Option Investor

Daily Newsletter, Monday, 8/15/2016

Table of Contents

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

Market Wrap

Melting Up To New Highs

by Thomas Hughes

Click here to email Thomas Hughes


The summer melt-up continued today, pushing the NASDAQ to new all time highs. Today's trading was lifted by hopes for earnings in the retail sector and rebounding oil prices despite lackluster economic data.

The earnings season is almost over, a little more than 90% of the S&P 500 has reported, but there are still some important names left on the list. This week the retail sector comes into focus with more than a dozen important names on the list including home improvement retailers Lowe's and Home Depot and discount merchandiser's Wal Mart and Target. Last week retail sales figures were weaker than expected, this week started off with a decline in manufacturing data and only mild growth in the housing sector and do not point to robust earnings.

International markets were generally positive although strength was spotty. In Asia weak Japanese GDP dominated the news, driving the Nikkei down by only -0.30%. Japanese GDP grew at only a 0.2% rate in the 2nd quarter, below forecast and suggest that recent stimulus efforts may not be enough. The mainland Chinese markets were today's leader, gaining nearly 2.5% on expectations the Shenzen-Hong Kong Connect stock exchange would open later this year. European indices were mostly positive at the end of their trading day, if barely so. The UK's FTSE 100 led with gains near 0.35% driven by rising oil prices and apparent stability in the post-Brexit era.

Market Statistics

Futures trading indicated a positive open all morning although gains were tempered by economic data going into the opening bell. The indices opened with small gains, about 2 points for the S&P 500, and were then able to drift higher the rest of the morning. By 12:30 they had made the 4th of 4 morning intraday highs and begun to move sideways. Sideways action persisted the remainder of the day keeping the indices in positive territory and within small daily trading ranges.

Economic Calendar

The Economy

Early data, released at 8:30AM, was not good. The Empire State Manufacturing Survey fell -5 points to -4.2, reversing gains made last month and plunging the New York area manufacturing sector back into contraction. Despite the drop the news was not all bad. New orders and labor both held near 0, prices paid fell and shipments jumped 8 points to 9.0. Also, forward outlook remains positive although it has declined the past two months.

The National Association Of Home Builders released their monthly survey of home builder sentiment at 10AM. This month's read shows a 2 point gain over last month after a -1 point revision which leaves the index at 60. This shows a slight pick-up in activity from last month but is flat and near the low end of the range when looking back over the past year or more. Within the report present conditions improved 2 points to 65, the 6 month outlook improved 1 point to 67 and traffic fell -1 point to 44. A spokesperson for the NAHB said that a shortage of homes and regulatory hurdles were affecting the market.

Moody's Survey Of Business Confidence jumped 1.3 points since last week and is sitting at a 2 month high of 26.9. Mr. Zandi says that global business sentiment has bounced back in the last two weeks and seems to have weathered the recent round of geopolitical events.

Tomorrow CPI data is due. Expectations are for consumer level inflation to remain flat and unchanged from last month; hotter than expected will lead to increased rate hike expectations, cooler than expected keeps rate hikes off the table until maybe mid to late next year. Tuesday is also housing starts and building permits, as well as industrial production and capacity utilization. Wednesday is dominated by FOMC minutes. Thursday rounds out the week with jobless claims, leading indicators and Philly Fed.

According to Factset 91% of the S&P 500 has reported earnings so far this cycle. Of those 70% have beaten EPS estimates while only 54% have beaten revenue estimates. The blended rate for earnings growth in the 2nd quarter now stands at -3.5%, better than expected at the start of the reporting cycle but not as much as historical trends suggest we could expect. Based on the four year average the final rate of earnings growth could improve as much as 4% by the end of the cycle which would put the 2nd quarter near -1.5%.

