Option Investor

Daily Newsletter, Wednesday, 6/29/2016

Table of Contents

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

Market Wrap


by Keene Little

Click here to email Keene Little
Just when the bears thought they had this nailed the bulls come along and punch them in the face with a snapback rally that could turn into something very bullish. The bears are not toast yet but they better start some selling on Thursday otherwise they'll be forced back into hibernation.

Today's Market Stats

What was frightening last Friday and on Monday is now frighteningly OK now. Whether it's an end-of-month run or perhaps the Fed getting involved in propping things up, we've had quite the recovery following the Friday-Monday selloff. It's possible the 2-day rally is just a sharp dead-cat bounce or it could be the start of a new rally leg that will take us to new highs. As I'll show on tonight's charts, the answer to that question could come as early as Thursday.

Thursday is the end of the month and quarter and it's possible the big bounce is nothing more than an attempt to save both. The end-of-month push and then new-month (July 1st) money, plus the bullish influence heading into a holiday weekend, has been a powerful motivator for stock buyers. The market breadth has been strong the past two days and while I'm sure there's a fair share of short covering in there, there's no denying the buying has been strong. From a bullish perspective this could be the sign of a kickoff rally that will take the indexes to new all-time highs.

But we've seen plenty of strong rallies in bear markets and if we've entered a new bear market leg down then the past two days could be nothing more than just another bear market rally. These are often much stronger than rallies seen in bull markets so it's always important to keep your emotions in check and not assume a strong rally will continue. In a bear market they often reverse on a dime and sell off strongly. It's important to keep trading short term until the bigger picture becomes clearer and that could come as early as Thursday, especially if the bears don't step back in and immediately drive the indexes lower.

A strong rebound in European stocks helped drive our futures higher and that buying continued for most of the day as the bears were shooed away. Whether or not the European bounce was a dead cat bounce or something more can't be known yet, nor do we know if governments have stepped in to once again save the market from a worse selloff. Regardless we can only guess the next move based on what the charts are telling us so I'll jump right into them.

I'll start tonight's chart review with the RUT since it's a good representative index to show what to watch the rest of this week. It should provide some strong clues for next week and next month. I'll look at the weekly, daily and 60-minute charts.

Russell-2000, RUT, Weekly chart

My first impression when I look at the RUT's weekly chart is bullish. That big hammer candlestick this week, so far, is off support at its 200-week MA, its broken downtrend line from June-December 2015, its uptrend line from March 2009 - October 2011 and price-level support, all of which are at roughly 1077-1093 and Monday's low was near 1086. That kind of bullish candlestick can't be ignored. But the bounce into today's high is so far a back-test of its broken 50-week MA, near 1126 (today's close was marginally above it at 1132), and the bearish wave count calls for a continuation lower. But if the bearish wave count is correct it means today's high ideally needs to hold. If we get a consolidation Thursday morning near the high and then a continuation higher it's going to turn the pattern bullish. The bears need to break 1080 support to prove they're in control.

Russell-2000, RUT, Daily chart

In addition to its 50-week MA, the RUT rallied slightly above its broken downtrend line from June 2015 - April 2016, near 1128, which had supported the decline into the June 16th low and then broke on Friday. If the bearish pattern is the correct interpretation we'll see today's back-test followed by a bearish kiss goodbye, in which case it should lead to strong selling. But if the bulls have a different idea about where this market is going we'll see the rally continue, possibly up to the 1160 area before pulling back next week to set up a very good buying opportunity.

Key Levels for RUT:
- bullish above 1173
- bearish below 1080

Russell-2000, RUT, 60-min chart

If the rally off Monday's low turns into a 5-wave move up, depicted in green on the 60-min chart below, it would confirm the bullish reversal off Monday's low, leaving the pullback from June 8th as just an a-b-c pullback correction and not the start of something more bearish. Following a 5-wave move up we could then expect a pullback next week and that would be the buying opportunity for a stronger rally to follow. But if the sharp 3-wave bounce off Monday's low is followed by a drop below Tuesday's midday low, near 1101, it would confirm the bearish wave count. We could be looking at a 1-2, 1-2 wave count to the downside off the June 8th high and that calls for a very strong decline in a 3rd of a 3rd wave. We could get the answer to the question who's in charge as early as Thursday morning.

