Option Investor

Daily Newsletter, Monday, 6/26/2017

Table of Contents

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

Market Wrap

Pop, Drop and Recovery

by Keene Little

Click here to email Keene Little
Today's price action was a little volatile following this morning's pop n drop but it's become part of the choppy price action we've seen for the past two weeks. Bulls are trying to hold onto gains into month-end while bears are trying to take that away from them.

Today's Market Stats

The daily battle between the bulls and bears continues as overnight futures gap the market up in the morning and then sellers take advantage of the early-morning liquidity rush to sell into the rally. Rinse and repeat. The Dow swung back to positive while the techs swung to negative, which is a continuation of the sloshing back and forth between sectors while the market in general stagnates. We continue to wait for a move in one direction or the other.

Equity futures had rallied fairly hard last night and ES (SPX emini futures contract) was up +8 by the time the cash market opened this morning and then quickly spiked another +5 points before the sellers smacked the indexes back down. SPX spiked up about 12 points before quickly dropping back down to close this morning's gap. It then proceeded to trade in a 7-point range the rest of the day.

As has been typical with this market, all the excitement was over in the first 90 minutes of trading (30 minutes longer than usual) and the rest of the day was spent going sideways. The net result is a short-term pattern that supports the opinions of both sides as to where this market will head next. Further confusing things, the different indexes are not in agreement with their different price patterns and we need to consider both possibilities for this week.

This week is generally bullish since we could see an attempt to mark up the indexes into month/quarter-end. We also tend to see a rally into a holiday weekend, which is what we have next weekend. Therefore the bulls have all that going for them and the bears are hardly in a strong position as the indexes hang up around their highs. But as I'll show on the charts, the threat of a breakdown is real and Tuesday's trading could set the tone for the rest of the week.

There was very little to drive the market this morning and even though the pre-market Durable Goods orders report was more negative than expected it was basically ignored. The number came in at -1.1% for May, down from -0.9% in April, which had been revised lower from the previously reported -0.7%. Ex-transportation, durable goods was a little better, coming in at +0.1%, which was an improvement from -0.5% in April but still not as good as the +0.3% that was expected. Further signs of a slowing economy and eventually, if the trend continues, the market will start to recognize it.

Kicking off tonight's chart review, the Dow has been one of the indexes that keeps me thinking a new high is possible, although I'm starting to lose faith in its ability to do it.

Dow Industrials, INDU, Weekly chart

The Dow's weekly chart keeps me looking higher while the shorter-term charts suggest it might not be able to get another leg higher. A trend line along the highs from December 2014 - May 2017, which may or may not be important (it hasn't been tested yet), is currently near 21675 and it looks like a good upside target on the weekly chart. The problem for the bulls is that the buying momentum has slowed significantly (bearish divergence against the March high) and the market could simply be running out of buyers to propel the market higher.

Dow Industrials, INDU, Daily chart

Back on May 17th the Dow spiked down below its uptrend line from November-April but then climbed back above the line 3 days later. Since May 23rd it had used the trend line for support as it slowly marched its way higher into the June 20th high. It wasn't a strong break back below the line but last week's decline into Friday had the Dow closing below the line for the first time in a month.

Today the Dow climbed back up above the line, currently near 21435 (using the arithmetic price scale), and it's looking like the bulls could get another save if today's close on the line is followed by a rally on Tuesday. As long as this trend line holds as support we should see the Dow work its way higher, in which case the upside potential is to at least the price projection at 21618, where it would also run into two trend lines along the highs from 2011-2014 and April-June.

Key Levels for DOW:
- bullish above 21,535
- bearish below 21,169

S&P 500, SPX, Daily chart

SPX has been in a choppy pattern since its June 2nd high at 2440 and today's close at 2339 shows it hasn't made much progress in either direction this month. The price action looks "toppy" but until it breaks down below the June 15th low at 2418 I'll give the bulls the benefit of the doubt and look for the possibility of a rally up to a price projection at 2465 (to coincide with the Dow's 21618).

