Option Investor

Daily Newsletter, Thursday, 2/11/2016

Table of Contents

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

Market Wrap

Euro Banks And Oil

by Thomas Hughes

Click here to email Thomas Hughes
The European banking sector took a real beating today and weighed the market down, along with another new low in oil prices.


The European banking sector a beating today and helped send global markets to new lows. Adding to the pain was another drop in oil prices and additional testimony from Janet Yellen. In Europe indices were down more than -3%, led by double digit declines in banks like Society Generale and others driven by weaker than expected earnings, fear of contagion, uncertainty over FOMC policy and a surprise cut in lending rates by the Swedish central bank. The Riksbank cut already negative interest rates further, to -0.5% from -0.35% raising the specter of similar moves throughout the region and deflation.

Asian stocks were not immune. Although many of the markets in that region remain closed for holiday's those that were open shed -2% to -3% on growing fear that the worlds central bankers are losing control of the global financial markets. . . and that China will continue to slow and drag down global GDP.

Market Statistics

The global sell-off had its affect on our market as well. Early futures trading had our indices indicated to open with losses greater than -2%. In addition to the weakness in Europe and Asia another plunge in oil prices only added to fears. WTI was down more than -3.5% in the early morning session, trading below $27 and near lows set in 2003.

Janet Yellen was back on the Hill today, testifying before the Senate Banking Committee and did little to reassure the market. Among her statements; it's too soon to tell if the "too big to fail" problem of 2008 has been fixed, that "there is always a chance of recession" and that "negative rates are not off the table", all very scary in terms of the financial system and the economy. What really got me was when she said the Fed was not responsible for the stock market sell-off. Well, maybe not, but it is without a doubt that the continual back and forth between the different members and their comments about the economy and interest rate hikes contributed greatly to volatility and fear in the market.

The opening was indeed weak. US indices fell in the range of -1.5% to -2% within minutes of the opening bell. They tried to bounce back, moving within spitting distance of break even levels by 10AM but were not able to hold the gains. The SPX dipped below the 1850 support level at the open, tried to test it but failed. By 11:15AM the indices were setting new intraday lows, very near the intraday lows set January 20th.

Intraday bottom was hit shortly after 11:30, just after the close of the European sessions, but the market did not rally. The indices drifted sideways, near the daily lows, until mid-afternoon. Around 2PM the indices looked like they were gearing up for a rally, and the not, by 2:30 they had retreat back to the low of the day and lower. Just after 2:30 the SPX hit the low set January 20th and at that time a rally did materialize. Buyers swarmed into the market halving the days losses within 20 minutes, aided by a new report that OPEC is ready to help support prices, but once again the rally did not gain much traction.

Economic Calendar

The Economy

Very little economic data today, only the jobless claims numbers, but it was at least positive if not good. Initial claims fell by -16,000 from last week's not-revised figures to hit 269,000, just off the long term lows set last summer. The four week moving average of claims also fell, shedding -3,500 to hit 281,500. On a not-adjusted basis claims fell by -6.8%, much better than -1.3% predicted by the seasonal factors.

On a year over year basis the not adjusted number of Americans receiving first time unemployment benefits fell back below the previous years level, canceling the red flag raised in the previous couple of weeks. Not adjusted claims are -10% lower than this time last year, they had been above last years levels for a couple of weeks, likely due to shifts in seasonal firing practices mentioned in previous wraps.

These number look good for more reasons than one. First, they show that claims continue to trend near the long term lows and consistent with labor market improvements. Second, they show that the seasonal uptick in claims is probably over, in line with expectations. Third, with initial claims in decline we can expect to see continuing claims and total claims begin to come down over the next few weeks.

Continuing claims fell by -21,000 from an upward revision of 5,000 to hit 2.239 million. The four week moving average of claims fell -6,250 to hit 2.248 million. This is the 2nd week of decline since hitting the post holiday high and appears to be falling back toward the long term lows. Based on the initial claims numbers this figure should continue to decline into the next week or two at least. Regardless, the number remains low relative to the past few years, near the long term low and consistent with the ongoing health we've seen in the labor markets.

