Option Investor

Daily Newsletter, Saturday, 10/21/2017

Table of Contents

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

Market Wrap

Irrational Exuberance

by Jim Brown

Click here to email Jim Brown

The Dow has officially moved into irrational exuberance mode and 12 Dow components report earnings this week.

Weekly Statistics

Friday Statistics

Since the 21,787 close on September 8th, the Dow has gained 1,541 points or 7% for an average daily gain of 51.37 points over 30 trading days. The Dow is a perfect example of price chasing.

Any portfolio manager holding cash at the end of the summer and expecting to pick up some bargains in the normal Sept/Oct volatility was left waiting at the station because the train has already left. Typically, the market begins to move higher after October option expiration because the volatility has passed. We never had the volatility and now the race is on to get positioned for the "normal" end of year rally. Since none of the normal seasonal trends played out as expected this year, you have to wonder if the normal end of year rally will appear on schedule. November 1st is the start of the best six-month period of the year. Will that trend appear on schedule?

There is nothing to suggest the rally will fade. A budget was passed in the Senate, similar to the one passed in the House and now they would go to a conference committee to be merged. However, House leadership is signaling they do not want to go through the conference committee process and will vote on the Senate version next week. If that is passed, it will go directly to the president for signature and tax reform will immediately take center stage. However, there is one hurdle left. That is the debt ceiling, which expires on December 8th. Since they passed a budget, you would think they would pass a debt ceiling extension to go along with it. Of course, that would be rational thought and Washington is rarely rational.

Part of the lifting power on Friday was the news the House would take up the Senate bill and cut weeks out of the process. If they can pass a debt ceiling bill at the same time it would remove all the political hurdles in front of the market. That would allow them to concentrate solely on the tax reform package and investors would begin to hyperventilate at the possibilities.

This all means the markets could continue to post gains, but not likely as vertical as the Dow's gains last week. There is always the potential for some unforeseen event but all the events we can see this weekend are rapidly diminishing in their capability to halt the market.

Even the economic reports continue to surprise and create their own headline flow. The big news was the record low jobless claims on Thursday of 222,000. While that was the lowest level since March 31st, 1973, there was an external reason. Power and communications outages caused by Irma and Maria are still disrupting the claims processing in Puerto Rico and the Virgin Islands. Infrastructure has been so damaged that people are more concerned with getting food and water than walking miles to file a claim. The prior 4-week moving average of 258,000 is more representative of reality.

Existing home sales for September rose slightly from 5.35 million to 5.39 million. The number was boosted by a flurry of home buying in the Houston area where rental corporations and fix/flip companies are buying up flooded homes by the hundreds to repair and either sell or rent until property values return. Prices have been reported as low as 40 cents on the dollar compared to pre hurricane levels. Those homes with 6-8 feet of water damage have to be completely gutted and repaired. The floodwaters had large amounts of human wastewater from flooded treatment plants, animal wastes, dead animals, chemicals, etc. It was a toxic nightmare and insurance companies are wholesaling them off rather than repair them. After seeing what they looked and smelled like after the floodwaters receded, homeowners are bailing out to look for homes on higher ground.

The supply of existing homes is holding at 4.2 months for the last 5 reports. The median selling price declined from $253,100 to $245,100.

The economic calendar for next week is short but contains some important reports. There are two manufacturing surveys from the Richmond Fed and Kansas Fed. New Home sales and Pending Home sales will round out the home sales reports for the month. The third and last revision of the Q2 GDP will be on Friday and analysts are looking for a sharp drop from 3.1% to 2.5% as a result of the hurricanes.

General Electric (GE) was sucking all the oxygen out of the market before the open on Friday after reporting the first earnings miss in 2.5 years. The company reported adjusted earnings of 29 cents compared to estimates for 49 cents. That is not a typo. It was ugly. GE has not missed estimates by more than a penny in more than nine years. Revenue rose 14% to $33.47 billion and beat estimates for $32.51 billion. The new CEO said it was a very challenging quarter and cash flow was "horrible" despite solid performance by most of their businesses.

The CEO said everything is under review and they plan to divest $20 billion in assets to improve cash flow and profitability. They have an investor meeting on November 13th and most analysts believe they will cut the dividend before the meeting. This would be only the second dividend cut since the Great Depression. With 8.7 billion shares outstanding and a 96-cent annual dividend, that is $8.35 billion a year in dividends. The company guided for full year earnings of $1.05-$1.10, down from the prior range of $1.60-$1.70. Analysts were expecting $1.54.

With the new CEO inheriting a company with good businesses but serious problems, he has already gone into kitchen sink mode and you can bet they will miss earnings in Q4 as well after they throw everything possible into the quarter to clear the books for 2018.

GE shares fell more than $2 (10%) to $21.47 before the open but rebounded during the conference call and then struggled higher all day to actually close with a 25-cent gain at $23.67. Volume was 192 million shares. Average volume is 43 million. Some analysts were recommending a buy here because all the bad news is priced into the stock, now at a two-year low.

Procter & Gamble (PG) was the biggest Dow loser and erased 22 points after reporting earnings of $1.09 that only beat estimates by a penny. Revenue of $16.65 billion rose only 1% and missed estimates for $16.69 billion. The company reaffirmed its full year revenue growth estimates of 2% to 3% and EPS growth of 5% to 7%. Investors were not excited with what they considered anemic growth. The grooming business that sells Gillette razors and Braun epilators saw a third consecutive quarter of declining sales. They blamed the hurricanes for their poor performance.

Synchrony Financial (SYF) reported earnings of 70 cents that beat estimates for 64 cents. Revenue of $3.88 billion beat estimates for $3.78 billion. Loans rose 9% to $77 billion. Deposits rose 9% to $54 billion. Interest and fees rose 11%. They ended the quarter with total liquidity of $22 billion. They repurchased $390 million in stock. Shares rose 4%.

Schlumberger (SLB) reported earnings of 42 cents that matched analyst estimates. Revenue of $7.91 billion also matched estimates. Investors are rarely happy with matches and shares fell to a two-year intraday low. The bigger problem was a warning that investments in North America were moderating as producers elected not to expand their drilling programs with oil prices hovering around $50. The company said Gulf of Mexico activity continued to decline and the outlook remained weak based on customer plans.

PayPal (PYPL) reported earnings of 46 cents that rose 31% and beat estimates for 44 cents. Revenue of $3.24 billion rose 21% and beat estimates for $3.17 billion. They processed $114 billion in payments and person to person payments rose 47% to $24 billion. The Venmo app processed $9 billion in payments for 93% growth. They added 8.2 million new active members. They guided for the current quarter to earnings of 50-52 cents and for the full year for $1.86-$1.88. Shares spiked 5% on the report.

