Option Investor
Newsletter

Daily Newsletter, Monday, 7/17/2017

Table of Contents

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

Market Wrap

Eagerly Awaiting Earnings

by Thomas Hughes

Click here to email Thomas Hughes

Introduction

The market held steady today, trading in a range so tight it barely made a blip on the radar. Earnings season has started and this week begins to heat up. Today's action shows a market in wait-and-see mode, ready to move in either direction depending on how results come in. There are a total of 68 S&P 500 and 9 Dow components reporting so we should get a fairly decent read on which way the wind is blowing. To date, 5 sectors are beating expectations led by the Financials.

Asian markets were mixed despite better than expected GDP from China. China reported 6.9% growth for the 2nd quarter, edging up from the first quarter, but did not calm fears spurred by financial regulators. Headlines from a policy meeting have led investors to believe tighter regulation and a slow down in financial innovation was on the way. Korea led with a gain of 0.43%, the Shang Hai Composite lagged with a loss near -1.40%. Europen indices fared little better as the second round of Brexit negotiation begins. The FTSE led with a gain of 0.35%, the DAX lagged with a loss of -0.35%.

Market Statistics

Futures trading was near perfectly flat this morning. The SPX was indicated to open with gains in the range of -1 to 1 point and that held steady throughout the early morning. The open was calm, the indices opened with small losses and quickly established the day's bottom. By 9:45 the indices were bouncing higher. Volume was low and action was weak, intraday top was hit below Friday's highs and held the remainder of the day. Late afternoon trading saw the indices fall back to the bottom of the daily range where support began to reassert itself. Support held leading the indices to close near the middle of their respective opening levels.

Economic Calendar

The Economy

Only one report today and it was OK. The Empire State Manufacturing Survey shows the manufactuing sector is still growing but that growth has slowed. The headline number came in at 9.8 for July, down from last month's 19.8 and well below the expected 13. Within the report all components remain positive although they are also all showing reduced activity. New Orders came in at 13.3, shipments at 10.5 and employment at 3.9. Hours worked was the weakest coming in at an even 0.0.


Moody's Survey of Business Confidence took a dive this week, shedding 2.7% to hit 30.5. This is the lowest level for more than 6 months. Mr. Zandi points out that while this is a bit surprising one data point does not make a trend and there is some expectation for correction following the many weeks of strong reports we've had. The four week moving average of confidence remains high and consistent with optimistic business conditions. The caveat is that it will only take another week of lower numbers for the average to start making a dip.


Earnings season has begun and will heat up this week. There are 68 S&P and 9 Dow Components reporting which makes it one of the busier weeks. To date 6% of the S&P 500 has reported with 80% beating EPS estimates and 83% beating revenue estimates. The blended rate of earnings growth for the quarter is now 6.8%, up 0.3% from last week, and is expected to continue rising.


Looking forward earnings growth is expected to continue into the next 6 quarters at least with the caveat that those expectations have been in decline. The largest contributor to declining estimates is the energy sector which at one point was expected to post growth in excess of 450% for all of 2017. With oil prices down -15% from their 2017 highs a drop in forward outlook was expected, the sector is now projected to post growth closer to 150% for the year.


The Dollar Index

The Dollar Index fell to new 10 month lows as FOMC rate hike expectations continue to decline. Janet Yellen assured us last week another hike was a definite possibility this year, the problem is that the data and specifically the inflation data does not support it. Meanwhile EU economics continue to improve and support the euro adding downward pressure to the dollar. The index is now sitting on the $95 level with indicators in support of lower prices. This level may become support, it is coincident with support levels set last year, and a break below it will be bearish. There is not much data to move the dollar this week but there is an FOMC policy decision next week, that might do it.


The Gold Index

With political risk largely evaporated from the market the gold/dollar correlation is working a little better now. Spot prices for gold rose another 0.5% on weak dollar today, moving up to begin testing the $1,235 resistance level. This level has been important many times over the past year or so and a likely trigger point for new trades. A break above this level will be bullish with upside target near $1,250.

The Gold Miners continue to wrestle with resistance even while gold prices begin to rise. The Gold Miners ETF GDX closed with a small gain but price action created a small red bodied candle with long upper shadow in confirmation of resistance. Resistance is the short term moving average and the $22 level. The indicators are bullish in the near term, both are pointing higher, but short to long term both remain consistent with range bound trading and are not indicative of strong movement in either direction. The narrowing trading range may persist into the near term with next foreseeable catalyst for break-out the FOMC meeting next week.


The Oil Index

Oil had some support in early trading but profit takers and uncertainty among the bulls left prices in the red at settlement time. There are signs of near term shift in supply/demand balance but the extent is still unclear. Regardless, longer term fundamentals remain skewed to the supply side so any upside we see now will be limited. Now that WTI has confirmed support at/above $45 upside target is near $50. Once prices reach that level expect to see US rig counts and production begin to rise again.

