Option Investor
Newsletter

Daily Newsletter, Tuesday, 6/6/2017

Table of Contents

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

Market Wrap

Political Fear

by Jim Brown

Click here to email Jim Brown

The major indexes declined in a whipsaw fashion as traders hedged their positions ahead of Thursday's events.

Market Statistics

The market opened lower but quickly rebounded only to be sold again. The second rebound had faded and the S&P was moving sideways when a news story broke at 1:10 that President Trump was planning on being on Twitter during the Comey testimony to rebut his comments in real time. The market instantly dipped but recovered an hour later. The rebound did not last and the closing sell off brought the markets back to their opening lows.


The Comey testimony is important because of the implications if he says the president tried to halt the investigation of Mike Flynn and his Russian ties. If he says the president was just trying to save the reputation of a good man and there was no pressure, the market should rally. If he says the president tried to intimidate him into halting the investigations, the market should crash. A NYT headline out today claims Comey told Atty General Session he did not want to meet with President Trump alone. Comey reportedly told Sessions he wanted the Justice Department to protect the FBI from White House intervention. This sounds like the president was applying pressure. This will be must see TV for the market.

The U.S. markets are likely to remain flat to down ahead of the Comey testimony. I seriously doubt anyone is going to be making big bets ahead of what could be a monumental problem for Trump if Comey turns hostile.

The ECB rate decision is not expected to have any impact on the U.S. markets but it still exists as a possible trouble point depending on what they say.

The UK election is on Thursday but the results will be very late because the polls do not close until 10:PM UK time and after our markets close. The impact from the election will be on Friday.

On the economic front, the only major report was the Job Openings and Labor Turnover Survey for April. Job openings rose 4.0% compared to 3.8% in March. The number of job openings rose to a cycle high at 6.044 million, up 7.1%. Hires declined from 5.304 million to 5.051 million. Separations declined from 5.198 million to 4.973 million. Quits declined from 3,138 to 3.027 million. Layoffs declined from 1.661 to 1.590 million. Note that ALL the components declined with the exception of job openings. The economy is creating jobs and workers with jobs are keeping them at a higher rate. It is good when the exit rates are low because it means workers and employers are satisfied. This report was for April so it was ignored.


On the earnings front, Retailer Conn's Inc (CONN) reported a loss of 5 cents that beat analyst estimates for a loss of 22 cents. Revenue of $355.8 million missed estimates for $358.7 million. On the surface, that was a decent earnings beat and the revenue miss was not that bad. However, same store sales fell -15.2% with furniture down -24.1% and mattress volume down -21.6%. Home office furniture and equipment declined -28.7%. The company said Q2 was not going to be any better with a 12% to 15% decline in same-store sales. I am shocked the decline in the stock was only 9%.


Retailer Fred's (FRED) reported a 6 cents loss which matched estimates. Revenue of $532.3 million fractionally missed estimates for $532.9 million. Same store sales fell -1.2% and that contained a -1.4% impact from the sale of discontinued inventory. Overall, it was a mediocre earnings report but a great report when compared to Conn's. Shares declined 12% on the news.


Canadian Solar (CSIQ) reported a loss of 10 cents compared to estimates for a loss of a penny. Revenue of $677 million far exceeded the estimate for $579.6 million. Total solar module shipments of 1,480 MW was well over guidance of 1,150-1,200 MW. Cash at the end of the quarter was $961.4 million and cash burn for the quarter was $55 million. Their portfolio of power plants in commercial operation was 1,156.5 MW with an estimated resale value of $1.6 billion. The earnings miss was overshadowed by the revenue beat and shares only declined 10 cents.


Apparel retailer G-III Apparel (GIII) reported a loss of 18 cents compared to estimates for a loss of 40 cents. Revenue of $529 million rose 16% and beat estimates for $498 million. The company said the money losing Donna Karan acquisition was turning the corner and should be profitable in the second half. The CEO said they "were closing and repurposing stores and enhancing store product offerings. All are expected to significantly reduce losses in our retail operations." Shares spiked 15% on the news.


HD Supply (HDS) reported earnings of 63 cents that missed estimates for 65 cents. Revenue of $1.87 billion beat estimates for $1.86 billion. Their GAAP earnings of 42 cents missed estimates for 66 cents. They guided for the current quarter for earnings of 60-65 cents and revenue in the range of $1.33-$1.37 billion. Analysts were expecting $2.1 billion and $1.05 per share. The company also said it was selling its Waterworks division to private equity firm Clayton, Dubilier and Rice for $2.5 billion. They plan on using $500 million for buybacks.


RV manufacturer Thor Industries (THO) reported blowout earnings of $2.11 compared to estimates for $1.87. Net income from operations rose 41.6%. Revenue of $2.02 billion rose 56.9% and beat estimates for $1.96 billion. Gross profits rose 45.5%. This was a monster report.

This suggests Winnebago (WGO) should also have strong earnings when they report on June 21st. (unconfirmed date).


