Option Investor

Daily Newsletter, Wednesday, 6/21/2017

Table of Contents

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

Market Wrap

Oil Drags Stocks Down

by Keene Little

Click here to email Keene Little
Oil lost price support and has dragged not just oil stocks but the broader market lower with it. The concern is that oil is forecasting lower demand and a slower economy, which has stock investors a little worried.

Today's Market Stats

Oil has been in a sharp decline since the end of May and it lost support on Tuesday, which was followed by more selling today. The oil supply is higher than needed because demand for it is not increasing. The slowdown in oil demand, as well as gasoline, has many concerned that it's forecasting a slowdown in the economy. The divergence between the Dow and the transports is a similar warning sign. All of this is now causing more investors in the stock market to question the high valuations.

This morning's economic reports included crude inventories, which showed a decline of 2.5M barrels, which is a continuation of the decline from the previous week's -1.6M. And yet the price of oil continued to decline anyway, which shows there's greater concern than just the amount of inventories.

Some of the concern has to do with demand and a slower demand suggests we could be facing a slowing economy. The other cause for slowing demand is the continuing effort to develop alternative energy sources, such as wind and solar. As an example, when I drive back and forth across WA state I see a growing number of windmills in the mountain passes where there's a steady supply of wind.

WA is blessed with low-cost electricity because of so much hydro-electric power and yet several years ago voters still voted for the requirement for the state to produce more alternative energy. Sunshine is not that plentiful, especially in the winter months, so most of the alternative energy comes from windmills and much of that gets sent south to the power hungry Californians.

Many power-generating stations have converted from oil to natural gas, especially as so much more had become available through fracking operations. Between the higher use of NG and alternative energies there's been a significant reduction in both coal and oil demand. The government didn't need to step in and try to squash the coal industry; the market is doing a fine job on its own. Now much of the coal is shipped to China (and we west coasters get their pollution as payback, but I digress).

While the stock market has not been reflecting oil's price decline in the past month it might soon be the elephant in the living room that can no longer be ignored. However, as I'll review with the oil chart, there is a chance for at least a rebound in its price now that is has dropped down to a $40-42 support zone.

The other economic report we got this morning was existing home sales, which came in slightly better than expected and as 5.62M home sales in May it was slightly better than April's 5.56M. The report was ignored by the market.

The report is encouraging for home owners since the report also showed median sales price for existing homes of all types increased +5.8% to $252,800. This was the 63rd straight month of year-over-year gains and is now at the highest price on record. It's been a full recovery, and then some, from the heydays before 2007-2009. The median price for single family homes did a little better -- up 6.0% to $254,600 from a year ago. That's the 24th straight month of y-o-y gains for single family homes.

Total housing inventory increased in in May but it has continued to decline y-o-y for the 24th straight month and down -8.4% from May 2016. At the current sales rate there is a 4.2-month supply, which is down considerably from a typical 6.0-month supply. The tight supply has reduced the median number of days on the market to 27 days, which is the shortest time since tracking of this metric started in May 2011. Low inventory and low interest rates has continued to help sales prices. Interestingly, new home sales, inventory and prices have declined while existing homes have done better.

Kicking off tonight's review of the charts, I'll start with SPX, which has been more of a middle-of-the-road index between the strong Dow and weaker techs (although they switched roles today).

S&P 500, SPX, Weekly chart

The weekly candles for the past 3 weeks are tiny and almost indistinguishable on the chart. I'll continue to show upside potential to the 2500 area on the weekly chart but if there is to be more upside I'm thinking 2500 is going to be a challenge. It will depend on whether or not those little candles can turn into bigger white candles.

S&P 500, SPX, Daily chart

The daily chart shows a rising wedge pattern for the rally from March 27th, which is a pattern that makes sense when I look at the multitude of 3-wave moves inside the pattern. Ideally the pattern calls for one more new high and the price projection at 2465 would be a good setup for a reversal back down.

Today was a test of the 20-dma, near 2430, and the uptrend line from May 18th, which it closed on today after a minor break below it this afternoon. The bulls need to hold the line(s) here otherwise it will start to look more bearish. A drop below 2418 would confirm a top is in place while a rally above 2466 would be a stronger indication that the 2500 area will be next.

Key Levels for SPX:
- more bullish above 2466
- bearish below 2418

S&P 500, SPX, 60-min chart

The 60-min chart focuses on the leg up from May 18th and specifically the leg up from June 15th. If the leg up from June 15th is to be another a-b-c move then we need another leg up. Two equal legs points to 2465, the same projection on the daily chart for the 5th wave so there's good correlation there that supports the need for another rally leg and then the potential completion of the rally from March 27th to complete the rally from 2016 to complete the rally from 2009.

Dow Industrials, INDU, Daily chart

The Dow was one of the weaker indexes today, as weak as the RUT, and that's calling into question the ability to get up to a price projection at 21618 (where the c-wave of an a-b-c move up from March 27th would be 162% of the a-wave). That projection and the two trend lines along the highs from 2011-2014 and from April intersect on Friday, which leaves only two days for the Dow to turn today's decline around and rally 210 points.

