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Daily Newsletter, Wednesday, 11/30/2016

Table of Contents

  1. Market Wrap
  2. New Option Plays
  3. In Play Updates and Reviews

Market Wrap

Bulls Struggling to Hold Back the Bears

by Keene Little

Click here to email Keene Little
Last week's Thanksgiving rally resulted in new weekly closing highs for many indexes but this week has been a struggle to hold those gains (the Dow is doing better with its new highs). So far the pullback can be considered just a correction to the rally but the bears have other ideas and the bulls are struggling to hold them back.

Today's Market Stats

After an especially strong rally following the election it's natural to see the market taking a breather with some profit taking this week. Whether that profit taking will turn into stronger selling is the big question but at the moment the pullback is looking like a correction to the rally and not something more bearish. Of course the definition of "more bearish" will be different for different traders depending on their risk tolerance and whether they bought at the beginning of November or last week. Even a "normal" (is there such a thing in this market?) 38% retracement of the November rally would see SPX drop down to 2164 but if you bought above 2194 that would be a painful "correction."

While we don't yet know what kind of pullback to expect, or how deep it might go, there are some signs that we have not yet seen the high for the rally from November 4th. But at the same time there are some reasons to believe the top could be in place and considering the downside risk in this overstretched market to the upside I think it's prudent to be lightly exposed to the long side while waiting to see if the bears are going to mount some kind of sustained attack. Those clues will come with additional price action in the coming week.

This morning started off with a pop to the upside but that was quickly sold into and the market struggled for the rest of the day. A final sell program just before the close had most of the indexes at/near their lows of the day, which of course left it looking more bearish. But in the land of reversals of reversals I find it very difficult to predict the next day based on how the market closed the previous day. It's kind of a schizoid market.

This morning's economic reports included the ADP Employment Change for November, which came in stronger than expected at +216K. That was significantly above the +119K in October and beat the +160K that the market expected.

Other positive numbers for the market were Personal Income, which increased +0.6% in October and was better than the +0.4% for September and better than expectations for +0.4%. Spending declined some in October (+0.3% vs. +0.7% in September) so that hurt retailers but paying down some debt is a good thing.

Equity futures had been rising last night before this morning's economic reports, which boosted futures a little higher, so the market started off with a gap up. But as already mentioned, the sellers immediately hit the gap up with selling, using the extra liquidity to sell into.

It was not a day of hard selling but each bounce attempt was hit with more selling and to a lower low for the day before another bounce attempt. The resulting pattern for the day was a choppy pullback with overlapping highs and lows and that's what has it looking like a correction to the rally. But the bearish interpretation is that the day stair-stepped lower in the beginning stage of a waterfall decline. If the selling starts to accelerate on Thursday it would be a stronger sign that we might have seen the highs in the market, at least for now. There are of course some key levels to watch on the charts to help determine whether it's a pullback to buy or if instead we'll want to start looking at bounces to short. At the moment it looks like it's a pullback that will lead to another push higher but I can't say I'm confident enough in that to actually buy. I think downside risk dwarfs upside potential.

Today was another day with mixed signals, especially this morning when the Dow was up near 100 points while the techs were getting beat down. SPX and RUT were in neutral territory and the fractured state of the market is always a good time to sit back and watch for a while. The dollar was up but oil was up stronger and the strength in the banks certainly helped the blue chips. But Treasury yields also spiked back up and at some point that's going to be a drag on stocks. But short term, the selling in bonds (driving yields higher) has helped fuel the rally in stocks.

Starting off tonight's chart review will be a little more detailed look at some interesting price relationships for SPX and a little further below I'll tie in some time relationships as well. Many market analysts, particularly followers of Gann, believe time (time cycles, Fib relationships, etc.) is more important than price so I think it's a good idea to try to tie the two together. I'll run through a few charts for SPX, starting with the monthly chart, to point out some of the price and time relationships in order to highlight the importance of where we are currently. None of this means the market is getting ready to reverse back down but it does provide enough clues as to why it could do so soon (possibly within days if it hasn't already peaked).


S&P 500, SPX, Monthly chart

The monthly chart shows the rally off the 2009 low and a potentially important price projection at 2213.50, which was tested with last Friday's high near 2213 and again today with this morning's high near 2214 (both of which straddle the 2213.50 projection). If I break the rally into two pieces, the first being the February 2009 - May 2011 leg up and the second being the October 2011 - present leg up, the 2nd leg is 162% of the 1st leg at 2213.50. There is a significant monthly bearish divergence at the current high vs. the lower price highs in 2014-2015. Only in hindsight will we know if the current high is important but the potential is for it to be THE high, although there's plenty the bears need to do to prove it (and so far this week they're doing a poor job of it).


S&P 500, SPX, Weekly chart

The weekly chart below shows a couple of the price relationships for the rally from February, starting with the projection shown in red at 2223, which is the 127% extension of the previous decline (the May 2015 - February 2016 pullback). As I'll show on the daily chart further below, this same 127% extension shows up on a shorter time frame and is essentially a fractal pattern of what we see on the weekly chart. If SPX can rally above 2223 it would be a bullish signal that points to 2250-2300 as an upside target zone.

