Option Investor
Newsletter

Daily Newsletter, Thursday, 12/22/2016

Table of Contents

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

Market Wrap

Santa Stalls Out

by Thomas Hughes

Click here to email Thomas Hughes

Introduction

The Santa Rally may still be on, but not today. Today the indices retreat from yesterday's close to continue consolidating at all-time highs for the 10th day in a row; price action today was not bullish, price action over the past 2 weeks is looking more like continuation every day.

The day started quietly, global indices holding more flat than not in thin holiday trading. Asian indices closed mix, one up and one down, although moves were less than a tenth of a percent in most cases. The one standout was the Hang Send which lost a little more than -0.80%. In Europe action was much the same although yesterday's news from the Italian banking sector added a bit of volatility. The good news, at least in the short term, is that the Italian government is set to bail out ailing bank Monte dei Paschi di Sienna.

Market Statistics

Futures trading was muted, action light as volumes begin to dry up ahead of the holiday. A raft of economic data, a bit weak in most cases, was not able to move the needle during the pre-opening session. Action at the opening was mildly bearish. The indices opened with small losses, dipped a bit lower, and then proceeded to trend sideways for the first half of the day, bouncing off the early low just after 12 noon. Afternoon trading saw the indices move within the early range, closing off of the lows and just below current all time highs.

Economic Calendar

The Economy

Lots of data today starting off with the final revision of 3rd quarter GDP. GDP was revised higher, more than expected, to 3.5%. This is the fastest level of growth for the US since the 3rd quarter of 2014. Some economists have already begun to say it is a peak and that the growth spurt is already petering out. This may be true in the near term, 4th quarter and/or 1st quarter GDP may not be as strong but the outlook for next year is on the rise. The Conference Board upped their 2017 target by 30 basis points simply based on positive outlook tied to Trumponomics.


Initial claims for unemployment gained 15,000 this week, well ahead of expectations, to hit 275,000. This is the highest level of first time claims in nearly 8 months but more likely due to seasonal volatility in the market rather than a change in labor fundamentals. The four week moving average of claims rose by 6,000 to 263,750. Last week's data was not revised, this is the 94th week of claims below 300,000. On a not adjusted basis claims rose by 3.4% versus an expected decline of -4.6%. Despite the miss not adjusted claims are down -1.2% over last year and remain consistent with ongoing labor market improvement.


Continuing claims for unemployment rose by 15,000, on top of an upward revision of 3,000, to hit 2.036 million. The 4 week moving average of claims fell, counter to this weeks gain continuing claims, to hit 2.037 million. Despite the mixed numbers, continuing claims remains near the long term low and consistent with ongoing labor market health and improvement.

The total number of claims fell, as expected, by 78,930 to hit 2.038 million. On a year over year basis total claims are down -9.6%. These declines are in line with seasonal trends and long term improvement with the labor market. All in all, this week's labor data is consistent with both seasonal hiring/firing trends as well as long term labor market recovery. Looking forward we can expect to see initial, continuing and total claims all spike to seasonal highs in the next few weeks, peaking in early to mid January, and then fall off into the spring time hiring season.


Durable Goods orders fell -4.6% in November, slightly more than expected. The drop reverses the 4.8% gain seen in October, all October data points having been revised higher. The November decline is also the first drop in orders in the last 5. Within the report data shows that shipments increased by 0.1%, unfilled orders fell by -0.2% and inventories rose by 0.1%. Ex-transportation durable orders rose 0.5%, transportation itself falling more than -13%. Ex-defense durables rose 6.6%. Picking this apart, it looks as the core portion of the economy saw an increase in orders while autos/transportation and defense spending both fell. While a bit weak, this report does have a silver lining. The transportation figures are seasonal and Trump is going to increase defense spending so there is a good chance we'll see the durables figures rise in the coming year, so long as the core economy remains healthy.

The Conference Board's Index Of Leading Indicators was unchanged in November. This follows a 0.1% gain in October and a 0.2% gain in September. The Coincident Index rose by 0.1%, the Lagging Index rose by 0.3%, both consistent with positive momentum in the underlying economy. Conference Board economists say that the readings are consistent with an expending economy and one that will continue to grow into the first half of 2017, although an acceleration of growth is expected at this time.


Personal Income was basically flat in November, rising less than 0.1%. Disposable Personal Income fell by less than -0.1%. The PCE came in at 0.2%, showing modest growth in spending. On a year over year basis PCE prices are running at a rate 1.4% above last year, 1.6% ex-food & energy, well below the Fed's target rate for inflation but the 5th month of rise and up a full half percent over the last 5 months. Inflation is still tame but if it begins to front run the FOMC we could see them get more aggressive with interest rate hikes.

