Option Investor

Daily Newsletter, Tuesday, 7/19/2016

Table of Contents

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

Market Wrap

10% Rally

by Jim Brown

Click here to email Jim Brown

The Dow was lifted to a new high by 10% of its components and those were JNJ, MCD and UNH.

Market Statistics

Normally you would like to have more than 10% of stocks in an index participating when that index makes a new high. UNH, JNJ and MCD gained a total of 6.65 points and that equates to about 49 Dow points. The index made a new high but only gained +26 points. That is hardly a bull market rally.

Europe and Asia posted mostly declines and that carried over into the U.S. market. The German ZEW poll on investor confidence fell from +19.2 in June to -6.8 in July compared to consensus estimates for +9. That is the lowest reading since the Financial Crisis. Clearly, the Brexit vote crashed the survey but that is the new reality. Investors are very concerned about how the Brexit will impact Germany and the EU. The broader EU Consumer Confidence data is due out on Wednesday and it is expected to be significantly lower. This weighed on the European markets.

There was only one economic report in the U.S. today. The New Residential Construction for June rose to 1.189 million starts, up from 1.164 million in May for a 4.8% increase. Single family starts rose from 745,000 to 778,000 and multifamily rose from 390,000 to 411,000.

Permits also rose from 1,136 million to 1.153 million. Single-family rose +7,000 to 738,000 and multifamily rose 10,000 to 415,000.

However, the gains were not enough to lift the sector out of its lethargic rut it has been stock in over the last year. Starts have topped out below 1.2 million since April 2015. There is a mild uptrend but it is very lackluster.

The economic calendar for Wednesday is blank except for the weekly mortgage applications and the EIA oil inventories. Thursday's Philly Fed Manufacturing Survey remains the most important report for the week.

Tuesday was all about earnings and there were some high profile events. Goldman Sachs was the big winner with earnings of $3.72 that beat estimates for $3.00. Revenue of $7.93 billion also beat estimates for $7.58 billion. However, despite the good earnings, shares declined nearly $2. Second quarter compensation declined -13% to $3.33 billion and operating expenses fell -26% to $5.47 billion. Equity trading was only $1.75 billion and below Q1 at $1.78 billion and under estimates for $1.79 billion.

Goldman's beat was almost entirely on cost cutting, which is always good, but investors were hoping for better growth rather than more cost cuts. You cannot cut costs forever. They did see a strong uptick in bond trading as investors fled to safety.

UnitedHealth (UNH) earnings rose from $1.64 to $1.96 per share. Revenue rose from $36.36 billion to $46.49 billion. Analysts were expecting $1.89 and $45.04 billion. Revenues rose 28% for UnitedHealthcare and 52% for the Optum health science unit. They narrowed the full year outlook to $7.80-$7.95 per share. UnitedHealth booked $200 million in losses under Obamacare because of higher than expected services given to sicker individuals. For the full year the company expects to lose $850 million, up from $475 million in 2015. At the end of the 2016 cycle the company plans to exit most of the 24 states where is sells on the exchanges to roughly 750,000 members. They are going to sell the Nevada, New York and Virginia business. "We do not expect any meaningful exposure to Obamacare in 2017."

Shares rallied $1.84 to help lift the Dow to a new record.

Johnson & Johnson (JNJ) reported earnings of $1.74 compared to estimates for $1.68. Revenue of $18.5 billion also beat estimates for $17.97 billion. They guided for the full year to $6.63-$6.73 and $71.5-$72.2 billion. Analysts were expecting $6.61 and $71.72 billion.

Global consumer sales declined -1.8%. Domestic sales increases 2.1% but international sales fell -4.4% because of a 5.4% hit on currency issues. JNJ shares rallied $2.11 to help lift the Dow to a record.

Phillip Morris (PM) reported earnings of $1.15 that was below the $1.21 in the year ago quarter. Analysts were expecting $1.20. Revenue of $6.65 billion also missed estimates for $6.77 billion. The company said the miss wa caused by increasing sales in low margin geographies. The company reitereted full year guidance for $4.45 to $4.55. Shares fell -$3.11 on the news.

