The Dow declined -140 points to erase Monday's gains and close exactly on support at 17,750. The afternoon short squeeze on Monday was completely erased and the Dow closed at a three-week low. That makes Monday's close at 17,891 another lower high and seems to suggest we are going lower.
The key level here is now is 17,670 and the intraday low on today and Friday. That low was bought on both occasions and a failure there on Wednesday would immediately target 17,500 or even lower.
Analysts blamed weak economics from China, a rate cut in Australia and a weakening earnings cycle as the major motivation. However, the dollar rose after a week of declines and Atlanta Fed President Dennis Lockhart said "June is a live meeting." Also, "two rate hikes are certainly possible. We have enough meetings remaining. June is a real option." He also warned that the Brexit vote in June was a real risk to the global economy.
With all those negatives in an already uncertain market, the path of least resistance was down. We have been planning for a declining market for the last couple weeks and that is why we have twice as many puts as calls.
Current Position Changes
FSLR - First Solar
The long put position was entered at the open.
Check the graphic above for any profit stops in green.
We need to always be prepared for a profit exit at resistance.
Stop Loss Updates
Check the graphic above for any new stop losses in bright yellow.
We need to always be prepared for an unexpected decline.
BULLISH Play Updates
ACN - Accenture PLC - Company Description
No specific news. Down to support in a weak market.
Original Trade Description: April 20th.
Accenture provided management consulting, technology and outsourcing services worldwide. It operates in multiple segments including Communications, Media & Technology, Financial Services, Health & Public Services, Product support including supply chain management, Resources including chemicals, energy, commodities and utilities. The company was founded in 1989 and has risen to a $73 billion market cap. Accenture employs about 373,000 people in 120 countries.
Basically, Accenture helps other companies become more profitable. When Mondelez (MDLZ) wanted to improve its margins they called Accenture and implemented their suggestions. The new systems saved $350 million in the first year and is expected to save Mondelez more than $1 billion over the next three years. Accenture does this worldwide for almost any business in any sector.
This week they sold a 60% stake in their Duck Creek Technologies division to private equity firm Apax Partners. The joint venture will accelerate the innovation of claims, billing and policy administration software for the insurance industry leveraging advanced digital and cloud technology. They will invest in Duck Creek On-Demand, a native Software as a Service capability delivered through the cloud. Approximately 1,000 insurance and insurance software specialists will join the new venture. Accenture acquired Duck creek Technologies in 2011.
The key for Accenture is not specifically the Duck Creek venture but the rapidly expanding scope of the company. Nearly every day there is some new press release where they are expanding into new markets and new endeavors. This is what IBM and Hewlett Packard wish they were.
Earnings are June 23rd.
Accenture rallied to a new high in early April at $116.35. Shares paused with the market and consolidated their gains. Since April 8th shares have begun to move back to that high and could breakout at any time. I am recommending we buy that breakout over $116.35 because shares could begin a new leg higher, market permitting. Options are cheap!
Position 5/2/16 with an ACN trade at $113.25
Long June $115 call @ $2.13, see portfolio graphic for stop loss.
PVH - PVH Corp - Company Description
No specific news. Down with the market but holding over support.
Original Trade Description: April 21st.
PVH is an international apparel company. They operate in six segments including Calvin Klein North America, Calvin Klein International, Tommy Hilfiger North America, Tommy Hilfiger International, Heritage Brands Wholesale and Heritage Brands Retail.
Some of the brands marketed by PVH in addition to those above include Van Heusen, iZod, Arrow, Warners, Olga, Eagle, Speedo, Geoffrey Beene, Kenneth Cole, Sean John, Michael Kors, Chaps, etc.
They sell through company operated stores, wholesale outlets, department stores, chain stoes, specialty stores, mass market stores, club stores, off-price and independent stores and distributors and through e-commerce. The company was founded in 1881.
Last week PVH announce it had closed on a deal to acquire the remaining 55% stake in TH Asia, the joint venture for Tommy Hilfiger in China. The deal will increase revenue by $100 million a year.
