Option Investor
Newsletter

Daily Newsletter, Monday, 7/25/2016

Table of Contents

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

Market Wrap

Earnings Rally Falters

by Thomas Hughes

Click here to email Thomas Hughes

Introduction

The market fell ahead of a busy week, the busiest week of the earnings season, but did not fall hard. So far the season is better than expected, the bad news is that forward outlook continues to decline. Along with earnings there is quite a bit of data, a meeting of the FOMC Wednesday and a BOJ meeting on Friday, both giving plenty of reason for caution.

International markets were a bit mixed. Asian indices were mostly flat for the session, barely moving on better than expected Japanese trade data and news from Nintendo it would see little material impact from the success of Pokemon Go. It, Nintendo, owns only about 30% of the Pokemon Company which itself will receive only a licensing fee. Most of the profits will go to game creator Niantic. European indices began the day with gains near 1% but pared those back to break even or lower on weakness in the US market and another drop in global oil prices.

Market Statistics

Futures trading was indecisive in the early hours, mostly indicating a flat to slightly lower open. Nothing in the way of economic data was released pre-opening to affect trading, earning news was dominated by Sprint's beat and Yahoo!'s sale to Verizon. Oil prices did have an affect on early trading and weighed on prices going into the open and early hours of today's session. Spot prices for WTI and Brent hit new 3 month lows on rising fear of over-supply and negative demand outlook. The S&P 500 opened with a loss just over 1 point and then steadily fell to hit a mid-day low near 2,162, about -0.57% below last week's close. This low held while the market bobbed along for most of the remainder of the day. Around 3:30PM the bulls tried to mount a rally and were able to recover some but not all of the day's losses.

Economic Calendar

The Economy

No economic data on the calendar for today but the week is pretty full. Topping the list is the FOMC meeting and policy statement Wednesday afternoon. Tomorrow the Case Shiller 20 city index, consumer confidence and new home sales data will be released. Wednesday is the FOMC, durable goods and pending home sales. Thursday is just jobless claims, Friday closes out the week with the BOJ statement, the 1st estimate for US 2nd quarter GDP, PMI, and Michigan Sentiment. After the FOMC the BOJ and GDP are close seconds. Housing data will also be crucial for the general economic outlook and FOMC rate hike timeline.

Moody's Survey Of Business Confidence continues to fall, shedding -0.6 to hit 23.6. This is the 14th week of near continual decline and the 10th month of downtrend in global business confidence. Mr. Zandi says that geopolitics is driving sentiment and noted the China/Philippines issues again, as well as the Brexit and regional political unrest in South America. US sentiment remains intact and consistent with an expanding economy.


So far this cycle 25% of the S&P 500 has reported earnings with another 20% is due to report this week. Of those who have reported 68% have beaten earnings expectations and 57% have beaten revenue expectations, both above average. The blended rate of earnings has risen in the last week to -3.7%, still deep in negative territory, from last week's -5.5%. The week to week increase is not unexpected, the blended rate tends to rise about 4% from the start of the reporting season to the end making this years final target about -1.5%. The industrials and info tech sectors are leading 5 other sectors in earnings and revenue beats, this week should see the blended rate come up again.


The forward outlook remains muddy. On the positive side, full year 2016 earnings expectations remain positive and steady over the last week at 0.3%. The bad news is that while 2nd quarter earnings growth is not as bad as expected, 3rd and 4th quarter growth have both been revised lower again. Third quarter earnings growth is now negative, as feared, and is likely to go lower over the next week. This makes the 6th quarter of negative growth. Fourth quarter growth is projected at 6.6%, full year 2017 at 13.1%.


