Option Investor
Newsletter

Daily Newsletter, Thursday, 8/4/2016

Table of Contents

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

Market Wrap

Consolidation Continues

by Thomas Hughes

Click here to email Thomas Hughes

Introduction

The market continues to consolidate near the recent highs while we await tomorrow's NFP data. The data will be important for many reasons including but not limited to FOMC rate hike expectations, labor market health, consumer strength and earnings outlook. Today's data points to ongoing recovery in labor but fell a bit short in terms of manufacturing.

Asian markets were mostly flat in today's session but one market, Japan, stood out. The Nikkei rose more than 1% due to a late day weakening in the yen, a weakening that still leaves the USD/JPY hovering near 2 year lows. European indices were a bit more enthusiastic, rising about 0.5% on average but led by a 1.5% gain in the FTSE. Today's gains were driven by the BOE policy statement in which they lowered the key rate to 0.25% and increased bond purchases. Along with the policy changes the BOE says that the Brexit will hurt the British economy but moderate growth is expected in the 2nd half of the year.

Market Statistics

Futures trading indicated a positive open all morning, about 0.25% for the S&P 500. This held steady throughout the morning and was little changed following the 8:30AM release of economic data. After the open the indices drift sideways in mild but choppy trading, hovering around break even levels. The range held all day, leaving the indices near their open at the close of the day.

Economic Calendar

The Economy

The Challeger Gray & Christmas report on planned lay-off's was released at 8:15AM. The July report shows that lay-off's jumped by 19% over the previous month but there are some key points to consider. First, the July figure is -57% below last year's July read, second the YTD total is down -8.7% over the same period last year. Also, the July jump is due to a massive uptick in lay-offs in the energy sector, 17,725, which accounts for 39% of the monthly total. Comparing this year to last year the energy sector is accelerating the pace of lay-offs, up 37% YOY, but this is expected to reverse in the next year or so as a wave of retirements hit the sector. The sector is expected to add 30,000 per year over the next two decades in order to maintain the workforce. The computer sector is the 2nd biggest loser of jobs this month, ytd losses for the sector are up 94% over last year. So, job cuts are up but only in the areas that were already weak, and outlook for job growth in at least one of those sectors is positive into the long term.


Initial claims for unemployment gained 3,000 this week, from last week's not revised figure, to hit 269,000. The four week moving average of claims also rose, gaining 3,750, to hit 256,000. On a not adjusted basis claims fell -5% versus an expected fall of -5.9%. On a year over year basis not adjusted claims are down -1.7%. The states with the biggest increases in claims were Michigan and Illinois with gains of 2,598 and 480. The states with the biggest decreases in claims were New York and Georgia with declines of -7,113 and -4,604.


Continuing claims fell by -6,000, following an upward revision of 5,000 to last week's data which leaves this week's figure near flat at 2.138 million. The four week moving average of continuing claims rose by 5,250 but is trending flat near 2.14 million. This week's data remains low and consistent with labor market health.

The total number of claims fell by -18,043 to hit 2.179 million and is -5.3% lower than this time last year. Even with the recent spike, expected due to seasonal trends, total claims remain consistent with declining unemployment and labor market health. It may not point to new job creation but it does point to higher employment levels. The ADP figure on Wednesday suggest that job creation remains steady near 200K monthly, tomorrow's NFP should confirm. The risk with the NFP is that last month's high number will be revised lower. The expectation is for July NFP to come in around 171,000.


The final read on June factory orders was released at 10AM. The figure came in at -1.5%, slightly better than expected but the second month of declining orders. Shipments however rose, by 0.7%, leading to a decline in unfilled orders, -0.8%, and inventories, -0.1%. Inventories have fallen 14 of the last 15 months.

The Atlanta Federal Reserve revised its 3rd quarter GDP estimate by a tenth to 3.7% from 3.6%. The revision is due to today's slightly better than expected manufacturing data. The range of estimates provided by economists is 1.8% to 2.8%.

