Option Investor

Daily Newsletter, Saturday, 10/28/2017

Table of Contents

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

Market Wrap

Nasdaq Blowout

by Jim Brown

Click here to email Jim Brown

The big cap tech stocks posted monster gains on Friday to power the Nasdaq to the largest one-day move since November 2016.

Weekly Statistics

Friday Statistics

Amazon, Alphabet, Microsoft and Intel all beat the street on earnings after the bell on Thursday and stocks posted monster gains on Friday. The Nasdaq had been trending lower the first four days of the week on worries about those earnings reports. Traders were taking profits and some were entering short positions ahead of the events. Those on the wrong side after the close on Thursday paid a heavy price to cover those shorts on Friday.

Shortsqueeze.com said short interest on Amazon declined 15% on Friday from 6.342 million shares to 5.416 million. Alphabet short interest only declined -3% to 2.447 million shares. Amazon shares rose $128 and Alphabet gained $42.

There were quite a few aggressive traders going in the opposite direction on Microsoft and Intel. Microsoft short interest rose 11% to 50.228 million shares on 4.7 times average volume and Intel shorts rose 14% to 131.85 million shares on 3.5 times average volume. The QQQs saw short interest rise 3% to 57.0 million shares.

While there were a lot of traders covering at the open, there were also quite a few betting in the afternoon that the gains would not last. A lot of the index gains came from the buying in the QQQs with 3 times normal volume at 60 million shares. Sudden buying the ETFs requires managers to buy large volumes of the underlying stocks in order to keep the ETFs balanced.

Amazon traded 16.6 million shares worth $18.26 billion on 5.5 times the average volume. You will never be able to convince me that tens of thousands of investors saw the earnings and suddenly just had to have Amazon shares in their portfolio at $128 more per share than Thursday's close. This was almost entirely short covering. Nobody in their right mind would buy Amazon as an investment on this spike. Every knowledgeable investor would wait for a few days until the post earnings depression phase arrived and then buy it cheaper.

There were 1,709 advancers on the Nasdaq and 1,015 decliners. Total volume of 2.089 billion shares was only 311 million over the 1.878 billion from Thursday when the index closed down 7 points. For a day when the Nasdaq gained 2.2% or 144 points you would have expected the A/D line to have been 2:1 or even 3:1 in favor of advancers, instead of 1.7:1. Back on Sept 27th the Nasdaq gained 73 points and the A/D ratio was nearly 3:1 in favor of advancers.

The point I am trying to make is that this was not a broad market rally. In the morning hours is was almost entirely the Nasdaq big cap stocks but as the day progressed the activity broadened somewhat simply because of the improvement in sentiment. Booming markets make people want to buy something.

The Dow did not turn convincingly positive until after 11:00 and then traded back near the flat line at 1:30 and again at 3:30. It was touch and go on the Dow until the final minutes of trading.

Apple, Microsoft and Intel added 95 points to the Dow and it barely closed positive. This was not a broad market rally.

Do not get me wrong. I am thrilled the indexes closed positive on Friday and I hope they move higher. We just need to be observant and not get caught up in the market hysteria we saw on Friday. Next week is another busy week of earnings but the following week is where we could see trouble appear. There will be some post earnings depression. There always is and we should look at those periods as buying opportunities.

There were two economic reports on Friday and one was a shocker. That was the first look at GDP for Q3. The headline number was 2.99% growth and well over the 2.6% estimate. Analysts were convinced the hurricanes had knocked off at least a half a point or more from the 3.1% growth in Q2. Consumer spending did decline and contributed 1.62%, down from the 2.24% in Q2. However, that is expected to rocket higher in Q4 as the hurricane rebuilding shifts into high gear along with the holiday shopping season.

Exports contributed 0.41%, inventories 0.73%, business investment 0.49%and residential investment subtracted -0.24%. The BEA said the hurricanes impacted data collection but they did not quantify an impact to the headline number. Puerto Rico and the Virgin Islands are not included in the GDP so the damages there had no affect on the numbers.

The economy is on a roll and without another major disaster we are on track for greater than 3% growth in 2018. Fortunately, despite the growth there is no inflation in sight. The Fed is more than likely going to hike rates in December but that is already factored into the market.

The CME Fed Funds Futures are signifying a 100% chance of a rate hike from 100-125 Bps to 125-150 Bps in December.

