Option Investor
Newsletter

Daily Newsletter, Tuesday, 10/18/2016

Table of Contents

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

Market Wrap

Three Stock Rally

by Jim Brown

Click here to email Jim Brown

We can thank Netflix, UnitedHealth and Goldman Sachs for Tuesday's rally with those stock helping to create a minor short squeeze.

Market Statistics

Netflix (NFLX) beat on earnings but the real beat came in the number of new subscribers. The company added 50% more subscribers than analysts expected. They added 370,000 U.S. customers compared to estimates for 309,000. They added 3.2 million subscribers internationally compared to estimates for 2.01 million. This brings their total subscribers to 86.7 million compared to estimates for 85.5 million.

Their forecast for Q4 was also robust. The company expects to add 1.45 million U.S. subscribers compared to estimates for 1.27 million. They guided for 3.75 million new international subscribers with estimates at 3.32 million. If they hit those numbers, they will end the year with about 92 million subscribers. That would be roughly $915 million a month in subscription revenue. In comparison, they posted record revenue in Q3 of $2.29 billion, up 31.7%.

The company said it was going to spend $6 billion on content in 2017, up from $5 billion in 2016. This compares to ESPN at $7.3 billion in 2016, NBC $4.3 billion and CBS at $4.0 billion. They produced 600 hours of new content in 2016 and that will rise to 1,000 hours in 2017.

There are more than 1 billion pay TV subscribers globally. With Netflix at just under 90 million streaming accounts, they have a very large addressable market just in the pay TV area. Add in the millions of people around the world that get their content on mobile phones, tablets and PCs and Netflix subscriptions are not likely to slow down in the near future. They added 130 countries in January and the service is now available in 22 languages. It took a few months for the product to catch fire in those 130 countries but now it is really taking off.

Netflix added 8 points to the Nasdaq 100 index and was responsible for a minor short squeeze in many tech stocks.


In the economic news the Consumer Price Index (CPI) for September rose +0.3% after a +0.2% increase in August and in line with estimates. The vast majority of the gain came from a +2.9% spike in energy prices. The core CPI, excluding food and energy, rose only +0.1%.

On a trailing 12 month basis the headline CPI is up +1.5% and the core CPI is up +2.2%. Apparel prices declined -0.7% with men and boys apparel falling -1.3%. Footwear fell -0.5%, toddler's apparel -1.2%, jewelry & watch prices -2.4%, new vehicle prices -0.1% and used vehicles fell -0.3%. This report will have no impact on the Fed's rate plans because the majority of the gains came from energy.


The NAHB Housing Market Index for October fell from September's 11 month high at 65 to 63 but this is the beginning of the slow season and that is still the second highest reading of the year. With mortgage rates likely to rise and the winter months ahead, the builder optimism is beginning to fade. Long-term expectations did rise slightly from 71 to 72. This report was ignored.

The calendar for Wednesday has new residential construction, the Fed Beige Book and the last presidential debate. The debate is the most important with Clinton well in front in the polls. This is her race to win or lose based on the debate outcome. If she can keep her answers brief and to the point and not get into a mudslinging contest with Trump she should win the race. Once the post debate polls are out next week, the market could pick a direction. That could happen earlier if the debate is lopsided in her favor. A word to the wise, do not count Trump out until the last votes are counted. He has more lives than 100 cats.

On Thursday, Mario Draghi will hold the ECB post meeting press conference and that could also be a market hurdle if they decided to slow down on stimulus.


After the bell, Intel (INTC) reported earnings of 80 cents compared to estimates for 73 cents. Revenue rose +9.1% to $15.78 billion and beating estimates for $15.58 billion. However, for Q4 they guided for revenue of $15.7 billion plus or minus $500 million. Analysts were expecting $15.86 billion. Shares fell -5.3% in afterhours. Stacy Smith, EVP, said the worldwide PC supply chain was full and Intel expects dealers to reduce their inventory. Intel did this to themselves. They raised Q3 revenue estimates in September for the first time in two years. That caused analysts to raise future quarters as well and now Intel is guiding below those estimates.

Revenue from the server business rose 9.7% to $4.54 billion. They warned that Q4 gains would be in the high single-digits, suggesting it would be less than the 9.7% in Q3. Revenue from PC sales tose 4.5% to $8.89 billion.


