Option Investor

Daily Newsletter, Thursday, 6/16/2016

Table of Contents

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

Market Wrap

Desperately Seeking Support

by Thomas Hughes

Click here to email Thomas Hughes


The FOMC did not raise rates but weakened growth outlook, poor earnings expectations and fear of Brexit continue to weigh on the market. Today's action was volatile, an early plunge in equities was reversed later in the day but likely due to tomorrow's OPEX rather than true market support. While the FOMC's decision to hold rates steady may be seen as a positive it is also a negative as it shows a lack of confidence in the economy, further evidenced by their lowered outlook for 2017 and 2018.

Global markets were not happy with the FOMC statements, among other issues. Asian indices fell, led by the Nikkei's -3.0%, on poor growth outlook and the BOJ's decision to hold rates steady. Their decision, aided by the dovish Fed, caused the yen to strengthen and further eroded confidence in Abenomics. In Europe the combined effect of the FOMC and BOJ meetings, along with Brexit concerns, also caused selling. The EU indices fell nearly -2% intraday but were able to regain most of the losses before the close of the session.

Market Statistics

Futures trading indicated a lower opening from the earliest portion of the electronic session. The indications were for an open nearly -1% from yesterday's close and this did not change much throughout the morning. Economic data released in the pre-opening hours continues to show weak growth, slowly rising inflation and positive outlook but little to spark a rally. After the open the indices drifted lower for the first hour or so, hitting morning lows a little more than -1% below yesterday's close. By 10:40AM they had hit bottom and began a steady rise that eventually regained all of the early losses. By 3PM most indices were trading in positive territory and were able to hold those levels into the close of the session.

Economic Calendar

The Economy

Today's data was mixed and did little to alter outlook; growth is slow, inflation is low and while forward outlook is for growth, it too is faltering. First up is jobless claims. Initial claims gained 13,000 this week to hit 277,000. This is the 67th week for claims to come in below 300,000. Last week's figure was not revised. The four week moving average of claims rose by 250 to hit 269,250. On a not adjusted basis claims rose 14.5% versus an expected gain of only 9.3% and are no 2.9% above last years level in the comparable period. Despite the rise adjusted claims remain low relative to the economic recovery, near the long term lows and consistent with labor market health. The fact that not adjusted claims keeps bobbing along at or near last years levels suggest that perhaps we've reached the end of recovery and the labor market has reached a point of equilibrium.

Continuing claims also rose this week, gaining 45,000 to hit 2.157 million. Last week's figure was revised upward by 17,000, the four week moving average gained 1,000 to hit 2.150 million. Despite the rise continuing claims remain consistent with labor market health and trending near the long term lows. The risk I see now is, taking into account the weak NFP and sluggish growth, is for claims to begin reversing so we will need to keep a close eye on them over the next couple of months.

The total number of claims fell by -34,678 to hit 1.981, the first time they have been below 2 million since last fall. The fall to this level is expected, based on seasonal and long term trends, but is fast approaching an expected seasonal bottom. Beginning in the next 2-3 weeks we should see this figure begin to rise with a projected peak in late July early August near 2.25 million. Regardless, the total claims figures remain consistent with labor market health and are very near the long term low. This week's figure is -7.5% lower than last year at this time.

CPI data was also released this morning before the bell. The headline all-inclusive number was +0.2%, slightly below forecast and half of the number reported last month. Headline CPI is up 1% over last year. At the core level, ex food and energy, inflation rose 0.2% last month, in line with expectations and equal to the previous months increase. Core CPI is up +2.2% over the past 12 months. The food index fell -0.2%, the energy index rose 1.2% led by a 2.3% advance in the gasoline index.

The Philadelphia Fed Business Outlook survey gained 7 points to hit 4.7, much better than the expected 0.7 and the previous month's -1.8. However, even with the beat the data within the report is not to promising. The employment index fell more than 6 points to hit -10.9, the 6th month of negative readings. New Orders fell 1 point and remain in negative territory, shipments fell -2 points and are also in negative territory as are unfilled orders. The 6 month forward outlook remains positive but slipped -6.3 points, the second month of decline, to hit 29.8.

