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Jetblue (JBLU) Covered Call 9.25.2012

Revenue growth reported by the company has shown in their earnings. Two out of the last three earnings beat expectations with the last earnings report up twice as much from the 2011 levels. Yearly earnings from 2011 were down from 2010, but expected earnings for 2012 are expected to grow $0.21. Annual revenues have grown as well, with expectations of $5.0 billion in sales for 2012.

JBLUE opened today at $4.98 and is trading between $4.93 and $5.03. The 52 week range is $3.40 to $6.32. The stock hit its 52-week high around February and has been on a slight decline since, but generally has stayed around $5 for the past three months. The stock hit its low in November 2011. JBLUE’s market cap is $1.41 Billion.

My covered-call trade is to buy the stock at $4.96 and sell the Jan13 5 Calls for a credit of $0.40.

Breakeven: $4.56

Max Profit: $0.44 (+8.87%)


JBLU Chart


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Is it Organic to Fill the Gap 9.25.2012

HAIN Gap Analysis:

Hain Celestial has given back all of its post earnings price action, but the question now is…will it give back its earnings gap up. HAIN has a short interest of nearly 11%; this figure has interestingly enough been tracking up with the stock as shares have raged over 90% YTD. The 50 day is roughly at $61; which is right on the 50% Fibonacci retracement level. HAIN also had a textbook dark cloud cover bearish reversal at its top. The dark cloud cover pattern, highlighted in chart 1 below, shows that the bulls advanced the stock to a new high, only for the stock to gap higher the next day and fail closing lower; taking out the prior day’s low.

 mark1

The current pattern in HAIN looks like another momentum stock…AMZN; post one of its earnings (see chart 2). Here AMZN gaps higher, rallies for some time, but eventually came back to test where it came from and held.

 mark2

TFM Gap Analysis

Bearish Belt Hold Line: Here TFM made a new all time high but promptly retraced all of the gap; and more.  A bearish belt hold is a long red candle that opens at the day’s highs and later closes at, or near, the lows. This pattern is considered to be a top reversal at a high price level. TFM, being clearly rejected, has consolidated and respected the lower end of this candle, but may be looking to break out…for it closed above its 50 day moving average and has been consolidating in a tight right triangle trading at a very low relative average true range (ATR). All below in chart 3.

mark3

WFM Gap Analysis

WFM traded down as a result of “collateral damage” after CMG dropped an earnings growth bomb on the market back on 07/19/12.  WFM proceeded to then gap higher after its earnings. This retraced all of the negative CMG action. The market basically said WFM should not trade down because of CMG; consequently this gap will probably not fill in the short term.

The last three candles in the WFM chart may be forming a stalled pattern. This is where the trend slowly starts to fade and indicates a reversal. The loss of momentum is shown as candlesticks get smaller, ATR goes flat and lower, and Bollinger-band width tightens. Chart 4 & 5 below.

mar4

Mark5 

 UNFI Gap Analysis

UNFI gapped down after their Q4 and full year fiscal 2012 earnings release.  The low tick of the gap down candle was $0.50 away from the 100 day moving average; perhaps as traders realized value or at least liked a support level for a potential trade with a $0.50-ish stop. Additionally, the candle body battled above the 50 day moving average, and gave it a long bottoming wick (see chart 6). A long bottoming wick is a ‘wicked’ powerful pattern especially if a bullish confirmation bar accompanies it. As we come back to prior highs it will be important to watch price, as unhappy buyers (prior to earnings) had to sit through a stressful time and may want out.

 mark6

Feel free to e-mail any comments, feedback, or general inquiries…

Author

mark@keeneonthemarket.com

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Morning Rage 9.25.2012

The tech industry was hit hard yesterday as most of the major players ended down except for Google ($GOOG). Google reach a new all -ime high yesterday of 750.04 and traded in a $20 range. Google ended yesterday up about $15 and continued to surge up another $3.25 after hours making another new all-time high of 752.63.  Other tech stocks didn’t perform as well, Microsoft ($MSFT), Apple ($AAPL), Intel ($INTC), and HP ($HPQ) were all down more than one percent. Apple fans may have to wait for iPhone 5 resupplies around the world because the new front glass component production cannot keep up with demand for the phone.

