Option Investor
Newsletter

Daily Newsletter, Sunday, 6/30/2019

Table of Contents

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

Market Wrap

Calm Before the Storm

by Jim Brown

Click here to email Jim Brown

After weeks of gains the market rested before the G20 meeting on Saturday.

Weekly Statistics

Friday Statistics

The first six months of 2019 set some records. This was the best month for the Dow since October 2015 and the best June since 1938. For the S&P it was the best first half since 1997 and the best June since 1955. There has been a lot of months/years since those dates so that should emphasize how strong the market has been since the June 3rd bottom.

With the Trump/Xi meeting somewhat successful the market should be positive on Monday. How positive for how long is the question? S&P futures were up +29 at the open on Sunday evening.

Removing the ban on selling to Huawei should help the chip sector. Not adding additional tariffs should help the overall market. Unfortunately, the result of the meeting was a temporary truce rather than an agreement. There is no path to an actual deal. All the roadblocks are still in place and intellectual property concerns and forced technology transfers are still a taboo subject as far as China is concerned.

The market is moving higher simply because the outcome was not negative. I give the win to China in this round. They got a reprieve for Huawei and gave up nothing. They are still demanding an end to tariffs before they agree to any deal and Trump is not going to give up that card.

China is an expert at the "rope-a-dope" maneuver. If you have 20 points you want to get done, they will fight on each one for months at a time. Once you think you have an agreement on 15 of them, and are pressing on the final five, they will say "those are too harsh" if you want to negotiate on those then we have to revisit the first 15 and the process starts all over. This is exactly what they did to Trump in May. By backing out of the talks with a hard line that the deal was not balanced, and the US must rethink its positions, they effectively nuked a year's worth of talks and reset the board again.

One of the key provisions is that the US wants China to pass laws against intellectual property theft and forced technology transfer. They are not going to do it. That would be the equivalent of asking the US to change its constitution to favor the Chinese economy. IP theft and forced transfer is how China has built its economy. This is a communist country and they are never going to play fair. It is them against the world and they will do anything they can to win.

Investors must decide if they are willing to hold for another three months while the new round of talks progress to yet another stalemate. Or, will they leave the market in frustration ahead of the summer doldrums. I believe they will chase prices despite the lack of earnings and slowing economic growth. The lure of new highs is too strong.

The lack of a disaster at the meeting could provide a temporary lift. Unfortunately, Q2 earnings are fading back to negative growth and that should be a longer term drag. The factor that will overcome everything discussed above is the prospect of a Fed rate cut in July. That is the new rally cry now the China trade problem has been put on the back burner to simmer. China should not be a drag on the market in July. All eyes will be on the Fed instead.

I believe China has decided to wait out the Trump presidency. They know any democratic successor will be much easier to deal with and will drop significant requests in order to be seen making a deal. That means China will try to low key any future talks while investors focus on the Fed.

The Dow traded over 26,828 intraday but had not closed at a new high. The Nasdaq Composite has not made a new high and remains -162 points below that level. The Nasdaq 100 is nearly 200 points below the prior high at 7,845. The S&P closed at a new high at 2,854 but pulled back to 2,941. It is close enough to be at a new high on Monday. The Russell 2000 came to another dead stop at the 10% correction level and is well below the prior highs.

The Russell 3000 was reconstituted on Friday. That is the combination of the Russell 1000 and the Russell 2000. This is the market of tradable stocks. That index is very close to prior high resistance at 1,740 and could generate significant technical buying and price chasing if we were to break over that level.


I cannot chart the A/D line on the Russell 3000. The closest I can come is the NYSE common stock only A/D line. That eliminates ETFs and REITS. The "stock" market is positive with the A/D line at a new high on Friday. That should continue at Monday's open. This is our early warning indicator. If the NYC Stock A/D line begins to fade, then we should be concerned about the health of the market. I do not anticipate that ahead of the Fed. This indicator was strongly positive on Friday due to the reconstitution of the Russell indexes that added about 5 billion shares of extra volume.


On Friday the BEA released the personal income and spending numbers for May. Income rose 0.5% for the second consecutive month and that is very bullish. Consensus estimates were 0.3%. Unfortunately, employee compensation rose only 0.2% with proprietor's income rising 0.8% and leading the categories. Income receipts on assets, which means you sold something, rose 1.6% but that is not repeatable.

