Option Investor

Daily Newsletter, Saturday, 7/15/2017

Table of Contents

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

Market Wrap

Conviction Returns

by Jim Brown

Click here to email Jim Brown

Friday's volume was light but the market internals were strong.

Weekly Statistics

Friday Statistics

Friday's gains were broad based with volume of only 5.3 billion shares but advancers of 4,876 easily beat decliners of 2,242. New highs of 610 beat 93 decliners.

The Dow and S&P surged to new highs while the Nasdaq posted decent gains to pull to within only 9 points of a new high. Even the Russell 2000 managed to squeeze out a new high by two points.

As expected, there was a sell the news event on the bank earnings BUT it only impacted the banks. That was the only sector that lost ground for the day. Banks had rallied into their earnings cycle and traders took profits on those gains.

The Dow dipped at the open thanks to the declines in JP Morgan (JPM) and Goldman Sachs (GS). The index rebounded back into record territory and held at barely positive until 12:30 when a sudden spurt of buying triggered some short covering ahead of the weekend and the Dow and S&P surged to new highs.

Some of the market rally was due to weak economic data. Yes, you read that right. The weak data is putting the data dependent Fed on hold and there is a growing consensus that they will not hike rates again in 2017. There is a 97% chance of no hike at the July meeting. There is now a 91.6% chance of no hike at the September meeting. That shrinks slightly to 87.9% for the November meeting. The December meeting has risen to a 51.6% chance for no hike. January is now a 50% chance. Previously, September had a decent chance for a rate hike and December was almost guaranteed. The weak data is causing the Fed plenty of consternation.

The first item of weakness on Friday was the Consumer Price Index for June. The headline number was zero with the core rate rising only +0.1%. On a trailing 12-month rate, the headline inflation is up only 1.6% compared to the 2.8% reading back in February. This sharp decline is why the Fed is starting to get worried. The core rate over the last 12 months is 1.7%, down from 2.3% in January. Analysts and the Fed are blaming the decline in inflation on "transitory" factors. Yellen said this would fade over the next couple of years. Yes, years. So why has the Fed been in such a hurry to hike rates? Because they are afraid this 8-year expansion is eventually going to fade and the Fed will only have a couple of bullets in their rate cut arsenal to deal with it.

Energy has been a major contributor to the decline in inflation. The energy CPI fell -1.6% in June after a -2.7% drop in May. Gasoline declined -2.8% in June after a -6.4% drop in May.

Food prices have been flat. Even healthcare prices have been declining thanks to the tidal wave of generic drugs hitting the market.

Retail sales for June declined -0.2% after a -0.1% drop in May. The May number was revised higher from the previously reported -0.3% number. Retail sales were again driven lower by falling energy prices. Sales at gasoline stations declined -1.3% for the biggest component loss. However, even if you take out energy, sales still declined -0.1%.

Food and beverages fell -0.4%, sporting goods and hobbies -0.6%, food service and bars -0.6% and clothing -0.1%. Building materials rose +0.5%, general merchandisers +0.4% and nonstore retailers +0.4%.

Retailers have no pricing power. Amazon and other online retailers are squeezing brick and mortar retailers and 19 chains are closing large numbers of stores in 2017. They are fighting for their lives and cannot raise prices and hope to maintain market share. Consumers are the big winners in this battle. Wages are growing very slowly so declining prices are a benefit.

Industrial production for June rose 0.4% compared to the +0.1% rise in May. This was the fifth consecutive monthly rise. However, the majority of the gain came from mining and energy production, which increased 1.6% compared to manufacturing production rising +0.2%.

Business inventories rose 0.27% after a -0.20% decline in April. The June gains reversed a five month decline since the +0.85% rise in November. Retail inventories rose 0.51%, wholesale inventories +0.38% and manufacturing inventories declined -0.5%. This report was ignored.

Consumer sentiment for July declined 2 points from 95.1 to 93.1 and the lowest level since the election. October was a multi-year low at 87.2 and that spiked to 98.2 in December. Cleary, there was a huge post election surge but that has been fading and the decline is now accelerating. The new administration needs to start accomplishing some legislative goals or sentiment is going to continue declining at a rapid pace.

The present conditions component rose from 112.5 to 113.2 but the expectations component declined from 83.9 to 80.2.