The Dollar Index

The Dollar Index held near its 4 month highs while we wait on the FOMC and BOJ decisions. Both are expected to do something, at a meeting in the future, but there is little expectations either will make a move now. Those moves, easing/stimulus in Japan and tightening/rate-hiking in the US are bound to drive the dollar higher in the longer term. In the nearer term the index is trading at a resistance target with divergence in MACD which suggest a move higher may not be coming. Depending on what it is exactly they say, the news may not be enough to move the index above resistance. Resistance is near $97.50, a break to the upside could go as high as $98.65 before hitting next resistance. If the index pulls back from the current levels first target for support is $96.60.


The Oil Index

Oil prices fell again today, dropping more than -2%, to settle near the low of the day. WTI fell about -2.42% to trade just above $43 and a 4 month low. Prices are falling on over-supply worry fueled by rising rig counts in the US and no sign of significant production decreases around the world. This sentiment could persist into the short term or longer if global conditions do not improve. Now that WTI is moving below $45 next target for support is near $40.

The Oil Index moved lower today as well, dropping further beneath the short term moving average and breaking below the mid-point of the three month range. The index looks set to test the bottom of this range, near 1,075, and the indicators are consistent with this. There is little sign of underlying strength in the move, a break beneath the bottom of the range does not look likely.


The Gold Index

Gold prices had a choppy session but held steady near last week's closing prices. Spot gold traded as low as $1,313 but was able to regain most of that loss to settle near $1,320. Gold is testing support, just above $1,300, and this is likely to continue tomorrow at least, an while the Dollar Index is pushing up against resistance. This week may see the metal make another large swing, up or down, depending on the FOMC and how the dollar reacts. First downside target is $1,300, a break below this taking price down to $1,280. First upside target is near $1,350 with $1,375 next target after that.

The gold miners were not able to hold their ground in today's session. The Gold Miners ETF GDX fell about -3.5% in a move that broke below the short term moving average. This move may be a test of support, but if confirmed could lead to significant downside for the sector. The indicators are both bearish and consistent with a test of support but neither are showing unusual strength or indication a break of support is likely. If it holds, based on convergence with MACD, a test of the recent high is likely. Support is near $27.50, possibly as low as $26.85 and dependent on gold prices.


In The News, Story Stocks and Earnings

Yahoo! made headlines today but not for earnings. The company announced that Verizon was the highest bidder and will be taking it over at a cost of $4.8 billion. Verizon plans to merge the business with AOL in effort to make it a top global media company. The deal separates the Yahoo! core business from the Asian equities, Alibaba, it's cash and non-core patents which will be held in a new publicly traded company. Shares of Yahoo! Fell -2.25% on the news, Verizon only about -0.5%.


Sprint was the one earnings report to stand out in the pre-opening session. The company's report was a bit mixed but was enough to send shares skyrocketing 25% after the open. Earnings and revenue fell from last year, earnings more than expected, but a few key statistics helped to erase the sting. Revenue fell less than expected on better than expected increases in post-paid subscriber additions. Post-paid is the largest revenue stream for the company and came in at a 9 year high with churn at historic low levels as well. Forward guidance was maintained at previous levels. Today's action took share prices to a 20+ month high and closed a gap opened October 2014.


Texas Instruments reported earnings after the bell. The chip and circuit maker reported revenue in-line and earnings that came in a nickel above expectations. Results were driven by strength in the automotive, industrial and communication device segments. Forward outlook was reaffirmed in a range above consensus and helped to send the stock up by more than 6% in after hours trading.


The Indices

The indices fell from the recently set highs but did not sell-off hard. Today's action appears more like a move within a small consolidation range and possibly setting up for a pull-back, with this week's schedule of events not surprising. The day's loss leader is the Dow Jones Transportation Average with a decline near -1%. The transports created a medium size black candle moving down from and confirming resistance at the 8,000 level. The indicators remain bullish so this level may get tested again. Declining MACD momentum and a stochastic crossover confirm the presence of resistance at this level, a break above which would be bullish. Upside target should resistance be broken is near 8,250, first target for support should the index pull back is near 7,750. A break below 7,750 would be bearish and could go as low as 7,500 in the short term.


