Option Investor
Newsletter

Daily Newsletter, Thursday, 7/13/2017

Table of Contents

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

Market Wrap

Bulls Maintain Control

by Keene Little

Click here to email Keene Little
We are seeing more chop and whipsaws than any strong move in either direction but for now the bulls maintain control of the tape. The short-term pattern looks like we could see at least a positive start to opex week next week but after opex week it's looking doubtful that the bulls will be able to do more.

Today's Market Stats

It was another quiet day in the markets and the bears could be forgiven for thinking the rally is simply running on fumes and is about to tip over at any time. But the price pattern remains more bullish than bearish and as we get ready to head into opex week it's looking like we should see higher prices.

But the bears could soon have their turn. Depending on the index and projected price targets I see the potential for a market top in the coming week and therefore it's not a good time for bulls to be complacent, which is what the VIX is currently showing us (it closed below 10 again).

There wasn't much news, geopolitical or otherwise, today and the market was left on its own. This morning's economic reports included some inflation data with the PPI reports before the bell. That caused a minor pullback in the equity futures and a small pop up in bond futures when the numbers were released at 08:30, but it was only a small reaction. The reaction may have been because the numbers came in a little higher than expected and that might have had some thinking that the Fed has a greener light to raise rates again.

PPI came in at +0.1% vs. expectations for a -0.1% decline and a tick up from 0.0% in May. The Core PPI was weaker than expected, coming in also at +0.1% but less than the +0.2% expected and a drop from +0.3% in May. The drop in the core rate, which excludes food and energy, is what the Fed uses to judge what's happening with inflation. The picture shows a taming of inflation, with hints of deflation, I mean disinflation, and that's likely to keep the Fed on watch rather than thinking aggressively about raising rates.

The chart below shows the past 3 years of inflation data and you can see how it has turned down this year from highs near 2.5% (Total) and about 2.1% (Core). Uptrend lines for both are converging near 1.5% and a drop below that in the future would indicate "disinflationary" pressures were increasing. I suspect the Fed would become increasingly worried if PPI drops below 1.5% (Core PPI is currently near 1.9%), especially since they're doing everything they can to get it above +2%.

PPI, July 2014 - June 2017, chart courtesy briefing.com

As already mentioned, today's quiet consolidation keeps things looking bullish for the stock market but there will be some important upside levels to watch carefully (assuming the indexes will press higher into next week). I'll kick off tonight's chart review with a look at SPX.


S&P 500, SPX, Weekly chart

I apologize for the busy weekly chart of SPX below but there are a few things that are important to highlight and it's difficult to cram it all onto one chart. From a trendline/channel perspective, ever since the February 2016 low SPX has not been able to climb above the midline of the up-channel for price action following the October 2011 low. This is typical price behavior for a 5th wave, which is how I'm interpreting the wave count for the rally from 2009 -- the rally from February (actually January) 2016 fits well as the 5th wave of the rally and that's the terminal part of the wave pattern.

For the rally from January 2016 I believe we're in the 5th wave. In other words we're into the 5th of the 5th wave and once it's complete we'll start a much more serious "correction" of the rally from 2009, potentially retracing it over the next couple of years. There are several Fib projections based on the wave count that suggest SPX could make it up to the 2475-2516 area and for now I'm depicting a rally to the 2516 projection before mid-August.

The 5th wave of the rally from 2009 would equal the 1st wave (very common) at 2516. In the 5-wave move up from January 2016, the 5th wave would equal 62% of the 1st wave near 2507. This is a common projection for a move that is simply running out of momentum, which can be seen on the oscillators -- bearish divergence against the March 1st high. This also helps confirm a 5th wave. Another common price projection for a 5-wave move is where the 3rd through 5th waves equals 162% of the 1st wave and for the move up from January 2016 that projects to 2475.

The midline of the up-channel from October 2011 is currently near 2485 and this adds to the importance of the 2475-2516 zone of resistance that the bulls will have to power through in order to make it up to the trend line along the highs from April 2016 - March 2017, currently near 2540, which will be near 2580 by mid-August. That would be about the most I would expect out of this rally leg from March 27th. Again, once this leg completes we should get a much larger pullback/decline started. I think we're close to a major high but not there yet.