The key reports for next week are the Housing Market Index on Tuesday, Housing starts on Wednesday and the Philly Fed Manufacturing Survey on Thursday. As we get closer to the end of the week, the Fed meeting on the 26th will begin to weigh on the market. This is a fairly light week for economics and all eyes will be on the earnings calendar.

This is a busy first week of earnings with nine Dow components starting on Tuesday. We also have Netflix on Monday after the close, Qualcomm on Wednesday and Ebay on Thursday. This is the first week of the four-week cycle and activity will increase in the following two weeks. These earnings are the incentive for traders to remain invested as we head toward the two worst months of the year in August and September. Once the first two weeks of the cycle are over the market risk increases because the earnings outcome will be known and the anticipation will begin to fade.

With 6% of the S&P already reported, 80% have beaten earnings estimates and 83% have beaten revenue estimates. The five-year average is 68% and 53% respectively. Current Q2 earnings growth is 6.8% but the early estimates are normally low by more than 3%. Revenue growth is expected to be up 5.5%. One company has warned on future results and five companies have raised guidance. That 17% negative guidance rate is far below the average of 75%.

Earnings estimates for Q3 are currently 7.1% growth with 5.0% revenue growth. For Q4, earnings are estimated to grow 12.2% and 5.0% revenue growth.

The strong earnings growth compared to recent years is powering the market rally. The weak economics are expected to remain weak the rest of the year with an average of 2.0% GDP growth. That and the low inflation should keep the Fed from forcing the economy into a recession with another series of rate hikes. However, Morgan Stanley said on Friday they still expect one more hike in 2017 and four hikes in 2018. They are far outside the current mainstream consensus.

The major banks reported earnings on Friday. Rather than write an update on each I am going to summarize.

JPM $1.82 vs est $1.57, revenue $26.4B vs est $24.8B.
Citi $1.28 vs est $1.21, revenue $17.9B vs est $17.3B.
WFC $1.07 vs est $1.01, revenue $22.2B vs est $22.5B.
PNC $2.10 vs est $2.01, revenue $4.06B vs est $4.0B

JPM provision for credit losses declined 13%. Core loans up 8%, investment banking fees up 14%. Returned $4.5 billion to shareholders. Over the last 4 quarters they have generated over $25 billion in profits.

Citi's net income was $3.9 billion, down -3%. Cost of credit rose 22% to $1.7 billion. Trading revenue declined -7% but less than guidance of -12%. Loan growth rose 2%. Returned $2.2 billion to shareholders.

WFC net income was $5.8 billion, up 5%. Loans declined from $982B to $957.4B. Auto loan originations of $4.5 billion fell -17% from Q1 and -45% from year ago quarter. Deposits flat at $1.3 trillion.

PNC net income $1.1 billion, up 10.9%. Net charge offs $110 million, down -18%. Commercial loans $145.8 billion, up 6%.

All four stocks declined on Friday in a sell the news event even though Wells Fargo was the only one with a minor miss. JPM attracted additional attention after CEO Jamie Dimon went off on politicians and the press saying as he travels around the world it was embarrassing to be an American because of the dysfunction in Washington. He said in spite of all the regulation and roadblocks to business, the economy continued to grow at 2% and the banks were doing really well. If the government would quit doing "stupid sh**" everything would grow a lot faster. Needless to say that caught the attention of quite a few reporters.

The retail sector is no longer hated if you believe all the upgrades on Friday. Telsey Advisory Group upgraded Ross Stores (ROST) to outperform and a $70 price target. Shares spiked $1.65 at the open to reverse a bearish trend but then gave back most of the gains by the close.

Wal-Mart (WMT) shares gained $1.29 after Goldman Sachs put them on their conviction buy list with a price target of $84. The analyst said Wal-Mart was better positioned than any other retailer to cope with the demand of e-commerce and technology spending to compete with Amazon. He said Wal-Mart alone has the scale to compete aggressively. Wal-Mart is starting to offer grocery delivery in addition their in-store pickup options. The $84 price target is only a 12% gain from here. Resistance at $80 could be a challenge until after Amazon completes the Whole Foods acquisition. There is legislative opposition growing on that transaction so it is not a done deal.

