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Newsletter

Daily Newsletter, Saturday, 7/9/2016

Table of Contents

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

Market Wrap

Blowout

by Jim Brown

Click here to email Jim Brown

The blowout in the June Nonfarm Payrolls led to a monster short squeeze and a short squeeze in the markets.

Weekly Statistics

Friday Statistics

The market was poised for a positive open after the European markets had a green Friday. The shock value of the Brexit appears to be wearing off in Europe but this could be cyclical and return to haunt us multiple times in the future as events unfold.


The S&P futures were trading up slightly at +4 in the pre-market but that turned into a strong rally and a +14 point jump to +18 points after the job numbers were released at 8:30. That set the market up for a giant short squeeze after the S&P closed right on resistance at 2,100 on Thursday. The shorts were ready for another dismal report and were caught off guard with the big number.

New jobs for June came in at +287,000 and well over estimates at 175,000. The miserable +38,000 gain for May was revised down even further to +11,000 but the +123,000 number for April was revised higher to +144,000 for a net decline over the two months of -8,000.

The unemployment rate jumped from 4.7% to 4.9% because 414,000 people joined the workforce after 820,000 left the workforce over the prior two months.

Helping to push the headline number higher was the return of 35,000 striking Verizon workers. Leisure and hospitality gained a whopping 59,000 low wage jobs, information technology +44,000, retail +29,900, manufacturing +14,000 and temporary workers 15,200. Construction was flat after falling -16,000 in May.

Unfortunately, you know there it always a fly in the soup. The separate Household survey showed a gain of only 67,000 jobs. The number of unemployed workers rose +347,000.

Even worse 259,000 of the 287,000 new jobs went to workers age 55 or over. Only 28,000 went to workers in the critical 25-54 age bracket. The under 24 age group lost 107,000 jobs. Do not let people tell you the falling labor force participation rate is because of people retiring. Workers 55 and over are the fastest growing employment bracket. Since 2007 more than 8 million jobs have been gained by the 55 and over group while the 25-54 bracket has lost -3.4 million jobs. Source

On the positive side the number of workers employed part time for economic reasons fell dramatically by 587,000 suggesting full time jobs were more readily available.

The rebound in jobs was directly related to the abnormally low number in May. Some analysts theorize the uncertainty over the Brexit vote may have kept employers from adding staff in May. Other believe it was the strong comments by the Fed members in May suggesting there may be 2-3 rate hikes in 2016. After the Fed's tone changed at the June 14th meeting to almost no hikes in 2016 those business owners may have breathed a sigh of relief and immediately started adding workers. Whatever was holding back employers in May completely evaporated in June.


Analyst David Rosenberg at Gluskin Sheff, warned that at turning points in the economy it is the Household survey that gets the numbers right. He also pointed out that applying the same "adjustments" to the Household survey that we have in the Nonfarm payrolls, would have the Household number falling -119,000 jobs in June and down -517,000 jobs over the last three months. He also pointed out that the annualized six-month jobs trend has fallen below zero and clearly a warning.


The jobs numbers raised the chance of a Fed rate hike at the September meeting to 11.7%, the November meeting to 11.5% and December meeting to 27.6%. A couple more jobs report like the one we had on Friday and the September meeting could come back into focus. The market will catch on to this increase in expectations eventually but for right now the forecast is so far into the future the market is not worried.


The California Manufacturing Survey for Q3 rose 1 point from 58.3 to 59.3. This is up from a low of 56.7 in Q1 and three quarters of declines. This report was ignored.

The calendar for next week does not have any critical economic reports but there are a whopping 13 Fed speeches. I am sure we will hear the full range of outlooks for rate hikes from "maybe in 2018" to "still expecting two hikes in 2016." This will confuse investors and send them to their safe places.

The biggest event is the start of the Republican convention the following Monday. Democrats are spending more than $1 million to organize protests and demonstrations outside the convention. This could be really ugly and could weigh on the market.


The horrific shooting in Dallas did not seem to impact the markets. It did provide some gains for gun makers Sturm Ruger (RGR) and Smith & Wesson (SWHC) and body camera makers Taser (TASR) and Digital Ally (DGLY).