The Dollar Index

The Dollar Index held it's ground today. The data dump did little to boost dollar bullishness but also did little to dampen it. Near term, economic growth may have slackened, longer term growth is still in the cards and by many accounts likely to be stronger than current estimates. The question is just how strong and we won't know that until the data comes out. Until then the dollar is still in uptrend and supported by economic outlook and FOMC expectations. Today the index created a small doji hammer, reconfirming near term support at the $102.50 level. The indicators are mixed, MACD is showing a peak in momentum that could turn into divergence while stochastic is indicating strength with a crossing of the upper signal line. Together these signals are consistent with consolidation that could lead to a continuation of near term trends. A drop below near term support could take the index down to stronger support, near $101 or $100.50, a break to new highs could carry the index on up to my target of $105.


The Oil Index

Oil prices moved higher today but did not make new highs. The price was supported by today's data which, along with the OPEC price fixing deal, helped to improve supply/demand outlook into next year. WTI settled with a gain near 1%, just shy of $53, and may remain at these levels into the indefinite future. Also supporting prices is the onset of cold weather, a development which should lead to increased consumption of fuel oils, kerosene and natural gas.

The Oil Index made small gains in today's session, 0.34%, but the candle is the 5th small bodied candle in a row at this level. Price action over the past 2 to 3 weeks has been consistent with consolidation at/near new highs with support in the range of 1,275 to 1,280. The indicators are both bearish in the near term, consistent with consolidation and/or a peaking market, while bullish in the short to long term. Both indicators are convergent with the current long term high which suggests that the market is strong and that prices will move higher from here, or at least retest current highs if a sell-off were to take place. Long term outlook for the sector, robust earnings growth in 2016 and that I think will lead to a cycle of dividend increases that together will drive this sector higher. My upside target is 1,350 near to short term, 1,450 to 1,500 short to long term.


The Gold Index

Gold prices wavered a bit but held steady near $1,130 while the dollar tested it's support in today's session. Gold is under the pressure of a rising dollar and while inflation remains tame is not attracting much support. I am bearish on gold until something changes including but not limited to a rise in inflation, a change in central bank policy from the ECB, BOJ, both or a combination of all three. Downside target is $1,100 with a possibility of moving down to a full retracement of the 2016 bull market in gold.

The Gold Miners ETF GDX is echoing the moves of the underlying commodity. The ETF held flat in today's session, the 6th day at this level and below the 61.8% retracement level, with a definite bearish bias. The indicators are bearish and suggesting a continuation of the 5 month down trend. Next target is near $16.50 and the 78.6% retracement level with a chance of full retracement to $12.25. Resistance is at $20 should the ETF make move higher.


In The News, Story Stocks and Earnings

Conagra reported earnings before the bell and they were good. The company, which has been in the process of divesting weaker brands, was able to beat top and bottom line expectations, expand margins, and grow EPS over the same quarter last year even without the inclusion of brands sold over the past 12 months. At the same time the company was able to reaffirm guidance to a range around the consensus. Shares of the stock jumped 3.3%, creating a tall white bodied candle with shaven top, to close at a new all time high.


Rite Aid reported earnings before the bell and missed on the top and bottom lines. The company, which is being acquired by the Walgreen's Boots Alliance, saw EBITDA fall more than 33% to $274 million. The main reason cited for the decline is a difficult operating environment due to the extended duration of the merger process. The company says performance was solid despite the headwinds. Investors did not agree, shares of the stock fell more than -1% in the pre-opening session.


Cintas reported earnings after the bell and surprisingly did not meet expectations. The caveat is that expectations were quite high and results were strong with top line growth of 6.4% over last year, 5.7% organic. Along with growth comes an improvement of gross margins of nearly a full percent, EPS nearly 10% to $1.13 including a $0.02 impairment charge related to a recent acquisition. The only thing bad about the report is that EPS and revenue did not grow quite as much as expected, which in the end is providing a cheaper entry to a solid growth name and dividend payer. Shares fell more than -3% on the news to trade near potential support of $115.


The Indices

The indices continue to churn at levels just below current all time highs. Today's action is consistent with holiday trading, low volumes and meandering price action, and yet also fits into a pattern of consolidation within the current rally that suggests continuation is on the way. All indices closed with a loss today, the Dow Jones Transportation Average is the leader with a decline near 0.80%. The transports created a small bodied black candle and set a new 3 week low, if barely. Even with the new low today's close is above 9,148 and the bottom of the long white candle which formed with the break to new all time highs. With that in mind action over the past few weeks looks like a flag pattern in formation, a sign of continuing near term trends. The indicators are still bearish so further testing of support, near 9,150, could happen. A break below support would be bearish, next target near 9,000. A move higher would confirm the flag pattern, with upside target near 10,000 in the near to short term.