The Gap (GPS) gained 2% after JP Morgan put them on their "Americas Focus List" with a price target of $27. Shares closed at $23.28. Since The Gap has seen 11 earnings estimate downgrades over the last two months, a positive comment was unusual. Gap has 13% of its shares sold short so any good news could lead to a short squeeze. The lackluster rebound on Friday suggests very few shorts were concerned. Some may have already been squeezed out after the Target guidance on Thursday caused a big rebound in Gap shares.

Ulta Beauty (ULTA) shares rose slightly after Goldman Sachs went bottom fishing and upgraded the stock from neutral to buy with a price target of $310, which was lower than their prior target at $321. Confused? The analyst was catching heck in various headlines for the conflicting signals. He said same store sales are positive and "sector leading" and the company will not be impacted by Amazon. The company has "convenient locations, a product assortment that mixes mass market and prestige items and service rather than price." "We do not believe that price competition will derail Ulta's core value proposition, or that Amazon yet offers a compelling alternative to the consumer."

Sprint (S) shares spiked on Friday after news broke they had approached Warren Buffett and John Malone's Liberty Media soliciting an investment between $10 and $20 billion in the wireless carrier. Masayoshi Son, the CEO of Softbank, which controls Sprint, met with Buffett and Malone separately at a conference in Sun Valley. Sprint CEO Marcelo Claure was also at the meetings. Berkshire Hathaway is reportedly considering an investment of $20 billion while the amount under consideration by Liberty Media is unknown. Sprint has been in play for some time and most assume they will eventually merge with T-Mobile despite regulatory issues. This is a new twist and it will be interesting to see if either of those big fish actually take the bait. Sprint only has a $34 billion market cap so that would be an enormous investment.

Casino stocks including WYNN, MGM and LVS plunged on Friday after a top prosecutor in Macau was found guilty of corruption. The man was sentenced to 21 years for illegally awarding nearly 2,000 public contracts that benefitted his family. The casinos in Macau are being audited over issues in the junket industry and potential money laundering issues. The junket industry is responsible for 53% of revenue for the casinos. Where ever there are large sums of cash changing hands in China there are concerns on money laundering as consumers try to move their assets out of China. With all the new casinos there are worries there will be blowback on the casino operators from the illegal construction and services contracts. WYNN shares were the hardest hit with a $4.50 drop.

F5 Networks (FFIV) was downgraded by Piper Jaffray from buy to neutral with a price target reduction from $144 to $136. The analyst said the product refresh cycle is not going as expected, meaning product growth "could remain challenged." The analyst said survey data showed a decline in quarter-over-quarter demand. He also said the guidance warning by A10 Networks (ATEN) was also a negative sign. F5 shares lost $4.50.

The two bouts of ransomware over the last month did not help CyberArk Software (CYBR). The company warned that revenue would be in the range of $57-$57.5 million compared to prior guidance of $61-$62 million. They slashed their adjusted income to a range of $8.5-$8.9 million, down from $10.9-$11.7 million. They said several anticipated transactions did not close before the end of the quarter and performance in Africa and the Middle East was lacking. Shares were crushed for a 16% loss.

Crude prices rebounded sharply from the drop the prior week and the gains lifted the energy sector and the market in general. There is a relationship between oil and equities and sometimes you can almost follow it from minute to minute across the markets.

Inventories declined sharply on Wednesday and OPEC said it was considering production limits on Libya and Nigeria. I personally think the biggest factor in the rebound was simply the extremely bearish sentiment. With Goldman predicting oil under $40, the longs had evaporated. The short trade was crowded and the inventory decline triggered the beginning of a short squeeze.

On Friday the Baker Hughes rig report showed no gain for the week. Actually, there was a gain of two oil rigs but a loss of two gas rigs so the combined number was zero. That encouraged investors that maybe the surge in active rigs was over since this was the second week in the last three that active rigs did not rise. I think it is wishful thinking.


The Dow, S&P, Russell 1,000, 2000, 3000 and Dow Transports all closed at new highs. The Nasdaq is only slightly below a new high. The four weeks of sideways volatility have resolved into a new push higher. We should all be celebrating and sending Janet Yellen thank you cards.

The Dow may be at a new high but every Dow stock has not participated. Since trends tend to reverse, I thought I would show you the seven Dow stocks that have lost ground over the first six months of 2017. If they are going to reverse over the last six months of the year, they need to get started. Intel and Goldman are the only two stocks that appear to be trying to rebound from their lows. The other five are still stuck at the bottom.

