Option Investor
Newsletter

Daily Newsletter, Monday, 6/20/2016

Table of Contents

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

Market Wrap

Brexit Fears Recede

by Thomas Hughes

Click here to email Thomas Hughes

Introduction

A poll released over the weekend shows leave/not leave Brexit sentiment equal at 44%, and the market rises. Although the poll did not show a definitive No-Vote it did do a lot to alleviate Brexit fears and that had an affect that coursed through the global markets. Another poll, released after the market close today, shows no-vote sentiment rising to 53%.

Asian indices gained between 1.6% (China) and 2.3% (Japan) as risk-on investors returned to the market. European indices gained more than 3% across the board. The referendum will be held Thursday, polls closing locally at 8PM New York time with an estimated 50% of results expected in by 11PM. We'll know for sure what happens on Friday morning.

Market Statistics

Futures trading was positive right from the start, and strong. The major indices were indicated to open with gains greater than 1% and with little to know market news in the early hours this held into the opening bell. After the open the indices shot higher and hit the intraday peak just after 10AM. The SPX made an intraday high of 1.4%, hitting the 2,100 level, before moderating gains into the close. From 10AM until the close of trading the indices drifted lower off their highs, giving up most of the days gains in the last half hour of trading, but remained positive for the day.

Economic Calendar

The Economy

There was no official economic data today, and none due out tomorrow either, and very little due out this week. Wednesday we'll get Existing Home Sales and Housing Price Index, Thursday is weekly jobless claims and New Home Sales, Friday Durable Goods and Michigan Sentiment are on the schedule.

Moody's Survey Of Business Confidence fell -1.9% to hit a new multi-year low of 25.6. Mr. Zandi still says that US business are the most confident with responses indicative of an economy expanding above its potential. Globally sentiment is much weaker, the weakest in South America where political turmoil is still running rampant. There is no mention of the Brexit although I can't help but think it has something to do with declining business sentiment, same with the FOMC lowered growth outlook.


According to FactSet the blended rate for Q2 earnings growth is now -5.1%. This is -0.2% lower than last week, there have been 3 reports so far. Of those reports only 1 has beaten on EPS and one on revenue. Since the end of the previous quarter expectations for 8 sectors have been revised lower.


Looking forward growth is still expected to return in the 2nd half but projections remain weak. Third quarter estimates have been lowered to 1.3%, down a tenth, while the 4th quarter remains steady at 7.6%. Full year 2016 earnings growth has been revised down a tenth, full year 2017 remains steady at 13.6%. There are 8 reports scheduled for this week, the bulk of reports are not due out until after 7/11 when Alcoa reports.


The Dollar Index

The dollar fell today as the pound and euro gained, due to the Brexit polls. The Dollar Index fell a little more than -0.5% in today's action, falling from the 78.6% retracement level and extending the drop below the short term moving average begun last week. The index looks set to move lower on positive EU sentiment, provided the Brexit does not happen. Near term support may be present at the $93.30 level, a move below here could go as low as $92.62 and a retest of the 100% retracement level. The indicators are showing what could be a strong bearish signal; increasing bearish MACD confirmed by a strong bearish stochastic crossover. Also of note, Janet Yellen begins two days of testimony before congress tomorrow, it should be interesting.


The Oil Index

Oil prices rose today, WTI gaining more than 2.65%, as Brexit fears receded and global growth fears are alleviated. Helping today's move in oil was a draw down of supply at the Cushing facility greater than a half million barrels. Also affecting today's trade is the expiration of the July futures contract tomorrow. WTI is now trading near $49.25, resistance is likely to set in near the $50 level.

The Oil Index jumped about 2% on today's gains in oil to trade above the short term moving average. The index remains range bound, between 1,100 and 1,175, with indicators consistent with a trading range. This range is likely to continue until we get a definitive move in oil, one way or the other. If the index continues to move upward now first target for resistance is at the top of the range, 1,175, with the 1,100 level as support and the short term moving average acting as a pivot point.


The Gold Index

Gold prices fell on the Brexit news as risk on trading overcame the flight to safety. Spot prices fell as much as -1% intraday, trading below $1,280, before regaining some but not all of today's losses. If the dollar continues to move lower gold prices may recover and retest resistance at $1,300, if not a move down to test support near 1,250 is also possible. For this week, gold's movements are tied to the Brexit, once we get past that dovish Fed outlook and economic data will come back to the fore. With rate hikes apparently off the table for the time being a weakened dollar and stronger gold seems inevitable. The Fed Watch Tool shows a 12% chance of rate hike in July, 33% in September and only 36% in November. By December it moves up above 50%, but only to 51%.