Total claims rose by 35,680 to hit 2.739 million. This gain is in line with seasonal expectations and well below the post holiday peak set a few weeks ago. Based on the historical perspective and drops in initial and continuing claims this number should remain steady near this level over the next few weeks before beginning to drop off going into the spring and summer hiring season.

Tomorrow will be big day for data, as will next week. Tomorrow we'll get reads on import/export prices, retail sales, business inventories and Michigan Sentiment. Next week on Wednesday the minutes of the last FOMC meeting will be released. Also next week are reads on PPI, CPI, Housing Starts, Building Permits, the Housing Index and others. PPI and CPI perhaps being the most important at this time as they may sway the Fed's decision come the March meeting.

The Oil Index

Wow, oil prices. Fell again. No support is apparent from OPEC, Russia or any of the major oil producing countries. Supply and production are high, demand is low and now demand forecasts are being revised lower. Today WTI fell more than -4% in a volatile session to set new lows below $27. There was some evidence of buying in the market in the form of intraday price spikes but none recovered the day's losses and by 2PM WTI was setting new lows for the day.

A couple of conflicting reports helped to drive today's oil volatility one bullish and one bearish.

The monthly OPEC report shows that Saudi and all-OPEC production increased in January.

Mid-afternoon a report from the UAE that OPEC was ready to cooperate with production cuts was published by the Wall Street Journal. The news helped to lift oil of its lows but in my opinion is just another rumor with little meat on the bone, when someone cuts, and the data shows the cut is for real, I'll believe it. Based on how quickly the news inspired rally lost momentum I would have to say that much of the market is as skeptical as I.

The Oil index fell a little more than -2.5% to touch the 900 support level. The indicators are in decline but remained mixed. Today's candle confirms support at the 900 level but if it fails look out below, next target is 800. Whether or not this happens is tied to oil, and at this time to the swirling rumor and hope that there will be a deal to support prices. I am hopeful we'll get one but not counting on it by any means. Until then fundamentals remain bearish.

The Gold Index

Wow again. Gold prices made the biggest move I think I have ever seen, more than 5% or $61, driven on flight to safety, weak dollar and Janet Yellen. Today's action carried gold prices above $1200, above $1225 and above $1250, wiping out all my targets and more. The day's candle is long and white, closed at the top of the day and comes on strong momentum. I expect there may be some consolidation between $1200 and $1250 but at this time it is looking like gold has fully reversed and is moving higher. Gold is now trading at a one year high.

The gold miners, well they got a lift too. The price of gold is at the highest level in nearly a year and will no doubt boost earnings in the sector. The Gold Miners ETF GDX gained about 7.75% in today's session, gapping up at the open to trade above $18 for the first time since June of last year. The $18 has been support/resistance in the past, today's action appears to confirm support at that level today. The indicators are bullish with momentum on the rise and at an extreme peak. Based on this alone it looks like the sector will continue trending higher.

In The News, Story Stocks and Earnings

The Dollar Index fell about a half percent in today's session to fall below the 61.8% retracement level. Janet Yellen's testimony, and global financial market turmoil, has put the FOMC rate hike time line in question with many assuming there won't be one any time soon. This, along with a massive flight to safety to Yen and gold has left the dollar at a four month low with increasingly bearish momentum and weak stochastic. Bearish momentum is on the rise, stochastic is moving lower in %K and %D, breaking below the lower signal line, both indicators supportive of ongoing weakness and lower dollar values. Next downside target is near the 78.6% retracement down in the range of $94.25.

Kellogg reported earnings today before the bell. The company reported a slight miss on revenue but beat earnings projections. Fourth quarter sales were down -10.6%, primarily due to currency conversions, but up 4.2% on a constant currency basis. Full year sales were also down, about -7.5%, but when factored for constant currency up 1.2%. Along with the report company execs reaffirmed full year guidance for 2016 and sent the stock shooting up to a new all time high. Today Kellogg's jumped more than 4.25% on above average volume. The indicators are mixed but rolling into a bullish signal, if the stock can hold these levels it is likely to run higher.

