Option Investor

Daily Newsletter, Tuesday, 8/30/2016

Table of Contents

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

Market Wrap

Closed for Labor Day

by Jim Brown

Click here to email Jim Brown

Traders have already left for the weekend and volume is the lowest of the year.

Market Statistics

They would save everyone a lot of brain damage by just closing the markets for the rest of the week. With volume yesterday at 4.9 billion shares and only 5.6 billion today the indexes are just running in place while we wait for Friday's employment report and the start of the September madness next week.

There were no economic reports of importance to energize the market and gap lower at the open lasted most of the day with only a minor short covering bounce into the close.

The Consumer Confidence for August rose from 96.7 to 101.1 and the highest level since September. It was only the fifth reading above 100 in the past eight years. Analysts were expecting a reading of 97. The present conditions component spiked from 118.8 to 123.0 and the expectations component rose sharply from 82.0 to 86.4. Those planning on buying a car declined slightly from 11.1% to 11.0%. Those planning on buying a home rose from 5.1% to 6.4%, a big jump, and appliances up from 49.3% to 50.3%. Consumers planning on going on a vacation over the next six months rose from 43.4% to 50.7% an unusually large gain.

It would appear those consumers responding to the survey in August were a different mindset than those responding to the sentiment survey last week. Those who felt jobs were plentiful rose from 23.0% to 26.0% and those saying jobs were hard to get rose from 22.1% to 23.4%. Consumers expecting a raise rose from 17.2% to 18.8%.

If these confidence numbers continue to rise the outlook for the economy should improve also.

The S&P Case-Shiller Home Price Index showed prices rose 5.1% in June compared to the prior reading of 5.2%. The report was ignored.

The Texas Service Sector Outlook Survey rose from -1.3 to +6.5 for August. The internal components showed revenue fell from 10.3 to 6.5 but employment rose from 3.8 to 5.8. Costs rose significantly. Employment costs rose from 10.4 to 14.2 and input prices rose from 17.9 to 22.0. Selling prices declined from 3.8 to 2.4. Since it appears all the major components were moving in the wrong direction, I am surprised the headline number showed a gain.

Tomorrow we will get the first payroll report with the ADP private sector employment report. The expectations have risen from 165,000 to 171,000 since last Friday. The Nonfarm Payrolls on Friday have seen expectations rise from 160,000 to 180,000.

The Nonfarm Payrolls will be the key event for the week and the volume on Friday is going to be very anemic. This will be the focus report for the Fed and trigger decisions for the FOMC meeting two weeks later. Any reading materially over 180,000 would almost guarantee a rate hike.

  The ISM forecast has not changed with 52.2 representing a minor decline.

The big news of the day was a wakeup call for Apple (AAPL). This was not the kind of call you want to wake you up. The EU demanded a $14.5 billion tax payment plus interest from Apple because of their business in Ireland. They employ 6,000 workers in Ireland. The EU concluded that Ireland had granted Apple undue tax benefits, which is illegal under EU rules. This allowed Apple to pay an effective corporate tax rate of 1% on its EU profits in 2003 and declining to 0.005% in 2014. Apple and Ireland agreed to a "tax arrangement" in 1991. Apple first relocated employees to Ireland in 1980 but increased their presence after 1991.

The EU official said they were sending a message to any taxpayer in Europe and they were currently investigating Amazon and McDonalds for similar tax liabilities.

The ruling is being protested by both Ireland and Apple. The Irish finance minister said Apple did not owe the money and was paying taxes according to the Irish tax rules in place. He said this was a power grab by the EU in trying to generate extra income by investigating large corporations with money in EU banks. According to the minister, each country in the EU is responsible for charging and collecting their own taxes as they see fit. The EU claim is unjustified and it is being made under an unfair competition clause rather than under a tax rules clause.

Everyone commenting on the situation said it was not about how much Apple pays in taxes but which government collects the money. An Apple spokesman said, "If the ruling is not overturned it would have a significantly negative effect on investment and job creation in Europe." I would not be surprised to see other EU countries begin talks about leaving the EU if this kind of regulatory oversight continues.

A UK official immediately welcomed Apple to move to the UK where they would be free from the onerous EU regulations. This is an example of the regulatory oversight the UK was trying to escape from with the Brexit vote. Unelected regulators in Brussels can pass any law or ruling they desire and the EU countries have to live with it.

