First things first as they say…

It appears our call to sell half of the Facebook (FB) May 2017 $150 calls yesterday was a rather wise decision. While Facebook did beat on both the top and bottom line with regard to 1Q 2017 results, the shares traded off in the aftermarket, as the company shared expectations for advertising growth to slow in the coming quarters, in part as it adopts desktop ad blockers, significant expense growth and higher taxes. While some of this could be the company sandbagging expectations, such actions tend to result in a pullback in the shares like we saw last night with FB shares.

• With the calls set to expire in a few weeks, and both of the catalysts behind the trade thesis behind us, we’re going to exit the Facebook (FB) May 2017 $150 calls at market this morning.
• Should the calls gap down right at the open, subscribers who heeded the move to up the stop loss to 4.00 should be protected to the downside and lock in a gain of just over 175 percent.

April Auto Sales Disappoint Expectations, Confirming Our Short Position in GM

April U.S. auto sales were disappointing for the second consecutive month as some of the biggest automakers such as Ford (F), Fiat Chrysler (FCAU), Honda (HMC), and General Motors (GM) posted the biggest year over year declines. Overall, the industry reported a 4.7% sales decline to 1.43 million units, according to industry tracker Autodata.

Focusing on General Motors given the short position on the Tematica Select List, the company reported U.S. April sales down 6 percent year over year to 244,406 units with retail sales down 4 percent for the month to 191,911 units. What the means is dealer inventories rose in April and as a result, average incentives as a percentage of vehicle price rose to 10.5% in April, up from 9.3% in the same month a year ago, according to TrueCar subsidiary ALG. This marks yet another month in which GM widely missed auto sales expectations. From our perspective, we see the handiwork of tightening car loans, rising auto delinquencies and consumers that are saddled with debt, both credit card and student loans.

We continue to be bearish on General Motors shares given that rising dealership inventories will likely translate into more aggressive discounts that will eat into GM’s profits. This is especially true at GM’s financing division given that many of those incentives are devoted to 0 percent financing offers on slow-selling cars and alternative fuel vehicles according to Autotrader.

• We continue to have a Sell rating on GM shares with a price target of $30.
• Our buy stop order on GM remains at $40. As the shares continue to move lower, we’ll look to revisit our buy-stop loss further with a goal of using it to lock in position profits.

Turning to Simon Property Group

Over the last week, shares of mall focused REIT Simon Property Group (SPG) rose modestly, but if we take a closer look at the shares they were up, down and pretty much all around over the last five days. We’d note that competitor Tanger Factory (SKT) modestly missed expectations due to “delayed store openings expectations and incremental unexpected store closings relative to the company’s previous forecast.

Currently SPG expects average occupancy for the full year to be approximately 96 percent, compared to actual 2016 average occupancy of 97 percent.” Call us betting individuals, but with expectations for store closings to be 30 percent higher this year than in 2008, odds are that 96 percent forecast is a tad optimistic.

When we close this week, roughly 80 percent of the S&P 500 will have reported earnings. One of the larger groups among the remaining 20 percent is retailers, most of which have a January fiscal year end. That means the group will be reporting their quarterly earnings in the next few weeks, offering their latest take on discounts and incentives not to mention layoffs and store closings. Call us a tad ghoulish, but those reports should be rather confirming for our short bias on SPG shares. We will continue to be patient as that bearish thesis plays out further.

• With retail pain likely to intensify, we continue to have a bearish view on SPG shares. Our price target on SPG remains $150 and our buy stop order remains at $190.
• As SPG shares move lower, we’ll continue to ratchet down this buy stop order as well.

Housekeeping!

With the pace of earnings reports starting to slow some next week, we’ll resume looking at new positions for the Select List across a variety of call options as well as short positions. We’ve been eyeing some already, but have been waiting for clearer skies and greater visibility before adding a new position. Hopefully both are far closer than they were several weeks back.