Option Investor

Daily Newsletter, Thursday, 8/25/2016

Table of Contents

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

Market Wrap

The Yellen Effect

by Thomas Hughes

Click here to email Thomas Hughes


The market held tight, all eyes are on Janet Yellen and her speech tomorrow at the Jackson Hole Conference. Neither Fed Speak nor economic data could move the market today as anticipation for clues to future Fed moves overshadowed all. Her speech is expected to lay out the framework for rate hikes and will be closely watched for any indication of when the next will come but in reality is not an official policy statement and unlikely to be very revealing. At least two Fed members made comments in the news today, both of course indicating the nearness of a rate hike in once sentence then hedging that statement in the next.

Esther George, Kansas City Federal Reserve President and voting member, says a rate hike is due but the pace should be slow and gradual, nothing new about that. She went on to say that she does not favor a hike, and that recent economic data has given the committee pause. Despite the economic hiccup she still thinks 2nd half growth will be strong enough to sustain 2% annualized GDP. Robert Kaplan, Dallas Federal Reserve President and Alternate Member, says that the expectations of growth are a challenge, that we've made progress on the employment front and are "moving toward" a rate hike.

Market Statistics

International markets were flat to negative in the early hours of the morning as traders around the world await the words of Janet Yellen. Losses in Asia were minimal, led by a -0.57% decline in mainland China shares driven on liquidity fear only a day after the PBOC injected another round of cash into the system, the first cash support provided by the bank since February. Losses in Europe were a little steeper, led by a near -1% drop in the DAX. Caution ahead of tomorrow's speech as well as weakness in oil and health care helped to drag on the indices.

Futures trading indicated a mildly negative open for the US market all morning. Economic data helped provided some support but did not serve to spark a rally. The indices posted small losses at the opening bell, about -0.25%, but were able to recover that loss by 10AM. Once the indices reached yesterday's closing levels already low volume quieted further and sideway's trading ensued for the next 45 minutes. By noon a new intraday high had been set, and then began a slow retreat back to test the days opening levels and slightly lower. These levels held but no late rally followed, leaving the indices at or near their lows of the day at the close of the session.

Economic Calendar

The Economy

Initial jobless claims fell -1,000 was last week's not revised figured to hit 261,000. This is the 77th week of claims below 300,000, the longest streak since 1970. The four week moving average of claims fell -1250 to 264,000. In both cases claims are trending near the 40 year low and consistent with ongoing labor market recovery. On a not adjusted basis claims fell -1.3% versus an expected -0.7% and are -4.4% below last year at this same time. Not adjusted claims are trending below last years levels despite a narrowing of the spread in recent months and are just off the 43 year low set 11 months ago.

Continuing claims for unemployment benefits fell -30,000 to hit 2.145 million. The four week moving average rose 250 to hit 2.155 million. This week's change in continuing claims is minimal and leaves both the headline and moving average trending near the long term low and consistent with general labor market health.

The total number of Americans receiving unemployment benefits fell -25,731 to hit 2.122 million. This is the 5th week of decline since total claims hit its seasonal peak and consistent with historical trends. We can expect to see this figure continue to decline over the next few weeks and possibly fall sharply going into September. On a year over year basis total claims are down -3.8% and consistent with labor market recovery.

Durable Goods came in much better than expected but when considering last month's -4.2% decline and the four month string of declines leaves them less than flat for the trailing three months. So, on the headline durables rose by 4.4% versus an expected gain of 3.5%. Transportation led the overall increase in orders, up 10.5%. Ex-transportation orders rose 1.5%, ex-defense up 3.8%.

Today's data is positive but does little to move the needle in terms of FOMC expectations although a small rise in probability did occur. The CME's Fedwatch tool is now showing a 24% chance of rate hike in September, up from 18% a few days ago, with a 30% chance in November. Tomorrow's data will likely be a non-event as well, revisions to 2nd quarter GDP and Michigan Sentiment, unless revisions to GDP are large. Next week however will be a different story, lots of data including the monthly NFP and unemployment figures.