The gun used in the Dallas shooting was reportedly an SKS. The guns were originally designed in 1943 in the Soviet Union by Sergei Garvilovich Simonov. They have been made in Russia, Yugoslavia, Romaina, Albania, East Germany and North Korea and copied by several other countries including China. They were used by the Viet Cong in the Vietnam War. The Norinco brand in China made millions in the 1980s/1990s and they sold in the U.S. for about $90. They are not especially accurate but that did not seem to stop the shooter, who was in the Army reserves and had received tactical training. A 20 to 50 year old gun imported from overseas might take some of the heat off the U.S. gun manufacturers but citizens are going to be hitting the gun stores this weekend to buy any gun they can before a new law is passed.

One version of a SKS Rifle

The FBI released the background check numbers for June. They processed 2,131,485 checks for a 39% increase in purchases over 2015. The 2015 number was a 10.5% increase over 2014. For the first six months of 2016, they have processed 13,829,491 background checks which was 60% of all 2015. Assuming nothing changes in the economy, we are well on our way to a new record for the year.



Intel (INTC) was upgraded by Bernstein from underperform to market perform and hiked the price target from $26 to $30. Shares rallied +2.4% on the uninspiring upgrade. The analyst said Q2 results are "unlikely to miss consensus projections" due to the relatively positive view for the PC channel and baseband markets. He also said his efforts to, "short Intel has not worked." I doubt I would rush out to buy Intel just because they were unlikely to miss estimates.


Shares of The Gap (GPS) rallied 5% after the company said same store sales rose +2% in June. That was the first increase in same store sales after fourteen months of declines. However, there was a catch. That was the average across all three brands. The Gap chain declined -1% and the Banana Republic brand fell -4% while the Old Navy brand rose +5%. Analysts warned that the shift of the Memorial Day weekend into June probably accounted for the gains.


Polycom (PLCM) has agreed to sell itself to privately held Siris Capital group for $12.50 a share in cash. That is a 15% premium to the prior close or roughly $2 billion. Polycom already had a deal to be acquired by Mitel (MITL) and will have to pay a $60 million termination fee. The Mitel deal was for cash and stock and a slightly lower price than the Siris deal, which is all cash. Polycom said the telecom business is transitioning from a hybrid on-premise and cloud based Unified Communications environment. They felt they had a better chance to continue as a best-in-class communications provider as a private company.


Shares of Juno Therapeutics (JUNO) were crushed for a 32% loss after a pivotal study on the chemotherapy drug JCAR015 was halted. This is a chemotherapy drug for acute lymphoblastic leukemia. The FDA put a clinical hold on the study after two patients died. The FDA wants Juno to submit a new Complete Response (CR) to the clinical hold as well as a revised patient informed consent form, a revised investigator brochure, a revised study protocol. Juno intends to present all the requested documents next week. The company said plans for its other CAR-T cell products candidates, including JCAR017 were not affected by the clinical hold.

The JCAR015 drug is one of Juno's most advanced pipeline candidates. RBC Capital, Michael Yee, said the stock would recover because the halt was temporary and the drug had passed earlier trials. He said shares were trading as though JCAR015 was dead and it is not. JP Morgan was not as optimistic and they cut Juno from overweight to neutral.


Barracuda Networks (CUDA) said it earned 20 cents last quarter compared to estimates for 11-cents. Revenue of $86.7 million also beat estimates for $83.9 million. The network security provider said recurring subscription revenue rose 20% to $65.3 million while appliance revenue declined -10%. Active subscribers rose 14% to 286,000. Shares rose 19% on the news.


The Q2 earnings cycle kicks off next week with the major banks reporting. Add to that YUM Brands and Delta Airlines and the Q2 cycle will be off and running.

