Option Investor

Daily Newsletter, Thursday, 9/1/2016

Table of Contents

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

Market Wrap

Market Wobbles On Data

by Thomas Hughes

Click here to email Thomas Hughes


An avalanche of economic data caused a bit of market wobble as FOMC outlook is reevaluated. Last week's speech by Janet Yellen, comments from Fed officials and data earlier this week had combined to spur some expectation the FOMC may raise rates as soon as the September meeting. Today's data nipped that in the bud but doesn't take a hike off the table completely. There are still signs the economy is reaching break out speed, the problem is that the signs remain spotty and the recovery slow.

There was a bit of news from the international scene to affect trading today as well. In China the official PMI was better than expected and above 50, showing signs of expanding activity in the large cap manufacturing sector, while the small/mid cap Caixin PMI came in at a tepid 50. Other news that may have some rippling effects throughout the region, and to a lesser extent the globe, is the collapse of the world's 7th largest shipping concern, Hanjin. The company's demise has led to several ships being seized by China and the risk of similar events elsewhere. Efforts to fill gaps left in global shipping routes are underway. Asian markets were mostly mixed on the news; Japan was up marginally, mainland China fell -0.73%, Hong Kong rose 0.81%

European markets were no stranger to market moving news. Initially higher on better than expected UK PMI the markets closed with losses as plunging oil prices and falling US indices weighed on sentiment. UK PMI needs to be noted, rising from a 3 year low to a 10 month high, the strongest gains in years, in the month following the Brexit referendum vote. The DAX and FTSE both closed with losses near -0.5%, other indices were not hit as hard.

Market Statistics

Lots and lots of information for the market to digest today and that is evident in the price action. The daily range was barely more than 0.75% of opening value but choppy. Early futures trading indicated a positive open for the indices for most of the morning. Lay-off data helped to support futures prices but weak auto sales, labor cost and productivity numbers combined to erase early gains. Trading was quiet at the open, there was some buying and the indices moved up by about a quarter percent but sellers overcame buyers by 9:45AM and sent the indices into negative territory.

At 10AM the selling intensified when construction spending data was released and sent the indices down to the low of the day, about -0.5% from yesterday's close. The market churned at this level for over an hour and then, shortly after noon, a rally recouped most of the early losses although resistance was hit near yesterday's close. Resistance held for the rest of the day although trading kept index prices near the highs up to and until the close of the session.

Economic Calendar

The Economy

Lots and lots of data today, the most in one day I've covered for quite a while. Starting off, the earliest release was the Challenger Gray & Christmas report on planned lay-off's. The number of planned lay-off's fell -29% to the second lowest level this year, 32,188. This is also a three month low, just off the 8 month low and -22% lower than this same time last year. The year to date total is now 391,288, -10% lower than last year at this time. Based on this data employers appear to be at least retaining employees/maintaining employment levels, a positive sign for the labor market.

The computer industry led this month due to lay-off's announced by Cisco. This is a continuation of a trend in lay-offs for the sector which began at the start of last year. Of note, Microsoft and Hewlett Packard are both responsible for thousands of lost jobs. The increase in lay-offs in this sector is not seen as a negative as they are due to restructuring/consolidations that are a net positive. Energy was second in terms of the number of lay-offs although the bulk of lost jobs were in the solar energy sector. Wal Mart announced just today 7,000 job cuts that will be included in the next report.

Initial Claims for unemployment rose by 2,000 to 263,000, last week's figures were not revised. The 4 week moving average of claims fell -1,000 to hit 263,000. This is the 78th week that claims have been below 300,000, the longest streak since 1970. Claims are trending near the long term 43 year low and are consistent with ongoing labor market health. On a not adjusted basis first time claims fell -0.7% versus an expected decline of -1.4%. On a year over year basis not adjusted claims are now -6.3% lower. The largest increases in claims were in Michigan, +2652, and Louisiana, +2280. The largest decreases in claims were in California, -2962, and Virginia, -1168.

Continuing claims rose by 14,000 from last week not revised figure to hit 2.159. The four week moving average also moved higher, gaining 4,500 to hit 2.159 million. Despite the gains second week claims continue to trend near long term lows and consistent with labor market health.

The total number of claims fell -22,536 to hit 2.100 million. This is the 5th week of decline since hitting the August peak, we can expect it to continue to fall for another 7 weeks based on historical/seasonal trends. On a year over year basis total claims are down -5% and consistent with labor market health.

