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Daily Newsletter, Saturday, 11/5/2016

Table of Contents

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

Market Wrap

Investors Already Voted

by Jim Brown

Click here to email Jim Brown

The S&P closed down for the ninth consecutive day and the longest losing streak since 1980 as investors voted to remove cash from the market ahead of the election.

Weekly Statistics

Friday Statistics

While the "longest losing streak since 1980" sounds terrible but the decline is actually minimal. The S&P is only down -4.8% since the 2,190 high close on August 15th. It looks worse because the S&P is at 4-month lows and it has declined -3.2% over the last nine days. Even that fact is minimal since a normal garden-variety dip can be 3% to 5% in just a week or two. Traders seem to be more uneasy this time because the markets were flat for three months over the summer and did not really decline in October as they normally do. This is simply worry about the election outcome and caution against a potential dip.

Citigroup was out on Friday warning the market could fall another 5% if Trump was elected. That is just one more in a string of forecasts for a 5% to 10% decline. Personally, I think we are headed for a Brexit moment in the market. If Trump is elected, we could see an immediate dip but I would expect that dip to be bought like the Brexit dip was bought. Trump is pro business and everything he has said he would do will require time and congressional approval so there would be no real change in the economy for a long time. Secondly, if Clinton wins there could be an immediate 3% to 5% rally as long as the Senate remains under republican control. The rally could be less explosive if only the House remains republican. If by some extremely remote chance both the house and senate flipped to democratic control, there would be a 5% or larger decline because of the lack of restraint on future legislative actions.

So, at this point I would be a dip buyer on Monday because I believe the bargain hunters will be out shopping ahead of the election. Last week was preparation week as managers raised cash and restructured their portfolios. Next week will be execution week as they put their post election plans into motion.



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The Nonfarm Payrolls before the open were neutral for the market. The headline number for October was a gain of +161,000 jobs. That was slightly more than the previously reported 156,000 for September. Expectations were for a gain of +175,000. The September number was revised higher by +35,000 to 191,000 and the August number rose by +9,000 to 176,000.

Private sector payrolls rose 142,000 with construction jobs rising 11,000. Manufacturing lost 9,000 to raise the loss to 33,000 over the last three months. Professional and business services rose 42,000. Government jobs rose 19,000. The unemployment rate declined one tenth to 4.9% and its average for the year. The labor force participation rate also fell a tenth to 62.8%.

The most positive number was the +0.4% rise in wages, putting October up +2.8% over October 2015. That is the fastest pace since the financial crisis and suggests the labor force is tightening if employers have to pay more for workers. Without some unforeseen event between now and December, the Fed will raise rates at the December meeting.


In the separate Household Survey, total jobs declined -43,000 and the number of people not in the labor force rose by 425,000. The civilian labor force declined -195,000.

Since 2014, the U.S. has added 547,000 waiters and bartenders and lost 36,000 manufacturing jobs. Since December 2007 and the start of the recession the U.S. has added 1.7 million waiters and bartenders and lost 1.5 million manufacturing workers. The classification for waiters and bartenders (Leisure and Hospitality) has seen jobs added in 79 of the past 80 months. In the Household Survey 103,000 full time jobs were lost and offset by a gain of 90,000 part time jobs.

In October, the number of people holding multiple jobs rose to 8.05 million and the highest level this century.


The September International Trade report showed a trade deficit of -$36.4 billion compared to -$40.7 billion in August. The reduced deficit is due to lingering soybean exports that were pulled forward from later in the year by droughts in other countries. This was the third month the deficit was reduced by soybean exports. The report was ignored.

The economic calendar for next week is very bland. There are no market moving reports. Charles Evans is doing triple duty for the Fed with three speeches in the first two days. Bullard's speech on Thursday could produce some headlines. He has gone over to the dovish side so people like to hear what the convert has to say.


Earnings were slow on Friday with Humana (HUM) reported earnings of $3.18 compared to estimates for $2.99. Revenue rose 2% to $13.69 billion and beat estimates for $13.4 billion. For the full year, the company expects to earn $9.50 per share. The company said it was going to shrink its individual commercial business from 1,351 counties to 156 counties in 2017 as the large insurers pull out of the Obamacare market. Humana said its gains came from the Medicare Advantage business with a 3% increase in membership. Shares gained $5 at the open but faded with the market to close with a $2 gain.


Kraft Heinz (KHC) reported revenue that declined -1.5% as consumer tastes change. Consumers are shifting away from packaged foods and to foods with fewer additives and towards organics and healthier offerings. This is a challenge for the big food processors since most of the common items are stuffed full of sugar, salt and dozens of preservatives and colorings. Revenue declined to $6.27 billion and analysts were expecting $6.3 billion. However, earnings of 83 cents did beat estimates for 75 cents. Shares fell -2.5% on the news.


Starbucks (SBUX) rebounded after earnings on Thursday evening to trade at $53.75 after falling below $51 overnight. Shares faded with the market to close at $52.63. The company reported a 23% increase in earnings and raised its dividend. Same store sales in the U.S. rose +5% and global comps rose 4% but that was below the 4.9% analysts expected.

CEO Howard Schultz blamed lower sales on uncertainty over the election and the popularity of online shopping. When consumers do not go to the malls and retail centers they do not stop for a cup of coffee. He called it a "seismic shift" in the way consumers shop. He said about the election, "I don't think we have ever witnessed such concern about what could happen in the U.S. as a result of the election."

Schultz said the stores in China were the most "efficient and profitable" and they planned to double the number of stores to 5,000 by 2021. They currently have 13,000 stores in the USA.

Adjusted earnings were 56 cents and beat estimates by a penny. Revenue rose 16% to $5.71 billion and beat estimates for $5.69 billion. They raised the dividend from 20 cents to 25 cents. The company guided for 2017 for earnings of $2.12-$2.14 and analysts were expecting $2.16.

