Option Investor

Daily Newsletter, Tuesday, 7/12/2016

Table of Contents

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

Market Wrap

Panic Attack

by Jim Brown

Click here to email Jim Brown

The major indexes continued to surge higher as shorts and portfolio managers begin to panic the rally could actually have legs.

Market Statistics

The Dow finally closed over the prior high close of 18,312 and it only closed about 25 points off its intraday high. Bullish sentiment appears to be rising sharply and worries over a potential decline are nonexistent. The S&P surged another 15 points to close over 2,152 and that level was the yearend target for several major brokers. Traders are so used to resistance holding they do not know how to act with no resistance in sight.

Positive market gains overseas helped to produce another gap open for the U.S. markets.

Economic reports were neutral but that is better prior reports that have been showing weakness. The NFIB Small Business Optimism Index for June rose slightly from 93.8 to 94.5. That is the highest level since December's 95.2 reading. The internal components were barely changed. The highlight would be the increase in capital expenditure plans from 23 to 26 and current job openings rising from 27 to 29. All the other components were relatively flat.

A net of 9% of respondents expect the economy to worsen. Employment plans fell from 12 to 11 and the percentage of firms planning on adding inventories fell from -1% to -3%.

The Job Openings and Labor Turnover Survey showed job openings rose at a 3.7% rate, down slightly from the prior report at +3.9%. Job openings declined from 5.845 million to 5.5 million and the lowest rate since December. Hiring declined from 5.085 million to 5.036 million. However, separations also fell from 5.015 million to 4.952 million. Layoffs fell from 1.71 million to 1.67 million. This report was for May and was ignored.

May wholesale inventories rose +0.1%, down from the +0.6% gain in April. Consensus expectations were for a gain of +0.2%. Seven out of 10 durable goods categories posted gains despite overall growth of only +0.1%. For nondurables, 6 of 9 categories saw inventories increase with a total gain of +0.2%. Sales rose +0.5% after two prior months of strong gains of 0.8% and 0.6%.

The Fed Beige Book out on Wednesday should not be a market mover unless it shows conditions have improved. The report has been neutral in prior versions suggesting growth was still moderate in some regions while a few were weak but not materially weak. If the report were to show growth was improving in all regions it would be market positive.

Friday is a big report day but they are not likely to move the market. The Friday obstacle is the beginning of the Republican Convention on Monday. Uncertainty over that event could cause investors to take profits from the big market gains.

After the bell, the API inventories for crude oil reported a 2.2 million barrel rise with gasoline adding 1.5 million barrels and distillates adding 2.6 million barrels. Analysts were expecting a 3.0 million barrel decline in crude inventories according to a Reuter's poll. Crude prices fell back to $46.45 in afterhours trading after a $2 gain in the regular session to $46.76. If the EIA inventories on Wednesday show a similar build, we could see prices back below $45 very quickly.

The gain in the regular session came after OPEC suggested supply and demand would return to balance later this year. A separate EIA report showed higher estimates for U.S. demand growth in 2017.

Amazon (AMZN) hit a new high intraday at $757 as Prime Day selling kicked off. There had been some traders last week recommending a short at the open today on a sell the news trade. That would have worked this year with the open at $757 and the low in the afternoon at $740. However, you would have to have been fast on the trigger because shares rebounded into the close.

Amazon has an estimates 63 million Prime members spending the $99 a year for free two-day shipping. Prime members tend to spend about $1,200 per year compared to $500 for regular shoppers. MKM Partners estimated Amazon sold $375-$400 million on the first Prime Day last year. For 2016, they expect that number to double. This compares to $10.21 billion spent in stores on Black Friday and $2.72 billion spent online. Piper Jaffray expects a 37% increase in unit volume this year. I browsed some of the Prime Day sales and there was some decent stuff compared to a lot of junk last year. If they shoppers actually showed up this year after being disappointed last year then the total dollar volume could be a lot higher.

To try and combat Prime Day, Walmart (WMT) is offering free shipping all week.

After the bell today, Juno (JUNO) announced they would resume the trial of a potential leukemia treatment that had been placed on clinical hold last week because of two patient deaths. The FDA removed the hold after Juno delivered some updated documents to the FDA. The drug JCAR015 is used for adult patients with B cell acute lymphoblastic leukemia. Shares spiked from the close at $28 to $34.50.

