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Newsletter

Daily Newsletter, Saturday, 2/18/2017

Table of Contents

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

Market Wrap

Nasdaq Still Leading

by Jim Brown

Click here to email Jim Brown

The major indexes excluding the Nasdaq all posted single digit gains on Friday. The Nasdaq surged to another new high.

Weekly Statistics

Friday Statistics

The Nasdaq Composite dipped back to 5,800 on Thursday but surged on Friday to close at 5,838 and a new high. The Nasdaq 100 ($NDX) dipped to 5,290 on Thursday but rebounded to close at 5,324 on Friday. Both indexes closed over new round numbers of 5,800 and 5,300 and show no signs of weakness despite being severely overbought.

The Nasdaq 100 ($NDX) Relative Strength Index (RSI) reading rose to 83.09 when 70 is considered overbought. Friday was the highest reading since January 3rd, 2000 when it hit 84.15 after 2.5 months of nearly consecutive daily gains. Overbought oscillators can always become even more overbought but this is at a seriously extreme level.

In 2000, the index declined more than 500 points over the next three days but once the overbought conditions were equalized, the index went on to gain 1,400 points over the next two months before the bottom fell out in March. We need a few days of equalization so the rally can continue.


Friday did not have any market moving economic reports. The E-Commerce Sales for Q4 only rose +1.9% from Q3 despite being the holiday shopping season. Sales were $102.7 billion compared to $101.3 billion in Q3. However, compared to the $89.8 billion in Q4-2015, sales rose 14.3% to a new record. Q4 sales in 2015 rose 3.9% from Q3. This is one more piece of evidence that the holiday shopping was lackluster at best. E-Commerce accounted to 8.3% of total sales in Q4.

Moody's Chart

Next week has a limited calendar of events with home sales the top two reports. Winter month home sales reports are seldom exciting but with the warmer than normal winter there may have been more shoppers out and about.

The FOMC minutes will be the midweek hurdle. With Yellen's testimony slightly more hawkish in some areas and dovish in others, the minutes will have a little more importance. The chance of a rate hike in March declined slightly from 25% to 17.7% after her comments.



The Dow struggled on Friday to overcome a big decline in UnitedHealth (UNH) of -$6 that knocked more than 41 points off the index. However, that was the only Dow stock that lost more than $1.

UnitedHealth was sued by the Justice Dept claiming the insurer had overcharged Medicare hundreds of millions of dollars. The period in question was five years ago and the company said they would contest the charges vigorously. Supposedly, the insurer claimed their members were sicker than they actually were and billed for procedures that were more expensive than those actually performed. The original suit was brought by a whistleblower and the Justice Dept joined that suit. The allegations were against Texas-based WellMed, which UnitedHealth acquired in 2011.


Several days after Aetna (AET) cancelled its plans to buy Humana (HUM) for $34 billion, the company announced a $4 billion stock repurchase program and doubled its quarterly dividend to 50 cents a share. Shares spiked $7 to $129 after the Tuesday announcement of the deal cancellation. They gave back $4 on Friday despite the sudden burst of good news for shareholders. Analysts believe the cash dispersal plans suggests Aetna is not going to move forward with another acquisition of a smaller company and that is why the shares fell.


Kraft Heinz (KHC) reported it had made a $143 billion offer for Unilever (UL) in what would be the largest takeover ever in the food and beverage industry. A successful acquisition would create a company valued at $300 billion or more. Unilever said it had rejected the $50 a share proposal. Shares were trading at $43 when the announcement was made. Unilever said the offer dramatically undervalued the company and the company saw no further basis for further discussions. Kraft Heinz said it would seek to gain agreement on the terms of a transaction. Under European laws, KHC now has 30 days to make a firm bid or it would have to walk away for a six month cooling off period.

KHC was formed two years ago when Warren Buffet and 3G Capital teamed up to buy H.J. Heinz. Analysts had speculated the two deep pocket investors would attempt another acquisition to add to KHC. Kellog (K), Mondelez Intl (MELI), Campbell's Soup (CPB) and General Mills (GIS) had been speculative targets.

Everyone knows you do not lead with your best offer despite it being an 18% premium to the pre announcement price. That would equate to 3x sales and a PE of 21. A combined company would have annual sales of $85 billion. 3G Capital is known for aggressive cost cutting and developing synergies to increase value. Unilever shares posted the worst performance in 2016 since the financial crisis.

Analysts believe the real target is the Unilever food business. Kraft is probably looking to acquire the food business and spin off the household and consumer goods company. They may also be able to offer enough to induce Unilever to just sell them the food business outright. It would be worth a fortune to Kraft as a market expansion opportunity.



T-Mobile (TMUS) shares rose after multiple reports that Softbank was preparing to approach T-Mobile about selling them Sprint (S), which is majority owned by Softbank. The company is waiting until the end of the FCC spectrum auction, which restricts carriers from talking to each other. The auction ends in April. Goldman Sachs (GS) believes a deal is unlikely because the FCC wants to keep four major players in the U.S. market to increase competition. We are seeing the result of that competition with Verizon going back on its prior marketing plan and offering a new unlimited data plan. On Friday, AT&T (T) also relented and expanded their unlimited plans. Sprint and T-Mobile both need each other. They are so far down the competitive landscape they have no hope of regaining any significant market share on their own. Together they would be a strong third place and could give the big boys some competition. Now the focus will shift to how a Trump led FCC would react to a potential deal.




