Option Investor

Daily Newsletter, Wednesday, 6/22/2016

Table of Contents

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

Market Wrap

Another Day of Waiting for Brexit

by Keene Little

Click here to email Keene Little
Even though the Brexit vote will have very little immediate impact on European economies (it will take time to separate if that's the way the vote goes) and it will certainly have very little impact on the U.S. for quite some time. But it shows how the market hates uncertainty and is simply waiting to get through Thursday's vote.

Today's Market Stats

It was another quiet day in the markets as we wait to get through the Brexit vote and relieve the anxiety many are feeling about it. Especially for the U.S. there's little to worry about since any changes will be slow in coming and they won't have as much of an impact on us as it will on Europe. But the market hates uncertainty and once we get through Friday we can get on with worrying about what the Fed will/won't do. Certainly the market is not worried about such things as the economy or corporate earnings or any other such silly nonsense.

There's very little to discuss tonight since all eyes and ears are on Britain and its upcoming vote. We'll have the results tomorrow night and the overnight futures will tell us what to expect Friday morning. Will it be a relief rally or will it instead be a sell-the-news event? One could easily argue each case and we'll have to let the dust settle on Friday before we'll get a better sense about the market's next move.

Speaking of overnight futures market, I see equity futures popped back up when they opened at opened at 18:00 and that was apparently a reaction to two new polls this evening that show the votes to remain are ahead of Brexit support and starting to widen. Whether or not the early-evening pop will hold through tomorrow is anyone's guess. Each rally attempt this week has faded in the afternoon and it's one of the reasons why I wonder if a relief rally on Friday might not lead to a sell-the-news reaction (a little bit for both sides). One can only speculate and that's not a good trade setup. Unfortunately the charts look just as confused and they're not much help in figuring out what might happen on Friday. I'll start with a weekly view of SPX.

S&P 500, SPX, Weekly chart

The June 8th high for SPX, at 2120, was a minor new high above its April high at 2111 and it was also a test of its downtrend line from May-July 2015. The weekly shooting star at resistance was followed by last week's red candle and that puts SPX on a sell signal, which can only be negated with a rally above 2120. A stronger bullish move would obviously be a rally above the May 2015 high near 2135. The expectation from here is for a strong decline in the 3rd wave of the great bear market that started off the May 2015 high. There's a lot to be done by the bears before that becomes a more likely outcome, starting with a break below last week's low at 2050.

S&P 500, SPX, Daily chart

Monday's high for SPX was a small throw-over above its broken uptrend line from February-May, near 2093 at the time and currently near 2100 (and back-tested again today), as well as its broken 20-dma, currently near 2093. The daily candle finished as a shooting star at resistance, which is not bullish. Yesterday's candle was a doji, indicating indecision. Today's candle is another doji, more indecision. The morning high was held back by the broken uptrend line and the afternoon low was support at price-level S/R near 2085.

At the moment the short-term pattern tells me we have something more bearish than bullish but in reality it could go either way, and following the Brexit vote it just might do that. If it does break down into the 3rd wave of the decline from June 8th, it will be a strong selloff and likely down to price-level support at 1992 and potentially much lower. If we get a rally above the June 8th high I think it would be a good time to chase the market higher (always cognizant of a possible head-fake break higher since at the moment I think upside potential continues to be dwarfed by downside risk).

Key Levels for SPX:
- bullish above 2121
- bearish below 2050

S&P 500, SPX, 60-min chart

The short-term pattern that I'm watching, to see if we get another confirmed sell signal and get an advance warning of how Friday might go, is shown on the 60-min chart below. We don't have a clean wave pattern for the leg down from June 8th but from a bearish perspective it's a 1st wave down and the 3-wave bounce into Monday's high is a 2nd wave correction. The next big move should be a stronger selloff below last Thursday's low at 2050. Based on some short-term price projections for the wave count, a drop below 2070 would keep the sell signal active. Above Monday's high near 2101 would negate the bearish pattern and above 2117 would put it on a buy signal. Let price lead the way before making any big bets.

Dow Industrials, INDU, Daily chart

The Dow's pattern is very similar to SPX so all the same comments apply. It too back-tested its broken uptrend line from February-May on Monday and is now trying to hold support at its 20- and 50-dmas, near 17820 and 17803, resp. Today it closed at 17761 and remains on a sell signal but not a strong one. It could go either way here and while I like the short side better than the long side, I'm not trading without protection.