The final reading for consumer sentiment for October declined only slightly from 101.1 to 100.7. This is still the highest level since 2000. The present conditions component rose from 111.7 to 116.5 and the six-month expectations component rose from 84.4 to 90.5. Those respondents saying now was a good time to buy a major household item rose from 78% to 81%. Those thinking it was a good time to buy a car rose 6% to 72%. Those who believe the country will see good economic times over the next 12 months increased 8% to 55%. Clearly, consumers are in a good mood.

The economic calendar for next week is crazy. This is the first week of the month and that means the payroll reports. Estimates have exploded higher with the Nonfarm Payroll forecast for 310,000 compared to the loss of 33,000 jobs in September. That was due to the hurricanes and I expect that to be revised significantly. The ADP number is forecast at 225,000 compared to 125,000 last month.

There is also a Fed meeting this week with the announcement on Wednesday. Nobody expects any changes to rates but they will likely comment on the expectations for December.

The House is expected to release their tax reform plan on Wednesday. That could be a good news/bad news event. Some features are likely to be bullish and some are likely to be bearish.

President Trump is expected to reveal his pick for the new Fed Chair on Thursday. The White House said it would be this week and before the president leaves on his China trip on Friday. Since the Fed meets on Tue/Wed and the tax plan release is on Wednesday, the obvious day for the Fed head announcement is Thursday. I would doubt it would be before the Fed meeting but you never can tell. The market seems to have settled on Jay Powell with Taylor as the second choice. Yellen has fallen out of contention based on the various polls. Powell would be seen as a continuation of Yellen's policies with a little more emphasis on normalization.

Apple iPhone X orders began at 3:AM ET on Friday and they were sold out within minutes. Within 30 minutes, the anticipated ship dates for online orders were well into December. If you did not order a phone on Friday morning, the odds are very slim that you will get it before Christmas. The two versions available online were silver or black in 64gb or 256gb models for either $999 or $1,149.

Apple released a statement saying orders for the iPhone X were "off the charts" and they were working to get this "revolutionary" phone into customer's hands as quickly as possible. This is probably the same statement they would have used regardless of the order volume. Apple also said the Bloomberg story about production delays and limited inventory was "completely wrong."

Cascend Securities conducted a survey in the 100 most populous markets in the US. In every case the iPhone X was sold out by 5:AM ET, 2 hours after orders opened.

Apple shares exploded higher after they said the Bloomberg report on supply shortages was completely wrong. Shares gained $5.64 and added 39 points to the Dow. Apple reports earnings next Thursday after the close and guidance will be critical.

Dow component Merck (MRK) reported earnings of $1.11 that beat the estimates for $1.03. Revenue of $10.33 billion missed estimates for $10.54 billion. Drug sales fell -3% to $9.16 billion. Gardasil sales fell -22% to $675 million and missed estimates for $776.4 million. Keytruda sales nearly tripled to $1.05 billion but slightly under estimates for $1.07 billion. The company guided for the full year for $3.91-$3.97, up from $3.76-$3.88 and revenue guidance rose from $39.4-$40.4 billion to $40.0-$40.5 billion. That did not satisfy investors and shares fell sharply. After the bell, the company said it withdrew an application for Keytruda in Europe and that caused additional questions about future sales.

Dow component Chevron (CVX) reported adjusted earnings of 85 cents that missed estimates for 98 cents. Revenue of $36.21 billion beat estimates for $34.5 billion. Production rose 8% to 2.72 million Boepd. Production in the US rose by 6,000 bpd to 525,000 Boepd. Gas production fell from 1,098 million cubic feet to 988 million cubic feet due to declines in existing wells and low gas prices. Chevron is reducing capex in 2018-2019 because the major expenses at the Wheatstone and Gorgon LNG facilities have been completed and production is underway. As production ramps up significantly over the next year, this will be a major source of cash flow for Chevron. Shares declined on the lack of guidance and weak production growth in the USA.

Dow component Exxon (XOM) reported adjusted earnings of 97 cents ($3.97 billion), up from 63 cents and beat estimates for 86 cents. Production rose 2% to 3.9 million Boepd. Shares took a 4 cent hit from the hurricanes. Revenue rose 13% to $66.17 billion and beat estimates for $63.51 billion. Capex spending rose 43% to $6 billion. Cash flow from operations rose 33% to $8.4 billion. They paid $3.3 billion in dividends.

Exxon won 12 block offshore Brazil representing 2 million high potential acres at competitive fiscal terms. The company also completed the Turbot-1 exploration well offshore Guyana and represents their fifth major discovery in that region. They signed a production sharing agreement offshore Suriname for 2.8 million acres. They added 22,000 acres in the Permian with 400 million Boe added to their existing resource base of 6 billion Boe in the Permian.