The key to consumer spending is real disposable income and that rose 0.3% to match April's gain. Basically, the headline number was bullish, but the components were mediocre. Current 12-month average hourly earnings are 3.1% and that is the slowest pace since September.

Personal spending rose only 0.2% to match April but well down from the 0.8% in March. Spending on durable goods rose 1.6% and the strongest since November. Nondurable goods spending declined -0.2% while services rose 0.2%. This was another disappointing report suggesting the employment boom may be fading because income and spending are slowing.

The second reading of consumer sentiment for June, rebounded slightly from 97.9 to 98.2. The present conditions component rose from 110.0 to 111.9 but the expectations component declined from 93.5 to 89.3. Analysts said falling gasoline prices were to blame for the increase in current conditions.

Note that sentiment has been relatively flat for the last 18 months. There was a big spike after the election, but that excitement has faded.


The worst report on Friday was the Chicago PMI for June, which sank to 49.7 and the lowest reading in more than two years. This was the first reading in contraction territory since August 2016. New orders and order backlogs both declined. This is the chart that is giving the Fed a headache. The GDP and the stock market may be doing well but the economic internals are fading fast. This is why the Fed could cut by 50 basis points in July.

Econoday Chart

Big money is moving into treasuries and the yield on the ten-year has been trading at 2.0% for the last week. This could reverse on Monday.


There are multiple high value reports next week, but nobody will be paying attention. Volume will be nonexistent after Monday/Tuesday when the index trackers will be cleaning up their Russell reconstitution trades. There is roughly $9 trillion indexed to the Russell indexes. Fund managers will check their weightings on Monday based on their buys/sells from Friday and see if the weightings are correct. If not, they will have to buy/sell small amounts of stock to correct the imbalances. They will repeat this on Tuesday after Monday's trade impact is calculated.

This is payroll week and ISM week. Both sets of reports will be important but not likely to be market moving because of the low volume. The NYSE closes at 1:PM on Wednesday and all day on Thursday. That makes Friday almost a legal holiday. Volume is not likely to break 5 billion shares on Friday.

The estimates for both the ADP and Nonfarm payrolls declined from prior months but remain significantly over the low numbers we got last month. The flooding in the Midwest was supposedly responsible for the low counts. We are moving into census season and each report for the rest of the year will be positively impacted by census hiring.

If the Manufacturing PMI is below 50, it could increase chances for a rate hike.


The dwindling earnings calendar did not change the numbers last week. Q1 earnings are still expected to rise 1.6%. However, Q2 earnings are now expected to rise only 0.3% on a 3.8% rise in revenue. We are about two weeks from the start of the Q2 earnings cycle.

There are only a handful of companies reporting next week and only a couple that the average investor would recognize. Those are Acuity Brands and Greenbrier. This is going to be a very slow week for corporate headlines.


The big earnings news on Friday came from Constellation Brands (STZ). The company reported adjusted earnings of $2.21 when excluding the pass-through loss from Canopy Growth. Revenue was $2.10 billion. Analysts were expecting $2.05 and revenue of $2.07 billion. Constellation guided for the full year for earnings of $8.65-$8.95, a 15-cent increase from prior guidance. This excludes any impact from Canopy.

Constellation said sales of its Corona and Modelo Especial beer products were booming. In recent quarters the company has added more Mexican beers and craft bears to cater to rising demand by younger drinkers. Beer sales rose 7.4% in the quarter to $1.48 billion with operating margin rising to 39.3%.

Constellation is selling 30 of its inexpensive wine brands to Gallo for $1.7 billion but retaining the more expensive wines in a "power brands" premium portfolio. The sale is expected to close in the second half of the year.

The CEO said he was not pleased with the loss from Canopy Growth, but he understood they were in a growth phase that required significant capital expenditures. The future is very bright, but we will have to endure some losses to get there. Shares spiked nearly 5% on the news.


On Thursday Dow component Nike (NKE) reported earnings of 62 cents missing estimates for 66 cents. That was the first earnings miss in 7 years. Revenue of $10.18 billion narrowly beat estimates for $10.16 billion. The company said impact from currency valuations was painful. Costs have risen 10% over the last 12 months due to higher marketing expenses.