Key Levels for DOW:
- bullish above 18,120
- bearish below 17,400

Nasdaq-100, NDX, Daily chart

Today's bounce attempt by NDX was rejected at its broken 50-dma, which it has done several times since breaking on June 13th. Today's high was also a test of Monday's high but it left a bearish divergence and under normal circumstances I'd strongly recommend a short play here, especially since it also closed again below its 200-dma, near 4414, as well as its uptrend line from February 8 - May 19, near 4418. The short-term pattern suggests lower prices and that's the way I'm leaning. But there are plenty of reasons to be cautious heading into Friday.

Key Levels for NDX:
- bullish above 4537
- bearish below 4362

Russell-2000, RUT, Daily chart

Different name, same pattern -- the RUT also looks like it will head lower following the 3-wave bounce off last Thursday's low into Monday morning's high. It's been struggling with resistance at price-level S/R near 1160, as well as its broken 20-dma, currently near 1159 (today's high was 1161). A drop below 1110 is needed by the bears to prove it's not just a pullback correction since below 1110 would be below several layers of support (trend lines, 50- and 200-dmas) and below a downside projection for two equal legs down from June 8th for a possible a-b-c pullback correction.

Key Levels for RUT:
- bullish above 1190
- bearish below 1110

Volatility index, VIX, Daily chart

We might be getting some clues from the VIX but in reality I would expect it to register some fear (higher VIX) as we head for the Brexit vote. A decline in VIX this week would have had me thinking the market is too complacent when it should be worried. The VIX dropped from last Thursday's high but then started back up after Monday's morning's gap down. What's interesting is how it's finding support at its 200-dma (only a minor break below it, currently at 18.13) and its broken downtrend line from January-February, currently near 17 (Monday's low was 16.59). If this was a stock I'd be interested in buying it and of course a rallying VIX would mean a declining stock market. I would not trade based on just the VIX but it does offer up a reason for concern about the stock market.

If you're an option trader you need to be aware that prices are inflated right now, which means you'll pay a higher time premium. If we get a relief rally on Friday we could find the VIX collapsing, which would collapse the time premium as well. How many of you bought a call and the trade went in your direction but you lost money on the option position? Maybe that's only happened to me (wink) but that's why it happens. Puts are better plays (unless the underlying rallies of course) because you generally make money with the direction and the inflation of time premium. It's a win-win kind of trade. Calls can be more difficult to make money if you're not careful to note the current IV (implied volatility) vs. the historical IV.

10-year Yield, TNX, Daily chart

Last Wednesday I had mentioned I expected to see a bounce correction for TNX since it looked like the leg down from May 31st was completing an impulsive move and should be followed by a bounce correction before heading lower. The next day it spiked lower but then did a v-bottom reversal, which was then followed by a rally into this week. I thought the bounce might make it back up to the 1.72 area to back-test its broken sideways triangle and its 20-dma, currently near 1.71. It has now retraced 50% of its decline from May 31st, at 1.70, so if it climbs above 1.72 I see upside potential to its 50-dma, at 1.77 and perhaps its broken uptrend line from July 2012 - January 2015, near 1.80. Lastly it would close its June 3rd gap down at 1.81. Above that level and I'd feel much less bearish TNX (bullish bond prices) but at the moment watch for the possibility of a turn back down at any time. Perhaps on Friday following the Brexit vote?

KBW Bank index, BKX, Weekly chart

The weekly chart for BKX does not inspire any bullish feelings for me. While it could bounce back up a little higher, perhaps back up to its broken 50-week MA (69.68) and its downtrend line from July-December 2015, it's currently risking a breakdown from support at its 200-week MA, currently at 66.41, and price-level S/R near 66.50. Yesterday's low was 66.05 and today's was 66.53 (it closed on 3 cents higher at 66.56). If it gives up support here and then drops below last week's low at 64.67 I think we'd be hearing the fat lady signing a song of sorrow for the bulls.

U.S. Dollar contract, DX, Daily chart

The US$ is still inside its down-channel from December 2015 and has dropped back down to the top of its up-channel from May 2011, which it had broken above in December 2014. Like the stock market, many currencies are just chopping sideways while waiting to get through Brexit. The larger price pattern for the dollar suggests an upside breakout, I'm wondering if we're going to get at least a retest of its May low at 91.88.

Gold continuous contract, GC, Weekly chart

Last week gold made it up to its 200-week MA, near 1313, and has since reversed back down. The two new highs since March have left significant bearish divergences and it's not a rally I'd chase higher from here. We're due at least a larger pullback before heading higher. But I'm not convinced yet that we're going to get higher prices before first making a new low (down towards 1000).