S&P 500, SPX, Daily chart

Wednesday's rally had SPX breaking its downtrend line from June 19th as well as its broken 20-dma, both near 2432. Either should now hold as support, if back-tested, in order for the bulls to maintain control. Without getting bogged down in the gritty details of a corrective wave pattern (corrective because we're inside a rising wedge pattern from January 2016), I have two projection areas for the completion of the final leg of the rally from March 27th. The first projection is at 2470-2475 and the second projection is near 2509. Note how these coincide nicely with the projections on the weekly chart.

The rally doesn't have to make it up to either of those upside projections; nor does it have to stop at either one. It could fail at any time or simply blast higher toward 2550-2600. But for now we simply have price projections to watch for a possible high, especially since the subsequent move is likely to be at least a deeper retracement than we've seen all year.

Key Levels for SPX:
- bullish above 2454
- bearish below 2405


S&P 500, SPX, 60-min chart

It's looking like SPX could reach for its June 19th high near 2454 before potentially consolidating and then heading higher. For the rally from July 6th it's looking like we're in the 3rd wave, which would achieve 162% of the 1st wave (common) at 2452 and that gives us another reason to expect the rally to stall in the 2452-2454 area, if not right here.

A day of consolidation leads to a pullback to about 2440 we could then see another rally early next week to the 2464 projection shown on the 60-min chart. That's where the 5th wave of the rally from July 6th would equal the 1st wave. This is a little lower than the projections discussed on the weekly and daily charts so for now it's simply a level of interest if reached.

These are all of course speculative projections but they would fit the wave pattern and provide a pattern and prices to watch to see if it plays out as depicted. Once the leg up from July 6th completes, whether it's at 2454 or above 2500, it should be a good setup for the bears to take their turn at the feeding trough. The completion of a 5-wave move up from July 6th followed by an impulsive move back down would be the first clue that a top is in place. We could be close but not yet.


Dow Industrials, INDU, Daily chart

The Dow's rally from April 19th appears to be in its 5th wave, which has become choppy and looking more like an ending pattern than something more bullish. It's a fitting pattern for the final 5th wave and it's showing the expected bearish divergence for it. I show a projection to about 21830, which is based on trend lines (using log and arithmetic price scales) but I would not be surprised to see it struggle in a choppy rising wedge off the June 29th low and finish around 21630 by the end of next week. It stays bullish until it's not and it would no longer be bullish below 21169 (price-level support and below its 50-dma).

Key Levels for DOW:
- bullish above 21,830
- bearish below 21,169


Nasdaq Composite index, COMPQ, Daily chart

On June 27th the Nasdaq broke down below its uptrend line from November 2016 - April 2017, near 6200 at the time. At the same time it broke below its 20-dma and then proceeded to break support at its 50-dma a couple days later. Things were not looking good for the bulls. But they bounded back into the pasture to gorge themselves once again and quickly recaptured the 20- and 50-dmas with Wednesday's big gap up. The Naz is now approaching its broken uptrend line from November-April, currently near 6300 (log price scale), about 19 points above today's high.

The bulls would be in stronger shape with the recapture of the broken uptrend line but until that happens they'll have to be careful about a possible back-test followed by a bearish kiss goodbye. I show a rally up to the trend line along the highs from April 2016 March 2017, which will be near 6400 by the end of next week, to complete its 5th wave of the rally from February 2016. There is of course higher potential (some weekly price projections to 6550-6650) or the rally could complete at any time. But for now, I like the 6400 area for a possible top by the end of opex week.

Key Levels for COMPQ:
- bullish above 6342
- bearish below 6081


Russell-2000, RUT, Daily chart

For those of you who have ever gotten your car stuck in a rut, be it a muddy or snowy one, you can appreciate the fact that the RUT's name is appropriate. It has been stuck in a rut since last December and now it's been chopping sideways in a tighter range since June 9th. The good news for the bulls is that the consolidation since the June 9th high looks like a bullish continuation pattern. The pattern would look more complete with one more pullback to the bottom of the triangle, near 1400 before setting up the next rally.

I'm showing a projection to 1452 for a final high for the RUT by the end of the month. This is clearly speculation but it's based on the wave pattern and a typical price projection for the final wave in a rising wedge pattern. The trend line along the highs from 2007-2015 is currently near 1441 and therefore we have a 1441-1452 target zone to watch for. The RUT would turn much more bullish with a sustained move above 1453 but would turn more immediately bearish if it drops below the June 22nd low near 1397.

