Option Investor

Daily Newsletter, Thursday, 6/22/2017

Table of Contents

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

Market Wrap

Market Steady In Quiet Trade

by Thomas Hughes

Click here to email Thomas Hughes


Global indices held steady in the wake of Wednesday's dive in oil prices. US indices were able to tick higher, led by the health care sector, as the Senate unveils their version of the Obamacare Repeal/Replacement bill. The bill, as expected, was released to a barrage of criticism. The bills passage is questionable, there are more than enough GOP opponents to block the bill at next week's vote.

International indices were flat in today's action. Asian indices were mostly lower but losses were minimal, Australia being the standout with a gain of 0.7%. Chinese stocks received little support from MSCI's decision to include them in the Emerging Markets Index. European indices fared little better, about half closed with losses and half with gains, as a 2 day meeting of the EU Governing Council gets underway. The meeting is expected to generate headlines in the areas of strengthening the EU and protecting its citizens from terrorism.

Market Statistics

Futures trading was flat all morning. The indices were expected to open with gains less than 0.05% and that held true through the release of economic data and into the open of the session. The indices did indeed open higher, about 1.5 points for the SPX, and quickly moved down to test support just below yesterday's close. This level held, a bottom formed and the indices were able to move back up to test and break the early high. Between 11AM and 1PM the indices drift higher, the SPX moving up to +5, and held those levels most of the afternoon. The release of FOMC bank stress tests, due out at 4:30, put a damper on the days gains. As the close approached indices moved lower to close almost exactly flat for the day.

Results for the first part of the stress test reveal that America's 34 top banks appear to have enough cash to return some to shareholders.

Economic Calendar

The Economy

Economic data was fairly light today, jobless claims and Leading Indicators. Initial jobless claims rose 3,000 from last week's upward revision of 1,000 to hit 241,000. The four week moving average of claims gained 1,500 to hit 244,750. On a not adjusted basis claims fell -2.4% versus an expectation for -3.8% and are down -7.8% on a year over year basis. Despite the rise claims remain low relative to the recovery and historic levels, consistent with labor market health.

Continuing claims rose by 8,000 on top of an upward revision of 1,000 to hit 1.949 million. The four week moving average of claims rose by 5,000 to hit 1.932 million. This figure has been creeping up since hitting its 44 year low about a month ago but remains low relative the long-term recovery, below the 2.00 million mark and is consistent with ongoing labor market health and tightening.

The total number of Americans receiving unemployment benefits rose by 30,993 to hit 1.816 million. This gain is as expected and is coming off a record seasonal low. On a year over year basis claims are -10.25% and have been running at a double digit deficit to last year for some time now. We can expect to see total claims trend higher over the next 5 to 6 weeks with a peak in early to mid July near the 2.0 million mark. Long-term, claims remain in down trend and consistent with ongoing improvement in employment levels and labor market tightening.

The Index of Leading Indicators was released at 10AM. The index rose 0.3% in May, the 9th consecutive month of expansion, following a 0.2% increase (revised) in April and a 0.4% (revised) increase in March. Conference Board economists say the increase shows expansion expected through the end of 2017 in the range of 2% and maybe faster. The Coincident and Lagging Indices also rose, by 0.1% and 0.1% respectively.

The Dollar Index

The Dollar Index slipped a bit in today's action but was able to regain the loss and close with a gain near 0.05%. The index created a small doji candle sitting on support at the short-term moving average near $97.50. This is significant in other ways as well, the $97.50 level also represents near-term resistance, resistance which was broken in confirmation of an apparent price reversal earlier this week. The indicators are bullish and showing strength although they are also consistent with a peak and pull-back to support. A confirmation of support at $97.50 would be bullish, a break back below would be bearish.

