The Nasdaq is collapsing and dragging the other indexes down with it. The profit taking cycle is definitely not over. While the S&P dip to support at 2,190 could be seen as the end of the cycle, the Nasdaq crash of -150 points over the last two days is telling a different story.
The Nasdaq Composite closed at 5,251 and below initial support levels. The next material support is 5,200 and we really to not want to break below that level. Techs are driving the market lower and until they recover the post election rally is on hold.
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.
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
AAPL - Apple Inc
The long call position was stopped out at $109.65.
ADP - Automatic Data Processing
The long call position was stopped out at $95.65.
CDK - CDK Global
The long call position was stopped out at $56.85.
CONE - CyrusOne
The long call position was stopped out at $41.45.
FB - Facebook
The long call position was stopped out at $116.65.
VXX - Volatility ETF
The long put position was stopped out at $28.35.
FFIV - F5 Networks
The long call position remain unopened until a trade at $142.25. *NEW*
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BULLISH Play Updates
AAPL - Apple Inc - Company Profile
After weeks of reporting lack of iPhone 7 availability it appears that has faded. Apple has cut back on orders from component suppliers. This may be a twofold problem. Some have already reported shifting gears in preparation for building the iPhone 8 due out next fall. Apple will not want to have the same inventory shortfall they experienced with the model 7.
The Nasdaq crash pushed all the big cap techs lower and we were stopped out for a minor loss.
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.
Closed 12/1/16: Long Jan $115 call @ $1.85, exit $1.20, -.65 loss.
ADP - Automatic Data Processing - Company Profile
No specific news. Caught in the market decline and shares dropped below support intraday to stop us out for a small gain.
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.
Closed 12/1/16: Long Feb $95 call @ $2.50, exit $3.16, +.66 gain.
CDK - CDK GLobal - Company Profile
No specific news. Shares fell with the market to stop us out.
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.
Closed 12/1/16: Long Feb $60 call @ $2.50, exit $1.64, -.86 loss.
CONE - CyrusOne Inc - Company Profile
No specific news. Negative market caused another decline to stop us out.
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.
Closed 12/1/16: Long March $45 call @ $2.23, exit $1.37, -.86 loss.
FB - Facebook - Company Profile
No specific news. The second consecutive Nasdaq decline knocked FB for a -3% loss to stop us out.
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.
Closed 12/1/16: Long Feb $125 call @ $3.05, exit $2.90, -.15 loss .
FFIV - F5Networks - Company Profile
I put FFIV back in the portfolio with a recommendation to enter the position at $145.25. After today's decline, I am lowering that to $142.25. If we get a rebound from here or lower, I expect it to be swift. If FFIV continues lower, I will reset the entry when appropriate.
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 $142.25
Buy Jan $145 call, currently $3.15, initial stop loss $137.25.
FLOW - SPX Flow Inc - Company Profile
No specific news. Nice breakout over resistance even in a bearish market.
Original Trade Description: November 30th.
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.
Long March $35 call @ $1.51, see portfolio graphic for stop loss.
SMG - Scotts Miracle Grow - Company Profile
No specific news. Minor decline from Wednesday's record intraday high.
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.
Long March $90 call @ $3.90, see portfolio graphic for stop loss.
WDC - Western Digital - Company Profile
No specific news. Major volatility with a spike to $66 at the open and then a drop back to $61.50 at the close.
WDC announced an investor day for Tuesday Dec 6th.
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.
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
We were finally stopped out on this position. This was a good thing since it was a December option. We exited with a gain and I am going to put it back in the recommendation list with a longer dated option.
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.
Closed 12/1/16: Long Dec $33 Put @ $4.20. Exit $5.25, +$1.05 gain.
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