While the market is moving higher, earnings outlook continues to fall. Estimates are falling across the board but the energy sector is still the leader in terms of declines. The sector is expected to post a decline of -62.5% in the third quarter, worse than the -52.6% predicted two months ago when oil prices were holding near $50. Outlook for the entire index has fallen deeper into negative territory for the 3rd quarter, to -2.0%, while 4th quarter estimates fell to 5.5%. Full year 2016 earnings growth estimates have also turned negative and are now -0.4% and likely to fall further over the next week. Full year 2017 remains strong but has also fallen, shedding 0.3% to hit 13.2%.

The Dollar Index

The Dollar Index is struggling with direction. Economic data and the FOMC are giving mixed signals; job data and FOMC intentions seem to indicate a rate hike is near, inflation data and FOMC actions just the opposite. The CME's Fed Watch Tool shows only about a 13% chance of a rate hike at the next two meetings, and only a 45% chance at the December meeting, and yet expectation of a rate hike this year persist. Tomorrow's CPI could alter this outlook, hotter than expected will surely lead to increased rate hike expectations.

Today the Dollar Index held a fairly flat range, creating a small doji candle, near the mid-point of the two month trading range. It is sitting just below the short and long term moving averages, resistance, but also at potential support, near $95.50-$96.00. Coincidentially, near term support is also the lower boundary of the 6 week trading range. The indicators are a bit mixed, momentum is bearish but support is indicated, so nothing definitive there that I see. If support holds a move higher has a target near the upper end of the range, between $96.50 and $97.50, first target to the downside if support fails is near $95 with a chance of moving lower. In the end it will come down to the FOMC minutes on Wednesday, and possibly CPI data tomorrow. Weak CPI and/or FOMC rate hike outlook could weaken the dollar further and send it back to retest the longer term lows near $93.

The Oil Index

Oil prices moved higher today despite lingering oversupply issues. The Russians and Saudis are one reason, a Russian oil minister telling Saudi press that the two countries were in talks over a way to stabilize oil prices. It could be something to keep an eye on but also likely to result in nothing just like it did earlier this year. Another reason is report of a large drawdown at the Cushing supply depot. WTI gained more than 2.5% to trade above $45.50 and has gained more than 10% in the last 3 sessions. Support for oil is apparent and may drive prices higher but with the past week's gains profit taking is certainly a possibility as well. Most obvious target is $50 but resistance may set in as low as $47.50 if supply issues outweigh optimism.

The energy sector was able to move higher today but remains range bound. Long term outlook for earnings growth, 2017 full year is over 200%, is providing support while nearer term earnings growth is providing resistance. The Oil Index gained about 0.45% in today's session, moving up within its range with the chance of gaining another 2.75% before meeting resistance. Resistance target is near 1,175 and likely to hold provided oil prices do not rise above $50.

The Gold Index

Gold prices held flat as traders eye the FOMC minutes and economic data for cues on rate hikes. The spot price held near $1,345 and near the middle of the 6 week range. This range has been in place since the last FOMC meeting and may hold until the next if the minutes and/or data don't break prices free of it. A dovish Fed and weaker dollar could send gold back to the top of the range, near $1,375. A hawkish Fed could strengthen the dollar and send gold prices down to test support near $1,300.

The gold miners are trading near recently set highs but the up trend is showing some signs of weakness. The miners ETF GDX fell -0.75% in today's session, not much but enough to bring it below a long term resistance level. Additional sign of weakness is in the indicators which are both showing divergence from the rally in the short term and bearish crossovers in the near. These signals may merely be a sign of pause within the rally but with the FOMC minutes and CPI data due out could easily lead to deep correction. First target for support should it continue to fall is near the short term moving average, near $30, with next target near $27.50 should first target fail. If first support is confirmed a move higher may follow, if supported by FOMC/dollar/gold outlook, with upside target near $34.

