Retirement Plans Disappear When Parents And The Kids Return Home

Retirement Plans Disappear When Parents And The Kids Return Home

A recent Wall Street Journal article points out that the American dream is further out of reach for a growing number as plans for retirement go up in smoke thanks to the needs of aging parents and their adult children.

A 2014 study by the Pew Research Center found 52% of U.S. residents in their 60s—17.4 million people—are financially supporting either a parent or an adult child, up from 45% in 2005. Among them, about 1.2 million support both a parent and a child, more than double the number a decade earlier, according to an analysis of the Pew findings and census data.

Rather than enjoying the fruits of their decades of labor, many are finding that their household burdens are growing as they enter their sunset years.

More Americans find themselves housing two generations simultaneously, just when they thought they could kick back and retire. Instead, they face the strain of added expenses, constant caregiving and derailed dreams.

This pressure is coming as our Aging of the Population investment theme sees more senior citizens with inadequate savings and a healthcare system that is unable to provide the care they need at a price they can afford. On the other end of the spectrum, adult children are struggling with student debt levels the likes of which this country has never before seen and years of lackluster wage growth.

The squeeze is coming from both ends. With lifespans growing longer, the number of 60-somethings with living parents has more than doubled since 1998, to about 10 million, according to an Urban Institute analysis of University of Michigan data, and they are increasingly expensive to care for. At the same time, many boomers are helping their children deal with career or health problems, or are sharing the heavy burden of student loans.

This helps explain why discount retailers are expecting their customer base to continue to expand. Those companies that are able to help consumers push their dollars further [such as Amazon (AMZN), Costco (COST), Walmart (WMT)] have a growing set of tailwinds supporting them.

Source: ‘I Was Hoping to Be Retired’: The Cost of Supporting Parents and Adult Children – WSJ

No Sleepy End of  Summer in Sight

No Sleepy End of  Summer in Sight


We’ve survived the eclipse, and while the display was a bit underwhelming outside of the Beltway, we hope you enjoyed this rare experience that pulled 10 percent of US viewers away from Netflix while it was happening. Rest assured the consumers of streaming content that help power our Connected Society investing theme were back on board soon thereafter propelling Marvel’s The Defenders to a binge viewing pop after dropping last Friday. From time to time we may see speed bumps for our Connected Society investing theme, but much like trying to put toothpaste back into the tube, we don’t see a reversal in this tailwind or any other of those associated with our investing themes anytime soon.

If anything, as we break down the monthly retail sales data, examine data points such as the box office take and maneuverings by companies like Target (TGT) and Wal-Mart (WMT), we see that Connected Society tailwind blowing even harder as we head into the 2017 holiday shopping season. This morning it was shared that Wal-Mart is teaming with Alphabet (GOOGL) to bring Wal-Mart products to people who shop on Google Express, Google’s online shopping mall. What’s significant about this news is that it marks the first time Wal-Mart has made its products available in the U.S. on a website other than its own. Also, too, Wal-Mart is embracing aspects of our Disruptive Technology theme as it makes it products available to customers via Google Home (Google’s answer to Amazon’s Echo) as well as Google Assistant, its artificial intelligence software assistant found in smartphones powered by Google’s Android software.

Clearly, Wal-Mart is shoring up its position and investing for where retail continues to head — a path that is increasingly chartered by the Connected Society. To us, this development, along with Nike’s (NKE) recent teaming with Amazon (AMZN), is a clear signal of what’s happening in retail. It also says that lines are being drawn between those partnered with Amazon and those that aren’t. We suspect many will see this as evidence of the “retail-megeddon” that is upending the retail industry. Here at Tematica, however, our view is Amazon and Wal-Mart are in the thematic sweet spot and are positioned to become the Coke and Pepsi of retail.

We also continue to see Costco Wholesale (COST) emerging as the bronze medal winner in retail. The company’s July retail sales metrics certainly showed it is gaining consumer wallet share as it rides our Cash-Strapped Consumerand Rise & Fall of the Middle-Class tailwinds. Plus, Costco’s business model is also based on collecting membership fees, which continue to grow, and thus insulates it somewhat from the struggles of brick & mortar retail. In our view, if Costco were to acquire, that transaction would be a game changer for Costco’s digital shopping business.

  • We continue to have Buy ratings on Amazon (AMZN), Alphabet (GOOGL), Costco Wholesale (COST) shares with price targets of $1,150,  $1,050 and $190, respectively. 