On the positive side the company said they had seen no material impact from the China trade issues. They guided for revenue growth to accelerate into the high single digits by December. Currently online sales accounted for 30% of revenue and that will top 50% long term according to the company. They guided for earnings to rise 19% in the current fiscal year.

Wedbush reiterated an outperform with a $96 price target. The analyst said they are executing a "solid strategy" and producing innovative products with key initiatives in women's apparel.


Dow component Walgreens Boots Alliance (WBA) reported earnings of $1.47 that beat estimates for $1.43. Revenue of $34.591 billion beat estimates for $34.442 billion. Domestic pharmacy sales rose 2.3% to $26.5 billion. International pharmacy sales declined -7.3% to $2.8 billion. The company blamed adverse currency impact for the decline. The overall earnings declined -23.6% because of weak performance in the UK unit.

Walgreens did report a rise in "branded" drug sales and a rise in the number of total prescriptions filled in the US. The company reiterated full year guidance.

Walgreens has been the worst performing stock in the Dow with YTD losses of 23.4 percent.


You can now buy a real house on Amazon, free shipping included. Since they were added to the shopping site several models continue to sell out. (Source) Specifically, one 172 sqft $7,250 pre-fab cabin is a hot seller. The manufacturer claims it can be built in only 8 hours from the prefab parts. The available tiny homes range from a few thousand dollars to tens of thousands for the larger models. For instance, the 292 sqft, not including the sleeping loft, cabin below costs about $19,000 and two adults can assemble it in 2-3 days. A 1,000 sqft Ecohousemart Timber Home goes for about $40,000.

Does this sound too good to be true? There is a catch. If you live in a colder climate and want insulation, it is extra. You will need a foundation, not included. Despite the extras, buying a prefab home for a mountain lot, mother-in-law residence, guest quarters, pool cabana, etc, has a lot of potential.


Amazon announced the date for Prime Day as July 15/16th this year. Amazon shoppers are expected to spend an average of $507 each, up from $465 in the 2018 sale. RetailMeNot data showed that those shopping on Prime Day will visit an average of 11 other websites throughout the event. This is not just good for Amazon but good for all retailers. Target, Walmart and Ebay have already announced special events scheduled to coincide with Prime Day. Despite the online feeding frenzy, MiQ data projects that parents will make an average of 16 trips to brick and mortar stores during the back to school shopping season.

Rakuten Intelligence reported that during March and April Amazon delivered as much as 45% of its own shipments. That delivery rate is up from 8% in 2016, 20% in 2017 and 30% in 2018. Amazon is rapidly replacing UPS, FDX and USPS as shippers. Amazon has the second largest warehousing operation in the world behind DHL. Amazon manages more than 233 million sqft of warehouse space compared to 248 million for DHL.

Rite Aid (RAD) announced last week they were partnering with Amazon to provide instore pickup locations in more than 1,500 stores. The service will be called "Counter" and will allow consumers to pickup their online orders with same-day, one-day or standard shipping service. Rite Aid is hoping consumers will linger in the stores and buy something Rite Aid offers. RAD shares spiked as much as 36% before falling back. With RAD shares in the mid-single digits this expanded partnership could be the next step in Amazon eventually acquiring the chain and its 2,469 locations. Rite Aid's market cap is only $431 million and pocket change for Amazon.



Apple announced that noted designer Johnny Ive was stepping down from the CDO position. Ive has worked for Apple since 1992 and designed most of Apple's iconic devices. The iMac G3 was the beginning of the rebound in Apple computers. The G4 Cube did not achieve as much success commercially, but it was a breakthrough design. The iPod was a monster hit with the first device released in 2001 with the capability to hold up to 1,000 songs. The iPod was not the first MP3 player, but it rose to dominate the market.

The iPhone was first released in 2007 and Ive and Jobs worked together to change the image of the cell phone. He was also influential in developing iOS 7 and a major upgrade in smartphone operating systems. He also created the MacBook Air in 2008. That revolutionized the laptop market. He is also credited with designing the Apple Watch, iPad and Apple's new spaceship campus.

Apple shares declined on the news but the impact from Ive leaving is likely to be minimal. He is going to operate his own independent design firm "LoveFrom" and Apple will be his primary client.


A headline out this weekend claims US air-safety regulators reportedly found a problem with the 737 in-flight control chip. This could extend the grounding of the planes until the end of the year. More than 500 are parked at storage facilities.

