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Daily Newsletter, Saturday, 11/4/2017

Table of Contents

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

Market Wrap

Chip Rip

by Jim Brown

Click here to email Jim Brown

News that Broadcom may bid for Qualcomm caused a major rally in semiconductors that added to the Apple generated gains.

Weekly Statistics

Friday Statistics

The market was positive but moving sideways until 1:30 when headlines broke that Broadcom (AVGO) with a market cap of $112 billion could be preparing a bid for Qualcomm (QCOM) with a market cap of $91 billion. The rumored bid was in the $70 range, which would have been a 27% premium to the $55 price in QCOM shares before the headline broke. If by chance this deal actually happened, it would be the largest tech acquisition ever.

There are a lot of hurdles to cross before a deal this big can be completed. Both are international companies, which means approvals by multiple countries. Secondly, Broadcom would have to complete its move to the US as its home country. There is no chance of getting it approved with Broadcom a Singapore company. The CEO announced the move in the Oval Office with President Trump on Thursday.

Broadcom has been a serial acquirer. The company was a $30 stock in early 2013 and it is $275 now. The last major acquisition was the Avago acquisition of Broadcom in 2015 for $37 billion in the largest tech acquisition ever at that time. They took the Broadcom name but retained the Avago symbol.


The key here is that the old Broadcom was a wireless chipmaker. Qualcomm is a wireless chipmaker. Together they would be a near monopoly in some types of wireless chips. Analysts believe this could be a deal too complicated for Broadcom to A) come up with a price that Qualcomm is likely to accept and it would have to be well over $70. B) The breakup fee would have to be huge because of the regulatory complexity. C) There would more than likely be competitive bidders.

I speculated a couple weeks ago that Apple should buy Qualcomm to get their chip technology and eliminate the complicated licensing program that costs Apple billions in licensing fees every year. Qualcomm will earn $7 billion for 2017 on revenue of more than $25 billion. What is having a wireless chipmaker in Apple's portfolio worth? They have $269 billion in cash so money is not the problem.

Don't forget that Qualcomm is in the middle of acquiring NXP Semiconductor (NXPI) for $110 per share or $37 billion. That deal is currently on hold by the EU and the approval process will restart on Dec 6th. Activist shareholder Elliott Management is pressing for a higher price and shares were at $118 before the Broadcom rumors.


The surge in the chip sector powered the Nasdaq to a new record high. The index gained 13 points in the 30 min after the headlines broke. The $SOX closed at a new high after spiking 20 points after the 1:30 news. Since the chip sector leads the Nasdaq there was nowhere to go but up.



Apple (AAPL) was also a contributor to the rally with a spike to record high of $174.26 at the open, Shares faded back to close at $172.48 but they still contributed 30 points to the Dow and 19 points to the Nasdaq 100. Qualcomm contributed 9 to the $NDX, second largest contributor behind Apple with Broadcom adding 5 index points in 4th position. Amazon was the third largest contributor at 7.3 points.

Apple gained on their blowout earnings but analysts said the guidance was the key. They guided for the sale of 85.5 million iPhones in Q4 and that was slightly above the midrange of their prior guidance. That means there are no material production issues. That was a major relief to analysts and investors.

However, the odds are very slim Apple shares will hold those gains without some retracement. Ideally, that would be a pullback to $160-$165 but we rarely get what we want in these situations. The August earnings spiked to $160 and then pulled back to $150 on those manufacturing rumors. The May earnings spike to $156 pulled back to $142.50. There is precedent for Apple shares to drop about $10 in the weeks after an earnings spike.

However, there are no headwinds for Apple today. With the manufacturing rumors dispelled, Apple's business is booming. One company that handles remarketing of Apple phones said 15% of the phones traded in on the iPhone X are model 8s. That means demand for the X truly is off the charts. There were lines at the major Apple stores Friday morning that were hundreds of people long and they remained long most of the day.

  Apple temporarily exceeded $900 billion in market cap on Friday. Apple is well on its way to being the first trillion dollar company. Microsoft is next at $649 billion. Amazon is well behind at $536 billion, Alibaba is $469 billion, Facebook at $424 billion, Google at $313 billion and Wal-Mart at $268 billion.


In earnings news, Bloomin Brands (BLMN) reported earnings of 12 cents that missed estimates for 15 cents. Revenue of $948.9 million narrowly beat estimates for $948.0 million. Same store sales fell -1% but that was better than the -2% consensus. The company said the hurricanes reduced revenue by 1% and earnings by 4 cents. They guided for the full year for earnings of $1.31-$1.36 compared to prior guidance of $1.40 to $1.47. Somebody needs to check my math but that guidance drop was a lot more than 4 cents so there are problems they cannot blame on the hurricanes. Analysts were expecting $1.40. It appears investors bought the hurricane excuse because shares closed flat rather than suffering a big loss.


Dentsply International (XRAY) reported earnings of 70 cents that beat estimates for 66 cents. Revenue of $1.01 billion beat estimates for $978.4 million. The company guided for the full year for earnings of $2.65-$2.70 per share, slightly tighter than the prior guidance of $2.65-$2.75. Shares rallied 6% on the news.


ImmunoGen (IMGN) reported a loss of 37 cents, which missed estimates for a loss of 28 cents. Revenue of $8.5 million missed estimates for $29.2 million. They guided for full year revenue of $115-$120 million. They posted a big miss on earnings and revenue so you would expect a big drop in the shares. Instead, they rallied 6%. On the call, they said they raised $235 million in capital through transactions with Sanofi and Jazz and that gives them a two-year run rate on cash burn. That will allow them to complete some existing trials and move forward on marketing collaborations.


Starbucks (SBUX) reported earnings after the bell on Thursday, missed on revenue, and lowered guidance. They cut EPS growth estimates to 12% in 2018 compared to prior guidance of 15-20%. They guided for same store sales growth of 3% to 5% and revenue growth of 6% to 9%. They warned they would take a revenue hit as they closed all 379 Teavana locations by spring of 2018 and close its ecommerce platform. The company is also selling its Tazo tea brand to Unilever for $384 million. Starbucks bought the brand in 1999 for $8.1 billion. Shares fell as much as 6% in afterhours on Thursday. They rebounded to actually gain 2% after the CEO said on Friday the company could exceed those new growth targets. I may be wrong but I think Starbucks shares are dead money until they can prove the growth is back on track. With a Starbuck on nearly every major street corner in the US the revenue average per store is going to continue dropping. Overall sales may rise but only because they are putting 2-3 per corner in China.