As we move into the center of the Q3 earnings cycle, 88 S&P companies have reported with 70.5% beating earnings estimates. This is below the average for the last four quarters of 72% and down from the 80% rate just a week ago. Of those companies, 71.6% have beaten on revenue with the four-quarter average at 60%. The consolidated earnings forecast has slipped slightly from 4.4% to 4.2% growth. The revenue growth estimate is stable at 4.4%. There have been 80 earnings warnings and 49 instances of positive guidance. There are 183 S&P companies reporting earnings next week.

Amazon (AMZN) and Alphabet (GOOGL) are the big dogs on Thursday but there are 12 Dow components including Microsoft and Intel. Amgen, Biogen and Gilead Sciences also report as the biggest biotechs on the Nasdaq. The three largest energy companies COP, CVX and XOM report and guidance will be critical.

DBV Technologies (DBVT) said its drug for peanut allergies did not meet the goals in a highly anticipated late-state study. The drug, was delivered in a 250 microgram daily stick-on patch called Viaskin Peanut, missed the main goal for increased tolerance to peanuts. The patch must be replaced daily over a long period to desensitize people to peanuts. After 12 months of treatment, only 35% of patients developed any statistically significant tolerance. Peanut allergies are the leading cause of food-induced allergic reactions in the US. The number of children affected more than doubled from 1997 to 2008 and now affects 2% of newborns. Shares were crushed for a $29 loss in afterhours.

Celgene (CELG) said a phase III trial for a Crohn's disease drug would be terminated. The Data Monitoring Committee, which assesses benefit/risk of ongoing trials, recommended ending it early. This suggests the risks being seen in the trial outweighed the benefits. Shares fell $14 on the news.

Apple (AAPL) was crushed on Thursday after China's Economic Daily News reported the company had slashed component orders for the iPhone 8 by 50% due to weak sales. This is the first time orders have been cut this early after a debut and by the largest amount. This is a good news, bad news story. This suggests tens of millions of customers are delaying their purchase of an 8 because they want to look at or buy an iPhone X. With only a couple hundred dollars difference in price, customers are thinking about stepping up to the cool new toy. The good news is that Apple will make more money on the X. The bad news is the very slow production cycle. Another news story reported Apple will only have 3 million phones in inventory when the order lines open on the 27th. This means significant delays, upset customers and revenue being kicked into Q1 rather than Q4. Apple reports earnings on Nov 2nd and guidance is going to be critical.

Bitcoin surged again to trade at $6,079 on Friday. Bitcoin owners are thrilled while the rest of us have a coulda, woulda, shoulda pity party.

Oil prices rose early in the week on Iraq's movement to take over the oil fields around Kirkuk. When there was no material conflict and production continue to flow, prices declined slightly. There was more chatter out of OPEC about extending the production cuts until the end of 2018 but at this point, they are just trying to talk up the market. There was also chatter that Russia would not agree to an extension. They are not even going to make the decision until January so everything you hear now is just propaganda. The next OPEC production meeting is not until November 30th.

OPEC should be happy about the sharp decline in active rigs in the US. There were 15 rigs deactivated last week to reduce the total to 913 and the lowest level since May 26th. That was 7 oil rigs and 8 gas rigs. This confirms the Schlumberger warning that capex spending is declining in the US. Apparently, a few producers are trying to get off the drilling treadmill until prices firm significantly.


The S&P closed at a new high on Friday but it also posted five consecutive days of gains. That may sound routine but it has only happened 17 times in the last 90 years. The last time was in 1998. It was a struggle with a couple days of only minimal gains but they were still gains. This is further proof that markets do not simply move higher every day even in a bull market.

Thursday's 14-point drop at the open put that streak in jeopardy but the dip buyers were waiting. Not only did they recover that 14 points to close positive but the buying accelerated into the close and continued on Friday. After nine days of miniscule gains and losses that added only 10 points, the index rebounded 27 points in two days. Investors do not like to buy market highs. They would rather buy the dips.

The index is now in blue-sky territory with no material resistance in sight. Keene targeted some short-term resistance at 2,585 in his Wednesday market wrap. Plotting resistance targets on a market breakout this long always proves challenging. Support is clearly defined at 2,550.

Resistance is going to end up being the analyst estimates. The reported consensus estimate for year-end is 2,475 but the most recent estimates I can find average 2,534. The highest forecast on the street is 2,700 by Morgan Stanley and the lowest is Mizuho at 2,300. Goldman Sachs says 2,400 without tax reform and 2,650 if something is passed. Federated is targeting 3,000 but they don't specifically say by year end.

The grouping at 2600-2650 are the most recent and that is more than likely where the S&P will top out for the year unless there is a tax cut. If enough analysts target that range, an equal number of investors will start to take profits at that level. However, the Morgan Stanley target of 2,700 has a nice round number feel and that is only a 5% gain from Friday's close. Once the bulls are charging anything is possible and there will be constant talk of tax reform even if it is not passed in 2017.

Sam Stovall noted in a recent post that "since WWII the market has had 56 pullbacks between 5% and 9%, 21 corrections between 10% and 19.9% and 12 bear markets with drops of more than 20%. On average, only six months have separated the end of one decline and the start of the next." We have now gone 475 days or nearly 16 months without even a 5% decline. There has not been a 10% decline since the one that ended in February 2016. We are due for some profit taking and the longer we retain a bullish bias the worse the decline will be when it finally arrives.

The S&P finally blew past the 2,555 resistance after two weeks of struggle. That level should now be short-term support.

The Dow has now posted six consecutively daily gains. Back in late September, it ran for 9 days before breaking stride. To say the Dow was overextended would be an understatement but it does not mean it cannot go higher. With 12 Dow components reporting next week we know there will be volatility. Whether that is up, down or both we will not know until it happens. CAT, MCD and MMM have a good chance of moving the index. All three report before the open on Tuesday.

Like the S&P there is no clear resistance with the Dow in breakout mode. The round numbers will take on more importance the higher it goes. The 23,500 level could be tested next week. I would bet that some traders have 25,000 as a whisper number by the end of December. That would definitely be round number resistance and portfolio managers would be taking profits with both hands ahead of year-end statements.

The Nasdaq rebounded sharply from the Thursday dip to regain 71 points but it did not close at a new high on Friday. The Nasdaq missed a record close by 3 points and put it right back against resistance that held for the prior 4 days. The big cap techs were mixed and those that did finish positive only gained a little with the exception of Adobe. That Adobe spike came on raised guidance on Wednesday evening that prompted a 22-point gain over two days.