Hurting the chances for a rally to a new high is the fact that the Dow had rallied above the top of a rising wedge pattern for the leg up from May 18th, on Monday, pulled back to the top of the wedge on Tuesday and then dropped back inside the wedge today. That creates a sell signal that can only be negated with a rally above Monday's high at 21535. Any further decline on Thursday would have the Dow dropping back below its uptrend line from November 4 - April 19, which has been supporting the Dow all month.

Key Levels for DOW:
- more bullish above 21,620
- bearish below 21,169

Nasdaq-100, NDX, Daily chart

The techs were on fire today compared to the rest of the market and the indexes were greatly helped by the FAANG stocks, all of which were in the green. Both the SOX (+1.2%) and especially the biotechs (BTK +3.8%) certainly helped. But NDX was only able to make it back up to its 20-dma and stopped short of another back-test of its broken uptrend line from April 13 - May 18, currently near 5800.

Near the trend line is a price projection near 5798 for the pattern of the leg up from June 15th (a 5-wave move where the 5th wave would equal the 1st wave and where it would complete an a-b-c bounce correction off its June 12th low). A 62% retracement of the June 9-12 decline is near 5797. With the trend line near 5801 Thursday morning we have an upside target zone at 5797-5801 to watch for a reversal to the downside.

Key Levels for NDX:
- bullish above 5800
- bearish below 5634

Russell-2000, RUT, Daily chart

The RUT's choppy pattern leaves few clues about what direction it really wants to go. However, I continue to lean short from here because of the ending pattern it made from January. The choppy shallow rise to its last high on June 9th fits as the completion of a 5-wave move in a broad rising wedge pattern and now it's going to retrace the entire rally from January. This means the selling should start to accelerate lower and if does something less than that, like continue to chop up and down, it would be a clue that another minor new high could still be due.

Key Levels for RUT:
- bullish above 1440
- bearish below 1386

10-year Yield, TNX, Daily chart

Treasuries have been consolidating for the past week and we should find out in the next day or whether or not we can expect at least a larger bounce in yields or a continuation lower. The bullish descending wedge for TNX off its May 11th high would see a bullish breakout with any additional push higher from here (from selling in bonds). At the moment it's struggling to get back above price-level S/R at 2.19 (Monday's high was 2.191) and it's broken 20-dma, also currently near 2.19.

If TNX can get back above 2.19 it will still have plenty of nearby resistance to work through, which includes its broken 200-dma, nearing 2.22, its downtrend line from 2007-2013, near 2.24, and its broken 50-dma, which is now nearing 2.24 as well. If TNX can get above 2.24 it would be at least short-term bullish and then above price-level S/R at 2.31 would be more bullish (bearish for bond prices).

With the 5-year rate rising to 1.8 (they're much more sensitive to the Fed's rate policy changes), the 10-year at 2.16 and the 30-year at 2.72 we have a flattening yield curve. The 30-year bond market is particularly sensitive to future expectations for inflation and economic growth and at the moment the bond market is telling the Fed that they don't see the inflation or economic picture the same way and in fact believe the decline in the inflation rate is something more than "transitory." At the moment the yield curve is the flattest it's been since December 2007, which was right in the beginning stages of the financial collapse in 2008.

High Yield Corporate Bonds ETF, HYG, Daily chart

A high yield bond fund, otherwise known as a junk bond fund, is the HYG. As long as it looks bullish it's a good sign for the stock market. But unfortunately HYG is now giving us the opposite signal since today it snapped support at its uptrend line from November 2016 - March 2017. This is the post-Trump rally and it's now a warning sign that the stock market is going to follow in HYG's footsteps as the euphoria that built the Trump rally starts to wither in the face of reality.

KBW Bank index, BKX, Daily chart

The message from the bond market and the flattening of the yield curve is predicting we could be closer to a recession than most are currently thinking. The flatter yield curve also negatively affects bank performance since they get squeezed between their lending rates and savings rates.

BKX was one of the weaker sectors today and it reflected the concerns brought on by lower oil prices (slowing economy) and lower longer-term yields. The a-b-c bounce pattern off the April 17th low continues to look like a good price pattern, which forecasts another leg down to at least match the March-April decline. That projection points to 83 and below that is price-level support at the July 2015 high near 81.

U.S. Dollar contract, DX, Daily chart

The US$ could still bounce a little higher but so far it's looking like just a bounce correction that will be followed by another leg down. Resistance for the current bounce is the downtrend line from April-May, currently near 97.70, and a broken trend line along the lows from December through May, near 97.95. Coming down toward 98 is the 50-dma so there's lots of resistance not far from the current price. A turn back down would likely take the dollar down toward the bottom of its down-channel off the January high and a price projection for the 3rd wave in the decline at 94.79.

Gold continuous contract, GC, Daily chart

As expected, gold has bounced off its uptrend line from December-May and its 200-dma, both near 1241.50. The bounce is only small so far but has further upside potential before turning back down. If it only consolidates in a small bounce it will look more bearish and a drop below 1241 would tell us the decline will continue. It takes a rally above its June 6th high near 1299 to suggest we're going to see a much higher rally.

