Option Investor

Daily Newsletter, Wednesday, 6/22/2016

Table of Contents

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

Market Wrap

Another Day of Waiting for Brexit

by Keene Little

Click here to email Keene Little
Even though the Brexit vote will have very little immediate impact on European economies (it will take time to separate if that's the way the vote goes) and it will certainly have very little impact on the U.S. for quite some time. But it shows how the market hates uncertainty and is simply waiting to get through Thursday's vote.

Today's Market Stats

It was another quiet day in the markets as we wait to get through the Brexit vote and relieve the anxiety many are feeling about it. Especially for the U.S. there's little to worry about since any changes will be slow in coming and they won't have as much of an impact on us as it will on Europe. But the market hates uncertainty and once we get through Friday we can get on with worrying about what the Fed will/won't do. Certainly the market is not worried about such things as the economy or corporate earnings or any other such silly nonsense.

There's very little to discuss tonight since all eyes and ears are on Britain and its upcoming vote. We'll have the results tomorrow night and the overnight futures will tell us what to expect Friday morning. Will it be a relief rally or will it instead be a sell-the-news event? One could easily argue each case and we'll have to let the dust settle on Friday before we'll get a better sense about the market's next move.

Speaking of overnight futures market, I see equity futures popped back up when they opened at opened at 18:00 and that was apparently a reaction to two new polls this evening that show the votes to remain are ahead of Brexit support and starting to widen. Whether or not the early-evening pop will hold through tomorrow is anyone's guess. Each rally attempt this week has faded in the afternoon and it's one of the reasons why I wonder if a relief rally on Friday might not lead to a sell-the-news reaction (a little bit for both sides). One can only speculate and that's not a good trade setup. Unfortunately the charts look just as confused and they're not much help in figuring out what might happen on Friday. I'll start with a weekly view of SPX.

S&P 500, SPX, Weekly chart

The June 8th high for SPX, at 2120, was a minor new high above its April high at 2111 and it was also a test of its downtrend line from May-July 2015. The weekly shooting star at resistance was followed by last week's red candle and that puts SPX on a sell signal, which can only be negated with a rally above 2120. A stronger bullish move would obviously be a rally above the May 2015 high near 2135. The expectation from here is for a strong decline in the 3rd wave of the great bear market that started off the May 2015 high. There's a lot to be done by the bears before that becomes a more likely outcome, starting with a break below last week's low at 2050.

S&P 500, SPX, Daily chart

Monday's high for SPX was a small throw-over above its broken uptrend line from February-May, near 2093 at the time and currently near 2100 (and back-tested again today), as well as its broken 20-dma, currently near 2093. The daily candle finished as a shooting star at resistance, which is not bullish. Yesterday's candle was a doji, indicating indecision. Today's candle is another doji, more indecision. The morning high was held back by the broken uptrend line and the afternoon low was support at price-level S/R near 2085.

At the moment the short-term pattern tells me we have something more bearish than bullish but in reality it could go either way, and following the Brexit vote it just might do that. If it does break down into the 3rd wave of the decline from June 8th, it will be a strong selloff and likely down to price-level support at 1992 and potentially much lower. If we get a rally above the June 8th high I think it would be a good time to chase the market higher (always cognizant of a possible head-fake break higher since at the moment I think upside potential continues to be dwarfed by downside risk).

Key Levels for SPX:
- bullish above 2121
- bearish below 2050

S&P 500, SPX, 60-min chart

The short-term pattern that I'm watching, to see if we get another confirmed sell signal and get an advance warning of how Friday might go, is shown on the 60-min chart below. We don't have a clean wave pattern for the leg down from June 8th but from a bearish perspective it's a 1st wave down and the 3-wave bounce into Monday's high is a 2nd wave correction. The next big move should be a stronger selloff below last Thursday's low at 2050. Based on some short-term price projections for the wave count, a drop below 2070 would keep the sell signal active. Above Monday's high near 2101 would negate the bearish pattern and above 2117 would put it on a buy signal. Let price lead the way before making any big bets.

Dow Industrials, INDU, Daily chart

The Dow's pattern is very similar to SPX so all the same comments apply. It too back-tested its broken uptrend line from February-May on Monday and is now trying to hold support at its 20- and 50-dmas, near 17820 and 17803, resp. Today it closed at 17761 and remains on a sell signal but not a strong one. It could go either way here and while I like the short side better than the long side, I'm not trading without protection.

Key Levels for DOW:
- bullish above 18,120
- bearish below 17,400

Nasdaq-100, NDX, Daily chart

Today's bounce attempt by NDX was rejected at its broken 50-dma, which it has done several times since breaking on June 13th. Today's high was also a test of Monday's high but it left a bearish divergence and under normal circumstances I'd strongly recommend a short play here, especially since it also closed again below its 200-dma, near 4414, as well as its uptrend line from February 8 - May 19, near 4418. The short-term pattern suggests lower prices and that's the way I'm leaning. But there are plenty of reasons to be cautious heading into Friday.