The Nasdaq has been posting minor gains like the S&P while investors wait for some earnings catalysts. Amazon and Alphabet could do that on Thursday night.

Short-term resistance is 6,630 and support is 6,560.

The Russell 2000 recovered from its three days of declines under the support at 1,500 and retested the prior record high. This is encouraging because there was a lot of profit taking potential on the Russell and the majority of investors failed to run to the sidelines. The two week dip was minimal.

The investor sentiment survey did not show any major changes last week. With the markets holding at the highs everyone seems pretty confident about their positions. I would have expected bullish sentiment to rise slightly since the herd is normally the most bullish at the highs.

The Dow is overbought and facing another week of earnings volatility. That could continue the rally or send it into a ditch. You cannot predict market direction in the middle of earnings season. There are too many headlines driving individual stocks. So far, we have not had that much impact from the hurricane ate my earnings excuse but it has not been forgotten.

In theory, the market should continue higher because all the fundamentals are positive and there is a lack of negative headlines on the horizon. We escaped the week without North Korea doing anything stupid but I doubt rocket man will simply roll those missiles back into their caves. He may be biding his time looking for a new opportunity OR he may have considered his survival options and decided to launch stupid comments instead of missiles.

I would continue to buy the dip until that trade no longer works. Remember the statistics I quoted above. We are long overdue for pause but I doubt it will be this week.

If you like the market commentary 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.

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Enter passively and exit aggressively!

Jim Brown

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"There are three kinds of men. The ones that learn by reading. The few who learn by observation. The rest of them have to pee on the electric fence for themselves."

Will Rogers


New Plays

Takeover Candidate

by Jim Brown

Click here to email Jim Brown
Editor's Note

Rumors have been swirling for months and the time may be getting close. A deal for Finish Line may be about done.


FINL - Finish Line - Company Profile

The Finish Line, Inc., together with its subsidiaries, operates as a retailer of athletic shoes, apparel, and accessories for men, women, and kids in the United States. The company offers athletic shoes, as well as an assortment of apparel and accessories of Nike, Brand Jordan, adidas, Under Armour, Puma, and other brands. It engages in the in-store and online retail of athletic shoes for Macy's Retail Holdings, Inc.; Macy's Puerto Rico, Inc.; and Macys.com, Inc., as well as online at macys.com. As of April 2, 2017, the company operated 573 Finish Line stores in 44 states in the United States and Puerto Rico. It also operates e-commerce site, finishline.com and mobile commerce site, m.finishline.com. The company was founded in 1976 and is based in Indianapolis, Indiana. Company description from FinViz.com.

This is a simple scenario. UK retailer Sports Direct has acquired an 8% interest in Finish Line as it tries to expand its presence in the USA. Sports Direct was acquiring additional shares through third parties in order to force an acquisition. In late August, Finish Line adopted a poison pill to prevent a forced takeover. Since that pill was enacted, the companies have been in discussions and insiders claim the deal is moving along nicely towards completion.

Wells Fargo said there was at least a 50% probability the deal would happen and they are targeting a sale in the $14 - $16 range. Shares are currently trading at $10.50 and EBITDA of 4.5. Wells Fargo said that would be the cheapest takeout in years. Staples was bought by Sycamore for 5.5 times in September. Since Staples had not posted positive comps in 10 years they believe Finish Line will be sold for more than the Staples rate.

Shares jumped on Friday after the company declared an 11-cent dividend.

I am recommending as own this stock ahead of earnings on Dec 22nd. If there is going to be a deal announced it should happen on or before earnings.

Buy FINL shares, currently $10.57, initial stop loss $9.25.
Alternate position: Buy Feb $12 call, currently 75 cents, no initial stop loss.


No New Bearish Plays

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

In Play Updates and Reviews

Russell Retest

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Russell recovered from its two-week decline to retest the record high close from October 5th. The index traded 64 cents over that record close but faded 3 points in the final minutes of trading. The Nasdaq also faded in the final minutes. The Dow surged in the last 15 min and closed at a new record and in extremely overextended territory. The Dow chart is starting to look like the Russell chart in September. The music will eventually stop but the bulls are still dancing to the Pied Piper today.

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.

Lottery Ticket Plays - Updated only on Weekends

Current Position Changes

FDC - First Data
The long put position was stopped at $18.25 on Wednesday.

HIMX - Mimax Technology
The long call position was closed at the open on Monday.

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

AMD - Advanced Micro Devices - Company Profile


No specific news. AMD and Nvidia both down in a bullish market. Most likely rotation.

Original Trade Description: Sept 23rd

Advanced Micro Devices, Inc. operates as a semiconductor company worldwide. Its primarily offers x86 microprocessors as an accelerated processing unit (APU), chipsets, discrete graphics processing units (GPUs), and professional graphics; and server and embedded processors, and semi-custom System-on-Chip (SoC) products and technology for game consoles. The company provides x86 microprocessors for desktop PCs under the AMD A-Series, AMD E-Series, AMD FX CPU, AMD Athlon CPU and APU, AMD Sempron APU and CPU, and AMD Pro A-Series APU brands; and microprocessors for notebook and 2-in-1s under the AMD A-Series, AMD E-Series, AMD C-Series, AMD Z-Series, AMD FX APU, AMD Phenom, AMD Athlon CPU and APU, AMD Turion, and AMD Sempron APU and CPU brand names. It also offers chipsets with and without integrated graphics features for desktop, notebook PCs, and servers, as well as controller hub-based chipsets for its APUs under the AMD brand; and AMD PRO mobile and desktop PC solutions. In addition, the company provides discrete GPUs for desktop and notebook PCs under the AMD Radeon brand; professional graphics products under the AMD FirePro brand name; and customer-specific solutions based on AMD's CPU, GPU, and multi-media technologies. Further, it offers microprocessors for server platforms under the AMD Opteron; embedded processor solutions for interactive digital signage, casino gaming, and medical imaging under the AMD Opteron, AMD Athlon, AMD Sempron, AMD Geode, AMD R-Series, and G-Series brand names; and semi-custom SoC products that power the Sony Playstation 4, Microsoft Xbox One, and Xbox One S game consoles. Company description from FinViz.com.

Expected earnings Oct 24th.