The Dollar Index

The dollar strengthened a little today but the gains were minimal. The Dollar Index rose about 0.15% on the BOE announcement but remains below resistance at the short term moving average. The indicators remain bearish and pointing lower although momentum has fallen off. Tomorrow's NFP could be the next mover of the index as it plays into FOMC outlook. If outlook turns hawkish the dollar could rise to test resistance, near $96. If outlook remains dovish a drop looks likely. At this point I think it will take a very strong NFP number to increase expectations of a rate hike and so I expect to see the index move lower to test for support. First support target is near $95, a break below this could take it down to $94.30 or lower. As of today the CME Fed Watch Tool shows only about a 15% chance of rate hike over the next two meetings and only goes up to 30% for the December meeting.


The Oil Index

Oil prices rebound today but the move was more short covering than rally. WTI gained more than 2.5% to trade near $42 and has moved out of bear market territory. Today's move was driven by yesterday's unexpectedly large draw down in gasoline stocks, and by a report that stockpiles in Cushing fell less than expected. Tempering the news however is an ongoing supply glut which is showing little sign of changing. Also capping gains were a statement from an OPEC official revealing the cartel's July production was the highest since January, and data from Singapore showing mid-level distillate stockpiles are at a 5 year high. Today's bounce may continue with upside target near $45, if however data remains tilted toward the supply side any gains will likely be limited.

The Oil Index rose in tandem with oil prices, gaining about 0.25%. The move however has taken the index up to resistance targets near 1,120 and may have already hit its ceiling. A break above this level would be bullish and could take the index up to the 1,175 level but even so, would leave it range bound. A failure to break above current resistance levels, consistent with the mid-point of the four month trading range, is bearish and likely will result in a retest of support near the bottom of the range.


The Gold Index

Gold prices held steady near $1,365 today despite intraday strength in the dollar. The BOE move raised a little fear of Brexit fallout but enough to spark a full on rally. The metal may continue higher in the near term but the real catalyst will be FOMC and rate hike outlook, and the dollar. Tomorrow's NFP will likely move prices but without a real change in outlook gold will likely remain range bound. Resistance is about 1% above today's close, near $1,380, first target for support is near $1,350 with a chance of moving lower to $1,320 depending on how the data plays out over the next week.

The gold miners were able to move higher despite flat performance in the underlying metal. The miners ETF GDX gained a little more than 1.25% in a move that appears to confirm the break out to new highs which occurred earlier this week. Today's action moved higher from the $31 level, previous resistance turning to support, with bullish indications. Both MACD and stochastic are pointing to higher prices but there is a caveat, momentum is still weak and stochastic is not overly strong. If the break to new highs does not hold and the ETF moves back below $31 first target for support is $30 and then $29. If the move holds and is supported by gold prices the index could go as high as $36 in the near to short term.


In The News, Story Stocks and Earnings

Duke Energy reported earnings before the opening bell. The integrated energy utility reported earnings above expectations on revenue that fell slightly short of consensus. Full year guidance was maintained. Special items impacting GAAP earnings are an impairment charge related to South American operations and costs of mergers and other cost saving actions. Looking forward the company is expecting to close the acquisition of Piedmont Natural Gas and the sale of Latin American assets. The dividend remains unchanged at $3.42 annually, or about 4% at today's share prices. Shares of the stock fell about -0.25% today but are basically flat over the last month, trending just below a 15 month high.


Kellog also reported before the opening bell. The breakfast foo giant reported EPS in line with estimates on lighter than expected revenue. Despite the drop in revenue the company was able to post a profit in all segments of business. Looking forward the company has raised full year guidance to a range just above the previous and expects to see a margin expansion of 350 BPS over the next 24 months. Shares of the stock gained more than 1.5% in the pre-opening session, gapped up at the open and then moved as high as +5% during the day before falling back to close near the open.


