Option Investor

Daily Newsletter, Thursday, 6/23/2016

Table of Contents

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

Market Wrap

Brexit Or Bremain

by Thomas Hughes

Click here to email Thomas Hughes


Brexit or not to Brexit, that is the question affecting the market today. As polls continue to lean towards no-Brexit the market rises. Polls closed today at 5PM eastern time, the first results are due in around 10PM with the final tally due early tomorrow morning. In the meantime we have a bit of economic and earnings data to think about, such as housing and labor trends, as well as the results of the latest Fed stress test.

International markets traded higher today as well. The outcome of the vote is still unclear but Britain not leaving the EU is generally accepted. Asian indices were a bit mixed, mainland Chinese markets ended the day slightly lower while Hong Kong and Japan both made gains greater than 1%. European markets were more buoyant, gaining about 1.5% on average.

Market Statistics

Futures trading indicated a strong move higher at the open, and that is what we got. There was some data and earnings released before the opening bell but it had little affect on trading, the Brexit vote commanding most if not all of the markets attention. After the opening bell the major indices shot up by about 0.75% in the first minute of trading, spent the next 45 minutes or so in consolidation and then drifted up to set an intraday high just after 12PM, near 1% above yesterday's close. Between 12PM and 2PM the indices drifted lower from that high, giving up about a tenth of a percent, before the bulls were able to regain control of the day. By the close of trading the indices had been able to move higher and set a new intraday high, the broad market gaining roughly 1.3% for the day and closing near the high.

Economic Calendar

The Economy

Initial claims for unemployment benefits fell a surprising 18,000 from last week's not-revised figure. This is about 4X the expected drop of 4,000 and brings first time claims down to a two month low. This is the 68th week of claims below 300,000. The four week moving average of claims fell -2,250 to 267,000. On a not adjusted basis claims fell -6.7% versus the expected -0.1% and are now -5.3% below not adjusted claims in the same week last year. California and Pennsylvania lead with increases in claims of 18,762 and 6,427. Ohio and Michigan lead with decreases in claims of -1,101 and -905. Initial claims are still above the long term low set 3 months ago but remain at levels consistent with labor market health.

Continuing claims fell as well, shedding 20,000 to hit 2.024 million. The four week moving average of continuing claims fell -4,500 to hit 2.147 million. Last week's headline figure was revised higher by 5,000 but remain consistent with ongoing labor market health.

The total number of unemployment claims rose this week, as expected, by 43,167 to hit 2.024 million. The rise is consistent with seasonal trends and remains below last years levels. Based on the seasonal trends we can expect to see total claims continue to rise for the next 6 to 7 weeks, the thing to watch will be how high they go. This week's data is -3.6% below last year, a narrower margin than typical over the past few years but nonetheless consistent with ongoing improvements in labor and unemployment.

New Home Sales and Leading Indicators were both released at 10AM. New Homes sales was a mixed bag. Sales fell -6%, not as much as analysts had expected and yet still 8.7% above last years level. The previous month was revised lower but remains strong, the current annualized rate is now 551,000. There is a caveat with this data, the margin of error. The month to month number has a margin of +/- 12.8%, the year over year number +/- 14.6%, both more than enough to completely alter any message sent by the headline report.

Leading Indicators fell by -0.2% from last month's +0.6%. The decline is due primarily to the sharp rise in initial claims seen in May but, if you'll remember, that rise was due to NY allowing educational personnel to claim unemployment while on spring break. Taking this into consideration it is very likely that the leading indicators would have been flat to positive, and sets the index for potential gains this month as that spike in claims has dissipated. The Coincident Indicators is unchanged, following a 0.2% gain in April. The Lagging Indicators rose 0.3% following a 0.2% rise in April.

The Dollar Index

Currency trading was mixed today, the yen fell against the dollar but spikes in EUR and GBP sent the dollar lower on balance. The Dollar Index fell about -0.7% intraday, testing support at the $93 level, but bounced back in mid-day trading. Today's candle is a small bodied black candle with long lower shadow, a possible hammer, with mixed indicators. The indicators are generally bearish, but showing divergences indicative of possible support. The hammer also indicates support is present, helping to confirm the divergences in the indicators, but does not mean support will not be tested again. The Brexit vote is having a big impact on the dollar and will likely result in some strong moves tomorrow. A no vote could very well send the GBP and EUR both moving higher, and send the dollar index back to retest support at $93.