The next relationship is in the rally pattern from February, which I'm counting as a 5-wave move and as such should be completing soon, if not already completed. The 3rd wave up (June-August) is slightly more than 62% of the 1st wave up (February-April), which is the projection shown at 2177.67. These projections make the chart look messy but they could be important, which is why I'm showing them on the chart. The 5th wave (the rally from November 4th) also reached slightly more than 62% of the 3rd wave, which is the projection shown at 2208.74. The November rally also has SPX back-testing its broken uptrend line from February-June and now the bears are waiting to see if it will be followed by a bearish kiss goodbye. Not shown on the chart, the 2nd and 4th wave pullback corrections (April-June and August-November) were about equal in price while the 4th wave was about 127% longer than the 2nd wave, which made the November low ripe for the start of the next rally. Now we have the 5th wave ripe for a reversal back down. While there's clearly further upside potential, even if only to 2223, I think that's now a riskier bet than the short side.


S&P 500, SPX, Daily chart with price relationship

Notice on the weekly chart above the 3-wave pullback from May 2015 to February 2016 and the 127% extension up to 2223. Now look at the daily chart below and you'll see the same 3-wave pullback from August to November and now the same 127% extension of that pullback also points to 2223. That makes 2223 a particularly interesting number to watch if reached. SPX is now struggling to hold onto the broken/recovered uptrend line from February-June when viewing it with the arithmetic price scale, which puts the uptrend line slightly lower than when using the log price scale as shown on the weekly chart. Today's close is back below the trend line so the bulls want to see that recovered quickly, which case the upside target at 2223 would look more likely. But a drop below the August high near 2194 would be the first sign of trouble for the bulls and then below the November 10th high at 2182 would signal the top is likely in place.

Key Levels for SPX:
- stay bullish above 2194
- bearish below 2182


S&P 500, SPX, Daily chart with time relationships

The next daily chart shows some time relationships in the price pattern since the August 2015 low. For whatever reason, there is a 50-day time period that has been repeating, with only a little hiccup in the April-September 2016 period which stretched 2 x 50 = 100 days and then the last 50-day period completed last Friday. Again, only in hindsight will we know if that high was significant but it has the potential to be a significant turning point based on time cycles. Achieving an important price level (the 162% projection to 2213.50 shown on the monthly chart) on this 50-day cycle date is what makes it possible we have a price/time relationship that will mark an important high for the market, even if it will only lead to a stronger pullback before heading higher again.

We'll soon find out if time and price have come together for a significant change in the market. There is a Fib price relationship between the two legs of the rally from 2009 where the 2nd leg (the rally from October 2011) is 162% of the 1st leg at 2203. Tuesday's closing price was near 2204 but the more important closing price will be this week's. Last week's closing price, which was Friday's half-day session high, was 2213. Last week's low was near 2186 and that's an important level for the bulls to defend this week (for other reasons as well, which I outline below.

There are a few time/price relationships based on the Gann Square of Nine chart (it's a little hard to follow without the chart but please bear with me as I try to describe the relationships and bullet #5 hopefully sums it up):

1. 2190 is square (90 degrees) to February 11, the low of this year, and therefore an important level that should now act as support (bearish if it doesn't)

2. 2207 is square to July 20, which in 2015 was the date of the test of the May 2015 high that then led to a strong selloff into August. Tuesday's close was 2204, which is square to January 20, which was the low this year prior to the February low.

3. There's symmetry in price with the March 2009 low, which had undercut the prior low in November 2008 by 75 SPX points. The same 75 points above the May 2015 high near 2135 equals 2210, which was exceeded by only 3 points with last Friday's high at 2213. But that half-day session high was quickly followed by this week's pullback. This morning's high at 2214 was quickly sold into.

4. We're now approaching December 7th, which is opposite 666-667 (the 2009 low).

5. December 1 is aligned with 2182, which is the November 10th high and November 10 is aligned with 2194, which is the August 2016 high. There is therefore "vibration" between these dates and price levels and along with #1 above, we have 2190-2194 and December 1-7 as a potentially important price/time relationship. A weekly close below 2190 would likely be a bearish signal and below the November 10th high at 2182 would be a sell signal from an EW pattern perspective.


Dow Industrials, INDU, Daily chart

The Dow has been outperforming the other indexes, thanks largely to the banks' outperformance this month. After struggling near its broken uptrend line from February-June in early November the Dow then climbed back above the trend line last week and used it for support on Tuesday. This is all bullish price action and today's new all-time high continues to support the idea for higher prices (although the bearish divergence showing up on the chart urges caution by those chasing it higher, as well as today's shooting star at trendline resistance).

There's an upside target near 19350, only about 125 points above this morning's high, where it would run into the trend line along the highs from April-July. Above that is a price projection at 19503 where the leg up from November 18th would be 62% of the November 7-14 rally. There's an EW pattern that supports that projection and while it would be more bullish above 19350 I'd be very careful if the bearish divergences are not negated. From a risk perspective for bears to consider, there is the possibility that the Dow could continue a rally up to the price projection at 19904 (let's call it 20K) and while I don't think we'll see that, it would obviously be painful if you're stubbornly holding onto a short position. The same goes for the bulls here -- with the potential for an important high here, consider where you want your stop so as to protect profits while giving the rally some room to breathe before heading higher.