Amabrella (AMBA) reported earnings of 39 cents that beat estimates for 36 cents. Revenue of $64.1 million beat estimates for $63.3 million. However, they guided for Q2 revenue of $69-$72 million and a decline in gross margins from 64.3% to 62.0%-63.5%. Analysts were expecting revenue of $72.3 million. Shares fell 6% in afterhours trading.


Dave and Busters (PLAY) reported earnings of 87 cents that beat estimates for 81 cents. Revenue of $204.1 million beat estimates for $299.6 million. They guided for full year earnings of $2.47 to $2.57 per share with revenue in the range of $1.16-$1.17 billion. Analysts were expecting $1.169 billion. Full year income guidance was $107-$111 million compared to prior guidance of $101-$105 million.


Dell remains the only major U.S. company on the earnings calendar for the rest of the week.


Tesla (TSLA) shares hit a new high at $359 intraday after Pacific Crest said shares could hit $439 with the delivery of the Model 3. First shipments are supposed to start in July and Musk confirmed that today. CEO Elon Musk asked shareholders to tweet him some questions for the shareholder meeting on Tuesday. One person tweeted "boxers or briefs" to which Musk replied, "Wearing anything at all is just a conspiracy by the capitalist running dogs of Big Underwear." Later he said "This is a metaphor for transparency. Also, (bleep) underwear." A shareholder noted the stock hit a record high after Musk said he went commando. Musk re-tweeted the post and did not deny it.

Tesla said they were restarting solar sales in Arizona after the state reinstated a policy forcing utility companies to pay homeowners at the full rate for power injected back into the grid. Eighteen months ago, they had changed that policy and solar sales died in Arizona, a state with a surplus of sunshine. Sales fell 32% in 2016.

At the shareholder meeting Musk said the initial Model 3 cars will only have two options, color and wheel size. This will allow for faster initial production. Also, the first cars will only come in 2-wheel drive. The 4-wheel drive versions will come later this year. Tesla plans to be making 5,000 Model 3s a week by the end of 2017 and 10,000 a week in 2018. Musk gave shareholders a lot more information on the electric semi truck to be revealed in September and a crossover called the Model Y they plan to deliver in 2019. Musk said major customers have been working with Tesla on the design of the truck and are urgently asking how many they can buy and how soon. The Model Y will be built in an entirely new factory. He said the 5.3 million sq foot Fremont will be too crowded building S, X and 3 models and Y will have to be built elsewhere. He expects Model Y demand to exceed that of the Model 3, which already has more than 400,000 orders.


Crude prices rose slightly as support at $47 appears to be holding. The API inventories showed a decline of 4.62 million barrels. However, gasoline inventories rose 4.1 million barrels and distillates 1.8 million barrels. That caused WTI prices to decline slightly in afterhours to $47.99. The EIA numbers on Wednesday are the ones that really count.

The EIA said it expected U.S. production to exceed 10 million bpd in 2018 and break the prior record set in 1970. At the same time, they reduced their forecast for oil prices for 2018 from $55.10 to $53.61 on average.


Markets

The markets today were simply the result of consolidation of the gains from the prior three weeks ahead of a potentially disastrous testimony on Thursday. There are significant market gains at risk. As of Friday's close, the S&P was up 88 points since the May 17th bottom at 2,352. That was nearly a 4% gain in just over two weeks. It would be very unusual if investors did not take some profits ahead of Thursday's events.

The S&P declined only 3 points on Monday and only six points today. Given the size of the gains that is minimal. The index closed at 2,432 and support should be 2,420. As long as that level holds, the rally is intact.


The Dow declined only slightly and closed right on prior resistance at 21,130. The decliners were the same stocks that had posted strong gains over the last several weeks. McDonalds had a long string of daily gains and new highs but has now declined two consecutive days. Boeing was setting new highs but has fallen sharply for two days. This is profit taking ahead of an event and it is actually only light selling.

If the Dow continues lower the next support is around 21,000 followed by 20,900, 20,600 and 20,400. Let's hope we do not see any levels that start with a 20.



The Nasdaq big caps weighed on the index with Amazon and Alphabet high up on the losers list. There were some big gainers offsetting those losers so the 20-point decline was not material.

The gain in WINS was crazy. That was a $20 stock three days ago and it rocketed higher today to $82 on 35 times its 5,000 share average daily volume on no news. Today's gain was a 107% increase.

The Nasdaq has no real support until 6,200 and remains overbought. If investors decide to take their sizeable gains in the FAANG stocks, we could see that 6,200 level very quickly. Resistance is 6,300.



The Russell 2000 small caps had a decent day. They rebounded off the morning lows and actually went positive in the afternoon before finishing the day with a minor loss. I am surprised the Russell is showing any strength since Friday is the day the first deletion list will be released. That could lead to another round of shorting by individual investors.


I would be surprised if the market posted any material gains on Wednesday. Volume should be light. Unless there are new headlines tonight to cause more uncertainty, the cautious traders should have exited by now. We could see some bargain hunting given the two days of declines.

Thursday could see some heightened volatility but any comments that do not suggest there was potential obstruction of justice, should be met with a new round of buying. As I said earlier, this will be must see TV.

Enter passively, exit aggressively!

