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Newsletter

Daily Newsletter, Saturday, 6/17/2017

Table of Contents

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

Market Wrap

A Doji Day To Finish A Doji Week

by Keene Little

Click here to email Keene Little
Other than the Dow's continued relative strength, the rest of the market spent the week chopping sideways in a small trading range. Friday was no different as an initial morning decline was followed by a slow push back up. There are multiple reasons for each side to believe they'll be winners in the coming week.

Week's Market Stats

Friday's Market Stats

The Dow continues to shine to the upside, with new daily all-time highs and a 4-week winning streak, while the techs continue to struggle to hold onto strong gains before the June 9th selloff. The result is a fractured market, which is not a healthy sign, as money rotates from higher-risk stocks into the relative safety of the blue chips.

Not helping the market on Friday were the latest housing reports, which showed both housing starts and permits declining more than expected. Housing starts dropped to 1092K in May, a drop from 1156K (revised lower from 1172K) in April and much lower than the 1227K that had been expected. Likewise, permits dropped to 1168K from 1228K and less than the 1250K expected.

The chart below shows housing starts and permits from May 2001 through May 2017 and then the bar graph at the bottom shows housing starts over the past two years. The decline in housing starts from the highs in 2005-2006 (roughly 2100K) to the low in 2009 (roughly 500K) was a 1600K decline. The "bounce" off the 2009 low to a high of about 1300K last October was a 50% retracement of the decline and there are reasons to be concerned that the rollover from last October could continue.

While the decline so far in housing starts is hardly a significant rollover, the threat is there. A drop in the housing numbers would be another indication that the economy is slowing and more importantly that the housing market has once again become unaffordable to more people. There's plenty of data to show that while employment numbers look good (the data the Fed uses), it's the quality of that employment that is not so good. Losing a $100K job and replacing it with a $50K job keeps the employment data looking good but it's just one more person who can't afford to buy a home.

We're also seeing more evidence of a slowdown in consumer spending, which is likely a sign that people have reached their spending/credit limits. Consumer debt is now higher than it was prior to 2007 (as is corporate and government debt) and with average incomes in decline it doesn't take a math genius to figure out we have a problem. Loan default rates are on the rise, especially auto and student loans, and the amount of debt is staggering.

Banks are not prepared (again) for high default rates and investors are not taking into account (again) the rising risks in the financial industry. But I suppose we don't have to worry about the poor banks since they'll simply be bailed out of trouble (again). This time though it will be through bail-ins, not bail-outs. Instead of increasing their reserve accounts for bad debts, banks have been doing the opposite and all with the Fed's blessing. How quickly we forget.

The stock market is showing signs of fatigue but other than the cracks in the higher-beta stocks (techs and small caps) we're not seeing any evidence yet that the market is ready to turn down. There are reasons to believe we're close to a reversal, which I'll show, but sticking with the trend (up) has been the winning trade. Picking tops might be fun (in a masochistic way) but catching rising (or falling) knives is a risky endeavor. Trend following has been the key to investor success but as traders we also would like to avoid the big swings that go against our positions (whether long or short).

I'll start off the weekend review with the Dow since it's been the stronger index and where it could be headed and potentially run into trouble should help guide us in watching the broader market.


Dow Industrials, INDU, Weekly chart

The wave count shown on the Dow's weekly chart interprets the leg up from March as the 5th wave of the rally from January 2016 and as such will be the conclusion to the rally. What kind of correction/decline will follow is subject to lots of debate but for now I think it's important to recognize that we're due for at least a large pullback correction. The larger wave count for the rally from 2009 can also be interpreted as complete once this 5th wave completes, in which case the pullback/decline will be even larger (at a minimum, back to the January 2016 low near 15,500 (-28%).

While staying aware that the pattern can be considered complete at any time, which makes downside risk much greater than upside potential, there is additional upside potential to watch for. The trend line along the highs from May 2011 - December 2014 is currently near 21600 and if the melt-up in the Dow continues for another couple of months we could see it make it up to the top of is up-channel from 2016, which will be near 22,300 by the end of July.


Dow Industrials, INDU, Daily chart

The daily chart of the Dow shows the upside potential to the trend line along the highs from May 2011 - December 2014 and a price projection near the same. For the 3-wave move up from March 27th, the 2nd leg up would be 162% of the 1st leg at 21,618 and that projection crosses the trend line June 23rd, which is this coming Friday. That's another 234 points (+1.1%) and easily doable the way the Dow has been acting lately. It'll be an interesting setup if and when that level is reached. But there could be trouble sooner if the little rising wedge for the rally from May 18th has anything to say about it (shown better on the 60-min chart further below).

