Option Investor

Daily Newsletter, Thursday, 8/18/2016

Table of Contents

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

Market Wrap

A Market Adrift

by Thomas Hughes

Click here to email Thomas Hughes


The market made small gains but nothing substantial, FOMC outlook fails to move the market ahead of OPEX. Yesterday's Fed meeting minutes were a bit on the dovish side but with all their transparency it's hard to know what they really think. The committee spokesperson and chairman Janet Yellen says they aren't in a hurry but comments from other members seem to be at odds with this sentiment. Not to name names but there are Fed members who think a hike could next month, and others who say there won't be more than one in the next 2 years. In terms of the market, it seems as if it is tired of the overly transparent FOMC and is waiting for, as Toby Keith says, "A little less talk and a lot more action". Until then focus could turn to economic data and earnings.

Today's data was positive but in more of a forward looking sense than in a things are great right now kind of way. Retail earnings are rolling in and mixed, as expected. Where one company misses on estimates and lowers guidance, another has beaten and raised guidance. The big name on the roster today was Wal-Mart, falling into the latter category and providing most of, if not of all of, today's support for the Dow Jones Industrial Average.

The international markets were mixed following the FOMC meeting. Confusion abounds and is not helping already shaky markets. In Asia most indices were flattish although the Japanese Nikkei saw losses in the range of -1.5%. Dovish FOMC stance has sent the yen shooting higher versus the dollar, which in turn has taken its toll on local stocks. At the same time Japanese trade data was weaker than expected raising additional concern that Abenomics is not working as expected. European indices were mostly higher at the end of their trading day although gains were minimal and driven primarily by rising oil prices.

Market Statistics

Our markets were fairly quiet in the early pre-opening hours. Futures trading indicated flat to negative opens for most of the morning, with that turning to mostly flat following the 8:30AM release of economic data. The open was a bit weak with the indices opening just barely in negative territory. The first hour was choppy with trading hovering around break even level until about 10:30AM when a small rally was able to push the market up to an intraday high. That high held prices back the rest of the day. It was tested once about a half hour after it was set, and then again later in the day after several hours of market sidewinding near break even level. The last hour of trading saw more side-winding before the market made a final surge higher to leave the indices at or near the highs of the day. Regardless, today's trading ranges were very narrow and gains were small.

Economic Calendar

The Economy

Weekly jobless claims are top of the list today. Initial jobless claims fell -4,000 from a not-revised figure to hit 262,000. This is the 76th week of claims below 300,000, the longest run since 1970. The four week moving average of initial claims rose 2,500 to hit 265,000. On a not adjusted basis claims fell -5.2%, more than -3.7% predicted by the seasonal factors. On a year over year basis not adjusted claims are down -4.2%. The largest increases in claims were in Philadelphia and Puerto Rico, +2359 and +1621, while the largest decreases were in Michigan and Kentucky, -2186 and -536. All in all, initial claims continues to trend near the long term low, consistent with labor market health.

Continuing claims gained 15,000 on top of an upward revision of 5,000 to hit 2.175 million. This is the highest level of 2nd week claims in over 2 months but remains low relative to the recovery and trending near the long term low. The four wee moving average of continuing claims gained 10,750 to hit 2.155 million.

The total number of jobless claims rose slightly this week but appears to have crested the July peak predicted by seasonal/historical trends. The total number of claims rose by 3,876 to hit 2.148 million, down -4.7% from this same time last year. Even with the rise claims remain in down trend and constent with labor market health. If historical trends remain intact we can expect to see this number begin to decline in the next 2 to 3 weeks, as much as -20%, and possibly hit a new long term low near 1.72 million.

The Philadelphia Federal Reserve Manufacturing Business Outlook Survey rose to positive territory for the 3rd time this year and more than expected. However positive, the internals are not that great. The diffusion index gained 5 points to hit 2 while internally new orders, unfilled orders, delivery time, inventory and employment all fell. New orders fell -19 points to -7.2, unfilled orders fell to -15, inventories fell nearly 10 points to -4.3 and employment fell -18 to -20. The only current index to rise was shipments which gained 2.1 to hit 8.4. Looking forward things are more positive. The future 6 month outlook rose 12 points to 45.8, the highest level in over 18 months.

The Leading Economic Indicators was released at 10AM and came in as expected. The index shows a 0.4% gain in July following a 0.3% gain in June and indicates moderate growth into the end of the year. Conference Board spokesman said there is also a chance for increased growth later this year if current conditions remains unchanged. The Coincident Indicator rose 0.4%, the Lagging Indicator rose 0.1%.