AbbVie (ABBV) reported earnings of $1.41 that beat estimates for $1.39. Revenue of $7.0 billion missed estimates for $7.04 billion. They guided for the full year for earnings of $5.53-$5.55, up from $5.44-$5.54, and increased their quarterly dividend by 11% from 64 cents to 71 cents. The company said sales of Humira, the world's largest selling drug, would bring in $21 billion in annual sales by 2020. That is up $3 billion from prior forecasts. Sales in 2016 were $16.08 billion. Sales of the arthritis drug in Q3 were $4.7 billion.

Here is the key point for AbbVie. The company said non-Humira sales are expected to rise from $9.6 billion in 2017 to $35 billion by 2025. The company is launching 20 additional products by 2020 with at least 8 of them expected to generate more than $1 billion in annual sales. These drugs will focus on Alzheimers, womens health and Hepatitis C.

Expedia (EXPE) was in the biggest loser category after reporting earnings of $2.51 that missed estimates or $2.59. Revenue of $2.97 billion rose 15% but missed estimates for $3.01 billion. Gross bookings rose 11% to $22.2 billion but that also missed estimates. Marketing expenses rose 21% and the company said it was being forced to lean more heavily into paid marketing channels. They blamed the hurricanes for their earnings weakness saying consumers avoided travel to the south for weeks after the storms. That excuse did not buy them any mercy from investors with a $24 drop.

Align Technology (ALGN) creator of the Invisialign braces reported earnings of $1.01 compared to estimates for 82 cents. Revenue of $385.3 million beat estimates for $359.7 million. They guided for Q4 revenue of $391-$398 million. The company is benefitting from Instagram and the selfie generation. Everyone wants straight teeth in their pictures. Shares rallied 16%.

Earnings expectations for Q3 took a sizeable jump upwards last week from 4.4% to 6.7%. Of the 273 S&P companies that have reported 74% have beaten estimates for earnings and 66.7% have beaten revenue estimates. Those are above the averages of 64% and 59% respectively. Next week there is one Dow component (AAPL) reporting and 135 S&P-500 companies.

Other notable earnings on the calendar include Facebook, Tesla and Alibaba.

On Friday, Tesla reportedly cut parts orders for the Model 3 by 40%. Production of the cars has not accelerated to the expected level and their parts inventory is overflowing. Parts order sets will be reduced from 5,000 per week to 3,000 per week starting in December. Tesla only produced 260 Model 3s between July-September and far short of the 1,500 goal. Elon Musk is blaming production bottlenecks and said there were no fundamental issues with the supply chain. In 2010 Tesla acquired the Nummi plant, which was a joint venture between Toyota and GM. In 2006, the last year of operation the plant produced 428,633 cars so there is plenty of capacity once Tesla gets all the bugs worked out of their process. Earnings are Wednesday after the close and they rarely do well after earnings.

Deckers Outdoor (DECK) said it has ended its efforts to sell itself after 90 prospective buyers turned it down. Throughout the process, the company continued to restructure and has been seeing success in its direct-to-consumer channel. International sales have also been rising. The CEO said they were looking forward to the holiday season with a stronger product lineup and cleaner inventories compared to a year ago. The company is projecting a 2% rise in revenue and earnings of $4.15-$4.30 that is 15-20 cents higher than prior guidance. They even authorized $335 million in additional buybacks to bring their outstanding authorizations to $400 million.

Crude prices rallied $1.50 after the Saudi Crown Prince Mohammad bin Salman said he backed an extension of the production cuts for 9 months until the end of 2018. Russia also expressed their support. The next OPEC meeting is November 30th and given the state of the oil market they may advance their plan for a formal agreement to come out of the November meeting rather than waiting until January as previously stated. Tensions in Iraq also contributed to the price rise. However, Iraq and the Kurdish Peshmerga agreed to a ceasefire late Friday. That could allow prices to fall on Monday.

Jefferies said an extension of the cuts would leave the market modestly under supplied until 2019 and facilitate the reduction of global inventories. Weak prices have caused supply growth estimates for 2018 to decline slightly. If all of this comes together, we could actually see higher prices late in 2018. However, OPEC is known to hedge on commitments. Current compliance with the 1.8 million bpd cut is only 86% and if the truth were known it would probably be even less than that.