Oil continuous contract, CL, Daily chart

As discussed earlier in the report, oil's price has been in a strong decline for the past month and it has now dropped down to a potential support zone at roughly $40-42 (today's low was $42.05). On the daily chart below you can see the tight down-channel it's been since its May 25th high.

With Monday's break of the uptrend line from August 2016 - May 2017, near 44.50, I have two downside targets I've been watching for and the first one at 42 was achieved today (5 cents shy of it). This is a price projection for two equal legs down from the April 12th high and that could complete a set of two a-b-c moves down from the January high and be a setup for at least a strong bounce back up.

The other price projection I show on the chart is at 40.57 and this is where the 2nd a-b-c move down (from April 12th) would equal 162% of the 1st a-b-c move down (January 3 - March 14). Oil tends to move in these 3-wave patterns and that's why we could see at least a higher bounce before potentially continuing lower.

The more bearish wave count for oil calls for a continuation lower but still find support in the 40-42 range but then consolidate for several weeks before continuing lower. My longer-range forecast for oil continues to be at least a test of its February 2016 low at 26 and likely lower.

Economic reports

The rest of this week will be quiet as far as economic reports go, with unemployment claims data on Thursday and new home sales on Friday. The market will be left to react to overseas events rather than anything going on domestically.


A flattening yield curve and lower oil prices is beginning to spook stock investors who pay attention to such things. Most stock buyers simply chase prices higher, regardless of valuations or future expectations. Most are momentum traders who follow the trend and it has of course been a winning strategy. But these same traders oftentimes end up holding the bag at the top because they miss the clues.

I think some of the disbelief in this rally (often called the most hated rally) comes from many investors who lived through the 2000-2002 and 2007-2009 declines and they don't believe this rally is sustainable. They in fact believe the rally could disconnect to the downside like it has done twice before in this century. Therefore we might have more investors paying attention to the other markets, like the bond and oil markets, this time around and could be part of the reason the indexes pulled back some more today.

The tech indexes did well, especially NDX, which came mostly from the volatile biotechs doing well today. That could reverse on a dime with some piece of bad news that counters today's good news (apparently Trump isn't going to go after drug prices, which would be just another step back from his many broken campaign promises -- he's learned well how to be a politician).

I see potential for the blue chips to charge a little higher but they'll need to get the buyers back in on Thursday and prevent any further selloff. One more new high could do it for them but if selling continues on Thursday it's going to look like the highs are already in place.

Good luck and I'll be back with you next Monday as Tom and I switch places next week. See below for a good deal on an OIN subscription.

Keene H. Little, CMT



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New Plays

No Stopping Biotechs

by Jim Brown

Click here to email Jim Brown
Editor's Note

The biotech sector rose 3.77% to a 52-week high on Wednesday despite a big drop in the Dow. Biotechs are on fire and some small cap companies are outperforming the market.


ACOR - Acordia Therapeutics - Company Profile

Acorda Therapeutics, Inc., a biopharmaceutical company, identifies, develops, and commercializes therapies for neurological disorders in the United States. The company markets Ampyra (dalfampridine), an oral drug to improve walking in patients with multiple sclerosis (MS); Zanaflex capsules and tablets for the management of spasticity; and Qutenza, a dermal patch for the management of neuropathic pain associated with post-herpetic neuralgia. It also markets Ampyra as Fampyra in Europe, Asia, and the Americas. In addition, the company develops CVT-301 that has completed a Phase III clinical trial for the treatment of OFF periods in Parkinson's disease; CVT-427, which has completed a Phase I clinical trial to treat migraine; Tozadenant that is in Phase III clinical trial for reduction of OFF time in Parkinson's disease; SYN120, which is in Phase II clinical trial to treat Parkinson's disease-related dementia; and BTT1023 (timolumab) that is in Phase II clinical trial for primary sclerosing cholangitis. Further, it develops rHIgM22, which is in Phase I clinical trial for the treatment of MS; Cimaglermin alfa that has completed a Phase I clinical trial in heart failure patients; and Chondroitinase Program that is in research stage for the treatment of spinal cord injury. The company has collaborations and license agreements with Biogen International GmbH; Alkermes plc; Rush-Presbyterian St. Luke's Medical Center; Alkermes, Inc.; SK Biopharmaceuticals Co., Ltd.; Astellas Pharma Europe Ltd.; Canadian Spinal Research Organization; Cambridge Enterprise Limited and King's College London; Mayo Foundation for Education and Research; Paion AG; Medarex, Inc.; and Brigham and Women's Hospital, Inc. Company description from FinViz.com.

Acordia took a fall at the end of March when two Multiple Sclerosis patents were invalidated by a court. This is normal stuff and happens all the time to biotech companies when competitors want to introduce a generic. Shares crashed but the outlook for Acordia did not.

They fell another 5% in late April when revenue of $112 million missed estimates for $121 million. The company did reaffirm guidance for ful lyear Ampyra sales in the range of $525-$545 million.