The No Man’s Land that is the last two weeks of August. 

As we shared in this week’s Monday Morning Kickoff, trading volumes are likely to be lower these next 10 days ahead of the Labor Day weekend.  Of course, while many try to get their last bit of R&R in at a nearby beach or lake, Washington is once again taking center stage. As you have probably guessed that means some back and forth political maneuvering will push the market around over the coming weeks as renewed hopes of U.S. tax reform contend with President Trump threatening a government shutdown if Congress didn’t present him with a spending bill for the next fiscal year that included funding for a border wall. Not exactly the tone we’d like to hear ahead of the debt ceiling negotiations.

While we ultimately think the debt ceiling will be raised, we’re not looking forward to the “deadline is approaching” drama that will likely unfold. Giving us some reassurance, during a public event on Monday in Kentucky with Treasury Secretary Steven Mnuchin, Senate Majority Leader Mitch McConnell said there was “zero chance — no chance” that Congress would fail to raise the debt ceiling. Of course, that doesn’t mean it’s going to be a walk in the park getting there.

As we watch those developments, we’ve started to get some hints as to what tax reform might look like. Early indications suggest capping the mortgage interest deduction for homeowners, scrapping people’s ability to deduct state and local taxes, eliminating businesses’ ability to deduct interest and allowing for the “repatriation” of corporate profits from overseas. As we’ve seen with the efforts to repeal and replace Obamacare, the devil will be in the details, and more solid ones should emerge in the coming weeks.

Finally, less than a week into NAFTA renegotiations, President Trump has cast doubt on the future of the trade agreement saying, “I think we’ll end up probably terminating NAFTA at some point.” Again, the devil will be in the details, and until those emerge we’re likely to see corporate American hem and haw as it faces several new obstacles that are fanning the flames of uncertainty.

In our view, this is points to a potentially tumultuous next few weeks, low volume end of August followed by September, historically one of the worst months for the stock market. From a Tematica Select List perspective, we’ve seen the recent volatility ding some of the positions, but we remain comfortable given the confirming data points that we are seeing.

For example, during his address Monday night, President Trump announced a new strategy that calls for sending more troops to Afghanistan. Trump provided few specifics about his policy and how much the U.S. military commitment in the region would increase as a result. The decision, however, to further commit rather than withdraw equates to a tailwind for defense spending that is a part of our Safety & Security investing theme. Also, this week, security researchers have discovered several apps on the Google Play store harboring malware, another reminder of the downside to our increasingly Connected Society that provides lift for the cyber security aspect of our Safety & Security investing theme. As we look for details on incremental defense spending, we’ll continue to recommend subscribers add PureFunds ISE Cyber Security ETF (HACK) shares to their holdings if they haven’t already done so.

  • We continue to have a buy on PureFunds ISE Cyber Security ETF (HACK) shares with a long-term price target of $35.



More Tailwinds for OLEDs

Last week, as it reported a solid earnings beat and raised its outlook for the balance of the year, Applied Materials (AMAT) had several bullish things to say on organic light-emitting diode display demand:

“Display is growing even faster than wafer fab equipment as customers make multi-year investments to address large inflections in both TV and mobile. In TV, a major push to new Gen 10.5 substrates is under way. These huge, 10- square-meters substrates are ideally suited for manufacturing larger-format screens, 60 inches and bigger. We now expect 30 new Gen 10.5 factories to be built over the next several years. At the same time, mobile organic light-emitting diode (OLED) display investment is getting stronger as customers prepare for broad adoption of OLED in smartphones. OLED enables new form factors that result in a larger display area for smartphone, further expanding the overall market.”

We could not have summed it up better ourselves, and that report keeps us bullish on both AMAT and Universal Display (OLED) shares despite the recent pullback both have experienced.

  • We continue to have Buy ratings on both Applied Materials (AMAT) and Universal Display (OLED) shares with prices targets of $55 and $135, respectively


USAT Beats Expectations and Offers Bullish Outlook

Yesterday, shares of Cashless Consumption company USA Technologies (USAT) popped in early trading following an earnings and revenue beat for the June quarter. More specifically, the company beat bottom line expectations by $0.01 per share and topped revenues with $34.3 million, $3.2 million ahead of consensus forecasts, and up more than 55% year over year. Ticking through the press release there were a number of positive connection and customer metrics shared by the company and as expected the company offering a bullish outlook for the coming quarters.