Starbucks (SBUX) shares rallied 2% after they said prices at company-operated stores in the U.S. would rise 10-20 cents per cup of coffee on selected drinks and 10-30 cents on espresso drinks and tea lattes effective immediately. The company also said it was raising wages 5% to 15% for U.S. workers effective in October.

Fastenal (FAST) reported earnings of 45 cents that missed estimates for 48 cents. Revenue of $1.01 billion also missed estimates for $1.02 billion. The company said, "While our customers value the capabilities we bring to the table, in the last eight quarters this group of customers has seen a contraction in its production and therefore its need for fasteners. The fastener product line saw growth of 10% in the last six months of 2014 to 6% in Q4-2015 and falling to about -2% in the first half of 2016." This is not a good sign for future quarters.

Seagate Technology (STX) raised guidance after the bell on Monday and shares spiked 22% on Tuesday. The company now expects revenue of $2.65 billion up from prior guidance of $2.3 billion and analyst estimates for $2.5 billion. That is still a 9.5% decline from the year ago quarter but significantly better than expected. They also announced they were cutting 6,500 employees or 14% of their workforce by the end of 2017.

Western Digital raised guidance last week and saw a surge in its stock price as well.

Teva (TEVA) raised guidance after the bell with revenue now expected to be $4.9-$5.0 billion, up from the prior forecast of $4.8-$4.9 billion. Earnings are expected at $1.19-$1.22 and up from $1.16-$1.20. The company is expected to give long-term guidance on a call on Wednesday morning that includes their acquisition of the Actavis generic business from Allergan (AGN). They are still waiting on FTC approval and have already sold off various assets to secure that approval. Shares rose only about 50 cents in afterhours.

United Airlines (UAL) shares rallied 9% despite a drop in passenger unit revenue of -6.5% in Q2. Analysts were expecting a 7% decline. I do not see the excitement in a 0.5% better number since both were declines. The company said it "beat" the estimates because of higher July 4th traffic and higher international fares.

American Airlines (AAL) said it sees a $1.55 billion boost in revenue from bank and credit card deals. In 2014 Delta generated about $2 billion in revenue annually or about 5% of their total from credit card deals. The cobranded cards provide an alternate source of revenue when holders buy other items on those cards. American has deals with Citigroup and Barclays.

If you are at the mall be careful you are not run over by Pokemon players. The new version of the augmented reality game has taken the world by storm in just the last several days. Shares of Nintendo (NTDOY) are up 50% and the game has only been out a week. The game uses the camera on your smart phone as a screen to your reality and players must walk into the picture to capture treasure and creatures superimposed on the camera picture. Go to the mall and just watch. Hundreds of kids and young adults are wandering aimlessly as the game directs their path in whatever location they are located.

Has the Great Rotation begun? Today's treasury auction was the worst in 7 years as the government tried to sell $20 billion in ten-year notes. The bid-to-cover ratio was 2.33 and the lowest demand since March 2009. The yield at 1.516% was the second lowest yield ever. Apparently, the market demand for 1.5% yields has evaporated with all the money going to the equity markets this week. The 3-year auction on Monday was equally as bad. Thirty-year long bonds will be auctioned tomorrow. The yield on the ten-year is up from the 1.336% low from last Wednesday.

The dollar has stopped moving higher with the dollar index holding at the $96.50 level for the last several days. The reason is that the pound has stopped falling. The pound hit a low of 125.81 and has rebounded to almost touch $130 today. The fast replacement of the UK prime minister is credited with halting the slide in the currency.

Gold prices collapsed on the new PM designate and the idea that maybe the UK disaster will not be a disaster after all. Gold is down from the $1,376 high on Monday to $1,330 tonight.


The breakout finally happened and it occurred on high volume. That is a double whammy for anyone that doubts the event. Volume was 7.6 billion shares and advancers were almost 3:1 over decliners. Yes, there were decliners. Quite a few charts had red candles late in the afternoon as traders were taking profits and moving on to something else.

With treasury yields so low at 1.5% there is no alternative (TINA) to stocks if you want to increase your gains. The lack of an alternative along with the breakout has energized investors to move back into stocks and portfolio managers with performance anxiety are rushing to chase prices higher.

