Option Investor
Newsletter

Daily Newsletter, Thursday, 12/15/2016

Table of Contents

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

Market Wrap

Hut, Hut . . . Hike!

by Thomas Hughes

Click here to email Thomas Hughes

Introduction

The FOMC hiked as expected, was a little on the hawkish side as expected, and the market shook it off. Today's action recovered much of yesterday's losses, leaves the indices trading just below freshly set all time highs and has paved the way for Santa's rally to hit Wall Street. Supporting the move was a raft of better than expected economic data, and a substantial increase in forward outlook in manufacturing and housing markets.

Asian indices fell in the overnight session. The US decline, the rate hike, the outlook, the dollar strength all helping to depress prices. Losses were in the range of -1% although one index, the Nikkei, was able to eke out a small gain, about 0.1%. European markets were more cheered by yesterday's news. The FOMC, the rate hike, dollar strength all led to a surge in banking stocks that lifted the entire region by roughly 1%. The euro lost more than -1% versus the dollar bringing it a step closer to parity, maybe it'll get there this time.

Market Statistics

Futures trading was a bit mixed this morning, a little up down and sideways but generally around or just under break even levels. New and data did not seem to have much effect. At the opening bell the indices moved immediately higher and continued to drift higher for the first few hours of the day. Highs were set near lunch time, about +0.65% for the SPX, and then the market began to pull back. The retreat was slow to begin with, cutting the days gains by a third within about an hour of hitting the high. This level held for a few hours until just before 2PM when the retreat began to pick up speed. At this time the days gains were cut to just under half, about +0.25% for the SPX, where some early evidence of support began to kick in. Support held and from that point the indices trend sideways into the close.

Economic Calendar

The Economy

Lots of economic data and lots of surprises, all nicely positive. First up is jobless claims, initial jobless claims fell -4,000 from last week's not revised figure to hit 254,000. This is the 93rd week of claims below 300K and the 44th week of claims trending near 250K. The four week moving of claims rose, adding 5,250 to hit 257,000. On a not adjusted basis claims fell -13.5% versus an expected decline of -12.2%. On a year over year basis not adjust claims are down -2.6%. New York led with a decline of -15,000 new claims.


Continuing claims gained 11,000 from last weeks upward revision of 2,000 to hit 2.018 million. The four week moving average of claims gained 8,750 to hit 2.038 million, both numbers are just off their long term 43 year lows. Despite some recent volatility in claims this figure remains fairly stable around the 2.05 million mark and historic lows, consistent with labor market health.

The total number of Americans claiming unemployment jumped by 331,537, shy of my estimated 500,000. Regardless, the figure remains consistent with seasonal trends, long term improvements and overall health in the labor market. On a year over year basis total claims are down -10%. Over the next few weeks we can expect to see claims hover near today's level and then spike up to the seasonal high which should be somewhere near 2.75 million. After that claims should fall off into the spring and ealy summer.


The Consumer Price Index came in as expected, +0.2% on the headline and the core, month to month. On a year over year basis headline, not adjusted, CPI is running 1.7% and 2.1% ex-food and energy. Shelter and gas lead the increases, up +0.2% and +2.7% respectively, while food remains unchanged. While this increase is mild year over year inflation is running at/near the Fed's target and with PPI running on the hot side we could see this figure begin to rise in the near future.


There were two regional Fed business survey's released before the opening bell; the Philly Fed MBOS and the Empire State Manufacturing survey, both stronger than expected. The Philly Fed MBOS jumped 13.9 points to hit 21.5, the 5 month of positive reading and the highest level in over 2 years. Within the report New Order declined -5 but remains positive at 13.9, Shipment gained 3 to hit 22, Inventories turned positive and show growth, Unfilled Orders was positive for the 2nd month in a row and Employment rose for the 2nd month to turn positive for the 1st time in 12 months. On top of all that the 6 month forward outlook jumped 29.3 points to hit 52.6, also a 2 year high.


The Empire State Manufacturing Survey is slightly less robust but nonetheless positive and better than expected. The headline jumped 8 to 9.0, New Orders climbed 8 to hit 11.4, Shipments were unchanged at 8.5 and Unfilled Orders rose to 10.7. On the negative side Labor and Inventories both fell. Looking forward the 6 month outlook jumped 20 to hit 50.2.


