As you likely noticed in yesterday’s Tematica Investing, the velocity of earnings reports are hitting just as we get another round of political uncertainty in Washington over the latest initiative to repeal and replace the Affordable Care Act and overhaul the US tax code. In a somewhat surprise move as more details were made available over the plan to slash corporate taxes to 15 percent from 35 percent, reducing and simplifying individual tax rates and a “one-time” lower repatriation tax rate for the more than a trillion dollars in corporate cash being held outside the US. While policy proposals such as these tend to be fraught with negotiations and pushback that could ultimately alter the final outcome, it’s already being reported that House Speaker Paul Ryan on Wednesday said Trump’s plan is 80 percent aligned with House Republican proposals. That likely raises the probability of Trump’s plan getting more support than the first attempt at repealing and replacing the Affordable Car Act, but even so, it still doesn’t guarantee passage.

As we get more details, we’ll start to piece together a short list of domestic-focused companies that are likely beneficiaries of lower corporate tax rates, but first, we have to make it through the near tidal wave of corporate earnings reports that will hit later today and again next week. While we’ve had a number good reports, the next week will reveal the real outlook for EPS growth at a time when the market’s run-up earlier this week has left its valuation stretched even further.

If you’re thinking it makes sense to hang on to our inverse ETFs and short positions in General Motors (GM) and Simon Property Group (SPG), you’d be correct. Earnings aside, next week’s economic data — March Personal Income & Spending and April auto & truck sales — will be the next key data points to watch for these two short positions. With loan volumes slipping amid rising auto load delinquencies, we continue to be bearish on GM shares. Similarly, when it comes to brick & mortar retail, CNNMoney ran a story titled, “Stores are closing at an epic pace” just a few days ago. It reminds us that even though companies have announced closings, it doesn’t really hit until they actually start shutting them down. In reviewing the data, it’s looking like more than 8,600 brick-and-mortar stores will close their doors in 2017. By comparison, 2,056 stores closed down in 2016 and 5,077 were shuttered in 2015, and for those wondering the worst year on record is 2008, when 6,163 stores shut down. That means 2017 is going to be painful for mall operators like Simon Property Group and we remain bearish on the shares.

• We continue to have a Sell rating on GM shares with a price target of $30. 
• Our buy stop order on GM remains at $40. As the shares continue to move lower, we’ll look to revisit our buy-stop loss further with a goal of using it to lock in position profits.
• With retail pain likely to intensify, we continue to have a bearish view on SPG shares. Our price target on SPG remains $150 and our buy stop order remains at $190.
• As SPG shares move lower, we’ll continue to ratchet down this buy stop order as well. 

Holding Tight on our FB Calls As We Raise the Stop Loss

Now let’s turn to our Facebook (FB) May 2017 $150 calls (FB170519C00150000), which closed last night at $2.19, 53 percent above the blended cost basis given our two buy-ins. After tomorrow’s market close, Alphabet (GOOGL) will report its quarterly earnings and odds are it will see some negative impact from its recent YouTube advertising backlash. We expect Facebook to have been a beneficiary of that pulled advertising, and on Alphabet’s earnings call we’ll be listening to determine how quickly those advertisers are returning. Facebook itself will report 1Q 2017 results next week, which as you’ll recall was one on of the reason why we selected the May expiration date.

As we noted last week, we would be buyers of the calls up to $1.30 and we have clearly passed that level, which means we would not add to the position at current levels. Last week, we also set our stop loss at 0.70, but given the sharp move higher in the calls we are boosting that to 1.90, which will lock in a 32 percent gain for the position. With that in place, let’ see what Alphabet has to say later today.

• As we continue to hold our Facebook (FB) May 2017 $150 calls (FB170519C00150000).
• Ahead of the companies upcoming earnings report that will be issued next week, we’re boosting our protective stop loss to 1.90 from 0.70.