Volatility has returned with the Dow posting triple digit moves for the last three days in alternating directions. Volume was huge at 7.86 billion shares on a day that was expected to barely hit 5 billion. There were no big headlines to drive the selloff. Apparently, fund managers are rotating out of prior winners instead of adding to them. With Yellen saying stocks are rich and overvalued by normal metrics, there appears to be a move to take some money off the table.
We lost three more positions and I am going to wait until after July 4th to replace them. With volume almost 3 billion over what was expected, there could be additional problems ahead.
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
FB - Facebook
The long call position was stopped in the market crash.
THO - Thor Industries
The long call position was stopped in the market crash.
IWM - Russell 2000 ETF
The long call position was stopped in the market crash.
FL - Foot Locker
The long put position was closed at the open.
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BULLISH Play Updates
AAPL - Apple Inc - Company Profile
Today was the 10th anniversary of the first iPhone, which deputed June 29th, 2007. Apple spent the day seriously negative as the Nasdaq crashed again. However, critical support at $142 held again.
Original Trade Description: June 28th.
Apple Inc. designs, manufactures, and markets mobile communication and media devices, personal computers, and portable digital music players to consumers, small and mid-sized businesses, and education, enterprise, and government customers worldwide. The company also sells related software, services, accessories, networking solutions, and third-party digital content and applications. It offers iPhone, a line of smartphones; iPad, a line of multi-purpose tablets; and Mac, a line of desktop and portable personal computers. The company also provides iLife, a consumer-oriented digital lifestyle software application suite; iWork, an integrated productivity suite that helps users create, present, and publish documents, presentations, and spreadsheets; and other application software, such as Final Cut Pro, Logic Pro X, and FileMaker Pro. In addition, it offers Apple TV that connects to consumers' TV and enables them to access digital content directly for streaming high definition video, playing music and games, and viewing photos; Apple Watch, a personal electronic device; and iPod, a line of portable digital music and media players. Further, the company sells Apple-branded and third-party Mac-compatible, and iOS-compatible accessories, such as headphones, displays, storage devices, Beats products, and other connectivity and computing products and supplies. Additionally, it offers iCloud, a cloud service; AppleCare that offers support options for its customers; and Apple Pay, a mobile payment service. The company sells and delivers digital content and applications through the iTunes Store, App Store, Mac App Store, TV App Store, iBooks Store, and Apple Music. It also sells its products through its retail and online stores, and direct sales force, as well as through third-party cellular network carriers, wholesalers, retailers, and value-added resellers. Company description from FinViz.com.
This play is not going to take a lot of explanation. Shares rallied to $156 in May and then stalled at that level as various rumors continued to circulate over a potential delay in shipping the iPhone 8. Analysts routinely debated the various pros and cons of the Apple outlook. Shares fell to $144 and they have been trading at $145 for the last three weeks. On Tuesday's decline the stop lost $2, which was immediately recovered on Wednesday.
Apple is expected to report earnings on August 1st. The stocks always ramps up into earnings. Since Apple is expected to announce multiple iPhone models in September, a shipment delay on the big iPhone 8 will not be a disaster. We will be out of the position before the August earnings so that will not impact us either way.
The plan is to capture the ramp into the earnings and then exit. Having Apple dormant at $145 for the last three weeks shows there is plenty of support under that level and a rebound could start at any time. Fortunately, because of the dormancy, the options premiums have shrunk.
Apple is a sleeping giant. When it awakes, there could be plenty of price chasing.
Buy August $150 call, currently $3.05, initial stop loss $141.85.
BABA - Alibaba - Company Profile
Mott Capital said Alibaba could be worth $210 on a fundamental basis. A "source" in China said Alibaba will launch a device similar to Amazon's Echo but Chinese speaking, next week. That should give the stock a decent pop. Thursday's drop missed our stop loss by 2 cents.
Original Trade Description: June 10th.