The Gold Index

Gold prices were also steady in today's trade, gaining about a half percent intraday to trade above $1,250. The gains did not hold though, prices slipped back below $1,250 to close with a gain near 0.25%. Today's action is not definitive but bears the look of a test and confirmation of resistance. If gold prices fail to regain upward momentum a deeper fall is likely. With so little data coming out over the next week there is little to move gold directly other than risk-on/risk-off sentiment, political news and Fedspeak. Downside targets are near $1,235 and $1,220 should prices confirm resistance.

The Gold Miners ETF GDX was able to extend its bounce from support today but, at best, remains range bound within its ever narrowing trading range. The ETF gained 0.30% to trade at the resistance of the long-term moving average with indicators that continue to flounder within their respective ranges. Momentum is bearish but weak and trending near the zero line over the past 6 weeks, stochastic is showing some weakness as %D reaches the lower signal line but also signs of support with %K's bounce and bullish crossover. Bottom line, the FOMC meeting did not result in a definitive move for the gold miners. The sector remains range bound and looks like it will be so into the near-term. Support is along the $22 level, resistance is just above the current level in a range between $22.50 and $23.

The Oil Index

Oil prices rebound from yesterday's deep declines but is more likely due to short-covering/profit-taking than anything else. WTI settled with a gain of 0.5%, trading at $47.74, with little to support it at this time. Although we can expect to see US production growth and rig counts slow there is still ample supply in the world and very little in the way of demand growth. I don't expect to see oil prices stage a significant gain until something along those lines changes, and it will take a lot more than OPEC's production cap to do it.

The Oil Index continues to ratchet lower, today's action saw it post small gains but not enough to recover previous support targets. The index gained about a half percent today to test the 1,100 level and that level was rejected. Today's candle is a small green bodied candle with long upper and lower shadows that is typically a sign of indecision. Today's candle comes after a long red candle and formed below the midpoint of that candle so also confirming a bearish harami which is usually a sign of weakness and possibly continuation. With oil prices falling the way they are I am giving up my bullish long-term outlook due to an expectation forward earnings growth outlook will start seeing major downgrades. Downside target is the bottom of last year's trading range near 1,080, I'll reassess at that time.

In The News, Story Stocks and Earnings

Oracle reported earnings after the bell yesterday and delivered stellar results. The company, which offers more software applications in more categories than any other firm, blew past estimates on revenue and profits driven by the cloud computing segment. The stock surged more than 10% in the pre-market session to hit a new all-time high. Profit takers were able to drive prices down from the high but left the stock with gains in the range of 8%.

Carnival cruise line reported before the bell and delivered a triple shot of good news. The company reported better than expected revenue and earnings on improving margins, and raised guidance due to forward booking ahead of last year and at higher prices. Shares of the stock fell marginally in the premarket, shot up during the session to set a new all-time high but fell back under the pressure of profit-taking.

The VIX fell -3.5% today in a move that confirms resistance at the short-term moving average. Toda's candle is medium and red moving down from the 11 level to close below 10.50. The fear index remains range bound at low levels with indicators that suggest more of the same with a possibility of moving lower. MACD has been trending flat for weeks with stochastic rolling into a bearish buy that suggests a move lower within current ranges downside target would be the recent lows near 10 and $9.50, consistent with ongoing market complacency.

The Indices

The indices tried to move higher but the threat of stress test results capped gains and left them flat for the day. The NASDAQ Composite posted a gain of 0.04% creating a small spinning top doji. Today's action is above support levels and near the current all-time high but indecisive and not supported by the indicators. Stochastic has formed a weak bullish crossover, trend following, but both %K and %D are pointing lower showing weakness in both time frames. This could change in as little as one day but until then this signal is very weak and highly questionable. MACD is in the same boat. Momentum is bearish but showing signs of rolling over into what could become a trend following signal. A move higher would be bullish in the near-term only and faces resistance at the all-time high. A break above there would be more firmly bullish.