Nvidia (NVDA) shares were rocked last week after news broke that Tesla was looking at moving to AMD and away from Nvidia for the chips to power the autonomous driving functions. The initial headline saw AMD spike and Nvidia decline. The actual story is that AMD and Nvidia are partnering on creating a chip solution for Tesla. It is no surprise that AMD is in the mix because Tesla hired Jim Keller to lead development of Autopilot. Keller previously worked at AMD and led the development of the Zen architecture and the new Ryzen processors.

It appears that Nvidia and AMD have a team of about 50 engineers working to develop a comprehensive solution for Tesla. Here is where it gets interesting. I would not be surprised to see Tesla make an acquisition bid for AMD. The company only has a $13 billion market cap compared to $110 billion for Nvidia. AMD has a lot of products that are different from the Nvidia product line even though they both make GPUs. AMD has only existed for years as a foil for Intel. The bigger company could not be considered a monopoly as long as AMD existed. Now with Qualcomm getting into the processor market and AMD and Nvidia in a high tech partnership, it would make sense for Nvidia to acquire AMD. Since GPUs are a small part of AMD's product line, there may not be that much regulatory concern. Is it a long shot? Absolutely, but definitely in the realm of possibilities.

Even if there is never an acquisition bid, just the combination of AMD and Nvidia in a partnership validates the technical capabilities of AMD and lifts them into the big league. Where AMD has always been a low cost alternative to Intel and always 1-2 generations behind in technical expertise, they have dramatically improved their game in the last 12-18 months. Instead of being road kill on the Intel superhighway to state of the art processors, they have surged to be a real competitor. Partnering with Nvidia is a real step up for the company.

The chart is ugly with no apparent trend but there is decent support at $12. They could easily catch fire as investors begin to understand the ramifications of the partnership and we could see another leg higher like the one that started the prior May. There are no guarantees but I do not believe anyone sees AMD's future as anything but positive given recent events.

Update 9/25/17: AMD and Nvidia declined after Intel announced the next generation in the Core CPU line for desktops. This 8th generation Core-i7-8700K is the bet gaming processor ever with an internal clock frequency of 4.7 Ghz and Intel's fastest ever. They will also support 4K video. This is a challenge for AMD but the company is still ahead of Intel in the GPU race.

Update 10/3/17: AMD announced a new embedded GPU requiring less power and capable of driving five simultaneous 4K displays. The GPU requires less than 40 watts TDP and comes in a smaller, thinner package. The chip has a 1.25 TFLOPS speed and comes in three form factors including MCM, MXM and PCI Express. The 4K and 3D support works for games, medical imaging, advertising signage and industrial uses. The GPU has 4 GB of GDDR5 memory. Shares gained more than 5% on the news.

Update 11/10/17: AMD shares rallied after a processor conference and upgrade to Nvidia. Yesterday there was an article with a picture of a new Intel processor with "Vega Inside" but it has disappeared today. Intel has previously denied any licensing with AMD but the picture showed a mobile processor with Intel Outside, Vega Inside, which would mean AMD's Vega graphics on an Intel chip. This was for a mobile processor for a notebook or tablet. Apparently, Intel was not ready for the world to see that internal graphic and the article was removed from circulation. If/when Intel does announce a deal with AMD the stock is going to soar.

Update: I was able to go back and find the link I had saved even though it is no longer on the website. Vega Inside

Position 9/25/17:

Long AMD shares @ $13.25, see portfolio graphic for stop loss.
Alternate position: Long Jan $14 call @ $1.25, see portfolio graphic for stop loss.

BOTZ - Global X Robotics AI - Company Profile


No specific news. Long term position.

Original Trade Description: October 4th.

The investment seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the Indxx Global Robotics & Artificial Intelligence Thematic Index. The fund invests at least 80% of its total assets in the securities of the underlying index. The underlying index is designed to provide exposure to exchange-listed companies in developed markets that are involved in the development of robotics and/or artificial intelligence as defined by Indxx, the provider of the underlying index. The fund is non-diversified. Company description from FinViz.com.

Robots of every description are taking over the manufacturing sector, service sector, etc. Drones are automated. Autos are becoming autonomous.

Even more important to this ETF is the sudden arrival of Artificial Intelligence or AI. That is the buzzword for everything. Everybody is trying to get into the AI business.

This ETF took off last January and while there have been several mild hiccups along the way, the chart is nearly vertical as investors become aware of it.

I am going to lag back on the stop loss because this could be a long-term position.

Position 10/5/17:

Long BOTZ shares @ $22.10, see portfolio graphic for stop loss.
Alternate position: Long Mar $23 call @ 80 cents, see portfolio graphic for stop loss.

CONN - Conn's Inc - Company Profile


No specific news. Made the Zacks "Bull of the Day" list.

Original Trade Description: Sept 23rd

Conn's, Inc. operates as a specialty retailer of durable consumer goods and related services in the United States. It operates through two segments, Retail and Credit. The company's stores provide furniture and mattress, including furniture and related accessories for the living room, dining room, and bedroom, as well as traditional and specialty mattresses; home appliances comprising refrigerators, freezers, washers, dryers, dishwashers, and ranges; and home office products consisting of computers, printers, and accessories. Its stores also offer consumer electronics, such as LED, OLED, Ultra HD, and Internet-ready televisions; and Blu-ray players, and home theater and portable audio equipment. The company also provides short- and medium-term financing to its retail customers, as well as offers product support services, such as product repair services, repair service agreements, and various credit insurance products. As of January 31, 2017, it operated 113 retail locations in Alabama, Arizona, Colorado, Georgia, Louisiana, Mississippi, Nevada, New Mexico, North Carolina, Oklahoma, South Carolina, Tennessee, and Texas. Conn's, Inc. was founded in 1890 and is based in The Woodlands, Texas. Company description from FinViz.com.

Conn's reported earnings of 26 cents and analysts were expecting a loss of 2 cents. Revenue of $366.6 million missed estimates for $371.9 million. They are located outside of Houston and were forced to close 23 stores, distribution and service centers in Beaumont and Houston. They lost 100 selling days as a result of the storm.

The company said collections from customer financings would be impacted and sales were slow after the stores reopened. However, once utilities and transportation systems were restored, the business saw a large uptick in activity. People who were flooded out have to replace all of their furniture and electronics. Because the company is located in and has a heavy presence in Houston, they will benefit from the surge in replacing household items for months into the future. Shares are rebounding on this outlook.

Earnings Dec 7th.

I profiled this as a long position on Sept 28th but the stock gapped higher on the 29th on an analyst upgraded and that cancelled the entry. Oppenheimer raised their rating to an outperform with a $56 price target. He said investors were under appreciating the resurgence of the Conn's business model and credit portfolio. The crisis of confidence from September 2016 has long passed.

