Option Investor
Newsletter

Daily Newsletter, Saturday, 7/6/2019

Table of Contents

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

Market Wrap

Fed Expectations Waiver

by Jim Brown

Click here to email Jim Brown

A stronger than expected payroll report dimmed expectations for a large rate cut.

Weekly Statistics

Friday Statistics

The market had worked itself into a frenzy with expectations for a 50-basis point rate cut at the July 31st FOMC meeting. The stronger than expected jobs report dashed those hopes and the Dow fell -232 at the open. At least that was the conventional wisdom being spread around on stock TV. While I am sure there was some truth to that story, the lack of volume in an oversold market let those taking new high profits, push the market lower at the open.


The only economic report on Friday was the Nonfarm Payrolls for June. The economy created 224,000 jobs in June compared to estimates for 75,000. May was revised lower from 75,000 to 72,000 and April was revised lower from 224,000 to 216,000.

The unemployment rate rose from 3.6% to 3.7% because of more people entering the workforce. The average monthly jobs for Q2 were 171,000 per month and about twice what are needed to keep pace with the growing workforce. This is down from the 200,000 average rate in 2018. The labor force participation rate increased one tenth to 62.9%. Some 335,000 people joined the workforce. This is related to the 2019 graduating class heading out to find their first real job. This was up from 179,000 in May.

Goods producing jobs rose 37,000 and service jobs rose 187,000. There was not a big surge in census hiring. Only 33,000 jobs came from federal government sources and there will eventually be hundreds of thousands when they begin ramping up. The labor market has grown every month for 114 consecutive months and the longest ever period of growth.

Education and health services added 61,000 jobs, professional and business services 51,000, Transportation and warehousing 23,900, construction 21,000, manufacturing 17,000 and leisure and hospitality only 8,000. That last number is bullish because it has declined significantly. Workers are finding more stable, higher paying jobs and are not being forced to work as a waiter or bartender to make ends meet. Retail lost 5,800 jobs and mining (energy) lost 1,000.

The floods in the Midwest were blamed for the low numbers in May. If that was the case, we should continue to see strong job growth in the 185,000-215,000 range for the rest of the year.


The surprise in the payroll report reduced the odds of a 50-point cut from about 50% to 4.9% or next to impossible. There is a 100% chance of a 25-point cut to head off weakness from the global economy.


The yield on the ten-year note also spiked with the decline in rate cut expectations. The 1.95% level was a two-year low.


The calendar for next week has four opportunities for market disruption. Chairman Jerome Powell speaks on "Stress Testing" on Tuesday. That is expected to be a tame speech and not deal with rate policy. However, on Wednesday and Thursday he gives testimony to Congress and in each instance, he will be rigorously questioned about his plans and his ability to withstand President Trump's calls for lower rates. The Wednesday session will be the most dangerous with Thursday just a recap of what was said on Wednesday. Also, on Wednesday we will get the minutes from the last FOMC meeting and analysts will be searching for rate cut clues.

Thursday and Friday have the inflation reports in the CPI and PPI. This impacts the Fed's outlook on inflation, and they are not expected to show any signs of rising prices.


The first trickle of Q2 earnings reporters will appear next week with Pepsico, Bed, Bath and Beyond, Delta Airlines and Fastenal.

So far in the Q2 cycle, 21 companies have reported, and earnings growth has been zero with revenue growth at 3.4%. Of those reported 86% have beaten on earnings estimates and 76% have beaten revenue estimates. The current projections are for earnings growth of 0.7% and revenue growth of 3.4%. Typically, the early earnings forecasts are low by up to 3% and that suggests the overall quarter will still be positive.

June had the most Q2 earnings warnings at 85 since 2014. There were 23 guidance upgrades. The number of warnings, nearing 20% of the S&P, suggest this could be a rocky quarter.


There were no earnings of note last week.

Tesla (TSLA) surprised everyone with deliveries of 95,200 vehicles. Analysts were expecting 89,084. That included 77,550 Model 3s and beat estimates for 73,144. There were a combined 17,650 for the Model S and X. The prior record quarter was Q4 with 90,700 vehicle deliveries.

A challenge for Tesla was the 50% decline in the $7,500 tax credit at the end of December and that was cut again to $1,875 on Monday. It expires completely at the end of 2019. The drop in the tax credit in Q1 caused deliveries to plunge and triggered demand worries among analysts. Likewise, analysts said the surge in Q2 could have been customers pulling their orders forward to beat the second tax credit decline on July 1st.

There was also a help from the 10,600 vehicles in transit at the end of the first quarter. That provided an extra boost to the total deliveries in Q2. At the end of Q2 there were 7,400 vehicles in transit. Tesla said it would no longer provide that guidance. The latest guidance from Tesla is for delivery of 360,000-400,000 vehicles in 2019. Most analysts are skeptical since even the good Q2 quarter is likely surrounded by not only a poor Q1 but a potentially poor Q3 because of the reduced tax credit.

