Option Investor

Daily Newsletter, Saturday, 8/20/2016

Table of Contents

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

Market Wrap

Wake Me in September

by Jim Brown

Click here to email Jim Brown

The major indexes traded flat for the week with the big cap indexes losing ground after Monday's new high.

Weekly Statistics

Friday Statistics

The Dow made a new high on Monday but lost 24 points for the week. The S&P came ever so close to posting a gain with only a -0.18 point loss. The Nasdaq managed to stretch its winning streak to 8 consecutive weeks and something it has not done since 2010. Option expiration was lackluster with only 5.7 billion shares and the lowest volume I can remember for an expiration Friday in a very long time.

There were no economic reports to give the market direction. The only report was the Regional and State Employment for July and that was ignored. Nonfarm employment increased in only 15 states, declined in only one state, Kansas, and was flat in 34 states. South Dakota at 2.8% and New Hampshire at 2.9% had the lowest unemployment rates. Alaska at 6.7%, Nevada 6.5%, New Mexico 6.4% and Louisiana 6.3% had the highest unemployment.

The economic calendar for next week is headlined by the GDP revision on Friday and while the consensus estimate is for +2.6% the whisper numbers are down in the 1.1% range. The prior reading for Q2 was +1.2% at the end of July. There is a significant potential for another disappointment.

The Janet Yellen speech on Friday is widely expected to set the stage for another rate hike. The various Fed heads made the rounds last week and almost all were saying "September meeting is not off the table" or "expect another hike this year" or even "I could see 1-2 hikes in 2016." There were almost no sentiments for waiting until 2017 for the next move.

Strangely, the odds of a September rate hike based on the Fed funds futures did not move and remained at 18%. The December odds decreased from 55.1% to 53.5% despite the Fed comments. After Yellen's speech, we will monitor the change again next weekend. Yellen has been consistently dovish but in the face of the strong employment numbers, she may begin to move towards a hike but more than likely in December. The title of her speech is "The Federal Reserve's Monetary Policy Toolkit" but she is likely to give a clue as to policy direction. Her two closest allies at the Fed, William Dudley and John Williams, have both raised the possibility of a September hike.

The housing numbers could be market bullish but we are heading into the slow period on the calendar. Consumers wanting to move before school started would have probably purchased in June.

The other reports are not market movers.

There were very few earnings reporters on Friday. I am glad I was not short Foot Locker (FL). Apparently a lot of traders were. The company reported earnings of 94 cents compared to estimates for 91 cents. Revenue of $1.78 billion beat estimates for $1.76 billion. With mall traffic falling everywhere and struggles by Nike and Under Armour, many traders were expecting a weak quarter.

The company said the latest shoes from Stephen Curry and Kevin Durant helped boost sales in the basketball division. Foot Locker posted gains in running and classic footwear as well as apparel. The CEO said "the malls are far from dead." Same store sales rose 4.7% and well over estimates for 3.9% growth. The Sports Authority closing also helped by eliminating several hundred outlets for athletic shoes. Foot Locker saw sales rise 21% on the "red hot" Adidas brand. Shares of Foot Locker rose 11% on Friday to $68.50.

Deere & Company (DE) was another stock rocket on Friday after shares rallied 11% from a four-month low. Earnings expectations were very low. The company reported earnings of $1.55 compared to estimates for 94 cents, yes, 94 cents. Revenue of $5.86 billion missed estimates for $6.04 billion but shorts were crushed anyway. The company defied a global farm recession and actually raised the full year forecast. They raised guidance to $1.35 billion in net income from the prior $1.2 billion they had projected in May. They accomplished this with a 16% reduction in expenses. Deere has been on a major restructuring program since 2013 and it is clearly paying off. The company still predicted a 10% decline in equipment sales in 2016 compared to the 9% forecast from last quarter.

Just to prove how negative expectations are, S&P Global upgraded Deere from "strong sell" to just "sell" after the earnings. The analyst raised his price target from $70 to $80 and the stock closed over $87.

Teen clothing retailer Buckle Inc (BKE) reported earnings of 32 cents that missed estimates for 33 cents. Revenue of $212.2 million matched estimates. Shares rallied 5% despite a -10.8% decline in same store sales. Overall sales have fallen -10.2% for the first six months of 2016.

America's Car-Mart (CRMT) reported earnings of 87 cents on revenue of $145.8 million. Analysts were expecting 51 cents and $158.6 million in revenue. The company killed it on earnings but missed by a mile on revenue. Unit sales declined -2.3% from 12,244 to 11,957 vehicles. The average retail sales price rose 4.3% or +$428 to $10,393. The gross profit margin was 41.8% and that should give you a clue how much room a used car dealer has in his prices. However, since they finance a lot of the cars they sell, the allowance for credit losses rose to 25% of finance receivables. That means one-fourth of the cars they sold, they expect to repossess. I guess as long as you can continue selling them again for a 41.8% profit that is a good business.

Toro Co. (TTC) reported earnings of $1.00 compared to estimates for 99 cents. Revenue of $601 million missed estimates for $623 million as both the professional and residential segments missed their sales goals. The company narrowed full year guidance from $3.90-$4.00 to $3.95-$4.00. The company blamed the slow sales on "challenging weather conditions" in some areas. Shares closed at a new high after a 4% gain. Not bad for only a penny beat and big miss on revenue.

