Option Investor

Daily Newsletter, Thursday, 11/2/2017

Table of Contents

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

Market Wrap

Jerome Powell Nominated FOMC Chairman

by Thomas Hughes

Click here to email Thomas Hughes


The market held steady awaiting Trumps nomination for FOMC chair and was not surprised when Mr. Powell walked out with the President. Powell has been a member of the committee since 2012 and largely expected to continue the works of the Yellen Fed. In terms of policy he is viewed as slightly dovish. In other news the Trump Tax Plan was finally revealed to mixed applause, and earnings keep rolling in. There is not expected to be major opposition to his confirmation.

Asian indices closed the day mixed. The Nikkei led with a gain near 0.5% while most other indices fell to close with losses in the range of -0.10% to -0.40%. Trading was affected by yesterday's FOMC policy statement, earnings and anticipation for today's BOE meeting and expectations for news on US tax reform and Trumps FOMC pick. European indices were much the same. Most indices closed with modest losses with one standout, the FTSE, posting gains. The FTSE rose on the BOE decision to raise rates for the first time in 10 years. Within the report comments led traders to believe future rate hikes would be gradual and likely at a pace below previous expectations.

Market Statistics

Futures trading was flat and mixed all through the early session. The SPX opened flat and then traded sideways for a few minutes before making a sharp move lower. This move took the index down to the daily low, near 2,566 and -12 from yesterday's close, before bouncing back to near break even by 12/30. The market trend sideways from there up to and into the final 20 minutes of trading when a late day rally spurred the index up to close with no gain and no loss.

Economic Calendar

The Economy

Challenger, Gray & Christmas released the monthly report on lay offs this morning. The read came in at 29,831 and down -10.5% from last month. This read is down -3% from last year, the year to date read is down -25% from the same period last year and at a 20 low. Health and Services led with cuts, the primary reason given was cost cutting which accounts for more than 62% of total cuts this year. The hires figure came in well below expectations at 37,387 but remains strong on a year to date and full yea basis. Year to date hires are up 25% over last year in the same period and up 20% versus the full year 2017 with two months left to go.

Initial claims fell -5,000 to 229,000, the last week's figure was revised higher by 1,000. The four week moving average fell -7,250 to another new 44 year low. On a not adjusted basis claims rose 0.4% versus an expected 2.1% and are down -12% YOY. There is special note in the report this week. Backlogs of claims in Puerto Rico and the Virgin Islands are now being processed and will negatively impact the data over the next few weeks. Regardless, this week's figures are in line with long running trends and consistent with labor market health.

Continuing claims fell -15,000 to hit 1.884 million and a new 44 year low. The four week moving average of claims also fell to hit 1.895 million and a new 44 year low. Not much to say about that other than it's in line with long running trends and consistent with labor market health.

The total number of claims rose 35,318 to hit 1.632 million. This gain is as expected and in line with seasonal trends. Looking forward we can expect this figure to move higher into the end of the year as seasonal hires are laid off and business address labor oriented budgetary issues. If seasonal trends remain intact the peak should come in around 2.5 million and in the first week of the new year.

Productivity and Labor Cost data was released at 8:30AM alongside the jobless claims. Productivity rose by 3%, a tenth hotter than expected and the strongest gains in 3 years. The gains were made on a 3.8% increase in output, a 0.8% increase in hours worked and a 3.5% gain in wages. Labor costs rose in relation to productivity by 0.5% but remains down on a year over year basis.

The Dollar Index

The Dollar Index held steady in today's trade. In the early part of the session traders were waiting for Trump's FOMC pick, in late day trading market participants breathed a sigh of relief his pick is not expected to rock the boat. Today's action did test support at the $94 resistance-turned-support and confirm it, if on light volume and tepid action. The indicators remain bullish and suggestive of higher prices. With the ECB, BOJ and BOE all backing down from inflation targets and the FOMC on track to raise rates in December divergence as returned to the market. This could continue to drive a wedge between the dollar and the basket of world currencies, and drive the Dollar Index higher with it. Upside target is near $96.50 in the near to short term.

