Option Investor
Newsletter

Daily Newsletter, Monday, 11/28/2016

Table of Contents

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

Market Wrap

OPEC SchmOPEC

by Thomas Hughes

Click here to email Thomas Hughes

Introduction

The market took a pause today, perhaps due to OPEC uncertainty, perhaps due to the first round of monthly macro-data since the election. OPEC headlines over the weekend and this morning had oil prices moving in wide swings, the nature and probability of a price supporting deal are still highly questionable. Over the weekend the deal seemed to fall completely apart as Iran and Iraq both pulled back from agreement. Rumors have it that some sort of promises to Iran weren't kept, leading to their lack of cooperation and a plunge in oil prices; early this morning Iraq agreed to get on board and that news caused a major intraday turnaround in oil trading. Other than that the market only has a big week of major economic data to wait on so lots of opportunities for market movements.

International trading was a bit mixed, a bit choppy. In Asia indices closed mostly in the green, albeit with small gains, as dollar strength and falling oil prices induced caution. European indices were firmly in the red at the end of the day, first hurt by falling oil prices and then later by falling bank stocks. Today's reason to hit the EU financials, yet another possible extreme change in Italian government that is feared to hurt an already unstable banking sector and potential spillover into the greater EU. Nothing new but a reason for caution nonetheless.

Market Statistics

Futures trading was fairly stable if to the downside all morning. Volatility in the international markets did not seem to spill into ours and there was no earnings or economic data released in the early pre-opening hours. Trading at the open was calm and quiet, the SPX opened with a loss near -3 points, about -0.20%, and held near that level for the first hour of trading. The second hour of trading saw the indices dip lower, the SPX to -0.50%, trade sideways for a bit and then move back up a bit and eventually to the opening level.

Intraday resistance was found just below the opening level, 2210, and kept the indices trading sideways within the earlier range. Early afternoon saw the indices hover near the mid point of the intraday range and then move down towards the bottom of said range shortly after 2PM. The late day move lower was not strong, more of a slow drift down and to the right, that never quite reached the earlier bottom, not until the last half hour of trading when a final push lower set a new intraday low, leaving the indices near the lows of the day.

Economic Calendar

The Economy

No economic data today but lots this week. Tomorrow the second estimate for 3rd quarter GDP, slightly higher than the first, could sway the FOMC as could the NFP/Unemployment/hourly earnings bundle released on Friday. In between all that is Challenger job cuts, ADP employment, the Fed's Beige Book, personal income and spending, PMI, pending home sales, auto sales, ISM and construction spending.

Moody's Survey Of Business Confidence gained 0.5%, nearly reclaiming last week's loss, to come in at 32.5. The index is holding steady near recent highs, at 7 month highs, with little on the horizon to damage sentiment. In his remarks Mr. Zandi says that global sentiment is holding well and has weathered the geopolitical storm of the summer/fall. The only negatives he notes is that future outlook dipped over the summer, remains positive, and has not yet recovered.


The third quarter earnings cycle is coming to a close. A little over 98% of the S&P 500 has reported so far and there are 7, 1.5%, reporting this week. The blended rate of earnings growth moved up in the last week, gaining 0.2% to 3.2%. Of those that have reported 72% beat earnings and 54% beat revenue expectations, both above average.


Looking forward earnings growth outlook remains positive and on the upswing. Fourth quarter outlook fell a tenth to 3.3%, down more than 10% from it's peak but likely low relative to what we can expect the final rate of earnings growth to be, something more in the range of 7.5% to 8.5%. Full year 2016 outlook remains steady at 0.1%, likely to rise along with the fourth quarter as the season unfolds. Full year 2017 held steady as well, at 11.4%, but likely to see some change as we get closer to next year.