Recently, their experimental Parkinsons drug CVT-301 was named Inbrija. In early June they presented Phase III data which met its primary endpoint of improvement in motor function compared to a placebo. Multiple secondary endpoints were also met. The company plans to file a new drug application with the FDA by the end of this quarter.

Expected earnings July 27th.

Shares have been rebounding sharply and cleared resistance from the April/May decline. They have a long way to go to recover their highs and that is a potential for profit.

Buy ACOR shares, currently $18.70, initial stop loss $16.70.

I am not recommending an option because of the wide spreads but the August $20 call is $1.20.

Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 at the market open.


No New Bearish Plays

In Play Updates and Reviews

Russell Bulls Eye

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Russell will be the focus for the market for the next two days with the rebalance at the close on Friday. The Russell declined today despite a monster 4% rally in biotechs. This should have lifted the small cap index. The rebalance is weighing on the index and the next two days should see declines.

The Dow lost 57 points to close the gap from Monday. That takes some of the selling pressure off the index but falling oil prices are going to weigh on the Dow and the S&P. The Nasdaq gained 46 points thanks to the biotech rally.

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

YRCW - YRC Worldwide
The long stock position was stopped at $9.95.

SNCR - Synchronos Tech
The short stock position was stopped at $10.85.

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

Short term Calls and Puts on equities = Option Investor Newsletter

Credit spreads and naked puts = OptionWriter

Long term option investments = LEAPS Investor

3-6 month Option Trades = Ultimate Investor

Iron Condors = Couch Potato Trader

BULLISH Play Updates

KTOS - Kratos Defense - Company Profile


No specific news. No news from Paris air show today.

Original Trade Description: May 24th.

Kratos Defense & Security Solutions, Inc. provides mission critical products, solutions, and services in the United States. The company operates through three segments: Kratos Government Solutions, Unmanned Systems, and Public Safety & Security. The Kratos Government Solutions segment offers microwave electronic products; satellite communications; technical and training solutions; modular systems; and defense and rocket support services. The Unmanned Systems segment provides unmanned aerial, ground, and seaborne, as well as command, control, and communications systems. The Public Safety & Security segment designs, engineers, deploys, operates, integrates, maintains, and operates security and surveillance solutions for homeland security, public safety, critical infrastructure, government, and commercial customers. The company serves national security related agencies, the department of defense, intelligence agencies, and classified agencies, as well as international government agencies and domestic and international commercial customers; and critical infrastructure, power generation, power transport, nuclear energy, financial, IT, healthcare, education, transportation, and petro-chemical industries, as well as government and military customers. Kratos Defense & Security Solutions, Inc. was founded in 1994 and is headquartered in San Diego, California. Company description from FinViz.com.

Kratos builds drones for target practice for the U.S. military. They are also building drones for combat for air to air and air to land. They also provide communication systems for missiles, satellites and various other platforms.

China and Russia are rapidly militarizing space and Kratos is working with the U.S. military to improve satellite communication to defend against attacks. The DoD is currently spending a lot of money to prepare for war in space. Kratos owns and operates a global satellite demonitoring business with revenues rising 61% in Q1.

Kratos expects to build $30 to $40 million in unmanned target drones for the Navy in the 2017 budget. That is per batch of BQM-177 drones and there is the potential for multiple batches.

Kratos has so many new programs in operation it would be impossible to list them here and several of them are secret programs for unnamed clients.

Kratos guided for a return to profitability in Q2 and sharply rising revenue for the full year. Shares spiked 30% in the four weeks after Q1 earnings. Their next report is August 3rd. I am recommending we buy an option and hold over the report. If the earnings are as positive as they teased in the Q1 report we could see another sharp reaction. This company is in all the right places for the increase in defense depart spending.

I am not recommending a stock position given the sharp gains already.

Update 6/13/17: Kratos said it was going to unveil its newest high performance class of military unmanned aerial system technology at the Paris Air Show next week. The XQ-222 Valkyrie and UTAP-22 Mako drones provide fighter like performance and are designed to function as wingmen to manned aircraft in contested airspace. The Valkyrie can carry various weapons and intelligence systems and has a range of 3,000 miles. The Mako is designed to carry sensors and stealthily infiltrate hostile airspace to gather intelligence. Both are designed to operate with or without manned flights. The Air Force recently pitched the functions of the Valkyrie saying a F-35 with a group of fighter/bomber drones could maximize control of airspace and ground attack operations. The F-35 can select targets and pass information to specific drones while maintaining situational awareness from a stealthy and relatively safe position.

Position 5/30/17:

Long August $12.50 call @ 59 cents, see portfolio graphic for stop loss.

LXRX - Lexicom Pharmaceuticals - Company Profile


No specific news. Excellent breakout over 9 months of resistance.

Original Trade Description: June 19th.

