Small caps continue to be weak and the outlook is fading. The Russell 2000 closed at a three-week low with a -1.4% decline for the week. The small cap internals are worsening and nearly every small cap stock is fading.
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
BBBY- Bed, Bath and Beyond
The short position was entered at the open on Monday.
SNCR - Synchronoss
The long stock position was stopped at $7.85.
BULLISH Play Updates
LK - Luckin Coffee Inc - Company Profile
Needham analyst Vincent Yu estimates that LK grew its revenue in Q2 by 85% with the net addition of 4.4 million new customers. That would bring the customer base to 21.3 million. If the company posts those metrics when they report earnings on August 14th it will be a blowout.
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.
SNCR - Synchronoss Technologies - Company Profile
No specific news. Shares fell sharply on Monday on no news to stop us out of the stock position. The option position is still active.
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.
Closed 7/15: Long SNCR shares @ $8.41, exit $7.85, -.56 loss.
Optional: Long September $10 call @ 85 cents, see portfolio graphic for stop loss.
XON - Intrexon Corp - Company Profile
No specific news. Shares moving sideways with the Russell.
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.
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
BBBY - Bed Bath and Beyond - Company Description
No specific news. Goldman initiated a sell rating with an $11 target but shares have already broken under $10 to a new low.
Original Trade Description: May 25th
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.
Short BBBY shares @ $10.92, see portfolio graphic for stop loss.
Optional: Long Nov $10 put @ $1.02, see portfolio graphic for stop loss.
VXXB - Barclays VIX Futures ETN - ETN Description
The 22.5 level has become new support. We will need a new surge in equities to break that level.
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.