The NAHB Housing Market Index was released at 10AM and help to send the market up to its intra-day highs. The headline number jumped 7 points on a month to month basis to hit 70, the highest level in over a year. On a year over year basis this month's reading is +10 or +16.6% higher than last year at this time. All regions saw increases with strength in the Northeast and the West. Single family homes sales came in at 76, up 7, the 6 month outlook came in at 78, up 7, and traffic of prospective buyers came in at 53, up 6 and the first positive reading in over a year.

The Dollar Index

The dollar, it got stronger today. The domino's have fallen into place; the Fed met expectations with a rate hike, the Fed upped their rate hike time line for 2017 and economic data remains positive and trending stronger. With all this in place the risks to the dollar and its rise are hiccups in economic recovery, strength in global economies and possible tightening by foreign central bankers. Until then the trend in the Dollar Index is up and looks strong, how high it goes is the question now. Today the index gained more than 1.5%, creating a long strong white candle, to hit a new high. And the move is confirmed by the indicators. Both MACD and stochastic are firing bullish signals within an uptrend, the stochastic qualifying as a strong signal (both %K and %D are pointing higher after %K dipped down in tandem with a test for support), and consistent with continuation. Upside targets are $103.50 in the near terms and $105 in the short to long.


The Oil Index

Oil prices are under pressure even as hopes the OPEC/Russia deal will rebalance the market. Today dollar strength helped to depress prices as traders try to balance the possibilities that OPEC will or will not be able to reduce overall supply and support the oil market. WTI closed today's session at a price of $50.85 with a loss near -0.40%.

The Oil Index managed to close with a gain today but action was not overly bullish. The index opened with a loss, gapping lower, and then moved up throughout the day to create a white bodied candle. While not a confirmation, it is a move lower following three days of action that could be a blow-off top. The indicators are bullish but also consistent with a peak and test for support so there could easily be more downside ahead. Support target is near 1,250, a break below here would have a next target near the short term moving average in the range of 1,225. All this of course dependent on oil prices, and how those prices affect earnings outlook. Longer term I am bullish on this sector based on earnings growth outlook but I expect there could be some volatility driven by oil prices/sentiment up to and until earnings growth becomes a reality.


The Gold Index

Stronger dollar, hawkish Fed, Gold is falling, that about sums it up. Spot gold fell $30 or -2.5% in today's session to break below my $1,150 support target and trade near the $1,130 level. The move looks pretty strong, in continuation of the short term down trends and supported by forward outlook, with downside targets near $1,100 in the near term and possibly lower. Now that we're below $1,150 a chance to retrace back to the long term low near $1,050 is a real possibility.

The Gold Miners ETF GDX has broken out of its multi-month trading range and consolidation. To the downside, in line with the prevailing short term trend. The ETF fell more than -4.5%, breaking below support at the 61.8% retracement level, and is heading lower. The indicators are consistent with a sell within a down trend, any rebounds or signs of strength are likely selling opportunities. Next downside target is $16.50, the 78.6% retracement level, in the near to short term with a full retracement back to the long term low near $12.50 highly likely.


In The News, Story Stocks and Earnings

Yahoo! it's execs, investors and board members were not yelling yahoo this morning. The company revealed another hack, this one affecting over a million users and under investigation by the FBI, and has thrown its takeover by Verizon into question. The news is completely unrelated to the previously disclosed hack and calls into question, once again, what is Yahoo! good for? Shares of the stock fell nearly -6% on the news to trade at 4 month low.


The Home Builder sold off despite the strong housing data. The XHB Home Builders SPDR fell more than -1.0% and created a large black candle with long upper shadow. This is the second such candle in a row and reveals a hard fought battle between bulls and bears in which the bears appear to be winning. The ETF is retreating from a long term resistance area, near $36, and this move is supported by the indicators. The indicators are bullish but in retreat and showing wicked divergence, consistent with a fall from resistance and potential for correction. Support target is near $34 and the short term moving average, a break below here would be more bearish and could lead to a move down to $33. Thinking about the housing market, we are entering the seasonally slow period so there could be some sideways movement/consolidation going into the winter and spring while we wait to see if there is any follow through on the recent round of strong housing data.


The VIX fell about -3.0% but flat over the past few days, holding steady just below the short term moving average. The index is trading near 12.50 and levels consistent with market calm if not rally. The indicators have turned bullish but look tentative, as if the market is not sure where it is going to go from here. A move above the moving average is likely bullish for the index, bearish for the SPX, with an upside target near 15 and then 17. A move lower would be consistent with rally with a target near the long term lows around 11.25. Now, tomorrow is Quadruple Witching Day and the option expiration immediately after a heavily speculated FOMC meeting so there is a chance for some volatility; intra-day action may not be indicative of the index closing price or overall market direction for the SPX, just be warned.