Another Thursday night reporter was Activision (ATVI). They reported earnings of 47 cents that missed estimates for 50 cents. Record revenue of $1.62 billion missed estimates for $1.74 billion. They guided for the full year for $2.08 on revenue of $6.68 billion. Analysts were expecting $2.14 and $6.79 billion.

However, Activision had guided in August for earnings of 34 cents and revenue of $1.385 billion. Based on their guidance they had a blowout quarter. Activision Blizzard had 384 monthly active users (MAU) with a record 49 million online players. Subsidiary King Digital had 293 million MAU. Numerous engagement metrics were at record highs. For Q4 they guided for 36 cents and $1.7 billion in revenues.

The annual BlizCon event at the Anaheim Convention Center this weekend saw 30,000 tickets sold out in a matter of seconds. Millions more will watch it through online live streaming.

Shares plunged $2 after setting a new intraday high.


Pandora (P) reported a loss of 6 cents that beat estimates for 7 cents. Revenue of $378.6 million missed estimates for $381 million. The company guided for Q4 revenue of $365-$380 million and analysts were expecting $413 million. The CEO said advertisers were complaining Pandora's advertising interface was lacking critical features and it is starting to have an impact on our revenue. Advertising accounts for 73% of Pandora's revenue. Investors were not pleased with the earnings, guidance and CEO comments and the stock fell 25%.


The outlook for Q3 earnings has improved considerably with current expectations at 7.9% growth, up from 4.3% several weeks ago. Of the 407 S&P companies that have already reported 72.2% have beaten earnings estimates and 66.7% have beaten on revenue. There have been 41 guidance warnings for Q4 and 23 companies have raised guidance. The current forward PE is 18.1. In the coming week 49 S&P companies will report along with 1 Dow component.

The notable companies reporting next week include Priceline, Monster Beverage, AstraZenaca, Nvidia and Dow component Disney.


The economic reports on Friday were mostly positive. The Nonfarm Payrolls for October were 261,000 and slightly under estimates for 315,000. This was another Goldilocks number that was not too hot to cause the Fed to accelerate their rate hike schedule. The September payrolls that came in with a decline of -33,000 because of the hurricanes were revised higher to a gain of 18,000 to stretch the continuous string of monthly gains to 85 months. August was revised upward from 169,000 to 208,000.

The unemployment rate fell from 4.2% to 4.1%, a decade low, and the labor force participation rate declined from 63.1 to 62.7. There was a whopping decline of -765,000 from the labor force. The broader U6 unemployment rate fell to 7.9%.

The leisure/hospitality sector rebounded with a gain of 106,000 jobs after a loss of -102,000 jobs in September due to the hurricanes. Many service businesses were closed for several weeks after the Houston and Florida storms.


The trade deficit for September was $43.5 billion, just over $1 billion more than in August. Exports and imports both increased. The deficit has been just over $43 billion a month for the last four months.

Factory Orders for September rose 1.4% and the largest gain since October. Durable goods orders to 2.0% and non-durables +0.8%. Nondefense capital gods rose 1.7%. There was no material impact from the hurricanes.

The ISM Nonmanufacturing Index rose slightly from 59.8 to 60.1 for October. That is the highest level since July 2015 at 60.3 and almost back to the levels seen before the financial crisis. The services sector accounts for 88% of GDP. New orders were flat at 62.8 and backlogs declined slightly from 56.0 to 53.5. The employment component ticked up slightly from 56.8 to 57.5. There was no material impact from the hurricanes.


The economic calendar for next week is very light without any important events. There is only one Fed speaker when there are normally around 10. This looks like a holiday week only there is no holiday.


Crude prices shocked traders with another $2 gain to $55.70 and a two-year high. Other than the constant propaganda from Saudi Arabia and OPEC about doing whatever it takes to stabilize prices and potentially extending the voluntary cuts through the end of 2018, there was only one relevant piece of news.

Nigeria returned to the headlines after the Niger Delta Avengers said the cease-fire declared in August 2016 was officially over. The rebels warned of a "brutish, brutal and bloody campaign against oil companies." The group has been responsible for cutting Nigerian production from 1.65 mmbpd to 1.0 mmbpd earlier this year. That production had been recovered according to the IEA as pipelines and facilities were repaired. The rebels want the oil wealth redistributed to the Niger Delta region where the oil is produced. They promised to cut every pipeline that moves crude away from the region until their demands are met. They are also targeting an offshore production facility in 1,700 meters of water and 130 km offshore. The facility is operated by Total SA.


The active rig count fell another 11 rigs. We have lost 60 rigs in the last 14 weeks to 898 and the lowest level since May 12th. Oil rigs declined -8 and gas rigs -3.




Markets

The Volatility Index ($VIX) closed at a historic low of 9.14 on Friday. The prior historic low was 9.19 on Oct 5th. I know this is going to sound like a broken record but this is a long-term warning. The VIX cannot remain this low forever. When volatility does return a lot of investors are going to be hurt badly because they have forgotten that bad things can happen in the market with no warning.

Despite the weekly headlines by some barely known analyst predicting the end of the current bull market, there is nothing on the horizon that would suggest an end. Earnings are actually improving and tax reform although only in the discussion stages is in the headlines every day. Larger and larger stock buybacks are being announced, dividends are rising, the global economy/markets are improving, US economics are improving and the Fed is on a very slow path towards normalization. There are no obvious roadblocks in the near future.

Just be aware that record lows in volatility and record highs in the market will eventually reverse. I have always found that the greater the percentage of my assets I have in the market the more likely it is to crash.


As the semiconductors lead the Nasdaq, the small caps "normally" lead the market. They were early to rebound in September and the S&P followed. Now the small caps are fading while the S&P is making new highs. Is this time different? Will the Russell 2000 turn higher or will the S&P follow the Russell lower?


The S&P is moving ever closer to 2,600 despite the moves over the last week being muted. The index is moving farther away from the uptrend support and farther away from the averages. Currently, the S&P is 65 points above the 50-day average. Back in March, the index closed 101 points above the 50-day average. In December, it reached 104 points over the average. Those are the two widest ranges since before the financial crisis. That would suggest we still have room to run but the average high spread seems to be about 75 points.