Jim Brown

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New Plays

Uncertain Outlook

by Jim Brown

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Editor's Note

Volatility is rising and could be extreme by Thursday evening. Wednesday is not expected to see a big market move and if one appeared it would likely be bearish. Thursday is a landmine. If Comey can tiptoe around the conversation with Trump without setting off an explosion, then the market could rise. Every day that passes suggests that will be a challenge. I did not see anything today that was screaming "buy me" so there is no reason to force a new play ahead of market risk.



NEW BULLISH Plays

No New Bullish Plays


NEW BEARISH Plays

No New Bearish Plays



In Play Updates and Reviews

Russell Dip Buy

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Russell 2000 rebounded 8 points from its intraday low to close nearly flat. This was a decent rebound thanks to somebody buying the dip. The big cap indexes declined to their lows at the close but the Russell only fell 5 points from its intraday high. Today it was the best performing index despite the 1.5 point loss.

We have the UK election, Comey testimony and ECB rate decision on Thursday. The one with the potentially biggest impact is the Comey testimony. We are not likely to move up significantly ahead of this event.





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


CAR - Avis Budget Group
The short position was entered at the open.

ERA - Era Group
The short position was stopped at $8.95.



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Short term Calls and Puts on equities = Option Investor Newsletter

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BULLISH Play Updates

BBRY - Blackberry - Company Profile

Comments:

No specific news and no decline.

Original Trade Description: April 28th.

Research In Motion Limited designs, manufactures, and markets wireless solutions for the mobile communications market worldwide. The company was renamed Blackberry Ltd in an effort to change its public identity. The company's products include BlackBerry smartphones and accessories, including bundles, cases, audio and memory products, Bluetooth, chargers, batteries and doors, and card readers; SureType, a keyboard technology, which allows users to compose messages using single-handed operation or two-handed thumb-typing; and SurePress, a touch screen that helps in navigation and typing. Its products provide access to time-sensitive information, including email, phone, short messaging service, and Internet and intranet-based applications. The company's products also enable third party developers and manufacturers to enhance their products and services with wireless connectivity to data. Blackberry Limited markets and sells its products directly, as well as through strategic partners and distribution channels. It has a strategic alliance with Hewlett-Packard Company to deliver a portfolio of solutions for business mobility on the BlackBerry platform. Company description from FinViz.com.

Blackberry has evolved from a hardware vendor to a software company. They no longer produce their own phones and their main product is a secure software interface that is used by security conscious governments and firms everywhere.

Blackberry has moved from just a phone company to multiple product lines including software packages for automobiles. Blackberry just signed a new deal with Ford to use the Blackberry QNX software. The software has been deployed in more than 60 million vehicles. BlackBerry is a mobile-native security software and services company dedicated to securing people, devices, processes and systems for today's enterprise.

The Blackberry phones now run an Android operating system. The Blackberry KeyONE was just launched in the UK with a 4.5 inch screen above a traditional Blackberry keyboard. The device will go on sale in May in the rest of the world. The phone has a Qualcomm Snapdragon 625 chipset, 3gb of RAM, 12MP rear camera, 8MP front camera, Android 7.1 and a 3,505mAh battery for long life. Blackberry phones fill a niche for those who want an actual keyboard and/or greater security than you can get in other phones.

In their recent earnings the CEO said Blackberry was looking at opportunities for branded tablets, wearables, medical devices, appliances, point of sale terminals and other smartphones. The key point is that Blackberry security software will be integrated into all Blackberry branded items even though they will be made by over companies. That makes them low risk, all reward, opportunities.

They announced a couple weeks ago they had been awarded $814 million in royalty overpayments plus attorney's fees and interest from Qualcomm. The arbitration proceeding has been in process for a long time. This is a major infusion of cash for Blackberry.

Shares spiked to $9 on the award. After some initial profit taking they have started to rise again and closed at a new 52-week high on Friday.

Update 5/1/17: CEO was on CNBC this morning talking about accelerating transition to a software service company. Video of interview

Update 5/4/17: TechCrunch reviewed the new BlackBerry phone and said it was the one they should have introduced 10 years ago. CNBC also did an article on it. Read it Here

Update 5/15/17: Blackberry is actually profiting from the WannaCry malware. The company pivoted to a software security firm a couple years ago and they offer security for both mobile and enterprise applications.

Update 5/16/17: Blackberry is working with at least two automakers on security software that would monitor the car's operating system and warn the driver if the system has been hacked. This is going to be very important in the future as self-driving cars become more plentiful. The system is currently being tested by Aston Martin and Range Rover. The virus software would cost drivers $10 a month. Blackberry software is already running in millions of cars. Shares exploded higher.

Update 5/17/17: Blackberry announced new mobile software to allow crisis managers, police forces, fleet managers, etc, to always know where their personnel are located. The AtHoc Account is an authorized solution for Federal government FedRAMP applications. The software merges inputs from managers, call center operators, data streams from HR and travel systems as well as self reporting by individuals.