Productivity and Labor Cost data was also released at 8:30AM and is what began to take the wind out of the markets sails. Second quarter productivity was revised lower to -0.6% from -0.5%, showing a decrease in the output of American workers. Labor cost was revised to +4.3%, more than doubling the original estimate, bringing the YOY gain to +2.6%. Driving the upward revision was a similar revision in wages, up 3.7% versus the originally reported +1.5%. While rear looking, this data is both negative and positive for the economy. Corporate profits will likely be impacted by higher labor cost and loss of productivity but the consumer will continue to improve on rising wages.

Construction Spending and ISM data was released at 10AM, spending data was flat and ISM contracted. Construction Spending was unchanged from the previous month but up 1.5% year over year. On a month to month basis, a 0.4% gain in residential spending was offset by a 0.3% decrease in non-residential spending. Year over year residential construction spending is up 1.7%, non-residential up 1.4%. These number are good but growth appears to have stalled so did little to support today's trading.

ISM Manufacturing report was reported as 49.4, showing a contraction in the manufacturing sector. This is well below forecast and put a curb on talk the FOMC may be raising rates at the September meeting. Within the report new orders, production and employment all fell and showing contraction while supplier deliveries are slowing. The only bright spot is that inventories are also falling which, eventually, will clear the way for renewed production.

Auto sales data was released throughout the morning. All showed a decline in sales from last August, most a little worse than expected, GM and Ford bucked that trend. GM shaved a half percent off expectations at -5.2%, Ford beat expectations by more than a full percent at -8.2%. Regardless, sales are far short of last years levels and expected to decline according to statements from Ford execs. Based on their view the market has peaked, the pent up momentum post financial crisis having lost steam, and will not hit record highs this year as previously expected. This is a concern due to the overly large influence booming auto sales has had on the economy. A peak is OK so long as activity remains stable, a decline in activity could have spillover effects.

Tomorrow is NFP day, the biggest day of the monthly economic cycle. Expectation is about 175,000 and I think this is probably about right. Labor data over the course of the month was good but seasonal trends do not support strong job growth. Unemployment however may fall, consensus estimate is for a drop of -0.1% to 4.8%, which suggest existing jobs are being filled even if new jobs aren't being created.

The Dollar Index

The Dollar Index took a hit today as ISM data, auto sales and construction spending all point to sluggish economy and no reason for the Fed to raise interest rates. The index fell about -0.40% seeking support along the $95.60 level which was broken earlier this week. Dollar strength over the past week or so was driven by hawkish sounding Fed Speak, now it seems the strength of that move is waning in light of the data. Tomorrow's NFP will likely have an effect on the market although I think it is generally accepted that the labor data is not the Fed's worry at this point. The index is sitting on a potential support at the $95.60 level consistent with a Fibonacci Retracement and moving average. A break below this level would be bearish and could take it down to $94.20 o lower.

The Oil Index

Oil prices took a dive today. First down -1%, then -2% and then more than -3% in blink of an eye. WTI lost nearly $1.50 and is now trading near $43.25. Supply, production and storage are all high and over powering demand. That's the bottom line, until that changes oil prices will remain under pressure. Downside target at this time is near $40, a break below there could go much lower if nothing emerges to support prices.

The Oil Index fell about -1.20% today, extending the drop below the short term moving average and breaking the 1,120 level. The index has now crossed the mid-point of its 5 month trading range and moving lower. The indicators both confirm this move and remain consistent with range bound trading. Downside target is near 1,075 provided oil prices do not snap back in the next couple of days.

The Gold Index

Gold prices rebound in today's session as data weakened the dollar. Spot gold gained about $5 to trade just above $1,315. Gold prices have been pushed down to what could become critical support levels by the recently strengthened dollar. This could be reversing, especially if the data continues to come in on the soft side. I'm watching $1,300 as critical support with upside targets at $1,325, $1,350 and $1,375 should the metal sustain a bounce. After the NFP, next week's Beige Book release may be the catalyst to keep an eye on.

The gold miners were able to post a nice rebound today as well. The Gold Miners ETF GDX gained nearly 3% but remain near the recently set low. The ETF has sold off along with gold, if gold rebounds expect to see it rebound along with it. A move up from here could mean as much as 20% upside if the recent high is retested. The indicators appear to have bottomed, which could lead to at least a small rebound. The risk is that the MACD peak is an extreme, convergent with a lower low, which suggests that a test of the low at least should be expected. If this is the bottom support is just above $25 with potential resistance just above today's close near $26.65. A break above this level would be bullish but need the support of rising gold prices to push it higher.