Key Levels for RUT:
- bullish above 1453
- bearish below 1396


Russell-2000, RUT, Weekly chart

It's important to keep the big picture in mind with the RUT since I think it's especially bearish, especially if the big megaphone pattern built over the past 3+ years is the correct interpretation. As can be seen on the RUT's weekly chart below, the consolidation off the December 2016 high has been followed by a choppy climb higher and that has it looking like an ending pattern to the upside, especially with the bearish divergence since December.

Notice also the importance of the uptrend line from February-November 2016, currently near 1400. When the RUT breaks down I suspect it will happen quickly. The bulls need to see a sustained break above 1460 and then drag the oscillators up with price in order to negate the bearish divergence. At least tighten your stops if long this index (such as IWM).


Volatility index, VIX, Weekly chart

As mentioned earlier, the VIX again closed below 10 today (9.90) and it's again nearing the bottom of its large descending wedge pattern that's it's built since August 2015. One of these days this descending wedge, with the corresponding bullish divergence, is going to mean something and when it breaks out of this we'll likely see a very fast move back above 30.

It's hard to say what the stock market will be doing at the same time the VIX is spiking to 30 but I think it's safe to say the bulls will be running around with their fur on fire. Maybe we'll first see a little throw-under below the bottom of the wedge, currently near 9.46, next week to complete the pattern. Bears will be cleared in hot if we get a throw-under and then a bounce back up inside the wedge.


10-year Yield, TNX, Daily chart

Since the June 14th high for bond prices (low for yields) we've seen a fairly strong selloff and the 10-year yield jumped from 2.1% to 2.35% (a +12% rise) by July 7th. In the process TNX rallied back above price-level S/R at 2.30-2.31 and has now pulled back to that support level for what appears to be a back-test of support.

The wave pattern for the rally off the June 14th low would look best as a 5-wave move and that means another push higher following the current back-test of support. A new high could be good for just a test of the May high at 2.423 or it could make it up to 2.50 and result in a back-test of the broken uptrend line from July-September 2016 next week. A selloff in the bond market could help give the stock market a boost into opex next week.

Following the completion of the leg up from June 14th, hopefully after another push higher, it could then be the completion of an a-b-c bounce pattern off the April 18th low. That would be a setup for the resumption of the decline in Treasury yields (depicted with the bold red arrow). I am still part of the minority that believes we'll see lower yields into next year but I'll change my mind if we get a decent pullback from the current rally that is then followed by another rally to new highs, especially if it gets above 2.50%.


Transportation Index, TRAN, Weekly chart

The TRAN has pressed to new highs this week with the Dow, keeping alive the Dow Theory buy signal. But the TRAN could be close to finishing its rally if it will only be able to make it up to 9823 (today's high was 9742), which is where the 5th wave of the rally from January 2016 would be 62% of the 1st wave.

There's higher potential to 10499, where the 5th wave would equal the 1st wave. That's also where the TRAN would hit the top of its rising wedge pattern (10499 crosses the top of the wedge in the first week of September) but I'd want to see the negation of the bearish divergence that's currently on the chart.


U.S. Dollar contract, DX, Daily chart

Not much has changed over the past week for the US$. It's been consolidating off its June 30th low and while it could make a minor new low I continue to believe we'll see a larger choppy bounce/consolidation over the next couple of months. The descending wedge from March suggests we could get a stronger bounce and possibly a quick return to the top of its down-channel from last December, currently near 98.65, but the larger wave count suggests more of a choppy sideways/up correction into August/September before heading lower.


Gold continuous contract, GC, Daily chart

Since gold's low on Monday its bounce looks more corrective than impulsive, which continues to point lower once the bounce correction has finished. The first sign of strength for gold bulls would be a rally above its broken MAs, the highest one being the 50-dma at 1247. A continuation lower following the current bounce could see gold drop to its uptrend line from December 2015 - December 2016, near price-level support at 1180.


Oil continuous contract, CL, Daily chart

Off Monday's low oil made it up to a downtrend line from May 25th through its July 5th bounce high as well as its broken 50-dma again, currently at 46.55 (today's high was 46.28). If it's able to break above its 50-dma it could then target its broken 200-dma, currently at 49.49. Two equal legs up from its July 5th low is at 48.92 so we'd have a target zone for the bounce, if that's all it will be, at 48.92-49.49. But a turn back down from resistance here would likely lead to a decline to price-level support at 39-40.