DeVry Education (DV) reported earnings of 65 cents that rose +10.8% and beat estimates for 61 cents. Revenue of $472 million also beat estimates for $463 million. Revenue declined -0.3% and that was much better than company guidance for a 2-3% decline.

Shares were up sharply but I am missing the reason. For the July 2016 session in the business, technology and management segment, total enrollment declined -22.6% and new enrollment of undergraduate students fell -26.2%. Total enrollment for graduate courses fell -19.4%. However, enrollment in the medical and healthcare segment, total enrollment rose 18.9% with new enrollment rising 13.4%. For the full year, revenues are expected to be flat.

The earnings calendar for next week is very light but there are some big names. Best Buy and Toll Brothers headline on Tuesday followed by Ctrip.com and Hewlett Packard on Wednesday. For all practical purposes, the Q2 cycle is over once Cisco reported last week but HPQ could surprise us.

Shopify Inc (SHOP) priced a secondary of five million shares at $38.25 for net proceeds of $191.25 million. They are going to use the proceeds for general corporate purposes and to expand their business model. Credit Suisse reinstated coverage with an outperform rating and $46 price target. Credit Suisse said the funds would increase flexibility in funding future growth strategies. Shares rose 5% on the news.

Restoration Hardware (RH) was upgraded from neutral to "conviction buy" at Goldman Sachs. That is a heck of a jump skipping right over buy. They raised the price target to $40 and shares were trading at $31 before the upgrade. The analyst said RH is operating a "potent franchise with low current expectations, idiosyncratic business drivers, and, we believe, two ways to create value." They expect the retailer to recover from its current weakness in Q4. The company will mail new catalogs this fall, the first since the spring of 2015. They will implement a new pricing scheme. The high demand and always out of stock, "RH Modern" offerings are expected to reach 90% inventory status and the line will finally be in all the stores by the holidays. This means Q4 earnings should be strong. Shares rallied 11% on the news.

Google (GOOGL), now named Alphabet, went public at $85 a share on August 19th, 2004. Friday was their 12th anniversary as a public company. Shares are up +1,779% since the $1.7 billion IPO. That compared to the $16 billion Facebook IPO in 2012. Google split their stock 2:1 in 2012 with the new Class C shares having no voting rights and trading under the symbol GOOG.

Google's market cap of $543 billion is just slightly less than Apple at $588 billion. Revenue has risen more than 20 times since the $3.2 billion when they went public to the $75 billion in 2015. Profits have exploded as well from $400 million in 2004 to $16.3 billion in 2015.

They need to split the stock again if they want the common retail investor to participate. Shares have been stuck at the $800 level for most of the last year. Normal retail investors are not paying $8,000 for 10 shares. There are far better opportunities in the market for that amount of money. Google is a good company but they are old news. A lot of their moon shot endeavors fell flat and many of their previously announced projects were never completed. They need a new headline to rekindle excitement.

Crude prices had an outstanding week with the black gold rising 9% to $48.57. Crude is now up $9 since the $39 low on August 3rd. Analysts appear to be evenly split between the going to $60 and the going to $40 crowd. An Oppenheimer analyst said once oil closes over $50 a barrel again the sky is the limit with a projection of $63 in 2017. He blamed a reversal on the dollar to a two-month low and the now constant chatter about a potential production freeze by OPEC.

John Killduff, an analyst at Again Capital, said fundamentals are going to get worse before they get better. "We are probably going to touch $50 to ring the bell but then head back down to at least $40 or even into the $30s." Killduff said the OPEC chatter is just that, hopeful chatter designed to lift prices artificially in a seasonal period of low demand and high production. "Saudi Arabia is not serious about taking action" and many OPEC producers are working to increase production not freeze it. He said the Saudi Energy Minister's comment last week that the kingdom will discuss coordinating action with other producers was "perfectly well-timed" to impact near record short interest heading into a seasonally weak period for prices. Saudi produced a record 10.7 million bpd in July and said they would hit a new record in August. Oil from northern Iraq began to flow again after a months-long outage. The EIA reported this week that U.S. production jumped +160,000 bpd last week to 8.6 million bpd and the highest level since June 24th.

Active oil rigs have risen +76 to 406 since the low of 330 on June 24th. That is an average of about 10 rigs a week but that rate has accelerated over the last four weeks to overweight the recent gains. If oil prices move over $50 we could see dozens of rigs a week go back to work. Most of the reactivated rigs are working on drilled but not completed wells that can quickly be completed and put into production.




The Nasdaq stretched its winning streak to 8 consecutive weeks and something it has not done since 2010. It was close with the Nasdaq only gaining +5 points for the week but it was enough to keep the streak alive.

The semiconductors continued to provide support with a 2.2% gain for the week and a new closing high. The biotech sector lost ground for the second week and probably kept the Nasdaq from even larger gains.