I am confused about Starbucks. They have a great business and they are growing steadily but the shares continue to decline. It is as if investors want to see them grow like a tech company. In reality, they are a brick and mortar retailer and they are growing earnings. The problem is that now they have 24,000 stores and it takes a lot of new growth to move the needle. Adding 2,500 stores in China over the next four years is just a 10% rise in the store count. A smaller chain like Shake Shack (SHAK) could add 100 stores over the same period and that would double their store count and rapidly increase the revenue. Starbucks is a giant stable company and it takes a long time for changes to be seen in the earnings.


Activision (ATVI) reported earnings that rose 53% to 52 cents and beat estimates for 42 cents. Revenue rose 57% to $1.63 billion, also beating estimates, but the stock was crushed. The company guided to earnings of 74 cents for Q4 but analysts were expecting 80 cents. Revenue guidance was $2.38 billion compared to estimates for $2.48 billion.

Shares fell -4% despite a 57% rise in revenue and 53% rise in earnings. Think about that. The company is doing great and has a great future with many blockbuster games both in play and in production. They are printing money but analysts became over optimistic and the shares suffered. I would be a buyer at the $40 level.


GoPro (GPRO) posted terrible earnings after the bell on Thursday but the stock actually recovered to trade positive intraday on Friday. The company shipped 1.02 million units compared to estimates for 1.11 million. They posted a loss of 70 cents compared to estimates for a loss of 54 cents. Revenue of $240.57 million was well below estimates for $303 million. This was the fourth consecutive quarter of sales declines. The stock fell -22% in afterhours on Thursday.

CEO Nick Woodman said production issues were at the core of the problem and they were not able to make as many cameras and Karma drones as they had planned. The company also got into a war with Amazon over prices and temporarily halted sales of the cameras on Amazon while they "negotiated" prices. Woodman said Amazon was discounting them too heavily and destroying the retail market. Who has ever won a battle with Amazon? The $30 million in cameras they could have sold on Amazon was insignificant to the retailer's $33 billion in revenue last quarter.

The company guided to revenue of $600-$650 million for Q4 and that was below estimates for $666 million. Shares fell to $9 in afterhours but rebounded to $12.47 intraday on Friday. That was a miraculous recovery.

GoPro is suffering from its aging crowd of daredevil consumers. So many people thought it would be cool to video themselves doing what they consider were cool stunts like skiing a black diamond run, a parachute jump or a jump into the pool from a third floor apartment. When they actually viewed the video, it did not have all the excitement of the thousands of professionally filmed videos on YouTube. Videos of 100 foot cliff jumps on skis, wing suit flying at 100 mph or mountain biking along the crest of 1,000 foot drop offs. Suddenly the exciting stuff normal people do was not that cool on video. One analyst said 75% of GoPro cameras are stuck in a drawer or in a box in the garage never to be used again. GoPro will survive but its time in the spotlight has passed.


Berkshire Hathaway (BRK.A) reported earnings of $4,379 a share, down from $5,737 in the year ago quarter. Revenue of $59.07 billion beat estimates for $57.04 billion. Investment and derivative gains fell from $4.88 billion to $2.35 billion. The book value per share rose 5.3% to $163,783 per class A share. On a B share basis earnings were $1.97 and missed estimates for $2.02.

In the 10-Q filing with the SEC the company said its stake in Wells Fargo (WFC) was $22.1 billion. That was down from the $27.2 billion at the end of 2015 but it was in line with the decline in WFC stock. This suggests Berkshire did not sell any of the shares during the Wells Fargo scandal last quarter. Berkshire owns 500 million shares of WFC and by not selling them, it is a vote of confidence in the new CEO and the company. Shares were unchanged in afterhours.


As of Friday's close 85% of the companies in the S&P have reported earnings. More than 71% have beaten earnings estimates and 54% beat revenue estimates. The blended earnings growth for Q3 is now +2.7% and it will be the first positive quarter since Q1-2015. On September 20th the consensus estimates were for a -2.2% decline in earnings. For Q4, 53 companies have issued negative guidance and 25 have given positive guidance.

For Q4 the current estimate is for earnings growth of 3.9% and revenue growth of 5.0%. For the full year analysts expect earnings growth of 0.2% and revenue growth of 2.2%. For 2017, they expect earnings growth of 11.6% and revenue growth of 5.9%.

Factset found that election concerns were mentioned in the conference calls for 80 S&P companies or 21% of those reported through Nov 2nd. More than 40% expressed negative sentiment about the election. These companies said the election was a contributing factor to Q3 earnings or would be a factor for Q4 earnings. They cited macro uncertainty, a slowdown in business activity or lower consumer and business confidence.

In the coming week 31 S&P companies will report and one Dow component, Disney, will report on Thursday. After next week, there will be 44 S&P companies left to report and they will be spread out over the following three weeks. The Q3 cycle is already coming to a close.


NetApp (NTAP) said it was laying off another 6% of its workforce after cutting 1,000 workers since April. This will reduce the total workforce from the 12,030 at the end of April to just about 10,000. The company is working through a restructuring program that they hope will return them to profitability in fiscal 2018. Back in February, they announced a 12% reduction in the workforce. The company is trying to convert from a hardware firm to a software firm and transitioning into a cloud focused technology company. Earnings are Nov 15th. Shares fell -6% on the news.


I have written for months about the weak economic numbers but I seem to be the only one paying attention. For many months, we have seen a constant loss of manufacturing jobs. While everyone seems to think the U.S. has shifted to a service economy I still believe manufacturing is important. The underlying economic fundamentals are simply not as good as the broad numbers like the GDP suggest.

For instance, Act Research reported on Wednesday that orders for new Class 8 big rig trucks had fallen from 25,925 in October 2015 to 13,900 for this October. That is a 46% decline. Trucking companies like Werner Enterprises (WERN) and Swift Transportation (SWFT) report having to park hundreds of trucks because of a lack of loads. Since nearly all of the merchandise shipped to distributors and retailers travels by truck, this suggests there is trouble ahead.

However, after researching numerous articles on the subject, the trucking community does not appear too concerned. They believe conditions will remain stable in 2017 but are expected to decline further in 2018.

