Option Investor

Daily Newsletter, Tuesday, 6/28/2016

Table of Contents

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

Market Wrap

Turnaround Tuesday

by Jim Brown

Click here to email Jim Brown

Today was an oversold bounce that recovered less than one-third of the points lost the prior two days.

Market Statistics

I was very happy to see the bounce arrive and I am not trying belittle its importance. The Dow declined almost 1000 points from Thursday's close at 18,011 to Monday's low at 17,063 and only recovered +269 today. That does not mean we are not going to recover all of it but so far this is only a one-day wonder. One day does not make a trend, just like the prior two days did not confirm a lower trend but that could still happen. In every market decline there are periodic rebounds powered by short covering and bottom fishing. It is what comes after that initial rebound that determines the market direction.

There was the constant droning of Brexit news but I think traders have become immune to the headlines. What will matter in the coming weeks is the dollar's direction and the number of earnings warnings because of the collapse in the British pound. That is where the rubber will meet the road to use a 1960s saying.

The pound recovered 1% today but compared to the 12% decline the prior two days that is insignificant. Some analysts still believe it could sink to 120 from today's close at 130.57. This will impact the dollar, yen, yuan and euro and cause central banks to take action to defend their currencies.

More than three million UK citizens have signed a petition asking for a do-over on the Brexit vote. Prime Minister Cameron said no deal. The vote will stand and UK citizens will have to live with the decision.

There were some economics today and they were not pretty. The Richmond Fed Manufacturing Survey for June declined from May's -1 to -7. That ties with March 2014 and together that is the lowest reading since January 2013. All of the components were negative with new orders falling from zero to -14 and order backlogs falling from -13 to -17. The inventory to order gap collapsed from -19 to -41. Those components suggest July will be ugly as well. The average workweek fell 10 points to -4 suggesting employment is going to be weak for June. Employment and wage expectations turned negative for the first time since 2009.

The separate services survey fell from 11 to zero but the employment component remained flat at 18. Retail employment rose from -3 to 31 and the highest level in more than a year.

The last GDP revision for Q1 rose from +0.8% growth to +1.07% growth. That is hardly something for the Fed to be bragging about. Corporate profits rose +1.8% after a -7.8% decline the prior quarter. Consumption was the main driver of the headline GDP with a +1.02% contribution.

This was the weakest quarter in the last year but Q2 is shaping up to be significantly better. The Atlanta Fed's real time GDPnow forecast is for 2.6%, down from 2.8% the prior week. The decline came from the drop in residential investment growth from 2.6% to 1.7% on June 23rd. The next update will be on Wednesday after the Personal Income report.

Consumer Confidence for June rose sharply from 92.4 to 98.0. The present conditions component rose from 113.2 to 118.3 and he expectations component rose from 76.5 to 84.5. Given the sharp drop in jobs in May and the rise in gasoline prices, I am shocked about the strong gain in the numbers. The biggest gain in the components was in "expectations for an income increase" from 16.5% to 18.2%. With jobs declining that is an odd change in the income outlook.

The biggest events remain the Janet Yellen speech on Wednesday. This is her first post Brexit speech and investors will be watching to see if she drops the "rate hikes will be appropriate in the coming months" phrase or ignores the topic all together.

The national manufacturing ISM on Friday could be a negative surprise given the numbers today from the regional Richmond report. That could be market negative.

Crude oil helped power the rally today with nearly a 4% gain thanks to the falling dollar. WTI rallied back to $48 after falling to $45.83 on Monday. After the bell, the weekly API inventory report showed a 3.9 million barrel decline for the week ended on Friday. This was the sixth consecutive week of inventory declines in the API numbers. Inventories at Cushing declined by -1.21 million barrels. After the API inventories prices rose a little higher to $48.25.

With the biggest driving weekend of the summer just ahead, the inventories should continue to decline. Historically crude prices remain high into August but the closer we get to the Labor Day weekend the better the chance for the price decline into fall.