Pepsico also reported before the bell, coming in line with expectations. Both 4th quarter and full year revenue and earnings were in line with estimates, driven by 5% annual organic sales growth and expanding margins but were not enough to please investors. Full year 2016 guidance came in a little below the consensus, $4.66 per share versus $4.75 per share, and helped to depress share prices. The company also announced a plan to increase the dividend starting with the June payment. Today the stock opened with a loss near -1% and tried to move up from there. The short term moving average provided resistance, capping gains.

The Indices

It was a crazy mixed up market today. The indices fell hard driven by banking woe in Europe, Janet Yellen's testimony and plunging oil prices. In the end oil prices at least tried to stage a comeback, if rumor driven, and helped to get the broader market up off of its lows. Despite the late day oil driven rally the indices remained weak on the day and for the week, closing with losses across the board. Today's loss leader was the Dow Jones Industrial Average which post a decline of -1.62% at the close of the day's session. Between open and close the index had been down as much as 400 points, the late day rally helping to confirm that support is still present. The bad news is that we have a new closing low which could attract more selling in the days to come. The indicators are weak but remain bullish, consistent with support levels and the bounce we've all been expecting but if support breaks down I can see this changing pretty quick. Support is the 15,500 level, a break below could take it down to 15,000.

The day's next biggest loser was the Dow Jones Transportation average with a loss of -1.45%. The transports, believe it or not, remain the strongest looking index at this time; today's action was bearish but did not move down to support and did not set a new low. The indicators remain bullish and consistent with support but if the market takes another shock like it did today support could be tested. Current support is along the 6,600 level with a possible break to 6,500. A close below 6,600 would be a new low and could easily take the index lower.

The third largest decliner in today's session is the S&P 500. The broad market index lost more than 40 points at the low of the day, about -2.25%, and touched down to the January intraday low. This low, near 1,810, is support at this time and could be tested again. The indicators have formed a bearish signal, confirmed today by MACD, and could lead to a test or break down of support, if broken next downside target is near 1,735.

The days best performer, the one with the least amount of loss at the close of the session, was the NASDAQ Composite. The tech heavy index opened with a gap lower, the open was very near the low of the day, and then climbed higher throughout the session. The indicators are bearish and pointing lower so it is likely lower prices are on the way with a possible move down to next support target near 4,100. However, while bearish, the indicators are also diverging from the new low set today so it looks like the move lower is running out of steam and setting the index up for a rebound or relief rally at least. First upside target is near 4,350.

The market did not like what it heard today, at least not most of it. Oil setting new lows and Janet Yellen's testimony did very little to reassure the market. However, thinking back on what it was that helped to cap gains made in previous years and sparked the current down draft in prices the market is getting what it wanted; Lower oil prices, lower dollar value and a high probability the FOMC wouldn't be raising interest rates very aggressively.

Once oil prices stabilize, the earnings impact of lower oil prices lower dollar value is felt and we get some concrete sign the FOMC won't be raising rate too soon I think we'll start seeing the market rally. There could be deal to cut oil production, or at least more talk of it, very soon. The FOMC meeting is only a few weeks away and earnings are coming in better than expected

As for recession fears, the employment data does not support that view.

Until then, remember the trend!

Thomas Hughes

New Plays

A Swirling Vortex

by Thomas Hughes

Click here to email Thomas Hughes
Editor's Note

Currents and counter currents in the market make direction finding a challenge. There are currents and counter currents swirling in the market. Oil prices are up, oil prices are down; The FOMC will raise rates, the FOMC won't raise rates; Strong dollar is good, Weak dollar is good; US growth is tepid, US growth is OK. What are we to to make of it all?

I'm sure I don't have to say but I will, finding direction in the market is pretty tough these days. Just when you think the market is settling down we get a rumor out of the oil patch, testimony from Janet Yellen and mounting fears in the global banking sector.

The thing to remember is that, at least for now, most of these fears are fears. They are driven on speculation and rumor as much as if not more than reality. Once the swirling vortex of undercurrents realign the market will be able to refocus on what is important, earnings. Yes, outlook is being downgraded but it remains positive, not to mention the fact that this quarters earnings are better than expected.

Because today was a prime example of just how rumors, fear and comments are affecting near term direction there are no new plays.


