Option Investor

Daily Newsletter, Thursday, 7/14/2016

Table of Contents

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

Market Wrap

Earnings Drive The Market Higher

by Thomas Hughes

Click here to email Thomas Hughes


The rally continues as the first of the big banks report better than expected earnings. JP Morgan beat on the top and bottom line, raising hopes we're coming out of the earnings recession. Along with the news a somewhat expected statement from the Bank Of England and US economic data dominated the headlines. The BOE did not ease policy but they did say it is likely to come in the next couple of weeks. The statement says we can expect a package of measures once they have a chance to assess the effects of Brexit.

Asian markets were relatively quiet, moving higher on balance. Hong Kong led with gains near 1.1%, followed by a 1% rise in the Nikkei and a small decline in mainland Chinese indices. European markets gained more than 1% on the BOE news, aided by the ongoing rally in our market.

Market Statistics

Futures indicated an open about 0.5% above yesterday's close for most of the morning but trading was choppy. News was the biggest driver of trading as one item after another hit the wires including the BOE statement, JPM earnings, jobless claims and PPI. Momentum was strong at the open, driving the indices up by at least a half percent in the first two minutes of trading. After that there was a small retracement before the bulls pushed them up to another intraday high. The second high of the day was reached shortly after 10AM, it proved to be the high of the day and was followed by sidewinding and consolidation into the close of the session.

Economic Calendar

The Economy

Initial jobless claims were unchanged in this weeks report, last week's figure is a not-revised 254,000. This is the 71st week of claims below 300,000 and just off the long term 43 year low. The four week moving average of claims fell -5,750 to hit 259,000, just above its long term 43 year low. On a not adjusted basis claims rose 11.8%, in line with the 11.9% predicted by the seasonal factors. On a year over year basis not adjusted claims are now -13.25% below last year, the widest gap since early spring. Claims continue to trend at low levels, consistent with labor market health.

Continuing claims rose 32,000 to hit 2.149 million. The four week moving average of continuing claims is 2.143 million, a small decline from last week. The down trend in claims has stalled but both figures are trending near long term lows and consistent with labor market health.

Total claims rose by an expected 36,000 to hit 2.083 million. This gain is in line with seasonal trends and down -4.5% from this same time last year, consistent with improvement in unemployment levels and labor market health. We can expect this figure to continue rising for the 3-4 weeks at which point, provided trends remain consistent, we should see another decline in total unemployment claims levels.

The Producer Price Index was released at 8:30AM, a little hotter than expected. Headline PPI came in at 0.5% for June led by goods up 0.8% and services up 0.4%. This is the third month of increasing prices and the rate of change is expanding so these increases may continue. At the core level prices rose by 0.3% and are up 0.9% over the pas 12 months. While both numbers are on the rise neither point to the need of a rate hike yet.

The Dollar Index

The Dollar Index continues to trade within its near term range. Today's action was a move down on strength in the euro in pound, tempered by weakness in the yen. The euro and pound trades were driven by the BOE decision, the yen by a move away from the safe haven trade. The recent consolidation between $95.50 and $96.50 has been driven by economic data and central bank expectations and is likely to continue until the next FOMC meeting. A break to either side of the range could result in a move of a $1 or more to targets near $94 on the downside and $97.50 on the upside. Outlook is bullish, the FOMC is not expected to strengthen the dollar but most other central banks are expected to weaken their respective currencies. The next ECB meeting is 7 days away, the next FOMC meeting is 13 days away, the BOJ's is 15.

The Oil Index

Oil prices bounced today, WTI settling up close to 1.7%. Today's move is a bounce from the $45 support level and not strong. Although a rebalance of the market is still expected bias remains to the supply side. Yesterday's reported draw down of supply was much smaller than expected, gas stock piles rose counter to expectations, floating storage is at all time highs and the IEA says the supply glut is persistent. Prices may break through $45 with this weight, if so next target is $40.

The Oil Index posted a gain near 0.5% on the bounce in oil prices. Despite the gain today's candle is a bearish one although small and weak. The index is now trading just below resistance at the top of its three month range and near levels at which it has reversed in the recent past. The indicators are pointing higher but remain consistent with the trading range so a break above resistance, near 1,175, does not look likely. With oil prices moving lower this index is likely to remain within its range, first target for support is near the short term moving average, 1,130, next target 1,100.