Update 5/22/17: BBRY is exploding higher. I am not going to raise the stop loss because I think they have turned the corner and we could be looking at $20 in the future. $11.25 is two-year resistance and it closed just over that level today. Three-year resistance is $16. The next step up from there is $30. BlackBerry has completely changed its business model and is no longer a phone company. People are finally catching on and I am sure there are plenty of shorts left to cover. Now that a monster move has begun there will probably be a lot of price chasers as well.

Update 5/24/17: BlackBerry currently has more than 60 million QNX operating systems installed in late model cars and expects to license another 36 million in 2017. With U.S. auto rates around 18 million a year, that shows how BlackBerry has infiltrated the overseas markets as well. Shares were down slightly after an article in Forbes suggested Microsoft and Apple could compete for this marketplace in the years ahead.

Update 5/27/17: Blackberry and Qualcomm reached a final agreement on the arbitration award on overpaid royalties. The final award will be $940 million and wil be paid to Blackberry on May 31st. Qualcomm will deduct some royalties due from 2016 and Q1-2017 but Blackberry will receive most of the money. That includes $125 million in interest and attorney's fees. Qualcomm had originally agreed to cap certain royalties under their original licensing deal years ago but then demanded Blackberry pay anyway. In this case Blackberry prevailed.

Update 6/1/17: Short seller Citron Research issued a buy recommendation on Blackberry saying their automotive software is a game changer for the company. With an installed base of 60 million, QNX already has four times the number of cars as Mobileye when Intel bought them for $15 billion. Citron thinks BlackBerry shares could double and they could be an acquisition target now that their focus has changed to software. Shares rallied 8% to a new 52-week high.

Update 6/6/17: Blackberry downplayed the shift by Toyota away from the company's QNX software in favor of an open source Linux version for driving the console functions in the 2018 Camry sedans. Blackberry said it was focusing more on the faster growing market for autonomous driving technology.

Earnings June 30th.

Position 5/1/17:

Long BBRY shares @ $9.34, see portfolio graphic for stop loss.

Optional: Long July $10 call @ 35 cents. No stop loss.



FLEX - Flex Ltd - Company Profile

Comments:

No specific news. Shares retreated a very minor 4 cents in a weak market.

Original Trade Description: June 3rd.

Flex Ltd. provides design, engineering, manufacturing, and supply chain services and solutions to original equipment manufacturers worldwide. It offers innovation services, such as innovations labs for supporting customer design and product development services from early concept stages; collective innovation platform, an ecosystem of technology solutions; Lab IX, a startup accelerator program; centers of excellence solutions in critical areas; interconnect technology center for printed circuits; and CloudLabs that enables customers to accelerate a spectrum of cloud, converged infrastructure, and datacenter strategies. The company also provides design and engineering services, including contract design and joint development manufacturing services, which cover various technical competencies, such as system architecture, user interface and industrial design, mechanical engineering, technology, enclosure systems, thermal and tooling design, electronic system design, reliability and failure analysis, and component level development engineering; and systems assembly and manufacturing services. In addition, it provides component product solutions, including rigid and flexible printed circuit board fabrication, and power supplies; after-market supply chain logistics services; and reverse logistics and repair services, such as returns management, exchange programs, complex repair, asset recovery, recycling and e-waste management for consumer and midrange products, printers, smart phones, consumer medical devices, notebooks, PC's, set-top boxes, game consoles, and infrastructure products. The company was formerly known as Flextronics International Ltd. and changed its name to Flex Ltd. in September 2016. Flex Ltd. was founded in 1990 and is based in Singapore. Company description from FinViz.com.

FLEX surprised me. I have traded it numerous times over the last 20 years but it was named Flextronics. They were a manufacturer of circuit boards. If you look at their company description above they are doing far more than that today.

FLEX reported earnings of 29 cents that beat estimates for 28 cents. They posted revenue of $5.86 billion that beat estimates for $5.67 billion. They guided for the current quarter for revenue of $5.7 to $6.1 billion and earnings of 24 to 28 cents. Full year free cash flow was $660 million and cash flow from operations of $1.15 billion. They have expanded margins for 14 consecutive quarters. They repurchased $350 million in shares for the year ended in March. The company said it remained committed to return 50% of free cash flow to shareholders on an ongoing basis. They ended the quarter with $1.8 billion in cash and debt of $3.0 billion.

Earnings July 27th.

Their guidance for earnings was a little lighter than expected because they announced a capex spending project that would weigh on the quarter's earnings. The spending is to improve a process to further expand margins.

Shares are in a steady uptrend and making new highs almost daily.

Position 6/5/17:

Long FLEX shares @ $17.53, see portfolio graphic for stop loss.

Alternate position: Long July $18 call @ 49 cents, see portfolio graphic for stop loss.



FRAC - Keane Group - Company Profile

Comments:

No specific news. Oil prices actually rose and energy stocks followed.

Original Trade Description: May 31st.

Keane Group, Inc. provides full-service completions that include hydraulic fracturing, wireline, coiled tubing, and nitrogen units. It also offers drilling and well construction services that include top hole air rig packages and cementing. The company was founded in 1973 and is based in Houston, Texas. Company description from FinViz.com.