FactSet is predicting a -5.6% decline in Q2 earnings and the fifth consecutive quarter of earnings declines. On March 31st, the estimate was for a -2.8% decline but warnings from the tech sector and analyst downgrades have doubled that decline estimate. For Q2, 81 S&P companies have warned on guidance (72%) and 32 have issued positive guidance. Revenue is expected to decline -0.7% for the 6th consecutive quarter of declines. For Q3, earnings are expected to grow +0.7% and then a +7.2% growth spurt in Q4. Revenues are expected to rise 2.2% in Q3 and 5.1% in Q4. The reason for the growth is the lower comps in the year ago quarters.


Facebook (FB) said it has begun testing end-to-end encryption on its popular Messenger application to prevent snooping on digital conversations. Messenger has 900 million users. They began offering encryption on the WhatsApp platform three months ago. That platform has more than 1 billion users. Multiple other companies already offer encrypted conversations. Messenger will use the same encryption as WhatsApp, that uses a protocol known as Signal, which was privately developed by Open Whisper Systems.

Facebook users must turn on the encryption but all WhatsApp messages are already encrypted. The problem Facebook will have with Messenger is that encrypted messages can only be read on the device that started the conversation. You cannot switch from your phone to your tablet or continue the conversation on your PC. The encryption key is tied to the device not the message. You cannot send videos over an encrypted conversation or make payments. The messages can also be set to self-destruct after a certain period of time. Both of these applications are going to cause trouble for SnapChat. That app has 10 billion disappearing messages a day.


Crude oil tumbled -7% last week on worries over a continued glut and a fast recovery in inventory levels when summer driving demand ends on Labor Day. The EIA inventories on Thursday showed a decline of only 2.2 million barrels when analysts were expecting a decline of 6 million because of the buildup to the July 4th weekend. Gasoline supplies are still high and only declined slightly. Ships trying to unload in NY/NJ have been forced to wait offshore because there is no available storage.

Libya is set to resume exports from two of its largest oil terminals next week after being closed since 2014. The Es Sider and Ras Lanuf are the 2nd and 3rd largest terminals in Libya. ISIS has abandoned the terminals under constant pressure from the Petroleum Guard. The country has only been exporting 330,000 bpd compared to the 1.6 mbpd before the civil war destroyed the country. They could quickly return to 800,000 bpd because the country's rival oil companies have agreed to merge into a single National Oil Company and that would improve communication and cooperation between the various fields and facilities.

Oil prices typically peak in August and decline into the fall. We may have already seen the peak when prices moved above $50 when the Canadian wildfires shutdown production by -1.5 mbpd and another 1.5 mbpd was offline in other countries led by Nigeria.

Analysts are starting to talk about prices under $40 again after demand slows in the fall.


Drillers do not seem to be afraid of a second dip in prices. Active rigs rose by another 9 rigs to 440 after a gain of 10 rigs the prior week. This is still more than 1,500 rigs below the peak in 2015. Oil rigs rose +10 to 351 and gas rigs declined -1 to 88.




Markets

This could be a really pivotal week. With the Dow and S&P close to new highs we could either break out and run like the wind as unbelievers race to cover shorts OR we could fail at this level again and create a potential double top.

Despite the questionable jobs numbers the economy is muddling along at a 2% rate. While that is hardly setting the world on fire, we are the best house on a bad block for storing your money. Since you will not earn much in treasuries that makes equities more appealing.

Ironically, the markets are threatening to breakout to new highs but Lipper claims mutual funds have seen 17 consecutive weeks of cash withdrawals. Gold funds have seen 10 consecutive weeks of inflows with $2 billion being added last week alone. Stock funds saw outflows of $6.1 billion. Source

Investors are fleeing the market but the Dow and S&P are at new highs. The strength of the post Brexit rally caught investors by surprise. Portfolio managers are suffering from performance anxiety and a breakout to new highs means they will have to chase prices to keep the market from running away from them.

Since most portfolio managers are already negative for the year there could be an aggressive race to buy the leaders in hopes of capturing some gains before the rally runs out of steam.

The indexes could lose traction at any time. Friday's rally was purely short covering on the payroll numbers. This close to new highs there was already some price chasing in progress and each factor fed the spike.