The Dow Jones Industrial Average made the second largest decline in today's session, about -0.42%. The blue chips created a small black candle within a tight consolidation range just below the recently set all time high. Today's action appears to be consolidation, but consolidation for what is the question. On one hand the indicators remain bullish so near term weakness may be entry for bullish positions, on the other near term weakness could be an early sign of correction. A break from the consolidation/congestion band, between 18,490 and 18,510, could move the index as much as 1,000 in either direction. However, should the index break to the downside significant support targets exist well within the 1,000 point range at 18,275 and 18,000.


The third largest decliner in today's session was the S&P 500. The broad market created a smallish black candle with visible lower shadow. The candle is within the 8 day range and gives little sign support is breaking down although the indicators both suggest support could be tested. A break below the bottom of the range, about 2,150, would be bearish in the near term at least and could take the index down to the short term moving average, near 2,030. A break to the upside of this range could lead to a continuation of the Brexit Bounce with upper targets near 2,250 and 2,300.


The NASDAQ Composite made the smallest decline in today's session, only -0.05%. The tech heavy index created a small spinning top type doji just shy of its recently set high and may be cresting a peak. The indicators are still bullish but declining momentum and a crossover in stochastic are consistent with resistance and possible consolidation or correction. If the index is able to move higher upside target is near 5,150, if not first target for support is just below current levels near 5,050.


The indices are in a near term consolidation/congestion pattern following the massive rally from the Brexit Bottom. Better than expected earnings have helped to support the rally and may continue to do so into the near term. The risk is that support for the rally could fade along with forward outlook which persists in year over year declines.

The FOMC may reinvigorate the bulls with their policy statement but that is a wild card, they are largely expected to do nothing except talk so volatility is the most likely result of that event. More important than the FOMC will be the data and any clues it gives to when the next rate hike will be.

If this week's round of releases brings us more of what we've already seen I see little reason for the market to move higher in the short term without some kind other catalyst, such as the data or the FOMC. Longer term outlook for earnings remains positive, strong even, but until we can say for sure that growth is at hand the market is more likely to continue trending sideways than it is to rally on to new highs.

I remain cautious for the near term with an eye on 3rd quarter earnings and the FOMC.

Until then, remember the trend!

Thomas Hughes


New Plays

No Fun Today

by Jim Brown

Click here to email Jim Brown
Editor's Note

The market decline may be a one-day event or the start of something bigger. The decline was lackluster and the indexes dipped slightly below last week's resistance highs. However, that is not the biggest problem. I scanned charts for more than 350 small cap stocks looking for a potential candidate today and we already have the best charts in our portfolio. Other stocks with decent charts have earnings this week or next. I could not find anything that did not have earnings in the immediate future that I would buy with my money. That is one of the criteria I use when choosing plays.

Of those 350 small cap stocks under $25 the vast majority had negative charts. Quite a few had hit recent highs over the last seven days but had been declining for several days since. Quite a few were at two-week lows or worse. This suggests the market rally is losing traction and the next material move could be lower. It will be tough to add new plays until after this week is over. This is the busiest earnings week of the cycle and Thursday is the busiest day. Next week we will have a lot more candidates with earnings behind them.



NEW BULLISH Plays

No New Bullish Plays


NEW BEARISH Plays

No New Bearish Plays



In Play Updates and Reviews

Pause to Breathe

by Jim Brown

Click here to email Jim Brown

Editors Note:

Monday's decline was lackluster and simply minor profit taking. The Russell needs to break below support at 1,200 to trigger a deeper market rout. Until then any weakness is just caution by investors ahead of some high profile earnings events that could rock the market this week.

The Russell fell back below prior resistance at 1,210 but the horizontal dance continues. We are looking at two higher lows and a higher high so the trend remains positive until broken.




Current Portfolio





Current Position Changes


CUDA - Barracuda Networks
The long position in CUDA was opened at $21.45


CIEN - Ciena Corp
The long position in CIEN was opened at $20.35


QURE - Uniqure
The short position in QURE shares remains unopened until $7.00.