The Dollar Index

The Dollar Index held firm today on data and Fed Speak as we await Yellen's speech. The index gained a little more than a 0.02% in a move that continues the small bounce from and consolidation above the $94.31 support level. This consolidation has begun to look like a wind-up within a near term down trend that may result in further downside. This is of course dependent on how the market reacts to whatever it is Yellen will say tomorrow. Regardless, the index remains range bound in the short to long term. First target to the downside is the support line at $94.30, the 78.6% retracement level. A break below that could go as low as the bottom of the 4 month range near $93. If Yellen does indicate that tightening is at hand and the dollar strengthens upside targets exist at $95.60, $96.50 and $97.50.

The Oil Index

Oil trading was a bit choppy today as prices hovered around the $46.75 level. Early in the session it looked as if over-production/over-supply was going to dominate sentiment. That changed shortly before lunch when speculators drove prices back above break even, near to $47, on renewed hope next month's OPEC meeting will result in some kind of price stabilizing move. OPEC may freeze output, but they won't cut, so I am not expecting much from the meeting other than near term support driven by news and rumors. Until then supply is high, demand is low so I expect to see prices remain under pressure. Support for WTI seems to be near $45, slightly above, with upside target near $49 should today's intraday bounce prove to be more substantial.

The Oil Index gained about a quarter percent in today's action. The candle created was very small and trading was very light, just above support at the short term moving average. The index remains range bound and may attempt to test the top of the range again, near 1,175. The indicators are bullish but weakening in the near term. MACD was not very strong to begin with and stochastic is in overbought territory for a range bound stock so a break out of the range does not look likely at this time.

The Gold Index

Gold prices fell slightly in today's trade but did not break support levels. Spot prices shed about -0.5% to make a small intraday bounce from $1,325. The market is cautious with Janet Yellen set to speak tomorrow, any indication of policy is sure to move gold prices. Recent Fed Speak has already had an impact on spot price, driving it down toward the low end of the 2 month range where it is now trading. Prices could move down to $1,318 without breaking critical support should tomorrow's talk send gold prices lower. If Yellen sends gold higher price could move up to $1,350 fairly quickly with a chance of moving higher. Regardless, without an actual change to policy, here or abroad, or a significant change in economic activity gold is likely to remain range bound.

The gold miners are suffering from the recent decline in gold prices and a renewed fear of impending interest rate hike. Fed Speak and data have the market ducking in search of strong support levels. Today's candle opened flat to yesterday's close and was able to move higher following a brief test of support but it looks like this move could be short lived. The indicators are both bearish and pointing lower, consistent with lower prices, while the ETF trades beneath resistance and below the mid-point of yesterday's larger than usual black candle. Next target for support should the ETF move lower is near $26 with a possible move down to $24.75, depending on gold, Janet Yellen, other Fed speakers, economic data etc. A break above resistance, just above today's close, would be bullish and could take the index up to retest the recent highs.

In The News, Story Stocks and Earnings

Mylan was in the news again today as the Epipen saga unfolds. Shares of the stock were up more than 3% in early premarket trading on news the company was widening it's discount plans in efforts to cut prices for the medication. Later, shares took a hit after the company CEO appeared on TV and did a less than stellar job defending the price, her basic argument is that it is the systems fault. The company does indeed charge a lot for the pens,it's a business after all, but about half the cost consumers see is added on by middlemen. An association representing pharmacy and insurers responded by saying blaming them is a red herring, the fault lies elsewhere. No doubt this isn't over. By end of day shares lost about a half percent to close at the low of the day and at near the low set yesterday, indicating potential support near $43.00.

