Option Investor

Daily Newsletter, Thursday, 1/4/2018

Table of Contents

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

Market Wrap

Dow 30K On The Horizon

by Thomas Hughes

Click here to email Thomas Hughes


Trump said it first, now that the Dow has crossed 25,000 our new number is 30K. As wild as that sounds it is not out of the question. The blue chip index gained 25% in the past year and could easily see double digits again this year provided economic trends persist. Today's move was not overly strong but was the 3rd day of gains since the first of the year, took the index to new all times and is supported by forward earnings outlook.

Global markets were positive in the overnight session. Both Asian and European indices closed with substantial gains and led by the Nikkei. The Nikkei advanced more than 3.25% on optimism for 2018. The standout laggard was the Korean Kospi. It closed with a loss of -0.80% on weakness in automakers and tech. Standouts in Europe include the German Dax and French CAC which both posted gains in the range of 1.5%.

Market Statistics

Futures trading was positive from the get-go although a bit weak to start. That changed throughout the morning as positive economic data and early 4th quarter earnings reports lifted spirits. By opening time the SPX was indicated up by roughly 7 points resulting in a small gap at the bell. The index extended those gains during the first hour and half of trading and then entered a trading range which dominated action the remainder of the day. The indices closed with gains in the range of 0.5% with most at new all time highs.

Economic Calendar

The Economy

Lots of data today and mostly labor related. First up is the Challenger, Grey & Christmas report on planned layoffs. The number of planned layoffs fell by -7.4% in December to 32,423. This is -3.6% below last year and brings the 2017 year end total to 418,770. Full year 2017 is down 20% over the previous year and the lowest level of layoffs since 1990. On the flipside hiring plans were at the lowest level all year in December but the 8,000 or so new planned jobs brings the full year total to an all time record and 25% above last year.

The ADP Employment figures show a surprise gain job creation this month. The headline figure of 250,000 outpaced expectations by more than 65,000 and reinforces ongoing labor market trends. The November figure was revised lower but only by 5,000. Gains were led by small and medium size business which accounted for 77.6% of all new jobs created. Gains were dominated by services which accounted for about 90% of all new jobs. On the bright side there were 15,000 new construction jobs so maybe we'll see an uptick in building once the weather warms up.

Initial claims for unemployment benefits rose 3,000 on top of an upward revision of 2,000 to hit 250,000. The four week moving average of claims gained 3,500 to hit 241,750. On a not adjusted basis claims rose 8.3% versus an expected 7.0% and are up 0.3% over last year. This is the first time that not adjusted claims have been up on a YOY basis in some time but not unexpected. This has happened from time to time in the past, so long as it does not persist there shouldn't be a problem. Other than that these figures remain consistent with long running labor market trends and overall labor market health.

Continuing claims for unemployment fell -37,000 to hit 1.914 million. The last week's figure was revised higher by 8,000. The four week moving average of claims gained 750 to hit 1.9122 million and remains consistent with ongoing labor market health. Looking forward and based on seasonal trends we may begin to see this figure begin to move lower as spring approaches.

The total number of claims for unemployment assistance rose 17,935 to hit 2.022 million. This increase is in line with seasonal and long term trends, likely preceding a sharp uptick in the next 2 weeks. The good news is that the uptick is expected and likely to fall short of last years peak. My target is somewhere in the range of 2.25 million. As we move into January the total claims should retreat back to test and possibly set new lows.

The Dollar Index

The Dollar Index fell in today's session despite the round of positive data and hawkish tone to yesterday's FOMC minutes. The problem is persistently low inflation and the undermining effects of positively trending data abroad. While it looks like the index could continue to move lower in the near term tomorrow's NFP could be a catalyst for gains. A strong NFP may not be what it takes but a strong increase in average hourly earnings could. The average earnings have been trending near 2.5% YOY for the past year, a move above could firm outlook for the next rate hike. A move down will likely find support at $91, a move up may find resistance at the short term moving average, neither move will break the index out of its short term trading range.

The Gold Index

Gold prices moved up despite today's positive data. The metal gained about $5 to trade near $1,325 for the first time in months. Price is supported by industrial demand and a persistent belief the FOMC will stay the course or even back off its rate hike timeline due to low inflation. The risk of course is that inflation will begin to pick up and there are signs it is already doing that. Strong numbers in tomorrow's NFP could alter that outlook and put an end to gold's rally.