The Dollar Index

The Dollar Index fell in today's session but the move looks more like profit taking than anything else, there were no market shaking announcements, central bank meetings or comments from Fed members that I heard of. The index fell nearly a full percent in overnight trading to hit support just above the recently broken long term high near 100.50 and bounce back. The action created a doji candle at support and was basically completed before the US session opened, after the US market opened there was very little movement in the index. The indicators are consistent with a peak within an uptrend in that they are both showing strength, and peaking; the current peaks in both are both convergent with the new high and suggest strength in the rally. Additionally, the MACD peak, I don't know that I would call it extreme but it is the highest peak in more than 12 months. With the data this week, the ECB next week and the FOMC meeting just 2 weeks away I'd expect some volatility and at least a retest of the current high.


The Oil Index

Oil prices took a wild ride today, first down more than -1% and then later up more than 3% only to close closer to 2% as OPEC hopes, fears, dreams and realities clash together. The cartel is on the verge of losing its power as traders continue to question just what the deal is, will it be enough, will they all agree to it and then, will they actually do it. WTI gained settled up nearly 2% at 1.91%, trading just shy of $47, and is likely to be volatile going into Wednesday's official OPEC meeting.

Traders in the oil sector remain skeptical of the oil rally, as do I. The Oil Index fell more than -1.3% confirming resistance at the ultimate top of the 7 month trading range. The indicators are consistent with resistance within a trading range and suggest, along with the candle action, that the sector is heading back down to firmer support levels. The risk of course is that OPEC, or maybe the Saudis and Russia, will somehow talk the market back up. Downside target is 1,150.


The Gold Index

Gold prices bounced back somewhat today but remains below $1,200. Spot prices climbed more than 1% in mildly choppy trading to hover near $1,190. This move is linked to today's dollar weakness so does not appear to have strength or legs. Resistance is now $1,200, maybe lower, and with dollar outlook bullish I'd expect to see gold move lower rather than higher in the short to long term. FOMC rate hike expectation is 95.9% according to the Fed Watch Tool.

The gold miners of course got a boost from rising gold prices but they, like gold, are under pressure and appear likely to be headed lower. The Gold Miners ETF GDX gained nearly 4% in today's session, moving up from potential support levels, but remains within a narrowing flag pattern with bearish outlook. The indicators are mixed, MACD is bearish but consistent with a trough while stochastic is firing what could be buy signal. The caveat is bearish outlook for gold and the four month downtrend in gold stocks which makes today's set up in the GDX look more like the precursor for a bearish continuation than a bottom or bounce. Resistance is near $22, support is near $20, a break of either will be significant.


In The News, Story Stocks and Earnings

Time Inc, publisher of Time Magazine, received an unsolicited and turned down bid to buy from billionaire Edgar Bronfman Jr. The news was enough to spur investors to buy in the hopes that a deal could be reached, if not with this consortium then another. The current offer is $18 per share, a 22% upside to last week's close, which leaves some room if a deal were to get closed, even after today's 18% spike.


Wells Farge, the once unsullied banking gem, has suffered yet another blow. A new class action lawsuit, from the employees, alleging the company herded them into underperforming proprietary investments, over $3 billion worth, at the expense of employees. The news helped send the stock down by nearly -2% but does not appear to be material to the long term health of the bank or the banking sector. The chart still looks rather bullish to me.


Shoe Carnival reported after the close and missed expectations. The discount shoe store did not provide investors with reason to celebrate when they announced that seasonal sales were lower than expected, impacting revenue and earnings, and lowering full year guidance. Warmer weather hurt sales of boots of other cold weather shoes in the second half of the quarter but may be made up in later quarters if the winter precipitation forecast is to be believed. Shares of the stock fell -3.75% in the open session and look as if they may have hit a peak, action in after hours trading confirms it. Down -12%.


The Indices

The Trump rally is showing some signs of slowing. Today's action was light, but to the down side and comes with declining market momentum. The biggest decliner was the Dow Jones Transportation Average which lost -0.90% and created a small bodied black candle. The signal is not strong, a near term pause at most, but momentum continues to wane so more serious resistance could set in as the index approaches the all time high near 9,300. Stochastic remains strong and at the upper reaches of the upper signal zone, where it is likely to stay in the near to short term. Upside target remains 9,300.