The Nasdaq big cap stocks are weakening. Apple (AAPL), Intel (INTC) and Netflix (NFLX) managed to hold their gains and move sideways but Amazon (AMZN), Google (GOOGL), Microsoft (MSFT) and others have started to lose momentum and drift lower. If that drift contaminates those stocks struggling to maintain their recent gains then the Nasdaq could lose traction and end its winning streak.

However, the index is currently holding just below the recent high at 5,262 and the intraday dip to 5,200 on Wednesday was instantly bought. The support at 5,200 appears to be strong and there is a slight upward bias to the trend with marginally higher intraday highs towards the end of the week.

Regardless of how much investors want the Nasdaq to continue higher, the two-month rally is very unsupported and subject to some serious profit taking at any time. The saving grace is that the index has been consolidating above the 5,200 level for two weeks and prolonged consolidation is just as effective as a 3-5% decline for profit taking.

Converging resistance at 18,625 is keeping the Dow in check and the lack of any headlines for Dow stocks is becoming a drag on the index. All the Dow components have reported earnings and are now in the post earnings depression phase. The results on Friday would have been a lot worse but Nike (NKE) got a boost from the Foot Locker earnings and Caterpillar (CAT) saw a similar boost from the Deere earnings.

Despite the resistance at 18,625, the Dow refuses to decline. The dip to 18,500 at the open on Friday was instantly bought making it a higher low for the week. The dip to 18,469 on Wednesday was also instantly bought. Despite, these rebounds the last four days have seen a series of lower highs. They are buying the dips but they are not making any forward progress to higher levels.

The S&P is trading in a very narrow range roughly between 2175-2187. There was a temporary penetration to the upside on Monday and the downside on Wednesday but in both instances, the index returned to neutral territory almost immediately. When you compare the cluster of candles over the last two weeks to any other period on the chart you can quickly see the difference. The S&P has not gained or lost more than 1% in a single day since July 8th when it gained +1.53% and broke above 2,100. The index is very constrained and normally when this kind of tight range develops, the breakout/breakdown can be very strong.

Bulls have become very complacent and the bears have given up trying to force a correction. Eventually there will be a headline that snaps everyone out of their summer slumber and the results could be dramatic.

Until then we should continue watching those 2,175 and 2,187 levels for a violation.

The Russell 2000 has the same, slightly upward bias as the Nasdaq. It is barely perceptible while the support at 1,221 appears rock solid. Distant resistance is 1,250 and we could easily reach that level if another monster short squeeze appears. I do not know what could cause it but if it were easily identifiable then shorts would have already covered. It is the events that you do not expect that cause the biggest moves.

The Russell 2000 remains our sentiment indicator for the broader market. If the index moves over 1,240 and makes a new high, it could accelerate even higher. The tentative status quo between the buyers and sellers cold turn into a race higher if fund managers thought the market was going to run away from them.

Longer term the Russell is moving steadily higher with 1,244 the next resistance level. The daily chart is bullish and projects a slow climb to 1,250.

Investors are heading into a bad neighborhood with the six most volatile weeks of the year beginning on Monday. Nobody appears to be concerned and volume is very light. Friday's volume was only 5.7 billion shares and the lightest expiration Friday in recent memory.

The only trading strategy that has been working is the BTD strategy. That stands for buy the dip. Those dips are becoming more frequent but less shallow. In theory the market should not increase in volatility until after Labor Day but market theory has failed miserably in recent months. Volume between now and the holiday should continue to decline.

The fork in the road could be the Yellen speech next Friday. She could literally determine the market direction until the Fed meeting on September 21st. Will she continue her dovish ways or move to the dark side of the Fed with her closest allies? Personally, I think the entire rate hike thing is crazy because a 25 basis point hike would have no physical impact on the market. The impact is all psychological. The best strategy could be to sell the rumor and buy the news but it all depends on her guidance next Friday.

I prefer to refrain from being overly long and I recommend we keep some cash on hand to buy any material dip over the next several weeks.

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Random Thoughts

Bullish sentiment finally spiked last week after the indexes made new highs on Monday. Bullish sentiment rose +4.3% with nearly all coming from the neutral camp, which declined -3.9%. The bearish camp is still bearish with only a -0.4% decline. It is tough to convince those hardcore bears there is a rally in progress. In the end, they may be proven right.

Uber rules! Lyft is a competitor to Uber and life must be tough in second place. Lyft reportedly held talks with General Motors, Apple, Google, Amazon, Uber and Didi Chuxing in an effort to sell itself. GM is one of the largest investors in Lyft and discussions reached a serious level but no firm offer was ever made.

Lyft is not in danger of going out of business with $1.4 billion cash in the bank. However, it is proving very expensive to open new markets because of the dominance of Uber. Even Uber is struggling. They sold their Chinese subsidiary to Didi Chuxing and that stopped the bleeding of millions of dollars flowing into Chinese marketing. Didi is the dominant ride hailing service in China and Uber was pouring money into a sinkhole trying to compete. That sale upset a global alliance Lyft had with Didi to compete with Uber. Now Lyft is on the outside again, looking in.

Reportedly, Lyft was valued at more than $5.5 billion after the last round of investments by GM and others in January. In order to make those investors whole, the company would have to be sold at a premium to that valuation.

