ATHM - Autohome - Company Profile

Autohome Inc. operates as an online destination for automobile consumers in the People's Republic of China. The company, through its Websites, autohome.com.cn and che168.com, delivers comprehensive, independent, and interactive content to automobile buyers and owners, including company generated content, include automobile-related articles and reviews, pricing trends in various local markets, and photos and video clips; automobile library, which includes a range of specifications covering performance levels, dimensions, powertrains, vehicle bodies, interiors, safety, entertainment systems, and other unique features, as well as manufacturers' suggested retail prices; new and used automobile listings, and promotional information; and user forums and user generated content. Autohome Inc. also offers advertising services for automakers and dealers; dealer subscription services that allow dealers to market their inventory and services through its Websites; and used automobile listings services, which allow used automobile dealers and individuals to market their automobiles for sale on its Websites. In addition, it operates Autohome Mall, an online transaction platform that facilitates direct vehicle sales and commission-based services; provides iOS- and Android-based applications to allow its users to access its content; and offers technical and consulting services. The company was formerly known as Sequel Limited and changed its name to Autohome Inc. in October 2011. The company was founded in 2008 and is headquartered in Beijing, the People's Republic of China. Company description from FinViz.com.

Expected earnings August 9th.

The company reported revenue of 1.348 billion yuan compared to estimates for 1.3 billion. This was a 23% increase over the year ago quarter. Earnings of 2.8 yuan rose 33% and beat estimates for 2.2 yuan. Free cash flow rose 205.4% to 495.2 million yuan ($71.9 million.) Average daily users rose 23% to 10.1 million on the website and 8.2 million on mobile devices. Average time spent on the application was 18 minutes per day. The company sold 3,658 vehicles from its direct sales inventory in the quarter.

Of particular interest was the launch of the augmented reality showroom during the March auto festival. This was highly received and they increased the options and presentation for the June auto festival.

Shares have risen to $47 where they have held for the last three days. The chart pattern suggests there is an impending breakout over that level.

Buy August $50 call, currently $1.45, initial stop loss $45.25.


NEW DIRECTIONAL PUT PLAYS

BBBY - Bed Bath & Beyond - Company Profile

Bed Bath & Beyond Inc., together with its subsidiaries, operates a chain of retail stores. It sells a range of domestics merchandise, including bed linens and related items, bath items, and kitchen textiles; and home furnishings, such as kitchen and tabletop items, fine tabletop, basic housewares, general home furnishings, consumables, and juvenile products. It also provides various textile products, amenities, and other goods to institutional customers in the hospitality, cruise line, healthcare, and other industries. As of February 25, 2017, the company had a total of 1,546 stores, includes 1,023 Bed Bath & Beyond stores in 50 states, the District of Columbia, Puerto Rico, and Canada; 276 stores under the names of World Market, Cost Plus World Market, or Cost Plus; 113 buybuy BABY stores in 35 states and Canada; 80 stores under the CTS name; and 54 stores under the Harmon name. It also offers products through various Websites and applications, such as bedbathandbeyond.com, bedbathandbeyond.ca, harmondiscount.com, christmastreeshops.com, buybuybaby.com, buybuybaby.ca, harborlinen.com, t-ygroup.com, and worldmarket.com. In addition, the Company operates Of a Kind, an e-commerce Website that features specially commissioned limited edition items from emerging fashion and home designers; One Kings Lane, an online authority in home decor and design that offers a collection of selected home goods, and designer and vintage items; PersonalizationMall.com, an online retailer of personalized products; Chef Central, an online retailer of kitchenware, cookware, and homeware items catering to cooking and baking enthusiasts; and Decorist, an online interior design platform that provides personalized home design services. Company description from FinViz.com.

Expected earnings September 21st.

In late June the company reported earnings of 53 cents that missed estimates for 66 cents. Revenue of $2.74 billion missed estimates for $2.79 billion. Same store sales declined -2%. It was not a pretty report.

The management said they plan to increase the pace of store closings and cost cuts but so far that has not been working. They have been increasing their emphasis on online sales but to compete with Amazon they have to offer free shipping and that lowers their margins. Store traffic is slowing because more people are shopping online. Those that shop online have many websites to choose from and BBBY gets lost in the shuffle. One analyst called this an existential crisis for the company.

Buy Nov $27.50 put, currently $1.73, initial stop loss $31.50.



In Play Updates and Reviews

Major Short Squeeze

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Markets rocketed higher on the release of Yellen's opening statement. The major indexes had been struggling to post gains for the last couple days ahead of the Yellen testimony. When her opening statement was released and it was more dovish than expected, the shorts raced to cover. The indexes gapped higher and held their gains.

The Dow closed at a new high by 4 points. Let's hope this does not turn into a double top at the 21,530 level. The S&P was not quite as bullish because it had a lot more ground to make up. The index closed at 2,443 and just over resistance at 2,440.



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


ROST - Ross Stores
The long put position was entered at the open.



