Despite the market bullishness the Russell came to a dead stop on 1,566 on Thursday. That is important because that is the 10% correction level and it has been both resistance and support multiple times over the last six months. Given the overbought conditions in the market the Russell could struggle with this area.
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
FLEX - Flex Inc
The short position was stopped at $9.65.
MYL - Mylan
The long put position was stopped at $18.25.
BULLISH Play Updates
CONN - Conns Inc - Company Profile
No specific news. Rebound stalled after 2-week high on Tuesday.
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.
CYOU - Changyou.com Ltd - Company Profile
No specific news. The rebound has stalled but at least shares are not declining. I am giving them one more week.
Original Trade Description: June 5th.
Changyou.com Limited develops and operates online games in the People's Republic of China. The company operates through Online Game, Platform Channel, and Cinema Advertising segments. It develops, operates, and licenses online games, including interactive online games that are accessed and played simultaneously by various game players through personal computers; and mobile games played on mobile devices. The company also operates 17173.com Website, an information portal that provides news, electronic forums, online videos, and other information services on online games to game players; and offers various software applications for PCs and mobile devices, as well as purchases pre-film cinema advertising slots from movie theater operators for advertisers. As of December 31, 2018, it had approximately 4.9 million total average monthly active accounts; and 1.6 million total active paying accounts. The company was founded in 2003 and is headquartered in Beijing, the People's Republic of China. Changyou.com Limited is a subsidiary of Sohu.com Limited. Company description from FinViz.com.
Changyou reported earnings of 69 cents, up from 30 cent in the year ago quarter. Revenue of $123 million and beat estimates for $115.85 million. They guided for Q2 for revenue of $110-$120 million and earnings between 41-50 cents. Analysts were expecting $106.8 million and 46 cents.
The company also announced a special dividend of $9.40 that was paid on June 3rd. As is customary the price of the stock was reduced by the $9 paid in the dividend. Shares held at $9 for several days before moving higher.
With rising earnings and the special dividend behind them, the stock should continue to rise to its prior level.
Earnings July 29th.
Long CYOU shares @ $10.50, see portfolio graphic for stop loss.
Optional: Long July $11 call @ 50 cents, see portfolio graphic for stop loss.
LK - Luckin Coffee Inc - Company Profile
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.
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.
Long LK shares @ $19.68, see portfolio graphic for stop loss.
BEARISH Play Updates
ASPS - Altisource Portfolio Solutions - Company Description
No specific news. No material movement. Bearish trend intact.
Original Trade Description: June 9th
Altisource Portfolio Solutions S.A. operates as an integrated service provider and marketplace for the real estate and mortgage industries in the United States and internationally. It operates in two segments, Mortgage Market and Real Estate Market. The company offers property preservation and inspection, real estate brokerage and auction, title insurance and settlement, appraisal management, broker and non-broker valuation, foreclosure trustee, mortgage charge-off collection, residential and commercial loan disbursement processing, and residential and commercial construction inspection and risk mitigation services, as well as valuation data; residential and commercial loan servicing, vendor management, marketplace transaction and payment management, and default services technologies; and document management platform. It also provides fulfillment, loan certification, and mortgage banker cooperative management services; loan origination system; loan certification and mortgage fraud insurance; and vendor management oversight platform. In addition, the company offers mortgage brokerage and homeowners insurance solutions; and buy-renovate-lease-sell and data solutions, as well as real estate brokerage services under the Owners.com name. Further, it provides post-charge-off consumer debt collection services, customer relationship management services, and information technology infrastructure management services. The company serves financial institutions, government-sponsored enterprises, utility companies, commercial banks, servicers, investors, non-bank originators, correspondent lenders, mortgage bankers, insurance companies, and financial services companies. Altisource Portfolio Solutions S.A. was incorporated in 1999 and is headquartered in Luxembourg City, Luxembourg. Company description from FinViz.com.
Earnings July 25th.
Altisource is an uninspiring company. Their earnings read like a list of excuses by a 4th grader on why they don't have their homework. Revenue is falling and they are selling off multiple divisions where their business plan failed to produce results.
