Option Investor
Newsletter

Daily Newsletter, Monday, 2/6/2017

Table of Contents

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

Market Wrap

Adrift

by Thomas Hughes

Click here to email Thomas Hughes

Introduction

The indices pulled back from Friday's close on geopolitical inspired caution. Trump, trade wars and immigration bans were not the only issues making headlines today, scandal with one of the French presidential candidates has raised the specter of political instability within the EU once again and helped depress today's trading. The bad news is another Monday without a retail-investor driven flood of new money, the good news is that positive fundamentals and forward earnings outlook is unchanged.

Asian indices were able to close higher in the Monday session. The Japanese index rose by roughly 0.35%, supported by earnings outlook and in particular that of Toyota. The worlds 2nd largest auto manufacturer raised its full year guidance on a weaker yen and cost-cutting efforts. European indices were positive early in their day, lifted by earnings, but fell later in the day as concern over the French election, Italian banks and Donald Trump gripped the market.

Market Statistics

There was little new news in the early hours of the morning, just more speculation over events already in motion. US economic data was absent, a 5.2% surge in German factory orders went largely unnoticed. Early futures trading indicated a mildly negative to flat open, trading was a bit choppy, and that held all morning. The SPX was indicated to open with a loss of -5 points and that is what happened. Despite the down open support kicked in fairly quickly, within the first 2 minutes of trading, and kept the indices from falling any further, at least not until later in the day. After a few hours of directionless sideways action the indices were back testing the early low. It was broken just after 12 noon but additional losses were also minimal, the SPX topping out at -9 points. Intraday bottom was hit just before 2PM. From then on the market made a slow steady progression to the upside, recovering about half of the early loss by the time the closing bell sounded.

Economic Calendar

The Economy

There was no official economic data today and there will be very little this week which means the market will be even more susceptible to news and news driven activity than usual. Early in the week the only significant bit is the JOLTs report, I don't expect much move on this number unless some really big changes are revealed. Later in the week news will be dominated by jobless claims on Thursday and then Wholesale Inventory and Michigan Sentiment on Friday.

Moody's Survey Of Business Sentiment is holding steady. The index gained 0.3% this week to hit 31.4, down from the post-election peak but well off the long term lows set last summer. Mr. Zandi says that global business is confident and upbeat about present conditions and future outlook. According to respondents sales remain soft but investment and the availability of financing are strong. So long as things don't change there is a chance we could see these figures begin to pick up going into the spring and early summer.


Earnings continue to roll in with the usual mixed results. To date, a little more than 55% of the S&P 500 has reported for the season and trends are holding up. A little more than 65% of those reporting have beaten EPS estimates, close to 52% have beaten revenue estimates and the blended rate of growth is creeping up, gaining another 0.3% this week to hit 4.6%. Based on the trends we can expect the blended rate of earnings growth to continue rising into the end of the quarter, possibly as high as 7.5% to 8%. On a sector basis 9 of the 11 sectors are beating estimates. This week we can expect to hear from a total of 84 more S&P companies.


Forward outlook remains positive but estimates fell in the last week after rising in the previous week. Full year 2016 estimate shed the tenth it gained and is now back to 0.2%, likely to rise again before the season is said and done. Full year 2017 estimates fell a full half percent to 11.1% but are still quite strong compared to this year. On a quarter to quarter basis growth is expected to expand to 10.8% in the 1st quarter, moderate to 9.6% in the 2nd and then expand again to over 11% in the 3rd and 4th.


The Dollar Index

The Dollar Index tried to rebound but does not look like it will be able to, not in the near term. The index is falling under the pressure of rising global currencies while FOMC support has seemingly disappeared. Today's action, while testing resistance, appears to be part of consolidation below resistance and within a near term down trend that is likely to continue in the face of FOMC uncertainty and the possibility, however unlikely, of the ECB or BOJ getting hawkish. Resistance is now the $100.50 level, downside targets are near $98.65 and $97.65 in the near term. Longer term the fundamentals remain skewed toward dollar strength; US economic conditions and FOMC outlook is still dollar strong, BOJ or ECB policy change wishful thinking at best.


The Gold Index

Gold prices continue to move upward but the move lacks strength. Considering the amount of uncertainty in the market and forward outlook it is possible the gains are due to a lack of sellers rather than to an abundance of buyers. Today's move took spot prices up by more than 1.20% to trade at a near 3 month high, just above $1235. The move is driven by flight-to-safety and dollar weakness, either of which could reverse with a single positive development in sentiment. Longer term outlook remains weak, the US economy is expected to strengthen even if the dollar does not. Next target for resistance is $1,250.

The Gold Miners ETF GDX moved higher today as well. The move added more than 2.75% to Friday's 2.5 month high and is approaching next resistance at $25.63. The indicators are bullish in the near term, and showing bullish crossovers, but both MACD and stochastic are showing divergences that indicate serious weakness in the underlying market. How high the sector goes in the near term is hard to day, flight-to-safety inflows could be refueled tweet by tweet, when the bottom falls out the move lower could be huge.


The Oil Index

Oil prices fell more than -1.5% today as rising US rig counts and production, and high levels of storage, more than offset the OPEC production cuts. WTI fell more than $0.75 to trade just above $53, near the middle of the near term range. Despite today's drop the tug-of-war continues between supply and demand, bullish or bearish, and this may go on into the near term. So long as prices remain above $45 expect US producers to keep pumping, and keep ramping production, until they fall or OPEC does something else.

