Option Investor

Daily Newsletter, Thursday, 7/14/2016

Table of Contents

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

Market Wrap

Earnings Drive The Market Higher

by Thomas Hughes

Click here to email Thomas Hughes


The rally continues as the first of the big banks report better than expected earnings. JP Morgan beat on the top and bottom line, raising hopes we're coming out of the earnings recession. Along with the news a somewhat expected statement from the Bank Of England and US economic data dominated the headlines. The BOE did not ease policy but they did say it is likely to come in the next couple of weeks. The statement says we can expect a package of measures once they have a chance to assess the effects of Brexit.

Asian markets were relatively quiet, moving higher on balance. Hong Kong led with gains near 1.1%, followed by a 1% rise in the Nikkei and a small decline in mainland Chinese indices. European markets gained more than 1% on the BOE news, aided by the ongoing rally in our market.

Market Statistics

Futures indicated an open about 0.5% above yesterday's close for most of the morning but trading was choppy. News was the biggest driver of trading as one item after another hit the wires including the BOE statement, JPM earnings, jobless claims and PPI. Momentum was strong at the open, driving the indices up by at least a half percent in the first two minutes of trading. After that there was a small retracement before the bulls pushed them up to another intraday high. The second high of the day was reached shortly after 10AM, it proved to be the high of the day and was followed by sidewinding and consolidation into the close of the session.

Economic Calendar

The Economy

Initial jobless claims were unchanged in this weeks report, last week's figure is a not-revised 254,000. This is the 71st week of claims below 300,000 and just off the long term 43 year low. The four week moving average of claims fell -5,750 to hit 259,000, just above its long term 43 year low. On a not adjusted basis claims rose 11.8%, in line with the 11.9% predicted by the seasonal factors. On a year over year basis not adjusted claims are now -13.25% below last year, the widest gap since early spring. Claims continue to trend at low levels, consistent with labor market health.

Continuing claims rose 32,000 to hit 2.149 million. The four week moving average of continuing claims is 2.143 million, a small decline from last week. The down trend in claims has stalled but both figures are trending near long term lows and consistent with labor market health.

Total claims rose by an expected 36,000 to hit 2.083 million. This gain is in line with seasonal trends and down -4.5% from this same time last year, consistent with improvement in unemployment levels and labor market health. We can expect this figure to continue rising for the 3-4 weeks at which point, provided trends remain consistent, we should see another decline in total unemployment claims levels.

The Producer Price Index was released at 8:30AM, a little hotter than expected. Headline PPI came in at 0.5% for June led by goods up 0.8% and services up 0.4%. This is the third month of increasing prices and the rate of change is expanding so these increases may continue. At the core level prices rose by 0.3% and are up 0.9% over the pas 12 months. While both numbers are on the rise neither point to the need of a rate hike yet.

The Dollar Index

The Dollar Index continues to trade within its near term range. Today's action was a move down on strength in the euro in pound, tempered by weakness in the yen. The euro and pound trades were driven by the BOE decision, the yen by a move away from the safe haven trade. The recent consolidation between $95.50 and $96.50 has been driven by economic data and central bank expectations and is likely to continue until the next FOMC meeting. A break to either side of the range could result in a move of a $1 or more to targets near $94 on the downside and $97.50 on the upside. Outlook is bullish, the FOMC is not expected to strengthen the dollar but most other central banks are expected to weaken their respective currencies. The next ECB meeting is 7 days away, the next FOMC meeting is 13 days away, the BOJ's is 15.

The Oil Index

Oil prices bounced today, WTI settling up close to 1.7%. Today's move is a bounce from the $45 support level and not strong. Although a rebalance of the market is still expected bias remains to the supply side. Yesterday's reported draw down of supply was much smaller than expected, gas stock piles rose counter to expectations, floating storage is at all time highs and the IEA says the supply glut is persistent. Prices may break through $45 with this weight, if so next target is $40.