Dollar Tree And Dollar General both reported earnings before the bell and both missed expectations, horribly you might think, and saw share prices plummet. The caveat is that this is a case of two companies producing good results, just not as good as expected. Dollar Tree delivered EPS of $0.72 per share, driven by the acquisition of Family Dollar, reversing a loss of ($0.46) in the same quarter last year. On a core comp store basis, sales still rose 2.7% which isn't too bad in today's environment. Dollar General did even better although it still wasn't enough for the market, improving last years EPS by 13.5%, announcing a new repurchase plan and confirming full year guidance. Dollar General also got hit hardest by the market, shares fell nearly 20%.

The VIX had, until recently, been trading at two year lows. In the past couple of days it has begun to rise and is now showing signs of a possible spike higher. The fear index is still below near term resistance at $14.25 but a bullish crossover of the moving average confirmed by a rise in momentum and a strong stochastic signal suggest it will be tested if not broken. A breakout of volatility could easily take the VIX up to 20 or 25 in the near term and would likely accompany a quick, possibly sharp, drop in the S&P 500.

The Indices

Today's action was light and more sideways than not. Most of the indices closed with losses near -0.2% but one, the Dow Jones Transportation Average, fell nearly -0.7% and closed at the low of the day. The transports fell the furthest but remain above the short term moving average. The moving average is first target for support should the index continue to move, which is indicated by both MACD and stochastic. A break below the moving average would be bearish in the near but likely to hit next support at 7,750. This index appears to be range bound over the short to long term, between 6,750 and 8,250.

The Dow Jones Industrial Average made the next largest decline, just under -0.20%. The blue chips created a very small black candle that fell to the short term moving average and looks like it may fall through, if on a lack of volume if nothing else. The indicators are both bearish and moving lower, suggesting support will at least be tested. Support is roughly today's closing level, near 18,450, with next target near 18,250.

The S&P 500 fell only -0.14% in today's session, creating a very small spinning top doji sitting just above the short term moving average. This is indicative of support but that support may be tenuous. The indicators are both bearish and moving lower in the near term,suggesting deteriorating market conditions, and divergent in the short term suggesting a weak, fragile market. A break below the moving average may find support near 2,150 but more likely not until about 2,030.

The NASDAQ Composite made the smallest decline, only -0.11%. The tech heavy index created a very small doji candle just below yesterday's close and just below resistance at the previous all time high. This close could easily lead to further downside if the upper side of resistance is not regained. The indicators are bearish and pointing lower however so it looks like a move down to the short term moving average could be coming, a drop of roughly -1%.

The market is hanging on the FOMC and what Janet Yellen says tomorrow but the indices may already be pointing the direction. While index prices languish near all-time highs the indicators continue to deteriorate. Significant divergences exist on all the charts, momentum has shifted to the downside and the fate of the rally, apparently, now dependent on a speech. Regardless of what she says tomorrow, the duel mandate is not met. Labor markets are healthy, but not healthy enough to drive the economy and inflation at the macro level, at least not yet. Until then I think we should expect rate hikes to be few and far between.

As for the market, we're approaching the end of the summer season with the indices trading near all time highs. These highs represent significant gains for positions entered in February, May and June, attractive gains for short, medium and longer term investors. I'm not saying we're facing a major correction or even a minor sell-off but I am saying the signs are there a correction of some form is brewing. Whether or not it comes these signs match with market seasonality and shouldn't be ignored so I remain cautious for the near term. Long term I am a buyer on any dips, when they come, and expect to see a continuation of the secular bull later this year.

Until then, remember the trend!

Thomas Hughes

New Plays

Swimming Upstream

by Jim Brown

Click here to email Jim Brown
Editor's Note

The small cap indexes swam against the tide on Thursday. Who knows how long that can last. If Yellen tanks the market on Friday that contrarian movement will see a sudden reversal.

We do not always have to be participants. Sometimes we should be spectators. Tonight is one of those times. With the market poised for a big move in either direction based on the Yellen speech on Friday, it makes no sense to initiate new plays. That would be like trying to cross a freeway blindfolded. Regardless of the play direction we choose it could be the wrong direction depending on Yellen's comments. We are better off letting the event play out and adding new plays this weekend.