Investors are voting on the outcome of the Bass Pro Shops merger with Cabelas (CAB) and they are running for the sidelines. Cabelas reported earnings of $1.05 that missed estimates for $1.22. Revenue of $1.34 billion missed estimates for $1.45 billion. That was not the biggest problem for the stock. The fate of the proposed merger is in serious doubt. Cabelas was supposed to sell its credit card division to Capital One (COF) in order to reduce the amount of cash needed for the acquisition. When COF reported earnings last week they said the deal was all but dead. They expected to either withdraw the application or have the acquisition denied by the Comptroller of the Currency.

Another challenge is that the third largest retailer in the sector, Gander Mountain is preparing to file bankruptcy. That means letting the two largest merge could be a challenge for the FTC. Bass Pro Shops offered $65.50 per share for Cabela's. Shares have fallen from $63 to $45 suggesting investors think there is little chance of a successful conclusion. If a deal did get done in the coming months the price could be dramatically lower than $65. This may be a buying opportunity for Cabelas shares if the deal is called off. The selling is way overdone.


St. Louis based LMI Aerospace (LMIA) agreed to be acquired by Sonaca Group for $14 a share. That was a 52% premium over Thursday's closing price. The company will remain in St Louis but will operate as a member of the Sonaca Group. Sonaca is a global company based in Belgium that manufactures and assembles advanced structures for civil, military and aerospace markets.


GSI Technology (GSIT) announced a breakthrough technology called an Associative Processing Unit (APU) that results in an "orders of magnitude" performance ratio improvement compared to conventional CPU, DRAM methods. In the computers we use now, the data has to be moved from memory to the CPU for processing and then moved back into memory for every operation/calculation. This creates a bottleneck moving data into and out of the CPU for processing. The patented APU no longer needs to move the data and can process it at its current location in memory. This greatly speeds up the computing process and could be a game changer in future computing systems. They are going to present at the ECI Workshop on Feb-23rd. Shares exploded higher on the news.


TrueCar (TRUE) reported a smaller than expected loss of 9 cents compared to 33 cents in the year ago quarter. The adjusted loss was one cent compared to estimates for 5 cents. Revenue of $74.1 million beat estimates for $71.1 million. The number of vehicles purchased rose from 183,157 to 218,807 or +19%. The number of franchise dealers rose from 9,094 to 11,151 or +23%. The company said a recent JD Power survey showed that 60% of the buyers that use the internet to search for a car visit the TrueCar website.

They guided for Q1 for 205,000 to 210,000 vehicles, up from 174,982. Revenue of $71 to $73 million, up from $61.9 million. Adjusted EBITDA between $4 and $5 million, up from $1.1 million. For all of 2017 they guided to 920,000-930,000 vehicles compared to 806,953 in 2016. Revenue of $315-$320 million, up from $277 million. Adjusted EBITDA $20-$24 million, up from $15 million. This was a very strong report.


Broadcom (AVGO) saw a bounce on Friday after JP Morgan said adding wireless charging to the iPhone 10 or iPhone X, which is their term for the iPhone 8, would add $500 to $600 million annually to Broadcom revenues. Working with Apple, Broadcom has developed a chip solution to power the wireless charging functionality on the iPhone.


Skyworks Solutions (SWKS) shares rallied 4% after beating on earnings and raising guidance. The company also announced its SkyOne chip system for the high growth China LTE wireless market. Skyworks reported earnings of $1.60 compared to estimates for $1.58. Revenue of $914 million beat estimates for $903 million. They guided for the current quarter for a 12% rise in earnings to $1.40 and 8% rise in revenue to $840 million. Analysts were expecting $1.39 and $818 million.


The Q4 earnings cycle is coming to a close. The last two Dow components report on Tuesday followed by the Hewlett Packard twins HPE/HPQ. The retail sector also wraps up with GPS, JWN, KSS, LB, WMT, W and JCP. Tesla is the highest profile reporter for the week on Wednesday after the close. Another 50 S&P companies report this week to bring the total reported to 92% of the S&P-500.


More than 82% of the S&P 500 has reported earnings for Q4 and 66% have beaten estimates with 53% beating revenue estimates. The blended earnings growth for Q4 is now 4.6% and the forward PE of 17.6 on the S&P is the highest since June 23rd, 2004. The 10-year average PE is 14.4. The blended revenue growth is now 5.0%. Some 61 companies have given negative guidance and 29 have issued positive guidance.

Expectations for Q1 earnings growth is now 9.6% with revenue growth of 7.4%. Q2 expectations are for 9.0% earnings growth and 5.5% revenue growth.

Crude oil prices remain locked in their recent range between $50.75 and $54.25. The OPEC production cut news has failed to provide any additional gains. However, last week OPEC, led by Saudi Arabia, said they might extend their six-month cuts for another six-months because they are working so well. I do not know what metric they are using to measure that performance since oil has flat lined. We can expect several more months of posturing and "suggesting" there will be an extension in order to keep prices at this level.

Crude prices typically decline in late February and early March as inventories build while refiners are offline for maintenance. In late March, prices typically rise into August as demand season kicks into high gear.


The active rig count has continued to rise with another ten rigs added last week. That brings the total of new rigs to 92 over the last five weeks. This is going to pressure crude prices 3-6 months from now.


Energy equities have been declining since early December. That is when oil topped out at $54 and everyone began taking profits on the post election rally. It will take higher crude prices or a couple quarters of rising earnings to lift equities from here.