The National Association Of Home Builders released the Index of Home Builder Sentiment at 10AM. The index rose 2 points from last month to hit 60 after holding steady at 58 the previous 4 months. Present conditions gained 1 point to hit 64, the 6 month outlook gained 5 points to hit 70 and traffic rose 3 points to reach 47. All readings are within their respective 12 month ranges.

The Dollar Index

The Dollar Index went on a wild ride, first up a little more than a half percent, then down about a half percent and then back up to close near the open of the day. The FOMC decision and increased dovishness, along with the BOJ's strengthening of the yen, weakened the dollar while at the same time Brexit fears helped to strengthen it. The tug of war between bulls and bears created a long legged doji with a close below the short term moving average. At face value it seems as the dollar should weaken from here but the Brexit remains a wild card, as do the ECB and BOJ which are both expected to make some form of additional QE in the coming months. The index is currently trading near $94.60, between the resistance of the short term moving average and the support of the 78.6% retracement line. A break beyond either line would be significant following today's doji candle and could lead to further movemet in the direction of the break.

The Oil Index

Oil prices fell again today as demand outlook was hurt by Brexit fears and lower growth outlook. At the same time supply concerns are heightened due to rising rig counts, high global production and yesterday's weak draw down of US stockpiles. WTI fell more than -4% to close near the $46 level and a one month low. Prices may continue to fall until one or both of two things happen; demand outlook stabilizes/rises and production comes in-line with demand. First target for support is around $45.

The Oil Index fell to a one month low in a move that tested support at the 1,100 level. Today's candle s not overly large but comes with a long lower shadow in evidence of support. The 1,100 and slightly below has been the bottom of a 6 week trading range and may continue to support prices.The indicators are pointing lower but very weak, consistent with a trading range and test of support along the bottom of that range. If the index breaks below 1,100 a move to 1,050 looks likely.

The Gold Index

Gold, wow, made a 2% jump this morning to trade at a +2 year high near the $1320 mark on dovish Fed statements. This move was amplified by the BOJ policy stance which further weakened the dollar but was not able to hold the gains. By late day gold had reversed the move and retreated back below resistance at the $1,290 level creating a very distinctive shooting star type candle. Today's candle and the failure to close above resistance levels is alarming and may indicate an end to further rally in gold. First target for support should it continue to fall is near $1250.

The gold miners had a wild ride today as well, first rising on the move in gold and then later falling under the pressure of profit takers. The Gold Miners ETF GDX gapped up at the open, above the $26.70 resistance target, only to fall from that level and close near the low of the day. The index has created another very ominous dark cloud cover candlestick and does not appear as if it will be able to move higher. The indicators remain mixed; momentum is bullish but declining, stochastic is moving higher but showing a bearish crossover and sign of rolling over at/near the upper signal line. A fall from this level may find support near $25, or just below that near the short term moving average, with a drop below these levels possibly going as low as $22.50.

In The News, Story Stocks and Earnings

The battle for control of Viacom rages on. Today the holding company through which Sumner Redstone controls the company ousted 5 directors including CEO and long time friend Phillipe P. Dauman. The board responded by filing charges against the company claiming that his, Redstone's, daughter is behind the decision and working to fulfill her own agenda. Sumner issued a statement through a spokesperson stating to the effect he was disappointed in the handling of Viacom and the 40% decline in value seen over the past year. Shares of Viacom gained nearly 5% in today's session in a strong move up from the short term moving average.

Earnings season is getting underway although the unofficial kick-off is not for another 4 weeks. Oracle reported after the bell, beating revenue expectations with earnings in-line with expectations. Cloud services, SAAS and PAAS all beat expectations while a -12% decline in software licensing offset those gains. In the statement Larry Ellison says the company expects "hyper growth" in the cloud, SAAS and PAAS businesses to continue into the foreseeable future. Shares of Oracle gained more than 3% in after hours trading after drifting marginally higher during the open session.