Key Levels for DOW:
- bullish above 19,350
- bearish below 18,853


Nasdaq-100, NDX, Daily chart

The techs were weak again today as they struggle to keep up with the blue chips and the RUT, all making new highs while NDX managed to only test its October highs with a lower high so far. Today's sharp decline followed another back-test yesterday of the trend line across the highs from July-November 2015, which held the NDX down in September and October. That trend line is nearing 4900 so it would be at least short-term bullish above 4900 but it might be just the final leg of a rising wedge pattern off the November 4th low (depicted on the daily chart below and shown in more detail on the 60-min chart further below). A choppy rally up to about 4930 is the potential I currently see for NDX into next week. But if it breaks down much further, below 4493 (the 20-dma), I would have a hard time justifying a reason to expect higher prices. Today's low at 4810 met a downside projection I have for an a-b-c pullback off the November 22nd high and it's a setup for another rally leg. That possibility requires an immediate rally on Thursday. Price-level support near 4816 (the March 2000 high) is also being tested again. Again, the bulls need to prove the bullish setup (even if for only one more leg up) with an immediate rally on Thursday otherwise it will start to look more bearish.

Key Levels for NDX:
- bullish above 4930
- bearish below 4793


Nasdaq-100, NDX, 60-min chart

A closer view of the NDX price action off its November 4th low shows just a 3-wave bounce and as such it could be a correction to the October decline and the decline off Tuesday's high is just the start of a much more serious decline. But the a-b-c pullback off the November 22nd high has a projection for the c-wave at 4812, which was achieved with the sell program into today's close. A 38% retracement of the rally from November 14th is near 4805 and that's why I think it would be more bearish below 4805, having already broken below the 4812 projection at that point. But as I said, an immediate rally Thursday morning would keep the rising wedge alive, which calls for one more leg up into next week, potentially topping out around 4930 before declining into year-end.


Russell-2000, RUT, Daily chart

The November rally for the RUT took it up to a trend line along the highs from July-September, currently near 1352, which is parallel to the uptrend line from February-November. About 15 points higher, currently near 1367, is a parallel line attached to the April high, and that's the upside potential if the rally from November 3rd is not done yet (the line will be near 1375 by the end of next week). The pullback from last Friday looks corrective and while it's still too early to tell whether or not THE high is in place, the risk for those holding long positions is that we're going to see the start of a large decline following the 5th wave of the move up from February. Upside potential is dwarfed by downside risk and I would not want to be holding long positions below the November 14th high near 1306. Nor would I want to be short above last Friday's high at 1347. Mind the chop in between.

Key Levels for RUT:
- bullish above 1348
- bearish below 1305


20+ Year Treasury ETF, TLT, Weekly chart

Just as the stock market has rallied a little too far too fast to be healthy, the bond market has sold off strong and should be ready for at least a breather. The TLT weekly chart below shows it might be ready for at least a bounce since it has now sold off the same amount as it did in early 2015, at 120. In addition to that potential price-support level the 200-week MA is currently at 120.17 and today's close was 120.24. It's building some bullish divergences on the daily chart and could be forming a basing pattern over the past week. It's not a bad place to nibble on a long position in TLT but keep in mind that downside potential to its uptrend line from 2011-2013, currently near 116.40 (log price scale).


KBW Bank index, BKX, Daily chart

The banks continue to act strong and after just one down day on Tuesday it gapped up and continued to new highs today. But it's possible it was a last gasp before at least a larger pullback since it's showing bearish divergence as it presses up against the trend line along the highs from 2010-2015 and the top of a parallel up-channel from February (the broken uptrend line from February-May). When viewing the chart with the log price scale the trend line along the highs from 2010-2015 is a little higher, near 88. Today's high was 87.56. If BKX is going to make it higher into December I think it will stair-step higher as shown in green but at the moment it's vulnerable to a stronger pullback/decline.


U.S. Dollar contract, DX, Weekly chart

The US$ has been consolidating for the past week and it looks like it could press higher (perhaps something like depicted with the light-green dashed line on its weekly chart below). The dollar stays bullish above price-level S/R at 100.50 but the daily chart is showing bearish divergence and I'm thinking it's ready for at least a larger pullback before potentially heading higher.


Gold continuous contract, GC, Weekly chart

Gold is fighting to hold onto price-level support near 1180 but today's decline had is closing below that level for the first time since February. I think there's a good chance it will be supported by the midline of a down-channel from 2011 (the blue dotted downtrend line on the weekly chart below). This line stopped rallies in 2014 and then acted as support in 2016. Currently near 1165 it was nearly tested with today's low. Much below 1165 would have it looking more immediately bearish but if we get a bounce correction to the decline (potentially something more bullish) I'll be looking for a bounce back up to the soon-to-cross 50- and 20-dma's, perhaps near 1260, before heading lower (if the larger bearish wave pattern is correct and we really are going to suffer from deflation instead of inflation, which I believe is the greater likelihood).


Oil continuous contract, CL, Daily chart

Oil shot back up during the early-morning hours as news was released that OPEC would be able to hold down production to support higher prices. Russia said it would agree to a production cut, the first time it has joined OPEC since 2001. Total production cuts would amount to about 1.8M bpd, about 2% of world-wide production. The agreement allows Iran to raise its production. Only time will tell if the agreement means anything since rarely has it held back production. Helping the rally was this morning's report on U.S. inventory, which showed a drop of 884K barrels as opposed to expectations for a drop of 636K barrels.