The NASDAQ Composite is the next biggest loser in today's action, shedding -0.56%. The tech heavy index created a small bodied black candle, the fourth in what looks like a developing consolidation, just below the current and recently set all time high. The indicators remain bullish if consistent with a peak/consolidation. A pull back to test for stronger support go as low as 5,250 while a move to the upside could take it as high as 5,500 in the near term.


The S&P 500 comes in third today with a loss of -0.53%. The broad market created a small bodied black candle, closing near the low of the day, just below the recently set all time high. The index looks like it could be setting up to test for support, the indicators are bullish but consistent with a peak and possible near term pull back or correction, with that support level just below today's close. Support,first target anyway, is along a short term uptrend line and the previous all time high, which happened to intersect just below today's candle. A break below this level could be bearish and take the index down to a more established longer term uptrend line near 2,150. A confirmation of support would be bullish and has a target near 2,250.


The Dow Jones Industrial Average made the smallest losses today, only -0.20%. The blue chips created a small doji candle, just below the recently set all time high, and may indicate a pause in the rally is at hand. The indicators remain bullish but like with the other indices give reason to think a consolidation or test for support could be coming. MACD, while extreme and strong for the movement, is also diverging from the most recent peak suggesting that the rally has legs, but has reached a near term peak. Support could be at 19,000, if so great and bullish, if not the short term moving average near 18,600 looks like the next likely level. If the market is able to get its legs under it and move higher from here upside targets remain at 19,500 and 20,000.


Today's action certainly makes it look like a pause is at hand, and no wonder. The OPEC meeting alone is enough to move the market so waiting for it to pass is a good idea, the data load this week is another reason to wait, not to mention next week's ECB meeting, and the following week's FOMC meeting. This pause could hold current levels, and it could lead to a pull back to stronger support levels, but in either case I think it more likely the rally continues from that point forward than for it to end. Economic trends are positive, the consumer is getting stronger and earnings outlook is expansive... a recipe for bull market. I remain cautiously bullish, eyeing the market, waiting for the data, and eyeing my chance to get in on the next dip to support. OPEC may be a big deal, but only for a few more days.

Until then, remember the trend!

Thomas Hughes


New Plays

Chicken & Biscuits

by Jim Brown

Click here to email Jim Brown
Editor's Note

Bojangles is a southern favorite with their "Legendary Iced Tea" to go with their food. Shares have been exploding since their earnings on Nov 3rd.



NEW BULLISH Plays

BOJA - Bojangles Inc - Company Profile

Bojangles', Inc. operates and franchises limited service restaurants in the United States. Its restaurants serve chicken items, made-from-scratch buttermilk biscuits, flavorful fixin's, and iced tea. As of September 25, 2016, the company had 699 system-wide restaurants, including 301 company-operated and 398 franchised restaurants primarily located in the Southeastern United States. Bojangles', Inc. was founded in 1977. Company description from FinViz.com.

In early November they reported earnings of 25 cents that beat estimates for 21 cents. Revenue of $133.2 million missed estimates by only $200,000. They guided for the full year to earnings of 92-95 cents and revenue of $530.5-$533.5 million.

Earnings February 2nd.

Shares spiked $1.50 on the earnings and continued to make solid progress until today's minor bout of profit taking. However, after the bell they announced that certain existing shareholders had filed to sell six million shares in an underwritten public offering. Nearly every broker on the street is participating in the offering so there will not be a problem selling the shares. The company will receive none of the proceeds with everything going to the shareholders.

Shares fell to $18.30 in afterhours after closing at $19.70. Typically when a company gets hit on a secondary, it rebounds almost immediately to the original price unless the shares are sold significantly under the market, which is not expected in this case.

I am proposing we try to buy the shares at the open on Tuesday. If there is any additional decline at the open to support at $18 or so, that would be a $2 discount to where they traded on Friday.

Buy BOJA shares, currently $18.30, no stop loss for Tuesday.

No options recommended because of the wide spreads.



NEW BEARISH Plays

No New Bearish Plays



In Play Updates and Reviews

We Were Overdue

by Jim Brown

Click here to email Jim Brown

Editors Note:

The market indexes finally suffered some profit taking but it was very limited. Given our recent gains, it could have been a lot worse. The Russell 2000 only gave back -1% after a 16.4% rally over the last three weeks.

