Option Investor

Daily Newsletter, Monday, 8/29/2016

Table of Contents

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

Market Wrap

Waiting, Waiting, Waiting

by Thomas Hughes

Click here to email Thomas Hughes


The market moved higher in the wake of Yellen's hawkish sounding comments of last week, but we're still waiting on more data. Yellen, and other FOMC members, made it clear last week that the September meeting is a live one in terms of the possibility of a rate hike, nothing really new since they've all along that each meeting should be considered so. What is new is that she said, much to my surprise, the economic case for a rate hike has strengthened. What she didn't say is that a hike was likely in September, so we're still waiting on more data. Today's round was good, income and spending numbers show improvement in labor and consumer segments but neither hot enough to seal the deal.

Global markets were more flat than not. The Yellen comments dominated news in most regions although falling oil prices also took their toll. In Asia Japan was the stand out, the Nikkei rose 2.3% on dollar strength/yen weakness. European indices were mostly lower but losses were small, in the range of -0.4%. The UK was closed for a bank holiday.

Market Statistics

Futures trading indicate a flat to slightly negative open for the indices during the earliest part of the electronic session. The trade moved to break-even and then slightly higher following the 8:30AM release of economic data. Action at the opening bell was bullish although without much strength, volume was pretty light. The indices gained a quarter percent in the first half hour of trading and then slowly extended the rally into the early afternoon. Intraday high was hit about 2PM and the market drift sideways from there leaving the indices near the highs at the close of the session.

Economic Calendar

The Economy

Personal Income and Spending data was released today at 8:30AM. This is an important release as it is the Feds preferred tool for watching consumer level inflation. Income rose 0.4%, in line with expectations, and the preceding month was revised higher by a 0.1%. Spending rose 0.3%, also as expected and also with a 0.1% upward revision to the previous month. Personal Consumption Expenditures,a measure of the changes of consumer prices, was unchanged from the previous month but the core PCE, ex food and energy, is up 0.3% month to month and 1.6% year over year. All told, this is a decent report showing increases in earnings and spending with inflation running below the Fed's 2% target.

Moody's Survey Of Business Confidence fell -0.9% to 25.0. This the 2nd week of decline since hitting a peak in early August and the lowest level in 5 weeks. Despite a recent rise in confidence it remains low relative to all time highs set last year at this time. According to Mr. Zandi, survey creator, the data shows a global economy that is expanding and has generally shrugged off the series of potentially damaging geopolitical events that unfolded over the summer. The strongest responses are in the US, the weakest in South America.

The 2nd quarter 2016 reporting season is almost over. According to Factset 98% of the S&P 500 has reported. Of those 71% have beaten EPS estimates and 53% have beaten revenue estimates; the former is above average, the latter below average. The blended rate of earnings growth is -3.2%, steady from last week, with 7 of the 10 S&P sectors beating expectations. Even though earnings are better than expected they are not as much better as expected, and the 5th quarter of negative earnings growth since the earnings recession began.

Looking forward the chances we'll see a 6th quarter of negative earnings growth continue to grow. Third quarter estimates for S&P 500 earnings growth fell by another -0.1% to hit -2.1%. At the current rate of decline this could easily hit -4% by the start of the next cycle virtually assuring the quarter's growth rate will end on a negative note. Longer term, growth is still expected to return in the 4th quarter and expand into 2017.

Lot's of data this week. Auto/truck sales, consumer confidence, ADP employment, Challenger job cuts, labor costs and construction spending only a few of what's on the list. All are important for the big picture but the number one release will be the NFP on Friday. Last month's number was fairly strong at 255,000, this month consensus is only about 185,000. The headline number will be important but beware of revisions. A strong number will likely add fuel to rate hike proponents.

The Dollar Index

The Dollar Index extended its gains today but the move was cut short. The index had broken above $95.50 and appeared to be heading higher until midday when it slowly reversed. The early rise was driven by a hawkish sounding Fed but that support did not last long. While hawkish sounding, Yellen's comments only restated what the FOMC has been saying all along, that each meeting should be considered live and that the data is promising but not quite there yet. The comments that conditions had improved are supportive of the dollar but could set it up for a crash if there is no rate hike in September. The CME's Fedwatch Tool has edged higher, showing a 24% chance of rate hike at the next meeting.

Today's move in the Dollar Index confirms resistance exists at the 61.8% retracement level but its strength is questionable. The indicators are both pointing higher, consistent with higher prices, and the short term moving average is providing support so another test is likely in the least. A break above this level, perhaps driven by better than expected economic data, could take the index up to $96.50 or higher. The near term looks bullish for the dollar, risk being weak data, but this move may be setting the market up for a fall later on if there is no rate hike in September, or this year. Short to long term the index appears to be trading within a range with bottom near $94.30 and top near $97.50.