The Gold Index

Spot gold fell about -1% intraday following the BOE policy statement. The decision to hold rates steady with the seeming promise that easing was coming, along with Britain's smooth transition to a new prime minister, helped to sooth fears of Brexit fall-out and deflate support for the safe haven trade. The move brought spot prices down to $1,335 and a two week low. Support is possible at this level, next target is closer to $1,300 if it doesn't hold. With the market calming down a move lower is very possible, add in potential for a stronger dollar and the move looks more likely.

The gold miners opened with losses this morning but buyers stepped in to push prices back up. The Gold Miners ETF GDX opened with a loss greater than -2% and then moved up to within -0.6% before the close. Today's action is the 7th day of trading within a tight consolidation range that may be signaling higher prices are on the way. The indicators are both bullish and although momentum is in decline the MACD and stochastic peaks are convergent with recent highs, consistent with a move to new highs or a retest of current highs should the ETF pull back. A pull back can't be ruled out, gold appears to be correcting and could cause the sector to correct as well.

In The News, Story Stocks and Earnings

Earnings, there weren't a whole lot of reports today, barely more than a dozen, but there were some important names. Top of the list is JP Morgan. The bank reported numbers that beat on the top and bottom lines, driven by strength in nearly every segment of business. EPS of $1.55 beat by $0.12 cents, revenue beat by more slightly more than $1 billion. Commercial banking led with growth of 33% but there was 4% growth in consumer and corporate banking and a 16% gain asset management profits. Outlook is positive. Shares of the stock jumped more than 2% in the pre-market session to open at a 1 month high. Resistance is just above today's intraday high, near $65, and is likely to be tested or broken. The indicators are both pointing higher, consistent with a move higher. A break above $65 would be bullish and could take the stock up to $67.50 in the near to short term.

Delta Airlines reported before the bell and was able to beat at least on the bottom line. Revenue fell short of expectations and fell from last year in the same quarter, cost efficiencies helped produced earnings growth. Looking forward the company sees the revenue environment challenging and has reduced its winter capacity. Currency headwinds and potential for fall-out from the Brexit were mentioned in the statements. Shares of the stock jumped more than 5% on the news to trade at a one month high but price action is sketchy.

Blackrock, one of the largest investment management firms in the business, reported earnings and revenue that fell shy of estimates. The company reported EPS of only $4.73, $0.06 short of consensus, as its clientele faces "unprecedented challenges as they attempt to navigate the current investment environment". Market headwinds and a slow down in client activity were cited as causes for the miss. Shares of the stock fell on the news, opened with a loss, tried to rally but was not able to hold gains.

The Indices

The indices continued to rally today. The promise of QE to support the Brexit and hope for earnings season fueling the move higher. Today's action was led by the Dow Jones Transportation with a gain of 1.07%. The transports created a small bodied white candle with upper shadow just below resistance. Resistance is about 85 points above today's close, near the 8,100 level. The indicators are both on the rise so a test of resistance is looking likely. A break above 8,100 would be bullish and could take the index up to next resistance target of 8,250.

The Dow Jones Industrial Average made the 2nd largest move today, gaining about 0.73%. The blue chips created a medium sized white candle with small amount of upper shadow in a move that set another new all time high. The indicators remain bullish and moving higher so the index may contiue to move higher as well. Risks at this time include weak momentum and overbought stochastic although neither are indicative of imminent reversal. An upside target of 18,900 can be projected based on the bounce from the Brexit Bottom to the old all-time high.

The NASDAQ Composite comes in third today with a gain of 0.57%. Despite today's gains the tech heavy index created a small black spinning top candle. The index is now trading at a 7 month high but remains more than 3.5% below the current all time high. The indicators are bullish and moving higher so some further upside can be expected with next target for resistance near 5,175.

The S&P 500 brings up the rear in today's session. The broad market gained a little more than 0.53% and set another new all-time high. Today's candle is relatively small and has some upper shadow, indicative of a rally that is slowing down or at least taking a breather. The indicators are both pointing higher, bullish and consistent with a rising market, so a test of today's high looks likely in the least.