The economic calendar is light over the next week. Tomorrow we'll get nothing, next week New and Existing Home Sales, Durable Goods and the first revision of 2nd quarter GDP along with the weekly jobless claims. While important, nothing here is likely to be big mover of the markets.

The Dollar Index

The Dollar Index fell to a new 7 week low today, despite the upbeat data. Yesterday's FOMC minutes helped soothe rate hike fears and support evaporated. There are few economic reports and no central bank meetings (although there are likely to be random comments from FOMC members) over the next week to ten days so this sentiment may linger. Today's action took the index down by nearly -0.5% to break my support target at $94.30 and the 7.6% retracement level. This level may hold but the indicators are in support of additional testing so I don't the move is quite done. A break below support would be bearish and could take it down below the $93.00 level to test support at or near the May lows.

The Oil Index

Oil prices continued to surge as talk of a possible production freeze ripples through the market. The talk, eerily akin to what we heard last winter, is that OPEC and other large global producers will be considering a possible output freeze next month. If this plays out like last time, and it likely will, the talk will support oil prices up to and until the deal falls apart, and the fundamentals will take over. Even if the deal doesn't fall apart the supply/demand picture will remain unchanged as there is no talk of production cuts, merely halting any additional increases, so upside is limited. Basically, this sounds like a classic buy the news and sell the reality situation. WTI gained more than 3% today to trade above $48 and looks set to test resistance at $50 and possibly the recent high near $52.50.

While traders in the underlying commodity are buying into the rumors, investors in the oil/energy sectors are a little hesitant. The Oil Index made some gains today, a little more than 1%, and has made gains over the past 2 weeks, but nothing like what WTI has made in that time. Today's action in the index was light, created a small candle and leaves it range bound. The indicators support a move to the upper boundary, near 1,175, as indicated by rising oil prices but are not strong and do not suggest prices will break above resistance at this time.

The Gold Index

Gold prices are holding firm near $1350. Today spot prices move up by more than a half percent to trade above $1355. The FOMC minutes, their dovish stance and weakened dollar are supporting prices and are likely to rise in the near term. Upside target is about $30 above today's settlement, near $1,385, with a possible move up to $1,400 in the absence of rate hike or dollar supporting news.

The gold miners tread water today, moving higher on stable gold prices but without much strength. The Gold Miners ETF GDX gained only about 0.5% in a move that created a very small spinning top doji. This candle is representative of an indecisive market, not surprising given the uncertainty of just exactly what the FOMC is going to do over the next few months. The indicators are bearish and consistent with a test of support, near term support is at the short term moving average. A break below support is potentially bearish and could the ETF down to $27.50. Resistance is just above today's close, near the $31. A break above this level would face next resistance at the current 3 year high.

In The News, Story Stocks and Earnings

Wal-Mart was the big name in early news, reporting earnings before the opening bell. The seller of just about everything reported yoy growth in earnings and revenue that came in above consensus estimates and led to improved forward guidance. Sales were strong in both US and international markets. Comps rose 1.6% in the US and are up for the 8th consecutive quarter, net sales internationally up 2.2%. EPS was impacted about $0.03 by currency conversion, or 2.8%. Shares of the stock rose more than 3.5% in pre-opening trading, gapped up at the open and then sold off throughout the day. Despite selling off from the high the stock was able to close with a gain near 1.7% and at a 15 month closing high.

Earnings in the retail have been decent in terms of year over year growth. Just about every one that has reported so far has reported both earnings and revenue growth. The problem in many cases is that forward outlook isn't that great and there have been a few cases of lowered guidance. Of course, there are also stars like Wal-Mart who've been able to exceed expectations and raise guidance. The mix of earnings has resulted in a bit of churn in the sector, Lowe's for one has seen share prices fall more than 6% post earnings release. The XRT Retail SPDR, looking eager on Monday, has since pulled back to a near term support. Today's action continues a bounce from that support but did not reclaim the Monday high. That high marks potential resistance that is confirmed by the indicators. The ETF may move up to test resistance but without further positive catalyst a break through to new highs does not look likely.

Gap Inc reported after the bell and bear EPS estimates by a penny. Despite what was a good 2nd quarter showing for the jeans and apparel retailer full year guidance was lowered on sluggish recovery efforts. Comp sales fell for both the Gap and Banana Republic brands, Old Navy was flat. Shares of the stock fell -3% in after hours trading.