Smith&Wesson also reported after the bell, producing top and bottom line beats on strong sales. The company reported EPS of $0.66 versus an expected $0.54 and also raised guidance. Sales in the quarter were up more than 20% along with a 450 BPS increase in gross margins. Shares of the stock jumped more than 7% on the news to regain the upper side of potential resistance and the short term moving average.

The Indices

The indices began the day in free-fall but were able to bounce from support. The bounce did not take them very high, but high enough to reverse all of the early loss and all of yesterday's. Today's move was led by the Dow Jones Industrial Average which closed with a gain of 0.53%. The blue chips bounced from the 17,500 level, just above the long term trend line, creating a small bodied white candle with long lower shadow indicative of support. While at once a positive sign of support along the trend line, the move also failed to cross the short term moving average which could provide resistance tomorrow and next week. The indicators are pointing lower, if weakly, and suggest support will be tested again.

Runner up in today's action is the S&P 500. The broad market gained 0.31% and created a small white candle with longish lower shadow. The shadow is indicative of support, and bounce from support, at the 2,050 level. This level may prove to be strong but declining indicators suggest it will be tested again. If the bounce begun today is able to push higher tomorrow first target for resistance is just above today's closing level at the short term moving average. A fall below 2,050 would be bearish for the near term and could take the index down to 2,020 or lower.

Next runner up in today's session is the NASDAQ Composite with a gain of 0.21%. The tech heavy index also created a small bodied white candle with long lower shadow, bouncing from support levels near 4,790. The move did not quite make it up to the short term moving average which is the first likely area of resistance should the bounce continue. The indicators pointing lower and suggest further testing of support is likely. If support is broken a move down to 4,600 looks likely. A break above the short term moving average would be bullish and could go as high as 4,950 before meeting next possible resistance.

The Dow Jones Transportation Average was the only major index to not move into positive territory with today's bounce. The transports created a small doji, possibly a hammer, after testing support at 7,500 and the bottom of the 3.5 month trading range. Today's action may indicate a continuation of the range but the indicators are still pointing lower so further testing of support is likely. A break below this range would be bearish and could take it down to 7,000 or lower.

The market staged a nice rebound from today's low but I am not quite convinced. The FOMC may have relieved fear of rising interest rates but they also raised fear of slow, slower and slowing growth that give very little reason to believe current earnings projections for the coming quarters and next year will stand.

The nearest worry for the market now is the Brexit. This may prove to be a non-event for the market but until it passes is certainly something to be wary of. If they exit it could spark a major rally in the dollar, yen and gold. If they don't it may be the balm the market needs to soothe fears and move higher.

I am still very wary of the coming earnings cycle. Today's reports were nice and suggest the aggregate will be better than expected. If so that will be great, I've been waiting for some positive revision to outlook and rising forward expectations. If not the market will have very little reason to rally. I am still cautious in the near term, anticipating possible correction and waiting for the next signal to rally.

Don't forget, tomorrow is OPEX and will likely cause some volatility.

Until then, remember the trend!

Thomas Hughes

New Plays

Avoid the Stampede

by Jim Brown

Click here to email Jim Brown
Editor's Note

This could be the heaviest quadruple option expiration of the entire year. More than $1 billion in S&P options will expire at the open on Friday.

Today was an interesting day in the options market. Normally the S&P will gravitate to the "max pain" point prior to expiration. That is the point where the most options expire worthless on both puts and calls. The max pain point was 2,050 on the S&P or $205 on the SPY. We touched that exactly at the intraday lows but then rocketed back to 2,080 ($208) at the close. For the S&P the options expire at the open on Friday. I cannot imagine the market makers being able to force the S&P back to that 2,050 level so a lot of put options are going to expire worthless but almost an equal number of call options will be in the money. This rarely happens.

There were four major buy programs in the market today. Somebody was managing the market to keep the S&P as far away from 2,050 as possible. They definitely succeeded in the +262 point rebound in the Dow and +30 point rebound in the S&P.

Friday will probably be the highest volume day of the year and it could be volatile. I am recommending we not add any new plays tonight.