Key Levels for NDX:
- bullish above 4537
- bearish below 4362

Russell-2000, RUT, Daily chart

Different name, same pattern -- the RUT also looks like it will head lower following the 3-wave bounce off last Thursday's low into Monday morning's high. It's been struggling with resistance at price-level S/R near 1160, as well as its broken 20-dma, currently near 1159 (today's high was 1161). A drop below 1110 is needed by the bears to prove it's not just a pullback correction since below 1110 would be below several layers of support (trend lines, 50- and 200-dmas) and below a downside projection for two equal legs down from June 8th for a possible a-b-c pullback correction.

Key Levels for RUT:
- bullish above 1190
- bearish below 1110

Volatility index, VIX, Daily chart

We might be getting some clues from the VIX but in reality I would expect it to register some fear (higher VIX) as we head for the Brexit vote. A decline in VIX this week would have had me thinking the market is too complacent when it should be worried. The VIX dropped from last Thursday's high but then started back up after Monday's morning's gap down. What's interesting is how it's finding support at its 200-dma (only a minor break below it, currently at 18.13) and its broken downtrend line from January-February, currently near 17 (Monday's low was 16.59). If this was a stock I'd be interested in buying it and of course a rallying VIX would mean a declining stock market. I would not trade based on just the VIX but it does offer up a reason for concern about the stock market.

If you're an option trader you need to be aware that prices are inflated right now, which means you'll pay a higher time premium. If we get a relief rally on Friday we could find the VIX collapsing, which would collapse the time premium as well. How many of you bought a call and the trade went in your direction but you lost money on the option position? Maybe that's only happened to me (wink) but that's why it happens. Puts are better plays (unless the underlying rallies of course) because you generally make money with the direction and the inflation of time premium. It's a win-win kind of trade. Calls can be more difficult to make money if you're not careful to note the current IV (implied volatility) vs. the historical IV.

10-year Yield, TNX, Daily chart

Last Wednesday I had mentioned I expected to see a bounce correction for TNX since it looked like the leg down from May 31st was completing an impulsive move and should be followed by a bounce correction before heading lower. The next day it spiked lower but then did a v-bottom reversal, which was then followed by a rally into this week. I thought the bounce might make it back up to the 1.72 area to back-test its broken sideways triangle and its 20-dma, currently near 1.71. It has now retraced 50% of its decline from May 31st, at 1.70, so if it climbs above 1.72 I see upside potential to its 50-dma, at 1.77 and perhaps its broken uptrend line from July 2012 - January 2015, near 1.80. Lastly it would close its June 3rd gap down at 1.81. Above that level and I'd feel much less bearish TNX (bullish bond prices) but at the moment watch for the possibility of a turn back down at any time. Perhaps on Friday following the Brexit vote?

KBW Bank index, BKX, Weekly chart

The weekly chart for BKX does not inspire any bullish feelings for me. While it could bounce back up a little higher, perhaps back up to its broken 50-week MA (69.68) and its downtrend line from July-December 2015, it's currently risking a breakdown from support at its 200-week MA, currently at 66.41, and price-level S/R near 66.50. Yesterday's low was 66.05 and today's was 66.53 (it closed on 3 cents higher at 66.56). If it gives up support here and then drops below last week's low at 64.67 I think we'd be hearing the fat lady signing a song of sorrow for the bulls.

U.S. Dollar contract, DX, Daily chart

The US$ is still inside its down-channel from December 2015 and has dropped back down to the top of its up-channel from May 2011, which it had broken above in December 2014. Like the stock market, many currencies are just chopping sideways while waiting to get through Brexit. The larger price pattern for the dollar suggests an upside breakout, I'm wondering if we're going to get at least a retest of its May low at 91.88.

Gold continuous contract, GC, Weekly chart

Last week gold made it up to its 200-week MA, near 1313, and has since reversed back down. The two new highs since March have left significant bearish divergences and it's not a rally I'd chase higher from here. We're due at least a larger pullback before heading higher. But I'm not convinced yet that we're going to get higher prices before first making a new low (down towards 1000).

Oil continuous contract, CL, Weekly chart

Oil is doing a slow roll over from resistance near 51, which includes price-level resistance (October 2014 high), some internal price projections based on the wave pattern, and the broken uptrend line from 1998-2008. It could run higher, such as to price-level S/R near 58.50, but at the moment the price pattern suggests the bounce off last Friday's low should be shorted against the June 9th high. The past few weeks I've shown the daily chart with the rising wedge off the April 5th low at 35.24. The breakdown from the wedge suggests a quick trip back to the 35 area.

Economic reports

There's nothing to see here, move along. Anyone watching economic reports this week? Me neither. It's all Brexit.


Brexit polls show the vote is going to be extremely close but betting places, like predictit.org, shows the vote is narrowing but not close. The stay vote is currently 70% vs. 30% to leave. In other words it's more than 2:1 in favor of staying if the bettors are correct (and they put real money behind their votes). That's not a close vote and these betting sites tend to be more accurate. Therefore, if the final result of the Brexit vote shows an overwhelming majority voted against Brexit it's likely to boost stock markets worldwide and we could see a big gap up on Friday. The results will be in late Thursday night for Britain and in the evening hours for us, which means we'll see the results in the overnight futures market.

