Option Investor
Newsletter

Daily Newsletter, Thursday, 7/7/2016

Table of Contents

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

Market Wrap

Wound Up, Waiting For Earnings

by Thomas Hughes

Click here to email Thomas Hughes

Introduction

The market faltered despite positive data from the labor sector. Post Brexit turbulence persists, adding to confusion, while we all await the upcoming onslaught of earnings reports. Today's action was light, within tight ranges and below resistance, possibly due to testimony from James Comey to Congress but more likely a normal pause in pre-earnings season trading.

Comey held his ground during an intense Q&A session before the House Oversight Committee. Both parties grilled him about the apparent disconnect between his findings and his report. He was able to fend off every one but it came down to some fine points in many instances. Bottom line, Hillary was extremely careless handling top secret information and will likely face an inquiry into allegations of lying under oath.

Asian markets were mixed following yesterday's dovish FOMC minutes. Indices spanned a range from -0.67% (Nikkei) through +1.03% (Heng Seng) on global growth concerns. European markets were largely positive though trading was choppy. Brexit fallout remains the major concern here and will likely affect trading over the next few months.

Market Statistics

Futures trading indicated a flattish opening in the earliest part of the session and later moved slightly higher after the release of today's data. Due to the Fourth of July holiday some of the data is off its usual schedule which means ADP and WTI storage levels were both released today, along with the usual. At the open trading moved the indices higher, about a half percent on average, but these gains were not sustained. By noon the indices had retreat to break even levels, most within a few hundredths of 0.00%. Afternoon trading was much the same, but in reverse. The broad market moved down to a low near -0.5% but did not hold it, moving back up to break even by the close of the day's session.

Economic Calendar

The Economy

Challenger Job Cuts was the first data point released today. Job cuts rose 28% in June, to 38,536, but this is off of a 5 month low. The year-to-date job cuts are now 313,754, 9% higher than at this same time last year but below the 1 year average. Job cuts fell from Q1 to Q2 by 27% led by sector specific declines in energy, retail and health care lay-offs of 42%, 48% and 65%. The report cites seasonal strength in labor markets as one reason for the low level of job cuts but also suggests they may remain low through the end of the year.


ADP employment figures were released at 8:15AM. According to them job creation rebound in June to 172,000. This is great for labor markets but still below the 200,000 level. Small business led growth adding 95,000, followed by medium business addition of 52,000 new jobs. Good producing jobs fell however, shedding -36,000, as did construction, -5,000. Services sectors created 208,000 new jobs, led by transportation/trade/utilities and business/professional.

Initial claims for unemployment fell -16,000 to 254,000, a 2.5 month low and the 70th week of claims below 300,000. The four week moving average of initial claims fell -2,500 to 264,750, also +2 month low. On a not adjusted basis claims rose by 1.4% versus an expected 8% as predicted by the seasonal factors. On a year over year basis not adjusted claims are now -12% below last years levels. Not adjusted claims have widened the gap in YOY claims and may indicate some volatility in upcoming weeks. Regardless, claims are trending near long term low levels, consistent with a healthy labor market.


Continuing claims fell -44,000 to hit 2.124 million. However, the previous week was revised higher by 48,000 canceling out any week to week declines. Despite the revisions continuing claims are trending near long term low levels and consistent with labor market health.

Total claims rose by 15,959 to hit 2.048 million, 4.6% lower than this same time last year. This is a continuation of the expected season rise in total claims which remain consistent with labor market health. If seasonal trends remain constant we can expect to see total claims rise for another 4-5 weeks and top out 2.185 million.


Tomorrow we'll get the NFP report. I expect it to rebound from last month's dismal 38,000, consensus is near 180,000. Unemployment is expected to rise a tenth to 4.8% and that may happen due to expected rises in total unemployment claims. Perhaps more important will be average workweek and hourly earnings as signs of improvement in consumer health.