Apple shares declined to $106 on the news.

The bottom finally fell out of the Hershey (HSY), Mondelez (MDLZ) acquisition talks. We tried to use a put on the Hershey spike back in June in anticipation of this event but we ran out of time. There was no way an acquisition was ever going to be completed. The Hershey trust owns 80% of the voting rights of the Hershey Company and the trust was created to fund a children's school and living conditions for people in Hershey Pennsylvania. The trust is so intertwined with the people in Hershey PA, that the Attorney General of PA also has veto power over any deal. The trust board is being reconstituted this year and next after the AG forced them to put term limits on the board members.

After two months of talks on how the companies would be structured and how the merger would work, they finally got around to price last week. Mondelez had offered $107 with Hershey at $96. When they finally began to talk price the Hershey CEO said it was not enough. After some soul searching by the Mondelez board they suggested the deal would be earnings neutral at $115 a share. When they passed that number to Hershey the board said no way they would even consider a number under $125. Mondelez immediately canceled the discussions saying there was no "actionable path" to continue the process.

Hershey shares fell -$12 on the news to $99.65 and only $3 above the price where it started in June.

United Airlines (UAL) soared 9% after they hired the president of American Airlines, Scott Kirby. On Friday, he was president of American and on Monday, he was president of United, a position they created just for him, but he will not actually start work until next week. This puts him in the line of succession for ailing CEO Oscar Munoz, who just returned to work after getting a heart transplant. Kirby's base compensation will be $875,000 plus an annual bonus, restricted shares and performance based stock awards. He also received a signing bonus of $5 million in stock options that will vest after UAL stock rises 25%. I hope for his sake the grant date was last week. He left AAL with $3.85 million in severance, plus an accelerated vesting of 259,000 AAL shares worth $9.34 million. He must be a smart guy because he graduated from the U.S. Air Force Academy with degrees in computer science and operations research and then received a masters in computer science from George Washington University.

The spike in United shares helped power the Dow Transports to a 50 point gain in an otherwise weak market.

Abercrombie & Fitch (ANF) reported a loss of 25 cents that was larger than the 20-cent loss analysts expected. Revenue of $783.2 million narrowly beat estimates for $782.7 million. Same store sales declined -4% in the quarter. Weak traffic forced higher discounts and reduced profit margins. The company warned that "traffic headwinds" would continue to weigh on sales for the rest of 2016. This was the 14th quarter of declining sales.

Fashion retailer G-III Apparel (GIII) reported earnings of 1 cent compared to estimates for 18 cents. Revenue of $442 million missed estimates for $485 million. The CEO said "We believe the risk of continued softness in the retail outlet environment has somewhat abated, as we have now liquidated inventory from the 2015 holiday season." The CEO also said expected cool weather trends would benefit retailers compared to the unseasonably warm weather in 2015. The company lowered full year guidance from $2.56 billion and $2.60 in earnings to $2.48 billion and $2.21 in earnings. Shares were crushed for a -21% loss.

DSW Inc (DSW) shares fell -10% after reporting earnings of 35 cents compared to estimates for 30 cents. Revenue of $659 million barely beat estimates for $658.7 million. However, same store sales declined -1.4%. The company reaffirmed full year estimates for $1.32 to $1.42. The severity of the selling was probably related to the ANF and GIII disasters. DSW was guilty by association.

After the bell, Palo Alto Networks (PANW) reported earnings of 50 cents that rose 79% compared to estimates of 49 cents. Revenue rose 41% to $440.8 million and easily beat estimates for $389.9 million. The company guided for the current quarter for earnings to rise 49% to 51-53 cents on a 34% increase in revenue to $396-$402 million. Analysts were expecting 56 cents and $402.9 million. Shares initially rise to $150 but then declined to close at $139, down -$4.

H&R Block (HRB) reported a loss of 55 cents compared to estimates for a loss of 53 cents. Revenue of $125 million missed estimates for $132.6 million. Block's business is highly seasonal and you cannot judge the entire year by a summer quarter. However, investors sold the stock and shares were down about 10% in afterhours.