Yahoo (YHOO) reported earnings of 17 cents after the bell compared to estimates for 11 cents. Revenue declined -14% to $857 million. That was the fourth consecutive quarter that revenue declined more than 10%. They only beat earnings because of massive cost cutting and the layoff of 2,200 workers or one-fifth of their workforce.

Yahoo did not hold a conference call citing the tense negotiations with Verizon. I am sure they did not want to be forced to answer any tough questions that could worsen the hostile environment over the $4.8 billion deal. Verizon signaled last week they may be thinking about walking away from the acquisition because of the unknown damage that could result for the hack of 500 million customer accounts. With multiple class action suits claiming gross negligence on the part of Yahoo, the court could easily fine Yahoo or award the class plaintiffs a remedy of $20 or more each. That would be a $10 billion hit and Yahoo's sales price was only $4.8 billion. Verizon would be crazy to take on that kind of liability from a company that is only making $150 a million a quarter in profits with revenue in a sharp decline. Even if Verizon thought it could remake Yahoo into a profitable business, that $10 billion settlement potential is a deal killer.

Needham cut Yahoo to a hold this morning because of the potential for Verizon to walk away or drop the price significantly. None of the other bidders are going to be coming back if Verizon walks because they were not excited about the acquisition in the first place and they will be less interested with the hacking liability. If Verizon kills the deal, Yahoo shares will quickly implode because the business is shrinking and that liability could cause serious problems. Yahoo still owns $30 billion of Alibaba and Yahoo Japan stock but that was not part of the Verizon deal. The idea was to sell the core operating business and leave a shell company that simply owned that foreign stock.

Several analysts stated they were no happy with Yahoo not holding a conference call because it was an expression of weakness and the need to avoid answering tough questions. There will probably be further downgrades in the near future.


Intuitive Surgical (ISRG) reported earnings of $6.19 a 26% rise compared to estimates for $5.13. Revenue of $682.9 million rose 18% and beat estimates for $647.6 million. They shipped 134 da Vinci Surgical systems, up 14.5%. The company guided for full year procedure growth of 14-15% and shares fell on the news. Procedures completed with the da Vinci systems rose 14% in Q3 in the U.S. and 25% internationally. Intuitive received about $1,870 per procedure. Shares initially spiked on the earnings news to $747 but fell back to $710 on the guidance after closing the regular session at $722.


Linear Technology (LLTC) reported earnings of 53 cents that missed estimates by a penny. Revenue of $373.9 million also missed estimates for $377.6 million. They guided for the current quarter to revenue growth of 7.0-8.5%. Shares had been in a holding pattern while investors wait for the takeover by Analog Devices (ADI) to be completed. Shares did fall about $1 after the earnings.


Hawaiian Holdings (HA) reported earnings of $1.92 compared to estimates for $1.82. Revenue of $671.8 million beat estimates for $669.9 million. The company ended the quarter with $694 million in cash. Shares were unchanged in afterhours.


Earlier in the day, Goldman Sachs (GS) reported a 57.9% rise in earnings to $4.88 compared to estimates for $3.82 per share. Revenue from commodities, currencies and fixed income trading rose 34% to $1.96 billion. Total revenue rose 19% to $8.17 billion. Shares rallied $3.63 on the news.


Johnson & Johnson (JNJ) reported earnings of $1.68 compared to estimates for $1.65. Revenue of $17.8 billion barely beat estimates for $17.74 billion. Domestic sales rose +6.7% and international sales +1.5%. The company guided for full year revenue of $71.5-$72.2 billion compared to estimates for $72.16 billion. Earnings guidance was $6.68-$6.73 and estimates were $6.69. Shares fell -$3 to a three-month low on the news.


Dow component UnitedHealth (UNH) reported earnings of $2.17 compared to estimates for $2.08. Revenue of $46.3 billion beat estimates for $45.9 billion and was up 11.6% from the comparison quarter.

The company guided for full year earnings to $8.00 from the prior range of $7.80-$7.95. Shares spiked $9.26 on the news and added about 65 points to the Dow.


Dominoes Pizza (DPZ) reported earnings of 96 cents on estimates for 90 cents. Revenue of $567 million beat estimates for $543 million. Revenue was up +16.9% thanks to opening 316 stores in Q3. Same store sales rose +13% for the 22nd consecutive quarterly rise. Shares rose $7.50 on the news.


