Option Investor

Daily Newsletter, Tuesday, 7/11/2017

Table of Contents

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

Market Wrap


by Jim Brown

Click here to email Jim Brown

A calm day in the markets was interrupted with a triple digit intraday drop on an email revelation.

Market Statistics

The markets were posting minor gains and moving slowly higher until 11:AM. That is when Donald Trump Jr tweeted copies of an email exchange where a friend of a friend offered to set up a meeting with a lawyer for the Russian government that wanted to give Trump some dirt on Hillary Clinton's dealings with Russia. The algorithmic computers read the headlines and the market crashed. The Dow dropped -159 points from its 11:AM high to trade at 21,279. The other indexes followed suit but with less of a decline.

Almost immediately, the trade reversed when the facts showed all the "Russia" comments came from the friend and were incorrect. The lawyer had no dirt, was not connected with the Russian government and only wanted the intro to Trump to discuss Russian adoptions. I am sure the "friend" is no longer a friend after the bogus setup and now the feeding frenzy in the press over the potential for something to have happened had the claims been real. If the lawyer had produced some dirt, the outcome could have been a lot different.

Regardless of what happened at that meeting or what will happen after the various Russian investigations get done pouring over the facts, the market crashed intraday and then rebounded back to where it started.

The morning economics were mixed. The NFIB Small Business Survey for June declined from 104.5 to 103.6. While the decline was slightly larger than expected, the Optimism Index is still well above pre election levels. The individual components were mostly lower but only slightly. Those respondents planning on increasing capex rose from 28% to 30% and those planning to increase inventories rose from 1% to 4%. Those planning on increasing employment declined from 18% to 15%, expect the economy to improve fell from 39% to 33% and those expecting higher sales down from 22% to 17%.

Moody's Chart

The California Manufacturing Survey for Q3 declined from 62.2 to 61.0. That is still a healthy expansion level despite the decline. The new order component declined from 63.5 to 62.8, employment from 61.2 to 58.2, production from 65.7 to 65.5. This report was ignored.

The Job Openings and Labor Turnover Survey for May fell from a 4.0% openings rate to 3.7%. The number of available jobs fell to 5.666 million from April's peak of 5.967 million. Hires rose from 5.043 million to 5.472 million. Separations rose from 5.008 million to 5.259 million. Quits rose from 1.605 million to 1.661 million. This is bullish for the jobs market because people do not normally quit their jobs unless they are confident they can find a better job rather quickly or have already been hired elsewhere. This was a lagging report for May and it was ignored.

Wholesale inventories for May rose 4% after a -0.4% decline in April. This was the strongest inventory build since December. Durable goods rose +0.6% and nondurable goods were flat.

Inventories rose sharply because of a -0.5% decline in sales. Durable goods sales fell -0.1% and nondurable goods sales fell -0.9%. This was the third consecutive month of sales declines. The inventory to sales ratio rose to 1.29 and the first rise in five months.

The Atlanta Fed real time GDPNow for Q2 declined to 2.6% growth after the payroll report on Friday and the Wholesale Inventories today.

The calendar for tomorrow revolves around Yellen's testimony. Her opening statement will be released to the press at 8:30 and her testimony will begin at 10:AM. Traders are worried she could attack stocks again as being overvalued. There have been multiple comments from her about that over the last couple weeks. Traders are hoping to avoid a repeat of the Alan Greenspan "irrational exuberance" comment like the one he used to tank the market on December 5th, 1996 when the Dow fell -3.4% the next day. Whenever the Fed is trying to talk down the market, traders will listen.

Yellen gets two chances with her testimony on Wednesday and then the repeat performance on Thursday.

There are no material earnings until Friday when the major banks report. Expectations are high for the bank results and even more so after the Fed approved their capital return programs. There could be a sell the news event if the details are not outstanding.

PepsiCo (PEP) was the only major earnings report on Tuesday. Pepsi reported earnings of $1.50 compared to estimates for $1.40. Revenue of $15.71 billion also beat estimates for $15.64 billion. The company guided for the full year for earnings of $5.13, up from $5.09 but that was still a penny below analyst estimates at $5.14. Gross margins declined 55 basis points and operating margins declined 20 basis points. Shares declined sharply at the open but recovered to end the day with only a 53-cent loss.