Tesla shares spiked on the news as shorts were forced to cover. I would still recommend buying long term puts on Tesla if the premiums were reasonable. There are far too many factors working against the company as competition increases. UBS just reiterated a sell rating and cut their price target from $200 to $160. Goldman reiterated a sell rating and cut their price target from $200 to $158. Barclays has a sell rating and cut their target from $192 to $150.


Rumors broke on Wednesday that Broadcom (AVGO) was in late stage talks to acquire Symantec. Shares of SYMC spiked from $21 to $25.50 on the news before fading. Symantec is one of the largest security software companies in the world, but shares have been struggling. Keeping management has been a systematic problem and that suggests there are internal issues. Investors saw a lack of synergies and Broadcom shares crashed.

On Wednesday news broke that Broadcom may also be interested in acquiring Tibco Software. Tibco platforms are used by Jet Blue, NASA, General Mills, Macy's Royal Caribbean and others. Tibco sold itself to PE firm Vista Equity Partners in 2014 for $4.3 billion.

Broadcom bought CA Technologies last year for $19 billion and software now accounts for about 25% of Broadcom's revenue. Broadcom is under investigation by the FTC for forcing customers into illegal contracts promising not to buy from competitors.



Electronic Arts (EA) shares fell 5% on Friday after they released the new version of Apex Legends. When legends first launched in early 2019, they quickly accumulated more than 10 million players. After the release of season 2, the game only had about 45,000 viewers on Twitch. That was down from 100,000 viewers a day back in March. Apparently, the interest in the game has died but some analysts are blaming it on the holiday weekend keeping players outside and away from their consoles.


Drug stocks declined on Friday after President Trump said they were working on a new drug pricing plan. US consumers would buy drugs based on the lowest prices paid by other countries. It is not fair for US consumers to pay $1,000 for the same drug that is sold for $100 in Europe. The plan would have a "favored nations" component for averaging down drug prices. The US pays the highest prices for drugs of any country.

Amazon filed a request with the FCC to launch 3,236 near earth satellites to offer satellite based broadband internet access. The plan would provide high speed access to "tens of millions" of underserved customers around the world. Bezos said the Kuiper project would cost "multiple billions of dollars" and it not related to his Blue Origin space launch company. Low orbit is considered 112 to 1,200 miles high. Amazon's satellites would orbit at 370-390 miles. In order to remain in orbit, they have to continually race around the earth with orbits as short as every 90 minutes. As one satellite moves out of range of ground receivers it passes off those connections to the next satellite in line and adds signals from new receivers it is approaching.

Elon Musk's Space X has already received approval for 11,943 satellites for the same purpose. They launched an initial batch of 60 in May and have already lost communications with three of them. Other companies with the same plan include Boeing, OneWeb and Leosat Enterprises. Combined they could launch more than 50,000 low orbit devices that are programmed to commit suicide by plunging into the atmosphere when their life cycle ends.

Amazon also said their system could provide mobile broadband to planes, ships and mobile vehicles.

In 2017 more than 26% of US consumers did not have any broadband service. In May the FCC said 33 million Americans do not have access to broadband. Worldwide 3.8 billion people do not have broadband access. Only about 20% of the earth is covered by cell towers.

In other news the divorce between Jeff Bezos and wife Mackenzie was finalized on Friday. She will receive $38.3 billion in Amazon stock, about 4%, and make her the world's 22nd richest person. Jeff will retain 12% worth $114.8 billion and he will remain the world's richest man. Mackenzie will give Jeff voting control of her stock to insure his continued leadership at Amazon. She also gave Jeff all her interest in the Washington Post and Blue Origin.


The co-CEOs at Canopy Growth are leaving. Bruce Linton, the public face of Canopy was terminated by the board. His counterpart Mark Zekulin said he would leave as soon as a replacement can be found. The exits are the result of Constellation Brands $4.1 billion investment. With that buy in and succeeding option exercises they acquired four of the seven board seats. After the big Q1 earnings disappointment the board, at least the Constellation side, believed they needed somebody with more experience running and building public companies. Linton and Zekulin had the foresight to start the company but neither are public company managers. Linton said he feared being displaced when he agreed to the Constellation investment, but it was too critical for Canopy and worth the risk. Linton was a pioneer for not just Canopy but the industry in general. He was also the visionary that crafted the agreement with Acreage Holdings that will eventually be acquired by Canopy.


Samsung Electronics warned on Friday that Q2 earnings could be cut in half because of weak demand that has intensified because of the trade war with China. Micron (MU) said it was experiencing "intense competition" from Samsung in the memory and storage markets. The memory chip price war is helping consumers but hurting both companies.


