Mid-Market Update for 6/14/2017

Kroger on Deck with Earnings/ Profit Alert (BAC)

12:15pm (EST)

Shares of Kroger (KR) could be on the verge of a major move in after-hours trading as the company announces 1Q earnings. Wall Street is expecting a profit of $0.58 a share on revenue of $35.77 billion. The high estimate has earnings at $0.61 a share while the low estimate is at $0.55 a share. This could mean a headline beat or miss of up to 3 cents.

Over the past four quarters, Kroger has topped estimates in three of them by a penny twice and two cents. The other quarter was a match. As far as revenues, they have come in higher the past two quarters following two previous quarters that missed expectations.

The chart below shows shares are currently holding support at $30 and the 50-day moving averages with near-term resistance at $30.50 and the 100-day moving average. Additional hurdles are at $31-$31.25 and the 200-day moving average.

It’s no secret that competition in the grocery space has heated up with a couple of overseas companies coming to American shores. Aldi recently announced plans to invest $3.4 billion to increase its U.S. store presence to 2,500, up from a current 1,600, by 2022. Meanwhile, German rival Lidl plans to open 100 stores in the country this month.

The number of U.S. companies competing with Kroger continues to grow with new competition coming from Blue Apron which filed to go public this month under the ticker symbol APRN. Amazon is also pursuing an aggressive grocery delivery strategy that may or may not work, and intends to take customers from rival chains.

Despite the growing competition, I’m guessing Kroger tops estimates on both the top and bottom line. If revenues clear $36 billion for the recently ended quarter, along with a penny or two earnings beat, shares could see a pop of 5%-10%. If Kroger comes in light with numbers while lowering guidance, shares could move 5%-10% lower.

As far as a possible option trade, the KR July 31 calls (KR170721C00031000, $0.75, down $0.05) can be used by bullish traders expecting a run towards $32-$33. These call options would double from current levels, technically, if shares trade past $32.50 by July 21st.

Bearish traders can target the KR July 30 puts (KR170721P00030000, $1.00, up $0.10) for a possible backtest to $29-$28 on disappointing results. These put options would double from current levels, technically, if shares fall below $28 by July 21st.

There are also June options available to trade that expire this Friday. The KR June 31 calls (KR170616C00031000, $0.40, down $0.05) could be a gambler’s delight and would double from current levels if shares trade past $31.80 by Friday’s close.

I would prefer the July 31 calls over the June 31 calls as they have 5 more weeks of time premium. However, I often mention earnings trades can be tricky and I’m not comfortable riding with the bulls on this one. I do believe Kroger is one of the stronger companies in the sector and perhaps there could be a trade after earnings are announced.

Turning our focus on the indexes, the bulls are pursuing higher highs ahead of today’s decision on interest rates. The Dow is up 8 points to 21,337 while the S&P 500 is down 2 points to 2,438. The Nasdaq is higher by 9 points to 6,229 and the Russell 2000 is declining 7 points to 1,418.

I have updated our current trades along with a Profit Alert for BAC. I could have a New Trade ahead of, or, after the Fed announcement so stay locked-and-loaded into the closing bell.

Momentum Options Play List

Closed Momentum Options Trades for 2017: 36-12 (75%). All trades are dated and time stamped for verification. New subscribers can look at the past history to see how the trades have played out or to research our Track Records.

Do not risk more than 5% of your trading account on any one trade but do try to take all of the trades. Please remember, all “Exit Targets” and “Stop Targets” are targets. You should not have any “Hard Stops” entered to close any trades or “Exit Orders” in your brokerage account unless I list one. I will send out a “Profit Alert” or “New Trade” if I want you to close a position or if a new trade comes out. Otherwise, follow instructions at all times in the 8am and 12pm–2pm (EST) updates. Also, I will usually give you a heads-up if I think I’m going to send a Trade Alert outside of these time frames.

Bank of America (BAC, $23.25, down $0.52)

BAC July 23 calls (BAC170721C00023000, $0.95, down $0.30)

Entry Price: $0.60 (6/5/2017)
Exit Target: $1.75 (Limit Order on half)
Return: 83%
Stop Target: $1.10 (Stop Limit)

Action: The calls opened at $1.12 with the Stop Limit at $1.10 triggering shortly afterwards. I had a feeling some weakness would come ahead of today’s Fed announcement and there could be another trade in BAC afterwards, depending how shares react.