 


 

Markets

The Investment Company Institute (ICI) reported that equity outflows from January through October 2016 were $117 billion and the highest since the financial crisis. Since the election, more than $67 billion has flowed into equity funds. They credit the election results and the Dow crossing over 20,000 for the surge in fund flows.

Morningstar reported funds leaving actively managed equity funds and more than $500 billion flowing into passive equity funds over the last 12 months. In January, $13.8 billion flowed out of actively managed funds with passive equity funds seeing inflows of $20.8 billion. U.S. equity index funds saw inflows of $30.6 billion in January. Currently, actively managed equity funds are holding $3.6 trillion in assets. Passively managed equity funds are holding $3.1 trillion in assets. All classes of actively managed funds have seen outflows of $325.6 billion over the last 12 months while passively managed funds have seen inflows of $563 billion. Vanguard saw inflows into its passive funds of $43.7 billion. Blackrock saw inflows of $14 billion.

Strangely, taxable bond funds saw inflows of $32.2 billion with municipal bonds seeing inflows of $4.3 billion. The "great rotation" has failed to appear and yields on the ten-year are holding at the 2.4% range despite the equity rally. There is no material selling in bonds. There was a surge just after the election but that faded quickly and yields have been in this range since December 1st.


The equity markets continue to move higher although the gains are taking a little more effort each day. The morning dips are being bought and we are still closing at the highs. The S&P has been fighting resistance at 2,350 for the last three days. Support is now well back at that prior resistance at 2,300.


The Dow has pulled to within 375 points of Dow 21,000. The 20,600 level has been resistance for the last three days but the Dow has managed to string together seven consecutive days of gains. The index is very overbought but as long as the majority of the individual components continue posting minor daily gains the index will continue higher. More than 50% of the Dow components are at or near their recent highs.

The drop by UnitedHealth knocked 41 points off the Dow and caused an 86-point drop in the index at the open. Late day buying lifted the index back into positive territory right at the close. You can credit Trump's appearance and speech at the Boeing plant for the 13 Dow point bump. Home Depot also gained ahead of their earnings on Tuesday.

Seeing the Dow rebound to close positive ahead of a three-day weekend is either a very positive signal that buyers believe we will go higher next week or it was shorts covering ahead of the weekend event risk. I believe it was the shorts covering. Very few investors will put new money to work at a market top ahead of three-day weekend event risk. Anything can happen overseas when their markets are open and ours are closed.



The Nasdaq indexes continue to lead the market higher and investors should be looking at these charts and developing a healthy skepticism about their chances to move higher. They are very overbought and "should" be due for a 3-5 day decline to equalize these pressures.

However, markets can remain irrational far longer than we can remain liquid if we are betting against them. Once everyone capitulates and the shorts disappear, the markets will correct.




The small cap Russell 2000 closed at a new high on Wednesday then weakened the next two days. The Russell is struggling to move higher despite being over prior resistance. If the small cap stocks ever catch fire we could have an explosive market. However, should they begin to weaken again it could poison the big cap advance.

The S&P-600 closed at a new high by a few cents on Wednesday but also declined the last two days. It was the only major index in the red on Friday. This is confirmation the Russell weakness is not just related to the Russell.



We are due for a bout of profit taking but as long as the dip buyers persist in snapping up every little intraday decline, the bigger dip is not going to happen. Eventually we are going to get a headline that catches the market off guard and the low volume dip buyers are going to be overrun in the higher volume collapse. Whether that is this week or next month, nobody actually knows.

What we do know is that trees do not grow to the sky and markets do not rally indefinitely. We do have streaks where the markets can continue in a specific direction for a couple months without any material pause but eventually there will be a pause and the longer we go without it the worse it will be.

They say the trend is your friend until it ends. Right now the trend favors anyone willing to hold their nose and buy stocks that have been up for 7-10 days straight. The winners continue to be winners but when that headline appears, it could produce a significant air pocket. Keep your seatbelts fastened and stop losses in place.



Random Thoughts


The markets closed at new highs but nearly 5% of the voters in this week's poll fled back to bearish territory. Previously bullish and neutral responders decided the market was leaning out too far over its skis and retreated to the sidelines to wait for the crash. The survey ends on Wednesday and that was before the late week softness. The markets ended on the highs on Wednesday. Is this too much of a good thing?

Last week results


The headline that matters could be only a few days away. The border adjustment tax is on life support according to Greg Valliere, chief global strategist with Horizon Investment. In theory, the border adjustment tax would tax imports but exports would be untaxed. The concept was to raise a lot of money from the import tax to be able to cut corporate taxes significantly. The expectations for a corporate tax cut is one of the main reasons the market is in rally mode. President Trump was lukewarm on the idea before he was elected. His idea was to tax certain imports as punishment for American companies producing products in other countries and importing them back into the U.S. for sale.

The border adjustment tax concept was seized by the republicans in the House as a way to offset the corporate tax cuts. When Trump met with retailers last week they expressed their extreme displeasure at the idea and his resolve appeared to weaken somewhat. The president indicated his lack of support saying the plan was "too complicated."