Harley Davidson (HOG) reported earnings of 64 cents that beat estimates by a penny and were down from the 69 cents in the comparison quarter. Revenue declined from $1.32 billion to $1.27 billion and missed estimates. They issued a lot of sector guidance and investors must have liked the combination because shares rallied 9% despite the earnings misses.


The only Dow component on the earnings calendar for Wednesday is American Express. Ebay is the biggest tech stock and the rest of the reporters are not going to move the indexes.


Markets

I wish I could say the end of October rally was off to a rousing start but today's gains were brought to you by Netflix, UnitedHealth and Goldman Sachs. Netflix added 8 points to the Nasdaq 100 index and UNH/GS combined added 94 points to the Dow. Since the Dow only gained 75 points for the day, you can blame IBM/JNJ/MCD for removing roughly 58 points and the other 25 components accounted for the rest.

The index short squeeze was big cap driven and volume was very low at 5.6 billion shares. Monday was even lower at 5.1 billion. There is no conviction in the market and everyone is waiting for the events on the economic calendar to play out.

Support on the Dow at 18,100 was not touched today after dipping below that level on Monday. The rebound was lackluster and resistance at 18,250 was not even touched. With only one Dow component reporting on Wednesday, I would not look for a big gain in the index. Resistance remains intact and support is being pressured.



The S&P gapped higher at the open to 2,138 and after moving sideways most of the day, it closed at 2,139. That is a classic short squeeze pattern. Resistance at 2,150 remains intact and support at 2,120 is critical. The 2,139 level is being watched by technical analysts as the go no-go level. Closing above that level this week indicates the buyers are coming back and below that level it favors the sellers.


Despite the big Netflix gain, the Nasdaq gapped open to resistance at 5,250 and then faded slightly as the day progressed. Support at 5,200 was tested on Monday and then resistance at 5,250 today. We have traded in that range for four consecutive days so that is now the levels to watch. Any further gains over 5,250 targets a new high at 5,339 and any breakdown targets a retest of 5,100.



The Russell 2000 small cap index is trapped in the same narrow range as the Nasdaq with 1,210 support and 1,232 resistance. The small caps were the least reactive to the earnings news and are still indicating potential market weakness ahead.


I am not expecting a big market move on Wednesday but that does not mean it cannot happen. I expect investors to hold off on any bullish commitments until after the debate and the ECB announcement on Thursday. This may be the first week of the best six weeks in Q4 but that does not mean the rally fuse has been lit. Be patient and trade what you see rather than what you want to see.

I would continue to urge not to be overly long and maintain a shopping list of stocks you would like to buy at a lower level. We may never get that chance but if we do, we need to be ready.

Enter passively, exit aggressively!

Jim Brown

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New Plays

Call Me Skeptical

by Jim Brown

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Editor's Note

Tuesday's short squeeze rally may not have any legs. The small cap indexes posted a lackluster bounce and the big cap indexes were up only on short covering from their components. Dow components Goldman Sachs and UnitedHealth added 94 points to the Dow but the Dow only gained 75 points. With only one Dow component reporting on Wednesday there is not likely to be another group of giant gainers. Goldman and UNH are likely to decline on post earnings depression instead of rise higher.

I am skeptical today's short squeeze will continue ahead of the debate Wednesday evening and the ECB announcement on Thursday. All of our positions are positive today and I could not find anything that I was just dying to add ahead of potential market volatility. There is no harm in waiting for a better opportunity with reduced market uncertainty.



NEW BULLISH Plays

No New Bullish Plays


NEW BEARISH Plays

No New Bearish Plays



In Play Updates and Reviews

Hold on the Party Favors

by Jim Brown

Click here to email Jim Brown

Editors Note:

Don't break out the part favors and start icing the champagne just yet. Weakness still prevails. The rebound was lackluster with the Russell 2000 failing well below resistance at 1,232. This was a morning short squeeze on some decent earnings and not a signal the end of October rally had begun.

The market could continue higher if the earnings parade does not take a wrong turn but we need to get past Wednesday's debate and Thursday's ECB announcement before we can begin to celebrate.




Current Portfolio


Stop Loss Updates

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


Profit Targets

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





Current Position Changes


CC - Chemours
The long stock position was opened at $15.45.



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BULLISH Play Updates

ALRM - Alarm.com - Company Profile

Comments:

No specific news. New two-month high.

Original Trade Description: October 1st.