The 2,600 level is going to be strong psychological resistance because only 7 Wall Street analysts have targets over that level. Either we are going to see a major flurry of updated targets or there could be a lot of analysts taking heat for their predictions. Investors do listen to forecasts. Some even act on them.



The Dow gained 22 points despite Apple, UNH and HD adding more than 50 points. The Dow A/D line was almost flat with only 3 more advancers than decliners. The index has had a flat A/D line despite the recent gains.

Disney is the only Dow component reporting earnings this week and that is after the bell on Thursday so it will not provide any lift during the week. Apple is likely to fade from the record high because of the $15 gain over the last week. While Apple may deserve the gains, that is a lot in one week and earnings are now behind us.

The Dow remains the most overbought index and the one most likely to pause for a rest. You could say the flat consolidation pattern over the prior 7 days was that rest. Markets do not have to decline in order to recharge and that could be what has happened to the Dow. We just will not know until next weekend.



The Nasdaq big caps have launched to another level. The Nasdaq 100 closed at a new high on 5 of the last 6 days. Four of the last five months saw a very choppy trend for the big caps until the late September rally. The NDX took profits in mid October and that reenergized the index for a higher run.

Only two of these big cap stocks are NOT at a new high. Those are Priceline and Tesla.



The Nasdaq Composite closed at a new high on Friday thanks to Apple's 19-point contribution. Broadcom and Qualcomm added another 14 points. That means 33 of the 49 points gained were added by only 3 companies. The index has had six decent declines since May that averaged 186 points each. The last two have barely broken 100 points or roughly a 1.5% decline each. As long as the tech stocks remain hot, this performance can continue but the post earnings depression phase will eventually appear. I would not be surprised to see a dip back to 6,550 or roughly 3%.



The Russell 2000 is struggling to hold its gains but so far, it has been mostly successful. Friday's close was only 17 points below the record high close at 1,512. This pattern has actually morphed into a continuation pattern that normally breaks to the upside.


There was a major shift in investor sentiment last week. The bullish camp gained 5.4% to 45.1% and the highest level since January 4th at 46.2%. Bearish sentiment collapsed to 28.6% after a 5% spike the prior week. The new Nasdaq highs have a powerful impact on sentiment.


The fundamental factors suggest the market will continue moving higher. Maybe not in a straight line but the trend should remain bullish. Dips should be bought but probably not on the first day. It has been 489 days since we have seen a 5% decline and we normally average twice a year. Retain some cash in your account and consider any dip a buying opportunity.


SAVE $50 on your EOY Subscription - ONE WEEK ONLY!

Long time readers of Option Investor know we launch our End of Year subscription special on Thanksgiving weekend. It will be 20 years this Thanksgiving.

Several years ago, we offered a free silver dollar with an EOY subscription. It was our most successful promotion since the Financial Crisis. We are going to repeat that again in 2017 with a specific coin this time. Each EOY subscriber will receive a genuine Morgan Dollar, which is thought to be one of the best looking silver coins ever minted. These make great Christmas presents!

Morgan Dollar

If you already know you want to renew your subscription at the cheapest price of the year then click the link below. As in past years, we are offering an Early Bird Special with an additional $50 off for anyone that subscribes this week only. The Early Bird Discount Offer expires on November 15th and the price will revert to normal.

CLICK HERE FOR ADDITIONAL $50 OFF EOY SPECIAL


Enter passively and exit aggressively!

Jim Brown

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"Try to learn something about everything and everything about something."

Thomas Henry Huxley


 


New Plays

Reload this Tech Company

by Jim Brown

Click here to email Jim Brown
Editor's Note

Sometimes analysts are wrong and there is a lot to like about this company's future. We were stopped out of AMD on earnings but this is a fluid environment and new products are coming.



NEW BULLISH Plays

AMD - Advanced Micro Devices - Company Profile

Advanced Micro Devices, Inc. operates as a semiconductor company worldwide. Its primarily offers x86 microprocessors as an accelerated processing unit (APU), chipsets, discrete graphics processing units (GPUs), and professional graphics; and server and embedded processors, and semi-custom System-on-Chip (SoC) products and technology for game consoles. The company provides x86 microprocessors for desktop PCs under the AMD A-Series, AMD E-Series, AMD FX CPU, AMD Athlon CPU and APU, AMD Sempron APU and CPU, and AMD Pro A-Series APU brands; and microprocessors for notebook and 2-in-1s under the AMD A-Series, AMD E-Series, AMD C-Series, AMD Z-Series, AMD FX APU, AMD Phenom, AMD Athlon CPU and APU, AMD Turion, and AMD Sempron APU and CPU brand names. It also offers chipsets with and without integrated graphics features for desktop, notebook PCs, and servers, as well as controller hub-based chipsets for its APUs under the AMD brand; and AMD PRO mobile and desktop PC solutions. In addition, the company provides discrete GPUs for desktop and notebook PCs under the AMD Radeon brand; professional graphics products under the AMD FirePro brand name; and customer-specific solutions based on AMD's CPU, GPU, and multi-media technologies. Further, it offers microprocessors for server platforms under the AMD Opteron; embedded processor solutions for interactive digital signage, casino gaming, and medical imaging under the AMD Opteron, AMD Athlon, AMD Sempron, AMD Geode, AMD R-Series, and G-Series brand names; and semi-custom SoC products that power the Sony Playstation 4, Microsoft Xbox One, and Xbox One S game consoles. Company description from FinViz.com.

Expected earnings Jan 23rd.

Nvidia (NVDA) shares were rocked again last week after news broke that Tesla was looking at options other than Nvidia for the chips to power the autonomous driving functions. The initial headline saw AMD spike and Nvidia decline. The actual story is that AMD and Nvidia are partnering on creating a chip solution for Tesla. It is no surprise that AMD is in the mix because Tesla hired Jim Keller to lead development of Autopilot. Keller previously worked at AMD and led the development of the Zen architecture and the new Ryzen processors.

AMD announced a new embedded GPU requiring less power and capable of driving five simultaneous 4K displays. The GPU requires less than 40 watts TDP and comes in a smaller, thinner package. The chip has a 1.25 TFLOPS speed and comes in three form factors including MCM, MXM and PCI Express. The 4K and 3D support works for games, medical imaging, advertising signage and industrial uses. The GPU has 4 GB of GDDR5 memory.