The gold miners remain strong despite the seesaw in gold prices over the past week or so. The Gold Miners ETF GDX moved up today after a lower opening, closing with a loss near -0.5%. Today's action helps confirm support at the $25 level and the bottom of a congestion band that has been forming over the past two weeks. This band/range may continue into the end of the week while we wait on the outcome of the Brexit but like with gold, future direction is more tied to the FOMC and the dollar than anything else. A fall from this level, dropping out of the range and below the short term moving average, would be bearish and could go as low as $22.50. A move higher will find resistance at the top of the band, near $26.75. The indicators are basically bullish but with momentum receding to near 0 and stochastic possibly rolling over at the upper signal line so for now at least, it appears as if resistance is holding. A break above resistance would be bullish and could take the ETF up to the $35 level in the short to long term.


In The News, Story Stocks and Earnings

Wal-Mart made the news today when it announced a new deal to enhance its presence in China. The deal, a sale of its online resources to JD.com, the 2nd largest online retailer in the country, is seen as a positive for both companies. It is expected to help Wal-Mart sales online and in physical stores and help JD.com compete with Alibaba. Wal-Mart is reported to receive about 5% of JD.com should the deal be consummated. Shares of Wal-Mart gained about 0.5% in today's action to trade near a 10 month high.


Facebook came under scrutiny today as the board and Mark Zuckerberg seek approval for him, Mark Zuckerberg, to retain majority voting control even as he sells off his stake in the company for philanthropic reasons. The vote, if successful, would create a third class of stock with no voting power in order to help him keep control. Shares of Facebook gained 0.66%, trading in a very narrow range, but are still below the short term moving average with very weak indicators. A move down to $110 is very possible.


Lennar and KB Homes are set to report earnings tomorrow; Lennar is set to report before the open, KB Homes after the close of trading. Expectations for both are low but with the strength in new homes sales and starts could easily beat them. As a recap, April New Home Sales were up more than 16.5% from March and up 23.8% from April last year; May Housing Starts fell moderately from the previous month but are up 9.5% from the same time last year. The XHB Home Builders SPDR gained more than 1% in today's action, moving above the short term moving average, but remain within the three month range. The indicators are mixed but could be rolling into a bullish signal, positive earnings reports from these two companies could help.


The Indices

The indices tried to make a strong rally today, and almost succeeded. The major indices gained more than a full percent in early trading, only to give up most of the gains by the end of the day. The day's leader was the Dow Jones Transportation Average which closed with a gain of 1.09%. The transpots made a strong move higher, intraday, to test resistance at 7,750 and the short term moving average but was not able to hold it. Today's candle is a smallish white bodied candle with long upper shadow, indicative of resistance at these levels. The indicators are mixed, reflecting a bounce from support begun last week but otherwise bearish and consistent with range bound trading.


The 2nd largest move in today's session was posted by the NASDAQ Composite, 0.77%. The tech heavy index gapped higher at the open, moved up above the short term moving average, and then fell throughout the day to create a bearish candle. Today's move appears bearish and confirming resistance at the short term moving average with downside target near 4,800. The indicators are bearish as well, but a little mixed as the bearish MACD may have peaked and stochastic %K is moving higher. A move below support would be bearish and could take the index down to 4,750 or 4,700 in the near term.


The next largest gain in today's session was made by the Dow Jones Industrial Average. The blue chips closed with a gain of 0.74% after moving higher to test resistance near 18,000. Despite the late day sell-off the index was able to close above the short term moving average. Even so, it appears more range bound than not, especially in the nearer term, with resistance at 18,000 and support near 17,500. The indicators are currently bearish but consistent with a bounce from the bottom of the range, possibly rolling over into a bullish signal but that would require a break above resistance.


The S&P 500 made the smallest gain in today's session, only 0.54%. The broad market created a small white bodied candle with long upper shadow, indicative of resistance at that 2,100 level. Despite the late day sell-off the index was able to close above the short term moving average, a potentially bullish scenario. The indicators are mixed, consistent with range bound trading. Support appears to be near 2,050 with resistance currently near the all-time high.