The NASDAQ Composite made the next largest decline, about -0.50%, and created a small to medium sized black candle. Today's action is well within the range set over the past few weeks, just below the current all time high. The indicators are consistent with a peak within an uptrend and may be signaling a pull back to stronger support or deeper correction through divergence, MACD, and bearish crossover, stochastic. Current support is near 5,400, a break below here would be bearish in the near term. Resistance is the all time high, a break above here would be bullish in the near term and a continuation of short term trends.


The S&P 500 made the third largest decline, about -0.30%, and created a small spinning top candle. Today's action was neutral and the 10th day of consolidation above 2,250, the longer the index stays above this level the better. Price action is forming a small flag pattern, a sign of continuation, although the indicators have yet to roll over. At this time the indicators are consistent with a peak within an uptrend and suggest that support will be tested. Support is 2,250, a break below here would be bearish in the near term with a target near the short term 30 day moving average. A move higher would be bullish and a continuation of the near term trend with upside target of 2,300 near term and 2,500 near to short term.


The Dow Jones Industrial Average posted the smallest loss in the session, only -0.12%. Today's candle is a small white bodied candle, within the 3 week consolidation range, with upper shadow capped by the current all time high. Price action indicates near term support near 19,700 and resistance just shy of the elusive 20,000 level with indicators consistent with a strong rally, but one that is running out of steam. Current indications are consistent with a pull back to support, a break below 19,700 would be bearish in the near term, a move up to 20,000 and beyond bullish.


The indicators are in consolidation and winding up for their next move. The signs are not definitive but are certainly biased toward the bullish case, all we need now is for the move to occur. Tomorrow, with the onset of the holiday and the three day weekend, we may see near term support get tested and maybe even broken. The real moves won't come until next week, and more likely the week after that when the new year starts, so any weaknesses that occur now or over the holiday week are likely buying times for investors looking to get long for 2017. I'm bullish in the near and long term, still a bit cautious for the short, and getting more and more exited for 2017. The way things are looking for next year, earnings growth and economic growth, I just don't see any reason to sell and every reason to expect a continuation of the long term secular bull market. The risk of course is that there is a reason to sell, and I just don't see it.

Until then, remember the trend!

Thomas Hughes


 

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New Option Plays

No Changes

by Jim Brown

Click here to email Jim Brown

Editors Note:

The indexes posted minor declines but there was no material change. There are no sellers and no buyers as everyone just tries to keep the gains they have until the calendar rolls over to 2017.

As traders we should also remain dormant. There is no fundamental reason to try and force a new play when volume is only going to decline even further.

Tuesday is now my bet for Dow 20K.

If you are just dying for something to play, buy February calls on the $VIX. The $15 call is now $2.40 and a spike to the $20 level would be a decent payday. I am not recommending it because we already have four shorts in anticipation of a January decline.



NEW DIRECTIONAL CALL PLAYS

No New Bullish Plays


NEW DIRECTIONAL PUT PLAYS

No New Bearish Plays



In Play Updates and Reviews

No Sellers

by Jim Brown

Click here to email Jim Brown

Editors Note:

Despite the minor declines on the major indexes, there was no real selling. The Dow traded under 19,900 but rebounded in the afternoon to post a minor 23 point loss. The Nasdaq gave back -20 but also rebounded from the lows. The portfolio managers are going to try and hold the current gains until the calendar rolls over so they can end the year on a high note.

With the expected low volume the rest of the week that makes next Tuesday the most likely date for the 20K event.

I would strongly recommend investors remain very flat with your account in cash until we get to January.



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 $145.35.



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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. F5 fell with the Nasdaq in a weak market to stop us out at $145.35. I had tightened the stop to try and take us out with a gain and we barely made it at 40 cents. I was afraid holding past Christmas could subject us to an even bigger decline.

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

Closed 12/22/16: Long Jan $145 call @ $3.80, exit $4.20, +.40 gain.


UNH - UnitedHealth - Company Profile

Comments:

No specific news. Shares up slightly in a weak market. We need to be out of this position by Dec 29th because Dow stocks could fall hard in the last two days of the year and first 7 of 2017.

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.



BEARISH Play Updates (Alpha by Symbol)

CAT - Caterpillar - Company Profile

Comments:

No specific news. Shares still holding their gains but trouble is coming.