Late Monday an SEC Form 4 was filed showing Harriet Stevens, a 10% owner, purchased another 42,000 shares for $1,066,800 on Oct 13th. This is a strong vote of confidence in the stock. She already owns 5.984 million shares worth $152 million. She did not need to buy more unless she really felt the stock was going higher.

Update 10/18: KeyBanc reiterated and overweight rating and raised their price target from $24 to $42. Shares spiked to $28.35 on a short squeeze related to the upgraded but faded back to $26.85 at the close. That was still a 5.5% gain.

Position 10/17/17:

Long CONN shares @ $26.00, see portfolio graphic for stop loss.
Alternate position: Long Nov $28 call @ $1.06. Short fuse. see portfolio graphic for stop loss.

MRVL - Marvel Technology - Company Profile


No specific news. Zero movement, which is better than a decline.

Original Trade Description: August 30th.

Marvell Technology Group Ltd. designs, develops, and markets analog, mixed-signal, digital signal processing, and embedded and standalone integrated circuits. It offers a range of storage products, such as hard disk drive (HDD) and solid-state drive controllers, as well as HDD components, such as HDD preamps components; and develops software enabled silicon solutions consisting of serial advanced technology attachment port multipliers, bridges, serial attached SCSI, and non-volatile memory express redundant array of independent disks controllers and converged storage processors for enterprise, data centers, and cloud computing businesses. The company also provides networking products comprising Ethernet solutions comprising Ethernet switches, Ethernet physical-layer transceivers, and single-chip network interface devices; and embedded communication processors. In addition, it offers a portfolio of connectivity solutions, including Wi-Fi, and Wi-Fi/Bluetooth integrated system-on-a-chip products, which are integrated into a variety of end devices, such as enterprise access points, home gateways, multimedia devices, gaming products, printers, automotive infotainment and telematics units, and smart industrial devices. Further, the company provides printer-specific standard products, as well as full-custom application-specific integrated circuits; and communications and applications processors. Company description from FinViz.com.

Marvel reported earnings of 30 cents that beat estimates for 28 cents. Revenue of $605 million beat estimates for $601 million. Free cash flow more than doubled from $38 million to $89 million. Core revenues rose 6%, storage controller revenues rose 13%. SSD chips rose from 20% to 25% or revenue. The new SSD products are rapidly gaining market share and remain a high profit item. Gross margin was 60.4%. They guided for Q3 for revenue of $595-$625 million with earnings of 30-34 cents per share.

Expected earnings Nov 23rd.

The company is in the midst of a restructuring process while they are changing their product mix for the better. Apparently it is working.

Shares spiked from $15.75 to $17.25 after earnings then pulled back slightly on post earnings depression. They rebounded today to a new 2-month high and very close to a new high.

Position 8/31:

Long MRVL shares @ $17.79, see portfolio graphic for stop loss.
Alternate position:
Closed 10/9: Long Oct $18 call @ 64 cents, exit 64 cents, breakeven.

ON - ON Semiconductor - Company Profile


No specific news. New closing high.

Original Trade Description: Oct 9th.

ON Semiconductor Corporation manufactures and sells semiconductor components for various electronic devices worldwide. It operates through three segments: Power Solutions Group, Analog Solutions Group, and Image Sensor Group. The Power Solutions Group segment offers discrete, module, and integrated semiconductor products for various applications, such as power switching, power conversion, signal conditioning, circuit protection, signal amplification, and voltage reference. The Analog Solutions Group segment designs and develops analog, mixed-signal, and logic application specific integrated circuits and standard products, as well as power solutions for a range of end-users in the automotive, consumer, computing, industrial, communications, medical, and aerospace/defense markets. This segment also provides trusted foundry, trusted design, and manufacturing services, as well as integrated passive devices technology. The Image Sensor Group segment offers complementary metal oxide semiconductors and charge-coupled device image sensors, as well as proximity sensors, image signal processors, and actuator drivers for autofocus and image stabilization for a range of customers in automotive, industrial, consumer, wireless, medical, and aerospace/defense markets. The company serves original equipment manufacturers, distributors, and electronic manufacturing service providers. Company description from FinViz.com.

Earnings Nov 6th, unconfirmed.

ON continues to power higher on a surge of new products as the IoT boom continues. The company completed the acquisition of Fairchild Semiconductor in September.

A major factor in the boom is the Advanced Driver-Assistance Systems. This market is expected to reach $42 billion by 2021 according to MarketsandMarkets. This is giving ON a tremendous boost in earnings and forecasts.

However, they missed earnings for Q2. They reported 26 cents and estimates were 33 cents. Revenue of $1.34 billion beat estimates for $1.31 billion. The company guided for the current quarter for $1.34-$1.39 billion.

Somebody believes they are going to beat those estimates by a mile. On Monday, somebody bought 11,000 of the November $20 calls at 65 cents. That is a $715,000 bet. I suggest we follow them.

Because of the steep gains over the last month, I am not recommending a stock position. We will do this with options only.

Update 10/11/17: ON and Fujitsu announced an agreement where ON will purchase 40% of Fujitsu's 8-inch wafer fabrication plant in Aizu-Wakamatsu. The purchase will be completed by April 1st. ON already had a 10% share and will acquire another 30%. ON said it planned to increase ownership to 80% in the second half of 2018 and 100% in the first half of 2020. By scaling into the ownership it will allow ON to add capacity as demand increases.

Update 10/12/17: ON announced to new System on a Chip (SOC) 1.0 Megapixel CMOS image sensing products for the automotive imaging sector. The company said annual shipments of cameras for use in cars will easily surpass 80 million units by 2020.

Position 10/10/17:

Long Nov $20 call @ 80 cents, see portfolio graphic for stop loss.

BEARISH Play Updates

BBBY - Bed, Bath and Beyond - Company Profile


No specific news. Shares holding at the 8-yr low.

Original Trade Description: October 14th.