Regulators said a failure in the chip can cause "uncommanded movement" of a flight control on the aircraft's tail and force the nose of the plane lower. During testing it took pilots longer than expected to work through the problem. This problem is unrelated to the initial flaw in the MCAS automated flight control system. A Boeing official said they are shooting for a late September time frame for a full software update to fix the MCAS and this new problem. Once regulators approve the software update it will take an additional two months before planes can begin flying again. In addition, all the pilots will have to be retrained and recertified. Shares declined on the news.


Uber (UBER) rallied more than $4 over the last two days to close at a new post IPO high at $46.14. Option volume was running twice normal as buyers bought calls and doubters bought puts. There have been 2.2 calls bought for every put over the last two weeks.


Tesla (TSLA) could be in for a big move this week. They normally report deliveries for the quarter a couple days after the quarter ends. Analysts are expecting 91,000. Elon Musk has said this could be a record quarter for deliveries. Others are expecting 85,000-87,000. Shares have rallied over the last three weeks on the Musk comments. At this point, even if he meets the analyst estimates, multiple analysts believe this will be as good as it gets.

The company's manufacturing momentum is slowing and the multiple models both announced and in production are a drain on cash flow and capital expenditures. Several years ago, there were projections of 750,000 to one million vehicles a year in the early 2020s. With current production around 350,000 there is almost no hope of reaching those targets. The completion of the Chinese factory will boost production somewhat but another 50-60,000 a quarter is not going to reach those lofty goals. Earnings are now at long term risk as cash burn increases. There are multiple analysts who believe Tesla will either be acquired in a rescue or end up in bankruptcy. There are more than 20 new models of electric cars to be delivered between 2019-2021 and nearly all are cheaper than a Tesla. Competition is going to be fierce and these companies have significantly more money than Tesla. Musk is at great risk of losing Tesla's pole position in the EV race.


Crude inventories imploded last week as refiners get ready for the July 4th holiday. Utilization ramped up to 94.2% as they produced gasoline to flood the system ahead of a week of heavy driving. Also impacting inventories was a sharp drop in imports that accounted for about a 6 million barrel decline for the week.

Crude prices spiked to $60 on the increase in Iranian tensions. Prices dropped $1 at the close on Friday but immediately recovered that in the Sunday evening session. OPEC meets this week to discuss Q3 production targets.

Active rigs were unchanged in total, but oil rigs rose by 4 and gas rigs declined by 4. The $60 oil price may be giving drillers a chance to rethink their plans.





Markets

The S&P futures are up +29 as I type this on Sunday evening. Obviously, we do not know if that will stick through Monday's open or will sellers appear on the spike. We are entering the normal summer doldrum period, so anything is possible. Traders already short ahead of the doldrums are going to have a bad morning.

Headline rallies are normally short squeezes and are not based on fundamentals. Sometimes these squeezes ignite a real and lasting rally but many times they fade out over a couple days and the direction reverses. I would not be a buyer of long positions at Monday's open. Option premiums will be out of sight and you will more than likely be filled at the high of the day and possibly the week.

On the positive side, the S&P is likely to open in new high territory over 2,954. That could trigger some price chasing, but I would be cautious. In the past we have seen rebounds like we had in June end with a climax spike of shorts covering and retail traders buying. Institutional investors will not be buying Monday's bounce.

Multiple analysts have year-end price targets over 3,000 with 3,150 the current high target for 2019. If we were to see a multiday rally appear and break through 3,000, those high targets would begin to be hit and that would be an excellent time for fund managers to take some chips off the table and protect their 2019 gains and their bonuses.


The Dow is poised to open at a new intraday high, but it must close over 26,828 for a new record high. Boeing is likely to be a drag, but Intel, Cisco, Chevron, Exxon, Caterpillar, Apple and 3M are likely to be leaders.

The Dow's decline last week was minimal, and sentiment is still positive despite the weak earnings forecast. A new high close coupled with expectations for a 50-point rate cut, would be a powerful motivating force.



The Nasdaq futures are up +107 and the Nasdaq Composite is still 162 points below its prior high. The chip sector is likely to contribute to Monday's gains thanks to the position reversal on Huawei. The Nasdaq has strong support at 7,859 and strong resistance at 8,164 with Friday's close almost exactly in the middle at 8,002.