The Oil Index tried to rise today but it too was capped by resistance. The index closed with a loss near -0.20% after rising about that high intraday. Resistance is the 1,120 support/resistance line that has been in play for over a year. The indicators are bullish and pointing higher so I would expect to see prices at least test resistance again, a break above which would indicate further upside.


In The News, Story Stocks and Earnings

Blackrock reported earnings before the bell and delivered a miss on the top and bottom line. Revenue grew year over year by 6.1% and only fell short of estimates by less than 1%, driven by increased traffic in lower cost passively managed funds. EPS grew by 10% but was not enough to satisfy the market. Shares of the stock fell by nearly -14%.


JBHunt also reported a miss. The intermodal trucking company delivered a high single digit increase in revenue for all segments but was not able to meet expectations. The company reports that volume growth and an increase in revenue producing trucks was offset by increases in costs. The news sent shares falling in the premarket session to open with losses near -2% but buyers stepped in to drive prices back up. Today's action created a large green bodied candle rising from the short term moving average and bullish for near term traders..


Netflix reported after the bell and set a high bar for the tech sector. The company reported above expectation increases in subscriber growth, revenue and EPS that more than pleased investors. The company also guided 3Q revenue and earnings above consensus. Shares of the stock rose more than 10% on the news to trade just shy of the all time high.


The Indices

Today's action wasn't bullish and it wasn't bearish, it was about as neutral as a day of trading can be. Aside from the Dow Jones Transportation Average the major indices posted nearly no movement for the day. The transports however fell nearly a half percent shedding -0.45%. The index created a small doji candle indicative of near term support but not a strong one. The indicators are a bit mixed showing bullishness in the longer term but consistent with a peak in the nearer. Support is a bit below today's close along the short term moving average, about 50 points lower, and may be reached if the index does begin to move lower. If not resistance may be found just above today's close at the current all time high.


The S&P 500 closed with no gain and no loss, 0.00%. The broad market created a small doji candle with no visible body and barely visible upper shadow touching resistance at the bottom of my up trend line. Today's action is far from definitive but may indicate a near term peak. The indicators are bullish and pointing higher although there are some red flags, stochastic is showing early signs of resistance and both are divergent from the new high. A fall from this level may find support along the short term moving average, a break above the trend line would be bullish and trend following.


The Dow Jones Industrial Average closed with a loss of -0.03% and also created a small doji like candle. The blue chips are struggling with resistance at my long term up trend line and may not be able to break it. The indicators are bullish and suggest it will be tested but they are still weak and showing divergence so a break to new highs is questionable. Resistance is 21,640, a break above which would be bullish and trend following. Support is near 21,367 and the short term moving average.


The NASDAQ Composite posted a gain of 0.03% and nearly set a new all time high. The tech heavy index toyed with new all time closing high today but just didn't have the wherewithal to do it. Today's candle is a very small doji like spinning top just below the current all time high and may indicate a peak. The indicators are a bit mixed but showing signs of resistance and the possibility of a peak, MACD is bullish and suggests resistance will be tested while stochastic has already begun to roll over. A break to new highs would be bullish and trend following. Failing to break to new highs may result in a pull back to firmer support with target near 6,200 and the short term moving average.


The near, short and long term trends are all bullish, last week's rally a trend following confirmation of the bull market. Today's action was cautious and rightly so, earnings season has just begun and there is still a lot that could go wrong. If the season isn't as good as expected, if forward outlook continue to decline, the chance for correction remains. I am bullish for the near term but still ever so cautious, waiting for the strong signals I know will come when the market is ready.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Old Dogs, New Tricks

by Jim Brown

Click here to email Jim Brown

Editors Note:

In the semiconductor space old dogs are still learning new tricks. AMAT is a 50 year old chip company but they are tackling new products to expand their market share.



NEW DIRECTIONAL CALL PLAYS

AMAT - Applied Materials - Company Profile

Applied Materials, Inc. provides manufacturing equipment, services, and software to the semiconductor, display, and related industries worldwide. It operates through three segments: Semiconductor Systems, Applied Global Services, and Display and Adjacent Markets. The Semiconductor Systems segment develops, manufactures, and sells a range of manufacturing equipment used to fabricate semiconductor chips or integrated circuits. It offers products and technologies for transistor and interconnect fabrication, including epitaxy, ion implantation, oxidation and nitridation, rapid thermal processing, chemical vapor deposition, physical vapor deposition, chemical mechanical planarization, and electrochemical deposition; patterning, selective removal, and packaging products and systems that enable the transfer of patterns onto device structures; and metrology, inspection, and review systems for front- and back-end-of-line applications. The Applied Global Services segment provides integrated solutions to optimize equipment and fab performance and productivity, including spares, upgrades, services, remanufactured earlier generation equipment, and factory automation software for semiconductor, display, and other products. The Display and Adjacent Markets segment offers products for manufacturing liquid crystal displays, organic light-emitting diodes, and other display technologies for TVs, personal computers, tablets, smart phones, and other consumer-oriented devices, as well as equipment for flexible substrates. The company serves manufacturers of semiconductor wafers and chips, liquid crystal and other displays, and other electronic devices. Applied Materials, Inc. was founded in 1967 Company description from FinViz.com

Estimated earnings date August 17th.