A slowdown in transportation would indicate a potential industrial recession. However, the Dow Transports are not declining. With the S&P down 9 consecutive days, the Transports are holding their recent gains and were positive on Friday.

My worries over a potential industrial slowdown may be misplaced but the chart below shows the 2016 Class 8 orders in green compared to 2015 orders in blue. That is a significant decline but I must be the only one concerned.



The FANG stocks (FB, AMZN, NFLX, GOOGL) lost more than $105 billion in market cap last week. I am going to give you my views on these stocks because I think a lot of investors probably are thinking the same thing and that is why the stocks cratered over the last two weeks.

The decline was pronounced in Facebook with a $12 drop (-10%) to $120 after their forward guidance did not please the analyst community. However, this looks like a buying opportunity to me since every dip to the 200-day average has been bought.


Amazon (AMZN) has declined 88 points (-10%) since the $843 high on October 25th. I would not buy this dip. I wrote a couple weeks ago about the post earnings, post holiday tendency for Amazon to sell off. After they missed earnings, I think that normal end of year decline was pulled forward into November. Amazon does have support at $750 and it closed at $755 on Friday. However, I think the stock has risk to $500 on any decent market pullback. The 100-week moving average has not been tested since Q4-2014 and that has been the real buy point for the last decade. I love Amazon but I would not buy the stock at this level.


I am also a big Netflix fan. Netflix has not declined nearly as much as the rest of the group with only a $7 loss. They are going to be printing money for decades to come. Once they create content they can rent it forever. With the service now in 145 countries in 22 languages, the bar to entry into their space is insurmountable. Other companies can compete but not on the same scale. However, I do not think they are buyable here with a triple top chart. Their stock does not behave rationally. There are too many peaks and troughs and there is no reason to believe that trend has suddenly ended. I would buy a dip back to the $105 and maybe $110 level but it would have to be a risk adverse position. The next earnings report could knock them down just as easily as lift them up.


Alphabet (GOOGL) is another big loser over the last two weeks. Since their earnings, they have declined about $70 or roughly 7%. They are trading at a three-month low despite rising earnings. GOOGL is a high volatility stock I avoid. The options are too expensive and the swings are too violent. It is a good company but they have too many projects and it is hard to value them correctly. They were trading at $670 just four months ago and rallied to $839. I am not sure they are not going back to $700.


I am going to lump Apple (AAPL) into the group as well because it has been an equal drag on the market. At this point Apple has a broken business model. They have one new phone every two years with an update on that phone every other year. They make great hardware and the software ecosystem is very strong. Once you are in the Apple environment it is hard to leave.

However, with a dozen major phone companies, each putting out 2, 3 or even 5 models a year with great features and significantly cheaper price points, Apple is finding it harder and harder to keep up. To put this in perspective, Apple's market share in China declined 40% over the last year. That is a significant amount and it is not likely to improve.

Unless Apple comes out with a new killer product or new features that nobody else is expecting, they are doomed to a continued loss of market share. Remember the BlackBerry or CrackBerry as they were known at the time? They were hopelessly addicting and everybody had to have one. Now they are road kill on the technology highway. They did not innovate and add market share. Apple is not innovating at the pace of other companies. They are resting on their past accomplishments.

CEO Tim Cook said Apple is working on some things that we will wonder how we ever got along without them. Unless they produce them quickly, the stock could continue to fade. Sales have fallen for the last three quarters. They will probably get a big pop from the iPhone 10 next year, the proposed name for the tenth anniversary phone. That is rumored to have a lot of new features, but they have to accelerate their pace of innovation to maintain relevance. I would probably buy Apple for a trade in the $95-$100 range on a dip because they should have a strong Q4 if they can actually produce the phones. Reportedly, they are having some production issues.


With the election looming and Clinton still in the lead in the polls, firearms purchases are soaring. The FBI said more than 2.33 million background checks were done in October. That was a record for the month and up +18% from October 2015. That brings the total for the year to 22.206 million with two months to go. November and December are normally strong months even when it is not an election year. If Clinton wins, they should set records. It Trump wins, the sales could fall sharply.


Crude oil fell -9.4% for the week to settle at $44. The EIA recorded the largest weekly inventory build in history of 14.4 million barrels as all the oil delayed by the hurricane finally began to flow into the system. Imports jumped from 7.0 million bpd to 9.0 mbpd. U.S. production hit a three-month high at 8.52 mbpd.

The problem for crude was the OPEC headlines. The proposed production cut agreement is evaporating after a preliminary meeting last weekend failed to reach any resolutions. It was rumored this week that Saudi Arabia threatened to increase production dramatically if the other OPEC nations did not agree to at least a production freeze. By driving down prices with over production, Saudi Arabia can punish other nations. They did this in 1998 when oil prices hit $10. Saudi became fed up with the cheating on quotas and flooded the market with oil to crash the price until the other countries cried uncle and agreed to follow the rules. Saudi tried to say late in the week that they did not make the threat but it was too late.

The 171st regularly scheduled OPEC meeting is Nov 30th and without some positive new headlines before then we could see prices dip back to $40. If no agreement is reached at the meeting, we could see even further declines on worries Saudi will follow through on their threat.


Active oil rigs rose by 9 to 450 and active gas rigs rose by 3 to 117. When the decision to reactivate these rigs was made, oil was at $50 or more. If it remains in the low $40s for a couple weeks, we could see the active rigs flatten or even decline slightly.


Here is an interesting chart I have not shown before. The blue line is the Volatility Index and the black line is crude oil. Note the nearly perfect inverse correlation. Falling oil prices weigh on the market because of the decline in energy equities but it also impacts market sentiment. Falling oil prices suggest global demand is slowing. In theory, it should be good for the economy since low fuel prices stimulates spending in other areas. However, low prices retard hundreds of billions in capex spending by oil companies and that is a direct impact on the economy as well.


When you compare oil in black to the S&P-500 in blue, the correlation is almost perfect as well. Oil prices are very instrumental to market sentiment and odds are good those prices are going lower without some major headline out of OPEC.