That’s the good news.

The less good news is the company fell short when it came to discussing the impact of its recent stock offering that was completed in late July. Yes, during the current quarter, and we find that somewhat disappointing. The company did say, however, that it plans to “to take advantage of opportunities both organic and inorganic that may present themselves in this rapidly evolving landscape” and that means an acquisition or more. When peppered on the earnings conference call, USAT shared that it would seek acquisitions to “enhancing our offering with additional value-added services or allowing us to expand into additional verticals or geographies to drive further growth.”

Not a bad development by any stretch, but it is one that raises some unknowns, particularly for a small company. As we’ve heard many a banker say, the headaches associated with small acquisitions are the same ones with big ones, the only difference is the size of the fee. Given the size of the business as well as the team, the question is will USAT undertake nip and tuck acquisitions that add to its capabilities and expand its footprint or would it look to make a bolder move, potentially swallowing a larger player? We’re fans of the former, while the latter tends to result in some of those headaches such as product, facility, technology and spending integration and rationalization, as well as layoffs.

Given the global proliferation of mobile payments and the first-hand experience I had in Singapore, we’re going to stick with USAT shares for the time being. Based on any potential acquisition, we’ll look to digest the implications and what it may mean for holding the shares.

  • Our price target on USA Technologies (USAT) shares remains $6.



Disruptive Voice Technology Continues to Take Hold

Last night we shared the news that Barclays (BRC) has enabled voice payments to be made using Apple’s (AAPL) Siri functionality. This is another step forward in the disruptive use of voice technology as an interface across smartphones, intelligent speakers and soon other applications. As more and more applications come to market, we continue to be bullish on shares of Nuance Communications (NUAN) despite the slow tumble they’ve experienced over the last several weeks. As a reminder, the company has inked technology deals with Apple as well as Facebook (FB) to power their respective messaging chat bots even as the use of voice technology proliferates.

  • We remain bullish on Nuance (NUAN) shares, and our price target stands at $21.



Even Though DY Remains in Radio-Silence, We Continue to Be Patient

Next week Dycom Industries (DY) will report its quarterly results on Wednesday morning (August 30). Despite the ever-increasing need to add incremental wireless capacity and build out next generation wireline networks, in part for wireless data backhaul, to keep up with data demand, DY shares have sunk some 28% over the last three months. This equates to a round trip in the position from a high of just over $110 back to our blended cost basis of $76.68 on the Tematica Select List.

Frustrating to say the least. That frustration is compounded by the lack of news to be had from the company. Its last communique was at the Stifel Industrials Conference back in June. We know network spending at its key customers — AT&T (T), Verizon (VZ) and Comcast (CMCSA) — remains on track as they look to bring incremental 4G and gigabit internet capacity on stream, while beta-ing 5G capacity. Comcast’s recent launch of Xfinity Wireless also likely means additional wireless capital spending will be had in the coming quarters.

  • We’ll continue to be patient with Dycom Industries (DY), which is hovering in oversold territory.
  • Should the shares retreat further into the mid-$60s, we’re inclined to once again scale into the position, improving our cost basis along the way. 



The data tells us that things aren’t exactly headed in the direction of an expanding economy

The data tells us that things aren’t exactly headed in the direction of an expanding economy

The start of March — the last month in the current quarter — started off on a much softer note than January and February, with far more modest gains in the stock market. Call it the calm before the Fed storm, given the next Federal Open Market Committee meeting next week. As we’ve moved closer to the FOMC meeting, the market’s expectations for the Fed to boost rates have climbed, but at the same time, we’ve gotten a number of conflicting data points.

Earlier this week in the Monday Morning Kickoff, we pointed out the weaker than expected January core capital goods orders and shipments, as well as disappointing January personal spending relative to expectations previously. Added to the mix are light vehicle sales data from last week and then the Atlanta Fed cutting its GDPNow forecast for the current quarter to 1.3 percent, down from 1.8 percent on March 1.

Not the direction of an expanding economy, but rather a slowing one, given the latest view that GDP in 4Q 2016 clocked in at 1.9 percent. As we outlined in this week’s Monday Morning Kickoff, there are a growing number of reasons to be cautious and the downward move in GDP expectations is another one, especially given the market’s current valuation.