There are limited earnings the rest of the week with a random collection of companies. However, the retailers will continue to hog the headlines. After today's retail disasters, those late week reporters are probably wishing they could delay their earnings until next week.

Boeing (BA) said it was not going to raise prices on planes in 2016 because they had a record order backlog. Previously they held prices flat in 2001 and 2009. Boeing has sold 336 planes in 2016 compared to 760 for all of 2015. Production is so backlogged that an order placed today would not receive delivery until 2022-2023. Nobody pays list prices for planes so refraining from an annual price hike is not that meaningful. It just means you are a little firmer on the negotiations. However, the flat list prices are an inducement for some buyers to put down millions of dollars in orders for planes they may not get until 2023. That is some long term planning.

Penske Automotive (PAG) is on a vertical ramp because the Chairman and CEO, Roger Penske, is pouring money into stock purchases. He purchased another 478,000 shares on Monday for $21 million. That is in addition to the roughly 1.3 million shares he has purchased previously in August. He has spent roughly $80 million buying shares in August alone. He now owns approximately 32 million shares with only 85 million outstanding. Every 2-3 days he announces another purchase. It appears he is trying to take the company private one share block at a time.

Crude prices are falling despite the harsh weather in the Gulf of Mexico. Oil production in the Gulf has been reduced by about 10% as platform operators begin to shut in production and evacuate the rigs. There has not been a hurricane in the Gulf in more than three years and that is almost a record. There are 781 production platforms in the Gulf and only six have been evacuated so far. Tropical Depression Nine is expected to make a hard right turn to the east and miss all but a few of the rigs on the far east of the oil patch. Winds are only about 35 mph but it is expected to strengthen as it reaches the warmer shallow water. The Gulf produces about 20% of the U.S. oil.

Crude prices are also falling because the OPEC headline spam about a potential production freeze agreement at the late September meeting in Algeria, is fading. There have been multiple comments from various OPEC countries about not participating in a freeze. It appears the effort is going to fail even before the meeting occurs. Crude oil has fallen to $46 as we near the end of the driving season.


Turn off the computer, play a round of golf and get a head start on the holiday planning. The market does not appear to be headed anywhere this week. The divergence between the small caps and the big caps is just enough to keep both categories from moving too far from their current levels.

The Russell 2000 and S&P-600 small cap index both posted fractional gains today while the big cap indexes posted minor losses. Art Cashin pointed out that market lore suggests the indexes are up 60-70% of the time in the three days before Labor Day. While that is not a hard and fast rule there does not appear to be any urgency to move in either direction.

The ADP Employment report on Wednesday could trigger some volatility if it comes in significantly different than the 171,000 estimate. If it comes in much hotter, it will scare traders into expecting a large number on the Nonfarm report and a higher chance for a rate hike. That could cause some selling. If the report comes in lighter than expected, we could see traders project the same thing for the Nonfarm and that would push the hike farther into the future. That could trigger some buying.

Having the payroll report the day before a three-day weekend is always a traumatic event but this time around, it is even more worrisome because Fed heads have already said a hot report would push them towards a rate hike. That means traders will adjust their positions after the ADP report or remove them entirely.

The S&P closed right above initial support at 2,175 and tight in the middle of the recent range. That is about as neutral as you can get and there is no indication of direction. The 2,150 level is still critical support.

The converging resistance on the Dow remains intact and support at 18,350 is also unbroken. The Dow closed in the middle of its recent range although it has made a series of lower highs. The last week has seen a slight downward bias but the emphasis is on slight.

The biotech sell off has slowed and that has helped the Nasdaq keep its losses to a minimum. The sector is still declining but at a much slower pace. The tech earnings for the week come on Wed/Thr and that could provide some limited volatility. It is hard to generate a big market move when there is nobody in the market.

The Nasdaq came close to testing support at 5,200 again today with a dip to 5,205. That is the critical support level that keeps the Nasdaq in a tight range similar to the Dow and S&P. If 5,200 breaks it could trigger a volatility event.

The Russell 2000 is still climbing slowly higher and has not broken out of its recent trend. The microscopically slow climb of three steps forward and two steps backward is like watching paint dry but we cannot knock the trend. The Russell gains are helping to keep the big cap indexes from collapsing.

