The small cap index rebounded 12 points thanks to the semiconductor sector. The banks, transportation and biotech sectors were negative but the semiconductors were on fire with nearly a 1% gain thanks to Micron and demand news from Samsung earnings. The Russell barely closed over 1,500 after trading almost to 1,507 intraday. There is a solid pattern of lower highs that could become a problem as the pace of earnings slows.
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.
Check the graphic below for any profit stops in green.
We need to always be prepared for a profit exit at resistance.
Current Position Changes
ARNC - Arconic
The long position was entered at the open.
FINL - Finish Line
The long stock position was stopped at $9.50.
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BULLISH Play Updates
ARNC - Arconic - Company Profile
No specific news. Shares gained slightly to a post earnings high close.
Original Trade Description: October 28th
Arconic creates breakthrough products that shape industries. Working in close partnership with our customers, we solve complex engineering challenges to transform the way we fly, drive, build and power. Through the ingenuity of our people and cutting-edge advanced manufacturing techniques, we deliver these products at a quality and efficiency that ensure customer success and shareholder value. Company description from Arconic.
Arconic is the old Alcoa. The aluminum mining company was split off as Alcoa Corp and the original Alcoa was renamed Arconic. This company manufactures parts and complicated assemblies from aluminum. They take the raw aluminum and add value to it by creating high tech, high value parts like turbine blades for engines and gas turbines. They are moving into 3D printing of aluminum parts. They have dozens of remote offices close to large industrial clusters where they can provide immediate service to large manufacturing companies.
Shares fell after earnings because they announced the appointment of a new CEO with their earnings report. Charles Blankenship will replace David Hess on January 15th.
The company reported earnings of 25 cents that missed estimates for 27 cents. Revenue of $3.24 billion beat estimates for $3.09 billion. The company guided for the full year for revenue of $12.6-$12.8 billion, up from prior guidane of $12.3-$12.7 billion. Full year earnings are now expected to be $1.15-$1.20 per share.
Expected earnings January 22nd.
Shares fell $3 on the earnings miss and CEO change. After bottoming at $24, they are trying to move higher with resistance at $25.15. I believe ARNC will return to pre earnings levels at $28.
Long ARNC shares @ $24.76, see portfolio graphic for stop loss.
Alternate position: Long Jan $26 call @ 95 cents, see portfolio graphic for stop loss.
BOTZ - Global X Robotics AI - Company Profile
No specific news. Nice gain as it recovers from the Thursday drop.
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.
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.
FINL - Finish Line - Company Profile
No specific news. Shares fell sharply on the Under Armour revenue drop and weak guidance. We were stopped out of the stock position and the option will move to the Lottery Play section this weekend.
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.
Closed 10/31: Long FINL shares @ $10.49, exit $9.50, -.99 loss.
Alternate position: Long Feb $12 call @ 75 cents, see portfolio graphic for stop loss.
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).
Long Nov $20 call @ 80 cents, see portfolio graphic for stop loss.
SVU - Supervalu - Company Profile
No specific news. Closed at a 2-week high.
Original Trade Description: October 28th
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.
Long SVU shares @ $16.13, see portfolio graphic for stop loss.
Alternate position: Long Jan $18 call @ $1.05, see portfolio graphic for stop loss.
BEARISH Play Updates
BBBY - Bed, Bath and Beyond - Company Profile
No specific news. New 8-year closing 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.
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. Only a minor rebound.
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.
Long Dec $30 put @ .50, see portfolio graphic for stop loss.
VXX - Volatility Index Futures - ETF Description
Since this is a long-term slow moving 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.
Short VXX shares @ $40.95, see portfolio graphic for stop loss.
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