Investors are fleeing energy stocks and analysts are talking about $40 oil. This is ridiculous. All the major players, EIA, IEA, OPEC, Wood MacKenzie, etc all believe global inventory levels are declining by 700,000 bpd thanks to the OPEC production cuts. There are challenges where production is increasing. Libya is ramping up production after years of dormancy because of the civil war. The U.S. is ramping up production we well. These facts are constantly quoted by the bears. What they do not tell you is that global demand is expected to increase between 1.2 and 1.4 million bpd in 2017. With the summer driving season now underway, that demand will begin to surge. Inventory levels in the U.S. have declined -19 million barrels over the last 7 weeks. Now that driving season is here they will begin to decline at a faster rate.

In order for U.S. production to increase there needs to be an increase in fracking capacity. Much of that capacity was cold stacked in 2016 after the oil crash. Today there is not enough capacity and prices are surging.

Keane Group is an oil field service company that just came public in January. The dual oil crashes in March and May, crushed the stock back from $23 to $12. When they reported earnings in early May they were reactivating fracking capacity at a frantic pace. They went from 15 operating fleets to 19 fleets over the last quarter and are still in the progress of reactivating the rest.

In late May they announced the acquisition of RockPile Energy, another oilfield service company and fracking operator. The acquisition will increase Keane's fleet of frackers by 26% and it will be one of the largest and most modern pressure pumping fleets in North America. They will have about 1.2 million hydraulic fracturing horsepower available.

The evolution of hydraulic fracturing in the U.S. over the last three years has been remarkable. The horizontal laterals on the wells are longer with most now in the range of 10,000 feet. The amount of sand and chemicals forced into the wells have increase by a factor of four or more, which means more horsepower, bigger sand capability and better technology. The frackers are going to be in high demand for years to come because producers have figured out how to produce oil and be profitable under $50.

Keane's shares have declined from the IPO price but over the last month they have been rising while all the other energy stocks have been declining. This is proof that frackers are in high demand and investors are understanding the production curve.

Expected earnings August 1st.

Weekly inventories are due out on Thursday morning. If there is another big decline the oil price meltdown could end as quickly as it began.

Because this is a new stock, the option spreads are wide and dangerous. If FRAC performs as expected, we will be ok. If not there could be a substantial penalty in stopping out of an option position. For that reason the alternative option position will not have a stop loss.

Position 6/1/17:

Long FRAC shares @ $15.34, see portfolio graphic for stop loss.
Alternate position: Long July $17.50 call @ 45 cents. No stop loss.



KTOS - Kratos Defense - Company Profile

Comments:

The company received an order for six high performance aerial drone system aircraft from a U.S. government customer. Because the program is secret no other information is available.

Original Trade Description: May 24th.

Kratos Defense & Security Solutions, Inc. provides mission critical products, solutions, and services in the United States. The company operates through three segments: Kratos Government Solutions, Unmanned Systems, and Public Safety & Security. The Kratos Government Solutions segment offers microwave electronic products; satellite communications; technical and training solutions; modular systems; and defense and rocket support services. The Unmanned Systems segment provides unmanned aerial, ground, and seaborne, as well as command, control, and communications systems. The Public Safety & Security segment designs, engineers, deploys, operates, integrates, maintains, and operates security and surveillance solutions for homeland security, public safety, critical infrastructure, government, and commercial customers. The company serves national security related agencies, the department of defense, intelligence agencies, and classified agencies, as well as international government agencies and domestic and international commercial customers; and critical infrastructure, power generation, power transport, nuclear energy, financial, IT, healthcare, education, transportation, and petro-chemical industries, as well as government and military customers. Kratos Defense & Security Solutions, Inc. was founded in 1994 and is headquartered in San Diego, California. Company description from FinViz.com.

Kratos builds drones for target practice for the U.S. military. They are also building drones for combat for air to air and air to land. They also provide communication systems for missiles, satellites and various other platforms.

China and Russia are rapidly militarizing space and Kratos is working with the U.S. military to improve satellite communication to defend against attacks. The DoD is currently spending a lot of money to prepare for war in space. Kratos owns and operates a global satellite demonitoring business with revenues rising 61% in Q1.

Kratos expects to build $30 to $40 million in unmanned target drones for the Navy in the 2017 budget. That is per batch of BQM-177 drones and there is the potential for multiple batches.

Kratos has so many new programs in operation it would be impossible to list them here and several of them are secret programs for unnamed clients.

Kratos guided for a return to profitability in Q2 and sharply rising revenue for the full year. Shares spiked 30% in the four weeks after Q1 earnings. Their next report is August 3rd. I am recommending we buy an option and hold over the report. If the earnings are as positive as they teased in the Q1 report we could see another sharp reaction. This company is in all the right places for the increase in defense depart spending.

I am not recommending a stock position given the sharp gains already.

Position 5/30/17:

Long August $12.50 call @ 59 cents, see portfolio graphic for stop loss.



STM - STMicroelectronics - Company Profile

Comments:

No specific news.

Original Trade Description: May 6th.