The Indices

The indices tried to rally but just couldn't sustain the gains. Despite late day weakness today's action is still more bullish than bearish, above near term support and consistent with a near term consolidation. Action was led by the Dow Jones Transportation Average which closed with a gain of 0.44%. The transports created a small, weak, tombstone doji which is often seen at the bottom of a down trend and confirming support. The indicators are consistent with a test of support and suggest that it may continue tomorrow, support being 9,250 or thereabouts (previous all time high). A break below this level would be bearish in the near term and could take the index down to 9,000 and the short term moving average. The near term trend remains up at this time.


The S&P 500 made the 2nd largest gain in today's session, 0.39%. The broad market created a small bodied white candle with long upper shadow, evidence of resistance to higher prices but also indicative of support at the 2,250 level. The indicators are a bit mixed but generally bullish and rolling into a possible buy signal within an uptrend. The caveat is that the indicators could remain mixed so confirmation is required. A move below support may go as low as 2,150 in the near term, a move up from support may find resistance at the current all time high, a break above that would signal a continuation of the up trend.


The tech heavy NASDAQ Composite comes in third today with a gain of 0.39%. The index created a small bodied white candle with longish upper shadow that came very close to touching the freshly set all time high. Today's action is weak and mild considering how far the index has come over the past few weeks and is consistent with the formation of a flag within a rally. The indicators are showing unconfirmed divergence, a red flag, but otherwise are bullish with stochastic firing a trend following buy signal, consistent with the continuation of an uptrend. Support is near 5,400, resistance is the all time high, a break above here would be bullish.


The Dow Jones Industrial Average brings up the rear with a gain of 0.30%. The blue chips created a small bodied white candle with visible upper shadow sitting just below the fresh all time high. The index appears to have hit a peak within an uptrend and the indicators are consistent with this. Both MACD and stochastic are showing near term weakness along with divergence from current highs that suggest consolidation or correction. Near term support is near 19,750 and yesterday's low, a break below here could take the index down to 19,500 or 19,000 with a quickness. A move higher would be consistent with the prevailing trend.


The indices rebound from yesterday's Fed induced sell-off, maintaining the integrity of near term trends. They appear to have entered a consolidation that could perhaps become the signal that near term trends will continue on into the short term. There are some risks, one of them is tomorrow's expiration day, but we're back to where economic data and outlook, and earnings outlook, are more important than the Fed and both of those are positive. The possibility of pull back remains, the charts look good but the indications are mixed, so I am cautious but remain bullish. If a pull back doesn't appear, if there is no dip to buy on, if yesterday's sell-off is all we get and the Santa Rally keeps on ho ho hoing up to new highs, I may have to pull the trigger on a second entry.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Playing the Odds

by Jim Brown

Click here to email Jim Brown

Editors Note:

When a stock rally is completely out of character and unsupported the chances are good it will correct. This is purely a play on an unreasonable spike on no specific news.



NEW DIRECTIONAL CALL PLAYS

No New Bullish Plays


NEW DIRECTIONAL PUT PLAYS

GATX - GATX Corporation - Company Profile

GATX Corporation leases, operates, manages, and remarkets assets in the rail and marine markets in North America and internationally. The company operates in four segments: Rail North America, Rail International, American Steamship Company (ASC), and Portfolio Management. The Rail North America segment primarily leases railcars and locomotive, as well as other ancillary services. This segment also offers repair, maintenance, modification, and regulatory compliance services on the railcar fleet. The Rail International segment leases railcars, as well as offers repair, regulatory compliance, and modernization work for railcars. The ASC segment operates a fleet of vessels that provide waterborne transportation of dry bulk commodities, such as iron ore, coal, limestone aggregates, and metallurgical limestone for steel makers, automobile manufacturing, electricity generation, and non-residential construction markets. The Portfolio Management segment is involved in leasing, asset remarketing, and marine operations, as well as manages portfolios of assets for third parties. As of December 31, 2015, it operated a fleet of 17 vessels; a fleet of approximately 106,100 cars; a fleet of 18,400 boxcars; and a fleet of 611 older four-axle and 26 six-axle locomotives. Company description from FinViz.com.