Priceline reported after the bell, beating EPS estimates by $1.24, or roughly 9%, although revenue fell short. The beat was driven by strong travel demand, up nearly 20% and led by the international segment. Bookings are also up about 20% and expected to remain strong into the 3rd quarter. Guidance for the quarter is bookings up 14% to 19% with a 12% to 17% growth in revenue. Shares of the stock jumped more than 4% on the news.


The Indices

Today's action was light, choppy and held within a very tight range. Basically, more of the same we've been seeing over the past three weeks ever since the SPX first set a new all time high. The markets are winding up, waiting for something, possibly tomorrow's NFP report. Regardless, today's leader was the NASDAQ Composite Index which gained a little more than 0.15%. The tech heavy index created a small spinning top candle, near the recently set high, but does not look like it wants to go higher. The indicators continue to weaken, momentum has retreated to 0 and stochastic has fired a bearish crossover, suggesting the rally has reached its peak. If the index were to break above the current high, near 5,200, it would be bullish in the near term and could lead the index higher. A failure to break above it would be neutral but could lead to a retreat to 5,050 and a stronger support level coincident with the short term moving average.


Runner up in today's session was the Dow Jones Transportation Average which gained barely more than a tenth of a percent. Today's move was very small, price action created a small spinning top doji just beneath resistance at 7,750. This level is coincident with the short term moving average, which is moving lower within a range. The index looks like it has reversed within a trading and is now heading lower with near term target of 7,500. The indicators are consistent with this, both pointing lower, although tomorrow's data could change this. A confirmation of the 7,750 level, the mid-point of the 5 month trading range, would be bearish but may not break the index out of its range. A move above 7,750 would be near term bullish with upside target near 8,000.


The S&P 500 is third in line with gains of only 0.02%. This move creates a near perfect doji and indicates a market in balance. The balance may be tenuous however, both indicators are pointing lower and suggest an underlying weakness is building. Price is above 2,050 and bouncing although the indicators suggest the test of support is not over. First target for suppor is near 2,150 and maybe just a little below, near the uptrending short term trend line. A break below these levels could become bearish and lead to further downside. Next target would be near 2,030 and the previous all time high. Should tomorrows data spark a rally resistance is at the current all time high, a break above that is bullish with upside potential of 1-3%.


The Dow Jones Industrial Average brings up the rear today, posting a loss of -0.02%. This index also created a near perfect doji and is sitting just above support. Support is near 18,350 and is confirmed by the short term moving average. A break below this level could be bearish in the near to short term with targets at 18,000 and 17,750. A bounce from this level may hit resistance at the new all time high depending on how the data comes in. A break above the high is bullish and likely to lead to further upside.


The indices continue to consolidate near their recent highs although drifting lower over the past two weeks. Today's price action was choppyand on low volume, as it has been since the SPX hits it's new all time high. It and the other indices could be preparing to move up to new highs but tepid economic data and declining earnings growth outlook do not support that view.Tomorrow's NFP data could tip the scales one way or the other, but what it will probably come down to is summer seasonality and range bound trading. Will there be enough volume to move the market below support or above resistance, depending on what the numbers say? If not we could be in for a few more weeks of sidewinding.

It'll be another 4 or 5 weeks until full volume returns to the market and until then these small day to day moves are just noise anyway. If there is a sell off it will probably be short term in nature, sharp and quick. The long term moves will probably get started once the fall trading season is under way, now is the time to watch and wait, getting ready for what the market will do this fall. Until then I remain cautious.

Until then, remember the trend!

Thomas Hughes


New Plays

Brexit Casualty?

by Jim Brown

Click here to email Jim Brown
Editor's Note

There are consequences to actions and sometimes there are companies that blame events for lackluster performance. Infosys could be guilty on both counts.