In The News, Story Stocks and Earnings

Apple was all over the news again today. The company, Tim Cook, has responded to the EU's claims of past due taxes calling them ridiculous, Ireland stands by its claim that no taxes are due. The new twist is that Cook now says those monies were earmarked for repatriation to the US, a move no doubt intended to bring Uncle Sam into the fray. Shares of the stock are as yet unmoved by this development, they gained about a half percent in today's session. What will be of importance is the expected launch of iPhone 7 in the not too distant future.

Campbell's reported earnings before the bell. The soup maker came up short on the top and bottom lines, producing a net loss for the quarter versus a small profit last year, disappointing execs and shareholders. The results are due to tepid sales growth and execution issues that CEO Denise Morrison hopes to fix in the future. Despite the results the board approved an increase to the dividend of 12%. Shares of the stock fell more than -6.25% on the news.

The Indices

The indices saw a bit of volatility today, first up, then down, then back to break even for the close. Today's leader was the Dow Jones Transportation Average which gained about 0.5%. Today's action however positive created a small, weak candle within recent trading ranges without much volume. The indicators remain consistent with range bound trading. A move higher will likely find resistance at the 8,000 level unless a strong catalyst emerges.

The NASDAQ Composite made the second largest gain today, about 0.29%. The tech heavy index created a small doji candle, more of a spinning top, just above the short term moving average but below the previous all time high. The index has been pulling back to support ever so slowly over the past few weeks and the indicators support this move. Support is near 5,200 and if broken could lead to further downside. Looking back over the past couple of months price action appears to be forming a rounding top which, if confirmed, could result in a moderate to deep correction.

The Dow Jones Industrial Average made the third largest gain, 0.10%. The blue chips closed below the short term moving average despite recovering from today's lows, this average may provide resistance moving forward. The indicators continue to show weakness and suggest the pull back may not be over. First downside target is near 18,250 with a chance of deeper correction to 18,000.

The SPX brings up the rear in today's action with no gain, and no loss, 0.00%. This may not be the first time I've seen this happen in more then 10 years of market watching but if it isn't I can't remember another time. Nevertheless, it doesn't really matter as today's action merely means the market is in balance, for today at least. Price action moved down to test support at 2,160 and set a new almost one month low. The indicators continue to weaken so I would expect to see support tested further, a break below would be bearish with possible target near 2,130.

The market continues to churn within the tight range it entered mid-July. It appears to be waiting for something and I am more and more convinced it is the end of the summer more than anything else. Tomorrow's NFP may spark a move to break the range but I do not expect much to come from it other than for job growth to remain stable relative to long term trends. The charts are showing persistent weaknesses, weaknesses highlighted by today's manufacturing and auto sales data, so I remain cautious even in the face of strong labor data.

Until then, remember the trend!

Thomas Hughes

New Plays

Ready to Rumble?

by Jim Brown

Click here to email Jim Brown
Editor's Note

The trading at the open should be fast and furious. Friday's employment report is a binary event. That event has two opposing outcomes. A strong jobs report at 200,000 and over would raise the chances of a September rate hike significantly. That would probably tank the market. A jobs report at 150,000 or lower would probably cause the Fed to postpone the hike until December or later and the market would probably rally. A number in the middle would leave investors confused and the market would probably decline.

The binary outcome is that the market is likely to move in one direction at a rapid pace. That direction is unknown. We have a complicating factor tonight. The volume has spiked the last two days to 6.8 billion on Wednesday and 6.4 billion today compared to 4.9 billion on Monday. Both days the market made triple digit moves and finished well off the lows. However, we did make a lower low today.

That volume is a response to the sudden increase in selling. However, on both days the dip buyers showed up to absorb that selling and that is significant. Today the ISM manufacturing came in at an 8-month low. That prompted the surge in selling early in the day. It would appear that we are back to the "bad news is good news" market where bad news is bought.

We have the potential on Friday for either good or bad news in a report that nearly all the Fed heads have said will be crucial to their rate hike plans. Volume should be the lowest of the week. That means we could get a large triple digit move in either direction or even both directions. Since we are predominately long in the portfolio there is no reason to add new long positions. We already have two market oriented short positions as a hedge against those longs. There is no reason to add a new play when the market is likely to gap open significantly on the jobs news. We would probably get a bad fill regardless of the direction we chose.