Key Levels for DOW:
- bullish above 21,450
- bearish below 21,159


Dow Industrials, INDU, 60-min chart

The rising wedge pattern for the rally from May 18th is shown clearly on the 60-min chart. This pattern calls the leg up from June 9th the final 5th wave to complete the short-, intermediate- and long-term wave counts and is a reason to be very cautious about the long side. While there's upside potential to the at least the 21,600 area, this chart says bulls could soon be in trouble.

Bulls will be in better shape with a rally above 21,440 to bust out of the bearish rising wedge (which has confirming bearish divergence at new highs). Keep in mind that rising (and descending) wedges tend to get retraced a lot faster than it took to build them and this one could break at any time. Keep a close eye on this pattern since we could find out early in the week how the rest of the week is likely to go.


S&P 500, SPX, Daily chart

The choppy price action since June 2nd for SPX leaves a question mark as to how it's going to resolve. The bullish interpretation is that it's a sideways consolidation and that's a bullish continuation pattern following the rally. We could see price chop sideways a little longer (maybe midweek) to complete a sideways triangle pattern and then launch into another rally leg. For now I'd use a break above the June 9th high and low, near 2446 and 2416, as the direction to trade. Be more careful about the upside though since I believe we're in an ending pattern and a swift breakdown, like we saw in the techs, is likely close at hand.

Key Levels for SPX:
- bullish above 2447
- bearish below 2415


Nasdaq-100, NDX, Daily chart

Following the breakdown in the techs on June 9th we've seen the tech indexes consolidate but nothing more bullish than that (so far). NDX did a back-test of its broken 20-dma on Tuesday/Wednesday but then gapped back down on Thursday. It tested its 50-dma Thursday morning, which has held as support, but was not able to close the week back above its uptrend line from December 2016 - April 2017, currently near 5702.

However, the trend line break is based on using the log price scale, which is my preference for trend lines. Using the arithmetic price scale, the line is near 5668 and it held as support on Friday. So it's a toss-up as to whether or not the trend line is broken. Short term, I'd use a break above Wednesday's high, near 5774, or below Thursday's low, near 5634 (which would also be below the 50-dma), for the direction of the trade (again, staying cautious about the upside since we could get just a higher bounce before turning back down).

Key Levels for NDX:
- bullish above 5775
- bearish below 5634


Russell-2000, RUT, Daily chart

Following the June 9th test of its trend line along the highs from 2007-2015, its 3rd test in 3 months, the RUT has pulled back sharply. But it's still above its 20- and 50-dma's, now near 1398 and 1390, and it wouldn't surprise me to see another test of the 2007-2015 trend line (if only because the bulls have been very stubborn about buying the dips).

The overall whippy price pattern since last December makes it very difficult to figure out where the RUT is going. But a slowly rising choppy pattern is generally an ending pattern and that's how I'm interpreting the RUT's (a shallow rising wedge off the January low). That makes the June 9th test of the 2007-2015 trend line potentially the final one.

Key Levels for RUT:
- bullish above 1437
- bearish below 1386

This past week we received some inflation reports that showed inflation is slowing, much to the consternation of the Fed. They think it's a temporary thing (either that or they're just saying it so that they can continue on their rate-increase path) but I'm surprised they don't understand the fundamental reasons why they're fighting a deflationary cycle (demographics -- aging population and a slowing population growth -- technology and slowing velocity of money, to name just a few). They have been fighting hard to increase inflation with their massive money printing scheme and while they've won a few battles they're losing the war.

I'm sure the slowdown we've seen since inflation peaked in 1981 will continue into a true deflationary period. We have been brainwashed to believe deflation is a bad thing and it is for borrowers (think government) but one of the results is it makes our companies and economy more efficient since they can't hide behind poor performance. We of course will benefit from lower prices for most things. Poor and poorly run companies and governments will be the ones who get hurt. And banks too, which is of course the real reason the Fed keeps pushing for higher inflation. The chart below is a good thing.

U.S. inflation rate, 1915-May 2017, chart courtesy tradingeconomics.com


30-year Yield, TYX, Daily chart

The bond market has also been sniffing out lower inflation one of the better indicators is the long bond, the 30-year (TYX). Investors are not going to want to own the 30-year bond if inflation is climbing. They'll want higher yields (lower prices) in order to compensate them for the risk. The bond market is one of the smarter markets (unlike the stock market, which is driven more by emotion) and right now it's telling us inflation is less of a concern than it was at the end of 2016.