The Gold Miners ETF GDX posted a gain near 0.5% on today's strength in gold. Today's candle is a small green bodied once to the side of the previous red candle and looks like it may be part of a bullish consolidation. The indicators are both consistent with such a move but have not yet confirmed with trend following crossovers. A move higher would be bullish with an upside target near $25.50 that would leave the ETF range bound in the longer term. The risk, as with gold prices, is in tomorrow's NFP and any other data that may indicate a need for FOMC tightening.

The Oil Index

Crude oil gained another 0.5% to settle above $62 and at a fresh 3 year high. The move was driven on signs of market tightening that will likely continue supporting prices in the near to short term. Today's news was another surprisingly large of US stockpiles and further crackdowns on protests in Iran. US stockpiles fell 7.4 million barrels versus the expected 5.7 million but are offset by increases in gasoline storage and total distillate supply. Over the next few weeks we may see additional drawdowns as cold weather spurs use of heating oil and other heating fuels. Longer term outlook for 2018 remains well supplied with an expectation for prices to fall below $50 by the end of the year.

The Oil Index gained another 0.70% and is fast approaching my 1,390 target. The index is moving up on strong forward earnings outlook that is being supercharged by rising oil prices. The indicators are bullish and on the rise, consistent with higher prices, so there is little reason to think this rally will end. If 1,390 is surpassed next targets are 1,450 and 1,500 for 3 and 4 year highs.

In The News, Story Stocks and Earnings

Macy's delivered some post-holiday sales guidance this morning that was good, but not that good. The company says that total comp sales for the 2 month holiday period are up 1.1%. Company CEO says they are seeing improved trends in the stores, customers are responding well to the loyalty program and online is still growing by double digits. The company also gave updated guidance in a narrower range within the previous but the bottom line remain this; sales are going to fall close to -3%. Shares of the stock shed more than -3% on the news to test support at the pair of moving averages. Today's move looks like confirmation of support following a major moving average crossover and indicative of reversal. Whether this means reversal from down to sideways or down to up remains to be seen.

JC Penny reported a 3.4% gain in holiday season comps driven by strength in home and beauty. The company is seeing explosive growth in online and is able to deliver from all of its brick and mortar locations. Management backed previous guidance in the upbeat statement, driving shares higher. The stock jumped in the premarket session only to open flat and push lower to test support intraday.

Sears announced it was closing more than 100 additional stores including some K-Marts. I have to say I am not surprised. After what I saw at my local Sears store this season I'd say they've given up. The company says it is in ongoing effort to restructure is footprint as part of a turnaround program that is long overdue. Shares of the stock lost another 5% to set another new low.

The Indices

The indices made gains today but the candles are sketchy. In nearly every case today's action looks tentative and uncertain as the market moves up to set new all time highs. The Dow Jones Industrial Average led the way as traders and President Trump turn their eye to infrastructure spending. The index gained more than 0.75% intraday to set a new all time high and create a small green bodied candle. The move is trend following and bullish although the indicators are a bit weak. Both are rolling into trend following bullish crossovers but MACD has not confirmed and the signal showing in stochastic is weak and likely precedes a stronger one yet to come. Regardless, the trend is up and so is price action so a continuation of today's gains is more likely than not.

The broad market S&P 500 is first runner up in today's session with a gain of 0.40%. The index created a small green bodied candle with small upper shadow setting new all time intraday and closing highs. The move is trend following and bullish with indicators consistent with such a move. MACD and stochastic have both confirmed with bullish crossovers in today's action although the stochastic signal is still what I would call early and/or weak. Upside target is 2,800.

The Dow Jones Transportation Average comes in third with a gain of 0.31%. The transports created a medium sized doji candle, possibly a shooting star, while setting a new all time closing high. The index is moving up in line with the prevailing trend and supported by the indicators although there are signs of weakening and weakness. MACD is showing significant divergence from the current highs which suggests a consolidation is due if not a correction. A move higher would be bullish and trend following with target near 11,000, a move lower could indicate consolidation.

The NASDAQ Composite comes in last a gain of 0.17. The tech heavy index created a small red bodied candle despite posting a gain and setting a new all time closing high. The candle may be bearish but is more likely a random red candle within uptrend when compared to the other indices. The indicators are both bullish and strongly bullish in that MACD is above 0 and rising while stochastic is firing a bullish crossover with both %K and %D moving up. Upside target is 7,200.