AMD reported earnings of 10 cents compared to analyst estimates for 8 cents. Revenue of $1.64 billion rose 25.7% and beat estimates for $1.51 billion. Shares collapsed in afterhours after the company guided for a 12% to 18% decline in Q4 revenue to around $1.34-$1.44 billion and analysts were expecting $1.34 billion. Based on analyst expectations that lower guidance was not that bad but it is the principle of lower guidance that sends investors running for the exits.

The new CEO for AMD, Lisa Su, said in an interview last week that with 10 major product launches this year, AMD has completely restructured its product portfolio. "This shift is perhaps one of the most ambitious product ramps that has been done, certainly in AMD's lifetime."

The new Ryzen Mobile combines the best points of the Zen processor and the best of the Vega product and the most recent graphics architecture into a single product. No other company has been able to combine premium processor cores from both categories and merge them into a single chip that runs in an ultra-thin notebook.

HPQ, Lenovo and Acer have announced products that will ship this quarter in time for holiday shopping. AMD products have found new popularity in the key retailer market. Su said they had captured 50% of sales at Amazon and Newegg, the two biggest online computer marketplaces. Processor revenue rose 74% in the latest quarter. Their new AI product, MI25, is already shipping in quantity to data centers around the world and acceptance was accelerating.

I think analysts were wrong on the Q3 earnings. I believe AMD is right on the edge of a resurgence that will make the company a real competitor again.

I am using the April options to get us past their January earnings. When we exit before the event the options will still have an expectation premium.

Buy AMD shares, currently $11.12, initial stop loss $9.75.
Alternate position: Buy April $12 call, currently $1.14. No initial stop loss.



NEW BEARISH Plays

No New Bearish Plays



In Play Updates and Reviews

Small Cap Divergence

by Jim Brown

Click here to email Jim Brown

Editors Note:

Big caps posted gains again but small caps are sliding lower. The big cap indexes posted new record high closes but the Russell eased slightly lower once again. The Russell is clinging to the consolidation pattern but Friday was another lower high. The tax reform package should be good for small cap stocks but they are not feeling the love.

The Dow gained 22 points but Apple contributed 30. The Dow components are feeling the impact of the post earnings depression phase.





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.




Lottery Ticket Plays - Updated only on Weekends


Current Position Changes


No Changes



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BULLISH Play Updates

ARNC - Arconic - Company Profile

Comments:

No specific news. Shares holding at a 2-week high.

Original Trade Description: October 28th

Arconic creates breakthrough products that shape industries. Working in close partnership with our customers, we solve complex engineering challenges to transform the way we fly, drive, build and power. Through the ingenuity of our people and cutting-edge advanced manufacturing techniques, we deliver these products at a quality and efficiency that ensure customer success and shareholder value. Company description from Arconic.

Arconic is the old Alcoa. The aluminum mining company was split off as Alcoa Corp and the original Alcoa was renamed Arconic. This company manufactures parts and complicated assemblies from aluminum. They take the raw aluminum and add value to it by creating high tech, high value parts like turbine blades for engines and gas turbines. They are moving into 3D printing of aluminum parts. They have dozens of remote offices close to large industrial clusters where they can provide immediate service to large manufacturing companies.

Shares fell after earnings because they announced the appointment of a new CEO with their earnings report. Charles Blankenship will replace David Hess on January 15th.

The company reported earnings of 25 cents that missed estimates for 27 cents. Revenue of $3.24 billion beat estimates for $3.09 billion. The company guided for the full year for revenue of $12.6-$12.8 billion, up from prior guidance of $12.3-$12.7 billion. Full year earnings are now expected to be $1.15-$1.20 per share.

Expected earnings January 22nd.

Shares fell $3 on the earnings miss and CEO change. After bottoming at $24, they are trying to move higher with resistance at $25.15. I believe ARNC will return to pre earnings levels at $28.

Position 10/31/17:

Long ARNC shares @ $24.76, see portfolio graphic for stop loss.
Alternate position: Long Jan $26 call @ 95 cents, see portfolio graphic for stop loss.



BOTZ - Global X Robotics AI - Company Profile

Comments:

Since this is a long-term slow moving ETF position, there will not be daily commentary.

Original Trade Description: October 4th.

The investment seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the Indxx Global Robotics & Artificial Intelligence Thematic Index. The fund invests at least 80% of its total assets in the securities of the underlying index. The underlying index is designed to provide exposure to exchange-listed companies in developed markets that are involved in the development of robotics and/or artificial intelligence as defined by Indxx, the provider of the underlying index. The fund is non-diversified. Company description from FinViz.com.

Robots of every description are taking over the manufacturing sector, service sector, etc. Drones are automated. Autos are becoming autonomous.

Even more important to this ETF is the sudden arrival of Artificial Intelligence or AI. That is the buzzword for everything. Everybody is trying to get into the AI business.

This ETF took off last January and while there have been several mild hiccups along the way, the chart is nearly vertical as investors become aware of it.

I am going to lag back on the stop loss because this could be a long-term position.

Update 10/26: Shares of BOTZ fell 50 cents for the biggest one-day drop since the ETF began in September 2016. There was no news but volume of 4.16 million shares was the largest ever and well over the 964,000 historical average.

Position 10/5/17:

Long BOTZ shares @ $22.10, see portfolio graphic for stop loss.
Alternate position: Long Mar $23 call @ 80 cents, see portfolio graphic for stop loss.



ON - ON Semiconductor - Company Profile

Comments:

No specific news. We are locked in to holding over earnings on Monday before the open. Let's hope they provide a blowout. I am tightening the stop loss just in case.

Original Trade Description: Oct 9th.

ON Semiconductor Corporation manufactures and sells semiconductor components for various electronic devices worldwide. It operates through three segments: Power Solutions Group, Analog Solutions Group, and Image Sensor Group. The Power Solutions Group segment offers discrete, module, and integrated semiconductor products for various applications, such as power switching, power conversion, signal conditioning, circuit protection, signal amplification, and voltage reference. The Analog Solutions Group segment designs and develops analog, mixed-signal, and logic application specific integrated circuits and standard products, as well as power solutions for a range of end-users in the automotive, consumer, computing, industrial, communications, medical, and aerospace/defense markets. This segment also provides trusted foundry, trusted design, and manufacturing services, as well as integrated passive devices technology. The Image Sensor Group segment offers complementary metal oxide semiconductors and charge-coupled device image sensors, as well as proximity sensors, image signal processors, and actuator drivers for autofocus and image stabilization for a range of customers in automotive, industrial, consumer, wireless, medical, and aerospace/defense markets. The company serves original equipment manufacturers, distributors, and electronic manufacturing service providers. Company description from FinViz.com.

