Option Investor

Daily Newsletter, Tuesday, 6/28/2016

Table of Contents

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

Market Wrap

Turnaround Tuesday

by Jim Brown

Click here to email Jim Brown

Today was an oversold bounce that recovered less than one-third of the points lost the prior two days.

Market Statistics

I was very happy to see the bounce arrive and I am not trying belittle its importance. The Dow declined almost 1000 points from Thursday's close at 18,011 to Monday's low at 17,063 and only recovered +269 today. That does not mean we are not going to recover all of it but so far this is only a one-day wonder. One day does not make a trend, just like the prior two days did not confirm a lower trend but that could still happen. In every market decline there are periodic rebounds powered by short covering and bottom fishing. It is what comes after that initial rebound that determines the market direction.

There was the constant droning of Brexit news but I think traders have become immune to the headlines. What will matter in the coming weeks is the dollar's direction and the number of earnings warnings because of the collapse in the British pound. That is where the rubber will meet the road to use a 1960s saying.

The pound recovered 1% today but compared to the 12% decline the prior two days that is insignificant. Some analysts still believe it could sink to 120 from today's close at 130.57. This will impact the dollar, yen, yuan and euro and cause central banks to take action to defend their currencies.

More than three million UK citizens have signed a petition asking for a do-over on the Brexit vote. Prime Minister Cameron said no deal. The vote will stand and UK citizens will have to live with the decision.

There were some economics today and they were not pretty. The Richmond Fed Manufacturing Survey for June declined from May's -1 to -7. That ties with March 2014 and together that is the lowest reading since January 2013. All of the components were negative with new orders falling from zero to -14 and order backlogs falling from -13 to -17. The inventory to order gap collapsed from -19 to -41. Those components suggest July will be ugly as well. The average workweek fell 10 points to -4 suggesting employment is going to be weak for June. Employment and wage expectations turned negative for the first time since 2009.

The separate services survey fell from 11 to zero but the employment component remained flat at 18. Retail employment rose from -3 to 31 and the highest level in more than a year.

The last GDP revision for Q1 rose from +0.8% growth to +1.07% growth. That is hardly something for the Fed to be bragging about. Corporate profits rose +1.8% after a -7.8% decline the prior quarter. Consumption was the main driver of the headline GDP with a +1.02% contribution.

This was the weakest quarter in the last year but Q2 is shaping up to be significantly better. The Atlanta Fed's real time GDPnow forecast is for 2.6%, down from 2.8% the prior week. The decline came from the drop in residential investment growth from 2.6% to 1.7% on June 23rd. The next update will be on Wednesday after the Personal Income report.

Consumer Confidence for June rose sharply from 92.4 to 98.0. The present conditions component rose from 113.2 to 118.3 and he expectations component rose from 76.5 to 84.5. Given the sharp drop in jobs in May and the rise in gasoline prices, I am shocked about the strong gain in the numbers. The biggest gain in the components was in "expectations for an income increase" from 16.5% to 18.2%. With jobs declining that is an odd change in the income outlook.

The biggest events remain the Janet Yellen speech on Wednesday. This is her first post Brexit speech and investors will be watching to see if she drops the "rate hikes will be appropriate in the coming months" phrase or ignores the topic all together.

The national manufacturing ISM on Friday could be a negative surprise given the numbers today from the regional Richmond report. That could be market negative.

Crude oil helped power the rally today with nearly a 4% gain thanks to the falling dollar. WTI rallied back to $48 after falling to $45.83 on Monday. After the bell, the weekly API inventory report showed a 3.9 million barrel decline for the week ended on Friday. This was the sixth consecutive week of inventory declines in the API numbers. Inventories at Cushing declined by -1.21 million barrels. After the API inventories prices rose a little higher to $48.25.

With the biggest driving weekend of the summer just ahead, the inventories should continue to decline. Historically crude prices remain high into August but the closer we get to the Labor Day weekend the better the chance for the price decline into fall.

Prices were also helped by the potential for a production disruption in Norway. Up to 7,500 Norwegian oil and gas workers could go on strike on Saturday if they do not have a new contract and higher wages by midnight July 1st. Norway produced 1.96 million bpd in May and we much as 1.5 mbpd could be shutdown if the strike occurs.