However, the short-term pattern following the June 19th high near 2454 suggests the top might already be in and short against that high is the better position. For that to be true we should see selling on Tuesday and a break below the 20-dma, currently near 2434. Tuesday is turning into a potentially key day -- its direction could set the tone for the rest of the week/month/quarter.

Key Levels for SPX:
- bullish above 2454
- bearish below 2418

Nasdaq Composite index, COMPQ, Daily chart

Drawing a trend line along the highs from April 2016 to March 2017 for the Nasdaq shows the rallies in May were repeatedly stopped by the trend line. Then the Naz made a bullish move June 1st and 2nd and climbed above the trend line. But that accomplishment was short-lived as the June 9th hard selloff dropped the Naz back below the line. Today it finally made it back up to the line, now near 6317, and we're watching to see if it remains resistance.

As the Nasdaq did in May, it could continue to work its way higher by nuzzling up underneath the trend line but if the bearish divergence continues to hold while working its way higher it would be a signal that longs are not long for the world and bears should get ready. That includes right here -- tight stops on long positions and get ready to play the short side if today's back-test is followed by a bigger red candle.

Key Levels for COMPQ:
- bullish above 6342
- bearish below 6107

Nasdaq-100, NDX, 30-min chart

From a short-term perspective there was a pattern that I was watching on NDX that pointed to the need for just one more new high today to complete a rising wedge pattern for the leg up from June 15th. This was to complete the c-wave of an a-b-c bounce off the June 12th low and this morning's new high at 5845, which tagged the 78.6% retracement of its June 9-12 decline, was a good setup for a high.

The pop up in the morning was a throw-over above the top of the wedge and the collapse back down inside the pattern created the sell signal. The bounce off this morning's low could get a little larger (to mimic the big bounce off the June 12th low) but short against this morning's high is the recommended play based on this bearish setup. It would of course be negated with a rally above this morning's 5845 high.

Russell-2000, RUT, Daily chart

As long as the RUT continues to chop up and down between its uptrend line from February-November 2016, now near 1381, and its trend line along the highs from 2007-2015, near 1437, there are very few clues as to where it's going next. I could easily argue for another test of its 2007-2015 trend line, maybe a little higher, and I could just as easily argue the case for at least another leg down from here, one that could break its uptrend line. In other words, the RUT is about as useful as teats on a bull as far as trying to figure out its next move. I lean bearish but the short-term pattern keeps the upside potential alive.

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

10-year Yield, TNX, Daily chart

Treasury yields dropped back down today, supposedly on more concerns about a slowing economy (following this morning's durable goods report). This morning's low for TNX was another test of support at its November 10, 2016 close at 2.117, which was last tested on June 14th (it's the week's closing price and the bottom of the November 14th gap up). A break of that support level would be more bearish (bullish for bond prices) but at the moment it's hinting it could break out of a bullish descending wedge from the May 11th high, currently near today's high at 2.147.

A rally above price-level S/R at 2.19 would turn things a least short-term bullish but a continued decline to the bottom of the wedge, near 2.05, can't be ruled out. And there's still the downside projection near 2.00 based on the double-top pattern. The longer-dated bonds, the 30-year (TYX) is looking more bearish and that's the market that suggests inflation is not a concern and that the economy is not improving.

KBW Bank index, BKX, Daily chart

Follow the money. The banks don't always show the way but it's always a good idea to keep an eye on them to see if they're in synch or not with the broader market. They've been weaker than the broader market since March and that's been a warning sign but if they can rally from here it would support at least another new high for the broader averages.

BKX has been trying to hold support on a pullback to its 20- and 50-dma's, near 92 and 91.60, resp. The uptrend line from June 2016 - May 2017 and the trend line along the highs from April 2010 - July 2015 cross on Tuesday near 90.90 and therefore a break of support at its MAs and the trend lines would obviously be more bearish. But MACD could be getting ready to turn back up from the zero line, which would be bullish.

U.S. Dollar contract, DX, Daily chart

Since the low for the US$ on May 22nd it has been chopping sideways and that has it looking like a bearish continuation pattern. A weaker dollar is further evidence that the currency market doesn't think the Fed will be able to raise rates like they want because the economy is cooling off. Assuming we're going to get another leg down for the dollar, the price projection at 94.79 remains a good target.