The oil market was relatively quiet after OPEC agreed to extend the 1.2 million bpd production cuts for the rest of 2019. Prices declined on the outlook for stables supplies.

However, over the weekend the UK seized the Iranian tanker Grace I which was transporting oil to Syria in violations of the EU sanctions. The tanker was carrying two million barrels of oil. Iran warned the UK to release the tanker immediately or face retaliation, which could include the seizure of a UK tanker in response. This is sure to cause another spike in prices next week. If Iran strikes out with protest attacks, the US is likely to intervene militarily.

Active oil rigs declined by five for the week ended on July 5th.





Markets

The S&P gained 17.35% in the first six months of 2019. That is only the tenth time in 70 years that it has gained over 15%. In those years the S&P declined an average of 12.5% in the second half of the year and as much as 34% in the crash of 1987. With Q2 earnings expected to be flat that would normally be a cause for worry. The prospect of rate cuts in a non-recession environment should fuel a continue rise. Rate cuts trump weak earnings.

However, the markets remain overbought after the big June rebound. It will be very interesting to see if investors are content to keep adding to positions at new highs.

The Dow has rebounded 8% over the last five weeks. The path has not been straight up but contained two pauses to refresh. The initial sprint paused on the 10th for several days and that was followed by another uptick on the 18th. The index again paused for several days as the headlines played out. In theory, this could continue for a long time if the pattern continues to repeat. The sprints are short squeezes and the pauses trick the shorts into building new positions only to be squeezed again. The pauses also allow time for investors to rationalize adding to positions.


The Dow recovered the initial drop on Friday to close with only a minor loss. The A/D line was roughly 2:1 in favor of decliners. We still have a week before the first Dow components begin reporting earnings. Without any China trade news next week, the headlines impacting Dow stocks should be slim.

The index is poised for a new leg higher, but we may need a catalyst to overcome the overbought conditions.



The S&P is well above the prior high at 2,954 and closing in on the 3,000 level. The index hit 2,995 on Wednesday and could test that 3,000 mark this week. With so many analysts having year end targets of 3,000-3,100 there will be a lot of incentive for fund managers to take some profits and lock in their performance bonuses for the year.

If by chance a sudden rally appeared that pushed the S&P past 3,100 it could get crazy. The price chasing would be extreme. While I am not expecting that the possibility does exist.

Support should be the prior high at 2,954.


The Nasdaq is still troubled by a group of large cap tech stocks that refuse to trend higher. Each has its own story and they cannot seem to maintain a trend. Should the Nasdaq breakout to a big new high, it could be a driving force for the rest of the market. Investors like to follow tech breakouts and the Nasdaq is very close.



The Russell 2000 was the only major index to post a gain on Friday. It was minimal but it was still a gain. There is the possibility that fund managers are switching out of big caps exposed to the global economic weakness and into domestically focused small caps. The more likely excuse is a continued adjustment of the Russell reconstitution the prior Friday. There were probably a few funds that had not completed their reconstitution.


I was cautious last week because of the expected short squeeze on Monday. I said Monday was not going to be an entry point. The Dow gapped opened on Monday to 26,890. After trading for the week, it closed on Friday at 26,925 only 35 points higher. While Monday was a short squeeze there was significant volatility the rest of the week. This was new high uncertainty. On the Dow we are nearing triple top resistance. A breakout here would be huge but it is also a potential failure point. This is normally a continuation pattern so plan for the breakout. If earnings are bad it may only be temporary but remember, rate cuts trump earnings.


Enter passively and exit aggressively!

Jim Brown

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"A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty."

Winston Churchill


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New Plays

Down but Not Forgotten

by Jim Brown

Click here to email Jim Brown
Editor's Note

Yesterday's casualties can come back from the dead. Stocks do stumble. However, what does not kill them makes them stronger.



NEW BULLISH Plays

XON - Intrexon Corp - Company Profile

Intrexon Corporation engages in the engineering and industrialization of biology in the United States. The company, through a suite of proprietary and complementary technologies, designs, builds, and regulates gene programs, which are DNA sequences that consist of key genetic components. It provides reproductive technologies and other genetic processes to cattle breeders and producers; biological insect control solutions; technologies for non-browning apple without the use of artificial additives; genetically engineered swine for medical and genetic research; commercial aquaculture products; and preservation and cloning technologies. The company also offers UltraVector platform that enables design and assembly of gene programs that facilitate control over the quality, function, and performance of living cells; and RheoSwitch inducible gene switch that provides quantitative dose-proportionate regulation of the amount and timing of target protein expression. In addition, it provides AttSite Recombinases, which allows stable, targeted gene integration and expression; LEAP automated platform to identify and purify cells of interest, such as antibody expressing cells and stem cells; ActoBiotics platform for targeted in situ expression of proteins and peptides from engineered microbes; and AdenoVerse technology platform for tissue specificity and target selection. The company serves the health, food, energy, and environment markets. Intrexon Corporation has collaboration and license agreements with ZIOPHARM Oncology, Inc.; Ares Trading S.A.; Oragenics, Inc.; Intrexon T1D Partners, LLC; Intrexon Energy Partners, LLC; Intrexon Energy Partners II, LLC; Genopaver, LLC; Fibrocell Science, Inc.; Persea Bio, LLC; OvaXon, LLC; S & I Ophthalmic, LLC; Harvest start-up entities; and Surterra Wellness. The company was formerly known as Genomatix Ltd. and changed its name to Intrexon Corporation in 2005. Intrexon Corporation was founded in 1998 and is based in Germantown, Maryland. Company description from FinViz.com.