Alibaba Group Holding Limited, through its subsidiaries, operates as an online and mobile commerce company in the People's Republic of China and internationally. It operates Taobao Marketplace, an online shopping destination; Tmall, a third-party platform for brands and retailers; Juhuasuan, a sales and marketing platform for flash sales; Alibaba.com, an online wholesale marketplace; Alitrip, an online travel booking platform; 1688.com, an online wholesale marketplace; and AliExpress, a consumer marketplace. The company also provides pay-for-performance and display marketing services through its Alimama marketing technology platform; Taobao Ad Network and Exchange (TANX), a real-time bidding online marketing exchange in China; and data management platform through TANX for marketers to execute their campaigns with proprietary and tailored data. In addition, it offers cloud computing services, including elastic computing, database, storage and content delivery network, large scale computing, security, and management and application services through its Alibaba Cloud Computing platform; Web hosting and domain name registration services; payment and escrow services; and develops and operates mobile Web browsers. The company provides its solutions primarily for businesses. Company description from FinViz.com
Alibaba is the poor investor's Amazon. With shares at $135, the options are at least reasonable but not cheap. Alibaba is growing as fast or faster than Amazon and tries to copy everything Amazon does.
When the company reported earnings for the last quarter at 63 cents, they missed estimates for 68 cents. Revenue of $5.6 billion easily beat estimates for $5.2 billion. Other than the earnings miss it was a solid quarter with ecommerce up 47% and cloud computing up 102%. Digital media growth was up 234%. Mobile MAUs rose from 493 to 507 million. That is important because 90% of China's ecommerce occurs on a mobile device.
The company announced plans to buy back $6 billion in stock over a two-year period.
Earnings August 18th.
Shares dipped on the earnings miss then spiked on the guidance to $125.50, which was a new high. After a little more than two weeks of post earnings consolidation, shares returned to that $125.50 level and closed at a new high.
There was an analyst day last week and that kicked the stock up to another level with a $10 gain. The company guided for 45% to 49% revenue growth in this year and analysts were only expecting 37%. MKM partners raised the price target to $177. Pacific Crest raised their price target to $160 from $137. Needham raised their target to $155. The Benchmark Company is targeting $175.
Shares declined on Tuesday on no news. With the stock overbought after the analyst meeting we could be seeing some simple profit taking. I am going to put an entry trigger on the position. If shares continue lower I will revise the entry.
Update 6/20/17: Alibaba is hosting a forum for 3,000 entrepreneurs in Detroit to explain how easy it is for them to begin selling products on Alibaba's websites. CEO Jack Ma said in another interview he expects to employ 1 million workers in the USA.
Update 6/27/17: JP Morgan initiated coverage with an overweight rating and $190 price target. Barclays said it valued Alibaba in a sum of the parts method at $200 but their price target for the parent is $175 with an overweight rating.
Position 6/19/17 with a BABA trade at $139.50
Long Aug $145 call @ $5.95, see portfolio graphic for stop loss.
Short Aug $155 call @ $2.92, see portfolio graphic for stop loss.
Net debit $3.03.
FB - Facebook - Company Profile
Facebook dipped almost $4 intraday to stop us out at $149.35. This is highly frustrating but since this is the third Nasdaq decline in 3 weeks, I am not comfortable jumping back into a new position. We need to wait until after July 4th and then look at it again.
Original Trade Description: May 17th.
Facebook, Inc. provides various products to connect and share through mobile devices, personal computers, and other surfaces worldwide. Its solutions include Facebook Website and mobile application that enables people to connect, share, discover, and communicate each other on mobile devices and personal computers; Instagram, a mobile application that enables people to take photos or videos, customize them with filter effects, and share them with friends and followers in a photo feed or send them directly to friends; Messenger, a messaging application to communicate with people and businesses across platforms and devices; and WhatsApp Messenger, a mobile messaging application. The company also offers Oculus virtual reality technology and content platform, which allow people to enter an immersive and interactive environment to play games, consume content, and connect with others. Company description from FinViz.com.