The Dollar Index

The Dollar Index made some small gains today but remains within a recent congestion band. The index is being buoyed by weakness in the euro and the pound in a flight to safety trade that is at the same time a similar to flight to the yen is capping gains. This range may continue into the near term with additional churn spurred by economic data. Longer term outlook remains dollar strong as relaxed economic policy is expected from the UK, the EU and Japan in the next few months. FOMC outlook may help keep the index range bound in the near term unless the economic data noticeably strengthens or weakens. Near term support is near $95.50, resistance near $96.50. A break below support could go to $94, a break above resistance could go to $97.50 or $98.


The Oil Index

Oil prices seesawed today as draw down hopes were dashed. The market had been expecting a large draw down following last week's 4 million barrels and in anticipation of the holiday weekend, the EIA reported only -2.2 million barrels of crude and -100,000 barrels of gasoline. After the report WTI fell nearly -5% to trade just above $45 and set a new 2 month low. Prices remain trapped between signs of rebalance, tepid demand and persistently high production and winding up within a range. This range is likely to continue into the near term at least. Support appears to be just below $46, resistance near $50.

The oil sector tried to move higher in early trading but was held back and reversed by today's EIA data. The Oil Index itself fell about -1.25%, falling beneath the short term moving average. The index remains range bound between 1,175 and 1,075 and appears to be reaching a point of equilibrium near the 1,125 level. The indicators are both consistent with range bound trading and a test of support within that range. The fact that they are both trending in a narrowing range near the mid-point of their typical ranges points to a market that is quieting down, reaching a point of calm, waiting for something to happen. That something is likely oil prices and oil price outlook, and how it relates to earnings growth. If growth outlook for next year remains as strong as it is now this index will likely move higher in the short to long term despite any near term weakness.


The Gold Index

Gold prices held relatively steady today despite an early dip in response to the ADP data. The data helped to strengthen the dollar and FOMC rate hike outlook, if only marginally, and put some pressure on gold. Even so, gold prices are holding above $1360. The upward move in gold prices could continue despite relative strength in the dollar due to safe haven appeal. Upside target at this time is near the $1380 level. Risks include economic data and FOMC outlook, when strength in the economy reasserts itself gold may lose its appeal.

The gold miners are riding high on gold prices. The Gold Minere ETF GDX fell about -2% today but are trading just below a three year with bullish technicals. Momentum has peaked in the near term but is convergent with higher prices so a retest of the recent price peak should be expected at least. Stochastic is also bullish with plenty of room to move higher. There is a possibility of divergence in stochastic but no sign of it rolling over yet. Next upside target is near $31.25, resistance should the ETF pull back is likely near $27.50.


In The News, Story Stocks and Earnings

Pepsico reported earnings before the bell. The global provider of drinks and snacks beat earnings with revenue in line with expectations. Consensus forecast of $1.28 was short of the actual $1.35, driven on improvements in most markets and margin expansion. Earnings were impacted by currency exchange, an issue which is likely to persist, and volatility conditions in Venezuela. Forward guidance was raised to a range more consistent with analyst expectations. Shares of the stock jumped more than 3% in the pre-opening session, gapped up to open and close at a new all time high.


Shares of Humana took a beating today as questions were raised about the proposed merger of Athem and Cigna. The Connecticut Attorney General has concerns about the impact to the competitive environment and those concerns spilled over into the ongoing take-over efforts between Aetna and Humana. Shares of Humana fell -10% on the news, the hardest hit of all four companies.


PriceSmart reported earnings after the bell. The operator of membership driven sales clubs in overseas markets was able to increase sales and revenue on a quarter over quarter basis but fell well short of estimates. EPS missed by a full $0.15, hurt by foreign exchange, and it may do so in the current quarter as well. Growing sales figures are driven by the addition of 2 new stores in the previous quarter, raising the count from 36 to 38, but hurt by falling comp store sales. Early data for the current quarter show June comps fell nearly -2%. Shares of the stock fell more than -5% in after hours trading.


The Indices

The indices made small moved today, for the most part action was steady near yesterday's closing prices. The day's leader was the Dow Jones Transportation Average which gained 0.46% in a move that tested resistance at the short term moving average. Resistance was there, capping gains, and may remain there into the near term. The indicators are mixed, bullish but weak, and consistent with a market that has been trending lower. Should the index continue to fall from the MA and move below 7,475 further downside should be expected with target near 7,000. A move above the MA would be bullish and could take the index up to 7,750 in the near term.