Michael Kors (KORS) shares fell 7% after MKM Partners reiterated a sell rating and $26 price target. Shares closed the day at $33.25. The analyst said KORS was to slow to innovate and make changes to the merchandising and promotional strategy. She said they were overexposed to wholesale and they needed to invest more in the online business and the product mix was shifting to lower margin categories. Operating margin has declined 900 basis points since 2013 and the analyst is expecting another 430 bp decline in FY 2018.

Barclay's cut Toll Brothers (TOL) to underweight from equal weight, which is the equivalent of neutral to sell. The analyst said a June survey showed moderating buyer traffic and they expect builders to post disappointing results and guidance for the quarter. "Our buyer traffic index decreased from 61 in May to 53 in June. Within builder's primary markets, our weighted index declined from 53 to 47, and falling below expectations for the first time in 2017." Toll Brothers declined -2% but that was minimal compared to their long string of gains. The entire sector decline with the exception of CAA and NWHM.

Ulta Beauty (ULTA) shares fell -5% on zero news. The retail sector is dragging down every company regardless of product or sales method. If they depend on a mall for revenue, they are being sold. Put buying is rampant and short interest is up 49% and at the highest level in nearly a year.

Snap Inc (SNAP) is now the second most hated stock on the street behind Blue Apron (APRN). Snap fell below its $17 IPO price today after their underwriter, Morgan Stanley, downgraded them from overweight to equal weight. MS said Snap's ad business was struggling. They blamed Facebook's Instagram product, where the company is giving away free ads with every post. They also warned that user growth was slowing more than expected. MS said Snap's ad products are taking longer to evolve and competition is peeling away potential advertisers. Instagram has more than 450 million daily active users compared to Snap's 166 million.

Blue Apron (APRN) shares fell -12% after Northcoast initiated coverage with a sell rating and a $2 price target. The Amazon acquisition of Whole Foods is depressing an already questionable IPO. Whole Foods has fresh food and Amazon knows how to ship it fast. That means a potential competitor for the fresh food space that will be an 8,000 pound gorilla the day they decide to compete. If you can borrow these shares, it should be an easy short.

If you did not know it was Amazon Prime Day, you are obviously not a Prime subscriber. Amazon expects to sell $2 billion in advertised specials today and all of those products will be delivered by Saturday. Yesterday my postman said they were adding some workers on Thr/Fri to handle the expected deluge of packages.

One analyst said there would be $10 billion in lost productivity on Tuesday as a result of the time spent looking at the Amazon bargains. He calculated that using the estimated 85 million Prime subscribers spending only 1 minute each looking at ads while at work. Obviously, he is not paying attention. With more than 100,000 discounted products popping up with a new set of ads every 5 minutes, there is far more than 1 minute wasted by Prime subscribers.

If you do not know what Amazon Prime is or just want to see some of the specials, just click the Prime Day image below.

Amazon shares declined slightly, which is normal. For the last three years, they rose into the event and then suffered a sell the news drop on the actual day.

Alibaba (BABA) shares rose $2 because they are benefitting from the hype around Amazon. Alibaba's Singles Day in November is expected to bring in $20 billion in sales compared to Amazon's $2 billion.

Crude prices rallied after the close when the API inventory report showed an 8.133 million barrel decline for last week. Analysts were expecting a decline of -2.99 million barrels. Gasoline inventories declined -801,000 barrels and distillate inventories rose 2.079 million.

Goldman Sachs warned that crude prices were going to fall under $40 without a shock and awe production cut by OPEC. That is not likely to happen.

Tesla's Elon Musk bought back his first domain from PayPal. That domain was X.com. Ebay got the domain when they acquired PayPal from Elon Musk and Peter Theil. PayPal kept it when they were spun off from Ebay. Musk said he has no plans for it today but we all know he will probably come up with a new business just so he can use the name. He said it had sentimental value to him.

PayPal (PYPL) shares declined slightly after an analyst made the case for them buying Square (SQ). Square shares rose 6.3% on the news. The analyst said PayPal could make significant inroads into the brick and mortar businesses with their strength behind Square.