 


 

Markets

The S&P crashed through 2,120 followed by 2,100 and came to a stop at the low of the day on Friday just above the 200-day average at 2,083. The average has not been important for the S&P over the last five years except for July/August 2015 and that could have just been a coincidence. However, with the S&P in a large area without support, that 200-day number could be a line that attracts attention and gets bought.

The S&P is not oversold. Being down less than 5% from its highs is just a garden variety bout of profit taking. What makes it unusual is the impact of the political uncertainty and the nine consecutive days of declines. That has not happened in 36 years, since 1980. Rather than just a combination of sell programs triggering a 2-3 day bout of selling, this has been constant selling on rising volume as investors of all types move to safety.

There is the potential for one last dip before the election but I am betting most of the selling is already over. I would expect some bargain hunting on Monday/Tuesday. I am not expecting a material market pre-election bounce but we should start to see some individual stocks begin to recover.


The Dow fell through support at 18,000 and again at 17,835 and is now unsupported until around the 17,200 level. That would be a worst-case event depending on the outcome of the election. I believe the Dow will find some buyers over the next couple of days but that is just my opinion.

There is one Dow component reporting on Thursday but that report will not matter because the market will be reacting to the election results. The majority of the Dow stocks are in their post earnings depression phase so the bias is to the downside if there were no other headlines.



The Nasdaq has the most dramatic chart with the drop from the resistance high the prior week to 5,035 on Friday. That was a -5.2% drop in nine days. The Nasdaq Composite has light support at 4,975 and probably psychological support at 5,000. The 200-day average is 4,941 but the index has not reacted to that average in the last three years.

Fortunately, the big cap tech earnings are over and once those FANG stocks quit falling the Nasdaq will rebound.



The Russell 2000 has declined -8% and lost the most of all the major indexes. It was the most short-term oversold and that resulted in a mini short squeeze on Friday that lifted it from 1,157 to 1,174 intraday. That rebound faded with the market in the afternoon to close at 1,163 and -100 points off its historic September high. I do not believe this rebound was relative to investor sentiment. The small caps have been leading us lower and we should not expect a recovery until that selling has ended.

There may be support at 1,150 and the 200-day average. Since it is in the middle of that unsupported space on the chart it may attract some buyers. However, the index has not reacted to that average in the last several years.


While I am expecting some selective bargain hunting on Mon/Tue, that is just a hunch and not a forecast. There is always the possibility of another "whoosh" lower on Monday but investors and portfolio managers have already had a week to prepare for their market expectations. About the only thing we can count on is that there will be some additional volatility this week and it could be in both directions.

Over the last several weeks, I have repeatedly warned about being overly long and suggested investors create a shopping list of stocks they would like to buy if we really did get a decent dip. I had some readers email asking what stocks I would buy on a post election dip. The post Brexit dip saw everything crash for one day and then rebounded strongly the next. This could be similar. My list is short.

I like these stocks for a long-term hold. Do not try to make a lot of purchases on a dip. Just pick 2-3 that you like.

FB - Facebook - Currently very short-term oversold and should trade significantly higher 12 months from now.

NFLX - Netflix - A long-term winner for the reasons I stated earlier but I would want to buy it as close to $95-$100 as possible.

NVDA - Nvidia - They are rapidly becoming the new Intel for this decade. Their products are redefining AI computing, machine learning, big data processing, self-driving cars and graphics.

PXD - Pioneer Natural Resources - They are the absolute lowest cost producer in the Permian and will be the price leader when energy stocks eventually rebound.

APC - Anadarko Petroleum - They have made some great purchases recently that will give them billions in free cash flow to develop other reserves over the next three years.

TREE - Lending Tree - Growing at 35% in the lowest mortgage rate market in history. As rates rise their business will be even better.

SLV - iShares Silver ETF - Inflation is coming along with higher interest rates. It is only a matter of time.

AMLP - Alerian MLP ETF - An ETF of various MLPs. Collect an 8% dividend while you wait for the ETF to double in 2-3 years.



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Random Thoughts


There was not much change in investor sentiment last week. Most investors remain neutral or bearish and this survey closed after the FBI announcement they were reopening the Clinton email investigation. This survey ends on Wednesday so the declines of Thr/Fri are not yet included.



David Stockman, OMB Director under President Reagan and 20 year Wall Street veteran, gave an interview on Friday saying "sell everything" regardless of who wins the election. He said if Trump wins, there will be tremendous uncertainty over his America first policies of halting illegal immigration and applying tariffs to goods from countries with unfair trade policies. If Clinton wins, her first two years will be completely inundated with investigations, special prosecutors, probes and potential impeachment hearings. He said we were facing Watergate 2.0 only worse with a Clinton win. He believes the government will be totally paralyzed regardless of who wins and the market hates uncertainty. Source


U.S. intelligence alerted joint terrorism task forces that al Qaeda could be planning attacks in three states for Monday. Those are New York, Texas and Virginia. One source said the threat could be legitimate but it could also aspriational rather than capable. Sources said al Qaeda has been under pressure to do something big to regain relevance. By attacking on Monday, they could suppress voter turnout on Tuesday as people stayed away from public places and crowds. Police have been warned that polling places could be seen as "attractive targets" for lone wolf type attacks. CBS News Source


What happens if Nobody Wins? THE NIGHTMARE SCENARIO

BY: JAMES W. CEASER AND MARK J. ROZELL:

Unless circumstances change yet again, the country appears headed toward a close presidential election outcome.

There is a remote but intriguing possibility that few have discussed: a 269-269 tie in the Electoral College.

Very few Americans have the slightest idea of what then would happen next. It is worth explaining, as in this strange election year, we should be prepared for just about anything.

In the case of a tie vote, the presidential contest is to be decided in the House of Representatives, under a very odd system in which the House votes by state delegations.

Under the 12th Amendment to the Constitution, a candidate must win a majority (at least 26) of the states. Under the current partisan make-up of Congress, 33 House state delegations are controlled by the Republicans, 14 by Democrats. Three are tied. Most election law experts agree the newly elected House decides.