No New Bullish Plays


No New Bearish Plays

In Play Updates and Reviews

Which Way Will It Go

by Thomas Hughes

Click here to email Thomas Hughes

Editors Note:

The market still looks like it wants to bounce yet oil prices, FOMC outlook and financial market turmoil keeps holding it down.

This morning the market tanked on massive selling within the EU banking sector. Fear of financial market meltdown, compounded by a surprise rate cut from the Bank of Sweden and new lows in oil combined to send indices in the EU and here at home down by more than -2%. The real fear is that deflation is setting in within the EU, and that it may spread here.

Adding to these fears were statements from Janet Yellen. She didn't say the FOMC was on the verge of cutting rates to negative levels, but she didn't say they weren't either, and since the new stress tests are calling for negative interest scenarios it is starting to look like the possibility is firmly on the table.

Today's news sent had the expected affect on the market, sending them down sharply. The silver lining is that support levels were reached and a bounce ensued adding to the argument a rebound is on the way. The question now is, when will it come?

Current Portfolio

Current Position Changes

SWHC - Smith And Wesson

Stop raised to $20.50

JBHT - JBHunt Transportation

Trigger price lowered to $74.00

KRE - Regional Bank ETF

Stop lowered to $34.25

DB - Deutshce Bank

Deutsche Bank was stopped out on Wednesday

FGEN - Fibrogen

Fibrogen was stopped out.

Stop Loss Updates

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

BULLISH Play Updates

GPRO - GoPro - Company Profile


GoPro shares fell again in today's session. Share price is approaching $10 and may fall through. No changes to current position.

Original Trade Description: February 8th

GoPro is the number one action camera maker and created the current market. They moved from a simple camera maker to a content creator over the last couple years. At least that is what they wanted people to believe so that their sky high PE would be based on something other than simply a hardware company.

Fast forward to 2015 and 5-6 companies began to compete with action cameras of their own. GoPro's market share began to dwindle. A botched roll out of a new model in Q3 and two prices cuts in Q4 has knocked their share price down from $65 in August to $9 on Thursday.

One of the problems that GoPro has been unable to conquer is the relatively hard method to recover, edit and publish videos produced by the cameras. They have promised new software for a couple years and it never seems to arrive or fails to satisfy when the updates appear. This is a drag on future camera sales because you have to be a geek to produce any quality videos.

News broke today that GoPro had licensed its video technology, certain file storage and other system technologies. While the details are still unclear this could be a Hail Mary pass to Microsoft for help with their software problems. If it is not related to that then there is something else going on that could provide a boost for GoPro in the future.

Lastly, the drop in market cap from $8 billion to $1 billion makes them a very attractive acquisition target for somebody like Sony or even Under Armour. Microsoft could buy them with their pocket change.

Shares appear to have bottomed at $10 but just in case we can buy a March $10 put as protection for 97 cents. This means we have unlimited upside and almost zero downside risk. If somebody makes an offer for GoPro I would expect it to be $15 or more simply because the company is not in financial trouble. They currently has no debt and $474 million in cash. They just need to get over this technical problem and they will be fine.

Buy GPRO shares, currently $10.99, no stop loss.

Buy March $10 put, currently 97 cents.

Net debit $11.96.

SWHC - Smith & Wesson - Company Description



Smith and Wesson moved higher in today's session despite the broad market sell off. Shares are moving higher, supported by rising trend line. Stop raised to $20.50.

Original Trade Description: January 21st.

Smith & Wesson is a gun manufacturer. Business has been very good but they announced this week they are looking for some acquisitions in other outdoor areas so their business is not so tied to the cycles in gun sales. Whenever an administration begins talking about more gun control measures their sales soar. When there are no politicians trying to ban guns we see sales decline.

The current administration has been the best for gun sales since the Clinton assault weapons ban. The FBI said the increase in the number of background checks for gun purchases has been so strong that their system is overloaded and they have had to halt appeals for denials until they can add some more personnel.

December saw a record of 3.3 million background checks, which was more than 500,000 above the prior record for December in 2012. On Black Friday alone there was a record 185,345 checks and a new single day record.