NEW BULLISH Plays

INFY - Infosys - Company Profile

Infosys Limited, together with its subsidiaries, provides consulting, technology, and outsourcing services in North America, Europe, India, and internationally. The company offers business information technology (IT) services comprising application development and maintenance, independent validation services, infrastructure management, business process management, and engineering services consisting of product engineering and life cycle solutions; and consulting and systems integration services, including consulting, enterprise solutions, systems integration, and advanced technologies.

Infosys is an Indian company that does business all over the world but it does have a heavy presence in Europe and the UK. Just before the company released disappointing earnings in July they issued a press release saying, "We do not know how Brexit will play out" but we are cutting our guidance anyway. At the same time, they warned they would miss prior estimates for Q2 "even though there was no Brexit impact so far." This would appear to be a case of using a convenient headline as an excuse for poor performance.

The company cut full year revenue growth guidance from 11.5% to 13.5% to 10.5% to $12.0%. They blamed a lack of visibility by banks as a potential reason they may see growth decline. When they reported earnings of 22 cents they missed estimates for 23 cents. Revenue of $2.5 billion also missed estimates for $2.55 billion. Remember, they said there had been no impact from Brexit so far so this was just a miss and they were setting up analysts for a future miss with the guidance cut.

Earnings Oct 14th.

Analysts were quick to downgrade the stock with Nomura cutting it from buy to neutral and Credit Suisse cutting from outperform to neutral.

Shares fell from $18.50 to $16.50 on the announcement and then traded sideways for two weeks. This week they have begun to decline and are only slightly above a new 52-week low. If they punch through the support at $16 they could go to single digits.

With a INFY trade at $15.75

Sell short INFY shares, initial stop loss $16.65

No options recommended because of wide spreads.



NEW BEARISH Plays

No New Bearish Plays



In Play Updates and Reviews

No Material Movement

by Jim Brown

Click here to email Jim Brown

Editors Note:

Stocks were flat along with the markets as everyone held their breath ahead of Friday's jobs report. There were only a few stocks posting gains on Thursday with advancers only 4:3 over decliners. The gains were minor as well as the losses. It appears everyone was just waiting for something to happen.

The Dow gave back 45 points from the intraday high to lose -3 at the close. That is hardly an excitign range. The S&P only gained half a point and the previously strong biotech index lost -1% to keep the Nasdaq only barely positive.

There is nothing to determine from the market movement other than there was no movement in either direction. The markets are waiting for a headline event to pick a direction.

There does not seem to be any rush to buy or sell equities. As we move farther into August that should change with more sellers than buyers but until it do we will remain neutral on our outlook.




Current Portfolio





Current Position Changes


CDNS - Cadence Design System
The long position was opened at $24.35.


CUDA - Barracuda Networks
The long position remains unopened until $22.50. High today was $22.40


RDN - Radian Group
The long position remains unopened until $13.15. High today was $12.87


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

CDNS - Cadence Design System - Company Profile

Comments:

No specific news. Shares rose to $24.36 to trigger our entry at $24.35.

Original Trade Description: August 3rd.

Cadence Design Systems, Inc. develops, sells, leases, and licenses electronic design automation (EDA) software, emulation and prototyping hardware, verification intellectual property (VIP), and design intellectual property (IP) for semiconductor and electronics systems industries worldwide. It offers functional verification products, including logic verification software that enables customers to coordinate verification activities across multiple teams and various specialists for verification planning and closure; and system design and verification products for hardware-software verification, as well as for system power exploration, analysis, and optimization. The company also provides digital integrated circuit (IC) design products, such as logic design products for chip planning, design, verification, and test technologies and services; physical implementation tools, including place and route, signal integrity, optimization, and double patterning preparation; and signoff products to signoff the design as ready for manufacture by a silicon foundry, as well as design for manufacturing products for use in the product development process.