No New Bullish Plays


No New Bearish Plays

In Play Updates and Reviews

Dead Stop at Resistance

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Dow declined -174 points at the open and rebounded +262 points to close right at strong resistance. The 17,750 resistance level was near rock solid with the high for the day at 17,754. There was a monster rebound off the 17,500 support level but it was due to four separate buy programs launched by an unknown benefactor.

The hoped for short squeeze never appeared and they were forced to buy almost into the close in order to prop the market up. This was not normal buying with a million investors suddenly deciding to buy the dip. This was program buying. I will gladly take the gains but unless they are going to be around for the next five days we could easily retest the lows.

I said yesterday, "This is going to be a very heavy option expiration cycle with more than $1 billion in S&P options expiring This is going to make Thursday and Friday very volatile with very high volume. We definitely got the volatility today and tomorrow could be more of the same.

Current Portfolio

Current Position Changes

JBLU - JetBlue

The short position was entered at the open with a trade at $16.49.

LE - Lands End

The short position was stopped at the open with a trade at $16.65.

Profit Targets

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

Stop Loss Updates

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

BULLISH Play Updates

CSII - Cardiovascular Systems -
Company Profile


No specific news. Minor rebound in a weak market.

Original Trade Description: June 13th.

Cardiovascular Systems, a medical technology company, develops, manufactures, and markets devices to treat vascular diseases in the United States. It offers peripheral arterial disease products, including Stealth 360° Peripheral Orbital Atherectomy System (OAS), Diamondback 360 Peripheral OAS, Diamondback 360 60cm Peripheral OAS access device, and the 4 Diamondback 360 French 1.25 Peripheral OAS access device products for treating a range of plaque types, such as calcified plaque, in leg arteries both above and below the knee and address many of the limitations associated with existing surgical, catheter, and pharmacological treatment alternatives, as well as Diamondback 360 Coronary OAS, a catheter-based platform to facilitate stent delivery in patients with coronary artery disease.

In the last quarter revenues rose 7%, gross margin rose from 77.8% to 80.4% and operating expenses decline -5%. They expect to reduce expenses by another 7% in the current quarter. Coronary revenues rose +31%.

With more than 18 million Americans suffering from Peripheral Artery Disease (PAD), which is the accumulation of plaque in the peripheral arteries, their market is booming. Coronary Artery Disease is a leading cause of death in the USA. With more than 40% of the population already diagnosed and probably another 20% undiagnosed the market for their products is also growing rapidly. With the baby boomers retiring and these health problems becoming more life threatening as they age the number of "interventions" as my cardiologist calls them is growing rapidly. Stenting any patient with any symptoms of heart disease is becoming more common than tonsillectomies for children. More than 600,000 Americans die from heart disease annually. That is equivalent to 6 jumbo jet crashes every day.

In Q1, Broadfin Capital added a 1.46 million share stake in CSII or 4.47%. Point72 Asset Management added 102,000 shares. Shares have broken out of resistance at $16 and continue to creep higher.

Earnings are August 3rd.

There was only a minor decline today in a very weak market.

Position 6/14/16:

Long CSII shares @ $18.16, see portfolio graphic for stop loss.

No option recommended because of wide spreads.

HPE - Hewlett Packard Enterprise - Company Profile


No specific news. Flat in a crazy market.

Original Trade Description: June 2nd.

Hewlett Packard Enterprise was spun off from Hewlett Packard (HPQ) to be the high growth segment of the company. The remaining HPQ was the slower growing PC and printer company.

HPE reported adjusted Q1 earnings of 42 cents and in line with estimates. Revenue of $12.711 billion would have been up +4% on a constant currency basis. Analysts were expecting $12.419 billion.

For the current quarter, HPE guided to earnings of $1.10 to $1.14. For the full year, they expect $1.85-$1.95 and that was more than analysts expected at $1.89. They increased free cash flow +101% to $1.1 billion for the quarter.

The good news came from their plans for the cash flow. HPE expects to generate $2.0-$2.2 billion in free cash flow in 2016. They are receiving $2 billion from the Tsinghua transaction which closed in early May and the money will be used for share repurchases. In 2016, HPE is increasing its commitment to return 100% of the free cash flow to investors in dividends and buybacks.

