Blog Archives

This Looks Familiar

Good morning y’all, hope everyone enjoyed the weekend. A little late with our preview today as someone may have been celebrating  an anniversary a little too much last night and was responsible for today’s morning post. This week is shaping up to have a similar feel to last week as the same news events will likely be driving the markets for most of the week, starting with President Barack Obama’s pre-recorded address airing tonight on the major networks. Charlie Rose conducted an interview with President Bashar al-Assad in which he adamantly denied use of chemical weapons, stating that the weapons were used against his own forces. The situation remains a pressure cooker that could have catastrophic repercussions if handled incorrectly, which means volatility could return to the market at any point stemming from related news. Speculation over Fed tapering will likely continue as well, which we would welcome with open arms for our $T and $HD positions.

In the meantime, we appear headed for a higher open as S&P futures have traded in a tight range over night but are sitting up 3-4 points. Apple $AAPL is trending up in premarket action as the run-up into the company’s events tomorrow and Wednesday has begun in earnest. Look for continuation throughout the session today as the stock looks ready to break out, but there is the stigma that Apple’s events have become “buy the rumor, sell the news” situations, so take profits and trail with stops if you’re long stock. We remain long via both stock and options, and we may look to take off a portion of our options position today if the stock really surges.

Molex $MOLX is making news this morning on reports that the company is being bought out for $38.50 per share by Koch Industries, a premium of roughly 30%. The stock is halted and we’ve placed a large, low-ball limit bid in the stock as a lottery ticket, but we have no expectation of getting filled. Blackberry is also trading up over 4% in the pre-market as speculation continues over a possible buyout of the Canadian smartphone maker. While a takeover does seem imminent, these events are so hard to predict and there will likely be several head fakes in the stock before a deal is announced. Finally, Facebook $FB is up once again on another upgrade and $50 price target from Sterne Agee. Zuckerberg continues to count his billions.

One name we will be watching closely this week is Tesla $TSLA. The stock has begun to move sideways and is flirting with a breakdown below its 8 day moving average. Any short in Tesla must be tactical as the stock remains on an incredible trajectory with a strong chart, but opportunities to the short side may present themselves if the stock cannot resume upward momentum.

We’ll take a deeper dive in our mid-day update into some other names – one of us is a little behind this morning. Good luck out there today everyone, stay tactical and profitable!

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Mid-day Update: Jobs, Obama, Putin Take Center Stage

Pretty interesting morning with plenty of action to investigate. The jobs number was just shy of abysmal, considering all the absurd downward revisions to previous numbers. The unemployment rate continues to be a fabrication as US labor participation rates are basically sitting at a generational low, and even the 169,000 jobs that were added in August were fairly flimsy. The markets have maintained the “bad news is good news” mantra that has catalyzed several legs of the 2013 rally, but we had a second piece of news that throttled markets shortly after the jobs number. Russian President Vladimir Putin injected some fear into the markets by stating that Russia would back Syria against any foreign attackers, namely the US. The S&P’s sell off from the morning’s initial highs accelerated on these comments, shaving roughly 20 points in 30 minutes. President Obama quickly issued a statement and took questions regarding the Syrian situation, reinforcing his stance that Assad’s use of chemical weapons should not be tolerated. The S&P quickly reversed off the lows and proceeded to grind higher over the next hour before settling in around 1,660, right back at the morning highs.

ImageSeveral stocks followed the broader markets V movement, with names such as $AAPL, $GMCR and $GOOG moving lower before eventually recouping early losses. In the case of $GMCR, we saw heavy put volume in the September $80 contracts that caught our eye, and we initiated a position at $1.86 that is working nicely for us at the moment. We also attempted to play a continuation trade in $IMMU that did not work out as the stock lost momentum, and we took a small loss. We’ll stick with the $GMCR trade as long as it continues to fade towards session lows, which could make for a nice day trade.

Image$FCEL has traded in a tight range for most of the day on heavy volume once again, and we are encouraged that the stock is holding its range from yesterday. We continue to see heavy (and we do mean HEAVY) $T put buying, with open interest on our October $31 contracts pushing 60,000. Those puts have appreciated today and we continue to see downside potential in the chart. $HD sold off along with the broader market and has rebounded some here in the middle of the day, although we wouldn’t be too concerned until the stock can regain its 8 day. Could be quiet here for the rest of the day, but we’ll keep our eyes peeled for any opportunities.