In February PVH inked a deal with G-III Apparel to allow G-III to design, manufacture and distribute Tommy Hilfiger women's wear in the U.S. and Canada. This not only includes PVHâ€™s existing women's wear operations, but also new categories like suit separates, denim and performance. Long term I would not be surprised to see PVH buy G-III (GIII).
In January, PVH licensed MagnaReady, a shirt system without buttons, from MagnaReady Technology LLC. Men's sport and dress shirts with MagnaReady technology will be available in stores in 2016.
In their earnings reported in late March, they had earnings of $1.52 that beat estimates for $1.45 and exceeded PVH guidance for $1.37-$1.47. On a currency neutral basis earnings rose 7%. Revenue rose 2.1% to $2.112 billion also beating estimates.
Shares spiked on earnings in late March and then drifted lower as the gains were consolidated. They are starting to move higher again with resistance at $100. It may take a few days but I believe they will break that resistance, market permitting. Shares gained 78 cents today in a down market.
Earnings are late June.
Long June $100 call @ $3.41, see portfolio graphic for stop loss.
V - Visa - Company Description
No specific news. Visa down with the Dow.
Original Trade Description: April 27th.
Visa bills itself as a "payments technology" company. They operate an open-loop payment network worldwide. The company facilitates commerce through the transfer of value and information among financial institutions, merchants, consumers, businesses and government entities.
Everybody understands Visa. Unlike American Express, Visa does not have any credit risk. Visa licenses its cards and network to banks and financial companies and charges them a transaction fee for the service. Visa assumes no credit risk because it has no borrowers. The underlying banks assume the risk and the loans created by the customers.
This is about as close as you can get to the perfect business. It is a service everyone wants and you get paid every time one of your licensee's customers use their card.
Visa reported earnings on the 22nd and warned that earnings growth may be delayed because its purchase of Visa Europe Ltd for 21.2 billion euros would be delayed following feedback from the European Commission. Visa made changes to the deal to get EU approval. Visa and Visa Europe split in 2007 before Visa's IPO in the USA. The reacquisition of the European business will add significant earnings and growth to Visa. The modified acquisition may not be completed until after June 30th and therefore appear on the earnings for Q3 rather than Q2 as previously expected.
They also said timing issues surrounding the new partnership with Costco, and USAA would push some of the expected earnings into Q3.
They lowered top line growth estimates for fiscal 2016 to 7-8%, down from "high single digit to low double-digit" range they have previously specified. This is only due to the timing of the Europe acquisition and issues in the implementation of the Costco and USAA partnerships. Visa is fine and once they complete those items the growth will rise.
In the recent period earnings rose 10% to 68 cents and beat estimates by a penny. Revenue rose 6.4% to $3.63 billion. Payment volume rose 5.7% to $1.3 trillion.
Shares dipped $3 after the earnings report and have been moving up steadily the last four days. Visa is a Dow component and any Dow rally will lift Visa as well. Conversely, a Dow decline will weigh on Visa as well.
Long June $80 call @ $1.58, see portfolio graphic for stop loss.
BEARISH Play Updates (Alpha by Symbol)
FSLR - First Solar - Company Description
Big decline to open the position but we were filled on the option at the high for the day. We need the decline to continue and break through support at $52.50.
Original Trade Description: May 2nd.
First Solar provided solar energy solutions worldwide through two segments. Those are components and systems. The component segment produces the actual solar modules that convert sunlight into energy. The systems segment produces the infrastructure to combine those panels into working systems that are sold to corporations, governments and utility companies.
The company reported earnings of $1.06 that beat estimates for 93 cents. Revenue of $848 million rose 3% but missed estimates for $958 million by a mile. The company blamed the shift to a lower priced module for the decline in revenue. Another factor was the decision by the government to extend the Investment Tax Credit (ITC) another five-years on solar installations. This caused some companies to postpone plans that were being rushed to take advantage of the ITC. Now they have time to think the plans through and make calm decisions. The number of urgent sales declined.