Another reason for our cautiousness was published by WalletHub this week in a report based on Federal Reserve data that reminds us the Cash-strapped Consumer is alive and well. Per the report, U.S. consumers racked up $89.2 billion in credit card debt during 2016, pushing outstanding balances to $978.9 billion, which is roughly $3 billion below the all-time record set in 2007. Let’s put that into perspective — it equates to the average indebted household owing $8,377 to creditors. Yikes!

WalletHub projects that in 2017 we will surpass the current record by at least $100 billion. Not so good for an economy that has become reliant upon the consumer. This also helps explain why Automotive News reported incentive spending by automakers averaged $3,443 per vehicle in February, up 14 percent from a year ago. Another warning sign.

We’d also add in the growing brouhaha over the efforts to replace the Affordable Care Act, which given the response to the House bill put forth this week, looks to be on a course that is going to be less than smooth sailing. Following the issues surround the Executive Order on immigration, our concern is the market could wake up to the fact that it is going to take more time than expected for President Trump’s fiscal policies, especially tax reform, to ignite the domestic economy.

Given all these issues, it should be obvious why we recently raised a number of our stop loss positions, and we’ll continue to review them on an ongoing basis. Odds are we could see the market pullback in the coming weeks, and our strategy will be to scale into several positions on the Tematica Select List at better prices.


Checking in on Applied Materials and It Looks Good

A few weeks ago we added shares of semiconductor and display capital equipment company Applied Materials (AMAT) to the Tematica Select List as a Disruptive Technology play. As a quick reminder, Applied’s business is benefitting from next generation chip and display technologies that are forcing a ramp in new equipment demand. We’ve talked much about the adoption of organic light emitting diode display that has powered our Universal Display (OLED) shares higher (up nearly 57 percent as of last night’s close), but Applied is also seeing favorable demand signals for its chip equipment business.

Earlier this week, the Semiconductor Industry Association (SIA) reported worldwide sales of semiconductors rose 13.9 percent year over year to $30.6 billion for the month of January 2017. We’d note that January marked the global market’s largest year-to-year growth since November 2010, which to us confirms that chips, not cotton, are the new fabric of our increasingly digital lives.

Strong chip sales mean industry capacity should get tighter and foster additional demand for new industry capacity, and thus orders for Applied’s chip equipment business. We’re seeing tight capacity especially in the global NAND flash storage market, which led to sharp average selling prices in during 4Q 2016 per data from DRAMeXchange. Tight NAND flash supply is expected to persist through 2017 as the industry migrates to 3D NAND technology, which is spurring equipment demand at Applied as Samsung and Toshiba look to increase their output of 3D NAND flash throughout 2017.

  • We continue to rate AMAT shares a Buy with a $47 price target.
  • We continue to rate OLED shares a Buy with a $100 price target.



On Deck – Disney’s Annual Shareholder Meeting

The Walt Disney Company Chairman and CEO Robert Iger. (Photo by Chip Somodevilla/Getty Images)

Later today Content is King company Walt Disney will hold its annual shareholder meeting, and while we don’t expect anything material to emerge, CEO Bob Iger usually offers a pretty good rundown of the upcoming movie slate. As we have seen in the past and again more recently with Frozen, Star Wars and Marvel movies, the films lead to new park attractions and drive its merchandise business. So yes, we will be tuning in to hear what’s said later today.

  • As the company continues to focus on tentpole films that will ripple through its other businesses, we continue to rate Disney a Buy.
  • Our price target remains $125.
A quick reminder on being stopped out on Costco.

Last Friday afternoon we were stopped out of Costco Wholesale (COST) shares on the Tematica Select List when they briefly dipped below our $170 stop loss. Even though it was for the briefest of moments, the $169.90 low for the day means that the protective measure was triggered following quarterly earnings that missed expectations Thursday night.

Recall we sold half the position for a gain of more than 14 percent before dividends, and when paired with the stopping out of the remainder of the position, the blended return before dividends on the Tematica Select was 14 percent vs. a 9.8 percent move in the S&P 500 over the same time frame.

Given the business model dynamics and Costco continuing to benefit from the Cash-strapped Consumer tailwind, we’re inclined to revisit the shares in the coming weeks. The shares have continued to trade-off throughout this week in the $166 to $167 range, but we’re keeping an eye toward getting them back on the Tematica Select List at even better prices.