S&P 500, SPX, Daily chart

As with the RUT, the SPX daily chart below shows we have only a 3-wave pullback from the June 8th high into Monday's low, which from a bullish perspective is potentially very bullish. It calls for the resumption of the rally, one that will take us much higher (over 2300). But until SPX can climb above its pre-Brexit high at 2113 it remains possible that the bounce is just another correction to what will become a much stronger decline and therefore it's entirely possible the whipsaw moves we've seen since the June 8th high will lead to a violent move down. SPX would look at least a little more bullish if it can get back above its 20- and 50-dma's, near 2081 and 2076, resp., and then above price-level S/R at 2085. While it's looking more bullish than bearish at the moment, keep in mind that the whiplash moves could get worse.

Key Levels for SPX:
- bullish above 2013
- bearish below 1992

S&P 500, SPX, 30-min chart

The 2nd leg of the bounce off Monday's low achieved the 162% projection of the 1st leg, at 2073.24, with today's high (actually short by 11 cents), and that's a good setup for at least a consolidation before pressing higher tomorrow. In fact if we get just a small consolidation in the morning followed by another rally in the afternoon it would turn the pattern unquestionably bullish. At that point we'd have a 5-wave move up (depicted in green on the 30-min chart below) and that would set up a pullback correction into early next week. The pullback would be an outstanding opportunity to get long for what should be a strong rally to follow. But at the moment we have just a 3-wave bounce off Monday's low and as such it could be just another high bounce correction that will lead to a very strong selloff. If we start to get strong selling Thursday morning I'd look to short bounce attempts.

Dow Industrials, INDU, Daily chart

Most of the indexes have the same pattern at this point and the Dow is no different. It has the same setup that we're watching to see if it turns bullish or bearish and at this moment it could go either way. The Dow is approaching its broken 20- and 50-dma's, both of which should be near 17760 on Thursday, about 60 points above today's high. If it rallies higher than that we'll probably see it make it up to its downtrend line from April-June, near 17925, before starting a pullback into next week (the one we'll want to buy).

Key Levels for DOW:
- bullish above 18,011
- bearish below 17,140

Nasdaq-100, NDX, Daily chart

NDX has a little further rally than the others before running into potentially strong resistance, which are its 20-, 50- and 200-dma's, near 4415, 4408 and 4415, resp. If it manages to rally up to its broken uptrend line from February-May by the end of the day Friday it could make it up to about 4450 before starting a pullback into early next week. But today it stopped at price-level S/R near 4375 and a sharp turn back down from here would be potentially very bearish.

Key Levels for NDX:
- bullish above 4468
- bearish below 4179

Volatility index, VIX, Daily chart

We have an interesting setup on the VIX chart as it drops down once again to its broken downtrend line from January-February. This follows a 3-wave bounce off the June 7th low, with two equal legs up at 26.76 (the high on Monday was 26.72), and dropping back down from there is actually bearish for VIX and therefore bullish for stocks. But it's at support at its broken downtrend line and close to price-level support at 16 and could produce a bounce. That would mean at least a pullback for the stock market. A bullish setup for the stock market would be a little higher, to give us a 5-wave move up from Monday, which would likely drop the VIX down to the 16 area, and then a pullback in the stock market while VIX bounces off support. Those happening in conjunction with one another would support the bullish wave count for the stock indexes. But stay aware of the possibility that the VIX could rally hard off support, which would coincide with a strong selloff in the stock market.

10-year Yield, TNX, Daily chart

Treasury bonds and the stock market don't always trade counter to each other but it happens often enough to suggest that when they don't it's important to watch carefully. Oftentimes the bond market telegraphs in advance what the stock will do. After bonds rallied strongly following the Brexit vote, which dropped yields to below their June 16th lows, this week has seen bonds go flat and the small group of daily candles on the TNX chart below shows what can be considered a bearish consolidation. While SPX has retraced more than 62% of its decline, the bond market hasn't moved and in fact looks like it's consolidating before continuing its post-Brexit move. At the moment this is a warning to stock market bulls that the strong bounce in the market might be a bull trap. Watch carefully.

If TNX does continue lower I think we'll see the 1.38-1.39 area hold for at least a larger correction (in time if not price). The July 2012 low was 1.394% and I have two price projections based on the wave pattern near 1.39 and 1.38 so the close correlation with the previous low should be a good support level. And if bonds rally at least a little more that could put some negative pressure on the stock market.

