Option Investor

Daily Newsletter, Saturday, 7/13/2019

Table of Contents

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

Market Wrap

Rate Cuts Trump Earnings

by Jim Brown

Click here to email Jim Brown

I closed with that statement last week and Powell proved it to be true on Wednesday.

Weekly Statistics

Friday Statistics

While Q2 earnings are expected to decline by -0.4% after only 1.4% rise in Q1, the big cap markets have broken out to new highs thanks to the outlook for rate cuts. Even the lingering uncertainty over Chinese trade talks and the potential for military action in the Persian Gulf have been unable to hold the markets back. With the breakout to new highs we have officially entered FOMO territory where investors will chase prices for fear of missing out.

There have been four times as many earnings warnings than positive guidance upgrades for Q2 and investors do not seem to care. At this point expectations are so low that we have moved into the "just don't screw it up" phase. Investors are expecting earnings to be flat while hoping for a minor upside surprise. Since estimates for the next four quarters are for only 4% growth on average, everyone is just hoping for a neutral Q2, so future estimates do not decline.

The markets had stalled their upward trajectory ahead of the Powell testimony on Wednesday but exploded higher once those prepared remarks were released. With the Fed seemingly on track for 2-3 cuts over the next six months, investors were celebrating.

There is currently a 100% chance of a 25-point rate cut at the July meeting with a 22.5% chance for a 50-point cut. The current rate of 225-250 is not even represented on the futures chart because there is zero chance of rates staying the same.

For the January meeting there is roughly a 64% chance for a total of 3 rate cuts to a 150-175 basis point rate. This is astounding for an economy not in recession. The Fed is being forced to do this to offset the global economic weakness, stimulus by other central banks and uncertainty over the Chinese trade war.

There was only one economic report on Friday and that was the Producer Price Index for June. There was still no inflation present with overall prices rising only +0.1% and core inflation flat at unchanged for the third consecutive month. Goods inflation declined -0.4% while services prices rose +0.4%. Intermediate processed goods declined -1.1% while unprocessed goods declined -3.3%. Core processed goods declined -0.1% but unprocessed goods fell a whopping -7.6%.

The headline number would have been significantly lower were it not for the 19.9% rise in corn prices due to late spring flooding. This influences multiple sectors including food, animal feed and ethanol prices.

Producer prices are up +1.6% over the trailing 12-month period. Core unprocessed goods are down -15.9% over the same period. Inflation is plunging with competition forcing prices lower.

The economic calendar for next week is rather tame and will be ignored because of the arrival of Q2 earnings. The housing reports, retail sales and the Philly Fed Survey will be the highlights. The Fed Beige Book is important but unless several districts suddenly report a sharp drop in economic activity it will be ignored.

This is bank earnings week. Goldman Sachs and JP Morgan will get the most attention and the rest will trail in their shadows. IBM, Netflix and Ebay will kick off the big cap techs on Wednesday. IBM completed the acquisition of Red Hat after the close on Monday, so their earnings guidance is going to be confusing at best.

Microsoft is the sleeping giant and shares closed at a new high on Friday. Their market cap is now $1.064 trillion and more than Amazon ($990B) and Apple ($935B).

Non-techs UnitedHealth and American Express will close the week.

There were only a couple of companies with material earnings last week. Delta (DAL) reported earnings on Thursday of $2.35 that rose 39% and beat estimates for $2.28. Revenue rose 6.5% to $12.54 billion. The carrier said it benefitted from higher fares and full planes since the 737 MAX fleet has been grounded. Most domestic flights from all airlines have been at capacity since the grounding. Discount fare programs have shrunk to almost nonexistent given the lack of excess capacity.

The company raised its full year earnings guidance from $6.00-$7.00 per share to $6.75-$7.25 per share.

Delta is expected to submit a bid on Monday for up to 15% of Air Alitalia. The airline has filed bankruptcy twice in the last ten years. Railway operator Ferrovia and the Italian Treasury are expected to own 50%. Delta already owns 49% of Virgin Atlantic and Aeromexico with smaller stakes in Air France-KLM, Brazil's Gol Linhas and China Eastern Airlines. Adding a stake in Alitalia would boost Delta's grip on international travel. Shares closed at a new high on Friday.

Another retailer could be headed for that great vacant mall in the sky. Bed Bath and Beyond (BBBY) reported "adjusted" earnings of 12 cents, down from 38 cents in the year ago quarter. For GAAP earnings they lost $2.91 per share on revenue of $2.57 billion. The company took an impairment charge of $401 million, only slightly better than the $500 million charge in the prior quarter. Sales declined 6.5% year over year but are down -44% for the last 12 months. Needless to say, they missed all the estimates.

