A Quick Stop-Out of our OLED Calls

As we’ve shared with you in the last few iterations of both Tematica Investing as well as the Monday Morning Kickoff, volatility is certainly back and odds are it will be with us the next several weeks. This led to a quick whipsaw in the Universal Display (OLED) September 2017 $135 calls we added last Thursday, and were promptly stopped out. Much like you, we are no fans when that happens. We use stop losses to limit losses and in this case, it worked rather well.

On the other hand, that back and forth in the market has also led to some favorable movement with our inverse ETFs positions, which is exactly what they designed for and why we added them to our holdings. As we head into September, which has historically been the most tumultuous month for stocks, we’ll continue to hold them as well as look for either other inverse ETF plays or other stocks whose underlying business is heading head long into a thematic headwind.

Before we get there next week, we will first have the annual economic symposium that occurs in Jackson Hole, courtesy of the Kansans City Federal Reserve. This year both Fed Chairwoman Janet Yellen, and European Central Bank president Mario Draghi will be presenting. As I discussed this morning on America’s First News, odds are Yellen will not say much about the Fed’s expected move in September, investors will be keying on Draghi’s comments over what’s next for the ECB’s monetary policy. I expect to see some movement in the Dollar one way or another coming out of tomorrow’s speeches.

Never Too Early to Start Thinking About Holiday Shopping

Notice we didn’t say in the headline above start your holiday shopping. We said to start thinking about holiday shopping, and as always, we say that with our investor cap on. (But if you want to slap on a Santa hat, by all means, go ahead.)

As we turn the calendar next week to the month of September, soon all eyes will be focused on the fast approaching holiday shopping season. While we’ve seen ample creative destruction thus far in the brick & mortar retail space, we here at Tematica see it only intensifying more in the coming months. We’ve seen some, like Wal-Mart (WMT), make strides to position themselves better inside our Connected Society investing theme. On the other hand, others such as Dick’s Sporting Goods (DKS), Finish Line (FINL) and Foot Locker (FL) are only now starting to show major cracks in the foundation of their business models.

With the Federal Trade Commission giving the green light to Amazon’s (AMZN) purchase of Whole Foods Market (WFM), we expect the pain to only intensify in the coming quarters. While some are focused on what the acquisition will do for Amazon Fresh as well as the much-discussed Amazon meal kit business, we see that and more. We see Amazon looking to tap the combined data between the two businesses to cross promote products to goose sales, especially for the combined companies private label brands.

Think of it this way, if you just watched a Mexican food show on Amazon video, Amazon might point you to deals on avocados and perhaps offer subscriptions for regular deliveries of tortillas and canned beans. Or it might automate a grocery shopping list based on a chosen recipe on your Kindle e-reader.

That’s a game changer that few will be able to replicate in the near to medium-term, and it builds on the accelerating shift toward digital commerce that is powering wallet share gains at the existing Amazon retail business. We’ve seen this month after month in not only the monthly retail sales data, but anecdotally from the growing number of trips we see United Parcel Service (UPS) making.  We also know that Amazon continues to benefit from the adoption of cloud-based computing and storage in the corporate market, and that is a powerful factor in the company’s profitability and cash flow with its Amazon Web Services unit.

To capitalize on what we see as even greater wallet share gains in the back half of the year, we’re adding the Amazon (AMZN) December 2017 1000 calls (AMZN171215C01000000) that closed last night at 35.97. We would be buyers of this position up to 45, and we are inclined to use any near-term market volatility to improve our cost basis as well as add a second position that includes a January 2018 strike date. In terms of upcoming catalysts, we see company presentations coming in September as setting the state for the September-December sprint. We also have Halloween spending, which is nicely captured in our December strike date. In the coming weeks, we’ll examine derivate plays on this, including companies like UPS that stand to benefit from Amazon’s continued share gains.

• We’re adding the Amazon (AMZN) December 2017 1000 calls (AMZN171215C01000000) that closed last night at 35.97.
• We would be buyers of this position up to 45, and we are inclined to use any near-term market volatility to improve our cost basis

More Data on GM Next Week

As we exit August and enter September late next week, it means we’ll be getting the August reading on car and truck sales. Based on data we’ve been watching that ranges from truck tonnage to weekly rail car orders as well as consumer related data, it’s once again lining up to be a challenging month for auto sales. It’s been a more than challenging environment for auto sales these last several months, with bloating inventories and a stepped-up use of incentives. Odds are the August data will make a bad situation only worse, and this has us keeping the short trade on General Motors (GM) in play.

• We are holding steady with our short position in General Motors (GM) shares and our price target remains $30. Our buy-stop level remains at $40.