TYX had found support at price-level S/R at 2.85% in April but recently broke support at the beginning of June, back-tested it this week and then dropped lower. Currently it's testing an uptrend line from July-September 2016 but I don't think that will hold. We should see rates continue lower despite what the Fed is trying to do. They might increase the shorter-term yields but that will only flatten the yield curve, which is a sign that a recession is coming. Damned if they do, damned if they don't -- that's the corner they successfully painted themselves into.


DJ US Home Builders index, DJUSHB Weekly chart

If interest rates do head back down it will at least help the home builders since it would make their houses more affordable. But at the moment the home builders stocks look like they could be in trouble. The weekly chart of the index shows a bearish setup that can only be negated with a rally above Wednesday's high at 698.

There's a little rising wedge pattern off the April low and the top of the wedge is along the top of a parallel up-channel for the 3-wave rally from February 2016. Wednesday's high was a quick throw-over above the top of the wedge and the subsequent drop back into the wedge creates the first sell signal. The second signal would be a break below the wedge, the bottom of this is currently near 665.

In addition to the wedge and the top of the parallel up-channel, as well as the bearish divergence against the March high, the reversal comes after reaching the 127% extension of the previous decline (August 2015 - February 2016), which is a common reversal Fibonacci extension. Interestingly, the home builders index has retraced a little more than 50% of its 2005-2008 decline, about the same as the recovery in the housing starts (first chart above). It's only a preliminary signal but it's looking like we might have seen the top for this index.


U.S. Dollar contract, DX, Daily chart

The US$ has been chopping sideways for about a month and it's looking like a bearish continuation pattern. I have a downside target for the dollar around 95 before setting up either a larger consolidation or a stronger rally. If the dollar gets back above its May 8th low at 98.35, which would also be above its descending 50-dma and downtrend line from April-May, I'd then start thinking more bullishly about the dollar but not yet.


Gold continuous contract, GC, Daily chart

While the dollar looks like it will continue lower it doesn't look like it will help gold, which also looks like it will continue lower. There should be solid support at its uptrend line from December-May, especially since it coincides with its 200-dma at 1242.60. That could launch another rally in it choppy move up from last December but at the moment I'm thinking we've seen the high for the bounce in gold. A little bounce off support and then a continuation lower is what I think we'll see for gold. Price action will be the only thing that tells me when to change my mind.


Oil continuous contract, CL, Daily chart

Oil is struggling to hold onto its uptrend line from August 2016 - May 2017, currently near 44.65. Thursday it broke slightly below the line and then Friday about 3 cents above the line. A break of a steep downtrend line, currently near 45.50, would be a bullish heads up that support is going to hold. A drop below Thursday's low at 44.22 would confirm support is not going to hold.


Economic reports

The coming week will be short on economic reports, one of which will be existing home sales Tuesday morning. New home sales will be reported on Friday.


Conclusion

This coming week will likely provide direction for the rest of the month. The SPX pattern, which I consider a good proxy for the broader market, has either a very bearish pattern, one which will break down hard in the coming days, or it's going to chop sideways for another couple three days and then launch higher. So a breakdown on Monday or Tuesday would be bearish for the week and the rest of the month while a sideways consolidation on Monday/Tuesday would likely be bullish into the end of the week and month.

Helping the bears, slightly, is then a short-term bearish pattern for the Dow with its rising wedge pattern off the May 18th low. This suggests maybe a little higher (less than 100 points) and then a strong move down. So again, we should find out early in the week which direction this market will likely head in the coming week and into the end of the month. In the meantime, mind the chop.

Good luck and I'll be back with you next Wednesday. See below for a good deal on an OIN subscription.

Keene H. Little, CMT


 

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New Plays

Successful Cancer Screen

by Jim Brown

Click here to email Jim Brown
Editor's Note

Cancer is a big killer and quality of life destroyer. A new test has proven remarkably effective in detecting it early. Myraid Genetics is the maker of this test.



