The market got an opening pop this morning following better-than-expected economic news but the momentum has stalled once again as we wait for confirmation on the next leg up, or down.
July Retail Sales jumped 0.8% in July, as sales rebounded 0.9% following a 0.2% decline in June. Meanwhile, the July Producer Price Index (PPI) matched expectations and was up 0.3%.
Shares of Groupon (GRPN, $5.77, down $1.78) are folding like a cheap lawn chair, down 24%, after confessing to Wall Street after the close last night. Despite reporting a quarterly profit for the first time ever at 8 cents a share versus expectations for a nickel, revenue came in below estimates at $568 million versus the suit-and-ties forecast for $573 million in sales.
The company also predicted 3Q guidance of $580-$620 million in revs which comes in at $600 million if we split it down the middle, while analysts were looking for $604 million. Sales were up a cool 44% from year ago levels but quarter-over-quarter, revenue was only up 1.6% versus 14% from 1Q to 2Q.
Today’s plunge is not pretty as shares are now down nearly 80% since going public in November 2011 at $26.
Groupon may or may not get it right by the Street’s standards but the company is expected to do $2 billion in revenue this year and they have $1.2 billion in their coffers for acquisitions or perhaps a stock buyback.
Shares are still a risky investment and the options are super-juiced because everyone is trading them. The August 7 puts (GRPN120818P00007000, $1.20, up $0.50) are up over 70% but the premiums were jacked-up going into the close because of the volatility.
Now, if we wanted to look at the flip side of things, the Groupon January (2013) 9 calls (GRPN130119C00009000, $0.40, down $0.75) are down 65% and would easily double if shares rebounded and were back at double-digits in 5 months. In other words, if Groupon bottoms at $5 and rebounds to $10 by mid-July, these call options would be worth $1, or 150%. Of course, these options are lottery plays as the stock would have to surge 75% but we will keep an eye on the options over the next few weeks.
For Wednesday, there are a few interesting earnings plays but we will probably stay on the sidelines. We would love to swing the bat on an earnings trade for Abercrombie & Fitch (ANF, $32.65, up $0.18), Cisco Systems (CSCO, $17.26, down $0.08), Deere (DE, $80.05, up $0.25), PetSmart (PETM, $68.29, up $0.11), or Sina (SINA, $52.51, up $2.89) but their announcements could go either way.
There is a whisper number Cisco could beat estimates by 3 cents but we have been following the stock for decades and that would be 3x normal as the company usually likes to come in a penny above the knuckleheads’ estimates. There is also water-cooler talk Cisco could miss their numbers.
Perhaps there is a strangle or straddle option trade in the pits but we are being patient. We thought we might go long the market with a possible call option trade or two but we have been waiting for the Russell 2000 to trip 807. This morning’s high was 804 and the small-caps are currently at 801, up 2 points.
We think the Russell can trade to 820 if the market tests its highs for the year so we are going to start a half position in a trade we do like.
As far as the other indexes, the Dow is up 46 points to 13,215 while the S&P is up 5 points to 1,409. The Nasdaq is showing a gain of 10 points to 3,032.
Subscribers, check the Members Area for the New Trade and make sure you use limit prices to get the best fills. The options we are recommending are at 90 cents and it’s a cheap way for us to make a possible 50%-100% if the stock we are following pops to $45.