Oil continuous contract, CL, Weekly chart

Oil is doing a slow roll over from resistance near 51, which includes price-level resistance (October 2014 high), some internal price projections based on the wave pattern, and the broken uptrend line from 1998-2008. It could run higher, such as to price-level S/R near 58.50, but at the moment the price pattern suggests the bounce off last Friday's low should be shorted against the June 9th high. The past few weeks I've shown the daily chart with the rising wedge off the April 5th low at 35.24. The breakdown from the wedge suggests a quick trip back to the 35 area.

Economic reports

There's nothing to see here, move along. Anyone watching economic reports this week? Me neither. It's all Brexit.


Brexit polls show the vote is going to be extremely close but betting places, like predictit.org, shows the vote is narrowing but not close. The stay vote is currently 70% vs. 30% to leave. In other words it's more than 2:1 in favor of staying if the bettors are correct (and they put real money behind their votes). That's not a close vote and these betting sites tend to be more accurate. Therefore, if the final result of the Brexit vote shows an overwhelming majority voted against Brexit it's likely to boost stock markets worldwide and we could see a big gap up on Friday. The results will be in late Thursday night for Britain and in the evening hours for us, which means we'll see the results in the overnight futures market.

But, and this is a big but, the stock markets have been rallying/holding up into the Brexit vote, probably due to an expectation that the Brexit vote will fail. I don't think I'm overstating the significance of a Brexit vote that passes since I think it would be a shock to the system and stock markets around the world are one black swan event away from crashing. When I say downside risk dwarfs upside potential it's because of this crash potential. The lack of liquidity in this market is a very dangerous situation that doesn't become apparent until we get a big selling event.

It's never a good idea to bet on a market crash because they're so infrequent. But it doesn't mean you should never prepare for one. Stop orders on positions could get gapped over if the market opens with a big gap down (if they're limit stop orders) or a market stop order might find a buyer much lower than you thought possible. I think it's very important to at least have put protection on your portfolio. The premiums are inflated right now with the higher VIX but that's a small price to pay to protect yourself. Dump them next week if you think they're still not needed.

Even if the result of the vote is to stay, there is the risk that we'll see a gap up but then a quick sell-the-news reaction, especially since the market already rallied on Monday to recover the previous week's selloff on Brexit worries. Monday's rally is holding as we approach the vote but the price patterns are not clear enough to offer a higher-odds trade setup. As far as trading this event, I don't think we can hazard a guess how the market will react to a vote either way and therefore heading into Thursday's close would be a good time to get flat and then let the dust settle on Friday. Trading is different from protection -- the former is by choice while the latter is required if you have long positions that you don't want to sell right now.

If you really want to try a trade going into Friday, the most I'd risk is a long option position that you're prepared to lose (but potentially make some good money on it, depending on whether you bet on black or red). I prefer trading with good setups that enable me to control my risk whereas betting on "red" or "black" is simply gambling and it's very important to understand the difference between trading and gambling. We don't do gambling here, right? Having said that, I do like the idea of a couple of puts (all risk, no stop) and hold it into next week before deciding whether to keep the position or get rid of it.

Good luck the rest of this week and I'll be back with you next Wednesday when we should have good confirmation of whether the bearish patterns win or get negated.

Keene H. Little, CMT

In the end everything works out and if it doesn't work out, it is not the end. Old Indian Saying

New Plays

Brexit Trade

by Jim Brown

Click here to email Jim Brown
Editor's Note

The only guarantee for the next two days is an increase in volatility. Even if the Brexit vote is to remain in the EU there may still be volatility because funds have been positioning for a remain vote for several weeks. There could be a major market spike on the initial news that is sold a day or two later. Whenever the market expects one outcome we would plan on the opposite.

Everyone expects a market meltdown if the vote is for an exit. However, since there is a minimum, two-year countdown clock nothing is going to happen immediately. Funds are currently holding record levels of cash at 5.7%. They may buy the dip in heavy volume in advance of the expected positive earnings in Q4.


No New Bullish Plays


VXX - Ipath VIX Short Term Futues ETN - ETN Profile

The VXX is a ETF type product that is based on the Volatility Index futures. It is a flawed product with a perpetual decline built in from the monthly roll over in the futures contracts.

We have played the VXX before with big gains. The object is to short it on a bounce and then hold the position until the volatility fades again.

On the big declines last week the VXX spiked to $17. Back in January and February is spiked to $30 on the market corrections. While I do not expect that to happen from this lower level, I do expect some volatility to appear regardless of the vote outcome.

I am recommending we enter a short position with a return to $17. If it continues higher I would add to that short at $20 and again at $25 and then we wait for the post event decline in the volatility and the return to $13 or lower.

Because this is a flawed product it will always go lower. It has already had several 1:4 reverse splits to keep it from being delisted back in November 2010, October 2012 and November 2013. If it falls under $10, they will do another reverse split and start the decline all over again.