KBW Bank index, BKX, Weekly chart

Following the drubbing the banks have taken the past four weeks it's hard to see this week's bounce as anything more than a version of the dead cat variety. Banks around the world, especially Europe, have been hit very hard as everyone starts worrying about currency crises, enormous debt loads and therefore questionable loan portfolios, and the general weakness in the banking industry. BKX dropped hard down to support at its uptrend line from March 2009 - October 2011, which held the last decline into the February low. That low produced a strong bounce as well and there was follow through to the upside for at least a larger bounce and that's certainly the potential here. But I see impulsive declines and corrective bounces since the July 2015 high and that keeps me bearish the banks. I show the potential for a breakout to the upside, which would obviously have to be respected if it rallies above its high at the end of May, near 71.50, but at the moment I think we're looking for only a higher bounce, if that, and then lower. Watch resistance near 66.50 if reached. The banks keep me from feeling too bullish about the broader market and right now there's a big difference between the two. The banks are still a warning to bulls to not get too comfortable on the long side.

U.S. Dollar contract, DX, Weekly chart

Friday's strong rally in the US$ had it breaking out of its down-channel that it was in since its December high and it then tagged its broken 50-week MA at 96.58, now at 96.53, which it tested again with Monday's slightly higher high. It has since pulled back and it could drop back down to the top of the down-channel, near 94.90, and perhaps to its 20- and 50-dma's near 94.60. For now I'm assuming its rally will continue into the summer as it heads back up to the top of its sideways consolidation since March 2015, which is near 100.

Gold continuous contract, GC, Weekly chart

Gold got a big boost last week as investors rushed for the safety of the shiny metal. They don't seem too anxious to give up the metal to get back into stocks even though the stock market has rallied strong the past two days. As mentioned above, bonds are not selling off either, which has the stock market climbing all by its lonesome. That's a warning sign for stock market bulls but for now only a warning. Gold rallied up to its longer-term downtrend line from September 2011 - October 2012 and with each new high since February it's leaving a bearish divergence, so gold bulls who want to accumulate more gold will probably do better to wait for a decent size pullback correction. That correction could turn into a decline to a new low but that will have to be figured out later once we get a deeper pullback. It would be more bullish above last week's high near 1363 but not if those bearish divergences continue.

Oil continuous contract, CL, Weekly chart

Oil continues to consolidate near its highs since initially reaching 50 in May. This can be viewed bullishly as it chops sideways under resistance at its October 2015 high at 50.92 and its broken uptrend line from 1998-2008, near 50. A break above 51 could lead to a rally to price-level S/R near 58.50 and possibly its May-June 2015 highs near 62. But it's equally possible it's in a topping pattern and will roll over for at least a larger pullback if not back down to its January-February lows near 26, especially if the dollar starts rallying a little stronger.

Economic reports

Other than the Chicago PMI report tomorrow morning it's going to be quiet for economic reports. Unless we see some strong signs of slowing I don't think we'll see much of a reaction to the reports tomorrow or Friday. Next Wednesday and Friday we'll get the ADP and NFP reports to see how the employment situation is looking (not great).


The indexes are close to breakout mode and we could find out tomorrow if the bulls are going to run with this. A morning consolidation followed by another rally into Friday would do a nice job completing a 5-wave move up from Monday and that in turn would tell us the 3-wave pullback from June 8th is complete and we're starting a new rally leg that will take us to new all-time highs. Why this would happen is not as important as the fact that it could very well happen. A 5-wave move up into Friday would be a setup for a pullback early next week and that would be a very good buying opportunity. Bears, just buy it and don't ask questions (wink).

The bearish potential remains very real though and if we get some strong selling on Thursday I would not be the least bit interested in the long side. The bounce off Monday's low can be considered just a sharp a-b-c correction to the decline, one that's setting up a very bearish wave pattern. If we get a sharp selloff Thursday morning I'd start looking for bounce corrections (they'll probably be small) to get short and enjoy the ride down.

We don't know which side is going to run with the ball from here but I think we'll have a very good idea by the end of the day tomorrow. Trade what price tells us, not what you think the market should do.

Good luck and I'll be back with you next Wednesday.

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



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New Plays

Shareholders Fleeing

by Jim Brown

Click here to email Jim Brown
Editor's Note

Autohome is facing a shareholder rebellion that is only getting worse. The Chinese company is being very tight lipped about the revolt.