On the S&P the high close last July was 2,128.28 and Friday's close was 2,129.90. Technically we closed at a 52-week high but the actual historic high close was 2,130.82 from May 2015. If you are following along you probably realized we were right here one year ago and the rally failed. Markets do have a memory and that July 20th failure was traumatic with a -267 point drop to 1,867 on August 24th. That was a significant decline!

The stage is set for either a repeat of last summer's decline or a breakout to new highs and a new chapter in this 7-year-old bull market.

Unfortunately, the volume was light at 7.1 billion shares. When the Dow rallies +250 points, you would like to see a significant increase in volume. Recently the higher volume has been on the days with a market drop.

The internals were positive with up volume 8:1 over down volume, which is normal in a massive short squeeze. The advancers were 6:1 over decliners, which means almost everybody got squeezed.

There were 648 new highs and 92 new lows so quite a few stocks are in breakout mode. That is not the definition of a classic short squeeze to have stocks already at their highs pushed even higher. Normally a "short" squeeze means stocks that were heavily shorted are pushed higher and normally those stocks have been under recent pressure. That would be stocks like TWTR, GPRO, SQ, etc that have been under pressure for a long time and short interest is high.

I saw a lot of buying on Friday in stocks like NVDA and ATVI that were already at new highs. This looks like price chasing where portfolio managers are buying performance in hopes of riding the wave higher.

I look at about 1,000 charts a week in managing the roughly 95 active plays in the various newsletters. The last several days I have seen a lot more bullish activity in the "crowd" with stocks of all types starting to turn positive or extending an already positive streak.

This is perplexing because I have been bearish due to repeated failures at 2,100 on the S&P and 18,000 on the Dow. I have tried to keep a balance of longs and shorts just in case a summer rally appeared. Historically the July-September period is weak and when summer rallies do appear, they can be aggressive because everyone is betting on the historical weakness.

IF we do breakout to a new high next week and hold it for a couple days, the rules of the game will have changed. That would suggest the potential for an aggressive market surge. That is still a capital IF. Markets rarely bottom on Fridays but they often continue gains on Mondays.

As Johnny Carson would say, we are at the fork in the road. I would like nothing better than to see Adam Parker's (MS) original bullish target of 2,425 from last August come to pass. That has since been reduced to 2,175 because of the continued drop in earnings. I do not know if he has reduced his target of 3,000 for 2020 yet but while that would be nice we just need to get through July first and then worry about surviving August. We can worry about 2020 later.

Remember, the Republican convention starts next Monday and it promises to be a daily riot. The market is likely to pause and try to understand the potential outcomes once that convention starts. That still gives us a week and it is an option expiration week. That suggests heightened volatility in both directions.

If I were forced to bet on direction for Monday, I would bet on a new high assuming Asia and Europe do not meltdown over the weekend.

The weekly MACD and RSI are positive and getting stronger. The Brexit crash eliminated all the weak holders and allowed portfolio managers an entry point. The setup appears to be bullish and the bears are going to have a nervous weekend.


The Dow chart is not as convincing because it has a few more points to capture before it hits a high. The high close from last May was 18,312.39. The intraday highs on May 19th/20th were 18,351 and 18,350. The decline began on the 21st and ended with the 15,370 low on August 24th for a decline of about 3,000 points.

On my chart, the line I drew at 18,200 is a personal preference. That connects the tops on the most candles representing the number of times the Dow failed at that level on the weekly chart. That is the level where it has the greatest chance of failure again. However, we are so close I believe traders have that bulls-eye goal in sight. When the indexes near historic highs they tend to hit them. Once there it is not unusual to see weakness because there is no longer a target. Traders take profits and wait to see what develops.

The market has been choppy and lackluster for a year. This may be the time that we actually exceed those highs and keep going. While Q2 earnings are going to be negative, Q3 and especially Q4 earnings are going to be positive. Portfolio managers like to look out six months in advance and that would be year-end after a strong Q4. While those earnings will not be released until Jan/Feb the election will be two months behind us and the market typically rallies after the results are known. I would not be surprised to see portfolio managers setting up for year-end and any Aug/Sept dips could be weak.

I know half the people reading this will think I have overdosed on the Kool-Aid but I am just trying to speculate on the future. If the markets fail at these levels on Mon/Tue and crash back to the lows we can all have a good laugh about my bullish fantasy.

