It may be too soon to say the profit taking is over but the time remaining in 2016 means funds will still be in buy mode. With the market rally to new highs, fund managers will be under pressure to keep up the window dressing right through the end of December. The lack of a sell off on the Italian vote suggests the Fed meeting next week is the only rally hurdle.
I seriously doubt the Fed will cause problems but they will raise rates. The market has already priced in a rate hike so any nervousness should be limited.
The continuing problem is the afternoon selling. This suggests no conviction by the bulls and active sellers looking for bounces as a selling opportunity. We need the markets to return to closing on their highs rather than their lows.
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
FIT - FitBit
The short stock position was entered at the open.
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BULLISH Play Updates
BOJA - Bojangles Inc - Company Profile
The company said it was going to participate in two investor conferences. The first is on Tuesday at a Barclay's event. The second on Wednesday will be a KayBanc Capital Markets event. Shares gained 3.5% to $18.75.
The company announced the pricing of the secondary offering at $17.25. The offering will close on December 6th.
Original Trade Description: November 30th.
Bojangles', Inc. operates and franchises limited service restaurants in the United States. Its restaurants serve chicken items, made-from-scratch buttermilk biscuits, flavorful fixin's, and iced tea. As of September 25, 2016, the company had 699 system-wide restaurants, including 301 company-operated and 398 franchised restaurants primarily located in the Southeastern United States. Bojangles', Inc. was founded in 1977. Company description from FinViz.com.
In early November they reported earnings of 25 cents that beat estimates for 21 cents. Revenue of $133.2 million missed estimates by only $200,000. They guided for the full year to earnings of 92-95 cents and revenue of $530.5-$533.5 million.
Earnings February 2nd.
Shares spiked $1.50 on the earnings and continued to make solid progress until today's minor bout of profit taking. However, after the bell they announced that certain existing shareholders had filed to sell six million shares in an underwritten public offering. Nearly every broker on the street is participating in the offering so there will not be a problem selling the shares. The company will receive none of the proceeds with everything going to the shareholders.
Shares fell to $18.30 in afterhours after closing at $19.70. Typically, when a company gets hit on a secondary, it rebounds almost immediately to the original price unless the shares are sold significantly under the market, which is not expected in this case.
On Wednesday 11/30 shares dropped with the market to stop us out of the initial position. I still believe the company will set a new high once the secondary is priced.
Position 12/2/16 with a BOJA trade at $18.65
Long BOJA shares @ $18.65, see portfolio graphic for stop loss.
TRN - Trinity Industries - Company Profile
No specific news. Shares still fighting resistance at $28.25.
Original Trade Description: November 30th.
Trinity Industries, Inc. provides various products and services for the energy, transportation, chemical, and construction sectors in the United States and internationally. Its Rail Group segment offers railcars, including autorack, box, covered hopper, gondola, intermodal, tank, and open hopper cars; and couplers, axles, and other equipment, as well as railcar maintenance services. This segment serves railroads, leasing companies, and industrial shippers of various products. The company's Railcar Leasing and Management Services Group segment leases tank and freight railcars to industrial shippers and railroads; and provides management, maintenance, and administrative services. As of December 31, 2015, this segment had a fleet of 76,765 owned or leased railcars. Its Construction Products Group segment offers highway products, such as guardrail, crash cushions, and other protective barriers; aggregates, including expanded shale and clay, crushed stone, sand and gravel, asphalt rock, and other products, as well as other steel products for infrastructure-related projects; and trench shields and shoring products for the construction industry. This segment offers aggregates to concrete producers; commercial, residential, and highway contractors; manufacturers of masonry products; and state and local municipalities. The company's Energy Equipment Group segment manufactures structural wind towers; utility steel structures for electricity transmission and distribution; storage and distribution containers; cryogenic tanks; and tank heads for pressure and non-pressure vessels. Its Inland Barge Group segment provides deck barges, and open or covered hopper barges to transport grain, coal, and aggregates; and tank barges to transport chemicals and various petroleum products, as well as fiberglass reinforced lift covers for grain barges. Company description from FinViz.com.
Trinity reported earnings of 56 cents that beat estimates for 52 cents. Revenue was $1.11 billion. They guided for full year earnings of $2.10-$2.20 per share. They currently have a trailing PE of only 8.94. Liquidity is currently over $2 billion.
They booked orders for 1,260 railcars in the quarter. Their order backlog is $3.7 billion representing orders for 34,870 railcars. The inland barge segment has an order backlog of $177.3 million. The order backlog for wind towers was over $1.0 billion.
Earnings Jan 25th.