Lockheed Martin (LMT) reported earnings of $3.32 on revenue of $12.9 billion. Analsyts were expecting $2.93 on revenue of $12.55 billion. They raised full year guidance from $11.50-$11.80 to $12.15-$12.45. Revenue forecasts were raised from $49.6-$51.1 billion to $50.0-$51.5 billion. The company said deliveries of the F35 fighter were accelerating and the outlook for future years was strong. Shares spiked to $2.63 on the news and pulled back to close at $2.59 for a decent $2.67 gain.

After the bell, Microsoft (MSFT) reported earnings of 69 cents that beat estimates for 58 cents. Revenue of $22.64 billion also beat estimates for $22.1 billion. Revenue for the Azure cloud service rose 102% in the quarter and usage more than doubled. Total cloud revenue rose 7% to $6.7 billion. The Office365 cloud product saw revenue rise 54%. Revenue from the personal computing segment declined -4% to $8.9 billion because of a 79% decline in phone revenue. Shares rallied $2 in afterhours to $55.30.

Despite a 32% decline in fuel costs, United Airlines (UAL) reported a 51% decline in earnings to $2.61, which still beat estimates for $2.56. Revenue fell -5.2% to $9.4 billion and barely beating the $9.39 analyst estimates. The company announced plans for a $2 billion stock buyback. Shares were flat in afterhours.

Intuitive Surgical (ISRG) reported earnings that rose 23% to $5.62 on a 15% rise in revenue to $670 million. Analysts were expecting $4.97 and %640.7 million. They sold 130 Da Vinci systems at $1.5 million compared to 110 systems in Q1 and 118 in the year ago quarter. Shares spiked $46 to $717 in afterhours.

The headline earnings for Wednesday are EBAY, FFIV, INTC, QCOM and AXP.

F5 Networks reports earnings on Wednesday but they were up strongly today on acquisition rumors. In early June, they reported they had retained Goldman Sachs to review some acquisition offers. The news has been very quiet since that June announcement and shares have been volatile. I speculated a week or so ago that we could get some news with earnings on Wednesday. On Tuesday it was rumored that private Equity firm Thoma Bravo might be a buyer. The company acquired Qlik Technologies earlier this year. The New York Post broke the news the PE firm was also interested in F5. Citigroup speculated in a June 7th report that HPE, Dell, EMC and Cisco could also be interested. We could have a significant bidding war if all those parties decide to make an offer.

The Dollar Index soared to a four-month high on the drop in the ZEW Investor Sentiment report and better than expected housing starts. The spike in the dollar weighed on commodities including oil, which fell to $44.59 on its way to $43 or even lower. The strong dollar is going to make Q3 earnings are challenge and could push estimates back into negative territory from their current +0.6% estimate.

The API inventory report showed a -2.3 million barrel drop in crude levels but gasoline inventories rose 800,000 barrels. This pressured prices after the close.


Bank of America Merrill Lynch said cash levels held by fund managers hit 5.8% in the latest fund survey. That is the highest level since November 2001. Equity hedging is at the highest level in the survey's history. The S&P has rallied nearly 9% since the post Brexit low but managers continue to hoard cash.

The bank said with $12 trillion in negative yield debt in the global markets investors are worried financial conditions are tightening. The Fed is not expected to make a move until 2017. "A record number of investors are saying fiscal policy is too restrictive and the first underweighting of equities in four years suggest that fiscal easing could be a tactical catalyst for risk assets going forward" according to BAML. More than 39% of fund managers believe helicopter money will become a reality compared to 27% in June. That means they believe there is more QE ahead. Source

The S&P and the majority of the indexes have been moving sideways in a very narrow range for the last four days and today that range began to fade. The S&P 400 Midcap Index ($MID) shows the trend the best. Every index except for the Nasdaq has this pattern. This suggests the "consolidation in place" we have been seeing for the last several days may have run its course and we could be looking at a future decline even if it is just temporary.

