Brexit Weighs On Traders As A Vote Nears

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Includes: FIT, JCP, TWTR, UVXY
by: Seth Golden

Summary

S&P 500 couldn't finish above 2,100 last week.

Brexit vote nears and traders get skiddish as sentiment grows toward leaving the European Union.

My trades have been updated within, and JCP was exited with a short-term trading profit.

Well traders and investors, I narrowly missed achieving my weekly forecast for the prior week as I believed the S&P 500 would close above 2,100. In my last weekly update titled "S&P 500: Can It Close Above 2,100 This Week," I forecasted the following:

There really isn't a whole lot of important data coming out this week and as such much of the focus will look forward to the following week's Fed rate decision. I think given this backdrop, investors will likely look to push the S&P 500 over that 2,100 level to close the week.

You win some and you lose some as they say, but try to win more than you lose and you will be doing just fine. What may have spooked the markets late last week were fears surrounding an increasing favor for Brexit according to the polls.

U.S. stocks fell to session lows on Friday after a new poll from The Independent showed the "leave" camp rose to 55 percent of respondents, versus 45 percent who favored staying in the European Union. That marked the largest portion of respondents who favored exiting since research firm ORB began polling the issue for it last year, the publication said.

My personal trading positions fared modestly well in some respects last week, but my Starbucks (NASDAQ:SBUX) holdings benefited from a continuation of my dollar-cost-average strategy.

Most recently, I've added to my position in shares of SBUX at $55.10 as announced last week. The stock has exhibited a great deal of selling pressure in light of strong moves in the overall indices. While I don't like to rely on hope, the selling pressure may prove to have exhausted itself near term and as such I'm looking for shares of SBUX to appreciate this week by as much as 3% or roughly $1.50 a share. If this occurs, I will sell my most recent share acquisition and maintain my core position, which will be profitable and after lowering my total cost average further. Of course, these trading activities in shares of SBUX are not inclusive of the dividend payout that I collected last week yielding 1.5%.

Using my Twitter (NYSE:TWTR) feed in real time, I alerted my followers that I did indeed sell the $55.10 block when shares rose to $55.80 during the trading week.

Seth Golden

‏@ SethCL

$SBUX selling shares purchased at $55.10 Friday for $55.8 today. lowered cost average now to $55.51. In profits!!

Unfortunately, in the following days, shares of SBUX sank once again. On the bright side, I may be able to repurchase another trading block below $55.10 and continue to dollar-cost-average while receiving the quarterly dividend. I like Starbucks for the long haul, but if I can make a greater profit near term on the trade, I will likely take that opportunity.

My Twitter shares took it on the chin last week, but as a small and speculative portion of my total portfolio, I will continue to hold these shares. All it takes is one meaningful rumor to get shares of TWTR going again, and while I don't invest in rumor stocks, trading them is an entirely different story, especially when the price of the stock is near all-time lows. Essentially, the downside is limited while the upside could be meaningful.

My Fitbit (NYSE:FIT) trading position fell roughly 3.5% last week and was all over the trading map during the week. Shares seemingly couldn't break the all-important $14 level and as such migrated back to a recent $14.70 high. Even with the benefit of an Outperform rating given to the stock with initiated coverage by Wedbush, the stock couldn't hold any gains for the week. Wedbush assigned a price target on shares of FIT of $18 a share. I maintain confidence in holding onto shares of FIT despite its lackluster performance and as the company metric performance has beaten analysts estimates year to date.

I'm quite happy to say that my managed J.C. Penney (NYSE:JCP) position proved beneficial and I was able to exit this trade last week. My total profit was 7.2%, after the stock came roaring back from a post Q1 2016 revenue miss and curtailment of gross margin expectations for FY16. Let's take a look at what I articulated on this trade in my last weekly update.

To further update my portfolio positioning as we head deeper into the summer months, most of my holdings are in positive territory and after some carefully timed trades. I continue to maintain a long position in shares of J.C. Penney. My initial entry position was announced at $8.85. Unfortunately, after taking this position, the stock began to break down further and I hedged half of my position at $8.49 for which shares fell all the way down below $7 after the company reported a miss on revenues. I covered my hedge at $7.50, making some decent returns on this hedge. Since that time, shares have risen further and to where they closed Friday at $8.45 a share. Presently and given my decision to hedge and profit as shares have been on a rollercoaster ride over the last few weeks, I'm presently profitable on my JCP shares by about $.22 a share. I will likely have to manage this position further as I believe the retail sector will continue to come under pressure due to the rapidly changing landscape for retailers competing against e-commerce sales.