Facebook also blew away earnings estimates and they are growing earnings at the fastest rate of any of the FAANG stocks. They have multiple revenue streams and sites like Instagram and WhatsApp that are just starting to accelerate earnings. They said Instagram had reached 50,000 advertisers. Facebook's problem is they do not have enough page views to monetize despite the 1.9 billion users. They have more advertisers than they have space.
Facebook said the new Instagram Stories product has reached 250 million daily users compared to Snap's 160 million for the same function.
Earnings August 2nd.
Facebook had been moving sideways since hitting the $153 high post earnings. Volatility was low and investors were just waiting for a market dip so they could get a better entry point. Share fell to uptrend support at $145 and even if they due decline further there is strong support around $140.
Update 5/18/27: Facebook was fined $122.4 million by EU regulators for giving them false information in the WhatsApp acquisition process. The EU asked how many WhatsApp users were also Facebook users and the company said it did not know and did not have way of matching the usernames. A year after the acquisition Facebook launched a service that did match users and the EU said they had the capability all the time.
The company also announced a new effort to reduce "clickbait" headlines and punish websites that continually publish fake news. I hope they are successful.
Update 5/19/17: Facebook is going to live stream 20 Major League Baseball Friday night games. The company also said it was adding an "Order Food" option to let some users order, pay and have food delivered or be available for pickup. The service works with restaurants that use Delivery.com or Slice.
Update 5/22/17: Facebook shares were weak after the BROWSER bill was introduced in the House. Websites and browsers must get explicit permission from users in order to collect and use personal data including browser history, search terms, cookies, etc. They also cannot deny you the use of their program if you decline to give them permission to use your data. While the bill has little chance of passing it was a wet blanket on Facebook today.
Update 5/24/17: Reuters reported that Facebook has signed content deals with Vox Media, Buzzfeed, ATTN, Group Nine Media and others to begin creating shows for its upcoming video service. They are going to develop both short and long form content with ad breaks included. The first scripted shows will be up to 30 min which Facebook will own. The second tier will be shorter scripted and unscripted shows with episodes lasting 5-10 minutes.
Update 6/14/17: Facebook has built an AI that learned how to lie to get what it wants. Can Skynet be much farther into the future? Facebook fed the AI computer the text messages from 5,808 human conversations where they negotiated for some specific outcome either an item, event or decision. Then they tried to negotiate with the computer over some items each were given. The key was for the computer to end up with a specific item. During the testing they found that the computer had learned to lie to misdirect the opponent from the item the computer actually wanted. This is scary. Extrapolate this into a much larger environment with millions of conversations to learn from and the outcome could be an entirely new level of computer consciousness.
Update 6/16/17: Facebook said it was using artificial intelligence (AI) to search out terrorist accounts and propaganda in its pages. The company has already deleted hundreds of thousands of accounts and it making it harder for users to reopen new accounts under different names. Fortunately, Facebook has years of history from those deleted accounts and has developed algorithms to compare new account activity against those old posts and automatically discover and delete new terrorist accounts.
Closed 6/29/17: Long Aug $150 call @ $4.75, exit $6.00, +$1.25 gain.
Previously closed 6/9/17: Long Aug $150 call @ $4.90, exit $6.80, +$1.90 gain.
IWM - Russell 2000 ETF - ETF Profile
The IWM dropped from the recent high to a low of $139.65 which was exactly our stop loss.
Original Trade Description: June 22nd.
The Russell 2000 represents the 2,000 smallest stocks in the Russell 3,000, which is the largest 3,000 stocks in the market. They are routinely called the small cap stocks but the index contains a lot of midcap stocks as well. There is a smaller index called the Russell Microcap index for even smaller stocks.