Earnings Nov 6th, confirmed.

ON continues to power higher on a surge of new products as the IoT boom continues. The company completed the acquisition of Fairchild Semiconductor in September.

A major factor in the boom is the Advanced Driver-Assistance Systems. This market is expected to reach $42 billion by 2021 according to MarketsandMarkets. This is giving ON a tremendous boost in earnings and forecasts.

However, they missed earnings for Q2. They reported 26 cents and estimates were 33 cents. Revenue of $1.34 billion beat estimates for $1.31 billion. The company guided for the current quarter for $1.34-$1.39 billion.

Somebody believes they are going to beat those estimates by a mile. On Monday, somebody bought 11,000 of the November $20 calls at 65 cents. That is a $715,000 bet. I suggest we follow them.

Because of the steep gains over the last month, I am not recommending a stock position. We will do this with options only.

Update 10/11/17: ON and Fujitsu announced an agreement where ON will purchase 40% of Fujitsu's 8-inch wafer fabrication plant in Aizu-Wakamatsu. The purchase will be completed by April 1st. ON already had a 10% share and will acquire another 30%. ON said it planned to increase ownership to 80% in the second half of 2018 and 100% in the first half of 2020. By scaling into the ownership it will allow ON to add capacity as demand increases.

Update 10/12/17: ON announced to new System on a Chip (SOC) 1.0 Megapixel CMOS image sensing products for the automotive imaging sector. The company said annual shipments of cameras for use in cars will easily surpass 80 million units by 2020.

Update 10/25/17: ON announced a CMOS image sensor platform that brings new levels of performance and image quality to automotive applications such as ADAS, mirror replacement, rear and surround view systems, and autonomous driving. The Hayabusa platform features a ground-breaking 3.0-micron backside illuminated pixel design that delivers a charge capacity of 100,000 electrons, the highest in the industry, with other key automotive features such as simultaneous on-chip high dynamic range (HDR) with LED flicker mitigation (LFM), plus real-time functional safety and automotive grade qualification. Shares declined only 15 cents in a weak market.

Update 10/26/17: ON announced a new 1/2.7-inch 2.3 Megapixel (Mp) CMOS digital image sensor with an active-pixel array of 1936H x 1188V. The AR0239 produces extraordinarily clear and sharp digital images in challenging bright and low light conditions. This, along with its ability to capture continuous video and single frames, makes it an ideal choice for many applications, including security and surveillance systems, body cameras and vehicle DVRs (dash cameras).

Position 10/10/17:

Long Nov $20 call @ 80 cents, see portfolio graphic for stop loss.



SVU - Supervalu - Company Profile

Comments:

No specific news. Nice gain! Closed at a 2-week high.

Original Trade Description: October 28th

SUPERVALU INC., together with its subsidiaries, operates as a grocery wholesaler and retailer in the United States. The company operates through two segments, Wholesale and Retail. The Wholesale segment engages in the wholesale distribution of various food and non-food products to independent retail customers, such as single and multiple grocery store operators, regional chains, and the military. This segment also provides various services, such as retail store support, advertising, couponing, e-commerce, network and data hosting solutions, and training and certification classes, as well as administrative back-office solutions. As of February 25, 2017, this segment operated approximately 1,902 stores with a network spanning 40 states. The Retail segment operates retail stores that provide groceries and various additional products, including general merchandise, home, health and beauty care, and pharmacy products. This segment operated 217 stores under the Cub Foods, Shoppers Food & Pharmacy, Shop 'n Save, Farm Fresh, and Hornbacher's banners, as well as 2 Rainbow stores. The company's stores offer a range of branded and private-label products comprising perishable and nonperishable grocery products. SUPERVALU INC. was founded in 1871 and is headquartered in Eden Prairie, Minnesota. Company description from FinViz.com.

Supervalu has morphed into more of a wholesaler of groceries than a retailer. Given the movement by Amazon and Walmart into online groceries that may be the way to go.

For Q3 they reported adjusted earnings of 46 cents that beat estimates for 36 cents. Revenue of $3.8 billion narrowly beat estimates for $3.79 billion. Wholesale sales rose 63% from $1.7 billion to $2.7 billion while retail and corporate sales were flat. They announced the acquisition of Associated Grocers of Florida for $180 million. Associated had revenue of $650 million for the trailing 12 months. This is a major bolt on acquisition where they can add value and scale and increase their presence in Florida, the Caribbean, South America and Asia. In June they completed the acquisition of Unified Grocers, an active distributer on the West Coast for $390 million. Unified had revenue of $3.8 billion in 2016.

Shares of SVU have been declining since their high of $84 in April 2015. With these two acquisitions and the sale of the Sav-A-Lot division in 2016, the company is turning the business around. I like that they are reducing their exposure to retail and all the expenses and employee related hassles that go with running a retail grocery store. By focusing on the wholesale business they can reduce overhead and expand their reach and their profit margins.

Who knows, maybe Amazon will decide they need to buy a wholesale grocery distributor.

Earnings Jan 17th.

Position 10/30/17:

Long SVU shares @ $16.13, see portfolio graphic for stop loss.
Alternate position: Long Jan $18 call @ $1.05, see portfolio graphic for stop loss.




BEARISH Play Updates

BBBY - Bed, Bath and Beyond - Company Profile

Comments:

No specific news. New 8-yr closing low.

Original Trade Description: October 14th.