The ride share companies collect 20-25% of the fare and Lyft drivers are expected to generate more than $2 billion in fares in 2016. That suggests Lyft would generate revenue of $400-$500 million. After subtracting marketing costs, that number would be a lot lower. Also, until recently Lyft has been paying a signing bonus for drivers of $1,250 after the first 50 rides. In highly competitive areas, they even forego their 25% commission on some rides in order to keep drivers. Analysts claim Lyft is not profitable despite the $1.4 billion of cash in the bank. How they are going to get to profitability is the key question. As a startup business they could easily spend more than $400 million a year on marketing trying to generate market share.

Other problems are growing. Both Uber and Lyft exited the Austin Texas market after the city passed an ordinance requiring all drivers to be finger printed and pass a comprehensive background check. The problem is that a lot of drivers are minorities and some are not in the states legally.

Other cities have charged fees, required stringent insurance rules and required the companies to be licensed. Some require limousine licenses.

Wingz, a San Francisco based startup backed by Salesforce.com CEO Mark Benioff, is now active in 12 major cities. They hand pick the drivers and provide a $1 million liability insurance policy. Fasten, a Boston based startup, is specializing on serving college towns. They claim 70% of first time users become repeat customers. There are multiple unregulated networks that use Twitter and Facebook to find rides and customers without paying anyone a commission. Arcade City in Austin has 39,000 members that use the unregulated network using hashtags. They pay with Paypal, Venmo, Square and cash.

Build a better mousetrap and the world will not beat a path to your door. In today's economy, everyone will copy it.

Michael Phelps is the most taxed Olympian in history. Each medal comes with a cash prize. Gold is worth $25,000, silver $15,000 and bronze $10,000. For his 28 total medals, he has won $640,000. They are also taxed on the weight of the medals. A gold medal is actually 98.8% silver and 1.2% gold plated and worth about $565. A silver medal is 100% silver and worth about $315. A bronze medal is 95% copper and 5% zinc and worth about $2.38. Phelps has incurred an additional tax of $13,887 based on the precious metal content in his medals.

Since Phelps has a lot of advertising endorsements, he is probably in the 39% tax bracket making his taxes on winnings of $257,631. "Normal" athletes without endorsements would be taxed about 15% on their winnings.

At Phelps 39% bracket, he would be taxed $9,900 per gold medal, $5,940 for a silver and $3,960 for a bronze. Of course, most athletes will deduct the cost of their training from their income. Swimmer Missy Franklin said she spent up to $100,000 a year preparing for the 2012 Olympics.

Texas GOP Representative Blake Farenthold re-introduced the TEAM Act (Tax Exemptions for American Medalists) to eliminate taxes on medalists but it was not yet passed. The original bill never received a full vote. It is expected to receive a vote later this year.

The SEC halted trade in NeuroMama Ltd (NERO) after it reached $65 on the over the counter market. The regulator said it had concerns including "potentially manipulative" transactions. The company claims it has a search engine based on neural technology, is in talks to license "heavy ion fusion" and sells a line of computing devices. The company had a market cap of about $35 billion when the stock was halted. That is larger than Twitter, American Airlines and Sprint. However, the average daily volume was only 418 shares.

Back in early 2014, the market cap was $4.73 billion with 630.1 million shares outstanding. The company has not filed any quarterly reports since January 2014. The SEC warned about the "accuracy and adequacy" of information on the officers of the company.

The Chairman, Steven Schwartzbard, said the trading halt was caused by short sellers. He said the company was planning on upgrading the listing to the Nasdaq to avoid the regulatory hassles on the OTC. Clearly, he is full of BS.

The SEC previously sued Schwartzbard in 1997 for orchestrating a securities fraud scheme involving boiler-room stock sale techniques. In 2007, he was sentenced to five years in prison after he defrauded investors out of $1.8 million regarding the proposed renovation of a Las Vegas Casino.

This is just another example of when things look too good to be true, they probably are. Source

If that was not enough to convince you this company is a scam, look at their "state of the art" website. NeuroMama.com


Enter passively and exit aggressively!

Jim Brown

Send Jim an email


"A habit cannot be tossed out the window; it must be coaxed down the stairs a step at a time."

Mark Twain

New Plays

Low Riding

by Jim Brown

Click here to email Jim Brown
Editor's Note

Arctic Cat disappointed on earnings and guided lower. Analysts are slashing forecasts.


No New Bullish Plays


ACAT - Arctic Cat - Company Profile

Arctic Cat Inc. designs, engineers, manufactures, and markets snowmobiles and all-terrain vehicles (ATVs), and recreational off-highway vehicles under the Arctic Cat and MotorFist brand names. The company also provides related parts, garments, and accessories. It offers accessories consisting of bumpers, cabs, luggage racks, lights, snow plows, backrests, windshields, wheels, track systems, and winch kits; shocks, attachments, and float avalanche airbags; and maintenance supplies, such as oil and fuel additives. In addition, the company provides snowmobile garments for adults and children under the Arcticwear brand, which include jackets, coats, pants, and casual sportswear. Its Arcticwear line of clothing also includes insulated outerwear, hats, mittens, helmets, boots, sweatshirts, T-shirts, and casual wear.