On the Friday in June after quadruple witching expiration, Russell rebalances their indexes. Some stocks move up from the R2K to the Russell 1000 and some move down from the 1000 to the 2000. Other stocks are added like IPOs or stocks that have grown to the point where they qualify for insertion. Others that are in a downtrend, have seen their market cap shrink and they no longer qualify for inclusion.
Russell put out their updated list of additions and deletions last week. All the fund managers that index to the Russell indexes have to buy the additions and sell the deletions at the close on Friday. A lot will actually do it at the close but some have been making changes for the last several days. A lot will begin selling earlier in the day to avoid the rush.
Since selling a stock that is technically still in the index until the close will make index decline, the Russell 2000 "should" close at the low for the day. Buying additions to the indexes on Friday has no impact on the indexes since they are not technically index components until Monday. Since fund managers will be adding positions and adjusting most of next week, the index should rise.
In theory, the Russell should decline into the close on Friday. I am recommending a short-term call on the Russell IWM ETF. We only want to hold it a week or maybe two.
Closed 6/29/17: Long July $141 call @ $1.60, exit $1.28, -.32 loss.
PYPL - PayPal - Company Profile
No specific news. Only a minor 97 cent decline.
Original Trade Description: June 21st.
PayPal Holdings, Inc. operates as a technology platform company that enables digital and mobile payments on behalf of consumers and merchants worldwide. It enables businesses of various sizes to accept payments from merchant Websites, mobile devices, and applications, as well as at offline retail locations through a range of payment solutions, including PayPal, PayPal Credit, Braintree, Venmo, Xoom, and Paydiant products. The company's platform allows consumers to shop by sending payments, withdraw funds to their bank accounts, and hold balances in their PayPal accounts in various currencies. Company description from FinViz.com.
PayPal started out as a payment system for Ebay. Since then they have moved into dozens of areas including credit cards, peer to peer payments. Instead of being locked into one business model, they are rapidly expanding to multiple business models. Recently they partnered with MasterCard and Visa to have their digital payments processed on their systems. The company is expanding the scope of its Venmo payment platform, which handled $6.8 billion in Q1, up 114%. This peer to peer app will now allow you to pay for goods at any merchant that accepts the app, just like Apple pay.
In Q1 PayPal revenue rose 17% to $2.975 million and earnings rose 5%. Total accounts rose 23% to 203 million. As a comparison, Mastercard's revenue was less at $2.7 billion. That is a shocker to most people.
With their Q1 earnings, PayPal committed to buy back $5 billion in stock.
Expected earnings July 26th.
Shares dipped with the Nasdaq tech crash but are recovering. Their recent high was $55 and shares closed at $53.50 today. Options are inexpensive.
Long August $55 call @ $1.58, see portfolio graphic for stop loss.
RH - RH Inc - Company Profile
No specific news. Excellent relative strength.
Original Trade Description: June 26th.
RH, together with its subsidiaries, operates as a retailer in the home furnishings market. The company offers products in various categories, including furniture, lighting, textiles, bathware, decor, outdoor and garden, tableware, and child and teen furnishings. It provides its products through its retail galleries and Source Books, as well as online through rh.com, rhmodern.com, restorationhardware.com, rhbabyandchild.com, rhteen.com, and waterworks.com Websites. As of January 28, 2017, the company operated 85 retail galleries, including 50 legacy galleries, 6 larger format design galleries, 8 next generation design galleries, 1 RH modern gallery, and 5 RH baby and child galleries in the United States and Canada; 15 Waterworks showrooms in the United States and the United Kingdom; and 28 outlet stores. The company was formerly known as Restoration Hardware Holdings, Inc. and changed its name to RH in January 2017. Company description from FinViz.com
RH reported earnings of 5 cents that beat estimates for 4 cents. Revenue of $562.1 million beat estimates for $560.4 million. However, they guided for Q2 earnings of 38-43 cents and analysts were expecting 53-75 cents. That is not a misprint.
