We haven’t had a good hack in some time and our market theories are continuing to ring true. First lets look at charts.
The day of the 15th TWTR dropped “heavily” after hours as reported by The Verge. Call it roughly 6% after hours while the NASDAQ ETF QQQ was also down 3% after hours. Is this unusual movement?
This move is within expectations. If we look at the expected move (1 standard deviation) on a one week period is +/-4.338. TWTR closed at 35.67 the day the hack hit the press. TWTR opened at 34.16 the next day well within the expected move.
If you look at the after hours charts above it might be scary if you don’t understand the market. If we roll out to a daily chart you can see that TWTR has been green since the 15th and recovered to above its high on the 15th by the 17th. Today TWTR has cleared $37.00, above its 6/8 high of $36.94.
Let’s also look at analysts calls. On 7/20 Goldman Sachs raises price target to $43 from $39. This is the Monday after the hack hit the press. On 7/15 JPMorgan raises to $33 from $29. On 7/9 Morgan Stanley raised to $32 from $24 What do we see here? A trend that the people who are paid follow the stock believe its going higher regardless of the news.
This continues to support our thesis that hacks do not materially affect large companies. The upstream aspects of customer satisfaction, reputational loss, etc. are not predicted to affect the balance sheet, income statement, and cashflow statement, thus fundamental investor sentiment is unchanged as a result of the news. Technical investors are always looking for a dip to buy which bad news always presents an opportunity to buy stock, buy a limited risk call strategy, or sell a limited risk short put vertical.
On 7/9/2019 the UK Information Commissioners Office (ICO) has fined Marriott International ($MAR) 99,200,396 GBP in relation to the Starwood database incident that Marriott announced on Nov 30, 2018. Like most information security incidents, this falls into the category of not harming investors.
The stock closed on 7/8/2019 at 141.30 and opened on 7/9/2019 at 138.63. Before you listen to the infosec pundits about data breaches and stock prices going to zero (we’re still waiting on TGT and HD) it’s best to do some research.
First, we take note of news events the same day. From the beginning of the day we have other events that would affect the stock price. In order on 7/9/2019 we have:
Downgrade by JPMorgan from Overweight to Neutral
UK ICO Announcement at 8:30am ET
DC Attorney General files suit for deceptive
pricing practices 2:04pm ET
When we examine a 15 minute chart we notice a lower opening on 7/9/2019 which is to be expected with the downgrade announced prior to pre-market trading. $MAR reaches a low of 137.85 at the 10am candle and gives us a Bullish Hammer pattern followed by bullish green candles. All of the negative news from the downgrade and the fine by the ICO took 30 minutes to shake out before buyers stepped in to create a reversal pattern. The announcement of the DC AG office filing suit resulted in a $0.09 drop to 139.16 over the 15 minutes candle after the announcement. This was the low of the day to close. The stock closed higher to end the day at 139.52. On 7/10 the stock finishes digesting the morning news then takes off at 11:15 and doesn’t look back to close the day at 141.57. This is .27 higher than it was the day before the JPMorgan downgrade, the UK ICO fine, and the DC AG suit. Three negative news items in one day and the next day the stock is in better shape than it was the day before the news hit.
Multiple news events in one day, two being government actions, and one an analyst downgrade did not negatively affect $MAR beyond the day of the event. Buyers do not appear to think much of the UK ICO ability to make the full amount stick after appeal, JPMorgan’s ability to tell the future, and the ability of the DC AG to successfully make a case. Price action matters and the action has been to the upside.
$FB has supposedly exposed some records. If history repeats itself we can bet on panic buying to set in and history does repeat itself. $FB opened flat and then took off premarket and didn’t look back.
To take advantage of the situation we’re going to sell a put vertical. We were only able to get filled near the close of market due to the up move but we’re in.
SELL -1 VERTICAL FB 100 17 MAY 19 165/160 PUT @1.14 LMT
We have a GTC in for 25% and plan to be out before expiration.
Marriott suffered a huge data breach according to some reports. As we can see it scared the bulls to death. The stock reverted 2 standard deviations back to the mean and then dropped another 2 standard deviations. Like most events of this type we can expect this to blow over. We can see that it bounced hard off the lower Bollinger Band. This also gives us a sign that the long term damage is not being seen by the markets. January 18 options are about 50 days away which gives the stock more than enough time to bounce back. After entering this trade we set a GTC order to close at 25% of max profit. Overall we managed to pull out a 12.6% return on invested capital (margin of $332) the next trading day after entering. The size of this bounce was surprising as Marriott bounced back above the mean in almost no time. The stock was on an upward trajectory prior to the news and the overall market has turned bullish. Most likely it will continue upward to the upper Bollinger Band.