Bed Bath & Beyond Inc., together with its subsidiaries, operates a chain of retail stores. It sells a range of domestics merchandise, including bed linens and related items, bath items, and kitchen textiles; and home furnishings, such as kitchen and tabletop items, fine tabletop, basic housewares, general home furnishings, consumables, and juvenile products. It also provides various textile products, amenities, and other goods to institutional customers in the hospitality, cruise line, healthcare, and other industries. As of February 25, 2017, the company had a total of 1,546 stores, includes 1,023 Bed Bath & Beyond stores in 50 states, the District of Columbia, Puerto Rico, and Canada; 276 stores under the names of World Market, Cost Plus World Market, or Cost Plus; 113 buybuy BABY stores in 35 states and Canada; 80 stores under the CTS name; and 54 stores under the Harmon name. It also offers products through various Websites and applications, such as bedbathandbeyond.com, bedbathandbeyond.ca, harmondiscount.com, christmastreeshops.com, buybuybaby.com, buybuybaby.ca, harborlinen.com, t-ygroup.com, and worldmarket.com. In addition, the Company operates Of a Kind, an e-commerce Website that features specially commissioned limited edition items from emerging fashion and home designers; One Kings Lane, an online authority in home decor and design that offers a collection of selected home goods, and designer and vintage items; PersonalizationMall.com, an online retailer of personalized products; Chef Central, an online retailer of kitchenware, cookware, and homeware items catering to cooking and baking enthusiasts; and Decorist, an online interior design platform that provides personalized home design services. Company description from FinViz.com.

It is a tough world when nearly every one of your products is listed on Amazon along with a dozen competitive products with free 2-day delivery. Bed, Bath and Beyond is stuck in that rut and it is painful.

In their recent earnings they reported 67 cents, down from $1.11 in the year ago quarter and missed estimates for 93 cents. Revenue of $2.9 billion also missed estimates for $3 billion. Same store sales declined -1.7%. The retailer said it was undertaking a number of "transformational initiatives." One of those initiatives was the termination of 880 manager positions. Shares fell 18% on the earnings.

With Toys-R-Us filing bankruptcy, there are now concerns about other stores possibly following suit. BBBY is in trouble even though they are buying back shares and paying a dividend. With sales and earnings declining those shareholder friendly efforts may have to be curtailed. They have 65,000 employees and 1,550 stores.

This is simply a case of a large brick and mortar retailer trying to compete with an all powerful Amazon and we know who is going to win this battle in the long run.

Expected earnings Dec 19th.

I am reaching out to January on the option because we can buy an extra 40 days of time for 21 cents. We can buy time but we do not have to use it.

Position 10/16/17:

Short BBBY shares @ $21.20, see portfolio graphic for stop loss.
Alternate position: Long Jan $20 put @ $1.10, see portfolio graphic for stop loss.

HAWK - Blackhawk Network Hldgs - Company Profile


No specific news. Shares rose again in a bullish market. I am really glad I made this an option only position.

Original Trade Description: October 18th.

Blackhawk Network Holdings, Inc. provides a range of prepaid gift, telecom, and debit cards in physical and electronic forms; and related prepaid products and payment services in the United States and internationally. It operates through three segments: U.S. Retail, International, and Incentives & Rewards. The company distributes closed loop gift cards in the areas of digital media and e-commerce, dining, electronics, entertainment, fashion, transportation, home improvement, and travel; non-reloadable open loop gift cards; and prepaid wireless or cellular cards that are used to load airtime onto the prepaid handsets, as well as sells handsets. It also offers general purpose reloadable (GPR) cards; and Reloadit, a GPR reload network product that allows consumers to reload funds onto their previously purchased third-party GPR cards. In addition, the company provides incentives solutions comprising solutions, which allow businesses to manage consumer incentive programs, including in-store, online, or mail-in rebate processing; a hosted software platform for managing sales person and sales channel incentive programs; bulk prepaid card ordering systems and Websites to allow business and incentive program clients to use prepaid cards as part of their incentive and reward programs; and direct-to-participant fulfillment services for prepaid cards, checks, and merchandise. Further, it offers Cardpool that provides an online marketplace and various retail locations to sell unused gift cards; digital services for online and mobile applications; and card production and processing services to its prepaid gift and telecom content providers. The company distributes its products through grocery, convenience, specialty, and online retailers. Company description from FinViz.com.

Blackhawk is in trouble. The company reported Q3 earnings of 18 cents that beat estimates for 10 cents but revenue of $208.1 million missed estimates for $216.5 million. The company guided for the full year for earnings of $1.56-$1.70 and analysts were expecting $1.68. They cut revenue guidance to $940-$981 million and analysts were expecting $1.1 billion.

The CEO said, "We have recently seen increasing competitive pressures in some retail markets and believe this will result in lower growth in our U.S. retail physical channels going forward."

PayPal, Visa and MasterCard are making a big push into prepaid cards. Blackhawk is fighting the three giants in the market and apparently, they are losing market share.

Shares fell $10 on the earnings and have continued to bleed points in the days that followed. They are at a 52-week low and are approaching a 3-year low at $30. Investors tend to flee when companies warn of increased competition and falling market share. If the $30 level breaks, the next support is around $23.

Earnings January 10th.

Because the stock is over $30 this will be an option only position.

Position 10/19/17:

Long Dec $30 put @ .50, see portfolio graphic for stop loss.

VXX - Volatility Index Futures - ETF Description


Since this is a long-term ETF position, there will not be daily commentary.

Original Trade Description: September 18th.

The VXX is a short-term volatility ETF 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 five reverse splits occurred at $13.11 (11/2010), $8.77 (10/2012), $12.84 (11/2013), $9.52 (8/8/16), $12.77 (8/22/17). The prospectus says it can reverse split anytime it trades under $25 for a prolonged period and the splits will always be 1:4.

We know from experience that the VXX always declines. The last two times we shorted this ETF we had a $7.23 and $5.98 gain.

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 into year-end we could see a sharp decline in the VXX over 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.

The VXX is hard to short. Shortsqueeze.com says there are 19.9 million shares short out of 26.7 million shares outstanding. The shares are out there and being traded because the volume on Monday was 29.6 million. You have to tell your broker you really want to short it and make them find the shares. Sometimes it takes days or even a week before your broker will find you the shares. Trust me, be persistent and it will be worth the effort.

I had held off after the 1:4 reverse split because the options were expensive and I was expecting volatility in September from the budget battle and debt ceiling hurdle. With those issues pushed out into December, the volatility is dropping like the proverbial rock. Several readers have already emailed me asking when I was going to put this position back in the portfolio.

Position 9/19/17:

Short VXX shares @ $40.95, see portfolio graphic for stop loss.

Left Over Lottery Tickets

These positions were left over from prior plays where we had an optional option with no stop after the stock position was closed. Rather than close these for a few cents they are left open as a "Lottery Ticket" play. With months before expiration, anything is possible. A strong move in a single stock can be well worth the additional patience.

These positions are only updated on the weekend.

ETSY - Etsy Inc - Company Profile


No specific news. Shares are are holding above secondary support and their busy season is just ahead.

Original Trade Description: Sept 13th.