The indices are moving higher but like I said, the move looks cautious and uncertain. This could lead to correction but until those signals are confirmed the trend is up. If there is a correction or consolidation it would be a good thing and set us up nicely for future rallies in 2018. Tomorrow's NFP could be a catalyst for the market as there is little else on tap right now that could move it. A big number would be bullish for jobs, bullish for the consumer and bullish for the economy. A small number wouldn't be bad but it wouldn't move the market much I think. After that earnings will be the focus. The next cycle will start in a few weeks and is expected to be a good one. I am cautiously bullish in the near term, still firmly bullish for the long.

Until then, remember the trend!

Thomas Hughes



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New Plays

Full Load

by Jim Brown

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Editor's Note

With the Russell lagging the big cap indexes there is no rush to buy small cap stocks. We have a full load of 18 positions and there is no reason to just keep piling them up. If the market continues higher, we will profit from the gains. The big cap indexes have had a good week and it will be interesting to see if they can continue on Friday. I went through my entire list and nothing was screaming "buy me" so I am not adding any new positions today.


No New Bullish Plays


No New Bearish Plays

In Play Updates and Reviews

Russell Lagging

by Jim Brown

Click here to email Jim Brown

Editors Note:

The small cap index is lagging the broader market with single digit gain. The Russell gained only 2 points on Wednesday and 3 points today while the big cap indexes are posting solid gains. The Dow gained 152 points today and the S&P gained 11. The minor gains make me question the overall market strength. However, one reason for the weak performance could have been the decline in biotechs. The biotech index fell -52 points after the DOJ said they were not going to be friendly to marijuana. Numerous biotech stocks have potential drugs made from cannabis. While the change in direction does not hurt them, their stocks were punished. That could have been the anchor on the Russell. The Nasdaq also posted smaller gains today and the biotech sector is a big part of the Nasdaq.

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

AOBC - American Outdoor
The short position was entered at the open.

NGVC - Natural Grocers
The long position was closed at the open.

If you are looking for a different type of trading strategy, try these newsletters:

Short term Calls and Puts on equities = Option Investor Newsletter

Credit spreads and naked puts = OptionWriter

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3-6 month Option Trades = Ultimate Investor

Iron Condors = Couch Potato Trader

BULLISH Play Updates

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.

CHGG - Chegg Inc - Company Profile


No specific news.

Original Trade Description: November 27th

Chegg, Inc. operates student-first connected learning platform that help students transition from high school to college to career. The company's products and services help students to study for college admission exams, find the right college to accomplish their goals, get better grades and test scores while in school, and find internships that allow them to gain skills to help them enter the workforce after college. It offers print textbook and eTextbook library for rent and sale; and provides eTextbooks, supplemental materials, Chegg Study service, tutoring service, writing tools, textbook buyback, test preparation service, internships, and college admissions and scholarship services, as well as enrollment marketing and brand advertising services. The company has a strategic alliance with Ingram Content Group Inc. Chegg, Inc. was founded in 2005. Company description from FinViz.com.

Expected earnings Jan 29th.

The company reported Q3 earnings of 1 cent, up from a loss of 3 cents and beat earnings for a loss of 1 cent. Those are not big numbers but the company is investing for the future. Revenue of $62.6 million beat estimates for $57.7 million. The company guided for the full year for revenue of $251-$252 million, up from prior guidance of $241-$243 million.

The company just acquired Cogeon GmbH, a provider of AI driven adaptive math technology and the math app, Math42.com. With access to new original content, they can launch their own math courses to provide self-guided and individualized solutions to more students. This will increase their market share in the high school market. The company is growing at a 26% annual rate.

The company said recent studies showed 64% of high school graduates were not prepared for college level math courses. Some 40% of college freshmen have to take at least one remedial math course.

Citigroup just initiated coverage with a buy rating. With Chegg's 4% penetration into a very large addressable market, there is plenty of room to grow. The analyst said Chegg's business model is a positive feedback loop that aids in new subscriber acquisition and cross-selling. They have a pipeline of new products aimed at expanding the addressable market.

Shares declined after earnings but are rebounding from the post earnings depression.

Position 11/28/17:

Long CHGG shares @ $15.07, see portfolio graphic for stop loss.
Alternate position: Long Apr $17.50 call @ 85 cents, see portfolio graphic for stop loss.

HIMX - Himax Technologies - Company Profile


No specific news.

Original Trade Description: December 27th.

