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12 Jun

Sunday June 12, 2016

by

Good afternoon.

I hope you’re enjoying your weekend.

Let’s dig into the Long Term trading game plan for next week. But first, a quick recap of this week’s market action and my observations. I initially wanted to discuss the presidential race and the possible implications for stocks of a Trump win, or a Clinton win. And I will eventually get to that discussion when it is warranted. But, at this time, the euro-zone “crisis” most assuredly trumps (pun intended) the race for the White House.

Following Wednesday’s close above 18,000 for the first time since late April, the DJIA succumbed to selling pressure, as many global investors sought safety of US Treasuries stemming from fears of a global currency crisis and by extension a banking crisis a “Brexit” vote may trigger. That vote comes on June 23 in the United Kingdom, with some signs of potential panic about the vote intentionally inflamed by the U.K. Prime Minister David Cameron, his political allies in the U.K., and stridently Eurocentric politicians in Brussels in a sophomoric attempt to frighten the English into believing “catastrophic” consequences await them with a vote to leave the European Union.

As a result of the political scaremongering by Cameron and his ilk, I remain cautious next week, but also fully expect the move into the dollar, German bunds and US stocks to continue, especially the latter via global mutual fund managers seeking relative safety of deep and well-managed, dollar-denominated corporate balance sheets of US multinationals.

The price level of the MSCI Index (global stock exchange index, ex. US) demonstrates the spread between the DJIA and global stock markets widening substantially, matching the conspicuous divergence between US stocks and US Treasury/gold markets. To put the divergence between the two stock indexes in better context, from the early Feb. lows of both indexes, an additional 850 points higher in the DJIA needs to be accounted for. In essence, what I’m say is: if the MSCI Index is a more accurate reflection of the relatively poor global appetite for stocks, the DJIA should be testing the 200-day moving average (17,167) and/or the 17,000, at this point.

But the DJIA hangs tough, which tells me a confluence of two events are in progress.

1) Institutional money is coming back in.

I recently wrote:

Those traders who priced-in a rate hike this summer may be unwinding short positions, which may also explain the counterintuitive relative strength in stocks during the stampede into safety Friday [June 3]. It may sound crazy to my readers at this time, but I think the the gal and guys at the Fed may actually be leaning toward an easing by the end of the year, maybe after the election, in December. And I think some savvy traders bought stocks Friday with this notion in mind.

Remember the above text from last week’s LTW Report? Well, read what Zerohedge.com had to say in its article of June 7 (Tuesday of last week) about my “crazy” idea of institutions coming back into the market , “Finally, A Week Of Buying” – After A Record 18 Weeks Of Selling, The “Smart Money” Is Back. It appears I was spot on. Smart money is coming back into stocks.

2) The NY Fed, Swiss National Bank (SNB) and Bank of Japan (BOJ) may be buying US stocks, as well, in an effort to come to the aid of the Federal Reserve to anchor global stock markets to the DJIA until such time the Fed pulls the trigger on dropping rates, not raising them. These banks relentlessly work together, don’t forget.

Read this article by the Huffington Post, Negative Interest Rates set to Propel the Dow Jones to the Stratosphere?, and tell me I’m “crazy” about my conspiracy theory of a Fed cut coming by the end of the year, or maybe sooner than we may now believe. Don’t lose sight of the currency war raging with China; but who at the Fed would ever be allowed to mention anything along those lines?

So, my bottom line to all of this is: I’m very bullish on stocks in the long term, yet cautious until this Brexit nonsense subsides. And it is indeed possible the Fed may use this particular manufactured crisis in Europe as an excuse to do what it really wants to do: cut rates and soar this stock market to Warren Buffett’s target of much higher US stock prices.

And anyone who tells you this bizarre situation of central bank money printing is unprecedented knows very little of financial history, e.g. Weimar Republic period of Nov. 1922 – Nov. 1923, for starters. Stocks in Germany “went nuts” to the moon during the late year of Germany’s currency debasement scheme.

Now, fast forward to today and think about what has already happened during the last eight years: A big bank bailout, QE1, QE2, Operation Twist and QE3. Sounds familiar to a much lesser extent, of course, to Weimar. Doesn’t it? Read the aforementioned Huffington Post article one more time and tell me QE4, or whatever it may be called this time, isn’t coming our way.

In short, I’m suggesting to my followers to Party On, but watch the growing possibility of a brief intermission before rounds of amber-colored liquid start anew.

This Week’s JBP Stock Ideas

I’ve initiated no trades at this time. Until further visibility into what the market reaction will be to updates from the Brexit polling data, I remain happily sitting on a tree stump with my elephant gun loaded and pith helmet securely fastened, waiting for that next elephant-size trade idea.

Santander (SC)

As I alerted subscribers on Tuesday, I shorted 1,000 shares of this “dog,” SC, at $12.61. As I mentioned in last week’s LTW Report, when money moves into safety, lesser-quality debt suffers badly. And from my report, I pointed out that SC runs a full-time junk paper mill of this poor-quality stuff.