The S&P has not had a 1% move in the last 37 sessions. In the month of August, there have only been back to back S&P gains TWICE. Think about that. The consolidation pattern has been so tight that we have been alternating gains and losses since July 15th.

This tight pattern has got to break soon and when it does we could easily see a 50 point move on the S&P and possibly more. While the bears are seeing this recent pattern as a top in the market, there is growing evidence there could be a breakout to the upside after Labor Day. Of course, now that I have stated that fact I have jinxed the market. The key here is the fund manager race to their fiscal year end on October 31st. Some 77% of fund managers are performing below their benchmarks. The job of a portfolio manager is survival of the fittest. Those that perform survive; those that do not are replaced.

Once the opening bell rings on Tuesday morning, they will be surveying the landscape, talking to their teams and deciding what to dump and what to buy to cram some performance into the last 60 days of their fiscal year. That means our consolidation pattern is about to end. We just do not know which way it will break first. However, before they can add new positions they will need to liquidate old positions. That is why September is normally volatile. I did catch a sentence from Jeffery Hirsch from the Stock Trader's Almanac, saying Septembers in election years were up 7 out of the last 12. That is hardly a robust showing but the last 12 non-election Septembers have been negative.

All this goes to prove that nobody knows where the market is going next week. We do know that volatility will eventually rise and our consolidation pattern will end.

Enter passively, exit aggressively!

Jim Brown

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New Plays

Unforced Errors

by Jim Brown

Click here to email Jim Brown
Editor's Note

Sometimes trying to hard creates unforced errors. After looking at hundreds of charts today, I could not find anything to add that was worth the risk. Rather than try to force a play by picking something that was "less bad" I am recommending we pass on adding a play for Wednesday. The market is nearing a pivotal point with the Nonfarm payrolls on Friday and the beginning of the September madness. Since we do not have a clue for market direction over the next several days there is no reason to add additional risk.


No New Bullish Plays


No New Bearish Plays

In Play Updates and Reviews


by Jim Brown

Click here to email Jim Brown

Editors Note:

The Russell 2000 squeezed out a 1-point gain with the rest of the major indexes in the red. The Dow lost -48, Nasdaq -9, S&P -4 but the Russell continued its attempt to move higher. However, it was another lower high day and further weakness in the big caps could eventually drag it lower.

This is clear evidence that fund managers are taking small bites of small cap stocks ahead of what could be a pivotal jobs report on Friday and a major market move next week.

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 $14.54.

HUN - Huntsman
The long position was opened with a trade at $17.65.

AVID - Avid Technology
The long position remains unopened until a trade at $9.85. High today was $9.25.

TWTR - Twitter
The long position was opened with a trade at $18.59.

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Short term Calls and Puts on equities = Option Investor Newsletter

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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.

CIEN - Ciena Corporation - Company Profile


Lottery Play Update

No specific news. They report earnings on Thursday morning so I am recommending we exit this position at the open on Wednesday.


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.

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.

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.

FDC - First Data - Company Profile


Craig-Hallum started coverage with a buy rating and a $20 price target and that is the highest target on the street. Shares punched through resistance at $13.35 but faded in the afternoon.

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: Long Oct $14 call @ .50, no stop loss.

HUN - Huntsman Corp - Company Profile


Huntsman announced a quarterly dividend of 12.5 cents payable on Sept 30th to holders on Sept 15th. Shares also rallied on the merger talks between Potash (POT) and Agrium (AGU).

Position was opened with 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


Marathon was downgraded from buy to hold by Seaport Global Securities. Oil prices have begun to decline with the production freeze headlines fading after comments from some OPEC ministers. I am recommending we close the position.


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. Extending the gains to a 7-month high 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. 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.

TWTR - Twitter - Company Profile


Twitter announced an ad-sharing program with content creators that upload videos to Twitter. Those creators can check a box to have an ad run before their video and they will split the revenue 50:50 with Twitter.

Original Trade Description: August 29th.

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.

Position 8/30/16

Long TWTR shares @ $18.59, see portfolio graphic for stop loss.

No options recommended because of price.

BEARISH Play Updates

ACAT - Arctic Cat - Company Profile


No specific news. Minor loss in a mixed market. Support at $14.75 starting to crumble.

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 and the minor 20 cent gain from Monday was erased.

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. New historic low.

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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