For Q2 the company reported a loss of 81 cents that was twice what analysts expected at 40 cents. Revenue of $104.9 million also missed estimates for $118.7 million. The company lowered guidance for the full year to a loss of 70 cents to $1 per share on revenue of $635-$655 million. Shares crashed from $18.25 to $14.33 on the news.

Earnings Oct 28th.

Since the July 29th earnings, analysts have been slashing estimates. Six analysts have cut full year estimates from a consensus loss of 19 cents to a loss of 92 cents. For the current quarter, five analysts have cut estimates from 41 cents to 62 cents.

Shares tried to rebound twice and failed. If the post earnings low fails we could see ACAT move into single digits.

I am recommending we short the stock if it makes a new August low. The current low is $14.33. It could take several days before this position it triggered.

With a ACAT trade at $14.15

Sell short ACAT shares, currently $14.81. Initial stop loss $16.00.

There are some bad ticks recently and I would like to avoid being stopped out on a bad upside tick. Once in the position I will reset the stop loss.

In Play Updates and Reviews

Losing Week

by Jim Brown

Click here to email Jim Brown

Editors Note:

After setting a new high on Monday, the Dow lost -24 points for the week after a 45 point decline on Friday. The buy the dip crowd got another chance to make their trades with the Dow down over 100 points at Friday's open. They nearly succeeded in lifting it back to positive territory but another wave of selling at noon killed that effort. The Dow was the weakest index for the week but the other big cap indexes traded sideways with the Nasdaq posting its 8th consecutive week of gains.

The trend remains sideways as we enter the true dog days of August after earnings and ahead of Labor Day.

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

HZNP - Horizon Pharma
The long position remains unopened until $23.40. High today was $23.24.

NTCT - NetScout
The long position was opened with a trade at $28.85.

VSI - Vitamin Shoppe
The short position remains unopened until $26.20. Low today was $26.40.

FDC - First Data
The long position remains unopened until $13.50. High today was $13.29.

SHLD - Sears Holding
The long position was closed at the open on Monday.

JKS - Jinko Solar
The long option position expired at Friday's close.

VNET - 21Vianet
The long option position expired at Friday's close.

If you are looking for a different type of trading strategy, try these newsletters:

Short term Calls and Puts on equities = Option Investor Newsletter

Credit spreads and naked puts = OptionWriter

Long term option investments = LEAPS Investor

3-6 month Option Trades = Ultimate Investor

Iron Condors = Couch Potato Trader

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 $13.29.

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.

HZNP - Horizon Pharma - Company Profile


Horizon received the 8th patent approval for its Rayos drug. This patent will not expire until August 2027. The drug is used for treating arthritis.

This position remains unopened until HZNP trades at $23.40. The high today was $23.24.

Original Trade Description: August 18th.

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.

MRO - Marathon Oil - Company Profile


No specific news but the breakout continues.

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 continuing to move higher. The position was opened with a trade at $18.85.

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.

Position 8/19/16 with a NTCT trade at $28.85

Long NTCT shares @ $28.85, see portfolio graphic for stop loss.

No options recommended.

RDN - Radian Group - Company Profile


No specific news but shares are still holding their breakout gains. Minor decline in a weak market.

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.

Position 8/12/16 with a RDN trade at $13.15

Long RDN shares @ $13.15, see portfolio graphic for stop loss.


Long Sept $14 call @ .15, no stop loss.

TWTR - Twitter - Company Profile


Evercore ISI downgraded Twitter from hold to sell with a $17 price target on Thursday and the stock fell to within 7 cents of our stop loss. This morning the opening drop hit that stop to knock us out of the position.

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:

Closed 8/19/26: Long TWTR shares @ $16.64, exit $18.85,$2.20 gain.

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. Only a 9 cent decline 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 posted an 11 cent gain but closed off well off the opening high. Trying to short VSI 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.

Left Over Lottery Tickets

These positions were left over from prior plays where we had an optional option with no stop after the stock position was closed. Rather than close these for a few cents they are left open as a "Lottery Ticket" play. With months before expiration, anything is possible. A strong move in a single stock can be well worth the additional patience.

These positions are only updated on the weekend.

CDNS - Cadence Design System - Company Profile


Shares were pulled higher by strong earnings from Synopsys. We have a leftover Sept $25 call and the stock closed at $24.99. This stock seems to have a lot of bad ticks. Note the long tails on the chart.

We were stopped out of the shares on bad tick at the open on 8/15 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.

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

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

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

CIEN - Ciena Corporation - Company Profile


No specific news. Shares touched a 9-month high on Tuesday.

We were stopped out on CIEN on July 28th after INFN posted ugly earnings and warned that demand was falling across the sector. This was mostly company specific to INFN but it did knock CIEN, JNPR and CSCO lower. There was no stop loss on the optional October call so we have retained it as a lottery play that CIEN moves back to the June highs by October expiration.

Original Trade Description: July 23ed.