The second largest move higher in today's session was made by the NASDAQ Composite. The tech heavy index was able to set a two week high, above the short term moving average, and may move higher. The indicators are both bullish but very weak, suggesting a test of resistance near 4,950 is possible. A move beyond resistance is not likely at this time unless bullish catalyst emerges. First target for support is the short term moving average, near 4,830, with additional targets near 4,800 and just below.


The other major indices were not able to post gains in today's session, led by the Dow Jones Industrial Average decline of -0.15%. The blue chips created a small spinning top type doji squeezed between the short term moving average and long term resistance at the 18,000 level. The indicators are bullish but very weak, suggesting resistance may be tested again but also giving the impression that range bound trading will persist. A break above 18,000 would be bullish and could take the index up to test the all-time high, a move below the short term moving average would be bearish and could take it down to retest support at 17,500 or 17,000.


The S&P 500 fell -0.13% in a move that created a small spinning top type doji candle. Today's action is above the short term moving average but below resistance and below the 2,100 level. The indicators are mildly bullish but trending near the middle of their respective ranges, consistent with range bound trading. A move above 2,100 would be bullish but would also face additional resistance at 2,120 and 2,130 before hitting a new high. A move below the short term moving average would be bearish and could take it down to retest support near 2,050 or 2,000.


The indices are winding up ahead of earnings and may have reached a critical inflection point. The market is firmly focused on earnings growth and it will likely provide the catalyst we need to get the indices broken out of their ranges. The question now is, which direction will they go? Better than expected Q2 earnings with a clear indication that earnings growth will return in the next quarter should be enough to keep the indices treading water and maybe enough to get them moving higher. Anything less than that could erode confidence and send the market looking for stronger support levels.

I am hopeful we'll see positive outlook for earnings return but remain skeptical. We've had to many quarters were expected growth was revised lower bit by bit until it turned negative for me to blindly trust current outlook, the possibility this will happened again and lead us into a sixth quarter of earnings growth decline is very real. I remain cautious in the near term, waiting for earnings. There are a few reports tomorrow, the big ones start rolling out next week. Alcoa is on Monday, CSX, Yum Brands, JP Morgan and Wells Fargo are due out later in the week.

Don't forget, the next FOMC meeting is only 3 weeks away!

Until then, remember the trend!

Thomas Hughes


New Plays

Decisions, Decisions

by Jim Brown

Click here to email Jim Brown
Editor's Note

Choosing between multiple candidates is getting tougher as each day passes. I spent a couple hours today trying to find a play for the current market environment with triple digit market swings, a weekend ahead and earnings kicking of next week. I simply could not find a candidate that I really wanted to play. This is the way I get in trouble. I end up forcing a play just to have a play. I would rather get out of that habit and only make a recommendation when I have confidence it will succeed.

Today I am going to give you three potential plays. You can research them yourself and decide if you want to use them. This way you have some prescreened candidates rather than a specific play. These are not official recommendations and will not be followed in the newsletter. They could be official plays in the days ahead depending on the market and the stock.

INSY - Insys Therapeutics - They had a drug approved by the FDA on Tuesday and shares shot up to $15. They went sideways for two days but closed at a four week high today. Earnings August 4th.


FGEN - Fibrogen - Shares put in a double bottom on the 27th and have started rebounding. Today's close was a four week high. Earnings August 9th.


SPXC - SPX Corp - Shares peaked in April at $17.25 and have been declining slowly or two months. This is an engineering company and revenue and earnings are slowing. If it breaks below $14, it could fall to $12 or even $8 where it was in January. Earnings August 4th.




NEW BULLISH Plays

No New Bullish Plays


NEW BEARISH Plays

No New Bearish Plays



In Play Updates and Reviews

17,984

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Dow tried really hard to reach that resistance at 18,000 but fell short on the opening spike and closed more than 100 points lower at 17,895. That resistance level remains strong and we could not even reach it on the gap higher open today. The S&P surged past 2,100 to 2,109 but that was immediately sold to drop back to 2,089 intraday or -20 points off the high.