Despite my misgivings, the risk of slowing global growth, Brexit fall-out and another season of negative earnings growth the market continues to rally. The rally is driven on relief and hope; relief the Brexit is not crushing the market as first feared, hope that earnings season will not be as bad as expected. While it will be some time before we fully understand the scope of the Brexit and what it will mean for the global economy it looks, at least for now, that earnings season will in fact be better than expected. Perhaps much better, but that is yet to be seen. If so, this rally could have legs.

Now is not the time to start chasing prices higher. Now that the indices, the S&P and Dow Jones Industrials, are breaking out and the rally is sustainable we can expect a consolidation at least and maybe a test of support at/near the previous all-time high before a prolonged move higher. When that comes, and confirms support, it will be time to get bullish with an eye positioning for the end of the year and 2017. I'm still cautious but starting to see signs the 2nd half rally I've been waiting for is on the way.

Expect some volatility tomorrow, it's OPEX and there are some key earnings reports from US Bancorp, Wells Fargo and Citigroup. There is also a raft of economic data on tap for tomorrow. Retail sales, CPI, Empire Manufacturing, Industrial Production, Business Inventories and Michigan Sentiment.

Until then, remember the trend!

Thomas Hughes

New Option Plays

Limited Risk

by Jim Brown

Click here to email Jim Brown

Editors Note:

When the market is oversold and vulnerable we need to limit our risk. We can either stand aside or try to find positions with cheap options that limit our risk in case the market turns against us. If we can find a stock that has good relative strength it would be even better.


TASR - Taser Intl - Company Description

TASER International, Inc. develops, manufactures, and sells conducted electrical weapons (CEWs) worldwide. The company operates through two segments, TASER Weapons and Axon. Its CEWs transmit electrical pulses along the wires and into the body affecting the sensory and motor functions of the peripheral nervous system. The company offers TASER X26P and TASER X2 smart weapons for law enforcement; TASER C2 and TASER Pulse CEWs for the consumer market; and replacement cartridges. It also provides Axon Body, a body-worn camera for law enforcement; Axon Body 2 camera system; Axon Flex camera system that records video and audio of critical incidents; TASER Cam HD, a recording device; Axon Fleet, an in-car video system; Axon Interview, a video and audio recording system; Axon Signal, a body-worn camera; and Axon Dock, a camera charging station. In addition, the company offers Evidence.com, a cloud-based digital evidence management system that allows agencies to store data and enables new workflows for managing and sharing that data; Evidence.com for Prosecutors to manage evidence; and Evidence Sync, a desktop-based application that enables evidence to be uploaded to Evidence.com. Further, it provides Axon Capture a mobile application to allow officers to capture digital evidence from the field; Axon View, a mobile application to provide instant playback of unfolding events; Axon Five, a software application to enhance and analyze images and videos; Axon Convert, a software solution to convert unplayable file formats; and Axon Detect, a photo analysis program for tamper detection.

With all the shootings both by police and at police the need to be able to accurately document the events is becoming even more important. The multiple shootings by police and captures on cell phone video only shows one side of the event. If those cops had body cameras to document what they were seeing, hearing and saying, it would go a long way towards making those events less of a flash point if they can present their side of the event.

Since the Dallas shootings Taser has won orders for more than 1,591 body cameras from the San Jose Police Dept and the Minneapolis Police Dept along with a 5-year subscription to Evidence.com, Taser's cloud based digital evidence management platform. Taser said demand was growing rapidly and they were in discussions with many more departments about their full range of evidence technology.

According to Taser more than 3,500 agencies and departments from 33 major cities now use their cameras.

Earnings August 3rd.

Shares spiked to $28.50 after the Dallas shootings and then pulled back to $26.50 after the headlines cooled. The news of the big orders lifted shares back to $27.50 and rising. Taser was already in a strong uptrend and the temporary spike has now been digested and the trend is returning.