The selling was heaviest at the open but quickly faded. Early morning dips were bought but sellers returned near the close once traders realized the market was not going to rebound into positive territory. This may not be over but it was a good start. A nice calm bout of profit taking to reduce the overextended conditions.





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


UIS - Unisys
The long stock position remains unopened until a trade at $15.25.



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Iron Condors = Couch Potato Trader



BULLISH Play Updates

FTK - Flotek - Company Profile

Comments:

No specific news. Big -6% decline. Energy shares down ahead of the OPEC decision despite the rise in oil prices today. Everybody is squaring up their positions just in case disaster strikes and crude crashes back to $40.

Original Trade Description: November 12th.

Flotek Industries, Inc. develops and supplies oilfield products, services, and equipment to the oil, gas, and mining industries in the United States and internationally. The company's Energy Chemistry Technologies segment designs, develops, manufactures, packages, and markets chemistries under the Complex nano-Fluid brand for use in oil and gas well drilling, cementing, completion, stimulation, and production activities, as well as for use in enhanced and improved oil recovery markets. This segment also constructs and manages automated material handling facilities; and manages loading facilities and blending operations for oilfield services companies. The company's Drilling Technologies segment inspects, manufactures, sells, markets, and rents down-hole drilling equipment that are used in energy, mining, and industrial drilling activities through direct and agent-based sales. Company description from FinViz.com.

In the Q3 cycle they reported a loss of 5 cents on revenue of $73.7 million. That was slightly more than the estimates for a 3-cent loss. Revenue estimates were for $79.5 million. The company explained their 16.2% decline in revenue saying there was a 43.2% reduction in the active rig count in Q3 compared to Q3-2015. In other words, their available business was cut nearly in half but they only recorded a 16% decline in revenue. That was actually a 1.0% increase sequentially from Q2.

Flotek services oil wells and especially new wells with their down hole products including their patented Complex nano-Fluid (CnF) technology that is used in fracking wells. Unlike fracking chemicals used by others, the Flotek CnF chemicals are completely non-toxic and have been proven to provide a slippery surface in the reservoir so that oil flows freely. This nontoxic chemical mix made from citrus oils is seen as a plus for producers constantly under fire for potential ground water contamination.

With rigs going back to work and drilled but uncompleted wells being brought online, the company said they were seeing signs of recovery in the sector. The drop in crude prices to $43 last week failed to depress the stock.

FTK has put in a bottom at $11 and could be ready to move towards the September highs at $16.

If OPEC actually announces some kind of production agreement on Nov 30th, the sector could respond aggressively.

Earnings Feb 1st.

Position 11/14/16:

Long FTK shares @ $11.72, see portfolio graphic for stop loss.

No options recommended because of price.



GNC - GNC Holdings - Company Profile

Comments:

No specific news. Fell -5% and missed our stop loss by 10 cents.

Original Trade Description: November 15th.

GNC Holdings, Inc., operates as a specialty retailer of health, wellness, and performance products. The company operates through three segments: Retail, Franchise, and Manufacturing/Wholesale. Its products include vitamins, minerals, and herbal supplement products; and sports nutrition products, diet products, and other wellness products. The company sells its products under the GNC proprietary brands, including Mega Men, Ultra Mega, Total Lean, Pro Performance, Pro Performance AMP, Beyond Raw, GNC Puredge, GNC GenetixHD, and Herbal Plus, as well as under third-party brands. It operates a network of approximately 9,000 locations under the GNC brand worldwide. The company sells its products through company-owned retail stores; Websites, including GNC.com and LuckyVitamin.com, as well as Drugstore.com; domestic and international franchise activities; third-party contract manufacturing; and e-commerce and corporate partnerships. Company description from FinViz.com.

Just over a month ago there was a contingent of Chinese buyers circling GNC when it had a market cap of about $4 billion. When they reported earnings and lowered guidance that market cap fell to about $1 billion. Shares fell from $22 to $13 making the company even more attractive for the Chinese buyers.