As for the price pattern, oil has been consolidating in what could be a bullish ascending triangle since June and while it could break out from here, with a rally above 52, we might see it consolidate into January before starting the next rally. But it's not clear yet which way it is likely to go from here and if the current bounce off the November 14th low does not make it higher than the October 19th high at 51.93 and then drops below the November 14th low at 42.20 it would trigger a stronger sell signal.


Economic reports

Tomorrow morning we'll get some more employment data with the Challenger Job Cuts and the unemployment claims data, none of which should move the market. The Construction Spending report and the ISM Index report will both come out at 10:00 and could cause a little movement around the release of those numbers. The auto and truck sales numbers will be out in the afternoon. Friday's reports include the nonfarm payrolls numbers and unless there's a big (disappointing) surprise there should not be much market movement. Only if it's disappointingly low would it have the market wondering if pricing in a Fed rate increase was correct.

I'm still not convinced the Fed will raise rates although I think there's a better than even chance it will happen. They've been boxed into a corner by both the stock and bond markets and they'd lose a lot more credibility, which is already in short supply, if they don't follow through on a rate increase. Whether or not a rate increase would be a wise move will be argued later (and I suspect they'll be blamed for the economic slowdown in the coming years).


Conclusion

The stock market has been on a tear since the election and there could be more rally before it peters out. But the slowing momentum and bearish divergences as indexes push up against resistance suggest at least caution is required by the bulls. Whether we get just a larger pullback or something more bearish is not clear yet but the risk for those holding long positions is that the wave count for the rally from February can now be considered complete at any time. It doesn't guarantee a reversal from here but I think the risk is now in long positions. Upside potential is dwarfed by downside risk.

Nibbling on some short positions should be a strong consideration if you want to hedge a long portfolio. Speculators (traders) should nibble very carefully on short positions but don't hang around with new highs since there is still plenty of upside potential, especially if the market is in the middle of a blow-off rally into the end of the year (not a prediction but just trying to recognize the risk).

The pullback from last Friday looks corrective and some indexes are making new highs this week, both of which support the idea that the market could continue to press higher, possibly in a choppy move that will frustrate both sides with how long it takes. But with the price/time relationships that I reviewed with the SPX charts, I think the potential for a stronger reversal back down needs to be respected. We should get much needed evidence in the coming week.

Keep in mind that the stock market often pulls back into mid-December before setting up the Santa Claus rally. Trade carefully.

Good luck and I'll be back with you next Wednesday.

Keene H. Little, CMT

In the end everything works out and if it doesn't work out, it is not the end. Old Indian Saying


 

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New Option Plays

No Decline Today

by Jim Brown

Click here to email Jim Brown

Editors Note:

SPX Flow did not decline today and showed good relative strength by gaining $1 instead. It is also ready to breakout to a new 52-week high.



NEW DIRECTIONAL CALL PLAYS

FLOW - SPX Flow Inc - Company Profile

SPX FLOW, Inc. provides various engineered solutions worldwide. The company engineers, designs, manufactures, and markets products and solutions used to process, blend, filter, dry, meter, and transport fluids with a focus on original equipment installation, including turn-key systems, modular systems, and components, as well as aftermarket components and support services. It operates through three segments: Food and Beverage, Power and Energy, and Industrial. The Food and Beverage segment offers mixing, drying, evaporation, and separation systems and components, as well as heat exchangers, and reciprocating and centrifugal pump technologies primarily under the Anhydro, APV, Bran+Luebbe, Gerstenberg Schroeder, LIGHTNIN, Seital, and Waukesha Cherry-Burrell brands. The Power and Energy segment provides pumps, valves, and related accessories, principally for use in oil extraction, production, and transportation at wells, as well as for pipeline applications under the APV, Bran+Luebbe, ClydeUnion Pumps, Copes-Vulcan, Dollinger Filtration, LIGHTNIN, M&J Valve, Plenty, and Vokes brands. This segment primarily serves customers in the oil and gas industry, as well as in nuclear and other conventional power industries. The Industrial segment offers air dryers, filtration equipment, mixers, pumps, hydraulic technologies, and heat exchangers under the Airpel, APV, Bolting Systems, Delair, Deltech, Hankison, Jemaco, Johnson Pump, LIGHTNIN, Power Team, and Stone brands. This segment principally serves customers in the chemical, air treatment, mining, pharmaceutical, marine, shipbuilding, infrastructure construction, and general industrial and water treatment industries. Company description from FinViz.com.

SPX Flow was spun off from SPX Corp (SPXC) in September 2013. Shares sold off from the $40+ opening to $15 over the next six months. After a quick rebound to $31 in May the stock has moved sideways for the rest of the year.

They reported earnings of 34 cents that beat estimates for 33 cents. Revenue of $466.8 million narrowly missed estimates for $467.7 million. They guided for full year earnings of $1.27-$1.47 with revenue of $2.0 billion.

The CEO said the company had made good progress in its restructuring efforts post split. Revenue was light in Q3 because of a delay in shipping some orders in the energy sector. They are looking forward to a rebound in the energy sector and manufacturing in general.