There has been no news since the company announced a 40 cent dividend on Oct 28th. The dividend is payable on Dec 31st to holders on Dec 15th. That is today. That means nobody else is going to be buying the shares to get the dividend.

Earnings Jan 19th.

GATX has rallied 45% since the election. I can only assume it was because of the rally in the Dow Transports in anticipation of a better economy in 2017. There is no current fundamental reason for a 45% rally and odds are good once the stock begins to roll over with the market it could fall very hard. Apparently other investors believe the same way since the only put strike with any volume is the January 60 puts. There is more volume in that one strike than all the other strikes combined.

Buy Jan $60 put, currently $2.50, no initial stop loss to avoid any volatility spikes.



In Play Updates and Reviews

Battle Lines Drawn

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Dow Closed 100 points below its intraday high and that high has been resistance the last three days. The Dow has run into solid resistance at 19,960 and has failed at the level intraday for the last three days. The last two days saw the Dow close nearly 100 points below that resistance. That is now the level to watch as sellers are trying to slip in just below 20,000 and avoid the rush.

The high or 19,951 was hit at 11:AM and it was all downhill from there. The big afternoon decline closed near the afternoon low suggesting Friday could be weak. The closer we get to the holidays the more traders are going to decide to take their chips off the table so they can enjoy their days off without any market worries.

While nobody can guarantee there will be a decline in January, all the signs are pointing in that direction. With the market acting "toppy" it is going to be harder to entice new money off the sidelines.



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


VRTX - Vertex Pharmaceuticals

The long call position was entered at the open.



If you are looking for a different type of option strategy, try these newsletters:

Credit spreads and naked puts = OptionWriter

Long term option investments = LEAPS Investor

3-6 month Option Trades = Ultimate Investor

Iron Condors = Couch Potato Trader

Long and short equity trades = Premier Investor



BULLISH Play Updates


ADP - Automatic Data Processing - Company Profile

Comments:

No specific news. New 52-week high.

Original Trade Description: December 5th.

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.

Earnings Feb 1st.

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.

Shares took profits last week from a very nice climb and could be ready to try for a new high.

There is resistance at $97 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 12/6/16:

Long Feb $97.50 call @ $2.10, see portfolio graphic for stop loss.


FFIV - F5Networks - Company Profile

Comments:

No specific news. Nice rebound back above prior resistance, which now looks like support.

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 of $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 12/8/16 with a FFIV trade at $142.25

Long Jan $145 call @ $3.80, see portfolio graphic for stop loss.


UNH - UnitedHealth - Company Profile

Comments:

No specific news. Minor gain while we wait for a breakout over $161.

Original Trade Description: December 7th

UnitedHealth Group Incorporated operates as a diversified health and well-being company in the United States. The company's UnitedHealthcare segment offers consumer-oriented health benefit plans and services for national employers, public sector employers, mid-sized employers, small businesses, individuals, and military service members; and health care coverage, and health and well-being services to individuals aged 50 and older addressing their needs for preventive and acute health care services. It also provides services dealing with chronic disease and other specialized issues for older individuals; Medicaid plans, Children's Health Insurance Program, and health care programs; and health services, including commercial health and dental benefits. This segment serves through a network of 1 million physicians and other health care professionals, as well as approximately 6,000 hospitals and other facilities. Its OptumHealth segment offers health management services, including care delivery and management, wellness and consumer engagement, distribution, and health financial services. This segment serves individuals through programs offered by employers, payers, government entities, and directly with the care delivery systems. The company's OptumInsight segment provides software and information products, advisory consulting services, and business process outsourcing and support services to hospitals, physicians, commercial health plans, government agencies, life sciences companies, and other organizations. Its OptumRx segment offers pharmacy care services and programs, including retail pharmacy network management, home delivery and specialty pharmacy, manufacturer rebate contracting and administration, benefit plan design and consultation, claims processing, and clinical program services, such as formulary management and compliance, drug utilization review, and disease and drug therapy management. Company description from FinViz.com.

UNH will have about $184 billion in revenue in 2016 to put it at number six on the Fortune 500 list. With its broadening of scope using its various Optum programs it is maximizing profits by widening the service component of its business. Here is an excellent article on why UNH will be the most profitable. Amazon of Healthcare

I am not going to go into an in depth explanation of UNH. That article I referenced has plenty of information why UNH should be a long term holding of any investor.

Earnings January 17th.