Apple should be the biggest impact with increased Chinese tariff concerns off the table for now.



The Russell 2000 was the strongest gainer on Friday, but it was due to the reconstitution of the Russell indexes and the five billion shares of additional volume. It was not because earnings are improving. Nothing has changed in small cap land. These reconstitutions typically lift the Russell for the next two days as portfolio managers balance their positions. That normally means buying a few more shares of the companies added to the Russell indexes. There is no guarantee and there is strong resistance for any continued move higher.


I would not recommend buying stocks at the open on Monday. There is no reason to jump in front of the freight train and get run over with high prices. I am not going to publish the LEAPS newsletter tonight for this reason. I will publish it on Monday. I can almost guarantee you that we will revisit current levels over the next couple of months and possibly lower. Be patient.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

 

"You cannot cross the sea by merely standing and staring at the water."

Rabindranath Tagore


If you like the market commentary you have been receiving and you are on a free trial then now is the time to subscribe. Do not wait until you miss a newsletter to decide you want to take the plunge.

subscribe now


New Plays

Not Fundamentally Based

by Jim Brown

Click here to email Jim Brown
Editor's Note

The headline short squeeze on Monday and the reconstitution squeeze last Friday are not based on fundamentals. These are external events that caused a market imbalance to the buy side.

With the S&P futures up +29 on Sunday this is not an entry point. We must be patient. Stock and option prices will be out of sight at the open and there is a good chance we could get filled at the high for the day if not the week. When headline events cause these giant short squeezes we must step aside and wait for normal conditions to return.



NEW BULLISH Plays

No New Bullish Plays


NEW BEARISH Plays

No New Bearish Plays



In Play Updates and Reviews

Dead Stop Again

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Russell posted a whopping 20-point gain on Friday but stopped at 1,566 once again. That is the 10% correction level and it has been both support and resistance for months. The rebound to that level came on the Russell reconstitution day and massive volume. This is a positive move, but it is not related to investor sentiment. This was simply minor bullishness and major portfolio restructuring.



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


DAN - Dana Inc
The long position was entered at the open on Monday.

SYMC - Symantec
The long position was entered at the open on Monday.

CYOU - Changeyou.com
The long position was stopped at $9.85.

ASPS - Altisource Portfolio
The long position was stopped at $19.75.


BULLISH Play Updates

CONN - Conns Inc - Company Profile

Comments:

No specific news. Rebound stalled again in Friday's weak market.

Original Trade Description: May 18th.

Conn's, Inc. operates as a specialty retailer of durable consumer goods and related services in the United States. It operates through two segments, Retail and Credit. The company's stores offer furniture and mattress, including furniture and related accessories for the living room, dining room, and bedroom, as well as traditional and specialty mattresses; and home appliances, such as refrigerators, freezers, washers, dryers, dishwashers, and ranges. Its stores also provide consumer electronics comprising LED, OLED, QLED, 4K Ultra HD, smart televisions, gaming products, and home theater and portable audio equipment; and home office products that include computers, printers, and accessories. In addition, the company offers short- and medium-term financing to its retail customers; and product support services, which comprise next-day delivery and installation services, credit insurance products, product repair services, and repair service agreements. As of March 26, 2019, it operated 125 retail locations in Alabama, Arizona, Colorado, Georgia, Louisiana, Mississippi, Nevada, New Mexico, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, and Virgin. The company was founded in 1890 and is headquartered in The Woodlands, Texas. Company description from FinViz.com.

Conns reported earnings of 58 cents that beat estimates for 53 cents. This was up from 40 cents in the year ago quarter. Revenue of $353.51 million missed estimates for $358.39 million. The company has beaten on earnings the last four quarters but missed on revenue each time over the same period.

Analysts have been too aggressive on estimates given the early year weakness in retail sales. Now that retail sales are rebounding, I expect Conns to also show an improvement.

Earnings August 30th.

Shares fell 25% on the missed revenue. For a company that has beaten on earnings for the last four quarters and beat raised Q1 earnings from 40 cents to 58 cents, this is an extreme over reaction. Shares are starting to show life again after trading at $17 for two weeks.

Position 6/17:
Long CONN shares @ $17.60, see portfolio graphic for stop loss.
Optional: Long October $20 call @ $1.45, see portfolio graphic for stop loss.