Earnings Feb 1st.

Shares closed right at 52-week resistance at $31.50 and are poised for a breakout, market permitting. The stock gained $1 today in a weak market.

Buy March $35 call, currently $1.65, initial stop loss $27.85.


FFIV - F5Networks - Company Profile

Comments:

Bernstein cut their rating from outperform to market perform. Shares fell with the Nasdaq to stop us out at $140.85. I had high hopes for FFIV but it never got over that resistance at $144. I am going to put this position back into the recommended list with a trigger over $145 because once it breaks out, we could see a huge rally. See new position recommendation below.

Original Trade Description: November 21st.

F5 Networks, Inc. develops, markets, and sells application delivery networking products that optimize the security, performance, and availability of network applications, servers, and storage systems. It offers Local Traffic Manager, which provides intelligent load-balancing, traffic management, and application health checking; BIG-IP DNS that automatically directs users to the closest or best-performing physical, virtual, or cloud environment; Link Controller, which monitors the health and availability of each connection in organizations with more than one Internet service provider; Advanced Firewall Manager, a network firewall; and Application Security Manager, an Web application firewall that provides comprehensive, proactive, and application-layer protection against generalized and targeted attacks. The company also provides Access Policy Manager, which provides secure, granular, and context-aware access to networks and applications; Carrier-Grade Network Address Translation, which offers a set of tools that enables service providers to migrate to IPv6 while continuing to support and interoperate with existing IPv4 devices and content; and Policy Enforcement Manager that offers traffic classification capabilities to identify the specific applications and services to service providers. In addition, it offers cloud-based and other subscription services; BIG-IP appliances; VIPRION chassis-based systems; and Traffix Signaling Delivery Controller for diameter signaling and routing. Company description from FinViz.com.

The big attack on the Internet several weeks ago was driven by malware that had been placed on IoT devices including security cameras, cable boxes, burglar alarms and dozens of other device types. These devices are typically delivered without any material malware defenses. It is up to each manufacturer to overcome this in the future with some kind of defense.

However, FFIV provides software and hardware to prevent denial of service attacks from these devices as well as the more robust attacks from computers and servers. With more and more servers in the cloud it is harder to protect them from attack like you would dedicated physical servers in a dedicated data center. This is where FFIV excels.

The company's Silverline service places a sophisticated cloud based filter around critical infrastructure that stops attacks instantly. Aided by hardware based firewalls in dedicated data centers they protect data and equipment from all outside attacks.

For Q3 they reported earnings of $2.11 compared to estimates for $1.94. revenue ot $525 million beat estimates for $520 million.

Earnings Jan 21st.

FFIV shares spiked on earnings in late October and have been moving steadily higher. They are about to break over resistance at $144 and we could see another leg higher when that happens.

With a FFIV trade at $145.25

Buy Jan $150 call, currently $2.00, initial stop loss $138.85.


NEW DIRECTIONAL PUT PLAYS

No New Bearish Plays



In Play Updates and Reviews

Sell the News

by Jim Brown

Click here to email Jim Brown

Editors Note:

OPEC shocked everyone by announcing a production cut and crude oil spiked 9%. The markets opened at new highs on the Dow and S&P but the news was quickly sold. Energy stocks remains the only winners for the day after the Dow gave up a triple digit gain to close positive by only 2 points. The Nasdaq Composite lost -56 and the Nasdaq 100 loss -62. The Biotech Index lost -91.

I was worried yesterday the profit taking was not over and I did not add any new plays. When the market spiked to new highs at the open I was second-guessing myself but the selling appeared very quickly.

The Russell 2000 only lost -6 points and given the Nasdaq and Biotech declines it could have been a lot worse. I do believe the markets will move higher eventually but we could have some additional weakness first.



Current Portfolio


Stop Loss Updates

Check the graphic below for any new stop losses in bright yellow. We need to always be prepared for an unexpected decline.


Profit Targets

Check the graphic below for any profit stops in green. We need to always be prepared for a profit exit at resistance.




Current Position Changes


FFIV - F5 Networks

The long call position was stopped at $140.85.



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BULLISH Play Updates


AAPL - Apple Inc - Company Profile

Comments:

No specific news. Minor decline but still holding over support at $110.

Original Trade Description: November 16th.

Apple Inc. designs, manufactures, and markets mobile communication and media devices, personal computers, and portable digital music players to consumers, small and mid-sized businesses, and education, enterprise, and government customers worldwide. The company also sells related software, services, accessories, networking solutions, and third-party digital content and applications. It offers iPhone, a line of smartphones; iPad, a line of multi-purpose tablets; and Mac, a line of desktop and portable personal computers. Company description from FinViz.com.

Apple shares have been under pressure since topping at $118.25 before their Q3 earnings. Q4 estimates are rising thanks to the problems with the Samsung Note 7 that forced its removal from the market. Sales are said to be booming despite tight supply. Apple cannot make enough phones to fill the demand going into the holiday season and that suggests it should be a good quarter.

The company is also expected to announce some new products soon including "digital glasses." The rumors breaking about the next iPhone model to be announced next September already have Apple fanatics excited. Those include full frontal screens without any edges. This will allow full use of the phone's screen and allow for smaller phones overall sizes while keeping the screen sizes the same. There is rumored to be a 4.7 inch, 5.0 inch and 5.5 inch model. The 5.5 inch model is said to be an OLED screen with curved edges.

