As expected the Fed boosted interest rates yesterday in a bid to rebuild its war chest of stimulative power for the next eventual recession. Yes, you read that right, we said “eventual” as at some point there will be one. For now, it looks like the economy is continuing to muddle through at least for now.

Yesterday you received the regular Wednesday Tematica Investing piece, in which we added AXT Inc. (AXTI) shares to the Select List, and later in the day we posted our thematic thoughts on the May Retail Sales Report. If you missed that you can read it here, but the short of it confirmed our negative bias here at Tematica Pro for Simon Property Group (SPG) shares. Even though the shares climbed 2.8 percent over the last week, the data, which includes more store closings as Gymboree Corp. (GYMB) joins the bankruptcy ranks, points to more vacant stores to fill. As a reminder, we’re only now starting to see the announced store closures begin to actually happen, and we expect to see this reflected in the summer’s retail jobs figures. It is going to get ugly!

• We continue to have a $150 price target on our remaining SPG shares and buy stop order is still set at $163.

 

Poor Retail Sales Report Offer Validation for our GM Short Position

Given the miss in the May Retail Sales Report, which was arguably the worst report in 16 months given the number of retail categories that missed expectations, we continue to have concerns when it comes to the consumer’s ability to spend. With more cars coming off lease, we see even greater competition for auto manufacturers, which are already contending with bloated inventories despite record levels of incentives. This has triggered a new wave of forecast cuts for new auto sales compared to 2016, and we suspect there will be more such revisions to come throughout the summer.

• We will hold steady with our short position in General Motors (GM) shares and our price target remains $30.

Placing AMZN Calls on Our Contender List

Despite the miss relative to Wall Street expectations, the May Retail Sales report was very confirming for several of our investment themes as well as a number of our positions on the Tematica Investing Select List, especially Amazon (AMZN) ahead of the pending Back to School shopping season.

Here on the Tematica Pro side, we’ll continue to evaluate potential call option position for AMZN shares, but candidly we’re more likely to get further into the summer and get 2Q 2017 earnings behind us before doing so. As we all know, while Amazon has crushed earnings of late, it’s guidance can sometimes be problematic relative to expectations even though the company’s business is powered by several of our thematic tailwinds.

Adding a Call Option Position in AXT Shares

As mentioned earlier, yesterday we added AXTI shares to the Tematica Investing Select List.  Today we are adding a call option position in AXT shares to the Tematica Pro list, strategically selecting the November 17, 2017 $7.50 calls that closed last night at 0.55. That strike date allows us to capture not only the seasonal ramp in smartphone sales as well as connected device demand for the 2017 holiday shopping season, but initial sales for Apple’s next iPhone. That timing should also show more in the way of 5G beta networks being deployed, and as we discussed yesterday that means additional RF semiconductor dollar content per device, driving demand for AXT compound semiconductor substrates in the process.

Thus far these calls are thinly traded and that means they can be volatile. For that reason, we’re not adding a stop loss level as yet.

• We are adding AXT Inc. (AXTI) November 17, 2017 calls (AXTI171117C00007500) that closed last night at 0.55 to the Tematica Pro Select List.
• We would add the calls up to 1.00, and given the thin volume that is likely to make the calls volatile from time to time, we are not employing a stop loss at this time.

 

Dycom Calls Have Found Footing After Timing Related Earnings Miss

The same 5G deployments that serve as a catalyst for AXTI shares mentioned above also bode rather well for our position in Dycom (DY). The Dycom Industries (DY) September 2017 $90 calls (DY170915C00090000) calls closed last night at 6.80, up more than 28 percent since we added them to the fold on June 1.

As we expected, DY shares found their footing following the timing related miss to the company’s earnings outlook for the current quarter. As we head into the construction friendly summer months, we will be patient with both the shares and the calls, full well knowing AT&T (T), Verizon (VZ), Comcast (CMCSA)and other customers are busy expanding existing capacity and deploying more robust network solutions (5G, gigabit internet).

• We continue to rate the Dycom Industries (DY) September 2017 $90 calls (DY170915C00090000) a Buy at current levels, and we would now be buyers up to the 7.00 mark.
• Our protective stop loss remains at 5.00

 

We’re Going to Remain Patient with MGM Calls

Our MGM Resorts International (MGM) July 2017 $33 calls (MGM170721C00033000) closed last night at 0.79, up just shy of a 20 percent for the day, but not quite enough  to bring our position back into the green. We’re down modestly since adding the calls at 0.91 last week, and we continue to have a Buy on them at current levels.

The next catalyst for MGM calls as well as the underlying shares that are on the Tematica Select List will come from the end of the month gaming and revenue report from the Nevada Gaming Control Board. That will be followed by a similar report from the Macau Gaming, Inspection and Coordination Bureau. With indications pointing to a rebound in gaming activity in Macau as well as favorable summer traffic in Las Vegas, we remain bullish on both MGM shares and the July 2017 calls.

• We continue to rate the MGM Resorts International (MGM) July 2017 $33 calls (MGM170721C00033000) a Buy at current levels.
• We would be buyers of these MGM calls up to $1.50; because this is a new position we are holding off implementing a stop loss for this position at this time.