The 94.79 projection crosses the bottom of a parallel down-channel, starting from January, around mid-July. A short-term bounce can't be ruled out but it wouldn't be more bullish unless it can get above it descending 50-dma and a broken trend line along the lows from last December through March (gray line), both currently near 97.98.

Gold continuous contract, GC, Daily chart

Early this morning, around 4:00, gold dropped sharply after finishing a 3-wave bounce correction off its June 21st low. It pierced its 200-dma but held it as support, as it did last week, and it's possible it will get at least a larger bounce before heading lower. But it closed today below its uptrend line from December-May, currently near 1248, and today's consolidation following the morning low looks like a bearish continuation pattern. A continuation lower from here would clearly be more bearish since it will have broken below multiple layers of support (MAs and trend lines). Gold bulls need to step back in right now if they want to save their "precious" metal.

Oil continuous contract, CL, Daily chart

Off last Wednesday's low oil made it back up to the top of its narrow down-channel for its decline from May 25th. Eventually it's going to break of this narrow down-channel and start at least a bigger bounce correction, possibly something more bullish. But the bulls will have to wrestle the ball away from the bears since they own it after oil dropped below its uptrend line from August 2016 - May 2017, which is currently near 44.75. If oil makes it back up to that trend line, for what could turn into a bearish back-test, it would likely meet up with its quickly descending 20-dma. Above 45 would be the first bullish sign but for the moment there is downside potential to the $40 area.

Economic reports

Tuesday is light on economic reports with only the Shiller Home Price index and Consumer Confidence and no significant changes expected. Wednesday we'll see if the housing sector continues to improve after we get the Pending Home sales number. Thursday's GDP 3rd estimate and Friday's Personal Income/Spending numbers for May will shed more light on the balance between the two. PCE prices (a measure of inflation) will be an indication of what the Fed will use for the data-dependent decision making. The Chicago PMI and Michigan Sentiment will finish Friday's reports. All in all, nothing earth shattering is expected and that could help the bulls at least keep the sellers away this week.


The price patterns for the blue chips had been keeping me on the bullish side of things the past several weeks but after last week I'm not so sure about new highs. The techs had set up a pattern for the bounce off the June 12th lows that suggested it was going to be just a bounce correction to a lower high and then a turn back down into harder selling. That remains the greater likelihood in my opinion, which further weakens the idea that we'll get new highs for the blue chips. The RUT is just flopping around like a fish pulled out of the water.

This is a week that is typically bullish since it's the end of the month/quarter and it's common for fund managers to mark up the prices as much as possible to show what good investment managers they are. Then puke the positions next week. But it's been a good quarter and many fund managers might be more interested in protecting gains if they see the market weaken at all.

We also often see the market rally into a holiday weekend, which is this coming weekend, and the combination of a mark-up effort with the holiday could be too much for the bears to overpower. The price patterns are favoring the bears at the moment but that could be turned around in a hurry, especially if we get a rally on Tuesday that holds up (no selling of rallies like this morning). Any further selling on Tuesday would likely get those fund managers starting to protect their gains.

Good luck and I'll be back with you next week on my normally scheduled Wednesday. See below for a good deal on an OIN subscription.

Keene H. Little, CMT



Welcome to our mid-year Independence Day Subscription Special. Save 50% or more on your subscription!

The options market isn’t waiting for you.  And you shouldn’t wait to keep Option Investor coming at the lowest prices you’ll see until December! There isn’t a minute to spare.  Order now.

Renew for as little as $249
for six months,
ONLY $1.38 per day


New Plays

Opposite Direction

by Jim Brown

Click here to email Jim Brown
Editor's Note

Everything is pointing in one direction for this stock, except for the stock. There are lots of analysts saying good things about PPC but it is still in free fall.