No New Bullish Plays


No New Bearish Plays

In Play Updates and Reviews

Small Cap Revolt

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Russell 2000, S&P-600 and S&P-400 all posted gains while the big cap indexes retreated. The small and midcap indexes posted minor gains of 2-4 points but they were still gains. This suggests the market could move higher if left to make up its own mind. Unfortunately, Yellen's speech on Friday will provide direction.

I would be surprised if that direction was not higher but anything is possible. Small cap stocks made small gains today but we will be at Yellen's mercy.

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

FOXA - 21st Century Fox
The short position was entered at $24.72.

ACAT - Arctic Cat
The short position remains unopened until $14.15. Low today was $14.58.

HUN - Huntsman
The long position remains unopened until a trade at $17.65. High today was $17.24.

UIS - Unisys
The long position was closed at Thursday's open.

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Short term Calls and Puts on equities = Option Investor Newsletter

Credit spreads and naked puts = OptionWriter

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BULLISH Play Updates

FDC - First Data - Company Profile


No specific news. Shares continue to hold in a very tight range. The next headline could produce a strong move.

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.

Position 8/23/16 with a FDC trade at $13.50

Long FDC shares @ $13.50, see portfolio graphic for stop loss.

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

HUN - Huntsman Corp - Company Profile


No specific news.

Position remains unopened until a trade at $17.65.

Original Trade Description: August 23rd.

Huntsman Corporation manufactures and sells differentiated organic and inorganic chemical products worldwide. The company operates in five segments: Polyurethanes, Performance Products, Advanced Materials, Textile Effects, and Pigments and Additives. The company's products are used in various applications, including adhesives, aerospace, automotive, construction products, personal care and hygiene, durable and non-durable consumer products, electronics, medical, packaging, paints and coatings, power generation, refining, synthetic fiber, textile chemicals, and dye industries. Huntsman Corporation was founded in 1970.

They reported Q2 earnings of 53 cents that beat estimates for 52 cents. Revenue of $2.54 billion matched estimates. They generated more than $350 million in free cash flow and made an early repayment of $100 million in debt. They also announced they were selling some of its European facilities and would use the proceeds to repay debt. They sold a manufacturing facility to Innospec Inc for $225 million and the transaction is expected to close in Q4. Huntsman will remain a raw materials supplier to the facilities once the transaction is completed.

They are also planning to close their titanium dioxide manufacturing (TiO2) facility in South Africa in addition to spinning off their remaining TiO2 business in early 2017. The closure/spinoff will save $200 million.

The earnings, restructuring and debt repayment plans have given the stock a positive bias. Shares broke over resistance on Tuesday to trade at a 52-week high. The next material resistance is $23.

Earnings Oct 26th.

Since the S&P futures are negative tonight I am going to put an upside entry trigger on the recommendation.

With a HUN trade at $17.65

Buy HUN shares, initial stop loss $16.15

Optional: Buy Nov $19 call, currently 60 cents. No initial stop loss.

MRO - Marathon Oil - Company Profile


No specific news. Tied to oil price fluctuations.

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. Minor gain in a weak market.

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. No move today. Holding at 8-month 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.

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.

UIS - Unisys Corp - Company Profile


No specific news. The position was closed at the open.

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

Closed 8/25/16: Long UIS shares @ $10.65, exit 10.14, -.51 loss.

BEARISH Play Updates

ACAT - Arctic Cat - Company Profile


No specific news. Minor gain in a weak market. Somebody is still providing support at $14.75.

This position remains unopened until a trade at $14.15.

Original Trade Description: August 20th.

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.

FOXA - 21st Century Fox - Company Profile


No specific news. Position was entered at the open.

Original Trade Description: August 23rd.

Twenty-First Century Fox operates as a diversified media and entertainment company in the United States, the United Kingdom, Continental Europe, Asia, Latin America, and internationally. It operates through Cable Network Programming; Television; Filmed Entertainment; and Other, Corporate and Eliminations segments. The company produces and licenses news, sports, movie, and general and factual entertainment programming for distribution primarily through cable television systems, direct broadcast satellite operators, telecommunications companies, and online video distributors. It also broadcasts network programming; and operates 28 broadcast television stations, including 11 duopolies in the United States.