When fund managers restructure their portfolios as they tend to do in the summer, they try to find overlooked "values" that are oversold. I would not be a buyer but others might. If funds begin to nibble at these stocks, it would go a long way towards sending the Dow higher. Right now, they are all anchors that are holding back any rally attempt.

The Dow gained 84 points on Friday but it was not due to a significant outperformance by any one stock. Boeing was the leader with a $2 gain but it was the broad based rally that helped the most.

The index surged in the afternoon on what appeared to be a buy program at 12:30 that triggered some pre-weekend short covering. The uptrend resistance was broken intraday but the last minute selling kept the Dow from an outstanding breakout over that level. Support is now well back at 21,525 and the Dow could be poised to make a new run higher.

The S&P rallied most of the day but surged on the 12:30 buying burst. The intraday high at 2,463 almost reached the uptrend resistance at 2,465 but fell just short. The S&P has added 30 points in three consecutive days of gains. It has added 50 points since the prior Thursday close at 2,409. Adding 50 points in a week is a cause for celebration but also a caution signal. We should see some profit taking soon. It is possible the earnings expectations could keep the rally going so hopefully the earnings reports will be good.

The big cap tech stocks are back in the groove with Nvidia leading the pack with a $25 gain over the last 8 trading days. Netflix will be the first big tech to report earnings on Monday but they will come in rapid-fire succession over the next two weeks.

The Nasdaq has rebounded from the July 6th low of 6,081 to add +231 points over the last 8 days. The Friday close was just barely over resistance at 6,308 but headed in the right direction. The prior high close was 6,321.76. With the big cap techs ramping up into earnings, we "should" breakout to a new high next week. There are no guarantees.

The decline in the bank stocks was a drag on the Russell 2000 since 17% of its components are financial. However, it did close at a new high by 2 points. If the banks can shake off their sell the news event, the Russell could move higher and that would be a strong sentiment boost for the broader market.

Next week should be positive but it seems like every time we end the week with a good setup for the next week, the market reverses on some new headline. Earnings are rising, warnings are very few, economics are weak but steady, the Fed is likely on hold and the coming earnings cycle should be positive. What could go wrong?

Next Friday more than $550 billion in S&P-500 options are going to expire. JP Morgan said there were sizeable call positions in the 2450-2480 strikes that could lead to dealer hedging to dampen market volatility should the S&P trade in this range. Similarly, there are large put positions in the 2370-2400 strikes that could boost volatility if there was a sell off. In English, if the market moves up slightly it should remain calm. If it declines to 2,400 it could be very chaotic. The maximum pain point is 2,430 where the most options expire worthless. Typically, the market gravitates toward that level.

If you like the market commentary you have been receiving and you are on a free trial then now is the time to subscribe. Do not wait until you miss a newsletter to decide you want to take the plunge.

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Random Thoughts

Despite the new market highs, we continue to see very little movement in the sentiment survey over the last week. Just over 71% of investors still do not believe the market is going higher. Investors seem to be confident in their view of market direction and they are not changing from week to week.

A huge sunspot 75,000 miles wide (AR2665) that was nine times larger than the earth, caused a coronal mass ejection (CME) on July 14th that is expected to hit the earth on July 16th. Source. Eventually one of these will be big enough and pointed in the right direction to knock down our power grid for months or worse. In the Carrington Event in 1859 the CME melted the copper telegraph lines off the poles, burned telegraph buildings and produced daylight conditions overnight in the U.S. where people got up early and went to work thinking it was morning. If that happened today, it would be the equivalent of a nuclear EMP and destroy anything electric. There was a similar sized event on July 23rd, 2012 that narrowly missed the earth and 99.99999% of the population never even knew how close we came to a mega disaster because NASA did not make the information public until April 2014. Lloyds of London researchers estimated the cost of a Carrington Event today at up to $2.6 trillion in the U.S. alone. AR2665 was an M class flare and should only cause brief problems with communications. In May 2013, there was an X class flare that was 280 times larger but fortunately, it was pointed away from the earth.

Elon Musk has said some dystopian things in the past and he continues to make unexpected comments in his speeches. On Saturday, he said the shift to sustainable energy was inevitable "but it does matter whether it happens sooner or later." Musk said, "The sun is a giant fusion reactor in the sky. It is really reliable. It comes up every day. If it doesn't we have other problems."