I am not convinced we are going higher. I am just considering the options and trying to prepare in case that is the direction. The market exists to make fools out of the most analysts possible at any given time.

The Dow broke over 18,000 and that has been strong resistance for a year. That should count for something even if it is just temporary.



The Nasdaq blew through resistance at 4,900 but failed to reach its prior failure point at 4,968. The big cap Nasdaq stocks were on fire led by Amazon, Google and Priceline. The rest of the support came from the biotech and semiconductor sectors. However, biotechs were spotty. There were some big gainers and some that did not gain at all. The Biotech Index only added 25 points or 0.8%.

Traders will probably be adjusting some positions next week in order to avoid holding over earnings reports the following week. When tech stocks disappoint they tend to drop sharply the following morning. Very few experienced traders want to take that risk.

If the Nasdaq does move over 4,968 and then 5,000 the real resistance band is from 5,100 to 5,165. That has not even been tested since December.

The Nasdaq 100 big cap index has solid resistance at 4,575 and again at 4,737.




The Russell 2000 gapped over resistance at 1,155 and 1,165 but is still below strong resistance at 1,205. The Russell has gained more than 8% since the June 27th post Brexit low at 1,086. That is a lot of accumulated profit at risk for those that bought the dip. Extending those gains through 1,205 could be a challenge.


Traders appear to be fixated on the historic highs. If they can continue the momentum from Friday, we could see those highs on Monday. What happens after that is anybody's guess. I know we would like to see portfolio managers with performance anxiety continue chasing prices higher but we rarely get exactly what we want. While it is possible, there is still a large contingent of traders that see the rally for what it is and that is a liquidity fueled buying binge caused by $13 trillion in overseas government bonds yielding a negative interest rate. It is not driven by economic fundamentals in the USA or the expectations of a big Q2 earnings surprise. Remember, US equity funds have seen net cash outflows for the last 17 weeks. Fund managers are not driving prices higher. This was institutions and probably a lot of money being shifted to the USA markets because we are the best house on a bad block.

If this continues, the U.S. fund managers will have to participate regardless of the reason. They cannot afford to sit idly by and watch the market run away from them. The week before Brexit, equity funds had near record cash levels. I am sure some of that was put to work window dressing for quarter end but they probably still have some dry powder.

I would continue to caution about being overly long until we know if this is a breakout or a double top. Remember last year. The S&P fell -267 points from May 15th to August 24th.

 

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Random Thoughts


Bullish sentiment rose to 31.1% and the highest level since April 20th at 33.4%. It has been below its historical average of 38.5% for 35 consecutive weeks and for 68 out of the last 70 weeks. Neutral sentiment rose 4.6% to 42.3% and well above its historical average of 31.0% for the 23rd consecutive week. Bearish sentiment fell to 26.7% and the lowest level since April 20th. The historical average is 30.5%.

Survey respondents (45%) said the uncertainty over the presidential election was the top factor for caution and 39% said global economic uncertainty was the second major worry. Only 17% cited valuations as a concern. Only 13% said earnings were a problem.



JP Morgan said their odds of a recession within the next 12 months rose to 37%. This is the highest level the index has reached in this economic cycle. The sharp 5% decline in auto sales in June and the lack of loan growth in the senior loan officer opinion survey were big contributors. The ISM Nonmanufacturing sentiment was the second biggest contributor. Source

Deutsche Bank said last week their recession prediction model was up to a 60% chance and the highest since 2008. They said the "relentless flattening of the yield curve was worrisome" since a flat or inverted yield curve historically precedes a US recession.



Bank of America has given up on an earnings rally. They warned that corporate buybacks, the main driver of the market over the last two quarters, will be in a blackout period over the next four weeks as the S&P reports earnings. Companies representing more than 89% of the total market cap of the S&P-500 will have reported by August 5th. Analyst Dan Suzuki expects the Q3 earnings estimates will decline into negative territory as the Q2 cycle plays out and guidance is lowered. He warned that an earnings recession lasting well over a year is not normal. He said "the profits recovery is unlikely to live up to expectations." Source



To date in 2016, 509 people have been killed by police. In 2015 there were 990 deaths. The statistics should surprise you given the current hysteria over recent killings.