But, and this is a big but, the stock markets have been rallying/holding up into the Brexit vote, probably due to an expectation that the Brexit vote will fail. I don't think I'm overstating the significance of a Brexit vote that passes since I think it would be a shock to the system and stock markets around the world are one black swan event away from crashing. When I say downside risk dwarfs upside potential it's because of this crash potential. The lack of liquidity in this market is a very dangerous situation that doesn't become apparent until we get a big selling event.

It's never a good idea to bet on a market crash because they're so infrequent. But it doesn't mean you should never prepare for one. Stop orders on positions could get gapped over if the market opens with a big gap down (if they're limit stop orders) or a market stop order might find a buyer much lower than you thought possible. I think it's very important to at least have put protection on your portfolio. The premiums are inflated right now with the higher VIX but that's a small price to pay to protect yourself. Dump them next week if you think they're still not needed.

Even if the result of the vote is to stay, there is the risk that we'll see a gap up but then a quick sell-the-news reaction, especially since the market already rallied on Monday to recover the previous week's selloff on Brexit worries. Monday's rally is holding as we approach the vote but the price patterns are not clear enough to offer a higher-odds trade setup. As far as trading this event, I don't think we can hazard a guess how the market will react to a vote either way and therefore heading into Thursday's close would be a good time to get flat and then let the dust settle on Friday. Trading is different from protection -- the former is by choice while the latter is required if you have long positions that you don't want to sell right now.

If you really want to try a trade going into Friday, the most I'd risk is a long option position that you're prepared to lose (but potentially make some good money on it, depending on whether you bet on black or red). I prefer trading with good setups that enable me to control my risk whereas betting on "red" or "black" is simply gambling and it's very important to understand the difference between trading and gambling. We don't do gambling here, right? Having said that, I do like the idea of a couple of puts (all risk, no stop) and hold it into next week before deciding whether to keep the position or get rid of it.

Good luck the rest of this week and I'll be back with you next Wednesday when we should have good confirmation of whether the bearish patterns win or get negated.

Keene H. Little, CMT

In the end everything works out and if it doesn't work out, it is not the end. Old Indian Saying

New Option Plays

Brexit Trade

by Jim Brown

Click here to email Jim Brown

Editors Note:

The financial sector is going to react the best/worst to the outcome of the Brexit vote. The dollar will also be extremely reactive depending on the outcome. If they vote to remain the dollar should decline slightly. If they vote to exit the dollar should rocket higher. An exit vote would also spike bonds and lower yields as a safe haven play.

The big banks are heavily exposed to the UK with Goldman getting 26% of their revenue there and JP Morgan 15%. Any Brexit trade is 100% binary. That means it will be a 100% loss or a major gain. However, the stress tests for the major banks are due out on Thursday and again next Wednesday. This could be another factor that could come into play and make it less dangerous.

Goldman options are too expensive for a pure risk position so I am going with JPM.


JPM - JP Morgan - Company Description

JPMorgan Chase & Co. operates as a financial services company worldwide. It operates through Consumer & Community Banking, Corporate & Investment Bank, Commercial Banking, and Asset Management segments. The Consumer & Community Banking segment offers deposit and investment products and services to consumers; lending, deposit, and cash management and payment solutions to small businesses; residential mortgages and home equity loans; and credit cards, payment services, payment processing services, auto loans and leases, and student loans. The Corporate & Investment Bank segment provides investment banking products and services, including advising on corporate strategy and structure, capital-raising in equity and debt markets, as well as loan origination and syndication; treasury services, such as cash management and liquidity solutions; and cash securities and derivative instruments, risk management solutions, prime brokerage, and research services. It also offers securities services, including custody, fund accounting and administration, and securities lending products for asset managers, insurance companies, and public and private investment funds.

JP Morgan has 15% revenue exposure to Brexit. That will be the major market mover the rest of the week. They are also expected to increase their capital return percentages for buybacks and dividends. Those will be announced next Wednesday.

I am playing the call side because the potential for a short squeeze on a remain vote or a major buy the dip program on an exit vote. The put options are more than double the call options so it appears everyone is expecting the worst. Shares have declined to the bottom of their uptrend channel.

I am using the August options to capture all the events over the next couple weeks. Earnings are July 14th and we will exit before earnings.

This is probably a 100% loser or a 200% gainer. There is no in between because of the binary nature of the event. We cannot use stop losses on this position because of the potential for opening gaps.

Buy August $65 call, currently $1.15, no stop loss.


No New Bearish Plays

In Play Updates and Reviews

Wait and See Posture

by Jim Brown

Click here to email Jim Brown

Editors Note:

The opening gains on the S&P to 2,099 were quickly sold and the index closed at the low for the day. The early polls suggested the "leave" camp had regained the momentum as the Brexit vote looms for Thursday. Markets rolled over on poll updates in the middle of the day.