 

Jobs Friday

Happy Friday y’all. Well, the “most important jobs number ever” is upon us, with NFP coming out at 7:30 CST. Consensus is calling for an addition of 180,000 job, while Goldman Sachs is the resident optimist on the street with an estimate of 200,000 additional jobs. We’ll cop out and say jobs fall somewhere in between there, and we’ll throw our hat in the ring with an estimate of 189,000 jobs.

So what does this mean for the market? Well, it’s hard to say right now, but we’ll take a stab at it. Markets have shown a considerable amount of resiliency this year as bad news has been good news and good news has been good news. Anything aside from a disastrous jobs number will probably signal to the Fed that we are ready for tapering (though the actual jobs picture is still fairly putrid – Bloomberg flashed a great chart this morning showing a massive deceleration of full-time jobs versus rapid growth in part-time jobs, rhetoric that is being translated as “a job is a job,” which I’m sure many Americans would disagree with). In our view, we’re not convinced that tapering is a death sentence for the market like some pundits are expecting. We partially outlined our stance yesterday, and we do believe that interest rate sensitive equities will take a hit, but with expectations of tapering happening sooner rather than later, perhaps equity markets have already priced in that expectation. That’s not to say that markets will surge out of the gate no matter what today, but we would refrain from calling tapering a major downside catalyst.

There are still other factors that could send the market into a swoon, including the ongoing situation in Syria and the seemingly never-ending debt ceiling debate (which feels like a non-event). While it is likely the proverbial can will be kicked once again when it comes to the debt ceiling, predicting an outcome in Syria is an exercise in futility as the Obama administration has been horrendous when it comes to execution. Let the market react as it will, just be wary of leaning too hard one way or the other. This is a headline-driven market until further notice, and selectivity will be paramount until these events are in the rear view mirror.

We pared our gross exposure yesterday to pocket some gains and allow some added mobility ahead of this jobs number. Whatever your market sentiment, just remember one thing today: keep your head on a swivel.

(Anchorman is clearly a theme this week)

Got a prediction for the jobs number and the corresponding market reaction? Throw it in the comments.

Bonds, Bonds, Bonds

Morning y’all. Sovereign debt and economic stimulus is making all the headlines with the US  and German 10-Year yields inching higher. The US 10Y is trading at roughly 2.94% while the German bund clipped 2% for the first time since 2012. The ECB is leaving benchmark interest rates unchanged at 0.5%, and the Japanese yen crossed 100 while the Nikkei rallied overnight for modest gains.

S&P futures are more or less flat this morning ahead of perhaps the biggest jobs data we’ve seen since the last release (rimshot!). In all seriousness, today’s jobless claims and Friday’s jobs report will be paramount in the decision making process regarding tapering, which should accelerate the rise of rates. While recent jobs data has shown decent growth, we’re not convinced that the underlying economy is as stable as some of the pundits would have you believe. With that said, we think it is indeed time to taper to allow this market to make a directional move without being throttled by every headline coming out of the Fed. Look for a lot of commentary regarding tapering in the coming days, while headlines out of the G20 and continued discussion regarding the Syrian situation could serve as shocks to the market. We would expect the market to take a definitive direction following today’s jobless claims.

On the company front, not a ton of news this morning. Yahoo $YHOO made a “splash” by unveiling a new logo… yawn. The stock has been on quite a tear this year, but Marissa Mayer is going to need to start delivering sooner rather than later, and we’re not sure how spending $1 billion on Tumblr is going to radically alter the face of the firm. Samsung is still in the spotlight after yesterday’s product reveal, setting the stage for Apple’s $AAPL event next week. The perpetual turnaround story at Groupon $GRPN received another shot in the arm from Morgan Stanley with an upgrade to overweight. Groupon has been acquiring warehouses to improve distribution of its consumer goods, and the company’s mobile efforts have shown improvement. As Chicagoans, we’ve always had a healthy disdain for the Groupon platform and in the few times I’ve been to the site, I’ve rarely found deals that are even of vague interest to me. Still, it’s hard to argue with the direction of the stock, and it seems like getting Andrew Mason out of the way has reignited the fervor of growth surrounding this name. Still, we can’t see Groupon becoming a serious competitor for Amazon $AMZN just yet, as some have speculated.