NEW BULLISH Plays

MYGN - Myriad Genetics - Company Profile

Myriad Genetics, Inc., a personalized medicine company, focuses on the development and marketing of predictive, personalized, and prognostic medicine tests worldwide. It operates through two segments, Diagnostics and Other. The Diagnostics segment primarily provides testing and collaborative development of testing that is designed to assess an individual's risk for developing disease; identify a patient's likelihood of responding to drug therapy; guide a patient's dosing to ensure optimal treatment; and assess a patient's risk of disease progression and disease recurrence. The Other segment provides testing products and services to the pharmaceutical, biotechnology, and medical research industries; and research and development, and clinical services for patients. Its molecular diagnostic DNA sequencing tests include myRisk Hereditary cancer, a test for hereditary cancers; BRACAnalysis and BART, which are tests for hereditary breast and ovarian cancers; BRACAnalysis CDx test for use in identifying ovarian cancer patients with suspected deleterious germline; and Tumor BRACAnalysis CDx test that is used to predict DNA damaging agents, such as platinum based chemotherapy agents and poly ADP ribose inhibitors. The company also provides COLARIS test for colorectal and uterine cancers; COLARIS AP test for colorectal cancer; Vectra DA protein detection test for assessing the disease activity of rheumatoid arthritis; Prolaris, a RNA expression test for prostate cancer; EndoPredict RNA expression test for breast cancer; myPath Melanoma RNA expression test for diagnosing melanoma; myChoice homologous recombination deficiency (HRD) test to measure three modes of HRD; and myPlan lung cancer, an RNA expression test for lung cancer. Myriad Genetics, Inc. has collaboration with AstraZeneca for the development of an indication for BRACAnalysis CDx. Company description from FinViz.com.

In early June Myriad announced that EndoPredict, the novel new breast cancer test, had been approved for reimbursement by nearly all the medical plans in the USA. As of July 1st, public plans representing more than 35 million covered lives will join the private plans representing more than 109 million covered lives will have positive coverage of EndoPredict.

Medicare and Medicaid have posted a positive draft local coverage determination (LCD) for EndoPredict. If this LCD is approved as expected it would bring plan coverage to more than 75% of breast cancer patients in the USA. The ramp to coverage has been extremely fast as a result of the positive test results that showed EndoPredict "markedly outperformed prior generations of accepted tests" for breast cancer diagnosis.

Myriad has other breast cancer tests in the pipeline and in late stage trials. The company is rapidly becoming a powerhouse in the breast cancer field.

Earnings are already starting to rise as a result. In the Q1 update, they reported earnings of 27 cents that beat estimates for 24 cents. Revenue of $196.9 million beat estimates for $188.9 million. They guided for the current quarter to earnings of 26-28 cents and revenue of $192-$194 million. For the full year, they guided for $1.01-$1.03 and revenue of $763-$765 million.

Estimates earnings August 1st.

Buy MYGN shares, currently $23.88, initial stop loss $22.25
Alternate position: Buy Aug $25 call, currently $1.30, initial stop loss $22.25.


Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 at the market open.


NEW BEARISH Plays

No New Bearish Plays



In Play Updates and Reviews

Bring Back the Leaders

by Jim Brown

Click here to email Jim Brown

Editors Note:

Without the FAANG stocks leading the market higher we have seen three days of choppy trading. The market is not moving lower but only the Dow is moving higher. The Nasdaq and Russell are retracing their gains and the Nasdaq is in danger of making a lower low below 6,100.

That level held twice in June at 6,110 and 6,107 and a close below 6,100 could setup a new decline to 6,000. The big cap tech stocks are choppy with alternating gains and declines. We need some consecutive gains, even if they are small, in order to rebuild market sentiment. Without any leaders, traders do not know which direction to play.





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.


Portfolio snapshot as of 3:30

Lottery Ticket Plays - Updated only on Weekends


Current Position Changes


ETSY - Etsy Inc
The long lottery position was closed at the open on Monday.



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Short term Calls and Puts on equities = Option Investor Newsletter

Credit spreads and naked puts = OptionWriter

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3-6 month Option Trades = Ultimate Investor

Iron Condors = Couch Potato Trader



BULLISH Play Updates

KTOS - Kratos Defense - Company Profile

Comments:

No specific news. With the Paris air show next week the shares could see a lift from their presentations.

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.

Update 6/13/17: Kratos said it was going to unveil its newest high performance class of military unmanned aerial system technology at the Paris Air Show next week. The XQ-222 Valkyrie and UTAP-22 Mako drones provide fighter like performance and are designed to function as wingmen to manned aircraft in contested airspace. The Valkyrie can carry various weapons and intelligence systems and has a range of 3,000 miles. The Mako is designed to carry sensors and stealthily infiltrate hostile airspace to gather intelligence. Both are designed to operate with or without manned flights. The Air Force recently pitched the functions of the Valkyrie saying a F-35 with a group of fighter/bomber drones could maximize control of airspace and ground attack operations. The F-35 can select targets and pass information to specific drones while maintaining situational awareness from a stealthy and relatively safe position.