Economic reports

Friday morning we'll get some more inflation data with the CPI reports, which are expected to have ticked up slightly from May. The PPI numbers ticked down instead so we'll see if the CPI numbers are telling the same story. We'll also get the Retail Sales report, Industrial Production and Capacity Utilization, all of which are expected to show some improvement. The Michigan Sentiment report, at 10:00, is not expected to have changed much.


Conclusion

The choppy pullback between the June 19th high and July 6th low was a strong indication that we would get another rally leg and that's what's currently underway. The rally should continue into next week (opex) and potentially finish next week. The wave count for the rally from January/February 2016 is setting up for completion with the leg up from March. That leg is setting up for completion with the leg up from July 6th, which makes a possible high next week an important one.

With an expected new high for SPX next week we should see the VIX drop to new lows and in so doing it would likely drop below the bottom of its bullish descending wedge built over the past 2-1/2 to 3 years. That followed by a bounce back up inside the wedge would give us a buy signal for VIX and a sell signal for the stock market. Watch to see if we get that setup next week.

The bulls remain in control of the tape and as long as that remains true it means bears need to stay away until it's their turn. We have a coming setup for the bears but that's all it will be until we see some price evidence suggesting a turn back down in something other than just another pullback correction. There remains the possibility we'll see much higher prices in a melt-up phase (like the late-1990's) and while I don't see that happening I know never to say never with this market. Liquidity coming into this market is still supportive of a rally continuation.

Good luck and I'll be back with you next Wednesday.

Keene H. Little, CMT


New Option Plays

Summer Friday

by Jim Brown

Click here to email Jim Brown

Editors Note:

Thursday's lackluster trading and low volume suggests Friday could be worse. However, with the major banks reporting earnings we could have some early volatility followed by a very low volume afternoon. With the lack of conviction in the market today, there is no reason to add new plays. Let's see what Friday brings and save our capital for the earnings cycle next week.



NEW DIRECTIONAL CALL PLAYS

No New Bullish Plays


NEW DIRECTIONAL PUT PLAYS

No New Bearish Plays



In Play Updates and Reviews

Questionable Gains

by Jim Brown

Click here to email Jim Brown

Editors Note:

The major indexes were somewhat volatile with minor gains on low volume. There appears to be no conviction following Wednesday's short squeeze on the Yellen comments. The Dow added 21 points but it was definitely lackluster after trading negative for much of the morning. The Nasdaq added only 13 points after trading in and out of negative territory multiple times in the session.

The S&P only added 4 points but pulled a little bit farther above that resistance at 2,440. The closer we get to 2,450 and the year end targets for many analysts, the more nervous traders will become.



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


ATHM - Autohome
The long call position was entered at the open.

BBBY - Bed, Bath and Beyond
The long put position was entered at the open.



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:

Apple was rumored today to be adding a laser to the iPhone 8 to enhance augmented reality. The laser will also allow for better auto focusing for the camera. An Apple patent for facial recognition was also published today. Shares spiked $2.

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.

Update 7/12/17: 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.

Position 6/29/17:

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


ATHM - Autohome - Company Profile

Comments:

No specific news. Shares still testing resistance at $47 but a breakout appears imminent.

Original Trade Description: July 12th.

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.

Position 7/13/17:

Long August $50 call @ $1.75, see portfolio graphic for stop loss.


BABA - Alibaba - Company Profile

Comments:

No specific news but shares closed at a new high. There are rumors Alibaba will win the bidding on an electronic payment system in India.

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:

Analyst at Monness, Crespi, Hardt published a note saying PayPal was his "top pick" for 2017. Shares rallied $1.35 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.

Update 7/12/17: 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.

Position 6/22/17:

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



BEARISH Play Updates (Alpha by Symbol)

BBBY - Bed Bath & Beyond - Company Profile

Comments:

No specific news. All retail stocks rebounded on short covering after Target raised guidance. BBBY was no exception.

Original Trade Description: July 10th.

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.

Position 7/13/17:

Long Nov $27.50 put @ $1.72, see portfolio graphic for stop loss.


CPB - Campbell Soup - Company Profile

Comments:

No specific news. Shares spiked at the open but fell back in the afternoon.

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.


MKC - McCormick & Company - Company Profile

Comments:

No specific news. Sellers returned but volume was low.

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 continued to decline from the short squeeze on Monday.

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. Shares posted a minor gain after Target raised their guidance. The entire retail sector saw some light short covering.

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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