Prices were also helped by the potential for a production disruption in Norway. Up to 7,500 Norwegian oil and gas workers could go on strike on Saturday if they do not have a new contract and higher wages by midnight July 1st. Norway produced 1.96 million bpd in May and we much as 1.5 mbpd could be shutdown if the strike occurs.

After the bell, Nike (NKE) disappointed on earnings for the third consecutive quarter. Nike beat on earnings with 49 cents compared to estimates for 48 cents. Revenue of $8.24 billion missed estimates for $8.28 billion. Global futures orders rose 11% excluding currency impact. However, U.S. futures orders fell to +6% and the first time it has dropped into single digits since Q3-2014. Chinese orders fell from 36% last quarter and +34% the prior quarter to only 24% in the current quarter. Nike guided to high single-digit to low double-digit growth for the full year. Analysts were expecting 10%. For Q1 they forecast mid-single digit growth and analysts were expecting 9%. The company said it only derived about 3% of its revenues from the UK. Revenue from North America was flat while Eastern Europe sales declined -4%. Western Europe sales rose 19%, China +18% and Japan +22% but emerging markets revenue fell -7%.

Under Armour took a $23 million hit from the Sports Authority liquidation. Nike said it was also fighting excess inventory levels as a result of that outlet closing. Gross margin declined as a result of Nike discounting that inventory through its outlet stores and other third party distribution channels. Shares of Nike dipped to $49 after the report but rose to $51 after the conference call. That was a $2 decline from the close at $53.

Dicks Sporting Goods (DKS) was upgraded to the "conviction buy" list at Goldman Sachs. The analyst said the liquidation of Sports Authority would reduce competition and benefit Dicks in many geographic areas. Sports Authority was its largest competitor with 464 stores. Dicks is now the largest at 600 stores. This should allow Dicks to improve margins from higher pricing. Goldman also noted that Dicks is bringing all of its online business back into the company in 2017. It is currently being handled by GSI, a subsidiary of Ebay, for a fee. Dicks is currently bidding to buy 17 Sports Authority stores currently in the bankruptcy process.

SolarCity announced the formation of an executive committee to consider the Tesla offer to acquire SCTY for $26-$28. The committee has two members because the rest of the board had to recuse themselves from the process because they had conflicts of interest with Tesla and/or Elon Musk. The committee hired Lazard Ltd as its financial advisor on the review. Some analysts are starting to warm up to the transaction because it solves the cash flow problems at SolarCity. Business is so good they are incurring debt at a rapid pace. They build and install systems on a lease agreement. That means they have to fund the cost but the payments do not amortize for a long time. Other solar companies have created yieldcos to buy their installations and free up the cash. Shares rose $1 on the news.

Taiwanese chip maker Advanced Semiconductor Engineering warned that its biggest customer, Apple, was being more conservative about placing orders than the same period in 2015. The company said Apple had told them to expect fewer orders in the second half of 2016. Goldman Sachs lowered its price target on Apple and cut its full year iPhone shipment forecast again from 212 million to 211 million units.

At the same time, Cowen & Co warned that potential iPhone sales could be huge. The analyst said more and more Apple customers are walking around with an iPhone that is 2-years old or older and these are the customers that are most likely to buy a new phone. The analyst said a "powder keg" is forming. They recommended buying the stock. Shares are struggling to hold initial support at $94.

Comscore (SCOR) delayed filing its annual report to regulators because an accounting review is taking longer than expected. The board said it needed more time to evaluate the data and make final decisions. Back in March the company disclosed its audit committee had "received a message questioning the company's accounting." They began a review, cancelled an investor event and delayed filing the year-end financial reports. Comscore acquired Rentrak for $800 million in February. Shares fell 19% on the news of the delay.


There was not much to say about the market rally today. The Asian indexes were marginally positive and the European indexes were sharply positive. That carried over into the U.S. markets with the S&P futures up +24 early Tuesday morning. A short squeeze was born and the rest was history.

I wrote last week that funds were sitting on near record amounts of cash and Thursday is the end of the quarter. If they were going to window dress their portfolios, they were running out of time. With stocks at three-month lows, it was the perfect opportunity. There is also a pension fund rebalance at the end of June. Analysts estimate pension funds needed to shift up to $18 billion into equities to keep their ratios intact. Pension funds typically hold x% of bonds and x% of equities. Bonds have risen so strongly that the ratios are off. They needed to sell bonds and buy equities.