No New Bullish Plays


- Company Profile

Autohome Inc. operates as an online destination for automobile consumers in the People's Republic of China. The company, through its Websites, autohome.com.cn and che168.com, delivers comprehensive, independent, and interactive content to automobile buyers and owners, including professionally produced content that comprises automobile-related articles and reviews, pricing trends in various markets, and photos and video clips; automobile library, which includes a range of specifications covering performance levels, dimensions, powertrains, vehicle bodies, interiors, safety, entertainment systems, and other unique features, as well as manufacturers suggested retail prices; new and used automobile listings, and promotional information; and user forums and user generated content. Autohome Inc. also offers advertising services for automakers and dealers; dealer subscription services that allow dealers to market their inventory and services through its Websites; used automobile listings services, which allow used automobile dealers and individuals to market their automobiles for sale on its Websites.

In April, Telstra Corp, which owns 55% of Autohome, said it was going to sell a 48% stake to Ping An Insurance Group for $1.6 billion. CEO James Qin is now leading a revolt against his previous benefactor that helped launch the company and get it listed on the NYSE. There is a suit and Qin is launching a rival bid. When the company needed startup capital Telstra was the investor. Qin and other minority shareholders representing 11% of the outstanding shares have lodged a petition with the Grand Court of the Cayman Islands where the company is registered. The suit claims Telstra's representatives on the board of Autohome allegedly acted in bad faith and breached the rules. Qin is trying to form a coalition with multiple private equity firms to launch a competing bid. Qin made a firm offer of $31 a share in April including a bank letter of credit to finance the deal and it was rejected. The next day Telstra said it was selling its shares for $29.55 to Ping An. Qin's group countered at $31.50 that caused a peak in Autohome shares at $32.15 in expectations for a bidding war that never appeared.

The board is deeply divided and Telstra will not provide any supporting documents for the "purported" sale to Ping An. Telstra has 5 directors on the board and there are 5 independent directors. On May 13th Telstra convened a board meeting to approve the deal. The 5 independent board members refused to show up so there was no majority. The 5 Telstra directors appointed a 6th director on the spot, completely against the corporate rules, and the 6 directors approved the deal. The group aligned with Qin filed the petition with the court to put a hold on any acquisition until the proper documents are submitted and the full board can review the documents vote on the matter. Telstra still refuses to provide any documentation and the fight continues.

Meanwhile shares are crashing. On Monday, the company reported the CEO Qin and the CFO had been replaced and five new directors had been appointed. The company stated the sale of 47.4% of the outstanding shares to Ping An had been completed on June 22nd. It appears the hostile takeover has been completed but the court fight is ongoing.

On Wednesday, shares closed at a historic low at $20.54. This company appears broken and normal shareholders are fleeing to the exits. There was no bounce on either is the last two days when the markets were up big.

Zacks changed their rating to Strong Sell. Credit Suisse changed their rating to Sell.

Earnings August 3rd.

Short ATHM shares, currently $20.54, initial stop loss $22.15.

In Play Updates and Reviews

Only 306 Points to Go

by Jim Brown

Click here to email Jim Brown

Editors Note:

After a +285 point gain to close at 17,694 the Dow is only 306 points below critical resistance at 18,000. The markets are trying to make up the last ground with the S&P tacking on 35 points to close at 2,070 and only 30 points below the 2,100 level.

I continue to believe this is funds putting their near record cash levels to work before the end of the quarter on Thursday. The problem will come on Tuesday after the quarter closes and the new retirement contributions are put to work. We could extend this rally right to resistance and then see the calendar turn negative as we head into earnings.

Pension funds had to buy about $18 billion in equities this week to rebalance their bond/equity ratios. That also ends this week.

The second phase of the Fed stress tests on the banks should provide a lift to the markets at the open on Friday.

Current Portfolio

Current Position Changes

INSY - Insys Therapeutics
The short position in INSY shares was stopped at $12.65.

JBLU - Jet Blue
The long put position in JBLU was closed at the open.

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 gain but still a gain and it is nearing a new high.

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


No specific news. Minor gain but still a gain.

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 added another 50 cents. Analysts are still beating them up but the tide is starting to turn positive.

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

INSY - Insys Therapeutics - Company Profile


No specific news. Gapped open to stop us out at $12.65.

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:

Closed 6/29/16: Short INSY shares @ $13.06, exit $12.65, +.41 gain.

JBLU - JetBlue - Company Profile


No specific news. Shares spiked at the open to close the put position.

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.


Closed 6/29/16: Long Sept $16 put @ $1.15, exit $1.20, +0.05 gain.

QURE - UniQure - Company Profile


No specific news. Shares nearly erased the gain from Tuesday and appear headed lower.

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 market rally continues to push volatility lower. 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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