While this surge in gun sales has powered Smith & Wesson to record profits the company realizes that the election of a pro gun administration will slow those sales. For this reason S&W announced this week they were looking into getting into the $60 billion outdoor sporting goods market. They will likely be trying to acquire brands that they can add to their lineup that are not directly related to guns.

S&W said they were on the hunt for candidates but did not have any announcements at the current time.

This is a good move for S&W for obvious reasons. By branching out into other products, it will also help widen the S&W brand even if those new products have their own brand names.

Shares spiked to record highs over $26 when they reported earnings in early January. The post earnings depression appears to be over and shares dropped back to support at the 100-day average. This is a good spot for people to launch new long positions and once the current market weakness is over the small cap stocks like S&W with strong growth will be in demand.

Earnings March 8th.

Position 1/25/16:

Long SWHC shares @ $21.35, see portfolio graphic for stop loss.


Long June $23 call @ $1.75, see portfolio graphic for stop loss.

USO - US Oil Fund ETF - ETF Description


The USO was able to hold support levels despite the drop in oil prices. A rebound is due, rumor or an actual deal to support oil prices could send this one soaring. No changes.

This is a long term position so be prepared to see lots of volatility before the final long-term rally begins.

Original Trade Description: January 27th

The USO ETF attempts to reflect the performance of West Texas Intermediate crude oil. The ETF invests in futures contracts for oil, diesel, heating oil, gasoline, natural gas and other fuels traded on the Nymex in an effort to track WTI and avoid futures roll over bleed.

Typically, a futures oriented ETF buys forward contracts. As those contracts expire, the funds are rolled over into the next series of futures contracts at higher prices. This causes a disconnect between the actual price of the underlying commodity.

The USO attempts to reduce that as much as possible by spreading the terms and types of futures contracts it holds.

If you are still reading this you are probably wondering why I am recommending a somewhat perishable ETF on oil when we all expect oil prices to go lower. Good question!

Yes, oil prices "should" go lower as inventories build over the next two months. However, the entire world of professional investors understands this but prices have spiked twice in the last week on rumors of a Russian - OPEC agreement to cut production. If such an agreement was actually reached, we could see prices back over $50 very quickly.

I am proposing we try to buy the USO on the next dip on the chance that an agreement will eventually be reached. Last week it traded down to $7.92. When oil was $38 in December the USO was $11. If we can buy it in the $8.50 range we could see a 30% gain on any deal announcement and even more once oil prices reacted to the change in production dynamics.

Obviously, we cannot predict that a deal will happen. Saudi Arabia and Russia are enemies. However, they both have the same problem and that is they are hemorrhaging cash. In July 2014 when oil prices were $105, Saudi Arabia was taking in about $1.06 billion a day in revenue. Today at $30, they are receiving $303 million. That is a loss of $757 million a day, every day, and the kingdom is suffering from it. Russia is losing about $650 million a day. They both have millions of reasons to put their differences aside and reach an agreement.

While we cannot guarantee this will happen the headline chatter is growing daily. They may not be ready to call a truce just yet but together they are losing more than $1.4 billion a day. That is a huge incentive to do something. The next regular OPEC production meeting is early June. I am recommending we buy the USO on the next dip and hold it until July. I cannot imagine OPEC continuing the madness past the June meeting and they are likely to hold an emergency meeting earlier if crude drops back into the $20s again.

Typically, prices rise when inventories begin to decline in late April as refiners ramp up production for the summer driving season. Even if Russia and OPEC do not reach an agreement, we should see a rise in prices starting in May or earlier.

I am not going to try to buy the bottom because we may not see it again. I am recommending we buy the USO at $8.50 and hold it with no stop loss because it could go lower. I believe we will be rewarded over the next few months and with the right set of circumstances, we could be very well rewarded.

2/1/16: Position entered with a USO trade at $9.00:

Long USO shares @ $9.00, no stop loss.


Long USO July $10.00 calls @ $.85. No stop loss.

JBHT - JBHunt Transportation - Company Profile


JBHunt fell along with the broader market. No new news. Entry trigger was lowered to $74.

Original Trade Description: February 10th

While the majority of the transportation sector has been in decline in response to lower energy costs trucker JBHunt has been expanding its fleet, hiring new drivers and increasing load volumes across the country. In its most recent earnings report the company produced EPS in line with estimates but it is the internal data that is most promising.