No New Bullish Plays


PPC - Pilgrims Pride Corp - Company Profile

Pilgrim's Pride Corporation engages in the production, processing, marketing, and distribution of fresh, frozen, and value-added chicken products to retailers, distributors, and foodservice operators in the United States, Mexico, and Puerto Rico. It offers fresh chicken products comprising pre-marinated or non-marinated refrigerated (non-frozen) whole chickens, prepackaged case-ready chicken, whole cut-up chickens, and selected chicken parts. The company also provides prepared chicken products, including portion-controlled breast fillets, tenderloins and strips, delicatessen products, salads, formed nuggets and patties, and bone-in chicken parts. The company sells its products to foodservice market, including chain restaurants, food processors, broad-line distributors, and other institutions; and retail market customers comprising grocery store chains, wholesale clubs, and other retail distributors. In addition, it exports chicken products to Mexico, the Middle East, Asia, the Commonwealth of Independent States, and other countries. Pilgrim's Pride Corporation was founded in 1946 and is headquartered in Greeley, Colorado. Company description from FinViz.com.

I have started to play PPC several times because it is definitely directional. Every time I would read the headlines and the analyst commentary and everyone is saying good things and how the stock should rise. Apparently, nobody is listening.

Florida is currently probing PPC and Tyson (TSN) on price fixing on chicken. The initial review was broadened after the initial probe suggested there might be fire behind that smoke. There are currently civil lawsuits in progress claiming prices were fixed.

PPC reported earnings of 38 cents that missed estimates for 43 cents and the year ago earnings of 46 cents. Revenue of $2.020 billion did beat estimates for $2.014 billion. Margins shrank and costs rose. Cash on hand fell from $120.3 million to $30.8 million.

Expected earnings August 2nd.

Shares just broke below the May support at $23 and the next material support is $20. If the antitrust probe is going to continue, that support may not hold.

Sell short PPC shares, currently $22.40, initial stop loss $23.50.
Alternate position: Buy Aug $21 put, currently .70, initial stop loss $23.50.

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.

In Play Updates and Reviews

Dull Market

by Jim Brown

Click here to email Jim Brown

Editors Note:

They say, never short a dull market. Apparently, that goes for longs as well. The major indexes all opened significantly higher with the Dow up triple digits. After about 45 minutes there were no further gains and the Nasdaq rolled over from the 6,303 opening high to close at 6,247 and a 18 point loss. That was an improvement from the -31 low at 11:30. The market action was slow and it is only going to slow even further as the week progresses.

The morning sell cycle had all the markings of a sell program and hopefully they got all that out of their system. It is not unusual to see programs in the last few days of a quarter. This is how funds change their focus and their weightings. If they were long tech stocks coming into the end of the quarter and wanted to shift that exposure to biotechs then program trades are what makes it happen.

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

NGVC - Natural Grocers Vitamin Cottage
The short stock position was entered at the open.

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. Minor decline from Friday's 3-month high.

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. Minor decline from Friday's new high.

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. Minor decline from Friday's 8-month high.

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. Still holding at the recent highs.

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.

TWLO - Twilio Inc - Company Profile


No specific news. After an 11% gain last week, I moved this position back into the regular rotation and out of Lottery Play status. Today it declined -2.6%. Apparently, the move was negative. Maybe I should drop it completely then it could move to $35 overnight.

Original Trade Description: May 20th.

Twilio Inc. provides cloud communications platform that enables developers to build, scale, and operate communications within software applications through the cloud as a pay-as-you-go service in the United States and internationally. It offers programmable communications cloud software that enables developers to embed voice, messaging, video, and authentication capabilities into their applications through application programming interfaces. The company also provides use case products, such as a two-factor authentication solution. Twilio Inc. was founded in 2008 and is headquartered San Francisco, California. Company description from FinViz.com.

Twilio has a messaging application that is built in to dozens of apps you probably use every day. When tech startups try to decide how to engineer a solution they normally find that imbedding Twilio messaging is much simpler in the beginning. The thought process is that once the company is running and profitable they will go back and build their own platform. For most businesses that never happens and they end up paying for Twilio forever.