If it were not for the email crash at 11:AM, it would have been a boring day in the markets. Nobody wants to jump in front of Yellen with a bunch of longs just in case she attacks high equity prices as the reason they need to continue raising rates.

On a positive note, the Fed's Lael Brainard said the Fed may have reached its limit on rate hikes due to the lack of inflation but they could begin to taper their QE purchases as soon as the July meeting. Those comments about 11:30 helped to lift the markets off the email lows.

Volume was only 5.9 billion shares but would probably have been a lot less without the email crash in the middle of the day. That drop triggered a lot of sell stops and active traders bought the dip. Those were trades that would not have happened with the headline.

The S&P dipped to 2,412 on the headline and rebounded to 2,429 where it ran into downtrend resistance and came to an immediate halt. This is a likely resting point until the Yellen testimony on Wednesday. We have a clear support level in the 2410-2415 range from the last several declines and solid resistance at 2,440.

Only three Dow stocks had moves over $1. Other than the morning drop, the session was very quiet. The rebound from the 21,279 low came to a dead stop at downtrend resistance at 21,440. This level is going to be a challenge unless Yellen utters some kind words to lift bullish sentiment.

The big cap tech stocks were positive with the exception of Amazon and Adobe. The Nasdaq closed well above prior resistance at 6,175 and is testing the 6,200 level. We need a close over 6,250 to really generate some short covering and price chasing. Once we exceed that level, traders will begin to believe in a summer rally scenario.

The small caps were neutral today. The Russell closed right in the middle of its recent congestion with neither a bullish or a bearish bias.

Wednesday and Thursday will be governed by Janet Yellen. Traders will be calmly waiting for the news and assuming she does not attack stock valuations, we should see a positive bias into the earnings cycle that begins on Friday. There is no rush to load up on bullish or bearish positions. We will have plenty of time to do that next week once the testimony headlines fade.

There will always be another day to trade if you have capital in your account.

Enter passively, exit aggressively!

Jim Brown

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New Option Plays

Retail Casualty

by Jim Brown

Click here to email Jim Brown

Editors Note:

This retailer has plenty of positive ratings but that is not helping the stock price. The sector is so negative that even the best performers are falling.


No New Bullish Plays


ROST - Ross Stores - Company Profile

Ross Stores, Inc., together with its subsidiaries, operates off-price retail apparel and home fashion stores under the Ross Dress for Less and dd's DISCOUNTS brand names in the United States. It primarily offers apparel, accessories, footwear, and home fashions. The company's Ross Dress for Less stores sell its products at savings of 20% to 60% off department and specialty store regular prices primarily to middle income households; and dd's DISCOUNTS stores sell its products at savings of 20% to 70% off moderate department and discount store regular prices to customers from households with moderate income. As of March 6, 2017, it operated 1,363 Ross Dress for Less stores in 37 states, the District of Columbia, and Guam; and 198 dd's DISCOUNTS stores in 15 states. Company description from FinViz.com.

Expected earnings August 17th.

They reported Q1 earnings of 82 cents compared to estimates for 79 cents. Revenue of $3.31 billion beat estimates for $4.27 billion. Same store sales rose 3%. Operating margins shrank. The company is planning on operating 90 stores in 2017.

Unfortunately, they guided for the full year for earnings of $3.07 to $3.17 and analysts were expecting $3.15 at the midpoint. The guidance from Ross also includes an extra week in 2017 over 2016 and that means it is even weaker than it seems.

They guided for same store sales of 1-2% and well below the 3% in Q1. They also guided for margins to contract again from 15.2% in Q1 to 13.9%-14.1%. A week later regulators posted criminal charges against a California man that generated $8.2 million in profits on insider trading in Ross shares. The insider was not named. Shares rolled over and are still falling. Three analysts have cut their estimates for Ross since the earnings.

With the retail sector getting hit every day by some store closure notice or analyst downgrade, Ross could continue falling until their earnings report.

Buy August $52.50 put, currently $1.25, initial stop loss $57.00.