The Oil Sector was one of the market leaders today, falling nearly a full percent. The Oil Index fell -0.96% on uncertain oil prices and poor earnings from the big producers although full year/forward outlook remains quite good. Forward outlook for full year 2017 earnings growth has fallen from a high above 350% to only 294%, hindered by oil price uncertainty, but still a much needed step in the right direction. Today's action is consolidation beneath the short term moving average and resistance at 1,250. A drop below the near term range, 1220 to 1250, would be bearish with downside target near 1,200 or 1,150. If such a move did develop it would be a likely buy-the-dip opportunity for long term bullish positions.


In The News, Story Stocks and Earnings

Earnings are still going to be front and center this week, nearly 17% of the S&P 500 is reporting which will put the total above 70% and high enough to have some confidence in to-date results as an indication of which way the wind is blowing. The mornings news was dominated by Hasbro, among others, which beat on both the top and bottom lines, raised guidance and upped the dividend. Results beat estimates soundly, adjusted EPS of $1.64 beat consensus $1.27 by 30%, with growth in all segments and led by the US. Growth in North American was 15% alone, management said they saw no difference in holiday sales from years past and are expected to remain at least steady into the coming year. Shares responded favorably to the news, rising nearly 15% in pre-market trading to open, and close, at a new all time high.


Sysco, not Cisco, the nations largest purveyor to restaurants of all variety reported earnings before the bell. The company delivered better than expected profit on revenue that only matched estimates. Revenue grew by 10.6%, earnings by 4%, both meeting expectations. Adjusted earnings beat by 8% and helped propel the stock higher in premarket action. Shares gapped up at the open to trade just below the short term moving average, where resistance set in, and fell throughout the day on heavy volume to close with a loss greater than -2.50%.


Tyson Foods, one of the nations largest processed food producers, announced some stellar results before the bell too. The company reported its best 1st quarter in company history and the best quarter in company history, beating estimates and growing EPS by 38% year over year. Results are driven by growth in all segments compounded by an increase in margins and led to an increase in full year guidance. Guidance is now a range of $4.90 to $5.05, a 12% increase over the prior year and above consensus estimates. Shares of the stock jumped on the news and gapped up at the open. The move put share prices just high enough to close a much larger gap opened shortly after the last earnings release, and triggered massive selling in the stock.


The Indices

The indices didn't move higher, but they didn't really sell off either. Today's action was more of the same cautious rotation out of lesser earning stock into greater, more of the same slow upwardly biased sidewinding we've seen for the last three months. Price action was led by the broad market S&P 500 which closed with a loss of -0.21%. Where the other indicators were at least able to create white bodied candles, come moving into positive territory intraday, the SPX did neither. The broad market created a very small spining top doji with a close just below the open. This candle is sitting just beneath resistance at the all time high and just above the short term moving average and rising support along the long term moving average with indicators that are yet again signaling a trend following entry. All we need now is a break to new high, and some nice follow through. A break to new all times is bullish with upside targets near 2,350 and 2,500, a fall below the short term moving average would be bearish with downside targets near 2,250 to 2,200.


The Dow Jones Transportation Average made the next largest decline, -0.11%, creating a doji candle. Today's candle is more than a spinning top but not enough to be really decisive and a sign of continued market struggle. Action was centered on the 9,321 level, a previous all time high and near term resistance. Support is the short term moving average. The indicators are a bit mixed, consistent with sideways range bound trading, and not much help at this time. A move up would hit resistance at the current all time high, near 9,500, a move lower would find short term support at 9,000.


The Dow Jones Industrial Average posted the third largest decline, falling -0.09% after a small push into positive territory. Today's move created a small spinning top candle, sitting above support, that touched resistance exactly at the current all time high. Support is the rising short term moving average, confirmed by both MACD and stochastic, both of which are consistent with a trend following entry. Stochastic is already firing a strong signal, MACD is on the cusp of confirming yet again, with upside target near 25,000.


The NASDAQ Composite made the smallest decline in today's session, only -0.06%. The tech heavy index created a very small spinning top doji just beneath the all time high. The index is a bit elevated from support targets along the short term moving average but the indicators suggest upward drift could continue. Momentum is not strong but it is still bullish and stochastic is showing a weak buy signal above the upper signal line, consistent with an upwardly drifting market. Upside target is near 5,750, 5,500 if a pull back begins.


The market is not sure what to do. On the one hand is political risk on all fronts. On the other are fundamentals. Political risk could alter the fundamentals, that's why it's risk, but the fundamentals are yet to be altered, and right now they are bullish. Economic growth is expected with or without Trump and so is earnings growth. Until that changes these near term corrections and down days driven on fear are buy-on-the-dip opportunities because once the fear evaporates the fundamentals will shine bright once again. I'm bullish, cautious as ever because there is still near term risk, but waiting and watching for those trend following opportunities.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Storm Clouds Lifting?

by Jim Brown

Click here to email Jim Brown

Editors Note:

Drug stocks are like a game of Whack-a-Mole. There are always some popping up and getting knocked back down. Bristol-Myers is one of those stocks. It has had some bad news lately but the storm clouds may be lifting.