The company said it was ditching its prior merchandising model and switching to a membership model in order to make the company Amazon proof and enhance the customer experience. They are moving away from the highly promotional retail experience with constant sales and discounts and moving to a membership model where the focus will be on the customer experience. "Members" will pay $100 a year for the ability to shop in a high quality store where they will find only high quality merchandise.
The Costco CEO once told Jeff Bezos at an event that once people buy a membership they no longer price shop. Bezos went on to create Amazon Prime where customers pay $99 a year for a membership and the rest is history. RH is trying to duplicate that experience.
Shares crashed 26% to $42 on the guidance but the rebound has been amazing. Apparently, investors like the concept and the idea of a "Costco" model but in high quality products.
Earnings August 31st.
Shares closed at a 52-week high on Monday as shorts are being forced to cover. There are a lot of shorts! The surge over the May highs should be a trigger for an entirely new round of short covering.
Options are expensive because of the rapid gain since they changed the retail model. I am using September to retain that earnings expectation premium. We can buy time but we do not have to use it.
Long Sep $65 call @ $5.20, see portfolio graphic for stop loss.
Short Sep $75 call @ $1.26, see portfolio graphic for stop loss.
Net debit $3.94.
THO - Thor Industries - Company Profile
No specific news. Shares hit a new four-month intraday high on Wednesday but
Dropped $3 with the market today to stop us out.
Original Trade Description: June 24th.
Thor Industries, Inc., through its subsidiaries, designs, manufactures, and sells recreational vehicles, and related parts and accessories primarily in the United States and Canada. It operates through Towable Recreational Vehicles and Motorized Recreational Vehicles segments. The company offers travel trailers under the Airstream International, Classic Limited, Sport, Flying Cloud, Land Yacht, and Eddie Bauer trade names, as well as Interstate and Autobahn Class B motorhomes; gasoline and diesel Class A and Class C motorhomes under the Four Winds, Hurricane, Chateau, Challenger, Tuscany, Axis, Vegas, Palazzo, Synergy, Quantum, Compass, Gemini, A.C.E, Alante, Precept, Greyhawk, and Redhawk trade names; and fifth wheels under the Redwood and DRV Mobile Suites trade names. It also provides conventional travel trailers and fifth wheels under the Montana, Springdale, Hideout, Sprinter, Outback, Laredo, Alpine, Bullet, Fuzion, Raptor, Passport, Cougar, Coleman, Kodiak, Aspen Trail, Voltage, Cameo, Cruiser, ReZerve, Sunset Trail, Zinger, Landmark, Bighorn, Sundance, Elkridge, Trail Runner, North Trail, Cyclone, Torque, Prowler, Wilderness, Shadow Cruiser, Fun Finder, Stryker, Sportsmen, Spree, Venom, Durango, SportTrek, Connect, Sportster, Sonic, Jay Flight, Jay Feather, Eagle, Pinnacle, Seismic, AR-One, Launch, Autumn Ridge, Travel Star, Highlander, Roamer, and Open Range trade names. In addition, the company offers equestrian recreational vehicle products with living quarters under the Premiere, Silverado, Ranger, Laredo, Trail Boss, and Trail Hand trade names; lightweight travel trailers and specialty products under the Camplite and Quicksilver trade names; and Class A motorhomes under the Insignia, Aspire, Anthem, and Cornerstone trade names, as well as provides aluminum extrusions and specialized component products. Company description from FinViz.com
In a weak economy, Thor is kicking butt. The company reported earnings of $2.11 which rose 41.6% compared to estimates for $1.87. Revenue of $2.02 billion rose 57% beat estimates for $1.96 billion. Operating cash flow rose 26.2% and gross profits rose 45.5%.
Sales of towable travel trailers rose 52.6% and sales of motorized RVs rose 78.7%. There was no bad news in the Thor report.
Estimated earnings date September 4th.
With the company posting record earnings the stock spiked from $94 to $104 on June 6th. When the market dipped, shares only pulled back to $102. Over the last week they have returned to $108 and Friday's close was a four-month high.