In Play Updates and Reviews

Closed Off the Lows

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Dow rebounded from triple digit losses to close fractionally positive. The markets collapsed on the release of an email chain by Donald Trump Jr that appeared to show him meeting with a lawyer linked to the Russian government. The sharp drop was over quickly but the Dow could not hold the intraday gains.

The Nasdaq closed near the highs for the day and just below 6,200. That was well over the 6,175 resistance that has been a problem. The S&P posted a 2 point loss ahead of Janet Yellen's testimony.

Current Portfolio

Stop Loss Updates

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

Profit Targets

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

Current Position Changes

MKC - McCormick
The long put position was entered at the open.

If you are looking for a different type of option strategy, try these newsletters:

Credit spreads and naked puts = OptionWriter

Long term option investments = LEAPS Investor

3-6 month Option Trades = Ultimate Investor

Iron Condors = Couch Potato Trader

Long and short equity trades = Premier Investor

BULLISH Play Updates

AAPL - Apple Inc - Company Profile


There were lots of headlines on Apple today. Far too many to report here but none from Apple itself. Susquehanna Financial warned that higher prices and stronger competition from Android models, were going to dent Apple's sales. The analyst also said talks with suppliers in Asia confirmed that Apple is trying to put too many things in the iPhone 8 and there is not enough room. The finger print sensor is looking much more likely to be dropped from the top of the line OLED iPHone 8 model. Apple only has a very few weeks to either work out a solution or drop the feature or risk production delays of 2-3 months while engineers go back to the drawing board on the internal hardware configuration.

Deutsche Bank also dumped on Apple's parade saying the expectations for the iPhone 8 are too high. DB warned that the iPhone 8 supercycle was probably only going to be a regular upgrade cycle. DB is expecting sales of 230 million phones in FY 2018. Peak sales were 231 million in FY 2015 and DB is expecting that to be a ceiling because of price, availability and competition. The bank said it was confused about where the new buyers were coming from, especially at a $1,200 price point.

Original Trade Description: June 28th.

Apple Inc. designs, manufactures, and markets mobile communication and media devices, personal computers, and portable digital music players to consumers, small and mid-sized businesses, and education, enterprise, and government customers worldwide. The company also sells related software, services, accessories, networking solutions, and third-party digital content and applications. It offers iPhone, a line of smartphones; iPad, a line of multi-purpose tablets; and Mac, a line of desktop and portable personal computers. The company also provides iLife, a consumer-oriented digital lifestyle software application suite; iWork, an integrated productivity suite that helps users create, present, and publish documents, presentations, and spreadsheets; and other application software, such as Final Cut Pro, Logic Pro X, and FileMaker Pro. In addition, it offers Apple TV that connects to consumers' TV and enables them to access digital content directly for streaming high definition video, playing music and games, and viewing photos; Apple Watch, a personal electronic device; and iPod, a line of portable digital music and media players. Further, the company sells Apple-branded and third-party Mac-compatible, and iOS-compatible accessories, such as headphones, displays, storage devices, Beats products, and other connectivity and computing products and supplies. Additionally, it offers iCloud, a cloud service; AppleCare that offers support options for its customers; and Apple Pay, a mobile payment service. The company sells and delivers digital content and applications through the iTunes Store, App Store, Mac App Store, TV App Store, iBooks Store, and Apple Music. It also sells its products through its retail and online stores, and direct sales force, as well as through third-party cellular network carriers, wholesalers, retailers, and value-added resellers. Company description from FinViz.com.

This play is not going to take a lot of explanation. Shares rallied to $156 in May and then stalled at that level as various rumors continued to circulate over a potential delay in shipping the iPhone 8. Analysts routinely debated the various pros and cons of the Apple outlook. Shares fell to $144 and they have been trading at $145 for the last three weeks. On Tuesday's decline the stop lost $2, which was immediately recovered on Wednesday.

Apple is expected to report earnings on August 1st. The stocks always ramps up into earnings. Since Apple is expected to announce multiple iPhone models in September, a shipment delay on the big iPhone 8 will not be a disaster. We will be out of the position before the August earnings so that will not impact us either way.