Ciena Corporation provides equipment, software, and services that support the transport, switching, aggregation, service delivery, and management of voice, video, and data traffic on communications networks worldwide. The company's Converged Packet Optical segment offers networking solutions optimized for the convergence of coherent optical transport, OTN switching, and packet switching. The company's Optical Transport segment transports voice, video, and data traffic at high transmission speeds. Its Software and Services segment offers network management solutions, including the OneControl Unified Management System, ON-Center Network & Service Management Suite, Ethernet Services Manager, Optical Suite Release, and Planet Operate; Blue Planet software platform; and SDN Multilayer WAN Controller and its related applications. This segment also provides consulting and network design, installation and deployment, maintenance support, and training services. The company sells its products through direct and indirect sales channels to network operators.

On June 3rd Ciena reported adjusted earnings of 34 cents that beat estimates for 27 cents. Revenue rose 3.1% to $640.7 million. Software and services revenue rose 27%, global services rose 3.2% and networking platforms 1.9%. International customers accounted for 43% of revenues. Latin America and Asia Pacific both rose more than 20%. They guided for the current quarter to revenue of $655-$685 million. Analysts were expecting $670 million.

After the earnings, somebody bought 20,000 of the October $23 calls for $1.12 with the stock at $20. On July 16th, there was a rumor of a pending acquisition bid for Ciena but analysts dismissed the rumor rather quickly.

Shares are holding at resistance at $20. The next resistance is $22 and then a potential sprint to $25.50. If the holder of those October calls knows something we do not then an acquisition bid is possible. That is a huge buy since the average daily option volume in all strikes is less than 1,200 contracts. Sometimes hedge funds buy a large quantity of calls when they know they will be buying shares of the stock. When they report their stock purchase it can cause the stock to spike and make the calls profitable.

Earnings are Sept 1st.

I am looking to buy CIEN shares with a trade at $20.35, which would be a five-week high. I am also going to recommend we piggyback on those 20,000 calls and buy the same strike for a long-term hold.

Position 7/25/16

Long Oct $23 call @ 70 cents. No stop loss.

Previously closed 7/28/16: Long CIEN shares@ $20.35, exit $18.84, -1.51 loss.

HOV - Hovnanian Enterprises - Company Profile


Shares were up slightly for the week on improving builder confidence. New home sales will be reported this week.

This is a long-term position on expectations HOV will return to profitability in Q3/Q4 as outlined by the CEO in the Q2 earnings.

Original Trade Description: July 27th.

Hovnanian Enterprises, Inc. is a builder of residential homes. The Company designs, constructs, markets and sells single-family detached homes, attached townhomes and condominiums, urban infill, and active lifestyle homes in planned residential developments. It markets and builds homes for first-time buyers, first-time and second-time move-up buyers, luxury buyers, active adult buyers and empty nesters. The Company has two distinct operations: homebuilding and financial services. The Company, excluding unconsolidated joint ventures, is offering homes for sale in 196 communities in 34 markets in 16 states throughout the United States. The Company's financial services operations provide mortgage loans and title services to the customers of its homebuilding operations.

Prior to the financial crisis HOV was an active buyer of land and had extensive holdings when the crash appeared. The decline in home buying and the change in the mortgage business caused them to be very over extended as a result of the crash. Since 2009 they have liquidated a lot of land holdings, built out and sold a lot of properties and have consolidated their efforts and reduced costs significantly.

For Q2 they reported a loss of 6 cents, which was less than half the 13-cent loss in the year ago quarter. Revenues rose 39.6% to $654.7 million. For the first 6-months of the fiscal year revenues rose 34.5% to $1.23 billion. The $7.9 million loss was well below the $25.2 million loss in the year ago quarter. The number of active contracts rose +0.9% to 1,812 homes with the value of the contracts rising 16% to $1.4 billion. The number of contracts in the first six months of fiscal 2016 rose 7.3% to 3,343. The total contract backlog at the end of the quarter was $1.58 billion, up 27.8% from the $1.23 billion at the end of fiscal Q2 2015. As of April 30th, they controlled 34,997 lots.

They paid off $233.5 million in debt over the prior two quarters and ended the period with $125.6 million in liquidity. Since the end of the quarter liquidity has risen $75.1 million due to closings and joint venture funds received. They also paid off another $86.5 million in debt that matured in May.

CEO Ara Hovnanian said, "While our revenue grew 40% and Adjusted EBITDA increased over 220%, as we said last quarter, we remain focused on deleveraging our balance sheet and maximizing our profitability rather than on additional growth. Since October 15, 2015, we have paid off $320 million of debt. More importantly, we continue to believe that we will have the liquidity to pay off the remaining debt maturities through the end of 2017. We are certain that we are taking the correct steps that will best position our company for future success. While it is discouraging to report a loss for the first half of fiscal 2016, it is nevertheless a significantly reduced loss, and we anticipate our profitability in the second half of the year will more than offset this loss."

With the low mortgage rates and the rising number of home sales, I do expect HOV to return to profitability by the end of the year. It has been a long 7 years but they are finally getting rid of the accumulated debt and are riding the wave of new home buyers.

Stocks typically begin to rise about 6-months before widely predicted events. If HOV expects to post profits in Q3/Q4 now is the time to buy the stock. At $1.87 per share I look at it as a LEAP option that does not expire. This is not going to be a rocket stock. This is a buy it and forget it position until year end. Once we are in the position I will track it in the Lottery Play portfolio each weekend. Shares traded at $7 in 2013-2014 and could easily return to that level once they post those profits.