In The News, Story Stocks and Earnings

With the retail sector on tap this week it is appropriate to take a look at the Retail Sector SPDR, XRT. This ETF is a cross section of the retail sector, many components of which will be reporting earnings this week. The ETF has been bouncing higher from a moving average crossover all month. Today it continued this bounce, gaining near a full percent to set a new intraday 5 month high. The indicators are confirming this move, both making bullish crossovers in recent days, so it looks like it could go higher. If the ETF is able to break to new highs next upside target is near $47.50.

Foodservice supply giant Sysco reported earnings before the bell. The company reported EPS above estimates on revenue that fell slightly short, sending shares up nearly 4% in the pre-opening session. Results were driven by strong year over increases in sales, operating income and profits. Shares of the stock opened at a new all time high but sold off during the day, closing with a small loss on high volume. Even so, shares of Sysco remain near all time highs set since the deal to buy US Foods fell apart.

Home Depot reports tomorrow. The home improvement company is expected to post comparable store sales increases of 4.8% and earnings in excess of the consensus due to regional strength in housing markets in which Home Depot has a concentration of stores. Today the stock gained about a half percent while trading within a recent consolidation band. This band is just below the all time high with support near $135. If earnings push share prices below support next downside target is near $130.

The Indices

The indices moved higher today but were not able to close at the highs of the day. Today's leader, and the only index to not set a new all time high, was the Dow Jones Transportation Average. The Transports gained about 0.65% and created a small bodied candle despite being today's leader. Today's candle not only is small bodied, it has a long upper shadow indicative of resistance and warning of potential pull back to support. Support is near 7,750, just below today's close, along the short term moving average. The indicators are mixed, consistent with the 6 month trading range, and do not suggest strength in recent price action.

The NASDAQ Composite comes in a close second with a gain near 0.56%. The tech heavy index did however make a new all time high today although price action was not very strong. Today's candle is a smallish white bodied candle without much meaning in and of itself. Today's action moved up from the previous all time high, set during the tech bubble, and confirms to some extent support near the 5,225 level. The indicators are bullish but showing a growing divergence with price that indicates a growing weakness in the rally, if not an impending correction. While caution is due, the rally is moving higher with next upside target near 5,400.

The Dow Jones Industrial Average made the third largest gain, about 0.32%. The blue chips created a small bodied candle with visible upper shadow while setting another new all time high. Today's action could lead to additional upside for the index but glaring divergence in the indicators give reason for caution. Upside target should the index continue to drift higher is near 19,000. If the index decides to pull back and test for support first target is near the short term moving average and then just below that near 18,250.

The S&P 500 brings up the rear in today's session, posting a gain of only 0.28%. The broad market is drifting higher along with the other indices and like them, is also showing warning signs of weakness. Divergence in both the MACD and stochastic show underlying weakness in the market that can lead to significant correction in the right conditions. Currently, the market is rising on low volume and extended far beyond the moving averages. First target for support is near the short term moving average, about 1.5% below today's close, longer term target is near the 150 day moving average which is about 5% below today's close.

The market is moving higher and you can't argue about that, 3 of the 4 major indices set all time closing highs today. What you can argue about is whether the market should be moving higher, and I still don't think it should be. The reasons are twofold; economic data has yet to show strength in recovery and earnings growth has yet to return to the market. These two factors are the drivers of market value and are as yet absent from this rally. Until they return any move higher runs the risk of moving to far and over extending itself. The further it runs only increases the chances of correction, and the possible depth of that correction once it occurs. I may be over cautious, but protecting capital is never a bad idea.

There are several possible catalysts this week. Tomorrow CPI data will play into FOMC outlook, and how the FOMC minutes will be interpreted when they are released on Wednesday. Retail earnings will also play a role, they could be better than expected but likely not good enough to significantly impact forward outlook in a positive manner. I remain cautious in the near term, the indices still look ripe for profit taking, but following my own advice and trading with the trend.

Until then, remember the trend!

Thomas Hughes

PS. the new momma and baby Parker Mary Hughes are doing fine.