The indices are range bound and do not appear ready to break out just yet, in either direction. The Brexit is certainly a concern and will likely drive the market this week although I still think earnigns season will turn out to be more important. The Brexit results will likely have an impact on earnings outlook, either good or bad, but until we get into the season we really won't know what to expect going forward. For now, we are still expecting to see a poor earnings season and broad market projections continue to decline so there is little reason to expect the market to rally. The positive factor is that the market is still expected to return to earnings growth next quarter, so long as this remains true any correction/pull-back caused by this earnings cycle will likely be a prime entry point for longer term positions. I remain cautious for the near term and waiting for the next good signal for entry.

Until then, remember the trend!

Thomas Hughes


New Plays

New Historic Low

by Jim Brown

Click here to email Jim Brown
Editor's Note

When your stock loses 4% to a historic low when the broader market is up big, there may be trouble ahead. Somebody is dumping these shares after a big loss in Q1. What do they know that we do not?



NEW BULLISH Plays

No New Bullish Plays


NEW BEARISH Plays

QURE - UniQure - Company Profile

UniQure is a biopharmaceutical company, engages in the discovery, development, and commercialization of gene therapies in the Netherlands. The company offers Glybera, a gene therapy product for the treatment of patients with lipoprotein lipase deficiency. They have multiple drugs in development for a variety of illnesses.

In their recent earnings they reported a loss of 92 cents that missed estimates for a loss of 82 cents. Revenue of $4.3 million did beat estimates for $2.9 million. This is a very small company and since the ASCO conference their shares have been in crash mode.

Losses appear to be accelerating and they lost $22.69 million in Q1. Their market cap is only $204 million.

There was no gap open today despite the major gap higher in the market. They closed at a historic low at $8.20. They have only been public for 2 years and from the chart today it looks like they are going significantly lower. Normally when a stock hits the prior historic low there is a rebound or at least a pause. Neither occurred and that suggests it will go lower.

With a QURE trade at $8.00

Short QURE shares, initial stop loss $9.25.

No options recommended.




In Play Updates and Reviews

Gap and Cr*p

by Jim Brown

Click here to email Jim Brown

Editors Note:

The +270 point gap higher on the Dow, faded to a +129 point gain at the close. The Dow failed to reach the critical resistance at 18,000 and then dropped back significantly at the close. The change in the Brexit polls were responsible for the monster short squeeze at the open. That squeeze was quickly erased because sentiment is still very cautious.

The poll of polls found a 44% to 44% tie between those wanting to leave the EU and those wanting to stay. That was a 5% improvement over the numbers last week. The improvement was credited to the assassination of Jo Cox, a MP who strongly favored remaining in the EU. Whether that positive sentiment will continue to build or revert back to the prior Brexit lead is unknown.

What we do know is that the markets will continue to be whipsawed around until the voting results are released on Thursday evening. The European markets exploded higher on the new poll.





Current Portfolio





Current Position Changes


INSY - Insys Therapeutics

The short position on INSY was opened at $13.06


Profit Targets

Check the graphic above for any profit stops in green. We need to always be prepared for a profit exit at resistance.


Stop Loss Updates

Check the graphic above for any new stop losses in bright yellow. We need to always be prepared for an unexpected decline.


BULLISH Play Updates


CSII - Cardiovascular Systems -
Company Profile

Comments:

No specific news.

Original Trade Description: June 13th.

Cardiovascular Systems, a medical technology company, develops, manufactures, and markets devices to treat vascular diseases in the United States. It offers peripheral arterial disease products, including Stealth 360° Peripheral Orbital Atherectomy System (OAS), Diamondback 360 Peripheral OAS, Diamondback 360 60cm Peripheral OAS access device, and the 4 Diamondback 360 French 1.25 Peripheral OAS access device products for treating a range of plaque types, such as calcified plaque, in leg arteries both above and below the knee and address many of the limitations associated with existing surgical, catheter, and pharmacological treatment alternatives, as well as Diamondback 360 Coronary OAS, a catheter-based platform to facilitate stent delivery in patients with coronary artery disease.

In the last quarter revenues rose 7%, gross margin rose from 77.8% to 80.4% and operating expenses decline -5%. They expect to reduce expenses by another 7% in the current quarter. Coronary revenues rose +31%.

With more than 18 million Americans suffering from Peripheral Artery Disease (PAD), which is the accumulation of plaque in the peripheral arteries, their market is booming. Coronary Artery Disease is a leading cause of death in the USA. With more than 40% of the population already diagnosed and probably another 20% undiagnosed the market for their products is also growing rapidly. With the baby boomers retiring and these health problems becoming more life threatening as they age the number of "interventions" as my cardiologist calls them is growing rapidly. Stenting any patient with any symptoms of heart disease is becoming more common than tonsillectomies for children. More than 600,000 Americans die from heart disease annually. That is equivalent to 6 jumbo jet crashes every day.