JBHunt Transport services and its wholly owned subsidiaries is a diversified transportation and logistics company operating throughout North American. Operations are centered in the United States with some portions operating in Canada and Mexico. The company operates in the intermodal space using its own fleet and to some extent third party operators in 4 sub-segments.

Why We Like It

Fourth quarter results were good. Earnings were in line with expectations on flat revenue but as mentioned, it is the internals that are most interesting. Q4 operating income was up 5% over the previous year with a 9% increase in EPS. Full year results include a 13% increase in operating income with a 16% increase in EPS. Full year revenue was flat, not something we necessarily want to see, but when taken in light of lower fuel surcharges is not the red flag it would seem to be. Remember, in recent years revenues among the entire transportation sector have been inflated due to surcharges related to what were then record fuel prices.

Three of the four business segments showed notable increases. The Integrated Capacity Solutions segment, management of third party transportation services, showed a 4% decline in revenue due to decreased spot market activity and lower revenue per load. The other three segments; Intermodal, Dedicated Contract Services and Trucking all showed notable increases in revenue of 1%, 2%, and 3% respectively for a total operating revenue increase of 9%.

Drivers of the gains, no pun intended, include increases in new customers, revenue realizations from previous rate increases, improved fuel economy, lower maintenance costs attributed to newer equipment, less reliance on third party shippers, increased fleet size and improving margins. These were offset by higher wages and increased costs of recruitment and retaining employees but those cost are ultimately a sign of ongoing improvement in the labor market and the consumer that will eventuall spill over into this and other segments of the economy.

Earnings results are all well and good but the reason why we really like this stock is two-fold; a recent dividend increase and a couple of analyst upgrades. The board of directors approved and announced a 5% increase to the dividend on January 28th. According to the board earnings and free cash flow warrant the increase. As for upgrades there were two; one in early January and another just after the earnings report was released. The stock was upgraded from hold to buy at BB&T and from peer perform to outperform by Wolfe Research. Based on the average analyst target of $87.14 there is still a minimum upside potential of 16%.

Our play; buy the May $80 call with a trigger price of $76.00.

BEARISH Play Updates

FGEN - Fibrogen Inc - Company Profile


Fibrogen bounced, possibly on short covering, and was stopped out.

Original Trade Description: February 5th.

Fibrogen is a small research-based biopharmaceutical company that discovers, develope and commercializes therapeutic agents to treat serious unmet needs. At least that is what their profile says about them. Their stock chart suggests they are not successful in this field.

The do have some novel drugs in the pipeline but the clinical studies are taking forever and the results of the latest study was limited at best. Their current drug under development is roxadustat, a "first in class anemia treatment" according to the company. However, they have only been able to enroll 80% of their targeted enrollment. If everything goes well they may get approval to market it in China by the end of 2016 but it will be 2018 before it can be marketed in the USA.

The FDA has more than 3,000 drug applications in the pipeline and it takes forever to get one through the system from start to finish.

For the last quarter they reported a loss of 74 cents. They had $365 million in cash and their burn rate is high. AstraZenaca has agreed to fund up to $116.5 million in research after the drug reaches certain clinical test levels. Only $11.8 million remained unspent at the end of the quarter meaning Fibrogen is going to see its own cash disappear even faster.

Shares of the company have been falling like a rock since the start of 2016. While I hate to short a stock already oversold the decline on Friday closed at a new historic low. They went public in October 2015. The decline appears to be accelerating.

The decline began in early January when Miguel Madero, a board member for 20 years resigned unexpectedly. He sold half his stake the week before he resigned. Insiders have been selling shares like crazy with no buys in the last three months and 29 sells. In the last 12 months, there have been 80 sales and only 4 insider buys.

There are options but the volume is too thin and the spreads too wide to play.

Position 2/8/16 with a FGEN trade at $16.45

Short FGEN shares @ $16.45, see portfolio graphic for current stop loss.

INSY - Insys Therapeutics - Company Profile


INSY is consolidating near it's lows, just below our stop level, no change at this time.

Original Trade Description: February 1st.