When they reported earnings on May 3rd, they said revenue growth would slow because Uber was finally taking that step of engineering their own messaging platform and would be phasing out Twilio. When a company reaches the size of Uber they can afford to build their own interface. Only a few companies ever make the switch. Other major customers on their network with no plans to change are Nordstrom, Airbnb, Amazon, Facebook, WhatsApp to name a few.

Uber accounts for 12% of Twilio revenue so the exit is painful. Pacific Crest downgraded the stock saying they had underestimated the risk from Uber. JP Morgan reiterated its overweight rating and $36 price target saying Twilio would continue riding Amazon's coattails to success with Amazon Web Services. Their price target is $33.

Shares fell after Twilio guided for an adjusted loss of 10-11 cents on revenue of $86.5 million. Analysts were expecting 8 cents and $87.8 million.

Last week CEO Jeff Lawson bought 100,000 shares at an average price of $23.43 ($2.34 million). Board member Jim McGeever, VP of Oracle's Netsuite unit, bought 10,000 shares at $23.19. They do not appear to be worried about the business slowing.

Earnings August 1st.

Shares are ticking higher and closed at a three week high on Friday.

Position 5/22/17:

Long July $28 call @ $.75, see portfolio graphic for stop loss.

Previously closed 5/31/17: Long TWLO shares @ $25.01, exit $23.85, -1.10 loss.

WTW - Weight Watchers - Company Profile


No specific news. Shares finally rested from their frantic surge higher. Fortunately, the decline was only 37 cents.

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

NGVC - Natural Grocers Vitamin Cottage - Company Profile


No specific news. Only a minor 14 cent rebound.

Original Trade Description: June 24th.

Natural Grocers by Vitamin Cottage, Inc., together with its subsidiaries, operates natural and organic groceries, and dietary supplement retail stores in the United States. Its stores offer natural and organic grocery products, such as organic produce; bulk food and private label products; dry, frozen, and canned groceries; meat and seafood products; dairy products, dairy substitutes, and eggs; prepared foods; bread and baked products; and beverages. The company's stores also provide private label dietary supplements; body care products comprising cosmetics, skin care, hair care, fragrance, and personal care products containing natural and organic ingredients; pet care and food products; household and general merchandise, including cleaning supplies, paper products, dish and laundry soap, and other common household products; and books and handouts. As of June 6, 2017, it operated 138 stores in 19 states. The company operates its retail stores under the Natural Grocers by Vitamin Cottage trademark. Natural Grocers by Vitamin Cottage, Inc. was founded in 1955 and is headquartered in Lakewood, Colorado. Company description from FinViz.com.

The company reported earnings of 13 cents that missed estimates for 16 cents. Revenue of $192.2 million missed estimates for $197.3 million. Same store sales declined -1.7%. They narrowed their full year guidance to earnings of 50-54 cents. They said they were cutting back on the number of new stores previously announced. That is a sure sign they are seeing competitive pressures on the business. The CEO warned that "the food retailing environment remains challenging."

The Amazon announcement just made their retailing environment significantly more challenging. NGVC has a very nice produce section of organic produce and a small grocery department roughly one fourth the size of a Whole Foods Market. Another 25% of their space is dedicated to vitamins. I visit one about once a week for a couple items. I have long ago switched my vitamin buying to Amazon because of the significantly reduced cost. I ran out of something a couple weeks ago and thought I will just swing by NGVC and get a bottle. The price was so high compared to Amazon, the sticker shock had me leaving the store empty handed. I had it from Amazon two days later.

I am afraid that is what many people are learning. It is hard to beat Amazon prices and the selection is much larger. NGVC was a niche store 10 years ago and did well. Now that Safeway, Walmart and Kroger carry so much organic food, NGVC is having trouble competing.

Expected earnings August 3rd.

NGVC shares are in free fall after their earnings. The Amazon announcement just greased the slide a little more.

Position 6/26/17:

Short NGVC shares @ $8.06, see portfolio graphic for stop loss.
Alternate position: Buy August $7.50 put, currently 50 cents. No initial stop loss.

VXX - Volatility Index Futures - ETF Description


New historic closing low.

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.

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.

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

subscribe now