If the presidential race is tied, it is virtually inconceivable that the composition of the House would have changed so much as to give Democrats a majority of state delegations.

That situation looks like it would seal a Donald Trump victory. Yet there is no certainty that all members of the House would vote their party affiliation, especially given the antipathy of many Republican members toward their presidential nominee.

And when we consider the likelihood that in the case of an Electoral College tie, Hillary Clinton may win the popular vote by racking up big wins in high-population states such as New York and California, some members might feel duty-bound to cast their vote for the popular vote victor.

Imagine if the House then deadlocked at 25 votes for each candidate. It could happen.

Now the scenario becomes even more intriguing. Under the 12th Amendment, in the case of an Electoral College tie for the vice presidency, the Senate chooses the vice president. If the Senate is Republican-controlled, it is Mike Pence. If, in the new Senate, the Democrats have won a majority, say hello to Vice President Tim Kaine.

With a vice president elected while the House - theoretically - remains deadlocked, does anyone know what happens next? Not really. One possibility is found in the 20th Amendment, Section 3, provision for the vice president to "act as President," at least temporarily. This clause of the Constitution contains a complex sentence of over 100 words that is harder to decipher than the Da Vinci Code.

At some point, probably very soon after Jan. 20, either Pence or Kaine would become the real President, and as such under the 25th Amendment would be entitled to name the new vice president, who would need to be confirmed by both Houses of Congress. The door would then be open for President Pence or President Kaine to pick his current running mate as vice president.

But here we have to back up just a bit. Under the conditions of an Electoral College tie, would all of the persons holding the obscure office of elector in fact cast their votes the way they pledged? Or would one or more of them try to play kingmaker? They might.

And if the presidential election does go to the House, as we hope it would, can we hope too that the Congress would take the high road and make a decision that reflects the national interest over considerations of party? In the case of an Electoral College tie, there will nonetheless be one candidate who prevails in the popular vote. Would the House come together to back that candidate, whatever his or her party?

We've only been through a tie once before. It occurred inadvertently in 1800, when the intended vice-presidential candidate of the Democratic-Republican Party, Aaron Burr, got the same electoral vote total as the intended presidential candidate, Thomas Jefferson. This was at a time when no distinction was made between electoral votes for these two offices, a method that was then changed by the passage of the 12th Amendment ratified in 1804.

That was resolved after a lengthy but not debilitating process; Jefferson became President.

As the results come into focus this Nov. 8, the country could conceivably be thrust into a constitutionally ambiguous situation that could create a serious crisis.

Thank you to Arthur Cashin for sending this.


 

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

 

"If you do not take an interest in the affairs of your government, then you are doomed to live under the rule of fools."

Plato


 

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New Plays

New Low Ahead

by Jim Brown

Click here to email Jim Brown
Editor's Note

I spent hours trying to find a bullish play but the small cap sector is desolated. Out of roughly 300 stocks I reviewed only four had decent charts and those all had earnings over the next two weeks. I do not think I have ever seen such ugly charts. Hopefully, one the election is over the situation will improve.



NEW BULLISH Plays

No New Bullish Plays


NEW BEARISH Plays

SABR - Sabre Corporation - Company Profile

Sabre Corporation provides technology solutions to the travel and tourism industry. The company operates through two segments, Travel Network, and Airline and Hospitality Solutions. The Travel Network segment operates a business-to-business travel marketplace that offers travel content, such as inventory, prices, and availability from a range of travel suppliers, including airlines, hotels, car rental brands, rail carriers, cruise lines, and tour operators with a network of travel buyers comprising online and offline travel agencies, travel management companies, and corporate travel departments. The Airline and Hospitality Solutions segment offers a portfolio of software technology products and solutions through software-as-a-service and hosted delivery models to airlines, hotel properties, and other travel suppliers. This segment provides SabreSonic Customer Sales & Service, a reservation system that provides capabilities around managing sales and customer service across an airline's diverse touch points; Sabre AirVision Marketing & Planning, a set of airline commercial planning solutions; and Sabre AirCentre Enterprise Operations, a set of solutions for the holistic planning and management of airline, airport, and customer operations. In addition, this segment offers software and solutions to hotel properties comprising central reservation system, property management solution, and marketing and consulting services. Company description from FinViz.com.

Sabre Corp is a service company that was spun off from American Airlines and the company appears to be struggling with earnings misses and lowered guidance. They reported earnings of 27 cents that missed estimates for 33 cents. They posted revenue of $839 million that rose +6.9% but missed estimates for $852 million.

They guided for revenue to grow to $758 million in Q4 but analysts were expecting $834 million. For the full year they guided for earnings of $1.34-$1.40 on revenue of $3.37-$3.40 billion and analysts were expecting $1.43 on revenue of $3.39 billion.

They blamed the bankruptcy of a travel agency business for a 2 cent impact to earnings but they missed by 6 cents. Revenue rose 6.9% but earnings declined 6.9%. Those ratios are not moving in the right direction. Their Travel Network revenue increased by 2.3% to $582.4 million but operating income fell -11.1% to $182.5 million. Operating margins fell from 36.1% to 31.3%. It was not a good report.

Shares were already declining before the report and they gapped down another $3 after the news. Friday's close at $23.18 was a new 52-week closing low and it appears to be poised to make a new two-year low.

Sell short SABR shares, currently $23.18, initial stop loss $24.25.





In Play Updates and Reviews

Positive Russell

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Russell 2000 is our market sentiment indicator and it closed positive on Friday. While this was probably just an oversold short squeeze, there is the possibility the selling has run its course. There is no immediate support in the area but the 200-day at 1,150 could act as a trip wire for anxious buyers.

I am anticipating some bargain hunting on Mon/Tue and then bedlam on Wednesday. We could be either rising or falling at a high rate of speed on Wednesday so we do not want to back up the truck until we know which direction the market is headed.