Insys Therapeutics develops and commercializes supportive care products. This includes pain killers for the types of severe pain that can come from cancer and cancer treatments. Their main product is Subsys, a proprietary sublingual fentanyl spray for treatment of cancer pain. They have other products but this is the one taking the heat today.

Roddy Boyd is the "journalist" that took on Valeant (VRX) a couple months ago and crashed the stock from $250 to $80. He has released a new report called "The Brotherhood of Thieves" that takes Insys to task for its methods in getting double the insurance reimbursements than its older competitors.

His point is that Insys "executives pressure employees to develop new ways to mislead insurance companies in to granting coverage to patients prescribed the drug Subsys." He claims he has an audio recording of a meeting where Jeff Kobos, an executive with the company, admitted the company's dishonesty. The tape reportedly highlights "conversational gambits" to deflect pharmacy benefit managers questions.

Insys responded with a press release claiming the report was misleading and unreliable "especially in the light of the biased agenda held by the individuals who made these representations."

I am sure Insys is right to some degree since these short sellers and their supporters do their best to trash the company so they can benefit from the drop in the stock price. However, there has to be some truth to the report or Boyd would be opening himself up to a massive suit for his claims.

For our purposes we want to capitalize on this headline war and make a couple bucks while investors are fleeing the stock.

Earnings are Feb 23rd.

Shares are at a 52-week low and support is about $12.50. I am proposing we short the stock at $16.25, under today's low and target $13.25 for an exit. For this move and timing option prices are too high to recommend an options position.

Position 2/2/16, with a INSY trade at $16.25

Short INSY shares @ $16.25, target $13.25 for exit. See portfolio graphic for stop loss.

KRE - SPDR S&P Regional Banking ETF - ETF Description


The regional banks took a dive today on fear of banking contagion. The position is showing profits. Stop was lowered to $34.25. < p>

Original Trade Description: January 25th

We were knocked out of the long position on this ETF with the drop below support this morning. The keywords in that sentence were "drop below support." Typically, when long-term support breaks we are looking at a continued decline that could be material.

Regional banks are tanking because of their loans to energy companies and to firms that service those energy companies. That includes restaurants, service stations, apparel stores, mom and pop businesses of all types that catered to the families of the 150,000 energy workers that have been laid off.

In addition, the U.S. manufacturing sector is in recession. With energy, manufacturing, transportation already in recession the odds are increasing that the country is going to be headed in that path as well.

Today, the Texas Manufacturing Outlook Survey for January fell from -20.1 to -34.6 and the lowest level since 2008. The outlook for the U.S. economy is not good and that means regional banks could be facing rising defaults.

I hate to go straight from a long position to a short position but in this case, the situation appears to be right. We entered the long position on a dip to support at $35. There was an immediate rebound but then that support failed today based on economic news.

Position 3/2/16 with a KRE trade at $35.35.

Short KRE @ $35.35, see portfolio graphic for stop loss.


Long March $33 put, @ .80, no stop loss.

OIH - Oil service Index - ETF Description


OIH is holding support just like the USO. A deal to support prices could help the energy producers but there is little hope the services sector will see a rebound in earnings any time soon. No change at this time.

Original Trade Description: January 20th

The OIH ETF represents 25 oil service stocks including Schlumberger, Halliburton and Baker Hughes. Once you get past those three largest holdings the rest of the pack has little balance sheet strength and we could easily see multiple bankruptcies or credit defaults. The bottom of the list contains Tidewater (TDW), Carbo Ceramics (CRR), Seadrill (SDRL), etc. The risk of default is high for the bottom half of the list. View Full List

The "perceived" bounce in oil prices by shifting to a new contract at $28.81 instead of the $26.55 close may cause some investors to buy energy stocks in a knee jerk reaction. Do not be fooled. The bottom in oil prices is still ahead.

The API Inventory report tonight after the close showed a larger than expected gain of 4.6 million barrels of oil and 4.7 million barrels of gasoline. The more accurate EIA inventory report comes out at 10:30 on Thursday.