Male 484, female 25
White 238, Black 123, Hispanic 79, unknown 46, other 23.
Weapon used by the dead person:
Gun 304, knife 88, vehicle 35, unarmed 35, unknown 27, other 20.

Source


 

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

 

"The end of the world only happens once. You have to plan that trade very carefully"

Art Cashin



New Plays

Print This

by Jim Brown

Click here to email Jim Brown
Editor's Note

With executive compensation tied more and more to the stock price it gives officers an incentive to take actions to force the stock price higher. That has good points and bad points but the CFO of 3D Systems stands to make $10 million if he can double the stock price.



NEW BULLISH Plays

DDD - 3D Systems - Company Profile

3D Systems Corporation, provides 3D printing products and services worldwide. The company's 3D printers transform data input generated by 3D design software, CAD software, or other 3D design tools into printed parts using a range of print materials, including plastic, metal, nylon, rubber, wax, and composite materials. It offers various 3D printing technologies, such as stereolithography, selective laser sintering, direct metal printing, multijet printing, colorjet printing, and plasticjet printing. The company also develops, blends, and markets various print materials, such as plastic, nylon, metal, composite, elastomeric, wax, and Class IV bio-compatible materials. It offers its printers under the Accura, DuraForm, LaserForm, CastForm, and VisiJet brand names. In addition, the company provides digital design tools, including software, scanners, and haptic devices, as well as products for product design, mold and die design, 3D scan-to-print, reverse engineering, and production machining and inspection. Further, it offers proprietary software and drivers that provide part preparation, part placement, support placement, build platform management, and print queue management; and 3D virtual reality simulators and simulator modules for medical applications, as well as digitizing scanners for medical and mechanical applications.

The 3D printing sector crashed and burned in 2014 when the expectations for the technology got way ahead of reality. Shares of DDD peaked at $97.28 before starting the long slide to $6 in January 2016. Shares recovered from that low as the sector began to actually provide some amazing technology. Shares rebounded to $19.50 in April before another round of weakness pushed them back to $12. After chopping around in the $12-$14 range they appear ready to breakout.

The new CFO was given a compensation package of $2.1 million a year. He must be really good. If the stock rises to $30 and maintains that level for 90 consecutive days he can exercise options to buy shares at $12.92, which will give him $10.4 million if sold. If the stock prices rises to $40 for 90 days he has another bonus that would give him shares he could sell for a $8.9 million profit. Another bonus awards him $9.4 million if shares reach $30 in year one of his contract and $40 in year two and holds it for 90 days. He has an extreme incentive to get that stock price moving higher.

Hardly a week goes by that 3D does not announce some new process or software enhancement that comes closer to achieving the original expectations for the 3D printing technology. The ability to print parts out of metal has revolutionized the manufacturing environment. Many large corporations are buying printers by the dozens to print parts that previously had to be ordered from the source with long lead times.

Earnings August 3rd.

Shares closed at $14.12 on Friday and that is a two-month high and slightly over resistance. The next resistance level is the April highs at $18.25. If DDD is about to breakout like it did in Feb/Mar then we want to go along for the ride.

With a DDD trade at $14.25

Buy DDD shares, initial stop loss $12.65.

No options recommended. Aug $15 call is 74 cents.



NEW BEARISH Plays

No New Bearish Plays



In Play Updates and Reviews

Volatility Crushed

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Friday short squeeze sent the Dow blowing through resistance at 18,000 and to the next level of resistance at 18,165. There are only two resistance levels left and that is 18,165 and 18,288 and then we are making new highs. The bulls finally overpowered the bears in a massive short squeeze after the payroll report came in much stronger than expected.

The VXX ETF crashed to a new historic low at 12.21 and could be headed even lower. The ETF should be very close to a new 1:4 reverse split. The instant it splits we are going to short it again because it is a futures related product that will always go lower. The average decline is 6% per month.