We’ll be looking to manage our $FCEL position today as the company has surged higher following a strong earnings report. The conference call is slated for this morning and we will be looking for further commentary on profitability in the coming quarters. Seasonally, this stock has performed well during fall trading, and we may be hesitant to exit our positions if the stock can hold gains today. We’ve been preaching it all week, but it remains difficult to have conviction in either direction with so many external variables impacting markets, and this is an environment that presents very few buying opportunities for long-term holdings. For now, we will stay nimble and try to be extremely selective when taking day, swing and momentum trades.

Post Game – $FCEL Comes Up Roses

Now that’s more like it. Today was a much better directional day for those looking to trade momentum as the market didn’t have much of a reaction to the Senate’s approval of military action in Syria. The S&P 500 traded higher roughly 1% before moving sideways for most of the afternoon. The stock encountered some volatility as news trickled out from Washington that the Senate Foreign Relations Panel had approved the use of force by a slim 10-7 vote. Still, the full Senate and House of Representatives need to sign off on the plan before action can be taken, and those prospects were dealt a significant blow as some lawmakers voiced their disdain (including John McCain, though he is pushing for a more widespread campaign in the Middle East that will undoubtedly be meet with heavy resistance). The markets digested this news at the end of the day and still managed to close relatively close to the highs.

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We received a healthy amount of broad market and company specific news today, including the most recent edition of the Fed’s “Beige Book,” which is more aptly described as the state of affairs in the US economy. The most recent report showed moderate growth from most districts spanning July and August, boosted by stronger housing and car sales activity. This data was reinforced by solid August auto sales reports from both General Motors $GM and Ford $F. Samsung was the focal point of the lunch hour as the Korean tech giant introduced its Galaxy Note III phablet, a refreshed Galaxy Note 10.1 tablet and the all-new Samsung Gear Smart Watch. While the Smart Watch boasts some interesting features and could be a compelling device in conjunction with a Samsung smartphone, none of the devices felt particularly revolutionary, with most new features in the phablet and tablet feeling incremental at best. Apple $AAPL shareholders did not appear too concerned regarding the new product lineup, as the stock hung tough in a range between $498 and $500 for most of the day. LinkedIn $LNKD made additional news after hours as the price of its equity offering came in at $233 per share, which caused an additional sell-off in to that level after the market closed. $LNKD could be an interesting reversal candidate after the large move down in the last couple of days, and we may explore initiating a position here in the next few days, though external events have prevented us from having much conviction in new positions in recent days.

In terms of our portfolio, we made a conservative short in the $SPY in the middle of the day, with half of our position in weekly $165 puts coming off the books for an 11.4% gain. We don’t feel terribly comfortable having the other half of the position on overnight, but we get the feeling this market is on somewhat unsteady footing, and any new headlines pointing towards accelerated action in Syria could trigger a selloff. We wouldn’t discount the prospect of increased tapering talk either, as the Beige Book report suggests that it could be coming sooner rather than later as the broader economy appears to be making decent progress. We are of the belief that Ben Bernanke will want to initiate tapering before his time as Fed Chairman is up to prove that the economy is in a position to stand up on its own, and in our view it is time for that Fed to get out of the market’s way.

The big news in our portfolio today comes from one of our largest positions, FuelCell Energy $FCEL. The firm released its quarterly earnings after the bell that showed monstrous top-line growth of 81% year-over-year to a record $53.7 million. Gross margins came in at a record of 8.4%, though operating expenses remained on an upward trajectory. The company’s EPS was in line with estimates at -$0.03. The company also surprised investors by announcing a marketing agreement with NRG Energy that will boost FuelCell’s exposure and could aid cost savings. NRG will market the technology to its customers via either a PPA in which NRG would purchase the fuel cell power plants from $FCEL, or NRG could purchase the plants and sell electricity to the grid. This agreement should dramatically increase $FCEL’s exposure while providing avenues for larger projects down the road. Our stock and option positions in $FCEL should see a nice boost as the stock has been on the move after hours.