Trumps own advisors are mixed on the topic. Steve Bannon is for it and Gary Cohn is against it. Clearly, Cohn would be a far stronger voice on the subject coming out of Goldman Sachs while Bannon came from a news website. Peter Boockvar, chief market analyst with the Lindsey Group, believes the administration is trying to come up with another plan but not having much luck. They have to raise $1 trillion over 10 years to offset the potential losses from a corporate tax cut to 15% or a little less if the cut is to 20%. Short of a miracle solution, the only way to do that is with the border tax. Boockvar said "without a satisfactory Plan B the market will collapse." That suggests the announcement about the new tax plan may delayed for weeks and it may be a lot weaker than previously promised. That realization could easily tank the market, which expects a major tax cut. Since almost every retailer in the country sells imported goods, a border tax could spike the cost of those goods by 15% to 20% and potentially create a recession as purchases screech to a halt.

The democrats have already started their "tax cuts benefit fat cats and big corporations" defense and getting any cut through congress that is not revenue neutral would be nearly impossible. Goldman Sachs said late last week the potential for a border tax is 20% or less. If that is the case, the potential for a meaningful tax cut is 20% or less. The market has not yet come to that realization. Goldman said a tax cut without a border tax would likely be minimal to a lower rate of 25%. Goldman said a border tax could be challenged by other countries in the WTO.

John Stoltzfus, chief investment strategist at Oppenheimer Asset Management, said the market could decline 3-4% once that realization became apparent.

Trump's "phenomenal tax plan" had better be phenomenal or there will be a major hiccup in the markets.


The Philly Fed Manufacturing Survey on Wednesday shot up from 23.6 to 43.3 and the highest level since the 43.4 reading in March 2011. Some economic sites are claiming it is the highest since 1984 and since we are only talking about one tenth of a point I am not going to argue. This was a very strong report and has been increasing steadily since the 8.7 in November. That was followed by 19.7, 23.6 and now 43.3. The pace of the manufacturing economy is definitely accelerating.

Two other reports out last week included the Producer Price Index at +0.6% and the Consumer Price Index at +0.6%. The PPI was the highest since September 2012 and the CPI the highest since February 2013. Those are inflation indexes and inflation is suddenly rising twice as fast we analysts expected. Consensus estimates for the CPI and PPI were for a +0.3% gain. That is eventually going to wake up the Fed and the results will not be market friendly.



 

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

 

"I contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle."

Winston Churchill


 

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Index Wrap

No Decline in Sight

by Jim Brown

Click here to email Jim Brown
This is turning into a "hold your nose and buy it rally." The minor dips continue to be bought and the market is immune to every headline. Analyst tell us that hedge funds and institutional traders were underweight equities going into the election and even with the massive post election rally they are still underweight. The initial November rally was met with a lot of skepticism and many hedge funds attempted to short it when the initial bounce faded. After two months of sideways trading, the outlook by professional traders was still negative.

When the current surge broke over 2,300 on the S&P and 5,800 on the Nasdaq, those traders stared in disbelief.

You may remember me saying multiple times that a breakout over 2,300 would trigger serious short covering and price chasing by portfolio managers. That is exactly what happened and they are not done yet. Everyone is racing to get into the market because they cannot afford to be left behind and beaten on gains by their competitors. Portfolio managers live and die on their market benchmarks and on their comparison to gains achieved by other funds. Those gains become a marketing tool and lagging the market and competitors is a way to lose your bonus and your job.

Today we have a very overbought market and it may become even more overbought before the inevitable profit taking appears. The Nasdaq 100 is at overbought levels not seen since January 3rd, 2000 when the Nasdaq bubble market was in full swing. That should be a scary thought.

However, while the market is overbought, I looked at more than 500 individual stock charts this weekend and the majority were strongly bullish. Unfortunately, quite a few looked like the chart of the Nasdaq and I would not buy them on a bet.

There is a funny thing about the market. Stocks making new highs tend to continue making new highs regardless of how overbought they become, until the bubble finally bursts.

The internals did give us a clue to the market health. The major indexes closed at new highs on Friday. However, the new 52-week highs on individual stocks peaked on Monday at 1,017 and declined each day of the week to only 454 on Friday. In other words a fewer number of stocks were supporting the market as the week progressed.

Some internal weakness should be expected ahead of a three-day weekend. Traders will lock in profits and some will leave early to stretch a three-day weekend into 4 or 5 days. That means volume shrinks, which it did with Friday the second lowest day of the week at 6.5 billion shares. Monday had 6.35 billion and Wednesday was the highest at 7.1 billion.

Advancing stocks peaked the prior Friday at 5,022 to 2,012 decliners and the ratio on Friday was 3,563 to 3,421 decliners.

It is hard to say too much negative about the market when the Russell 3000 Index, the largest 3,000 stocks in the market, closed at a new high and is poised to move over 1,400. The initial breakout was textbook with the minor retracement that used prior resistance as support to launch the next leg higher. Unlike the post election rally from a low spot, the new leg higher rally is overbought and needs to rest.


The Russell 1000, the largest 1,000 stocks in the market, has an identical pattern to the broader index. It closed at a new high on Friday and could stand a dip to the blue line to equalize the overbought conditions.


The Achilles heel for the market remains the small cap sector. The Russell 2000 did breakout to a new high but only barely. The small caps are still struggling. The 1,400 level has become new high resistance and the index is consistently the worst daily performer in the market.

Small caps normally lead the market up and down. This time the big caps are leading because it is easier to throw a lot of cash into stocks like Apple, Boeing and Microsoft because of their high liquidity. If the market decides to pause that cash can be extracted just as easily without a major impact to the stock price. Portfolio managers are looking for safety rather than bang for the buck that they would normally get with small caps.