STMicroelectronics N.V., together with its subsidiaries, designs, develops, manufactures, and markets semiconductor products, and subsystems and modules worldwide. The company offers a range of products, including discrete and standard commodity components, application-specific integrated circuits, full-custom devices and semi-custom devices, and application-specific standard products for analog, digital, and mixed-signal applications, as well as silicon chips and smartcards. It also provides subsystems and modules, including mobile phone accessories, battery chargers, and ISDN power supplies for the telecommunications, automotive, and industrial markets; and in-vehicle equipment for electronic toll payment. The company sells its products through its distributors and retailers, as well as through sales representatives. Company description from FinViz.com.

STM is Europe's third largest semiconductor maker. They posted a surge in revenue growth after six years of declines thanks to IoT, phones, automotive and industrial demand. Revenue is expected to grow 12.3% in Q2 and the company said it was on track to meet 2017 objectives. The CEO said, "Entering the second quarter, we continue to see healthy demand, with strong booking trends across all our product groups and regions."

They reported revenue of $1.821 billion that rose 12.9% and matched analyst estimates. Earnings of 12 cents missed estimates for 14 cents. The company said it would webcast its Capital Markets Day on Thursday.

Earnings July 27th.

Shares closed at a new high on Friday and the turnaround excitement is building. A positive analyst day on Thursday could send it higher. Shares rallied from November through February and then went dormant in Mar/Apr. Now that the consolidation is complete, they are surging again.

Position 5/08/17: Long July $17.50 call @ 65 cents, no initial stop loss.

Position 5/18/17: Long STM shares @ $16.25, see portfolio graphic for stop loss.

Previously closed 5/17/17: Long STM shares @ $16.34, exit $16.25, -0.09 loss.



WTW - Weight Watchers - Company Profile

Comments:

No specific news.

Original Trade Description: May 13th.

Weight Watchers International, Inc. provides weight management services worldwide. The company operates in four segments: North America, United Kingdom, Continental Europe, and Other. It offers a range of products and services comprising nutritional, activity, behavioral, and lifestyle tools and approaches. The company also engages in the meetings business, which presents weight management programs, as well as allows members to support each other by sharing their experiences with other people experiencing similar weight management challenges. In addition, it offers various digital subscription products, including Weight Watchers OnlinePlus and a weight management companion for Weight Watchers meeting members to digitally manage the day-to-day aspects of their weight management plan, as well as provides interactive and personalized resources that allow users to follow weight management plan. Further, the company provides Personal Coaching, an online subscription product that offers one-on-one telephonic, e-mail, and text support and personalized planning from a Weight Watchers-certified coach, as well as offers access to other online tools. Additionally it offers various products, including bars, snacks, cookbooks, food, and restaurant guides with SmartPoints values, Weight Watchers magazines, SmartPoints calculators, and fitness kits, as well as third-party products, such as activity-tracking monitors. The company also licenses the Weight Watchers brand and other intellectual property in frozen foods, baked goods, and other consumer products, as well as endorses selected branded consumer products; and engages in publishing magazines, as well issues other publications, such as cookbooks, and food and restaurant guides with SmartPoints values. It offers products through its meeting and franchisee business, as well as online. Weight Watchers International, Inc. was founded in 1961. Company description from FinViz.com.

Weight Watchers posted a Q1 profit of 16 cents compared to estimates for a 4-cent loss. Revenue of $329.1 million rose 7.2% and beat estimates for $323 million.

Subscribers rose 16% to 3.6 million. Subscribers have now risen for 5 straight quarters. This is the first time since 2011 that they gained subscribers for a full year. The company raised guidance for the full year to $1.40-$1.50. Analysts were expecting $1.27. They said they were off to a strong start thanks to the Oprah Effect. The TV personality joined the brand late in 2016.

Earnings August 1st.

The stock has been a rocket since Oprah began pitching for the brand but it is showing no signs of fading. The post earnings spike to $25 saw some post earnings depression but shares are already moving back to that post earnings level. I believe female investors are betting on the Oprah Effect to continue driving profits. Even at this level the stock is not overly expensive with a PE of 17.

I am recommending it because it has refused to decline in a weak market. The risk is less with the option position.

Position 5/15/17:

Long WTW shares @ $24.48, see portfolio graphic for stop loss.
Alternate: Long July $26 call @ 90 cents, see portfolio graphic for stop loss.




BEARISH Play Updates

CAR - Avis Budget Group - Company Profile

Comments:

No specific news. Shares rebounded slightly in a down market after a sharp drop at the open.

Original Trade Description: June 5th.

