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Chart of Day: UPS is now a Steal

Feb 03, 2017

UPS was an easy trade for us.

A predictable disaster, if you will.

When we called for its downfall in December, the writing was on the wall. It became technically and fundamentally overvalued on excessive optimism of the herd.

And as we all know, the herd can kill your portfolio.

In late November 2016, the stock began to rocket higher on high hopes for the holiday shopping season. It would run from a low of $106.45 to a high of $120.44.

But that run never typically lasts.  

In fact, if you look back at the last four years, the stock has an historical tendency to pull back shortly after the holiday season sharply. This year was no exception. It just suffered its biggest drop in about two years because it still cannot adapt to a strong surge in online holiday shopping.

The company managed to swing to a net loss of $239 million, or 27 cents a share from a profit of $1.33 billion, or $1.48 year over year thanks in part to that issue. Revenue was up 5.5% to $16.93 billion, but missed estimates of $17 billion.

However, despite recent disasters, there is an opportunity.  

Technically, the latest drop seems to have run it course… and it’s become oversold on many of our metrics -- RSI, MACD, and Money Flow.  We’re now betting on an eventual bearish gap refill. One of the best ways to trade it is with the April 2017 105 UPS call at market.


Chart of Day: DSW on Sale

Feb 02, 2017

Here's an interesting trade idea.

Trading at less than sales, DSW Inc. (DSW) is a bit oversold. 

While analysts at Jefferies cut its ratings on the stock from “buy” to “hold,” given a tough retail environment, they also note that DSW is taking the right steps to restore profitability. Meanwhile, analysts at Mizuho Securities recently initiated a “buy” rating with a $29 price target, reflecting its confidence in the company’s ability to expand topline and earnings, despite traffic headwinds. They also note that there are opportunities with kids, a potential gross margin inflection point, cost savings and omni-channel capabilities.

Technically, the stock is sitting at very heavy support at $20.50 a share. As long as that hold, and in our opinion, it should, the stock could move higher. After catching similar support dating back to June 2016, the stock has a historical tendency to run from here to about $26. The hope is that can happen again.




Chart of Day: UPS Dives, as Hoped

Feb 01, 2017

In December 2016, as every one was rushing to buy UPS and FDX at its holiday highs, we recommended trading the short side of both with put options.

The sell off was expected, post-holiday season.

Take a look at the chart going back to 2014. As soon as January hits, the stock takes a hit, too. This year it happened again, falling more than $7 a share after swinging to a net loss of $239 million, or 27 cents a share from a profit of $1.33 billion, or $1.48 a share year over year. Revenue was up 5.5% TO $16.93 billion, but also missed estimates of $17 billion.

For 2017, the company expects adjusted EPS of $5.80 to $6.10, which is also below estimates for $6.15. Reportedly, the company had a tough time keeping up with demand, too, and offsetting higher costs.

If you went short UPS or bought puts on UPS in December, you stood to do well.

Chart of Day: Sears Hands us Easy Money

Jan 30, 2017

Sears is a mess. All that hope all would be okay for nothing. The only person lending it money is the CEO and his hedge fund. No bank will lend it money.

Even with $500 million in liquidity, it won’t be enough.

It’s why we recommended buying the SHLD March 9 put and, or the June 8 put on January 9, 2017, as each traded at $1.85 and $2.30, respectively.

As of today, the June 8 put last traded at $2.82. Sell to close half.

The March 9 put last traded at $3. Sell to close half.



Chart of Day: How We Traded NVIDIA

Jan 28, 2017

On January 10, 2017, we noted:

By far, NVDA was the best performer on the markets. Then, in recent weeks, it came under attack from a short seller, who argued that increased competition could send the stock back to $90. To me, though, that’s laughable with the stock likely to move aggressively higher from support at $100.

We’re not concerned about downside.

In fact, we have a price target of $120 on the stock after it found support.

Better yet, the company just partnered with German automaker, Audi to bring autonomous cars to the market by 2020. And, on January 6, 2017, B. Riley, Needham, and UBS reiterated their buy ratings on the stock.

And, with further industry consolidation likely, coupled with the growth of the Internet of Things (IoT), upside appears to be unlimited for related stocks.

There are two ways to trade NVDA here. One, you can buy the underlying stock up to $110. Two, you can sell to open the NVDA February 105 put for a credit of $7.30. Or three, buy to open the NVDA February 110 call at market.

If you traded each of those, you’ve done quite well so far.

On January 10, the stock traded as low as $105.63. It’s now up to $111.77.

If you sold a put on the February 105, you had an opportunity to collect a credit of around $7.50. As long as this expires worthless, you get to keep that premium. As the underlying stock slips more and more, the put is now worth $3. That’s great news.

Finally, if you bought the NVDA February 110 calls, which traded at $7.70 that day, you’re down slightly. But we expect for the trade to close in the money.

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