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

AAOI - Applied Optoelectronics - Company Profile

Comments:

No specific news. 3-month high close on a minor gain.

Original Trade Description: July 16th.

Applied Optoelectronics, Inc. designs, manufactures, and sells fiber-optic networking products primarily for Internet data center, cable television (CATV), and fiber-to-the-home (FTTH) networking end-markets. It offers optical modules, optical transceivers, lasers, transmitters, and turn-key equipment, as well as headend, node, and distribution equipment. The company sells its products to internet data center operators, CATV and telecommunications equipment manufacturers, and internet service providers through its direct and indirect sales channels worldwide.

This is a small but growing company. The share price has been volatile over the last year with a big drop on Q1 earnings that knocked it down from $16 to $8. They had a problem with lower than anticipated yields on a new 40 Gb light engine and had to redesign it and modify the manufacturing process. That was a onetime event that cost them 30 cents a share in Q1 despite record shipments. They saw a 30% increase in shipments of 100 Gb products.

Immediately after the earnings drop shares began to recover and reached $11.80 last week, which is decent resistance. With expectations for a return to profitability in Q2 I expect the $12 level to be broken and some short covering begin.

Earnings are August 4th. They did not warn for this quarter. We have a short window of about two weeks in this position.

Position 7/18/16 with an AAOI trade at $12.00

Long AAOI shares @ $12, initial stop loss $10.85.

No options recommended because of short duration trade.



ANF - Abercrombie & Fitch - Company Profile

Comments:

No specific news.

Original Trade Description: July 20th.

Abercrombie & Fitch Co. operates as a specialty retailer of casual apparel. The company sells knit and woven shirts, graphic T-shirts, fleece, jeans and woven pants, shorts, sweaters, and outerwear; personal care products; and accessories for men, women, and kids under the Abercrombie & Fitch, Abercrombie kids, and Hollister brand names. As of March 2, 2016, it operated through 754 stores in the United States; and 178 stores in Canada, Europe, Asia, and the Middle East. The company sells its products through its stores and direct-to-consumer sales.

Abercrombie has been pounded from the highs at $33 back in March after some disappointing earnings and weak outlook for the retail sector. Since then they have cleaned up their inventory levels and dumped a ton of bad product choices. Now they are heading into their heavy selling season and ready to go head to head with other stores.

The company has been in a restructuring period for over a year where they remodeled stores, dumped inventory and closed unprofitable locations. The drop from $33 to $16 took all the fluff out of the stock price and shares are moving higher today. They closed at a 2-month high on Wednesday.

If the market begins to roll over, these previously oversold stocks will look like a safe haven for investors looking for a bargain. This is Abercrombie's biggest selling season so sentiment should remain positive through Labor Day. The National Retail Federation said back-to-school spending will rise by 11.4% to $75.8 billion this year of which $9.54 billion will be on clothes. Apparel retailers like ANF get about 15% of their annual sales in the back-to-school season.

Earnings August 25th.

Position 7/21/16 with a ANF trade at $20.10

Long ANF shares @ $20.10, see portfolio graphic for stop loss.

No options recommended.



CIEN - Ciena Corporation - Company Profile

Comments:

No specific news. The position was opened with a CIEN trade at $20.35.

Original Trade Description: July 23ed.

Ciena Corporation provides equipment, software, and services that support the transport, switching, aggregation, service delivery, and management of voice, video, and data traffic on communications networks worldwide. The company's Converged Packet Optical segment offers networking solutions optimized for the convergence of coherent optical transport, OTN switching, and packet switching. The company's Optical Transport segment transports voice, video, and data traffic at high transmission speeds. Its Software and Services segment offers network management solutions, including the OneControl Unified Management System, ON-Center Network & Service Management Suite, Ethernet Services Manager, Optical Suite Release, and Planet Operate; Blue Planet software platform; and SDN Multilayer WAN Controller and its related applications. This segment also provides consulting and network design, installation and deployment, maintenance support, and training services. The company sells its products through direct and indirect sales channels to network operators.