The S&P 500 posted the smallest loss, only -0.04%. The broad market index created a small spinning top candle sitting on the long-term up trend line and looks like it will fall through. While price action is still above support, the indicators are persistent in bearishness and confirming a pull-back. Downside targets on a break of the uptrend line are the short-term moving average near 2,420, the round number of 2,400 and then on a deep pull-back 2,350 although I do not expect that at this time.

The Dow Jones Industrial Average posted a loss of -0.06% and created a small spinning top doji. Today's candle is sitting on support at the long-term up trend line and looks like prices will continue to test support into the near-term. The indicators have been rolling over into sell signals that confirmed today with a bearish crossover of MACD. Such signals are, within an uptrend, usually a precursor to trend following buy signals but it is too early to act on that assumption now. A break below the up trend line would be bearish near-term with downside targets near 21,180 and 21,000 respectively. A bounce from the trend line would be trend following a bullish but near-term only, resistance is only a few hundred points above today's close at the current all-time high.

The Dow Jones Transportation Average also closed with a loss of -0.06%. The transports created a small doji-like candle with green body sitting on support at the short-term moving average and below resistance at a former all-time high simultaneously. The index appears to be in a near-term correction, about halfway through it, and confirmed by the indicators. Stochastic has fired a sell-signal and is showing weakness confirmed today with a bearish MACD crossover. A break of the short-term moving average would be bearish with downside target near the long-term moving average just above the 9,000 level. A bounce from here would be bullish near-term with a target at the current all-time high.

The indices remain in uptrend although near-term direction is highly questionable. The indicators are throwing signals of weakness that could easily turn into the next trend following signal, or a deeper correction. With so little in the way of economic data or earnings over the next week or so there will not be much to drive the market higher so I am very very cautious in the near-term. If the market is able to hold these levels great, if not the dip will likely be a buying op and the next great long-term entry. Forward earnings growth remains positive and strong, so long as that remains true I am bullish for the long-term.

Until then, remember the trend!

Thomas Hughes



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New Plays

Don't Play in Traffic

by Jim Brown

Click here to email Jim Brown
Editor's Note

Friday is the biggest volume day of the year for the small caps. The trend is for the Russell to decline because of the deleted stocks being sold. The moves may not be material because of the large volume of adjustments but they are normally negative. There is no reason to add a position just because it is a newsletter day. Since next week is typically positive, we can add plays in the weekend newsletter that are under pressure on Friday. Don't play in traffic!


No New Bullish Plays


No New Bearish Plays

In Play Updates and Reviews

Party Time

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Russell rebalance on Friday will generate the most volume of the year. This is like Black Friday for mutual fund managers that are tracking the Russell indexes. They literally have to change every position they have as the stocks in the indexes change and the weightings change for the stocks that are not leaving. With $2 trillion indexed to the various Russell indexes, this is the highest volume trading day every year.

Fortunately, the indexes rarely make material moves. There is too much volume in both directions and not enough specific volume to cause a major market move. Some fund managers have been known to unload positions not related to the Russell in order to hide their trades in the extremely high volume.

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

ACOR - Acordia Therapeutics
The long stock position was entered at the open.

FOSL - Fossil Group
The short position was stopped at $9.65.

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

ACOR - Acordia Therapeutics - Company Profile


No specific news. Shares spiked at the open but fell back to slightly negative at the close.

Original Trade Description: June 21st.

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.

Position 6/22/17:

Long ACOR shares @ $18.80, see portfolio graphic for stop loss.

KTOS - Kratos Defense - Company Profile


No specific news. No news from Paris air show.

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. Gave back some of Wednesday's excellent breakout spike.

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. Minor decline from Wednesday's $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. Another amazing gain to a 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.

BEARISH Play Updates

FOSL - Fossil Group - Company Profile


No specific news. Shares spiked 5% to stop us out at $9.65 for a nice gain.

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:

Closed 6/22/17: Short FOSL shares @ $11.78, exit $9.63, +$2.13 gain

Alternate position:
Closed 6/22/17: Long July $11 put @ 55 cents, exit $1.50, +.95 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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