In Q1, Broadfin Capital added a 1.46 million share stake in CSII or 4.47%. Point72 Asset Management added 102,000 shares. Shares have broken out of resistance at $16 and continue to creep higher.

Earnings are August 3rd.

There was only a minor decline today in a very weak market.

Position 6/14/16:

Long CSII shares @ $18.16, see portfolio graphic for stop loss.

No option recommended because of wide spreads.



HPE - Hewlett Packard Enterprise - Company Profile

Comments:

No specific news. Nice rebound.

Original Trade Description: June 2nd.

Hewlett Packard Enterprise was spun off from Hewlett Packard (HPQ) to be the high growth segment of the company. The remaining HPQ was the slower growing PC and printer company.

HPE reported adjusted Q1 earnings of 42 cents and in line with estimates. Revenue of $12.711 billion would have been up +4% on a constant currency basis. Analysts were expecting $12.419 billion.

For the current quarter, HPE guided to earnings of $1.10 to $1.14. For the full year, they expect $1.85-$1.95 and that was more than analysts expected at $1.89. They increased free cash flow +101% to $1.1 billion for the quarter.

The good news came from their plans for the cash flow. HPE expects to generate $2.0-$2.2 billion in free cash flow in 2016. They are receiving $2 billion from the Tsinghua transaction which closed in early May and the money will be used for share repurchases. In 2016, HPE is increasing its commitment to return 100% of the free cash flow to investors in dividends and buybacks.

This means over the next couple of months we should see significant share activity as funds position themselves to be the beneficiaries of all this buyback/dividend activity that could exceed $4 billion in 2016. $2.5 billion of that is in an "accelerated" buyback program. The board authorized another $3 billion in buybacks to bring the current authorization to $4.8 billion.

They also announced a tax-free spinoff of their services division to Computer Sciences Corporation (CSC), which is expected to close in March 2017. This will produce another $8.5 billion in value to HPE shareholders in the form of $4.5 billion in equity in the combined company and $1.5 billion in a cash dividend and the removal of $2.5 billion in debt from HPE.

Earnings Aug 23rd.

HPE shares have shaken off their May weakness and closed today at a historic high. I am recommending we buy this stock in anticipation of additional fund investors moving in ahead of future dividends, buybacks and the spinoff.

Position 6/3/16:

Long HPE shares @ $18.40, see portfolio graphic for stop loss.

Optional:

Long August $20 call @ 40 cents. No stop loss.



NVAX - Novavax - Company Profile

Comments:

No specific news. Minor gain.

Original Trade Description: June 14th.

Novavax, Inc., a clinical-stage vaccine company, focuses on discovering, developing, and commercializing recombinant nanoparticle vaccines and adjuvants. The company produces its vaccines using its proprietary recombinant nanoparticle vaccine technology. Its product pipeline includes respiratory syncytial virus (RSV) vaccine candidates for elderly and maternal immunization that are in Phase III clinical trials, as well as pediatric RSV candidate, which is in Phase I clinical trial; seasonal quadrivalent influenza and pandemic H7N9 vaccines, which are in Phase II clinical trials; vaccine candidate against Ebola Virus that is Phase I clinical trial, as well as combination respiratory vaccine candidate and seasonal influenza vaccine candidate that is in pre-clinical trial; and rabies G protein vaccine candidate, which is in Phase I/II clinical trial. The company also has pre-clinical stage programs for various infectious diseases, including the Middle East respiratory syndrome coronavirus; and develops technology for the production of immune stimulating saponin-based adjuvants.

Novavax is using a new proprietary model for vaccines that does not require the long incubation time and the annual reformulation. They are far along in their trials compared to other companies and these vaccines can be given to children.

The top line State III data for the RSV F vaccine is due out in Q3 and they already have a fast track designation from the FDA. The drug could be commercially available by mid-2017. This drug could generate $1 billion in sales. While there is always the potential for a trial to fail, this initial drug has already progressed through all the early and mid stage trials. Novovax also has $434 million in cash so plenty of liquidity to continue the process.

Earnings August 9th.

Analysts are predicting a 100% gain for NVAX over the next year and that is attracting new investors today. With their advanced pipeline they could be an acquisition target. Shares only pulled back about 50 cents in the market weakness over the last three days and they posted a gain in today's weak market.

Position 6/15/16:

Long NVAX shares @ $6.65, see portfolio graphic for stop loss.

No options recommended because of price.