The Russell 2000 has a wide range of stocks and not all are truly small caps stocks. Russell sorts all the available stocks by market cap and the top 1000 go into the Russell 1000 and the next 2,000 become the Russell 2000. So, the stocks with the market cap just below what would qualify for the Russell 1000 index are still in the Russell 2000. There are a lot of big fish left in that pool of minnows.

The S&P-600 is a carefully selected group of "quality" small cap stocks. This is unlike the Russell 2000 where everybody gets in if your market cap qualifies. The S&P-600 stocks are picked by a team of analysts just like the S&P-400 Midcap Index and the S&P-500.

With the S&P-600 we have a true representation of the small cap sector and this index has not yet broken out and has stalled just under that 860 level.

I would watch this index next week for the health of the market. If the S&P-600 begins to fade, I would be very cautious with large cap long positions. A decline under 850 would be a warning sign. Conversely, a break over 860 would be very bullish and could trigger price chasing in the small cap sector.


The Volatility Index is still showing total complacency in the market. However, there were several days early last week when the VIX actually rose in a strongly bullish market. Somebody was buying a massive amount of puts to protect their positions.

The average period of low volatility in the market is 55 days according to S&P. The VIX has closed under 14 since November 16th and has easily exceeded that 55-day average. We are due for a volatility event.

With the market so completely complacent and severely overbought, any unexpected headline could cause a rush to the exits. I theorized in the Option Investor commentary this weekend that it could be a confirmed delay in the announcement of a tax plan that appears to indicate it will be significantly less than promised. There could be other factors. I am still waiting for some other country like Iran or North Korea to challenge President Trump with some event that requires a response. It happens with every new president. The market could react badly to that event.

Washington DC is in a chaotic condition and I would not be surprised to see a shocking headline at any time. All these things could spike the VIX and cause a pullback in the market. We are approaching a new debt ceiling deadline and the first real test of how the divided houses are going to conduct business. A government shutdown would definitely tank the market.


When the market appears the least concerned about outside events, is when we should be extra cautious. We could look back at this period three months from now and think, "Wow what a rally" or we could look back and think, "Wow that was a really fast drop." While hindsight is 20:20, foresight is very limited.

If the market is up, hold your nose and buy something but keep a tight stop just in case somebody hits the panic button. Personally, I would prefer to wait for a buying opportunity. We know it is coming, we just do not know when.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email


New Option Plays

Down to Fighting Weight

by Jim Brown

Click here to email Jim Brown

Editors Note:

This company shed low margin assets to enable increased profitability. Varian spun off Varex (VREX) on January 30th.


NEW DIRECTIONAL CALL PLAYS

VAR - Varian Medical systems - Company Profile

Varian Medical Systems, Inc. designs, manufactures, sells, and services medical devices and software products for treating cancer and other medical conditions worldwide. It operates through two segments, Oncology Systems and Imaging Components. The Oncology Systems segment provides hardware and software products for treating cancer with radiotherapy, fixed field intensity-modulated radiation therapy, image-guided radiation therapy, volumetric modulated arc therapy, stereotactic radiosurgery, stereotactic body radiotherapy, and brachytherapy. Its products include linear accelerators, brachytherapy afterloaders, treatment simulation, verification equipment, and accessories; and information management, treatment planning, image processing, clinical knowledge exchange, patient care management, decision-making support, and practice management software. This segment serves university research and community hospitals, private and governmental institutions, healthcare agencies, physicians' offices, oncology practices, radiotherapy centers, and cancer care clinics. The Imaging Components segment offers X-ray imaging components for use in radiographic or fluoroscopic imaging, mammography, special procedures, computed tomography, computer aided diagnostics, and industrial applications. It also provides Linatron X-ray accelerators, imaging processing software, and image detection products for security and inspection purposes. This segment serves original equipment manufacturers, independent service companies, and end-users. In addition, the company offers products and systems for delivering proton therapy; and develops technologies in the areas of digital X-ray imaging, volumetric and functional imaging, and improved X-ray sources. Company description from FinViz.com.

Varian reported lower than expected earnings on January 26th and shares fell -$6 to $87. Two days later, they spun off Varex and shares fell to $77 as a result of the separation. Since that split the stock has been moving higher and the rate of climb has accelerated over the last two weeks as they signed multiple new deals around the world.

Varian guided for earnings of $2.94-$3.06 for Q2 through Q4. For Q2 earnings are expected to be 84-90 cents on a 4% to 5% increase in revenues. The split at the end of January complicates apples to apples comparisons for Q1.

Earnings April 26th.

On February 13th the company announced competitive bid wins for six Shanghai hospitals. Varian is the leading manufacturer of medical devices and software for treating cancer and will provide its state of the art advanced radiotherapy technology to those hospitals. On February 14th, Varian's Eclipse treatment planning software was named the 2017 category leader for oncology treatment planning by KLAS. KLAS is an independent research firm specializing in monitoring and reporting on healthcare vendors.

Varian is on track to return to its pre-split price of $90 if the current rally continues. Because of its decline in February, I believe it offers some protection against a potential market decline.

Buy May $85 call, currently $2.95, initial stop loss $78.85


NEW DIRECTIONAL PUT PLAYS

No New Bearish Plays



In Play Updates and Reviews

Still Dipless

by Jim Brown

Click here to email Jim Brown

Editors Note:

The major indexes dipped slightly at the open but rebounded in the afternoon to leave us without a real dip once again. We all know there is a serious bout of profit taking somewhere in our future but every minor intraday decline is being bought with abandon despite the overbought conditions. We continue to become more overbought every day but nobody seems to care.