I did not see any movement out of treasuries today. The 10-year yield rose -0.001% to 1.461% indicating continued buying pressure. That is a four-year low yield. If we ever get the "Great Rotation" Bank of America called for there would be a monster equity rally. For now, treasuries just keep rising in value.

The Volatility Index ($VIX) collapsed -21% and that was after a big decline on Monday afternoon. The sharp drop in the VIX and the lack of a rise to 30 over the prior two days is because investors did not believe the Brexit crash would stick. They were not buying puts 30-60 days out to protect their positions. The instant the S&P stopped its decline at 1,991 on Monday the VIX began to decline. Investors simply do not believe the crash will last.

Volume today was heavy at 8.3 billion but well below the 10.6 billion on Monday and 15.2 billion on Friday.

The S&P double bottomed at 1,991 on Monday with a touch at the open followed by a minor rebound and then another touch just before the close with another rebound to close at 2,000. This appeared to be too good to be true and the futures began rising not long after the close.

Today the index has returned to the 2,040 level that was strong support in May and could be strong resistance on the rebound. The consensus opinion is for the S&P to wander in the 2020-2035 range for the rest of the week while we work off the imbalances from the crash. A one-day rebound is just a one-day wonder until a new trend develops.

Initial support is now 2,020.

The Dow rebounded with the help of the stocks that were the biggest losers in the decline. Goldman, IBM, etc were sold hard in the crash and they rebounded sharply today. However, their rebounds were only about one-fourth of their declines. This was a decent short squeeze but there was no follow on buying.

The Dow rebound from the 17,063 low from Monday was decent but it stopped at 17,400 and a level that had been strong support. This could now be strong resistance. If the Dow rolls over and begins to retrace today's gains, it could turn ugly very quickly. A decline below 17,000 should target a retest of 16,000.

The Nasdaq was the strongest index today with a 2.1% rebound. It had been crushed by the back to back declines in the biotech and semiconductor stocks and the Nasdaq rebound was definitely a short squeeze. Many of those stocks were up 7-9% today and that is not just because they were suddenly a bargain. That was shorts being forced to cover.

The Nasdaq is facing prior support at 4,700 that should now be resistance with a close at 4,691. Support is yesterday's lows at 4,575. There was some decent support forming today at 4,650 that could act as a buffer against another intraday decline.

The Russell 200 struggled to add a 1.6% rebound after falling -7% in the crash. The 1100-1110 range covered most of the day's trading with a double top at 1,110 once in the morning and once just before the close. Both were quickly sold. The support at 1,100 was solid. The Russell rebalance pressures should be over tomorrow. Funds will have had 3 days to clean up their left over position squaring.

I am neutral for Wednesday. The S&P futures are down -4 points and the Asian markets just opened slightly positive. The key is the European markets. If they are positive like we saw today then the U.S. markets could follow their lead.

I do not think we are out of the volatility woods yet. There is still too much uncertainty over what the Brexit really means to corporations and how the big decline in the pound will impact earnings. The various political forces in Europe are still sparring in the headlines and the EU has said they will not negotiate with the UK until the Article 50 notice is filed. The UK said they would not file it until a new prime minister is installed in September. That just means more uncertainty for everyone.



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New Option Plays


by Jim Brown

Click here to email Jim Brown

Editors Note:

We had nearly a 1,000 point decline in the Dow with a +269 point rebound over three days. The futures are down nearly 5 points and Wednesday's direction is a coin toss. We added three bullish plays yesterday and I see no reason to add additional bullish plays when we could have another decline tomorrow. All the bearish candidates I researched have the same short squeeze spike and while that could be an entry point I prefer to short them when they are declining rather than spiking.

I suggest we wait until Wednesday to add plays and hopefully market direction will become more evident.