UIS - Unisys Corp - Company Profile

Comments:

No specific news.

Original Trade Description: June 6th.

Unisys Corporation provides information technology services worldwide. It operates through two segments, Services and Technology. The Services segment provides cloud and infrastructure services, application services, and business process outsourcing services. The Technology segment designs and develops software, servers, and related products. It offers a range of data center, infrastructure management, and cloud computing offerings for clients to virtualize and automate data-center environments. This segments product offerings include enterprise-class servers, such as the ClearPath Forward family of fabric servers; the Unisys Stealth family of security software; and operating system software and middleware. The company serves commercial, financial services, public sector, and the U.S. federal government through direct sales force, distributors, resellers, and alliance partners.

Unisys has morphed in its 143 years of operation into a global cloud, IT and infrastructure services company. That is a long way from the original company that produced the first commercially viable typewriters and adding machines under the name Burroughs, Sperry and Remington Rand.

Today one of their main products is Unisys Stealth for protection of digital and physical assets. Stealth Mobile protects secur emobile applications and Stealth Cloud expands that protection to the cloud.

Just before their recent earnings they announced a deal with Mitel to provide the Unisys stealth technology to protect their 60 million mobile and enterprise customers. Business is booming but it has been a long time coming. In Q1 revenue declined -3% and services declined -2%. However, the company said its "lumpy" quarter-to-quarter strategy was changing with a stronger focus on the Stealth products and their rapid wide scale adoption. They expect the amount of money spent on cybersecurity to more than double from the $75 billion in 2015 to more than $170 billion in 2020. The cost of data breaches will rise to $2.1 trillion annually by 2019 and more than four times the cost in 2015.

Unisys has been a stealth company for the last year with shares declining from $30 to $7. With their new products and the rapid acceptance of those products their stock is rebounding off the three month consolidation pattern.

Earnings July 28th.

Shares moved over resistance at $8.25 last week and are preparing to move higher. The big decline in March was a $190 million offering of convertible senior notes due 2021 with a conversion price of $9.76. That was a 20% premium to the stock price post announcement.

If the current rebound continues the next material resistance is $12.

Position 6/7/16:

Long UIS shares @ $8.47, no initial stop loss.

Optional:

Long October $9 call @ 80 cents. No stop loss.




BEARISH Play Updates

GOGO - Gogo Inc - Company Profile

Comments:

No specific news. Only a minor gap higher that faded with the market.

Original Trade Description: June 11th.

Gogo provided communication services to the commercial and business aviation markets in the U.S. and internationally. They provide in-flight connectivity and wireless digital entertainment solutions to commercial airline passengers to and from North America.

Gogo has had a rough few months as airlines complained about the service and some removed the Gogo service and replaced it with a competitor.

On May 23rd Gogo announced the pricing of $525 million in senior secured notes. On May 26th the stock spiked 20% after the company filed a notice with the SEC saying an unspecified airline had requested a proposal for service to cover its large domestic fleet. Under the proposal Gogo would provide Wi-Fi to a "meaningful" portion of the domestic fleet that is is currently serving. Gogo cancels the $525 million debt sale.

On June 3rd shares plunge as the unspecified airline turns out to be American Airlines and the proposal is far less than expected. American picked ViaSat (VSAT) to provide internet access on 100 new Boeing jets. Gogo updates its SEC filing to say it would provide service on 140 American planes and continue service on 400 others. However, American retained the option to remove Gogo equipment on any American planes at any time. Gogo said it now expects American to remove its equipment on the "mainline" planes over the next several years. American said it was planning on upgrading the service on its planes but had not picked a successor. That means the 100 ViaSat planes will be a live test and will likely replace Gogo. ViaSat provides 12 mbps of bandwidth to each seat while Gogo provides 70 mbps for the entire plane and that bandwidth has to be shared by all passengers. There is a significant difference.

On June 9th Gogo reinstates the $525 million debt offering and priced it at 12.5% after Moody's rated it a B3-PD (Probability of Default) credit.

Earnings Aug 4th.

The future is not bright for Gogo. They are trying to produce a faster service through satellite connections rather than ground based systems but the testing and roll out is not going smoothly. Several years of hostility between passengers and carrier over the slow bandwidth has poisoned the relationships and ViaSat appears poised to take over the market.

Shares closed at a historic low on Friday at $8.97 and the downward trend is likely to continue.

Position 6/13/16:

Short GOGO shares @ $8.99, see portfolio graphic for stop loss.

I am not recommending an option but the August $8 put is $75 cents.