Volume has been weak at 5.6 billion shares on both days this week. There is definitely a lack of conviction on both sides.

The S&P has stalled at 2,168 since the opening gap on Thursday. It has been trading in roughly a 10 point intraday range but posting end of day moves of 1-5 points. The S&P and the rest of the markets are seriously overbought from the post Brexit rebound and they need a decent dip to give cautious investors something to buy. Nobody wants to buy a top that has lasted for five days. It is like watching a firework smoke for five minutes but you are afraid of getting your hand blown off if you pick it up and try to light it again. Investors are afraid to buy the top and get their account blown up if a sudden decline appears.

The Dow actually made a new high with a 20-point spurt right at the close thanks to those three stocks I mentioned earlier. That lifted it up to just over the top of the range but not enough to really call it a breakout. With multiple Dow components reporting earnings on Wednesday, the index could go in either direction.

The Nasdaq is struggling at a much lower level to the Dow and S&P. The index finally punched through the 5,000 level but immediately stalled. The biotech sector is dragging on it again and Netflix was also an anchor on Tuesday. The Nasdaq is also overbought but only at a lower level.

The Russell 2000 pushed through resistance at 1,205 but immediately came to a dead stop at 1,210 and has fallen back from that level after five days with no progress. If the small caps are going to roll over it could drag the rest of the market lower.

I am looking for a dip for a trading buy but I suggest it be a passive buy rather than a back up the truck event. August and September are seasonally the two weakest months of the year and the end of July normally fades into that weakness. The influx of cash from Europe is supporting the market but it will not last forever. The Bank of America news on rising cash positions and active hedging by funds shows there is a lot of negative sentiment in the market. On a contrarian basis that is great because it will fuel a monster rally once the market really turns higher. I am just not convinced we are there yet. There are too many political headlines and possibly some economic ones to allow a monster rally before the elections. I could be wrong but I would rather be in cash and be wrong than be fully invested and be wrong about direction.

Enter passively, exit aggressively!

Jim Brown

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New Plays

Second Time Around

by Jim Brown

Click here to email Jim Brown
Editor's Note

We played a short on QURE back in June for a gain but were stopped out with a bounce from the historic low. Shares are returning to that level and I expect support to fail.


No New Bullish Plays


QURE - UniQure - Company Profile

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.

Earnings August 25th.

Shares have been declining for the last week and are very close to a new low. We played this back in June when it was making that low and were stopped out for a gain when it rebounded. I think it will set a new low this time and probably sink to $5.

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.

With a QURE trade at $7.00

Short QURE shares, initial stop loss $8.00.

No options recommended.

In Play Updates and Reviews

Russell 2000 Fading

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Russell has been trapped in a tight range since Thursday's spike but the index is starting to weaken. The index closed at a four-day low and suggests the market breadth is starting to fade. The Nasdaq was also down along with all the indexes except the Dow.

I have all the stop losses as tight as I can make them four of our long positions posted losses. Without a headline to trigger a short squeeze we could be very close to a bout of profit taking.

Current Portfolio

Current Position Changes

FLXN - Flexion Therapeutics
The long position in FLXN was opened at $15.89.

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

AAOI - Applied Optoelectronics - Company Profile


No specific news. Minor decline on a weak Nasdaq.

Original Trade Description: July 16th.

Applied Optoelectronics, Inc. designs, manufactures, and sells fiber-optic networking products primarily for Internet data center, cable television (CATV), and fiber-to-the-home (FTTH) networking end-markets. It offers optical modules, optical transceivers, lasers, transmitters, and turn-key equipment, as well as headend, node, and distribution equipment. The company sells its products to internet data center operators, CATV and telecommunications equipment manufacturers, and internet service providers through its direct and indirect sales channels worldwide.

This is a small but growing company. The share price has been volatile over the last year with a big drop on Q1 earnings that knocked it down from $16 to $8. They had a problem with lower than anticipated yields on a new 40 Gb light engine and had to redesign it and modify the manufacturing process. That was a onetime event that cost them 30 cents a share in Q1 despite record shipments. They saw a 30% increase in shipments of 100 Gb products.