On June 3rd Ciena reported adjusted earnings of 34 cents that beat estimates for 27 cents. Revenue rose 3.1% to $640.7 million. Software and services revenue rose 27%, global services rose 3.2% and networking platforms 1.9%. International customers accounted for 43% of revenues. Latin America and Asia Pacific both rose more than 20%. They guided for the current quarter to revenue of $655-$685 million. Analysts were expecting $670 million.

After the earnings, somebody bought 20,000 of the October $23 calls for $1.12 with the stock at $20. On July 16th, there was a rumor of a pending acquisition bid for Ciena but analysts dismissed the rumor rather quickly.

Shares are holding at resistance at $20. The next resistance is $22 and then a potential sprint to $25.50. If the holder of those October calls knows something we do not then an acquisition bid is possible. That is a huge buy since the average daily option volume in all strikes is less than 1,200 contracts. Sometimes hedge funds buy a large quantity of calls when they know they will be buying shares of the stock. When they report their stock purchase it can cause the stock to spike and make the calls profitable.

Earnings are Sept 1st.

I am looking to buy CIEN shares with a trade at $20.35, which would be a five-week high. I am also going to recommend we piggyback on those 20,000 calls and buy the same strike for a long-term hold.

Position 7/25/16 with a CIEN trade at $20.35

Long CIEN shares, see portfolio graphic for stop loss.

Optional

Long Oct $23 call @ 70 cents. No stop loss.



CUDA - Barracuda Networks - Company Profile

Comments:

No specific news. Minor spike over resistance triggered the position at $21.45.

Original Trade Description: July 21st.

Barracuda Networks, Inc. designs and delivers security and data protection solutions. The company offers cloud-enabled solutions that enable customers address security threats, improve network performance, and protect and store their data. It provides various security solutions and Barracuda Web Security Gateway, a solution to protect users from Web-based threats. The company's security solutions also comprise Barracuda NextGen Firewalls to secure the network and optimize traffic flows; Barracuda Web Application Firewall to protect Web applications and websites from data breaches and downtime; and Barracuda Load Balancer ADC to optimize application performance, availability, and security. In addition, it offers data protection solutions, such as Barracuda Backup, Barracuda Message Archiver, and CudaSign, an eSignature platform. The company sells its appliances, services, and software products to education, government, financial services, healthcare, professional services, telecommunications, retail, and manufacturing industries through its sales personnel, distribution partners, and value added resellers in approximately 100 countries.

On July 7th the company reported adjusted earnings of 20 cents that easily beat analysts for 11 cents. Revenue of $86.7 million rose 11% and also beat estimates for $83.8 million. Recurring subscription revenue rose 20% to $65.3 million because of the success in moving to a cloud subscription model rather than appliance sales. Subscription revenue now represents 75% of all revenue. Active subscriptions rose 14% to over 286,000 customers and the renewal rate was 93%.

Earnings Sept 27th.

After the earnings shares spiked to $18.50 from $15. A day later they spiked again to $19.50 as analysts raised their guidance. Shares consolidated for about three days before beginning to trend higher. Thursday's close was a 9-month high with a 1.7% gain in a weak market.

Shares are about to move over resistance at $21.25 from last November with the next major resistance at $30.

With a CUDA trade at $21.45

Buy CUDA shares, initial stop loss $19.25.

No options recommended due to wide spreads.



FLXN - Flexion Therapeutics - Company Profile

Comments:

No specific news. Minor decline after Friday's 8-week high close. Earnings date changed from August 4th to August 3rd.

Original Trade Description: July 18th.