This means over the next couple of months we should see significant share activity as funds position themselves to be the beneficiaries of all this buyback/dividend activity that could exceed $4 billion in 2016. $2.5 billion of that is in an "accelerated" buyback program. The board authorized another $3 billion in buybacks to bring the current authorization to $4.8 billion.

They also announced a tax-free spinoff of their services division to Computer Sciences Corporation (CSC), which is expected to close in March 2017. This will produce another $8.5 billion in value to HPE shareholders in the form of $4.5 billion in equity in the combined company and $1.5 billion in a cash dividend and the removal of $2.5 billion in debt from HPE.

Earnings Aug 23rd.

HPE shares have shaken off their May weakness and closed today at a historic high. I am recommending we buy this stock in anticipation of additional fund investors moving in ahead of future dividends, buybacks and the spinoff.

Position 6/3/16:

Long HPE shares @ $18.40, see portfolio graphic for stop loss.


Long August $20 call @ 40 cents. No stop loss.

NVAX - Novavax - Company Profile


No specific news. Shares recovered the opening loss to close at a five-month high.

Original Trade Description: June 14th.

Novavax, Inc., a clinical-stage vaccine company, focuses on discovering, developing, and commercializing recombinant nanoparticle vaccines and adjuvants. The company produces its vaccines using its proprietary recombinant nanoparticle vaccine technology. Its product pipeline includes respiratory syncytial virus (RSV) vaccine candidates for elderly and maternal immunization that are in Phase III clinical trials, as well as pediatric RSV candidate, which is in Phase I clinical trial; seasonal quadrivalent influenza and pandemic H7N9 vaccines, which are in Phase II clinical trials; vaccine candidate against Ebola Virus that is Phase I clinical trial, as well as combination respiratory vaccine candidate and seasonal influenza vaccine candidate that is in pre-clinical trial; and rabies G protein vaccine candidate, which is in Phase I/II clinical trial. The company also has pre-clinical stage programs for various infectious diseases, including the Middle East respiratory syndrome coronavirus; and develops technology for the production of immune stimulating saponin-based adjuvants.

Novavax is using a new proprietary model for vaccines that does not require the long incubation time and the annual reformulation. They are far along in their trials compared to other companies and these vaccines can be given to children.

The top line State III data for the RSV F vaccine is due out in Q3 and they already have a fast track designation from the FDA. The drug could be commercially available by mid-2017. This drug could generate $1 billion in sales. While there is always the potential for a trial to fail, this initial drug has already progressed through all the early and mid stage trials. Novovax also has $434 million in cash so plenty of liquidity to continue the process.

Earnings August 9th.

Analysts are predicting a 100% gain for NVAX over the next year and that is attracting new investors today. With their advanced pipeline they could be an acquisition target. Shares only pulled back about 50 cents in the market weakness over the last three days and they posted a gain in today's weak market.

Position 6/15/16:

Long NVAX shares @ $6.65, see portfolio graphic for stop loss.

No options recommended because of price.

UIS - Unisys Corp - Company Profile


No specific news. Closing in on support at $7.20.

Original Trade Description: June 6th.

Unisys Corporation provides information technology services worldwide. It operates through two segments, Services and Technology. The Services segment provides cloud and infrastructure services, application services, and business process outsourcing services. The Technology segment designs and develops software, servers, and related products. It offers a range of data center, infrastructure management, and cloud computing offerings for clients to virtualize and automate data-center environments. This segments product offerings include enterprise-class servers, such as the ClearPath Forward family of fabric servers; the Unisys Stealth family of security software; and operating system software and middleware. The company serves commercial, financial services, public sector, and the U.S. federal government through direct sales force, distributors, resellers, and alliance partners.

Unisys has morphed in its 143 years of operation into a global cloud, IT and infrastructure services company. That is a long way from the original company that produced the first commercially viable typewriters and adding machines under the name Burroughs, Sperry and Remington Rand.

Today one of their main products is Unisys Stealth for protection of digital and physical assets. Stealth Mobile protects secur emobile applications and Stealth Cloud expands that protection to the cloud.