Then he tanked his stock again. Since the speech was on Saturday it has not fallen yet but Monday could be a bad day. He has a habit of calling Tesla stock overpriced much to the chagrin of his shareholders. He said, the stock price "is higher than we have any right to deserve especially based on current and past performance." "The stock price obviously reflects a lot of optimism on where we will be in the future. Those expectations sometimes get out of control. I hate disappointing people. I am trying really hard to meet those expectations."

He also said he would not be selling any stock except to pay taxes. "I am going down with the ship. I will be the last to sell."

He then attacked regulations. "It is important to get the rules right. Regulations are immortal. They never die unless somebody actually goes and kills them. A lot of times regulations can be put in place for all the right reasons but nobody goes back and kills them when they no longer make sense."

He said 20 years from now actually driving a car would be like having a horse. There will be people that will have non-autonomous cars, like people have horses today. It would just be unusual to use that as a mode of transport.

Where he went off the rails was in a plea for the government to regulate artificial intelligence (AI) before things advance too far. "Until we see robots going down the street killing people, they do not know how to react because it seems so ethereal. AI is a rare case where I think we need to be proactive in regulation instead of reactive, because I think by the time we are reactive to AI regulation, it is too late. Normally the way regulations are set up is when a bunch of bad things happen there is a public outcry and after many years a regulatory agency is set up to regulate that industry. It takes forever. That is bad but in the past it was not a fundamental risk to civilization. AI is a fundamental risk to the existence of human civilization."

John Mauldin is as concerned about our future as Elon Musk. Only he sees a different danger in the very near future. He believes there will be another financial crisis in 2018 and he is warning to prepare now. Prepare for Turbulence

Here is an excerpt from that article.

"Get out of Dodge" was a phrase made popular by Marshall Matt Dillon on the TV show Gunsmoke in the 1960s. The phrase slipped into the youth culture and endures as a shorthand way of saying that you'd better leave town before the stuff hits the fan.

"I believe the Fed is aware that they should have been raising rates earlier. They also understand the present risks. While I believe it is appropriate to raise rates slowly, I simply cannot understand why they would want to reduce their balance sheet at this late date, at the same time that they jack up rates. They could have been letting the balance sheet roll off for four years, but to do so now in conjunction with raising rates simply increases the risk of a policy error. But I don't think they will see that as their problem.

Chair Yellen and I both believe the majority of the current governors will be gone by the second quarter of next year. It would not surprise me at all if Vice-Chair Fischer offers to resign before his term is up in June 2018. This Fed is going to raise rates a few more times, start reducing the balance sheet, and then get the hell out of Dodge.

Federal Reserve governors basically have a 14-year term, which reduces the ability of any one president to appoint a majority of the FOMC within a four-year term. Of course, resignations affect the balance.

Trump is going to have the unusual opportunity to appoint at least six, and more likely seven, governors by the middle of next year, if not sooner. Whether he wants it to be or not, this will be the Trump Fed. Without major reforms in place, the Trump Fed will face a recession, serious global economic issues, and a resulting major equity bear market. Think they will continue to raise rates? How long before they start to talk about supplying a little more QE to appease the markets?

The current FOMC simply hopes that everything holds together until they can slip out the back way from Dodge. Who do you think will get the blame for the next crisis? It should be this FOMC, but that's not the way the real world works.

The Trump Fed will be politicized and stigmatized by its Democratic opponents no matter what they do. Howls for outside controls and oversight will rise in the night."

"Would I say there will never, ever be another financial crisis? You know probably that would be going too far, but I do think we are much safer, and I hope that it will not be in our lifetimes and I don't believe it will be. Janet Yellen

"I disagree with almost every word in those two sentences, but my belief is less important than Chair Yellen's. If she really believes this, then she is oblivious to major instabilities that still riddle the financial system. That's not good. "

Read the rest of the article for the full explanation of the problem. Prepare for Turbulence

The Citigroup Economic Surprise Index closed at a two-year low on Friday and not that far above a six-year low. With earnings expected to end the cycle around 10% growth, Citi warned "we may be approaching a cyclical peak." The biggest concern is that "hard" economic data has been anything but good.


Enter passively and exit aggressively!

Jim Brown

Send Jim an email


"There are men running governments that should not be allowed to play with matches."