NEW DIRECTIONAL CALL PLAYS

BMY - Bristol Myers - Company Profile

Bristol-Myers Squibb Company discovers, develops, licenses, manufactures, markets, and distributes biopharmaceutical products worldwide. It offers chemically-synthesized drug or small molecule, and biologic in various therapeutic areas, including virology comprising human immunodeficiency virus infection (HIV); oncology; immunoscience; cardiovascular; and neuroscience. Its products include Baraclude for the treatment of chronic hepatitis B virus infection; Daklinza and Sunvepra for the treatment of hepatitis C virus infection; Reyataz and Sustiva for the treatment of HIV; Empliciti, a humanized monoclonal antibody for the treatment of multiple myeloma; Erbitux, an IgG1 monoclonal antibody that blocks the epidermal growth factor receptor; Opdivo, a fully human monoclonal antibody for non-small cell lung and renal cell cancer, and melanoma; Sprycel, a tyrosine kinase inhibitor for the treatment of adults with Philadelphia chromosome-positive chronic myeloid leukemia; Yervoy, a monoclonal antibody for metastatic melanoma; Abilify, an antipsychotic agent for adults with schizophrenia, bipolar mania disorder, and depressive disorder; Orencia to treat rheumatoid arthritis; and Eliquis, an oral factor Xa inhibitor targeted at stroke prevention in atrial fibrillation. Its products pipeline includes Beclabuvir, a non-nucleoside NS5B inhibitor for the treatment of HCV; BMS-663068, an investigational compound that is being studied in HIV-1; and Prostvac, a Phase III prostate-specific antigen to treat asymptomatic or minimally symptomatic metastatic castration-resistant prostate cancer. The company has clinical trial collaborations with Calithera Biosciences, Inc. and Janssen Biotech, Inc.; and a research collaboration with GeneCentric Diagnostics, Inc. Company description from FinViz.com.

BMY reported earnings of 63 cents that missed estimates for 67 cents. They guided for 2017 for earnings of $2.70-$2.90 and analysts were expecting $2.97. The shares were crushed with a $9 drop over five days. Complicating the earnings was news that sales of two drugs were slowing because of competition. However, what was not said was that BMY has dozens of other drugs currently being sold and dozens more in the pipeline. BMY has one of the richest pipelines in the business.

Fund manager Dodge & Cox did an extensive analysis of BMY and said the recent problems have just been a temporary setback and the strong pipeline of drugs plus their immuno-oncology business makes them particularly attractive and they initiated a large position. They said BMY has capitalized on its recent problems to become a focused biopharmaceutical company that is positioned to grow.

Several other analysts have recently called the BMY dip a buying opportunity. We are going to take them at their word.

Earnings April 27th.

Shares are starting to rebound from the $46 low and they have plenty of ground to cover. The biotech sector is actually positive over the last week as through investors believe the danger from Trump and drug prices may have passed or at least moved into a new stage.

Buy March $52.50 call, currently $1.10, no initial stop loss.


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 indexes spending the day in negative territory there was no real selling. The markets had another chance to begin a deeper dive but dip buyers were ready and the major indexes closed only slightly negative.

The Russell 2000 was the biggest loser but even the Russell only gave back half of Friday's gains. The biotech index was positive again and the Nasdaq 100 gained 6 points to close only 1 point below its historic high.

Multiple analysts including Canaccord Genuity and UBS warned of an approaching correction of as much as 7%. Investors ignored them.



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


VIX - Volatility Index

Enter the long call position at the open on Tuesday.

FINL - Finish Line

The long put position was closed at the open.



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BULLISH Play Updates

DVMT - Dell Technologies - Company Profile

Comments:

No specific news. Another minor gain with no volatility.

Original Trade Description: February 4th

Dell Technologies Inc. provides a range of technology solutions worldwide. It offers client computing devices, including desktop personal computers, notebooks, and tablets; rack, blade, tower, and hyperscale servers for enterprise customers; value tower servers for small organizations, networks, and remote offices; networking solutions; and storage solutions, including storage area networks, network-attached and direct-attached storage, and backup systems. It also sells peripherals, including monitors, printers, projectors, and other client and enterprise peripherals, as well as third-party software products. In addition, the company offers support and extended warranty, enterprise installation, and configuration services; and infrastructure and security managed, cloud computing and infrastructure consulting, and security consulting and threat intelligence services. Further, it provides application services, such as application development, maintenance, migration, management, and consulting, as well as package implementation, testing and quality assurance functions, business intelligence and data warehouse solutions; business process services comprising back office administration, call center management, and other technical and administration services; and system and information management, and security software services. Additionally, the company offers financial services, including originating, collecting, and servicing customer receivables primarily related to the purchase of its products. It serves corporate businesses; educational institutions, government, healthcare, and law enforcement agencies; small and medium-sized businesses; and consumers directly, as well as through retailers, third-party solution providers, system integrators, and third-party resellers. The company was formerly known as Denali Holding Inc. and changed its name to Dell Technologies Inc. in August 2016. Dell Technologies Inc. was founded in 1984 and is headquartered in Round Rock, Texas. Company description from FinViz.com.

The company came public without a lot of fanfare back in August and moved sideways for two months. Since the election, the stock has been unstoppable. There was a spike last week when Michael Dell was seen in one of the presidents CEO meetings and identified as the CEO of Dell Technologies. I don't think the average investor has picked up on the fact that Dell is public again.