Bed Bath & Beyond Inc., together with its subsidiaries, operates a chain of retail stores. It sells a range of domestics merchandise, including bed linens and related items, bath items, and kitchen textiles; and home furnishings, such as kitchen and tabletop items, fine tabletop, basic housewares, general home furnishings, consumables, and juvenile products. It also provides various textile products, amenities, and other goods to institutional customers in the hospitality, cruise line, healthcare, and other industries. As of February 25, 2017, the company had a total of 1,546 stores, includes 1,023 Bed Bath & Beyond stores in 50 states, the District of Columbia, Puerto Rico, and Canada; 276 stores under the names of World Market, Cost Plus World Market, or Cost Plus; 113 buybuy BABY stores in 35 states and Canada; 80 stores under the CTS name; and 54 stores under the Harmon name. It also offers products through various Websites and applications, such as bedbathandbeyond.com, bedbathandbeyond.ca, harmondiscount.com, christmastreeshops.com, buybuybaby.com, buybuybaby.ca, harborlinen.com, t-ygroup.com, and worldmarket.com. In addition, the Company operates Of a Kind, an e-commerce Website that features specially commissioned limited edition items from emerging fashion and home designers; One Kings Lane, an online authority in home decor and design that offers a collection of selected home goods, and designer and vintage items; PersonalizationMall.com, an online retailer of personalized products; Chef Central, an online retailer of kitchenware, cookware, and homeware items catering to cooking and baking enthusiasts; and Decorist, an online interior design platform that provides personalized home design services. Company description from FinViz.com.

It is a tough world when nearly every one of your products is listed on Amazon along with a dozen competitive products with free 2-day delivery. Bed, Bath and Beyond is stuck in that rut and it is painful.

In their recent earnings they reported 67 cents, down from $1.11 in the year ago quarter and missed estimates for 93 cents. Revenue of $2.9 billion also missed estimates for $3 billion. Same store sales declined -1.7%. The retailer said it was undertaking a number of "transformational initiatives." One of those initiatives was the termination of 880 manager positions. Shares fell 18% on the earnings.

With Toys-R-Us filing bankruptcy, there are now concerns about other stores possibly following suit. BBBY is in trouble even though they are buying back shares and paying a dividend. With sales and earnings declining those shareholder friendly efforts may have to be curtailed. They have 65,000 employees and 1,550 stores.

This is simply a case of a large brick and mortar retailer trying to compete with an all powerful Amazon and we know who is going to win this battle in the long run.

Expected earnings Dec 19th.

I am reaching out to January on the option because we can buy an extra 40 days of time for 21 cents. We can buy time but we do not have to use it.

Position 10/16/17:

Short BBBY shares @ $21.20, see portfolio graphic for stop loss.
Alternate position: Long Jan $20 put @ $1.10, see portfolio graphic for stop loss.



VXX - Volatility Index Futures - ETF Description

Comments:

Since this is a long-term slow moving ETF position, there will not be daily commentary.

Original Trade Description: September 18th.

The VXX is a short-term volatility ETF 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 five reverse splits occurred at $13.11 (11/2010), $8.77 (10/2012), $12.84 (11/2013), $9.52 (8/8/16), $12.77 (8/22/17). The prospectus says it can reverse split anytime it trades under $25 for a prolonged period and the splits will always be 1:4.

We know from experience that the VXX always declines. The last two times we shorted this ETF we had a $7.23 and $5.98 gain.

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 into year-end we could see a sharp decline in the VXX over 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.

The VXX is hard to short. Shortsqueeze.com says there are 19.9 million shares short out of 26.7 million shares outstanding. The shares are out there and being traded because the volume on Monday was 29.6 million. You have to tell your broker you really want to short it and make them find the shares. Sometimes it takes days or even a week before your broker will find you the shares. Trust me, be persistent and it will be worth the effort.

I had held off after the 1:4 reverse split because the options were expensive and I was expecting volatility in September from the budget battle and debt ceiling hurdle. With those issues pushed out into December, the volatility is dropping like the proverbial rock. Several readers have already emailed me asking when I was going to put this position back in the portfolio.

Position 9/19/17:

Short VXX shares @ $40.95, see portfolio graphic for stop loss.




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.


ETSY - Etsy Inc - Company Profile

Comments:

Etsy was upgraded by the Investor's Business Daily to a relative strength of 91. This is very strong and puts it in a unique class where buyers should appear. Historically, stocks reaching 90 or above do very well over the following year. Earnings were confirmed for Nov 6th after the bell.

Original Trade Description: Sept 13th.

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.

For Q2, the company reported earnings of 10 cents that rose from a 6-cent loss in the year ago quarter. Revenue rose 19.1% to $101.7 million. Active sellers rose 10.9% to 1.83 million. Gross merchandise volume rose 11.7% to $748 million. Sales on mobile devices rose 47%. International sales rose 31% to 32% of gross sales. The number of employees in the workforce declined 23% thanks to an aggressive push by the CEO to expand profitability.

They guided for gross merchandise sales to rise 12% to 14% for the full year, up from prior guidance of 11.7%. Full year revenue is expected to rise 18% to 20% and in line with the 19.1% in Q2.

The company is growing rapidly, especially internationally and they are reducing costs significantly. Over the last several months, they replaced the CEO, CFO and CTO in their push to grow the company and profits quickly.

Expected earnings Nov 6th.

On Sept 7th a Davidson's analyst, Tim Forte, went all in on ETSY with a glowing forecast. Shares spiked to $17.50 and then faded for a couple days. They have rebounded over the last three days and closed at a new high on Wednesday.

Position 9/14/17:

Long Dec $20 call @ 70 cents, see portfolio graphic for stop loss.

Previously closed 9/27: Long ETSY shares @ $17.79, exit $16.75, -1.04 loss.



FINL - Finish Line - Company Profile

Comments:

No specific news. Shares are trying to rebound after the Under Armour crash on Tuesday.

Original Trade Description: October 21st

The Finish Line, Inc., together with its subsidiaries, operates as a retailer of athletic shoes, apparel, and accessories for men, women, and kids in the United States. The company offers athletic shoes, as well as an assortment of apparel and accessories of Nike, Brand Jordan, adidas, Under Armour, Puma, and other brands. It engages in the in-store and online retail of athletic shoes for Macy's Retail Holdings, Inc.; Macy's Puerto Rico, Inc.; and Macys.com, Inc., as well as online at macys.com. As of April 2, 2017, the company operated 573 Finish Line stores in 44 states in the United States and Puerto Rico. It also operates e-commerce site, finishline.com and mobile commerce site, m.finishline.com. The company was founded in 1976 and is based in Indianapolis, Indiana. Company description from FinViz.com.

This is a simple scenario. UK retailer Sports Direct has acquired an 8% interest in Finish Line as it tries to expand its presence in the USA. Sports Direct was acquiring additional shares through third parties in order to force an acquisition. In late August, Finish Line adopted a poison pill to prevent a forced takeover. Since that pill was enacted, the companies have been in discussions and insiders claim the deal is moving along nicely towards completion.