Just before their recent earnings they announced a deal with Mitel to provide the Unisys stealth technology to protect their 60 million mobile and enterprise customers. Business is booming but it has been a long time coming. In Q1 revenue declined -3% and services declined -2%. However, the company said its "lumpy" quarter-to-quarter strategy was changing with a stronger focus on the Stealth products and their rapid wide scale adoption. They expect the amount of money spent on cybersecurity to more than double from the $75 billion in 2015 to more than $170 billion in 2020. The cost of data breaches will rise to $2.1 trillion annually by 2019 and more than four times the cost in 2015.

Unisys has been a stealth company for the last year with shares declining from $30 to $7. With their new products and the rapid acceptance of those products their stock is rebounding off the three month consolidation pattern.

Earnings July 28th.

Shares moved over resistance at $8.25 last week and are preparing to move higher. The big decline in March was a $190 million offering of convertible senior notes due 2021 with a conversion price of $9.76. That was a 20% premium to the stock price post announcement.

If the current rebound continues the next material resistance is $12.

Position 6/7/16:

Long UIS shares @ $8.47, no initial stop loss.


Long October $9 call @ 80 cents. No stop loss.

BEARISH Play Updates

GOGO - Gogo Inc - Company Profile


No specific news. New historic low at the close.

Original Trade Description: June 11th.

Gogo provided communication services to the commercial and business aviation markets in the U.S. and internationally. They provide in-flight connectivity and wireless digital entertainment solutions to commercial airline passengers to and from North America.

Gogo has had a rough few months as airlines complained about the service and some removed the Gogo service and replaced it with a competitor.

On May 23rd Gogo announced the pricing of $525 million in senior secured notes. On May 26th the stock spiked 20% after the company filed a notice with the SEC saying an unspecified airline had requested a proposal for service to cover its large domestic fleet. Under the proposal Gogo would provide Wi-Fi to a "meaningful" portion of the domestic fleet that is is currently serving. Gogo cancels the $525 million debt sale.

On June 3rd shares plunge as the unspecified airline turns out to be American Airlines and the proposal is far less than expected. American picked ViaSat (VSAT) to provide internet access on 100 new Boeing jets. Gogo updates its SEC filing to say it would provide service on 140 American planes and continue service on 400 others. However, American retained the option to remove Gogo equipment on any American planes at any time. Gogo said it now expects American to remove its equipment on the "mainline" planes over the next several years. American said it was planning on upgrading the service on its planes but had not picked a successor. That means the 100 ViaSat planes will be a live test and will likely replace Gogo. ViaSat provides 12 mbps of bandwidth to each seat while Gogo provides 70 mbps for the entire plane and that bandwidth has to be shared by all passengers. There is a significant difference.

On June 9th Gogo reinstates the $525 million debt offering and priced it at 12.5% after Moody's rated it a B3-PD (Probability of Default) credit.

Earnings Aug 4th.

The future is not bright for Gogo. They are trying to produce a faster service through satellite connections rather than ground based systems but the testing and roll out is not going smoothly. Several years of hostility between passengers and carrier over the slow bandwidth has poisoned the relationships and ViaSat appears poised to take over the market.

Shares closed at a historic low on Friday at $8.97 and the downward trend is likely to continue.

Position 6/13/16:

Short GOGO shares @ $8.99, see portfolio graphic for stop loss.

I am not recommending an option but the August $8 put is $75 cents.

JBLU - JetBlue - Company Profile


No specific news. New 17-month low.

Original Trade Description: June 15th.

JetBlue Airways Corporation, a passenger carrier company, provides air transportation services. As of December 31, 2014, the company operated a fleet of 25 Airbus A321 aircrafts, 130 Airbus A320 aircrafts, and 60 Embraer E190 aircrafts. It also served 93 destinations in 28 states in the United States, the District of Columbia, the Commonwealth of Puerto Rico, the U.S. Virgin Islands, and 19 countries in the Caribbean and Latin America.

Business was good until all the airlines began adding capacity at the same time. The discount airlines were particularly aggressive. In order to fill that extra capacity they increased the number of discount seats and overall pricing went down. Now they have plenty of passengers but their revenue per mile has declined. They are still making money but with rising fuel prices they are going to have to raise ticket prices and that will dampen demand.