You may recall that Dell recently bought EMC and VMWare and they are leveraging that technology internationally. Dell has been on a mission to divest as many non-core entities as possible. On October 31st, they sold the Dell Software Group for $2.4 billion. In November, they sold the Dell Services group for $3 billion. In September, they announced a deal to sell the EMC Enterprise Content division for $1.6 billion.

In Q3, they reported revenue of $16.8 billion. Not bad for a company many investors have forgotten about.

The original Dell Company created thousands of millionaires as the stock doubled and tripled, split and repeat multiple times. I know the chart is ridiculous with a $10 gain over the last month but it has very low volatility and the option is cheap. I have put off recommending it several times thinking I would wait for a dip, only it never dips.

Earnings March 9th.

Position 2/6/17:

Long March $65 call @ $1.75, see portfolio graphic for stop loss.


PANW - Palo Alto Networks - Company Profile

Comments:

No specific news. Minor decline after a $5 gain on Friday.

Original Trade Description: Jan 23rd

Palo Alto Networks, Inc. provides security platform solutions to enterprises, service providers, and government entities worldwide. Its platform includes Next-Generation Firewall that delivers application, user, and content visibility and control, as well as protection against network-based cyber threats; Advanced Endpoint Protection, which prevents cyber attacks that exploit software vulnerabilities on various fixed and virtual endpoints and servers; and Threat Intelligence Cloud, which offers central intelligence capabilities, security for software as a service applications, and automated delivery of preventative measures against cyber attacks. The company provides firewall appliances; Panorama, a security management solution for the control of appliances deployed on an end-customer's network as a virtual or a physical appliance; and Virtual System Upgrades, which are available as an extensions to the virtual system capacity that ships with the physical appliances. It also offers subscription services covering the areas of threat prevention, uniform resource filtering, malware and persistent threat, laptop and mobile device, and firewall protection services, as well as cyber attack, threat intelligence, and content control services. In addition, the company provides support and maintenance services; and professional services, including application traffic management, solution design and planning, configuration, and firewall migration, as well as provides online and classroom-style education training services. Palo Alto Networks, Inc. primarily sells its products and services through its channel partners, as well as directly to medium to large enterprises, service providers, and government entities operating in various industries comprising education, energy, financial services, government entities, healthcare, Internet and media, manufacturing, public sector, and telecommunications. Company description from FinViz.com.

In November, PANW posted earnings that beat the street but revenue, which rose 34% missed estimates by a fraction. Revenue was $398.1 million and analysts were expecting $400.1 million. PANW had guided for revenue growth of 33% to 35% so they were right in the middle of their guidance range. Earnings of 55 cents beat estimates for 53 cents. Shares were crushed because the company said the market was "lumpy" and customers were taking longer to make purchase decisions.

In Q3 they added more than 1,500 new customers to hit 35,500 globally. Subscription revenue has risen to 60% of total revenue as they move to a cloud model.

In early January, noted short seller Andrew Left of Citron Research, put out a bullish note on PANW saying they had a fantastic moat, which would be a barrier to entry for other companies trying to duplicate their type of firewall. His price target is $170. Shares rallied $14 over the next three weeks on the call. At the same time Bernstein put out a very positive note on the company saying nobody serious about protecting their web environment should be without PANW as their security solution.

Shares have rebounded to their November gap down level of $144 and have found resistance. They are not giving back their gains but there was a slight retracement on Monday in a weak market. I believe they will overcome this resistance level and move higher, market permitting.

There is a persistent rumor in the market that Microsoft and Cisco Systems are both looking for a cybersecurity company to acquire. Given Palo Alto's position in the sector, they would be a good target.

Earnings February 28th.

Because of the price of the options, I am forced to turn this into a spread. If you want to go with a naked call, I would probably use the $150 strike.

Position 1/24/17:

Long March $145 call @ $6.00, see portfolio graphic for stop loss.
Short March $155 call @ $3.15, see portfolio graphic for stop loss.
Net debit $2.85


RHT - Red Hat Inc - Company Profile

Comments:

No specific news. Minor gain with next resistance at $80.

Original Trade Description: Jan 21st

Red Hat, Inc. provides open source software solutions to develop and offer operating system, virtualization, management, middleware, cloud, mobile, and storage technologies to various enterprises worldwide. It offers infrastructure-related solutions, such as Red Hat Enterprise Linux, an operating system platform that runs on hardware for use in physical, virtual, container, and cloud environments; Red Hat Satellite, a system management offering that helps to deploy and manage Red Hat infrastructure across physical and virtual servers, and cloud environments; and Red Hat Enterprise Virtualization, a software solution that allows customers to utilize and manage a common hardware infrastructure to run multiple operating systems and applications. The company offers application development-related and other technology solutions, such as Red Hat JBoss Middleware, a solution for developing, deploying, and managing applications, as well as integrating applications, data, and devices along with business processes automation; Red Hat cloud offerings, a software solution that enables customers to build and manage various cloud computing environments; Red Hat Mobile, a software development platform that enables customers to develop, integrate, deploy, and manage mobile applications for enterprises; and Red Hat Storage, a software solution that enables customers to treat physical server storage as a scalable, shared, centrally-managed pool of virtual storage and to manage large, unstructured, or semi-structured data in physical, virtual, and cloud environments. It also provides consulting, support, and training services; and real-time operating system, distributed computing, directory services, and user authentication. Company description from FinViz.com.