The Nasdaq dip only reduced the overbought RSI by a fraction. The Nasdaq 100 ($NDX) RSI reading rose again to 83.09 when 70 is considered overbought. Friday was the highest reading since January 3rd, 2000 when it hit 84.15 after 2.5 months of nearly consecutive gains. Overbought oscillators can always become even more overbought but this is flashing a huge warning sign there could be a peak ahead.



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


MLNX - Mellanox

The long call position was entered at $48.85.



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 Description

Comments:

No specific news. Minor decline.

Original Trade Description: February 11th

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.

Earnings for the last quarter rose 20% to 87 cents and analysts were expecting 81 cents. Revenues of $2.99 billion rose 6% but missed estimates for $3.02 billion.

They guided for lower than expected bookings for 2017. The CEO said the decline in expectations was driven by the uncertainty surrounding the election but now that a new administration was in place they expected their bookings pressure to ease. "Despite the recent uncertainty in the U.S. business environment, we continue to believe that change will be beneficial to us, as we are well-positioned to help our clients navigate the complexities of HCM (human capital management)."

They are now expecting 6% revenue growth in 2017 compared to prior forecasts for 7% to 8%. Worldwide new business bookings would be similar to the $1.75 billion sold in 2016 compared to prior forecasts for 4% growth. They expect earnings to rise 15% to 17% over 2016.

ADP is rapidly expanding their Total Service product where they provide comprehensive outsourcing solutions where workers are co-employed by ADP and its clients. Revenue in that division rose 16% with 12% earnings.

Earnings May 3rd.

Shares crashed on the lowered guidance but are rebounding now that the market is improving. The bottom line is that earnings are expected to rise 16% and the emphasis on jobs by the Trump administration is going to be positive for ADP. Long-term investors are going to see the $2.28 dividend and the double-digit earnings growth and assume the worst is already priced into the stock with the post earnings drop.

Position 2/13/17:

Long May $100 call @ $2.18, see portfolio graphic for stop loss.


BMY - Bristol Myers - Company Profile

Comments:

No specific news. Still fighting resistance at $55.

Original Trade Description: February 6th

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.

Update 2/14/17: News from Barron's (actually strong rumors) suggest Novartis (NVS), Pfizer (PFE), Gilead Sciences (GILD) and Roche are actively involved in what could be a potential bidding war for BMY.

Update 2/15/17: A new Barron's article said Pfizer was not likely in the bidding for BMY. A couple of analysts said Pfizer already has a strong cancer research department and they did not need to spend $100 billion for different cancer therapies. They theorized Pfizer would want somebody with a wider pipeline and several other therapies to be included. That leaves Novartis and Gilead and Roche as potential bidders.

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.

Position 2/7/17:

Long March $52.50 call @ $1.11, no initial stop loss.


DVMT - Dell Technologies - Company Profile

Comments:

No specific news. Minor decline and jus tbarely holding on to support at $64.50. Any additional decline will stop us out.

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 do not 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.

Update 2/15/17: Elliott Management disclosed they bought 7.1 million shares worth $392 million and call options on another 2.8 million shares worth $154 million. That is a very big bet on Dell's resurgence.

Earnings March 9th.

Position 2/6/17:

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


MLNX - Mellanox - Company Profile

Comments:

No specific news. New 7-month high.

Original Trade Description: February 16th

Mellanox Technologies, Ltd., a fabless semiconductor company, designs, manufactures, and sells interconnect products and solutions. The company's products are used for computing, storage, and communications applications in the high-performance computing, Web 2.0, storage, financial services, enterprise data center, and cloud markets. Its products facilitate data transmission between servers, storage systems, communications infrastructure equipment, and other embedded systems. The company offers 40/56/100Gb/s InfiniBand solutions, including switch and gateway integrated circuits (ICs), adapter cards, cables, modules, and software, as well as switch, gateway, and long-haul systems; 10/40/56Gb/s Ethernet solution for use in EDC, HPC, embedded environments, hyperscale Web 2.0, and cloud data centers; and 10/25/40/50/56/100Gb/s Ethernet NICs. It also provides adapters to server, storage, communications infrastructure, and embedded systems original equipment manufacturers (OEMs) as ICs or standard card form factors with PCI express interfaces; and switch ICs to server, storage, communications infrastructure, and embedded systems OEMs to create switching equipment. In addition, the company supports server operating systems, including Linux, Windows, AIX, HPUX, Solaris, and VxWorks. Mellanox Technologies, Ltd. markets its products under the Mellanox, BridgeX, Connect-IB, ConnectX, CoolBox, CORE-Direct, GPUDirect, InfiniBridge, InfiniHost, InfiniScale, Kotura, Mellanox Federal Systems, Mellanox ScalableHPC, Mellanox Technologies Connect. Accelerate. Outperform, MetroDX, MetroX, MLNX-OS, Open Ethernet, PhyX, SwitchX, TestX, The Generation of Open Ethernet, UFM, Virtual Protocol Interconnect, and Voltaire trademarks. Company description from FinViz.com.

On February 1st, the company reported earnings of 82 cents compared to estimates for 86 cents. Revenue of $221.7 million missed estimates for $225 million. Shares crashed to a six-week low. Revenues did increase 17% and earnings up +6.5%.

The company said growth in its 25, 50 and 100 gigabit network solution was robust and would push strong multi-year growth across multiple sectors. Margin rose a whopping 24.9% to 71.6%.