Regardless of the future new product rumors, several high profile funds have increased positions in the stock. Steve Cohen and Ray Dalio have reportedly increased their stakes.

Apple shares dipped to $104 on Monday and touched the 200-day average. That has been support/resistance dating back to September 2013. Since Monday's dip, which was seen as the last bout of climax selling for the big cap tech stocks, Apple shares have risen for two days.

Today, with Apple at $108, somebody bought 160,000 contracts of the December $115 calls. Even at the average price of 75 cents that was a $12 million dollar bet that Apple is going higher over the next 30 days. That takes some serious conviction. I am recommending we follow them only use the January option just in case they are wrong about the timing.

Update 11/29/16: KGI Securities said sales of iPhones in 2017 could break records with the iPhone 8 and two upgrades to the iPhone 7. Apple is reportedly testing more than 10 designs for its 10th anniversary phone. Apple suppliers were told to prepare for 120 to 150 million units in 2017. Apple has been challenged in 2016 because of slow production rates. They cut back too far on their initial orders and cannot catch up.

Earnings January 24th.

Position 11/17/16:

Long Jan $115 call @ $1.85, no initial stop loss.


ADP - Automatic Data Processing - Company Profile

Comments:

No specific news. Dropped $1 from the new closing high back to support at $96.

Original Trade Description: November 19th.

Automatic Data Processing, Inc., together with its subsidiaries, provides business process outsourcing services worldwide. The company operates through two segments, Employer Services and Professional Employer Organization (PEO) Services. The Employer Services segment offers a range of business outsourcing and technology-enabled human capital management (HCM) solutions, including payroll services, benefits administration services, talent management, human resources management solutions, time and attendance management solutions, insurance services, retirement services, and tax and compliance solutions. This segment's integrated HCM solutions include RUN Powered by ADP, ADP Workforce Now, ADP Vantage HCM, and ADP GlobalView, which assist employers of all sizes in all stages of the employment cycle from recruitment to retirement; and ADP SmartCompliance and ADP Health Compliance. The PEO Services segment provides a human resources (HR) outsourcing solution through a co-employment model to small and mid-sized businesses. This segment offers ADP TotalSource that provides various HR management services and employee benefits functions, such as HR administration, employee benefits, and employer liability management into a single-source solution. Company description from FinViz.com.

ADP reported a 26.5% rise in earnings to 86 cents that beat estimates by 9 cents. Revenues rose 7.5% to $2.92 billion and beat estimates for $1.91 billion. The number of employees on client payrolls rose 2.7%. They ended the quarter with $2.82 billion in cash and long-term debt of $2 billion. The announced the sale of their CHSA and COBRA business to WageWorks for $235 million. The sale will be completed in Q2 2017.

The company guided for 2017 revenue growth of 7% to 8% and 15% to 17% earnings growth. The PEO Services segment revenues are expected to rise 14% to 16%.

The company just declared a 57-cent quarterly dividend to raise the annual dividend to $2.28.

ADP holds a dominant position in the payroll processing sector. With employment expected to rise again in 2017 this could be an attractive investment for funds that are tired of chasing industrials and bank stocks in the current rally.

There is resistance at $96 but given the time of year and the overbought conditions in the rest of the market, we could see a breakout. Options are relatively cheap.

Position 11/21/16:

Long Feb $95 call @ $2.50, see portfolio graphic for stop loss.


CDK - CDK GLobal - Company Profile

Comments:

No specific news. Resistance held and the negative market caused a $1 drop.

Original Trade Description: November 28th.

CDK Global, Inc. provides integrated information technology and digital marketing solutions to the automotive retail and other industries worldwide. The company operates through Retail Solutions North America, Advertising North America, and CDK International segments. It offers technology-based solutions, including automotive Website platforms; and advertising solutions comprising the management of digital advertising spend, for original equipment manufacturers and automotive retailers. The company's solutions automate and integrate various parts of the dealership and buying process from targeted digital advertising and marketing campaigns to the sale, financing, insuring, parts supply, repair, and maintenance of vehicles. It provides solutions to dealers serving approximately 27,000 retail locations and automotive manufacturers. Company description from FinViz.com.

The company reported Q3 earnings of 60 cents that beat estimates for 53 cents. Revenue of $550.7 million beat estimates for $540.4 million. Revenue rose 7% and earnings posted a 34% rise. Gross margin rose 590 basis points to 30.9%. They are committed to raise that to 35% over the next year. The company guided for full year earnings of $2.30-$2.37 per share, a rise of 23% to 27%. Advertising revenues rose +23% and earnings on advertising rose +203%.

Earnings February 1st.

Shares are at resistance at $59 and did not decline in today's market. A breakout to a new high appears imminent.

Position 11/29/16:

Long Feb $60 call @ $2.50, see portfolio graphic for stop loss.


CONE - CyrusOne Inc - Company Profile

Comments:

No specific news. Negative market reversal knocked it back -3%.

Original Trade Description: November 26th.