The plan is to capture the ramp into the earnings and then exit. Having Apple dormant at $145 for the last three weeks shows there is plenty of support under that level and a rebound could start at any time. Fortunately, because of the dormancy, the options premiums have shrunk.

Apple is a sleeping giant. When it awakes, there could be plenty of price chasing.

Update 7/5/17: Nomura said iPhone 7 demand was weak but it was ok because of the pent up demand for the iPhone 8, expected out in a couple months. The analyst said the model 8 would provide sufficient upside in both volume and price to more than compensate for the current weak sales in the model 7.

Update 7/6/17: Qualcomm is seeking to ban imports of some iPhones in their long running patent dispute with Apple. The news was announced after the bell and shares of Apple declined about 10 cents. This will not impact any current phones or the iPhone 8 because the case will not even begin to be heard until spring of 2018 or later. The two companies will eventually settle out of court. This is just legal sparring.

Update 7/7/17: Canaccord Genuity said it was seeing "steady" iPhone 7 sales ahead of the company's earnings on August 1st. The analyst said the pace of sales is consistent with prior estimates for 42 million in Q2 and 47 million in Q3. They have a $180 price target. A Raymond James analyst said their survey found strong consumer interest in the watch, and Apple speakers including the Beats wireless speakers and the upcoming HomePod smart speaker. The survey found that 14% of iPhone owners plan to buy the HomePod when it goes on sale in December. They also found that 12% of consumers plan to buy the Apple Watch, the highest level since the watch was announced.

Update 7/10/17: An Apple analyst said the iPhone 8 could start at $1,200 and go higher from there. This is definitely going to put a crimp in iPhone 8 sales but Apple should still post higher revenue and profits thanks to the high price. The iPhone 8 is rumored to be available in four colors. There is a continuing rumor that Apple may drop the fingerprint sensor from the model 8 because of space considerations. There are so many features packed into the model 8 that there is no physical room for the sensor in the new screen configuration. Just a rumor but it refuses to go away.

Position 6/29/17:

Long August $150 call @ $3.00, see portfolio graphic for stop loss.

BABA - Alibaba - Company Profile


Alibaba was getting a lot of press thanks to Amazon's Prime Day. Amazon is expected to sell $2 billion in merchandise, a 25% increase over 2016. Alibaba is expected to top $20 billion, up from $18 billion, with the Singles Day promotion on November 11th. The hype lifted BABA shares by $2 to a new closing high.

Original Trade Description: June 10th.

Alibaba Group Holding Limited, through its subsidiaries, operates as an online and mobile commerce company in the People's Republic of China and internationally. It operates Taobao Marketplace, an online shopping destination; Tmall, a third-party platform for brands and retailers; Juhuasuan, a sales and marketing platform for flash sales; Alibaba.com, an online wholesale marketplace; Alitrip, an online travel booking platform; 1688.com, an online wholesale marketplace; and AliExpress, a consumer marketplace. The company also provides pay-for-performance and display marketing services through its Alimama marketing technology platform; Taobao Ad Network and Exchange (TANX), a real-time bidding online marketing exchange in China; and data management platform through TANX for marketers to execute their campaigns with proprietary and tailored data. In addition, it offers cloud computing services, including elastic computing, database, storage and content delivery network, large scale computing, security, and management and application services through its Alibaba Cloud Computing platform; Web hosting and domain name registration services; payment and escrow services; and develops and operates mobile Web browsers. The company provides its solutions primarily for businesses. Company description from FinViz.com

Alibaba is the poor investor's Amazon. With shares at $135, the options are at least reasonable but not cheap. Alibaba is growing as fast or faster than Amazon and tries to copy everything Amazon does.

When the company reported earnings for the last quarter at 63 cents, they missed estimates for 68 cents. Revenue of $5.6 billion easily beat estimates for $5.2 billion. Other than the earnings miss it was a solid quarter with ecommerce up 47% and cloud computing up 102%. Digital media growth was up 234%. Mobile MAUs rose from 493 to 507 million. That is important because 90% of China's ecommerce occurs on a mobile device.

The company announced plans to buy back $6 billion in stock over a two-year period.

Earnings August 18th.