Current Portfolio







Current Position Changes


QQQ - Nasdaq 100 ETF
The short position in QQQ was stopped at $109.25.


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 gain back to a new 9-month closing high.

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. Big 3% move and nearing the historic highs again.

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. Tesla shares were only fractionally positive after another analyst lowered the price target to $210 on the miss on Q2 production numbers. This weighed on SCTY shares.

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 said it was make deals to live stream more sports programming like NBA, MLB, NCAA and MLS games. The company said it was in talks with Turner Broadcasting in order to acquire digital streaming rights to more sporting events. Analysts said they would not have to stream the actual games but the pre-game and post-game interviews to generate interest in the games themselves.

Twitter's importance was again highlighted for real time news on events like the Dallas shooting. This company is starting to look like a real company again.

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:

The massive short squeeze at the open spiked the QQQ to our stop loss at $109.25 to take us out of the position.

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.

Position 7/5/16 with a QQQ trade at $106.85

Closed 7/8/16: Long August $106 put @ $2.15. Exit $1.21, -.94 loss.



VNET - 21Vianet Group - Company Profile

Comments:

No specific news. Short squeeze caused a fractional gain of 24 cents. They tried to push it lower at the open with a dip to $8.88 but the market velocity was too great.

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:

The VXX declined 84 cents to a new historic low. We are probably going to be in this position for a long time as it declines to new lows well under $12 this summer. Around $10 and they will do another reverse 1:4 split. The last four reverse splits occurred at $13.11 (11/2010), $8.77 (10/2012), $12.84 (11/2013). The prospectus says it can reverse split anytime it trades under $25 for a prolonged period and the splits will always be 1:4.

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.




Left Over Lottery Tickets

These positions were left over from prior plays where we had an optional option with no stop after the stock position was closed. Rather than close these for a few cents they are left open as a "Lottery Ticket" play. With months before expiration, anything is possible.

These positions are only updated on the weekend.


FDC - First Data - Company Profile

Comments:

No specific news. Shares are flirting with support at $10.50 but our time in the July option is running out.

We were stopped out on the stock short on 5/23 there was no stop loss on the option and that position remains open. At the current 10-cent price that is a lottery ticket that the headlines will fade and the original direction will return. This is a July option so plenty of time for a disaster to appear.

Original Trade Description: May 16th.

First Data provides electronic ecommerce solutions for merchants, financial institutions and card issuers worldwide. The operate in three segments including global business solutions, global financial solutions and network & security solutions. This includes retail point of sale solutions, mobile ecommerce solutions and webstore solutions.

In their Q1 earnings, they grew revenue 3% and operating income rose from $185 to $220 million. Earnings of 24 cents were slightly above expectations for 21 cents. Revenue of $1.69 billion was below estimates for $1.71 billion. Unfortunately, FDC has $19 billion in debt compared to its $3 billion market cap. Interest expense in the first quarter was $263 million or more than $1 billion a year.

Global business solutions revenue declined in the quarter while financial solutions and security solutions showed only marginal growth.

Earnings July 21st.

While the company tried to put a positive face on the future by projecting revenue growth, it appears investors were not impressed. Shares have fallen from $13.50 to $10.50 over the last three weeks since earnings. FDC does not provide guidance and that is troubling to some investors.

I am anticipating a retest of the post IPO low at $8.50 or even worse, depending on the market.

Position 5/17/16:

Long July $10 put @ $.60, no stop loss.

Previously closed 5/23/16: Short FDC shares @ $10.69, exit $11.55, -.86 loss.



TRN - Trinity Industries - Company Profile

Comments:

No specific news. Shares closed just under our strike price at $20. If the market continues higher we could be in the money early in the week. With only five trading days left on the option we may still be able to recover some of our money.

We have a July call option that is worth 20 cents today. I would bet $20 that it will recover by July expiration.

Original Trade Description: March 18th

Trinity Industries manufacturers rail cars, highway guard rails and steel beams for infrastructure projects, structural towers for wind turbines and electrical distribution grids, oil and chemical storage tanks, barges to transport grain, coal, aggregates, tank barges to transport oil, chemicals and petroleum products. The company was founded in 1933.