As far as the SC trade, last week I wrote:

I want to short this stock at $13.50, or maybe a little lower. I’ll update everyone with my thoughts on SC as we move into the post-May jobs report trading action this week. I want to see how the follow-up trading to Friday’s surprisingly strong finish to the terrible Labor Department report feels like.

Well, as we now know, the “feel” of the market wasn’t good during much of the week, which emboldened me to short SC on Tuesday. Two days later, on Thursday, I unwound the trade at $11.94 for a $700 profit (+6%), with the thought the Fed might sell into the bond rally to keep the 10-year Treasury yield from dropping further. No such thing happened, but risking a sure and quick 6% profit in two days made me a winner last week, not a this-time-lucky gambler.

I’ll probably be back to short this junkyard hound at a later date. I’ll let you know.

Square (SQ)

With only 2,000 shares left ‘long’ of SQ on my books, I’m patiently waiting for a break higher. After the bounce at $9.04 on Friday, it appears $9 may hold as support. Let’s see what next week brings.

Net 1 UEPS Technologies (UEPS)

On Friday, UEPS demonstrated some good relative strength against the NASDAQ after initial steep weakness earlier in the week. I saw the stock rebound $0.23 (+2.23%) from the $10.28 low, and liked what I saw. I’ll be watching for that second assault on the 50-day moving average. A clear of that hurdle may bolt this stock closer to my target price of $12.25. So far, the stock feels pretty good under the turbulent circumstances in the NASDAQ.

FutureFuel (FF)

FF, the bio-based specialty chemical company traded well on Friday, up 1.23%, but ended the week down 2.9% to close at $10.70. The stock is approaching my target entry price of $10.50, which also appears to be the nearest level of support.

Since no news pertaining to the company hit the wires this week, much of the selling was most likely from weak-handed traders spooked by the events in Europe. As I’ve previously stated, FF’s present valuation is already very low and probably won’t become too volatile to the downside.

Energous (WATT)

On Tuesday of the previous week to last, Energous announced it signed an agreement with an undisclosed partner to join-venture the production of a “full-size WattUp transmitter. Following the news, WATT spiked nearly $1 to close up 9.23% for that week (ended June 3). And now the stock has spiked higher once again, this time by $2.29, or a whopping +20.16%!

As I stated last week, the company news regarding its partnership with a “leading commercial and industrial supply company” to manufacture a wireless charging device with a radius of 15 ft. cleared the proverbial air regarding the authenticity of Energous’ WattUp technologies. I can safely say, “I told you so” about this stock. I don’t know how a serious discussion of fraud got so much traction surrounding Energous’ wireless charging technologies, but I knew the the company’s WattUp was not a bogus contraption, and stated my reasons for my conclusion in the May 30 LTW Report.

But being right in this case did me no good. I was left behind the brilliant trade I had set for WATT, missing the entry by a sole penny! After the stock slump as low as my target price, two weeks ago, (to the penny) there were not enough sell orders to fill my bid. Ugh.

And to make matters doubly bad, not only did WATT reach my sell target price of $12; it exceeded my target by another $1.65. Double Ugh.

Okay, this stock that “got away” story is certainly not the first time I’ve told it, and won’t be the last. Let me kick around WATT in my head some more and report back to you about what kicked back.

Groupon (GRPN)

After reporting in last week’s LTW Report of GRPN’s boring action, the stock sure came back to life all right. Down $0.33, or -9.37%. Why traders trashed this stock following an announcement that the company has backed out of the Indonesian market is beyond me. Didn’t these traders read the company’s game plan—the plan to rid non-core and marginally profitable markets? I’m never amazed at the impetuous behavior of traders during a company’s turnaround phase.

And analysts covering GRPN agree with me. One analysts at Wedbush said the company faces, get this….. “headwinds.” No kidding?! But at what price is the stock worth acquiring during these times of…headwinds? That’s the real question, which I answer at the end of my following discussion regarding Groupon’s pull out of the Indonesian market. Read the announcement of June 6.

Of all the discussions I read about Groupon’s latest international market exit of Indonesia, The Motely Fool got it right. Here’s an excerpt:

Monday’s move to hand over Groupon Indonesia isn’t exactly a surprise given the baby steps that it has taken out of certain international markets. Putting more of its eggs in the stateside basket also isn’t necessarily a bad thing.

The entire Motely Fool article, Groupon’s International Retreat Continues, is worth the read. Of course it’s not a bad thing to leave Indonesia; it’s a good thing, if the company’s strategic plan includes focusing more upon the U.S. and other core markets.

GRPN is a bona fide turnaround stock, with a potential to make me some good cash with some price action I anticipate to be contained within the $3 and $4 range as we move into earnings scheduled for August. With the Brexit drama potentially creating better entry points in any of the stocks on my list, GRPN is no exception.

The stock presently trades at $3.19, or $0.06 below my original target entry price. I’m holding off for $3, or until a miracle happens and suddenly no one cares whether or not the U.K. leaves the euro-zone. Psst. Fat chance. Right? So, let’s hang together on this tree stump and wait for that elephant trade opportunity in GRPN. My target of $4 to unwind hasn’t changed; it’s the entry I’m mulling over.