Wells Fargo said there was at least a 50% probability the deal would happen and they are targeting a sale in the $14 - $16 range. Shares are currently trading at $10.50 and EBITDA of 4.5. Wells Fargo said that would be the cheapest takeout in years. Staples was bought by Sycamore for 5.5 times in September. Since Staples had not posted positive comps in 10 years they believe Finish Line will be sold for more than the Staples rate.

Shares jumped on Friday after the company declared an 11-cent dividend.

I am recommending as own this stock ahead of earnings on Dec 22nd. If there is going to be a deal announced it should happen on or before earnings.

Update 10/31/17: Shares fell sharply on the Under Armour revenue drop and weak guidance. We were stopped out of the stock.

Position 10/23/17:

Long Feb $12 call @ 75 cents, see portfolio graphic for stop loss.

Previously closed 10/31: Long FINL shares @ $10.49, exit $9.50, -.99 loss.



HAWK - Blackhawk Network Hldgs - Company Profile

Comments:

Shares rallied again on news HAWK had expanded its relationship with Kroger with a long-term contract to be their gift card provider. I removed the stop loss because at 15 cents as a December option, this is truly a "lottery play" now.

Original Trade Description: October 18th.

Blackhawk Network Holdings, Inc. provides a range of prepaid gift, telecom, and debit cards in physical and electronic forms; and related prepaid products and payment services in the United States and internationally. It operates through three segments: U.S. Retail, International, and Incentives & Rewards. The company distributes closed loop gift cards in the areas of digital media and e-commerce, dining, electronics, entertainment, fashion, transportation, home improvement, and travel; non-reloadable open loop gift cards; and prepaid wireless or cellular cards that are used to load airtime onto the prepaid handsets, as well as sells handsets. It also offers general purpose reloadable (GPR) cards; and Reloadit, a GPR reload network product that allows consumers to reload funds onto their previously purchased third-party GPR cards. In addition, the company provides incentives solutions comprising solutions, which allow businesses to manage consumer incentive programs, including in-store, online, or mail-in rebate processing; a hosted software platform for managing sales person and sales channel incentive programs; bulk prepaid card ordering systems and Websites to allow business and incentive program clients to use prepaid cards as part of their incentive and reward programs; and direct-to-participant fulfillment services for prepaid cards, checks, and merchandise. Further, it offers Cardpool that provides an online marketplace and various retail locations to sell unused gift cards; digital services for online and mobile applications; and card production and processing services to its prepaid gift and telecom content providers. The company distributes its products through grocery, convenience, specialty, and online retailers. Company description from FinViz.com.

Blackhawk is in trouble. The company reported Q3 earnings of 18 cents that beat estimates for 10 cents but revenue of $208.1 million missed estimates for $216.5 million. The company guided for the full year for earnings of $1.56-$1.70 and analysts were expecting $1.68. They cut revenue guidance to $940-$981 million and analysts were expecting $1.1 billion.

The CEO said, "We have recently seen increasing competitive pressures in some retail markets and believe this will result in lower growth in our U.S. retail physical channels going forward."

PayPal, Visa and MasterCard are making a big push into prepaid cards. Blackhawk is fighting the three giants in the market and apparently, they are losing market share.

Shares fell $10 on the earnings and have continued to bleed points in the days that followed. They are at a 52-week low and are approaching a 3-year low at $30. Investors tend to flee when companies warn of increased competition and falling market share. If the $30 level breaks, the next support is around $23.

Earnings January 10th.

Because the stock is over $30 this will be an option only position.

Position 10/19/17:

Long Dec $30 put @ .50, see portfolio graphic for stop loss.



HPE - Hewlett Packard Enterprise - Company Profile

Comments:

HPE shares fell to a new level and this position is probably dead. Howeve, at 6 cents for the option there is no reason to close it. I am dropping it from the portfolio but this is a January option and that is a long way off in market time. It shares rebound over the next couple of months I will put it back into the weekly commentary.

Original Trade Description: Oct 2nd

Hewlett Packard Enterprise Company provides technology solutions to business and public sector enterprises. It operates through Enterprise Group, Software, Enterprise Services, and Hewlett Packard Financial Services segments. The Enterprise Group segment offers servers, management software, converged infrastructure solutions and technology services; hybrid cloud solutions, including private cloud platform; business critical systems; storage products, as well as 3PAR StoreServ, a Storage platform; and networking products comprising switches, points, controllers, routers, and wireless local area network and network management products. This segment also provides software-defined networking and communications capabilities; network access solutions for mobile enterprises; and consulting services. The Software segment offers software to capture, store, explore, analyze, protect, and share information and insights within and outside organizations; enterprise security, application delivery management, and IT operations management software products. This segment provides HP Vertica, an analytics database technology for machine, structured, and semi-structured data; and HP IDOL, an analytics tool for human information, as well as solutions for archiving, data protection, eDiscovery, information governance, and enterprise content management. The Enterprise Services segment offers consulting, outsourcing, and support services across infrastructure, applications, and business process domains; and application and business services that help clients to develop, revitalize, and manage their applications and information assets. The Hewlett Packard Financial Services segment provides leasing, financing, IT consumption and utility programs, and asset management services. Company description from FinViz.com.

Expected earnings Dec 5th.

HPE has been undergoing an intense reorganization for several years. That included splitting off from HPQ in an effort to separate the corporate business from the consumer business. Meg Whitman has done a superb job in trimming excess departments and selling off non-core assets.

Recently, she announced another 10% reduction in the workforce that would result in 5,000 job cuts. She said the reductions would result in fewer lines of business and a more streamlined decision process. The current 3-year plan calls for savings of $1.5 billion and shift the focus towards research and development.

When Whitman took over in 2011 Hewlett Packard had 350,000 workers before the spinoff. Now HPE has 52,000.

The company now specializes in cybersecurity, enterprise WiFi, cloud services, servers and other corporate technology. Whitman recently said the company is seeing rapidly growing demand across key areas of the business.

Shares closed at a new high on Monday after trading in a $2 range for almost a year. I believe the latest announcement on reductions and streamlined operations has finally struck a chord with investors.