Sold 1 MAR 01/18/19 Put 115.00 @ 4.20 Filled at: Nov 30, 2018 10:13:06 AM EST
Bought 1 MAR 01/18/19 Put 110.00 @ 2.50 Filled at: Nov 30, 2018 10:13:06 AM EST
Bought 1 MAR 01/18/19 Put 115.00 @ 2.77 Filled at: Dec 3, 2018 10:10:17 AM EST
Sold 1 MAR 01/18/19 Put 110.00 @ 1.49 Filled at:
Dec 3, 2018 10:10:17 AM EST
Sony was upgraded by Moody’s to investment grade (Baa3). CDS costs have dropped showing confidence in the company and its turnaround plan. No mention was made of the alleged breach by North Korea which means it left the minds of investors long ago.
$NYT announced that Quest Diagnostics ($DGX) had a breach of 34,000 customer’s data. No financial data was taken. Some public information such as name and telephone were taken along with some lab results according to reports.
$DGX broke above resistance yesterday and is riding the former resistance line as support. Intraday close was up and barring any surprises we expect the bullish trend to continue.
The day before Thanksgiving the Navy announced a breach of a sailor’s PII on a laptop operated by HP Enterprise. The announcement came after hours which means our first trading day was the day after Thanksgiving. HPE closed at 23.22 on Friday and our bullish after hack thesis is still working the next trading day with a close of 23.34.
Once again news of organized crime hackers is all over the news. This time $WEN keeps slowly upping the severity of the breach over time. This seems to be getting worse day by day, but it is still nothing compared to $BP failing to plug the leak for weeks.
This news cycle has been all over the map so there isn’t a breach trade here. What do you mean DearestLeader? Look at that Dip! It must be because of the news cycle!
Yes, there is a dip and it was bought, and yes it is in a bullish channel. #BTFD
But this is not due to the news cycle. When we take a look at $SPY the whole S&P 500 fell off a cliff.
This was mainly due to Brexit. As you can see $GBPUSD was completely destroyed the night of Brexit. It’s only natural to expect the whole market to crash into a buying frenzy the next day. Skeptics of course may claim that Kim Jong Un single handedly flew to the moon on a Unicorn to meet with the ghost of Kim Il Sung who instructed him to stuff the ballots in the UK in favor of Brexit while installing malware in the deep fryer at $WEN.
We don’t have a trade on since the news cycle is never ending and everyone is tired of hearing how consumers were inconvenienced and have to get a new card with no money out of pocket thanks to the Fair Credit Billing Act. $WEN is not that exciting with perfect timing you’re only making .20 per day. We would rather be long $ES_F and ride the wave.
Affairs marketplace Ashley Madison has added 4 million new users in a move that will surely puzzle most information security professionals. Even security firm AVG says usage is up. How could this be possible after the data breach and such a, um, sensitive topic? Consumers have a short memory as we can see from the fact that people still shop at Target and Home Depot and people still go to see movies produced by Sony.
“with cheating in particular, it can be somebody who isn’t satisfied with their ordinary life and having trouble in their marriage, but sometimes not. Sometimes their just seeking the thrill of the game.”
Some people love to take risks, but in reality risk is reduced after an event due to extra scrutiny on the causes such as safety, but also due to the fact that the odds of two like events happening in the same place are relatively low.
For example, Police allege they discovered skinned cat behind Ming’s BBQ in Doraville, GA. Health inspectors visited the restaurant and rated Ming’s a failing score of 59. Would you eat at Ming’s? Images of food poisoning, death, and being served cat when you ordered dog come to mind. Surprise! Their health score jumped from 59 to 96 in less than two weeks. Under Rational Choice Theory (RCT) you would have greater economic utility dining at Ming’s after they were cited for and cleaned up their health issues. The same goes for airline service or some type of technology service. Fear of previous low health scores, plane crashes, or data insecurity do not fit into RCT since value is maximized by the event.
Many in the information security profession have said that the Ashley Madison IPO is off, their CEO is gone, and they will be sued out of business. This prediction has not happened and we are still waiting for Target and Home Depot to stop posting gains year-over-year after their data breach. Ashley Madison is in good shape from a legal stand point since the class action was filed in the Eighth Circuit. Why is this important? The Seventh Circuit ruled that plaintiffs who experienced no injuries from a data breach could pursue damages. Since the case is in the Eighth Circuit the Remijas v. Neiman Marcus precedent does not apply. Also consider that a judge has ruled that “John Doe” victims must identify themselves. Two strikes against legal action which is Bullish for investors.
Consumers are always seeking to consume and maximize their economic utility. Ashley Madison has continued to deliver on a value proposition and appears to be on track to bring gains to investors in this new class of marketplace.