The company refined its guidance positively to revenue in the range of $3.8-$4.0 billion and earnings up from $4.00-$4.50 to $4.10-$4.50. The minor increase in guidance did not excite investors.
With the earnings the company also announced CEO Jim Hughes had resigned and CFO Alexander Bradley would be his interim replacement. Hughes had successfully rescued First Solar from a crisis in 2012 when polysilicon prices were crashing Today the company's panels are close to multi-crystalline. The sudden departure of a hero caused some investors to flee the stock.
Earnings August 2nd.
Shares have fallen significantly since the Thursday earnings but show no indications the drop is slowing. The entire solar sector is in distress since the SunEdison (SUNE) filed bankruptcy a couple weeks ago.
I expect the decline to continue with initial support at $52.50 but longer term support well below at $40. The transformational issues of the ITC extension and the CEO resignation could linger for several weeks.
Long June $52.50 put @ $1.67, see portfolio graphic for stop loss.
MLNX - Mellanox Technologies - Company Description
No specific news. The trend continued lower below support at $43.
Original Trade Description: April 30th.
Mellanox is a fabless semiconductor company that designs, manufactures and sells interconnect products and solutions. Their solutions are used in storage, datacenters and clouds. Their Internet communications products handle communications up to 100Gbps. They are also an Apple supplier.
The reported an 11% rise in revenue to $196.8 million and earnings of 81 cents. Both beat analyst estimates for $192.5 million and 75 cents. However, guidance was not so good. They expect Q2 revenue in the range of $210-$215 million and missing estimates for $216.8 million.
The company just acquired EZchip Semiconductor and the CEO believes the deal will translate into "compelling value to current and future customers." However, increasing expenses, expected to rise 8-10% could put a crimp into profits.
With Apple iPhone sales in a slump any supplier is guilty by association. Shares have declined -$10 since earnings and are falling fast. Support is in the $38 range. With tech stocks suddenly in the dog house there is no reason for shares to rebound.
Long June $43 put @ $1.45, see portfolio graphic for stop loss.
QQQ - Nasdaq 100 ETF Description
The Monday short squeeze reversed and the QQQ is back at 6-week lows. A drop below $105 should see the selling accelerate.
Original Trade Description: April 28th.
The Powershares QQQ is an index tracking stock for the Nasdaq 100 Index ($NDX). The QQQ represents the 100 largest domestic and international nonfinancial companies listed on the Nasdaq Stock market based on market capitulation.
The Nasdaq 100 is expected to gap higher at the open on Friday. As with most opening gaps based on some post earnings activity there is a good chance the opening print is the high for the day. The shorts in those stocks that are gapping higher will cover and the buying interest will wane.
Amazon was up $75 in the afterhours session. Linkedin gained +8. Expedia gained +11 and Baidu +8. This should produce a decent opening bounce in the index.
However, the Nasdaq 100 close at 4,363 was the lowest close since March 11th. This is below support at 4,378 and suggests the index is breaking down.
I am recommending we buy puts on the QQQ at the open when the market gaps higher in anticipation of a drop in the $NDX back to 4,200.
Since I expect the index to gap higher I am recommending the at the money put. It should be a little cheaper at the open.
Long June $106 put @ $2.63, see portfolio graphic for stop loss.
SPY - S&P 500 ETF - ETF Description
The S&P lost -18 points to push the SPY to a four-week low close. We need it to close under $204 to see the selling accelerate.
Resistance has held and it may be a choppy week or two before a longer-term decline appears. Be patient.
Original Trade Description: March 16th.
All good things must come to an end. The market appears poised to rally and produce a new leg higher. However, there is serious resistance starting at 2,075 on the S&P and continuing through 2,100. The odds are very slim that a rally will make it through that resistance ahead of the earnings cycle and assuming earnings for Q1 are as bad as the guidance we have been getting then it is even more likely the market rolls over into the "Sell in May" cycle.
Nobody can accurately pick turning points in the market on a routine basis. There are far too many things that can push and pull the indexes but at critical resistance levels we can normally anticipate at least a little reaction to those levels.