I am recommending we buy the Sept $29 call, currently $1.60. If the market rolls over as I expect on Friday we could get a better entry on Monday. I am recommending an entry trigger at $27.80, which is above today's high. If the market opens lower we will not be triggered and we can reevaluate the entry point for Monday.

With a TASR trade at $27.80

Buy Sept $29 call, currently $1.60, no initial stop loss.


No New Bearish Plays

In Play Updates and Reviews

Grossly Overbought

by Jim Brown

Click here to email Jim Brown

Editors Note:

The S&P surged another 11 points to close at 2,163 and is now up +173 or 9% since the Brexit low. I did not add any new plays on Wednesday because the market was overbought and heading into a weekend with significant headline risk. The S&P added +11 and the Dow +134 to become even more overbought. There is a serious bout of profit taking in our future and it could start on Friday or next week but it will appear. Markets do not rise 10% in just over 2 weeks without a pause to consolidate.

Current Portfolio

Current Position Changes

MEOH - Methanex

The long put position was stopped at $29.25.

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


Still no specific news. Minor decline from the 10-month high.

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. Shares closed at another new high. However, momentum appears to be fading. I raised the stop loss again.

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.

LL - Lumber Liquidators - Company Description


No specific news. Another 1% decline. Support is $16.20.

Original Trade Description: July 7th.

Lumber Liquidators operates as a multi-channel specialty retailer of hardwood flooring, and hardwood flooring enhancements and accessories. It primarily offers hardwood species, engineered hardwood, laminates, and resilient vinyl flooring; renewable flooring, and bamboo and cork products; and a selection of flooring enhancements and accessories, including moldings, noise-reducing underlay, adhesives, and flooring tools. The company also provides in-home delivery and installation services. The company offers its products primarily under the Bellawood brand and Lumber Liquidators name. It primarily serves homeowners, or to contractors on behalf of homeowners. As of December 31, 2015, it operated 366 stores in the United States and 8 stores in Canada.

LL was trashed in March 2015 after a 60 Minutes report that the laminate flooring sourced from China had excessive levels of formaldehyde. Shares dropped from the prior close just under $70 to $10 earlier this year. Sales plummeted and earnings took a dive.

On Friday the company announced that the Consumer Products Safety Committee (CPSC) had closed their investigation and the only concession LL had to make was to not sell laminate flooring made in China. Since they already stopped that practice 13 months ago, it was basically a get out of jail free card. Shares spiked 19% on Friday to $15.78.

The company also reported that they had tested 15,000 homes with that flooring installed and NONE of those homes had chemical levels over the recommended norms. Of those 70,000 homes some 1,300 underwent special testing by a certified laboratory and NONE of those homes tested above safe levels either.

The CPSC also warned about ripping out the existing flooring and replacing it. They said the process of ripping it out would expose homeowners to excess levels of the chemical so that removes the possibility of a massive recall problem by LL.

LL has a class action suit brought by homeowners but with the CPCS saying there is no problem with the installed floor the suit just lost its main reason for existing. I am sure it will continue and they will try to get some damages but proving you have been damaged when there is no problem is going to be a challenge.

LL escaped a massive recall. They will probably settle for peanuts on the class action suit and there were no fines or penalties. They are probably celebrating all weekend at the corporate headquarters.

Now all they have to do is win back the customers. Same store sales have been down 10-13% because of the looming problems. Now that they can claim there never was any problem they can launch a massive advertising campaign and sales should recover. It may be slow at first but they still have a good selection of products at the right prices.

While their troubles may not be completely over they are light years closer to business as usual than they were a week ago. Funds and investors have ignored their stock but with the all clear from the CPSC they should come flooding back in hopes of getting a bargain entry.

Earnings August 3rd.

LL shares spiked to $16 on the news back in mid June. They moved sideways until the Brexit crash and lost altitude back to $14. Today's close was a six-month high over that headline spike in June. I believe the stock is poised to go higher now that it is trying to pull out of its yearlong consolidation.

I am going to recommend a longer term option and suggest we hold over the August 3rd earnings. They would be hard pressed to say anything more negative than what the market already expects. The potential for good news and positive guidance is very good.

Position 7/8/16:

Long Nov $18 call @ $2.15. No stop loss because of the cheap option and the longer term.