The Oil Index

Oil prices gained nearly 2% in choppy trading to close above $50, barely. The move was supported by declining Brexit fears, as well as 5 weeks of US stockpile draws, lowered Canadian production outlook, increased price targets for Brent crude and a comment from Saudi Arabi that supply/demand imbalances were nearly corrected. Today's move is a positive for oil bulls but risk remains. With prices at or above $50 the likelihood US shale producers will come back on line increases which would put downward pressure on prices. Tomorrow's rig count will be closely watched for signs of increasing production.

The Oil Index moved higher today as well, gaining more than 2.25%. Today's move created a medium white candle that is moving slowly upward toward the top of the recent trading range. Resistance is possible just above today's closing prices, near 1,175, and there is little indication it will be breached. The indicators are mixed, consistent with a trading range, and do not support a strong trend at this time. A break above resistance could be bullish but there is risk of whipsaw if oil prices do not move higher as well. Such a break could go as high as 1,250. Support is currently near the short term moving average, near the middle of the range, around the 1.120 level.

The Gold Index

Gold prices remain under pressure even as the dollar moves lower. Spot gold lost about $5 dollar today, trading near $1,265, as flight to safety trades lose steam in light of receding Brexit fears. This move could be setting gold up for a snap back rally, regardless of the outcome of the British referendum. If the vote is to leave the EU then a flight back into to gold is possible; if the vote is yes the EUR and GBP could strengthen, send the dollar lower and lift gold. Regardless, gold is still trading above support levels near $1,250 with dovish FOMC outlook and likely to remain within recent trading ranges while we await the next round of central bank meetings. A break below $1,250 will likely take gold down to key support near $1,200, a bounce from this level likely will find resistance in the range of $1,300.

The Gold Miners ETF fell a little more than -1% after an initial move higher. Today's candle is a small spinning top type candle sitting just above the support of the short term moving average. The indicators are bearish and pointing lower but weak which may lead to additional testing of support but not necessarily a break of it. If the short term moving average is breached a move down to $24.00 is possible.

In The News, Story Stocks and Earnings

BlackBerry reported earnings this morning before the bell. The company reported a 39% decline in revenue and a widening of losses experienced in previous quarters but adjusted EPS was $0.00, better than expected. The news is bad, no reason to get bullish on the stock, but the fact it was not as bad as expected and guidance was positive, an annual loss of only -$0.15 versus the previously expected -$0.33, helped shares to rise. Today's gain of 3.5% helped to regain some of yesterday's losses, but not all, and leaves the stock trading below the short term moving average with bearish indicators.

Micron Technology received two upgrades from major market research firms Nomura and Susquehanna. Nomura bumped their rating up by two notches, from reduce to buy, while Susquehanna upped their rating from neutral to positive. Both upgrades come with the same price target, $18, which would provide a 42% upside from yesterday's closing price. Today the stock gained more than 11% in a move that broke above resistance on more than 3X average daily volume. First upside target is near $15, next target is $17.50.

The results of the latest stress test were released today after the close of trading. The results were positive. Under what the Fed calls "severely adverse conditions" 33 of the nations top banks were projected to be able to withstand losses of $526 billion, this is up from only $490 billion in 2014. In the statement the Fed seems to be upbeat about the financial sector stating that banks were improving credit and building capital reserves, adding $700 billion in equity capital since 2009. No word yet on whether the banks will be able to increase buybacks or dividends yet, that will be announced on June 29th. The Financial Sector SPDR XLF gained a little more then 2% during the open session, moving up from the short term moving average. After the report was released the leading banks extended today's gains pointing to additional upside for the XLF tomorrow.

The Indices

The indices were able to move higher today, and close at or near the highs of the session. This move is bullish but may be due more to relief over the Brexit, however premature, rather than actual bullish fundamentals in the market. Today's leader was the NASDAQ Composite which gained 1.59%. The tech heavy index created a medium size white bodied candle with shaven top, no upper wick, in a move up from the short term moving average. Today's action is bullish but the indicators have yet to show support. MACD is approaching the zero line but has not crossed over while stochastic is making a very weak bullish crossover, leaving the technical picture vulnerable to quick reversal. If this bounce is able to continue first target for resistance is just above today's closing price near the 4,975 level.