Basically, Cadence is a software company that specializes in software to design chips and validate designs. They reported earnings of 29 cents compared to estimates for 28 cents. Revenue of $453 million beat estimates for $449.7 million. They guided for Q3 for revenue of $440-$450 million and earnings of 27-29 cents. Unfortunately, that was slightly lower than the $457 million and 31 cents analysts expected. They guided for the full year for revenue of $1.8 - $1.83 billion and earnings of $1.17 to $1.23. Analysts were expecting $1.824 billion and $1.21 per share.

The stock was knocked back from $26 to $24 after a strong run since January. Shares have stabilized at $24 and I expect their prior trend to continue. The guidance was conservative and analysts always over estimate.

Earnings Oct 25th.

Position 8/4/16 with a CDNS trade at $24.35

Long CDNS shares @ $24.35, see portfolio graphic for stop loss.

Optional: Long Sept $25 call @ 35 cents, no stop loss.



CUDA - Barracuda Networks - Company Profile

Comments:

No specific news. This position remains unopened until CUDA trades at $22.50. The high today was $22.40.

Original Trade Description: July 21st., August 3rd

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.

We were stopped out of long position on 8/3 because I had the stop loss too tight. I believe CUDA will move higher after a period of consolidation at the current level. I am putting an entry point just over the current consolidation range.

With a CUDA trade at $22.50

Buy CUDA shares, initial stop loss $21.00.



RDN - Radian Group - Company Profile

Comments:

No specific news.

Position remains unopened until a trade above resistance at $13.15. High today was $12.87.

Original Trade Description: July 30th.

Radian Group Inc. provides mortgage and real estate products and services in the United States. It operates through two segments, Mortgage Insurance, and Mortgage and Real Estate Services. The Mortgage Insurance segment provides credit-related insurance coverage, principally through private mortgage insurance that protects mortgage lenders from all or a portion of default-related losses on residential mortgage loans made to home buyers, as well as facilitates the sale of these mortgage loans in the secondary mortgage market. It offers primary mortgage insurance coverage on residential first-lien mortgage loans. This segment primarily serves mortgage bankers, mortgage brokers, commercial banks, savings institutions, credit unions, and community banks. The Services segment provides outsourced services, information-based analytics, and specialty consulting services for buyers and sellers of, and investors in, mortgage- and real estate-related loans and securities, and other asset-backed securities. This segment offers loan review and due diligence, monitoring of mortgage servicer and loan performance, valuation and component services, real estate owned asset management services, and outsourced mortgage services. Radian Group Inc. was founded in 1977.

With the new credit rules borrowers have to have more money down and a higher credit score to qualify for a home loan. Even then there is sometimes the requirement for credit insurance to allow the loan to be sold in the secondary market. Radian provides the insurance and does the due diligence required to write the insurance profitability. They continue to monitor the mortgage servicers to prevent the loans from going to deep into default by being proactive.

In their recent quarter they reported earnings of 38 cents that missed estimates for 40 cents. However, shares went up because of the positive guidance. They are writing more insurance on better credits. They wrote insurance on $12.9 billion in loans, a 60% increase from the $8.1 billion in Q1. Of the loans written 57% of the borrowers have FICO scores over 740 compared to 26% in 2007. Only 7% of loans underwritten had loan to value greater than 95% compared to 24% in 2007. Some 86% of insurance in force is on new loans written after 2008. Because of the higher scores and the smaller loan to value on most loans they were able to reduce their loan loss reserves from $1.204 billion to $848 million.

They are paying off debt and redeemed a $325 million note. They had $718 million in liquidity at the end of the quarter. They authorized another $125 million share repurchase and the board authorized the early redemption of $196 million in senior notes due in 2017. In Q2 they also bought back $12.4 million of convertible notes due in 2019.

Earnings Oct 27th.

Despite the minor earnings miss the company appears to be doing everything right. Shares have risen for two consecutive days after their earnings. Resistance is $13 and they closed at $12.90 on Friday. If they break over that resistance the gains could accelerate.