CYOU - Changyou.com Ltd - Company Profile

Comments:

No specific news. Shares fell sharply with the market on Tuesday to stop us out.

Original Trade Description: June 5th.

Changyou.com Limited develops and operates online games in the People's Republic of China. The company operates through Online Game, Platform Channel, and Cinema Advertising segments. It develops, operates, and licenses online games, including interactive online games that are accessed and played simultaneously by various game players through personal computers; and mobile games played on mobile devices. The company also operates 17173.com Website, an information portal that provides news, electronic forums, online videos, and other information services on online games to game players; and offers various software applications for PCs and mobile devices, as well as purchases pre-film cinema advertising slots from movie theater operators for advertisers. As of December 31, 2018, it had approximately 4.9 million total average monthly active accounts; and 1.6 million total active paying accounts. The company was founded in 2003 and is headquartered in Beijing, the People's Republic of China. Changyou.com Limited is a subsidiary of Sohu.com Limited. Company description from FinViz.com.

Changyou reported earnings of 69 cents, up from 30 cent in the year ago quarter. Revenue of $123 million and beat estimates for $115.85 million. They guided for Q2 for revenue of $110-$120 million and earnings between 41-50 cents. Analysts were expecting $106.8 million and 46 cents.

The company also announced a special dividend of $9.40 that was paid on June 3rd. As is customary the price of the stock was reduced by the $9 paid in the dividend. Shares held at $9 for several days before moving higher.

With rising earnings and the special dividend behind them, the stock should continue to rise to its prior level.

Earnings July 29th.

Position 6/10:
Closed 6/25: Long CYOU shares @ $10.50, exit $9.85, -.65 loss.
Closed 6/25: Long July $11 call @ 50 cents, exit .05, -.45 loss.



DAN - Dana Incorporated - Company Profile

Comments:

Dana announced they had eliminated $940 million in pension obligations and unfunded liabilities by contributing an additional $62 million to the purchase of group annuity contracts for all remaining plan participants. By eliminating this debt cloud Dana has cleaned up their balance sheet and transfer the pension management to a third party. This allows Dana to concentrate on the business rather than managing pension investments. Shares rallied more than 10% on the news.

Original Trade Description: June 24th.

Dana Incorporated provides drive and motion products, sealing solutions, thermal-management technologies, and fluid-power products to vehicle and engine manufacturer in North America, Europe, South America, and the Asia Pacific. The company operates in four segments: Light Vehicle Driveline Technologies, Commercial Vehicle Driveline Technologies, Off-Highway Drive and Motion Technologies, and Power Technologies. The Light Vehicle Driveline Technologies segment offers front drive steer rigid axles, rear drive rigid axles, driveshafts/propshafts, front/rear drive units, AWD systems, power transfer units, electromechanical propulsion systems, EV gearboxes, and differentials for use in light trucks, sport utility vehicles, crossover utility vehicles, vans, and passenger cars. The Commercial Vehicle Driveline Technologies segment provides steer and drive axles, driveshafts, and tire inflation systems for medium and heavy duty trucks, buses, and specialty vehicles. The Off-Highway Drive and Motion Technologies segment manufactures front and rear axles, driveshafts, transmissions, torque converters, industrial gear boxes, tire inflation systems, and electronic controls; wheel, track, and winch planetary drives; and hydraulic valves, pumps, and motors for use in construction, earth moving, agricultural, mining, forestry, material handling, and industrial stationary applications. The Power Technologies segment offers gaskets, cover modules, heat shields, engine sealing systems, cooling products, and heat transfer products for light vehicle, medium/heavy vehicle, and off-highway markets. Dana Incorporated has a strategic partnership with Hyliion Inc. The company was formerly known as Dana Holding Corporation and changed its name to Dana Incorporated in August 2016. Dana Incorporated was founded in 1904 and is headquartered in Maumee, Ohio. Company description from FinViz.com.

Dana shares are in rally mode because they reported positive earnings and the CEO was bullish about the future. The CEO said tariffs were not a problem for Dana and actually provided some positive momentum since they are a US company.

They reported earnings of 78 cents compared to estimates for 75 cents. Revenue was $2.2 billion, a 5% rise and tenth consecutive quarter of revenue growth.