Original Trade Description: December 17th

Caterpillar Inc. manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives worldwide. The company's Construction Industries segment offers backhoe, small wheel, skid steer, multi-terrain, compact track, medium and compact wheel, and track-type loaders; mini, wheel, and track excavators; track-type tractors; and select work tools, motor graders, telehandlers, soil compactors, and pipelayers, as well as its related parts for the heavy and general construction, rental, mining and quarry, and aggregates markets. Its Resource Industries segment provides electric rope and hydraulic shovels; draglines; drills; highwall and longwall miners; hard rock vehicles; articulated, large mining, and off-highway trucks; large wheel loaders; wheel tractor scrapers; wheel dozers; machinery components; hard rock continuous mining systems; electronics and control systems; and select work tools for use in mining and quarry applications. The company's Energy & Transportation segment offers reciprocating engines, generator sets, marine propulsion systems, gas turbines and turbine-related services, diesel-electric locomotives, and other rail-related products and services. Its Financial Products segment provides retail and wholesale financing for Caterpillar equipment, machinery, and engines; offers property, casualty, life, accident, and health insurance; insurance brokerage services; and purchases short-term trade receivables. The company's All Other segments remanufactures Cat engines and components, and provides remanufacturing services for other companies; offers business strategy, and development, management, manufacturing, marketing, and support primarily for paving, forestry, industrial, waste, and Cat products. Company description from FinViz.com.

Caterpillar's business has been in decline for several years as the energy sector went into hibernation and Asia's economic growth appeared to slow. For some reason, the stock bottomed on January at $58 and rallied to almost $100 despite a weak outlook in every earnings cycle. The $18 post election bounce was just another example of irrational exuberance. The election did not sell more tractors overnight and a pickup in their business could be several quarters away.

The best thing Caterpillar has in its favor is OPEC's decision to cut production. That means a year from now oil prices may have recovered slightly and energy companies may begin to buy more tractors. That is a long time off for an $18 spike.

Earnings in 2014 were $6.38, 2015 $4.64, 2016 they are estimated to be $3.26 and for 2018 analysts expect $3.15. However, CAT said last week that the estimates were overly optimistic. While Asian sales may have quit declining there is no material rebound at present.

Earnings Jan 24th.

This is a play on the retracement of that $18 bounce. When the company says analyst expectations are overly optimistic you can bet analysts will begin to lower their numbers. That should produce an extra weight on the stock in addition to any normal decline with the Dow in January.

The earnings are Jan 24th and the February options are expensive. Since this is a short-term position, I am recommending the January options. I believe any material decline will happen in the first two weeks of January.

Position 12/19/16:

Long Jan $90 put @ $1.89, see portfolio graphic for stop loss.


DIA Dow ETF - ETF Profile

Comments:

No material news. The Dow is starting to lose traction but today's decline was minimal.

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.


DRI - Darden Restaurants - Company Profile

Comments:

No specific news but big decline as sellers begin to look for stocks that could decline in January.

Original Trade Description: December 20th

Darden Restaurants, Inc., through its subsidiaries, owns and operates full-service restaurants in the United States and Canada. As of May 29, 2016, it owned and operated 1,536 restaurants, which included 843 Olive Garden, 481 LongHorn Steakhouse, 54 The Capital Grille, 65 Yard House, 40 Seasons 52, 37 Bahama Breeze, and 16 Eddie V's restaurants. Company description from FinViz.com.

Darden Restaurants (DRI) reported earnings on Tuesday of 64 cents that beat estimates by a penny. Revenue of $1.64 billion missed estimates for $1.65 billion. They guided for the full year 2017 to earnings of $3.87-$3.97 per share. Same store sales growth was choppy. Olive Garden saw +2.6%, Longhorn Steakhouse +0.1%, Capital Grille+1.2%, Eddie V's +2.7%, Yard House +0.7%, Seasons 52 -0.3% and Bahama Breeze +2.6%. Shares spiked $2 on the news but faded in the afternoon to close negative. Darden had rallied 23% since the election.

The idea behind the rally was the end of the push for a $15 per hour minimum wage. When Clinton lost, that effort turned into wishful thinking because republicans have held the view that a lower wage offers entry level workers an opportunity and they can move up in the organization if they are qualified and work hard. Was that worth a 23% rally in Darden shares? I find it hard to believe.

Now that Darden earnings are over, we should expect a couple weeks of post earnigns depression and given the recent rally and the chance for a market decline in early January, the Darden drop could be significant.

Position 12/21/16:

Long Feb $72.50 put @ $1.55, see portfolio graphic for stop loss.


GATX - GATX Corporation - Company Profile

Comments:

No specific news. Only a minor loss as portfolio managers window dress their winners hoping to keep them up until January.

Original Trade Description: December 15th

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 69% 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 69% 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.

Position 12/16/15:

Long Jan $60 put @ $2.35, no initial stop loss to avoid any volatility spikes.




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