They guided slightly weak for Q1 because of normal seasonal factors and $16 million in stock based compensation for employees.

Earnings May 3rd.

Shares crashed on the earnings but immediately began to rebound and have now risen above the pre-earnings level. Thursday's close was a breakout to a seven-month high.

Position 2/17/17:

Long June $50 call @ $2.80, see portfolio graphic for stop loss.


PANW - Palo Alto Networks - Company Profile

Comments:

No specific news. Recovered nearly all the loss from Thursday.

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.

Update 2/14/17: The Cyber Threat Alliance (CTA) announced that FTNT, PANW, SYMC, CHKP, INTC and CSCO are the founding members and they appointed Michael Daniel as the first president. The CTA members are all contributing to an automated threat intelligence sharing platform to exchange actionable threat data. The CTA was incorporated as a not-for-profit organization in January.

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


QCOM - Qualcomm - Company Profile

Comments:

No specific news. Minimal decline similar to an identical gain on Thursday.

Original Trade Description: February 15th

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.

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

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.

We played a put on QCOM a couple weeks ago and once the stock hit $53 it quit going down. It stayed at that level for more than two weeks and then began rebounding. Analysts are saying it will be years before there is any outcome on the Apple suit and the CEO said at the Goldman tech conference this week, that Apple has a very weak position and he expects it to be settled out of court.

Shares closed at a three-week high on Wednesday. Options are cheap and the stock is already beaten up. If the market begins to correct, this should be seen as a fallen angel.

Earnings April 26th.

Futures are down tonight so I am going to put an entry trigger on this recommendation.

Position 2/16/17 with a QCOM trade at $56.75

Long June $60.00 call @ $1.50, no initial stop loss.


SFLY - Shutterfly - Company Profile

Comments:

No specific news. Shares continued higher on the addition to the S&P-600.

Original Trade Description: February 15th

Shutterfly, Inc. engages in manufacturing and retailing personalized products and services in the United States. The company operates through Consumer and Enterprise segments. It offers a range of personalized photo-based products and services that enable consumers to upload, edit, enhance, organize, find, share, create, print, and preserve their memories. The company also provides photo-based products, such as photo books; cards and stationery; photo gifts; home decor; photo prints comprising wallet 4x6, 5x7, 8x10, square, and large format sizes, including posters and collages; and photo-based merchandise items consisting of mugs, iPhone cases, desktop plaques, candles, pillows, canvas prints, and blankets. In addition, it operates an online cards and stationery boutique that sells announcements, invitations, and personal stationery for every occasion; and cloud services under the Tiny Prints name. Further, it offers personalized save the dates, wedding invitations, thank you cards, and bridal invitations under the Wedding Paper Divas brand; and ThisLife, a service that gathers and organizes photos and videos. Additionally, the company provides MyPublisher, which allows customers to create custom photo books, share memories, and tell their stories using their own photos; BorrowLenses, an online marketplace for photographic and video equipment rentals; and Groovebook, a mobile photo book application subscription service that sends customers a keepsake book of their mobile photos each month. It also engages in the advertising and sponsorship activities; and printing and shipping of direct marketing and other variable data print products and formats, as well as operates Share sites, a share platform. Company description from FinViz.com.

Shutterfly reported earnings of $2.63 compared to estimates for $2.84. Revenue of $ 561.2 million also missed estimates for $584.4 million. They guided for Q1 for a loss of 95 cents to $1 per share. Analysts were expecting a loss of 84 cents. Revenue guidance was $185-$190 million and analysts expected $199.4 million. Shares were crushed for a $10 loss.

Shutterfly announced a major restructuring with layoffs of 260 workers or 13% of the total. They are halting development of multiple websites and businesses and will concentrate on just their core market. They tried to expand too aggressively in to other things and customers just wanted to make their picture books. They had a picture sharing site, a site to rent/borrow cameras, a Wedding Paper Divas site, Tiny Prints site, MyPublisher.com site, Trippix for trip pictures, FAvPix.com for favorite pictures, etc. They are shutting all of these down and will simply concentrate on the core concept that produces 85% of the revenue. They currently have about 11 million customers and could double that over the next five years.

Update 2/16/17: At 6:37 ET last night the S&P announced SFLY would be joining the S&P-600 at the open on Feb-21st. Shares gapped higher at the open to fill us at the high for the day.

Earnings May 3rd.

The shares were beaten severely on the earnings but now rebounding on the restructuring story.

Position 2/16/17 with a SFLY trade at $46.15

Long June $47.50 call @ $3.00, no initial stop loss.


$VIX - Volatility Index - Index Description

Comments:

The VIX moved over $12 again at the open but the rebound in the markets saw the index slide again. I put a $15 exit target on the position because any spike we get could be intraday and headline related. This is a March option with only a few weeks to run. Once we close this position I am going to add a longer dated call because we know there will eventually be a market pullback.

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.

Position 2/7/17:

Long March $12 call @ $2.40, no stop loss.
Averaged down with a $1.11 entry on 2/15.
Average cost now $1.75.

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


VMW - VMWare - Company Profile

Comments:

No specific news. Another minor gain to a new 52-week high.