However, after the close the latest YouGov poll showed the "remain" camp had lifted to 51% compared to 49% for leave. However, the YouGov poll eliminates the undecided voters. That changes the actual percentages. The undecided's have been running about 11% of the total. I would not get too excited because the prior two polls were 45-44 leave and 43-41 leave. Those polled a total of 5,320 voters. The ComRes poll that came out overnight surveyed 1,032 voters and the percentages were 48-42 in favor of staying. The only thing we can deduce from these polls is that it will be very close and we will not know the answer until the last minute. The FT poll of polls has it 47% remain and 45% leave after today's 4 polls.

S&P futures spiked up +10 points in afterhours trading but there is a lot of darkness before morning.

Current Portfolio

Current Position Changes

CNC - Centene Corp

The long call position was entered at the open at $69.00.

MYGN - Myriad Genetics

The long put position was stopped out at $31.85

PRGO - Perrigo

The long call position was stopped out at $94.95

Profit Targets

Check the graphic above for any profit stops in green. We need to always be prepared for a profit exit at resistance.

Stop Loss Updates

Check the graphic above for any new stop losses in bright yellow. We need to always be prepared for an unexpected decline.

BULLISH Play Updates

AMBA - Ambarella -
Company Description


No specific news. Shares declined again but still over support. This was probably pre Brexit profit taking.

Original Trade Description: June 18th.

Ambarella, Inc. develops semiconductor processing solutions for video that enable high-definition (HD) video capture, sharing, and display worldwide. The companys system-on-a-chip designs integrated HD video processing, image processing, audio processing, and system functions onto a single chip for delivering video and image quality, differentiated functionality, and low power consumption. Its solutions enable the creation of video content for wearable sports cameras, automotive aftermarket cameras, and professional and consumer Internet Protocol (IP) security cameras, as well as cameras incorporated into unmanned aerial vehicles in the camera market; and manage IP video traffic, broadcast encoding and transcoding, and IP video delivery applications in the infrastructure market.

The company reported earnings on June 3rd of 34 cents that beat estimates for 28 cents. They guided for Q2 for revenues of $60-$66 million compared to estimates for $69 million. They announced a $75 million share buyback effective immediately or 5.4% of the company's stock.

The verbal guidance for stronger sales was much better than the actual numbers presented. Analysts believe they were under promising so they can continue beating estimates. The revenue miss came from two sources. GoPro cameras are facing stiffer competition and sales are slowing. However, the hero 5 is expected to be announced in September and demand should be strong. Secondly, Sony had a problem with the sensors in its new cameras and production was pushed back significantly until they get the problem solved. That prevented Ambarella from delivering and billing for a large quantity of chips until Sony was ready to proceed. That is also expected to be solved in Q2.

Ambarella popped to about $53 in the week after earnings from a prior close at $42. Shares have consolidated in the $51-$52 range for more than a week and are now pressing the top end of that range. With a positive market I would expect a strong breakout. Even in the currently weak market the shares have been posting minor gains and no material declines.

Earnings are August 30th.

I am going to put an entry trigger on this play just in case the market tanks on Monday. If we do get a significant pullback next week I will revise the recommendation.

Position 6/20/16 with an AMBA trade at $53.50

Long August $57.50 call @ $2.51, see portfolio graphic for the stop loss.

CNC - Centene Corp - Company Description


No specific news. Minor gain in a weak market.

Original Trade Description: June 11th.

Centene Corporation operates as a diversified and multi-national healthcare enterprise that provides programs and services to under-insured and uninsured individuals in the United States. It operates through two segments, Managed Care and Specialty Services. The Managed Care segment offers Medicaid and Medicaid-related health plan coverage to individuals through government subsidized programs, including Medicaid, the State childrens health insurance program, long-term care, foster care, and dual-eligible individual, as well as aged, blind, or disabled programs. Its health plans include primary and specialty physician care, inpatient and outpatient hospital care, emergency and urgent care, prenatal care, laboratory and x-ray services, home health and durable medical equipment, behavioral health and substance abuse, 24-hour nurse advice line, transportation assistance, vision care, dental care, immunizations, prescriptions and limited over-the-counter drugs, specialty pharmacy, therapies, social work services, and care coordination. The Specialty Services segment provides pharmacy benefits management services; health, triage, wellness, and disease management services; vision services; dental services; correctional healthcare services; in-home health services; and integrated long-term care services, as well as care management software that automate the clinical, administrative, and technical components of care management programs.

On Monday Centene was upgraded by Barclays to overweight (buy) with an $82 price target. They based the upgrade on the growth and valuation potential after the completion of the $6.8 billion Health Net (HNT) merger at the end of March. Health Net had 5.9 million individuals in plans in all 50 states. They also offered employee assistance plans to approximately 7.3 million individuals. The combined companies now insure more than 10 million individuals. Barclays said the combined management team had improved with the merger.

Barclays said, "we believe shares of CNC have simply corrected too far and too long, and now represent a very attractive investment."