Himax Technologies, Inc. is a fabless semiconductor solution provider dedicated to display imaging processing technologies. Himax is a worldwide market leader in display driver ICs and timing controllers used in TVs, laptops, monitors, mobile phones, tablets, digital cameras, car navigation, virtual reality (VR) devices and many other consumer electronics devices. Additionally, Himax designs and provides controllers for touch sensor displays, in-cell Touch and Display Driver Integration (TDDI) single-chip solutions, LED driver ICs, power management ICs, scaler products for monitors and projectors, tailor-made video processing IC solutions, silicon IPs and LCOS micro-displays for augmented reality (AR) devices and head-up displays (HUD) for automotive. The Company also offers digital camera solutions, including CMOS image sensors and wafer level optics for AR devices, 3D sensing and machine vision, which are used in a wide variety of applications such as mobile phone, tablet, laptop, TV, PC camera, automobile, security, medical devices and Internet of Things. Founded in 2001 and headquartered in Tainan, Taiwan, Himax currently employs around 2,150 people from three Taiwan-based offices in Tainan, Hsinchu and Taipei and country offices in China, Korea, Japan and the US. Himax has 3,011patents granted and 441patents pending approval worldwide as of September30th, 2017. Himax has retained its position as the leading display imaging processing semiconductor solution provider to consumer electronics brands worldwide. Company info from Himax Technologies.

Himax was setting new highs in early December and Citron Research tweeted the company was a fraud and the story behind the company was bogus. Citron never followed up with any facts but that was enough to crash the stosk from $13.50 to $10.

Himax immediately posted a news release denying anything in the tweet. After trading sideways for the last couple of weeks they may be starting to rebound.

Himax reported Q3 earnings of 5 cents and revenue of $197.1 million which beat estimates for 4 cents and $191.3 million. Himax makes the wafer level optics (WLO) that powers the facial recognition in Apple's iPhone X. Since Apple is probably going to make that a standard feature in all future iPhones this is a good deal for Himax. Because of the iPhone shipping cycle, they should post good Q4 earnings. The company said WLO shipments would accelerate in Q4 and beyond. They also said they were working on several new development projects with Apple that would be announced in the future. Apple is also expected to bring the facial recognition technology to the iPad Pro products.

The company guided for Q4 earnings of 13-15 cents, which would be a major jump from the 5 cents in Q3.

They also announced a new partnership with Qualcomm to bring 3D sensing and facial recognition to Android devices and expects to mass produce and ship the technology in Q1-2018.

Expected earningss February 8th.

Because HIMX shares declined so sharply, they could be immune from any early month volatility in January. There is no guarantee it is a plausible scenario.

Update 1/2/18: Himax announced the industry's first AI based human presence IoT visual sensor for consumer applications, called WiseEye. The sensor can detect, localize, count and profile humans. The sensor would work in offices to turn on/off lights, heat/AC when humans are not present, work on household appliances to perform functions when humans are present and sleep when they are absent.

Position 12/28/17:

Long HIMX shares @ $10.25, see portfolio graphic for stop loss.
Alternate position: Long Feb $11 call @ 75 cents, see portfolio graphic for stop loss.

IMMU - Immunomedics Inc - Company Profile


No specific news. Down slightly with the marijuana stocks.

Original Trade Description: December 23rd.

Immunomedics, Inc., a clinical-stage biopharmaceutical company, focuses on the development of monoclonal antibody-based products for the targeted treatment of cancer, autoimmune disorders, and other diseases. The company engages in developing antibody-drug conjugate (ADC) products comprising IMMU-132, an ADC that contains SN-38, which is in Phase II trials used for the treatment of patients with metastatic triple-negative breast cancer, and small-cell and non-small-cell lung cancers; IMMU-130, an anti-CEACAN5-SN-38 ADC that is in Phase II trials for the treatment of solid tumors and metastatic colorectal cancer; and IMMU-140 that targets HLA-DR for the potential treatment of liquid cancers. It also develops products for the treatment of cancer and autoimmune diseases, including epratuzumab, anti-CD22 antibody; veltuzumab, anti-CD20 antibody; milatuzumab, anti-CD74 antibody; and IMMU-114, a humanized anti-HLA-DR antibody. The company also provides LeukoScan, a diagnostic imaging product to determine the location and extent of infection/inflammation in bone. In addition, it offers other product candidates for the treatment of solid tumors and hematologic malignancies, as well as other diseases, which are in various stages of clinical and pre-clinical development. The company has a research collaboration with The Bayer Group to study epratuzumab as a thorium-227-labeled antibody. Immunomedics, Inc. was founded in 1982 and is headquartered in Morris Plains, New Jersey. Company description from FinViz.com.