Position 5/30/17:

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



WTW - Weight Watchers - Company Profile

Comments:

No specific news. Only a minor decline from the news high.

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.



YRCW - YRC Worldwide - Company Profile

Comments:

No specific news. Shares are holding over support at $10.25.

Original Trade Description: June 13th.

YRC Worldwide Inc., through its subsidiaries, provides various transportation services primarily in North America. Its YRC Freight segment offers various services to transport industrial, commercial, and retail goods; and provides specialized services, including guaranteed expedited services, time-specific deliveries, cross-border services, coast-to-coast air delivery, product returns, temperature-sensitive shipment protection, and government material shipments. It serves manufacturing, wholesale, retail, and government customers. As of December 31, 2016, this segment had a fleet of approximately 7,700 tractors comprising 6,200 owned and 1,500 leased; and 31,000 trailers consisting of 24,900 owned and 6,100 leased. The company's Regional Transportation segment provides regional delivery services, which include next-day local area delivery and second-day services, consolidation/distribution services, protect-from-freezing and hazardous materials handling, truck loading, and other specialized offerings; guaranteed and expedited delivery services that consist of day-definite, hour-definite, and time definite capabilities; interregional delivery services; and cross-border delivery services, as well as operates hollandregional.com, reddawayregional.com, and newpenn.com, which are e-commerce Websites offering online resources to manage transportation activities. This segment had a fleet of approximately 6,600 tractors, including 5,000 owned and 1,600 leased; and 13,500 trailers comprising 10,800 owned and 2,700 leased. The company was formerly known as Yellow Roadway Corporation and changed its name to YRC Worldwide Inc. in January 2006. YRC Worldwide Inc. was founded in 1924 and is headquartered in Overland Park, Kansas. Company description from FinViz.com.

For the 4th time in 7 years, Walmart selected YRC Freight as the National LTL Carrier of the Year. YRCW delivers to Walmart stores, Sams Club facilities and distribution centers all across North America. Walmart said the extensive YRCW network offers significant coverage to Walmart and their suppliers.

The company reported a loss of 70 cents for Q1 compared to estimates for 27 cents. Revenue of $1.17 billion did beat estimates for $1.14 billion. Shares imploded on the earnings miss and fell from $10.69 to $7.36.

Next estimates earnings August 3rd.

The company announced a restructuring plan to reduce management headcount and "de-layer" operational overhead. They announced several initiatives to reduce costs.

Last week they released metrics for the last two months. In April, freight tonnage per day rose 6.2% with May tonnage rising 3.3% over year ago levels. Regional tonnage increased 1.4% in April and 5.5% in May.

The business is growing and a reduction in costs will be positive. Investors seem to like the news with a rebound to pre-earnings levels. Resistance is $11.25 and a breakout there could easily run to $14.00 if the story and the market remains positive.

Position 6/14/17:

Long YRCW shares @ 10.70, see portfolio graphic for stop loss.
Alternate position: Long July $11 call @ 55 cents, see portfolio graphic for stop loss.




BEARISH Play Updates

FOSL - Fossil Group - Company Profile

Comments:

No specific news. New 16-year 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.

Update 6/13/17: Shares crashed on news the CEO sold 520,000 shares last week and 1.074 million shares on May 30th. A Macquarie research note also said that 3.8 million shares were pledged as security for a note of around $75 million and they could be sold at any time. With FOSL shares at $11 the pledge was already in the red by $30 million. At today's close at $10 that value dropped by another $3.8 million. The CEO only has 4.426 million shares after his sales last week and with 3.8 million pledged, that leaves him with roughly 600,000. It appears the CEO is bailing on his holdings and that is never good for the stock price. If the price declines further he may be forced to sell his remaining 600,000 shares to make up the shortfall on the pledged shares. Shares are now at 16-yr lows.

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.



SNAP - Snap Inc - Company Profile

Comments:

No specific news. Shares dipped to their IPO price of $17 on Thursday and somebody appeared to support the stock at that level in order to keep it from being a broken IPO. They may need some deep pockets to protect it from further declines since there is a month to go before the lockup expiration.

Original Trade Description: June 10th.

Snap Inc. operates as a camera company. It offers Snapchat, a camera application that helps people to communicate through short videos and images. The company also provides a suite of content tools for partners to build, edit, and publish snaps and attachments based on editorial content; and Spectacles, which are sunglasses that capture video from a human perspective. The company was formerly known as Snapchat, Inc. and changed its name to Snap Inc. in September 2016. Snap Inc. was founded in 2010 and is headquartered in Venice, California. Company description from FinViz.com.