Etsy, Inc. operates as a commerce platform to make, sell, and buy goods online and offline worldwide. Its platform includes its markets, services, and technology, which enables to engage a community of sellers and buyers. The company offers approximately 45 million items across approximately 50 retail categories to buyers. It also provides various seller services, including direct checkouts, promoted listings, and shipping labels, as well as Pattern by Etsy to create custom Websites; and seller tool and education resources to start, manage, and scale businesses to entrepreneurs primarily through Etsy.com. In addition, the company operates A Little Market, a handmade and supplies market for sellers and buyers. Company description from FinViz.com.

For Q2, the company reported earnings of 10 cents that rose from a 6-cent loss in the year ago quarter. Revenue rose 19.1% to $101.7 million. Active sellers rose 10.9% to 1.83 million. Gross merchandise volume rose 11.7% to $748 million. Sales on mobile devices rose 47%. International sales rose 31% to 32% of gross sales. The number of employees in the workforce declined 23% thanks to an aggressive push by the CEO to expand profitability.

They guided for gross merchandise sales to rise 12% to 14% for the full year, up from prior guidance of 11.7%. Full year revenue is expected to rise 18% to 20% and in line with the 19.1% in Q2.

The company is growing rapidly, especially internationally and they are reducing costs significantly. Over the last several months, they replaced the CEO, CFO and CTO in their push to grow the company and profits quickly.

Expected earnings Nov 2nd.

On Sept 7th a Davidson's analyst, Tim Forte, went all in on ETSY with a glowing forecast. Shares spiked to $17.50 and then faded for a couple days. They have rebounded over the last three days and closed at a new high on Wednesday.

Position 9/14/17:

Long Dec $20 call @ 70 cents, see portfolio graphic for stop loss.

Previously closed 9/27: Long ETSY shares @ $17.79, exit $16.75, -1.04 loss.

FDC - First Data - Company Profile


First Data said it was acquiring BluePay Holdings for $760 million. BluePay processes transactions for 77,000 merchants on 450 software platforms and approximately $19 billion a year in transactions. Shares spiked and we were stopped out of the put position.

Original Trade Description: September 16th.

First Data is a global leader in commerce-enabling technology, serving approximately six million business locations and 4,000 financial institutions in more than 100 countries around the world. The company's 24,000 owner-associates are dedicated to helping companies, from start-ups to the world's largest corporations, conduct commerce every day by securing and processing more than 2,800 transactions per second and $2.2 trillion per year. Company description from FDC.

First Data earnings will be impacted by the three hurricanes because retail activity was slowed significantly over the weeks following the hurricane impacts. FDC said retail activity declined 72% in the first three days and was not expected to resume significantly for weeks. Stores need to recover from the floodwaters and flooding. They need electricity restored in order to run registers and POS terminals.

Expected earnings Nov 6th.

FDC also had the unfortunate luck of filing for a secondary offering of 85 million shares with an overallotment allowance of another 12.75 million on September 11th, just after the twin storms. The shares were sold by New Omaha Holdings, a major shareholder in FDC. With only about 300 million shares actively traded that is close to a 25% increase in the float. The shares were priced on Sept 18th at $17.75 each.

Selling nearly 100 million shares when your shares are already depressed would be expected to depress them even further. Shares closed at $17.55 on Wednesday and the 4-month low close is $17.47. Any further decline could put them into free fall to major support at $15.

There is always the potential for an earnings warning over the next several weeks.

Update 9/28/17: FDC announced a new service called Disburse-to-Debit to allow companies that hire temporary workers or "gig" workers to pay them instantly upon completion of a task by sending the money to their debit cards. This works for people like Uber drivers, part time workers at special events or even insuranve companies paying claims. An agent can upload the user data and the debit card payment arrives instantly. This is a smart service and FDC shares rallied 33 cents on the news.

Position 9/28:

Closed 10/18: Long Jan $17 put @ 70 cents, exit 45 cents, -.25 loss.

Previously Closed 10/11/17: Short FDC shares @ $17.56, exit $17.90, -.34 loss.

HIMX - Himax - Company Profile


With expectations for the iPhone being reduced, earnings expectations for Himax were also cut. Shares declined below support and we close the position at the open on Monday.

Original Trade Description: Sept 9nd

Himax Technologies, Inc., a fabless semiconductor company, provides display imaging processing technologies to consumer electronics worldwide. The company operates through Driver IC and Non-Driver Products segments. It offers display driver integrated circuits (ICs) and timing controllers used in televisions (TVs), laptops, monitors, mobile phones, tablets, digital cameras, car navigation, and other consumer electronics devices. The company also designs and provides controllers for touch sensor displays, liquid crystal on silicon micro-displays used in palm-size projectors and head-mounted displays, light-emitting diode driver ICs, power management ICs, scaler products for monitors and projectors, tailor-made video processing IC solutions, and silicon IPs. In addition, it offers digital camera solutions, including complementary metal oxide semiconductor image sensors and wafer level optics, which are used in various applications, such as mobile phone, tablet, laptop, TV, PC camera, automobile, security, and medical devices. The company markets its products to panel manufacturers, agents or distributors, module manufacturers, and assembly houses; and camera module manufacturers, optical engine manufacturers, and television system manufacturers. Company description from FinViz.com.

Himax produces video drivers for 4K TVs and that accounted for 36% of total revenue in Q2. However, the big news comes from the 3D sensing chips. They are expecting a 90% increase in revenue from this technology in Q3. There are rumors that Himax is going to supply the 3D sensing technology for the new iPhones. Since several companies are rumored to have been selected, somebody is riding the rumor wave.

Since Himax guided for a 90% increase in revenue in Q3 from those sensors, it would suggest there is a surprise in store for the chip community.

They also provide chips for vehicle display panels and they recently guided for demand to jump from 135 million units in 2016 to 200 million by 2022.

On August 30th, Qualcomm and Himax jointly announced a new high resolution, low power, active 3D depth sensing camera system to enable conputer vision capabilities such as biometric face authentication, 3D reconstruction and scene perception for mobile, IoT, surveillance, automotive and AR/VR. They specifically said it would enable Android smartphones to have unparalleled 3D experiences. They called it "game changing technology for smartphones." This technology is the culmination of 4 years of research and development by these two firms.

Shares rallied on the announcements but then faded last week. The company issued a press release suggesting an Oppenheimer analyst had become too excited about the prospects and they reaffirmed their recent guidance. The fading excitement erased $1.50 in gains but support appeared at $10 and the overall uptrend should resume.

Expected earnings November 7th.

Position 9/11/17:

Closed 10/16: Long Dec $11 call @ $1.20, exit .45, -.75 loss.