Analysts claim the stores are understaffed, have shrinking inventory and declining market share. Competition with Target, Walmart and Amazon is proving to be nearly impossible. The new CEO of two months has a herculean task ahead of her and she knows it. She said in order to compete "we need to give consumers a reason to keep shopping in our brick and mortar stores and in order to do that we need to update the stores and enhance the shopping experience." Unfortunately, that costs money and unless consumers drop in, they will never know anything has changed.

BBBY is heading the way of dozens of other retailers. They are following the path of Sears where inventory became nonexistent and salespeople even scarcer. Shares closed at a multiyear low and more than likely will move lower.

Shareholders of Tower International (TOWR) received a nice surprise on Friday. Autokiniton Global Group announced it was acquiring Tower for $31 per share in cash. That was a 70% premium to Thursday's close. The total value of the transaction was $900 million including debt. Tower is a leading maker of structural metal components for the automotive sector. Tower has a 35 day "go shop" period where they may solicit a better offer.

On Thursday, President Trump dropped his plans for curbing drug rebates to pharmacy benefit managers (PBMs). With the rebate ban off the table Cigna (CI) and Humana (HUM) exploded higher. Cigna recently acquired Express Scripts for $67 billion and that gave them a huge exposure to the PBM business. PBMs help manage prescription claims for insurers and Medicare Part D plans. Tens of billions of dollars of rebates flow through these PBMs.

Thursday after the close Illumina (ILMN) cut its revenue guidance and shares imploded. The company said revenue would be in the range of $835 million compared to $830 million in the year ago quarter. They said revenue would decline by $50 million due to issues with its population genomics initiatives. The CEO said their analysis suggests the challenges are transitory and do not reflect a macro change in the business. That did not help the stock price.

Johnson & Johnson (JNJ) shares fell sharply after Bloomberg said the company was facing a criminal probe about the potential cancer risks in baby powder. JNJ has repeatedly denied there was asbestos in baby powder, but the stories will not die. JNJ disclosed in its annual report it had received subpoenas from the Justice Dept and the SEC related to the ongoing investigation. They told Reuters on Friday there had not been any new developments in the matter.

JNJ is the defendant in suits by more than 14,000 plaintiffs who allege the product gave them cancer. Reuters released an article on December 14th claiming JNJ had known for decades that small amounts of asbestos had been found in its products in more than 30 years of tests begun in 1970. Not only will it be tough to prove that baby powder decades ago contained asbestos, but it will also be hard to prove that the baby powder caused someone's cancer a decade or more after use.

Facebook shares surged late Friday after Bloomberg said the FTC had voted to impose a $5 billion fine for privacy issues. Facebook had previously taken a reserve of $3 billion in anticipation of a fine but said the number could rise to as much as $5 billion. Facebook has $45 billion in cash, so this is not material. However, it also puts Facebook on notice that any future problems could trigger significantly higher fines and regulations. The details of the settlement have not yet been disclosed and there could be other measures imposed to try and prevent future data breaches. The deal reportedly still needs to be approved by the Justice Dept.

The settlement is actually positive for Facebook because it lessens the chance for a breakup at least on the current issues. If there is another Cambridge Analytica event in the future, the company will probably not be so lucky. That would prove they cannot be regulated in their current form because they are too complex. Splitting them into their component parts of Facebook, Instagram, WhatsApp, etc could reduce that complexity.

The plan to create the global Libra digital currency is drawing a lot of heat and calls for severe regulation. Creating a currency that could be used for purchases in 144 countries could upset the global currency markets. Having 2.6 billion users with access to that currency is the biggest selling point and the biggest problem. Multiple countries are talking about financial regulation if they go ahead with the plan.

Facebook, Amazon, Google and Apple will all face an antitrust hearing in the House at 2:PM on Tuesday. The hearing is titled "Online Platforms and Market Power." The FTC and Justice Dept recently agreed on areas of responsibility over antitrust issues for those four companies. They are now pursuing antitrust probes in their designated areas and they will include the impact of prior acquisitions.

Crude prices rocketed higher after Iran tried to hijack a British oil tanker in the Persian Gulf. Three Revolutionary Guard boats were turned away by a British navy vessel. It would have been no contest.

Hurricane Barry shutdown 1.1 million bpd of crude production in the Gulf of Mexico and that also helped to lift prices. That threat has passed, and production is already being restarted. Gasoline prices rose about a nickel ahead of the weekend.