Snap went public on March 2nd, the day after the prior market highs. Excitement was high and the stock spiked to $29.44 the day after the IPO. Since then, Snap's optimistic future has dimmed considerably. Facebook copied almost every Snap feature in an effort to keep members from straying out of the Facebook fold. It was outright war and Snap lost.

They reported their first earnings as a public company on May 10th and missed estimates and provided weak guidance. Shares fell from $23 to $18. After a couple days of dead cat bounce rebound, they returned to $22 but that is when the trouble began. Nearly every day an analyst would cut their price target and rating.

Estimated earnings August 9th.

Citigroup, a previous backer of SnapChat (SNAP) has had a change of heart. On Friday, Citi downgraded the company from buy to neutral saying they are not sure when SNAP will turn profitable. They downgraded the 2018 earnings estimate from a loss of 42 cents to a loss of 46 cents. Citi said monetization was slower than previously expected because of a slower than expected rollout of new channels and opportunities. "Given issues with Android, summer seasonality, heightened competition and the nature of Snap's social network, we expect user growth to remain modest near term."

Nearly 70% of analysts have something other than a buy rating on SNAP.

The company is also facing a large lockup expiration in August. Currently SNAP has 404 million shares available to trade and on July 29th another 663 million Class A shares will be unlocked along with 281.1 million Class B shares and 215.9 million Class C shares. Those convert to Class A shares if the holders decide to sell them. Snap recently tried to get existing insider shareholders to commit to a one-year holding period but were unsuccessful. That suggests many are planning to dump shares when the lockup expires.

I am recommending a short on SNAP but I am not recommending an option. The August put premiums are too expensive.

Position 6/12/17:

Short SNAP shares @ $18.05, see portfolio graphic for stop loss.



SNCR - Synchronos Technologies - Company Profile

Comments:

No specific news. New 17-yr low close.

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.

Update 6/14/17: The company disclosed in a SEC filing that the audit committee had informed the board that financial statements for 2015 and 2016 would have to be restated. May earnings have already been postponed and the restatement could take months. Support broke and today was a 17 year closing low.

Position 6/2/17:

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



SYNT - Syntel Inc - Company Profile

Comments:

No specific news. Shares broke below support at the open but recovered slightly at the close.

Original Trade Description: June 7th.

Syntel, Inc. provides digital transformation, information technology (IT), and knowledge process outsourcing (KPO) services worldwide. The company operates through Banking and Financial Services; Healthcare and Life Sciences; Insurance; Manufacturing; and Retail, Logistics, and Telecom segments. It offers managed services, including software applications development, maintenance, and digital modernization testing, as well as IT infrastructure, cloud, and migration services. The company also provides a range of consulting and implementation services built around enterprise architecture; data warehousing and business intelligence; enterprise application integration; and SMAC technologies, including social media, Web and mobile applications, big data, analytics, and Internet of things. In addition, it offers KPO services that provide outsourced solutions for knowledge and business processes; and business intelligence, enterprise resource planning, and business and technology consulting services. The company offers its products to various companies in the banking and financial services, healthcare and life sciences, insurance, manufacturing, retail, logistics and telecom, and other industries. Syntel, Inc. was founded in 1980 and is headquartered in Troy, Michigan. Company description from FinViz.com.

Syntel has been around for a long time but there is far more competition today than just a decade ago. Cloud sourcing has overtaken outsourcing. Companies do not need to maintain their own server farms and services like SalesForce.com and Automatic Data can handle all the service issues of running a business.

Syntel reported earnings of 46 cents and analysts were expecting 44 cents. Those estimates had dropped from 51 cents over the prior four weeks. Revenue of $225.9 million beat estimates for $225.1 million.

The company guided for the full year for earnings of $1.57 to $1.77. Analysts were expecting $2.32 but had revised their estimates lower over the prior 4 weeks to $1.90. Syntel still missed the lowered targets.

Estimated earnings July 20th.

Shares are sinking fast and are very close to a new 7-year low at $16.35. There is very little buying activity.

Position 6/8/17:

Short SYNT shares @ $16.65, see portfolio graphic for stop loss.

Alternate position: Long August $15 put @ .43, no stop loss.



VXX - Volatility Index Futures - ETF Description

Comments:

Only 5 cents above a record low close.

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.




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.


ECA - Encana Corporation - Company Profile

Comments:

No specific news. Barely clinging to the support at $9 as oil prices dip lower.