Immediately after the earnings drop shares began to recover and reached $11.80 last week, which is decent resistance. With expectations for a return to profitability in Q2 I expect the $12 level to be broken and some short covering begin.

Earnings are August 4th. They did not warn for this quarter. We have a short window of about two weeks in this position.

Position 7/18/16 with an AAOI trade at $12.00

Long AAOI shares @ $12, initial stop loss $10.85.

No options recommended because of short duration trade.

EXAS - Exact Sciences - Company Profile


No specific news. Shares down slightly with the biotech sector. Earnings are next week and we need to be out.

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, see portfolio graphic for stop loss.

No options recommended.

FLXN - Flexion Therapeutics - Company Profile


No specific news. Shares down with the biotech sector.

Original Trade Description: July 18th.

Flexion Therapeutics, Inc. is a specialty pharmaceutical company that focuses on the development and commercialization of anti-inflammatory and analgesic therapies for the treatment of patients with musculoskeletal conditions. It lead product candidate includes Zilretta, a sustained-release intra-articular steroid, which is in clinical trials to treat the patients with moderate to severe osteoarthritis (OA) pain. The company is also developing FX007, a preclinical, small-molecule TrkA receptor antagonist to address post-operative pain; and FX005, a sustained-release intra-articular p38 MAP kinase inhibitor for patients with end-stage OA pain.

In clinical trials the drug Zilretta reduced knee pain by 50% from the baseline from week 1 through week 12. The FDA said the results were enough to support a filing for U.S. approval. The current treatment is a corticosteriod injection that wears off quickly so Zilretta has a good chance of becoming the treatment of choice for current sufferers. Those over the counter drug patients would also be candidates.

Flexion said they can price the drug at $2,000 a year and that is well within normal insurance guidelines so getting insurance payments should not be a problem. Once Zilretta is in the market place and advertising has begun they expect it to produce more than $1 billion in annual revenue very quickly.

Last week they hired three new executives to prepare marketing plans and advertising so Flexion will be ready to go when the drug is approved. While there is no guarantee the drug will be approved, the FDA rarely suggests the clinical results are sufficient to apply for approval if it is not going to happen.

Recently hedge funds Millennium Management and Renaissance Technologies both bought 125,000 share positions.

Earnings are August 4th.

Shares spiked on May 26th to $17.35 on the news the FDA said they could submit the drug for approval. That excitement faded in June to $13 but shares have returned to a positive trend. If we only saw the shares return to $17.35 that would be a 10% gain but I believe they will pass that level on the potential for the approval of a billion dollar drug.

Position 7/19/16:

Long FLXN shares @ $15.89, see portfolio graphic for stop loss.

No options recommended because spreads are too wide.

HPE - Hewlett Packard Enterprise - Company Profile


No specific news. HPE cannot seem to hold over the $20 level but at least it is not declining.

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. Elon Musk is expected to release his new master plan for Tesla Energy this week.

The new funding lines are another reason Tesla will have to pay more than the $26-$28 it has offered to buy the company. I am still expecting a counter offer in the $30-$32 range.

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.

Update 7/18/16: SCTY raised $345 million in tax equity from four separate partners in June to finance new solar projects. The money will be used to fund new installations. The company also increased its operating line by $110 million by adding two new lenders to the facility. The SCTY capital team has raised more than $1.5 billion in project financing in 2016. They now have more than 30 different banks and corporate partners with financing available 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.

TWTR - Twitter - Company Profile


Twitter announced it was going to develop new and exclusive content in conjunction with the NBA to stream live on Twitter. The offerings will be two weekly shows that will run only on Twitter as well as rapid replays and behind the scenes videos for Vine and Periscope apps. The NBA cannot sell streaming rights because they have a contract with Time Warner and Disney through the 2024-2025 season.

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


No specific news. Shares moved to a new five-month low.

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 at 11.43 and 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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