Lexicon Pharmaceuticals, Inc., a biopharmaceutical company, focuses on the development and commercialization of pharmaceutical products for the treatment of human diseases. The company offers XERMELO, an orally-delivered small molecule drug candidate for the treatment of carcinoid syndrome diarrhea in combination with SSA therapy in adults. Its orally-delivered small molecule drug candidates under development comprise Sotagliflozin that is in Phase 3 clinical trials for use in the treatment of type 1 and type 2 diabetes; LX2761, which is in Phase 1 development for use in the treatment of diabetes; and LX9211 for use as a treatment for neuropathic pain. The company has license and collaboration agreements with Sanofi; Ipsen Pharma SAS; Bristol-Myers Squibb Company; and Genentech, Inc. Company description from FinViz.com.

Lexicon reported a loss of 31 cents that easily beat estimates for a loss of 44 cents. Revenue of $18.3 million beat estimates for $14.8 million. Small developmental drug companies rarely have earnings until their drugs reach the market.

Estimates earnings August 1st.

Lexicon recently reported positive results for two pivotal studies of the diabetes drug sotagliflozin. The Tandem1 and Tandem2 studies showed significant reduction in A1C and a lower rate of ketoacidosos than patients on insulin pumps. A new oral diabetes drug would be in high demand.

In Q1 they received approval for marketing for Xermelo a drug for carcinoid syndrome diarrhea. Patients were receiving the drug within days of the approval.

Shares closed at a 7 month high on Monday and just over resistance. This company could be ready for a breakout.

Options have very wide spreads so there will not be an option recommendation.

Position 6/2017:

Long LXRX shares @ $17.00, see portfolio graphic for stop loss.

MYGN - Myriad Genetics - Company Profile


No specific news. Biotech rally today helped lift MYGN to a $1.42 gain.

Original Trade Description: June 17th.

Myriad Genetics, Inc., a personalized medicine company, focuses on the development and marketing of predictive, personalized, and prognostic medicine tests worldwide. It operates through two segments, Diagnostics and Other. The Diagnostics segment primarily provides testing and collaborative development of testing that is designed to assess an individual's risk for developing disease; identify a patient's likelihood of responding to drug therapy; guide a patient's dosing to ensure optimal treatment; and assess a patient's risk of disease progression and disease recurrence. The Other segment provides testing products and services to the pharmaceutical, biotechnology, and medical research industries; and research and development, and clinical services for patients. Its molecular diagnostic DNA sequencing tests include myRisk Hereditary cancer, a test for hereditary cancers; BRACAnalysis and BART, which are tests for hereditary breast and ovarian cancers; BRACAnalysis CDx test for use in identifying ovarian cancer patients with suspected deleterious germline; and Tumor BRACAnalysis CDx test that is used to predict DNA damaging agents, such as platinum based chemotherapy agents and poly ADP ribose inhibitors. The company also provides COLARIS test for colorectal and uterine cancers; COLARIS AP test for colorectal cancer; Vectra DA protein detection test for assessing the disease activity of rheumatoid arthritis; Prolaris, a RNA expression test for prostate cancer; EndoPredict RNA expression test for breast cancer; myPath Melanoma RNA expression test for diagnosing melanoma; myChoice homologous recombination deficiency (HRD) test to measure three modes of HRD; and myPlan lung cancer, an RNA expression test for lung cancer. Myriad Genetics, Inc. has collaboration with AstraZeneca for the development of an indication for BRACAnalysis CDx. Company description from FinViz.com.

In early June Myriad announced that EndoPredict, the novel new breast cancer test, had been approved for reimbursement by nearly all the medical plans in the USA. As of July 1st, public plans representing more than 35 million covered lives will join the private plans representing more than 109 million covered lives will have positive coverage of EndoPredict.

Medicare and Medicaid have posted a positive draft local coverage determination (LCD) for EndoPredict. If this LCD is approved as expected it would bring plan coverage to more than 75% of breast cancer patients in the USA. The ramp to coverage has been extremely fast as a result of the positive test results that showed EndoPredict "markedly outperformed prior generations of accepted tests" for breast cancer diagnosis.

Myriad has other breast cancer tests in the pipeline and in late stage trials. The company is rapidly becoming a powerhouse in the breast cancer field.

Earnings are already starting to rise as a result. In the Q1 update, they reported earnings of 27 cents that beat estimates for 24 cents. Revenue of $196.9 million beat estimates for $188.9 million. They guided for the current quarter to earnings of 26-28 cents and revenue of $192-$194 million. For the full year, they guided for $1.01-$1.03 and revenue of $763-$765 million.

Estimates earnings August 1st.

Position 6/19/17:

Long MYGN shares @ $24.03, see portfolio graphic for stop loss.
Alternate position: Long Aug $25 call @ $1.20, see portfolio graphic for stop loss.

WTW - Weight Watchers - Company Profile


No specific news. Minor gain to another new high. Tightening the stop loss again.

Original Trade Description: May 13th.