Will Rogers


Index Wrap

Is This Time Different?

by Jim Brown

Click here to email Jim Brown
The prior week the market was showing a potential topping pattern with a Dow close at 21,179.

This week we have a new high at 21,640. The difference is a 461 point rebound after three weeks of heightened volatility. The potential topping pattern turned into a consolidation ahead of the Yellen testimony. When she finally spoke, she turned the doves loose and Fed expectations are declining rapidly. Don't fight the Fed.

Is this market breakout different? Will we just have several days of new highs and then fall back into the volatility and consolidation from the prior three weeks or will we see continued gains and higher highs? Obviously nobody knows for sure.

The five days of highs back in mid June were followed but three weeks of consolidation. The new highs back in March was followed by three months of consolidation. I would be perfectly happy if we could continue that trend and suffer only three days of consolidation this time before moving to higher highs. What I would like to see seldom comes to pass.

The key this week is the market breadth. Something changed last week and the market breadth increased significantly. Over the last week new highs jumped from the 150-200 level per day to over 600 new highs on Friday. Advancers beat decliners 4,876 to 2,242 and it was a summer Friday. Volume was weak at 5.3 billion shares.

The best way to illustrate the market breadth is with the cumulative advance decline line on the S&P. The AD line has hit a new high for the post financial crisis recovery period. This is very bullish if it can maintain this trend.

Another positive for this rally is that it is not being led by a handful of big cap techs. In the rally to the June high, the FANG stocks were the leaders. Nearly 50% of the market gains heading into the June 19th high were produced by only 20 stocks, which were mostly tech stocks.

This time we have all the indexes breaking out to new highs except the Nasdaq. The tech stocks are following rather than leading although it is a close race.

The Russell 3000, the broadest index of tradable stocks, also broke out to a new high and the chart suggests it could continue. This is another example of market breadth when you can get most of the 3,000 stocks moving in the same direction.

The Dow led the charge last week with a nice move over 21,500 to get the party started and then a confirmation move over 21,600. The MACD has been negative for three weeks and it turned positive again on Friday. With nine Dow components reporting earnings this week there is plenty of opportunity for excitement, disappointment and volatility.

The S&P surged over the resistance at 2,450 and that is critical because that level was the year-end price target for several big name analysts. Nothing prevents the S&P from falling back below that level later in the year but this was a bullish event. This should trigger additional short covering on Monday and further confirm the bullish bias. Like the Dow, the MACD turned positive again and the velocity is increasing.

The Nasdaq did not close at a new high but it is very close. The index held over critical support at 6,100 and has rallied more than 2230 points from the July 6th low. The big cap techs are positive but they are not leading. The A/D ratio was much closer on Friday with 1,466 advancers and 1,188 decliners on the Nasdaq. Advancing volume was less than 2:1 over declining volume. The index was bullish but underperforming the rest of the market.

The Russell 2000 managed to close +2 points over its old high. The index was held back by the weakness in financials. If the Russell could surge to a higher high and put several days of back to back gains on the books, we could have an old fashioned summer rally.

The problem area for the market is the Volatility Index. The VIX closed at a 24-year low on Friday at 9.51. Numerous analysts have warned that long periods of abnormally low volatility are normally followed by periods of abnormally high volatility. The VIX has not been over 20 since October when the election fears were causing a spike. We are working on nine months of abnormally low volatility so you can rest assured there is an unexpected rebound in our future. We will not see it coming and it will be painful. With August and September the worst months of the year for the market, we could be getting close to that volatility event.

The next three weeks "should" be positive as the focus on earnings continues to lift stocks. It is the week that starts on August 7th that the post earnings depression could begin. Be prepared.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

New Option Plays

Volatility Replay

by Jim Brown

Click here to email Jim Brown

Editors Note:

Market volatility knocked us out of this position in June. We played Thor in mid June and the late June volatility knocked us out of the position. Now that volatility has faded and support held we are going to try again.