Winnebago (WGO) reported earnings last week of 94 cents and analysts expected 66 cents. These blowout numbers by both companies prove how strong the sector really is. We can thank low oil prices for part of the surge in RV sales.
I believe we will see Thor continue to stretch its gains and head back to the highs at $115. I am using a September spread because of the high option premiums and September earnings date. We will exit well before then but that date will keep the premiums inflated.
Closed 6/29/17: Long Sept $110 call @ $4.55, exit $3.00, -1.66 loss.
Closed 6/29/17: Short Sept $120 call @ $1.46, exit $.86, +.60 gain.
Net loss $1.06.
BEARISH Play Updates (Alpha by Symbol)
FL - Foot Locker - Company Profile
The position was closed at the open. Shares only declined a penny in a bad market so it appears it may have been the right decision. Nike beat on earnings after the close and shares rose in afterhours.
Original Trade Description: May 15th.
Foot Locker, Inc., through its subsidiaries, operates as an athletic shoes and apparel retailer. The company operates in two segments, Athletic Stores and Direct-to-Customers. The Athletic Stores segment retails athletic footwear, apparel, accessories, and equipment under various formats, including Foot Locker, Kids Foot Locker, Lady Foot Locker, Champs Sports, Footaction, Runners Point, Sidestep, and SIX:02. As of January 28, 2017, it operated approximately 3,363 mall-based stores, as well as stores in urban retail areas and high streets in the United States, Canada, Europe, Australia, and New Zealand. The Direct-to-Customers segment sell athletic footwear, apparel, equipment, team licensed products, and private-label merchandise through Internet and mobile sites, and catalogs. This segment operates sites for eastbay.com, final-score.com, eastbayteamsales.com, and sp24.com, as well as footlocker.com, ladyfootlocker.com, six02.com, kidsfootlocker.com, champssports.com, footaction.com, footlocker.ca, footlocker.eu, runnerspoint.com, and sidestep-shoes.com. The company has agreements with third parties for the operation of 54 Foot Locker franchised stores in the Middle East and 5 franchised stores in the Republic of Korea; and operates 15 stores under the Runners Point banner in Germany. Foot Locker, Inc. was founded in 1879 and is headquartered in New York, New York. Company description from FinViz.com.
Foot Locker reported earnings of $1.36 that missed estimates for $1.38 and lower than the $1.39 reported in the year ago quarter. Revenue of $2.0 billion missed estimates for $2.02 billion.
The company blamed a delay in tax refunds for slow sales. Some refunds for poverty level consumers cannot be issued until after February 15th. I guess if you are on welfare and food stamps you need an "earned-income tax credit" refund to buy an expensive pair of Michael Jordan or Steph Curry shoes.
However, the CEO said the slow start in February was NOT offset by stronger sales in March and April. Doesn't that throw cold water on the tax refund excuse? Add in the rapid decline of the malls and their 3,363 mall based stores and the outlook is not good.
Same store sales rose only 0.5% and analysts were expecting 1.4%. Shares crashed 15% on the news and have not slowed the decline since then.
Estimated earnings date August 18th.
I kept thinking they would find a bottom and rebound. However, Tuesday's close was a three year closing low and the decline is accelerating rather than slowing. Finish Line (FINL) reports earnings on Friday and weak earnings there could be another weight on the sector.
This position was recommended on Tuesday but the stock gapped down $3 at the open on news that Nike might be considering selling its products on Amazon. That would be a killer for Foot Locker.
Since the stock gapped lower at the open the position was not entered. The option price more than doubled at the open to more than $2 and then dropped back to $1.45 at the close. I am recommending we enter the position at the open on Thursday now that the hysteria has passed. Long term, I still expect the stock to move lower.
Closed 6/29/17: Long August $45 put @ $1.75, exit $1.20, -.55 loss.
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