I wanted to play UNH last week when it was at $152 but it had resistance at $153 and I decided to wait another day to see if that resistance was broken. Shares gapped up to $158 at the open the next day and ran to $162.50 over the next four days. Now that big gain has been digested and shares pulled back to $156 before adding a couple dollars on Wednesday. I believe the UNH rally will continue for the reasons listed in that article above. I am willing to take a shot here that the market rally also continues even if Wednesday's futures related spike fades in the days ahead. We have 16 trading days until 2017 and we should close the year at higher levels.

Position 12/13/16 with a UNH trade at $160.25

Long Jan $165 call @ $2.58, see portfolio graphic for stop loss.


VRTX - Vertex Pharmaceuticals - Company Profile

Comments:

No specific news. Oppenheimer initiated coverage at "perform."

Original Trade Description: December 14th.

Vertex Pharmaceuticals Incorporated engages in discovering, developing, manufacturing, and commercializing medicines for serious diseases. The company focuses on developing and commercializing therapies for the treatment of cystic fibrosis (CF) and advancing its research and development programs. It markets ORKAMBI for the treatment of patients with CF 12 years of age and older who have two copies (homozygous) of the F508del mutation in their CFTR gene; and KALYDECO (ivacaftor) for the treatment of patients with CF 6 years of age and older who have the G551D mutation in their CFTR gene. The company also develops VX-661, a corrector compound that is in a Phase III development stage in combination with ivacaftor in multiple CF patients; VX-371, an investigational epithelial sodium channel, which is in a Phase II development stage; and VX-152 and VX-440 that are CFTR corrector compounds in Phase I clinical trial. In addition, it engages in the research and mid-and early-stage development programs in the areas of oncology, pain, and neurology. Company description from FinViz.com.

Vertex missed earnings by 2 cents with a 17 cent loss that was significantly better than the 39 cent loss in the year ago quarter. Sales of Kalydeco rose 6% to $176 million and revenue for Orkambi jumped 79% to $243 million. The problem is that the drugs have a very limited patient population in the U.S. of about 11,000 for this version of cystic fibrosis. They are close to receiving approval in the EU for these drugs. They have expanded their testing into other population groups to see if the drugs will continue to perform in other versions. There are 2,000 known mutations of the disease.

Shares declined in late November when one of the trials on a specific mutation failed to produce any additional results.

Shares have bottomed at the early November lows and have begun to rebound. If the market rolls over, Vertex could become a favorite oversold opportunity for institutional investors looking to put some profits back to work in a beaten down stock.

Earnings January 26th.

We cannot buy a post earnings option because there is no February strike and March is grossly expensive. That means the January expiration is our only option.

Position 12/15/16:

Long Jan $82.50 call @ $2.70, see portfolio graphic for stop loss.



BEARISH Play Updates (Alpha by Symbol)

DIA Dow ETF - ETF Profile

Comments:

No forward progress. The Dow closed -100 points off its highs with only a 59-point gain and the DIA did likewise. Market could be choppy over the next week.

Original Trade Description: December 7th

The SPDR Dow Jones® Industrial Average ETF Trust seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Dow Jones Industrial Average.

Remember Dow 10,000? Traders talked about it for weeks. When it was finally hit, they were passing out Dow 10,000 hats on the floor of the NYSE for a week. That was December 11th 2003. It was a big milestone for the market.

Now 13 years later we are about to double that with Dow 20,000. Given the place on the calendar, the massive post election rally and the potential for normal profit taking in January, the Dow 20,000 touch could be a massive sell on the news event.

However, we are only 386 points way and it could happen as soon as next week. The Fed rate announcement on Wednesday could either cripple that potential or accelerate it if the Fed maintains a dovish posture on future rate hikes. I believe we will hit Dow 20K before the end of December. When that happens I want to be short the DIA ETF and plan on holding it through January.

I am choosing the Dow because it is the most overbought and could produce the biggest percentage move. Just look at Goldman's chart and the profit that needs to be removed there.

Because there will be plenty of other traders thinking along the same lines I want to enter the put position at 19,900 or $199 on the DIA ETF. I know I am jumping in front of a speeding train to enter a short position on a runaway market but the potential is very high for a good trade.

Position 12/12/16:

12/12 - 1/2 position: Long Feb $195 put @ $3.40, no initial stop loss.

12/13 - 1/2 position: Long Feb $195 put @ $3.15, no initial stop loss.




If you like the trade setups you have been receiving and you are on a free trial then now is the time to subscribe. Don't wait until you miss a newsletter to decide you want to take the plunge.

subscribe now