The ADP Employment report was positive and gave the markets a boost but we do not know how the Nonfarm Payroll number will be received on Friday. The ADP report may have taken some of the mystery out of Friday's report.

The markets are trying to chip away at resistance but Friday's have not been strong recently because of the potential for negative headlines from overseas.




Current Portfolio





Current Position Changes


TWTR - Twitter
The long position in TWTR was entered at $17.24.


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


EXAS - Exact Sciences -
Company Profile

Comments:

No specific news. Minor decline after a new 9-month high close.

Original Trade Description: June 25th.

Exact Sciences Corporation, a molecular diagnostics company, focuses on developing products for the early detection and prevention of various cancers. The company develops the Cologuard, a non-invasive stool-based DNA screening test for the early detection of colorectal cancer and pre-cancer. Its Cologuard test includes a protein marker to detect blood in the stool, utilizing an antibody-based fecal immunochemical test. The company has a collaboration, license, and purchase agreement with Genzyme Corporation, as well as with MAYO Foundation for Medical Education and Research for developing tests to detect lung, pancreatic, and esophageal cancers.

Shares of EXAS fell from $18.50 to $7 in October after the U.S. Preventative Services Task Force, an independent panel of health care experts, issued preliminary screening test recommendations that did not include Cologuard as a recommended product. The draft listed Cologuard as an "alternative" screening test. Exact Sciences protested strongly about the classification.

On June 14th, the same task force issued its final cancer screening recommendations and clarified the inclusion of Cologuard. The information was accidentally leaked and the panel had to release the report earlier than the planned June 21st date. With the final recommendation for Cologuard the company has begun advertising strongly and sales should increase. Cologuard is now an A-rated preventative service under the Affordable Care Act.

Earnings July 26th.

Shares have broken out of their 9-month consolidation base and could close the gap back to $18 in the coming weeks.

Position 6/27/16:

Long EXAS shares @ $11.50, stop loss $9.45.

No options recommended.



HPE - Hewlett Packard Enterprise - Company Profile

Comments:

No specific news. Minor gain but one analyst is expecting a 7% to 10% gain in the next couple of weeks.

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

Position 6/28/16: Long HPE shares @ $17.50, see portfolio graphic for stop loss.

Position 6/3/16: Long August $20 call @ 40 cents. No stop loss.

Previously closed 6/24/16: Long HPE shares @ $18.40, exit $18.61, +.21 gain



SCTY - Solar City - Company Profile

Comments:

No specific news. Nice gain to close well above the $24 resistance but not quite far enough to suggest it is a breakout.

Original Trade Description: June 27th.

SolarCity Corporation designs, manufactures, installs, monitors, maintains, leases, and sells solar energy systems to government, residential, and commercial customers in the United States. The company provides solar energy systems; solar lease and solar power purchase agreements; mypower loan agreements; grid control/energy storage systems; zep solar mounting systems; and proprietary software, including SolarBid sales management platform, SolarWorks customer management software, PowerGuide proactive monitoring solutions, and Energy Designer, a proprietary software application used by field engineering auditors to collect site-specific design details on a tablet computer. It also sells electricity generated by solar energy systems to customers.

SolarCity has had a troubled past with the rise and fall of solar based on the whims of governments and the on again-off again investment credits and tax rebates. SolarCity is still humming right along and building up their base of installed systems into one giant annuity that will pay for decades to come. The problem is that it takes cash to build and install those systems that they sell to customers. Cash up front for a long and profitable payout.

SolarCity was co-founded by Elon Musk. He also started Paypal, SpaceX and Tesla. Last week he (Tesla) offered to buy SolarCity, where he is the largest stockholder and Chairman of the board, for $26-$28. Tesla shares cratered. SolarCity shares spiked for one day then fell back again. Numerous analysts were against the plan. Now shares are rising again.