In theory, this is the perfect storm for the bears. The bulls are buying everything, except for defensive stocks. Those defensive stocks that were in favor including Clorox (CLX), Verizon (VZ), Johnson & Johnson (JNJ) etc were all down today as investors dumped the safe plays for those stocks that were surging. This week oil prices had no impact on equities. Oil was down on Monday and equities rose. It was up today and equities rose. The breakout is the big news and after 17 weeks of equity fund outflows this week will probably break that string.

The S&P closed at 2,152 and over the 2,150 level several analysts had predicted would be the yearend target for the index. We are a long way from the end of December but you can bet those analysts are staring at charts this week.

The next unofficial resistance levels are 2,161 and 2,171 but when indexes breakout into blue sky territory the next target is always hard to predict. Support is so far back it is not even worth mentioning.

I would be very concerned as a trader if I was holding a lot of longs as we approach the weekend. Friday could see a lot of profit taking ahead of the weekend as we approach the Republican convention on Monday.

Despite the new highs on the Dow there were 7 Dow stocks in negative territory. Goldman Sachs was responsible for nearly 40 Dow points and Caterpillar another 15 points. Those two stocks were half of the Dow's gains.

The Dow stopped right at its prior intraday high of 18,350 but that does not mean it is done. It would be the perfect spot for some profit taking to appear so traders should be careful. Support is well back at 17,820 unless one of those prior resistance levels becomes support on the way back down.

The Nasdaq managed to close over 5,000 by 23 points and that would make the 5100-5160 range the next resistance level. The big cap tech stocks in the $NDX only gained 22 points to the Nasdaq Composite's 34 point gain. The big caps are under pressure as investors take profits and move into small and mid cap stocks.

Support is well back at 4,850 so any decline could be ugly if the buyers suddenly question the logic of owning tech stocks at 7-month highs ahead of a potential disaster in Apple earnings.

The small cap Russell 2000 closed right at strong resistance at 1,205 after a monster gain from the 1,085 post Brexit low or roughly 10% in two weeks. I like to see the small caps in rally mode because that means sentiment is improving and fund managers are not afraid to buy less liquid stocks. If the Russell can continue its gains, it could support the rest of the market. However, the historic high is 1,295 so it has a long way to go before a breakout.

The market could continue higher but it could also roll over at any time for some profit taking ahead of the weekend. The internals, volume and small cap charts suggest this rally could have legs. That makes us dip buyers rather than buying new highs at this point. After a 1,300 point rebound on the Dow and 161 point gain on the S&P in two weeks, the market is overbought even if it refuses to rest. If you are like me, once I capitulate and start buying the new high, that will be the signal a correction is coming. I would rather buy dips this week than roll the dice on continued new highs every day.

Enter passively, exit aggressively!

Jim Brown

Send Jim an email


If you like the market commentary you have been receiving and you are on a free trial then now is the time to subscribe. Don't wait until you miss a newsletter to decide you want to take the plunge.

subscribe now


New Plays

Looking for a Fat Pitch

by Jim Brown

Click here to email Jim Brown
The major indexes broke out to new highs after a vertical ramp over the last two weeks. While I am a fan of buying some breakouts on individual stocks I am not a fan of buying a market breakout after two weeks of continuous gains. The market is overbought and there are serious headline events starting this weekend. Any new long play we could add would likely be filled at the high for the week. There are almost zero short plays because everything is caught up in this market euphoria. We have a lot of successful longs and can afford to wait for a new buying opportunity to appear.


No New Bullish Plays


No New Bearish Plays

In Play Updates and Reviews

Winner, Winner

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Dow successfully closed over the prior historic high of 18,312 with a close at 18,347. While that is not as big of a breakout as the S&P at 2,152 and definitely in blue sky, the Dow win was important. The new Dow high is confirmation of the S&P breakout and could lead to further gains.

The Dow has gained nearly 1,300 points since the post Brexit lows at 17,063. There should be a pause to consolidate soon.

I tightened all the stop losses again because of the potential for a decline later this week ahead of the Republican convention.

Current Portfolio

Current Position Changes

SHLD - Sears Holding
The long position in SHLD was opened at $14.65.

Profit Targets

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

Stop Loss Updates

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

BULLISH Play Updates

DDD - 3D Systems - Company Profile


No specific news. Shares gained $1 to breakout over prior resistance at $14.

Original Trade Description: July 9th.