The Oil Index posted a gain near 0.5% on the bounce in oil prices. Despite the gain today's candle is a bearish one although small and weak. The index is now trading just below resistance at the top of its three month range and near levels at which it has reversed in the recent past. The indicators are pointing higher but remain consistent with the trading range so a break above resistance, near 1,175, does not look likely. With oil prices moving lower this index is likely to remain within its range, first target for support is near the short term moving average, 1,130, next target 1,100.

The Gold Index

Spot gold fell about -1% intraday following the BOE policy statement. The decision to hold rates steady with the seeming promise that easing was coming, along with Britain's smooth transition to a new prime minister, helped to sooth fears of Brexit fall-out and deflate support for the safe haven trade. The move brought spot prices down to $1,335 and a two week low. Support is possible at this level, next target is closer to $1,300 if it doesn't hold. With the market calming down a move lower is very possible, add in potential for a stronger dollar and the move looks more likely.

The gold miners opened with losses this morning but buyers stepped in to push prices back up. The Gold Miners ETF GDX opened with a loss greater than -2% and then moved up to within -0.6% before the close. Today's action is the 7th day of trading within a tight consolidation range that may be signaling higher prices are on the way. The indicators are both bullish and although momentum is in decline the MACD and stochastic peaks are convergent with recent highs, consistent with a move to new highs or a retest of current highs should the ETF pull back. A pull back can't be ruled out, gold appears to be correcting and could cause the sector to correct as well.

In The News, Story Stocks and Earnings

Earnings, there weren't a whole lot of reports today, barely more than a dozen, but there were some important names. Top of the list is JP Morgan. The bank reported numbers that beat on the top and bottom lines, driven by strength in nearly every segment of business. EPS of $1.55 beat by $0.12 cents, revenue beat by more slightly more than $1 billion. Commercial banking led with growth of 33% but there was 4% growth in consumer and corporate banking and a 16% gain asset management profits. Outlook is positive. Shares of the stock jumped more than 2% in the pre-market session to open at a 1 month high. Resistance is just above today's intraday high, near $65, and is likely to be tested or broken. The indicators are both pointing higher, consistent with a move higher. A break above $65 would be bullish and could take the stock up to $67.50 in the near to short term.

Delta Airlines reported before the bell and was able to beat at least on the bottom line. Revenue fell short of expectations and fell from last year in the same quarter, cost efficiencies helped produced earnings growth. Looking forward the company sees the revenue environment challenging and has reduced its winter capacity. Currency headwinds and potential for fall-out from the Brexit were mentioned in the statements. Shares of the stock jumped more than 5% on the news to trade at a one month high but price action is sketchy.

Blackrock, one of the largest investment management firms in the business, reported earnings and revenue that fell shy of estimates. The company reported EPS of only $4.73, $0.06 short of consensus, as its clientele faces "unprecedented challenges as they attempt to navigate the current investment environment". Market headwinds and a slow down in client activity were cited as causes for the miss. Shares of the stock fell on the news, opened with a loss, tried to rally but was not able to hold gains.

The Indices

The indices continued to rally today. The promise of QE to support the Brexit and hope for earnings season fueling the move higher. Today's action was led by the Dow Jones Transportation with a gain of 1.07%. The transports created a small bodied white candle with upper shadow just below resistance. Resistance is about 85 points above today's close, near the 8,100 level. The indicators are both on the rise so a test of resistance is looking likely. A break above 8,100 would be bullish and could take the index up to next resistance target of 8,250.

The Dow Jones Industrial Average made the 2nd largest move today, gaining about 0.73%. The blue chips created a medium sized white candle with small amount of upper shadow in a move that set another new all time high. The indicators remain bullish and moving higher so the index may contiue to move higher as well. Risks at this time include weak momentum and overbought stochastic although neither are indicative of imminent reversal. An upside target of 18,900 can be projected based on the bounce from the Brexit Bottom to the old all-time high.

The NASDAQ Composite comes in third today with a gain of 0.57%. Despite today's gains the tech heavy index created a small black spinning top candle. The index is now trading at a 7 month high but remains more than 3.5% below the current all time high. The indicators are bullish and moving higher so some further upside can be expected with next target for resistance near 5,175.