No New Bullish Plays


No New Bearish Plays

In Play Updates and Reviews

You Can Breathe Now

by Jim Brown

Click here to email Jim Brown

Editors Note:

The markets rebounded from the two-day decline but they still have a long way to go. The indexes were very oversold on a short term basis with the Dow and S&P down -5% and the Russell 2000 -7%. We were due for an oversold bounce.

Volume was moderate but nowhere close to the 15.2 billion on Friday of the 10.6 billion on Monday. I do believe the bottom is in but we are not likely to simply rocket higher. There could be some backing and filling here for several days.

I added stop losses back to the existing plays now that the initial dip is over. If we see another decline the stops are just under the prior lows.

Current Portfolio

Current Position Changes

GRUB - GrubHub

The long call position was entered with a trade at $29.

NVDA - Nvidia

The long call position was entered at the open at $46.10.

PVH - PVH Corp

The long call position was entered at the open at $87.51.

FL - Foot Locker

The long put position was stopped out at $52.15.

PYPL - PayPal

The long put position was stopped out at $34.65.

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

CNC - Centene Corp -
Company Description


No specific news. Minor rebound but the did not decline much over the last couple days.

Original Trade Description: June 21st.

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


No specific news. Nice rebound. Still showing good relative strength.

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.

GRUB - GrubHub - Company Description


No specific news. GrubHub did not participate in the market rebound.

Original Trade Description: June 27th.

I recommended GRUB as a LEAP position in the LEAPS Newsletter on Sunday. With the minor drop back to support today I am recommending it here on a short term option.

GrubHub Inc., together with its subsidiaries, provides an online and mobile platform for restaurant pick-up and delivery orders in the United States. The company connects approximately 44,000 local restaurants with diners in approximately 1,000 cities. It operates GrubHub and Seamless Websites through grubhub.com and seamless.com. The company also offers GrubHub and Seamless mobile applications and mobile Websites for iPhone, iPad, Android, iWatch, and Apple TV devices; and Seamless Corporate program that helps businesses address inefficiencies in food ordering and associated billing. In addition, it provides Allmenus.com and MenuPages, which provide an aggregated database of approximately 380,000 menus from restaurants in 50 states.

GrubHub is a concept that is catching fire and the bigger they get the more restaurants want to sign on to the service. They now serve 44,000 restaurants. They do not markup prices. Whatever the restaurant charges is what you pay. Diners can customize any order to their own taste specifications and dietary needs.

Restaurants benefit because the service drives more orders. Many people cannot take 2 hours out of their day to go to the restaurant to eat. GrubHub brings the restaurant to them. Restaurants typically see about 30% more takeout orders during their first year when they sign up for the Grubhub service. Delivery fees range from free to $3.99.

GrubHub currently has more than 6.9 million diners. Ordering through the GrubHub online menu is 50% faster than ordering from the restaurant on the phone.

The company recently announced participation with national chain restaurants including Boston Market, Johnny Rocket's, California Pizza Kitchen, Veggie Grill, On the Border and Panda Express. This is a natural for fast food chains. They prepare the food fast and it gets to the diner fast.

An analyst at Moness Crespi Hardt just upgraded them to buy from neutral saying the fundamentals are rapidly improving with the addition of the chain restaurants. Secondly they completely overhauled their tech platform in 2015 and the benefits are rising quickly. They are also integrating POS features including Apple Pay. He also believes they are a potential acquisition target by companies like Amazon, Uber and Postmates. His biggest point is the addition of the chain restaurants. Adding companies with hundreds or even thousands of restaurants will catapult them to the next level.

Earnings August 2nd.

Shares have been rising and they closed at an 8-month high on Thursday. In Friday's market crash they gave back only 1.4%, which was nothing compared to the rest of the market. In Monday's market they dropped back to retest Friday's low but that support held. This is very good relative strength.

Position 6/28/16:

Long Aug $30.00 call @ $2.30, see portfolio graphic for stop loss.

IWM - Russell 2000 ETF - ETF Description


The Russell rebounded +1.5% after a -7% decline over the prior 2 days. It could have been stronger. I did not see any conviction.

Original Trade Description: June 25th.

The Russell 2000 ETF attempts to track the investment results of the Russell 2000 Index composed of small-capitalization U.S. equities.