The Oil Index

Oil prices took a tumble today closing with losses near -1.35% after falling as much as -2% intraday. WTI lost -$0.64 to close at $47 and could move lower in light of growing oversupply concerns. The talk of a possible OPEC production freeze was quieted today as production from the cartel swells. Adding to supply concerns are increasing production in Iraq and other areas. Today's move appears to confirm resistance at $47.50 and could lead to a further drop, next target $45.

The Oil Index was able to post gains today despite the decline in the underlying commodity. The index moved up a half percent from the short term moving average and could go higher but remains range bound. Today's action is in the upper half of the 5 month range and could move up to 1,175 although the indicators suggest growing weakness. Stochastic has already made a bearish crossover, MACD is close behind, and suggests support will be tested again. Even if the moving average is broken next support is just below, near the midpoint of the range, at 1,120. Provided oil prices do not fall too sharply the range should hold.

The Gold Index

Gold prices fell earlier, slightly, but recovered all the losses and more, a little, by the end of the day. Today's trading range was very tight, about 0.25%, but held above support at the $1,320 level. This level is likely to be tested in the coming days on a strengthening dollar and could be broken. Next target for support is near $1,300.

The Gold Miners ETF GDX began the day lower, opening with a loss near -2%, only to move up from support and close with a small gain. Today's action began at the $26.70 support line and moved higher, confirming support at this level. The indicators are moving lower suggesting that support will be tested again, it's strength will be dependent on the data, the dollar and FOMC expectations. A break below this level would be bearish in the near to short term and could result in a move down to $22.50.

In The News, Story Stocks and Earnings

Apple was one of few declining stocks in today's action. The tech giant is the focus of a news story and tax probe that could result in over 1 billion euros in back payments. The EU is set to rule on a case in which Ireland is accused of giving undue favoritism to Apple, an accusation both Ireland and Apple deny. If true, the ruling would equal less than .5% of the cash Apple has on hand. Shares of the stock drifted lower in listless trading on the news.

The information technology sector is the one posting the largest beats to earnings. The sector was expected to post an earnings decline near -7% for the quarter but actual results are closer to -0.7%. Looking forward the sector is expected to post positive earnings growth in the next quarter of 0.9% and could do much better. In terms of growth however, the 0.9% expected leaves the sector in 6th place behind Utilities, Health Care, Materials, Consumer Discretionary and Consumer Materials. Growth is expected to continue into the end of the year, full year 2016 estimates are positive, and expand into next. Shares of the XLK Technology SPDR have been riding high on results and expectations and may be setting up for another extended move higher. A break above the current high, which dates back to the 1999-2000 tech bubble, would be bullish and could as high as $53 or 12.7% in the short to long term.

The Indices

The indices made a move higher today but it was not strong, did not break to a new high and leaves them near the middle of very tight congestion bands formed over the past 3 weeks or so. Today's leader was the Dow Jones Industrial Average with a gain near 0.6%. The blue chips created a small white bodied candle moving up from the short term moving average and looks like it might bounce higher. If so resistance at the current all time high, near 18,636. The indicators continue to show divergences indicative of market weakness so I continue to be cautious with my approach. A break below the moving average would find support just below, near 18,280, a break below that level could lead to further downside.

The S&P 500 made the 2nd largest gain in today's session, about 0.53%. The broad market created a small white bodied candle that closed near but not at the high of the day. This upper wick reveals the presence of resistance however small it may be. Today's action is a bounce from the short term moving average following the test of said level last week. This may be confirming support along the moving average but the indicators have yet to confirm it. Both the indicators are pointing lower, and are showing significant divergences, suggesting a possible correction is building. A break below the moving average would be bearish in the near term and could take the index down to 2,150 or 2,125. If the bounce continues resistance is just above today's close near the most recently set all time high.

The Dow Jones Transportation Average made the third largest gain today, about 0.45%. The transports created a small white candle with close above the moving average although today's action began below it. The move above the moving average suggests support, the indicators suggest that support may be week so further testing is likely. A move below the moving average would find next support just below near 7,750, a break below this level could take the index down to 7,500 or further.

The NASDAQ Composite made the smallest gains in today's session, only 0.26%. Today's candle is a small spinning top doji, another in a long series of spinning tops which formed as the market melted higher and began its sideways drift. The index has been holding near the all time highs, generally a positive occurrence, but signs of weakness persist namely divergent indicators. If the index is able to move up from this level it could rally as much as 700 points in the short to long term. A break above the all time high, near 5,250, would be bullish. Support is along the short term moving average and the previous all time high near 5,230.

The market continues to drift sideways, waiting for something to move it. That something may be this week's data, specifically the NFP, but there is no guarantee. There have been multiple potential catalysts over the past few weeks, including Yellen's speech last Friday, and all have failed to inspire more than cursory buying or selling. There is a lot for the market to consider, earnings, economic data and the FOMC, but in the end today's market action comes down to low volume and seasonality. We may see the indices continue to drift sideways, and we may see them test or even set a new all time high, but I remain cautious until after Labor Day and the summer trading season comes to a close. Don't forget, through it all next quarter earnings outlook is poor, and declining.

Until then, remember the trend!