Weight Watchers International, Inc. provides weight management services worldwide. The company operates in four segments: North America, United Kingdom, Continental Europe, and Other. It offers a range of products and services comprising nutritional, activity, behavioral, and lifestyle tools and approaches. The company also engages in the meetings business, which presents weight management programs, as well as allows members to support each other by sharing their experiences with other people experiencing similar weight management challenges. In addition, it offers various digital subscription products, including Weight Watchers OnlinePlus and a weight management companion for Weight Watchers meeting members to digitally manage the day-to-day aspects of their weight management plan, as well as provides interactive and personalized resources that allow users to follow weight management plan. Further, the company provides Personal Coaching, an online subscription product that offers one-on-one telephonic, e-mail, and text support and personalized planning from a Weight Watchers-certified coach, as well as offers access to other online tools. Additionally it offers various products, including bars, snacks, cookbooks, food, and restaurant guides with SmartPoints values, Weight Watchers magazines, SmartPoints calculators, and fitness kits, as well as third-party products, such as activity-tracking monitors. The company also licenses the Weight Watchers brand and other intellectual property in frozen foods, baked goods, and other consumer products, as well as endorses selected branded consumer products; and engages in publishing magazines, as well issues other publications, such as cookbooks, and food and restaurant guides with SmartPoints values. It offers products through its meeting and franchisee business, as well as online. Weight Watchers International, Inc. was founded in 1961. Company description from FinViz.com.

Weight Watchers posted a Q1 profit of 16 cents compared to estimates for a 4-cent loss. Revenue of $329.1 million rose 7.2% and beat estimates for $323 million.

Subscribers rose 16% to 3.6 million. Subscribers have now risen for 5 straight quarters. This is the first time since 2011 that they gained subscribers for a full year. The company raised guidance for the full year to $1.40-$1.50. Analysts were expecting $1.27. They said they were off to a strong start thanks to the Oprah Effect. The TV personality joined the brand late in 2016.

Earnings August 1st.

The stock has been a rocket since Oprah began pitching for the brand but it is showing no signs of fading. The post earnings spike to $25 saw some post earnings depression but shares are already moving back to that post earnings level. I believe female investors are betting on the Oprah Effect to continue driving profits. Even at this level the stock is not overly expensive with a PE of 17.

I am recommending it because it has refused to decline in a weak market. The risk is less with the option position.

Position 5/15/17:

Long WTW shares @ $24.48, see portfolio graphic for stop loss.
Alternate: Long July $26 call @ 90 cents, see portfolio graphic for stop loss.

YRCW - YRC Worldwide - Company Profile


No specific news. Shares dropped to hit our stop loss at $9.95 to take us out of the stock position. The option position will move to the Lottery Play section.

Original Trade Description: June 13th.

YRC Worldwide Inc., through its subsidiaries, provides various transportation services primarily in North America. Its YRC Freight segment offers various services to transport industrial, commercial, and retail goods; and provides specialized services, including guaranteed expedited services, time-specific deliveries, cross-border services, coast-to-coast air delivery, product returns, temperature-sensitive shipment protection, and government material shipments. It serves manufacturing, wholesale, retail, and government customers. As of December 31, 2016, this segment had a fleet of approximately 7,700 tractors comprising 6,200 owned and 1,500 leased; and 31,000 trailers consisting of 24,900 owned and 6,100 leased. The company's Regional Transportation segment provides regional delivery services, which include next-day local area delivery and second-day services, consolidation/distribution services, protect-from-freezing and hazardous materials handling, truck loading, and other specialized offerings; guaranteed and expedited delivery services that consist of day-definite, hour-definite, and time definite capabilities; interregional delivery services; and cross-border delivery services, as well as operates hollandregional.com, reddawayregional.com, and newpenn.com, which are e-commerce Websites offering online resources to manage transportation activities. This segment had a fleet of approximately 6,600 tractors, including 5,000 owned and 1,600 leased; and 13,500 trailers comprising 10,800 owned and 2,700 leased. The company was formerly known as Yellow Roadway Corporation and changed its name to YRC Worldwide Inc. in January 2006. YRC Worldwide Inc. was founded in 1924 and is headquartered in Overland Park, Kansas. Company description from FinViz.com.

For the 4th time in 7 years, Walmart selected YRC Freight as the National LTL Carrier of the Year. YRCW delivers to Walmart stores, Sams Club facilities and distribution centers all across North America. Walmart said the extensive YRCW network offers significant coverage to Walmart and their suppliers.

The company reported a loss of 70 cents for Q1 compared to estimates for 27 cents. Revenue of $1.17 billion did beat estimates for $1.14 billion. Shares imploded on the earnings miss and fell from $10.69 to $7.36.

Next estimates earnings August 3rd.

The company announced a restructuring plan to reduce management headcount and "de-layer" operational overhead. They announced several initiatives to reduce costs.

Last week they released metrics for the last two months. In April, freight tonnage per day rose 6.2% with May tonnage rising 3.3% over year ago levels. Regional tonnage increased 1.4% in April and 5.5% in May.

The business is growing and a reduction in costs will be positive. Investors seem to like the news with a rebound to pre-earnings levels. Resistance is $11.25 and a breakout there could easily run to $14.00 if the story and the market remains positive.

Position 6/14/17:

Closed 6/21/17: Long YRCW shares @ 10.70, exit $9.95, -.75 loss.
Alternate position: Long July $11 call @ 55 cents, see portfolio graphic for stop loss.

BEARISH Play Updates

FOSL - Fossil Group - Company Profile


No specific news. Shares dropped back to the 16-year low.