After the bell, Nike (NKE) disappointed on earnings for the third consecutive quarter. Nike beat on earnings with 49 cents compared to estimates for 48 cents. Revenue of $8.24 billion missed estimates for $8.28 billion. Global futures orders rose 11% excluding currency impact. However, U.S. futures orders fell to +6% and the first time it has dropped into single digits since Q3-2014. Chinese orders fell from 36% last quarter and +34% the prior quarter to only 24% in the current quarter. Nike guided to high single-digit to low double-digit growth for the full year. Analysts were expecting 10%. For Q1 they forecast mid-single digit growth and analysts were expecting 9%. The company said it only derived about 3% of its revenues from the UK. Revenue from North America was flat while Eastern Europe sales declined -4%. Western Europe sales rose 19%, China +18% and Japan +22% but emerging markets revenue fell -7%.

Under Armour took a $23 million hit from the Sports Authority liquidation. Nike said it was also fighting excess inventory levels as a result of that outlet closing. Gross margin declined as a result of Nike discounting that inventory through its outlet stores and other third party distribution channels. Shares of Nike dipped to $49 after the report but rose to $51 after the conference call. That was a $2 decline from the close at $53.

Dicks Sporting Goods (DKS) was upgraded to the "conviction buy" list at Goldman Sachs. The analyst said the liquidation of Sports Authority would reduce competition and benefit Dicks in many geographic areas. Sports Authority was its largest competitor with 464 stores. Dicks is now the largest at 600 stores. This should allow Dicks to improve margins from higher pricing. Goldman also noted that Dicks is bringing all of its online business back into the company in 2017. It is currently being handled by GSI, a subsidiary of Ebay, for a fee. Dicks is currently bidding to buy 17 Sports Authority stores currently in the bankruptcy process.

SolarCity announced the formation of an executive committee to consider the Tesla offer to acquire SCTY for $26-$28. The committee has two members because the rest of the board had to recuse themselves from the process because they had conflicts of interest with Tesla and/or Elon Musk. The committee hired Lazard Ltd as its financial advisor on the review. Some analysts are starting to warm up to the transaction because it solves the cash flow problems at SolarCity. Business is so good they are incurring debt at a rapid pace. They build and install systems on a lease agreement. That means they have to fund the cost but the payments do not amortize for a long time. Other solar companies have created yieldcos to buy their installations and free up the cash. Shares rose $1 on the news.

Taiwanese chip maker Advanced Semiconductor Engineering warned that its biggest customer, Apple, was being more conservative about placing orders than the same period in 2015. The company said Apple had told them to expect fewer orders in the second half of 2016. Goldman Sachs lowered its price target on Apple and cut its full year iPhone shipment forecast again from 212 million to 211 million units.

At the same time, Cowen & Co warned that potential iPhone sales could be huge. The analyst said more and more Apple customers are walking around with an iPhone that is 2-years old or older and these are the customers that are most likely to buy a new phone. The analyst said a "powder keg" is forming. They recommended buying the stock. Shares are struggling to hold initial support at $94.

Comscore (SCOR) delayed filing its annual report to regulators because an accounting review is taking longer than expected. The board said it needed more time to evaluate the data and make final decisions. Back in March the company disclosed its audit committee had "received a message questioning the company's accounting." They began a review, cancelled an investor event and delayed filing the year-end financial reports. Comscore acquired Rentrak for $800 million in February. Shares fell 19% on the news of the delay.


There was not much to say about the market rally today. The Asian indexes were marginally positive and the European indexes were sharply positive. That carried over into the U.S. markets with the S&P futures up +24 early Tuesday morning. A short squeeze was born and the rest was history.

I wrote last week that funds were sitting on near record amounts of cash and Thursday is the end of the quarter. If they were going to window dress their portfolios, they were running out of time. With stocks at three-month lows, it was the perfect opportunity. There is also a pension fund rebalance at the end of June. Analysts estimate pension funds needed to shift up to $18 billion into equities to keep their ratios intact. Pension funds typically hold x% of bonds and x% of equities. Bonds have risen so strongly that the ratios are off. They needed to sell bonds and buy equities.

I did not see any movement out of treasuries today. The 10-year yield rose -0.001% to 1.461% indicating continued buying pressure. That is a four-year low yield. If we ever get the "Great Rotation" Bank of America called for there would be a monster equity rally. For now, treasuries just keep rising in value.

The Volatility Index ($VIX) collapsed -21% and that was after a big decline on Monday afternoon. The sharp drop in the VIX and the lack of a rise to 30 over the prior two days is because investors did not believe the Brexit crash would stick. They were not buying puts 30-60 days out to protect their positions. The instant the S&P stopped its decline at 1,991 on Monday the VIX began to decline. Investors simply do not believe the crash will last.

Volume today was heavy at 8.3 billion but well below the 10.6 billion on Monday and 15.2 billion on Friday.

The S&P double bottomed at 1,991 on Monday with a touch at the open followed by a minor rebound and then another touch just before the close with another rebound to close at 2,000. This appeared to be too good to be true and the futures began rising not long after the close.

