The rising volatility in the market is killing the bullish sentiment that lifted us to these levels. The Dow had three triple digit reversals intraday. The index declined -136 points at the open, rebounded 292 points, then declined -219 points to close with a 37 point gain. You cannot trade these moves unless you are sitting at your computer day trading and then it would still be dangerous. We were not stopped out of anything today but any further negative volatility will probably be negative to our portfolil.
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
JBL - Jabil Inc
The short position was entered at the open.
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BULLISH Play Updates
GME - Gamestop - Company Profile
No specific news. Two consecutive declines in a weak market. Not a good sign.
Original Trade Description: January 29th.
GameStop Corp. operates as an omnichannel video game retailer. It sells new and pre-owned video game hardware; video game software; pre-owned and value video game products; video game accessories, such as controllers, gaming headsets, virtual reality products, memory cards, and other add-ons; and digital products, including downloadable content, network points cards, prepaid digital and subscription cards, and digitally downloadable software. The company also sells mobile and consumer electronics, including wireless products and services, and accessories, as well as new and pre-owned smart phones; personal computer (PC) entertainment software in various genres, including sports, action, strategy, adventure/role playing, and simulation; and strategy guides, magazines, and interactive game figures. In addition, it offers collectibles that include licensed merchandise related to the video game, television, and movie industries, as well as pop culture themes; and operates electronic commerce Websites under the GameStop, EB Games, Micromania, and ThinkGeek brand names. Further, the company operates kongregate.com, a browser-based game site; Game Informer magazine, a print and digital video game publication; iOS and Android mobile applications; Simply Mac, a certified Apple consumer electronic products reseller, as well as offers certified training, warranty, and repair services; and Spring Mobile, an authorized AT&T reseller operating AT&T branded wireless retail stores, as well as pre-paid wireless stores under the Cricket Wireless name that offers prepaid services, wireless devices, and accessories. As of January 28, 2017, it operated approximately 7,535 stores in the United States, Australia, Canada, and Europe. GameStop Corp. primarily offers its products through stores under the GameStop, EB Games, and Micromania names. The company was formerly known as GSC Holdings Corp. GameStop Corp. was founded in 1994 and is based in Grapevine, Texas. Company description from FinViz.com.
Expected earnings March 5th.
When Gamestop reported Q4 earnings, sames store sales rose 11.8%, hardware sales rose 39.4% and software sales rose 7.3%. The only gaming hit was an 8.1% decline in sales of preowned software. That was due to a surplus new games hitting the market in the quarter making older titles less desirable.
However, the killer was a 20% decline in revenue from AT&T for selling their mobile phones and DirecTV service. It was not that they sold dramatically fewer units but AT&T slashed their compensation to retailers. For instance if the company got $50 in Q3 for selling a phone and only got $40 in Q4 for selling the same phone, the revenue shortfall is not the fault of the seller but the manufacturer.
Gamestop is currently selling for a ridiculous PE of 5.5 with an 8.7% dividend. Game sales are doing fine and they have 7,500 stores. This looks like a buying opportunity.
Long GME shares @ $17.08, see portfolio graphic for stop loss.
Alternate position: Long April $18 call @ .84, see portfolio graphic for stop loss.
VIPS - Vipshop - Company Profile
No specific news. Support broke at the open when the market declined and the rebound failed.
Original Trade Description: January 27th.
Vipshop Holdings Limited, through its subsidiaries, operates as an online discount retailer for various brands in the People's Republic of China. It offers a range of branded products, including women's apparel, such as casual wear, jeans, dresses, outerwear, swimsuits, lingerie, pajamas, and maternity clothes; men's apparel comprising casual and smart-casual T-shirts, polo shirts, jackets, pants, and underwear; women and men shoes for casual and formal occasions; and accessories consisting of belts, fashionable jewelry, watches, and glasses for women and men. The company also provides handbags, such as purses, satchels, duffel bags, and wallets; apparel, gear and accessories, furnishings and decor, toys, and games for boys, girls, infants, and toddlers of all age groups; sports apparel, and sports gear, and footwear for tennis, badminton, soccer, and swimming; and skin care and cosmetic products, including cleansers, lotions, face and body creams, face masks, sunscreen, foundations, lipsticks, eye shadows, and nail polish. In addition, it offers home furnishing products comprising bedding and bath products, home decors, and dining and tabletop items; small household appliances; designer apparel, footwear and accessories; and snacks, health supplements, and occasion-based gifts, such as chocolates, moon-cakes, and tea. Further, the company provides consumer financing, supply chain financing, and wealth management services. The company provides its branded products through its vipshop.com, vip.com, and lefeng.com Websites, as well as through its cellular phone application. Vipshop Holdings Limited was founded in 2008 and is headquartered in Guangzhou, the People's Republic of China. Company description from FinViz.com.