Earnings are July 26th.

Shares spiked $2 on the upgrade and failed to pull back on Tuesday. That spike pushed CNC over resistance and any further move higher would be a breakout.

Position 6/22/16

Long August $72.50 call @ $1.97, see portfolio graphic for stop loss.

COST - Costco - Company Description


Costco customers complaining about not receiving their new Visa cards and the American Express cards no longer work. It did not hurt the shares with a decent gain in a weak market.

Original Trade Description: June 11th.

Costco Wholesale Corporation, together with its subsidiaries, operates membership warehouses. The company offers branded and private-label products in a range of merchandise categories. It provides dry and institutionally packaged foods; snack foods, candy, tobacco, alcoholic and nonalcoholic beverages, and cleaning and institutional supplies; appliances, electronics, health and beauty aids, hardware, and garden and patio; meat, bakery, deli, and produce; and apparel and small appliances. The company also operates gas stations, pharmacies, food courts, optical dispensing centers, photo-processing centers, and hearing-aid centers; and engages in the travel business. They operate 690 warehouse stores plus online shopping.

A Costco membership costs $55. It is almost worth the cost if all you bought was gasoline. The store charges 7-15 cents less than the prevailing rates at other local stations. There are normally lines at the Costco pumps because it is a bargain. If you purchased 15 gallons of gas per week and saved an average of 10 cents you would save $78 a year and more than enough to cover the cost of the membership. Multicar families would save even more.

However, Costco to many people means bulk purchases of items too big to store in your normal pantry. The mental image of Costco is someone pushing a cart with cases of toilet paper, paper towels, laundry soap and canned goods. While that may be true for a lot of shoppers there are still bargains on everything else. My son stopped there on Saturday to buy 15 gallons of ice cream, 10 watermelons, scores of picnic plates and plastic utensils for a party he was throwing. I know people who only shop at Costco and do not go to stores like Safeway, Kroger, etc. Once you get the Costco shopping virus it is hard to not go there. You can even by caskets at Costco. Members bought 465,000 cars through Costco in 2015. The warehouse chain is the number 1 seller of organic food at $4 billion in 2015 compared to Whole Foods at $3.6 billion. Costco has 84 million paying members and you can cancel at any time and get a full refund.

This has helped Costco maintain an average annual growth rate of 13% while other stores are lucky to manage 2-4% a year. Walmart only grew at 0.44% last year and Target 5.4%. In the latest quarter adjusted for fuel and currency fluctuations Costco managed only 3% same store sales growth compared to estimates for 4.6%. They blamed the colder than normal April weather and the weak retail consumer. We already know from other retailers that sales were down sharply all across the sector.

They reported adjusted earnings of $1.24 compared to estimates for $1.22. Revenue rose +2.6% to $26.77 billion and missed estimates for $27.07 billion for the reasons I stated above. Analysts expect earnings to grow 12% annually over the next two years.

Earnings are Sept 29th.

Shares spiked up to $154 after earnings on May 26th and then went sideways for a week while those gains were consolidated. Now they are trending higher again and even closed up on Friday in a weak market.

Position 6/13/16:

Long Oct $160 call @ $4.40, see portfolio graphic for stop loss.

You could lower your cost and improve your profitability by selling the Oct $140 put short for $2.50 making your net debit $1.85 and it does not look like Costco will see $140 again.

NVDA - Nvidia Corp - Company Description


No specific news. Very minor decline from Monday's new high.

Original Trade Description: May 11th.

NVIDIA Corporation operates as a visual computing company worldwide. It operates in two segments, GPU and Tegra Processor. The GPU segment offers processors, which include GeForce for PC gaming; Quadro for design professionals working in computer-aided design, video editing, special effects, and other creative applications; Tesla for deep learning, accelerated computing, and general purpose computing; and GRID for cloud-based streaming on gaming devices. The Tegra Processor segment provides processors that integrate a computer onto a single chip under the Tegra brand name; DRIVE automotive computers, which offer supercomputing capabilities; and tablet and portable devices for mobile gaming under the SHIELD name. The companyÂ’s products are used in gaming, professional visualization, datacenter, and automotive markets. It sells its products primarily to original equipment manufacturers, original design manufacturers, system builders, motherboard manufacturers, add-in board manufacturers, and retailers/distributors.

Q1 earnings rose 46% to 33 cents and beat earnings by a penny. They hiked full year revenue guidance as well as the current quarter. Tor Q2 they raised the forecast to $1.35 billion that was above analyst estimates at $1.28 billion. Gaming revenue was up 17% to $687 million but all areas of effort saw significant gains. They recently released a new graphics card that is twice as fast and 40% cheaper than the card it is replacing.

Nvidia's Graphics Processing Units or GPUs have become more than just video chips. They have become supercomputing processors and can be packaged in large groups to parallel process monster datasets and computations that would have taken weeks with conventional chips. They are truly revolutionizing the processor industry.