Today the index has returned to the 2,040 level that was strong support in May and could be strong resistance on the rebound. The consensus opinion is for the S&P to wander in the 2020-2035 range for the rest of the week while we work off the imbalances from the crash. A one-day rebound is just a one-day wonder until a new trend develops.

Initial support is now 2,020.

The Dow rebounded with the help of the stocks that were the biggest losers in the decline. Goldman, IBM, etc were sold hard in the crash and they rebounded sharply today. However, their rebounds were only about one-fourth of their declines. This was a decent short squeeze but there was no follow on buying.

The Dow rebound from the 17,063 low from Monday was decent but it stopped at 17,400 and a level that had been strong support. This could now be strong resistance. If the Dow rolls over and begins to retrace today's gains, it could turn ugly very quickly. A decline below 17,000 should target a retest of 16,000.

The Nasdaq was the strongest index today with a 2.1% rebound. It had been crushed by the back to back declines in the biotech and semiconductor stocks and the Nasdaq rebound was definitely a short squeeze. Many of those stocks were up 7-9% today and that is not just because they were suddenly a bargain. That was shorts being forced to cover.

The Nasdaq is facing prior support at 4,700 that should now be resistance with a close at 4,691. Support is yesterday's lows at 4,575. There was some decent support forming today at 4,650 that could act as a buffer against another intraday decline.

The Russell 200 struggled to add a 1.6% rebound after falling -7% in the crash. The 1100-1110 range covered most of the day's trading with a double top at 1,110 once in the morning and once just before the close. Both were quickly sold. The support at 1,100 was solid. The Russell rebalance pressures should be over tomorrow. Funds will have had 3 days to clean up their left over position squaring.

I am neutral for Wednesday. The S&P futures are down -4 points and the Asian markets just opened slightly positive. The key is the European markets. If they are positive like we saw today then the U.S. markets could follow their lead.

I do not think we are out of the volatility woods yet. There is still too much uncertainty over what the Brexit really means to corporations and how the big decline in the pound will impact earnings. The various political forces in Europe are still sparring in the headlines and the EU has said they will not negotiate with the UK until the Article 50 notice is filed. The UK said they would not file it until a new prime minister is installed in September. That just means more uncertainty for everyone.



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New Plays


by Jim Brown

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Editor's Note

We had nearly a 1,000 point decline in the Dow with a +269 point rebound over three days. The futures are down nearly 5 points and Wednesday's direction is a coin toss. We added two bullish plays yesterday and I see no reason to add additional bullish plays when we could have another decline tomorrow. All the bearish candidates I researched have the same short squeeze spike and while that could be an entry point I prefer to short them when they are declining rather than spiking.

I suggest we wait until Wednesday to add plays and hopefully market direction will become more evident.


No New Bullish Plays


No New Bearish Plays

In Play Updates and Reviews

Oversold Bounce

by Jim Brown

Click here to email Jim Brown

Editors Note:

After a -900 point Dow drop in two days a +269 rebound is a logical bounce. That is roughly one third of the points lost in the decline and I would not expect us to continue adding 200 points a day. Sentiment may turn positive but it will likely take a couple weeks to retest that 18,000 level, if at all, because the uncertainties remain.

Brexit is a done deal but it has only been three trading days and the sticker shock still exists. People are still trying to understand what it will mean to U.S. stocks and which stocks will suffer the worst.

I am glad we had a nice rebound today but I would not count on it continuing every day.

We were stopped out of a couple short positions on the market gap higher at the open. I probably had the stops too tight but I was trying to make sure we escaped with a gain if the market exploded higher.

Current Portfolio

Current Position Changes

HPE - Hewlett Packard Enterprise
The long position in HPE shares was entered at $17.50.

SCTY - Solar City
The long position in SCTY was entered at $23.40.

GOGO - Gogo Inc
The short position in GOGO was stopped out at $8.15.

JBLU - Jet Blue
The short position in JBLU was stopped out at $15.45.

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

EXAS - Exact Sciences -
Company Profile


No specific news. Minor rebound but shares had not declined with Brexit.

Original Trade Description: June 25th.

Exact Sciences Corporation, a molecular diagnostics company, focuses on developing products for the early detection and prevention of various cancers. The company develops the Cologuard, a non-invasive stool-based DNA screening test for the early detection of colorectal cancer and pre-cancer. Its Cologuard test includes a protein marker to detect blood in the stool, utilizing an antibody-based fecal immunochemical test. The company has a collaboration, license, and purchase agreement with Genzyme Corporation, as well as with MAYO Foundation for Medical Education and Research for developing tests to detect lung, pancreatic, and esophageal cancers.