VIPS has about a 6% market share in e-commerce apparel in China. Currently there is a battle in progress for market share among numerous major players including Alibaba and their various websites. They all exist in come part under the Alibaba umbrella.
Tencent (TCEHY) and JD.com (HD) are two of the major online players. They just announced an $853 million stake in VIPS. Tencent bought a 7% stake for $604 million and JD.com put up another $259 million to increase their stake from 2.5% to 5.5%. FYI Tencent owns a 21% stake and Walmart owns a 10% stake in JD.com. These are major players who believe VIPS is going to grow significantly.
VIPS is the 4th largest business to consumer online retailer in China behind Alibaba's Tmall, JD.com and Suning, in that order. Over the last 12 months VIPS increased its active customers by 22% to 6.5 million. The company is expanding out of apparel and accessories and into things like pharmaceuticals. On Alibaba's Singles Day, VIPS handled more than 10 million orders. Analysts expect VIPS revenue to grow 33% in 2018 and earnings to grow 43%.
Why is the investment by JD.com and Tencent so critical? Tencent has 980 million monthly active users on WeChat and JD.com has 266.3 million active customers. They are going to make these customers available to VIPS. Remember, VIPS only has 6.5 million customers but they have the products that Tencent does not have. This means VIPS sales are going to explode.
VIPS has earnings on Feb 19th. I am recommending we buy a cheap call and hold over the earnings event because good things are likely to come out of the report.
No stock, just buy the call. The stock is rising quickly but it could reverse just as easily.
Long Mar $19 call @ $1.15, see portfolio graphic for stop loss.
BEARISH Play Updates
JBL - Jabil Inc - Company Profile
No specific news. Shares gapped down with the market to open at the low for the day and give us a terrible fill before rebounding with a strong gain.
Original Trade Description: January 31st
Jabil Inc. provides electronic manufacturing services and solutions worldwide. The company operates through two segments, Electronics Manufacturing Services and Diversified Manufacturing Services. It offers electronics design, production, and product management services. The company provides electronic circuit design services, such as application-specific integrated circuit design, firmware development and rapid prototyping services; and designs plastic and metal enclosures that include the electro-mechanics, such as the printed circuit board assemblies (PCBA). It also specializes in three-dimensional mechanical design comprising the analysis of electronic, electro-mechanical, and optical assemblies, as well as offers various industrial design, advance mechanism development, and tooling management services. In addition, the company provides computer-assisted design services consisting of PCBA design, and PCBA design validation and verification services; and other consulting services, such as the generation of a bill of materials, approved vendor list, and assembly equipment configuration for various PCBA designs. Further, it offers product and process validation services that include product system, product safety, regulatory compliance, and reliability tests, as well as manufacturing test solution development services. Additionally, the company offers systems assembly, test, direct-order fulfillment, and configure-to-order services. It serves automotive and transportation, capital equipment, consumer lifestyles and wearable technologies, computing and storage, defense and aerospace, digital home, healthcare, industrial and energy, mobility, networking and telecommunications, packaging, point of sale, and printing industries. The company was formerly known as Jabil Circuit, Inc. and changed its name to Jabil Inc. in June 2017. Jabil Inc. was founded in 1966 and is headquartered in St. Petersburg, Florida. Company description from FinViz.com.
Expected earnings March 15th.
Jabil reported earnings of 80 cents that beat estimates for 78 cents. Revenue of $5.59 billion also beat estimates for $5.5 billion. They posted wide guidance for Q1 of 50-74 cents on revenue of $4.75-$5.50 billion. Analysts wre expecting $4.76 billion.
By all rights Jabil shares should be rising but the decline that started in September has accelerated with Wednesday's close a 52-week low. With the Semiconductor Index showing increased volatility in what could be a topping process, the lesser known chip companies are declining.
Short JBL shares @ $24.33, see portfolio graphic for stop loss.
Alternate position: Long March $24 put @ 70 cents, 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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