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Overall, a good day for Viking Trader. We’ll be back with more in the morning, but for now, hope everyone enjoys their evening.

Post Game – Check The Tape

That’s one way to start a month. What looked like a rip-roaring, bullish beginning for September was quickly erased by news from Washington regarding the Syrian situation. John Boehner offered the backing from the House of Representatives for President Obama’s military action in Syria, while the UN had its report from the region vetted while John Kerry and Chuck Hagel outlined a plan of action to Congress. Markets rallied some late in the session and closed off of the lows, with the S&P 500 closing at 1639.77, though well of the morning’s highs of 1651.35.

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Today was a lesson in how not to manage your trade. We identified two profitable entries, one in the morning and one in the afternoon, one long and one short, and we mismanaged the exits on each position. We took an early long in $DDD that should’ve been good for a nice gain had we been more prudent near the highs of the day. Conversely, we got long puts in the middle of Tesla’s $TSLA plummet from the highs that could have gone for a 20% gain, but we pushed the envelope thinking the broader market would continue to sell off. We lost some money on the $TSLA trade while breaking even in $DDD.

Our active positions performed fairly well today. Apple $AAPL managed to stay green all day despite the aggressive selloff, and AT&T got slammed for most of the day, closing near the lows while driving up put premiums. We also saw gains in our $TAP put position. Our focus turns to $FCEL tomorrow as the alternative energy company is set to report earnings. In case you missed it, we initiated a call position in the stock earlier today.

We held off on making any additional moves today as the market’s bounce off the lows made it difficult to have much conviction either way. Most names gave back a significant portions of early gains, and it became difficult to separate leaders from laggards at the end of the day as the market recovered from the lows. Hopefully tomorrow will provide some more direction, but we expect we will need to remain nimble in the coming days as the situation in Syria continues to play out. Once that situation clears, we must still deal with tapering and the debt ceiling, which will undoubtedly impact markets and could serve as a shot in the arm for the bears, but it is unlikely we will hear much on those topics until after Congress makes a decision on Syria.

Mid-day Update: That Escalated Quickly

Well, risk certainly happens fast, doesn’t it? The S&P 500 is quickly giving back all of the days gains as we appear to be filling this morning’s gap up. The $SPX traded as much as 1.12% higher early in today’s session, but comments from John Boehner that signaled Republican support of a Syrian strike reinvigorated bears and sent a wave of fear through the markets. Few names have held their gains from the early morning surge as the Syrian situation is acting as the wildcard we expected it to be. We tried to capitalize on the morning’s gains by taking a day trade in $DDD that we probably should have been more prudent with, as the stock traded as much as $1.48 above our entry of 53.30, but the stock never reached our initial aggressive target of $55 and we were stopped out at break even (actually, pennies above breakeven).

We initiated a position in FuelCell Energy $FCEL October $1 calls for $.35, and we remain the only action in the contracts on the day. The stock has held up well despite the accelerating selloff in the broader market, and we anxiously await earnings after the bell tomorrow. For more on this name, check out our post from yesterday here.

With the $VIX moving higher on speculation regarding military action in the Middle East, we are considering a position in $GLD as it approaches a potential breakout above $137.50. If you’ve been paying attention to the precious metal since the YTD bottom in late June, you are likely aware of the heaving buying activity that has been taking place at Goldman Sachs $GS – the same firm that was calling for gold selling for the majority of the second quarter. Perma-bears Zero Hedge highlighted the activity well here, and Syria may be the catalyst gold needs for another leg higher.

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Our portfolio has benefited from the sell-off for the most part, though we were doing fine with the morning’s rally thanks to our $AAPL position. $FCEL is down small while $AAPL is trying to hold its gains, but the aggressive sell-off in $T has been a boon for our puts, which have swung from $.18 to $.30 in half of a session. Our $TAP puts have also rebounded nicely and are trading $1.80/$1.90 at the time of writing.