Avis Budget Group, Inc., together with its subsidiaries, provides car and truck rentals, car sharing, and ancillary services to businesses and consumers worldwide. The company operates through two segments, Americas and International. It operates the Avis brand car rental system with approximately 5,550 locations that supply rental cars to the premium commercial and leisure segments of the travel industry; the Budget brand vehicle rental system with approximately 4,050 car rental locations, which serve the value-conscious segments of the industry; and the Zipcar brand, a membership-based car sharing network that provides vehicles to approximately 1 million members. The company also operates the Payless brand, which comprises approximately 240 vehicle rental locations; the Apex brand primarily in the deep-value segment of the car rental industry with approximately 25 rental locations in New Zealand and Australia; and the Maggiore brand that provides vehicle rental services in the commercial, leisure, and insurance replacement/leasing segments with approximately 130 rental locations in Italy, as well as the France Cars brand, which offers light commercial vehicle fleets with approximately 60 rental locations in France. In addition, it is involved in the local and one-way truck rental businesses with a fleet of approximately 22,000 vehicles, which are rented through a network of approximately 1,000 dealers and 480 company-operated locations that serve the consumer and light commercial sectors in the continental United States. Further, it offers optional insurance products and coverages, such as supplemental liability, personal accident, personal effects protection, emergency sickness protection, automobile towing protection, and cargo insurance products. The company was formerly known as Cendant Corporation and changed its name to Avis Budget Group, Inc. in September 2006. Avis Budget Group, Inc. was founded in 1946. Company description from FinViz.com.

Avis has been in existence for more than 70 years. Who would have thought 70 years ago that you could someday pull a phone out of your pocket and have a Uber or Lyft at your location within minutes?

The rental car business is changing and within another 5 years, there may not be a driver in that car that picks you up. The business model for car rental companies is dying.

Adding to their woes are the falling prices for used cars and the changing mix of vehicles in the rental fleets. Hertz, Avis, Budget and Payless have been moving towards smaller and cheaper cars with better gas mileage but customers are demanding more SUVs to pack in all their family and luggage. This is also related to the Uber trend. Single travelers are more than likely to hail an Uber but families are more likely to rent a car. Because of this the mix of models in the fleets are suddenly all wrong. The companies do not want to invest in an SUV fleet since those models can cost more than twice as much as the smaller passenger cars. When you are buying cars by the thousands, this price difference is material.

In their recent earnings Avis reported a loss of 94 cents compared to estimates for a loss of 51 cents and a loss of only 28 cents in the year ago quarter. Revenues of $1.839 billion missed estimates for $1.854 billion and declined due to higher fleet costs and pricing pressures.

Earnings August 2nd.

Hertz reported a similar earnings disaster.

The sector is in decline and it is not likely to recover soon.

Shares closed at a multiyear low on Monday.

Position 6/6/17:

Short CAR shares @ $21.31, see portfolio graphic for stop loss.

Alternate position: Long July $20 put @ $1.18, see portfolio graphic for stop loss.



ERA - Era Group - Company Profile

Comments:

No specific news. Intraday bounce finally stopped us out for a decent gain.

Original Trade Description: May 8th.

Era Group Inc. provides helicopter transportation services primarily to the oil and gas exploration, development, and production companies. Its helicopter services include emergency response search and rescue; air medical services; Alaska flightseeing tours; and other services, as well as utility services to support firefighting, mining, VIP transport, power line, and pipeline survey activities. The company also leases helicopters to third parties and foreign affiliates; engineers, manufactures, and distributes after-market helicopter parts and accessories; and provides classroom instruction, flight simulator, and other training services. As of December 31, 2016, the company owned, leased, or managed a total of 136 helicopters, including 13 heavy helicopters, 49 medium helicopters, 33 light twin engine helicopters, and 41 light single engine helicopters. It also serves cruise line passengers. Company description from FinViz.com.

Era reported a loss of 27 cents on revenue of $54.5 million. This was the second quarterly revenue decline but revenues have been weakening for the last two years. The last quarter they posted positive earnings was June 2016 and the losses are growing. In this table from Capital Cube all the numbers look terrible.

Earnings August 1st.

I am frustrated because I almost recommended them in the weekend newsletter. I decided to wait until support broke at $11.50. That support failed today with a big drop. I believe the shares are going to retest the November lows at $7.50. After looking at that table above would you buy this stock?

Position 5/9/17:

Closed 6/6/17: Short ERA shares @ $10.69, exit $8.95, +$1.74 gain.



FOSL - Fossil Group - Company Profile

Comments:

No specific news. Shares are holding at that 14-yr low.

Original Trade Description: May 25th.

Fossil Group, Inc., together with its subsidiaries, designs, develops, markets, and distributes consumer fashion accessories. The company's principal products include a line of men's and women's fashion watches and jewelry, handbags, small leather goods, belts, sunglasses, and soft accessories. It offers its products under its proprietary brands, such as FOSSIL, MICHELE, MISFIT, RELIC, SKAGEN, and ZODIAC, as well as under the licensed brands, including ADIDAS, ARMANI EXCHANGE, BURBERRY, CHAPS, DIESEL, DKNY, EMPORIO ARMANI, KARL LAGERFELD, KATE SPADE NEW YORK, MARC JACOBS, MICHAEL KORS, and TORY BURCH. The company sells its products through department stores, specialty retail stores, specialty watch and jewelry stores, mass market stores, e-commerce sites, licensed and franchised FOSSIL retail stores, and retail concessions, as well as sells its products on airlines and cruise ships. As of December 31, 2016, it owned and operated 94 retail stores and 129 outlet stores located in the United States, as well as 230 retail stores and 132 outlet stores internationally. Company description from FinViz.com.

