Option Investor

Daily Newsletter, Wednesday, 7/20/2016

Table of Contents

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

Market Wrap

Earnings Drive Market Higher

by Thomas Hughes

Click here to email Thomas Hughes


Positive earnings surprises drive the market higher. Earnings season is delivering better than expected results and that is supporting prices. Today's action took the S&P 500 and Dow Jones Industrial Average to new all time closing highs and both look set to run higher.

International markets were mixed. Asian indices closed the day flat following the flat day we had yesterday. The biggest story came from Japan, the company behind Pokemon Go delayed the games launch in Japan due to a snafu with some leaked information. Nintendo's shares fell more than -12% on the news, the Nikkei about -0.25%. In Europe trading was dominated by earnings, led by the tech sector, and some positive data from the UK. Unemployment has fallen to the lowest levels since 2005, PM May says the country is open for business. Indices in the region gained 1% to 1.5%.

Market Statistics

Futures indicated a positive open for the US indices all morning, about 0.25%. This strengthened into the open, resulting in initial gains near 0.5% for most. A brief dip to test support was followed by a sustained rally which took the indices up to an early high around 10:30 and then another just after 11. Volume was light in general although some individual stocks saw some notable increases. From 11:30 to 2:30 the market trend sideways, eventually retesting the early high but not breaking through it.

Economic Calendar

The Economy

Not much economic data today. Mortgage applications fell -1.3% on a seasonally adjusted basis, up 24% on a not adjusted basis. The not adjusted gains are largely due to the previous week having one lss day but are still up year over year. Refi's also fell, -1%, as did new purchases, -2%. On a not adjusted basis new purchases are up 23% for the week and up 16% year over year.

Tomorrow will be a big day for data. Perhaps the most important item will be the ECB meeting and statement. They are not expected to make any changes but may hint at it, or the need for it, or their willingness to do what is necessary, remains easy for a long time etc. Also on tap are 6 important US data points including jobless claims, Philly Fed, Housing Index, Existing Home Sales, Leading Indicators and natural gas inventories. All points are expected to remain consistent with recent trends which, in the mid to long term, are going to lead to an interest rate hike.

The Dollar Index

The Dollar Index gained strength today but gave up most of the gains before the close. The index is being supported by strong US data, renewed expectation a rate hike will come this year and dovish expectations for the ECB and BOJ. Tomorrow could help propel the index higher, especially if the data is strong or better than expected and/or the ECB is more dovish than expected. Risks include weaker than expected data and a hawkish ECB. There is some near resistance near $97.25, a move past that could go as high as $98 or $98.50. $96.50 is first target for support, a break below here could go to $95.60 or lower.

The Oil Index

Oil prices fell in early trading, by about -1.7%, only to regain all the loss and more later in the day. Prices were down earlier in the day due to bearish expectations for today's inventory data. The actual news was better than expected but still not that great. US stockpiles fell by -2.3 million barrels, about 0.2 million barrels more than forecast, but gasoline levels increased by nearly 1 million barrels. WTI moved up to +0.5% after the news to trade just shy of $45. Today's action sets a new 2.5 month low for WTI, below previous support target of $45, and may be the beginning of another leg lower. If $45 cannot be regained and held next downside target is $40.

The oil sector fell in the morning hours but was able to regain its footing before lunch. The Oil Index fell about -1% early and was later to move up to break even and slightly into positive territory before the close of the day. Today's action confirms support along the short term moving average, near the middle of the 3 month trading range, but bias within the range remains bearish. The indicators are both moving lower, MACD crossing the 0 line today, indicative of a test of support, perhaps as low as 1,120. Regardless, the index remains range bound and is likely to continue within the range into the near term at least. Earnings could be a catalyst but it is more likely economic data and to a greater extent oil prices and future earnings outlook will drive the sector.

The Gold Index

Gold prices fell in today's session, pressured by a stronger dollar and a bit more risk on sentiment. The spot price of gold fell more than -1% to trade just about $1315. Today's move sets a new 1 month low and looks like it could move down to test for firmer support near $1300. With the ECB and so much data on tap this move could come tomorrow. Strong data and a dovish ECB could go a long way towards strengthening the dollar further and driving gold lower. The risk is that the ECB is already priced into the equation, news as expected may result in a weakening dollar.