Original Trade Description: May 25th.

Fossil Group, Inc., together with its subsidiaries, designs, develops, markets, and distributes consumer fashion accessories. The company's principal products include a line of men's and women's fashion watches and jewelry, handbags, small leather goods, belts, sunglasses, and soft accessories. It offers its products under its proprietary brands, such as FOSSIL, MICHELE, MISFIT, RELIC, SKAGEN, and ZODIAC, as well as under the licensed brands, including ADIDAS, ARMANI EXCHANGE, BURBERRY, CHAPS, DIESEL, DKNY, EMPORIO ARMANI, KARL LAGERFELD, KATE SPADE NEW YORK, MARC JACOBS, MICHAEL KORS, and TORY BURCH. The company sells its products through department stores, specialty retail stores, specialty watch and jewelry stores, mass market stores, e-commerce sites, licensed and franchised FOSSIL retail stores, and retail concessions, as well as sells its products on airlines and cruise ships. As of December 31, 2016, it owned and operated 94 retail stores and 129 outlet stores located in the United States, as well as 230 retail stores and 132 outlet stores internationally. Company description from FinViz.com.

Fossil reported an adjusted loss of 35 cents compared to estimates for a loss of 21 cents. Revenue of $581.8 million missed estimates for $596.5 million. For Q2 they guided for a loss of 23 to 40 cents.

Analyst expectations for Q2 have declined from a loss of 6 cents to a loss of 25 cents and has declined three times in the last couple of weeks. For the full year analysts are now expecting earnings of 90 cents, down from $1.11 a month ago.

Earnings August 8th.

Fossil is struggling despite the decent revenue. Costs and marketing are too high and they are losing market share to the rapidly expanding number of brands.

Shares closed at an 8-year low on Thursday and under $11.30 would be a 14 year low. I believe Fossil is going to single digits with $6 the likely target.

Update 6/13/17: Shares crashed on news the CEO sold 520,000 shares last week and 1.074 million shares on May 30th. A Macquarie research note also said that 3.8 million shares were pledged as security for a note of around $75 million and they could be sold at any time. With FOSL shares at $11 the pledge was already in the red by $30 million. At today's close at $10 that value dropped by another $3.8 million. The CEO only has 4.426 million shares after his sales last week and with 3.8 million pledged, that leaves him with roughly 600,000. It appears the CEO is bailing on his holdings and that is never good for the stock price. If the price declines further he may be forced to sell his remaining 600,000 shares to make up the shortfall on the pledged shares. Shares are now at 16-yr lows.

Position 5/26/17:

Short FOSL shares @ $11.78, see portfolio graphic for stop loss.

Alternate position:
Long July $11 put @ 55 cents, see portfolio graphic for stop loss.

SNCR - Synchronos Technologies - Company Profile


No specific news. Shares spiked 5% at the open to stop us out at $10.85.

Original Trade Description: June 1st.

Synchronoss Technologies, Inc. provides cloud solutions and software-based activation for connected devices worldwide. The company's products and services include cloud-based sync, backup, storage and content engagement capabilities, broadband connectivity solutions, analytics, white label messaging, and identity/access management that enable communications service providers, cable operators/multi-services operators, original equipment manufacturers with embedded connectivity, and multi-channel retailers, as well as other customers to accelerate and monetize value-add services for secure and broadband networks and connected devices. It also provides Synchronoss Enterprise solutions, such as secure mobility management, data and analytics, and identity and access management solutions for the financial, telecommunications, healthcare, life sciences, and government sectors; and Synchronoss Personal Cloud platform that delivers an operator-branded experience for subscribers to backup, restore, synchronize, and share their personal content across smartphones, tablets, computers, and other connected devices. In addition, the company offers software as a service for the organizations to securely manage, control, track, search, exchange, and collaborate on sensitive information inside and outside the firewall. Its products and platforms are designed to enable multiple converged communication services to manage across a range of distribution channels, such as e-commerce, m-commerce, telesales, customer stores, indirect, and other retail outlets. The company markets and sells its services through direct sales force and strategic partners. Synchronoss Technologies, Inc. was founded in 2000 and is headquartered in Bridgewater, New Jersey. Company description from FinViz.com.

SNCR was supposed to report earnings on May 9th. Instead, on April 27th they announced that the new CEO and CFO were leaving unexpectedly after only a few months on the job. The prior CEO and founder and the prior CFO would return to help get the company through some rough times.

The company also announced that expected revenue for Q1 would be $13-$14 million less than prior guidance. Operating margins of 8% to 10% would also be less than prior guidance. Earnings will be on May 9th and everything will be explained on the call.

On May 8th the company announced it was rescheduling the earnings date for May 15th.

On May 15th, they announced they would not be releasing earnings and they had no projected date. Apparently, the founder and CEO for 17 years along with his partner the prior CFO were having problems reconciling some items and the auditor Ernst & Young was "suggesting" additional reviews of critical accounting procedures.