Shares crashed in mid February after they reported earnings that beat the street but guidance that disappointed. Earnings of $1.30 easily beat estimates for $1.07 but revenue of $1.55 billion missed estimates for $1.61 billion. They had full year earnings of $5.08 per share.

They guided for 2016 to earnings of $2.00 to $2.40 per share. The challenge is the slowdown in orders for railroad tank cars and barges to transport oil. With oil prices crashing the producers and refiners are cutting back on capex spending until prices recover. Trinity said revenue in 2016 could decline -32%. Shares declined -35% over two days on the news.

The key here is that Trinity is now trading at a PE of 3. Yes 3.74 to be exact. With earnings in the middle of their range at $2.20 and a PE of 10 that would equate to a $22 stock price.

Here is the good news. The company has $2.12 billion in cash and undrawn credit. They are not in financial trouble. They authorized a $250 million share buyback starting January 1st. They have an order backlog of $5.4 billion in orders for 48,885 railcars. They received orders for 2,455 cars in Q4 and their backlog stretches out to 2020. The barge division received orders for $190.1 million in Q4 and had a backlog of $416 million as of December 31st. The structural tower segment has $371.3 million in order backlogs.

They recognize that tankcar and barge orders are going to remain slow until oil prices recover, which should happen later this year.

This stock was extremely oversold but began recovering in early March. Trinity produces a lot of railcars for carrying all types of products other than oil. That demand is not going to disappear and they already have order backlogs stretching into 2020.

At their current valuation they could also be an acquisition candidate. This is a great business that has been overly punished by the oil crash.

Earnings April 21st.

Position 3/21/16:

Long July $20 call @ $1.50, no stop loss.

Previously Closed 4/5/16: Long TRN shares @ $19.15, exit $17.50, -1.65 loss.



WIN - Windstream Holdings - Company Profile

Comments:

Nice move on WIN to $9.45 and our option is increasing rapidly. The company announced it had completed network upgrades across 15 states to bring 100 Mbps speeds to residential and small business customers in more than 1,000 markets.

We have an August $9 call and it is in the money with a lot of time left. This is a lottery play that WIN will be well above $9 by August.

Original Trade Description: March 11th

Windstream provided network communications and technology solutions for consumers, businesses and enterprise organizations. They provide high-speed internet access, hosted web services and cable TV to a combined total of 1.6 million residential and business customers. They have more than 125,000 miles of high-speed fiber optic cable with speeds up to 500 gbps along their main corridors. They have 11 major data centers providing web hosting, cloud services, etc.

In the Q4 earnings, WIN reported adjusted earnings of $1.41 that crushed estimates for a loss of 48 cents. Revenue of $1.427 billion missed estimates slightly for $1.433 billion. The major earnings beat came from a spinoff of some of its telecom assets into a REIT. The cash received from the spinoff will allow some major network improvements in the months ahead.

The company declared a 15-cent quarterly dividend payable April 15th to holders on March 31st. That equates to a 7.3% annual yield.

WIN shares have been moving higher since they reported earnings on February 25th. Shares are at resistance at $8.25 and could breakout this week. The next resistance would be $11.85.

While we are not playing the stock for a takeover there is always the chance that somebody like Verizon or even Google could decide the $750 million market cap was chump change for 125,000 miles of high-speed fiber, cable TV and data center business.

I am going way out on the option to August because it is cheap and it will make a good lottery play even if we close the stock position early.

Update 5/5/16: Windstream reported a much smaller loss than expected. The company reported an adjusted loss of 23 cents compared to estimates for 54 cents. Revenues declined slightly to $1,373.4 million and missed estimates for $1,378.8 million. However, product revenues rose 11% to $32.4 million. WIN bought back $75 million in shares in Q1. The company ended the quarter with 1,430,700 household subscribers.

Position 3/11/16

Long August $9.00 call @ .38 cents.(Adjusted) NO STOP LOSS

Previously closed 3/29/16: Long WIN shares @ $8.22, exit $7.10, -1.12 loss.





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