INSY - Insys Therapeutics - Company Profile

Comments:

No specific news. Opening gap gave us a better fill and then it was erased to close with a loss.

Original Trade Description: June 18th.

Insys Therapeutics, Inc is a specialty pharmaceutical company that develops and commercializes supportive care products. The company markets Subsys, a sublingual fentanyl spray for breakthrough cancer pain in opioid-tolerant cancer patients in the United States. Its lead product candidate is Syndros, an orally administered liquid formulation of dronabinol. The company is also developing Cannabidiol Oral Solution, a synthetic cannabidiol for childhood catastrophic epilepsy syndromes; and other product candidates, including other dronabinol line extensions and sublingual spray product candidates.

Two former employees were arrested on June 9th for allegedly participating in kickback schemes involving doctors who prescribed the company's main drug, Subsys, a pain medication containing fentanyl. This is the drug that killed Prince, Joan Rivers and Michael Jackson. The two employees paid doctors thousands of dollars to participate in sham educational programs in order to induce the doctors to prescribe millions of dollars worth of the Subsys product. In 2014 alone the employees paid one doctor $147,000 and another $112,000 in speaker fees to give a talk at one of their "educational" programs. Those doctors were two of the largest prescribers of the drug in the USA. The scheme was discovered in November 2015. Subsys revenue in 2015 was $330 million. In 2014 a record 28,000 people died from subscription opioid addiction.

Earnings August 4th.

Clearly, this will have a long-term impact on Insys since there will be liabilities associated with the revenue generated from the scheme. The company is under attack by Preet Bharara, U.S. Attorney for New York. He has brought down dozens of other companies over the last several years for various types of misdealing.

Position 6/20/16:

Short INSY shares @ $13.06, initial stop loss $14.25

No options recommended because of wide spreads and high prices.



JBLU - JetBlue - Company Profile

Comments:

No specific news. Opening gap higher erased to close back at the 17-month low.

Original Trade Description: June 15th.

JetBlue Airways Corporation, a passenger carrier company, provides air transportation services. As of December 31, 2014, the company operated a fleet of 25 Airbus A321 aircrafts, 130 Airbus A320 aircrafts, and 60 Embraer E190 aircrafts. It also served 93 destinations in 28 states in the United States, the District of Columbia, the Commonwealth of Puerto Rico, the U.S. Virgin Islands, and 19 countries in the Caribbean and Latin America.

Business was good until all the airlines began adding capacity at the same time. The discount airlines were particularly aggressive. In order to fill that extra capacity they increased the number of discount seats and overall pricing went down. Now they have plenty of passengers but their revenue per mile has declined. They are still making money but with rising fuel prices they are going to have to raise ticket prices and that will dampen demand.

Last week JetBlue said May traffic measured in revenue passenger miles of (RPMs) rose +10.7% from 3.47 billion to 3.84 billion. Over the prior 12 months available seat miles (ASMs) rose 12.1% to 4.54 billion. The load factor or the percentage of seats filled by passengers declined from 85.7% to 84.6% because the rapid expansion of capacity outweighed the traffic growth generated by the discount tickets. That means the revenue per available seat mile (RASM) declined -7%.

The airline lowered guidance for RASM to decline 7.5% to 8.5% for Q2 compared to prior guidance for a 7% decline. They also lowered ASM growth from 8.5%-10.5% to 8.0% to 9.5%. They do not need to add additional capacity if they cannot fill the seats they already have.

Factor in the strong dollar, rising fuel prices and the increased terrorist activity and the outlook for profits is declining. Since the Belgium airport attack airline traffic has slowed. People do not want to be blown up while waiting in a security line. Add in the Zika virus that has disrupted traffic to Latin America and the Caribbean and that is another reason seats are empty. On the positive side JetBlue was accepted by the DOT to operate scheduled flights to Cuba. However, compared to their total capacity those few weekly flights will not move the needle.

Earnings July 26th.

JBLU shares have already declined significantly. They fell sharply in early May when they reported April traffic numbers. When the numbers did not improve in May they declined again starting on June 10th. JBLU was a rocket ship when it rallied from $5 to $24 in 2015 but we are headed for a round trip with shares back at $16.66 today. It has been a series of disappointing events one after another. I think we will see single digits again soon because of all the events impacting traffic and earnings I discussed above.

Position 6/16/16 with a JBLU trade at $16.50

Short JBLU shares @ $16.49, see portfolio graphic for stop loss.

Optional

Long September $16 put @ $1.15, no initial stop loss.





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