Cocktail Investing Ep 6: The growing divide between the hard & the soft economic reports, CEO Chieh Huang

Cocktail Investing Ep 6: The growing divide between the hard & the soft economic reports, CEO Chieh Huang

In this week’s program, Tematica’s cocktail mixologists, Chris Versace and Lenore Hawkins talk about everything from the market’s reaction to Trump’s speech before Congress to the widening divide between the real hard economic data reports coming in, (spoiler alert – not so hot) and the softer sentiment reports which are on fire, as well as the latest Thematic Signals. From mobile carriers moving more and more into content in our Connected Society in which Content is King to McDonald’s experimenting with different delivery models for our Cash Strapped Consumer who is eschewing quick service restaurants, preferring Foods with Integrity.

This week we saw the wind down to the December quarter earnings season, Trump’s first speech before Congress and Amazon Web Services wreaked havoc on businesses far and wide when it went down. Snap, the parent company of Snapchat, traded publicly for the first time and despite iffy fundamentals, the share price jumped up dramatically.

January’s real personal income growth weakened materially while real spending growth was the weakest since 2009 – not exactly consistent with the jubilant headlines. It also raises questions for our consumer spending led economy. With signs of inflation picking up both in and outside the US per February data from Markit Economics and ISM, the Fed is looking more like it will hike in March, despite their recent Beige book being full of terms like “modest”, “moderate”, “mixed” and subdued” – go figure.

McDonald’s is looking to offer mobile ordering alongside curbside pickup as it experiences declining foot traffic and same store sales. As we share on the podcast, we think embracing technology is not going to get at the heart of McDonald’s problems.

Mobile carriers are finding more and more they need to feed their networks with content as more than 80 percent of 18 to 34-year-olds in the U.S. use mobile platforms to consume content, spending more than two hours on average every day viewing videos or using apps. We think this is bound to result in a boom for the eye-glass and contact lens industry in a few years time – we’re only half kidding.

If that all wasn’t enough, we had the great pleasure of speaking with Chieh Huang, CEO of our latest online shopping obsession, In just four years Chieh and his team have grown the business from operating out of Chieh’s garage to now generating over $100 million in revenue while getting their products to 96 percent of their customers in just two days or less. We spoke with him about just how his team has generated such stellar growth and his insights into the incredible level of pain we see in the retail sector. We couldn’t have enjoyed ourselves more talking with a guy who is deep in the thick of a Disruptive Technology with a compelling offering for the Cash Strapped Consumer in our Connected Society.

Companies mentioned on the Podcast

  • ALDI
  • (AMZN)
  • Apple (APPL)
  • AT&T (T)
  • Boeing (BA)
  • Comcast (CMCSA)
  • Costco (COST)
  • Dycom (DY)
  • Goldman Sachs (GS)
  • Facebook (FB)
  • Lidl
  • McDonald’s (MCD)
  • Snap (SNAP)
  • United Parcel Service (UPS)
  • Verizon (VZ)
  • Walmart (WMT)
  • Wegmans Food Markets


Chris Versace Tematica Research Founder and Chief Investment Officer
Lenore Hawkins Tematica Research Chief Macro Strategist
Reaping Profits and Sowing Them Into Calls on Burritos and an Online Pet Play

Reaping Profits and Sowing Them Into Calls on Burritos and an Online Pet Play

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Ratings changes included in this dated post

As we shared in yesterday’s Tematica Investing, after an upward move over the last few months, the market is once again seesawing following a growing number of uncertainties and concerns. On top of the ones we rattled off yesterday, even more concern has bubbled up over the Retail sector. On the heels of Gap’s (GPS) gloomy outlook, Macy’s (M) cited slow mall traffic as it slashed full year earnings to $3.15 – $3.40 per share, down from an earlier projection of $3.80 to $3.90 per share. Keep in mind, this builds on the dismal retail landscape we’ve seen over the last few months that has included the Sports Authority and Sports Chalet bankruptcies and announced store closures from JC Penney (JCP) and Sears (SHLD). We see these as confirming data points for our Cash Strapped Consumer investing theme as well as the Connected Society.

These announcements from Gap and Macy’s do not suggest a promising April Retail Sales Report later this week. Our insurance inverse ETF positions have continued to rebound, and given all of the above, we will continue to hold them on the Tematica Pro Select List as we  ride out what’s likely to be a bumpy market near-term.