New Plays

Network Security

by Jim Brown

Click here to email Jim Brown
Editor's Note

NetScout is a market leader in service assurance and cybersecurity solutions. Many companies just block threats but NetScout tells you if your network is healthy and blocks threats.


NTCT - NetScout - Company Profile

NetScout Systems, Inc. provides real-time operational intelligence and performance analytics for service assurance, and cyber security solutions internationally. The company offers nGeniusONE management software that enables customers to predict, preempt, and resolve network and service delivery problems, as well as facilitate the optimization and capacity planning of their network infrastructures; and specialized platforms and analytic modules that enable its customers to analyze and troubleshoot traffic in radio access and Wi-Fi networks. It also provides Intelligent Data Sources under the Infinistream brand name that provide real-time collection and analysis of data from the network. In addition, the company offers portable network analysis and troubleshooting tools to identify key issues that impact network and application performance. Further, it provides security solutions that enable service providers and enterprises to protect their networks against DDoS attacks; and threat detection solutions that enable enterprises to identify and investigate advanced threat campaigns that present tangible risks to the integrity of their networks.

In late July NetScout reported adjusted earnings of 28 cents that beat estimates for 25 cents. Revenue od $278 million beat estimates for $275 million. They guided for full year earnings of $1.87-$2.12, up from $1.85-$2.10 with revenue of $1.20-$1.25 billion.

NetScout provides their services to the enterprise and service providers. Their products enable network monitoring to maintain continuous uptime and network availability while isolating bottlenecks and intrusions. Their network visibility switches were ranked number one in market share by IHS Network Monitoring.

They posted record attendance at the company's Engage 16 user conference in May. They released version 2.1 of their advanced security solution, Spectrum. They have a new range of products to be released in the coming months that will boost full year revenue for 2017.

Earnings Oct 27th.

Shares spiked on earnings in late July and then experienced the mandatory post earnings depression phase where they consolidated for two-weeks. On Monday they broke over resistance and closed at a 8-month high.

With a NTCT trade at $28.85

Buy NTCT shares, currently $28.62, initial stop loss $27.10

No options recommended.


No New Bearish Plays

In Play Updates and Reviews

Houston, We Have Lift Off

by Jim Brown

Click here to email Jim Brown

Editors Note:

Today's gains on the Russell 2000 and Nasdaq, changed the prior trend. The Russell gained +12 points of +1% and the Nasdaq gained +29 to put it well into new high territory and no longer within the gravity well of the prior consolidation pattern. This appears to be a real breakout.

However, the Dow only gained +59 and closed 32 points below the intraday high and only 23 points over its prior high. I am encouraged by the sudden burst of speed in the Nasdaq and Russell. This could be the move we have been looking for but there were headline issues. The Shanghai Composite gained 2.4% on expectations for more China stimulus. This caused the big opening gap in the U.S. markets and the gains were not on U.S. news or bullish enthusiasm. This was another short squeeze but hopefully it will stick.

Current Portfolio

Current Position Changes

FDC - First Data
The long position remains unopened until $13.50. High today was $13.41

VSI - Vitamin Shoppe
The short position remains unopened until $26.50. Low today was $26.90

UIS - Unisys
The long position was entered at $10.65.

CDNS - Cadence Design
The long share position was stopped out at $24.45.

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

CDNS - Cadence Design System - Company Profile


No specific news. There was a bad tick at the open where somebody sold 17,000 shares at $1 under the market. Normally I would not take the exit on a bad tick but it lasted for about 5 seconds and multiple lots were traded at just over $24. Those were probably stop losses getting hit from the actual bad tick at the opening bell.

The long $25 call did not have a stop loss and will move to the Lottery Play section for next weekend.

Original Trade Description: August 3rd.