Shares of EXAS fell from $18.50 to $7 in October after the U.S. Preventative Services Task Force, an independent panel of health care experts, issued preliminary screening test recommendations that did not include Cologuard as a recommended product. The draft listed Cologuard as an "alternative" screening test. Exact Sciences protested strongly about the classification.

On June 14th, the same task force issued its final cancer screening recommendations and clarified the inclusion of Cologuard. The information was accidentally leaked and the panel had to release the report earlier than the planned June 21st date. With the final recommendation for Cologuard the company has begun advertising strongly and sales should increase. Cologuard is now an A-rated preventative service under the Affordable Care Act.

Earnings July 26th.

Shares have broken out of their 9-month consolidation base and could close the gap back to $18 in the coming weeks.

Position 6/27/16:

Long EXAS shares @ $11.50, stop loss $9.45.

No options recommended.

HPE - Hewlett Packard Enterprise - Company Profile


HPE announced a management shakeup on Monday. Wells Fargo said today they like the new flatter structure and the fact CEO Meg Whitman was keeping her eye on the ball in order to maximize growth.

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 6/28/16: Long HPE shares @ $17.50, see portfolio graphic for stop loss.

Position 6/3/16: Long August $20 call @ 40 cents. No stop loss.

Previously closed 6/24/16: Long HPE shares @ $18.40, exit $18.61, +.21 gain

SCTY - Solar City - Company Profile


SCTY gained $1 on news they had formed an executive committee to analyze the Tesla offer against "othre strategic alternatives." We do not know what those alternatives are but the press release gave the stock a boost despite a couple downgrades because of the pending offer. Avondale said the acquisition was inevitable.

Unfortunately the stock gapped open with the market and we got a bad entry that was 80 cents higher than the close.

Original Trade Description: June 27th.

SolarCity Corporation designs, manufactures, installs, monitors, maintains, leases, and sells solar energy systems to government, residential, and commercial customers in the United States. The company provides solar energy systems; solar lease and solar power purchase agreements; mypower loan agreements; grid control/energy storage systems; zep solar mounting systems; and proprietary software, including SolarBid sales management platform, SolarWorks customer management software, PowerGuide proactive monitoring solutions, and Energy Designer, a proprietary software application used by field engineering auditors to collect site-specific design details on a tablet computer. It also sells electricity generated by solar energy systems to customers.

SolarCity has had a troubled past with the rise and fall of solar based on the whims of governments and the on again-off again investment credits and tax rebates. SolarCity is still humming right along and building up their base of installed systems into one giant annuity that will pay for decades to come. The problem is that it takes cash to build and install those systems that they sell to customers. Cash up front for a long and profitable payout.

SolarCity was co-founded by Elon Musk. He also started Paypal, SpaceX and Tesla. Last week he (Tesla) offered to buy SolarCity, where he is the largest stockholder and Chairman of the board, for $26-$28. Tesla shares cratered. SolarCity shares spiked for one day then fell back again. Numerous analysts were against the plan. Now shares are rising again.

Elon Musk believes he can marry his battery business with the solar business and have a winning combination. He already makes battery backups for your home but they run off regular utility company power. With SolarCity he can power those battery systems with solar and it makes a lot more sense for customers.

Shares have established a base at $21 and with the $26-$28 offer under consideration along with "other strategic alternatives" it would appear there is limited downside.

Earnings August 8th.

Position 6/28/16:

Long SCTY shares @ $23.40, see portfolio graphic for stop loss.

BEARISH Play Updates

GOGO - Gogo Inc - Company Profile


No specific news. Shares spiked sharply at the open to stop us out at $8.15.

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:

Closed 6/28/16: Short GOGO shares @ $8.99, exit $8.15, +.84 gain.

INSY - Insys Therapeutics - Company Profile


No specific news. Big 7% rebound but it missed our stop loss.

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. The airline sector rebounded with the market and JBLU added 4% to stop us out for a decent gain on the stock position. The long put position is still open but I did add a stop loss.

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

Closed 6/28/16: Short JBLU shares @ $16.49, exit $15.45, +$1.04 gain.


Still active: Long September $16 put @ $1.15, see portfolio graphic for stop loss.

QURE - UniQure - Company Profile


No specific news. Shares posted a 6% gain but failed to hit the stop loss.

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


Ten percent decline to close at $15 and already giving us a nice gain. We may not see a spike back over that $17 level but I will leave the other entry point recommendations open. We are probably going to be in this position for a long time as it declines to new lows under $13 this summer.

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.


6/24/15: With a VXX trade at $17, now short VXX @ $17, 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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