On December 21st, the company reported earnings of 61 cents that beat estimates by 3 cents. However, the beat came mostly from a lower tax rate. Revenue rose 17.5% to $615.3 million compared to estimates for $618.4 million so a slight miss there. Billings rose 8.7% to $679 million but misses estimates for $713 million. Subscription revenue rose 19% to $543 million and 88% of total revenue. That is recurring and will help smooth out future earnings.

The CEO explained that two large government deals worth $20 million slipped into Q4. Also, two large customers chose to be billed rather than pay up front and that took another $27 million out of billings. If those deals were included the billings would have been up +16% instead of 8.7%. The good news is that all of those deals are now in Q4 and that will give Q4 an earnings boost.

Earnings March 22nd.

Shares have rebounded to $74 and appear poised to break over that level and move back to the $80 range. I am using the March options, which expire 4 days before the earnings and they are half price the next cycle in June.

Position 1/23/17:

Long March $75 call @ $2.35, see portfolio graphic for stop loss.


SLCA - U.S. Silica - Company Profile

Comments:

No specific news. Shares declined slightly on a drop in crude prices.

Original Trade Description: Jan 25th

U.S. Silica Holdings, Inc. produces and sells commercial silica in the United States. The company operates through two segments, Oil & Gas Proppants, and Industrial & Specialty Products. It offers whole grain commercial silica products to be used as fracturing sand in connection with oil and natural gas recovery; and resin coated proppants, as well as sells its whole grain silica products in various size distributions, grain shapes, and chemical purity levels for manufacturing glass products. The company also provides ground commercial silica products for use in plastics, rubber, polishes, cleansers, paints, glazes, textile fiberglass, and precision castings; and fine ground silica for use in premium paints, specialty coatings, sealants, silicone rubber, and epoxies. In addition, it offers other industrial mineral products, such as aplite, a mineral used to produce container glass and insulation fiberglass; and adsorbent made from a mixture of silica and magnesium for preparative and analytical chromatography applications. The company serves oil and gas recovery markets; and industrial end markets with customers involved in the production of glass, building products, foundry products, chemicals, and fillers and extenders. As of December 31, 2015, it had approximately 400 million tons of proven and probable recoverable mineral reserves. Company description from FinViz.com.

In the gold rush in the 1800's it was not the miners that got rich but it was the companies that sold them the picks, shovels and wheelbarrows. In the energy sector every shale well has to be fractured and that required mountains of sand. We are not talking regular beach sand. The primary frac sand is mined in Wisconsin and other northern states. There are various grades of sand depending on the geology of the well and what the drillers are trying to accomplish.

In 2014 it took an average of 4.2 million pounds of frac sand per well. However, in 2015 and 2016 there was a significant increase in fracking intensity that began to use much larger quantities per well. In late 2015 the amount of sand rose from 9% of the fracking fluid to 20%. In early 2016 Simmons & Co reported two wells in the Permian that used 60 million pounds of sand each while two in the Haynesville Basin used 35 million pounds each.

Houston based oilfield logistics company Twin Eagle reproted receiving "historic shipments" of frac sand at its facility outside the Eagle Ford. They reported receiving one 130-car train of sand a week. One car carries 100 tons so that is 13,000 tons per week. That is 26 million pounds of sand per week. If wells are now using 20 to 25 million pounds per well that is one train per well.

Last week the active rig count rose by 29 oil wells to 551 active oil wells. Each rig drills a minimum of two wells per month. If each well used 25 million pounds that would be more than 1,100 trains of sand per month.

There are rumors making the rounds that because of the increased intensity of sand in fracking there could be a sand shortage as the number of active rigs increase and producers began to rapidly complete the 3,000 or so wells that have been drilled over the last 18 months but never completed because of low oil prices. There is going to be a surge in the demand for sand.

U.S. Silica is one of the major sand suppliers with multiple facilities. They have used the downturn in the drilling industry to buy multiple competitors in order to bulk up for the future demand.

Update 1/31/17: Halliburton selected U.S. Silica as its preferred provider of containerized sand for last mile logistics to drilling locations. They signed a long-term contract with SandBox, a U.S. Silica subsidiary. Shares rebounded to within a few cents of a new high.

Earnings Feb 2nd.

SLCA has earnings on Feb 2nd but almost every company trading today has earnings over the next three weeks so that is just something we have to deal with. I am recommending we buy a longer-term option to get past any potential volatility around earnings. Their guidance should be good.

Position 1/26/17:

Long June $65 call @ $4.10, no stop loss until after earnings.


SPY - S&P-500 ETF - ETF Profile

Comments:

Only a minor decline after the big gain on Friday. The S&P returned to just below major resistance at 2,300 and could be poised to break out. However, that is major resistance.

Original Trade Description: Jan 12th

The SPDR S&P 500 ETF Trust seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P 500 Index.

The SPY dipped to $225 intraday before the dip buyers rushed into the market. Initial support is $223 and I believe we have a chance to test that level before the inauguration. There are only four trading days left. If the bank earnings disappoint on Friday we could see a decline in low volume. With the three-day weekend ahead we could see traders move to the sidelines to avoid weekend event risk while the U.S. markets are closed.

We could also see a pre inauguration decline as traders worry about event risk surrounding the event.

Whatever the reason we could see the ETF test that level over the next four days. Assuming there is no disaster surrounding the inauguration, we could see a real rally begin afterwards.