The Dow posted another new high on Tuesday after about 15 days of gains but the AAII Sentiment survey that ended on Wednesday showed a dramatic shift from neutral to bearish sentiment. The bulls gained 1.7% but the bears saw a 5.1% jump. Those neutral on the market fell to 27.33% and the lowest level since March 9th. Apparently, investors are moving off the fence and taking a stand for November.

The S&P blew through resistance on Friday to gain 21 points and close at a new high. Having stocks like Amazon gain 128 points and Google 42 points will do wonders for a cap weighted index. All of the big techs with the exception of Priceline and Tesla were strongly positive.

The obvious key here is whether those big caps can add to their gains or simply hold those big gains. I suspect there will be some profit taking once the short squeeze wears off and that should happen by Monday's close. Traders are going to get their margin calls over the weekend and they will have to liquidate something to cover their short falls. That is not as simple as just closing their shorts. They will have to sell something else to cover the shortfall from those shorts.

The S&P has support back at 2,555 and I would be very surprised if we did not see that again in the days ahead. Opening gaps are normally filled and that would be 2,560 based on Thursday's close.

The Dow managed to close positive but it was a fight. Only 12 components were positive and the top four on the list added 118 Dow points. Even with that strong support, the index was barely able to remain positive ahead of the close. Art Cashin said there was $700 million in buy on close orders on the NYSE and that kept the index from closing in negative territory.

Apple is the only Dow component reporting earnings next week so there will be a distinct lack of earnings power to support the index. Apple does not report until after the close on Thursday so there will be no help for the first four days of the week. With all but five Dow components already reported, we are going to be heading into the post earnings depression phase.

Positive market forces next week could be the tax plan announcement on Wednesday and a Powell appointment as Fed chair on Thursday. Both should be market positive but they both could have negative results depending on the announcement details. Picking anyone other than Powell will be market negative.

The Nasdaq was the beneficiary of the monster short squeezes but it was also impacted by some major earnings losses as seen in the graphic below. Fortunately, the gains were larger but they were concentrated in only a handful of stocks. That means those outsized gains will likely be followed by declines.

The Nasdaq spiked to resistance at 6,700 and came to a dead stop. Support is well back at 6,555 and I doubt we will see that level in the near future. However, I seriously doubt the Nasdaq will continue to move much higher without first consolidating those gains.

The Russell 2000 rebounded back into its consolidation zone but failed to retest the prior high at 1,512. The index is still struggling to digest the 162-point gain from the August low. I would be surprised to see a breakout but I would also be thrilled.

In mid November the tax loss selling will increase. Investors will be selling losers to offset the capital gains from winners. Offsetting that could be stock buybacks. The passage of Q3 earnings kicks off the Q4 buyback cycle. Q3 buybacks declined but buyback announcements increased by 20% and once a company is out of their earnings quiet period they can begin buying again. Q4 is setting up to be a strong quarter for companies buying back their own shares.

Any reasonable investor would expect the indexes to rest next week. However, reasonable rarely applies to the market. Rallies can last well past where investors expect them to fail. In this case, a pullback would be a buying opportunity. With Q3 earnings expectations rising sharply, guidance for Q4 also improving, the economy growing at 3% or better, tax reform in the headlines and funds still under invested in equities, the odds are good we will see higher highs before the end of November. That does not mean the middle of November will not be bumpy but that will give us some additional opportunities.

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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"The income tax has made liars out of more Americans than golf."

Will Rogers


New Plays

Super Value

by Jim Brown

Click here to email Jim Brown
Editor's Note

The worst may be over for Supervalu as earnings surge along with revenue. The company beat estimates and made a critical acquisition.


SVU - Supervalu - Company Profile

SUPERVALU INC., together with its subsidiaries, operates as a grocery wholesaler and retailer in the United States. The company operates through two segments, Wholesale and Retail. The Wholesale segment engages in the wholesale distribution of various food and non-food products to independent retail customers, such as single and multiple grocery store operators, regional chains, and the military. This segment also provides various services, such as retail store support, advertising, couponing, e-commerce, network and data hosting solutions, and training and certification classes, as well as administrative back-office solutions. As of February 25, 2017, this segment operated approximately 1,902 stores with a network spanning 40 states. The Retail segment operates retail stores that provide groceries and various additional products, including general merchandise, home, health and beauty care, and pharmacy products. This segment operated 217 stores under the Cub Foods, Shoppers Food & Pharmacy, Shop 'n Save, Farm Fresh, and Hornbacher's banners, as well as 2 Rainbow stores. The company's stores offer a range of branded and private-label products comprising perishable and nonperishable grocery products. SUPERVALU INC. was founded in 1871 and is headquartered in Eden Prairie, Minnesota. Company description from FinViz.com.