Alarm.com Holdings, Inc. provides cloud-based software platform solutions for the connected homes in the United States and internationally. It offers multi-tenant software-as-a-service platform that allows home and business owners to intelligently secure and manage their properties, as well as remotely interact with an array of connected devices through a single intuitive interface. The company provides interactive security solutions, which offer intelligent security and awareness services through a dedicated, cellular, and two-way connection to the home or business; and intelligent automation solutions that connects, integrates, and controls the devices in the home or business, such as security systems, garage doors, lights, door locks, thermostats, electrical appliances, environmental sensors, and other connected devices. It also offers video monitoring solutions, which provide live streaming, smart clip capture, high definition continuous recording, and instant video alerts through its mobile app or on the Web; and energy management solutions that offer enhanced energy monitoring and management services. It has approximately 2.6 million residential and business subscribers. Company description from FinViz.com.

For Q2, the company reported earnings of 15 cents compared to estimates for 11 cents. Revenue rose 24% to $64.4 million and beat estimates for $58.6 million. Software as a Service (SaaS) revenue rose 23% to $42 million. The company guided for the ful lyear for earnings of 49-51 cents and revenue of $242.3-$245.8 million. Analysts were expecting 48 cents on $241.7 million.

Earnings Nov 8th.

Despite the strong beat and strong guidance shares crashed from the historic high close of $33 before the earnings were released. Shares were up +135% since the February low at $14 and traders took profits. The only ratings change was from Raymond James from outperform to market perform based on value because of the strong gains. At the same time Imperial Capital raised their price target from $24.50 to $30. Since shares closed the day before at $30 that was an implied neutral rating.

Shares collapsed back to $28 and here there for three weeks then fell sharply on September 6th on no news to bottom at $25. That bottom was quickly bought and Friday's gain lifted the shares back over resistance at $28.50.

There is no bad press for Alarm.com. Earnings and revenue are growing, subscribers are growing and shares are back over resistance. If the market is going to rally in late October this should be a tech stock that outperforms.

Position 10/3/16 with a ALRM trade at $29.05

Long ALRM shares @ $29.05, see portfolio graphic for stop loss.

No options recommended because of price.



CC - Chemours - Company Profile

Comments:

No specific news. Big gap open right to our entry trigger.

Original Trade Description: October 17th.

The Chemours Company helps create a colorful, capable and cleaner world through the power of chemistry. Chemours is a global leader in titanium technologies, fluoroproducts and chemical solutions, providing its customers with solutions in a wide range of industries with market-defining products, application expertise and chemistry-based innovations. Chemours ingredients are found in plastics and coatings, refrigeration and air conditioning, mining and oil refining operations and general industrial manufacturing. Our flagship products include prominent brands such as Teflonâ„¢, Ti-Pureâ„¢, Krytoxâ„¢, Vitonâ„¢, Opteonâ„¢ and Nafionâ„¢. Chemours has approximately 8,000 employees across 35 manufacturing sites serving more than 5,000 customers in North America, Latin America, Asia-Pacific and Europe.

Chemours was spun off from DuPont in 2015. The company spent hundreds of millions of dollars developing hydrofluoroolefin (HFO)-based alternatives and blends with low global warming potential. These replace the hydrofluorocarbons (HFCs) that were used in air conditioners for decades and reportedly responsible for global warming.

The UN's Montreal Protocol calls for HFCs to be phased out and replaced. Chemours has created a replacement and expects more than 24 million vehicles to be on the road in 2016 using their HFO-1234yt (Opteon) product in their air conditioners. By the end of 2017 that number will rise to more than 50 million. They believe by 2025 the HFO-based solutions will have replaced 325 million tons of Co2 equivalents. The Opteon product line has been widely accepted and nearly every refrigeration manufacturer is moving in that direction.

For Q2 they reported adjusted earnings of 27 cents that easily beat estimates for 17 cents. Management delivered more than $100 million in cost reductions in the first six months of 2016.

Earnings Nov 3rd.

CC has been moving up steadily since August as analysts began coverage and the company beat on earnings on August 8th. Over the last 30 days consensus estimates for Q3 have risen from 26 cents to 30 cents. Full year estimates have risen from 77 cents to 84 cents. Rising estimates suggest the stock will continue higher.

After a $7 rally since the earnings, the stock pulled back last week and found support at $14.75. Shares were up today on the UN news since it means even more manufacturers will be forced to switch to the HFO products.