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


No Changes



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BULLISH Play Updates

MENT - Mentor Graphics - Company Profile

Comments:

No specific news. New intraday 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 Jan $30 call @ $1.35, see portfolio graphic for stop loss.

Previously Closed 11/1/16: Long MENT shares @ $28.54, exit $28.25, -.29 loss




BEARISH Play Updates

EBAY - Ebay Inc - Company Profile

Comments:

The guidance raise after the close on Thursday did not help. Shares closed at a new 3-month low.

Original Trade Description: October 31st.

eBay Inc. operates e-commerce platforms that connect various buyers and sellers worldwide. Its platforms enable sellers to organize and offer inventory for sale; and buyers to find and buy it virtually anytime and anywhere. The company's Marketplace platforms include its online marketplace at ebay.com and the eBay mobile apps; and StubHub platforms comprise its online ticket platform at stubhub.com and the StubHub mobile apps, which enable fans to purchase tickets to the games, concerts, and theater shows. Its Classifieds platforms include a collection of brands, such as Mobile.de, Kijiji, Gumtree, Marktplaats, eBay Classifieds, and others that offer online classifieds and help people find whatever they are looking for in their local communities. The company platforms enable users to find, buy, sell, and pay for items through various online, mobile, and offline channels, which include retailers, distributors, liquidators, import and export companies, auctioneers, catalog and mail-order companies, classifieds, directories, search engines, commerce participants, shopping channels, and networks. Company description from FinViz.com.

For more than a decade Ebay has been the primary sales hub on the web but as Amazon and others grew, Ebay fell out of favor. There are very few new items left for sale on Ebay because you can buy they cheaper from Walmart, Target or Amazon. That left Ebay to struggle to increase sales on mostly used items.

In Q3 Ebay earnings fell from $545 million and 45 cents to $418 million and 36 cents. For Q4 they expect revenue of $2.36-$2.41 billion and earnings of 52-54 cents. Analysts were expecting $2.4 billion and 54 cents. For the full year, they are now guiding for $1.85-$1.90 and $8.95 to $9.0 billion. Analysts were expecting $1.89 and $8.95. For both Q3 and the full year analysts were expecting more than the Ebay guidance.

Shares fell 18% on the news to $28.61 then rebounded two days later to $29.71. That rebound has faded and EBAY closed at $28.51 on Monday with support well below at $24.

There is just no excitement surrounding EBAY today. Since they spun off PayPal they have been struggling to grow the business. I believe shares will retest the $24 level unless we get a runaway tech rally after the election. I am not holding my breath.

Position 11/1/16:

Short EBAY shares @ $28.51, see portfolio graphic for stop loss.

Optional:

Long Dec $28 put @ .72, see portfolio graphic for stop loss.



SHLD - Sears Holdings - Company Profile

Comments:

No specific news. Shares rose intraday but ended flat. Support at $11 is holding.

Original Trade Description: October 26th.

Sears Holdings Corporation operates as a retailer in the United States. It operates in two segments, Kmart and Sears Domestic. The Kmart segment operates retail stores that offer a range of products, including consumer electronics, seasonal merchandise, outdoor living, toys, lawn and garden equipment, food and consumables, and apparel; and in-store pharmacies. It provides merchandise under the Jaclyn Smith, Joe Boxer, and Alphaline labels; Sears brand products, such as Kenmore, Craftsman, and DieHard; and Kenmore-branded products. As of the end of May, this segment operated approximately 833 Kmart stores.

The Sears Domestic segment operates stores that provide appliances, consumer electronics/connected solutions, tools, sporting goods, outdoor living, lawn and garden equipment, apparel, footwear, jewelry, and accessories, as well as automotive services and products, such as tires, batteries, and home fashion products. It also offers appliances and services to commercial customers in the single-family residential construction/remodel, property management, multi-family new construction, and government/military sectors; appliance and plumbing fixtures to architects, designers, and new construction or remodeling customers; parts and repair services for appliances, lawn and garden equipment, consumer electronics, floor care products, and heating and cooling systems; and home improvement services, as well as protection agreements and product installation services. This segment provides merchandise under the Kenmore, Craftsman, DieHard, Covington, Canyon River Blues, Metaphor, Outdoor Life, Structure, and Apostrophe brands, as well as under the Roadhandler, Ty Pennington Style, and Alphaline brands. As of the end of May, this segment operated 709 Sears stores. Sears Holdings Corporation was founded in 1899. Company description from FinViz.com.

After 117 years, Sears is about to go the way of the dinosaurs. The chain has not been able to keep up with the changing times and the competition from online retailers. The company announced in mid September it was closing 64 additional Kmart stores in addition to the 68 Kmarts and 10 Sears stores previously announced in July. In May, they warned the total store closings for the year would reach 170 so they are well on their way.

The chain has lost more than $9 billion in recent quarters and were it not for investments by Edward Lampert and sales of real estate for $2.7 billion the store would already be out of business. In Q2 Sears lost $395 million and ended the quarter with only $276 million in cash on hand. CEO Lampbert agreed to loan the company another $300 million so they could survive another quarter. Moody's warned that Sears and Kmart do not have enough cash to stay in business. Moody's said the company was bleeding cash and would have to continue relying on real estate sales, sales of assets or outside funding to sustain operations. Moody's estimated their cash burn was $1.5 billion a year. In August, Sears reported cash on hand of only $276 million and not near enough to buy inventory for the holiday shopping season. The company's minimum pension contributions for 2016-2017 are $596 million and nearly twice the cash on hand.

In Q2, sales fell -8.8% to $5.7 billion. Same store sales for Sears fell -7% and -3.3% for Kmart.

In 2000, Sears had sales of $41 billion a year. That declined to $15 billion in 2015. Over the same period Kmart sales have fallen from $37 billion to $10 billion. Sears has funded debt of $3.5 billion and unfunded pension liabilities of $2.1 billion.

Shoppers claim when they do go to a Sears store they have to beg them to take their money. Many report wandering around the floor for a long time just trying to find a sales person to handle their sales. Other say they have quit going back because the shelves are bare and the merchandise they do have has been picked over so much there is nothing left but scraps.