The Gold Index

Gold prices also held steady in today's action, posting a loss of -0.02%. The metal remains below resistance at $1,280 and poised to move lower on a strengthening dollar. Tomorrow's NFP could be the data to do it. It is expected to be strong at 325,000 new jobs. Downside targets remain near $1,265 and $1,250.

The Gold Miners ETF GDX moved up to close with a gain near 0.44% but price action was tepid and sideways on the week. The ETF is consolidating above a potential support level while in a near term down trend within the greater long term trading range. The ETF is also below resistance targets but with mixed indications from MACD and stochastic. MACD momentum is bearish but weakening while stochastic has fired a bullish crossover, both consistent with support. The caveat is that the prevailing trend is down, albeit within a trading range, and the indicators are set up to fire a bearish crossover. A move below $22.25 would be bearish for the near to short term with target near $21. A move up and above $22.85 could be bullish but would face resistance at both the short and long term moving averages.

The Oil Index

Oil prices moved up again as a slowly tightening oil market is support by OPEC compliance with current production cuts and hopes the cartel will expand and extend those cuts. WTI rose by 0.85% to close near $54.75 and a new long term high. Prices are likely to continue creeping higher into the near term, a break above $55 would be bullish and could lead to a sharp increase on speculative positioning.

The Oil Index continues to rise supported by rising oil prices, forward earnings outlook and improvement in forward earnings outlook due to rising oil prices. The index gained another 0.87% today and looks like it will easily hit my target near 1,300. The indicators are now both bullish, showing bullish crossovers, and in confirmation of the continuation.

In The News, Story Stocks and Earnings

Details for the Trump Tax Plan were released today to mixed applause. For the most part market participants view the cuts as a positive with some minor grumblings about detail from proponents. Opponents are primarily democrats. In a nutshell the plan proposed to make the corporate tax rate 20%, immediately and permanently. It also proposes to allow repatriation of offshore earnings at the rate of 12% (cash) and 5% (other assets). The child tax credit is raised to $1,600 from $1,000, the estate tax exemption is doubled, property taxes are deductible up to $10,000, 401(k) and IRA deductions remain and tax brackets are reduced to 4. In the press conference several proponents alluded to the possibility most Americans would be now be able to file taxes on a card the size of a post-card. Shares of H&R Block fell hard on the news.

Starbucks reported after the bell and fell short of expectations. The company missed on both revenue and earnings (EPS was in line but the market was surely expecting a beat) leaving investors feeling cold. The company also reported it would be selling its Tazo Tea brand to Unilever in efforts to focus on a single tea strategy utilizing the flagship Teavana brand. Other metrics falling short of expectations are global comps and US comps, all of which leading to a -5% decline in after hours trading.

Apple also reported after the bell and they beat on the top and bottom lines and smartly. The company reported revenue of $52.6 billion, up 12.3% from the previous year and more than $1.8billion above expectations. EPS of $2.07 beat by $0.20 and helped alleviate concerns of slower iPhone sales. Shares of the stock jumped 3% to set a new all time high.

Late in the after-hours a WSJ report reveals that stalled Sprint/T-Mobile merger talks were back on, sparking a rally in shares of Sprint.

The Indices

The indices wobbled a little in early trading, regained their footing ahead of Trump's FOMC pick and then rallied into the close. Most indices closed with marginal moves with one stand out. The Dow Jones Industrial Average closed with a gain of 0.34% and set a new all time high. The index is moving up on earnings, economics and earnings expectations; today's move is supported by the indicators. Upside targets are 24,000 and 24,500 in the near to short term.