Do not back up the truck on this position just because the stock is cheap. Unexpected events do happen. Just buy a few hundred shares and we will shoot for a return to $6 or a 400% gain.

Position 7/28/16

Long HOV shares @ $1.86, no stop loss.


Long February $2 call @ 20 cents. No stop loss.

JKS - Jinko Solar - Company Profile


JKS changed their earnings date to the 25th from the 18th so we did not get the benefit of a potenial post earnings bounce. Shares did rally over resistance but not enough to rescue our position before expiration.

We had a long August $21 call that we added as insurance to the short on JKS shares.

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 8/19/16: Long August $21 call @ 70 cents, exit 6 cents, -.64 loss.

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

NAVI - Navient - Company Profile


No specific news. Shares rebounded back above resistance but they could not hold the gains and fell back in the market decline on Friday. This is an October call and I think we will do ok once the breakout sticks.

Original Trade Description: August 6th.

Navient Corporation provides financial products and services in the United States. The company offers Federal Family Education Loan Program (FFELP) Loans, Private Education Loans, and Business Services. It holds the portfolio of education loans insured or guaranteed under the FFELP, as well as the portfolio of private education loans. The company also provides asset recovery services for loans and receivables on behalf of guarantors of FFELP loans, and higher education institutions, as well as federal, state, court, and municipal clients. They also offer business processing services on behalf of municipalities, public authorities, and hospitals. Navient was spun off from Sallie Mae in April 2014.

Adjusted earnings for Q2 rose 17.5% to 47 cents and beat estimates for 45 cents. Helping produce the earnings beat was a 44.4% decline in provisions for credit losses to $110 million.

During the quarter Navient acquired FFELP loans of $623 million bringing their total under management to $92.6 billion.

The private education loan segment reported earnings of $57 million. During the quarter Navient acquired another $23 million to bring their total under management to $24.7 billion. The spread on the private loans was stable at 3.66%. The charge off rate was only 2.2%.

During the quarter they retires $255 million in senior unsecured debt and they completed three ABS placements totaling $2.278 billion to raise liquidity. They repurchased 13.6 million shares for $175 million and had $360 million outstanding under the current authorization.

Earnings Oct 18th.

Although Navient is not a high flying investment like Apple or Netflix it is a good solid business. Friday's close at $14.50 was a 52-week high and a breakout over prior resistance. The next resistance will be a gap fill around $17 from last July.

Position 8/8/16:

Long Oct $15 call @ 50 cents. No initial stop loss.

Previously closed 8/12/16: Long NAVI shares @ 14.57, exit $13.35, -1.22 loss

SHLD - Sears Holding - Company Profile


We closed this position at the open on Monday and that was exactly the right call. Shares hit the high of the week at the Monday open and closed $2 lower on Friday.

We were stopped out on the long in SHLD shares on July 14th. The long call was optional and we were tracking it here with no stop loss.

Original Trade Description: July 11th.

Sears Holdings Corporation operates as a retailer in the United States. It operates in two segments, Kmart and Sears Domestic. The Kmart segment operates retail stores that offer a range of products, including consumer electronics, seasonal merchandise, outdoor living, toys, lawn and garden equipment, food and consumables, and apparel; and in-store pharmacies. It provides merchandise under the Jaclyn Smith, Joe Boxer, and Alphaline labels; Sears brand products, such as Kenmore, Craftsman, and DieHard; and Kenmore-branded products. As of October 31, 2015, this segment operated approximately 952 Kmart stores. The Sears Domestic segment operates stores that provide appliances, consumer electronics/connected solutions, tools, sporting goods, outdoor living, lawn and garden equipment, apparel, footwear, jewelry, and accessories, as well as automotive services and products, such as tires, batteries, and home fashion products. It also offers appliances and services to commercial customers in the single-family residential construction/remodel, property management, multi-family new construction, and government/military sectors; appliance and plumbing fixtures to architects, designers, and new construction or remodeling customers; parts and repair services for appliances, lawn and garden equipment, consumer electronics, floor care products, and heating and cooling systems; and home improvement services, as well as protection agreements and product installation services. As of October 31, 2015, this segment operated 735 Sears stores.

I probably did not need that big company description paragraph because everybody knows about Sears. They have fallen on hard times in recent years but they are struggling back. Sears is charging forward with "brand extensions" of its existing brands including Kenmore, Craftsman, DieHard, etc. What is a brand extension? Everybody knows about Kenmore appliances. They have been around for 75 years. But soon you will see Kenmore sinks, facets, and many more items carrying that name. Sears is preparing to market a DieHard line of tires because the DieHard brand is the leading brand for batteries. They are also reducing the store count and selling some real estate. They are also moving to stores within a store. This is where brand name companies rent a certain amount of floor space to sell their products. Sears gets a commission and does not have to order or inventory any products. This reduces overhead and allows for better management of the individual product sections.

Whether it will work or not remains to be seen but it appears they have stopped the bleeding and are now focusing on rebuilding the business.