Trinity has a good business. They have received fewer orders because of the energy slowdown but they have plenty of backorders to work through as the energy sector rebounds.
Shares rose nearly $1 today in a weak market and are holding right at 52-week resistance at $28. A breakout here could run to $35.
Position 12/1/16 with a TRN trade at $28.25
Long TRN shares @$28.25, see portfolio graphic for stop loss.
Optional: Long Jan $30 call @ 60 cents, see portfolio graphic for stop loss.
UIS - Unisys Corp - Company Profile
President Obama appointed Unisys CEO Peter Altabef to the National security Telecommunications Advisory Committee. With only 46 days left in office, I wonder if this appointment continues into the next administration?
Original Trade Description: November 26th.
Unisys Corporation provides information technology services worldwide. It operates through two segments, Services and Technology. The Services segment provides cloud and infrastructure services, application services, and business process outsourcing services. The Technology segment designs and develops software, servers, and related products. It offers a range of data center, infrastructure management, and cloud computing offerings for clients to virtualize and automate data-center environments. This segment's product offerings include enterprise-class servers, such as the ClearPath Forward family of fabric servers; the Unisys Stealth family of security software; and operating system software and middleware. Company description from FinViz.com.
The information technology sector is undergoing a transformation and older companies are becoming renewed as they change focus to the new cloud services offerings. Unisys was founded in 1886 making it 130 years old. You can imagine how many times they have changed products and focus over that period.
The company is focusing on cloud-based products and software as a service. They also offer physical security for data centers both physical security and software security. They offer a broad range of outsourcing services for building managers and clients. They have been selling their noncore assets and focusing their skills to build specialized capabilities to win industry specific projects.
They reported adjusted earnings of 41 cents compared to estimates for 29 cents. Revenue of $683.3 million beat estimates for $664 million.
Earnings Jan 24th.
Looking at a daily chart is scary since shares have risen from $10 to $15 since the election. However, the rise has been calm and without any material volatility on the days the market was weak.
On the weekly chart, resistance at $14.50 was broken on Thursday and there is nothing else to slow it down until $20.
Just in case the market tanks on Monday morning, I am putting an entry trigger on the position.
Position 11/30/16 with a UIS trade at $15.25:
Long UIS shares @ $15.25, see portfolio graphic for stop loss.
No options recommended because of price and spreads.
XLF - Financial SPDR ETF - ETF Profile
New 8-year high for the XLF.
Original Trade Description: November 16th.
The Financial Select Sector SPDR Fund seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Financial Select Sector Index.
The ETF is comprised of 44% banks, 20% capital markets, 19% insurance, 11% diversified financial services and 6% consumer finance.
All of those sectors will do better as rates rise. As of today the CME FedWatch Tool shows a 91% chance of a rate hike in December as well as a 91% chance for the February meeting and 92% for March. If they do hike in December the odds will decline for February but depending on their commentary the March meeting will still be on the table. Multiple Fedwatchers have speculated there could be 3-4 rate hikes in 2017 if the economy continues to improve.
The Fed has to hike rates in 2017 in order to have some room to maneuver if the business cycle rolls over and a recession appears. We are in the third longest expansion in history and we are due for another recession soon.
The banks rallied on the rise in treasury yields and the expectations for the December rate hike as well as the potential for decreased regulation. President elect Trump has said he would kill regulations harming the banking industry. There is even talk of modifying Dodd-Frank.
Banks have rallied significantly and I would not suggest buying the actual ETF after the big gain. However, I do not believe the gains are over. The gains last week spiked the ETF to a 7-year high but the 2007 highs were over $30.
On Tuesday, somebody bought 300,000 contracts of the March $23 call at an average of 55 cents. That was $16.5 million in option premiums. That takes some serious conviction. I am recommending we follow them and buy the same call option. That way our risk is limited to $50 per contract. I am willing to bet $50 that the ETF will be over $23 by March. This is a long term position and there will not be a stop loss.
Long March $23 call @ 29 cents. No stop loss.
BEARISH Play Updates
FIT - FitBit - Company Profile
IDC said shipments of Apple watches fell -70% in Q3. Samsung shipments increased 90% compared to +11% for FitBit. Xiaomi and Garmin were also taking market share. Shares of FIT fell to a new historic low.
Original Trade Description: December 3rd.