Elon Musk believes he can marry his battery business with the solar business and have a winning combination. He already makes battery backups for your home but they run off regular utility company power. With SolarCity he can power those battery systems with solar and it makes a lot more sense for customers.

Shares have established a base at $21 and with the $26-$28 offer under consideration along with "other strategic alternatives" it would appear there is limited downside.

Earnings August 8th.

Position 6/28/16:

Long SCTY shares @ $23.40, see portfolio graphic for stop loss.



TWTR - Twitter - Company Profile

Comments:

Twitter hired former Facebook CTO, Bret Taylor, to drive product innovation. Shares inched up slightly with resistance at $18.

Original Trade Description: July 6th.

Twitter, Inc. operates as a global platform for public self-expression and conversation in real time. The company offers various products and services, including Twitter that allows users to create, distribute, and discover content; and Periscope and Vine, a mobile application that enables user to broadcast and watch video live. It also provides promoted products and services, such as promoted tweets, promoted accounts, and promoted trends that enable its advertisers to promote their brands, products, and services; and subscription access to its data feed for data partners.

Twitter's monthly active users have flat lined for many months with almost no growth. New users come into the system, get confused and overwhelmed and then leave just as quickly. There was nothing "sticky" to keep them on the system unless they were a news junkie or addicted to the next wild comment from Donald Trump.

Twitter is trying to change that with Twitter Live. They are testing the concept this week with a live twitter video feed from Wimbledon. The video shows up in the left side of the screen and the right side has a running commentary of tweets on the topic. Twitter has already announced several live events they are going to stream. They paid $10 million to the NFL to stream 10 of the Thursday night games. Live news stories are also being tweeted.

Analysts have been pleasantly surprised and claim "this may actually be something useful from Twitter." If they can successfully transform themselves from a 140 character shorthand rant site into a site with thousand of live streams of everything under the sun then they may actually avoid obsolescence.

Shares have been rising since the $14 low on June 10th and appear poised to break over resistance at $18. By reinventing themselves as a live stream video portal they open up a significant advertising opportunity and could actually attract some big money buyers looking for a social media acquisition. Apple and Google are the permanent favorites constantly mentioned as possibly having interest. If they see that Twitter is suddenly becoming relevant again, they could pull the trigger.

This time last year Twitter was trading around $38 and their historic high was around $75 so even without an acquisition offer they could rebound significantly.

Twitter has been a slow mover even though it is up $3 in three weeks. If it were to move over that $18 resistance it could pick up speed as investors come back for a second or third look and realize the company is evolving.

Do not buy this with expectations for a quick bounce and out. If you enter this position, you should look for a slow move to $20 and then reevaluate the position. Over $20 could trigger some real short covering.

Earnings July 26th and we could hold over the event depending on the news flow and stock level.

Position 7/7/16:

Long TWTR shares @ $17.24, see portfolio graphic for stop loss.

I am not recommending an option because of the recent history of slow movement. However, a long-term option may be the correct way to play this position. Your risk is known in advance and the cost of entry is very low. Here are some examples.

Sep $19 Call $1.04
Dec $20 Call $1.51
Jan $20 Call $1.64




BEARISH Play Updates

QQQ - Nasdaq 100 ETF - ETF Profile

Comments:

Another minor gain of 23 cents on strength in biotechs that lifted the Nasdaq 100. Maintain the stop loss at $109.25.

Original Trade Description: July 2nd.

The Dow has struggled with the 18,000 level since last November. Eventually there will be a breakout but I strongly doubt it will be during the summer doldrums between July 4th and Labor Day. The volume will be to low and other factors are weighing on the index. The 30 Dow stocks are all exposed to the strong dollar and falling pound as a result of the Brexit. I would be very surprised if less than two-thirds of the Dow stocks did not warn for Q3 on the strong dollar problem. With Q2 earnings starting on July 11th, i would expect some investors to begin moving to the sidelines to avoid the rush.

The S&P 500 has solid resistance from 2,100 to 2,115. It has failed at those levels on every attempt since August of last year. With earnings expected to be weak, economics weak and Europe weak, I would expect the S&P to fail at those levels again.