CyrusOne Inc., a real estate investment trust (REIT), owns, operates, and develops enterprise-class, carrier-neutral, and multi-tenant data center properties. The company provides mission-critical data center facilities that protect and ensure the continued operation of information technology infrastructure. Its customers operate in various industries, including energy, oil and gas, mining, medical, technology, finance, and consumer goods and services. As of December 31, 2015, the company's property portfolio included approximately 32 data centers in the United States, the United Kingdom, and Singapore collectively providing approximately 2,954,000 net rentable square feet. Company description from FinViz.com.

One commodity that will never see a surplus of supply is data center properties. As fast as they can be built they are filled up as data storage and cloud services expand exponentially. These centers capture top dollar from renters and they almost never leave.

CyrusOne reported earnings (FFO) of 67 cents compared to estimates for 63 cents. They posted revenue of $143.8 million that beat estimates for $136.2 million. They guided for full year earnings of $2.59-$2.62 and revenue of $523-$530 million.

Shares have been declining since August as REITs fell out of favor. There was a rebound in progress when the election knocked shares back -$5 as investors raised cash for industrials and financial stocks. That post election dip has been erased and shares are starting to move higher again.

They have a yield of 3.5% and after the big decline, there is significant opportunity for share appreciation as well.

Earnings Jan 30th.

Options are cheap.

Position 11/28/16:

Long March $45 call @ $2.23, see portfolio graphic for stop loss.


FB - Facebook - Company Profile

Comments:

No specific news. Big Nasdaq drop hit Facebook hard.

Original Trade Description: November 12th.

Facebook disappointed on guidance when they reported earnings for Q3. Earnings were $1.09 compared to estimates for 92 cents. Revenue was $7.01 billion compared to $6.92 billion. That was a 56% increase from the year ago quarter. Monthly active users rose to 1.79 billion and beat expectations for 1.76 billion. That was a gain of 80 million users. Daily active users rose to 1.18 billion and beat estimates for 1.16 billion. More than 1 billion daily users are mobile users. That accounted for $5.7 billion in revenue or 84% of its total ad revenue compared to 78% in the year ago period.

The problem came from the guidance. The CFO said revenue growth rates will decline in coming quarters. The reason is the number of ads already running called the "ad load." Facebook has run out of places to display ads because they are all booked. The company also said 2017 would be an "aggressive investment year" as they grow capex "substantially" and ramp up hiring.

Facebook still makes a lot of money and they still have a lot of assets to monetize. Shares fell to the 200-day average on Thursday and that has been support since mid 2013. I believe buyers will take advantage of the sharp decline in order to establish new positions. Facebook will rebound and it will set new highs. Those highs may not be in the near future but that does not mean we will not see a short term rebound.

Earnings February 1st.

Position 11/16/16:

Long Feb $125 call @ $3.05, see portfolio graphic for stop loss.


FFIV - F5Networks - Company Profile

Comments:

Bernstein cut their rating from outperform to market perform. Shares fell with the Nasdaq to stop us out at $140.85. I had high hopes for FFIV but it never got over that resistance at $144. I am going to put this position back into the recommended list with a trigger over $145 because once it breaks out, we could see a huge rally.

Original Trade Description: November 21st.

F5 Networks, Inc. develops, markets, and sells application delivery networking products that optimize the security, performance, and availability of network applications, servers, and storage systems. It offers Local Traffic Manager, which provides intelligent load-balancing, traffic management, and application health checking; BIG-IP DNS that automatically directs users to the closest or best-performing physical, virtual, or cloud environment; Link Controller, which monitors the health and availability of each connection in organizations with more than one Internet service provider; Advanced Firewall Manager, a network firewall; and Application Security Manager, an Web application firewall that provides comprehensive, proactive, and application-layer protection against generalized and targeted attacks. The company also provides Access Policy Manager, which provides secure, granular, and context-aware access to networks and applications; Carrier-Grade Network Address Translation, which offers a set of tools that enables service providers to migrate to IPv6 while continuing to support and interoperate with existing IPv4 devices and content; and Policy Enforcement Manager that offers traffic classification capabilities to identify the specific applications and services to service providers. In addition, it offers cloud-based and other subscription services; BIG-IP appliances; VIPRION chassis-based systems; and Traffix Signaling Delivery Controller for diameter signaling and routing. Company description from FinViz.com.

The big attack on the Internet several weeks ago was driven by malware that had been placed on IoT devices including security cameras, cable boxes, burglar alarms and dozens of other device types. These devices are typically delivered without any material malware defenses. It is up to each manufacturer to overcome this in the future with some kind of defense.

However, FFIV provides software and hardware to prevent denial of service attacks from these devices as well as the more robust attacks from computers and servers. With more and more servers in the cloud it is harder to protect them from attack like you would dedicated physical servers in a dedicated data center. This is where FFIV excels.

The company's Silverline service places a sophisticated cloud based filter around critical infrastructure that stops attacks instantly. Aided by hardware based firewalls in dedicated data centers they protect data and equipment from all outside attacks.

For Q3 they reported earnings of $2.11 compared to estimates for $1.94. revenue ot $525 million beat estimates for $520 million.

Earnings Jan 21st.

FFIV shares spiked on earnings in late October and have been moving steadily higher. They are about to break over resistance at $144 and we could see another leg higher when that happens.

Position 11/22/16:

Closed 11/30/16: Long Jan $150 call @ $3.15, exit $1.67, -1.48 loss.