The Russell indexes were "reconstituted" at the close on Friday. Unlike an S&P-500 rebalance where only the weightings change, the Russell indexes have additions and deletions that impact all the weightings and constitution.

The Russell company sorts all the U.S. stocks by market cap and the top 1,000 become the Russell 1000 and the next 2,000 become the Russell 2000 Index. Stocks that grew over the last year can shift out of the R2K and into the R1K. Stocks that saw their market cap shrink can move from the R1K to the R2K. Stocks that were acquired are eliminated and new stocks take their place in the overall order. Stocks that saw their market cap shrink enough to place them far enough down the list to miss the 3,000 stock cutoff are removed from the indexes. It is a complicated procedure and funds that follow the indexes have a lot of restructuring to accomplish in a single day.

The Russell 2000 Index normally has a positive bias in the week after the rebalance as fund managers clean up their portfolios and balance the positions correctly. With a 3,000 stock universe in the Russell 1000, 2000, 3000, it is next to impossible to get it all completed on Friday. Managers know which stocks were dropped and those were sold at the close. Getting the weighting right on the remaining stocks and the new stocks added to the indexes is a little more complicated.

This means managers are buying stocks in small amounts for most of next week until the weightings match the index and their benchmarks. This produces the slight upward bias.

Whether that bias can overcome the negative Brexit sentiment is unknown but remember, nothing changed in Europe. At this point, the Brexit is just a headline. The actual changes will be many months if not years in the future.

Current support for the IWM is down in the $109 range with some congestion around $110. I am going to recommend two entry points. If we rise on Monday, I want to enter the position with an IWN trade at $113. If the market goes lower, I want to enter the trade at $110. If there is volatility and the $113 entry is made first, I still want to add to it with a trade at $110. If we move lower and the $110 entry is made first then the $113 entry recommendation is cancelled.

This will be a short term position for a couple weeks just to capture a rebound and the potential to return to resistance at $118-$120.

Position with an IWM trade at $110:

Long August $115 call @ $1.35. See portfolio graphic for stop loss.

The recommendation for a trade at $113 has been cancelled.

JPM - JP Morgan - Company Description


No specific news. The Fed will release the second half of the bank stress tests on Wednesday. That should help reduce the negativity. JPM is expected to raise their dividend.

Original Trade Description: May 11th.

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.

Position 6/23/16:

Long August $65 call @ $1.31, see portfolio graphic for stop loss.

NVDA - Nvidia - Company Description


No specific news. Shares gained 1.5% to close back over prior support.

Original Trade Description: June 28th.

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.

Shares closed at a new high at $48.50 on Thursday. On Friday they dropped to $45.30 to stop us out. That was a $3 drop. Today the stock rebounded off the opening low and only gave back 49 cents. I believe with any market that is not crashing Nvidia will be back at new highs very quickly.

Position 6/28/16:

Long August $47 call @ $2.55, see portfolio graphic for stop loss.

PVH - PVH Corp - Company Description


Huge rebound of 5.5% but there was a big opening gap that killed us on the entry. The option closed at $2.80 yesterday but opened at $4.23 today. That $4.67 spike in the shares rapidly inflated the option premiums. However, if we continue to get those gains as it returns to the highs we will be very happy.

Original Trade Description: June 27th.

PVH Corp. operates as an apparel company in the United States and internationally. The company operates through six segments: Calvin Klein North America, Calvin Klein International, Tommy Hilfiger North America, Tommy Hilfiger International, Heritage Brands Wholesale, and Heritage Brands Retail. It designs, markets, and retails mens and womens apparel and accessories, branded dress shirts, neckwear, sportswear, jeans wear, intimate apparel, swim products, handbags, footwear, golf apparel, fragrances, cosmetics, eyewear, hosiery, socks, jewelry, watches, outerwear, small leather goods, and home furnishings, as well as other related products. The company offers its products under its own brands, such as Calvin Klein, Tommy Hilfiger, Van Heusen, IZOD, ARROW, Warners, Olga, and Eagle; and licensed brands comprising Speedo, Geoffrey Beene, Kenneth Cole New York, Kenneth Cole Reaction, Sean John, MICHAEL Michael Kors, Michael Kors Collection, and Chaps, as well as various other licensed and private label brands.