Original Trade Description: March 13th

Encana Corporation, together with its subsidiaries, engages in the exploration, development, production, and marketing of natural gas, oil, and natural gas liquids in Canada and the United States. The company owns interests in various assets, such as the Montney in northern British Columbia and northwest Alberta; Duvernay in west central Alberta; and other upstream operations, including Wheatland in southern Alberta, Horn River in northeast British Columbia, and Deep Panuke located offshore Nova Scotia. It also holds interests in assets that comprise the Eagle Ford in south Texas; Permian in west Texas; San Juan in northwest New Mexico; Piceance in northwest Colorado; and Tuscaloosa Marine Shale in east Louisiana and west Mississippi. Company description from FinViz.com.

Encana reported earnings of 9 cents compared to estimates for 3 cents. Revenue of $822 million also beat estimates for $771.9 million. Production averages 237,100 Boepd. Drilling and completion costs declined by 30%. They reduced long term debt by $1.1 billion and net debt by 50%. They replaced 326% of production.

They currently have more than 10,000 premium drilling locations and expect to grow that number in 2017. Since December 31st, they have added more than 50 premium locations in the Eagle Ford alone. They ended 2016 with a whopping $5.3 billion in liquidity and cash of nearly $1 billion. They expect to spend $1.6 to $1.8 billion on capex in 2017 and grow liquids production by 35%. Capex will be funded by cash on hand. Proved reserves were 920 million barrels and 3P reserves were 2.372 billion barrels.

With the cash, production rates, reserves and drilling inventory listed above they are definitely an acquisition candidate with only a $10 billion market cap.

JP Morgan initiated coverage with an overweight rating and $16 price target.

Earnings July 27th.

Over the last couple of weeks an investor built up 7,000 July $11 calls at $1 each and 7,000 October $11 calls at $1.50 each. That is a $1.7 million investment in call options. I am suggesting we follow them in that trade as well as buy the stock. They may know something that is not public information or they just believe that the company is too good to pass up. With the drop in crude prices ECA has fallen to a 5-month low and is resting on the 200-day average.

Update 5/5/17: Encana reported earnings of 11 cents that beat estimates for 4 cents. Revenue of $1.297 billion also beat estimates for $789 million. Production declined 18% due to low prices and depletion. This was an excellent report from a beaten down energy stock.

Update 6/10/17: Encana agreed to sell its Piceance natural gas assets to Caerus Oil for $735 million. There are 3,100 operated wells that produce 240 million cubic feet of gas and 2,178 barrels of natural gas liquids every day.

Position 3/14/17:

Long October $11 call @ $1.40, no stop loss.

Previously closed 4/19/17: Long ECA shares @ $10.43, exit $11.15, +.72 gain.



ETSY - ETSY Inc - Company Profile

Comments:

We closed the June option position at the open on Monday to avoid expiration.

Original Trade Description: March 15th

Etsy, Inc. operates as a commerce platform to make, sell, and buy goods online and offline worldwide. Its platform includes its markets, services, and technology, which enables to engage a community of sellers and buyers. The company offers approximately 45 million items across approximately 50 retail categories to buyers. It also provides various seller services, including direct checkouts, promoted listings, and shipping labels, as well as Pattern by Etsy to create custom Websites; and seller tool and education resources to start, manage, and scale businesses to entrepreneurs primarily through Etsy.com. In addition, the company operates A Little Market, a handmade and supplies market for sellers and buyers. Company description from FinViz.com.

Etsy reported earnings of 3 cents that beat estimates for a penny. Revenue of $110.2 million also beat estimates for $106.9 million. Merchandise sold rose 16.7% to $865.2 million. The stock was crushed because the company guided for higher costs. However, there was a good reason and shares are starting to rise again.

Etsy is an ecommerce website where crafters can post and sell their wares. So far, so good. The company has come up with the great idea to sell craft supplies on the website so other existing crafters plus all the people shopping the website can buy their supplies there as well. Not only will the company provide supplies but they are adding tutorials and other craft ideas. That will make the site even more "sticky." This is scheduled to launch in April.

In addition, they introduced Google Shopping on the website and launched their first ever global brand campaign. They have changed the backend of the seller website to provide a new seller dashboard and new application called Shop Manager.

I think this expansion is a great idea. Where other retail websites are stagnant, Etsy is growing rapidly and these new features will increase viewers, buyers and sellers. The knee jerk decline in the stock price on the rise in expenses was a buying opportunity.