The key here is not the U.S. or European business. The key point in a Chinese acquisition is the health conscious Chinese consumer. In China there are plenty of health products but most are scams or poorly processed with large amounts of unknown fillers. The health food and vitamin market is not well managed and all sorts of scary products exist.

GNC as a global brand is the answer. Chinese consumers would feel comfortable buying the brand and knowing there were no harmful ingredients.

Over the last several days, GNC shares have started ticking up again. GNC has hired Goldman Sachs to find a buyer and it is only a matter of time before that happens. The uptick in the shares could be due to rumors leaking out about a potential transaction. Option prices have also escalated suggesting something in progress.

Earnings Jan 26th.

Position 11/16/16:

Long GNC shares @ $14.75, see portfolio graphic for stop loss.

No options recommended because of price.



IDTI - Integrated Device Technology - Company Profile

Comments:

No specific news. The company released four new products for board designers.

Original Trade Description: November 14th.

Integrated Device Technology, Inc. designs, develops, manufactures, and markets a range of semiconductor solutions for the communications, computing, consumer, automotive, and industrial end-markets worldwide. It operates in two segments, Communications; and Computing, Consumer, and Industrial. The Communications segment offers communication timing products, such as clocks and timing solutions; flow-control management devices comprising Serial RapidIO switching solutions; multi-port products; telecommunications products; static random access memory products; first in and first out memories; digital logic products; radio frequency products; and frequency control solutions. The Computing, Consumer, and Industrial segment provides clock generation and distribution products, programmable timing devices, computing timing solutions, high-performance server memory interfaces, PCI Express switching solutions, power management solutions, and signal integrity products, as well as sensing products for mobile, automotive, and industrial solutions. Company description from FinViz.com.

IDTI reported earnings of 34 cents that beat estimates for 33 cents. Revenue of $184.1 million barely edged ahead of estimates for $184.0 million. Revenue rose 8% making the 12th consecutive quarter of revenue growth.

They announced multiple new products for the quarter including a new 5G product in corporation with IBM for the connected car. They also obtained certification for their second production facility for automotive capabilities.

Earnings Jan 30th.

Shares spiked from $21 to $24 on the earnings then settled in for two weeks of post earnings depression. Over the last two days shares has ticked higher again and closed at $23.60 on Monday. This has been resistance from early October and from back in June. With the positive earnings and a positive market I expect the stock to breakout this time.

Position 11/15/16:

Long IDTI shares @ $23.69, see portfolio graphic for stop loss.

No options recommended because of price.



OCLR - Oclaro Inc - Company Profile

Comments:

No specific news. Still holding over prior resistance.

Original Trade Description: November 19th.

Oclaro, Inc. designs, manufactures, and markets lasers and optical components, modules, and subsystems for the optical communications, industrial, and consumer laser markets worldwide. The company's products generate, detect, combine, and separate light signals in optical communications networks. It offers client side transceivers, including pluggable transceivers; line side transceivers; tunable laser transmitters, such as discrete lasers and co-packaged laser modulators; lithium niobate modulators to manipulate the phase or the amplitude of an optical signal; transponder modules for transmitter and receiver functions; and discrete lasers and receivers for metro and long-haul applications. Company description from FinViz.com.

Oclaro posted strong earnings of 14 cents compared to estimates for 10 cents. Revenue of $136 million also beat estimates for $132 million. The company raised guidance for Q4 to revenue in the $146-$154 million range.

Piper Jaffray said Oclaro will be the only company shipping products in volume in the next two quarters. They cited a lack of price competition today that will appear in mid 2017 as new competitors enter the market in volume. The industry is currently under capacity constraints. PJ also said there was strong demand from China and traction in the U.S. was accelerating due to the surge in IoT devices and video streaming.

Earnings Jan 31st.

Shares surged after earnings then faded the prior week in the Nasdaq uncertainty. Last week the stock broke over resistance at $9.25 and is now breaking out to five-year highs. I believe the rally will continue now that it is in breakout mode.