THO - Thor Industries - Company Profile

Thor Industries, Inc., through its subsidiaries, designs, manufactures, and sells recreational vehicles, and related parts and accessories primarily in the United States and Canada. It operates through Towable Recreational Vehicles and Motorized Recreational Vehicles segments. The company offers travel trailers under the Airstream International, Classic Limited, Sport, Flying Cloud, Land Yacht, and Eddie Bauer trade names, as well as Interstate and Autobahn Class B motorhomes; gasoline and diesel Class A and Class C motorhomes under the Four Winds, Hurricane, Chateau, Challenger, Tuscany, Axis, Vegas, Palazzo, Synergy, Quantum, Compass, Gemini, A.C.E, Alante, Precept, Greyhawk, and Redhawk trade names; and fifth wheels under the Redwood and DRV Mobile Suites trade names. It also provides conventional travel trailers and fifth wheels under the Montana, Springdale, Hideout, Sprinter, Outback, Laredo, Alpine, Bullet, Fuzion, Raptor, Passport, Cougar, Coleman, Kodiak, Aspen Trail, Voltage, Cameo, Cruiser, ReZerve, Sunset Trail, Zinger, Landmark, Bighorn, Sundance, Elkridge, Trail Runner, North Trail, Cyclone, Torque, Prowler, Wilderness, Shadow Cruiser, Fun Finder, Stryker, Sportsmen, Spree, Venom, Durango, SportTrek, Connect, Sportster, Sonic, Jay Flight, Jay Feather, Eagle, Pinnacle, Seismic, AR-One, Launch, Autumn Ridge, Travel Star, Highlander, Roamer, and Open Range trade names. In addition, the company offers equestrian recreational vehicle products with living quarters under the Premiere, Silverado, Ranger, Laredo, Trail Boss, and Trail Hand trade names; lightweight travel trailers and specialty products under the Camplite and Quicksilver trade names; and Class A motorhomes under the Insignia, Aspire, Anthem, and Cornerstone trade names, as well as provides aluminum extrusions and specialized component products. Company description from FinViz.com

In a weak economy, Thor is kicking butt. The company reported earnings of $2.11 which rose 41.6% compared to estimates for $1.87. Revenue of $2.02 billion rose 57% beat estimates for $1.96 billion. Operating cash flow rose 26.2% and gross profits rose 45.5%.

Sales of towable travel trailers rose 52.6% and sales of motorized RVs rose 78.7%. There was no bad news in the Thor report.

Estimated earnings date September 4th.

With the company posting record earnings the stock spiked from $94 to $104 on June 6th. When the market dipped, shares only pulled back to $102. In late June they rebounded to $110. During the market volatility over the last three weeks they dipped back to $102 and found support there once again. Now that the market has turned positive shares are rebounding.

I am using the September strike because of the September earnings date. We will exit well before then but that date will keep the premiums inflated.

Buy Sept $110 call, currently $2.45, initial stop loss $101.25.


No New Bearish Plays

In Play Updates and Reviews


by Jim Brown

Click here to email Jim Brown

Editors Note:

The Dow, S&P and Russell 2000 all closed with decent gains and at new highs. The S&P broke through resistance at 2,450 and posted a decent 11-point gain almost to 2,460. The Dow surged 85 points to close over 21,600. The Russell squeaked to a new high by 2 points and the Nasdaq Composite is only 9 points from a new high.

On Thursday, the low volume choppy trading showed a lack of conviction ahead of the bank earnings. Those earnings were positive but the bank stocks were sold. Everything else rallied in a very broad rally with advancers 2:1 over decliners. Conviction has returned.

Unfortunately, the rally was so broad that all of the shorts rallied as well.

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

ROST - Ross Stores
The long put position was stopped at $55.50. (RELOAD)

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


No specific news. Shares rallied in a strong market with earnings only two weeks away. This is the ramp into earnings we were expecting. If they are having trouble with the iPhone 8 they will have to alter guidance when they report. We will be out of this position ahead of earnings.

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.

Update 7/11/17: 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.

Update 7/12/17: Bank of America and Keybanc both posted notes saying the iPhone 8 production could be delayed. BAC lowered iPhone sales estimates by 11 million units for Q3 and 6 million for Q4 because of the expected delivery delay of 3-4 weeks or longer. They raised the estimates for Q1 by 10 million units. The firm Fast Company said there is a "sense of panic" among iPhone team members as they rush to try and fix software bugs impacting the next release. RBC Capital, Cowen, KGI and Drexel Hamilton believe the announcement could be delayed until October or November.

Position 6/29/17:

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

ATHM - Autohome - Company Profile


No specific news. Shares broke through resistance at $47. Now we need a continued gain to produce some short covering.

Original Trade Description: July 12th.