3D Systems Corporation, provides 3D printing products and services worldwide. The company's 3D printers transform data input generated by 3D design software, CAD software, or other 3D design tools into printed parts using a range of print materials, including plastic, metal, nylon, rubber, wax, and composite materials. It offers various 3D printing technologies, such as stereolithography, selective laser sintering, direct metal printing, multijet printing, colorjet printing, and plasticjet printing. The company also develops, blends, and markets various print materials, such as plastic, nylon, metal, composite, elastomeric, wax, and Class IV bio-compatible materials. It offers its printers under the Accura, DuraForm, LaserForm, CastForm, and VisiJet brand names. In addition, the company provides digital design tools, including software, scanners, and haptic devices, as well as products for product design, mold and die design, 3D scan-to-print, reverse engineering, and production machining and inspection. Further, it offers proprietary software and drivers that provide part preparation, part placement, support placement, build platform management, and print queue management; and 3D virtual reality simulators and simulator modules for medical applications, as well as digitizing scanners for medical and mechanical applications.

The 3D printing sector crashed and burned in 2014 when the expectations for the technology got way ahead of reality. Shares of DDD peaked at $97.28 before starting the long slide to $6 in January 2016. Shares recovered from that low as the sector began to actually provide some amazing technology. Shares rebounded to $19.50 in April before another round of weakness pushed them back to $12. After chopping around in the $12-$14 range they appear ready to breakout.

The new CFO was given a compensation package of $2.1 million a year. He must be really good. If the stock rises to $30 and maintains that level for 90 consecutive days he can exercise options to buy shares at $12.92, which will give him $10.4 million if sold. If the stock prices rises to $40 for 90 days he has another bonus that would give him shares he could sell for a $8.9 million profit. Another bonus awards him $9.4 million if shares reach $30 in year one of his contract and $40 in year two and holds it for 90 days. He has an extreme incentive to get that stock price moving higher.

Hardly a week goes by that 3D does not announce some new process or software enhancement that comes closer to achieving the original expectations for the 3D printing technology. The ability to print parts out of metal has revolutionized the manufacturing environment. Many large corporations are buying printers by the dozens to print parts that previously had to be ordered from the source with long lead times.

Earnings August 3rd.

Shares closed at $14.12 on Friday and that is a two-month high and slightly over resistance. The next resistance level is the April highs at $18.25. If DDD is about to breakout like it did in Feb/Mar then we want to go along for the ride.

Position 7/11/16 with a DDD trade at $14.25

Long DDD shares @ $14.25, see portfolio graphic for stop loss.

No options recommended. Aug $15 call is 74 cents.

EXAS - Exact Sciences - Company Profile


Major 7% gain to another new 10-month closing high. Rumor making the rounds that Illumina (ILMN) may be considering making an offer for the company.

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. Shares touched a new intraday high at $19.90 today but faded into the close.

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


No specific news. Shares still clinging to resistance at $24 while Elon Musk and Tesla argue over the disclosure of the Model S crash while on Autopilot. Tesla shares were down fractionally on news of a SEC probe.

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.

SHLD - Sears Holding - Company Profile


No specific news. Shares moved over resistance at $14.50 in a bullish market.

Original Trade Description: July 11th.

Sears Holdings Corporation operates as a retailer in the United States. It operates in two segments, Kmart and Sears Domestic. The Kmart segment operates retail stores that offer a range of products, including consumer electronics, seasonal merchandise, outdoor living, toys, lawn and garden equipment, food and consumables, and apparel; and in-store pharmacies. It provides merchandise under the Jaclyn Smith, Joe Boxer, and Alphaline labels; Sears brand products, such as Kenmore, Craftsman, and DieHard; and Kenmore-branded products. As of October 31, 2015, this segment operated approximately 952 Kmart stores. The Sears Domestic segment operates stores that provide appliances, consumer electronics/connected solutions, tools, sporting goods, outdoor living, lawn and garden equipment, apparel, footwear, jewelry, and accessories, as well as automotive services and products, such as tires, batteries, and home fashion products. It also offers appliances and services to commercial customers in the single-family residential construction/remodel, property management, multi-family new construction, and government/military sectors; appliance and plumbing fixtures to architects, designers, and new construction or remodeling customers; parts and repair services for appliances, lawn and garden equipment, consumer electronics, floor care products, and heating and cooling systems; and home improvement services, as well as protection agreements and product installation services. As of October 31, 2015, this segment operated 735 Sears stores.