This is just speculation but when a new CEO and CFO suddenly depart after only a few months, it may have been because they uncovered a hornets' nest of problems and determined they did not want to be associated with the company. We will never know if that is correct or not. However, when the prior CEO for 17 yrs and CFO for 13 yrs, cannot immediately reconcile the books after only being away for a few months, that suggests additional problems. These are the kinds of things that get auditors really interested and they start poking into things they glossed over before.

On May 22nd, the company received the warning of impending delisting by the Nasdaq. This is a boilerplate type event triggered by the failure to file and they have until November to correct the problem, but itis just one more thing on their plate.

Shares had already been falling since the weak earnings in January. They closed around $25 before the first announcement broke. They declined to $11 then rebounded to $19 on the hope that the prior CEO/CFO would quickly get the company back on track. Now the stock is back at 7 year lows and the bad news just keeps piling up.

If they had a projected earnings date, I would feel better about their recovery. We are now nearly a month late on the financials and no news is flowing. SNCR could be headed a lot lower because the eventual news could be bad. Rarely do earnings delays result in positive news.

This has to be a stock only play because the options are too expensive.

Update 6/14/17: The company disclosed in a SEC filing that the audit committee had informed the board that financial statements for 2015 and 2016 would have to be restated. May earnings have already been postponed and the restatement could take months. Support broke and today was a 17 year closing low.

Position 6/2/17:

Closed 6/21/17: Short SNCR shares @ $12.64, exit $10.85, +$1.79 gain.

SYNT - Syntel Inc - Company Profile


No specific news. Shares rebounded slightly from the 8 year low.

Original Trade Description: June 7th.

Syntel, Inc. provides digital transformation, information technology (IT), and knowledge process outsourcing (KPO) services worldwide. The company operates through Banking and Financial Services; Healthcare and Life Sciences; Insurance; Manufacturing; and Retail, Logistics, and Telecom segments. It offers managed services, including software applications development, maintenance, and digital modernization testing, as well as IT infrastructure, cloud, and migration services. The company also provides a range of consulting and implementation services built around enterprise architecture; data warehousing and business intelligence; enterprise application integration; and SMAC technologies, including social media, Web and mobile applications, big data, analytics, and Internet of things. In addition, it offers KPO services that provide outsourced solutions for knowledge and business processes; and business intelligence, enterprise resource planning, and business and technology consulting services. The company offers its products to various companies in the banking and financial services, healthcare and life sciences, insurance, manufacturing, retail, logistics and telecom, and other industries. Syntel, Inc. was founded in 1980 and is headquartered in Troy, Michigan. Company description from FinViz.com.

Syntel has been around for a long time but there is far more competition today than just a decade ago. Cloud sourcing has overtaken outsourcing. Companies do not need to maintain their own server farms and services like SalesForce.com and Automatic Data can handle all the service issues of running a business.

Syntel reported earnings of 46 cents and analysts were expecting 44 cents. Those estimates had dropped from 51 cents over the prior four weeks. Revenue of $225.9 million beat estimates for $225.1 million.

The company guided for the full year for earnings of $1.57 to $1.77. Analysts were expecting $2.32 but had revised their estimates lower over the prior 4 weeks to $1.90. Syntel still missed the lowered targets.

Estimated earnings July 20th.

Shares are sinking fast and are very close to a new 7-year low at $16.35. There is very little buying activity.

Position 6/8/17:

Short SYNT shares @ $16.65, see portfolio graphic for stop loss.

Alternate position: Long August $15 put @ .43, no stop loss.

VXX - Volatility Index Futures - ETF Description


Volatility did not rise despite the decline in the Dow and S&P.

We are nearing the point where the ETF will do a 1:4 reverse split. That will be an excellent opportunity for us to get short again at a higher level.

Barron's is reporting current short interest at 59 million shares out of 66 million outstanding.

Original Trade Description: April 12th.

The VXX is a short-term volatility product based on the VIX futures. As a futures product it has the rollover curse. Every time they roll to a new futures contract, they have to pay a premium and that lowers the price of the ETF. It is a flawed product with a perpetual decline built in from the monthly roll over in the futures contracts.

As evidence of this flaw, they have now done four 1:4 reverse stock splits. The last four reverse splits occurred at $13.11 (11/2010), $8.77 (10/2012), $12.84 (11/2013), $9.52 (8/8/16). The prospectus says it can reverse split anytime it trades under $25 for a prolonged period and the splits will always be 1:4.

The VXX has rebounded $3 over the last week as the volatility returned. The VIX traded over 16 today and could hit 18 if there are any geopolitical events over the Easter weekend.

Unfortunately, put options are expensive with a volatility instrument at this price level. The only recommendation is to short the ETF and forget it. If we do get a prolonged rally as some are expecting we could see strong market gains in the next 2-3 months. This will be a long-term position. This is not a 2-3 week play. I can guarantee you, if history holds, we can play this until it splits 1:4 again at $10. Once we are in the position and profitable I will put a trailing stop loss on it. We will take profits and then look for a bounce to get back in.

We know from experience that the VXX always declines. The last time we shorted this ETF we had a $7.23 gain.

Position 4/13/17:

Short the VXX @ $17.98, no stop loss because it always declines eventually.

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