The Indices

Market action was rather light today, not too surprising in light of the season but still, less than I might have expected. I say surprising because the market did not seem to care that oil prices are approaching $50 again, or that nothing seems to have change at the FOMC. I think what it boils down to is a market that has heard this tune before. Today's action was bullish, but it was cautious on the expectation oil prices won't run too high and that the FOMC's "transparency" remains a wild card.

The Dow Jones Transportation Average led today's market with a gain near 0.4%. The index created a small white bodied candle that closed near the high of the day and appears to be drifting higher. The indicators are firing a bullish crossover so this move may have legs, the caveat is that it does not look very strong and potential resistance is about 1% above today's closing price. Resistance is in the range of 8,000 to 8,100, consistent with the top of a 6 month trading range, and has been tested several times before.

The NASDAQ Composite made the 2nd largest move in today's session, about 0.20%. The tech heavy index created a very small white candle moving up from yesterdays close and confirming near term support at the 5,225 level. This may be the precursor to further upside but the indicators suggest otherwise. Both are divergent from the latest high, a new all time high, and both are now confirming with bearish crossovers. A drop below support, 5,225, is like to lead to correction that could take the index to the short term moving average, near 5,115, or lower. If support is confirmed the index is likely to move higher in the short term with upside target near 5,500.

The S&P 500 is third in today's line up with a gain near 0.15%. The broad market created a very small white candle that closed near the high of the day but did not set a new high. Price action has tamed down quite a bit since the index hit new all time highs but appears as if those new highs will be tested. Momentum has been bearish for over a week and now stochastic is rolling over with a bearish crossover confirming weakness in the index so caution is due, reversal is possible. Resistance is just above today's close, at the current all time high. Near term support is near 5,165 and just below that at the short term moving average. A break below these levels would be bearish and could result in a move down to 2,130.

The Dow Jones Industrial Average brings up the rear with a gain of 0.12%. The blue chips made a small white candle that closed at the high of the day, just below the current all time high. Price action was weak today, mostly side-winding if biased to the upside and in continuation of yesterday's support bounce. The index may continue to rise tomorrow but will need to break the all time in order to get bullish. The indicators are divergent from the high, momentum has been bearish for more than a week, and stochastic is rolling over now so additional highs will probably need a new catalyst.

The indices are bouncing from near term support and approaching recently set highs, all time highs in most cases. The move is weak and lethargic, driven by a slightly schizophrenic FOMC, spotty economic data and weak earnings with little in the way of really positive information to support it. Despite my misgivings it does look as if the market will continue to drift higher too, and likely set new all time highs.

The question is, how long can it last? At current levels the S&P 500 is 2.5% above the previous all time high, 5% above the 150 day EMA, 9.5% above the June Swoon low, 11% above a long term up trend line and 20% above the February/Dimon Bottom; attractive levels for profit taking that not I think coincidentally the market has reached as we near the end of the summer season. So, I'm cautiously bullish in the near term, more bullish for the long, but still wary of possibly market correction in the short.

Until then, remember the trend!

Thomas Hughes

New Plays

11 Month High

by Jim Brown

Click here to email Jim Brown
Editor's Note

Horizon is doing everything right. Primary care revenues rose 33%. Orphan revenues rose 51% and Rheumatology rose +211%. What else could you ask for?


HZNP - Horizon Pharma - Company Profile

Horizon Pharma plc is a biopharmaceutical company that engages in identifying, developing, acquiring, and commercializing medicines for the treatment of arthritis, pain, inflammatory, and/or orphan diseases in the United States and internationally. The company's marketed medicine portfolio consists of ACTIMMUNE for the treatment of chronic granulomatous disease and osteopetrosis; RAVICTI and BUPHENYL/AMMONAPS to treat urea cycle disorders; DUEXIS and VIMOVO for the treatment of signs and symptoms of osteoarthritis, rheumatoid arthritis, and ankylosing spondylitis; and PENNSAID for the treatment of pain of osteoarthritis of the knees. Its products also include MIGERGOT to treat vascular headache; RAYOS/LODOTRA for the treatment of rheumatoid arthritis, polymyalgia rheumatic, systemic lupus erythematosus and multiple other indications; and KRYSTEXXA to treat chronic refractory gout. The company has a collaboration agreement with Fox Chase Cancer Center to study ACTIMMUNE in combination with PD-1/PD-L1 inhibitors for use in the treatment of various forms of cancer.

On August 8th the company reported earnings of 56 cents that beat estimates for 53 cents. Revenue of $257.4 easily beat estimates for $238.1 million. They guided for full year revenue of $1.025 to $1.050 billion and analysts were expecting $1.02 billion. They also affirmed adjusted EBITDA in the range of $495-$510 million.