The gold miners sold off on today's dip in gold prices, the miners ETF GDX losing about -5.0%. Today's move is a break of the flag formation I pointed out over the past week, counter to the prevailing trend, and looks like a major test of support is at hand. The indicators have both rolled over into bearish signals so this move may continue to test support over the next few days to a week, up to and until the FOMC meeting. Support levels are just below today's close, near the short term moving average at $28 and then below that near $26. The ETF may be in reversal but it is too early to tell, based on the 6 month trend and convergences in the indicators I expect to see it at least retest recent highs.

In The News, Story Stocks and Earnings

Today was all about earnings. There were less than a hundred reports today but the ratio of important companies was high. Microsoft, reporting after the bell yesterday, was up more than 6%. Strength in the cloud and better than expected results in PC's driving results. A year over year decline in revenue was shrugged off in favor of forward outlook and expected success in the company's shift to cloud services. Margins are also expected to have bottomed, helping to firm future expectations. Today's move higher was halted just below the 16 year high near $56.85.

Morgan Stanley reported before the bell. The investment bank reported a year over year decline in revenue and earnings but, but not as bad as expected. Revenue declined by just over -8%, earnings by -11% although EPS beat expectations by 25%. Along with the results the bank upped the dividend by 33% and announced a share buy back plan worth $3.5 billion over the course of the next year. CEO James Gorman says the business environment is improved but fragile. Shares of the stock jumped more than 3% in the pre-opening session to trade at a 6 month high, gapped up at the open but gave up about half those gains by the close.

Abbot Labs also reported before the bell. The company reported a 3.2% increase in global sales and earnings above expectations. Adjusted EPS of $0.55 beat by 2 cents and led the company to reaffirm full year guidance near the mid-point of analysts targets. According to CEO Miles D. White “it was a good quarter”. Several FDA approvals and the acquisition of St. Jude are setting the company up for future growth. Shares of the stock jumped 2.5% in today's session but have yet to close a window opened with the previous earnings report.

After hours action was heavy as earnings from Intel, American Express and many others hit the market. Intel was the first to report, EPS of $0.59 beat estimates by $0.06 but revenue fell short. The company was able to raise guidance but outlook still falls short of estimates. Shares of the stock fell more than -3% after the news was released . American Express beat on the top and bottom lines. EPS of $2.05 beat by $0.15, net income up 27%, on revenue flat from last year. Shares of the stock rose 6% on the news. Ebay reported a beat as well, sending the stock up by 10% in the after hours session.

The Indices

The indices moved higher today, driven by earnings, but the move was not overly strong. Volume remains light, price action reserved. Today's leader was the NASDAQ Composite with a gain just over 1.1%. The tech heavy index was boosted by Microsoft and likely to move higher in tomorrow's session if the after hours reports from Qualcom and Ebay can be used as a frame of reference. Today's candle is long and white but not overly strong, setting a new 7 month and 2016 high and coming within 1.5% of the all-time high. The indicators are bullish so a continuation of the rally looks likely, with a test to long term support at the all-time high. A break above that level is questionable but not impossible. MACD momentum has fallen off a bit over the past week and stochastic is high in the overbought range, suggesting resistance is near but not guaranteeing a reversal.

The S&P 500 made the next largest gain today, about 0.5%. The broad market created a medium sized white bodied candle, moving up from a brief consolidation, and set a new all-time high. The index looks set to move higher although the indicators are weakening. Bullish MACD momentum is declining and stochastic is showing overbought, a combination that could lead to correction or reversal. Until then upside target is near 2,200.

The third biggest gainer in today's session was the Dow Jones Industrial Average. The blue chips gained a little more than 0.25% in a move that created a small spinning top candle. Today's move may lead to further upside but there is weakness present. Aside from the frothy look to today's candle the indicators suggest the market is overbought and losing momentum. Upside targets exist near 18,750 and 19,000.

The Dow Jones Transportation Average made the smallest move today and was the only index to close with a loss. The transports fell about 0.05%, after an initial move higher, to create a small spinning top type doji candle just beneath resistance. This index remains the laggard, below potentially strong resistance and well below the all time high. The indicators are consistent with resistance within an uptrend and may be signaling a correction or reversal at hand. A break above resistance, near 8,000, would be bullish and could take it up to 8,250 or higher. A failure to break resistance could result in a pull back to the 7,500 level in the near term.