Autohome Inc. operates as an online destination for automobile consumers in the People's Republic of China. The company, through its Websites, autohome.com.cn and che168.com, delivers comprehensive, independent, and interactive content to automobile buyers and owners, including company generated content, include automobile-related articles and reviews, pricing trends in various local markets, and photos and video clips; automobile library, which includes a range of specifications covering performance levels, dimensions, powertrains, vehicle bodies, interiors, safety, entertainment systems, and other unique features, as well as manufacturers' suggested retail prices; new and used automobile listings, and promotional information; and user forums and user generated content. Autohome Inc. also offers advertising services for automakers and dealers; dealer subscription services that allow dealers to market their inventory and services through its Websites; and used automobile listings services, which allow used automobile dealers and individuals to market their automobiles for sale on its Websites. In addition, it operates Autohome Mall, an online transaction platform that facilitates direct vehicle sales and commission-based services; provides iOS- and Android-based applications to allow its users to access its content; and offers technical and consulting services. The company was formerly known as Sequel Limited and changed its name to Autohome Inc. in October 2011. The company was founded in 2008 and is headquartered in Beijing, the People's Republic of China. Company description from FinViz.com.

Expected earnings August 9th.

The company reported revenue of 1.348 billion yuan compared to estimates for 1.3 billion. This was a 23% increase over the year ago quarter. Earnings of 2.8 yuan rose 33% and beat estimates for 2.2 yuan. Free cash flow rose 205.4% to 495.2 million yuan ($71.9 million.) Average daily users rose 23% to 10.1 million on the website and 8.2 million on mobile devices. Average time spent on the application was 18 minutes per day. The company sold 3,658 vehicles from its direct sales inventory in the quarter.

Of particular interest was the launch of the augmented reality showroom during the March auto festival. This was highly received and they increased the options and presentation for the June auto festival.

Shares have risen to $47 where they have held for the last three days. The chart pattern suggests there is an impending breakout over that level.

Position 7/13/17:

Long August $50 call @ $1.75, see portfolio graphic for stop loss.

BABA - Alibaba - Company Profile


No specific news but shares closed at a new high after an outstanding $2.31 gain.

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


No specific news. Looks like some profit taking ahead of the weekend.

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.

Update 7/12/17: PayPal announced a partnership with Apple to use PayPal in the iTunes App Store. This will let users with Paypal accounts buy songs, movies, etc from iTunes. This is a good deal for both companies.

Update 7/13/17: Analyst at Monness, Crespi, Hardt published a note saying PayPal was his "top pick" for 2017. Shares rallied $1.35 to a new high.

Position 6/22/17:

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

BEARISH Play Updates (Alpha by Symbol)

BBBY - Bed Bath & Beyond - Company Profile


No specific news. All retail stocks rebounded again on multiple upgrades on retail stocks. Next week will be a new week.

Original Trade Description: July 10th.

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

Expected earnings September 21st.

In late June, the company reported earnings of 53 cents that missed estimates for 66 cents. Revenue of $2.74 billion missed estimates for $2.79 billion. Same store sales declined -2%. It was not a pretty report.

The management said they plan to increase the pace of store closings and cost cuts but so far that has not been working. They have been increasing their emphasis on online sales but to compete with Amazon they have to offer free shipping and that lowers their margins. Store traffic is slowing because more people are shopping online. Those that shop online have many websites to choose from and BBBY gets lost in the shuffle. One analyst called this an existential crisis for the company.

Position 7/13/17:

Long Nov $27.50 put @ $1.72, see portfolio graphic for stop loss.

CPB - Campbell Soup - Company Profile


No specific news. Shares are struggling with resistance at $51.85. We need a failure here to start a new trend lower.

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.

MKC - McCormick & Company - Company Profile


No specific news. Shares posted another decent gain but remain below resistance at $98.25. A breakout there will stop us out.

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. Shares continued to decline from the short squeeze on Monday.

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.

ROST - Ross Stores - Company Profile


Telsey Advisory Group upgraded Ross from market perform to outperform with a $70 price target. Shares spiked $1.60 at the open to stop us out but then gave back all but 34 cents. I am recommending we reload this position using the same option/strike.

Buy Aug $52.50 put, currently 80 cents. No stop.

Original Trade Description: July 11th.

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.

Position 7/12/17:

Long August $52.50 put @ $1.04, see portfolio graphic for stop loss.

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