NVDA - Nvidia - Company Description


Another gain to a new high. No specific news. I raised the stop loss again because this is an August option.

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 company’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


No specific news. Minor gain to touch resistance at $100.

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.

WDC - Western Digital - Company Description


No specific news. A minor loss but still holding over support.

Original Trade Description: July 9th.

Western Digital Corporation, engages in the development, manufacture, sale, and provision of data storage solutions that enable consumers, businesses, governments, and other organizations to create, manage, experience, and preserve digital content worldwide. The company's product portfolio includes hard disk drives (HDDs), solid-state drives (SSDs), direct attached storage solutions, personal cloud network attached storage solutions, and public and private cloud data center storage solutions. It provides HDDs and solid-state drives for performance enterprise and capacity enterprise markets desktop, and notebook personal computers (PCs). The company also offers HDDs embedded into WD, HGST, and G-Technology branded external storage appliances with capacities ranging from 500 GB to 24 TB, as well as using various interfaces, such as USB 2.0, USB 3.0, FireWire, Thunderbolt, and Ethernet network connections.

WDC just completed the acquisition of flash memory maker SanDisk on May 12th and the combination will put it significantly ahead of Storage Technology (STX). WDC can include flash memory into its disk drive products to make them significantly faster as well as expand its offerings in the SSD market. By acquiring the SanDisk product line it provides a large amount of marketing breadth and created the premium data storage company.

Last Wednesday WDC raised adjusted earnings guidance to 72 cents, up from 65-70 cents. Analysts were expecting 68 cents. They raised revenue guidance from $3.35-$3.45 billion to $3.46 billion. Analysts were expecting $3.41 billion. This is the second guidance raise for this quarter. Back on May 26th they raised revenue guidance from $2.6-$2.7 billion to $3.35-$3.45 billion.

Earnings July 28th.

WDC has solid resistance at $51 but a breakout over that resistance could quickly sprint to $60. I am using the October options to avoid the rapid decline in August premium after July expiration next Friday. We will exit before earnings on the 28th. This is a short-term play to capture any continued market breakout.

Position 7/11/16:

Long Oct $52.50 call @ $3.23, see portfolio graphic for stop loss.

Z - Zillow Group - Company Description


Canaccord reiterated a buy rating and boosted the price target by $6 to $40. Morgan Stanley also raised their price target to $40 but said in a bullish market it could reach $50. Shares closed at $37.

Original Trade Description: June 29th.

Zillow Group, Inc. operates real estate and home-related information marketplaces on mobile and the Web in the United States. It offers a portfolio of brands and products to help people find vital information about homes, and connect with local professionals. The company's brands focus on various stages of the home lifecycle, such as renting, buying, selling, financing, and home improvement. Its portfolio of consumer brands includes real estate and rental marketplaces comprising Zillow, Trulia, StreetEasy, and HotPads. The company also provides advertising services to real estate agents and rental and mortgage professionals; and owns and operates various brands that offer technology solutions to real estate, rental and mortgage professionals, including DotLoop, Mortech, Diverse Solutions, and Retsly.

Back in August 2015 Zillow Group split its stock 2:1 but the new stock had no voting rights. The Class C stock trades under the symbol Z while the Class A stock with rights traded under the symbol ZG. The company did this so the voting rights would not be diluted. Multiple companies have done this including the biggest to date with Google and Facebook. The split has no impact on the company operation except that employees now receive Z shares and any acquisitions will be made with Z shares.

The company acquired Trulia.com for $2.6 billion in 2015 and contrary to analyst concerns the integration has been relatively smooth. There were some hiccups but everything is functioning normally today.

They reported Q1 earnings of 13 cents that beat estimates for a loss of 9 cents. Revenue rose from $127.3 million to $186 million and beat estimates for $177 million. They also raised full year guidance from $805-$815 million to $825-$835 million. Analysts were expecting $794 million. They ended the quarter with $514 million in cash. Marketplace revenue rose 23%, real estate revenue rose 34% and mortgage revenue rose 65%.

Earnings August 2nd.