In the US they might be forgiven for a few bad decisions, but they are located in Luxembourg. That effectively takes them out of the normal reporting and recourse solutions. They may be a good company but their list of excuses is causing investors to lose interest.
With revenue in Q1 of $165 million and earnings of only $200,000, there is little room for error. The adjusted earnings have more notes than what should be legal.
They have sold their property management business. They are selling their buy-renovate-lease-sell business. They are selling their financial services business. The proceeds will be used to reduce debt.
The key point here is that investors are losing interest. Shares closed at a new low on Friday.
Short ASPS shares @ $19.13, see portfolio graphic for stop loss.
Options are thinly traded and premiums not realistic.
FLEX - Flex Ltd - Company Description
The chip sector rebounded with the market mid-week and stopped us out of the remaining option position.
Original Trade Description: May 25th
Flex Ltd. provides design, engineering, manufacturing, and supply chain services and solutions to original equipment manufacturers worldwide. It operates through High Reliability Solutions, Industrial and Emerging Industries, Communications & Enterprise Compute, and Consumer Technologies Group segments. The company operates Customer Engagement Centers, Innovation and Design Centers, and Centers of Excellence/Competence. It also provides a portfolio of technologies in electrical/electronics, electromechanical, and software; and cross-industry technologies, including human machine interface, audio and video, system in package, miniaturization, IoT platforms, and asset tracking. In addition, the company designs and integrates advanced data center servers, storage and networking equipment, and data center appliances. Further, it provides value-added design and engineering services; and systems assembly and manufacturing services that include enclosures, testing services, and materials procurement and inventory management services. Additionally, the company offers chargers for smartphones and tablets; adapters for notebooks and gaming systems; power supplies for the server, storage, and networking markets; isolated DC/DC converters and non-isolated Point of Load converters for the information and communications technology market; and specialized power module solutions for other markets. It also provides after-market and forward supply chain logistics services; and reverse logistics and repair solutions, including returns management, exchange programs, complex repair, asset recovery, recycling, and e-waste management. The company was formerly known as Flextronics International Ltd. and changed its name to Flex Ltd. in September 2016. Flex Ltd. was founded in 1990 and is based in Singapore. Company description from FinViz.com.
Flex, formerly Flextronics, is struggling. In their recent earnings they reported 27 cents that matched estimates. Revenue declined -2.9% to $6.226 billion and missed estimates for $6.481 billion. They blamed sluggish demand from China, soft demand from networking customers and weakness in semiconductor capital equipment and energy verticals.
Revenue from the consumer technologies group declined -7% due to weakness in core consumer products. Revenues from industrial and emerging industries declined 8% because of weakness in semiconductor capital equipment. Revenue from high reliability solutions declined 4% due to weakness in medical equipment and automotive equipment. Health solutions rose 10% but could not offset the 12% decline in automotive.
They guided for Q2 for earnings of 25-29 cents which exactly bracketed estimates for 27 cents. For the full year they expect $1.20-$1.30 or $1.25 midpoint and analysts were expecting $1.26.
Earnings July 30th.
With the trade war and tariffs on Chinese goods, demand is going to decline even further. Shares have fallen below near term support and could be targeting $7.
Closed 6/20: Long October $9 put @ 81 cents, exit .58, -.23 loss.
Closed 6/4: Short FLEX shares @ $9.30, exit $9.45, -.15 loss.
MYL - Mylan - Company Description
Mylan shares spiked after news broke that Pfizer was buying Array Pharma for $11.4 billion. That suggests there will be more M&A as the smaller companies get snapped up by the giants. Mylan could become a target. We were stopped on the spike.