Thomas Hughes

New Plays

Stream This

by Jim Brown

Click here to email Jim Brown
Editor's Note

Fortunately, this streaming video company is not new, but the new live stream portion is set to change the business model.


TWTR - Twitter - Company Profile

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 implementing the concept with new deals with the NFL, NBA, MLB and NHL. The video shows up in the left side of the screen and the right side has a running commentary of tweets on the topic. 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 rose from the $14 low on June 10th to $21 on August 15th when rumors of a possible acquisition were making headlines. We exited a long play for a nice profit when the shares began to weaken.

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 shares appear to have found support at $18.50 as we move into the football season. With Twitter streaming the Thursday night games they will be attracting a lot of attention. I believe the selling is over and we could see a new move higher on improving fundamentals rather than takeover chatter.

Buy TWTR shares, currently $18.48, initial stop loss $17.65.

No options recommended because of price.


No New Bearish Plays

In Play Updates and Reviews

Trend Only Slightly Bullish

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Russell 2000 gained 7 points to make a lower high but the longer-term trend is still slightly bullish. The recent uptrend is very choppy but the Russell continues to move higher one giant step at a time about once a week. That is not evidence of bullish conviction but suggests shorts are loading up and then get squeezed about once a week. Today was a short squeeze from positions entered on the Fed spike on Friday. The gains were mostly at the open and the index faded in the afternoon.

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

ACAT - Arctic Cat
The short position remains unopened until $14.15. Low today was $14.69.

HUN - Huntsman
The long position remains unopened until a trade at $17.65. High today was $17.55.

AVID - Avid Technology
The long position remains unopened until a trade at $9.85. High today was $9.28.

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

AVID - Avid Technology - Company Profile


No specific news. Avid said it would release new products at the IBC 2016 conference on Sept 9th.

This position remains unopened until a trade at $9.85.

Original Trade Description: August 27th.

Avid Technology, Inc. develops, markets, sells, and supports software and hardware for digital media content production, management, and distribution worldwide. The company offers professional video creative tools, such as Media Composer product line that is used to edit video content; NewsCutter option and iNews systems for news production; Avid Symphony option, which is used during post-production; Media Composer Cloud solution that enables broadcast news professionals to acquire, access, edit, and finish stories; and Avid Artist DNxIO, a hardware interface for video production. It also offers media management solutions comprising Avid MediaCentral UX Web and mobile-based apps that provide real-time access to media assets for media professional; and Avid Interplay asset management solutions that offer network, storage, and database solutions to enable users to simultaneously share and manage media assets across a project or organization. In addition, the company provides Avid ISIS shared storage systems.

The constant stream of real time content you see on TV is not really real time. The reporter may be live but the constant background videos, the cutaways to apparently live videos and the canned footage of people, places and things, are all put together by video technicians in the production room using various software programs including the Avid products. They can mix, match, edit, cut and produce a stream of video from multiple sources in a matter of minutes thanks to the production software.

Avid has been around a long time. I can remember it being used back in the early 2000s as a cutting edge editing tool. Competition arrived from Adobe, Canopus, Grass Valley and others and it was a fight for market share. Avid never wavered from its quality commitment.

Today their award-winning control software is used by leading sound companies, music studios and post production houses. They have migrated primarily into sound recording and mixing and the products are in high demand. The "Avid Everywhere" platform is the industry's most open, innovative and comprehensive platform for content creation and collaboration.

Quote from Avid. "Media organizations and creative professionals use Avid solutions to create the most listened to, most watched and most loved media in the world, from the most prestigious and award-winning feature films, to the most popular television shows, news programs and televised sporting events, as well as a majority of today’s most celebrated music recordings and live concerts."

In their Q2 earnings report, they said platform licenses for Avid Everywhere were up 47% and cloud-enabled subscriptions were up 390%. More than 38,000 enterprise users were on the platform. There were more than 40,000 paying individual, cloud enabled subscribers, up 62% from Q1 and 390% from Q2-2015. Total bookings rose 32%.

Earnings Nov 3rd.

Shares rose from $7 to $9 on the earnings and traded sideways for the last two weeks. With a positive market, we could see a breakout over $10 and a 52-week high.

With an AVID trade at $9.85

Buy AVID shares, initial stop loss $8.85.

No options recommended because of wide spreads.

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. Named a top dividend stock by Jefferies at 2.95% yield. Shares came within 10 cents of our entry trigger.

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. Falling oil prices are weighing on the energy sector.

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. Holding at a 7 month high.

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. Minor move today. New 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.

BEARISH Play Updates

ACAT - Arctic Cat - Company Profile


No specific news. Minor loss in a mixed 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


Minor rebound in a mixed market after TheStreet posted an article saying they were the best value play in the media group. The 20 cent gain showed there was not a lot of conviction.

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. Holding at the lows.

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.

If you like the trade setups you have been receiving and you are on a free trial then now is the time to subscribe. Do not wait until you miss a newsletter to decide you want to take the plunge.

subscribe now