Cadence Design Systems, Inc. develops, sells, leases, and licenses electronic design automation (EDA) software, emulation and prototyping hardware, verification intellectual property (VIP), and design intellectual property (IP) for semiconductor and electronics systems industries worldwide. It offers functional verification products, including logic verification software that enables customers to coordinate verification activities across multiple teams and various specialists for verification planning and closure; and system design and verification products for hardware-software verification, as well as for system power exploration, analysis, and optimization. The company also provides digital integrated circuit (IC) design products, such as logic design products for chip planning, design, verification, and test technologies and services; physical implementation tools, including place and route, signal integrity, optimization, and double patterning preparation; and signoff products to signoff the design as ready for manufacture by a silicon foundry, as well as design for manufacturing products for use in the product development process.

Basically, Cadence is a software company that specializes in software to design chips and validate designs. They reported earnings of 29 cents compared to estimates for 28 cents. Revenue of $453 million beat estimates for $449.7 million. They guided for Q3 for revenue of $440-$450 million and earnings of 27-29 cents. Unfortunately, that was slightly lower than the $457 million and 31 cents analysts expected. They guided for the full year for revenue of $1.8 - $1.83 billion and earnings of $1.17 to $1.23. Analysts were expecting $1.824 billion and $1.21 per share.

The stock was knocked back from $26 to $24 after a strong run since January. Shares have stabilized at $24 and I expect their prior trend to continue. The guidance was conservative and analysts always over estimate.

Earnings Oct 25th.

Position 8/4/16 with a CDNS trade at $24.35

Exit 8/15/16: Long CDNS shares @ $24.35, exit $24.45, +.10 gain

Still open: Long Sept $25 call @ 35 cents, no stop loss.

FDC - First Data - Company Profile


The CEO said in an interview he could see FDC partnering with Square. The stock did not know how to react.

This position remains unopened until FDC trades at $13.50. The high today was $13.36.

Original Trade Description: August 10th.

First Data provides electronic ecommerce solutions for merchants, financial institutions and card issuers worldwide. The operate in three segments including global business solutions, global financial solutions and network & security solutions. This includes retail point of sale solutions, mobile ecommerce solutions and webstore solutions. They currently process 2,500 financial transactions a second across 118 countries.

First Data was taken private in 2007 for $26 billion by KKR. This debt ended up on the company's books and weighed them down for the last ten years. KKR helped them land a $3.5 billion private placement in 2013. That helped to reduce some of the high interest debt. KKR took them public again in 2015 and raised about $2.8 billion. That was the largest IPO of 2015. The company is still fighting the debt problem with $480 million in interest payments in the first half of 2016. Earlier this year we tried to short FDC because they were strangling under this debt. The situation appears to be improving.

In Q2 they reported adjusted earnings of 35 cents that beat estimates for 34 cents. It also beat the $26 million loss they took in the year ago quarter. Revenue rose 1.9% to $2.93 billion. Revenue in the global financial solutions division rose 12% to $395 million. This is their growth engine. They reduced their net debt by $300 million in the quarter.

Earnings Oct 26th.

Shares spiked from $12 to $13 after earnings and they are about to break over long-term resistance at $13.35. The weakness and volatility from the first six months of 2016 may be coming to an end. If FDC can move over that $13.35 level the next target would be around $16.50.

With a FDC trade at $13.50

Buy FDC shares, initial stop loss $12.65

Optional: Buy Oct $14 call, currently .55, no stop loss.

RDN - Radian Group - Company Profile


No specific news but shares extended their gains over $13.

Original Trade Description: July 30th.

Radian Group Inc. provides mortgage and real estate products and services in the United States. It operates through two segments, Mortgage Insurance, and Mortgage and Real Estate Services. The Mortgage Insurance segment provides credit-related insurance coverage, principally through private mortgage insurance that protects mortgage lenders from all or a portion of default-related losses on residential mortgage loans made to home buyers, as well as facilitates the sale of these mortgage loans in the secondary mortgage market. It offers primary mortgage insurance coverage on residential first-lien mortgage loans. This segment primarily serves mortgage bankers, mortgage brokers, commercial banks, savings institutions, credit unions, and community banks. The Services segment provides outsourced services, information-based analytics, and specialty consulting services for buyers and sellers of, and investors in, mortgage- and real estate-related loans and securities, and other asset-backed securities. This segment offers loan review and due diligence, monitoring of mortgage servicer and loan performance, valuation and component services, real estate owned asset management services, and outsourced mortgage services. Radian Group Inc. was founded in 1977.