ZAGG (ZAGG)

Last week I introduced ZAGG, a stock that’s been overly hated since its take-down from the $12.74 high on Dec. 11, 2015, primarily due to Apple’s disappointing iPhone 6 sales.

I outlined last week why ZAGG is a potential two-bagger from what I believe is a heavily and unjustly depressed valuation, which presently nears the company’s $135 million book value. The Price-to-Sales is 0.53; and the PEG is only 1.07. And these metrics print follow ZAGG CFO Brad Holiday’s projected EBITDA of between $60 million and $65 million for fiscal 2016.

Last week, I wrote:

According to ZAGG CFO, Brad Holiday, the company should achieve a gross margin of 40% in the coming quarters of 2016. EBITDA is projected to reach between $60 million and $65 million for fiscal 2016, from sales of between $460 million and $500 million. So if I take ZAGG’s present valuation of $154 million and EBITDA of $33.5 million, I get a valuation of $10.31 per share by the second-half of the year.

At ZAGG’s closing price on Friday of $5.15, my projection is for a two-bagger by the end of the year, or by no later than the release of Q4 earnings in early 2017. And don’t be surprised if the Apple iPhone 7 does better than expected. Important: Read a really good article from Business Insider UK about what BMO Capital market analyst Tim Long stated regarding the iPhone 7 in a note to investors.

And I apologize to my readers for not including this important article in last week’s LTW Report. I read the article when it was initially published on Jun. 1, but forgot to include it in my report to you. Between the missed WATT trade and now this oversight… well, no harm; but I’ll make it up to all of you. That’s move on back to ZAGG.

I want to share with you something I noticed that caught my attention about management’s assiduous nature regarding its stock price. After ZAGG slid 5.3% at the close of the first two days of trading this week, the company issued a “puff” news release on Wednesday, announcing “ZAGG’s dollar share in Cellphone Screen Protection continues to improve, reaching a three-year high of 51% in the U.S. for April 2016, according to The NPD Group’s Retail Tracking service.” Following the “news,” ZAGG spiked $0.39, or 7.8%, from its low of $4.98 on Wednesday.

As a trader, I like to see this puff news release tactic, especially from a company that has the goods to back up its news channeling rhetoric. In other words, ZAGG’s investor relations watches the stock (probably constantly) and decided to remind traders of its story, which in the case of ZAGG is very impelling, and it worked, temporarily. Last week was a tough market for nearly everyone. These are the little things I look for in a stock besides the fundamental and technical aspects of the trade.

Having said that, I’m still looking for $5 for ZAGG as an entry point, with $12 as a long-term objective. But again, the Brexit issue may change my mind, as you may have surmised from the lack of action on my part when ZAGG printed $4.98 on Wednesday.

Sientra (SIEN)

Sientra is another stock I introduced to you last week. The company is a medical aesthetics maker of breast implants.

There was no company-specific news, nor industry news to report, so I’ll dedicate this space to recapping why I like SIEN for the benefit of first-time subscribers (about 22 of you).

As a reminder, I wrote last week:

Sientra is a play with a double, triple or quadruple potential. And that’s not just my opinion; it’s the opinion of Wall Street analysts who cover the stock. SIEN’s consensus rating among analysts is a “Buy”, with a consensus target price of $28.33. Frankly, that consensus target price eclipses my target of $21.88 per share. But, at $6.04, I’m not going to argue with any of these analyst. In short, the stock is poised to make everyone happy.

Sientra became an innocent victim in a wholesale, worldwide panic following a decision by the British version of the US Food and Drug Administration (FDA) to suspend the CE certificate (approval) of Brazil-based manufacture Silimed Indústria de Implantes (Silimed), the manufacturer of Sientra’s breast implants.

Although the problems with the plant’s processes had nothing to do with Sientra’s FDA-approved methodologies for its implant production, specifically, Sientra voluntarily halted production until the company could buttress its FDA-approved safety standards through an independent, third-party examiner, which it did. And the results were stellar, inducing Sientra to reintroduce the company’s implants product back into the US marketplace, as stated in a Feb. 8 news release.

In short, customer acceptance of the reintroduction was nearly 100%, according to the company Chairman and CEO, Jeffrey Nugent. Apparently, Sientra’s customer base of plastic surgeons knew all along that Sietra’s implants were still the leader of the industry and completely safe.

This week, SIEN rallied strongly during the first four days of trading, but fell sharply by nearly 5% on Friday. In all. the stock closed up $0.33 for the week, or +5.46%.

Though I love the stock, I’m not chasing it. At the $5.50 and $5.75 range, I feel comfortable getting some shares of SIEN, as the 50-day moving average at $7 is now too close to Friday’s closing price of $6.37. If I successfully enter the stock, I believe my target price of $20 within 18 months is a very reasonable one.

Trade Green!

Jason Bond

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3 Comments

  1. lawrence

    Hi Jason,

    Do you have any excel doc or something that shows all the YTD trades including profit and loss?

    Thanks,

    Lawrence

    Reply
  2. lawrence

    It would be nice if you could add a YTD profit/loss on the website itself (eg. add another tab).

    Reply

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