Supervalu has morphed into more of a wholesaler of groceries than a retailer. Given the movement by Amazon and Walmart into online groceries that may be the way to go.

For Q3 they reported adjusted earnings of 46 cents that beat estimates for 36 cents. Revenue of $3.8 billion narrowly beat estimates for $3.79 billion. Wholesale sales rose 63% from $1.7 billion to $2.7 billion while retail and corporate sales were flat. They announced the acquisition of Associated Grocers of Florida for $180 million. Associated had revenue of $650 million for the trailing 12 months. This is a major bolt on acquisition where they can add value and scale and increase their presence in Florida, the Caribbean, South America and Asia. In June they completed the acquisition of Unified Grocers, an active distributer on the West Coast for $390 million. Unified had revenue of $3.8 billion in 2016.

Shares of SVU have been declining since their high of $84 in April 2015. With these two acquisitions and the sale of the Sav-A-Lot division in 2016, the company is turning the business around. I like that they are reducing their exposure to retail and all the expenses and employee related hassles that go with running a retail grocery store. By focusing on the wholesale business they can reduce overhead and expand their reach and their profit margins.

Who knows, maybe Amazon will decide they need to buy a wholesale grocery distributor.

Earnings Jan 17th.

Buy SVU shares, currently $16.26, initial stop loss $14.35.
Alternate position: Buy Jan $18 call, currently $1.15, initial stop loss $14.35.

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.


No New Bearish Plays

In Play Updates and Reviews

Earnings Power

by Jim Brown

Click here to email Jim Brown

Editors Note:

Blowout earnings on the major tech stocks lifted the entire market. The Russell 2000 rebounded back over 1,500 to within only 4 points of its record high. This was a major recovery back over that lower resistance. The Nasdaq gained 144 points on a major short squeeze and all the shorts on index ETFs were forced to cover.

The challenge will be market direction next week. The Dow only has 1 earnings report and the Nasdaq big guns with the exception of Facebook and Apple have already reported. Every day that passes gets us that much closer to the post earnings depression phase.

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

AMD - Advanced Micro Devices
The long call position was stopped at $11.65.

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BULLISH Play Updates

BOTZ - Global X Robotics AI - Company Profile


No specific news. Shares began their slow climb back to overcome the Thursday decline.

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.

Update 10/26: Shares of BOTZ fell 50 cents for the biggest one-day drop since the ETF began in September 2016. There was no news but volume of 4.16 million shares was the largest ever and well over the 964,000 historical average.

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. Still taking profits from the $6 spike.

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.

Update 10/23: The company issued an operational update after the bell. They see the impact from the hurricanes as limited. Same store sales were impacted because of 100 lost selling days and reduced traffic associated with Harvey. However, starting in mid September they saw increased traffic and sales as consumers began to rebuild and replace everything they lost in the flood. October same store sales are up 15%. There were both positive and negative factors in the update and shares did not move in afterhours because the update was not released until 5:24 PM after the session closed.

I am recommending we close the long call position. It is a November call and any decline from the operational update would see the premium evaporate quickly.

Update 10/24/17: Yesterday after the bell CONN provided an operational update that contained some mixed details. October same store sales in hurricane areas was up 15% but nationwide sales were down -7%. I was worried about how this would play in today's market and recommended we close the November option position at the open because a drop in CONN shares could have negatively impacted that short-term option.

Hindsight is always 20:20 and CONN shares exploded higher with a $4.45 gain. We exited the option for a double so we cannot complain but the high for the day was double that. Fortunately, we kept the stock position and were richly rewarded.

Position 10/17/17:

Long CONN shares @ $26.00, see portfolio graphic for stop loss.
Closed 10/24: Long Nov $28 call @ $1.06. Exit $2.00, +.94 gain.

FINL - Finish Line - Company Profile


No specific news. Shares posted a minor decline in a tech dominated market.

Original Trade Description: October 21st

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.

Position 10/23/17:

Long FINL shares @ $10.49, see portfolio graphic for stop loss.
Alternate position: Long Feb $12 call @ 75 cents, see portfolio graphic for stop loss.

MRVL - Marvel Technology - Company Profile


No specific news. Shares cannot seem to close over that $18.60 resistance. When a breakout comes it could be strong.

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. Another new record high close.

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.