Shoppers at Kmarts claim the store has been using sheets and shower curtains to hide empty shelves and closed departments.

The recent cash burn headline from Moody's may have put Sears into its final death spiral. The shelves are empty, cash is limited and Lampbert is not going to continue putting good money into a bad investment. This could be a long-term position.

In late September, Fitch warned that Sears had a high risk of bankruptcy within a year. The 114 page report showed a heightened risk of bankruptcy with Sears, Claire's Stores and Nine West Holdings. Fitch said consumers are abandoning the shopping mall in favor of online shopping or local boutique stores. Fitch also said a Sears bankruptcy would obliterate Seritage, the REIT spun off from Sears last year to generate $2.8 billion in cash. Seritage has 266 retail properties with 170 leased to Sears and 82 leased to Kmart. About 79% of Seritage's rental income comes from Sears. The retailer has already filed notice of termination for 17 stores totaling 1.7 million square feet at the end of January.

Last week Detwiler Fenton warned that Sears was apparently working on monetizing its real estate. DF said the number of Kmart closures was going to accelerate in order for Sears to raise cash and offset the burn rate. DF said Sears had sent directives to a large number of stores telling them to clear backroom inventories. They also began cutting prices on appliances by 50% and using heavy promotions to reduce inventory. They also noted that Sears was moving appliance inventories from Kmart stores into certain locations suggesting a new round of store closures was coming.

Also making headlines last week was Jakks Pacific halting shipments of much needed toys to Kmart for fear of not being paid. Multiple reports suggested a potential post holiday bankruptcy filing. BMO Capital Markets said it had been asked repeatedly by other suppliers if they should continue shipping merchandise to Sears and Kmart. This news could not come at a worse time for Kmart ahead of the holiday shopping season. Once the news spreads of one supplier halting shipments, it is sure to spread to other suppliers as well. This could be Kmart's last Christmas.

Earnings December 1st.

Shares bounced on a suggestion they might be preparing a real estate sale but are returning to the lows. A trade under $10.50 would be a 13-year low.

Position 10/27/16:

Short SHLD shares @ $10.92, see portfolio graphic for stop loss.



SSYS - Stratasys Ltd - Company Profile

Comments:

No specific news. New 8-month low.

Original Trade Description: October 22nd.

Stratasys Ltd. provides three-dimensional (3D) printing and additive manufacturing (AM) solutions for the creation of parts used in the processes of designing and manufacturing products; and for the direct manufacture of end parts. Its 3D printing systems utilize its patented fused deposition modeling (FDM) and inkjet-based PolyJet technologies to enable the production of prototypes, tools used for production and manufactured goods directly from 3D CAD files or other 3D content. The company offers entry-level desktop 3D printers to systems for rapid prototyping, and production systems for direct digital manufacturing under the Dimension, Objet, Fortus, Polyjet, SolidScape, and MakerBot brands, as well as MoJo and uPrint product families, and Dental Series products. It also provides 3D printing consumable materials, including FDM, cartridge-based materials, Polyjet cartridge-based materials, Smooth Curvature Printing inkjet-based materials, and non-color digital materials, as well as provides color variation services. In addition, the company offers customer support, basic warranty, and extended support programs; leases or rents 3D printers and 3D production systems; produces prototypes and end-use parts for customers from a customer-provided CAD file; and provides plastic and metal parts for rapid prototyping and production processes, as well as related professional services. Further, it operates Thingiverse, an online community for sharing downloadable, digital 3D designs; and GrabCAD Community for mechanical engineers and designers. The company's products and services are used in aerospace, automotive, consumer electronics, consumer goods, medical processes and medical devices, education, dental, jewelry, and other industries. Company description from FinViz.com.

Stratasys does not report earnings until Nov 15th. Piper Jaffray believes they will miss on revenue because of a recent survey of 68 firms showed "extremely discouraging" demand for SSYS and 3D Systems (DDD) products. Stratasys is expected to post its first year over year profit in 8 quarters because of extensive cost cutting but revenue is expected to fall short of the $174.5 million consensus estimate.

The challenge is the entry of the 800 pound gorilla into the 3D market. That gorilla is Hewlett Packard. They announced their entry into the market five months ago and will begin shipping products over the next two months. Piper and some other analysts said buyers are waiting to commit to purchases until they actually see the HP products. The HP product line is expected to be robust and priced competitively. Another manufacturer, privately held Carbon 3D, is also drawing attention and suddenly buyers have an entire array of 3D printers and manufacturers to choose from. GE just bought a 3D printing company in Europe and is expected to expand the offering in a big way given their available cash and manufacturing experience. Because of the expense on some of these printers, buyers are taking the extra time to make sure they buy the one that fits their needs the best.

Shares are trading at a 3-month low and only about 50 cents above an 8-month low. If support at $19.35 fails we could see $15 in a hurry as investors flee before the mid November earnings.

Position 10/14/16:

Short SSYS shares @ $19.97, see portfolio graphic for stop loss.

No options recommended because of distance from the strike and short time frame.



VXX - Volatility Index Futures - ETF Description

Comments:

Shares only gained 6 cents after a 9 day drop by the S&P. They will fall faster than they went up once a positive market returns. Look at the drop after the spike in September for an example.

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.




Left Over Lottery Tickets

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

These positions are only updated on the weekend.


HOV - Hovnanian Enterprises - Company Profile

Comments:

No specific news. Our Feb $2 call only cost 20 cents so we can afford to wait for a recovery.

Original Trade Description: July 27th.

Hovnanian Enterprises, Inc. is a builder of residential homes. The Company designs, constructs, markets and sells single-family detached homes, attached townhomes and condominiums, urban infill, and active lifestyle homes in planned residential developments. It markets and builds homes for first-time buyers, first-time and second-time move-up buyers, luxury buyers, active adult buyers and empty nesters. The Company has two distinct operations: homebuilding and financial services. The Company, excluding unconsolidated joint ventures, is offering homes for sale in 196 communities in 34 markets in 16 states throughout the United States. The Company's financial services operations provide mortgage loans and title services to the customers of its homebuilding operations.