PVH has been absolutely crushed in the sell off because they were thought to have as large presence in the UK. Shares closed at a new 9-month high of $102.70 on Thursday. Today they touched $84 intraday for a whopping $18 or roughly 18% decline in two days from a new high.

PVH thought it was important enough that they filed a disclosure with the SEC saying they only derived 3% of their revenues from the UK. Even with the massive drop in the pound the company did not think any UK weakness would be material to their results.

The company has been on a growth spurt by acquiring brands and doing license deals with other brands to improve the variety of its offerings. On June 15th the CEO spoke at a Piper Jaffray Consumer Conference and said business was improving in Q2. He said the problems with other retailers represented an opportunity for the Calvin Klein and Tommy Hilfiger brands. He said the Tommy Hilfiger women's business generates 30% of their revenue and was a growth opportunity since they recently added it to the line. They teamed up with super model Gigi Hadid to make the brand more relative to younger, fashion oriented women.

With their Q1 earnings they raised guidance from $6.30-$6.50 to $6.45-$6.55 a share for the full year. The CEO said the guidance was conservative because this "does not seem like the environment ro tray and be a hero."

Earnings August 24th.

Position 6/28/16:

Long August $90 call @ $4.23, see portfolio graphic for stop loss.

QRVO - Qorvo Inc - Company Description


No specific news. Big 4% rebound to $52.50.

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, see portfolio graphic for stop loss.

SWHC - Smith & Wesson - Company Description


No specific news. Shares closed at a 3-month high.

Original Trade Description: June 25th.

Smith & Wesson was founded in 1852 and manufacturers firearms in the U.S. and internationally under many different brands but primarily Smith & Wesson.

Gun sales are booming again. With every terrorist attack or mass shooting more consumers rush out to buy guns for self defense. With the potential for additional attacks in the U.S. this trend is not going to slow. However, sales are cyclical. They surge after attacks like San Bernardino or Orlando or after speeches by politicians about gun control. President Obama has been the best gun salesman we have ever had. Every push by the administration to get more laws passed results in millions of new gun sales. The constant gun headlines over the last two weeks have lifted S&W to 3-month highs.

In their Q4 earnings where there was a surge in gun sales after San Bernardino. In their recent Q1 earnings there was no mention of the Orlando shootings because the shooting was only 4 days before their earnings. The Q1 results did not have any sales bump from that event.

In their Q1 report, they posted earnings of 63 cents compared to estimates for 54 cents. Revenue of $221 million also beat estimates for $214 million. They guided for the full year for revenue between $740-$760 million and analysts were expecting $723 million. They guided for full year earnings of $1.83-$1.93 and analysts were only expecting $1.66. Q1 sales rose +22% and the CEO said demand was strong. They forecast current quarter revenue at $190-$200 million and analysts were only expecting $162 million. That is a massive improvement.

Since the Orlando shooting there has been nonstop headlines about gun control. Gun stores are reporting four times the volume in traffic and many stores are having trouble keeping guns in stock. This is going to be a banner quarter for S&W.

Earnings August 25th.

Shares have been in constant rebound since the earnings on June 16th erased fears about slowing sales. The stock gained 51 cents on Friday despite the severely negative market.

Position 6/27/16:

Long Sept $27 call @ $1.70, see portfolio graphic for stop loss.

BEARISH Play Updates (Alpha by Symbol)

FL - Foot Locker - Company Description


No specific news. The gap higher open stopped us out on the short position. Unfortunately, after the close Nike disappointed on earnings again and FL shares fell back to $50.95 in afterhours.

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:

Closed 6/28/16; Long August $52.50 put @ $2.40, exit $2.86, +.46 gain.

PYPL - PayPal - Company Description


No specific news. Big spike at the open in a gap open market stopped us out.

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:

Closed 6/28/16: Long Aug $35 put, @ $1.05, exit $1.98, +.93 gain.

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

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