Shares dipped on the earnings miss then spiked on the guidance to $125.50, which was a new high. After a little more than two weeks of post earnings consolidation, shares returned to that $125.50 level and closed at a new high.

There was an analyst day last week and that kicked the stock up to another level with a $10 gain. The company guided for 45% to 49% revenue growth in this year and analysts were only expecting 37%. MKM partners raised the price target to $177. Pacific Crest raised their price target to $160 from $137. Needham raised their target to $155. The Benchmark Company is targeting $175.

Shares declined on Tuesday on no news. With the stock overbought after the analyst meeting we could be seeing some simple profit taking. I am going to put an entry trigger on the position. If shares continue lower I will revise the entry.

Update 6/20/17: Alibaba is hosting a forum for 3,000 entrepreneurs in Detroit to explain how easy it is for them to begin selling products on Alibaba's websites. CEO Jack Ma said in another interview he expects to employ 1 million workers in the USA.

Update 6/27/17: JP Morgan initiated coverage with an overweight rating and $190 price target. Barclays said it valued Alibaba in a sum of the parts method at $200 but their price target for the parent is $175 with an overweight rating.

Update 6/29/17: Mott Capital said Alibaba could be worth $210 on a fundamental basis. A "source" in China said Alibaba will launch a device similar to Amazon's Echo but Chinese speaking, next week. That should give the stock a decent pop.

Update 7/5/17: Alibaba announced the Alexa clone called Genie X1, which will be available to the first 1,000 people for a one-month trial. The cost will be $73 during this live test and it only speaks mandarin.

Update 7/10/17: RBC analyst Mark Mahaney raised his price target on BABA from $140 to $160 and reiterated an outperform rating saying fundamental trends remain impressive. Alibaba said recently it is targeting $1 trillion in gross merchandise volume in 2020. Alibaba's Singles Day promotion is 40 times larger in sales than Amazon's Prime Day, which starts tonight.

Position 6/19/17 with a BABA trade at $139.50

Long Aug $145 call @ $5.95, see portfolio graphic for stop loss.
Short Aug $155 call @ $2.92, see portfolio graphic for stop loss.
Net debit $3.03.

PYPL - PayPal - Company Profile


PayPal said it had sold the domain X.com back to Elon Musk. PayPal had kept the domain when Musk left the company back in 2002. Musk said he has no plans for it now but it has sentimental value to him.

Shares were down today after Loop Capital released a note saying the PayPal should buy Square (SQ). That would help PayPal increase its exposure to brick and mortar businesses. Shares of Square rose 6%.

Original Trade Description: June 21st.

PayPal Holdings, Inc. operates as a technology platform company that enables digital and mobile payments on behalf of consumers and merchants worldwide. It enables businesses of various sizes to accept payments from merchant Websites, mobile devices, and applications, as well as at offline retail locations through a range of payment solutions, including PayPal, PayPal Credit, Braintree, Venmo, Xoom, and Paydiant products. The company's platform allows consumers to shop by sending payments, withdraw funds to their bank accounts, and hold balances in their PayPal accounts in various currencies. Company description from FinViz.com.

PayPal started out as a payment system for Ebay. Since then they have moved into dozens of areas including credit cards, peer to peer payments. Instead of being locked into one business model, they are rapidly expanding to multiple business models. Recently they partnered with MasterCard and Visa to have their digital payments processed on their systems. The company is expanding the scope of its Venmo payment platform, which handled $6.8 billion in Q1, up 114%. This peer to peer app will now allow you to pay for goods at any merchant that accepts the app, just like Apple pay.

In Q1 PayPal revenue rose 17% to $2.975 million and earnings rose 5%. Total accounts rose 23% to 203 million. As a comparison, Mastercard's revenue was less at $2.7 billion. That is a shocker to most people.

With their Q1 earnings, PayPal committed to buy back $5 billion in stock.

Expected earnings July 26th.

Shares dipped with the Nasdaq tech crash but are recovering. Their recent high was $55 and shares closed at $53.50 today. Options are inexpensive.

Update 7/5/17: Payment processor, Vantiv, offered $10 billion to buy London based Worldpay. That immediately boosted Paypal and Square on thoughts there may be other combinations in the future. Paypal has a market cap of $66 billion and Square $5 billion so Paypal is not likely a potential target but they could benefit from acquiring a smaller player.