The commercial division saw revenue rise nearly 10% to $431 million.

The CFO said a "robust sales backlog" provided strong expectations for 2019 and 2020 growth.

Earnings August 1st.

Position 6/24:
Long DAN shares @ $17.90, see portfolio graphic for stop loss.
Optional: Long Sept $19 call @ 85 cents, see portfolio graphic for stop loss.



LK - Luckin Coffee Inc - Company Profile

Comments:

No specific news. Shares declined slightly with the market but held over support at $18.

Original Trade Description: June 16th.

Luckin Coffee Inc. engages in the retail sale of freshly brewed drinks and pre-made food and beverage items in the People's Republic of China. It offers freshly brewed drinks, including freshly brewed coffee and non-coffee drinks; and food and beverage items, such as light meals. The company operates pick-up stores, relax stores, and delivery kitchens under the Luckin brand, as well as Luckin mobile app, Weixin mini-program, and other third-party platforms that cover the customer purchase process. As of March 31, 2019, it operated 2,370 stores, including 2,163 pick-up stores, 109 relax stores, and 98 delivery kitchens in 28 cities in the People's Republic of China. The company was founded in 2017 and is based in Xiamen, the People's Republic of China. Company description from FinViz.com.

The company is being called the Starbucks of China because there will be a store on every corner. They expect to grow from 2,400 stores in April to 5,000 stores by the end of 2019.

They sell coffee a lot cheaper than Starbucks and are heavy into spiced teas which are popular in China. The stores are small format and only seat 8-12 people with the idea being that Chinese people are always in a hurry. They do not accept cash. All purchases must be made through their app and that allows the company to constantly push coupons to their customers. Sales are expected to rise 3,000% by 2021. Market share is expected to grow from 1% to 23% over the same period according to Morgan Stanley.

Last week the Qatar Investment Authority disclosed they had acquired a 3.25 million share position post IPO of 8.81%. Capital Group, a unit of Capital research Global Investors disclosed they had acquired a 5.8 million share block or 15.6%. Carob Investments, a unit of Singapores soverign wealth fund GIC Private bought a $45 million stake representing a 13.04% ownership position. Hedgefunds Melvin Capital acquired a 1.7 million share stake and Darsana acquired a 34.4 million Class A share stake or 11.12%.

With all these large investors buying large positions which will not be traded, it is shrinking the float and could create some volatile moves as other companies try to follow their lead.

No earnings date available.

Needham rates Luckin a buy with a price target of $27. With a shrinking float any positive news can send shares sharply higher.

Update 6/23: LK announced that the IPO was oversubscribed, and the underwriters took their full allotment of 4.95 million shares at the IPO price of $17. Shares declined -3% on the news.

Position 6/17:
Long LK shares @ $19.68, see portfolio graphic for stop loss.



SYMC - Symantec Corp - Company Profile

Comments:

Symantec upgraded its security offering once again and shares sprinted higher.

Original Trade Description: June 23rd

Symantec Corporation provides cyber security products, services, and solutions worldwide. It operates through two segments, Enterprise Security and Consumer Cyber Safety. The Enterprise Security segment offers endpoint and information protection products, including endpoint security, advanced threat protection, and information protection solutions and their related support services; and network and Web security products, such as network security, Web security, and cloud security solutions and their related support services. It also provides email security products, managed security services, and consulting and other professional services. The Consumer Cyber Safety segment offers Norton security solutions as a subscription service providing protection for devices against malware, viruses, adware, and ransomware on various platforms; and LifeLock identity theft protection solution that provides identity monitoring, alerts, and restoration to its customers. It also provides Norton Secure VPN and other consumer security solutions, as well as Norton Wi-Fi Privacy VPN. The company serves enterprises, including business, government, and public-sector customers; small, medium, and large businesses; and individuals, households, and small businesses. It markets and sells its products and related services through direct sales force, direct marketing and co-marketing programs, e-commerce and telesales platforms, distributors, Internet-based resellers, system builders, Internet service providers, employee benefits providers, wireless carriers, retailers, original equipment manufacturers, and retail and online stores. The company was founded in 1982 and is headquartered in Mountain View, California. Company description from FinViz.com.

Symantec launched Norton 360 Deluxe to become the first comprehensive cyber security paid product to launch in the Microsoft store. It is available i Windows 10 and 10S. Since most new PCs ship with Windows 10 and McAfee security this is a major plus for Symantec.