The focus on Artificial Intelligence or AI, a lot of companies like Google and Amazon are turning to GPUs to handle the monster amounts of data they collect every day. Facebook already uses Nvidia M40 GPU accelerators to power its Big Sur machine learning computers. Those NVIDIA GPUs were specifically designes to train deep neural networks for enterprise data centers, and the company says they are 10-20 times faster than other network computers. Nvidia said their GPD powered machine learning computers can help train networks new things in just a few hours that would take days or weeks with less powerful systems.

The new P100 GPU is 12 times faster than the prior version and can provide more performance than "several hundred computer nodes" and up to eight P100s can be interconnected to provide previously unheard of computing power. The chips in the GPUs contain more than 15.3 billion transistors each and the largest chip ever built at 16 nanometer technology. That is twice as many as on Intel's biggest chips. The P100 delivers more than 10 teraflops of performance. One teraflop can process one trillion floating-point instructions per second and the P100 can do 10 teraflops or 10 trillion calculations per second.

The COSMOS weather forecasting application runs faster on the P100 than the 27 servers, running twin multicore processors each that were previously tasked with the project. Intel makes commodity processors for the millions of PCs and servers in the world. Nvidia is light years ahead of Intel in technology. Nvidia's data center revenue increased 63% in Q1.

More than 50 automakers are testing the new Drive PX chip for self-driving cars. The chip combines inputs from cameras, lasers, maps and sensors to allow cars to drive themselves and learn from each experience.

Earnings August 11th.

I have been waiting for a dip to enter a position on Nvidia but it never came. I thought the $1 drop this week was a prelude and we could get a better entry point when the market pulled back. The market does not look like it will decline until after the Fed meeting and Nvidia is back at a new high. I am going to bite the bullet and make the entry before it is over $50 and I am kicking myself even harder.

Position 6/10/16:

Long August $49 call @ $2.22, see portfolio graphic for stop loss.

PRGO - Perrigo Company - Company Description


No specific news but Perrigo crashed -$2.64 to stop us out. This was a serious breakdown in the stock.

Original Trade Description: June 8th.

Perrigo develops, manufactures, markets, and distributes over-the-counter (OTC) consumer goods and pharmaceutical products worldwide. The company operates through Consumer Healthcare (CHC), Branded Consumer Healthcare (BCH), Prescription Pharmaceuticals (Rx), Specialty Sciences, and Other segments. The CHC segment offers OTC products in various categories, including analgesics, cough/cold/allergy/sinus, gastrointestinal, infant nutritional, smoking cessation, animal health, feminine hygiene, diabetes and dermatological care, diagnostic, scar management, and other healthcare products, as well as vitamins, minerals, and dietary supplements (VMS); and contract manufacturing services. It serves retail drug, supermarket, mass merchandise chains, and wholesalers through sales force and industry brokers. The BCH segment provides branded OTC products in the natural health and VMS; cough, cold, flu, and allergy; personal care and derma-therapeutics; lifestyle; pain relief, nasal decongestants, and cold sore management; and anti-parasite areas, as well as offers generic pharmaceutical products. It serves pharmacies, drug, and grocery stores through pharmacy sales force, as well as a network of pharmacists. The Rx segment offers generic and specialty pharmaceutical prescription drugs in various dosage forms, such as creams, ointments, lotions, gels, shampoos, foams, suppositories, sprays, liquids, suspensions, solutions, powders, controlled substances, injectables, hormones, women's health products, oral solid dosage forms, and oral liquid formulations; and ORx products. It serves wholesalers; retail drug, supermarket, and mass merchandise chains; hospitals; and pharmacies. The company was founded in 1887.

In the first quarter Perrigo was doing ok in a weak market for pharma stocks until CEO Joe Papa resigned unexpectedly to take over as CEO of Valeant. Shares fell from $128 to $85 over about three weeks. The company suffered multiple analyst downgrades and investors fled the stock.

They reported earnings on May 12th of $1.75 that missed estimates for $1.83. However, revenue of $1.38 billion did beat estimates for $1.35 billion. You would have thought that would push shares even lower but the company reiterated guidance for full year earnings of $8.20 to $8.60 per share, an 8-13% increase. Adjusted gross margin was a record at 47.9% with operating margins of 25.1%.

Earnings August 4th.

Shares immediately begin to rise after the guidance. Today's close at $100 is above the close on the CEO exit drop. This should be the start of a major recovery back to the $120 level by year end. The strong earnings guidance offset the kitchen sink quarter that normally occurs when a new CEO takes charge. They want to get all the skeletons out of the closet so future quarters under their reign will be positive.

On June 1st, Morningstar named Perrigo as one of their top ten buys for 2016.

Unfortunately, Perrigo options are expensive. We cannot use July strikes because the next strike is $5 out of the money, June expires next Friday and the premiums will collapse. The next strike is August but at least that will leave some earnings expectations premium when we exit before earnings. If you want to defray your net debit you can sell a higher priced call or offset by selling a naked put.

I will profile both sets of options. My recommendation would be to sell the put since PRGO is in a strong uptrend. That way you are not limiting your upside as you would by selling the higher strike call.