The S&P 500 brings up the rear in today's session. The broad market gained a little more than 0.53% and set another new all-time high. Today's candle is relatively small and has some upper shadow, indicative of a rally that is slowing down or at least taking a breather. The indicators are both pointing higher, bullish and consistent with a rising market, so a test of today's high looks likely in the least.

Despite my misgivings, the risk of slowing global growth, Brexit fall-out and another season of negative earnings growth the market continues to rally. The rally is driven on relief and hope; relief the Brexit is not crushing the market as first feared, hope that earnings season will not be as bad as expected. While it will be some time before we fully understand the scope of the Brexit and what it will mean for the global economy it looks, at least for now, that earnings season will in fact be better than expected. Perhaps much better, but that is yet to be seen. If so, this rally could have legs.

Now is not the time to start chasing prices higher. Now that the indices, the S&P and Dow Jones Industrials, are breaking out and the rally is sustainable we can expect a consolidation at least and maybe a test of support at/near the previous all-time high before a prolonged move higher. When that comes, and confirms support, it will be time to get bullish with an eye positioning for the end of the year and 2017. I'm still cautious but starting to see signs the 2nd half rally I've been waiting for is on the way.

Expect some volatility tomorrow, it's OPEX and there are some key earnings reports from US Bancorp, Wells Fargo and Citigroup. There is also a raft of economic data on tap for tomorrow. Retail sales, CPI, Empire Manufacturing, Industrial Production, Business Inventories and Michigan Sentiment.

Until then, remember the trend!

Thomas Hughes

New Plays

Standing Aside

by Jim Brown

Click here to email Jim Brown
Editor's Note

Markets are very oversold and trouble may be brewing. The S&P futures are down -6 on Thursday evening and any entry we could make in a gap down market in Friday's option expiration volatility would be wrong. I am recommending we avoid new entries for Friday morning.


No New Bullish Plays


No New Bearish Plays

In Play Updates and Reviews

Pothole Ahead?

by Jim Brown

Click here to email Jim Brown

Editors Note:

With the Dow up 1,450 points in the last two weeks there has got to be a pothole around the next corner. The market is very overbought and still making record highs. However, the Russell 2000 only gained 1 point and the Biotech Index only gained 4 points. The S&P-600 only posted a fractional gain. All of the minor indexes have lost traction but the Dow continued to rise because of a $4.62 gain in Goldman Sachs, $2.26 in Apple and $2 in MMM. Those three stocks accounted for almost 70 Dow points.

With significant headline risk over the next 7 days I would be very surprised if we did not see some selling on Friday. Traders long this rally have got to be worried about the potential for a weekend or early week headline to seriously dent this rally.

Current Portfolio

Current Position Changes

JKS - Jinko Solar
The JKS short was entered at $19.35.

SHLD - Sears Holding
The SHLD long position was stopped at $13.75.

TRN - Trinity Industries
Close the long TRN position at the open on Friday.

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. Still holding at 2-month highs.

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


No specific news. Two declines in a row. Hopefully the four-week rally is not over. The Biotech index was down hard on Wednesday and up only 4 points today. This is a sector event not stock specific.

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


New closing high. Oppenheimer raised their target price from $21 to $25 and maintained a buy rating.

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. More analysts are questioning the value of the offer from Tesla, suggesting it should be higher.

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 dropped -2.4% to stop us out at $13.75 on the short. The optional long call is still open and will move to the lottery play portfolio tomorrow.

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

Closed 7/14/16: Long SHLD shares @ $14.65, exit $13.75, -.90 loss.


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

TRN - Trinity Industries - Company Profile


No specific news. Shares have rallied to $20.87 and we have a July $20 call option .We need to close this position at the open on Friday.


Original Trade Description: March 18th

Trinity Industries manufacturers rail cars, highway guard rails and steel beams for infrastructure projects, structural towers for wind turbines and electrical distribution grids, oil and chemical storage tanks, barges to transport grain, coal, aggregates, tank barges to transport oil, chemicals and petroleum products. The company was founded in 1933.