The inventory build season runs from January 6th to the end of April. Last year inventories rose a whopping +106 million barrels to record levels during that period. There is not likely to be another rise like that because there is very little available storage capacity in the USA. Canadian oil is now selling for $15 below WTI because all the Midwest storage locations are virtually full. Bakken oil is selling for $8-$10 below WTI prices for the same reason plus transportation is expensive to other locations.

I believe we will see WTI at $25 or below over the next two months and possibly even $20 because of the price pressure from the Iranian oil sales. They have about 50 million barrels stored on tankers and that oil is now available for sale. Prices are going lower.

This will probably drag the equity market lower as well but eventually there will be a disconnect between equities and oil prices at some level. The constant headlines about lower oil prices will eventually become old news. Of course, key levels like $25, $22, $20 could cause some additional market weakness.

Energy stocks will continue to react to the low oil prices because every dollar of decline is very painful and impacts their ability to service debt and keep the doors open. Analysts claim as many as 50% of the U.S. producers could default or worse if prices remain low for very long.

I am recommending we short the OIH and expect to hold the position until April. The plan will be to close it about the time inventories top out in early April. We could see a minor uptick at the open on Thursday because of the new front month contract. When inventories are announced at 10:30 we should see a decline in WTI if they are high as expected.

Position 1/21/16:

Closed 1/29/16: Short OIH shares, entry $21.26, exit $24.25, -2.99 loss


Still long July $20 put @ $1.92, no stop loss.

VXX - VIX Futures ETF ETF - ETF Description


The VIX formed a shooting star today and looks like it has finally hit resistance. No changes at this time.

Original Trade Description: August 24, 2015

The U.S. stock market's sell-off has been extreme. Most of the major indices have collapsed into correction territory (-10% from their highs). The volatile moves in the market have investors panicking for protection. This drives up demand for put options and this fuels a rally in the CBOE volatility index (the VIX).

You can see on a long-term weekly chart that the VIX spiked up to levels not seen since the 2008 bear market during the financial crisis. Moves like this do not happen very often. The VIX rarely stays this high very long.

How do we trade the VIX? One way is the VXX, which is an ETN but trades like a stock.

Here is an explanation from the product website:

The iPath® S&P 500 VIX Short-Term Futures® ETNs (the "ETNs") are designed to provide exposure to the S&P 500 VIX Short-Term FuturesTM Index Total Return (the "Index"). The ETNs are riskier than ordinary unsecured debt securities and have no principal protection. The ETNs are unsecured debt obligations of the issuer, Barclays Bank PLC, and are not, either directly or indirectly, an obligation of or guaranteed by any third party. Any payment to be made on the ETNs, including any payment at maturity or upon redemption, depends on the ability of Barclays Bank PLC to satisfy its obligations as they come due. An investment in the ETNs involves significant risks, including possible loss of principal and may not be suitable for all investors.

The Index is designed to provide access to equity market volatility through CBOE Volatility Index® (the "VIX Index") futures. The Index offers exposure to a daily rolling long position in the first and second month VIX futures contracts and reflects market participants' views of the future direction of the VIX index at the time of expiration of the VIX futures contracts comprising the Index. Owning the ETNs is not the same as owning interests in the index components included in the Index or a security directly linked to the performance of the Index.

I encourage readers to check out a long-term chart of the VXX. This thing has been a consistent loser. One market pundit said the VXX is where money goes to die - if you're buying it. We do not want to buy it. We want to short it. Shorting rallies seems to be a winning strategy on the VXX with a constant trend of lower highs.

Today the VXX spiked up to four-month highs near $28.00 before fading. We are suggesting bearish positions at the opening bell tomorrow. The market volatility is probably not done yet so we are not listing a stop loss yet.

Position 8/25/15:
Short VXX @ $21.82, no stop loss.

Second Position 9/2/15:

Short VXX @ $29.01, no stop loss.

Trade History
11/07/15 adjust exit target to $16.65
11/02/15 adjust exit target to $16.50
10/19/15 add an exit target at $16.25
10/15/15 planned exit for the October puts
10/14/15 if you own the options, prepare to exit tomorrow at the close
09/02/15 2nd position begins. VXX gapped down at $29.01
09/01/15 Double down on this trade with the VXX's spike to 6-month highs
08/25/15 trade begins. VXX gaps down at $21.82

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