With JCP shares rising to $8.45 recently as noted, last week, the share price continued to appreciate to where I exited this trade at $8.78 a share. Initially, I had hoped to get $8.80, but the wall was put up in front of the stock and it seemingly could not break through $8.79. As such, I took it off the table at $8.78 a share. My total profit on the trade that included a hedge was achieved in less than 60 days. While I still view J.C. Penney as one of the better retailers to invest in long term, the retail sector has been pretty beaten up since most retailers have reported Q1 2016 results that failed to meet revenue expectations.

Last, but certainly not least is the continual management of my core position in ProShares Ultra VIX Short-Term Futures (NYSEARCA:UVXY). Let's take a look at my last update on how I was planning and actioned my holdings in the double-leveraged ETF.

Last week, I reduced my short position in shares of UVXY further when shares hit $11.50 a share. I've been holding a core UVXY short position since 2012, but feel the ETF may exhibit a mid-term bounce, spirited by an elevation in the VIX and relaxing of contango. With this in mind, I also initiated a small long position in UVXY (roughly three-tenths the size of my short position) at $11.35 a share. Consider it a hedge if you will and in place to profit should something cause a shock to the markets in the coming weeks. If shares of UVXY continue to moderate lower, I will continue to reduce my short position and have pegged my next target level at $7.75 a share. As a portion of my total portfolio holdings, UVXY short occupies the largest portion of my holdings.

Thus far, it looks like my UVXY management has been sound and beneficial to my strategy of utilizing this ETF long term. I will monitor my long position against my short position and see if there will be an opportunity presented to take profits on the long position. I will maintain a core short position in shares of UVXY, but with a smaller allocation presently, I'm hoping to redeploy capital at higher UVXY trading prices on the short side.

Last week, there wasn't a whole lot of economic data to consider, and in the absence of stateside data, the markets tailed off into the closing of trading on Friday with all the major averages in the red. Having said that there is some important U.S. economic data to consider this week and especially for retail stocks. On Tuesday at 8:30 a.m., the Census Bureau will release its monthly retail sales figures for the month of May. After coming off of a big boost in monthly retail sales for April of 1.3% growth, May is expected to be somewhat subdued in comparison. The present expectation is for May retail sales to have grown .4%. Below is a day-by-day chart of the economic data to flow this week as presented by MarketWatch.

MONDAY, JUNE 13

None scheduled

TUESDAY, JUNE 14

6 am

NFIB small business index

May

--

93.6

8:30 am

Retail sales

May

0.4%

1.3%

8:30 am

Retail sales ex-autos

May

0.4%

0.8%

8:30 am

Import price index

May

--

0.3%

10 am

Business inventories

April

--

0.4%

WEDNESDAY, JUNE 15

8:30 am

Producer price index

May

0.2%

0.2%

8:30 am

Empire state index

June

-5.5

-9.0

9:15 am

Industrial production

May

-0.3%

0.7%

9:15 am

Capacity utilization

May

75.2%

75.4%

2 pm

Federal funds announcement

0.25-0.5%

0.25-0.5%

2:30 pm

Janet Yellen press conference

THURSDAY, JUNE 16

8:30 am

Weekly jobless claims

6/11

N/A

N/A

8:30 am

Consumer price index

May

0.2%

0.4%

8:30 am

Core CPI

May

0.2%

0.2%

8:30 am

Philly Fed

June

-2.2

-1.8

8:30 am

Current account deficit

1Q

--

-$125 bln

10 am

Home builders' index

June

60

58

FRIDAY, JUNE 17

8:30 am

Housing starts

May

1.140 mln

1.172 mln

8:30 am

Building permits

May

--

1.130 mln

Click to enlarge

The trading environment will remain robust, while the markets appear to be on the cusp of either breaking out or breaking down. Brexit will certainly remain on traders' minds as the June 23rd vote nears. And of course, the weekend massacre in Orlando, Florida will likely give traders cause to pause. At the very least, let's hope to see some positive economic data that could provide a floor to the markets in case of a near-term downturn due to the prior events mentioned. With that said, I expect the major averages to be more volatile this trading week and end the week modestly lower. The markets don't like uncertainty and that is seemingly all a Brexit vote is bringing with it this week. When I look at my current holdings and asset allocation, I come to appreciate my cash position and hope to deploy some capital in the event that global markets sell off to some degree this week.

Disclosure: I am/we are long FIT, TWTR, SBUX, UVXY.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I maintain a core short position in shares of UVXY.