This is a short-term position using March options just in case any potential dip turns into a crash. The estimated option premium should be less than $3.

Position 1/25/17 with a SPY trade at $228.25

Long MAR $232 call @ $1.69, no initial stop loss.


$VIX - Volatility Index - Index Description

Comments:

We were stopped out of our original long position on Wednesday with a bad tick. We were attempting to reload this position with a VIX trade at $10.50. The low today was $11.09. Rather than wait any longer, I am recommending we enter the trade at the open on Tuesday without an entry trigger.

RELOAD: Buy Mar 12 call at the open on Tuesday.

Original Trade Description: Jan 26th

The VIX is a computed index, much like the S&P 500 itself, although it is not derived based on stock prices. Instead, it uses the price of options on the S&P 500, and then estimates how volatile those options will be between the current date and the option's expiration date. The CBOE combines the price of multiple options and derives an aggregate value of volatility, which the index tracks.

The VIX closed at 10.63 and very close to record lows. You have to go back to June of 2014 for a lower recent close at 10.28. Before that, you have to travel back in time to Feb-2007 for a close at 10.05. The next lowest close was 9.48 in Dec-1993.

The point here is that volatility is near record lows only reached four times in the last 23 years. That qualifies for an abnormal event. I believe it is time we bought some VIX calls. The odds of the VIX remaining this low for the next two months are about as close to zero as you can get.

There is a very old saying in the market. "When the VIX is high, it is time to buy. When the VIX is low, it is time to go." You cannot get much lower than this.

The VIX is telling us that everyone expects the market to continue moving higher. Nobody is worried that some unexpected headline or event is going to trigger a significant market decline. When nobody expects an event is when we should be the most concerned.

Buy March $12 call, estimated premium $2.50, no stop loss

Previously Closed 2/1/17: Long March $12 call @ $2.60, exit $2.50, -.10 loss.


WDC - Western Digital - Company Profile

Comments:

No material movement despite the announcement of a new 512 Gigabit NAND chip that will be delivering in the second half of 2017. This is another one of those technology developments that the human brain cannot even comprehend unless you are a theoretical engineer. The power, speed and capability is so far beyond "public" computing platforms it is like being in a different galaxy from us.

Original Trade Description: Jan 31st

Western Digital Corporation, together with its subsidiaries, develops, manufactures, and sells data storage devices and solutions worldwide. It offers performance hard disk drives (HDDs) that are used in enterprise servers, data analysis, and other enterprise applications; capacity HDDs and drive configurations for use in data storage systems and tiered storage models, as well as for use in storage of data for years; and enterprise solid state drives (SSDs), including NAND-flash SSDs and software solutions that are designed to enhance the performance in various enterprise workload environments. The company also provides InfiniFlash System, a system solution that offers petabyte scalable capacity with performance metrics; higher value data storage platforms and systems; datacenter software and systems; and HDDs and SSDs for desktop PCs, notebook PCs, gaming consoles, set top boxes, security surveillance systems, and other computing devices. In addition, it offers embedded NAND-flash storage products, including custom embedded solutions; and iNAND embedded flash products, such as multi-chip package solutions that combine NAND and mobile dynamic random-access memory in an integrated package for mobile phones, tablets, notebook PCs, and other portable and wearable devices, as well as in automotive and connected home applications, and NAND-flash wafers. Further, it provides HDDs embedded into WD- and HGST-branded external storage products; and NAND-flash products, which include cards, universal serial bus flash drives, and wireless drives. Company description from FinViz.com.

WDC is kicking butt and taking no prisoners in the disk drive sector. Since the acquisition of flash/NAND memory manufacturer SanDisk, they have upgraded and expanded their product line with additional new products announced almost weekly. SanDisk was the right acquisition at the right time. Today flash memory supply is tight and prices are rising.

The company reported earnings of $2.30 compared to estimates for $2.06. Revenue of $4.89 billion also beat estimates for $4.78 billion. They shipped 44.8 million hard drives in the quarter. The guided for Q1 earnings of $2.00-$2.10, which was above analyst expectations for $1.79. Of the 21 analysts that follow the company, 18 have it as a buy or strong buy. Only 3 rate WDC as a hold. The consensus price target is just under $95 per share with the stock trading at $79.

Earnings April 26th.

Shares traded up on Tuesday in a weak market.

Position 2/1/17:

Long April $85 call @ $2.65, see portfolio graphic for stop loss.



BEARISH Play Updates (Alpha by Symbol)

DIA Dow ETF - ETF Profile

Comments:

Turn out the lights, this party is over without a black swan event that knocks 500 points off the Dow over the next couple of days. With the option premiums at 17 cents, I am not closing the position but it would take a 500 point decline by Friday to do us any good.

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.


FINL - Finish Line - Company Profile

Comments:

That was depressing. On the day I recommended we close the position the stock drops the most in seven days. Fortunately, we did not lose much at 25 cents.

Original Trade Description: January 11th.