AMAT is an old chip company founded in 1967. In chip terms this company is an antique. However, they are growing by focusing on new products rather than fight it out for low margin chip products everyone else is making. One of their focus products is OLED screens. The adoption rates for OLED screens means strong demand for chips to power those screens. By 2021 more than two-thirds of smart phones could have OLED screens. AMAT is shooting for 30% to 40% of the total addressable market two years from now. They currently have 15% share. They have grown their display revenue by 20% annually for the last five years.

The company said the demand for memory, which is currently off the charts, is just getting started. The coming of big data, IoT, streaming video and massive data storage requirements has caused a surge in demand that is just the tip of the coming iceberg. AMAT grew its memory revenue to 35% of the total in the last quarter. Manufacturers are raising prices by about 15% per quarter because of the shortages and there is no end in sight.

The upgraded analyst price targets after the big semiconductor show last week is now $65 on the high side and $55 on the low end. AMAT closed at $46 today.

Buy Aug $47 call, currently $1.33, initial stop loss $44.50


NEW DIRECTIONAL PUT PLAYS

No New Bearish Plays



In Play Updates and Reviews

Nobody Trading

by Jim Brown

Click here to email Jim Brown

Editors Note:

The markets flat lined with the smallest range for the Dow since 2013. The Dow traded in a very narrow 44-point range while traders waited for the earnings flood to begin. The rise to new highs on Friday probably made some traders nervous ahead of the normally weak August/September period. The S&P closed only fractionally lower and the Nasdaq gained less than 2 points.

Volume was light and there were very few stocks with material gains and losses. We traded today as if it was a summer Friday before a three-day weekend. Netflix missed earnings by a penny but blew away subscriber numbers to gain 7% in afterhours. This could set the stage for a good week for tech stocks.



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 reentered at the open.

THO - Thor Industries
The long call 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:

Morgan Stanley reiterated an overweight rating and raised their price target to $182.

DigiTimes, normally a reliable Apple researcher, said the production on the iPhone 8 could be delayed by up to 2 months because yields at the Foxconn assembly plant are not yet sufficient to begin volume production. Full story

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 continued to rise after breaking through resistance at $47.

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. Shares declined slightly to give back some of last week's gains.

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:

No specific news. Minor gain in a weak market.

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.

Update 7/13/17: Analyst at Monness, Crespi, Hardt published a note saying PayPal was his "top pick" for 2017. Shares rallied $1.35 to a new high.

Position 6/22/17:

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


THO - Thor Industries - Company Profile

Comments:

No specific news. Shares spiked at the open to give us a bad fill that was 50 cents over Friday's closing price. The stock faded into the close along with the market.

Original Trade Description: July 15th.

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

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

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

Estimated earnings date September 4th.

With the company posting record earnings the stock spiked from $94 to $104 on June 6th. When the market dipped, shares only pulled back to $102. In late June they rebounded to $110. During the market volatility over the last three weeks they dipped back to $102 and found support there once again. Now that the market has turned positive shares are rebounding.

I am using the September strike because of the September earnings date. We will exit well before then but that date will keep the premiums inflated.

Position 7/17/17:

Long Sept $110 call @ $3.00, see portfolio graphic for stop loss.



BEARISH Play Updates (Alpha by Symbol)

BBBY - Bed Bath & Beyond - Company Profile

Comments:

No specific news. The opening gain faded and shares closed near the low for the day.

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 are struggling with resistance at $51.85. We need a failure here to start a new trend lower.

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. Shares rolled over but it is too early to call it a new decline.

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 last 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. The company said they opened 28 new stores in June/July as part of their plans to open 90 stores in 2017. The company currently has 1,384 locations and are planning on 2,500 in the years ahead. That is a lot of additional overhead in a declining retail market.

We reloaded the August $52.50 put at the open.

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.

Update 7/14/17: Telsey Advisory Group upgraded Ross from market perform to outperform with a $70 price target. Shares spiked $1.60 at the open to stop us out but then gave back all but 34 cents. I am recommending we reload this position using the same option/strike.

Position 7/17/17:

Long August $52.50 put @ $.80, see portfolio graphic for stop loss.

Previously closed 7/14: Long August $52.50 put @ $1.04, exit .65, -.39 loss.




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