Position 11/21/16:

Long OCLR shares @ $9.86, see portfolio graphic for stop loss.

No options recommended because of price and spreads.



UIS - Unisys Corp - Company Profile

Comments:

No specific news. Shares rebounded quickly from the decline at the open and I considered changing the recommendation to open the position on Tuesday morning. However, there was somebody sitting on the price at exactly $15 all afternoon and the market weakened as the day progressed. We are not going to lose anything by waiting for a breakout over that $15 resistance.

This position remains unopened until a trade at $15.25.

Original Trade Description: November 26th.

Unisys Corporation provides information technology services worldwide. It operates through two segments, Services and Technology. The Services segment provides cloud and infrastructure services, application services, and business process outsourcing services. The Technology segment designs and develops software, servers, and related products. It offers a range of data center, infrastructure management, and cloud computing offerings for clients to virtualize and automate data-center environments. This segment's product offerings include enterprise-class servers, such as the ClearPath Forward family of fabric servers; the Unisys Stealth family of security software; and operating system software and middleware. Company description from FinViz.com.

The information technology sector is undergoing a transformation and older companies are becoming renewed as they change focus to the new cloud services offerings. Unisys was founded in 1886 making it 130 years old. You can imagine how many times they have changed products and focus over that period.

The company is focusing on cloud-based products and software as a service. They also offer physical security for data centers both physical security and software security. They offer a broad range of outsourcing services for building managers and clients. They have been selling their noncore assets and focusing their skills to build specialized capabilities to win industry specific projects.

They reported adjusted earnings of 41 cents compared to estimates for 29 cents. Revenue of $683.3 million beat estimates for $664 million.

Earnings Jan 24th.

Looking at a daily chart is scary since shares have risen from $10 to $15 since the election. However, the rise has been calm and without any material volatility on the days the market was weak.

On the weekly chart, resistance at $14.50 was broken on Thursday and there is nothing else to slow it down until $20.

Just in case the market tanks on Monday morning, I am putting an entry trigger on the position.

With a UIS trade at $15.25, buy UIS shares, initial stop loss $13.50.

No options recommended because of price and spreads.



XLF - Financial SPDR ETF - ETF Profile

Comments:

The ETF lost -1% as minor profit taking hit the banks.

Original Trade Description: November 16th.

The Financial Select Sector SPDR Fund seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Financial Select Sector Index.

The ETF is comprised of 44% banks, 20% capital markets, 19% insurance, 11% diversified financial services and 6% consumer finance.

All of those sectors will do better as rates rise. As of today the CME FedWatch Tool shows a 91% chance of a rate hike in December as well as a 91% chance for the February meeting and 92% for March. If they do hike in December the odds will decline for February but depending on their commentary the March meeting will still be on the table. Multiple Fedwatchers have speculated there could be 3-4 rate hikes in 2017 if the economy continues to improve.

The Fed has to hike rates in 2017 in order to have some room to maneuver if the business cycle rolls over and a recession appears. We are in the third longest expansion in history and we are due for another recession soon.

The banks rallied on the rise in treasury yields and the expectations for the December rate hike as well as the potential for decreased regulation. President elect Trump has said he would kill regulations harming the banking industry. There is even talk of modifying Dodd-Frank.

Banks have rallied significantly and I would not suggest buying the actual ETF after the big gain. However, I do not believe the gains are over. The gains last week spiked the ETF to a 7-year high but the 2007 highs were over $30.

On Tuesday, somebody bought 300,000 contracts of the March $23 call at an average of 55 cents. That was $16.5 million in option premiums. That takes some serious conviction. I am recommending we follow them and buy the same call option. That way our risk is limited to $50 per contract. I am willing to bet $50 that the ETF will be over $23 by March. This is a long term position and there will not be a stop loss.

Position 11/17/16:

Long March $23 call @ 29 cents. No stop loss.




BEARISH Play Updates

VXX - Volatility Index Futures - ETF Description

Comments:

Minor gain at the close at $28.06 after spiking to $28.55 at the open.

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 done 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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