With the new credit rules borrowers have to have more money down and a higher credit score to qualify for a home loan. Even then there is sometimes the requirement for credit insurance to allow the loan to be sold in the secondary market. Radian provides the insurance and does the due diligence required to write the insurance profitability. They continue to monitor the mortgage servicers to prevent the loans from going to deep into default by being proactive.

In their recent quarter they reported earnings of 38 cents that missed estimates for 40 cents. However, shares went up because of the positive guidance. They are writing more insurance on better credits. They wrote insurance on $12.9 billion in loans, a 60% increase from the $8.1 billion in Q1. Of the loans written 57% of the borrowers have FICO scores over 740 compared to 26% in 2007. Only 7% of loans underwritten had loan to value greater than 95% compared to 24% in 2007. Some 86% of insurance in force is on new loans written after 2008. Because of the higher scores and the smaller loan to value on most loans they were able to reduce their loan loss reserves from $1.204 billion to $848 million.

They are paying off debt and redeemed a $325 million note. They had $718 million in liquidity at the end of the quarter. They authorized another $125 million share repurchase and the board authorized the early redemption of $196 million in senior notes due in 2017. In Q2 they also bought back $12.4 million of convertible notes due in 2019.

Earnings Oct 27th.

Despite the minor earnings miss the company appears to be doing everything right. Shares have risen for two consecutive days after their earnings. Resistance is $13 and they closed at $12.90 on Friday. If they break over that resistance the gains could accelerate.

With a RDN trade at $13.15

Buy RDN shares, initial stop loss $11.85.


Buy Sept $14 call, currently .20, no stop loss.

TWTR - Twitter - Company Profile


Twitter spiked 7% higher after news broke that they were in discussions with Apple about putting the app on the Apple TV platform. Volume surged to 58.8 million shares and nearly 3 times normal of 22 million in July. Option volume was through the roof with more than 200,000 call contracts traded. That was up from 44,000 daily in July and 95,000 a day last week.

Original Trade Description: - August 1st.

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 8/1/16:

Long TWTR shares @ $16.64, see portfolio graphic for stop loss.

Previously closed 7/28/16: Long TWTR shares @ $17.24, exit $15.89, -1.35 loss.
Previously closed 8/1/16: Long Aug $17 put @ 62 cents, exit .85, +.23 gain.

UIS - Unisys Corp - Company Profile


No specific news. Minor gain but a new 5-month high.

Original Trade Description: August 13th.

Unisys Corporation provides information technology services worldwide. It operates through two segments, Services and Technology. The Services segment provides cloud and infrastructure services, application services, and business process outsourcing services. The Technology segment designs and develops software, servers, and related products. It offers a range of data center, infrastructure management, and cloud computing offerings for clients to virtualize and automate data-center environments. This segment's product offerings include enterprise-class servers, such as the ClearPath Forward family of fabric servers; the Unisys Stealth family of security software; and operating system software and middleware. The company serves commercial, financial services, public sector, and the U.S. federal government through direct sales force, distributors, resellers, and alliance partners. Unisys Corporation was founded in 1886.

Unisys reported Q2 adjusted earnings of 81 cents compared to estimates for 25 cents. Those earnings more than doubled from the 36 cents in Q2-2015. Revenue of $748.9 million easily beat estimates for $688.1 million. Profit margins rose from -6.5% in Q2-2015 to +6.6%. They reaffirmed full year guidance for earnings, revenue, margins and free cash flow. They ended the quarter with an order backlog of $3.8 billion.