Inventories have been trending lower as is normally the case in the summer but the summer is rapidly coming to a close. School in our area restarts in just over four weeks. All the back to school sales are in full swing. This suggests that the normal decline in crude prices in late August could retest the low $50s by mid September.


The S&P pushed through resistance at 2,954 the prior week then retraced some of its gains while investors waited for Powell to testify. They were rewarded with the ideal situation and the indexes rebounded sharply to close at new highs.

The challenge for this week is whether the breakout continues if some of the early reporters disappoint on earnings. If those earnings are better than expected I would not be surprised to see a continued relief surge. The FOMO buyers will be providing the buying at new highs. On the flip side, if we see a flurry of mild earnings disappointments the markets will likely wander aimlessly in search of direction. Rate cuts still trump earnings but that is a longer-term process compared to the individual declines on earnings disappointments.

Current short-term support is roughly 2,990 followed by 2,970. After two weeks of gains it would not be unusual to see some profit taking but the trend should still be higher for the next couple of weeks.

Boeing was a major market driver for the Dow with a $15 rebound over the last two days. That accounted for well over 100 Dow points. UnitedHealth was up on the rebate ban. Caterpillar was up sharply on no news and 3M rallied despite a $20 target price downgrade by UBS.

Home Depot received its normal hurricane boost on the idea that reconstruction will require tens of millions of dollars of lumber, sheetrock and paint in Louisiana. It did not hurt that Goldman initiated coverage with a buy rating and $235 price target.

The Dow exploded over round number resistance at 27,000 and closed at the high of the day on Friday. I would not be surprised with some retracement.

The Nasdaq did manage to make a new high, but it lagged the Dow and S&P in terms of relative performance. The chip sector rallied after Powell's testimony but there were still a lot of smaller tech stocks refusing to join the party. The index can only run so far on the strength of the big caps.

The resistance at 8164-8170 held the index back for a week and the Wednesday breakout was lackluster. The index pulled back on Thursday but surged with the broader markets on Friday. Investors like to chase new highs on the Nasdaq so let's hope this continues.

The Russell remains the anchor for the market. The small caps have not been able to make any material gains and just barely closed over correction resistance on Friday when the other indexes were surging. Apparently, investors are not confident the current rally is going to continue, and they are avoiding the small caps. Keep your eye on the Russell for long term market direction.

In theory the market should continue to edge higher as long as earnings are simply neutral. Nobody knows how negative earnings would have to be to overcome the rate cut sentiment, but I am thinking a 4-5% decline. I don't see that happening. At this point slightly negative economics are a plus because it solidifies the Fed rate cut plan. Much better than expected economics could derail the Fed. I do not see that happening either. I would continue to buy the dip until proven wrong by a short-term support break. August is when I will start to worry about a direction change.

Enter passively and exit aggressively!

Jim Brown

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New Plays

Too Easy?

by Jim Brown

Click here to email Jim Brown
Editor's Note

If a play looks too easy does that make it dangerous? Normally when all the indicators are pointing in one direction, it makes you worry you are missing something. Is the outlook so negative that three brokers will suddenly upgrade it the next day? I don't fear that on BBBY. I think its best days are behind it and the market share losses will eventually kill it just like Sears and Toys-R-Us, Babies-R-Us and a dozen other retail chains. It is conceivable that Amazon could make an offer for their 1,500 stores and corner the market on housewares. Until then I recommend being short.


No New Bullish Plays


BBBY - Bed Bath and Beyond - Company Description

Bed Bath & Beyond Inc., together with its subsidiaries, operates a chain of retail stores. It sells a range of domestics merchandise, including bed linens and related items, bath items, and kitchen textiles; and home furnishings, such as kitchen and tabletop items, fine tabletop, basic housewares, general home furnishings, consumables, and various juvenile products. It also provides various textile products, amenities, and other goods to institutional customers in the hospitality, cruise line, healthcare, and other industries. As of March 2, 2019, the company had a total of 1,533 stores, including 994 Bed Bath & Beyond stores in all 50 states, the District of Columbia, Puerto Rico, and Canada; 277 stores under the names of World Market, Cost Plus World Market, or Cost Plus; 124 buybuy BABY stores; 81 stores under the Christmas Tree Shops, Christmas Tree Shops andThat!, or andThat! Names; 55 stores under the Harmon, Harmon Face Values, or Face Values names; and 2 two retail stores under the One Kings Lane name. It also offers products through various Websites and applications, such as bedbathandbeyond.com, bedbathandbeyond.ca, harmondiscount.com, facevalues.com, christmastreeshops.com, andthat.com, buybuybaby.com, buybuybaby.ca, harborlinen.com, t-ygroup.com, worldmarket.com, ofakind.com, onekingslane.com, personalizationmall.com, chefcentral.com and decorist.com. In addition, it operates Of a Kind, an e-commerce Website that features specially commissioned limited edition items from emerging fashion and home designers; One Kings Lane, an authority in home decor and design that offers a collection of selected home goods, and designer and vintage items; PersonalizationMall.com, an online retailer of personalized products; Chef Central, an online retailer of kitchenware, cookware, and homeware items catering to cooking and baking enthusiasts; and Decorist, an online interior design platform. The company was founded in 1971 and is based in Union, New Jersey. Company description from FinViz.com.