Closing out iShares Barclays 20+ Year Treasury Bond ETF June $135 calls

As the current market environment has shifted sentiment more toward worry than uber bullishness, investors have been seeking proverbial ports for the storm. This has benefited our iShares Barclays 20+ Year Treasury Bond ETF June $135 calls (TLT160617C00135000). Last week we trimmed back our exposure, selling half the TLT position call in the process, which netted us a profit of 58 percent. As the market anxiety continued to climb, and the underlying TLT shares climbed further, so did the remaining portion of our TLT June $135 calls. Last night, those calls closed at $0.81, up 88 percent from our initial buy-in price of $0.43 in late April. While tempting to hang on, we’d rather use the proceeds to be had by exiting the position to fund two new recommendations.

As such, we are selling the remaining portion of our TLT June $135 calls, which will close out the position on the Tematica Pro Select List.

Issuing a Buy on Chipotle Mexican Grill (CMG) June $475 calls

Yesterday, we added Chipotle Mexican Grill (CMG) shares to the Tematica Select List as a Food with Integrity thematic investment. If you missed the analysis in which we discuss how the majority of bad news is priced into the shares, and there is ample upside to be had in the shares over the coming months, you can find it here.

Spinning out of the company’s annual shareholder meeting held late yesterday, Chipotle upsized its already considerable share repurchase program to $2 billion. We discussed the impact of buyback programs in  the Ask Tematica feature in yesterday’s Tematica Investing, and would characterize Chipotle’s program as taking advantage of the significant drop in the shares over the last several months. It also helps solidify management’s confidence in getting the company back on course with consumers.

We see a high probability this news will goose CMG shares and help re-kindle investor appetite for this Food with Integrity investment. Donning our trading hat, our response is to add the CMG June $475 calls (CMG160617C00475000) that last traded at $7.80 to the Tematica Pro Select List. Given the buyback news, we are likely to see CMG shares gap up tomorrow, and we would look to acquire the June $475 calls up to $9.00. Given the volatile nature of the shares, we will prudently set a $5.50 stop loss, which will help limit losses should the market volatility come back with a vengeance in the coming weeks.

Adding PetMeds Express (PETS) June $20 calls

Earlier this week, Tematica Select List holding PetMeds Express (PETS) reported March quarter earnings of $0.27 per share versus expectations of $0.25 and up from $0.25 in the year-ago quarter. March quarter revenue for this online pharmacy and pet product company came in at $55.39 million versus consensus forecast of $50.2 million and $50 million in the year-ago quarter.

On the back of this better-than-forecasted March quarter, Wall Street expectations over the coming quarters have moved up to $1.06 per share for the 12 months ending March 2017 from the prior $0.98 per share.

Two of the tenets behind initially adding PETS shares to the Tematica Select List were the continued secular shift to online and mobile shopping, and the high re-order business that has ensued for the company. During the quarter, we saw the former continue. PetMeds acquired 116,000 new customers, up from 97,000 in the year-ago quarter. As the company continues to reap the benefits of improved customer acquisition costs, the high re-order rate should help drive additional revenue in the coming quarters.

People continue to spend on their pets irrespective of the economy. That’s especially true as we head into the summer months, which is prime flea and tick season and therefore a seasonally strong time of year for PetMeds’ business. The June quarter tends to account for more than 30 percent of the company’s annual revenue and earnings.

In addition to the quarterly results, PetMeds boosted the quarterly dividend to $0.19 per share from the prior $0.18 per share. As we near the payout date (May 27 to shareholders of record as of May 20), we expect dividend yield seeking investors to flock to the shares. This incremental demand for the shares should help drive them higher in the coming weeks.

PETS shares traded off during the last two days along with the market, but in our view that offers a more attractive price point with which to add the PetMeds Express (PETS) June $20 calls (PETS160617C00020000) that closed last night at $0.25. The shares have been rather active the last few days, and we would look to add the position up to $0.30. On the downside, we are instilling a stop loss at $0.17 to manage volatility and limit losses.

Recap of Action Items from this Week

Booking gains as the market’s expected reversal comes to roost

Booking gains as the market’s expected reversal comes to roost

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Ratings changes included in this dated post

  • We are issuing a TRIMMING BACK of the position size of iShares Barclays 20+ Year Treasury Bond ETF (TLT) June $135 calls by selling half of our position. The calls are up 58 percent from where we added them to the Tematica Pro Select List just last week. We are boosting our protective stop loss to $0.55 from $0.30 on the remaining half of the position, which will lock in a minimum return of 28 percent. 
  • We are holding off making any new additions to the Tematica Pro Select List given the reversal in the market. This reversal reflects the economic and earnings concerns we’ve been sharing with you these last several weeks. 
  • The silver lining is we were prepared for this eventuality and the inverse ETF holdings are starting to pay off. We aim to hold them ahead of Friday’s April Employment Report, which is looking like it could be a disappointment.
  • Soon to be had April data for Costco will determine our next move in the COST May $160 calls.