Prior to the financial crisis HOV was an active buyer of land and had extensive holdings when the crash appeared. The decline in home buying and the change in the mortgage business caused them to be very over extended as a result of the crash. Since 2009 they have liquidated a lot of land holdings, built out and sold a lot of properties and have consolidated their efforts and reduced costs significantly.

For Q2 they reported a loss of 6 cents, which was less than half the 13-cent loss in the year ago quarter. Revenues rose 39.6% to $654.7 million. For the first 6-months of the fiscal year revenues rose 34.5% to $1.23 billion. The $7.9 million loss was well below the $25.2 million loss in the year ago quarter. The number of active contracts rose +0.9% to 1,812 homes with the value of the contracts rising 16% to $1.4 billion. The number of contracts in the first six months of fiscal 2016 rose 7.3% to 3,343. The total contract backlog at the end of the quarter was $1.58 billion, up 27.8% from the $1.23 billion at the end of fiscal Q2 2015. As of April 30th, they controlled 34,997 lots.

They paid off $233.5 million in debt over the prior two quarters and ended the period with $125.6 million in liquidity. Since the end of the quarter liquidity has risen $75.1 million due to closings and joint venture funds received. They also paid off another $86.5 million in debt that matured in May.

CEO Ara Hovnanian said, "While our revenue grew 40% and Adjusted EBITDA increased over 220%, as we said last quarter, we remain focused on deleveraging our balance sheet and maximizing our profitability rather than on additional growth. Since October 15, 2015, we have paid off $320 million of debt. More importantly, we continue to believe that we will have the liquidity to pay off the remaining debt maturities through the end of 2017. We are certain that we are taking the correct steps that will best position our company for future success. While it is discouraging to report a loss for the first half of fiscal 2016, it is nevertheless a significantly reduced loss, and we anticipate our profitability in the second half of the year will more than offset this loss."

With the low mortgage rates and the rising number of home sales, I do expect HOV to return to profitability by the end of the year. It has been a long 7 years but they are finally getting rid of the accumulated debt and are riding the wave of new home buyers.

Stocks typically begin to rise about 6-months before widely predicted events. If HOV expects to post profits in Q3/Q4 now is the time to buy the stock. At $1.87 per share I look at it as a LEAP option that does not expire. This is not going to be a rocket stock. This is a buy it and forget it position until year end. Once we are in the position I will track it in the Lottery Play portfolio each weekend. Shares traded at $7 in 2013-2014 and could easily return to that level once they post those profits.

Update 9/9/16: HOV reported Q2 earnings of zero compared to estimates for 6 cents. Revenue rose +32.6% to $716.9 million. For the full year the company guided to revenue of $2.7 to $2.9 billion and analysts were expecting $2.75 billion. The sold or joint ventured 21 communities to reduce their active selling communities from 214 to 193. This impacted revenue as the older communities were culled from the active business. They sold 1,467 homes in Q2 and slightly less than the 1,658 in the same period in 2015, also the result of selling some communities. Their order backlog rose 7.7% to $1.48 billion. There are 3,232 homes currently contracted to be built. They delivered 1,574 homes in the quarter, a +11.8% rise. After paying off $320 million in debt their cash position was $187.7 million. They acquired about 900 lots in the quarter in 20 different communities. They guided for a solid profit in the current quarter of $32-$42 million before some expenses including land acquisitions.

Do not back up the truck on this position just because the stock is cheap. Unexpected events do happen. Just buy a few hundred shares and we will shoot for a return to $6 or a 400% gain.

Position 7/28/16

Long February $2 call @ 20 cents. No stop loss.

Previously Closed 10/17/16: Long HOV shares @ $1.86, closed $1.61, -.25 loss.



HUN - Huntsman Corp - Company Profile

Comments:

No specific news. Huntsman is stuck under the 52-week high at $18. Mo material movement.

We were stopped out of the long position on HUN shares on Sept 8th. We have a left over November $19 call.

Original Trade Description: August 23rd.

Huntsman Corporation manufactures and sells differentiated organic and inorganic chemical products worldwide. The company operates in five segments: Polyurethanes, Performance Products, Advanced Materials, Textile Effects, and Pigments and Additives. The company's products are used in various applications, including adhesives, aerospace, automotive, construction products, personal care and hygiene, durable and non-durable consumer products, electronics, medical, packaging, paints and coatings, power generation, refining, synthetic fiber, textile chemicals, and dye industries. Huntsman Corporation was founded in 1970.

They reported Q2 earnings of 53 cents that beat estimates for 52 cents. Revenue of $2.54 billion matched estimates. They generated more than $350 million in free cash flow and made an early repayment of $100 million in debt. They also announced they were selling some of its European facilities and would use the proceeds to repay debt. They sold a manufacturing facility to Innospec Inc for $225 million and the transaction is expected to close in Q4. Huntsman will remain a raw materials supplier to the facilities once the transaction is completed.

They are also planning to close their titanium dioxide manufacturing (TiO2) facility in South Africa in addition to spinning off their remaining TiO2 business in early 2017. The closure/spinoff will save $200 million.

Update 10/28/16: Huntsman reported earnings of 38 cents that beat estimates for 35 cents. Revenue of $2.36 billion missed estimates for $2.49 billion. Free cash flow was $300 million after an early repayment of $100 million in debt. The announced the filing of a Form 10 registration statement for a spinoff og the Pigments, Additives and Textile Effects businesses expected to occur in the first half of 2017.

The earnings, restructuring and debt repayment plans have given the stock a positive bias. Shares broke over resistance on Tuesday to trade at a 52-week high. The next material resistance is $23.

Earnings Oct 26th.

Position 8/30/16 with a HUN trade at $17.65

Long Nov $19 call @ 54 cents. No stop loss.

Previously Closed 9/8/16: Long HUN shares @ $17.65, exit $16.65, -$1.00 loss.





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