In early June, the company made a windfall settlement with Move.com for $130 million after two years of litigation. Analysts were expecting $1.8-$2.0 billion. This pending litigation had been a cloud over the stock for the last 8 months. After the settlement shares spiked to $32 and traded sideways for two weeks before moving up to new highs at $35.50. The Brexit crash knocked the shares back to $32.75 but after the last two days of gains it is threatening to breakout once again.

Shares closed at $35 so the August $40 strike is a little far out for a short period of time. I am going to stretch to the November $40 strike, which will have significant expectation premium when we exit before earnings.

Position 6/30/16:

Long Nov $40 call @ $2.30, initial stop loss $32.50.

BEARISH Play Updates (Alpha by Symbol)

HSY - Hershey Company - Company Description


Another decline. The trend continues to move in our favor.

Original Trade Description: July 2nd.

The Hershey Company manufactures, imports, markets, distributes, and sells confectionery products. It offers chocolate and non-chocolate confectionery products; gum and mint refreshment products comprising chewing gums and bubble gums; pantry items, such as baking ingredients, toppings, beverages, and sundae syrups; and snack items, including spreads, meat snacks, bars and snack bites, and mixes. The company provides its products primarily under the Hersheys, Reeses, Kisses, Jolly Rancher, Almond Joy, Brookside, Cadbury, Good & Plenty, Heath, Kit Kat, Lancaster, Payday, Rolo, Twizzlers, Whoppers, York, Scharffen Berger, Dagoba, Ice Breakers, Breathsavers, and Bubble Yum brands, as well as under the Golden Monkey, Pelon Pelo Rico, IO-IO, Nutrine, Maha Lacto, Jumpin, and Sofit brands.

Snack maker Mondelez bid roughly $23 billion for Hershey last week and the offer was quickly refused. Hershey has turned down several acquisition offers since 2002. In 2002 the Wrigley company tried to buy it and failed. In 2007 Cadbury also failed. In 2010 the trust prevented Hershey from bidding to buy Cadbury. The problem with acquiring Hershey is that the Hershey Trust Co. owns 81% of the voting stock and 8.4% of the common stock. Nothing will happen unless the trust approves.

The trust was setup in 1909 to benefit the Milton Hershey School for underprivileged children and the community of Hershey Pennsylvania. The trust has built up a $12 billion endowment for the school and is well liked for the good works done around the community.

The board has also said multiple times they do not want to sell the company.

Another factor is the Pennsylvania Attorney General. Any sale would require the approval of the AG under a 2002 state law. He has the power to overrule the trust if he feels any sale would not benefit the citizens of Pennsylvania.

Here is where the challenge comes in. If Mondelez buys the Hershey Company then the trust gets a lump sum of money but that is all they will ever get. Once they spend it the benefit is over. If Hershey stays independent the trust will remain the benefactor of Hershey PA for another century. The profits from Hershey will continue to flow through the trust to the school and other entities to support the community. Hershey pays out about $500 million a year in dividends. The AG is not likely to allow the golden goose to be sold.

I believe this acquisition bid will fail. Mondelez may raise the offer but I doubt the board, trust or AG will accept it. The spike in the stock to $115 will fail and shares will return to the $95-$100 level where they were trading lat week.

This is a speculative position so do not play with money you cannot afford to lose. I am making this a spread because the put options are expensive for obvious reasons.

Earnings July 28th.

Position 7/5/16:

Long August $110 put @ $5.15, no initial stop loss.
Short August $100 put @ $1.52, no initial stop loss.
Net debit $3.63

IWM - Russell 2000 ETF - ETF Description


The Russell ETF continues to struggle with resistance at $120 and the Russell 2000 gained only 1 points today compared to +134 for the Dow, +28 for the Nasdaq and +11 for the S&P. This is very poor relative strength.

Original Trade Description: July 2nd.

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

The Russell 2000 is facing strong resistance from 1150-1165. The index actually touched 1,190 in early June but I seriously doubt we will see that level again. The S&P closed right at 2,100 and has strong resistance from 2100-2115. The Dow closed only 72 points under the post Brexit close at 18,011.

We recovered from the post Brexit crash on a combination of equity fund window dressing for the end of the quarter and pension funds rebalancing the ratio of bond to equities. Reportedly they had to buy up to $18 billion in equities.