Shares bottomed at $10 in May and Monday's close at $14.48 was a two-month high. Next resistance is around $18.50.

Earnings are August 18th.

Position 7/12/16 with a trade at $14.65

Closed 8/15/16: Long Sept $16 call @ .88, exit $2.14, +$1.26 gain.

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

SKX - Skechers - Company Profile


No specific news. Shares are holding at $25 but not moving higher.

The September $22 put option is well out of the money but at the current price of 5 cents, we do not have much to lose. That is why it is called a lottery ticket.

Original Trade Description: August 1st.

Skechers U.S.A., Inc. designs, develops, markets, and distributes footwear for men, women, and children; and performance footwear for men and women under the Skechers GO brand name worldwide. It operates through three segments: Domestic Wholesale Sales, International Wholesale Sales, and Retail Sales. The company offers casual footwear, including boots, shoes, and sandals for men, as well as oxfords and slip-ons, lug outsole and fashion boots, and casual sandals for women; dress casuals, seasonal sandals and boots, and relaxed fit casuals for men and women; and casual fusion line for young men and women under the Skechers USA brand. It also provides footwear collection for men and women, including lightweight sport athletic lifestyle products, classic athletic-inspired styles, and sport sandals and boots under the Skechers Sport brand name; casual and sporty styles sneakers for females under the Skechers Active and Skechers Sport Active brand; and footwear for women and girls under the BOBS from Skechers name. They operate 1,548 stores with 1,144 outside the USA. They plan to increase that total count by adding another 200 stores before the end of 2016. They opened 133 stores in Q2.

In the recent Q2 cycle they reported earnings of 48 cents that missed estimates for 51 cents. Revenue rose 9.6% to $877.8 million. The revenue was a bigger problem than the missed earnings. Over the last three quarters they averaged a 27% increase in sales. The 9.6% rise was the worst quarter since Q3-2012. In the U.S. revenue actually declined -5.4% with most of the gains coming from overseas. Sales internationally rose 40% but the stronger dollar took a big bite out of profits. They also complained about a warehouse fire in Malaysia and additional VAT taxes in Brazil.

However, the biggest problem is the increased competition from Under Armour and Nike. UA is rapidly expanding its line of running shoes and Nike is increasing the variety of less expensive shoes after their $200+ offerings did poorly over the last two quarters. Under Armour announced it was going to launch a shoe dept in 1,100 Kohl's stores. That gives them broader exposure and it will be at a lower price point.

Skechers has a tough road ahead. They are trying to break into the highly competitive U.S. running shoe market and have been doing rather well but the big guys are determined to push SKX back to the sidelines.

Earnings Oct 20th.

Shares fell from $32 to $25 on the earnings and have continued to move to lower lows in a positive market. If the broader market rolls over the decline could accelerate.

Update 8/3/16: Skechers earned the "Bear of the Day" strong sell call from Zacks. The analyst said the consensus estimate for 2016 earnings had fallen from $2.11 to $1.81 in the last 60 days. The 2017 estimates had fallen from $2.53 to $2.05.

Position 8/2/16:

Long Sept $22 put @ .55, see portfolio graphic for stop loss.

Previously closed 8/11/16: Short SKX shares @ $23.75, exit $24.25, -.50 loss.

VNET - 21Vianet Group - Company Profile


VNET shares fell -16% after earnings to close at exactly $9 on Friday. We had a $9 put that expired on Friday so the close did us no favors and the option expired worthless.

Original Trade Description: July 2nd.

21Vianet Group, Inc. provides carrier-neutral Internet data center services to Internet companies, government entities, blue-chip enterprises, and small-to mid-sized enterprises in the Peoples Republic of China. It offers hosting and related services to house servers and networking equipment in its data centers, and connects them through a data transmission network; and other hosting related value-added services.

In June 2015 the Chairman of the board, Kingsoft Corporation and Tsinghua Unigroup International proposed a deal to take the company private. Shares were trading around $20 at the time. On Thursday the same group rescinded their "non-binding" go private offer. The group said "after careful consideration, the group had determined not to proceed with the proposal under the current circumstances." Those circumstances were not described.

After keeping the stock price around $20 for the last year based on this offer the group decided to pass on the deal. While it may have had something to do with the earnings, I suspect it had more to do with the current problems with taking companies private in China. Qihoo (QIHU) and YY (YY) are also struggling. The China Securities Regulatory Commission is considering limits on the numbers of reverse mergers from previously foreign listed companies. There are worries they could impose an outright ban.

In an attempt to counter the drop in the stock the company announced a $200 million share repurchase plan. However, in the first sentence reads, "The Board has authorized, but not obligated, to repurchase up to $200 million in outstanding shares within the next we months." The key words there are "not obligated" which means they do not have to buy the shares if they change their minds. This is a Chinese company and the generally accepted rules are rarely followed. This is just another ploy to try and support the stock price.

Earnings August 24th.

Position 7/5/16:

Closed 8/19/16: Long August $9 put @ 85 cents. Expired, -85 cent loss.

Previously Closed 7/11/16: Short VNET shares @ $9.57, exit 9.88, -.31 cent loss.

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