The next largest gain in today's session was posted by the S&P 500. The broad market created a large but not overly strong white candle with shaven top that leaves prices within 1.5% of the all-time high. Today's action moved up from the short term moving average is not confirmed by the indicators. The indicators are mixed, more consistent with a trading than rally, so a break above resistance is not looking likely at this time. First target for resistance is near 2,020, a move above this level would face another potential resistance level at the all-time high.

The third largest move in today's session was made by the Dow Jones Industrial Average. The blue chips gained 1.28% in a move up from the short term moving average that broke above the 18,000 level. The move is bullish on face value but like the other indices, is not confirmed by the indicators. At best, the indicators are consistent with a trading range which leaves today's high approaching resistance. Resistance is just above today's close, near the 18,100 level, with next target near the all-time high. Near term support, should the market pull back, is near 17,600.

The day's laggard was the Dow Jones Transportation Average which gained only 0.94%. The transports made a small bodied white candle, did not close at the high of the day and did not cross above the short term moving average. The indicators are mixed, consistent with a trading range, which makes today's set-up appear to be a selling op rather than a buying one. Resistance is at the short term 30 day moving average, and then just above that at the 7,750 line, and does not look like it will be broken. However, if it is broken the index may move as high as 8,000 before meeting next resistance.

The Brexit, it's finally here after months of speculation and worry over what it will mean for the global economy and the US stock market. In the end I suspect it will be a non-event as I have mentioned before, but nonetheless remains a worry, at least until tomorrow. I suspect it is possible for the market to reach all-time highs in tomorrow's session, driven by Brexit relief, and if so could very easily produce a whip saw. Once we get past the results the market will be able to refocus on the really important issues at hand, tepid economic growth a dovish Fed and poor earnings expectation for the current cycle. I remain cautious in the current environment, hopeful for the end of the year and awaiting the next indication of short to long term market direction.

Until then, remember the trend!

Thomas Hughes

New Plays

Extreme Volatility

by Jim Brown

Click here to email Jim Brown
Editor's Note

In the afterhours session the S&P futures have been up +13 and then dropping to -14 and there is plenty of darkness left before morning. With the futures moving in a range of more than 27 points over the last 2 hours I think it is safe to say the market direction is not only unknown but volatility could be extreme.

The futures are reacting to every headline out of the UK with some regions voting to stay and others voting to leave according to the early results. When we talk about avoiding heavy traffic this is the kind of traffic we mean. With the futures spiking to +13.5 points at 6:PM and then dropping to -14 points by 7:PM, this is a market we should avoid. I have no clue what is going to happen over the next 8 hours and I doubt anyone knows.

Adding new plays for Friday open would be highly irrational.


No New Bullish Plays


No New Bearish Plays

In Play Updates and Reviews

Not Over Yet

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Brexit volatility is far from over and the actual results will not be known until 7:AM on Friday. Two polls out after the close suggested the remain vote would win and S&P futures spiked more than 13 points. One hour later they were back in negative territory because of comments from the UK over strong turnout in the regions expected to vote to exit.

Today was a buy the rumor rally. Several polls suggested the remain camp would win and buyers began to flood into the market and those short in expectation for a market crash on a leave victory, were forced to cover. The Dow rose 50 points in the last 10 minutes on that short covering.

Even if the actual vote was to stay in the UK we may not see another major rally on Friday. The gains over the last two days have blunted what could be good news and rather than have the results announced just before the market opens and have a monster gap higher open, we have seen slow gains over the last two days that have relieved the pessimistic pressures in the market.

There may still be a sell the news decline in the next couple days even if the news is good. The S&P closed well over 2,100 at 2,113 and the Dow inched over strong resistance at 18,000 with a close at 18,011.

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. Lots of volatility but still a decent 2% gain.

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. Back near the highs. Wednesday's loss was 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. New five-month closing 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 but no gain after the huge move on Wednesday.

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


Standpoint research initiated coverage with a buy rating. Shares spiked +7% on short covering in a hot market. The intraday high missed our stop loss by 5 cents.

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. Minor gain right at the close on what appeared to be short covering.

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. New 17-month low intraday but short covering at the close provided a 9 cent gain.

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. No rebound. No short covering.

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.

VXX - Ipath VIX Short Term Futues ETN - ETN Profile


The VXX declined -10% on the monster market rally. Much of that decline was in the last hour when the shorts really rushed to cover ahead of what could be positive vote results.

I am going to leave this recommendation open for several days just in case there is a "sell the news" event in our near future.

This position remains unopened until the VXX trades at $17.

Original Trade Description: June 22nd.

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.

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