Shares crashed in mid February after they reported earnings that beat the street but guidance that disappointed. Earnings of $1.30 easily beat estimates for $1.07 but revenue of $1.55 billion missed estimates for $1.61 billion. They had full year earnings of $5.08 per share.

They guided for 2016 to earnings of $2.00 to $2.40 per share. The challenge is the slowdown in orders for railroad tank cars and barges to transport oil. With oil prices crashing the producers and refiners are cutting back on capex spending until prices recover. Trinity said revenue in 2016 could decline -32%. Shares declined -35% over two days on the news.

The key here is that Trinity is now trading at a PE of 3. Yes 3.74 to be exact. With earnings in the middle of their range at $2.20 and a PE of 10 that would equate to a $22 stock price.

Here is the good news. The company has $2.12 billion in cash and undrawn credit. They are not in financial trouble. They authorized a $250 million share buyback starting January 1st. They have an order backlog of $5.4 billion in orders for 48,885 railcars. They received orders for 2,455 cars in Q4 and their backlog stretches out to 2020. The barge division received orders for $190.1 million in Q4 and had a backlog of $416 million as of December 31st. The structural tower segment has $371.3 million in order backlogs.

They recognize that tankcar and barge orders are going to remain slow until oil prices recover, which should happen later this year.

This stock was extremely oversold but began recovering in early March. Trinity produces a lot of railcars for carrying all types of products other than oil. That demand is not going to disappear and they already have order backlogs stretching into 2020.

At their current valuation they could also be an acquisition candidate. This is a great business that has been overly punished by the oil crash.

Earnings April 21st.

Position 3/21/16:

Long July $20 call @ $1.50, no stop loss.

Previously Closed 4/5/16: Long TRN shares @ $19.15, exit $17.50, -1.65 loss.

TWTR - Twitter - Company Profile


Twitter added Pac-12 college sports to its live-streaming package.

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

JKS - Jinko Solar - Company Profile


This is one time it would have been better to short the open rather than wait for the trigger point at a lower low. Shares spiked to nearly $20 at the open then fell to close at the low for the day at $19.05. Our entry was $19.35. No specific news.

Original Trade Description: July 13th.

JinkoSolar Holding Co., Ltd., engages in the design, development, production, and marketing of photovoltaic products in the People's Republic of China and internationally. The company operates through two segments, Manufacturing and Solar Power Projects. It offers solar modules, solar cells, silicon ingots, silicon wafers, and recovered silicon materials. The company is also involved in the solar power generation activities; engineering, procurement, and construction of solar power projects; connecting solar power projects to the grid; and operation and maintenance of the solar power projects, as well as provides solar system integration and processing services.

For Q1 the company reported earnings of $1.68 that easily beat estimates for $1.11. revenue of $848 million also beat estimates for $714 million. Shares spiked to a new two month high and immediately began to slide and that slide is continuing. Operating expenses rose 80.3% to $91.8 million. Interest expenses rose +101% as the company took on more debt to finance projects.

Only 4 analysts have current recommendations on JKS. Those are Jefferies, Roth capital, Morgan Stanley and Zacks. All are strong buys. The consensus price target is $31. If they begin to change their recommendations because of the falling stock price that should cause further declines.

Earnings August 18th.

In theory Jinko is positively positioned to continue growing. However, solar capacity in China is very over supplied. Selling prices are falling and new processes constantly make old manufacturing techniques outdated and overly expensive. Constant upgrading to new manufacturing requires capital and time that constrains output from the old processes.

Short interest is over 15% on JKS. Shares appear poised to break below support at $19. They traded as low as $14 last August. I am suggesting we short JKS but buy an August $21 call option just in case the analyst recommendations suddenly cause a reversal in the trend. If JKS shares do break under $19 we will recover the 75 cents paid for the option very quickly. If the stock reverses sharply we have upside protection.

Position 7/14/16 with a JKS trade at $19.35

Short JKS shares @ $19.35, see portfolio graphic for stop loss.

Long August $21 call @ 70 cents, no stop loss.

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.

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