Last week JetBlue said May traffic measured in revenue passenger miles of (RPMs) rose +10.7% from 3.47 billion to 3.84 billion. Over the prior 12 months available seat miles (ASMs) rose 12.1% to 4.54 billion. The load factor or the percentage of seats filled by passengers declined from 85.7% to 84.6% because the rapid expansion of capacity outweighed the traffic growth generated by the discount tickets. That means the revenue per available seat mile (RASM) declined -7%.

The airline lowered guidance for RASM to decline 7.5% to 8.5% for Q2 compared to prior guidance for a 7% decline. They also lowered ASM growth from 8.5%-10.5% to 8.0% to 9.5%. They do not need to add additional capacity if they cannot fill the seats they already have.

Factor in the strong dollar, rising fuel prices and the increased terrorist activity and the outlook for profits is declining. Since the Belgium airport attack airline traffic has slowed. People do not want to be blown up while waiting in a security line. Add in the Zika virus that has disrupted traffic to Latin America and the Caribbean and that is another reason seats are empty. On the positive side JetBlue was accepted by the DOT to operate scheduled flights to Cuba. However, compared to their total capacity those few weekly flights will not move the needle.

Earnings July 26th.

JBLU shares have already declined significantly. They fell sharply in early May when they reported April traffic numbers. When the numbers did not improve in May they declined again starting on June 10th. JBLU was a rocket ship when it rallied from $5 to $24 in 2015 but we are headed for a round trip with shares back at $16.66 today. It has been a series of disappointing events one after another. I think we will see single digits again soon because of all the events impacting traffic and earnings I discussed above.

Position 6/16/16 with a JBLU trade at $16.50

Short JBLU shares @ $16.49, initial stop loss $17.65


Long September $16 put @ $1.15, no initial stop loss.

LE - Land's End - Company Profile


No specific news. The sector rebound from Wednesday was erased with LE closing back at the lows. However, there was a 1,000 share lot at traded at $16.78 at 1 minute after the open that spiked the stock for an instant and stopped us out. I was tempted to jump back in tonight but given the expected volatility over the next several days I will wait until after the Brexit vote.

Original Trade Description: June 9th.

Land's End operates as a multi-channel retailer. The company operates through two segments, Direct and Retail. It offers casual clothing, accessories, footwear, and home products. The company sells its products through its e-commerce Websites, direct mail catalogs, dedicated LandsÂ’ End Shops at Sears, stand-alone LandsÂ’ End Inlet stores, and international shop-in-shops. As of January 29, 2016, it operated 227 LandsÂ’ End Shops at Sears; and 14 LandsÂ’ End Inlet stores in the United States, as well as 5 United Kingdom based shop-in-shops.

Land's End operated in the world of Amazon and they are getting crushed. They use the term multi-channel because they retail a lot online. Unfortunately, in an Amazon dominated environment they are finding it hard to sell sheets, blankets, towels, shoes and apparel and still make a profit.

In their recent report they lost 18 cents compared to analyst estimates for 2 cents. Revenue of $273.4 million that was below the $299.4 million in the comparison quarter. Retail segment revenue declined -10.4% with same store sales falling -7.1%. Even worse, inventory rose 8.9% to $309.9 million up from $284.6 million. Cash balanced declined -$50 million. Stale inventory is rising, they are burning cash and sales are falling. That is not a recipe for earnings growth.

The retailer was forced to remove Gloria Steinem from their online website and from their catalog after the feminist made some comments on abortion rights. Customers, including numerous religions groups, promised a large scale boycott if Steinem was not removed from all advertising.

The summer months are not likely to be kind to Land's End. They will be forced to further discount products to move them out of inventory in a period where customers are vacationing rather than shopping.

Earnings Sept 1st.

When the market finally rolls over, we could see selling in LE accelerate due to a lack of interest in holding for a Q4 rebound. The historic closing low is $15.81.

Position 6/10.16:

Closed 6/16/16: Short LE shares @ $15.80, exit $16.65, -.85 loss.

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