Lately Fox News has been in the headlines after, Gretchen Carlson, a female news anchor, sued Fox and President Roger Ailes for sexual harassment. Within two weeks of the suit being filed, Ailes resigned from the network. In an internal investigation, more than 25 former and current Fox News employees reported incidents. The investigation revealed that a former Fox News staffer, Laurie Luhn, had been given a $3.15 million severance package after she complained about harassment by Ailes who forced her into a sexual relationship through threats and intimidation. Luhn implicated others in the support staff, several of which have moved into management positions with the Ailes departure.

This week Andrea Tantaros, former co-host of The Five and The Outnumbered, filed suit against Ailes and the network claiming the division "operates like a sex-fueled, Playboy Mansion-like cult, steeped in intimidation, indecency and misogyny." She claims other executives under Ailes aided in the cover-up and named names in the suit. She said Ailes actions were "condoned by his most senior lieutenants, who engaged in a concerted effort to silence Tantaros by humiliation and retaliation.

The law firm handling the original Ailes harassment investigation said they anticipate Fox being forced to settle with the women who have filed claims and the numbers of women are in "double digits."

This kind of news is not something Fox wants to report. While the settlements are likely to be in the millions, it is the damage to the brand that is the most important. Fox has been recognized as a pro-family conservative organization and these kinds of continuing headlines will tarnish that image.

Shares have fallen to a 7-month low and are likely to continue falling until after the settlements and the headlines have passed.

Position 8/25/16:

Short FOXA shares @ $24.72, see portfolio graphic for stop loss.


Long Oct $24 put @ .60, no stop loss.

RUBI - Rubicon Project - Company Profile


No specific news. The position was opened with a trade at $8.90.

Original Trade Description: August 22nd.

The Rubicon Project is a technology company that engages in automating the buying and selling of advertising. The company offers advertising automation platform that creates and powers a marketplace for buyers and sellers to readily buy and sell advertising at scale. Its advertising automation platform features applications for digital advertising sellers, including Websites, mobile applications, and other digital media properties to sell their advertising inventory; applications and services for buyers comprising advertisers, agencies, agency trading desks, demand side platforms, and ad networks to buy advertising inventory; and a marketplace over which such transactions are executed.

Unfortunately, the arrival of sophisticated ad blocking software has caused RUBI significant pain. The war to claim the space occupied by display advertising has gone nuclear. Facebook reported they had changed their advertising code to get past the largest ad blocker, AdBlock Plus. Only a day later AdBlock reported they had changed their code to counter the change by Facebook. The next day Facebook announced a new change followed by AdBlock announcing a new change, etc. This went on for nearly ten days and we still do not know who will be the winner. AdBlock has more than 200 million users of its blocking program.

For a small company like Rubicon, they are getting trampled by the giants as they race to make their blocking/serving software successful. In their Q2 earnings, RUBI reported 17 cents and $65.1 million in revenue. That beat the street on both numbers. However, they warned that "the digital advertising market is undergoing changes that have fueled headwinds that we expect will continue the remainder of the year in desktop advertising."

They cut guidance for the current quarter from 12 cents and $70.2 million to 8 cents and $62 million. They cut full year guidance to 75-90 cents on revenue of $260-$275 million. That compared to a prior forecast of $275-$290 million. Consensus estimates were looking for 90 cents and $295 million.

Shares crashed from $14 to $9 on the guidance warning. After a minor rebound attempt they are heading lower again and closed at $9.05 on Monday and a historic low.

The outlook is not good for RUBI and their competitors. The ad blocking war is only going to grow more competitive and fewer ads are going to be served and that will impact revenue for quarters to come.

Position 8/24/16 with a RUBI trade at $8.90

Short RUBI shares @ $8.90, see portfolio graphic for stop loss.

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