All three business units, Orphan, Primary Care and Rheumatology performed well. Primary care revenues rose 33%. Orphan revenues rose 51% and Rheumatology rose +211%.

They have multiple drugs rapidly gaining market share and multiple drugs in the pipeline. This stock could be a prospect for a long-term hold.

Earnings Nov 7th.

Shares broke through resistance on the August 9th earnings, consolidated and drifted back slightly to use that same resistance as support. Today's close was only 3 cents below an 11-month high. A continued push higher by even a few cents could trigger significant short covering with a target over $30.

With HZNP trade at $23.40

Buy HZNP shares, initial stop loss $21.85.

No options recommended.


No New Bearish Plays

In Play Updates and Reviews

Bears Tricked Again

by Jim Brown

Click here to email Jim Brown

Editors Note:

Another opening dip was reversed just as the bears were starting to pile on the shorts. The opening dip was reversed well above the intraday lows from Wednesday suggesting the dip buyers are becoming more aggressive. The current trend is sideways with an upward bias with dip buying becoming an art form.

The Russell 2000 was the biggest gainer with a strong rebound off the new support at 1,221 and suggesting the fund manager indecision is fading. After two days of declines the Russell closed at a three day high.

Futures are down again tonight so we get to test that dip theory again on Friday. However, the option expiration could confuse the strategy.

Current Portfolio

Stop Loss Updates

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

Profit Targets

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

Current Position Changes

MRO - Marathon Oil
The long position was opened at $16.05 this morning.

NTCT - NetScout
The long position remains unopened until $28.85. High today was $28.83.

VSI - Vitamin Shoppe
The short position remains unopened until $26.20. Low today was $26.23.

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

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BULLISH Play Updates

FDC - First Data - Company Profile


No specific news. Still fighting resistance at $13.35. Very close to breaking through.

This position remains unopened until FDC trades at $13.50. The high today was $13.41.

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.

MRO - Marathon Oil - Company Profile


No specific news but 3% rally in oil prices caused a major breakout in MRO.

Original Trade Description: August 17th.

Marathon Oil Corporation operates as an energy company. It operates through three segments: North America E&P, International E&P, and Oil Sands Mining. The North America E&P segment develops, explores for, produces, and markets crude oil and condensate, natural gas liquids, and natural gas in North America. The International Exploration and Production segment explores for, produces, and markets crude oil and condensate, natural gas liquids, and natural gas in Equatorial Guinea, Gabon, the Kurdistan Region of Iraq, Libya, and the United Kingdom; and produces and markets products manufactured from natural gas, such as liquefied natural gas and methanol in Equatorial Guinea. The Oil Sands Mining segment mines, extracts and produces oil from Alberta and Canada.

Marathon reported a Q2 loss of 23 cents beating estimates by a penny. Revenue of $1.3 billion beat estimates for $1.19 billion. Q2 production averaged 384,000 Boepd and in line with guidance. U.S. production averaged 189,000 Boepd. They said they were adding extra rigs in Q3 thanks to new inventory of leases in the STACK play Oklahoma. Raymond James upgraded them from outperform to strong buy and Bank of America upgraded them from neutral to buy.

Earnings November 2nd.

Shares are poised to break over resistance at $15.75 as OPEC chats up the headlines about a possible production freeze in late September. The next material resistance is $20.

Position 8/18/16 with a MRO trade at $16.05

Long MRO shares @ $16.50, see portfolio graphic for stop loss.


Long Oct $17 call @ 70 cents. No initial stop loss.

NTCT - NetScout - Company Profile


No specific news but shares are still holding their breakout gains and starting to move higher.

The position remains unopened until a trade at $28.85. High today was $28.83.

Original Trade Description: August 15th.

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.

RDN - Radian Group - Company Profile


No specific news but shares are still holding their breakout gains. Today was an 8-month closing high.

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


Evercore ISI downgraded Twitter from hold to sell with a $17 price target. Shares lost -$1.17 to close at $19. The drop put the stock within 7 cents of our stop loss at $18.85 intraday.

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


The USDA awarded UIS a secure applications contract worth $232 million. Shares were up slightly in a weak market.

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


VSI came within 3 cents of our entry trigger at $26.20 at the intraday low. Shares rebounded 35 cents at the close. This may be another exercise in futility but we will give it a couple days and see if the negative trend resumes.

This position remains unopened until a trade at $26.20.

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 VXI trade at $26.20

Short VSI shares, initial stop loss $27.20.

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