Bed Bath and Beyond reported "adjusted" earnings of 12 cents, down from 38 cents in the year ago quarter. For GAAP earnings they lost $2.91 per share on revenue of $2.57 billion. The company took an impairment charge of $401 million, only slightly better than the $500 million charge in the prior quarter. Sales declined 6.5% year over year but are down -44% for the last 12 months. Needless to say, they missed all the estimates.

Analysts claim the stores are understaffed, have shrinking inventory and declining market share. Competition with Target, Walmart and Amazon is proving to be nearly impossible. The new CEO of two months has a herculean task ahead of her and she knows it. She said in order to compete "we need to give consumers a reason to keep shopping in our brick and mortar stores and in order to do that we need to update the stores and enhance the shopping experience." Unfortunately, that costs money and unless consumers drop in, they will never know anything has changed.

BBBY is heading the way of dozens of other retailers. They are following the path of Sears where inventory became nonexistent and salespeople even scarcer. Shares closed at a multiyear low and more than likely will move lower.

Sell short BBBY shares, currently $10.89, stop loss $11.85.
Optional: Buy Nov $10 put, currently $1.02, stop loss $12.00.

Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps more than $1.00 at the market open.

In Play Updates and Reviews

No Traction

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Russell traded below resistance more than above all week. The Russell is still fighting resistance at 1,566 and the 10% correction level. There was a spurt of buying on Friday that closed it 4 points over that level but still below 1,575 and the intraday highs for the last two weeks. The gravity from 1,566 is still in play and the Russell is not confirming the big cap moves.

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

SNCR - Synchronoss
The long position was entered at the open on Monday.

XON - Intrexon
The long position was entered at the open on Monday.

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

CONN - Conn's
The long position was stopped at the open on Monday.

DAN - Dana Inc
The long position was stopped at $18.45.

BULLISH Play Updates

CONN - Conns Inc - Company Profile


No specific news. Shares dropped with the market at the open on Monday to stop us out.

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:
Closed 7/8: Long CONN shares @ $17.60, exit $17.65, +0.5 gain.
Closed 7/8: Long October $20 call @ $1.45, exit $1.20, -.25 loss

DAN - Dana Incorporated - Company Profile


No specific news. Shares continued to fade from the resistance test and stopped us out. $21 was our exit target and the high was $20.71.

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:
Closed 7/9: Long DAN shares @ $17.90, exit $18.45, +.55 gain.
Closed 7/9: Long Sept $19 call @ 85 cents, exit .90, +.05 gain.

LK - Luckin Coffee Inc - Company Profile


No specific news. Shares are edging slowly higher.

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.

SNCR - Synchronoss Technologies - Company Profile


No specific news. Shares holding at resistance. A breakout takes us to $12.

Original Trade Description: July 6th

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.

Position 7/8:
Long SNCR shares @ $8.41, see portfolio graphic for stop loss.
Optional: Long September $10 call @ 85 cents, see portfolio graphic for stop loss.

SYMC - Symantec Corp - Company Profile


We exited at the high for the week at the open on Monday when Broadcom confirmed the acquisition headlines.

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:
Closed 7/8: Long SYMC shares @ $20.84, exit $25.93, +$5.09 gain.
Closed 7/8: Long Oct $22 call @ $1.03, exit $3.80, +$2.77 gain.

XON - Intrexon Corp - Company Profile


No specific news. Shares trending slowly higher.

Original Trade Description: July 6th

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.

Position 7/8:
Long XON shares @ $7.73, see portfolio graphic for stop loss.
Optional: Long Aug $8 call @ .70, 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. This will eventually trade in single digits as it has always done in the past.

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.