Position 6/22/17:

Long August $55 call @ $1.58, see portfolio graphic for stop loss.

BEARISH Play Updates (Alpha by Symbol)

CPB - Campbell Soup - Company Profile


Moody's said Campbell's acquisition of Pacific Foods was credit positive. Shares rose 50 cents.

Original Trade Description: July 8th.

Campbell Soup Company, together with its subsidiaries, manufactures and markets food and beverage products. It operates through three segments: Americas Simple Meals and Beverages; Global Biscuits and Snacks; and Campbell Fresh. The Americas Simple Meals and Beverages segment engages in the retail and food service of Campbell's condensed and ready-to-serve soups; Swanson broth and stocks; Prego pasta sauces; Pace Mexican sauces; Campbell's gravies, pastas, beans, and dinner sauces; Swanson canned poultry; Plum food and snacks; V8 juices and beverages; and Campbell's tomato juices. The Global Biscuits and Snacks segment provides Pepperidge Farm cookies, crackers, bakery, and frozen products in the United States retail; and Arnott's biscuits in Australia and the Asia Pacific; and Kelsen cookies worldwide, as well as meals and shelf-stable beverages in Australia and the Asia Pacific. The Campbell Fresh segment provides Bolthouse Farms fresh carrots, carrot ingredients, refrigerated beverages, and refrigerated salad dressings; and Garden Fresh Gourmet salsa, hummus, dips, and tortilla chips, as well as refrigerated soups. The company sells its products through retail food chains, mass discounters, mass merchandisers, club stores, convenience stores, drug stores, and dollar stores, as well as other retail, commercial, and non-commercial establishments; and independent contractor distributors. Campbell Soup Company was founded in 1869. Company description from FinViz.com.

Campbell added a fresh foods division but the business is failing. Sales fell -8% in Q2 to $260 million. The company warned that sales would decline for the rest of 2017. The CEO said, "Let's be real, I am not satisfied with our overall sales performance in the quarter. Our performance over the last year in fresh food has been disappointing." Total sales declined to $2.17 billion and missed estimates for $2.22 billion. The company has spent almost $2 billion since 2012 to build the Fresh Division and it is still declining.

The company announced on Friday it was buying Pacific Foods of Oregon, an organic foods distributor, for $700 million. Pacific only produced revenue of $218 million in 2016. This is actually a good move for Campbell but they paid too much for Pacific. Their earlier acquisition for the Fresh Division was Bolthouse, a producer of carrots, juices and salad dressings, for $1.55 billion.

Campbell's is struggling because consumers are buying less packaged foods and more fresh and organic foods. They are buying less packaged food because they are moving to healthier choices. The CEO's admission that sales would decline for the rest of 2017, will likely be followed by another one that sales will decline in 2018. It is a tough retail market and Amazon's acquisition of Whole Foods is going to make it even harder.

Earnings August 18th.

Shares have fallen below support at $52.50 and could continue significantly lower.

Position 7/10/17:

Long Aug $50 put @ 80 cents. see portfolio graphic for stop loss.

MCK - McCormick & Company - Company Profile


No specific news. Shares rebounded from Monday's 4-month low but the trend is still negative.

Original Trade Description: July 10th.

McCormick & Company, Incorporated manufactures, markets, and distributes spices, seasoning mixes, condiments, and other flavorful products to the food industry. The company operates through two segments, Consumer and Industrial. The Consumer segment offers spices, herbs, and seasonings, as well as desserts. This segment markets its products under the McCormick, Lawry's, Club House, Gourmet Garden, OLD BAY brands in the Americas; Ducros, Schwartz, Kamis, and Drogheria & Alimentari, and Vahine brand names in Europe, the Middle East, and Africa; McCormick and DaQiao brands in China; and McCormick, Aeroplane, and Gourmet Garden brand names in Australia, as well as markets regional and ethnic brands, such as Zatarain's, Stubb's, Thai Kitchen, and Simply Asia. It also supplies its products under the private labels. This segment serves retailers comprising grocery, mass merchandise, warehouse clubs, discount and drug stores, and e-commerce retailers directly and indirectly through distributors or wholesalers. The Industrial segment offers seasoning blends, spices and herbs, condiments, coating systems, and compound flavors to multinational food manufacturers and foodservice customers. It serves foodservice customers directly and indirectly through distributors. McCormick & Company, Incorporated was founded in 1889 and is based in Sparks, Maryland. Company description from FinViz.com.