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Long and short equity trades = Premier Investor



BULLISH Play Updates

AAPL - Apple Inc - Company Profile

Comments:

Apple opened its iTunes App Store to users of PayPal. This sent PayPal to a new high.

Bank of America and Keybanc both posted notes saying the iPhone 8 production could be delayed. BAC lowered iPhone sales estimates by 11 million units for Q3 and 6 million for Q4 because of the expected delivery delay of 3-4 weeks or longer. They raised the estimates for Q1 by 10 million units. The firm Fast Company said there is a "sense of panic" among iPhone team members as they rush to try and fix software bugs impacting the next release. RBC Capital, Cowen, KGI and Drexel Hamilton believe the announcement could be delayed until October or November.

I am tightening the stop loss again just in case the stock falls victim to these constant headlines.

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.

Update 7/10/17: 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.

Update 7/11/17: Susquehanna Financial warned that higher prices and stronger competition from Android models, were going to dent Apple's sales. The analyst also said talks with suppliers in Asia confirmed that Apple is trying to put too many things in the iPhone 8 and there is not enough room. The finger print sensor is looking much more likely to be dropped from the top of the line OLED iPhone 8 model. Apple only has a very few weeks to either work out a solution or drop the feature or risk production delays of 2-3 months while engineers go back to the drawing board on the internal hardware configuration.

Deutsche Bank also dumped on Apple's parade saying the expectations for the iPhone 8 are too high. DB warned that the iPhone 8 supercycle was probably only going to be a regular upgrade cycle. DB is expecting sales of 230 million phones in FY 2018. Peak sales were 231 million in FY 2015 and DB is expecting that to be a ceiling because of price, availability and competition. The bank said it was confused about where the new buyers were coming from, especially at a $1,200 price point.

Position 6/29/17:

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


BABA - Alibaba - Company Profile

Comments:

No specific news but shares rocketed $3.19 higher. All the hype around Amazon's Prime Day helped focus attention on Alibaba. The company also opened its first cashless store in China where people scan their phones when they enter the store and sensors track what they put in their basket and bill them when they leave.

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.

Update 7/10/17: 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.

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:

PayPal announced a partnership with Apple to use PayPal in the iTunes App Store. This will let users with Paypal accounts buy songs, movies, etc from iTunes. This is a good deal for both companies. Shares spiked $1.80 to a new high.

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.



BEARISH Play Updates (Alpha by Symbol)

CPB - Campbell Soup - Company Profile

Comments:

No specific news. Shares spiked at the open but fell back in the afternoon to give back 50 cents of its gains.

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.


MCK - McCormick & Company - Company Profile

Comments:

No specific news. Shares gapped up to $97.40 at the open and traded perfectly flat the rest of the day, only to give back a few cents at the close. This was only a short squeeze powered by the broader market and Yellen's dovish comments.

Original Trade Description: July 10th.

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.

Position 7/11/17:

Long Sept $90 put @ $1.05, see portfolio graphic for stop loss.


NKE - Nike Inc - Company Profile

Comments:

No specific news. Shares spiked with the market at the open but faded into the close.

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.


ROST - Ross Stores - Company Profile

Comments:

No specific news. Minor short squeeze with the market at the open but shares rolled over quickly and closed at a new 52-week low.

Original Trade Description: July 11th.

Ross Stores, Inc., together with its subsidiaries, operates off-price retail apparel and home fashion stores under the Ross Dress for Less and dd's DISCOUNTS brand names in the United States. It primarily offers apparel, accessories, footwear, and home fashions. The company's Ross Dress for Less stores sell its products at savings of 20% to 60% off department and specialty store regular prices primarily to middle income households; and dd's DISCOUNTS stores sell its products at savings of 20% to 70% off moderate department and discount store regular prices to customers from households with moderate income. As of March 6, 2017, it operated 1,363 Ross Dress for Less stores in 37 states, the District of Columbia, and Guam; and 198 dd's DISCOUNTS stores in 15 states. Company description from FinViz.com.

Expected earnings August 17th.

They reported Q1 earnings of 82 cents compared to estimates for 79 cents. Revenue of $3.31 billion beat estimates for $4.27 billion. Same store sales rose 3%. Operating margins shrank. The company is planning on operating 90 stores in 2017.

Unfortunately, they guided for the full year for earnings of $3.07 to $3.17 and analysts were expecting $3.15 at the midpoint. The guidance from Ross also includes an extra week in 2017 over 2016 and that means it is even weaker than it seems.

They guided for same store sales of 1-2% and well below the 3% in Q1. They also guided for margins to contract again from 15.2% in Q1 to 13.9%-14.1%. A week later regulators posted criminal charges against a California man that generated $8.2 million in profits on insider trading in Ross shares. The insider was not named. Shares rolled over and are still falling. Three analysts have cut their estimates for Ross since the earnings.

With the retail sector getting hit every day by some store closure notice or analyst downgrade, Ross could continue falling until their earnings report.

Position 7/12/17:

Long August $52.50 put @ $1.04, see portfolio graphic for stop loss.




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