With a VXX trade at $17, short the VXX, no stop loss.
With a VXX trade at $20, short the VXX again, no stop loss.
With a VXX trade at $25, short the VXX again, no stop loss.

If we are successful in entering all three positions our average entry price will be $20.66 assuming you shorted an equal amount in each transaction. I would have no problem with increasing the quantity on the second and third position because it will always go down with the exception of short term spikes on market corrections.

In Play Updates and Reviews

Counting the Hours

by Jim Brown

Click here to email Jim Brown

Editors Note:

The official Brexit vote results will not be out until early Friday morning. We will probably know the results based on the S&P futures by about 2:AM on Friday because hedge funds have commission private exit polls to give them a head start on trading The official results may not be out until 5:AM or even later depending on how close the results are.

The major indexes seemed to be pricing in a "remain" vote this morning but as more polls were released it switched to favor the exit camp. However, after the close a final poll came out suggesting the remain side was ahead again and the S&P futures spiked up +10 points.

The market could be crazy on Thursday and we know it will probably be directional on Friday but the direction depends on the results.

Current Portfolio

Current Position Changes

No Changes

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. Big spike at the open but faded with the 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. New high gains from Tuesday were erased.

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. Very minor decline.

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


Suntrust initiated coverage with a buy rating. Shares spiked 11% and our patience was rewarded.

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. Still trying to avoid a new historic low.

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.

INSY - Insys Therapeutics - Company Profile


No specific news. However, news that the Medicare "Death Panel" or Independent Payment Advisory Board (IPAB) will not be instituted until late 2017 and would submit proposals in 2018 for price reductions in 2019. This news suggests drug prices are not going to be forced lower in the near future. This caused all the drug stocks to spike. INSY posted only a minor gain of 16 cents.

Original Trade Description: June 18th.

Insys Therapeutics, Inc is a specialty pharmaceutical company that develops and commercializes supportive care products. The company markets Subsys, a sublingual fentanyl spray for breakthrough cancer pain in opioid-tolerant cancer patients in the United States. Its lead product candidate is Syndros, an orally administered liquid formulation of dronabinol. The company is also developing Cannabidiol Oral Solution, a synthetic cannabidiol for childhood catastrophic epilepsy syndromes; and other product candidates, including other dronabinol line extensions and sublingual spray product candidates.

Two former employees were arrested on June 9th for allegedly participating in kickback schemes involving doctors who prescribed the company's main drug, Subsys, a pain medication containing fentanyl. This is the drug that killed Prince, Joan Rivers and Michael Jackson. The two employees paid doctors thousands of dollars to participate in sham educational programs in order to induce the doctors to prescribe millions of dollars worth of the Subsys product. In 2014 alone the employees paid one doctor $147,000 and another $112,000 in speaker fees to give a talk at one of their "educational" programs. Those doctors were two of the largest prescribers of the drug in the USA. The scheme was discovered in November 2015. Subsys revenue in 2015 was $330 million. In 2014 a record 28,000 people died from subscription opioid addiction.

Earnings August 4th.

Clearly, this will have a long-term impact on Insys since there will be liabilities associated with the revenue generated from the scheme. The company is under attack by Preet Bharara, U.S. Attorney for New York. He has brought down dozens of other companies over the last several years for various types of misdealing.

Position 6/20/16:

Short INSY shares @ $13.06, see portfolio graphic for stop loss.

No options recommended because of wide spreads and high prices.

JBLU - JetBlue - Company Profile


No specific news. Opening gap higher erased to close at a 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, see portfolio graphic for stop loss.


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

QURE - UniQure - Company Profile


No specific news. Closed at a new low.

Original Trade Description: June 20th.

UniQure is a biopharmaceutical company, engages in the discovery, development, and commercialization of gene therapies in the Netherlands. The company offers Glybera, a gene therapy product for the treatment of patients with lipoprotein lipase deficiency. They have multiple drugs in development for a variety of illnesses.

In their recent earnings they reported a loss of 92 cents that missed estimates for a loss of 82 cents. Revenue of $4.3 million did beat estimates for $2.9 million. This is a very small company and since the ASCO conference their shares have been in crash mode.

Losses appear to be accelerating and they lost $22.69 million in Q1. Their market cap is only $204 million.

There was no gap open today despite the major gap higher in the market. They closed at a historic low at $8.20. They have only been public for 2 years and from the chart today it looks like they are going significantly lower. Normally when a stock hits the prior historic low there is a rebound or at least a pause. Neither occurred and that suggests it will go lower.

Position 6/21/16 with a QURE trade at $8.00

Short QURE shares @ $8, initial stop loss $9.25.

No options recommended.

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