Update 4/22/17: On Friday the Australian Tax Office warned overseas sellers their websites would be blocked if they did not comply with the GST LVG tax laws in Australia. Ebay, Alibaba, Amazon, Etsy and others have complained they are not sellers. They merely match buyers and sellers for a commission. Ebay and Etsy do not collect the money so they cannot pay the tax. The tax only applies to vendors that sell $75,000 a year and therefore any forced collection could not be implemented until a vendor reached that level. It would be impossible to then go back and collect the tax from the vendor for the first $75,000 sold.

Shares were trading at an 8-week high on Thursday. Major sell off on Friday's news. The company said it would report earnings on May 2nd.

Update 5/5/17: Etsy reported a breakeven quarter for earnings that matched estimates. Revenue of $97 million missed estimates for $98.4 million. They also announced a new CEO to replace Chad Dickerson who will be leaving at the end of May. They announced layoffs for 8% of their workforce. Shares plunged on the earnings to a low of $9.90 but rallied on Thr/Fri back to $11.67 and a 10% move on Friday alone to close at a 2-month high.

Update 5/19/17: Shares spiked again last week to $13.31 after two private equity firms took large stakes. TPG Group revealed a 4.3% stake and Dragoneer Investment Group holds a 3.7% stake. In filings, both revealed they had asked ETSY to explore strategic alternatives including a sale. ETSY responded saying the company is reviewing "strategic and operational plans" while the board "will carefully consider all options to increase shareholder value."

Earnings May 2nd.

Position 3/16/17:

Closed 6/12/17: Long June $12.50 call @ 36 cents, exit ,80, +.44 gain.

Previously Closed 3/27/17: Long ETSY shares @ $10.25, exit $9.75, -.50 loss.



FRAC - Keane Group - Company Profile

Comments:

No specific news. Shares have not declined materially despite the sharp drop in oil prices.

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:

Alternate position: Long July $17.50 call @ 45 cents. No stop loss.

Previously closed 6/8/17: Long FRAC shares @ $15.34, exit $14.64, -.70 loss.



STM - STMicroelectronics - Company Profile

Comments:

No specific news. Shares were down with a delayed reaction in the European markets to the Nasdaq mini flash crash. There was also the return of the rumor that Apple's iPhone 8 could be delayed by 2 months due to problems at suppliers.

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.

Previously closed 5/17/17: Long STM shares @ $16.34, exit $16.25, -0.09 loss.
Closed 6/12/17: Long STM shares @ $16.25, exit $15.79, -.46 loss.



TWLO - Twilio Inc - Company Profile

Comments:

No specific news. Shares are finally surging higher as buyers suddenly outnumber sellers.

Original Trade Description: May 20th.

Twilio Inc. provides cloud communications platform that enables developers to build, scale, and operate communications within software applications through the cloud as a pay-as-you-go service in the United States and internationally. It offers programmable communications cloud software that enables developers to embed voice, messaging, video, and authentication capabilities into their applications through application programming interfaces. The company also provides use case products, such as a two-factor authentication solution. Twilio Inc. was founded in 2008 and is headquartered San Francisco, California. Company description from FinViz.com.

Twilio has a messaging application that is built in to dozens of apps you probably use every day. When tech startups try to decide how to engineer a solution they normally find that imbedding Twilio messaging is much simpler in the beginning. The thought process is that once the company is running and profitable they will go back and build their own platform. For most businesses that never happens and they end up paying for Twilio forever.

When they reported earnings on May 3rd, they said revenue growth would slow because Uber was finally taking that step of engineering their own messaging platform and would be phasing out Twilio. When a company reaches the size of Uber they can afford to build their own interface. Only a few companies ever make the switch. Other major customers on their network with no plans to change are Nordstrom, Airbnb, Amazon, Facebook, WhatsApp to name a few.

Uber accounts for 12% of Twilio revenue so the exit is painful. Pacific Crest downgraded the stock saying they had underestimated the risk from Uber. JP Morgan reiterated its overweight rating and $36 price target saying Twilio would continue riding Amazon's coattails to success with Amazon Web Services. Their price target is $33.

Shares fell after Twilio guided for an adjusted loss of 10-11 cents on revenue of $86.5 million. Analysts were expecting 8 cents and $87.8 million.

Last week CEO Jeff Lawson bought 100,000 shares at an average price of $23.43 ($2.34 million). Board member Jim McGeever, VP of Oracle's Netsuite unit, bought 10,000 shares at $23.19. They do not appear to be worried about the business slowing.

Earnings August 1st.

Shares are ticking higher and closed at a three week high on Friday.

Position 5/22/17:

Long July $28 call @ $.75, see portfolio graphic for stop loss.

Previously closed 5/31/17: Long TWLO shares @ $25.01, exit $23.85, -1.10 loss.





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