We will keep you posted on any new positions we initiate, particularly in $GLD, $OIL or possibly $SPY if we close on the lows. It’s going to be hard to have conviction one way or the other on the broader market given the external variables, but there are still opportunities to capitalize on.

Syria in Flux, Summer Ends, September Begins, Spoos Surge

Happy Labor Day y’all. Hopefully everyone was able to disconnect for at least a little while this weekend despite a news-filled holiday. While a Syrian airstrike appeared imminent following Friday’s comments from the White House, President Obama chose to take the traditional route of seeking Congress’ support before launching a strike in the Middle East. This decision is a risky one for Obama, as his beleaguered relationship with politicians has prevented this administration from accomplishing much in the President’s second term. While Obama has the ability to call a special Congressional session to accelerate the timeline, it appears the administration will wait for Congress to return from its annual summer recess, though the President indicated that he does not necessarily need Congressional approval to launch a strike.

Meanwhile, markets have taken the news in stride, with S&P futures surging 10-15 points on last night’s open and extending gains into today. Markets around the world have rallied as well, with the Stoxx, CAC and Nikkei each rising more than 1%. While we speculated before the market’s open on Friday that the Syria sell-off may have been over done, we certainly did not expect such an aggressive rally in the worldwide markets to begin September, which is traditionally a bearish month. The Syrian situation remains a wild card and is likely to have an impact at some point in the next week or two as Obama calls on Congress to approve military action in the region, but for now we will take the bullish momentum in stride, a trend that has ceased to abate for the duration of 2013. If you leaned short on Friday, tomorrow may be a rough day, but that is simply the nature of the beast.

We didn’t take too much action on Friday aside from peeling off a losing $AAPL weekly option trade. We contemplated taking a position in the $SPY either via stock or weekly options, but given the uncertainty following Friday’s news out of Washington we chose to roll with our current position. However, this week should present plenty of opportunities to act as traders return from vacation, bringing volume along with them.

The name we’ll be focusing on the most this week is FuelCell Energy $FCEL. For those who are unfamiliar with fuel cell technology, it is an alternative energy source that converts natural gas and biofuels into electricity with minimal emissions, significantly lower input costs and zero reliance on the power grid. Fuel cells have been around since the principle discovery by Christian Friedrich Schonbein in 1838, but the first commercial use did not occur until well into the 20th century. $FCEL has been working towards profitability for years, and the company  has a healthy backlog and an installed base of just over 70 MW. The company has identified 80 MW as the necessary level to begin generating consistent positive EBITDA, with net profitability coinciding with an annual run rate of roughly 90 MW. The firm has landed several projects on the east coast, including the Bridgeport Fuel Cell Park in Connecticut, the largest in the United States. We have had a position in Fuel Cell for the better part of two years, and we view the technology as a compelling long-term investment opportunity.

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From a technical perspective, $FCEL has been stuck in a descending triangle for the last several weeks. In mid-April, a series of insider buys from management triggered a major reversal off of the YTD lows. Momentum in the stock continued through earnings after the company beat top and bottom-line expectations, sending the stock to a YTD high of $1.64. We took profits on last quarter’s earnings move after establishing a position under $1.00 per share in 2012, and we have been accumulating shares in the last few weeks at an average price of $1.27 per share. The stock broke out of its descending triangle on Friday on volume of just over three million shares, well above the 10-day and 90-day average volumes. We will explore leveraging our position with options this week, eyeing the January $1 and $2 strike calls.

We will also continue to explore opportunities in the high-beta tech space, including $TSLA, $FB, and $AAPL. We are also keeping our eye on the casinos, as the latest data out of Macau showed strong revenues for the month of August. The chart for Wynn Resorts $WYNN appears most compelling, while Las Vegas Sands $LVS and MGM Resorts $MGM may also provide an opportunity in the near term.

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$WYNN appeared poised for a breakout last week, as shares moved above $145 in trading on Monday before Syrian volatility triggered a sell-off during the rest of the week. The chart remains strong as shares bounced off of the 20-day moving average last week, and the rounded bottom pattern remains intact. If shares can advance above the $142-$145 range, it could ignite a move to $150 and beyond.