The S&P has strong resistance beginning at 2,078, which equates to $208 on the SPY. That resistance runs from 2,078 to 2,105 or roughly $211 on the SPY. I am proposing we buy puts on the SPY starting at $207 with a stop loss at $213.
The S&P may never hit those levels or it could hit them next week. The close after the Fed decision was 2,027, which means it would still have to rally 50 points to hit our initial entry point. Once it reaches that level it will have rebounded for +268 points and would be extremely overbought when it reached that 2,078 level. That makes it even more likely it will fail when it gets there.
I am going to recommend the June $200 puts. They should cost about $4 when the SPY reaches the $207 level. I want to use June because we may not reach that resistance for a couple weeks, if at all, and once we do hit that level I want to be able to profit from any sell in May decline.
This position could go for several weeks without being triggered and there is a good chance we will not get to play it with numerous analysts calling for a failure at 2,040 and 2,050 along the way. There are analysts calling for a retest of the 1,900 level this summer with some projecting significantly lower levels. If you look hard enough you can probably find someone projecting targets a couple hundred points higher or lower than the ones discussed.
Morgan Stanley's Adam Parker slashed his price target for the S&P from 2,175 to 2,050 yesterday. Most of the major banks are in the 2,050 to 2,100 range so the expectations for a major rally from here are pretty slim.
Position 3/23/16 with SPY trade at $204.11
3/23/16: Long June $200 put @ $4.77 with SPY trade at $204.11
4/01/16: Long June $200 put @ $3.26 when SPY traded at $207.
4/19/16: Long June $200 put @ $1.95 when SPY traded at $210.
See portfolio graphic for stop loss.
TWTR - Twitter - Company Description
Twitter dropped to a historic low at $13.90 intraday but rebounded to close over support at $14. It is moving in the right direction and a close under $14 could trigger additional selling as long time investors give up at new lows.
Original Trade Description: April 9th.
Twitter operates as a global platform for public self expression and conversation in real time. I am pretty sure everyone knows what Twitter is so I am not going into depth in this explanation.
Twitter has become the bet of the year. Analysts either think it is going to single digits or going to the moon. The highest price target is $36 and the lowest is $11 with the average at $20.86 across a total of 27 brokers.
Twitter has trouble keeping users because the learning curve is steep and Twitter spam is increasing daily. Twitter bots can be programmed to spread tweets and make it appear there is a huge volume of interest in a specific subject. Andres Sepulveda, a Latin American political operative used custom software to direct 30,000 Twitter bots to create false enthusiasm for candidates and spread rumors about the opposition. Sepulveda said the tactics gave him "the power to make people believe almost everything." The man responsible for his operations said two American presidential candidates had contact him and one of those was Donald Trump.
Unfortunately, Twitter has been having trouble monetizing all the traffic regardless of whether it is real or fake. Their monthly active users include a lot of churn and barely any growth. While nobody expects Twitter to go out of business they are losing faith in the business model.
CEO Jack Dorsey is also CEO of Square and that carries mixed emotions. Some want him replaced and others want him full time. Almost nobody wants him to continue the dual role.
There are constant rumors that Twitter will be bought by someone like Google or Apple. If that were to occur it would carry a huge premium to the current $16 stock price.
Twitter has been earnings challenged for a long time and the stock has declined from $55 to the current $16 level on a lack of confidence they will turn the company around.
Earnings April 26th.
The stock is either going to single digits or it will be back well over $20 soon. It is not likely to continue moving sideways at $16.
I am recommending we do a strangle on Twitter using the June options. Regardless of the stock or market direction we should be able to profit. Because Twitter is $16 and stagnant the options are relatively cheap. I want to buy them now and hold over earnings because that is likely to be a volatility event. We could also get some market moving news with the earnings release.
You could use the $18 call and $15 put for a net debit of $2.22 if you want a cheaper option.
Long June $17 call @ $2.07, see portfolio graphic for stop loss.
Long June $16 put @ $1.45, see portfolio graphic for stop loss.
Net debit $3.52.
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