Position 10/18/16 with a CC trade at $15.45

Long CC shares @ $15.45, see portfolio graphic for stop loss.

No options recommended.



CLVS - Clovis Oncology - Company Profile

Comments:

No specific news. Nice rebound off support.

Original Trade Description: October 12th.

Clovis Oncology, Inc., a biopharmaceutical company, focuses on acquiring, developing, and commercializing anti-cancer agents in the United States, Europe, and internationally. It is developing three product candidates, which include Rociletinib, an oral epidermal growth factor receptor and mutant-selective covalent inhibitor that is under review with the U.S. and E.U. regulatory authorities for the treatment of non-small cell lung cancer; Rucaparib, an oral inhibitor of poly polymerase, which is in advanced clinical development for the treatment of ovarian cancer; and Lucitanib, an oral inhibitor of the tyrosine kinase that is in Phase II development for the treatment of breast cancers. Company description from FinViz.com.

Clovis has been rising on the prospects for the drug Rucaparib. They reported in September the FDA was not planning on holding an advisory committee meeting to discuss the new NDA application. The FDA has accepted the company's NDA for accelerated approval and granted it a priority review. The FDA response is expected to be positive and is expected by Feb 23rd.

However, on October 7th the company released data on a Rucaparib trial that appeared to show it was less effective than a competing drug already on the market from AstraZeneca. Shares were crushed for a $10 drop at the open. Analysts were quick to come to their defense saying there are many trials and making a decision by just one trial with a very narrow patient subset was comparing apple to oranges. Shares immediately rebounded.

Clovis has several anti cancer drugs in final stages and the outlook is very positive. Just seeing that CLVS shares have not declined with the sector over the last couple of days is a very strong indication that portfolio managers are buying and holding.

Earnings Nov 3rd.

Position 10//13/16:

Long CLVS shares @ $31.97, see portfolio graphic for stop loss.

No options recommended because of price.



FTNT - Fortinet - Company Profile

Comments:

Very minor gain. I raised the stop loss in case the rebound is going to fail.

Original Trade Description: October 15th.

Fortinet, Inc. provides cyber security solutions for enterprises, service providers, and government organizations worldwide. The company offers FortiGate physical and virtual appliances products that provide various security and networking functions, including firewall, intrusion prevention, anti-malware, virtual private network, application control, Web filtering, anti-spam, and wide area network acceleration; FortiManager product family to provide a central management solution for FortiGate products comprising software updates, configuration, policy settings, and security updates; and the FortiAnalyzer product family, which provides a single point of network log data collection. It also offers FortiAP secure wireless access points; FortiWeb, a Web application firewall; FortiMail email security; FortiDB database security appliances; FortiClient, an endpoint security software; and FortiSwitch secure switch connectivity products. In addition, the company provides FortiSandbox advanced threat protection solutions; and FortiDDos and FortiDB database security appliances. Further, it offers security subscription, technical support, training, and professional services. Company description from FinViz.com.

Fortinet released preliminary earnings numbers on the 11th and the stock was crushed in the afterhours market. The company said earnings would be in the range of 15-16 cents compared to prior guidance of 17-18 cents. Revenue would be in the range of $343-$348 million compared to guidance of $372-$376 million.

This is not the end of the world but shares fell from $34 to $29. They blamed the guidance miss on lengthening deal cycles saying enterprises were becoming more strategic in their purchasing decisions and buying with less urgency than last year. They also admitted to "sales execution challenges" in North America as the result of a new sales force in that market. They just recently expanded into North America. There were also "macro" issues in Latin America and the U.K. that they did not explain.

Despite the guidance cut they are still positive about Q4 and 2017 saying the "competitive-differentiating and market-leading security fabric" was intact and they remain confident in the underlying strength of the business. They will release their actual earnings on October 27th. Normally, when a company warns in advance, they report better earnings than their guidance in the warning.

Shares are already rebounding because multiple brokers immediately reiterated their buy ratings. Wunderlich said buy with price target of $42. Doughtery said buy with a price target of $35. RBC Capital reiterated a sector perform rating with a price target of $37.

I believe there is very little risk in taking a position in FTNT at this level. The damage has already been done.

Position 10/17/16:

Long FTNT shares @ $30.92, see portfolio graphic for stop loss.