Fitbit, Inc. provides wearable health and fitness tracking devices. It offers various products, including Fitbit Zip, an entry-level wireless tracker that allows users to track daily activity statistics, such as steps, distance, calories burned, and active minutes; Fitbit One, a clippable wireless tracker, which tracks floors climbed and sleep, as well as daily steps, distance, calories burned, and active minutes; Fitbit Flex, a wristband-style tracker that tracks steps, distance, calories burned, active minutes, and sleep; and Fitbit Charge, an activity and sleep wristband, which tracks steps, distance, calories burned, active minutes, floors climbed, and sleep. The company also provides Fitbit Alta, a customizable wristband that offers call, text, and calendar notifications when paired with the user's phone and SmartTrack automatic exercise recognition; and Fitbit Charge HR, a wireless heart rate and activity wristband. In addition, it offers Fitbit Blaze, a smart fitness watch that provides multi-sport functionality, tracks outdoor cycling activity, and provides run cues; Fitbit Surge, a fitness watch that features a GPS watch, heart rate tracker, activity tracker, and smartwatch; Aria, a Wi-Fi connected scale that tracks weight, body fat percentage, and body mass index; and Fitbit accessories that include bands and frames for Fitbit Blaze, bands for Fitbit Alta, colored bands for Fitbit Flex, colored clips for Fitbit One and Fitbit Zip, device charging cables, wireless sync dongles, band clasps, sleep bands, and Fitbit apparel. The company offers its products through consumer electronics and specialty retailers, e-Commerce retailers, sporting goods and outdoors retailers, and wireless carriers; and corporate wellness channels, as well as directly worldwide. Company description from FinViz.com.
FitBit is finding it is hard to move from the "nice to have" category to the "have to have" category. Quite a few of the millennial generation already have a FitBit but the majority are stuck in the back of a dresser drawer never to be worn again. The fitness watch is a fad. How many of us have bought a treadmill, stair climber, "insert your device name here" and it is either gathering dust in the corner or was eventually sold off in a yard sale to make room in the house?
The fitness watch is a great device if you are really into fitness. Since America is the most obese population on the planet, apparently the fitness crowd is in the minority.
When FitBit reported earnings, they guided for a bleak Q4 shopping season. There are too many competitors and not enough buyers. Last week FitBit offered between $34 and $40 million for Pebble, a smartwatch pioneer that has also fallen on hard times. Considering Pebble turned down an offer for $750 million in 2015, that shows you how tough the sector has become. Pebble has been laying off workers and trimming the product line. FitBit wants Pebble because of their unique operating system.
FitBit revenue rose at triple digit percentages in the prior three years. Over the last three quarters revenue has risen 50%, 47% and 23% in Q3. FitBit is only expecting 5% growth in Q4. Net income has posted double digit percentage declines in each of the last three quarters.
FitBit is in trouble. Some of the major watchmakers are now offering fitness watches and Apple is also chipping away at that market segment. FitBit closed at a historic low on Friday at $8 and it is almost a sure bet they will hit $5 without a surprise acquisition announcement by somebody else.
Earnings Feb 1st.
Short FIT shares @ $8.18, see portfolio graphic for stop loss.
Optional: Long Feb $7 put @ 50 cents.
VXX - Volatility Index Futures - ETF Description
The lack of a decline on the Italian vote caused nearly a $2 drop in the VXX to a new historic low.
Since this is a long-term play, I am not going to comment on it every day. Just forget it is in your portfolio and hope for a strong market rally in Q4.
Original Trade Description: September 6th.
The VXX is a short term volatility product based on the VIX futures. As a futures product it has the rollover curse. Every time they roll to a new futures contract they have to pay a premium and that lowers the price of the ETF. It is a flawed product with a perpetual decline built in from the monthly roll over in the futures contracts.
As evidence of this flaw, they have now done four 1:4 reverse stock splits. The last four reverse splits occurred at $13.11 (11/2010), $8.77 (10/2012), $12.84 (11/2013), $9.52 (8/8/16). The prospectus says it can reverse split anytime it trades under $25 for a prolonged period and the splits will always be 1:4.
After the August split the ETF moved sideways for four weeks at $36. I think everyone was waiting for the typical August volatility. When it did not show up and the market rallied on Friday that support broke. And the decline has begun.
Because there may be some September volatility, anyone in this position must understand that it may move higher before it moves lower BUT it will always move lower. We just have to wait it out. Volatility never lasts forever.
Unfortunately, put options are expensive with a volatility instrument at this price level. The only recommendation is to short the ETF and forget it. If we do get a prolonged rally as some are expecting we could see strong gains in the next 2-3 months. This will be a long-term position. This is not a 2-3 week play. I can guarantee you, if history holds, we can play this until it splits 1:4 again at $10. Once we are in the position and profitable I will put a trailing stop loss on it. We will take profits and then look for a bounce to get back in. We could keep this play in the portfolio on a trading basis permanently.
Short VXX shares @ $33.88, no initial stop loss.
No options recommended because of price.
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