The Finish Line, Inc., together with its subsidiaries, operates as a specialty retailer of athletic shoes, apparel, and accessories in the United States. It operates in two divisions, the Finish Line and JackRabbit. The company's Finish Line division engages in the in-store and online retail of athletic shoes for Macy's Retail Holdings, Inc.; Macy's Puerto Rico, Inc.; and Macys.com, Inc., as well as online at macys.com. This division offers men's, women's, and kids' athletic shoes, as well as an assortment of accessories of Nike, Skechers, Converse, Puma, New Balance, Adidas, and other brands. As of April 2, 2016, the company operated Finish Line shops in 392 Macy's department stores in 37 states in the United States, the District of Columbia, and Puerto Rico. Its JackRabbit division retails lifestyle products, such as running shoes, apparel, and accessories of Brooks, Asics, Nike, Saucony, New Balance, and other brands. It also operates the e-commerce sites jackrabbit.com and boulderrunningcompany.com. The company operated 72 JackRabbit stores in 17 states in the United States and the District of Columbia. Company description from FinViz.com.

In late December Finish Line reported a loss of 24 cents compared to estimates for a loss of 18 cents. Revenue was $371.7 million, down -2.7% from the year ago period. Analysts were expecting $412.4 million. They guided for Q4 earnings of 68-73 cents compared to analyst expectations for 96 cents. Shares fell from $23 to $19 on the news and have continued to decline.

Finish Line does not report earnings again until March 22nd. That means every other retailer will post their disappointing quarters and with each earnings miss the weight should increase on FINL shares.

Finish Line operates mall stores and stores inside Macy's stores. Macy's already reported declining traffic and missed on same store sales. This should also impact FINL since lower Macy's traffic means lower traffic in the shoe section.

Shares are currently $17.50 and could easily break below the June lows before the next earnings reports. I am reaching out to May so there will be some earnings expectation in the premium when we exit before the earnings. We can buy time but we do not have to use it.

Update 1/26/17: Finish Line said it was selling its unprofitable JackRabbit running shoe business to CriticalPoint Capital. The company said it expected to realize a cash tax benefit of $30 million from the sale. Shares declined -28 cents.

Position 1/12/17:

Closed 2/6/17: Long May $17 put @ $1.55, exit $1.30, -.25 loss.


GIII - G-III Apparel Group - Company Profile

Comments:

No specific news. Shares are holding under support at $25.

Original Trade Description: January 28th

G-III Apparel Group, Ltd. designs, manufactures, and markets men's and women's apparel. It operates through two segments: Wholesale Operations and Retail Operations. The company's products include outerwear, dresses, sportswear, swimwear, women's suits, and women's performance wear; and women's handbags, footwear, small leather goods, cold weather accessories, and luggage. It markets swimwear, resort wear, and related accessories under the Vilebrequin brand; footwear, apparel, and accessories under Bass and G.H. Bass brands; and apparel products under Andrew Marc, Marc New York, Jessica Howard, Eliza J and Black Rivet, Weejuns, and other private retail labels. G-III Apparel Group, Ltd. also licenses its products under the Calvin Klein, ck Calvin Klein, Karl Lagerfeld, Guess, Guess?, Kenneth Cole NY, Reaction Kenneth Cole, Cole Haan, Levi's, Vince Camuto, Tommy Hilfiger, Jessica Simpson, Ivanka Trump, Jones New York, Ellen Tracy, Kensie, Dockers, Wilsons, G-III Sports by Carl Banks, and G-III for Her brands, as well as have licenses with the National Football League, Major League Baseball, National Basketball Association, National Hockey League, Touch by Alyssa Milano, Hands High, Collegiate Licensing Company, Major League Soccer, and Starter. The company offers its products to department, specialty, and mass merchant retail stores in the United States, Canada, Europe, and the Far East; and distributes products through its retail stores, as well as through G.H. Bass, Wilsons Leather, Vilebrequin, and Andrew Marc Websites. As of January 31, 2016, it operated 199 Wilsons Leather stores, 163 G.H. Bass stores, and 5 Calvin Klein performance stores. Company description from FinViz.com.

The holiday shopping season was not kind to any retailer except for Amazon. Most retailers are reporting negative comps and warning about slowing traffic. GIII was no exception. GIII warned Q4 saw a significant decline in sales that would cut 20 cents off earnings. They guided for the full year 2016 that ended January 31st, for revenue of $2.41 billion and earnings of $1.21-$1.31 compared to their prior guidance of $2.43 billion and earnings of $1.41 to $1.51. For 2017, they guided to earnings of $1.41-$1.51 compared to $2.44 in fiscal 2016.

The company said they were expecting positive comps in Q4 but now expect low double-digit negative comps. That is a heck of a swing. They blamed warmer weather and significantly lower traffic in the stores.

Earnings March 2nd.

Shares broke below support and closed at a three-year low on Friday. Given the trends in the retail sector, they could continue significantly lower with their guidance warning.

Position 1/30/17:

Long March $25 put @ $1.60, see portfolio graphic for stop loss.


HA - Hawaiian Holdings - Company Profile

Comments:

Shares declined 45 cents in regular trading. After the close, they announced flight statistics for January that improved slightly. Shares rose 50 cents in afterhours.