Fossil reported an adjusted loss of 35 cents compared to estimates for a loss of 21 cents. Revenue of $581.8 million missed estimates for $596.5 million. For Q2 they guided for a loss of 23 to 40 cents.

Analyst expectations for Q2 have declined from a loss of 6 cents to a loss of 25 cents and has declined three times in the last couple of weeks. For the full year analysts are now expecting earnings of 90 cents, down from $1.11 a month ago.

Earnings August 8th.

Fossil is struggling despite the decent revenue. Costs and marketing are too high and they are losing market share to the rapidly expanding number of brands.

Shares closed at an 8-year low on Thursday and under $11.30 would be a 14 year low. I believe Fossil is going to single digits with $6 the likely target.

Position 5/26/17:

Short FOSL shares @ $11.78, see portfolio graphic for stop loss.

Alternate position:
Long July $11 put @ 55 cents, see portfolio graphic for stop loss.



SNCR - Synchronos Technologies - Company Profile

Comments:

No specific news. Moving back towards the lows.

Original Trade Description: June 1st.

Synchronoss Technologies, Inc. provides cloud solutions and software-based activation for connected devices worldwide. The company's products and services include cloud-based sync, backup, storage and content engagement capabilities, broadband connectivity solutions, analytics, white label messaging, and identity/access management that enable communications service providers, cable operators/multi-services operators, original equipment manufacturers with embedded connectivity, and multi-channel retailers, as well as other customers to accelerate and monetize value-add services for secure and broadband networks and connected devices. It also provides Synchronoss Enterprise solutions, such as secure mobility management, data and analytics, and identity and access management solutions for the financial, telecommunications, healthcare, life sciences, and government sectors; and Synchronoss Personal Cloud platform that delivers an operator-branded experience for subscribers to backup, restore, synchronize, and share their personal content across smartphones, tablets, computers, and other connected devices. In addition, the company offers software as a service for the organizations to securely manage, control, track, search, exchange, and collaborate on sensitive information inside and outside the firewall. Its products and platforms are designed to enable multiple converged communication services to manage across a range of distribution channels, such as e-commerce, m-commerce, telesales, customer stores, indirect, and other retail outlets. The company markets and sells its services through direct sales force and strategic partners. Synchronoss Technologies, Inc. was founded in 2000 and is headquartered in Bridgewater, New Jersey. Company description from FinViz.com.

SNCR was supposed to report earnings on May 9th. Instead, on April 27th they announced that the new CEO and CFO were leaving unexpectedly after only a few months on the job. The prior CEO and founder and the prior CFO would return to help get the company through some rough times.

The company also announced that expected revenue for Q1 would be $13-$14 million less than prior guidance. Operating margins of 8% to 10% would also be less than prior guidance. Earnings will be on May 9th and everything will be explained on the call.

On May 8th the company announced it was rescheduling the earnings date for May 15th.

On May 15th, they announced they would not be releasing earnings and they had no projected date. Apparently, the founder and CEO for 17 years along with his partner the prior CFO were having problems reconciling some items and the auditor Ernst & Young was "suggesting" additional reviews of critical accounting procedures.

This is just speculation but when a new CEO and CFO suddenly depart after only a few months, it may have been because they uncovered a hornets' nest of problems and determined they did not want to be associated with the company. We will never know if that is correct or not. However, when the prior CEO for 17 yrs and CFO for 13 yrs, cannot immediately reconcile the books after only being away for a few months, that suggests additional problems. These are the kinds of things that get auditors really interested and they start poking into things they glossed over before.

On May 22nd, the company received the warning of impending delisting by the Nasdaq. This is a boilerplate type event triggered by the failure to file and they have until November to correct the problem, but itis just one more thing on their plate.

Shares had already been falling since the weak earnings in January. They closed around $25 before the first announcement broke. They declined to $11 then rebounded to $19 on the hope that the prior CEO/CFO would quickly get the company back on track. Now the stock is back at 7 year lows and the bad news just keeps piling up.

If they had a projected earnings date, I would feel better about their recovery. We are now nearly a month late on the financials and no news is flowing. SNCR could be headed a lot lower because the eventual news could be bad. Rarely do earnings delays result in positive news.

This has to be a stock only play because the options are too expensive.

Position 6/2/17:

Short SNCR shares @ $12.64, see portfolio graphic for stop loss.



VXX - Volatility Index Futures - ETF Description

Comments:

Minor rebound due to the weak market.

We are nearing the point where the ETF will do a 1:4 reverse split. That will be an excellent opportunity for us to get short again at a higher level.

Barron's is reporting current short interest at 59 million shares out of 66 million outstanding.

Original Trade Description: April 12th.

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.

The VXX has rebounded $3 over the last week as the volatility returned. The VIX traded over 16 today and could hit 18 if there are any geopolitical events over the Easter weekend.

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 market 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 know from experience that the VXX always declines. The last time we shorted this ETF we had a $7.23 gain.

Position 4/13/17:

Short the VXX @ $17.98, no stop loss because it always declines eventually.





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