No New Bullish Plays


No New Bearish Plays

In Play Updates and Reviews

Fractional Loss

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Russell 2000 lost only 0.1036 points after testing support at 1,232 again. Small caps barely regained the flat line with the S&P-600 gaining only 0.25 point. Considering the major triple digit rebound in the Dow, the flat line on the small caps is troubling.

The intraday low on the Russell was a 2-week low at 1,228 but it was quickly bought to jump back over initial support at 1,232. The A/D line on the Russell was negative. We do not want to see the small caps roll over because that would trip up the broader market.

Today was a warning sign but also another decent rebound. Investors are very nervous about Friday's jobs report and the Fed implications.

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

AVID - Avid Technology
The long position remains unopened until a trade at $9.85. High today was $9.23.

SQ - Square Inc
The long position remains unopened until a trade at $12.25. High today was $12.24.

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

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.

FDC - First Data - Company Profile


No specific news today. Leon Cooperman with Omega Advisors mentioned FDC as a core position on CNBC Wednesday morning and shares rocketed higher. Jefferies initiated coverage with a buy rating and $16.50 price target.

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 pulled back slightly after a 52-week high close on Tuesday.

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.

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. New 8-month high close.

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.

SQ - Square Inc - Company Profile


No specific news. Minor decline in a mixed market. The high today was $12.24 and ONE penny below our trigger point.

This position remains unopened until a trade at $12.25.

Original Trade Description: August 31st.

Square is a mobile payment provider for small businesses, including individuals. Anyone can process a credit card transaction through their Square account using their mobile phone, tablet or laptop computer.

There are at lease 6-8 competitors to Square today. Paypal (PYPL) has offered a card reader for your mobile device for a longtime but they do not advertise it that much. This week Square announced alliances that would let restaurants and retailers to use the point of sale hardware from TouchBistro and Vend. The customers from those two providers will now have access to Squares growing portfolio of services including invoicing, analytics, quick deposits and lending services.

Apparently, Dorsey has discovered that partnering with his competition is the best way to corner the market on his services business.

The company recently announced a similar partnership with Upserve, another startup offering its own point of sale service and software for restaurants. Squares services division saw revenue rise 25% sequentially and +130% over the year ago quarter. Square's lending division is one of the fastest business drivers. They extended 34,000 business loans accounting for $189 million in Q2. That was a 23% increase sequentially and +123% from the year ago quarter.

Q2 revenue of $439 million beat estimates for $406 million. Gross payment value rose 42%. The company reported a loss of 8 cents compared to estimates for a loss of 11 cents. They guided for full year revenue of $1.63-$1.67 billion.

Shares spiked on the earnings news to $11.90 an then faded in a bout of post earnings depression. Recent analyst upgrades provided another boost to $12.50. On Tuesday, Stifel Nicholas upgraded the stock from hold to buy.

The last three days Square shares have been rock solid at $12 despite the market weakness. Once we get past Labor Day, if the market turns positive again, I believe Square will retest its highs at $16.

With a SQ trade at $12.25

Buy SQ shares, initial stop loss $11.65.

Optional: Buy Dec $14 call, currently 45 cents. No stop loss.

TWTR - Twitter - Company Profile


Twitter shares spiked on Wednesday after co-founder and board member Ev Williams said the company had to look at all options including a sale. Option activity in the calls has gone through the roof. There are plenty of competing opinions on whether a sale will occur or this is just idle chatter. I hope they keep it up all the way to $25.

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.

Update 8/31/16: Twitter shares spiked on Wednesday after co-founder and board member Ev Williams said the company had to look at all options including a sale. When asked if Twitter can remain an independent company he said, "We are in a strong position right now but as a board member we have to consider the right options." The way he answered the question suggested they were listening to potential offers. He did not say we are not pursuing a sale or nobody has made an offer, or Twitter will continue to be a public company. He left the door open to a future announcement. By phrasing the answer the way he did, he actually invited other companies to make a bid saying we must consider all options.

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. Only a minor gain after the 7-month low close on Wednesday.

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.

Position 8/31/16 with a ACAT trade at $14.15

Short ACAT shares @ $14.15. See portfolio graphic for stop loss.

FOXA - 21st Century Fox - Company Profile


No specific news.

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 intraday 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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