The Nasdaq has strong resistance at 4,900 and 4968. These are lower highs from the peak last November. The biotech sector is still weak and Merrill Lynch just downgraded the semiconductors. Oil prices are likely to remain around $50 for the rest of the year and that means the bloom is fading on the energy stocks.

The Nasdaq 100 ETF (QQQ) is approaching solid resistance at $110. I actually doubt it will get there but that appears to be the target. If the QQQ reaches that level I would recommend shorting the ETF. I know that is a big ticket item for Premier Investor readers but there are no low dollar index ETFs that will accomplish the same thing. I am going to recommend a long put in place of the actual short.

I would like to enter the position at $110 but that would take about a 200 point gain on the Nasdaq 100 ($NDX) and I seriously doubt that will happen.

Since we cannot count on that $110 level being reached I am going to recommend buying the put with a trade at $106.85. If the index does go higher then we can target the $110 level as well.

With a QQQ trade at $106.85

Buy August $106 put, currently $2.05. No initial stop loss.



VNET - 21Vianet Group - Company Profile

Comments:

No specific news. Minor gain after Wednesday's new closing low.

Original Trade Description: July 2nd.

21Vianet Group, Inc. provides carrier-neutral Internet data center services to Internet companies, government entities, blue-chip enterprises, and small-to mid-sized enterprises in the Peoples Republic of China. It offers hosting and related services to house servers and networking equipment in its data centers, and connects them through a data transmission network; and other hosting related value-added services.

In June 2015 the Chairman of the board, Kingsoft Corporation and Tsinghua Unigroup International proposed a deal to take the company private. Shares were trading around $20 at the time. On Thursday the same group rescinded their "non-binding" go private offer. The group said "after careful consideration, the group had determined not to proceed with the proposal under the current circumstances." Those circumstances were not described.

After keeping the stock price around $20 for the last year based on this offer the group decided to pass on the deal. While it may have had something to do with the earnings, I suspect it had more to do with the current problems with taking companies private in China. Qihoo (QIHU) and YY (YY) are also struggling. The China Securities Regulatory Commission is considering limits on the numbers of reverse mergers from previously foreign listed companies. There are worries they could impose an outright ban.

In an attempt to counter the drop in the stock the company announced a $200 million share repurchase plan. However, in the first sentence reads, "The Board has authorized, but not obligated, to repurchase up to $200 million in outstanding shares within the next we months." The key words there are "not obligated" which means they do not have to buy the shares if they change their minds. This is a Chinese company and the generally accepted rules are rarely followed. This is just another ploy to try and support the stock price.

Earnings August 24th.

Position 7/5//16:

Short VNET shares @ $9.57, see portfolio graphic for stop loss.

Optional

Long August $9 put @ 85 cents. No initial stop loss.



VXX - Ipath VIX Short Term Futues ETN - ETN Profile

Comments:

Minor bounce with the afternoon market selloff but still a decline. We are probably going to be in this position for a long time as it declines to new lows well under $13 or even $12 this summer.

Original Trade Description: June 22nd.

The VXX is a ETF type product that is based on the Volatility Index futures. It is a flawed product with a perpetual decline built in from the monthly roll over in the futures contracts.

We have played the VXX before with big gains. The object is to short it on a bounce and then hold the position until the volatility fades again.

On the big declines last week the VXX spiked to $17. Back in January and February is spiked to $30 on the market corrections. While I do not expect that to happen from this lower level, I do expect some volatility to appear regardless of the vote outcome.

I am recommending we enter a short position with a return to $17. If it continues higher I would add to that short at $20 and again at $25 and then we wait for the post event decline in the volatility and the return to $13 or lower.

Because this is a flawed product it will always go lower. It has already had several 1:4 reverse splits to keep it from being delisted back in November 2010, October 2012 and November 2013. If it falls under $10, they will do another reverse split and start the decline all over again.

Position:

6/24/15: With a VXX trade at $17, now short VXX @ $17, no stop loss.





If you like the trade setups you have been receiving and you are on a free trial then now is the time to subscribe. Do not wait until you miss a newsletter to decide you want to take the plunge.

subscribe now