Intrexon just announced a deal with Surterra Wellness to produce cannabinoids using the Intrexon yeast fermentation technology. This is the second deal between the two companies. In March, Surterra licensed Intrexon's Botticelli plant propagation technology to improve cannabis crop yield and quality.

In the current deal Intrexon will receive $100 million over time including $15 million in Surterra shares. The cash will help on the cash burn problem. Intrexon had $181 million in cash at the end of March. Intrexon has dozens of products and technologies in the process of being commercialized.

In May and early June, the CEO bought 6 million shares in the open market in about 35 transactions. That is a roughly $30 million investment in Intrexon and as CEO he should know what is coming for the company.

Earnings August 8th.

Buy XON shares, currently $7.74, stop loss $6.75.
Optional: Buy Aug $8 call, currently .80, stop loss $6.75.



SNCR - Synchronoss Technologies - Company Profile

Synchronoss Technologies, Inc. provides cloud, digital, messaging, and Internet of Things (IoT) platforms, products, and solutions in North America, Europe, the Middle East, Africa, Latin America, and the Asia Pacific. The company's platforms, products, and solutions include digital experience management platform as a service, which includes digital journey creation and journey design products that use analytics that power digital advisor products for IT and business channel owners; and cloud sync, backup, storage, device set up, content transfer, and content engagement for user generated content. Its platforms, products, and solutions also comprise multi-channel messaging peer-to-peer communications and application-to-person commerce solutions; and IoT management technology for smart cities, smart buildings, automotive, and others. In addition, the company offers software development and customization services. Its products and platforms enable multiple converged communications, commerce and applications, and devices to deploy across a range of distribution channels, such as e-commerce, m-commerce, telesales, retail stores, and care and call centers, as well as self-service, indirect, and other outlets. The company markets and sells its services through direct sales force and strategic partners. Synchronoss Technologies, Inc. was founded in 2000 and is headquartered in Bridgewater, New Jersey. Company description from FinViz.com.

On June 6th, SNCR held an investor day and gave better than expected earnings guidance, plans to invest $20-$25 million on capturing future growth opportunities and reiterated its revenue guidance of $340-$355 million and adjusted EBITDA of $30-$40 million after those investments. This was a shock to the analysts in attendance. Shares rallied about 15%.

On June 18th, Roth Capital analyst Richard Baldry initiated coverage with a buy rating and $13 price target. SNCR was trading at $6.67 at the time. That price target was a 95% premium to the prior close. The analyst said SNCR had a "unique set" of cloud based products that cater to "important new strategic growth avenues for a broadening set of potential customers." Shares rallied $2 from the $6.66 close.

Since that analyst coverage, shares have been moving higher and closed at a 14-month high on Friday. Their all time high was near $50 and nobody expects them to reach that level in the near future but it does prove they can evolve after a year in the dumps.

If they break over the $8.50 level we could see a run to resistance at $12 in the near future.

Earnings August 8th.

Buy SNCR shares, currently $8.42, stop loss $7.45.
Optional: Buy September $10 call, currently 40 cents, no stop loss.



NEW BEARISH Plays

No New Bearish Plays



In Play Updates and Reviews

Green Shoots Forming

by Jim Brown

Click here to email Jim Brown

Editors Note:

The small cap index was the only major index to post a gain on Friday. Unfortunately, the Russell only gained 0.58% for the week while the big cap indexes gained 1.24% or more. Just having the Russell post a gain is a market positive but we need this index to find some traction.



Current Portfolio


Stop Loss Updates

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


Profit Targets

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





Current Position Changes


No Changes


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.



DAN - Dana Incorporated - Company Profile

Comments:

No specific news. Shares faded somewhat from the prior week's highs.

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.

Update 6/29: 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.

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 finished the week higher with rising support.

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:

News that Broadcom was in late stage talks to acquire Symantec lifted the stock to $25. I am recommending we close the position and take our profits before news breaks about a potential deal failure.

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

VXXB - Barclays VIX Futures ETN - ETN Description

Comments:

The surge to new market highs finally pushed the VXXB to a new low. This move was a long time coming but should have greased the skids for a continued move lower, market permitting.

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.