Immunomedics recently announced a blinded trial on breast cancer drug sacituzumab govitecan showed positive results. The drug is an anti-TROP-2 antibody that can target multiple tumor types including breast cancer, lung cancer and colorectal cancers. This would be a holy grail of cancer treatment if the drug continues to post solid results. The drug is being tested to treat triple negative breast cancer, a tough-to-treat indication with limited treatment options. These cases represent 15% of the 246,660 new cases of breast cancer reported each year resulting in 40,450 deaths per year. In the recent trial the "objective response rate" or ORR was 31% or nearly double the historical rate for the standard treatment of these patients. The company plans to file for an accelerated FDA approval in early 2018. An independent study of this drug by an outside firm estimated it could produce $3 billion in annual sales by 2025.

Obviously, there is no guarantee the drug will be approved or be successful in the real world but the outlook is promising and it is lifting the stock price. Shares broke out to a new 15-year high on Friday and could continue to make new highs as long as the research on this drug and others continues to be positive. Seattle Genetics (SGEN) owns 7.3% of the company and executed warrants to acquire 8.6 million shares on December 5th for $42.4 million. They obviously believe the drug has potential.

Hopefully the potential for a blockbuster drug will insulate us from any market negativity in January.

Position 12/26/17:

Long IMMU shares @ $14.69, see portfolio graphic for stop loss.
Alternate position: Long Feb $16 call @ $1.15, see portfolio graphic for stop loss.

NGVC - Natural Grocers - Company Profile


No specific news. Shares were not moving. I recommended we close the position and it was closed at the open just before the bottom fell out. Shares dropped to $8.34 intraday. We escaped with a minor gain.

Original Trade Description: December 13th.

Natural Grocers by Vitamin Cottage, Inc., together with its subsidiaries, operates natural and organic groceries, and dietary supplement retail stores in the United States. Its stores offer natural and organic grocery products, such as organic produce; bulk food and private label products; dry, frozen, and canned groceries; meat and seafood products; dairy products, dairy substitutes, and eggs; prepared foods; bread and baked products; and beverages. The company's stores also provide private label dietary supplements; body care products comprising cosmetics, skin care, hair care, fragrance, and personal care products containing natural and organic ingredients; pet care and food products; household and general merchandise, including cleaning supplies, paper products, dish and laundry soap, and other common household products; and books and handouts. As of July 27, 2017, it operated 140 stores in 19 states. The company operates its retail stores under the Natural Grocers by Vitamin Cottage trademark. Natural Grocers by Vitamin Cottage, Inc. was founded in 1955 and is headquartered in Lakewood, Colorado. Company description from FinViz.com.

Expected earnings Feb 15th.

Natural Grocers, more commonly known as Vitamin Cottage, was given up for dead after they reported earnings of only 3 cents in August. Shares fell 35% to $5.50 and traded sideways for the next three months. In mid November they reported earnings of 6 cents that beat estimates by a penny. Revenue of $198.5 million also beat estimates. They guided for full year earnings of 21-31 cents which was above estimates for 21 cents.

Shares rebounded on the earnings beat and positive guidance. They rallied to $8.50 and stalled at that level. They gained 5.6% on Wednesday. Any further gains targets the next resistance level at $10.50.

I am going to put an entry trigger on this position to make sure they are going to move higher before we jump in.

Position 12/15/17 with a NGVC trade at $8.75

Closed 1/4: Long NGVC shares @ $8.75, exit $8.87, +.12 gain
Alternate position:
Closed 1/4: Long March $10 call @ 35 cents, exit .30, -.05 loss.
Net gain 7 cents.

YRCW - YRC Worldwide - Company Profile


No specific news. Shares have been making new highs but not holding their momentum. Support is $14.35.

Original Trade Description: December 9th.