With a RDN trade at $13.15

Buy RDN shares, initial stop loss $11.85.

Optional:

Buy Sept $14 call, currently .20, no stop loss.



TWTR - Twitter - Company Profile

Comments:

Twitter gained another 3% after yesterday's 7% on the Wednesday rumors that Steve Ballmer was teaming up with Saudi investor Prince Al-waleed Bin-Talal to buy the company. Each are reported to be in the top 10 individual holders of Twitter shares but I could not confirm that. Ballmer bought a 4-5% stake last fall but I do not know if he still owns it.

When contacted by CNBC to comment on the rumor, Ballmer replied, "no comment." If the rumor was not true it would have been very easy to say it was not true. That suggests there may be something going on behind the scenes.

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 8/1/16:

Long TWTR shares @ $16.64, see portfolio graphic for stop loss.

Previously closed 7/28/16: Long TWTR shares @ $17.24, exit $15.89, -1.35 loss.
Previously closed 8/1/16: Long Aug $17 put @ 62 cents, exit .85, +.23 gain.




BEARISH Play Updates

SKX - Skechers - Company Profile

Comments:

No specific news. Shares were listless along with the market.

Original Trade Description: August 1st.

Skechers U.S.A., Inc. designs, develops, markets, and distributes footwear for men, women, and children; and performance footwear for men and women under the Skechers GO brand name worldwide. It operates through three segments: Domestic Wholesale Sales, International Wholesale Sales, and Retail Sales. The company offers casual footwear, including boots, shoes, and sandals for men, as well as oxfords and slip-ons, lug outsole and fashion boots, and casual sandals for women; dress casuals, seasonal sandals and boots, and relaxed fit casuals for men and women; and casual fusion line for young men and women under the Skechers USA brand. It also provides footwear collection for men and women, including lightweight sport athletic lifestyle products, classic athletic-inspired styles, and sport sandals and boots under the Skechers Sport brand name; casual and sporty styles sneakers for females under the Skechers Active and Skechers Sport Active brand; and footwear for women and girls under the BOBS from Skechers name. They operate 1,548 stores with 1,144 outside the USA. They plan to increase that total count by adding another 200 stores before the end of 2016. They opened 133 stores in Q2.

In the recent Q2 cycle they reported earnings of 48 cents that missed estimates for 51 cents. Revenue rose 9.6% to $877.8 million. The revenue was a bigger problem than the missed earnings. Over the last three quarters they averaged a 27% increase in sales. The 9.6% rise was the worst quarter since Q3-2012. In the U.S. revenue actually declined -5.4% with most of the gains coming from overseas. Sales internationally rose 40% but the stronger dollar took a big bite out of profits. They also complained about a warehouse fire in Malaysia and additional VAT taxes in Brazil.

However, the biggest problem is the increased competition from Under Armour and Nike. UA is rapidly expanding its line of running shoes and Nike is increasing the variety of less expensive shoes after their $200+ offerings did poorly over the last two quarters. Under Armour announced it was going to launch a shoe dept in 1,100 Kohl's stores. That gives them broader exposure and it will be at a lower price point.

Skechers has a tough road ahead. They are trying to break into the highly competitive U.S. running shoe market and have been doing rather well but the big guys are determined to push SKX back to the sidelines.

Earnings Oct 20th.

Shares fell from $32 to $25 on the earnings and have continued to move to lower lows in a positive market. If the broader market rolls over the decline could accelerate.

Update 8/3/16: Skechers earned the "Bear of the Day" strong sell call from Zacks. The analyst said the consensus estimate for 2016 earnings had fallen from $2.11 to $1.81 in the last 60 days. The 2017 estimates had fallen from $2.53 to $2.05.

Position 8/2/16:

Short SKX shares @ $23.75, see portfolio graphic for stop loss.

Optional: Long Sept $22 put @ .55, see portfolio graphic for stop loss.





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