Position 6/9/16

Closed 6/22/16: Long August $105 call @ $4.55, exit $2.40, -2.15 loss.


Closed 6/22/16: Short August $90 put @ $2.20, exit $4.10, -1.90 loss.

Call Spread Example: Short August $115 call @ $1.77, exit $1.50, +.27 gain.

QRVO - Qorvo Inc - Company Description


No specific news. Gave back Tuesday's gains but still holding the highs.

Original Trade Description: June 14th.

Qorvo, Inc. provides technologies and radio frequency (RF) solutions for mobile, infrastructure, and defense and aerospace applications worldwide. It operates through Mobile Products (MP) and Infrastructure and Defense Products (IDP) segments. The MP segment supplies its RF solutions into mobile devices, including smartphones, notebook computers, wearables, tablets, and cellular-based applications for the Internet of things. The IDP segment provides low noise amplifiers, switches, radio frequency filter solutions, CMOS system-on-a-chip solutions. This segment supplies its RF solutions to wireless network infrastructure, defense, and aerospace markets; and connectivity applications for commercial, consumer, industrial, and automotive markets.

Qorvo is a major supplier to Apple and other smartphone manufacturers. The slowdown in Apple iPhone sales hurt earnings last quarter but sales increases to Samsung and Chinese handset maker Huawei have helped to offset sluggish demand. The Samsung Galaxy S7 is selling very well and taking over the smartphone market. Strong base station demand rose +25% sequentially and a 9% increase in defense spending is helping offset the perceived slowdown in iPhones.

However, sales of the new iPhone 5E were only expected to be 10-15 million but sales have ramped up and are now expected to be in the 40-45 million range. Citigroup upgraded Qorvo and downgraded Slyworks saying the high performance Qorvo chips were much better than the Skyworks product and the company had a commanding lead in that segment. Qorvo is much better positioned for the carrier aggregation market and the low-band market fed by Skyworks was seeing a lot more competition.

Qorvo should benefit significantly from the ramp of 3G and 4G handsets into India and lower dollar emerging markets. The 5G specifications are starting to emerge and Qorvo is expected to be a leader in that transition, which will involve hundreds of millions of chips.

Earnings August 3rd.

Shares of QRVO gained 74 cents today in a very weak market. I have to stretch some on the strike because shares are just under $55 and that strike is too expensive. I am going out to $60 to get some premium relief.

Position 6/15/16:

Long Aug $60 call @ $2.10, no initial stop loss.

ZBRA - Zebra Technology - Company Description


No specific news. Still trying to move higher.

Original Trade Description: June 20th.

Zebra Technologies designs, manufactures, sells, and supports direct thermal and thermal transfer label printers, radio frequency identification (RFID) printer/encoders, dye sublimation card printers, real-time locating solutions, related accessories, and support software worldwide. Its products are used principally in automatic identification (auto ID), data collection, and personal identification applications. The company also provides mobile computing and advanced data capture technologies and services, which include rugged and enterprise-grade mobile computers; laser, imaging, and radio frequency identification based data capture products; wireless LAN (WLAN) solutions and software; and applications that are associated with these products and services. In addition, it offers barcode scanners; specialty printers for barcode labeling and personal identification; real-time location systems; and related accessories and supplies, such as self-adhesive labels and other consumables, utilities, and application software.

Back on May 10th Zebra was trading at $63 when it reported disappointing earnings. Shares tanked to $48 on the news and the stock has been steadily creeping higher since the bottom on May 19th. The company reported earnings of $1.01 compared to estimates for $1.22. Revenue of $847 million missed estimates for $879 million. They blamed the miss on a cautious enterprise spending environment and tough comparisons from double-digit growth in the year ago quarter. They adopted a "tempered outlook" for full year revenue between $3.56 and $3.7 billion and analysts were expecting $3.72 billion.

Here is an interesting article on their new products. Zebra Technology IoT Earnings August 9th.

Apparently, investors are willing to forgive and forget and the stock is in rebound mode. Resistance is that $63 level where it was trading before the earnings. That is $6 above today's close so plenty of room for a profitable trade.

Position 6/21/16:

Long August $60 call @ $2.95. See portfolio graphic for stop loss.

BEARISH Play Updates (Alpha by Symbol)

FL - Foot Locker - Company Description


No specific news. Support at $54 starting to fail.

Original Trade Description: June 15th.

Foot Locker, Inc. operates as an athletic shoes and apparel retailer. The company operates in two segments, Athletic Stores and Direct-to-Customers. The Athletic Stores segment retails athletic footwear, apparel, accessories, and equipment under various formats, including Foot Locker, Lady Foot Locker, Kids Foot Locker, Champs Sports, Footaction, and SIX:02, as well as Runners Point, and Sidestep. As of January 30, 2016, it operated 3,383 primarily mall-based stores in the United States, Canada, Europe, Australia, and New Zealand.