Original Trade Description: May 31st
Mylan N.V., together with its subsidiaries, develops, licenses, manufactures, markets, and distributes generic, branded-generic, brand-name, and over-the-counter (OTC) pharmaceutical products in North America, Europe, and internationally. It offers active pharmaceutical ingredients and finished dosage forms; and antiretroviral medicines to treat HIV/AIDS. The company also provides prescription products, such as EpiPen Auto-Injector; Perforomist Inhalation Solution; Dymista; Creon; and Influvac, as well as YUPELRI, an inhalation solution for the maintenance treatment of patients with chronic obstructive pulmonary diseases. In addition, it markets OTC products, including Cold-EEZE, MidNite, Vivarin, Brufen, CB12, and EndWarts. The company offers its products to therapeutic areas, such as cardiovascular, CNS and anesthesia, dermatology, diabetes and metabolism, gastroenterology, immunology, infectious disease, oncology, respiratory and allergy, and women's health. Its customers include retail pharmacies, wholesalers and distributors, payers, and insurers and governments, as well as institutions, such as hospitals. Mylan N.V. has collaboration and license agreements with Pfizer Inc.; Momenta Pharmaceuticals, Inc.; TB Alliance; Theravance Biopharma, Inc.; Biocon Ltd.; and Fujifilm Kyowa Kirin Biologics Co. Ltd. The company was founded in 1961 and is headquartered in Canonsburg, Pennsylvania. Company description from FinViz.com.
Earnings August 6th.
Mylan won the distinction of being one of the five worst performing stocks of 2019. They are being sued by 44 states for collusion and price fixing on generic drugs. This is likely to be the biggest case of its kind ever. Teva and Mylan are two of the major defendants. Analysts believe Teva could be liable for more than $3 billion in damages and Mylan would see fines of $1.1 billion or more. That is more than 10% of Mylan's market cap.
They are already down hard on the news but are likely to go to single digits.
Update 6/9/19: Union pension fund adviser CtW Investment Group urged Mylan shareholders to vote against the company's four director nominees, who are on the boards nominating and governance committee. CtW said these four had operates with a "serious disregard for the rights of Mylan shareholders." Shares are bleeding slowly lower after Tuesday's minor bounce to $18.
Closed 6/18: Short MYL shares @ $16.91, exit $17.75, -.84 loss.
Optional: Closed 6/19: Long August $15 put @ $.98, exit .36, -.62 loss.
VXXB - Barclays VIX Futures ETN - ETN Description
Shares dipped to $26 on the positive market but rebounded on the Iranian conflict.
It will probably take us weeks to make a new low, but it will happen.
Original Trade Description: Nov 17th.
The investment seeks return linked to the performance of the S&P 500 VIX Short-Term Futures Index TR. The ETN offers exposure to futures contracts of specified maturities on the VIX index and not direct exposure to the VIX index or its spot level. The index is designed to provide investors with exposure to one or more maturities of futures contracts on the CBOE Volatility Index. Company description from FinViz.com.
The VXXB is a short-term volatility ETN based on the VIX futures. As a futures product it has the rollover curse. Every time they roll to a new futures contract, they have to pay a premium and that lowers the price of the ETN. It is a flawed product with a perpetual decline built in from the monthly roll over in the futures contracts.
As evidence of this flaw, the prior VXX ETN had done five 1:4 reverse stock splits. The last five reverse splits occurred at $13.11 (11/2010), $8.77 (10/2012), $12.84 (11/2013), $9.52 (8/8/16), $12.77 (8/22/17). The prospectus says it can reverse split anytime it trades under $25 for a prolonged period and the splits will always be 1:4.
We know from experience that the VXXB and its predecessor the VXX always decline long term.
Unfortunately, put options are expensive with a volatility instrument at this price level. The only recommendation is to short the ETN and forget it. This will be a long-term position. This is not a 2-3 week play. I can guarantee you, if history holds, we can play this until it splits 1:4 again at $10. Once we are in the position and profitable, I may put a trailing stop loss on it. We will take profits and then look for a bounce to get back in. We could keep this play in the portfolio on a trading basis permanently.
The VXXB will be hard to short. The shares are out there and being traded because the volume on Thursday was 22.1 million. You have to tell your broker you really want to short it and make them find the shares. Sometimes it takes days or even a week before your broker will find you the shares. Trust me, be persistent and it will be worth the effort.
Short VXXB shares @ $35.33, see portfolio graphic for stop loss.