Now we are at resistance and all those uplifting events are over. The uncertainty over the UK exit still exists and the dollar/pound imbalance will cause a significant number of earnings warnings for Q3.

All the fundamentals point to a weak July and the artificial lift from the end of the quarter buying is over.

Note the volume in SPY and IWM puts for August on Thursday. The far right column is the open interest and the second from the right is the volume traded on Thursday. This is about 3 times the number of calls for the same period. The vast majority of traders are expecting a market decline.

I am recommending we buy puts on the IWM because the premiums are cheaper. I am recommending an entry trigger because we could still move higher ahead of the long weekend. S&P future are down -4 but that could be temporary.

Position 7/5/16 with an IWM trade at $113.95

Long August $112 puts @ $2.62. No initial stop loss.

MEOH - Methanex Corp - Company Description


No specific news. Finally moved over resistance at $29 to stop us out.

Original Trade Description: July 9th.

Methanex Corporation produces and supplies methanol in the Asia Pacific, North America, Europe, and South America. It also purchases methanol produced by others under methanol offtake contracts and on the spot market.

This is a very niche market and methanol prices have been declining. Like oil there is an abundance of methanol.

Earnings estimates are declining sharply. Full year estimates have fallen from a profit of 42 cents to a loss of 3 cents. That is a major drop. For the current quarter estimates have fallen from a loss of 19 cents to a loss of 27 cents.

Earnings July 27th.

Despite the rapidly falling estimates and stock price Raymond James upgraded it to strong buy on May 17th. Shares rallied on the upgrade from $29 to $35 and almost immediately rolled over again. Shares sank to a four-month low last week. On Friday when the market was exploding higher the stock only gained 38 cents. Shorts were not covering in MEOH.

I am picking the August $25 put because it is cheap and I am planning on holding over earnings unless we are really profitable ahead of the event. I believe the earnings will disappoint and we could see a sharp post earnings drop, but I would be wrong. The option is only $1 so the risk is minimal.

Position 7/11/16:

Closed 7/14/16: Long August $25 put @ $1.00, exit .30, -.70 loss.

SYNA - Synaptics Inc - Company Description


No specific news. Shares are moving sideways while we wait for the next leg down.

Original Trade Description: July 11th.

Synaptics Incorporated develops, markets, and sells intuitive human interface solutions for electronic devices and products worldwide. The company offers its human interface products solutions for mobile product applications, including smartphones, tablets, and touchscreen applications, as well as mobile, handheld, wireless, and entertainment devices; notebook applications; and other personal computer (PC) product applications, such as peripherals comprising keyboards, mice, and monitors, as well as remote control devices for desktops, PCs, and digital home applications.

Back in mid April Synaptics said it was in active discussions with a state-backed Chinese investment group on a deal that valued the company at $110 per share. The company said it was anticipating a formal announcement at month end when it reported earnings. Shares spikes 7% to $87.

On April 28th the company reported adjusted earnings of $1.21 per share compared to estimates for $1.51. Revenue of $402.5 million also missed estimates for $450.5 million. Shares collapsed $15 on the news to $68.

In early June, the company said it was no longer in active talks with the Chinese group about an acquisition. On June 16th, the company said it was laying off 160 employees and closing some offices. That is about 9% of the workforce. The company will have an $11 million charge for severance and take another $4 million charge for lease cancellation fees on the office rent. Synaptics said the move was to align the company's cost structure close to its revenue. The company said they had experienced a "sizeable revenue shortfall" in Q1 that would carry over into the current quarter. "We saw a precipitous drop in order levels within the smartphone market." They are a supplier to Apple.

Recent reports suggest Apple is still cutting component orders for the next iPhone due out in September so Synaptics revenue should still be in decline.

Shares closed at a 2-year low last week and earnings are July 28th.

I am recommending a September $45 put in order to avoid the sharp drop in front month premiums when July expires on Friday. I do not plan on holding over that earnings report. We are buying time but we are not going to use it.

Position 7/12/16:

Long Sept $45 put @ $3, see portfolio graphic for stop loss.

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