On the topic of tech stocks, Red Hat ($RHT) released its Q2 earnings, which missed analysts projections causing the stock to tumble an extra $1.74, or 3%, on top of its $0.10 drop yesterday. Red Hat’s earnings projections were lower than Q1 but were still missed by a penny. The fine print reads that the penny lost was due to one-time closing costs.

Two housing reports will be released today, the S&P Case-Shiller HPI and the FHFA House Price Index. The Case-Shiller report tracks housing price changes throughout 20 major US cities and the FHFA report uses data from mortgages to track pricing. With housing news consistently positive in the past few weeks, I would expect more of the same today.

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LEN Post Earnings Analysis 9.24.2012

 On the fundamental side, LEN is one of the nation’s largest homebuilders. Today they reported results for their third quarter ended August 31, 2012. Third quarter net earnings attributable to Lennar in 2012 were $87.1 million, or $0.40 per diluted share, compared to third quarter net earnings attributable to Lennar of $20.7 million, or $0.11per diluted share, in 2011.

Key metrics to look at include the following…

-Gross Margin expanded 210 bps to 23.2%

-Operating margin improved 440 bps to 11.2%.

-New orders of 4,198 homes – up 44%; cancellation rate of 17%.

-Backlog of 4,513 homes – up 79%;

– And finally Backlog dollar value of $1.3 billion – up 95%

While all these metrics and figures sound just chummy, what explains the price action? Here we could turn to the options market. The $38 straddle was $3.47 as of the close on 09/21/12 or just under 10% of the stock. This is however using the October options, which still have a lot of time value in them; so that is not the best indicator for an event or implied move.

 The next way to possibly explain the price action would be to turn to the analyst community.  Here, the street is rather neutral to bearish on the name. The average price target is $33.69 and most have hold rating. It is interesting to look at the short interest too. The bears account for 20% of the float, meaning 20% of the float is short.  This has however been trending down, short covering, since July 15, 2012 as the short interest has fallen 7.1% as some bears concede defeat.

 Perhaps with the massive 91% gain YTD LEN needs to take a rest and settle down into its moving averages.

Feel free to e-mail any comments, feedback, or general inquiries to:

Author

mark@keeneonthemarket.com

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RHT Earnings Play of the Day 9.24.2012

Earnings have stayed steady over the last four quarters, within a range of $0.28 to $0.30 cents. Analysts expect the trend to continue, projecting $0.29 for Q2 and $0.30 for Q3. Overall, 2012 beat estimates by 2% and were up $0.29 from 2011. 2013 earnings are expected to advance $0.09 from 2012, to $1.19. Forbes Magazine rates Red Hat the 4th most innovative company in the world. The company spends 2.5% of its revenue on research and development. Revenue for 2012 was up 24.6% from 2011, to 1.13 Billion.

RHT is down $0.60 for the day, about 1%, trading between 56.73 and 57.81. The 52-week range sits between 37.82 and 62.75. RHT hit a high in the beginning of May, fell almost $12 by June and has been trending higher in a volatile fashion. The market cap is 11.01B. The stock is close to its all time high, not counting a 2-1 split pre-millennium.  Tech sector is down almost 1% on the day, with Red Hat’s major competitors all down slightly. 

The ATM 57.5 straddle is currently priced around $6.00.  This is implying a $6.00 move in either direction, or a 10.5% move.  This gives us an upside measure move target near $63.00. The open interest is highest in calls at the 62.5 and 67.5 strike prices. 

Trade: Buy Oct 60-65-70 Call Fly for 0.75

Risk: $0.75

Reward: $4.25

Break Even: 60.75 and 69.25

Strategy: If I get a nice move I will generally take off half and let the rest ride to expiration.

RHT Trading Plan 9.24.2012

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Unusual Option Activity 9.24.2012

Paper bought 13,081 FRX Jan 2013 41 Calls for $.35 (16.7 times usual volume) when stock was trading $36.20

Paper bought 5650 AVP Nov 18 Calls for $.35 (5.4 times usual volume) when stock was trading $15.84

Paper sold 1571 PKG Oct 35 Puts for $1.20 (5.4 times usual volume) when stock was trading $34.91