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.
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
BULLISH Play Updates
CONN - Conns Inc - Company Profile
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.
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
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.
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
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.
Long LK shares @ $19.68, see portfolio graphic for stop loss.
SYMC - Symantec Corp - Company Profile
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.
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
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.
Short VXXB shares @ $35.33, see portfolio graphic for stop loss.