Technology revenue rose 30.7% and accounted for 18% of overall revenue. This is going to be a major profit center in future quarters. Profit margins in this unit rose 48%, up from 15.6% in the year ago quarter. Sales of the ClearPath software are soaring.

The Unisys Stealth security product was approved by the NSA for use in classified programs and making the product eligible for use by more than 20 countries to protect super sensitive systems and information.

On Thursday, Unisys won a government contract to move the Treasury Departments Comptroller of the Currency office to the cloud. This will affect more than 4,000 Treasury employees. Earlier in the year Unisys moved the U.S. Dept of the Interior and its SAP-based financial management system to the cloud.

This company is at the right place at the right time with the right security products and the NSA approval opens a tremendous business opportunity in those 20 countries.

Earnings Oct 25th.

Shares spiked to $10.40 on the earnings news and then traded sideways for two weeks. Over the last several days the trend has turned positive and it closed at $10.55 on Friday and a 5-month high.

Position 8/15/16 with a UIS trade at $10.65

Long UIS shares @ $10.65, see portfolio graphic for stop loss.

BEARISH Play Updates

VSI - Vitamin Shoppe - Company Profile


Big move higher on no news. If it moes up again on Tuesday I will cancel this recommendation.

This position remains unopened until VSI trades at $26.50. The low today was $26.90.

Original Trade Description: August 8th.

Vitamin Shoppe, Inc. operates as a multi-channel specialty retailer and contract manufacturer of nutritional products in the United States. It operates through three segments: Retail, Direct, and Manufacturing. The company provides custom manufacturing and private labeling services for VMS products, as well as develops and markets own branded products. It offers vitamins, minerals, herbs, specialty supplements, sports nutrition, and other health and wellness products of approximately 800 brands. The company sells its products through Vitamin Shoppe, Super Supplements, and Vitapath retail stores; and catalogs, as well as through its vitaminshoppe.com Website. As of March 1, 2016, it had approximately 700 company-operated retail stores.

The company reported Q2 earnings of 55 cents that missed estimates for 59 cents. Revenue of $332.7 million narrowly beat estimates for $331.6 million. The CEO warned, "The external environment was more promotional and volatile than we had anticipated and we responded by increasing our promotional activity. As a result, our performance for the quarter was mixed, with improved comps offset by lower margins. The positive comps in the quarter reflect the benefits of some of our new initiatives as well as stepped up promotional activity. In addition, our manufacturing business is performing below expectations with lower sales and margins, which also contributed to our overall weaker performance in the quarter." I was not a glowing report. He also said, "Given the current operating environment with variability from day to day, we have put in place a dedicated effort behind more aggressive cost controls and margin realization. Our goal will be to achieve the appropriate balance between revenue growth and profitability." That is a good example of a CEO trying to put a positive spin on a negative environment. Shares declined after his comments.

Earnings Nov 2nd.

I am a vitamin junkie. I cringe every time I have to buy a bottle of something that costs $50 to $75 and I am sure the normal consumer is also suffering from sticker shock when they see those prices. Obviously, you can buy the generic chemical equivalents for a lot less but if you are trying to buy the best quality formulations, it is expensive. Add in all the competition from the multilevels like Thrive and the vitamin boosted meal replacements from brands like Vega and the consumer has so many choices they can't make up their minds. All the chain stores like Kroger, Whole Foods, etc, are now carrying complete inventories from multiple competitive brands at discounted prices. This gets back to the "promotional environment" the CEO was talking about.

Since the earnings drop on July 28th shares have declined $5 and are currently struggling to hold support at $27.50 that dates back to May. A breakdown there targets $26.25 and the 52-week lows. If VSI does make a new low, I think we could see a significant drop. Vitamin Cottage (NGVC) is already at $12 and dropping after hitting highs over $40 at the same time VSI was hitting $65.

With a VSI trade at $26.50

Short VSI shares @ $26.50, initial stop loss $27.40.

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