The S&P 500 also closed with a gain but did not set a new all time high. The index created a small hanging man type doji to the side of yesterday's candle and hanging just below the current all time high. Price action looks a little iffy but generally bullish, as do the indicators. Momentum persists in bearishness but is very weak and consistent with market consolidation while stochastic is firing a trend following bullish crossover. Upside target of 2,580 has been reached, next targets are near 2,600 and 2,660.

The NASDAQ Composite posted the smallest decline, -0.02%. The index created a small bodied green candle with visible lower shadow suggestive of support at current levels. Price action over the past couple of days is a bit mixed but holding at/near the all time high and supported by the indicators. Both MACD and stochastic are moving higher following bullish trend following crossovers and indicative of rising prices. Upside targets are 6,800 and 7,000 in the near to short term.

The Dow Jones Transportation Average brings up the rear in today's action with a loss of -0.05%. The transports created a medium sized hammer doji just below the short term moving average in evidence of support at this level. The indicators persist in bearishness and are convergent with this low, however weak, and suggest support will be tested again. Support is near 9,700, a break below there would be bearish with target near the long term moving average.

Price action was a bit mixed today, as it has been over the past two weeks, but is still generally bullish and hanging at/near all time highs. Now that we've seen the details for Trump's Tax Plan the next hurdle(s) will be getting it through the House and Senate, no small feat. Until then the market will continue to focus on earnings, the economy and forward earnings expectations, all of which are positive and trending higher. I remain bullish and looking for higher prices in the near to short term.

Until then, remember the trend!

Thomas Hughes

New Plays

High Volatility

by Jim Brown

Click here to email Jim Brown
Editor's Note

It is not showing up in the VIX but the market is becoming increasingly volatile. We are seeing big swings in the indexes from day to day, positive and negative. That is a sign of investor indecision and a lack of conviction. This was the last major week for the Q3 earnings cycle and there are a lot of conflicting internals. The A/D line on the S&P has been dead flat for the last week and the Nasdaq and S&P are struggling to hold their gains while the Dow is surging. Eventually they will all agree on a direction and since there are about 3,000 more stocks in the S&P and Nasdaq than the Dow, I would believe their market direction indicators rather than the 30 Dow stocks. I researched charts for several hours tonight but there was nothing screaming buy me. The market is too calm despite the mixed indexes. I am recommending we wait until Monday before adding additional risk.


No New Bullish Plays


No New Bearish Plays

In Play Updates and Reviews

Positive but Still Negative

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Russell posted a minor 3-point rebound but the chart is still bearish. Today's candle on the Russell chart came to a dead stop at 1,499.94 showing the 1,500 level is still resistance and pretty good resistance at this point. The candle was also a lower five-day high. The Russell really looks like a potential breakdown ahead BUT the tax plan would favor small cap companies. Apparently, traders are still thinking about those uncaptured gains from the 162-point rally.

The Dow fell more than 80 points at the open then rebounded to gain 81 points at the close. The S&P posted only a fractional gain and the Nasdaq was negative. The internals are in conflict and the broader averages are showing weakness.

Current Portfolio

Stop Loss Updates

Check the graphic below for any new stop losses in bright yellow. We need to always be prepared for an unexpected decline.

Profit Targets

Check the graphic below for any profit stops in green. We need to always be prepared for a profit exit at resistance.

Current Position Changes

No Changes

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BULLISH Play Updates

ARNC - Arconic - Company Profile


No specific news. Shares holding at a 2-week high.

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 guidance 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.

Position 10/31/17:

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


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

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.

ON - ON Semiconductor - Company Profile


No specific news. Minor gain but holding at the highs.

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.

SVU - Supervalu - Company Profile


No specific news. Nice gain! 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.

Position 10/30/17:

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. Shares rebounded sharply from the 8-yr 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.

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. Big rebound today. I considered closing the position but the option is only 15 cents. There is still a chance the stock will decline so I am dropping it from the daily commentary and moving it to the Lottery Play section for this weekend. If you want to salvage that 15 cents you should close the position on Friday.

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 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.

Position 9/19/17:

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

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