YRC Worldwide Inc., through its subsidiaries, provides various transportation services primarily in North America. Its YRC Freight segment offers various services to transport industrial, commercial, and retail goods; and provides specialized services, including guaranteed expedited services, time-specific deliveries, cross-border services, coast-to-coast air delivery, product returns, temperature-sensitive shipment protection, and government material shipments. It serves manufacturing, wholesale, retail, and government customers. As of December 31, 2016, this segment had a fleet of approximately 7,700 tractors comprising 6,200 owned and 1,500 leased; and 31,000 trailers consisting of 24,900 owned and 6,100 leased. The company's Regional Transportation segment provides regional delivery services, which include next-day local area delivery and second-day services, consolidation/distribution services, protect-from-freezing and hazardous materials handling, truck loading, and other specialized offerings; guaranteed and expedited delivery services that consist of day-definite, hour-definite, and time definite capabilities; interregional delivery services; and cross-border delivery services, as well as operates hollandregional.com, reddawayregional.com, and newpenn.com, which are e-commerce Websites offering online resources to manage transportation activities. This segment had a fleet of approximately 6,600 tractors, including 5,000 owned and 1,600 leased; and 13,500 trailers comprising 10,800 owned and 2,700 leased. The company was formerly known as Yellow Roadway Corporation and changed its name to YRC Worldwide Inc. in January 2006. YRC Worldwide Inc. was founded in 1924 and is headquartered in Overland Park, Kansas. Company description from FinViz.com.

YRCW reported Q3 earnings of 22 cents that missed estimates for 28 cents. Revenue of $1.25 billion matched estimates. Shipments were impacted by the hurricanes in Texas and Florida. Shares traded sideways on the miss.

Regional shipments increased 4.0% despite the hurricane impact. Revenue per hundredweight ros 3.4% and revenue per shipment rose 3.8%. That was the highest revenue per hundredweight increase in more than 3 years. They are refreshing the fleet to more economic tractors and transitioning 8 terminals to become regional distribution centers. This will add capacity and reduce costs.

Expected earnings Feb 1st.

The entire transportation sector crashed in late October and early November and that knocked 25% of YRCW shares. The rebound started in mid November and shares have recovered all the loss and are close to a breakout to a new 52-week high.

Update 12/11: After the bell, YRC provided an operational update for November. Tonnage per day increased 1.1%, revenue per hundredweight rose 3.7%. Revenue per shipment rose 5.0%. Regional tonnage per day rose 6.0%, revenue per hundredweight rse 0.8% and revenue per shipment rose 4.1%. Overall these were some good numbers.

Position 12/11/17:

Long YRCW shares @ $14.20, see portfolio graphic for stop loss.
Alternate position: Long Jan $15 call @ 71 cents, see portfolio graphic for stop loss.

This is a short-term call and we will need to be out of it by the end of December. The next available option series was April at double the cost.

BEARISH Play Updates

AOBC - American Outdoor Brands - Company Profile

American Outdoor Brands Corporation, formerly Smith & Wesson Holding Corporation, is a manufacturer of firearms and a provider of accessory products for the shooting, hunting and outdoor enthusiast. The Company operates through two segments. The Firearms segment manufactures handgun and long gun products sold under the Smith & Wesson, M&P and Thompson/Center Arms brands, as well as providing forging, machining and precision plastic injection molding services. The Outdoor Products & Accessories segment provides shooting, hunting and outdoor accessories, including reloading, gunsmithing, gun cleaning supplies, tree saws, vault accessories, knives, laser sighting systems and tactical lighting products. Brands in Outdoor Products & Accessories include Crimson Trace, Caldwell Shooting Supplies, Wheeler Engineering, Lockdown Vault Accessories, BOG POD and Golden Rod Moisture Control, as well as knives and specialty tools under Schrade, Old Timer, Uncle Henry and Imperial. Company description from FinViz.com.

AOBC is a great company but times have changed. Under the 8-years of Barack Obama as president the firearms sector boomed because Obama never missed a chance to blame firearms for every act of violence rather than the criminal acts of the violent offenders. He had said numerous times he would ban firearms if he could and enacted policies that pressured gun dealers including limiting their access to banking. With a potential new gun control law behind every event, gun sales boomed to all time records. In the last year of his presidency he bragged several times that he had become the best gun salesman ever.

President Trump is pro gun and there are multiple pro gun laws making their way through congress. There is no fear of any gun bans even after the Las Vegas shooting. With no urgency to buy new guns, sales are falling. AOBC said rising inventories were a problem and they are being forced to reduce production.

Earnings March 8th.

Investors looking for promising stocks for 2018 with rising revenue and earnings, will likely avoid AOBC because they have neither. In their Q3 earnings report, revenue declined -36% to $148.4 million and earnings fell -90% from $32.5 million to $3.2 million. With 3 years left in Trump's term, the outlook for rising sales is weak at best.

They guided for 2018 for earnings of 57-67 cents and will include write downs of acquired assets.

Position 1/4/18:
Short AOBC shares @ $12.14, see portfolio graphic for stop loss.
Alternate position: Long March $10 put at 35 cents.
No stop loss and we will hold over earnings.

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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