MENT - Mentor Graphics - Company Profile

Comments:

An appeals court reaffirmed Mentor Graphics win over Synopsys and ruled the Synopsys patents were invalid. Shares closed at a new high.

Original Trade Description: October 13th.

Mentor Graphics Corporation provides electronic design automation software and hardware solutions to design, analyze, and test electro-mechanical systems, electronic hardware, and embedded systems software worldwide. It offers printed circuit boards; Mentor Graphics Scalable Verification tools; Questa platform to verify systems and integrated circuits (ICs); FastSPICE, Eldo, and ADVance MS analog/mixed signal simulation tools; and Veloce hardware emulation system. Further, the company provides software, tools, and professional engineering services; and methodology development, enterprise integration, and deployment services. It sells and licenses its products through direct sales force, distributors, and sales representatives to the communications, computer, consumer electronics, semiconductor, networking, multimedia, military and aerospace, and transportation industries. Company description from FinViz.com.

Billionaire Paul Singer, head of Elliott Management, announced on Sept 29th his firm was taking an active 8.1% stake in Mentor Graphics. In the SEC filing Elliott said there are "strategic opportunities" available at MENT and he is going to force a sale. Singer is no stranger to activist investing. Since 1994 he has launched 114 campaigns and 14 proxy fights when companies do not take his advice and get the M&A ball rolling. Elliott has $27 billion under management and Mentor only has a $3 billion market cap. If the board does not take action quickly, Elliott could launch a proxy fight to get enough people on the board that will take action. As a relatively small company, Mentor is in the crosshairs and there is very little chance for escape.

Shares spiked in the middle of the day on Thursday after TheStreet posted an article explaining Elliott' s game plan. The close at $27.92 was a 15-year high. Since Elliott announced his position at $24.69 the shares have risen about $3.50 with $2 of that the first day. Elliott is in for the long term and they will not be bailing on a $3 gain. They have a much larger goal in mind.

Earnings Nov 17th.

A lot of investors follow these activist funds and I would expect the stock to continue to rise as the headlines appear. More than 7,000 Jan $30 calls were bought today against an open interest of only 3,944.

Because of the afternoon spike I was going to put an entry trigger on the position just over the afternoon high. However, the S&P futures are down hard again tonight and maybe we will get an opportunity to buy the stock lower so I did not add the trigger. Support is $26.

Position 10/14/16:

Long MENT shares @ $28.54, see portfolio graphic for stop loss.

Optional:

Long Jan $30 call @ $1.35, no stop loss.

We will hold the option as a lottery ticket play is the long stock position is stopped.




BEARISH Play Updates

VXX - Volatility Index Futures - ETF Description

Comments:

Big 4% decline.

Since this is a long-term play, I am not going to comment on it every day. Just forget it is in your portfolio and hope for a strong market rally in Q4.

Original Trade Description: September 6th.

The VXX is a short term volatility product based on the VIX futures. As a futures product it has the rollover curse. Every time they roll to a new futures contract they have to pay a premium and that lowers the price of the ETF. It is a flawed product with a perpetual decline built in from the monthly roll over in the futures contracts.

As evidence of this flaw, they have now down four 1:4 reverse stock splits. The last four reverse splits occurred at $13.11 (11/2010), $8.77 (10/2012), $12.84 (11/2013), $9.52 (8/8/16). The prospectus says it can reverse split anytime it trades under $25 for a prolonged period and the splits will always be 1:4.

After the August split the ETF moved sideways for four weeks at $36. I think everyone was waiting for the typical August volatility. When it did not show up and the market rallied on Friday that support broke. And the decline has begun.

Because there may be some September volatility, anyone in this position must understand that it may move higher before it moves lower BUT it will always move lower. We just have to wait it out. Volatility never lasts forever.

Unfortunately, put options are expensive with a volatility instrument at this price level. The only recommendation is to short the ETF and forget it. If we do get a prolonged rally as some are expecting we could see strong gains in the next 2-3 months. This will be a long-term position. This is not a 2-3 week play. I can guarantee you, if history holds, we can play this until it splits 1:4 again at $10. Once we are in the position and profitable I will put a trailing stop loss on it. We will take profits and then look for a bounce to get back in. We could keep this play in the portfolio on a trading basis permanently.

Position 9/7/16:

Short VXX shares @ $33.88, no initial stop loss.

No options recommended because of price.





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