I probably did not need that big company description paragraph because everybody knows about Sears. They have fallen on hard times in recent years but they are struggling back. Sears is charging forward with "brand extensions" of its existing brands including Kenmore, Craftsman, DieHard, etc. What is a brand extension? Everybody knows about Kenmore appliances. They have been around for 75 years. But soon you will see Kenmore sinks, facets, and many more items carrying that name. Sears is preparing to market a DieHard line of tires because the DieHard brand is the leading brand for batteries. They are also reducing the store count and selling some real estate. They are also moving to stores within a store. This is where brand name companies rent a certain amount of floor space to sell their products. Sears gets a commission and does not have to order or inventory any products. This reduces overhead and allows for better management of the individual product sections.

Whether it will work or not remains to be seen but it appears they have stopped the bleeding and are now focusing on rebuilding the business.

Shares bottomed at $10 in May and Monday's close at $14.48 was a two-month high. Next resistance is around $18.50.

Earnings are August 18th.

Position 7/12/16 with a trade at $14.65

Long SHLD shares @ $14.65, see portfolio graphic for stop loss.


Long Sept $16 call @ .88, no stop loss.

TWTR - Twitter - Company Profile


Twitter shares rose slightly after they announced a deal to live-stream some Bloomberg TV programs including the live market coverage.

Original Trade Description: July 6th.

Twitter, Inc. operates as a global platform for public self-expression and conversation in real time. The company offers various products and services, including Twitter that allows users to create, distribute, and discover content; and Periscope and Vine, a mobile application that enables user to broadcast and watch video live. It also provides promoted products and services, such as promoted tweets, promoted accounts, and promoted trends that enable its advertisers to promote their brands, products, and services; and subscription access to its data feed for data partners.

Twitter's monthly active users have flat lined for many months with almost no growth. New users come into the system, get confused and overwhelmed and then leave just as quickly. There was nothing "sticky" to keep them on the system unless they were a news junkie or addicted to the next wild comment from Donald Trump.

Twitter is trying to change that with Twitter Live. They are testing the concept this week with a live twitter video feed from Wimbledon. The video shows up in the left side of the screen and the right side has a running commentary of tweets on the topic. Twitter has already announced several live events they are going to stream. They paid $10 million to the NFL to stream 10 of the Thursday night games. Live news stories are also being tweeted.

Analysts have been pleasantly surprised and claim "this may actually be something useful from Twitter." If they can successfully transform themselves from a 140 character shorthand rant site into a site with thousand of live streams of everything under the sun then they may actually avoid obsolescence.

Shares have been rising since the $14 low on June 10th and appear poised to break over resistance at $18. By reinventing themselves as a live stream video portal they open up a significant advertising opportunity and could actually attract some big money buyers looking for a social media acquisition. Apple and Google are the permanent favorites constantly mentioned as possibly having interest. If they see that Twitter is suddenly becoming relevant again, they could pull the trigger.

This time last year Twitter was trading around $38 and their historic high was around $75 so even without an acquisition offer they could rebound significantly.

Twitter has been a slow mover even though it is up $3 in three weeks. If it were to move over that $18 resistance it could pick up speed as investors come back for a second or third look and realize the company is evolving.

Do not buy this with expectations for a quick bounce and out. If you enter this position, you should look for a slow move to $20 and then reevaluate the position. Over $20 could trigger some real short covering.

Earnings July 26th and we could hold over the event depending on the news flow and stock level.

Position 7/7/16:

Long TWTR shares @ $17.24, see portfolio graphic for stop loss.

I am not recommending an option because of the recent history of slow movement. However, a long-term option may be the correct way to play this position. Your risk is known in advance and the cost of entry is very low. Here are some examples.

Sep $19 Call $1.04
Dec $20 Call $1.51
Jan $20 Call $1.64

BEARISH Play Updates

VXX - Ipath VIX Short Term Futues ETN - ETN Profile


The VXX closed under $12 at a new historic low.

We are probably going to be in this position for a long time as it declines to new lows well under $12 this summer. Around $10 and they will do another reverse 1:4 split. The last four reverse splits occurred at $13.11 (11/2010), $8.77 (10/2012), $12.84 (11/2013). The prospectus says it can reverse split anytime it trades under $25 for a prolonged period and the splits will always be 1:4.

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.

If you like the trade setups you have been receiving and you are on a free trial then now is the time to subscribe. Do not wait until you miss a newsletter to decide you want to take the plunge.

subscribe now