Original Trade Description: February 8th

VMware, Inc. provides virtualization and cloud infrastructure solutions in the United States and internationally. Its virtualization infrastructure solutions include a suite of products and services designed to deliver a software-defined data center (SDDC), run on industry-standard desktop computers, servers, and mobile devices; and support a range of operating system and application environments, as well as networking and storage infrastructures. The company offers VMware vSphere, a SDDC platform, which enables users to deploy hypervisor, a layer of software that resides between the operating system and system hardware to enable compute virtualization; storage and availability products that provide data storage and protection options; network and security products; and management and automation products to manage and automate overarching IT processes involved in provisioning IT services and resources to users from initial infrastructure deployment to retirement. It also provides SDDC suites, such as VMware vCloud Suite, vSphere with Operations Management, and VMware vRealize suite for building and managing cloud infrastructure for use with the VMware vSphere platform. In addition, the company offers hybrid cloud computing solutions, including VMware vCloud Air Network Service Providers and VMware vCloud Air; and end-user computing solutions, which enables IT organizations to deliver secure access to applications, data, and devices to end users. Company description from FinViz.com.

In late January VMWare reported earnings of $1.11 that beat estimates for $1.08.Revenues of $2.03 billion also beat estimates for $1.99 billion. Overall revenues rose 8.8%, service revenues 9.8% and license revenues 7.5%. The exited the quarter with $8 billion in cash with free cash flow at $2.23 billion for the full year. They announced a new $1.2 billion share repurchase program.

For Q1 they guided for revenues of $1.625 billion to $1.725 billion and earnings of 93 to 96 cents. Dell Technologies owns 80% of VMW and the future earnings dates will be aligned with Dell's for transparency.

The company announced a joint venture with Amazon Web Services to provide VMWare on AWS beginning this summer. The VMW CEO said partnering with Amazon will allow VMWare customers to maintain their leadership while moving from a private cloud to the public cloud. Companies are increasingly closing or reducing existing data centers and moving operations to the cloud so someone else can be responsible for physical security, heating, cooling, electrical demand, server upgrades, etc. VMW is the number one maker of virtualization software and has shifted focus to combining customer's public and private clouds into a hybrid cloud. VMWare has smaller partnerships with Google and Microsoft but they are also competitors in many cases.

At least five analysts hiked their price targets on VMW after the earnings and Amazon announcement.

Update 2/15/17: The CEO was interviewed by Bloomberg and he was positively gushing about the prospects for Q3/Q4 because of the partnership with Amazon Wed Services. Also, the new software-defined networking (SDN) product saw a 50% increase in sales in Q4 and they are expecting $1 billion in new revenue from SND in 2017.

Earnings April 27th.

Position 2/9/17:

Long April $92.50 call @ $2.25, see portfolio graphic for stop loss.


XBI - Biotech ETF - ETF Profile

Comments:

Minor decline after the XBI made a new 14-month intraday high. No news, just a decent gain in the sector.

Original Trade Description: February 9th

The SPDR S&P Biotech ETF seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the S&P Biotechnology Select Industry Index.

This is a sector ETF that tracks 90 biotech and pharma stocks having a market cap of at least $500 million. The index is rebalanced quarterly to remove stocks that have decreased and add stocks that have exceeded the market cap requirements. As such this ETF is focused on the larger cap names and many of the small cap stocks are not represented.

The XBI has rebounded from $61, where it fell after comments from the president in January, to $67 despite new comments earlier this week. The overall optimism about the economy, faster approval of drugs and tax cuts have lifted the sector.

If the ETF can move over $70 the next material resistance is $80. I am using an inexpensive March option because the sector can be volatile. There are no April options yet.

Position 2/10/17:

Long Mar $68 call @ $2.15, see portfolio graphic for stop loss.



BEARISH Play Updates (Alpha by Symbol)

QQQ - Nasdaq 100 ETF - ETF Profile

Comments:

I am at the point of giving up on this position. However, after 11 consecutive days of gains you would think there would be a bout of profit taking in our near future. There was a 4 cent decline on Thursday but I am not counting that we a real decline. We are only $2 OTM on the option and closing it now for a 50% loss would only guarantee a massive market decline in the days that followed. I am going to hold it for a couple more days. Would you buy this chart at the current level?

Original Trade Description: February 13th

PowerShares QQQ, formerly known as "QQQ" or the "NASDAQ- 100 Index Tracking Stock", is an exchange-traded fund based on the Nasdaq-100 Index. The Fund will, under most circumstances, consist of all of stocks in the Index. The Index includes 100 of the largest domestic and international nonfinancial companies listed on the Nasdaq Stock Market based on market capitalization. The Fund and the Index are rebalanced quarterly and reconstituted annually.

The Nasdaq 100 big cap index has been leading the market higher since early December. The QQQ ETF is up 11% since the close on December 2nd. While the Dow and S&P were moving sideways over January the Nasdaq 100 was piling on the gains. Those gains have gone vertical since the beginning of February.

The Nasdaq 100 is in very overbought territory with the RSI at a whopping 78.47 at today's close. A reading of 70 is considered to be overbought. The last two times the NDX had a RSI reading over 70 there was a decline in the index.

Nobody can predict when an index will decline but we can read the indicators and they are telling us to be careful with new longs at this point.

Janet Yellen will be testifying before the House and Senate over the next two days. All she has to do is phrase one sentence the wrong way and we could see a serious decline.

This is going to be a short-term position because the dip buyers are still alive and well. If we did get a 3% decline, it would be bought. We have not had one since before the election.

I am going to jump right in rather than use an entry trigger. The options are cheap and the most we can lose is $1.29.

Position 2/14/17:

Long March $127 put @ $1.29, see portfolio graphic for stop loss.




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