McCormick reported earnings of 82 cents that beat estimates for 76 cents. Revenue of $1.11 billion rose 4.8% mostly due to acquisitions in 2016. Analysts were expecting $1.1 billion. They reaffirmed their full year guidance for earnings of $3.94 to $4.02 but they did lower estimates for some of the other projections.

Expected earnings September 28th.

Analysts asked them repeatedly on the conference call why they did not lower earnings guidance when everything else was declining. The CEO said it was "too early" to make that call and they would review it at the end of this quarter. For analysts that was an admission that guidance would probably be lowered at a later date. Shares declined sharply.

Shares rebounded almost immediately but are now poised to move lower after closing at a 4-month low on Monday.

Position 7/11/17:

Long Sept $90 put @ $1.05, see portfolio graphic for stop loss.

NKE - Nike Inc - Company Profile


No specific news. Amazon was offering big discounts on shoes and apparel that are competitors to Nike. Under Armour was featured in multiple deals.

Original Trade Description: July 5th.

NIKE, Inc., together with its subsidiaries, designs, develops, markets, and sells athletic footwear, apparel, equipment, and accessories worldwide. It offers products in nine categories, including running, NIKE basketball, the Jordan brand, football, men's training, women's training, action sports, sportswear, and golf. The company also markets products designed for kids, as well as for other athletic and recreational uses, such as cricket, lacrosse, tennis, volleyball, wrestling, walking, and outdoor activities. In addition, it sells sports apparel; and markets apparel with licensed college and professional team and league logos. Further, the company sells a line of performance equipment, including bags, socks, sport balls, eyewear, timepieces, digital devices, bats, gloves, protective equipment, golf clubs, and other equipment under the NIKE brand name for sports activities; various plastic products to other manufacturers; athletic and casual footwear, apparel, and accessories under the Jumpman trademark; action sports and youth lifestyle apparel and accessories under the Hurley trademark; and casual sneakers, apparel, and accessories under the Converse, Chuck Taylor, All Star, One Star, Star Chevron, and Jack Purcell trademarks. Additionally, it licenses agreements that permit unaffiliated parties to manufacture and sell apparel, digital devices, and applications and other equipment for sports activities under NIKE-owned trademarks. The company sells its products to footwear stores, sporting goods stores, athletic specialty stores, department stores, skate, tennis and golf shops, and other retail accounts through NIKE-owned retail stores and Internet Websites (direct to consumer operations), as well as independent distributors and licensees. Company description from FinViz.com.

Nike reported earnings last week of 60 cents that beat estimates for 50 cents. Revenue of $8.7 billion narrowly beat estimates for $8.6 billion. The earnings spike was due mostly to a lower tax rate.

The stock spiked $5 on short covering after they announced they were turning to Amazon to help them sell shoes and apparel. Some analysts believe this will lead to further discounting because Amazon is a cutthroat market. We have already seen a weak market for high dollar Nike models with sales at 50% off. Moving to Amazon will cause additional discounting in those high dollar models. They also believe it will lead to lower orders from distributors and cause them even more grief in the U.S. where sales were flat. The U.S. is Nike's biggest market where they face less competition from brands like Adidas, which is rapidly accelerating.

Futures orders were reportedly down -10% indicating weak orders from distributors. As Nike shifts more from wholesale sales to the direct to retail market, they are going to face an entirely different set of problems. They announced they were laying off 1,400 employees as part of their consumer direct offense strategy.

Expected earnings Sept 28th.

The earnings are over and the post earnings depression phase should be starting. With everyone else starting their earnings next week, traders will be leaving Nike to find a stock with positive momentum.

Position 7/6/17:

Long Aug $57.50 put @ $1.51, see portfolio graphic for stop loss.

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