Unfortunately, mall traffic is slowing as we have seen repeatedly in retailer earnings comments. Sports Authority just closed all 450 of its stores because of declining sales. The NPD Group Consumer Tracking Service said the "performance" shoe business has never been worse but the total sneaker business remains solid. That means all the high dollar shoes with a sports star name attached to them are not selling, with the exception of Stephen Curry.

Only about 24% of people who buy a specific type of shoe actually wear it for that purpose. That means 75% of the shoes are just bought to wear as a daily living shoe rather than the specific sport. Running shoes are the strongest with 50% of buyers actually running. Basketball logs in at about 33% and outdoor shoes are low at 10%. Asics has been a top selling brand for sports with 66% saying they use them for that particular sport. Skechers was the lowest brand at 10%.

The luxury brands with names like Michael Jordan, Le Bron James, etc are not selling near as well as they did in the past. Foot Locker had a 50% off sales on the high dollar shoes in April in order to reduce inventory.

With shoe makers paying more and more money for super star endorsements they have to charge more for their shoes. In the current economy that is not working out well. A $200 pair of shoes is not a hot item when money is being spent on smartphones and video games instead.

Foot Locker reported earnings back on May 20th and shares dropped $5 on the news. It was not pretty. Foot Locker has been declining since the highs back in October. After the post earnings drop they rebounded about $2 to $56 but could not gain any momentum. Now that basketball is over and the summer doldrums are approaching shares have declined back to $54 and could easily break to a new 52-week low.

Earnings are August 19th.

Given the lack of excitement in shoes and the slowdown in retail, I am recommending we place a bet that Foot Locker does break down before earnings. There is support at $52 but the decline since October is accelerating.

Position 6/16/16:

Long August $52.50 put @ $2.40, see portfolio graphic for stop loss.

MYGN - Myriad Genetics - Company Description


No specific news. However, news that the Medicare "Death Panel" or Independent Payment Advisory Board (IPAB) will not be instituted until late 2017 and would submit proposals in 2018 for price reductions in 2019. This news suggests drug prices are not going to be forced lower in the near future This caused all the drug stocks to spike and we were stopped out again.

Original Trade Description: June 29th.

Myriad Genetics is a personalized medicine company, focuses on the development and marketing of predictive, personalized, and prognostic medicine tests worldwide. It discovers and commercializes molecular diagnostic tests that: determine the risk of developing disease, diagnose disease, assess the risk of disease progression, and guide treatment decisions across six medical specialties where molecular diagnostics can enhance patient care and lower healthcare costs.

On June 10th, Crescendo Bioscience, a wholly owned subsidiary of Myriad announced the results of some trials on Vectra DA for patients with rheumatoid arthritis. Apparently the results did not please investors and shares began to collapse. Only a couple days before they announced a $200 million share buyback but that did not help.

When they reported earnings in early May the 41 cents beat estimates for 38 cents. However, they lowered revenue guidance for the full year from $750-$770 million to $753-$755 million. Analysts were expecting $758 million. Earnings guidance was also lowered from $1.63-$1.68 to $1.63-$1.65. Analysts were expecting $1.66. Guidance for the current quarter dropped to 36-38 cents and analysts were expecting 41 cents.

Earnings are August 9th.

Shares crashed on the 10th, consolidated slightly and then began to sell off again. Shares closed at a two-year low on Friday.

Position 6/21/16:

Closed 6/22/16: Long August $29 put @ $1.40, exit $31.85, -.45 loss.

PYPL - PayPal - Company Description


Piper Jaffray said Paypal could start losing customers to Apple Pay this holiday season as Apple becomes a more aggressive competitor. About half of Paypal's merchants will also have Apple Pay by the holidays. With both options available at checkout Piper said more Apple customers will be choosing Apple Pay. With the feature also available on websites the impact to Paypal is going to grow. Shares fell -2%.

Original Trade Description: June 13th.

Paypal bills itself as a technology company that enabled digital and mobile payments on behalf of consumers and merchants worldwide. The software allows users to pay and be paid from any computer or mobile device. They have outlasted several competitors but their time in the number one position is running out.

Apple announced Apple Pay for the web. With more than 1 billion Apple devices in use worldwide and 300 million of those are iPhones. When counting Macs and iPads there are more than 500 million Apple users. That is an instant market for Apple Pay on the web and it is going to be a major blow to Paypal.

Paypal has 14 million active merchant accounts and 170 million active consumer accounts. The one feature that works in PayPal's favor is that Apple Pay will initially only be available in the Safari browser and not on Chrome, which has more than 1 billion users.

Regardless the perceived hit to Paypal is likely to be detrimental to the stock price, which is already in decline.

Earnings July 27th.

Position 6/21/16:

Long Aug $35 put, @ $1.05, see portfolio graphic for stop loss.

Previously Closed 6/20/16: Position 6/14/16 Long Aug $35 put, @ $1.35, exit $1.05, -.30 loss.

If you like the trade setups you have been receiving and you are on a free trial then now is the time to subscribe. Don't wait until you miss a newsletter to decide you want to take the plunge.

subscribe now