Earlier this morning we sent out an alert where we added DIS May $105 calls (DIS160520C00105000) up to $1.85 with a stop loss at $1.15, as well as XLY May $80 calls (XLY160520C00080000) up to $1.50 with a stop loss at $1.00. Click here to see the full details of that note in case you missed it. 

We also noted in this morning’s post that truck retailer Rush Enterprises (RUSHA) would be issuing its March quarter results…. well, the company did and its heavy truck performance during the quarter, as well as its outlook was less than stellar. More specifically, the company saw a 34% drop in its heavy truck sales year over year during the March 2016 quarter — a far steeper decline than the overall industry, which experienced a 6% drop in heavy truck sales year over year.  Given Rush’s relationship with Paccar (PCAR) that we noted in this morning’s Tematica Pro, this is the latest sign that does not bode well for Paccar’s March quarter business.

Moving past the March quarter, Rush noted the most recent ACT Research 2016 forecast for heavy truck (Class 8 ) retail sales, which calls for an 18% decline year over year to roughly  207,000.

Here’s the thing — if we annualize industry retail sales in the March quarter, we get a figure near 213,000, which means retail sales are likely to slow even further in the coming months. That likely means heavy truck retailers like Rush will be minding their inventory, adding only as they need to, and we are likely to subsequently see this reflected in weaker production levels at Paccar and other heavy truck manufacturers. During periods falling production levels, manufacturers tend to get more aggressive on price to keep their lines of production running as best they can, which tends to result in a double hit to margins and profits.

Paccar will report its quarterly results next Tuesday (April 26) before the market open, but we are making a move now:

Recap of Action Items from this Week

• Adding the Paccar (PCAR) May $55 put (PCAR160520P00055000) that last traded at $1.55 to the Tematica Pro Select List. 
• We would be comfortable adding this position up to $1.75.
• To manage risk we are adding a protective stop loss at $1.15.