Original Trade Description: February 1st

Hawaiian Holdings, Inc., through its subsidiary, Hawaiian Airlines, Inc., engages in the scheduled air transportation of passengers and cargo. It offers daily services on North America routes between the state of Hawai'i and Los Angeles, Oakland, Sacramento, San Diego, San Francisco, and San Jose, California; Las Vegas, Nevada; Phoenix, Arizona; Portland, Oregon; and Seattle, Washington. The company also provides daily services on its Neighbor Island routes among the six major islands of the State of Hawai'i; daily services on its international routes between the state of Hawai'i and Sydney, Australia; and Tokyo and Osaka, Japan. In addition, it offers scheduled services between the state of Hawai'i, and New York City, New York; scheduled services between the State of Hawai'i and Pago Pago, American Samoa; Papeete, Tahiti; Brisbane, Australia; Auckland, New Zealand; Sapporo, Japan; Seoul, South Korea; and Beijing, China, as well as other ad hoc charter services. Hawaiian Holdings, Inc. markets its tickets through various distribution channels, including its Website, www.hawaiianairlines.com primarily for North America and Neighbor Island route customers, as well as through travel agencies and wholesale distributors primarily for its international route customers. As of December 31, 2015, the company's fleet consisted of 18 Boeing 717-200 aircraft for the Neighbor Island routes; 8 Boeing 767-300 aircraft; and 22 Airbus A330-200 aircraft for the North America, international, and charter routes, as well as 3 ATR42 turboprop aircraft. Company description from FinViz.com.

In late January HA reported earnings of $1.28 that missed earnings for $1.30. However, revenue of $633 million did beat estimates for $627.6 million. With fuel costs rising and much of HA routes considered long hauls, their costs are going to rise. Non0fuel costs are expected to rise 3% to 6% in Q1. They are currently negotiating a new contract with pilots and that will cause a rise in labor costs. Costs were already rising in Q4 and investors tanked the stock after earnings.

Earnings April 25th.

Shares have fallen $5 since the January 24th earnings and are hugging support at $50. If that level breaks, the next material support is $45.

Position 2/2/17:

Long March $50 put @ $2.10, see portfolio graphic for stop loss.


QCOM - Qualcomm - Company Profile

Comments:

The company extended its tender offer for NXPI shares at $110 saying more than 43 million have already been tendered. Shares are currently trading at $100.

Original Trade Description: January 30th

QUALCOMM Incorporated develops, designs, manufactures, and markets digital communications products and services in China, South Korea, Taiwan, the United States, and internationally. The company operates through three segments: Qualcomm CDMA Technologies (QCT); Qualcomm Technology Licensing (QTL); and Qualcomm Strategic Initiatives (QSI). The QCT segment develops and supplies integrated circuits and system software based on code division multiple access (CDMA), orthogonal frequency division multiple access (OFDMA), and other technologies for use in voice and data communications, networking, application processing, multimedia, and global positioning system products. The QTL segment grants licenses or provides rights to use portions of its intellectual property portfolio, which include various patent rights useful in the manufacture and sale of certain wireless products comprising products implementing CDMA2000, WCDMA, CDMA TDD, and/or LTE standards, as well as their derivatives. The QSI segment invests in early-stage companies in various industries, including digital media, e-commerce, healthcare, and wearable devices for supporting the design and introduction of new products and services for voice and data communications. The company also develops and offers products for implementation of small cells; mobile health products and services; software products, and content and push-to-talk enablement services to wireless operators; and development, and other services and related products to the United States government agencies and their contractors. In addition, it licenses chipset technology and products for data centers. Company description from FinViz.com.

Qualcomm it under attack from every direction. A while back China's regulator assessed a $975 million fine for improper licensing and made them lower royalties. The South Korean FTC imposed a fine of $853 million because it found the company's licensing practices to be monopolistic. The KFTC found that Qualcomm's market share had risen from 34% in 2010 to 69% in 2015 while many competitors were forced out of the market.

In early January, the US FTC attacked the company for anticompetitive practices that prevented competitors from supplying chips to handset makers. This is another billion dollar problem.

Three days later Apple sued Qualcomm for $1 billion claiming Qualcomm charged five times as much for licensing than all other cellular patent licensors combined. Apple also claimed the company withheld $1 billion in rebates because Apple had cooperated with KFTC when that investigation was active.

There is blood in the water and there will probably be other suits from companies that suffered under the Qualcomm licensing scheme as well. The odds are also good that Qualcomm will have to change their licensing scheme, which will probably result in lower fees.

With roughly $4 billion in fines and suits over the last few weeks, the investor appetite for QCOM shares has evaporated. Brokers are slashing their ratings from buy to hold or even sell.

Last week the company reported earnings of $1.19 that matched estimates but missed on revenue. They guided for $1.15-$1.25 for Q1 and analysts were expecting $1.17. Other than that the guidance was lackluster with a lot of excuses and questions deflected.

Update 1/31/17: Qualcomm said NXP Semiconductor (NXPI) shareholders had approved the acquisition by Qualcomm. The acquisition is expected to be completed by the end of 2017. QCOM will start a new subsidiary in Amsterdam that will actually buy the shares for $110 each. The funding will come from $28.6 billion in cash currently held by Qualcomm overseas. They will not be taxed on the money as long as it is reinvested overseas.

Update 2/1/17: Qualcomm said NXP Semiconductor (NXPI) shareholders had approved the acquisition by Qualcomm. The acquisition is expected to be completed by the end of 2017. QCOM will start a new subsidiary in Amsterdam that will actually buy the shares for $110 each. The funding will come from $28.6 billion in cash currently held by Qualcomm overseas. They will not be taxed on the money as long as it is reinvested overseas.

Earnings April 26th.

Shares have collapsed on the news of the suits and fines and are threatening a steeper decline. Initial support is $50.

Position 1.31.17:

Long March $52.50 put @ $1.68, see portfolio graphic for stop loss.




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