Update 10/25/17: ON announced a CMOS image sensor platform that brings new levels of performance and image quality to automotive applications such as ADAS, mirror replacement, rear and surround view systems, and autonomous driving. The Hayabusa platform features a ground-breaking 3.0-micron backside illuminated pixel design that delivers a charge capacity of 100,000 electrons, the highest in the industry, with other key automotive features such as simultaneous on-chip high dynamic range (HDR) with LED flicker mitigation (LFM), plus real-time functional safety and automotive grade qualification. Shares declined only 15 cents in a weak market.

Update 10/26/17: ON announced a new 1/2.7-inch 2.3 Megapixel (Mp) CMOS digital image sensor with an active-pixel array of 1936H x 1188V. The AR0239 produces extraordinarily clear and sharp digital images in challenging bright and low light conditions. This, along with its ability to capture continuous video and single frames, makes it an ideal choice for many applications, including security and surveillance systems, body cameras and vehicle DVRs (dash cameras).

Position 10/10/17:

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

TTS - Tile Shop Holdings - Company Profile


The company announced the CEO was stepping down and the founder was taking over as interim CEO until a replacement could be found. This is not good news. I am tightening the stop loss on the call and recommending we close the long stock position.

Original Trade Description: October 23rd

The Tile Shop is a leading specialty retailer of manufactured and natural stone tiles, setting and maintenance materials, and related accessories in the United States. The Company offers a wide selection of high quality products, exclusive designs, knowledgeable staff and exceptional customer service, in an extensive showroom environment with up to 50 full-room tiled displays which are enhanced by the complimentary Design Studio – a collaborative platform to create customized 3D design renderings to scale, allowing customers to bring their design ideas to life. The Tile Shop currently operates 134 stores in 31 states and the District of Columbia, with an average size of 20,500 square feet and sells products online.

The Tile Shop reported earnings of 5 cents and revenue of $84.4 million. Analysts were expecting 4 cents and $84.1 million. It was a minor beat but the company had warned on revenues back in early October and analysts reduced their forecasts.

Shares have been severely beaten up since July with a drop from $20 to $8. The company blamed the highly promotional environment and customers shopping for "entry level" products. The company has rectified this deficiency by adding some cheaper products and said they were adjusting their advertising and promotions to meet demand.

Shares have been flat all month but ticked up slightly on Friday and then accelerated on Monday. After a month of consolidation, it may have formed a bottom.

Earnings January 16th.

I am using February options to provide some earnings expectations in the premium. The December options are cheaper but will decay faster.

Position 10/24/17:

Long TTS shares @ $9.65, see portfolio graphic for stop loss.
Alternate position: Long Feb $10 call @ 80 cents, see portfolio graphic for stop loss.

BEARISH Play Updates

BBBY - Bed, Bath and Beyond - Company Profile


No specific news. New 8-yr closing low on worries that Amazon is becoming unstoppable.

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 gave back Thursday's gains.

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.

AMD - Advanced Micro Devices - Company Profile


Shares continued to decline post earnings and we were stopped out on Friday's drop.

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

Update 10/24/17: AMD reported earnings of 10 cents compared to analyst estimates for 8 cents. Revenue of $1.64 billion rose 25.7% and beat estimates for $1.51 billion. Shares collapsed in afterhours after the company guided for a 12% to 18% decline in Q4 revenue to around $1.34-$1.44 billion and analysts were expecting $1.34 billion. Based on analyst expectations that lower guidance was not that bad but it is the principle of lower guidance that sends investors running for the exits.

We closed the long stock position at the open for a minor gain just to make sure we avoided this type of collapse.

Position 9/25/17:

Closed 10/27: Long Jan $14 call @ $1.25, exit .35, -.90 loss.

Previously closed 10/24: Long AMD shares @ $13.25, exit $14.20, +.95 gain.

ETSY - Etsy Inc - Company Profile


Shares took a hit on Monday as Amazon moved into the craft market but recovered quickly to a two-week high.

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.

HPE - Hewlett Packard Enterprise - Company Profile


HPE introduced a new suite of AI equipment to speed up performance computing and machine learning applications. They are optimized for Nvidia's V100 GPUs. They also announced five HPE CoE (Centers of Excellence) datacenters where select customers would have access to the latest Nvidia GPUs on HPE systems. Those are in Houston, Palo Alto, Bangalore India, Tokyo and Grenoble France. Don't count this company out just yet.

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 appear to have found a bottom at $7.85. We need one more dip lower to give us a profit on this position.

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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