Update 10/3/17: Shares down slightly on news they allowed Russia to examine the source code of security software used to guard Pentagon secrets. The review was required by Russia and other countries prior to those countries considering HPE as a cybersecurity vendor for their secrets. However, by letting Russian software engineers view the source code, supposedly to make sure there was no hidden back door access for US spies, they learned how the code worked, what the software was guarding against and gave them insights as to how they could defeat it. The top White House cyber security official said this was becoming a bigger problem because everyone (other countries) was demanding to see the source code and that has now become a security risk.

Update 10/19/17: The company announced a $2 billion increase to $5 billion for their stock buyback but that was not enough to overcome the rest of the news. At their investor day the CFO said they expect 5% revenue growth for 2017 and "modest" growth in 2018. They guided for earnings of $1 in 2017 and $1.15-$1.25 in 2018. That matched analyst estimates. Shares imploded to stop us out. The option is nearly worthless and will move to the Lottery Play section.

Update 10/27/17: HPE introduced a new suite of AI equipment to speed up performance computing and machine learning applications. They are optimized for Nvidia's V100 GPUs. They also announced five HPE CoE (Centers of Excellence) datacenters where select customers would have access to the latest Nvidia GPUs on HPE systems. Those are in Houston, Palo Alto, Bangalore India, Tokyo and Grenoble France. Don't count this company out just yet.

Position 10/3/17:

Dropped 11/3/17: Long Jan $16 call @ 50 cents, exit zero, -.50 loss.

Previously closed 10/19: Long HPE shares @ $14.97, exit $14.25, -.72 loss.



TTS - Tile Shop Holdings - Company Profile

Comments:

The CEO resigned and that kept the pressure on the shares but support at $8.50 is holding. We have a long time to wait with a February call.

Original Trade Description: October 23rd

The Tile Shop is a leading specialty retailer of manufactured and natural stone tiles, setting and maintenance materials, and related accessories in the United States. The Company offers a wide selection of high quality products, exclusive designs, knowledgeable staff and exceptional customer service, in an extensive showroom environment with up to 50 full-room tiled displays which are enhanced by the complimentary Design Studio – a collaborative platform to create customized 3D design renderings to scale, allowing customers to bring their design ideas to life. The Tile Shop currently operates 134 stores in 31 states and the District of Columbia, with an average size of 20,500 square feet and sells products online.

The Tile Shop reported earnings of 5 cents and revenue of $84.4 million. Analysts were expecting 4 cents and $84.1 million. It was a minor beat but the company had warned on revenues back in early October and analysts reduced their forecasts.

Shares have been severely beaten up since July with a drop from $20 to $8. The company blamed the highly promotional environment and customers shopping for "entry level" products. The company has rectified this deficiency by adding some cheaper products and said they were adjusting their advertising and promotions to meet demand.

Shares have been flat all month but ticked up slightly on Friday and then accelerated on Monday. After a month of consolidation, it may have formed a bottom.

Earnings January 16th.

I am using February options to provide some earnings expectations in the premium. The December options are cheaper but will decay faster.

Update 10/27: The company announced the CEO was stepping down and the founder was taking over as interim CEO until a replacement could be found. This is not good news. I am tightening the stop loss on the call and recommending we close the long stock position.

Position 10/24/17:

Long Feb $10 call @ 80 cents, see portfolio graphic for stop loss.

Previously closed 10/30: Long TTS shares @ $9.65, exit $8.85, -.80 loss.



VIPS - Vipshop Holdings - Company Profile

Comments:

No specific news. Shares appear to have found a bottom at $7.85. We need one more dip lower to give us a profit on this position.

Original Trade Description: October 7th.

Vipshop Holdings Limited, through its subsidiaries, operates as an online discount retailer for various brands in the People's Republic of China. It offers a range of branded products, including women's apparel, such as casual wear, jeans, dresses, outerwear, swimsuits, lingerie, pajamas, and maternity clothes; men's apparel comprising casual and smart-casual T-shirts, polo shirts, jackets, pants, and underwear; women and men shoes for casual and formal occasions; and accessories consisting of belts, fashionable jewelry, watches, and glasses for women and men. The company also provides handbags, such as purses, satchels, duffel bags, and wallets; apparel, gear and accessories, furnishings and decor, toys, and games for boys, girls, infants, and toddlers of all age groups; sports apparel, and sports gear, and footwear for tennis, badminton, soccer, and swimming; and skin care and cosmetic products, including cleansers, lotions, face and body creams, face masks, sunscreen, foundations, lipsticks, eye shadows, and nail polish. In addition, it offers home furnishing products comprising bedding and bath products, home decors, and dining and tabletop items; small household appliances; designer apparel, footwear and accessories; and snacks, health supplements, and occasion-based gifts, such as chocolates, moon-cakes, and tea. Further, the company provides consumer financing, supply chain financing, and wealth management services. The company provides its branded products through its vipshop.com, vip.com, and lefeng.com Websites, as well as through its cellular phone application. Company description from FinViz.com.

Vipshop is in the flash sale business. That means other retailers bring them products they cannot sell and Vipshop marks down the price and runs a special flash deal special to clear out the inventory. Vipshop has been around for nearly 10 years and did very well in the early years. Unfortunately, profits are fading because manufacturers and other retailers can now unload their products on Amazon and Alibaba without the valuation haircut that occurs with Vipshop.

Earnings for the recent quarter were 17 cents and estimates were 19 cents. Revenue rose 30% to $2.58 billion. They filled 84.8 million orders.

Expected earnings Nov 15th.

The problem was rising costs. Margins declined in what Vipshop called a highly promotional market with higher advertising costs in hopes of gaining market share. If you translate that sentence it means they had to cut prices to generate the sales and they had to pay more for advertising to lure customers into the sale process.

With Alibaba's growth surging well beyond the optimistic estimates by analysts, they are taking over the online sales channel in China. This does not bode well for Vipshop in the future. Add in the Amazon monopoly in the US and Vipshop has nowhere to go to escape the rapidly growing retail cloud. The flash sales business has died in the US after a flood of competitors surged into business and then quickly disappeared.

Shares closed at a four-year low on Friday at $8.35 with the next support level around $2.50.

Position 10/9/17:

Closed 10/17: Short VIPS shares @ $8.36, exit $8.50, -.14 loss.
Alternate position: Long Nov $8 put @ 40 cents, see portfolio graphic for stop loss.





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