We’ve seen quite the reversal in the stock market over the last several trading days, which saw the market down four of the last five days. In that time, the Dow Jones Industrial Average and the S&P 500 have fallen nearly 2 percent, while the tech heavy Nasdaq Composite Index is down more than 3.5%, thanks to renewed concern with Apple (AAPL).

There are several reasons behind this shift, including last week’s expected, but still disappointing, domestic March quarter GDP print of 0.5% as well as yesterday’s weaker than expected ADP Employment Report. Data from ISM and Market Economics also pointed to another poor month for the manufacturing economy in April.

In other words, much of what we’ve been talking about in the Monday Morning Kickoff over the last several weeks has come home to roost.

Over the past few weeks, as we watched the market melt up, we added our inverse ETF insurance positions, and we are now seeing the benefits they bring. Based on the lackluster job creation data for April evidenced in ADP’s report, which was the lowest in three years, and weak employment internals for the April ISM reports, we will keep our inverse ETF positions in place heading into Friday’s April Employment Report.

DIS stopped out; Trimming back the profitable TLT call trade 

The downside for us in this market move over the last few days was having the Disney (DIS) May $105 calls on the Tematica Pro Select List stopped out at $1.60. We eked out a tiny profit on that position, but that paled in comparison to the pop in the Select List’s iShares Barclays 20+ Year Treasury Bond ETF (TLT) June $135 calls, which closed last night at 0.68, up 58 percent from the $0.43 entry point last week.

Given the current market mood, we will prudently sell half the TLT June $135 call position and boost the protective stop loss on the remaining calls from $0.30 to $0.55. At that level, even if the roller coaster ride returns to the market, the balance of the position should return a minimum return of 28 percent.

Watching Costco’s April Results For What’s Next

Later this morning Cash Strapped Consumer play Costco Wholesale (COST) will share its April same-store-sales growth. Given the trend in Retail Sales and Personal Spending data over the last few months, we added the COST position given the company’s continued ability to capture consumer wallet share.

The COST May $160 calls have been weighed down by overall consumer spending concerns that have once again bubbled to the surface. Amid the market melee this week, we are starting to get April same-store-sales data from a number of retailers. What we’ve seen thus far from Cato (CATO:Nasdaq) and Buckle (BKE:NYSE) in the form of severely missed results relative to expectations is bound to re-ignite concerns over consumer spending. The recent downside guidance issued from Big 5 Sporting Goods (BGFV:Nasdaq) is also bound to fan those flames.

Lumping Costco in with all other retailers is the flaw of a sector-based investing approach. As we know, when we use our thematic view and look at COST from a Cash-Strapped Consumer perspective, we see it as being a critical option the consumer will utilize to make their dollars go further and expect to see same store sales for the warehouse giant go up. We’ll see if we’re right when Costco releases April results, and depending on the data we could look to scale into the position, which would lower our cost basis for the calls that expire later this month.

Possibilities Brewing with Under Armour (UA) Calls

Even thought the current environment has us holding off adding a new position to the Tematica Pro Select List near-term, we continue to look for new opportunities. The recent drop in Under Amour (UA) shares falls into the category and we are keeping close tabs on it. As we discussed in a recent Tematica Investing, we like the company’s growing position in the athletic apparel and footwear business and see its strategy that targets International and women’s markets as paying off significantly longer-term. UA is clearly a beneficiary of the Rising Middle Class aspect of our Rise & Fall of the Middle Class investing theme.

Even though we have seen this strategy pay off significantly for Nike (NKE) and others, the tougher part to swallow with UA shares is the valuation. The near 8% drop in the shares yesterday, however, takes the edge off that and makes for a potentially interesting trading opportunity with the June or July calls. We’ll have more on this as we finish up our analysis and distill data points from earnings reports from Big 5 Sporting Goods (BFV) and Gildan Activewear (GIL) that hit this week.

Recap of Action Items from this Week

  • Sell half of our position iShares Barclays 20+ Year Treasury Bond ETF (TLT) June $135 calls, while boosting our protective stop loss to $0.55 from $0.30 on the remaining half.