The indices moved higher today, supported by earnings, and will likely continue to move higher tomorrow. Risks for tomorrow include earnings, but also the ECB and the data. So long as the bank appears willing to support the EU economy, the US data remains steady and the earnings surprises are more positive than not the rally is likely to move higher into the near term.

The rally appears to have legs,the question now is how much leg and how high will it take us. I am still concerned about declining 3rd quarter earnings growth, if that trend continues the rally will likely fizzle out fairly soon. If forward outlook for earnings growth begins to improve we could see the market enter another sustained bull market.

Until then, remember the trend!

Thomas Hughes

New Plays


by Jim Brown

Click here to email Jim Brown
Editor's Note

This may be one of the most hated stores in the retail sector but the future is improving. I picked ANF for a position because of the coming back to school season where teenagers drag mom to the mall. They do not shop on Amazon. They want to try on everything in the store and only pick the ones that are perfect for their "look."


ANF - Abercrombie & Fitch - Company Profile

Abercrombie & Fitch Co. operates as a specialty retailer of casual apparel. The company sells knit and woven shirts, graphic T-shirts, fleece, jeans and woven pants, shorts, sweaters, and outerwear; personal care products; and accessories for men, women, and kids under the Abercrombie & Fitch, Abercrombie kids, and Hollister brand names. As of March 2, 2016, it operated through 754 stores in the United States; and 178 stores in Canada, Europe, Asia, and the Middle East. The company sells its products through its stores and direct-to-consumer sales.

Abercrombie has been pounded from the highs at $33 back in March after some disappointing earnings and weak outlook for the retail sector. Since then they have cleaned up their inventory levels and dumped a ton of bad product choices. Now they are heading into their heavy selling season and ready to go head to head with other stores.

The company has been in a restructuring period for over a year where they remodeled stores, dumped inventory and closed unprofitable locations. The drop from $33 to $16 took all the fluff out of the stock price and shares are moving higher today. They closed at a 2-month high on Wednesday.

If the market begins to roll over, these previously oversold stocks will look like a safe haven for investors looking for a bargain. This is Abercrombie's biggest selling season so sentiment should remain positive through Labor Day.

Earnings August 25th.

With a ANF trade at $20.10

Buy ANF shares, initial stop loss $18.85.

No options recommended.


No New Bearish Plays

In Play Updates and Reviews

New Highs

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Dow and S&P closed at new highs but the Russell 2000 remains trapped in a range for the last seven days. Today was a good effort on the part of the market but the indexes closed off their highs. They still posted gains and the Dow and S&P did close at a record high.

Small low volume moves are fine as long as they continue. Let's hope this trend continues but we are heading into the two weakest months of the year in Aug/Sep. Once the core earnings are over at the end of next week we could be looking at a different market.

Current Portfolio

Current Position Changes

EXAS - Exact Sciences
The long position in EXAS was stopped at $12.50.

JKS - Jinko Solar
The short position in JKS shares was stopped at $19.05.

QURE - Uniqure
The short position in QURE shares remains unopened until $7.00.

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. Struggling with resistance at $11.85 but still managed a 3% gain.

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 finally rolled over and hit the tight stop loss at $12.50 to take us out ahead of earnings next week. We squeezed every penny out of the 4-week run.

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:

Closed 7/20/16: Long EXAS shares @ $11.50, exit $12.50, +$1.00 gain.

FLXN - Flexion Therapeutics - Company Profile


No specific news. Shares up 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 closed back over the $20 level and eventually it should move higher.

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


Elon Musk is expected to release his new master plan for Tesla Energy tonight. Recent comments claim he will lay out his entire plan for SolarCity and why the acquisition is so important. Musk said he had spoken with the largest investors in SolarCity and he expects a "super majority" to support the acquisition.

I expect 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 said it banned Milo Yiannopoulos for life because of abusive comments on the social media platform. He recently attacked Leslie Jones, star of Ghostbusters 2, and caused her to quit Twitter. The company said it was going to crackdown on cyber bullying.

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 rebounded 4% to hit the lowered stop loss at $19.05. This is two major rebounds in three days.

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

Closed 7/20/16: Short JKS shares @ $19.35, exit $19.05, +.30 gain.

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

QURE - UniQure - Company Profile


No specific news. QURE dipped to $7.05 but failed to hit our entry trigger at $7.

Original Trade Description: July 19th.

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.

VXX - Ipath VIX Short Term Futues ETN - ETN Profile


The VXX closed at 11.15and 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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