SMG - Scotts Miracle Grow - Company Profile

Comments:

The company exercised its outstanding warrants to gain control of 80% of AeroGrow International. SMG has owned 31% since 2013. AeroGrow is active in the indoor gardening sector for hydroponics.

Original Trade Description: November 12th.

The Scotts Miracle-Gro Company manufactures, markets, and sells consumer lawn and garden products worldwide.

Nine states had legalization of marijuana on the ballot in some form and eight approved the measures. California, Massachusetts, Maine and Nevada approved it for recreational use. Arkansas, Florida and North Dakota approved it for medical use, which is a first step towards eventual recreational use. Montana approved a measure for commercial growing and distribution. Arizona was the only state where a recreational use measure failed.

Scotts has already said the legalization of pot was good for their business since growers want to grow it fast and grow it indoors. Over the last two years, Scotts has acquired two hydroponic acquisitions. One of them was a marijuana nutrient and growing products maker. They are branching out into the equipment and lighting required for indoor plant cultivation with the acquisition of Gavita, a grow light and hardware producer. They recognize pot as an "emerging high-growth opportunity" under their Hawthorne Gardening Company brand. They want to invest $500 million in the marijuana industry.

Scotts recently spun off its Scotts LawnService yard fertilizer business into a partnership with TruGreen so that low margin business is gone. The partnership pays distributions back to Scotts.

In the last quarter, sales rose 7% with consumer purchases rising 10%. This compares to the full year revenue growth of 2%. This shows how fast the business is growing with the new focus. They are projecting 6% to 7% revenue growth in 2017 and adjusted earnings of $4.10-$4.30. They called those numbers conservative.

Earnings Feb 2nd.

Position 11/14/16:

Long March $90 call @ $3.90, see portfolio graphic for stop loss.


WDC - Western Digital - Company Profile

Comments:

WDC announced an investor day for Tuesday Dec 6th. New 10 month high.

Original Trade Description: November 12th

Western Digital Corporation, together with its subsidiaries, engages in the development, manufacture, sale, and provision of data storage solutions that enable consumers, businesses, governments, and other organizations to create, manage, experience, and preserve digital content worldwide. The company's product portfolio includes hard disk drives (HDDs), solid-state drives (SSDs), direct attached storage solutions, personal cloud network attached storage solutions, and public and private cloud data center storage solutions. It provides HDDs and solid-state drives for performance enterprise and capacity enterprise markets desktop, and notebook personal computers (PCs).

Western Digital bought flash memory maker SanDisk in October 2015 and this is going to supercharge their product offerings. They have already raised guidance after a couple quarters of integration. Revenue in Q3 rose 38% to $4.7 billion.

Last week WDC announced a 50-cent quarterly dividend payable Jan 17th to holders on Dec 30th.

The consensus rating of 27 analysts is a buy with a price target of $69.64. Shares closed at $58.89 on Friday.

They reported earnings on Oct 27th and spiked to $62. Post earnings depression saw them fade back to $55 and now they are moving up again. I believe they will exceed that $62 earnings high. They traded at $115 in 2015.

Earnings Jan 25th.

Position 11/14/16:

Long Jan $62.50 call @ $2.20, see portfolio graphic for stop loss.



BEARISH Play Updates (Alpha by Symbol)

VXX - VIX Futures ETF - Company Profile

Comments:

A gain of only one penny. I am shocked given the decline in the Nasdaq.

Because this is a December option, I will continue to tighten stop on the position when possible. If we are stopped out, I will reenter the position on the next bounce with a longer term put.

Original Trade Description: September 21st.

The VXX is a short-term volatility product based on the VIX futures. As a futures product it has the rollover curse. Every time they roll to a new futures contract they have to pay a premium and that lowers the price of the ETF. It is a flawed product with a perpetual decline built in from the monthly roll over in the futures contracts.

As evidence of this flaw, they have now down four 1:4 reverse stock splits. The last four reverse splits occurred at $13.11 (11/2010), $8.77 (10/2012), $12.84 (11/2013), $9.52 (8/8/16). The prospectus says it can reverse split anytime it trades under $25 for a prolonged period and the splits will always be 1:4.

After the August split the ETF moved sideways for four weeks at $36. The volatility event on Sept 9th with the Dow falling -2.5% spiked the VXX from $33 to $42 in three days. That bounce has faded and it is almost back at $33. You are probably thinking, the $40 level would have been a good entry point and you are right in hindsight. However, with the market in danger of breaking down if the Fed had hiked rates, it was better to wait. Now there is nothing on the horizon to cause a spike other than normal market movement.

This is going to be a long-term position. I am not putting a stop loss on the position because long term the VXX always goes down. If we get another volatility spike we will buy another position at a higher level and then ride them both back down.

The market typically rises in late October and into the Thanksgiving weekend. A rising market reduces volatility.

I thought about using a spread to reduce the out of pocket costs. However, that means the strikes have to be relatively close together for the short strike to have any premium. Since the VXX could decline 10 points or more before December, that would limit our potential return to 3-4 points in a spread. However, if we do get a big decline we can spread out at much lower level to further increase our gains.

Position 9/22/16:

Long Dec $33 Put @ $4.20. No stop loss.




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