Flexion Therapeutics, Inc. is a specialty pharmaceutical company that focuses on the development and commercialization of anti-inflammatory and analgesic therapies for the treatment of patients with musculoskeletal conditions. It lead product candidate includes Zilretta, a sustained-release intra-articular steroid, which is in clinical trials to treat the patients with moderate to severe osteoarthritis (OA) pain. The company is also developing FX007, a preclinical, small-molecule TrkA receptor antagonist to address post-operative pain; and FX005, a sustained-release intra-articular p38 MAP kinase inhibitor for patients with end-stage OA pain.

In clinical trials the drug Zilretta reduced knee pain by 50% from the baseline from week 1 through week 12. The FDA said the results were enough to support a filing for U.S. approval. The current treatment is a corticosteriod injection that wears off quickly so Zilretta has a good chance of becoming the treatment of choice for current sufferers. Those over the counter drug patients would also be candidates.

Flexion said they can price the drug at $2,000 a year and that is well within normal insurance guidelines so getting insurance payments should not be a problem. Once Zilretta is in the market place and advertising has begun they expect it to produce more than $1 billion in annual revenue very quickly.

Last week they hired three new executives to prepare marketing plans and advertising so Flexion will be ready to go when the drug is approved. While there is no guarantee the drug will be approved, the FDA rarely suggests the clinical results are sufficient to apply for approval if it is not going to happen.

Recently hedge funds Millennium Management and Renaissance Technologies both bought 125,000 share positions.

Earnings are August 4th.

Shares spiked on May 26th to $17.35 on the news the FDA said they could submit the drug for approval. That excitement faded in June to $13 but shares have returned to a positive trend. If we only saw the shares return to $17.35 that would be a 10% gain but I believe they will pass that level on the potential for the approval of a billion dollar drug.

Position 7/19/16:

Long FLXN shares @ $15.89, see portfolio graphic for stop loss.

No options recommended because spreads are too wide.



HPE - Hewlett Packard Enterprise - Company Profile

Comments:

No specific news. Citigroup upgraded from hold to buy with a $25 price target.

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:

Shares rallied more than $1 after news broke the acquisition could be approved in a "matter of days." The Tesla master plan Musk just released assumes the acquisition will happen. Reportedly SolarCity is negotiating to add a "go shop" provision to any agreement to give SCTY time to look for other buyers. Musk will not let SCTY get away so that means a higher price to make it happen.

Musk said he had spoken with the largest investors in SolarCity and he expects a "super majority" to support the acquisition.

Shares are already nearing the $28 level and I expect Tesla will have to pay more than the $26-$28 it has offered to buy the company. I am still expecting a counter offer in the $30-$32 range.

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.

Update 7/18/16: SCTY raised $345 million in tax equity from four separate partners in June to finance new solar projects. The money will be used to fund new installations. The company also increased its operating line by $110 million by adding two new lenders to the facility. The SCTY capital team has raised more than $1.5 billion in project financing in 2016. They now have more than 30 different banks and corporate partners with financing available 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:

The company said it would live stream one MLB and one NHL game per week for free. It will also live stream a nightly sports highlight program from 120 sports. Shares rallied on the news despite the downgrade.

S&P Global cut TWTR from buy to hold ahead of Tuesday's earnings.

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.

Optional

Long Aug $17 put @ 62 cents, no stop loss.




BEARISH Play Updates

QURE - UniQure - Company Profile

Comments:

No specific news. QURE has not yet hit our entry trigger at $7 but today's low was $7.03.

The position remains unopened until a drop to $7.

Original Trade Description: July 19th.

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.

Earnings August 25th.

Shares have been declining for the last week and are very close to a new low. We played this back in June when it was making that low and were stopped out for a gain when it rebounded. I think it will set a new low this time and probably sink to $5.

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.

With a QURE trade at $7.00

Short QURE shares, initial stop loss $8.00.

No options recommended.



VXX - Ipath VIX Short Term Futues ETN - ETN Profile

Comments:

The VXX closed at 11.11 and 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.





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