Windows 10s only allows apps that come from the Microsoft Store so that gives Symantec a big foot in the door for future releases. The product is offered for a $9.95 monthly subscription price.

Mizuho upgraded Symantec from neutral to buy with a $23 price target. Goldman upgraded from neutral to buy with a $28 target.

Earnings August 8th.

Shares have moved over the late May high close of $20.50 and the next material resistance is $24.

Position 6/24:
Long SYMC shares @ $20.84, see portfolio graphic for stop loss.
Optional: Long Oct $22 call @ $1.03, see portfolio graphic for stop loss.



BEARISH Play Updates

ASPS - Altisource Portfolio Solutions - Company Description

Comments:

No specific news. Shares spiked 4% on Friday to stop us out.

Original Trade Description: June 9th

Altisource Portfolio Solutions S.A. operates as an integrated service provider and marketplace for the real estate and mortgage industries in the United States and internationally. It operates in two segments, Mortgage Market and Real Estate Market. The company offers property preservation and inspection, real estate brokerage and auction, title insurance and settlement, appraisal management, broker and non-broker valuation, foreclosure trustee, mortgage charge-off collection, residential and commercial loan disbursement processing, and residential and commercial construction inspection and risk mitigation services, as well as valuation data; residential and commercial loan servicing, vendor management, marketplace transaction and payment management, and default services technologies; and document management platform. It also provides fulfillment, loan certification, and mortgage banker cooperative management services; loan origination system; loan certification and mortgage fraud insurance; and vendor management oversight platform. In addition, the company offers mortgage brokerage and homeowners insurance solutions; and buy-renovate-lease-sell and data solutions, as well as real estate brokerage services under the Owners.com name. Further, it provides post-charge-off consumer debt collection services, customer relationship management services, and information technology infrastructure management services. The company serves financial institutions, government-sponsored enterprises, utility companies, commercial banks, servicers, investors, non-bank originators, correspondent lenders, mortgage bankers, insurance companies, and financial services companies. Altisource Portfolio Solutions S.A. was incorporated in 1999 and is headquartered in Luxembourg City, Luxembourg. Company description from FinViz.com.

Earnings July 25th.

Altisource is an uninspiring company. Their earnings read like a list of excuses by a 4th grader on why they don't have their homework. Revenue is falling and they are selling off multiple divisions where their business plan failed to produce results.

In the US they might be forgiven for a few bad decisions, but they are located in Luxembourg. That effectively takes them out of the normal reporting and recourse solutions. They may be a good company but their list of excuses is causing investors to lose interest.

With revenue in Q1 of $165 million and earnings of only $200,000, there is little room for error. The adjusted earnings have more notes than what should be legal.

They have sold their property management business. They are selling their buy-renovate-lease-sell business. They are selling their financial services business. The proceeds will be used to reduce debt. The key point here is that investors are losing interest. Shares closed at a new low on Friday.

Position 6/10:
Closed 6/28: Short ASPS shares @ $19.13, exit $19.75, -.62 loss.



VXXB - Barclays VIX Futures ETN - ETN Description

Comments:

Shares are still holding at 26 while we wait for the G20 shoe to drop.

It will probably take us weeks to make a new low, but it will happen.

Original Trade Description: Nov 17th.

The investment seeks return linked to the performance of the S&P 500 VIX Short-Term Futures Index TR. The ETN offers exposure to futures contracts of specified maturities on the VIX index and not direct exposure to the VIX index or its spot level. The index is designed to provide investors with exposure to one or more maturities of futures contracts on the CBOE Volatility Index. Company description from FinViz.com.

The VXXB is a short-term volatility ETN 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 ETN. 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, the prior VXX ETN had done five 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 VXXB and its predecessor the VXX always decline long term.

Unfortunately, put options are expensive with a volatility instrument at this price level. The only recommendation is to short the ETN and forget it. 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 may put a trailing stop loss on it. We will take profits and then look for a bounce to get back in. We could keep this play in the portfolio on a trading basis permanently.

The VXXB will be hard to short. The shares are out there and being traded because the volume on Thursday was 22.1 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.

Position 2/1/19:
Short VXXB shares @ $35.33, see portfolio graphic for stop loss.