Previously closed 9/25/17: Long HIMX shares @ $10.31, exit $9.65, -.66 loss.

HPE - Hewlett Packard Enterprise - Company Profile


No specific news. Shares rebounded slightly from the Thursday guidance warning.

Original Trade Description: Oct 2nd

Hewlett Packard Enterprise Company provides technology solutions to business and public sector enterprises. It operates through Enterprise Group, Software, Enterprise Services, and Hewlett Packard Financial Services segments. The Enterprise Group segment offers servers, management software, converged infrastructure solutions and technology services; hybrid cloud solutions, including private cloud platform; business critical systems; storage products, as well as 3PAR StoreServ, a Storage platform; and networking products comprising switches, points, controllers, routers, and wireless local area network and network management products. This segment also provides software-defined networking and communications capabilities; network access solutions for mobile enterprises; and consulting services. The Software segment offers software to capture, store, explore, analyze, protect, and share information and insights within and outside organizations; enterprise security, application delivery management, and IT operations management software products. This segment provides HP Vertica, an analytics database technology for machine, structured, and semi-structured data; and HP IDOL, an analytics tool for human information, as well as solutions for archiving, data protection, eDiscovery, information governance, and enterprise content management. The Enterprise Services segment offers consulting, outsourcing, and support services across infrastructure, applications, and business process domains; and application and business services that help clients to develop, revitalize, and manage their applications and information assets. The Hewlett Packard Financial Services segment provides leasing, financing, IT consumption and utility programs, and asset management services. Company description from FinViz.com.

Expected earnings Dec 5th.

HPE has been undergoing an intense reorganization for several years. That included splitting off from HPQ in an effort to separate the corporate business from the consumer business. Meg Whitman has done a superb job in trimming excess departments and selling off non-core assets.

Recently, she announced another 10% reduction in the workforce that would result in 5,000 job cuts. She said the reductions would result in fewer lines of business and a more streamlined decision process. The current 3-year plan calls for savings of $1.5 billion and shift the focus towards research and development.

When Whitman took over in 2011 Hewlett Packard had 350,000 workers before the spinoff. Now HPE has 52,000.

The company now specializes in cybersecurity, enterprise WiFi, cloud services, servers and other corporate technology. Whitman recently said the company is seeing rapidly growing demand across key areas of the business.

Shares closed at a new high on Monday after trading in a $2 range for almost a year. I believe the latest announcement on reductions and streamlined operations has finally struck a chord with investors.

Update 10/3/17: Shares down slightly on news they allowed Russia to examine the source code of security software used to guard Pentagon secrets. The review was required by Russia and other countries prior to those countries considering HPE as a cybersecurity vendor for their secrets. However, by letting Russian software engineers view the source code, supposedly to make sure there was no hidden back door access for US spies, they learned how the code worked, what the software was guarding against and gave them insights as to how they could defeat it. The top White House cyber security official said this was becoming a bigger problem because everyone (other countries) was demanding to see the source code and that has now become a security risk.

Update 10/19/17: The company announced a $2 billion increase to $5 billion for their stock buyback but that was not enough to overcome the rest of the news. At their investor day the CFO said they expect 5% revenue growth for 2017 and "modest" growth in 2018. They guided for earnings of $1 in 2017 and $1.15-$1.25 in 2018. That matched analyst estimates. Shares imploded to stop us out. The option is nearly worthless and will move to the Lottery Play section.

Position 10/3/17:

Long Jan $16 call @ 50 cents, see portfolio graphic for stop loss.

Previously closed 10/19: Long HPE shares @ $14.97, exit $14.25, -.72 loss.

VIPS - Vipshop Holdings - Company Profile


No specific news. Shares are struggling but not moving very far away from that $8 strike price.

Original Trade Description: October 7th.

Vipshop Holdings Limited, through its subsidiaries, operates as an online discount retailer for various brands in the People's Republic of China. It offers a range of branded products, including women's apparel, such as casual wear, jeans, dresses, outerwear, swimsuits, lingerie, pajamas, and maternity clothes; men's apparel comprising casual and smart-casual T-shirts, polo shirts, jackets, pants, and underwear; women and men shoes for casual and formal occasions; and accessories consisting of belts, fashionable jewelry, watches, and glasses for women and men. The company also provides handbags, such as purses, satchels, duffel bags, and wallets; apparel, gear and accessories, furnishings and decor, toys, and games for boys, girls, infants, and toddlers of all age groups; sports apparel, and sports gear, and footwear for tennis, badminton, soccer, and swimming; and skin care and cosmetic products, including cleansers, lotions, face and body creams, face masks, sunscreen, foundations, lipsticks, eye shadows, and nail polish. In addition, it offers home furnishing products comprising bedding and bath products, home decors, and dining and tabletop items; small household appliances; designer apparel, footwear and accessories; and snacks, health supplements, and occasion-based gifts, such as chocolates, moon-cakes, and tea. Further, the company provides consumer financing, supply chain financing, and wealth management services. The company provides its branded products through its vipshop.com, vip.com, and lefeng.com Websites, as well as through its cellular phone application. Company description from FinViz.com.

Vipshop is in the flash sale business. That means other retailers bring them products they cannot sell and Vipshop marks down the price and runs a special flash deal special to clear out the inventory. Vipshop has been around for nearly 10 years and did very well in the early years. Unfortunately, profits are fading because manufacturers and other retailers can now unload their products on Amazon and Alibaba without the valuation haircut that occurs with Vipshop.

Earnings for the recent quarter were 17 cents and estimates were 19 cents. Revenue rose 30% to $2.58 billion. They filled 84.8 million orders.

Expected earnings Nov 15th.

The problem was rising costs. Margins declined in what Vipshop called a highly promotional market with higher advertising costs in hopes of gaining market share. If you translate that sentence it means they had to cut prices to generate the sales and they had to pay more for advertising to lure customers into the sale process.

With Alibaba's growth surging well beyond the optimistic estimates by analysts, they are taking over the online sales channel in China. This does not bode well for Vipshop in the future. Add in the Amazon monopoly in the US and Vipshop has nowhere to go to escape the rapidly growing retail cloud. The flash sales business has died in the US after a flood of competitors surged into business and then quickly disappeared.

Shares closed at a four-year low on Friday at $8.35 with the next support level around $2.50.

Position 10/9/17:

Closed 10/17: Short VIPS shares @ $8.36, exit $8.50, -.14 loss.
Alternate position: Long Nov $8 put @ 40 cents, see portfolio graphic for stop loss.

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